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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED DECEMBER 26, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
FOR THE TRANSITION PERIOD FROM ..... TO .....
Commission file number 0-23024
BROTHERS GOURMET COFFEES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 52-1681708
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
2255 GLADES ROAD
SUITE 100 E
BOCA RATON, FL 33431
(Address of principal executive offices) (Zip Code)
(561) 995-2600
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
BROTHERS GOURMET COFFEES, INC. COMMON STOCK
(SECURITIES ARE LISTED ON NASDAQ NATIONAL MARKET)
Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days. YES X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K [ ].
The aggregate market value of the voting stock held by
non-affiliates of the registrant on December 26, 1997, was $12,878,907.
The number of shares outstanding of each of the registrant's classes
of common stock as of December 26, 1997, was 12,121,324.
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DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following documents are incorporated herein by reference:
Part III - The registrant's definitive Proxy Statement for its 1998 Annual
Meeting of Stockholders or an Amended Annual Report filed on
Form 10-K/A, to be filed not later than 120 days after the end
of the registrant's Fiscal Year.
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SPECIAL NOTE ABOUT FORWARD LOOKING STATEMENTS
EXCEPT FOR THE HISTORICAL INFORMATION CONTAINED IN THIS ANNUAL REPORT ON FORM
10-K FOR THE FISCAL YEAR ENDED DECEMBER 26, 1997, CERTAIN MATTERS DISCUSSED
HEREIN INCLUDING, WITHOUT LIMITATION, PART I, ITEM 1. THE BUSINESS AND ITEM
3. LEGAL PROCEEDINGS, AND PART II, ITEM 7. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONTAIN FORWARD
LOOKING STATEMENTS BASED ON MANAGEMENT'S EXPECTATIONS REGARDING, AND
EVALUATIONS OF CURRENT INFORMATION ABOUT, THE COMPANY'S BUSINESS THAT INVOLVE
RISKS AND UNCERTAINTIES, AND ARE SUBJECT TO FACTORS THAT COULD CAUSE ACTUAL
FUTURE RESULTS TO DIFFER, BOTH ADVERSELY AND MATERIALLY, FROM CURRENTLY
ANTICIPATED RESULTS, INCLUDING, WITHOUT LIMITATION, THE EFFECT OF ECONOMIC
AND MARKET CONDITIONS; INDUSTRY AND INDUSTRY SEGMENT CONDITIONS AND
DIRECTIONS; WEATHER; COFFEE CROP AND GREEN COFFEE PRICE FLUCTUATIONS; FOREIGN
LABOR PROBLEMS; FOREIGN COFFEE DELIVERY DIFFICULTIES; PRODUCTION COSTS;
COMPETITIVE PRESSURES; THE COMPANY'S OWN FINANCING CONTINGENCIES AND
RESTRICTIONS; MANAGEMENT LIMITATIONS; THE ABILITY AND WILLINGNESS OF
PURCHASERS TO COMPLETE ACQUISITIONS OF THE COMPANY'S RETAIL COFFEE BARS AND
THE GLORIA JEAN'S STORES; THE COMPANY'S ABILITY TO RESOLVE POST-CLOSING
DIFFERENCES WITH THE PURCHASERS OF CERTAIN COMPONENTS OF THE COMPANY'S
DISCONTINUED RETAIL OPERATIONS; LEGISLATION AND REGULATIONS; RESOLUTION OF
PENDING LITIGATION IN WHICH THE COMPANY IS A DEFENDANT; THE ABILITY OF THE
COMPANY TO CLOSE CONTRACTS WITH NEW ACCOUNTS AND TO RENEW EXISTING ACCOUNTS
AS SUCH ACCOUNTS COME UP FOR RENEWAL; CHANGES IN CONSUMER TASTES AND
PREFERENCES; AND THE SUCCESS OR LACK THEREOF OF THE COMPANY'S NEW PRODUCTS,
NEW PACKAGING, DISPLAY MODELS AND PACKAGING LINES.
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PART I
ITEM 1. BUSINESS
THE COMPANY
Brothers Gourmet Coffees, Inc. ("Brothers" or the "Company"), is an
integrated source, roaster and distributor of high quality gourmet coffee
products. The Company distributes its product principally through grocery
stores, supermarkets, mass merchandisers, drug stores, military commissaries,
warehouse stores and specialty stores (the "wholesale distribution channel").
The Company's predecessor companies, Nicholas Coffee Company and
Elkin Coffee, Inc., were founded in 1919 and 1933, respectively. Both were
principally involved in the wholesale distribution of gourmet coffees at the
times of their respective acquisitions. Brothers Gourmet Products, Inc., and
Boyer's International, Inc. (collectively, "BGP"), were founded in 1988. In
December 1992, the Company recapitalized and merged with BGP, which, at the
time, was the leading wholesaler of gourmet coffee products throughout the
Rocky Mountain region of the United States. In November 1993, in separate
transactions, the Company acquired Hillside Coffee of California, Inc.
("Hillside"), a west coast wholesale coffee roaster and distributor, and
Edglo Enterprises, Inc. ("Edglo"), a mall-based retailer of coffee and coffee
products (the Gloria Jean's business being referred to herein as "Gloria
Jean's").
In 1994 and early 1995, the Company opened additional Gloria Jean's
stores, bringing the total number of Gloria Jean's owned and franchised
stores to approximately 230 (the "Gloria Jean's Stores"). In 1994, the
Company also started opening its own street-front retail coffee stores under
the name Brothers Gourmet Coffee Bars (the "Coffee Bars"). By early 1995, the
Company and its subsidiaries had (1) signed leases for and opened 29 Coffee
Bars and (2) signed leases for, but did not open, ten (10) more Coffee Bars
("Dark Leases"). The Coffee Bars and Gloria Jean's Stores are collectively
referred to herein as the "Retail Operations."
During the first half of 1995, the Company conducted a detailed
review of its Retail Operations. In June 1995, after concluding its review,
the Company announced that it would be (1) focusing all of its attention and
resources on expanding its wholesale business, (2) disposing of its Retail
Operations (the "Disposition Plan") and (3) re-aligning its cost structure
with its new wholesale focus, by reducing its workforce and consolidating its
roasting, packaging and warehouse facilities into its Houston, Texas facility
(the "Houston Plant") (the "Restructuring Plan").
In connection with its Disposition Plan:
-- In November 1995, the Company sold Gloria Jean's to
The Second Cup, Ltd. ("Second Cup"), for $30 million.
The Company has received $27.6 million of the
purchase price. Approximately $1.0 million of the
purchase price was used to fund a portion of the
settlement of the Gloria Jean's Franchise Litigation.
See PART I, ITEM 3. LEGAL PROCEEDINGS -- GLORIA
JEAN'S FRANCHISE LITIGATION below. Another $0.44
million of the purchase price was distributed to
Second Cup in January 1998 in payment of certain
claims asserted by Second Cup against the Company for
post-closing obligations associated with certain of
the Company's representations and warranties
contained in the purchase agreement. The remaining
$0.97 million of the purchase is still being held in
escrow pending the resolution of
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certain post-closing adjustments and claims. See PART I,
ITEM 3. LEGAL PROCEEDINGS -- SECOND CUP WARRANTY CLAIMS/
LITIGATION below.
-- In February 1996, the Company sold twelve (12) of its
leased Coffee Bar sites located in Colorado and Texas
to Diedrich Coffee ("Diedrich") for $1.29 million. The
Company has received all of the purchase price.
-- In March 1996, the Company sold five (5) of its leased
Coffee Bar sites (and one (1) Dark Lease) located in
Washington, D.C., to Foster Brothers Corporation ("Foster
Brothers") for $400,000, plus the assumption of
approximately $440,000 in liabilities. The Company has
received all of the purchase price.
-- In May 1996, the Company sold seven (7) of its leased
Coffee Bar sites (and four (4) Dark Leases) located
in Illinois to Foster Brothers for $650,000. The
Company has received $150,000 of the purchase price.
In December 1996, the Company agreed to permit Foster
Brothers to defer payment of the remaining $500,000.
Foster's payment obligation bears interest at the
rate of 9.5% per annum. The Company anticipates that
it will receive the entire remaining amount of the
purchase price in the first half of the current
fiscal year ("Fiscal Year 1998") (as defined below).
-- The Company is negotiating the sale of its two (2)
remaining leased Coffee Bar sites located in
New York City.
-- In 1995 and 1996, the Company settled its obligations
with respect to six (6) of its eight (8) Dark Leases.
-- In February 1998, the Company and one of its
wholly-owned subsidiaries, settled the subsidiary's's
obligations with respect to one (1) of its two (2)
remaining Dark Leases located in Chicago, Illinois,
by agreeing to pay the landlord $250,000. The
landlord for the last remaining Dark Lease which is
located in New York City, (1) has obtained a judgment
against the Company for approximately $128,000 of
unpaid rents through February 1996 and other costs
and expenses and (2) has filed suit against the
Company for $270,000 of unpaid rents for the period
from March 1996 through June 1997. The Company is in
negotiations with the landlord to settle this
litigation. See PART I, ITEM 3. LEGAL PROCEEDINGS --
RETAIL STORE LITIGATION below.
During Fiscal Year 1996 (as defined below), the Company
substantially completed its Restructuring Plan. In connection therewith, the
Company:
-- reduced its workforce from 843 persons at December 29,
1995, to 401 persons at December 27, 1996;
-- reduced its administrative expenses by over $4 million
(approximately 41%) from Fiscal Year 1995 (as defined
below) levels; and
-- consolidated all of its roasting, packaging and warehouse
facilities into its Houston Plant.
During Fiscal Year 1997 (as defined below), the Company:
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-- following the acquisition of its Credit Facility by
Goldman Sachs Credit Partners, L.P. ("GSCP") in
December 1997, entered into an amendment and
restatement thereof, which, in addition to other
changes advantageous to the Company, increased the
Company's borrowing availability (see PART I, ITEM 1.
BUSINESS -- CREDIT FACILITIES below);
-- revised and upgraded the packaging for all of its
coffee products (see PART I, ITEM 1. BUSINESS --
PRODUCTS below);
-- made substantial capital investments (totaling
approximately $1.8 million) at its Houston Plant;
-- settled the Shareholder Class Action, Shareholder
Derivative Action, the Gloria Jean's Franchise
Litigation and the Adams & Wabash Coffee Bar Litigation
(see PART I, ITEM 3. LEGAL PROCEEDINGS below);
-- added two (2) independent directors, with substantial
beverage industry and specialty foods experience,
to its Board of Directors;
-- implemented its real time, on-line perpetual inventory
system at its Houston Plant (see PART I, ITEM 1.
BUSINESS -- MANAGEMENT INFORMATION SYSTEMS below);
-- changed its method of accounting for green coffee and
finished goods inventories from last-in, first-out
("LIFO"), to first-in, first-out ("FIFO"), with the
result that its green coffee costs and finished goods
inventories now more closely reflect current prices
(see PART I, ITEM 1. BUSINESS -- SUPPLY OF COFFEE
below);
-- further reduced its workforce from 401 persons at
December 27, 1996, to 363 persons at December 26, 1997;
and
-- rationalized its product offerings by eliminating
approximately 343 duplicative, slow moving or
outdated SKU's and introduced 78 SKU's.
FISCAL YEAR 1997 NET LOSS
The Company reported a net loss of $12.7 million for the fiscal year
ended December 26, 1997 ("Fiscal Year 1997"), compared to a net loss of $11.3
million for the fiscal year ended December 27, 1996 ("Fiscal Year 1996"), and
a net loss of $57.0 million for the fiscal year ended December 29, 1995
("Fiscal Year 1995"). The net loss for Fiscal Year 1997 consisted of (1) a
$4.9 million loss from operations, (2) a $4.6 million loss from other
expenses (i.e., interest expense, net, and debt restructuring costs) and (3)
a $3.2 million loss on disposal of discontinued retail operations (consisting
of $1.4 million attributable to the Gloria Jean's Franchise Litigation
settlement, $1.1 million attributable to Second Cup post-closing
obligations and $.7 million of Coffee Bar obligations). See Note 2 to the
Consolidated Financial Statements.
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PRODUCT CATEGORIES
The gourmet coffee industry represents a portion of the overall
coffee market. The industry is fragmented and, until recently, was
characterized by local and regional competition.
The U.S. coffee market consists of three distinct product
categories: (1) commercial ground roast, mass-merchandised coffee, which
includes brands such as FOLGERS and MAXWELL HOUSE; (2) specialty coffees,
such as EIGHT O'CLOCK and DON FRANCISCO, which are slightly higher quality
coffees; and (3) gourmet coffees, typically defined as super-premium,
specialty coffees. The Company sells only gourmet coffees.
Gourmet coffees use high grown arabica beans cultivated in Colombia,
Brazil, Kenya, Indonesia, Mexico, Costa Rica, Guatemala and other Central
American, South American, Asian and African countries ("Producing Countries"),
and in Hawaii. As a result of their richer taste, lower acidity and lower
caffeine content, arabica beans are considered to be superior to the robusta
and low quality arabica beans typically used in commercial ground roast.
DISTRIBUTION CHANNELS
The gourmet coffee industry is comprised of two principal
distribution channels -- the wholesale distribution channel, consisting of
grocery stores, supermarkets, mass merchandisers, drug stores, military
commissaries, warehouse stores and specialty stores, and the retail
distribution channel, consisting of retail coffee stores, coffee shops and
coffee bars.
In the wholesale distribution channel, the coffee distributor sells
its coffee products to the retailer who in turn re-sells the products through
to the ultimate consumer. The Company distributes its coffee products solely
through the wholesale distribution channel.
The Company sells its products throughout the United States. The
markets in which the Company distributes its products represent approximately
60% of total grocery store and supermarket sales nationwide.
PRODUCTS
The Company roasts green arabica coffee beans to produce over 75
different varietals, blends and flavors of coffee. In addition, the Company
has been (and intends to continue to be) innovative in the introduction and
marketing of new sizes and types of packaging designed to promote consumer
convenience and trial purchases. To this end, in Fiscal Year 1996, the
Company successfully (1) introduced its 8 ounce can and 1.75 ounce mini-can
and (2) redesigned the packaging for all of its coffees. In Fiscal Year 1997,
the Company introduced a fresh ground softpack and several new seasonal
coffees and rationalized its product offerings by eliminating approximately
343 duplicative, slow moving or outdated SKU's and introduced 78 new SKU's.
BROTHERS is the Company's primary national supermarket brand and
represents the vast majority of Company sales. The Company has consolidated
most of its business under the Brothers brand. The Company still has some
modest supplemental distribution under the HILLSIDE and COUNTRY MILLS brands.
CAFE DU JOUR has been discontinued. The Company has been concentrating on
consolidating its brands. According to Neilson Scantrac, the Brothers' brand
38% all commodity value ("ACV") distribution is now equal to the Company's
total 38% ACV distribution. In the gourmet specialty store channel, the
Company's products are sold under the FAIRWINDS brand name. The Company also
has a private label program. As discussed below, the Company is looking to
expand its private label program in the future provided that the financial
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terms of such private label programs with individual grocery
stores/supermarkets are attractive to the Company and the arrangements do not
injure the Company's own branded coffee programs.
COMPETITION
The Company has two principal national wholesale competitors, Sark's
Gourmet Coffee Company, which is owned by Nestle S.A., and Millstone Coffee,
Inc., which is owned by the Procter & Gamble Company. During 1997,
Starbuck's, the nationwide leader in the gourmet coffee retail distribution
channel (principally through its own retail coffee stores and bars), started
testing sales of its coffee in a limited number of grocery stores and
supermarkets in selected cities around the country. Sales of the Company's,
Sarks', Millstone's and Starbuck's gourmet coffee products are estimated to
represent slightly more than 50% of the total gourmet coffee sales in the
wholesale distribution channel. The remainder of the channel consists of
private label sales and sales by local and regional coffee companies with
limited geographic coverage and often smaller product lines. The Company does
not compete directly in the retail distribution channel, but there is some
degree of competition for the consumer's coffee dollar between the two
distribution channels.
The Company's coffee products also compete with the non-gourmet
specialty coffee products on the market and with other related products, such
as gourmet teas. The commercial ground roast and premium blend segment of the
coffee industry is dominated by several large companies, many of which have
significantly greater name recognition and financial resources than the
Company. Some of these competitors have introduced premium coffee products in
recent years. Premium coffees comprise one of the fastest growing segments in
the coffee industry and are increasingly competing with gourmet coffees.
The Company believes that the principal competitive factors among
producers of gourmet coffee are quality of products, shelf space, packaging,
distribution capabilities, access to green beans, brand name recognition
(including the growth of private labels products offered by grocery stores
and supermarkets), financial resources available to develop new products and
promote/support new and existing products and the ability to operate
efficient, low cost roasting and packaging facilities and distribution
operations. There can be no assurance that other coffee companies with
greater name recognition and financial resources than the Company will not
enter the gourmet coffee market in the future.
THE COMPANY'S WHOLESALE DISTRIBUTION STRATEGY
The Company's distribution strategy is to capitalize on, and to
continue to support and expand, its position as one of the leading
wholesalers of gourmet coffee in the United States by (1) maintaining a
consistently high quality product, (2) providing customers with the freshest
possible product, (3) increasing its penetration in the wholesale channel of
distribution, (4) further developing its brand franchise and solidifying
consumer loyalty and (5) when the opportunity presents itself, provided that
the terms of such arrangements are attractive to the Company and the
arrangements do not injure the Company's own branded coffee programs,
entering into private label coffee programs with a select number of grocery
store and supermarket customers.
In order to maintain consistently high quality products for its
customers, the Company sources, purchases, tests, roasts, packages, markets
and distributes its own coffee products. The Company purchases high quality
green arabica coffee beans from Producing Countries and Hawaii for use in its
varietals and blended coffee products. The Company roasts the beans to its
own stringent roasting standards and quality tests its products at each
critical stage in the roasting and packaging process, including post-roasting
classification of the beans.
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The Company has a national presence in the wholesale (principally
grocery store and supermarket) distribution channel. The Company is actively
seeking to expand that presence with stores that already carry its products,
as well as with other stores. In the case of stores already carrying its
products, the Company is seeking to expand its presence (and increase
customer loyalty to the Company's products) by (1) obtaining larger and more
preferred shelf space for its products already in the stores, (2) expanding
the number of its products on the shelves, (3) expanding its direct store
delivery ("DSD") program, (4) aggressively bidding on contract renewals, (5)
supporting its products with co-branded programs in other distribution
channels, such as its branded coffee program with Continental Airlines and
Hallmark Cards, Inc. (which are discussed below), (6) improving the quality
and attractiveness of its in-store product displays, (7) periodically
refreshing/upgrading its product packaging, (8) tailoring the products it
sells in a particular geographic region to the general customer tastes and
preferences of that region and (9) targeted brand spending. The Company is
seeking to expand its wholesale distribution presence with grocery stores and
supermarkets ( as well as mass merchandisers, warehouse stores and specialty
stores) that do not currently carry its products by aggressively bidding on
new distribution contracts.
The Company is also seeking opportunities to expand its presence in
other non-retail distribution channels that complement the wholesale
distribution channel. To this end, the Company is strongly supporting its
branded coffee distribution arrangements with Hallmark Cards, Inc.,
Continental Airlines and Benjamin Books.
As discussed above, one of the factors that affects the Company's
ability to compete for new wholesale accounts and for renewals of existing
wholesale accounts is the amount of financial resources available to the
Company to develop new products and promote/support new and existing
products. In recent years, particularly in the case of new grocery store and
supermarket distribution contracts and renewals thereof, the amount of
prepaid advertising, slotting fees, up-front promotional allowances and other
rebates that the coffee distributor is willing to pay to the grocery store or
supermarket has been a significant and, in some cases, the determinative
factor in determining which distributor wins the contract. Millstone, Sarks
and Starbucks, the Company's three principal competitors, have substantially
greater resources than the Company. The Company's capital structure and
liquidity constraints make it difficult for the Company to compete for new
wholesale distribution contracts (or to renew existing contracts) when, all
other things being generally equal, the decision by the grocery store or
supermarket comes down to a financial one based principally on the magnitude
of the slotting fees and other up-front fees offered by the bidders. See PART
I, ITEM 1. BUSINESS -- Credit Facilities below. As an alternative to
front-end loading its bids, the Company has, instead, structured its bids to
include smaller up-front payments and larger rebates, advertising and
promotional allowances and other financial incentives payable to the grocery
store or supermarket over the life of the contract. Absent a significant
change in the industry or in the way contracts are bid or the Company's
capital structure, the Company does not expect to change its bidding strategy
for new wholesale distribution accounts or renewals thereof. While the
Company believes that its bids are competitive, it may lose certain new
contracts or certain contract renewals because its package of financial
incentives to the grocery stores and supermarkets is not as heavily
front-end loaded as are the bids made by certain of its competitors.
DISTRIBUTION
The Company delivers its products to customers in three principal
ways: (1) DSD, utilizing the Company's own trucks and route sales persons who
deliver products to individual grocery stores and supermarkets, stock shelves
with Company products and maintain Company in-store displays, (2) direct
shipments to grocery store and supermarkets and their warehouses, in which
case either third party merchandisers or the grocery store or supermarket
employees stock shelves, and (3) shipments to specialty food distributors who
are responsible for delivering the Company's products to the grocery stores
and
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supermarkets and arranging for product shelving and support. As of the end of
Fiscal Year 1997, DSD accounted for approximately 38% of product sales
(approximately a five (5) percentage point increase over Fiscal Year 1996),
direct shipments to grocery stores and supermarkets accounted for
approximately 36% of product sales and direct shipments to specialty food
distributors accounted for approximately 26% of product sales. The Company
anticipates that DSD will account for an increasing percentage of total
product sales in future years.
ACCOUNTING AND MANAGEMENT INFORMATION SYSTEMS ("MIS")
The Company's MIS operate from an upgraded IBM AS400 computer which
allows for integrated processing of all accounting records, including
integration of green coffee inventories, finished inventories at the Houston
Plant, accounts receivable, production and back-office systems. The Company's
MIS uses sophisticated software, including general ledger, accounts
receivable and payable, sales order processing and product data management
programs.
During Fiscal Year 1996, the Company (1) installed and started
testing its new software for inventory management that tracks all of the
inventory through a bar code system, (2) began developing software that will
assist it in maximizing efficiency at its Houston Plant, (3) acquired
approximately 10% of its volume purchased using electronic data interchange
and (4) updated several of its J.D. Edwards software modules, such as
accounts receivable and accounts payable software. The Company spent
approximately $400,000 on MIS upgrades in Fiscal Year 1996.
The Company spent an additional $600,000 on MIS upgrades in Fiscal
Year 1997. The Company (1) installed new software for EDI (Electronic Data
Interchange) to expedite capture of customer orders, (2) installed and
started testing its new software for standard costing, billing of materials
and pick priority management in order to continue maximization of its Houston
plant, (3) upgraded its net servers and home office personal computers to
conform to a standardized platform so that Office '97 and Electronic Mail
could be installed and utilized, and (4) distributed laptops and printers to
all field sales personnel in order to permit them to retrieve e-mail,
electronically transfer real-time documents and improve customer sales
presentations.
YEAR 2000 COMPLIANCE
Until recently, many computer programs were written using two digits
rather than four digits to define the applicable year in the twentieth
century. Such software may recognize a date using "00" as the year 1900
rather than the year 2000. Utilizing both internal and external resources,
the Company is in the process of defining, assessing and converting or
replacing various programs, hardware and instrumentation systems to make them
Year 2000 compatible. The Company's Year 2000 project is comprised of two
components - business applications and equipment. The business applications
component consists of the Company's business computer systems, as well as the
computer systems of third-party suppliers or customers, whose Year 2000
problems could potentially impact the Company. Equipment exposures consist of
personal computers, system servers, telephone equipment and roasting and
packaging equipment whose Year 2000 problems could also impact the Company.
The cost of the Year 2000 initiatives is not expected to be material to the
Company's results of operations or financial position.
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MANUFACTURING AND QUALITY CONTROL
At the end of Fiscal Year 1995, the Company had three (3) regional
production facilities, located in Pennsylvania, Colorado and Texas. As part
of its Restructuring Plan, and in order to reduce plant overhead costs, the
Company closed its Colorado and Pennsylvania facilities in 1996 and
consolidated all of its production facilities at its Houston Plant.
The Company utilizes automated roasting, blending and packaging
systems at its Houston Plant. Coffee specialists oversee these systems to
ensure that the product is produced to exact specifications. The Company
generally operates a single shift and runs a second shift when production
warrants.
The Company employs a quality control department, with quality
checks made at critical stages of the coffee making process, including
pre-roasting sampling of green beans, post-roasting classification and
pre-shipment inspections of coffee beans. All coffees roasted by the Company
are sampled to ensure consistency in blend, roast and taste. The quality
control department also analyzes competing brands and frequently measures the
Company's coffees against others in the marketplace. After the coffee has
been packaged, a final check is made to ensure that there are no defects in
the packaging which would affect the freshness or quality of the coffee beans.
Grocery stores and supermarkets frequently conduct independent taste
tests of coffee products as well as packaging tests (both for attractiveness
and freshness) before signing a new distribution contract (or renewing an
existing contract) with a particular coffee distributor. The Company
participated in several of these tests during Fiscal Year 1997. The Company's
products received high marks in general. The Company uses the results of
these tests as a backup to its own manufacturing and quality control programs
and as a comparative measure against its competitors' products and packaging.
SUPPLY OF COFFEE
Coffee is the world's second largest traded commodity. Supply and
price can be volatile. While most coffee trades in the commodities market,
coffee of the quality level sought by the Company has a tendency to trade on
a negotiated basis at a substantial premium above commodity coffee pricing,
depending upon the supply and demand at the time of purchase. The supply and
price can be affected by multiple factors, such as weather, politics, labor
and economics in the Producing Countries.
The International Coffee Organization, through the imposition of
export quotas agreed upon by consumer and producer member nations, has in the
past attempted to maintain the commodity prices of green coffees. The
specific effect the cartel (the "ACPC") has had on coffee prices is difficult
to determine in light of other occurrences such as weather problems, labor
problems and political and currency instability in coffee producing
countries. From time to time, the coffee cartel members have met and
determined to withhold some percentage of their exportable green coffee bean
crop in an effort to raise and sustain green coffee bean prices. This
happened in 1994, 1995 and 1996. In January 1997, the ACPC agreed to extend
its current limitations through 1998. The Company is unable to predict
whether the ACPC will be successful in achieving its goals; however, the
supplies of green coffees held by coffee roasters and buyers are currently at
historical low levels.
Brazil experienced frosts in 1994. The announcement of the Brazilian
frost damage caused a substantial increase in green coffee bean prices and
other coffee-product related prices worldwide. The Company purchases a modest
amount of its green coffee beans from Brazil. Nonetheless, in the third and
fourth quarters of Fiscal Year 1994, the Company experienced a significant
increase in the price of green
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coffee beans which carried into the first three quarters of Fiscal Year 1995.
During the fourth quarter of Fiscal Year 1995, the Company's green coffee
purchases and commitments returned to pricing levels closer to those that
existed prior to the 1994 Brazilian frost.
Green coffee prices remained relatively constant at historical
levels throughout 1996. In the first and second quarters of 1997, green
coffee prices increased dramatically. In response to such increases, the
Company raised its prices to the grocery stores and supermarkets twice, once
in April and again in July. The cost of green coffee started dropping in
mid-1997. In response to those drops and competitive pressures, the Company
reduced its prices to the grocery stores and supermarkets in October 1997. At
the same time that it was raising coffee prices in the first half of Fiscal
Year 1997, the Company (1) switched its method of accounting for green coffee
from LIFO to FIFO, (2) started reducing its green coffee inventories and (3)
sold approximately 5.6 million pounds of selected excess green coffee
inventory.
The Company is unable to predict weather, political, labor, or
economic events that may adversely affect coffee supplies in particular
countries. Until 1994, when green coffee bean prices increased, the Company
was able to pass those price increases through to its customers, thereby
maintaining its gross profit margins. The Company was not able to pass
through to its customers all of the green coffee price increases in the third
and fourth quarters of Fiscal Year 1994 following the Brazilian frosts. In
the third and fourth quarters of Fiscal Year 1994 and the first quarter of
Fiscal Year 1995, the Company experienced significant consumer resistance to
price increases. The Company and gourmet coffee category experienced similar
consumer resistance to the price increases put in place in early and
mid-1997. The Company reduced coffee prices in October 1997 in response to
falling coffee prices at that time. Because of the substantial swings in
coffee prices in the past three years and consumer resistance to price
increases, the Company cannot predict whether it will be able to pass future
green coffee price increases through to its customers in full in the future.
Green coffee is a large market with well-established brokers,
importers and warehousemen through which the Company manages its
requirements. A significant portion of the Company's green coffee supply is
contracted for future delivery, generally between three and twelve months
forward (with declining percentages of the supply being subject to future
contracts in the latter portions of each year), to ensure both an adequate
supply and reduced risk of short-term price fluctuations. During early and
mid-1997, the Company sold at a profit excess coffee that it had acquired
pursuant to forward commitments put in place at a time when coffee prices
were much lower. In late 1997, the Company found itself with a greater than
average amount of higher priced green coffee because of forward commitments
acquired at times when coffee prices were higher. Substantial swings in green
coffee prices and the resulting effect on category growth have made it more
difficult for the Company (and its competitors) to manage its coffee
inventory commitments. In addition to purchasing forward commitments, the
Company keeps physical inventory in its production facility and third-party
warehouses representing anywhere from four to ten weeks of supply
requirements. All coffee purchase transactions are in U.S. dollars, the
industry's standard currency. The Company believes that it is not dependent
upon any one importer or broker for its supply of green coffee beans from any
particular country.
DISCONTINUED RETAIL OPERATIONS
As discussed above, the Company sold its Gloria Jean's operations in
November 1995 and discontinued its own Coffee Bar operations in 1996. The
Company and its subsidiaries originally signed leases for, opened and
operated twenty nine (29) Coffee Bars and signed leases but did not open ten
(10) more Dark Leases. In Fiscal Year 1996, the Company sold twenty-nine (29)
Coffee Bar leases, bought out the leases for and closed six (6) more Coffee
Bars and subleased two (2) Coffee bar locations. At December
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26, 1997, the Company was operating only two (2) Coffee Bars, both of which
are located in New York City. The Company is in negotiations currently to
sell both stores.
With respect to the twenty nine (29) stores sold in Fiscal Year
1996, the landlords for twelve (12) stores released the Company from any further
obligations under the leases for such stores following their sale(s). The
landlords for the remaining seventeen (17) stores did not release the
Company. The Company remains as a co-lessee with the purchasers or as a
guarantor on these seventeen (17) leases. The Company's total remaining rent
obligation under these seventen (17) leases is approximately $5.1 million.
The purchasers of these seventeen (17) leases have agreed to assume such
obligations and to indemnify the Company from any and all post-sale liability
with respect thereto. The purchaser of fourteen (14) of the leases was a
newly-formed corporation with no substantial assets other than the stores it
purchased. The individual owner of the purchasing entity, who does have
substantial other assets, agreed to guarantee the purchaser's obligations.
The newly-formed corporation also owes the Company $.5 million for the
purchase of Coffee Bars for which the Company has established an allowance
for possible uncollectability. The remaining rents under the two (2) New York
City stores are approximately $1.5 million.
At December 26, 1997, the Company had two remaining Dark Leases.
Brothers Coffee Bars, Inc., a subsidiary of the Company ("BCBI"), was the
lessee of one of the two remaining Dark Leases, located in Chicago, Illinois.
In February 1998, the Company and BCBI settled BCBI's remaining obligations
under this lease by agreeing to pay $250,000 to the landlord. The landlord
for the last remaining Dark Lease, which is located in New York City, (1) has
obtained a judgment against the Company for approximately $128,000 of unpaid
rents through February 1996 and other costs and expenses and (2) has filed
suit against the Company for $270,000 in unpaid rents for the period from
March 1996 through June 1997. The Company is in negotiations with such
landlord to settle this litigation. See PART I, ITEM 3. LEGAL PROCEEDINGS --
RETAIL STORE LITIGATION below.
The Company has estimated future operating losses and incremental
costs of disposal in its accrued losses and other costs for discontinued
retail operations and allowances for uncollectible receivables for
discontinued retail operations at December 26, 1997. Due to the subjective
nature of such estimates, it is reasonably possible that these estimates may
change in the future. Future changes in these estimates may have a
significant impact on the Company's financial condition and results of
operations.
DEBT FACILITIES
In December 1997, Goldman Sachs Credit Partners, L.P. ("GSCP"),
acquired from Sanwa Business Credit Corporation ("Sanwa"), by way of
assignment (the "Assignment"), 100% of Sanwa's loans to the Company under the
Company's Loan and Security Agreement, dated as of May 29, 1996 (the "Credit
Facility"). Simultaneously with the closing of the Assignment, the Company
and GSCP amended and restated the Credit Facility (the "Restated Credit
Facility").
At March 28, 1997, June 27, 1997, September 26, 1997 and December
26, 1997, the Company was not in compliance with the cash flow-to-debt
service covenants in the Credit Facility and the Company's $15 million
unsecured senior subordinated note facility provided by Dilmun Financial
Services ("Dilmun") (the "Subordinated Note") (collectively, the Company's
"Debt Facilities"). Such non-compliance constituted continuing events of
default under the Debt Facilities (the "Covenant Defaults"). The Company
entered into a Forbearance Agreement (and amendments thereto) with Sanwa
whereby Sanwa agreed to forbear from acting on the Covenant Default under the
Credit Facility ("Sanwa's Forbearance"). Sanwa's Forbearance remained in
effect through December 9, 1997, the effective date of the Assignment. The
Company also requested a waiver and/or forbearance with respect to the
Covenant Default, and certain related amendments to the Subordinated Note,
from Dilmun. The Company and Dilmun have not been able to reach agreement
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<PAGE>
on the terms of such waiver and/or amendment. Consequently, the Covenant
Default under the Subordinated Note is still continuing.
The terms of the Restated Credit Facility and the status of the
Covenant Default under the Subordinated Note are discussed in detail below.
CREDIT FACILITY. On October 31, 1997, the Company obtained an
extension of the Forbearance Agreement from Sanwa through November 28, 1997.
On November 19, 1997, GSCP and Sanwa signed a Trade Confirmation setting
forth, among other things, the principle terms of the Assignment. On November
28, 1997, the Company obtained from Sanwa another extension of the
Forbearance Agreement through December 12, 1997. The Company paid Sanwa
$123,000 for the two extensions.
On December 9, 1997, Sanwa and GSCP closed the Assignment, and the
Company and GSCP executed the Amended and Restated Credit Agreement (the
"Restated Credit Agreement"). At the closing of the Assignment, (1) GSCP
purchased, by way of assignment, 100% of Sanwa's loans to the Company under
the Credit Facility, (2) Sanwa resigned as Agent under the Credit Facility,
(3) Sanwa assigned all of its security interest in the collateral under the
Credit Facility to GSCP and (4) Sanwa executed (and delivered to GSCP and the
Company) a release and termination agreement, releasing its interests in the
Company's collateral and terminating all of its rights as lender and agent
under the Credit Facility.
RESTATED CREDIT FACILITY. On December 9, 1997, the Assignment
closed, and GSCP and the Company entered into the Restated Credit Agreement.
On March 27, 1998, GSCP and the Company entered into the First Amendment to
the Restated Credit Agreement (the "First Amendment"), which modified certain
of the covenants and definitions in the Restated Credit Agreement. From and
after March 27, 1998, the term "Restated Credit Agreement," as used herein,
means the Restated Credit Agreement, as amended by the First Amendment. The
principle terms of the Restated Credit Agreement are as follows:
The maximum amount of the Restated Credit Facility is $28 million,
consisting of (1) a revolving loan facility in an aggregate amount not in
excess of the lesser of $21.5 million or the Current Asset Base, as defined
below (the "Revolving Loan"), plus (2) a term loan of up to $2.25 million
("Term Loan A") plus (c) a second term loan of up to $4.25 million ("Term
Loan B"). The Current Asset Base is an amount equal to (a) 85% of the face
amount of eligible accounts receivable (less reserves, if any, as determined
by GSCP), (b) the lesser of 70% of the book value of eligible inventory (less
reserves, if any, as determined by GSCP) or $10 million and (c) the lesser of
the sum of 65% of eligible slotting fees or $5 million. Each tranche of
eligible slotting fees declines each month over the remaining term of the
Restated Credit Facility (for purposes of its inclusion in the Current Asset
Base) by 1/17th of the dollar amount of such tranche.
The Restated Credit Facility matures and is payable in full on May
29, 1999 (the "Maturity Date"). The Company may borrow, repay and reborrow
under the Revolving Loan through the Maturity Date, at which time the entire
outstanding amount of the Revolving Loan will be due and payable. Term Loan A
is payable in (1) 17 equal monthly principal installments of $37,500, plus
interest, and (2) one final principal installment of $1,612,500, plus
interest and any accrued fees, on the Maturity Date. Term Loan B is payable
in (1) 17 equal monthly principal installments of $100,000, plus interest,
and (2) one final principal installment of $2,550,000, plus interest and
accrued fees on the Maturity Date. If the Credit Facility is terminated for
any reason prior to the Maturity Date, the entire outstanding balances of the
Revolving Loan, Term Loan A and Term Loan B will be due and payable on the
effective date of such termination.
The Revolving Loan and Term Loan A bear interest at the greater of
(1) the prime rate, as reported from time to time in the WALL STREET JOURNAL
(the "Prime Rate"), plus 2.0%, or (2) 9%. Term Loan B bears interest at the
rate of 11.75% fixed. So long as an event of default shall have occurred and
be continuing, interest will be payable at the default rate, i.e., the
otherwise applicable interest rate plus an additional 2%.
At the closing of the Restated Credit Facility, the Company (1) paid
GSCP an acquisition fee in the amount of $280,000, an initial line fee in the
amount of $280,000, an initial slotting line fee in the amount
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<PAGE>
of $5,000, an initial loan servicing fee in the amount of $3,500 and a legal
documentation review fee in the amount of $1,000, (2) granted the GSCP
Warrant (as defined below) to GSCP and (3) paid Dabney Resnick Imperial LLC
("DRI"), the Company's exclusive debt placement agent who introduced the
Company to GSCP, a financing fee in the amount of $560,000. See SIENA AND
BWHI WARRANTS below for a discussion of the additional compensation the
Company paid to affiliates of DRI for services rendered by DRI in connection
with the closing of the Restated Credit Facility. See GSCP WARRANT below for
a discussion of the terms of the GSCP Warrant.
During the term of the Restated Credit Facility, the Company has
agreed to pay GSCP (a) an unused line fee in an amount equal to 0.5% per
annum, payable monthly in arrears, (b) a monthly line fee, commencing on the
first anniversary of the closing of the Restated Credit Facility, in an
amount equal to $23,333, monthly in advance, (c) a monthly loan servicing fee
in an amount equal to $3,500, payable monthly in advance, (d) a financial
analysis fee in the amount of $650 per man day, plus reasonable expenses,
payable on demand, (e) an appraisal fee in the amount of $1,000 per man day,
plus reasonable expenses, payable on demand, (f) a legal documentation fee in
the amount of $1,000, payable in advance on the first anniversary of the
closing of the Restated Credit Facility and (g) all other fees, costs and
expenses incurred by GSCP in connection with any matters contemplated in the
Restated Credit Agreement.
The Restated Credit Facility contains standard and customary
representations, warranties and covenants for a debt facility of this type.
The Company and GSCP made no material changes to the representations,
warranties and covenants in the Credit Facility, except to amend and restate
the financial covenants. The Company's minimum EBITDA covenant requirements
were reset as follows: (1) no less than $1.2 million of EBITDA for the first
two quarters of Fiscal Year 1998; (2) no less than $2.3 million of EBITDA for
the first three quarters of Fiscal Year 1998; (3) no less than $5.7 million
of EBITDA for Fiscal Year 1998; and (4) no less than $5.7 million of EBITDA
for the first quarter of Fiscal 1999 plus the last three quarters of Fiscal
Year 1998. The Company's Total Capital Funds ("TCF") covenant requirements
were reset as follows: (a) no less than $62 million of TCF as of the end of
the first quarter of Fiscal Year 1998; (b) no less than $62 million as of the
end of the second quarter of Fiscal Year 1998; (c) no less than $62 million
as of the end of the third quarter of Fiscal Year 1998; (d) no less than
$62 million as of the end of the fourth quarter of Fiscal Year 1998; and
(e) no less than $61 million as of the end of the first quarter of Fiscal
Year 1999. The Company has agreed to deliver its revised business plan to
GSCP on or before April 30, 1998. GSCP, in turn, has agreed to revisit the
financial covenant requirements with the Company after it has reviewed the
revised business plan.
Immediately following the closing on December 9, 1997, the
outstanding balance of the Restated Credit Facility was $15,565,061,
consisting of (1) $9,065,061 of the Revolving Loan, (2) the full amount of
Term Loan A (i.e., $2,250,000) and (3) the full amount of Term Loan B (i.e.,
$4,250,000). The Company paid $569,500 in fees and $226,511 in other closing
costs and expenses.
See SUBORDINATED NOTE below for a discussion of the subordination of
Dilmun's right to be repaid under the Subordinated Note to GSCP's right to be
repaid under the Restated Credit Facility.
SUBORDINATED NOTE. On December 27, 1996, the Company and Dilmun
entered into the Subordinated Note facility and the Company drew down the
full amount available under the Subordinated Note, i.e., $15 million.
As discussed above, the Covenant Default under the Subordinated Note
has existed since March 1997. The Company has asked Dilmun for (1) a waiver
and/or forbearance with respect to the Covenant Default and (2) certain
related amendments to the Subordinated Note. The parties have not been able
to reach agreement on the terms of such waiver and/or amendment.
Consequently, the Covenant Default under the Senior Subordinated Note
Facility still exists. To date, Dilmun has not notified the Company of the
occurrence of an Event of Default (as defined) under the Subordinated Note.
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<PAGE>
In connection with the closing of the Subordinated Note in December
1996, Dilmun and BIB Holdings (Bermuda) Ltd ("BIB") entered into a
Subordination Agreement with Sanwa. Pursuant thereto, Dilmun and BIB agreed,
subject to certain conditions and restrictions, that the Subordinated Note
would be subordinated and subject in right of payment to the prior payment in
full in cash of all of the Company's obligations to Sanwa (and its successors
and assigns) and the other Senior Lenders under the Credit Facility. By
reason of the structure of GSCP's acquisition of the Credit Facility as an
Assignment and assumption of the Credit Facility and not as a refinancing
thereof, GSCP has succeeded to all of Sanwa's rights, benefits and privileges
under the Subordination Agreement.
The Subordination Agreement provides that, upon the occurrence and
during the continuation of a default by the Borrower under the Subordinated
Note (other than by reason of a payment default or a blockage period), Dilmun
may demand payment of any portion of the Subordinated Note then due but
cannot take any action to enforce payment of such amount or take any other
collection effort with respect thereto until the earliest to occur of certain
events (a "Trigger Event"). The Covenant Default, Sanwa's assignment of the
Credit Facility to GSCP and the closing of the Restated Credit Agreement were
not (and are not) Trigger Events. Accordingly, Dilmun does not have the
right, based solely on the occurrence of the Covenant Default and/or Sanwa's
assignment of the Credit Facility to GSCP and/or the closing of the Restated
Credit Facility, to take any action to enforce repayment of the Subordinated
Note or to take any other collection action with respect thereto.
In the absence of a waiver from Dilmun, there can be no assurance
that Dilmun will not make demand for repayment of the Subordinated Note and
attempt to collect the entire outstanding balance thereunder, notwithstanding
the standstill provisions in the Subordination Agreement.
SIENA AND BWHI WARRANTS. In September 1996, the Company borrowed $3
million (the "Bridge Facility") from Siena Capital Partners, L.P., an
affiliate of DRI ("Siena"). In connection with the closing of that
transaction, the Company granted Siena four warrants (the "Siena Warrants").
The Company repaid the Bridge Facility with a portion of the proceeds from
the Subordinated Note and, upon such repayment, the first Siena warrant,
covering 100,000 shares of Company Common Stock (with an exercise price of
$3.00 per share), vested and the other three Siena Warrants expired. In
connection with the closing of the Restated Credit Facility, as additional
compensation for services rendered by DRI in connection therewith, the
Company agreed to reduce the exercise price of the Siena Warrant to $1.5625
per share of Common Stock.
In December 1996, in connection with the closing of the Subordinated
Note, as compensation for services rendered by DRI in connection therewith,
the Company granted Brothers Warrant Holdings I, an affiliate of DRI
("BWHI"), a warrant to acquire up to 400,000 shares of Company Common Stock
at an exercise price of $3.4375 per share (the "BWHI Warrant"). The BWHI
Warrant is fully vested. In connection with the closing of the Restated
Credit Facility, as additional compensation for services rendered by DRI in
connection therewith, the Company agreed to reduce the exercise price of the
BWHI Warrant to $1.5625 per share of Common Stock.
GSCP WARRANT. In connection with the closing of the Restated Credit
Facility, the Company granted GSCP a warrant (the "GSCP Warrant") to acquire
up to 400,000 shares of Common Stock at an exercise price of $1.50 per share.
The term of the GSCP Warrant is five years. The GSCP Warrant has standard
anti-dilution protection. In addition, at GSCP's election, GSCP may require
the Company to, and the Company has agreed to, redeem the GSCP Warrant at a
redemption price of 50% of the warrant exercise price ($0.75 per GSCP Warrant
share at December 26, 1997) upon the occurrence of (a) a change of control of
the Company, (b) an early termination of the Restated Credit Agreement or (c)
at any time within thirty days prior to the expiration of the GSCP Warrant.
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BIB WARRANTS. In connection with the closing of the Subordinated
Note, the Company and BIB entered into a Warrant Agreement (the "BIB Warrant
Agreement") entitling BIB to purchase up to 1,245,000 shares of Common Stock
(the "BIB Warrant Shares"), at an exercise price of $.25 per share (the "BIB
Warrant"). 265,600 BIB Warrant Shares vested on the closing date. Another
265,600 BIB Warrant Shares vested on December 27, 1997. The remaining 713,800
BIB Warrant Shares will vest in varying installments on the second through
fifth anniversaries of the closing date if the Subordinated Note is not paid
in full on or before each anniversary date.
TRADEMARKS
The Company owns trademarks which are the subject of registrations
or pending applications in the U.S. Patent and Trademark Office for many of
the trademarks that it uses, including BROTHERS, HILLSIDE COFFEE, CAFE DU
JOUR, COUNTRY MILL and FAIRWINDS. The Company believes that its common law
and registered trademarks have significant value and goodwill and that some
of its trademarks are instrumental to its ability to create demand for and
market its products. From time to time, the Company files applications for
new trademarks. There can be no assurance that the Company's pending
applications will be granted or that the Company's other trademarks do not or
will not violate the proprietary rights of others, that they would be upheld
if challenged or that the Company would, in such an event, not be prevented
from using the trademarks, any of which could have an adverse effect on the
Company.
SEASONALITY AND FLUCTUATIONS IN QUARTERLY OPERATING RESULTS
The Company's business is seasonal, with increased sales during the
colder months. As a result, in a typical year, a substantial portion of the
Company's sales and operating results occur during the fourth quarter of each
year. The Company's working capital requirements fluctuate each year, with
its greatest needs during its third and fourth quarters. The Company's
results of operations for any particular quarter may not necessarily be
indicative of its results of operations for any other particular quarter or
for the whole year. The timing of slotting fee payments, other similar
payments and product introduction costs in connection with grocery store and
supermarket accounts and the amount of revenue contributed by such new
accounts may cause the Company's quarterly results of operations to fluctuate
in the future. See PART II, ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS, and PART I, ITEM 1. BUSINESS
- -- Supply of Coffee, and Note 1 to the Notes to Consolidated Financial
Statements contained elsewhere herein.
REGULATION
The production and marketing of the Company's products are subject
to the rules and regulations of various federal, state and local health
agencies, including the United States Food and Drug Administration (the
"FDA"). The FDA also regulates the labeling of the Company's products. To the
best of its knowledge, the Company is currently in compliance with all
federal, state and local food and drug and labeling laws and regulations.
CUSTOMERS, SUPPLIERS AND RESEARCH AND DEVELOPMENT
During Fiscal Year 1997, (1) two supermarket chains comprised 17%
and 11% of the Company's net sales, respectively, (2) no supplier supplied
10% of more of the Company's green coffee inventory and (3) the Company did
not expend any funds for research and development ("R&D"). The company lost
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certain customers in Fiscal Year 1997. However, none of those customers
accounted for 10% or more of the Company's total gross or net sales in Fiscal
Year 1997. It is customary in the wholesale distribution channel for coffee
suppliers, such as the Company, to gain and lose customers each year. Every
year, certain of the Company's arrangements with grocery stores and
supermarkets come up for renewal. Each year the Company writes new
distribution arrangements, loses certain existing distribution arrangements
and renews certain existing distribution arrangements. See PART I, ITEM 1.
BUSINESS -- COMPETITION and PART I, ITEM 1. BUSINESS -- THE COMPANY'S
WHOLESALE DISTRIBUTION STRATEGY above.
EMPLOYEES
As of December 26, 1997, the Company employed approximately 363
persons, none of whom were represented by a union. The Company believes that
its employee relations are generally good.
ITEM 2. PROPERTIES
The Company's headquarters are located in Boca Raton, Florida, and
consist of approximately 22,500 square feet of office space. The space is
leased by the Company pursuant to a lease which expires in May 1999. This
space is used for sales, marketing and administration. In addition, the
Company leases space at the following facilities:
<TABLE>
APPROXIMATE
SQUARE LEASE
LOCATION FOOTAGE TYPE EXPIRATION
- -------- ----------- ---- ----------
<S> <C> <C> <C>
Houston, TX 233,000 Production/Warehouse June 2006
Londonderry, NH 10,400 Warehouse/Administrative Office November 1998
Fort Lauderdale, FL 6,900 Warehouse November 1998
Commerce City, CO 7,500 Warehouse February 2001
Lawrenceville, GA 10,000 Warehouse November 1999
</TABLE>
The Company also stores inventory and green coffee at approximately 25 small
warehouses and 28 other small storage sites pursuant to storage contracts and
bailment arrangements.
ITEM 3. LEGAL PROCEEDINGS
GLORIA JEAN'S FRANCHISE LITIGATION. In June 1994, a former
franchisee filed suit against Edglo Enterprises, Inc., the parent of Gloria
Jean's ("Edglo"). The former franchisee claimed, among other things, that
Edglo made material misrepresentations and omissions and failed to provide
appropriate expertise and support. The former franchisee was seeking damages
of $3.9 million plus punitive damages of three time's actual damages as well
as attorney's fees. The Company sold Edglo to Second Cup in 1995. In
connection therewith, the Company agreed to indemnify Second Cup for any
costs associated with the Gloria Jean's Franchise Litigation. In April 1997,
the parties entered into a settlement agreement and Release, pursuant to
which (a) the defendants agreed to pay $2,200,000 in cash, and to deliver
76,667 shares of the Company's common stock, to the plaintiffs' in
satisfaction of all of their claims. The $2,200,000 was funded as follows:
(a) $2,015,000 came from the Company (of which approximately $992,000 was
funded out of the escrowed purchase price from the sale of Gloria Jean's) and
(b) $185,000 came from the other defendants and their counsel. The Company
issued 76,667 shares of its common stock to the plaintiffs in January 1998.
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SHAREHOLDER LAWSUITS. The Company was a defendant in two different
class action lawsuits, a federal securities class action and a state law
derivative class action (collectively, the "Shareholder Lawsuits"). The
federal securities class action alleged, among other things, violations of
federal securities laws in connection with the Company's initial public
offering ("IPO") and misstatements in certain of the Company's subsequent
securities law filings. The state law derivative class action alleged, among
other things, breach of fiduciary duty and waste of corporate assets. In
April 1997, the court approved the settlement of the Shareholder Lawsuits on
the following terms: (a) the plaintiff class received $3,000,000 in cash and
the Company transferred to the plaintiff class 1,848,118 shares of its freely
tradeable Common Stock, (b) the parties entered into mutual general releases
and (c) the Shareholder Lawsuits were dismissed. The Company's insurance
carrier and other defendants funded the $3,000,000 cash settlement. The
Company issued 462,029 and 1,386,089 shares of its common stock to the
plaintiffs' counsel and the plaintiffs in July 1997 and January 1998,
respectively. In December 1997, the Company received 166,066 shares of the
Company's common stock from one of the other defendants in the litigation in
exchange for a release from the Company of all potential claims arising out
of, or related to, the Shareholder Lawsuits.
KONA COFFEE CLASS ACTION. In January 1997, the Company was named as
a defendant in a class action lawsuit filed by a group of coffee producers
(the "Kona Litigation"). The plaintiffs have alleged that the defendants,
which includes various retailers, distributors and roasters of coffee,
conspired to, and did in fact, flood the world wide markets with cheaper and
inferior grades of coffee under the false label "Kona Coffee" and that such
actions artificially depressed the price of the plaintiffs' coffee crops,
damaged the reputation enjoyed by Kona Coffee and wrongfully allowed the
defendants to achieve extraordinary profits which should be disgorged to the
plaintiffs. In January 1998, the Court approved a magistrate's ruling, which
granted the defendants' motion to deny class certification of the litigation.
The plaintiffs are in the process of appealing this ruling.
In January 1998, the Company's insurer notified the Company that it
had agreed to assume defense of the case, subject to its standard reservation
of rights. The insurer is reviewing the legal and other litigation-related
bills paid to date by the Company for the purpose of determining which bills
it will reimburse to the Company.
The defendants, including the Company, are in negotiations with the
plaintiffs to settle this litigation. In the meantime, pending the results of
those negotiations, the Company intends to continue to defend vigorously this
litigation. It is not possible at this time to predict the outcome of this
litigation.
ADAMS & WABASH COFFEE BAR LITIGATION. In December 1996, the landlord
for the Adams & Wabash Coffee bar sued the Company, as guarantor on the lease,
for the unpaid rents, other damages, expenses and attorney fees. In June
1997, the landlord obtained a judgment against the Company for $350,000. In
January 1998, the Company and the landlord settled the claim for $250,000,
and the landlord dismissed the suit and terminated the lease with the
Company. At December 26, 1997, the claim was included in accrued loss and
other costs for discontinued retail operations.
NASSAU & LIBERTY DARK LEASE LITIGATION. In 1997, the landlord for
the Nassau & Liberty Dark Lease sued and obtained a judgment against the
Company for unpaid rents through February 1996, costs and attorney's fees
totaling $128,000. The landlord has filed another action against the Company
for unpaid rents from March 1996 through June 1997 totaling $270,000. The
Company is appealing the court decision and has posted a bond to stay
collection of any part of the judgment pending the decision on the appeal.
The Company has estimated $111,000 to settle this claim and has reserved for
this contingency in accrued loss and other costs for discontinued retail
operations.
EMPLOYEE LITIGATION. A former officer has sued the Company in
Florida State Court for (1) $375,000 in fees allegedly owed to him for
consulting services that he rendered to the Company in 1995, (2)
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approximately $18,000 of out-of-pocket expenses incurred by him in rendering
such consulting services and (3) attorneys' fees and costs. The lawsuit
alleges breach of an oral consulting contract, detrimental reliance by the
former officer and quantum merit. The Company believes that it agreed to pay
the consulting fees sought by the former officer only if it successfully
completed a strategic alliance transaction in 1995. Such a transaction never
occurred. The Company has offered to pay the former officer $30,000 in
complete settlement of all of his claims (consisting of the former officer's
out-of-pocket expenses plus $12,000; any remaining amounts being referred to
herein as the "Disputed Claims"). The former officer has not responded to the
Company's offer. In the meantime, the parties have continued to conduct
discovery. In the event the former officer does not accept the Company's
settlement offer, the Company intends to continue to defend vigorously the
Disputed Claims. It is not possible at this time to predict the outcome of
this litigation.
SECOND CUP WARRANTY CLAIMS/LITIGATION. In connection with the sale
of Gloria Jean's, the Company indemnified Second Cup for representations and
warranties under the purchase agreement. In January 1998, the Company agreed
to pay $441,000 of the sales proceeds held in escrow to Second Cup for the
settlement of certain of the outstanding claims. The Company and Second Cup
are currently negotiating the settlement of claims totaling an additional
$1,319,000. The amount of certain other claims is not determinable at
December 26, 1997. The Company disputes certain claims and amounts of certain
claims. The Company has provided $400,000 in accrued loss and other costs for
discontinued retail operations for such claims. Sales proceeds of $967,000 are
still being held in escrow to pay any remaining obligations under the
purchase agreement.
OTHER LITIGATION. The Company is also involved in routine legal
proceedings incidental to the conduct of its business. Management believes
that none of these routine legal proceedings will have a material adverse
effect on the financial condition or operations of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders of the Company
during the fourth quarter of Fiscal Year 1997.
In May, 1997 at the annual meeting of stockholders of the Company, the
stockholders approved an amendment to the Company's Restated Certificate of
Incorporation to increase the authorized number of shares of Common Stock
from 15,000,000 to 25,000,000.
18
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Brothers' Common Stock is listed on the National Association of Securities
Dealers Automated Quotation ("NASDAQ") National Market, trading under the symbol
"BEAN." Information on sales prices for the Common Stock is set forth below:
<TABLE>
HIGH LOW
---- ---
<S> <C> <C>
First Quarter 1996 4-1/4 3-1/2
Second Quarter 1996 4-1/2 3-7/16
Third Quarter 1996 3-9/16 2-5/16
Fourth Quarter 1996 3-3/8 2-1/4
First Quarter 1997 4-5/8 2-1/2
Second Quarter 1997 3-1/4 2-1/16
Third Quarter 1997 2-7/8 1-1/2
Fourth Quarter 1997 2 15/16
First Quarter 1998 (1) 1-3/16 1/2
</TABLE>
- --------------------
(1) Through March 23, 1998.
As of December 26, 1997, there were approximately 302 holders of record
and in excess of 2,500 beneficial owners of the Company's Common Stock.
The Company has never declared or paid cash dividends on its Common Stock.
The Company currently intends to retain its earnings to provide funds for the
operation and expansion of its business and, therefore, does not anticipate
declaring or paying cash dividends in the foreseeable future. Any payment of
future dividends will be at the discretion of the Board and will depend upon,
among other things, the Company's earnings, financial condition, capital
requirements, level of indebtedness, contractual restrictions with respect to
the payment of dividends and other relevant factors. Further, pursuant to the
terms of its existing debt facilities, the Company is, and will be, restricted
in its ability to pay cash dividends on its Common Stock.
See PART I, ITEM 1. BUSINESS -- CREDIT FACILITIES.
ITEM 6. SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
The following selected financial data for Fiscal Years 1993, 1994, 1995,
1996 and 1997 are derived from the Company's consolidated financial
statements. The operating results of discontinued operations, including
provisions for estimated losses during the phase-out period, have been
segregated from continuing operations and reported as a separate line item on
the statement of operations for Fiscal Years 1993, 1994, 1995, 1996 and 1997.
The data should be read in conjunction with the consolidated financial
statements, selected notes and other financial statements included herein.
19
<PAGE>
<TABLE>
(In thousands, except per share data)
1993(1) 1994 1995 1996 1997
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Sales $ 74,879 $114,165 $ 95,005 $ 72,577 $ 70,122
Cost of goods sold 37,306 58,675 56,460 39,716 37,626
-------- -------- -------- -------- --------
Gross profit 37,573 55,490 38,545 32,861 32,496
Distribution, selling and
marketing expenses 23,185 33,604 35,164 26,186 28,700
Administrative expenses 4,965 8,705 9,694 5,640 5,997
Amortization of intangibles 3,184 3,785 3,373 2,784 2,676
Restructuring charges 7,000 -- 945 291 --
-------- -------- -------- -------- --------
Operating income (loss) from
continuing operations (761) 9,396 (10,631) (2,040) (4,877)
Other (income) expenses
Interest expense, net 4,541 1,625 2,523 2,140 4,059
Litigation settlement -- -- -- 5,500 --
Debt restructuring costs -- -- -- -- 453
Other (income) expenses (173) (538) 47 76 84
-------- -------- -------- -------- --------
Income (loss) from continuing
operations (5,129) 8,309 (13,201) (9,756) (9,473)
Income (loss) from discontinued
operations 1,782 (810) (43,794) (1,400) (3,200)
Extraordinary item--loss from early
extinguishment of debt (4,472) -- -- (156) --
-------- -------- -------- -------- --------
Net income (loss) (7,819) 7,499 (56,995) (11,312) (12,673)
Preferred stock dividend 850 -- -- -- --
-------- -------- -------- -------- --------
Net income (loss) applicable to
common shares $ (8,669) $ 7,499 $(56,995) $(11,312) $(12,673)
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Loss per common share and loss per
common share -- assuming dilution:
Income (loss) from
continuing operations $ (0.67) $ 0.70 $ (1.18) $ (0.87) $ (0.75)
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Income (loss) before
extraordinary item $ (0.44) $ 0.63 $ (5.10) $ (1.00) $ (1.01)
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Net income (loss) $ (1.13) $ 0.63 $ (5.10) $ (1.01) $ (1.01)
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
OTHER DATA:
Earnings before interest, income
taxes, depreciation and amortization
("EBITDA", as defined)(2) $ 15,285 $ 24,219 $ 4,980 $ 10,028 $ 7,210
Cash used in operating
activities (8,970) (12,051) (4,331) (5,254) (747)
Cash (used in) provided by investing
activities (78,870) (8,197) 20,104 1,664 (5,368)
Cash provided by (used in) financing
activities 90,851 15,569 (15,773) 3,590 6,115
BALANCE SHEET DATA (AT END OF PERIOD):
Working capital(3) $ 17,238 $ 22,530 $ 13,687 $ 12,164 $ 11,974
Total assets 165,417 186,297 110,325 109,205 99,013
Long-term debt(4) 19,370 35,035 19,004 21,785 29,556
Stockholders' equity 122,000 129,461 72,757 64,932 57,760
</TABLE>
20
<PAGE>
- --------------------------------
(1) See PART I. ITEM 1. BUSINESS - THE COMPANY above for a discussion of
acquisitions by the Company during fiscal year 1993.
(2) Excludes restructuring charges, litigation settlement, debt restructuring
costs and extraordinary items. Amortization includes amortization of
intangible as well as amortization of prepaid promotional expenses. EBITDA
is not intended to represent cash flow from operations as defined by
Generally Accepted Accounting Principles ("GAAP") and should not be
considered as an alternative to net income as an indicator of the
Company's operating performance or to cash flows as a measure of
liquidity. EBITDA is included in this table as it is a basis upon which
the Company assesses its financial performance. In addition, certain
covenants in the Company's borrowing arrangements are tied to similar
measures.
(3) Excludes current maturities of long-term debt.
(4) Includes current maturities of long-term debt.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction
with the information set forth under PART II, ITEM 6. SELECTED HISTORICAL
CONSOLIDATED FINANCIAL DATA and the consolidated financial statements and
notes thereto for the Company included elsewhere herein. The following
discussion of financial data for Fiscal Years 1997, 1996 and 1995 are derived
from the Company's consolidated financial statements.
The operating results of discontinued operations, including
provisions for estimated losses during the phase-out period, have been
segregated from continuing operations and reported as a separate line item on
the statement of operations for Fiscal Years 1997, 1996, 1995, 1994 and 1993.
The data set forth below should be read in conjunction with the
consolidated financial statements, selected notes and other financial
statements included herein.
FISCAL YEAR 1997 COMPARED WITH FISCAL YEAR 1996
The information set forth below compares the Company's operating
results for Fiscal Year 1997 with its operating results for Fiscal Year 1996.
NET SALES. Net sales decreased by $2.5 million, or 3.4% in Fiscal
Year 1997 compared to Fiscal Year 1996. The decrease was due principally to a
$6.5 million reduction in volume (1.4 million pounds) as a result of the loss
of certain customers and decreased consumer demand for gourmet coffee due to
higher retail coffee prices. The decrease was offset in part by $4.0 million
of improved sales price realization ($.29 per pound) due to higher wholesale
coffee prices.
COST OF GOODS SOLD. Cost of goods sold decreased by $2.1 million, or
5.3%, in Fiscal Year 1997 compared to Fiscal Year 1996. The decrease occurred
principally as a result of (1) a 1.4 million decline in pound volume
resulting in a $3.6 million reduction in cost of goods sold, (2) a $2.1
million reduction due to the sale of green coffee and (3) a $.7 million
decrease in packaging and plant labor and overhead costs. These reductions
were offset in part by a $4.3 million increase in green coffee costs ($.33
per pound).
DISTRIBUTION, SELLING AND MARKETING EXPENSES. Distribution, selling
and marketing expenses increased by $2.5 million, or 9.6%, in Fiscal Year
1997 compared to Fiscal Year 1996. The increase was due principally to
increased customer expenses of $1.6 million in the area of rebates and
advertising allowances, specifically for new customer agreements and customer
renewals. Direct store delivery ("DSD") costs increased $.8 million as a result
of the increase in the number of DSD routes and related
21
<PAGE>
vehicle, rent and payroll costs. The number of new routes increased by 10, or
20.4%, since the third quarter of Fiscal Year 1996. Advertising expenses
increased by $.1 million due to an increase in consumer promotions.
Distribution, selling and marketing expenses, as a percentage of sales,
increased to 40.9% in Fiscal Year 1997 compared to 36.1% in Fiscal Year 1996.
ADMINISTRATIVE EXPENSES. Administrative expenses increased by $.4
million, or 6.3%, in Fiscal Year 1997 compared to Fiscal Year 1996. The
increase was due principally to a $.3 million increase in legal expenses
associated with the Kona Coffee Class Action.
AMORTIZATION OF INTANGIBLES. Amortization of intangibles decreased
by $.1 million, or 3.9% in Fiscal Year 1997 compared to Fiscal Year 1996 due
to reductions in amortization of non-compete agreements.
RESTRUCTURING CHARGES. Restructuring charges decreased by $.3
million, in Fiscal Year 1997 compared to Fiscal Year 1996. The decrease was
due principally to the Company's implementation of its 1995 Restructuring
Plan, the closing of its Denver, Colorado and Pittsburgh, Pennsylvania
roasting and packaging facilities, the payment of certain severance costs and
the payment of other related restructuring costs.
OPERATING INCOME (LOSS) FROM CONTINUING OPERATIONS. As a result of
the above mentioned factors, the operating loss from continuing operations
increased by $2.8 million in Fiscal Year 1997 compared to Fiscal Year 1996.
INTEREST EXPENSE. Interest expense increased by $1.9 million, or
89.7%, in Fiscal Year 1997 compared to Fiscal Year 1996. The increase was due
principally to higher outstanding borrowings and higher effective interest
rates under the Company's outstanding indebtedness.
DEBT RESTRUCTURING COSTS. During the third quarter of Fiscal Year
1997, the Company expensed $.5 million of debt restructuring costs. These
costs included $.2 million of increased costs due to Covenant Defaults under
the Credit Facility and Subordinated Note, $.2 million for bank commitment
fees associated with a restructuring of the Credit Facility that was not
finalized and $.1 million of debt costs associated with the Credit Facility
that was written off at the closing of the Restated Credit Facility.
INCOME (LOSS) FROM DISCONTINUED OPERATIONS. Loss from discontinued
operations increased by $1.8 million, in Fiscal Year 1997 compared to Fiscal
Year 1996. During 1997, the Company accrued an additional $1.4 million for the
Gloria Jean's Franchise Litigation, plus an additional $1.8 million for
remaining obligations associated with the sale of the Gloria Jean's business and
the closing of its Coffee Bars.
EXTRAORDINARY ITEM. Extraordinary item decreased by $.1 million in
Fiscal Year 1997 compared to Fiscal Year 1996. No extraordinary items were
recorded in Fiscal Year 1997.
NET INCOME (LOSS). Net loss increased by $1.4 million, or 12.1%, in
Fiscal Year 1997 compared to Fiscal Year 1996. The increase was due principally
to decreased gross profit, higher operating expenses, higher interest and loss
on discontinued retail operations, partially offset by the decreased litigation
settlement.
FISCAL YEAR 1996 COMPARED WITH FISCAL YEAR 1995
The information set forth below compares the Company's operating
results for Fiscal Year 1996 with its operating results for Fiscal Year 1995.
SALES. Sales decreased by $22.4 million, or 23.6%, in Fiscal Year
1996 compared to Fiscal Year 1995, principally due to a 4.3 million decline
in pound volume. The decline resulted from (1) the loss of certain
customers (approximately $10.8 million), (2) reductions in sales due to
pricing pressures (approximately $2.0 million) and (3) same store sales
declines (approximately $9.6 million). Competitive
22
<PAGE>
pressure to provide unprofitable promotional contracts, principally in the
form of product placement costs, was the primary reason for the loss of
customers. Also, liquidity constraints limited the Company's ability to
increase its marketing and promotional spending on its products.
COST OF GOODS SOLD. Cost of goods sold decreased by $16.7 million,
or 29.7%, in Fiscal Year 1996 compared to Fiscal Year 1995. The decrease
occurred principally as a result of (1) a 4.3 million decline in pound volume
resulting in a $10.8 million reduction in cost of goods sold, (2) a $0.32 per
pound decline in green coffee and other material costs resulting in a $4.9
million decline in cost of goods sold (3) and a reduction in plant labor and
overhead costs resulting in a $1.0 million reduction in cost of goods sold.
GROSS PROFIT AND GROSS PROFIT MARGIN. Gross profit decreased by $5.7
million, or 14.7%, in Fiscal Year 1996 compared to Fiscal Year 1995. Lower
sales volume of 4.3 million pounds reduced gross profit by $11.6 million
partially offset by a $4.9 million decline in green coffee and material costs
and a $1.0 million reduction in plant labor and overhead costs.
Gross profit margin as a percentage of sales improved from 40.6% in
Fiscal Year 1995 to 45.3% in Fiscal Year 1996, principally due to lower green
coffee and material costs, and lower plant overhead costs.
DISTRIBUTION, SELLING AND MARKETING EXPENSES. Distribution, selling
and marketing expenses decreased by $9.0 million, or 25.5%, in Fiscal Year
1996 from Fiscal Year 1995 due to lower marketing, advertising and
promotional expenses, product placement costs, distribution costs and
salaries. Distribution, selling and marketing expenses, as a percentage of
sales, decreased to 36.1% in Fiscal Year 1996 from 37.0% in Fiscal Year 1995
principally due to the same factors.
ADMINISTRATIVE EXPENSES. Administrative expenses decreased by $4.1
million, or 41.8%, in Fiscal Year 1996 compared to Fiscal Year 1995,
principally due to (1) $1.2 million in lower salaries and payroll expenses,
(2) $1.5 million in reduced professional fees and (3) $1.4 million in reduced
bad debt expense. Administrative expenses decreased from 10.2% of sales in
Fiscal Year 1995 to 7.8% of sales in Fiscal Year 1996.
AMORTIZATION OF INTANGIBLES. Amortization of intangibles decreased
by $.6 million, or 17.5%, in Fiscal Year 1996 compared to Fiscal Year 1995
due to reductions in amortization of non-compete agreements.
RESTRUCTURING CHARGES. Restructuring charges decreased by $.7
million, or 69.2%, in Fiscal Year 1996 compared to Fiscal Year 1995 due to
the Company's implementation of its 1995 Restructuring Plan, the closing of
its Denver, Colorado and Pittsburgh, Pennsylvania roasting and packaging
facilities, the payment of certain severance costs and the payment of other
related restructuring costs.
OPERATING INCOME (LOSS) FROM CONTINUING OPERATIONS. As a result of
the above mentioned factors, the operating loss from continuing operations
decreased by $8.6 million, or 80.8%, in Fiscal Year 1996 compared to Fiscal
Year 1995.
INTEREST EXPENSE. Interest expense decreased by $.4 million, or
15.2%, in Fiscal Year 1996 compared to Fiscal Year 1995 due to lower
outstanding borrowings under the Company's revolving credit facilities.
LITIGATION SETTLEMENT. Litigation settlement expense increased $5.5
million during Fiscal Year 1996 compared to Fiscal Year 1995. In late 1996,
the Company agreed to settle the Shareholder Class Action and Shareholder
Derivative Action. The combined settlement aggregated $8.5 million, $3.0
million of which was paid by the Company's insurance carrier and other
defendants. The Company agreed to pay the remaining $5.5 million in the form
of freely tradeable common stock to be issued by the Company.
23
<PAGE>
INCOME (LOSS) FROM DISCONTINUED OPERATIONS. Loss from
discontinued retail operations and loss on disposal of discontinued retail
operations decreased by $42.4 million in Fiscal Year 1996 compared to Fiscal
Year 1995.
EXTRAORDINARY ITEM. Extraordinary item increased $.2 million
in Fiscal Year 1996 compared to Fiscal Year 1995. The Company incurred a $.2
million extraordinary loss from early extinguishment of debt during Fiscal
Year 1996.
NET INCOME (LOSS). Net loss decreased by $45.7 million, or
80.2%, in Fiscal Year 1996 compared to Fiscal Year 1995 due primarily to
decreases in cost of goods sold, lower operating expenses and decreased loss
from discontinued retail operations partially offset by the litigation
settlement.
YEAR 2000 COMPLIANCE
Until recently, many computer programs were written using two digits
rather than four digits to define the applicable year in the twentieth century.
Such software may recognize a date using "00" as the year 1900 rather than the
year 2000. Utilizing both internal and external resources, the Company is in the
process of defining, assessing and converting or replacing various programs,
hardware and instrumentation systems to make them Year 2000 compatible. The
Company's Year 2000 project is comprised of two components - business
applications and equipment. The business applications component consists of the
Company's business computer systems, as well as the computer systems of
third-party suppliers or customers, whose Year 2000 problems could potentially
impact the Company. Equipment exposures consist of personal computers, system
servers, telephone equipment and roasting and packaging equipment whose Year
2000 problems could also impact the Company. The cost of the Year 2000
initiatives is not expected to be material to the Company's results of
operations or financial position.
LIQUIDITY AND CAPITAL RESOURCES
In December 1997, GSCP acquired, by way of assignment, 100% of the
Company's loans under the Credit Facility, and, in connection therewith, the
Company and GSCP amended and restated the Credit Facility. The Restated
Credit Facility consists of (1) up to a $21.5 million Revolving Loan, (2) a
$2.25 million Term Loan A and (3) a $4.25 million Term Loan B. Immediately
following the closing, the outstanding balance of the Restated Credit
Facility was $15.565 million consisting of (1) $9.065 million of the Revolving
Loan, (2) all $2.25 million of Term Loan A and (3) all $4.25 million of Term
Loan B. The Company paid $.6 million in fees and $.2 million in other closing
costs and expenses. The Restated Credit Facility matures on May 29, 1999. The
Revolving Loan and Term Loan A bear interest at prime plus 2%. Term Loan B
bears interest at 11.75% fixed.
In December 1996, the Company entered into the Subordinated Note
financing with Dilmun. The Subordinated Note is in the principal amount of $15
million, matures on December 26, 2002 and bears interest at 11.25% fixed. At
December 26, 1997, the Company was not in compliance with the cash flow to debt
service covenants in its Subordinated Note agreement. Pursuant to the terms of
the Subordinated Note, management has determined that the lender does not have
the right to accelerate repayment of the Subordinated Note solely because of the
covenant defaults and, accordingly, the Company has continued to classify the
outstanding borrowings as long-term.
As of December 26, 1997, the Company had outstanding $32.7 million of
institutional indebtedness, consisting of $17.7 million under its Restated
Credit Facility and $15.0 million under the Subordinated Note.
During Fiscal Year 1997, the Company's weighted average interest
expense was 9.4%.
24
<PAGE>
During Fiscal Year 1997, the Company used the proceeds from its debt
facilities, proceeds from operations and proceeds from sales of discontinued
operations to fund (1) $5.8 million of capital expenditures and (2) $.8
million of cash used in continuing and discontinued operations.
During Fiscal Year 1997, the Company's net cash provided from
continuing operating activities was $1.6 million principally due to decreases
of (1) $4.3 million in accounts receivable and (2) $4.3 million in inventory.
The Company expects that its Fiscal Year 1998 expenditures and slotting
payments for customer contracts will not exceed $6.0 million principally due
to (1) decreases in plant and customer display equipment expenditures and (2)
fewer major customer contracts coming up for renewal during Fiscal year 1998.
Also, recent declines in green coffee prices during the first quarter of
Fiscal Year 1998 will translate into reduced inventory working capital
requirements. Reductions in capital expenditures, slotting payments and
inventory working capital requirements are expected to improve the Company's
liquidity position. Uncertainty regarding the collection of certain
receivables and potential liabilities related to the guarantee of certain
lease obligations associated with discontinued retail operations may have an
adverse effect on the Company's liquidity.
Based on available resources, the Company will be able to fund its
current and long-term capital needs and maintain its commitment to on-going
operating growth strategies, which include product promotional expenditures
(slotting payments) and capital expenditures for new and existing customers,
capital expenditures at the Company's roasting and packaging facility and
certain obligations related to discontinued retail operations. At December 26,
1997, borrowing availability under the Revolving Loan was $4.6 million.
SUBSEQUENT EVENTS
In January 1998, the Company issued the remaining 1,386,089 shares
of Common Stock to the plaintiffs in the Shareholder Class Action pursuant to
the terms of the settlement agreement executed by the parties during the
first quarter of Fiscal Year 1997.
In January 1998, (a) the Company and Second Cup settled certain of
Second Cup's remaining indemnity claims, (b) the Company agreed to release
$0.44 million from escrow to Second Cup and (c) Second Cup agreed to withdraw
or reduce its remaining claims by $0.12 million and to pay to the Company
$0.17 million, all of which was paid directly by Second Cup outside of the
escrow.
In January 1998, The Hartford Insurance Company, one of the
Company's insurers notified the Company that it had agreed to assume the
defense of the Kona Litigation, subject to its standard reservation of rights.
In January 1998, the Company and the landlord agreed to settle the
Adams & Wabash Coffee bar Litigation. The Company has agreed to pay the
landlord $.25 million and, in exchange therefore, the landlord has agreed to
drop all of its claims against the Company, to dismiss its lawsuit and to
terminate the lease and release the Company from all further obligations
thereunder.
In March 1998, the Company announced that it had retained the
investment banking firm of Schroder & Co., Inc. ("Schroder") to help it
evaluate the Company's brand, business and growth strategy and to identify
potential methods and opportunities to enhance shareholder value. The Company
has formed a special committee of the Board to evaluate potential
transactions and opportunities presented by Schroder. In connection with the
retention of Schroder, the Board has approved management stay bonus
arrangements for certain key employees to retain their services in the event
the Company enters into a transaction. At this time, the Company is exploring
possible transactions and has not entered into, and is not obligated to enter
into, any agreement with any third party to proceed with any transaction.
On March 27, 1998, GSCP and the Company entered into the First
Amendment to the Restated Credit Agreement, which modified certain of the
covenants and definitions in the Restated Credit Agreement. See PART I,
ITEM 1. BUSINESS--DEBT FACILITIES above.
25
<PAGE>
IMPACT OF INFLATION
During Fiscal Year 1994, green coffee cost increases to the Company
were not materially related to inflation, but were caused by the effects of
weather-related price increases. See PART I, ITEM I. BUSINESS -- SUPPLY OF
COFFEE. Recently, green coffee prices have increased over 50%, but these
increases do not appear to be inflation related. Such price increases may
have an adverse effect on the Company's operating results and profitability
in the future. See PART II, ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary financial data required
by this ITEM 8. are set forth in ITEM 14. of this Form 10-K. All information
which has been omitted is either inapplicable or not required.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
The Company had no disagreements with its accountants during Fiscal
Year 1997 and during the first quarter of Fiscal Year 1998.
During the fiscal quarter ended June 27, 1997, the Company changed
its method of accounting for inventories from the last-in, first-out (LIFO)
method to the first-in, first-out (FIFO) method. The Company believes the
change is preferable because (1) due to recent operating losses and demands
on liquidity, users of the Company's consolidated financial statements are
principally interested in understanding the Company's current financial
position, and the FIFO method better illustrates that position, (2) the FIFO
method provides a better matching of current costs with revenues and (3) the
FIFO method is the predominant method used by the Company's competitors and
peer group.
The change in method of inventory costings has been applied
retroactively by restating the prior years' consolidated financial statements.
The effect of the change was an increase in net loss of $1,131,000 and
$3,509,000 during Fiscal Year 1996 and 1995, respectively. The net effect on the
balance sheet as of December 27, 1996, was to decrease inventory and increase
accumulated deficit by $98,000.
PART III
The information required by ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
OF THE REGISTRANT; ITEM 11. EXECUTIVE COMPENSATION; ITEM 12. SECURITY OWNERSHIP
OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT"; and ITEM 13. CERTAIN RELATIONSHIPS
AND RELATED TRANSACTIONS, is incorporated herein by reference to any amendment
filed hereto on Form 10-K/A or, alternatively, to the Company's definitive Proxy
Statement for its 1998 Annual Meeting of Stockholders, which shall be filed with
the Securities and Exchange Commission within 120 days from the end of Fiscal
Year 1997.
26
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND REPORTS ON FORM 8-K
(a) AND (d) FINANCIAL STATEMENTS AND SCHEDULE
The financial statements and schedule listed in the accompanying Index
of Financial Statements and Schedule (starting on Page F-1) are filed as part of
this Annual Report.
(b) REPORTS ON FORM 8-K
1. Form 8-K filed with the Securities and Exchange Commission
(the "SEC") on December 17, 1997, announcing the closing of
the Restated Credit Facility.
2. Form 8-K filed with the SEC on March 2, 1998, announcing the
Company's engagement of Schroder & Co., Inc.
27
<PAGE>
(c) EXHIBITS
All exhibits listed hereunder, unless otherwise indicated, have
previously been filed as exhibits to Registration Statement No. 33-70236
(effective December 9, 1993) and/or subsequent Forms 10-Q, 10-Q/A, Forms 10-K
and/or Forms 8-K, when and as so indicated. Such exhibits have been filed with
the Securities and Exchange Commission ("Commission") pursuant to the
requirements of the Acts administered by the Commission. Such exhibits are
incorporated herein by reference under Rule 24 of the Commission's Rules of
Practice and Investigations. Certain other instruments which would otherwise be
required to be listed below have not been so listed because such instruments do
not authorize securities in an amount which exceeds 10% of the total assets of
the Company and its subsidiaries on a consolidated basis and the Company agrees
to furnish a copy of any such instrument to the Commission upon request.
Exhibit
Number Description
- ------ -----------
3.1 Restated Certificate of Incorporation.
3.2 Certificate of Amendment to Restated Certificate of Incorporation
(incorporated by reference to the Company's Report on Form 10-Q, filed
August 11, 1997).
4 Specimen of Common Stock Certificate.
4.1 Restated Bylaws (incorporated by reference to the Company's Current
Report on Form 8-K, filed March 2, 1995).
4.2 Rights Agreement between the Company and Chemical Bank, dated as of
March 31, 1995, which includes the Certificate of Designation in
respect of the Series A Preferred Stock as Exhibit A thereto, the form
of Right Certificate as Exhibit B thereto and the Summary of Rights to
Purchase Series A Preferred Stock as Exhibit C thereto (incorporated by
reference to the Company's Current Report on Form 8-K, filed April 11,
1995).
10.1 Form of Indemnification Agreement.
10.2 Stock Purchase Agreement among the Company, Chock Full O'Nuts
Corporation and Hillside Holding Corporation dated October 8, 1993.
10.3 Stock Purchase Agreement among the Company and all of the stockholders
of Edglo Enterprises dated October 6, 1993.
10.4 Amended and Restated Stock Option Plan, dated March 1993, as amended.*
10.5 Management Incentive Stock Option Plan dated June 5, 1990, as amended.*
10.6 Non-Qualified Stock Option Plan dated June 5, 1990, as amended.*
10.7 Registration Rights Agreement among the Company and Several Investors
dated as of December 30, 1992.
10.8 Registration Rights Agreement among the Company, J.H. Whitney & Co.,
Whitney 1990 Equity Fund, L.P. and Whitney Subordinated Debt Fund, L.P.
dated as of December 30, 1992.
10.9 Registration Rights Agreement among the Company and Several Investors
dated as of November 19, 1993.
28
<PAGE>
10.10 Registration Rights Agreement between the Company and Steven Shulman
dated as of November 18, 1993.
10.11 First Amendment to Amended and Restated Executive Employment Agreement
between the Company and Dennis Boyer, dated as of April 17, 1995
(incorporated by reference to the Company's Quarterly Report filed on
Form 10-Q for the fiscal quarter ended March 31, 1995).
10.12 Severance Agreement between the Company and Michael J. Carlin, dated as
of April 26, 1995 (incorporated by reference to the Company's Quarterly
Report filed on Form 10-Q for the fiscal quarter ended March 31, 1995).
10.13 Stock Purchase Agreement by and between Brothers Retail Corp. and The
Second Cup Ltd., dated October 16, 1995, as amended by that certain
Amendment to Stock Purchase Agreement, dated November 9, 1995, by and
between Brothers Retail Corp. and Gloria Jean's Inc., as assignee of
The Second Cup Ltd. (incorporated by reference to the Company's
Quarterly Report filed on Form 10-Q for the fiscal quarter ended
September 30, 1995).
10.14 Agreement of Sale by and among Diedrich Coffee (as Purchaser) and
Brothers Coffee Bars, Inc. and Brothers Gourmet Coffees, Inc. (as
Sellers), dated as of February 23, 1996 (incorporated by reference to
the Company's Annual Report on Form 10-K for the fiscal year ended
December 29, 1995).
10.15 Executive Employment Agreement by and between the Company and Mr.
Donald Breen, dated as of January 18, 1996 (incorporated by reference
to the Company's Annual Report on Form 10-K for the fiscal year ended
December 29, 1995).
10.16 Agreement of Sale by and among Foster Brothers Corporation and Brothers
Coffee Bars, Inc., Brothers Gourmet Coffees, Inc., and Brothers Retail
Corp., and joined in by Kent Foster, dated as of March 27, 1996
(incorporated by reference to the Company's Quarterly Report filed on
Form 10- Q for the fiscal quarter ended March 28, 1996).
10.17 Loan and Security Agreement, by and among Brothers Gourmet Coffees,
Inc., as borrower, and Sanwa Business Credit Corporation, as agent and
lender, dated as of May 29, 1996 (incorporated by reference to the
Company's Quarterly Report on Form 10-Q for the fiscal quarter ended
June 28, 1996).
10.18 Agreement of Sale by and among Foster Brothers Corporation and Brothers
Coffee Bars, Inc., and Brothers Gourmet Coffees, Inc., and joined in by
Kent Foster, dated as of May 30, 1996.
10.19 Credit Support Agreement, by and among Brothers Gourmet Coffees, Inc.,
J.H. Whitney & Co. and J.P. Bolduc, dated as of May 29, 1996
(incorporated by reference to the Company's Quarterly Report on Form
10-Q for the fiscal quarter ended June 28, 1996).
10.20 Securities Purchase Agreement, by and among Brothers Gourmet Coffees,
Inc., as borrower, and Siena Capital Partners, L.P., as lender, dated
as of September 20, 1996 (incorporated by reference to the Company's
Quarterly Report on Form 10-Q for the fiscal quarter ended September
27, 1996).
10.21 First Amendment and Consent to Loan and Security Agreement, by and
among Brothers Gourmet Coffees, Inc., as borrower, and Sanwa Business
Credit Corporation, as agent and lender, dated as of September 20, 1996
(incorporated by reference to the Company's Quarterly Report on Form
10-Q for the fiscal quarter ended September 27, 1996).
10.22 Second Amendment and Consent to Loan and Security Agreement, by and
among Brothers Gourmet Coffees, Inc., as borrower, and Sanwa Business
Credit Corporation, as agent and lender, dated as of December 27, 1996
(incorporated by reference to the Company's Report on Form 8-K, dated
January 10, 1997).
29
<PAGE>
10.23 Senior Subordinated Note Agreement, by and among Brothers Gourmet
Coffees, Inc., as borrower, and Dilmun Financial Services, as lender,
dated as of December 27, 1996 (incorporated by reference to the
Company's Report on Form 8-K, dated January 10, 1997).
10.24 Forbearance Agreement, by and between the Company and Sanwa, dated as
of May 15, 1997 (incorporated by reference to the Company's Report of
Form 10-Q/A, dated June 13, 1997).
10.25 Second Amendment to Forbearance Agreement, by and between the Company
and Sanwa, dated as of August 15, 1997 (incorporated by reference to
the Company's Report of Form 10-Q, dated November 14, 1997).
10.26 Third Amendment to Forbearance Agreement, by and between the Company
and Sanwa, dated as of October 31, 1997 (incorporated by reference to
the Company's Report of Form 10-Q, dated November 14, 1997).
10.27 Fourth Amendment to Forbearance Agreement, by and between the Company
and Sanwa, dated as of November 28, 1997 (incorporated by reference to
the Company's Report of Form 10-Q, dated November 14, 1997).
10.28 Amended and Restated Loan and Security Agreement, by and among the
Company (as borrower), the Lenders named therein and Goldman Sachs
Credit Partners, L.P. as agent and Lender, dated as of December 9,
1997.**
10.29 Subordination Agreement, by and among Sanwa, Dilmun and BIB Holdings
(Bermuda) Ltd, dated as of December 27, 1996.**
10.30 First Amendment to (Mr. Breen's) Executive Employment Agreement.
10.31 Letter from Ernst & Young LLP regarding Change of Accounting Method
(incorporated by reference to the Company's Report on Form 10-Q, dated
August 11, 1997)
10.32 Common Stock Purchase Warrant between the Company and Brothers Warrant
Holdings I, dated as of December 27, 1996.**
10.33 Amendment to Common Stock Purchase Warrant between the Company and
Brothers Warrant Holdings I, dated as of December 9, 1997.**
10.34 Common Stock Purchase Warrant between the Company and Siena Capital
Partners, L.P., dated as of September 20, 1996.**
10.35 Amendment to Common Stock Purchase Warrant between the Company and
Siena Capital Partners, L.P., dated as of December 9, 1997.**
10.36 Common Stock Purchase Warrant between the Company and Goldman Sachs
Credit Partners, L.P., dated as of December 9, 1997. **
10.37 Form of Senior Management Stay Bonus Letter. **
10.38 Form of Key Employee Stay Bonus Letter. **
10.39 First Amendment to Amended and Restated Loan and Security Agreement,
dated as of March 27, 1998.**
21 List of Subsidiaries.**
23 Consent of Ernst & Young LLP.**
27 Financial Data Schedule.**
30
<PAGE>
- --------------------
* Compensatory plans in which directors and officers participate and which are
not available to all employees.
** Filed herewith.
31
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
BROTHERS GOURMET COFFEES, INC.
By: /s/ DONALD D. BREEN
----------------------------------
DONALD D. BREEN
PRESIDENT, CHIEF EXECUTIVE OFFICER
AND CHIEF FINANCIAL OFFICER
Date: April 7, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following person on behalf of the
registrant and in the capacities and on the dates indicated.
SIGNATURES TITLE DATE
---------- ----- ----
/s/ DONALD D. BREEN President, Chief Executive Officer, April 7, 1998
- ----------------------- Chief Financial Officer, Treasurer
DONALD D. BREEN (Principal Executive Officer and
Principal Financial Officer)
and Director
/s/ BARRY BILMES Vice President of Finance and April 7, 1998
- ------------------------ Administration (Principal Accounting
BARRY BILMES Officer)
/s/ ELIAS F. ABURDENE Director April 7, 1998
- ------------------------
ELIAS F. ABURDENE
/s/ J. P. BOLDUC Director April 7, 1998
- ------------------------
J. P. BOLDUC
/s/ JAMES L. MOORE, JR. Director April 7, 1998
- ------------------------
JAMES L. MOORE, JR.
RAY E. NEWTON, III Director April 7, 1998
- ------------------------
RAY E. NEWTON, III
/s/ RAYMOND B. RUDY Director April 7,1998
- ------------------------
RAYMOND B. RUDY
32
<PAGE>
INDEX OF FINANCIAL STATEMENTS AND SCHEDULE
<TABLE>
PAGE
----
<S> <C>
Report of Independent Certified Public Accountants............................... F-1
Consolidated Balance Sheets as of December 26, 1997 and December 27, 1996........ F-2
Consolidated Statements of Operations for the Fiscal Years ended
December 26, 1997, December 27, 1996 and December 29, 1995.................... F-4
Consolidated Statements of Changes in Stockholders'
Equity for the Fiscal Years ended December 26, 1997, December 27, 1996 and
December 29, 1995............................................................. F-5
Consolidated Statements of Cash Flows for the Fiscal Years ended
December 26, 1997, December 27, 1996 and December 29, 1995.................... F-6
Notes to Consolidated Financial Statements....................................... F-7
Financial Statement Schedule:
II. Valuation and Qualifying Accounts........................................... S-1
</TABLE>
All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are not
required under the related instructions or are inapplicable, and therefore
have been omitted.
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Shareholders and Board of Directors
Brothers Gourmet Coffees, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of Brothers
Gourmet Coffees, Inc. and subsidiaries as of December 26, 1997 and December
27, 1996 and the related consolidated statements of operations, changes in
stockholders' equity and cash flows for each of the three years in the period
ended December 26, 1997. Our audits also included the financial statement
schedule listed in the Index at Item 14(a). These consolidated financial
statements and financial statement schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements and financial statement schedule based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Brothers Gourmet Coffees, Inc. and subsidiaries as of December 26, 1997 and
December 27, 1996, and the consolidated results of their operations and their
cash flows for each of the three years in the period ended December 26, 1997
in conformity with generally accepted accounting principles. Also, in our
opinion, the related financial statement schedule, when considered in relation
to the basic consolidated financial statements taken as a whole, presents
fairly in all material respects the information set forth therein.
As discussed in Note 1 to the consolidated financial statements, in fiscal
year 1997, the Company changed its method of accounting for inventories from
the last-in, first-out ("LIFO") method to the first-in, first -out ("FIFO")
method. The change in method of inventory costing has been applied
retroactively by restating prior years' consolidated financial statements.
Ernst & Young LLP
West Palm Beach, Florida
March 28, 1998
- ------------------------
F-1
<PAGE>
CONSOLIDATED BALANCE SHEETS
BROTHERS GOURMET COFFEES, INC.
(in thousands)
<TABLE>
December 26, December 27,
1997 1996
------------ ------------
(Restated)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Trade receivables, less allowances of $1,542
for 1997 and $1,766 for 1996 $ 11,118 $ 15,717
Receivables from the sale of discontinued retail
operations 1,818 3,795
Inventories 9,516 13,826
Prepaid expenses and other current assets 836 1,225
-------- ---------
TOTAL CURRENT ASSETS 23,288 34,563
PLANT AND EQUIPMENT, NET 15,839 14,814
OTHER ASSETS
Excess of cost over net assets acquired, net 50,991 52,470
Noncompete agreements, net -- 1,197
Prepaid promotional expense 5,070 3,694
Other assets 1,066 778
Debt acquisition costs, net 2,759 1,689
-------- ---------
TOTAL ASSETS $ 99,013 $109,205
-------- ---------
-------- ---------
</TABLE>
See accompanying notes to consolidated financial statements.
F-2
<PAGE>
CONSOLIDATED BALANCE SHEETS (Continued)
BROTHERS GOURMET COFFEES, INC.
(in thousands, except share amounts)
<TABLE>
December 26, December 27,
1997 1996
------------ ------------
(Restated)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt and capital lease
obligations $ 1,779 $ 1,648
Accounts payable 4,419 8,247
Accrued expenses 5,477 6,498
Accrued litigation settlement -- 5,500
Accrued losses and other costs of discontinued
retail operations 1,389 1,781
Accrued restructuring costs 29 373
-------- --------
TOTAL CURRENT LIABILITIES 13,093 24,047
LONG-TERM DEBT, less current maturities 27,777 20,137
MINORITY INTEREST 83 89
REDEEMABLE WARRANTS 300 --
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred Stock--10,000,000 shares authorized:
$1.00 par value; no shares issued and
outstanding at December 26,1997 and
December 27, 1996 -- --
Common Stock--25,000,000 shares and 15,000,000 shares
authorized at December 26, 1997 and December 27, 1996,
respectively: $.0001 par value; 12,324,890 and 10,400,105 shares
issued and outstanding at December 26, 1997 and December 27,
1996, respectively 1 1
Common Stock, Class B--2,000,000 shares authorized:
$.0001 par value; 839,332 issued and outstanding at
December 26, 1997 and December 27, 1996, respectively -- --
Additional paid-in capital 151,693 145,992
Accumulated deficit in earnings (93,484) (80,811)
Treasury stock-- 203,566 and 37,500 shares, at cost at December
26, 1997 and December 27,1996, respectively (450) (250)
-------- --------
TOTAL STOCKHOLDERS' EQUITY 57,760 64,932
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 99,013 $109,205
-------- --------
-------- --------
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
BROTHERS GOURMET COFFEES, INC.
(in thousands, except per share amounts)
<TABLE>
Year Ended Year Ended Year Ended
December 26, December 27, December 29,
1997 1996 1995
------------ ------------ ------------
(Restated) (Restated)
<S> <C> <C> <C>
Sales $ 70,122 $ 72,577 $ 95,005
Cost of goods sold 37,626 39,716 56,460
-------- -------- --------
GROSS PROFIT 32,496 32,861 38,545
Operating expenses:
Distribution, selling and marketing 28,700 26,186 35,164
Administrative 5,997 5,640 9,694
Amortization of intangibles 2,676 2,784 3,373
Restructuring charges -- 291 945
-------- -------- --------
OPERATING LOSS (4,877) (2,040) (10,631)
Other expenses:
Interest expense, net 4,059 2,140 2,523
Litigation settlement -- 5,500 --
Debt restructuring expense 453 -- --
Other expense 84 76 47
-------- -------- --------
LOSS BEFORE DISCONTINUED
OPERATIONS AND EXTRAORDINARY ITEM (9,473) (9,756) (13,201)
Loss from discontinued retail operations -- -- (5,368)
Loss on disposal of retail operations,
including provision of $6,108 for operating
losses during phase-out period in 1995 (3,200) (1,400) (38,426)
-------- -------- --------
LOSS BEFORE EXTRAORDINARY ITEM (12,673) (11,156) (56,995)
Extraordinary item--loss from early
extinguishment of debt -- (156) --
-------- -------- --------
NET LOSS $(12,673) $(11,312) $(56,995)
-------- -------- --------
-------- -------- --------
Loss per common share and loss per common
share--assuming dilution:
Loss from continuing operations $ (0.75) $ (0.87) $ (1.18)
Loss before extraordinary item $ (1.01) $ (1.00) $ (5.10)
Net loss $ (1.01) $ (1.01) $ (5.10)
Weighted average common shares outstanding 12,601 11,202 11,184
-------- -------- --------
-------- -------- --------
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
BROTHERS GOURMET COFFEES, INC.
(in thousands, except share amounts)
<TABLE>
Additional Accumulated Total
Preferred Common Paid-in Deficit in Treasury Stockholders'
Stock Stock Capital Earnings Stock Equity
------- ----- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 30, 1994
(restated) $ -- $ 1 $142,214 $(12,504) $ (250) $129,461
Issuance of 47,558 shares of
common stock in exercise
of options -- -- 291 -- -- 291
Net loss for the year (restated) -- -- -- (56,995) -- (56,995)
------ ------ -------- -------- ------ --------
Balance at December 29, 1995
(restated) -- 1 142,505 (69,499) (250) 72,757
Issuance of 1,848,626 warrants
to purchase shares of common
stock -- -- 3,487 -- -- 3,487
Net loss for the year (restated) -- -- -- (11,312) -- (11,312)
------ ------ -------- -------- ------ --------
Balance at December 27, 1996
(restated) -- 1 145,992 (80,811) $ (250) $ 64,932
Issuance of 1,924,785 shares of
common stock in settlement of
litigation -- -- 5,701 -- -- 5,701
Value of contribution of 166,066 --
shares of common stock -- -- -- (200) (200)
Net loss for the year -- -- -- (12,673) -- (12,673)
------ ------ -------- -------- ------ --------
Balance at December 26, 1997 $ -- $ 1 $151,693 $(93,484) $ (450) $ 57,760
------ ------ -------- -------- ------ --------
------ ------ -------- -------- ------ --------
</TABLE>
See accompanying notes to consolidated financial statements
F-5
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
BROTHERS GOURMET COFFEES, INC.
(in thousands)
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
December December December
26, 1997 27, 1996 29, 1995
-------- -------- --------
(Restated) (Restated)
<S> <C> <C> <C>
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES
Net loss $(12,673) $(11,312) $(56,995)
Adjustments to reconcile net loss to net cash provided
by (used in) operating activities:
Discontinued retail operations 3,200 1,400 43,794
Accrued litigation settlement -- 5,500 --
Depreciation 4,755 4,861 6,198
Amortization of prepaid promotional expenses 4,741 4,208 5,142
Other amortization 3,553 3,397 3,730
Provision for doubtful accounts 626 892 6,186
Noncash debt restructuring costs 137 -- --
Noncash restructuring charges -- 291 267
Other (104) (151) 48
Gain from sale of plant and equipment -- -- (14)
Extraordinary loss on early extinguishment of debt -- 156 --
Changes in operating assets and liabilities:
Trade receivables 3,630 (2,255) 1,218
Receivables from sale of discontinued retail
operations -- -- (6,271)
Inventories 4,310 (6,403) 10,517
Promotional expenses (5,974) (2,853) (3,404)
Prepaid expenses and other current assets 389 (301) (350)
Accounts payable (3,828) 1,803 (3,067)
Accrued expenses (849) 614 (2,621)
Accrued acquisition costs -- -- (303)
Accrued restructuring costs (344) (1,106) (758)
-------- -------- --------
NET CASH (USED IN) PROVIDED BY OPERATING
ACTIVITIES
Continuing Operations 1,569 (1,259) 3,317
Discontinued Retail Operations (2,316) (3,995) (7,648)
-------- -------- --------
(747) (5,254) (4,331)
CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES
Purchases of plant and equipment (5,780) (3,256) (3,581)
Proceeds from sale of plant and equipment:
Continuing Operations -- 31 185
Discontinued Retail Operations 412 4,889 23,500
-------- -------- --------
NET CASH (USED IN) PROVIDED BY INVESTING
ACTIVITIES (5,368) 1,664 20,104
</TABLE>
F-6
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
BROTHERS GOURMET COFFEES, INC.
(in thousands)
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
December December December
26, 1997 27, 1996 29, 1995
-------- -------- --------
(Restated) (Restated)
<S> <C> <C> <C>
CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES
Proceeds from subordinated debt -- 15,000 --
Proceeds from term loan 6,500 7,500 --
Proceeds from short term note payable -- 3,000 --
Payment of short term note payable -- (3,000) --
Debt issuance costs (1,569) (2,253) --
Proceeds from revolving line of credit 36,730 51,345 161,527
Payment of revolving line of credit (28,719) (67,182) (177,558)
Payment of term loan (6,750) (750) --
Issuance of common stock, net of costs -- -- 258
Payment of other debt (77) (70) --
-------- -------- ---------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 6,115 3,590 (15,773)
-------- -------- ---------
DECREASE IN CASH -- -- --
Cash, beginning of year -- -- --
-------- -------- ---------
CASH, END OF YEAR $ -- $ -- $ --
-------- -------- ---------
-------- -------- ---------
SUPPLEMENTAL NON-CASH INVESTING AND FINANCING ACTIVITIES
Issuance of common stock in settlement of litigation $ 5,701 -- --
Issuance of warrants in connection with debt agreements 300 3,487 --
Value of contributed treasury stock 200 -- --
Fixed assets acquired through capital lease 97 297 --
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BROTHERS GOURMET COFFEES, INC.
December 26, 1997
(in thousands, except share amounts)
NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION: The consolidated financial statements
include the accounts of the Company and its majority-owned subsidiaries and
partnership interests. All significant intercompany transactions and
investments, including those related to the Company's former subsidiaries,
have been eliminated in the Company's consolidated financial statements.
NATURE OF BUSINESS, MAJOR CUSTOMERS AND CREDIT CONCENTRATION: The
Company is an integrated source, roaster and wholesaler of high quality
gourmet coffee products. The Company participates in the wholesale
distribution channel through sales of gourmet coffee to supermarkets, grocery
and drug stores, military commissaries, warehouse stores, mass merchandisers,
and specialty stores. The Company markets a variety of brands throughout the
United States. During Fiscal Year 1997, two supermarket chains comprised 17%
and 11% of the Company's net sales. Credit is extended to customers based on
an evaluation of their creditworthiness and collateral is not required.
Credit losses are provided for in the consolidated financial statements based
upon management's previous experience and expectations.
FISCAL YEAR END: The Company's fiscal year consists of 52 or 53
weeks ending on the last Friday in December. The years ended December 26,
1997, December 27, 1996 and December 29, 1995 all consist of 52 weeks.
REVENUE RECOGNITION: Net sales are recognized when products are
shipped. The Company establishes allowances for estimated returns,
allowances and customer term discounts. In addition, accruals for customers'
contractual rebates and advertising allowances are recorded when revenues are
recognized.
INVENTORIES: During the fiscal quarter ended June 27, 1997, the
Company changed its method of accounting for inventories from the last-in,
first-out (LIFO) method to the first-in, first-out (FIFO) method. The Company
believes the change is preferable because (1) due to recent operating losses
and demands on liquidity, users of the Company's consolidated financial
statements are principally interested in understanding the Company's current
financial position, and the FIFO method better illustrates that position, (2)
the FIFO method provides a better matching of current costs with revenues and
(3) the FIFO method is the predominant method used by the Company's
competitors and peer group.
The change in method of inventory costing has been applied
retroactively by restating prior years' financial statements. The effect of
the change was an increase in net loss of $1,131, or $.10 per share, and
$3,509, or $.31 per share, during Fiscal Years 1996 and 1995, respectively.
The net effect on the balance sheet as of December 27, 1996, was to decrease
inventory and accumulated deficit by $98.
The Company's inventories are valued at the lower of cost or market
using the FIFO method. The components of inventories at December 26, 1997 and
December 27, 1996 were as follows:
<TABLE>
1997 1996
------ -------
<S> <C> <C>
Green Coffee $2,606 $ 4,844
Finished Goods 5,851 6,900
Packaging and other supplies 1,059 2,082
------ -------
$9,516 $13,826
------ -------
------ -------
</TABLE>
PREPAID PROMOTIONAL EXPENSE: With the introduction or significant
expansion of its products into new or existing customer markets, the Company
incurs costs principally in the form of cash payments (slotting fees) and free
product, in addition to making capital expenditures for customized product
displays. Cash payments and free product costs are recorded as prepaid
promotional expense, which are amortized over the terms of the written sales
contract periods, or, in the absence of a written sales contract, a
twelve-month period.
F-8
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BROTHERS GOURMET COFFEES, INC.
December 26, 1997
(in thousands, except share amounts)
ADVERTISING EXPENSES: The Company expenses advertising costs as
incurred. Advertising expenses were $1,118, $1,242 and $2,983 during Fiscal
Years 1997, 1996 and 1995, respectively.
PLANT AND EQUIPMENT: Plant and equipment, which includes customized
display sets at customer locations, are stated at cost. Depreciation and
amortization are provided over the estimated useful lives of the assets which
range from 2 to 30 years, and are computed using the straight-line method.
The components of plant and equipment at December 26, 1997 and December 27,
1996 were as follows:
<TABLE>
1997 1996
-------- --------
<S> <C> <C>
Leasehold improvements $ 2,962 $ 2,869
Roasting and packaging equipment 7,103 6,032
Delivery, sales and other equipment 26,802 23,044
-------- --------
36,867 31,945
Less accumulated depreciation and
amortization (21,028) (17,131)
-------- --------
$ 15,839 $ 14,814
-------- --------
-------- --------
</TABLE>
DEBT ACQUISITION COSTS: Costs incurred to secure financing have been
recorded as deferred charges and are being amortized, using the level yield
method, over the lives of the underlying financing agreements.
INTANGIBLE ASSETS: Costs incurred in connection with acquisitions
that were allocated to noncompete agreements are amortized on a straight-line
basis over five years, the terms of such agreements. At December 26, 1997 and
December 27, 1996, accumulated amortization of noncompete agreements was
$11,239 and $10,042, respectively. Excess of cost over net assets acquired
(goodwill) is being amortized on a straight-line basis over 40 years. At
December 26, 1997 and December 27, 1996, accumulated amortization was $7,887
and $6,407, respectively.
Goodwill is reviewed on a quarterly basis to determine if facts and
circumstances suggest that it may be impaired. If this review indicates that
goodwill will not be recoverable, as determined based on the remaining
amortization period, the Company's carrying value of the goodwill will be
reduced by the estimated shortfalls of cash flows.
LONG LIVED ASSETS: On a quarterly basis, the Company evaluates the
recoverability of the carrying amount of its long lived assets, including
plant and equipment and intangible assets, by determining if any impairment
indicators are present. If this review indicates that the carrying value of
the assets will not be recoverable, as determined based on the estimated
undiscounted cash flows over the assets' remaining estimated useful lives,
their carrying values are reduced to fair value. Generally, fair value will be
determined using valuation techniques such as expected discounted cash flows
or appraisals, as appropriate.
RETIREMENT PLANS: The Company has a retirement savings plan which
covers all eligible full time employees. The plan permits employees to
contribute between 2% to 15% of their salaries into their choice of a fixed
income fund, money market fund or stock market fund. The Company matches 25%
of employee contributions, up to 6% of the employee's salary. The Company's
contributions to the plan during Fiscal Years 1997, 1996 and 1995 were $50,
$49 and $38, respectively.
INCOME TAXES: The consolidated results of operations of the Company
and its subsidiaries are included in its consolidated federal income tax
returns. Deferred income taxes are determined on the liability method in
accordance with Statement of Financial Accounting Standards (SFAS) No. 109.
F-9
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BROTHERS GOURMET COFFEES, INC.
December 26, 1997
(in thousands, except share amounts)
USE OF ESTIMATES: The preparation of financial statements in
conformity with generally accepted accounting principals requires management
to make estimates and assumptions that affect the amounts reported in the
consolidated financial statements and accompanying notes. Actual results could
differ from those estimates.
FINANCIAL INSTRUMENTS: The carrying amounts of cash and cash
equivalents, accounts receivable, trade accounts payable and accrued expenses
approximate fair value because of their short duration to maturity. The
carrying amounts of the Company's variable rate revolver and term loans
approximates fair value because the interest rate is tied to a quoted variable
index. The amount of the Company's fixed rate term loans approximate fair
value based on current rates recently offered the Company for debt of similar
maturities.
NET LOSS PER COMMON SHARE: In 1997, the Financial Accounting
Standard Board issued Statement No. 128, "Earnings per Share." Statement 128
replaced the calculation of primary and fully diluted earnings per share.
Unlike primary earnings per share, basic earnings per share excludes any
dilutive effects of options or warrants. Diluted earnings per share is very
similar to the previously reported fully diluted earnings per share. All
earnings per share amounts for all periods have been presented, and where
appropriate, restated to conform to the Statement 128 requirements.
F-10
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BROTHERS GOURMET COFFEES, INC.
December 26, 1997
(in thousands, except share amounts)
The following table sets forth the computation of basic and diluted
loss per share:
<TABLE>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Numerator:
Loss before discontinued operations
and extraordinary item $ (9,473) $ (9,756) $(13,201)
Loss before extraordinary item $(12,673) $(11,156) $(56,995)
Net loss $(12,673) $(11,312) $(56,995)
Denominator:
Denominator for basic and dilutive
earnings per share-weighted
average shares 12,601 11,202 11,184
Basic and Diluted loss per share:
Loss from continuing operations $ (0.75) $ (0.87) $ (1.18)
Loss before extraordinary item $ (1.01) $ (1.00) $ (5.10)
Net loss $ (1.01) $ (1.01) $ (5.10)
</TABLE>
Shares underlying options and warrants totaling 3,637,504, 3,372,120
and 2,832,561 are not included in the computation for Fiscal Years 1997, 1996
and 1995, respectively, because the effect is antidilutive. For additional
disclosures regarding stock options and warrants, see Notes 3, 6 and 7.
During July 1997 and January 1998, the Company issued 462,029 and
1,462,756 common shares, respectively, in the settlement of the Shareholder
Class Action and Gloria Jean's Franchise Litigation. Such shares have been
included in the calculation of weighted average shares beginning April 1997,
as of the settlement dates of the Shareholder Class Action and Gloria Jeans
Franchise Litigation. See Note 9.
FINANCIAL STATEMENT RECLASSIFICATIONS: Certain amounts in the prior
years' financial statements have been reclassified to conform to the Fiscal
Year 1997 presentation.
NOTE 2 - DISCONTINUED RETAIL OPERATIONS
In June 1995, the Company's Board of Directors (the "Board") adopted
a plan (the "Disposition Plan") to dispose of all of its retail operations,
consisting of the Gloria Jean's specialty retail business ("Gloria Jean's")
and the Brothers Gourmet Coffee Bars (the "Coffee Bars"). Accordingly, the
operating results of discontinued retail operations, including provisions for
estimated losses during the phase-out period, have been segregated from
continuing operations and reported as a separate line item on the
F-11
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BROTHERS GOURMET COFFEES, INC.
December 26, 1997
(in thousands, except share amounts)
statement of operations. Sales from discontinued retail operations were $627,
$2,466 and $24,693 during Fiscal Years 1997, 1996 and 1995, respectively.
On October 16, 1995, the Company and The Second Cup, Ltd. ("Second
Cup"), signed a stock purchase agreement (the "Purchase Agreement"), whereby
Second Cup agreed to purchase all of the issued and outstanding stock of the
Company's subsidiary, Edglo Enterprises, Inc. ("Edglo") (which held
substantially all of the Gloria Jean's assets and liabilities), and certain
other assets of the Company for an aggregate purchase price of $30,000 (the
"Gloria Jean's Sale"). On November 9, 1995, the Company closed the Gloria
Jean's Sale, effective as of September 30, 1995. Pursuant to the terms of the
Purchase Agreement, (1) the Company received in Fiscal Year 1996 $27,600 of
the purchase price and the remaining $2,400 continued to be held in escrow ,
(2) in Fiscal Year 1997 $992 of the purchase price was released from escrow
to fund a portion of the settlement of the Gloria Jean's Franchise
Litigation, (3) in January 1998, $441 was released from escrow to Second Cup
in payment of certain claims made by Second Cup against the Company for
breaches of representations and warranties and (4) the remaining $967 of the
purchase price is still being held in escrow pending the resolution of
certain post-closing adjustments and claims. See Note 9 for more information
concerning the settlement of the Gloria Jean's Franchise Litigation and the
remaining Second Cup indemnity claims.
During Fiscal Year 1996, the Company sold or closed (1) all of its
Coffee Bars located in Colorado, Texas and Washington D.C., (2) all of its
Chicago Coffee Bars and (3) all but two of its New York Coffee Bars for
$2,400 of which $1,665 and $235 was received in Fiscal Year 1996 and Fiscal
Year 1997, respectively. In December 1996, the Company agreed to permit the
purchaser of the seven (7) Chicago Coffee Bars to defer payment of the
remaining $500. The remaining $500 receivable bears interest at the rate of
9.5% per annum. The Company accrued $25 of interest during Fiscal Year 1997.
At December 26, 1997, the Company recorded a reserve of $300 on the
receivable from the sale of the Chicago Coffee Bars. At December 26, 1997,
$225 of proceeds from the sale of Coffee Bars is included in the receivable
from sales of discontinued retail operations. See Note 9 below.
During Fiscal Year 1997, the Company incurred $3,200 of losses on
the disposal of discontinued retail operations related to the Gloria Jean's
Franchise Litigation of $1,400, claims associated with the sale of Gloria
Jean's of $1,100, and obligations related to the closing of its Coffee Bars
of $700. During Fiscal Year 1996, the Company incurred $1,400 of losses on
the disposal of discontinued retail operations in connection with the Gloria
Jeans Franchise Litigation.
As of December 26, 1997, the Company was the lessee under five (5)
remaining non-cancelable operating leases for Coffee Bar stores of which two
are operating, which expire on varying dates through 2006. Future commitments
under these non-cancelable lease agreements at December 26, 1997 are as
follows: Fiscal Year 1998--$730; Fiscal Year 1999--$753; Fiscal Year
2000--$770; Fiscal Year 2001--$802; Fiscal Year 2002--$831 and thereafter
$2,711. The Company has obtained sublease agreements on two (2) of the five
(5) remaining non-cancelable operating leases. Future minimum sublease income
under these sublease agreements at December 26, 1997 is as follows: Fiscal
Year 1998 - $293; Fiscal Year 1999 -$341; Fiscal Year 2000 - $347; Fiscal
Year 2001 - $375; Fiscal Year 2002 - $384; and thereafter - $1,526. The
Company is negotiating to terminate its obligations under all of the
remaining leases and estimates that the total costs relating to the
assignment and termination of these leases will be approximately $375. This
incremental cost has been included in the estimated loss on disposal. In
February 1998, the Company negotiated a settlement to terminate its lease
obligations under one of the seventeen (17) remaining leases that the
Company previously sold but remained as guarantor. The total costs relating
to the termination of the lease was approximately $250 in addition to legal
fees incurred by the Company.
F-12
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BROTHERS GOURMET COFFEES, INC.
December 26, 1997
(in thousands, except share amounts)
The Company remains as guarantor on sixteen (16) leases sold and assigned to
third parties with future commitments under these agreements at December 26,
1997 as follows: Fiscal Year 1998 -- $897; Fiscal Year 1999 -- $915; Fiscal
year 2000 -- $845; Fiscal Year 2001 -- $845; Fiscal Year 2002 -- $422; and
thereafter -- $577 through the year 2006. See Note 9.
NOTE 3 - DEBT
A summary of indebtedness outstanding under various credit
arrangements at December 26, 1997 and December 27, 1996 is as follows:
<TABLE>
1997 1996
------- -------
<S> <C> <C>
Revolving Credit Facility (a)(d) $11,177 $ 3,166
Term Loan(s) (b)(d) 6,500 6,750
Subordinated Note(c) 15,000 15,000
Capital lease obligations 150 228
------- -------
32,827 25,144
Less value ascribed to warrants (3,271) (3,359)
Less current maturities (1,779) (1,648)
------- -------
$27,777 $20,137
------- -------
------- -------
</TABLE>
(a) Represents, in 1996, a maximum $15,000 revolving line of credit (the
"Revolver") which bears interest at the Company's choice of either prime
plus 1.0% (9.25% at December 27, 1996) or LIBOR plus 2.5% (8.1% at
December 27, 1996). Interest is payable monthly and the Revolver matures
on May 29, 1999. The Revolver carries an unused commitment fee of .5% of
the average daily unused balance. Borrowings under the Revolver are
collateralized by eligible inventory and receivables. In connection
with certain shareholders having previously guaranteed a portion of the
borrowings under the Revolver, the Company issued warrants to purchase
103,626 shares to certain shareholders of its common stock at an exercise
price of $3.00, the then quoted market price. These warrants were fully
vested as of December 27, 1996.
Represents, in 1997, a maximum $21,500 Revolver which bears interest at
the prime rate plus 2.0% (10.5% at December 26, 1997). Interest is
payable monthly and the Revolver matures on May 29, 1999. At December 26,
1997, the Company had available borrowings under the Revolver of $4,629.
The Revolver carries an unused commitment fee of .5% of the average daily
unused balance. Eligible inventory, receivables and slotting fees
collateralize borrowings under the Revolver.
(b) Represents, in 1996, a maximum $7,500 term loan facility (the "Term
Loan") which bears interest at the Company's choice of either prime plus
1.5% (9.75% at December 27, 1996) or LIBOR plus 3.0% (8.6% at December
27, 1996). The Term Loan is payable in monthly installments of $125 plus
interest through May 2001. The Term Loan is subject to a demand payment
on May 29, 1999 if the Revolver is not refinanced. Borrowings under the
Term Loan are collateralized by certain plant and equipment.
F-13
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BROTHERS GOURMET COFFEES, INC.
December 26, 1997
(in thousands, except share amounts)
Represents, in 1997, a maximum $6,500 term loan facility (the Term Loan),
consisting of two components, (a) a term loan in the amount of $2,250
("Term Loan A") and (b) a second term loan in the amount of $4,250 ("Term
Loan B"). Term Loan A bears interest at the prime rate plus 2.0% (10.5%
at December 26, 1997) and is payable in seventeen monthly installments of
$37.5 each plus accrued interest and one installment of $1,612.5 plus
accrued interest payable at maturity. Term Loan B bears interest at a
fixed rate of 11.75% and is payable in seventeen monthly installments of
$100 each plus accrued interest and one installment of $2,550 plus
accrued interest payable at maturity.
In connection with the acquisition and amendment of the 1996 Revolver and
Term Loan on December 9, 1997, the Company issued warrants to purchase
400,000 shares of its common stock at an exercise price of $1.50 per
share. The 400,000 warrants are fully vested. Also, the Company is
obligated to repurchase the 400,000 warrants from the lender upon the
occurrence of certain events, as defined in the loan agreement. As of
December 26, 1997, these warrants have a carrying value of $0.75 per
warrant, which approximates their redemption amount.
(c) Represents borrowings under an unsecured $15,000 subordinated note (the
"Subordinated Note") which bears interest at 11.25% per annum. Interest
is payable monthly and the Subordinated Note matures on December 26,
2002. In connection with the closing of the Subordinated Note, the
Company issued warrants to purchase 1,245,000 shares of its common stock
at an exercise price of $0.25 per share and 400,000 shares at an exercise
price of $3.44 per share. The 400,000 warrants are fully vested. In
connection with the acquisition and amendment of the 1996 Revolver and
Term Loan on December 9, 1997, the exercise price of the 400,000 warrants
was reduced to $1.56. The 1,245,000 warrants vest in various amounts
over the next six years if the Company continues to have borrowings
outstanding under the Subordinated Note, as of December 26, 1997, 265,600
of the 1,245,000 warrants had vested.
(d) On December 9, 1997, a new lender acquired, by way of assignment, 100% of
the 1996 Revolver and 1996 Term Loan, and the new lender and the Company
amended and restated the 1996 Revolver and Term Loan agreement (the
"Restated Credit Agreement"). On March 27, 1998, the new lender and the
Company entered into the First Amendment to the Restated Credit Agreement,
which modified certain of the covenants and definitions in the Restated
Credit Agreement.
On March 28, 1997, the Company was not in compliance with the cash
flow-to-debt service covenants constituting events of default under the
Revolver and the Term Loan with Sanwa Business Credit Corporation ("Sanwa")
and the Subordinated Note with Dilmun Financial Services ("Dilmun"). The
Company entered into a forbearance agreement with Sanwa whereby Sanwa agreed
to forbear from acting on the covenant defaults until October 31, 1997. On
October 31, 1997, the Company obtained an extension of Sanwa's forbearance
agreement through November 28, 1997. On November 19, 1997, Goldman Sachs
Credit Partners, L.P. ("GSCP"), and Sanwa agreed to the principal terms of an
assignment of the Company's Revolver and Term Loan. Sanwa provided another
extension of the forbearance agreement through December 9, 1997, the
effective date that GSCP acquired, by way of assignment, from Sanwa the
Company's Revolver and Term Loan (the "Credit Facility"). Simultaneously with
the closing of the assignment, the Company and GSCP amended and restated the
Credit Facility. In connection with the amended and restated Credit Facility,
the Company incurred $453 of debt restructuring costs during Fiscal Year 1997
related to the write-off of previously recorded debt acquisition fees and
forbearance fees.
In connection with the closing of the Subordinated Note in December
1996, Dilmun entered into a subordination agreement with Sanwa. Pursuant
thereto, Dilmun agreed, subject to certain conditions and restrictions, that
the Subordinated Note would be subordinated and subject in right of payment
to the prior payment in full in cash of all of the Company's obligations to
Sanwa (and its successors and assigns) and the other Senior Lenders under the
Credit Facility. By reason of the structure of the GSCP's acquisition of the
Credit Facility as an assignment and assumption of the Credit Facility and as
a refinancing thereof, GSCP has succeeded to all of Sanwa's rights, benefits
and privileges under the Subordination Agreement.
In September 1996, the Company entered into a $3,000 bridge loan
facility (the Bridge Facility) which had a one year term. Borrowings under
the Bridge Facility were repaid upon the closing of the Subordinated Note in
December 1996 and the agreement was terminated. As a result, the Company
recorded
F-14
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BROTHERS GOURMET COFFEES, INC.
December 26, 1997
(in thousands, except share amounts)
a loss on early extinguishment of debt related to unamortized debt issue costs
of $156. In connection with the closing of the Bridge Facility, the Company
issued warrants to purchase 100,000 shares of its common stock at an exercise
price of $3.00. In connection with the acquisition and amendment of the 1996
Revolver and Term Loan in December 1997, the exercise price of these warrants
was reduced to $1.56. These warrants are fully vested.
The fair values of the above warrants were recorded as original
issue discount and are amortized over the lives of the underlying financing
agreements. The fair values were estimated by using the Black-Scholes
valuation model as prescribed under Statement of Financial Accounting
Standards (SFAS) No. 123 utilizing the following weighted average
assumptions: risk free rate of return of 7.0%; dividend yield of 0%;
volatility factor of .505 and a weighted expected average life of the
warrants of three years. The fair value of any warrants with reduced exercise
prices, as previously, were revalued at the time of such reductions, and it
was determined that such reductions did not have an impact on the original
issue discount.
The Company's debt agreements contain various financial and
non-financial covenants. These covenants require the Company (1) beginning
with the first quarter of 1998, to maintain total capital funds, as defined in
the Revolver and Term Loan agreement, at various quarterly amounts, (2)
beginning with the second quarter of 1998, to maintain earnings before
interest expense, taxes paid, depreciation and amortization ("EBITDA"), as
defined in the Revolver and Term Loan agreement, at various quarterly amounts,
(3) to maintain cash flow to debt service and consolidated tangible net worth,
both as defined in the Subordinated Note agreement, at specified levels, (4)
beginning in the first quarter of 1998, to limit capital expenditures to
$5,000 and (5) at all times during 1998, to restrict the payment of dividends.
At December 26, 1997, the Company was not in compliance with the cash flow to
debt service covenants and consolidated tangible net worth covenants in its
Subordinated Note agreement. Pursuant to the terms of the Subordinated Note,
management has determined that the lender does not have the right to
accelerate repayment of the Subordinated Note Facility solely because of the
covenant defaults and, accordingly, the Company has continued to classify the
outstanding borrowings as long-term. The Company also requested a waiver or
amendment of certain covenant defaults under the Subordinated Note from
Dilmun. The Company and Dilmun have not been able to reach agreement on the
terms of such waiver or amendment.
Maturities of long-term debt in each of the five Fiscal Years
commencing December 27, 1997, and thereafter, are as follows: 1998--$1,779;
1999--$16,049; 2000--$-0-; 2001--$-0-; 2002--$15,000.
The Company made interest payments of $2,730; $2,227; and $2,524 in
Fiscal Years 1997, 1996 and 1995, respectively.
NOTE 4 - RESTRUCTURING CHARGE(S)
During Fiscal Year 1993, the Company recorded a restructuring charge
of approximately $7,000 as a result of significant changes contemplated in
the operations of the Company associated with the acquisitions of Hillside
and Edglo. The restructuring charge included costs associated with brand
conversion, re-alignment of production facilities, reconfiguration of
distribution channels, elimination of duplicative functions and other costs
associated with the operational changes resulting from the acquisitions. Cash
expenditures relating to the Fiscal Year 1993 restructuring accrual of
approximately $305 were made during Fiscal Year 1995.
F-15
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BROTHERS GOURMET COFFEES, INC.
December 26, 1997
(in thousands, except share amounts)
During the first quarter of Fiscal Year 1995, the Board of Directors of
the Company (the "Board") permanently curtailed the Company's Fiscal Year 1993
restructuring plan, which resulted in the reversal of $1,000 of accrued
restructuring costs. The reversal of the accrued restructuring costs related
principally to the termination of further re-alignment of production facilities
and other operational changes associated with previous acquisitions. In
addition, in connection with the fourth quarter Fiscal Year 1995 sale of Gloria
Jean's, the Company disposed of certain leasehold rights, which were included in
the Fiscal Year 1993 restructuring accrual. Accordingly, the Company offset
remaining accrued restructuring costs of $440 against the loss on the disposal
of retail operations.
In connection with the Disposition Plan, described in Note 2 above, the
Company accrued $291 and $1,945 of restructuring costs during Fiscal Years 1996
and 1995, respectively. The Company did not make an accrual during Fiscal Year
1997. The Company reduced its sales, marketing and administrative staff by 25%
during Fiscal Year 1995 and consolidated production and warehouse facilities.
The $291 accrual for restructuring costs during Fiscal Year 1996 was for
severance costs of 59 manufacturing personnel related to the closing of the
Denver, Colorado and Pittsburgh, Pennsylvania roasting and packaging facilities.
The $1,945 accrual for restructuring costs during Fiscal Year 1995 was for
severance of $1,070 for certain personnel (three corporate executives and 34
sales, marketing and administrative personnel) and plant consolidation of $875.
Cash payments related to restructuring of approximately $342 and $1,106 were
made during Fiscal Years 1997 and 1996, respectively.
A summary of accrued restructuring costs during Fiscal Years 1997, 1996 and 1995
are as follows:
<TABLE>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Beginning Balance $ 373 $ 1,539 $ 2,470
Cash payments (342) (1,106) (758)
Suspension of 1993 restructuring
plan -- -- (1,000)
Restructuring charges -- 291 1,945
Elimination of certain costs due to
discontinued retail operations -- -- (440)
Restructuring charges affecting
noncurrent assets (2) (351) --
Non-cash change in accounting
estimate -- -- (678)
------- ------- -------
Ending Balance $ 29 $ 373 $ 1,539
------- ------- -------
------- ------- -------
</TABLE>
NOTE 5 - INCOME TAXES
Due to the Company's federal net operating loss position at December
26, 1997, December 27, 1996 and December 29, 1995, there were no provisions for
income taxes from continuing operations for such years. Deferred income taxes
reflect the net tax effects of temporary differences between the carrying
amounts of assets and liabilities for financial reporting purposes and the
amounts used for income tax
F-16
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BROTHERS GOURMET COFFEES, INC.
December 26, 1997
(in thousands, except share amounts)
purposes. Significant components of the Company's deferred income tax assets and
liabilities at December 26, 1997 and December 27, 1996, are as follows:
<TABLE>
1997 1996
---- ----
<S> <C> <C>
Deferred tax assets:
Allowance for doubtful accounts $ 784 $ 632
Accrued restructuring costs 11 144
Other accrued liabilities 174 150
Noncompete agreements 1,527 1,232
Inventories 445 819
Accrued litigation settlement -- 2,123
Net operating loss carry forwards 13,797 7,669
Other 366 79
-------- -------
Total deferred tax assets 17,104 12,848
Valuation allowance for deferred tax assets (14,504) 10,752)
-------- -------
Net deferred tax assets 2,600 2,096
-------- -------
Deferred tax liabilities:
Plant and equipment 1,830 1,491
Other 770 605
-------- -------
Total deferred tax liabilities 2,600 2,096
-------- -------
Net deferred taxes $ -- $ --
-------- -------
-------- -------
</TABLE>
Included in the tax benefit relating to net operating loss carry
forwards is a $2,356 benefit that will be credited to stockholders' equity in
the period in which the benefit is recognized.
At December 26, 1997 the Company had consolidated net operating loss
carry forwards of approximately $54,738, which expire in Fiscal Years beginning
2005 through 2012, and capital loss carry forwards of approximately $5,860,
which expire in Fiscal Years beginning 2000 through 2001.
SFAS No. 109 requires a valuation allowance to reduce the deferred tax
assets reported if, based on the weight of the evidence, it is more likely than
not that some portion or all of the deferred tax assets will not be realized.
After consideration of all the evidence, both positive and negative, management
has determined that a $14,504 valuation allowance at December 26, 1997 is
necessary to reduce the deferred tax assets to the amount that will more likely
than not be realized. The change in the valuation allowance for the current
year is $3,752.
The reconciliation of income tax rates on loss before extraordinary
item, computed at the U.S. federal statutory tax rates, to reported income tax
expense is as follows:
<TABLE>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Tax at U.S. statutory rates (34.0%) (34.0%) (34.0%)
State income taxes, net of
federal tax benefit ( 4.6%) ( 4.6%) ( 4.6%)
Valuation allowance adjustments 38.6% 38.6% 38.6%
----- ----- -----
--% --% --%
----- ----- -----
----- ----- -----
</TABLE>
F-17
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BROTHERS GOURMET COFFEES, INC.
December 26, 1997
(in thousands, except share amounts)
NOTE 6 - STOCKHOLDERS' EQUITY
The terms of a subordinated note, dated December 30, 1992, provided for
the issuance of warrants by the Company enabling the holders of the warrants to
acquire 1,146,024 shares of the Company's common stock at a purchase price of
$8.67 per share. As of December 26, 1997, none of these warrants have been
exercised.
The terms of the Subordinated Note provided for the issuance of a
warrant to purchase up to 1,245,000 shares of the Company's common stock. In
connection with the closing of the Subordinated Note, the Company also issued a
warrant to an affiliate of its investment banker to acquire 400,000 shares of
the Company's common stock at a purchase price of $3.44 per share, which was
subsequently reduced to a purchase price of $1.56 during Fiscal Year 1997. Also,
in connection with the closing of the Bridge Facility, the Company issued a
warrant to the lender to acquire 100,000 shares at a purchase price of $3.00 per
share, which was subsequently reduced to a purchase price of $1.56 during Fiscal
Year 1997. Finally, as part of the closing of the 1996 Revolver and Term Loan,
the Company issued warrants enabling the holders to acquire 103,626 shares of
the Company's common stock at an exercise price of $3.00 per share. See Note 3
for warrant terms and valuation considerations. The Company recorded additional
paid in capital and original issue discount for the estimated fair value of the
above-mentioned warrants. At December 26, 1997, none of these warrants had been
exercised.
On December 9, 1997, following the acquisition of its Credit Facility by
GSCP, the Company issued warrants to purchase 400,000 shares of the Company's
common shares at a purchase price of $1.50 per share. At December 26, 1997,
none of these warrants had been exercised. See Note 3 for warrant terms and
valuation considerations
At December 26, 1997, there were 4,119,687 shares of the Company's common
stock reserved for issuance upon the exercise of stock options (see Note 7
below) and warrants outstanding.
NOTE 7 - STOCK OPTION PLANS
The Company has elected to follow Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" (APB 25) and related
Interpretations in accounting for its employee stock options because, as
discussed below, the alternative fair value accounting provided for under SFAS
No. 123 requires use of option valuation models that were not developed for use
in valuing employee stock options. Under APB 25, because the exercise price of
the Company's employee stock equals the market price of the underlying stock on
the date of grant, no compensation expense is recognized.
1990 NON-QUALIFIED PLAN: This plan provided for grants to certain
former members of the Board of options to purchase shares of the Company's
common stock. The term of such options is ten years from the date of grant. In
March 1993, the Non-Qualified Plan was suspended and no additional options may
be granted thereunder. During Fiscal Year 1995, options to purchase 24,858
shares of the Company's common stock were exercised, resulting in net proceeds
to the Company of $35.
1990 MANAGEMENT INCENTIVE STOCK OPTION PLAN: Options granted under the
1990 Management Incentive Stock Option Plan, a qualified plan (the "1990 Plan"),
are exercisable at prices equal to the quoted
F-18
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BROTHERS GOURMET COFFEES, INC.
December 26, 1997
(in thousands, except share amounts)
market value of the Company's common stock on the date the option is granted
(110% for eligible employees owning more than a 10% voting interest in the
Company). The term of the options is ten years (five years for employees holding
more than a 10% voting interest in the Company) from the date of the grant.
AMENDED AND RESTATED STOCK OPTION PLAN: In March 1993, the Company
adopted an Amended and Restated Stock Option Plan, a qualified plan (the "1993
Plan"). The 1993 Plan provides for the reservation of a total of 1,050,000
shares of the Company's common stock. The 1993 Plan provides for the grant of
incentive stock options, nonqualified stock options and common stock awards.
During Fiscal Year 1995, options to purchase 22,700 shares were exercised under
the Plan, resulting in proceeds of $223 to the Company.
OTHER PLAN: The Company may grant additional options to key employees,
officers, directors and consultants of the Company not covered under one of
the above plans.
Pro forma information regarding net loss and loss per share is required
by SFAS No. 123, which also requires that the information be determined as if
the Company has accounted for its employee stock options granted subsequent to
December 31, 1994 under the fair value method of SFAS No. 123. The fair value
for these options was estimated at the date of grant using a Black-Scholes
option pricing model with the following weighted-average assumptions for 1997,
1996 and 1995, respectively: risk free interest rates of 7.0%; a dividend yield
of 0%; volatility factors of the expected market price of the Company's common
stock of .56, .505 and .556; and a weighted average expected life of the option
of four years.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
For purposes of pro forma disclosure, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma information is as follows:
<TABLE>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Pro forma net loss $(12,749) $(11,409) $(57,155)
Pro forma loss per share $ (1.01) $ (1.02) $ (5.11)
</TABLE>
F-19
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BROTHERS GOURMET COFFEES, INC.
December 26, 1997
(in thousands, except share amounts)
A Summary of the activity with respect to the various stock option plans
follows:
<TABLE>
WEIGHTED WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE AVERAGE
NON EXERCISE EXERCISE EXERCISE EXERCISE
QUALIFIED PRICE PER 1990 PRICE PER 1993 PRICE PER OTHER PRICE PER
PLAN SHARE PLAN SHARE PLAN SHARE OPTIONS SHARE
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
December 30, 1994 114,845 $1.40 35,250 $10.00 953,500 $12.39 995,000 $14.38
Granted -- -- -- -- 100,000 $ 6.50 -- --
Exercised 24,858 $1.40 -- -- (22,700) $10.00 -- --
Forfeited/expired -- -- -- -- (464,500) $12.02 -- --
------- ------ -------- -------
Balance at
December 29, 1995 89,987 $1.40 35,250 $10.00 566,300 $11.74 995,000 $14.38
Granted -- -- -- -- 458,000 $ 3.62 --
Exercised -- -- -- -- -- -- --
Forfeited/expired -- -- -- -- (367,667) $10.51 (420,000) $19.03
------- ------ -------- --------
Balance at
December 27, 1996 89,987 $1.40 35,250 $10.00 656,633 $ 5.91 575,000 $10.98
Granted -- -- -- -- 103,384 $ 2.71 -- --
Exercised -- -- -- -- -- -- -- --
Forfeited/expired -- -- -- -- (238,000) $ 7.74 -- --
------- ------ -------- -------- ------
Balance at
December 26, 1997 89,987 $1.40 35,250 $10.00 522,017 $ 4.37 575,000 $10.98
------- ------ -------- --------
------- ------ -------- --------
Options exercisable at:
December 29, 1995 89,987 $1.40 35,250 $10.00 349,333 $11.95 725,000 $12.29
December 27, 1996 89,987 $1.40 35,250 $10.00 352,333 $ 7.43 575,000 $10.98
December 26, 1997 89,987 $1.40 35,250 $10.00 271,233 $ 5.20 575,000 $10.98
Weighted average fair
value of options granted
Fiscal Year 1995 -- -- $ 1.60 --
Fiscal Year 1996 -- -- $ 1.69 --
Fiscal Year 1997 -- -- $ 1.36 --
</TABLE>
F-20
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BROTHERS GOURMET COFFEES, INC.
December 26, 1997
(in thousands, except share amounts)
<TABLE>
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
RANGE OF NUMBER EXERCISE REMAINING NUMBER OF EXERCISABLE
EXERCISE OF OPTIONS PRICE PER CONTRACTUAL EXERCISABLE PRICE PER
PLAN PRICES OUTSTANDING SHARE LIFE OPTIONS SHARE
---- ------ ----------- ----- ---- ------- -----
<S> <C> <C> <C> <C> <C> <C>
Non Qualified Plan $ 1.40 89,987 $ 1.40 2.4 years 89,897 $ 1.40
1990 Plan $ 10.00 35,250 $10.00 2.4 years 35,250 $10.00
1993 Plan $ 2.44 to $3.75 473,384 $ 3.44 8.3 years 227,000 $ 3.64
$ 10.00 18,300 $10.00 5.6 years 18,300 $10.00
$ 15.50 30,333 $15.50 6.2 years 25,933 $15.50
Other options $ 8.67 112,500 $ 8.67 5 days 112,500 $ 8.67
$10.00 to $11.00 350,000 $10.57 4 years 350,000 $10.57
$ 14.57 112,500 $14.57 5 days 112,500 $14.57
</TABLE>
F-21
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BROTHERS GOURMET COFFEES, INC.
December 26, 1997
(in thousands, except share amounts)
NOTE 8 - COMMITMENTS
LEASE COMMITMENTS - CONTINUING OPERATIONS: The Company has entered into
several non-cancelable operating leases for office space, manufacturing and
distribution facilities and vehicles which expire at varying dates through 2006.
Future commitments under these agreements at December 26, 1997 are as follows:
Fiscal Year 1998--$958; Fiscal Year 1999--$673; Fiscal Year 2000--$139; Fiscal
Year 2001--$59; Fiscal Year 2002--$53 and thereafter--$184. See Note 2 for a
discussion of the Company's non-cancelable operating lease obligations for its
remaining Coffee Bars.
Rental expense for Fiscal Years 1997, 1996 and 1995 was $1,395, $1,136
and $1,701, respectively.
PURCHASE COMMITMENTS: The Company contracts for the future purchase and
delivery of green coffee beans to ensure an adequate supply of quality green
coffee beans necessary to support planned production schedules. Purchase
commitments are generally for three to twelve months into the future. Purchase
commitments for certain varieties of green coffee beans are price fixed at the
time the commitment is made. The Company also contracts for future delivery of
green coffee beans where the price floats at a fixed differential to the spot
market for green coffee beans. At December 26, 1997, the Company had purchase
commitments of $7,821 and $5,361 under fixed and variable price contracts,
respectively.
The Company believes, based on relationships established with its
suppliers, that the risk of non-delivery on purchase commitments is remote.
There can be no assurance that the Company's forward purchase commitments will
successfully protect the Company against the risk of higher coffee prices or
that such activities will not result in the Company having to pay
substantially more for its coffee supply than it would have been required to
pay absent such activities.
PROMOTIONAL FEE COMMITMENTS: The Company has entered into non-cancelable
agreements which expire through Fiscal Year 1999 for expansion of its product
into new markets. At December 26, 1997, the Company had commitments under
these non-cancelable agreements totalling $1,456.
The Company has a contractual commitment with a major customer to
increase the customer's sales for the Company's products by certain minimum
percentages over the life of the three-year contract which commenced in April
1997. If these minimum growth requirements are not met, the Company will be
required to pay the major customer for the profit shortfalls up to $1,000.
NOTE 9 - CONTINGENCIES
GLORIA JEAN'S FRANCHISE LITIGATION: In June 1994, a former franchisee
filed suit against Edglo Enterprises, Inc., the parent of Gloria Jean's
("Edglo"). The former franchisee claimed, among other things, that Edglo made
material misrepresentations and omissions and failed to provide appropriate
expertise and support. The former franchisee was seeking damages of $3.9 million
plus punitive damages of three time's actual damages as well as attorney's fees.
The Company sold Edglo to Second Cup in 1995. In connection therewith, the
Company agreed to indemnify Second Cup for any costs associated with the Gloria
Jean's Franchise Litigation. In April 1997, the parties entered into a
settlement agreement and release, pursuant to which (a) the defendants agreed to
pay $2,200 in cash and to deliver 76,667 shares of the Company's common stock
to the plaintiffs' in satisfaction of all of their claims. The $2,200 was funded
as follows: (a) $2,015 from the Company (of which approximately $992 was funded
out of the escrowed purchase price from the sale of Gloria Jean's), and (b) $185
from other defendants and their counsel. The Company issued 76,667 shares of
its common stock to the plaintiffs in January 1998.
SHAREHOLDER LAWSUITS: The Company was a defendant in two different
class action lawsuits, a federal securities class action and a state law
derivative class action (the "Shareholder Lawsuits"). The federal securities
class action alleged, among other things, violations of federal securities laws
in connection with the Company's initial public offering (IPO), and
misstatements in certain of the Company's subsequent securities law filings. The
state law derivative class action alleged, among other things, breach of
fiduciary duty and waste of corporate assets. In April 1997, the court approved
the settlement of the Shareholder Lawsuits on the following terms: (a) the
plaintiff class received $3,000 in cash and the Company agreed to transfer to
the plaintiff class 1,848,118 shares of its freely tradeable Common Stock, (b)
the parties entered
F-22
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BROTHERS GOURMET COFFEES, INC.
December 26, 1997
(in thousands, except share amounts)
into mutual general releases and (c) the Shareholder Lawsuits were dismissed.
The Company's insurance carrier and other defendants funded the $3,000 cash
settlement. The Company issued 462,029 and 1,386,089 shares of its
freely-tradeable common stock to the plaintiffs' counsel and the plaintiffs in
July 1997 and January 1998, respectively. In December 1997, the Company received
166,066 shares of its common stock from one of the other defendants in the
litigation in exchange for a release from the Company of all potential claims
arising out of, or related to, the litigation.
KONA COFFEE CLASS ACTION: In January 1997, the Company was named as a
defendant in a class action lawsuit filed by a group of coffee producers. The
plaintiffs have alleged that the defendants, which includes various retailers,
distributors and roasters of coffee, conspired to, and did in fact, flood the
world wide markets with cheaper and inferior grades of coffee under the false
label "Kona Coffee" and that such actions artificially depressed the price of
the plaintiffs' coffee crops, damaged the reputation enjoyed by Kona Coffee and
wrongfully allowed the defendants to achieve extraordinary profits which should
be disgorged to the plaintiffs. In January 1998, the Court approved a
magistrate's ruling, which granted the defendants' motion to deny class
certification of the litigation. The plaintiffs are in the process of appealing
this ruling.
In January 1998, the Company's insurer notified the Company that it had
agreed to assume defense of the case, subject to its standard reservation of
rights. The insurer is reviewing the legal and other litigation-related bills
paid to date by the Company for the purpose of determining which bills it will
reimburse to the Company.
The defendants, including the Company, are in negotiations with the
plaintiffs to settle this litigation. In the meantime, pending the results of
those negotiations, the Company intends to continue to defend vigorously this
litigation. It is not possible at this time to predict the outcome of this
litigation.
ADAMS & WABASH COFFEE BAR: In December 1996, a landlord sued the
Company, as guarantor on the lease, for the unpaid rents, other damages,
expenses and attorney fees. In June 1997, the landlord obtained a judgment
against the Company for $350. In January 1998, the Company and the landlord
settled the claim for $250, and the landlord dismissed the suit and terminated
the lease with the Company. At December 26, 1997, the claim was included in
accrued loss and other costs for discontinued retail operations.
NASSAU & LIBERTY COFFEE BAR: In 1997, a landlord sued and obtained a
judgment against the Company for unpaid rents through February 1996, costs and
attorney's fees totaling $128. The landlord has filed another action against the
Company for unpaid rents from March 1996 through June 1997 totaling $270. The
company is appealing the court decision and has posted a bond to stay collection
of any part of the judgment pending the decision on the appeal. The Company has
estimated $111 to settle this claim and has reserved for this contingency in
accrued loss and other costs for discontinued retail operations.
EMPLOYEE LITIGATION. A former officer has sued the Company in Florida
state court for (1) $375 in fees allegedly owed to him for consulting services
that he rendered to the Company in 1995, (2) approximately $18 of out-of-pocket
expenses incurred by him in rendering such consulting services and (3)
attorneys' fees and costs. The lawsuit alleges breach of an oral consulting
contract, detrimental reliance by the former officer and quantum merit. The
Company believes that it agreed to pay the consulting fees sought by the former
officer only if it successfully completed a strategic alliance transaction in
1995. Such a transaction never occurred. The Company has offered to pay the
former officer $30 in complete settlement
F-23
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BROTHERS GOURMET COFFEES, INC.
December 26, 1997
(in thousands, except share amounts)
of all of his claims (consisting of the former officer's out-of-pocket expenses
plus $12; any remaining amounts being referred to herein as the "Disputed
Claims"). The former officer has not responded to the Company's offer. In the
meantime, the parties have continued to conduct discovery. In the event the
former officer does not accept the Company's settlement offer, the Company
intends to continue to defend vigorously the Disputed Claims. It is not possible
at this time to predict the outcome of this litigation.
SECOND CUP WARRANTY CLAIMS/LITIGATION: In connection with the sale of
Gloria Jean's business, the Company indemnified Second Cup for representations
and warranties under the Purchase Agreement. In January 1998, the Company agreed
to release $441 of the sales proceeds held in escrow to Second Cup for the
settlement of outstanding claims. The Company and Second Cup are currently
negotiating the settlement of claims totaling $1,319. The amount of certain
claims is not determinable at December 26, 1997. The Company disputes certain
claims and amounts of certain claims. The Company has provided $400 in accrued
loss and other costs for discontinued retail operations for such claims. Sales
proceeds of $967 are still being held in escrow to pay any remaining obligations
under the Purchase Agreement.
COFFEE BAR RECEIVABLES/OBLIGATIONS: In December 1996, in connection
with the sale of its seven (7) Chicago coffee bars, the Company permitted the
purchaser to defer payment of a receivable for the remaining $500 of sales
proceeds at an annual interest rate of 9.5%. The Company is currently
negotiating with the purchaser for the collection of these proceeds. In
addition, the Company remains as guarantor on thirteen (13) of the coffee bar
leases sold and assigned to this purchaser. Future commitments under these
non-cancelable lease agreements at December 26, 1997 are as follows: Fiscal Year
1998 -- $801; Fiscal Year 1999 -- $813; Fiscal Year 2000 -- $742; Fiscal Year
2001 -- $742; Fiscal Year 2002 -- $373; and thereafter $563. The Company could
be required to honor its guarantee of these leases which could have a material
adverse affect on the Company's results of operations and its financial
condition.
NOTE 10 - RELATED PARTY TRANSACTIONS
The Secretary and Special Counsel to the Company's Board of Directors is
a shareholder of one law firm and was a partner of another legal firm that the
Company paid legal services and reimbursement of expenses totaling $508, $231,
and $585 during Fiscal Years 1997, 1996, and 1995, respectively.
NOTE 11 - MANAGEMENT'S PLANS
The Company (1) reported a net loss of approximately $12,673 for the
year ended December 26, 1997, (2) incurred cumulative losses for the three
years ended December 26, 1997 aggregating approximately $80,980 and (3)
reported negative cash flows from operations for the year ended December 26,
1997 of $747. At December 26, 1997, the Company had (a) working capital of
approximately $10,195, (b) borrowing availability under its restated credit
facility of $4,629 and (c) shareholders' equity of approximately $57,760.
The loss of certain customers, higher costs of green coffee, resulting in
decreased demand for gourmet coffee, and additional loss provisions to exit
retail operations, adversely affected the Company's results of operations and
financial condition in 1997. The Company's 1998 operating plan contemplates
focusing activities on expanding net sales through new and existing channel
development and new and existing customers. Green coffee costs have
decreased and it is anticipated that consumer demand will increase. The
Company's plan also contemplates implementing additional cost controls.
Although management believes that it will be successful in implementing its
1998 operating plan, there can be no assurance that the Company will be able
to do so.
NOTE 12 - SUBSEQUENT EVENT
In March 1998, the Company announced that it had retained the investment
banking firm of Schroder & Co., Inc., ("Schroder") to help it evaluate the
Company's brand, business and growth strategy and to identify potential
methods and opportunities to enhance shareholder value. The Company has formed
a special committee of the Board to evaluate potential transactions and
opportunities presented by Schroder. In connection with the retention of
Schroder, the Board has approved stay bonus arrangements for certain key
employees to retain their services in the event the Company enters into a
transaction. At this time, the Company is exploring possible transactions and
has not entered into, and is not obligated to enter into, any agreement with
any third party to proceed with any transaction.
F-24
<PAGE>
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
BROTHERS GOURMET COFFEES, INC.
(in thousands)
<TABLE>
CHARGED
BALANCE AT TO COSTS CHARGED BALANCE AT
BEGINNING AND TO OTHER END OF
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTION PERIOD
- ----------- --------- -------- -------- --------- ------
<S> <C> <C> <C> <C> <C>
Year ended December 29, 1995:
Deducted from asset accounts:
Allowance for doubtful accounts $ 2,055 $6,186 $ 678(3) $7,174(1) $ 1,745
Reserve for obsolete inventory 353 53(2) 300
Valuation allowance for deferred
tax assets 4,656 3,336 7,992
------- ------ ------ ------ -------
Totals $ 7,064 $6,186 $4,014 $7,227 $10,037
------- ------ ------ ------ -------
------- ------ ------ ------ -------
Year ended December 27, 1996:
Deducted from asset accounts:
Allowance for doubtful accounts $ 1,745 $ 892 $ $ 871(1) $ 1,766
Reserve for obsolete inventory 300 353 382(2) 271
Valuation allowance for deferred
tax assets 7,992 2,760 10,752
------- ------ ------ ------ -------
Totals $10,037 $1,245 $2,760 $1,253 $12,789
------- ------ ------ ------ -------
------- ------ ------ ------ -------
Year ended December 26, 1997:
Deducted from asset accounts:
Allowance for doubtful accounts $ 1,766 $ 626 $ -- $ 850(1) $ 1,542
Allowance for doubtful proceeds
from sale of discontinued retail
operations -- 300 -- -- 300
Reserve for obsolete inventory 271 1,074 -- 971(2) 374
Valuation allowance for deferred
tax assets 10,752 -- 3,752 -- 14,504
------- ------ ------ ------ -------
Totals $12,789 $2,000 $3,752 $1,821 $16,720
------- ------ ------ ------ -------
------- ------ ------ ------ -------
</TABLE>
(1) Uncollectible accounts written off, net of recoveries.
(2) Unsalable inventory written off during the year.
(3) Change in accounting estimate associated with restructuring expense.
S-1
<PAGE>
BROTHERS GOURMET COFFEES, INC.
EXHIBITS TO ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 26, 1997
All exhibits listed hereunder, unless otherwise indicated, have
previously been filed as exhibits to (1) Registration Statement No. 33-70236
(effective December 9, 1993) and/or (2) subsequent Forms 10-Q, 10-Q/A, Forms
10-K and/or Forms 8-K, when and as so indicated. Such exhibits have been
filed with the Securities and Exchange Commission ("Commission") pursuant to
the requirements of the Acts administered by the Commission. Such exhibits
are incorporated herein by reference under Rule 24 of the Commission's Rules
of Practice and Investigations.
Exhibit
Number Description
- ------ -----------
3.1 Restated Certificate of Incorporation.
3.2 Certificate of Amendment to Restated Certificate of Incorporation
(incorporated by reference to the Company's Report on Form 10-Q, filed
August 11, 1997).
4 Specimen of Common Stock Certificate.
4.1 Restated Bylaws (incorporated by reference to the Company's Current
Report on Form 8-K, filed March 2, 1995).
4.2 Rights Agreement between the Company and Chemical Bank, dated as of
March 31, 1995, which includes the Certificate of Designation in respect
of the Series A Preferred Stock as Exhibit A thereto, the form of Right
Certificate as Exhibit B thereto and the Summary of Rights to Purchase
Series A Preferred Stock as Exhibit C thereto (incorporated by reference
to the Company's Current Report on Form 8-K, filed April 11, 1995).
10.1 Form of Indemnification Agreement.
10.2 Stock Purchase Agreement among the Company, Chock Full O'Nuts
Corporation and Hillside Holding Corporation dated October 8, 1993.
10.3 Stock Purchase Agreement among the Company and all of the stockholders
of Edglo Enterprises dated October 6, 1993.
10.4 Amended and Restated Stock Option Plan, dated March 1993, as amended.*
10.5 Management Incentive Stock Option Plan dated June 5, 1990, as amended.*
10.6 Non-Qualified Stock Option Plan dated June 5, 1990, as amended.*
<PAGE>
BROTHERS GOURMET COFFEES, INC.
EXHIBITS TO ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 26, 1997
10.7 Registration Rights Agreement among the Company and Several Investors
dated as of December 30, 1992.
10.8 Registration Rights Agreement among the Company, J.H. Whitney & Co.,
Whitney 1990 Equity Fund, L.P. and Whitney Subordinated Debt Fund, L.P.
dated as of December 30, 1992.
10.9 Registration Rights Agreement among the Company and Several Investors
dated as of November 19, 1993.
10.10 Registration Rights Agreement between the Company and Steven Shulman
dated as of November 18, 1993.
10.11 First Amendment to Amended and Restated Executive Employment Agreement
between the Company and Dennis Boyer, dated as of April 17, 1995
(incorporated by reference to the Company's Quarterly Report filed on
Form 10-Q for the fiscal quarter ended March 31, 1995).
10.12 Severance Agreement between the Company and Michael J. Carlin, dated
as of April 26, 1995 (incorporated by reference to the Company's
Quarterly Report filed on Form 10-Q for the fiscal quarter ended
March 31, 1995).
10.13 Stock Purchase Agreement by and between Brothers Retail Corp. and The
Second Cup Ltd., dated October 16, 1995, as amended by that certain
Amendment to Stock Purchase Agreement, dated November 9, 1995, by and
between Brothers Retail Corp. and Gloria Jean's Inc., as assignee of
The Second Cup Ltd. (incorporated by reference to the Company's
Quarterly Report filed on Form 10-Q for the fiscal quarter ended
September 30, 1995).
10.14 Agreement of Sale by and among Diedrich Coffee (as Purchaser) and
Brothers Coffee Bars, Inc. and Brothers Gourmet Coffees, Inc. (as
Sellers), dated as of February 23, 1996 (incorporated by reference to
the Company's Annual Report on Form 10-K for the fiscal year ended
December 29, 1995).
10.15 Executive Employment Agreement by and between the Company and Mr.
Donald Breen, dated as of January 18, 1996 (incorporated by reference
to the Company's Annual Report on Form 10-K for the fiscal year ended
December 29, 1995).
<PAGE>
BROTHERS GOURMET COFFEES, INC.
EXHIBITS TO ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 26, 1997
10.16 Agreement of Sale by and among Foster Brothers Corporation and
Brothers Coffee Bars, Inc., Brothers Gourmet Coffees, Inc., and
Brothers Retail Corp., and joined in by Kent Foster, dated as of
March 27, 1996 (incorporated by reference to the Company's Quarterly
Report filed on Form 10-Q for the fiscal quarter ended March 28, 1996).
10.17 Loan and Security Agreement, by and among Brothers Gourmet Coffees,
Inc., as borrower, and Sanwa Business Credit Corporation, as agent and
lender, dated as of May 29, 1996 (incorporated by reference to the
Company's Quarterly Report on Form 10-Q for the fiscal quarter ended
June 28, 1996).
10.18 Agreement of Sale by and among Foster Brothers Corporation and
Brothers Coffee Bars, Inc., and Brothers Gourmet Coffees, Inc., and
joined in by Kent Foster, dated as of May 30, 1996.
10.19 Credit Support Agreement, by and among Brothers Gourmet Coffees, Inc.,
J.H. Whitney & Co. and J.P. Bolduc, dated as of May 29, 1996
(incorporated by reference to the Company's Quarterly Report on
Form 10-Q for the fiscal quarter ended June 28, 1996).
10.20 Securities Purchase Agreement, by and among Brothers Gourmet Coffees,
Inc., as borrower, and Siena Capital Partners, L.P., as lender, dated
as of September 20, 1996 (incorporated by reference to the Company's
Quarterly Report on Form 10-Q for the fiscal quarter ended
September 27, 1996).
10.21 First Amendment and Consent to Loan and Security Agreement, by and
among Brothers Gourmet Coffees, Inc., as borrower, and Sanwa Business
Credit Corporation, as agent and lender, dated as of September 20,
1996 (incorporated by reference to the Company's Quarterly Report on
Form 10-Q for the fiscal quarter ended September 27, 1996).
10.22 Second Amendment and Consent to Loan and Security Agreement, by and
among Brothers Gourmet Coffees, Inc., as borrower, and Sanwa Business
Credit Corporation, as agent and lender, dated as of December 27, 1996
(incorporated by reference to the Company's Report on Form 8-K, dated
January 10, 1997).
10.23 Senior Subordinated Note Agreement, by and among Brothers Gourmet
Coffees, Inc., as borrower, and Dilmun Financial Services, as lender,
dated as of December 27, 1996 (incorporated by reference to the
Company's Report on Form 8-K, dated January 10, 1997).
<PAGE>
BROTHERS GOURMET COFFEES, INC.
EXHIBITS TO ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 26, 1997
10.24 Forbearance Agreement, by and between the Company and Sanwa, dated as
of May 15, 1997 (incorporated by reference to the Company's Report of
Form 10-Q/A, dated June 13, 1997).
10.25 Second Amendment to Forbearance Agreement, by and between the Company
and Sanwa, dated as of August 15, 1997 (incorporated by reference to
the Company's Report of Form 10-Q, dated November 14, 1997).
10.26 Third Amendment to Forbearance Agreement, by and between the Company
and Sanwa, dated as of October 31, 1997 (incorporated by reference to
the Company's Report of Form 10-Q, dated November 14, 1997).
10.27 Fourth Amendment to Forbearance Agreement, by and between the Company
and Sanwa, dated as of November 28, 1997 (incorporated by reference to
the Company's Report of Form 10-Q, dated November 14, 1997).
10.28 Amended and Restated Loan and Security Agreement, by and among the
Company (as borrower), the Lenders named therein and Goldman Sachs
Credit Partners, L.P. as agent and Lender, dated as of December 9,
1997.**
10.29 Subordination Agreement, by and among Sanwa, Dilmun and BIB Holdings
(Bermuda) Ltd, dated as of December 27, 1996.**
10.30 First Amendment to (Mr. Breen's) Executive Employment Agreement.**
10.31 Letter from Ernst & Young LLP regarding Change of Accounting Method
(incorporated by reference to the Company's Report on Form 10-Q,
dated August 11, 1997)
10.32 Common Stock Purchase Warrant between the Company and Brothers Warrant
Holdings I, dated as of December 27, 1996.**
10.33 Amendment to Common Stock Purchase Warrant between the Company and
Brothers Warrant Holdings I, dated as of December 9, 1997.**
10.34 Common Stock Purchase Warrant between the Company and Siena Capital
Partners, L.P., dated as of September 20, 1996.**
10.35 Amendment to Common Stock Purchase Warrant between the Company and
Siena Capital Partners, L.P., dated as of December 9, 1997.**
<PAGE>
BROTHERS GOURMET COFFEES, INC.
EXHIBITS TO ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 26, 1997
10.36 Common Stock Purchase Warrant between the Company and Goldman Sachs
Credit Partners, L.P., dated as of December 9, 1997.**
10.37 Form of Senior Management Stay Bonus Letter.**
10.38 Form of Key Employee Stay Bonus Letter.**
10.39 First Amendment to Amended and Restated Loan and Security Agreement,
dated as of March 27, 1998.**
21 List of Subsidiaries.**
23 Consent of Ernst & Young LLP.**
27 Financial Data Schedule.**
- ----------------------
* Compensatory plans in which directors and officers participate and which
are not available to all employees.
** Filed herewith.
<PAGE>
AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT
This AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT is dated as
of December 9, 1997 by and between BROTHERS GOURMET COFFEES, INC., each of
the Lenders (as defined herein) and GOLDMAN SACHS CREDIT PARTNERS, L.P., a
Bermuda Limited Partnership ("GSCP"), individually as a Lender and as Agent
for the Lenders.
W I T N E S S E T H:
WHEREAS, Brothers Gourmet Coffees, Inc., as Borrower and Sanwa
Business Credit Corporation, a Delaware corporation ("SBCC"), as Agent and
Lender entered into that certain Loan and Security Agreement, dated as of May
29, 1996 (as amended, modified, supplemented or restated from time to time
prior to the date hereof, the "Existing Agreement");
WHEREAS, pursuant to that certain Assignment Agreement, dated as of
December 9, 1997 (the "Assignment Agreement"), by and between SBCC and GSCP,
SBCC sold and assigned all of its right, title and interest in, to and under,
among other things, the Transferred Interest (as defined in the Assignment
Agreement), to GSCP in accordance with the terms and conditions of the
Assignment Agreement;
WHEREAS, the Borrower, the Agent and the Lenders desire to amend
certain provisions of the Existing Agreement, upon the terms and conditions
set forth herein;
NOW, THEREFORE, in consideration of the terms and conditions
contained herein, and of any loans or extensions of credit heretofore, now or
hereafter made to or for the benefit of the Borrower by the Agent and the
Lenders, the parties hereto hereby agree as follows:
1. DEFINITIONS.
1.1 GENERAL TERMS. When used herein, the following terms shall have
the following meanings:
"ACCOUNT DEBTOR" shall mean any Person who is or may become
obligated on or under an Account.
"ACCOUNTING PERIOD" shall mean any of the twelve (12) consecutive
accounting periods collectively forming a Fiscal Year.
"ACCOUNTS" shall mean all of the Borrower's presently existing
and hereafter arising or acquired accounts, accounts receivable, margin
accounts, futures
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positions, book debts, instruments, documents, contracts, notes, drafts,
acceptances, chattel paper, and other forms of obligations now or hereafter
owned or held by or payable to the Borrower relating in any way to Inventory
or arising from the sale of Inventory or the rendering of services by the
Borrower or howsoever otherwise arising, including the right to payment of
any interest or finance charges with respect thereto, together with all
merchandise represented by any of the Accounts; all such merchandise that may
be reclaimed or repossessed or returned to the Borrower; all of the
Borrower's rights as an unpaid vendor, including, without limitation,
stoppage in transit, reclamation, replevin, and sequestration; all pledged
assets and all letters of credit, guaranty claims, Liens held by or granted
to the Borrower to secure payment of any Accounts; all proceeds and products
of all of the foregoing described properties and interests in properties; and
all proceeds of insurance with respect thereto, including, without
limitation, the proceeds of any applicable casualty or credit insurance or
fidelity bond, whether payable in cash or in kind; and all customer lists,
ledgers, books of account, records, computer programs, computer disks or tape
files (including, without limitation, all microfilm), computer printouts,
computer runs, and other computer prepared information relating to any of the
foregoing.
"ACCOUNTS TRIAL BALANCE" shall have the meaning ascribed
thereto in SUBSECTION 7.1(iii).
"ACCRUED UNPAID AMOUNT" shall have the meaning ascribed
thereto in SUBSECTION 6.35.
"ACQUISITION" shall mean any transaction, or any series of
related transactions, consummated after the Effective Date by which the
Borrower or any Subsidiary (a) acquires, directly or indirectly, any business
or all or substantially all of the assets of any Person or portion thereof,
whether through purchase of assets, merger or otherwise or (b) directly or
indirectly acquires at least (i) a majority (in number of votes of the
securities (or warrants, options or other rights to acquire such securities)
of a Person which have ordinary voting power for the election of directors or
(ii) a majority (by percentage of voting power) of the outstanding
partnership or other interests of a Person or (c) makes any Person a
Subsidiary, or causes any assets of such Person to be merged into the
Borrower or such Subsidiary pursuant to a merger, purchase of assets or other
reorganization providing for the delivery or issuance to the holders of such
Person's then outstanding securities or capital interests, in exchange for
such securities, of cash or securities of the Borrower or such Subsidiary, or
any combination thereof.
"ACQUISITION FEE" shall have the meaning ascribed thereto in
SUBSECTION 2.10.
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"ADDITIONAL ADJUSTMENT FACTOR" shall mean (i) with respect to
any Additional Slotting Fee and the first calendar month such Additional
Slotting Fee is included in the Current Asset Base, one (1) and (ii) as to
each such Additional Slotting Fee and any calendar month after the first
calendar month in which such Additional Slotting Fee is included in the
Current Asset Base, an amount equal to (x) eighteen (18), LESS the number of
full calendar months that have elapsed since such Additional Slotting Fee was
included initially in the Current Asset Base, divided by (y) eighteen (18).
For purposes of determining the Additional Slotting Fee Amount for any
Additional Slotting Fee and the "Current Asset Base" in subsection 2.1(a)(3)
hereof, the Additional Adjustment Factor shall be adjusted for such
Additional Slotting Fee as of 11:59 p.m. (New York time) on the last day of
the applicable calendar month. For purposes of illustration only, if the
Borrower were to deliver an Additional Slotting Fee Certificate to the Agent
pursuant to Section 7.11 on July 15, 1998, as of August 1, 1998, 100% of the
amount of the Additional Slotting Fee would be included in the calculation of
Aggregate Additional Slotting Fee Amount and the Additional Adjustment Factor
for such Additional Slotting Fee would be one (1), and as of 12:00 a.m. (New
York time), September 1, 1998, the Additional Adjustment Factor for such
Additional Slotting Fee would be reduced to 17 divided by 18 (.94444).
"ADDITIONAL SLOTTING FEE" shall mean any Slotting Fee listed
on any Additional Slotting Fee Certificate.
"ADDITIONAL SLOTTING FEE AMOUNT" shall mean, with respect to
any Additional Slotting Fee and as to any calendar month, the product of (x)
the amount of such Additional Slotting Fee, MULTIPLIED BY (y) the applicable
Additional Adjustment Factor for such Additional Slotting Fee for such
calendar month.
"ADDITIONAL SLOTTING FEE CERTIFICATE" shall mean each
certificate delivered by the Borrower to the Agent in any month in accordance
with Section 7.11 hereof.
"ADDITIONAL SUBORDINATED NOTES" shall mean the additional
senior subordinated promissory notes issued pursuant to Section 5(d)(vii) of
the BIB Warrant in the form of Exhibit A to the BIB Warrant.
"ADDITIONAL TERM LOAN B" shall have the meaning ascribed
thereto in SUBSECTION 2.5(a)
"ADJUSTED INITIAL SLOTTING FEE AMOUNT" shall mean with respect
to any calendar month, the product of (x) the Initial Slotting Fee Amount,
MULTIPLIED BY (y) the applicable Initial Adjustment Factor for such calendar
month.
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"AFFILIATE" shall mean any Person (including any member of the
immediate family of any such natural person) (a) that directly or indirectly,
through one or more intermediaries, controls or is controlled by, or is under
common control with the Borrower or any Subsidiary, including, without
limitation, the officers and directors of the Borrower or such Subsidiary,
(b) that directly or beneficially owns or holds five percent (5%) or more of
any equity interest in the Borrower or any Subsidiary, or (c) five percent
(5%) or more of whose voting stock (or in the case of a Person which is not a
corporation, five percent (5%) or more of any equity interest) is owned
directly or beneficially or held by the Borrower or any Subsidiary.
Affiliate shall not be deemed to include the Agent or any Lender. As used
herein, the term "control" (including, with correlative meanings, the terms
"controlling," "controlled by" and "under common control with") shall mean
possession, directly or indirectly, of the power to direct the management or
policies of a Person, whether through ownership of securities, by contract or
otherwise.
"AGENT" shall mean Goldman Sachs Credit Partners, L.P., a
Bermuda limited partnership, in its capacity as agent for the Lenders and not
in its individual capacity as a Lender, and any successor in such capacity
appointed pursuant to SUBSECTION 12.11.
"AGGREGATE ADDITIONAL SLOTTING FEE AMOUNT" shall mean, with
respect to any calendar month, the sum of all Additional Slotting Fees
Amounts for such calendar month.
"AGREEMENT" shall mean this Amended and Restated Loan and
Security Agreement, as the same may hereafter be restated, amended, modified
or supplemented from time to time.
"APPRAISAL (EQUIPMENT)" shall mean that certain equipment
valuation report dated as of June 19, 1997 and prepared by MB Valuation,
together with a reliance letter from MB Valuation expressly stating that the
Agent is entitled to rely on such equipment valuation report as if it were
addressed to the Agent, each of which shall be in form and substance
satisfactory to the Agent, copies of which have been provided to the Agent
and the Lenders.
"APPRAISED (REAL ESTATE)" shall mean that certain real estate
appraisal dated as of March 19, 1996 prepared by MB Valuation as to the real
estate located in Houston, Texas, together with a reliance letter from MB
Valuation expressly stating that the Agent is entitled to rely on such real
estate appraisal as if it were addressed to the Agent, each of which shall be
in form and substance satisfactory to the Agent, copies of which have been
provided to the Agent and the Lenders.
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"AUTHORIZED OFFICER" shall mean any one of the Chief Executive
Officer, Chief Financial Officer, Treasurer, Vice President Finance and
Administration or any other officer of the Borrower designated to the Agent
in writing as an "Authorized Officer" under this Agreement by the Chief
Executive Officer or the Vice President Finance and Administration of the
Borrower.
"BASE RATE" shall mean the fluctuating interest rate equal to
(a) the Prime Rate from time to time in effect, PLUS (b) two percent (2%).
"BIB WARRANT" shall mean that certain Warrant for the Purchase
of Shares of Common Stock, dated December 27, 1996, issued by the Borrower in
favor of BIB Holdings (Bermuda) Ltd., as the same may be amended, modified,
restated or otherwise supplemented from time to time in accordance with the
terms of this Agreement and the Subordinated Agreement.
"BIB WARRANT SHARES" shall have the meaning ascribed thereto
in the BIB Warrant and the Subordinated Agreement.
"BLOCKED ACCOUNT AGREEMENTS" shall have the meaning ascribed
thereto in SUBSECTION 3.5.
"BLOCKED ACCOUNTS" shall have the meaning ascribed thereto in
SUBSECTION 3.5.
"BORROWER" shall mean Brothers Gourmet Coffees, Inc., a
Delaware corporation.
"BORROWING AVAILABILITY" shall have the meaning ascribed
thereto in SUBSECTION 2.1(a).
"BROTHERS RETAIL" shall mean Brothers Retail Corp., a Delaware
corporation, a wholly owned Subsidiary of the Borrower.
"BROTHERS RETAIL GUARANTY" shall mean the Guaranty, dated as
the Effective Date, executed by Brothers Retail in favor of the Agent, on
behalf of itself and the Lenders, guarantying the Obligations, as the same
may be restated, extended, amended, modified or supplemented from time to
time.
"BUSINESS DAY" shall mean any day other than a Saturday,
Sunday or other day on which banks in New York, New York are authorized or
required to be closed.
"CAPITAL EXPENDITURES" shall mean, for any fiscal period,
without duplication, all expenditures (whether made in the form of cash or
other Property) by the
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Borrower or any Subsidiary during such period for, or contracts for
expenditures with respect to, any fixed assets or improvements, or for
renewals, replacements, substitutions or additions thereto, which have a
useful life of more than one (1) year including, without limitation, the
direct or indirect acquisition of such assets by way of increased product or
service charges, offset items or otherwise, and shall include capitalized
lease payments.
"CASH EQUIVALENTS" shall mean (i) bank certificates of
deposit, bankers' acceptances or time deposits (but only with banks organized
under the laws of the United States or of any State thereof (x) which do not
have set-off rights against the foregoing, other than set-offs for nominal
service charges and similar fees incurred in the ordinary course, and (y)
which have combined capital and surplus in excess of Fifty Million Dollars
($50,000,000)), (ii) commercial paper maturing within one (1) year from the
date issued and rated at least A-1 or the equivalent thereof by Standard &
Poors Corporation, or P-1 or the equivalent thereof by Moody's Investors
Service, Inc., and (iii) obligations maturing within one (1) year from the
date of acquisition issued or directly and fully guaranteed by the United
States government or any agency thereof.
"CHANGE OF CONTROL" shall mean the occurrence of:
(a) an acquisition of any voting securities of the Borrower
(the "Voting Securities") by any "Person" (as the term person is used for
purposes of Section 13(d) or 14(d) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act")), immediately after which such Person has
"Beneficial Ownership" (within the meaning of Rule 13d-3 promulgated under
the Exchange Act) of forty percent (40%) or more of the then outstanding
shares of common stock of the Borrower or the combined voting power of the
Borrower 's then outstanding Voting Securities;
(b) the individuals who, as of the Effective Date are members
of the Board of Directors of the Borrower (the "Incumbent Board"), cease for
any reason to constitute at least two-thirds of the members of the Board of
Directors of the Borrower; PROVIDED, HOWEVER, that if the election, or
nomination for election by the Borrower 's common stockholders, of any new
director was approved by a vote of at least two-thirds of the Incumbent
Board, such new director shall, for purposes of this Agreement, be considered
as a member of the Incumbent Board; PROVIDED FURTHER, HOWEVER, that no
individual shall be considered a member of the Incumbent Board if such
individual initially assumed office as a result of either an actual or
threatened "Election Contest" (as described in Rule 14a-11 promulgated under
the Exchange Act) or other actual or threatened solicitation of proxies or
consents by or on behalf of a Person other than the Board (a "Proxy Contest")
including by reason of any agreement intended to avoid or settle any Election
Contest or Proxy Contest;
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(c) the consummation of a merger or consolidation of any
Person with or into the Borrower or in which securities of the Borrower are
issued; or
(d) the consummation of a transaction or series of
transactions pursuant to which all or substantially all of the assets and
properties of the Borrower are sold, conveyed, transferred, leased or
otherwise disposed of, directly or indirectly.
"CHARGES" shall mean all federal, state, county, city,
municipal, local, foreign or other governmental taxes (including, without
limitation, taxes owed to the PBGC at the time due and payable), duties,
levies, assessments, charges, liens, claims or encumbrances upon or relating
to (i) the Collateral, (ii) the Obligations, (iii) the employees, payroll,
income or gross receipts of the Borrower, (iv) the ownership or use of any
Property of the Borrower, or (v) any other aspect of the Borrower's business.
"CLASS ACTION LAWSUITS" shall mean those certain shareholders
lawsuits listed on EXHIBIT A.
"CODE" shall have the meaning ascribed thereto in SUBSECTION 1.3.
"COLLATERAL" shall mean all property and interests in property
now owned or hereafter acquired by the Borrower in or upon which a Lien is
granted to the Agent, for the benefit of the Lenders, by the Borrower,
whether under the Existing Agreement, this Agreement or the other Financing
Agreements or under any other documents, instruments or writings executed by
the Borrower and delivered to the Agent, including, without limitation,
Accounts, General Intangibles, Fixtures, Inventory, Intellectual Property,
Equipment, Real Estate and leased real property.
"COLLECTING BANKS" shall have the meaning ascribed thereto in
SUBSECTION 3.5.
"COLLECTIONS" means all cash, checks, notes, instruments, and
other items of payment (including, insurance proceeds, proceeds of cash
sales, rental proceeds, and tax refunds) received by the Borrower with
respect to the Accounts.
"COMMITMENT" shall mean, with respect to each Lender, the
commitment of each Lender to make Loans to the Borrower with respect to the
Revolving Loan and each Term Loan as of the Effective Date in the amounts set
forth on SCHEDULE 1; SCHEDULE 1 shall be amended and Lenders' Pro Rata Shares
shall be adjusted from time to time to give effect to the addition of any new
Lenders pursuant to SUBSECTION 11.1.
"CONTINGENT RETAIL STORE OBLIGATIONS" shall mean,
collectively, (a) the obligations of the Borrower or any of its Subsidiaries
(with respect to contracts
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entered into by such Person) for the leasing, operation, financing, shutdown,
sale or other disposition associated with the closing of the Retail Stores
listed on Exhibit 8.7 and (b) the contingent obligations of the Borrower or
any of its Subsidiaries to pay rent, either in its capacity as a co-lessee or
guarantor, with respect to the Retail Stores listed on Exhibit 8.5.
"CONVERSION SHARES" shall have the meaning ascribed thereto in
the BIB Warrant.
"CURRENT ASSET BASE" shall have the meaning ascribed thereto
in SUBSECTION 2.1.
"DEFAULT" shall mean an event which through the passage of
time or the service of notice, or both, would mature into an Event of Default.
"DEFAULT RATE" shall mean a fluctuating interest rate per
annum equal to (a) in the case of principal or interest on any Loan (other
than Term Loan B) and all other Obligations, the sum of (i) the Base Rate
from time to time in effect, PLUS (ii) two percent (2%) and (b) in the case
of principal or interest on Term Loan B, the rate of thirteen and
three-quarters percent (13.75%) per annum. Such interest rate shall be a
fluctuating rate and each change in such interest rate shall take effect
simultaneously with the corresponding change in the Base Rate.
"DEPOSITORY ACCOUNT" shall have the meaning ascribed thereto
in SUBSECTION 3.5.
"DILUTION" means, in each case based upon the experience of
the immediately prior ninety (90) days, the result of dividing the amount of
(a) bad debt write-downs, discounts, advertising, returns, promotions,
creditors, or other dilution with respect to the Accounts, by (b) the
Borrower's Collections (excluding extraordinary items) plus the amount of
clause (a).
"DILUTION RESERVE" means, as of any date of determination, an
amount sufficient to reduce the Lenders' advance rate against Eligible
Accounts by one percentage point for each percentage point by which Dilution
is in excess of 5%.
"DSD WAREHOUSES" shall mean the regional warehouses set forth
on EXHIBIT B at which the Borrower stores Inventory for direct delivery to
customers.
"EBITDA" shall mean, for the applicable computation period set
forth in Section 8.21(a) hereof, determined for the Borrower and its
Subsidiaries on a consolidated basis, Net Income (exclusive of discontinued
operations for Retail Stores) for such period, PLUS to the extent deducted in
determining Net Income, interest expense
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and taxes paid, PLUS to the extent deducted in determining Net Income,
amortization, depreciation and other similar non-cash charges, PLUS to the
extent deducted in determining Net Income, extraordinary losses, MINUS to the
extent added in determining Net Income, extraordinary gains, all as
determined in accordance with GAAP consistently applied.
"EFFECTIVE DATE" shall mean 12:01 a.m. (New York time) on the
date upon which all of the conditions precedent set forth in SUBSECTION 4.2
have been satisfied or waived by the Agent in accordance with the terms
thereof.
"ELIGIBLE ACCOUNTS" shall have the meaning ascribed thereto in
SUBSECTION 3.2.
"ELIGIBLE INVENTORY" shall have the meaning ascribed thereto
in SUBSECTION 3.10.
"ENVIRONMENTAL LAWS" shall mean and includes the following as
now in effect or hereafter amended: the Comprehensive Environmental Response
Compensation and Liability Act, ("CERCLA"), 42 U.S.C. Section 9601 ET SEQ.;
the Solid Waste Disposal Act, as amended by the Resource Conservation and
Recovery Act ("RCRA"), 42 U.S.C. Section 6901 ET SEQ.; the Toxic Substances
Control Act ("TSCA"), 15 U.S.C. Section 2601, ET SEQ.; the Clean Air Act, 42
U.S.C. Section 7401 ET SEQ.; the Federal Water Pollution Control Act ("Clean
Water Act"), 33 U.S.C. Section 1251 ET SEQ.; the Emergency Planning and
Community Right-to-Know Act, 42 U.S.C. Section 11001 ET SEQ.; the Hazardous
Materials Transportation Act, 49 U.S.C. Section 1801 ET SEQ.; the Atomic
Energy Act, 42 U.S.C. Section 2011 ET SEQ.; the Safe Drinking Water Act, 42
U.S.C. Section 300f ET SEQ. and the state law equivalents; any so-called
"Superfund" or "Superlien" law; and any statute, ordinance, code, rule,
regulation, order, decree or requirement under international, federal, state,
regional, provincial or local law (including, without limitation,
administrative orders and consent decrees) in effect and as amended
regulating, relating to or imposing liability or standards of conduct
concerning public health and safety, protection of the environment, or any
pollutant or contaminant or hazardous, toxic or dangerous substance, waste,
chemical or material, as now or any time hereafter may be existing.
"ENVIRONMENTAL MATTERS" shall have the meaning ascribed
thereto in SUBSECTION 6.26.
"EQUIPMENT" shall mean all of the Borrower's machinery and
equipment, including, without limitation, processing equipment, conveyors,
machine tools, data processing and computer equipment with software and
peripheral equipment (other than software constituting part of the Accounts),
and all engineering, processing and manufacturing equipment, office
machinery, furniture, materials handling equipment,
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tools, attachments, accessories, automotive equipment, trailers, trucks,
ships, vessels, airplanes, forklifts, molds, dies, stamps, motor vehicles,
rolling stock and other equipment of every kind and nature, trade fixtures
and fixtures not forming a part of real property, all whether now owned or
hereafter acquired, and wherever situated, together with all appurtenances,
additions and accessions thereto, replacements therefor, all parts therefor,
all substitutes for any of the foregoing, fuel therefor, and all manuals,
drawings, instructions, warranties and rights with respect thereto, and all
products and proceeds thereof and condemnation awards and insurance proceeds
with respect thereto, and including, without limitation, the items of
equipment described in the Appraisal (Equipment), which description is
incorporated herein by reference.
"ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as amended from time to time, and all rules and regulations
promulgated thereunder.
"ERISA AFFILIATE" shall mean any Person, trade or business
that is, or was at any time during the previous six (6) years, along with the
Borrower, in the same controlled group of corporations, under common control,
or otherwise, treated as a single employer for any purpose under Section 414
of the IRC.
"EVENT OF DEFAULT" shall mean the occurrence or existence of
any one or more of the following conditions or events:
(a) the Borrower fails to pay any of its Obligations hereunder when
the Obligations are due or are declared due or fails to deliver any Weekly
Report or Monthly Report as required by SUBSECTION 3.1;
(b) the Borrower fails or neglects to perform, keep or observe any of
the covenants, conditions or agreements contained in any of the subsections
of this Agreement (other than the covenants contained in SUBSECTION 7.12)
or in any of the other Financing Agreements (other than occurrences
referred to or embodied in other provisions of this definition constituting
immediate Events of Default) for a period of ten (10) days after the
earlier of (i) the Borrower's receipt of notice from the Agent or (ii)
actual knowledge of such breach by the Borrower;
(c) any warranty or representation now or hereafter made by the
Borrower or any Subsidiary in connection with this Agreement or any of the
other Financing Agreements is untrue or incorrect in any material respect,
or any schedule, certificate, statement, report, financial data, notice or
other writing furnished at any time by the Borrower or any Subsidiary to
the Agent or any Lender is untrue or incorrect in any material respect, as
of the date on which the
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warranty, representation or the facts set forth therein are stated,
certified or deemed made;
(d) any Lien, levy or assessment is filed or recorded with respect to
or otherwise imposed upon all or any part of the Collateral or the Property
of the Borrower or any Subsidiary by the United States, or any department,
agency or instrumentality thereof, or by any state, county, municipality or
other governmental agency and that either (i) is in excess of Two Hundred
Fifty Thousand Dollars ($250,000), or (ii) is superior to the Liens granted
to the Agent, for the benefit of the Lenders;
(e) all or any part of the Collateral or the Property of the Borrower
or any Subsidiary is attached, seized, subjected to a writ or distress
warrant, or levied upon, or come within the possession or control of any
judgment creditor and on or before the thirtieth (30th) day period
thereafter such Collateral or Property is not returned to the Borrower or
such Subsidiary or such writ, distress warrant or levy is not dismissed,
stayed or lifted;
(f) the Borrower or any Subsidiary makes an assignment for the
benefit of creditors; convenes a meeting of its creditors, or any class
thereof, for purposes of effecting a moratorium upon or extension or
composition of its debts; applies for, seeks, consents to, or acquiesces in
the appointment of a receiver, trustee or custodian to take possession of
all or any substantial portion of the Property of the Borrower or any
Subsidiary; commences any bankruptcy, reorganization or insolvency case or
proceeding or other proceeding under any federal, state or other law for
relief of debtors; or the Borrower or such Subsidiary proposes, authorizes
or consents to the taking of any of the foregoing actions;
(g) the Borrower or any Subsidiary becomes the subject of any
bankruptcy, reorganization or insolvency proceeding, or other proceeding
under any law for the relief of debtors instituted against it;
(h) without the application, approval or consent of the Borrower or
any Subsidiary, any receiver, trustee, examiner, liquidator, custodian or
similar official is appointed to take possession of all or any substantial
portion of the Property of the Borrower or such Subsidiary, or any
committee of the Borrower's or such Subsidiary's creditors or any class
thereof, is formed for the purpose of monitoring or investigating the
financial affairs of the Borrower or such Subsidiary or enforcing such
creditors' rights, or the filing of any motion, complaint or other pleading
in any bankruptcy, reorganization or insolvency case or proceeding of any
Person other than the Borrower or such Subsidiary that seeks the
consolidation
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the Borrower's or such Subsidiary's assets and liabilities with the assets
and liabilities of such Person;
(i) the Borrower or any Subsidiary voluntarily or involuntarily
dissolves or is dissolved, liquidates or is liquidated;
(j) the Borrower or any Subsidiary ceases to be Solvent or admits in
writing that it is not Solvent or fails to pay all or any material portion
(measured in numbers of debts or dollar amounts) of its debts as they
become due or admits in writing its present or prospective inability to pay
its debts as they become due;
(k) the Borrower or any Subsidiary is enjoined, restrained, or in any
way prevented by the order of any court or any administrative or regulatory
agency from conducting all or any material part of its business
representing ten percent (10%) or more of the Borrower's and its
Subsidiaries' business taken as a whole (based upon gross revenues for the
most recent twelve months ending on the date of such occurrence);
(l) any default or breach under any agreement(s) evidencing
Indebtedness of the Borrower or any Subsidiary in an aggregate amount in
excess of Two Hundred Fifty Thousand Dollars ($250,000) shall occur and
shall continue after any applicable grace period specified in any such
document if the effect of such default or breach is to accelerate, or to
permit the acceleration of, the maturity of all or any part of any such
Indebtedness, whether or not such default or breach shall be waived by the
holders or trustees (if any) for such Indebtedness, or any such
Indebtedness shall be declared to be due and payable, or be required to be
prepaid (other than by a regularly scheduled required prepayment), prior to
the stated maturity thereof;
(m) a breach by the Borrower or any Subsidiary occurs under any
agreement, document or instrument (other than an agreement, document or
instrument evidencing Indebtedness), whether heretofore, now or hereafter
existing between the Borrower or such Subsidiary and any other Person, and
such breach continues for more than thirty (30) days after such breach
first occurs; PROVIDED that such grace period shall not apply, and such
breach shall constitute an Event of Default, if such breach may not, in the
determination of the Required Lenders, be cured by the Borrower or such
Subsidiary during such thirty (30) day grace period, and the failure to
have cured such breach might have a Material Adverse Effect;
(n) in the sole judgment of the Agent, since the Effective Date, a
material adverse change occurs in the business, properties, operations,
condition (financial or otherwise) or business prospects of the Borrower,
or of the Borrower
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and its Subsidiaries taken as a whole, or in the Agent's Lien priority in,
or the value of, the Collateral;
(o) any material damage to, or loss, theft, or destruction of, any of
the Collateral, whether or not insured, or any strike, lockout, labor
dispute, embargo, condemnation, act of God or public enemy, or other
casualty which results in or causes cessation or substantial curtailment of
production or other revenue producing activities at any Facility;
(p) entry of a judgment or judgments in an aggregate amount in excess
of Two Hundred Fifty Thousand Dollars ($250,000) against the Borrower or
any Subsidiary;
(q) any Termination Event which the Required Lenders, in good faith,
determine might have a Material Adverse Effect and which is not cured
within thirty (30) days after the occurrence of such Termination Event;
(r) the loss, suspension, revocation or failure to obtain or renew
any license or permit now held or hereafter acquired by the Borrower, which
loss, suspension, revocation or failure to renew might have a Material
Adverse Effect;
(s) the Borrower fails to perform, keep or observe any of the
covenants contained in SUBSECTIONS 3.5, 7.5, 7.6, 7.11, or in Section 8;
(t) any civil or criminal action, suit or proceeding is initiated
against the Borrower or any Subsidiary under any federal or state
racketeering statute (including, without limitation, the Racketeer
Influenced and Corrupt Organization Act of 1970, as amended);
(u) a Change in Control occurs;
(v) the Agent does not have or ceases to have a legal, valid and
perfected first priority Lien on the Collateral (subject to Permitted
Liens) for any reason other than the failure of the Agent to take any
action within its total control;
(w) any of the Financing Agreements shall cease for any reason to be
in full force and effect or is declared null and void or the Borrower, any
Subsidiary or any other Person (other than the Agent or any Lender) shall
disavow its respective obligations thereunder or shall deny that it has any
further obligations thereunder or shall contest or challenge the validity
or enforceability of any thereof, the legality or enforceability of any of
the Obligations or the perfection or priority of any Lien granted to the
Agent, or gives notice to such effect;
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(x) any breach or default by the Borrower of any of the provisions of
any of the Subordinated Debt Documents other than the breaches or defaults
listed on Exhibit 6.34 hereto;
(y) any Subsidiary fails or neglects to perform, keep or observe any
of the covenants, conditions or agreements contained in any Financing
Agreement to which it is a party, which breach continues after any
applicable grace period specified in such Financing Agreement; or
(z) any of the public filings of the Borrower since December 27, 1996
shall have contained any untrue statement of a material fact or omitted a
material fact necessary to make the statements contained therein not
misleading.
The occurrence or existence of any of the foregoing events
shall constitute an immediate Event of Default unless notice by the Agent or
a cure period is specifically required by the description of such event
before such event matures into an Event of Default.
"EXISTING OBLIGATIONS" shall have the meaning ascribed thereto
in SUBSECTION 6.35.
"FACILITY" shall mean each of the Borrower's facilities
located at 7105 Katy Road, Houston, Texas and any other facility established
by the Borrower hereafter in accordance with the terms of this Agreement.
"FEDERAL FUNDS RATE" shall mean, for any day, the weighted
average of the rates on overnight Federal funds transactions with members of
the Federal Reserve System only arranged by Federal Funds brokers as
published as of such day by the Federal Reserve Bank of New York, or if such
rate is not so published, the rate then used by first class banks in
extending overnight loans to other first class banks.
"FINANCIAL STATEMENTS" shall have the meaning ascribed thereto in
SUBSECTION 6.4.
"FINANCING AGREEMENTS" shall mean, collectively, this
Agreement, the Revolving Loan Notes, the Term Loan Notes, the Intellectual
Property Security Agreement, the Mortgages, the Pledge and Security
Agreement, the Maryland Club Foods Guaranty, the Brothers Retail Guaranty,
the Subsidiary Security Agreement, the GSCP Warrant, the Warrant Stock and
all other agreements, instruments and documents, including, without
limitation, security agreements, loan agreements, notes, guaranties,
mortgages, deeds of trust, agreements, documents, instruments, pledges,
powers of attorney, consents, assignments, contracts, notices, leases,
financing statements and all other written matter whether heretofore, now, or
hereafter executed by or on behalf of the
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Borrower or any other Person and delivered to the Agent or any Lender in
connection with this Agreement, together with all agreements and documents
between the Borrower and the Agent or any Lender referred to therein or
contemplated thereby, as the same may hereafter be restated, amended,
modified or supplemented from time to time.
"FISCAL QUARTER" shall mean any of the quarterly Accounting
Periods of the Borrower.
"FISCAL YEAR" shall mean the twelve (12) Accounting Periods of
the Borrower ending on the Friday closest to December 31 of each calendar
year.
"FIXTURES" shall mean all "fixtures" as such term is defined
in the Code, now owned or hereafter acquired by the Borrower, wherever
located.
"FUNDING DATE" shall mean the date of funding of a Term Loan
or the date of each funding under the Revolving Loan, which date in all cases
shall be a Business Day.
"GENERAL INTANGIBLES" shall mean all of the Borrower's
presently owned or hereafter acquired general intangibles, including, without
limitation, goodwill, choses in action, causes of action, franchises,
methods, sales literature, drawings, specifications, descriptions, name
plates, catalogs, confidential business information, dealer contracts,
supplier contracts, distributor agreements, customer lists, contract rights,
confidential information, consulting agreements, employment agreements,
engineering contracts, leasehold interests in real and personal property,
general or limited partnership interests in any Person, insurance policies
(including business interruption insurance), licenses, permits, and such
other Property which uniquely reflect the goodwill of the business of the
Borrower; deposit accounts, letters of credit, and General Intangibles
relating to other items of Collateral, including, without limitation, rights
to refunds or indemnification; reversionary or other rights of the Borrower
to excess Plan assets upon termination or amendment thereof; and proceeds of
all of the foregoing, including without limitation, insurance proceeds,
including proceeds of business interruption insurance, income tax refunds,
and claims for tax or other refunds against any city, county, state, or
federal government, or any agency or authority or other subdivision thereof.
"GENERALLY ACCEPTED ACCOUNTING PRINCIPLES" OR "GAAP" shall
mean, as of the date of any determination with respect thereto, generally
accepted accounting principles as used by the Financial Accounting Standards
Board and/or the American Institute of Certified Public Accountants,
consistently applied and maintained throughout the periods indicated.
"GOVERNMENTAL AUTHORITY" shall mean any nation or government
or any political subdivision thereof, any state or political subdivision
thereof, and any
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agency, authority, court, central bank, department or other entity exercising
executive, legislative, judicial, taxing, regulatory or administrative
functions of or pertaining to government.
"GSCP WARRANTS" shall mean the 400,000 Warrants for the
Purchase of Shares of Common Stock, dated the Effective Date, issued by the
Borrower in favor of GSCP under the GSCP Warrant Agreement.
"GSCP WARRANT AGREEMENT" shall mean that certain Warrant
Agreement, dated as of December 9, 1997, by and between the Borrower and
GSCP, as the same may be amended, modified, restated or supplemented from
time to time in accordance with the terms of this Agreement.
"GUARANTY" of a Person shall mean any agreement by which such
Person guarantees, endorses or otherwise in any way becomes or is responsible
for any obligations of any other Person, whether directly or indirectly, by
agreement to purchase the indebtedness of any other Person or through the
purchase of goods, supplies or services, or maintenance of working capital or
other balance sheet covenants or conditions, or by way of stock purchase,
capital contribution, advance or loan for the purpose of paying or
discharging any indebtedness or obligation of such other Person or otherwise
assures any creditor of such other Person against loss.
"HAZARDOUS MATERIALS" shall mean the following: hazardous
substances; hazardous wastes; polychlorinated biphenyls ("PCB's") or any
substance or compound containing PCB's; asbestos or any asbestos-containing
materials in any form or condition; radon; any other radioactive materials
including any source, special nuclear or by-product material; petroleum,
crude oil or any fraction thereof which is liquid at standard conditions of
temperature and pressure (60 degrees Fahrenheit and 14.7 pounds per square
inch absolute); and any other pollutant or contaminant or hazardous, toxic or
dangerous chemicals, materials or substances, as all such terms are used in
their broadest sense and defined by Environmental Laws.
"INDEBTEDNESS" of a Person shall mean at a particular time (i)
indebtedness for borrowed money or for the deferred purchase price of
property or services (other than current accounts payable arising in the
ordinary course of business on terms customary in the trade) in respect of
which such person is liable, contingently or otherwise, as guarantor, obligor
or otherwise or any commitment by which such Person assures a creditor
against loss, including contingent reimbursement obligations with respect to
letters of credit, (ii) indebtedness guaranteed in any manner by such Person
including guaranties in the form of an agreement to repurchase or reimburse;
PROVIDED that the amount of indebtedness represented by any guaranty of
limited recourse shall be the lesser of the amount of indebtedness so
guaranteed or the value of the asset to which
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the recourse of such indebtedness is limited, (iii) obligations under leases
which shall have been or should be, in accordance with Generally Accepted
Accounting Principles, recorded as capital leases in respect of which
obligations such Person is liable, contingently or otherwise, as obligor,
guarantor or otherwise, or in respect of which obligations such Person
assures a creditor against loss, (iv) any unfunded obligation of, or
withdrawal liability incurred but not paid by, such Person with respect to a
Multiemployer Plan, and (v) all accounts payable of such Person, which are
not being contested in good faith by appropriate proceedings and which are
more than ninety (90) days past due.
"INITIAL ADJUSTMENT FACTOR" shall mean, as to any month, an
amount equal to (x) eighteen (18), LESS the number of full calendar months
that have elapsed since the Effective Date divided by (y) eighteen (18). For
purposes of determining the Adjusted Initial Slotting Fee Amount and the
"Current Asset Base" in SUBSECTION 2.1(a)(3) hereof, the Initial Adjustment
Factor shall be adjusted as of 11:59 p.m. (New York time) on the last day of
the applicable calendar month such that as of midnight (New York time) on
January 1, 1998, the amount in clause (x) hereof shall be 17 for the entire
month of January 1998.
"INITIAL SLOTTING FEE AMOUNT" shall mean the aggregate amount
of all Slotting Fees listed on the Initial Slotting Fee Certificate.
"INITIAL SLOTTING FEE CERTIFICATE" shall mean the certificate
delivered by the Borrower to the Agent on the Effective Date, which
certificate shall list all "prepaid promotional expenses" and "long-term
promotional expenses" as of the Effective Date in accordance with GAAP.
"INTELLECTUAL PROPERTY" shall mean all of the Borrower's
present and future designs, patents, patent rights and applications therefor,
technology, trademarks and registrations or applications therefor, service
marks and registrations and applications therefor, trade names, trade dress,
logos, inventions, copyrights and all applications and registrations
therefor, advertising matter, software or computer programs, license rights,
trade secrets, methods, processes, know-how, drawings, specifications,
descriptions, and all memoranda, notes, and records with respect to any
research and development, whether now owned or hereafter acquired by the
Borrower, and proceeds of all of the foregoing, including, without
limitation, proceeds of insurance policies thereon, all income, royalties,
damages and payments under all licenses, and the right to sue for past,
present and future infringement.
"INTELLECTUAL PROPERTY SECURITY AGREEMENT" shall mean that
certain Amended and Restated Continuing Security Interest and Collateral
Assignment of Patents, Trademarks, Copyrights and Licenses, dated as of the
Effective Date, duly executed and delivered by the Borrower in favor of the
Agent, for the benefit of the
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Lenders, with respect to Intellectual Property, as the same may hereafter be
amended, modified or supplemented from time to time.
"INVENTORY" shall mean all of the inventory of the Borrower of
every kind and description, now or at any time hereafter owned by or in the
custody or possession, actual or constructive, of the Borrower, wherever
located, including, without limitation, all merchandise, raw materials,
parts, supplies, work-in-process and finished goods intended for sale,
together with all the containers, packing, packaging, shipping and similar
materials related thereto, and including such inventory as is temporarily out
of the Borrower's custody or possession, including inventory on the premises
of other Persons and items in transit, and including any goods reclaimed,
returned or repossessed upon any accounts, documents, instruments or chattel
paper relating to or arising from the sale of inventory, and all
substitutions and replacements therefor, and all additions and accessions
thereto, and all ledgers, books of account, records, computer printouts,
computer runs, microfilm, microfiche and other computer-prepared information
relating to any of the foregoing, and any and all proceeds of any of the
foregoing, including, without limitation, proceeds of insurance policies
thereon.
"INVESTMENT" of a Person shall mean any loan, advance,
extension of credit (other than accounts receivable arising in the ordinary
course of business on terms customary in the trade), deposit account or
contribution of capital by such Person to any other Person or any investment
in, or purchase or other acquisition of, the stock, partnership interests,
notes, debentures or other securities of any other Person made by such Person.
"IRC" shall mean the Internal Revenue Code of 1986, as amended
from time to time, and all rules and regulations promulgated thereunder.
"LENDERS" shall mean the financial institutions signatory
hereto and, subject to the terms and conditions hereof, their respective
successors and assigns.
"LIABILITIES" shall mean liabilities of the Borrower and each
Subsidiary which are or should be reflected on a balance sheet of the
Borrower and each Subsidiary in accordance with Generally Accepted Accounting
Principles, and shall include Indebtedness.
"LIEN" shall mean, with respect to the Property of any Person,
any statutory or contractual lien, security interest, mortgage, pledge,
claim, encumbrance, charge, hypothecation, assignment, deposit arrangement,
filing of, or agreement to give, a financing statement, encumbrance or
preference, priority or other security agreement or preferential arrangement
of any kind or nature whatsoever, whether voluntary or involuntary
(including, without limitation, the interest of a vendor or lessor under any
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conditional sale, capitalized lease or other title retention agreement), in,
of or on any of the Property of such Person in favor of any other Person.
"LITIGATION" shall have the meaning ascribed thereto in
SUBSECTION 6.14.
"LOAN" shall mean either the Revolving Loan, Term Loan A or
Term Loan B, and "LOANS" shall mean all such loans collectively.
"LOAN ACCOUNT" shall have the meaning ascribed thereto in
SUBSECTION 2.16.
"LOAN YEAR" shall mean the period of twelve (12) consecutive
months commencing on the Effective Date and each succeeding period of twelve
(12) consecutive months commencing on each anniversary of the Effective Date
during the Term.
"MARYLAND CLUB FOODS" shall mean Maryland Club Foods, Inc., a
Florida corporation, a wholly owned Subsidiary of the Borrower.
"MARYLAND CLUB FOODS GUARANTY" shall mean the Amended and
Restated Guaranty, dated as of the Effective Date, executed by Maryland Club
Foods in favor of the Agent, on behalf of itself and the Lenders, guarantying
the Obligations, as the same may be restated, extended, amended, modified or
supplemented from time to time.
"MATERIAL ADVERSE EFFECT" shall mean, as determined by the
Required Lenders, a material adverse effect upon (a) the Agent's Lien
priority in, or the value of, the Collateral, or (b) the business,
properties, operations or condition (financial or otherwise) or business
prospects of the Borrower or of the Borrower and its Subsidiaries taken as a
whole as a result of the occurrence or existence of any single event or
condition or series of events or conditions in the aggregate, or (c) the
ability of the Borrower or any Subsidiary to perform its obligations under
any of the Financing Agreements, or (d) the validity or enforceability of any
of the Financing Agreements or the rights, powers and remedies of the Agent
or any Lender to enforce or collect the Obligations. In determining whether
any individual event would result in a Material Adverse Effect,
notwithstanding that such event does not of itself have such effect, a
Material Adverse Effect shall be deemed to have occurred if the cumulative
effect of such event and all other then existing events would result in a
Material Adverse Effect.
"MATURITY DATE" shall mean May 29, 1999.
"MB VALUATION" shall mean MB Valuation Services, Inc., a Texas
corporation.
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"MONTHLY REPORT" shall have the meaning ascribed thereto in
SUBSECTION 3.1.
"MORTGAGES" shall mean the first mortgages, deeds of trust,
leasehold mortgages, collateral assignment of leases or other real estate
security documents with respect to the Real Estate, all in form and substance
satisfactory to the Agent, duly executed and delivered by the Borrower or any
Subsidiary in favor of the Agent, for the benefit of the Lenders, as security
for the Obligations, as the same may hereafter be restated, amended, modified
or supplemented from time to time.
"MULTIEMPLOYER PLAN" shall mean any multiemployer plan within
the meaning of Section 4001(a)(3) of ERISA to which the Borrower or any ERISA
Affiliate contributes, is obligated to contribute or was required to
contribute within the immediately preceding six (6) years.
"NET INCOME" shall mean, for any applicable fiscal period,
determined for the Borrower and its Subsidiaries on a consolidated basis, the
audited consolidated net income after income and franchise taxes and shall
have the meaning given such term by Generally Accepted Accounting Principles;
PROVIDED that there shall be specifically excluded therefrom tax-adjusted (i)
gains or losses from the sale of capital assets, (ii) net income of any
Person in which the Borrower or any Subsidiary has an ownership interest,
unless received by the Borrower in a cash distribution, and (iii) any gains
arising from extraordinary items.
"NOTE" or "NOTES" shall mean one or more of the Revolving Loan
Notes or the Term Loan Notes, or a combination thereof.
"OBLIGATIONS" shall mean all of the Borrower's obligations,
liabilities and indebtedness to the Agent and the Lenders and/or to any
affiliate of the Agent or the Lenders of any and every kind and nature,
whether heretofore, now or hereafter owing, arising, due or payable and
howsoever evidenced, created, incurred, acquired, or owing, whether primary,
secondary, direct, indirect, contingent, fixed or otherwise (including,
without limitation, obligations of performance) and whether arising or
existing under written agreement, oral agreement or operation of law
including, without limitation, all of the Borrower's indebtedness,
liabilities and obligations to the Agent and the Lenders or any Participant
under this Agreement or any other Financing Agreement.
"OLD TERM LOAN A PIECE" shall have the meaning ascribed
thereto in SUBSECTION 2.4(a).
"ORIGINAL CLOSING DATE" shall mean May 29, 1996.
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"PARTICIPANT" shall mean any Person now or from time to time
hereafter participating with any Lender in the Loans made by such Lender to
the Borrower pursuant to this Agreement.
"PBGC" shall mean the Pension Benefit Guaranty Corporation or
any successor thereto.
"PENSION PLAN" shall mean any Plan that is a defined benefit
plan (other than a Multiemployer Plan) defined in Section 3(35) of ERISA.
"PERMITTED INVESTMENTS" shall have the meaning ascribed
thereto in SUBSECTION 8.4.
"PERMITTED LIENS" shall have the meaning ascribed thereto in
SUBSECTION 8.1.
"PERPETUAL INVENTORY SYSTEM" shall have the meaning ascribed
thereto in SUBSECTION 3.12.
"PERSON" shall mean any individual, sole proprietorship,
partnership, joint venture, trust, limited liability company, limited
liability partnership, unincorporated organization, association, corporation,
institution, entity, party, or government (whether national, federal, state,
provincial, county, city, municipal or otherwise, including, without
limitation, any instrumentality, division, agency, body or department
thereof).
"PHANTOM STOCK PAYMENT" shall have the meaning ascribed in the
BIB Warrant.
"PLAN" shall mean any employee benefit plan within the meaning
of Section 3(3) of ERISA (other than any Multiemployer Plan) under which the
Borrower or any ERISA Affiliate is, or was at any time within the previous
six (6) years, an "employer" within the meaning of Section 3(5) of ERISA.
"PLEDGE AGREEMENT" shall mean the Amended and Restated Pledge
Agreement, dated as of the Effective Date, executed by the Borrower in favor
of the Agent, on behalf of itself and the Lenders, as the same may be
restated, amended, modified or supplemented from time to time.
"PREPAYMENT FEE" shall have the meaning ascribed thereto in
subsection 2.9(b).
"PRIME RATE" shall mean the "prime rate" of interest reported,
from time to time, by THE WALL STREET JOURNAL in its money rates column
currently reported in Section C; PROVIDED, HOWEVER, that in the event that
THE WALL STREET JOURNAL ceases
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reporting a "prime rate", "Prime Rate" shall mean the per annum rate of
interest reported as the "Bank Prime Loan" rate for the most recent weekday
for which such rate is reported in Statistical Release H.15 (519) published
from time to time by the Board of Governors of the Federal Reserve System;
PROVIDED FURTHER that in the event that both of the aforesaid indices cease
to be published or to report rates of the aforesaid types, the "Prime Rate"
shall be determined from a comparable index mutually chosen by the Agent and
the Borrower in good faith. The "Prime Rate" shall change effective on the
date of the publication of any change in the applicable index by which such
"Prime Rate" is determined.
"PRO RATA SHARE" shall mean the percentage obtained by
dividing (a) the Commitments of a Lender by (b) the aggregate Commitments of
all Lenders, as such percentage may be adjusted by assignments permitted
pursuant to SUBSECTION 11.1. The sum of the Pro Rata Shares of all Lenders at
any date of determination shall equal one hundred percent (100%).
"PROJECTIONS" shall mean the projected balance sheets, profit
and loss statements, and cash flow statements of the Borrower and its
Subsidiaries on a consolidated basis, prepared in accordance with Generally
Accepted Accounting Principles, together with appropriate supporting details
and a statement of underlying assumptions, which have been and will be
delivered to the Agent and the Lenders in accordance with the terms hereof by
the Borrower, a copy of the first of which is attached as EXHIBIT 6.4.
"PROPERTY" of a Person shall mean any and all assets or
property, whether real, personal, tangible, intangible, or mixed, of such
Person, or other assets or property leased or operated by such Person.
"REAL ESTATE" shall mean the real property, mineral rights,
leasehold or other interests in real property together with any purchase
options and other rights related to such leaseholds or other interests owned,
leased, used or operated now or hereafter by the Borrower, all Fixtures and
personal property used in conjunction therewith and the Borrower's rights to
leases, rents and profits with respect thereto.
"REDIRECTION NOTICE" shall have the meaning ascribed thereto
in SUBSECTION 3.5.
"REQUIRED LENDERS" shall mean (i) Lenders having in the
aggregate at least sixty-six and two-thirds percent (66-2/3%) of the Total
Revolving Loan Facility, or (ii) if the Revolving Credit Facility has been
terminated, Lenders having in the aggregate at least sixty-six and two-thirds
percent (66-2/3%) of the aggregate outstanding amount of the Loans.
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"RESTRICTED PAYMENT" of a Person shall mean: (a) any dividend
or other distribution, direct or indirect, on account of any shares of any
class of Stock of such Person now or hereafter outstanding, except a dividend
payable solely in shares of that class of such Stock to the holders of that
class; (b) any redemption, conversion, exchange, retirement, sinking fund or
similar payment, purchase or other acquisition for value direct or indirect
of any shares of any class of Stock of such Person now or hereafter
outstanding; (c) any payment or prepayment of principal or premium, if any,
or interest on, fees with respect to, redemption, conversion, exchange,
purchase, retirement, defeasance, sinking fund or similar payment with
respect to Subordinated Debt of a Person; (d) any payment made to retire, or
to obtain the surrender of, any outstanding warrants, options or other rights
to acquire shares of any class of Stock of such Person now or hereafter
outstanding; or (e) any payment by such Person of any management fees,
advisor fees or similar fees whether pursuant to a management agreement or
otherwise to any Affiliate of such Person.
"RETAIL STORES" shall mean those current and former Brothers
Coffee Bar and Gloria Jean's retail store locations set forth on Exhibits 8.5
and 8.7.
"RETAIL STORES SALE PROGRAM" shall mean the plan by the
Borrower and its Subsidiaries to (a) dispose of the Retail Stores listed on
Exhibit 8.7 that they are currently operating, (b) eliminate or reduce its
liability as a co-lessee or guarantor with respect to those former Retail
Stores listed on Exhibits 8.5, and (c) shut down any remaining Retail Stores
listed on Exhibit 8.7 that are not being currently operated and which have
not been sold.
"REVOLVING LOAN" shall have the meaning ascribed thereto in
SUBSECTION 2.1.
"REVOLVING LOAN NOTES" shall have the meaning ascribed thereto
in SUBSECTION 2.3.
"SALE EVENT" shall mean the occurrence of (a) the sale or
other disposition of all or substantially all of the assets of the Borrower
to any Person; or (b) the consummation of a merger or consolidation with or
into the Borrower or in which securities of the Borrower are issued, PROVIDED
that either (i) the Borrower is not the corporation resulting from such
merger or consolidation, or (ii) the stockholders of the Borrower immediately
before such merger or consolidation, do not own directly or indirectly
immediately following such merger or consolidation, at least fifty percent
(50%) of the combined voting power of the outstanding voting securities of
the corporation resulting from such merger or consolidation in substantially
the same proportion as their ownership of the voting securities of the
Borrower immediately before such merger or consolidation.
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"SBCC" shall have the meaning ascribed thereto in the first
"WHEREAS" clause of this Agreement.
"SECURITIES ACT" shall mean the Securities Act of 1933, as
amended.
"SERVICE" shall mean the Internal Revenue Service and any
successor thereof.
"SINGLEBREW PACKAGING COMPANY" shall mean Singlebrew Packaging
Company, a Colorado general partnership of which the Borrower holds
fifty-one percent (51%) of the partnership interests and Randall C.
Schoonover, Inc., a Colorado corporation, holds forty-nine percent (49%) of
the partnership interests.
"SINGLEBREW PARTNERSHIP AGREEMENT" shall mean the Partnership
Agreement, dated as of April 28, 1989, by and between the Borrower and
Randall C. Schoonover, Inc., governing the Singlebrew Packaging Company, as
the same may be restated, amended, modified or supplemented from time to time
in accordance with the terms thereof and hereof.
"SLOTTING FEE PAYMENTS" shall mean, for any applicable fiscal
period, any cash payments made by the Borrower, whether by cash or credit or
otherwise, during such period with respect to Slotting Fees.
"SLOTTING FEES" shall mean all fees payable by the Borrower or
its Subsidiaries under a contract with a customer for a designated amount of
shelf space of such customer for a designated length of time; PROVIDED that
each such contract is acceptable to the Agent in its sole and absolute
discretion.
"SOLVENCY AFFIDAVIT" shall mean the Affidavit of Solvency
dated as of the Effective Date executed and delivered by an Authorized
Officer of the Borrower in favor of the Agent, for the benefit of the Lenders.
"SOLVENT" shall mean, when used with respect to any Person,
that (i) the fair saleable value of its Property is in excess of the total
amount of its Liabilities (including for purposes of this definition all
liabilities, whether or not reflected on a balance sheet prepared in
accordance with Generally Accepted Accounting Principles, and whether direct
or indirect, fixed or contingent, secured or unsecured, disputed or
undisputed), (ii) it is able to pay its debts or obligations in the ordinary
course as they mature, and (iii) that Person has capital sufficient to carry
on its business and all businesses in which it is about to engage.
"SOLVENCY" shall have a correlative meaning.
"STOCK" shall mean all shares, options, general or limited
partnership interests or other equivalents (regardless of how designated),
participation or other
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equivalents (however designated) of or in a corporation, partnership or
equivalent entity, whether voting or non-voting, including, without
limitation, common stock, warrants, preferred stock, convertible debentures
or any other debt or equity security, and all agreements, instruments and
documents convertible, in whole or in part, into any one or more of all of
the foregoing.
"SUBORDINATED AGREEMENT" shall mean that certain Subordinated
Agreement, dated as of December 27, 1996, by and among the Agent and the
Subordinated Creditors, as the same may be amended, modified, restated or
supplemented from time to time in accordance with the terms thereof.
"SUBORDINATED CREDITORS" shall mean, collectively, Dilmun
Financial Services and BIB Holdings (Bermuda) Ltd. and their respective
successors and assigns.
"SUBORDINATED DEBT" of a Person shall mean any Indebtedness
Subordinated to the Obligations in a manner and form satisfactory to the
Agent and the Lenders, as to right and time of payment and as to any other
rights and remedies thereunder. Subordinated Debt shall include, without
limitation, the Indebtedness of the Borrower with respect to the Subordinated
Debt Documents.
"SUBORDINATED DEBT DOCUMENTS" shall mean the Subordinated
Note, the Additional Subordinated Notes, the BIB Warrant and the Subordinated
Note Agreement.
"SUBORDINATED NOTE" shall mean that certain senior
subordinated promissory note, dated December 27, 1996, issued by the Borrower
pursuant to the Subordinated Note Agreement in the original principal amount
of Fifteen Million Dollars ($15,000,000), as the same may be amended,
modified, restated or supplemented from time to time in accordance with the
terms of this Agreement and the Subordinated Agreement.
"SUBORDINATED NOTE AGREEMENT" shall mean that certain Senior
Subordinated Note Agreement, dated December 27, 1996, by and between the
Borrower and Dilmun Financial Services, as the same may be amended, modified,
restated or otherwise supplemented from time to time in accordance with the
terms of this Agreement and the Subordinated Agreement.
"SUBSIDIARY" of a Person shall mean (i) any corporation of
which more than fifty percent (50%) of the outstanding securities having
ordinary voting power to elect a majority of the board of directors or other
Persons performing similar functions is at any time of determination,
directly or indirectly, owned or controlled by such Person or by one or more
of its Subsidiaries or by such Person and one or more of its Subsidiaries, or
(ii) any partnership, association, trust, grantor trust, joint venture or
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similar business organization more than 50% of the equity or partnership
interests having ordinary voting power or power of direction of which shall
at any time of determination be so owned or controlled. Unless otherwise
expressly provided or the context requires otherwise, all references herein
to a "Subsidiary" shall mean a Subsidiary of the Borrower.
"SUBSIDIARY SECURITY AGREEMENT" shall mean the Security
Agreement, dated as of the Effective Date, executed by Brothers Retail and
Maryland Club Foods in favor of the Agent, on behalf of itself and the
Lenders, as the same may be restated, extended, amended, modified or
supplemented from time to time.
"TAXES" shall mean taxes, liens, imposts, deductions, Charges
or withholdings, and all liabilities with respect thereto, excluding taxes
imposed on or measured by the net income of any Lender by the jurisdictions
under the laws of which such Lender is organized or any transfer taxes
imposed as a result of the transfer of any Notes.
"TERM" shall have the meaning ascribed thereto in SUBSECTION
2.8.
"TERM LOAN A" shall have the meaning ascribed thereto in
SUBSECTION 2.4.
"TERM LOAN A NOTES" shall have the meaning ascribed thereto in
SUBSECTION 2.4.
"TERM LOAN B" shall have the meaning ascribed thereto in
SUBSECTION 2.5.
"TERM LOAN B NOTES" shall have the meaning ascribed thereto in
SUBSECTION 2.5.
"TERM LOAN NOTES" shall mean the Term Loan A Notes and the
Term Loan B Notes.
"TERM LOANS" shall mean Term Loan A and Term Loan B,
collectively.
"TERMINATION DATE" shall mean the earlier of (i) the Maturity
Date, (ii) the effective date of termination of this Agreement pursuant to
SUBSECTION 2.8(b), and (iii) the date of termination of the Lenders'
obligation to make advances under the Revolving Loan pursuant to SUBSECTION
9.1.
"TERMINATION EVENT" shall mean: (a) the tax disqualification
of a Plan under Section 401(a) of the IRC; (b) a "Reportable Event" described
in Section 4043
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of ERISA and the regulations issued thereunder unless the thirty (30) day
notice to the PBGC has been waived for the event; (c) the withdrawal of the
Borrower or any ERISA Affiliate from a Pension Plan during a plan year in
which it was a "substantial employer" as defined in Section 4001(a) (2) or
4068(f) of ERISA or was deemed such under Section 4062(e) of ERISA; (d) the
termination of a Pension Plan, the filing of a notice of intent to terminate
a Pension Plan or the treatment of a Pension Plan amendment as a termination
under Section 4041(e) of ERISA; (e) the institution of proceedings to
terminate a Pension Plan by the PBGC; (f) any other event or condition which
would constitute grounds under Section 4042(a) of ERISA for the termination
of, or the appointment of a trustee to administer, any Pension Plan; (g) the
partial or complete withdrawal of the Borrower or any ERISA Affiliate from a
Multiemployer Plan; (h) the imposition of a Lien pursuant to Section 412 of
the IRC or Section 302 of ERISA; (i) any event or condition which results in
the reorganization or insolvency of a Multiemployer Plan under Section 4241
or Section 4245 of ERISA, respectively; or (j) any event or condition which
results in the termination of a Multiemployer Plan under Section 4041A of
ERISA or the institution by the PBGC of proceedings to terminate a
Multiemployer Plan under Section 4042 of ERISA.
"TERMINATION FEE" shall have the meaning ascribed thereto in
SUBSECTION 2.8(b).
"TOTAL CAPITAL FUNDS" shall mean, for the applicable Fiscal
Quarter set forth in Section 8.21(b) hereof, determined for the Borrower and
its Subsidiaries on a consolidated basis, the sum of (a) the amount which, in
conformity with GAAP, would constitute the "shareholders' equity" (or
"shareholders' deficit", as the case may be) of the Borrower and its
Subsidiaries on a consolidated basis for such Fiscal Quarter, PLUS (b) the
aggregate amount of Subordinated Debt of the Borrower and its Subsidiaries on
a consolidated basis for such Fiscal Quarter, PLUS (c) the aggregate amount
of all "debt acquisition costs") incurred by the Borrower in connection with,
or otherwise relating to, the transactions contemplated by this Agreement, as
determined in accordance with GAAP.
"TOTAL REVOLVING LOAN FACILITY" shall mean Twenty One Million
Five Hundred Thousand Dollars ($21,500,000), as such amount may be reduced,
if at all, from time to time in accordance with the terms of this Agreement.
"UNUSED LINE FEE" shall have the meaning ascribed thereto in
SUBSECTION 2.11.
"WARRANT STOCK" shall have the meaning ascribed thereto in the
GSCP Warrant Agreement.
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"WEEKLY REPORT" shall have the meaning ascribed thereto in
SUBSECTION 3.1.
1.2 ACCOUNTING TERMS. Any accounting terms used in this Agreement
which are not specifically defined herein shall have the meanings customarily
given them in accordance with Generally Accepted Accounting Principles. All
determinations of the book value of Inventory contemplated hereby shall be at
the lower of cost (on a first-in, first-out basis) or market.
1.3 OTHER TERMS DEFINED IN NEW YORK UNIFORM COMMERCIAL CODE. All
other terms contained in this Agreement (and which are not otherwise
specifically defined herein) shall have the meanings provided in the Uniform
Commercial Code of the State of New York or the laws of any other state which
are required to be applied in connection with the issue of perfection or
non-perfection of Liens on the Collateral (the "Code") to the extent the same
are used or defined therein.
1.4 REFERENCES. The foregoing definitions shall be equally
applicable to both the singular and plural forms of the defined terms.
Unless otherwise expressly provided or unless the context requires otherwise,
all references in this Agreement to Sections, subsections, Schedules and
Exhibits shall mean and refer to Sections, subsections, Schedules and
Exhibits of this Agreement. References to Persons include their respective
permitted successors and assigns or, in the case of a governmental authority,
Persons succeeding to the relevant functions of such Persons. All references
to statutes shall include all related regulations and shall include all
amendments of same and any successor or replacement statutes and regulations.
2. CREDIT.
2.1 REVOLVING CREDIT FACILITY AND REVOLVING LOANS.
(a) REVOLVING LOAN. Provided there does not then exist a Default
or an Event of Default, and subject to the terms and conditions herein set
forth, each Lender agrees severally (and not jointly) to make its Pro Rata
Share of advances to the Borrower, on a revolving credit basis (the
"Revolving Loan"), in an aggregate amount not in excess of the lesser of (i)
the Total Revolving Loan Facility, or (ii) the Current Asset Base ("Borrowing
Availability"). As used herein, the "Current Asset Base" shall mean an
amount equal to:
(1) Eighty-five percent (85%) of the face amount (less maximum
discounts, credits and allowances which may be taken by or granted to Account
Debtors in connection therewith) then outstanding of existing Eligible
Accounts, less (x) the Dilution Reserve, and (y) such other reserves as the
Agent determines in accordance with its standard credit policies, PLUS
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(2) the lesser of (x) seventy percent (70%) of the book value of
the Borrower's then existing Eligible Inventory and (y) Ten Million Dollars
($10,000,000). The book value of Eligible Inventory shall be determined at
the lower of cost (determined on a first-in-first-out ("FIFO") basis) or
market, less (x) any reserve required by the Agent in its reasonable
discretion during the period from the Effective Date through the date that is
ninety-one (91) days after the Effective Date relating to Inventory that is
situated in the locations listed on Exhibit 2.1 hereto, and (y) such other
reserves as the Agent determines in accordance with its standard credit
policies, and PLUS
(3) (i) the lesser of (x) the sum of (A) sixty-five percent (65%)
of the Initial Slotting Fee Amount for the calendar month ending December 31,
1997 and for each of the seventeen (17) calendar months thereafter, the
Adjusted Initial Slotting Fee Amount for such calendar month, PLUS (B) with
respect to any calendar month during the Term, sixty-five percent (65%) of
the Aggregate Additional Slotting Fee Amount for such calendar month, and (y)
Five Million Dollars ($5,000,000), less (ii) a reserve in the amount of Two
Million Dollars ($2,000,000) during the period from the Effective Date
through and including the date upon which the Borrower performs the covenants
contained in SUBSECTION 7.12; PROVIDED, HOWEVER, that in the event that the
Borrower shall not have performed the covenants contained in SUBSECTION 7.12
prior to January 31, 1998, such reserve shall be in the amount of Three
Million Dollars ($3,000,000) during the period from January 31, 1998 through
and including the date upon which the Borrower performs the covenants
contained in SUBSECTION 7.12.
(b) ADVANCES. Until all amounts outstanding in respect of the
Revolving Loan shall become due and payable on the Termination Date, within
the foregoing limits and subject to the terms, provisions and limitations set
forth herein, the Borrower may from time to time borrow, repay and reborrow
under this SUBSECTION 2.1. Each Advance of the Revolving Loan shall be made
on notice by an Authorized Officer. The Agent shall be entitled to rely
upon, and shall be fully protected under this Agreement from any liability to
any Person in relying upon, any such notice believed by the Agent to be
genuine and to assume that each Person executing and delivering the same was
duly authorized by the Borrower. Each advance to the Borrower shall, on the
day of such advance, be deposited, in immediately available funds, in such
account as the Borrower may, from time to time, designate, unless otherwise
requested by the Borrower in writing.
(c) INTEREST. Subject to the terms and conditions of this
Agreement, interest on the Revolving Loans shall be payable monthly on the
first Business Day of each calendar month. Interest shall be computed by
multiplying the average closing daily balance in the Borrower's Loan Account
during the immediately preceding month by the Base Rate determined to be
applicable hereunder.
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2.2 MAXIMUM PRINCIPAL BALANCE OF REVOLVING LOAN. The aggregate
outstanding principal balance of the Revolving Loan shall at no time exceed
the Borrowing Availability. If at any time the principal balance of the
Revolving Loan exceeds the Borrowing Availability, the Borrower shall
immediately and without notice or demand of any kind repay the Revolving Loan
to the extent necessary to reduce the principal balance to an amount that is
equal to or less than the Borrowing Availability.
2.3 EVIDENCE OF REVOLVING LOAN INDEBTEDNESS. The advances by each
Lender constituting the Revolving Loan shall be evidenced by a promissory
note in favor of each respective Lender (collectively, the "Revolving Loan
Notes") in the amount of its Revolving Loan Commitment amended and restated
as of the Effective Date in the form attached as EXHIBIT 2.3. All of the
Borrower's Revolving Loan Obligations to the Lenders hereunder shall be
payable by the Borrower by application of the proceeds of all Accounts and
other Collateral in accordance with SUBSECTION 3.5, and shall be payable in
full upon the Termination Date, and the principal amount of such Revolving
Loan Obligations shall bear interest as hereinafter provided. Each advance
by the Lenders and each repayment of principal applicable to such advance
shall be reflected in the Borrower's Loan Account.
2.4 TERM LOAN A. (a) Immediately prior to the Effective Date,
the aggregate outstanding principal amount of "Term Loan A" (as defined in
the Existing Agreement) is Five Million Two Hundred and Fifty Thousand
Dollars ($5,250,000). As of the Effective Date, each Lender shall have its
Pro Rata Share of (i) Two Million Two Hundred Fifty Thousand Dollars
($2,250,000) of such original Term Loan A (the terms and conditions of which
are as so amended and restated herein and in the Term Loan A Notes as of the
Effective Date), evidenced by a promissory note, dated the Original Closing
Date and as amended and restated as of the Effective Date, executed by the
Borrower and payable to the order of such Lender, in the form attached as
EXHIBIT 2.4 (the "Term Loan A Notes") (such original Term Loan A, the terms
and conditions of which are as so amended and restated herein and in the Term
Loan A Notes as of the Effective Date, is herein referred to as the "Term
Loan A"); and (ii) with respect to the Three Million Dollar ($3,000,000)
balance of such original Term Loan A (the "Old Term Loan A Piece"), such loan
shall remain outstanding on the terms and conditions set forth in SUBSECTION
2.5(a) and evidenced by the Term Loan B Notes. As of the Effective Date, the
aggregate outstanding principal amount of Term Loan A will be Two Million Two
Hundred Fifty Thousand Dollars ($2,250,000).
(b) The aggregate principal balance of Term Loan A shall be
payable to the Agent, for the benefit of the Lenders, in (i) seventeen (17)
equal, consecutive monthly installments of Thirty-Seven Thousand Five Hundred
Dollars ($37,500) each plus interest accrued on the Term Loan A, payable on
the first day of each calendar month, commencing January 1, 1998, and (ii)
one (1) installment of One Million Six Hundred
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Twelve Thousand Five Hundred Dollars ($1,612,500) plus accrued interest on
the Term Loan A Payable on the Maturity Date.
(c) In the event this Agreement is terminated by either the
Lenders or the Borrower for any reason whatsoever, Term Loan A shall become
due and payable on the effective date of such termination, notwithstanding
any provision to the contrary in the Term Loan A Notes or this Agreement.
(d) The Borrower shall pay to the Agent, for the benefit of the
Lenders, interest on the outstanding principal balance of Term Loan A at the
Base Rate.
2.5 TERM LOAN B. (a) Simultaneously with the initial advance of
the Revolving Loan hereunder on the Effective Date and subject to the terms
and conditions of this Agreement, each Lender (i) shall have its Pro Rata
Share of the Old Term Loan A Piece, except that, as of the Effective Date,
the terms and conditions of the Old Term Loan A Piece shall be amended and
restated as set forth herein and in the Term Loan B Notes, and (ii) agrees to
loan the Borrower its Pro Rata Share of the sum of One Million Two Hundred
and Fifty Thousand Dollars ($1,250,000) ("Additional Term Loan B"; the Old
Term Loan A Piece, the terms and conditions of which are as so amended herein
and in the Term Loan B Notes, and the Additional Term Loan B are herein
referred to as "Term Loan B"). Term Loan B shall be evidenced by a promissory
note dated the Original Closing Date and as amended and restated as of the
Effective Date, executed by the Borrower and payable to the order of such
Lender, in the form attached as EXHIBIT 2.5 (the "Term Loan B Notes")
(without limiting the foregoing, the Five Million Two Hundred Fifty Thousand
Dollars ($5,250,000) of Term Loan A outstanding immediately prior to the
Effective Date (which was evidenced by the "Term Loan A Notes (as defined in
the Existing Agreement)) will be evidenced as of the Effective Date by both
the Term Loan A Notes and the Term Loan B Notes (which are both dated the
Original Closing Date and amended and restated versions of the original Term
Loan A Notes)). As of the Effective Date, the aggregate outstanding
principal amount of Term Loan B will be Four Million Two Hundred Fifty
Thousand Dollars ($4,250,000).
(b) The aggregate principal amount of Term Loan B shall be payable
to the Agent, for the benefit of Lenders, in (i) seventeen (17) equal,
consecutive monthly installments of One Hundred Thousand Dollars ($100,000)
each, plus interest accrued on the Term Loan B payable on the first day of
each calendar month, commencing January 1, 1998, and (ii) one (1) installment
of Two Million Five Hundred Fifty Thousand Dollars ($2,550,000) plus accrued
interest on the Term Loan B payable on the Maturity Date.
(c) In the event this Agreement is terminated by either the
Lenders or the Borrower for any reason whatsoever, Term Loan B shall become
due and payable on
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the effective date of such termination, notwithstanding any provision to the
contrary in the Term Loan B Notes or this Agreement.
(d) The Borrower shall pay to the Agent, for the benefit of the
Lenders, interest on the outstanding principal balance of Term Loan B of the
rate of eleven and three-quarters percent (11.75%) per annum.
2.6 INTEREST IN GENERAL, ETC. (a) Notwithstanding anything to
the contrary contained herein, at no time shall the interest rate payable on
any Loan hereunder be less then nine percent (9%) per annum.
(b) Interest and all fees (other than prepayment fees) shall be
computed (on a daily basis) on the basis of a 360-day year for the actual
number of days elapsed. In computing interest on any Loan, the date of
funding of the Loan shall be included and the date of payment of such Loan
shall be excluded; PROVIDED that if a Loan is repaid on the same day on which
it is made, one day's interest shall be paid on that Loan. Each
determination by the Agent of an interest rate hereunder shall be conclusive
and binding for all purposes, absent manifest error.
(c) So long as an Event of Default shall have occurred and be
continuing, the Borrower shall pay to the Lenders interest from the date of
such Event of Default to and including the date of cure of such Event of
Default on the outstanding principal balance of the Obligations at the
Default Rate applicable to such Obligations.
(d) (i) Interest shall be due at the interest rate calculated in
accordance with SECTION 2.1, SECTION 2.4 above, SECTION 2.5 above or
SUBSECTION (a) of this SECTION 2.6, as applicable, or the Default Rate, as
provided herein, after as well as before demand, default and judgment
notwithstanding any judgment rate of interest provided for in any statute.
If any interest payment or other charge or fee payable hereunder exceeds the
maximum amount then permitted by applicable law, then to the extent permitted
by law and subject to the provisions of subparagraph (ii) of this SUBSECTION
2.6(d), the Borrower shall be obligated to pay the maximum amount then
permitted by applicable law and the Borrower shall continue to pay the
maximum amount from time to time permitted by applicable law until all such
interest payments and other charges and fees otherwise due hereunder (in the
absence of such restraint imposed by applicable law) have been paid in full.
(ii) It is the intention of the Agent, the Lenders and the
Borrower to comply with the laws of the State of New York, and
notwithstanding any provision to the contrary contained herein or in the
other Financing Agreements, the Borrower shall not be required to pay and the
Lenders shall not be permitted to collect any amount in excess of the maximum
amount of interest permitted by law ("Excess Interest"). If any
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Excess Interest is provided for or determined to have been provided for by a
court of competent jurisdiction in this Agreement or in any of the other
Financing Agreements, then in such event: (A) the provisions of this
SUBSECTION 2.6(d)(ii) shall govern and control; (B) neither the Borrower nor
any guarantor or endorser shall be obligated to pay any Excess Interest; (C)
any Excess Interest that any Lender may have received hereunder shall be, at
such Lender's option (1) applied as a credit against the outstanding
principal balance of the Obligations or accrued and unpaid interest (not to
exceed the maximum amount permitted by law), (2) refunded to the payor
thereof, or (3) any combination of the foregoing; (D) the interest rate(s)
provided for herein shall be automatically reduced to the maximum lawful rate
allowed under applicable law, and this Agreement and the other Financing
Agreements shall be deemed to have been, and shall be, reformed and modified
to reflect such reduction; and (E) neither the Borrower nor any guarantor or
endorser shall have any action against any Lender for any damages arising out
of the payment or collection of any Excess Interest.
(e) Subject to the terms of this Agreement, Borrower shall deliver
to the Agent, with a copy to each Lender, a written or telegraph or facsimile
notice (effective upon receipt) in the form of EXHIBIT 2.6-1 hereto (a
"Borrowing Notice") not later than 1:00 p.m. (New York time) on the Funding
Date of any Revolving Loan, specifying:
(i) the Funding Date of each Revolving Loan, and
(ii) the aggregate amount of such Loan.
2.7 METHOD OF BORROWING; MANNER AND METHOD OF MAKING INTEREST AND
OTHER PAYMENTS. (a) Not later than 1:00 p.m. (New York time) on each
Funding Date, each Lender shall make available its Pro Rata Share of the Loan
or Loans in immediately available funds in New York, New York to the Agent at
its address specified pursuant to SUBSECTION 10.13. The Agent will make the
funds so received from the Lenders available to the Borrower in accordance
with SUBSECTION 2.1(b). Notwithstanding the foregoing provisions of this
SUBSECTION 2.7(a), to the extent that a Loan or portion thereof made by a
Lender matures or is to be repaid on the Funding Date of a requested Loan,
such Lender shall first apply the proceeds of the Loan it is then making to
the repayment of the maturing Loan or portion thereof.
(b) All payments by the Borrower of the Obligations shall be made
without deduction, defense, setoff or counterclaim and in same day funds. In
its sole discretion, the Agent may designate interest and other amounts
payable hereunder (other than the principal balance of the Revolving Loan) to
be paid by causing such amounts to be added to the principal balance of the
Revolving Loan, all as set forth on the Agent's books and records. The
Borrower hereby authorizes and directs the Lenders, at the option of the
Required Lenders, to make advances in the Revolving Loan by appropriate
debits
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to the Loan Account for all payments which the Borrower is required to make
to the Lenders under this Agreement and the other Financing Agreements.
Unless otherwise directed by the Agent, all payments to the Lenders hereunder
shall be made by delivery thereof to the Agent at its address set forth in
SUBSECTION 10.13 or by delivery to the Agent for deposit in the Blocked
Accounts of all proceeds of Accounts or other Collateral in accordance with
SUBSECTION 3.5. If the Agent elects to bill the Borrower for any amount due
hereunder, such amount shall be immediately due and payable with interest
thereon as provided herein. Solely for the purpose of calculating interest
earned by each Lender with respect to the Revolving Loan, any check, draft or
similar item of payment by or for the account of the Borrower delivered to
the Agent or deposited in a Blocked Account in accordance with SUBSECTION 3.5
shall be applied by the Agent on account of the Borrower's Revolving Loan
Obligations on the first Business Day after the Agent has received
immediately available funds as a result of the deposit thereof in accordance
with SUBSECTION 3.5. Immediately available funds received by the Agent after
2:00 p.m. (New York time) shall be deemed to have been received on the
following Business Day.
(c) (i) Unless the Borrower or a Lender, as the case may be,
notifies the Agent prior to the date on which it is scheduled to make payment
to the Agent of (A) in the case of a Lender, such Lender's Pro Rata Share of
the proceeds of a Loan or (B) in the case of the Borrower, a payment of
principal, interest, fees or other Obligations to the Agent for the account
of the Lenders, that it does not intend to make such payment, the Agent may
assume that such payment has been made. The Agent may, but shall not be
obligated to, make the amount of such payment available to the intended
recipient in reliance upon such assumption. If the Agent shall have so made
such funds available, then if the Borrower or such Lender, as the case may
be, has not in fact made such payment to the Agent, the recipient of such
payment shall, on demand by the Agent, repay to the Agent the amount so made
available together with interest thereon in respect of each day during the
period commencing on the date such amount was so made available by the Agent
until the date the Agent recovers such amount at a rate per annum equal to
(x) in the case of payment by a Lender, the Federal Funds Rate for such day
(as determined by the Agent) or (y) in the case of payment by the Borrower,
the interest rate applicable to the relevant Loan.
(ii) Nothing contained in this SUBSECTION 2.7(c) will be
deemed to relieve a Lender of its obligation to fulfill its Commitments or to
prejudice any rights the Agent or the Borrower may have against such Lender
as a result of any default by such Lender under this Agreement.
(iii) If the Agent determines at any time that any amount
received by the Agent under this Agreement must be returned to the Borrower
or paid to any other Person pursuant to any insolvency law or otherwise,
then, notwithstanding any other term or condition of this Agreement, the
Agent will not be required to distribute any portion
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thereof to any Lender. In addition, each Lender will repay to the Agent on
demand any portion of such amount that the Agent has distributed to such
Lender.
2.8 TERM OF THIS AGREEMENT; TERMINATION. (a) Subject to
subsection (b) of this Section 2.8, this Agreement shall be effective from
the Effective Date until the Maturity Date (the "Term"); PROVIDED, HOWEVER,
that all of the Agent's and each Lender's rights and remedies under this
Agreement shall survive such termination until all of the Obligations have
been finally and indefeasibly paid in full in cash.
(b) This Agreement may be terminated by the Borrower prior to the
Maturity Date upon not less than thirty (30) days' prior written notice to
the Agent on the date specified on such notice, which notice shall be
irrevocable. Upon the effective date of such termination, (i) all of the
Obligations shall become immediately due and payable without notice or
demand, notwithstanding any terms contained herein or in any Note to the
contrary, and (ii) the Borrower shall pay to the Agent, as liquidated damages
and compensation for the costs of being prepared to make funds available to
the Borrower hereunder, a fee (the "Termination Fee") in an amount equal to
the greater of (x) the total interest paid by the Borrower hereunder during
the six-month period immediately preceding the effective date of such
termination and (y) Three Hundred Thousand Dollars ($300,000), and (iii)
without limiting SUBSECTION 2.9(b) hereof, to the extent any of the Term
Loans are outstanding at the time of the effectiveness of such termination, a
Prepayment Fee calculated in accordance WITH SUBSECTION 2.9(b) hereof and
based on the aggregate amount of the Term Loans then outstanding; PROVIDED,
HOWEVER, that no Termination Fee or Prepayment Fee shall be payable by the
Borrower in the event that any such termination occurs as a result of a Sale
Event.
(c) Notwithstanding any termination, until all of the Obligations
shall have been indefeasibly paid in full in cash all of the Agent's and the
Lenders' rights and remedies under the Financing Agreements shall survive
such termination and, notwithstanding such payment, for so long as any
pending or threatened action which could result in a claim by the Agent or
any Lender under SUBSECTION 6.26 or 7.10 exists hereunder, the Agent, on
behalf of the Lenders, shall be entitled to retain Liens upon all existing
and future Collateral, and the Borrower shall continue to remit collections
of Accounts and proceeds as provided herein.
2.9 PREPAYMENTS.
(a) TERM LOAN PREPAYMENT. Subject to the payment of the
Prepayment Fee as set forth in SUBSECTION 2.9(b), upon not less than thirty
(30) days prior written notice to the Agent specifying the date of
prepayment, the Borrower may prepay the entire principal amount of the Term
Loans or, in a minimum amount of Five Hundred Thousand Dollars ($500,000) or
any integral multiple of One Hundred Thousand Dollars
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($100,000) if in excess thereof, any portion of the Term Loans by paying the
principal amount to be prepaid, together with all unpaid accrued interest
thereon to the date of prepayment. All prepayments made by the Borrower
under this SUBSECTION 2.9(a) shall be made and applied to scheduled
installments of principal due on the Term Loans in the inverse order of the
maturities thereof in the following priority: (i) so long as Term Loan A
shall be outstanding, to Term Loan A until paid in full and (ii) after Term
Loan A has been paid in full, to Term Loan B.
(b) PREPAYMENT FEE. If the Borrower shall prepay all or any
portion of the Term Loan A or the Term Loan B prior to the Maturity Date, the
Borrower shall pay to the Agent as liquidated damages and compensation for
the costs of being prepared to make funds available to the Borrower
hereunder, a fee (the "Prepayment Fee") in an amount equal to five percent
(5%) of the aggregate amount prepaid.
(c) PRO RATA REDUCTION. Any prepayment of the Term Loans shall
ratably reduce the amounts outstanding under the applicable Term Loan Notes
of each Lender.
(d) TOTAL REVOLVING LOAN FACILITY. The Borrower shall not be
entitled to permanently reduce the Total Revolving Loan Facility in whole or
in part, except in connection with the termination of this Agreement pursuant
to SUBSECTION 2.8(b) hereof.
2.10 ACQUISITION FEE. On the Effective Date, the Borrower shall
pay to the Agent a fee (the "Acquisition Fee") in the amount of Two Hundred
Eighty Thousand Dollars ($280,000), which shall be fully earned and
non-refundable as of the date such fee is payable.
2.11 REVOLVING LOAN UNUSED LINE FEE. From and after the Effective
Date, the Borrower shall pay to the Agent, for the ratable benefit of the
Lenders, a fee (the "Unused Line Fee") in an amount equal to the Total
Revolving Loan Facility LESS the average daily closing balance of the
Revolving Loan advanced to the Borrower during the preceding month (or
shorter period with respect to the period commencing with the Effective Date
or the period ending with the Termination Date) MULTIPLIED by one-half of one
percent (.50%) per annum. The Unused Line Fee shall be payable in arrears on
the first day of each calendar month following the Effective Date commencing
January 1, 1998 and at maturity, whether on the termination of this Agreement
or earlier.
2.12 LINE FEE. On the Effective Date, the Borrower shall pay to
the Agent an initial Line Fee in the amount of Two Hundred Eighty Thousand
($280,000), which shall be fully earned and non-refundable as of the date
such fee is payable, and, commencing on the first anniversary of the
Effective Date, the Borrower shall pay to the Agent additional Line Fees in
the amount of Twenty Three Thousand Three Hundred
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Thirty-Three Dollars and Thirty-Seven Cents ($23,333.37) on the first day of
each calendar month commencing January 1, 1999, which shall be fully earned
and non-refundable as of the date such fee is payable.
2.13 SLOTTING LINE FEE. The Borrower shall pay to the Agent a
monthly Slotting Line Fee in the amount of Five Thousand Dollars ($5,000),
which shall be fully earned and non-refundable as of the date such fee is
payable. The initial Slotting Line Fee shall be payable on the Effective Date
and thereafter the Slotting Line Fee shall be payable on the first day of
each calendar month following the Effective Date commencing January 1, 1998.
2.14 OTHER FEES, COSTS AND EXPENSES. (a) LOAN SERVICING FEE.
The Borrower shall pay to the Agent a monthly Loan Servicing Fee in the
amount of Three Thousand Five Hundred Dollars ($3,500), which shall be fully
earned as of the date such fee is payable. The initial Loan Servicing Fee
shall be payable on the Effective Date and thereafter the Loan Servicing Fee
shall be payable on the first day of each calendar month following the
Effective Date commencing January 1, 1998.
(b) FINANCIAL ANALYSIS FEE. The Borrower shall pay to the Agent,
upon demand, a Financial Analysis Fee in the amount of Six Hundred and Fifty
Dollars ($650) per man day, plus all reasonable fees and expenses incurred by
the Agent or any Lender, in respect of any financial analysis performed by
the Agent or any Lender in connection herewith.
(c) APPRAISAL FEE. The Borrower shall pay to the Agent, upon
demand, an Appraisal Fee in the amount of One Thousand Dollars ($1,000) per
man day, plus all reasonable fees and expenses incurred by the Agent, in
respect of any appraisals performed by the Agent in connection herewith.
(d) LEGAL LOAN DOCUMENTATION REVIEW FEE. The Borrower shall pay
to the Agent an annual Legal Loan Documentation Review Fee in the amount of
One Thousand Dollars ($1,000), which shall be fully earned and non-refundable
as of the date such fee is payable. The initial Legal Loan Documentation Fee
shall be payable on the Effective Date and thereafter the Legal Loan
Documentation Review Fee shall be payable on each anniversary of the
Effective Date.
(e) FEES, COSTS AND EXPENSES IN GENERAL. The Borrower shall pay
to the Agent, upon demand, all fees, costs and expenses incurred by the Agent
in connection with any matters contemplated by or arising out of this
Agreement or any other Financing Agreement (which fees, costs and expenses
shall be part of the Obligations and secured by the Collateral) including,
without limitation: (i) in verifying or inspecting the Accounts or the
Inventory or the Borrower's records with respect thereto; (ii) in connection
with
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opening and maintaining the Blocked Accounts and depositing for collection
any check or item of payment received by and/or delivered to any Collecting
Bank or the Agent or any Lender on account of the Obligations; (iii) arising
out of the Agent's indemnification of any Collecting Bank against damages
incurred by such Collecting Bank in the operation of a Blocked Account; (iv)
in connection with the Agent's forwarding to the Borrower the proceeds of
loans or advances hereunder including, without limitation, transfer fees; (v)
in connection with the negotiation, preparation, review, execution, delivery
and ongoing administration of the Financing Agreements and all amendments,
modifications and waivers with respect hereto or with respect to the other
Financing Agreements including, without limitation, search fees, appraisal
fees and expenses, title insurance policy fees, costs and expenses; filing
and recording fees; fees, costs and expenses of the Agent's attorneys and
paralegals and all Taxes payable in connection with this Agreement or the
other Financing Agreements, whether such fees, costs and expenses are
incurred prior to, on or after the Effective Date; (vi) in connection with
any documentation, negotiation, review or closing with respect to any
subordinated indebtedness, including, without limitation, the fees, costs and
expenses of the Agent's attorneys and paralegals; and (vii) arising from the
Agent's employment of counsel or otherwise in connection with protecting,
perfecting or preserving the Agent's Liens in the Collateral in accordace
with SUBSECTION 10.2 or in connection with any refinancing or restructuring
of the credit arrangements provided under the Financing Agreements, whether
in the nature of a "workout" or in connection with any insolvency or
bankruptcy proceedings, or in connection with any other matters contemplated
by or arising out of this Agreement or the other Financing Agreements. Any
portion of the foregoing fees, costs and expenses which remains unpaid ten
(10) days following the Agent's statement and request for payment thereof
shall bear interest from the date of such statement and request for payment
at the Default Rate.
2.15 [Intentionally Omitted]
2.16 LOAN ACCOUNT. The Agent shall maintain a loan account ("Loan
Account") on its books in which shall be recorded (i) all Loans and advances
made to the Borrower pursuant to this Agreement, (ii) all payments made by
the Borrower on all such Loans and advances and (iii) all other appropriate
debits and credits as provided in this Agreement including, without
limitation, all fees, charges, expenses and interest. All entries in the
Loan Account shall be made in accordance with the Agent's customary
accounting practices as in effect from time to time. The Borrower shall pay
the Obligations reflected as owing by it under the Loan Account and all other
Obligations hereunder as such amounts become due or are declared due pursuant
to the terms of this Agreement. So long as a Default or an Event of Default
shall have occurred and be continuing, the Borrower irrevocably waives the
right to direct the application of any and all payments at any time or times
thereafter received by the Agent or any Lender from or on behalf of the
Borrower, and the Borrower does hereby irrevocably agree that each
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Lender shall have the continuing exclusive right to apply and to reapply any
and all payments received at any time or times hereafter against the
Obligations in such manner as such Lender may deem advisable notwithstanding
any previous entry by the Agent upon the Loan Account or by the Agent or such
Lender on any other books and records.
Notwithstanding a termination of this Agreement in accordance with
SUBSECTION 2.8, 9.1 or otherwise, the Borrower expressly agrees that to the
extent the Borrower makes a payment or payments and such payment or payments,
or any part thereof, are subsequently invalidated, declared to be fraudulent
or preferential, set aside or are required to be repaid to a trustee,
receiver, or any other Person under any bankruptcy law, other state or
federal law, common law or equitable cause, then to the extent of such
payment or repayment, the Obligations or part thereof intended to be
satisfied shall be revived and continued in full force and effect as if said
payment or payments had not been made.
2.17 STATEMENTS. All advances to the Borrower, and all other
debits and credits provided for in this Agreement, shall be evidenced by
entries made by the Agent in the Loan Account and in the Agent's books and
records showing the date, amount and reason for each such debit or credit.
Until such time as the Agent shall have rendered to the Borrower written
statements of account as provided herein, the balance in the Borrower's Loan
Account, as set forth on the Agent's most recent printout or other written
statement, shall be rebuttably presumptive evidence of the amounts due and
owing to each Lender by the Borrower; PROVIDED that any failure to so record
or any error in so recording shall not limit or otherwise affect the
Borrower's obligations to pay the Obligations. Not more than twenty (20)
days after the last day of each calendar month, the Agent shall render to the
Borrower a statement setting forth the principal balance of the Borrower's
Loan Account and the calculation of interest due thereon. Each such
statement shall be subject to subsequent adjustment by the Agent but shall,
absent manifest errors or omissions, be presumed correct and binding upon the
Borrower, and shall constitute an account stated unless, within thirty (30)
days after receipt of any statement from the Agent, the Borrower shall
deliver to the Agent by registered or certified mail written objection
thereto specifying the error or errors, if any, contained in such statement.
In the absence of a written objection delivered to the Agent as set forth in
this SUBSECTION 2.17, the Agent's statement of the Borrower's Loan Account
shall be conclusive evidence of the amount of the Obligations.
2.18 PAYMENT DATES. Any payment due hereunder on any day other
than a Business Day shall be due on the next succeeding Business Day, and if
such payment shall bear interest in accordance herewith, interest shall
accrue to the date of payment.
2.19 TAXES; CHANGES IN LAW.
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(a) Any and all payments or reimbursements made hereunder or under
the Notes shall be made free and clear of and without deduction for any and
all present and future Taxes. If the Borrower shall be required by law to
deduct any Taxes from or in respect of any sum payable hereunder to the Agent
or any Lender, then (i) the sum payable hereunder shall be increased as may
be necessary so that, after making all required deductions, the Agent or such
Lender receives an amount equal to the sum it would have received had no such
deductions been made and (ii) the Borrower shall pay the full amount deducted
to the relevant taxing or other authority in accordance with applicable law.
The Borrower hereby indemnifies and agrees to hold the Agent and each Lender
harmless from and against all Taxes.
(b) In the event that, subsequent to the Effective Date, or, in
the case of a Participant assigned an interest in or sold a participation in
the Loans pursuant to SUBSECTION 11.1, subsequent to the date of such
assignment or sale, (a) any change in any existing law, regulation, rule,
guideline, treaty or directive or in the interpretation or application
thereof (including, without limitation, any change resulting from the
implementation of risk based capital guidelines), (b) any new law,
regulation, rule, guideline, treaty or directive enacted or any
interpretation or application thereof or (c) compliance by any Lender with
any request or directive (whether or not having the force of law and
including by way of withdrawal or termination of any previously available
exemption) from any central bank, governmental authority, agency or
instrumentality (including, without limitation, any request or directive
regarding capital adequacy):
(i) does or shall subject any Lender or such Participant to any Taxes
with respect to this Agreement, the other Financing Agreements or any Loans
made hereunder, or change the basis of taxation of payments to any Lender
or such Participant of principal, commitment, fees, interest or any other
amount payable hereunder (except for changes in the rate of tax on the
overall net income of such Lender or such Participant); or
(ii) does or shall impose on any Lender or such Participant any other
condition or increased cost in connection with the transactions
contemplated hereby or participation herein; or
(iii) affects the amount of any reserve, special deposit, capital
adequacy, assessment or similar charge required or expected to be
maintained by any Lender or such Participant or any corporation controlling
such Lender or such Participant and such Lender or such Participant
determines that such amount required or expected is increased by or based
upon the existence of this Agreement or its Loans hereunder,
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and the result of any of the foregoing is to increase the cost to such Lender
or such Participant of making or continuing any Loan hereunder or selling any
participation therein or assigning any of its Commitments to make Loans
hereunder, as the case may be, or to reduce any amount receivable thereunder,
then, in any such case, the Borrower shall within fifteen (15) days after
written demand pay to such Lender or such Participant any additional amounts
which are necessary to compensate such Lender or such Participant for such
additional cost or reduced amount receivable which such Lender or such
Participant reasonably deems to be material as determined by such Lender or
such Participant with respect to this Agreement, the other Financing
Agreements or the Loans made hereunder. If such Lender or Participant
becomes entitled to claim any additional amounts pursuant to this SUBSECTION
2.19, it shall promptly notify the Borrower in writing of the event by reason
of which such Lender or Participant has become so entitled. A certificate as
to any additional amounts payable pursuant to this SUBSECTION 2.19 submitted
by such Lender or Participant to the Borrower shall be presumed correct in
the absence of manifest error.
3. REPORTING AND ELIGIBILITY REQUIREMENTS.
3.1 REPORTS REGARDING COLLATERAL. The Borrower shall submit to
the Agent and each Lender, not later than the fourth (4th) day of each week,
a weekly report ("Weekly Report"), accompanied by a certificate in the form
attached as EXHIBIT 3.1-1, which shall be signed by an Authorized Officer.
The Weekly Report (including the initial Weekly Report) shall be in form and
substance satisfactory to the Required Lenders and shall include, as of the
last Business Day of the preceding week (i) an Accounts Trial Balance, (ii) a
payables report in a form satisfactory to the Agent, (iii) a written report
reflecting activity for the period since the date of the preceding Weekly
Report describing, in form and substance satisfactory to the Agent, all
Eligible Accounts and ineligible Accounts created or acquired by the Borrower
subsequent to the immediately preceding Weekly Report, and (iv) from and
after the establishment by the Borrower of the Perpetual Inventory System, a
schedule of Inventory owned by the Borrower and in the Borrower's possession
valued at the lower of cost or market on a FIFO basis. In addition, the
Borrower shall provide the Agent and each Lender, not later than the
twentieth (20th) day of each month, a monthly report ("Monthly Report"),
accompanied by a certificate in the form attached as Exhibit 3.1-2, which
shall be signed by an Authorized Officer. The Monthly Report shall be in
form and substance satisfactory to the Agent and shall include, as of the
last Business Day of the preceding month (and with respect to the initial
Monthly Report as of a date not more than two (2) Business Days prior to the
Effective Date), a schedule of Inventory owned by the Borrower and in the
Borrower's possession valued at the lower of cost or market on a FIFO basis.
The Borrower shall also provide in all Monthly Reports a written report
regarding the Borrower's most recent monthly physical inventory count in form
and substance satisfactory to the Agent including, without limitation, all
backup materials related
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thereto; PROVIDED that, from and after the establishment by the Borrower of
the Perpetual Inventory System, the Lenders reserve the right to require the
Borrower to provide more detailed information on the Inventory. The Borrower
shall furnish copies of any other reports or information, in a form and with
such specificity as is satisfactory to the Required Lenders, concerning
Accounts included, described or referred to in the Monthly Reports and any
other documents in connection therewith requested by the Required Lenders
including, without limitation, but only if specifically requested by the
Required Lenders, copies of all invoices prepared in connection with such
Accounts. The Monthly Reports shall also include, in form satisfactory to
the Agent all credit memoranda issued by the Borrower (the Borrower shall
issue such credit memoranda in accordance with its current practice and
without delay, but in any event within three (3) Business Days of receipt of
notice of a dispute with respect to an Account) and information on all
amounts collected by the Borrower on Accounts subsequent to the immediately
preceding Monthly Report. The Weekly Reports and the Monthly Reports shall
contain such additional information as the Agent may require.
3.2 ELIGIBLE ACCOUNTS. "Eligible Accounts" shall mean all
Accounts other than the following: (i) Accounts which remain unpaid as of
ninety (90) days after the date of the original invoice with respect thereto;
(ii) all Accounts owing by a single Account Debtor, including a currently
scheduled Account, if fifty percent (50%) or more of the balance owing by
such Account Debtor is ineligible by reason of the criterion set forth in
clause (i) of this SUBSECTION 3.2; (iii) Accounts with respect to which the
Account Debtor is an Affiliate of the Borrower or a director, officer or
employee of the Borrower or its Affiliates; (iv) Accounts with respect to
which the Account Debtor is the United States of America or any department,
agency or instrumentality or prime contractor thereof (other than military
commissaries) unless the Borrower has complied in a manner satisfactory to
the Agent with the Federal Assignment of Claims Act of 1940, as amended,
relative to the assignment of such Accounts; (v) Accounts with respect to
which the Account Debtor is not a resident of the United States unless the
Account Debtor has (A) supplied the Borrower with an irrevocable letter of
credit, issued by a financial institution satisfactory to the Required
Lenders, or (B) obtained foreign credit insurance, in each case in an amount
sufficient to cover such Account in form and substance satisfactory to the
Agent and without right of setoff and the Account is payable in full in
United States dollars; (vi) Accounts arising with respect to goods which have
not been shipped and delivered to and accepted as satisfactory by the Account
Debtor or arising with respect to services which have not been fully
performed and accepted as satisfactory by the Account Debtor; (vii) Accounts
for which the prospect of payment in full or performance in a timely manner
by the Account Debtor is or is likely to become impaired as determined by the
Agent in the exercise of its discretion; (viii) Accounts which are not
invoiced (and dated as of the date of such invoice) and sent to the Account
Debtor within five (5) days after delivery of the underlying goods to or
performance of the underlying
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services for the Account Debtor; (ix) Accounts with respect to which the
Agent, on behalf of the Lenders, does not have a first and valid fully
perfected Lien, free and clear of any other Lien whatsoever; (x) Accounts
with respect to which the Account Debtor is the subject of bankruptcy or a
similar insolvency proceeding or has made an assignment for the benefit of
creditors or whose assets have been conveyed to a receiver or trustee; (xi)
Accounts with respect to which the Account Debtor's obligation to pay the
Account is conditional upon the Account Debtor's approval or is otherwise
subject to any repurchase obligation or return right, as with sales made on a
guaranteed sale, bill-and-hold, sale-or-return, sale on approval (except with
respect to Accounts in connection with which Account Debtors are entitled to
return Inventory solely on the basis of the quality of such Inventory) or
consignment basis; (xii) Accounts to the extent that the Account Debtor's
indebtedness to the Borrower exceeds a credit limit determined by the Agent
in the Agent's discretion following ten (10) Business Days' prior written
notice of such credit limit from the Agent to the Borrower; (xiii) Accounts
with respect to which any disclosure is required in accordance with
SUBSECTION 3.3; (xv) contra Accounts to the extent of the amount of the
accounts payable (including, without limitation, accrued Slotting Fee
Payments) owed by the Borrower to the Account Debtor; (xvi) Accounts with
respect to which the Account Debtor is located in any state denying creditors
access to its courts in the absence of a Notice of Business Activities Report
or other similar filing unless the Borrower has either qualified as a foreign
corporation authorized to transact business in such state or has filed a
Notice of Business Activities Report or similar filing with the applicable
state agency in such state for the then current year; (xvii) Accounts
evidenced by chattel paper or any instrument of any kind, to the extent
possession of such chattel paper or instrument is not granted to the Agent,
for the benefit of the Lenders; (xviii) Accounts which are the subject of a
dispute between the Borrower and an Account Debtor; and (xix) Accounts which
the Agent determines in good faith to be unacceptable. In the event that a
previously scheduled Eligible Account ceases to be an Eligible Account under
the above described criteria, the Borrower shall notify the Agent thereof.
3.3 ACCOUNT WARRANTIES. With respect to Accounts scheduled,
listed or referred to on the initial Accounts Trial Balance (included in the
initial Weekly Report in form and substance satisfactory to the Agent) or on any
subsequent Accounts Trial Balance or Monthly Report, the Borrower represents and
warrants to the Agent and each Lender that, except as disclosed in the
applicable Accounts Trial Balance or Monthly Report: (i) the Accounts represent
bona fide sales of Inventory or the provision of services to customers in the
ordinary course of business completed in accordance with the terms and
provisions contained in the documents available to the Agent and each Lender
with respect thereto and are not evidenced by a judgment, instrument or chattel
paper; (ii) the amounts shown on the applicable Accounts Trial Balance and on
the Borrower's books and records and all invoices and statements which may be
delivered to the Agent or any Lender with respect thereto are actually and
absolutely owing to the Borrower and are
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not in any way contingent; (iii) no payments have been or shall be made
thereon except payments immediately delivered to a Blocked Account pursuant
to this Agreement; (iv) there are no setoffs, claims or disputes existing or
asserted with respect thereto and the Borrower has not made any agreement
with any Account Debtor for any deduction therefrom except a discount or
allowance allowed by the Borrower in the ordinary course of its business for
prompt payment and which discount and allowance is reflected in the
calculation of the face amount of each invoice related to such account; (v)
to the best of the Borrower's knowledge, there are no facts, events or
occurrences which in any way impair the validity or enforcement thereof or
tend to reduce the amount payable thereunder as shown on the respective
Accounts Trial Balances or Monthly Reports, the Borrower's books and records
and all invoices and statements delivered to the Agent or any Lender with
respect thereto; (vi) to the best of the Borrower's knowledge, all Account
Debtors have the capacity to contract and are solvent; (vii) the Borrower has
received no notice of proceedings or actions which are threatened or pending
against any Account Debtor which might result in any material adverse change
in such Account Debtor's financial condition; (viii) the Borrower has no
knowledge that any Account Debtor is unable generally to pay its debts as
they become due; (ix) the Accounts do not arise from the sale of Inventory
produced in violation of the Fair Labor Standards Act so as to be subject to
the so-called "hot goods" provision contained in Title 29 U.S.C., Section
215(a)(1); (x) the services furnished and/or goods sold giving rise thereto
are not subject to any Lien except that of the Agent; (xi) the goods, the
sale of which gave rise to the Account, are not, and will not at the time of
sale thereof, subject to any Lien except that of the Agent, for the benefit
of the Lenders; (xii) the Accounts have not been pledged or sold to any
Person or otherwise encumbered and the Borrower is the owner of the Accounts
free and clear of any Lien except that of the Agent, for the benefit of the
Lenders; and (xiii) with respect to Accounts for which the Account Debtor is
located in any state denying creditors access to its courts in the absence of
a Notice of Business Activities Report or other similar filing, the Borrower
has either qualified as a foreign corporation authorized to transact business
in such state or has filed all required Notice of Business Activities Reports
or comparable filings with the applicable governmental agency or authority.
3.4 VERIFICATION OF ACCOUNTS. The Agent shall have the right, at
any time or times hereafter, in the name of the Borrower or a nominee of the
Agent, or during the pendency of an Event of Default, in the Agent's name, to
verify the validity, amount or any other matter relating to any Account, by
mail, telephone, or in person.
3.5 COLLECTION OF ACCOUNTS AND PAYMENTS. Prior to December 19,
1997, the Borrower shall establish lock box accounts (the "Blocked Accounts")
in the Borrower's name with such banks as are acceptable to the Agent
("Collecting Banks") and enter into blocked account agreements among the
Borrower, the Agent and each Collecting Bank (the "Blocked Account
Agreements"). All Account Debtors shall
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directly remit all payments on Accounts into a Blocked Account and the
Borrower will immediately deposit all cash payments made for Inventory or
other cash payments constituting proceeds of Collateral into a Blocked
Account in the identical form in which such payment was made, whether by cash
or check. On or prior to the Effective Date, the Borrower shall notify in
writing each of the existing Account Debtors of the name and address of the
Blocked Account to which each such Account Debtor shall be directed to remit
all payments on its Accounts. In addition, the Agent shall, on or prior to
the Effective Date, establish a depository account at each Collecting Bank or
at a centrally located bank (the "Depository Account"). Each Blocked Account
Agreement shall provide, among other things, that (i) all items of payment
deposited in each Blocked Account are held by such Collecting Bank as agent
and bailee-in-possession for the Agent, (ii) the Collecting Bank has no
rights of setoff or recoupment or any other claim against such Blocked
Account, other than for payment of its service fees or other charges directly
related to the administration of such Blocked Account and for returned checks
or other items of payment, (iii) unless and until the Agent shall have given
such Collecting Bank a Redirection Notice (as such term is defined below),
such Collecting Bank agrees to forward all amounts received in such Blocked
Account to such accounts or for such uses as the Borrower may from time to
time instruct, and (iv) at all times following delivery of notice by the
Agent to such Collecting Bank to do so (a "Redirection Notice"), such
Collecting Bank agrees to immediately forward all amounts received in such
Blocked Account to the Depository Account through daily sweeps from the
Blocked Account into the Depository Account in accordance with the terms of
the applicable Blocked Account Agreement. The Agent shall not be entitled to
deliver a Redirection Notice to any Collecting Bank until the occurrence of a
Default or an Event of Default. The Borrower hereby agrees that all payments
received by the Agent, whether by cash, check, wire transfer or any other
instrument, made to such Blocked Accounts or otherwise received by the Agent
and whether on the Accounts or as proceeds of other Collateral or otherwise
will be the sole and exclusive property of the Agent, for the benefit of the
Lenders. The Borrower shall irrevocably instruct each Collecting Bank that,
upon receipt of a Redirection Notice, each Collecting Bank shall promptly
transfer all payments or deposits to the Blocked Accounts into the Agent's
Depository Account in accordance with the terms of the applicable Blocked
Account Agreement. The Borrower, and any of its Affiliates, employees,
agents or other Persons acting for or in concert with the Borrower, shall,
acting as trustee for the Agent, receive, as the sole and exclusive property
of the Agent, for the benefit of the Lenders, any monies, checks, notes,
drafts or any other payments relating to and/or proceeds of Accounts or other
Collateral which come into the possession or under the control of the
Borrower or any Affiliates, employees, agents or other Persons acting for or
in concert with the Borrower, and immediately upon receipt thereof, the
Borrower or such Persons shall remit the same or cause the same to be
deposited, in kind, into a Blocked Account or, at the direction of the
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Agent, shall remit the same, or cause the same to be remitted, in kind, to
the Agent at the Agent's address set forth in SUBSECTION 10.13.
3.6 APPOINTMENT OF THE AGENT AS BORROWER'S ATTORNEY-IN-FACT. The
Borrower hereby irrevocably designates, makes, constitutes and appoints the
Agent (and all Persons designated by the Agent) the Borrower's true and
lawful agent and attorney-in-fact (which appointment shall for all purposes
be deemed to be coupled with an interest and shall be irrevocable for so long
as any Obligations are outstanding), and authorizes the Agent, in the
Borrower's or the Agent's name, without notice to the Borrower, to: (A)
following the occurrence of a Default or an Event of Default (i) demand
payment of Accounts, (ii) enforce payment of Accounts by legal proceedings or
otherwise, (iii) exercise all of the Borrower's rights and remedies with
respect to the collection of the Collateral or any legal proceedings brought
to collect an Account, (iv) sell or assign any Collateral upon such terms,
for such amount and at such time or times as the Agent deems advisable, (v)
settle, adjust, compromise, extend or renew any Collateral, (vi) discharge
and release any Account, (vii) prepare, file and sign the Borrower's name on
any proof of claim in bankruptcy or other similar document against an Account
Debtor or on any notice of Lien, assignment or satisfaction of Lien or
similar document in connection with any of the Collateral, (viii) notify the
postal authorities of any change of the address for delivery of the
Borrower's mail to an address designated by the Agent, and receive, open and
dispose of all mail addressed to the Borrower, (ix) take control in any
manner of any item of payment or proceeds of any Account, (x) have access to
any lockbox or postal box into which the Borrower's mail is deposited, (xi)
endorse the Borrower's name upon any items of payment or proceeds thereof and
deposit the same in the Agent's account on account of the Borrower's
Obligations, (xii) endorse the Borrower's name upon any chattel paper,
document, instrument, invoice, freight bill, bill of lading or similar
document or agreement relating to any Account or any goods pertaining
thereto, and (xiii) do all acts and things which are necessary, in the
Agent's sole discretion, to fulfill the Borrower's Obligations under the
Financing Agreements; and (B) at any time, to (i) execute in the Borrower's
nam and on the Borrower's behalf any financing statements or amendments
thereto, (ii) endorse the Borrower's name on any verification of Accounts and
notices thereof to Account Debtors, (iii) use the information recorded or
contained in any data processing equipment and computer hardware and software
relating to the Accounts and any other Collateral, and (iv) communicate with
the Borrower's independent certified public accountants.
3.7 ACCOUNT RECORDS. The Borrower shall at all times
hereafter maintain a record of Accounts, keeping correct and accurate records
itemizing and describing the names and addresses of Account Debtors, relevant
invoice numbers, shipping dates and due dates, collection histories, and
Accounts agings, all of which records shall be available during the Borrower's
usual business hours at the request of any of the Agent's officers, employees or
agents. The Borrower shall cooperate fully with the Agent and its
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agents who shall have the right at any time or times to inspect the Accounts
and the records with respect thereto. The Borrower shall conduct a review of
its bad debt reserves and collection histories at least once each year and
promptly following such review shall supply the Agent with a report in a form
and with such specificity as may be satisfactory to the Agent concerning such
review of the Accounts.
3.8 INSTRUMENTS AND CHATTEL PAPER. Upon the request of the
Required Lenders and at all times after the occurrence of a Default or Event
of Default, the Borrower shall immediately upon the receipt thereof deliver
or cause to be delivered to the Agent, with appropriate endorsement and
assignment to vest title, with full recourse to the Borrower, and possession
in the Agent, on behalf of the Lenders, all instruments and chattel paper
which the Borrower now owns or may at any time or times hereafter acquire.
3.9 NOTICE TO ACCOUNT DEBTORS. The Agent may, in its sole
discretion, at any time or times, after the occurrence of a Default or an
Event of Default and without prior notice to the Borrower, notify any or all
Account Debtors that the Accounts have been assigned to the Agent, for the
benefit of the Lenders, and that the Agent has a Lien therein. After the
occurrence of an Event of Default, the Agent may direct or, at the request of
the Agent, the Borrower shall direct, any or all Account Debtors to make all
payments upon the Accounts directly to the Agent. The Agent shall furnish
the Borrower with a copy of any such notice.
3.10 ELIGIBLE INVENTORY. "Eligible Inventory" shall consist of
all of the Inventory, except the following: (i) Inventory which is damaged,
obsolete, not in good condition, or not either currently usable or currently
saleable in the ordinary course of the Borrower's business as determined by
the Agent; (ii) Inventory which the Agent determines, or which in accordance
with the Borrower's customary business practices, is unacceptable due to age,
type, category and/or quantity, including, without limitation, any Inventory
which is in excess of a one (1) year's supply or is otherwise slow-moving;
(iii) Inventory with respect to which the Agent does not have a first and
valid, fully perfected Lien; (iv) Inventory consisting of cream, film, boxes,
packaging or supplies or rework coffee; (v) Inventory in the possession of
the Borrower but not owned by the Borrower; (vi) Inventory produced in
violation of the Fair Labor Standards Act and subject to the so-called "hot
goods" provision contained in Title 29 U.S.C. Section 215(a)(1); (vii)
Inventory with respect to which any disclosure is required in the applicable
Monthly Report in accordance with SUBSECTION 3.11; (viii) Inventory which is
located at a place other than the collateral locations of the Borrower listed
on EXHIBIT 8.6; provided that, subject to SUBSECTION 7.9, in the case of
leased locations listed on EXHIBIT 8.6, no Inventory located at any such
location shall be "Eligible Inventory" until the applicable landlord has
executed a lien waiver in form and substance satisfactory to the Agent)
including, without limitation, Inventory in transit; (ix) Inventory
consisting of finished goods which do not
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meet the specifications of the purchase order for which such Inventory was
produced; (x) Inventory which fails to meet the standards imposed by any
governmental agency, or department or division thereof, having regulatory
authority over such goods, its use and/or sale; (xi) Inventory which is held
on consignment by the Borrower; (xii) Inventory owned by the Borrower which
is held on consignment by other Persons; and (xii) Inventory which the Agent
determines in good faith to be unacceptable. In the event that Inventory
previously scheduled in a Monthly Report ceases to be Eligible Inventory, the
Borrower shall notify the Agent thereof immediately.
3.11 INVENTORY WARRANTIES. With respect to Inventory scheduled,
listed or referred to in any Monthly Report, the Borrower represents and
warrants that, except as disclosed in such Monthly Reports (i) such Inventory
is located at one of the Facilities or warehouses set forth on EXHIBIT 8.6,
(ii) the Borrower has good, indefeasible and merchantable title to such
Inventory and such Inventory is not subject to any Lien or document
whatsoever except for the prior, first perfected Lien granted to the Agent
hereunder, (iii) such Inventory is of good and merchantable quality, free
from any defects and is not goods returned to the Borrower by or repossessed
from an Account Debtor or goods taken in trade, (iv) such Inventory is not
subject to any licensing, patent, royalty, trademark, tradename or copyright
agreements with any third parties, (v) the completion of manufacture, sale or
other disposition of such Inventory by the Agent following an Event of
Default shall not require the consent of any Person and shall not constitute
a breach or default under any contract or agreement to which the Borrower is
a party or to which the Inventory is subject, and (vi) no Inventory has been
produced in violation of the Fair Labor Standards Act so as to be subject to
the so-called "hot goods" provision contained in Title 29 U.S.C., Section
215(a)(1).
3.12 INVENTORY RECORDS. The Borrower shall at all times maintain
correct and accurate records itemizing and describing the kind, type, quality
and quantity of Inventory and of Eligible Inventory, the Borrower's cost
therefor and daily withdrawals therefrom and additions thereto, and the
locations of all Inventory in the possession of bailees, all of which records
shall be available during the Borrower's usual business hours at the request
of any of the Agent's officers, employees or agents. The Borrower shall
cooperate fully with the Agent and its agents who shall have the right at any
time or times to inspect the Inventory and the records with respect thereto.
On or before December 31, 1998, the Borrower shall establish a perpetual
inventory system (the "Perpetual Inventory System"). Until the establishment
of the Perpetual Inventory System, the Borrower shall conduct a physical
count of the Inventory at least once each month. After the Borrower has
established the Perpetual Inventory System, the Borrower shall conduct a
physical count of the Inventory at least once each year and promptly
following such physical inventory shall supply the Agent with a report in
form and substance satisfactory to the Agent concerning such physical count
of the Inventory, and shall furnish to the Agent, at the Agent's request,
such other documents and reports with respect to the Inventory.
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3.13 SAFEKEEPING OF INVENTORY AND INVENTORY COVENANTS. Neither
the Agent nor any Lender shall be responsible for any act or default of any
carrier, warehouseman, bailee, forwarding agency or any other Person. Subject
to SUBSECTION 10.4, as between the Borrower and the Agent and each Lender, all
responsibility for the safekeeping of the Inventory and all risk of loss,
spoilage, damage, destruction or diminution in value of the Inventory shall be
borne by the Borrower. No Inventory is or shall be at any time or times
hereafter kept on the premises of or stored with a bailee, warehouseman,
consignee or similar third party without the Agent's prior written consent and
unless the Agent shall have received warehouse receipts or bailee letters or
such other documents, agreements and financing statements satisfactory to the
Agent prior to the commencement of such Person's possession or storage. The
Borrower shall not sell any Inventory to any customer on approval or on any
other basis which entitles the customer to return, or which may obligate the
Borrower to repurchase, such Inventory.
3.14 EQUIPMENT WARRANTIES. With respect to the Equipment, the
Borrower represents and warrants to the Agent and the Lenders that: (i) the
Borrower has good, indefeasible and merchantable title to the Equipment; (ii)
the Equipment is located only on the premises listed on EXHIBIT 3.14; (iii)
the Equipment is not subject to any Lien whatsoever except for the Lien
granted to the Agent, for the benefit of the Lenders, hereunder and except as
disclosed in EXHIBIT 6.5; (iv) the Equipment is in good condition and repair
(ordinary wear and tear excepted) and is currently used or usable in the
Borrower's business; and (v) except as described in EXHIBIT 3.14, none of the
Equipment used in the conduct of the Borrower's business is leased.
3.15 EQUIPMENT RECORDS. The Borrower shall at all times hereafter
keep complete and accurate records itemizing and describing the kind, type
and age of Equipment, and the Borrower's cost therefor and accumulated
depreciation thereon and acquisitions, retirements, sales, or other
dispositions thereof, all of which records shall be available during the
Borrower's usual business hours on demand to any of the Agent's officers,
employees or agents.
3.16 MAINTENANCE OF EQUIPMENT. The Borrower shall keep and
maintain the Equipment in good operating condition and repair (ordinary wear
and tear excepted) and shall make all necessary replacements thereof and
renewals thereto so that the value and operating efficiency thereof shall at
all times be maintained and preserved. The Borrower shall not permit any
item of Equipment to become a fixture to real property or an accession to
other personal property. The Borrower shall not permit the Equipment to be
operated or maintained in violation of any applicable law, statute, rule or
regulation. In addition, with respect to all items of leased equipment, the
Borrower shall keep, maintain, repair, replace and operate such leased
equipment in accordance with the terms of the applicable lease.
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3.17 REAL ESTATE. EXHIBIT 3.17 describes all Real Estate or
interests in Real Estate owned or leased by the Borrower. Except as
disclosed on EXHIBIT 3.17, the Borrower represents and warrants to the Agent
and the Lenders that the Borrower has good, indefeasible and merchantable
title to and ownership of, or a valid leasehold interest in, each parcel of
Real Estate described in EXHIBIT 3.17, free and clear of all Liens, except
Liens in favor of the Agent, for the benefit of the Lenders, and the
Permitted Liens. Except as disclosed on EXHIBIT 3.17, the Borrower further
represents and warrants to the Agent and the Lenders that no parcel of Real
Estate is subject to any boundary or encroachment dispute, special
assessment, condemnation or eminent domain proceeding, restrictive covenant,
zoning or building code violation or any other dispute, assessment, claim or
violation of law which might restrict or interfere with the Borrower's use of
such parcel of Real Estate in the ordinary course of the Borrower's business
or which might have a Material Adverse Effect. Except as disclosed on
EXHIBIT 3.17, the Borrower does not own any other real property or use or
occupy any real property that it leases from any other Person.
3.18 MAINTENANCE OF REAL ESTATE. The Borrower shall keep and
maintain the Real Estate and all improvements thereon in good condition and
repair and shall maintain the value and utility thereof and shall maintain
such Real Estate in conformity with all applicable building and zoning codes
and other applicable laws, statutes, rules and regulations. The Borrower
shall maintain its leased real property in the same manner as its owned Real
Estate, and comply with the terms of its leases of such real property, in
accordance with the applicable leases.
3.19 INTELLECTUAL PROPERTY AND GENERAL INTANGIBLES .
Except as disclosed on EXHIBIT 3.19, the Borrower is the owner of all the
Intellectual Property and General Intangibles free and clear of all Liens
other than Liens in favor of the Agent, for the benefit of the Lenders and
(ii) Permitted Liens. The Borrower shall maintain complete and accurate
records with respect to its Intellectual Property and General Intangibles and
shall defend such Intellectual Property and General Intangibles against
infringement, interference, opposition or similar actions or challenges and
shall maintain and preserve all of its rights with respect thereto.
4. CONDITIONS TO ADVANCES.
4.1 CONDITIONS TO ALL ADVANCES. In addition to those conditions
set forth in SUBSECTION 4.2, the funding of each Loan shall be conditioned
upon the matters set forth in this SUBSECTION 4.1:
(a) REPRESENTATIONS AND WARRANTIES. All of the representations and
warranties of the Borrower contained herein or in any other Financing Agreement
shall be true and correct in all material respects on and as of the date of such
advance as if made
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on such date, except to the extent that any such representation or warranty
expressly relates to an earlier date.
(b) BORROWER'S REQUEST. The Agent shall receive (i) a Notice of
Borrowing on or prior to the date required by the terms of the Agreement with
respect to any Loan, (ii) a Monthly Report from the Borrower in accordance
with the terms of this Agreement and (iv) all other documents required to
have been delivered to the Agent hereunder prior to such date.
(c) FINANCIAL CONDITION. As determined by the Required Lenders in
their reasonable discretion, no Material Adverse Effect shall have occurred
at any time or times subsequent to the most recent annual financial
statements provided pursuant to SUBSECTION 7.1(ii).
(d) NO DEFAULT. As determined by the Required Lenders, neither a
Default nor an Event of Default shall have occurred and be continuing or will
result from such advance.
(e) NO LITIGATION. (i) No Litigation shall be pending or
threatened against the Borrower or any officer, director, or executive of the
Borrower (A) in connection with this Agreement or the other Financing
Agreements or (B) other than as disclosed on EXHIBIT 6.14, which, if
adversely determined, would have a Material Adverse Effect; and (ii) no
injunction, writ, restraining order or other order of any nature materially
adverse to the Borrower shall have been issued or threatened by any
Governmental Authority.
(f) OTHER REQUIREMENTS. The Agent shall have received, in form
and substance satisfactory to the Agent, all certificates, orders,
authorizations, consents, affidavits, schedules, instruments, security
agreements, financing statements, mortgages and other documents which are
provided for hereunder, or which the Agent may at any time reasonably
request. All legal matters incident to the making of the Loan shall be
satisfactory to the Agent and its counsel.
Each request and acceptance by the Borrower of the proceeds of any
advance under the Revolving Loan shall constitute a representation and warranty
by the Borrower that the conditions contained in SUBSECTIONS 4.1(a), 4.1(d), and
4.1(e) have been satisfied.
4.2 CONDITIONS TO EFFECTIVE DATE AND INITIAL ADVANCE. In
addition to those conditions set forth in SUBSECTION 4.1 with respect to all
advances hereunder, the making of the initial advance of funds under the
Revolving Loan partial funding of Term Loan B shall be conditioned upon the
satisfaction on or before the Effective Date of the conditions set forth in this
SUBSECTION 4.2 and the delivery on or before the Effective Date
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of the following documents to each Lender, in form and substance satisfactory
to each Lender in all respects, and consummation of all of the transactions
or the satisfaction of each condition contemplated by each such document in a
manner satisfactory to each Lender and its counsel.
(a) AGREEMENT; NOTES. Duly executed copies of this Agreement, the
other Financing Agreements and one (1) duly executed copy of each of the
Revolving Loan Notes, the Term Loan A Notes, dated the Original Closing Date and
as amended and restated as of the Effective Date, and the Term Loan B Notes
dated the Original Closing Date and as amended and restated as of the Effective
Date, conforming to the requirements hereof, together with all Schedules,
Exhibits, certificates, instruments, documents and financial statements required
to be delivered pursuant hereto and thereto, all in form and substance
satisfactory to each Lender in all respects.
(b) LEGAL OPINION. The legal opinion of the Borrower's counsel and
such local counsel deemed necessary by the Lenders in form and substance
satisfactory to the Lenders and their counsel.
(c) UCC. Evidence of the proper filing of UCC financing statements
perfecting Liens in favor of the Agent in the Collateral and in the Property of
Maryland Club Foods and Brothers Retail with respect to which a security
interest will be granted to the Agent under the Subsidiary Security Agreement,
and copies of searches of financing statements filed under the Code, together
with tax lien and judgment searches with respect to the Property of the
Borrower, Maryland Club Foods and Brothers Retail, in such jurisdictions as the
Agent may request.
(d) OFFICER'S CERTIFICATE. A certificate executed by an Authorized
Officer stating that (i) no Default or Event of Default has occurred and is
continuing, (ii) since June 27, 1997, no material and adverse change has
occurred in the business, prospects, assets, liabilities, operations or
condition (financial or other) of the Borrower or of the Borrower and its
Subsidiaries taken as a whole, (iii) no litigation, investigation or proceeding,
or injunction, writ or restraining order of the type described in SUBSECTION
4.1(e) is pending or threatened, (iv) each of the conditions precedent to the
consummation of the Loans contemplated hereby has been met or satisfied, and (v)
the representations and warranties of the Borrower contained in the Financing
Agreements are correct and complete in all material respects on and as of the
Effective Date.
(e) INSURANCE POLICIES AND ENDORSEMENTS. Copies of policies of
insurance required hereby together with loss payable endorsements on the Agent's
standard form, duly executed, and evidence of the payment of the current premium
therefor.
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(f) INITIAL REPORTS AND OTHER EXHIBITS. Copies the initial Weekly
Report, the Solvency Affidavit, the Initial Slotting Fee Certificate, the
initial Projections, and all financial statements and other Exhibits and
Schedules required hereby.
(g) FEES, COSTS AND EXPENSES; ACCRUED UNPAID AMOUNT. The Accrued
Unpaid Amount shall have been paid to the Agent and each of the fees, costs and
expenses payable on the Effective Date pursuant to SUBSECTION 2.10, SUBSECTION
2.12, SUBSECTION 2.13 AND SUBSECTION 2.14 have been paid to the Agent.
(h) CHARTER AND BYLAWS. A copy of the Borrower's Certificate of
Incorporation, certified by the Secretary of State of Delaware as of a date not
more than ten (10) days prior to the Effective Date and a copy of the Borrower's
bylaws and any amendments thereto certified by the Secretary of the Borrower.
(i) GOOD STANDING CERTIFICATES. Good Standing Certificate for the
Borrower from the State of Delaware and a certificate of good standing as a
foreign corporation from each other state set forth on EXHIBIT 6.1-1, as of a
date not more than ten (10) days prior to the Effective Date.
(j) BOARD RESOLUTIONS. Certified copies of resolutions of the board
of directors of the Borrower authorizing the execution and delivery of and the
consummation of the transactions contemplated by this Agreement, the other
Financing Agreements and all other documents or instruments to be executed and
delivered in conjunction herewith and therewith. Such resolutions shall also
designate which Authorized Officers of the Borrower shall be authorized to make
a request for an advance of the Revolving Loan, Term Loan A and Term Loan B
hereunder.
(k) INCUMBENCY CERTIFICATES. Incumbency certificates with respect to
the officers of the Borrower executing the documents referred to in item (j)
above, certified as of the Effective Date by the Borrower's secretary as being
true and correct.
(l) WAIVERS. Landlord waivers, bailee letters and mortgagee
agreements in form and substance satisfactory to Agent, in each case as
required pursuant to SUBSECTION 7.9. In the event the Borrower is unable to
obtain a landlord waiver, bailee letter and/or mortgagee agreement acceptable
to Agent as to any such location on or before the Effective Date, the
eligibility of such Inventory at that location shall be determined in
accordance with SUBSECTION 7.9.
(m) ACCOUNTANTS' LETTER. A letter authorizing Borrower's independent
certified public accountants to communicate with the Agent and the Lenders in
accordance with SUBSECTION 7.1 and acknowledging the Agent's and each Lender's
reliance on future financial statements.
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(n) POWER OF ATTORNEY. A power of attorney in favor of the Agent
with respect to the matters set forth in SUBSECTIONS 3.6, 5.2 and 7.6 in form
and substance satisfactory to the Agent.
(o) AGENT FOR SERVICE. An acknowledgment by CT Corporation System
that it has been appointed as the Borrower's agent to accept service of process
for the Borrower.
(p) LETTER OF DIRECTION. A letter of direction from the Borrower
with respect to the disbursement of the proceeds of the initial advances of the
Loans hereunder.
(r) NO MATERIAL ADVERSE CHANGE. No material and adverse change in
the business, properties, operations or condition (financial or otherwise) or
business prospects of the Borrower, or of the Borrower and its Subsidiaries
taken as a whole, shall have occurred since September 26, 1997.
(s) NO ACCOUNTING CHANGES. The Borrower shall not have made any
material change in its accounting methods or principles since September 26,
1997.
(t) NO TERMINATION OF CONTRACTS. No materially advantageous
agreement now in effect between the Borrower and any other Person shall have
been terminated, modified or declared to be in default since September 26, 1997.
(u) REAL ESTATE TAXES AND FEES. Evidence of payment of all taxes on
each parcel of Real Estate due prior to the Effective Date and all recording and
mortgage filing fees or taxes.
(v) FIELD SURVEY, ETC. The Agent shall have conducted a field survey
of the Borrower and its Property, including a review of revised Projections
which have been updated to reflect the most recently available financial results
and giving effect to this Agreement, as well as such additional financial and
business due diligence as the Agent deems appropriate in its sole and absolute
discretion, the results of all to be acceptable to the Agent in its sole and
absolute discretion.
(w) APPRAISALS. The Agent shall have received the Appraisal
(Equipment) and the Appraisal (Real Estate).
(x) ENVIRONMENTAL MATTERS. The Agent shall have received such
environmental review and audit reports with respect to the properties of the
Borrower and its Subsidiaries as the Agent shall have requested and the Agent
shall be satisfied, in its sole discretion, with the contents of all such
environmental reports.
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(y) FORM W-9. A copy of IRS Form W-9, Taxpayer Identification Number
and Certification.
(z) MARYLAND CLUB FOODS GUARANTY. A duly executed copy of the
Maryland Club Foods Guaranty.
(aa) BROTHERS RETAIL GUARANTY. A duly executed copy of the Brothers
Retail Guaranty.
(bb) SUBSIDIARY SECURITY AGREEMENT. A duly executed copy of the
Subsidiary Security Agreement.
(cc) PLEDGE AGREEMENT. A duly executed copy of the Pledge Agreement,
together with the original stock certificates representing all of the capital
stock of each Subsidiary of the Borrower, accompanied by undated stock powers
executed in blank.
(dd) GSCP WARRANT. A duly executed copy of the GSCP Warrant.
(ee) GSCP WARRANT AGREEMENT. A duly executed copy of the GSCP Warrant
Agreement.
(ff) OTHER DOCUMENTS. All corporate and legal proceedings and all
agreements in connection with the transactions contemplated by this Agreement
and the other Financing Agreements shall be satisfactory to the Agent, and the
Agent shall have received all information and copies of all documents including,
without limitation, records of corporate existence, authority and proceedings
and governmental approvals, if any, which the Agent reasonably may have
requested in connection therewith, and such documents, where appropriate, shall
be certified by proper corporate or governmental authorities.
5. COLLATERAL.
5.1 SECURITY INTEREST. All of the Borrower's Obligations
constitute one (1) loan secured by the Agent's Liens on the Collateral now or
from time to time hereafter granted by the Borrower to the Agent. The
Borrower hereby acknowledges, confirms and agrees that the Agent, as
successor in interest to SBCC, has and shall continue to have, to secure
timely payment and performance in full of the Obligations, for the benefit of
the Lenders, a right of setoff against and a valid, continuing, enforceable
and fully perfected first-priority Lien (subject only to Permitted Liens)
upon all of the Borrower's right, title and interest in and to all Property
and interests in Property of the Borrower, whether now owned or hereafter
acquired by the Borrower and wheresoever located, including, without
limitation: (i) all Accounts; (ii) all General Intangibles; (iii) all
Fixtures; (iv) all Inventory; (v) all Equipment; (vi) all Intellectual
Property; (vii) all of the Borrower's
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deposit accounts (general or special) with any financial institution with
which the Borrower maintains deposits; (viii) all of the Borrower's now owned
or hereafter acquired monies, and any and all other property and interests in
property of the Borrower now or hereafter coming into the actual possession,
custody or control of the Agent or any Lender or any agent or affiliate of
the Agent or any Lender in any way or for any purpose (whether for
safekeeping, deposit, custody, pledge, transmission, collection or
otherwise); (ix) all documents, instruments and chattel paper; (x) all
insurance policies relating to any of the foregoing, including without
limitation business interruption insurance; (xi) all of the Borrower's books
and records relating to any of the foregoing; (xii) all accessions and
additions to, substitutions for, and replacements of any of the foregoing;
and (xiii) all cash collections from, and all other cash and non-cash
proceeds of, any of the foregoing including, without limitation, proceeds of
and unearned premiums with respect to insurance policies insuring any of the
Collateral and claims against any Person for loss of, damage to, or
destruction of, any or all of the Collateral. In addition, concurrently with
the execution and delivery hereof the Borrower shall deliver the Mortgages,
and concurrently with the acquisition of any real property after the
Effective Date, the Borrower shall grant and convey to the Agent, for the
benefit of the Lenders, as security for the Obligations, first mortgage Liens
on all such real property.
5.2 PRESERVATION OF COLLATERAL AND PERFECTION OF LIENS THEREON.
Prior to the execution of this Agreement, the Borrower shall have executed
and delivered to the Agent, and at any time or times hereafter at the request
of the Agent, the Borrower shall execute and deliver all financing
statements, security agreements, pledge agreements, mortgages, leasehold
mortgages, bailee letters, amendments thereto, or other documents (and pay
the cost of filing or recording the same in all public offices deemed
necessary by the Agent), as the Agent may request, in a form satisfactory to
the Agent, to perfect and maintain the Liens on the Collateral granted by the
Borrower to the Agent or to otherwise protect and preserve the Collateral and
the Liens thereon or to enforce the Agent's Liens on the Collateral. Should
the Borrower fail to do so, the Agent is authorized to sign any such
financing statements or other documents as the Borrower's agent. The
Borrower further agrees that a carbon, photocopy or other reproduction of
this Agreement or of a financing statement is sufficient as a financing
statement. The Borrower shall make appropriate entries upon its books and
records disclosing the Agent's Liens on the Collateral.
5.3 CONSIGNED INVENTORY. With respect to consigned Inventory,
the Borrower shall perfect its interest in such Inventory by filing and
delivering notice to the creditors of record of the consignee, all as provided
in Section 9-114 of the Code, and in form and substance satisfactory to the
Agent, and the Borrower shall execute and deliver all financing statements,
security agreements, amendments thereto, or other documents (and pay the cost of
filing or recording the same in all public offices deemed necessary by the
Agent), as the Agent may request, in a form satisfactory to the Agent, to
perfect and
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maintain the Liens on such Collateral granted by the Borrower to the Agent
hereunder. With respect to goods in the hands of bailees, the Borrower shall
deliver notice to such bailees of Agent's interest in such goods and
instructions with respect to the disposition thereof, all in form and
substance satisfactory to the Agent, and Borrower shall execute and deliver
all financing statements, security agreements, amendments thereto, or other
documents (and pay the cost of filing or recording the same in all public
offices deemed necessary by the Agent), as the Agent may request, in a form
satisfactory to the Agent, to perfect and maintain the Liens on such
Collateral granted by the Borrower to the Agent hereunder.
6. REPRESENTATIONS AND WARRANTIES.
The Borrower represents and warrants and covenants and agrees that
(even if there shall be no Obligations outstanding) so long as this Agreement
remains in effect:
6.1 Existence. (a) The Borrower and each Subsidiary is a
corporation duly organized, validly existing and in good standing under the
laws of its respective jurisdiction of incorporation and is qualified to
transact business as a foreign corporation in, and, except as provided on
EXHIBIT 6.1-1, is in good standing under the laws of, all states in which it
is required by applicable law to maintain such qualification and good
standing except where the failure to so qualify would not have a Material
Adverse Effect. All such jurisdictions in which such Persons are in good
standing are listed on EXHIBIT 6.1-1. With respect to those jurisdictions in
which the Borrower and its Subsidiaries are not in good standing, the
Borrower and the Subsidiaries, as applicable, have filed all of the
documents, paid all taxes and fees and taken all other actions necessary to
be in good standing in such jurisdictions. The Borrower is not aware of any
reason why any such jurisdiction would not issue a good standing certificate
to the Borrower or a Subsidiary, as applicable.
(b) STOCK OF THE BORROWER. All shares of capital stock of the
Borrower and each Subsidiary have been duly authorized and validly issued and
are fully paid and non-assessable. Except as disclosed on EXHIBIT 6.1-2 and as
otherwise permitted by this Agreement (i) no authorized but unissued or treasury
share of capital stock of the Borrower or any Subsidiary is subject to any
option, warrant, right to call or commitment of any kind or character, (ii)
neither the Borrower nor any Subsidiary has any outstanding stock or securities
convertible into or exchangeable for any shares of its capital stock, or any
rights issued to any Person (either preemptive or other) to subscribe for or to
purchase, or any options or warrants for the purchase of, or any agreements
providing for the issuance (contingent or otherwise) of, or any calls,
commitments or claims of any character relating to any of its capital stock or
any stock or securities convertible into or exchangeable for any of its capital
stock, and (iii) neither the Borrower nor any Subsidiary is subject to any
obligation (contingent or otherwise) to repurchase or
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otherwise acquire or retire any shares of its capital stock or any
convertible securities, rights, warrants or options of the type described in
the clause (ii) above.
6.2 AUTHORITY. The Borrower and each Subsidiary has full power,
authority and legal right to enter into this Agreement and the other
Financing Agreements. The execution and delivery by the Borrower and each
Subsidiary of the Financing Agreements to which it is a party: (i) have been
duly authorized by all necessary action on its part; (ii) are not in
contravention of the terms of its Articles of Incorporation or Bylaws or of
any indenture, agreement or undertaking to which it is a party or by which it
or any of its Property is bound; (iii) do not and will not require any
registration with, or approval or the consent or approval of, any
Governmental Authority or of any other Person that has not been obtained;
(iv) do not and will not contravene any contractual or governmental
restriction to which it or any of its Property may be subject; (v) do not and
will not, except as contemplated herein, result in the imposition of any Lien
upon any Property of it under any existing indenture, mortgage, deed of
trust, loan or credit agreement or other material agreement or instrument to
which it is a party or by which it or any of its Property may be bound or
affected; and (vi) has not enabled and will not enable any Person to
accelerate or enforce any claim against the Borrower or any Subsidiary under
any agreement or instrument to which the Borrower or any Subsidiary is a
party or by which it or its assets are bound. The Borrower and each
Subsidiary has the full corporate power and authority and legal right to own,
operate, pledge, mortgage or otherwise encumber its Property, to lease the
Property it now operates under lease and conduct its business as now,
heretofore and proposed to be conducted, and has all material licenses,
permits, consents and approvals from or by, and has made all material filings
with, and has given all notices to, all Governmental Authorities having
jurisdiction, to the extent required for such ownership, operation and
conduct.
6.3 BINDING EFFECT. This Agreement and the other Financing
Agreements to which it is a party have been duly executed and delivered by
the Borrower, are the legal, valid and binding obligations of the Borrower
and are enforceable against the Borrower in accordance with their terms.
6.4 FINANCIAL DATA. (a) The Borrower has furnished to the
Agent and each Lender the consolidated financial statements (the "Financial
Statements") of the Borrower and its Subsidiaries based on financial data as of
September 26, 1997. The Financial Statements are complete and accurate and
fairly represents the consolidated assets, liabilities, financial condition and
results of operations of the Borrower in accordance with Generally Accepted
Accounting Principles, consistently applied, as of September 26, 1997 (subject
to normal year-end adjustment) and the consolidated results of its operations
for the respective periods then ended (subject to normal year-end adjustments).
There are no omissions from the Financial Statements or other facts and
circumstances not reflected in the Financial Statements which are or may be
material.
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Except as contemplated hereby or otherwise permitted by the Financing
Agreements, since the date of the Financial Statements through the Effective
Date, neither the Borrower nor any Subsidiary has: (i) except with respect to
Contingent Retail Store Obligations and Permitted Liens, incurred any debts,
obligations, or liabilities (absolute, accrued, or contingent and whether due
or to become due) except current liabilities incurred in the ordinary course
of business which (individually or in the aggregate) will not have a Material
Adverse Effect; (ii) except with respect to Contingent Retail Store
Obligations and Permitted Liens, paid any obligation or liability other than
current liabilities in the ordinary course of business, or discharged or
satisfied any Liens other than those securing current liabilities, in each
case in the ordinary course of business; (iii) declared or made any
Restricted Payment or obligated itself to do so; (iv) except with respect to
Contingent Retail Store Obligations and Permitted Liens, mortgaged, pledged,
or subjected to any Lien on any of its Property; (v) except with respect to
Contingent Retail Store Obligations and Permitted Liens, sold, transferred,
or leased any of its Property except in the usual and ordinary course of
business; (vi) except with respect to Contingent Retail Store Obligations and
Permitted Liens, entered into any transaction other than in the usual and
ordinary course of business; (vii) encountered any labor difficulties or
labor union organizing activities; (viii) except as disclosed on EXHIBIT
6.1-2, issued or sold any shares of capital stock or other securities or
granted any options or similar rights with respect thereto other than
pursuant hereto; or (ix) except with respect to Contingent Retail Store
Obligations and Permitted Liens, agreed to do any of the foregoing other than
pursuant hereto.
(b) The Borrower has also furnished to the Agent and each Lender
initial Projections for the Borrower dated as of the Effective Date and
attached as EXHIBIT 6.4, containing the information required by clause (v) of
SUBSECTION 7.1. The initial Projections have been prepared, and all
Projections hereafter delivered in accordance with clause (v) of SUBSECTION
7.1 shall be prepared, by an Authorized Officer on the basis of the
assumptions set forth therein and do represent, and in the future will
represent, the best available good faith estimate of the Borrower's
management regarding the course of business of the Borrower and each
Subsidiary for the periods covered thereby. The assumptions set forth in the
initial Projections are, and the assumptions set forth in the future
Projections delivered hereafter shall be, reasonable and realistic based on
then current economic conditions. The Projections represent the good faith
belief of the Borrower as to reasonably achievable results and the Borrower
has no knowledge of any reason (other than unexpected adverse general
economic conditions) that would cause the Projections not to be achieved.
(c) The Borrower has also provided to the Agent and each Lender
audited statements of income and cash flow and balance sheets for the Borrower
and each Subsidiary on a consolidated basis for each of the three (3) most
recent Fiscal Years ending with December 29, 1996 certified by Ernst & Young
L.L.P. and such financial
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statements fairly present the financial condition and results of operations
of the Borrower and its Subsidiaries for the periods indicated therein, in
accordance with Generally Accepted Accounting Principles, consistently
applied.
6.5 COLLATERAL. Except as disclosed on EXHIBIT 6.5, all of the
Collateral is and will continue to be owned by the Borrower free and clear of
all Liens except those of the Agent, for the benefit of the Lenders, and the
Permitted Liens. Since the Original Closing Date and from and after the
Effective Date, the provisions of ARTICLE 5 of this Agreement have been and
will continue to be effective to create and will continue to give the Agent,
for the benefit of the Lenders, as security for the repayment of the
Obligations, a legal, valid, perfected and enforceable Lien (which priority
is subject only to Permitted Liens) upon all right, title and interest of the
Borrower in any and all of the Collateral (including, without limitation, the
Lien in the items and amounts deposited in the Blocked Accounts).
6.6 SOLVENCY. The Borrower and each Subsidiary is solvent and
will continue to be Solvent following the consummation of the transactions
contemplated by this Agreement and the payment of all fees, costs and
expenses payable by the Borrower with respect thereto.
6.7 PLACES OF BUSINESS. The principal places of business and
chief executive office of the Borrower is set forth on EXHIBIT 6.7 and,
except as disclosed on EXHIBIT 6.7, none of such locations have changed
within the past six (6) months. The books and records of the Borrower and
all chattel paper and all records of account are located and hereafter shall
continue to be located at one of the Facilities of the Borrower.
6.8 OTHER NAMES. The business conducted by the Borrower has not
been conducted under any corporate, trade or fictitious name other than those
names disclosed on EXHIBIT 6.8.
6.9 TAX OBLIGATIONS. The Borrower and each Subsidiary has filed
complete and correct federal, state and local tax reports and returns
required to be filed by it, prepared in accordance with applicable laws or
regulations, and, except for extensions duly obtained, has either duly paid
all Charges owed by it, or made adequate provision for the payment thereof.
There are no material unresolved questions or claims concerning any tax
liability of the Borrower or any Subsidiary except those for which the
validity, amount or imposition of such Charges are being contested in good
faith by an appropriate proceeding promptly initiated and diligently
conducted and as to which (i) such proceeding will prevent the forfeiture or
sale of any Property of the Borrower or such Subsidiary and no Lien which
will have priority over the Agent's Liens granted hereunder with respect to
the Collateral is filed of record, (ii) adequate reserves have been provided
in accordance with Generally Accepted Accounting Principles and (iii) such
proceeding
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does not have a Material Adverse Effect. No tax Liens have been filed and no
claims are being asserted with respect to any such Charges which might have a
Material Adverse Effect. The charges, accruals and reserves on the books of
the Borrower and each Subsidiary are adequate for all open years and for the
current Fiscal Year. Neither the Borrower nor any Subsidiary has consented
to any extension of, or otherwise waived, any statute of limitation with
respect to any such Charges. Neither the Borrower nor any Subsidiary is a
party to any tax indemnity, tax sharing or tax allocation agreement with any
other Person. Proper and accurate amounts have been withheld by the Borrower
from its employees for all periods in full and complete compliance with the
tax, social security and unemployment withholding provisions of applicable
federal, state, local and foreign law and such withholdings have been timely
paid to the respective Governmental Authorities.
6.10 INDEBTEDNESS AND LIABILITIES. (a) Neither the Borrower nor
any Subsidiary has Indebtedness other than Indebtedness reflected on the
Financial Statements, Indebtedness underlying the Permitted Liens and
Indebtedness disclosed on EXHIBIT 8.2 and (b) except for the Indebtedness
referred to above and Liabilities reflected on the Financial Statements,
neither the Borrower nor any Subsidiary has any Liabilities required to be
reflected on a balance sheet prepared in accordance with GAAP.
6.11 USE OF PROCEEDS AND MARGIN SECURITY. The Borrower shall use
the One Million Two Hundred and Fifty Thousand Dollar ($1,250,000) advance of
the Additional Term Loan B on the Effective Date to partially repay the
Revolving Loan and shall use the proceeds of the initial advance under the
Revolving Loan and shall use subsequent advances under the Revolving Loan
solely for the working capital requirements of the Borrower in the ordinary
course of the Borrower's business consistent with past practices and with all
applicable laws, statutes, rules and regulations and for no other purposes.
The Borrower does not own any margin security and none of the Loans advanced
or funded hereunder will be used for the purpose of purchasing or carrying
any margin securities or for the purpose of reducing or retiring any
indebtedness which was originally incurred to purchase any margin securities
or for any other purpose not permitted by Regulation G or U of the Board of
Governors of the Federal Reserve System.
6.12 GOVERNMENT CONTRACTS. Except as disclosed on EXHIBIT 6.12,
neither the Borrower nor any Subsidiary is a party to or bound by any supply
agreements with the federal government or any state or local government or
any agency thereof.
6.13 INVESTMENTS. Except as disclosed on EXHIBIT 8.4, neither the
Borrower nor any Subsidiary has any Investment in any Person other than
Permitted Investments and is not engaged in any joint venture or partnership
with any other Person.
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6.14 LITIGATION AND PROCEEDINGS. No judgments are outstanding
against the Borrower or any Subsidiary or binding upon any of its Property,
nor, except as disclosed on EXHIBIT 6.14, is there now pending or threatened,
any litigation, claim, arbitration, investigation, administrative proceeding
or other governmental proceeding ("Litigation") by or against the Borrower or
any Subsidiary, and to the best of the Borrower's knowledge after diligent
inquiry, there are no presently existing facts or circumstances likely to
give rise to any such Litigation. Except as disclosed on EXHIBIT 6.14, there
is no Litigation pending or threatened against the Borrower or any
Subsidiary, which, if adversely determined, might have a Material Adverse
Effect. None of the Litigation will prevent, enjoin or delay the
consummation of the transactions contemplated by the Financing Agreements.
6.15 OTHER AGREEMENTS AND DELIVERIES. (a) Except as disclosed on
EXHIBIT 6.15, neither the Borrower nor any Subsidiary is in default under any
indenture, loan agreement, mortgage, deed of trust or similar document
relating to the borrowing of monies or any other material contract, lease, or
commitment to which it is a party or by which it is bound. There is no
dispute regarding any contract, lease, or commitment which might have a
Material Adverse Effect.
(b) The Borrower has provided to the Agent accurate and complete
copies of all of the following agreements or documents to which the Borrower
or any Subsidiary is subject:
(i) each Plan and other compensation or nonqualified benefit
plan arrangement which the Borrower or any ERISA Affiliate sponsors or is
committed to contribute to as of the Effective Date and, where applicable,
each Plan's most recent summary plan description, actuarial report,
determination letter from the Service and Forms 5500 for the previous five
(5) years filed in respect of each such Plan;
(ii) collective bargaining agreements or other labor
contracts;
(iii) leases of real property;
(iv) licenses and permits with respect to Environmental
Matters;
(v) all management and employment agreements between the
Borrower or any Subsidiary and any other Person;
(vi) contracts or agreements between the Borrower or any
Subsidiary and its Affiliates requiring or providing for payments in excess
of Two Hundred Fifty Thousand Dollars ($250,000) per annum;
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(vii) all contracts giving rise to Contingent Retail Store
Obligations; and
(viii) all pending contracts for the sale or other disposition
of Retail Stores.
6.16 LABOR MATTERS. Except as disclosed on EXHIBIT 6.16, there are
no strikes, work stoppages, labor disputes, decertification petitions, union
organizing efforts, grievances or other controversies pending or, to the best
of the Borrower's knowledge after diligent inquiry, threatened, between the
Borrower or any Subsidiary and any of its employees, other than employee
grievances arising in the ordinary course of business which, in the
aggregate, would not have a Material Adverse Effect. All collective
bargaining agreements labor agreements or other contracts with or affecting
any employee of the Borrower or any Subsidiary necessary to continue to
conduct the business operations of the Borrower or such Subsidiary are in
full force and effect. Except as disclosed on EXHIBIT 6.15 and/or EXHIBIT
6.16, neither the Borrower nor any Subsidiary has any obligation under any
collective bargaining agreement or any employment agreement. To the best of
the Borrower's knowledge, there is no organizing activity pending or
threatened by any labor union or group of employees. Except as disclosed on
EXHIBIT 6.16, there are no representation proceedings pending or threatened
with the National Labor Relations Board, and no labor organization or group
of employees has made a pending demand for recognition. There are no
material complaints or charges pending or threatened to be filed with any
local or Governmental Authority based on, arising out of, in connection with,
or otherwise relating to the employment or termination of employment by the
Borrower or any Subsidiary of any individual.
6.17 COMPLIANCE WITH LAWS AND REGULATIONS. The execution and
delivery by the Borrower of this Agreement, the other Financing Agreements
and the performance of the Borrower's obligations hereunder and thereunder
are not in contravention of any order applicable to the Borrower or, to the
Borrower's best knowledge, any laws, regulations or ordinances. The Borrower
and each Subsidiary are in compliance with all laws, orders, regulations and
ordinances of all federal, foreign, state and local governmental authorities
relating to the business operations and the Property of the Borrower or any
Subsidiary except for laws, orders, regulations and ordinances the
non-compliance or violation of which would not, in the aggregate, have a
Material Adverse Effect.
6.18 PATENTS, TRADEMARKS AND LICENSES. Except as disclosed on
EXHIBIT 6.18, the Borrower owns or possesses all rights to use all future
designs, licenses, patents, patent applications, copyrights and all applications
and registrations therefor, service marks and all applications and registrations
therefor, logos, names, trademarks and all applications and registrations
therefor, tradenames, trade secrets, methods, processes,
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know-how, drawings, specifications, descriptions, software, computer programs
and research and development required to continue to conduct its business as
heretofore conducted and as proposed to be conducted; all such licenses,
patents, patent applications, copyrights and all applications and
registrations therefor, service marks and all applications and registrations
therefor, trademarks and all applications and registrations therefor and
tradenames are disclosed on EXHIBIT 6.18; and no such license, or
Intellectual Property has been declared invalid, been limited by order of any
court or by agreement, or is the subject of any infringement, interference or
similar proceeding or challenge. The Intellectual Property is valid,
subsisting and enforceable, and the use or other exploitation of the
Intellectual Property does not infringe, dilute or misappropriate the rights
of any Person.
6.19 ERISA. (a) Neither the Borrower nor any ERISA Affiliate has
sponsored or contributed to or has had any obligation under, any Plan or
Multiemployer Plan other than those disclosed on EXHIBIT 6.19.
(b) With respect to all Plans, the Borrower and each ERISA
Affiliate is in compliance with the applicable provisions of ERISA and the
IRC in all material respects. Each Plan that is intended to be qualified
under Section 401(a) of the IRC has been determined by the Internal Revenue
Service to be so qualified, and each trust related to such Plans has been
determined to be exempt from federal income tax under Section 501(a) of the
IRC. No liability has been incurred by the Borrower or any ERISA Affiliate
which remains unsatisfied for any taxes or penalties with respect to any Plan
or any Multiemployer Plan.
(c) The present value of all benefit liabilities under all Pension
Plans does not exceed the present value of the assets of such Plans. No
Pension Plan has been terminated, nor has any accumulated funding deficiency
(as defined in Section 412 of the IRC) been incurred (without regard to any
waiver granted under Section 412 of the IRC), nor has any funding waiver from
the Internal Revenue Service been received or requested with respect to any
Pension Plan, nor has the Borrower or any ERISA Affiliate failed to make any
contributions or to pay any amounts due and owing as required by Section 412
of the IRC, Section 302 of ERISA or the terms of any Pension Plan by the
applicable due dates, nor has there been any event requiring any disclosure
under Section 4041(c)(3)(C), or 4062(e) or 4063(a) of ERISA with respect to
any Pension Plan.
(d) Neither the Borrower nor any ERISA Affiliate has: (i) engaged
in a nonexempt prohibited transaction described in Section 406 of ERISA or
Section 4975 of the IRC; (ii) incurred any liability to the PBGC which
remains outstanding other than the payment of premiums and there are no
premium payments which are due and unpaid; or (iii) failed to make a required
contribution or payment to a Multiemployer Plan.
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(e) No Termination Event has occurred and no Termination Event is
reasonably expected to occur which could result in a liability to the
Borrower or any ERISA Affiliate.
(f) Neither the Borrower nor any ERISA Affiliate has any
contingent liability with respect to any post-retirement benefit under any
Plan which is a welfare plan (as defined in Section 3(l) of ERISA), other
than liability for health plan continuation coverage described in Part 6 of
Title I of ERISA.
6.20 PROPERTY. The Borrower and each Subsidiary owns, possesses,
or has unrestricted rights to use or exercise all Property and rights
necessary for the conduct of the Borrower's business as heretofore conducted.
Except as disclosed on EXHIBIT 6.20, there are no actual, threatened, or
alleged defaults with respect to any agreements relating to, or evidencing,
any Property. Except as disclosed on EXHIBIT 6.20, no consent, approval,
license, authorization or other action in respect of any Person is required,
except as have been obtained, in connection with the right to use any
Property. None of the items disclosed on EXHIBIT 6.20 might have a Material
Adverse Effect.
6.21 ADVERSE CONTRACTS. Neither the Borrower nor any Subsidiary is
a party to, nor is the Borrower or any of its Property subject to or bound
by, any long term lease, forward purchase contract or futures contract,
covenant not to compete, or other agreement which restricts its ability to
conduct its business and might have a Material Adverse Effect.
6.22 PURCHASE OR OTHER COMMITMENTS AND OUTSTANDING BIDS. No
material purchase or other commitment of the Borrower or any Subsidiary is in
excess of the normal, ordinary, and usual requirements of its business, or
was made at any price in excess of the then current market price, or contains
terms and conditions more onerous than those usual and customary in the
applicable industry. There is no outstanding bid, sales proposal, contract,
or unfilled order of the Borrower or any Subsidiary which (i) will, or could
if accepted, require the Borrower to supply goods or services at a cost to
the Borrower in excess of the revenues to be received therefor, or (ii)
quotes prices which do not include a mark-up over reasonably estimated costs
consistent with past mark-ups on similar business or market conditions
current at that time.
6.23 INVESTMENT COMPANY ACT; PUBLIC UTILITY HOLDING COMPANY ACT.
Neither the Borrower nor any Subsidiary is an "investment company" or a
company "controlled" by an investment company within the meaning of the
Investment Company Act of 1940, as amended. Neither the Borrower nor any
Subsidiary is a "holding company" or a "subsidiary company" or a "holding
company" or an "affiliate" of a "holding company" within the meaning of the
Public Utility Holding Company Act of 1935, as amended.
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6.24 BROKER'S FEES. Other than the commissions, fees, expenses or
charges of Dabney Resnick Imperial LLC (which commissions, fees, expenses or
charges will be paid by the Borrower) neither the Agent or any Lender nor the
Borrower or any Subsidiary is or will become obligated to any Person with
respect to any finder's or brokerage or similar fee or commission in
connection with the transactions contemplated hereby and the Borrower agrees
to indemnify the Agent, each Lender, their respective Affiliates and their
respective employees and agents against, and agrees to hold the Agent, each
Lender and each of their Affiliates and their respective employees and agents
harmless from, any and all losses, claims, damages, liabilities, and related
expenses, including expenses and costs arising out of any such obligation.
6.25 LICENSES AND PERMITS. Except as disclosed on EXHIBIT 6.25,
the Borrower and each Subsidiary has been and is current and in good standing
with respect to all governmental approvals, permits, certificates, licenses,
inspections, consents and franchises (collectively, the "Licenses") necessary
to continue to conduct its business and to own or lease and operate, its
properties as heretofore conducted, owned, leased or operated including any
and all Licenses with respect to Environmental Laws. None of the items
disclosed on EXHIBIT 6.25 might have a Material Adverse Effect.
6.26 ENVIRONMENTAL COMPLIANCE.
(a) The operations of the Borrower and each Subsidiary comply in
all material respects with all applicable Environmental Laws.
(b) Except as disclosed on EXHIBIT 6.26, there are no claims,
investigations, litigation, administrative proceedings, whether pending or,
to the knowledge of the Borrower after diligent inquiry, threatened, or
judgments or orders, relating to any Hazardous Materials or alleging the
violation of any Environmental Laws (collectively "Environmental Matters")
relating in any way to any real property leased or otherwise used by the
Borrower or any Subsidiary or to the operations of the Borrower or any
Subsidiary.
(c) Except as disclosed on EXHIBIT 6.26, no Hazardous Materials
are presently stored or otherwise located on, in or under any real property
leased, owned, operated or otherwise used by the Borrower or any Subsidiary
except in compliance with all applicable Environmental Laws, and, no part of
any real property leased, owned, operated or otherwise used by the Borrower
or any Subsidiary or, to the Borrower's best knowledge, adjacent parcels,
including the groundwater located thereon, is presently contaminated by any
such Hazardous Material.
(d) Except as disclosed on EXHIBIT 6.26, neither the Borrower nor any
Subsidiary has filed any notice under any international, federal, state,
regional, provincial
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or local law indicating past or present treatment, storage or disposal of a
Hazardous Material or reporting a spill or release of a Hazardous Material
into the environment.
(e) Except as disclosed on EXHIBIT 6.26, neither the Borrower nor any
Subsidiary has any known material liability, contingent or otherwise, in
connection with any release of any Hazardous Material into the environment.
(f) So long as any Obligations are outstanding, no Hazardous
Materials may be used, generated, treated, stored or disposed of by any
Person for any purpose upon any real property leased, owned, operated, or
otherwise used by the Borrower or any Subsidiary except in compliance with
all applicable Environmental Laws.
(g) The Borrower hereby indemnifies the Agent and each Lender and
agrees to hold the Agent and each Lender harmless from and against any and
all losses, liabilities, damages, injuries, costs, expenses and claims of any
and every kind whatsoever (including, without limitation, court costs and
reasonable attorneys' fees and legal expenses) which at any time or from time
to time may be paid, incurred or suffered by, or asserted against, the Agent
or any Lender arising directly or indirectly from the violation of any
Environmental Law or the imposition of liability on the Borrower or any
Subsidiary under any Environmental Law or any laws or regulations relating to
Hazardous Material, treatment, storage, disposal, generation and
transportation, air, water and noise pollution, soil or ground or water
contamination, the handling, storage or release into the environment of
Hazardous Materials, and the transportation of Hazardous Materials; or with
respect to, or as a direct or indirect result of the presence on or under, or
the escape, seepage, leakage, spillage, discharge, emission or release from,
properties utilized, owned or operated by the Borrower or any Subsidiary in
the conduct of its business into or upon any land, the atmosphere, or any
watercourse, body of water or wetland, of any Hazardous Material (including,
without limitation, any losses, liabilities, damages, injuries, costs,
expenses or claims asserted or arising under the Environmental Laws);
provided that to the extent that the Borrower or any Subsidiary is strictly
liable under any Environmental Laws, the Borrower's obligations to indemnify
the Agent and each Lender under this SUBSECTION 6.26(g) shall likewise be
without regard to fault on the part of the Borrower or any Subsidiary and
with respect to the violation of law which results in liability to the
Borrower or any Subsidiary. To the extent that the undertaking to indemnify,
pay and hold harmless set forth in this SUBSECTION 6.26(g) may be
unenforceable because it is violative of any law or public policy, the
Borrower shall contribute the maximum portion that it is permitted to pay and
satisfy under applicable law to the payment and satisfaction of all
indemnifications set forth in this SUBSECTION 6.26(g). Notwithstanding any
other provision of this Agreement to the contrary, the provisions of, and the
undertakings and indemnifications set forth in, this SUBSECTION 6.26(g) shall
survive the satisfaction and payment of the obligations and the termination
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of this Agreement, and shall continue to be the liability, obligation and
indemnification of the Borrower.
(h) So long as any Obligations are outstanding, if the Agent or
any Lender, at any time, has a reasonable basis to believe that any real
property leased or otherwise used by the Borrower or any Subsidiary, or real
property adjacent to such real property, has or may become contaminated or
subject to a clean up order or decree by an agency having jurisdiction over
the Borrower or such Subsidiary; then the Borrower agrees, upon request from
the Agent, to provide the Agent and each Lender with such reports,
certificates, engineering studies or other written material or data as the
Agent or such Lender, in its reasonable discretion, may require from it so as
to satisfy the Agent or such Lender that it is in compliance with all
applicable Environmental Laws; PROVIDED that with respect to real property
adjacent to real property owned by or leased to the Borrower or any
Subsidiary, such reports, certificates, studies and other material or data
shall not be required to be provided by the Borrower if (i) they are not
otherwise required to be created or provided pursuant to statute, regulation,
order or otherwise, and (ii) such contamination is not attributable to the
acts or omissions of the Borrower or any Subsidiary or any Affiliate or
predecessor of any of them or any previous owner, lessee, lessor or other
user of such real property.
(i) The materiality standard used in this SUBSECTION 6.26 shall be
exceeded if the facts giving rise to a breach or breaches of the
representations or warranties contained herein might result in liability or
potential liability in excess of One Hundred Thousand Dollars ($100,000) in
the aggregate.
(j) None of the items disclosed on EXHIBIT 6.26 might have a
Material Adverse Effect.
6.27 FULL DISCLOSURE. This Agreement, the other Financing
Agreements, the financial statements delivered in connection herewith, the
representations and warranties of the Borrower contained in this Agreement,
the other Financing Agreements or in any other document, certificate or
written statement by or on behalf of the Borrower delivered or to be
delivered to the Agent or any Lender, do not and will not contain any untrue
statement of a material fact or omit a material fact necessary to make the
statements contained therein or herein, in light of the circumstances under
which they were made, not misleading. There is no material fact which the
Borrower has not disclosed to the Agent in writing which has had or, so far
as the Borrower can now foresee, might have a Material Adverse Effect.
6.28 INSURANCE POLICIES. EXHIBIT 7.5 lists all insurance of any
nature maintained for current occurrences by the Borrower, as well as a
summary of the terms of such insurance.
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6.29 CUSTOMER AND TRADE RELATIONS. There exists no actual or
threatened termination, cancellation or limitation of, or any modification or
change in (a) the business relationship of the Borrower or any Subsidiary
with any customer or group of customers whose purchases individually or in
the aggregate are material to the operations of the Borrower or such
Subsidiary, or (b) the business relationship of the Borrower or any
Subsidiary with any material supplier.
6.30 SURVIVAL OF WARRANTIES. All representations and warranties of
the Borrower contained in this Agreement or any of the other Financing
Agreements shall survive the execution and delivery of this Agreement and the
termination hereof. The Borrower shall supplement in writing and deliver to
the Agent all EXHIBITS required in accordance with this Agreement so that the
representations and warranties subject to such supplemental disclosure shall
continue to be true and accurate in all material respects; PROVIDED that the
furnishing of such supplemental disclosure shall not constitute a cure or
waiver of any Default or Event of Default resulting from the matters
disclosed therein or otherwise then existing.
6.31 CORPORATE AND CONTRACTUAL RESTRICTIONS. Neither the Borrower
nor any Subsidiary is a party or subject to any contract, agreement or
charter or other corporate restriction, which materially and adversely
affects its business or the use or ownership of any of its Property. The
Borrower has not agreed or consented to cause or permit in the future (upon
the happening of a contingency or otherwise) any of its Property, whether now
owned or hereafter acquired, to be subject to a Lien that is not a Permitted
Lien. The Borrower is not a party to or bound by any indenture, contract,
instrument or other agreement which prohibits the creation, incurrence or
sufferance to exist of any Lien upon its Property except the Financing
Agreements.
6.32 SUBSIDIARIES. Except as set forth on EXHIBIT 6.32, the
Borrower has no Subsidiaries. EXHIBIT 6.32 contains an accurate list of all
Subsidiaries of the Borrower, setting forth their respective jurisdictions of
incorporation and the percentages of their capital stock owned by the
Borrower or other Subsidiaries.
6.33 DEPOSIT AND DISBURSEMENT ACCOUNTS. EXHIBIT 6.33 lists all
banks and other financial institutions at which the Borrower maintains
deposits and/or other accounts, including any disbursement accounts, and such
Exhibit correctly identifies the name, address and telephone number of each
depository, the name in which the account is held, a description of the
purpose of the account, and the complete account number.
6.34 DEFAULTS AND EVENTS OF DEFAULT. Except as set forth on
EXHIBIT 6.34, no Default or Event of Default has occurred and is continuing.
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6.35 OBLIGATIONS IMMEDIATELY PRIOR TO THE EFFECTIVE DATE. (a)
Immediately prior to the Effective Date, the Obligations consist of (i) the
sum of (a) Term Loans in the outstanding principal amount of $5,250,000, (b)
Revolving Loans in the outstanding principal amount of $10,281,769.40, (c)
accrued and unpaid interest on the Loans in the amount of $40,557.45, and (d)
accrued and unpaid fees and other amounts owing under the Financing
Agreements in the amount of $534.50, LESS (ii) a credit for early payoff in
the amount of $7,800.00 (the aggregate amounts set forth in clauses (i)(c)
and (i)(d) hereof, less the amount set forth in clause (ii) hereof, shall be
referred to as the "Accrued Unpaid Amount"), upon which no judgment has been
entered (the "Existing Obligations"). The Accrued Unpaid Amount shall be
paid to the Agent on the Effective Date. The Existing Obligations are not,
and from and after the Effective Date neither the Existing Obligations nor
the Obligations will be, subject to any right of setoff, expungement or
recoupment, other rights, remedies, objections, counterclaims or claims of
any kind or nature (including, without limitation, any avoidance claim for
actual or constructive fraudulent transfers, preference payments, equitable
subordination or violations of any federal or state statute or laws), or
legal or equitable defenses, in each case, that have been or may be asserted
by or on behalf of the Borrower, any Subsidiary of the Borrower or any other
Person (whether on legal or equitable grounds) to reduce the amount of the
Existing Obligations, to affect the validity or enforceability of the
Existing Obligations, in whole or in part, or to disallow, subordinate, avoid
or void the Existing Obligations, in whole or in part.
(b) As of the Effective Date (i) the aggregate outstanding
principal amount of Term Loan A will be Two Million Two Hundred Fifty
Thousand Dollars ($2,250,000) and (ii) the aggregate outstanding principal
amount of Term Loan B will be Four Million Two Hundred Fifty Thousand Dollars
($4,250,000).
6.36 OTHER REPRESENTATIONS AND WARRANTIES. (a) The Borrower has
no knowledge of any litigation or adversary proceeding threatened against it
or SBCC which would affect in any way (i) the Existing Obligations, (ii) any
action to be taken or that may be taken by the Agent or any Lender hereunder
or under any other Financing Agreement, or (iii) the Agent's and the Lenders'
rights and remedies hereunder or under any other Financing Agreement.
(b) SBCC has not breached, defaulted under or otherwise failed to
perform any of its representations, warranties, covenants, agreements,
indemnities or obligations hereunder or under any of the other Financing
Agreements to which it is a party.
(c) Each of the Financing Agreements is in full force and effect.
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(d) The Agent has, for its benefit and the ratable benefit of the
Lenders, a valid and fully perfected first priority security interest in and
upon the Collateral, enforceable as such against all creditors of the
Borrower and its Affiliates and any Persons purporting to purchase or
otherwise acquire any Collateral from the Borrower and its Affiliates.
7. AFFIRMATIVE COVENANTS.
The Borrower covenants and agrees that, so long as any Obligations
remain outstanding, and (even if there shall be no Obligations outstanding)
so long as this Agreement remains in effect:
7.1 FINANCIAL STATEMENTS. The Borrower shall keep proper books of
record and account in which full and true entries will be made of all
dealings or transactions in respect of or in relation to the business and
affairs of the Borrower, in accordance with Generally Accepted Accounting
Principles consistently applied, and the Borrower shall furnish or cause to
be furnished to the Agent and each Lender: (i) as soon as practicable and in
any event within thirty (30) days after the end of each Accounting Period
(other than for the last Accounting Period of a Fiscal Quarter which shall be
forty-five (45) days), statements of net income and cash flow of the Borrower
and its Subsidiaries on a consolidated basis for such Accounting Period and
for the period from the beginning of the then current Fiscal Year to the end
of such Accounting Period and a balance sheet of the Borrower and its
Subsidiaries on a consolidated basis as of the end of such Accounting Period,
setting forth in each case, in comparative form, figures for the
corresponding periods in the preceding Fiscal Year and as of a date one (1)
year earlier, all in reasonable detail and certified as accurate by the Vice
President-Finance and Administration of the Borrower, subject to changes
resulting from normal year-end adjustments but excluding footnotes; (ii) as
soon as practicable and in any event within ninety (90) days after the end of
each Fiscal Year, statements of net income and cash flow of the Borrower and
its Subsidiaries on a consolidated basis for such year, and a balance sheet
of the Borrower and its Subsidiaries on a consolidated basis as of the end of
such year, setting forth in each case, in comparative form, corresponding
figures for the period covered by the preceding annual audit and as of the
end of the preceding Fiscal Year, all in reasonable detail and satisfactory
in scope to the Required Lenders and examined and certified by Ernst & Young
LLP or any other independent public accountants of recognized national
standing selected by the Borrower and acceptable to the Required Lenders,
whose opinion shall be unqualified and shall be in scope and substance
satisfactory to the Required Lenders; (iii) as part of the Monthly Report, an
aged trial balance of Accounts ("Accounts Trial Balance") indicating which
Accounts are current, up to 30, 30 to 60, 60 to 90 and 90 days or more past
the original invoice date and listing the names and addresses of all
applicable Account Debtors, and a summary of accounts payable showing which
accounts payable are current, up to 30, 30 to 60, 60 to 90 and 90
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days or more past due and listing the names and addresses of applicable
creditors; (iv) concurrently with the preparation of the financial
statements, the Borrower shall send a letter to such accountants with a copy
to the Agent and each Lender, notifying such accountants that one of the
primary purposes for retaining such accountants' services and having audited
financial statements prepared by them is for use by the Agent and the Lenders
and such accountants shall deliver a letter addressed to the Agent and the
Lenders acknowledging the Agent's and the Lenders' reliance thereon in form
and substance satisfactory to the Required Lenders; (v) within thirty (30)
days after the end of each Fiscal Year Projections prepared in the same manner
as the Projections attached as EXHIBIT 6.4, including projected balance
sheets for the forthcoming Fiscal Year, Accounting Period-by-Accounting
Period; projected cash flow statements (including proposed Capital
Expenditures) for the forthcoming Fiscal Year, Accounting
Period-by-Accounting Period; projected profit and loss statements for the
forthcoming Fiscal Year, Accounting Period-by-Accounting Period, together
with appropriate supporting details as requested by the Required Lenders, all
for the Borrower and its Subsidiaries on a consolidated basis and within
forty-five (45) days after the close of each Accounting Period, a statement
in which the actual results of such Accounting Period are compared with the
most recent Projections for such Accounting Period; (vi) as soon as
practicable and in any event within ten (10) days of delivery to the
Borrower, a copy of any letter issued by the Borrower's independent public
accountants or other management consultants with respect to the Borrower's
financial or accounting systems or controls, including all so-called
"management letters"; (vii) not later than the fourth (4th) day of each week,
a Weekly Report for the Borrower computed as of the last Business Day of the
preceding week, signed by an Authorized Officer; (viii) not later than the
twentieth (20th) day of each month, a Monthly Report of the Borrower computed
as of the last Business Day of the preceding month, signed by an Authorized
Officer; (ix) promptly following the filing or furnishing thereof, copies of
all regular and periodic reports, proxy statements, financial statements,
registration statements prospectuses and other material filed by the Borrower
or any of its Subsidiaries with any securities exchange or with the
Securities and Exchange Commission or any other governmental or private
regulatory authority or distributed to the stockholders of any such Person;
and (x) with reasonable promptness, such other business or financial data as
the Required Lenders may reasonably request.
All financial statements delivered to the Agent or any Lender
pursuant to the requirements of this subsection (except where otherwise
expressly indicated) shall be prepared in accordance with Generally Accepted
Accounting Principles consistently applied on a consolidated basis for the
Borrower and its Subsidiaries. All financial computations hereunder shall be
computed, unless otherwise specifically provided herein, in accordance with
GAAP consistently applied. That certain items or computations are explicitly
modified by the phrase "in accordance with GAAP" shall in no way be
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construed to limit the foregoing. In the event that any "Accounting Changes"
(as defined below) occur and such changes result in a change in the
calculation of the financial covenants, standards, advance rates or terms
used in this Agreement or any other Financing Agreement, then the Borrower,
the Agent and the Lenders agree to enter into negotiations in order to amend
such provisions of this Agreement so as to equitably reflect such Accounting
Changes with the desired result that the criteria for evaluating the
Borrower's and its Subsidiaries' financial condition shall be the same after
such Accounting Changes as if such Accounting Changes had not been made;
PROVIDED that the agreement of the Required Lenders to any required
amendments of such provisions shall be sufficient to bind all Lenders.
"ACCOUNTING CHANGES" means (a) changes in accounting principles required by
the promulgation of any rule, regulation, pronouncement or opinion by the
Financial Accounting Standards Board of the American Institute of Certified
Public Accountants (or successor thereto or any agency with similar
functions) or (b) changes in accounting principles concurred in by the
Borrower's certified public accountants. In the event that the Agent, the
Borrower and the Required Lenders shall have agreed upon the required
amendments, then after such agreement has been evidenced in writing and the
underlying Accounting Changes with respect thereto has been implemented, any
reference to GAAP contained in this Agreement or in any other Financing
Agreement shall, only to the extent of such Accounting Changes, refer to
GAAP, consistently applied after giving effect to the implementation of such
Accounting Changes. If the Agent, the Borrower and the Required Lenders
cannot agree upon the required amendments within thirty (30) days following
the date of implementation of any Accounting Change, then all financial
statements delivered and all calculations of financial covenants and other
standards, advance rates and terms in accordance with this Agreement and the
other Financing Agreements shall be prepared, delivered and made without
regard to any underlying Accounting Change. Together with each delivery of
financial statements required by SUBSECTIONS 7.1(i) and 7.1(ii), the Borrower
shall deliver to the Agent and the Lenders a certificate of an Authorized
Officer (i) certifying that no Default or Event of Default exists, or, if any
Default or Event of Default exists, specifying the nature thereof, the period
of existence thereof and what action the Borrower proposes to take with
respect thereto and (ii) for the last Accounting Period of each Fiscal
Quarter, setting forth computations in reasonable detail satisfactory to the
Agent demonstrating compliance with the covenant contained in SUBSECTION
7.11. Together with each delivery of financial statements required by
SUBSECTION 7.1(ii), the Borrower shall deliver to the Agent and the Lenders a
certificate of the accountants who performed the audit in connection with
such statements stating that in making the audit necessary to the issuance of
a report on such financial statements, they have obtained no knowledge of any
Default or Event of Default, or, if such accountants have obtained knowledge
of a Default or Event of Default, specifying the nature and period of
existence thereof. Such accountants shall not be liable by reason of any
failure to obtain knowledge of any Default or Event of Default which would
not be disclosed in the ordinary course of an audit. The Agent and
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each Lender shall exercise reasonable efforts to keep such information, and
all information acquired as a result of any inspection conducted in
accordance with SUBSECTION 7.2, confidential; PROVIDED that the Agent or any
Lender may communicate such information (a) to any other Person in accordance
with the customary practices of commercial lenders relating to routine trade
inquiries, (b) to any regulatory authority having jurisdiction over the Agent
or such Lender, (c) subject to the restrictions of SECTION 11, to any other
Person in connection with the Agent's or such Lender's sale of any
participations in the Obligations, or (d) to any other Person in connection
with the exercise of the Agent's or such Lender's rights hereunder or under
any of the other Financing Agreements. The Borrower authorizes the Agent to
discuss the financial condition of the Borrower with the Borrower's
independent public accountants and agrees that such discussion or
communication shall be without liability to either the Agent or the
Borrower's independent public accountants. The Borrower shall deliver a
letter addressed to such accountants authorizing them to comply with the
provisions of this SUBSECTION 7.1.
7.2 INSPECTIONS AND AUDITS. The Agent, any Lender or any Person
designated by the Agent or any Lender in writing, shall have the right, from
time to time hereafter, to call at the Borrower's place or places of business
(or any other place where the Collateral or any information relating thereto
is kept or located) during normal business hours, and, without hindrance or
delay (i) to inspect, audit, check and make copies of and extracts from the
Borrower's books, records, journals, orders, receipts and any correspondence
and other data relating to the Borrower's or any Subsidiary's business or to
any transactions between the parties hereto, (ii) to make such verification
concerning the Collateral as the Agent or any Lender may consider reasonable
under the circumstances, and (iii) to discuss the affairs, finances and
business of the Borrower with any officers, employees or directors of the
Borrower. In accordance with SECTION 2.14 hereof, all out-of-pocket costs
and expenses incurred by the Agent or any Lender in connection with the
Agent's or any Lender's field audits permitted under this SUBSECTION 7.2
shall be reimbursed by the Borrower; PROVIDED that so long as no Default or
Event of Default shall have occurred and be continuing, the Borrower shall
not be liable for reimbursing the Agent or any Lender for the costs and
expenses of more than four (4) field audits in any Fiscal Year.
7.3 CONDUCT OF BUSINESS; COMPLIANCE WITH LAWS. The Borrower
shall, and shall cause each Subsidiary to, maintain its corporate existence
and good standing in its respective state of incorporation and qualify and
remain qualified as a foreign corporation in each jurisdiction in which such
qualification is required, and shall maintain in full force and effect all
licenses, bonds, franchises, leases, patents, contracts and other rights
necessary or desirable to the profitable conduct of its business and shall
comply with all applicable laws, rules, regulations and orders of any
federal, state or local governmental authority, except for such laws, rules
and regulations the violation of which
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would not, in the aggregate, have a Material Adverse Effect. The Borrower
shall conduct its business only under those corporate, trade or fictitious
names duly registered with the appropriate Governmental Authorities or within
thirty (30) days of the Effective Date the Borrower shall provide the Agent
with good standing certificates for each of the jurisdictions listed on
EXHIBIT 6.1-1 for which the Borrower or a Subsidiary is not in good standing
as of the Effective Date or disclosed on EXHIBIT 6.8.
7.4 CLAIMS AND TAXES. (a) The Borrower agrees to indemnify and
hold the Agent and each Lender harmless from and against any and all claims,
demands, obligations, losses, damages, penalties, costs, and expenses
(including reasonable attorneys' fees) asserted by any Person (other than the
Borrower) in connection with this Agreement or the other Financing Agreements
or asserted by any Person and relating to or in any way arising out of the
possession, use, operation or control of any of the Borrower's or any
Subsidiary's Property by any Person. The Borrower shall, and shall cause
each Subsidiary to, file all tax and information returns and reports required
by and prepared in accordance with applicable law and shall pay or cause to
be paid all license fees, bonding premiums and related taxes and charges, and
shall pay or cause to be paid all real and personal property taxes,
assessments and charges and franchise, income, unemployment, use, excise, old
age benefit, withholding, sales and other taxes and other governmental
charges assessed against, or payable by, the Borrower or any Subsidiary, at
such times and in such manner as to prevent any penalty from accruing or any
Lien from attaching to Property of the Borrower or any Subsidiary, provided
that the Borrower and each Subsidiary shall have the right to contest in good
faith, by an appropriate lawful proceeding promptly initiated and diligently
conducted, the validity, amount or imposition of any such tax, assessment or
charge, and upon such good faith contest to delay or refuse payment thereof
so long as (i) no Lien which will have priority over the Agent's Lien granted
hereunder with respect to any Collateral is filed or recorded with respect
thereto, (ii) the execution or other enforcement of such subordinate Lien is
and continues to be effectively stayed, (iii) such proceeding will prevent
the forfeiture or sale of any Property of the Borrower or such Subsidiary,
(iv) adequate reserves have been provided therefor in accordance with GAAP,
(v) such contest does not have a Material Adverse Effect and (vi) if such
contest is abandoned or determined adversely to the Borrower or such
Subsidiary, the Borrower pays, or causes to be paid, all such taxes and other
charges and any penalties and interest payable in connection therewith.
(b) The Borrower shall notify the Agent and each Lender promptly (and
in no event later than ten (10) days) after becoming aware of the intent of the
Service to assert a deficiency with respect to the Borrower or any Subsidiary,
and shall promptly (and in no event later than five (5) days after receipt) send
the Agent and each Lender copies of any notices of proposed deficiency and any
notices of deficiency received from the Service. If the Required Lenders so
request, the Borrower shall take all reasonable actions necessary to contest
such claimed deficiency and shall appoint outside tax counsel
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acceptable to the Required Lenders to contest such claims of deficiency and
shall direct such counsel to consult with the Lenders and to provide the
Agent and the Lenders with periodic status reports and assessments of the
legal merits of the contest. At the Required Lenders' request, such contest
shall continue through the appropriate administrative and court procedures
including appeals therefrom until such outside tax counsel informs the Agent
that it is of the opinion that further contest would be inadvisable taking
into account all factors (including any proposed settlement or compromise by
the Service).
7.5 BORROWER'S LIABILITY INSURANCE. The Borrower shall maintain,
at its expense, such product liability insurance, general public liability
and third party property damage insurance with financially sound and
reputable insurance companies reasonably satisfactory to the Agent in such
amounts and covering such risks and with such deductibles as are acceptable
to the Required Lenders naming the Agent as an additional insured. The
policy or policies shall further provide for thirty (30) days' written notice
to the Agent prior to cancellation or any material change in coverage.
7.6 BORROWER'S PROPERTY INSURANCE. The Borrower shall, and shall
cause each Subsidiary to, at its expense, keep and maintain its assets
insured against loss or damage by fire, theft, explosion, spoilage and all
other hazards and risks ordinarily insured against by other owners or users
of such properties in similar businesses in an amount at least equal to the
full insurable value thereof (including at least six (6) months business
interruption insurance in an amount not less than $50,000,000). All such
policies of insurance shall contain a breach or violation of warranties,
declarations or conditions endorsement in favor of the Agent, shall provide
that the Agent shall receive 30 days' written notice prior to cancellation or
any material change in coverage and shall otherwise be in form and substance
satisfactory to the Required Lenders. The Borrower shall deliver to each
Lender the original (or a certified) copy of each policy of insurance and,
upon the renewal thereof, a binder evidencing such renewal, and evidence of
payment of all premiums therefor. Such policies of insurance shall contain
an endorsement, substantially in the form of EXHIBIT 7.6, naming the Agent,
on behalf of the Lenders, as the lender loss payee and additional insured.
The Borrower hereby directs all insurers under such policies of insurance to
pay all proceeds of such insurance policies directly to the Agent. The
Borrower irrevocably makes, constitutes and appoints the Agent (and all
officers, employees or agents designated by the Agent) as the Borrower's true
and lawful attorney-in-fact for the purpose of making, settling and adjusting
claims under all such policies of insurance, endorsing the name of the
Borrower on any check, draft, instrument or other item of payment received by
the Borrower or the Agent pursuant to any such policies of insurance and for
making all determinations and decisions with respect to such policies of
insurance. If the Borrower or any Subsidiary, at any time or times
hereafter, shall fail to obtain or maintain any of the policies of insurance
required above or to pay any premium in whole or in part relating thereto,
then the Agent, without waiving or releasing any Obligation, Default or Event
of Default by
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the Borrower hereunder, may at any time or times thereafter (but shall be
under no obligation to do so) obtain and maintain such policies of insurance
and pay such premiums and take any other action with respect thereto which
the Agent deems advisable.
7.7 PENSION PLANS. (a) The Borrower shall (i) maintain all Plans
which are presently in existence or may, from time to time, come into
existence, in compliance with ERISA, the IRC and all other applicable laws in
all material respects unless such Plans can be terminated or merged without
material liability to the Borrower in connection with such termination or
merger (as distinguished from any continuing funding obligation), (ii) make
contributions to all of the Borrower's Pension Plans in a timely manner and
in a sufficient amount to comply with the requirements of ERISA, (iii) comply
with all material requirements of ERISA and the IRC which relate to such
Plans so as to preclude the occurrence of any Termination Event, prohibited
transaction (within the meaning of Section 406 of ERISA or Section 4975 of
the IRC) or material "accumulated funding deficiency" as such term is defined
in ERISA, and (iv) not permit any Plan to provide post-retirement medical
benefits, nor shall the Borrower or any ERISA Affiliate undertake any new or
increased obligation with respect to any Pension Plan or Multiemployer Plan
which might result in a Material Adverse Effect.
(b) The Borrower shall promptly deliver written notice of any of the
following to the Agent and each Lender, but in no event later than thirty (30)
days after such event or occurrence:
(1) the Borrower or any ERISA Affiliate knows or has reason to know that a
Termination Event has occurred, with such notice setting forth the
details of such event;
(2) the filing of a request for a funding waiver by the Borrower or any
ERISA Affiliate with respect to any Pension Plan, a copy of such
request and all correspondence received by Borrower or any ERISA
Affiliate with respect to such request;
(3) the Borrower or any ERISA Affiliate fails to make a required
installment or payment under Section 302 of ERISA or Section 412 of
the IRC by the applicable due date;
(4) the Borrower or any ERISA Affiliate knows or has reason to know that a
prohibited transaction (as defined in Section 406 of ERISA or Section
4975 of the IRC) has occurred with respect to any Plan with a
statement describing such transaction and the action or response taken
with respect thereto;
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(5) any increase in the benefits of any existing Plan or contribution rate
to a Multiemployer Plan or the establishment of any new Plan or the
commencement of contributions to any Plan or Multiemployer Plan to
which the Borrower or any ERISA Affiliate had not been contributing;
(6) receipt by the Borrower or any ERISA Affiliate of any adverse ruling
from the Service regarding the qualification of a Plan under Section
401(a) of the IRC, with a copy of such ruling; and
(7) any other report such as an annual report on Form 5500 or actuarial
report in which any Lender may request from time to time.
7.8 NOTICE OF CERTAIN MATTERS. The Borrower shall, as soon as
possible, and in any event within five (5) days after the Borrower learns of
the following, give written notice to the Agent and each Lender of (i) any
material Litigation being instituted or threatened to be instituted by or
against the Borrower or any Subsidiary in any federal, state, local or
foreign court or before any commission or other regulatory body (federal,
state, local or foreign) including, without limitation, any and all pending
or threatened proceedings with respect to Environmental Matters, (ii) any
labor dispute to which the Borrower or any Subsidiary may become a party and
which has had or might have a Material Adverse Effect, any strikes or
walkouts relating to any of its plants or Facilities, and the expiration of
any labor contract to which it is a party or by which it is bound, (iii) any
Default or Event of Default, (iv) any judgment rendered against the Borrower
or any Subsidiary, and (v) any other event or occurrence which could have a
Material Adverse Effect.
7.9 LANDLORD AND WAREHOUSEMAN AGREEMENTS. The Borrower shall
provide the Agent and each Lender with copies of all agreements between the
Borrower and any landlord or warehouseman which owns any premises at which
Inventory or any other Collateral may, from time to time, be located. The
Borrower shall deliver to the Agent on or before the Effective Date a
landlord waiver with respect to the Houston, Texas Facility in form and
substance satisfactory to the Agent. The Borrower shall deliver to the Agent
a landlord's waiver in form and substance acceptable to the Agent from the
lessor of each other leased property currently being used by the Borrower or
any Subsidiary where Collateral is located. The Borrower shall deliver to
the Agent a bailee letter in form and substance acceptable to the Agent with
respect to any warehouse or other location where Collateral is located. With
respect to locations or warehouse space leased on the Effective Date to the
Agent (i) if the Borrower did not deliver such a landlord waiver or bailer
letter to SBCC prior to the Effective Date, the Inventory at that location
shall, from and after the Effective Date, automatically be deemed ineligible
without further action by the Agent or any Lender, and (ii) if the Borrower
is unable to
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deliver a new landlord waiver or bailee letter to the Agent on or before
January 31, 1998 (regardless of whether the Borrower delivered such a
landlord waiver or bailee letter to SBCC prior to the Effective Date), the
Inventory at that location shall automatically be deemed ineligible without
further action by the Agent or any Lender. In the event that the Borrower
delivers to the Agent such landlord waiver or bailee letter, as applicable,
after such date, subject to the terms and conditions of this Agreement
including, without limitation, SUBSECTION 3.10, Inventory located at such
leased location or warehouse location, as applicable, may be considered
Eligible Inventory. The Borrower shall timely and fully pay and perform its
obligations under all leases and other agreements with respect to each leased
location or public warehouse where any Collateral is or may be located. The
Borrower shall promptly deliver to the Agent copies of (i) any and all
default notices received under or with respect to any such leased location or
public warehouse, and (ii) such other notices or documents as the Agent may
request in its reasonable discretion.
7.10 INDEMNITY. The Borrower agrees to indemnify, pay and hold
harmless the Agent and each Lender and the officers, directors, employees,
agents, affiliates, representatives and attorneys of the Agent and such
Lender (collectively called the "Indemnitees") from and against any and all
liabilities, obligations, losses, damages, penalties, actions, proceedings,
judgments, suits, claims, costs, expenses and disbursements of any kind or
nature whatsoever (including, without limitation, all fees and disbursements
of counsel for such Indemnitees in connection with any investigative,
administrative or judicial proceeding commenced or threatened, whether or not
such Indemnitee shall be designated a party thereto) that may be imposed on,
incurred by, or instituted or asserted against any Indemnitee in any manner
in connection with or relating to or arising out of this Agreement or the
other Financing Agreements or any other transaction contemplated hereby or
thereby, the statements contained in the commitment letters delivered by the
Agent, the Agent and the Lenders' agreement to make the Loans hereunder, the
direct or indirect application or proposed application of the proceeds of the
Loans or the exercise of any right, power or remedy hereunder or under any
other Financing Agreement (the "Indemnified Liabilities"); provided that the
Borrower shall have no obligation to an Indemnitee hereunder with respect to
Indemnified Liabilities if a court of competent jurisdiction shall render a
judgment, final and not subject to review on appeal, that such Indemnified
Liabilities arise solely from the gross negligence or willful misconduct of
that Indemnitee. To the extent that the undertaking to indemnify, pay and
hold harmless set forth in the preceding sentence may be unenforceable
because it is violative of any law or public policy, the Borrower shall
contribute the maximum portion that it is permitted to pay and satisfy under
applicable law to the payment and satisfaction of all Indemnified Liabilities
incurred by the Indemnitees or any o them. The provisions of and
undertakings and indemnifications set forth in this SUBSECTION 7.10 shall
survive
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the satisfaction and payment of the Obligations and the termination of this
Agreement, and shall continue to be the liability, obligation and
indemnification of the Borrower.
7.11. ADDITIONAL SLOTTING FEE CERTIFICATE. To the extent that the
Borrower intends to add any new Additional Slotting Fees in the Current Asset
Base, prior to the last Business Day of any calendar month during which such
new Additional Slotting Fees are incurred, the Borrower shall deliver to the
Agent an Additional Slotting Fee Certificate setting forth, in reasonable
detail, (i) any such Additional Slotting Fee Amounts and the basis for the
calculation of such Additional Slotting Fee Amounts, (ii) the then current
Adjusted Initial Slotting Fee Amount and the basis for the calculation of
such Adjusted Initial Slotting Fee Amount, and (iii) the then current
Aggregate Additional Slotting Fee Amount and the basis for the calculation of
such Aggregate Additional Slotting Fee Amount, in form and substance
satisfactory to the Agent in all respects. For purposes of determining the
"Current Asset Base" in SUBSECTION 2.1(a)(3) hereof, any new Additional
Slotting Fee as to which the Borrower has delivered an Additional Slotting
Fee Certificate in accordance with the immediately preceding sentence shall
be included in the calculation of the Aggregate Additional Slotting Fee as of
12:01 a.m. (New York time) on the first day of the calendar month immediately
following the month in which the applicable Additional Slotting Fee
Certificate was delivered to the Agent.
7.12. REAL ESTATE. As promptly as practicable following the
Effective Date, (i) the Borrower shall deliver the following documents to
each Lender in form and substance satisfactory to each Lender in all
respects, (ii) each of the transactions contemplated by each such document
shall be consummated in a manner satisfactory to each Lender and its counsel
in all respects, and (iii) each of the conditions contemplated by each such
document shall be satisfied in a manner satisfactory to each Lender and its
counsel in all respects:
(a) MORTGAGES. Duly executed copies of the Mortgages.
(b) MORTGAGEE'S TITLE INSURANCE. A Loan Policy, dated the Effective
Date for each parcel of Real Estate subject to a Mortgage, from a title
insurance company acceptable to the Agent, in the fair market value of such
parcel and subject only to such exceptions and exclusions as are acceptable to
the Agent and containing such information and endorsements as may be required by
the Agent, including, without limitation, usury, zoning, comprehensive and
revolving credit endorsements.
(c) SURVEYS. A survey for each parcel of Real Estate subject to a
Mortgage prepared in accordance with the minimum standard detail requirement for
land title surveys as adopted by the American Title Association and by the
American Congress
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on Surveying and Mapping, dated within thirty (30) days of the Effective Date
and certified by a licensed surveyor.
(d) ESTOPPEL CERTIFICATES. A duly executed landlord's estoppel
certificate from each Person (other than the Borrower) that holds any
interest in the Real Estate.
(e) LEGAL OPINION. The legal opinion of the Borrower's counsel
and such local counsel deemed necessary by the Lenders in form and substance
satisfactory to the Lenders and their counsel.
(f) OTHER DOCUMENTS. All corporate and legal proceedings and all
agreements in connection with the transactions contemplated by this
Agreement, the Mortgages and the other Financing Agreements shall be
satisfactory to the Agent, and the Agent shall have received all information
and copies of all documents including, without limitation, records of
corporate existence, authority and proceedings and governmental approvals, if
any, which the Agent reasonably may have requested in connection therewith,
and such documents, where appropriate, shall be certified by proper corporate
or governmental authorities.
8. NEGATIVE COVENANTS.
The Borrower covenants and agrees that so long as any of the
Obligations remain outstanding and (even if there shall be no obligations
outstanding) so long as this Agreement remains in effect (unless the Required
Lenders shall give their prior written consent thereto):
8.1 ENCUMBRANCES. The Borrower shall not, and shall not permit
any Subsidiary to, create, incur, assume or suffer to exist any Lien of any
nature whatsoever on any of its Property, including, without limitation, the
Collateral, other than the following "Permitted Liens": (i) Liens (other than
Liens relating to Environmental Laws or ERISA) securing the payment of
Charges not yet due and payable, (ii) pledges or deposits under workmen's
compensation, unemployment insurance, social security and other similar laws,
or to secure the performance of bids, tenders or contracts (other than for
the repayment of borrowed money) or to secure statutory obligations or surety
or appeal bonds, or to secure indemnity, performance or other similar bonds
in the ordinary course of business, (iii) the Liens in favor of the Agent,
for the benefit of the Lenders, (iv) purchase money Liens (including
capitalized leases and other forms of installment purchase financing) granted
to the Person financing a purchase of Equipment so long as the Lien granted
is limited to the specific Equipment so acquired, the debt secured by the
Lien is not more than the lesser of the acquisition cost or the fair market
value of the specific item of Equipment on which the Lien is granted, the
aggregate amount of indebtedness secured by such Liens as a result of
purchases shall not exceed One Million
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Dollars ($1,000,000) at any time outstanding during the term hereof, and the
transaction does not violate any other provision of this Agreement
(notification of such purchase money Lien to be provided to the Agent and
each Lender within ten (10) days of acquisition of such Equipment), (v) Liens
permitted in accordance with SUBSECTION 7.4(a), (vi) other Liens on Real
Estate, which do not, in the Agent's sole determination, (a) materially
impair the use of such property, or (b) materially lessen the value of such
property for the purposes for which the same is held by the Borrower or such
Subsidiary, and (vii) Liens existing on the Effective Date and disclosed on
EXHIBIT 8.1.
8.2 INDEBTEDNESS AND LIABILITIES. The Borrower shall not, and
shall not permit any Subsidiary to, incur, create, assume, become or be
liable in any manner with respect to, or suffer to exist, any Indebtedness,
except for (i) the Obligations, (ii) Indebtedness existing on the Effective
Date and disclosed on EXHIBIT 8.2 and/or Indebtedness underlying Permitted
Liens, (iii) Indebtedness secured by purchase money Liens permitted by
SUBSECTION 8.1(iv), (iv) Indebtedness permitted by SUBSECTION 8.5, (v)
Contingent Retail Store Obligations, and (vi) Indebtedness incurred under the
Subordinated Note and the Additional Subordinated Notes. Except for the
Indebtedness permitted in the immediately preceding sentence, the Borrower
shall not, and shall not permit any Subsidiary to, incur any Liabilities
except for trade obligations and normal accruals in the ordinary course of
business not yet due and payable, or with respect to which the Borrower or
such Subsidiary is contesting in good faith the amount or validity thereof by
appropriate proceedings, and then only to the extent that the Borrower or
such Subsidiary has set aside on its books adequate reserves therefor, if
appropriate under Generally Accepted Accounting Principles. Except as
permitted by SUBSECTION 8.20, the Borrower shall not, and shall not permit
any Subsidiary to prepay, defease, purchase, redeem, retire or otherwise
acquire any Indebtedness other than the Obligations.
8.3 CONSOLIDATIONS, ACQUISITIONS. The Borrower shall not, and
shall not permit any Subsidiary to, merge or consolidate with, purchase,
lease or otherwise acquire all or substantially all of the assets or
properties of, or acquire any capital stock, equity interests, debt or other
securities of, any other Person; PROVIDED that any Subsidiary may merge or
consolidate with or into any other Subsidiary or with or into the Borrower
(provided that the Borrower is the surviving entity). Except as disclosed on
EXHIBIT 8.3, the Borrower shall not, and shall not permit any Subsidiary to,
dissolve, terminate, enter into any joint venture or become a partner in any
partnership. Except for sales of stock or assets in connection with the
Retail Stores Sale Program, the Borrower shall not sell, assign, encumber,
pledge, transfer or otherwise dispose of any interest in the Borrower or any
Subsidiary or transfer any Property to any Affiliate except as otherwise
expressly permitted hereby.
8.4 INVESTMENTS. The Borrower shall not, and shall not permit any
Subsidiary to, make or permit to exist Investments in, or commitments
therefor, or create
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any Subsidiary other than the following "Permitted Investments": (i) loans
made in accordance with SUBSECTION 8.8, (ii) Investments existing on the
Effective Date and disclosed on EXHIBIT 8.4, (iii) Investments arising in
connection with the Retail Store Sale Program, and (iv) so long as no Event
of Default shall have occurred and be continuing, investments in Cash
Equivalents, not to exceed Two Hundred Fifty Thousand Dollars ($250,000) in
the aggregate.
8.5 GUARANTIES. The Borrower shall not, and shall not permit any
Subsidiary to, make or suffer to exist any Guaranty, except (i) endorsements
of negotiable instruments or items of payment for collection in the ordinary
course of business, (ii) the Contingent Retail Store Obligations and (iii)
Guaranties existing on the Effective Date and disclosed on EXHIBIT 8.5.
8.6 COLLATERAL LOCATIONS. The Borrower shall not, and shall not
permit any Subsidiary to, sell any of the Inventory on a guaranteed sale,
sale-and-return, sale on approval or consignment basis or any other basis
subject to a repurchase obligation or return right. Neither the location of
the principal place of business and chief executive office of the Borrower as
set forth on EXHIBIT 6.7, the locations of items of Collateral as set forth
in EXHIBIT 8.6 nor the corporate name or mailing address of the Borrower
shall be changed, nor shall there be established additional places of
business or additional locations at which Collateral is stored, kept or
processed unless (i) the Borrower shall have given the Agent not less than 30
days prior written notice thereof, (ii) the Agent shall have determined that,
after giving effect to any such change of name, address or location, the
Agent shall have a first perfected Lien in the Collateral except for
Permitted Liens, (iii) in the case of Collateral locations, the Borrower
shall have delivered a landlord waiver or bailee letter, as applicable, in
form and substance satisfactory to the Agent with respect to such location,
and (iv) all negotiable documents and receipts in respect of any Collateral
maintained at such premises are promptly delivered to the Agent. Prior to
making any such change or establishing such new location, the Borrower shall
execute any additional financing statements or other documents or notices
required by the Agent.
8.7 DISPOSAL OF PROPERTY. The Borrower shall not, and shall not
permit any Subsidiary to, sell, lease, assign, transfer or otherwise dispose
of any of its Property, assets and rights to any Person except for (i) bona
fide sales of Inventory to customers for fair value in the ordinary course of
business, (ii) sales of Equipment which is obsolete, worn-out or otherwise
not useable in the Borrower's business (up to Two Hundred Fifty Thousand
Dollars ($250,000) in sales proceeds in the aggregate in any Fiscal Year),
and (iii) assets to be sold pursuant to the Retail Stores Sale Program as set
forth on EXHIBIT 8.7. In the event any Equipment of the Borrower or any
Subsidiary (other than Equipment included in the Retail Stores Sale Program)
is sold, transferred or otherwise disposed of as permitted by clause (ii) of
this SUBSECTION 8.7 or with the Required
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Lenders' consent, and (x) such sale, transfer or disposition is effected
without replacement of the Equipment so sold, transferred or disposed of or
such Equipment is replaced by Equipment leased by the Borrower, the Borrower
shall promptly (but in any event within three (3) Business Days of the
receipt thereof) deliver all of the cash proceeds of any such sale, transfer
or disposition to the Agent, which proceeds shall be applied to the Term
Loans (or, if the Term Loans have been paid in full, the Revolving Loans, and
the Total Revolving Loan Facility shall be permanently reduced by such
amount) without premium or penalty, except as provided in SUBSECTION 2.7(b),
or (y) such sale, transfer or disposition is made in connection with the
purchase by the Borrower of replacement Equipment, the Borrower shall use the
proceeds of such sale, transfer or disposition to finance the purchase by the
Borrower of replacement Equipment and shall deliver to the Agent written
evidence of the use of the proceeds for such purchase. Except as permitted
by SUBSECTION 8.1, all replacement Equipment purchased by the Borrower shall
be free and clear of all Liens, except for Liens in favor the Agent, for the
benefit of the Lenders.
8.8 EMPLOYEE LOANS. Except for (i) advances for travel and
related expenses by the Borrower or any Subsidiary to its employees in the
ordinary course of business in an amount not to exceed from time to time Two
Hundred Fifty Thousand Dollars ($250,000) in the aggregate at any one time,
(ii) commission advances by the Borrower or any Subsidiary to its employees
in an amount not to exceed from time to time Two Hundred Fifty Thousand
Dollars ($250,000) in the aggregate at any one time and (iii) those employee
loans disclosed on EXHIBIT 8.4, the Borrower shall not, and shall not permit
any Subsidiary to, make any loans or other advances to any Person.
8.9 PLANS. The Borrower shall not, nor will it permit any ERISA
Affiliate to:
(i) assume or incur any Liability under any Plan other than
those Plans disclosed in EXHIBIT 6.19(a);
(ii) permit the amendment, establishment, assumption or
maintenance of any Pension Plan;
(iii) commence participation or permit an ERISA Affiliate to
participate in a Multiemployer Plan;
(iv) permit the termination of any Plan if such termination
might have Material Adverse Effect;
(v) permit the occurrence of an accumulated funding deficiency
(as defined in Section 302 of ERISA or Section 412 of the IRC) as to
any Plan;
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(vi) engage, or permit any ERISA Affiliate to engage, in any
prohibited transaction under Section 406 of ERISA or Section 4975 of
the IRC; or
(vii) permit the establishment, adoption, or assumption of
any Plan providing post-retirement welfare benefits.
8.10 RESTRICTED PAYMENTS. The Borrower shall not, and shall not
permit any Subsidiary to, directly or indirectly declare, pay, order, make or
set apart any Restricted Payment except for (i) dividends paid by any
Subsidiary to any Subsidiary owning its capital stock or to the Borrower, and
(ii) Restricted Payments under the Subordinated Debt Documents, but only to
the extent expressly permitted by SUBSECTION 8.20.
8.11 SECURITIES. Other than the payment of the Phantom Stock
Payment to the extent permitted by SUBSECTION 8.20, the Borrower shall not,
and shall not permit any Subsidiary to, redeem, prepay, repurchase or acquire
any capital Stock of the Borrower of any description for consideration or
otherwise.
8.12 CHANGES IN CHARTER, BYLAWS OR FISCAL YEAR. Borrower shall
not, and shall not permit any Subsidiary to, (i) change its Fiscal Year or
(ii) amend its Certificate of Incorporation or Bylaws or other constitutional
documents in a manner which could have a Material Adverse Effect; PROVIDED
that the Borrower may amend its Certificate of Incorporation to effect an
increase in the number of authorized shares of its Common Stock.
8.13 TRANSACTIONS WITH AFFILIATES. Except as set forth on EXHIBIT
8.13 and as permitted by SUBSECTION 8.8, the Borrower shall not, and shall
not permit any Subsidiary to, enter into any transaction including, without
limitation, the purchase, sale, lease or exchange of property or the
rendering or purchase of any service to or from any Affiliate except in the
ordinary course of and pursuant to the reasonable requirements of the
Borrower's or such Subsidiary's business and upon fair and reasonable terms
that are fully disclosed to the Agent and the Lenders in advance and are no
less favorable to the Borrower than the Borrower would obtain in a comparable
arm's length transaction with an unaffiliated Person. Notwithstanding
anything herein to the contrary, the Borrower shall not, and shall not permit
any Subsidiary to, enter into any transaction with or otherwise have any
dealings with, the Singlebrew Packaging Company, other than in accordance
with, or as permitted by, the Singlebrew Partnership Agreement as in effect
on the date hereof.
8.14 CAPITAL STRUCTURE; OTHER BUSINESS. Except for sales pursuant
to the Retail Stores Sale Program, the Borrower shall not, and shall not
permit any Subsidiary
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to, engage in any business unrelated to its current businesses, engage in any
transaction out of the ordinary course of business, or engage in any
transaction which might have a Material Adverse Effect.
8.15 SALE AND LEASEBACK. The Borrower shall not, and shall not
permit any Subsidiary to, sell or transfer any of its Property (other than
customer display equipment) in order to concurrently or subsequently lease as
lessee such or similar Property unless (i) any such sale is made for the fair
market value of the Property, (ii) the sale consideration received is cash,
(iii) the sale is upon fair and reasonable terms in an arm's length
transaction, and (iv) all proceeds of any sale are used to prepay the
Obligations in the priority set forth in SUBSECTION 8.7.
8.16 IMPAIRMENT AGREEMENTS. Except as disclosed on EXHIBIT 8.16,
the Borrower shall not, and shall not permit any Subsidiary to, enter into or
assume any agreement, instrument, indenture or other obligation (other than
the Financing Agreements and other than the Subordinated Note Agreement with
respect to clause (iii) below) which (i) contains a negative pledge provision
which would require a sharing of any interest in the Collateral, (ii)
prohibits or limits the creation or assumption of any Lien upon its Property,
whether now owned or hereafter acquired, or (iii) restricts, prohibits or
requires the consent of any Person with respect to the payment of Restricted
Payments.
8.17 CORPORATE ACCOUNTS. The Borrower shall not maintain corporate
deposit accounts jointly with any Affiliate or commingle any of its funds
with funds of any Affiliate.
8.18 CAPITAL EXPENDITURES LIMITATIONS. The Borrower shall not, and
shall not permit any Subsidiary to, make Capital Expenditures aggregating in
excess of Five Million Dollars ($5,000,000) in any Fiscal Year.
8.19 PARTNERSHIP AGREEMENT. The Borrower shall not amend, modify,
terminate or waive, nor suffer the amendment, modification, termination or
waiver of, any of the terms or provisions of the Singlebrew Partnership
Agreement.
8.20 SUBORDINATED DEBT. The Borrower shall not, and shall not
permit any Subsidiary to:
(a) amend, modify, restate, waive or otherwise supplement, or
suffer the amendment, modification, restatement, waiver or supplement of, any
provision of any of the Subordinated Debt Documents, without the prior
written consent of the Lenders;
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(b) make any required payment or other distribution (other than
the Phantom Stock Payment) to the Subordinated Creditor except in accordance
with the terms of the Subordinated Debt Documents and the Subordinated
Agreement;
(c) make the Phantom Stock Payment to the Subordinated Creditor
except in accordance with the terms of the Subordinated Debt Documents;
PROVIDED, HOWEVER, that, notwithstanding any provision of the Subordinated
Debt Documents or the Subordinated Agreement to the contrary, the Borrower
shall not make the Phantom Stock Payment if a Default or an Event of Default
shall have occurred and be continuing or would result after giving effect to
such payment; or
(d) prepay, defease, purchase, redeem, retire or otherwise acquire
any Subordinated Debt, except that the Borrower may prepay the principal
amount of the Subordinated Note in an aggregate amount not to exceed
$5,000,000; PROVIDED that (i) no prepayment may be made prior to the first
anniversary of the funding of the Subordinated Note, (ii) no Default or Event
of Default shall have occurred and be continuing or would result after giving
effect to any such prepayment; and (iii) after giving effect to any such
prepayment, the Borrower shall have unused Borrowing Availability of at least
$2,000,000 and all trade payables of the Borrower and its Subsidiaries shall
be within their terms.
8.21 FINANCIAL COVENANTS. (a) EBITDA. The Borrower shall not
permit EBITDA, as of the end of each of the computation periods set forth
below, to be less than the following:
<TABLE>
Computation Period EBITDA
------------------ ------
<S> <C>
First Fiscal Quarter of Fiscal Year $1,300,000
1998
From the beginning of the first Fiscal $2,500,000
Quarter of Fiscal Year 1998 through
the end of the second Fiscal Quarter
of Fiscal Year 1998
From the beginning of the first Fiscal $3,600,000
Quarter of Fiscal Year 1998 through
the end of the third Fiscal Quarter of
Fiscal Year 1998
From the beginning of the first Fiscal $7,000,000
Quarter of Fiscal Year 1998 through
the end of the fourth Fiscal Quarter
of Fiscal Year 1998
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From the beginning of the second $7,000,000
Fiscal Quarter of Fiscal Year 1998
through the end of the first Fiscal
Quarter of Fiscal Year 1999
</TABLE>
(b) TOTAL CAPITAL FUNDS. The Borrower shall not permit Total
Capital Funds, as of the end of each of the Fiscal Quarters set forth below,
to be less than the following:
<TABLE>
Fiscal Quarter Total Capital Funds
-------------- -------------------
<S> <C>
First Fiscal Quarter of Fiscal Year 1998 $66,000,000
Second Fiscal Quarter of Fiscal Year 1998 $64,000,000
Third Fiscal Quarter of Fiscal Year 1998 $62,000,000
Fourth Fiscal Quarter of Fiscal Year 1998 $62,500,000
First Fiscal Quarter of Fiscal Year 1999 $61,000,000
</TABLE>
8.22 SUBSIDIARIES. The Borrower will not have any Subsidiaries
other than those listed on Exhibit 6.32 hereto. The Subsidiaries will not
conduct any business other than as described on Exhibit 6.32 hereto.
9. DEFAULT, RIGHTS AND REMEDIES OF THE AGENT AND THE LENDERS.
9.1 OBLIGATIONS. If a Default or an Event of Default shall exist
or occur, the Required Lenders (or the Agent with the consent of the Required
Lenders) may elect to do one or more of the following at any time or times
and in any order: (i) reduce the Maximum Revolving Loan Amount, or (ii)
restrict the amount of, or suspend its obligations to make, Revolving Loans.
If an Event of Default shall exist or occur, in addition to the actions
described in the preceding sentence, the Required Lenders (or the Agent with
the consent of the Required Lenders) may elect to do one or more of the
following at any time or times: (a) terminate this Agreement or the
Commitments, (b) declare any or all Obligations to be immediately due and
payable; PROVIDED that upon the occurrence of any Event of Default referred
to in clauses (f), (g) or (h) within the definition of "Event of Default,"
such Commitments shall automatically and immediately terminate and all
Obligations shall automatically become immediately due and payable without
notice, demand or other actions of any kind by any Person, or (c) pursue its
other rights and remedies under the Financing Agreements and applicable law.
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9.2 RIGHTS AND REMEDIES GENERALLY. Upon acceleration of the
Obligations, the Agent, on behalf of the Lenders, shall have, in addition to
any other rights and remedies contained in this Agreement or in any of the
other Financing Agreements, all of the rights and remedies of a secured party
under the Code or other applicable laws, all of which rights and remedies
shall be cumulative and non-exclusive, to the extent permitted by law. In
addition to all such rights and remedies, the Agent shall have the right to
sell, lease or otherwise dispose of all or any part of the Collateral and the
sale, lease or other disposition of the Collateral, or any part thereof, by
the Agent after an Event of Default may be for cash, credit or any
combination thereof, and the Agent or any Lender may purchase all or any part
of the Collateral at public or, if permitted by law, private sale, and in
lieu of actual payment of such purchase price, may set-off the amount of such
purchase price against the Obligations then owing. Any sales of the
Collateral may be adjourned from time to time with or without notice. The
Agent shall have the right to conduct such sales on the Borrower's premises,
at the Borrower's expense, or elsewhere, on such occasion or occasions as the
Agent may see fit.
9.3 ENTRY UPON PREMISES AND ACCESS TO INFORMATION. Upon
acceleration of the Obligations, the Agent shall have the right (i) to cause
the Collateral to remain on the Borrower's premises, without any obligation
to pay rent, (ii) to enter upon the premises of the Borrower where the
Collateral is located or any other place or places where the Collateral is
believed to be located and kept, without any obligation to pay rent, to
render the Collateral useable or saleable, or to remove the Collateral
therefrom to the premises of the Agent or any agent of the Agent, at the
Borrower's expense, for such time as the Agent may desire in order
effectively to collect or liquidate the Collateral, and (iii) to require the
Borrower to assemble the Collateral and make it available to the Agent at a
place or places to be designated by the Agent. Upon acceleration of the
Obligations, the Agent shall have the right to take possession of the
Borrower's original books and records, to obtain access to Borrower's data
processing equipment, computer hardware and software relating to the
Collateral and to use all of the foregoing and the information contained
therein in any manner the Agent deems appropriate; and the Agent shall have
the right to notify postal authorities to change the address for delivery of
the Borrower's mail to an address designated by the Agent and to receive,
open and dispose of all mail addressed to the Borrower and to take possession
of all checks or other original remittances contained in such mail.
9.4 SALE OR OTHER DISPOSITION OF COLLATERAL BY THE AGENT. Any
notice required to be given by the Agent of a sale, lease or other
disposition or other intended action by the Agent with respect to any of the
Collateral which is deposited in the United States mails, postage prepaid and
duly addressed to the Borrower at the address specified in SUBSECTION 10.13,
at least ten (10) days prior to such proposed action, shall constitute fair
and reasonable notice to the Borrower of any such action. The net proceeds
realized by the Agent upon any such sale or other disposition, after
deduction for the expenses of
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retaking, holding, storing, transporting, preparing for sale, selling or
otherwise disposing of the Collateral incurred by the Agent in connection
therewith, shall be applied as provided herein toward satisfaction of the
obligations including, without limitation, the Obligations described in
SUBSECTIONS 2.14, 2.19 and 10.2. The Agent shall account to the Borrower for
any surplus realized upon such sale or other disposition, and the Borrower
shall remain liable for any deficiency. The commencement of any action,
legal or equitable, or the rendering of any judgment or decree for any
deficiency shall not affect the Agent's Liens on the Collateral until the
Obligations are fully paid. The Borrower agrees that the neither the Agent
nor any Lender has no obligation to preserve rights to the Collateral against
any other Person. For the purpose of enabling the Agent to exercise its
rights, powers and remedies under this SECTION 9, in order to take possession
of, hold, preserve, process, assemble, prepare for sale, market for sale,
sell or otherwise dispose of the Collateral, at such time as the Agent shall
be entitled to exercise such rights and remedies, the Agent is hereby granted
a license, lease or other right to use, without charge, the Borrower's
General Intangibles, Intellectual Property, Equipment, Fixtures, Real Estate,
whether part of the Collateral or not including, without limitation, any
patents, copyrights, rights of use of any name, trade secrets, trade names,
trademarks, service marks and advertising matter, or any other Property of a
similar nature, as it pertains to the Collateral, in completing production
of, advertising for sale or lease and selling or leasing any Inventory or
other Collateral and the Borrower's rights under all licenses, leases and
franchise agreements shall inure to the Agent's benefit until all Obligations
are paid in full.
9.5 WAIVER OF DEMAND. DEMAND, PRESENTMENT, PROTEST AND NOTICE OF
DEMAND, PRESENTMENT, PROTEST, NONPAYMENT, INTENT TO ACCELERATE AND
ACCELERATION ARE HEREBY WAIVED BY THE BORROWER. THE BORROWER ALSO WAIVES THE
BENEFIT OF ALL VALUATION, APPRAISAL AND EXEMPTION LAWS.
9.6 WAIVER OF NOTICE. UPON THE OCCURRENCE OF A DEFAULT OR AN
EVENT OF DEFAULT, THE BORROWER HEREBY WAIVES ALL RIGHTS TO NOTICE AND HEARING
OF ANY KIND PRIOR TO THE EXERCISE BY THE AGENT OF ITS RIGHTS TO REPOSSESS THE
COLLATERAL WITHOUT JUDICIAL PROCESS OR TO REPLEVY, ATTACH OR LEVY UPON THE
COLLATERAL WITHOUT PRIOR NOTICE OR HEARING. THE BORROWER ACKNOWLEDGES THAT
IT HAS BEEN ADVISED BY COUNSEL OF ITS CHOICE WITH RESPECT TO THIS TRANSACTION
AND THIS AGREEMENT.
10. OTHER RIGHTS AND OBLIGATIONS.
10.1 WAIVER. The failure of the Agent or any Lender, at any time
or times hereafter, to require strict performance by the Borrower of any
provision of this
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Agreement shall not waive, affect or diminish any right of the any such
Person thereafter to demand strict compliance and performance therewith. Any
suspension or waiver by the Lenders or Required Lenders, as applicable, of a
Default or an Event of Default under this Agreement or any of the other
Financing Agreements shall not suspend, waive or affect any other Default or
Event of Default under this Agreement or any of the other Financing
Agreements, whether the same is prior or subsequent thereto and whether of
the same or of a different kind or character. None of the undertakings,
agreements, warranties, covenants and representations of the Borrower
contained in this Agreement or any of the other Financing Agreements and no
Default or Event of Default by the Borrower under this Agreement or any of
the other Financing Agreements shall be deemed to have been suspended or
waived by the Lenders or Required Lenders, as applicable, unless such
suspension or waiver is in writing and signed by an officer of each of the
Lenders or Required Lenders, as applicable, and directed to the Borrower
specifying such suspension or waiver. Neither this Agreement nor the other
Financing Agreements may be modified or amended except in a written agreement
signed by the Borrower, the Agent and the Lenders.
10.2 COSTS AND ATTORNEYS' FEES. All fees, costs and expenses
incurred by the Agent or any Lender in connection with protecting, perfecting
or preserving the Agent's Lien in the Collateral or in connection with any
matters contemplated by or arising out of this Agreement or the other
Financing Agreements, whether (a) to commence, defend, or intervene in any
litigation or to file a petition, complaint, answer, motion or other
pleadings, (b) to take any other action in or with respect to any suit or
proceedings (bankruptcy or otherwise), (c) to consult with officers of the
Agent or any Lender or to advise the Agent or any Lender, (d) to protect,
collect, lease, sell, take possession of, or liquidate any of the Collateral,
(e) to reimburse SBCC for its fees and expenses in accordance with the terms
and conditions of the Assignment Agreement, or (f) to attempt to enforce or
to enforce any Lien on any of the Collateral, or to enforce any rights of the
Agent or any Lender to collect any of the obligations, including, without
limitation, reasonable fees, costs and expenses of the attorneys and
paralegals of the Agent or any Lender, the usual and customary charges of the
internal counsel and the out-of-pocket costs and the per diem charges for the
examiners of such Persons at their then applicable rates, together with
interest thereon at the Default Rate then applicable to the Revolving Loan,
shall be part of the Obligations, payable on demand and secured by the
Collateral.
10.3 EXPENDITURES BY THE AGENT AND THE LENDERS. In the event the
Borrower shall fail to pay Charges, insurance, assessments, costs or expenses
which the Borrower is, under any of the terms hereof, required to pay, or
fails to keep the Collateral free from Liens, except Permitted Liens, or
fails to maintain, replace or repair the Collateral as required hereby, the
Agent or any Lender may, in its sole discretion, make expenditures for any or
all of such purposes and acquire or accept an assignment of any
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Lien against the Collateral, and the amount so expended (including, without
limitation attorneys' fees and expenses, court costs, filing fees and other
charges), together with interest thereon at the Base Rate or the Default Rate
then applicable to the Revolving Loan shall be part of the Obligations,
payable on demand and secured by the Collateral.
10.4 CUSTODY AND PRESERVATION OF COLLATERAL. Beyond the safe
custody thereof, the Agent shall have no duty with respect to any Collateral
in its possession or control (or in the possession or control of any agent or
bailee) or with respect to any income thereon. The Agent shall be deemed to
have exercised reasonable care in the custody and preservation of any of the
Collateral in its possession if it takes such action for that purpose as the
Borrower shall request in writing, but failure by the Agent to comply with
any such request shall not of itself be deemed a failure to exercise
reasonable care, and no failure by the Agent to comply with any such request
shall of itself be deemed a failure to exercise reasonable care, and no
failure by the Agent to preserve or protect any right with respect to such
Collateral against prior parties, or to do any act with respect to the
preservation of such Collateral not so requested by the Borrower, shall of
itself be deemed a failure to exercise reasonable care in the custody or
preservation of such Collateral. The Agent shall not be liable or responsible
for any loss or damage to any of the Collateral, or for any diminution in the
value thereof, by reason of the act or omission of any warehouseman, carrier,
forwarding agency, consignee or other agent or bailee selected by the Agent
in good faith.
10.5 RELIANCE BY THE AGENT AND LENDERS. All covenants, agreements,
representations and warranties made herein or in any of the other Financing
Agreements by the Borrower shall, notwithstanding any investigation by the
Agent or any Lender, be deemed to be material to and to have been relied upon
by the Agent and each Lender.
10.6 PARTIES AND ASSIGNMENT. This Agreement and the other
Financing Agreements shall be binding upon and inure to the benefit of the
Agent, the Lenders, the Borrower and their respective successors and assigns.
The Borrower's successors and assigns shall include, without limitation, any
trustee, receiver or debtor in possession of or for the Borrower.
Notwithstanding the foregoing, the Borrower may not sell, assign or transfer
this Agreement, or the other Financing Agreements or any portion thereof
including, without limitation, its rights, titles, interests, remedies,
powers and/or duties hereunder or thereunder. The Borrower hereby consents
to each Lender's sale, assignment, transfer or other disposition pursuant
hereto, at any time and from time to time hereafter, of this Agreement, or
the other Financing Agreements or any portion thereof, including without
limitation all or any part of each Lender's rights, titles, interests,
remedies, powers and/or duties hereunder or thereunder.
10.7 APPLICABLE LAW; SEVERABILITY. This Agreement and the other
Financing Agreements have been submitted to the Agent and each Lender at its
office in
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New York, except for the perfection and enforcement of Liens in other
jurisdictions which shall be governed by the laws of those jurisdictions.
Whenever possible, each provision of this Agreement shall be interpreted in
such a manner as to be effective and valid under applicable law, but if any
provision of this Agreement shall be prohibited by or invalid under
applicable law, such provision shall be ineffective only to the extent of
such prohibition or invalidity, without invalidating the remainder of such
provisions or the remaining provisions of this Agreement.
10.8 SUBMISSION TO JURISDICTION; WAIVER OF JURY AND BOND. THE
BORROWER, THE AGENT AND EACH LENDER HEREBY SUBMIT TO THE EXCLUSIVE
JURISDICTION OF ANY STATE OR FEDERAL COURT LOCATED WITHIN THE COUNTY OF NEW
YORK, STATE OF NEW YORK, AND IRREVOCABLY AGREE THAT ALL ACTIONS OR
PROCEEDINGS RELATING TO THIS AGREEMENT OR THE OTHER FINANCING AGREEMENTS
SHALL BE LITIGATED IN SUCH COURTS, AND THE BORROWER, THE AGENT AND EACH
LENDER EACH WAIVE ANY OBJECTION WHICH IT MAY HAVE BASED ON IMPROPER VENUE OR
FORUM NON CONVENIENS TO THE CONDUCT OF ANY PROCEEDING IN ANY SUCH COURT AND
EACH WAIVES PERSONAL SERVICE OF ANY AND ALL PROCESS UPON IT, AND CONSENTS
THAT ALL SUCH SERVICE OF PROCESS BE MADE BY MAIL OR MESSENGER DIRECTED TO IT
AT THE ADDRESS SET FORTH IN SUBSECTION 10.13 AND THAT SERVICE SO MADE SHALL
BE DEEMED TO BE COMPLETED UPON THE EARLIER OF ACTUAL RECEIPT OF FIVE (5) DAYS
AFTER THE SAME SHALL HAVE BEEN POSTED TO THE BORROWERS ADDRESS. THE BORROWER
DESIGNATES AND APPOINTS CT CORPORATION SYSTEM, 1633 BROADWAY, NEW YORK, NEW
YORK 10019 AND SUCH OTHER PERSON AS MAY HEREAFTER BE SELECTED BY THE BORROWER
WHICH IRREVOCABLY AGREES IN WRITING TO SO SERVE AS ITS AGENT TO RECEIVE ON
ITS BEHALF SERVICE OF ALL PROCESS IN ANY SUCH PROCEEDING IN ANY SUCH COURT,
SUCH SERVICE BEING HEREBY ACKNOWLEDGED BY THE BORROWER TO BE EFFECTIVE AND
BINDING SERVICE IN EVERY RESPECT. A COPY OF ANY SUCH PROCESS SO SERVED SHALL
BE MAILED BY REGISTERED MAIL TO THE BORROWER AT ITS ADDRESS PROVIDED IN
SUBSECTION 10.13, EXCEPT THAT UNLESS OTHERWISE PROVIDED BY APPLICABLE LAW,
ANY FAILURE TO MAIL SUCH COPY SHALL NOT AFFECT THE VALIDITY OF SERVICES OF
PROCESS. IF ANY AGENT APPOINTED BY THE BORROWER REFUSES TO ACCEPT SERVICE,
THE BORROWER HEREBY AGREES THAT SERVICE UPON
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IT BY MAIL OR OTHERWISE IN ACCORDANCE WITH SUBSECTION 10.13 SHALL CONSTITUTE
SUFFICIENT NOTICE. THE AGENT, EACH LENDER AND THE BORROWER ACKNOWLEDGE THAT
THE TIME AND EXPENSE REQUIRED FOR TRIAL BY JURY EXCEED THE TIME AND EXPENSE
REQUIRED FOR A BENCH TRIAL AND HEREBY WAIVE, TO THE EXTENT PERMITTED BY LAW,
TRIAL BY JURY, AND WAIVE ANY BOND OR SURETY OR SECURITY UPON SUCH BOND WHICH
MIGHT, BUT FOR THIS WAIVER, BE REQUIRED OF THE AGENT OR ANY LENDER. NOTHING
CONTAINED IN THIS SUBSECTION 10.8 SHALL AFFECT THE RIGHT OF THE AGENT OR ANY
LENDER TO SERVE LEGAL PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR AFFECT
THE RIGHT OF THE AGENT OR ANY LENDER TO BRING ANY ACTION OR PROCEEDING
AGAINST THE BORROWER OR ITS PROPERTY IN THE COURTS OF ANY OTHER JURISDICTION
TO THE EXTENT NECESSARY TO ENFORCE ITS LIENS AGAINST PROPERTY LOCATED IN SUCH
JURISDICTIONS. THE BORROWER WAIVES ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER
IN ANY LITIGATION REFERRED TO ABOVE ANY SPECIAL, EXEMPLARY, PUNITIVE OR
CONSEQUENTIAL DAMAGES OR ANY DAMAGES OTHER THAN, OR IN ADDITION TO, ACTUAL
DAMAGES.
10.9 MARSHALLING. The Agent shall be under no obligation to
marshall any assets in favor of the Borrower or any other Person or against
or in payment of any or all of the Obligations.
10.10 SECTION TITLES. The section titles contained in this
Agreement shall be without substantive meaning or content of any kind
whatsoever and are not a part of the agreement between the parties.
10.11 CONTINUING EFFECT. This Agreement, the Agent's Liens on the
Collateral, and all of the other Financing Agreements shall continue in full
force and effect so long as any obligations shall be owed to the Agent or any
Lender, and (even if there shall be no obligations outstanding) so long as
this Agreement has not been terminated as provided in SUBSECTION 2.8;
provided that the Borrower's obligations to indemnify the Agent and each
Lender under any Financing Agreement shall continue notwithstanding any
termination of this Agreement.
10.12 INCORPORATION BY REFERENCE. The provisions of the other
Financing Agreements are incorporated in this Agreement by this reference.
Except as otherwise provided in this Agreement and except as otherwise
provided in the other Financing Agreements by specific reference to the
applicable provision of this Agreement, if any provision contained in this
Agreement is in conflict with, or inconsistent with, any provisions in the
other Financing Agreements, the provision contained in this Agreement shall
govern and control.
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10.13 NOTICES. Except as otherwise expressly provided herein, any
notice required or desired to be served, given or delivered hereunder shall
be in writing, and shall be deemed to have been validly served, given or
delivered three (3) days after deposit in the United States mails (by
certified mail, return receipt requested), with proper postage prepaid, or
upon delivery by courier or upon transmission by telex, telecopy or similar
electronic medium to the following addresses:
(i) If to the Agent, at:
GOLDMAN SACHS CREDIT PARTNERS, L.P.
85 Broad Street
27th Floor
New York, New York 10004
Attn: Tracy McCaffrey
Telecopy No.: (212) 357-4597
With a copy to:
FRIED, FRANK, HARRIS, SHRIVER & JACOBSON
One New York Plaza
New York, New York 10004
Attn: Lawrence A. First
Telecopy No.: (212) 859-4000
(ii) If to a Lender, at the address set forth opposite its name on
Schedule 1 hereto
(iii) If to the Borrower, at:
Brothers Gourmet Coffees, Inc.
One Boca Place
2255 Glades Road
Boca Raton, Florida 33431
Attn: Vice President-Finance and Administration
Telecopy: (561) 998-3230
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With a copy to:
BROWNSTEIN, HYATT, FARBER & STRICKLAND, P.C.
Twenty-Second Floor
410 Seventeenth Street
Denver, Colorado 80202
Attn: John L. Ruppert
Telecopy: (303) 623-1956
or to such other address as each Person designates to the other in the manner
herein prescribed.
10.14 WAIVERS WITH RESPECT TO OTHER INSTRUMENTS. The Borrower
waives presentment, demand and protest and notice of presentment, demand
protest, default, nonpayment, maturity, release, compromise, settlement,
extension, or renewal of any or all commercial paper, Accounts, contract
rights, documents, instruments, chattel paper and guaranties at any time held
by the Agent on which the Borrower may in any way be liable and hereby
ratifies and confirms whatever the Agent may do regarding the enforcement,
collection, compromise, or release thereof.
10.15 RETENTION OF THE BORROWER'S DOCUMENTS. The Agent or any
Lender may destroy or otherwise dispose of all documents, schedules, invoices
or other papers (other than Collateral) delivered to such Person in
accordance with its customary practices unless the Borrower requests in
writing that same be returned. Upon the Borrower's request and at the
Borrower's expense, such Person shall return such papers when such Person's
actual or anticipated need for same has terminated.
10.16 ENTIRE AGREEMENT. This Agreement, including all Exhibits,
Schedules and other documents attached hereto or incorporated by reference
herein, constitutes the entire agreement of the parties with respect to the
subject matter hereof and supersedes all other negotiations, understandings
and representations, oral or written, with respect to the subject matter
hereof.
10.17 EQUITABLE RELIEF. The Borrower recognizes that, in the
event the Borrower fails to perform, observe or discharge any of its
Obligations under this Agreement, any remedy at law may prove to be
inadequate relief to the Agent or any Lender; therefore, the Borrower agrees
that the Agent or any Lender, if such Person so requests, shall be entitled
to temporary and permanent injunctive relief in any such case without the
necessity of proving actual damages.
10.18 LENDERS' FIRST RIGHT OF REFUSAL. If at any time during the
term of this Agreement the Borrower enters into, or proposes to enter into,
an agreement or understanding to acquire any Person, or the assets of any
Person, the Lenders shall have
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the right at their sole discretion (but not an obligation) upon the mutual
agreement of all Lenders to provide the Borrower with the financing for such
acquisition and the Borrower shall not enter into any agreement or
understanding with any other Person to provide such financing without first
offering such financial opportunity to the Lenders and the Lenders have
declined to provide such financing.
10.19 COUNTERPARTS. This Agreement and any amendments, waivers,
consents or supplements may be executed in any number of counterparts and by
different parties in separate counterparts, each of which when so executed
and delivered shall be deemed an original, but all of which counterparts
together shall constitute but one and the same agreement.
10.20 NO FIDUCIARY RELATIONSHIP. No provision contained herein or
in any other Financing Agreement and no course of dealing between the parties
shall be deemed to create any fiduciary relationship between the Agent or any
Lender and the Borrower.
10.21 EXCEPTIONS TO COVENANTS. The Borrower shall not be deemed
to be permitted to take any action or omit to take any action which is
permitted as an exception to any of the terms, provisions or covenants
contained in any of the Financing Agreements if such action or omission would
result in a Default or Event of Default or the breach of any term, provision
or covenant contained in any Financing Agreement.
10.22 CONSTRUCTION. The Borrower acknowledges that it and its
counsel have approved the Financing Agreements and that the usual rule of
construction to the effect that any ambiguities or inconsistencies are to be
resolved against the drafting Person shall not be applicable in the
interpretation of any of the Financing Agreements.
11. ASSIGNMENT AND PARTICIPATION.
11.1 ASSIGNMENTS. Upon ten (10) days prior notice to the
Borrower, each Lender may, in the ordinary course of its business and in
accordance with applicable law, assign all or any part of its rights and
obligations under the Financing Agreements to any Person; PROVIDED that such
Lender shall first obtain the written consent of the Agent prior to any such
assignment becoming effective; PROVIDED FURTHER that so long as no Event of
Default has occurred and is continuing no Lender may make any such assignment
to any Person known to such Lender to be a competitor of the Borrower or any
of its Subsidiaries. The assigning Lender shall be relieved of its
obligations hereunder with respect to its Commitments or assigned portion
thereof. The Borrower hereby acknowledges and agrees that any assignment
will give rise to a direct obligation of the Borrower to the assignee and
that the assignee shall be considered to be a "Lender".
11.2 PARTICIPATIONS. Each Lender shall have the right to sell or
assign to a Participant or Participants participating interests in the
Borrower's Obligations hereunder
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in such amounts and on such terms and conditions as such Lender shall
determine; PROVIDED that so long as no Event of Default has occurred and is
continuing no Lender may grant any such participation to any Person known to
such Lender to be a competitor of the Borrower or any of its Subsidiaries.
12. AGENT.
12.1 APPOINTMENT. Without in any way limiting Section 12.11
hereof, GSCP is hereby appointed Agent hereunder and under each other
Financing Agreements, and each of the Lenders authorizes the Agent to act as
the Agent of such Lender. The Agent agrees to act as such upon the express
conditions contained in this SECTION 12. The Agent shall not have a
fiduciary relationship in respect of the Borrower or any Lender by reason of
this Agreement.
12.2 POWERS. The Agent shall have and may exercise such powers
under the Financing Agreements as are specifically delegated to the Agent by
the terms of each thereof, together with such powers as are reasonably
incidental thereto. The powers, rights and obligations of the Agent under
the Financing Agreements may be delegated to one or more "Co-Agents" (each, a
"Co-Agent") and the Borrower, the Agent and the Lenders hereby agree to amend
this Agreement in a manner consistent with any such delegation. The Agent
shall have no implied duties to the Lenders, or any obligation to the Lenders
to take any action thereunder, except any action specifically provided by the
Financing Agreements to be taken by the Agent.
12.3 GENERAL IMMUNITY. Neither the Agent nor any of its
directors, officers, Affiliates, Agents or employees shall be liable to the
Borrower or any Lender for any action taken or omitted to be taken by it or
them hereunder or under any other Financing Agreements or in connection
herewith or therewith except for its or their own gross negligence or willful
misconduct as determined by a final order, not subject to review, of a court
of competent jurisdiction.
12.4 NO RESPONSIBILITY FOR LOANS, RECITALS, ETC. Neither the
Agent nor any of its directors, officers, Affiliates, Agents or employees
shall be responsible for or have any duty to ascertain, inquire into, or
verify (a) any statement, warranty or representation made in connection with
any Financing Agreements or any borrowing hereunder, (b) the performance or
observance of any of the covenants or agreements of any obligor under any
Financing Agreements, (c) the satisfaction of any condition specified in
SECTION 4, except receipt of items required to be delivered to the Agent and
not waived at closing, or (d) the validity, effectiveness or genuineness of
any Financing Agreements or any other instrument or writing furnished in
connection therewith.
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12.5 ACTION ON INSTRUCTIONS OF LENDERS. The Agent shall in all
cases be fully protected in acting, or in refraining from acting, hereunder
and under any other Financing Agreements in accordance with written
instructions signed by the Required Lenders, and such instructions and any
action taken or failure to act pursuant thereto shall be binding on all of
the Lenders and on all holders of Notes. The Agent shall be fully justified
in failing or refusing to take any action hereunder and under any other
Financing Agreements unless it shall first be indemnified to its satisfaction
by the Lenders pro-rata against any and all liability, cost and expense that
it may incur by reason of taking or continuing to take any such action.
12.6 EMPLOYMENT OF AGENTS AND COUNSEL. The Agent may execute any
of its duties as Agent hereunder and under any other Financing Agreements by
or through employees, Agents and attorneys-in-fact and shall not be
answerable to the Lenders, except as to money or securities received by it or
its authorized Agents, for the default or misconduct of any such Agents or
attorneys-in-fact selected by it with reasonable care. The Agent shall be
entitled to advice of counsel concerning all matters pertaining to the agency
hereby created and its duties hereunder and under any other Financing
Agreements.
12.7 RELIANCE ON DOCUMENTS; COUNSEL. The Agent shall be entitled
to rely upon any Note, notice, consent, certificate, affidavit, letter,
telegram, statement, paper or document believed by it to be genuine and
correct and to have been signed or sent by the proper Person or Persons, and,
in respect to legal matters, upon the opinion of counsel selected by the
Agent, which counsel may be employees of the Agent.
12.8 AGENT'S REIMBURSEMENT AND INDEMNIFICATION. The Lenders agree
to reimburse and indemnify the Agent and any Co-Agent ratably in proportion
to their respective Commitments (a) for any amounts not reimbursed by the
Borrower for which the Agent and any Co-Agent is entitled to reimbursement by
the Borrower under the Financing Agreements, (b) for any other expenses
incurred by the Agent and any Co-Agent on behalf of the Lenders, in
connection with the preparation, execution, delivery, administration and
enforcement of the Financing Agreements, and (c) for any liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements of any kind and nature whatsoever which may be
imposed on, incurred by or asserted against the Agent and any Co-Agent in any
way relating to or arising out of the Financing Agreements or any other
document delivered in connection therewith or the transactions contemplated
hereby and thereby, or the enforcement of any of the terms thereof or of any
such other documents; PROVIDED that no Lender shall be liable for any of the
foregoing to the extent they arise from the gross negligence or willful
misconduct of the Agent and any Co-Agent as determined by a final order, not
subject to appeal, of a court of competent jurisdiction. The obligations of
the Lenders under this SUBSECTION 12.8 shall survive payment of the
Obligations and termination of this Agreement.
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12.9 RIGHTS AS A LENDER. In the event the Agent is a Lender, the
Agent shall have the same rights and powers hereunder and under any other
Financing Agreements as any Lender and may exercise the same as though it
were not the Agent, and the term "Lender" or "Lenders" shall, at any time
when the Agent is a Lender, unless the context otherwise indicates, include
the Agent in its individual capacity. The Agent may accept deposits from,
lend money to, and generally engage in any kind of trust, debt, equity or
other transaction, in addition to those contemplated by this Agreement or any
other Financing Agreements, with the Borrower or any of its Subsidiaries in
which the Borrower or such Subsidiary is not restricted hereby from engaging
with any other Person.
12.10 LENDER CREDIT DECISION. Each Lender acknowledges that it
has, independently and without reliance upon the Agent or any other Lender
and based on the financial statements prepared by the Borrower and such other
documents and information as it has deemed appropriate, made its own credit
analysis and decision to enter into this Agreement and the other Financing
Agreements. Each Lender also acknowledges that it will, independently and
without reliance upon the Agent or any other Lender and based on such
documents and information as it shall deem appropriate at the time, continue
to make its own credit decisions in taking or not taking action under this
Agreement and the other Financing Agreements.
12.11 SUCCESSOR AGENT. The Agent may resign at any time by giving
written notice thereof to the Lenders and the Borrower. The Agent may be
removed at any time for cause by the Required Lenders. Upon any such
resignation or removal, the Required Lenders shall have the right to appoint,
on behalf of the Borrower and the Lenders, a successor Agent. If no
successor Agent shall have been so appointed by the Required Lenders and
shall have accepted such appointment within thirty days after the retiring
Agent's giving notice of resignation or within thirty days after the removal
of such Agent, then the retiring Agent shall use reasonable efforts to
appoint, on behalf of the Borrower and the Lenders, a successor Agent. Such
successor Agent shall be a financial institution having capital and retained
earnings of at least One Hundred Fifty Million Dollars ($150,000,000). Upon
the acceptance of any appointment as Agent hereunder by a successor Agent,
such successor Agent shall thereupon succeed to and become vested with all
the rights, powers, privileges and duties of the retiring Agent, and the
retiring Agent shall be discharged from its duties and obligations hereunder
and under the other Financing Agreements. After any retiring Agent's
resignation or removal hereunder as Agent, the provisions of this SECTION 12
shall continue in effect for its benefit in respect of any actions taken or
omitted to be taken by it while it was acting as the Agent hereunder and
under the other Financing Agreements.
12.12 NOTICE OF DEFAULT. The Agent shall not be deemed to have
knowledge or notice of the occurrence of any Default or Event of Default
hereunder
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unless the Agent has received notice from a Lender or the Borrower referring
to this Agreement describing such Default or Event of Default and stating
that such notice is a "notice of default". In the event that the Agent
receives such a notice, the Agent shall give prompt notice thereof to the
Lenders. Subject to the provisions of SUBSECTION 12.5, the Agent shall take
any action of the type specified in this Agreement with respect to such
Default or Event of Default as shall be reasonably directed by the Required
Lenders (or, if so required by SECTION 13, by all Lenders); PROVIDED that
unless and until the Agent shall have received such directions, the Agent may
(but shall not be obligated to) take such action, or refrain from taking such
action, with respect to such Default or Event of Default as the Agent shall
determine is in the best interests of the Lenders.
13. AMENDMENTS AND WAIVERS.
Subject to the provisions of this SECTION 13, the Required Lenders
(or the Agent with the consent in writing of the Required Lenders) and the
Borrower may enter into agreements supplemental hereto for the purpose of
adding, terminating or modifying any provisions to the Financing Agreements
or changing in any manner the rights of the Lenders or the Borrower hereunder
or waiving any Event of Default hereunder; PROVIDED that no such supplemental
agreement shall, without the consent of each Lender affected thereby:
(a) extend the final maturity of any Loan or Note or reduce the
principal amount thereof, or reduce the rate or extend the time of payment of
interest or fees thereon;
(b) reduce the percentage specified in the definition of Required
Lenders;
(c) reduce the amount or extend the payment date for the mandatory
payments required hereunder, or increase the amount of the Revolving Credit
Commitment of any Lender hereunder (other than an increase in the Revolving
Credit Commitment of any Lender as a result of an assignment consummated
between such Lender and another Lender pursuant to SUBSECTION 11.1);
(d) extend the Revolving Loan Initial Term or the Revolving Loan
Renewal Term, as applicable (except as contemplated by SUBSECTION 2.8);
(e) amend this SECTION 13;
(f) release all or any substantial portion of the Collateral or
the real property subject to the Mortgages;
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(g) permit any assignment by the Borrower of its Obligations or
its rights hereunder; or
(h) amend the definition of the term "Commitment" without the
consent of each Lender affected thereby.
No amendment, modification, termination or waiver affecting the
rights or duties of the Agent under any Financing Agreement shall be
effective without the written consent of the Agent.
Each amendment, modification, termination or waiver shall be
effective only in the specific instance and for the specific purpose for
which it was given. No amendment, modification, termination or waiver shall
be required for the Agent to take additional Collateral pursuant to any
Financing Agreement. No notice to or demand on the Borrower not required by
the terms hereof in any case shall entitle the Borrower to any other or
further notice or demand in similar or other circumstances. Any amendment,
modification, termination, waiver or consent effected in accordance with this
SECTION 13 shall be binding upon each holder of the Notes at the time
outstanding, each future holder of the Notes and the Borrower.
Notwithstanding anything to the contrary contained herein, the
Agent may, at its sole discretion, release or compromise Collateral and the
proceeds thereof to the extent of asset dispositions permitted by the terms
hereof.
14. SETOFF AND SHARING OF PAYMENTS.
14.1 SETOFF. In addition to any rights now or hereafter granted
under applicable law and not by way of limitation of any such rights, upon
the occurrence and during the continuance of any Event of Default, each
Lender is hereby authorized by the Borrower at any time or from time to time,
with reasonably prompt subsequent notice to the Borrower or to any other
Person (any prior or contemporaneous notice being hereby expressly waived) to
set off and to appropriate and to apply any and all (a) balances (including,
without limitation, all account balances, whether provisional or final and
whether or not collected or available) held or owing by such Lender at any of
its offices to or for the credit or account of the Borrower (regardless of
whether such balances are then due to the Borrower) and (b) other property
held or owing by such Lender to or for the credit or the account of the
Borrower, toward the payment of the Obligations owing to such Lender, whether
or not the Obligations, or any part hereof, shall then be due.
14.2 RATABLE PAYMENTS. If any Lender, whether by setoff or
otherwise, has payment made to it upon its Loans (other than payments
received pursuant to SUBSECTION 2.19) in a greater proportion than its Pro
Rata Share of such Loans, such Lender agrees, promptly upon demand, to
purchase a portion of the Loans held by the
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<PAGE>
other Lenders so that after such purchase each Lender will hold its ratable
proportion of Loans. If any Lender, whether in connection with setoff or
amounts which might be subject to setoff or otherwise, received collateral or
other protection for its Obligations or such amounts which may be subject to
setoff, such Lender agrees, promptly upon demand, to take such action
necessary such that all Lenders share in the benefits of such collateral
ratably in proportion to their Loans. In case any such payment is disturbed
by legal process, or otherwise, appropriate further adjustments shall be
made. If an amount to be setoff to be applied to Indebtedness of the
Borrower to a Lender, other than Indebtedness evidenced by any of the Notes
held by such Lender, such amount shall be applied ratably to such other
Indebtedness and to the Indebtedness evidenced by such Notes. The Borrower
agrees, to the fullest extent permitted by law, that (x) any Lender may
exercise its right to set off with respect to amounts in excess of its Pro
Rata Share of the Obligations and may sell participation in such excess to
other Lenders, and (y) any Lender so purchasing a participation in the Loans
made or other Obligations held by other Lenders may exercise all rights of
setoff, bankers' lien, counterclaim or similar rights with respect to such
participation as fully as if such Lender were a direct holder of Loans and
other Obligations in the amount of such participation.
15. CERTAIN ACKNOWLEDGMENTS. The Borrower hereby affirms and
ratifies the following in all respects:
(a) The Borrower has no grounds for disputing the validity or
enforceability of the Financing Agreements or any of the Obligations, or the
validity, priority, enforceability or extent of the Agent's security interest
in or lien against any of Collateral in any judicial, administrative or other
proceeding; and
(b) The Borrower, for itself and any other Person who may claim an
interest through the Borrower, hereby releases and discharges, with
prejudice, the Agent, each Lender, and each of their respective directors,
officers, Affiliates, agents, attorneys and employees from any and every
claim, right, cause, action, cause of action, damage, liability, and other
matter or proceeding arising from, relating to or in connection with any acts
or omissions of the Agent, each Lender, and each of their respective
directors, officers, Affiliates, agents, attorneys and employees prior to the
Effective Date. This provision shall survive and continue in full force and
effect whether or not (i) the Borrower shall satisfy all other provisions of
the Financing Agreements, including payment in full by the Borrower of all
Obligations, or (ii) this Agreement is otherwise terminated.
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IN WITNESS WHEREOF, this Agreement has been duly executed as of the
day and year first above written.
BROTHERS GOURMET COFFEES, INC.
By:
-----------------------------------
Title:
-----------------------------------
GOLDMAN SACHS CREDIT PARTNERS, L.P.,
as Agent and as a Lender
By:
-----------------------------------
Title:
-----------------------------------
THE BORROWER ACKNOWLEDGES THAT IT HAS BEEN ADVISED BY COUNSEL OF
ITS CHOICE WITH RESPECT TO THIS AGREEMENT AND THE TRANSACTIONS CONTEMPLATED
HEREBY, AND THE BORROWER ACKNOWLEDGES AND AGREES THAT (i) EACH OF THE WAIVERS
SET FORTH HEREIN, INCLUDING, WITHOUT LIMITATION, THOSE WAIVERS SET FORTH IN
SUBSECTIONS 9.5, 9.6 AND 10.8 AND IN SECTION 15 WERE KNOWINGLY AND
VOLUNTARILY MADE, (ii) THE OBLIGATIONS OF THE AGENT AND EACH LENDER
HEREUNDER, INCLUDING THE OBLIGATION TO ADVANCE AND LEND FUNDS TO THE BORROWER
IN ACCORDANCE HEREWITH, SHALL BE STRICTLY CONSTRUED AND SHALL BE EXPRESSLY
SUBJECT TO THE BORROWER'S COMPLIANCE IN ALL RESPECTS WITH THE TERMS AND
CONDITIONS HEREIN SET FORTH, AND (iii) NO REPRESENTATIVE OF THE AGENT OR ANY
LENDER HAS WAIVED OR MODIFIED ANY OF THE PROVISIONS OF THIS AGREEMENT AS OF
THE DATE HEREOF AND NO SUCH WAIVER OR MODIFICATION FOLLOWING THE DATE HEREOF
SHALL BE EFFECTIVE UNLESS MADE IN ACCORDANCE WITH SUBSECTION 10.1.
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AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT
BY AND AMONG
BROTHERS GOURMET COFFEES, INC.
as Borrower,
THE LENDERS NAMED HEREIN
as Lenders,
AND
GOLDMAN SACHS CREDIT PARTNERS, L.P.
as Agent and Lender
Dated as of
December 9, 1997
<PAGE>
TABLE OF CONTENTS
<TABLE>
Page
----
<S> <C> <C>
1. DEFINITIONS.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
1.1 GENERAL TERMS.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
1.2 ACCOUNTING TERMS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
1.3 OTHER TERMS DEFINED IN NEW YORK UNIFORM COMMERCIAL CODE.. . . . . . . . . 28
1.4 REFERENCES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
2. CREDIT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
2.1 REVOLVING CREDIT FACILITY AND REVOLVING LOANS.. . . . . . . . . . . . . . 28
2.2 MAXIMUM PRINCIPAL BALANCE OF REVOLVING LOAN.. . . . . . . . . . . . . . . 30
2.3 EVIDENCE OF REVOLVING LOAN INDEBTEDNESS.. . . . . . . . . . . . . . . . . 30
2.4 TERM LOAN A.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
2.5 TERM LOAN B.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
2.6 INTEREST IN GENERAL, ETC. . . . . . . . . . . . . . . . . . . . . . . . . 32
2.7 METHOD OF BORROWING; MANNER AND METHOD OF MAKING INTEREST AND OTHER
PAYMENTS.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
2.8 TERM OF THIS AGREEMENT; TERMINATION.. . . . . . . . . . . . . . . . . . . 35
2.9 PREPAYMENTS.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
2.10 ACQUISITION FEE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
2.11 REVOLVING LOAN UNUSED LINE FEE.. . . . . . . . . . . . . . . . . . . . . 36
2.12 LINE FEE.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
2.13 SLOTTING LINE FEE. . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
2.14 OTHER FEES, COSTS AND EXPENSES.. . . . . . . . . . . . . . . . . . . . . 37
2.15 [Intentionally Omitted]. . . . . . . . . . . . . . . . . . . . . . . . . 38
2.16 LOAN ACCOUNT.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
2.17 STATEMENTS.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
2.18 PAYMENT DATES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
2.19 TAXES; CHANGES IN LAW. . . . . . . . . . . . . . . . . . . . . . . . . . 39
3. REPORTING AND ELIGIBILITY REQUIREMENTS. . . . . . . . . . . . . . . . . . . . . 41
3.1 REPORTS REGARDING COLLATERAL. . . . . . . . . . . . . . . . . . . . . . . 41
3.2 ELIGIBLE ACCOUNTS.. . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
3.3 ACCOUNT WARRANTIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
3.4 VERIFICATION OF ACCOUNTS. . . . . . . . . . . . . . . . . . . . . . . . . 44
3.5 COLLECTION OF ACCOUNTS AND PAYMENTS.. . . . . . . . . . . . . . . . . . . 44
3.6 APPOINTMENT OF THE AGENT AS BORROWER'S ATTORNEY-IN-FACT.. . . . . . . . . 46
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3.7 ACCOUNT RECORDS.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
3.8 INSTRUMENTS AND CHATTEL PAPER.. . . . . . . . . . . . . . . . . . . . . . 47
3.9 NOTICE TO ACCOUNT DEBTORS.. . . . . . . . . . . . . . . . . . . . . . . . 47
3.10 ELIGIBLE INVENTORY.. . . . . . . . . . . . . . . . . . . . . . . . . . . 47
3.11 INVENTORY WARRANTIES.. . . . . . . . . . . . . . . . . . . . . . . . . . 48
3.12 INVENTORY RECORDS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
3.13 SAFEKEEPING OF INVENTORY AND INVENTORY COVENANTS . . . . . . . . . . . . 49
3.14 EQUIPMENT WARRANTIES . . . . . . . . . . . . . . . . . . . . . . . . . . 49
3.15 EQUIPMENT RECORDS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
3.16 MAINTENANCE OF EQUIPMENT . . . . . . . . . . . . . . . . . . . . . . . . 49
3.17 REAL ESTATE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
3.18 MAINTENANCE OF REAL ESTATE . . . . . . . . . . . . . . . . . . . . . . . 50
3.19 INTELLECTUAL PROPERTY AND GENERAL INTANGIBLES. . . . . . . . . . . . . . 50
4. CONDITIONS TO ADVANCES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
4.1 CONDITIONS TO ALL ADVANCES. . . . . . . . . . . . . . . . . . . . . . . . 50
4.2 CONDITIONS TO EFFECTIVE DATE AND INITIAL ADVANCE. . . . . . . . . . . . . 51
5. COLLATERAL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
5.1 SECURITY INTEREST . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
5.2 PRESERVATION OF COLLATERAL AND PERFECTION OF LIENS THEREON. . . . . . . . 56
5.3 CONSIGNED INVENTORY . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
6. REPRESENTATIONS AND WARRANTIES. . . . . . . . . . . . . . . . . . . . . . . . . 57
6.1 EXISTENCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
6.2 AUTHORITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
6.3 BINDING EFFECT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
6.4 FINANCIAL DATA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
6.5 COLLATERAL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
6.6 SOLVENCY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
6.7 PLACES OF BUSINESS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
6.8 OTHER NAMES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
6.9 TAX OBLIGATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
6.10 INDEBTEDNESS AND LIABILITIES . . . . . . . . . . . . . . . . . . . . . . 61
6.11 USE OF PROCEEDS AND MARGIN SECURITY. . . . . . . . . . . . . . . . . . . 61
6.12 GOVERNMENT CONTRACTS . . . . . . . . . . . . . . . . . . . . . . . . . . 61
6.13 INVESTMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
6.14 LITIGATION AND PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . . . 62
6.15 OTHER AGREEMENTS AND DELIVERIES. . . . . . . . . . . . . . . . . . . . . 62
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6.16 LABOR MATTERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
6.17 COMPLIANCE WITH LAWS AND REGULATIONS . . . . . . . . . . . . . . . . . . 63
6.18 PATENTS, TRADEMARKS AND LICENSES . . . . . . . . . . . . . . . . . . . . 63
6.19 ERISA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
6.20 PROPERTY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
6.21 ADVERSE CONTRACTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
6.22 PURCHASE OR OTHER COMMITMENTS AND OUTSTANDING BIDS . . . . . . . . . . . 65
6.23 INVESTMENT COMPANY ACT; PUBLIC UTILITY HOLDING COMPANY ACT . . . . . . . 65
6.24 BROKER'S FEES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
6.25 LICENSES AND PERMITS . . . . . . . . . . . . . . . . . . . . . . . . . . 66
6.26 ENVIRONMENTAL COMPLIANCE.. . . . . . . . . . . . . . . . . . . . . . . . 66
6.27 FULL DISCLOSURE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
6.28 INSURANCE POLICIES . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
6.29 CUSTOMER AND TRADE RELATIONS . . . . . . . . . . . . . . . . . . . . . . 69
6.30 SURVIVAL OF WARRANTIES . . . . . . . . . . . . . . . . . . . . . . . . . 69
6.31 CORPORATE AND CONTRACTUAL RESTRICTIONS . . . . . . . . . . . . . . . . . 69
6.32 SUBSIDIARIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
6.33 DEPOSIT AND DISBURSEMENT ACCOUNTS. . . . . . . . . . . . . . . . . . . . 69
6.34 DEFAULTS AND EVENTS OF DEFAULT . . . . . . . . . . . . . . . . . . . . . 69
6.35 OBLIGATIONS IMMEDIATELY PRIOR TO THE EFFECTIVE DATE. . . . . . . . . . . 70
6.36 OTHER REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . 70
7. AFFIRMATIVE COVENANTS.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
7.1 FINANCIAL STATEMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . 71
7.2 INSPECTIONS AND AUDITS. . . . . . . . . . . . . . . . . . . . . . . . . . 74
7.3 CONDUCT OF BUSINESS; COMPLIANCE WITH LAWS . . . . . . . . . . . . . . . . 74
7.4 CLAIMS AND TAXES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
7.5 BORROWER'S LIABILITY INSURANCE. . . . . . . . . . . . . . . . . . . . . . 76
7.6 BORROWER'S PROPERTY INSURANCE . . . . . . . . . . . . . . . . . . . . . . 76
7.7 PENSION PLANS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
7.8 NOTICE OF CERTAIN MATTERS . . . . . . . . . . . . . . . . . . . . . . . . 78
7.9 LANDLORD AND WAREHOUSEMAN AGREEMENTS. . . . . . . . . . . . . . . . . . . 78
7.10 INDEMNITY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
7.11. ADDITIONAL SLOTTING FEE CERTIFICATE . . . . . . . . . . . . . . . . . . 80
7.12. REAL ESTATE.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
8. NEGATIVE COVENANTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
8.1 ENCUMBRANCES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
8.2 INDEBTEDNESS AND LIABILITIES. . . . . . . . . . . . . . . . . . . . . . . 82
8.3 CONSOLIDATIONS, ACQUISITIONS. . . . . . . . . . . . . . . . . . . . . . . 82
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8.4 INVESTMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
8.5 GUARANTIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
8.6 COLLATERAL LOCATIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . 83
8.7 DISPOSAL OF PROPERTY. . . . . . . . . . . . . . . . . . . . . . . . . . . 83
8.8 EMPLOYEE LOANS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
8.9 PLANS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
8.10 RESTRICTED PAYMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . 85
8.11 SECURITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
8.12 CHANGES IN CHARTER, BYLAWS OR FISCAL YEAR. . . . . . . . . . . . . . . . 85
8.13 TRANSACTIONS WITH AFFILIATES . . . . . . . . . . . . . . . . . . . . . . 85
8.14 CAPITAL STRUCTURE; OTHER BUSINESS. . . . . . . . . . . . . . . . . . . . 85
8.15 SALE AND LEASEBACK . . . . . . . . . . . . . . . . . . . . . . . . . . . 86
8.16 IMPAIRMENT AGREEMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . 86
8.17 CORPORATE ACCOUNTS . . . . . . . . . . . . . . . . . . . . . . . . . . . 86
8.18 CAPITAL EXPENDITURES LIMITATIONS . . . . . . . . . . . . . . . . . . . . 86
8.19 PARTNERSHIP AGREEMENT. . . . . . . . . . . . . . . . . . . . . . . . . . 86
8.20 SUBORDINATED DEBT. . . . . . . . . . . . . . . . . . . . . . . . . . . . 86
8.21 FINANCIAL COVENANTS. . . . . . . . . . . . . . . . . . . . . . . . . . . 87
8.22 SUBSIDIARIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88
9. DEFAULT, RIGHTS AND REMEDIES OF THE AGENT AND THE LENDERS.. . . . . . . . . . . 88
9.1 OBLIGATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88
9.2 RIGHTS AND REMEDIES GENERALLY . . . . . . . . . . . . . . . . . . . . . . 89
9.3 ENTRY UPON PREMISES AND ACCESS TO INFORMATION . . . . . . . . . . . . . . 89
9.4 SALE OR OTHER DISPOSITION OF COLLATERAL BY THE AGENT. . . . . . . . . . . 89
9.5 WAIVER OF DEMAND. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90
9.6 WAIVER OF NOTICE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90
10. OTHER RIGHTS AND OBLIGATIONS.. . . . . . . . . . . . . . . . . . . . . . . . . 90
10.1 WAIVER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90
10.2 COSTS AND ATTORNEYS' FEES. . . . . . . . . . . . . . . . . . . . . . . . 91
10.3 EXPENDITURES BY THE AGENT AND THE LENDERS. . . . . . . . . . . . . . . . 91
10.4 CUSTODY AND PRESERVATION OF COLLATERAL . . . . . . . . . . . . . . . . . 92
10.5 RELIANCE BY THE AGENT AND LENDERS. . . . . . . . . . . . . . . . . . . . 92
10.6 PARTIES AND ASSIGNMENT . . . . . . . . . . . . . . . . . . . . . . . . . 92
10.7 APPLICABLE LAW; SEVERABILITY . . . . . . . . . . . . . . . . . . . . . . 92
10.8 SUBMISSION TO JURISDICTION; WAIVER OF JURY AND BOND. . . . . . . . . . . 93
10.9 MARSHALLING. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94
10.10 SECTION TITLES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94
10.11 CONTINUING EFFECT . . . . . . . . . . . . . . . . . . . . . . . . . . . 94
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10.12 INCORPORATION BY REFERENCE. . . . . . . . . . . . . . . . . . . . . . . 94
10.13 NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95
10.14 WAIVERS WITH RESPECT TO OTHER INSTRUMENTS . . . . . . . . . . . . . . . 96
10.15 RETENTION OF THE BORROWER'S DOCUMENTS . . . . . . . . . . . . . . . . . 96
10.16 ENTIRE AGREEMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . 96
10.17 EQUITABLE RELIEF. . . . . . . . . . . . . . . . . . . . . . . . . . . . 96
10.18 LENDERS' FIRST RIGHT OF REFUSAL . . . . . . . . . . . . . . . . . . . . 96
10.19 COUNTERPARTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97
10.20 NO FIDUCIARY RELATIONSHIP . . . . . . . . . . . . . . . . . . . . . . . 97
10.21 EXCEPTIONS TO COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . 97
10.22 CONSTRUCTION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97
11. ASSIGNMENT AND PARTICIPATION.. . . . . . . . . . . . . . . . . . . . . . . . . 97
11.1 ASSIGNMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97
11.2 PARTICIPATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97
12. AGENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98
12.1 APPOINTMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98
12.2 POWERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98
12.3 GENERAL IMMUNITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98
12.4 NO RESPONSIBILITY FOR LOANS, RECITALS, ETC.. . . . . . . . . . . . . . . 98
12.5 ACTION ON INSTRUCTIONS OF LENDERS. . . . . . . . . . . . . . . . . . . . 99
12.6 EMPLOYMENT OF AGENTS AND COUNSEL . . . . . . . . . . . . . . . . . . . . 99
12.7 RELIANCE ON DOCUMENTS; COUNSEL . . . . . . . . . . . . . . . . . . . . . 99
12.8 AGENT'S REIMBURSEMENT AND INDEMNIFICATION. . . . . . . . . . . . . . . . 99
12.9 RIGHTS AS A LENDER.. . . . . . . . . . . . . . . . . . . . . . . . . . .100
12.10 LENDER CREDIT DECISION. . . . . . . . . . . . . . . . . . . . . . . . .100
12.11 SUCCESSOR AGENT.. . . . . . . . . . . . . . . . . . . . . . . . . . . .100
12.12 NOTICE OF DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . . . .100
13. AMENDMENTS AND WAIVERS.. . . . . . . . . . . . . . . . . . . . . . . . . . . .101
14. SETOFF AND SHARING OF PAYMENTS.. . . . . . . . . . . . . . . . . . . . . . . .102
14.1 SETOFF.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .102
14.2 RATABLE PAYMENTS.. . . . . . . . . . . . . . . . . . . . . . . . . . . .102
15. CERTAIN ACKNOWLEDGMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . .103
</TABLE>
-v-
<PAGE>
LIST OF EXHIBITS AND SCHEDULES
Exhibit A Shareholders Lawsuits
Exhibit B [RESERVED]
Exhibit C Retail Store Locations
Exhibit 2.1 Certain Inventory Locations
Exhibit 2.3 Form of Revolving Loan Promissory Note
Exhibit 2.4 Form of Term Loan A Promissory Note
Exhibit 2.5 Form of Term Loan B Promissory Note
Exhibit 2.6-1 Form of Borrowing Notice
Exhibit 3.1-1 Form of Weekly Report
Exhibit 3.1-2 Form of Monthly Report
Exhibit 3.14 Equipment Locations and Leased Equipment
Exhibit 3.17 Real Estate Owned or Leased by Borrower
Exhibit 3.19 Intellectual Property and General Intangibles
Exhibit 6.1-1 Good Standing Jurisdictions of Borrower and its
Subsidiaries
Exhibit 6.1-2 Certain Reserved Shares and Agreements
Exhibit 6.4 Projections
Exhibit 6.5 Encumbrances on Collateral
Exhibit 6.7 Principal Place of Business and Chief Executive Office
of the Borrower
Exhibit 6.8 Trade Names of Borrower
Exhibit 6.11 Use of Proceeds
Exhibit 6.12 Government Contracts
Exhibit 6.14 Litigation and Proceedings
Exhibit 6.15 Defaults Under Executory Contracts
Exhibit 6.16 Labor Matters
Exhibit 6.18 Intellectual Property
Exhibit 6.19 Plans or Multiemployer Plans
Exhibit 6.20 Exceptions to Title
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<PAGE>
Exhibit 6.25 Licenses and Permits
Exhibit 6.26 Environmental Matters
Exhibit 6.32 Subsidiaries of the Borrower
Exhibit 6.33 Deposit and Disbursement Accounts
Exhibit 6.34 List of Defaults or Events of Default
Exhibit 7.5 Insurance Policies
Exhibit 7.6 Form of Insurance Endorsement
Exhibit 8.1 Permitted Liens
Exhibit 8.2 Permitted Indebtedness
Exhibit 8.3 Consolidations, Acquisitions
Exhibit 8.4 Permitted Investments
Exhibit 8.5 Permitted Guaranties
Exhibit 8.6 Collateral Locations
Exhibit 8.7 List of Assets to be Sold Pursuant to the Retail
Stores Sale Program
Exhibit 8.13 Transactions with Affiliates
Exhibit 8.16 Impairment Agreements
Schedule 1 Lenders' Commitments
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<PAGE>
SUBORDINATION AGREEMENT
THIS SUBORDINATION AGREEMENT (hereafter this "Agreement") is made
as of the 27th day of December, 1996, by and among SANWA BUSINESS CREDIT
CORPORATION, a Delaware corporation, as a Senior Lender and as Agent under
the Sanwa Documents for other Senior Lenders, and DILMUN FINANCIAL SERVICES,
an unlimited Irish company, and BIB HOLDINGS (BERMUDA) LTD., a Bermuda
corporation.
RECITALS
WHEREAS, Brothers Gourmet Coffees, Inc. (the "Borrower") has
entered into a Loan and Security Agreement dated as of May 29, 1996 with
Sanwa Business Credit Corporation, as a Senior Lender and as Agent for the
Senior Lenders (the "Sanwa Loan Agreement"), pursuant to which the Senior
Lenders have committed to make loans and financial accommodations available
to the Borrower to be secured by a first lien and security interest against
the Collateral.
WHEREAS, Subordinated Creditor is the holder of (a) a senior
subordinated promissory note of even date herewith issued by the Borrower in
the principal amount of Fifteen Million Dollars ($15,000,000) (the
"Subordinated Note") pursuant to the Subordinated Note Agreement and (b) the
Warrant issued pursuant to the Subordinated Note Agreement.
WHEREAS, the Borrower has requested that the Subordinated Creditor
enter into this Agreement with Sanwa as a condition of the Borrower's
assumption of the Subordinated Debt and as a condition to the Senior Lenders
continuing to advance Sanwa Debt under the Sanwa Documents on the date hereof
or in the future.
WHEREAS, Sanwa and Subordinated Creditor have entered into this
Agreement to set forth the relative rights of payment of the indebtedness and
other liabilities and obligations of the Borrower evidenced by the Sanwa
Documents and the Subordinated Debt Documents.
NOW, THEREFORE, for good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged by the Subordinated
Creditor, and in order to induce the Senior Lenders, at their option, now or
from time to time hereafter, to make loans or extend credit or any other
financial accommodations to or for the benefit of the Borrower or to grant
such renewals or extensions thereof as the Senior Lenders may deem advisable
and to better secure Sanwa and the other Senior Lenders in respect of the
<PAGE>
foregoing, the Subordinated Creditor hereby agrees with Sanwa and the other
Senior Lenders as hereinafter set forth.
Section 1. CERTAIN DEFINITIONS. In addition to the terms defined
in the recitals hereto, the following terms shall have the following meanings
for purposes of this Agreement:
"Additional Subordinated Notes" shall mean the additional senior
subordinated promissory notes issued pursuant to Section 5(d)(vi) of the
Warrant in the form of Exhibit A to the Warrant.
"Bankruptcy Code" shall mean 11 U.S.C. Section 101 ET SEQ., as from
time to time hereinafter amended, and any successor thereto or replacement
therefor which may be hereinafter enacted.
"Blockage Period" shall have the meaning ascribed thereto in
subsection 2(b) hereof.
"Code" shall mean the Uniform Commercial Code as in effect from
time to time in each jurisdiction in which any of the Collateral is located.
"Collateral" shall mean all assets, property and interests in
property now owned or hereafter acquired by the Borrower or its Subsidiaries
or any guarantor thereof in or upon which a security interest, lien or
mortgage is granted to Sanwa and the other Senior Lenders by the Borrower or
its Subsidiaries under the Sanwa Documents or under any other documents,
instruments, agreements or writings executed by the Borrower or its
Subsidiaries and delivered to Sanwa including, without limitation, the
Accounts, General Intangibles, Fixtures, Inventory, Intellectual Property,
Equipment and Real Estate and all Proceeds (as defined in the Code) of all of
the foregoing.
"Collection Action" shall mean any of the following: (a) to take
from or on behalf of the Borrower or any guarantor, by set-off or in any
similar manner, the whole or any part of any monies which may now or
hereafter be owing by the Borrower or any guarantor with respect to the
Subordinated Debt, (b) to take any Enforcement Action with respect to the
Subordinated Debt, or (c) to accelerate the Subordinated Debt.
"Conversion Shares" shall have the meaning ascribed thereto in the
Warrant.
"Covenant Default" shall mean any Event of Default (other than a
Payment Default) with respect to any Sanwa Debt which is described in the
definition of "Event of Default" in the Sanwa Loan Agreement (excluding
clauses (f), (g),(h) and (j) thereof).
"Enforcement Action" shall mean any of the following: (a) to sue
for payment of, or to initiate or participate with others in any Event of
Bankruptcy or any suit, action or proceeding
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<PAGE>
against the Borrower or any guarantor to enforce payment of or to collect the
whole or any part of the Sanwa Debt or the Subordinated Debt or to enforce
any other rights, powers, privileges or remedies under the Sanwa Documents or
the Subordinated Debt Documents or (b) to take any action under Article 9 of
the Code with respect to personal property (including any action in the
nature of a self-help remedy permitted under the Code) or under the
provisions of any state law with respect to foreclosure upon real estate to
enforce, foreclose upon, take possession of or sell any Collateral or take
any other judicial or non-judicial action with respect to the Collateral.
"Event of Bankruptcy" shall mean any Default or Event of Default
arising under clause (f), (g), (h) or (j) of the definition of "Event of
Default" in the Sanwa Loan Agreement.
"Event of Default" shall mean the existence of an Event of
Bankruptcy or a Default or Event of Default under any Sanwa Document.
"Payment Blockage Notice" shall have the meaning ascribed thereto
in subsection 2(b) hereof.
"Payment Default" shall mean a default in the payment (including,
without limitation, any mandatory prepayment) when due (whether such payment
is due at maturity, as a result of acceleration or otherwise) of all or any
portion of the Sanwa Debt.
"Person" shall mean any natural person, corporation, limited
partnership, general partnership, limited liability partnership, limited
liability company, joint stock company, joint venture, association, company,
trust, bank, trust company, land trust, business trust or other organization,
whether or not a legal entity, and a government and agency and political
subdivision thereof.
"Phantom Stock Payment" shall have the meaning ascribed thereto in
the Warrant.
"Post-Petition Interest" shall mean the aggregate amount of all
post-petition interest, fees, costs or expenses or adequate protection
payments accruing or allowed to be paid during the pendency of any Event of
Bankruptcy and any other interest, fees, costs or expenses that would have
accrued but for the commencement of such Event of Bankruptcy, to the date of
payment even if the claim for such interest, fees, costs or expenses is not
an allowed claim of the type described in Section 506(b) of the Bankruptcy
Code.
"Sanwa" shall mean and include Sanwa Business Credit Corporation as
a Senior Lender and as Agent under the Sanwa Documents for the Senior Lenders
and its successors and assigns.
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<PAGE>
"Sanwa Debt" shall mean all indebtedness, obligations and
liabilities of the Borrower to Sanwa and the other Senior Lenders of any kind
and every kind and nature now existing or hereafter arising, whether
contingent or otherwise direct or indirect, matured or unmatured including,
without limitation, all principal, fees, costs, expenses, indemnities,
premium, if any, interest (including, without limitation, Post-Petition
Interest) and advancements arising under, or incurred in connection with, or
created under, the Sanwa Loan Agreement, whether such indebtedness,
obligations or liabilities arise or accrue before or after the commencement
of any Event of Bankruptcy; PROVIDED that, notwithstanding anything set forth
therein to the contrary, unless otherwise consented to in writing by the
Subordinated Creditor the aggregate principal amount of Sanwa Debt to which
the Subordinated Debt shall be subordinated pursuant to this Agreement shall
not exceed in the aggregate $28,000,000 at any one time outstanding of which
not more than $10,000,000 shall be term debt.
"Sanwa Documents" shall mean and include the Sanwa Loan Agreement
and the other Financing Agreements, and all other agreements, documents and
instruments now or hereafter evidencing or securing Sanwa Debt, and any
credit agreement, financing agreement or other agreement, promissory note,
guaranty, instrument or document of any Person evidencing any replacement,
substitution, conversion, refunding or refinancing thereof, as the same may
be amended, modified, restated, renewed, extended or otherwise supplemented
from time to time hereafter.
"Senior Lenders" shall mean Sanwa Business Credit Corporation, in
its individual capacity as a Lender (as defined in the Sanwa Loan Agreement)
under the Sanwa Loan Agreement and any other Person hereafter becoming a
party to the Sanwa Loan Agreement as a Lender and any other Person hereafter
holding any part of the Sanwa Debt under any Sanwa Document.
"Significant Subordinated Debt Default" shall mean the occurrence
of (a) a matured Event of Default (as defined in the Subordinated Note
Agreement) under Section 7.1(i), 7.1(j) or 7.1(k) of the Subordinated Note
Agreement, or (b) a default in the payment when due under the Subordinated
Note Agreement of Subordinated Debt in excess of $100,000 or (c) a default in
the payment when due under the Subordinated Note Agreement of fees and other
charges incurred by the Borrower pursuant to the Subordinated Debt Documents
in connection with the closing of the Subordinated Debt transaction on
December 27, 1996.
"Significant Subordinated Debt Default Notice" shall have the
meaning ascribed thereto in Section 5(d) hereof.
"Subordinated Creditor" shall mean and include, collectively,
Dilmun Financial Services and BIB Holdings (Bermuda) Ltd., their respective
successors and assigns and any other Person
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<PAGE>
hereafter holding any part of the Subordinated Debt under any Subordinated
Debt Documents.
"Subordinated Debt" shall mean all indebtedness, obligations, and
liabilities of the Borrower to the Subordinated Creditor of any kind and
every kind and nature now existing or hereafter arising, whether contingent
or otherwise direct or indirect, matured or unmatured including, without
limitation, all principal, fees, costs, expenses, premium, if any, interest
(including, without limitation, Post-Petition Interest) and advancements
arising under, or incurred in connection with, or created under, the
Subordinated Note and the Additional Subordinated Notes, and all liabilities
and obligations under the Warrant including, without limitation, the Phantom
Stock Payment, whether such indebtedness, obligations or liabilities arise or
accrue before or after the commencement of any Event of Bankruptcy.
"Subordinated Debt Documents" shall mean and include the
Subordinated Note, the Warrant, the Subordinated Note Agreement, the
Additional Subordinated Notes and all other agreements, documents,
instruments and guaranties now or hereafter evidencing or securing the
Subordinated Debt, and any credit agreement, financing agreement or other
agreement, promissory note, guaranty, instrument or document of any Person
evidencing any replacement, substitution, conversion, refunding or
refinancing thereof, as the same may be amended, modified, restated, renewed,
extended or otherwise supplemented from time to time hereafter in accordance
with the terms hereof.
"Subordinated Note Agreement" shall mean that certain Senior
Subordinated Note Agreement, dated December 27, 1996, by and between the
Borrower and Dilmun Financial Services.
"Warrant" shall mean that certain Warrant for the Purchase of
Shares of Common Stock, dated December 27, 1996, issued by the Borrower in
favor of BIB Holdings (Bermuda) Ltd.
"Warrant Shares" shall have the meaning ascribed thereto in the
Warrant.
Section 1.2 OTHER DEFINED TERMS. Unless otherwise defined
herein, all defined terms herein shall have the respective meanings ascribed
thereto in the Sanwa Loan Agreement.
Section 2. SUBORDINATION.
a. The Subordinated Creditor agrees that the Subordinated Debt
shall be subject to the provisions of this Agreement, and the Subordinated
Creditor, whether upon original issue or upon transfer or assignment thereof,
accepts and agrees to be bound by such provisions. The Subordinated Creditor
further agrees that, notwithstanding any language to the contrary contained
in any Subordinated Debt Document, the Subordinated Debt shall be
-5-
<PAGE>
and is subordinated and subject in right of payment to the prior payment in
full in cash (or in another manner agreed to in writing by the Senior Lenders
in their sole discretion) of all Sanwa Debt when and as due (whether by
acceleration or otherwise); PROVIDED that payments on the Subordinated Debt
may be made from time to time in accordance with the terms of the
Subordinated Debt Documents as provided in Section 3 hereof. Notwithstanding
the foregoing, the consent of the Senior Lenders shall not be required for
the issuance by the Borrower of the Warrant Shares or Conversion Shares or
Additional Subordinated Notes in accordance with the terms of the
Subordinated Debt Documents.
b. The Borrower will not, directly or indirectly, make or agree
to make, and the Subordinated Creditor will not ask for, demand, sue for,
take, receive, accept or retain (subject to the applicable provisions of the
Bankruptcy Code), directly or indirectly, any payment or distribution (in
cash, property or securities, by set-off or otherwise) of or on account of
any Subordinated Debt or take any Collection Action, if, at the time of such
action, payment or distribution or immediately after giving effect thereto:
i. (x) a Payment Default shall have occurred and such Payment
Default shall not have been cured or waived or (y) judicial proceedings
shall be pending in respect of such Payment Default; or
ii. all of the following shall have occurred:
(1) the Subordinated Creditor shall have received written notice
(a "Payment Blockage Notice") from Sanwa of the occurrence of a
Covenant Default (which Payment Blockage Notice shall describe the
nature of such Covenant Default and shall specify that such notice is
a Payment Blockage Notice pursuant to this Agreement);
(2) such Covenant Default shall not have been cured or waived;
and
(3) less than one hundred eighty (180) days shall have elapsed
after the date of the receipt of the Payment Blockage Notice (the
period during which the restrictions imposed by this subsection
2(b)(ii) are in effect is hereinafter referred to as a "Blockage
Period");
PROVIDED, that (i) at least thirty (30) days must elapse between the
termination of one Blockage Period and the commencement of a
subsequent Blockage Period and the aggregate duration of all Blockage
Periods shall not exceed one hundred eighty (180) days during any
period of three hundred sixty (360) consecutive days, and (ii) no
Covenant Default which exists on the date of the commencement of a
Blockage Period and which was known to
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<PAGE>
Sanwa on such date may be made the basis of the commencement of a
subsequent Blockage Period; and PROVIDED FURTHER that successive
breaches of financial or other non-payment covenants by the
Borrower shall be deemed to be separate Covenant Defaults.
The foregoing restrictions in this subsection 2(b) shall cease to
apply and, unless otherwise prohibited under Section 2, 5 or 6 hereof, the
Borrower shall be permitted to resume payments with respect to the Subordinated
Debt (including, without limitation, all payments which shall not have been made
on account of the provisions contained in this subsection 2(b)):
(x) in the case of a Payment Default, upon the earlier to occur
of (1) a cure or waiver of such Payment Default or the dismissal of
any such judicial proceeding by the Senior Lenders or (2) payment in
full in cash (or in another manner agreed to in writing by the Senior
Lenders in their sole discretion) of all Sanwa Debt; or
(y) in the case of a Covenant Default, upon the earlier to occur
of (1) the cure or waiver thereof or (2) the expiration of the
Blockage Period or the earlier termination of such Blockage Period by
the Senior Lenders.
If any such Covenant Default shall have been cured or waived, Sanwa
shall so notify the Subordinated Creditor in writing of such occurrence;
PROVIDED that failure of Sanwa to give such notice shall not in any way
affect the terms of this Agreement or render Sanwa or any other Senior Lender
liable to the Subordinated Creditor in any respect or relieve the
Subordinated Creditor of its obligations and agreements set forth in this
Agreement.
c. Notwithstanding any language in Section 2.2(b) to the
contrary, following an acceleration of the maturity of any of the Sanwa Debt
(whether as a result of a Payment Default, a Covenant Default, an Event of
Bankruptcy or otherwise) and as long as such acceleration shall continue
unrescinded, the Sanwa Debt shall first be paid in full in cash (or in
another manner agreed to in writing by the Senior Lenders in their sole
discretion) before any payment is made on account of or applied on the
Subordinated Debt.
d. Each payment of the Subordinated Debt by the Borrower shall be
deemed to constitute a representation of the Borrower to Sanwa and the other
Senior Lenders and the Subordinated Creditor that such payment is permitted
to be paid by the Borrower under this Agreement. Notwithstanding anything to
the contrary set forth herein, the Subordinated Creditor shall be entitled to
retain (subject to the applicable provisions of the Bankruptcy Code) any such
payment unless the Subordinated Creditor received a notice of a Payment
Default or a Payment Blockage Notice from Sanwa
-7-
<PAGE>
hereunder, in which case the Subordinated Creditor shall hold and deliver to
Sanwa such payment or an amount of immediately available funds equal to the
amount thereof in accordance with the terms of Section 7 hereof within ten
(10) days of receipt of such notice. Any notice given under this subsection
2(d) arising from a Covenant Default shall constitute a Payment Blockage
Notice for purposes of this Section 2, commencing on such date of payment of
the Subordinated Debt, and the duration of any resulting Blockage Period
shall be governed in all respects by the terms of subsection 2(b) hereof.
e. This Agreement shall apply with respect to all of the Sanwa
Debt, regardless of how or in what manner the Sanwa Debt is incurred, or
whether the Sanwa Debt has already been incurred or may be incurred in the
future by future advances or other financial accommodations made or extended
by the Senior Lenders as of the date hereof or hereafter or by Persons that
become holders of Sanwa Debt after the date hereof, or whether such future
advances or other financial accommodations are made at the discretion of the
Senior Lenders or such other Person under the Sanwa Documents or pursuant to
commitments thereunder.
f. The Subordinated Creditor acknowledges and agrees that the
subordination provisions herein contained are, and are intended to be, an
inducement and a consideration to the Senior Lenders, whether the Sanwa Debt
was created or acquired before or after the issuance of the Subordinated
Debt, to continue to hold or to acquire and continue to hold such Sanwa Debt
and the Senior Lenders shall be deemed conclusively to have relied on such
subordination provisions in acquiring and continuing to hold such Sanwa Debt.
If the Subordinated Creditor shall attempt to take any action in violation
of this Agreement, Sanwa and the other Senior Lenders may interpose as a
defense or plea the making of this Agreement and Sanwa and the other Senior
Lenders may intervene and interpose such defense in their name, and may by
virtue of this Agreement restrain the violation thereof.
Section 3. PERMITTED PAYMENTS. Subject to the terms of Sections
2, 5, and 6 hereof and subsection 8.20 of the Sanwa Loan Agreement, the
Borrower may pay to the Subordinated Creditor and the Subordinated Creditor
may receive, accept and retain (subject to the applicable provisions of the
Bankruptcy Code) from the Borrower payments made by the Borrower on the
Subordinated Debt in accordance with the terms of the Subordinated Debt
Documents; PROVIDED that no Default or Event of Default would result after
giving effect to any such payment. The Borrower will not, directly or
indirectly, make or agree to make, and the Subordinated Creditor will not ask
for, demand, take, receive, accept or retain (subject to the applicable
provisions of the Bankruptcy Code), directly or indirectly, any prepayment of
the Subordinated Debt except as permitted by the terms of this Agreement and
the Sanwa Loan Agreement as in effect on the date hereof without the prior
written consent of the Senior Lenders.
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<PAGE>
Section 4. SUBORDINATED DEBT OWED TO THE SUBORDINATED CREDITOR.
The Subordinated Creditor represents and warrants to Sanwa and the other
Senior Lenders that, as of the date hereof (i) the only outstanding
Subordinated Debt is that incurred under the Subordinated Note, (ii) the
aggregate outstanding Subordinated Debt is $15,000,000, plus fees and other
charges incurred by the Borrower pursuant to the Subordinated Debt Documents
in connection with the closing of the Subordinated Debt transaction, (iii) it
holds no Lien in or upon any property of the Borrower or any of its
Subsidiaries to secure payment of the Subordinated Debt, (iv) no other Person
owns any interest in the Subordinated Debt (whether as joint holder,
participant or otherwise) and (v) to the best of the Subordinated Creditor's
knowledge, no default or event of default or other breach exists under the
Subordinated Debt Documents.
The Subordinated Creditor may not negotiate, sell, assign, transfer
or otherwise dispose of (collectively a "transfer") all or any portion of the
Subordinated Debt or any interest therein unless (a) the Subordinated
Creditor shall have given Sanwa at least ten (10) days' prior written notice
of such proposed transfer and (b) the transferee shall have unconditionally
agreed in writing, in each instance, in advance of or contemporaneously with
such transfer and in form and substance satisfactory to Sanwa to be bound by
the terms of this Agreement.
Section 5. STAND-STILL PROVISIONS. Subject to the terms of
SECTIONS 2 and 6 hereof and subsection 8.20 of the Sanwa Loan Agreement,
upon the occurrence and during the continuance of a default with respect to
the Subordinated Debt (other than by reason of a Payment Default or a
Blockage Period) the Subordinated Creditor may ask or make demand for payment
of any payment of any Subordinated Debt then due in accordance with the terms
of the Subordinated Debt Documents, but shall not take any other action to
enforce payment of such amount or take any other Collection Action with
respect to the Subordinated Debt or the Borrower or any guarantor until the
earliest to occur of:
(a) payment in full in cash (or in another manner agreed to in
writing by the Senior Lenders in their sole discretion) of all Sanwa Debt;
(b) the acceleration of all Sanwa Debt;
(c) an Event of Bankruptcy; or
(d) with respect to a Significant Subordinated Debt Default only,
one hundred eighty (180) days shall have elapsed from the date on which the
Subordinated Creditor shall have given notice (a "Significant Subordinated
Debt Default Notice") to the Borrower and Sanwa of the occurrence of any
Significant Subordinated Debt Default which Significant Subordinated Debt
Default Notice shall describe the nature of such Significant Subordinated
Debt Default
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<PAGE>
and shall specify that such notice is a Significant Subordinated Debt Default
Notice pursuant to this Agreement;
PROVIDED that any payments or proceeds of such exercise of any Collection Action
received by the Subordinated Creditor shall be subject to the terms of Sections
2 and 6 hereof and shall be paid over to Sanwa in accordance with Section 7
hereof.
Notwithstanding anything contained herein to the contrary, if (i)
following the acceleration of the Sanwa Debt as described in clause (b)
above, such acceleration is rescinded by the Senior Lenders, whether or not
any existing Event of Default shall have been waived or cured, and the
Borrower is restored to the STATUS QUO ANTE existing prior to such
acceleration, and (ii) the Subordinated Creditor has taken any Collection
Actions, then all such Collection Actions shall likewise be rescinded or
terminated. Upon the occurrence of any such rescission, the terms of this
Agreement shall continue to control any subsequent Collection Actions by the
Subordinated Creditor. In taking any Collection Action, the Subordinated
Creditor shall not take any action which is intended to hinder or delay any
Enforcement Action taken by the Senior Lenders or which is inconsistent with
the provisions of this Agreement.
As between the Subordinated Creditor and the Borrower, the
existence of any payment bar or standstill restriction hereunder shall not
constitute a waiver of the Subordinated Creditor's rights to receive payments
of the Subordinated Debt when due or prevent or suspend the occurrence of an
"Event of Default" under the Subordinated Debt Documents.
Section 6. INSOLVENCY PROCEEDINGS. Upon the occurrence of an
Event of Bankruptcy:
a. This Agreement shall be applicable both before and after the
commencement, whether voluntary or involuntary, of any Event of Bankruptcy,
and all references herein to the Borrower shall be deemed to apply to the
Borrower as debtor and/or debtor in possession and to any trustee in
bankruptcy for the estate of the Borrower. Each of the parties hereto
acknowledges and agrees that this Agreement shall be enforceable under
Section 510(a) of the Bankruptcy Code. Without limiting the generality of the
foregoing, this Agreement, the priorities set forth herein and the rights and
obligations of the parties hereto with regard to Collateral shall be
applicable to all post-petition Liens on Collateral (whether such Liens are
additional or replacement Liens)granted pursuant to any bankruptcy court
order, stipulation or agreement to the same extent as if granted under the
Sanwa Documents.
b. Sanwa and the other Senior Lenders shall be entitled to
receive indefeasible payment in full in cash (or in another manner agreed to
in writing by the Senior Lenders in their sole discretion) of all Sanwa Debt
before any payment or distribution,
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<PAGE>
whether in cash, property or securities, is made on account of or applied to
the Subordinated Debt;
c. The Subordinated Debt shall forthwith become due and payable,
and any payment or distribution of assets of the Borrower of any kind or
character that occurs after an Event of Bankruptcy, whether in cash, property
or securities, to which the Subordinated Creditor would be entitled except
for the provisions of this Agreement (including any payment that may be
payable by reason of any other indebtedness of the Borrower being
subordinated to payment of any of the Subordinated Debt), shall be paid or
delivered by any debtor, debtor in possession, receiver, liquidator,
custodian, conservator, trustee or other Person making such payment or
distribution, directly to Sanwa for application to the payment of the Sanwa
Debt remaining unpaid, to the extent necessary to indefeasibly pay in full in
cash (or in another manner agreed to in writing by the Senior Lenders in
their sole discretion) of all Sanwa Debt after giving effect to any
concurrent payment or distribution to Sanwa and the other Senior Lenders. To
facilitate the foregoing, at the request of Sanwa, the Subordinated Creditor
shall authorize, empower and direct any such debtor, debtor in possession,
receiver, liquidator, custodian, conservator, trustee or other Person having
authority in the premises to effect all such payments and deliveries. The
Subordinated Creditor also irrevocably authorizes and empowers the Senior
Lenders to demand, sue for, collect and receive every such payment or
distribution described herein, such Person to make all such payments and
distributions directly to the Senior Lenders;
d. The Subordinated Creditor hereby irrevocably authorizes and
empowers the Senior Lenders, if the Subordinated Creditor fails to file a
claim or proof of claim in any case or proceeding related to an Event of
Bankruptcy at least forty-five (45) calendar days prior to the date
established by rule of law or order of court for such filing, to file and
prove such claims on behalf of the Subordinated Creditor;
e. The Subordinated Creditor shall execute and deliver to the
Senior Lenders all such further instruments and other documentation
confirming the above authorization, and all such powers of attorney, proofs
of claim and assignment of claims, and shall take all such other action, as
may be reasonably requested by the Senior Lenders to enforce such claims and
carry out the purposes of this SECTION 6;
f. In the event Sanwa or any other Senior Lender is required in
any case or proceeding related to an Event of Bankruptcy or otherwise to turn
over or otherwise return to the Borrower, the estate of the Borrower or any
guarantor, any third party or any trustee, receiver or other representative
of the Borrower or any guarantor any payment or other amount received with
respect to the Sanwa Debt (a "Recovery"), the obligations of the Subordinated
Creditor under this Agreement shall continue to be
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<PAGE>
effective, or be reinstated, as the case may be, and the Sanwa Debt shall be
reinstated to the extent of such Recovery and Sanwa and the other Senior
Lenders shall be entitled to receive payment in full in cash (or in another
manner agreed to in writing by the Senior Lenders in their sole discretion)
of all such amounts, all as though such payment had not been made;
g. The Subordinated Creditor shall not contest (or support any
other Person contesting) (i) any request by the Senior Lenders for adequate
protection in any case or proceeding related to an Event of Bankruptcy or
(ii) any objection by the Senior Lenders to any motion, relief, action or
proceeding in any such case or proceeding based on the Senior Lenders
claiming a lack of adequate protection; and
h. Although, subject to paragraph (c) above, the Subordinated
Creditor has retained its rights to vote its claims and otherwise act on its
own behalf in any case or proceeding related to an Event of Bankruptcy, the
Subordinated Creditor agrees that it will not (i) directly or indirectly,
amend the Subordinated Documents or take any other action with respect to the
Subordinated Documents or vote in any way in connection with an Event of
Bankruptcy that would be in violation of, or inconsistent with, or result in
a breach of, this Agreement or so as to challenge or contest in a case or
proceeding related to an Event of Bankruptcy or otherwise (x) the validity,
perfection, priority or enforceability of the Sanwa Debt or the liens,
security interests, mortgages and guaranties granted to secure payment of any
of the Sanwa Debt, (y) the rights of Sanwa and the other Senior Lenders set
forth in any Sanwa Document with respect to such liens, security interests,
mortgages or guaranties or (z) the validity or enforceability of any term,
condition or provision of this Agreement, (ii) induce any other Person to
take any such action or (iii) cooperate with any Person in taking any such
action. Nothing herein shall be construed to prohibit the Senior Lenders
from seeking, in any case or proceeding related to an Event of Bankruptcy, a
determination of the value of its secured claims, including, without
limitation, a determination under 11 U.S.C. Section 506(a) and Bankruptcy
Rule 3012.
Nothing contained herein shall prohibit or in any way limit Sanwa
or any other Senior Lender from objecting in any such case or proceeding
related to an Event of Bankruptcy or otherwise to any action taken by the
Subordinated Creditor.
Upon any payment or distribution of assets of the Borrower referred
to in this Section 6, the Subordinated Creditor shall be entitled to rely
upon any order or decree made by any court of competent jurisdiction in which
any case or proceeding related to an Event of Bankruptcy is pending, and upon
a certificate of the debtor, debtor in possession, receiver, liquidator,
custodian, conservator, trustee or other Person making any payment or
distribution to such holders for the purpose of
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ascertaining the Persons entitled to participate therein, the then
outstanding principal amount of the Sanwa Debt and any and all amounts
payable thereon, the amount or amounts paid or distributed thereon and all
other facts pertinent thereto or to this SECTION 6.
Section 7. PAYMENTS OR DISTRIBUTIONS RECEIVED BY THE SUBORDINATED
CREDITOR. Except as to payments or distributions which the Subordinated
Creditor is permitted to receive, accept and retain (subject to the
applicable provisions of the Bankruptcy Code) pursuant to this Agreement,
should any payment or distribution of any kind or character be paid to or
received by, whether in cash, property or securities, upon or with respect to
the Subordinated Debt prior to the payment in full in cash (or in another
manner agreed to in writing by the Senior Lenders in their sole discretion)
of all Sanwa Debt, the Subordinated Creditor shall receive and hold the same
in trust, as trustee, for the benefit of Sanwa and the other Senior Lenders
and shall forthwith deliver the same to Sanwa in precisely the same form
received (except for the endorsement or assignment of the Subordinated
Creditor where necessary) for application to the Sanwa Debt and until so
delivered, the same shall not be commingled with any assets of the
Subordinated Creditor and shall be held in trust by the Subordinated Creditor
as the property of Sanwa and the other Senior Lenders.
Section 8. LIENS. The Subordinated Creditor represents that it
holds no guaranty of the Subordinated Debt or lien, security interest or
mortgage in or upon any assets of the Borrower or any of its Subsidiaries to
secure payment of the Subordinated Debt. After the date hereof, the
Subordinated Creditor agrees not to accept any guaranty of the Subordinated
Debt or any lien, security interest or mortgage in or upon the assets of the
Borrower or any Subsidiary of the Borrower to secure the Subordinated Debt.
Section 9. SUBROGATION. After all of the Sanwa Debt has been paid
in full in cash (or in another manner agreed to in writing by the Senior
Lenders in their sole discretion) and until the Subordinated Debt has been
paid in full, the Subordinated Creditor shall be subrogated to the rights of
Sanwa and the other Senior Lenders with respect to the Collateral and to
receive, accept and retain (subject to the applicable provisions of the
Bankruptcy Code) payments or distributions with respect to the Sanwa Debt, to
the extent that distributions otherwise payable to the Subordinated Creditor
have been applied to the payment of the Sanwa Debt in accordance with the
provisions of this Agreement. As among the Borrower, its creditors other
than the Senior Lenders and the Subordinated Creditor, any payment or
distribution applied to the payment of the Sanwa Debt in accordance with the
provisions of this Agreement which otherwise would have been made to the
Subordinated Creditor shall not be deemed a payment by the Borrower on the
Sanwa Debt. The provisions of this Agreement are and are intended solely for
the purpose of defining the relative rights of Sanwa, the other Senior
Lenders and the Subordinated Creditor.
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Nothing contained in this Agreement is intended to or shall alter or impair
the obligations of the Borrower, which are absolute and unconditional, to pay
to the Subordinated Creditor the Subordinated Debt as and when the same shall
become due and payable in accordance with its terms.
Section 10. TERM. This Agreement shall constitute a continuing
agreement between Sanwa, the other Senior Lenders and the Subordinated
Creditor, and the successors and assigns of each of them, regardless of
whether such successors and assigns are signatories hereto, and the Senior
Lenders or their respective successors and assigns may continue, without
notice to the Subordinated Creditor or to the successors and assigns thereof,
to lend monies, extend credit and make other accommodations to or for the
account of the Borrower in reliance upon the provisions of this Agreement.
This Agreement shall be irrevocable by the Subordinated Creditor until all of
the Sanwa Debt shall have been paid in full in cash (or in another manner
agreed to in writing by the Senior Lenders in their sole discretion) and all
commitments under the Sanwa Documents have expired or been terminated in
writing, or the Subordinated Debt shall have been paid in full in cash.
Section 11. WAIVERS OF THE SUBORDINATED CREDITOR. All of the
Sanwa Debt shall be deemed to have been made or incurred in reliance upon
this Agreement, and the Subordinated Creditor expressly waives notice of the
creation, renewal, extension, increase, release, accrual or other incurrence
of Sanwa Debt from time to time under the Sanwa Documents or the exchange,
sale or surrender of any Collateral as the Senior Lenders may deem advisable
or of the reliance of Sanwa and the other Senior Lenders on these provisions
and all other notices not specifically required pursuant to the terms of this
Agreement or by law. The Subordinated Creditor agrees that (a) the
provisions of this Agreement shall be specifically enforceable against it by
Sanwa and the other Senior Lenders and irrevocably waives any defense based
upon the adequacy of a remedy at law which might be asserted as a bar to such
remedy of specific performance, and (b) without notice to or further assent
by it, the Sanwa Debt may from time to time, in whole or in part, be renewed,
extended, increased or released by the Senior Lenders, as the Senior Lenders
may deem advisable, that any Collateral for the Sanwa Debt may from time to
time, in whole or in part, be exchanged, sold, or surrendered by the Senior
Lenders, as the Senior Lenders may deem advisable, and that the Senior
Lenders may take any other action it may deem necessary or appropriate in
connection with the Sanwa Debt, all without in any manner or to any extent
impairing or affecting the obligations of the Borrower or the Subordinated
Creditor. The Subordinated Creditor agrees that Sanwa has not made any
warranties or representations with respect to the due execution, legality,
validity, completeness or enforceability of any Sanwa Documents or the
collectibility of the Sanwa Debt, or the perfection of liens, security
interests or mortgages in the Collateral, and that Sanwa and the other Senior
Lenders shall be entitled to manage and
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supervise the Sanwa Debt owed to them in accordance with applicable law and
its usual practices, modified from time to time as Sanwa and the other Senior
Lenders may deem appropriate under the circumstances.
Section 12. AGREEMENT UNAFFECTED BY CERTAIN EVENTS. The rights
under this Agreement of Sanwa and the other Senior Lenders as against the
Subordinated Creditor shall remain in full force and effect without regard
to, and shall not be impaired or affected by: (a) any act or failure to act
on the part of the Borrower; (b) the validity or enforceability of any Lien
on any of the Collateral or of any of the Sanwa Documents or the Subordinated
Debt Documents; (c) any extension or indulgence in respect of any payment or
prepayment of the Sanwa Debt or any part thereof or in respect of any other
amount payable to Sanwa or the other Senior Lenders; (d) any amendment,
modification or waiver of, or addition or supplement to, or deletion of, or
compromise, release, consent, termination or other action in respect of, any
of the terms of any of the Sanwa Documents, the Subordinated Debt Documents
or any other agreement which may be made relating to the Sanwa Debt or the
Subordinated Debt; PROVIDED that the Senior Lenders hereby agree that the
Sanwa Documents shall not be amended to expressly prohibit the payment of the
Subordinated Debt without regard to the terms of the Subordination Agreement;
(e) any exercise or non-exercise by the Senior Lenders of any right, power,
privilege or remedy under or in respect of any portion of the Sanwa Debt or
this Agreement, or any waiver of any such right, power, privilege or remedy
or any default in respect of such Sanwa Debt or this Agreement, or any
receipt by Sanwa or the other Senior Lenders of any security, or any failure
by Sanwa or the other Senior Lenders to perfect a Lien on, or any release by
such holder of, any Collateral for the payment of the Sanwa Debt; (f) any
merger or consolidation of the Borrower into or with any of its Subsidiaries
or any such Subsidiary with any other Subsidiary of the Borrower or of the
Borrower or any of its Subsidiaries into or with any other Person, or any
sale, lease, exchange, transfer or other disposition of any or all of the
assets or property of the Borrower or any of its Subsidiaries to any other
Person; (g) any impairment, modification, change, exchange, release or
subordination of or limitation on, any liability of, or stay of actions or
other Lien enforcement proceedings against, any of the Borrower, its property
or its estate in bankruptcy resulting from any Event of Bankruptcy; (h) any
other circumstances which might otherwise constitute a defense available to,
or a discharge of, the Borrower or a subordinated creditor; or (i) the
absence of any notice to, or knowledge by, the Subordinated Creditor of the
existence or occurrence of any of the matters or events set forth in the
foregoing clauses (a) through (h).
Section 13. AMENDMENTS TO SUBORDINATED DEBT DOCUMENTS. Prior to the
payment in full in cash (or in another manner agreed to in writing by the Senior
Lenders in their sole discretion) of all Sanwa Debt in accordance with the terms
thereof and hereof and notwithstanding anything contained in the Subordinated
Debt
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Documents to the contrary, without the prior written consent of the Senior
Lenders (which consent shall not be unreasonably withheld), the Subordinated
Creditor shall not agree to any amendment, modification, restatement or other
supplement to any of the Subordinated Debt Documents.
Section 14. NOTICE FROM OTHER PARTIES. a. Each of Sanwa and the
Subordinated Creditor agrees to give to each other party hereto copies of any
written notices of default, termination, demand for payment, acceleration,
Enforcement Action and any other material written notice of a like nature
including, without limitation, any such notice which may be given under or
pursuant to the terms of any of the applicable Sanwa Documents or the
Subordinated Debt Documents, which such party may give hereafter to the
Borrower or any guarantor, in each case concurrently with, or as soon as
practicable after, the giving of such notice to the Borrower or any
guarantor; PROVIDED that failure of any party to give a copy of any such
notice as provided herein shall not in any way affect the validity or
effectiveness of the notice or render the party liable to any other party in
any respect or relieve any such party of its obligations and agreements
contained herein.
b. The Subordinated Creditor shall not at any time be charged with
knowledge of the existence of any facts which would prohibit the making of
any payment to it, unless and until the Subordinated Creditor shall have
received a notice of a Payment Default or a Payment Blockage Notice from
Sanwa hereunder. Prior to the receipt of any such notice, the Subordinated
Creditor shall be entitled to assume conclusively that no such facts exist,
without, however, limiting any right of Sanwa and the other Senior Lenders
under the terms of this Agreement to recover from the Subordinated Creditor
any payment made in contravention of this Agreement.
c. The Subordinated Creditor shall be entitled to rely on the
delivery to it of a notice by a Person representing itself to be the
representative of Sanwa to establish that such notice has been given by
Sanwa. In the event that the Subordinated Creditor determines in good faith
that further evidence is required with respect to the right of any such
Person to participate in any payment or distribution pursuant to this
Agreement, the Subordinated Creditor may request evidence to the reasonable
satisfaction of the Subordinated Creditor as to any fact pertinent to the
rights of the Subordinated Creditor under this Agreement, and if such
evidence is not furnished, then the Subordinated Creditor may defer any
payment to such Person pending judicial determination as to the right of such
Person to receive such payment.
Section 15. NOTICES. Any notice, demand or other communication
required or permitted under the terms of this Agreement shall be in writing and
shall be made by overnight courier service, telecopier, telegram, telex or
certified or
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registered mail, return receipt requested, and shall be deemed to be received
by the addressee one (1) Business Day after sending, if sent by courier,
telecopier, telegram or telex, and three (3) Business Days after mailing, if
sent by certified or registered mail. Notices shall be addressed as provided
below:
If to the Subordinated Creditor:
Dilmun Financial Services
Harbormaster Place 4
International Financial Services Centre
Dublin, Ireland
Attention: Ruth Eaton
Phone: 011-353-167-00463
Telecopy: 011-353-167-00181
With a copy to:
Bahrain International Bank E.C.
Bahrain Commercial Complex
13th Floor, P.O. Box 5016
Manama, Bahrain
Attention: Sameer Al Aradi
Phone: 011-973-534-545
Telecopy: 011-973-535-141
and
Squadron, Ellenoff, Plesent & Sheinfeld, LLP
551 Fifth Avenue
New York, New York 10176
Attention: David L. Kovacs, Esq.
Phone: (212) 661-6500
Telecopy: (212) 697-6686
If to Sanwa or any other Senior Lender:
SANWA BUSINESS CREDIT CORPORATION
One South Wacker Drive
Chicago, Illinois 60606
Attention: Robert Bartkowicz
Phone: (312) 853-1310
Telecopy No.: (312) 782-6035
or at such other address as any party may designate by notice to the other
parties in accordance with the provisions hereof.
Section 16. INSTRUMENT LEGEND. The Subordinated Creditor Note, and
any renewals or replacements thereof, and all promissory notes or other
securities for which it is exchanged or into which it is converted will, on the
date hereof or prior to the issuance thereof, be inscribed with a legend
conspicuously stating that payment thereof is subordinate and junior in right of
payment
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to the Sanwa Debt pursuant to the terms of this Agreement. The Subordinated
Creditor shall deliver to Sanwa a photocopy of the original Subordinated Note
marked with such legend.
Section 17. EXERCISE OF RIGHTS; CUMULATIVE REMEDIES. No failure by
the Senior Lenders to exercise, and no delay by the Senior Lenders in exercising
from time to time, any right, power, privilege or remedy under the Sanwa Debt or
the Sanwa Documents or any right, power, privilege or remedy under this
Agreement shall operate as a waiver thereof; nor shall any single or partial
exercise of any right, power, privilege or remedy under this Agreement preclude
any other or further exercise thereof or the exercise of any other right, power,
privilege or remedy. The rights, powers, privileges and remedies provided in
this Agreement and in any agreement relating to any of the Sanwa Debt, the Sanwa
Documents and all other agreements, instruments and documents referred to in any
of the foregoing are cumulative and shall not be exclusive of any rights,
powers, privileges or remedies provided by law.
Section 18. GOVERNING LAW. This Agreement shall be governed by, and
the rights and liabilities of the parties hereto construed, in accordance with
the internal laws and decisions of the State of Illinois without regard to
choice of law or conflicts of law principles.
Section 19. PARTIES. This Agreement shall be binding upon, and inure
to the benefit of, Sanwa, the other Senior Lenders and the Subordinated Creditor
and their respective successors, transferees and assigns; PROVIDED that any
assignment, sale, disposition or other transfer by the Subordinated Creditor of
any of the Subordinated Debt or the Subordinated Debt Documents shall be made in
accordance with the terms of SECTION 4 hereof. Notwithstanding the failure to
execute any such agreement, the agreements effected hereby shall survive any
such assignment, sale, disposition or other transfer, and the terms of this
Agreement shall be binding upon the successors and assigns of the Subordinated
Creditor. In addition, any successor or assignee of Sanwa or any other Senior
Lender shall be entitled to rely upon and be the third party beneficiary of the
agreements provided for herein and shall be entitled to enforce the terms and
provisions hereof as if initially a party hereto. The term "Borrower" as used
herein shall also refer to the successors and assigns of the Borrower,
including, without limitation, a receiver, trustee, custodian or debtor in
possession. This Agreement is solely for the purpose of defining the rights and
priorities of the parties hereto, and their respective successors and assigns,
and no other Person (including, without limitation, the Borrower) shall have any
right, benefit, priority or interest under, or because of the existence of, this
Agreement or shall be a direct or indirect beneficiary of or have any direct or
indirect cause of action or claim in connection with this Agreement, nor shall
this Agreement affect the obligations of the Borrower to Sanwa or the other
Senior
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Lenders or to the Subordinated Creditor, which obligations shall remain
absolute and unconditional in all circumstances.
Section 20. SECTION TITLES. The section titles contained in this
Agreement are and shall be without substantive meaning or content of any kind
whatsoever and are not a part of the Agreement between the parties hereto.
Section 21. COUNTERPARTS. This Agreement may be executed by the
parties hereto in any number of separate counterparts (or telecopied
counterparts with original execution copy to follow) and by the different
parties on separate counterparts, all of which counterparts taken together shall
constitute one and the same instrument.
Section 22. WAIVERS; AMENDMENTS. No waiver shall be deemed to be
made by Sanwa or the other Senior Lenders of any of its rights hereunder unless
the same shall be in writing signed on behalf of Sanwa and each waiver, if any,
shall be a waiver only with respect to the specific instance involved and shall
in no way impair the rights of Sanwa or the other Senior Lenders in any other
respect at any other time. Unless otherwise expressly provided for herein, no
provision of this Agreement may be amended, modified or supplemented without the
express prior written consent thereto of Sanwa and the Subordinated Creditor.
Section 23. ENTIRE AGREEMENT. This Agreement contains all of the
terms and conditions agreed upon by the parties relating to its subject matter
and supersedes any and all prior and contemporaneous agreements, negotiations,
correspondence, understandings and communications of the parties, whether oral
or written, respecting that subject matter.
Section 24. SUBMISSION TO JURISDICTION; MUTUAL WAIVER OF JURY AND
BOND. EACH OF SANWA, THE OTHER SENIOR LENDERS AND THE SUBORDINATED CREDITOR
HEREBY SUBMITS TO THE EXCLUSIVE JURISDICTION OF ANY STATE OR FEDERAL COURT
LOCATED WITHIN THE COUNTY OF COOK, STATE OF ILLINOIS, AND IRREVOCABLY AGREES
THAT ALL ACTIONS OR PROCEEDINGS RELATING TO THIS AGREEMENT SHALL BE LITIGATED IN
SUCH COURTS, AND EACH OF SANWA, THE OTHER SENIOR LENDERS AND THE SUBORDINATED
CREDITOR WAIVES ANY OBJECTION WHICH IT MAY HAVE BASED ON IMPROPER VENUE OR FORUM
NON CONVENIENS TO THE CONDUCT OF ANY PROCEEDING IN ANY SUCH COURT AND WAIVES
PERSONAL SERVICE OF ANY AND ALL PROCESS UPON IT, AND CONSENTS THAT ALL SUCH
SERVICE OF PROCESS BE MADE BY MAIL OR MESSENGER DIRECTED TO IT AT THE ADDRESS
SET FORTH IN SECTION 15 HEREOF AND THAT SERVICE SO MADE SHALL BE DEEMED TO BE
COMPLETED UPON THE EARLIER OF ACTUAL RECEIPT OR THREE (3) DAYS AFTER THE SAME
SHALL HAVE BEEN POSTED TO THE SUBORDINATED CREDITOR'S ADDRESS BY THE
SUBORDINATED CREDITOR'S AGENT AS SET FORTH BELOW. SANWA, THE OTHER SENIOR
LENDERS AND THE SUBORDINATED
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CREDITOR ACKNOWLEDGE THAT THE TIME AND EXPENSE REQUIRED FOR TRIAL BY JURY
EXCEED THE TIME AND EXPENSE REQUIRED FOR A BENCH TRIAL AND HEREBY WAIVE, TO
THE EXTENT PERMITTED BY LAW, TRIAL BY JURY, AND WAIVE ANY BOND OR SURETY OR
SECURITY UPON SUCH BOND WHICH MIGHT, BUT FOR THIS WAIVER, BE REQUIRED OF
SANWA OR THE OTHER SENIOR LENDERS. NOTHING CONTAINED IN THIS SECTION 24
SHALL AFFECT THE RIGHT OF SANWA TO SERVE LEGAL PROCESS IN ANY OTHER MANNER
PERMITTED BY LAW OR AFFECT THE RIGHT OF SANWA OR THE OTHER SENIOR LENDERS TO
BRING ANY ACTION OR PROCEEDING OR TAKE OTHER LEGAL ACTION IN THE COURTS OF
ANY OTHER JURISDICTION TO THE EXTENT NECESSARY TO ENFORCE ITS LIEN AND
SECURITY INTERESTS AGAINST COLLATERAL LOCATED IN SUCH JURISDICTION. THE
SUBORDINATED CREDITOR WAIVES ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER IN ANY
LITIGATION REFERRED TO ABOVE ANY SPECIAL, EXEMPLARY, PUNITIVE OR
CONSEQUENTIAL DAMAGES OR ANY DAMAGES OTHER THAN, OR IN ADDITION TO, ACTUAL
DAMAGES.
Section 25. INVALIDITY OR CONFLICT. As between Sanwa and the other
Senior Lenders, on the one hand, and the Subordinated Creditor, on the other
hand, in the event of any conflict between any term, covenant or condition of
this Agreement and any term, covenant or condition of the Subordinated Debt
Documents, the provisions of this Agreement shall govern and be controlling.
Any provision of this Agreement which is prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability, without invalidating the remaining
provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction. The parties hereto shall endeavor in good faith
negotiations to replace any such invalid or unenforceable provision with a valid
provision, the economic effect of which comes as close as possible to that of
the invalid or unenforceable provision.
Section 26. MARSHALING. So long as this Agreement shall be in
effect, the Subordinated Creditor to the fullest extent permitted by applicable
law, waives, with respect to the Collateral, any requirement regarding, and
agrees not to demand, request, plead or otherwise claim the benefit of, any
marshaling by Sanwa or the other Senior Lenders that may otherwise be available
under applicable law.
Section 27. ADDITIONAL PROVISIONS
(a) Sanwa and the Subordinated Creditor each undertake to perform
only such obligations on its part as are specifically set forth in this
Agreement, and no implied covenants or obligations with respect to any party
shall be read into this Agreement against the other party. Except to the extent
specifically provided for by Section 7 hereof, neither party hereto
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shall be deemed to owe any fiduciary duty to the other party by virtue of the
provisions of this Agreement.
(b) The Borrower acknowledges that the Subordinated Debt shall not be
subordinated (i) to claims of any trade creditors of the Borrower or (ii) in
right of payment to the prior payment of any existing or future unsecured
indebtedness of the Borrower, but rather shall rank equally with all existing
and future unsecured indebtedness of the Borrower, (except as otherwise may be
required by bankruptcy or other laws affecting the rights of creditors
generally).
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IN WITNESS WHEREOF, this Agreement has been duly executed by the
parties hereto as of the day and year first above written.
SANWA BUSINESS CREDIT CORPORATION, as
a Senior Lender and as agent for the
other Senior Lenders
By:
------------------------------
Name:
-------------------------
Title:
------------------------
DILMUN FINANCIAL SERVICES
By:
------------------------------
Name:
-------------------------
Title:
------------------------
BIB HOLDINGS (BERMUDA) LTD.
By:
------------------------------
Name:
-------------------------
Title:
------------------------
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ACKNOWLEDGMENT AND AGREEMENT OF THE BORROWER
The undersigned, Brothers Gourmet Coffees, Inc., the Borrower named in
the foregoing Agreement, does hereby accept, and acknowledge receipt of a copy
of, the foregoing Agreement, and agrees that (a) it will not pay any of the
Subordinated Debt except as the foregoing Agreement permits, and (b) it will be
bound by all provisions of the foregoing Agreement. In the event of a breach by
the Borrower of any of the provisions of the Agreement, all of the Sanwa Debt
shall, without presentment, demand, protest or notice of any kind become
immediately due and payable unless the Senior Lenders shall otherwise elect in
writing.
All capitalized terms used in this Acknowledgement and Agreement without
definition shall have the same meanings as set forth in the foregoing Agreement.
IN WITNESS WHEREOF, the undersigned has caused this Acknowledgement
and Agreement to be duly executed as of the day and year first above written.
BROTHERS GOURMET COFFEES, INC.
By:
------------------------------
Name:
------------------------
Title:
------------------------
<PAGE>
FIRST AMENDMENT TO
EXECUTIVE EMPLOYMENT AGREEMENT
This First Amendment to Executive Employment Agreement
("Amendment") is made and entered this 25th day of February, 1998, by and
between Brothers Gourmet Coffees, Inc. (the "Company"), and Donald D. Breen
("Executive"). The Company and Executive are each sometimes referred to
herein as a "Party," and both of them are sometimes collectively referred to
herein as the "Parties."
WHEREAS, Executive and the Company previously entered into that
certain Executive Employment Agreement, dated as of January 18, 1996 (the
"Agreement"); and
WHEREAS, the Agreement inadvertently terminated, by its terms, as
of the close of business on January 17, 1998 (the "Termination"); and
WHEREAS, the parties now desire to re-instate and renew the
Agreement effective as of January 17, 1998, as if the Termination had not
occurred.
NOW, THEREFORE, for good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the Parties, intending to
be bound hereby, agree as follows:
1. It is the express intent and desire of the parties that this
Amendment and each of its provisions be effective on and as of January 17,
1998, as if the Termination had not occurred.
2. Notwithstanding anything in the Agreement to the contrary, the
Agreement is hereby re-instated and renewed for an additional twelve-month
period, effective as of January 17, 1998.
3. The reference to "January 17, 1998" in Section 2.b.(i) of the
Agreement is deleted and "January 17, 1999" is inserted in its place.
4. Effective as of January 17, 1998, the Company hereby exercises
its Renewal Right in Section 2.c. of the Agreement to extend the term of the
Agreement for an additional twelve months beyond the January 17, 1999
Scheduled Termination Date. The Company intends this Section 4. to
constitute a timely written notice of renewal of the Agreement through and
including January 17, 2000. Executive acknowledges that (a) the notice given
by the Company under this Section 4. is timely under Section 2.c of the
Agreement for purposes of extending the term of the Agreement through and
including January 17, 1999, and (b) in executing this Amendment, he is
expressly relying on the effectiveness of this Amendment, retroactive to
January 17, 1998.
<PAGE>
5. Except as expressly modified by this Amendment, the terms of
the Agreement shall remain in full force and effect from and after the date
of this Amendment and are hereby ratified and confirmed.
6. On and after the date of this Amendment, all references to
"this Agreement", "herein", "hereof", "hereunder" or other similar words
shall mean the Agreement as amended by this Amendment.
7. This Amendment shall be governed by and construed in
accordance with the laws of the State of Florida, without regard to the
provisions of such laws relating to conflicts of law.
IN WITNESS WHEREOF, the Parties have executed this Agreement as of
the date first written above.
THE COMPANY
Brothers Gourmet Coffees, Inc.
By:
-----------------------------------
J.P. Bolduc, Director, on behalf
of the Board of Directors
EXECUTIVE
-----------------------------------
Donald D. Breen, President and
Chief Executive Officer
<PAGE>
WARRANT AGREEMENT
BETWEEN
BROTHERS WARRANT HOLDINGS I,
A CALIFORNIA GENERAL PARTNERSHIP
AND
BROTHERS GOURMET COFFEES, INC.
DATED AS OF DECEMBER 27, 1996
THE WARRANT AND WARRANT SECURITIES TO BE RECEIVED UPON EXERCISE OF THE WARRANT
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), OR QUALIFIED UNDER ANY STATE SECURITIES LAWS. THE WARRANT
AND WARRANT SECURITIES, AS THE CASE MAY BE, MAY NOT BE OFFERED, SOLD, PLEDGED,
HYPOTHECATED OR OTHERWISE TRANSFERRED, WHETHER OR NOT FOR CONSIDERATION, IN THE
ABSENCE OF (1) AN EFFECTIVE REGISTRATION STATEMENT AND QUALIFICATION IN EFFECT
WITH RESPECT TO THE WARRANT AND WARRANT SECURITIES, AS THE CASE MAY BE, UNDER
THE SECURITIES ACT AND UNDER ANY APPLICABLE STATE SECURITIES LAWS OR (2) AN
EXEMPTION FROM SUCH REGISTRATION AND QUALIFICATION.
<PAGE>
WARRANT AGREEMENT
THIS WARRANT AGREEMENT (this "AGREEMENT") is dated as of the 27th of
December, 1996, and executed by and between BROTHERS WARRANT HOLDINGS I, A
CALIFORNIA GENERAL PARTNERSHIP ("BWHI"), and BROTHERS GOURMET COFFEES, INC., a
Delaware corporation (the "COMPANY").
WHEREAS, the Company has agreed to grant to BWHI or its assigns a
common stock warrant in the form attached hereto as EXHIBITS A hereto (the
"WARRANT") to acquire shares of the Company's Common Stock. This Agreement
sets forth certain rights and obligations of the Company and BWHI with
respect to the Warrant.
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants, representations, warranties and agreements contained in this
Agreement, the parties hereto agree as follows:
I. DEFINITIONS
Section 1.01 DEFINED TERMS. As used in this Agreement, the
following capitalized terms shall have the meanings respectively assigned to
them below, which meanings shall be applicable equally to the singular and
plural forms of the terms so defined. Terms not otherwise defined herein
shall have the meanings ascribed to such terms in that certain Securities
Purchase Agreement, dated September 20, 1996, between the Company and Siena
Capital Partners, L.P. (the "BRIDGE LOAN AGREEMENT"), and that certain Senior
Subordinated Note Agreement dated December 27, 1996, between the Company and
Dilmun Financial Services (the "SUBORDINATED LOAN AGREEMENT"). To the extent
of any conflict in defined terms in the Bridge Loan Agreement and the
Subordinated Loan Agreement, the definitions in the Subordinated Loan
Agreement shall govern. To the extent of any conflict or inconsistency in
the information contained in the DISCLOSURE SCHEDULE and the SCHEDULES,
unless clearly indicated otherwise, the information set forth in the
Schedules shall govern and/or be controlling.
"ADJUSTMENT TRANSACTION" shall mean any of: (i) the issuance or
sale of Common Stock, Class B Common Stock or Common Stock Equivalents for
less than Fair Value (as hereinafter defined) (other than delivery of shares
of Common Stock upon exercise of this Warrant), in addition to the number of
shares outstanding as of the date hereof, as disclosed herein, including,
without limitation, any issuance of Common Stock, Class B Common Stock or
Common Stock Equivalents in connection with the settlement of that certain
litigation disclosed as Items 1.5(n)1, 2 and 3 in the DISCLOSURE SCHEDULE and
Items 1., 2., 3. and 4. in the Schedules (the "SETTLEMENT STOCK"), which
Settlement Stock is valued at less than Fair Value as of the date of such
settlement or as of the date such Settlement Stock is actually tendered to
the participants in said litigation, (ii) the declaration of a Dividend upon,
or distribution in respect of, any of the Company's capital stock, payable in
Common Stock or Common Stock Equivalents, (iii) the
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subdivision or combination by the Company of its outstanding Common Stock
into a larger or smaller number of shares of Common Stock, as the case may
be, (iv) any capital reorganization or reclassification of the Common Stock
or Class B Common Stock of the Company, (v) the consolidation or merger of
the Company or any Subsidiary (as hereinafter defined) with or into another
corporation, (vi) the sale or transfer or other disposition of all or
substantially all of the property of the Company, (vii) the dissolution,
liquidation or winding up of the Company or (viii) any event as to which the
foregoing clauses are not strictly applicable, but the failure to make an
adjustment in the Exercise Price hereunder would not fairly protect the
purchase rights, without dilution, represented by the Warrant.
"CLASS B COMMON STOCK" shall mean Class B Common Stock, $.0001 par
value per share, of the Company.
"COMMON EQUITY" shall mean the total equity interest in the Company
represented by the Common Stock and the Class B Common Stock and shall
include Common Equity resulting from any reorganization, reclassification or
recapitalization or similar event.
"COMMON STOCK" shall mean common stock, $.0001 par value per share,
of the Company.
"COMMON STOCK EQUIVALENTS" shall mean all options, warrants
(including the Warrant), convertible securities, securities and other rights
(in each case whether now existing or hereafter issued or arising) to acquire
from the Company shares of Common Stock or Class B Common Stock (without
regard to whether such options, warrants, convertible securities, securities
and other rights are then exchangeable, exercisable or convertible in full,
in part or at all).
"DISCLOSURE SCHEDULE" shall mean the schedules to the Bridge Loan
Agreement.
"DIVIDEND" means, as to any Person (as hereinafter defined), any
declaration or payment of any dividend (other than a stock dividend) on, or
the making of any pro rata distribution, loan, advance, or investment to,
any shares of capital stock of such Person.
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder, and any
successor provisions thereto.
"EXERCISE PRICE" shall have the meaning given in the Warrant, as
adjusted from time to time pursuant to the terms of the Warrant and this
Agreement.
"EXPIRATION PERIOD" means the period commencing on the date hereof
through and including the seventh anniversary of the date hereof or, in the
event the seventh anniversary is not a Business Day (as hereinafter defined),
the next succeeding Business Day.
"EXERCISE QUANTITY" shall mean the number of shares of Common Stock,
determined from time to time, taking into account all shares of Common Stock
theretofore issued upon exercise of
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<PAGE>
the Warrant, required to be issued by the Company to the Holders of the
Warrant. Exercise Quantity shall initially have the meaning given in the
Warrant, and may be adjusted from time to time, pursuant to the provisions of
the Warrant and this Agreement.
"FAIR VALUE" means, so long as, (a) the Company maintains its
listing on a national stock exchange, the NASDAQ system or another
inter-dealer quotation system; and (b) there exists and is continuing a
public float having a minimum value of $15 million based on an average
trailing twenty (20) trading-day period, to the extent such definition is
applicable, with reference to the Warrant Securities (as hereinafter defined)
and the Common Stock on a per share basis, the current market price per
share of the Common Stock as of any date of determination. Notwithstanding
the foregoing, in the event the standards set forth in the preceding sentence
have not been met or with respect to other appropriate security, property,
assets, business or entity, "Fair Value" shall mean the fair value of such
item as determined by mutual agreement reached by the Holder and the Company
or, in the event the parties are unable to agree, an opinion of an
independent investment banking firm or firms in accordance with the following
procedure. In the case of any event which gives rise to a requirement to
determine "Fair Value" pursuant to this Agreement, the Company shall be
responsible for initiating the process by which Fair Value shall be
determined as promptly as practicable, but in any event within sixty (60)
days following such event and if the procedures contemplated herein in
connection with determining Fair Value have not been complied with fully,
then any such determination of Fair Value for any purpose of this Agreement
shall be deemed to be preliminary and subject to adjustment pending full
compliance with such procedures. Upon the occurrence of an event requiring
the determination of Fair Value, the Company shall give the Holder(s) of the
Warrant notice of such event, and the Company and the Holders shall engage in
direct good faith discussions to arrive at a mutually agreeable determination
of Fair Value.
In the event the Company and the Holder(s) (as hereinafter defined)
are unable to arrive at a mutually agreeable determination within thirty (30)
days of the notice, the Company and the Holder(s) of the Warrant (who, if
more than one, shall agree among themselves by a majority) shall each retain
a separate independent investment banking firm of national reputation (which
firm, in either case, may be the independent investment banking firm
regularly retained by the Company or any such Holder). Such firms shall
jointly determine the Fair Value of the security, property, assets, business
or entity, as the case may be, in question and deliver their opinion in
writing to the Company and to such Holder within thirty (30) days of their
retention. In no event shall the marketability, or lack thereof, or lack of
registration of a security be a factor in determining the "Fair Value" of
such security.
If such firms cannot jointly make such determination within such
30-day period, then, unless otherwise directed by agreement of the Company
and the Holder(s) of a majority or more of the Warrant, such firms, in their
sole discretion, shall choose another independent investment banking firm of
the Company or such Holder(s), which firm shall make such determination and
render such an opinion. In either case, the determination so made shall be
conclusive and binding on the Company and such Holder(s). The fees and
expenses of the investment banking
3
<PAGE>
firm retained by Holder(s) pursuant to this provision shall be borne by
Holder(s). The fees and expenses of all other investment banking firms
retained pursuant to this provision shall be borne by the Company.
"HOLDER" or "HOLDERS" shall mean the Person(s) then registered as
the owner(s) of the Warrant or Warrant Securities, as the case may be, on the
books and records of the Company.
"PERSON" shall mean any individual, corporation, partnership,
limited liability company, association, joint-stock company, trust, estate,
unincorporated organization, joint venture, court or governmental or
political subdivision or agency thereof.
"PREFERRED STOCK" shall mean Preferred Stock, $1.00 par value per
share, of the Company.
"REGISTRABLE SECURITIES" shall have the meaning assigned to it in
SECTION 6.01 hereof.
"SCHEDULES" shall mean the Schedules to the Subordinated Loan
Agreement.
"SUBSIDIARY" shall mean any corporation as to which an aggregate of
more than 50% of the outstanding voting stock is at any time directly or
indirectly owned by the Company, or by one or more of its Subsidiaries or by
the Company and one or more of its Subsidiaries.
"WARRANT SECURITIES" shall mean the shares of Common Stock (or
other securities representing Common Stock) purchasable or purchased from
time to time under the Warrant or acquired upon any transfer of any such
shares, together with all additional securities received in payment of
dividends or distributions on or splits of those securities or received as a
result of the adjustments provided for in ARTICLE V hereof.
II. WARRANT
On the date hereof, the Company will grant to BWHI, for good and
valuable consideration, the Warrant in the form attached as EXHIBIT A hereto.
BWHI and any subsequent Holder of the Warrant and of Warrant Securities
shall have the rights and obligations provided for in the Warrant and in this
Agreement.
III. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants as follows:
(a) The execution and delivery of this Agreement and the Warrant
have been duly and properly authorized by all requisite corporate action of
the Company and its board of directors, and, except as disclosed in the
DISCLOSURE SCHEDULE AND THE Schedules, no consent of any other Person is
required as a prerequisite to the validity and enforceability of this
Agreement and the Warrant that has not been obtained. The Company has the
full legal right, power and authority to
4
<PAGE>
execute and deliver this Agreement and the Warrant and to perform its
obligations hereunder and thereunder. When issued and delivered pursuant to
this Agreement, the Warrant will have been duly executed, issued and
delivered and will constitute valid and legally binding obligations of the
Company entitled to the benefits provided herein and therein.
(b) Except as set forth in the DISCLOSURE SCHEDULE AND THE
Schedules, the Company is not a party to or otherwise subject to any contract
or agreement which restricts or otherwise affects its right or ability to
execute and deliver this Agreement or the Warrant or to perform any
obligation hereunder or thereunder (including, without limitation, issuance
of the Warrant Securities). Neither the execution or delivery of this
Agreement or the Warrant, nor compliance therewith (including, without
limitation, issuance of the Warrant Securities), will conflict with, or
result in a breach of the terms, conditions or provisions of, or constitute
a default under, or result in any violation of, or result in the creation of
any material lien upon any properties of the Company under, or require any
consent, approval, or other action by, notice to or filing with any court or
Governmental Person pursuant to the Certificate of Incorporation or By-laws
of the Company, as currently in effect, any award of any arbitrator, or any
material agreement, instrument or law to which the Company is subject or by
which it is bound.
(c) On the date hereof, the authorized capital stock of the
Company will consist of: (i) 15,000,000 shares of Common Stock; (ii)
2,000,000 shares of Class B Common Stock, and (iii) 10,000,000 shares of
Preferred Stock. As of September 27, 1996, the Company had issued and
outstanding (A) 10,362,605 shares of Common Stock, (B) 839,332 shares of
Class B Common Stock and (C) no shares of Preferred Stock. All such
outstanding shares are validly issued, fully paid and nonassessable. Except
as disclosed in the DISCLOSURE SCHEDULE, and the SCHEDULES, and except for
the Warrant issued to BIB Holdings Bermuda L.H. ("BIB") in connection with
the closing of the Subordinated Loan Agreement (the "BIB WARRANT"), there are
no rights, options or warrants of any kind outstanding to purchase or acquire
Common Stock or Class B Common Stock or any other ownership interest in the
Company, nor are there other securities, obligations, agreements or rights of
any kind outstanding which are exercisable for, convertible into or
exchangeable for any Common Stock or Class B Common Stock or any other
ownership interests in the Company or under the terms of which the parties
thereto have the right to purchase or acquire Common Stock, Class B Common
Stock or Common Stock Equivalents. Except as disclosed in the DISCLOSURE
SCHEDULE and the SCHEDULES, and except for the BIB Warrant, the issuance by
the Company of the Warrant and the Warrant Securities is not subject to any
preemptive or similar right of any Person pursuant to statute, contract or
understanding.
(d) Except as provided in this Agreement and except as provided in
the Subordinated Loan Agreement and BIB Warrant, the Company is not subject
to any obligation to repurchase or otherwise acquire or retire any shares of
capital stock. Except as disclosed in the DISCLOSURE SCHEDULE and except as
provided in the Subordinated Loan Agreement and BIB Warrant, there is no
commitment of the Company to issue any shares, warrants, options, or other
such rights, or to distribute to holders of any class of its capital stock
any evidences of indebtedness or assets, or to pay any Dividend or make any
other distribution in respect thereof.
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<PAGE>
(e) The Warrant is, and the Warrant Securities will be, issued by
the Company to BWHI in a transaction exempt from registration and
qualification under the applicable federal and state securities laws.
(f) Except as disclosed in the DISCLOSURE SCHEDULE AND THE
SCHEDULES, AND EXCEPT AS PROVIDED FOR IN THE SUBORDINATED LOAN AGREEMENT AND
BIB WARRANT, there is not in effect on the date of this Agreement any
agreement by the Company (other than this Agreement) pursuant to which any
holders of securities of the Company have a right to cause the Company to
register such securities under the Securities Act.
IV. COVENANTS
Section 4.01 COVENANTS OF THE COMPANY. The Company hereby
covenants and agrees that, during the term of this Agreement, unless all of
the Holders of the Warrant agree otherwise in writing:
(a) Each of the Warrant Securities issued and delivered upon the
exercise of the Warrant and payment of the Exercise Price will be duly and
validly authorized and issued, will be fully paid and nonassessable, and will
not be subject to any unpaid tax or any lien, whether respecting their
issuance to and purchase by the Holder of the Warrant or otherwise. The
Company will take all such actions as may be necessary to assure that all
such shares of Common Stock may be so issued without violation of any
applicable law or governmental regulation or any requirements of any domestic
securities exchange upon which shares of Common Stock may be listed.
(b) The Company shall, but only to the extent shares of Common
Stock are legally available and subject to the rights of BIB under the BIB
Warrant which shall take precedence over BWHI's rights hereunder, reserve and
at all times keep available for issuance an authorized number of shares of
Common Stock sufficient to permit the full and immediate exercise of the
Warrant and the full and immediate exercise, exchange and conversion of all
other securities, options, warrants and other rights issued or granted by the
Company.
(c) The Company shall not permit the par value of its Common Stock
to exceed, at any time, the Exercise Price and shall take all such actions as
may be necessary or appropriate to ensure that it does not do so.
(d) The Company shall not create or permit the existence of any
class of common stock, preferred stock, or any class or series of securities
having voting rights other than as may be required by statute, or any other
class or series of securities having any liquidation, Dividend or other
preference, other than the Common Stock, the Class B Common Stock and the
Preferred Stock.
(e) As soon as available, and in no event later than the dates
filed with the SEC or
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any other Governmental Person or other regulatory authority, if such
documents are so filed, the Company shall deliver to the Holder(s) of the
Warrant and the Warrant Securities copies of (i) all annual, quarterly and
monthly financial statements made available by the Company to its
stockholders, (ii) all reports, notices and proxy or information statements
sent or made available generally by the Company to its stockholders, and
(iii) all regular and periodic reports and all registration statements,
prospectuses and other information filed by the Company with the Commission,
relevant state authorities or any securities exchange, securities quotation
system or other self-regulatory organization.
(f) The Company shall cooperate with the Holder(s) of the Warrant
and the Warrant Securities in supplying such information as may be reasonably
necessary for the Holder(s) to complete and file any information or other
reporting forms from time to time required by the Commission, relevant state
authorities or any securities exchange, securities quotation system or other
self-regulatory organization, including, without limitation, information
pertaining to or required for the availability of any exemption from the
securities laws for the sale, transfer or other disposition of the Warrant or
any of the Warrant Securities.
Section 4.02 INDEMNIFICATION.
(a) In connection with any registration or qualification of
Warrant Securities hereunder, the Company agrees that BWHI and each other
Holder of the Warrant or any Warrant Securities purchased hereunder, any
underwriter(s), and their respective directors, officers, employees,
attorneys and agents, as well as each other Person (if any) controlling any
of the foregoing Persons within the meaning of Section 15 of the Securities
Act, or Section 20 of the Exchange Act, shall not incur any liability for
acts and omissions arising out of or related directly or indirectly to the
Warrant, the Warrant Securities, this Agreement, any registration statement
or prospectus or any misstatement or omission of a material fact therein; and
the Company hereby expressly waives any and all claims and actions which it
now has or may hereafter at any time have against BWHI and each other Holder
of the Warrant or underlying Warrant Securities, and their respective
directors, officers, employees, attorneys and agents, arising out of or
related directly or indirectly to any and all of the foregoing acts,
omissions and circumstances, except insofar as such liability is caused by
untrue statements or alleged untrue statements or omissions or alleged
omissions and is based upon information furnished in writing by Holder
expressly for use therein.
(b) The Company agrees to defend, indemnify and hold harmless BWHI
and each other Holder of the Warrant, this Agreement, or any Warrant Security
purchased hereunder, any underwriter(s), and their respective directors,
officers, employees, attorneys and agents, as well as each other Person (if
any) controlling any of the foregoing Persons within the meaning of Section
15 of the Securities Act, or Section 20 of the Exchange Act, from and
against any and all claims, liabilities, losses and expenses (including,
without limitation, the disbursements, expenses and fees of their respective
attorneys) that may be imposed upon, incurred by, or asserted against any of
them, any of their respective directors, officers, employees, attorneys and
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<PAGE>
agents, or any such control Person, under the Securities Act, the Exchange
Act or any other statute or at common law, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof), arise out of or are
related directly or indirectly to: (i) the Warrant or the Warrant
Securities, (ii) any registration statement or prospectus, (iii) any alleged
untrue statement of any material fact contained, on the effective date
thereof, in any registration statement under which such securities were
registered under the Securities Act or the Exchange Act, or in any
preliminary prospectus or final prospectus contained therein, or any
amendment or supplement thereto, or (iv) any alleged omission to state
therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, and shall reimburse such Persons for
any legal or any other expenses reasonably incurred by such Persons in
connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the Company shall not be liable
in any such case to the extent that any such loss, claim, damage or liability
arises out of or is based upon any alleged untrue statement or alleged
omission made in such registration statement, preliminary prospectus,
prospectus or amendment or supplement in reliance upon and in conformity with
written information furnished to the Company through an instrument duly
executed by such respective Person specifically for use therein. Such
indemnity shall remain in full force and effect regardless of any
investigation made by or on behalf of any such indemnified Person, and shall
survive the transfer of such securities by such Person. Promptly after
receipt of notice of the commencement of any action in respect of which
indemnity may be sought against the Company, the Company shall assume the
defense of such action (including the employment of counsel, who shall be
counsel reasonably satisfactory to the party seeking indemnity hereunder) and
the payment of expenses insofar as such action shall relate to any alleged
liability in respect of which indemnity may be sought against the Company.
The Company shall not, except with the approval of each party being
indemnified under this SECTION 4.02, consent to entry of any judgment or
enter into any settlement that does not include as an unconditional term
thereof the giving by the claimant or plaintiff to the parties being so
indemnified of a release from all liability in respect to such claim or
litigation.
Section 4.03 LISTING ON THE SECURITIES EXCHANGE. The Company
shall, at its expense, list on any securities exchange where it lists its
Common Stock, and maintain and increase when necessary such listing of all
outstanding Warrant Securities so long as any shares of Common Stock shall be
so listed. The Company shall also so list on each securities exchange, and
will maintain such listing of, any other securities which the holder of the
Warrant shall be entitled to receive upon the exercise thereof if at the
time any securities of the same class shall be listed on such securities
exchange by the Company.
Section 4.04 REPURCHASES AND REDEMPTIONS. Except as otherwise
permitted under the Subordinated Loan Agreement and the BIB Warrant, the
Company shall not repurchase or redeem any of its equity securities or any
securities convertible into or exchangeable for such equity securities or any
warrants or other rights to purchase such equity securities unless it
concurrently makes a cash payment to the Holder(s) of the Warrant equal to
the product of: (1) the quotient obtained by dividing (x) the aggregate
amount of cash and the aggregate Fair Value
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of any property paid out by the Company in connection with any such
repurchase or redemption by (y) the number of shares of Common Stock and
Common Stock Equivalents outstanding immediately after such repurchase or
redemption (excluding Warrant Securities) and (2) the number of shares of
Common Stock issuable upon the exercise of the Warrant.
V. ANTIDILUTION
Section 5.01 NO DILUTION OR IMPAIRMENT. The Company hereby
acknowledges that the initial number of shares issuable upon exercise of the
Warrant was calculated based upon 2.60% of the number of shares of Common
Stock, Class B Common Stock and Common Stock Equivalents outstanding and the
representation of the Company that the number of shares of Common Stock and
Common Stock Equivalents outstanding as of the date hereof (including the
Warrant Securities) was Fifteen Million Four Hundred Two Thousand Eight
Hundred Thirty (15,402,830) shares. If for any reason it shall hereafter be
determined by the Company that the actual number of shares of Common Stock,
Class B Common Stock and Common Stock Equivalents outstanding as of the Date
hereof was different from the foregoing, the Company will notify the
Holder(s) of such determination and if the Holder(s) does not dispute the
same, the Company shall forthwith reissue the Warrant with an appropriate
proportional increase in the Exercise Quantity to be effective from the Date
hereof. If a Holder shall dispute such determination and the parties cannot
otherwise resolve the dispute promptly and in good faith, then the Company
shall appoint a firm of independent public accountants of recognized national
standing (which may be the regular auditors of the Company), which shall give
their opinion as to the adjustment, if any, to be made to the Exercise
Quantity. Upon receipt of such opinion, the Company shall promptly mail a
copy thereof to the Holder(s) of the Warrant and shall make the adjustment
described therein.
It is the intent of the parties hereto that, after giving effect to
any exercise of the Warrant, the Holder(s) of the Warrant or Warrant
Securities would collectively be the owner of 2.60% of the Common Stock and
Common Stock Equivalents (or have the right to acquire 2.60% of the Common
Stock and Common Stock Equivalents outstanding as such amount may be
adjusted in the event of a cashless exercise of the Warrant according to
SECTION 2(a)(ii) or (iii) thereof or other adjustments contemplated herein),
except such percentage may be reduced as a consequence of an issuance of
Common Stock not requiring any adjustment in the Exercise Price resulting
from any Adjustment Transaction in accordance with SECTION 5.02 or other
adjustments contemplated herein.
Upon any adjustment of the Exercise Price as provided in SECTION
5.02, the Exercise Quantity shall be adjusted so that the New Exercise
Quantity shall be equal to the product of (x) the former Exercise Quantity
and (y) the following fraction:
THE EXERCISE PRICE IN EFFECT IMMEDIATELY PRIOR TO SUCH ADJUSTMENT
The Exercise Price resulting from such adjustment
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<PAGE>
EXHIBIT B hereto sets forth the formula and an illustrative example
of the manner in which the adjustments contemplated herein should be applied.
So long as any part of this Warrant is outstanding, then, without
the prior written consent of the Holders of outstanding Warrant(s)
evidencing a majority in number of the total number of Warrant Securities at
the time purchasable upon the exercise of all then outstanding Warrant(s),
the Company will not take any voluntary action, avoid or seek to avoid the
observance or performance of any of the terms of this Agreement or the
Warrant or impair the ability of the Holder(s) to realize the full intended
economic value thereof, but will at all times in good faith assist in the
carrying out of all such terms, and of the taking of all such action as may
be necessary or appropriate in order to protect the rights of the Holder(s)
of the Warrant against dilution or other impairment.
Section 5.02 ADJUSTMENT.
(a) In the event the Company, after the Date hereof, shall propose
to consider or engage in an Adjustment Transaction, then, in each such event,
the Company shall mail to the Holder of the Warrant notice of such proposed
action, which shall specify the date on which the stock transfer books of the
Company shall close, or a record shall be taken, for determining the holders
of Common Stock entitled to receive the benefit of such Adjustment
Transaction, or the date on which the Adjustment Transaction shall take place
or commence, as the case may be, and the date as of which it is expected that
holders of Common Stock of record shall be entitled to receive securities or
other property deliverable upon such action, if any such date is to be fixed.
Such notice shall be mailed at least thirty (30) days prior to the date upon
which it is proposed that such action take place and twenty (20) days prior
to any record date to determine holders of Common Stock entitled to receive
the benefit of such Adjustment Transaction. If an Adjustment Transaction
occurs, the Exercise Price shall be adjusted by the Company so as to fairly
preserve, without dilution, the purchase rights represented by the Warrant in
accordance with SECTION 5.01 and otherwise with the essential intent and
purposes hereof. If the Holder(s) of the Warrant disputes the adjustment of
the Exercise Price made by the Company and the parties cannot otherwise
resolve the dispute promptly and in good faith, then the Company shall at its
expense appoint a firm of independent public accountants of recognized
national standing (which may be the regular auditors of the Company), which
shall give their opinion as to the adjustment, if any, to be made to the
Exercise Price as the result of the relevant Adjustment Transaction. Upon
receipt of such opinion, the Company shall promptly mail a copy thereof to
the Holder(s) of the Warrant and shall make the adjustment described
therein. An adjustment made pursuant to this SECTION 5.02(a) shall become
effective immediately after the effective date of any such issue, sale,
Dividend, subdivision, combination or reclassification.
Anything herein to the contrary notwithstanding, the Company shall
not be required to make any adjustment of the Exercise Price in the case of
the issuance of shares of Common Stock upon the exercise in whole or part of
the Warrant.
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<PAGE>
(b) Whenever the Exercise Price is adjusted as provided in this
SECTION 5.02, the Company will, if requested, promptly obtain a certificate
of a firm of independent public accountants of recognized national standing
selected by the Board of Directors of the Company (who may be the regular
auditors of the Company) setting forth the Exercise Price, and the Exercise
Quantity as so adjusted, the computation of such adjustment and a brief
statement of facts accounting for such adjustment, and will retain such
certificate on file and mail to the Holder(s) of the Warrant a copy of such
certificate from such firm of independent public accountants.
VI. REGISTRATION RIGHTS
Section 6.01 "PIGGYBACK" REGISTRATION RIGHTS. If at any time the
Company shall determine to register under the Securities Act (including
pursuant to a demand of any security holder of the Company exercising
registration rights) any of its Common Stock (except securities to be issued
solely in connection with any acquisition of any entity or business, shares
issuable solely pursuant to employee benefit plans eligible for registration
on SEC Form S-8 or shares to be registered on any registration form that
does not permit secondary sales), it shall send to BWHI and to each of the
Holder(s) written notice of such determination at least thirty (30) days
prior to each such filing and, if within twenty (20) days after receipt of
such notice, any Holder shall so request in writing, the Company shall use
its best efforts to include in such registration statement (to the extent
permitted by applicable regulation) all or any part of the Warrant Securities
(collectively referred to in this ARTICLE VI as "REGISTRABLE SECURITIES")
that such Holder requests to be registered, provided, however, that if, in
connection with any offering involving an underwriting of Common Stock to be
issued by the Company, the managing underwriter shall impose a limitation on
the amount of Registrable Securities included in any such registration
statement, then, to the extent that any Registrable Securities remain
available for registration after the underwriter's cutback, the Company shall
be obligated to include in such registration statement with respect to each
Holder requesting inclusion only the product of: (i) the number of
Registrable Securities with respect to which such Holder has requested
inclusion hereunder and (ii) such Holder's pro rata share of the sum of all
Registrable Securities permitted to be registered and all other securities of
the Company, the holders of which Registrable Securities and other securities
have requested that such securities be registered. Any Registrable
Securities which are included in any underwritten offering under this SECTION
6.01 shall be sold upon such terms as the managing underwriters shall
reasonably request but in any event shall be upon terms not less favorable
than those upon which any other selling security holder shall sell any of its
securities. If any Holder disapproves of the terms of such underwriting,
such Holder may elect to withdraw therefrom by written notice to the Company
and the underwriter. The Company shall use its best efforts to cause the
managing underwriter or underwriters of a proposed underwritten offering (the
"COMPANY UNDERWRITER") to permit the Holders who have requested to
participate in the registration for such offering to include such Registrable
Securities in such offering on the same terms and conditions as the
securities of the Company included therein. Notwithstanding the foregoing, if
the Company Underwriter delivers a written opinion to the Holders that the
total amount or kind of securities which they, the Company and any other
11
<PAGE>
Persons intend to include in such offering (the "TOTAL SECURITIES") is
sufficiently large so as to prevent the Company from affecting a successful
offering of the Total Securities, then the amount or kind of securities to be
offered for the account of any members of management shall be reduced pro
rata to the extent necessary to reduce the Total Securities to the amount
recommended by the Company Underwriter, and if the amount or kind of Total
Securities is still sufficiently large so as to prevent the Company from
affecting a successful offering of the Total Securities, then the amount or
kind of securities to be offered for the account of the Holders and any other
Persons shall be reduced pro rata to the extent necessary to reduce the Total
Securities to the amount recommended by the Company Underwriter.
Notwithstanding the provisions of this SECTION 6.01, the Company shall have
the right, at any time after it shall have given written notice pursuant to
this SECTION 6.01 (irrespective of whether a written request for inclusion
of Registrable Securities shall have been made), to elect not to file any
such proposed registration statement or to withdraw the same after the filing
and prior to the effective date thereof.
Section 6.02 REQUESTED REGISTRATIONS. At any time, and from time
to time upon the written request of BWHI or a majority-in-interest of the
Holders, the Company effects the registration under the Securities Act of all
or part of such Registrable Securities and specifying the number of
Registrable Securities to be registered and the intended method of
disposition thereof (a "REQUESTED REGISTRATION"), the Company will use its
best efforts to affect the registration under the Securities Act of the
Registrable Securities which the Company has been so requested to register by
such Holder(s), and all to the extent requisite to permit the disposition (in
accordance with the intended methods thereof) of the Registrable Securities
so to be registered. Neither the Company nor any of its securityholders
shall have the right to include any of the Company's securities (other than
Registrable Securities) in a registration statement to be filed as part of a
Requested Registration unless: (i) such securities are of the same class as
the Registrable Securities and (ii) if such Requested Registration is an
underwritten offering, the Company or such securityholders, as applicable,
agree in writing to sell their securities on the same terms and conditions as
apply to the Registrable Securities being sold. Notwithstanding anything
herein to the contrary, the Company shall not be required to honor a request
for a Requested Registration if: (a) the Company has previously affected one
effective Requested Registration; (b) the Registrable Securities to be so
registered do not constitute at least five percent (5%) of the total number
of Registrable Securities then outstanding or issuable upon exercise or
conversion of the warrants; or (c) such request is received by the Company
(i) less than ninety (90) days following the effective date of any previous
registration statement filed in connection with a Requested Registration or
(ii) less than forty-five (45) days following the effective date of any
previous registration statement filed in connection with a Piggyback
Registration, regardless of whether any Holder exercised its rights under
this Agreement with respect to such registration.
Section 6.03 EFFECTIVENESS. If necessary to permit distribution
of the Registrable Securities, the Company shall use its best efforts to
maintain the effectiveness for up to one (1) year of the registration
pursuant to which any of the Registrable Securities are being offered, and
from time to time will amend or supplement such registration statement and
the prospectus
12
<PAGE>
contained therein as and to the extent necessary to comply with the
Securities Act and any applicable state securities statute or regulation.
Notwithstanding the foregoing, if the registration by the Company of the
resale of Registrable Securities is eligible for SEC Form S-3 or any
successor to such form, the Company shall use its best efforts to maintain
the effectiveness of the registration until all registered Registrable
Securities are sold. The Holder shall notify the Company promptly of the
completion of the offering of its Registrable Securities under any such
effective registration statement.
Section 6.04 FURTHER OBLIGATIONS OF THE COMPANY. Whenever,
under the preceding Sections of this ARTICLE VI, the Company is required
hereunder to register Registrable Securities, it agrees that it shall also do
the following:
(a) Furnish to each selling Holder such copies of each preliminary
and final prospectus and any other documents as such Holder may reasonably
request to facilitate the public offering of its Registrable Securities;
(b) Use its best efforts to register or qualify the Registrable
Securities to be registered pursuant to this ARTICLE VI under the applicable
securities or blue sky laws of such jurisdictions as any selling Holder may
reasonably request;
(c) Furnish to each selling Holder: (i) a signed counterpart of
an opinion of counsel for the Company, dated the effective date of the
registration statement; and (ii) a copy of any "comfort" letters signed by
the Company's independent public accountants who have examined and reported
on the Company's financial statements included in the registration statement,
covering substantially the same matters as are customarily covered in
opinions of issuer's counsel and in accountants' "comfort" letters delivered
to the underwriters in underwritten public offerings of securities;
(d) Permit each selling Holder or such Holder's counsel or other
representatives to inspect and copy such corporate documents and records as
may reasonably be requested by them in connection with such registration; and
(e) Furnish to each selling Holder, upon request, a copy of all
documents filed and all correspondence from or to the Commission in
connection with any such offering.
Section 6.05 EXPENSES. Except for underwriters' discounts and
brokerage commissions allocable to the Registrable Securities, the Company
shall bear all costs and expenses of each registration contemplated in
SECTIONS 6.01 and 6.02 including, but not limited to, printing, legal and
accounting fees and expenses, SEC and NASD filing fees and blue sky fees and
expenses in any jurisdiction in which the securities to be offered are to be
registered or qualified.
Section 6.06 TRANSFER OF REGISTRATION RIGHTS. The registration
rights of the Holders of Registrable Securities under this ARTICLE VI shall
inure to the benefit of and be exercisable by any
13
<PAGE>
transferee of Registrable Securities.
Section 6.07 PARTICIPATION RIGHTS.
The Company will not grant to any Person (other than BWHI, the
Holders, any Affiliate thereof or any transferee of Registrable Securities
under this ARTICLE VI) at any time on or after the date of this Agreement the
right (a "PARTICIPATION RIGHT") to request the Company to register any
securities of the Company under the Securities Act by reason of the exercise
by any holder of its rights under this ARTICLE VI unless such Participation
Right provides that such securities shall not be registered and sold at the
same time if the managing underwriter for the offering, including the
Registrable Securities, believes that sale of such securities would adversely
affect the amount of, or price at which, the respective Registrable
Securities being registered under this ARTICLE VI can be sold.
The Company agrees: (1) not to affect any public or private sale
or distribution of its securities, including a sale pursuant to Regulation D
under the Securities Act, during the 10-day period prior to, and during the
90-day period beginning on, the date hereof of an underwritten offering made
to pursuant to a registration statement filed pursuant to SECTION 6.02, and
(2) to cause each holder (other than BWHI, the Holders, any Affiliate thereof
or any transferee of Registrable Securities under this ARTICLE VI) of its
privately placed equity securities or convertible securities purchased from
the Company at any time prior to, on or after the date of this Agreement to
agree not to affect any public or private sale or distribution of any such
securities during such period, including a sale pursuant to Rule 144 or Rule
144A under the Securities Act (except as part of such underwritten
registration, if permitted).
Notwithstanding anything in this ARTICLE VI to the contrary, in no
event shall this ARTICLE VI be construed as prohibiting, restricting or
impairing the Company's ability to comply with the registration rights
agreements or the registration rights in any warrant it has: (i) entered into
on or prior to the date hereof and (ii) disclosed on the DISCLOSURE SCHEDULE,
THE SCHEDULES OR AS SET FORTH IN THE SUBORDINATED LOAN AGREEMENT AND BIB
WARRANT.
VII. TRANSFER OF WARRANT AND WARRANT SECURITIES
Section 7.01 TRANSFER. Except as set forth in SECTION 7.02
below, the Warrant and the Warrant Securities and all rights thereunder are
transferable, in whole or in part, on the books of the Company to be
maintained for such purpose, upon surrender of such Warrant at the office of
the Company maintained for such purpose, together with a written assignment
of such Warrant duly executed by the Holder hereof or its agent or attorney
and payment of funds sufficient to pay any stock transfer taxes payable upon
the making of such transfer. Upon such surrender and payment, the Company
shall execute and deliver a new Warrant or Warrant in the name of the
assignee or assignees and in the denominations specified in such instrument
of assignment, and this Warrant shall promptly be canceled. If and when the
transferred Warrant is assigned in blank, the Company may (but shall not be
obliged to) treat the bearer thereof as the absolute
14
<PAGE>
owner of such Warrant for all purposes and the Company shall not be affected
by any notice to the contrary. The transferred Warrant, if properly assigned
in compliance herewith, may be exercised by an assignee for the purchase of
shares of Common Stock without having a new Warrant issued. The Company will
not close its stock transfer books against a transfer of the Warrant or the
Warrant Securities or any exercise of the Warrant. Any such transfer or
exercise tendered while such stock transfer books shall be closed shall be
deemed effective immediately prior to such closure.
Subject to SECTION 7.02 below, the Warrant may be divided or
combined with other Warrant upon presentation at the aforesaid office of the
Company, together with a written notice specifying the names and
denominations in which new Warrant are to be issued, signed by the Holder
thereof or its agent or attorney. Subject to compliance with this, as to any
transfer which may be involved in such division or combination, the Company
shall execute and deliver a new Warrant or Warrants in exchange for the
Warrant or Warrants to be divided or combined in accordance with such notice.
The Company shall pay all expenses, taxes (other than income
taxes, if any, of the transferee) and other charges incurred by the Company
in the performance of its obligations in connection with the preparation,
issue and delivery of Warrant under this Section. The Company agrees to
maintain at its aforesaid office books for the registration and transfer of
the Warrant. Notwithstanding any provision to the contrary contained herein,
the Warrant and the Warrant Securities shall be transferable only in
compliance with the provisions of the Securities Act and applicable state
securities laws in respect of the transfer of any Warrant or any Warrant
Securities.
Section 7.02 TRANSFER RESTRICTIONS. Neither this Warrant
Agreement, the Warrant nor the Warrant Securities, when issued, have been
registered under the Securities Act or under the securities laws of any
state. Neither this Agreement, the Warrant nor the Warrant Securities, when
issued, may be transferred: (a) if such transfer would constitute a
violation of any federal or state securities laws or a breach of the
conditions to any exemption from registration thereunder and (b) unless and
until one of the following has occurred: (i) registration of this Agreement,
the Warrant or the Warrant Securities, as the case may be, under the
Securities Act, and such registration or qualification as may be necessary
under the securities laws of any state, have become effective, or (ii) the
Holder has delivered evidence reasonably satisfactory to the Company that
such registration or qualification is not required.
Each certificate for Warrant Securities issued upon exercise of a
Warrant and each certificate issued to a subsequent transferee, unless at the
time of exercise such Warrant Securities are registered under the Securities
Act, shall bear a legend substantially in the following form (and any
additional legends required by law) on the face thereof:
THE WARRANT SECURITIES TO BE RECEIVED UPON EXERCISE OF THE WARRANT HAS
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
QUALIFIED UNDER ANY STATE
15
<PAGE>
SECURITIES LAWS. THE WARRANT SECURITIES MAY NOT BE OFFERED,
SOLD, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED, WHETHER
OR NOT FOR CONSIDERATION, IN THE ABSENCE OF (1) AN EFFECTIVE
REGISTRATION STATEMENT AND QUALIFICATION IN EFFECT WITH
RESPECT TO THE WARRANT SECURITIES UNDER THE SECURITIES ACT AND
UNDER ANY APPLICABLE STATE SECURITIES LAWS OR (2) AN EXEMPTION
FROM SUCH REGISTRATION AND QUALIFICATION.
Section 7.03 REPLACEMENT OF INSTRUMENTS. Upon receipt by the
Company of evidence reasonably satisfactory to it of the ownership of and the
loss, theft, destruction or mutilation of any certificate or instrument
evidencing any Warrant or Warrant Securities, and (a) in the case of loss,
theft or destruction, upon receipt by the Company of indemnity reasonably
satisfactory to it (provided that, if the owner of the same is a commercial
bank or an institutional lender or investor, its own agreement of indemnity
shall be deemed to be satisfactory), or (b) in the case of mutilation, upon
surrender and cancellation thereof, the Company, at its expense, will
execute, register and deliver, in lieu thereof, a new certificate or
instrument for (or covering the purchase of) an equal number of Warrant or
Warrant Securities.
VIII. MISCELLANEOUS
Section 8.01 TERM. Except as otherwise expressly provided in
this Agreement or the Warrant, this Agreement shall expire seven (7) years
after the date hereof, provided that the Company's obligations to honor an
exercise of the Warrant given prior to such expiration or to perform any
obligation continue and survive notwithstanding the expiration of this
Agreement.
Section 8.02 NO WAIVER UNDER OTHER AGREEMENTS. The terms and
provisions contained in this Agreement are not intended and shall not be
construed to waive, modify, repeal, stay, diminish or otherwise impair or
affect in any manner whatsoever any right or remedy of BWHI or the Holder(s)
under the Company's Certificate of Incorporation, By-laws or similar
agreements.
Section 8.03 RELIANCE. Each party to this Agreement shall be
entitled to rely upon any notice, consent, certificate, affidavit, statement,
paper, document, writing or other communication reasonably believed by that
party to be genuine and to have been signed, sent or made by the proper
Person or Persons.
Section 8.04 NOTICE. All notices and other communications
provided for in this Agreement shall be in writing and delivered by
registered or certified mail, postage prepaid, or delivered by overnight
courier (for next Business Day delivery) or telecopied, addressed as follows,
or at such other address as any of the parties hereto may hereafter designate
by notice to the other parties given in accordance with this SECTION:
1) if to the Company:
16
<PAGE>
Brothers Gourmet Coffees, Inc.
One Boca Place
2255 Glades Road
Boca Raton, Florida 33431
Attn: Donald D. Breen, President & CEO
Telephone: (407) 995-2638
Telecopy: (407) 241-6690
With a copy of any notice to:
Brownstein Hyatt Farber & Strickland, P.C.
22nd Floor, 410 Seventeenth Street
Denver, Colorado 80202
Attn: John L. Ruppert, Esq.
Telephone: (303) 534-6335
Telecopy: (303) 623-1956
2) if to BWHI:
Brothers Warrant Holdings I, A California General
Partnership
150 South Rodeo Drive, Suite 100
Beverly Hills, California 90212
Attn: Rick Bloom
Telephone: (310) 246-3700
Telecopy: (310) 246-3642
With a copy of any notice to:
Nida & Maloney
801 Garden Street, Suite 201
Santa Barbara, California 93101
Attn: C. Thomas Hopkins, Esq.
Telephone: (805) 568-1151
Telecopy: (805) 568-1955
Section 8.05 ENFORCEMENT. The Company acknowledges that the
Holders may proceed to exercise or enforce any right, power, privilege,
remedy or interest that they may have under this Agreement or applicable law
without notice, except as otherwise expressly provided herein, without
pursuing, exhausting or otherwise exercising or enforcing any other right,
power, privilege, remedy or interest that they may have against or in respect
of any other party, or any other Person or thing, and without regard to any
act or omission of such party or any other
17
<PAGE>
Person.
Section 8.06 EQUITABLE RELIEF. Each party acknowledges and
agrees that it would be impossible to measure in money the damage in the
event of a breach of any of the terms and provisions of this Agreement by any
party hereto, and that, in the event of any such breach, there may not be an
adequate remedy at law, although the foregoing shall not constitute a waiver
of any of the party's rights, powers, privileges and remedies against or in
respect of a breaching party, any other person or thing under this Agreement
or applicable law. It is therefore agreed that, in addition to all other
such rights, powers, privileges and remedies that it may have, each party
shall be entitled to injunctive relief, specific performance or such other
equitable relief as such party may request to exercise or otherwise enforce
any of the terms and provisions of this Agreement and to enjoin or otherwise
restrain any act prohibited thereby, and no party will urge, and each party
hereby waives, any defense that there is an adequate remedy available at law.
Section 8.07 INTERPRETATION; HEADINGS; SEVERABILITY.
(a) The parties acknowledge and agree that since each party and
its counsel have reviewed and negotiated the terms and provisions of this
Agreement and have contributed to its revision, the normal rule of
construction to the effect that any ambiguities are resolved against the
drafting party shall not be employed in the interpretation of this
Agreement, and its terms and provisions shall be construed fairly as to all
parties hereto and not in favor of or against any party, regardless of which
party was generally responsible for the preparation of this Agreement.
(b) The Section and other headings contained in this Agreement are
for reference purposes only and shall not affect the meaning or
interpretation of this Agreement.
(c) In the event that any term or provision of this Agreement
shall be finally determined to be superseded, invalid, illegal or otherwise
unenforceable pursuant to applicable law by a governmental authority having
jurisdiction and venue, determination shall not impair or otherwise affect
the validity, legality or enforceability: (i) by or before that authority
of the remaining terms and provisions of this Agreement, which shall be
enforced as if the unenforceable term or provision were deleted, or (ii) by
or before any other authority of any of the terms and provisions of this
Agreement.
(d) If any period of time specified in this Agreement expires on a
day that is not a Business Day, that period shall be extended to and expire
on the next succeeding Business Day.
Section 8.08 SURVIVAL OF COVENANTS. Each of the covenants and
other agreements of the parties contained in this Agreement shall be absolute
and, except as otherwise expressly provided, unconditional, shall survive the
execution and delivery of this Agreement and shall continue in full force and
effect until the term of this Agreement has expired, and thereafter with
respect to events occurring prior thereto.
Section 8.09 NO REQUIRED EXERCISE. No term or provision of the
Warrant or this
18
<PAGE>
Agreement is intended to require, nor shall any such term or provision be
construed as requiring, any Holder of the Warrant to exercise or put the
Warrant.
Section 8.10 BINDING EFFECT. This Agreement shall be binding
upon and enforceable against the parties hereto and their respective
successors and assigns.
Section 8.11 NO WAIVER BY ACTION. The failure or delay of a party
at any time or times to require performance of, or to exercise its rights
with respect to, any term or provision of this Agreement (except as otherwise
expressly provided herein) shall not affect its right at a later time to
enforce any such provision.
Section 8.12 WAIVER; MODIFICATION; AMENDMENT. Each and every
modification to and amendment of this Agreement shall be in writing and
signed by the Company, BWHI (if at that time BWHI is a Holder) and by the
Holders of a majority in interest of all issued and unissued Warrant
Securities. Each and every waiver of and consent to any departure from any
term or provision hereof (except as otherwise provided herein) shall be in
writing and signed by BWHI (if at that time it is a Holder) and by the
Holders of a majority in interest of all issued and unissued Warrant
Securities and by each party against whom enforcement of the waiver or
consent may be sought.
Section 8.13 ENTIRE AGREEMENT. This Agreement and the Warrant
contain the entire agreement of the parties and supersede all other
representations, warranties, agreements and understandings, oral or
otherwise, among the parties hereto with respect to the matters contained
herein, except as otherwise provided herein.
Section 8.14 CERTIFICATE. BWHI shall have received a
certificate, dated the date of this Agreement, of the Secretary or an
Assistant Secretary of the Company, attaching a true and complete copy of the
resolutions of the Board of Directors of the Company, and of all documents
evidencing other necessary corporate or shareholder action (in form and
substance satisfactory to BWHI and to its counsel) taken by the Company in
connection with the matters contemplated by this Agreement.
Section 8.15 NO INCONSISTENT AGREEMENTS OR RIGHTS. The Company
shall not enter into any agreement with respect to its securities that is
inconsistent with the rights granted to the Holders in this Agreement.
Section 8.16 GOVERNING LAW; CONSENT TO JURISDICTION; WAIVER OF
JURY TRIAL. THIS AGREEMENT, THE WARRANT AND THE WARRANT SECURITIES AND ALL
AMENDMENTS, SUPPLEMENTS, WAIVERS AND CONSENTS RELATING HERETO OR THERETO
SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF
THE STATE OF CALIFORNIA WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW. THE
COMPANY HEREBY IRREVOCABLY SUBMITS ITSELF TO THE NON-EXCLUSIVE JURISDICTION
OF THE STATE AND FEDERAL COURTS SITTING IN THE STATE OF CALIFORNIA AND AGREES
AND
19
<PAGE>
CONSENTS THAT SERVICE OF PROCESS MAY BE MADE UPON IT IN ANY LEGAL PROCEEDINGS
RELATING HERETO BY ANY MEANS ALLOWED UNDER CALIFORNIA, COLORADO OR FEDERAL
LAW. THE COMPANY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY
APPLICABLE LAW, ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE LAYING
OF VENUE OF ANY SUCH PROCEEDING BROUGHT IN SUCH COURT AND ANY CLAIM THAT ANY
SUCH PROCEEDING BROUGHT IN SUCH A COURT HAS BEEN BROUGHT IN AN INCONVENIENT
FORUM. THE COMPANY SHALL APPOINT AN AGENT FOR SERVICE OF PROCESS IN
CALIFORNIA AND SHALL NOTIFY BWHI IN WRITING OF SUCH APPOINTMENT AND ANY
FUTURE CHANGE THEREIN. THE COMPANY AND BWHI EACH HEREBY AGREE TO WAIVE ITS
RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON
OR ARISING OUT OF THIS AGREEMENT, THE SECURITIES OR ANY OTHER AGREEMENTS
RELATING TO THE SECURITIES OR ANY DEALINGS BETWEEN THEM RELATING TO THE
SUBJECT MATTER OF THIS TRANSACTION. NOTWITHSTANDING ANYTHING TO THE CONTRARY
HEREIN, THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED
EITHER ORALLY OR IN WRITING, AND THE WAIVER SHALL APPLY TO ANY SUBSEQUENT
AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT, THE
WARRANT, THE WARRANT SECURITIES OR ANY OTHER DOCUMENTS OR AGREEMENTS RELATING
THERETO.
[Signature page follows]
20
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Warrant
Agreement to be executed as of the day and year first above written.
BWHI:
BROTHERS WARRANT HOLDINGS I,
A CALIFORNIA GENERAL PARTNERSHIP
By:
--------------------------------------
Name:
Title:
THE COMPANY:
BROTHERS GOURMET COFFEES, INC.,
a Delaware corporation
By:
------------------------------------
Name:
Title:
21
<PAGE>
Exhibit A
to
Warrant Agreement
WARRANT
<PAGE>
EXHIBIT B TO WARRANT AGREEMENT
THE FOLLOWING IS ONLY FOR EXAMPLE PURPOSES
BOLD FIGURES ARE INPUTS
<TABLE>
Example: 1000 shares are issued for $1000 on the day after the Closing
<S> <C> <C>
___________ OSBEFORE Outstanding shares (including options and warrants)
before adjustment
$__________ FVBEFORE Fair Value (per share) before adjustment
$__________ EPBEFORE Exercise Price of Warrants before adjustment
___________ OWBEFORE Number of Warrants before adjustment
_________% Fully diluted ownership before adjustment
$__________ CR Consideration received or to be received for new shares
or warrants
___________ OSAFTER Outstanding shares after sale but before Warrant
adjustment
$__________ EPAfter Exercise Price after adjustment
___________ OWAfter Number of Warrants after adjustment
$__________ FVAfter Fair Value (per share) after adjustment
_________% Fully diluted ownership after dilution
$__________ EPAfter = lesser of (OSBefore x EPBefore + CR)/OSAfter
or
$__________ EPBefore x (OSBefore x FVBefore + CR)/
OSAfter/ FVBefore
___________ OWAfter = EPBefore x OWBefore/EPAfter
</TABLE>
<PAGE>
THE WARRANT SECURITIES TO BE RECEIVED UPON EXERCISE OF THIS WARRANT HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR QUALIFIED
UNDER ANY STATE SECURITIES LAWS. THE WARRANT SECURITIES MAY NOT BE OFFERED,
SOLD, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED, WHETHER OR NOT FOR
CONSIDERATION, IN THE ABSENCE OF (1) AN EFFECTIVE REGISTRATION STATEMENT AND
QUALIFICATION WITH RESPECT TO THE WARRANT SECURITIES UNDER THE SECURITIES ACT
AND UNDER ANY APPLICABLE STATE SECURITIES LAWS OR (2) AN EXEMPTION FROM SUCH
QUALIFICATION AND REGISTRATION.
THIS WARRANT AND THE SECURITIES ISSUABLE UPON THE EXERCISE HEREOF ARE SUBJECT
TO THE TERMS AND PROVISIONS OF A WARRANT AGREEMENT DATED AS OF EVEN DATE
HEREWITH, BETWEEN BROTHERS GOURMET COFFEES, INC. AND BROTHERS WARRANT
HOLDINGS 1, A CALIFORNIA GENERAL PARTNERSHIP (AS THE SAME MAY BE
SUPPLEMENTED, MODIFIED, AMENDED, EXTENDED OR RESTATED FROM TIME TO TIME, THE
"WARRANT AGREEMENT'). AMONG OTHER THINGS, THE WARRANT AGREEMENT CONTAINS
PROVISIONS FOR RESTRICTIONS ON TRANSFER AND REGISTRATION RIGHTS. COPIES OF
THE WARRANT AGREEMENT ARE AVAILABLE AT THE EXECUTIVE OFFICES OF THE COMPANY.
COMMON STOCK PURCHASE WARRANT
EFFECTIVE DATE: DECEMBER 27, 1996
Capitalized terms used and not otherwise defined in this Warrant shall have
the meanings respectively assigned to them in the Warrant Agreement referred
to in the legend above.
BROTHERS GOURMET COFFEES, INC., a Delaware corporation, having its executive
offices at One Boca Place, 2255 Glades Road, Boca Raton, Florida 33431 (the
"COMPANY"), does hereby certify and agree that, for good and valuable
consideration (the existence, sufficiency and receipt of which are hereby
acknowledged by the Company), BROTHERS WARRANT HOLDINGS I, A CALIFORNIA
GENERAL PARTNERSHIP, its successors and assigns ("HOLDER"), hereby is
entitled to purchase from the Company, during the term set forth in Section I
hereof, up to an aggregate amount of 400,000 shares (the "EXERCISE QUANTITY")
of duly authorized, validly issued, fully paid and non-assessable shares of
Common Stock, par value
US$.0001 per share, of the Company (the "COMMON Stock"), all upon the terms
and provisions and subject to adjustment of such Exercise Quantity provided
in the Warrant Agreement and this Common Stock Purchase Warrant (the
"WARRANT"). The exercise price per share of Common Stock for which this
Warrant is exercisable shall be $3.4375 per share (the "EXERCISE PRICE").
<PAGE>
1. TERM OF THE WARRANT. The term of this Warrant commences as of
the date hereof, and shall expire at 5:00 P.M., New York City time, on the
seventh anniversary hereof. In the event that this Warrant would expire on a
day that is not a Business Day, then the term of this Warrant automatically
shall be extended to 5:00 P.M., New York City time, on the next succeeding
Business Day.
2. EXERCISE OF WARRANT.
(a) This Warrant may be exercised by the Holder of this Warrant at
any time during the term hereof in whole, or in part from time to time (but
not for fractional shares, unless this Warrant is exercised in whole), by
presentation and surrender of this Warrant to the Company, together with the
annexed Exercise Form duly completed and executed and payment in the
aggregate amount equal to the Exercise Price multiplied by the number of
shares of Common Stock being purchased. At the option of Holder, payment of
the Exercise Price may be made either by (i) certified check payable to the
order of the Company, (ii) surrender of certificates then held representing,
or deduction from the number of shares issuable upon exercise of this
Warrant, of that number of shares which has an aggregate Fair Value
determined in accordance with the Warrant Agreement on the date of exercise
equal to the aggregate Exercise Price for all shares to be purchased pursuant
to this Warrant or (iii) by any combination of the foregoing methods. Upon
the Company's receipt of this Warrant, the completed and signed Exercise Form
and the requisite payment, the Company shall issue and deliver (or cause to
be delivered) to the exercising Holder stock certificates aggregating the
number of shares of Common Stock purchased. In the event of a partial
exercise of this Warrant, the Company shall issue and deliver to the Holder a
new Warrant at the same time such stock certificates are delivered, which new
Warrant shall entitle the Holder to purchase the balance of the Exercise
Quantity not purchased in that partial exercise and shall otherwise be upon
the same terms and provisions as this Warrant.
(b) In the event the Holder of this Warrant desires that any or
all of the stock certificates to be issued upon the exercise hereof be
registered in a name or names other than that of the Holder of this Warrant,
the Holder must (i) so request in writing at the time of exercise if the
transfer is not a registered transfer, (ii) provide to the Company an opinion
of counsel reasonably satisfactory to the Company to the effect that the
proposed transfer may be effected without registration under the Securities
Act, and (iii) pay to the Company funds sufficient to pay all stock transfer
taxes (if any) payable in connection with the transfer and delivery of such
stock certificates.
(c) Upon the due exercise by the Holder of this Warrant, whether
in whole or in part, that Holder (or any other person to whom a stock
certificate is to be so issued) shall be deemed for all purposes to have
become the Holder of record of the shares of Common Stock for which this
Warrant has been so exercised, effective immediately prior to the close of
business on the date this Warrant, the completed and signed Exercise Form and
the requisite payment were duly delivered to the Company, irrespective of the
date of actual delivery of certificates representing such shares of Common
Stock so issued.
<PAGE>
3. SURRENDER OF WARRANT; EXPENSES.
(a) Whether in connection with the exercise, exchange,
registration of transfer or replacement of this Warrant, surrender of this
Warrant shall be made to the Company during normal business hours on a
Business Day (unless the Company otherwise permits) at the executive offices
of the Company located at One Boca Place, 2255 Glades Road, Boca Raton,
Florida 33431 or to such other office or duly authorized representative of
the Company as from time to time may be designated by the Company by written
notice given to the Holder of this Warrant.
(b) The Company shall pay all costs and expenses incurred in
connection with the exercise, registering, exchange, transfer, replacement or
put of this Warrant, including the costs of preparation, execution and
delivery of warrants and stock certificates, and shall pay all taxes (other
than any taxes measured by the income of any Person other than the Company)
and other charges imposed by law payable in connection with the transfer or
replacement of this Warrant.
4. WARRANT REGISTER; EXCHANGE; TRANSFER; LOSS.
(a) The Company at all times shall maintain at its chief executive
offices an open register for all Warrants, in which the Company shall record
the name and address of each Person to whom a Warrant has been issued or
transferred, the number of shares of Common Stock or other securities
purchasable thereunder and the corresponding purchase prices.
(b) This Warrant may be exchanged for two or more warrants
entitling the identical Holder hereof to purchase the same aggregate Exercise
Quantity at the same Exercise Price per share and otherwise having the same
terms and provisions as this Warrant. The identical Holder may request such
an exchange by surrender of this Warrant to the Company, together with a
written exchange request specifying the desired number of warrants and
allocation of the Exercise Quantity purchasable under the existing Warrant.
(c) This Warrant may be transferred only in accordance with the
provisions of ARTICLE VII of the Warrant Agreement, in whole or in part, by
the Holder or any duly authorized representative of such Holder. A transfer
may be registered with the Company by submission to it of this Warrant,
together with the annexed Assignment Form duly completed and executed, and if
the transfer is not a registered transfer, an opinion of counsel reasonably
satisfactory to The Company. Within five (5) Business Days after the
Company's receipt of this Warrant and the Assignment Form so completed and
executed, the Company will issue and deliver to the transferee a new Warrant
representing the portion of the Exercise Quantity transferred at the same
Exercise Price per share and otherwise having the same terms and provisions
as this Warrant, which the Company will register in the new Holder' s name.
(d) In the event of the loss, theft or destruction of this
Warrant, the Company shall execute and deliver an identical new Warrant to
the Holder in substitution therefor upon the Company's receipt of (i)
evidence reasonably satisfactory to the Company of such event (with the
affidavit of an institutional Holder being sufficient evidence), and (ii) if
requested by the Company, an indemnity agreement from any institutional
Holder or an indemnity bond from anyone else
<PAGE>
reasonably satisfactory in form and amount to the Company.
(e) The Company will not close its books against the transfer of
this Warrant or any of the Warrant Securities in any manner which interferes
with the timely exercise of this Warrant. The Company will from time to time
take all such action as may be necessary to assure that the par value per
share of the unissued Common Stock acquirable upon exercise of this Warrant
is at all times equal or less than the Exercise Price then in effect.
5. RIGHTS AND OBLIGATIONS OF THE COMPANY AND THE HOLDER. The
Company and the Holders of this Warrant are entitled to the rights and bound
by the obligations set forth in the Warrant Agreement, all of which rights
and obligations are hereby incorporated by reference herein. This Warrant
shall not entitle its Holder to any rights of a stockholder in the Company
(other than as provided in of this Warrant and the Warrant Agreement).
[remainder of page intentionally left blank]
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be
executed by its duly authorized representative and its corporate seal, if
any, to be impressed hereupon and attested to by its Secretary or Assistant
Secretary.
BROTHERS GOURMET COFFEES, INC., a
Delaware corporation
By:
---------------------------------------
Name:
Title:
Attest:
- ----------------------------------
Secretary
<PAGE>
COMMON STOCK WARRANT
EXERCISE FORM
Brothers Gourmet Coffees, Inc.
One Boca Place
2255 Glades Road
Boca Raton, Florida 33431
Attention:
-------------------------
The undersigned Holder of the within Warrant hereby irrevocably
elects to exercise the within Warrant to the extent of [________] shares of
Common Stock, $____ par value per share, of the Company.
The undersigned herewith encloses the Warrant and
/ / a certificate representing that number of shares of Common
Stock of the Company having an aggregate current market price of $_________
in payment of the Exercise Price;
/ / a check (payable to the order of the Company) in the amount of
$_____________ in payment of the Exercise Price; and/or
/ / the undersigned hereby elects to effect a cashless exercise
and authorizes the Company to deduct from the shares issuable upon exercise a
number of shares of Common Stock of the Company having an aggregate current
market price on the date hereof of $___________________.
Instructions for Registering the Securities
On the Stock Transfer Books of the Company
Name of Transferee:
--------------------------------------
State of Organization (if applicable)
---------------------
Federal Tax Identification or
Social Security Number:
---------------------
Address:
-------------------------------------------------
If this exercise of the Warrant is not an exercise in full, then
the undersigned Holder hereby requests that a new Warrant of like tenor
(exercisable for the balance of the Exercise Quantity of shares of Common
Stock underlying this Warrant) be issued and delivered to the undersigned
Holder at the address on the warrant register of the Company.
<PAGE>
Dated:
------------------- ----------------------------------------
(Name of Registered Holder - Please Print)
By:
------------------------------------
(Signature of Registered Holder or of Duly
Authorized Signatory)
Title:
-------------------------------
<PAGE>
COMMON STOCK WARRANT
ASSIGNMENT FORM
FOR VALUE RECEIVED, the undersigned Holder of the within Warrant
hereby sells, assigns and transfers unto the transferee whose name and
address are set forth below all of the rights of the undersigned under the
within Warrant (to the extent of the portion of the within Warrant being
transferred hereby, which portion is __________________________).
Name of Transferee:
-----------------------------------------
State of Organization (if applicable)
-----------------------
Federal Tax Identification or
Social Security Number:
-----------------------
Address:
-----------------------------------------
If such portion of the Warrant being transferred shall not consist
of all of the within Warrant, then the undersigned hereby requests that, as
provided in the within Warrant, a new warrant of like tenor respecting the
balance of the Exercise Quantity of shares of Common Stock underlying this
Warrant not being transferred pursuant hereto be issued in the name of and
delivered to the undersigned. The undersigned does hereby irrevocably
constitute and appoint _________________________ attorney to register the
foregoing transfer on the books of the company maintained for that purpose,
with full power of substitution in the premises.
/ / As required by the Warrant, enclosed herewith is the opinion
of legal counsel for the undersigned.
Dated:
-------------------
---------------------------------------------
(Name of Registered Holder - Please Print)
By:
---------------------------------------------
(Signature of Registered Holder or of Duly
Authorized Signatory)
Title:
-------------------
<PAGE>
AMENDMENT TO COMMON STOCK PURCHASE WARRANT
THIS AMENDMENT TO COMMON STOCK PURCHASE WARRANT (this "AMENDMENT") is dated
as of December 9, 1997, between BROTHERS WARRANT HOLDINGS I, a California
general partnership ("BWH") and BROTHERS GOURMET COFFEES, INC. (the "COMPANY").
RECITALS
WHEREAS, the Company issued to BWH a common Stock Purchase Warrant dated
December 27, 1996 (as amended, the "WARRANT"), exercisable with respect to up to
400,000 shares of the Company's Common Stock, subject to adjustment as set forth
in the Warrant. All terms not otherwise defined herein shall have the meaning
given such terms in the Warrant; and
WHEREAS, the Company and BWH desire to amend the Warrant as set forth
herein.
NOW, THEREFORE, in consideration of the foregoing, and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, intending to be legally bound hereby, the parties hereto hereby
agree as follows:
1. The Company and BWH hereby agree that the last sentence of the
preamble of the Warrant shall be amended in its entirety to read as
follows:
"The exercise price per share of Common Stock for which this Warrant
is exercisable shall be $1.5625 per share (the "EXERCISE PRICE")."
2. The Warrant shall remain in full force and effect as amended hereby
and all parties hereto hereby ratify and affirm the Warrant as so
amended.
IN WITNESS WHEREOF, the Company and BWH have executed this Amendment as of
the date first written above.
BROTHERS WARRANT HOLDINGS I,
a California general partnership
By:
---------------------------------
Name:
Title:
BROTHERS GOURMET COFFEES, INC.
By:
---------------------------------
Name:
Title:
<PAGE>
EXECUTION ORIGINAL
WARRANT AGREEMENT
BETWEEN
SIENA CAPITAL PARTNERS, L.P.
AND
BROTHERS GOURMET COFFEES, INC.
DATED AS OF SEPTEMBER 20, 1996
THIS WARRANT AGREEMENT HAS BEEN ISSUED PURSUANT TO THAT CERTAIN SECURITIES
PURCHASE AGREEMENT, DATED AS OF SEPTEMBER 20, 1996, BY AND BETWEEN THE COMPANY
(AS DEFINED HEREIN) AND SIENA (AS DEFINED HEREIN) (THE "SECURITIES PURCHASE
AGREEMENT"). THIS WARRANT AGREEMENT IS SUBJECT TO ALL OF THE TERMS AND
CONDITIONS OF THE SECURITIES PURCHASE AGREEMENT AND IS ENTITLED TO THE BENEFITS
THEREOF.
THE WARRANTS AND WARRANT SECURITIES TO BE RECEIVED UPON EXERCISE OF THE WARRANTS
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), OR QUALIFIED UNDER ANY STATE SECURITIES LAWS. THE WARRANTS
AND WARRANT SECURITIES, AS THE CASE MAY BE, MAY NOT BE OFFERED, SOLD, PLEDGED,
HYPOTHECATED OR OTHERWISE TRANSFERRED, WHETHER OR NOT FOR CONSIDERATION, IN THE
ABSENCE OF (1) AN EFFECTIVE REGISTRATION STATEMENT AND QUALIFICATION IN EFFECT
WITH RESPECT TO THE WARRANTS AND WARRANT SECURITIES, AS THE CASE MAY BE, UNDER
THE SECURITIES ACT AND UNDER ANY APPLICABLE STATE SECURITIES LAWS OR (2) AN
EXEMPTION FROM SUCH REGISTRATION AND QUALIFICATION.
<PAGE>
WARRANT AGREEMENT
THIS WARRANT AGREEMENT (this "AGREEMENT") is dated as of the 20th day of
September 1996, and executed by and between SIENA CAPITAL PARTNERS, L.P., a
California limited partnership ("SIENA"), and BROTHERS GOURMET COFFEES, INC., a
Delaware corporation (the "COMPANY").
WHEREAS, pursuant to that certain Securities Purchase Agreement between
Siena and the Company dated as of even date herewith (the "SECURITIES PURCHASE
AGREEMENT"), the Company has agreed to grant to Siena or its assigns common
stock warrants in the form attached hereto as EXHIBITS A-1 through A-4 hereto
(the "WARRANTS") to acquire shares of the Company's Common Stock, US$.0001 par
value per share. This Agreement sets forth certain rights and obligations of
the Company and Siena with respect to the Warrants.
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants, representations, warranties and agreements contained in this
Agreement, the parties hereto agree as follows:
I. DEFINITIONS
Section 1.01 DEFINED TERMS. As used in this Agreement, the following
capitalized terms shall have the meanings respectively assigned to them below,
which meanings shall be applicable equally to the singular and plural forms of
the terms so defined. Terms not otherwise defined herein shall have the
meanings ascribed to such terms in the Securities Purchase Agreement.
"ADJUSTMENT TRANSACTION" shall mean any of: (i) the issuance or sale of
Common Stock, Class B Common Stock or Common Stock Equivalents for less than
Fair Value (as hereinafter defined) (other than delivery of shares of Common
Stock upon exercise of this Warrant), in addition to the number of shares
outstanding as of the date hereof, as disclosed herein, including, without
limitation, any issuance of Common Stock, Class B Common Stock or Common Stock
Equivalents in connection with the settlement of that certain litigation
disclosed as Items 1.5(n)1, 2 and 3 in the DISCLOSURE SCHEDULE (the "SETTLEMENT
STOCK"), which Settlement Stock is valued at less than Fair Value as of the date
of such settlement or as of the date such Settlement Stock is actually tendered
to the participants in said litigation, (ii) the declaration of a Dividend upon,
or distribution in respect of, any of the Company's capital stock, payable in
Common Stock or Common Stock Equivalents, (iii) the subdivision or combination
by the Company of its outstanding Common Stock into a larger or smaller number
of shares of Common Stock, as the case may be, (iv) any capital reorganization
or reclassification of the Common Stock or Class B
1
<PAGE>
Common Stock of the Company, (v) the consolidation or merger of the Company
or any Subsidiary (as hereinafter defined) with or into another corporation,
(vi) the sale or transfer or other disposition of all or substantially all of
the property of the Company, (vii) the dissolution, liquidation or winding up
of the Company or (viii) any event as to which the foregoing clauses are not
strictly applicable, but the failure to make an adjustment in the Exercise
Price hereunder would not fairly protect the purchase rights, without
dilution, represented by the Warrants.
"COMMON EQUITY" shall mean the total equity interest in the Company
represented by the Common Stock and the Class B Common Stock and shall include
Common Equity resulting from any reorganization, reclassification or
recapitalization or similar event.
"COMMON STOCK EQUIVALENTS" shall mean all options, warrants (including the
Warrants), convertible securities, securities and other rights (in each case
whether now existing or hereafter issued or arising) to acquire from the Company
shares of Common Stock or Class B Common Stock (without regard to whether such
options, warrants, convertible securities, securities and other rights are then
exchangeable, exercisable or convertible in full, in part or at all).
"DIVIDEND" means, as to any Person (as hereinafter defined), any
declaration or payment of any dividend (other than a stock dividend) on, or the
making of any pro rata distribution, loan, advance, or investment to, any
shares of capital stock of such Person.
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as amended,
and the rules and regulations promulgated thereunder, and any successor
provisions thereto.
"EXERCISE PRICE" shall have the meaning given in each Warrant, as adjusted
from time to time pursuant to the terms of the Warrants and this Agreement.
"EXPIRATION PERIOD" means, with respect to each Warrant, the period
commencing on each Warrant's respective Warrant Effective Date through and
including the seventh anniversary of such Warrant Effective Date or, in the
event the seventh anniversary is not a Business Day (as hereinafter defined),
the next succeeding Business Day.
"EXERCISE QUANTITY" shall mean the number of shares of Common Stock,
determined from time to time, taking into account all shares of Common Stock
theretofore issued upon exercise of the Warrants, required to be issued by the
Company to the Holders of the Warrants. Exercise Quantity shall initially have
the meaning given in each Warrant, and may be adjusted from time to time,
pursuant to the provisions of the Warrants and this Agreement.
"FAIR VALUE" means, so long as, (a) the Company maintains its listing on a
national stock exchange, the NASDAQ system or another inter-dealer quotation
system; and (b) there exists and is continuing a public float having a minimum
value of $15 million based on an average trailing twenty (20) trading-day
period, to the extent such definition is applicable, with reference to the
2
<PAGE>
Warrant Securities (as hereinafter defined) and the Common Stock on a per share
basis, the current market price per share of the Common Stock as of any date of
determination. Notwithstanding the foregoing, in the event the standards set
forth in the preceding sentence have not been met or with respect to other
appropriate security, property, assets, business or entity, "Fair Value" shall
mean the fair value of such item as determined by mutual agreement reached by
the Holder and the Company or, in the event the parties are unable to agree, an
opinion of an independent investment banking firm or firms in accordance with
the following procedure. In the case of any event which gives rise to a
requirement to determine "Fair Value" pursuant to this Agreement, the Company
shall be responsible for initiating the process by which Fair Value shall be
determined as promptly as practicable, but in any event within sixty (60) days
following such event and if the procedures contemplated herein in connection
with determining Fair Value have not been complied with fully, then any such
determination of Fair Value for any purpose of this Agreement shall be deemed
to be preliminary and subject to adjustment pending full compliance with such
procedures. Upon the occurrence of an event requiring the determination of Fair
Value, the Company shall give the Holder(s) of the Warrants notice of such
event, and the Company and the Holders shall engage in direct good faith
discussions to arrive at a mutually agreeable determination of Fair Value.
In the event the Company and the Holder(s) (as hereinafter defined) are
unable to arrive at a mutually agreeable determination within thirty (30) days
of the notice, the Company and the Holder(s) of the Warrants (who, if more than
one, shall agree among themselves by a majority) shall each retain a separate
independent investment banking firm of national reputation (which firm, in
either case, may be the independent investment banking firm regularly retained
by the Company or any such Holder). Such firms shall jointly determine the Fair
Value of the security, property, assets, business or entity, as the case may be,
in question and deliver their opinion in writing to the Company and to such
Holder within thirty (30) days of their retention. In no event shall the
marketability, or lack thereof, or lack of registration of a security be a
factor in determining the "Fair Value" of such security.
If such firms cannot jointly make such determination within such 30-day
period, then, unless otherwise directed by agreement of the Company and the
Holder(s) of a majority or more of the Warrants, such firms, in their sole
discretion, shall choose another independent investment banking firm of the
Company or such Holder(s), which firm shall make such determination and render
such an opinion. In either case, the determination so made shall be conclusive
and binding on the Company and such Holder(s). The fees and expenses of the
investment banking firm retained by Holder(s) pursuant to this provision shall
be borne by Holder(s). The fees and expenses of all other investment banking
firms retained pursuant to this provision shall be borne by the Company.
"HOLDER" or "HOLDERS" shall mean the Person(s) then registered as the
owner(s) of the
3
<PAGE>
Warrants or Warrant Securities, as the case may be, on the books and records
of the Company.
"PERSON" shall mean any individual, corporation, partnership, limited
liability company, association, joint-stock company, trust, estate,
unincorporated organization, joint venture, court or governmental or political
subdivision or agency thereof.
"REGISTRABLE SECURITIES" shall have the meaning assigned to it in SECTION
6.01 hereof.
"SUBSIDIARY" shall mean any corporation as to which an aggregate of more
than 50% of the outstanding voting stock is at any time directly or indirectly
owned by the Company, or by one or more of its Subsidiaries or by the Company
and one or more of its Subsidiaries.
"WARRANT SECURITIES" shall mean the shares of Common Stock (or other
securities representing Common Stock) purchasable or purchased from time to
time under the Warrants or acquired upon any transfer of any such shares,
together with all additional securities received in payment of dividends or
distributions on or splits of those securities or received as a result of the
adjustments provided for in ARTICLE V hereof.
II. WARRANTS
On the Closing Date, the Company will grant to Siena, for good and
valuable consideration as more particularly described in the Securities
Purchase Agreement and herein, the Initial Warrant in the form attached as
EXHIBIT A-1 hereto, the Second Warrant in the form attached as EXHIBIT A-2
hereto, the Third Warrant in the form attached as EXHIBIT A-3 hereto and the
Fourth Warrant in the form attached as EXHIBIT A-4 hereto. Siena and any
subsequent Holder of the Warrants and of Warrant Securities shall have the
rights and obligations provided for in the Warrants, in this Agreement and in
the Securities Purchase Agreement.
III. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants as follows:
(a) The execution and delivery of this Agreement and the Warrants have
been duly and properly authorized by all requisite corporate action of the
Company and its board of directors, and, except as disclosed in the DISCLOSURE
SCHEDULE, no consent of any other Person is required as a prerequisite to the
validity and enforceability of this Agreement and the Warrants that has not been
obtained. The Company has the full legal right, power and authority to execute
and deliver this Agreement and the Warrants and to perform its obligations
hereunder and thereunder. When issued and delivered pursuant to this Agreement,
the Warrants will have been duly executed, issued and delivered and will
constitute valid and legally binding obligations of the Company entitled to the
benefits provided herein and therein.
(b) Except as set forth in the DISCLOSURE SCHEDULE, the Company is not a
party to or otherwise subject to any contract or agreement which restricts or
otherwise affects its right or
4
<PAGE>
ability to execute and deliver this Agreement or the Warrants or to perform
any obligation hereunder or thereunder (including, without limitation,
issuance of the Warrant Securities). Neither the execution or delivery of
this Agreement or the Warrants, nor compliance therewith (including, without
limitation, issuance of the Warrant Securities), will conflict with, or
result in a breach of the terms, conditions or provisions of, or constitute
a default under, or result in any violation of, or result in the creation of
any material lien upon any properties of the Company under, or require any
consent, approval, or other action by, notice to or filing with any court or
Governmental Person pursuant to the Certificate of Incorporation or By-laws
of the Company, as currently in effect, any award of any arbitrator, or any
material agreement, instrument or law to which the Company is subject or by
which it is bound.
(c) On the date hereof, the authorized capital stock of the Company will
consist of: (i) 15,000,000 shares of Common Stock; (ii) 2,000,000 shares of
Class B Common Stock, and (iii) 10,000,000 shares of Preferred Stock. As of
June 28, 1996, the Company had issued and outstanding (A) 10,362,605 shares of
Common Stock, (B) 839,332 shares of Class B Common Stock and (C) no shares of
Preferred Stock. All such outstanding shares are validly issued, fully paid and
nonassessable. Except as disclosed in the DISCLOSURE SCHEDULE, there are no
rights, options or warrants of any kind outstanding to purchase or acquire
Common Stock or Class B Common Stock or any other ownership interest in the
Company, nor are there other securities, obligations, agreements or rights of
any kind outstanding which are exercisable for, convertible into or exchangeable
for any Common Stock or Class B Common Stock or any other ownership interests
in the Company or under the terms of which the parties thereto have the right to
purchase or acquire Common Stock, Class B Common Stock or Common Stock
Equivalents. Except as disclosed in the DISCLOSURE SCHEDULE, the issuance by
the Company of the Warrants and the Warrant Securities is not subject to any
preemptive or similar right of any Person pursuant to statute, contract or
understanding.
(d) Except as provided in this Agreement, the Company is not subject to
any obligation to repurchase or otherwise acquire or retire any shares of
capital stock. Except as disclosed in the DISCLOSURE SCHEDULE, there is no
commitment of the Company to issue any shares, warrants, options, or other such
rights, or to distribute to holders of any class of its capital stock any
evidences of indebtedness or assets, or to pay any Dividend or make any other
distribution in respect thereof.
(e) The Warrants are, and the Warrant Securities will be, issued by the
Company to Siena in a transaction exempt from registration and qualification
under the applicable federal and state securities laws.
(f) Except as disclosed in the DISCLOSURE SCHEDULE, there is not in effect
on the date of this Agreement any agreement by the Company (other than this
Agreement) pursuant to which any holders of securities of the Company have a
right to cause the Company to register such securities under the Securities Act.
5
<PAGE>
(g) The representations and warranties made or deemed made by the Company
in the Securities Purchase Agreement are incorporated herein by reference and
are true and correct on the date of this Agreement and the Holder shall be
entitled to rely thereon as if the same were originally addressed to the Holder.
The representations and warranties incorporated by reference in this Section
shall survive any termination of the Securities Purchase Agreement, the maturity
of the Note or any expiration of such representations or warranties by the terms
of the Securities Purchase Agreement or the Note.
IV. COVENANTS
Section 4.01 COVENANTS OF THE COMPANY. The Company hereby covenants and
agrees that, during the term of this Agreement, unless all of the Holders of the
Warrants agree otherwise in writing:
(a) Each of the Warrant Securities issued and delivered upon the exercise
of the Warrants and payment of the Exercise Price will be duly and validly
authorized and issued, will be fully paid and nonassessable, and will not be
subject to any unpaid tax or any lien, whether respecting their issuance to and
purchase by the Holder of the Warrants or otherwise. The Company will take all
such actions as may be necessary to assure that all such shares of Common Stock
may be so issued without violation of any applicable law or governmental
regulation or any requirements of any domestic securities exchange upon which
shares of Common Stock may be listed.
(b) The Company shall reserve and at all times keep available for issuance
an authorized number of shares of Common Stock sufficient to permit the full and
immediate exercise of the Warrants and the full and immediate exercise, exchange
and conversion of all other securities, options, warrants and other rights
issued or granted by the Company.
(c) The Company shall not permit the par value of its Common Stock to
exceed, at any time, the Exercise Price and shall take all such actions as may
be necessary or appropriate to ensure that it does not do so.
(d) The Company shall not create or permit the existence of any class of
common stock, preferred stock, or any class or series of securities having
voting rights other than as may be required by statute, or any other class or
series of securities having any liquidation, Dividend or other preference, other
than the Common Stock, the Class B Common Stock and the Preferred Stock.
(e) As soon as available, and in no event later than the dates filed with
the SEC or any other Governmental Person or other regulatory authority, if such
documents are so filed, the Company shall deliver to the Holder(s) of the
Warrants and the Warrant Securities copies of (i) all annual, quarterly and
monthly financial statements made available by the Company to its stockholders,
(ii) all reports, notices and proxy or information statements sent or made
available
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generally by the Company to its stockholders, and (iii) all regular and
periodic reports and all registration statements, prospectuses and other
information filed by the Company with the Commission, relevant state
authorities or any securities exchange, securities quotation system or other
self-regulatory organization.
(f) The Company shall cooperate with the Holder(s) of the Warrants and the
Warrant Securities in supplying such information as may be reasonably necessary
for the Holder(s) to complete and file any information or other reporting forms
from time to time required by the Commission, relevant state authorities or any
securities exchange, securities quotation system or other self-regulatory
organization, including, without limitation, information pertaining to or
required for the availability of any exemption from the securities laws for the
sale, transfer or other disposition of the Warrants or any of the Warrant
Securities.
Section 4.02 INDEMNIFICATION.
(a) In connection with any registration or qualification of Warrant
Securities hereunder, the Company agrees that Siena and each other Holder of the
Warrants or any Warrant Securities purchased hereunder, any underwriter(s), and
their respective directors, officers, employees, attorneys and agents, as well
as each other Person (if any) controlling any of the foregoing Persons within
the meaning of Section 15 of the Securities Act, or Section 20 of the Exchange
Act, shall not incur any liability for acts and omissions arising out of or
related directly or indirectly to the Warrants, the Warrant Securities, this
Agreement, any registration statement or prospectus or any misstatement or
omission of a material fact therein; and the Company hereby expressly waives
any and all claims and actions which it now has or may hereafter at any time
have against Siena and each other Holder of the Warrants or underlying Warrant
Securities, and their respective directors, officers, employees, attorneys and
agents, arising out of or related directly or indirectly to any and all of the
foregoing acts, omissions and circumstances, except insofar as such liability is
caused by untrue statements or alleged untrue statements or omissions or alleged
omissions and is based upon information furnished in writing by Holder expressly
for use therein.
(b) The Company agrees to defend, indemnify and hold harmless Siena and
each other Holder of the Warrants, this Agreement, or any Warrant Security
purchased hereunder, any underwriter(s), and their respective directors,
officers, employees, attorneys and agents, as well as each other Person (if any)
controlling any of the foregoing Persons within the meaning of Section 15 of the
Securities Act, or Section 20 of the Exchange Act, from and against any and all
claims, liabilities, losses and expenses (including, without limitation, the
disbursements, expenses and fees of their respective attorneys) that may be
imposed upon, incurred by, or asserted against any of them, any of their
respective directors, officers, employees, attorneys and agents, or any such
control Person, under the Securities Act, the Exchange Act or any other statute
or at common law, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof), arise out of or are related directly or indirectly
to: (i) the Warrants or the Warrant Securities, (ii) any registration statement
or prospectus, (iii) any alleged untrue
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statement of any material fact contained, on the effective date thereof, in
any registration statement under which such securities were registered under
the Securities Act or the Exchange Act, or in any preliminary prospectus or
final prospectus contained therein, or any amendment or supplement thereto,
or (iv) any alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading,
and shall reimburse such Persons for any legal or any other expenses
reasonably incurred by such Persons in connection with investigating or
defending any such loss, claim, damage, liability or action; provided,
however, that the Company shall not be liable in any such case to the extent
that any such loss, claim, damage or liability arises out of or is based upon
any alleged untrue statement or alleged omission made in such registration
statement, preliminary prospectus, prospectus or amendment or supplement in
reliance upon and in conformity with written information furnished to the
Company through an instrument duly executed by such respective Person
specifically for use therein. Such indemnity shall remain in full force and
effect regardless of any investigation made by or on behalf of any such
indemnified Person, and shall survive the transfer of such securities by such
Person. Promptly after receipt of notice of the commencement of any action
in respect of which indemnity may be sought against the Company, the Company
shall assume the defense of such action (including the employment of counsel,
who shall be counsel reasonably satisfactory to the party seeking indemnity
hereunder) and the payment of expenses insofar as such action shall relate to
any alleged liability in respect of which indemnity may be sought against the
Company. The Company shall not, except with the approval of each party being
indemnified under this SECTION 4.02, consent to entry of any judgment or
enter into any settlement that does not include as an unconditional term
thereof the giving by the claimant or plaintiff to the parties being so
indemnified of a release from all liability in respect to such claim or
litigation.
Section 4.03 LISTING ON THE SECURITIES EXCHANGE. The Company shall, at
its expense, list on any securities exchange where it lists its Common Stock,
and maintain and increase when necessary such listing of all outstanding Warrant
Securities so long as any shares of Common Stock shall be so listed. The
Company shall also so list on each securities exchange, and will maintain such
listing of, any other securities which the holder of the Warrants shall be
entitled to receive upon the exercise thereof if at the time any securities of
the same class shall be listed on such securities exchange by the Company.
Section 4.04 REPURCHASES AND REDEMPTIONS. The Company shall not
repurchase or redeem any of its equity securities or any securities convertible
into or exchangeable for such equity securities or any warrants or other rights
to purchase such equity securities unless it concurrently makes a cash payment
to the Holder(s) of the Warrants equal to the product of: (1) the quotient
obtained by dividing (x) the aggregate amount of cash and the aggregate Fair
Value of any property paid out by the Company in connection with any such
repurchase or redemption by (y) the number of shares of Common Stock and Common
Stock Equivalents outstanding immediately after such repurchase or redemption
(excluding Warrant Securities) and (2) the number of shares of Common Stock
issuable upon the exercise of the Warrants.
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V. ANTIDILUTION
Section 5.01 NO DILUTION OR IMPAIRMENT. The Company hereby acknowledges
that the initial number of shares issuable upon exercise of the Warrants was
calculated based upon 1.88% of the number of shares of Common Stock, Class B
Common Stock and Common Stock Equivalents outstanding and the representation of
the Company that the number of shares of Common Stock and Common Stock
Equivalents outstanding as of the Closing Date (including the Warrant
Securities) was Fourteen Million Eight Hundred Ninety-Five Thousand Thirty-Four
(14,895,034) shares. If for any reason it shall hereafter be determined by the
Company that the actual number of shares of Common Stock, Class B Common Stock
and Common Stock Equivalents outstanding as of the Closing Date was different
from the foregoing, the Company will notify the Holder(s) of such determination
and if the Holder(s) does not dispute the same, the Company shall forthwith
reissue the Warrants with an appropriate proportional increase in the Exercise
Quantity to be effective from the Closing Date. If a Holder shall dispute such
determination and the parties cannot otherwise resolve the dispute promptly and
in good faith, then the Company shall appoint a firm of independent public
accountants of recognized national standing (which may be the regular auditors
of the Company), which shall give their opinion as to the adjustment, if any, to
be made to the Exercise Quantity. Upon receipt of such opinion, the Company
shall promptly mail a copy thereof to the Holder(s) of the Warrants and shall
make the adjustment described therein.
It is the intent of the parties hereto that, after giving effect to any
exercise of the Warrants, the Holder(s) of the Warrants or Warrant Securities
would collectively be the owner of 1.88% of the Common Stock and Common Stock
Equivalents (or have the right to acquire 1.88% of the Common Stock and Common
Stock Equivalents outstanding as such amount may be adjusted in the event of a
cashless exercise of the Warrants according to SECTION 2(a)(II) or (III) thereof
or other adjustments contemplated herein), except such percentage may be reduced
as a consequence of an issuance of Common Stock not requiring any adjustment in
the Exercise Price resulting from any Adjustment Transaction in accordance with
SECTION 5.02 or other adjustments contemplated herein.
Upon any adjustment of the Exercise Price as provided in SECTION 5.02, the
Exercise Quantity shall be adjusted so that the New Exercise Quantity shall be
equal to the product of (x) the former Exercise Quantity and (y) the following
fraction:
The Exercise Price in effect immediately prior to such adjustment
-----------------------------------------------------------------
The Exercise Price resulting from such adjustment
EXHIBIT B hereto sets forth the formula and an illustrative example of the
manner in which the adjustments contemplated herein should be applied.
So long as any Warrants are outstanding, then, without the prior written
consent of the Holders of outstanding Warrants evidencing a majority in number
of the total number of Warrant
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Securities at the time purchasable upon the exercise of all then outstanding
Warrants, the Company will not: (a) amend the Certificate of Incorporation
or the By-Laws of the Company (or any equivalent documents) with respect to
the Company's capital stock; (b) merge or consolidate with or into another
Person or voluntarily reorganize, liquidate, dissolve or wind up its affairs;
(c) make any payment (in cash or property) to or enter into any other
transaction with, any party to this Agreement or any stockholder or
securityholder of the Company or any Affiliate thereof other than payments
made, or transactions expressly contemplated by this Agreement, the
Securities Purchase Agreement or the Senior Debt Agreement; or (d) take any
other voluntary action, avoid or seek to avoid the observance or performance
of any of the terms of this Agreement or the Warrants or impair the ability
of the Holder(s) to realize the full intended economic value thereof, but
will at all times in good faith assist in the carrying out of all such terms,
and of the taking of all such action as may be necessary or appropriate in
order to protect the rights of the Holder(s) of the Warrants against
dilution or other impairment.
Section 5.02 ADJUSTMENT.
(a) In the event the Company, after the Closing Date, shall propose to
consider or engage in an Adjustment Transaction, then, in each such event, the
Company shall mail to the Holder of the Warrants notice of such proposed action,
which shall specify the date on which the stock transfer books of the Company
shall close, or a record shall be taken, for determining the holders of Common
Stock entitled to receive the benefit of such Adjustment Transaction, or the
date on which the Adjustment Transaction shall take place or commence, as the
case may be, and the date as of which it is expected that holders of Common
Stock of record shall be entitled to receive securities or other property
deliverable upon such action, if any such date is to be fixed. Such notice
shall be mailed at least thirty (30) days prior to the date upon which it is
proposed that such action take place and twenty (20) days prior to any record
date to determine holders of Common Stock entitled to receive the benefit of
such Adjustment Transaction. If an Adjustment Transaction occurs, the Exercise
Price shall be adjusted by the Company so as to fairly preserve, without
dilution, the purchase rights represented by the Warrants in accordance with
SECTION 5.01 and otherwise with the essential intent and purposes hereof. If
the Holder(s) of the Warrants disputes the adjustment of the Exercise Price made
by the Company and the parties cannot otherwise resolve the dispute promptly and
in good faith, then the Company shall at its expense appoint a firm of
independent public accountants of recognized national standing (which may be the
regular auditors of the Company), which shall give their opinion as to the
adjustment, if any, to be made to the Exercise Price as the result of the
relevant Adjustment Transaction. Upon receipt of such opinion, the Company shall
promptly mail a copy thereof to the Holder(s) of the Warrants and shall make the
adjustment described therein. An adjustment made pursuant to this SECTION
5.02(A) shall become effective immediately after the effective date of any such
issue, sale, Dividend, subdivision, combination or reclassification.
Anything herein to the contrary notwithstanding, the Company shall not be
required to make any adjustment of the Exercise Price in the case of the
issuance of shares of Common Stock upon the exercise in whole or part of the
Warrant.
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(b) Whenever the Exercise Price is adjusted as provided in this
SECTION 5.02, the Company will, if requested, promptly obtain a certificate
of a firm of independent public accountants of recognized national standing
selected by the Board of Directors of the Company (who may be the regular
auditors of the Company) setting forth the Exercise Price, and the Exercise
Quantity as so adjusted, the computation of such adjustment and a brief
statement of facts accounting for such adjustment, and will retain such
certificate on file and mail to the Holder(s) of the Warrants a copy of such
certificate from such firm of independent public accountants.
VI. REGISTRATION RIGHTS
Section 6.01 "PIGGYBACK" REGISTRATION RIGHTS. If at any time the
Company shall determine to register under the Securities Act (including
pursuant to a demand of any security holder of the Company exercising
registration rights) any of its Common Stock (except securities to be issued
solely in connection with any acquisition of any entity or business, shares
issuable solely pursuant to employee benefit plans eligible for registration
on SEC Form S-8 or shares to be registered on any registration form that
does not permit secondary sales), it shall send to Siena and to each of the
Holder(s) written notice of such determination at least thirty (30) days
prior to each such filing and, if within twenty (20) days after receipt of
such notice, any Holder shall so request in writing, the Company shall use
its best efforts to include in such registration statement (to the extent
permitted by applicable regulation) all or any part of the Warrant Securities
(collectively referred to in this ARTICLE VI as "REGISTRABLE SECURITIES")
that such Holder requests to be registered, provided, however, that if, in
connection with any offering involving an underwriting of Common Stock to be
issued by the Company, the managing underwriter shall impose a limitation on
the amount of Registrable Securities included in any such registration
statement, then, to the extent that any Registrable Securities remain
available for registration after the underwriter's cutback, the Company shall
be obligated to include in such registration statement with respect to each
Holder requesting inclusion only the product of : (i) the number of
Registrable Securities with respect to which such Holder has requested
inclusion hereunder and (ii) such Holder's pro rata share of the sum of all
Registrable Securities permitted to be registered and all other securities of
the Company, the holders of which Registrable Securities and other securities
have requested that such securities be registered. Any Registrable
Securities which are included in any underwritten offering under this SECTION
6.01 shall be sold upon such terms as the managing underwriters shall
reasonably request but in any event shall be upon terms not less favorable
than those upon which any other selling security holder shall sell any of its
securities. If any Holder disapproves of the terms of such underwriting,
such Holder may elect to withdraw therefrom by written notice to the Company
and the underwriter. The Company shall use its best efforts to cause the
managing underwriter or underwriters of a proposed underwritten offering (the
"COMPANY UNDERWRITER") to permit the Holders who have requested to
participate in the registration for such offering to include such Registrable
Securities in such offering on the same terms and conditions as the
securities of the Company included therein. Notwithstanding the foregoing, if
the Company Underwriter delivers a written opinion to the Holders that the
total amount or kind of securities which they, the Company and any other
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Persons intend to include in such offering (the "TOTAL SECURITIES") is
sufficiently large so as to prevent the Company from affecting a successful
offering of the Total Securities, then the amount or kind of securities to be
offered for the account of any members of management shall be reduced pro
rata to the extent necessary to reduce the Total Securities to the amount
recommended by the Company Underwriter, and if the amount or kind of Total
Securities is still sufficiently large so as to prevent the Company from
affecting a successful offering of the Total Securities, then the amount or
kind of securities to be offered for the account of the Holders and any other
Persons shall be reduced pro rata to the extent necessary to reduce the Total
Securities to the amount recommended by the Company Underwriter.
Notwithstanding the provisions of this SECTION 6.01, the Company shall have
the right, at any time after it shall have given written notice pursuant to
this SECTION 6.01 (irrespective of whether a written request for inclusion
of Registrable Securities shall have been made), to elect not to file any
such proposed registration statement or to withdraw the same after the filing
and prior to the effective date thereof.
Section 6.02 REQUESTED REGISTRATIONS. At any time, and from time to
time upon the written request of Siena or a majority-in-interest of the
Holders, the Company effects the registration under the Securities Act of all
or part of such Registrable Securities and specifying the number of
Registrable Securities to be registered and the intended method of
disposition thereof (a "REQUESTED REGISTRATION"), the Company will use its
best efforts to affect the registration under the Securities Act of the
Registrable Securities which the Company has been so requested to register by
such Holder(s), and all to the extent requisite to permit the disposition (in
accordance with the intended methods thereof) of the Registrable Securities
so to be registered. Neither the Company nor any of its securityholders
shall have the right to include any of the Company's securities (other than
Registrable Securities) in a registration statement to be filed as part of a
Requested Registration unless: (i) such securities are of the same class as
the Registrable Securities and (ii) if such Requested Registration is an
underwritten offering, the Company or such securityholders, as applicable,
agree in writing to sell their securities on the same terms and conditions as
apply to the Registrable Securities being sold. Notwithstanding anything
herein to the contrary, the Company shall not be required to honor a request
for a Requested Registration if: (a) the Company has previously affected one
effective Requested Registration; (b) the Registrable Securities to be so
registered do not constitute at least five percent (5%) of the total number
of Registrable Securities then outstanding or issuable upon exercise or
conversion of the warrants; or (c) such request is received by the Company
(i) less than ninety (90) days following the effective date of any previous
registration statement filed in connection with a Requested Registration or
(ii) less than forty-five (45) days following the effective date of any
previous registration statement filed in connection with a Piggyback
Registration, regardless of whether any Holder exercised its rights under
this Agreement with respect to such registration.
Section 6.03 EFFECTIVENESS. If necessary to permit distribution of
the Registrable Securities, the Company shall use its best efforts to
maintain the effectiveness for up to one (1) year of the registration
pursuant to which any of the Registrable Securities are being offered, and
from time to time will amend or supplement such registration statement and
the prospectus
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contained therein as and to the extent necessary to comply with the
Securities Act and any applicable state securities statute or regulation.
Notwithstanding the foregoing, if the registration by the Company of the
resale of Registrable Securities is eligible for SEC Form S-3 or any
successor to such form, the Company shall use its best efforts to maintain
the effectiveness of the registration until all registered Registrable
Securities are sold. The Holder shall notify the Company promptly of the
completion of the offering of its Registrable Securities under any such
effective registration statement.
Section 6.04 FURTHER OBLIGATIONS OF THE COMPANY. Whenever, under the
preceding Sections of this ARTICLE VI, the Company is required hereunder to
register Registrable Securities, it agrees that it shall also do the
following:
(a) Furnish to each selling Holder such copies of each preliminary and
final prospectus and any other documents as such Holder may reasonably
request to facilitate the public offering of its Registrable Securities;
(b) Use its best efforts to register or qualify the Registrable
Securities to be registered pursuant to this ARTICLE VI under the applicable
securities or blue sky laws of such jurisdictions as any selling Holder may
reasonably request;
(c) Furnish to each selling Holder: (i) a signed counterpart of an
opinion of counsel for the Company, dated the effective date of the
registration statement; and (ii) a copy of any "comfort" letters signed by
the Company's independent public accountants who have examined and reported
on the Company's financial statements included in the registration statement,
covering substantially the same matters as are customarily covered in
opinions of issuer's counsel and in accountants' "comfort" letters delivered
to the underwriters in underwritten public offerings of securities;
(d) Permit each selling Holder or such Holder's counsel or other
representatives to inspect and copy such corporate documents and records as
may reasonably be requested by them in connection with such registration; and
(e) Furnish to each selling Holder, upon request, a copy of all
documents filed and all correspondence from or to the Commission in
connection with any such offering.
Section 6.05 EXPENSES. Except for underwriters' discounts and
brokerage commissions allocable to the Registrable Securities, the Company
shall bear all costs and expenses of each registration contemplated in
SECTIONS 6.01 and 6.02 including, but not limited to, printing, legal and
accounting fees and expenses, SEC and NASD filing fees and blue sky fees and
expenses in any jurisdiction in which the securities to be offered are to be
registered or qualified.
Section 6.06 TRANSFER OF REGISTRATION RIGHTS. The registration
rights of the Holders of Registrable Securities under this ARTICLE VI shall
inure to the benefit of and be exercisable by any transferee of Registrable
Securities.
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Section 6.07 PARTICIPATION RIGHTS.
The Company will not grant to any Person (other than Siena, the Holders,
any Affiliate thereof or any transferee of Registrable Securities under this
ARTICLE VI) at any time on or after the date of this Agreement the right (a
"PARTICIPATION RIGHT") to request the Company to register any securities of
the Company under the Securities Act by reason of the exercise by any holder
of its rights under this ARTICLE VI unless such Participation Right provides
that such securities shall not be registered and sold at the same time if the
managing underwriter for the offering, including the Registrable Securities,
believes that sale of such securities would adversely affect the amount of,
or price at which, the respective Registrable Securities being registered
under this ARTICLE VI can be sold.
The Company agrees: (1) not to affect any public or private sale or
distribution of its securities, including a sale pursuant to Regulation D
under the Securities Act, during the 10-day period prior to, and during the
90-day period beginning on, the closing date of an underwritten offering made
to pursuant to a registration statement filed pursuant to SECTION 6.02, and
(2) to cause each holder (other than Siena, the Holders, any Affiliate
thereof or any transferee of Registrable Securities under this ARTICLE VI) of
its privately placed equity securities or convertible securities purchased
from the Company at any time prior to, on or after the date of this Agreement
to agree not to affect any public or private sale or distribution of any such
securities during such period, including a sale pursuant to Rule 144 or Rule
144A under the Securities Act (except as part of such underwritten
registration, if permitted).
Notwithstanding anything in this ARTICLE VI to the contrary, in no event
shall this ARTICLE VI be construed as prohibiting, restricting or impairing
the Company's ability to comply with the registration rights agreements or
the registration rights in any warrant it has: (i) entered into prior to the
Closing Date and (ii) disclosed on the DISCLOSURE SCHEDULE.
VII. TRANSFER OF WARRANTS AND WARRANT SECURITIES
Section 7.01 TRANSFER. Except as set forth in SECTION 7.02 below,
the Warrants and the Warrant Securities and all rights thereunder are
transferable, in whole or in part, on the books of the Company to be
maintained for such purpose, upon surrender of such Warrant at the office of
the Company maintained for such purpose, together with a written assignment
of such Warrant duly executed by the Holder hereof or its agent or attorney
and payment of funds sufficient to pay any stock transfer taxes payable upon
the making of such transfer. Upon such surrender and payment, the Company
shall execute and deliver a new Warrant or Warrants in the name of the
assignee or assignees and in the denominations specified in such instrument
of assignment, and this Warrant shall promptly be canceled. If and when the
transferred Warrant is assigned in blank, the Company may (but shall not be
obliged to) treat the bearer thereof as the absolute owner of such Warrant
for all purposes and the Company shall not be affected by any notice to the
contrary. The transferred Warrant, if properly assigned in compliance
herewith, may be exercised by an assignee for the purchase of shares of
Common Stock without having a new
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Warrant issued. The Company will not close its stock transfer books against
a transfer of the Warrants or the Warrant Securities or any exercise of the
Warrants. Any such transfer or exercise tendered while such stock transfer
books shall be closed shall be deemed effective immediately prior to such
closure.
Subject to SECTION 7.02 below, the Warrants may be divided or combined
with other Warrants upon presentation at the aforesaid office of the Company,
together with a written notice specifying the names and denominations in
which new Warrants are to be issued, signed by the Holder thereof or its
agent or attorney. Subject to compliance with this, as to any transfer which
may be involved in such division or combination, the Company shall execute
and deliver a new Warrant or Warrants in exchange for the Warrant or Warrants
to be divided or combined in accordance with such notice.
The Company shall pay all expenses, taxes (other than income taxes, if
any, of the transferee) and other charges incurred by the Company in the
performance of its obligations in connection with the preparation, issue and
delivery of Warrants under this Section. The Company agrees to maintain at
its aforesaid office books for the registration and transfer of the Warrants.
Notwithstanding any provision to the contrary contained herein, the Warrants
and the Warrant Securities shall be transferable only in compliance with the
provisions of the Securities Act and applicable state securities laws in
respect of the transfer of any Warrant or any Warrant Securities.
Section 7.02 TRANSFER RESTRICTIONS. Neither this Warrant Agreement,
the Warrants nor the Warrant Securities, when issued, have been registered
under the Securities Act or under the securities laws of any state. Neither
this Agreement, the Warrants nor the Warrant Securities, when issued, may be
transferred: (a) if such transfer would constitute a violation of any
federal or state securities laws or a breach of the conditions to any
exemption from registration thereunder and (b) unless and until one of the
following has occurred: (i) registration of this Agreement, the Warrants or
the Warrant Securities, as the case may be, under the Securities Act, and
such registration or qualification as may be necessary under the securities
laws of any state, have become effective, or (ii) the Holder has delivered
evidence reasonably satisfactory to the Company that such registration or
qualification is not required.
Each certificate for Warrant Securities issued upon exercise of a
Warrant and each certificate issued to a subsequent transferee, unless at the
time of exercise such Warrant Securities are registered under the Securities
Act, shall bear a legend substantially in the following form (and any
additional legends required by law) on the face thereof:
THE WARRANT SECURITIES TO BE RECEIVED UPON EXERCISE OF THE WARRANTS
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR QUALIFIED UNDER ANY STATE SECURITIES LAWS. THE WARRANT SECURITIES
MAY NOT BE OFFERED, SOLD, PLEDGED, HYPOTHECATED OR OTHERWISE
TRANSFERRED, WHETHER OR NOT FOR CONSIDERATION, IN THE
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ABSENCE OF (1) AN EFFECTIVE REGISTRATION STATEMENT AND QUALIFICATION IN
EFFECT WITH RESPECT TO THE WARRANT SECURITIES UNDER THE SECURITIES ACT AND
UNDER ANY APPLICABLE STATE SECURITIES LAWS OR (2) AN EXEMPTION FROM SUCH
REGISTRATION AND QUALIFICATION.
Section 7.03 REPLACEMENT OF INSTRUMENTS. Upon receipt by the Company
of evidence reasonably satisfactory to it of the ownership of and the loss,
theft, destruction or mutilation of any certificate or instrument evidencing
any Warrants or Warrant Securities, and (a) in the case of loss, theft or
destruction, upon receipt by the Company of indemnity reasonably satisfactory
to it (provided that, if the owner of the same is a commercial bank or an
institutional lender or investor, its own agreement of indemnity shall be
deemed to be satisfactory), or (b) in the case of mutilation, upon surrender
and cancellation thereof, the Company, at its expense, will execute,
register and deliver, in lieu thereof, a new certificate or instrument for
(or covering the purchase of) an equal number of Warrants or Warrant
Securities.
VIII. MISCELLANEOUS
Section 8.01 TERM. Except as otherwise expressly provided in this
Agreement or the Warrants, this Agreement shall expire seven (7) years after
the Fourth Warrant Effective Date, provided that the Company's obligations to
honor an exercise of the Warrants given prior to such expiration or to
perform any obligation continue and survive notwithstanding the expiration of
this Agreement.
Section 8.02 NO WAIVER UNDER OTHER AGREEMENTS. The terms and
provisions contained in this Agreement are not intended and shall not be
construed to waive, modify, repeal, stay, diminish or otherwise impair or
affect in any manner whatsoever any right or remedy of Siena or the
Holder(s) under the Company's Certificate of Incorporation, By-laws or
similar agreements.
Section 8.03 RELIANCE. Each party to this Agreement shall be
entitled to rely upon any notice, consent, certificate, affidavit, statement,
paper, document, writing or other communication reasonably believed by that
party to be genuine and to have been signed, sent or made by the proper
Person or Persons.
Section 8.04 NOTICE. Unless otherwise specifically provided herein,
all communications under this Agreement and the Warrants shall be in given in
accordance with Section 6.4 of the Securities Purchase Agreement.
Section 8.05 ENFORCEMENT. The Company acknowledges that the Holders
may proceed to exercise or enforce any right, power, privilege, remedy or
interest that they may have under this Agreement or applicable law without
notice, except as otherwise expressly provided herein, without pursuing,
exhausting or otherwise exercising or enforcing any other right, power,
privilege, remedy or interest that they may have against or in respect of any
other party, or any
16
<PAGE>
other Person or thing, and without regard to any act or omission of such
party or any other Person.
Section 8.06 EQUITABLE RELIEF. Each party acknowledges and agrees
that it would be impossible to measure in money the damage in the event of a
breach of any of the terms and provisions of this Agreement by any party
hereto, and that, in the event of any such breach, there may not be an
adequate remedy at law, although the foregoing shall not constitute a waiver
of any of the party's rights, powers, privileges and remedies against or in
respect of a breaching party, any other person or thing under this Agreement
or applicable law. It is therefore agreed that, in addition to all other
such rights, powers, privileges and remedies that it may have, each party
shall be entitled to injunctive relief, specific performance or such other
equitable relief as such party may request to exercise or otherwise enforce
any of the terms and provisions of this Agreement and to enjoin or otherwise
restrain any act prohibited thereby, and no party will urge, and each party
hereby waives, any defense that there is an adequate remedy available at law.
Section 8.07 INTERPRETATION; HEADINGS; SEVERABILITY.
(a) The parties acknowledge and agree that since each party and its
counsel have reviewed and negotiated the terms and provisions of this
Agreement and have contributed to its revision, the normal rule of
construction to the effect that any ambiguities are resolved against the
drafting party shall not be employed in the interpretation of this
Agreement, and its terms and provisions shall be construed fairly as to all
parties hereto and not in favor of or against any party, regardless of which
party was generally responsible for the preparation of this Agreement.
(b) The Section and other headings contained in this Agreement are for
reference purposes only and shall not affect the meaning or interpretation of
this Agreement.
(c) In the event that any term or provision of this Agreement shall be
finally determined to be superseded, invalid, illegal or otherwise
unenforceable pursuant to applicable law by a governmental authority having
jurisdiction and venue, determination shall not impair or otherwise affect
the validity, legality or enforceability: (i) by or before that authority
of the remaining terms and provisions of this Agreement, which shall be
enforced as if the unenforceable term or provision were deleted, or (ii) by
or before any other authority of any of the terms and provisions of this
Agreement.
(d) If any period of time specified in this Agreement expires on a day
that is not a Business Day, that period shall be extended to and expire on
the next succeeding Business Day.
Section 8.08 SURVIVAL OF COVENANTS. Each of the covenants and other
agreements of the parties contained in this Agreement shall be absolute and,
except as otherwise expressly provided, unconditional, shall survive the
execution and delivery of this Agreement and shall continue in full force and
effect until the term of this Agreement has expired, and thereafter with
respect to events occurring prior thereto.
17
<PAGE>
Section 8.09 NO REQUIRED EXERCISE. No term or provision of the
Warrants or this Agreement is intended to require, nor shall any such term or
provision be construed as requiring, any Holder of the Warrants to exercise
or put the Warrants.
Section 8.10 BINDING EFFECT. This Agreement shall be binding upon
and enforceable against the parties hereto and their respective successors
and assigns.
Section 8.11 NO WAIVER BY ACTION. The failure or delay of a party at
any time or times to require performance of, or to exercise its rights with
respect to, any term or provision of this Agreement (except as otherwise
expressly provided herein) shall not affect its right at a later time to
enforce any such provision.
Section 8.12 WAIVER; MODIFICATION; AMENDMENT. Each and every
modification to and amendment of this Agreement shall be in writing and
signed by the Company, Siena (if at that time Siena is a Holder) and by the
Holders of a majority in interest of all issued and unissued Warrant
Securities. Each and every waiver of and consent to any departure from any
term or provision hereof (except as otherwise provided herein) shall be in
writing and signed by Siena (if at that time it is a Holder) and by the
Holders of a majority in interest of all issued and unissued Warrant
Securities and by each party against whom enforcement of the waiver or
consent may be sought.
Section 8.13 ENTIRE AGREEMENT. This Agreement, the Securities
Purchase Agreement and the Warrants contain the entire agreement of the
parties and supersede all other representations, warranties, agreements and
understandings, oral or otherwise, among the parties hereto with respect to
the matters contained herein, except as otherwise provided herein.
Section 8.14 CERTIFICATE. Siena shall have received: (i) a
certificate, dated the date of this Agreement, of the Secretary or an
Assistant Secretary of the Company, (A) attaching a true and complete copy of
the resolutions of the Board of Directors of the Company, and of all
documents evidencing other necessary corporate or shareholder action (in form
and substance satisfactory to Siena and to its counsel) taken by the Company
in connection with the matters contemplated by this Agreement, (B) attaching
a true and complete copy of the Certificate of Incorporation and the By-Laws
of the Company, (C) setting forth the incumbency of the officer or officers
of the Company who sign this Agreement, and each Warrant, including therein a
signature specimen of such officer or officers, and (D) attaching a
certificate of good standing of the Secretary of State or other appropriate
official of the State of Delaware and (ii) such other documents and evidence
relating to the matters contemplated by this Agreement as Siena or its
counsel shall reasonably require.
Section 8.15 NO INCONSISTENT AGREEMENTS OR RIGHTS. The Company shall
not enter into any agreement with respect to its securities that is
inconsistent with the rights granted to the Holders in this Agreement.
Section 8.16 GOVERNING LAW; CONSENT TO JURISDICTION; WAIVER OF JURY
TRIAL. THIS
18
<PAGE>
AGREEMENT, THE WARRANTS AND THE WARRANT SECURITIES AND ALL AMENDMENTS,
SUPPLEMENTS, WAIVERS AND CONSENTS RELATING HERETO OR THERETO SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE
OF COLORADO WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW. THE COMPANY
HEREBY IRREVOCABLY SUBMITS ITSELF TO THE NON-EXCLUSIVE JURISDICTION OF THE
STATE AND FEDERAL COURTS SITTING IN THE STATE OF CALIFORNIA AND AGREES AND
CONSENTS THAT SERVICE OF PROCESS MAY BE MADE UPON IT IN ANY LEGAL PROCEEDINGS
RELATING HERETO BY ANY MEANS ALLOWED UNDER CALIFORNIA, COLORADO OR FEDERAL
LAW. THE COMPANY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY
APPLICABLE LAW, ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE LAYING
OF VENUE OF ANY SUCH PROCEEDING BROUGHT IN SUCH COURT AND ANY CLAIM THAT ANY
SUCH PROCEEDING BROUGHT IN SUCH A COURT HAS BEEN BROUGHT IN AN INCONVENIENT
FORUM. THE COMPANY SHALL APPOINT AN AGENT FOR SERVICE OF PROCESS IN
CALIFORNIA AND SHALL NOTIFY SIENA IN WRITING OF SUCH APPOINTMENT AND ANY
FUTURE CHANGE THEREIN. THE COMPANY AND SIENA EACH HEREBY AGREE TO WAIVE ITS
RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON
OR ARISING OUT OF THIS AGREEMENT, THE SECURITIES OR ANY OTHER AGREEMENTS
RELATING TO THE SECURITIES OR ANY DEALINGS BETWEEN THEM RELATING TO THE
SUBJECT MATTER OF THIS TRANSACTION. NOTWITHSTANDING ANYTHING TO THE CONTRARY
HEREIN, THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED
EITHER ORALLY OR IN WRITING, AND THE WAIVER SHALL APPLY TO ANY SUBSEQUENT
AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT, THE
WARRANTS, THE WARRANT SECURITIES OR ANY OTHER DOCUMENTS OR AGREEMENTS
RELATING THERETO.
[Signature page follows]
19
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Warrant
Agreement to be executed as of the day and year first above written.
SIENA:
SIENA CAPITAL PARTNERS, L.P.,
a California limited partnership
By: Charleville Capital, L.P.,
a California limited partnership,
its general partner
By: Aneis Advisors, Inc.,
a California corporation,
its general partner
By:
----------------------------------
Name:
Title:
THE COMPANY:
BROTHERS GOURMET COFFEES, INC.,
a Delaware corporation
By:
---------------------------------------
Name:
Title:
20
Exhibit A-1
to
Form of Warrant Agreement
INITIAL WARRANT
<PAGE>
Exhibit A-2
to
Form of Warrant Agreement
SECOND WARRANT
<PAGE>
Exhibit A-3
to
Form of Warrant Agreement
THIRD WARRANT
<PAGE>
Exhibit A-4
to
Form of Warrant Agreement
FOURTH WARRANT
<PAGE>
Exhibit B
to
Form of Warrant Agreement
FORMULA FOR ADJUSTING EXERCISE PRICE
<PAGE>
THE WARRANT SECURITIES TO BE RECEIVED UPON EXERCISE OF THIS WARRANT HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR QUALIFIED
UNDER ANY STATE SECURITIES LAWS. THE WARRANT SECURITIES MAY NOT BE OFFERED,
SOLD, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED, WHETHER OR NOT FOR
CONSIDERATION, IN THE ABSENCE OF (1) AN EFFECTIVE REGISTRATION STATEMENT AND
QUALIFICATION WITH RESPECT TO THE WARRANT SECURITIES UNDER THE SECURITIES ACT
AND UNDER ANY APPLICABLE STATE SECURITIES LAWS OR (2) AN EXEMPTION FROM SUCH
QUALIFICATION AND REGISTRATION.
THIS WARRANT AND THE SECURITIES ISSUABLE UPON THE EXERCISE HEREOF ARE SUBJECT
TO THE TERMS AND PROVISIONS OF A SECURITIES PURCHASE AGREEMENT AND WARRANT
AGREEMENT BOTH DATED AS OF SEPTEMBER 20, 1996, BETWEEN BROTHERS GOURMET
COFFEES, INC. AND SIENA CAPITAL PARTNERS, L.P. (AS THE SAME MAY BE
SUPPLEMENTED, MODIFIED, AMENDED, EXTENDED OR RESTATED FROM TIME TO TIME, (THE
"SECURITIES PURCHASE AGREEMENT" AND THE "WARRANT AGREEMENT," RESPECTIVELY)).
AMONG OTHER THINGS, THE SECURITIES PURCHASE AGREEMENT AND THE WARRANT
AGREEMENT CONTAIN PROVISIONS FOR RESTRICTIONS ON TRANSFER AND REGISTRATION
RIGHTS. COPIES OF THE SECURITIES PURCHASE AGREEMENT AND THE WARRANT AGREEMENT
ARE AVAILABLE AT THE EXECUTIVE OFFICES OF THE COMPANY.
COMMON STOCK PURCHASE WARRANT
SEPTEMBER 20, 1996
EFFECTIVE DATE: SEPTEMBER 20, 1996
Capitalized terms used and not otherwise defined in this Warrant shall have
the meanings respectively assigned to them in the Warrant Agreement referred
to in the legend above.
BROTHERS GOURMET COFFEES, INC., a Delaware corporation, having its executive
offices at One Boca Place, 2255 Glades Road, Boca Raton, Florida 33431 (the
"COMPANY"), does hereby certify and agree that, for good and valuable
consideration (the existence, sufficiency and receipt of which are hereby
acknowledged by the Company), SIENA CAPITAL PARTNERS, L.P., a California
limited partnership, its successors and assigns ("HOLDER"), hereby is
entitled to purchase from the Company, during the term set forth in Section 1
hereof,
<PAGE>
up to an aggregate amount of 100,000 shares (the "EXERCISE QUANTITY")
of duly authorized, validly issued, fully paid and non-assessable shares of
Common Stock, par value US$.0001 per share, of the Company (the "COMMON
STOCK"), all upon the terms and provisions and subject to adjustment of such
Exercise Quantity provided in the Warrant Agreement and this Common Stock
Purchase Warrant (the "WARRANT"). The exercise price per share of Common
Stock for which this Warrant is exercisable shall be the lesser of (i) $3.00
per share, or (ii) the average closing price of the Common Stock on the
securities exchange or other inter-dealer quotation system on which the
Common Stock is then listed over the thirty (30) trading day period
immediately prior to the Initial Warrant Effective Date, as adjusted from
time to time pursuant to the terms of this Warrant and the Warrant Agreement
(the "EXERCISE PRICE").
1. TERM OF THE WARRANT. The term of this Warrant commences as of the
date hereof, and shall expire at 5:00 P.M., New York City time, on the
seventh anniversary hereof. In the event that this Warrant would expire on a
day that is not a Business Day, then the term of this Warrant automatically
shall be extended to 5:00 P.M., New York City time, on the next succeeding
Business Day.
2. EXERCISE OF WARRANT.
(a) This Warrant may be exercised by the Holder of this Warrant at
any time during the term hereof in whole, or in part from time to time (but
not for fractional shares, unless this Warrant is exercised in whole), by
presentation and surrender of this Warrant to the Company, together with the
annexed Exercise Form duly completed and executed and payment in the
aggregate amount equal to the Exercise Price multiplied by the number of
shares of Common Stock being purchased. At the option of Holder, payment of
the Exercise Price may be made either by (i) certified check payable to the
order of the Company, (ii) surrender of certificates then held representing,
or deduction from the number of shares issuable upon exercise of this
Warrant, of that number of shares which has an aggregate Fair Value
determined in accordance with the Warrant Agreement on the date of exercise
equal to the aggregate Exercise Price for all shares to be purchased pursuant
to this Warrant or (iii) by any combination of the foregoing methods. Upon
the Company's receipt of this Warrant, the completed and signed Exercise Form
and the requisite payment, the Company shall issue and deliver (or cause to
be delivered) to the exercising Holder stock certificates aggregating the
number of shares of Common Stock purchased. In the event of a partial
exercise of this Warrant, the Company shall issue and deliver to the Holder a
new Warrant at the same time such stock certificates are delivered, which new
Warrant shall entitle the Holder to purchase the balance of the Exercise
Quantity not purchased in that partial exercise and shall otherwise be upon
the same terms and provisions as this Warrant.
(b) In the event the Holder of this Warrant desires that any or
all of the stock certificates to be issued upon the exercise hereof be
registered in a name or names other than that of the Holder of this Warrant,
the Holder must (i) so request in writing at the time of exercise if
2
<PAGE>
the transfer is not a registered transfer, (ii) provide to the Company an
opinion of counsel reasonably satisfactory to the Company to the effect that
the proposed transfer may be effected without registration under the
Securities Act, and (iii) pay to the Company funds sufficient to pay all
stock transfer taxes (if any) payable in connection with the transfer and
delivery of such stock certificates.
(c) Upon the due exercise by the Holder of this Warrant, whether
in whole or in part, that Holder (or any other person to whom a stock
certificate is to be so issued) shall be deemed for all purposes to have
become the Holder of record of the shares of Common Stock for which this
Warrant has been so exercised, effective immediately prior to the close of
business on the date this Warrant, the completed and signed Exercise Form and
the requisite payment were duly delivered to the Company, irrespective of the
date of actual delivery of certificates representing such shares of Common
Stock so issued.
3. SURRENDER OF WARRANT; EXPENSES.
(a) Whether in connection with the exercise, exchange,
registration of transfer or replacement of this Warrant, surrender of this
Warrant shall be made to the Company during normal business hours on a
Business Day (unless the Company otherwise permits) at the executive offices
of the Company located at One Boca Place, 2255 Glades Road, Boca Raton,
Florida 33431 or to such other office or duly authorized representative of
the Company as from time to time may be designated by the Company by written
notice given to the Holder of this Warrant.
(b) The Company shall pay all costs and expenses incurred in
connection with the exercise, registering, exchange, transfer, replacement or
put of this Warrant, including the costs of preparation, execution and
delivery of warrants and stock certificates, and shall pay all taxes (other
than any taxes measured by the income of any Person other than the Company)
and other charges imposed by law payable in connection with the transfer or
replacement of this Warrant.
4. WARRANT REGISTER; EXCHANGE; TRANSFER: LOSS.
(a) The Company at all times shall maintain at its chief executive
offices an open register for all Warrants, in which the Company shall record
the name and address of each Person to whom a Warrant has been issued or
transferred, the number of shares of Common Stock or other securities
purchasable thereunder and the corresponding purchase prices.
(b) This Warrant may be exchanged for two or more warrants
entitling the identical Holder hereof to purchase the same aggregate Exercise
Quantity at the same Exercise Price per share and otherwise having the same
terms and provisions as this Warrant. The identical Holder may request such
an exchange by surrender of this Warrant to the Company,
3
<PAGE>
together with a written exchange request specifying the desired number of
warrants and allocation of the Exercise Quantity purchasable under the
existing Warrant.
(c) This Warrant may be transferred only in accordance with the
provisions of ARTICLE VII of the Warrant Agreement, in whole or in part, by
the Holder or any duly authorized representative of such Holder. A transfer
may be registered with the Company by submission to it of this Warrant,
together with the annexed Assignment Form duly completed and executed, and if
the transfer is not a registered transfer, an opinion of counsel reasonably
satisfactory to The Company. Within five (5) Business Days after the
Company's receipt of this Warrant and the Assignment Form so completed and
executed, the Company will issue and deliver to the transferee a new Warrant
representing the portion of the Exercise Quantity transferred at the same
Exercise Price per share and otherwise having the same terms and provisions
as this Warrant, which the Company will register in the new Holder' s name.
(d) In the event of the loss, theft or destruction of this
Warrant, the Company shall execute and deliver an identical new Warrant to
the Holder in substitution therefor upon the Company's receipt of (i)
evidence reasonably satisfactory to the Company of such event (with the
affidavit of an institutional Holder being sufficient evidence), and (ii) if
requested by the Company, an indemnity agreement from any institutional
Holder or an indemnity bond from anyone else reasonably satisfactory in form
and amount to the Company.
(e) The Company will not close its books against the transfer of
this Warrant or any of the Warrant Securities in any manner which interferes
with the timely exercise of this Warrant. The Company will from time to time
take all such action as may be necessary to assure that the par value per
share of the unissued Common Stock acquirable upon exercise of this Warrant
is at all times equal or less than the Exercise Price then in effect.
5. RIGHTS AND OBLIGATIONS OF THE COMPANY AND THE HOLDER. The Company
and the Holders of this Warrant are entitled to the rights and bound by the
obligations set forth in the Warrant Agreement, all of which rights and
obligations are hereby incorporated by reference herein. This Warrant shall
not entitle its Holder to any rights of a stockholder in the Company (other
than as provided in SECTION 2(c) of this Warrant and the Warrant Agreement).
[remainder of page intentionally left blank]
4
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed
by its duly authorized representative and its corporate seal, if any, to be
impressed hereupon and attested to by its Secretary or Assistant Secretary.
BROTHERS GOURMET COFFEES, INC.,
a Delaware corporation
By: _____________________________
Name:
Title:
Attest:
_____________________________
Secretary
5
<PAGE>
COMMON STOCK WARRANT
EXERCISE FORM
Brothers Gourmet Coffees, Inc.
One Boca Place
2255 Glades Road
Boca Raton, Florida 33431
Attention: ____________________
The undersigned Holder of the within Warrant hereby irrevocably elects
to exercise the within Warrant to the extent of [______] shares of Common
Stock, $____ par value per share, of the Company.
The undersigned herewith encloses the Warrant and
/ / a certificate representing that number of shares of Common Stock of
the Company having an aggregate current market price of $_______ in payment
of the Exercise Price;
/ / a check (payable to the order of the Company) in the amount of
$___________ in payment of the Exercise Price; and/or
/ / the undersigned hereby elects to effect a cashless exercise and
authorizes the Company to deduct from the shares issuable upon exercise a
number of shares of Common Stock of the Company having an aggregate current
market price on the date hereof of $________________.
Instructions for Registering the Securities
On the Stock Transfer Books of the Company
Name of Transferee:_________________________________________
State of Organization (if applicable):______________________
Federal Tax Identification or
Social Security Number: ______________________
Address: _______________________________________________
If this exercise of the Warrant is not an exercise in full, then the
undersigned Holder hereby requests that a new Warrant of like tenor
(exercisable for the balance of the Exercise Quantity of shares of Common
Stock underlying this Warrant) be issued and delivered to the undersigned
Holder at the address on the warrant register of the Company.
<PAGE>
Dated: _____________________ _________________________________________
(Name of Registered Holder - Please Print)
By: ________________________________
(Signature of Registered Holder or of Duly
Authorized Signatory)
Title: ________________________
<PAGE>
COMMON STOCK WARRANT
ASSIGNMENT FORM
FOR VALUE RECEIVED, the undersigned Holder of the within Warrant hereby
sells, assigns and transfers unto the transferee whose name and address are
set forth below all of the rights of the undersigned under the within Warrant
(to the extent of the portion of the within Warrant being transferred hereby,
which portion is ___________________).
Name of Transferee: _______________________________________________
State of Organization (if applicable): ____________________________
Federal Tax Identification or
Social Security Number: ____________________________
Address: _____________________________________________________
If such portion of the Warrant being transferred shall not consist of
all of the within Warrant, then the undersigned hereby requests that, as
provided in the within Warrant, a new warrant of like tenor respecting the
balance of the Exercise Quantity of shares of Common Stock underlying this
Warrant not being transferred pursuant hereto be issued in the name of and
delivered to the undersigned. The undersigned does hereby irrevocably
constitute and appoint ________________________ attorney to register the
foregoing transfer on the books of the Company maintained for that purpose,
with full power of substitution in the premises.
/ / As required by the Warrant, enclosed herewith is the opinion of
legal counsel for the undersigned.
Dated: ________________________ _________________________________________
(Name of Registered Holder - Please Print)
By: ______________________________
(Signature of Registered Holder or of Duly
Authorized Signatory)
Title: ________________________
<PAGE>
AMENDMENT TO COMMON STOCK PURCHASE WARRANT
THIS AMENDMENT TO COMMON STOCK PURCHASE WARRANT (this "AMENDMENT") is dated
as of December 9, 1997, between SIENA CAPITAL PARTNERS, L.P., a California
general partnership ("Siena") and BROTHERS GOURMET COFFEES, INC. (the
"COMPANY").
RECITALS
WHEREAS, the Company issued to Siena a common Stock Purchase Warrant dated
September 20, 1996 (as amended, the "WARRANT"), exercisable with respect to up
to 100,000 shares of the Company's Common Stock, subject to adjustment as set
forth in the Warrant. All terms not otherwise defined herein shall have the
meaning given such terms in the Warrant; and
WHEREAS, the Company and Siena desire to amend the Warrant as set forth
herein.
NOW, THEREFORE, in consideration of the foregoing, and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, intending to be legally bound hereby, the parties hereto hereby
agree as follows:
1. The Company and Siena hereby agree that the last sentence of the
preamble of the Warrant shall be amended in its entirety to read as
follows:
"The exercise price per share of Common Stock for which this Warrant
is exercisable shall be the lesser of (i) $1.5625 per share or (ii) t
he average closing price of the Common Stock on the securities
exchange or other inter-dealer quotation system on which the Common
Stock is then listed over the thirty (30) trading day period
immediately prior to the Initial Warrant Effective Date, as adjusted
from time to time pursuant to the terms of this Warrant and the
Warrant Agreement (the "EXERCISE PRICE")."
2. The Warrant shall remain in full force and effect as amended hereby
and all parties hereto hereby ratify and affirm the Warrant as so
amended.
<PAGE>
IN WITNESS WHEREOF, the Company and Siena have executed this Amendment as
of the date first written above.
SIENA CAPITAL PARTNERS, L.P.
a California limited partnership
By: Aneis Advisors GP, Inc.
a California corporation,
its general partner
By: _______________________________
Name:
Title:
BROTHERS GOURMET COFFEES, INC.
By: ____________________________________
Name:
Title:
<PAGE>
BROTHERS GOURMET COFFEES, INC.
and
GOLDMAN SACHS CREDIT PARTNERS, L.P.
as Holder
--------------------------------
Warrants to Purchase 400,000 Shares of Common Stock
--------------------------------
WARRANT AGREEMENT
Dated as of December 9, 1997
<PAGE>
TABLE OF CONTENTS
Page
1. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. REGISTRATION, FORM AND EXECUTION OF WARRANTS. . . . . . . . . . . . 3
2.1. REGISTRATION . . . . . . . . . . . . . . . . . . . . . . . 3
2.2. FORM OF WARRANT. . . . . . . . . . . . . . . . . . . . . . 3
3. EXERCISE OF WARRANTS. . . . . . . . . . . . . . . . . . . . . . . . 4
3.1. MANNER OF EXERCISE . . . . . . . . . . . . . . . . . . . . 4
3.2. PAYMENT OF TAXES . . . . . . . . . . . . . . . . . . . . . 5
3.3. FRACTIONAL SHARES. . . . . . . . . . . . . . . . . . . . . 5
4. TRANSFER, DIVISION AND COMBINATION. . . . . . . . . . . . . . . . . 6
4.1. TRANSFER . . . . . . . . . . . . . . . . . . . . . . . . . 6
4.2. DIVISION AND COMBINATION . . . . . . . . . . . . . . . . . 6
4.3. MAINTENANCE OF BOOKS . . . . . . . . . . . . . . . . . . . 6
5. ADJUSTMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
5.1. ADJUSTMENT FOR CHANGE IN CAPITAL STOCK . . . . . . . . . . 6
5.2. ADJUSTMENT FOR RIGHTS ISSUE. . . . . . . . . . . . . . . . 7
5.3. ADJUSTMENT FOR OTHER DISTRIBUTIONS . . . . . . . . . . . . 8
5.4. ADJUSTMENT FOR COMMON STOCK ISSUE. . . . . . . . . . . . . 9
5.5. ADJUSTMENT FOR CONVERTIBLE SECURITIES ISSUE. . . . . . . . 10
5.6. MARKET PRICE . . . . . . . . . . . . . . . . . . . . . . . 11
5.7. CONSIDERATION RECEIVED . . . . . . . . . . . . . . . . . . 12
5.8. WHEN ADJUSTMENT MAY BE DEFERRED. . . . . . . . . . . . . . 13
5.9. WHEN NO ADJUSTMENT REQUIRED. . . . . . . . . . . . . . . . 13
5.10. NOTICE OF ADJUSTMENT. . . . . . . . . . . . . . . . . . . 13
5.11. VOLUNTARY REDUCTION . . . . . . . . . . . . . . . . . . . 13
5.12. NOTICE OF CERTAIN TRANSACTIONS. . . . . . . . . . . . . . 14
5.13. PRESERVATION OF PURCHASE RIGHTS UPON RECLASSIFICATION,
CONSOLIDATION, ETC. . . . . . . . . . . . . . . . . . . . 14
5.14. ADJUSTMENT TO THE NUMBER OF SHARES PURCHASABLE UPON
EXERCISE OF WARRANTS; CURRENT WARRANT PRICE NOT LESS
THAN PAR VALUE. . . . . . . . . . . . . . . . . . . . . . 14
5.15. OTHER DILUTIVE EVENTS . . . . . . . . . . . . . . . . . . 15
5.16. COMPANY DETERMINATION FINAL . . . . . . . . . . . . . . . 15
-i-
<PAGE>
5.17. FORM OF WARRANTS. . . . . . . . . . . . . . . . . . . . . 15
6. NOTICES TO HOLDERS. . . . . . . . . . . . . . . . . . . . . . . . . 15
6.1. NOTICE OF ADJUSTMENTS. . . . . . . . . . . . . . . . . . . 16
6.2. NOTICE OF CORPORATE ACTION . . . . . . . . . . . . . . . . 16
7. COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
8. RESERVATION AND AUTHORIZATION OF COMMON STOCK: REGISTRATION WITH
OR APPROVAL OF ANY GOVERNMENTAL AUTHORITY . . . . . . . . . . . . . 17
9. STOCK AND WARRANT TRANSFER BOOKS. . . . . . . . . . . . . . . . . . 17
10. LOSS OR MUTILATION . . . . . . . . . . . . . . . . . . . . . . . . 17
11. OFFICE OF COMPANY. . . . . . . . . . . . . . . . . . . . . . . . . 18
12. REPURCHASE BY COMPANY OF WARRANTS. . . . . . . . . . . . . . . . . 18
12.1. COMPANY'S OBLIGATION TO REPURCHASE WARRANTS . . . . . . . 18
12.2. PAYMENT OF REPURCHASE PRICE. . . . . . . . . . . . . . . 18
13. MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . . . . 19
13.1. NOTICE GENERALLY. . . . . . . . . . . . . . . . . . . . . 19
13.2. SUCCESSORS AND ASSIGNS. . . . . . . . . . . . . . . . . . 20
13.3. AMENDMENT . . . . . . . . . . . . . . . . . . . . . . . . 20
13.4. SEVERABILITY. . . . . . . . . . . . . . . . . . . . . . . 20
13.5. HEADINGS. . . . . . . . . . . . . . . . . . . . . . . . . 20
13.6. GOVERNING LAW . . . . . . . . . . . . . . . . . . . . . . 20
13.7. COUNTERPARTS. . . . . . . . . . . . . . . . . . . . . . . 20
EXHIBITS
Exhibit A - Form of Warrant Certificate
-ii-
<PAGE>
THIS WARRANT AGREEMENT (this "Warrant Agreement"), dated as of
December 9, 1997, is made by and between Brothers Gourmet Coffees, Inc., a
Delaware corporation (the "Company"), and Goldman Sachs Credit Partners,
L.P., a Bermuda corporation (the "Warrant Holder").
W I T N E S S E T H:
WHEREAS, the Company has entered into that certain Amended and
Restated Loan and Security Agreement of even date herewith with Goldman Sachs
Credit Partners, L.P., as agent for the benefit of all lenders signatory to
such Loan and Security Agreement (as the same may hereafter be amended,
modified, supplemented or restated from time to time in accordance with the
terms thereof, the "Loan Agreement"); and
WHEREAS, a condition to the Holder and the lenders entering into
the Loan Agreement is that the Company issue to holder warrants, as
hereinafter described (the "Warrants"), to purchase up to an aggregate of
400,000 shares of the Company's Common Stock; and
WHEREAS, the purpose of this Warrant Agreement is to set forth the
terms and conditions which shall govern the issuance of all of the Warrants,
the purchase of Common Stock of the Company upon the exercise thereof, the
adjustments in the terms and price of such Warrants pursuant to the
anti-dilution provisions hereof and such other terms and conditions as
hereinafter set forth;
NOW, THEREFORE, in consideration of the foregoing and for the
purpose of defining the terms and provisions of the Warrants and the
respective rights and obligations thereunder and hereunder of the Company and
the Holder and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged and affirmed, the Company and
the Holder hereby agree as follows:
1. DEFINITIONS
As used in this Warrant Agreement, the following terms have the
respective meanings set forth below:
"ADDITIONAL SHARES OF COMMON STOCK" shall mean all shares of Common
Stock issued by the Company after the date hereof, other than Warrant Stock.
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"BUSINESS DAY" shall mean any day that is not a Saturday or Sunday
or a day on which banks are required or permitted to be closed in the State
of New York.
"COMMON STOCK" shall mean (except where the context otherwise
indicates) the Common Stock, $.0001 par value per share, of the Company as
constituted on the date hereof, and any capital stock into which such Common
Stock may thereafter be changed, and shall also include shares of common
stock of any successor or acquiring corporation received by or distributed to
the holders of Common Stock of the Company in the circumstances contemplated
by Section 5.
"COMPANY" shall have the meaning assigned to such term in the first
paragraph of this Warrant Agreement.
"COMPANY'S PRINCIPAL OFFICE" shall mean the principal office of the
Company in 2255 Glades Road, Suite 100E, Boca Raton, Florida 33431 (or such
other office of the Company acceptable to the Holder as set forth in a
written notice provided to the Holder).
"CURRENT WARRANT PRICE" shall mean, in respect of a share of Common
Stock at any date herein specified, $1.50 per share of Common Stock, subject
to adjustment in accordance with Section 5.
"EXPIRATION DATE" shall mean December 9, 2002.
"GAAP" shall mean generally accepted accounting principles in the
United States of America as from time to time in effect.
"MAJORITY HOLDERS" shall mean the holders of Warrants exercisable
for in excess of 50% of the aggregate number of shares of Common Stock then
purchasable upon exercise of all Warrants.
"NASD" shall mean the National Association of Securities Dealers,
Inc., or any successor corporation thereto.
"OUTSTANDING" shall mean, when used with reference to Common Stock,
at any date as of which the number of shares thereof is to be determined, all
issued shares of Common Stock, except shares then owned or held by or for the
account of the Company or any subsidiary thereof, and shall include all
shares issuable in respect of outstanding scrip or any certificates
representing fractional interests in shares of Common Stock.
"PERSON" shall mean any individual, sole proprietorship,
partnership, joint venture, trust, incorporated organization, association,
corporation, limited liability company, limited liability partnership,
institution, public benefit
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corporation, entity or government (whether federal, state, county, city,
municipal or otherwise, including, without limitation, any instrumentality,
division, agency, body or department thereof).
"WARRANT AGREEMENT" shall have the meaning assigned to such term in
the first paragraph of this Warrant Agreement.
"WARRANT PRICE" shall mean an amount equal to (1) the number of
shares of Common Stock being purchased upon exercise of a Warrant pursuant to
Section 4.1, MULTIPLIED by (2) the Current Warrant Price as of the date of
such exercise.
"WARRANT STOCK" shall mean the shares of Common Stock purchased by
the Holders of the Warrants upon the exercise thereof.
"WARRANTS" shall have the meaning assigned to such term in the
recitals to this Warrant Agreement, and shall include all warrants issued
upon transfer, division or combination of, or in substitution for, any
thereof. All Warrants shall at all times be identical as to terms and
conditions and date, except as to the number of shares of Common Stock for
which they may be exercised.
2. REGISTRATION, FORM AND EXECUTION OF WARRANTS
2.1. REGISTRATION
All Warrants shall be numbered and shall be registered in a warrant
register maintained at the Company's Principal Office by the Company as they
are issued. The Company shall be entitled to treat a Holder as the owner in
fact for all purposes whatsoever of each Warrant registered in such Holder's
name.
2.2. FORM OF WARRANT
The text of each Warrant and the Election to Purchase Form,
Assignment Form and Repurchase Form shall be substantially as set forth in
Exhibit A attached hereto. Each Warrant shall be executed on behalf of the
Company by its President or one of its Vice Presidents, under its corporate
seal reproduced thereon or facsimile thereof attested by its Secretary or an
Assistant Secretary. The signature of any of such officers on the Warrants
may be manual or facsimile.
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Warrants bearing the manual or facsimile signatures of individuals
who were at any time the proper officers of the Company shall bind the
Company, notwithstanding that such individuals or any one of them shall have
ceased to hold such offices prior to the delivery of such Warrants or did not
hold such offices on the date of this Warrant Agreement.
Warrants shall be dated as of the date of the date hereof upon
initial issuance and upon division, exchange, substitution or transfer, the
date thereof.
3. EXERCISE OF WARRANTS
3.1. MANNER OF EXERCISE
From and after the date hereof and until 5:00 p.m., New York City
time, on the Expiration Date, a Holder may exercise any of its Warrants, on
any Business Day, for all or any part of the number of shares of Common Stock
purchasable thereunder.
In order to exercise a Warrant, in whole or in part, a Holder shall
deliver to the Company at the Company's Principal Office, (1) a written
notice of such Holder's election to exercise such Warrant, which notice shall
include the number of shares of Common Stock to be purchased, (2) payment of
the Warrant Price for the account of the Company and (3) such Warrant. Such
notice shall be substantially in the form of the Election to Purchase Form
set forth on the reverse side of the form of Warrant Certificate attached as
Exhibit A hereto, duly executed by such Holder or its agent or attorney.
Upon receipt thereof, the Company shall, as promptly as practicable, and in
any event within five Business Days thereafter, deliver or cause to be
delivered to such Holder an executed certificate or certificates representing
the aggregate number of full shares of Common Stock issuable upon such
exercise. The stock certificate or certificates so delivered shall be, to
the extent possible, in such denomination or denominations as such Holder
shall request in the notice and shall be registered in the name of such
Holder or such other name as shall be designated in such notice. Each
Warrant shall be deemed to have been exercised and such certificate or
certificates shall be deemed to have been issued, and such Holder or any
other Person so designated to be named therein shall be deemed to have become
a holder of record of such shares for all purposes, as of the date such
notice, together with cash, or certified check or official bank check or wire
transfer in lawful money of the United States of America for payment of the
Warrant Price and such Warrant, is received by the Company as described above
and all taxes required to be paid by such Holder, if any, pursuant to Section
3.2 prior to the issuance of such shares have been paid. If any Warrant
shall have been exercised in part, the Company shall, at the time of
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delivery of the certificate or certificates representing Warrant Stock,
deliver to the Holder a new Warrant evidencing the rights of such Holder to
purchase the unpurchased shares of Common Stock called for by such Warrant,
which new Warrant shall in all other respects be identical with the Warrant
exercised in part, or, at the request of such Holder, appropriate notation
may be made on such exercised Warrant and the same returned to such holder.
Notwithstanding any provision herein to the contrary, the Company shall not
be required to register shares in the name of any Person who acquired a
Warrant (or part thereof) or any Warrant Stock otherwise than in accordance
with such Warrant and this Warrant Agreement.
Payment of the Warrant Price shall be made at the option of the
Holder by certified or official bank check or wire transfer or surrender of
unexercised Warrant or any combination thereof, duly executed by such Holder
or by such Holder's attorney duly authorized in writing. Warrants so
surrendered shall have a value equal to the current market price (as defined
in Section 5.6) of the shares of Warrant Stock issuable upon exercise of such
Warrant minus the Current Warrant Price of such Warrant; PROVIDED, HOWEVER,
that if such exercise occurs in connection with, or within ten (10) business
days of, an event described in paragraph (a) of Section 6.2, then each
Warrant so surrendered shall have a value equal to the greater of (i) the
current market price (as defined in Section 5.6) of the shares of Warrant
Stock issuable upon exercise of such Warrant or (ii) the fair market value
(determined in a manner consistent with Section 5.7) of the consideration
that the Holder would have received in connection with such event with
respect to the number of shares of Warrant Stock issuable upon exercise of
such Warrant had such Warrant been exercised prior to the earlier of the
record date or the effective date for such event, in either case reduced by
the Current Warrant Price of such Warrant.
3.2. PAYMENT OF TAXES
All shares of Common Stock issuable upon the exercise of any
Warrant pursuant to the terms hereof shall be validly issued, fully paid and
nonassessable and without any preemptive rights. The Company shall pay any
documentary stamp taxes attributable to the initial issuance of Warrant Stock
upon the exercise of Warrants; PROVIDED that the Company shall not be
required to pay any tax or taxes that may be payable in respect of any
transfer involved in the issuance of any Warrant certificates or any
certificates for Warrant Stock in a name other than that of the registered
holder of a Warrant certificate surrendered upon the exercise of a Warrant,
and the Company shall not be required to issue or deliver such Warrant
certificates unless or until the person or persons requesting
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<PAGE>
the issuance thereof shall have paid to the Company the amount of such tax or
shall have established to the satisfaction of the Company that such tax has
been paid or is not due.
3.3. FRACTIONAL SHARES
The Company shall not be required to issue a fractional share of
Common Stock upon exercise of any Warrant. Whenever any distribution of
warrants exercisable into fractional shares of Common Stock would otherwise
be called for, the actual distribution thereof will reflect a rounding up or
down to the nearest share of Common Stock, PROVIDED THAT, whenever any
distribution of a Warrant that is exercisable into exactly one-half of a
share of Common Stock would otherwise be called for, the actual distribution
will reflect a rounding down to the nearest share of Common Stock.
4. TRANSFER, DIVISION AND COMBINATION
4.1. TRANSFER
Transfer of any Warrant and all rights hereunder, in whole or in
part, shall be registered in the warrant register of the Company to be
maintained for such purpose at the Company's Principal Office, upon surrender
of such Warrant at the Company's Principal Office, together with a written
assignment of such Warrant substantially in the form set forth on the reverse
side of the form of Warrant Certificate attached as Exhibit A hereto duly
executed by the Holder or its agent or attorney and payment of all funds
sufficient to pay any taxes payable upon the making of such transfer. Upon
such surrender and, if required, such payment, and subject to Section 8
hereof, the Company shall execute and deliver a new Warrant or Warrants in
the name of the assignee or assignees and in the denomination specified in
such instrument of assignment, and shall issue to the assignor a new Warrant
evidencing the portion of such Warrant not so assigned, and the surrendered
Warrant shall promptly be cancelled. A Warrant, if properly assigned, may be
exercised by a new Holder for the purchase of shares of Common Stock without
having a new warrant issued.
4.2. DIVISION AND COMBINATION
Any Warrant may be divided or combined with other Warrants upon
presentation thereof at the Company's Principal Office, together with a
written notice specifying the names and denominations in which new Warrants
are to be issued, signed by the Holder or its agent or attorney. Subject to
compliance with Section 4.1, as to any transfer which may be involved in such
division or combination, the Company shall execute and deliver a new Warrant
or Warrants in
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exchange for the Warrant or Warrants to be divided or combined in accordance
with such notice.
4.3. MAINTENANCE OF BOOKS
The Company agrees to maintain, at the Company's Principal Office, the
warrant register for the registration of Warrants and the registration of
transfer of the Warrants.
5. ADJUSTMENTS
The Current Warrant Price and the number of Warrant Stock issuable
upon the exercise of each Warrant are subject to adjustment from time to time
upon the occurrence of the events enumerated in this Section 5.
5.1. ADJUSTMENT FOR CHANGE IN CAPITAL STOCK
If the Company:
(a) pays a dividend or makes a distribution on its Common Stock in shares
of its Common Stock;
(b) subdivides its outstanding shares of Common Stock into a greater
number of shares;
(c) combines its outstanding shares of Common Stock into a smaller number
of shares;
(d) makes a distribution on Common Stock in shares of its capital stock
other than Common Stock; or
(e) issues by reclassification of Common Stock any shares of its capital
stock;
then the exercise right and the Current Warrant Price in effect immediately
prior to such action shall be adjusted so that the holder of Warrants may
receive upon exercise of the Warrants the number of shares of capital stock
of the Company which it would have owned immediately following such action if
it had exercised the Warrants immediately prior to such action. The
adjustment shall become effective immediately after the record
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date in the case of a distribution and immediately after the effective date
in the case of a combination or reclassification.
If, after an adjustment, the holder of Warrants may receive shares of
two or more classes of capital stock of the Company, the Company and the
holders of a majority of the Warrants shall mutually agree upon the
allocation of the adjusted exercise price between the classes of capital
stock. After such allocation, the exercise privilege and the Current Warrant
Price of each class of capital stock shall thereafter be subject to
adjustment on terms comparable to those applicable to Common Stock in this
Section 5.
5.2. ADJUSTMENT FOR RIGHTS ISSUE
If the Company distributes any rights, options or warrants to all holders
of Common Stock entitling them for a period expiring within 60 days after the
record date mentioned below to purchase shares of Common Stock at a price per
share less than the current market price per share on that record date, the
Current Warrant Price shall be adjusted in accordance with the formula:
O + (N)
x P
M
-----------
W(1) = W x O + N
where
W(1) = the adjusted Current Warrant Price.
W = the then current Current Warrant Price.
O = the number of shares of Common Stock outstanding on the record
date.
N = the number of additional shares of Common Stock offered or
issuable on the exercise of the rights, options or warrants.
P = the offering price per share of the additional shares subject to
the rights or warrants.
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<PAGE>
M = the current market price per share of Common Stock on the record
date.
The adjustment shall be made successively whenever any such
rights, options or warrants are issued and shall become effective immediately
after the record date for the determination of stockholders entitled to
receive the rights, options or warrants.
If at the end of the period during which such warrants or rights
are exercisable, not all warrants or rights shall have been exercised, the
Current Warrant Price shall be immediately readjusted to what it would have
been if "N" in the above formula had been the number of shares actually
issued.
5.3. ADJUSTMENT FOR OTHER DISTRIBUTIONS
If the Company distributes to all holders of Common Stock any of its
assets (including cash) or debt securities or any rights or warrants to purchase
assets, debt securities or other securities of the Company, the Current Warrant
Price shall be adjusted in accordance with the formula:
M - F
------
W(1) = W x M
where:
W(1) = the adjusted Current Warrant Price.
W = the then current Current Warrant Price.
M = the current market price per share of Common Stock on the record
date mentioned below.
F = the aggregate fair market value (as determined by an Appraiser
chosen in accordance with Section 5.6), on the record date, of
the assets (including cash), securities, rights or warrants so
distributed divided by the number of outstanding shares of Common
Stock on the record date;
PROVIDED, that, in the event that the value of F exceeds the value of M, or in
the event that the value of M exceeds the value of F by less than 10%, in lieu
of the foregoing
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adjustment, adequate provision shall be made so that the holders of the
Warrants shall receive a pro rata share of the aggregate distribution based
upon the maximum number of shares of Common Stock at the time issuable to
such holders (determined without regard to whether the Warrants are
exercisable at such time).
The adjustment shall be made successively whenever any such
distribution is made and shall become effective immediately after the record
date for the determination of stockholders entitled to receive the
distribution.
If at the end of the period during which any such warrants or
rights are exercisable, not all of such warrants or rights shall have been
exercised, the Current Warrant Price shall be immediately readjusted to what
it would have been if "F" in the above formula had not included the fair
market value on the record date of the expired warrants or rights, but were
still divided by the same number of outstanding shares of Common Stock.
This Section 5.3 does not apply to distributions of rights, options
or warrants referred to in Section 5.2.
5.4. ADJUSTMENT FOR COMMON STOCK ISSUE
If the Company issues shares of Common Stock for consideration per
share less than the current market price per share on the date the Company
fixes the offering price of such additional shares, the Current Warrant Price
shall be adjusted in accordance with the formula:
P
-
O + M
-----
W(1) = W x A
where:
W(1) = the adjusted Current Warrant Price.
W = the then current Current Warrant Price.
O = the number of shares outstanding immediately prior to the
issuance of such additional shares.
P = the aggregate consideration received for the issuance of such
additional shares.
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M = the current market price per share on the date of issuance of
such additional shares.
A = the number of shares outstanding immediately after the issuance
of such additional shares.
The adjustment shall be made successively whenever any such
issuance is made, and shall become effective immediately after such issuance.
This Section 5.4 does not apply to:
(a) any of the transactions or distributions described in Sections 5.2,
5.3 or 5.5, or
(b) the conversion or exchange of securities convertible or exchangeable
for Common Stock and the exercise of rights or warrants issued to the
holders of Common Stock, in each case only if the issuance of such
securities, rights or warrants were subject to the provisions of this
Section 5.
5.5. ADJUSTMENT FOR CONVERTIBLE SECURITIES ISSUE
If the Company issues any securities convertible into or
exchangeable or exercisable for Common Stock (other than the securities
issued in transactions described in Sections 5.2 and 5.3) for consideration
per share of Common Stock initially deliverable upon conversion, exchange or
exercise of such securities less than the current market price per share on
the date of issuance of such securities, the Current Warrant Price shall be
adjusted in accordance with the formula:
P
-
O + M
-----
W(1) = W x O + D
where:
W(1) = the adjusted Current Warrant Price.
W = the then current Current Warrant Price.
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O = the number of shares outstanding immediately prior to the
issuance of such securities which are convertible into or
exchangeable or exercisable for Common Stock.
P = the aggregate consideration received for the issuance of such
securities.
M = the current market price per share of Common Stock on the date of
issuance of such securities.
D = the maximum number of shares deliverable upon conversion,
exchange or exercise of such securities at the initial
conversion, exchange or exercise rate.
The adjustment shall be made successively whenever any such
issuance is made, and shall become effective immediately after such issuance.
If all of the Common Stock deliverable upon conversion, exchange or
exercise of such securities has not been issued when such securities are no
longer outstanding, then the Current Warrant Price shall immediately be
readjusted to the Current Warrant Price which would then be in effect had the
adjustment upon the issuance of such securities been made on the basis of the
actual number of shares of Common Stock issued upon conversion, exchange or
exercise of such securities.
This Section 5.5 does not apply to any of the transactions or
distributions described in Sections 5.2 and 5.3.
5.6. MARKET PRICE
The "current market price" per share of Common Stock on any date is
the average of the Quoted Prices of the Common Stock for 15 consecutive
trading days commencing 16 days before the date in question. The "Quoted
Price" of the Common Stock is the last reported sales price of the Common
Stock as reported by the Nasdaq National Market, or if the Common Stock is
listed on another national securities exchange, the last reported sales price
of the Common Stock on such exchange which shall be for consolidated trading
if applicable to such exchange, or if neither so reported or listed, the last
reported bid price of the Common Stock. In the absence of one or more such
quotations, the current market price shall be determined by mutual agreement
of the Company and the holders of a majority of the Warrants or, in the
absence of such mutual agreement, shall be determined in good faith by a
nationally recognized investment banking firm that is a member firm of the
NASD and independent of the Company and chosen in accordance with the
following sentence (an "Appraiser"). The Appraiser shall be chosen by mutual
agreement of the holders of a majority of the Warrants and the Company;
PROVIDED, that if there shall be a disagreement as to the selection of any
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Appraiser, then each of the Company and the holders of a majority of the
Warrants shall choose one investment banking firm satisfying the foregoing
criteria and those two firms then shall agree upon a third such investment
banking firm who shall act as the Appraiser. If applicable, in connection
with the sale of units consisting of Common Stock and other securities, such
investment bank shall take into consideration the value of each component of
such unit. If there shall be more than one class of Common Stock
outstanding, the "current market price" per share of Common Stock shall be
the highest of the "current market prices" per share of such classes of
Common Stock.
5.7. CONSIDERATION RECEIVED
For purposes of any computation with respect to consideration
received pursuant to Sections 5.4 and 5.5, the following shall apply:
(a) in the case of the issuance of shares of Common Stock for
cash, the consideration shall be the amount of such cash
(provided that in no case shall any deduction be made for any
commissions, discounts or other expenses incurred by the
Company for any underwriting of the issue or otherwise in
connection therewith) plus, where the issuance is pursuant to
the exercise of an option, warrant or right, all cash amounts
paid to the Company for such option, warrant or right at its
issue, including without limitation, any amount allocable to
such option, warrant, or right if issued together with other
securities in a unit;
(b) in the case of the issuance of shares of Common Stock for a
consideration in whole or in part other than cash, the
consideration other than cash shall be deemed to be the fair
market value thereof as determined by an Appraiser, whose
determination shall be given to the holders of the Warrants;
and
(c) in the case of the issuance of securities convertible into or
exchangeable for shares of Common Stock, the aggregate
consideration received therefor shall be deemed to be the
consideration received by the Company for the issuance of such
securities plus the additional minimum consideration, if any,
to be received by the Company upon the conversion or exchange
thereof (the consideration in each case to be determined in
the same manner as provided in clauses (a) and (b) of this
Section 5.7).
5.8. WHEN ADJUSTMENT MAY BE DEFERRED
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If the amount of any adjustment of the Current Warrant Price
required pursuant to this Section 5 would be less than one percent (1%) of
the Current Warrant Price in effect at the time such adjustment is otherwise
so required to be made, such amount shall be carried forward and adjustment
with respect thereto made at the time of and together with any subsequent
adjustment which, together with such amount and any other amount or amounts
so carried forward, shall aggregate at least one percent (1%) of such Current
Warrant Price. All calculations under this Section 5 shall be made to the
nearest cent or to the nearest 1/l00th of a share, as the case may be.
5.9. WHEN NO ADJUSTMENT REQUIRED
No adjustment need be made for (a) rights to purchase Common Stock
pursuant to a company plan for reinvestment of dividends, and (b) a change in
the par value or no par value of Common Stock; PROVIDED, that the Company
shall not increase the par value to exceed the Current Warrant Price. To the
extent the Warrants become exercisable into cash, no adjustment need be made
thereafter as to the cash. Interest will not accrue on the cash.
5.10. NOTICE OF ADJUSTMENT
Whenever an event occurs which requires an adjustment to the
Current Warrant Price or number of shares of Warrant Stock, the Company shall
promptly mail (first class) to the holders of the Warrants a notice of such
event and the computation of the adjustment. The Company shall provide the
holders of the Warrants with a certificate from the Company's Chief financial
officer briefly stating the facts requiring the adjustment and the manner of
computing it.
5.11. VOLUNTARY REDUCTION
The Company from time to time may reduce the Current Warrant Price
by any amount for any period of time if the period is at least 20 days and if
the reduction is irrevocable during the period. A reduction of the Current
Warrant Price pursuant to this Section 5.11 does not change or adjust the
current warrant price otherwise in effect for purposes of Sections 5.1, 5.2,
5.3, 5.4 or 5.5. The Company in its discretion may make such reductions in
the Current Warrant Price in addition to those required by this Section 5 as
it considers to be advisable in order that any event treated for federal
income tax purposes as a dividend of stock or stock rights shall not be
taxable to the recipients.
5.12. NOTICE OF CERTAIN TRANSACTIONS
If the Company takes any action that would require an adjustment
pursuant to Sections 5.1, 5.2, 5.3, 5.4 or 5.5, the Company shall mail (first
class) to the holders of the Warrants a notice stating the proposed record
date for a dividend or distribution or the proposed effective date of a
subdivision, combination, reclassification, consolidation, merger, transfer,
lease, liquidation or dissolution or any other transaction or event requiring
an adjustment in the Current Warrant Price. The Company shall mail the
notice at least 15 days before such date; PROVIDED, HOWEVER, that in no event
must the Company give the holders of the Warrants notice prior to the public
announcement of the event
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requiring such adjustment. Failure to mail the notice or any defect in it
shall not affect the validity of the transaction.
5.13. PRESERVATION OF PURCHASE RIGHTS UPON RECLASSIFICATION, CONSOLIDATION,
ETC.
If the Company consolidates or merges with or into, or transfers or
leases all or substantially all its assets to, any person, upon consummation
of such transaction, the Warrants shall automatically become exercisable for
the kind and amount of securities, cash or other assets that the holder of a
Warrant would have owned immediately after the consolidation, merger or
transfer or lease if the holder had exercised the Warrant immediately before
the effective date of the transaction. Concurrently with the consummation of
such transaction, the corporation formed by or surviving any such
consolidation or merger if other than the Company, or the person to which
such sale or conveyance shall have been made, shall enter into a supplemental
Warrant Agreement so providing and further providing for adjustments which
shall be as nearly equivalent as may be practical to the adjustments provided
for in this Section. The successor Company shall mail to Warrant holders a
notice describing the supplemental Warrant Agreement.
If the issuer of securities deliverable upon exercise of Warrants
under the supplemental Warrant Agreement is an affiliate of the formed,
surviving, transferee or lessee corporation, that issuer shall join in the
supplemental Warrant Agreement.
If this Section 5.13 applies to any transaction, Sections 5.1, 5.2,
5.3, 5.4 and 5.5 shall not apply to such transaction. The provisions of this
Section 5.13 shall similarly apply to successive consolidations, mergers,
sales or conveyances.
5.14. ADJUSTMENT TO THE NUMBER OF SHARES PURCHASABLE UPON EXERCISE OF
WARRANTS; CURRENT WARRANT PRICE NOT LESS THAN PAR VALUE
Upon each adjustment of the Current Warrant Price pursuant to this
Section 5, each warrant shall thereupon evidence the right to purchase that
number of shares of Common Stock (calculated to the nearest hundredth of a
share) obtained by multiplying the number of shares of Common Stock
purchasable immediately prior to such adjustment upon exercise of the Warrant
by the Current Warrant Price in effect immediately prior to such adjustment
and dividing the product so obtained by the Current Warrant Price in effect
immediately after such adjustment. The adjustment pursuant to this Section
5.14 to the number of shares of Common Stock purchasable upon exercise of a
Warrant shall be made each time an adjustment of the Current Warrant Price is
made pursuant to this Section 5 (or would be made but for the proviso in
Section 5.3). In no event shall the Current Warrant Price be adjusted below
the par value per share of the Common Stock; PROVIDED, HOWEVER, that in the
event such adjustment would have been made but for this sentence, the number
of shares issuable upon exercise of a Warrant shall
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<PAGE>
be adjusted in accordance with the remainder of this Section 5.14 as though
such adjustment in the Current Warrant Price had been made.
5.15. OTHER DILUTIVE EVENTS
In case any event shall occur as to which the provisions of this
Section 5 are not strictly applicable but the failure to make any adjustment
would not fairly protect the purchase rights represented by the Warrants in
accordance with the essential intent and principles of such sections, then,
in each such case, the Company shall make a good faith adjustment to the
Current Warrant Price and number of shares of Warrant Stock into which each
Warrant is exercisable in accordance with the intent of this Section 5, and
upon the written request of the holders of a majority of the Warrants, shall
appoint a firm of independent certified public accounts of recognized
national standing (which may be the regular auditors of the Company), which
shall give their opinion upon the adjustment, if any, on a basis consistent
with the essential intent and principles established in Section 5, necessary
to preserve, without dilution, the purchase rights represented by the
Warrants. Upon receipt of such opinion, the Company will promptly mail a
copy thereof to the holder of each Warrant and shall make the adjustments
described therein.
5.16. COMPANY DETERMINATION FINAL
Absent manifest error, any determination that the Company or the
Board of Directors of the Company must make in good faith pursuant to
Sections 5.3, 5.6 or 5.8, shall be conclusive, if reasonable.
5.17. FORM OF WARRANTS
The Company may, at its option, issue new Warrant certificates
evidencing Warrants in such form as may be approved by its Board of Directors
to reflect any adjustment or change in the Current Warrant Price per Warrant
Stock and the number or kind or class of shares or other securities or
property purchasable under the Warrant Certificates made in accordance with
the provisions of this Agreement.
6. NOTICES TO HOLDERS
6.1. NOTICE OF ADJUSTMENTS
Whenever the number of shares of Common Stock for which a Warrant
is exercisable, or whenever the price at which a share of such Common Stock
may be purchased upon exercise of the Warrants, shall be adjusted pursuant to
Section 5, the Company shall forthwith prepare a certificate to be executed
by the chief financial officer of the Company setting forth, in reasonable
detail, the event requiring the adjustment and the method by which such
adjustment was calculated, specifying the number of shares of Common Stock
for which a Warrant is exercisable and describing the number and kind of any
other shares of stock or
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<PAGE>
other property for which a Warrant is exercisable, and any change in the
purchase price or prices thereof, after giving effect to such adjustment or
change. The Company shall promptly cause a signed copy of such certificate
to be delivered to each Holder in accordance with Section 13.1.
6.2. NOTICE OF CORPORATE ACTION
In case:
(a) of any consolidation or merger to which the Company is a party and
for which approval of any stockholders of the Company is required, or of the
conveyance or transfer of the properties and assets of the Company
substantially as an entirety, or of any reclassification or change of Common
Stock issuable upon exercise of the Warrants (other than a change in par
value, or from par value to no par value, or from no par value to par value,
or as a result of a subdivision or combination); or
(b) of the voluntary or involuntary dissolution, liquidation or winding
up of the Company;
Then the Company shall cause to be given to each of the Holders at his
or her address appearing on the Warrant register, at least 10 days prior to
the applicable record date hereinafter specified, or promptly in the case of
events for which there is no record date, in accordance with Section 13.1, a
written notice stating the date on which any such consolidation, merger,
conveyance, transfer, dissolution, liquidation or winding up is expected to
become effective or consummated, and the date as of which it is expected that
holders of record of shares of Common Stock shall be entitled to exchange
such shares for securities or other property, if any, deliverable upon such
reclassification, consolidation, merger, conveyance, transfer, dissolution,
liquidation or winding up. The failure to give the notice required by this
Section 6.2 or any defect therein shall not affect the legality or validity
of any consolidation, merger, conveyance, transfer, dissolution, liquidation
or winding up, or the vote upon any action.
7. COVENANTS
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The Company will (1) not increase the par value of any shares of
Common Stock receivable upon the exercise of a Warrant above the amount
payable therefor upon such exercise immediately prior to such increase in par
value and (2) take all such action as may be necessary or appropriate in
order that the Company may validly and legally issue fully paid and
nonassessable shares of Common Stock upon the exercise of any Warrant.
8. RESERVATION AND AUTHORIZATION OF COMMON STOCK: REGISTRATION WITH OR
APPROVAL OF ANY GOVERNMENTAL AUTHORITY
From and after the date hereof, the Company shall at all times
reserve and keep available for issue upon the exercise of Warrants such
number of its authorized but unissued shares of Common Stock as will be
sufficient to permit the exercise in full of all outstanding Warrants. All
shares of Common Stock which shall be so issuable, when issued upon exercise
of any Warrant and payment therefor in accordance with the terms of this
Warrant Agreement and such Warrant, shall be duly and validly issued and
fully paid and nonassessable, and not subject to preemptive rights.
Before taking any action which would cause an adjustment reducing
the Current Warrant Price below the then par value, if any, of the shares of
Common Stock issuable upon exercise of the Warrants, the Company shall take
any corporate action which may be necessary in order that the Company may
validly and legally issue fully paid and nonassessable shares of such Common
Stock at such adjusted Current Warrant Price.
9. STOCK AND WARRANT TRANSFER BOOKS
The Company will not at any time, except upon dissolution,
liquidation or winding up of the Company, close its stock transfer books or
Warrant transfer books so as to result in preventing or delaying the exercise
or transfer of any Warrant.
10. LOSS OR MUTILATION
Upon receipt by the Company from any Holder of evidence
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<PAGE>
reasonably satisfactory to them of the ownership of and the loss, theft,
destruction or mutilation of such Holder's Warrant and indemnity reasonably
satisfactory to them, and in case of mutilation upon surrender and
cancellation thereof, the Company will execute and deliver in lieu thereof a
new Warrant of like tenor to such Holder.
11. OFFICE OF COMPANY
As long as any of the Warrants remain outstanding, the Company
shall maintain an office or agency (which may be the principal executive
offices of the Company) where the Warrants may be presented for exercise,
registration of transfer, division or combination as provided in this Warrant
Agreement. The Company shall initially maintain such an agency at the
Company's Principal Offices.
12. REPURCHASE BY COMPANY OF WARRANTS
12.1. COMPANY'S OBLIGATION TO REPURCHASE WARRANTS
Upon the occurrence of (a) a Change in Control (as defined in the
Loan Agreement) or (b) a termination of the Loan Agreement in accordance with
subsection 2.8(b) thereof, or at any time within 30 days prior to the
Expiration Date, a Holder shall have the right, upon written notice to the
Company, and without payment of any amounts by the Holder (including, without
limitation, the Warrant Price) to require the Company to repurchase from such
Holder, on the 10th day following delivery of such notice (or, if such day is
not a Business Day, the next succeeding Business Day) and in the manner set
forth in Section 12.2 below, each Warrant then held by such Holder for an
amount equal to $0.75 (the "Repurchase Price"); PROVIDED, HOWEVER, that
nothing herein shall preclude the exercise by such Holder of any portion of
such Warrant exercisable at any time prior to such repurchase.
12.2. PAYMENT OF REPURCHASE PRICE
On the date of any repurchase of Warrants pursuant to this Section
12, each Holder shall assign to Company such Holder's Warrant being
repurchased, without any representation or warranty, by surrender of such
Holder's Warrant to the Company at the Company's Principal Office and
delivery to the
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<PAGE>
Company of a completed Repurchase Form substantially in the form set forth on
the reverse side of the Form of Warrant Certificate attached as Exhibit A
hereto duly executed by the Holder or its agent or attorney, against payment
therefor of the Repurchased Price by check issued by the Company.
13. MISCELLANEOUS
13.1. NOTICE GENERALLY
Any notice, demand, request, consent, approval, declaration,
delivery or other communication hereunder to be made pursuant to the
provisions of this Warrant Agreement shall be sufficiently given or made if
in writing and either delivered in person with receipt acknowledged or sent
by registered or certified mail, return receipt requested, postage prepaid or
by telecopy and confirmed by telecopy answerback, addressed as follows:
(a) If to any Holder or holder of Warrant Stock, at its last known
address appearing on the warrant register of the Company maintained for such
purpose.
(b) If to the Company, at:
Brothers Gourmet Coffees, Inc.
2255 Glades Road
Suite 100E
Boca Raton, Florida 33431
Attention: Vice President-Finance and Administration
Phone: (561) 995-2600
Telecopy Number: (561) 998-3230
With a copy to:
Brownstein, Hyatt, Farber & Strickland, P.C.
410 Seventeenth Street
Twenty Second Floor
Denver, Colorado 80202-4437
Attention: John L. Ruppert, Esq.
Phone: (303) 534-6335
TElecopy Number: (303) 623-1956
or at such other address as may be substituted by notice given as herein
provided. The giving of any notice required hereunder may be waived in
writing by the party entitled to receive such notice. Every notice, demand,
request, consent, approval, declaration, delivery or other communication
hereunder shall be deemed to have been duly given or served on the date on
which personally delivered, with receipt
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<PAGE>
acknowledged, telecopied and confirmed by telecopy answerback or five
Business Days after the same shall have been deposited in the United States
mail, certified with return receipt requested, whichever is earlier. Failure
or delay in delivering copies of any notice, demand, request, approval,
declaration, delivery or other communication to the Person designated above
to receive a copy shall in no way adversely affect the effectiveness of such
notice, demand, request, approval, declaration, delivery or other
communication.
13.2. SUCCESSORS AND ASSIGNS
All covenants and provisions of this Warrant Agreement by or for
the benefit of the Company shall bind and inure to the benefit of their
respective successors and assigns hereunder.
13.3. AMENDMENT
This Warrant Agreement and the Warrants may only be modified or
amended or the provisions hereof and thereof waived with the written consent
of the Company and the Majority Holders; PROVIDED, that no Warrant may be
modified or amended to reduce the number of shares of Common Stock for which
such Warrant is exercisable or to increase the price at which such shares may
be purchased upon exercise of such Warrant (other than giving effect to any
adjustment as provided herein and therein) without the prior written consent
of the Holder thereof.
13.4. SEVERABILITY
Wherever possible, each provision of this Warrant Agreement shall
be interpreted in such manner as to be effective and valid under applicable
law, but if any provision of this Warrant Agreement shall be prohibited by or
invalid under applicable law, such provision shall be ineffective to the
extent of such prohibition or invalidity, without invalidating the remainder
of such provision or the remaining provisions of this Warrant Agreement.
13.5. HEADINGS
The headings used in this Warrant Agreement are for the convenience
of reference only and shall not, for any purpose, be deemed a part of this
Warrant Agreement.
13.6. GOVERNING LAW
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<PAGE>
This Warrant Agreement and the Warrants shall be governed by the
laws of the State of New York, without regard to the provisions thereof
relating to conflict of laws.
13.7. COUNTERPARTS
This Warrant Agreement may be executed in any number of
counterparts and each of such counterparts shall for all purposes be deemed
to be an original, and all such counterparts shall together constitute one
and the same instrument.
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<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant Agreement
to be duly executed by its duly authorized officers as of the date first
above written.
Dated: December 9, 1997
BROTHERS GOURMET COFFEES, INC.
By:_______________________________
Name:
Title:
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<PAGE>
EXHIBIT A
[FORM OF FACE OF WARRANT CERTIFICATE]
WARRANT TO PURCHASE COMMON STOCK
OF BROTHERS GOURMET COFFEES, INC.
- -------------------------------------------------------------------------------
Warrant Certificate No.: Number of Warrants:
- -------------------------------------------------------------------------------
See Reverse for Certain Definitions
Exercisable from and after __________ __, __________ until 5:00 p.m.,
New York City time on __________ __, 2002.
This Warrant Certificate certifies that [__________________] or registered
assigns, is the registered holder of the number of Warrants set forth above
expiring at 5:00 p.m., New York City time, on __________ __, __________ or, if
such date is not a business day, the next succeeding business day (the
"Warrants") to purchase Common Stock, par value $0.0001 per share (the "Common
Stock"), of Brothers Gourmet Coffees, Inc., a Delaware corporation (the
"Company"). The Common Stock issuable upon exercise of Warrants is hereinafter
referred to as the "Warrant Stock." Subject to the immediately succeeding
paragraph, each Warrant entitles the holder upon exercise to purchase from the
Company on or before 5:00 p.m., New York City time, on __________ __, 2002 or,
if such date is not a business day, the next succeeding business day, one share
of Common Stock, at the purchase price of $1.50 per share, each subject to
adjustment as set forth herein and in the Warrant Agreement dated as of
December, 1997 (the "Warrant Agreement") by and between the Company and Goldman
Sachs Credit Partners, Inc., a Bermuda corporation in whole or in part on and
subject to the terms and conditions set forth herein and in the Warrant
Agreement. Such purchase shall be payable in lawful money of the United States
of America by certified or official bank check or wire transfer or any
combination thereof to the order of the Company at the principal office of the
Company, but only subject to the conditions set forth herein and in the Warrant
Agreement. The number of shares of Common Stock for which each Warrant is
exercisable, and the price at which such shares may be purchased upon exercise
of each Warrant, are subject to adjustment upon the occurrence of certain events
as set forth in the Warrant Agreement. Whenever the number of shares of Common
Stock for which a Warrant is exercisable, or the price at which a share of such
Common Stock may be purchased upon exercise of the Warrants, is adjusted
pursuant to the Warrant Agreement, the Company shall cause to be given to each
of the registered holders of the Warrants at
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<PAGE>
such holders' addresses appearing on the warrant register written notice of
such adjustment by first class mail postage pre-paid.
No Warrant may be exercised before __________ p.m., New York City time, on
__________ __, 1997 or after 5:00 p.m., New York City time, on __________ __,
2002 or, if such date is not a business day, the next succeeding business day,
and to the extent not exercised by such time such Warrants shall become void.
Reference is hereby made to the further provisions of this Warrant
Certificate set forth on the reverse side hereof and such further provisions
shall for all purposes have the same effect as though fully set forth at this
place.
THIS WARRANT CERTIFICATE SHALL BE GOVERNED BY THE LAWS OF THE STATE OF
NEW YORK, WITHOUT REGARD TO THE PROVISIONS THEREOF RELATING TO CONFLICT OF
LAWS.
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<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be signed by its President and has caused its corporate seal to be affixed
hereunto or imprinted hereon.
Dated:
(Seal)
Attest: BROTHERS GOURMET COFFEES, INC.
____________________________________ By:__________________________________
Name:_______________________________ Name:
Title: Secretary Title:
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<PAGE>
[FORM OF REVERSE OF WARRANT CERTIFICATE]
The Warrants evidenced by this Warrant Certificate are part of a duly
authorized issue of up to 400,000 Warrants expiring at 5:00 p.m., New York
City time, on __________ __, 2002 or, if such date is not a business day, the
next succeeding business day, entitling the holder on exercise to purchase
shares of Common Stock, par value $0.0001 per share, of the Company, and are
issued or to be issued pursuant to the Warrant Agreement, which Warrant
Agreement is hereby incorporated by reference in and made a part of this
instrument and is hereby referred to for a description of the rights,
limitation of rights, obligations, duties and immunities thereunder of the
Company and the Holders (the words "Holders" or "Holder" meaning the
registered holders or registered holder of the Warrants). A copy of the
Warrant Agreement may be obtained by the Holder hereof upon written request
to the Company.
Warrants may be exercised at any time on and after _____ p.m., New York
City time, on __________ __, 1997 and on or before 5:00 p.m., New York City
time, on __________ __, 2002 or, if such date is not a business day, the next
succeeding business day. The Holder of Warrants evidenced by this Warrant
Certificate may exercise them by surrendering this Warrant Certificate, with
the form of election to purchase set forth hereon properly completed and
executed, together with payment of the purchase price by certified or
official bank check or wire transfer or any combination thereof to the order
of the Company and the other required documentation. In the event that upon
any exercise of Warrants evidenced hereby the number of Warrants exercised
shall be less than the total number of Warrants evidenced hereby, there shall
be issued to the Holder hereof or his assignee a new Warrant Certificate
evidencing the number of Warrants not exercised. The Holder of Warrants
evidenced by this Warrant Certificate may require the Company, pursuant to
Section 12 of the Warrant Agreement, to repurchase such Warrants upon the
occurrence of certain events as set forth in the Warrant Agreement.
The Warrant Agreement provides that the number of shares of Common Stock
for which each Warrant is exercisable, and the price at which such shares may
be purchased upon exercise of each Warrant, are subject to adjustment upon
the occurrence of certain events as set forth in the Warrant Agreement. The
Company shall not be required to issue any fractional share of Common Stock
upon the exercise of any Warrant, but the Company shall round up or down to
the nearest share of Common Stock as provided in the Warrant Agreement.
Warrant Certificates, when surrendered at the office of the Company by
the registered Holder thereof in person or by such Holder's legal
representative or attorney duly authorized in writing, may be exchanged, in
the manner and subject to the limitations provided in the Warrant Agreement,
but without payment of any service
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<PAGE>
charge, for another Warrant Certificate or Warrant Certificates of like tenor
evidencing in the aggregate a like number of Warrants.
Upon due presentation for registration of transfer of this Warrant
Certificate at the office of the Company a new Warrant Certificate or Warrant
Certificates of like tenor and evidencing in the aggregate a like number of
Warrants shall be issued to the transferee in exchange for this Warrant
Certificate, subject to the limitations provided in the Warrant Agreement
without charge except for any tax imposed in connection therewith.
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<PAGE>
[ELECTION TO PURCHASE FORM]
[To be executed only upon exercise of Warrant]
The undersigned registered owner of this Warrant irrevocably exercises
this Warrant for the purchase of __________ Shares of Common Stock of
BROTHERS GOURMET COFFEES, INC. and herewith makes payment therefor, all at
the price and on the terms and conditions specified in this Warrant and the
Warrant Agreement and requests that certificates for the shares of Common
Stock hereby purchased (and any securities or other property issuable upon
such exercise) be issued in the name of and delivered to ____________________
whose address is ____________________ and, if such shares of Common Stock
shall not include all of the shares of Common Stock issuable as provided in
this Warrant, that a new Warrant of like tenor and date for the balance of
the shares of Common Stock issuable hereunder be delivered to the undersigned.
(Name of Registered Owner)
__________________________________________
(Signature of Registered Owner)
(Street Address)
__________________________________________
(City) (State) (Zip Code)
NOTICE: The signature on this election to purchase must correspond with the
name as written upon the face of the within Warrant in every
particular, without alteration or enlargement or any change whatsoever.
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<PAGE>
[ASSIGNMENT FORM]
FOR VALUE RECEIVED the undersigned registered owner of this Warrant
hereby sells, assigns and transfers unto the Assignee named below all of the
rights of the undersigned under this Warrant, with respect to the number of
shares of Common Stock set forth below:
NAME AND ADDRESS OF NO. OF SHARES OF
ASSIGNEE COMMON STOCK
------------------- ----------------
and does hereby irrevocably constitute and appoint ____________________
attorney-in-fact to register such transfer on the books of BROTHERS GOURMET
COFFEES, INC. maintained for the purpose, with full power of substitution in the
premises.
Dated:____________________ Print Name:____________________________
Signature:_____________________________
Witness:_______________________________
NOTICE: The signature on this assignment must correspond with the name as
written upon the face of the within Warrant in every particular,
without alteration or enlargement or any change whatsoever.
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<PAGE>
[REPURCHASE FORM]
FOR VALUE RECEIVED the undersigned registered owner of this Warrant
hereby notifies BROTHERS GOURMET COFFEES, INC. (the "Company") that it is
requiring the Company to repurchase this Warrant, with respect to the number
of shares of Common Stock set forth below:
NO. OF SHARES OF COMMON STOCK
-----------------------------
and does hereby irrevocably constitute and appoint ____________________
attorney-in-fact to register such repurchase on the books of the Company
maintained for the purpose, with full power of substitution in the premises.
Dated:____________________ Print Name:____________________________
Signature:_____________________________
Witness:_______________________________
NOTICE: The signature on this repurchase must correspond with the name as
written upon the face of the within Warrant in every particular,
without alteration or enlargement or any change whatsoever.
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<PAGE>
FORM OF
BROTHERS GOURMET COFFEES
CONFIDENTIAL MEMORANDUM
TO:
--------------------------------------
FROM: John L. Ruppert, Corporate Secretary
on Behalf of the Board of Directors
DATE: , 1998
--------------- ---
------------------------
Brothers Gourmet Coffees, Inc. (the "Company"), considers it essential to
the best interests of its stockholders to foster the continuous employment of
its key employees ("Key Employees"). In this connection, the Board of Directors
of the Company (the "Board") recognizes that, in view of the Company's current
intention to consider possible strategic alternatives, the possibility of a
significant transaction exists and that such possibility, and the uncertainty
and questions which it may raise, could result in your departure or distraction
to the detriment of the Company and its stockholders.
On behalf of the Board, I am pleased to announce the establishment of the
Key Employee Bonus Program for selected Key Employees (the "Bonus Program") and
to inform you that you have been selected by the Board as a Key Employee
eligible for participation in the Bonus Program on the terms described herein.
The purposes of the Bonus Program are to:
1. alleviate concerns of Key Employees that might arise as a result of
the Company's announcement of a desire to consider possible strategic
alternatives;
2. in the event the Company determines to pursue a "Significant
Transaction" or other "Corporate Event" (as defined below), to
encourage Key Employees to work towards the consummation of such
Significant Transaction or Corporate Event and reward them for their
efforts with respect thereto; and
<PAGE>
3. to encourage Key Employees to remain in the employ of the Company up
to, and for a period of time following, the consummation of a
Significant Transaction or Corporate Event.
ELIGIBLE EMPLOYEES
1. You have been selected by the Board as a Key Employee. Subject to the
condition that you must be employed by the Company as of the date of
consummation of, or earlier date of a definitive agreement to
consummate, a Significant Transaction or Corporate Event, you will be
eligible to receive a stay bonus under the Bonus Program in an amount
to be determined as provided below (a "Stay Bonus"); provided,
however, that, unless otherwise provided by action of the Board, your
Stay Bonus will only be payable to you hereunder in the event
(i) a Significant Transaction or Corporate Event is consummated on or
prior to June 30, 1998, or (ii) a definitive agreement is signed on or
prior to June 30, 1998, to consummate a Significant Transaction or
Corporate Event and such Significant Transaction or Corporate Event
is, in fact, consummated.
SIGNIFICANT TRANSACTIONS - CORPORATE EVENTS
1. The term "Significant Transaction" means any joint venture, strategic
alliance, recapitalization, sale, merger, consolidation, or any other
business combination or reorganization, in one or a series of related
transactions, as a result of which any "person" or "group" (as such
terms are defined in Section 13(d) and 14(d) of the Securities
Exchange Act of 1934, as amended (the "Act")), other than the Company,
its subsidiaries, any affiliate(s) of the Company (including any
employee benefit plan thereof), Dilmun Financial Services or any of
its affiliates, or any person or group that is currently the
"beneficial owner" of in excess of 5% of the Company's equity
securities (a "Qualifying Acquiror"), (i) becomes the "beneficial
owner," directly or indirectly of 66.66% or more of (x) the
outstanding shares of common stock and class B common stock
(collectively, the "Common Stock") of the Company (on a fully diluted
basis, including all options, warrants or other convertible securities
held by management and other investors) or (y) the combined voting
power of all classes of equity securities of the Company entitled to
vote (on a fully diluted basis, including all options, warrants or
other convertible securities, held by management and other investors)
or (z) of the common stock or such equity securities of any entity
which owns all or substantially all of the assets of the Company
(hereinafter the "Common Equity") or (ii) acquires assets representing
66.66% or more of the total assets of the Company, on a consolidated
basis (the "Company Assets") directly or indirectly, through a joint
venture, or otherwise.
2. The term "Corporate Event" means any event of the type described in
the definition of Significant Transaction above which does not
constitute a Significant Transaction but which results in a Qualifying
Acquiror becoming the "beneficial owner" directly
<PAGE>
or indirectly of 33.33% or more of (i) the securities described in
subclauses (x), (y) or (z) of clause (i) of the definition of
Significant Transaction above or (ii) the Company Assets, directly or
indirectly, through a joint venture or otherwise.
AMOUNT OF STAY BONUS
1. With respect to any SIGNIFICANT TRANSACTION, you will be eligible to
receive a Stay Bonus in an amount equal to _____x your Salary. The
term "Salary" shall mean, your annual base salary (without regard to
incentive or other bonus compensation) in effect as of January 1,
1998.
2. With respect to any CORPORATE EVENT, the Board may, in its discretion,
determine whether or not to provide for the payment to you of a Stay
Bonus hereunder. In the event the Board determines that a Stay Bonus
shall be payable in connection with a Corporate Event, the amount of
your Stay Bonus payable hereunder shall be determined by the Board in
its discretion, taking into consideration the transaction price, the
percentage ownership of the equity or Company assets acquired by the
Qualifying Acquiror in connection with such Corporate Event and such
other factors as the Board may deem appropriate.
PAYMENT OF STAY BONUS
1. 50% of the Stay Bonus will be paid to you, subject to applicable
withholding requirements, upon consummation of a Significant
Transaction or Corporate Event (the "Closing Date") provided that (a)
you are employed by the Company as of the date of the signing of a
definitive agreement to consummate the Significant Transaction or
Corporate Event (or, if there was no such agreement, as of the Closing
Date) AND (b) you are EITHER (i) employed by the Company as of the
Closing Date OR (ii) no longer employed of the Company prior to the
Closing Date solely as a result of death, permanent disability or
termination by the Company without "Cause" .
2. If you do not meet all of the requirements described in the
immediately preceding paragraph, you will not be entitled to any
payments hereunder.
3. The remaining 50% of the Stay Bonus (the "Balance Amount") will be
paid, subject to applicable withholding requirements, to you provided
that (i) you are an employee of the Company (or its successor) as of
the third month anniversary of the Closing Date or (ii) you cease to
be an employee of the Company (or its successor) prior to the third
month anniversary of the Closing Date solely as a result of death,
permanent disability or termination by the Company (or its successor)
without "Cause". The Balance Amount will be paid on the earliest to
occur of (x) the third month anniversary of the Closing Date, (y) no
later than 10 days after the date of your termination after the
Closing Date as a result of death, permanent disability or termination
by the Company (or its successor) without "Cause" and (z) if your
<PAGE>
employment was terminated prior to the Closing Date solely as a result
of death, permanent disability or termination by the Company (or its
successor) without "Cause", as of the Closing Date.
4. If you resign or are terminated by the Company (or its successor) for
"Cause" prior to the third month anniversary of the Closing Date, you
will not be entitled to receive any portion of the Balance Amount.
5. The term "Cause" shall mean (i) your substantial failure to
satisfactorily perform your reasonably assigned duties to the Company
or any of its subsidiaries or affiliates (including, without
limitation, your failure to use your best efforts to assist in the
structuring or consummation of any strategic alternative for the
Company that the Board determines to pursue), (ii) dishonesty in the
performance of your duties to the Company, its subsidiaries or
affiliates, (iii) an act or acts on your part constituting a felony
under the laws of the United States or any state thereof or crime
involving moral turpitude, (iv) your material breach of any written
policy or practices of the Company, its subsidiaries or affiliates,
(v) your material breach of any provision of any applicable employment
agreement between you, the Company, its subsidiaries or affiliates, or
(vi) any other act or omission by you which is materially injurious to
the financial condition or business reputation of the Company or any
of its subsidiaries or affiliates. For such purposes, the term
Company shall mean the Company or its successor, as the case may be.
ADOPTION/ADMINISTRATION/INTERPRETATION
The Bonus Program has been adopted by the Board and shall be administered
and interpreted by the Board, and determinations and interpretations by the
Board relating to the Bonus Program shall be conclusive; PROVIDED that the Board
may delegate any of its powers or authorities hereunder to any committee which
is comprised solely of two or more members of the Board. The Board's
determinations and interpretations under the Bonus Program need not be uniform
and may be made by it selectively among persons who receive, or are eligible to
receive, Stay Bonus awards under the Bonus Program (whether or not such persons
are similarly situated).
In the event the Board determines that any dividend, recapitalization,
reorganization or other corporate event which does not constitute a Significant
Transaction or Corporate Event affects the value of the shares of Common Stock
of the Company such that an adjustment to this Bonus Program is appropriate in
order to prevent dilution or enlargement of the benefits or potential benefits
intended to be made available hereunder, then the Board may make such
adjustment(s) in such manner as it may deem equitable in order to avoid such
dilution or enlargement of benefits or potential benefits hereunder.
The Board may at any time and from time to time suspend, discontinue,
terminate or amend this Bonus Program, except that no such amendment shall
adversely affect your ability to earn a Stay Bonus with respect to any
Significant Transaction or Corporate Event which has been consummated,
<PAGE>
or with respect to which a definitive agreement to consummate such
Significant Transaction or Corporate Event has been executed, in either case
prior to such suspension, discontinuance, termination or amendment.
MISCELLANEOUS.
You shall not have any rights hereunder until and unless you satisfy ALL of
the requirements set forth herein and nothing herein shall be construed as
conveying any rights to you of continued employment with the Company. Rights to
the payment of any Stay Bonus payable hereunder may not be assigned,
transferred, pledged or otherwise alienated by you, other than by will or the
laws of descent and distribution.
Participation in this Bonus Program is in addition to, and not in lieu of,
participation in any other bonus or incentive compensation programs to which you
are currently entitled to participate and shall not be deemed to limit or
restrict in any way the Company or the Board from making any bonus or other
payment to any person under any other plan or agreement, whether now existing or
hereinafter in effect.
Unless otherwise determined by the Board, any payments made hereunder shall
not be taken into account in computing your salary or compensation for the
purposes of determining any benefits or compensation under (i) any pension,
retirement, life insurance or other benefit plan of the Company or its
affiliates or (ii) any agreement between the Company or its affiliates and you.
Except as may be required by law or as otherwise permitted or expressly
contemplated herein, you agree (and you agree to cause your agents and
representatives) not to disclose to any third party (other than members of
management of the Company, members of the Board of Directors or such agents,
employees or other personnel of the Company designated in writing by any member
of senior management) (1) the nature, status, terms or any other information
regarding any Significant Transaction or Corporate Event or (2) the existence,
the subject matter or terms of the Bonus Program or this letter, without the
prior written consent of the Company ("Confidential Information"); provided,
however, that any information regarding the Bonus Program, this letter or
Confidential Information that is otherwise publicly available, without breach by
you, your agents or your representatives of this paragraph, shall not be subject
to the prohibition on disclosure set forth herein. The Board shall have the
right in its sole discretion to reduce or eliminate entirely your Bonus in the
event of a violation of this paragraph; provided, however, that the Board in
exercising the discretion provided to it in this sentence shall act reasonably
and in good faith taking into account all relevant facts and circumstances,
including any harm or damage (actual or perceived) that may be suffered by the
Company by reason of such improper disclosure.
<PAGE>
BROTHERS GOURMET COFFEES, INC.
By:
------------------------------------
John L. Ruppert, Corporate Secretary
On Behalf of the Board of Directors
Agreed to and accepted this ____ day of _________________, 199__.
By:
-------------------------------------
Name (Print):
---------------------------
<PAGE>
FORM OF
BROTHERS GOURMET COFFEES
CONFIDENTIAL MEMORANDUM
TO:
---------------------------------
FROM: Donald D. Breen, President and Chief Executive Officer,
on Behalf of the Board of Directors
DATE:
-----------------,--------
----------------------
Brothers Gourmet Coffees, Inc. (the "Company"), considers it essential to
the best interests of its stockholders to foster the continuous employment of
its key employees ("Key Employees"). In this connection, the Board of Directors
of the Company (the "Board") recognizes that, in view of the Company's current
intention to consider potential strategic opportunities, the possibility of a
significant transaction exists and that such possibility, and the uncertainty
and questions which it may raise, could result in your departure or distraction
to the detriment of the Company and its stockholders.
On behalf of the Board, I am pleased to announce the establishment of the
Key Employee Bonus Program for selected Key Employees (the "Bonus Program") and
to inform you that you have been selected by the Board as a Key Employee
eligible for participation in the Bonus Program on the terms described herein.
The purposes of the Bonus Program are to:
1. alleviate concerns of Key Employees that might arise as a result of
the Company's announcement of a desire to consider potential strategic
opportunities;
2. in the event the Company determines to pursue a "Significant
Transaction" or other "Corporate Event" (as defined below), to
encourage Key Employees to work towards the consummation of such
Significant Transaction or Corporate Event and reward them for their
efforts with respect thereto; and
<PAGE>
3. to encourage Key Employees to remain in the employ of the Company up
to, and for a period of time following, the consummation of a
Significant Transaction or Corporate Event.
ELIGIBLE EMPLOYEES
1. You have been selected by the Board as a Key Employee. Subject to the
condition that you must be employed by the Company as of the date of
consummation of, or earlier date of a definitive agreement to
consummate, a Significant Transaction or Corporate Event, you will be
eligible to receive a stay bonus under the Bonus Program in an amount
to be determined as provided below (a "Stay Bonus"); provided,
however, that, unless otherwise provided by action of the Board, your
Stay Bonus will only be payable to you hereunder in the event
(i) a Significant Transaction or Corporate Event is consummated on or
prior to June 30, 1998, or (ii) a definitive agreement is signed on or
prior to June 30, 1998, to consummate a Significant Transaction or
Corporate Event and such Significant Transaction or Corporate Event
is, in fact, consummated.
SIGNIFICANT TRANSACTIONS - CORPORATE EVENTS
1. The term "Significant Transaction" means any joint venture, strategic
alliance, recapitalization, sale, merger, consolidation, or any other
business combination or reorganization, in one or a series of related
transactions, as a result of which any "person" or "group" (as such
terms are defined in Section 13(d) and 14(d) of the Securities
Exchange Act of 1934, as amended (the "Act")), other than the Company,
its subsidiaries, any affiliate(s) of the Company (including any
employee benefit plan thereof), Dilmun Financial Services or any of
its affiliates, or any person or group that is currently the
"beneficial owner" of in excess of 5% of the Company's equity
securities (a "Qualifying Acquiror"), (i) becomes the "beneficial
owner," directly or indirectly of 66.66% or more of (x) the
outstanding shares of common stock and class B common stock
(collectively, the "Common Stock") of the Company (on a fully diluted
basis, including all options, warrants or other convertible securities
held by management and other investors) or (y) the combined voting
power of all classes of equity securities of the Company entitled to
vote (on a fully diluted basis, including all options, warrants or
other convertible securities, held by management and other investors)
or (z) of the common stock or such equity securities of any entity
which owns all or substantially all of the assets of the Company
(hereinafter the "Common Equity") or (ii) acquires assets representing
66.66% or more of the total assets of the Company, on a consolidated
basis (the "Company Assets"), directly or indirectly, through a joint
venture, or otherwise.
2. The term "Corporate Event" means any event of the type described in
the definition of Significant Transaction above which does not
constitute a Significant Transaction but which results in a Qualifying
Acquiror becoming the "beneficial owner" directly
<PAGE>
or indirectly of 33.33% or more of (i) the securities described in
subclauses (x), (y) or (z) of clause (i) of the definition of
Significant Transaction above or (ii) the Company Assets, directly or
indirectly, through a joint venture or otherwise.
AMOUNT OF STAY BONUS
1. With respect to any SIGNIFICANT TRANSACTION, you will be eligible to
receive a Stay Bonus in an amount equal to $____________.
2. With respect to any CORPORATE EVENT, the Board may, in its discretion,
determine whether or not to provide for the payment to you of a Stay
Bonus hereunder. In the event the Board determines that a Stay Bonus
shall be payable in connection with a Corporate Event, the amount of
your Stay Bonus payable hereunder shall be determined by the Board in
its discretion, taking into consideration the transaction price, the
percentage ownership of the equity or Company assets acquired by the
Qualifying Acquiror in connection with such Corporate Event and such
other factors as the Board may deem appropriate.
PAYMENT OF STAY BONUS
1. 50% of the Stay Bonus will be paid to you, subject to applicable
withholding requirements, upon consummation of a Significant
Transaction or Corporate Event (the "Closing Date") provided that (a)
you are employed by the Company as of the date of the signing of a
definitive agreement to consummate the Significant Transaction or
Corporate Event (or, if there was no such agreement, as of the Closing
Date) AND (b) you are EITHER (i) employed by the Company as of the
Closing Date OR (ii) no longer employed of the Company prior to the
Closing Date solely as a result of death, permanent disability or
termination by the Company without "Cause" .
2. If you do not meet all of the requirements described in the
immediately preceding paragraph, you will not be entitled to any
payments hereunder.
3. The remaining 50% of the Stay Bonus (the "Balance Amount") will be
paid, subject to applicable withholding requirements, to you provided
that (i) you are an employee of the Company (or its successor) as of
the third month anniversary of the Closing Date or (ii) you cease to
be an employee of the Company (or its successor) prior to the third
month anniversary of the Closing Date solely as a result of death,
permanent disability or termination by the Company (or its successor)
without "Cause". The Balance Amount will be paid on the earliest to
occur of (x) the third month anniversary of the Closing Date, (y) no
later than 10 days after the date of your termination after the
Closing Date as a result of death, permanent disability or termination
by the Company (or its successor) without "Cause" and (z) if your
employment was terminated prior to the Closing Date solely as a result
of death,
<PAGE>
permanent disability or termination by the Company (or its successor)
without "Cause", as of the Closing Date.
4. If you resign or are terminated by the Company (or its successor) for
"Cause" prior to the third month anniversary of the Closing Date, you
will not be entitled to receive any portion of the Balance Amount.
5. The term "Cause" shall mean (i) your substantial failure to
satisfactorily perform your reasonably assigned duties to the Company
or any of its subsidiaries or affiliates (including, without
limitation, your failure to use your best efforts to assist in the
structuring or consummation of any strategic alternative for the
Company that the Board determines to pursue), (ii) dishonesty in the
performance of your duties to the Company, its subsidiaries or
affiliates, (iii) an act or acts on your part constituting a felony
under the laws of the United States or any state thereof or crime
involving moral turpitude, (iv) your material breach of any written
policy or practices of the Company, its subsidiaries or affiliates,
(v) your material breach of any provision of any applicable employment
agreement between you, the Company, its subsidiaries or affiliates, or
(vi) any other act or omission by you which is materially injurious to
the financial condition or business reputation of the Company or any
of its subsidiaries or affiliates. For such purposes, the term
Company shall mean the Company or its successor, as the case may be.
ADOPTION/ADMINISTRATION/INTERPRETATION
The Bonus Program has been adopted by the Board and shall be administered
and interpreted by the Board, and determinations and interpretations by the
Board relating to the Bonus Program shall be conclusive; PROVIDED that the Board
may delegate any of its powers or authorities hereunder to any committee which
is comprised solely of two or more members of the Board. The Board's
determinations and interpretations under the Bonus Program need not be uniform
and may be made by it selectively among persons who receive, or are eligible to
receive, Stay Bonus awards under the Bonus Program (whether or not such persons
are similarly situated).
In the event the Board determines that any dividend, recapitalization,
reorganization or other corporate event which does not constitute a Significant
Transaction or Corporate Event affects the value of the shares of Common Stock
of the Company such that an adjustment to this Bonus Program is appropriate in
order to prevent dilution or enlargement of the benefits or potential benefits
intended to be made available hereunder, then the Board may make such
adjustment(s) in such manner as it may deem equitable in order to avoid such
dilution or enlargement of benefits or potential benefits hereunder.
The Board may at any time and from time to time suspend, discontinue,
terminate or amend this Bonus Program, except that no such amendment shall
adversely affect your ability to earn a Stay Bonus with respect to any
Significant Transaction or Corporate Event which has been consummated,
<PAGE>
or with respect to which a definitive agreement to consummate such
Significant Transaction or Corporate Event has been executed, in either case
prior to such suspension, discontinuance, termination or amendment.
MISCELLANEOUS.
You shall not have any rights hereunder until and unless you satisfy ALL of
the requirements set forth herein and nothing herein shall be construed as
conveying any rights to you of continued employment with the Company. Rights to
the payment of any Stay Bonus payable hereunder may not be assigned,
transferred, pledged or otherwise alienated by you, other than by will or the
laws of descent and distribution.
Participation in this Bonus Program is in addition to, and not in lieu of,
participation in any other bonus or incentive compensation programs to which you
are currently entitled to participate and shall not be deemed to limit or
restrict in any way the Company or the Board from making any bonus or other
payment to any person under any other plan or agreement, whether now existing or
hereinafter in effect.
Unless otherwise determined by the Board, any payments made hereunder shall
not be taken into account in computing your salary or compensation for the
purposes of determining any benefits or compensation under (i) any pension,
retirement, life insurance or other benefit plan of the Company or its
affiliates or (ii) any agreement between the Company or its affiliates and you.
Except as may be required by law or as otherwise permitted or expressly
contemplated herein, you agree (and you agree to cause your agents and
representatives) not to disclose to any third party other than members of the
Board of Directors or such agents, employees or other personnel of the Company
designated in writing by the President and Chief Executive Officer (1) the
nature, status, terms or any other information regarding any Significant
Transaction or Corporate Event or (2) the existence, the subject matter or terms
of the Bonus Program or this letter, without the prior written consent of the
Company ("Confidential Information"); provided, however, that any information
regarding the Bonus Program, this letter or Confidential Information that is
otherwise publicly available, without breach by you, your agents or your
representatives of this paragraph, shall not be subject to the prohibition on
disclosure set forth herein. The Board shall have the right in its sole
discretion to reduce or eliminate entirely your Bonus in the event of a
violation of this paragraph; provided, however, that the Board in exercising the
discretion provided to it in this sentence shall act reasonably and in good
faith taking into account all relevant facts and circumstances, including any
harm or damage (ACTUAL OR PERCEIVED) that may be suffered by the Company by
reason of such improper disclosure.
<PAGE>
BROTHERS GOURMET COFFEES, INC.
By:
----------------------------------------------
Donald D. Breen, President and Chief Executive
Officer, on Behalf of the Board of Directors
Agreed to and accepted this ____ day of _________________, 199__.
By:
------------------------------------------
Name (Print):
--------------------------------
<PAGE>
FIRST AMENDMENT
FIRST AMENDMENT, dated as of March __, 1998 (this "FIRST AMENDMENT"), to
the Amended and Restated Loan and Security Agreement, dated as of December 9,
1997 (as the same has heretofore or may be hereafter amended, supplemented or
modified from time to time in accordance with its terms, the "LOAN AGREEMENT"),
by and among Brothers Gourmet Coffees, Inc., a Delaware corporation (the
"BORROWER"), the financial institutions from time to time party thereto
(collectively, the "LENDERS") and Goldman Sachs Credit Partners, L.P., a Bermuda
Limited Partnership, individually as a Lender and as Agent for the Lenders (in
such capacity, the "AGENT").
WHEREAS, the Borrower has requested certain amendments to the Loan
Agreement; and
WHEREAS, the Agent and the Lenders are willing to make such amendments to
the Loan Agreement upon the terms and subject to the conditions set forth in
this First Amendment.
NOW THEREFORE, for valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, and subject to the fulfillment of the conditions
set forth below, the parties hereto agree as follows:
SECTION 1. AMENDMENTS TO THE LOAN AGREEMENT
1.1 DEFINED TERMS. Initially capitalized terms used and not otherwise
defined herein shall have their respective meanings as defined in the Loan
Agreement.
1.2 AMENDMENT TO DEFINITION OF EVENT OF DEFAULT. Subsection (s) of the
definition of "Event of Default" contained in Section 1.01 of the Loan Agreement
is hereby amended in its entirety to read as follows:
"(s) the Borrower fails to perform, keep or observe any of the
covenants contained in Subsections 3.5, 7.5, 7.6, 7.11, 7.13 or in
Section 8;"
1.3 SUBSECTION 7.13. Section 7 of the Loan Agreement is hereby amended by
adding the following new Subsection 7.13:
"7.13 BUSINESS PLAN. The Borrower shall furnish to the Agent a
revised business plan of the Borrower by no later than April 30,
1998 (the "REVISED BUSINESS PLAN"), which Revised Business Plan
shall be acceptable to the Agent in all respects."
<PAGE>
1.4 AMENDMENT TO SECTION 8.21. Section 8.21 of the Loan Agreement is
amended in its entirety to read as follows:
"8.21 FINANCIAL COVENANTS. (a) EBITDA. The Borrower
shall not permit BEITDA, as of the end of each of the computation
periods set forth below, to be less than the following:
<TABLE>
Computation Period EBITDA
------------------ ----------
<S> <C>
From the beginning of the first Fiscal Quarter $1,200,000
of Fiscal Year 1998 through the end of the
second Fiscal Quarter of Fiscal Year 1998
From the beginning of the first Fiscal Quarter $2,300,000
of Fiscal Year 1998 through the end of the
third Fiscal Quarter of Fiscal Year 1998
From the beginning of the first Fiscal Quarter $5,700,000
of Fiscal Year 1998 through the end of the
fourth Fiscal Quarter of Fiscal Year 1998
From the beginning of the second Fiscal $5,700,000
Quarter of Fiscal Year 1998 through the end of
the first Fiscal Quarter of Fiscal Year 1999
(b) TOTAL CAPITAL FUNDS. The Borrower shall not permit Total Capital
Funds, as of the end of each of the Fiscal Quarters set forth below,
to be less than the following:
Fiscal Quarter Total Capital Funds
-------------- -------------------
<S> <C>
First Fiscal Quarter of Fiscal $62,000,000
Year 1998
Second Fiscal Quarter of Fiscal $62,000,000
Year 1998
Third Fiscal Quarter of Fiscal $62,000,000
Year 1998
Fourth Fiscal Quarter of Fiscal $62,000,000
Year 1998
First Fiscal Quarter of Fiscal $61,000,000"
Year 1999
</TABLE>
-2-
<PAGE>
The Borrower and the Agent agree that, as promptly as practicable after
the Borrower's delivery of the Revised Business Plan to the Agent in
accordance with Subsection 7.13, the Borrower and the Agent will negotiate
with respect to mutually acceptable modifications to the financial covenants
set forth in this Subsection 8.21.
SECTION 2. CONDITIONS TO EFFECTIVENESS
This First Amendment shall become effective only upon satisfaction in full
of the following conditions precedent (the first date upon which all such
conditions have been satisfied being herein called the "EFFECTIVE DATE"):
2.1 The Agent shall have received a counterpart of this First Amendment
which bears the signature of the Borrower.
2.2 No event shall have occurred and be continuing which constitutes a
Default or an Event of Default.
2.3 All legal matters incident to this First Amendment shall be
satisfactory to the Agent and its counsel.
2.4 The Amendment Fee (as defined below) shall have been paid.
2.5 The Borrower shall have paid all accrued and unpaid fees and expenses
of Fried, Frank, Harris, Shriver & Jacobson, counsel to the Agent, including,
without limitation, the fees and expenses of counsel to the Agent incurred in
connection with this First Amendment.
SECTION 3. FEES AND EXPENSES
3.1 In consideration of the amendments to the Loan Agreement made hereby
at the request of the Borrower, the Borrower shall pay the Agent an amendment
fee in the amount of $50,000 (the "AMENDMENT FEE"), which Amendment Fee shall be
fully earned and non-refundable as of the Effective Date. The Amendment Fee may
be charged, at the Agent's sole option, to any account of the Borrower
maintained by the Agent.
3.2 Without in any way limiting subsection 2.14(e) of the Loan Agreement,
the Borrower shall pay all fees and expenses of Fried, Frank, Harris, Shriver &
Jacobson, counsel to the Agent, incurred in connection with this First
Amendment.
SECTION 4. REPRESENTATIONS AND WARRANTIES
-3-
<PAGE>
The Borrower represents and warrants to the Agent as follows:
4.1 The execution, delivery and performance by the Borrower of this First
Amendment and the performance by the Borrower of the Loan Agreement as amended
hereby (i) have been duly authorized by all necessary corporate action and (ii)
do not and will not contravene the Borrower's organizational documents or any
applicable law.
4.2 This First Amendment and the Loan Agreement, as amended hereby,
constitute the legal, valid and binding obligations of the Borrower, enforceable
against the Borrower in accordance with their respective terms.
4.3 The representations and warranties contained in the Loan Agreement are
correct on and as of the Effective Date as though made on and as of the
Effective Date (except to the extent such representations and warranties
expressly relate to an earlier date), and no Default or Event of Default, has
occurred and is continuing as of the Effective Date.
SECTION 5. CONTINUED EFFECTIVENESS OF LOAN AGREEMENT
5.1 The Borrower hereby (i) confirms and agrees that each of the Financing
Agreements to which it is a party is, and shall continue to be, in full force
and effect and is hereby ratified and confirmed in all respects except that on
or after the Effective Date of this First Amendment all references in any such
Financing Agreement to "the Loan Agreement", "thereto", "thereof", "thereunder"
or words of like import referring to the Loan Agreement shall mean the Loan
Agreement as amended by this First Amendment; and (ii) confirms and agrees that
to the extent any such Financing Agreement purports to grant to the Agent a
security interest in or lien on, any collateral as to security for the
Obligations of the Borrower from time to time existing in respect of the Loan
Agreement and the Financing Agreements, such security interest in or lien is
hereby ratified and confirmed in all respects.
SECTION 6. CERTAIN ACKNOWLEDGMENTS
6.1 The Borrower hereby affirms and ratifies the following in all
respects:
(a) The Borrower has no grounds for disputing the validity or enforceability of
the Financing Agreements or any of the Obligations, or the validity, priority,
enforceability or extent of the Agent's security interest in or lien against any
of Collateral in any judicial, administrative or other proceeding; and
-4-
<PAGE>
(b) The Borrower, for itself and any other Person who may claim an
interest through the Borrower, hereby releases and discharges, with
prejudice, the Agent, each Lender, and each of their respective directors,
officers, Affiliates, agents, attorneys and employees from any and every
claim, right, cause, action, cause of action, damage, liability, and other
matter or proceeding arising from, relating to or in connection with any acts
or omissions of the Agent, each Lender, and each of their respective
directors, officers, Affiliates, agents, attorneys and employees prior to the
Effective Date. This provision shall survive and continue in full force and
effect whether or not (i) the Borrower shall satisfy all other provisions of
the Financing Agreements, including payment in full by the Borrower of all
Obligations, or (ii) the Loan Agreement is otherwise terminated.
SECTION 7. MISCELLANEOUS
7.1 Except as herein expressly amended, the Loan Agreement and the other
documents executed and delivered in connection therewith are each ratified and
confirmed in all respects and shall remain in full force and effect in
accordance with their respective terms.
7.2 This First Amendment may be executed by the parties hereto
individually or in combination, in one or more counterparts, each of which shall
be an original and all of which shall constitute one and the same agreement.
7.3 Section and paragraph headings herein are included for the convenience
of reference only and shall not constitute a part of this First Amendment for
any other purpose.
7.4 THIS FIRST AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, WITHOUT
GIVING EFFECT TO THE CONFLICTS OF LAWS PRINCIPLES THEREOF.
-5-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this First Amendment to
be duly executed and delivered by their proper and duly authorized officers as
of the day and year fist above written.
BROTHERS GOURMET COFFEES, INC.
By:
---------------------------------
Name:
Title:
GOLDMAN SACHS CREDIT PARTNERS, L.P.
As Agent and as a Lender
By:
---------------------------------
Name:
Title:
-6-
<PAGE>
EXHIBIT 21
BROTHERS GOURMET COFFEES, INC.
LIST OF SUBSIDIARIES
Brothers Coffee Bars, Inc.
Brothers Retail Corp.
Maryland Club Foods, Inc.
<PAGE>
EXHIBIT 23.1
Consent of Independent Certified Public Accountants
We consent to the incorporation by reference in the Registration
Statement (Form S-8 No. 33-84286) pertaining to the Amended and Restated 1990
Nonqualified Stock Option Plan of Brothers Gourmet Coffees, Inc. and its
subsidiaries of our report dated March 28, 1998, with respect to the
consolidated financial statements and schedule of Brothers Gourmet Coffees,
Inc. and its subsidiaries included in its Annual Report (Form 10-K) for the
year ended December 26, 1997.
Ernst & Young LLP
West Palm Beach, Florida
April 3, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
ACCOMPANYING CONSOLIDATED BALANCE SHEETS AND THE RELATED CONSOLIDATED STATEMENTS
OF OPERATIONS, CHANGES IN STOCKHOLDERS'EQUITY AND CASH FLOW FOR THE PERIOD
ENDED DECEMBER 26, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-26-1997
<PERIOD-START> DEC-28-1996
<PERIOD-END> DEC-26-1997
<CASH> 0
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0
0
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</TABLE>
