UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECUITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 0-24912
WELCOME HOME, INC.
DELAWARE 56-1379322
(State of other Jurisdiction of (I.R.S. EMPLOYER
Incorporation or Organization) IDENTIFICATION NO.)
309 Raleigh Street
Wilmington, NC 28412
(Address of Principal Executive Offices) (Zip Code)
(910) 791-4312
(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: Common Stock, Par
Value $.01 Per Share
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 l0-K or any amendment to this
Form 10-K. (X)
The aggregate market value of the voting stock held by non-affiliates of the
registrant was $1,991,237 as of March 31, 1999. Determination of affiliate
status for this purpose is not a determination of affiliate status for any other
purpose. As of March 31, 1999, there were 7,453,615 shares of the registrant's
common stock outstanding.
Indicate by check mark whether registrant has filed all documents and reports
required to be filed by Section 12, 13, or 15(d) of The Securities Exchange Act
of 1934 subsequent to the distribution of securities under a plan confirmed by a
court. Yes (X) No ( )
Documents Incorporated by Reference: None
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INDEX
PART I
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Item 1. Business....................................................................3
Item 2. Properties..................................................................6
Item 3. Legal Proceedings...........................................................6
Item 4. Submission of Matters to a Vote of Security Holders........................6
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.......7
Item 6. Selected Financial Data.....................................................8
Item 7 Management's Discussion and Analysis of Financial Condition and Results
of Operations...............................................................9
Item 7a Qualitative and Quantitative Disclosures About Market Risk.................13
Item 8. Financial Statements and Supplemental Data.................................13
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.......................................................28
PART III
Item 10. Directors and Executive Officers of the Registrant.........................28
Item 11. Executive Compensation.....................................................29
Item 12. Security Ownership of Certain Beneficial Owners and Management.............30
Item 13. Certain Relationships and Related Transactions.............................31
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K...........32
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PART I
ITEM 1. BUSINESS
GENERAL
Welcome Home, Inc., (the "Company" or "Welcome Home") is a specialty retailer
of gifts and decorative home furnishings and accessories in North America, with
120 stores located primarily in factory outlet centers in 36 states. Welcome
Home stores offer a broad product line of 1,500 to 2,500 Stock Keeping Units
("SKUs") consisting of 11 basic groups, including decorative home textiles,
framed art, furniture, candles, lighting, fragrance, decorative accessories,
decorative garden, music, special opportunity merchandise and seasonal products.
Welcome Home's products currently range in price up to $1,500, with an average
sales transaction for the year ended December 31, 1998 of approximately $19.08.
HISTORY
The predecessor to the Company was organized in 1966 as Cape Craftsmen, Inc.
("Cape Craftsmen"), a manufacturer, importer and distributor of a variety of
giftware including wood, ceramic, picture frames and brass items, and operated
its business through two divisions: the wholesale division (the "Wholesale
Division") and the retail division (the "Retail Division"). The business now
conducted by the Company was formerly the Retail Division, which began
operations in the mid 1970's. Cape Craftsmen was acquired in 1983 in a leveraged
buyout and was owned primarily by partners, principals and affiliates of the
Jordan Company (the "Jordan Group"). In November 1985, Cape Craftsmen filed for
bankruptcy protection pursuant to Chapter 11 of the United States Bankruptcy
Code (the "Bankruptcy Code") primarily due to a serious decline in the Wholesale
Division's sales. The Company emerged from Chapter 11 proceedings in 1989. In
1991, the Company was acquired by Jordan Industries, Inc. ("Jordan Industries"),
an affiliate of the Jordan Group and spun off the wholesale division which
continues to operate under the name "Cape Craftsmen" and is owned by Jordan
Industries. The Company was renamed Welcome Home, Inc. on March 22, 1991.
Thereafter, the Company continued the business previously conducted by the
Retail Division.
From 1989 to 1995, the Company expanded from 45 to 215 stores and net sales
increased from $13.5 million to $93.2 million. In September 1994, the Company
completed an initial public offering of Common Stock (the "IPO"). The Company
sold 2.5 million shares in the IPO and used the proceeds to repay Welcome Home's
intercompany debt to Jordan Industries. During 1996 and 1997, however, the
Company curtailed its expansion into new markets, with only nine new store
openings during the period, and closed 100 stores. As a result, net sales
decreased to $62.6 million for 1997. The Company closed five stores and opened
three new stores. This reduced net sales to $54.3 million for 1998. In order to
restructure its financial obligations and to implement a strategy to reverse
declining operating results, the Company filed a voluntary petition for relief
under Chapter 11 of the Bankruptcy Code in January 1997. The resulting Plan of
Reorganization was confirmed in September 1998. See "Item 3. Legal Proceedings".
BUSINESS STRATEGY
The Company's objective is to return to profitability by building upon its
position as a specialty retailer of home decor and gifts with a national
presence in outlet malls. Through its direct sourcing capabilities, Welcome Home
offers a unique and often exclusive collection of value priced, fashion forward
accents and gifts for the home. This attractive merchandise mix, accompanied by
friendly customer service oriented environment, is expected to encourage repeat
business as well as a constant flow of new customers shopping in the outlet mall
as a destination. To accomplish this objective, the Company's management team
has outlined a business strategy for 1999 and beyond which emphasizes the
following principles:
MARGIN BUILDING. Management believes the key to making Welcome Home a
profitable, growth-oriented entity is margin building. During 1998, the Company
was able to increase its margins while continuing to offer Welcome Home
customers competitive pricing. This was accomplished in two ways: first, more
direct import buying from better sources, better price negotiation and better
product selection; second, identifying quality close out opportunities from
domestic sources that offered quick turnover potential at higher margins and
lower prices for customers. Implementation of this strategy will continue
through 1999 and is expected to result in further improvement in the Company's
margin and overall profitability.
APPROPRIATE MERCHANDISE MIX. During 1999, the Company will continue to modify
its merchandise assortment as management identifies new product lines with
long-term growth potential. By improving the mix and management of product lines
within its assortment plan, the Company will seek to maximize the performance of
each store.
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AGGRESSIVE MERCHANDISING AND STORE SIGNAGE. The success of the Company's
value pricing program during 1998 indicates that customers in the outlet mall
venue are looking for value. The Company has begun positioning itself to appeal
to this market segment by introducing promotional tables and floor stacks of
value buys and calling attention to them with larger in-store signage. This
program will continue through 1999. By the summer of 1999, the Company will have
remodeled 77 of its 120 stores. In all of these stores the Company has replaced
old fixtures with fixtures that provide flexibility in showing much of the
decorative accessory products now in its inventory.
BUILDING THE WELCOME HOME BRAND. The Company continued to implement a number
of branding programs in 1998 designed exclusively for Welcome Home. Exclusive
Welcome Home merchandise achieves two things: first, it allows the Company to
price product based on its value and uniqueness; second, it encourages customers
to return to Welcome Home stores either to buy more of that unique Welcome Home
product or to see new Welcome Home products. Where appropriate, the Company will
create more exclusive Welcome Home products in 1999.
EVENT MARKETING. During 1999, similar to 1998, creative events in the stores
are expected to be a key ingredient in driving sales. While the Company's two
major seasonal businesses are Easter and Christmas, Welcome Home will also
provide special products to create events around Valentine's Day, Mother's Day,
Father's Day, the Fourth of July, Halloween and Thanksgiving. Management plans
to have the Company's major seasonal programs exclusively designed and packaged
for Welcome Home so that the merchandise will be truly unique in the
marketplace. By creating weekly events in the stores, management expects to
encourage repeat business and thereby increase net sales. The Company's
advertising budget provides for participation in mall coupon books, flyers
distributed in the malls to highlight Welcome Home values, limited local
newspaper advertising and certain mailings with vendor participation. Welcome
Home will utilize all of these methods in 1999 in an effort to attract the
shopper who has come to the outlet mall looking for value.
EFFECTIVE MANAGEMENT INFORMATION SYSTEMS. The Company has implemented a fully
integrated retail computer system consisting of inventory control, purchase
order management, accounting and general ledger systems. This system is
currently in use in hundreds of retail chains across the United States and
Canada. The systems are designed to provide SKU-level perpetual inventory
tracking as well as SKU-level sales tracking. This "core" package was augmented
by the purchase of a decision support/marketing system that allows the
merchandising and advertising departments the ability to perform strategic
promotional advertising by gathering customer purchase information gleaned at
the point of sale.
TARGETED STORE GROWTH. As of December 31, 1998, the Company had 122 stores.
Two stores were closed in January 1999, bringing the current store count to 120.
In 1999, the Company plans to expand the store group into new outlet mall
locations. Management also believes that by moving some current fixturing and
taking a low-cost approach to opening these new stores, Welcome Home can
accomplish two important goals: first, add sales volume in 1999; and, second,
continue the process of improving the store portfolio to include some of the
best outlet mall locations in the country.
PURCHASING AND DISTRIBUTION
The Company maintains its own central buying staff, comprised of four senior
buyers. Management believes that this centralized purchasing function provides
the Company with better control of its inventory and positions it to negotiate
cost concessions from vendors. These buyers are responsible for identifying home
fashion trends and making sure that the Company's merchandise assortment is
current. These buyers are also responsible for designing and developing
proprietary merchandise.
The Company purchases its merchandise from over 75 suppliers. In 1998, the
Company's largest supplier accounted for approximately 53% of the Company's
merchandise purchases and the Company's ten largest suppliers accounted for
approximately 73% of such purchases. The Company has no long-term contracts for
the purchase of merchandise. Although the Company's sales are not dependent on
any single supplier, there can be no assurance that the Company's operating
results would not be adversely affected if any of its ten largest suppliers were
unable to continue to fill the Company's orders for such supplier's products.
Approximately 70% - 80% of the Company's merchandise is sourced from
distributors purchasing abroad. Although the Company believes that it has
established close relationships with its principal foreign manufacturing
sources, the Company's future success will depend in some measure upon its
ability to maintain such relationships. The Company believes that no foreign
supplier offers such unique product that it could not be replaced, after
temporary shortages, with merchandise from other foreign or domestic suppliers.
The Company currently maintains multiple suppliers for each foreign and domestic
product category.
The Company's distribution center, located in Wilmington, North Carolina, is
used to temporarily warehouse merchandise, where it is broken down into
individual store orders and shipped directly to store locations. Approximately
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30% of the total merchandise mix flows through the Wilmington distribution
center and is currently being shipped to the stores on a weekly basis. The
distribution center is also used to assemble merchandise that is shipped to new
stores for initial stocking upon their opening. Otherwise, all domestically
sourced inventory is shipped directly to the stores. This strategy avoids
incremental costs associated with maintaining inventory on a centralized basis.
MANAGEMENT
At all store locations, there is a store manager and an assistant store
manager. Depending on the size and sales volume, the store may have one to four
additional sales clerks. The store manager is responsible for the overall
management and maintenance of the store including sales and receipt of
merchandise, record-keeping and reporting, displays, customer service and
security. The assistant store manager is equally trained in all of these areas.
The store manager reports to a district manager. On average, each district
manager has responsibility for 15 stores. As of December 31, 1998, the Company
had eight district managers.
EMPLOYEES
As of December 31, 1998, the Company had 287 full-time and 500 part-time
employees. One hundred forty employees are in managerial positions, with 17 at
the central office, and the remainder in store operations. As of December 31,
1998, the labor force in store operations consisted of 751 people, including
eight district managers, 123 store managers, 121 assistant store managers and
499 hourly, part-time sales clerks and cashiers. None of the Company's employees
are covered by collective bargaining agreements. The Company believes that the
dedication of its employees is critical to its retailing success, and that its
relations with employees are excellent.
COMPETITION
Competition is highly intense among specialty retailers, traditional
department stores and mass merchant discounters in outlet malls and other high
traffic retail locations. The Company competes for customers principally on the
basis of product assortment, convenience, customer service, price and the
attractiveness of its stores. The Company also competes against other retailers
for suitable locations and qualified management personnel. Because of the
seasonal nature of its business, competitive factors are most important during
the summer and Christmas selling seasons.
The Company has limited competition with different types of retail stores
where some of the Company's products are offered. Many of these competitors have
substantially greater financial, marketing, advertising, store distribution and
other resources than the Company. The Company also believes that the dedication
of its employees and emphasis on customer service provides an important
competitive advantage for the Company.
SEASONALITY
The Company historically has experienced and expects to continue to
experience significant seasonal fluctuations in its net sales and net income.
The Company generally has experienced losses and relatively lower sales for the
first half of the calendar year as compared to the summer vacation season
through the Christmas holiday season. As a result, the Company's outstanding
borrowings under its line of credit have been significantly higher during the
year than at year end.
TRADE NAMES, SERVICE MARKS AND FRANCHISE AGREEMENTS
The Company generally uses the "Welcome Home" name as a trade name and as a
service mark in connection with retail services. In Northern California, the
Company uses the "Home Again" name as a trade name and service mark in
connection with retail services. The Company has registered the "Welcome Home"
and "Home Again" logos as service marks with the United States Patent and
Trademark office. Management believes that the names "Welcome Home" and "Home
Again", and growing customer recognition of these names, are important elements
of the Company's merchandising strategy.
The Company is not a party to any franchise agreements and does not intend to
enter into franchise relationships in the future.
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ITEM 2. PROPERTIES
The Company had 122 stores with over 342,000 square feet as of December 31,
1998, all of which are leased. In most cases, the Company pays a minimum fixed
rent plus a contingent rent based on net sales of the store in excess of a
certain threshold. Certain of the Company's store leases contain restrictive
covenants regarding, among other things, pricing and product offerings, none of
which the Company believes have or may have a material adverse effect on the way
it conducts its business. The Company currently expects that its policy of
leasing rather than owning will continue. The Company's leases generally provide
for original lease terms of five or ten years, with renewal options generally
for an additional five or seven years at moderately increased rents, generally
based upon consumer price indexes. Welcome Home was able to renegotiate most of
these leases during the Bankruptcy proceedings. These proceedings resulted in 38
assumed leases and 84 amended leases. Most of the amendments reduced the lease
term to a maximum of three years.
The Company's corporate headquarters, which is also leased, is located in
Wilmington, North Carolina and occupies 34,000 square feet, of which 24,000
square feet serves as a distribution center and 10,000 square feet serves as
office space. The central warehouse is used to temporarily store merchandise for
distribution and used to initially stock new stores upon their opening
The Company's mix of 122 stores at December 31, 1998 consisted of 32 stores
of less than 2,400 square feet, 33 stores of 2,400 - 2,800 square feet, 34
stores of 2,800 - 3,300 and 23 stores of 3,300 - 4,600 plus square feet.
ITEM 3. LEGAL PROCEEDINGS
On September 28, 1998, the United States Bankruptcy Court for the Southern
District of New York approved a Plan of Reorganization (the "Plan") for Welcome
Home. The Plan became effective on November 2, 1998 and Jordan Industries
purchased the secured and unsecured claims amounting to approximately $6.9
million (excluding all Jordan Industries and Cape Craftsmen claims) for
approximately $1.1 million. The Plan also provided that shareholders of the
Company would receive shares of a new class of common stock of Welcome Home
("New Common Stock") on a prorated basis. The 500,000 shares of New Common Stock
is being distributed to owners of Welcome Home's old Common Stock based on the
shareholders' percentage of total old Common Stock outstanding excluding old
Common Stock held by Jordan Industries.
The Company is not involved in any other legal proceedings which are expected
to have a material effect on the Company's results of operations or financial
condition, nor is it aware of any threatened litigation.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were voted upon during the fourth quarter of the year ended
December 31, 1998.
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PART II
ITEM 5 . MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The common stock is now traded on the OTC Bulletin Board System operated by
the National Association of Securities Dealers, Inc. As of March 13, 1999 there
were approximately 60 holders of record of the Company's common stock. The
Company believes that the number of beneficial holders of its common stock is
substantially higher. The following table sets forth the high and low bid prices
of the Company's common stock for each quarter in the two year period ended
December 31, 1998. These quotations reflect inter-dealer prices, without retail
markup, markdown or commission and may not necessarily represent actual
transactions.
First Second Third Fourth
Quarter Quarter Quarter Quarter
1998:
High bid $ .40 $ .19 $ .19 $ .22
Low bid $ .03 $ .03 $ .11 $ .13
1997:
High bid $ .75 $ .19 $ .20 $ .20
Low bid $ .05 $ .04 $ .08 $ .02
The Company has not paid dividends since its initial public offering, and
does not anticipate paying dividends in the foreseeable future.
The Plan provided that shareholders of the Company would receive shares of a
new class of common stock of Welcome Home ("New Common Stock") on a prorated
basis. The 500,000 shares of New Common Stock is being distributed to owners of
Welcome Home's old Common Stock based on the shareholders' percentage of total
old Common Stock outstanding excluding old Common Stock held by Jordan
Industries.
On November 12, 1996, the Company entered into an agreement with Jordan
Industries in which the Company issued 4,451,000 shares of a newly designated
class of Series A Redeemable Preferred Stock (the "Series A Preferred Stock") to
Jordan Industries as repayment of $4,451,000 outstanding under the Subordinated
Credit Agreement. The holders of the Series A Preferred Stock were entitled to
cumulative annual dividends of 10% of the liquidation value of the stock. The
Company could not declare or pay any dividend or distribution on any shares of
stock that rank junior to the Series A Preferred Stock as long as any shares of
Series A Preferred Stock were outstanding.
The outstanding Preferred Stock including cumulative dividends, which
amounted to $5.3 million, was repurchased for $1 in accordance with the Plan.
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ITEM 6. SELECTED FINANCIAL DATA
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Year Ended December 31
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1998 1997 1996 1995 1994
- ----------------------------------------------------------------------------------------
(in thousands except per share data)
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INCOME STATEMENT DATA:
Net Sales $54,254 $62,590 $81,855 $93,166 $81,654
Gross Profit 24,000 23,817 33,121 35,662 35,273
Selling, general and administrative
expenses (excluding depreciation) 20,795 25,397 38,757 36,586 26,798
Management fees - Jordan Industries - - - - 1,393
Restructuring charges - - 8,106 5,913 -
Other non-recurring charges 476 - - 1,016 -
Operating income (loss) 537 (3,765) (15,838) (9,974) 5,757
Interest expense - Jordan Industries 99 234 323 655 764
Interest expense - other 885 1,162 1,552 865 83
Bankruptcy reorganization costs
(credits) (14,750) 1,130 - - -
Provision (benefit) for income
taxes (1) 60 - 2,185 (1,190) 1,561
Net income (loss) $14,234 $(6,266) $ (20,339) $(10,449) $3,328
Basic and diluted income (loss) per
common share $ 1.86 $ (0.90) $ (2.74) $ (1.35) $ 0.39
Weighted average number of common
shares outstanding (2) 7,454 7,454 7,454 7,722 8,479
SELECTED OPERATING DATA:
Stores opened during the period 3 0 9 39 34
Stores closed during the period 5 62 38 13 3
Number of stores open at period end 122 124 186 215 189
Total square feet of store space
(in thousands) 343 350 514 587 488
Sales per average square foot of total
store space (3) $ 158 $ 158 $ 144 $ 177 $ 187
Percentage increase (decrease) in
comparable store sales (4) (1.6%) 2.4% (15.7)% (8.1)% 8.4%
OTHER OPERATING DATA:
Capital expenditures $498 $134 $1,638 $5,021 $3,409
Depreciation 2,192 2,185 2,096 2,121 1,325
BALANCE SHEET DATA:
Working capital (deficiency) $(2,194) $(25,084) $ (18,972) $(2,154) $7,781
Total assets 17,777 18,668 26,314 29,176 33,614
Total debt 6,154 7,556 15,869 11,029 1,660
Shareholders' equity (deficiency) 2,851 (18,527) (12,236) 3,627 17,010
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(1) Reflects only state income taxes as the Company and Jordan
Industries had Federal net operating loss carryforwards during these
periods. See Note 7 to the Financial Statements.
(2) Reflects weighted average outstanding shares retroactively adjusted
to reflect the 17 for 1 stock split in 1994.
(3) Calculated by dividing the net sales for the period by the average
square feet of total store space. The amounts have not been adjusted
for the seasonal nature of the Company's sales or for the impact of
opening stores in different periods each year.
(4) Calculated using net sales of stores which have been open during at
least one full calendar year.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
The Company is a specialty retailer of gifts and decorative home furnishings
and accessories in North America, with 120 stores located primarily in factory
outlet centers in 36 states. Welcome Home's products, which currently range in
price up to $1,500, cover a broad product line of 1,500 to 2,500 SKUs consisting
of 11 basic groups, including decorative home textiles, framed art, furniture,
candles, lighting, fragrance, decorative accessories, decorative garden, music,
special opportunity merchandise and seasonal products. The Company's average
sales transaction was approximately $19.08 for the year ended December 31, 1998
as compared to $18.28 for the year ended December 31, 1997.
During the fourth quarter of 1995 and continuing in 1996, the Company planned
and implemented a series of strategic restructuring initiatives designed to
improve profitability and better position the Company. The major elements of
these initiatives included a change in the Company's merchandising strategy and
the liquidation of merchandise which is not consistent with that strategy,
closing unprofitable stores, and strengthening the Company's information systems
as necessary to successfully implement the above strategies. The Company
recorded an $8.1 million restructuring charge in 1996 and a $5.9 million
restructuring charge in 1995 for the cost of these initiatives.
On January 21, 1997, the Company filed a voluntary petition for relief under
Chapter 11 of the Bankruptcy Code. In connection with this bankruptcy
proceeding, management closed 38 non-profitable stores in 1996, 62
non-profitable stores in 1997 and five non-profitable stores in 1998. See "Item
3. Legal Proceedings." The Company also closed two stores in January 1999,
closed one store in February 1999, opened three new stores in 1998 and one new
store in 1999, bringing it to a core group of 120 stores.
Approximately 70% - 80% of the Company's merchandise is sourced overseas.
These imports are purchased with U.S. dollars and therefore the Company does not
engage in any foreign currency hedging activities. Also, of the 122 stores open
at December 31, 1998, none were located in a foreign country. Therefore, any
exposure to foreign currency exchange rate risks are minimal and are immaterial
to the Company's financial statements.
RESULTS OF OPERATIONS
The following table sets forth certain selected income statement data of the
Company expressed as a percentage of net sales:
1998 1997 1996
---- ---- ----
Net Sales 100.0% 100.0% 100.0%
Cost of Sales 55.8 61.9 59.5
Gross Profit 44.2 38.1 40.5
Selling, General, and Administrative Expenses
(Excluding Depreciation) 38.3 40.6 47.3
Restructuring Charges - - 9.9
Other Non-recurring Charges 0.9 - -
Operating Income (Loss) 1.0 (6.0) (19.3)
Interest Expense 1.8 2.2 2.3
Bankruptcy Reorganization Costs (Credits) 27.2 1.8 -
Provision (Benefit) For Income Taxes 0.1 - 2.7
Net Income (Loss) 26.2% (10.0)% (24.8)%
1998 AS COMPARED WITH 1997
NET SALES. Net sales for 1998 decreased by $8.3 million, or 13.3%, as
compared to 1997. This decrease reflects a decline in average number of stores
opened for 1998 of 120 as compared to 142 in 1997. Net sales on a comparable
store basis decreased by $0.9 million, or 1.6%. The decrease in comparable store
sales is attributed to a sales decline in the outlet malls of 2.9% on a
comparable store basis. Despite a 4.9% decline in the Company's number of sales
transactions on a same store basis in 1998, the Company increased its average
sales transaction to $19.09 in 1998, compared to $18.45 in 1997 on a same store
basis.
GROSS PROFIT. Gross profit for 1998 increased $0.2 million, or 0.8%, as
compared to 1997. Gross profit as a percentage of sales increased to 44.2% in
1998 from 38.1% in 1997, due primarily to markdowns taken during the first seven
months of 1997 on inventory items sold in "Going Out of Business" sales in the
stores that were closed. The cost of markdowns decreased to $4.0 million in 1998
from $6.2 million in 1997.
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SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. Selling, general and
administrative expense for 1998 decreased by $4.6 million, or 18.1%, as compared
to 1997, largely as a result of the Company's store closings in 1997. In
addition, selling, and administrative expense as a percentage of net sales
decreased to 38.3% in 1998 as compared to 40.6% in 1997. This decrease was due
to home office expenses of $3.8 million in 1998 as compared to $4.5 million in
1997. The decrease in home office expenses was due primarily to decreased
payroll costs for corporate office personnel associated with a corporate layoff
necessitated by the Company's closing of 62 stores in 1997 and 38 stores in
1996.
INTEREST EXPENSE - JORDAN INDUSTRIES. Interest expense to Jordan Industries
decreased from $0.2 million in 1997 to $0.1 million in 1998 primarily as a
result of the reduction in the borrowings by the Company with Jordan Industries.
INTEREST EXPENSE - OTHER. Interest expense - other decreased from $1.2
million in 1997 to $0.9 million in 1998 due to lower interest expense on its
post-petition credit facility. Borrowings under the facility were lower due to
reduced inventory levels required for a fewer number of stores. See Note 6 of
the Financial Statements.
BANKRUPTCY REORGANIZATION COSTS (CREDITS). The Company recorded $14.8 million
of bankruptcy reorganization credits in 1998 compared to $1.1 million of
bankruptcy reorganization costs in 1997. These credits represent the adjustments
to the pre-petition liabilities in accordance with the provisions of the Plan,
netted against $1.0 million of reorganization costs.
NET INCOME (LOSS). The Company's net income for 1998 was $14.2 million, as
compared to a net loss of $6.3 million in 1997. The increase in net income of
$20.5 million was due primarily to the bankruptcy reorganization credits.
1997 AS COMPARED WITH 1996
NET SALES. Net sales for 1997 decreased by $19.3 million, or 23.5%, as
compared to 1996. This decrease reflects a decline in store count from 186
stores open at December 31, 1996 to 124 at December 31, 1997. Net sales on a
comparable store basis increased by $1.3 million, or 2.4%. The increase in
comparable store sales is attributed to modifications of the Company's
merchandise assortment implemented during the latter half of 1997. Despite an
8.2% decline in the Company's number of sales transactions on a same store basis
in 1997, the Company increased its average sale to $18.45 in 1997, compared to
$16.55 in 1996 on a same store basis.
GROSS PROFIT. Gross profit for 1997 decreased $9.3 million, or 28.1%, as
compared to 1996, largely reflecting the closure of 62 stores in 1997. Gross
profit as a percentage of sales decreased from 40.5% in 1996 to 38.1% in 1997,
due primarily to markdowns taken during the first seven months of 1997 on
inventory items sold in "Going Out of Business" sales in the stores that were
closed. The cost of markdowns decreased to $6.2 million in 1997 from $7.4
million in 1996.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. Selling, general and
administrative expense for 1997 decreased by $13.4 million, or 34.5%, as
compared to 1996, largely as a result of the Company's store closings in 1996.
In addition, selling, and administrative expense as a percentage of net sales
decreased to 40.6% in 1997 as compared to 47.3% in 1996. This decrease was due
to the increase in the Company's comparable store sales of 2.4% in 1997 and the
decrease in home office expenses of $4.5 million in 1997 as compared to $6.1
million in 1996. The decrease in home office expenses was due primarily to
decreased payroll costs for corporate office personnel associated with a
corporate layoff necessitated by the Company's closing of 62 stores in 1997 and
38 stores in 1996.
RESTRUCTURING CHARGES. In 1997, the Company did not record any restructuring
charges compared to $8.1 million of charges in 1996. The charges recorded
reflect a restructuring plan adopted by management in 1995 and continued in 1996
to close non-profitable stores and severance to two former executives. The
Company closed 38 stores in 1996 and 62 stores in 1997 with costs of $7.2
million from the write-off of the recorded investment in furniture, fixtures and
leasehold improvements at these stores, lease termination costs and other
related store closing costs. The severance for the two former executives
amounted to $0.9 million. See" Note 3 of the Financial Statements".
INTEREST EXPENSE - JORDAN INDUSTRIES. Interest expense to Jordan Industries
decreased from $0.3 million in 1996 to $0.2 million in 1997 primarily as a
result of the reduction in the borrowings by the Company with Jordan Industries.
INTEREST EXPENSE - OTHER. Interest expense - other decreased from $1.6
million in 1996 to $1.2 million in 1997 due to lower interest expense on its
post-petition credit facility. Borrowings under the facility were lower due to
reduced inventory levels required for a fewer number of stores. See Note 6 of
the Financial Statements.
BANKRUPTCY REORGANIZATION COSTS (CREDITS). The Company recorded $1.1 million
of bankruptcy reorganization costs in 1997, while no such charges were recorded
in 1996. These charges represent the expenses associated with the bankruptcy
proceedings.
10
<PAGE>
NET LOSS. The Company's net loss for 1997 was $6.3 million, as compared to
$20.3 million in 1996. The decrease in net loss of $14.1 million was due to a
$8.1 million decrease in restructuring charges recorded in 1996; the increase in
the Company's comparable store sales in 1997 of 2.4%, lower selling, general and
administrative expenses and interest expense.
LIQUIDITY AND CAPITAL RESOURCES
The Company had a $2.2 million working capital deficiency at December 31,
1998 compared to a $25.1 million deficiency at December 31, 1997. The decrease
in working capital deficiency was due primarily to the elimination of the
pre-petition liabilities of $19.3 million, the reduction in accounts payable to
affiliates of $1.6 million and the elimination of the note payable to Jordan
Industries of $1.6 million.
The Company's net cash used in operating activities for the year ended
December 31, 1998 was $0.8 million as compared to net cash provided by operating
activities of $6.3 million for the fiscal year ended December 31, 1997. The
change was primarily due to a use of net cash from inventories in 1998 of $0.5
million, as compared to a net cash provided from inventories of $5.4 million in
1997. The net cash used in investing activities for the year ended December 31,
1998, was $0.5 million as compared to $0.0 million for the same period in 1997,
due to lower capital expenditures. The net cash provided by financing activities
for the year ended December 31, 1998, was $1.2 million as compared to net cash
used of $7.1 million for the same period in 1997 due to repayments of $6.2
million under the credit facility in 1997 compared to net borrowings of $0.2
million in 1998.
The Company expects to satisfy its anticipated demands and commitments for
cash in the next 12 months primarily from borrowings under its credit facility
with Fleet Capital Corporation. The terms of this facility are as follows:
o Borrowing base of $15.0 million
o Commencing on October 29, 1998 until October 29, 2003
o Secured by substantially all assets of the Company
o Interest calculated at 1 1/4% above prime.
The Company signed a commitment to enter into an $800 thousand Promissory
Note with Jordan Industries that bears interest at 8.5%. The note calls for
monthly payments of interest only through April 30, 2000, and commencing on May
1, 2000, the Company shall pay monthly payments of $66,667 plus accrued interest
until paid in full. At December 31, 1998, the Company did not have an
outstanding balance on this note. Welcome Home received the funds for this
Promissory Note on February 11, 1999, of which the entire amount is still
outstanding.
NET OPERATING LOSS CARRYFORWARDS AND DEFERRED TAX ASSETS
At December 31,1998, the Company had approximately $26.7 million of net
operating loss carryforwards for Federal income tax purposes ("NOL's"). See Note
7 of the Financial Statements. Due to the uncertainty of generating future
taxable income, management believes it is appropriate to fully reserve the
deferred tax asset.
IMPACT OF INFLATION
General inflation has had only a minor effect on the operations of the
Company and its internal and external sources for liquidity and working capital.
YEAR 2000
The past practice of computer programs being written using two digits rather
than four to define the applicable year has resulted in the "Year 2000 Issue."
Any of the Company's computer programs or hardware that has date sensitive
software or embedded chips may recognize a date using "00" as the year 1900
rather than the year 2000. This could result in a system failure or
miscalculations causing disruptions of operations or a temporary inability to
engage in normal business activities. In response to this issue, the Company
developed a Year 2000 Task Force ("Task Force") whose project scope included the
assessment and ongoing monitoring of all information technology computer
hardware and software and non-information technology equipment affected by the
Year 2000 Issue. The Company's plan to resolve the Year 2000 Issue involves the
following four phases: assessment, remediation, testing and implementation.
The Company's information technology infrastructure consists primarily of
externally developed software running in a mainframe environment. The Company
also has a network of personal computers, through local area networks. The
11
<PAGE>
local area networks of personal computers and related software are substantially
Year 2000 compliant.
The Company's information technology mainframe software applications that
support its critical processes have been remediated, tested and determined to be
Year 2000 compliant. However, the ultimate effectiveness of the information
technology will be unknown until January 1, 2000, and there is no assurance that
there will not be a material adverse effect.
The Company has no significant single supplier, vendor or customer ("external
agents") that is critical to its ongoing operations. To date, the Company is not
aware of any external agent with a Year 2000 issue that would materially impact
the Company's results of operations, liquidity or capital resources. However,
the Company has no means of ensuring that external agents are Year 2000
compliant. The inability of external agents - principally financial
institutions, insurance companies, energy suppliers and other third party
employee benefit related providers - to complete their Year 2000 resolution
process in a timely manner could materially impact the Company. The effect of
non-compliance by external agents in not determinable.
The Company has and will continue to renovate, test and implement the
software and operating equipment for Year 2000 modifications. The total costs of
the Year 2000 projects are estimated to be approximately $0.1 million. The
results of ongoing remediation and testing, however, could result in additional
costs to the Company.
Management of the Company believes it has an effective program in place to
resolve the impact of the Year 2000 issue in a timely manner and does not expect
the Year 2000 issue to have a material adverse effect on the Company . But, as
noted above, the Company has not yet completed the conversion of all information
technologies identified in its Year 2000 program. If the Company does not
complete any further Year 2000 work, the Company might be unable to effectively
account for or report its financial position and results of operations using its
current information technology. In addition, the ultimate effectiveness of the
remediated information technology will be unknown until January 1, 2000, and
there is no assurance that there will not be a material adverse effect. The
amount of the potential liability and lost revenue, if any, resulting from these
risks cannot be reasonably estimated at this time.
The Company currently has no formal contingency plans in place if it does not
complete all phases of the Year 2000 program. However, the progress of the Year
2000 program is being closely monitored, and additional measures will be taken
as risks are identified. The Company plans to evaluate the status of completion
in the first half of 1999 and determine whether such a plan is necessary.
FORWARD-LOOKING STATEMENTS
This Annual Report contains statements that constitute "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. Investors are cautioned that
all forward-looking statements involve risks and uncertainties, including those
arising out of economic, climatic, political, regulatory, competitive and other
factors. The forward-looking statements in this document are intended to be
subject to the safe harbor protection provided by Sections 27A and 21E. For a
discussion identifying some important factors that could cause actual results to
vary materially from those anticipated in the forward-looking statements, see
the Company's filings with the Securities and Exchange Commission including but
not limited to, the discussion of "Business Strategy" on page 3 of the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1998.
12
<PAGE>
ITEM 7A. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's income is affected by changes in short-term interest rates as a
result of its borrowings under its credit facility with Fleet Capital
Corporation. However, management believes that the Company's exposure to
short-term interest rate market risk, as it relates to its credit facility, is
not material.
As noted in Item 7, exposure to foreign currency exchange rate risks are
considered minimal.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
Index to Financial Statements Page
Balance Sheets at December 31, 1998 and 1997..................................14
Statements of Operations for the Years Ended December 31, 1998, 1997
and 1996..................................................................15
Statements of Cash Flows for the Years Ended December 31, 1998, 1997
and 1996..................................................................16
Statements of Shareholders' Equity (Deficiency) for the Years Ended
December 31, 1998, 1997 and 1996..........................................18
Notes to Financial Statements.................................................19
Report of Independent Auditors................................................27
Financial Statement Schedule
For the three years ended December 31, 1998:
Schedule II Valuation and Qualifying Accounts..........................33
13
<PAGE>
WELCOME HOME, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
At December 31,
1998 1997
- ------------------------------------------------------------------------------------
(in thousands of dollars
except share data)
- ------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 784 $ 845
Inventories 11,352 10,895
Due from affiliates 530 -
Prepaid and other assets 66 131
- ------------------------------------------------------------------------------------
Total Current Assets 12,732 11,871
Property & equipment, net 4,769 6,488
Other assets 276 309
- ------------------------------------------------------------------------------------
Total Assets $17,777 $18,668
====================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Bank overdraft $1,191 $1,179
Notes payable - line of credit 6,154 5,960
Note payable to Jordan Industries - 1,356
Accounts payable 715 338
Accounts payable to affiliates 2,409 4,018
Accrued expenses 4,010 4,164
Accrued restructuring charges 447 605
- ------------------------------------------------------------------------------------
Total Current Liabilities 14,926 17,620
Note payable to Jordan Industries - 240
Pre-petition liabilities:
Accounts payable - 2,843
Accounts payable to affiliates - 11,046
Accrued expenses - 2,133
Accrued restructuring charges - 3,313
- ------------------------------------------------------------------------------------
Total Pre-petition liabilities - 19,335
Shareholders' equity (deficit)
Series A redeemable preferred stock, $0.01par value;
11,100,000 shares authorized; shares issued: none
in 1998 and 4,451,000 in 1997 - 4,955
Preferred stock, $0.01 par value;
1,000,000, shares authorized; none issued - -
Common stock, $0.01 par value;
13,000,000 shares authorized; 8,500,000 shares issued 85 85
Additional paid-in capital 20,790 8,832
Cumulative translation adjustment - (37)
Retained deficit (13,139) (27,477)
- ------------------------------------------------------------------------------------
Subtotal 7,736 (13,642)
Less treasury stock, at cost
(1,046,385 shares) 4,885 4,885
- ------------------------------------------------------------------------------------
Total Shareholders' Equity (deficit) 2,851 (18,527)
- ------------------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity (deficit) $17,777 $18,668
====================================================================================
</TABLE>
See Notes to Financial Statements
14
<PAGE>
WELCOME HOME, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years Ended December 31,
1998 1997 1996
- ----------------------------------------------------------------------------------------
(in thousands of dollars except per share data)
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Sales $54,254 $62,590 $81,855
Cost of sales 30,254 38,773 48,734
- ----------------------------------------------------------------------------------------
Gross margin 24,000 23,817 33,121
Selling, general and administrative expenses
(excluding depreciation) 20,795 25,397 38,757
Restructuring charges - - 8,106
Other non-recurring charges 476 - -
Depreciation 2,192 2,185 2,096
-
- ----------------------------------------------------------------------------------------
Operating income (loss) 537 (3,765) (15,838)
Interest expense -Jordan Industries 99 234 323
Interest expense - other 885 1,162 1,552
Other (income) expense 9 (25) 441
- ----------------------------------------------------------------------------------------
Loss before bankruptcy reorganization costs
(credits) and income taxes (456) (5,136) (18,154)
Bankruptcy reorganization costs (credits) (14,750) 1,130 -
- ----------------------------------------------------------------------------------------
Income (loss) before provision for income taxes 14,294 (6,266) (18,154)
Provision for income taxes 60 - 2,185
- ----------------------------------------------------------------------------------------
Net income (loss) $14,234 $(6,266) $ (20,339)
========================================================================================
Net income (loss) available to common shareholders $13,900 $(6,711) $ (20,398)
========================================================================================
Basic and diluted income (loss) per common share $1.86 $(0.90) $(2.74)
========================================================================================
Weighted average common shares outstanding
(in thousands) 7,454 7,454 7,454
========================================================================================
</TABLE>
See Notes to Financial Statements
15
<PAGE>
WELCOME HOME, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended December 31,
1998 1997 1996
- --------------------------------------------------------------------------------------
(in thousands of dollars)
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $14,234 $(6,266) $(20,339)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation 2,192 2,185 2,096
Deferred income taxes - - 2,185
Restructuring charges - - 8,106
Adjustments to pre-petition liabilities (15,780) - -
Other 476 (98) -
Changes in operating assets and liabilities:
Due from affiliates (530) - -
Inventories (457) 5,396 507
Prepaid expenses and other assets 148 408 208
Accounts payable 389 (560) 1,038
Accrued liabilities (312) 2,428 837
Payables to affiliates (1,154) 2,764 1,007
- --------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities (794) 6,257 (4,355)
- --------------------------------------------------------------------------------------
Cash flows used in investing activities:
Capital expenditures (498) (134) (1,638)
Other (9) 122 -
- --------------------------------------------------------------------------------------
Net cash used in investing activities: (507) (12) (1,638)
- --------------------------------------------------------------------------------------
Cash flows from financing activities:
Proceeds from advances from Jordan Industries 1,237 1,223 2,000
Repayment of advances from Jordan Industries (1,237) (1,223) (2,000)
Proceeds from line of credit 57,906 71,858 63,559
Repayments - line of credit (57,712) (78,021) (56,649)
Contributed capital 1,059 - -
Loan fees - line of credit (50) - -
Other 37 (952) (736)
- --------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 1,240 (7,115) 6,174
- --------------------------------------------------------------------------------------
Net (decrease) increase in cash and cash equivalents (61) (870) 181
Cash and cash equivalents at beginning of period 845 1,715 1,534
- --------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 784 $ 845 $ 1,715
======================================================================================
</TABLE>
16
<PAGE>
WELCOME HOME, INC.
STATEMENTS OF CASH FLOWS
(continued)
<TABLE>
<CAPTION>
Years Ended December 31,
1998 1997 1996
- -----------------------------------------------------------------------------------------
(in thousands of dollars)
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest - Jordan Industries $ 99 $ 234 $ -
=========================================================================================
Interest - third party $ 885 $ 1,137 $ 1,236
=========================================================================================
Income taxes $ - $ - $ 58
=========================================================================================
Noncash investing and financing activities:
Issuance of preferred stock to repay $4,451 of
notes payable $ - $ - $ 4,451
=========================================================================================
Issuance of notes payable to Jordan Industries for
equipment $ - $ - $ 3,200
=========================================================================================
</TABLE>
See Notes to Financial Statements
17
<PAGE>
WELCOME HOME, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIENCY)
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
(in thousands of dollars)
<TABLE>
<CAPTION>
Series A
Redeemable Additional Retained
Preferred Preferred Common Paid-In Translation Earnings Treasury
Stock Stock Stock Capital Component (Deficit) Stock Total
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995 $ - $ - $ 85 $ 8,832 $ (37) $ (368) $ (4,885) $ 3,627
Net loss - - - - - (20,339) - (20,339)
Translation component - - - - 25 - - 25
Issuance of preferred stock 4,451 - - - - - - 4,451
Accrual of preferred stock
dividends in arrears 59 - - - - (59) - -
- ----------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1996 4,510 - 85 8,832 (12) (20,766) (4,885) (12,236)
Net loss - - - - - (6,266) - (6,266)
Translation component - - - - (25) - - (25)
Accrual of preferred stock
dividends in arrears 445 - - - - (445) - -
- ----------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1997 4,955 - 85 8,832 (37) (27,477) (4,885) (18,527)
Net income - - - - - 14,234 - 14,234
Translation component - - - - 37 - - 37
Accrual of preferred stock
dividends in arrears 334 - - - - (334) - -
Adjustment for bankruptcy
settlements (5,289) - - 11,958 - 438 - 7,107
- ----------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1998 $ - $ - $ 85 $20,790 $ - $(13,139) $ (4,885) $ 2,851
===========================================================================================================================
</TABLE>
See Notes to Financial Statements
18
<PAGE>
NOTES TO FINANCIAL STATEMENTS
1. CHAPTER 11 BANKRUPTCY PROCEEDINGS
On January 21, 1997, Welcome Home, Inc. (the "Company") filed a voluntary
petition for relief under Chapter 11 ("Chapter 11") of title 11 of the United
States Code in the United States Bankruptcy Court for the Southern District of
New York (the "Bankruptcy Court"). In Chapter 11, the Company managed its
affairs and operated its business as debtor-in-possession while it developed a
reorganization plan that restructured the Company and allowed its emergence from
Chapter 11. As a debtor-in-possession in Chapter 11, the Company is not allowed
to engage in transactions outside of the ordinary course of business without
approval, after notice and hearing, of the Bankruptcy Court. Liabilities subject
to compromise as a result of Chapter 11 primarily include unsecured trade
payables and those resulting from the rejection of executory contracts,
including leases.
On September 28, 1998, the Bankruptcy Court approved the Company's Plan of
Reorganization (The "Plan"). The Plan was previously approved by the impaired
pre-petition creditors and stockholders. Under the Plan, the Company is still a
majority-owned subsidiary of Jordan Industries, Inc. ("Jordan Industries"). Upon
its legal emergence from Chapter 11, Jordan Industries will own 8.5 million
shares of the Company, 0.5 million shares of the stock will be publicly traded
and 1.0 million shares will be reserved for future issuance. The Company will
legally emerge from Chapter 11 upon settlement with all pre-petition creditors.
The accompanying financial statements have been prepared in accordance with
the provisions of Statement of Position 90-7 FINANCIAL REPORTING BY ENTITIES IN
REORGANIZATION UNDER THE BANKRUPTCY CODE ("SOP 90-7"). Under SOP 90-7,
adjustments to the pre-petition liabilities is appropriate as of the
confirmation date or as of a later date when all material conditions precedent
to the Plan's becoming binding are resolved. These conditions were met as of
November 15, 1998. Accordingly, the accounts affected by the Plan have been
adjusted in accordance with its provisions, which are as follows:
(i) Unsecured trade creditors, including landlords of rejected leases,
received $.12 per $1 of pre-petition claims. This settlement reduced the
pre-petition liability by $6.9 million.
(ii) There is a related party, through common ownership, that received no
payments for its unsecured claims which totaled $9.9 million.
(iii) Outstanding preferred stock including cumulative dividends, which amounted
to $5.3 million, were repurchased by the Company for $1.
(iv) Outstanding debt of approximately $5.6 million owed to Jordan Industries
was forgiven.
Under the Plan, secured creditors received a dollar per dollar settlement on
their claims. Jordan Industries paid both the $.12 per $1 to settle with the
unsecured creditors and the full amount to settle with the secured creditors.
Jordan Industries' payment of these liabilities, the forgiveness of debt owed to
them and the repurchase of the preferred stock represented contributed capital
and is recorded as an increase to additional paid-in capital of $12.0 million.
The reduction in the pre-petition liabilities resulted in bankruptcy
reorganization credits of $14.8 million, which is net of $1.0 million in fees
incurred related to the bankruptcy proceedings.
The accompanying financial statements have been prepared on the going concern
basis of accounting. The Chapter 11 proceedings raise substantial doubt about
the Company's ability to continue as a going concern. The financial statements
have been adjusted to reflect the provisions of the Plan. The ability of the
Company to continue as a going concern is dependent upon (i) the ability to
achieve profitable operations after such confirmation and (ii) the ability to
generate sufficient cash from operations to meet its obligations. Management
believes its plan of reorganization will allow the Company to return to
profitable operations, which will result in adequate cash flows to permit the
Company to meet its obligations as they become due.
2. ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
The Company, which is a majority-owned subsidiary of Jordan Industries, Inc.
("Jordan Industries"), is a retailer of gifts, decorative home furnishings and
accessories. After the legal emergence from bankruptcy Jordan Industries will
own approximately 94% of the Company's outstanding common stock. The Company
offers a broad product line of 1,500 - 2,500 Stock Keeping Units categorized
into 11 basic groups of merchandise; including decorative home textiles, framed
art, furniture, candles, lighting, fragrance, decorative accessories, decorative
garden, music, special opportunity merchandise and seasonal products. As of
December 31, 1998, the Company operated 122 retail locations in 36 states, all
in leased locations. Approximately 98% of the stores are located in outlet
malls; accordingly, the Company's results of operations would be significantly
impacted by any nationwide trends in customer buying patterns, occupancy expense
or other factors affecting these malls.
19
<PAGE>
BASIS OF PRESENTATION
For 1997 and prior years, the financial statements were consolidated and
included the accounts of the Company and its wholly-owned subsidiary, Home Again
Stores, Inc. Significant intercompany accounts and transactions among the
Company and Home Again Stores Inc. were eliminated in consolidation. Home Again
Stores, Inc. was dissolved on September 28, 1998.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
INVENTORIES
Inventories are carried at the lower of cost or market. Cost is determined on
the first-in, first-out ("FIF0") basis using the retail inventory method. All
inventory consists of finished goods.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Depreciation is computed using
the straight line method over the estimated useful lives of the assets and
includes amortization of assets held under capital leases. The useful lives of
property and equipment for computing book depreciation are five to seven years.
For income tax purposes, accelerated depreciation (Accelerated Cost Recovery
System and Modified Accelerated Cost Recovery System) methods are used.
Amortization of assets capitalized under capital lease obligations is included
in depreciation expense.
The carrying values of property and equipment are reviewed if the facts and
circumstances indicate potential impairment of their carrying value. Any
impairment in the carrying value of such intangibles is recorded when
identified.
INCOME TAXES
The Company accounts for income taxes under the provisions of Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("FAS
109"). FAS 109 requires recognition of deferred tax assets and liabilities for
the expected future tax consequences of temporary basis differences that have
arisen between financial statement and income tax reporting.
ADVERTISING COSTS
The Company expenses advertising costs as incurred on an annual basis.
Advertising expense amounted to $43 thousand, $111 thousand and $411 thousand in
1998, 1997, and 1996 respectively.
STORE OPENING COSTS
Salaries, training and travel costs relating to opening new retail locations
are expensed as incurred.
CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
REVENUE RECOGNITION
Revenue is recognized upon sales to customers.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("FAS 133"), which is required to be adopted
in years beginning after June 15, 1999. Management does not anticipate that the
adoption of FAS 133 will have a significant impact on net income or the
financial position of the Company.
20
<PAGE>
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and
Related Information" ("FAS 131") which establishes standards for the way that
public business enterprises report information about operating segments in
annual financial statements and requires that those enterprises report selected
information about operating segments in interim financial reports. FAS 131 also
establishes standards for related disclosures about products and services,
geographic areas and major customers. The adoption of FAS 131 did not affect net
income or financial position, nor did it result in the addition of disclosure of
segment information.
As of January 1, 1998, the Company adopted Statement of Financial Accounting
Standards No. 130 "Reporting Comprehensive Income" ("FAS 130"). FAS 130 requires
all non-owner changes in equity that are excluded from net income under FASB
standards be included as comprehensive income. The Company presently does not
have any material transactions that directly affect equity other than those
transactions with owners in their capacity as owners. Therefore, the provisions
of FAS 130 currently have no material effect on the Company.
RECLASSIFICATIONS
Certain 1997 and 1996 amounts have been reclassified to conform with the 1998
presentation. Such reclassifications had no effect on previously reported net
loss or shareholders' deficit.
3. RESTRUCTURING CHARGES
In the fourth quarter of 1995, the Company adopted a restructuring plan. The
major elements of the plan included a change in the Company's merchandising
strategy and the liquidation of merchandise which was not consistent with that
strategy, closing unprofitable stores, and strengthening the Company's executive
management team and information systems as necessary to successfully implement
the above strategies.
The Company continued the implementation of the restructuring plan in 1996.
In accordance with the plan, the Company recorded a restructuring charge of $8.1
million representing costs of closing 38 stores in 1996, the cost of 62 planned
store closings in 1997 and severance to two former executives. The store closing
costs, $7.2 million, consist of the write-off of the recorded investment in
furniture, fixtures and leasehold improvements at these stores, lease
termination costs and other related store closing costs. The severance costs for
the two former executives amounted to $873,000.
As of December 31, 1997, accrued restructuring charges consist of landlord
rejection claims on leases for closed stores, estimated costs of closing four
stores in 1998 and severance for a former executive. The decrease in the
restructuring accrual during 1997 is related to primarily to payments made for
expenses associated with closing stores totaling $275,000 and severance payments
made to a former executive totaling $225,000.
The Company has remaining accrued restructuring charges as of December 31,
1998 of $447,000 consisting of severance for a former employee and estimated
costs of closing non-profitable stores in 1999. The decrease in the
restructuring accrual during 1998 is related primarily to the bankruptcy
proceedings.
4. SHAREHOLDERS' EQUITY (DEFICIT)
SERIES A REDEEMABLE PREFERRED STOCK
On November 12, 1996, the Company entered into an agreement with Jordan
Industries in which the Company issued 4,451,000 shares of a newly designated
class of non-voting Series A Redeemable Preferred Stock to Jordan Industries as
repayment of $4,451,000 outstanding under the Subordinated Credit Agreement. The
holders of this series of preferred stock were entitled to cumulative annual
dividends of 10% of the liquidation value of the stock. The Company recorded an
accrual for the preferred stock dividends in arrears of $334,000, $445,000 and
$59,000 during the years ended December 31, 1998, 1997 and 1996, respectively.
No dividends were paid by the Company during 1998, 1997 and 1996. The Company
could not declare or pay any dividend or distribution on any shares of stock
that rank junior to this series of preferred stock as long as any shares of the
series were outstanding. Welcome Home paid $1 to the holders of the shares on
November 15, 1998 as a part of the Plan, and canceled all Series A Redeemable
Preferred Stock.
21
<PAGE>
EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per
share in accordance with FASB Statement of Financial Accounting Standards No.
128, EARNINGS PER SHARE:
December 31,
1998 1997 1996
---- ---- ----
(in thousands)
Numerator:
Net Income (Loss) $14,234 $ (6,266) $(20,339)
Cumulative Preferred Stock Dividends (334) (445) (59)
Numerator for Basic and Dilutive
Earnings Per Share -
Income (loss) Available to Common
Shareholders $13,900 $ (6,711) $(20,398)
Denominator:
Denominator for Basic and Dilutive
Earnings Per Share -
Weighted Average Shares 7,454 7,454 7,454
----- ---------- -----------
Basic and Diluted Loss Per Share $ 1.86 $ (0.90) $ (2.74)
======== ======================
5. PROPERTY AND EQUIPMENT
Property and equipment consists of the following at December 31, 1998, and 1997:
December 31,
1998 1997
---- ----
(in thousands)
Leasehold Improvements $ 1,646 $ 1,584
Fixtures and equipment 13,306 12,944
-------- ------
14,952 14,528
Less: Accumulated Depreciation (8,787) (6,644)
Impairment Reserve (1,396) (1,396)
---------- ----------
Property and Equipment, net $ 4,769 $ 6,488
========= =========
6. NOTES PAYABLE
Subsequent to filing Chapter 11, the Company reached an agreement with Fleet
Capital Company ("Fleet") to provide secured debtor-in-possession financing in
the form of a credit facility. The credit facility provided for borrowings
dependent upon the Company's level of inventory with maximum borrowings of
$12.75 million. The agreement granted a security interest in substantially all
of the Company's assets. Advances under the facility beared interest at the
prime rate plus 1.5%. At December 31, 1997, borrowings outstanding under the
Subordinated Credit Agreement were $6.0 and had a weighted average interest rate
of 9.6%. On March 13, 1998, the Company reached an agreement with Fleet to
extend the credit facility until January 31, 1999.
On October 29, 1998, the Company entered into an Amended and Restated Loan
and Security Agreement with Fleet. This agreement allows maximum borrowings of
$15.0 million; actual outstandings are based on a borrowing base formula.
Initial interest rates are, at the Company's preference, Eurodollar rate plus
3.25% or Fleet's Base Rate plus 1.25%. These rates reduce upon the Company
meeting certain operating performance benchmarks. The agreement is secured by
essentially all the assets of the Company, and includes covenants standard for
this type of financing. It expires October 29, 2003. At December 31, 1998,
borrowings outstanding under the Amended and Restated Loan and Security
Agreement were $6.2 million and had a weighted average interest rate of 9.9%.
Simultaneously with the closing of the Amended and Restated Loan and Security
Agreement, the Company signed a commitment to enter into an $800,000 promissory
note with Jordan Industries that bears interest at 8.5%. The note calls for
monthly payments of interest only through April 30, 2000, and commencing on May
1, 2000, the Company shall pay monthly payments of $66,667 plus accrued interest
until paid in full. At December 31, 1998, the Company did not have an
outstanding balance on this note.
The Company estimates that the fair value of notes payable approximates the
carrying value based upon its effective
22
<PAGE>
borrowing rate for debt with similar terms and remaining maturities. Disclosure
about fair value of financial instruments is based upon information available to
management as of December 31, 1998. Although management is not aware of any
factors that would significantly affect the fair value of these amounts, such
amounts have not been comprehensively revalued for purposes of these financial
statements since that date.
7. INCOME TAXES
The provision (benefit) for income taxes consists of the following:
Current: 1998 1997
---- ----
Federal $ - $ -
State and local 60 -
Deferred - -
-------- --------
Total $ 60 $ -
======== ========
The provision (benefit) for income taxes differs from the amount of income
tax expense (benefit) computed by applying the United States Federal income tax
rate to income (loss) before income taxes. A reconciliation of the differences
is as follows:
1998 1997
---- ----
Computed Statutory Tax Provision (Benefit) $ 5,394 $ (2,131)
Increase (Decrease) Resulting From:
Increase (decrease) in Valuation Allowance (5,334) 2,325
State and local Taxes - (194)
Other - -
-------- --------
Provision For Income Taxes $ 60 $ -
======== ========
Deferred income taxes at December 31, 1998 and 1997 consist of the following:
1998 1997
---- ----
Current Deferred Tax Assets:
Inventory Markdowns $ 222 $ 92
Other 141 138
-------- -------
Total Current Deferred Tax Asset 363 230
Less Valuation Allowance (363) (230)
-------- --------
Net Current Deferred Tax Asset $ - $ -
======== ========
1998 1997
---- ----
Noncurrent Deferred Tax Liabilities:
Excess Tax Over Book Depreciation $ 834 $ 883
Other 1,270 30
--------- ---------
Total Noncurrent Deferred Tax Liabilities 2,104 913
--------- ---------
Noncurrent Deferred Tax Assets:
NOL Carryforwards 9,892 12,813
Writedowns of Property and Equipment 517 517
AMT Credit Carryforward 114 114
Other 95 1,450
-------- --------
Total Noncurrent Deferred Tax Assets 10,618 14,894
Net Noncurrent Deferred Tax Assets 8,514 13,981
Less Valuation Allowance (8,514) (13,981)
--------- ---------
Net Noncurrent Deferred Tax Assets $ - $ -
======== ========
At December 31, 1998, the Company had a net operating loss carryforward of
approximately $26.7 million which begins expiring in 2010 and is available to
offset the Company's future taxable income on a stand-alone basis. This net
operating loss was reduced by $15.9 million in 1998 to offset the discharge of
indebtedness while under bankruptcy. This amount was excluded from taxable
income under I.R.C. Sec. 108.
23
<PAGE>
The Company is required to establish a valuation allowance for any portion of
the deferred tax assets that management believes will not be realized. Based
upon the uncertainty of future earnings, management believes it is appropriate
to fully reserve the deferred tax asset at December 31, 1998 and 1997.
8. OPERATING LEASES
The Company leases its administrative facilities under an operating lease
with stipulated annual rentals payable monthly. The Company also leases retail
outlet stores under operating leases which generally have initial terms of five
to ten years with renewal options usually encompassing five to seven additional
years. Retail outlet store leases generally provide for minimum rentals plus
contingent rentals for (a) a percentage of sales in excess of stated amounts and
(b) a pro rata share of common area operating expenses. Total rental expense
under these operating leases was approximately $3.9 million, $5.3 million and
$8.7 million for the years ended December 31, 1998, 1997 and l996, respectively.
Contingent rent expense was not material in 1998, 1997 and l996.
Future minimum lease payments, excluding contingent rentals under
noncancelable operating leases with initial or remaining terms of one year or
more as of December 31,1998 are as follows:
(in thousands)
1999 $ 4,335
2000 3,658
2001 2,733
2002 1,117
2003 549
Thereafter 185
--------
$ 12,577
========
9. OTHER RELATED PARTY TRANSACTIONS
The Company purchases inventories from Cape Craftsmen, Inc., an affiliate
through common ownership. Such purchases amounted to approximately $14.0
million, $10.5 million and $12.4 million for the years ended December 31, 1998,
1997 and 1996, respectively.
10. BENEFIT PLANS
The Company sponsors a 401(k) savings plan for substantially all employees
who meet certain age and service requirements. The Company does not currently
match employee contributions to the 401(k) Plan.
11. STOCK OPTION PLAN
On September 29,1994, the Company's Board of Directors instituted the Welcome
Home, Inc. Stock Option Plan (the "Option Plan"). Under the Option Plan, options
to purchase the Company's common stock and stock appreciation rights are granted
for the purpose of attracting and motivating key employees and non-employee
directors of the Company. The Option Plan provides for the issuance of options
to purchase 8,000 shares of the Company's common stock to each newly appointed
independent director of the Company. Options granted under the Option Plan on
September 29, 1994 were priced at the initial public offering price of $11.00
per share. All options and stock appreciation rights subsequently granted under
the Option Plan are priced at the closing sale price of a share of the Company's
common stock on the date of grant on the exchange on which it is traded. All
awards under the Option Plan vest over a three or five year period. A total of
300,000 shares of the Company's common stock have been reserved for issuance
under the Plan.
24
<PAGE>
As of December 31, 1998, no stock appreciation rights have been granted under
the Option Plan. Options to purchase the Company's common stock outstanding
under the Option Plan are as follows:
Number of Shares Weighted Average
Available for Awards Exercise
Grant Outstanding Price
December 31, 1995 154,000 146,000 $9.03
Granted (132,700) 132,700 $2.55
Exercised - - -
Terminated 15,000 (15,000) $11.00
------------------------------------------
December 31, 1996 36,300 263,700 $5.65
Granted - - -
Exercised - - -
Terminated 59,200 (59,200) $7.87
------------------------------------------
December 31, 1997 95,500 204,500 $5.01
Granted - - -
Exercised - - -
Terminated 204,500 (204,500) $5.01
------------------------------------------
December 31, 1998 300,000 - $ -
==========================================
No effect is given to the options outstanding as of December 31, 1997 and
1996 in computing earnings per share for the years then ended, as their effect
is anti-dilutive.
The Company adopted Statement of Financial Accounting Standards No. 123
"Accounting for Stock-Based Compensation" ("FAS 123") in 1996. In accordance
with FAS 123, the Company has elected to follow Accounting Principles Board
Opinion No. 25 "Accounting for Stock Issued to Employees" and present pro forma
net loss and loss per share. The Company estimated the fair value of the options
granted during 1996 using a Black-Scholes option pricing model. There were no
options granted during 1998 or 1997. The following assumptions were used for
1996:
1996
----
Risk free interest rate 6.70%
Dividend yield 0%
Volatility factor .592
Expected life 10 years
The Company's pro forma information for the years ended December 31, is as
follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
(in thousands
except per share data)
<S> <C> <C> <C>
Pro forma net income (loss) available to common shareholders $13,878 $ (6,826) $ (20,466)
Pro forma basic and diluted income ( loss) per common share $1.86 $ (0.92) $ (2.75)
</TABLE>
25
<PAGE>
12. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
The table below sets forth selected financial information for each quarter of
the last two years:
<TABLE>
<CAPTION>
Year Ended December 31,1998
(dollars in thousands except per share data)
- ----------------------------------------------------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $ 9,607 $11,211 $12,616 $20,820
Gross profit $ 3,808 $ 5,153 $ 5,654 $ 9,385
Net income (loss) $ (2,325) $ (947) $ (776) $18,282*
Net income (loss) available to common shareholders $ (2,435) $(1,058) $ (887) $18,280
Basic and diluted income (loss) per share $ (0.33) $ (0.14) $ (0.12) $ 2.45
Year Ended December 31,1997
(dollars in thousands except per share data)
- -----------------------------------------------------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
- -----------------------------------------------------------------------------------------------------
Net sales $13,324 $13,735 $13,621 $ 21,910
Gross profit $ 4,245 $ 4,612 $5,734 $ 9,226
Net income (loss) $(4,821) $(3,303) $(1,011) $ 2,869
Net income (loss) available to common shareholders $(4,932) $(3,414) $(1,123) $ 2,758
Basic and diluted income (loss) per share $ (0.66) $ (0.46) $ (0.15 $ 0.37
</TABLE>
* Net income during the fourth quarter of 1998 included net bankruptcy
reorganization credits of $14.8 million relating to the provisions of the
Plan.
26
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Shareholders
Welcome Home, Inc.
We have audited the accompanying balance sheets of Welcome Home, Inc. and the
related statements of operations, shareholders' equity (deficiency), and cash
flows for each of the three years in the period ended December 31, 1998. Our
audits also included the financial statement schedule listed in the Index at
Item 14(a). These financial statements and schedule are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements and 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 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 financial statements referred to above present fairly, in
all material respects, the financial position of Welcome Home, Inc. at December
31, 1998 and 1997, and the results of its operations and cash flows for each of
the three years in the period ended December 31, 1998, in conformity with
generally accepted accounting principles. Also, in our opinion, the related
financial statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 of the Notes to
the Financial Statements, on January 21, 1997, the Company filed a voluntary
petition for relief under Chapter 11 of title 11 of the United States Code and
is currently in the process of legally emerging from bankruptcy. The Company's
ability to continue as a going concern and recover the carrying amounts of its
assets is dependent upon the effectiveness of the plan of reorganization. The
financial statements have been adjusted for the provisions of the emergence
plan.
/s/ Ernst & Young, LLP
Raleigh, North Carolina
March 18, 1999
27
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information regarding the current
executive officers and directors of the Company.
<TABLE>
<CAPTION>
<S> <C> <C>
NAME AGE POSITION
---- --- --------
Thomas H. Quinn 51 Chairman of the Board and Chief Executive Officer
John J. Hillmann 53 President
Mark S. Dudeck 41 Vice President, Treasurer and Chief Financial Officer
Edward J. Kleiger 63 Director
John W. Jordan II 51 Director
Thomas C. Spielberger 37 Vice President and Secretary
Gordon L. Nelson, Jr. 41 Vice President and Assistant Secretary
</TABLE>
THOMAS H. QUINN has served as Chairman and Chief Executive Officer of the
Company since March 1991. Mr. Quinn has served as President, Chief Operating
Officer and a director of Jordan Industries, a privately-held diversified
industrial holding company, since 1988. Mr. Quinn is also a director of American
Safety Razor Company.
JOHN J. HILLMANN has served as President of Welcome Home since May 1997 and
has served as President of Cape Craftsmen since June 1992.
MARK S. DUDECK was appointed Vice President, Treasurer and Chief Financial
Officer of the Company in August 1996. From July 1994 through June 1996, Mr.
Dudeck served as Director of Financial Planning and Analysis at Camelot Music,
Inc. and from February 1992 through June 1994, he was Director of Investor
Relations for Mercantile Stores, Inc.
EDWARD J. KLEIGER served as President and Chief Operating Officer of the
Company from December 1985 until May 1996 and has been a director of the Company
since April 1994.
JOHN W. JORDAN II has served as a director of the Company since March 1991.
Mr. Jordan is the founder and managing partner of The Jordan Company, a private
merchant banking firm which he founded in 1982. Mr. Jordan is also a director of
Jordan Industries, Carmike Cinemas, Inc., American Safety Razor Company and
Apparel Ventures, Inc., an affiliate of The Jordan Company.
THOMAS C. SPIELBERGER has served as the Company's Vice President and
Secretary since January 1997. Since 1989, Mr. Spielberger has been employed in
various positions by Jordan Industries and has served as the Senior Vice
President of Finance and Accounting since January 1998 and Vice President,
Controller of Jordan Industries since January 1993.
GORDON L. NELSON, JR. has served as Vice President and Assistant Secretary
since January 1997. He is a Senior Vice President of Jordan Industries. Prior to
joining Welcome Home and Jordan Industries, he was a Director at the Bank of
Boston from January 1992 through December 1996.
All of the Company's executive officers and directors with the exception of
Mr. Hillmann, were incumbent in January 1997 when the Company filed a voluntary
petition for reorganization under the provisions of Chapter 11 of the Bankruptcy
Code. Mr. Jordan was director of Jones Plumbing Systems, Inc. in November 1995
when the company and its wholly owned subsidiary, Jones Manufacturing Company,
Inc. (the "Jones Companies"), filed voluntary petitions for reorganization under
Chapter 11 of the Bankruptcy Code. The Jones Companies' reorganizations were
subsequently converted to liquidation proceedings under Chapter 7 of the
Bankruptcy Code.
28
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
EXECUTIVE COMPENSATION
The following table sets forth certain information regarding compensation
paid by the Company for services rendered during 1998, 1997, and 1996 as
applicable, to (i) its chief executive officer, (ii) its two most highly
compensated employees at December 31, 1998 who were paid in excess of $100,000
during 1998; and (iii) two individuals who were among its four most highly
compensated employees during 1998 but no longer are executive officers at
December 31, 1998 (the "Named Executives").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Long - Term
Compensation Compensation
---------------------- ------------
Securities
Underlying
Name and Principal Position Salary ($) Bonus ($) Options (#)
- --------------------------- -------- --------- -----------
<S> <C> <C> <C> <C>
Thomas H. Quinn (1) 1998 - - -
Chairman of the Board and Chief Executive 1997 - - -
Officer 1996 - - -
Mark S. Dudeck
VP, Treasurer and CFO 1998 115,000 46,500 -
1997 115,000 33,333 -
1996 50,799 - 10,000
Robert E. Wood 1998 105,000 20,040 -
Chief Information Officer 1997 105,000 25,333 -
1996 69,709 - 10,000
Edward J. Kleiger (2) 1998 205,000 - -
Former President and Chief Operating 1997 205,000 - -
Officer 1996 205,000 - -
R. Thomas Wolfe (3) 1998 88,459 50,000 -
EVP and Chief Operating Officer 1997 128,950 - -
1996 - - -
</TABLE>
(1) Does not reflect compensation paid to Mr. Quinn by Jordan Industries, the
Company's majority shareholder. See "Item 13. Certain Relationships and
Related Transactions."
(2) Mr. Kleiger resigned in May 1996. See "Termination Agreement"
(3) Mr. Wolfe resigned in May 1998.
COMPENSATION OF DIRECTORS
Directors who are not employees of the Company receive $8,000 per year for
serving as a director of the Company. In addition, the Company reimburses
directors for their travel and other expenses incurred in connection with
attending meetings of the Board of Directors and its committees. Each
Independent Director of the Company (as defined in the Option Plan) also is
entitled to receive an option to purchase 8,000 shares of the Company's common
stock upon his or her appointment to the Board of Directors, subject to certain
terms and conditions contained in the Option Plan. The Company did not have any
Independent Directors in 1998 therefore the Company did not pay any directors
fees.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Messrs. Jordan and Quinn were members of the compensation committee of the
Company's Board of Directors during 1998. Mr. Quinn serves as the Chief
Executive Officer. Mr. Quinn received no compensation during 1998 from the
Company for his service as an officer of the Company. Messrs. Jordan and Quinn
are directors of Jordan Industries.
29
<PAGE>
Mr. Quinn also serves on its compensation committee. Jordan Industries is the
majority shareholder of, and directly and indirectly engages in certain
transactions with, the Company. See "Item 13. Certain Relationships and Related
Transactions."
TERMINATION AGREEMENT
In September 1994, simultaneously with the completion of its initial public
offering, the Company entered into an employment agreement with Mr. Kleiger.
Under the agreement, Mr. Kleiger agreed to serve as the Company's President and
Chief Operating Officer for a five-year term at an annual base salary of
$190,000. The agreement provides for successive one-year extensions unless, 180
days prior to the scheduled expiration date, either the Company or Mr. Kleiger
notifies the other of a decision not to extend the agreement. In May 1996, Mr.
Kleiger resigned as President and Chief Operating Officer of the Company and,
pursuant to the termination provisions of the agreement, will continue to
receive payments equal to his base salary through September 1999. The agreement
also provides that Mr. Kleiger may not exploit for the benefit of anyone, other
than the Company, any Confidential Information (as defined therein) concerning
the Company and includes a covenant by Mr. Kleiger not to (i) own or engage in
any Competitive Business (as defined therein) which competes with the Company,
(ii) induce or otherwise influence certain persons associated with the
Competitive Business to employ certain employees of the Company for a period of
two years subsequent to termination of his employment.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of December 31, 1998 certain information
with respect to the number of shares of the Company's common stock beneficially
owned by (i) each current director of the Company; (ii) each Named Executive;
(iii) all current directors and executive officers of the Company as a group;
and (iv) based on information available to the Company and a review of
statements filed with the Securities and Exchange Commission pursuant to Section
13(d) and 13(g) of the Securities Act of 1934, as amended (the "Exchange Act"),
each person or entity that beneficially owns more than 5% of the Company's
common stock. The Company believes that each individual or entity named has sole
investment and voting power with respect to shares indicated as beneficially
owned by them.
<TABLE>
<CAPTION>
AMOUNT
AND NATURE
OF
BENEFICIAL PERCENT
OWNERSHIP OF
NAME OF BENEFICIAL OWNER (1) CLASS (1)
- ------------------------ ---------- ---------
<S> <C> <C>
Current Directors and Named Executives
Edward J. Kleiger (2) 425,000 5.7%
Thomas H. Quinn (3) 10,000 *
All directors and executive officers as a group (2 persons) 435,000 5.8
PRINCIPAL SHAREHOLDER
Jordan Industries, Inc. (3) 4,989,500 66.9%
</TABLE>
(*) Indicates beneficial ownership of less than 1% of the outstanding shares of
the Company's common stock.
(1) Calculated pursuant to Rule 13d-3(d) under the Exchange Act. Under Rule
13d-3(d), shares not outstanding which are subject to options exercisable
within 60 days are deemed outstanding for the purpose of calculating the
number and percentage owned by such person, but not deemed outstanding for
the purpose of calculating the percentage owned by any other person listed.
As of December 31, 1998, the Company had 7,453,645 shares of common stock
outstanding.
(2) Address is c/o Welcome Home, Inc., 309 Raleigh Street, Wilmington, North
Carolina 28412. Amount presented includes 20,000 shares subject to an
immediately exercisable option.
(3) Address is Arbor Lake Center, Suite 550, 1751 Lake Cook Road, Deerfield,
Illinois, 60015.
30
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
SUBORDINATED CREDIT AGREEMENT WITH JORDAN INDUSTRIES
On November 12, 1996, the Company entered into an agreement with Jordan
Industries whereby the Company issued 4,451 thousand shares of a newly
designated class of preferred stock to Jordan Industries as repayment of $4.5
million of principal and accrued interest then outstanding. These shares of
preferred stock were repurchased by the Company in November, 1998 for $1 as a
part of the bankruptcy procedures. See "Item 3. Legal Proceedings."
Welcome Home signed a commitment to enter into a Promissory Note on October
29, 1998, with Jordan Industries for $800,000. This note bears interest at 8.5%
and calls for monthly payments of interest only through April 30, 2000, and
payments of $66,667 plus accrued interest starting May 1, 2000, until paid in
full. Welcome Home received the funds for this Promissory Note on February 11,
1999, of which the entire amount is still outstanding.
CAPE CRAFTSMEN PURCHASES
Cape Craftsmen, Inc., an affiliate of Jordan Industries ("Cape Craftsmen")
supplies various inventory items to the Company. In 1998, the Company purchased
approximately $14.0 million of merchandise from Cape Craftsmen, which
represented approximately 53% of the Company's total 1998 merchandise purchases.
Management believes that the pricing of inventory items purchased from Cape
Craftsmen is comparable to that which the Company would obtain from a
non-affiliated supplier, while the payment terms extended by Cape Craftsmen are
considerably more favorable to the Company than those likely to be extended by a
non-affiliated supplier. The Company expects to continue this relationship with
Cape Craftsmen so long as its pricing and terms remain competitive.
COMPENSATION OF CERTAIN EXECUTIVE OFFICERS
Mr. Quinn does not receive compensation directly from the Company. Rather,
Mr. Quinn receives compensation from Jordan Industries in his capacity as its
Chief Operating Officer. Prior to the Company's initial public offering in
September 1994, Jordan Industries was the Company's corporate parent and is
currently the majority shareholder of the Company. Mr. Quinn's duties to the
Company include monthly meetings with the Company's executives and day-by-day
telephonic contact regarding, among other things, marketing strategy, results of
operations, personnel management and financial matters.
Mr. Hillmann does not receive compensation directly from the Company.
Rather, Mr. Hillmann receives compensation from Cape Craftsmen in his capacity
as its President. Mr. Hillmann's duties to the Company include day-to-day
working with Company's executives regarding, among other things, marketing
strategy, results of operations, personnel management and financial matters.
31
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Documents filed as a part of this report:
1. FINANCIAL STATEMENTS. See Index to Financial Statements at Item 8 of
this report.
2. FINANCIAL STATEMENT SCHEDULES. See Index to Financial Statements at Item
8 of this report. All other schedules are not applicable or the
information is presented in the Financial Statements.
3. EXHIBITS. List of Exhibits:
2.1 Plan of Reorganization (1)
3.1 Amended and Restated Certificate of Incorporation of Welcome Home,
Inc. (2)
3.2 Amended and Restated By-laws of the Registrant (2)
10.1 Trademark Security Agreement between the Registrant and Shawmut
(predecessor by merger to Fleet) Capital Corporation dated May 30,
1995 (3)
10.2 Agreement ('Trademark) between the Registrant and Jordan
Industries, Inc. Dated May 30, 1995 (3)
10.3 Amended and Restated Loan and Security Agreement dated October 29,
1998 between the Company and Fleet Capital Corporation (4)
10.4 Promissory Note dated October 29, 1998 between Welcome Home, Inc.
and Jordan Industries, Inc. (4)
27.1 Financial Data Schedule (for Securities and Exchange Commission use
only)
(1) Incorporated by reference to the Registrant's Current Report on
form 8-K filed with the Securities and Exchange Commission (the
"SEC") April 14, 1999.
(2) Incorporated by reference to the Quarterly Report on
Registrant's Form 10-Q for the period ended September 30, 1994
(File No.0-24912).
(3) Incorporated by reference to the Registrant's Current Report on
the Form 8-K filed with the SEC on June 30, 1995.
(4) Filed herewith
(b) Reports on Form 8-K. The Registrant filed a Current Report on Form 8-K on
April 14, 1999.
32
<PAGE>
WELCOME HOME, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(in thousands of dollars)
<TABLE>
<CAPTION>
Year Ended December 31,
1998 1997 1996
---- ---- ----
VALUATION ALLOWANCE FOR DEFERRED TAX ASSETS
<S> <C> <C> <C>
Balance, beginning of period $14,211 $11,886 $ 3,000
Additions charged to income tax expense - 2,185 3,000
Increase (decrease) related to deferred tax assets (5,334) 2,325 6,701
------- ----- ------
Balance, end of period $ 8,877 $14,211 $11,886
======= ======= =======
ACCUMULATED DEPRECIATION - PROPERTY AND EQUIPMENT
Balance, beginning of period $6,644 $5,978 $5,035
Additions charged to depreciation reserve 2,192 2,185 2,096
Reductions (49) (1,519) (1,153)
------- ----- ------
Balance, end of period $8,787 $ 6,644 $5,978
====== ======= ======
RESTRUCTURING AND IMPAIRMENT RESERVES
Balance, beginning of period $1,396 $3,860 $6,460
Additions charged to restructuring expense - 1,833 6,460
Reductions - (2,464) (4,433)
------- ----- ------
Balance, end of period $1,396 $1,396 $3,860
====== ====== ======
</TABLE>
33
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized, as of the
14th of April, 1999.
WELCOME HOME, INC.
By: /s/ Mark S. Dudeck
-----------------------------
Name: Mark S. Dudeck
Title: Vice President, Treasurer
and Chief Financial Officer
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints
Thomas H. Quinn and Mark S. Dudeck, and each of them, the true and lawful
attorneys in fact and agents of the undersigned, with full power of substitution
and resubstitution, for and in the name, place and stead of the undersigned and
to file the same, with all exhibits thereto, in any and all capabilities, to
sign any and all amendments with the Securities and Exchange Commission, and
hereby grants to such attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done, as fully to all intents and purposes as the undersigned
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, or their or his substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capabilities as of the 13th day of March, 1997.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
/s/ Thomas H. Quinn Chairman of the Board and Chief Executive Officer
-------------------------------- (Principal Executive Officer)
Thomas H. Quinn
/s/ Mark S. Dudeck Vice President, Treasurer and Chief Financial Officer
-------------------------------- (Principal Financial and Accounting Officer)
Mark S. Dudeck
/s/ Edward J. Kleiger Director
--------------------------------
Edward J. Kleiger
/s/ John W. Jordan II Director
--------------------------------
John W. Jordan II
/s/ Thomas C. Spielberger Vice President and Secretary
--------------------------------
Thomas C. Spielberger
/s/ Gordon Nelson, Jr. Vice President and Assistant Secretary
--------------------------------
Gordon Nelson, Jr.
</TABLE>
34
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WELCOME HOME, INC.
--------------------------------------------------
==================================================
LOAN AND SECURITY AGREEMENT
Dated: ________ __, 1998
$15,000,000
==================================================
--------------------------------------------------
FLEET CAPITAL CORPORATION
--------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
SECTION 1. CREDIT FACILITY............................................................2
1.1. Revolving Credit Loans...............................................................2
1.1.1. Loans and Reserves..........................................................2
1.1.2. Use of Proceeds.............................................................2
1.2. Letters of Credit; LC Guaranties.....................................................2
1.2.1. Request for Letter of Credit................................................2
1.2.2. Description of Letters of Credit............................................3
1.2.3. Indemnification.............................................................3
1.2.4. Lender's Instructions.......................................................3
1.2.5. Disbursements...............................................................3
1.2.6. Reimbursement Obligation....................................................3
1.2.7. Cash Collateral.............................................................4
1.2.8. Waiver of Liability.........................................................4
SECTION 2. INTEREST, FEES AND CHARGES.................................................5
2.1. Interest. 5
2.1.1. Rates of Interest...........................................................5
2.1.2. Default Rate of Interest....................................................5
2.1.3. Maximum Interest............................................................5
2.2. Computation of Interest and Fees.....................................................6
2.3. Commitment Fee.......................................................................6
2.4. Letter of Credit and LC Guaranty Fees................................................6
2.5. Unused Line Fee......................................................................6
2.6. Audit and Appraisal Fees.............................................................6
2.7. Reimbursement of Expenses............................................................6
2.8. Bank Charges.........................................................................7
SECTION 3. LOAN ADMINISTRATION........................................................7
3.1. Manner of Borrowing Revolving Credit Loans...........................................7
3.1.1. Loan Requests...............................................................7
3.1.2. Disbursement................................................................8
3.1.3. Authorization...............................................................8
3.1.4. Eurodollar Loans............................................................8
3.1.5. Interest Periods............................................................8
3.1.6. Conversion of Base Rate Loans...............................................9
3.1.7. Continuation of Eurodollar Loans............................................9
3.1.8. Prepayment of Eurodollar Loans..............................................9
3.1.9. Indemnification............................................................10
3.1.10. Inability to Make Eurodollar Loans.........................................10
3.2. Payments. 10
3.2.1. Principal..................................................................10
3.2.2. Interest...................................................................11
3.2.3. Costs, Fees and Charges....................................................11
<PAGE>
3.2.4. Other Obligations..........................................................11
3.3. Prepayments of Additional Availability Amount.......................................11
3.4. Application of Payments and Collections.............................................11
3.5. All Loans to Constitute One Obligation..............................................11
3.6. Loan Account........................................................................12
3.7. Statements of Account...............................................................12
3.8. Increased Costs.....................................................................12
3.9. Basis For Determining Interest Rate Inadequate or Unfair............................13
3.10. Capital Adequacy..................................................................13
3.10.1. Certificate................................................................14
SECTION 4. TERM AND TERMINATION......................................................14
4.1. Term of Agreement...................................................................14
4.2. Termination.........................................................................14
4.2.1. Termination by Lender......................................................14
4.2.2. Termination by Borrower....................................................14
4.2.3. Effect of Termination......................................................14
SECTION 5. SECURITY INTERESTS........................................................15
5.1. Security Interest in Collateral.....................................................15
5.2. Lien Perfection; Further Assurances.................................................16
SECTION 6. COLLATERAL ADMINISTRATION.................................................16
6.1. General. 16
6.1.1. Location of Collateral.....................................................16
6.1.2. Insurance of Collateral....................................................16
6.1.3. Protection of Collateral...................................................16
6.2. Administration of Accounts..........................................................17
6.2.1. Records of Accounts........................................................17
6.2.2. Intentionally Deleted......................................................17
6.2.3. Taxes......................................................................17
6.2.4. Account Verification.......................................................17
6.2.5. Maintenance of Dominion Account............................................17
6.2.6. Collection of Accounts, Proceeds of Collateral.............................18
6.3. Administration of Inventory.........................................................18
6.4. Administration of Equipment.........................................................18
6.4.1. Records and Schedules of Equipment.........................................18
6.4.2. Dispositions of Equipment..................................................18
6.5. Payment of Charges..................................................................18
SECTION 7. REPRESENTATIONS AND WARRANTIES............................................18
7.1. General Representations and Warranties..............................................18
7.1.1. Organization and Qualification.............................................19
7.1.2. Corporate Power and Authority..............................................19
7.1.3. Legally Enforceable Agreement..............................................19
7.1.4. Capital Structure..........................................................19
7.1.5. Corporate Names............................................................19
7.1.6. Business Locations; Agent for Process......................................20
7.1.7. Title to Properties; Priority of Liens.....................................20
<PAGE>
7.1.8. Accounts...................................................................20
7.1.9. Equipment..................................................................20
7.1.10. Financial Statements; Fiscal Year..........................................21
7.1.11. Full Disclosure............................................................21
7.1.12. Solvent Financial Condition................................................21
7.1.13. Surety Obligations.........................................................21
7.1.14. Taxes......................................................................21
7.1.15. Brokers....................................................................22
7.1.16. Patents, Trademarks, Copyrights and Licenses...............................22
7.1.17. Governmental Consents......................................................22
7.1.18. Compliance with Laws.......................................................22
7.1.19. Restrictions...............................................................22
7.1.20. Litigation.................................................................22
7.1.21. No Defaults................................................................23
7.1.22. Leases.....................................................................23
7.1.23. Pension Plans..............................................................23
7.1.24. Trade Relations............................................................23
7.1.25. Labor Relations............................................................23
7.1.26. Delivery of Subordinated Note..............................................23
7.2. Continuous Nature of Representations and Warranties.................................24
7.3. Survival of Representations and Warranties..........................................24
SECTION 8. COVENANTS AND CONTINUING AGREEMENTS.......................................24
8.1. Affirmative Covenants...............................................................24
8.1.1. Visits and Inspections.....................................................24
8.1.2. Notices....................................................................24
8.1.3. Financial Statements.......................................................24
8.1.4. Landlord and Storage Agreements............................................26
8.1.5. Projections................................................................26
8.1.6. Recordkeeping..............................................................27
8.1.7. Borrowing Base Certificate.................................................27
8.1.8. Business and Collateral Locations..........................................27
8.2. Negative Covenants..................................................................27
8.2.1. Mergers; Consolidations; Acquisitions......................................27
8.2.2. Loans......................................................................27
8.2.3. Total Indebtedness.........................................................27
8.2.4. Affiliate Transactions.....................................................28
8.2.5. Limitation on Liens........................................................28
8.2.6. Subordinated Debt..........................................................29
8.2.7. Distributions..............................................................29
8.2.8. Capital Expenditures.......................................................29
8.2.9. Disposition of Assets......................................................29
8.2.10. Stock of Subsidiaries......................................................29
8.2.11. Bill-and-Hold Sales, Etc...................................................29
8.2.12. Restricted Investment......................................................29
8.2.13. Tax Consolidation..........................................................29
<PAGE>
8.3. Specific Financial Covenants........................................................29
8.3.1. Minimum Net Worth..........................................................30
8.3.2. Leverage Ratio.............................................................30
8.3.3. Cash Flow..................................................................30
SECTION 9. CONDITIONS PRECEDENT......................................................30
9.1. Documentation.......................................................................31
9.2. No Default..........................................................................31
9.3. Other Loan Documents................................................................31
9.4. No Litigation.......................................................................31
9.5. Filings, Registrations and Recordings...............................................31
9.6. Corporate Proceedings of Borrower...................................................31
9.7. Incumbency Certificates of Borrower.................................................32
9.8. Certificates........................................................................32
9.9. Good Standing Certificates..........................................................32
9.10. Legal Opinion.....................................................................32
9.11. Fees ..........................................................................32
9.12. Insurance.........................................................................32
9.13. Subordinated Note.................................................................32
9.14. Payment Instructions..............................................................32
9.15. Blocked Accounts..................................................................32
9.16. No Adverse Material Change........................................................33
9.17. Contract Review...................................................................33
9.18. Subordination Agreement...........................................................33
9.19. Bankruptcy Court Confirmation.....................................................33
9.20. Other. 33
SECTION 10. EVENTS OF DEFAULT; RIGHTS AND REMEDIES ON DEFAULT.........................33
10.1. Events of Default.................................................................33
10.1.1. Payment of Obligations Note................................................33
10.1.2. Misrepresentations.........................................................33
10.1.3. Breach of Specific Covenants...............................................33
10.1.4. Breach of Other Covenants..................................................34
10.1.5. Default Under Security Documents/Other Agreements/Subordinated
Note/Subordination Agreement...............................................34
10.1.6. Other Defaults.............................................................34
10.1.7. Uninsured Losses...........................................................34
10.1.8. Adverse Changes............................................................34
10.1.9. Insolvency and Related Proceedings.........................................34
10.1.10. Business Disruption; Condemnation..........................................34
10.1.11. Change of Ownership........................................................35
10.1.12. ERISA......................................................................35
10.1.13. Challenge to Agreement.....................................................35
10.1.14. Criminal Forfeiture........................................................35
10.1.15. Judgments..................................................................35
10.2. Acceleration of the Obligations...................................................35
10.3. Other Remedies....................................................................35
<PAGE>
10.4. Remedies Cumulative; No Waiver....................................................37
SECTION 11. MISCELLANEOUS.............................................................37
11.1. Power of Attorney.................................................................37
11.2. Indemnity.........................................................................38
11.3. Modification of Agreement; Sale of Interest.......................................38
11.4. Severability......................................................................38
11.5. Successors and Assigns............................................................39
11.6. Cumulative Effect; Conflict of Terms..............................................39
11.7. Execution in Counterparts.........................................................39
11.8. Notice. ..........................................................................39
11.9. Lender's Consent..................................................................40
11.10. Credit Inquiries..................................................................40
11.11. Time of Essence...................................................................40
11.12. Entire Agreement..................................................................40
11.13. Interpretation....................................................................40
11.14. GOVERNING LAW; CONSENT TO FORUM...................................................40
11.15. WAIVERS BY BORROWER.............................................................41
</TABLE>
<PAGE>
*AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT
THIS AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT is made as of this
29 day of October, 1998, by and between FLEET CAPITAL CORPORATION ("Lender"), a
Rhode Island corporation with an office at 200 Glastonbury Boulevard,
Glastonbury, Connecticut 06033 and WELCOME HOME, INC. ("Borrower"), a Delaware
corporation with its chief executive office and principal place of business at
309-D Raleigh Street, Wilmington, North Carolina 28412. Capitalized terms used
in this Agreement have the meanings assigned to them in Appendix A, General
Definitions. Accounting terms not otherwise specifically defined herein shall be
construed in accordance with GAAP consistently applied.
SECTION A. ASSUMPTION
Lender (successor-in-interest to Shawmut Capital Corporation) and
Borrower are parties to a Loan and Security Agreement dated as of May 30, 1995
(as amended, modified and supplemented from time to time, the "Original Loan
Agreement") pursuant to which Lender agreed to provide certain financial
accommodations to Borrower. On January 21, 1997, Borrower filed a voluntary
petition for reorganization with the United States Bankruptcy Court for the
Southern District of New York (the "Court). In accordance with the terms of a
Financing Order dated February 7, 1997 entered by the Court, Borrower, as a
Debtor-In-Possession ("Welcome Home DIP"), entered into Amendment No. 2 to the
Original Loan Agreement pursuant to which Lender agreed to provide a
post-petition credit facility to Welcome Home DIP. Pursuant to the Bankruptcy
Order dated September 28, 1998 (the "Confirmation Order"), the Court confirmed a
plan of reorganization with respect to Welcome Home DIP. Borrower has requested
that Lender provide Borrower a post-confirmation credit facility on the terms
and conditions set forth in this Agreement and in connection therewith Borrower
hereby (a) assumes in full the payment, discharge, satisfaction and performance
of all obligations, indebtedness and liabilities of Welcome Home DIP to Lender
under the Original Loan Agreement and the Other Agreements and (b) adopts all of
the provisions, terms and conditions contained in the Original Loan Agreement
and the Other Agreements as if the Original Loan Agreement and the Other
Agreements had been entered into between Borrower and Lender.
SECTION B. AMENDMENT AND RESTATEMENT
As of the Closing Date, the terms, conditions, covenants, agreements,
representations and warranties contained in the Original Loan Agreement shall be
deemed and hereby are amended and restated in their entirety as follows and the
Original Loan Agreement shall be and hereby is consolidated with and into and
superseded by this Agreement; provided, however, nothing contained in this
Agreement shall impair, limit or affect in any manner whatsoever the Liens
heretofore granted, pledged and/or assigned to Lender as security for Borrower's
obligations under the Original Loan Agreement.
SECTION 1.
<PAGE>
SECTION 2. CREDIT FACILITY
Subject to the terms and conditions of, and in reliance upon the
representations and warranties made in, this Agreement and the other Loan
Documents, Lender agrees to make a Total Credit Facility of up to $15,000,000
available upon Borrower's request therefor, as follows:
2.1. Revolving Credit Loans.
Loans and Reserves. Lender agrees, for so long as no Default or
Event of Default exists, to make Revolving Credit Loans to Borrower from time to
time, as requested by Borrower in the manner set forth in subsection 3.1.1
hereof, up to a maximum principal amount at any time outstanding equal to the
Borrowing Base at such time minus the LC Reserve at such time and such other
reserves, if any. Lender shall have the right to establish reserves in such
amounts, and with respect to such matters, as Lender shall deem necessary or
appropriate, against the amount of Revolving Credit Loans which Borrower may
otherwise request under this subsection 1.1.1, including, without limitation,
with respect to (i) price adjustments, damages, unearned discounts, returned
products or other matters for which credit memoranda are issued in the ordinary
course of Borrower's business; (ii) shrinkage, spoilage and obsolescence of
Inventory; (iii) slow moving Inventory; (iv) other sums chargeable against
Borrower's Loan Account as Revolving Credit Loans under any section of this
Agreement; (v) amounts owing by Borrower to any Person to the extent secured by
a Lien on, or trust over, any Property of Borrower; and (vi) such other matters,
events, conditions or contingencies as to which Lender, in its sole credit
judgment, determines reserves should be established from time to time hereunder.
Use of Proceeds. The Revolving Credit Loans shall be used solely
for Borrower's general operating capital needs in a manner consistent with the
provisions of this Agreement and all applicable laws.
Letters of Credit; LC Guaranties. Lender agrees, for so long as no
Default or Event of Default exists and if requested by Borrower, to (i) issue
its, or cause to be issued its Affiliate's, Letters of Credit for the account of
Borrower or (ii) execute LC Guaranties by which Lender or its Affiliate shall
guaranty the payment or performance by Borrower of its reimbursement obligations
with respect to Letters of Credit and letters of credit issued for Borrower's
account by other Persons in support of Borrower's obligations (other than
obligations for the repayment of Money Borrowed), provided that the LC Amount at
any time shall not exceed $500,000. No Letter of Credit or LC Guarantee may have
an expiration date that is after the last day of the Original Term or the then
applicable Renewal Term. Any amounts paid by Lender under any LC Guaranty or in
connection with any Letter of Credit shall be treated as Revolving Credit Loans,
shall be secured by all of the Collateral and shall bear interest and be payable
at the same rate and in the same manner as Revolving Credit Loans.
Request for Letter of Credit. Borrower may request Lender to
issue or cause to be issued by Bank (or such other financial institution as may
be acceptable to Lender) a Letter of Credit by delivering to Lender the
applicable commercial letter of credit application (the "Letter
2
<PAGE>
of Credit Application"), completed to the reasonable satisfaction of Lender and
such other certificates, documents and other papers and information as Lender
may reasonably request.
Description of Letters of Credit. Each Letter of Credit shall,
among other things, (i) provide for the payment of sight or time drafts when
presented for honor thereunder in accordance with the terms thereof and when
accompanied by the documents described therein and (ii) have an expiry date
occurring not later than the earlier of (1) the last day of the Original Term or
any Renewal Term or (2) 12 months after such Letter of Credit's date of
issuance. Each Letter of Credit Application and each Letter of Credit shall be
subject to the Uniform Customs and Practice for Documentary Credits (1993
Revision), International Chamber of Commerce Publication No. 500, and any
amendments or revision thereof and, to the extent not inconsistent therewith,
the laws of the State of New York.
Indemnification. In connection with the issuance or creation of
the LC Guaranties and any Letter of Credit, Borrower hereby indemnifies, saves
and holds Lender harmless from any loss, cost, expense or liability, including,
without limitation, payments made by Lender, and expenses and reasonable
attorneys' fees incurred by Lender arising out of, or in connection with the LC
Guaranties and any Letter of Credit to be issued or created for Borrower except
to the extent any loss, cost, expense or liability is attributable to Lender's
or the Issuing Bank's gross (not mere) negligence or willful misconduct or that
of its correspondents. Borrower shall be bound by Lender's or any Issuing Bank's
regulations and good faith interpretations of any Letter of Credit issued or
created for Borrower's account, although this interpretation may be different
from Borrower's own, and neither Lender, nor the Issuing Bank, nor any of its
correspondents shall be liable for any error, negligence and/or mistakes,
whether of omission or commission, in following Borrower's instructions or those
contained in the LC Guaranties or any Letter of Credit of any modifications,
amendments or supplements thereto or in creating or paying any Letter of Credit
or the LC Guaranties, except for Lender's gross (not mere) negligence or willful
misconduct or that of its correspondents.
Lender's Instructions. Borrower shall authorize and direct Bank
or any other bank or financial institution which issues a Letter of Credit (an
"Issuing Bank") to name Borrower as the "Account Party" therein and to deliver
to Lender, with a copy to Borrower, all instruments, documents, and other
writings and property received by the Issuing Bank pursuant to the Letter of
Credit or in connection with any acceptance and to accept and rely upon Lender's
instructions and agreements with respect to all matters arising in connection
with the Letter of Credit, the Letter of Credit Application therefor or any
acceptance thereof.
Disbursements. Lender will notify Borrower promptly of any demand
for payment under the LC Guaranties and the presentment for payment under a
Letter of Credit, following receipt by it of notification from the Issuing Bank
of such presentment, together with notice of the date such payment was made. All
disbursements shall be deemed irrevocably to be a request by Borrower for a
Revolving Credit Loan on the date such disbursement was made.
Reimbursement Obligation. Borrower's obligation to reimburse
Lender under subsection 1.2.5 shall be absolute and unconditional under any and
all circumstances and
3
<PAGE>
irrespective of any setoff, counterclaim or defense to payment which Borrower
may have against Lender, the Issuing Bank or the beneficiary of the Letter of
Credit, including, without limitation, any defense based upon any draft, demand
or certificate or other document presented under the Letter of Credit proving to
be forged, fraudulent, invalid or insufficient, the failure of any disbursement
or payment by the Issuing Bank under the Letter of Credit ("Bank Payment") to
conform to the terms of the Letter of Credit (if, in the Issuing Bank's good
faith opinion such disbursement or Bank Payment is determined to be appropriate
and other than as a consequence of Lender's or the Issuing Bank's gross (not
mere) negligence or willful misconduct) or any non-application or misapplication
by the beneficiary of the proceeds of such disbursement or Bank Payment or the
legality, validity, form, regularity or enforceability of the Letter of Credit.
Cash Collateral. Upon the occurrence and during the continuation
of any Event of Default, at the option of Lender, Borrower will pay to Lender
cash in an amount equal to the undrawn face amount of the Letters of Credit.
Such cash shall be held by Lender in a cash collateral account (the "Cash
Collateral Account"). The Cash Collateral Account shall be maintained at a bank
designated by Lender, which shall be (i) any domestic commercial bank having
capital and surplus in excess of $100,000,000 or (ii) an Affiliate of Lender, if
an Affiliate of Lender then maintains a presence as a bank in the United States
of America, in the name of Lender as secured party, and shall be under the sole
dominion and control of Lender and subject to the terms of this subsection
1.2.7. Borrower hereby pledges, and grants to Lender a security interest in, all
such cash and other amounts held in the Cash Collateral Account from time to
time and all earnings thereof and proceeds thereon, as security for the payment
of all Obligations. Amounts in the Cash Collateral Account shall be invested in
securities of the type described in clauses (iii), (iv) and (v) of the
definition of Restricted Investments, and interest and earnings on the Cash
Collateral Account shall be the property of Borrower but shall be held in the
Cash Collateral Account as Collateral, provided that Lender shall release from
the Cash Collateral Account and return to Borrower any funds remaining in the
Cash Collateral Account upon satisfaction in full of the Obligations. At such
time when all Events of Default shall have been cured or waived, Lender shall
return any monies then remaining in the Cash Collateral Account. If at any time,
and from time to time, the aggregate amount of the Cash Collateral Account
exceeds the maximum liability, fixed or contingent, of Lender with respect to
the aggregate face amount of all Letters of Credit then issued and outstanding,
Lender shall return any excess to Borrower.
Waiver of Liability. Borrower shall assume all risks of the acts,
omissions or misuse of any Letter of Credit by the beneficiary thereof. Neither
Lender nor any Issuing Bank (except in the event of its own gross (not mere)
negligence or willful misconduct) shall be responsible for:
(i) the form, validity, sufficiency, accuracy, genuineness
or legal effect of the Letter of Credit or any document submitted by
any party in connection with the application for and issuance of any
Letter of Credit, even if it should in fact prove to be in any or all
respects invalid, insufficient, inaccurate, fraudulent or forged;
(ii) the form, validity, sufficiency, accuracy,
genuineness or legal effect
4
<PAGE>
of any instrument transferring or assigning or purporting to transfer
or assign the Letter of Credit or the rights or benefits thereunder
or proceeds thereof in whole or in part, which may prove to be
invalid or ineffective for any reason;
(iii) errors, omissions, interruptions or delays in
transmission or delivery of any messages by mail, cable, telegraph,
telex or otherwise; or
(iv) any loss or delay in the transmission or otherwise of
any document or draft required in order to make a disbursement.
None of the foregoing shall affect, impair or prevent the vesting of any of the
rights or powers granted Lender hereunder. In furtherance, and not in limitation
or derogation of any of the foregoing, any action taken or omitted to be taken
by the Issuing Bank or Lender in good faith in the absence of gross (not mere)
negligence or willful misconduct, shall be binding upon Borrower and shall not
put the Issuing Bank or Lender, as the case may be, under any resulting
liability therefor.
SECTION 3. INTEREST, FEES AND CHARGES
3.1. Interest.
Rates of Interest. Interest shall accrue on the principal amount
of Base Rate Loans outstanding at the end of each day (computed on the actual
days elapsed over a year of 360 days) at a fluctuating rate per annum equal to
the Base Rate plus the Applicable Margin with respect to Base Rate Loans. After
the date hereof, the foregoing rate of interest shall be increased or decreased,
as the case may be, by an amount equal to any increase or decrease in the Base
Rate, with such adjustments to be effective as of the opening of business on the
day that any such change in the Base Rate becomes effective. The Base Rate in
effect on the date hereof shall be the Base Rate effective as of the opening of
business on the date hereof, but if this Agreement is executed on a day that is
not a Business Day, the Base Rate in effect on the date hereof shall be the Base
Rate effective as of the opening of business on the last Business Day
immediately preceding the date hereof. Eurodollar Loans shall bear interest on
the principal amount thereof outstanding at the end of each day (computed on the
actual days elapsed over a year of 360 days), at a fluctuating rate per annum
equal to the Eurodollar Rate plus the Applicable Margin.
Default Rate of Interest. Upon and after the occurrence of an
Event of Default, and during the continuation thereof, the principal amount of
all Loans shall bear interest at a rate per annum equal to 2.0% above the
interest rate otherwise applicable thereto (the "Default Rate").
Maximum Interest. In no event whatsoever shall the aggregate of
all amounts deemed interest hereunder and charged or collected pursuant to the
terms of this Agreement exceed the highest rate permissible under any law which
a court of competent jurisdiction shall, in a final determination, deem
applicable hereto. If any provisions of this Agreement are in
5
<PAGE>
contravention of any such law, such provisions shall be deemed amended to
conform thereto.
Computation of Interest and Fees. Interest, Letter of Credit and LC
Guaranty fees and unused line fees and collection charges hereunder shall be
calculated daily and shall be computed on the actual number of days elapsed over
a year of 360 days. For the purpose of computing interest hereunder, all items
of payment received by Lender shall be deemed applied by Lender on account of
the Obligations (subject to final payment of such items) on the Business Day of
receipt by Lender of such items in Lender's account located at Fleet National
Bank, Hartford, Connecticut, ABA #011900571, Account #936-933-7579, Reference:
Welcome Home or to such other account as Lender shall designate to Borrower in
writing.
Commitment Fee. Borrower shall pay to Lender a commitment fee of
$50,000, which shall be fully earned and nonrefundable on the Closing Date and
shall be paid concurrently with the initial Loan hereunder.
Letter of Credit and LC Guaranty Fees. Borrower shall pay to Lender for
Letters of Credit and LC Guaranties of Letters of Credit, 2.25% per annum of the
aggregate face amount of such Letters of Credit and LC Guaranties outstanding
from time to time during the term of this Agreement, plus all normal and
customary charges associated with the issuance thereof, which fees and charges
shall be deemed fully earned upon issuance of each such Letter of Credit or LC
Guaranty, shall be due and payable on the first Business Day of each month and
shall not be subject to rebate or proration upon the termination of this
Agreement for any reason.
Unused Line Fee. Borrower shall pay to Lender a fee equal to .25% per
annum of the average monthly amount by which the Total Credit Facility exceeds
the sum of the outstanding principal balance of the Revolving Credit Loans plus
the LC Amount. The unused line fee shall be payable monthly in arrears on the
first day of each calendar month hereafter.
Audit and Appraisal Fees. Borrower shall pay to Lender audit and
appraisal fees in accordance with Lender's current schedule of fees in effect
from time to time in connection with audits and appraisals of Borrower's books
and records and such other matters as Lender shall deem appropriate, plus all
out-of-pocket expenses incurred by Lender in connection with such audits and
appraisals. Audit fees shall be payable on the first day of the month following
the date of issuance by Lender of a request for payment thereof to Borrower.
Reimbursement of Expenses. If, at any time or times regardless of
whether or not an Event of Default then exists, Lender or any Participating
Lender incurs legal or accounting expenses or any other costs or out-of-pocket
expenses in connection with (i) the negotiation and preparation of this
Agreement or any of the other Loan Documents, any amendment of or modification
of this Agreement or any of the other Loan Documents; (ii) the administration of
this Agreement or any of the other Loan Documents and the transactions
contemplated hereby and thereby; (iii) any litigation, contest, dispute, suit,
proceeding or action (whether instituted by Lender, Borrower or any other
Person) in any way relating to the Collateral, this Agreement or any of the
other Loan Documents or Borrower's affairs; (iv) any attempt to enforce any
rights of Lender or any Participating Lender against Borrower or any other
Person which may be obligated
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to Lender by virtue of this Agreement or any of the other Loan Documents,
including, without limitation, the Account Debtors; or (v) any attempt to
inspect, verify, protect, preserve, restore, collect, sell, liquidate or
otherwise dispose of or realize upon the Collateral; then all such legal and
accounting expenses, other costs and out of pocket expenses of Lender shall be
charged to Borrower. All amounts chargeable to Borrower under this Section 2.7
shall be Obligations secured by all of the Collateral, shall be payable on
demand to Lender or to such Participating Lender, as the case may be, and shall
bear interest from the date such demand is made until paid in full at the rate
applicable to Revolving Credit Loans constituting Base Rate Loans from time to
time. Borrower shall also reimburse Lender for expenses incurred by Lender in
its administration of the Collateral to the extent and in the manner provided in
Section 6 hereof.
3.8. Bank Charges.
Borrower shall pay to Lender, on demand, any and all fees, costs or expenses
which Lender or any Participating Lender pays to a bank or other similar
institution (including, without limitation, any fees paid by Lender to any
Participating Lender) arising out of or in connection with (i) the forwarding to
Borrower or any other Person on behalf of Borrower, by Lender or any
Participating Lender, of proceeds of Loans made by Lender to Borrower pursuant
to this Agreement and (ii) the depositing for collection, by Lender or any
Participating Lender, of any check or item of payment received or delivered to
Lender or any Participating Lender on account of the Obligations.
SECTION 4. LOAN ADMINISTRATION
Manner of Borrowing Revolving Credit Loans. Borrowings under the credit
facility established pursuant to Section 1 hereof shall be as follows:
4.1.1. Loan Requests.
A request for a Revolving Credit Loan shall be made, or shall be deemed to be
made, in the following manner: (i) Borrower may give Lender notice of its
intention to borrow, in which notice Borrower shall specify the amount of the
proposed borrowing and the proposed borrowing date, no later than 1:00 p.m. New
York time on the proposed borrowing date, provided, however, that no such
request may be made at a time when there exists an Event of Default; and (ii)
the becoming due of any amount required to be paid under this Agreement, whether
as interest or for any other Obligation, shall be deemed irrevocably to be a
request for a Revolving Credit Loan on the due date in the amount required to
pay such interest or other Obligation. As an accommodation to Borrower, Lender
may permit telephonic requests for Loans and electronic transmittal of
instructions, authorizations, agreements or reports to Lender by Borrower.
Unless Borrower specifically directs Lender in writing not to accept or act upon
telephonic or electronic communications from Borrower, Lender shall have no
liability to Borrower for any loss or damage suffered by Borrower as a result of
Lender's honoring of any requests, execution of any instructions, authorizations
or agreements or reliance on any reports communicated to it telephonically or
electronically and purporting to have been sent to Lender by Borrower and Lender
shall have no duty to verify the origin of any such communication or the
authority of the person sending it.
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Disbursement. Borrower hereby irrevocably authorizes Lender to
disburse the proceeds of each Revolving Credit Loan requested, or deemed to be
requested, pursuant to this subsection 3.1.2 as follows: (i) the proceeds of
each Revolving Credit Loan requested under subsection 3.1.1(i) shall be
disbursed by Lender in lawful money of the United States of America in
immediately available funds, in the case of the initial borrowing, in accordance
with the terms of the written disbursement letter from Borrower, and in the case
of each subsequent borrowing, by wire transfer to such bank account as may be
agreed upon by Borrower and Lender from time to time or elsewhere if pursuant to
a written direction from Borrower; and (ii) the proceeds of each Revolving
Credit Loan requested under subsection 3.1.1(ii) shall be disbursed by Lender by
way of direct payment of the relevant interest or other Obligation.
Authorization. Borrower hereby irrevocably authorizes Lender, in
Lender's sole discretion, to advance to Borrower, and to charge to Borrower's
Loan Account hereunder as a Revolving Credit Loan, a sum sufficient to pay all
interest accrued on the Obligations during the immediately preceding month and
to pay all costs, fees and expenses at any time owed by Borrower to Lender
hereunder.
Eurodollar Loans. Notwithstanding the provisions of Section
3.1.1, in the event Borrower desires to obtain a Eurodollar Loan, Borrower shall
give Lender prior written irrevocable notice no later than 12:00 noon New York
time on the 3rd Business Day prior to the requested borrowing date specifying
(i) its election to obtain a Eurodollar Loan, (ii) the date of the proposed
borrowing (which shall be a Business Day) and (iii) the amount to be borrowed,
which amount shall be in a minimum amount of $500,000 and may increase in
integral multiples of $100,000. In no event shall Borrower be permitted to have
outstanding at any one time Eurodollar Loans with more than 5 different Interest
Periods.
Interest Periods. Each interest period of a Eurodollar Loan shall
commence on the date such Eurodollar Loan is made and shall end on the date
which is 1 month, 2 months, 3 months or 6 months later, as may then be requested
by Borrower ("Interest Period") provided that:
(i) any Interest Period which would otherwise end
on a day which is not a Business Day shall end on the next
preceding or succeeding Business Day as is the Bank's
custom in the market to which such Eurodollar Loan
relates;
(ii) there remains a minimum of 1 month in the
Original Term (or if this Agreement has been renewed, in
the then applicable Renewal Term);
(iii) all Interest Periods of the same duration
which commence on the same date shall end on the same
date;
(iv) each Interest Period which commences before,
and would
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otherwise end after the last day of the Original or any
Renewal Term shall end on the last day of the Original or
any Renewal Term.
Conversion of Base Rate Loans. Provided that no Event of Default
has occurred which is then continuing, Borrower may, on any Business Day,
convert any Base Rate Loan into a Eurodollar Loan. If Borrower desires to
convert a Base Rate Loan, Borrower shall give Lender not less than 3 Business
Days' prior written notice (prior to 12:00 noon New York time on such Business
Day), specifying the date of such conversion and the amount to be converted.
Each conversion into or conversion of a Eurodollar Loan shall be in a minimum
principal amount of $500,000 and may increase in integral multiples of $100,000
in excess thereof. After giving effect to any conversion of Base Rate Loans to
Eurodollar Loans, Borrower shall not be permitted to have outstanding at any one
time Eurodollar Loans with more than 5 different Interest Periods.
Continuation of Eurodollar Loans. Borrower shall have the right
on 3 Business Days' prior irrevocable written notice given to Lender by Borrower
to (i) subject to the provisions of Section 3.1.8, continue any Eurodollar Loan
into a subsequent Interest Period of the same or a different permitted duration,
in each case subject to the satisfaction of the following conditions:
(i) in the case of a continuation of less than all
Eurodollar Loans, the Eurodollar Loans continued shall
each be in a minimum principal amount of $500,000 and may
increase in integral multiples of $100,000 in excess
thereof;
(ii) accrued interest on a Eurodollar Loan (or
portion thereof) being continued shall be paid by Borrower
at the time of continuation; and
(iii) no Eurodollar Loan (or portion thereof) may
be continued as a Eurodollar Loan if an Event of Default
has occurred which is then continuing or if, after giving
effect to such continuation, Borrower shall have
outstanding more than 3 separate Eurodollar Loans in the
aggregate.
If Borrower shall fail to give timely notice of its election to continue
any Eurodollar Loan or portion thereof as provided above, or if such
continuation shall not be permitted, such Eurodollar Loan or portion thereof,
unless such Loan shall be repaid, shall automatically be converted into a Base
Rate Loan at the end of the Interest Period then in effect with respect to such
Eurodollar Loan.
Prepayment of Eurodollar Loans. Subject to the provisions of
subsection 3.1.9 and Section 4.2, Borrower may prepay any Loan in whole at any
time or in part from time to time, without premium or penalty provided that a
Eurodollar Loan not prepaid on the last Business Day of the then current
Interest Period with respect thereto shall be subject to Section 3.1.9. Borrower
shall specify the date of prepayment of Loans which are Eurodollar Loans and the
amount of Eurodollar Loans to be prepaid. In the event that any prepayment of a
Eurodollar
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Loan is made on a date other than the last Business Day of the then current
Interest Period with respect thereto, Borrower shall indemnify Lender therefor
in accordance with subsection 3.1.9 hereof.
Indemnification. Borrower shall indemnify Lender and hold Lender
harmless from and against any and all losses or expenses that Lender may sustain
or incur as a consequence of any prepayment or any default by Borrower in the
payment of the principal of or interest on any Eurodollar Loan or failure by
Borrower to complete a borrowing of, a prepayment of or conversion of or to a
Eurodollar Loan after notice thereof has been given, including (but not limited
to) any interest payable by Lender to lenders of funds obtained by it in order
to make or maintain its Eurodollar Loans hereunder, and any other loss or
expense incurred by Lender by reason of the liquidation or reemployment of
deposits or other funds acquired by Lender to make, continue, convert into or
maintain, a Eurodollar Loan.
Inability to Make Eurodollar Loans. Notwithstanding any other
provision hereof, if any applicable law, treaty, regulation or directive, or any
change therein or in the interpretation or application thereof, shall make it
unlawful for Lender (for purposes of this subsection 3.1.10, the term "Lender"
shall include Lender and the office or branch where Lender or any corporation or
bank controlling Lender makes or maintains any Eurodollar Loans) to make or
maintain its Eurodollar Loans, or if with respect to any Interest Period, Lender
is unable to determine the Eurodollar Rate relating thereto, or adverse or
unusual conditions in or changes in applicable law relating to the London
Eurodollar interbank market make it, in the reasonable judgment of Lender,
impracticable, to fund therein any of the Eurodollar Loans or make the projected
Eurodollar Rate unreflective of the actual costs of funds therefor to Lender,
the obligation of Lender to make Eurodollar Loans hereunder shall forthwith be
suspended during the pendency of such circumstances and Borrower shall, if any
affected Eurodollar Loans are then outstanding, promptly upon request from
Lender, convert such affected Eurodollar Loans into Base Rate Loans.
Payments. Except where evidenced by notes or other instruments issued or
made by Borrower to Lender specifically containing payment provisions which are
in conflict with this Section 3.2 (in which event the conflicting provisions of
said notes or other instruments shall govern and control), the Obligations shall
be payable as follows:
Principal. Principal payable on account of Revolving Credit Loans
shall be payable by Borrower to Lender immediately upon the earliest of (i) the
receipt by Lender or Borrower of any proceeds of any of the Collateral, to the
extent of said proceeds, (ii) the occurrence of an Event of Default in
consequence of which Lender elects to accelerate the maturity and payment of the
Obligations, or (iii) termination of this Agreement pursuant to Section 4
hereof; provided, however, that if an Overadvance shall exist at any time,
Borrower shall, on demand, repay the Overadvance.
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Interest. Interest accrued on the Revolving Credit Loans shall be
due on the earliest of (i) the first calendar day of each month (for the
immediately preceding month), computed through the last calendar day of the
preceding month, (ii) the occurrence of an Event of Default in consequence of
which Lender elects to accelerate the maturity and payment of the Obligations or
(iii) termination of this Agreement pursuant to Section 4 hereof.
Costs, Fees and Charges. Costs, fees and charges payable pursuant
to this Agreement shall be payable by Borrower as and when provided in Section 2
hereof, to Lender or to any other Person designated by Lender in writing.
Other Obligations. The balance of the Obligations requiring the
payment of money, if any, shall be payable by Borrower to Lender as and when
provided in this Agreement, the Other Agreements or the Security Documents, or
on demand, whichever is later.
Prepayments of Additional Availability Amount. Borrower shall be
permitted to prepay the outstanding amount of the Loans in connection with a
permanent reduction of the Additional Availability Amount, so long as (a)
Availability plus the amount of such payment shall not be less than $2,000,000
immediately after giving effect to and for the thirty consecutive day period
immediately preceding the making of such payment and (b) no Default or Event of
Default shall be in existence at the time of and immediately after giving effect
to each such payment, in an amount not to exceed 50% of Excess Cash Flow for
each Fiscal Year commencing with the Fiscal Year ending December 31, 1999. Any
such prepayment shall be made not later than 150 days after the end of each
Fiscal Year and shall be applied to permanently reduce the Additional
Availability Amount.
Application of Payments and Collections. All items of payment received
by Lender by 1:00 P.M., New York time, on any Business Day shall be deemed
received on that Business Day. All items of payment received after 1:00 P.M.,
New York time, on any Business Day shall be deemed received on the following
Business Day. Borrower irrevocably waives the right to direct the application of
any and all payments and collections at any time or times hereafter received by
Lender from or on behalf of Borrower, and Borrower does hereby irrevocably agree
that Lender shall have the continuing exclusive right to apply and reapply any
and all such payments and collections received at any time or times hereafter by
Lender or its agent against the Obligations, in such manner as Lender may deem
advisable, notwithstanding any entry by Lender upon any of its books and
records. If as the result of collections of Accounts as authorized by subsection
6.2.6 hereof a credit balance exists in the Loan Account, such credit balance
shall not accrue interest in favor of Borrower, but shall be available to
Borrower at any time or times for so long as no Default or Event of Default
exists. Such credit balance shall not be applied or be deemed to have been
applied against the Obligations except that Lender may, at its option, offset
such credit balance against any of the Obligations upon and after the occurrence
of an Event of Default.
All Loans to Constitute One Obligation. The Loans shall constitute one
general Obligation of Borrower, and shall be secured by Lender's Lien upon all
of the Collateral.
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Loan Account. Lender shall enter all Loans as debits to the Loan Account
and shall also record in the Loan Account all payments made by Borrower on any
Obligations and all proceeds of Collateral which are finally paid to Lender, and
may record therein, in accordance with customary accounting practice, other
debits and credits, including interest and all charges and expenses properly
chargeable to Borrower.
Statements of Account. Lender will account to Borrower monthly with a
statement of Loans, charges and payments made pursuant to this Agreement, and
such account rendered by Lender shall be deemed final, binding and conclusive
upon Borrower unless Lender is notified by Borrower in writing to the contrary
within 30 days of the date each accounting is mailed to Borrower. Such notice
shall only be deemed an objection to those items specifically objected to
therein.
Increased Costs. In the event that any change, after the date of this
Agreement, in any applicable law or treaty, or in the interpretation or
application thereof, or compliance by Lender with any request or directive
(whether or not having the force of law) from any central bank or other
financial, monetary or other regulatory authority, shall:
(i) (1) subject Lender to any tax with respect to this
Agreement (other than (a) any tax based on or measured by net
income or otherwise in the nature of a net income tax, including,
without limitation, any franchise tax or any similar tax based on
capital, net worth or comparable basis for measurement and (b)
any tax collected by a withholding on payments and which neither
is computed by reference to the net income of the payee nor is in
the nature of an advance collection of a tax based on or measured
by the net income of the payee) or (2) change the basis of
taxation of payments to Lender of principal, fees, interest or
any other amount payable hereunder or under any Loan Documents
(other than in respect of (a) any tax based on or measured by net
income or otherwise in the nature of a net income tax, including,
without limitation, any franchise tax or any similar tax based on
capital, net worth or comparable basis for measurement and (b)
any tax collected by a withholding on payments and which neither
is computed by reference to the net income of the payee nor is in
the nature of an advance collection of a tax based on or measured
by the net income of the payee);
(ii) impose, modify or hold applicable any reserve (except
any reserve taken into account in the determination of the
applicable Eurodollar Rate), special deposit, assessment or
similar requirement against assets held by, or deposits in or for
the account of, advances or loans by, or other credit extended
by, any office of Lender, including (without limitation) pursuant
to Regulation D of the Board of Governors of the Federal Reserve
System; or
(iii) impose on Lender or the London interbank eurodollar
market any other condition with respect to any Loan Document;
and the result of any of the foregoing is to increase the cost to Lender of
making, renewing or
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maintaining its Loans hereunder by an amount that Lender deems to be material or
to reduce the amount of any payment (whether of principal, interest or
otherwise) in respect of any of the Loans by an amount that Lender deems to be
material, then, in any such case, Borrower shall promptly pay Lender, upon its
demand and certification not later than 60 days following its receipt of notice
of the imposition of such increased costs, such additional amount as will
compensate Lender for such additional cost or such reduction, as the case may
be, to the extent Lender has not otherwise been compensated, with respect to a
particular Loan, for such increased cost as a result of an increase in the Base
Rate. An officer of Lender shall determine the amount of such additional cost or
reduced amount using reasonable averaging and attribution methods and shall
certify the amount of such additional cost or reduced amount to Borrower, which
certification shall include a written explanation of such additional cost or
reduction to Borrower. Such certification shall be conclusive absent manifest
error. If Lender claims any additional cost or reduced amount pursuant to this
Section 3.8, then Lender shall use reasonable efforts (consistent with legal and
regulatory restrictions) to designate a different lending office or to file any
certificate or document reasonably requested by Borrower if the making of such
designation or filing would avoid the need for, or reduce the amount of, any
such additional cost or reduced amount and would not, in the sole discretion of
Lender, be otherwise disadvantageous to Lender.
Basis For Determining Interest Rate Inadequate or Unfair. In the event
that Lender shall have determined that:
(i) reasonable means do not exist for ascertaining the
Eurodollar Rate for any Interest Period; or
(ii) Dollar deposits in the relevant amount and for the
relevant maturity are not available in the London interbank
eurodollar market with respect to a proposed Eurodollar Loan, or
a proposed conversion of a Base Rate Loan into a Eurodollar Loan;
Lender shall give Borrower prompt written, telephonic or telegraphic notice of
the determination of such effect. If such notice is given, (i) any such
requested Eurodollar Loan shall be made as a Base Rate Loan, unless Borrower
shall notify Lender no later than 12:00 noon (New York time) 3 Business Days
prior to the date of such proposed borrowing, that the request for such
borrowing shall be cancelled or made as an unaffected type of Eurodollar Loan,
and (ii) any Base Rate Loan which was to have been converted to an affected type
of Eurodollar Loan shall be continued as or converted into a Base Rate Loan, or,
if Borrower shall notify Lender, no later than 12:00 noon (New York time) 3
Business Days prior to the proposed conversion, shall be maintained as an
unaffected type of Eurodollar Loan.
Capital Adequacy. In the event that Lender shall have determined that
any applicable law or guideline regarding capital adequacy, or any change
therein, or any change in the interpretation or administration thereof by any
governmental authority, central bank or comparable agency charged with the
interpretation or administration thereof, or compliance by Lender with any
request or directive regarding capital adequacy (whether or not having the force
of law) of any such authority, central bank or comparable agency, has or would
have the effect of reducing the
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rate of return on Lender's capital as a consequence of its obligations hereunder
to a level below that which Lender could have achieved but for such adoption,
change or compliance (taking into consideration Lender's policies with respect
to capital adequacy) by an amount deemed by Lender to be material, then, from
time to time, upon written demand (which demand shall be accompanied by a
certification demonstrating the calculation of such amounts in reasonable
detail) by Lender, Borrower shall pay to Lender such additional amount or
amounts as will compensate Lender for such reduction. In determining such amount
or amounts, Lender may use any reasonable averaging or attribution methods. The
protection of this Section 3.10 shall be available to Lender regardless of any
possible contention of invalidity or inapplicability with respect to the
applicable law or condition.
Certificate. A certificate of an officer of Lender setting forth
such amount or amounts as shall be necessary to compensate Lender pursuant to
Section 3.10 hereof and the reasons therefor when delivered to Borrower shall be
conclusive absent manifest error.
SECTION 5. TERM AND TERMINATION
Term of Agreement. Subject to Lender's right to cease making Loans to
Borrower upon or after the occurrence of any Default or Event of Default, this
Agreement shall be in effect for a period of 5 years from the date hereof,
through and including October 29, 2003 (the "Original Term"), and this Agreement
shall automatically renew itself for one-year periods thereafter (the "Renewal
Terms"), unless terminated as provided in Section 4.2 hereof.
5.2. Termination.
Termination by Lender. Upon at least 90 days prior written notice
to Borrower, Lender may terminate this Agreement as of the last day of the
Original Term or the then current Renewal Term and Lender may terminate this
Agreement without notice upon or after the occurrence of an Event of Default.
Termination by Borrower. Upon at least 90 days prior written
notice to Lender, Borrower may, at its option, terminate this Agreement;
provided, however, no such termination shall be effective until Borrower has
paid all of the Obligations in immediately available funds and all Letters of
Credit and LC Guaranties have expired or have been cash collateralized to
Lender's satisfaction. Any notice of termination given by Borrower shall be
irrevocable unless Lender otherwise agrees in writing, and Lender shall have no
obligation to make any Loans or issue or procure any Letters of Credit or LC
Guaranties on or after the termination date stated in such notice. Borrower may
elect to terminate this Agreement in its entirety only. No section of this
Agreement or type of Loan available hereunder may be terminated singly.
Effect of Termination. All of the Obligations shall be
immediately due and payable upon the termination date stated in any notice of
termination of this Agreement. All undertakings, agreements, covenants,
warranties and representations of Borrower contained in the Loan Documents shall
survive any such termination and Lender shall retain its Liens in the
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Collateral and all of its rights and remedies under the Loan Documents
notwithstanding such termination until Borrower has paid the Obligations to
Lender, in full, in immediately available funds, together with the applicable
termination charge, if any. Notwithstanding the payment in full of the
Obligations, Lender shall not be required to terminate its security interests in
the Collateral unless, with respect to any loss or damage Lender may incur as a
result of dishonored checks or other items of payment received by Lender from
Borrower or any Account Debtor and applied to the Obligations, Lender shall, at
its option, (i) have received a written agreement, executed by Borrower and by
any Person whose loans or other advances to Borrower are used in whole or in
part to satisfy the Obligations, indemnifying Lender from any such loss or
damage; or (ii) have retained such monetary reserves and Liens on the Collateral
for such period of time as Lender, in its reasonable discretion, may deem
necessary to protect Lender from any such loss or damage.
SECTION 6. SECURITY INTERESTS
Security Interest in Collateral. To secure the prompt payment and
performance to Lender of the Obligations, Borrower hereby grants to Lender a
continuing security interest and Lien upon all of Borrower's assets, including
all of the following Property and interests in Property of Borrower, whether now
owned or existing or hereafter created, acquired or arising and wheresoever
located:
(i) Accounts;
(ii) Inventory;
(iii) Equipment;
(iv) General Intangibles;
(v) All Investment Property (as defined in the Code);
(vi) All monies and other Property of any kind now or at
any time or times hereafter in the possession or under the
control of Lender or a bailee or Affiliate of Lender;
(vii) All accessions to, substitutions for and all
replacements, products and cash and non-cash proceeds of (i)
through (vi) above, including, without limitation, proceeds of
and unearned premiums with respect to insurance policies insuring
any of the Collateral; and
(viii) All books and records (including, without
limitation, customer lists, credit files, computer programs,
print-outs, and other computer materials and records) of Borrower
pertaining to any of (i) through (vii) above.
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Lien Perfection; Further Assurances. Borrower shall execute such UCC-1
financing statements as are required by the Code and such other instruments,
assignments or documents as are necessary to perfect Lender's Lien upon any of
the Collateral and shall take such other action as may be required to perfect or
to continue the perfection of Lender's Lien upon the Collateral. Unless
prohibited by applicable law, Borrower hereby authorizes Lender to execute and
file any such financing statement on Borrower's behalf. The parties agree that a
carbon, photographic or other reproduction of this Agreement shall be sufficient
as a financing statement and may be filed in any appropriate office in lieu
thereof. At Lender's request, Borrower shall also promptly execute or cause to
be executed and shall deliver to Lender any and all documents, instruments and
agreements deemed necessary by Lender to give effect to or carry out the terms
or intent of the Loan Documents.
SECTION 7. COLLATERAL ADMINISTRATION
7.1. General.
Location of Collateral. All Collateral, other than Inventory in
transit and motor vehicles, will at all times be kept by Borrower and its
Subsidiaries at one or more of the business locations set forth in Exhibit 6.1.1
hereto and shall not, without the prior written approval of Lender, be moved
therefrom except, prior to an Event of Default and Lender's acceleration of the
maturity of the Obligations in consequence thereof, for (i) sales of Inventory
in the ordinary course of business; and (ii) removals in connection with
dispositions of Equipment that are authorized by subsection 6.4.2 hereof.
Borrower may update Exhibit 6.1.1 from time to time to add additional locations
in the continental United States by giving Lender 15 days prior written notice
thereof and executing such additional UCC-1 financing statements and taking such
other actions as Lender may reasonably request to perfect and protect its
security interest on Collateral situated at such locations.
Insurance of Collateral. Borrower shall maintain and pay for
insurance upon all Collateral wherever located and with respect to Borrower's
business, covering casualty, hazard, public liability and such other risks in
such amounts and with such insurance companies as are reasonably satisfactory to
Lender. Borrower shall deliver the originals of such policies to Lender with
satisfactory lender's loss payable endorsements, naming Lender as sole loss
payee, assignee or additional insured, as appropriate. Each policy of insurance
or endorsement shall contain a clause requiring the insurer to give not less
than 30 days prior written notice to Lender in the event of cancellation of the
policy for any reason whatsoever and a clause specifying that the interest of
Lender shall not be impaired or invalidated by any act or neglect of Borrower or
the owner of the Property or by the occupation of the premises for purposes more
hazardous than are permitted by said policy. If Borrower fails to provide and
pay for such insurance, Lender may, at its option, but shall not be required to,
procure the same and charge Borrower therefor. Borrower agrees to deliver to
Lender, promptly as rendered, true copies of all reports made in any reporting
forms to insurance companies.
Protection of Collateral. All expenses of protecting, storing,
warehousing,
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insuring, handling, maintaining and shipping the Collateral, any and all excise,
property, sales, and use taxes imposed by any state, federal, or local authority
on any of the Collateral or in respect of the sale thereof shall be borne and
paid by Borrower. If Borrower fails to promptly pay any portion thereof when
due, Lender may, at its option, but shall not be required to, pay the same and
charge Borrower therefor. Lender shall not be liable or responsible in any way
for the safekeeping of any of the Collateral or for any loss or damage thereto
(except for reasonable care in the custody thereof while any Collateral is in
Lender's actual possession) or for any diminution in the value thereof, or for
any act or default of any warehouseman, carrier, forwarding agency, or other
person whomsoever, but the same shall be at Borrower's sole risk.
7.2. Administration of Accounts.
7.2.1. Records of Accounts.
Borrower shall keep accurate and complete records of its Accounts
and all payments and collections thereon and shall, upon Lender's request
therefor, submit to Lender on such periodic basis as Lender shall request a
sales and collections report for the preceding period, in form satisfactory to
Lender.
Intentionally Deleted.
Taxes. If an Account includes a charge for any tax payable to any
governmental taxing authority, Lender is authorized, in its sole discretion, to
pay the amount thereof to the proper taxing authority for the account of
Borrower and to charge Borrower therefor, provided, however, that Lender shall
not be liable for any taxes to any governmental taxing authority that may be due
by Borrower.
Account Verification. Whether or not a Default or an Event of
Default has occurred, any of Lender's officers, employees or agents shall have
the right, at any time or times hereafter, in the name of Lender, any designee
of Lender or Borrower, to verify the validity, amount or any other matter
relating to any Accounts by mail, telephone, telegraph or otherwise. Borrower
shall cooperate fully with Lender in an effort to facilitate and promptly
conclude any such verification process.
Maintenance of Dominion Account. Borrower shall maintain a
Dominion Account pursuant to a lockbox arrangement acceptable to Lender with
such banks as may be selected by Borrower and be acceptable to Lender. Borrower
shall issue to any such banks an irrevocable letter of instruction directing
such banks to deposit all payments or other remittances received in the lockbox
to the Dominion Account for application on account of the Obligations. All funds
deposited in the Dominion Account shall immediately become the property of
Lender and Borrower shall obtain the agreement by such banks in favor of Lender
to waive any offset rights against the funds so deposited. Lender assumes no
responsibility for such lockbox arrangement, including, without limitation, any
claim of accord and satisfaction or release with respect to deposits accepted by
any bank thereunder.
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Collection of Accounts, Proceeds of Collateral. All proceeds of
Collateral received by Borrower, shall be held as Lender's property by Borrower
as trustee of an express trust for Lender's benefit and Borrower shall
immediately deposit same in kind in the Dominion Account. Lender retains the
right at all times after the occurrence of a Default or an Event of Default to
notify Account Debtors that Accounts have been assigned to Lender and to collect
Accounts directly in its own name and to charge the collection costs and
expenses, including attorneys' fees to Borrower.
7.3. Administration of Inventory.
Borrower shall keep accurate and complete records of its inventory. Borrower
shall furnish to Lender Inventory reports in form and detail satisfactory to
Lender at such times as Lender may request, but at least once each week, not
later than Wednesday of such week. Borrower shall conduct a physical inventory
no less frequently than annually and shall provide to Lender a report based on
each such physical inventory promptly thereafter, together with such supporting
information as Lender shall request.
7.4. Administration of Equipment.
Records and Schedules of Equipment. Borrower shall use its
reasonable efforts to keep accurate records itemizing and describing the kind,
quantity and value of its Equipment and all dispositions made in accordance with
subsection 6.4.2 hereof, and upon Lender's request therefor shall furnish Lender
with a current schedule containing the foregoing information.
Dispositions of Equipment. Borrower will not sell, lease or
otherwise dispose of or transfer any of the Equipment or any part thereof
without the prior written consent of Lender; provided, however, that the
foregoing restriction shall not apply, for so long as no Default or Event of
Default exists, to (i) dispositions of Equipment which, in the aggregate during
any consecutive twelve-month period, has a fair market value or book value,
whichever is less, of $100,000 or less, provided, that, all proceeds thereof are
remitted to Lender for application to the Loans, or (ii) replacements of
Equipment that is substantially worn, damaged or obsolete with Equipment of like
kind, function and value, provided that the replacement Equipment shall be
acquired prior to or concurrently with any disposition of the Equipment that is
to be replaced, the replacement Equipment shall be free and clear of Liens other
than Permitted Liens that are not Purchase Money Liens, and Borrower shall have
given Lender at least 5 days prior written notice of such disposition.
Payment of Charges. All amounts chargeable to Borrower under Section 6
hereof shall be Obligations secured by all of the Collateral, shall be payable
on demand and shall bear interest from the date such advance was made until paid
in full at the rate applicable to Revolving Credit Loans constituting Base Rate
Loans from time to time.
SECTION 8. REPRESENTATIONS AND WARRANTIES
General Representations and Warranties. To induce Lender to enter into
this Agreement
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and to make advances hereunder, Borrower warrants, represents and covenants to
Lender that:
Organization and Qualification. Each of Borrower and its
Subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation. Each of
Borrower and its Subsidiaries is duly qualified and is authorized to do business
and is in good standing as a foreign corporation in each state or jurisdiction
listed on Exhibit 7.1.1 hereto and in all other states and jurisdictions where
the character of its Properties or the nature of its activities make such
qualification necessary.
Corporate Power and Authority. Borrower is duly authorized and
empowered to enter into, execute, deliver and perform this Agreement and each of
the other Loan Documents to which it is a party. The execution, delivery and
performance of this Agreement and each of the other Loan Documents have been
duly authorized by all necessary corporate action and do not and will not (i)
require any consent or approval of the shareholders of Borrower; (ii) contravene
Borrower's charter, articles or certificate of incorporation or by-laws; (iii)
violate, or cause Borrower to be in default under, any provision of any law,
rule, regulation, order, writ, judgment, injunction, decree, determination or
award in effect having applicability to Borrower; (iv) result in a breach of or
constitute a default under any indenture or loan or credit agreement or any
other agreement, lease or instrument to which Borrower is a party or by which it
or its Properties may be bound or affected; or (v) result in, or require, the
creation or imposition of any Lien (other than Permitted Liens) upon or with
respect to any of the Properties now owned or hereafter acquired by Borrower.
Legally Enforceable Agreement. This Agreement is, and each of the
other Loan Documents when delivered under this Agreement will be, a legal, valid
and binding obligation of Borrower enforceable against it in accordance with its
respective terms.
Capital Structure. Exhibit 7.1.4 hereto states (i) the correct
name of each of the Subsidiaries of Borrower, its jurisdiction of incorporation
and the percentage of its Voting Stock owned by Borrower, (ii) the name of each
of Borrower's corporate or joint venture Affiliates and the nature of the
affiliation, (iii) the number, nature and holder of all outstanding Securities
of Borrower and each Subsidiary of Borrower and (iv) the number of authorized,
issued and treasury shares of Borrower and each Subsidiary of Borrower. Borrower
has good title to all of the shares it purports to own of the stock of each of
its Subsidiaries, free and clear in each case of any Lien other than Permitted
Liens. All such shares have been duly issued and are fully paid and
non-assessable. Except as set forth on Exhibit 7.1.4, there are no outstanding
options to purchase, or any rights or warrants to subscribe for, or any
commitments or agreements to issue or sell, or any Securities or obligations
convertible into, or any powers of attorney relating to, shares of the capital
stock of Borrower or any of its Subsidiaries. There are no outstanding
agreements or instruments binding upon any of Borrower's shareholders relating
to the ownership of its shares of capital stock.
Corporate Names. Neither Borrower nor any of its Subsidiaries has
been known as or used any corporate, fictitious or trade names except those
listed on Exhibit 7.1.5 hereto. Except as set forth on Exhibit 7.1.5, neither
Borrower nor any of its Subsidiaries has been the
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surviving corporation of a merger or consolidation or acquired all or
substantially all of the assets of any Person.
Business Locations; Agent for Process. Each of Borrower's and its
Subsidiaries' chief executive office and other places of business are as listed
on Exhibit 7.1.6 hereto. Except as shown on Exhibit 7.1.6, no Inventory is
stored with a bailee, warehouseman or similar party, nor is any Inventory
consigned to any Person.
Title to Properties; Priority of Liens. Except as set forth on
Exhibit 7.1.7, each of Borrower and its Subsidiaries has good, indefeasible and
marketable title to and fee simple ownership of, or valid and subsisting
leasehold interests in, all of its real Property, and good title to all of the
Collateral and all of its other Property, in each case, free and clear of all
Liens except Permitted Liens. Borrower has paid or discharged all lawful claims
which, if unpaid, might become a Lien against any of Borrower's Properties that
is not a Permitted Lien. The Liens granted to Lender under Section 5 hereof are
first priority Liens, subject only to Permitted Liens.
Accounts. Unless otherwise indicated in writing to Lender, with
respect to each Account:
(i) It is genuine and in all respects what it purports to
be, and it is not evidenced by a judgment;
(ii) It arises out of a completed, bona fide sale and
delivery of goods or rendition of services by Borrower in the
ordinary course of its business and in accordance with the terms
and conditions of all purchase orders, contracts or other
documents relating thereto and forming a part of the contract
between Borrower and the Account Debtor;
(iii) Such Account, and Lender's security interest
therein, is not, and will not (by voluntary act or omission of
Borrower) be in the future, subject to any offset, Lien,
deduction, defense, dispute, counterclaim or any other adverse
condition except for disputes resulting in returned goods where
the amount in controversy is deemed by Lender to be immaterial,
and each such Account is absolutely owing to Borrower and is not
contingent in any respect or for any reason; and
(iv) Borrower has made no agreement with any Account
Debtor thereunder for any extension, compromise, settlement or
modification of any such Account or any deduction therefrom,
except discounts or allowances which are granted by Borrower in
the ordinary course of its business for prompt payment and which
are reflected in the calculation of the net amount of each
respective invoice related thereto.
Equipment. The Equipment is in good operating condition and
repair, and all necessary replacements of and repairs thereto shall be made so
that the value and operating
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efficiency of the Equipment shall be maintained and preserved, reasonable wear
and tear excepted.
8.1.10.Financial Statements; Fiscal Year.
(a) The balance sheets of Borrower as of December 31,
1997, and the related statements of income, changes in stockholder's equity, and
changes in financial position for the periods ended on such dates, have been
prepared in accordance with GAAP, and present fairly the financial position of
Borrower at such dates and the results of Borrower's operations for such
periods. Since July 31, 1998, there has been no material change in the
condition, financial or otherwise, of Borrower and no change in the aggregate
value of Equipment and real Property owned by Borrower, except changes in the
ordinary course of business, none of which individually or in the aggregate has
been materially adverse. The fiscal year of Borrower and each of its
Subsidiaries ends on December 31 of each year.
(b) The twelve-month cash flow projections of Borrower and
its projected balance sheets as of the Closing Date, copies of which are annexed
hereto as Exhibit 7.1.10(c) (the "Closing Projections") were prepared by the
Chief Financial Officer of Borrower, are based on underlying assumptions which
provide a reasonable basis for the projections contained therein and reflect
Borrower's judgment based on present circumstances of the most likely set of
conditions and course of action for the projected period.
Full Disclosure. The financial statements referred to in
subsection 7.1.10 hereof do not, nor does this Agreement or any other written
statement of Borrower to Lender, contain any untrue statement of a material fact
or omit a material fact necessary to make the statements contained therein or
herein not misleading. There is no fact which Borrower has failed to disclose to
Lender in writing which materially affects adversely or, so far as Borrower can
now foresee, will materially affect adversely the Properties, business,
prospects, profits or condition (financial or otherwise) of Borrower or any of
its Subsidiaries or the ability of Borrower or its Subsidiaries to perform this
Agreement or the other Loan Documents.
Solvent Financial Condition. Each of Borrower and its
Subsidiaries is now and, after giving effect to the Loans to be made and the
Letters of Credit and LC Guaranties to be issued hereunder, at all times will
be, Solvent.
Surety Obligations. Neither Borrower nor any of its Subsidiaries
is obligated as surety or indemnitor under any surety or similar bond or other
contract issued or entered into any agreement to assure payment, performance or
completion of performance of any undertaking or obligation of any Person.
Taxes. Borrower's federal tax identification number is
56-1379322. The federal tax identification number of each of Borrower's
Subsidiaries is shown on Exhibit 7.1.14 hereto. Borrower and each of its
Subsidiaries has filed all federal, state and local tax returns and other
reports it is required by law to file and has paid, or made provision for the
payment of, all taxes, assessments, fees, levies and other governmental charges
upon it, its income and Properties as
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and when such taxes, assessments, fees, levies and charges that are due and
payable, unless and to the extent any thereof are being actively contested in
good faith and by appropriate proceedings and Borrower maintains reasonable
reserves on its books therefor. The provision for taxes on the books of Borrower
and its Subsidiaries are adequate for all years not closed by applicable
statutes, and for its current fiscal year.
Brokers. Except as set forth on Exhibit 7.1.15, there are no
claims for brokerage commissions, finder's fees or investment banking fees in
connection with the transactions contemplated by this Agreement.
8.1.16.Patents, Trademarks, Copyrights and Licenses.
Each of Borrower and its Subsidiaries owns or possesses all the patents,
trademarks, service marks, trade names, copyrights and licenses necessary for
the present and planned future conduct of its business without any known
conflict with the rights of others. All such patents, trademarks, service marks,
tradenames, copyrights, licenses and other similar rights are listed on Exhibit
7.1.16 hereto.
8.1.17.Governmental Consents.
Each of Borrower and its Subsidiaries has, and is in good standing with
respect to, all governmental consents, approvals, licenses, authorizations,
permits, certificates, inspections and franchises necessary to continue to
conduct its business as heretofore or proposed to be conducted by it and to own
or lease and operate its Properties as now owned or leased by it.
Compliance with Laws. Each of Borrower and its Subsidiaries has
duly complied with, and its Properties, business operations and leaseholds are
in compliance in all material respects with, the provisions of all federal,
state and local laws, rules and regulations applicable to Borrower or such
Subsidiary, as applicable, its Properties or the conduct of its business and
there have been no citations, notices or orders of noncompliance issued to
Borrower or any of its Subsidiaries under any such law, rule or regulation. Each
of Borrower and its Subsidiaries has established and maintains an adequate
monitoring system to insure that it remains in compliance with all federal,
state and local laws, rules and regulations applicable to it. No Inventory has
been produced in violation of the Fair Labor Standards Act (29 U.S.C. ss. 201 et
seq.), as amended.
8.1.19.Restrictions.
Except as expressly set forth in the Plan of Reorganization, neither Borrower
nor any of its Subsidiaries 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 Properties. Neither Borrower
nor any of its Subsidiaries is a party or subject to any contract or agreement
which restricts its right or ability to incur Indebtedness, other than as set
forth on Exhibit 7.1.19 hereto, none of which prohibit the execution of or
compliance with this Agreement or the other Loan Documents by Borrower or any of
its Subsidiaries, as applicable.
Litigation. Except as set forth on Exhibit 7.1.20 hereto, there
are no actions, suits, proceedings or investigations pending, or to the
knowledge of Borrower, threatened, against or
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affecting Borrower or any of its Subsidiaries, or the business, operations,
Properties, prospects, profits or condition of Borrower or any of its
Subsidiaries. Neither Borrower nor any of its Subsidiaries is in default with
respect to any order, writ, injunction, judgment, decree or rule of any court,
governmental authority or arbitration board or tribunal.
No Defaults. No event has occurred and no condition exists which
would, upon or after the execution and delivery of this Agreement or Borrower's
performance hereunder, constitute a Default or an Event of Default. Neither
Borrower nor any of its Subsidiaries is in default, and no event has occurred
and no condition exists which constitutes, or which with the passage of time or
the giving of notice or both would constitute, a default in the payment of any
Indebtedness to any Person for Money Borrowed.
Leases. Exhibit 7.1.22(A) hereto is a complete listing of all
capitalized leases of Borrower and its Subsidiaries and Exhibit 7.1.22(B) hereto
is a complete listing of all operating leases of Borrower and its Subsidiaries.
Each of Borrower and its Subsidiaries is in full compliance with all of the
terms of each of its respective capitalized and operating leases.
Pension Plans. Except as disclosed on Exhibit 7.1.23 hereto,
neither Borrower nor any of its Subsidiaries has any Plan. Borrower and each of
its Subsidiaries is in full compliance with the requirements of ERISA and the
regulations promulgated thereunder with respect to each Plan. No fact or
situation that could result in a material adverse change in the financial
condition of Borrower or any of its Subsidiaries exists in connection with any
Plan. Neither Borrower nor any of its Subsidiaries has any withdrawal liability
in connection with a Multiemployer Plan.
Trade Relations. There exists no actual or threatened
termination, cancellation or limitation of, or any modification or change in,
the business relationship between Borrower or any of its Subsidiaries and any
customer or any group of customers whose purchases individually or in the
aggregate are material to the business of Borrower or any of its Subsidiaries,
or with any material supplier, and except as expressly set forth in the Plan of
Reorganization, there exists no present condition or state of facts or
circumstances which would materially affect adversely Borrower or any of its
Subsidiaries or prevent Borrower or any of its Subsidiaries from conducting such
business after the consummation of the transaction contemplated by this
Agreement in substantially the same manner in which it has heretofore been
conducted.
Labor Relations. Except as described on Exhibit 7.1.25 hereto,
neither Borrower nor any of its Subsidiaries is a party to any collective
bargaining agreement. There are no material grievances, disputes or
controversies with any union or any other organization of Borrower's or any of
its Subsidiaries' employees, or threats of strikes, work stoppages or any
asserted pending demands for collective bargaining by any union or organization.
Delivery of Subordinated Note. Lender has received a complete
copy of the Subordinated Note and all amendments thereto, waivers relating
thereto and other side letters or agreements affecting the terms thereof. The
Subordinated Note has not been amended or supplemented, no default has occurred
thereunder nor have any of the provisions thereof been
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waived, except pursuant to a written agreement or instrument which has
heretofore been delivered to Lender. The transactions contemplated by the
Subordinated Note have been consummated on the terms and conditions set forth
therein and in accordance with all applicable law.
Continuous Nature of Representations and Warranties. Each representation
and warranty contained in this Agreement and the other Loan Documents shall be
continuous in nature and shall remain accurate, complete and not misleading at
all times during the term of this Agreement, except for changes in the nature of
Borrower's or its Subsidiaries' business or operations that would render the
information in any exhibit attached hereto either inaccurate, incomplete or
misleading, so long as Lender has consented to such changes or such changes are
expressly permitted by this Agreement.
Survival of Representations and Warranties. All representations and
warranties of Borrower contained in this Agreement or any of the other Loan
Documents shall survive the execution, delivery and acceptance thereof by Lender
and the parties thereto and the closing of the transactions described therein or
related thereto.
SECTION 9. COVENANTS AND CONTINUING AGREEMENTS
Affirmative Covenants. During the term of this Agreement, and thereafter
for so long as there are any Obligations to Lender, Borrower covenants that,
unless otherwise consented to by Lender in writing, it shall:
Visits and Inspections. Permit representatives of Lender, from
time to time, as often as may be reasonably requested, but only during normal
business hours, to visit and inspect the Properties of Borrower and each of its
Subsidiaries, inspect, audit and make extracts from its books and records, and
discuss with its officers, its employees and its independent accountants,
Borrower's and each of its Subsidiaries' business, assets, liabilities,
financial condition, business prospects and results of operations.
Notices. Promptly notify Lender in writing of the occurrence of
any event or the existence of any fact which renders any representation or
warranty in this Agreement or any of the other Loan Documents inaccurate,
incomplete or misleading.
Financial Statements. Keep, and cause each Subsidiary to keep,
adequate records and books of account with respect to its business activities in
which proper entries are made in accordance with GAAP reflecting all its
financial transactions; and cause to be prepared and furnished to Lender the
following (all to be prepared in accordance with GAAP applied on a consistent
basis, unless Borrower's certified public accountants concur in any change
therein and such change is disclosed to Lender and is consistent with GAAP):
(i) not later than 120 days after the close of each fiscal
year of Borrower, unqualified audited Financial Statements of
Borrower as of the end of
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such year which shall provide comparisons to the financial
statements for the immediately preceding fiscal year, certified
by Ernst & Young LLP or such other independent certified public
accountants of recognized standing selected by Borrower but
acceptable to Lender (except for a qualification for a change in
accounting principles with which the accountant concurs);
(ii) not later than 30 days after the end of each month
hereafter, including the last month of Borrower's fiscal year,
unaudited interim balance sheets, statements of income and
stockholders' equity and cash flow of Borrower as of the end of
such month which shall provide comparisons to the financial
statements for the immediately preceding month and of the portion
of Borrower's financial year then elapsed certified by the
principal financial officer of Borrower as prepared in accordance
with GAAP and fairly presenting the financial position and
results of operations of Borrower for such month and period
subject only to changes from audit and year-end adjustments and
except that such statements need not contain notes;
(iii) promptly after the sending or filing thereof, as the
case may be, copies of any proxy statements, financial statements
or reports which Borrower has made available to its shareholders
and copies of any regular, periodic and special reports or
registration statements which Borrower files with the Securities
and Exchange Commission or any governmental authority which may
be substituted therefor, or any national securities exchange;
(iv) promptly after the filing thereof, copies of any
annual report to be filed with the Pension Benefit Guaranty
Corporation (the "PBGC") or ERISA in connection with each Plan;
and
(v) such other data and information (financial and
otherwise) as Lender, from time to time, may reasonably request,
bearing upon or related to the Collateral or Borrower's and each
of its Subsidiaries' financial condition or results of
operations.
Concurrently with the delivery of the financial statements
described in clause (i) of this subsection 8.1.3, Borrower shall forward to
Lender a copy of the accountants' letter to Borrower's management that is
prepared in connection with such financial statements and also shall cause to be
prepared and shall furnish to Lender a certificate of the aforesaid certified
public accountants certifying to Lender that, based upon their examination of
the financial statements of Borrower performed in connection with their
examination of said financial statements, they are not aware of any Default or
Event of Default, or, if they are aware of such Default or Event of Default,
specifying the nature thereof, and acknowledging, in a manner satisfactory to
Lender, that they are aware that Lender is relying on such financial statements
in making its decisions with respect to the Loans. Concurrently with the
delivery of the financial statements described in clauses (i) and (ii) of this
subsection 8.1.3, or more frequently if requested by Lender, Borrower shall
cause to be prepared and furnished to Lender a Compliance Certificate in the
form of
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Exhibit 8.1.3 hereto executed by the Chief Financial Officer of Borrower.
Landlord and Storage Agreements.Immediately upon (a) Lender's
request therefor with respect to premises utilized by Borrower on or prior to
the Closing Date and (b) Borrower's entering into any lease or warehouse
agreement with respect to any additional premises utilized by Borrower after the
Closing Date (each, an "Additional Location"), provide Lender with copies of all
agreements between Borrower or any of its Subsidiaries and any landlord or
warehouseman which owns any premises at which any Inventory and/or Equipment
may, from time to time, be kept. With respect to each Additional Location,
Borrower shall use its best efforts to cause the landlord or warehouseman, as
applicable, of each such location to deliver to Lender, prior to Borrower's
entering into any lease or warehouse agreement with respect to such Additional
Location, a landlord waiver or warehouseman's waiver, as applicable, acceptable
in all respects to Lender.
Projections. No later than 30 days after to the end of each
fiscal year of Borrower, deliver to Lender, Projections of Borrower for the
forthcoming 3 years, year by year, and for the forthcoming fiscal year, month by
month.
9.1.6.
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Recordkeeping. Maintain at all times a perpetual inventory tracking system which
tracks Borrower's inventory by unit designation, price point and location, such
system to be satisfactory to Lender.
9.1.8. Borrowing Base Certificate.
Deliver to Lender on Wednesday of each week a fully completed Borrowing Base
Certificate as for the last day of the immediately preceding week, in form and
substance satisfactory to Lender.
9.1.9. Business and Collateral Locations.
Deliver to Lender on the last day of each December, March, June and September
during the term of this Agreement a schedule of all of Borrower's business and
Collateral locations.
Negative Covenants. During the term of this Agreement, and thereafter
for so long as there are any Obligations to Lender, Borrower covenants that,
unless Lender has first consented thereto in writing, it will not:
Mergers; Consolidations; Acquisitions. Merge or consolidate, or
permit any Subsidiary of Borrower to merge or consolidate, with any Person; nor
acquire, nor permit any of its Subsidiaries to acquire, all or any substantial
part of the Properties of any Person.
Loans. Make, or permit any Subsidiary of Borrower to make, any
loans or other advances of money (other than for salary, travel advances,
advances against commissions and other similar advances in the ordinary course
of business) to any Person.
Total Indebtedness. Create, incur, assume, or suffer to exist, or
permit any Subsidiary of Borrower to create, incur or suffer to exist, any
Indebtedness, except:
(i) Obligations owing to Lender;
(ii) Subordinated Debt as evidenced by the Subordinated
Note as in effect on the date of this Agreement;
(iii) Indebtedness of any Subsidiary of Borrower to
Borrower;
(iv) accounts payable to trade creditors and current
operating expenses (other than for Money Borrowed) which are not
aged more than 360 days from billing date or more than 45 days
from the due date, in each case incurred in the ordinary course
of business and paid within such time period, unless the same are
being actively contested in good faith and by appropriate and
lawful proceedings; and Borrower or such Subsidiary shall have
set aside such reserves, if any, with respect thereto as are
required by GAAP and deemed adequate by Borrower or such
Subsidiary and its independent accountants;
(v) Obligations to make lease payments pursuant to the
terms of any lease to which Borrower or any Subsidiary of
Borrower is a party;
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(vi) Permitted Purchase Money Indebtedness;
(vii) contingent liabilities arising out of endorsements
of checks and other negotiable instruments for deposit or
collection in the ordinary course of business; and
(viii) Indebtedness not included in paragraphs (i) through
(vii) above which does not exceed at any time, in the aggregate,
the sum of $100,000
Affiliate Transactions. Enter into, or be a party to, or permit
any Subsidiary of Borrower to enter into or be a party to, any transaction with
any Affiliate of Borrower or stockholder, except in the ordinary course of and
pursuant to the reasonable requirements of Borrower's or such Subsidiary's
business and upon fair and reasonable terms which are fully disclosed to Lender
and are no less favorable to Borrower than would obtain in a comparable arm's
length transaction with a Person not an Affiliate or stockholder of Borrower or
such Subsidiary.
Limitation on Liens. Create or suffer to exist, or permit any
Subsidiary of Borrower to create or suffer to exist, any Lien upon any of its
Property, income or profits, whether now owned or hereafter acquired, except:
(i) Liens at any time granted in favor of Lender;
(ii) Liens for taxes (excluding any Lien imposed pursuant
to any of the provisions of ERISA) not yet due, or being
contested in the manner described in subsection 7.1.14 hereto,
but only if in Lender's judgment such Lien does not adversely
affect Lender's rights or the priority of Lender's Lien in the
Collateral;
(iii) Liens arising in the ordinary course of Borrower's
business by operation of law or regulation, but only if payment
in respect of any such Lien is not at the time required and such
Liens do not (1) have any effect on the priority of the Liens in
favor of Lender and (2) in the aggregate, materially detract from
the value of the Property of Borrower or materially impair the
use thereof in the operation of Borrower's business;
(iv) Purchase Money Liens securing Permitted Purchase
Money Indebtedness;
(v) Liens securing Indebtedness of one of Borrower's
Subsidiaries to Borrower or another such Subsidiary;
(vi) any interest of a lessor under any lease entered into
by Borrower in the ordinary course of its business, which such
interest covers only the assets so leased;
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(vii) such other Liens as appear on Exhibit 8.2.5 hereto;
and
(viii) such other Liens as Lender may hereafter approve in
writing.
Subordinated Debt. Make, or permit any Subsidiary of Borrower to
make, any payment of any part or all of any Subordinated Debt or take any other
action or omit to take any other action in respect of any Subordinated Debt;
provided, however, so long as no Default or Event of Default shall then be in
existence, Borrower shall be permitted to make (a) regularly scheduled payments
of interest as set forth on the Closing Date in the Subordinated Note and (b) on
and after January 1, 2000, regularly scheduled payments of principal as set
forth on the Closing Date in the Subordinated Note.
Distributions. Declare or make, or permit any Subsidiary of
Borrower to declare or make, any Distributions, except purchases, not to exceed
an aggregate amount at any time in excess of $100,000, of Borrower's capital
stock from Borrower's terminated officers, provided that at the time of and
immediately after giving effect to each such purchase no Event of Default shall
have occurred and be continuing.
Capital Expenditures. Make Capital Expenditures (including,
without limitation, by way of capitalized leases) which are not made on fair and
reasonable terms and which are not reasonably related to the business conducted
or proposed to be conducted by Borrower.
Disposition of Assets. Sell, lease or otherwise dispose of any
of, or permit any Subsidiary of Borrower to sell, lease or otherwise dispose any
of, its Properties, including any disposition of Property as part of a sale and
leaseback transaction, to or in favor of any Person, except (i) sales of
Inventory in the ordinary course of business for so long as no Event of Default
exists hereunder, (ii) a transfer of Property to Borrower by a Subsidiary of
Borrower or (iii) dispositions expressly authorized by this Agreement.
Stock of Subsidiaries. Permit any of its Subsidiaries to issue
any additional shares of its capital stock except director's qualifying shares.
Bill-and-Hold Sales, Etc. Make a sale to any customer on a
bill-and-hold, guaranteed sale, sale and return, sale on approval or consignment
basis, or any sale on a repurchase or return basis.
Restricted Investment. Make or have, or permit any Subsidiary of
Borrower to make or have, any Restricted Investment.
Tax Consolidation. File or consent to the filing of any
consolidated income tax return with any Person other than a Subsidiary of
Borrower.
Specific Financial Covenants. During the term of this Agreement, and
thereafter for so long as there are any Obligations to Lender, Borrower
covenants that, unless otherwise consented
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to by Lender in writing, it shall:
Minimum Net Worth. Maintain at all times a Minimum Net Worth
during the periods set forth below of at least the amount set forth below
opposite the applicable period:
Period Amount
------ ------
Closing Date - November 30, 1998 $ 0
December 1, 1998 - December 31, 1998 $2,000,000
January 1, 1999 - March 31, 1999 $1,000,000
April 1, 1999 - September 30, 1999 $ 750,000
October 1, 1999 - November 30, 1999 $1,000,000
December 1, 1999 - December 31, 1999 $3,000,000
January 1, 2000 - November 30, 2000 $2,000,000
December 1, 2000 - December 31, 2000 $4,000,000
January 1, 2001 - November 30, 2001 $3,000,000
December 1, 2001 - December 31, 2001 $5,000,000
January 1, 2002 - November 30, 2002 $4,000,000
December 1, 2002 - December 31, 2002 $6,000,000
January 1, 2003 and at all times thereafter $5,000,000
Leverage Ratio. Maintain a Leverage Ratio at the end of each
Fiscal Quarter with respect to the four (4) Fiscal Quarters then ended of not
greater than (a) 3:00 to 1:00 for the three months ending December 31, 1998, (b)
3:00 to 1:00 for the six months ending March 31, 1999, (c) 4:00 to 1:00 for the
nine months ending June 30, 1999, (d) 4:25 to 1:00 for the twelve months ending
September 30, 1999 and (e) 3:00 to 1:00 for each Fiscal Quarter ending after
September 30, 1999; provided, however, with respect to all Fiscal Quarters
ending prior to September 30, 1999, solely for purposes of determining the
Leverage Ratio under this subsection 8.3.2, EBITDA shall be calculated on an
annualized cumulative basis through the applicable Fiscal Quarter end.
Cash Flow.Maintain Cash Flow of not less than (a) $2,000,000 for
the three months ending December 31, 1998, (b) $1,000,000 for the six months
ending March 31, 1999, (c) $500,000 for the nine months ending June 30, 1999,
(d) $500,000 for the twelve months ended September 30, 1999 and (e) $500,000 for
each fiscal quarter ending after September 30, 1999 (calculated in each case on
a rolling twelve month basis). In the event Borrower makes any payments under
the Subordinated Note in accordance with the terms of subsection 8.2.6 hereof
("Permitted Subordinated Debt Payments"), then, solely for purposes of
calculating Cash Flow under this subsection 8.3.3, the Permitted Subordinated
Debt Payments actually made during any period shall be included as an addition
item in the calculation of Cash Flow for such period.
SECTION 10. CONDITIONS PRECEDENT
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Notwithstanding any other provision of this Agreement or any of the
other Loan Documents, and without affecting in any manner the rights of Lender
under the other sections of this Agreement, Lender shall not be required to make
any Loan under this Agreement unless and until each of the following conditions
has been and continues to be satisfied:
Documentation. Lender shall have received, in form and substance
satisfactory to Lender and its counsel, a duly executed copy of this Agreement
and the other Loan Documents, together with such additional documents,
instruments and certificates as Lender and its counsel shall require in
connection therewith from time to time, all in form and substance satisfactory
to Lender and its counsel.
No Default. No Default or Event of Default shall exist.
Other Loan Documents. Each of the conditions precedent set forth in the
other Loan Documents shall have been satisfied.
No Litigation. No action, proceeding, investigation, regulation or
legislation shall have been instituted, threatened or proposed before any court,
governmental agency or legislative body to enjoin, restrain or prohibit, or to
obtain damages in respect of, or which is related to or arises out of this
Agreement, the Subordinated Note or the consummation of the transactions
contemplated hereby or thereby. In addition, (i) no litigation, investigation or
proceeding before or by any arbitrator or governmental body shall be continuing
or threatened against Borrower or against the officers or directors of Borrower
which if adversely determined, could, in the reasonable opinion of Lender, have
a Material Adverse Effect on Borrower; and (ii) no injunction, writ, restraining
order or other order of any nature materially adverse to Borrower or the conduct
of its business or inconsistent with the due consummation of the transactions
shall have been issued by any governmental body.
Filings, Registrations and Recordings. Each document (including, without
limitation, any Uniform Commercial Code financing statement) required by this
Agreement, any related agreement or under law or reasonably requested by Lender
to be filed, registered or recorded in order to create, in favor of Lender, a
perfected security interest in or lien upon the Collateral shall have been
properly filed, registered or recorded in each jurisdiction in which the filing,
registration or recordation thereof is so required or requested, and Lender
shall have received an acknowledgment copy, or other evidence satisfactory to
it, of each such filing, registration or recordation and satisfactory evidence
of the payment of any necessary fee, tax or expense relating thereto.
Corporate Proceedings of Borrower. Lender shall have received a copy of
the resolutions in form and substance reasonably satisfactory to Lender, of the
Board of Directors of Borrower authorizing (i) the execution, delivery and
performance of this Agreement and all other Loan Documents (collectively the
"Documents") and (ii) the granting by Borrower of the security interests in and
liens upon the Collateral, in each case certified by an authorized officer of
Borrower as of the Closing Date; and, such certificate shall state that the
resolutions thereby certified have not been amended, modified, revoked or
rescinded as of the date of such
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certificate.
Incumbency Certificates of Borrower. Lender shall have received a
certificate of an authorized officer of Borrower, dated the Closing Date, as to
the incumbency and signature of the officers of Borrower executing this
Agreement or any other Loan Document, any certificate or other documents to be
delivered by it pursuant hereto, together with evidence of the incumbency of
such authorized officer.
Certificates. Lender shall have received a copy of the Articles or
Certificate of Incorporation of Borrower, and all amendments thereto, certified
by the Secretary of State or other appropriate official of its jurisdiction of
incorporation together with copies of the By-Laws of Borrower and all agreements
of Borrower's shareholders certified as accurate and complete by an authorized
officer of Borrower.
Good Standing Certificates. Lender shall have received good standing
certificates for Borrower dated not more than 30 days prior to the Closing,
issued by the Secretary of State or other appropriate official of Borrower's
jurisdiction of incorporation and each jurisdiction where the conduct of
Borrower's business activities or the ownership of its properties necessitates
qualification.
Legal Opinion. Lender shall have received the executed legal opinion of
Butler, Fitzgerald & Potter in form and substance satisfactory to Lender, each
of which shall cover such matters incident to the transactions contemplated by
this Agreement and related agreements as Lender may reasonably require.
Fees. Lender shall have received all fees payable to Lender on or prior
to the Closing Date pursuant to this Agreement.
Insurance. Lender shall have received in form and substance satisfactory
to Lender certified copies of Borrower's casualty insurance policies, together
with loss payable endorsements on Lender's standard form of loss payee
endorsement naming Lender as loss payee, and certified copies of Borrower's
liability insurance policies, together with endorsements naming Lender as a
co-insured.
Subordinated Note. Lender shall have received in form and substance
satisfactory to Lender a final executed copy of the Subordinated Note, and all
related agreements, documents and instruments as in effect on the Closing Date
and the transactions contemplated by such documentation shall be consummated
concurrently with the making of the initial Loans.
Payment Instructions. Lender shall have received written instructions
from Borrower directing the application of proceeds of the initial Revolving
Credit Loans made pursuant to this Agreement.
Blocked Accounts. Lender shall have received duly executed agreements
establishing the Blocked Accounts with financial institutions acceptable to
Lender for the collection or servicing
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of the Receivables and proceeds of the Collateral.
No Adverse Material Change. (i) Since July 31, 1998, there shall have
occurred (x) no material adverse change in the condition, financial or
otherwise, operations, properties or prospects of Borrower, (y) no material
damage or destruction to any of the Collateral nor any material depreciation in
the value thereof and (z) no event, condition or state of facts which could
reasonably be expected to have a Material Adverse Effect on Borrower and (ii) no
representations made or information supplied to Lender shall have been proven to
be inaccurate or misleading in any material respect.
Contract Review. Lender shall have reviewed all material contracts of
Borrower including, without limitation, leases, union contracts, labor
contracts, vendor supply contracts, license agreements and distributorship
agreements and such contracts and agreements shall be reasonably satisfactory in
all material respects to Lender.
Subordination Agreement. Lender shall have received, in form and
substance satisfactory to Lender and its counsel, a duly executed copy of the
Subordination Agreement.
10.19. Bankruptcy Court Confirmation.
Lender shall have received, in form and substance satisfactory to Lender and its
counsel, the final and non-appealable Confirmation Order which shall have been
entered by the Court.
Other. All corporate and other proceedings, and all documents,
instruments and other legal matters in connection with the transactions
contemplated hereby shall be satisfactory in form and substance to Lender and
its counsel.
SECTION 11. EVENTS OF DEFAULT; RIGHTS AND REMEDIES ON DEFAULT
Events of Default. The occurrence of one or more of the following events
shall constitute an "Event of Default":
Payment of Obligations Note. Borrower shall fail to pay any of
the Obligations on the due date thereof (whether due at stated maturity, on
demand, upon acceleration or otherwise).
Misrepresentations. Any representation, warranty or other
statement made or furnished to Lender by or on behalf of Borrower, any
Subsidiary of Borrower in this Agreement, any of the other Loan Documents or any
instrument, certificate or financial statement furnished in compliance with or
in reference thereto proves to have been false or misleading in any material
respect when made or furnished or when reaffirmed pursuant to Section 7.2
hereof.
Breach of Specific Covenants. Borrower shall fail or neglect to
perform, keep or observe any covenant contained in Sections 5.2, 6.1.1, 6.2,
8.1.1, 8.1.3, 8.2 or 8.3 hereof on the date that Borrower is required to
perform, keep or observe such covenant.
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Breach of Other Covenants. Borrower shall fail or neglect to
perform, keep or observe any covenant contained in this Agreement (other than a
covenant which is dealt with specifically elsewhere in Section 10.1 hereof) and
the breach of such other covenant is not cured to Lender's satisfaction within
15 days after the sooner to occur of Borrower's receipt of notice of such breach
from Lender or the date on which such failure or neglect first becomes known to
any officer of Borrower.
Default Under Security Documents/Other Agreements/Subordinated
Note/Subordination Agreement. Any event of default shall occur under, or
Borrower shall default in the performance or observance of any term, covenant,
condition or agreement contained in, any of the Security Documents, the Other
Agreements, the Subordinated Note or the Subordination Agreement and such
default shall continue beyond any applicable grace period.
Other Defaults. There shall occur any default or event of default
on the part of Borrower under any agreement, document or instrument to which
Borrower is a party or by which Borrower or any of its Property is bound,
creating or relating to any Indebtedness (other than the Obligations) having an
aggregate outstanding principal balance in excess of $100,000 (the "Basket") if
the payment or maturity of such Indebtedness is accelerated in consequence of
such event of default or demand for payment of such Indebtedness is made;
provided, however, notwithstanding the Basket, any default or event of default
in respect of the Subordinated Debt shall constitute an Event of Default
hereunder.
Uninsured Losses. Any material loss, theft, damage or destruction
of any of the Collateral not fully covered (subject to such deductibles as
Lender shall have permitted) by insurance.
Adverse Changes. There shall occur any material adverse change in
the financial condition or business prospects of Borrower.
Insolvency and Related Proceedings. Borrower shall cease to be
Solvent or shall suffer the appointment of a receiver, trustee, custodian or
similar fiduciary, or shall make an assignment for the benefit of creditors, or
any petition for an order for relief shall be filed by or against Borrower under
the Bankruptcy Code (if against Borrower, the continuation of such proceeding
for more than 30 days), or Borrower or shall make any offer of settlement,
extension or composition to its respective unsecured creditors generally.
Business Disruption; Condemnation. There shall occur a cessation
of a substantial part of the business of Borrower, or any Subsidiary of Borrower
for a period which significantly affects Borrower's capacity to continue its
business, on a profitable basis; or Borrower or any Subsidiary of Borrower shall
suffer the loss or revocation of any license or permit now held or hereafter
acquired by Borrower or such Subsidiary which is necessary to the continued or
lawful operation of its business; or Borrower or any Subsidiary of Borrower
shall be enjoined, restrained or in any way prevented by court, governmental or
administrative order from conducting all or any material part of its business
affairs; or any material lease or agreement
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pursuant to which Borrower or any Subsidiary of Borrower leases, uses or
occupies any Property shall be canceled or terminated prior to the expiration of
its stated term; or any part of the Collateral shall be taken through
condemnation or the value of such Property shall be impaired through
condemnation.
Change of Ownership. At any time, any Person other than Jordan
Industries, singly or together with the Affiliates of Jordan Industries, shall
own or control, beneficially or of record, more than fifty percent (50%) of the
issued and outstanding capital stock of Borrower.
ERISA. A Reportable Event shall occur which Lender, in its sole
discretion, shall determine in good faith constitutes grounds for the
termination by the PBGC of any Plan or for the appointment by the appropriate
United States district court of a trustee for any Plan, or if any Plan shall be
terminated or any such trustee shall be requested or appointed, or if Borrower
or any Subsidiary of Borrower is in "default" (as defined in Section 4219(c)(5)
of ERISA) with respect to payments to a Multiemployer Plan resulting from
Borrower's or such Subsidiary's complete or partial withdrawal from such Plan.
Challenge to Agreement. Borrower or any Subsidiary of Borrower,
or any Affiliate of any of them, shall challenge or contest in any action, suit
or proceeding the validity or enforceability of this Agreement, or any of the
other Loan Documents, the legality or enforceability of any of the Obligations
or the perfection or priority of any Lien granted to Lender.
Criminal Forfeiture. Borrower or any Subsidiary of Borrower shall
be criminally indicted or convicted under any law that could lead to a
forfeiture of any Property of Borrower or any Subsidiary of Borrower.
Judgments. Any money judgment, writ of attachment or similar
process is filed against Borrower or any Subsidiary of Borrower or any of their
respective Property if the aggregate outstanding amount thereof is in excess of
$100,000.
Acceleration of the Obligations. Without in any way limiting the right
of Lender to demand payment of any portion of the Obligations payable on demand
in accordance with Section 3.2 hereof, upon or at any time after the occurrence
of an Event of Default, all or any portion of the Obligations shall, at the
option of Lender and without presentment, demand protest or further notice by
Lender, become at once due and payable and Borrower shall forthwith pay to
Lender, the full amount of such Obligations, provided, that upon the occurrence
of an Event of Default specified in subsection 10.1.9 hereof, all of the
Obligations shall become automatically due and payable without declaration,
notice or demand by Lender.
Other Remedies. Upon and after the occurrence of an Event of Default,
Lender shall have and may exercise from time to time the following rights and
remedies:
10.3.1.All of the rights and remedies of a secured party under
the Code or under other applicable law, and all other legal and equitable rights
to which Lender may be entitled, all
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of which rights and remedies shall be cumulative and shall be in addition to any
other rights or remedies contained in this Agreement or any of the other Loan
Documents, and none of which shall be exclusive.
10.3.2.The right to take immediate possession of the Collateral,
and to (i) require Borrower to assemble the Collateral, at Borrower's expense,
and make it available to Lender at a place designated by Lender which is
reasonably convenient to both parties, and (ii) enter any premises where any of
the Collateral shall be located and to keep and store the Collateral on said
premises until sold (and if said premises be the Property of Borrower, Borrower
agrees not to charge Lender for storage thereof).
10.3.3.The right to sell or otherwise dispose of all or any
Collateral in its then condition, or after any further manufacturing or
processing thereof, at public or private sale or sales, with such notice as may
be required by law, in lots or in bulk, for cash or on credit, all as Lender, in
its sole discretion, may deem advisable. Borrower agrees that 10 days written
notice to Borrower of any public or private sale or other disposition of
Collateral shall be reasonable notice thereof, and such sale shall be at such
locations as Lender may designate in said notice. Lender shall have the right to
conduct such sales on Borrower's premises, without charge therefor, and such
sales may be adjourned from time to time in accordance with applicable law.
Lender shall have the right to sell, lease or otherwise dispose of the
Collateral, or any part thereof, for cash, credit or any combination thereof,
and 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 price against the Obligations. The
proceeds realized from the sale of any Collateral may be applied, after allowing
five (5) Business Days for collection, first to the costs, expenses and
attorneys' fees incurred by Lender in collecting the Obligations, in enforcing
the rights of Lender under the Loan Documents and in collecting, retaking,
completing, protecting, removing, storing, advertising for sale, selling and
delivering any Collateral, second to the interest due upon any of the
Obligations; and third, to the principal of the Obligations. If any deficiency
shall arise, Borrower shall remain liable to Lender therefor.
10.3.4.Lender is hereby granted a license or other right to use,
without charge, Borrower's labels, patents, copyrights, rights of use of any
name, trade secrets, tradenames, trademarks and advertising matter, or any
Property of a similar nature, as it pertains to the Collateral, in advertising
for sale and selling any Collateral and Borrower's rights under all licenses and
all franchise agreements shall inure to Lender's benefit.
10.3.5.Lender may, at its option, require Borrower to deposit
with Lender funds equal to the LC Amount and, if Borrower fails to promptly make
such deposit, Lender may advance such amount as a Revolving Credit Loan (whether
or not an Overadvance is created thereby). Any such deposit or advance shall be
held by Lender as a reserve to fund future payments on such LC Guaranties and
future drawings against such Letters of Credit. At such time as all LC
Guaranties have been paid or terminated and all Letters of Credit have been
drawn upon or expired, any amounts remaining in such reserve shall be applied
against any outstanding Obligations, or, if all Obligations have been
indefeasibly paid in full, returned to Borrower.
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Remedies Cumulative; No Waiver. All covenants, conditions, provisions,
warranties, guaranties, indemnities, and other undertakings of Borrower
contained in this Agreement and the other Loan Documents, or in any document
referred to herein or contained in any agreement supplementary hereto or in any
schedule given to Lender or contained in any other agreement between Lender and
Borrower, heretofore, concurrently, or hereafter entered into, shall be deemed
cumulative to and not in derogation or substitution of any of the terms,
covenants, conditions, or agreements of Borrower herein contained. The failure
or delay of Lender to require strict performance by Borrower of any provision of
this Agreement or to exercise or enforce any rights, Liens, powers, or remedies
hereunder or under any of the aforesaid agreements or other documents or
security or Collateral shall not operate as a waiver of such performance, Liens,
rights, powers and remedies, but all such requirements, Liens, rights, powers,
and remedies shall continue in full force and effect until all Loans and all
other Obligations owing or to become owing from Borrower to Lender shall have
been fully satisfied. None of the undertakings, agreements, warranties,
covenants and representations of Borrower contained in this Agreement or any of
the other Loan Documents and no Event of Default by Borrower under this
Agreement or any other Loan Documents shall be deemed to have been suspended or
waived by Lender, unless such suspension or waiver is by an instrument in
writing specifying such suspension or waiver and is signed by a duly authorized
representative of Lender and directed to Borrower.
SECTION 12. MISCELLANEOUS
Power of Attorney. Borrower hereby irrevocably designates, makes,
constitutes and appoints Lender (and all Persons designated by Lender) as
Borrower's true and lawful attorney (and agent-in-fact) and Lender, or Lender's
agent, may, without notice to Borrower and in either Borrower's or Lender's
name, but at the cost and expense of Borrower:
11.1.1.At such time or times upon or after the occurrence of a
Default or an Event of Default as Lender or said agent, in its sole discretion,
may determine, endorse Borrower's name on any checks, notes, acceptances,
drafts, money orders or any other evidence of payment or proceeds of the
Collateral which come into the possession of Lender or under Lender's control.
11.1.2.At such time or times upon or after the occurrence of a
Default or an Event of Default as Lender or its agent in its sole discretion may
determine: (i) demand payment of the Accounts from the Account Debtors, enforce
payment of the Accounts by legal proceedings or otherwise, and generally
exercise all of Borrower's rights and remedies with respect to the collection of
the Accounts; (ii) settle, adjust, compromise, discharge or release any of the
Accounts or other Collateral or any legal proceedings brought to collect any of
the Accounts or other Collateral; (iii) sell or assign any of the Accounts and
other Collateral upon such terms, for such amounts and at such time or times as
Lender deems advisable; (iv) take control, in any manner, of any item of payment
or proceeds relating to any Collateral; (v) prepare, file and sign Borrower's
name to a proof of claim in bankruptcy or similar document against any Account
Debtor or to any notice of lien, assignment or satisfaction of lien or similar
document in
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connection with any of the Collateral; (vi) receive, open and dispose of all
mail addressed to Borrower and to notify postal authorities to change the
address for delivery thereof to such address as Lender may designate; (vii)
endorse the name of Borrower upon any of the items of payment or proceeds
relating to any Collateral and deposit the same to the account of Lender on
account of the Obligations; (viii) endorse the name of Borrower upon any chattel
paper, document, instrument, invoice, freight bill, bill of lading or similar
document or agreement relating to the Accounts, Inventory and any other
Collateral; (ix) use Borrower's stationery and sign the name of Borrower to
verifications of the Accounts and notices thereof to Account Debtors; (x) use
the information recorded on or contained in any data processing equipment and
computer hardware and software relating to the Accounts, Inventory, Equipment
and any other Collateral; (xi) make and adjust claims under policies of
insurance; and (xii) do all other acts and things necessary, in Lender's
determination, to fulfill Borrower's obligations under this Agreement.
Indemnity. Borrower hereby indemnifies Lender and holds Lender harmless
from and against any liability, loss, damage, suit, action or proceeding ever
suffered or incurred by Lender (including reasonable attorneys fees and legal
expenses) as the result of Borrower's failure to observe, perform or discharge
Borrower's duties hereunder. In addition, Borrower shall defend Lender against
and save it harmless from all claims of any Person with respect to the
Collateral. Without limiting the generality of the foregoing, these indemnities
shall extend to any claims asserted against Lender by any Person under any
Environmental Laws or similar laws by reason of Borrower's or any other Person's
failure to comply with laws applicable to solid or hazardous waste materials or
other toxic substances. Notwithstanding any contrary provision in this
Agreement, the obligation of Borrower under this Section 11.2 shall survive the
payment in full of the Obligations and the termination of this Agreement.
Modification of Agreement; Sale of Interest. This Agreement may not be
modified, altered or amended, except by an agreement in writing signed by
Borrower and Lender. Borrower may not sell, assign or transfer any interest in
this Agreement, any of the other Loan Documents, or any of the Obligations, or
any portion thereof, including, without limitation, Borrower's rights, title,
interests, remedies, powers, and duties hereunder or thereunder. Borrower hereby
consents to Lender's participation, sale, assignment, transfer or other
disposition, at any time or times hereafter, of this Agreement and any of the
other Loan Documents, or of any portion hereof or thereof, including, without
limitation, Lender's rights, title, interests, remedies, powers, and duties
hereunder or thereunder. In the case of an assignment, the assignee shall have,
to the extent of such assignment, the same rights, benefits and obligations as
it would if it were a "Lender" hereunder and Lender shall be relieved of all
obligations hereunder upon any such assignments. Borrower agrees that it will
use its best efforts to assist and cooperate with Lender in any manner
reasonably requested by Lender to effect the sale of participations in or
assignments of any of the Loan Documents or any portion thereof or interest
therein, including, without limitation, assisting in the preparation of
appropriate disclosure documents. Borrower further agrees that Lender may
disclose credit information regarding Borrower and its Subsidiaries to any
potential participant or assignee.
Severability. Wherever possible, each provision of this Agreement shall
be interpreted in
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<PAGE>
such 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 provision or the
remaining provisions of this Agreement.
Successors and Assigns. This Agreement, the Other Agreements and the
Security Documents shall be binding upon and inure to the benefit of the
successors and assigns of Borrower and Lender permitted under Section 11.3
hereof.
Cumulative Effect; Conflict of Terms. The provisions of the Other
Agreements and the Security Documents are hereby made cumulative with the
provisions of this Agreement. Except as otherwise provided in Section 3.2 hereof
and except as otherwise provided in any of the other Loan Documents by specific
reference to the applicable provision of this Agreement, if any provision
contained in this Agreement is in direct conflict with, or inconsistent with,
any provision in any of the other Loan Documents, the provision contained in
this Agreement shall govern and control.
Execution in Counterparts. This Agreement may be executed in any number
of counterparts and by different parties hereto in separate counterparts, each
of which when so executed and delivered shall be deemed to be an original and
all of which counterparts taken together shall constitute but one and the same
agreement.
Notice. Except as otherwise provided herein, all notices, requests and
demands to or upon a party hereto, to be effective, shall be in writing and
shall be sent by certified or registered mail, return receipt requested, by
personal delivery against receipt, by overnight courier or by facsimile and,
unless otherwise expressly provided herein, shall be deemed to have been validly
served, given or delivered immediately when delivered against receipt, one
Business Day after deposit in the mail, postage prepaid, or with an overnight
courier or, in the case of facsimile notice, when sent, addressed as follows:
If to Lender: FLEET CAPITAL CORPORATION
200 Glastonbury Boulevard
Glastonbury, Connecticut 06033
Attention: Northeast Loan Administrator
Facsimile No: (860) 657-7759
With a copy to: HAHN & HESSEN LLP
350 Fifth Avenue
New York, New York 10118
Attention: Daniel J. Krauss, Esq.
Facsimile No: (212) 594-7167
If to Borrower: WELCOME HOME, INC.
309-D Raleigh Street
Wilmington, North Carolina 28412
39
<PAGE>
Attention: Chief Financial Officer
Facsimile No: (910) 791-4945
With copies to: Butler, Fitzgerald & Potter P.C.
1155 Avenue of the Americas
New York, New York 10036
Attention: Raymond Fitzgerald, Esq.
Facsimile No: (212) 302-4988
and JORDAN INDUSTRIES, INC.
1751 Lake Cook Road
Deerfield, Illinois 60015
Attention: Gordon Nelson
Facsimile No: (847) 267-3470
or to such other address as each party may designate for itself by notice given
in accordance with this Section 11.8; provided, however, that any notice,
request or demand to or upon Lender pursuant to subsection 3.1.1 or 4.2.2 hereof
shall not be effective until received by Lender.
Lender's Consent. Whenever Lender's consent is required to be obtained
under this Agreement, any of the Other Agreements or any of the Security
Documents as a condition to any action, inaction, condition or event, Lender
shall be authorized to give or withhold such consent in its sole and absolute
discretion and to condition its consent upon the giving of additional collateral
security for the Obligations, the payment of money or any other matter.
Credit Inquiries. Borrower hereby authorizes and permits Lender to
respond to usual and customary credit inquiries from third parties concerning
Borrower or any of its Subsidiaries.
Time of Essence. Time is of the essence of this Agreement, the Other
Agreements and the Security Documents.
12.12. Entire Agreement.
This Agreement and the other Loan Documents, together with all other
instruments, agreements and certificates executed by the parties in connection
therewith or with reference thereto, embody the entire understanding and
agreement between the parties hereto and thereto with respect to the subject
matter hereof and thereof and supersede all prior agreements, understandings and
inducements, whether express or implied, oral or written.
12.13. Interpretation.
No provision of this Agreement or any of the other Loan Documents shall be
construed against or interpreted to the disadvantage of any party hereto by any
court or other governmental or judicial authority by reason of such party having
or being deemed to have structured or dictated such provision.
GOVERNING LAW; CONSENT TO FORUM. THIS AGREEMENT HAS
40
<PAGE>
BEEN NEGOTIATED, EXECUTED AND DELIVERED AT AND SHALL BE DEEMED TO HAVE BEEN MADE
IN NEW YORK, NEW YORK. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK: PROVIDED, HOWEVER, THAT IF
ANY OF THE COLLATERAL SHALL BE LOCATED IN ANY JURISDICTION OTHER THAN NEW YORK,
THE LAWS OF SUCH JURISDICTION SHALL GOVERN THE METHOD, MANNER AND PROCEDURE FOR
FORECLOSURE OF LENDER'S LIEN UPON SUCH COLLATERAL AND THE ENFORCEMENT OF
LENDER'S OTHER REMEDIES IN RESPECT OF SUCH COLLATERAL TO THE EXTENT THAT THE
LAWS OF SUCH JURISDICTION ARE DIFFERENT FROM OR INCONSISTENT WITH THE LAWS OF
NEW YORK. AS PART OF THE CONSIDERATION FOR NEW VALUE RECEIVED, AND REGARDLESS OF
ANY PRESENT OR FUTURE DOMICILE OR PRINCIPAL PLACE OF BUSINESS OF BORROWER OR
LENDER, BORROWER HEREBY CONSENTS AND AGREES THAT ANY FEDERAL OR STATE COURT
SITTING IN THE STATE OF NEW YORK SHALL HAVE EXCLUSIVE JURISDICTION TO HEAR AND
DETERMINE ANY CLAIMS OR DISPUTES BETWEEN BORROWER AND LENDER PERTAINING TO THIS
AGREEMENT OR TO ANY MATTER ARISING OUT OF OR RELATED TO THIS AGREEMENT. BORROWER
EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR
SUIT COMMENCED IN ANY SUCH COURT, AND BORROWER HEREBY WAIVES ANY OBJECTION WHICH
BORROWER MAY HAVE BASED UPON LACK OF PERSONAL JURISDICTION, IMPROPER VENUE OR
FORUM NON CONVENIENS AND HEREBY CONSENTS TO THE GRANTING OF SUCH LEGAL OR
EQUITABLE RELIEF AS IS DEEMED APPROPRIATE BY SUCH COURT. BORROWER HEREBY WAIVES
PERSONAL SERVICE OF THE SUMMONS, COMPLAINT AND OTHER PROCESS ISSUED IN ANY SUCH
ACTION OR SUIT AND AGREES THAT SERVICE OF SUCH SUMMONS, COMPLAINT AND OTHER
PROCESS MAY BE MADE BY REGISTERED OR CERTIFIED MAIL ADDRESSED TO BORROWER AT THE
ADDRESS SET FORTH IN THIS AGREEMENT AND THAT SERVICE SO MADE SHALL BE DEEMED
COMPLETED UPON THE EARLIER OF BORROWER'S ACTUAL RECEIPT THEREOF OR 3 DAYS AFTER
DEPOSIT IN THE U.S. MAILS, PROPER POSTAGE PREPAID. NOTHING IN THIS AGREEMENT
SHALL BE DEEMED OR OPERATE TO AFFECT THE RIGHT OF LENDER TO SERVE LEGAL PROCESS
IN ANY OTHER MANNER PERMITTED BY LAW, OR TO PRECLUDE THE ENFORCEMENT BY LENDER
OF ANY JUDGMENT OR ORDER OBTAINED IN SUCH FORUM OR THE TAKING OF ANY ACTION
UNDER THIS AGREEMENT TO ENFORCE SAME IN ANY OTHER APPROPRIATE FORUM OR
JURISDICTION.
WAIVERS BY BORROWER. BORROWER WAIVES (I) THE RIGHT TO TRIAL BY JURY
(WHICH LENDER HEREBY ALSO WAIVES) IN ANY ACTION, SUIT, PROCEEDING OR
COUNTERCLAIM OF ANY KIND ARISING
41
<PAGE>
OUT OF OR RELATED TO ANY OF THE LOAN DOCUMENTS, THE OBLIGATIONS OR THE
COLLATERAL: (II) PRESENTMENT, DEMAND AND PROTEST AND NOTICE OF PRESENTMENT,
PROTEST, DEFAULT, NON PAYMENT, 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 LENDER
ON WHICH BORROWER MAY IN ANY WAY BE LIABLE AND HEREBY RATIFIES AND CONFIRMS
WHATEVER LENDER MAY DO IN THIS REGARD; (III) NOTICE PRIOR TO TAKING POSSESSION
OR CONTROL OF THE COLLATERAL OR ANY BOND OR SECURITY WHICH MIGHT BE REQUIRED BY
ANY COURT PRIOR TO ALLOWING LENDER TO EXERCISE ANY OF LENDER'S REMEDIES; (IV)
THE BENEFIT OF ALL VALUATION, APPRAISEMENT AND EXEMPTION LAWS; AND (V) NOTICE OF
ACCEPTANCE HEREOF. BORROWER ACKNOWLEDGES THAT THE FOREGOING WAIVERS ARE A
MATERIAL INDUCEMENT TO LENDER'S ENTERING INTO THIS AGREEMENT AND THAT LENDER IS
RELYING UPON THE FOREGOING WAIVERS IN ITS FUTURE DEALINGS WITH BORROWER.
BORROWER WARRANTS AND REPRESENTS THAT IT HAS REVIEWED THE FOREGOING WAIVERS WITH
ITS LEGAL COUNSEL AND HAS KNOWINGLY AND VOLUNTARILY WAIVED ITS JURY TRIAL RIGHTS
FOLLOWING CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF LITIGATION, THIS
AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.
IN WITNESS WHEREOF, this Agreement has been duly executed in New York,
New York, on the day and year specified at the beginning of this Agreement.
ATTEST: WELCOME HOME, INC.
("Borrower")
_______________________________ By:__________________________
Title Name:________________________
[CORPORATE SEAL] Title:_______________________
ACCEPTED IN NEW YORK, NEW YORK:
FLEET CAPITAL CORPORATION
("Lender")
By:_____________________________
Name:___________________________
Title:__________________________
42
<PAGE>
43
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GENERAL DEFINITIONS
When used in the Amended and Restated Loan and Security Agreement dated
as of October 29, 1998, by and between Fleet Capital Corporation ("Lender") and
Welcome Home, Inc. ("Borrower"), the following terms shall have the following
meanings (terms defined in the singular to have the same meaning when used in
the plural and vice versa):
Account Debtor - any Person who is or may become obligated under or on
account of an Account.
Accounts - all accounts, contract rights, chattel paper, instruments and
documents, whether now owned or hereafter created or acquired by Borrower or in
which Borrower now has or hereafter acquires any interest.
Additional Availability Amount - $2,000,000, subject to reduction in
accordance with the terms of Section 3.3 of the Agreement.
Adjusted Net Earnings From Operations - with respect to any fiscal
period, means the net earnings (or loss) after provision for income taxes for
such fiscal period of Borrower and its Subsidiaries on a Consolidated basis, as
reflected on the Consolidated financial statement of Borrower and its
Subsidiaries supplied to Lender pursuant to subsection 8.1.3 of the Agreement,
but excluding:
(i) any gain or loss arising from the sale of capital assets;
(ii) any gain arising from any write-up of assets;
(iii) earnings of any Subsidiary of Borrower accrued prior to the
date it became a Subsidiary;
(iv) earnings of any corporation or Person, substantially all the
assets of which have been acquired in any manner by Borrower, realized
by such corporation or Person prior to the date of such acquisition;
(v) net earnings of any business entity (other than a Subsidiary
of Borrower) in which Borrower has an ownership interest unless such net
earnings shall have actually been received by Borrower in the form of
cash distributions;
(vi) any portion of the net earnings of any Subsidiary of
Borrower which for any reason is unavailable for payment of dividends to
Borrower;
(vii) the earnings of any Person to which any assets of Borrower
shall have been sold, transferred or disposed of, or into which Borrower
shall have merged, or been a party to any consolidation or other form of
reorganization, prior to the date of such
<PAGE>
transaction;
(viii) any gain arising from the acquisition of any Securities of
Borrower; and
(ix) any gain or non cash loss arising from extraordinary or
non-recurring items.
Affiliate - a Person (other than a Subsidiary): (i) which directly or
indirectly through one or more intermediaries controls, or is controlled by, or
is under common control with, a Person; (ii) which beneficially owns or holds 5%
or more of any class of the Voting Stock of a Person; or (iii) 5% or more of the
Voting Stock (or in the case of a Person which is not a corporation, 5% or more
of the equity interest) of which is beneficially owned or held by a Person or a
Subsidiary of a Person.
Agreement - the Amended and Restated Loan and Security Agreement
referred to in the first sentence of this Appendix A, all Exhibits thereto and
this Appendix A.
Applicable Margin - on the Closing Date the rate per annum set forth
under the relevant column heading below:
Base Rate Loans Eurodollar Loans
--------------- ----------------
1.25% 3.25%
provided that following delivery to Agent of Borrower's Financial Statements
(commencing with Borrower's Financial Statements for the 1999 Fiscal Year), the
Applicable Margin shall be subject to change as of the day Lender receives such
Financial Statements based upon the Fixed Charge Coverage Ratio for the Fiscal
Year then ended (so long as (i) such Financial Statements are delivered on or
before the Required Delivery Date therefor and (ii) no Event of Default shall
have occurred and be continuing) to the rates set forth below under the relevant
column heading:
Fixed Charge Coverage Ratio Eurodollar Loans Base Rate Loans
- --------------------------- ---------------- ---------------
Less than 2.00 to 1.00 3.25% 1.25%
Greater than or equal to 2.00 to 1.00 3.00% 1.00%
but less than 2.25 to 1.00
Greater than or equal to 2.25 to 1.00 2.75% 0.75%
but less than 2.25 to 1.00
Greater than or equal to 2.50 to 1.00 2.50% 0.50%
but less than 2.75 to 1.00
Greater than 2.75 to 1.00 2.25% 0.25%
Availability - the amount of money which Borrower is entitled to borrow
from time to time as Revolving Credit Loans, such amount being the difference
derived when the sum of the principal amount of Revolving Credit Loans then
outstanding (including any amounts which
<PAGE>
Lender may have paid for the account of Borrower pursuant to any of the Loan
Documents and which have not been reimbursed by Borrower) and the LC Amount is
subtracted from the Borrowing Base. If the amount outstanding is equal to or
greater than the Borrowing Base, Availability is 0.
Bank - Fleet National Bank.
Bank Payment - as defined in Section 1.2.6 of the Agreement.
Base Rate - the rate of interest announced or quoted by Bank from time
to time as its prime rate for commercial loans, whether or not such rate is the
lowest rate charged by Bank to its most preferred borrowers; and, if such prime
rate for commercial loans is discontinued by Bank as a standard, a comparable
reference rate designated by Bank as a substitute therefor shall be the Base
Rate.
Base Rate Loans - any Loans bearing interest computed by reference to
the Base Rate.
Borrower - Welcome Home, Inc., a Delaware corporation.
Borrowing Base - as at any date of determination thereof, an amount
equal to the lesser of:
(i) $15,000,000; or
(ii) an amount equal to:
(a) 65%, of the value of Eligible Inventory calculated on
the basis of the lower of cost or market on a first-in, first-out
basis;
PLUS
(b) the Additional Availability Amount;
PLUS
(c) the Special Advance Amount.
Borrowing Base Certificate - means the form of certificate supplied to
Lender by Borrower and used by Borrower to request Loans, a copy of the present
form of which is annexed as Exhibit B.
Business Day - means, with respect to Eurodollar Loans, any day on which
commercial banks are open for domestic and international business including
dealings in Dollar deposits in London, England and New York, New York and with
respect to all other Loans, any day excluding Saturday, Sunday and any day which
is a legal holiday under the laws of the State of
<PAGE>
New York or is a day on which banking institutions located in such state are
closed.
Capital Expenditures - expenditures made or liabilities incurred for the
acquisition of any fixed assets or improvements, replacements, substitutions or
additions thereto which have a useful life of more than one year, including the
total principal portion of Capitalized Lease Obligations.
Capitalized Lease Obligation - any Indebtedness represented by
obligations under a lease that is required to be capitalized for financial
reporting purposes in accordance with GAAP.
Cash Collateral Account - as defined in subsection 1.2.7 of the
Agreement.
Cash Flow - for any fiscal period, means (i) EBITDA minus (ii)
non-financed Capital Expenditures for such period minus (iii) the sum of the
aggregate payments of regularly schedule principal with respect to Indebtedness
for Money Borrowed (other than the Revolving Credit Loans) made during such
period minus (iv) Borrower's interest expense for such period and minus (v) cash
taxes paid by Borrower during such period..
Closing Date - the date on which all of the conditions precedent in
Section 9 of the Agreement are satisfied and the initial Loan is made or the
initial Letter of Credit or LC Guaranty is issued under the Agreement.
Closing Projections - as defined in subsection 7.1.10(c) of the
Agreement.
Code - the Uniform Commercial Code as adopted and in force in the State
of New York, as from time to time in effect.
Collateral - all of the Property and interests in Property described in
Section 5 of the Agreement, and all other Property and interests in Property
that now or hereafter secure the payment and performance of any of the
Obligations.
Confirmation Order - as defined in Section A of the Agreement.
Court - as defined in Section A of the Agreement.
Current Assets - at any date means the amount at which all of the
current assets of a Person would be properly classified as current assets shown
on a balance sheet at such date in accordance with GAAP except that amounts due
from Affiliates and investments in Affiliates shall be excluded therefrom.
Default - an event or condition the occurrence of which would, with the
lapse of time or the giving of notice, or both, become an Event of Default.
Default Rate - as defined in subsection 2.1.2 of the Agreement.
<PAGE>
Distribution - in respect of any corporation means and includes: (i) the
payment of any dividends or other distributions on capital stock of the
corporation (except distributions in such stock) and (ii) the redemption or
acquisition of Securities unless made contemporaneously from the net proceeds of
the sale of Securities.
Dollar - and the sign $ shall mean lawful money of the United States of
America.
Dominion Account - a special account of Lender established by Borrower
pursuant to the Agreement at a bank selected by Borrower, but acceptable to
Lender in its reasonable discretion, and over which Lender shall have sole and
exclusive access and control for withdrawal purposes.
EBIT - with respect to any fiscal period, the sum of Adjusted Net
Earnings From Operations before interest expense and taxes for said period as
determined in accordance with GAAP.
EBITDA - with respect to any fiscal period, the sum of Adjusted Net
Earnings From Operations before interest expense, taxes, depreciation and
amortization for said period as determined in accordance with GAAP.
Eligible Inventory - such Inventory of Borrower (other than packaging
materials and supplies) which Lender, in its sole credit judgment, deems to be
Eligible Inventory. Without limiting the generality of the foregoing, no
Inventory shall be Eligible Inventory if:
(i) it is not raw material, finished goods, or work-in-process
that is, in Lender's opinion, readily marketable in its current form; or
(ii) it is not in good, new and saleable condition; or
(iii) it is slow-moving, obsolete or unmerchantable; or
(iv) it does not meet all standards imposed by any governmental
agency or authority; or
(v) it does not conform in all respects to the warranties and
representations set forth in the Agreement; or
(vi) it is not at all times subject to Lender's duly perfected,
first priority security interest and no other Lien except a Permitted
Lien; or
(vii) it is not situated at a location in compliance with the
Agreement or is in transit.
Environmental Laws - all federal, state and local laws, rules,
regulations, ordinances, programs, permits, guidances, orders and consent
decrees relating to health, safety and environmental matters.
<PAGE>
Equipment - all machinery, apparatus, equipment, fittings, furniture,
fixtures, motor vehicles and other tangible personal Property (other than
Inventory) of every kind and description used in Borrower's operations or owned
by Borrower or in which Borrower has an interest, whether now owned or hereafter
acquired by Borrower and wherever located, and all parts, accessories and
special tools and all increases and accessions thereto and substitutions and
replacements therefor.
ERISA - the Employee Retirement Income Security Act of 1974, as amended,
and all rules and regulations from time to time promulgated thereunder.
Eurodollar Loan - any Loan bearing interest computed by reference to the
Eurodollar Rate.
Eurodollar Rate - for any Eurodollar Loan, for the then current Interest
Period relating thereto, the rate per annum equal to the quotient of (a) LIBOR,
divided by (b) a number equal to 1.00 minus the aggregate of the rates
(expressed as a decimal) of reserve requirements current on the day that is 2
Business Days prior to the beginning of the Interest Period (including without
limitation basic, supplemental, marginal and emergency reserves) under any
regulation promulgated by the Board of Governors of the Federal Reserve System
(or any other governmental authority having jurisdiction over the Bank) as in
effect from time to time, dealing with reserve requirements prescribed for
Eurocurrency funding including any reserve requirements with respect to
"Eurocurrency liabilities" under Regulation D of the Board of Governors of the
Federal Reserve System.
Event of Default - as defined in Section 10.1 of the Agreement.
Excess Cash Flow - with respect to any fiscal period of Borrower, the
amount derived by adding to Adjusted Net Earnings From Operations for such
fiscal period depreciation and amortization for such fiscal period and
subtracting from such sum regularly scheduled payments of principal on
Indebtedness for Money Borrowed and Capital Expenditures which are not financed
for such fiscal period.
Financial Statement - the audited balance sheets, statements of income
and stockholder's equity and cash flow of Borrower for each Fiscal Year.
Fiscal Quarter - each quarterly accounting period during any Fiscal
Year.
Fiscal Year - the 12 month accounting period commencing January 1 and
ending December 31 of each year.
Fixed Charge Coverage Ratio - for any period, the ratio of (i) (A)
EBITDA of Borrower on a Consolidated Basis for such period minus (B) actual
unfinanced Capital Expenditures of Borrower during such period minus (C) cash
taxes actually paid during such period to (ii) the sum of the aggregate of
payments of interest and regularly scheduled principal with respect to
<PAGE>
Indebtedness for Money Borrowed (other than the Revolving Credit Loans) made
during such period.
GAAP - generally accepted account principles in the United States of
America in effect from time to time.
General Intangibles - all personal property of Borrower (including
things in action other than goods, Accounts, chattel paper, documents,
instruments and money, whether now owned or hereafter created or acquired by
Borrower.
Indebtedness - as applied to a Person means, without duplication
(i) all items which in accordance with GAAP would be included in
determining total liabilities as shown on the liability side of a
balance sheet of such Person as at the date as of which Indebtedness is
to be determined, including, without limitation, Capitalized Lease
Obligations,
(ii) all obligations of other Persons which such Person has
guaranteed,
(iii) all reimbursement obligations in connection with letters of
credit or letter of credit guaranties issued for the account of such
Person, and
(iv) in the case of Borrower (without duplication), the
Obligations.
Interest Period - as defined in subsection 3.1.5 of the Agreement.
Inventory - all of Borrower's inventory, whether now owned or hereafter
acquired including, but not limited to, all goods intended for sale or lease by
Borrower, or for display or demonstration; all work in process; all raw
materials and other materials and supplies of every nature and description used
or which might be used in connection with the manufacture, printing, packing,
shipping, advertising, selling, leasing or furnishing of such goods or otherwise
used or consumed in Borrower's business; and all documents evidencing and
General Intangibles relating to any of the foregoing, whether now owned or
hereafter acquired by Borrower.
Issuing Bank - as defined in Section 1.2.4 of the Agreement.
Jordan Industries - Jordan Industries, Inc., an Illinois corporation
having an office located at Arbor Lake Center, Suite 500, 1751 Lake Cook Road,
Deerfield, Illinois 60015.
LC Amount - at any time, the aggregate undrawn face amount of all
Letters of Credit and LC Guaranties then outstanding.
LC Reserve - at any time, the sum of (i) 35% of the aggregate undrawn
face amount of all documentary Letters of Credit
<PAGE>
and LC Guaranties in respect of documentary Letters of Credit then outstanding,
plus (ii) 100% of the aggregate undrawn face amount of all standby Letters of
Credit and LC Guaranties in respect of standby Letters of Credit then
outstanding.
LC Guaranty - any guaranty pursuant to which Lender or any Affiliate of
Lender shall guaranty the payment or performance by Borrower of its
reimbursement obligation under any letter of credit.
Lender - the meaning ascribed to such term in the Preamble to the
Agreement and shall include each person which is a transferee, successor or
assign of Lender.
Letter of Credit - any letter of credit issued by Lender or any of
Lender's Affiliates for the account of Borrower.
Letter of Credit Application - as defined in Section 1.2.1 of the
Agreement.
Leverage Ratio - for any period, the ratio of (i) Senior Debt to (ii)
EBITDA for such period.
LIBOR - for any Eurodollar Loan for the then current Interest Period,
the rate of interest equal to the average (rounded upwards, if necessary to the
nearest 1/16 of 1%) of the rates per annum at which Dollar deposits in
immediately available funds are offered to the Bank in the London interbank
eurodollar market as at or about 2:00 P.M. New York time 2 Business Days prior
to the beginning of such Interest Period, for delivery on the first day of such
Interest Period, and in an amount approximately equal to the amount of such
Eurodollar Loan for a period approximately equal to such Interest Period.
Lien - any interest in Property securing an obligation owed to, or a
claim by, a Person other than the owner of the Property, whether such interest
is based on common law, statute or contract. The term "Lien" shall also include
reservations, exceptions, encroachments, easements, rights-of-way, covenants,
conditions, restrictions, leases and other title exceptions and encumbrances
affecting Property. For the purpose of the Agreement, Borrower shall be deemed
to be the owner of any Property which it has acquired or holds subject to a
conditional sale agreement or other arrangement pursuant to which title to the
Property has been retained by or vested in some other Person for security
purposes.
Loan Account - the loan account established on the books of Lender
pursuant to Section 3.6 of the Agreement.
Loan Documents - the Agreement, the Other Agreements and the Security
Documents.
Loans - all loans and advances of any kind made by Lender pursuant to
the Agreement.
Material Adverse Effect - any material adverse effect on the business,
properties or condition (financial or otherwise) or prospects of Borrower and
its Subsidiaries, taken as a whole.
<PAGE>
Money Borrowed - means (i) Indebtedness arising from the lending of
money by any Person to Borrower; (ii) Indebtedness, whether or not in any such
case arising from the lending by any Person of money to Borrower, (A) which is
represented by notes payable or drafts accepted that evidence extensions of
credit, (B) which constitutes obligations evidenced by bonds, debentures, notes
or similar instruments, or (C) upon which interest charges are customarily paid
(other than accounts payable) or that was issued or assumed as full or partial
payment for Property; (iii) Indebtedness that constitutes a Capitalized Lease
Obligation; (iv) reimbursement obligations with respect to letters of credit or
guaranties of letters of credit and (v) Indebtedness of Borrower under any
guaranty of obligations that would constitute Indebtedness for Money Borrowed
under clauses (i) through (iii) hereof, if owed directly by Borrower.
Multiemployer Plan - has the meaning set forth in Section 4001(a)(3) of
ERISA.
Net Worth - at a particular date, all amounts which would be included
under shareholders' equity (including preferred stock whether or not categorized
as part of shareholders' equity in accordance with GAAP) on a balance sheet of
Borrower determined in accordance with GAAP as at such date.
Obligations - all Loans and all other advances, debts, liabilities,
obligations, covenants and duties, together with all interest, fees and other
charges thereon, owing, arising, due or payable from Borrower to Lender of any
kind or nature, present or future, whether or not evidenced by any note,
guaranty or other instrument, whether arising under the Agreement or any of the
other Loan Documents or otherwise whether direct or indirect (including those
acquired by assignment), absolute or contingent, primary or secondary, due or to
become due, now existing or hereafter arising and however acquired.
Original Loan Agreement - as defined in Section A to the Agreement.
Original Term - as defined in Section 4.1 of the Agreement.
Other Agreements - any and all agreements, instruments and documents
(other than the Agreement and the Security Documents), heretofore, now or
hereafter executed by Borrower, any Subsidiary of Borrower or any other third
party and delivered to Lender in respect of the transactions contemplated by the
Agreement.
Overadvance - the amount, if any, by which the outstanding principal
amount of Revolving Credit Loans plus the LC Amount exceeds the Borrowing Base.
Participating Lender - each Person who shall be granted the right by
Lender to participate in any of the Loans described in the Agreement and who
shall have entered into a participation agreement in form and substance
satisfactory to Lender.
PBGC - as defined in subsection 8.1.3(iv) of the Agreement.
<PAGE>
Permitted Liens - any Lien of a kind specified in subsection 8.2.5 of
the Agreement.
Permitted Purchase Money Indebtedness - Purchase Money Indebtedness of
Borrower incurred after the date hereof which is secured by a Purchase Money
Lien and which, when aggregated with the principal amount of all other such
Indebtedness and Capitalized Lease Obligations of Borrower at the time
outstanding, does not exceed $500,000. For the purposes of this definition, the
principal amount of any Purchase Money Indebtedness consisting of capitalized
leases shall be computed as a Capitalized Lease Obligation.
Person - an individual, partnership, corporation, limited liability
company, joint stock company, land trust, business trust, or unincorporated
organization, or a government or agency or political subdivision thereof.
Plan - an employee benefit plan now or hereafter maintained for
employees of Borrower that is covered by Title IV of ERISA.
Plan of Reorganization - the Second Amended Plan of Reorganization of
Welcome Home, Inc. and Jordan Industries, Inc., dated September 28, 1998 filed
with the United States Bankruptcy Court for the Southern District of New York in
Case Number 97-B-40370.
Pro Forma Financial Statement as defined in subsection 7.1.10(c) of the
Agreement.
Projections - Borrower's forecasted Consolidated (a) balance sheets, (b)
profit and loss statements, (c) cash flow statements, and (d) capitalization
statements, all prepared on a consistent basis with Borrower's historical
financial statements, together with appropriate supporting details and a
statement of underlying assumptions.
Property - any interest in any kind of property or asset, whether real,
personal or mixed, or tangible or intangible.
Purchase Money Indebtedness - means and includes (i) Indebtedness (other
than the Obligations) for the payment of all or any part of the purchase price
of any fixed assets, (ii) any Indebtedness (other than the Obligations) incurred
at the time of or within 10 days prior to or after the acquisition of any fixed
assets for the purpose of financing all or any part of the purchase price
thereof, and (iii) any renewals, extensions or refinancings thereof, but not any
increases in the principal amounts thereof outstanding at the time.
Purchase Money Lien - a Lien upon fixed assets which secures Purchase
Money Indebtedness, but only if such Lien shall at all times be confined solely
to the fixed assets the purchase price of which was financed through the
incurrence of the Purchase Money Indebtedness secured by such Lien.
Renewal Terms - as defined in Section 4.1 of the Agreement.
Required Delivery Date - each date required by Section 8.1.3(i) for
delivery of an annual
<PAGE>
Financial Statement.
Reportable Event - any of the events set forth in Section 4043(b) of
ERISA.
Restricted Investment - any investment made in cash or by delivery of
Property to any Person, whether by acquisition of stock, Indebtedness or other
obligation or Security, or by loan, advance or capital contribution, or
otherwise, or in any Property except the following:
(i) investments in one or more Subsidiaries of Borrower to the
extent existing on the Closing Date;
(ii) Property to be used in the ordinary course of business;
(iii) Current Assets arising from the sale of goods and services
in the ordinary course of business of Borrower and its Subsidiaries;
(iv) investments in direct obligations of the United States of
America, or any agency thereof or obligations guaranteed by the United
States of America, provided that such obligations mature within one year
from the date of acquisition thereof;
(v) investments in certificates of deposit maturing within one
year from the date of acquisition issued by a bank or trust company
organized under the laws of the United States or any state thereof
having capital surplus and undivided profits aggregating at least
$100,000,000;
(vi) investments in commercial paper given the highest rating by
a national credit rating agency and maturing not more than 270 days from
the date of creation thereof; and
(vii) purchases of Borrower's capital stock from terminated
officers of Borrower permitted by Section 8.2.7 of the Agreement.
Revolving Credit Loan - a Loan made by Lender as provided in Section 2.1
of the Agreement.
Security - shall have the same meaning as in Section 2(1) of the
Securities Act of 1933, as amended.
Security Documents - all instruments, documents and agreements now or at
any time hereafter securing the whole or any part of the Obligations.
Senior Debt - for any period, the then outstanding (a) Obligations plus
(b) Capitalized Lease Obligations.
Solvent - as to any Person, such Person (i) owns Property whose fair
saleable value is
<PAGE>
greater than the amount required to pay all of such Person's Indebtedness
(including contingent debts), (ii) is able to pay all of its Indebtedness as
such Indebtedness matures and (iii) has capital sufficient to carry on its
business and transactions and all business and transactions in which it is about
to engage.
Special Advance Amount - (a) $1,000,000 during the period commencing on
the Closing Date and ending on December 31, 1998, (b) $1,000,000 during the
period commencing on April 1, 1999 and ending on September 30, 1999, (c)
$500,000 during the period commencing on October 1, 1999 and ending on December
31, 1999 and (d) $0 on and after January 1, 2000.
Subordinated Debt - Indebtedness of Borrower that is subordinated to the
Obligations in a manner satisfactory to Lender including, without limitation,
the Indebtedness under the Subordinated Note.
Subordinated Note - the Subordinated Note dated October __, 1998 in the
principal amount of $800,000 made by Jordan Industries in favor of Borrower.
Subordination Agreement - the Subordination Agreement dated October __,
1998 between Lender and Jordan Industries.
Subsidiary - any corporation of which a Person owns, directly or
indirectly through one or more intermediaries, more than 50% of the Voting Stock
at the time of determination.
Total Credit Facility - $15,000,000.
Voting Stock - Securities of any class or classes of a corporation the
holders of which are ordinarily, in the absence of contingencies, entitled to
elect a majority of the corporate directors (or Persons performing similar
functions).
Week - the time period commencing with a Monday and ending on the
following Monday.
OTHER TERMS. All other terms contained in the Agreement shall
have, when the context so indicates, the meanings provided for by the Code to
the extent the same are used or defined therein.
CERTAIN MATTERS OF CONSTRUCTION. The terms "herein", "hereof" and
"hereunder" and other words of similar import refer to the Agreement as a whole
and not to any particular section, paragraph or subdivision. Any pronoun used
shall be deemed to cover all genders. The section titles, table of contents and
list of exhibits appear as a matter of convenience only and shall not affect the
interpretation of the Agreement. All references to statutes and related
regulations shall include any amendments of same and any successor statutes and
regulations. All references to any of the Loan Documents shall include any and
all modifications thereto and any and all extensions or renewals thereof.
<PAGE>
LIST OF EXHIBITS
Exhibit B Borrowing Base Certificate
Exhibit 6.1.1 Borrower's and each Subsidiary's Business Locations
Exhibit 7.1.1 Jurisdictions in which Borrower and each Subsidiary is
Authorized to do Business
Exhibit 7.1.4 Capital Structure of Borrower; Shareholders' Agreements
Exhibit 7.1.5 Corporate Names
Exhibit 7.1.6 Business Locations; Agent for Process
Exhibit 7.1.7 Title to Properties; Priority of Liens
Exhibit 7.1.10(C) Projections
Exhibit 7.1.13 Surety Obligations
Exhibit 7.1.14 Tax Identification Numbers of Subsidiaries
Exhibit 7.1.15 Broker Fees
Exhibit 7.1.16 Patents, Trademarks, Copyrights and Licenses
Exhibit 7.1.19 Contracts Restricting Borrower's Right to Incur Debts
Exhibit 7.1.20 Litigation
Exhibit 7.1.22(A) Capitalized Leases
Exhibit 7.1.22(B) Operating Leases
Exhibit 7.1.23 Pension Plans
Exhibit 7.1.25 Labor Contracts
Exhibit 8.1.3 Compliance Certificate
Exhibit 8.2.5 Permitted Liens
<PAGE>
EXHIBIT B
BORROWING BASE CERTIFICATE
<PAGE>
EXHIBIT 6.1.1
BUSINESS LOCATIONS
1. Borrower currently has the following business locations, and no others:
Chief Executive Office:
Other Locations:
2. Borrower maintains its books and records relating to Accounts and
General Intangibles at:
3. Borrower has had no office, place of business or agent for process
located in any county other than as set forth above, except:
4. Each Subsidiary currently has the following business locations, and no
others:
Chief Executive Office:
Other Locations:
5. Each Subsidiary maintains its books and records relating to Accounts and
General Intangibles at:
6. Each Subsidiary has had no office, place of business or agent for
process located in any county other than as set forth above, except:
<PAGE>
7. The following bailees, warehouseman, similar parties and consignees hold
inventory of Borrower or one of its Subsidiaries:
<TABLE>
<CAPTION>
================================== ======================= ========================= ====================
Name and Address of Party Nature of Relationship Amount of Inventory Owner of Inventory
- ---------------------------------- ----------------------- ------------------------- --------------------
<S> <C> <C> <C>
- ---------------------------------- ----------------------- ------------------------- --------------------
- ---------------------------------- ----------------------- ------------------------- --------------------
- ---------------------------------- ----------------------- ------------------------- --------------------
================================== ======================= ========================= ====================
</TABLE>
<PAGE>
EXHIBIT 7.1.1
JURISDICTIONS IN WHICH BORROWER
AND ITS SUBSIDIARIES
ARE AUTHORIZED TO DO BUSINESS
Name of Entity Jurisdictions
<PAGE>
EXHIBIT 7.1.4
CAPITAL STRUCTURE
1. The classes and number of authorized shares of Borrower and each
Subsidiary and the record owner of such shares are as follows:
Borrower:
<TABLE>
<CAPTION>
======================= ========================== =========================== ==========================
Class of Stock Number of Shares Record Owners Number of Shares
Issued and Outstanding Authorized but Unissued
- ----------------------- -------------------------- --------------------------- --------------------------
<S> <C> <C> <C>
- ----------------------- -------------------------- --------------------------- --------------------------
- ----------------------- -------------------------- --------------------------- --------------------------
- ----------------------- -------------------------- --------------------------- --------------------------
======================= ========================== =========================== ==========================
</TABLE>
Subsidiaries:
<TABLE>
<CAPTION>
======================= ========================== =========================== ==========================
Class of Stock Number of Shares Record Owners Number of Shares
Issued and Outstanding Authorized but Unissued
- ----------------------- -------------------------- --------------------------- --------------------------
<S> <C> <C> <C>
- ----------------------- -------------------------- --------------------------- --------------------------
- ----------------------- -------------------------- --------------------------- --------------------------
- ----------------------- -------------------------- --------------------------- --------------------------
======================= ========================== =========================== ==========================
</TABLE>
2. The number, nature and holder of all other outstanding Securities of
Borrower and each Subsidiary are as follows:
<PAGE>
3. The correct name and jurisdiction of incorporation of each Subsidiary of
Borrower and the percentage of its issued and outstanding shares owned
by Borrower are as follows:
<TABLE>
<CAPTION>
===================================== =================================== ===============================
Name Jurisdiction of Incorporation Percentage of Shares
Owned by Borrower
- ------------------------------------- ----------------------------------- -------------------------------
<S> <C> <C>
- ------------------------------------- ----------------------------------- -------------------------------
- ------------------------------------- ----------------------------------- -------------------------------
===================================== =================================== ===============================
</TABLE>
4. The name of each of Borrower's corporate or joint venture Affiliates and
the nature of the affiliation are as follows:
<PAGE>
EXHIBIT 7.1.5
CORPORATE NAMES/MERGERS
1. Borrower's correct corporate name, as registered with the Secretary of
State of the Commonwealth of Massachusetts, is: Welcome Home, Inc.
2. In the conduct of its business, Borrower has used the following names:
3. Each Subsidiaries' correct corporate name, as registered with the
Secretary of State of the State of its incorporation, is:
4. In the conduct of its business, each Subsidiary has used the following
names:
5. Mergers:
<PAGE>
EXHIBIT 7.1.7
TITLE TO PROPERTIES; PRIORITY OF LIENS
<PAGE>
EXHIBIT 7.1.13
SURETY OBLIGATIONS
<PAGE>
EXHIBIT 7.1.14
TAX IDENTIFICATION NUMBERS OF SUBSIDIARIES
Subsidiary Number
---------- ------
<PAGE>
EXHIBIT 7.1.15
BROKER FEES
<PAGE>
EXHIBIT 7.1.16
PATENTS, TRADEMARKS, COPYRIGHTS AND LICENSES
1. Borrower's and its Subsidiaries' patents:
<TABLE>
<CAPTION>
======================= ===================== ==================== ===================== ================
Status in Federal Registration Registration
Patent Owner Patent Office Number Date
- ----------------------- --------------------- -------------------- --------------------- ----------------
<S> <C> <C> <C> <C>
- ----------------------- --------------------- -------------------- --------------------- ----------------
- ----------------------- --------------------- -------------------- --------------------- ----------------
======================= ===================== ==================== ===================== ================
2. Borrower's and its Subsidiaries' trademarks:
======================= ===================== ==================== ===================== ================
Status in Federal Registration Registration
Trademark Owner Trademark Office Number Date
- ----------------------- --------------------- -------------------- --------------------- ----------------
- ----------------------- --------------------- -------------------- --------------------- ----------------
- ----------------------- --------------------- -------------------- --------------------- ----------------
======================= ===================== ==================== ===================== ================
3. Borrower's and its Subsidiaries' copyrights:
======================= ===================== ==================== ===================== ================
Status in Federal Registration Registration
Copyrights Owner Copyright Office Number Date
- ----------------------- --------------------- -------------------- --------------------- ----------------
- ----------------------- --------------------- -------------------- --------------------- ----------------
- ----------------------- --------------------- -------------------- --------------------- ----------------
======================= ===================== ==================== ===================== ================
</TABLE>
<PAGE>
4. Borrower's and its Subsidiaries' licenses (other than routine business
licenses, authorizing them to transact business in local jurisdictions):
<TABLE>
<CAPTION>
============================ ========================== ========================== ======================
Name of License Nature of License Licensor Term of License
- ---------------------------- -------------------------- -------------------------- ----------------------
<S> <C> <C> <C>
- ---------------------------- -------------------------- -------------------------- ----------------------
- ---------------------------- -------------------------- -------------------------- ----------------------
============================ ========================== ========================== ======================
</TABLE>
<PAGE>
EXHIBIT 7.1.19
CONTRACTS RESTRICTING BORROWER'S RIGHT TO INCUR DEBTS
Contracts that restrict the right of Borrower to incur Indebtedness:
<TABLE>
<CAPTION>
============================ ========================== ========================== ======================
Title of Contract Identity of Parties Nature of Restriction Term of Contract
----------------- ------------------- --------------------- ----------------
- ---------------------------- -------------------------- -------------------------- ----------------------
<S> <C> <C> <C>
- ---------------------------- -------------------------- -------------------------- ----------------------
- ---------------------------- -------------------------- -------------------------- ----------------------
============================ ========================== ========================== ======================
</TABLE>
<PAGE>
EXHIBIT 7.1.20
LITIGATION
1. Actions, suits, proceedings and investigations pending against Borrower or
any Subsidiary:
<TABLE>
<CAPTION>
=========================== ========================== ========================== =======================
Title of Action Nature of Action Complaining Parties Jurisdiction or
Tribunal
- --------------------------- -------------------------- -------------------------- -----------------------
<S> <C> <C> <C>
- --------------------------- -------------------------- -------------------------- -----------------------
- --------------------------- -------------------------- -------------------------- -----------------------
=========================== ========================== ========================== =======================
</TABLE>
2. The only threatened actions, suits, proceedings or investigations of
which Borrower or any Subsidiary is aware are as follows:
<PAGE>
EXHIBIT 7.1.22(A)
CAPITALIZED LEASES
Borrower and its Subsidiaries have the following capitalized leases:
<TABLE>
<CAPTION>
============================ ========================== ========================== ======================
Lessee Lessor Term of Lease Property Covered
- ---------------------------- -------------------------- -------------------------- ----------------------
<S> <C> <C> <C>
- ---------------------------- -------------------------- -------------------------- ----------------------
- ---------------------------- -------------------------- -------------------------- ----------------------
============================ ========================== ========================== ======================
</TABLE>
<PAGE>
EXHIBIT 7.1.22(B)
OPERATING LEASES
Borrower and its Subsidiaries have the following operating leases:
<TABLE>
<CAPTION>
============================ ========================== ========================== ======================
Lessee Lessor Term of Lease Property Covered
- ---------------------------- -------------------------- -------------------------- ----------------------
<S> <C> <C> <C>
- ---------------------------- -------------------------- -------------------------- ----------------------
- ---------------------------- -------------------------- -------------------------- ----------------------
============================ ========================== ========================== ======================
</TABLE>
<PAGE>
EXHIBIT 7.1.23
PENSION PLANS
Borrower and its Subsidiaries have the following Plans:
<TABLE>
<CAPTION>
======================================================= =================================================
Party Type of Plan
- ------------------------------------------------------- -------------------------------------------------
<S> <C>
Borrower
- ------------------------------------------------------- -------------------------------------------------
- ------------------------------------------------------- -------------------------------------------------
[Subsidiaries]
- ------------------------------------------------------- -------------------------------------------------
======================================================= =================================================
</TABLE>
<PAGE>
EXHIBIT 7.1.25
COLLECTIVE BARGAINING AGREEMENTS; LABOR CONTROVERSIES
1. Borrower and its Subsidiaries are parties to the following collective
bargaining agreements:
<TABLE>
<CAPTION>
===================================== =================================== ===============================
Type of Agreement Parties Term of Agreement
- ------------------------------------- ----------------------------------- -------------------------------
<S> <C> <C>
- ------------------------------------- ----------------------------------- -------------------------------
- ------------------------------------- ----------------------------------- -------------------------------
- ------------------------------------- ----------------------------------- -------------------------------
===================================== =================================== ===============================
</TABLE>
2. Material grievances, disputes of controversies with employees are as follows:
<TABLE>
<CAPTION>
======================================================= =================================================
Parties Involved Nature of Grievance, Dispute or Controversy
- ------------------------------------------------------- -------------------------------------------------
<S> <C>
- ------------------------------------------------------- -------------------------------------------------
- ------------------------------------------------------- -------------------------------------------------
- ------------------------------------------------------- -------------------------------------------------
======================================================= =================================================
3. Threatened strikes, work stoppages and asserted pending demands for
collective bargaining are as follows:
======================================================= =================================================
Parties Involved Nature of Matter
- ------------------------------------------------------- -------------------------------------------------
- ------------------------------------------------------- -------------------------------------------------
- ------------------------------------------------------- -------------------------------------------------
- ------------------------------------------------------- -------------------------------------------------
======================================================= =================================================
</TABLE>
<PAGE>
EXHIBIT 8.1.3
COMPLIANCE CERTIFICATE
WELCOME HOME, INC.
309-D Raleigh Street
Wilmington, North Carolina 28412
__________________, 19__
Fleet Capital Corporation
200 Glastonbury Boulevard
Glastonbury, Connecticut 06033
The undersigned, the chief financial officer of Welcome Home, Inc., a
Delaware corporation ("Borrower"), gives this certificate to Fleet Capital
Corporation ("Lender") in accordance with the requirements of subsection 8.1.3
of that certain Loan and Security Agreement dated ___________ ___, 1998, between
Borrower and Lender ("Loan Agreement"). Capitalized terms used in this
Certificate, unless otherwise defined herein, shall have the meanings ascribed
to them in the Loan Agreement.
1. Based upon my review of the balance sheets and statements of income
of Borrower for the [fiscal year] [month] ending __________________, 19__,
copies of which are attached hereto, I hereby certify that:
(a) Net Worth is $____________;
(b) Leverage Ratio is ___ to 1.0;
(c) Fixed Charge Coverage Ratio is ____ to 1;
(d) Adjusted Net Earnings From Operations for the period was
$_______________; and
(e) Excess Cash Flow is $_____________.
2. No Default exists on the date hereof, other than: ______________
________________________________________________ [if none, so state]; and
<PAGE>
3. No Event of Default exists on the date hereof, other than __________
____________________________________________________ [if none, so state].
4. The balance sheets, statements of income and stockholder's equity and
cash flow attached hereto were prepared in accordance with GAAP and fairly
present the financial position and results of operations, the assets,
liabilities, and net worth income of Borrower as of the date thereof subject
only to changes from audit and year-end adjustments and the absence of notes.
Very truly yours,
-------------------------------
Chief Financial Officer
<PAGE>
EXHIBIT 8.2.5
PERMITTED LIENS
<TABLE>
<CAPTION>
=================================================== =====================================
Secured Party Nature of Lien
- --------------------------------------------------- -------------------------------------
<S> <C>
- --------------------------------------------------- -------------------------------------
- --------------------------------------------------- -------------------------------------
- --------------------------------------------------- -------------------------------------
=================================================== =====================================
</TABLE>
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE SOUTHERN DISTRICT OF NEW YORK
___________________________________________x
In re
WELCOME HOME INC., Chapter 11
a/k/a The Glorious Nest, Home Again,
f/k/a Cape Craftsmen, Inc. Case No. 97B 40370 (CB)
Debtor.
___________________________________________x
SECOND AMENDED
PLAN OF REORGANIZATION
OF WELCOME HOME INC. AND
JORDAN INDUSTRIES, INC.
BUTLER, FITZGERALD & POTTER
A Professional Corporation
1155 Avenue of the Americas
28th Floor
New York, New York 10036
(212) 302-4900
Attn: Raymond Fitzgerald
ATTORNEYS FOR WELCOME HOME INC.
Debtor and Debtor-in-Possession
MAYER, BROWN & PLATT
1675 Broadway
New York, New York 10019
(212) 506-2505
Attn: Michael P. Richman
ATTORNEYS FOR JORDAN INDUSTRIES, INC.
Dated: September 28, 1998
New York, New York
<PAGE>
INTRODUCTION
WELCOME HOME INC. ("Welcome Home" or the "Debtor"), as a debtor
and debtor-in-possession, and JORDAN INDUSTRIES, INC. ("Jordan"), hereby propose
the following second amended reorganization plan for the resolution of Welcome
Home's outstanding creditor Claims and equity Interests. Welcome Home and Jordan
are proponents of this Plan within the meaning of section 1129 of the Bankruptcy
Code (as such term is defined in this Plan).
All holders of Claims and holders of Interests should read this
Plan, and the accompanying Disclosure Statement, in their entirety before voting
to accept or reject this Plan.
Subject to the restrictions on modifications set forth in section
1127 of the Bankruptcy Code and Bankruptcy Rule 3019 and those restrictions on
modifications set forth in Article XIV of this Plan, Welcome Home and Jordan
expressly reserve its and their rights to alter, amend or modify this Plan, one
or more times, before its substantial consummation.
ARTICLE I
DEFINITIONS
Except as otherwise expressly provided in this Plan or unless the
context otherwise requires, all capitalized terms not otherwise defined shall
have the meanings ascribed to them in Article I of this Plan. Any term used in
this Plan not defined herein, but which is defined in the Bankruptcy Code or the
Bankruptcy Rules, shall have the meaning ascribed to that term in the Bankruptcy
Code or the Bankruptcy Rules. Whenever the context requires, such terms shall
include the plural as well as the singular number, the masculine gender shall
include the feminine, and the feminine gender shall include the masculine.
-2-
<PAGE>
1.1 "Administrative Claim" means a Claim for payment of an
administrative expense of a kind specified in section 503(b) of the Bankruptcy
Code and entitled to priority pursuant to section 507(a)(1) of the Bankruptcy
Code, including, but not limited to, the Fleet DIP Facility Claim, the Jordan
DIP Facility Claim, the actual, necessary costs and expenses, incurred after the
Petition Date of preserving the Estate and operating the business of Welcome
Home, including wages, salaries or commissions for services rendered after the
commencement of the Chapter 11 Case, Professional Fees, all costs of making
distributions and providing notices and ballots in respect of the Plan and all
fees and charges assessed against the Estate under chapter 123 of title 28,
United States Code, and all Allowed Claims that are entitled to be treated as
Administrative Claims pursuant to a Final Order of the Bankruptcy Court under
section 546(c)(2)(A) of the Bankruptcy Code.
1.2 "Allowed Claim" means a Claim, or any portion thereof, (a)
for which a proof of claim has been timely filed with the Bankruptcy Court and
is (i) liquidated in amount, (ii) non-contingent, (iii) not subject to a timely
filed objection to its allowance or as to which any such objection to its
allowance has been settled, withdrawn or resolved by Final Order, (b) for which
a proof of claim has not been timely filed with the Bankruptcy Court but is
Scheduled as liquidated in amount, non-contingent and undisputed, (c) which has
been allowed by Final Order, or (d) which is expressly allowed in the Plan.
Unless expressly specified in the Plan to the contrary, "Allowed Claim" for
purposes of computation of distributions under the Plan, shall not include
interest on the amount of such Claim from and after the Petition Date.
1.3 "Allowed Interest" means an Interest (a) which has been
allowed by a Final Order, (b) for which (i) no objection to its allowance has
been timely filed or (ii) any such
-3-
<PAGE>
objection to its allowance has been settled, withdrawn, or resolved by Final
Order or (c) which is expressly allowed in the Plan.
1.4 "Ballot" means each of the ballot forms distributed with the
Disclosure Statement to holders of Claims and Interests in Classes that are
Impaired under the Plan and entitled to vote under Article VII hereof in
connection with the solicitation of acceptances of the Plan.
1.5 "Bankruptcy Code" means the Bankruptcy Reform Act of 1978, as
amended and codified in title 11 of the United States Code, 11 U.S.C. ss.ss.
101-1330.
1.6 "Bankruptcy Court" means the United States Bankruptcy Court
for the Southern District of New York or such other court as may have
jurisdiction over the Chapter 11 Case.
1.7 "Bankruptcy Rules" means the Federal Rules of Bankruptcy
Procedure and the Official Bankruptcy Forms, as amended, the Federal Rules of
Civil Procedure, as amended, as applicable to the Chapter 11 Case or proceedings
therein, and the Local Rules of the Bankruptcy Court, as applicable to the
Chapter 11 Case or proceedings therein, as the case may be.
1.8 "Bar Date" means the deadline for filing proofs of claims
established by the Bankruptcy Court as and including June 25, 1997.
1.9 "Bar Date Order" means that order entered by the Bankruptcy
Court on May 14, 1997 which established a deadline for filing proofs of claim.
1.10 "Business Day" means any day, excluding Saturdays, Sundays
and legal holidays, on which commercial banks are open for business in New York
City.
-4-
<PAGE>
1.11 "Cape Craftsmen" means Cape Craftsmen, Inc., a creditor of
Welcome Home that is (a) a different corporate entity from Welcome Home which
formerly was known as Cape Craftsmen, Inc. and (b) a wholly owned subsidiary of
Jordan.
1.12 "Cash" means legal tender of the United States.
1.13 "Chapter 11 Case" means the Chapter 11 Case of Welcome Home
pending in the Bankruptcy Court under case number 97B 40370 (CB).
1.14 "Claim" means a claim against Welcome Home, whether or not
asserted, as defined in section 101(5) of the Bankruptcy Code.
1.15 "Class" means a category of holders of Claims or holders of
Interests described in Article II of the Plan.
1.16 "Class 1 Claim" means a claim classified in Class 1 of the
Plan.
1.17 "Class 2 Claim" means a claim classified in Class 2 of the
Plan.
1.18 "Class 3 Claim" means a claim classified in Class 3 of the
Plan.
1.19 "Class 4 Claim" means a claim classified in Class 4 of the
Plan.
1.20 "Class 5 Claim" means a claim classified in Class 5 of the
Plan.
1.21 "Class 6 Claim" means a claim classified in Class 6 of the
Plan.
1.22 "Class 1 Creditor" means a Creditor holding a Class 1
Claim.
1.23 "Class 2 Creditor" means a Creditor holding a Class 2
Claim.
1.24 "Class 3 Creditor" means a Creditor holding a Class 3
Claim.
1.25 "Class 4 Creditor" means a Creditor holding a Class 4
Claim.
1.26 "Class 5 Creditor" means a Creditor holding a Class 5
Claim.
1.27 "Class 6 Creditor" means a Creditor holding a Class 6
Claim.
-5-
<PAGE>
1.28 "Committee" means the statutory creditors' committee
appointed by the United States Trustee for the Southern District of New York in
the Chapter 11 Case pursuant to section 1102 of the Bankruptcy Code.
1.29 "Confirmation Date" means the day an order confirming the
Plan is issued.
1.30 "Confirmation Order" means an order of the Bankruptcy Court
confirming the Plan.
1.31 "Contested Claim or Contested Interest" means any Claim or
Interest as to which an objection has been interposed, which objection has not
been determined by a Final Order.
1.32 "Creditor" means any Person that has a Claim against the
Debtor or the Estate (a) that arose on or before the Petition Date or (b) of a
kind specified in sections 502(g), 502(h) or 502(i) of the Bankruptcy Code.
1.33 "Cure" means the distribution, within a reasonable period of
time following the Effective Date (not to exceed sixty (60) days), of Cash, or
such other property as may be agreed upon in writing by the Debtor or the
Reorganized Debtor or ordered by the Bankruptcy Court, with respect to the
assumption of an executory contract or unexpired lease, pursuant to section
365(b) of the Bankruptcy Code, in an amount equal to all unpaid monetary
obligations, without interest, or such other amount as may be agreed upon in
writing by the Debtor or the Reorganized Debtor, under such executory contract
or unexpired lease, to the extent such obligations are enforceable under the
Bankruptcy Code and applicable bankruptcy law.
1.34 "Disallowed Claim" means a Claim, or any portion thereof,
that (a) has
-6-
<PAGE>
been disallowed by a Final Order, (b) is Scheduled at zero or as contingent,
disputed or unliquidated and as to which a proof of claim bar date has been
established but no proof of claim has been filed or deemed timely filed with the
Bankruptcy Court, or (c) is the subject of an objection filed by Welcome Home or
Reorganized Welcome Home with the Bankruptcy Court and which objection has not
been withdrawn or resolved by a Final Order of the Bankruptcy Court.
1.35 "Disallowed Interest" means an Interest, or any portion
thereof, that (a) has been disallowed by a Final Order, (b) is Scheduled at zero
or as contingent, disputed or unliquidated and as to which a proof of interest
bar date has been established but no proof of interest has been filed or deemed
timely filed with the Bankruptcy Court, or (c) is the subject of an objection
filed by Welcome Home or Reorganized Welcome Home with the Bankruptcy Court and
which objection has not been withdrawn or resolved by a Final Order of the
Bankruptcy Court.
1.36 "Disclosure Statement" means the written disclosure
statement that relates to the Plan, as approved by the Bankruptcy Court pursuant
to section 1125 of the Bankruptcy Code and Bankruptcy Rule 3017, as such
disclosure statement may be amended, modified or supplemented from time to time.
1.37 "Disputed Claim" means a Claim, or any portion thereof, that
is neither an Allowed Claim nor a Disallowed Claim, and includes, without
limitation, Claims that (a) have not been Scheduled by Welcome Home or have been
Scheduled at zero or as contingent, unliquidated or disputed, (b) are the
subject of an objection in the Bankruptcy Court by Welcome Home, or (c) the
allowance or disallowance of which is not yet the subject of a Final Order.
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1.38 "Disputed Interest" means an Interest, or any portion
thereof, that is neither an Allowed Interest nor a Disallowed Interest, and
includes, without limitation, Interests that (a) have not been Scheduled by
Welcome Home or have been Scheduled at zero or as contingent, unliquidated or
disputed, (b) are the subject of an objection in the Bankruptcy Court by Welcome
Home, or (c) the allowance or disallowance of which is not yet the subject of a
Final Order.
1.39 "Distribution Date" means the date, occurring as soon as
reasonably practicable after the Effective Date, but no later than ten (10)
Business Days after the Effective Date, on which distributions are to be made to
holders of Allowed Class 4 Claims (General Unsecured Claims), to holders of
Allowed Class 5 Claims (Old Preferred Stock Interests) and to Allowed Class 6
Interests (Old Common Stock Interests).
1.40 "Effective Date" means the earlier of (i) the date upon
which the Confirmation Order is final and no longer subject to review, appeal or
certiorari proceedings, and (ii) such date more than ten (10) days after entry
of the Confirmation Order and on which no stay pending appeal from the
Confirmation Order exists, as the Debtor, in writing filed with the Bankruptcy
Court, shall designate as the Effective Date, provided, however, that the Debtor
shall designate a date no later than fifteen (15) Business Days after the
eleventh day after entry of the Confirmation Order and on which no stay pending
appeal, if any, from the Confirmation Order exists.
1.41 "Escrow Agent" means Butler, Fitzgerald & Potter A
Professional Corporation. In the event that Butler, Fitzgerald & Potter A
Professional Corporation has not obtained a bond with respect to its duties as
escrow agent pursuant to the Plan on or before the time it undertakes its duties
as escrow agent, the escrow agent shall be any other person mutually
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agreeable to each of Reorganized Debtor, Jordan and the Office of the United
States Trustee for the Southern District of New York.
1.42 "Estate" means the bankruptcy estate of Welcome Home
pursuant to section 541 of the Bankruptcy Code.
1.43 "Existing Securities" means, collectively, the Old Preferred
Stock and the Old Common Stock.
1.44 "Final Order" means an order or judgment, the operation or
effect of which has not been stayed, reversed or amended and as to which order
or judgment (or any revision, modification or amendments thereof) the time to
appeal or seek review or rehearing has expired and as to which no appeal or
petition for review or rehearing was filed or, if filed, remains pending.
1.45 "Fiscal Year" means the year ending on December 31 of each
year, or such other fiscal year as Welcome Home may designate.
1.46 "Fleet DIP Facility" means the debtor-in-possession
financing facility authorized by the Bankruptcy Court pursuant to the Fleet DIP
Facility Order.
1.47 "Fleet DIP Facility Claim" means all Claims of Fleet Capital
Corporation, Jordan Industries, Inc. and TJC Management Corporation arising
under the Fleet DIP Facility, as amended.
1.48 "Fleet DIP Facility Orders" means the Order of the
Bankruptcy Court dated February 7, 1997, authorizing and approving the Fleet DIP
Facility, the Order of the Bankruptcy Court dated March 25, 1997, authorizing
and extending the Fleet DIP Facility through March 31, 1998 and the Order of the
Bankruptcy Court dated March 17, 1998,
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authorizing and extending the Fleet DIP Facility through January 31, 1999.
1.49 "General Unsecured Claim" means a Claim that is not a
Secured Claim, Administrative Claim, Priority Tax Claim, Priority Non-Tax Claim
or Administrative Convenience Claim.
1.50 "Impaired" refers to any Claim or Interest that is impaired
within the meaning of section 1124 of the Bankruptcy Code.
1.51 "Interest" means the rights of any current or former holder
or owner, or of any Person who, at any time, has, or claims to have, a right of
any kind in or to, any shares of Old Common Stock, Old Preferred Stock, or any
other equity securities of Welcome Home authorized or issued prior to the
Confirmation Date.
1.52 "Jordan" means Jordan Industries, Inc., a Delaware
corporation, that is the principal holder of the Old Common Stock, the sole
holder of any of the Old Preferred Stock and the holder of Secured Claims.
1.53 "Jordan Claims" means all Secured Claims of Jordan except
for the Jordan DIP Facility Claims and the Fleet DIP Facility Claims.
1.54 "Jordan DIP Facility" means the debtor-in-possession
financing facility dated as of February 11, 1998, authorized by the Bankruptcy
Court pursuant to the Jordan DIP Facility Order.
1.55 "Jordan DIP Facility Claim" means all Claims of Jordan
arising under the Jordan DIP Facility.
1.56 "Jordan DIP Facility Order" means the Order of the
Bankruptcy Court dated April 23, 1998 authorizing and approving the Jordan DIP
Facility.
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1.57 "Miscellaneous Secured Claims" means any Secured Claim,
other than the Fleet DIP Facility Claim, the Jordan DIP Facility Claim or any
Priority Tax Claim.
1.58 "New Common Stock" means the 10,000,000 shares of common
stock, par value $.01 per share, of Reorganized Welcome Home which will be
authorized by the Restated Certificate of Incorporation and issued pursuant to
Article IX of the Plan.
1.59 "New Credit Facility" means the credit facility to be issued
as a means of implementing the Plan.
1.60 "Old Common Stock" means all shares of Welcome Home's common
stock and all options, warrants or rights, contractual or otherwise, if any, to
acquire any such common stock.
1.61 "Old Preferred Stock" means 1,000,000 shares of Welcome Home
preferred stock, none of which are issued and 11,100,000 shares of redeemable
Series A preferred shares, 4,451 of which shares are issued and outstanding.
1.62 "Person" means an individual, corporation, partnership,
joint venture, association, joint stock company, limited liability company,
limited liability partnership, trust, estate, unincorporated organization, a
government or any political subdivision thereof, a government agency or any
other entity.
1.63 "Petition Date" means January 21, 1997 the date on which
Welcome Home filed its petition for relief commencing the Chapter 11 Case.
1.64 "Plan" means this second amended plan of reorganization
proposed by Welcome Home and Jordan in the Chapter 11 Case, as such plan may be
further altered, amended or modified from time to time in accordance with the
Bankruptcy Code.
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1.65 "Priority Non-Tax Claim" means a Claim entitled to priority
pursuant to section 507(a) of the Bankruptcy Code other than a Priority Tax
Claim or an Administrative Claim.
1.66 "Priority Tax Claim" means a Claim entitled to priority
pursuant to section 507(a)(8) of the Bankruptcy Code.
1.67 "Professional Fees" means a Claim of a professional retained
in the Chapter 11 Case, pursuant to sections 327 and 1103 of the Bankruptcy Code
or otherwise, for compensation or reimbursement of costs and expenses relating
to services incurred after the Petition Date.
1.68 "Record Date" means the date on which the ownership of the
Old Preferred Stock and the Old Common Stock is fixed for purposes of voting and
distribution to holders of Class 5 and 6 Allowed Interests, respectively. The
Record Date shall be June 30, 1998.
1.69 "Reinstated" or "Reinstatement" means (a) leaving unaltered
the legal, equitable and contractual rights to which a Claim entitles the holder
of such claim so as to leave such claim unimpaired in accordance with section
1124 of the Bankruptcy Code, or (b) notwithstanding any contractual provision or
applicable law that entitles the holder of such Claim to demand or receive
accelerated payment of such Claim after the occurrence of a default (i) curing
any such default that occurred before or after the Petition Date, other than a
default of a kind specified in section 365(b)(2) of the Bankruptcy Code; (ii)
reinstating the maturity of such Claim as such maturity existed before such
default; (iii) compensating the holder of such Claim for any damages incurred as
a result of any reasonable reliance by such holder on such
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contractual provision or such applicable law without interest; and (iv) not
otherwise altering the legal, equitable or contractual rights to which such
Claim entitles the holder of such Claim; provided, however, that any contractual
right that does not pertain to the payment when due of principal and interest on
the obligation on which such Claim is based, including, but not limited to,
financial covenant ratios, negative pledge covenants, covenants or restrictions
on merger or consolidation, and affirmative covenants regarding corporate
existence prohibiting certain transactions or actions contemplated by the Plan,
or conditioning such transactions or actions on certain factors, shall not be
required to be reinstated in order to accomplish Reinstatement.
1.70 "Reorganized Debtor" means Welcome Home from and after the
Effective Date.
1.71 "Restated Certificate of Incorporation" means the
Reorganized Debtor's Restated Certificate of Incorporation, dated as of the
Effective Date, amending and restating the Debtor's Certificate of Incorporation
and all amendments thereto.
1.72 "Scheduled" means, with respect to any Claim or Interest,
the status and amount, if any, of such Claim or Interest as set forth in the
Schedules.
1.73 "Schedules" means the schedules of assets and liabilities
and the statements of financial affairs filed in the Bankruptcy Court by Welcome
Home, as such schedules or statements have been or may be further amended or
supplemented from time to time.
1.74 "Secured Claim" means a Claim secured pursuant to section
506 of the Bankruptcy Code, other than the Fleet DIP Facility Claim, the Jordan
DIP Facility Claim or any Priority Tax Claim.
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ARTICLE II
ADMINISTRATIVE CLAIMS AND PRIORITY TAX CLAIMS
2.1 ADMINISTRATIVE CLAIMS. Subject to the provisions of Article
VI of the Plan, on the later of (a) the Distribution Date, or as soon thereafter
as practicable, and (b) the tenth (10th) Business Day after an Administrative
Claim is Allowed, the Reorganized Debtor shall pay to each holder of an Allowed
Administrative Claim, in full satisfaction, release and discharge of such
Allowed Administrative Claim, Cash equal to the unpaid portion of such Allowed
Administrative Claim, unless the holder and the Debtor or the Reorganized Debtor
agree, or have agreed, in writing to a different treatment of such Allowed
Administrative Claim, in which event the holder shall receive such different
treatment; provided, however, that Allowed Administrative Claims with respect to
liabilities incurred by Debtor in the ordinary course of business during the
Chapter 11 Case shall be paid in the ordinary course of business in accordance
with the terms and conditions of any agreements relating thereto.
2.2 PRIORITY TAX CLAIMS. On the Distribution Date, or as soon as
practicable thereafter, Reorganized Debtor shall pay each holder of an Allowed
Priority Tax Claim, in full satisfaction, release and discharge of such Allowed
Priority Tax Claim, Cash equal to the amount of each such Allowed Priority Tax
Claim.
ARTICLE III
CLASSIFICATION OF CLAIMS AND INTERESTS
Pursuant to section 1122 of the Bankruptcy Code, set forth below
is a designation of classes of claims against and Interests in Debtor.
3.1 CLASS 1 - Priority Non-Tax Claims.
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3.2 CLASS 2 - Miscellaneous Secured Claims.
3.3 CLASS 3 - All Jordan Claims.
3.4 CLASS 4 - All General Unsecured Claims.
3.5 CLASS 5 - All Old Preferred Stock Interests.
3.6 CLASS 6 - All Old Common Stock Interests.
ARTICLE IV
IDENTIFICATION OF CLASSES OF CLAIMS AND
INTERESTS IMPAIRED AND NOT IMPAIRED BY THE PLAN
4.1 UNIMPAIRED CLASSES OF CLAIMS AND INTERESTS. Class 1 (Priority
Non-Tax Claims), Class 2 (Miscellaneous Secured Claims), Class 3 (Jordan
Claims), are not Impaired by the Plan.
4.2 IMPAIRED CLASSES OF CLAIMS AND INTERESTS. Class 4 (General
Unsecured Claims), Class 5 (Old Preferred Stock Interests), Class 6 (Old Common
Stock Interests) are Impaired Classes under the Plan.
ARTICLE V
PROVISIONS FOR TREATMENT OF
CLAIMS AND INTERESTS
5.1 CLASS 1 (PRIORITY NON-TAX CLAIMS). On the Distribution Date,
or as soon as practicable thereafter, Reorganized Debtor shall (a) pay to each
holder of an Allowed Class 1 Priority Non-Tax Claim in full satisfaction,
release and discharge of such Allowed Class 1 Priority Non-Tax Claim, Cash equal
to the amount of such Allowed Class 1 Priority Non-Tax Claim, or (b) accord to
each holder of an Allowed Class 1 Priority Non-Tax Claim in full satisfaction,
release and discharge of such Allowed Class 1 Priority Non-Tax Claim such other
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treatment as to which Debtor or Reorganized Debtor and such holder shall have
agreed upon in writing.
5.2 CLASS 2 (MISCELLANEOUS SECURED CLAIMS). The legal, equitable
and contractual rights of holders of Allowed Miscellaneous Secured Claims shall
be Reinstated on the Distribution Date. Debtor's failure to object to such
Claims in the Chapter 11 Case shall be without prejudice to Reorganized Debtor's
right to contest or otherwise defend against such Claim in the Bankruptcy Court
when and if such Claim is sought to be enforced by the holder thereof. Holders
of Allowed Miscellaneous Secured Claims may enforce such claims only in the
Bankruptcy Court. Notwithstanding section 1141(c) or any other provision of the
Bankruptcy Code, all prepetition liens on property of Debtor held by or on
behalf of the holders of Claims in this Class with respect to such claims shall
survive the Distribution Date and continue in accordance with the contractual
terms of the underlying agreements with such holders until, as to each such
holder, the Allowed Claims of such holder in this Class are paid in full.
5.3 CLASS 3 (JORDAN CLAIMS). The legal, equitable and contractual
rights of the holder of the Jordan Claims shall be Reinstated on the
Distribution Date.
5.4 CLASS 4 (GENERAL UNSECURED CLAIMS). On the Distribution Date,
or as soon as practical thereafter, Reorganized Debtor shall pay to each holder
of an Allowed Class 4 General Unsecured Claim Cash equal to twelve percent (12%)
of the amount of such Allowed Claim in full satisfaction, release and discharge
of such Allowed Class 4 General Unsecured Claim; provided, however, that (a)
Cape Craftsmen, Inc., on the Distribution Date, will waive any distribution with
respect to any Class 4 General Unsecured Claim against Debtor and all such
Claims will be waived, released and discharged effective as of the Distribution
Date, (b) Jordan,
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on the Distribution Date, will, in lieu of any distribution with respect to any
Class 4 General Unsecured Claims, accept New Common Stock pursuant to Section
9.5 of the Plan and (c) Cape Craftsmen, Inc. and Jordan shall retain until the
Distribution Date all rights which they, and each of them, have as Allowed Class
4 Creditors including, but not limited to, the right to vote their respective
Allowed Class 4 Claims.
5.5 CLASS 5 (OLD PREFERRED STOCK INTERESTS). On the Distribution
Date, or as soon as practical thereafter, Reorganized Debtor shall pay to each
holder of an Allowed Class 5 Old Preferred Stock Interest One ($1.00) Dollar in
full satisfaction, the release and discharge of such Allowed Old Preferred Stock
Interest and, on the Distribution Date, the Old Preferred Stock Interests shall
be cancelled.
5.6 CLASS 6 (OLD COMMON STOCK INTERESTS). Each holder of a Class
6 Allowed Interest, other than Jordan, shall receive, on or as soon as
practicable after the Effective Date, New Common Stock in a number that is equal
to the product of (i) a fraction the numerator of which shall be the number of
shares of Old Common Stock owned by such holder on the Record Date and the
denominator of which shall be the total number of shares of Old Common Stock on
the Record Date, excluding any Old Common Stock held by Jordan on the Record
Date, and (ii) times 500,000 shares; provided, however, that no such holder will
receive any distribution except upon delivery to the Reorganized Debtor of (x) a
transmittal letter executed by such holder, in a reasonable form to be supplied
by the Reorganized Debtor, which transmittal letter shall provide that the
execution thereof shall act as a release by such holder of any and all claims,
rights or causes of action, known or unknown, that such holder may have against
the Debtor, Reorganized Debtor, Jordan, Cape Craftsmen, or any current or former
shareholder, director, officer,
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employee, agent, advisor, attorney, accountant, investment banker, underwriter
or affiliate of any of them (the "Released Entities"), relating in any manner to
Debtor, its assets or liabilities, or its stock, or arising from or related to
the relationships of the Released Entities to the Debtor or the Reorganized
Debtor, including without limitation, any act or failure to act by any Released
Entity in any matter involving the Debtor, the Reorganized Debtor or any holder
of the Class 6 Allowed Interest; and (y) such holder's Old Common Stock.
<PAGE>
ARTICLE VI
ALLOWANCE OF CERTAIN CLAIMS AND INTERESTS
6.1 ADMINISTRATIVE CLAIMS.
(a) FLEET DIP FACILITY CLAIM. On the Distribution Date, all
obligations of Debtor and Reorganized Debtor under the Fleet DIP Facility shall
be reinstated in accordance with the terms of the Fleet DIP Facility as amended
and restated by and between the parties to the Fleet DIP Facility on or prior to
the Distribution Date.
(b) JORDAN DIP FACILITY CLAIM. On the Distribution Date, all
obligations of Debtor and Reorganized Debtor under the Jordan DIP Facility shall
be paid or otherwise satisfied in full in accordance with the terms of the
Jordan DIP Facility. Effective as of the Distribution Date, Jordan shall waive
payment by Debtor or Reorganized Debtor of all legal fees or expenses incurred
by Jordan in connection with the Jordan DIP Facility or Debtor's bankruptcy
proceeding.
(c) PROFESSIONAL FEES. All final requests for payment of
Professional Fees must be filed no later than thirty (30) days after the
Distribution Date. After notice and a hearing in accordance with the procedures
established by the Bankruptcy Code and prior orders of the Bankruptcy Court, the
allowed amounts of such Professional Fees shall be determined by the Bankruptcy
Court.
(d) OTHER ADMINISTRATIVE FEES. All other requests for payment of
an Administrative Claim must be filed with the Bankruptcy Court and served on
counsel for Debtor or Reorganized Debtor, Jordan and the Committee no later than
thirty (30) days after the Distribution Date. Unless Debtor, Reorganized Debtor,
Jordan or the Committee objects to an Administrative Claim within thirty (30)
Business Days after receipt of such Claim, such
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Administrative Claim shall be deemed allowed in the amount requested. In the
event that Debtor, Reorganized Debtor, Jordan or the Committee objects to an
Administrative Claim, the Bankruptcy Court shall determine the allowed amount of
such Administrative Claim. Notwithstanding the foregoing, no request for payment
of an Administrative Claim need be filed with respect to an Administrative Claim
which is paid or payable by Debtor or Reorganized Debtor in the ordinary course
of business.
ARTICLE VII
ACCEPTANCE OR REJECTION OF THE PLAN;
EFFECT OF REJECTION BY ONE OR MORE IMPAIRED
CLASSES OF CLAIMS OR INTERESTS
7.1 IMPAIRED CLASSES OF CLAIMS AND INTERESTS ENTITLED TO VOTE.
Subject to Section 7.4 of the Plan, the holders of Claims or Interests in each
Impaired Class of Claims or Interests are entitled to vote as a class to accept
or reject the Plan.
7.2 ACCEPTANCE BY AN IMPAIRED CLASS.
(a) IMPAIRED CLAIMS. In accordance with section 1126(c) of the
Bankruptcy Code and except as provided in section 1126(e) of the Bankruptcy
Code, an Impaired Class of claims shall have accepted the Plan if the Plan is
accepted by the holders of at least two-thirds (_) in dollar amount and more
than one-half (1/2) in number of the Allowed Claims of such Class that have
timely and properly voted to accept or reject the Plan.
(b) IMPAIRED INTERESTS. In accordance with section 1126(d) of the
Bankruptcy Code and except as provided in section 1126(e) of the Bankruptcy
Code, an Impaired Class of Interests shall have accepted the Plan if the Plan is
accepted by the holders of at least two-thirds (_) in amount of the Allowed
Interests of such Class that have timely and properly voted to
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accept or reject the Plan.
7.3 PRESUMED ACCEPTANCES BY UNIMPAIRED CLASSES. Claims in Class 1
(Priority Non-Tax Claims), Class 2 (Miscellaneous Secured Claims), and Class 3
(Jordan Claims) are not Impaired by the Plan. Under section 1126(f) of the
Bankruptcy Code, the holders of such Claims are conclusively presumed to accept
the Plan and the votes of such holders will not be solicited.
7.4 CONFIRMATION PURSUANT TO SECTION 1129(B) OF THE BANKRUPTCY
CODE. To the extent that any Impaired Class entitled to vote rejects the Plan,
Debtor will request confirmation of the Plan, as it may be modified from time to
time, under section 1129(b) of the Bankruptcy Code.
ARTICLE VII
UNEXPIRED LEASES AND EXECUTORY CONTRACTS
8.1 ASSUMED CONTRACTS AND LEASES. Each executory contract and
unexpired lease to which Debtor is a party shall be deemed automatically
rejected as of the Effective Date, unless such executory contract or unexpired
lease is listed on the schedule of assumed contracts and leases annexed hereto
as Exhibit A, in which event all such assumed contracts and leases shall be
deemed assumed as of the Effective Date. Debtor reserves the right to add or
delete contracts and leases to Exhibit A through the Confirmation Date. The
Confirmation Order shall constitute an order of the Bankruptcy Court approving
such rejections, pursuant to section 365 of the Bankruptcy Code, and approving
such assumptions, pursuant to section 365(b)(1) of the Bankruptcy Code and, to
the extent applicable, section 365(b)(3) of the Bankruptcy Code, as of the
Effective Date.
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Each executory contract and unexpired lease assumed that relates
to the use, ability to acquire or occupancy of real property shall include (a)
all modifications, amendments, supplements, restatements or other agreements
made directly or indirectly by any agreement, instrument or other document that
in any manner affects such executory contract or unexpired lease and (b) all
executory contracts or unexpired leases appurtenant to the premises, including
all easements, licenses, permits, rights, privileges, immunities, options,
rights of first refusal, powers, uses, reciprocal easement agreements and any
other interests in real estate or rights IN REM related to such premises, unless
any of the foregoing agreements has been rejected pursuant to a Final Order of
the Bankruptcy Court.
8.2 PAYMENTS RELATED TO ASSUMPTION OF EXECUTORY CONTRACTS AND
UNEXPIRED LEASES. Any monetary amounts by which each executory contract and
unexpired lease to be assumed under the Plan may be in default shall be
satisfied, under section 365(b)(1) of the Bankruptcy Code, at the option of
Debtor assuming such contract or lease, by Cure. In the event of a dispute
regarding (a) the nature or the amount of any Cure, (b) the ability of
Reorganized Debtor or any assignee of Debtor to provide "adequate assurance of
future performance" (within the meaning of section 365 of the Bankruptcy Code)
under the contract or lease to be assumed, or (c) any other matter pertaining to
assumption, Cure shall occur following the entry of a Final Order resolving the
dispute and approving the assumption and, as the case may be, assignment.
Reorganized Debtor shall pay such Cure amounts as soon as practicable (not to
exceed sixty (60) days) after determination by the Bankruptcy Court of the
appropriate Cure amount.
8.3 REJECTION DAMAGES BAR DATE. If the rejection by Debtor of an
executory contract or unexpired lease results in a Claim, then such Claim shall
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be forever barred and shall not be enforceable against Debtor or Reorganized
Debtor or the properties of either of them unless a proof of claim is filed with
the clerk of the Bankruptcy Court and served upon counsel to Debtor or
Reorganized Debtor within thirty (30) days after service of the earlier of (a)
notice of the Confirmation Order, or (b) other notice that the executory
contract or unexpired lease has been rejected.
ARTICLE IX
MEANS FOR IMPLEMENTATION OF THE PLAN
9.1 REVESTING OF ASSETS. The property of the Estate shall revest
in Reorganized Debtor on the Effective Date. Thereafter, Reorganized Debtor may
operate its business and may sue, acquire and dispose of property free of any
restrictions of the Bankruptcy Code, the Bankruptcy Rules and the Bankruptcy
Court. As of the Effective Date, all property of Debtor shall be free and clear
of all Claims and Interests, except as specifically provided in the Plan or the
Confirmation Order. Without limiting the foregoing, Reorganized Debtor, without
application to or approval by the Bankruptcy Court, may pay fees that it incurs
after the Effective Date for professional fees and expenses.
9.2 CONTINUED CORPORATE EXISTENCE. Reorganized Debtor shall
continue to exist after the Effective Date as a separate corporate entity, in
accordance with the applicable law in the jurisdiction in which it is
incorporated and pursuant to the certificate of incorporation and bylaws in
effect prior to the Effective Date, except to the extent such certificate of
incorporation and bylaws are amended by this Plan.
9.3 SOURCE OF PLAN FUNDS. The source of all distributions of Cash
to be made on or about the Distribution Date, other than distributions with
respect to Professional Fees,
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Allowed Priority Tax Claims, Allowed Class 1 Claims (Priority Non-Tax Claims)
and Allowed Class 2 Claims (Miscellaneous Secured Claims), other than Allowed
Class 2 Claims held by Jordan, and Allowed Class 4 Claims (General Unsecured
Claims), shall be from the operating funds of the Reorganized Debtor. On or
before the Distribution Date (or on a subsequent date in the event a Claim or
Interest is disputed and subsequently becomes Allowed), Jordan shall pay (a) to
Reorganized Debtor sufficient monies for Reorganized Debtor to pay all of the
Professional Fees, the Allowed Priority Tax Claims, the Allowed Class 1 Claims
(Priority Non-Tax Claims) and Allowed Class 2 Claims (Miscellaneous Secured
Claims), other than Allowed Class 2 Claims held by Jordan, the Allowed Class 4
Claims (General Unsecured Claims) and the Allowed Class 5 Interests and (b) to
Escrow Agent sufficient monies for Escrow Agent to pay all Disputed Class 4
Claims (General Unsecured Claims).
9.4 CANCELLATION OF OLD COMMON STOCK AND ISSUANCE OF NEW COMMON
STOCK. The Confirmation Order shall provide that all Old Common Stock shall be
cancelled effective as of the Distribution Date. On the Distribution Date, or as
soon thereafter as practical, the Reorganized Debtor, pursuant to subsection
1145(a)(1) of the Bankruptcy Code, will cause 9,500,000 shares of the New Common
Stock to be issued to Jordan, and cause to be supplied to holders of Allowed
Class 6 Interests (Old Common Stock), other than Jordan, the form of transmittal
letter referred to in Section 5.6 of the Plan. Upon delivery by such holder to
the Reorganized Debtor of an executed transmittal letter and such holder's Old
Common Stock (or an affidavit reasonably satisfactory to the Reorganized Debtor
stating that such shares have been lost, stolen or destroyed or cannot otherwise
be returned to the Reorganized Debtor), the Reorganized Debtor will deliver to
such holder the number of shares of New Common Stock to
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which such holder is entitled under this Plan. The New Common Stock shall be
exempt from registration pursuant to section 1145(a) of the Bankruptcy Code.
9.5 RESTATED CERTIFICATE OF INCORPORATION. The Confirmation Order
shall direct the officers of Reorganized Debtor to file the Restated Certificate
of Incorporation with the Secretary of State of the State of Delaware and will
authorize such officers to take such other action as is reasonable or necessary
to cause the Restated Certificate of Incorporation to become effective. The
Restated Certificate of Incorporation shall provide for the authorization of
10,000,000 shares of New Common Stock and shall also include a provision
prohibiting the issuance of nonvoting equity securities, as required by section
1123(a)(6) of the Bankruptcy Code.
9.6 PRESERVATION OF CAUSES OF ACTION. In accordance with section
1123(b)(3) of the Bankruptcy Code and except as otherwise provided in the Plan,
Reorganized Debtor shall retain and may enforce all claims, rights of action,
suits and proceedings, whether in law or in equity, whether known or unknown,
which Debtor may hold against any Person (other than Jordan and Cape Craftsmen)
including, without limitation, any causes of action brought prior to the
Petition Date, actions against any Person (other than Jordan and Cape Craftsmen)
for failure to pay for products or services rendered by Debtor, all claims,
causes of action, suits and proceedings relating to strict enforcement of
Debtor's intellectual property rights, including patents, copyrights and
trademarks, and all causes of action which may exist under sections 510, 542,
544 through 550 and 553 of the Bankruptcy Code or under similar state laws,
including, without limitation, fraudulent conveyance claims, if any, and all
other causes of action of a trustee and debtor-in-possession under the
Bankruptcy Code. Debtor or Reorganized Debtor, in
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the exercise of its or their respective business judgment, will determine
whether to enforce such rights, provided, however, that, with respect to any
rights against any unsecured creditor, Debtor or Reorganized Debtor shall not
seek to enforce such rights without the prior written consent of counsel for the
Committee, which consent shall not be unreasonably withheld. Reorganized Debtor,
or any successors, may pursue such litigation claims in accordance with the best
interests of Reorganized Debtor or the successors holding such rights of action,
provided, however, that, with respect to any rights against any unsecured
creditor, Debtor or Reorganized Debtor shall not seek to enforce such rights
without the prior written consent of counsel for the Committee, which consent
shall not be unreasonably withheld.
9.7 SUBSTANTIAL CONTRIBUTION COMPENSATION AND EXPENSES BAR DATE.
Any Person who requests compensation or expense reimbursement for making a
substantial contribution in the Chapter 11 Case pursuant to section 503(b)(3),
(4), or (5) of the Bankruptcy Code must file an application with the clerk of
the Bankruptcy Court, on or before forty-five (45) days after the Effective Date
(the "503 Deadline"), and serve such application on counsel for Debtor, or
Reorganized Debtor or as otherwise required by the Bankruptcy Court, on or
before the 503 Deadline, or be forever barred from seeking such compensation or
expense reimbursement.
9.8 CANCELLATION OF EXISTING SECURITIES AND AGREEMENTS. On the
Distribution Date, except as otherwise provided for herein, (a) the Existing
Securities and any other note, bond, indenture, or other instrument or document
evidencing or creating any indebtedness or obligation of Debtor, except such
notes or other instruments evidencing indebtedness or obligations of Debtor that
are Reinstated under the Plan, shall be cancelled, and (b) the
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obligations of, and/or Claims against, Debtor or Reorganized Debtor under,
relating or pertaining to any agreements, indentures or certificates of
designations governing the Existing Securities and any other note, bond,
indenture or other instrument or document evidencing or creating any
indebtedness or obligation of Debtor, except such notes or other instruments
evidencing indebtedness or obligations of Debtor that are Reinstated under the
Plan, as the case may be, shall be released and discharged; provided, however,
that the provisions of this Section 9.8 shall not affect the discharge of
Debtor's liabilities under the Bankruptcy Code and the Confirmation Order or
result in any expense or liability to Reorganized Debtor.
9.9 EXCLUSIVITY PERIOD. Debtor and Jordan shall retain the
exclusive right to amend or modify the Plan, and to solicit acceptances of any
amendments to, or modifications of, the Plan, through the Effective Date.
9.10 EFFECTUATING DOCUMENTS; FURTHER TRANSACTIONS. Debtor,
Reorganized Debtor, the Chairman of the Board of Directors, the Chief Executive
Officer or any other appropriate officer of Debtor or Reorganized Debtor shall
be authorized to execute, deliver, file or record such contracts, instruments,
releases, indentures and other agreements or documents, and take such actions as
may be necessary or appropriate to effectuate and further evidence the terms and
conditions of the Plan. The Secretary or Assistant Secretary of Debtor and
Reorganized Debtor shall be authorized to certify or attest to any of the
foregoing actions.
ARTICLE X
PROVISIONS GOVERNING DISTRIBUTIONS
10.1 TIME OF DISTRIBUTIONS. Except as otherwise provided for
herein or ordered by the Bankruptcy Court, distributions under the Plan shall be
made on the Distribution Date.
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10.2 INTEREST ON CLAIMS. Unless otherwise specifically provided
for in the Plan, Confirmation Order, Fleet DIP Facility Orders, Jordan DIP
Facility Order, or unless otherwise required by applicable bankruptcy law,
post-petition interest shall not accrue or be paid on Claims, and no holder of a
Claim shall be entitled to interest accruing on or after the Petition Date on
any Claim. Interest shall not accrue or be paid upon any Disputed Claim in
respect of the period from the Petition Date to the date a final distribution is
made thereon if and after such Disputed Claim becomes an Allowed Claim.
10.3 DELIVERY OF DISTRIBUTIONS. Distributions to holders of
Allowed Claims and Allowed Interests shall be made (a) at the addresses set
forth on the proofs of claim filed by such holders (or at the last known
addresses of such holders if no proof of claim is filed), (b) at the addresses
set forth in any written notices of address change delivered to Debtor after the
filing of any proof of claim, or (c) at the addresses reflected in the Schedules
if no proof of claim has been filed and Debtor has not received a written notice
of a change of address. If any holder's distribution is returned as
undeliverable, then at Reorganized Debtor's sole option no further distributions
to such holder shall be made unless and until Reorganized Debtor is notified of
such holder's then current address, at which time all missed distributions shall
be made to such holder without interest. All claims for undeliverable
distributions shall be made on or before the second (2nd) anniversary of the
Distribution Date. After such date, all unclaimed property shall revert to
Reorganized Debtor and the claim of any holder or successor to such holder with
respect to such property shall be discharged and forever barred notwithstanding
any federal or state escheat laws to the contrary.
10.4 ROUNDING OF CASH AND NEW COMMON STOCK DISTRIBUTIONS. The
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Reorganized Debtor shall round all amounts of Cash to be distributed to any
Claimant under the Plan to the nearest whole dollar amount. The Reorganized
Debtor shall round down to the nearest whole share all fractional shares of the
New Common Stock otherwise distributable under this Plan to holders of Class 6
Allowed Interests, and the aggregate of all such undistributed fractional shares
shall become treasury shares.
10.5 PROCEDURES FOR TREATING AND RESOLVING DISPUTED AND
CONTINGENT CLAIMS AND INTERESTS.
(a) NO DISTRIBUTIONS PENDING ALLOWANCE. No payments or
distributions will be made with respect to all or any portion of a Disputed
Claim or a Disputed Interest unless and until all objections to such Disputed
Claim or Disputed Interest have been settled or withdrawn or have been
determined by Final Order, and the Disputed Claim or Disputed Interest has
become an Allowed Claim or an Allowed Interest, respectively. Debtor or
Reorganized Debtor shall object to all Disputed Class 4 Claims (General
Unsecured Claims) within sixty (60) days of the Distribution Date.
(b) DISTRIBUTIONS AFTER ALLOWANCE. To the extent that a Disputed
Claim or a Disputed Interest ultimately becomes an Allowed Claim or an Allowed
Interest, Reorganized Debtor will distribute to the holder of such Claim, other
than a Class 4 Claim (General Unsecured Claims), or Interest any Cash and other
property that would have been distributed on the Distribution Date had such
Allowed Claim, other than an Allowed Class 4 Claim (General
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Unsecured Claims), or Allowed Interest been an Allowed Claim, other than an
Allowed Class 4 Claim (General Unsecured Claims), or an Allowed Interest on the
Distribution Date; provided, however, that Escrow Agent will pay to (i) the
holder of such Allowed Class 4 Claim (General Unsecured Claims) any Cash that
would have been paid on the Distribution Date had such Allowed Class 4 Claim
(General Unsecured Claims) been an Allowed Class 4 Claim (General Unsecured
Claims) on the Distribution Date; (ii) to Jordan (A) the difference between the
amount paid by Jordan to the Escrow Agent, pursuant to Section 9.5(b) of the
Plan, with respect to such Class 4 Claim (General Unsecured Claims) and the
amount paid by the Escrow Agent to the holder of such Allowed Class 4 Claim
(General Unsecured Claims) and (B) all interest, if any, earned on amounts paid
by Jordan to Escrow Agent pursuant to Section 9.3(b) of the Plan.
ARTICLE XI
DISCHARGE, RELEASES AND SETTLEMENTS OF CLAIMS AND INTERESTS
11.1 DISCHARGE OF DEBTOR AND RELEASES.
(a) All consideration distributed under the Plan shall be in
exchange for, and in complete satisfaction, release and discharge of, all Claims
and Interests of any nature whatsoever against or in Debtor, or any of its or
their assets or properties, and, except as otherwise provided herein or in the
Confirmation Order, and regardless of whether any property shall have been
distributed or retained pursuant to the Plan on account of such Claims or
Interests, upon the Confirmation Date (but subject to the occurrence of the
Effective Date), Debtor shall be deemed discharged and released under section
1141(d)(1)(A) of the Bankruptcy Code.
(b) Debtor, Jordan and Cape Craftsmen, and all of Debtor's,
Jordan's and Cape Craftsmen's respective current or former shareholders,
directors, officers, employees, agents, advisors, attorneys, accountants,
investment bankers, underwriters and affiliates of any of them, shall be deemed
released, from any and all claims relating in any manner to Debtor, its assets
or
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liabilities, or its stock, including, but not limited to, claims, demands or
liabilities that arose before the Confirmation Date, any liability to the extent
such claim relates to services performed by employees of Debtor prior to the
Petition Date and that arise from a termination of employment or a termination
of any employee or retiree benefit program regardless of whether such
termination occurred prior to or after the Confirmation Date, and all debts of
the kind specified in sections 502(g), 502(h) or 502(i) of the Bankruptcy Code,
whether or not (i) a proof of claim based upon such debt is filed or deemed
filed under section 501 of the Bankruptcy Code, (ii) a Claim based upon such
debt is Allowed under section 502 of the Bankruptcy Code, or (iii) the holder of
a Claim based upon such debt accepted the Plan. The Confirmation Order shall be
a judicial determination of discharge of all liabilities of Debtor and release
of Jordan and Cape Craftsmen, and all of their respective current or former
shareholders, directors, officers, employees, agents, advisors, attorneys,
accountants, investment bankers, underwriters and any affiliates of any of them,
subject to the Effective Date occurring.
(c) Except as otherwise specifically provided in this Plan, the
distributions and rights that are provided in this Plan shall be in complete
satisfaction, release and discharge of, effective as of the Confirmation Date
(but subject to the occurrence of the Effective Date) of (i) Claims and causes
of action (whether known or unknown) against, liabilities of, liens on,
obligations of and Interests in Debtor, Reorganized Debtor, Jordan or Cape
Craftsmen and (ii) Claims and all causes of action (whether known or unknown,
either directly or derivatively through Debtor, Reorganized Debtor, Jordan or
Cape Craftsmen) against, liabilities of, liens on the direct or indirect assets
and properties of, and obligations of Debtor, Reorganized Debtor, Jordan or Cape
Craftsmen and its or their respective current or former members, shareholders,
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directors, officers, employees, agents, advisors, attorneys, accountants,
investment bankers, underwriters, or affiliates of any of them, or any of their
successors or assigns, based (x) on the same subject matter as any Claim or
Interest, in each case regardless of whether a proof of claim or interest was
filed, whether or not Allowed and whether or not the holder of the Claim or
Interest has voted on this Plan, or (y) on any act or omission, transaction or
other activity or security, instrument or other agreement of any kind or nature
occurring, arising or existing prior to the Effective Date that was or could
have been the subject of any Claim or Interest, in each case regardless of
whether a proof of Claim or Interest was filed, whether or not Allowed and
whether or not the holder of the Claim or Interest has voted on this Plan.
(d) Notwithstanding anything else in this Plan to the contrary,
nothing in this Plan shall operate as a release of, discharge of, or
satisfaction of, any and all claims of Mellon US Leasing ("Mellon") against
Jordan arising from, or relating to, that certain Master Lease Agreement between
United States Leasing International, Inc. and Jordan dated August 31, 1993 and
all equipment schedules, amendments and addenda thereto (hereinafter
collectively referred to as the "Lease"). Further nothing in the Plan shall
operate as a release of, discharge of, or satisfaction of any claims of Mellon
against any of the co-lessees under the Lease (other than the Debtor) which
claims arise from or relate to the Lease. The Lease and Mellon's rights
thereunder against Jordan and the co-lessees (other than the Debtor) shall not
be impaired or altered by the Plan or the Confirmation Order.
11.2 COMPROMISES AND SETTLEMENTS. Pursuant to Bankruptcy Rule
9019(a), Debtor may compromise and settle various Claims (a) against it and (b)
that it has against other Persons. Debtor expressly reserves the right (with
Bankruptcy Court approval, following
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appropriate notice and opportunity for a hearing) to compromise and settle
Claims against it and claims that it may have against other Persons up to and
including the Effective Date. After the Effective Date, such right shall pass to
Reorganized Debtor pursuant to Article IX of the Plan.
11.3 SETOFFS. Debtor and Reorganized Debtor may, but shall not be
required to, set off against any Claim, and the payments or other distributions
to be made pursuant to the Plan in respect of such Claim, claims of any nature
whatsoever that Debtor or Reorganized Debtor may have against the holder of such
Claim, but neither the failure to do so nor the allowance of any Claim hereunder
shall constitute a waiver or release by Debtor or Reorganized Debtor of any such
Claim that Debtor or Reorganized Debtor may have against such holder.
11.4 EXCULPATION AND LIMITATION OF LIABILITY. Except as otherwise
specifically provided in this Plan, Debtor, Reorganized Debtor, Jordan, Cape
Craftsmen, the Committee, all of its and their respective current or former
members, shareholders, directors, officers, employees, agents, advisors,
attorneys, accountants, investment bankers, underwriters, or any affiliate of
any of them, and all of its and their successors and assigns, shall not have or
incur, and are hereby released from, any claim, obligation, cause of action or
liability to one another or to any holder of a Claim or an Interest, or any
other party in interest, or any of their respective agents, employees,
representatives, financial advisors, attorneys or affiliates, or any of their
successors or assigns, for any act or omission in connection with, relating to
or arising out of the Chapter 11 Case, the pursuit of confirmation of the Plan,
the consummation of the Plan, the administration of the Plan or the property to
be distributed under the Plan, except for its or their willful misconduct, and
in all respects shall be entitled to reasonably rely upon the advice of counsel
with respect to their duties and responsibilities under the Plan.
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Notwithstanding any other provision of this Plan, no holder of a
Claim or Interest, or other party in interest, none of their respective agents,
employees, representatives, financial advisors, attorneys or affiliates, and no
successor or assign of the foregoing, shall have any right of action against
Debtor, Reorganized Debtor, Jordan, Cape Craftsmen, or the Committee, or any of
its or their respective current or former members, shareholders, directors,
officers, employees, agents, advisors, attorneys, accountants, investment
bankers, underwriters or any affiliate of any of them, or its or their
successors and assigns, for any act or omission in connection with, relating to
or arising out of the Chapter 11 Case, the pursuit of confirmation of the Plan,
the consummation of the Plan, the administration of the Plan or the property to
be distributed under the Plan, except for its or their willful misconduct.
11.5 INJUNCTION. The satisfaction, release and discharge pursuant
to Article XI of this Plan also shall act as an injunction against any Person
commencing or continuing any action, employment of process, or act to collect,
offset or recover any Claim or cause of action satisfied, released or discharged
under this Plan to the fullest extent authorized or provided by the Bankruptcy
Code, including, without limitation, to the extent provided for or authorized by
sections 524 and 1141 thereof.
ARTICLE XII
CONDITIONS PRECEDENT
12.1 CONDITIONS TO EFFECTIVE DATE. The following are conditions
precedent to the occurrence of the Effective Date of the Plan that may be
satisfied or waived in accordance with Section 12.2 of the Plan:
(a) The Bankruptcy Court shall have approved, by Final Order, a
Disclosure
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Statement with respect to the Plan in form and substance reasonably acceptable
to Debtor and Jordan;
(b) The Confirmation Order shall confirm the Plan in accordance
with its terms and be in form and substance reasonably acceptable to Debtor and
Jordan;
(c) Debtor or Reorganized Debtor shall have entered into the New
Credit Facility and all conditions precedent to the consummation thereof shall
have been waived or satisfied.
(d) The Confirmation Order shall have been entered by the
Bankruptcy Court and shall be a Final Order, and no request for revocation of
the Confirmation Order under section 1144 of the Bankruptcy Code shall have been
made, or, if made, shall remain pending.
12.2 WAIVER OF CONDITIONS TO EFFECTIVE DATE. The conditions set
forth in Section 12.1 of the Plan may be waived by Debtor, Reorganized Debtor
and Jordan, jointly in their discretion, without any notice to parties in
interest or to the Bankruptcy Court and without a hearing. Failure of
satisfaction, and their own refusal to waive any failure of satisfaction, of any
condition to the Effective Date may be asserted by Debtor, Reorganized Debtor
and Jordan, jointly, in their discretion, regardless of the circumstances giving
rise to the failure of such condition to be satisfied (including any action or
inaction by Debtor, Reorganized Debtor or Jordan in its or their discretion).
The failure of Debtor, Reorganized Debtor or Jordan in its or their discretion
to exercise any of the foregoing rights shall not be deemed a waiver of any
other rights, and each such right shall be deemed an ongoing right, which may be
asserted at any time.
ARTICLE XIII
RETENTION OF JURISDICTION
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Pursuant to sections 105(a) and 1142 of the Bankruptcy Code, the
Bankruptcy Court shall have exclusive jurisdiction of all matters arising out
of, and related to, the Chapter 11 Case and the Plan, including, among other
things, the following matters:
(a) to hear and determine pending motions for the assumption or
rejection of executory contracts or unexpired leases or the assumption and
assignment, as the case may be, of executory contracts or unexpired leases to
which Debtor is a party or with respect to which Debtor may be liable, and to
hear and determine the allowance of Claims resulting therefrom including the
amount of Cure, if any, required to be paid to the holders of such Claims;
(b) to determine any and all pending adversary proceedings,
applications and contested matters;
(c) to ensure that distributions to holders of Allowed Claims and
of Allowed Interests are accomplished as provided herein;
(d) to hear and determine any and all objections to the allowance
or estimation of Claims filed, both before and after the Confirmation Date,
including any objection to the classification of any Claim or Interest, and to
allow or disallow any Claim, in whole or in part;
(e) to enter and implement such orders as may be appropriate if
the Confirmation Order is for any reason stayed, revoked, modified or vacated;
(f) to issue orders in aid of execution, implementation or
consummation of the Plan;
(g) to consider any modification of the Plan, to cure any defect
or omission, or to reconcile any inconsistency in any order of the Bankruptcy
Court, including, without limitation, the Confirmation Order;
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(h) to hear and determine all applications for compensation and
reimbursement of Professional Fees under the Plan or under sections 330, 503(b),
1103 and 1129(a)(4) of the Bankruptcy Code;
(i) to determine requests for the payment of Claims entitled to
priority under section 507(a)(1) of the Bankruptcy Code, including compensation
of and reimbursement of expenses of parties entitled thereto;
(j) to hear and determine disputes arising in connection with the
interpretation, implementation or enforcement of the Plan, including, without
limitation, disputes arising under agreements, documents or instruments executed
in connection with this Plan, disputes relating to the exemption from federal
and/or state registration requirements and disputes relating to the New Common
Stock or any claim of right thereto or any part thereof;
(k) to recover all assets of Debtor and property of its Estate,
wherever located;
(l) to hear and determine matters concerning state, local and
federal taxes in accordance with sections 346, 505 and 1146 of the Bankruptcy
Code;
(m) to hear any other matter not inconsistent with the Bankruptcy
Code;
(n) to hear and determine all disputes involving the existence,
nature or scope of Debtor's discharge, including any dispute relating to any
liability arising out of the termination of employment or the termination of any
employee or retiree benefit program, regardless of whether such termination
occurred prior to or after the Effective Date; and
(o) to enter a final decree closing the Chapter 11 Case.
ARTICLE XIV
MISCELLANEOUS PROVISIONS
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<PAGE>
14.1 BINDING EFFECT. The Plan shall be binding upon and inure to
the benefit of Debtor, all present and former holders of Claims, all present and
former holders of Interests, other parties in interest and their respective
successors and assigns.
14.2 MODIFICATION AND AMENDMENTS. Debtor and Jordan may alter,
amend or modify the Plan, except for Section 5.4 of the Plan, or any Exhibit
thereto under section 1127(a) of the Bankruptcy Code at any time. After the
Confirmation Date and prior to substantial consummation of the Plan as defined
in section 1101(2) of the Bankruptcy Code, Debtor or Reorganized Debtor, under
section 1127(b) of the Bankruptcy Code, may institute proceedings in the
Bankruptcy Court to remedy any defect or omission or reconcile any
inconsistencies in the Plan, the Disclosure Statement or the Confirmation Order,
and such matters as may be necessary to carry out the purposes and effects of
the Plan, so long as such proceedings do not materially adversely affect the
treatment of holders of Claims or holders of Interests under the Plan; provided,
however, that prior notice of such proceedings shall be served in accordance
with the Bankruptcy Rules or order of the Bankruptcy Court.
14.3 WITHHOLDING AND REPORTING REQUIREMENTS. In connection with
the Plan and all instruments issued in connection therewith and distributions
thereon, Debtor shall comply with all withholding and reporting requirements
imposed by any federal, state, local or foreign taxing authority, and all
distributions hereunder shall be subject to any such withholding and reporting
requirements.
14.4 COMMITTEES. Effective on the one hundred and eightieth
(180th) day after the Distribution Date, the duties of the Committee shall
terminate, except with respect to any appeal of an order in the Chapter 11 Case
and applications for Professional Fees.
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14.5 REVOCATION, WITHDRAWAL OR NON-CONSUMMATION.
(a) RIGHT TO REVOKE OR WITHDRAW. Debtor and Jordan reserve the
right to revoke or withdraw the Plan at any time prior to the Effective Date.
(b) EFFECT OF WITHDRAWAL, REVOCATION OR NON-CONSUMMATION. If
Debtor or Jordan revokes or withdraws the Plan prior to the Effective Date, or
if the Confirmation Date or the Effective Date does not occur, then the Plan,
any settlement or compromise embodied in the Plan (including the fixing or
limiting to an amount certain any Claim or Class of Claims), the assumption or
rejection of executory contracts or leases effected by the Plan, and any
document or agreement executed pursuant to the Plan shall be null and void. In
such event, nothing contained herein, and no acts taken in preparation for
consummation of the Plan, shall be deemed to constitute a waiver or release of
any Claims by or against Debtor or any other Person, to prejudice in any manner
the rights of Debtor or any Person in any further proceedings involving Debtor
or to constitute an admission of any sort by Debtor or any other Person.
14.6 NOTICES. Any notice required or permitted to be provided to
Debtor, Reorganized Debtor or Jordan under the Plan shall be in writing and
served by (a) certified mail, return receipt requested, (b) hand delivery, or
(c) overnight delivery service, to be addressed as follows:
Welcome Home, Inc.
309 Raleigh Street
Wilmington, North Carolina 28412
Attention: President
with a copy to:
Butler, Fitzgerald & Potter
A Professional Corporation
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<PAGE>
1155 Avenue of the Americas
New York, New York 10036
Attention: Raymond Fitzgerald, Esq.
and
Jordan Industries, Inc.
1751 Lake Cook Road
Suite 550
Deerfield, Illinois 60015
Attention: President
with a copy to:
Mayer Brown & Platt
1675 Broadway
New York, NY 10019
Attention: Michael P. Richman, Esq.
14.7 TERM OF INJUNCTIONS OR STAYS. Unless otherwise provided
herein or in the Confirmation Order, all injunctions or stays provided for in
the Chapter 11 Case under sections 105 or 362 of the Bankruptcy Code or
otherwise, and extant on the Confirmation Date, shall remain in full force and
effect until the Distribution Date.
14.8 GOVERNING LAW. Unless a rule of law or procedure is supplied
by federal law (including the Bankruptcy Code and Bankruptcy Rules) or unless
specifically stated, the laws of the State of New York shall govern the
construction and implementation of the Plan, any agreements, documents and
instruments executed in connection with the Plan, and corporate governance
matters.
ARTICLE XV
POST CONFIRMATION FILINGS AND PAYMENTS
15.1 FILINGS AND PAYMENTS. Subsequent to confirmation of the
Plan, Reorganized Debtor shall file, and transmit to the Office of the United
States Trustee for the Southern District of New York, all reports required to be
filed pursuant to 11 U.S.C. ss.704(8) and shall make all payments required to be
made pursuant to 28 U.S.C. ss.1930. Dated: New York, New York
September 28, 1998
Respectfully submitted,
WELCOME HOME, INC.
Debtor-In-Possession
By: s/John Hillmann
------------------------
Its: President
JORDAN INDUSTRIES, INC.
By: s/Thomas H. Quinn
-------------------------
Its: President
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<PAGE>
JORDAN INDUSTRIES, INC.
By:_______________________________
Its: President
-42-
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000922817
<NAME> WELCOME HOME, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 784
<SECURITIES> 0
<RECEIVABLES> 530
<ALLOWANCES> 0
<INVENTORY> 11,352
<CURRENT-ASSETS> 12,732
<PP&E> 14,952
<DEPRECIATION> 8,787
<TOTAL-ASSETS> 17,777
<CURRENT-LIABILITIES> 14,926
<BONDS> 0
0
0
<COMMON> 85
<OTHER-SE> 2,766
<TOTAL-LIABILITY-AND-EQUITY> 17,777
<SALES> 54,254
<TOTAL-REVENUES> 54,254
<CGS> 30,254
<TOTAL-COSTS> 23,463
<OTHER-EXPENSES> (14,741)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 984
<INCOME-PRETAX> 14,294
<INCOME-TAX> 60
<INCOME-CONTINUING> 14,234
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 14,234
<EPS-PRIMARY> 1.86
<EPS-DILUTED> 1.86
</TABLE>
