0000764960-01-500008.txt : 20011019
0000764960-01-500008.hdr.sgml : 20011019
ACCESSION NUMBER: 0000764960-01-500008
CONFORMED SUBMISSION TYPE: 10-K
PUBLIC DOCUMENT COUNT: 3
CONFORMED PERIOD OF REPORT: 20010630
FILED AS OF DATE: 20011015
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: PHAR MOR INC
CENTRAL INDEX KEY: 0000764960
STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-DRUG STORES AND PROPRIETARY STORES [5912]
IRS NUMBER: 251466309
STATE OF INCORPORATION: PA
FISCAL YEAR END: 0629
FILING VALUES:
FORM TYPE: 10-K
SEC ACT: 1934 Act
SEC FILE NUMBER: 000-27050
FILM NUMBER: 1759195
BUSINESS ADDRESS:
STREET 1: 20 FEDERAL PLZ W
CITY: YOUNGSTOWN
STATE: OH
ZIP: 44501
BUSINESS PHONE: 3307466641
MAIL ADDRESS:
STREET 1: 20 FEDERAL PLAZA WEST
STREET 2: 20 FEDERAL PLAZA WEST
CITY: YOUNGSTOWN
STATE: OH
ZIP: 44503
10-K
1
a2001-10k.txt
ANNUAL REPORT
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
X Annual report pursuant to Section 13 or 15(d) of the Securities
--------- Exchange Act of 1934 For the fiscal year ended June 30, 2001
Commission File Number 0-27050
-------
--------- Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the transition period from
to ------------------
------------------
PHAR-MOR, INC.
--------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
PENNSYLVANIA 25-1466309
------------------------------------------------- --------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
20 Federal Plaza West, Youngstown, Ohio 44501-0400
------------------------------------------------- --------------------
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (330) 746-6641
--------------
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Title of each class Name of each exchange on which registered
--------------------- -----------------------------------------
Common Stock, Par Value $0.01 per share NASDAQ
Warrants to purchase Common Stock NASDAQ
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 the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
YES No X
----- -----
APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the 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
----- -----
The aggregate market value of voting stock held by non-affiliates of the
registrant as of September 5, 2001 was $3,899,322 based on the last reported
sale price of the Registrant's Common Stock on the NASDAQ National Market System
on such date).
As of close of business on September 5, 2001, 12,240,865 shares of the
Registrant's Common Stock were outstanding before deducting 1,482,424 shares
which represent the Company's 25.2% equity interest in common stock of the
Company owned by Avatex, Inc.
1
PART I
Item 1. Business
Introduction
Phar-Mor, Inc., a Pennsylvania corporation ("Phar-Mor" or the
"Company"), operates a chain of discount retail drugstores devoted to the sale
of prescription and over-the-counter drugs, health and beauty care products,
baby products, pet supplies, cosmetics, greeting cards, groceries, beer, wine,
tobacco, soft drinks, seasonal and other general merchandise. As of June 30,
2001, the Company operated 139 stores in 24 states under the names of Phar-Mor,
Rx Place and Pharmhouse. Approximately 57% of the Company's stores are located
in New York, New Jersey, Pennsylvania and Ohio, and approximately 22% are
located in Virginia, West Virginia, North Carolina and South Carolina. The
Company's principal executive offices are located at 20 Federal Plaza West,
Youngstown, Ohio 44501-0400. Unless otherwise stated, all statistics in this
Item were compiled as of June 30, 2001.
Except for historical information contained herein, the matters
discussed in this Annual Report on Form 10-K are forward-looking statements as
defined by the Private Securities Litigation Reform Act of 1995. Actual results
may differ materially from those projected as a result of certain risks and
uncertainties including, but not limited to, economic, competitive, governmental
and technological factors affecting the Company's operations, markets, products,
services and prices and other factors discussed in the Company's filings with
the Securities and Exchange Commission ("SEC").
Subsequent Events - Bankruptcy
On September 24, 2001, the Company and certain of its affiliates filed
voluntary petitions under Chapter 11 of the United States Bankruptcy Code to
restructure their operations in an effort to return to profitability. On that
same date, the Company secured a $135 million Debtor-In-Possession Revolving
Credit Facility (the "DIP Credit Facility") financing through Fleet Retail
Finance, the Company's principal secured lender, which will be used to fund the
Company's operations through the reorganization process.
Management determined that the reorganization was necessary to rectify
operational and liquidity difficulties resulting from the slowing economy,
changes in consumer buying habits, increased competition from larger retail
chains, the geographic diversity of some Phar-Mor locations, the reduction of
credit terms by vendors and the service of high-cost debt. See related
discussion in Management's Discussion and Analysis of Financial Condition and
Results of Operations.
As part of the restructuring, Phar-Mor plans to close approximately 65
of its 139 stores. These stores have been identified as either under-performing
or outside the Company's core markets. The Company will focus continuing
operations on the approximately 74 remaining stores, while reducing corporate
overhead and solidifying its position in the markets it serves.
Following the Company's Chapter 11 bankruptcy filing on September 24,
2001, the Nasdaq Stock Market had immediately suspended trading in the Company's
securities. On October 2, 2001, the NASDAQ notified the Company that as a result
of the Company's bankruptcy it was delisting the Company's securities from the
NASDAQ as of October 10, 2001, subject to the Company's right of appeal. The
Company has determined not to appeal the NADAQ'S decision but will consider,
when appropriate, making application to be listed on the OTC Bulletin Board.
History
Phar-Mor was founded in 1982 as a division of a subsidiary of the
Giant Eagle, Inc. supermarket chain. The initial Phar-Mor concept was built on
the premise that a drugstore offering additional, and at times unexpected,
categories of merchandise could attract customers by featuring low prices made
possible by acquiring inventory at relatively low cost through deal purchases of
overstock, odd lot, discontinued, large unit size or slow-moving merchandise
from manufacturers and distributors. The Company grew, rapidly expanding from 12
stores in August 1985 to 311 stores in August 1992. Store size also grew
dramatically, increasing from an average of approximately 31,000 square feet in
1986 to approximately 58,500 square feet in 1992. Phar-Mor's rapid growth was
mirrored by apparent extraordinary financial success.
2
However, in early August 1992, Phar-Mor publicly disclosed that it had
discovered a scheme by certain senior executives to falsify certain financial
results and divert funds to unrelated enterprises and for personal expenses. The
officers involved, including Phar-Mor's former President and Chief Operating
Officer, former Chief Financial Officer, former Vice President of Finance and
former Controller were promptly dismissed. In an effort to restore support from
its vendors and lenders and to implement a business turnaround plan, Phar-Mor
and its fifteen wholly-owned subsidiaries filed petitions for protection under
Chapter 11 of the United States Bankruptcy Code on August 17, 1992 (the
"Petition Date").
The Company emerged from bankruptcy on September 11, 1995, the
effective date (the "Effective Date") of Phar-Mor's Chapter 11 plan of
reorganization (the "Plan of Reorganization") with a new President and Chief
Operating Officer, Chief Financial Officer and Vice President and Corporate
Controller hired after the Petition Date to replace those responsible for the
fraud.
During the pendency of the Chapter 11 bankruptcy cases of
pre-reorganized Phar-Mor and its subsidiaries (the "Chapter 11 Cases"), new
management analyzed the performance and prospects of each store to identify a
core group of high volume, profitable and geographically concentrated stores
that would serve as the basis of reorganized Phar-Mor. Based on this analysis,
Phar-Mor closed 209 stores in five stages between October 1992 and July 1995,
thereby reducing the number of stores from 311 in September 1992 to 102 stores
as of September 1995.
The Company also implemented a series of fundamental changes designed
to achieve operating profitability and to position Phar-Mor for future growth.
Following the Petition Date, Phar-Mor reduced the number of warehouses;
introduced POS scanning in all stores; installed a new pharmacy software system;
installed a warehouse logistics system; installed a state of the art mainframe
computer; developed an EDI ordering and invoicing system; developed an
electronic store merchandise receiving system; and reduced the number of
corporate personnel by 75%.
On March 15, 1999, the Company completed the merger of its wholly
owned subsidiary Pharmacy Acquisition Corp. ("PAC") with and into Pharmhouse
Corp. ("Pharmhouse"), pursuant to the Agreement and Plan of Merger dated as of
December 17, 1998 among Phar-Mor, PAC and Pharmhouse (the "Merger Agreement").
As a result of the merger Pharmhouse became a wholly owned subsidiary of
Phar-Mor. In addition, subject to the terms of the Merger Agreement, each share
of the common stock of Pharmhouse was converted into the right to receive $2.88
per share in cash (the "Merger"). The total purchase price payable in connection
with the Merger was approximately $34.2 million, consisting of $7.5 million in
cash and the assumption of $26.7 million in debt.
The Company used its excess cash position and excess availability
under its Revolving Credit Facility to pay off $26.7 million in debt that was
assumed as part of the merger with Pharmhouse.
Pharmhouse operated 32 discount drug stores in eight mid-Atlantic and
New England states under the names "Pharmhouse" and "Rx Place" and had annual
revenues of approximately $200 million.
Operations
Typically, stores are open 95 hours per week; pharmacies are typically
open 77 hours per week. The average store has approximately 50 employees,
including a store manager and department managers, a pharmacy manager and
pharmacists, and office and cashier supervision. Overall, the Company had 6,125
employees at June 30, 2001. Approximately 354 warehouse and distribution center
employees in Youngstown are members of the Teamsters Union under a contract
which expires March 2, 2003. Thirty-nine employees at the Company's Niles, Ohio
store are members of the United Food and Commercial Workers Union under a
contract which expires October 12, 2003. The Company's relationship with its
union employees is good.
The Company is committed to customer service and encourages employees
to be responsive to customer needs and concerns. The remerchandising and
remodeling of stores (discussed below) is designed to make the customer's
shopping experience easier and more enjoyable. The number of open checkout lanes
is closely monitored to facilitate the efficient and comfortable checkout of
customers. These philosophies are regularly communicated and reinforced by the
Company to its employees.
3
Thorough education and training in store operations is provided to
employees at every level. Computer-based training, on and off-site training,
video training and teleconferences are a few of the training methods used. The
Company believes that such training enables efficiency, understanding and
responsiveness within store operations.
The typical trade area for a Company store includes approximately
105,000 people in 41,000 households within a radius of between five and seven
miles. On average during the fiscal year ended June 30, 2001 ("Fiscal Year
2001"), each store served approximately 8,500 customers per week. The Company's
customers are approximately 52% female, with a median age of 35.5 years, and a
median household income of approximately $33,000. Approximately 24% of customer
households have children 17 years old and under.
Company stores accept payment in cash, check, credit cards, debit
cards and payment from third-party providers of prescription services.
The Company's purchasing, pricing, advertising, merchandising,
accounting and supervisory activities are centrally directed from Phar-Mor's
corporate headquarters. The Company purchases substantially all of its
merchandise either directly from manufacturers or from wholesalers under various
types of purchase arrangements. McKesson HBOC, Inc. ("McKesson"), a
pharmaceutical distributor, accounted for approximately 31% of the Company's
purchases during Fiscal Year 2001. During Fiscal Year 2001, no other single
vendor accounted for more than 10% of the Company's purchases. Substantially all
of the products the Company sells are purchased from approximately 1,200 outside
vendors. Alternative sources of supply are generally available for all products
sold by the Company. The Company is heavily dependent on obtaining satisfactory
trade payment terms from its vendors as a source of funding its inventory
purchases. A significant reduction in trade payment terms from major vendors
would negatively impact the Company's ability to purchase its inventory needs.
Marketing and Merchandising
Phar-Mor's overall merchandising strategy is to offer (i) value to
consumers by pricing its products below the prices charged by conventional
drugstores and supermarkets and (ii) a broader array of products in each of its
major product categories than is offered by mass merchant discounters.
Phar-Mor's product strategy is focused on the traditional drugstore lines of
prescription and over-the-counter drugs, health and beauty care products and
cosmetics. Phar-Mor's stores also typically feature other product categories,
including groceries, snacks and beverages, pet food and supplies, beer, wine and
liquor (where permitted by law), tobacco, baby products, general merchandise,
video and music sales. Phar-Mor is one of the leading retailers of film,
vitamins, soft drinks and batteries in the United States.
Ninety-five percent of the Company's advertising is print advertising,
through circulars, newspapers, and point of sale materials. Newspaper
advertisements and circulars appear in major newspapers in most market areas.
The Company presently advertises through 75 newspapers and mailers.
Phar-Mor introduced the "Super Phar-Mor" concept during Fiscal Year
1997. In approximately 10,000 to 15,000 square feet, each "Super Phar-Mor"
offers a variety of grocery items, including fresh, frozen, and refrigerated
foods. The Company incorporated this concept into 1 store during Fiscal Year
2001 bringing the total number of "Super Phar-Mor" stores to 40. The concept has
been well received by customers and has improved overall sales in each such
store. During the past five fiscal years, the Company also undertook a plan to
remodel certain stores unable to accommodate the fresh, frozen and refrigerated
foods included in the "Super Phar-Mor" concept due to their small size. This
"four-wall" remodeling program includes remerchandising the stores to provide a
more convenient shopping experience by creating product adjacencies; adding new
and color coded decor and enhancing signage throughout the store; and further
enhancing the "store within a store" idea with its signature departments. The
Company has completed sixteen of the "four-wall" remodel projects.
4
Sales
The retail sale of traditional drugstore lines is a highly fragmented
business, consisting of thousands of chain drugstores and independent drugstores
that sell such products as well as mass merchandisers who sell such products as
part of their overall product lines. In Fiscal Year 2001, revenues from sales of
the Company's traditional drugstore products (i.e., prescription drugs,
over-the-counter drugs, health and beauty care products, cosmetics and greeting
cards) averaged approximately $5.2 million per store and all other merchandise
averaged $3.7 million per store. The Company generated approximately $729.3
million in traditional drugstore product revenues and approximately $511.7
million in revenues from the sale of groceries and general merchandise in its
stores in Fiscal Year 2001.
5
Set forth below is the percentage of sales by principal category of
products for the last three fiscal years.
Fiscal Year Ended
-----------------
June 30, 2001 July 1, 2000 July 3, 1999
------------- ------------ ------------
Category
Prescription, Health and
Beauty Care Products,
Cosmetics and Greeting Cards 58.8% 58.0% 57.1%
All Other Merchandise 41.2% 42.0% 42.9%
The Company's business is seasonal to a certain extent. The highest
volume of sales and net income usually occurs in the second fiscal quarter
(generally October, November and December) due to seasonal sales for the
Christmas holiday for greeting cards, general merchandise and grocery products.
The following table summarizes the Company's sales by quarter during Fiscal Year
2001.
Sales by Quarter During Fiscal Year 2001
Percentage of
Total Sales
-------------
First Quarter 24.8%
Second Quarter 27.6%
Third Quarter 24.2%
Fourth Quarter 23.4%
--------
100.0%
========
Competition
Phar-Mor's stores compete primarily with conventional drugstores,
supermarkets and mass merchant discounters. Many of these companies have greater
financial resources than Phar-Mor. Phar-Mor competes with conventional
drugstores by offering a broader product selection and generally lower prices
than traditional drugstore lines. Phar-Mor believes it has these same
competitive advantages against most supermarkets for non-grocery items. Phar-Mor
competes with supermarkets in grocery product lines where Phar-Mor does not have
a broader selection, by carrying an often changing mix of items priced lower
than most supermarkets.
Phar-Mor does not attempt to compete against mass merchant discounters
solely on the basis of price. In traditional drugstore lines, particularly
health and beauty care products and greeting cards, Phar-Mor offers broader
product selection than mass merchant discounters. Mass merchant discounters
generally are unwilling to allocate as much display space as Phar-Mor devotes to
these categories. The merchandising changes Phar-Mor has implemented, including
the creation of "signature" departments in dedicated aisle space with
distinguishing signage, such as health and beauty care products, cosmetics,
groceries, perishable foods in certain stores and "The Card Shop," "Pet Place,"
"One Stop Baby Shop," and "Vitamin World," are designed in part to distinguish
Phar-Mor from mass merchant discounters and to increase its strength in areas in
which Phar-Mor's management believes such merchants do not excel.
Capital Expenditures
The Company's most significant capital needs are for technological
improvements and remerchandising and remodeling of existing stores.
6
The Company's capital expenditures totaled $4.9 million in Fiscal Year
2001, including $1.5 million for remodeling existing stores and $1.2 million for
corporate and store information systems. The Company anticipates spending
approximately $5.0 million for capital expenditures in the fiscal year ended
June 29, 2002 ("Fiscal Year 2002"), including costs of remodeling 3 additional
stores.
Real Estate and Growth
The Company did not open any new stores in Fiscal Year 2001, and does
not plan to open any in Fiscal Year 2002. Expansion in the near future by the
construction of new stores is expected to be minimal and in existing or
contiguous markets in the Company's core areas of Virginia, North Carolina,
Pennsylvania and Ohio. Expansion in existing markets improves the Company's
operating margins by decreasing advertising costs on a per store basis,
permitting more efficient distribution of products to stores and increasing
utilization of existing supervisory and managerial staff.
The aggregate cost of any future expansion is dependent upon the
method utilized to finance new stores. Build to suit (i.e., landlord
constructed) leases cost approximately $750,000 per store for furniture,
fixtures, and equipment and each new store requires approximately $1.25 million
in inventory. Company-funded conversion of existing buildings is another
possible method of expansion; however the cost of such expansion per store
varies significantly depending upon the age, condition and configuration of such
buildings.
Trademarks and Service Marks
The Company believes that its registered "Phar-Mor" trademark is well
recognized by its customer base and the public at large in the markets where it
has been advertised. The Company believes that the existing customer and public
recognition of its trademark and related operational philosophy will be
beneficial to its strategic plans to expand merchandise categories and add new
stores. The Company has also introduced a number of private label brands of
products under various registered trademarks and trademarks pending
registration.
Regulation
The Company is subject to the Fair Labor Standards Act, which governs
such matters as minimum wages, overtime, and other working conditions. To the
extent that pay scales for a portion of the Company's personnel relate to the
federal minimum wage, increases in the minimum wage may increase the Company's
labor costs.
The prescription drug business is subject to the federal Food, Drug
and Cosmetic Act, Drug Abuse Prevention and Control Act and Fair Packaging and
Labeling Act relating to the content and labeling of drug products, comparable
state statutes and state regulation regarding record keeping and licensing
matters with civil and criminal penalties for violations.
7
Item 2. Properties.
As of June 30, 2001, the Company operated 139 stores in 24 states.
Approximately 57% of Phar-Mor's stores are located in New York, New Jersey,
Pennsylvania and Ohio and approximately 22% are located in Virginia, West
Virginia, North Carolina and South Carolina. The following is a breakdown by
state of the locations of the Company's stores.
Alabama 1 Missouri 1
Colorado 2 New Jersey 12
Connecticut 1 New York 8
Florida 5 North Carolina 8
Georgia 2 Ohio 19
Illinois 4 Oklahoma 1
Indiana 3 Pennsylvania 40
Iowa 2 Rhode Island 2
Kansas 1 South Carolina 4
Kentucky 1 Virginia 14
Maryland 1 West Virginia 4
Massachusetts 2 Wisconsin 1
As of June 30, 2001, 138 of the Company's stores were leased. The
Company owns the land and building of its retail store in Winchester, Virginia.
All store leases are long-term; the original terms of 101 leases and the
original terms plus options of sixteen leases expire on or before December 31,
2009. The remaining stores have longer lease terms. Most stores are located
adjacent to or near shopping centers or are part of strip centers. Some stores
are free standing. Depending on the location of a store, the sites may vary,
with averages by type of location as follows: free-standing stores are located
on sites averaging 2.84 acres; stores located in strip centers are found on
sites averaging 23.7 acres; and stores in malls are on sites averaging 46.8
acres. A proto-typical store now includes approximately 40,000 square feet of
sales space and 10,000 square feet of storage area and ample off-street parking.
The stores are designed in a "supermarket" format familiar to customers and
shopping is done with carts in wide aisles with attractive displays. Traffic
design is intended to enhance the opportunity for impulse purchases.
The Company operates a distribution center in Youngstown, Ohio which
it leases. This center delivered approximately 46% of all merchandise to the
stores in Fiscal Year 2001, primarily using contract carriers. The balance of
the products were delivered directly to the Company's stores by vendors.
The Company and a wholly-owned subsidiary of the Company are partners
in an Ohio limited partnership, which owns the office building in which the
Company leases approximately 141,000 square feet of space for its corporate
offices in Youngstown, Ohio.
Item 3. Legal Proceedings
In the normal course of business, the Company is subject to various
claims. In the opinion of management, any ultimate liability arising from or
related to these claims should not have a material adverse effect on future
results of operations, cash flows or the consolidated financial position of the
Company.
Item 4. Submission of Matters to a Vote of Security Holders.
There were no matters submitted to a vote of security holders during
the fourth quarter of Fiscal Year 2001, through the solicitation of proxies or
otherwise.
8
Part II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
The Company's common stock, par value $.01 per share (the "Common
Stock"), is included for quotation on the NASDAQ National Market under the
symbol "PMOR." High and low prices of the Common Stock are shown in the table
below:
Fiscal Year 2001 Fiscal Year 2000
---------------- ----------------
High Low High Low
------ ------- ------ -------
1st Quarter.......................... $2.00 $0.97 $6 5/8 $4 1/4
2nd Quarter.......................... 1.38 0.88 4 3/4 2 7/16
3rd Quarter.......................... 1.44 0.66 4 3/4 2 1/2
4th Quarter.......................... 1.10 0.50 3 1/4 1 1/4
As of September 14, 2001, there were 2,630 holders of record of the
Common Stock. The Company has not declared or paid any cash dividends on the
Common Stock and does not anticipate paying cash dividends in the foreseeable
future. The Company currently intends to retain earnings for future operations
and expansion of its business. In addition, the indenture pursuant to which the
Company's senior notes were issued and the Company's amended revolving credit
facility (the "Amended Revolving Credit Facility") restrict the payment of cash
dividends on the Company's capital stock. See "Notes to Consolidated Financial
Statements."
Item 6. Selected Financial Data.
The following selected consolidated financial data of Phar-Mor and its
subsidiaries should be read in conjunction with the consolidated financial
statements and related footnotes appearing elsewhere in this Form 10-K.
(In thousands except per share data)
-------------------------------------------------------------------------------------
52 Weeks 52 Weeks 53 Weeks 52 Weeks 52 Weeks
Ended Ended Ended Ended Ended
June 30, 2001 July 1, 2000 July 3, 1999(c) June 27, 1998(c) June 28, 1997
------------- ------------ --------------- ---------------- -------------
Net sales $ 1,241,012 $ 1,292,090 $ 1,206,539 $ 1,100,851 $ 1,074,828
(Loss) income from
continuing operations (70,350)(a) (12,140)(b) 596 (8,830) (2,281)
Diluted (loss) income per
share from continuing
operations (6.46)(a) (1.08)(b) .05 (.73) (.19)
As of As of As of As of As of
----- ----- ----- ----- -----
June 30, 2001 July 1, 2000 July 3, 1999 June 28, 1998 June 28, 1997
------------- ------------ --------------- ---------------- -------------
Total assets 313,436 397,904 407,724 349,455 362,605
Long-term debt & capital
leases 160,791 167,856 142,947 130,993 140,213
(a) Excludes extraordinary gain of $19.7 million on early retirement of debt
and equity in extraordinary item of affiliate of $1.8 million.
(b) Excludes extraordinary gain of $1.1 million on early retirement of debt.
(c) Amounts have been restated for the retroactive application of the equity
method of accounting for the Company's investment in Avatex Corporation
9
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
(All dollar amounts in thousands, unless otherwise stated)
Introduction
The discussion of results of operations that follows is based upon the
Company's consolidated financial statements set forth on pages F-1 to F-25. The
discussion of liquidity and capital resources is based upon the Company's
financial position as of June 30, 2001.
Results of Operations
The following table sets forth the number of retail stores operated each fiscal
year:
Fiscal Year Ended
-----------------------------------------------
June 30, 2001 July 1, 2000 July 3, 1999
------------- ------------ ------------
Stores, beginning of period 139 139 106
Stores acquired - - 32
Stores opened - 2 2
Stores closed - (2) (1)
---- ---- ----
Stores, end of period 139 139 139
==== ==== ====
52 weeks ended June 30, 2001 (Fiscal Year 2001) compared to the 52 weeks ended
July 1, 2000 (Fiscal Year 2000) (all dollar amounts in thousands)
Fiscal Year 2001 Fiscal Year 2000
----------------------- -----------------------
Sales $ 1,241,012 100.00% $ 1,292,090 100.00%
Less:
Cost of goods sold, including occupancy
and distribution costs 1,027,992 82.83% 1,050,208 81.28%
----------- --------- ----------- ---------
Gross Profit 213,020 17.17% 241,882 18.72%
Selling, general and administrative expenses 203,582 16.40% 211,833 16.39%
Depreciation and amortization 19,917 1.60% 24,708 1.91%
Impairment of long-lived assets 23,377 1.88% -- --
----------- --------- ----------- ---------
Operating (loss) income (33,856) (2.73)% 5,341 0.41%
Interest expense (18,317) 1.48% (18,851) 1.46%
Interest income and investment loss (3,048) (0.25)% (5,404) (0.42)%
----------- --------- ----------- ---------
Loss before equity in income of affiliates
and income taxes and extraordinary items (55,221) (4.45)% (18,914) (1.46)%
Equity in (loss) income of affiliates (5,564) (0.45)% 6,774 0.52%
----------- --------- ----------- ---------
Loss before extraordinary items and taxes (60,785) (4.90)% (12,140) (0.94)%
Income tax provision 9,565 .77% -- --
----------- --------- ----------- ---------
(Loss) income before extraordinary items (70,350) (12,140)
Extraordinary items 21,555 1.74% 1,117 0.09%
----------- --------- ----------- ---------
Net loss $ (48,795) (3.93)% $ (11,023) (0.85)%
=========== ========= =========== =========
Fiscal Year 2001 sales decreased $51,078 or 3.9% from Fiscal Year 2000. The
decrease in Fiscal Year 2001 sales was primarily due to a comparable store sales
decrease of 3.9%. The comparable store sales decrease was primarily due to a
8.2% comparable store front end sales decrease partially offset by a 5.6%
comparable store pharmacy sales increase.
Gross profit for Fiscal Year 2001 was 1.55% of sales lower than for Fiscal Year
2000 primarily due to a 0.41% of sales decrease in product gross margins, a
0.45% of sales increase in inventory shrink expense, a 0.40% of sales decrease
in vendor promotional allowances and rebates and higher occupancy costs as a
percentage of sales. Vendor promotional allowances and rebates were higher in
Fiscal 2000 primarily due to the receipt of new store merchandise allowances for
the Pharmhouse stores. Occupancy costs increased as a percentage of sales
primarily due to the decrease in sales.
Selling, general and administrative expenses increased 0.01% of sales in Fiscal
Year 2001 over Fiscal Year 2000. A 0.11% of sales increase in health insurance
costs were offset by a 0.11% of sales decrease in incentive compensation costs
for store and corporate personnel.
10
Impairment of long-lived assets in Fiscal 2001 resulted from the write-down of
goodwill and fixed assets in stores that had current year operating losses and
are projected to have future losses.
Interest income and investment loss decreased $2,356 in fiscal year 2001 from
fiscal year 2000. The decrease was primarily the result of investment losses of
$1,000 and $5,500 in Fiscal Years 2001 and 2000, respectively, resulting from an
other than temporary impairment of the Company's investment in more.com.
The Company had a decrease in equity in income of affiliates of $12,338 in
fiscal year 2001 from fiscal year 2000, primarily due to an other than temporary
impairment of the Company's investment in Avatex Corporation in Fiscal Year 2001
and investment gains by one of the affiliates in Fiscal Year 2000.
The income tax provision is the result of the write-off of the net deferred tax
asset in Fiscal Year 2001.
The Company repurchased $40,001 of its 11.72% senior notes during Fiscal Year
2001 at a discount resulting in a extraordinary gain of $19,731 and Avatex
recognized an extraordinary gain related to the extinguishment of debt for which
Phar-Mor's portion was $1,824.
52 weeks ended July 1, 2000 (Fiscal Year 2000) compared to the 53 weeks ended
July 3, 1999 (Fiscal Year 1999) (all dollar amounts in thousands)
Fiscal Year 2000 Fiscal Year 1999
-------------------- --------------------
Sales $ 1,292,090 100.00% $ 1,206,539 100.00%
Less:
Cost of goods sold, including occupancy
and distribution costs 1,050,208 81.28% 977,878 81.05%
----------- ------ ----------- ------
Gross Profit 241,882 18.72% 228,661 18.95%
Selling, general and administrative
expenses 211,833 16.39% 188,264 15.60%
Depreciation and amortization 24,708 1.91% 25,386 2.10%
----------- ------ ----------- ------
Operating income 5,341 0.41% 15,011 1.24%
Interest expense (18,851) 1.46% (16,338) 1.35%
Interest and investment (loss) income (5,404) (0.42)% 560 0.05%
----------- ------ ----------- ------
(Loss) income before equity in income of
affiliates, income taxes and extraordinary
item (18,914) (1.46)% (767) (0.06)%
Equity in income of affiliates 6,774 0.52% 1,568 0.13%
----------- ------ ----------- ------
(Loss) income before income taxes and
extraordinary item (12,140) (0.94)% 801 0.07%
Income tax provision -- -- 205 0.02%
----------- ------ ----------- ------
(Loss) income before extraordinary item (12,140) (0.94)% 596 0.05%
Extraordinary item 1,117 0.09% -- --
----------- ------ ----------- ------
Net (loss) income $ (11,023) (0.85)% $ 596 0.05%
=========== ====== =========== ======
Fiscal Year 2000 sales increased $85,551 or 7.1% over Fiscal Year
1999. The increase in Fiscal Year 2000 sales was primarily due to a full year of
Pharmhouse sales in Fiscal Year 2000 compared to three and a half months of
Pharmhouse sales in Fiscal Year 1999, partially offset by one less week in
Fiscal Year 2000, and a comparable store sales decrease of .4%. The comparable
store sales decrease was primarily due to a 3.3% comparable store front end
sales decrease partially offset by a 7.3% comparable store pharmacy sales
increase.
Gross profit for Fiscal Year 2000 was 0.23% of sales lower than for
Fiscal Year 1999. A 0.44% of sales increase in product gross margins was more
than offset by lower cash discounts, higher third party receivable write offs
and higher occupancy costs. Cash discounts declined as a percentage of sales
primarily due to an increase in pharmacy sales as a percentage of total sales
from 28.0% of sales in Fiscal Year 1999 to 30.9% of sales in Fiscal Year 2000.
Occupancy costs increased as a percentage of sales primarily due to the
inclusion of the lower volume Pharmhouse stores for a full year in Fiscal Year
2000 versus three and a half months in Fiscal Year 1999.
11
Selling, general and administrative expenses increased 0.79% of sales
in Fiscal Year 2000 over Fiscal Year 1999. The increase in selling, general and
administrative expenses was primarily due to higher wage costs, higher
advertising expenditures and higher store expenses. The increase in wage costs
as a percentage of sales was primarily due to the full year effect of the
addition of the Pharmhouse stores which have a higher store wage as a percentage
of sales due to lower per store sales volume and an increase in the average
hourly wage paid to store employees. The increase in advertising expenditures
and store expenses as a percentage of sales was primarily due to the full year
effect of the addition of the Pharmhouse stores which have higher costs as a
percentage of sales due to lower per store sales volume.
Interest and investment income decreased $5,964 in fiscal year 2000
from fiscal year 1999. The decrease was primarily the result of a decline in
interest income of $1,461 due to lower cash balances and a $5,500 investment
loss resulting from an other than temporary impairment of one of the Company's
investments.
The Company had an increase in equity in income of affiliates of
$5,206 in fiscal year 2000 from fiscal year 1999, primarily due to investment
gains by one of the affiliates.
The Company repurchased $10,149 of its 11.72% senior notes during
Fiscal Year 2000 at a discount resulting in a extraordinary gain of $1,117.
Financial Condition and Liquidity (all dollar amounts in thousands)
The Company's cash position as of June 30, 2001 was $14,393.
The Company entered into an Amended and Restated Revolving Credit
Facility (the "Amended Facility") effective September 10, 1998 with BankAmerica
Business Credit, as agent, and other financial institutions that established a
credit facility in the maximum amount of $100,000.
Credit availability under the Amended Facility at any time was the
lesser of the aggregate availability (as defined in the Amended Facility) or
$100,000. The Amended Facility established a first priority lien and security
interest in the current assets of the Company, including, among other items,
cash, accounts receivable and inventory.
Advances made under the Amended Facility bore interest at the
BankAmerica reference rate plus 1/2% or LIBOR plus 2.00% from January 1 to June
30 each year and the BankAmerica reference rate plus 3/4% or LIBOR plus 2.25%
from July 1 to December 31 each year. Under the terms of the Amended Facility,
the Company was required to pay a commitment fee of between 0.25% and 0.35% per
annum on the unused portion of the facility, letter of credit fees and certain
other fees.
The Amended Facility was terminated on November 16, 2000.
The Company entered into a Loan and Security Agreement (the "Credit
Facility") effective November 16, 2000 with Fleet Retail Finance Inc., as agent,
and other financial institutions that established a credit facility in the
maximum amount of $150,000.
Borrowings under the Credit Facility could be used for working capital
needs and general corporate purposes. Up to $20,000 of the Credit Facility at
any time could be used for standby and documentary letters of credit. The Credit
Facility included restrictions on, among other things, additional debt,
investments, dividends and other distributions, mergers and acquisitions and
contains no financial covenants as long as unused credit availability is at
least $20,000.
Credit availability under the Credit Facility at any time was the
lesser of the aggregate availability (as defined in the Credit Facility) or
$150,000. The Credit Facility established a first priority lien and security
interest in all the assets of the Company excluding real property and equipment.
12
Advances made under the Credit Facility bore interest at the Fleet
National Bank prime rate or LIBOR plus 2.00% to LIBOR plus 2.50% depending on
the average unused credit availability in the preceding quarter. Under the terms
of the Credit Facility, the Company was required to pay a commitment fee of
0.25% per annum on the unused portion of the facility, letter of credit fees and
certain other fees.
As of June 30, 2001, there were $100,305 in outstanding advances and
letters of credit in the amount of $2,971 were outstanding under the Credit
Facility. Unused availability under the Credit Facility was $36,968 at June 30,
2001.
The Credit Facility was terminated on September 24, 2001.
The Company filed voluntary petitions under Chapter 11 of the United
States Bankruptcy Code on September 24, 2001.
On September 24, 2001, the Company entered into a Debtor-in-Possession
Revolving Credit Facility (the "DIP" Credit Facility") with Fleet Retail
Finance, Inc., as agent, and other financial institutions that established a
credit facility in the maximum amount of $135,000 with $97,022 used to repay
amounts outstanding under the Credit Facility.
Borrowings under the DIP Credit Facility may be used for working
capital needs and general corporate purposes. Up to $20,000 of the facility at
any time may be used for standby and documentary letters of credit. The facility
includes restrictions on, among other things, additional debt, investments,
dividends and other distributions, mergers and acquisitions. The facility
contains a financial covenant that requires the Company to maintain a minimum
excess availability of the greater of $8,000 or 7% of total availability.
Credit availability under the DIP Credit Facility at any time is the
lesser of the Availability (as defined in the Facility) or $135,000. Maximum
credit availability under the DIP Credit Facility declines to $100,000 on the
earlier of the Company's election or December 23, 2001. The DIP Credit Facility
establishes a first priority lien and security interest in all of the assets of
the Company.
Advances made under the DIP Credit Facility bear interest at the Fleet
National Bank prime rate plus 0% to .5% or LIBOR plus 2% to 2.5% depending on
the average unused credit availability during the preceding quarter. Under the
terms of the DIP Credit Facility, the Company is required to pay a commitment
fee of 0.375% per annum on the unused portion of the facility, letter of credit
fees and certain other fees.
The DIP Credit Facility expires on the earlier of the Company's
emergence from bankruptcy as a reorganized entity or September 24, 2003.
The Company expects to close 65 stores with liquidation sales starting
in October 2001 and ending in December 2001. It is anticipated that the proceeds
from the liquidation of the inventory and pharmacy prescription lists from the
closing stores will more than offset the associated decline in borrowing
availability under the Company's DIP Credit Facility.
The Company's cash position decreased $2,359 during Fiscal Year 2001
as cash used by operating activities of $16,734 and was partially offset by cash
provided by financing activities of $10,978 and cash provided by investing
activities of $3,397.
Merchandise inventories decreased by $20,534 due to the success of the
new automatic replenishment system and accounts payable decreased $16,437 from
the high levels at the end of Fiscal Year 2000.
The Company received $9,298 through the sale of equity securities that
it had held as an investment during fiscal year 2001.
The Company repurchased $40,001 of its Senior Notes at a discount from
face value and recognized an extraordinary gain of $19,731 in Fiscal Year 2001.
This was funded by borrowings of $20,270 under the Company's Credit Facility.
These notes were purchased to reduce future interest costs and retire a portion
of the Senior Notes which are due in September 2002.
13
As of July 1, 2000, there were $60,283 in outstanding advances and
letters of credit in the amount of $5,084 were outstanding under the Amended
Credit Facility.
The Company's cash position decreased $594 during Fiscal Year 2000 as
cash provided by operating activities of $9,641 and cash provided by financing
activities of $19,786 was offset by $30,021 in cash used for investing
activities.
Merchandise inventories decreased by $8,506 and accounts payable
decreased $18,638 from the high levels at the end of Fiscal Year 1999. The high
levels at the end of Fiscal Year 1999 resulted from large inventory purchases
made in order to supply the Pharmhouse stores with products normally carried in
the Company's stores.
The Company invested $5,724 during Fiscal Year 2000 in the common
stock of Avatex Corporation, the Company's largest shareholder. The Company also
invested $11,761 in equity securities of other privately held companies. The
Company then sold $6,000 of those equity securities.
The Company's cash position decreased $27,309 during Fiscal Year 1999
as cash provided by operating activities of $7,294 and cash provided by
financing activities of $4,940 was offset by $39,543 in cash used for investing
activities.
Accounts receivable increased $5,750 and merchandise inventories
increased $8,539 during Fiscal Year 1999 primarily due to the acquisition of the
32 Pharmhouse stores and the opening of two new stores.
The Company invested $1,001 during Fiscal Year 1999 in the common
stock of Avatex Corporation, the Company's largest shareholder. The Company also
invested $2,291 in equity securities of other privately held companies.
Trends, Demands, Commitments, Events or Uncertainties (all dollar amounts in
thousands)
Management believes the availability of the DIP Credit Facility,
proceeds from the liquidation of stores expected to close, the expected
extension of post-petition trade credit by the Company's vendors, together with
the Company's current cash position and expected cash flows from operations for
Fiscal Year 2002 will enable the Company to fund its working capital needs and
capital expenditures. Achievement of expected cash flows from operations is
dependent upon, among other things, the Company's attainment of sales, gross
profit and expense levels that are consistent with its financial projections,
and there can be no assurance that the Company will achieve its expected cash
flows.
Investment activities for Fiscal Year 2002 are expected to total
$5,096. The major expenditures are expected to be the remodeling of existing
stores $1,250. The Company expects to finance and meet its obligations for these
capital expenditures through internally generated funds and the use of the
Company's DIP Credit Facility.
The Company is exposed to certain market risks from transactions that
are entered into during the normal course of business. The Company's policies do
not permit active trading of, or speculation in, derivative financial
instruments. The Company's primary market risk exposure relates to interest rate
risk. The Company manages its interest rate risk in order to balance its
exposure between fixed and variable rates while attempting to minimize its
interest costs.
The Company's consolidated financial statements have been prepared on
a going concern basis, which contemplates continuity of operations, realization
of assets and the liquidation of liabilities and commitments in the normal
course of business. The Company's recurring losses and bankruptcy filing raises
substantial doubt about the Company's ability to continue as a going concern.
The ultimate continuation of the Company as a going concern is dependent upon,
among other things, the ability of the Company to generate sufficient cash flows
from operations and achieve confirmation of a plan of reorganization by the
Bankruptcy Court.
14
Management determined that the reorganization was necessary to rectify
operational and liquidity difficulties resulting from the slowing economy,
changes in consumer buying habits, increased competition from larger retail
chains, the geographic diversity of some Phar-Mor locations, the reduction of
credit terms by vendors and the service of high-cost debt.
As part of the restructuring, Phar-Mor plans to close approximately 65
of its 139 stores. These stores have been identified as either under-performing
or outside the Company's core markets. The Company will focus continuing
operations on the approximately 74 remaining stores, while reducing corporate
overhead and solidifying its position in the market it serves.
This plan of reorganization could materially change the amounts
reported in the accompanying consolidated financial statements. The accompanying
consolidated financial statements do not include any adjustments that might be
necessary as a result of the plan of reorganization.
Item 8. Financial Statements and Supplementary Data.
See Index to Consolidated Financial Statements.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
15
PART III
Item 10. Directors and Executive Officers of the Registrant.
The executive officers and directors of the Company as of the date hereof are
listed below:
Name Age Position(s)
---- --- -----------
Abbey J. Butler 64 Co-Chairman and Co-Chief Executive Officer
Melvyn J. Estrin 59 Co-Chairman and Co-Chief Executive Officer
M. David Schwartz 56 President and Chief Operating Officer
John R. Ficarro 49 Senior Vice President, Chief Administrative Officer,
General Counsel and Secretary
Martin S. Seekely 44 Vice President and Chief Financial Officer
Monroe Osterman 74 Director
Arthur G. Rosenberg 63 Director
John D. Shulman 38 Director
Abbey J. Butler has been a director of the Company since September
1995 and Co-Chairman of the Board and Co-Chief Executive Officer of the Company
since October 1, 1997. Mr. Butler is Co-Chairman of the Board and Co-Chief
Executive Officer of Avatex Corporation ("Avatex"), formerly known as FoxMeyer
Health Corporation. He also serves as President and a director of C.B. Equities
Corp., a private investment company. Mr. Butler presently serves as a director
of Century Bancshares, Inc., and, in connection with the Company's investments,
as a director of RAS Holding Corp. ("RAS") and its subsidiary, Presby Corp., and
iLife Systems, Inc. ("iLife") and as a member of the Board of Managers of
Chemlink. Mr. Butler is a trustee of the Board of Trustees of The American
University, and a director of the Starlight Foundation, a charitable
organization. He was appointed by President George H.W. Bush to serve on the
President's Advisory Committee on the Arts, and he now serves as President of
the National Committee for the Performing Arts, John F. Kennedy Center,
Washington, D.C. Mr. Butler also served as Co-Chairman of the Board of FoxMeyer
Corporation since March 1991 and was its Co-Chief Executive Officer from May
1993 to November 1996, and also served as Co-Chairman of the Board of Ben
Franklin from November 1991 until March 1997. FoxMeyer Corporation and Ben
Franklin each filed for relief under the Bankruptcy Code in 1996.
Melvyn J. Estrin has been a director of the Company since September
1995 and Co-Chairman of the Board and Co-Chief Executive Officer of the Company
since October 1, 1997. Melvyn J. Estrin is Co-Chairman of the Board and Co-Chief
Executive Officer of Avatex. He also has served as Chairman of the Board and
Chief Executive Officer of Human Service Group, Inc., a private management and
investment firm, since 1983 and is also Chairman and CEO of University Research
Co., LLC. Mr. Estrin presently serves as director and a member of the loan
committee for Century Bancshares, Inc., a director of Washington Gas Light
Company, RAS Holding Corp., iLife System, Inc. and as a member of the board of
managers of Chemlink. Mr. Estrin also served as a Trustee of the University of
Pennsylvania and was appointed by President George H.W. Bush to serve as
Commissioner of the National Capital Planning Commission. Mr. Estrin also served
as Co-Chairman of the Board of FoxMeyer Corporation since March 1991 and was its
Co-Chief Executive Officer from May 1993 to November 1996, and also served as
Co-Chairman of the Board of Ben Franklin from November 1991 until March 1997.
FoxMeyer Corporation and Ben Franklin each filed for relief under the Bankruptcy
Code in 1996.
16
M. David Schwartz has served as President and Chief Operating Officer
of the Company since February 1993. From 1991 to 1993, he was a Director and the
President and Chief Executive Officer of Smitty's Super Valu, Inc., a food and
general merchandising retailer, and between 1987 and 1991 Mr. Schwartz served as
a Director and the President and Chief Operating Officer of Perry Drug Stores
Inc., a regional chain of 200 drug stores. Mr. Schwartz was Vice President of
Drug/General Manager for the Kroger Company between 1985 and 1987 and, between
1971 and 1985, held positions with Albertson's Inc. including Senior Vice
President of Marketing, Senior Vice President of Non-Foods Merchandising,
Distribution and Procurement, Vice President of Merchandising, and Non-Foods
Merchandise Manager. Mr. Schwartz attended Arizona State University.
John R. Ficarro has served as Senior Vice President and Chief
Administrative Officer (in addition to his existing duties as General Counsel
and Secretary of the Company) since June 1997. Prior to that, Mr. Ficarro served
as Vice President, General Counsel and Secretary of the Company beginning in
February 1995. From 1981 to 1995, Mr. Ficarro was employed by General Host
Corporation where he served as Vice President, General Counsel and Secretary
since 1989 and prior to that served as counsel to several of its retail
businesses. Prior to 1981, Mr. Ficarro was engaged in private practice in
Florida. Mr. Ficarro received a B.A. from the Maxwell School at Syracuse
University and a J.D. from its College of Law.
Martin S. Seekely has served as Vice President and Chief Financial
Officer since October 2000. Prior to that, Mr. Seekely served as Vice President
and Controller from June 1997 to October 2000 and Assistant Controller from
April 1993. From 1990 to 1993, he served as Controller for Boston Distributors,
Inc. Mr. Seekely was employed by Riser Foods, Inc. from 1988 to 1989 as
Controller. From 1979 to 1988, Mr. Seekely was employed by Fisher Foods, Inc.,
in a variety of positions, including, Assistant Controller. Mr. Seekely received
a B. S. degree in Business Administration from John Carroll University and he is
a Certified Public Accountant.
Monroe Osterman has been a director of the Company since September 25,
1997. Mr. Osterman has served as President of Gala Trading Corporation, an
investment company specializing in large purchases of diamonds from Europe,
since 1982. Prior to serving as President of Gala Trading Corporation, Mr.
Osterman served as President of Paras USA and Bermont Corporation and was also a
partner at J. Winston & Company, an importing and merchandising company.
Arthur G. Rosenberg has been a director of the Company since November
23, 1997. Mr. Rosenberg was a principal of The Associated Companies, a real
estate development firm, from 1987 to 1998 and in 1999 became a principal of
Millennium Development Group LLC. Prior thereto, Mr. Rosenberg was a practicing
lawyer in Huntington, New York and served as General Counsel of ITT Levitt &
Sons, Inc., an international builder.
John D. Shulman has been a director of the Company since November 23,
1997. Mr. Shulman is a principal with Allied Capital Corporation (NYSE: ALD), a
private finance company. Prior to that he served as President and Chief
Executive Officer of ONYX International, L.L.C., a merchant banking and venture
firm focusing primarily on private equity placements in high growth companies,
since 1994. Prior to serving as President and Chief Executive Officer of ONYX
International, L.L.C., Mr. Shulman served as the Director of Development for
Tower Companies, a diversified group of companies including real estate
development, banking and related activities since 1986. Mr. Shulman currently
serves on the Board of Directors of Taiwan Mezzanine Fund I, L.P.; the Board of
Managers of ChemLink Laboratories, LLC, and the Board of Directors of Physician
Specialty Corp. Mr. Shulman is the husband of Mr. Estrin's niece.
17
Item 11. Executive Compensation.
Phar-Mor, Inc. 1995 Amended and Restated Stock Incentive Plan. The
Phar-Mor Stock Incentive Plan was adopted in order to attract, reward and retain
key personnel (including officers, whether or not directors) of the Company and
its subsidiaries and certain other closely related eligible persons who provide
substantial services to such entities ("Eligible Persons") and to provide them
with long-term incentives that are linked to the Company's stock performance.
Approximately nine officers and approximately 450 other employees of the Company
and its subsidiaries are currently eligible to participate under the Phar-Mor
Stock Incentive Plan.
The Phar-Mor Stock Incentive Plan is administered by the Compensation
Committee of the Board (the "Administrator"). Currently, a maximum of 5.0
million shares of the Company's Common Stock (subject to adjustment) may be
issued upon the exercise of awards granted under the Phar-Mor Stock Incentive
Plan. As of July 1, 2001, a total of 4,211,900 shares of the Company's Common
Stock were subject to options granted under the Phar-Mor Stock Incentive Plan.
The Phar-Mor Stock Incentive Plan authorizes the issuance of options
and (subject to plan limitations) certain stock appreciation rights ("SARs"). As
is customary in incentive plans of this nature, the number and kind of shares
available under the Phar-Mor Stock Incentive Plan, share limits, and shares
subject to outstanding awards are subject to adjustment in the event of certain
reorganizations, recapitalizations, stock splits, stock dividends, spin-offs,
property distributions or other similar extraordinary transactions or events in
respect of the Company or the shares of the Company. Shares relating to options
or SARs that are not exercised or that expire or are canceled will again become
available for grant purposes under the Phar-Mor Stock Incentive Plan to the
extent permitted by law and the plan. Awards may be repriced or otherwise
amended after grant, provided that the amendment does not adversely affect the
holder's rights without his or her consent. A maximum of 277,778 shares of the
Company's Common Stock may be subject to options that during any calendar year
are granted to any Eligible Person under the Phar-Mor Stock Incentive Plan.
The exercise price of the options granted under the Phar-Mor Stock
Incentive Plan generally may not be less than the fair market value of the
Company's Common Stock on the date of grant or such greater amount as may be
determined by the Administrator. An option may either be an incentive stock
option, as defined in the Code, or a non-qualified stock option. All options
granted pursuant to the Phar-Mor Stock Incentive Plan as of July 1, 2000 are
non-qualified stock options, except the options granted to Messrs. Butler and
Estrin which are incentive stock options. The aggregate fair market value of the
Common Stock (determined at the time the option is granted) for which incentive
stock options may be first exercisable by an option holder during any calendar
year under the Phar-Mor Stock Incentive Plan or any other plan of the Company or
its subsidiaries may not exceed $100,000. A non-qualified stock option is not
subject to any of these limitations.
Subject to early termination or acceleration provisions (which are
summarized below), an option generally will be exercisable, in whole or in part,
from the date specified in the related award agreement until the expiration
date, all as determined by the Administrator. Earlier expiration may occur
following a termination of service. In no event, however, is an option under the
Phar-Mor Stock Incentive Plan exercisable more than seven years after its date
of grant.
Upon the occurrence of either (A) a Change in Control Event (as
defined in the Phar-Mor Stock Incentive Plan to include, but not be limited to,
(i) the approval by the shareholders of the Company of a dissolution or
liquidation, (ii) certain agreements of merger or consolidation resulting in the
Company's shareholders, or entities associated or affiliated with them, holding
less than 50% of the voting stock of the surviving entity, (iii) the sale of
substantially all the assets of the Company as an entirety to a person that is
not an affiliated person of the Company, (iv) a person or group (other than
Robert M. Haft, Hamilton Morgan, LLC ("Hamilton Morgan") or other 25% owners as
of September 11, 1995 and certain related entities) acquiring beneficial
ownership of over 50% of the voting power, or (v) certain changes in the
composition of the Board, or (B) under other circumstances (such as a
termination of service), the Administrator, in its discretion, may provide for
acceleration or extension of the exercisability of awards, or provide for
certain other limited benefits, which may include SARs, under some or all awards
and may determine the extent, duration and other conditions of such additional
rights by amendment to outstanding awards or otherwise. The Board may terminate
or amend the Phar-Mor Stock Incentive Plan, subject to the rights of holders of
outstanding options. If an amendment would (i) materially increase the benefits
accruing to Eligible Persons under the Phar-Mor Stock Incentive Plan, (ii)
materially increase the aggregate number of shares that may be issued under the
18
Phar-Mor Stock Incentive Plan, or (iii) materially modify the eligibility
requirements for participation under the Phar-Mor Stock Incentive Plan, the
amendment, to the extent deemed necessary by the Board or the Administrator or
then required by applicable law, must be approved by the shareholders.
Corporate Executive Bonus Plan. Under the Company's Corporate
Executive Bonus Plan for Fiscal Year 2001 (the "2001 Bonus Plan"), certain
executive officers were eligible to receive a cash bonus if the Company achieved
a pre-established level of performance for the fiscal year. The participating
executive would receive at least 60% of his or her individual targeted
percentage bonus ("target bonus") if this performance were at target, and 35% of
the target bonus (e.g., if the target bonus is 50%, 35% of 50%) if the Company's
performance were at entry level; the remaining amount (up to 40%) was subject to
the discretion of the Board. If the Company did not achieve the targeted level
of performance, but achieved an "entry level" or minimum performance threshold
for payment of bonuses established by the Board, the specific bonus amount
between minimum and target bonus levels would be extrapolated, pro rata, based
on the relationship of actual performance to the entry and target levels of
performance; 60% of such amount would be mandatory and up to 40% discretionary.
No bonuses were paid in Fiscal Year 2001 under the 2001 Bonus Plan.
The employment agreements between the Company and each of Messrs.
Butler and Estrin provide for an annual incentive bonus under a
Company-sponsored bonus plan (if a bonus plan is approved, or otherwise as
provided under a separate agreement between the Company and each of Messrs.
Butler and Estrin), if reasonable performance objectives approved by the Board
are achieved, with a maximum bonus of 60% and a minimum bonus of 21% of annual
base salary, commencing in Fiscal Year 1998; provided, however, that if the
performance objectives are exceeded, then such bonus will be increased to a
level commensurate with the amount of bonuses payable to senior officers of the
Company who are situated similarly to Messrs. Butler and Estrin. See "Employment
Contracts and Termination of Employment and Change-In-Control
Arrangements--Messrs. Butler and Estrin."
401(k) Employee Savings Plan. Employees of the Company are eligible to
participate in the 401(k) Employee Savings Plan (the "401(k) Plan"). The 401(k)
Plan is a tax-qualified profit sharing plan that provides for pre-tax deferrals
by employees and employer matching and profit-sharing contributions. In
addition, warehouse employees and drivers are eligible to participate in a
separate 401(k) savings plan.
Retirement and Pension Plans. The Company provided pension benefits
under noncontributory defined benefit pension plans to its non-union employees
who have met the applicable age and service requirements specified in the plans.
During fiscal 1996 the Company's Board of Directors voted to freeze the benefits
accruing under its defined benefit plan that covers nonunion personnel effective
June 29, 1996 and to increase the Company's matching contribution to the defined
contribution plan for those employees. The Company terminated its defined
benefit plan that covers non-union personnel on April 30, 1998. Lump sum cash
payments were made to the majority of the plan participants by June 27, 1998.
Annuities were purchased for the remaining participants during Fiscal Year 1999.
In addition, the Company maintains two pension plans for various
groups of employees: (i) the Phar-Mor, Inc. Retirement Plan for Hourly Employees
at Niles, Ohio Store and (ii) the Tamco Distributors Company Warehouse and
Drivers Pension Plan (collectively, the "Pension Plans"). The Pension Plans are
defined benefit plans subject to the Employee Retirement Income Security Act of
1974, as amended ("ERISA").
To the extent permitted by law, the minimum eligibility and vesting
provisions under these and other retirement, health and welfare benefit plans
were waived for Messrs. Estrin and Butler under the terms of their respective
employment agreements.
Employee Stock Purchase Plan. The Company sponsors an Employee Stock
Purchase Plan ("ESPP") under which it is authorized to grant up to 500,000
shares, in the aggregate, of Common Stock obtained by open market purchases.
Employees, including executive officers, with a minimum of three months of
service are eligible to participate in the ESPP. The ESPP allows eligible
employees to contribute, through payroll deductions, up to 10% (not to exceed
$25,000) of their annual salary toward stock purchases. Stock purchases are made
quarterly and purchased by participants at 90% of the closing price on the last
day of the calendar quarter.
19
Employment Contracts and Termination of Employment and Change-In-Control
Arrangements
The Company has entered into employment agreements with Messrs.
Butler, Estrin, Schwartz, Ficarro and Seekely, each of which is described below.
Messrs. Abbey J. Butler and Melvyn J. Estrin. The employment
agreements with Messrs. Butler and Estrin have a rolling three-year term
commencing on October 1, 1997 that provide for Messrs. Butler and Estrin to
serve as Co-Chief Executive Officers and Co-Chairmen of the Board. The initial
annual base salary of each of Messrs. Butler and Estrin is $425,000 subject to
annual increases of 8%. For the contract year ending September 30, 2001, the
annual base salary of each of Messrs. Butler and Estrin is $535,378. The
agreements provide for an annual incentive bonus under a Company-sponsored bonus
plan (if a bonus plan is approved, or otherwise as provided under a separate
agreement between the Company and each of Messrs. Butler and Estrin), if
reasonable performance objectives approved by the Board are achieved, with a
maximum bonus of 60% and a minimum bonus of 21% of annual base salary; provided,
however, that if the performance objectives are exceeded, then such bonus will
be increased to a level commensurate with the amount of bonuses payable to
senior officers of the Company who are situated similarly to Messrs. Butler and
Estrin.
Each of Messrs. Butler and Estrin was also granted options to purchase
200,000 shares of Common Stock at an exercise price of $6.84375 per share under
the Phar-Mor Stock Incentive Plan, which options vested with respect to 33.34%
of the underlying shares on the date of grant (October 1, 1997), and with
respect to an additional 33.33% on each of the first and second anniversaries of
the date of grant. The term of the options is seven years and unless Messrs.
Butler and Estrin elect otherwise, to the fullest extent permitted by law and
under the plan, such options shall be treated and reported as incentive stock
options. Messrs. Butler and Estrin were also each granted incentive stock
options to purchase 200,000 shares of Common Stock at an exercise price of
$9.625 per share on June 23, 1998, 200,000 shares of Common Stock at an exercise
price of $4.28125 per share on June 29, 1999; 180,000 shares of Common Stock at
an exercise price of $2.51625 per share on April 14, 2000; and 275,000 shares of
Common Stock at an exercise price of $0.825 on March 16, 2001 on terms similar
to the earlier grants.
Pursuant to their respective employment agreements, Messrs. Butler and
Estrin are permitted to engage in activities (except certain activities that are
competitive with the Company's business), in addition to serving as Co-Chief
Executive Officers and Co-Chairmen of the Board, and pursue other investments
(except ownership of more than a 10% interest in an entity that derives more
than 50% of its gross revenues from the retail sale, at a discount, of
pharmaceuticals, unless Messrs. Butler and Estrin or their respective immediate
families owned or controlled, directly or indirectly, an ownership interest of
at least 1% in the entity as of October 1, 1997). The agreements do not require
Messrs. Butler and Estrin to provide services at the Company's principal
locations.
The employment agreements with Messrs. Butler and Estrin also provide
for long-term performance payouts to each of them, commencing with the
three-year period ending September 30, 2000 and each third year thereafter
during the term of the employment agreement, in an amount (subject to the offset
referred to in the last sentence of this paragraph) equal to 1.5% of any excess
of (i) the aggregate market value of the publicly traded shares of Common Stock
based on the average closing price for the thirty (30)-day period ending on the
last day of the subject period (less the sum of (a) the proceeds from the
exercise during such period of any options or warrants plus (b) any cash or
property consideration actually received by the Company during such period from
the issuance of any shares of its Common Stock) over (ii) the aggregate market
value of the publicly traded shares of Common Stock based on the average closing
price for the thirty (30)-day period ending on the last day of the immediately
prior subject period (provided that for the first day of the period ending on
September 30, 2000, such average closing price shall be deemed to be $6.84375
per share). One-half of the aggregate annual bonuses paid or payable in respect
of the applicable three-year period will be offset against the long-term payout
amount.
The employment agreements with Messrs. Butler and Estrin further
provide for various employee benefits and perquisites, including but not limited
to payment, on a tax reimbursed, "grossed up" basis, for a $1,500,000 whole life
insurance policy on Messrs. Butler and Estrin's lives or, at the election of
either of them, a term policy requiring an equivalent premium; disability
insurance adequate to pay Messrs. Butler and Estrin 60% of their respective base
salaries until age 75; reimbursement of all medical, hospitalization and dental
costs for Messrs. Butler and Estrin and their families; the use of a car owned
or leased by the Company and the provision of other transportation for Messrs.
Butler and Estrin's travel requirements; and business expenses at locations
other than the Company's headquarters.
20
Each of the agreements with Messrs. Butler and Estrin provides that,
if it is terminated without cause (as defined), such officer will be entitled to
the present value of his base salary, discounted at 5%, for the remaining
contract term, annual and long-term incentive payments payable for the remainder
of the term, all compensation, benefits, stock options, health and disability
benefits accruing under the agreement for the remainder of the term (or at their
option, the value of such stock options determined in accordance with the
"Black-Scholes' Formula"), tax reimbursement in respect of any termination
payments that constitute excess parachute payments under Federal income tax
laws, and pursuant to an Amendment to the agreements dated as of June 1, 2001,
the accelerated vesting (and extended post-termination exercise periods) of all
stock options. Under each agreement, termination with cause by the Company is
limited to the entry of a felony conviction, voluntary resignation, death, or
permanent disability (as defined).
Mr. M. David Schwartz. The employment agreement with Mr. Schwartz, as
amended, has a rolling term of two years commencing on February 10, 1999 and
provides for Mr. Schwartz to serve as the Company's President and Chief
Operating Officer. Mr. Schwartz's annual base salary was increased to $795,000
on June 1, 2001. On September 11, 1995, Mr. Schwartz received a confirmation
bonus of $450,000 and 6,250 shares of Common Stock, and was granted options
under the Phar-Mor Stock Incentive Plan to purchase 175,000 shares of Common
Stock at an exercise price of $8.00 per share. Pursuant to the Phar-Mor Stock
Incentive Plan, Mr. Schwartz was granted additional options on June 5, 1997, to
purchase 100,000 shares of Common Stock at an exercise price of $5.4375 per
share; on June 23, 1998, to purchase 100,000 shares of Common Stock at an
exercise price of $9.625 per share; on June 29, 1999, to purchase 150,000 shares
of Common Stock at an exercise price of $4.28125 per share; and on April 14,
2000, 135,000 shares at an exercise price of $2.51625 per share; and on March
16, 2001, 175,000 shares at an exercise price of $0.825 per share.
Mr. John R. Ficarro. The employment agreement with Mr. Ficarro, as
amended, has a rolling term of two years commencing on February 10, 1999, and
provides for Mr. Ficarro to serve as the Company's Senior Vice President/Chief
Administrative Officer and General Counsel. Mr. Ficarro's annual base salary was
increased to $270,000 on June 1, 2001. On September 11, 1995, Mr. Ficarro was
granted options under the Phar-Mor Stock Incentive Plan to purchase 15,000
shares of Common Stock at an exercise price of $8.00 per share. Pursuant to the
Phar-Mor Stock Incentive Plan, Mr. Ficarro was granted additional options on
June 5, 1997, to purchase 75,000 shares of Common Stock at an exercise price of
$5.4375 per share; on June 23, 1998, to purchase 75,000 shares of Common Stock
at an exercise price of $9.625 per share; on June 29, 1999, to purchase 100,000
shares of Common Stock at an exercise price of $4.28125 per share; on April 14,
2000, to purchase 90,000 of Common Stock shares at an exercise price of $4.28125
per share; and on March 16, 2001, 150,000 shares at an exercise price of $0.825
per share.
The employment agreement with Mr. Schwartz provides for an annual
incentive bonus if the Company achieves certain performance objectives approved
by the Board, with a target bonus of not less than 60% of annual base salary and
a maximum of 100% of annual base salary. The employment agreement with Mr.
Ficarro provides for an annual incentive bonus if the Company achieves certain
performance objectives approved by the Board, with a target bonus of not less
than 50% of annual base salary and a maximum of 100% of annual base salary. The
options granted to Messrs. Schwartz and Ficarro on September 11, 1995, have a
term of seven years from the date of grant and vest with respect to 20% of the
underlying shares on the date of grant and 20% on each of the first through the
fourth anniversaries of the date of grant. The options granted to Messrs.
Schwartz and Ficarro on June 5, 1997, June 23, 1998 and June 29, 1999, April 14,
2000 and March 16, 2001 have a term of seven years from the date of grant and
vest with respect to one-third of the underlying shares on the date of grant and
one-third on each of the first and second anniversaries of the date of grant.
The options granted to Messrs. Butler and Estrin in October 1997 and to Messrs.
Schwartz and Ficarro in June 1997 were subject to shareholder approval, which
approval was obtained in February 1998. Pursuant to amendment dated as of June
1, 2001, each of the employment agreements provides for accelerated vesting and
exercisability of all options if the employee is terminated without cause or if
he terminates for "good reason" because of certain unilateral material changes
to certain terms of service or other events (as more fully defined in the
agreements).
Mr. Martin S. Seekely. Mr. Seekely was promoted to the position of
Vice President and Chief Financial Officer effective October 18, 2000. He was
previously the Company's Vice President and controller. On October 23, 2000, the
Company entered into an agreement with Mr. Seekely relative to his employment.
The agreement does not provide for a specific term, however, it contains similar
21
benefits and perquisites to those contained in the employment agreements between
the Company and Messrs. Schwartz and Ficarro. Mr. Seekely's current annual
salary is $175,000. During his employment with the Company, pursuant to the
Phar-Mor Stock Incentive Plan, Mr. Seekely has been granted options on May 14,
1996, to purchase 700 shares of Common Stock at an exercise price of $7.5625 per
share; on June 5, 1997, to purchase 10,000 shares of Common Stock at an exercise
price of $5.4375 per share; on June 23, 1998, to purchase 5,000 shares of Common
Stock at an exercise price of $2.51625 per share; on June 29, 1999, to purchase
20,000 shares of Common Stock at an exercise price of $4.28125 per share; on
April 14, 2000, to purchase 5,000 shares of Common Stock at an exercise price of
$2.51625 per share; on October 19, 2000, to purchase 100,000 shares of Common
Stock at an exercise price of $1.190 per share; and on March 16, 2001, to
purchase 30,000 shares of Common Stock at an exercise price of $0.825 per share.
All options (except the 1995 option which provided for vesting at 20% per year)
vest one-third immediately and one third on each of the first and second
anniversary of the grant date.
Loans. The Phar-Mor Stock Incentive Plan authorizes the Administrator
to make loans to optionees to pay the exercise price of options, subject to
specified conditions.
Under the terms of the employment agreements with Messrs. Butler and
Estrin, the Company has agreed to loan Messrs. Butler and Estrin an amount equal
to the exercise price of their options (upon exercise). Such loan or loans will
become due on the first to occur of (i) the fifth anniversary of the date that
the loan was made, (ii) to the extent of net proceeds of sale, after payment of
related taxes, five business days after the sale of the shares so acquired,
(iii) 30 days after a termination of their employment by the Company with cause
(other than by death or permanent disability) or his voluntary resignation
(except if his resignation is a result of certain delineated reasons), or (iv)
by way of offset, upon the payment of settlement amounts to him upon a
termination without cause by the Company. The loans will bear interest, payable
semi-annually, on the outstanding principal balance at the mid-term applicable
federal rate in effect on the date such loans were made and shall be subject to
compliance with applicable laws. No loans have been made to Mr. Estrin or Mr.
Butler under these provisions.
Severance Plan. The Company's existing severance plan as of June 30,
2001, as it applies to officers generally, provides for payment of severance pay
equal to salary at the time of termination for a period of 26 weeks, plus one
additional week for each year of service, up to ten years. On March 27, 1997,
the Company approved an amendment to its existing severance plan, enhancing
benefits to all employees, including executive officers, whereby all such
employees would receive additional severance payments upon loss of employment
due only to certain "change of control" events. Generally, executive officers
who are not party to an employment agreement would receive a minimum of 18
months of pay in such event.
The employment agreements for Messrs. Schwartz, Ficarro and Seekely
provide, in the case of a termination by the Company for each individual,
without cause or by them "for good reason," for a severance payment equal to two
years' total compensation plus benefits (which includes but is not limited to
salary plus bonus).
Change in Control Consequences for Messrs. Butler, Estrin, Schwartz,
Ficarro and Seekely. The employment agreements with Messrs. Butler and Estrin
provide that upon a change in control (as defined) Messrs. Butler and Estrin
have the right for 90 days to terminate their agreements without cause and
realize the present value of the full (and certain accelerated) benefits under
the agreements for what would otherwise be the remaining term, as in the case of
a termination by the Company without cause. A change in control under the
agreements includes (among other events) the acquisition by any person or group
(other than persons affiliated with Messrs. Butler or Estrin) of 40% or more of
the voting capital stock of the Company, the approval by the shareholders of
certain transactions resulting in a change in ownership of 40% or more control
of the voting capital stock of the Company, including a merger, consolidation,
or sale or disposal of all or substantially all of the Company's assets
(including a plan of liquidation or dissolution), or a fundamental alteration in
the nature of its business. Such a termination by Messrs. Butler or Estrin is
deemed a termination without cause by the Company and entitles them to the
rights attendant thereto.
The employment agreements with Messrs. Schwartz and Ficarro provide
that upon a change in control (as defined), subject to certain exceptions more
fully described in the employment agreements or amendments thereto, each named
executive will have the right to terminate the agreement for "good reason" and
receive the full benefits thereunder as in the case of a termination by the
Company without cause. The agreement with Mr. Seekely provides for similar
benefits upon his loss of employment. A change in control under each agreement
22
may include (among other events) (a) the acquisition by any individual, entity
or group of beneficial ownership of 20% or more of either (i) the then
outstanding shares of Common Stock of the Company or (ii) the combined voting
power of the then outstanding voting securities of the Company entitled to vote
generally in the election of directors of the Company; (b) any event that
results in the replacement of a majority of the members of the Board as composed
on the date of the employment agreement; (c) approval by the shareholders of the
Company of a reorganization, merger or consolidation (i) which results in a
change of ownership and/or voting rights of 30% or more of the then outstanding
shares of Common Stock of the Company or (ii) in which the members of the Board
do not become members of the Board of the entity resulting from such
reorganization, merger or consolidation; or (d) approval by the shareholders of
the Company of a liquidation or a dissolution of the Company, or the sale or
other disposition or substantially all of the assets of the Company.
23
Executive Summary Compensation Table
The following table sets forth information concerning the compensation
of the Chief Executive Officers and the other three most highly compensated
executive officers of the Company who served in those capacities as of June 30,
2001 (the "Named Officers").
Long Term
Compensation
------------
Annual Compensation Awards Payouts
------------------------------------------ ---------- ----------
Name and Fiscal Other Annual Stock LTIP All Other
Principal Person Year Salary($) Bonus($)(1) Compensation($)(2) Options(#) Payouts($) Compensation(3)
---------------- ------ --------- ----------- ------------------ ---------- ---------- ---------------
Abbey J. Butler 2001 525,439 0 -- 285,000 -- 100,350
Co-Chairman and Co-CEO 2000 486,670 154,032 -- 180,000 -- 108,168
1999 458,939 305,653 -- 220,000 -- 112,175
Melvyn J. Estrin 2001 525,439 0 -- 285,000 -- 185,029
Co-Chairman and Co-CEO 2000 486,670 154,032 -- 180,000 -- 168,913
1999 458,939 305,653 -- 220,000 -- 164,301
M. David Schwartz 2001 721,962 0 -- 175,000 -- 65,845
President and COO 2000 715,500 226,456 -- 135,000 -- 10,869
1999 691,721 460,686 -- 150,000 -- 37,445
John R. Ficarro 2001 233,997 0 -- 150,000 -- 7,054
Senior Vice President 2000 230,000 48,530 -- 90,000 -- 6,468
CAO and General Counsel 1999 219,646 119,592 -- 100,000 -- 9,157
Martin S. Seekely (4) 2001 153,521 0 -- 130,000 -- 4,585
Vice President 2000 122,202 19,338 -- 5,000 -- 2,444
Chief Financial Officer 1999 115,049 40,000 -- 20,000 -- 2,925
--------------------
(1) Bonuses are shown for the fiscal year earned, but may be paid in the
following year.
(2) No information is provided in the column labeled "Other Annual
Compensation" since the aggregate amount of perquisites and other personal
benefits for the periods indicated is less than the lesser of $50,000 or
10% of the total annual salary and bonus reported for each of the Named
Officers.
(3) Information provided in the column labeled "All Other Compensation" for
Fiscal Year 2001 includes the following: (i) the value of insurance
premiums paid by the Company for the benefit of each of the Named Officers
as follows: Mr. Butler, $87,511; Mr. Estrin, $172,190; Mr. Schwartz,
$59,189; Mr. Ficarro, $1,324; and Mr. Seekely, $838; (ii) matching
contributions to the Company's 401(k) Employee Savings and Retirement Plan
to each of the Named Officers as follows: Mr. Schwartz, $6,656; Mr.
Ficarro, $5,725; and Mr. Seekely, $3,747; (iii) matching contributions to
the Company's non-qualified deferred compensation plan as follows: Mr.
Butler $12,839 and Mr. Estrin $12,839.
Information provided in the column labeled "All Other Compensation" for
Fiscal Year 2000 includes the following: (i) the value of insurance
premiums paid by the Company for the benefit of each of the Named Officers
as follows: Mr. Butler, $96,488; Mr. Estrin, $157,233; Mr. Schwartz,
$4,925; and Mr. Ficarro, $790; (ii) matching contributions to the Company's
401(k) Employee Savings and Retirement Plan to each of the Named Officers
as follows: Mr. Schwartz, $5,944; Mr. Ficarro, $6,468 and Mr. Seekely
$2,925; (iii) matching contributions to the Company's non-qualified
deferred compensation plan as follows: Mr. Butler $11,680 and Mr. Estrin
$11,680.
24
Information provided in the column labeled "All Other Compensation" for
Fiscal Year 1999 includes the following: (i) the value of insurance
premiums paid by the Company for the benefit of each of the Named Officers
as follows: Mr. Butler, $101,372; Mr. Estrin, $153,498; Mr. Schwartz,
$31,391 and Mr. Ficarro, $3,995; (ii) matching contributions to the
Company's 401(k) Employee Savings and Retirement Plan to each of the Named
Officers as follows: Mr. Schwartz, $6,054; Mr. Ficarro, $5,162 and Mr.
Seekely, $2,758; and (iii) matching contributions to the Company's
non-qualified deferred compensation plan as follows: Mr. Butler, $10,803;
and Mr. Estrin, $10,803.
(4) Mr. Seekely was named Vice President and Chief Financial Officer effective
October 18, 2000.
25
Option Grants in Fiscal Year 2001
Option Grants. The table below shows, for each of the Named Officers,
the number of options granted during Fiscal Year 2001. All of the options set
forth below were issued under the Phar-Mor Stock Incentive Plan, other than
options to purchase 20,000 shares granted to each of Abbey J. Butler and Melvyn
J. Estrin as directors of the Company under the Phar-Mor Director Stock Plan. As
of July 1, 2001, no stock appreciation rights ("SARs") were outstanding.
Percent of Potential Realizable
Total Value at Assumed
Options Annual Rates of
Number of Granted to Stock Price
Securities Employees Appreciation for
Underlying in Fiscal Option Term(2)
Options Year Exercise Expiration --------------------
Name and Position Granted(#) (%)(1) Price($/Sh) Date 5%($) 10%($)
--------------------------- ---------- ---------- ----------- ---------- -------- ---------
(in thousands)
Abbey J. Butler 275,000 24.0 .825 3/16/2008 92 215
Co-Chairman and Co-CEO
Melvyn J. Estrin 275,000 24.0 .825 3/16/2008 92 215
Co-Chairman and Co-CEO
M. David Schwartz 175,000 15.3 .825 3/16/2008 59 137
President and COO
John R. Ficarro 150,000 13.1 .825 3/16/2008 50 117
Senior Vice President
CAO and General Counsel
Martin S. Seekely 100,000 8.7 1.19 10/19/2007 48 113
Vice President 30,000 2.6 .825 3/16/2008 10 23
Chief Financial Officer
---------------------------
(1) Based on a total of 1,144,000 options granted to employees of the Company.
(2) Annual growth-rate assumptions are prescribed by the rules of the SEC and
do not reflect actual or projected price appreciation of the underlying
Common Stock.
All options under the Phar-Mor Stock Incentive Plan will be subject to
early termination within periods of up to one year (depending on the cause of a
termination of service) after the effective date of a termination of service
under the Phar-Mor Stock Incentive Plan or (if applicable) the expiration date
under an applicable employment agreement. To the extent then not vested, the
options will terminate and to the extent then vested, they may be exercised
within one year following the death or disability of the holder of the option,
and within six months following any other termination event, except where a
termination by the Company is for cause, in which case the options then will
terminate.
Option Exercises and Values for Fiscal Year 2001
The following table sets forth certain information concerning the
exercise of stock options, the number of unexercised options, and the values of
unexercised options at June 30, 2001 for the Named Officers. Value is considered
to be, in the case of exercised options, the difference between the exercise
price and the market price on the date of exercise and, in the case of
unexercised options, the difference between the exercise price and the market
price on June 30, 2001.
26
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money
Options at Options at
Shares June 30, 2001 June 30, 2001($)
Acquired on Value (Exercisable/ (Exercisable/
Name Exercise(#) Realized($) Unexercisable)(#) Unexercisable)(1)
----------------- ----------- ----------- ---------------------- --------------------
Melvyn J. Estrin -- -- 861,667/243,333 4,583/9,167
Abbey J. Butler -- -- 861,667/243,333 4,583/9,167
M. David Schwartz -- -- 673,333/161,667 2,917/5,833
John R. Ficarro -- -- 375,000/130,000 2,500/5,000
Martin S. Seekely -- -- 82,366/88,334 500/1,000
(1) Options are "in the money" if the fair market value of the underlying
securities exceeds the exercise price of the options. The amounts set forth
represent the difference between .90 per share, the market value of the
Common Stock at June 30, 2001 issuable upon exercise of options, and the
exercise price of the option, multiplied by the applicable number of shares
underlying the options.
27
Item 12. Security Ownership of Certain Beneficial Owners and Management.
Set forth in the table below is information, as of September 14, 2001,
with respect to the number of shares of Common Stock beneficially owned by (i)
each person or entity known by the Company to own more than five percent of the
outstanding shares of Common Stock, (ii) each director of the Company, (iii)
each of the Named Officers and (iv) all directors and executive officers of the
Company as a group. A person or entity is considered to "beneficially own" any
shares (i) over which such person or entity exercises sole or shared voting or
investment power or (ii) which such person or entity has the right to acquire at
any time within 60 days (e.g., through the exercise of options or warrants).
Period Number of Shares
Name and Address of Amount and Nature of of Which maybe Acquired
Beneficial Owner (1) Beneficial Ownership(2) Class Within 60 Days (3)
------------------------------- ----------------------- ------ --------------------
Avatex Corporation 5,869,535(4) 47.6% 91,902(5)
5910 North Central Expressway
Suite 1780
Dallas, Texas 75206
Dimensional Fund Advisors Inc. 917,800(6) 7.5% --
1299 Ocean Avenue
Santa Monica, California 90401
M. David Schwartz 693,197 5.4% 673,333(7)
20 Federal Plaza West
Youngstown, Ohio 44501
John R. Ficarro 375,000 3.0% 375,000(7)
20 Federal Plaza West
Youngstown, Ohio 44501
Martin S. Seekely 84,255 * 82,366
20 Federal Plaza West
Youngstown, OH 44501
Abbey J. Butler 7,040,702(8) 53.3% 963,569(5)(9)
c/o Avatex Corporation
5910 North Central Expressway
Suite 1780
Dallas, Texas 75206
Melvyn J. Estrin 6,944,802(8) 52.6% 963,569(5)(9)
c/o Avatex Corporation
5910 North Central Expressway
Suite 1780
Dallas, Texas 75206
Monroe Osterman 50,000 * 50,000(10)
20 Federal Plaza West
Youngstown, Ohio 44501
Arthur G. Rosenberg 50,000 * 50,000(10)
20 Federal Plaza West
Youngstown, Ohio 44501
28
John D. Shulman 50,000 * 50,000(10)
20 Federal Plaza West
Youngstown, Ohio 44501
All Directors and Executive 9,214,821 60.0% 3,115,935
Officers, including those named
above, as a Group (8 persons)
-------------------------------
* Less than 1%.
(1) No director or executive officer is the beneficial owner of other equity
securities of the Company or any of its subsidiaries.
(2) Unless otherwise indicated, each person or entity has sole investment power
and sole voting power with respect to the Common Stock beneficially owned
by such person or entity.
(3) This column lists the number of shares of Common Stock which the named
person or entity has the right to acquire within 60 days after September
14, 2001, through the exercise of stock options and warrants. The shares
shown in this column are included in the Amount and Nature of Beneficial
Ownership column.
(4) Includes 5,777,633 shares held directly by Avatex and 91,902 shares subject
to purchase by Avatex within 60 days upon exercise of warrants.
(5) Includes 91,902 shares of Common Stock subject to purchase by Avatex within
60 days upon exercise of warrants.
(6) The information provided is based on information provided to the Company by
its registrar. Dimensional Fund Advisors, Inc. ("Dimensional"), an
investment advisor registered under Section 203 of the Investment Advisors
Act of 1940, serves as investment manager to certain other investment
vehicles, including commingled group trusts. (These investment companies
and investment vehicles are the "Portfolios"). The Portfolios own all
securities and Dimensional disclaims beneficial ownership of such
securities.
(7) All such shares of Common Stock are subject to purchase by the indicated
person within 60 days upon exercise of options awarded under the Phar-Mor
Stock Incentive Plan.
(8) Messrs. Butler and Estrin are Co-Chairmen of the Board, Co-Chief Executive
Officers and major shareholders of Avatex.
(9) All such shares (other than 91,902 shares deemed beneficially owned by
Messrs. Butler and Estrin, as described in note (4) above) are subject to
purchase within 60 days by the indicated person upon exercise of options
under the Phar-Mor Director Stock Plan and/or Phar-Mor Stock Incentive
Plan.
(10) All such shares are subject to purchase within 60 days by the indicated
person upon exercise of options awarded under the Phar-Mor Director Stock
Plan.
Avatex has pledged 1,132,500 shares of its Common Stock as collateral
to Bart A. Brown, Jr., as trustee (the "Trustee") as partial collateral to
secure certain obligations of Avatex. In the event of a default, the Trustee may
acquire such shares by foreclosing on the collateral.
29
Item 13. Certain Relationships and Related Transactions.
From September 11, 1995 to September 19, 1997, Avatex owned 69.8% of
Hamilton Morgan L.L.C. ("Hamilton Morgan") which beneficially owned
approximately 39.9% of the Company's common stock. Robert Haft, the Company's
former Chairman of the Board of Directors and Chief Executive Officer, was
President of Hamilton Morgan. Messrs. Butler and Estrin, the two Co-chairmen of
the Board of Directors of Avatex, were members of the Board of Directors of the
Company during this time.
During Fiscal 2001 and July and August 2001 Avatex purchased 943,800
shares of the Company's common stock on the open market, increasing its
beneficial ownership level to 47.6% of the Company's common stock as of
September 14, 2001.
In April 1998, 13 persons and entities purchased (or committed to
purchase) a total of $3,000,000 of Series B Preferred Stock and warrants to
purchase Series B Preferred Stock of RAS Holding Corp. These persons and
entities included the Company; Avatex; two of the Company's executive officers,
Melvyn J. Estrin and Abbey J. Butler; all of Avatex's executive officers and its
Director of Accounting (and/or their designees); one non-officer director of
Avatex; and two additional parties related to, or referred by Abbey J. Butler or
Melvyn J. Estrin. Of the total amount invested, Avatex's share was approximately
46.7%, the Company's share was 25%, the Avatex officers/designees' share was
19.8%, the Avatex non-officer director's share was 1% and the related parties'
share was approximately 7.5%. The largest share invested by an officer or
director of the Company (or his designee) was 5% of the total amount invested.
In April 1999, RAS Holding Corp. distributed to its stockholders
(including Cabot Noble, Inc., a wholly-owned subsidiary of the Company, Avatex
and two parties related to or referred by Directors Butler and Estrin) shares of
common stock in two RAS Holding Corp. subsidiaries, PC Lens Corp. and Medical
Internet Technologies, Inc. In April 2000, the Company and other Series B
preferred stockholders exercised warrants acquired in April 1998 to purchase
additional shares of Series B preferred stock. In addition, Avatex is a party to
a consulting agreement with RAS Holding Corp. under which Avatex provides
certain financial, accounting and other management consulting services to RAS
Holding Corp. Avatex also leases to RAS Holding Corp. a portion of Avatex'
office space in Dallas, Texas. Directors Butler and Estrin are Co-Chairman and
Co-Chief Executive Officers of Avatex and directors of RAS Holding Corp.
In March and December 1998, certain persons and entities purchased a
total of $7,200,000 of membership interests in ChemLink Acquisition Company,
LLC, which in turn purchased a total of 50% of the membership interests in
ChemLink Laboratories, LLC. These persons and entities included the Company;
Avatex; the Company's Co-Chairmen and Co-Chief Executive Officers, Abbey J.
Butler and Melvyn J. Estrin (and/or their designees); one former Avatex officer,
Edward L. Massman; one non-officer director of Avatex; and five additional
parties related to or referred by Abbey J. Butler or Melvyn J. Estrin. Of the
total amount invested, the Company's share was approximately 35.8%, Avatex's
share was approximately 41.1%, the Avatex officers/designees' share (including
Messrs. Butler and Estrin) was approximately 14.4%, the Avatex non-officer
director's share was approximately 0.7% and the related parties' share was
approximately 8.0%. The largest share invested by an Avatex officer or director
(or his designee) was approximately 6.1% of the total amount invested. In May
1999, the members of Chemlink Acquisition Company, LLC including the Company and
the other members of Chemlink loaned a total of $250,000 to Chemlink pro rata
based on their ultimate ownership interests in Chemlink, in the form of one-year
notes. In January and July 2000, all of these persons and entities made
contributions to Chemlink's capital in the form of new cash, the May 1999 notes
and other indebtedness, and the net amount of prior advanced owed to them by
Chemlink. Avatex is also a party to a consulting agreement with Chemlink, under
which they provide certain financial, accounting and other management consulting
services to Chemlink. Messrs. Butler, Estrin, and Shulman serve on the Board of
Managers of ChemLink Laboratories, LLC.
The Company and Avatex each acquired $1.25 million of preferred stock
and 2.5% of the common stock of HPD Holdings Corp. in 1998. The largest
shareholder of HPD Holdings Corp. is HPD Partners, L.P., a Delaware limited
partnership, and Mr. Butler and Mr. Estrin are limited partners of HPD Partners,
L.P. Mr. Estrin and executive officer of Avatex, Grady Schleier are directors of
HPD Holdings Corp. In February and April 2000, along with virtually all of HPD
Holdings Corp.'s other common stockholders, the Company and Avatex purchased a
total of $131,575 in convertible debentures to maintain their respective common
stock ownership positions. In May 2001, the Company sold their investment in HPD
Holdings Corp.
30
During 1998, 1999 and 2000 the Company invested $10.725 million to
purchase approximately 25.2% of the outstanding common stock of Avatex. Pursuant
to the Company's By-Laws, each transaction was approved by an Independent
Committee of disinterested Company directors.
During Fiscal Year 2001, the Company paid $104,328 to Human Service
Group, Inc. for secretarial services provided to Mr. Estrin. Human Service
Group, Inc. is a corporation wholly owned by Mr. Estrin.
The Company purchased $20,000 of product from Carson Products, a
subsidiary of Carson, Inc. during Fiscal Year 1999. Mr. Butler and Mr. Estrin
were directors of Carson, Inc. during Fiscal Year 1999.
During Fiscal Year 2001, the Company paid CB Equities Corporation
$66,768 for office and equipment support for Mr. Butler. Mr. Butler is President
of CB Equities Corporation.
31
PART IV
ITEM 14. Financial Statements, Financial Statement Schedule, Exhibits and
Reports on Form 8-K.
(a) Documents filed as part of this Form 10-K
1. Financial Statements
The Financial Statements listed in the accompanying Index to
Consolidated Financial Statements are filed as part of this Form
10-K.
2. Financial Statement Schedule
The Financial Statement Schedule listed in the accompanying Index
to Consolidated Financial Statements is filed as part of this
Form 10-K
3. Exhibits
The Exhibits filed as part of this Form 10-K are listed on the
Exhibit Index immediately preceding such exhibits, incorporated
herein by reference.
(b) Reports on Form 8-K
None.
32
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
PHAR-MOR, INC.
Date: October 15, 2001 By: /s/ John R. Ficarro
--------------------
John R. Ficarro
Senior Vice President and Chief
Administrative Officer
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 capacities and on the dates listed below.
Date: October 15, 2001 /s/ M. David Schwartz
-----------------
M. David Schwartz, President
Date: October 15, 2001 /s/ Abbey J. Butler
-----------------
Abbey J. Butler, Co-Chairman and
Co-Chief Executive Officer
(Co-Principal executive officer)
Date: October 15, 2001 /s/ Melvyn J. Estrin
-----------------
Melvyn J. Estrin, Co-Chairman and
Co-Chief Executive Officer
(Co-Principal executive officer)
Date: October 15, 2001 /s/ Monroe Osterman
-----------------
Monroe Osterman, Director
Date: October 15, 2001 /s/ Arthur G. Rosenberg
-------------------
Arthur G. Rosenberg, Director
Date: October 15, 2001 /s/ John D. Shulman
-----------------
John D. Shulman, Director
Date: October 15, 2001 /s/ Martin S.Seekely
-----------------
Martin S. Seekely
Vice President and Chief
Financial Officer
(principal financial and
accounting officer)
33
PHAR-MOR, INC.
INDEX TO EXHIBITS
Exhibit No.
*3.1 Amended and Restated Articles of Incorporation
**3.2 Amended and Restated By-laws
*4.1 Indenture dated September 11, 1995 between Phar-Mor,Inc. and IBJ
Schroder Bank & Trust Company
*4.2 Warrant Agreement dated September 11, 1995 between Phar-Mor, Inc.
and Society National Bank
*******10.1 Loan Security Agreement, dated November 16, 2000.
***10.2 Employment Agreement between Phar-Mor, Inc. and Abbey J. Butler,
dated October 1, 1997
***10.3 Employment Agreement between Phar-Mor, Inc. and Melvyn J. Estrin,
dated October 1, 1997
*****10.4 Third Amendment to Employment Agreement between Phar-Mor,Inc. and
M. David Schwartz, dated February 10, 1999
*****10.5 Third Amendment to Employment Agreement between Phar-Mor,Inc. and
John R. Ficarro, dated February 10, 1999
*10.6 Form of Indemnification Agreement dated as of September 11, 1995
**10.7 Phar-Mor, Inc. 1995 Amended and Restated Stock Incentive Plan
**10.8 Phar-Mor, Inc. 1995 Director Stock Plan, as Amended
**10.9 Phar-Mor, Inc. 1996 Director Retirement Plan
**10.10 Employee Stock Purchase Plan
******10.11 Amendment to the Supply Agreement dated November 5, 1999, between
Phar-Mor and McKesson Drug Company
10.12 Loan and Security Agreement dated September 24,2001 by and among
the financial institutions listed on the signature pages therein,
Fleet Retail Finance,Inc., as agent, and Phar-Mor,Inc., Phar-Mor,
Inc. LLC, Phar-Mor of Delaware, Inc., Phar-Mor of Florida, Inc.,
Phar-Mor of Ohio, Inc., Phar-Mor of Virginia, Inc., Phar-Mor of
Wisconsin, Inc., and Pharmhouse Corp.
****10.21.1 List of Subsidiaries
23 Independent Auditors' Consent
--------------------------------------------------------------------------------
34
* Previously filed in connection with the filing of Phar-Mor's Form 10, on
October 23, 1995
** Previously filed in connection with the filing of Phar-Mor's quarterly
report on Form 10-Q, on May 1, 1998
*** Previously filed in connection with the filing of Phar-Mor's annual
report on Form 10-K405, on September 25, 1998
**** Previously filed in connection with the filing of Phar-Mor's quarterly
report on Form 10-Q, on November 2, 1998
***** Previously filed in connection with the filing of Phar-Mor's annual
report on Form 10-K405, on September 29, 1999
****** Previously filed in connection with the filing of Phar-Mor's quarterly
report on Form 10-Q, on February 7, 2000
******* Previously filed in connection with the filing of Phar-Mor's quarterly
report on Form 10-Q on February 9, 2001.
35
PHAR-MOR, INC. AND SUBSIDIARIES
(Debtor-in-Possession)
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
Page
INDEPENDENT AUDITORS' REPORT F - 2
CONSOLIDATED BALANCE SHEETS AS OF JUNE 30, 2001 AND JULY 1, 2000 F - 3
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE FIFTY-TWO WEEKS
ENDED JUNE 30, 2001, THE FIFTY-TWO WEEKS ENDED JULY 1, 2000 AND THE
FIFTY-THREE WEEKS ENDED JULY 3, 1999 F - 4
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE FIFTY-TWO WEEKS ENDED JUNE 30, 2001, THE FIFTY- TWO WEEKS
ENDED JULY 1, 2000 AND THE FIFTY-THREE WEEKS ENDED JULY 3, 1999 F - 5
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE FIFTY-TWO WEEKS
ENDED JUNE 30, 2001, THE FIFTY-TWO WEEKS ENDED JULY 1, 2000 AND THE
FIFTY-THREE WEEKS ENDED JULY 3, 1999 F - 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F - 7
SCHEDULE II F - 27
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of Phar-Mor, Inc. :
We have audited the accompanying consolidated balance sheets of Phar-Mor, Inc.
and subsidiaries (debtor-in-possession) (the "Company") as of June 30, 2001 and
July 1, 2000, and the related consolidated statements of operations, changes in
stockholders' equity and cash flows for the fifty-two weeks ended June 30, 2001,
the fifty-two weeks ended July 1, 2000 and the fifty-three weeks ended July 3,
1999. Our audits also included consolidated financial statement Schedule II,
Valuation and Qualifying Accounts. These financial statements and financial
statement schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. 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 assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Phar-Mor, Inc. and
subsidiaries as of June 30, 2001 and July 1, 2000 and the results of their
operations and their cash flows for the fifty-two weeks ended June 30, 2001, the
fifty-two weeks ended July 1, 2000 and the fifty-three weeks ended July 3, 1999,
in conformity with accounting principles generally accepted in the United States
of America. Also, in our opinion, such financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly in all material respects the information set forth
therein.
As discussed in Note 1, the Company has filed for reorganization under Chapter
11 of the United States Bankruptcy Code. The accompanying consolidated financial
statements do not purport to reflect or provide for the consequences of the
bankruptcy proceedings. In particular, such consolidated financial statements do
not purport to show (a) as to assets, their realizable value on a liquidation
basis or their availability to satisfy liabilities; (b) as to liabilities, the
amounts that may be allowed for claims or contingencies, or the status and
priority thereof; (c) as to stockholder accounts, the effect of any changes that
may be made in the capitalization of the Company; and (d) as to operations, the
effect of any changes that may be made in its business.
The accompanying consolidated financial statements for the fifty-two weeks ended
June 30, 2001 have been prepared assuming the Company will continue as a going
concern. As discussed in Note 2, the Company's recurring losses and bankruptcy
filing raise substantial doubt about the Company's ability to continue as a
going concern. The continuation of the Company as a going concern is dependent
upon, among other things, its ability to generate sufficient cash flows from
operations and to achieve confirmation of a plan of reorganization by the
Bankruptcy Court. Management's plans concerning these matters are also described
in Note 2. The financial statements do not include adjustments that might result
from the outcome of the uncertainties referred to herein and in the preceding
paragraph.
Deloitte & Touche LLP
Pittsburgh, Pennsylvania
September 24, 2001
F-2
PHAR-MOR, INC. AND SUBSIDIARIES
(Debtor-in-Possession)
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except par value)
--------------------------------------------------------------------------------
June 30, July 1,
2001 2000
----- ----
ASSETS
Current assets:
Cash and cash equivalents $ 14,393 $ 16,752
Marketable securities 143 3,019
Accounts receivable - net 25,495 25,017
Merchandise inventories 186,226 207,228
Prepaid expenses 6,595 6,099
Deferred tax asset -- 439
--------- ---------
Total current assets 232,852 258,554
Property and equipment - net 67,044 91,801
Goodwill 3,925 15,809
Deferred tax asset -- 9,126
Investments 3,233 13,682
Investment in Avatex 789 3,691
Other assets 5,593 5,241
--------- ---------
Total assets $ 313,436 $ 397,904
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 78,148 $ 97,461
Accrued expenses 31,222 38,840
Current portion of self insurance reserves 2,165 1,781
Current portion of long-term debt 3,647 1,964
Current portion of capital lease obligations 4,191 4,535
--------- ---------
Total current liabilities 119,373 144,581
Long-term debt 149,377 152,410
Capital lease obligations 11,414 15,446
Long-term self insurance reserves 5,503 7,335
Unfavorable lease liability - net 9,395 10,639
--------- ---------
Total liabilities 295,062 330,411
--------- ---------
Commitments and contingencies
Minority interests 535 535
--------- ---------
Stockholders' equity:
Preferred stock, $.01 par value, authorized shares, 10,000,000,
none outstanding -- --
Common stock, $.01 par value, authorized shares, 40,000,000;
issued and outstanding shares, 12,240,865 122 122
Additional paid-in capital 90,326 90,007
Stock options outstanding 1,881 2,200
Retained deficit (67,807) (19,012)
--------- ---------
24,522 73,317
Less: equity, through investment in Avatex, in cost of common
stock of the Company held by Avatex, Inc. (6,683) (6,359)
--------- ---------
Total stockholders' equity 17,839 66,958
--------- ---------
Total liabilities and stockholders' equity $ 313,436 $ 397,904
========= =========
The accompanying notes are an integral part of these consolidated financial
statement
F-3
PHAR-MOR, INC. AND SUBSIDIARIES
(Debtor-in-Possession)
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share amounts)
--------------------------------------------------------------------------------
Fifty-two Fifty-two Fifty-three
weeks ended weeks ended weeks ended
June 30, 2001 July 1, 2000 July 3, 1999
------------- ------------ ------------
Sales $ 1,241,012 $ 1,292,090 $ 1,206,539
Less:
Cost of goods sold, including occupancy and
distribution costs 1,027,992 1,050,208 977,878
Selling, general and administrative expenses 203,582 211,833 188,264
Depreciation and amortization 19,917 24,708 25,386
Impairment of long-lived assets 23,377 -- --
------------ ------------ ------------
(Loss) income from operations before interest
expense, investment (loss), interest income,
equity in income (loss) of affiliates,
income taxes and extraordinary items (33,856) 5,341 15,011
Interest expense (18,317) (18,851) (16,338)
Investment loss (3,097) (5,528) (1,025)
Interest income 49 124 1,585
------------ ------------ ------------
Loss before equity in income (loss) of affiliates,
income taxes and extraordinary items (55,221) (18,914) (767)
Equity in (loss) income of affiliates (5,564) 6,774 1,568
------------ ------------ ------------
(Loss) income before income taxes and extraordinary
items (60,785) (12,140) 801
Income tax provision 9,565 -- 205
------------ ------------ ------------
(Loss) income before extraordinary item (70,350) (12,140) 596
Extraordinary items:
Gain on extinguishment of debt 19,731 1,117 --
Equity in extraordinary item of affiliate 1,824 -- --
------------ ------------ ------------
Net (loss) income $ (48,795) $ (11,023) $ 596
============ ============ ============
(Loss) income per basic and diluted share:
(Loss) income before extraordinary item $ (6.46) $ (1.08) $ .05
Extraordinary items $ 1.98 $ .10 $ --
------------ ------------ ------------
Net (loss) income $ (4.48) $ (.98) $ .05
============ ============ ============
Weighted average number of basic shares outstanding 10,886,359 11,241,342 11,522,800
============ ============ ============
Weighted average number of diluted shares outstanding 10,886,359 11,241,342 11,570,955
============ ============ ============
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
PHAR-MOR, INC. AND SUBSIDIARIES
(Debtor-in-Possession)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(In thousands)
--------------------------------------------------------------------------------
Equity,
Through
Investment
in Avatex,
in Cost of
Common Stock Common Stock
------------ of the
Par Additional Stock Company Retained Total
Value Paid-in Options Held by (Deficit) Stockholders'
Shares Amount Capital Outstanding Avatex, Inc. Earnings Equity
------ ------ ------- ----------- ------------ -------- ------
Balance at June 27, 1999 12,236 $ 122 $ 89,976 $ 1,401 $ (4,000) $ (8,585) $ 78,914
Net income -- -- -- -- -- 596 596
Stock options outstanding -- -- -- 704 -- -- 704
Purchase of Avatex shares -- -- -- -- (1,001) -- (1,001)
Shares issued 5 -- 31 -- -- -- 31
------ ----- ------ ----- ------ ------ ------
Balance at July 3, 1999 12,241 122 90,007 2,105 (5,001) (7,989) 79,244
Net loss -- -- -- -- -- (11,023) (11,023)
Stock options outstanding -- -- -- 95 -- -- 95
Purchase of Avatex shares -- -- -- -- (1,358) -- (1,358)
------ ----- ------ ----- ------ ------ ------
Balance at July 1, 2000 12,241 122 90,007 2,200 (6,359) (19,012) 66,958
Net loss -- -- -- -- -- (48,795) (48,795)
Forfeited stock options -- -- 319 (319) -- -- --
Avatex purchase of Phar-Mor shares -- -- -- -- (324) -- (324)
------ ----- ------ ----- ------ ------ ------
Balance at June 30, 2001 12,241 $ 122 $ 90,326 $ 1,881 $ (6,683) $(67,807) $ 17,839
====== ======== ======== ======== ======== ======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
PHAR-MOR, INC. AND SUBSIDIARIES
(Debtor-in-Possession)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
--------------------------------------------------------------------------------
Fifty-two Fifty-two Fifty-three
weeks ended weeks ended weeks ended
June 30, 2001 July 1, 2000 July 3, 1999
------------- ------------ ------------
OPERATING ACTIVITIES
Net loss $(48,795) $(11,023) $ 596
Adjustments to reconcile net loss to net cash
provided by operating activities:
Items not requiring the outlay of cash:
Depreciation 17,317 18,682 17,028
Impairment of long lived assets 23,377 -- --
Deferred tax provision 9,565 -- 205
Stock option expense -- 95 704
Amortization of video rental tapes 1,271 4,696 7,784
Amortization of deferred financing costs and
goodwill 2,007 1,594 446
Realized and unrealized loss (gain) on equity
investments 3,915 1,111 (1,748)
Gain on extinguishment of debt (19,731) (1,117) --
Deferred rent and unfavorable lease liabilities (1,244) (434) (1,059)
Changes in assets and liabilities:
Accounts receivable (478) 3,232 (5,750)
Marketable securities 2,922 235 5,811
Merchandise inventories 20,534 8,506 (8,539)
Prepaid expenses (496) 803 (4,385)
Other assets (1,546) (1,277) 181
Accounts payable (16,437) (18,638) 8,174
Accrued expenses (7,312) 4,543 (11,175)
Other (1,603) (1,367) (979)
-------- -------- --------
Net cash (used for) provided by operating activities (16,734) 9,641 7,294
-------- -------- --------
INVESTING ACTIVITIES
Additions to rental videotapes (803) (1,485) (7,445)
Additions to property and equipment (4,869) (17,051) (23,968)
Investment in Avatex -- (5,724) (1,001)
Investment in Pharmhouse Corp., net of $3,292 cash
acquired -- -- (4,838)
Proceeds from sale of equity securities 9,298 6,000 --
Investment in equity securities (229) (11,761) (2,291)
-------- -------- --------
Net cash provided by (used for) for investing activities 3,397 (30,021) (39,543)
-------- -------- --------
FINANCING ACTIVITIES
Borrowings under revolving credit facility 40,022 40,217 20,066
Retirement of senior notes (20,270) (9,032) --
Principal payments on term debt (1,371) (1,397) (29,592)
Principal payments on capital lease obligations (4,376) (7,357) (6,847)
Bank overdrafts (3,027) (3,793) 21,032
Other additions to long-term debt -- 1,148 250
Issuance of common stock -- -- 31
-------- -------- --------
Net cash provided by (used for) financing activities 10,978 19,786 4,940
-------- -------- --------
Decrease in cash and cash equivalents (2,359) (594) (27,309)
Cash and cash equivalents, beginning of period 16,752 17,346 44,655
-------- -------- --------
Cash and cash equivalents, end of period $ 14,393 $ 16,752 $ 17,346
======== ======== ========
Supplemental Information
Interest paid $ 20,300 $ 13,602 $ 21,744
Income tax refunds -- 53 47
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
--------------------------------------------------------------------------------
1. SUBSEQUENT EVENTS - BANKRUPTCY
On September 24, 2001, the Company and certain of its affiliates filed
voluntary petitions for reorganization under Chapter 11 of the United
States Bankruptcy Code to restructure their operations in an effort to
return to profitability. On that same date, the Company secured a $135
million Debtor-in-Possession ("DIP") Credit Facility through Fleet Retail
Finance, the Company's principal secured lender, which will be used to fund
the Company's operations through the reorganization process.
Borrowings under the DIP Credit Facility may be used for working capital
needs and general corporate purposes. Up to $20,000 of the facility at any
time may be used for standby and documentary letters of credit. The
facility includes restrictions on, among other things, additional debt,
investments, dividends and other distributions, mergers and acquisitions.
The facility contains a financial covenant that requires the Company to
maintain a minimum excess availability of the greater of $8,000 or 7% of
total availability.
Credit availability under the DIP Credit Facility at any time is the lesser
of the Availability (as defined in the Facility) or $135,000. Maximum
credit availability under the DIP Credit Facility declines to $100,000 on
the earlier of the Company's election or December 23, 2001. The DIP Credit
Facility establishes a first priority lien and security interest in all of
the assets of the Company.
Advances made under the DIP Credit Facility bear interest at the Fleet
National Bank prime rate plus 0% to .5% or LIBOR plus 2% to 2.5% depending
on the average unused credit availability during the preceding quarter.
Under the terms of the DIP Credit Facility, the Company is required to pay
a commitment fee of 0.375% per annum on the unused portion of the facility,
letter of credit fees and certain other fees.
The DIP Credit Facility expires on the earlier of the Company's emergence
from bankruptcy as a reorganized entity or September 24, 2003.
The accompanying consolidated financial statements do not purport to
reflect or provide for the consequences of the bankruptcy proceedings. In
particular, such consolidated financial statements do not purport to show
(a) as to assets, their realizable value on a liquidation basis or their
availability to satisfy liabilities; (b) as to liabilities, the amounts
that may be allowed for claims or contingencies, or the status and priority
thereof; (c) as to stockholder accounts, the effect of any changes that may
be made in the capitalization of the Company; and (d) as to operations, the
effect of any changes that may be made in its business.
2. GOING CONCERN
The Company's consolidated financial statements have been prepared on a
going concern basis, which contemplates continuity of operations,
realization of assets and the liquidation of liabilities and commitments in
the normal course of business. The Company's recurring losses and
bankruptcy filing (see Note 1) raise substantial doubt about the Company's
ability to continue as a going concern. The continuation of the Company as
a going concern is dependent upon, among other things, the ability of the
Company to generate sufficient cash flows from operations and achieve
confirmation of a plan of reorganization by the Bankruptcy Court.
Management determined that the reorganization was necessary to rectify
operational and liquidity difficulties resulting from the slowing economy,
changes in consumer buying habits, increased competition from larger retail
chains, the geographic diversity of some Phar-Mor locations, the reduction
of credit terms by vendors and the service of high-cost debt.
As part of the restructuring, Phar-Mor plans to close approximately 65 of
its 139 stores. These stores have been identified as either
under-performing or outside the Company's core markets. The Company will
focus continuing operations on the approximately 74 remaining stores, while
reducing corporate overhead and solidifying its position in the market it
serves.
F-7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
--------------------------------------------------------------------------------
This plan of reorganization could materially change the amounts reported in
the accompanying consolidated financial statements. The accompanying
consolidated financial statements do not include any adjustments that might
be necessary as a result of the uncertainties regarding continuation as a
going concern or the plan of reorganization.
3. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Fiscal Periods Presented - The accompanying consolidated balance
sheets were prepared as of June 30, 2001 and July 1, 2000. The
accompanying consolidated statements of operations, changes in
stockholders' equity and cash flows were prepared for the fifty-two
weeks ended June 30, 2001, the fifty-two weeks ended July 1, 2000, and
the fifty-three weeks ended July 3, 1999. The Company's fiscal year
ends on the Saturday closest to June 30.
b. Business - The Company operates a chain of "deep discount" drugstores
primarily located in the midwest and along the east coast of the
continental United States in which it sells merchandise in various
categories. The Company operates in one segment.
c. Principles of Consolidation - The consolidated financial statements
include the accounts of Phar-Mor, Inc., its wholly-owned subsidiaries
and its majority-owned partnerships. All intercompany accounts and
transactions have been eliminated.
d. Cash and Cash Equivalents - The Company considers all short-term
investments with an original maturity of three months or less to be
cash equivalents.
e. Marketable Securities - Under the provisions of Statement of Financial
Accounting Standards ("SFAS") No. 115, "Accounting for Certain
Investments in Debt and Equity Securities," marketable securities are
carried at fair market value as trading securities. The cost of the
securities sold is determined using the specific identification
method. Marketable securities consist primarily of equity instruments
of corporations. Unrealized (losses) gains of $(2,922), $419 and
$(390) are included in investment loss in the Consolidated Statements
of Operations for the fifty-two weeks ended June 30, 2001, the
fifty-two weeks ended July 1, 2000 and the fifty-three weeks ended
July 3, 1999, respectively.
f. Merchandise Inventories - Merchandise inventories are valued at the
lower of first-in, first-out ("FIFO") cost or market.
g. Video Rental Tapes - Videotapes held for rental which are included in
inventories, are recorded at cost and are amortized over their
estimated economic lives with no provision for salvage value. With
respect to "hit" titles for which four or more copies per store are
purchased, the fourth and any succeeding copies are amortized over
nine months on a straight-line basis. All other video cassette
purchases up to three copies per store are amortized over thirty-six
months on a straight-line basis. The Company discontinued video tape
rental during Fiscal 2001.
h. Investments - Investments consist of equity interests in
unconsolidated affiliates that do not have readily determinable market
values. The Company uses the equity method of accounting for
investments ($1,933 at June 30, 2001 and $9,788 at July 1, 2000) in
which it has 20% or more interest in voting common stock and the cost
method of accounting for investments ($1,300 at June 30, 2001 and
$3,894 at July 1, 2000) in which it has less than a 20% interest in
voting common stock or investments in preferred stock (see Note 11).
During fiscal 2001 and 2000 the Company recorded a $1,000 and $5,500,
respectively, investment loss resulting from an other than temporary
impairment of a cost basis investment.
i. Investment in Avatex - During the three fiscal years ended July 1,
2000, the Company invested $10,725 to purchase approximately 25.2% of
Avatex Corporation, formerly known as FoxMeyer Health Corporation
F-8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts, continued)
--------------------------------------------------------------------------------
("Avatex"), an affiliate of one of the Company's former largest
suppliers and the largest stockholder of the Company (see Note 11).
Accordingly, upon attaining a 20% or more interest in Avatex's common
stock during the fiscal year ended July 1, 2000, the Company changed
its method of accounting for the investment from the cost to the
equity basis as required by generally accepted accounting principles.
Because Avatex holds an approximate 48% interest in the Company's
common stock, the Company treats Avatex's investment in the Company's
common stock similar to treasury stock, with a reduction in the number
of shares outstanding for calculating earnings per share of 1,354,506
and 1,207,979 at June 30, 2001 and July 1, 2000, respectively. The
financial statements for Fiscal 1999 have been restated to reflect the
adoption of the equity method in a manner consistent with the
accounting for a step-by-step acquisition of Avatex. The effect of the
restatement was to increase net income for Fiscal 1999 by $2,188,
eliminate comprehensive income (loss) for all prior periods and
reclassify a portion of the Company's investment in Avatex common
stock prior to fiscal 2000 from Investment in Avatex to equity,
through investment in Avatex, in cost of common stock of the
Corporation held by Avatex on the Condensed Consolidated Balance
Sheets.
During Fiscal 2001, the Company recorded a $4,248 investment loss,
included in equity in loss of affiliates in the statement of
operations, on its investment in Avatex resulting from an other than
temporary impairment of an equity basis investment.
j. Deferred Debt Expense - Deferred debt expense is included in other
assets and is amortized on a straight-line basis over the term of the
related debt.
k. Goodwill - Goodwill is amortized on a straight-line basis over its
estimated useful life, which ranges between 25 and 40 years and is net
of accumulated amortization of $1,775 and $962 at June 30, 2001 and
July 1, 2000, respectively.
l. Purchased Pharmacy Files - Purchased pharmacy files are included in
other assets and are recorded at fair value and amortized over their
estimated useful lives, which range between 3 and 10 years.
m. Pre-Opening Costs - Expenses incurred for new stores prior to their
opening are expensed as incurred.
n. Property and Equipment - The Company's policy is to record property
and equipment (including leasehold improvements) at cost. Depreciation
is recorded on the straight-line method over the estimated useful
lives of the assets. Leasehold improvements are amortized over the
estimated useful lives of the improvements or the lives of the leases,
whichever is shorter. The Company capitalizes the costs of software
and software upgrades purchased for use in its operations. The Company
capitalizes the internal costs of software developed or modified for
use in its operations. Maintenance and repairs are expensed as
incurred. Replacements and betterments are capitalized and depreciated
over the remaining estimated useful life of the asset.
o. Accounting for the Impairment of Long-Lived Assets - The Company
accounts for impairment of long-lived assets in accordance with SFAS
121, "Accounting for the Impairment of Long-Lived Assets to be
Disposed of." SFAS No. 121 requires that long-lived assets be reviewed
for impairment whenever events or changes in circumstances indicate
that the book value of the assets may not be recoverable. The Company
evaluates at each balance sheet date whether events and circumstances
have occurred that indicate possible impairment. In accordance with
SFAS No. 121, the Company uses an estimate of the future undiscounted
net cash flows of the related asset or asset grouping over the
remaining lives in measuring whether the assets are recoverable.
During Fiscal 2001, the Company wrote down approximately $12,307 of
furniture and fixtures and leasehold improvements, and $11,070 of
goodwill related to certain stores resulting from current year
operating losses combined with a history of losses and projected
future losses. The impairment loss is included in the statement of
operations as impairment of long-lived assets. Based on the Company's
expectation of future undiscounted net cash flow, these assets have
been written down to their fair value.
F-9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts, continued)
--------------------------------------------------------------------------------
p. Leased Property Under Capital Leases - The Company accounts for
capital leases, which transfer substantially all of the benefits and
risks incident to the ownership of property to the Company, as the
acquisition of an asset and the incurrence of an obligation. Under
this method of accounting the cost of the leased asset is amortized
principally using the straight-line method over its estimated useful
life, and the obligation, including interest thereon, is liquidated
over the life of the lease.
q. Operating Leases and Deferred Rent - Operating leases are accounted
for on the straight-line method over the lease term. Deferred rent
represents the difference between rents paid and the amounts expensed
for operating leases.
r. Unfavorable Lease Liability - The unfavorable lease liability
represents the excess of the present value of the liability related to
lease commitments over the present value of market rate rents. This
liability will be amortized as a reduction of rent expense over the
remaining lease terms. The amounts were recorded as part of
fresh-start reporting in conjunction with a Chapter 11 Bankruptcy
proceeding in which the Company emerged from Chapter 11 on September
11, 1995, and related to purchase accounting for an acquisition.
s. Self Insurance Reserves - The Company is generally self-insured for
losses and liabilities related primarily to workers' compensation and
comprehensive general and product liability. Losses are accrued based
upon the Company's estimates of the aggregate liability for claims
incurred using certain actuarial assumptions followed in the insurance
industry and based on Company experience.
t. Income Taxes - The Company accounts for income taxes using the
provisions of SFAS No. 109, "Accounting for Income Taxes".
u. Stock Based Compensation - The Company applies the provisions of APB
No. 25, "Accounting for Stock Issued to Employees" and related
interpretations in accounting for its stock-based compensation
arrangements.
v. Revenue Recognition - Sales are recognized on merchandise inventories
sold upon receipt by the customer and are recorded net of returns.
w. Reclassifications - Certain amounts in prior year financial statements
have been reclassified to conform with the current year presentation.
x. Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the period. Actual results could differ
from those estimates.
y. Recent Accounting Pronouncements - In June 1998, the Financial
Accounting Standards Board (FASB) issued SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities," which is effective for
fiscal years beginning after June 15, 2000. Therefore, the Company
adopted SFAS No. 133 for its fiscal year beginning July 2, 2000. SFAS
No. 133 establishes accounting and reporting standards for derivative
instruments that require every derivative to be recorded on the
balance sheet as an asset or liability measured at its fair value. The
statement also defines the accounting for the change in the fair value
of derivatives depending on their intended use. The Company's adoption
of SFAS No. 133 did not have a material impact on its financial
condition or results of operations.
F-10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts, continued)
--------------------------------------------------------------------------------
In July 2001, the FASB issued SFAS No. 141, Business Combinations, and
SFAS No. 142, Goodwill and Other Intangible Assets. SFAS No. 141
requires that all business combinations initiated after June 30, 2001,
be accounted for using the purchase method of accounting. After giving
consideration to the guidance provided by SFAS No. 141, we do not
believe that the prospective adoption of this statement will have a
material impact on our consolidated financial position, results of
operations or cash flows for fiscal 2002. SFAS No. 142 changes the
accounting for goodwill and certain other intangible assets from an
amortization method to an impairment only approach. We will adopt the
provisions of SFAS No. 142 effective July 1, 2001. We are currently in
the process of evaluating the effect the adoption of SFAS No. 142 will
have on our consolidated financial position, results of operations and
cash flows for fiscal 2002.
z. Advertising Costs - Advertising costs are expensed when incurred.
Advertising expenses for the fifty-two weeks ended June 30, 2001, the
fifty-two weeks ended July 1, 2000 and the fifty-three weeks ended
July 3, 1999 were $22,421, $22,827, and $19,392, respectively.
4. ACCOUNTS RECEIVABLE
Accounts receivable consists of the following:
June 30, 2001 July 1, 2000
------------- ------------
Accounts receivable - vendors $ 9,373 $10,315
Third-party prescriptions 16,695 14,944
Vendor coupons 601 711
Other 280 551
------- -------
26,949 26,521
Less allowance for doubtful accounts 1,454 1,504
------- -------
$25,495 $25,017
======= =======
5. MERCHANDISE INVENTORIES
Merchandise inventories consists of the following:
June 30, 2001 July 1, 2000
------------- ------------
Store inventories $163,138 $189,423
Warehouse inventories 35,414 29,476
Video rental tapes - net -0- 1,019
-------- --------
198,552 219,918
Less reserves for markdowns, shrinkage
And vendor rebates 12,326 12,690
-------- --------
$186,226 $207,228
======== ========
The video rental tape inventory is net of accumulated amortization of
$3,832 at July 1, 2000.
F-11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts, continued)
--------------------------------------------------------------------------------
6. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
June 30, 2001 July 1, 2000
------------- ------------
Furniture, fixtures and equipment $ 65,698 $ 70,171
Building improvements to leased property 49,583 52,559
Land 497 497
Building 1,517 1,517
Capital leases:
Buildings 11,076 11,076
Furniture, fixtures and equipment 22,072 22,072
-------- --------
150,443 157,892
Less accumulated depreciation and amortization 83,399 66,091
-------- --------
$ 67,044 $ 91,801
======== ========
7. OTHER ASSETS
Other assets consists of the following:
June 30, 2001 July 1, 2000
------------- ------------
Purchased pharmacy files $2,797 $3,313
Liquor licenses 994 1,117
Deferred debt expense 806 291
Utility and other deposits 357 388
Other 639 132
------ ------
$5,593 $5,241
====== ======
Deferred debt expense, liquor licenses and purchased pharmacy files are net
of accumulated amortization of $1,159 and $1,430 at June 30, 2001 and July
1, 2000, respectively. The deferred debt expense consists of debt
origination costs associated with the credit facility (See Note 8).
8. REVOLVING CREDIT FACILITIES
The Company entered into an Amended and Restated Revolving Credit Facility
(the "Amended Facility") effective September 10, 1998 with BankAmerica
Business Credit, as agent, and other financial institutions that
established a credit facility in the maximum amount of $100,000.
Credit availability under the Amended Facility at any time was the lesser
of the aggregate availability (as defined in the Amended Facility) or
$100,000. The Amended Facility established a first priority lien and
security interest in the current assets of the Company, including, among
other items, cash, accounts receivable and inventory.
Advances made under the Amended Facility bore interest at the BankAmerica
reference rate plus 1/2% or LIBOR plus 2.00% from January 1 to June 30 each
year and the BankAmerica reference rate plus 3/4% or LIBOR plus 2.25% from
July 1 to December 31 each year. Under the terms of the Amended Facility,
the Company was required to pay a commitment fee of between 0.25% and 0.35%
per annum on the unused portion of the facility, letter of credit fees and
certain other fees.
F-12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts, continued)
--------------------------------------------------------------------------------
The Amended Facility was terminated on November 16, 2000.
The Company entered into a Loan and Security Agreement (the "Credit
Facility") effective November 16, 2000 with Fleet Retail Finance Inc., as
agent, and other financial institutions that established a credit facility
in the maximum amount of $150,000.
Borrowings under the Credit Facility could be used for working capital
needs and general corporate purposes. Up to $20,000 of the Credit Facility
at any time could be used for standby and documentary letters of credit.
The Credit Facility included restrictions on, among other things,
additional debt, investments, dividends and other distributions, mergers
and acquisitions and contains no financial covenants as long as unused
credit availability is at least $20,000.
Credit availability under the Credit Facility at any time was the lesser of
the aggregate availability (as defined in the Credit Facility) or $150,000.
The Credit Facility established a first priority lien and security interest
in all the assets of the Company excluding real property and equipment.
Advances made under the Credit Facility bore interest at the Fleet National
Bank prime rate or LIBOR plus 2.00% to LIBOR plus 2.50% depending on the
average unused credit availability in the preceding quarter. Under the
terms of the Credit Facility, the Company was required to pay a commitment
fee of 0.25% per annum on the unused portion of the facility, letter of
credit fees and certain other fees.
Unused availability under the Credit Facility, after subtracting amounts
used for outstanding letters of credit, was $36,968 at June 30, 2001.
At June 30, 2001 the Fleet reference rate (prime rate) was 6.75% and the
LIBOR rate was 3.8625%.
At June 30, 2001 there were letters of credit in the amount of $2,971
outstanding under the Credit Facility.
The Credit Facility was terminated and outstanding borrowings thereunder of
$97,022 were repaid upon the filing of Chapter 11 Bankruptcy by the
Company. See Note 1 for a description of the DIP Credit Facility.
F-13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts,continued)
--------------------------------------------------------------------------------
9. LONG-TERM DEBT
The composition of the debt obligations included on the consolidated
balance sheets is as follows:
June 30, 2001 July 1, 2000
------------- ------------
Senior unsecured notes, interest rate of 11.72%,
due September 2002 $ 41,312 $ 81,313
Revolving Credit Facility (See Note 8) 100,305 60,283
Equipment notes, interest rate of 7%, due in installments
through October 2003 3,006 3,926
Tax notes, interest rates at 5.89% to 8%, due
through September 2006 4,482 4,455
Real estate mortgage notes and bonds payable at rates ranging
from 3% to 9.98% and the prime rate plus 1% 3,919 4,397
-------- --------
Total debt 153,024 154,374
Less current portion 3,647 1,964
-------- --------
Total long-term debt $149,377 $152,410
======== ========
The Company must offer to purchase the senior unsecured notes at a price
equal to 101% of the principal amount upon the occurrence of a change in
control. The senior notes contain restrictions on, among other things,
incurrence of debt, payment of dividends and repurchases of common stock.
During fiscal years 2001 and 2000, the Company recognized extraordinary
gains of $19,731 and $1,117, respectively, in connection with the
retirement of $40,001 and $10,149, respectively, of senior unsecured notes.
The Company has mortgage notes and bonds payable collateralized by real
estate with an aggregate net book value of $3,694 and $3,853 at June 30,
2001 and July 1, 2000, respectively.
Future maturities of long-term debt subsequent to June 30, 2001 are
summarized as follows:
2002 $ 3,647
2003 42,809
2004 100,932 *
2005 383
2006 387
Thereafter 4,866
--------
$153,024
========
*Includes the scheduled repayment of borrowings under the Credit Facility.
As a result of the bankruptcy filing on September 24, 2001, the amounts
owed under the Revolving Credit Facility were repaid with proceeds from the
DIP Credit Facility (See Note 1).
F-14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts, continued)
--------------------------------------------------------------------------------
10. LEASES
The Company leases its retail store properties, certain warehouse
facilities and certain equipment under capital and operating leases.
Generally, leases are net leases that require the payment of executory
expenses such as real estate taxes, insurance, maintenance and other
operating costs, in addition to minimum rentals. The initial terms of the
leases range from three to twenty-five years and generally provide for
renewal options. Minimum annual rentals for all capital and operating
leases having initial noncancelable lease terms in excess of one year at
June 30, 2001 are as follows:
Capital Operating
Leases Leases
---------- ----------
2002 $5,220 $44,750
2003 3,388 41,597
2004 2,033 37,030
2005 2,055 32,573
2006 2,078 28,896
Thereafter 4,316 128,167
-------- --------
Total minimum lease payments 19,090 $313,013
========
Less amounts representing interest 3,485
--------
Present value of minimum lease payments 15,605
Less current portion 4,191
--------
Long-term capital lease obligations $11,414
========
The operating leases on substantially all store properties provide for
additional rentals when sales exceed specified levels and contain
escalation clauses. Rent expense for the fifty-two weeks ended June 30,
2001, fifty-two weeks ended July 1, 2000, and the fifty-three weeks ended
July 3, 1999 was $43,149, $43,730, and $37,306, respectively, including
$185, $206 and $223 of additional rentals.
11. TRANSACTIONS WITH RELATED PARTIES
From September 11, 1995 to September 19, 1997, Hamilton Morgan LLC
("Hamilton Morgan") beneficially owned approximately 39.9% of the Company's
common stock. During this period, (a) Avatex owned 69.8% of Hamilton
Morgan, and Abbey J. Butler and Melvyn J. Estrin, Avatex's Co-Chairmen of
the Board and Co-Chief Executive Officers, served as directors of the
Company, and (b) Robert Haft owned 30.2% of Hamilton Morgan and served as
Hamilton Morgan's President and the Company's Chairman of the Board and
Chief Executive Officer. On September 19, 1997, under the terms of an
agreement between Hamilton Morgan, Robert Haft and Avatex (the "Hamilton
Morgan Agreement"), Avatex acquired the 3,750,000 shares of the Company's
common stock previously owned by Hamilton Morgan in exchange for (i) the
redemption of Avatex's membership interest in Hamilton Morgan, (ii) the
satisfaction of a certain promissory note from Hamilton Morgan to Avatex
and (iii) the transfer of certain other assets from Avatex to Hamilton
Morgan. Avatex now beneficially owns approximately 48% of the Company's
common stock.
In conjunction with the Hamilton Morgan Agreement, the Company entered into
a Severance Agreement with Robert Haft whereby he resigned his positions as
Chairman of the Board of Directors and Chief Executive Officer and received
a lump sum cash payment of $4,417. Under the terms of the Severance
Agreement, the Company continued to provide benefits to him through
September 19, 2000. He is indemnified and entitled to tax reimbursement in
respect to any payments that constitute excess parachute payments under
Federal Income Tax laws. The Company is obligated to provide a letter of
credit in the amount of approximately $2,900 to secure its contractual
obligations under the Severance Agreement.
F-15
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts, continued)
--------------------------------------------------------------------------------
In March 1998 and December 1998, 13 persons and entities purchased (or
committed to purchase) a total of $7,200 of Series A membership interests
in Chemlink Acquisition Company, LLC, which in turn purchased a total of
50% of the membership interests in Chemlink Laboratories, LLC. These
persons and entities included the Company; Avatex; two of the Company's
executive officers, Abbey J. Butler and Melvyn J. Estrin (and/or their
designees); one Avatex officer, Edward L. Massman; one non-officer director
of Avatex; and five additional parties related to, or referred to by, Abbey
J. Butler or Melvyn J. Estrin. Of the total amount invested, the Company's
share was approximately 35.8%, Avatex's share was approximately 41.1%, the
Avatex officers/designees' share (including Messrs. Butler and Estrin) was
approximately 14.4%, the Avatex non-officer director's share was
approximately 0.7%, and the related parties' share was approximately 8.0%.
The largest share invested by a Company officer or director (or his
designee) was approximately 6.1% of the total amount invested. Messrs.
Butler, Estrin and Shulman serve on the Board of Managers of Chemlink
Laboratories, LLC. The Company accounts for this investment using the
equity method of accounting.
In April 1998, 13 persons and entities purchased (or committed to purchase)
a total of $3,000 of Series B Non-voting Preferred Stock and warrants to
purchase Series B Preferred Stock of RAS Holding Corp. These persons and
entities included the Company; Avatex; two of the Company's executive
officers, Melvyn J. Estrin and Abbey J. Butler; all of Avatex's executive
officers and its Director of Accounting (and/or their designees); one
non-officer director of Avatex; and two additional parties related to, or
referred to by, Abbey J. Butler or Melvyn J. Estrin. Mr. Butler is also a
director of RAS Holding Corp. Of the total amount invested, Avatex's share
was approximately 47.1%, the Company's share was 25%, the Avatex
officers/designees' share was 19.4%, the Avatex non-officer director's
share was 1% and the related parties' share was approximately 7.5%. The
largest share invested by an officer or director of the Company (or his
designee) was 5% of the total amount invested. The Company accounts for
this investment using the cost method of accounting.
In April 1998, the Company and Avatex each purchased $1,250 of preferred
stock of HPD Holdings Corp. ("HPD") in connection with the acquisition by a
HPD subsidiary of certain of the assets of Block Drug Company, Inc.
("Block") used in or related to the manufacture, sale or distribution of
Block's household product lines. In addition, the Company and Avatex each
acquired 2.5% of the common stock of HPD as part of the transaction. The
largest shareholder of HPD is HPD Partners, LP, a Delaware limited
partnership and Abbey J. Butler and Melvyn J. Estrin are limited partners
of HPD Partners, LP and directors of HPD Laboratories, Inc., a wholly owned
subsidiary of HPD. The Company accounts for this investment using the cost
method of accounting. In May 2001, the Company sold their investment in HPD
and realized a gain of $825.
The Company paid $104, $95 and $77 to Human Service Group, Inc. during
Fiscal Year 2001, 2000 and 1999, respectively, for secretarial services
provided to Mr. Estrin. Human Service Group, Inc. is a corporation wholly
owned by Mr. Estrin.
The Company purchased $319 of product from AM Cosmetics, Inc. during Fiscal
Year 1999. Mr. Butler and Mr. Estrin were directors of AM Cosmetics, Inc.
until September, 1998.
The Company purchased $20 of product from Carson Products, a subsidiary of
Carson, Inc. during Fiscal Year 1999. Mr. Butler and Mr. Estrin are
directors of Carson, Inc.
The Company paid CB Equities Corporation $67 and $74 during Fiscal Years
2001 and 2000, respectively, for office and equipment support for Mr.
Butler. Mr. Butler is President of CB Equities Corporation.
F-16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts, continued)
--------------------------------------------------------------------------------
12. WARRANTS AND OPTIONS
Warrants
There are warrants to purchase an aggregate of 1,250,000 of the Company's
common shares outstanding as of June 30, 2001. Each warrant entitles the
holder thereof to acquire one common share at a price of $13.50, subject to
certain adjustments. The warrants are exercisable at any time until the
close of business on September 10, 2002. As of June 30, 2001, no warrants
had been exercised.
Stock Options
The Company has an incentive stock option plan for officers and key
employees which allows for the issuance of a maximum of 5,000,000 options.
As of June 30, 2001, options for 788,100 common shares were reserved for
future grant, and options for 4,211,900 shares were outstanding and are
exercisable upon vesting. Under the terms of the option plan, all options
have a seven-year term from date of grant. Generally, the options granted
vest with respect to 20% or 33 1/3% of the underlying shares on the grant
date, and will vest in additional increments of 20% or 33 1/3% of the
underlying shares on each of the subsequent anniversaries of the grant date
until 100% vested. To the extent then vested, the options are generally
exercisable within one year following the death or disability of the holder
of the option, and within six months of any termination event, except where
a termination is for cause, in which case the option will then terminate.
To the extent then not vested, the options generally will terminate upon
the holders' death, disability or termination of employment. The employment
agreements of certain executive officers provide for accelerated vesting of
options upon specified termination events.
The Company has a stock option plan for directors. Before October 1, 1997,
each director received an annual grant of an option to purchase 5,000
shares of Common Stock. Commencing with the grant on October 1, 1997, each
director now receives an annual grant of an option to purchase 10,000
shares of Common Stock. The options vest immediately, expire five years
after the grant date and are exercisable at an exercise price equal to the
market price on the grant date. A maximum of 500,000 common shares may be
granted under the stock option plan for directors. As of June 30, 2001,
options for 265,000 shares were outstanding.
Each director may also elect to receive common stock, in lieu of all or
portions of the director's annual retainer at a price equal to the market
price as of October 1 of the year of the election.
F-17
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts, continued)
--------------------------------------------------------------------------------
The Company applies APB No. 25, "Accounting for Stock Issued to Employees"
and related interpretations in accounting for its stock-based compensation.
Accordingly, for the fifty-two weeks ended June 30, 2001 and July 1, 2000
and the fifty-three weeks ended July 3, 1999, the Company recognized $0,
$95 and $704, respectively, in compensation cost for the Company's stock
option plans in the accompanying consolidated financial statements. Had
compensation cost for the Company's plans been determined based on the fair
value at the grant date instead of the intrinsic value method described
above, the Company's net income (loss) and net income (loss) per share
would have been reduced to the pro forma amounts indicated below.
Fifty-two weeks Fifty-two weeks Fifty-three weeks
ended June 30, 2001 ended July 1, 2000 ended July 3, 1999
------------------- ------------------- -------------------
Net (loss) income:
As reported $ (48,795) $ (11,023) $ 596
Pro forma $ (49,819) $ (13,734) $ (2,160)
Basic and diluted (loss) earnings
per share:
As reported $ (4.48) $ (.98) $ .05
Pro forma $ (4.58) $ (1.22) $ (0.19)
The fair value of each option has been estimated on the date of grant using
the Black-Scholes options pricing model with the following assumptions for
the periods presented: expected volatility of 30%; no dividend yield;
expected life of 7 years; and a risk-free interest rate of 6.5%.
All of the Company's stock option plans are administered by the
Compensation Committee of the Company's Board of Directors.
As of June 30, 2001, 3,911,013 options were exercisable at a weighted
average exercise price per share of $5.82.
F-18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts, continued)
--------------------------------------------------------------------------------
The following table summarizes stock option activity under the plans:
Weighted Weighted Average Weighted
Average Remaining Average
Options Exercise Exercise Price Contractual Grant Date
Outstanding Price Per Share per Share Life (Years) Fair Value
------------- ---------------- ------------------- ---------------- ------------
Balance at June 27, 1998 2,616,167 $ 7.92 $ 5.44 - $ 9.63 5.71
Granted 1,120,300 $ 4.47 $ 4.25 - $ 8.13 2.11
Forfeited (21,233) $ 7.88 $ 7.22 - $ 9.63
Exercised (5,000) $ 6.17 $ 6.17
---------
Balance at July 3, 1999 3,710,234 $ 6.88 $ 4.25 - $ 9.63 5.32
Granted 810,300 $ 2.55 $ 2.52 - $ 5.34 1.20
Forfeited (174,234) $ 4.87 $ 2.52 - $ 9.63
---------
Balance at July 1, 2000 4,346,300 $ 6.16 $ 2.52 - $ 9.63 4.72
Granted 1,194,000 $ 0.88 $ 0.73 - $ 1.53 0.41
Forfeited (646,733) $ 5.80 $ 2.52 - $ 9.63
---------
Balance at June 30, 2001 4,893,567 $ 4.92 $ 0.73 - $ 9.63 4.39
=========
On February 17, 1998, the Company granted options to purchase 375,000
shares at $5.4375 and options to purchase 400,000 shares at $6.84375. These
options were issued at exercise prices below the market price of $9.6875 on
this date. All of the remaining options were granted at the market price on
the date of the grant. On April 13, 2000, the Company repriced options to
purchase 93,600 shares from the original grant price of $9.625 and options
to purchase 30,000 shares with an original grant price of $7.375 to
$2.51625 per share.
The following table stratifies the options as of June 30, 2001:
Weighted Average Weighted Average
Total Weighted Average Remaining Exercise
Exercise Price Options Exercise Contractual Options Price Per Share
per Share Outstanding Price Per Share Life (Years) Exercisable Exercisable
----------------- ------------------ ----------------- ---------------- ------------- -----------------
$ 6.17 - $ 9.63 2,053,267 $ 8.18 2.66 2,036,747 $ 8.19
$ 4.25 - $ 5.44 1,035,300 $ 4.50 4.50 1,033,200 $ 4.50
$ 2.52 - $ 3.16 611,000 $ 2.52 5.79 409,067 $ 2.52
$ 0.73 - $ 1.53 1,194,000 $ 0.88 6.57 431,999 $ 0.93
EMPLOYEE STOCK PURCHASE PLAN
The Company sponsors an Employee Stock Purchase Plan ("ESPP") under which
it is authorized to issue up to 500,000 shares of common stock to all
employees with a minimum of three months of service. The ESPP allows
eligible employees to contribute through payroll deductions up to 10% of
their annual salary toward stock purchases. Stock purchases will be made
quarterly at 90% of the closing price at the last day of any calendar
quarter.
13. INCOME TAXES
Deferred income taxes at June 30, 2001 and July 1, 2000, reflect the net
tax effect of temporary differences between the carrying amounts of assets
and liabilities for financial reporting purposes, the amounts used for
income tax purposes and net operating loss carryforwards. Deferred tax
assets are recognized to the extent that realization of such benefits is
more likely than not.
F-19
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts, continued)
--------------------------------------------------------------------------------
Changes in tax rates or laws will result in adjustments to the recorded
deferred tax assets or liabilities in the period that the change is
enacted.
The components of deferred tax assets and liabilities are as follows:
June 30, 2001 July 1, 2000
--------------- --------------
Deferred Tax Assets:
Operating and restructuring reserves $ 3,696 $ 5,090
Net operating losses 135,723 135,272
Depreciation and amortization 28,514 29,947
Lease escalation accruals 3,772 4,299
Jobs tax credit 4,441 4,432
Other items 8,112 3,069
--------- ---------
184,258 182,109
Valuation allowance (184,258) (172,544)
--------- ---------
Net deferred tax assets $ -0- $ 9,565
========= =========
Composition of amounts in Consolidated
Balance Sheet:
Deferred tax assets - current $ -- $ 439
Deferred tax liabilities - current -- --
--------- ---------
Net deferred tax assets - current $ -- $ 439
========= =========
Deferred tax assets - noncurrent $ -- $ 9,126
Deferred tax liabilities - noncurrent -- --
--------- ---------
Net deferred tax assets - noncurrent $ -- $ 9,126
========= =========
Deferred tax assets, arising both from future deductible temporary
differences and net operating losses ("NOLs"), have been reduced by a
valuation allowance to an amount more likely than not to be realized
through the future reversal of existing taxable temporary differences. As a
result of the losses incurred in Fiscal 2001, the realization of the net
deferred tax assets is no longer more likely than not. Therefore, the
valuation allowance was increased to fully reserve the net deferred tax
assets. Any future reversal of the valuation allowance existing at the
effective date of the Company's plan of reorganization to increase the net
deferred tax asset will be added to additional paid-in capital.
There is no current income tax provision in fiscal 2001, 2000 or 1999;
deferred tax provisions in fiscal 2001 and 1999 total $9,565 and $205,
respectively. A reconciliation of the total tax provision with the amount
computed by applying the statutory federal income tax rate to (loss) income
before taxes is as follows:
Fifty-two Fifty-two Fifty-three
weeks ended weeks ended weeks ended
June 30, 2001 July 1, 2000 July 3, 1999
------------- ------------- ------------
Statutory tax rate (35.0%) (35.0%) 35.0%
State income taxes, net of federal benefit -- -- 5.2%
Tax effect of permanent differences -- -- (14.6%)
Change in valuation allowance 50.7% 35.0% --
------- ------- -------
Effective tax rate 15.7% 0.0% 25.6%
======= ======= =======
The Company has approximately $380,000 of tax basis NOLs available to
offset future taxable income. Approximately $347,000 of this amount
("Section 382 NOLs") is subject to restrictions enacted in the Internal
Revenue Code of 1986, as amended, dealing specifically with stock ownership
changes and debt cancellations that
F-20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts, continued)
--------------------------------------------------------------------------------
occurred in connection with the Company's emergence from bankruptcy.
Additional restrictions imposed by Internal Revenue Code Section 382
(I)(6), and the regulations thereunder, could further limit the Company's
ability to use its Section 382 NOLs to offset future income to an amount
approximating $5,500 annually. The remaining $7,000 of NOLs were incurred
subsequent to September 2, 1995, and may be used to offset future taxable
income without restriction. The NOLs will expire beginning in 2008.
The Company also has $4,432 of federal targeted jobs tax credit carryovers,
which will expire beginning in 2001.
The Internal Revenue Service has completed its field examination of the
Company's federal income tax returns for all years to and including June
1992.
14. EMPLOYEE BENEFIT PLANS
Defined Contribution Plans
The Company has defined contribution employee savings plans covering
employees who meet the eligibility requirements as described in the plans.
The Company contributes to the union employee savings plan an amount equal
to 25% of an employee's contribution up to a maximum of 4% of the
employee's compensation. The Company contributes to the nonunion employee
savings plan an amount equal to 100% of the employee's contribution up to
2% of the employee's pay and a minimum of 20% of the employee's
contribution in excess of 2% up to 4% of employee's pay based on the
Company's financial performance. The Company contributes to the Pharmhouse
Corp. employee savings plan an amount equal to 100% of the employee's
contribution up to one dollar of an employee's pay each week and 25% of the
employee's contribution in excess of one dollar each week up to 3% of
employee's pay. Employee savings plan expenses for the fifty-two weeks
ended June 30, 2001, the fifty-two weeks ended July 1, 2000 and the
fifty-three weeks ended July 3, 1999, were $1,215, $1,214 and $1,087,
respectively.
Health and Welfare Plans
The Company also contributes to a multiemployer union sponsored health and
welfare plan covering truck drivers and warehouse personnel. Total expenses
for the fifty-two weeks ended June 30, 2001, the fifty-two weeks ended July
1, 2000, and the fifty-three weeks ended July 3, 1999, were $2,237, $2,343
and $2,050, respectively.
The Company has no postretirement health and welfare or benefits programs.
Defined Benefit Plans
The Company provides pension benefits under noncontributory defined benefit
pension plans to its union employees who have met the applicable age and
service requirements specified in the plans.
Benefits are earned on the basis of credited service and average
compensation over a period of years. Vesting occurs after five years of
service as specified under the plans. The Company makes contributions to
the plans as necessary to satisfy the minimum funding requirement of ERISA.
The Company provided pension benefits under noncontributory defined benefit
pension plans to its non-union employees who had met the applicable age and
service requirements specified in the plans. During fiscal 1996 the
Company's Board of Directors voted to freeze the benefits accruing under
its defined benefit plan that covers non-union personnel effective June 29,
1996 and to increase the Company's matching contribution to the defined
contribution plan for those employees. The Company terminated its defined
benefit plan that covers non-union personnel on April 30, 1998. Lump sum
cash payments were made to the majority of plan participants prior to June
27, 1998. Annuities were purchased for the remaining participants during
the fifty-three weeks ended July 3, 1999.
F-21
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts, continued)
--------------------------------------------------------------------------------
The following table sets forth the funded status of the Company's defined
benefit pension plans and the amounts recognized in the Company's
consolidated balance sheets:
June 30, 2001 July 1, 2000
------------- ------------
Change in benefit obligation
Benefit obligation at the beginning of the year $ 5,382 $ 4,592
Service costs with expenses 419 339
Interest cost 372 309
Actuarial (gain)/loss (223) 173
Benefits paid (28) (31)
------- -------
Benefit obligation at end of year 5,922 5,382
------- -------
Change in plan assets
Fair value of plan assets at beginning of year 3,704 3,190
Actual return on plan assets 24 129
Employer contributions 67 416
Benefits paid (28) (31)
------- -------
Fair value of plan assets at end of year 3,767 3,704
------- -------
Funded status (2,155) (1,678)
Unrecognized net actuarial loss 1,242 1,220
Unrecognized prior service cost 0 1
------- -------
Net amount recognized $ (913) $ (457)
======= =======
Amounts recognized in the statement of
financial position consist of:
Accrued benefit liability $ (913) $ (463)
Intangible asset 0 6
------- -------
Net amount recognized $ (913) $ (457)
======= =======
June 30, 2001 July 1, 2000
------------- ------------
Assumptions
Discount rate 6.5 % 6.5 %
Expected long-term rate of return on assets 8.5 % 8.5 %
Rate of increase in future compensation levels 4.0 % 4.0 %
Fifty-two Fifty-two Fifty-three
weeks ended weeks ended weeks ended
June 30, 2001 July 1, 2000 July 3, 1999
------------- ------------ ------------
Components of net periodic benefit cost
Service cost $ 419 $ 339 $ 287
Interest cost 372 309 264
Expected return on plan assets (337) (290) (244)
Recognized actuarial loss 69 42 45
----- ----- -----
Net periodic pension expense $ 523 $ 400 $ 352
===== ===== =====
F-22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts, continued)
--------------------------------------------------------------------------------
The projected benefit obligation, the accumulated benefit obligation, and
the fair value of plan assets for the pension plan with the accumulated
benefit obligations in excess of plan assets were $5,885, $4,275, and
$3,728, respectively, as of June 30, 2001.
15. REORGANIZATION ITEMS AND RELATED RESERVES
In August 1995 management identified 50 stores which were scheduled to be
reduced in size (rightsized) and provided for the cost of rightsizing and
provided a markdown reserve for the inventories which would be liquidated
in the affected stores. In 1997, the rightsizing program was replaced with
the "Super Phar-Mor" concept. The "Super Phar-Mor" concept involves
liquidating slow-moving merchandise and utilizes the excess space to expand
the existing grocery offering and adds frozen and refrigerated food.
In March 1999, the Company recorded a reserve of approximately $800 in
purchase accounting related to the planned closure of a distribution
facility acquired as part of the Pharmhouse acquisition (see note 20).
The activity in the reserve for costs of downsizing is as follows:
Fifty-two Fifty-two Fifty-three
weeks ended weeks ended weeks ended
June 30, 2001 July 1, 2000 July 3, 1999
------------- ------------ ------------
Balance, beginning of period $ 340 $ 918 $ 967
Costs incurred in connection with the Pharmhouse
acquisition (259) (542) 800
Store rightsizing costs (31) (36) (849)
----- ----- -----
Balance, end of period $ 50 $ 340 $ 918
===== ===== =====
16. FINANCIAL INSTRUMENTS
The Company has financial instruments which include marketable securities,
investments and long-term debt. The carrying values of these instruments at
June 30, 2001 approximated their fair market value except for the senior
unsecured notes. The estimated fair value of the senior unsecured notes is
$25,820 at June 30, 2001.
The fair values of the instruments were based upon quoted market prices of
the same or similar instruments or on the rate available to the Company for
instruments of the same maturities.
F-23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts, continued)
--------------------------------------------------------------------------------
17. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Fiscal 2001
-----------
Thirteen Thirteen Thirteen Thirteen
weeks ended weeks ended weeks ended weeks ended
September 30, 2000 December 30, 2000 March 31, 2001 June 30, 2001
------------------ ----------------- ---------------- -----------------
Sales $ 308,187 $ 342,326 $ 300,175 $ 290,324
Gross profit $ 52,909 $ 59,273 $ 51,861 $ 48,977
(Loss) income before extraordinary item (8,502) (9,255) (6,263) (46,330)
(Loss) income per basic and diluted
share before extraordinary item (.77) (.84) (.58) (4.30)
Net (loss) income $ (8,502) $ 7,842 $ (3,629) $ (44,506)
Net (loss) income per basic and diluted
share $ (0.77) $ 0.72 $ (0.34) $ (4.13)
Weighted average number of basic and
diluted shares outstanding 11,019,871 10,932,841 10,810,801 10,781,923
Fiscal 2000
-----------
Thirteen Thirteen Thirteen Fourteen
weeks ended weeks ended weeks ended weeks ended
October 2, 1999 January 1, 2000 April 1, 2000 July 1, 2000
------------------ ----------------- ---------------- -----------------
Sales $ 317,835 $ 350,411 $ 308,663 $ 315,181
Gross profit $ 61,052 $ 70,061 $ 54,560 $ 56,209
(Loss) income before extraordinary item (4,191) 7,912 (2,303) (13,558)
(Loss) income per basic and diluted
share before extraordinary item (.36) .69 (.21) (1.23)
Net (loss) income $ (4,191) $ 8,118 $ (1,839) $ (13,111)
Net (loss) income per basic and
diluted share $ (0.36) $ 0.71 $ (0.17) $ (1.19)
Weighted average number of basic and
diluted shares outstanding 11,516,185 11,383,411 11,032,886 11,032,886
In the thirteen weeks ended June 30, 2001, the Company recorded an
impairment of long-lived assets in the amount of $23,377 (see Note 3.o.),
increased the valuation allowance on deferred taxes by $9,565 to fully
reserve the net deferred tax assets (see Note 13) and recorded an other
than temporary loss on its investment in Avatex in the amount of $4,248
(see Note 3.i.).
F-24
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts, continued)
--------------------------------------------------------------------------------
18. (LOSS) INCOME PER SHARE
Basic earnings per share is computed by dividing net income (loss) by the
average number of common shares outstanding during the period. The diluted
earnings (loss) per share calculation assumes the conversion of dilutive
stock options and warrants into common shares. The earnings per share
calculations for all periods are as follows:
Fifty-two Fifty-two Fifty-three
weeks ended weeks ended weeks ended
June 30, 2001 July 1, 2000 July 3, 1999
--------------- ---------------- ----------------
BASIC (LOSS) EARNINGS PER SHARE
Net (loss) income available for common shares $ (48,795) $ (11,023) $ 596
Basic weighted average common shares outstanding 10,886,359 11,241,342 11,522,800
Basic earnings (loss) per share $ (4.48) $ (.98) $ .05
DILUTED (LOSS) EARNINGS PER SHARE
Net (loss) income available for common shares $ (48,795) $ (11,023) $ 596
Diluted weighted average common shares 10,886,359 11,241,342 11,570,955
Diluted earnings per share $ (4.48) $ (.98) $ .05
There were 4,893,567, 4,346,300 and 3,710,234 options for the fifty-two
weeks ended June 30, 2001, the fifty-two weeks ended July 1, 2000 and the
fifty-three weeks ended July 3, 1999, respectively, and 1,250,000 warrants
for the fifty-two weeks ended June 30, 2001, the fifty-two weeks ended July
1, 2000 and the fifty-three weeks ended July 3, 1999 excluded from the
calculation of diluted (loss) income per share as they would have had an
anti-dilutive effect on (loss) income per share.
19. LITIGATION
The Company and its subsidiaries are involved in legal proceedings, claims
and litigation arising in the ordinary course of business. In the opinion
of management, the outcome of such current legal proceedings, claims and
litigation will not have a material impact on the Company's consolidated
financial position, results of operations or cash flows.
20. BUSINESS COMBINATIONS
On March 15, 1999, the Company completed the merger of its wholly owned
subsidiary Pharmacy Acquisition Corp. ("PAC") with and into Pharmhouse
Corp. ("Pharmhouse"), pursuant to the Agreement and Plan of Merger dated as
of December 17, 1998 among Phar-Mor, PAC and Pharmhouse (the "Merger
Agreement"). As a result of the merger Pharmhouse became a wholly owned
subsidiary of Phar-Mor. In addition, subject to the terms of the Merger
Agreement, each share of the common stock of Pharmhouse was converted into
the right to receive $2.88 per share in cash (the "Merger"). The total
purchase price payable in connection with the Merger was approximately
$34,200, consisting of $7,500 in cash and the assumption of $26,700 in
debt.
Phar-Mor and PAC financed the payment of the purchase price and all other
fees and expenses associated with the Merger through cash from operations
and from borrowings under the Company's Amended Revolving Credit Facility.
The Company used its excess cash position and excess availability under its
Amended Revolving Credit Facility to pay off $26,700 in debt that was
assumed as part of the merger with Pharmhouse.
F-25
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts, continued)
--------------------------------------------------------------------------------
The Merger was accounted for under the purchase method of accounting. The
results of operations of Pharmhouse from March 16, 1999 through July 3,
1999 have been included in the Consolidated Statements of Operations for
the fifty-three weeks ended July 3, 1999. The total purchase price payable
in connection with the Merger was approximately $34,200, consisting of
$7,500 in cash and the assumption of $26,700 in debt. Goodwill is being
amortized using the straight-line method over a period of 25 years. The
fair value of the assets acquired and liabilities assumed was as follows:
Identifiable assets acquired $54,962
Liabilities assumed (61,954)
Goodwill 14,866
-------
Cash paid $7,874
=======
The following supplemental pro forma information is presented as though the
companies combined at the beginning of the respective periods:
Fifty-three weeks
Ended July 3, 1999
--------------------
Sales $ 1,337,222
============
Net loss $ (7,983)
============
Basic and diluted loss per common share $ (.69)
============
Pharmhouse operated 32 discount drug stores in eight mid-Atlantic and New
England states under the names "Pharmhouse" and "Rx Place".
F-26
Schedule II
VALUATION AND QUALIFYING ACCOUNTS
Balance at Charged to Balance at
beginning costs and Deductions- end of
Description of period expense Charge-offs period
----------- --------- --------- ----------- ----------
Allowance for doubtful accounts
-------------------------------
53 weeks ended July 3 1999 $ 1,402 $ 2,097 $ (1,755) $ 1,744
52 weeks ended July 1, 2000 1,744 4,049 (4,289) 1,504
52 weeks ended June 30, 2001 1,504 1,607 (1,657) 1,454
Inventory shrink reserve
------------------------
53 weeks ended July 3, 1999 3,924 9,741 (7,839) 5,826
52 weeks ended July 1, 2000 5,826 11,155 (12,800) 4,181
52 weeks ended June 30, 2001 4,181 14,353 (13,382) 5,152
F-27
EX-10
3
a2001-10kexa.txt
LOAN AND SECURITY AGREEMENT
================================================================
LOAN AND SECURITY AGREEMENT
================================================================
FLEET RETAIL FINANCE INC.
AGENT FOR
THE LENDERS REFERENCED HEREIN
-----------------------------------
HELLER FINANCIAL, INC.
CO-AGENT AND DOCUMENTATION AGENT
PHAR-MOR, INC.
THE LEAD BORROWER
----------------------------------------------------------------
PHAR-MOR, INC.
PHAR-MOR, INC. LLC
PHAR-MOR OF DELAWARE, INC.
PHAR-MOR OF FLORIDA, INC.
PHAR-MOR OF OHIO, INC.
PHAR-MOR OF VIRGINIA, INC.
PHAR-MOR OF WISCONSIN, INC.
PHARMHOUSE CORP.
RX REALTY CORP.
THE BORROWERS
----------------------------------------------------------------
Fleet Securities Inc.
THE SYNDICATION AGENT
----------------------------------------------------------------
September 24, 2001
================================================================================
TABLE OF CONTENTS
Article 1:- DEFINITIONS:.......................................................1
Article 2:- THE REVOLVING CREDIT:.............................................26
21- ESTABLISHMENT OF REVOLVING CREDIT.................................26
22- INITIAL RESERVES. CHANGES TO RESERVES.............................27
23- ADVANCES IN EXCESS OF BORROWING BASE (OVERLOANS)..................27
24- RISKS OF VALUE OF COLLATERAL......................................28
25- COMMITMENT TO MAKE REVOLVING CREDIT LOANS AND SUPPORT
LETTERS OF CREDIT.............................................28
26- REVOLVING CREDIT LOAN REQUESTS....................................28
27- MAKING OF REVOLVING CREDIT LOANS..................................29
28- SWINGLINE LOANS...................................................30
29- THE LOAN ACCOUNT..................................................30
210- THE REVOLVING CREDIT NOTES.......................................31
211- PAYMENT OF THE LOAN ACCOUNT......................................32
212- INTEREST ON REVOLVING CREDIT LOANS...............................33
213- REVOLVING CREDIT COMMITMENT FEE..................................33
214- AGENT'S FEE......................................................33
215- UNUSED LINE FEE..................................................34
216- EARLY TERMINATION FEE............................................34
217- CONCERNING FEES..................................................34
218- AGENT'S AND REVOLVING CREDIT LENDERS' DISCRETION.................34
219- PROCEDURES FOR ISSUANCE OF L/C'S.................................35
220- FEES FOR L/C'S...................................................36
221- CONCERNING L/C'S.................................................37
222- CHANGED CIRCUMSTANCES............................................38
223- DESIGNATION OF LEAD BORROWER AS BORROWERS' AGENT.................39
224- LENDERS' COMMITMENTS.............................................40
225- REDUCTION OF REVOLVING CREDIT CEILING............................41
Article 3:- CONDITIONS PRECEDENT:.............................................41
31- CORPORATE DUE DILIGENCE...........................................41
32- OPINION...........................................................41
33- ADDITIONAL DOCUMENTS..............................................41
34- BORROWING ORDER...................................................41
35- REPRESENTATIONS AND WARRANTIES....................................42
36- CONSENTS AND APPROVALS............................................42
37- NO DEFAULTS UNDER APPLICABLE LAW OR MATERIAL AGREEMENTS...........42
38- NO LITIGATION.....................................................42
39- ALL FEES AND EXPENSES PAID........................................42
310- NO MATERIAL ADVERSE CHANGE.......................................42
311- MINIMUM DAY ONE EXCESS AVAILABILITY..............................42
312- BORROWER NOT IN DEFAULT..........................................42
313- PROJECTIONS......................................................42
314- OTHER INFORMATION................................................43
315- GOVERNMENT REGULATIONS...........................................43
316- BENEFIT OF CONDITIONS PRECEDENT..................................43
Article 4:- GENERAL REPRESENTATIONS, COVENANTS AND WARRANTIES:................43
41- PAYMENT AND PERFORMANCE OF LIABILITIES............................43
42- DUE ORGANIZATION. AUTHORIZATION. NO CONFLICTS.....................43
43- TRADE NAMES.......................................................44
44- INFRASTRUCTURE....................................................45
45- LOCATIONS.........................................................45
46- TITLE TO ASSETS...................................................46
47- INDEBTEDNESS......................................................46
48- INSURANCE.........................................................47
49- LICENSES..........................................................47
410- LEASES...........................................................48
411- REQUIREMENTS OF LAW..............................................48
412- LABOR RELATIONS..................................................48
413- MAINTAIN PROPERTIES..............................................49
414- TAXES............................................................49
415- NO MARGIN STOCK..................................................50
416- ERISA............................................................50
417- HAZARDOUS MATERIALS..............................................51
418- LITIGATION.......................................................51
419- DIVIDENDS. INVESTMENTS. CORPORATE ACTION.........................51
420- NEW BORROWERS....................................................52
421- LOANS............................................................53
422- PROTECTION OF ASSETS.............................................53
423- LINE OF BUSINESS.................................................54
424- AFFILIATE TRANSACTIONS...........................................54
425- FURTHER ASSURANCES...............................................54
426- ADEQUACY OF DISCLOSURE...........................................55
427- NO RESTRICTIONS ON LIABILITIES...................................55
428- OTHER COVENANTS..................................................55
Article 5:- FINANCIAL REPORTING AND PERFORMANCE COVENANTS:....................55
51- MAINTAIN RECORDS..................................................55
52- ACCESS TO RECORDS.................................................56
53- IMMEDIATE NOTICE TO AGENT.........................................57
54- Borrowing Base Certificate........................................58
55- MONTHLY REPORTS...................................................58
56- QUARTERLY REPORTS.................................................58
57- ANNUAL REPORTS....................................................58
58- OFFICERS' CERTIFICATES............................................59
59- INVENTORIES, APPRAISALS, AND AUDITS...............................60
510- ADDITIONAL FINANCIAL INFORMATION.................................60
511- MINIMUM EXCESS AVAILABILITY......................................61
Article 6:- USE OF COLLATERAL:................................................62
61- USE OF INVENTORY COLLATERAL.......................................62
62- INVENTORY QUALITY.................................................62
63- ADJUSTMENTS AND ALLOWANCES........................................62
64- VALIDITY OF ACCOUNTS..............................................62
65- NOTIFICATION TO ACCOUNT DEBTORS...................................63
Article 7:- CASH MANAGEMENT. PAYMENT OF LIABILITIES:..........................63
71- DEPOSITORY ACCOUNTS...............................................63
72- CREDIT CARD RECEIPTS..............................................63
73- THE CONCENTRATION, BLOCKED, AND OPERATING ACCOUNTS................64
74- PROCEEDS AND COLLECTIONS..........................................64
75- PAYMENT OF LIABILITIES............................................65
76- THE OPERATING ACCOUNT.............................................66
Article 8:- GRANT OF SECURITY INTEREST:.......................................66
81- GRANT OF SECURITY INTEREST........................................66
82- EXTENT AND DURATION OF SECURITY INTEREST..........................67
Article 9:- AGENT AS BORROWER'S ATTORNEY-IN-FACT:.............................67
91- APPOINTMENT AS ATTORNEY-IN-FACT...................................67
92- NO OBLIGATION TO ACT..............................................68
Article 10:- EVENTS OF DEFAULT:...............................................68
101- FAILURE TO PAY THE REVOLVING CREDIT..............................68
102- FAILURE TO MAKE OTHER PAYMENTS...................................68
103- FAILURE TO PERFORM COVENANT OR LIABILITY (NO GRACE PERIOD).......68
104- Financial Reporting Requirements.................................68
105- FAILURE TO PERFORM COVENANT OR LIABILITY (GRACE PERIOD)..........69
106- MISREPRESENTATION................................................69
107- ACCELERATION OF OTHER DEBT. BREACH OF LEASE......................69
108- DEFAULT UNDER OTHER AGREEMENTS...................................69
109- UNINSURED CASUALTY LOSS..........................................69
1010- ATTACHMENT. JUDGMENT. RESTRAINT OF BUSINESS.....................69
1011- MODIFICATION OF BORROWING ORDER.................................70
1012- APPOINTMENT OF TRUSTEE OR EXAMINER..............................70
1013- CONVERSION OF PROCEEDINGS.......................................70
1014- RELIEF FROM STAY................................................70
1015- DEFAULT BY GUARANTOR............................................70
1016- INDICTMENT - FORFEITURE.........................................70
1017- TERMINATION OF GUARANTY.........................................70
1018- CHALLENGE TO LOAN DOCUMENTS.....................................71
1019- CHANGE IN CONTROL...............................................71
Article 11:- RIGHTS AND REMEDIES UPON DEFAULT:................................71
111- Acceleration.....................................................71
112- RIGHTS OF ENFORCEMENT............................................71
113- SALE OF COLLATERAL...............................................72
114- OCCUPATION OF BUSINESS LOCATION..................................72
115- GRANT OF NONEXCLUSIVE LICENSE....................................73
116- ASSEMBLY OF COLLATERAL...........................................73
117- RIGHTS AND REMEDIES..............................................73
Article 12:- REVOLVING CREDIT FUNDINGS AND DISTRIBUTIONS:.....................73
121- REVOLVING CREDIT FUNDING PROCEDURES..............................73
122- SWINGLINE LOANS..................................................74
123- AGENT'S COVERING OF FUNDINGS:....................................74
124- ORDINARY COURSE DISTRIBUTIONS....................................76
Article 13:- ACCELERATION AND LIQUIDATION:....................................77
131- ACCELERATION NOTICES.............................................77
132- ACCELERATION.....................................................77
133- INITIATION OF LIQUIDATION........................................77
134- ACTIONS AT AND FOLLOWING INITIATION OF LIQUIDATION...............78
135- AGENT'S CONDUCT OF LIQUIDATION...................................78
136- DISTRIBUTION OF LIQUIDATION PROCEEDS:............................78
137- RELATIVE PRIORITIES TO PROCEEDS OF LIQUIDATION...................79
Article 14:- THE AGENT:.......................................................79
141- APPOINTMENT OF THE AGENT.........................................79
142- RESPONSIBILITIES OF AGENT........................................80
143- CONCERNING DISTRIBUTIONS BY THE AGENT............................81
144- DISPUTE RESOLUTION:..............................................81
145- DISTRIBUTIONS OF NOTICES AND OF DOCUMENTS........................82
146- CONFIDENTIAL INFORMATION.........................................82
147- RELIANCE BY AGENT................................................82
148- NON-RELIANCE ON AGENT AND OTHER REVOLVING CREDIT LENDERS.........83
149- INDEMNIFICATION..................................................83
1410- RESIGNATION OF AGENT............................................84
Article 15:- ACTION BY AGENTS - CONSENTS - AMENDMENTS - WAIVERS:..............84
151- ADMINISTRATION OF CREDIT FACILITIES..............................84
152- ACTIONS REQUIRING OR ON DIRECTION OF MAJORITY LENDERS............85
153- ACTIONS REQUIRING OR ON DIRECTION OF SUPERMAJORITY LENDERS.......85
154- ACTION REQUIRING CERTAIN CONSENT.................................86
155- ACTIONS REQUIRING OR DIRECTED BY UNANIMOUS CONSENT...............86
156- ACTIONS REQUIRING SWINGLINE LENDER CONSENT.......................87
157- ACTIONS REQUIRING AGENT'S CONSENT................................87
158- MISCELLANEOUS ACTIONS............................................87
159- ACTIONS REQUIRING BORROWER'S CONSENT.............................88
1510- NONCONSENTING REVOLVING CREDIT LENDER...........................88
Article 16:- ASSIGNMENTS BY REVOLVING CREDIT LENDERS:.........................89
161- ASSIGNMENTS AND ASSUMPTIONS......................................89
162- ASSIGNMENT PROCEDURES............................................90
163- EFFECT OF ASSIGNMENT.............................................90
Article 17:- NOTICES:.........................................................91
171- NOTICE ADDRESSES.................................................91
172- NOTICE GIVEN.....................................................92
Article 18:- TERM:............................................................92
181- TERMINATION OF REVOLVING CREDIT..................................92
182- ACTIONS ON TERMINATION...........................................92
Article 19:- GENERAL:.........................................................93
191- PROTECTION OF COLLATERAL.........................................93
192- PUBLICITY........................................................93
193- SUCCESSORS AND ASSIGNS...........................................93
194- SEVERABILITY.....................................................93
195- AMENDMENTS. COURSE OF DEALING....................................93
196- POWER OF ATTORNEY................................................94
197- APPLICATION OF PROCEEDS..........................................94
198- INCREASED COSTS..................................................94
199- COSTS AND EXPENSES OF THE AGENT..................................95
1910- COPIES AND FACSIMILES...........................................95
1911- MASSACHUSETTS LAW...............................................96
1912- INDEMNIFICATION.................................................96
1913- RULES OF CONSTRUCTION...........................................96
1914- INTENT..........................................................98
1915- PARTICIPATIONS:.................................................98
1916- RIGHT OF SET-OFF................................................98
1917- PLEDGES TO FEDERAL RESERVE BANKS:...............................98
1918- MAXIMUM INTEREST RATE...........................................99
1919- EXECUTION IN COUNTERPARTS.......................................99
1920- WAIVERS.........................................................99
EXHIBITS
2:2-8(c) : SwingLine Note
2:2-10 : Revolving Credit Note
2:2-24 : Revolving Credit Lenders' Commitments
3:3-2 : Form of Opinion
3:3-14 : Additional Documents
4:4-2 : Corporate Information
4:4-3 : Trade Names
4:4-5 : Locations, Leases, and Landlords
4:4-6 : Encumbrances
4:4-6(c)(ii) : Equipment Usage Agreement
4:4-7 : Indebtedness
4:4-8 : Insurance Policies
4:4-10 : Capital Leases
4:4-12 : Labor Relations
4:4-14 : Taxes
4:4-16(a) : ERISA
4:4-17(a) : Hazardous Materials
4:4-18 : Litigation
5:5-4 : Borrowing Base Certificate
5:5-5 : Monthly Reports
7:7-1(a) : DDA's.
7:7-1(b)(ii) : Blocked Account Agreement
7:7-2 : Credit Card Arrangements
16:16-2 : Assignment and Acceptance
1
================================================================================
LOAN AND SECURITY AGREEMENT
================================================================================
September 24, 2001
THIS AGREEMENT is made between
Fleet Retail Finance Inc. (in such capacity, herein the "Agent"), a
Delaware corporation with offices at 40 Broad Street, Boston, Massachusetts
02109, as agent for the ratable benefit of the "Revolving Credit Lenders",
who are, at present, those financial institutions identified on the
signature pages of this Agreement and who in the future are those Persons
(if any) who become "Revolving Credit Lenders" in accordance with the
provisions of Section 2:2-24, below;
and
The Revolving Credit Lenders;
and
Phar-Mor, Inc., debtor-in-possession, in such capacity, ( the "Lead
Borrower"), a Pennsylvania corporation with its principal executive offices
at 20 Federal Plaza West, Youngstown, Ohio 44503, as agent for the
following (individually, a "Borrower" and collectively, the "Borrowers"):
Phar-Mor, Inc., a Pennsylvania corporation, debtor-in-possession,
Phar-Mor of Florida, Inc., a Pennsylvania corporation,
debtor-in-possession, Phar-Mor of Ohio, Inc., an Ohio corporation,
debtor-in-possession, Phar-Mor of Virginia, Inc., a Virginia
corporation, debtor-in-possession, Phar-Mor of Wisconsin, Inc., a
Wisconsin corporation, debtor-in-possession, Phar-Mor of Delaware,
Inc., a Delaware corporation, debtor-in-possession, Phar-Mor, Inc.
LLC, a Pennsylvania limited liability company, debtor-in-possession,
Pharmhouse Corp., a New York corporation, debtor-in-possession, and RX
Realty Corp., a New York corporation, debtor-in-possession,
in consideration of the mutual covenants contained herein and benefits to
be derived herefrom,
WITNESSETH:
Article 1: - DEFINITIONS:
As used herein, the following terms have the following meanings or are
defined in the section of this Agreement so indicated:
"Acceleration": The making of demand or declaration that any
indebtedness, not otherwise due and payable, is due and
payable. Derivations of the word "Acceleration" (such as
"Accelerate") are used with like meaning in this Agreement.
2
"Acceleration Notice": Written notice as follows:
(a) From the Agent to the Revolving Credit Lenders, as
provided in 13:13-1(a).
(b) From the SuperMajority Lenders to the Agent, as
provided in Section 13:13-1(b).
"Account Debtor": Has the meaning given that term in the UCC.
"Accounts" and "Accounts Receivable" include, without limitation,
"accounts" as defined in the UCC, and also all: accounts,
accounts receivable, receivables, and rights to payment
(whether or not earned by performance) for: property that
has been or is to be sold, leased, licensed, assigned, or
otherwise disposed of; services rendered or to be rendered;
a policy of insurance issued or to be issued; a secondary
obligation incurred or to be incurred; arising out of the
use of a credit or charge card or information contained on
or used with that card; and also all Inventory which gave
rise thereto, and all rights associated with such Inventory,
including the right of stoppage in transit; all reclaimed,
returned, rejected or repossessed Inventory (if any) the
sale of which gave rise to any Account.
"ACH": Automated clearing house.
"Affiliate": The following:
(a) With respect to any two Persons, a relationship in
which (i) one holds, directly or indirectly, not less than
twenty five percent (25%) of the capital stock, beneficial
interests, partnership interests, or other equity interests
of the other; or (ii) one has, directly or indirectly, the
right, under ordinary circumstances, to vote for the
election of a majority of the directors (or other body or
Person who has those powers customarily vested in a board of
directors of a corporation); or (iii) not less than twenty
five percent (25%) of their respective ownership is directly
or indirectly held by the same third Person.
(b) Any Person which: is a parent, brother-sister,
subsidiary, of a Borrower; could have such enterprise's tax
returns or financial statements consolidated with that
Borrower's; could be a member of the same controlled group
of corporations (within the meaning of Section 1563(a)(1),
(2) and (3) of the Internal Revenue Code of 1986, as amended
from time to time) of which any Borrower is a member; or
controls or is controlled by any Borrower.
"Agent": Is referred to in the Preamble.
"Agent's Cover": Defined in Section 12:12-3(c)(i).
3
"Agent's Fee": Is defined in Section 2:2-14.
"Agent's Rights and Remedies": Is defined in Section 11:11-7.
"Applicable Law": As to any Person:(i) All statutes, rules,
regulations, orders, or other requirements having the force
of law and (ii) all court orders and injunctions,
arbitrator's decisions, and/or similar rulings, in each
instance ((i) and (ii)) of or by any federal, state,
municipal, and other governmental authority, or court,
tribunal, panel, or other body which has jurisdiction over
such Person, or any property of such Person, or of any other
Person for whose conduct such Person would be responsible.
"Applicable Margin": The Base Margin Loans, Eurodollar Loans and
L/C Fees determined as of the date of this Agreement based
upon the following criteria:
|----|------------|-----------|----------|-----------|-----------|
|Tier|Availability|Base Margin|Eurodollar|Documentary|Standby L/C|
| | |Applicable |Applicable|L/C Fees |Fees |
| | |Margin |Margin | | |
|----|------------|-----------|----------|-----------|-----------|
|1 |In excess of| 0% | 2.25% | 1.75% | 2.25% |
| |$50,000,000 | | | | |
|----|------------|-----------|----------|-----------|-----------|
|2 |In excess of| .25% | 2.50% | 2.00% | 2.50% |
| |$20,000,000 | | | | |
| |but less | | | | |
| |than or | | | | |
| |equal to | | | | |
| |$50,000,000 | | | | |
|----|------------|-----------|----------|-----------|-----------|
|3 |Less than or| .50% | 2.75% | 2.25% | 2.75% |
| |equal to | | | | |
| |$20,000,000 | | | | |
|----|------------|-----------|----------|-----------|-----------|
The initial Applicable Margin and L/C Fees shall be at Tier 2,
above. The Applicable Margin and L/C Fees shall be adjusted
quarterly as of the first day of each calendar quarter based
upon the average Availability for the immediately preceding
quarter, as shown on the Borrowing Base Certificates for such
quarter. Upon the occurrence of an Event of Default, interest
shall accrue at the rate set forth in Section 2:2-11(f), and
L/C Fees shall accrue at 200 basis points in excess of the L/C
Fees set forth at Level 3, above.
"Assigning Revolving Credit Lender": Defined in Section
16:16-1(a).
4
"Assignment and Acceptance": Defined in Section 16:16-2.
"Availability": The lesser of (a) or (b), where:
(a)is the result of
(i) The Revolving Credit Ceiling
Minus
(ii) The aggregate unpaid balance
of the Loan Account
Minus
(iii) The aggregate undrawn Stated
Amount of all then outstanding
L/C's.
Minus
(vi) The Carve Out.
Minus
(vii) The amounts then outstanding,
if any, under the Pre-Petition
Agreement.
(b) is the result of
(i) The Borrowing Base
Minus
(ii) The aggregate unpaid balance
of the Loan Account
Minus
(iv) The aggregate undrawn Stated
Amount of all then outstanding
L/C's.
Minus
(v) The aggregate of the
Availability Reserves
Minus
(vi) The Carve Out.
Minus
(vii) The amounts then outstanding,
if any, under the Pre-Petition
Agreement.
5
"Availability Reserves": Such reserves as the Agent from time to
time determines in the Agent's discretion as being
appropriate to reflect the impediments to the Agent's
ability to realize upon the Collateral.
"Bankruptcy Code": Title 11, U.S.C., as amended from time to
time.
"Bankruptcy Recoveries": Any claim or recovery realized by any
Borrower or which any Borrower may be entitled to assert by
reason of any avoidance or other power vested in or on
behalf of any Borrower or the estate of any Borrower under
the Bankruptcy Code, including, without limitation, claims
and recoveries based upon powers provided for in Chapter 5
thereof.
"Base": The higher of (i) the annual rate of interest announced
from time to time by Fleet National Bank at its head office
in Boston, Massachusetts, as its "Prime Rate" or (ii)
one-half of one percent (.50%) above the Federal Funds
Effective Rate. Federal Funds Effective Rate shall mean for
any day, the rate per annum equal to the weighted average of
the rates on overnight federal funds transactions with
members of the Federal Reserve System arranged by federal
funds brokers, as published for such day (or, if such day is
not a Business Day, for the next preceding Business Day) by
the Federal Reserve Bank of New York, or, if such rate is
not published for any day that is a Business Day, the
average of the quotations for such day on such transactions
received by Fleet National Bank from three funds brokers of
recognized standing selected by Fleet National Bank. Any
change in "Base" shall be effective, for purposes of the
calculation of interest due hereunder, when such change is
made effective generally by the bank on whose rate or index
"Base" is being set.
"Base Margin Loan": Each Revolving Credit Loan while bearing
interest at the Base Margin Rate.
"Base Margin Rate": The aggregate of Base plus the Applicable
Margin per annum.
"Blocked Account": Any DDA into which the contents of any other
DDA is transferred.
"Blocked Account Agreement": An Agreement substantially in the
form of EXHIBIT 7:7-1(b)(ii).
"Borrower" and "Borrowers": Is defined in the Preamble.
6
"Borrowing Base": The aggregate of the following:
The face amount of Eligible Receivables (net of
Receivables Reserves) multiplied by the Receivables Advance
Rate.
Plus
The lesser of (a) the Cost of Eligible Inventory (net
of Inventory Reserves) multiplied by the Inventory Advance
Rate or (b) eighty-five percent (85%) of the appraised
liquidation value of Eligible Inventory (expressed as a
percentage of the Cost of appraised Eligible Inventory)
(provided that the appraised liquidation value of the
Borrowers' prescription list shall in no event exceed nine
percent (9%) of the appraised liquidation value of Eligible
Inventory, as determined in accordance with Section 5:5-9).
"Borrowing Base Certificate": Is defined in Section 5:5-4.
"Borrowing Order": An order entered by the Bankruptcy Court in
the Proceedings in substantially the form annexed hereto as
EXHIBIT 1-2 (or such other form as is acceptable to the
Agent in its reasonable discretion), which shall not have
been stayed, modified in an adverse manner, as determined by
the Agent in its reasonable discretion, or appealed (if the
Agent determines in its reasonable discretion, after
designation of the issues on appeal, that such appeal could
reasonably affect the value of the Collateral or the Agent's
or Lenders' ability to realize upon the Collateral).
"Business Day": Any day other than (a) a Saturday or Sunday; (b)
any day on which banks in Boston, Massachusetts or in
Youngstown, Ohio, generally are not open to the general
public for the purpose of conducting commercial banking
business; or (c) a day on which the principal office of the
Agent or Fleet National Bank is not open to the general
public to conduct business.
"Capital Expenditures": The expenditure of funds or the
incurrence of liabilities which may be capitalized in
accordance with GAAP.
"Capital Lease": Any lease which may be capitalized in accordance
with GAAP.
"Carve Out": $1,000,000.00, subject to the terms of the Borrowing
Order.
7
"Change in Control": The occurrence of any of the following:
(a) The acquisition, by any group of persons (within
the meaning of the Securities Exchange Act of 1934, as
amended) or by any Person, of beneficial ownership (within
the meaning of Rule 13d-3 of the Securities and Exchange
Commission) of 20% or more of the issued and outstanding
capital stock of the Lead Borrower having the right, under
ordinary circumstances, to vote for the election of
directors of the Lead Borrower (excluding any acquisition of
stock by Avatex Corporation).
(b) More than half of the persons who were directors of
the Lead Borrower on the first day of any period consisting
of twelve (12) consecutive calendar months (the first of
which twelve (12) month periods commencing with the first
day of the month during which this Agreement was executed),
cease, for any reason other than death, disability, or
replacement by other Persons nominated by Avatex
Corporation, a Delaware corporation to be directors of the
Lead Borrower.
(c) Any failure of the Lead Borrower to own,
beneficially and of record, 100% of the capital stock of all
other Borrowers, either directly or through ownership of
100% of the capital stock of any entity which owns the stock
of any other Borrower.
"Chattel Paper": Has the meaning given that term in the UCC.
"Collateral": Is defined in Section 8:8-1.
"Collateral Interest": Any interest in property to secure an
obligation, including, without limitation, a security
interest, mortgage, and deed of trust.
"Concentration Account": Is defined in Section 7:7-3.
"Consent": Actual consent given by the Revolving Credit Lender
from whom such consent is sought; or the passage of seven
(7) Business Days from receipt of written notice to a
Revolving Credit Lender from the Agent of a proposed course
of action to be followed by the Agent without such Revolving
Credit Lender's giving the Agent written notice of that
Revolving Credit Lender's objection to such course of
action, provided that the Agent may rely on such passage of
time as consent by a Revolving Credit Lender only if such
written notice states that consent will be deemed effective
if no objection is received within such time period.
8
"Consigned Inventory": Inventory held by a Borrower on
consignment (including, without limitation, GE lightbulbs).
"Cost": The lower of (a) or (b), where:
(a) is the calculated cost of purchases, based upon the
Borrowers' accounting practices, known to the Agent, which
practices are in effect on the date on which this Agreement
was executed as such calculated cost is determined from:
invoices received by the Borrowers; the Borrowers' purchase
journal; or the Borrowers' stock ledger.
(b) is the cost equivalent of the lowest ticketed or
promoted price at which the subject Inventory is offered to
the public, after all mark-downs (whether or not such price
is then reflected on the Borrowers' accounting system),
which cost equivalent is determined in accordance with the
cost method of accounting.
"Cost" does not include inventory capitalization costs
or other non-purchase price charges (such as freight) used
in the Borrowers' calculation of cost of goods sold.
"Costs of Collection": All reasonable attorneys' fees and
reasonable out-of-pocket expenses incurred by the Agent's
attorneys, and all reasonable out-of-pocket costs incurred
by the Agent in the administration of the Liabilities and/or
the Loan Documents, including, without limitation,
reasonable costs and expenses associated with travel on
behalf of the Agent, where such costs and expenses are
directly or indirectly related to or in respect of the
Agent's: administration and management of the Liabilities;
negotiation, documentation, and amendment of any Loan
Document; or efforts to preserve, protect, collect, or
enforce the Collateral, the Liabilities, and/or the Agent's
Rights and Remedies and/or any of the rights and remedies of
the Agent against or in respect of any guarantor or other
person liable in respect of the Liabilities (whether or not
suit is instituted in connection with such efforts). "Costs
of Collection" shall also include the reasonable fees and
expenses of Lenders' Special Counsel. The Costs of
Collection are Liabilities, and at the Agent's option may
bear interest, after demand, at the then effective Base
Margin Rate.
"Customer Credit Liability": Gift certificates, merchandise
credits, layaway obligations, customer deposits, frequent
shopping programs, and similar liabilities of any Borrower
to its retail customers and prospective customers.
"DDA": Any checking or other demand daily depository account
maintained by any Borrower.
"Default": Any occurrence, circumstance, or state of facts with
respect to any Borrower which (a) is an Event of Default; or
(b) would become an Event of Default if any requisite notice
were given and/or any requisite period of time were to run
and such occurrence, circumstance, or state of facts were
not absolutely cured within any applicable grace period.
9
"Delinquent Revolving Credit Lender": Defined in Section
12:12-3(c).
"Deposit Account": Has the meaning given that term in the UCC.
"Documents": Has the meaning given that term in the UCC.
"Documents of Title": Has the meaning given that term in the UCC.
"Eligible Assignee": A bank, insurance company, or company
engaged in the business of making commercial loans having a
combined capital and surplus in excess of three hundred
million dollars ($300,000,000.00) or any Affiliate of any
Revolving Credit Lender, or any Person to whom a Revolving
Credit Lender assigns its rights and obligations under this
Agreement as part of a programmed assignment and transfer of
such Revolving Credit Lender's rights in and to a material
portion of such Revolving Credit Lender's portfolio of asset
based credit facilities.
"Eligible Inventory": Eligible L/C Inventory and such of the
Borrowers' Inventory consisting of merchandise inventory
(inclusive of pharmaceutical Inventory and prescription
list), at such locations, and of such types, character,
qualities and quantities, as the Agent in its discretion
from time to time determines to be acceptable for borrowing,
as to which Inventory, the Agent has a perfected security
interest which is prior and superior to all security
interests, claims, and Encumbrances (other than Permitted
Encumbrances). Eligible Inventory will exclude, without
limitation, Inventory that is not saleable, including
non-merchandise categories (labels, bags, packaging, etc.),
Inventory in foreign locations (except for Eligible L/C
Inventory), fresh produce inventory, samples, damaged goods,
return to vendor merchandise, and Consigned Inventory.
"Eligible L/C Inventory": Inventory to be acquired by a Borrower,
the purchase of which is supported by a documentary L/C then
having an initial expiry of forty five (45) or less days,
provided that
(a) Such Inventory is of such types,
character, qualities and quantities (net of Inventory
Reserves) as the Agent in its reasonable discretion
from time to time reasonably determines to be
eligible for borrowing; and
(b) The documentary L/C supporting such
purchase names the Agent or any Issuer as consignee
of the subject Inventory and the Agent has control
over the documents which evidence ownership of the
subject Inventory (such as by the providing to the
Agent of a Customs Brokers Agreement in form
reasonably satisfactory to the Agent).
10
"Eligible Receivables": Such of the Borrowers' Accounts as arise
in the ordinary course of the Borrowers' business for goods
sold and/or services rendered by the Borrowers, which
Accounts have been determined by the Agent in its discretion
to be satisfactory and have been earned by performance and
are owed to the Borrowers by such of the Borrowers' trade
customers as the Agent determines to be satisfactory, in the
Agent's discretion in each instance, as to which Accounts,
the Agent has a perfected security interest which is prior
and superior to all security interests, claims, and
Encumbrances (other than Permitted Encumbrances).
"Employee Benefit Plan": As defined in ERISA.
"Encumbrance": Each of the following:
(a) A Collateral Interest or agreement to create or
grant a Collateral Interest; the interest of a lessor under a
Capital Lease; conditional sale or other title retention
agreement; sale of accounts receivable or chattel paper; or
other arrangement pursuant to which any Person is entitled to
any preference or priority with respect to the property or
assets of another Person or the income or profits of such
other Person; each of the foregoing whether consensual or
non-consensual and whether arising by way of agreement,
operation of law, legal process or otherwise.
(b) The filing of any financing statement under the
UCC or comparable law of any jurisdiction.
"End Date": The date upon which both (a) all Liabilities have
been paid in full and (b) all obligations of any Revolving
Credit Lender to make loans and advances and to provide
other financial accommodations to the Borrowers hereunder
shall have been irrevocably terminated.
"Environmental Laws": All of the following:
(a) Applicable Law which regulates or relates to, or
imposes any standard of conduct or liability on account of
or in respect to environmental protection matters,
including, without limitation, Hazardous Materials, as are
now or hereafter in effect.
(b) The common law relating to damage to Persons or
property from Hazardous Materials.
11
"Equipment": Includes, without limitation, "equipment" as defined
in the UCC, and also all furniture, store fixtures, motor
vehicles, rolling stock, machinery, office equipment, plant
equipment, tools, dies, molds, and other goods, property,
and assets which are used and/or were purchased for use in
the operation or furtherance of a Borrower's business, and
any and all accessions or additions thereto, and
substitutions therefor.
"ERISA": The Employee Retirement Income Security Act of 1974, as
amended.
"ERISA Affiliate": Any Person which is under common control with
a Borrower within the meaning of Section 4001 of ERISA or is
part of a group which includes any Borrower and which would
be treated as a single employer under Section 414 of the
Internal Revenue Code of 1986, as amended.
"Eurodollar Business Day": Any day which is both a Business Day
and a day on which the principal market in Eurodollars in
which Fleet National Bank participates is open for dealings
in United States Dollar deposits.
"Eurodollar Loan": Any Revolving Credit Loan which bears interest
at a Eurodollar Rate.
"Eurodollar Offer Rate": That rate of interest (rounded upwards,
if necessary, to the next 1/100 of 1%) determined by the
Agent to be a prevailing rate per annum at which deposits on
U.S. Dollars are offered to Fleet National Bank, by
first-class banks in the Eurodollar market in which Fleet
National Bank participates at or about 10:00AM (Boston Time)
two (2) Eurodollar Business Days before the first day of the
Interest Period for the subject Eurodollar Loan, for a
deposit approximately in the amount of the subject loan for
a period of time approximately equal to such Interest
Period.
"Eurodollar Rate": That per annum rate which is the aggregate of
the Eurodollar Offer Rate plus the Applicable Margin for
Eurodollar Loans except that, in the event that the Agent
determines that any Revolving Credit Lender may be subject
to the Reserve Percentage, the "Eurodollar Rate" shall mean,
with respect to any Eurodollar Loans then outstanding (from
the date on which that Reserve Percentage first became
applicable to such loans), and with respect to all
Eurodollar Loans thereafter made, an interest rate per annum
equal the sum of (a) plus (b), where:
12
(a) is the decimal equivalent of the following
fraction:
Eurodollar Offer Rate
--------------------------
1 minus Reserve Percentage
(b) is the Applicable Margin for Eurodollar Loans.
"Events of Default": Is defined in Article 10:. An "Event of
Default" shall be deemed to have occurred and to be
continuing unless and until that Event of Default has been
duly waived by the requisite Revolving Credit Lenders or by
the Agent as applicable.
"Exempt DDA": A depository account maintained by any Borrower,
the only contents of which may be transfers from the
Operating Account and actually used solely (i) for petty
cash purposes; or (ii) for payroll.
"Fee Letter": That letter dated September 24, 2001 and styled
"Fee Letter" between the Lead Borrower and the Agent, as
such letter may from time to time be amended.
"Final Borrowing Order": A Borrowing Order entered in the
Proceedings after notice and a final hearing pursuant to
Rule 4001(c) of the Federal Rules of Bankruptcy Procedure.
"Fiscal": When followed by "month" or "quarter", the relevant
fiscal period based on the Borrowers' fiscal year and
accounting conventions. When followed by reference to a
specific year, the fiscal year which ends in a month of the
year to which reference is being made (e.g. if the
Borrowers' fiscal year ends in January 2001 reference to
that year would be to the Borrowers' "Fiscal 2001").
"Fixtures": Has the meaning given that term in the UCC.
"FRFI": Fleet Retail Finance Inc.
"GAAP": Generally accepted accounting principles promulgated or
adopted by the Financial Accounting Standards Board and its
predecessors (or successors) in effect and applicable to
that accounting period in respect of which reference to GAAP
is being made, provided, however, in the event of a Material
Accounting Change, then unless otherwise specifically agreed
to by the Agent, (a) the Borrowers' compliance with the
financial performance covenants imposed pursuant to Section
5:5-11 shall be determined as if such Material Accounting
Change had not taken place and (b) the Lead Borrower shall
include, with its monthly, quarterly, and annual financial
statements a schedule, certified by the Lead Borrower's
13
chief financial officer, on which the effect of such
Material Accounting Change on that statement shall be
described.
"General Intangibles": Includes, without limitation, "general
intangibles" as defined in the UCC; and also all: rights to
payment for credit extended; deposits; amounts due to any
Borrower; credit memoranda in favor of any Borrower;
warranty claims; tax refunds and abatements; insurance
refunds and premium rebates; all means and vehicles of
investment or hedging, including, without limitation,
options, warrants, and futures contracts; records; customer
lists; telephone numbers; goodwill; causes of action;
judgments; payments under any settlement or other agreement;
literary rights; rights to performance; royalties; license
and/or franchise fees; rights of admission; licenses;
franchises; license agreements, including all rights of any
Borrower to enforce same; permits, certificates of
convenience and necessity, and similar rights granted by any
governmental authority; patents, patent applications,
patents pending, and other intellectual property; internet
addresses and domain names; developmental ideas and
concepts; proprietary processes; blueprints, drawings,
designs, diagrams, plans, reports, and charts; catalogs;
manuals; technical data; computer software programs
(including the source and object codes therefor), computer
records, computer software, rights of access to computer
record service bureaus, service bureau computer contracts,
and computer data; tapes, disks, semi-conductors chips and
printouts; trade secrets rights, copyrights, mask work
rights and interests, and derivative works and interests;
user, technical reference, and other manuals and materials;
trade names, trademarks, service marks, and all goodwill
relating thereto; applications for registration of the
foregoing; and all other general intangible property of any
Borrower in the nature of intellectual property; proposals;
cost estimates, and reproductions on paper, or otherwise, of
any and all concepts or ideas, and any matter related to, or
connected with, the design, development, manufacture, sale,
marketing, leasing, or use of any or all property produced,
sold, or leased, by the or credit extended or services
performed, by any Borrower, whether intended for an
individual customer or the general business of any Borrower,
or used or useful in connection with research by any
Borrower.
"Goods": Has the meaning given that term in the UCC, and also
includes all things movable when a security interest therein
attaches and also all computer programs embedded in goods
and any supporting information provided in connection with a
transaction relating to the program if (i) the program is
associated with the goods in such manner that it customarily
is considered part of the goods or (ii) by becoming the
owner of the goods, a Person acquires a right to use the
program in connection with the goods.
14
"Hazardous Materials": Any (a) substance which is defined or
regulated as a hazardous material in or under any
Environmental Law and (b) oil in any physical state.
"Indebtedness": All indebtedness and obligations of or assumed by
any Person on account of or in respect to any of the
following:
(a) In respect of money borrowed (including any
indebtedness which is non-recourse to the credit of such
Person but which is secured by an Encumbrance on any asset
of such Person) whether or not evidenced by a promissory
note, bond, debenture or other written obligation to pay
money.
(b) In connection with any letter of credit or
acceptance transaction (including, without limitation, the
face amount of all letters of credit and acceptances issued
for the account of such Person or reimbursement on account
of which such Person would be obligated).
(c) In connection with the sale or discount of accounts
receivable or chattel paper of such Person.
(d) As lessee under Capital Leases.
(e) In connection with any sale and leaseback
transaction.
"Indebtedness" also includes
(x) Any guaranty, endorsement,
suretyship or other undertaking pursuant to
which that Person may be liable on account
of any obligation of any third party.
(y) The Indebtedness of a
partnership or joint venture for which such
Person is liable as a general partner or
joint venturer.
"Indemnified Person": Is defined in Section 19:19-12.
"Instruments": Has the meaning given that term in the UCC.
"Interest Payment Date": With reference to:
Each Eurodollar Loan: The last day of the Interest
Period relating thereto (and on the last day of month three
for any such loan which has a six month Interest Period); the
Termination Date; and the End Date.
Each Base Margin Loan: The first day of each month;
the Termination Date; and the End Date.
"Interest Period": The following:
(a) With respect to each Eurodollar Loan: Subject to
Subsection (c), below, the period commencing on the date of
the making or continuation of, or conversion to, the subject
Eurodollar Loan and ending one, two, three, or six months
thereafter, as the Lead Borrower may elect by notice (pursuant
to Section 2:2-6) to the Agent.
15
(b) With respect to each Base Margin Loan: Subject to
Subsection (c), below, the period commencing on the date of
the making or continuation of or conversion to such Base
Margin Loan and ending on that date (i) as of which the
subject Base Margin Loan is converted to a Eurodollar Loan, as
the Lead Borrower may elect by notice (pursuant to Section
2:2-6) to the Agent, or (ii) on which the subject Base Margin
Loan is paid by the Borrowers.
(c) The setting of Interest Periods is in all
instances subject to the following:
(i) Any Interest Period for a Base Margin
Loan which would otherwise end on a day which is
not a Business Day shall be extended to the next
succeeding Business Day.
(ii) Any Interest Period for a Eurodollar
Loan which would otherwise end on a day that is not a
Business Day shall be extended to the next succeeding
Business Day, unless that succeeding Business Day is
in the next calendar month, in which event such
Interest Period shall end on the last Business Day of
the month during which the Interest Period ends.
(iii) Subject to Subsection (iv), below, any
Interest Period applicable to a Eurodollar Loan,
which Interest Period begins on a day for which there
is no numerically corresponding day in the calendar
month during which such Interest Period ends, shall
end on the last Business Day of the month during
which that Interest Period ends.
(iv) Any Interest Period which would
otherwise end after the Termination Date shall end on
the Termination Date.
(v) The number of Interest Periods in
effect at any one time is subject to Section
2:2-12(d)hereof.
"Interim Borrowing Order": A Borrowing Order entered in the
Proceedings prior to notice and a final hearing pursuant to
Rule 4001(c) of the Federal Rules of Bankruptcy Procedure.
"Inventory": Includes, without limitation, "inventory" as defined
in the UCC and also all: (a) Goods which are leased by a
Person as lessor; are held by a Person for sale or lease or
to be furnished under a contract of service; are furnished
by a Person under a contract of service; or consist of raw
materials, work in process, or materials used or consumed in
a business; (b) Goods of said description in transit; (c)
Goods of said description which are returned, repossessed
and rejected; (d) packaging, advertising, and shipping
materials related to any of the foregoing; (e) all names,
marks, and General Intangibles affixed or to be affixed or
associated thereto; and (f) Documents and Documents of Title
which represent any of the foregoing, provided, however,
that Inventory shall not include Consigned Inventory.
"Inventory Advance Rate": Sixty-four percent (64%).
16
"Inventory Reserves": Such Reserves as may be established
from time to time by the Agent in the Agent's discretion
with respect to the determination of the saleability, at
retail, of the Eligible Inventory or which reflect such
other factors as affect the market value of the Eligible
Inventory. Without limiting the generality of the foregoing,
Inventory Reserves may include (but are not limited to)
reserves based on the following:
(i) Obsolescence (based upon Inventory on hand
beyond a given number of days).
(ii) Seasonality.
(iii) Shrinkage.
(iv) Imbalance.
(v) Change in Inventory character.
(vi) Change in Inventory composition
(vii) Change in Inventory mix.
(viii) Markdowns (both permanent and point of sale)
(ix) Retail markons and markups inconsistent with
prior period practice and performance;
industry standards; current business plans;
or advertising calendar and planned
advertising events.
"Investment Property": Has the meaning given that term in the
UCC.
"Issuer": The issuer of any L/C.
"L/C": Any letter of credit, the issuance of which is procured by
the Agent for the account of any Borrower and any acceptance
made on account of such letter of credit. After entry of the
Interim Borrowing Order, all L/Cs issued under the
Pre-Petition Agreement shall be deemed to have been issued
hereunder and shall constitute L/Cs for all purposes of this
Agreement and the other Loan Documents.
"L/C Landing Costs": To the extent not included in the Stated
Amount of an L/C, customs, duty, freight, and other
out-of-pocket costs and expenses which will be expended to
"land" the Inventory, the purchase of which is supported by
such L/C.
"Lease": Any lease or other agreement, no matter how styled or
structured, pursuant to which any Borrower is entitled to
the use or occupancy of any space.
"Leasehold Interest": Any interest of a Borrower as lessee under
any Lease.
17
"Lenders' Special Counsel": A single counsel, selected by the
Majority Lenders following the occurrence of an Event of
Default, to represent the interests of the Revolving Credit
Lenders in connection with the enforcement, attempted
enforcement, or preservation of any rights and remedies
under this, or any other Loan Document, as well as in
connection with any "workout", forbearance, or restructuring
of the credit facility contemplated hereby.
"Letter-of-Credit Right": Has the meaning given that term in the
UCC and also refers to any right to payment or performance
under an L/C, whether or not the beneficiary has demanded or
is at the time entitled to demand payment or performance.
"Liabilities": Includes, without limitation, the following:
(a) All and each of the following, whether now existing or
hereafter arising under this Agreement or under any of the other
Loan Documents:
(i) Any and all direct and indirect liabilities,
debts, and obligations of each Borrower to the Agent or any
Revolving Credit Lender, each of every kind, nature, and
description.
(ii) Each obligation to repay any loan, advance,
indebtedness, note, obligation, overdraft, or amount now or
hereafter owing by any Borrower to the Agent or any Revolving
Credit Lender (including all future advances whether or not
made pursuant to a commitment by the Agent or any Revolving
Credit Lender), whether or not any of such are liquidated,
unliquidated, primary, secondary, secured, unsecured, direct,
indirect, absolute, contingent, or of any other type, nature,
or description, or by reason of any cause of action which the
Agent or any Revolving Credit Lender may hold against any
Borrower.
(iii) All notes and other obligations of each
Borrower now or hereafter assigned to or held by the Agent or
any Revolving Credit Lender, each of every kind, nature, and
description.
(iv) All interest, fees, and charges and other
amounts which may be charged by the Agent or any Revolving
Credit Lender to any Borrower and/or which may be due from any
Borrower to the Agent or any Revolving Credit Lender from time
to time.
(v) All Costs of Collection.
(vi) Any and all covenants of each Borrower to or
with the Agent or any Revolving Credit Lender and any and all
obligations of each Borrower to act or to refrain from acting
in accordance with any agreement between that Borrower and the
Agent or any Revolving Credit Lender or instrument furnished
by that Borrower to the Agent or any Revolving Credit Lender.
(vii) Each of the foregoing as if each reference to
the " the Agent or any Revolving Credit Lender" were to each
Affiliate of the Agent.
(b) Any and all direct or indirect liabilities, debts, and
obligations of each Borrower to the Agent or any Affiliate of the
18
Agent, each of every kind, nature, and description owing on
account of any service or accommodation provided to, or for the
account of any Borrower pursuant to this or any other Loan
Document, including cash management services and the issuances of
L/C's.
"Liquidation": The exercise, by the Agent, of those rights
accorded to the Agent under the Loan Documents as a creditor
of the Borrowers following and on account of the occurrence
of an Event of Default looking towards the realization on
the Collateral. Derivations of the word "Liquidation" (such
as "Liquidate") are used with like meaning in this
Agreement.
"Loan Account": Is defined in Section 2:2-9.
"Loan Commitment": With respect to each Revolving Credit Lender,
that respective Revolving Credit Lender's Revolving Credit
Dollar Commitment.
"Loan Documents": This Agreement, each instrument and document
executed and/or delivered as contemplated by Article 3:,
below, and each other instrument or document from time to
time executed and/or delivered in connection with the
arrangements contemplated hereby or in connection with any
transaction with the Agent or any Affiliate of the Agent,
including, without limitation, any transaction which arises
out of any cash management, depository, investment, letter
of credit, interest rate protection, or equipment leasing
services provided by the Agent or any Affiliate of the
Agent, as each may be amended from time to time.
"Majority Lenders": Revolving Credit Lenders (other than
Delinquent Revolving Credit Lenders) holding 51% or more of
the Loan Commitments (other than any Loan Commitments held
by Delinquent Revolving Credit Lenders), or if the Loan
Commitments have been terminated, Revolving Credit Lenders
whose percentage of the outstanding Revolving Credit Loans
and face amount of all outstanding L/Cs (after settlement
and repayment of all SwingLine Loans by the Revolving Credit
Lenders) aggregate not less than 51% of all such
Liabilities.
"Material Accounting Change": Any change in GAAP applicable to
accounting periods subsequent to the Borrowers' fiscal year
most recently completed prior to the execution of this
Agreement, which change has a material effect on the
Borrowers' Consolidated financial condition or operating
results, as reflected on financial statements and reports
prepared by or for the Borrowers, when compared with such
condition or results as if such change had not taken place
or where preparation of the Borrowers' statements and
reports in compliance with such change results in the breach
19
of a financial performance covenant imposed pursuant to
Section 5:5-11 where such a breach would not have occurred
if such change had not taken place or visa versa.
"Material Adverse Change": Other than the filing of the
Proceedings, any event, fact, circumstance, change in, or
effect on, the business of, any Borrower which, individually
or in the aggregate or on a cumulative basis with any other
circumstances, changes in, or effects on, the Borrowers or
the Collateral, taken as a whole which:
(a) Is, or would reasonably be expected to be,
materially adverse to the business, operations, assets or
liabilities (including, without limitation, contingent
liabilities), results of operations or the financial
condition of that Borrower.
(b) Would reasonably be expected to materially
adversely affect the ability of that Borrower to operate or
conduct its business in all material respects in the manner
necessary to perform its obligations under the Loan
Documents .
(c) Would reasonably be expected to have a material
adverse effect or result in a material adverse change in the
value, enforceability, collectability or the nature of the
Collateral.
"Material Adverse Effect": A result, consequence, or outcome with
respect to the Borrowers which constitutes a Material
Adverse Change.
"Maturity Date": October 23, 2001, unless the Final Borrowing
Order is entered by that date, and if the Final Borrowing
Order is so entered, "Maturity Date" shall mean September
24, 2003.
"New Borrower": Is defined in Section 4:4-20.
"Nominee": A business entity (such as a corporation or limited
partnership) formed by the Agent to own or manage any Post
Foreclosure Asset.
"Operating Account": Is defined in Section 7:7-3.
"OverLoan": A loan, advance, or providing of credit support (such
as the issuance of any L/C) to the extent that, immediately
after its having been made, Availability is less than zero.
"Participant": Is defined in Section 19:19-15, hereof.
"Payment Intangible": Has the meaning given that term in the UCC
and also refers to any general intangible under which the
Account Debtor's primary obligation is a monetary
obligation.
"Permissible OverLoans": Revolving Credit Loans which are
OverLoans, but as to which each of the following conditions
is satisfied: (a) the Revolving Credit Ceiling is not
exceeded; and (b) when aggregated with all other Permissible
20
OverLoans, such Revolving Credit Loans do not aggregate more
than ten percent (10%) of the aggregate of the Borrowing
Base; and (c) such Revolving Credit Loans are made or
undertaken in the Agent's discretion to protect and preserve
the interests of the Revolving Credit Lenders.
"Permitted Encumbrances": The following:
(a) Encumbrances in favor of the Agent.
(b) Encumbrances listed on EXHIBIT 4:4-6, annexed
hereto.
(c) Encumbrances on Equipment or real property, subject
to compliance with the terms of Section 4:4-6(c), below.
(d) Non-consensual statutory liens (other than liens
securing the payment of taxes) arising in the ordinary
course of a Borrowers' business to the extent: such liens
secure obligations which are not overdue or such liens
secure obligations relating to claims or liabilities which
are fully insured (subject to commercially reasonable
deductibles) and being defended at the sole cost and expense
and at the sole risk of the insurer or are being contested
in good faith by appropriate proceedings diligently pursued
and available to a Borrower, in each instance prior to the
commencement of foreclosure or other similar proceedings and
with respect to which adequate reserves have been set aside
on the Borrowers' books.
(e) Carriers', warehousemen's, mechanics, repairmen's
or similar liens incurred in the ordinary course of
business.
(f) Zoning restrictions, easements, licenses, covenants
and other restrictions affecting the use of real property.
(g) Deposits under workmen's compensation, unemployment
insurance and social security laws, or to secure the
performance of bids, tenders, contracts (other than for the
repayment of borrowed money) or leases, or to secure
statutory obligations or surety or appeal bonds, or to
secure indemnity, performance or other similar bonds arising
in the ordinary course of business.
(h) Landlord's liens by operation of law.
(i) Interests of lessors under Capital Leases.
(j) Liens consisting of security deposits made by a
Borrower. The inclusion of any of the foregoing as a
"Permitted Encumbrance" does not affect its relative
priority vis a vis any Collateral Interest created by a
Borrower in favor of the Agent.
(k) Encumbrances subordinated to the Encumbrances of
the Agent, so long as the amount and terms of such
subordination are reasonably satisfactory to the Agent.
21
"Permitted Store Closing Sales": The scheduled permanent closing
of those 65 of the Borrowers' Stores previously identified
to the Agent and the proposed sale of all Collateral located
thereon through the retention by the Borrowers of one or
more professional retail liquidators, reasonably acceptable
to the Agent, as approved by the Bankruptcy Court pursuant
to Section 363 of the Bankruptcy Code.
"Petition Date": September 24, 2001.
"Person": Any natural person, and any corporation, limited
liability company, trust, partnership, joint venture, or
other enterprise or entity.
"Post Foreclosure Asset": All or any part of the Collateral,
ownership of which is acquired by the Agent or a Nominee on
account of the "bidding in" at a disposition as part of a
Liquidation or by reason of a "deed in lieu" type of
transaction.
"Plan": A plan or plans pursuant to Chapter 11 of the Bankruptcy
Code.
"Pre-Petition Agreement": The Loan and Security Agreement dated
November 16, 2000 by and among FRFI, as Agent, the Lenders
party thereto and the Borrowers and all instruments,
documents and agreements executed in connection therewith,
each as amended and in effect.
"Proceedings": The cases, pursuant to Chapter 11 of the
Bankruptcy Code, initiated by the Borrowers in the United
States Bankruptcy Court for the Northern District of Ohio.
"Proceeds": Includes, without limitation, "Proceeds" as defined
in the UCC and each type of property described in Section
8:8-1 hereof.
"Receipts": All cash, cash equivalents, money, checks, credit
card slips, receipts and other Proceeds from any sale of the
Collateral.
"Receivables Advance Rate": Eighty five percent (85%).
"Receivables Collateral": That portion of the Collateral which
consists of Accounts, Accounts Receivable, General
Intangibles, Chattel Paper, Instruments, Documents of Title,
Documents, Investment Property, Payment Intangibles,
Letter-of-Credit Rights, bankers' acceptances, and all other
rights to payment.
"Receivables Reserves": Such Reserves as may be established from
time to time by the Agent in the Agent's discretion with
respect to the determination of the collectability in the
ordinary course and of the creditworthiness of the relevant
Account Debtor. Without limiting the generality of the
foregoing, Receivables Reserves may include (but are not
limited to) reserves based on the following:
22
(a) The aggregate of all accounts receivables which are
more than sixty (60) days past original invoice date.
(b) The aggregate of all accounts receivable owed by
any Account Debtor twenty five percent (25%) or more of
whose accounts are described in Subsection (a), above.
(c) That portion of Eligible Receivables owed by any
Account Debtor which exceed thirty percent (30%) of all
Eligible Receivables.
(d) The aggregate of all accounts receivable which
arise out of the sale by any Borrower of goods consigned or
delivered to that Borrower or to the Account Debtor on sale
or return terms (whether or not compliance has been made
with the applicable provisions of Article 2 of the Uniform
Commercial Code).
(e) The aggregate of all accounts receivable which
arise out of any sale made on a basis other than upon terms
usual to the business of any Borrower.
(f) The aggregate of all accounts receivable which
arise out of any sale made on a "bill and hold," dating, or
delayed shipping basis.
(g) The aggregate of all accounts receivable which are
owed by any Account Debtor whose principal place of business
is not within the continental United States or the District
of Columbia.
(h) The aggregate of all accounts receivable which are
owed by any Affiliate.
(i) So much of any account as to which the subject
Account Debtor holds or is entitled to any claim,
counterclaim, set off, or chargeback as determined by the
Agent in its discretion.
(j) The aggregate of all accounts receivable which are
evidenced by a promissory note or other documentation
evidencing modified payment terms.
(k) The aggregate of all accounts receivable which
arise out of any agreement with, or purchase order from (a)
the United States, or any instrumentality thereof, or (b)
with any other state or local governmental entity as to
whose contracts, the assignment thereof is subject to any
limitation or prohibition, including, without limitation,
all so-called Medicare and Medicaid receivables.
(l) The aggregate of all accounts receivable which are
owed by any person employed by, or a salesperson of, any
Borrower.
"Register": Is defined in Section 16:16-2(c).
23
"Requirements of Law": As to any Person:
(a) Applicable Law.
(b) That Person's organizational documents.
(c) That Person's by-laws and/or other instruments
which deal with corporate or similar governance, as
applicable.
(d) Without limiting the generality of the foregoing,
"Requirement of Law" includes all requirements of the
Bankruptcy Code; all rules adopted pursuant to the
Bankruptcy Code or otherwise and applicable to the Borrowers
and/or the Proceedings; the Borrowing Order; and all other
orders or rulings formally or informally entered in the
Proceedings or in any action or proceeding which relates
thereto.
"Reserve Percentage": The decimal equivalent of that rate
applicable to a Revolving Credit Lender under regulations
issued from time to time by the Board of Governors of the
Federal Reserve System for determining the maximum reserve
requirement of that Revolving Credit Lender with respect to
"Eurocurrency liabilities" as defined in such regulations.
The Reserve Percentage applicable to a particular Eurodollar
Loan shall be based upon that in effect during the subject
Interest Period, with changes in the Reserve Percentage
which take effect during such Interest Period to take effect
(and to consequently change any interest rate determined
with reference to the Reserve Percentage) if and when such
change is applicable to such loans.
"Reserves": The following: Receivables Reserves; Availability
Reserves; and Inventory Reserves.
"Revolving Credit": Is defined in Section 2:2-1.
"Revolving Credit Ceiling": After entry of the Interim Borrowing
Order through December 23, 2001, subject to the provisions
of Section 2-25 hereof, the sum of $135,000,000.00, and
thereafter, the sum of $100,000,000.00.
"Revolving Credit Commitment Fee": Is defined in Section 2:2-13.
"Revolving Credit Dollar Commitment": As set forth on EXHIBIT
2:2-24, annexed hereto (as such amounts may change in
accordance with the provisions of this Agreement).
"Revolving Credit Early Termination Fee": Is defined in Section
2:2-16.
"Revolving Credit Lenders": Each Revolving Credit Lender party to
this Agreement as of the date hereof and any other Person
who becomes a "Revolving Credit Lender" in accordance with
the provisions of to this Agreement.
24
"Revolving Credit Loans": Loans made under the Revolving Credit,
except that where the term "Revolving Credit Loan" is used
with reference to available interest rates applicable to the
loans under the Revolving Credit, it refers to so much of
the unpaid principal balance of the Loan Account as bears
the same rate of interest for the same Interest Period. (See
Section 2:2-11(c)).
"Revolving Credit Note": Is defined in Section 2:2-10.
"Revolving Credit Obligations": The aggregate of the Borrowers'
liabilities, obligations, and indebtedness of any character
on account of or in respect to the Revolving Credit.
"Revolving Credit Commitment Percentage": As set forth on EXHIBIT
2:2-24, annexed hereto (as such amounts may change in
accordance with the provisions of this Agreement).
"SEC": The Securities and Exchange Commission.
"Stated Amount": The maximum amount for which an L/C may be
honored.
"Store": A place at which a Borrower customarily offers its
Inventory for retail sale to the public.
"Subsidiary": Any corporation, association, joint stock company,
business trust or other similar organization of which 50% or
more of the ordinary voting power for the election of a
majority of the members of the board of directors or other
governing body of such entity is held or controlled by a
Borrower or a Subsidiary of a Borrower; or any other such
organization the management of which is directly or
indirectly controlled by a Borrower or a Subsidiary of a
Borrower through the exercise of voting power or otherwise;
or any joint venture, whether incorporated or not, in which
a Borrower or any of its Subsidiaries has a 50% ownership
interest.
"SuperMajority Lenders": Revolving Credit Lenders (other than
Delinquent Revolving Credit Lenders) holding 66-2/3% or more
the Loan Commitments (other than Loan Commitments held by a
Delinquent Revolving Credit Lender), or if the Loan
Commitments have been terminated, Revolving Credit Lenders
whose percentage of the outstanding Revolving Credit Loans
and face amount of all outstanding L/Cs (after settlement
and repayment of all SwingLine Loans by the Revolving Credit
Lenders) aggregate not less than 66-2/3% of all such
Liabilities.
25
"Supporting Obligation": Has the meaning given that term in the
UCC and also refers to a Letter-of-Credit Right or secondary
obligation which supports the payment or performance of an
Account, Chattel Paper, a Document, a General Intangible, an
Instrument, or Investment Property.
"SwingLine": The facility pursuant to which the SwingLine Lender
may advance Revolving Credit Loans aggregating up to the
SwingLine Loan Ceiling.
"SwingLine Lender": FRFI.
"SwingLine Loan Ceiling": $13,500,000.00 (subject to increase as
provided in Section 15:15-4).
"SwingLine Loans": Defined in Section 2:2-8.
"SwingLine Note": Defined in Section 3-7(c).
"Syndication Agent": Fleet Securities Inc.
"Termination Date": The earliest of (a) the Maturity Date; or (b)
the effective date of a confirmed Plan in the Proceedings;
or (c) the Agent's notice to the Lead Borrower setting the
Termination Date on account of the occurrence of any Event
of Default; or (d) that date, thirty (30) days irrevocable
written notice of which is provided by the Lead Borrower to
the Agent.
"Transfer": Wire transfer pursuant to the wire transfer system
maintained by the Board of Governors of the Federal Reserve
Board, or as otherwise may be agreed to from time to time by
the Agent making such Transfer and the subject Revolving
Credit Lender. Wire instructions may be changed in the same
manner that Notice Addresses may be changed (Section
17:17-1), except that no change of the wire instructions for
Transfers to any Revolving Credit Lender shall be effective
without the consent of the Agent.
26
"UCC": The Uniform Commercial Code as in effect from time to time
in Massachusetts.
"Unanimous Consent": Consent of Revolving Credit Lenders (other
than Delinquent Revolving Credit Lenders) holding 100% of
the Loan Commitments (other than Loan Commitments held by a
Delinquent Revolving Credit Lender).
"Unused Line Fee": Is defined in Section 2:2-15.
Article 2:- THE REVOLVING CREDIT:
21- ESTABLISHMENT OF REVOLVING CREDIT
(a) The Revolving Credit Lenders hereby establish a revolving line of
credit (the "Revolving Credit") in the Borrowers' favor pursuant to which each
Revolving Credit Lender, subject to, and in accordance with, this Agreement,
acting through the Agent, shall make loans and advances and otherwise provide
financial accommodations to and for the account of the Borrowers as provided
herein.
(b) Loans, advances, and financial accommodations under the Revolving
Credit shall be made with reference to the Borrowing Base and shall be subject
to Availability. The Borrowing Base and Availability shall be determined by the
Agent by reference to Borrowing Base Certificates furnished as provided in
Section 5:5-4, below. The Cost of Eligible Inventory will be determined in a
manner consistent with practices in effect as of the Petition Date, based on the
Borrowers' general ledger inventory.
(c) The commitment of each Revolving Credit Lender to provide such loans,
advances, and financial accommodations is subject to Section 2:2-24.
(d) The proceeds of borrowings under the Revolving Credit shall be used
solely for the Borrowers' working capital (including, repayment of existing
Indebtedness to institutional lenders), and Capital Expenditures, to the extent
permitted by this Agreement. No proceeds of a borrowing under the Revolving
Credit may be used, nor shall any be requested, with a view towards the
accumulation of any general fund or funded reserve of the Borrowers other than
in the ordinary course of the Borrowers' business and consistent with the
provisions of this Agreement.
27
22- INITIAL RESERVES. CHANGES TO RESERVES.
(a) At the execution of this Agreement, the only Reserves are as reflected
on the initial Borrowing Base Certificate.
(b) Reserves that may be revised, by the Agent in good faith in its
reasonable business judgment:
(ii) To reflect events, conditions, contingencies or risks that, as
determined by the Agent in good faith in its reasonable business judgment,
do or may affect any of:
(B) The Collateral or any other property which secures the
Liabilities.
(C) The assets, business or prospects of any Borrower.
(D) The Collateral Interests and other rights of the Agent in, or
to realize upon, the Collateral (including the enforceability,
perfection and priority thereof).
(i) To reflect the Agent's good faith belief in its reasonable
business judgment that any collateral report or financial information
furnished by or on behalf of a Borrower to the Agent is or may have been
incomplete, inaccurate or misleading in any material respect.
(ii) To reflect any state of facts which constitutes an Event of
Default.
(a) A change to a then existing Reserve may be made only with not less than
seven (7) Business Days prior notice to the Lead Borrower, during which period
the Agent shall afford the Borrower an opportunity to demonstrate that such
Reserve is not necessary (unless the Agent determines that the Collateral would
be materially and adversely affected by such delay or an Event of Default
exists, in which case such Reserve may be immediately imposed), except that a
change to a then existing Reserve, which change reflects changed circumstances
of which the Lead Borrower has knowledge (such as a change in the aggregate of
taxes then outstanding), may be made without such notice.
23- ADVANCES IN EXCESS OF BORROWING BASE (OVERLOANS).
(a) No Revolving Credit Lender has any obligation to make any loan or
advance, or otherwise to provide any credit to or for the benefit of the
Borrowers where the result of such loan, advance, or credit is an OverLoan.
(b) The Revolving Credit Lenders' obligations, among themselves, are
subject to Section 12:12-3(a) (which relates to each Revolving Credit Lender's
making amounts available to the Agent) and to Section 15:15-3(a) (which relates
to Permissible OverLoans).
(c) The Revolving Credit Lenders' providing of an OverLoan on any one
occasion does not affect the obligations of each Borrower hereunder (including
each Borrower's obligation to immediately repay any amount which otherwise
constitutes an OverLoan) nor obligate the Revolving Credit Lenders to do so on
any other occasion.
28
24- RISKS OF VALUE OF COLLATERAL. The Agent's reference to a given asset in
connection with the making of loans, credits, and advances and the providing of
financial accommodations under the Revolving Credit and/or the monitoring of
compliance with the provisions hereof shall not be deemed a determination by the
Agent or any Revolving Credit Lender relative to the actual value of the asset
in question. All risks concerning the value of the Collateral are and remain
upon the Borrowers. All Collateral secures the prompt, punctual, and faithful
performance of the Liabilities whether or not relied upon by the Agent in
connection with the making of loans, credits, and advances and the providing of
financial accommodations under the Revolving Credit.
25- COMMITMENT TO MAKE REVOLVING CREDIT LOANS AND SUPPORT LETTERS OF
CREDIT. Subject to the provisions of this Agreement, the Revolving Credit
Lenders shall make Revolving Credit Loans and the Agent shall cause L/C's to be
issued for the account of the Lead Borrower, in each instance if duly and timely
requested by the Lead Borrower as provided herein provided that:
(a) The amount of the loan or advance or L/C so requested does not
exceed Availability.
(b) No Borrower is in Default.
26- REVOLVING CREDIT LOAN REQUESTS.
(a) Requests for Revolving Credit Loans or for the continuance or
conversion of an interest rate applicable to a Revolving Credit Loan may be
requested by the Lead Borrower in such manner as may from time to time be
acceptable to the Agent.
(b) Subject to the provisions of this Agreement, the Lead Borrower may
request a Revolving Credit Loan and elect an interest rate and Interest
Period to be applicable to that Revolving Credit Loan by giving notice to
the Agent by no later than the following:
(ii) If such Revolving Credit Loan is to be or is to be
converted to a Base Margin Loan: By 12:00 PM on the Business Day
on which the subject Revolving Credit Loan is to be made or is to
be so converted. Base Margin Loans requested by the Lead
Borrower, other than those resulting from the conversion of a
Eurodollar Loan, shall not be less than $10,000.00.
(iii) If such Revolving Credit Loan is to be, or is to be
continued as, or converted to, a Eurodollar Loan: By 1:00PM three
(3) Eurodollar Business Days before the commencement of any new
Interest Period or the end of the then applicable Interest
Period. Eurodollar Loans and conversions to Eurodollar Loans
shall each be not less than $500,000.00 and in increments of
$100,000.00 in excess of such minimum.
(iv) Any Eurodollar Loan which matures while any Borrower is
in Default shall be converted, at the option of the Agent, to a
Base Margin Loan notwithstanding any notice from the Lead
Borrower that such Loan is to be continued as a Eurodollar Loan.
(a) Any request for a Revolving Credit Loan or for the continuance or
conversion of an interest rate applicable to a Revolving Credit Loan which
is made after the applicable deadline therefor, as set forth above, shall
be deemed to have been made at the opening of business on the then next
Business Day or Eurodollar Business Day, as applicable.
(b) The Lead Borrower may request that the Agent cause the issuance by
the Issuer of L/C's for the account of the Borrowers as provided in Section
2:2-19.
29
(c) The Agent may rely on any request for a loan or advance, or other
financial accommodation under the Revolving Credit which the Agent, in good
faith, believes to have been made by a Person duly authorized to act on
behalf of the Lead Borrower and may decline to make any such requested loan
or advance, or issuance, or to provide any such financial accommodation
pending the Agent's being furnished with such documentation concerning that
Person's authority to act as may be reasonably satisfactory to the Agent.
(d) A request by the Lead Borrower for loan or advance, or other
financial accommodation under the Revolving Credit shall be irrevocable and
shall constitute certification by each Borrower that as of the date of such
request, each of the following is true and correct:
(v) Except for the commencement of the Proceedings, there has
been no material adverse change in the Borrowers' financial condition
from the most recent financial information furnished Agent or any
Revolving Credit Lender pursuant to this Agreement.
(vi) If on any day that an advance is made hereunder, any sales
tax owed by the Borrowers is due and payable and remains unpaid, then
some or all of such advance shall be applied to cover the Borrowers'
payment of such sales tax.
(vii) Each representation which is made herein or in any of the
Loan Documents is then true and complete in all material respects as
of and as if made on the date of such request.
(viii) No Borrower is in Default.
(a) If, at any time or from time to time, any Borrower is in Default:
(ix) The Agent may suspend the Revolving Credit immediately.
(x) Neither the Agent nor any Revolving Credit Lender shall be
obligated, during such suspension, to make any loans or advance, or to
provide any financial accommodation hereunder or to seek the issuance
of any L/C.
(xi) The Agent may suspend the right of the Lead Borrower to
request any Eurodollar Loan or to convert any Base Margin Loan to a
Eurodollar Loan.
27- MAKING OF REVOLVING CREDIT LOANS.
(a) A loan or advance under the Revolving Credit shall be made by the
transfer of the proceeds of such loan or advance to the Operating Account
or as otherwise instructed by the Lead Borrower.
(b) A loan or advance shall be deemed to have been made under the
Revolving Credit (and the Borrowers shall be indebted to the Agent and the
Revolving Credit Lenders for the amount thereof immediately) at the
following:
(ii) The Agent's initiation of the transfer of the proceeds of
such loan or advance in accordance with the Lead Borrower's
instructions (if such loan or advance is of funds requested by the
Lead Borrower).
(iii) The charging of the amount of such loan to the Loan Account
(in all other circumstances).
(a) There shall not be any recourse to or liability of the Agent or
any Revolving Credit Lender, on account of:
(iv) Any delay beyond the reasonable control of the Agent in the
making of any loan or advance requested under the Revolving Credit.
(v) Any delay by any bank or other depository institution in
treating the proceeds of any such loan or advance as collected funds.
(vi) Any delay in the receipt, and/or any loss, of funds which
constitute a loan or advance under the Revolving Credit, the wire
transfer of which was properly initiated by the Agent in accordance
with wire instructions provided to the Agent by the Lead Borrower.
30
28- SWINGLINE LOANS.
(a) For ease of administration, Base Margin Loans may be made by the
SwingLine Lender (in the aggregate, the "SwingLine Loans") in accordance
with the procedures set forth in this Agreement for the making of loans and
advances under the Revolving Credit. The unpaid principal balance of the
SwingLine Loans shall not at any one time be in excess of the SwingLine
Loan Ceiling.
(b) The aggregate unpaid principal balance of SwingLine Loans shall
bear interest at the rate applicable to Base Margin Loans and shall be
repayable as a loan under the Revolving Credit.
(c) The Borrowers' obligation to repay SwingLine Loans shall be
evidenced by a Note in the form of EXHIBIT 2:2-8(c), annexed hereto,
executed by the Borrowers, and payable to the SwingLine Lender. Neither the
original nor a copy of that Note shall be required, however, to establish
or prove any Liability. The Borrowers shall execute a replacement of any
SwingLine Note which has been lost, mutilated, or destroyed thereof and
deliver such replacement to the SwingLine Lender.
(d) For all purposes of this Loan Agreement, the SwingLine Loans and
the Borrowers' obligations to the SwingLine Lender constitute Revolving
Credit Loans and are secured as "Liabilities".
(e) SwingLine Loans shall be subject to periodic settlement with the
Revolving Credit Lenders as provided in this Agreement.
29- THE LOAN ACCOUNT.
(a) An account ("Loan Account") shall be opened on the books of the
Agent in which a record shall be kept of all loans and advances made under
the Revolving Credit.
(b) The Agent shall also keep a record (either in the Loan Account or
elsewhere, as the Agent may from time to time elect) of all interest, fees,
service charges, costs, expenses, and other debits owed to the Agent and
each Revolving Credit Lender on account of the Liabilities and of all
credits against such amounts so owed.
(c) All credits against the Liabilities shall be conditional upon
final payment to the Agent for the account of each Revolving Credit Lender
of the items giving rise to such credits. The amount of any item credited
against the Liabilities which is charged back against the Agent or any
Revolving Credit Lender for any reason or is not so paid shall be a
Liability and shall be added to the Loan Account, whether or not the item
so charged back or not so paid is returned.
(d) Except as otherwise provided herein, all fees, service charges,
costs, and expenses for which any Borrower is obligated hereunder are
payable on demand. In the determination of Availability, the Agent may deem
fees, service charges, accrued interest, and other payments which will be
due and payable between the date of such determination and the first day of
the then next succeeding month as having been advanced under the Revolving
Credit whether or not such amounts are then due and payable.
(e) The Agent, without the request of the Lead Borrower, may advance
under the Revolving Credit any interest, fee, service charge, or other
payment to which the Agent or any Revolving Credit Lender is entitled from
any Borrower pursuant hereto and may charge the same to the Loan Account
notwithstanding that such amount so advanced may result in Borrowing Base's
being exceeded. Such action on the part of the Agent shall not constitute a
waiver of the Agent's rights and each Borrower's obligations under Section
2:2-11(b). Any amount which is added to the principal balance of the Loan
Account as provided in this Section 2:2-9(e) shall bear interest at the
interest rate then and thereafter applicable to Base Margin Loans.
31
(f) Any written statement rendered by the Agent or any Revolving
Credit Lender to the Lead Borrower concerning the Liabilities shall be
reviewed promptly by the Lead Borrower. To the extent that the Lead
Borrower believes that there is any mistake in such statement the Lead
Borrower shall promptly provide the Agent with written objection thereto,
which written objection shall indicate, with particularity, the reason for
such objection. The Loan Account and the Agent's books and records
concerning the loan arrangement contemplated herein and the Liabilities
shall be prima facie evidence of the items described therein.
210- THE REVOLVING CREDIT NOTES. The Borrowers' obligation to repay loans
and advances under the Revolving Credit, with interest as provided herein, shall
be evidenced by Notes (each, a "Revolving Credit Note") in the form of EXHIBIT
2:2-10, annexed hereto, executed by each Borrower, one payable to each Revolving
Credit Lender. Neither the original nor a copy of any Revolving Credit Note
shall be required, however, to establish or prove any Liability. In the event
that any Revolving Credit Note is ever lost, mutilated, or destroyed, each
Borrower, at the request of the Agent, shall execute a replacement thereof and
deliver such replacement to the Agent.
32
211- PAYMENT OF THE LOAN ACCOUNT.
(a) The Borrowers may repay all or any portion of the principal balance of
the Loan Account from time to time until the Termination Date.
(b) The Borrowers, without notice or demand from the Agent or any Revolving
Credit Lender, shall pay the Agent that amount, from time to time, which is
necessary so that there is no OverLoan outstanding.
(c) The Borrowers shall repay the Revolving Credit:
(ii) in an amount equal to the proceeds realized from the sale,
refinancing, or other disposition of, or realization upon, any Collateral;
and
(iii) in accordance with the provisions of Article 7 hereof. All
amounts prepaid under this Section 2:2-11(c) may be reborrowed under the
Revolving Credit, subject to and in accordance with, the terms of this
Agreement.
(a) The Borrowers shall repay the then entire unpaid balance of the Loan
Account and all other Liabilities on the Termination Date.
(b) The Agent shall follow the Lead Borrower's timely instructions with
respect to the application of payments against Eurodollar Loans. In the absence
of timely instructions from the Lead Borrower, the Agent shall endeavor to cause
the application of payments (if any), pursuant to Sections 2:2-11(a) and
2:2-11(b) against Eurodollar Loans then outstanding in such manner as results in
the least cost to the Borrowers, but shall not have any affirmative obligation
to do so nor liability on account of the Agent's failure to have done so. In no
event shall action or inaction taken by the Agent excuse any Borrower from any
indemnification obligation under Section 2:2-11(f).
(c) The Borrowers shall indemnify the Agent and each Revolving Credit
Lender and hold the Agent and each Revolving Credit Lender harmless from and
against any loss, cost or expense (including amounts payable by the Agent or
such Revolving Credit Lender on account of "breakage fees" (so-called)) which
the Agent or such Revolving Credit Lender may sustain or incur (including,
without limitation, by virtue of acceleration after the occurrence of any Event
of Default) as a consequence of the following:
(iv) Default by any Borrower in payment of the principal amount of or
any interest on any Eurodollar Loan as and when due and payable, including
any such loss or expense arising from interest or fees payable by such
Revolving Credit Lender in order to maintain its Eurodollar Loans.
(v) Default by any Borrower in making a borrowing or conversion after
the Borrower has given (or is deemed to have given) a request for a
Revolving Credit Loan or a request to convert a Revolving Credit Loan from
one applicable interest rate to another.
(vi) The making of any payment on a Eurodollar Loan or the making of
any conversion of any such Eurodollar Loan to a Base Margin Loan on a day
that is not the last day of the applicable Interest Period with respect
thereto.
33
212- INTEREST ON REVOLVING CREDIT LOANS.
(a) Each Revolving Credit Loan shall bear interest at the Base Margin Rate
unless timely notice is given (as provided in Section 2:2-6) that the subject
Revolving Credit Loan (or a portion thereof) is, or is to be converted to, a
Eurodollar Loan.
(b) Each Revolving Credit Loan which consists of a Eurodollar Loan shall
bear interest at the applicable Eurodollar Rate.
(c) Subject to, and in accordance with, the provisions of this Agreement,
the Lead Borrower may cause all or a part of the unpaid principal balance of the
Loan Account to bear interest at the Base Margin Rate or the Eurodollar Rate as
specified from time to time by the Lead Borrower.
(d) The Lead Borrower shall not select, renew, or convert any interest rate
for a Revolving Credit Loan such that, in addition to interest at the Base
Margin Rate, there are more than five (5) Eurodollar Rates applicable to the
Revolving Credit Loans at any one time.
(e) The Borrowers shall pay accrued and unpaid interest on each Revolving
Credit Loan in arrears as follows:
(ii) On the applicable Interest Payment Date for that Revolving Credit
Loan.
(iii) On the Termination Date and on the End Date.
(iv) Following the occurrence of any Event of Default, with such
frequency as may be determined by the Agent.
(a) Following the occurrence of any Event of Default (and whether or not
the Agent exercises the Agent's rights on account thereof), all Revolving Credit
Loans shall bear interest, at the option of the Agent or at the instruction of
the SuperMajority Lenders at rate which is the aggregate of the rate applicable
to Base Margin Loans plus two Percent (2%) per annum.
213- REVOLVING CREDIT COMMITMENT FEE. In consideration of the commitment to
make loans and advances to the Borrowers under the Revolving Credit, and to
maintain sufficient funds available for such purpose, there has been earned and
the Borrowers shall pay the "Revolving Credit Commitment Fee" (so referred to
herein) in the amount and payable as provided in the Fee Letter.
214- AGENT'S FEE. In addition to any other fee or expense to be paid by the
Borrowers on account of the Revolving Credit, the Borrowers shall pay the Agent
the " Agent's Fee" at the times and in the amounts as set forth the Fee Letter.
34
215- UNUSED LINE FEE. In addition to any other fee to be paid by the
Borrowers on account of the Revolving Credit, the Borrowers shall pay the Agent
the "Unused Line Fee" (so referred to herein) of 0.375% per annum of the average
difference, during the quarter just ended (or relevant period with respect to
the payment being made on the Termination Date) between the Revolving Credit
Ceiling and the aggregate of the unpaid principal balance of the Loan Account
and the undrawn Stated Amount of L/C's outstanding during the relevant period.
The Unused Line Fee shall be paid in arrears, on the first day of each quarter
after the execution of this Agreement and on the Termination Date.
216- EARLY TERMINATION FEE. In the event that the Termination Date occurs,
for any reason, prior to the Maturity Date (other than by virtue of the
Borrower's refinancing of the Liabilities with FRFI or Fleet National Bank or
any of their respective Affiliates), the Borrowers shall pay to the Agent, for
the benefit of the Revolving Credit Lenders, the "Revolving Credit Early
Termination Fee" (so referred to herein) in an amount equal to 1.00% of the
Revolving Credit Ceiling in effect on the Termination Date.
217- CONCERNING FEES.
(a) In addition to any other right to which the Agent is then entitled on
account thereof, the Agent may assess an additional fee payable by the Borrowers
on account of the accommodation, from time to time, by the Agent of the Lead
Borrower's request that the Agent depart or dispense with one or more of the
administrative provisions of this Agreement and/or any Borrower's failure to
comply with any of such provisions.
(b) By way of non-exclusive example, the Agent may assess a fee on account
of any of the following:
(ii) The Borrowers' failure to pay that amount which is necessary
so that no OverLoan is outstanding (as required under Section
2:2-11(b) hereof).
(iii) The providing of a loan or advance under the Revolving
Credit or charging of the Loan Account such that an OverLoan is made.
(iv) The foreshortening of any of the time frames with respect to
the making of Revolving Credit Loans as set forth in Section 2:2-6.
(v) The Lead Borrower's failure to provide a financial statement
or report within the applicable time frame provided for such report
under Article 5: hereof.
(a) The Borrowers shall not be entitled to any credit, rebate or repayment
of any fee earned by the Agent or any Revolving Credit Lender pursuant to this
Agreement or any Loan Document notwithstanding any termination of this Agreement
or suspension or termination of the Agent's and any Revolving Credit Lender's
respective obligation to make loans and advances hereunder.
218- AGENT'S AND REVOLVING CREDIT LENDERS' DISCRETION.
(a) Each reference in the Loan Documents to the exercise of discretion or
the like by the Agent or any Revolving Credit Lender shall be to such Person's
reasonable exercise of its judgment, in good faith (which shall be presumed),
based upon such Person's reasonable consideration of any such factors as the
Agent or that Revolving Credit Lender, taking into account information of which
that Person then has actual knowledge, believes:
(ii) Will or reasonably could be expected to affect the value of
the Collateral, the enforceability of the Agent's Collateral Interests
therein, or the amount which the Agent would likely realize therefrom
(taking into account delays which may possibly be encountered in the
Agent's realizing upon the Collateral and likely Costs of Collection).
35
(iii) Indicates that any report or financial information
delivered to the Agent or any Revolving Credit Lender by or on behalf
of any Borrower is incomplete, inaccurate, or misleading in any
material manner or was not prepared in accordance with the
requirements of this Agreement.
(iv) Suggests that any Borrower is in Default.
(a) In the exercise of such judgment, the Agent and each Revolving Credit
Lender also may take into account any of the following factors:
(v) Those included in, or tested by, the definitions of "Eligible
Accounts," "Eligible Inventory", "Eligible L/C Inventory", "Eligible
Receivables" and "Cost".
(vi) The current financial and business climate of the industry
in which each Borrower competes (having regard for that Borrower's
position in that industry).
(vii) General macroeconomic conditions which have a material
effect on the Borrowers' cost structure.
(viii) Material changes in or to the mix of the Borrowers'
Inventory.
(ix) Seasonality with respect to the Borrowers' Inventory and
patterns of retail sales.
(x) Such other factors as the Agent and each Revolving Credit
Lender determines as having a material bearing on credit risks
associated with the providing of loans and financial accommodations to
the Borrowers.
(a) The burden of establishing the failure of the Agent or any Revolving
Credit Lender to have acted in a reasonable manner in such Person's exercise of
such discretion shall be the Borrowers' and may be made only by clear and
convincing evidence.
219- PROCEDURES FOR ISSUANCE OF L/C'S.
(a) The Lead Borrower may request that the Agent cause the issuance by the
Issuer of L/C's for the account of any Borrower. Each such request shall be in
such manner as may from time to time be acceptable to the Agent.
(b) The Agent will cause the issuance of any L/C so requested by the Lead
Borrower, provided that , at the time that the request is made, the Revolving
Credit has not been suspended as provided in Section 2:2-6(g) and if so issued:
(ii) The aggregate Stated Amount of all L/C's (together with any L/Cs
issued under the Pre-Petition Agreement, to the extent such are not then
deemed L/Cs hereunder) then outstanding, does not exceed Twenty Million
Dollars ($20,000,000.00).
(iii) The expiry of the L/C is not later than the earlier of thirty
(30) days prior to the Maturity Date or the following:
(B) Standby's: One (1) year from initial issuance.
(C) Documentary's: Sixty (60) days from issuance.
(i) An OverLoan will not result from the issuance of the subject L/C.
(a) Each Borrower shall execute such documentation to apply for an L/C as
may be required by the Issuer.
36
(b) There shall not be any recourse to, nor liability of, the Agent or any
Revolving Credit Lender on account of any of the following beyond the reasonable
control of the Agent:
(ii) Any delay or refusal by an Issuer to issue an L/C:
(iii) Any action or inaction of an Issuer on account of or in respect
to, any L/C.
(a) The Borrowers shall reimburse the Issuer for the amount of any honoring
of a drawing under an L/C on the same day on which such honoring takes place.
The Agent, without the request of any Borrower, may advance under the Revolving
Credit (and charge to the Loan Account) the amount of any honoring of any L/C
and other amount for which any Borrower, the Issuer, or the Revolving Credit
Lenders become obligated on account of, or in respect to, any L/C. Such advance
shall be made whether or not any Borrower is in Default or such advance would
result in an OverLoan. Such action shall not constitute a waiver of the Agent's
rights under Section 2:2-11(b) hereof.
220- FEES FOR L/C'S.
(a) The Borrowers shall pay to the Agent, for the benefit of the Revolving
Credit Lenders, a fee, on account of L/C's, the issuance of which had been
procured by the Agent, monthly in arrears, and on the Termination Date and on
the End Date, equal to the applicable L/C Fees of the weighted average Stated
Amount of all standby and documentary L/C's, as applicable, outstanding during
the period in respect of which such fee is being paid except that, following the
occurrence of any Event of Default, such fee shall be increased by two percent
(2%) per annum.
(b) In addition to the fee to be paid as provided in Subsection 2:2-20(a),
above, the Borrowers shall pay to the Agent (or to the Issuer, if so requested
by Agent), on demand, all issuance, processing, negotiation, amendment, and
administrative fees and other amounts charged by the Issuer on account of, or in
respect to, any L/C.
(c) If any change in Applicable Law shall either:
(ii) impose, modify or deem applicable any reserve, special
deposit or similar requirements against letters of credit heretofore
or hereafter issued by any Issuer or with respect to which any
Revolving Credit Lender or any Issuer has an obligation to lend to
fund drawings under any L/C; or
(iii) impose on any Issuer any other condition or requirements
relating to any such letters of credit;
and the result of any event referred to in Section 2:2-20(c)(i) or
2:2-20(c)(ii), above, shall be to increase the cost to any Revolving Credit
Lender or to any Issuer of issuing or maintaining any L/C (which increase in
cost shall be the result of such Issuer's reasonable allocation among that
Revolving Credit Lender's or Issuer's letter of credit customers of the
aggregate of such cost increases resulting from such events), then, upon demand
by the Agent and delivery by the Agent to the Lead Borrower of a certificate of
an officer of the subject Revolving Credit Lender or the subject Issuer
describing such change in law, executive order, regulation, directive, or
interpretation thereof, its effect on such Revolving Credit Lender or such
Issuer, and the basis for determining such increased costs and their allocation,
the Borrowers shall immediately pay to the Agent, from time to time as specified
by the Agent, such amounts as shall be sufficient to compensate the subject
Revolving Credit Lender or the subject Issuer for such increased cost. Any
Revolving Credit Lender's or any Issuer's determination of costs incurred under
Section 2:2-20(c)(i) or 2:2-20(c)(ii), above, and the allocation, if any, of
such costs among the Borrowers and other letter of credit customers of such
Revolving Credit Lender or such Issuer, if done in good faith and made on an
equitable basis and in accordance with such officer's certificate, shall be
conclusive and binding on the Borrowers.
37
221- CONCERNING L/C'S.
(a) None of the Issuer, the Issuer's correspondents, any Revolving Credit
Lender, the Agent, or any advising, negotiating, or paying bank with respect to
any L/C shall be responsible in any way for:
(ii) The performance by any beneficiary under any L/C of that
beneficiary's obligations to any Borrower.
(iii) The form, sufficiency, correctness, genuineness, authority
of any person signing; falsification; or the legal effect of; any
documents called for under any L/C if (with respect to the foregoing)
such documents on their face appear to be in order.
(a) The Issuer may honor, as complying with the terms of any L/C and of any
drawing thereunder, any drafts or other documents otherwise in order, but signed
or issued by an administrator, executor, conservator, trustee in bankruptcy,
debtor in possession, assignee for the benefit of creditors, liquidator,
receiver, or other legal representative of the party authorized under such L/C
to draw or issue such drafts or other documents.
(b) Unless otherwise agreed to, in the particular instance, each Borrower
hereby authorizes any Issuer to:
(iv) Select an advising bank, if any.
(v) Select a paying bank, if any.
(vi) Select a negotiating bank.
(a) All directions, correspondence, and funds transfers relating to any L/C
are at the risk of the Borrowers. The Issuer shall have discharged the Issuer's
obligations under any L/C which, or the drawing under which, includes payment
instructions, by the initiation of the method of payment called for in, and in
accordance with, such instructions (or by any other commercially reasonable and
comparable method). None of the Agent, any Revolving Credit Lender, or the
Issuer shall have any responsibility for any inaccuracy, interruption, error, or
delay in transmission or delivery by post, telegraph or cable, or for any
inaccuracy of translation.
(b) The Agent's, each Revolving Credit Lender's, and the Issuer's rights,
powers, privileges and immunities specified in or arising under this Agreement
are in addition to any heretofore or at any time hereafter otherwise created or
arising, whether by statute or rule of law or contract.
Except to the extent otherwise expressly provided hereunder or agreed to in
writing by the Issuer and the Lead Borrower, documentary L/C's will be governed
by the Uniform Customs and Practice for Documentary Credits, International
Chamber of Commerce, Publication No. 500, and standby L/C's will be governed by
International Standby Practices ISP98 (adopted by the International Chamber of
Commerce on April 6, 1998) and any respective subsequent revisions thereof. The
obligations of the Borrowers under this Agreement with respect to L/C's are
absolute, unconditional, and irrevocable and shall be performed strictly in
accordance with the terms hereof under all circumstances, whatsoever including,
without limitation, the following:
(a) Any lack of validity or enforceability or restriction, restraint, or
stay in the enforcement of this Agreement, any L/C, or any other
agreement or instrument relating thereto.
(i) Any Borrower's consent to any amendment or waiver of, or
consent to the departure from, any L/C.
(ii) The existence of any claim, set-off, defense, or other right
which any Borrower may have at any time against the beneficiary of any
L/C.
38
222- CHANGED CIRCUMSTANCES.
(a) The Agent may advise the Lead Borrower that the Agent has made the good
faith determination (which determination shall be final and conclusive) of any
of the following:
(ii) Adequate and fair means do not exist for ascertaining the rate
for Eurodollar Loans.
(iii) The continuation of or conversion of any Revolving Credit Loan
to a Eurodollar Loan has been made impracticable or unlawful by the
occurrence of a contingency that materially and adversely affects the
applicable market or the compliance by the Agent or any Revolving Credit
Lender in good faith with any Applicable Law.
(iv) The indices on which the interest rates for Eurodollar Loans are
based shall no longer represent the effective cost to the Agent or any
Revolving Credit Lender for U.S. dollar deposits in the interbank market
for deposits in which it regularly participates.
(a) In the event that the Agent advises the Lead Borrower of an occurrence
described in Section 2:2-22(a), then, until the Agent notifies the Lead Borrower
that the circumstances giving rise to such notice no longer apply:
(v) The obligation of the Agent or each Revolving Credit Lender to
make loans of the type affected by such changed circumstances or to permit
the Lead Borrower to select the affected interest rate as otherwise
applicable to any Revolving Credit Loans shall be suspended.
(vi) Any notice which the Lead Borrower had given the Agent with
respect to any Eurodollar Loan, the time for action with respect to which
has not occurred prior to the Agent's having given notice pursuant to
Section 2:2-22(a), shall be deemed at the option of the Agent to not having
been given.
39
223- DESIGNATION OF LEAD BORROWER AS BORROWERS' AGENT.
(a) Each Borrower hereby irrevocably designates and appoints the Lead
Borrower as that Borrower's agent to obtain loans and advances under the
Revolving Credit, the proceeds of which shall be available to each Borrower for
those uses as those set forth in Section 2:2-1(d). As the disclosed principal
for its agent, each Borrower shall be obligated to the Agent and each Revolving
Credit Lender on account of loans and advances so made under the Revolving
Credit as if made directly by the Revolving Credit Lenders to that Borrower,
notwithstanding the manner by which such loans and advances are recorded on the
books and records of the Lead Borrower and of any Borrower.
(b) Each Borrower recognizes that credit available to it under the
Revolving Credit is in excess of and on better terms than it otherwise could
obtain on and for its own account and that one of the reasons therefor is its
joining in the credit facility contemplated herein with all other Borrowers.
Consequently, each Borrower hereby assumes and agrees to discharge all
Liabilities of all other Borrowers as if the Borrower so assuming were each
other Borrower.
(c) The Lead Borrower shall act as a conduit for each Borrower (including
itself, as a "Borrower") on whose behalf the Lead Borrower has requested a
Revolving Credit Loan.
(d) The proceeds of each loan and advance provided under the Revolving
Credit which is requested by the Lead Borrower shall be deposited into the
Operating Account or as otherwise indicated by the Lead Borrower. The Lead
Borrower shall cause the transfer of the proceeds thereof to the (those)
Borrower(s) on whose behalf such loan and advance was obtained. Neither the
Agent nor any Revolving Credit Lender shall have any obligation to see to the
application of such proceeds.
40
224- LENDERS' COMMITMENTS
(a) Subject to Section 16:16-1 (which provides for assignments and
assumptions of commitments), each Revolving Credit Lender's "Revolving Credit
Commitment Percentage", and "Revolving Credit Dollar Commitment" (respectively
so referred to herein) is set forth on EXHIBIT 2:2-24, annexed hereto.
(b) The obligations of each Revolving Credit Lender are several and not
joint. No Revolving Credit Lender shall have any obligation to make any loan or
advance under the Revolving Credit in excess of the lesser of the following:
(ii) That Revolving Credit Lender's Revolving Credit Commitment
Percentage of the subject loan or advance or of Availability.
(iii) that Revolving Credit Lender's Revolving Credit Dollar
Commitment.
(a) No Revolving Credit Lender shall have any liability to the Borrowers on
account of the failure of any other Revolving Credit Lender to provide any loan
or advance under the Revolving Credit nor any obligation to make up any
shortfall which may be created by such failure.
(b) The Revolving Credit Dollar Commitments, Revolving Credit Commitment
Percentages, and identities of the Revolving Credit Lenders may be changed, from
time to time by the reallocation or assignment of Revolving Credit Dollar
Commitments and Revolving Credit Commitment Percentages amongst the Revolving
Credit Lenders or with other Persons who determine to become "Revolving Credit
Lenders", as described in Section 16:16-1, below, provided, however unless an
Event of Default has occurred (in which event, no consent of any Borrower is
required) subsequent to the completion of the initial syndication by the
Syndication Agent, any assignment to a Person not then a Revolving Credit Lender
shall be subject to the prior consent of the Lead Borrower (not to be
unreasonably withheld), which consent will be deemed given unless the Lead
Borrower provides the Agent with written objection, not more than five (5)
Business Days after the Agent shall have given the Lead Borrower written notice
of a proposed assignment).
(c) . Upon written notice given the Lead Borrower from time to time by the
Agent, of any assignment or allocation referenced in Section 2:2-24(d):
(iv) Each Borrower shall execute one or more replacement Revolving
Credit Notes to reflect such changed Revolving Credit Dollar Commitments,
Revolving Credit Commitment Percentages, and identities and shall deliver
such replacement Revolving Credit Notes to the Agent (which promptly
thereafter shall deliver to the Lead Borrower the Revolving Credit Notes so
replaced).
(v) Such change shall be effective from the effective date specified
in such written notice and any Person added as a Revolving Credit Lender
shall have all rights, privileges, and obligations of a Revolving Credit
Lender hereunder thereafter as if such Person had been a signatory to this
Agreement and any other Loan Document to which a Revolving Credit Lender is
a signatory and any Person removed as a Revolving Credit Lender shall be
relieved of any obligations or responsibilities of a Revolving Credit
Lender hereunder thereafter arising.
41
225- REDUCTION OF REVOLVING CREDIT CEILING. Upon at least two Business
Days' prior written notice to the Agent at any time commencing after entry of
the Final Order, the Borrowers may permanently reduce the Revolving Credit
Ceiling, prior to the permanent reduction set forth in the definition of
Revolving Credit Ceiling, provided that no such reduction shall cause the
Revolving Credit Ceiling to be less than $100,000,000.00. Each such reduction
shall be in the principal amount of $5,000,000.00 or an integral multiple
thereof. Each such reduction shall be applied ratably to the Commitments of each
Lender under the Revolving Credit and shall be irrevocable when given. At the
time of each such reduction, the Borrowers shall pay to the Agent all Unused
Line Fees accrued on the amount so reduced and any amount by which the principal
balance of the Revolving Credit Loans and Stated Amount of L/Cs exceeds the
Revolving Credit Ceiling as so reduced.
Article 3:- CONDITIONS PRECEDENT:
As a condition to the effectiveness of this Agreement, the establishment of
the Revolving Credit, and the making of the first loan under the Revolving
Credit, each of the documents and conditions respectively described below, shall
have been delivered to the Agent, or satisfied (in form and substance reasonably
satisfactory to the Agent):
31- CORPORATE DUE DILIGENCE.
(a) Certificates of corporate good standing for each Borrower,
respectively, issued by the Secretary of State for the state in which that
Borrower is incorporated.
(b) Certificates of due qualification, in good standing, issued by the
Secretary(ies) of State of each State in which the nature a Borrower's business
conducted or assets owned could require such qualification.
(c) Certificates of each Borrower's secretary of the due adoption,
continued effectiveness, and setting forth the texts of, each corporate
resolution adopted in connection with the establishment of the loan arrangement
contemplated by the Loan Documents and attesting to the true signatures of each
Person authorized as a signatory to any of the Loan Documents.
32- OPINION. An opinion of counsel to the Borrowers in the form of EXHIBIT
3:3-2, annexed hereto..
33- ADDITIONAL DOCUMENTS. Such additional instruments and documents as the
Agent or its counsel reasonably may require or request.
34- BORROWING ORDER. There shall have been entered in the Proceedings an
Interim Borrowing Order.
42
35- REPRESENTATIONS AND WARRANTIES. Each of the representations made by or
on behalf of each Borrower in this Agreement or in any of the other Loan
Documents or in any other report, statement, document, or paper provided by or
on behalf of each Borrower shall be true and complete in all material respects
as of the date as of which such representation or warranty was made.
36- CONSENTS AND APPROVALS. All necessary consents and approvals to the
transactions contemplated hereby shall have been obtained and shall be
reasonably satisfactory to the Agent.
37- NO DEFAULTS UNDER APPLICABLE LAW OR MATERIAL AGREEMENTS. The
consummation of the transactions contemplated hereby shall not (a) violate any
Requirement of Law or (b) conflict with, or result in a default or event of
default under, any material agreement of the Borrowers.
38- NO LITIGATION. There shall not exist any litigation or other
proceedings, the result of which has or is likely to have a Material Adverse
Effect on any Borrower.
39- ALL FEES AND EXPENSES PAID. All fees due at or immediately after the
first funding under the Revolving Credit and all costs and expenses incurred by
the Agent in connection with the establishment of the credit facilities
contemplated hereby (including the reasonable fees and expenses of counsel to
the Agent) shall have been paid in full.
310- NO MATERIAL ADVERSE CHANGE. Except for the commencement of the
Proceedings, no event shall have occurred or failed to occur, which occurrence
or failure has or is reasonably likely to have a materially adverse effect upon
the Borrower's financial condition when compared with such financial condition
at August 4, 2001.
311- MINIMUM DAY ONE EXCESS AVAILABILITY. On the Petition Date,
Availability, after giving effect to the first funding under the Revolving
Credit; post-petition accounts payable which are beyond credit terms then
accorded the Borrower; overdrafts; any charges to the Loan Account made in
connection with the establishment of the credit facility contemplated hereby;
and L/C's to be issued at, or immediately subsequent to, such establishment, is
not less than $30,000,000.00.
312- BORROWER NOT IN DEFAULT. No Borrower is in Default.
313- PROJECTIONS. The Agent shall have received and be satisfied with
detailed one-year financial projections and business assumptions for the
Borrower.
43
314- OTHER INFORMATION. Any other documents set forth on EXHIBIT 3:3-14,
annexed hereto shall have been received by the Agent and shall be in form and
substance reasonably satisfactory to the Agent.
315- GOVERNMENT REGULATIONS. The proposed financing is subject to the
condition that no material changes in governmental regulations or policies
affecting the Borrower, the Agent or Lenders involved in this transaction occur
prior to Closing.
316- BENEFIT OF CONDITIONS PRECEDENT. The conditions set forth in this
Article 3: are for the sole benefit of the Agent and each Revolving Credit
Lender and may be waived by the Agent in whole or in part without prejudice to
the Agent or any Revolving Credit Lender.
No document shall be deemed delivered to the Agent or any Revolving Credit
Lender until received and accepted by the Agent at its offices in Boston,
Massachusetts. Under no circumstances shall this Agreement take effect until
executed and accepted by the Agent at said offices.
Article 4:- GENERAL REPRESENTATIONS, COVENANTS AND WARRANTIES:
To induce each Revolving Credit Lender to establish the credit facility
contemplated herein and to induce the Revolving Credit Lenders to provide loans
and advances under the Revolving Credit (each of which loans shall be deemed to
have been made in reliance thereupon) the Borrowers, in addition to all other
representations, warranties, and covenants made by any Borrower in any other
Loan Document, make those representations, warranties, and covenants included in
this Agreement.
41- PAYMENT AND PERFORMANCE OF LIABILITIES. The Borrowers shall pay each
payment Liability when due (or when demanded, if payable on demand) and shall
promptly, punctually, and faithfully perform each other Liability.
42- DUE ORGANIZATION. AUTHORIZATION. NO CONFLICTS.
(a) Each Borrower presently is and hereafter shall remain in good standing
as a corporation under the laws of the State in which it is organized, as set
forth in the Preamble to this Agreement and is and shall hereafter remain duly
qualified and in good standing in every other State in which, by reason of the
nature or location of each Borrower's assets or operation of each Borrower's
business, such qualification may be necessary, except where the failure to so
qualify would not have a Material Adverse Effect.
(b) Each Borrower's respective organizational identification number
assigned to it by the State of its incorporation and its respective federal
employer identification number is stated on EXHIBIT 4:4-2, annexed hereto.
44
(c) No Borrower shall change its State of organization; any organizational
identification number assigned to that Borrower by that State; or that
Borrower's federal taxpayer identification number.
(d) Each Affiliate is listed on EXHIBIT 4:4-2. The Lead Borrower shall
provide the Agent with prior written notice of any entity's becoming or ceasing
to be an Affiliate.
(e) Upon entry of the Interim Order, each Borrower will have all requisite
power and authority to execute and deliver all Loan Documents to which that
Borrower is a party and has and will hereafter retain all requisite power to
perform all Liabilities.
(f) Upon entry of the Interim Order, the execution and delivery by each
Borrower of each Loan Document to which it is a party; each Borrower's
consummation of the transactions contemplated by such Loan Documents (including,
without limitation, the creation of Collateral Interests by that Borrower to
secure the Liabilities); each Borrower's performance under those of the Loan
Documents to which it is a party; the borrowings hereunder; and the use of the
proceeds thereof:
(ii) Will be duly authorized by all necessary action.
(iii) Will not, contravene in any material respect any provision of
any Requirement of Law or obligation of that Borrower.
(iv) Will not result in the creation or imposition of, or the
obligation to create or impose, any Encumbrance upon any assets of that
Borrower pursuant to any Requirement of Law or obligation, except pursuant
to the Loan Documents.
(a) Based upon entry of the Interim Order, the Loan Documents have been
duly executed and delivered by each Borrower and are the legal, valid and
binding obligations of each Borrower, enforceable against each Borrower in
accordance with their respective terms.
43- TRADE NAMES.
(a) EXHIBIT 4:4-3, annexed hereto, is a listing of:
(ii) All names under which any Borrower ever conducted its
business after September 11, 1995.
(iii) All Persons with whom any Borrower ever consolidated or
merged, or from whom any Borrower ever acquired in a single
transaction or in a series of related transactions substantially all
of such Person's assets.
(a) The Lead Borrower will provide the Agent with not less than twenty-one
(21) days prior written notice (with reasonable particularity) of any change to
any Borrower's name from that under which that Borrower is conducting its
business at the execution of this Agreement and will not effect such change
unless each Borrower is then in compliance with all provisions of this
Agreement.
45
44- INFRASTRUCTURE.
(a) Each Borrower has and will maintain a sufficient infrastructure to
conduct its business as presently conducted and as contemplated to be conducted
following its execution of this Agreement.
(b) Each Borrower owns and possesses, or has the right to use (and will
hereafter own, possess, or have such right to use) all patents, industrial
designs, trademarks, trade names, trade styles, brand names, service marks,
logos, copyrights, trade secrets, know-how, confidential information, and other
intellectual or proprietary property of any third Person necessary for that
Borrower's conduct of that Borrower's business.
(c) The conduct by each Borrower of that Borrower's business does not
presently infringe (nor will any Borrower conduct its business in the future so
as to infringe) the patents, industrial designs, trademarks, trade names, trade
styles, brand names, service marks, logos, copyrights, trade secrets, know-how,
confidential information, or other intellectual or proprietary property of any
third Person, to the extent that any infringement would have a Material Adverse
Effect.
45- LOCATIONS.
(a) The Collateral, and the books, records, and papers of Borrowers'
pertaining thereto, are kept and maintained solely at the following locations:
(ii) The Lead Borrower's chief executive offices which are at 20
Federal Plaza West, Youngstown, Ohio 44503.
(iii) Those locations which are listed on EXHIBIT 4:4-5, annexed
hereto, which EXHIBIT includes, with respect to each such location, the
name and address of the landlord on the Lease which covers such location
(or an indication that a Borrower owns the subject location) and of all
service bureaus with which any such records are maintained and the names
and addresses of each of then Borrowers' landlords.
(a) Notwithstanding anything herein to the contrary, the Borrowers may
remove and destroy records and papers of the Borrowers pertaining to the
Collateral to the extent that it is consistent with practices of the Borrowers
in effect as of the Petition Date.
(b) No Borrower shall remove any of the Collateral from said chief
executive office or those locations listed on EXHIBIT 4:4-5 except for the
following purposes:
(iv) To accomplish sales of Inventory in the ordinary course of
business.
(v) In connection with the conduct of any Permitted Store Closing
Sales.
(vi) To move Inventory from one such location to another such location
of the same Borrower.
(vii) To utilize such of the Collateral as is removed from such
locations in the ordinary course of business (such as motor vehicles).
(a) No Borrower will execute any Lease other than where each of the
following conditions is satisfied:
(viii) Such execution is in the ordinary course of business.
(ix) Neither such execution nor any Borrower's acting under such Lease
results in any Borrower's becoming in Default.
(x) Not less than fifteen (15) days prior written notice (with
reasonable particularity) is given to the Agent of the execution of the
subject Lease.
46
(xi) Such execution will not result in the Borrowers' opening of one
or more Stores, if the opening of such Store or Stores is otherwise
prohibited by this Agreement.
(a) Each Borrower may alter, modify, or amend any Lease in the ordinary
course of its business ; provided that such alteration, modification or
amendment does not cause any Borrower to become in Default.
(b) During any fiscal year during which this Agreement is in effect the
Borrowers may open and/or relocate those number of Stores reflected in the
forecast furnished to the Agent, provided that such opening and/or relocation
otherwise complies with this Agreement.
(c) On or before October 12, 2001, or as extended in the reasonable
discretion of the Agent, the Borrowers shall obtain an order from the Bankruptcy
Court, acceptable to the Agent, approving and authorizing the Permitted Store
Closing Sales. Other than the Permitted Store Closing Sales the Borrowers shall
not close any additional Stores without the prior written consent of the Agent.
(d) Except as otherwise disclosed pursuant to, or permitted by, this
Section 4:4-5, no tangible personal property of any Borrower is in the care or
custody of any third party or stored or entrusted with a bailee or other third
party and none shall hereafter be placed under such care, custody, storage, or
entrustment.
46- TITLE TO ASSETS.
(a) The Borrowers are, and shall hereafter remain, the owners of the
Collateral free and clear of all Encumbrances with the exceptions of Permitted
Encumbrances.
(b) No Borrower has, and none shall, have, possession of any property on
consignment to that Borrower other than such property disclosed in the Borrowing
Base Certificate.
(c) No Borrower shall acquire or obtain the right to use any Equipment in
which Equipment any third party has an interest, except for:
(ii) Equipment which is used to conduct that Borrower's business.
(iii) Equipment with respect to which the Agent has received an
agreement (substantially in the form of EXHIBIT 4:4-6(c)(ii), annexed
hereto) with the third party which has an interest in such Equipment.
47- INDEBTEDNESS. The Borrowers do not and shall not hereafter have any
Indebtedness with the exceptions of:
(a) Any Indebtedness on account of the Revolving Credit.
(b) The Indebtedness (if any) listed on EXHIBIT 4:4-7, annexed hereto.
(c) Indebtedness incurred in connection with the financing or refinancing
of any Equipment and real estate.
(d) Indebtedness incurred in connection with loans made among Borrowers.
(e) Indebtedness subordinated to the Liabilities, in such amounts and on
such terms and conditions as are acceptable to the Agent incurred in connection
with Permitted Encumbrances.
47
48- INSURANCE.
(a) EXHIBIT 4:4-8, annexed hereto, is a schedule of all insurance policies
owned by the Borrowers or under which any Borrower is the named insured. Each of
such policies is in full force and effect. Neither the issuer of any such policy
nor any Borrower is in material default or material violation of any such
policy.
(b) The Borrowers shall have and maintain at all times insurance covering
such risks, in such amounts, containing such terms, in such form, for such
periods, and written by such companies as may be satisfactory to the Agent.
(c) All insurance carried by the Borrowers shall provide for a minimum of
thirty (30) days' written notice of cancellation to the Agent and all such
insurance which covers the Collateral shall include an endorsement in favor of
the Agent, which endorsement shall provide that the insurance, to the extent of
the Agent's interest therein, shall not be impaired or invalidated, in whole or
in part, by reason of any act or neglect of any Borrower or by the failure of
any Borrower to comply with any warranty or condition of the policy.
(d) The coverage reflected on EXHIBIT 4:4-8 presently satisfies the
foregoing requirements, it being recognized by each Borrower, however, that such
requirements may change hereafter to reflect changing circumstances.
(e) The Lead Borrower shall furnish the Agent from time to time with
certificates or other evidence satisfactory to the Agent regarding compliance by
the Borrowers with the foregoing requirements.
(f) In the event of the failure by the Borrowers to maintain insurance as
required herein, the Agent, at its option, may obtain such insurance, provided,
however, the Agent's obtaining of such insurance shall not constitute a cure or
waiver of any Event of Default occasioned by the Borrowers' failure to have
maintained such insurance.
49- LICENSES. Each license, distributorship, franchise, and similar
agreement issued to, or to which any Borrower is a party is in full force and
effect in all material respects. No party to any such license or agreement is in
default or violation thereof which would have a Material Adverse Effect. No
Borrower has received any notice or threat of cancellation of any such license
or agreement where such cancellation could have a Material Adverse Effect.
48
410- LEASES. EXHIBIT 4:4-10, annexed hereto, is a schedule of all presently
effective Capital Leases. (Exhibit 4:4-5 includes a list of all other presently
effective Leases). Each of such Leases and Capital Leases is in full force and
effect in all material respects. No party to any such Lease or Capital Lease is
in default or violation of any such Lease or Capital Lease (other than a default
resulting from the filing of the Proceedings) which would have a Material
Adverse Effect. No Borrower has received any notice or threat of cancellation of
any such Lease or Capital Lease where such cancellation could have a Material
Adverse Effect. Each Borrower hereby authorizes the Agent at any time and from
time to time to contact any of the Borrowers' respective landlords in accordance
with commercially reasonable lending practices in order to confirm the
Borrowers' continued compliance with the terms and conditions of the Lease(s)
between the subject Borrower and that landlord and to discuss such issues,
concerning the subject Borrower's occupancy under such Lease(s), as the Agent
may determine.
411- REQUIREMENTS OF LAW. Each Borrower is in compliance in all material
respects with, and shall hereafter comply with and use its assets in compliance
in all material respects with, all Requirements of Law if the failure to comply
with any Requirements of Law would have a Material Adverse Effect. No Borrower
has received any notice of any violation of any Requirement of Law where the
effect of such violation could have a Material Adverse Effect.
412- LABOR RELATIONS. Except as described in EXHIBIT 4:4-12:
(a) No Borrower has been, and none is presently a party to any collective
bargaining or other labor contract.
(b) There is not presently pending and, to any Borrower's knowledge, there
is not threatened any of the following:
(ii) Any strike, slowdown, picketing, work stoppage, or employee
grievance process.
(iii) Any proceeding against or affecting any Borrower relating to the
alleged violation of any Applicable Law pertaining to labor relations or
before National Labor Relations Board, the Equal Employment Opportunity
Commission, or any comparable governmental body, organizational activity,
or other labor or employment dispute against or affecting any Borrower,
which, if determined adversely to that Borrower could have a Material
Adverse Effect on that Borrower
(iv) Any lockout of any employees by any Borrower (and no such action
is contemplated by any Borrower).
(v) Any application for the certification of a collective bargaining
agent.
(a) No event has occurred or circumstance exists which could provide the
basis for any work stoppage or other labor dispute.
(b) Each Borrower:
(vi) Has complied in all material respects with all Applicable Law
relating to employment, equal employment opportunity, nondiscrimination,
immigration, wages, hours, benefits, collective bargaining, the payment of
social security and similar taxes, occupational safety and health, and
plant closing, if the failure to comply with any such Applicable Laws would
have a Material Adverse Effect.
(vii) Is not liable for the payment of more than a de minimius amount
of compensation, damages, taxes, fines, penalties, or other amounts,
however designated, for that Borrower's failure to comply with any
Applicable Law referenced in Section 4:4-12(d)(i), the failure of which had
or has a Material Adverse Effect.
49
413- MAINTAIN PROPERTIES. The Borrowers shall:
(a) Keep the Collateral in good order and repair (ordinary reasonable wear
and tear and insured casualty excepted).
(b) Not suffer or cause the waste or destruction of any material part of
the Collateral.
(c) Not use any material portion of the Collateral in violation of any
policy of insurance thereon.
(d) Not sell, lease, or otherwise dispose of any of the Collateral, other
than the following:
(ii) The sale of Inventory in compliance with this Agreement.
(iii) The disposal of Equipment which is obsolete, worn out, damaged
beyond repair, or no longer useful in the business of a Borrower, which
Equipment is replaced to the extent necessary to preserve or improve the
operating efficiency of any Borrower.
(iv) The turning over to the Agent of all Receipts as provided herein.
414- TAXES.
(a) With respect to the Borrowers' federal, state, and local tax liability
and obligations:
(ii) The Lead Borrower, in compliance with all Applicable Law, has
properly filed all returns due to be filed up to the date of this
Agreement.
(iii) Except as described on EXHIBIT 4:4-14:
(B) At no time during the past three (3) years has any Borrower
received from any taxing authority any request to perform any
examination of or with respect to any Borrower nor any other written
notice in any way relating to any claimed failure by any Borrower to
materially comply with all Applicable Law concerning payment of any
taxes or other amounts in the nature of taxes, the failure of which
would have a Material Adverse Effect.
(C) No agreement is extant which waives or extends any statute of
limitations applicable to the right of any taxing authority to assert
a deficiency or make any other claim for or in respect to federal
income taxes.
(D) No issue has been raised in any tax examination of any
Borrower which, by application of similar principles, reasonably could
be expected to result in the assertion of a deficiency for any fiscal
year open for examination, assessment, or claim by any taxing
authority.
(a) The Borrowers shall: pay as they become due and payable, and incurred
subsequent to the filing of the Proceedings, all taxes and unemployment
contributions and other charges of any kind or nature levied, assessed or
claimed against any Borrower or the Collateral by any person or entity whose
claim could result in an Encumbrance upon any asset of any Borrower or by any
governmental authority; properly exercise any trust responsibilities imposed
upon any Borrower by reason of withholding from employees' pay or by reason of
any Borrower's receipt of sales tax or other funds for the account of any third
party; timely make all contributions and other payments as may be required
pursuant to any Employee Benefit Plan now or hereafter established by any
Borrower; and timely file all tax and other returns and other reports with each
governmental authority to whom any Borrower is obligated to so file.
50
415- NO MARGIN STOCK. No Borrower is engaged in the business of extending
credit for the purpose of purchasing or carrying any margin stock (within the
meaning of Regulations U, T, and X of the Board of Governors of the Federal
Reserve System of the United States). No part of the proceeds of any borrowing
hereunder will be used at any time to purchase or carry any such margin stock or
to extend credit to others for the purpose of purchasing or carrying any such
margin stock.
416- ERISA.
(a) Except as described in EXHIBIT 4:4-16(a), neither any Borrower nor any
ERISA Affiliate, since September 11, 1995:
(ii) Violated or failed to be in full compliance with any Borrower's
Employee Benefit Plan it maintains, except where such failure or
noncompliance could not reasonably be expected to have a Material Adverse
Effect.
(iii) Failed timely to file all reports and filings required by ERISA
to be filed by any Borrower, except where such failure or noncompliance
could not reasonably be expected to have a Material Adverse Effect.
(iv) Engaged in any nonexempt "prohibited transactions" or "reportable
events" (respectively as described in ERISA).
(v) Engaged in, or committed, any act such that a tax or penalty
reasonably could be imposed upon any Borrower on account thereof pursuant
to ERISA.
(vi) Accumulated any material cumulative funding deficiency within the
meaning of ERISA.
(vii) Terminated any Employee Benefit Plan such that a lien could be
asserted against any assets of any Borrower on account thereof pursuant to
ERISA.
(viii) Been a member of, contributed to, or have any obligation under
any Employee Benefit Plan which is a multiemployer plan within the meaning
of Section 4001(a) of ERISA.
(a) Neither any Borrower nor any ERISA Affiliate shall ever engage in any
action of the type described in Section 4:4-16(a).
51
417- HAZARDOUS MATERIALS.
(a) Except as described in EXHIBIT 4:4-17(a), no Borrower has since
September 11, 1995: (i) been held legally responsible for any release or threat
of release of any Hazardous Material in violation of any Environmental Laws, or
(ii) received notification of the incurrence of any expense in connection with
the assessment, containment, or removal of any Hazardous Material for which that
Borrower would be responsible.
(b) Each Borrower shall: (i) dispose of any Hazardous Material only in
compliance with all Environmental Laws and (ii) have possession of any Hazardous
Material only in the ordinary course of that Borrower's business and in
compliance with all Environmental Laws.
418- LITIGATION. Except as described in EXHIBIT 4:4-18, annexed hereto, and
the Proceedings, there is not presently pending or threatened by or against any
Borrower any suit, action, proceeding, or investigation which, if determined
adversely to any Borrower, could have a Material Adverse Effect on a Borrower.
419- DIVIDENDS. INVESTMENTS. CORPORATE ACTION. No Borrower shall:
(a) Pay any cash dividend or make any other distribution in respect of any
class of that Borrower's capital stock.
(b) Own, redeem, retire, purchase, or acquire any of any Borrower's capital
stock other than in connection with the creation of a New Borrower (as to which,
see Section 4:4-20).
(c) Invest in or purchase any stock or securities or rights to purchase any
such stock or securities, of any Person, including, without limitation, Avatex
Corporation, other than in connection with the creation of a New Borrower (as to
which, see Section 4:4-20).
(d) Merge or consolidate or be merged or consolidated with or into any
other corporation or other entity.
(e) Consolidate any of that Borrower's operations with those of any other
Person other than of another Borrower.
(f) Organize or create any Affiliate other than in connection with the
creation of a New Borrower (as to which, see Section 4:4-20).
(g) Subordinate any debts or obligations owed to that Borrower by any third
party to any other debts owed by such third party to any other Person.
(h) Acquire any assets other than in the ordinary course and conduct of
that Borrower's business as conducted at the execution of this Agreement, except
for assets acquired in connection with the opening of new stores (as permitted
hereunder), and otherwise with the consent of the Agent, such consent not to be
unreasonably withheld.
52
420- NEW BORROWERS.
(a) Subject to and conditioned on the satisfaction of the requirements
included and referred to in this Section 4:4-20, any Borrower may organize or
create a wholly owned subsidiary (a "New Borrower").
(b) A Borrower may organize or create a New Borrower provided that each of
the following is satisfied:
(ii) The Borrowers are not then and will not thereby be rendered in
Default.
(iii) The Lead Borrower has furnished the Agent with the following by
no less than fifteen (15) days prior to any New Borrower's acquiring any
assets:
(B) A certificate of incorporation for the New Borrower, issued
no more than seven (7) days previous to the date when so furnished, by
the Secretary of State in which that New Borrower is organized.
(C) Certificates of qualification to do business issued by any
State in which such qualification of the New Borrower may be
necessary.
(D) A Certificate of the Secretary of the New Borrower which
includes copies of the resolutions of the New Borrower to become a
party to this Agreement as a "Borrower".
(E) The written assumption agreement (in form reasonably
satisfactory to the Agent) by the New Borrower pursuant to which the
New Borrower assumes all Liabilities as if the New Borrower were a
Borrower immediately prior to such assumption and agreement.
(F) Financing statements to satisfy the requirements of Section
4:4-25 (which relates to additional assurances).
(G) Notifications to the New Borrower's depositories (if
different from that to which notices have previously been provided
pursuant to Section 7:7-1(b)(i)) in form reasonably satisfactory to
the Agent.
(H) Notices to the New Borrower's credit card processor (if
different from that to which notices have previously been provided
pursuant to Section 7:7-2(b)) in form reasonably satisfactory to the
Agent.
(I) All stock certificates (each with a separate transfer power,
executed in blank by the holder thereof) for the New Borrower.
(J) Such other instruments and documents which the Agent
reasonably may request in connection with the subject New Borrower.
(a) Any New Borrower shall be a "Borrower" within the meaning of this
Agreement from the earliest moment that such Person is required to be the
subject of the notice required by Section 4:4-20(b)(ii).
53
421- LOANS. No Borrower shall make any loans or advances to, nor acquire
the Indebtedness of, any Person, provided, however, the foregoing does not
prohibit any of the following:
(a) Advance payments made to that Borrower's suppliers in the ordinary
course.
(b) Advances to that Borrower's officers, employees, and salespersons with
respect to reasonable expenses to be incurred by such officers, employees, and
salespersons for the benefit of that Borrower, which expenses are properly
substantiated by the person seeking such advance and properly reimbursable by
that Borrower.
(c) Advances made to incentivize employees and prospective employees
employed or to be employed as pharmacists, not to exceed $20,000.00 per person
and $200,000.00 in any twelve (12) month period.
(d) Advances made to employees in the nature of bridge loans associated
with relocation expenses, not to exceed $200,000.00 per person and $1,000,000.00
in any twelve (12) month period.
(e) Loans made between two (2) or more Borrowers.
(f) Existing Loans which have been made to Cabot Noble, Inc.
(g) Existing Loans which have been made to Strouss Building Associates.
422- PROTECTION OF ASSETS. The Agent, in the Agent's discretion, and
following written notice to the Lead Borrower, and from time to time, may
discharge any tax or Encumbrance on any of the Collateral, or take any other
action which the Agent may deem necessary or desirable to repair, insure,
maintain, preserve, collect, or realize upon any of the Collateral. The Agent
shall not have any obligation to undertake any of the foregoing and shall have
no liability on account of any action so undertaken except where there is a
specific finding in a judicial proceeding (in which the Agent has had an
opportunity to be heard), from which finding no further appeal is available,
that the Agent had acted in actual bad faith or in a grossly negligent manner.
The Borrowers shall pay to the Agent, on demand, or the Agent, in its
discretion, may add to the Loan Account, all amounts paid or incurred by the
Agent pursuant to this section 4:4-22.
54
423- LINE OF BUSINESS. No Borrower shall engage in any business other than
the business in which it is currently engaged or a business reasonably related
thereto.
424- AFFILIATE TRANSACTIONS. No Borrower shall make any payment, nor give
any value to any Affiliate (other than another Borrower) except for goods and
services actually purchased by that Borrower from, or sold by that Borrower to,
such Affiliate for a price and on terms which shall:
(a) be competitive and fully deductible as an "ordinary and necessary
business expense" and/or fully depreciable under the Internal Revenue Code of
1986 and the Treasury Regulations, each as amended; and
(b) be no less favorable to that Borrower than those which would have been
charged and imposed in an arms length transaction.
425- FURTHER ASSURANCES.
(a) Except for Permitted Encumbrances, no Borrower is the owner of, nor has
it any interest in, any Collateral which, immediately upon the satisfaction of
the conditions precedent to the effectiveness of the credit facility
contemplated hereby (Article 3:) will not be subject to a perfected Collateral
Interest in favor of the Agent (subject only to Permitted Encumbrances) to
secure the Liabilities.
(b) Except for Permitted Encumbrances, no Borrower will hereafter acquire
any asset or any interest in property which is not, immediately upon such
acquisition, subject to such a perfected Collateral Interest in favor of the
Agent to secure the Liabilities (subject only to Permitted Encumbrances).
(c) Each Borrower shall execute and deliver to the Agent such instruments,
documents, and papers, and shall do all such things from time to time hereafter
as the Agent reasonably may request to carry into effect the provisions and
intent of this Agreement; to protect and perfect the Agent's Collateral
Interests in the Collateral; and to comply with all applicable statutes and
laws, and facilitate the collection of the Receivables Collateral. Each Borrower
shall execute all such instruments as may be required by the Agent with respect
to the recordation and/or perfection of the Collateral Interests created or
contemplated herein.
(d) Each Borrower hereby designates the Agent as and for that Borrower's
true and lawful attorney, with full power of substitution, to sign and file any
financing statements in order to perfect or protect the Agent's Collateral
Interests in the Collateral.
(e) Each Borrower hereby authorizes the Agent to file such financing
statements as the Agent determines as appropriate to perfect or protect the
Agent's Collateral Interests in the Collateral.
(f) A carbon, photographic, or other reproduction of this Agreement or of
any financing statement or other instrument executed pursuant to this Section
4:4-25 shall be sufficient for filing to perfect the security interests granted
herein.
55
426- ADEQUACY OF DISCLOSURE.
(a) All financial statements furnished to the Agent and to each Revolving
Credit Lender by each Borrower have been prepared in accordance with GAAP
consistently applied and present fairly the condition of the Borrowers at the
date(s) thereof and the results of operations and cash flows for the period(s)
covered (provided however, that unaudited financial statements are subject to
normal year end adjustments and to the absence of footnotes). Except as
otherwise disclosed in writing by the Lead Borrower to the Agent or in its
filings with the SEC, there has been no material change in the financial
condition, results of operations, or cash flows of the Borrowers since the
date(s) of such financial statements, other than changes in the ordinary course
of business, which changes have not been materially adverse, either singularly
or in the aggregate.
(b) No Borrower has any contingent obligations or obligation under any
Lease or Capital Lease which is not noted in the Borrowers' financial statements
furnished to the Agent and to each Revolving Credit Lender prior to the
execution of this Agreement (except to the extent not required by GAAP).
(c) No document, instrument, agreement, or paper now or hereafter given the
Agent and to each Revolving Credit Lender by or on behalf of each Borrower or
any guarantor of the Liabilities in connection with the execution of this
Agreement by the Agent and to each Revolving Credit Lender contains or will
contain any untrue statement of a material fact or omits or will omit to state a
material fact necessary in order to make the statements therein not misleading.
There is no fact known to any Borrower which has, or which, is reasonably likely
to have, a material adverse effect on the financial condition of any Borrower
which has not been disclosed in writing to the Agent and to each Revolving
Credit Lender.
427- NO RESTRICTIONS ON LIABILITIES. No Borrower shall enter into or
directly or indirectly become subject to any agreement which prohibits or
restricts, in any manner, any Borrower's:
(a) Creation of, and granting of Collateral Interests in favor of the
Agent.
(b) Incurrence of Liabilities.
428- OTHER COVENANTS. No Borrower shall indirectly do or cause to be done
any act which, if done directly by that Borrower, would breach any covenant
contained in this Agreement.
Article 5:- FINANCIAL REPORTING AND PERFORMANCE COVENANTS:
51- MAINTAIN RECORDS. The Borrowers shall:
(a) At all times, keep proper books of account, in which full, true, and
accurate entries shall be made of all of the Borrowers' financial transactions,
all in accordance with GAAP applied consistently with prior periods to fairly
reflect the financial condition of the Borrowers at the close of, and its
results of operations for, the periods in question.
(b) Timely provide the Agent with those financial reports, statements, and
schedules required by this Article 5: or otherwise, each of which reports,
statements and schedules shall be prepared, to the extent applicable, in
accordance with GAAP applied consistently with prior periods to fairly reflect
the financial condition of the Borrowers at the close of, and the results of
operations for, the period(s) covered therein.
56
(c) At all times, keep accurate current records of the Collateral
including, without limitation, accurate current stock, cost, and sales records
of its Inventory, accurately and sufficiently itemizing and describing the
kinds, types, and quantities of Inventory and the cost and selling prices
thereof.
(d) At all times, retain independent certified public accountants who are
reasonably satisfactory to the Agent and instruct such accountants to fully
cooperate with, and be available to, the Agent to discuss the Borrowers'
financial performance, financial condition, operating results, controls, and
such other matters, within the scope of the retention of such accountants, as
may be raised by the Agent.
(e) Not change any Borrower's fiscal year.
52- ACCESS TO RECORDS.
(a) Each Borrower shall accord the Agent with access, at reasonable times,
on reasonable notice, from time to time as the Agent may require to all
properties owned by or over which any Borrower has control. The Agent shall have
the right, and each Borrower will permit the Agent from time to time as Agent
may request, to examine, inspect, copy, and make extracts from any and all of
the Borrowers' books, records, electronically stored data, papers, and files.
Each Borrower shall make all of that Borrower's copying facilities available to
the Agent.
(b) Each Borrower hereby authorizes the Agent to:
(ii) Inspect, copy, duplicate, review, cause to be reduced to hard
copy, run off, draw off, and otherwise use any and all computer or
electronically stored information or data which relates to any Borrower, or
any service bureau, contractor, accountant, or other person, and directs
any such service bureau, contractor, accountant, or other person fully to
cooperate with the Agent with respect thereto.
(iii) Verify at any time the Collateral or any portion thereof,
including verification with Account Debtors, and/or with each Borrower's
computer billing companies, collection agencies, and accountants (such
verification to be undertaken in keeping with commercially reasonable
commercial lending practices) and to sign the name of each Borrower on any
notice to each Borrower's Account Debtors or verification of the
Collateral.
(a) Notwithstanding anything to the contrary herein, no Borrower shall be
required to deliver or disclose any customer pharmacy records to the extent
prohibited by Applicable Law.
(b) The Agent from time to time may designate one or more representatives
to exercise the Agent's rights under this Section 5:5-2 as fully as if the Agent
were doing so.
57
53- IMMEDIATE NOTICE TO AGENT.
(a) The Lead Borrower shall provide the Agent with written notice promptly
upon the occurrence of any of the following events, which written notice shall
be with reasonable particularity as to the facts and circumstances in respect of
which such notice is being given:
(ii) Any change in any Borrower's President, chief executive officer,
chief operating officer, and chief financial officer (without regard to the
title(s) actually given to the Persons discharging the duties customarily
discharged by officers with those titles).
(iii) Any ceasing of any Borrower's making of payment, in the ordinary
course, to any of its creditors (other than its ceasing of making of such
payments on account of a dispute in the ordinary course), other than any
payment due on account of indebtedness incurred prior to the filing of the
Proceedings.
(iv) Any failure by any Borrower to pay rent incurred subsequent to
the filing of the Proceedings at any of that Borrower's locations, which
failure continues for more than Three (3) days following the last day on
which such rent was payable without more than a de minimis adverse effect
to that Borrower.
(v) Any Material Adverse Change.
(vi) Any Borrower's becoming in Default.
(vii) Any intention on the part of any Borrower to discharge that
Borrower's present independent accountants or any withdrawal or resignation
by such independent accountants from their acting in such capacity (as to
which, see Subsection 5:5-1(d)).
(viii) Any litigation which, if determined adversely to any Borrower,
might have a material adverse effect on the financial condition of that
Borrower.
(a) The Lead Borrower shall:
(ix) Provide the Agent, when so distributed, with copies of any
materials distributed to the shareholders of the Lead Borrower (qua such
shareholders).
(x) Provide the Agent:
(B) When filed, copies of all filings with the SEC.
(C) When received, copies of all correspondence from the SEC,
other than routine non-substantive general communications from the
SEC.
(i) Add the Agent as an addressee on all mailing lists maintained by
or for each Borrower.
(ii) At the request of the Agent, from time to time, provide the Agent
with copies of all advertising (including copies of all print advertising
and duplicate tapes of all video and radio advertising).
(iii) Provide the Agent, when received by any Borrower, with a copy of
any management letter or similar communications from any accountant of any
Borrower.
(iv) Provide the Agent and the Agent's counsel with copies, when so
filed or submitted, or as soon as practicable thereafter, of any pleadings
filed in the Proceedings by or on behalf of any Borrower or the submission
by any Borrower of any financial statement to any of the Bankruptcy Court
in which the Proceedings are pending, the office of the United States
Trustee, or any committee appointed in the Proceedings.
58
54- Borrowing Base Certificate. The Lead Borrower shall provide the Agent
with a collateral report and a Borrowing Base Certificate (in the form of
EXHIBIT 5:5-4 annexed hereto, as such form may be revised from time to time by
the Agent) by 2:00PM, weekly, on Friday of each week (as of the then immediately
preceding Saturday). Such Certificate may be sent to the Agent by facsimile
transmission, provided that the original thereof is mailed to the Agent on the
date of such transmission.
55- MONTHLY REPORTS.
Monthly, the Lead Borrower shall provide the Agent with original
counterparts of the following (each in such form as the Agent from time to time
may specify):
(i) Those reports described in EXHIBIT 5:5-5 hereto, at the times set
forth in such EXHIBIT; and
(ii) The officer's compliance certificate described in Section 5:5-8.
56- QUARTERLY REPORTS. Quarterly, within forty five (45) days following the
end of each of the Borrowers' fiscal quarters, the Lead Borrower shall provide
the Agent with the following:
(a) An original counterpart of a management prepared financial statement of
the Borrowers for the period from the beginning of the Borrowers' then current
fiscal year through the end of the subject quarter, with comparative information
for the same period of the previous fiscal year, which statement shall include,
at a minimum, a balance sheet, income statement (on a store specific and on a
"consolidated" basis), statement of changes in shareholders' equity, and cash
flows and comparisons for the corresponding quarter of the then immediately
previous year.
(b) The officer's compliance certificate described in Section 5:5-8.
57- ANNUAL REPORTS.
(a) Annually, within one hundred and five (105) days following the end of
the Borrowers' fiscal year, the Lead Borrower shall furnish the Agent with the
following:
(ii) The Borrowers' annual financial statement, which statement shall
bear the opinion, without material qualification other than a going concern
reservation, of the Lead Borrower's independent certified public
accountants (i.e. said statement shall be "certified" by such accountants)
and shall include, at a minimum (with comparative information for the then
prior fiscal year) a balance sheet, income statement, statement of changes
in shareholders' equity, and cash flows.
(iii) The officer's compliance certificate described in Section 5:5-8.
(a) No later than the earlier of Fifteen (15) days prior to the end of each
of the Borrowers' fiscal years or the date on which such accountants commence
their work on the preparation of the Borrowers' annual financial statement, the
Lead Borrower shall give written notice to such accountants (with a copy of such
notice, when sent, to the Agent) that:
59
(iv) Such annual financial statement will be delivered by the Lead
Borrower to the Agent (for subsequent distribution to each Revolving Credit
Lender).
(v) It is the primary intention of the Borrowers, in its engagement of
such accountants, to satisfy the financial reporting requirements set forth
in this Article 5:.
(vi) The Lead Borrower has been advised that the Agent and each
Revolving Credit Lender will rely thereon with respect to the
administration of, and transactions under, the credit facility contemplated
by this Agreement.
(a) Each annual statement shall be accompanied by such accountant's
Certificate indicating that, in conducting the audit for such annual statement,
nothing came to the attention of such accountants to believe that the Borrowers
are in Default (or that, if the Borrowers are in Default, the facts and
circumstances thereof).
58- OFFICERS' CERTIFICATES. The Lead Borrower shall cause either the Lead
Borrower's President, Chief Financial Officer, or its Controller, in each
instance, to provide such Person's Certificate with those monthly statements
required pursuant to Section 5:5-5(a)(ii), quarterly, and annual statements to
be furnished pursuant to this Agreement, which Certificate shall:
(a) Indicate that, to the best of such Person's knowledge, after inquiry,
the subject statement was prepared in accordance with GAAP consistently applied
and presents fairly the financial condition of the Borrowers at the close of,
and the results of the Borrowers' operations and cash flows for, the period(s)
covered, subject, however to the following:
(ii) Usual year end adjustments (this exception shall not be included
in the Certificate which accompanies such annual statement).
(iii) Material Accounting Changes (in which event, such Certificate
shall include a schedule (in reasonable detail) of the effect of each such
Material Accounting Change) not previously specifically taken into account
in the determination of the financial performance covenant imposed pursuant
to Section 5:5-11.
(a) Indicate either that (i) no Borrower is in Default, or (ii) if such an
event has occurred, its nature (in reasonable detail) and the steps (if any)
being taken or contemplated by the Borrowers to be taken on account thereof.
60
59- INVENTORIES, APPRAISALS, AND AUDITS.
(a) The Agent, at the expense of the Borrowers, may participate in and/or
observe each physical count and/or inventory of so much of the Collateral as
consists of Inventory which is undertaken on behalf of any Borrower.
(b) The Borrowers, at their own expense, shall cause not less than one (1)
physical inventory to be undertaken in each Fiscal year during which this
Agreement is in effect, conducted by such inventory takers as are reasonably
satisfactory to the Agent and following such methodology as is reasonably
satisfactory to the Agent.
(ii) Each such inventory shall be reconciled and recorded in the
Borrowers' financial statements within thirty (30) days of the date
following the completion of such inventory.
(iii) The Lead Borrower, within thirty (30) days following the end of
each month, shall provide the Agent with the results of each such inventory
that was recorded in that month.
(iv) The Agent, in its discretion, if any Borrower is in Default, may
cause such additional inventories to be taken as the Agent determines
(each, at the expense of the Borrowers).
(a) The Agent may obtain appraisals of the Collateral, from time to time
(in all events, at the Borrowers' expense), conducted by such appraisers as are
reasonably satisfactory to the Agent.
(b) The Agent contemplates conducting three (3) commercial finance field
examinations (in each event, at the Borrowers' expense) of the Borrowers' books
and records during any twelve (12) month period during which this Agreement is
in effect, but in its discretion, may undertake additional such audits during
such period.
510- ADDITIONAL FINANCIAL INFORMATION.
(a) In addition to all other information required to be provided pursuant
to this Article 5:, the Lead Borrower promptly shall provide the Agent (and any
guarantor of the Liabilities), with such other and additional information
concerning the Borrowers, the Collateral, the operation of the Borrowers'
business, and the Borrowers' financial condition, as the Agent may from time to
time reasonably request from the Lead Borrower.
(b) The Lead Borrower may provide the Agent, from time to time hereafter,
with updated forecasts of the Borrowers' anticipated performance and operating
results.
(c) In all events, the Lead Borrower, no sooner than Ninety (90) days prior
to the end of each of the Borrowers' fiscal years, shall provide the Agent with
an updated and extended forecast which shall go out at least through the end of
the then next fiscal year and shall include an income statement, balance sheet,
and statement of cash flow, by month, each prepared in conformity with GAAP and
consistent with the Borrowers' then current practices.
61
(d) The Agent and each of the Revolving Credit Lenders agrees that, except
with the prior consent of the Lead Borrower, it will not disclose any
confidential information with respect to the Borrowers which is now or in the
future furnished pursuant to this Agreement or any other Loan Document ,
provided, however, that the Agent and each Revolving Credit Lender may disclose
any such information as follows:
(ii) To the following (but only if the Person to whom so disclosed is
instructed to treat such information as confidential):
(B) To its employees, Affiliates, advisors or counsel.
(C) To any prospective or actual transferee or participant in
connection with any contemplated transfer or participation of this
Agreement, the Liabilities, or any interest therein by the Agent or
any Revolving Credit Lender, which transfer or participation is
permitted by the terms of this Agreement.
(D) To the Agent and other Revolving Credit Lenders.
(i) As has become generally available to the public.
(ii) As may be required or appropriate in any report, statement or
testimony submitted to any municipal, state, or federal regulatory body
having or claiming to have jurisdiction over the Agent or any Revolving
Credit Lender.
(iii) As may be required or appropriate in respect to any summons or
subpoena or in connection with any litigation
(iv) In order to comply with any law, order, regulation or ruling
applicable to the Agent or any Revolving Credit Lender.
511- MINIMUM EXCESS AVAILABILITY. The Borrowers shall not permit Excess
Availability at any time to be less than the greater of (x) $8,000,000.00, or
(y) seven percent (7%) of the Borrowing Base at the time of calculation. For the
purposes of the calculation of Availability under this Section 5-11, cash
deposited in the Concentration Account no later than 1:00 p.m. on the date of
calculation shall be added to the amount of Availability. The Lender may
determine the Borrowers' compliance with such covenants based upon financial
reports and statements provided by the Lead Borrower to the Lender (whether or
not such financial reports and statements are required to be furnished pursuant
to this Agreement) as well as by reference to interim financial information
provided to, or developed by, the Lender.
62
Article 6:- USE OF COLLATERAL:
61- USE OF INVENTORY COLLATERAL.
(a) Except for Permitted Store Closing Sales, no Borrower shall engage
(ii) In any sale of the Inventory other than for (a) fair
consideration in the conduct of the Borrowers' business in the ordinary
course, or (b) dispositions of damaged or unsaleable Inventory consistent
with the Borrowers' historical practices.
(iii) Sales or other dispositions to creditors.
(iv) Sales or other dispositions in bulk.
(v) Sales of any Collateral in breach of any provision of this
Agreement.
(a) No sale of Inventory shall be on consignment, approval, or under any
other circumstances such that, with the exception of the Borrowers' customary
return policy applicable to the return of inventory purchased by the Borrowers'
retail customers in the ordinary course, such Inventory may be returned to a
Borrower without the consent of the Agent.
(b) The Borrowers shall not consent to the return of any item of Collateral
pursuant to Section 546(g)* of the Bankruptcy Code.
62- INVENTORY QUALITY. All Inventory now owned or hereafter acquired by
each Borrower is and will be of good and merchantable quality and free from
material defects (other than defects within customary trade tolerances).
63- ADJUSTMENTS AND ALLOWANCES. Each Borrower may grant such allowances or
other adjustments to that Borrower's Account Debtors (exclusive of extending the
time for payment of any Account or Account Receivable, which shall not be done
without first obtaining the Agent's prior written consent in each instance) as
that Borrower may reasonably deem to accord with sound business practice,
provided, however, the authority granted the Borrowers pursuant to this Section
6:6-3 may be limited or terminated by the Agent at any time in the Agent's
discretion.
64- VALIDITY OF ACCOUNTS.
(a) The amount of each Account shown on the books, records, and invoices of
the Borrowers represented as owing by each Account Debtor is and will be the
correct amount actually owing by such Account Debtor and shall have been fully
earned by performance by the Borrowers.
(b) The Agent from time to time may verify the Receivables Collateral
directly with the Borrowers' Account Debtors, such verification to be undertaken
in keeping with commercially reasonable commercial lending standards.
(c) No Borrower has any knowledge of any impairment of the validity or
collectibility of any of the Accounts. The Lead Borrower shall notify the Agent
of any such impairment immediately after any Borrower becomes aware of any such
impairment.
63
65- NOTIFICATION TO ACCOUNT DEBTORS. The Agent shall have the right (after
an Event of Default has occurred), to notify any of the Borrowers' Account
Debtors to make payment directly to the Agent and to collect all amounts due on
account of the Collateral.
Article 7:- CASH MANAGEMENT. PAYMENT OF LIABILITIES:
71- DEPOSITORY ACCOUNTS.
(a) Annexed hereto as EXHIBIT 7:7-1(a) is a Schedule of all present DDA's,
which Schedule includes, with respect to each depository (i) the name and
address of that depository; (ii) the account number(s) of the account(s)
maintained with such depository; and (iii) a contact person at such depository.
(b) The Lead Borrower shall deliver the following to the Agent, as a
condition to the effectiveness of this Agreement:
(ii) Notification, executed on behalf of each Borrower, to each
depository institution with which any DDA is maintained (other than any
Exempt DDA and the Blocked Account), in form reasonably satisfactory to the
Agent of the Agent's interest in such DDA.
(iii) A Blocked Account Agreement substantially in the form of EXHIBIT
7:7-1(b)(ii), annexed hereto, with any depository institution at which
either of the following conditions applies:
(B) Both any DDA (other than the Operating Account) and the
Operating Account is maintained.
(C) A Blocked Account is maintained.
(a) No Borrower will establish any DDA hereafter (other than an Exempt DDA)
unless, contemporaneous with such establishment, the Lead Borrower delivers the
following to the Agent:
(ii) Notification to the depository at which such DDA is established
if the same would have been required pursuant to Section 7:7-1(b)(ii)(A) if
the subject DDA were open at the execution of this Agreement.
(iii) A Blocked Account Agreement executed on behalf of the depository
at which such DDA is established if the same would have been required
pursuant to Section 7:7-1(b)(ii)(B) if the subject DDA were open at the
execution of this Agreement.
72- CREDIT CARD RECEIPTS.
(a) Annexed hereto as EXHIBIT 7:7-2, is a Schedule which describes all
arrangements to which any Borrower is a party with respect to the payment to
that Borrower of the proceeds of credit card charges for sales by that Borrower.
(b) The Lead Borrower shall deliver to the Agent, as a condition to the
effectiveness of this Agreement, notification, executed on behalf of each
Borrower, to each of each Borrower's credit card clearinghouses and processors
of notice (in form reasonably satisfactory to the Agent), which notice provides
that upon notification by the Agent, payment of all credit card charges
submitted by that Borrower to that clearinghouse or other processor and any
other amount payable to that Borrower by such clearinghouse or other processor
shall be directed to the Blocked Account or as otherwise designated from time to
time by the Agent. No Borrower shall change such direction or designation except
upon and with the prior written consent of the Agent.
64
73- THE CONCENTRATION, BLOCKED, AND OPERATING ACCOUNTS .
(a) The following checking accounts have been or will be established (and
are so referred to herein):
(ii) The "Concentration Account" (so referred to herein): Established
by the Agent with Fleet National Bank.
(iii) The "Blocked Account" (so referred to herein): Established by
the Lead Borrower with PNC Bank and Bank One.
(iv) The "Operating Account" (so referred to herein): Established by
the Borrowers with PNC Bank.
(a) The contents of each DDA (other than the Operating Account) and of the
Blocked Account constitutes Collateral and Proceeds of Collateral. The contents
of the Concentration Account constitutes proceeds of the Collateral.
(b) The Borrowers shall pay all fees and charges of, and maintain such
impressed balances as may be required by the depository in which any account is
opened as required hereby (even if such account is opened by and/or is the
property of the Agent).
74- PROCEEDS AND COLLECTIONS .
(a) All Receipts constitute Collateral and proceeds of Collateral.
(b) All Receipts:
(ii) Shall be held in trust by the Borrowers for the Agent.
(iii) Shall not be commingled with any of any Borrower's other funds.
(iv) Shall be deposited and/or transferred only to the Blocked Account
or the Concentration Account.
(a) The Lead Borrower shall cause the ACH or wire transfer to the Blocked
Account or the Concentration Account (except in those instances in which such
transfer is not within the control of the Lead Borrower or any other Borrower),
no less frequently than daily (and whether or not there is then an outstanding
balance in the Loan Account) of the following:
(v) The then contents of each DDA (other than any Exempt DDA), each
such transfer to be net of any minimum balance, not to exceed $2,000.00, as
may be required to be maintained in the subject DDA by the bank at which
such DDA is maintained.
(vi) The proceeds of all credit card charges not otherwise provided
for pursuant hereto.
(a) In the event that, notwithstanding the provisions of this Section
7:7-4(b), 7:7-4(c) any Borrower receives or otherwise has dominion and control
of any Receipts, or any proceeds or collections of any Collateral, such
Receipts, proceeds, and collections shall be held in trust by that Borrower for
the Agent and shall not be commingled with any of that Borrower's other funds or
deposited in any account of any Borrower other than as instructed by the Agent.
65
75- PAYMENT OF LIABILITIES.
(a) On each Business Day, the Agent shall apply the then collected balance
of the Concentration Account (net of fees charged, and of such impressed
balances as may be required by the bank at which the Concentration Account is
maintained) First, towards the SwingLine Loans and Second, towards the unpaid
balance of the Loan Account and all other Liabilities.
(b) The following rules shall apply to deposits and payments under and
pursuant to this Agreement:
(ii) Funds shall be deemed to have been deposited to the Concentration
Account on the Business Day on which deposited.
(iii) Funds paid to the Agent, other than by deposit to the
Concentration Account, shall be deemed to have been received on the
Business Day when they are good and collected funds, provided that notice
of such payment is available to the Agent by 2:00PM on that Business Day.
(iv) If notice of a deposit to the Concentration Account (Section
7:7-5(b)(i)) or payment (Section 7:7-5(b)(ii)) is not available to the
Agent until after 2:00PM on a Business Day, such deposit or payment shall
be deemed to have been made at 9:00AM on the then next Business Day.
(v) All deposits to the Concentration Account and other payments to
the Agent are subject to clearance and collection.
(a) The Agent shall transfer to the Operating Account any surplus in the
Concentration Account remaining after the application towards the Liabilities
referred to in Section 7:7-5(a), above (less those amount which are to be netted
out, as provided therein) provided, however, in the event that
(vi) any Borrower is in Default; and
(vii) one or more L/C's are then outstanding, then the Agent may
establish a funded reserve of up to 110% of the aggregate Stated Amounts of
such L/C's. Such funded reserve shall either be (i) returned to the Lead
Borrower provided that no Borrower is in Default or (ii) applied towards
the Liabilities following acceleration following the occurrence of any
other Event of Default.
66
76- THE OPERATING ACCOUNT. Except as otherwise specifically provided in, or
permitted by, this Agreement, all check clearings and other disbursements shall
be funded by the Lead Borrower solely from, the Operating Account.
Article 8:- GRANT OF SECURITY INTEREST:
81- GRANT OF SECURITY INTEREST. To secure the Borrowers' prompt, punctual,
and faithful performance of all and each of the Liabilities, each Borrower
hereby grants to the Agent, for the ratable benefit of the Revolving Credit
Lenders, a continuing security interest in and to, and assigns to the Agent, for
the ratable benefit of the Revolving Credit Lenders, the following, and each
item thereof, whether now owned or now due, or in which that Borrower has an
interest, or hereafter acquired, arising, or to become due, or in which that
Borrower obtains an interest, and all products, Proceeds, substitutions, and
accessions of or to any of the following (all of which, together with any other
property in which the Agent may in the future be granted a security interest, is
referred to herein as the "Collateral"):
(a) All Accounts and accounts receivable.
(b) All Inventory.
(c) All General Intangibles.
(d) All Equipment.
(e) All Chattel Paper.
(f) All Letter-of-Credit Rights.
(g) All Payment Intangibles.
(h) All Supporting Obligations.
(i) All books, records, and information relating to the Collateral and/or
to the operation of each Borrower's business, and all rights of access to such
books, records, and information, and all property in which such books, records,
and information are stored, recorded, and maintained.
(j) All Investment Property, Instruments, Documents, Deposit Accounts,
money, policies and certificates of insurance, deposits, impressed accounts,
compensating balances, and cash.
(k) All Leasehold Interests.
(l) All insurance proceeds, refunds, and premium rebates, including,
without limitation, proceeds of fire and credit insurance, whether any of such
proceeds, refunds, and premium rebates arise out of any of the foregoing.
(8:8-1(a) through 8:8-1(j)).
(m) All liens, guaranties, rights, remedies, and privileges pertaining to
any of the foregoing (8:8-1(a) through 8:8-1(l)), including the right of
stoppage in transit.
67
82- EXTENT AND DURATION OF SECURITY INTEREST.
(a) The security interest created and granted herein is in addition to, and
supplemental of, any security interest previously granted by any Borrower to the
Agent and shall continue in full force and effect applicable to all Liabilities
until both (a) all Liabilities have been paid and/or satisfied in full and (b)
the security interest created herein is specifically terminated in writing by a
duly authorized officer of the Agent.
(b) It is intended that the Collateral Interests created herein extend to
and cover all assets of each Borrower other than Bankruptcy Recoveries.
Article 9:- AGENT AS BORROWER'S ATTORNEY-IN-FACT:
91- APPOINTMENT AS ATTORNEY-IN-FACT. Each Borrower hereby irrevocably
constitutes and appoints the Agent as that (acting through any of its officers)
Borrower's true and lawful attorney, with full power of substitution, following
the occurrence of an Event of Default, to convert the Collateral into cash at
the sole risk, cost, and expense of that Borrower. The rights and powers granted
the Agent by this appointment include but are not limited to the right and power
to:
(a) Prosecute, defend, compromise, or release any action relating to the
Collateral.
(b) Sign change of address forms to change the address to which each
Borrower's mail is to be sent to such address as the Agent shall designate;
receive and open each Borrower's mail; remove any Receivables Collateral and
Proceeds of Collateral therefrom and turn over the balance of such mail either
to the Lease Borrower or to any trustee in bankruptcy or receiver of the Lead
Borrower, or other legal representative of a Borrower whom the Agent determines
to be the appropriate person to whom to so turn over such mail.
(c) Endorse the name of the relevant Borrower in favor of the Agent upon
any and all checks, drafts, notes, acceptances, or other items or instruments;
sign and endorse the name of the relevant Borrower on, and receive as secured
party, any of the Collateral, any invoices, schedules of Collateral, freight or
express receipts, or bills of lading, storage receipts, warehouse receipts, or
other documents of title respectively relating to the Collateral.
(d) Sign the name of any Borrower on any notice to the Borrower's Account
Debtors or verification of the Receivables Collateral; sign any Borrower's name
on any Proof of Claim in Bankruptcy against Account Debtors, and on notices of
lien, claims of mechanic's liens, or assignments or releases of mechanic's liens
securing the Accounts.
(e) Take all such action as may be necessary to obtain the payment of any
letter of credit and/or banker's acceptance of which any Borrower is a
beneficiary.
(f) Repair, manufacture, assemble, complete, package, deliver, alter or
supply goods, if any, necessary to fulfill in whole or in part the purchase
order of any customer of each Borrower.
(g) Use, license or transfer any or all General Intangibles of each
Borrower.
68
92- NO OBLIGATION TO ACT. The Agent shall not be obligated to do any of the
acts or to exercise any of the powers authorized by Section 9:9-1 herein, but if
the Agent elects to do any such act or to exercise any of such powers, it shall
not be accountable for more than it actually receives as a result of such
exercise of power, and shall not be responsible to any Borrower for any act or
omission to act except for any act or omission to act as to which there is a
final determination made in a judicial proceeding (in which proceeding the Agent
has had an opportunity to be heard) which determination includes a specific
finding that the subject act or omission to act had been grossly negligent or in
actual bad faith.
Article 10:- EVENTS OF DEFAULT:
The occurrence of any event described in this Article 10: respectively
shall constitute an "Event of Default" herein. Upon the occurrence of any Event
of Default the Agent may, and on the instruction of the SuperMajority Lenders as
provided in Section 13:13-1(b) shall, declare any and all Liabilities shall
become immediately due and payable. The occurrence of any Event of Default shall
also constitute, without notice or demand, a default under all other agreements
between the Agent or any Revolving Credit Lender and any Borrower and
instruments and papers heretofore, now, or hereafter given the Agent or any
Revolving Credit Lender by any Borrower.
101- FAILURE TO PAY THE REVOLVING CREDIT. The failure by any Borrower to
pay when due any principal of, interest on, or fees in respect of, the Revolving
Credit.
102- FAILURE TO MAKE OTHER PAYMENTS. The failure by any Borrower to pay
within five (5) days of when due any payment Liability other than any payment
liability on account of the principal of, or interest on, or fees in respect of,
the Revolving Credit.
103- FAILURE TO PERFORM COVENANT OR LIABILITY (NO GRACE PERIOD) . The
failure by any Borrower to promptly, punctually, faithfully and timely perform,
discharge, or comply with any covenant or Liability included in any of the
following provisions hereof:
Section______Relates to______:
------------------------------
4:4-7 Indebtedness
4:4-19 Dividends. Investments. Other Corporate Actions
4:4-24 Affiliate Transactions
5:5-11 Minimum Excess Availability
Article 7: Cash Management
104- Financial Reporting Requirements. The failure by the Lead Borrower to
promptly, punctually, faithfully and timely perform, discharge, or comply with
the financial reporting requirements included in Article 5, subject, however, to
the following limited number of grace periods applicable to certain of those
requirements:
69
------------------------- ------------ -------------------- ---------------------
REPORT / STATEMENT REQUIRED BY GRACE PERIOD NUMBER OF GRACE
SECTION PERIODS
------------------------- ------------ -------------------- ---------------------
Borrowing Base 5:5:5-4 One Business Day 3 per fiscal Quarter
Certificates
------------------------- ------------ -------------------- ---------------------
Monthly Report (15 Days) 5:5-5 Three Business Day 4 in any 12 months
------------------------- ------------ -------------------- ---------------------
105- FAILURE TO PERFORM COVENANT OR LIABILITY (GRACE PERIOD). The failure
by any Borrower within twenty (20) days following the earlier of any Borrower's
actual knowledge of a breach of any covenant or Liability not described in any
of Sections 10:10-1, 10:10-2, 10:10-3, or 10:10-4 or of its receipt of written
notice from the Agent of the breach of any of any of such covenants or
Liabilities.
106- MISREPRESENTATION. The determination by the Agent that any
representation or warranty at any time made by any Borrower to the Agent or any
Revolving Credit Lender was not true or complete in all material respects when
given.
107- ACCELERATION OF OTHER DEBT. BREACH OF LEASE. The occurrence of any
event such that any Indebtedness of any Borrower in excess of $1,000,000.00 to
any creditor other than the Agent or any Revolving Credit Lender, arising after
the Petition Date, could be accelerated or, without the consent of any Borrower,
any Lease could be terminated (except for any termination in connection with any
Permitted Store Closing Sales) (whether or not the subject creditor or lessor
takes any action on account of such occurrence).
108- DEFAULT UNDER OTHER AGREEMENTS. Except for a default resulting from
the filing of the Proceedings, the occurrence of any breach of any covenant or
Liability imposed by, or of any default under, any agreement (including any Loan
Document) between the Agent or any Revolving Credit Lender and any Borrower or
instrument given by any Borrower to the Agent or any Revolving Credit Lender and
the expiry, without cure, of any applicable grace period (notwithstanding that
the subject Agent or Revolving Credit Lender may not have exercised all or any
of its rights on account of such breach or default).
109- UNINSURED CASUALTY LOSS. The occurrence of any uninsured loss, theft,
damage, or destruction of or to any material portion of the Collateral.
1010- ATTACHMENT. JUDGMENT. RESTRAINT OF BUSINESS.
(a) The entry of any judgment against any Borrower in excess of
$1,000,000.00, which judgment is not satisfied (if a money judgment) or appealed
from (with execution or similar process stayed, whether pursuant to Section 362
of the Bankruptcy Code or otherwise) within fifteen (15) days of its entry.
70
(b) The entry of any order or the imposition of any other process having
the force of law, the effect of which is to restrain in any material way the
conduct by any Borrower of its business in the ordinary course, unless stayed
pursuant to Section 362 of the Bankruptcy Code or otherwise.
1011- MODIFICATION OF BORROWING ORDER. The entry of an order in the
Proceedings, which order constitutes the stay, modification in an adverse
manner, as determined by the Agent in its reasonable discretion, or appealed (if
the Agent determines in its reasonable discretion, after designation of the
issues on appeal, that such appeal could reasonably affect the value of the
Collateral or the Agent's or Lenders' ability to realize upon the Collateral),
or reversal of any Borrowing Order or which otherwise materially adversely
affects, as determined by the Agent in its reasonable discretion, the
effectiveness of any Borrowing Order.
1012- APPOINTMENT OF TRUSTEE OR EXAMINER. The appointment in the
Proceedings of a trustee or of any examiner having expanded powers to operate
all or any part of any Borrower's business.
1013- CONVERSION OF PROCEEDINGS. The conversion of the Proceedings to a
case under Chapter 7 of the Bankruptcy Code.
1014- RELIEF FROM STAY. The entry of any order which provides relief from
the automatic stay otherwise imposed pursuant to Section 362 of the Bankruptcy
Code, which order permits any creditor, other than the Agent, to realize upon,
or to exercise any right or remedy with respect to, any material asset of any
Borrower or to terminate any license, franchise, or similar agreement, where the
exercise of such right or remedy or such realization or termination could have a
material adverse effect on any Borrower's financial condition or ability to
conduct its business in the ordinary course.
1015- DEFAULT BY GUARANTOR. The occurrence of any of the foregoing Events
of Default with respect to any guarantor or endorser of the Liabilities as if
such guarantor were a "Borrower" described therein.
1016- INDICTMENT - FORFEITURE. The indictment of, or institution of any
legal process or proceeding against, any Borrower, under any Applicable Law
where the relief, penalties, or remedies sought or available include the
forfeiture of any property of any Borrower aggregating for all Borrowers an
amount in excess of $1,000,000.00,and/or the imposition of any stay or other
order, the effect of which would have a Material Adverse Effect.
1017- TERMINATION OF GUARANTY. The termination or attempted termination of
any guaranty by any guarantor of the Liabilities.
71
1018- CHALLENGE TO LOAN DOCUMENTS.
(a) Any challenge by or on behalf of any Borrower or any guarantor of the
Liabilities to the validity of any Loan Document or the applicability or
enforceability of any Loan Document which seeks to void, avoid, limit, or
otherwise adversely affect any security interest created by or in any Loan
Document or any payment made pursuant thereto.
(b) Any determination by any court or any other judicial or government
authority that any Loan Document is not enforceable or which voids, avoids,
limits, or otherwise adversely affects any security interest created by any Loan
Document or any payment made pursuant thereto.
1019- CHANGE IN CONTROL. Any Change in Control.
Article 11:- RIGHTS AND REMEDIES UPON DEFAULT:
111- Acceleration. Upon the occurrence of any Event of Default, subject to
the terms of the Borrowing Order, the Agent may (and on the issuance of
Acceleration Notice(s) requisite to the causing of Acceleration, the Agent
shall) declare all Indebtedness of the Borrowers to the Revolving Credit Lenders
to be immediately due and payable and may exercise all of the Agent's Rights and
Remedies as the Agent from time to time thereafter determines as appropriate.
112- RIGHTS OF ENFORCEMENT. Following the occurrence of any Event of
Default, the Agent shall have all of the rights and remedies of a secured party
upon default under the UCC, in addition to which the Agent shall have all and
each of the following rights and remedies:
(a) To give notice to any bank at which any DDA or Blocked Account is
maintained and in which Proceeds of Collateral are deposited, to turn over such
Proceeds directly to the Agent.
(b) To give notice to any customs broker of any of the Borrowers to follow
the instructions of the Agent as provided in any written agreement or
undertaking of such broker in favor of the Agent.
(c) To collect the Receivables Collateral with or without the taking of
possession of any of the Collateral.
(d) To take possession of all or any portion of the Collateral.
(e) To sell, lease, or otherwise dispose of any or all of the Collateral,
in its then condition or following such preparation or processing as the Agent
deems advisable and with or without the taking of possession of any of the
Collateral.
(f) To conduct one or more going out of business sales which include the
sale or other disposition of the Collateral.
(g) To apply the Receivables Collateral or the Proceeds of the Collateral
towards (but not necessarily in complete satisfaction of) the Liabilities.
(h) To exercise all or any of the rights, remedies, powers, privileges, and
discretions under all or any of the Loan Documents.
72
113- SALE OF COLLATERAL.
(a) Any sale or other disposition of the Collateral may be at public or
private sale upon such terms and in such manner as the Agent deems advisable,
having due regard to compliance with any statute or regulation which might
affect, limit, or apply to the Agent's disposition of the Collateral.
(b) The Agent, in the exercise of the Agent's rights and remedies upon
default, may conduct one or more going out of business sales, in the Agent's own
right or by one or more agents and contractors. Such sale(s) may be conducted
upon any premises owned, leased, or occupied by any Borrower. The Agent and any
such agent or contractor, in conjunction with any such sale, may augment the
Inventory with other goods (all of which other goods shall remain the sole
property of the Agent or such agent or contractor). Any amounts realized from
the sale of such goods which constitute augmentations to the Inventory (net of
an allocable share of the costs and expenses incurred in their disposition)
shall be the sole property of the Agent or such agent or contractor and neither
any Borrower nor any Person claiming under or in right of any Borrower shall
have any interest therein.
(c) Unless the Collateral is perishable or threatens to decline speedily in
value, or is of a type customarily sold on a recognized market (in which event
the Agent shall provide the Lead Borrower such notice as may be practicable
under the circumstances), the Agent shall give the Lead Borrower at least ten
(10) days prior written notice of the date, time, and place of any proposed
public sale, and of the date after which any private sale or other disposition
of the Collateral may be made. Each Borrower agrees that such written notice
shall satisfy all requirements for notice to that Borrower which are imposed
under the UCC or other applicable law with respect to the exercise of the
Agent's rights and remedies upon default.
(d) The Agent and any Revolving Credit Lender may purchase the Collateral,
or any portion of it at any sale held under this Article.
(e) If any of the Collateral is sold, leased, or otherwise disposed of by
the Agent on credit, the Liabilities shall not be deemed to have been reduced as
a result thereof unless and until payment is finally received thereon by the
Agent.
(f) The Agent shall apply the proceeds of the Agent's exercise of its
rights and remedies upon default pursuant to this Article 11: in accordance with
Sections 13:13-6 and 13:13-7.
114- OCCUPATION OF BUSINESS LOCATION. In connection with the Agent's
exercise of the Agent's rights under this Article 11:, the Agent may enter upon,
occupy, and use any premises owned or occupied by each Borrower, and may exclude
each Borrower from such premises or portion thereof as may have been so entered
upon, occupied, or used by the Agent. The Agent shall not be required to remove
any of the Collateral from any such premises upon the Agent's taking possession
thereof, and may render any Collateral unusable to the Borrowers. In no event
shall the Agent be liable to any Borrower for use or occupancy by the Agent of
any premises pursuant to this Article 11:, nor for any charge (such as wages for
any Borrower's employees and utilities) incurred in connection with the Agent's
exercise of the Agent's Rights and Remedies.
73
115- GRANT OF NONEXCLUSIVE LICENSE. Each Borrower hereby grants to the
Agent a royalty free nonexclusive irrevocable license to use, apply, and affix
any trademark, trade name, logo, or the like in which any Borrower now or
hereafter has rights, such license being with respect to the Agent's exercise of
the rights hereunder including, without limitation, in connection with any
completion of the manufacture of Inventory or sale or other disposition of
Inventory.
116 -ASSEMBLY OF COLLATERAL. The Agent may require any Borrower to assemble
the Collateral and make it available to the Agent at the Borrowers' sole risk
and expense at a place or places which are reasonably convenient to both the
Agent and the Lead Borrower.
117 -RIGHTS AND REMEDIES. The rights, remedies, powers, privileges, and
discretions of the Agent hereunder (herein, the Agent's Rights and Remedies")
shall be cumulative and not exclusive of any rights or remedies which it would
otherwise have. No delay or omission by the Agent in exercising or enforcing any
of the Agent's Rights and Remedies shall operate as, or constitute, a waiver
thereof. No waiver by the Agent of any Event of Default or of any default under
any other agreement shall operate as a waiver of any other default hereunder or
under any other agreement. No single or partial exercise of any of the Agent's
Rights or Remedies, and no express or implied agreement or transaction of
whatever nature entered into between the Agent and any person, at any time,
shall preclude the other or further exercise of the Agent's Rights and Remedies.
No waiver by the Agent of any of the Agent's Rights and Remedies on any one
occasion shall be deemed a waiver on any subsequent occasion, nor shall it be
deemed a continuing waiver. The Agent's Rights and Remedies may be exercised at
such time or times and in such order of preference as the Agent may determine.
The Agent's Rights and Remedies may be exercised without resort or regard to any
other source of satisfaction of the Liabilities.
Article 12:- REVOLVING CREDIT FUNDINGS AND DISTRIBUTIONS:
121- REVOLVING CREDIT FUNDING PROCEDURES. Subject to Section 12:12-2:
(a) The Agent shall advise each Revolving Credit Lender, no later than
2:00PM on a date on which any Revolving Credit Loan (other than a SwingLine
Loan) is to be made on that date. Such advice, in each instance, may be by
telephone or facsimile transmission, provided that if such advice is by
telephone, it shall be confirmed in writing. Advice of a Revolving Credit Loan
shall include the amount of and interest rate applicable to the subject
Revolving Credit Loan.
(b) Subject to that Revolving Credit Lender's Revolving Credit Dollar
Commitment, each Revolving Credit Lender, by no later than the end of business
on the day on which the subject Revolving Credit Loan is to be made, shall
Transfer that Revolving Credit Lender's Revolving Credit Commitment Percentage
of the subject Revolving Credit Loan to the Agent.
74
122- SWINGLINE LOANS.
(a) In the event that, when a Revolving Credit Loan is requested, the
aggregate unpaid balance of the SwingLine Loan is less than the SwingLine Loan
Ceiling, then the SwingLine Lender may advise the Agent that the SwingLine
Lender has determined to include up to the amount of the requested Revolving
Credit Loan as part of the SwingLine Loan. In such event, the SwingLine Lender
shall Transfer the amount of the requested Revolving Credit Loan to the Agent.
(b) The SwingLine Loan shall be converted to a Revolving Credit Loan in
which all Revolving Credit Lenders participate as follows:
(ii) At any time and from time to time, the SwingLine Lender may
advise the Agent that all, or any part of the SwingLine Loan is to be
converted to a Revolving Credit Loan in which all Revolving Credit Lenders
participate, provided that if the Agent is not so advised by the SwingLine
Lender, then all SwingLine Loans shall be converted to Revolving Credit
Loans in which all Revolving Credit Lenders participate no less frequently
than weekly.
(iii) At the initiation of a Liquidation, the then entire unpaid
principal balance of the SwingLine Loan shall be converted to a Revolving
Credit Loan in which all Revolving Credit Lenders participate.
In either such event, the Agent shall advise each Revolving Credit Lender of
such conversion as if, and with the same effect as if such conversion were the
making of a Revolving Credit Loan as provided in Section 12:12-1.
(a) The SwingLine Lender, in separate capacities, may also be the Agent and
a Revolving Credit Lender.
(b) The SwingLine Lender, in its capacity as SwingLine Lender, is not a
"Revolving Credit Lender" for any of the following purposes:
(iv) Except as otherwise specifically provided in the relevant
Section, any distribution pursuant to Section 13:13-6.
(v) Determination of whether the requisite Loan Commitments have
Consented to action requiring such Consent.
123- AGENT'S COVERING OF FUNDINGS:
(a) Each Revolving Credit Lender shall make available to the Agent, as
provided herein, that Revolving Credit Lender's Revolving Credit Commitment
Percentage of the following:
(ii) Each Revolving Credit Loan, up to the maximum amount of that
Revolving Credit Lender's Revolving Credit Dollar Commitment of the
Revolving Credit Loans.
(iii) Up to the maximum amount of that Revolving Credit Lender's
Revolving Credit Dollar Commitment of each L/C Drawing (to the extent that
such L/C Drawing is not "covered" by a Revolving Credit Loan as provided
herein).
(a) In all circumstances, the Agent may:
(iv) Assume that each Revolving Credit Lender, subject to Section
12:12-3(a), timely shall make available to the Agent that Revolving Credit
Lender's Revolving Credit Commitment Percentage of each Revolving Credit
Loan, notice of which is provided pursuant to Section 12:12-1.
(v) In reliance upon such assumption, make available the corresponding
amount to the Borrowers.
(vi) Assume that each Revolving Credit Lender timely shall pay, and
shall make available, to the Agent all other amounts which that Revolving
Credit Lender is obligated to so pay and/or make available hereunder or
under any of the Loan Documents.
75
(a) In the event that, in reliance upon any of such assumptions, the Agent
makes available, a Revolving Credit Lender's Revolving Credit Commitment
Percentage of one or more Revolving Credit Loans, or any other amount to be made
available hereunder or under any of the Loan Documents, which amount a Revolving
Credit Lender (a "Delinquent Revolving Credit Lender") fails to provide to the
Agent within One (1) Business Day of written notice of such failure, then:
(vii) The amount which had been made available by the Agent is an "
Agent's Cover" (and is so referred to herein).
(viii) All interest paid by the Borrowers on account of the Revolving
Credit Loan or coverage of the subject L/C Drawing which consist of the
Agent's Cover shall be retained by the Agent until the Agent's Cover, with
interest, has been paid.
(ix) The Delinquent Revolving Credit Lender shall pay to the Agent, on
demand, interest at a rate equal to the prevailing federal funds rate on
any Agent's Cover in respect of that Delinquent Revolving Credit Lender.
(x) The Agent shall have succeeded to all rights to payment to which
the Delinquent Revolving Credit Lender otherwise would have been entitled
hereunder in respect of those amounts paid by or in respect of the
Borrowers on account of the Agent's Cover together with interest until it
is repaid. Such payments shall be deemed made first towards the amounts in
respect of which the Agent's Cover was provided and only then towards
amounts in which the Delinquent Revolving Credit Lender is then
participating. For purposes of distributions to be made pursuant to Section
12:12-4(a) (which relates to ordinary course distributions) or Section
13:13-6 (which relates to distributions of proceeds of a Liquidation)
below, amounts shall be deemed distributable to a Delinquent Revolving
Credit Lender (and consequently, to the Agent to the extent to which the
Agent is then entitled) at the highest level of distribution (if
applicable) at which the Delinquent Revolving Credit Lender would otherwise
have been entitled to a distribution.
(xi) Subject to Subsection 12:12-3(c)(iv), the Delinquent Revolving
Credit Lender shall be entitled to receive any payments from the Borrowers
to which the Delinquent Revolving Credit Lender is then entitled, provided
however there shall be deducted from such amount and retained by the Agent
any interest to which the Agent is then entitled on account of Section
12:12-3(c)(ii), above.
(a) A Delinquent Revolving Credit Lender shall not be relieved of any
obligation of such Delinquent Revolving Credit Lender hereunder (all and each of
which shall constitute continuing obligations on the part of any Delinquent
Revolving Credit Lender).
(b) A Delinquent Revolving Credit Lender may cure its status as a
Delinquent Revolving Credit Lender by paying the Agent the aggregate of the
following:
(xii) The Agent's Cover (to the extent not previously repaid by the
Borrowers and retained by the Agent in accordance with Subsection
12:12-3(c)(iv), above) with respect to that Delinquent Revolving Credit
Lender.
Plus
(xiii) The aggregate of the amount payable under Subsection
12:12-3(c)(iii), above (which relates to interest to be paid by that
Delinquent Revolving Credit Lender).
Plus
(xiv) All such costs and expenses as may be incurred by the Agent in
the enforcement of the Agent's rights against such Delinquent Revolving
Credit Lender.
76
124- ORDINARY COURSE DISTRIBUTIONS. (This Section 12:12-4 applies unless
the provisions of Section 13:13-6 (which relates to distributions in the event
of a Liquidation) becomes operative).
(a) Weekly, on such day as may be set from time to time by the Agent (or
more frequently at the Agent's option) the Agent and each Revolving Credit
Lender shall settle up on amounts advanced under the Revolving Credit and
collected funds received in the Concentration Account.
(b) The Agent shall distribute to the SwingLine Lender and to each
Revolving Credit Lender, such Person's respective Pro-Rata share of interest
payments on the Revolving Credit Loans when actually received and collected by
the Agent. For purposes of calculating interest due to a Revolving Credit
Lender, that Revolving Credit Lender shall be entitled to receive interest on
the actual amount contributed by that Revolving Credit Lender towards the
principal balance of the Revolving Credit Loans outstanding during the
applicable period covered by the interest payment made by the Borrowers. Any net
principal reductions to the Revolving Credit Loans received by the Agent in
accordance with the Loan Documents during such period shall not reduce such
actual amount so contributed, for purposes of calculation of interest due to
that Revolving Credit Lender, until the Agent has distributed to that Revolving
Credit Lender its pro-rata share thereof.
(c) The Agent shall distribute fees paid on account of the Revolving
Credit, as follows:
(i) The Agent shall pay each Revolving Credit Lender a portion of the
Revolving Credit Commitment Fee in accordance with the terms of the letter
agreement between the Agent and such Revolving Credit Lender within two (2)
Business days after such Person becomes a Revolving Credit Lender
hereunder.
(ii) The Agent shall distribute the Unused Fee, the L/C Fees, and the
Early Termination Fees to the Revolving Credit Lenders pro rata based upon
their respective Revolving Credit Commitment Percentages, within two (2)
Business Days after the Agent's receipt thereof.
(d) No Revolving Credit Lender shall have any interest in, or right to
receive any part of, the Agent's Fee to be paid by the Borrowers to the Agent
pursuant to this Agreement.
(e) Any amount received by the Agent as reimbursement for any cost or
expense (including without limitation, reasonable attorneys' fees) shall be
distributed by the Agent to that Person which is entitled to such reimbursement
as provided in this Agreement (and if such Person(s) is (are) the Revolving
Credit Lenders, pro-rata based upon their respective Revolving Credit Commitment
Percentages at the date on which the expense, in respect of which such
reimbursement is being made, was incurred).
(f) Each distribution pursuant to this Section 12:12-4 is subject to
Section 12:12-3(c), above.
77
Article 13:- ACCELERATION AND LIQUIDATION:
131- ACCELERATION NOTICES
(a) The Agent may give the Revolving Credit Lenders an Acceleration Notice
at any time following the occurrence of an Event of Default.
(b) The SuperMajority Lenders may give the Agent an Acceleration Notice at
any time following the occurrence of an Event of Default. Such notice may be by
multiple counterparts, provided that counterparts executed by the requisite
Revolving Credit Lenders are received by the Agent within a period of five (5)
consecutive Business Days.
132- ACCELERATION Unless stayed by judicial or statutory process, the Agent
shall Accelerate the Revolving Credit Obligations within a commercially
reasonable time following:
(a) The Agent's giving of an Acceleration Notice to the Revolving Credit
Lenders as provided in Section 13:13-1(a).
(b) The Agent's receipt of an Acceleration Notice from the SuperMajority
Lenders, in compliance with Section 13:13-1(b) .
133- INITIATION OF LIQUIDATION Unless stayed by judicial or statutory
process, a Liquidation shall be initiated by the Agent within a commercially
reasonable time following Acceleration of the Revolving Credit Obligations.
78
134- ACTIONS AT AND FOLLOWING INITIATION OF LIQUIDATION
(a) At the initiation of a Liquidation:
(ii) The unpaid principal balance of the SwingLine Loan (if any) shall
be converted, pursuant to Section 12:12-2(b)(ii), to a Revolving Credit
Loan in which all Revolving Credit Lenders participate.
(iii) The Agent and the Revolving Credit Lenders shall "net out" each
Revolving Credit Lender's respective contributions towards the Revolving
Credit Loans, so that each Revolving Credit Lender holds that Revolving
Credit Lender's Revolving Credit Commitment Percentage of the Revolving
Credit Loans and advances.
(a) Following the initiation of a Liquidation, each Revolving Credit Lender
shall contribute, towards any L/C thereafter honored and not immediately
reimbursed by the Borrowers, that Revolving Credit Lender's Revolving Credit
Commitment Percentage of such honoring.
135- AGENT'S CONDUCT OF LIQUIDATION
(a) Any Liquidation shall be conducted by the Agent, with the advice and
assistance of the Revolving Credit Lenders.
(b) The Agent may establish one or more Nominees to "bid in" or otherwise
acquire ownership to any Post Foreclosure Asset.
(c) The Agent shall manage the Nominee and manage and dispose of any Post
Foreclosure Assets with a view towards the realization of the economic benefits
of the ownership of the Post Foreclosure Assets and in such regard, the Agent
and/or the Nominee may operate, repair, manage, maintain, develop, and dispose
of any Post Foreclosure Asset in such manner as the Agent determines as
appropriate under the circumstances.
(d) The Agent may decline to undertake or to continue taking a course of
action or to execute an action plan (whether proposed by the Agent or any
Revolving Credit Lender) unless indemnified to the Agent's satisfaction by the
Revolving Credit Lenders against any and all liability and expense which may be
incurred by the Agent by reason of taking or continuing to take that course of
action or action plan.
(e) Each Revolving Credit Lender shall execute all such instruments and
documents not inconsistent with the provisions of this Agreement as the Agent
and/or the Nominee reasonably may request with respect to the creation and
governance of any Nominee, the conduct of the Liquidation, and the management
and disposition of any Post Foreclosure Asset.
136- DISTRIBUTION OF LIQUIDATION PROCEEDS:
(a) The Agent may establish one or more reasonably funded reserve accounts
into which proceeds of the conduct of any Liquidation may be deposited in
anticipation of future expenses which may be incurred by the Agent in the
exercise of rights as a secured creditor of the Borrowers and prior claims which
the Agent anticipates may need to be paid.
(b) The Agent shall distribute the net proceeds of Liquidation in
accordance with the relative priorities set forth in Section 13:13-7.
(c) Each Revolving Credit Lender, on the written request of the Agent
and/or any Nominee, not more frequently than once each month, shall reimburse
the Agent and/or any Nominee, pro-rata, for any cost or expense reasonably
incurred by the Agent and/or the Nominee in the conduct of a Liquidation, which
amount is not covered out of current proceeds of the Liquidation, which
reimbursement shall be paid over to and distributed by the Agent.
79
137- RELATIVE PRIORITIES TO PROCEEDS OF LIQUIDATION The relative priorities
to the proceeds of a Liquidation are as follows:
(a) To the Agent as reimbursement for all reasonable third party costs and
expenses incurred by the Agent and to Lenders' Special Counsel and to any funded
reserve established pursuant to Section 13:13-6(a); and then
(b) To the SwingLine Lender, on account of any SwingLine loans not
converted to Revolving Credit Loans pursuant to Section 13:13-4(a)(i); and then
(c) To the Revolving Credit Lenders (other than any Delinquent Revolving
Credit Lender), pro-rata, to the unpaid principal balance of the Revolving
Credit; and then
(d) To the Revolving Credit Lenders (other than any Delinquent Revolving
Credit Lender), pro-rata, to accrued interest on the Revolving Credit; and then
(e) To the Revolving Credit Lenders (other than any Delinquent Revolving
Credit Lender), pro-rata, to those fees distributable hereunder to the Revolving
Credit Lenders; and then
(f) To any Delinquent Revolving Credit Lenders, pro-rata to amounts to
which such Revolving Credit Lenders otherwise would have been entitled pursuant
to Sections 13:13-7(c), 13:13-7(d), 13:13-7(e) ; and then
(g) To the Revolving Credit Lenders, pro-rata, to the extent of the
Revolving Credit Early Termination Fee; and then
(h) To any other Liabilities.
Article 14:- THE AGENT:
141 -APPOINTMENT OF THE AGENT
(a) Each Lender appoints and designates Fleet Retail Finance Inc. as the
"Agent" hereunder and under the Loan Documents.
(b) Each Revolving Credit Lender authorizes the Agent:
(ii) To execute those of the Loan Documents and all other instruments
relating thereto to which the Agent is a party.
(iii) To take such action on behalf of the Revolving Credit Lenders
and to exercise all such powers as are expressly delegated to the Agent
hereunder and in the Loan Documents and all related documents, together
with such other powers as are reasonably incident thereto.
(a) Heller Financial, Inc. has been granted the title of " Co-Agent and
Documentation Agent", in which capacity, it shall not have any rights nor any
responsibilities. It may resign such position, at any time, on written notice to
the Agent; and shall cease to be Co-Agent and Documentation Agent
contemporaneous with its ceasing to be a Revolving Credit Lender.
80
142- RESPONSIBILITIES OF AGENT
(a) The Agent shall not have any duties or responsibilities to, or any
fiduciary relationship with, any Revolving Credit Lender except for those
expressly set forth in this Agreement.
(b) Neither the Agent nor any of its Affiliates shall be responsible to any
Revolving Credit Lender for any of the following:
(ii) Any recitals, statements, representations or warranties made by
any Borrower or any other Person.
(iii) Any appraisals or other assessments of the assets of any
Borrower or of any other Person responsible for or on account of the
Liabilities.
(iv) The value, validity, effectiveness, genuineness, enforceability,
or sufficiency of the Loan Agreement, the Loan Documents or any other
document referred to or provided for therein.
(v) Any failure by any Borrower or any other Person (other than the
Agent) to perform its obligations under the Loan Documents.
(a) The Agent may employ attorneys, accountants, and other professionals
and agents and attorneys-in-fact and shall not be responsible for the negligence
or misconduct of any such attorneys, accountants, and other professionals or
agents or attorneys-in-fact selected by the Agent with reasonable care. No such
attorney, accountant, other professional, agent, or attorney-in-fact shall be
responsible for any action taken or omitted to be taken by any other such
Person.
(b) Neither the Agent, nor any of its directors, officers, or employees
shall be responsible to any Revolving Credit Lender for any action taken or
omitted to be taken or omitted to be taken by any other of them in connection
herewith in reliance upon advice of its counsel nor, in any other event except
for any action taken or omitted to be taken as to which a final judicial
determination has been or is made (in a proceeding in which such Person has had
an opportunity to be heard) that such Person had acted in a grossly negligent
manner, in actual bad faith, or in willful misconduct.
(c) The Agent shall not have any responsibility in any event for more funds
than the Agent actually receives and collects.
(d) The Agent, in its separate capacity as a Lender, shall have the same
rights and powers hereunder as any other Lender.
(e) The Syndication Agent (except as provided in the commitment letter for
this transaction) shall have no powers, rights, duties or responsibilities with
respect to this Agreement and the other Loan Documents.
81
143- CONCERNING DISTRIBUTIONS BY THE AGENT
(a) The Agent in the Agent's reasonable discretion based upon the Agent's
determination of the likelihood that additional payments will be received,
expenses incurred, and/or claims made by third parties to all or a portion of
such proceeds, may delay the distribution of any payment received on account of
the Liabilities.
(b) The Agent may disburse funds prior to determining that the sums which
the Agent expects to receive have been finally and unconditionally paid to the
Agent. If and to the extent that the Agent does disburse funds and it later
becomes apparent that the Agent did not then receive a payment in an amount
equal to the sum paid out, then any Revolving Credit Lender to whom the Agent
made the funds available, on demand from the Agent, shall refund to the Agent
the sum paid to that person.
(c) If, in the opinion of the Agent, the distribution of any amount
received by the Agent might involve the Agent in liability, or might be
prohibited hereby, or might be questioned by any Person, then the Agent may
refrain from making distribution until the Agent's right to make distribution
has been adjudicated by a court of competent jurisdiction.
(d) The proceeds of any Revolving Credit Lender's exercise of any right of,
or in the nature of, set-off shall be deemed, First, to the extent that a
Revolving Credit Lender is entitled to any distribution hereunder, to constitute
such distribution and Second, shall be shared with the other Revolving Credit
Lenders as if distributed pursuant to (and shall be deemed as distributions
under) Section 13:13-7.
(e) Each Revolving Credit Lender recognizes that the crediting of the
Borrowers with the "proceeds" of any transaction in which a Post Foreclosure
Asset is acquired is a non-cash transaction and that, in consequence, no
distribution of such "proceeds" will be made by the Agent to any Lender.
(f) In the event that (x) a court of competent jurisdiction shall adjudge
that any amount received and distributed by the Agent is to be repaid or
disgorged or (y) the SuperMajority Lenders determine to effect such repayment or
disgorgement, then each Revolving Credit Lender to which any such distribution
shall have been made shall repay, to the Agent which had made such distribution,
that Revolving Credit Lender's Pro-Rata share of the amount so adjudged or
determined to be repaid or disgorged.
144- DISPUTE RESOLUTION: Any dispute among the Revolving Credit Lenders
and/or the Agent concerning the interpretation, administration, or enforcement
of the financing arrangements contemplated by this or any other Loan Document or
the interpretation or administration of this or any other Loan Document which
cannot be resolved amicably shall be resolved in the United States District
Court for the District of Massachusetts, sitting in Boston or in the Superior
Court of Suffolk County, Massachusetts, to the jurisdiction of which courts each
Revolving Credit Lender hereto hereby submits.
82
145- DISTRIBUTIONS OF NOTICES AND OF DOCUMENTS The Agent will forward to
each Revolving Credit Lender, promptly after the Agent's receipt thereof, a copy
of each notice or other document furnished to the Agent pursuant to this
Agreement, including monthly, quarterly, and annual financial statements
received from the Lead Borrower pursuant to Article 5: of this Agreement, other
than any of the following:
(a) Routine communications associated with requests for Revolving Credit
Loans and/or the issuance of L/C's.
(b) Routine or nonmaterial communications.
(c) Any notice or document required by any of the Loan Documents to be
furnished to the Revolving Credit Lenders by the Lead Borrower.
(d) Any notice or document of which the Agent has knowledge that such
notice or document had been forwarded to the Revolving Credit Lenders other than
by the Agent.
146- CONFIDENTIAL INFORMATION
(a) Each Revolving Credit Lender will maintain, as confidential, all of the
following:
(ii) Proprietary approaches, techniques, and methods of analysis which
are applied by the Agent in the administration of the credit facility
contemplated by this Agreement.
(iii) Proprietary forms and formats utilized by the Agent in providing
reports to the Revolving Credit Lenders pursuant hereto, which forms or
formats are not of general currency.
(a) Nothing included herein shall prohibit the disclosure of any such
information as may be required to be provided by judicial process or by
regulatory authorities having jurisdiction over any party to this Agreement.
147- RELIANCE BY AGENT The Agent shall be entitled to rely upon any
certificate, notice or other document (including any cable, telegram, telex, or
facsimile) reasonably believed by the Agent to be genuine and correct and to
have been signed or sent by or on behalf of the proper person or persons, and
upon advice and statements of attorneys, accountants and other experts selected
by the Agent. As to any matters not expressly provided for in this Agreement,
any Loan Document, or in any other document referred to therein, the Agent shall
in all events be fully protected in acting, or in refraining from acting, in
accordance with the applicable Consent required by this Agreement. Instructions
given with the requisite Consent shall be binding on all Revolving Credit
Lenders.
83
148- NON-RELIANCE ON AGENT AND OTHER REVOLVING CREDIT LENDERS
(a) Each Revolving Credit Lender represents to all other Revolving Credit
Lenders and to the Agent that such Revolving Credit Lender:
(ii) Independently and without reliance on any representation or act
by Agent or by any other Revolving Credit Lender, and based on such
documents and information as that Revolving Credit Lender has deemed
appropriate, has made such Revolving Credit Lender's own appraisal of the
financial condition and affairs of the Borrowers and decision to enter into
this Agreement.
(iii) Has relied upon that Revolving Credit Lender's review of the
Loan Documents by that Revolving Credit Lender and by counsel to that
Revolving Credit Lender as that Revolving Credit Lender deemed appropriate
under the circumstances.
(a) Each Revolving Credit Lender agrees that such Revolving Credit Lender,
independently and without reliance upon Agent or any other Revolving Credit
Lender, and based upon such documents and information as such Revolving Credit
Lender shall deem appropriate at the time, will continue to make such Revolving
Credit Lender's own appraisals of the financial condition and affairs of the
Borrowers when determining whether to take or not to take any discretionary
action under this Agreement.
(b) The Agent, in the discharge of that Agent's duties hereunder, shall not
be required to make inquiry of, or to inspect the properties or books of, any
Person.
(c) Except for notices, reports, and other documents and information
expressly required to be furnished to the Revolving Credit Lenders by the Agent
hereunder (as to which, see Section 14:14-5), the Agent shall not have any
affirmative duty or responsibility to provide any Lender with any credit or
other information concerning any Person, which information may come into the
possession of Agent or any Affiliate of the Agent.
(d) Each Revolving Credit Lender, at such Revolving Credit Lender's
request, shall have reasonable access to all nonprivileged documents in the
possession of the Agent, which documents relate to the Agent's performance of
its duties hereunder.
149- INDEMNIFICATION Without limiting the liabilities of the Borrowers
under any this or any of the other Loan Documents, each Revolving Credit Lender
shall indemnify the Agent, Pro-Rata, for any and all liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses or
disbursements of any kind or nature whatsoever (including reasonable attorneys'
fees and expenses and other out-of-pocket expenditures) which may at any time be
imposed on, incurred by, or asserted against the Agent and in any way relating
to or arising out of this Agreement or any other Loan Document or any documents
contemplated by or referred to therein or the transactions contemplated thereby
or the enforcement of any of terms hereof or thereof or of any such other
documents, provided, however, no Revolving Credit Lender shall be liable for any
of the foregoing to the extent that any of the foregoing arises from any action
taken or omitted to be taken by the Agent as to which a final judicial
determination has been or is made (in a proceeding in which the Agent has had an
opportunity to be heard) that the Agent had acted in a grossly negligent manner,
in actual bad faith, or in willful misconduct.
84
1410- RESIGNATION OF AGENT
(a) The Agent may resign at any time by giving 60 days prior written notice
thereof to the Revolving Credit Lenders. Upon receipt of any such notice of
resignation, the SuperMajority Lenders shall have the right to appoint a
successor to such Agent (and if no Event of Default has occurred, with the
consent of the Lead Borrower, not to be unreasonably withheld and, in any event,
deemed given by the Lead Borrower if no written objection is provided by the
Lead Borrower to the (resigning) Agent within seven (7) Business Days notice of
such proposed appointment). If a successor Agent shall not have been so
appointed and accepted such appointment within 30 days after the giving of
notice by the resigning Agent, then the resigning Agent may appoint a successor
Agent, which shall be a financial institution having a combined capital and
surplus in excess of $1,000,000,000.00. The consent of the Lead Borrower
otherwise required by this Section 14:14-10(a) shall not be required if an Event
of Default has occurred.
(b) Upon the acceptance of any appointment as Agent hereunder by a
successor Agent, such successor shall thereupon succeed to, and become vested
with, all the rights, powers, privileges, and duties of the (resigning) Agent so
replaced, and the (resigning) Agent shall be discharged from the (resigning)
Agent's duties and obligations hereunder, other than on account of any
responsibility for any action taken or omitted to be taken by the (resigning)
Agent as to which a final judicial determination has been or is made (in a
proceeding in which the (resigning) Person has had an opportunity to be heard)
that such Person had acted in a grossly negligent manner or in bad faith.
(c) After any retiring Agent's resignation, the provisions of this
Agreement and of all other Loan Documents shall continue in effect for the
retiring Person's benefit in respect of any actions taken or omitted to be taken
by it while it was acting as Agent.
Article 15:- ACTION BY AGENTS - CONSENTS - AMENDMENTS - WAIVERS:
151- ADMINISTRATION OF CREDIT FACILITIES
(a) Except as otherwise specifically provided in this Agreement, the Agent
may take any action with respect to the credit facility contemplated by the Loan
Documents as the Agent determines to be appropriate , provided, however, the
Agent is not under any affirmative obligation to take any action which it is not
required by this Agreement or the Loan Documents specifically to so take.
(b) Except as specifically provided in the following Sections of this
Agreement, whenever a Loan Document or this Agreement provides that action may
be taken or omitted to be taken in an Agent's discretion, the Agent shall have
the sole right to take, or refrain from taking, such action without, and
notwithstanding, any vote of the Revolving Credit Lender:
Actions Described in Section____Type of Consent Required____
------------------------------------------------------------
15:15-2 Majority Lenders
15:15-3 SuperMajority Lenders
15:15-4 Certain Consent
15:15-5 Unanimous Consent
15:15-6 Consent of SwingLine Lender
15:15-7 Consent of the Agent
(c) The rights granted to the Revolving Credit Lenders in those sections
referenced in Section 15:15-1(b) shall not otherwise limit or impair the Agent's
exercise of its discretion under the Loan Documents.
85
152- ACTIONS REQUIRING OR ON DIRECTION OF MAJORITY LENDERS Except as
otherwise provided in this Agreement, the Consent or direction of the Majority
Lenders is required for any amendment, waiver, or modification of any Loan
Document.
153- ACTIONS REQUIRING OR ON DIRECTION OF SUPERMAJORITY LENDERS The Consent
or direction of the SuperMajority Lenders is required as follows:
(a) The Revolving Credit Lenders agree that any loan or advance under the
Revolving Credit which results in a Permissible OverLoan may be made by the
Agent in its discretion without the Consent of the Revolving Credit Lenders and
that each Revolving Credit Lender shall be bound thereby, provided, however, the
Consent or direction of the SuperMajority Lenders is required to permit a
Permissible OverLoan to be outstanding for more than 45 consecutive Business
Days or more than twice in any twelve month period.
(b) If any Borrower is then in Default, the SuperMajority Lenders may
direct the Agent to suspend the Revolving Credit (including the making of any
Permissible OverLoans), whereupon, as long as a Borrower is in Default, the only
Revolving Credit Loans which may be made are either
(ii) Revolving Credit Loans made or undertaken in the Agent's
discretion to protect and preserve the interests of the Revolving Credit
Lenders; or
(iii) Revolving Credit Loans made with Consent of the SuperMajority
Lenders.
(a) If an Event of Default has occurred and not been duly waived, the
SuperMajority Lenders may:
(iv) Give the Agent an Acceleration Notice in accordance with Section
13:13-1(b).
(v) Direct the Agent to increase the rate of interest to the default
rate of interest as provided in, and to the extent permitted by, this
Agreement.
86
154- ACTION REQUIRING CERTAIN CONSENT The consent of the SwingLine Lender
and Revolving Credit Lenders (other than Delinquent Revolving Credit Lenders)
holding 66 2/3 % or more of the Loan Commitments of the Revolving Credit Lenders
(other than any Loan Commitments held by Delinquent Revolving Credit Lenders)
shall be required to increase the SwingLine Loan Ceiling.
155- ACTIONS REQUIRING OR DIRECTED BY UNANIMOUS CONSENT None of the
following may take place except with the Consent of each Revolving Credit Lender
adversely affected thereby or with Unanimous Consent:
(a) Any increase in any Revolving Credit Lender's Revolving Credit Dollar
Commitment or Revolving Credit Commitment Percentage (other than by reason of
the application of Section 15:15-10 (which deals with NonConsenting Revolving
Credit Lenders) or Section 16:16-1 (which deals with assignments and
participations)).
(b) Any decrease in any interest rate or fee payable to the Revolving
Credit Lenders on account of the Revolving Credit Loans.
(c) Any extension of the Maturity Date.
(d) Any forgiveness of all or any portion of any payment Liability.
(e) Any decrease in any interest rate or fee payable under any of the Loan
Documents (other than any Agent's Fee (for which the consent of the Agent shall
also be required)) and of any fee provided for by the Fee Letter (which may be
amended by written agreement between the Lead Borrower on the one hand, and the
Agent on the other).
(f) Any release of a material portion of the Collateral not otherwise
required or provided for in the Loan Documents or to facilitate a Liquidation.
(g) Any amendment of the definition of the terms "Borrowing Base" or
"Availability" or of any Definition of any component thereof, such that more
credit would be available to the Borrowers, based on the same assets, as would
have been available to the Borrowers immediately prior to such amendment , it
being understood, however, that:
(ii) The foregoing shall not limit the adjustment by the Agent of any
Reserve in the Agent's administration of the Revolving Credit as otherwise
permitted by this Agreement.
(iii) The foregoing shall not prevent the Agent, in its administration
of the Revolving Credit, from restoring any component of Borrowing Base
which had been lowered by the Agent back to the value of such component, as
stated in this Agreement or to an intermediate value.
(a) Any release of any Person obligated on account of the Liabilities.
(b) The making of any Revolving Credit Loan which, when made, exceeds
Availability and is not either a Permissible OverLoan, provided, however,
(iv) no Consent shall be required in connection with the making of any
Revolving Credit Loan to "cover" any honoring of a drawing under any L/C;
and
(v) each Lender recognizes that subsequent to the making of a
Revolving Credit Loan which does not constitute a Permissible OverLoan, the
unpaid principal balance of the Loan Account may exceed Borrowing Base on
account of changed circumstances beyond the control of the Agent (such as a
drop in collateral value).
87
(a) The waiver of the obligation of the Borrowers to reduce the unpaid
principal balance of loans under the Revolving Credit to an amount which does
not exceed a Permissible OverLoan or, subject to the time limits included in
Section 15:15-3(a) (which places time and frequency limits on Permissible
OverLoans), to eliminate an OverLoan.
(b) Any amendment of this Article 15:.
(c) Amendment of any of the following Definitions:
"Majority Lender"
"Permissible OverLoan"
"SuperMajority Lenders
"Unanimous Consent"
156- ACTIONS REQUIRING SWINGLINE LENDER CONSENT No action, amendment, or
waiver of compliance with, any provision of the Loan Documents or of this
Agreement which affects the SwingLine Lender may be undertaken without the
Consent of the SwingLine Lender.
157- ACTIONS REQUIRING AGENT'S CONSENT
(a) No action, amendment, or waiver of compliance with, any provision of
the Loan Documents or of this Agreement which affects the Agent in its capacity
as Agent may be undertaken without the written consent of the Agent.
(b) No action referenced herein which affects the rights, duties,
obligations, or liabilities of the Agent shall be effective without the written
consent of the Agent.
158- MISCELLANEOUS ACTIONS
(a) Notwithstanding any other provision of this Agreement, no single
Revolving Credit Lender independently may exercise any right of action or
enforcement against or with respect to any Borrower.
(b) The Agent shall be fully justified in failing or refusing to take
action under this Agreement or any Loan Document on behalf of any Revolving
Credit Lender unless the Agent shall first
(ii) receive such clear, unambiguous, written instructions as the
Agent deems appropriate;
and
(iii) be indemnified to the Agent's satisfaction by the Revolving
Credit Lenders against any and all liability and expense which may be
incurred by the Agent by reason of taking or continuing to take any such
action, unless such action had been grossly negligent, in willful
misconduct, or in bad faith.
(a) The Agent may establish reasonable procedures for the providing of
direction and instructions from the Revolving Credit Lenders to the Agent,
including its reliance on multiple counterparts, facsimile transmissions, and
time limits within which such direction and instructions must be received in
order to be included in a determination of whether the requisite Loan
Commitments has provided its direction, Consent, or instructions.
88
159- ACTIONS REQUIRING BORROWER'S CONSENT The Lead Borrower's consent is
required for any amendment of this Agreement, except that each of the following
Articles of this Agreement may be amended without the consent of the Lead
Borrower:
Article_____Title of Article
----------------------------
12: Revolving Credit Fundings and Distributions
13: Acceleration and Liquidation
14: The Agent
1510- NONCONSENTING REVOLVING CREDIT LENDER
(a) In the event that a Revolving Credit Lender (in this Section 15:15-10,
a "NonConsenting Revolving Credit Lender") does not provide its Consent to a
proposal by the Agent to take action which requires consent under this Article
15:, then one or more Revolving Credit Lenders who provided Consent to such
action may require the assignment, without recourse and in accordance with the
procedures outlined in Section 16:16-1, below, of the NonConsenting Revolving
Credit Lender's commitment hereunder on fifteen (15) days written notice to the
Agent and to the NonConsenting Revolving Credit Lender.
(b) At the end of such fifteen (15) days, and provided that the
NonConsenting Revolving Credit Lender delivers the Revolving Credit Note held by
the NonConsenting Revolving Credit Lender to the Agent, the Revolving Credit
Lenders who have given such written notice shall Transfer the following to the
NonConsenting Revolving Credit Lender:
(ii) Such NonConsenting Revolving Credit Lender's Pro-Rata share of
the principal and interest of the Revolving Credit Loans to the date of
such assignment.
(iii) All fees distributable hereunder to the NonConsenting Revolving
Credit Lender to the date of such assignment.
(iv) Any out-of-pocket costs and expenses for which the NonConsenting
Revolving Credit Lender is entitled to reimbursement from the Borrowers.
(a) In the event that the NonConsenting Revolving Credit Lender fails to
deliver to the Agent the Revolving Credit Note held by the NonConsenting
Revolving Credit Lender as provided in Section 15:15-10(b), then:
(v) The amount otherwise to be Transferred to the NonConsenting
Revolving Credit Lender shall be Transferred to the Agent and held by the
Agent, without interest, to be turned over to the NonConsenting Revolving
Credit Lender upon delivery of the Revolving Credit Note held by that
NonConsenting Revolving Credit Lender.
(vi) The Revolving Credit Note held by the NonConsenting Revolving
Credit Lender shall have no force or effect whatsoever.
(vii) The NonConsenting Revolving Credit Lender shall cease to be a
"Revolving Credit Lender".
(viii) The Revolving Credit Lender(s) which have Transferred the
amount to the Agent as described above shall have succeeded to all rights
and become subject to all of the obligations of the NonConsenting Revolving
Credit Lender as "Revolving Credit Lender".
89
(a) In the event that more than One (1) Revolving Credit Lender wishes to
require such assignment, the NonConsenting Revolving Credit Lender's commitment
hereunder shall be divided among such Revolving Credit Lenders, pro-rata based
upon their respective Revolving Credit Commitment Percentages, with the Agent
coordinating such transaction.
(b) The Agent shall coordinate the retirement of the Revolving Credit Note
held by the NonConsenting Revolving Credit Lender and the issuance of Revolving
Credit Notes to those Revolving Credit Lenders which "take-out" such
NonConsenting Revolving Credit Lender, provided, however, no processing fee
otherwise to be paid as provided in Section 16:16-2(b) shall be due under such
circumstances.
Article 16:- ASSIGNMENTS BY REVOLVING CREDIT LENDERS:
161- ASSIGNMENTS AND ASSUMPTIONS:
(a) Except as provided herein, each Revolving Credit Lender (in this
Section 16:16-1(a), an "Assigning Revolving Credit Lender") may assign to one or
more Eligible Assignees (in this Section 16:16-1(a), each an "Assignee Revolving
Credit Lender") all or a portion of that Revolving Credit Lender's interests,
rights and obligations under this Agreement and the Loan Documents (including
all or a portion of its Commitment) and the same portion of the Revolving Credit
Loans at the time owing to it, and of the Revolving Credit Note held by the
Assigning Revolving Credit Lender, provided that:
(ii) The Agent shall have given its prior written consent to such
assignment, which consent shall not be unreasonably withheld, but need not
be given if the proposed assignment would result in any resulting Revolving
Credit Lender's having a Dollar Commitment of less than the "minimum hold"
amount specified in Section 16:16-1(a)(iii).
(iii) Each such assignment shall be of a constant, and not a varying,
percentage of all the Assigning Revolving Credit Lender's rights and
obligations under this Agreement.
(iv) Following the effectiveness of such assignment, the Assigning
Revolving Credit Lender's Dollar Commitment (if not an assignment of all of
the Assigning Revolving Credit Lender's Commitment) shall not be less than
$10,000,000.00.
90
162- ASSIGNMENT PROCEDURES. (This Section 16:16-2 describes the procedures
to be followed in connection with an assignment effected pursuant to this
Article 16: and permitted by Section 16:16-1).
(a) The parties to such an assignment shall execute and deliver to the
Agent, for recording in the Register, an Assignment and Acceptance substantially
in the form of EXHIBIT 16:16-2, annexed hereto.
(b) The Assigning Revolving Credit Lender shall deliver to the Agent, with
such Assignment and Acceptance, the Revolving Credit Note held by the subject
Assigning Revolving Credit Lender and the Agent's processing fee of $3,500.00,
provided, however, no such processing fee shall be due where the Assigning
Revolving Credit Lender is one of the Revolving Credit Lenders at the initial
execution of this Agreement.
(c) The Agent shall maintain a copy of each Assignment and Acceptance
delivered to it and a register or similar list (the "Register") for the
recordation of the names and addresses of the Revolving Credit Lenders and of
the Revolving Credit Commitment Percentage and Revolving Credit Commitment
Percentage of each Revolving Credit Lender. The Register shall be available for
inspection by the Revolving Credit Lenders at any reasonable time and from time
to time upon reasonable prior notice. In the absence of manifest error, the
entries in the Register shall be conclusive and binding on all Revolving Credit
Lenders. The Agent and the Revolving Credit Lenders may treat each Person whose
name is recorded in the Register as a "Revolving Credit Lender" hereunder for
all purposes of this Agreement.
(d) The Assigning Revolving Credit Lender and Assignee Revolving Credit
Lender, directly between themselves, shall make all appropriate adjustments in
payments for periods prior to the effective date of an Assignment and
Acceptance.
163- EFFECT OF ASSIGNMENT.
(a) From and after the effective date specified in an Assignment and
Acceptance which has been executed, delivered, and recorded (which effective
date the Agent may delay by up to five (5) Business Days after the delivery of
such Assignment and Acceptance):
(ii) The Assignee Revolving Credit Lender:
(B) Shall be a party to this Agreement and the Loan Documents
(and to any amendments thereof) as fully as if the Assignee Revolving
Credit Lender had executed each.
(C) Shall have the rights of a Revolving Credit Lender hereunder
to the extent of the Revolving Credit Commitment Percentage and
Revolving Credit Commitment Percentage assigned by such Assignment and
Acceptance.
(i) The Assigning Revolving Credit Lender shall be released from the
Assigning Revolving Credit Lender's obligations arising thereafter under
this Agreement and the Loan Documents to the extent of the Commitment
assigned by such Assignment and Acceptance.
(ii) The Agent shall undertake to obtain and distribute replacement
Revolving Credit Notes to the subject Assigning Revolving Credit Lender and
Assignee Revolving Credit Lender.
(a) By executing and delivering an Assignment and Acceptance, the parties
thereto confirm to and agree with each other and with all parties to this
Agreement as to those matters which are set forth in the subject Assignment and
Acceptance.
91
Article 17:- NOTICES:
171- NOTICE ADDRESSES. All notices, demands, and other communications made
in respect of any Loan Document (other than a request for a loan or advance or
other financial accommodation under the Revolving Credit) shall be made to the
following addresses, each of which may be changed upon seven (7) days written
notice to all others given by certified mail, return receipt requested:
If to the Agent:
Fleet Retail Finance Inc.
40 Broad Street, 10th Floor
Boston, Massachusetts 02109
Attention : Mr. Michael D. Murray
Fax : 617 434-4312
With a copy to:
Riemer & Braunstein LLP
Three Center Plaza
Boston, Massachusetts 02108
Attention : Robert E. Paul, Esquire
Fax : 617 880-3456
If to the Borrower:
Phar-Mor, Inc.
20 Federal Plaza West
Youngstown, Ohio 44503
Attention : Mr. Martin Seekely
Fax :
With a copy to:
Morrison & Foerster LLP
1290 Avenue of the Americas
New York, New York 10104-0050
Attention : Mark B. Joachim, Esquire
Fax: : 212 468-7900
92
172- NOTICE GIVEN.
(a) Except as otherwise specifically provided herein, notices shall be
deemed made and correspondence received, as follows (all times being local to
the place of delivery or receipt):
(ii) By mail: the sooner of when actually received or Three (3) days
following deposit in the United States mail, postage prepaid.
(iii) By recognized overnight express delivery: the Business Day
following the day when sent.
(iv) By Hand: If delivered on a Business Day after 9:00 AM and no
later than Three (3) hours prior to the close of customary business hours
of the recipient, when delivered. Otherwise, at the opening of the then
next Business Day.
(v) By Facsimile transmission (which must include a header on which
the party sending such transmission is indicated): If sent on a Business
Day after 9:00 AM and no later than Three (3) hours prior to the close of
customary business hours of the recipient, one (1) hour after being sent.
Otherwise, at the opening of the then next Business Day.
(a) Rejection or refusal to accept delivery and inability to deliver
because of a changed address or Facsimile Number for which no due notice was
given shall each be deemed receipt of the notice sent.
Article 18:- TERM:
181- TERMINATION OF REVOLVING CREDIT. The Revolving Credit shall remain in
effect (subject to suspension as provided in Section 2:2-6(g) hereof) until the
Termination Date.
182- ACTIONS ON TERMINATION.
(a) On the Termination Date, the Borrowers shall pay the Agent (whether or
not then due), in immediately available funds, all then Liabilities including,
without limitation: the following:
(ii) The entire balance of the Loan Account (including the unpaid
principal balance of the Revolving Credit Loans, and the SwingLine Loan ).
(iii) Any then remaining installments of the Revolving Credit
Commitment Fee.
(iv) Any then remaining installments of the Agent's Fee.
(v) Any payments due on account of the indemnification obligations
included in Section 2:2-11(f).
(vi) Any accrued and unpaid Unused Line Fee.
(vii) All unreimbursed costs and expenses of the Agent and of Lenders'
Special Counsel for which any Borrower is responsible.
(a) On the Termination Date, the Borrowers shall also shall make such
arrangements concerning any L/C's then outstanding as are reasonably
satisfactory to the Agent.
(b) Until such payment (Section 18:18-2(a)) and arrangements concerning
L/C's (Section 18:18-2(b)), all provisions of this Agreement, other than those
included in Article 2: which place any obligation on the Agent or any Revolving
Credit Lender to make any loans or advances or to provide any financial
accommodations to any Borrower shall remain in full force and effect until all
Liabilities shall have been paid in full.
(c) The release by the Agent of the Collateral Interests granted the Agent
by the Borrowers hereunder may be upon such conditions and indemnifications as
the Agent reasonably may require.
93
Article 19:- GENERAL:
191- PROTECTION OF COLLATERAL. The Agent has no duty as to the collection
or protection of the Collateral beyond the safe custody of such of the
Collateral as may come into the possession of the Agent.
192- PUBLICITY. The Agent may issue a "tombstone" notice of the
establishment of the credit facility contemplated by this Agreement and may make
reference to each Borrower (and may utilize any logo or other distinctive symbol
associated with each Borrower) in connection with any advertising, promotion, or
marketing undertaken by the Agent.
193- SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon the
Borrowers and their respective representatives, successors, and assigns and
shall enure to the benefit of the Agent and each Revolving Credit Lender and
their respective successors and assigns, provided, however, no trustee or other
fiduciary appointed with respect to any Borrower shall have any rights
hereunder. In the event that the Agent or any Revolving Credit Lender assigns or
transfers its rights under this Agreement, the assignee shall thereupon succeed
to and become vested with all rights, powers, privileges, and duties of such
assignor hereunder and such assignor shall thereupon be discharged and relieved
from its duties and obligations hereunder.
194- SEVERABILITY. Any determination that any provision of this Agreement
or any application thereof is invalid, illegal, or unenforceable in any respect
in any instance shall not affect the validity, legality, or enforceability of
such provision in any other instance, or the validity, legality, or
enforceability of any other provision of this Agreement.
195- AMENDMENTS. COURSE OF DEALING.
(a) This Agreement and the other Loan Documents incorporate all discussions
and negotiations between each Borrower and the Agent and each Revolving Credit
Lender, either express or implied, concerning the matters included herein and in
such other instruments, any custom, usage, or course of dealings to the contrary
notwithstanding. No such discussions, negotiations, custom, usage, or course of
dealings shall limit, modify, or otherwise affect the provisions thereof. No
failure by the Agent or any Revolving Credit Lender to give notice to the Lead
Borrower of any Borrower's having failed to observe and comply with any warranty
or covenant included in any Loan Document shall constitute a waiver of such
warranty or covenant or the amendment of the subject Loan Document. No change
made by the Agent to the manner by which Borrowing Base is determined shall
obligate the Agent to continue to determine Borrowing Base in that manner
(subject to the specific terms hereof).
(b) Each Borrower may undertake any action otherwise prohibited hereby, and
may omit to take any action otherwise required hereby, upon and with the express
prior written consent of the Agent. Subject to Article 15:, no consent,
modification, amendment, or waiver of any provision of any Loan Document shall
be effective unless executed in writing by or on behalf of the party to be
charged with such modification, amendment, or waiver (and if such party is the
Agent then by a duly authorized officer thereof). Any modification, amendment,
or waiver provided by the Agent shall be in reliance upon all representations
and warranties theretofore made to the Agent by or on behalf of the Borrowers
(and any guarantor, endorser, or surety of the Liabilities) and consequently may
be rescinded in the event that any of such representations or warranties was not
true and complete in all material respects when given.
94
196- POWER OF ATTORNEY. In connection with all powers of attorney included
in this Agreement, each Borrower hereby grants unto the Agent (acting through
any of its officers) full power to do any and all things necessary or
appropriate in connection with the exercise of such powers as fully and
effectually as that Borrower might or could do, hereby ratifying all that said
attorney shall do or cause to be done by virtue of this Agreement. No power of
attorney set forth in this Agreement shall be affected by any disability or
incapacity suffered by any Borrower and each shall survive the same. All powers
conferred upon the Agent by this Agreement, being coupled with an interest,
shall be irrevocable until this Agreement is terminated by a written instrument
executed by a duly authorized officer of the Agent.
197- APPLICATION OF PROCEEDS. The proceeds of any collection, sale, or
disposition of the Collateral, or of any other payments received hereunder,
shall be applied towards the Liabilities in such order and manner as the Agent
determines in its sole discretion, consistent, however, with Sections 13:13-6
and 13:13-7 and any other applicable provisions of this Agreement. The Borrowers
shall remain liable for any deficiency remaining following such application.
198- INCREASED COSTS. If, after the date hereof, the adoption of or any
change in any Requirement of Law, or of the interpretation or application
thereof by any court or by any governmental or other authority or entity charged
with the administration thereof, whether or not having the force of law, which:
(a) subjects any Revolving Credit Lender to any taxes or changes the basis
of taxation, or increases any existing taxes, on payments of principal, interest
or other amounts payable by any Borrower to the Agent or any Revolving Credit
Lender under this Agreement (except for taxes on the Agent or any Revolving
Credit Lender based on net income or capital imposed by the jurisdictions in
which the principal or lending offices of the Agent or that Revolving Credit
Lender are located);
(b) imposes, modifies or deems applicable any reserve, cash margin, special
deposit or similar requirements against assets held by, or deposits in or for
the account of or loans by or any other acquisition of funds by the relevant
lending office of any Revolving Credit Lender;
(c) . imposes on any Revolving Credit Lender any other condition with
respect to any Loan Document; or
(d) imposes on any Revolving Credit Lender a requirement to maintain or
allocate capital in relation to the Liabilities; and the result of any of the
foregoing, in such Revolving Credit Lender's reasonable opinion, is to increase
the cost to that Revolving Credit Lender of making or maintaining any loan,
advance or financial accommodation or to reduce the income receivable by that
Revolving Credit Lender in respect of any loan, advance or financial
accommodation by an amount which that Revolving Credit Lender deems to be
material, then upon written notice from the Agent, from time to time, to the
Lead Borrower (such notice to set out in reasonable detail the facts giving rise
to and a summary calculation of such increased cost or reduced income), the
Borrowers shall forthwith pay to the Agent, for the benefit of the subject
Revolving Credit Lender, upon receipt of such notice, that amount which shall
compensate the subject Revolving Credit Lender for such additional cost or
reduction in income.
95
199- COSTS AND EXPENSES OF THE AGENT .
(a) The Borrowers shall pay from time to time on demand all reasonable
costs, expenses, and disbursements (including reasonable attorneys' fees and
expenses) which are incurred by the Agent in connection with the preparation,
negotiation, execution, and delivery of this Agreement and of any other Loan
Documents.
(b) The Borrowers shall pay from time to time on demand all other
reasonable costs, expenses, and disbursements (including reasonable attorneys'
fees and expenses) which may be incurred, after the execution of this Agreement,
in connection with or in respect to the credit facility contemplated hereby or
which otherwise are incurred with respect to the Liabilities.
(c) The Borrowers shall pay from time to time on demand all reasonable
costs and expenses (including reasonable attorneys' fees and expenses) incurred,
following the occurrence of any Event of Default, by the Revolving Credit
Lenders to Lenders' Special Counsel.
(d) Each Borrower authorizes the Agent to pay all such fees and expenses
and in the Agent's discretion, to add such fees and expenses to the Loan
Account.
(e) The undertaking on the part of each Borrower in this Section 19:19-9
shall survive payment of the Liabilities and/or any termination, release, or
discharge executed by the Agent in favor of any Borrower, other than a
termination, release, or discharge which makes specific reference to this
Section 19:19-9.
1910- COPIES AND FACSIMILES. Each Loan Document and all documents and
papers which relates thereto which have been or may be hereinafter furnished the
Agent or any Revolving Credit Lender may be reproduced by that Revolving Credit
Lender or by the Agent by any photographic, microfilm, xerographic, digital
imaging, or other process, and such Person making such reproduction may destroy
any document so reproduced. Any such reproduction shall be admissible in
evidence as the original itself in any judicial or administrative proceeding
(whether or not the original is in existence and whether or not such
reproduction was made in the regular course of business). Any facsimile which
bears proof of transmission shall be binding on the party which or on whose
behalf such transmission was initiated and likewise shall be so admissible in
evidence as if the original of such facsimile had been delivered to the party
which or on whose behalf such transmission was received.
96
1911- MASSACHUSETTS LAW. This Agreement and all rights and obligations
hereunder, including matters of construction, validity, and performance, shall
be governed by the law of The Commonwealth of Massachusetts unless superceded by
the provisions of the Bankruptcy Code.
1912- INDEMNIFICATION. Each Borrower shall indemnify, defend, and hold the
Agent and each Revolving Credit Lender and any of their respective employees,
officers, or agents (each, an "Indemnified Person") harmless of and from any
claim brought or threatened against any Indemnified Person by any Borrower, any
guarantor or endorser of the Liabilities, or any other Person (as well as from
reasonable attorneys' fees, expenses, and disbursements in connection therewith)
on account of the relationship of the Borrowers or of any other guarantor or
endorser of the Liabilities, including all costs, expenses, liabilities, and
damages as may be suffered by any Indemnified Person in connection with (x) the
Collateral; (y) the occurrence of any Event of Default; or (z) the exercise of
any rights or remedies under any of the Loan Documents (each of claims which may
be defended, compromised, settled, or pursued by the Indemnified Person with
counsel of the Lender's selection, but at the expense of the Borrowers) other
than any claim as to which a final determination is made in a judicial
proceeding (in which the Agent and any other Indemnified Person has had an
opportunity to be heard), which determination includes a specific finding that
the Indemnified Person seeking indemnification had acted in a grossly negligent
manner or in actual bad faith or in violation of this Agreement or any other
Loan Document. This indemnification shall survive payment of the Liabilities
and/or any termination, release, or discharge executed by the Agent in favor of
the Borrowers, other than a termination, release, or discharge duly executed on
behalf of the Agent which makes specific reference to this Section 19:19-12.
1913- RULES OF CONSTRUCTION. The following rules of construction shall be
applied in the interpretation, construction, and enforcement of this Agreement
and of the other Loan Documents:
(a) Unless otherwise specifically provided for herein, interest and any fee
or charge which is stated as a per annum percentage shall be calculated based on
a 360 day year and actual days elapsed.
(b) Words in the singular include the plural and words in the plural
include the singular.
(c) Cross references to Sections in this Agreement begin with the Article
in which that Section appears, followed by a colon, and then the Section to
which reference is made. (For example, a reference to "Section 5:5-6" is to
Section 5-6, which appears in Article 5 of this Agreement).
97
(d) Titles, headings (indicated by being underlined or shown in SMALL
CAPITALS) and any Table of Contents are solely for convenience of reference; do
not constitute a part of the instrument in which included; and do not affect
such instrument's meaning, construction, or effect.
(e) The words "includes" and "including" are not limiting.
(f) Text which follows the words "including, without limitation" (or
similar words) is illustrative and not limitational.
(g) Text which is shown in italics (except for parenthesized italicized
text), shown in bold, shown IN ALL CAPITAL LETTERS, or in any combination of the
foregoing, shall be deemed to be conspicuous.
(h) The words "may not" are prohibitive and not permissive.
(i) Any reference to a Person's "knowledge" (or words of similar import)
are to such Person's knowledge assuming that such Person has undertaken
reasonable and diligent investigation with respect to the subject of such
"knowledge" (whether or not such investigation has actually been undertaken).
(j) Terms which are defined in one section of any Loan Document are used
with such definition throughout the instrument in which so defined.
(k) The symbol "$" refers to United States Dollars.
(l) Unless limited by reference to a particular Section or provision, any
reference to "herein", "hereof", or "within" is to the entire Loan Document in
which such reference is made.
(m) References to "this Agreement" or to any other Loan Document is to the
subject instrument as amended to the date on which application of such reference
is being made.
(n) Except as otherwise specifically provided, all references to time are
to Boston time.
(o) In the determination of any notice, grace, or other period of time
prescribed or allowed hereunder:
(ii) Unless otherwise provided (I) the day of the act, event, or
default from which the designated period of time begins to run shall not be
included and the last day of the period so computed shall be included
unless such last day is not a Business Day, in which event the last day of
the relevant period shall be the then next Business Day and (II) the period
so computed shall end at 5:00 PM on the relevant Business Day.
(iii) The word "from" means "from and including".
(iv) The words "to" and "until" each mean "to, but excluding".
(v) The word "through" means "to and including".
(a) The Loan Documents shall be construed and interpreted in a harmonious
manner and in keeping with the intentions set forth in Section 19:19-14 hereof,
provided, however, in the event of any inconsistency between the provisions of
this Agreement and any other Loan Document, the provisions of this Agreement
shall govern and control.
98
1914- INTENT. It is intended that:
(a) This Agreement take effect as a sealed instrument.
(b) The scope of all Collateral Interests created by the Borrowers to
secure the Liabilities be broadly construed in favor of the Agent and that they
cover all assets of the Borrower.
(c) All Collateral Interests created in favor of the Agent at any time and
from time to time by any the secure all Liabilities, whether now existing or
contemplated or hereafter arising.
(d) Unless otherwise explicitly provided herein, the Agent's consent to any
action of any Borrower which is prohibited unless such consent is given may be
given or refused by the Agent in its sole discretion, subject to the terms of
Section 2:2-18 hereof.
1915- PARTICIPATIONS: Each Revolving Credit Lender may sell participations
to one or more financial institutions (each, a "Participant") in that Revolving
Credit Lender's interests herein provided that no such participation shall
include any provision which accords that Participant with any rights, vis a vis
the Agent, with respect to any requirement herein for approval by a requisite
number or proportion of the Revolving Credit Lenders. No such sale of a
participation shall relieve a Revolving Credit Lender from that Revolving Credit
Lender's obligations hereunder nor obligate the Agent to any Person other than a
Revolving Credit Lender.
1916- RIGHT OF SET-OFF. Any and all deposits or other sums at any time
credited by or due to any Borrower from the Agent or any Revolving Credit Lender
or any Participant or from any Affiliate of any of the foregoing, and any cash,
securities, instruments or other property of any Borrower in the possession of
any of the foregoing, whether for safekeeping or otherwise (regardless of the
reason such Person had received the same) shall at all times following the
occurrence of an Event of Default constitute security for all Liabilities and
for any and all obligations of the Borrowers to the Agent and such Revolving
Credit Lender or any Participant or such Affiliate and may be applied or set off
against the Liabilities and against such obligations whether or not other
collateral is then available to the Agent or that Revolving Credit Lender.
1917- PLEDGES TO FEDERAL RESERVE BANKS: Nothing included in this Agreement
shall prevent or limit any Revolving Credit Lender, to the extent that such
Revolving Credit Lender is subject to any of the twelve Federal Reserve Banks
organized under ss.4 of the Federal Reserve Act (12 U.S.C. ss.341) from pledging
all or any portion of that Lender's interest and rights under this Agreement,
provided, however, neither such pledge nor the enforcement thereof shall release
the pledging Revolving Credit Lender from any of its obligations hereunder or
under any of the Loan Documents.
99
1918- MAXIMUM INTEREST RATE. Regardless of any provision of any Loan
Document, neither the Agent nor any Revolving Credit Lender shall be entitled to
contract for, charge, receive, collect, or apply as interest on any Liability,
any amount in excess of the maximum rate imposed by Applicable Law. Any payment
which is made which, if treated as interest on a Liability would result in such
interest's exceeding such maximum rate shall be held, to the extent of such
excess, as additional collateral for the Liabilities as if such excess were
"Collateral."
1919- EXECUTION IN COUNTERPARTS. This Agreement and other Loan Documents
may be executed in any number of 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 instrument.
1920- WAIVERS.
(a) The Borrowers (and all guarantors, endorsers, and sureties of the
Liabilities) make each of the waivers included in Section 19:19-20(b), below,
knowingly, voluntarily, and intentionally, and understands that Agent and each
Revolving Credit Lender, in establishing the facilities contemplated hereby and
in providing loans and other financial accommodations to or for the account of
the Borrowers as provided herein, whether not or in the future, is relying on
such waivers.
(b) THE BORROWERS, AND EACH SUCH GUARANTOR, ENDORSER, AND SURETY
RESPECTIVELY WAIVE THE FOLLOWING:
(ii) Except as otherwise specifically required hereby or by any other
Loan Document, notice of non-payment, demand, presentment, protest and all
forms of demand and notice, both with respect to the Liabilities and the
Collateral.
(iii) Except as otherwise specifically required hereby, the right to
notice and/or hearing prior to the Agent's exercising of the Agent's rights
upon default.
(iv) THE RIGHT TO A JURY IN ANY TRIAL OF ANY CASE OR CONTROVERSY IN
WHICH THE AGENT OR ANY REVOLVING CREDIT LENDER IS OR BECOMES A PARTY
(WHETHER SUCH CASE OR CONTROVERSY IS INITIATED BY OR AGAINST THE AGENT OR
ANY REVOLVING CREDIT LENDER OR IN WHICH THE AGENT OR ANY REVOLVING CREDIT
LENDER IS JOINED AS A PARTY LITIGANT), WHICH CASE OR CONTROVERSY ARISES OUT
OF OR IS IN RESPECT OF, ANY RELATIONSHIP AMONGST OR BETWEEN THE BORROWERS
OR ANY OTHER PERSON AND THE AGENT AND EACH REVOLVING CREDIT LENDER LIKEWISE
WAIVES THE RIGHT TO A JURY IN ANY TRIAL OF ANY SUCH CASE OR CONTROVERSY).
(v) The benefits or availability of any stay, limitation, hindrance,
delay, or restriction (including, without limitation, any automatic stay
which otherwise might be imposed pursuant to Section 362 of the Bankruptcy
Code) with respect to any action which the Agent may or may become entitled
to take hereunder.
REMAINDER OF PAGE LEFT INTENTIONALLY BLANK
(vi) Any claim to consequential, special, or punitive damages.
PHAR-MOR, INC.
("LEAD BORROWER")
By_________________________________
Print Name: Martin S. Seekely
Title: Vice President Chief Financial Officer
("BORROWERS")
PHAR-MOR, INC.
By_________________________________
Print Name: Martin S. Seekely
Title: Vice President Chief Financial Officer
RX REALTY CORP.
By__________________________________
Print Name: Martin S. Seekely
Title: Vice President Chief Financial Officer
PHAR-MOR OF FLORIDA, INC.
By_________________________________
Print Name: Martin S. Seekely
Title: Vice President Chief Financial Officer
PHAR-MOR OF OHIO, INC.
By_________________________________
Print Name: Martin S. Seekely
Title: Vice President Chief Financial Officer
PHAR-MOR OF VIRGINIA, INC.
By_________________________________
Print Name: Martin S. Seekely
Title: Vice President Chief Financial Officer
PHAR-MOR OF WISCONSIN, INC.
By_________________________________
Print Name: Martin S. Seekely
Title: Vice President Chief Financial Officer
PHAR-MOR OF DELAWARE, INC.
By_________________________________
Print Name: Martin S. Seekely
Title: Vice President Chief Financial Officer
PHAR-MOR, INC. LLC
By_________________________________
Print Name: Martin S. Seekely
Title: Vice President Chief Financial Officer
PHARMHOUSE CORP.
By_________________________________
Print Name: Martin S. Seekely
Title: Vice President Chief Financial Officer
FLEET RETAIL FINANCE INC.
("AGENT")
By_________________________________
Print Name:________________________________
Title:________________________________
The "Revolving Credit Lenders"
FLEET RETAIL FINANCE INC.
By_________________________________
Print Name:________________________________
Title:________________________________
HELLER FINANCIAL, INC.
By_________________________________
Print Name:________________________________
Title:________________________________
FOOTHILL CAPITAL CORPORATION
By_________________________________
Print Name:________________________________
Title:________________________________
GMAC COMMERCIAL CREDIT LLC
By_________________________________
Print Name:________________________________
Title:________________________________
LASALLE BUSINESS CREDIT, INC.
By_________________________________
Print Name:________________________________
Title:________________________________
IBJ WHITEHALL RETAIL FINANCE.
By_________________________________
Print Name:________________________________
Title:________________________________
GMAC BUSINESS CREDIT, LLC
By_________________________________
Print Name:________________________________
Title:________________________________
667811.4
EX-23
4
a2001-10kexb.txt
INDEPENDENT AUDITORS' CONSENT
Independent Auditors' Consent
We consent to the incorporation by reference in Registration Statement No.
333-30895 of Phar-Mor, Inc. on Form S-8 of our report dated September 24, 2001
(which report expresses an unqualified opinion and includes explanatory
paragraphs relating to Phar-Mor's filing for reorganization under Chapter 11 of
the United States Bankruptcy Code and substantial doubt about Phar-Mor's ability
to continue as a going concern) appearing in Form 10-K of Phar-Mor, Inc. for the
fiscal year ended June 30, 2001.
Pittsburgh, Pennsylvania
October 12, 2001