<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MAY 31, 1997 OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM
------------------ TO -----------------
Commission file number 0-24390
-------
TREND - LINES, INC.
-----------------------------------------------------
(Exact name of registrant as specified in its charter)
Massachusetts 04-2722797
------------------------ ---------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
135 American Legion Highway, Revere , Massachusetts 02151
- --------------------------------------------------- ---------
(Address of principal executive office) (Zip Code)
(617) 853 - 0900
---------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months ( or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [_]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
<TABLE>
<CAPTION>
NUMBER OF SHARES OUTSTANDING
CLASS JULY 2, 1997
----- ----------------------------
<S> <C> <C>
Class A Common Stock, $.01 par value 5,817,568
Class B Common Stock, $.01 par value 4,750,026
</TABLE>
<PAGE>
TREND-LINES, INC. AND SUBSIDIARY
INDEX
<TABLE>
<CAPTION>
Page
----
Part I - Financial Information
<S> <C> <C>
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
May 31, 1997 (Unaudited) and March 1, 1997 3
Condensed Consolidated Statements of Operations
Three Months Ended May 31, 1997 and June 1, 1996 (Unaudited) 4
Condensed Consolidated Statements of Cash Flows
Three Months Ended May 31, 1997 and June 1, 1996 (Unaudited) 5
Notes to Condensed Consolidated Financial Statements 6-8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 9-11
Part II - Other Information 12
Item 1. Legal Proceedings 12
Item 2. Changes in Securities 12
Item 3. Defaults Upon Senior Securities 12
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K 12
Signatures 13
</TABLE>
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TREND-LINES, INC. AND SUBSIDIARY
Condensed Consolidated Balance Sheets
(In Thousands, except share amounts)
<TABLE>
<CAPTION>
ASSETS
(UNAUDITED)
MAY 31, MARCH 1,
1997 1997
-------- --------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 337 $ 1,006
Accounts receivable, net 10,797 12,155
Inventories 83,886 85,909
Prepaid expenses and other current assets 5,709 6,462
-------- --------
Total current assets 100,729 105,532
Property and Equipment, net 15,565 14,753
Other Assets 969 769
-------- --------
$117,263 $121,054
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Bank credit facility $ 30,437 $ 25,196
Current portion of capital lease obligations 684 686
Accounts payable 34,551 43,900
Accrued expenses 6,089 5,690
-------- --------
Total current liabilities 71,761 75,472
-------- --------
Capital Lease Obligations, net of current portion 1,658 1,875
-------- --------
Deferred Income Tax Liabilities 301 301
-------- --------
Stockholders' Equity:
Common stock, $.01 par value-
Class A-
Issued--6,312,175 and 6,302,534 shares at May 31,
1997 and March 1, 1997, respectively 63 63
Class B-
Issued and outstanding--4,750,026 shares at May 31, 1997
and March 1, 1997 47 47
Additional paid-in capital 41,352 41,318
Retained earnings 4,541 4,128
Less: 500,000 and 440,000 Class A shares held in treasury
at May 31, 1997 and March 1, 1997, respectively
at cost (2,460) (2,150)
-------- --------
Total stockholders' equity 43,543 43,406
-------- --------
$117,263 $121,054
======== ========
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE>
TREND-LINES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, except Per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
--- THREE MONTHS ENDED ---
MAY 31, JUNE 1,
1997 1996
------- -------
<S> <C> <C>
NET SALES $57,089 $49,311
COST OF SALES 38,157 32,895
------- -------
Gross Profit 18,932 16,416
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 17,601 15,696
------- -------
Income from operations 1,331 720
INTEREST EXPENSE, net of interest income 654 410
------- -------
Income before provision for income taxes 677 310
PROVISION FOR INCOME TAXES 264 126
------- -------
Net income $413 $184
======= =======
NET INCOME PER COMMON SHARE $0.04 $0.02
======= =======
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING 11,038 11,297
======= =======
</TABLE>
See notes to condensed consolidated financial statements
4
<PAGE>
TREND-LINES, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------
MAY 31, JUNE 1,
1997 1996
--------- ---------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income $ 413 $ 184
Adjustments to reconcile net income
to net cash used in operating activities-
Depreciation and amortization 557 433
Loss on sale of property and equipment - 2
Changes in current assets and liabilities-
Accounts receivable 1,358 (1,206)
Refundable income taxes - 1,383
Inventories 2,023 (2,216)
Prepaid expenses and other current assets 753 (230)
Accounts payable (9,349) (6,034)
Accrued expenses 399 (154)
------- -------
Net cash used in operating activities (3,846) (7,838)
------- -------
Cash Flows from Investing Activities:
Purchases of property and equipment (1,378) (817)
Proceeds from sale of property and equipment 9
(Increase) decrease in other assets (200) (86)
------- -------
Net cash used in investing activities (1,569) (903)
------- -------
Cash Flows from Financing Activities:
Net borrowings under bank credit facilities 5,241 8,919
Payments on capital lease obligations (219) (125)
Proceeds from exercise of stock options 34 -
Purchases of treasury stock (310) -
------- -------
Net cash provided by financing activities 4,746 8,794
------- -------
Net Increase (Decrease) in Cash And
Cash Equivalents (669) 53
Cash and Cash Equivalents, Beginning of Period 1,006 436
------- -------
Cash and Cash Equivalents, End of Period $ 337 $ 489
======= =======
Supplemental Disclosure of Cash Flow Information:
Cash paid for-
Interest $ 600 $ 280
======= =======
Income taxes $ 863 $ 1
======= =======
</TABLE>
See notes to condensed consolidated financial statements
5
<PAGE>
TREND-LINES, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
- ------------------------
The information set forth in these financial statements is unaudited and may be
subject to normal year end adjustments. In the opinion of management, the
information reflects all adjustments, which consist of normal recurring
accruals, that are considered necessary to present a fair statement of the
results of operations of Trend-Lines, Inc. (the Company) for the interim periods
presented. The operating results for the three months ended May 31, 1997 are
not necessarily indicative of the results to be expected for the fiscal year
ending February 28, 1998.
The financial statements presented herein should be read in conjunction with the
financial statements included in the Company's Annual Report on Form 10-K for
the year ended March 1, 1997. Certain information in footnote disclosures
normally included in financial statements have been condensed or omitted in
accordance with the rules and regulations of the Securities and Exchange
Commission.
2. EARNINGS PER SHARE DATA
- --------------------------
Net income per share for the three months ended May 31, 1997 and June 1, 1996 is
computed by dividing net income by the weighted average number of shares of
common stock and common stock equivalents outstanding during the period. Common
stock equivalents are calculated using the treasury stock method and consist of
common stock issuable upon the exercise of outstanding stock options.
In February 1997, the Financial Accounting Standards Board issued SFAS No. 128,
Earnings Per Share. SFAS No. 128 establishes standards for computing and
presenting earnings per share and applies to entities with publicly held common
stock or potential common stock. This statement is effective for the fiscal
years ending after December 15, 1997 and early adoption is not permitted. When
adopted, the statement will require restatement of prior years' earnings per
share. The Company will adopt this statement for its fiscal year ending February
28, 1998.
6
<PAGE>
Pro forma calculations of basic and diluted earnings per share as required by
SFAS No. 128 are as follows (in thousands, except per share data):
<TABLE>
<CAPTION>
--- FISCAL PERIOD ENDED ---
MAY 31, JUNE 1,
1997 1996
------- -------
<S> <C> <C>
Basic EPS
Net income $ 413 $ 184
Weighted average common
shares outstanding 10,586 11,048
------- -------
Basic EPS $ .04 $ .02
======= =======
Diluted EPS
Net income $ 413 $ 184
Weighted average common and
common equivalent shares
outstanding 11,038 11,297
------- -------
Diluted EPS $ .04 $ .02
======= =======
</TABLE>
3. BANK CREDIT FACILITY
------------------------
During fiscal 1996, the Company entered into a secured line of credit agreement
with a bank that expires on July 3, 1999. The facility bears interest at
the bank's reference rate plus .75% (9.0% at March 1, 1997) or LIBOR plus
2.25% (7.63% at March 1, 1997). If for any 12 month rolling period,
effective as of March 1, 1997, the fixed charges ratio exceeds certain
limits, as defined, the bank's interest rate on the facility is decreased
by .25% for the period immediately following such rolling period. Since
March 1, 1997 the Company has exceeded the fixed charges ratio. A
commitment fee of .375% per year of the average unused commitment amount,
as defined, is payable monthly. Effective June 16, 1997 the Company's
revolving credit facility line of credit was increased from $40 million to
$50 million (borrowings include amounts reserved for outstanding letters
of credit and a foreign exchange facility). Borrowings are based on a
formula related to inventory levels, as defined.
At May 31, 1997, the Company had approximately $30.4 million of borrowings
outstanding and approximately $1.1 million of letters of credit outstanding.
The Company had approximately $8.5 million in available borrowings under this
facility at May 31, 1997. The maximum and average outstanding loan balances
during fiscal 1997 under this facility were $31.4 million and
7
<PAGE>
$28.6 million,respectively. The bank has a security interest in substantially
all assets of the Company. The bank credit facility agreement contains certain
restrictive covenants, including, but not limited to, maintenance of certain
levels of tangible net worth, interest coverage ratio's and limitations on
capital expenditures. The Company was in compliance with all bank covenants at
May 31, 1997.
4. RESTRUCTURING CHARGE
- ------------------------
In the fourth quarter of fiscal 1995, the Company recorded a restructuring
charge of approximately $1.4 million, representing the costs associated with
reorganizing its operations. These costs include a $954,000 charge for the rent
and related expenses for closing 12 retail store locations and the severance
and related benefits for terminated employees. Additionally, $443,000 was
charged for the consolidation of the Company's distribution centers.
As of May 31, 1997, the 12 retail store locations were closed, as anticipated
when the restructuring reserve was established. For the three months ended May
31, 1997 approximately $0.1 million was charged against the restructuring
reserve for store closing related activities and approximately $0.1 million
associated with the consolidation of the Company's distribution centers was also
charged against the restructuring reserve. As of May 31, 1997 and March 1, 1997,
approximately $0.1 million and $0.3 million, respectively of restructuring costs
are included in accrued expenses in the accompanying consolidated balance
sheets. There were no non-cash adjustments to the accrual during the three
months ended May 31,1997.
5. TREASURY STOCK
- ------------------
On August 15, 1996, the Company's Board of Directors approved a stock repurchase
plan, whereby the Company may purchase up to 500,000 shares of common stock at
fair market value, to be used for future stock option programs, investment
and/or other corporate purposes. As of May 31, 1997, the Company had purchased
500,000 shares of Class A common stock for approximately $2.5 million.
8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
- ---------------------
Net sales for the first quarter of fiscal 1997 increased by $7.8 million, or
15.8%, from $49.3 million for the first quarter of fiscal 1996 to $57.1 million.
Net catalog sales for the first quarter of fiscal 1997 decreased $0.8 million or
4.2%, from $18.9 million for the first quarter of fiscal 1996 to $18.1 million
for the first quarter of fiscal 1997. Net retail sales for the first quarter of
1997 increased $8.6 million or 28.3% from $30.4 million for the first quarter of
fiscal 1996 to $39.0 million. The decrease in net catalog sales was primarily
attributable to both the reduced response rate to the Trend-Lines catalog and to
the Company's opening of retail stores in areas previously only served by its
catalog. The revenue growth of retail stores is attributable to the maturation
and expansion of the Company's retail store base. The store base expanded over
7% from 147 locations at the end of the first quarter of fiscal 1996 to 158
locations at the end of the first quarter of fiscal 1997. Also, comparable net
store sales for Woodworkers Warehouse / Post Tool stores and Golf Day stores for
the first quarter of fiscal 1997 increased by 17.3% as compared to the first
quarter of fiscal 1996.
Gross profit for the first quarter of fiscal 1997 increased 15.3% from $16.4
million for the first quarter of fiscal 1996 to $18.9 million for the first
quarter of fiscal 1997. As a percentage of net sales, gross profit decreased
from 33.3% of net sales for the first quarter of fiscal 1996 to 33.2% of net
sales in the first quarter of fiscal 1997. The decrease in the Company's gross
profit percentage is primarily the result of the Company's changing sales mix,
which is caused by the increase in retail sales as a percentage of total sales
(retail store sales generally have lower overall gross margins than catalog
sales).
Selling, general and administrative expenses for the first quarter of fiscal
1997 increased 12.1%, or $1.9 million from $15.7 million for the first quarter
of fiscal 1996 to $17.6 million for the first quarter of fiscal 1997. As a
percentage of net sales, selling, general and administrative expenses decreased
from 31.8% of net sales in the first quarter of fiscal 1996 to 30.8% of net
sales in the first quarter of fiscal 1997. The decrease in selling, general
and administrative expenses as a percentage of net sales is primarily
attributable to the maturation of the store sales base (and associated
comparable store sales gains), as well as lower operating costs of retail
stores as compared to the catalog business. The dollar increases in selling,
general and administrative expenses are primarily related to the Company's
continuing retail expansion.
As the result of the above factors, income from operations for the first
quarter of fiscal 1997 increased by $.6 million, or 83.5%, from $0.7 million in
the first quarter of fiscal 1996 to $1.3 million in the first quarter of fiscal
1997. As a percentage of net sales, income from operations
9
<PAGE>
increased from 1.5% of net sales in the first quarter of fiscal 1996 to 2.3% of
net sales in the first quarter of fiscal 1997.
Interest expense, net of interest income, for the first quarter of fiscal 1997
increased by $244,000 from $410,000 in the first quarter of fiscal 1996 to
$654,000 in the first quarter of fiscal 1997. The increase in interest expense
is attributable to the increase in the Company's borrowings under its bank
credit facility.
Liquidity and Capital Resources
- --------------------------------
The Company's working capital decreased by $1.1 million, from $30.1 million as
of March 1, 1997 to $29.0 million as of May 31, 1997. The decrease resulted
primarily from a $9.3 million decrease in accounts payable, which was only
partially offset by a $5.2 million increase in bank debt, primarily to support
the Company's expanding retail operations, a $2.0 million decrease in
inventories and a $1.4 million decrease in accounts receivable.
The Company anticipates that in fiscal 1997, it will continue to invest in
leasehold improvements and equipment to support its retail store expansion
plans. In addition, the Company's expansion plans will require the use of cash
to fund increased inventories associated with the operation of additional retail
stores. The Company opened one store and closed two stores in the first
quarter.__For fiscal 1997, the Company currently plans to open approximately 40
to 50 retail stores.
Effective June 16, 1997 the Company's revolving credit facility line of credit
was increased from $40 million to $50 million. The Company believes that the
cash generated from operating activities, trade credit and available bank
borrowings will be sufficient to fund its operations and its retail store
expansion program for the next twelve months.
Impact of Inflation
- -------------------
The Company does not believe that inflation has had a material impact on its
net sales or results of operations.
Safe Harbor Statement under the Private Securities Litigation Reform Act of
- ---------------------------------------------------------------------------
1995
- ----
Statements included in this report that do not relate to present or historical
conditions are "forward-looking statements" within the meaning of the Safe
Harbor provisions of the Private Securities Litigation Reform Act of 1995.
Additional oral or written forward-looking statements may be made by the
Company from time to time, and such statements may be included in documents
other than this report that are filed with the Securities and Exchange
Commission. Such forward-looking statements involve risks and uncertainties
that could cause results or outcomes to differ materially from those expressed
in such forward-looking statements. Forward-looking statements in this report
and elsewhere may include without limitation,
10
<PAGE>
statements relating to the Company's plans, strategies, objectives,
expectations, intentions and adequacy of resources and are intended to be made
pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. Words such as "believes," "forecasts," "intends,"
"possible," "expects," "estimates," "anticipates," or "plans" and similar
expressions are intended to identify forward-looking statements. Investors are
cautioned that such forward-looking statements involve risks and uncertainties
including without limitation the following: (i) the Company's plans, strategies,
objectives, expectations and intentions are subject to change at any time at the
discretion of the Company; (ii) the adequacy of the Company's resources to fund
its planned operations and expansion will be adversely affected if it is not
able to renew or refinance its credit facility on a timely basis; (iii) the
Company's ability to open the planned number of stores will depend upon a number
of other factors, including securing desirable locations, negotiating leases
with acceptable terms, and hiring, training and retaining qualified personnel;
(i ii v) the Company's plans and results of operations will be affected by
the Company's ability to manage its growth and inventory; ( i v) the
Company's tool and golf businesses are highly competitive and the entrance of
new competitors into or the expansion of the operations by existing competitors
in the Company's and other changes in the tool or golf retail climate could
adversely markets affect the Company's plans and results of operations; and (vi)
other risks and uncertainties indicated from time to time in the Company's
filings with the Securities and Exchange Commission.
11
<PAGE>
TREND - LINES, INC. AND SUBSIDIARY
Part II - Other Information
Item 1. Legal Proceedings
Not applicable
Item 2. Changes in Securities
Not applicable
Item 3. Defaults Upon Senior Securities
Not applicable
Item 4. Submission of Matters to a vote of Security Holders
Not applicable
Item 5. Other Information
Not applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit Number Reference
-------------- ---------
10.1 Amendment No. 2, dated as of January 28, 1997 Filed
to the Loan and Credit Agreement dated herewith
July 3, 1996, among the Registrant,
Post Tool, Inc. as Borrowers and Bank
America Business Credit, Inc., as Lender.
10.2 Amendment No. 3, dated as of June 16, 1997, to the Filed
Loan and Credit Agreement dated July 3, 1996, among herewith
the Registrant, Post Tool, Inc., as Borrowers
and Bank America Business Credit, Inc., as Lender.
(b) Reports on Form 8-K - not applicable
12
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TREND-LINES, INC
-----------------
Registrant
Date: July 8, 1997
___________________
Stanley D. Black
(Chief Executive Officer)
___________________
Karl P. Sniady
(Executive Vice President,
Chief Financial Officer)
13
<PAGE>
AMENDMENT No. 2, dated as of January 28, 1997 (this "Amendment"), to the
---------
Loan and Security Agreement, dated as of July 3, 1996 (as heretofore amended,
supplemented and otherwise modified, the "Agreement"), among Trend-Lines, Inc.
---------
and Post Tool, Inc. (collectively the "Borrowers") and BankAmerica Business
Credit, Inc. (the "Lender").
W I T N E S S E T H:
WHEREAS, the Borrowers and the Lender are parties to the Agreement;
WHEREAS, the Borrowers have requested that the Lender modify certain
provisions of the Agreement and the Lender is willing to do so on the terms and
conditions as hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt of which is hereby acknowledged, the parties
hereto hereby agree as follows:
1. Defined Terms. Unless otherwise defined herein, capitalized terms
-------------
used herein have the respective meanings ascribed thereto in the Agreement.
2. Amendments to the Agreement. The Agreement is hereby amended as
---------------------------
follows:
(a) Paragraph (b) of the definition of "Availability" in Section 1 of the
Agreement is amended in its entirety to read as follows:
(b) the sum of (i) Outstanding Credit to such Borrower at such
time, (ii) reserves for accrued interest on the Obligations of such
Borrower, (iii) the Environmental Compliance Reserve for such
Borrower, (iv) the Rental Reserve for such Borrower, (v) in the case
of Trend-Lines, a reserve of $550,000 in connection with the
Indemnification Agreement, and (vi) all other reserves which the
Lender deems necessary in the exercise of its reasonable credit
judgment to maintain with respect to such Borrower's account,
including, without limitation, reserves for any amounts which the
Lender may be obligated to pay in the future for the account of such
Borrower.
(b) Two new definitions are added after the definition of "Barn:" in
such Section to read as follows:
"Bank of Boston" means First National Bank of Boston, N.A.
--------------
"Bank of Boston Letter of Credit" means a Letter of Credit issued
-------------------------------
by Bank of Boston and referred to in the Indemnification Agreement.
(c) A new definition is added after the definition of "Guaranty" in
such Section to read as follows:
<PAGE>
"Indemnification Agreement" means the Indemnification Agreement
-------------------------
made and entered into the 28th day of January, 1997 by and among
Trend-Lines, the Lender and Bank of Boston.
(d) The definition of "Loan Documents" in such Section is amended by adding
the phrase "the Indemnification Agreement," after the phrase "the Stock Pledge
Agreement" in such Section.
(e) The phrase "or the Indemnification Agreement" is added at the end of
the last sentence of the definition of "Obligations" in such Section.
(f) Section 2.3(a) is amended in its entirety to read as follows:
2.3. Letters of Credit. (a) Subject to the terms and conditions of
-----------------
this Agreement, the Lender shall, upon a Borrower's request from time to
time, cause merchandise or standby letters of credit to be issued for such
Borrower's account by the Bank or another issuer reasonably acceptable to
such Borrower and the Lender (the "Letters of Credit"). The Lender will not
cause to be issued any Letter of Credit if: (i) the maximum face amount of
the requested Letter of Credit, plus the aggregate undrawn face amount of
all outstanding Letters of Credit and the maximum claim (matured or
unmatured) of Bank of Boston under the Indemnification Agreement, would
exceed $2,500,000; (ii) the maximum face amount of the requested Letter of
Credit, and all commissions, fees, and charges due from such Borrower to
the Lender in connection with the opening thereof, would cause the
Availability to be exceeded at such time; or (iii) the expiration date of
the Letter of Credit would exceed the Stated Termination Date or any
renewal term or be greater than (A) 12 months from the date of issuance if
such Letter of Credit is a standby Letter of Credit or (B) 180 days from
the date of issuance if such Letter of Credit is a merchandise Letter of
Credit. All payments made and expenses incurred by the Lender pursuant to
or in connection with the Letters of Credit or the Indemnification
Agreement will be charged to such Borrower's loan account as Reference Rate
Loans.
(g) Section 2.3(d) is amended in its entirety to read as follows:
(d) Payments Pursuant to Letters of Credit and Bank of Boston Letters
-----------------------------------------------------------------
of Credit.
- ---------
(1) Payment of Letter of Credit and Bank of Boston Letter of Credit
---------------------------------------------------------------
Obligations. The Borrowers agree to reimburse the issuer for any draw
-----------
under any Letter of Credit or Bank of Boston Letter of Credit immediately
upon demand and to pay the issuer of such Letter of Credit or the Bank of
Boston, respectively, the amount of all other obligations and other amounts
payable to such issuer or such Bank under or in connection with such Letter
of Credit or Bank of Boston Letter of Credit immediately when due,
irrespective of any claim, setoff, defense or other right which either
Borrower may have at any time against such issuer, such Bank or any other
Person.
2
<PAGE>
(2) Reference Rate Loans to Satisfy Reimbursement Obligations. In the
---------------------------------------------------------
event that the issuer of any Letter of Credit or the Bank of Boston honors
a draw under such Letter of Credit or a Bank of Boston Letter of Credit,
respectively, and the relevant Borrower shall not have repaid such amount
to such issuer or such Bank, respectively, pursuant to Section 2. 3(d)(1),
the Lender shall pay such issuer or such Bank, respectively, and such
amount when paid shall constitute a Reference Rate Loan which shall be
deemed to have been requested by such Borrower.
(h) The first sentence of Section 2.3(fl(1) is amended in its entirety to
read as follows: "In addition to amounts payable as elsewhere provided in this
Section 2.3, the Borrowers hereby agree to protect, indemnify, pay and save the
Lender harmless from and against any and all claims, demands, liabilities,
damages, losses, costs, charges and expenses (including, without limitation,
reasonable attorneys' fees) which the Lender may incur or be subject to as a
consequence, direct or indirect, of (A) the issuance of any Letter of Credit or
the provision of any credit support or enhancement in connection therewith or
(B) the Indemnification Agreement.".
(i) The phrase "or Bank of Boston Letters of Credit" is inserted after the
word "Credit" in each of Sections 2.3(f)(4) and 2.3(f)(6).
(j) The phrase "or Bank of Boston Letter of Credit" is inserted after the
word "Credit" each time such word appears in Section 2.3(g).
(k) Section 9.9 is amended by adding the phrase "(other than those arising
under or in connection with the Indemnification Agreement)" after the word
"Obligations" in clause (a) of such Section, deleting the word "and" before
clause (d), and inserting the following phrase after the word "hereby": "and
(e) Indebtedness, as such term is defined in the Indemnification Agreement
(without giving effect to any amendment to such definition after January 28,
1997), in an amount not greater than $550,000".
(l) Section 10.11 is amended by adding the phrase "(other than those
arising under or in connection with the Indemnification Agreement)" after the
word "Obligations" in clause (a) of such Section, deleting the word "and" before
clause (c), and inserting the following phrase after the number "B-1":"; and (d)
---
Indebtedness, as such term is defined in the Indemnification Agreement (without
giving effect to any amendment to such definition after January 28, 1997), in an
amount not greater than $550,000".
(m) The phrase "and Bank of Boston Letters of Credit" is inserted after the
word "Credit" in the penultimate sentence of Section 14.
(n) Section 15.11 is amended by changing the address for notices to
"Williams & Harris" to read as follows:
Williams & Harris LLP
One Battery Park Plaza, 27th Floor
New York, New York 10004
Attention: Homer L. Harris
3
<PAGE>
3. Representations and Warranties. To induce the Lender to enter into
this Amendment, the Borrowers hereby represent and warrant as follows, with the
same effect as if such representations and warranties were set forth in the
Agreement:
(i) Each Borrower has the power and authority to enter into this
Amendment and has taken all corporate action required to
authorize such Borrower's execution, delivery and
performance of this Amendment. This Amendment has been duly
executed and delivered by each Borrower, and the Agreement,
as amended hereby, constitutes the valid and binding
obligation of the Borrowers, enforceable against each
Borrower in accordance with its terms. The execution,
delivery, and performance of this Amendment and the
Agreement, as amended hereby, by each Borrower will not
violate its respective certificate of incorporation or by-
laws or any agreement or legal requirement binding on such
Borrower.
(ii) On the date hereof and after giving effect to the terms of
this Amendment, (A) the Agreement and the other Loan
Documents are in full force and effect and, to the extent
that a Borrower is a party thereto, constitutes its binding
obligation, enforceable against it in accordance with their
respective terms; (B) no Default or Event of Default has
occurred and is continuing; and (C) no Borrower has any
defense to or setoff, counterclaim or claim against payment
of the Obligations and enforcement of the Loan Documents
based upon a fact or circumstance existing or occurring on
or prior to the date hereof.
(iii) The Collateral is entirely free and clear of all security
interests, liens, pledges and other charges and
encumbrances, except those (A) created by the Agreement as
amended hereby, or (B) permitted pursuant to the terms of
the Agreement as so amended, and the Borrowers have not
entered into any agreement pursuant to which any security
interests, liens, pledges, or other charges or encumbrances
will be imposed or created directly, or as a result of any
act or event, upon any of the Collateral. Without limiting
the generality of the foregoing, the Collateral does and
shall continue to secure the payment of all Obligations.
4. Limited Effect. Except as expressly amended hereby, all of the
--------------
covenants and provisions of the Agreement are and shall continue to be in full
force and effect.
5. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY,
-------------
AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE INTERNAL LAWS (AS OPPOSED
TO THE CONFLICT OF LAWS PROVISIONS) OF THE STATE OF NEW YORK.
4
<PAGE>
6. Counterparts. This Amendment may be executed by the parties
------------
hereto in any number of separate counterparts, each of which shall be an
original, and all of which taken together shall be deemed to constitute one and
the same instrument.
7. Amendment. No modification or waiver of any provision
---------
of this Amendment, or any consent to any departure by the Borrowers therefrom,
shall in any event be effective unless the same shall be in writing, and then
such waiver or consent shall be effective only in the specific instance and for
the specific purpose for which given.
5
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be duly executed and delivered by their respective proper and duly authorized
officers as of the day and year first above written.
TREND LINES, INC. BANKAMERICA BUSINESS CREDIT, INC.
By: /s/ Stanley D. Black By: /s/ Lisa Palmieri
----------------------- ------------------------
Name: Stanley D. Black Name: Lisa Palmieri
---------------------- ----------------------
Title: Chairman of the Board Title: Sr. Account Executive
---------------------- ---------------------
POST TOOL, INC.
By: /s/ Stanley D. Black
--------------------
Name: Stanley D. Black
------------------
Title: President
-----------------
6
<PAGE>
AMENDMENT No. 3, dated as of June 16, 1997 (this "Amendment"), to the Loan
---------
and Security Agreement, dated as of July 3, 1996 (as heretofore amended,
supplemented and otherwise modified, the "Agreement"), among Trend-Lines, Inc.
---------
and Post Tool, Inc., (collectively, the "Borrowers") and BankAmerica Business
Credit, Inc. (the "Lender").
WITNESSETH:
WHEREAS, the Borrowers and the Lender are parties to the Agreement;
WHEREAS, the Borrowers have requested that the Lender modify certain
provisions of the Agreement and the Lender is willing to do so on the terms and
conditions as hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt of which is hereby acknowledged, the parties
hereto hereby agree as follows:
1. Defined Terms. Unless otherwise defined herein, capitalized terms used
-------------
herein have the respective meanings ascribed thereto in the Agreement.
2. Amendments to the Agreement. The Agreement is hereby amended as
---------------------------
follows:
(a) The definition of Borrowing Base in Section I of the Agreement is
amended in its entirety to read as follows:
"Borrowing Base" means, with respect to either Borrower, (a)(i)
--------------
from January 1 - August 31 and December 16 - December 31 of any year,
55% of the value, at the lower of cost (on a first-in, first-out
basis) or market, of all Eligible Inventory of such Borrower and (ii)
from September 1 - December 15 of any year, 65% of such value, in
either case, (b) without duplication, 50% of the undrawn face amount
of Letters of Credit issued or caused to be issued by the Lender for
the account of such Borrower for the purchase of goods which will
become Eligible Inventory.
(b) The definition of Fixed Charges Ratio in such Section is amended by
adding the following language to the end thereof: "provided that, for the
purposes of this definition, Capital Expenditures shall not include the first
$1.1 million expended by the Borrowers for Warehouse MIS on and after the
Closing Date".
(c) The definition of Interest Adjustment Date in such Section is amended
in its entirety to read as follows:
"Interest Adjustment Date" means, with respect to any Rolling
------------------------
Period in connection with the adjustment of the Applicable Margin:
<PAGE>
(i) In the case of any Reference Rate Loan outstanding during
the Interest Adjustment Period immediately following such
Rolling Period:
(A) the first day of the calendar month in which the
certificate relating to Fixed Charges Ratio referred to in
Section 8.2(c) is delivered to the Lender with respect to
such Rolling Period, provided that such certificate is
delivered no later than four Business Days prior to the last
day of the month following such Rolling Period; or
(B) the first day of the calendar month following the month
in which such certificate is delivered if it is delivered
later than four Business Days prior to, but no later than,
the last day of such month following such Rolling Period; or
(C) if such certificate is not delivered until after the end
of the month following such Rolling Period, the first day of
such month but the Applicable Margin shall be three-quarters
of one percent (0.75 %),
provided, that, in the event that, with respect to any
calendar month, there would be a conflict between the
provisions of (A) and the provisions of (B) above, the
provisions of (A) shall prevail with respect to such month;
and
(ii) In the case of any LIBOR Rate Loan:
(A) the day such certificate is delivered to the Lender, if
such certificate is delivered within 30 days after the end
of such Rolling Period; or
(B) if such certificate is not delivered within such 30
days, the previous Interest Adjustment Date (that is, there
is no change in Applicable Margin based on Fixed Charges
Ratio for such Rolling Period).
(d) The definition of Unused Line Amount in such Section is amended in its
entirety to read as follows:
"Unused Line Amount" means (a) during the period beginning on the
------------------
Closing Date and ending on June 16,1997, $30,000,000, (b)during the
period beginning on June 17, 1997 and ending on the day before the
first Anniversary Date, $40,000,000, (c) during the period beginning
on the first Anniversary Date and ending on the day before the second
Anniversary Date, $45,000,000, and (d) during the period beginning on
the second Anniversary Date and ending on the third Anniversary Date,
$50,000,000.
2
<PAGE>
(e) A new definition entitled "Warehouse MIS" is added to the end of such
Section to read as follows:
"Warehouse MIS" means management information systems to be used
-------------
with respect to one or more warehouses; whether an expenditure
constitutes an expenditure for such a system shall be determined by
the Lender in its reasonable commercial discretion.
(f) Section 2.1 is amended by changing the Total Facility from $40,000,000
to $50,000,000.
(g) The following language is added to the end of Section 2. 2(b)(i)(C):
"provided that, to the extent a Revolving Loan is based on the
increase in the Borrowing Base factor from 55% to 65% that occurs from
September 1 to December 15 in any year, only the portion of such
Revolving Loan that is provided as a result of such increase shall be
a Reference Rate Loan and may not be converted into a LIBOR Rate Loan
pursuant to Section 3.2 at anytime."
(h) The number $1,000,000 that appears in Section 10.17 shall be amended to
read "$6,000,000".
(i) The number $5,250,000 that appears in Section 10.20(b) shall be amended
to read "$7,500,000".
(j) Section 12.1(n) shall be amended to read in its entirety as follows:
"Trend-Lines shall cease to own 100% of the voting stock of Post Tool
or any person other than Stanley Black, Emilia F. Black, his spouse,
and his or her respective Affiliates shall own more than 50% of the
voting stock of Trend-Lines or have the power to control (such term
having the meaning given to it in the definition of Affiliate herein)
the Board of Directors of Trend-Lines."
(k) Section 15.11 is amended by inserting:
"Robinson & Cole LLP
One Boston Place
Boston, MA 02108-04
Attention: David Garbus"
in place of the following:
Brown, Rudnick, Freed & Gesmer, PC
One Financial Center
Boston, MA 02111
Attention: Howard L. Levin
3
<PAGE>
3. Representations and Warranties. To induce the Lender to enter into
------------------------------
this Amendment, the Borrowers hereby represent and warrant as follows, with the
same effect as if such representations and warranties were set forth in the
Agreement:
(i) Each Borrower has the power and authority to enter into this
Amendment and has taken all corporate action required to
authorize such Borrower's execution, delivery and performance of
this Amendment. This Amendment has been duly executed and
delivered by each Borrower, and the Agreement, as amended hereby,
constitutes the valid and binding obligation of the Borrowers,
enforceable against each Borrower in accordance with its terms.
The execution, delivery, and performance of this Amendment and
the Agreement, as amended hereby, by each Borrower will not
violate its respective certificate of incorporation or by-laws or
any agreement or legal requirement binding on such Borrower.
(ii) On the date hereof and after giving effect to the terms of this
Amendment, (A) the Agreement and the other Loan Documents are in
full force and effect and, to the extent that a Borrower is a
party thereto, constitutes its binding obligation, enforceable
against it in accordance with their respective terms; (B) no
Default or Event of Default has occurred and is continuing; and
(C) neither Borrower has any defense to or setoff, counterclaim
or claim against payment of the Obligations and enforcement of
the Loan Documents based upon a fact or circumstance existing or
occurring on or prior to the date hereof.
4. Limited Effect. Except as expressly amended hereby, all of the
--------------
covenants, representations and warranties (including, without limitation, those
found in Section 9.2), and provisions of the Agreement are and shall continue to
be in full force and effect. Upon the effectiveness of this Amendment, each
reference in the Agreement to "this Agreement", "hereunder", "hereof", "herein"
or words of like import and each reference in the other Loan Documents to the
Agreement shall mean and be a reference to the Agreement as amended hereby.
5. Conditions of Effectiveness. This Amendment shall become effective
---------------------------
when and only when (i) this Amendment shall be executed by the Borrower and (ii)
the Lender shall have received such opinions of counsel, such other documents
(including, without limitation, certified resolutions), and such evidence of
filings, as the Lender shall request.
6. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED AND
-------------
INTERPRETED IN ACCORDANCE WITH, THE INTERNAL LAWS (AS OPPOSED TO THE CONFLICT OF
LAWS PROVISIONS) OF THE STATE OF NEW YORK.
7. Counterparts. This Amendment may be executed by the parties hereto in
------------
any number of separate counterparts, each of which shall be an original, and all
of which taken together shall be deemed to constitute one and the same
instrument.
4
<PAGE>
8. Amendment. No modification or waiver of any provision of this
---------
Amendment, or any consent to any departure by the Borrowers therefrom, shall in
any event be effective unless the same shall be in writing, and then such waiver
or consent shall be effective only in the specific instance and for the specific
purpose for which given.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed and delivered by their respective proper and duly authorized
officers as of the day and year first above written.
TREND LINES, INC. BANKAMERICA BUSINESS CREDIT, INC.
By: /s/ Stanley D. Black By: /s/ Lisa Palmieri
-------------------- -----------------
Name: Stanley D. Black Name: Lisa Palmieri
------------------- -----------------
Title: Chairman of the Board Title: Sr. Account Executive
----------------------- -----------------------
POST TOOL, INC.
By: Stanley D. Black
-------------------
Name: Stanley D. Black
-----------------
Title: President
---------------
5
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED FINANCIAL STATEMENT OF FINANCIAL CONDITION AT MAY 31,
1997 (UNAUDITED) AND THE RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MAY
31, 1997 (UNAUDITED) AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> FEB-28-1998
<PERIOD-START> MAR-02-1997
<PERIOD-END> MAY-31-1997
<CASH> 337
<SECURITIES> 0
<RECEIVABLES> 10,797
<ALLOWANCES> 0
<INVENTORY> 83,886
<CURRENT-ASSETS> 100,729
<PP&E> 15,565
<DEPRECIATION> 0
<TOTAL-ASSETS> 117,263
<CURRENT-LIABILITIES> 71,761
<BONDS> 0
0
0
<COMMON> 110
<OTHER-SE> 43,433
<TOTAL-LIABILITY-AND-EQUITY> 117,263
<SALES> 57,089
<TOTAL-REVENUES> 57,089
<CGS> 38,157
<TOTAL-COSTS> 38,157
<OTHER-EXPENSES> 17,601
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 654
<INCOME-PRETAX> 677
<INCOME-TAX> 0
<INCOME-CONTINUING> 677
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 413
<EPS-PRIMARY> .04
<EPS-DILUTED> .04
</TABLE>
