-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BQe1zmB90mlcHEY5tOu74V7FadBUzCzsSBvJJt+AQrOjAwZKrsyngJDZVInm0K2e HajBO7rbsurNyWHL393svQ== 0000950116-03-004508.txt : 20031114 0000950116-03-004508.hdr.sgml : 20031114 20031114105745 ACCESSION NUMBER: 0000950116-03-004508 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 20030930 FILED AS OF DATE: 20031114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: A C MOORE ARTS & CRAFTS INC CENTRAL INDEX KEY: 0001042809 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-HOBBY, TOY & GAME SHOPS [5945] IRS NUMBER: 223527763 STATE OF INCORPORATION: PA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-23157 FILM NUMBER: 031001168 BUSINESS ADDRESS: STREET 1: 500 UNIVERSITY COURT CITY: BLACKWOOD STATE: NJ ZIP: 08012 BUSINESS PHONE: 6092286700 MAIL ADDRESS: STREET 1: 500 UNIVERSITY COURT CITY: BLACKWOOD STATE: NJ ZIP: 08012 10-Q 1 ten-q.txt 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2003 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____________ to ____________ Commission File Number: 000-23157 A.C. MOORE ARTS & CRAFTS, INC. -------------------------------------------------- (Exact name of registrant as specified in charter) Pennsylvania 22-3527763 - ------------------------------- ------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 500 University Court, Blackwood, NJ 08012 ----------------------------------------- (Address of principal executive offices) (Zip Code) (856) 228-6700 ---------------------------------------------------- (Registrant's telephone number, including area code) N/A ------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) 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. [X] Yes [ ] No Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). [X] Yes [ ] No Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: Class Outstanding at November 12, 2003 - ----------------------------- -------------------------------- Common Stock, no par value 19,346,891 A.C. MOORE ARTS & CRAFTS, INC. TABLE OF CONTENTS
Page Number ------ PART I: FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) Consolidated Balance Sheets as of September 30, 2003 and December 31, 2002..................3 Consolidated Statements of Income for the three and nine month periods ended September 30, 2003 and 2002...........................................................4 Consolidated Statements of Cash Flows for the nine month periods ended September 30, 2003 and 2002...........................................................5 Notes to Consolidated Financial Statements..................................................6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations...................................................................8 Item 3. Quantitative and Qualitative Disclosures About Market Risk.................................14 Item 4. Controls and Procedures....................................................................14 PART II:OTHER INFORMATION Item 1. Legal Proceedings..........................................................................15 Item 2. Changes in Securities and Use of Proceeds..................................................15 Item 3. Defaults Upon Senior Securities............................................................15 Item 4. Submission of Matters to a Vote of Security Holders........................................15 Item 5. Other Information..........................................................................15 Item 6. Exhibits and Reports on Form 8-K...........................................................15 SIGNATURES...................................................................................................17
2 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS A. C. MOORE ARTS & CRAFTS, INC. CONSOLIDATED BALANCE SHEETS (dollars in thousands)
September 30, December 31, 2003 2002 -------- -------- ASSETS (unaudited) Current assets: Cash and cash equivalents $ 24,989 $ 61,584 Inventories 125,084 102,497 Prepaid expenses and other current assets 5,654 2,729 -------- -------- 155,727 166,810 Marketable securities 14,161 -- Property and equipment, net 36,524 27,997 Other assets 1,873 1,851 -------- -------- $208,285 $196,658 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Current portion of capital leases $ 815 $ 1,342 Trade accounts payable 34,042 24,253 Accrued payroll and payroll taxes 3,794 5,737 Accrued expenses 7,522 8,326 Income taxes payable -- 3,341 -------- -------- 46,173 42,999 -------- -------- Long-term liabilities: Capitalized equipment leases, less current portion -- 504 Deferred tax liability 6,019 5,150 Other long-term liabilities 4,496 3,974 -------- -------- 10,515 9,628 -------- -------- 56,688 52,627 -------- -------- SHAREHOLDERS' EQUITY Preferred stock, no par value, 10,000,000 shares authorized, none issued Common stock, no par value, 40,000,000 shares authorized, 19,319,195 shares outstanding at September 30, 2003 and 18,806,047 outstanding at December 31, 2002 104,487 99,654 Retained earnings 47,110 44,377 -------- -------- 151,597 144,031 -------- -------- $208,285 $196,658 ======== ========
See accompanying notes to financial statements 3 A. C. MOORE ARTS & CRAFTS, INC. CONSOLIDATED STATEMENTS OF INCOME (dollars in thousands, except per share data) (unaudited)
Three months ended Nine months ended September 30, September 30, ---------------------------- ---------------------------- 2003 2002 2003 2002 ------------ ------------ ------------ ------------ Net sales $ 98,600 $ 89,726 $ 284,238 $ 258,445 Cost of sales (including buying and distribution costs) 61,987 56,423 179,297 162,756 ------------ ------------ ------------ ------------ Gross Margin 36,613 33,303 104,941 95,689 Selling, general and administrative expenses 33,842 31,180 99,266 90,278 Pre-opening expenses 821 850 1,571 1,888 ------------ ------------ ------------ ------------ Income from operations 1,950 1,273 4,104 3,523 Net interest (income) (92) (150) (319) (326) ------------ ------------ ------------ ------------ Income before income taxes 2,042 1,423 4,423 3,849 Income tax expense 780 566 1,690 1,532 ------------ ------------ ------------ ------------ Net income $ 1,262 $ 857 $ 2,733 $ 2,317 ============ ============ ============ ============ Basic net income per share $ 0.07 $ 0.05 $ 0.14 $ 0.13 ============ ============ ============ ============ Weighted average shares outstanding 19,247,590 18,741,640 19,042,513 17,582,762 ============ ============ ============ ============ Diluted net income per share $ 0.06 $ 0.04 $ 0.14 $ 0.12 ============ ============ ============ ============ Weighted average shares outstanding plus impact of stock options 19,980,409 19,807,463 19,655,988 18,605,664 ============ ============ ============ ============
See accompanying notes to financial statements 4 A.C. MOORE ARTS & CRAFTS, INC CONSOLIDATED STATEMENTS OF CASH FLOWS (dollars in thousands) (unaudited)
Nine Months Ended --------------------------- September 30, 2003 2002 -------- -------- Cash flows from operating activities: Net income $ 2,733 $ 2,317 Adjustments to reconcile net income to net cash (used in) operating activities: Depreciation and amortization 5,014 4,550 Provision for deferred income taxes 869 -- Changes in assets and liabilities: Inventories (22,587) (22,237) Prepaid expenses and other current assets (2,925) (823) Accounts payable, accrued payroll, payroll taxes and accrued expenses 7,042 3,990 Income taxes payable (1,041) (3,314) Other long-term liabilities 522 547 Other (22) (1,021) -------- -------- Net cash (used in) operating activities (10,395) (15,991) -------- -------- Cash flows from investing activities: Capital expenditures (13,541) (7,809) Investment in marketable securities (14,161) -- -------- -------- Cash flows (used in) investing activities (27,702) (7,809) -------- -------- Cash flows from financing activities: Proceeds from sale of shares -- 52,130 Proceeds from line of credit -- 2,000 Repayment of line of credit -- (2,000) Exercise of stock options 2,533 1,326 Repayment of capital leases (1,031) (974) -------- -------- Net cash provided by financing activities 1,502 52,482 -------- -------- Net increase (decrease) in cash (36,595) 28,682 Cash and cash equivalents at beginning of period 61,584 10,818 -------- -------- Cash and cash equivalents at end of period $ 24,989 $ 39,500 ======== ========
See accompanying notes to financial statements 5 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (1) Basis of Presentation The consolidated financial statements included herein include the accounts of A.C. Moore Arts & Crafts, Inc. and its wholly owned subsidiaries (collectively the "Company"). The Company is a chain of 78 retail stores selling arts and crafts merchandise. The stores are located throughout the eastern United States. These financial statements have been prepared by management without audit and should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2002. Due to the seasonality of the Company's business, the results for the interim periods are not necessarily indicative of the results for the year. The accompanying consolidated financial statements reflect, in the opinion of management, all adjustments necessary for a fair presentation of the interim financial statements. In the opinion of management, all such adjustments are of a normal and recurring nature. (2) Common Stock and Earnings per Share On June 25, 2002, the Company's Board of Directors declared a two-for-one stock split to shareholders of record as of the close of business on July 15, 2002 payable on July 31, 2002. All references to the number of shares of common stock, per share prices and earnings per share amounts in the consolidated financial statements and accompanying notes included in this Quarterly Report on Form 10-Q have been adjusted to reflect the split on a retroactive basis. (3) Management Estimates The preparation of these consolidated 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 at the date of the financial statements and the reported amounts of expenses during the reported period and related disclosures. Significant estimates made as of and for the three and nine month periods ended September 30, 2003 and 2002 include provisions for shrinkage, capitalized buying, warehousing and distribution costs related to inventory, and markdowns of merchandise inventories. Actual results could differ materially from those estimates. (4) Marketable Securities Marketable securities represent investments in municipal bonds with maturities of twelve months or longer from time of purchase. They are classified as held-to-maturity and recorded at amortized cost. 6 (5) Recent Accounting Pronouncements In November 2002, the Emerging Issues Task Force reached consensus on Issue 02-16, Accounting by a Customer (including a Reseller) for Cash Consideration Received from a Vendor. EITF Issue 02-16 addresses the accounting for cash consideration received by a customer from a vendor (e.g., slotting fees, cooperative advertising payments, buydowns) and rebates or refunds from a vendor that is payable only if the customer completes a specified cumulative level of purchases or remains a customer for a specified time period. The EITF is effective for agreements modified or entered into after January 1, 2003. The Company has historically treated cooperative advertising allowances as a reduction of advertising expense. Under EITF 02-16, cooperative advertising allowances should be treated as a reduction of inventory cost unless they represent a reimbursement of specific, incremental and identifiable costs incurred by the customer to sell the vendor's product. The Company does not expect this issue to have a material impact on the 2003 financial statements since substantially all of the cooperative advertising allowance agreements for 2003 were entered into prior to January 1, 2003. The Company has assessed the historic volume of cooperative advertising reimbursements that have been received in order to determine which of these reimbursements would meet the specific, identifiable and incremental criteria outlined under this issue and accordingly, qualify as a direct offset to advertising expense. Based on the Company's analysis of the impact on net income, and the administrative cost to identify and track reimbursements between those qualifying for expense offset and those requiring inventory cost reduction, beginning in 2004 the Company has elected to treat all cooperative advertising funds received from vendors as a reduction in the cost of inventory and recognize them as a reduction to cost of goods sold when the inventory is sold. We estimate that the prospective change in the timing of income recognition will reduce 2004 EPS by approximately $0.12 per share. The adoption of this accounting principle does not change the ultimate cash to be received under these agreements, only the timing of when it is reflected in net income. This change will have a positive effect on our cash flow. 7 In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure an amendment of FASB Statement No. 123". SFAS 148 amends SFAS 123 to provide alternative methods of transition for an entity that voluntarily changes to the fair value based method of accounting for stock-based employee compensation. It also amends the disclosure provisions of SFAS 123 to require prominent disclosure about the effects on reported net income of an entity's accounting policy decisions with respect to stock-based employee compensation. It also amends APB Opinion No. 28, "Interim Financial Reporting", to require disclosure about those effects in interim financial information. The Company adopted the disclosure requirements of SFAS 148 for the fiscal year ended December 31, 2002. The Company accounts for its employee stock options using the intrinsic value method prescribed in Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25). Compensation cost for stock options is measured as the excess of the quoted market price of the Company's stock at the date of grant over the amount an employee must pay to acquire the stock. Had compensation cost for the Company's stock-based compensation plan been determined based on the fair value at the grant date for awards under those plans, consistent with the requirements of SFAS No. 123, "Accounting for Stock-Based Compensation," net income and earnings per share would have been reduced to the following pro-forma amounts:
Three Months Ended Nine Months Ended September 30, September 30, -------------------------- ------------------------- 2003 2002 2003 2002 ---------- ---------- ---------- ---------- Net income.................. As reported $1,262,000 $ 857,000 $2,733,000 $2,317,000 Compensation cost, net 305,000 188,000 860,000 466,000 Pro forma 957,000 669,000 1,873,000 1,851,000 Basic earnings per share.... As reported $ .07 $ .05 $ .14 $ .13 Pro forma .05 .04 .10 .11 Diluted earnings per share.. As reported $ .06 $ .04 $ .14 $ .12 Pro forma .05 .03 .10 .10
The pro forma results may not be representative of the effects on reported operations for future years. The fair value of the options was calculated using a Black-Scholes options pricing model with the following weighted-average assumptions: risk-free interest rate of 3.2% for 2003, 4.1% for 2002, 5.1% for 2001, 6.3% for 2000 and; no dividend yield; and a weighted average expected life of the options of 4.5 years for 2003 and seven years for 2002, 2001, and 2000. In accordance with the provisions of SFAS No. 123 the expected stock price volatility was 56.0% for 2003, 45.2% for 2002, 48.4% for 2001, and 46.6% for 2000. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis contains certain forward-looking statements. These forward-looking statements do not constitute historical facts and involve risks and uncertainties. Actual results could differ materially from those referred to in the forward-looking statements due to a number of factors, including, but not limited to, the following: the impact of the adoption of EITF Issue 02-16, customer demand, the effect of economic conditions, the impact of adverse weather conditions, the impact of competitors' locations or pricing, the availability of acceptable real estate locations for new stores, difficulties with respect to new information system technologies, supply constraints or difficulties, the effectiveness of advertising strategies and the impact of the threat of terrorist attacks and war. For additional information concerning factors that could cause actual results to differ materially from the information contained herein, reference is made to the information under the heading "Cautionary Statement Relating to Forward Looking Statements" in our Annual Report on Form 10-K as filed with the Securities and Exchange Commission. 8 Due to the importance of our peak selling season, which includes Fall/Halloween, Thanksgiving and Christmas, the fourth quarter has historically contributed, and we expect it will continue to contribute, disproportionately to our profitability for the entire year. As a result, our quarterly results of operations may fluctuate. In addition, results of a period shorter than a full year may not be indicative of results expected for the entire year. Our quarterly results of operations also may fluctuate based upon such factors as the length of holiday seasons, the date on which holidays fall, the number and timing of new store openings, the amount of store pre-opening expenses, the amount of net sales contributed by new and existing stores, the mix of products sold, the amount of sales returns, the timing and level of markdowns and other competitive factors. Results of Operations The following table sets forth, for the periods indicated, selected statement of operations data expressed as a percentage of net sales and the number of stores open at the end of each such period:
Three months ended Nine months ended September 30, September 30, -------------------- ------------------- 2003 2002 2003 2002 ----- ----- ----- ----- Net sales.............................................. 100.0% 100.0% 100.0% 100.0% Cost of sales.......................................... 62.9% 62.9% 63.1% 63.0% ----- ----- ----- ----- Gross margin........................................... 37.1% 37.1% 36.9% 37.0% Selling, general and administrative expenses........... 34.3% 34.8% 34.9% 34.9% Store pre-opening expenses............................. 0.8% 0.9% 0.5% 0.7% ----- ----- ----- ----- Income from operation.................................. 2.0% 1.4% 1.5% 1.4% Net interest (income) expense.......................... (0.1)% (0.2)% (0.1)% (0.1)% ----- ----- ----- ----- Income before income taxes............................. 2.1% 1.6% 1.6% 1.5% Income tax expense..................................... 0.8% 0.6% 0.6% 0.6% ----- ----- ----- ----- Net income............................................. 1.3% 1.0% 1.0% 0.9% ===== ===== ===== ===== Number of stores open at end of period................. 78 70
Three Months Ended September 30, 2003 Compared to Three Months Ended September 30, 2002 Net Sales. Net sales increased $8.9 million, or 9.9%, to $98.6 million in the three months ended September 30, 2003 from $89.7 million in the comparable 2002 period. This increase is comprised of (i) net sales of $5.2 million from seven new stores opened in 2003, (ii) net sales of $2.1 million from stores opened in 2002 not included in the comparable store base, and (iii) a comparable store sales increase of $1.6 million, or 2%. Stores are added to the comparable store base at the beginning of the fourteenth full month of operation. 9 Gross Margin. Gross margin is net sales minus the cost of merchandise and certain distribution and purchasing costs. The gross margin was 37.1% of net sales in both the three month periods ended September 30, 2003 and September 30, 2002. Selling, General, and Administrative Expenses. Selling, general and administrative expenses include (a) direct store level expenses, including rent and related operating costs, payroll, advertising, depreciation and other direct costs, and (b) corporate level costs not directly associated with or allocable to cost of sales including executive salaries, accounting and finance, corporate information systems, office facilities and other corporate expenses. Selling, general and administrative expenses increased $2.7 million, or 8.5%, in the three months ended September 30, 2003 to $33.8 million from $31.2 million in the three months ended September 30, 2002. The increase is principally accountable from stores opened in 2003 which were not open during 2002 and the stores opened in 2002 not in the comparable store base. As a percentage of sales, selling, general and administrative costs decreased to 34.3% of net sales in the three months ended September 30, 2003 from 34.8% of net sales in the three months ended September 30, 2002. This decrease is primarily due to leveraging store and central costs from the increase in sales in our comparable store base. Store Pre-Opening Expenses. We expense store pre-opening expenses as incurred. Pre-opening expenses for the four new stores which opened in the third quarter of 2003 and the store which we relocated in August, amounted to $821,000. In the third quarter of 2002, we incurred store pre-opening expenses of $850,000 related to the six stores opened in that quarter. Net Interest (Income). In the third quarter of 2003, we had net interest income of $92,000 compared with net interest income of $150,000 in 2002. The change is due to lower interest rates earned on proceeds from the proceeds of our sale of shares in March 2002. Income Taxes. Our effective income tax rate was 38.2% for the third quarter ended September 30, 2003 and 39.8% for the third quarter ended September 30, 2002. The decrease in the effective tax rate is principally the result of tax free interest income in 2003. Nine Months Ended September 30, 2003 Compared to Nine Months Ended September 30, 2002 Net Sales. Net sales increased $25.8 million, or 10.0%, to $284.2 million in the nine months ended September 30, 2003 from $258.4 million in the comparable 2002 period. This increase is comprised of (i) net sales of $7.5 million from seven new stores opened in 2003, (ii) net sales of $15.3 million from stores opened in 2002 not included in the comparable store base, and (iii) a comparable store sales increase of $3.0 million, or 1%. Sales were significantly impacted by severe weather conditions throughout our trading area in the first quarter. Gross Margin. The gross margin decreased to 36.9% of net sales in the nine months ended September 30, 2003 from 37.0% in the nine months ended September 30, 2002. The decrease occurred during the first quarter due to more aggressive promotions in response to the difficult sales environment and to a change in sales mix resulting from the weather and a later Easter. Selling, General, and Administrative Expenses. Selling, general and administrative expenses increased $9.0 million, or 10.0%, in the nine months ended September 30, 2003 to $99.3 million from $90.3 million in the nine months ended September 30, 2002. The increase is principally accountable from stores opened in 2003 which were not open during 2002 and the stores opened in 2002 not in the comparable store base. As a percentage of sales, selling, general and administrative costs was 34.9% of net sales in both the nine month periods ended September 30, 2003 and September 30, 2002. 10 Store Pre-Opening Expenses. Pre-opening expenses for the seven new stores opened in the first nine months of 2003 and the stores we relocated amounted to $1.6 million. In the first nine months of 2002, we opened 10 stores and incurred store pre-opening expenses of $1.9 million. Net Interest (Income). In the first nine months of 2003, we had net interest income of $319,000 compared with net interest income of $326,000 in 2002. The change is due to interest earned over the full nine months from the proceeds of our sale of shares in March 2002, offset by lower interest rates in 2003 compared with 2002. Income Taxes. Our effective income tax rate was 38.2% for the nine months ended September 20, 2003 and 39.8% for the nine months ended September 30, 2002. The decrease in the effective tax rate is principally the result of tax free interest income in 2003. Liquidity and Capital Resources Our cash is used primarily for working capital to support inventory requirements and capital expenditures, pre-opening expenses and beginning inventory for new stores. In recent years, we have financed our operations and new store openings primarily with cash from operations, the net proceeds we received from our initial public offering in 1997 and with borrowing under bank financing agreements. In March 2002 we completed a secondary offering in which we sold 3,500,000 new post-split shares, with net cash proceeds of $52,130,000. At September 30, 2003 and December 31, 2002 our working capital was $109.6 million and $123.8 million, respectively. Cash used in operations was $10.4 million for the nine months ended September 30, 2003 as a result of an increase in inventory of $22.6 million to support the new stores and the increase of accounts payable and accrued expenses of $7.0 million. Net cash used in investing activities during the nine months ended September 30, 2003 was $27.7 million. This included $14.2 million for investments in marketable securities with a maturity of over one year and $13.5 million for capital expenditures. In 2003, we expect to spend approximately $31.0 million on capital expenditures, which includes approximately $22.0 million for land, building, equipment and systems for our new distribution center, $6.5 million for new store openings, and the remainder for remodeling existing stores, upgrading systems in existing stores, warehouse equipment, and corporate systems development. The total cost of the new distribution center is estimated to be between $40.0 and $42.0 million. We expect to finance $30.0 million of this project through long-term debt. In the year ended December 31, 2002, net cash provided by financing activities was principally the $52.1 million proceeds from our sale of shares in March 2002. We currently have a $25.0 million line of credit agreement with Wachovia Bank, which expires on January 1, 2005. Borrowing under this line will bear interest at LIBOR plus 95 basis points. At September 30, 2003 there were no borrowings outstanding under this agreement. On October 28, 2003 we signed two mortgage loans with Wachovia Bank relating to the new corporate offices and distribution center. The mortgages total $30.0 million and are secured by land, building, and equipment. Borrowings under the mortgages are repayable at between seven and 15 years and will bear interest rates that will vary between LIBOR plus 85 basis points and LIBOR plus 135 basis points, depending on the debt service coverage ratio and the length of the mortgage payment. We have the option of fixing the interest rate at any time. 11 We believe the cash generated from operations during the year, funds received through the financing of the new distribution center and available borrowings under the credit agreement will be sufficient to finance our working capital and capital expenditure requirements for at least the next 12 months. Recent Accounting Pronouncements In November 2002, the Emerging Issues Task Force reached consensus on Issue 02-16, Accounting by a Customer (including a Reseller) for Cash Consideration Received from a Vendor. EITF Issue 02-16 addresses the accounting for cash consideration received by a customer from a vendor (e.g., slotting fees, cooperative advertising payments, buydowns) and rebates or refunds from a vendor that is payable only if the customer completes a specified cumulative level of purchases or remains a customer for a specified time period. The EITF is effective for agreements modified or entered into after January 1, 2003. See Note 5 to the Consolidated Financial Statements for further description of the estimated impact of the adoption of EITF 02-16. In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure an amendment of FASB Statement No. 123". SFAS 148 amends SFAS 123 to provide alternative methods of transition for an entity that voluntarily changes to the fair value based method of accounting for stock-based employee compensation. It also amends the disclosure provisions of SFAS 123 to require prominent disclosure about the effects on reported net income of an entity's accounting policy decisions with respect to stock-based employee compensation. It also amends APB Opinion No. 28, "Interim Financial Reporting", to require disclosure about those effects in interim financial information. The Company adopted the disclosure requirements of SFAS 148 for the fiscal year ended December 31, 2002 and the subsequent interim periods. General On June 25, 2002, our Board of Directors approved a two-for-one stock split to shareholders of record as of the close of business on July 15, 2002. The shares were distributed on July 31, 2002. 12 Critical Accounting Policies Our significant accounting policies are described in Note 1 to the Consolidated Financial Statements presented in our Annual Report on Form 10-K for the year ended December 31, 2002. Management believes that the following accounting policies affect the more significant estimates used in preparing the consolidated financial statements. Inventory Valuation We value our inventories at stores at the lower of cost or market as determined using the retail inventory method. Because we do not have perpetual inventory records for inventory in our stores, we perform complete physical inventories in each of our stores at the end of each year. The actual physical count of merchandise is made principally by third party inventory counting service firms. We believe our process results in reasonable estimates of our retail inventory on hand at year end. Inventory valuation methods also require certain management estimates and judgments. These include estimates of net realizable value on product designated for clearance or on slow moving merchandise. The accuracy of our estimates can be affected by many factors, some of which are outside of our control, including changes in economic conditions and consumer buying trends. Historically, we have not experienced significant differences in our estimates of recovery compared with actual results. We believe our process results in reasonable estimates of our inventory each quarter. Co-Operative Advertising Allowances The costs incurred for advertising are expensed the first time the advertising takes place, and are offset by re-imbursements received under cooperative advertising programs with certain vendors. Co-op advertising funds are only recognized when we have performed our contractual obligation under a co-op advertising agreement. Under the guidance set forth in Emerging Issues Task Force (EITF) 02-16 "Accounting by a Customer (Including a Reseller) for Certain Consideration Received From a Vendor," cooperative advertising allowances should be treated as a reduction of inventory cost unless they represent a reimbursement of specific, incremental and identifiable costs incurred by the customer to sell the vendor's product. Under the transition rules set forth in EITF 02-16, this treatment is required for all agreements entered into or modified after January 1, 2003. We have historically treated cooperative advertising allowances as a reduction of advertising expense. Under EITF 02-16, cooperative advertising allowances should be treated as a reduction of inventory cost unless they represent a reimbursement of specific, incremental, identifiable costs incurred by the customer to sell the vendor's product. We do not expect this issue to have a material impact on our 2003 financial statements since substantially all of the cooperative advertising allowance agreements for 2003 were entered into prior to January 1, 2003. We have assessed the historic volume of cooperative advertising reimbursements that have been received in order to determine which of these reimbursements would meet the specific, identifiable and incremental criteria outlined under this issue and accordingly, qualify as a direct offset to advertising expense. Based on our analysis of the impact on net income, and the administrative cost to identify and track reimbursements between those qualifying for expense offset and those requiring inventory cost reduction, beginning in 2004 we have elected to treat all cooperative advertising funds received from vendors as a reduction in the cost of inventory and recognize them as a reduction to cost of goods sold when the inventory is sold. We estimate that the prospective change in the timing of income recognition will reduce 2004 EPS by approximately $0.12 per share. 13 The adoption of this accounting principle does not change the ultimate cash to be received under these agreements, only the timing of when it is reflected in net income. This change will have a positive effect on our cash flow. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. Not Applicable. ITEM 4. CONTROLS AND PROCEDURES As required by Rule 13a-15(b), A.C. Moore management, including its chief executive officer and chief financial officer, conducted an evaluation as of the end of the period covered by this report, of the effectiveness of A.C. Moore's disclosure controls and procedures as defined in Exchange Act Rule 13a-15(e). Based on that evaluation, A.C. Moore's chief executive officer and chief financial officer concluded that A.C. Moore's disclosure controls and procedures were effective in reaching a reasonable level of assurance that management is timely alerted to material information relating to A.C. Moore during the period when A.C. Moore's periodic reports are being prepared. As required by Rule 13a-15(d), A.C. Moore management, including its chief executive officer and chief financial officer, also conducted an evaluation of A.C. Moore's internal control over financial reporting to determine whether any changes occurred during the quarter covered by this report that have materially affected, or are reasonably likely to materially affect, A.C. Moore's internal control over financial reporting. Based on that evaluation, there has been no such change during the quarter covered by this report. 14 PART II OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS Not Applicable. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS None. ITEM 3. DEFAULTS UPON SENIOR SECURITIES Not Applicable. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not Applicable ITEM 5. OTHER INFORMATION None ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits. 10.1 Loan Agreement dated as of October 28, 2003, by and between Wachovia Bank, National Association and A.C. Moore Arts & Crafts, Inc., A.C. Moore Incorporated, Moorestown Finance, Inc., Blackwood Assets, Inc. and A.C. Moore Urban Renewal, LLC. A.C. Moore will furnish to the Securities and Exchange Commission a copy of any omitted exhibits or schedules upon request. 10.2 Construction Loan Agreement dated as of October 28, 2003, by and between Wachovia Bank, National Association and A.C. Moore Arts & Crafts, Inc., A.C. Moore Incorporated, Moorestown Finance, Inc., Blackwood Assets, Inc. and A.C. Moore Urban Renewal, LLC. A.C. Moore will furnish to the Securities and Exchange Commission a copy of any omitted exhibits or schedules upon request. 10.3 Mortgage, Assignment of Rents and Security Agreement and Financing Statement dated as of October 28, 2003, by and between A.C. Moore Urban Renewal, LLC and Wachovia Bank, National Association. A.C. Moore will furnish to the Securities and Exchange Commission a copy of any omitted exhibits upon request. 31.1 Certification of Chief Executive Officer pursuant to Rules 13a-14(a) and 15d-14(a) promulgated under the Securities Exchange Act of 1934, as amended ("Exchange Act"). 31.2 Certification of Chief Financial Officer pursuant to Rules 13a-14(a) and 15d-14(a) promulgated under the Exchange Act. 15 32 Certification of the Company's Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (b) Reports on Form 8-K filed or furnished in the quarter ended September 30, 2003: 8-K, Item 9, furnished on July 3, 2003 regarding a Company press release concerning earnings and other information 8-K, Item 9, furnished on July 16, 2003 regarding a Company press release concerning earnings and other information 8-K, Item 5, filed on July 28, 2003 regarding the plan of Mr. Richard Drake under Rule 10b5-1 under the Exchange Act 16 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. A.C. MOORE ARTS & CRAFTS, INC. Date: November 14, 2003 By: /s/ John E. Parker --------------------------- John E. Parker Chief Executive Officer (duly authorized officer and principal executive officer) Date: November 14, 2003 By: /s/ Leslie H. Gordon --------------------------- Leslie H. Gordon Executive Vice President and Chief Financial Officer (duly authorized officer and principal financial officer) 17 Exhibit Index ------------- Exhibit No. Description - ----------- ----------- 10.1 Loan Agreement dated as of October 28, 2003, by and between Wachovia Bank, National Association and A.C. Moore Arts & Crafts, Inc., A.C. Moore Incorporated, Moorestown Finance, Inc., Blackwood Assets, Inc. and A.C. Moore Urban Renewal, LLC. A.C. Moore will furnish to the Securities and Exchange Commission a copy of any omitted exhibits or schedules upon request. 10.2 Construction Loan Agreement dated as of October 28, 2003, by and between Wachovia Bank, National Association and A.C. Moore Arts & Crafts, Inc., A.C. Moore Incorporated, Moorestown Finance, Inc., Blackwood Assets, Inc. and A.C. Moore Urban Renewal, LLC. A.C. Moore will furnish to the Securities and Exchange Commission a copy of any omitted exhibits or schedules upon request. 10.3 Mortgage, Assignment of Rents and Security Agreement and Financing Statement dated as of October 28, 2003, by and between A.C. Moore Urban Renewal, LLC and Wachovia Bank, National Association. A.C. Moore will furnish to the Securities and Exchange Commission a copy of any omitted exhibits upon request. 31.1 Certification of Chief Executive Officer pursuant to Rules 13a-14(a) and 15d-14(a) promulgated under the Securities Exchange Act of 1934, as amended ("Exchange Act"). 31.2 Certification of Chief Financial Officer pursuant to Rules 13a-14(a) and 15d-14(a) promulgated under the Exchange Act. 32 Certification of the Company's Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 18 EX-10 3 ex10-1.txt EXHIBIT 10.1 Exhibit 10.1 LOAN AGREEMENT Wachovia Bank, National Association 190 River Road Summit, New Jersey 07901 (Hereinafter referred to as the "Bank") A.C. Moore Arts & Crafts, Inc. 500 University Court Blackwood, New Jersey 08012 A.C. Moore Incorporated 500 University Court Blackwood, New Jersey 08012 Moorestown Finance, Inc. 300 Delaware Avenue - 9th Floor Wilmington, Delaware 19801 Blackwood Assets, Inc. 300 Delaware Avenue - 9th Floor Wilmington, Delaware 19801 A.C. Moore Urban Renewal, LLC 500 University Court Blackwood, New Jersey 08012 (Individually and collectively "Borrower") This Loan Agreement ("Agreement") is entered into as of October 28, 2003, by and between Bank and Borrower. This Agreement amends and restates in its entirety that certain Loan Agreement dated July 9, 2002 and applies to the loan or loans (individually and collectively, the "Loan") evidenced by one or more promissory notes, of even date, or other notes subject hereto, as modified from time to time (whether one or more, the "Note"), the commercial letters of credit and standby letters of credit issued hereunder (each, a "Letter of Credit" and collectively, the "Letters of Credit") and all Loan Documents. Relying upon the covenants, agreements, representations and warranties contained in this Agreement, Bank is willing to extend credit to Borrower upon the terms and subject to the conditions set forth herein, and Bank and Borrower agree as follows: DEFINITIONS. Loan Documents. The term "Loan Documents", as used in this Agreement and the other Loan Documents, refers to all documents executed in connection with the loans evidenced by (i) a $25,000,000 Promissory Note, (ii) a $22,500,000 Promissory Note, and (iii) a $7,500,000 Promissory Note, all of even date, and any letters of credit issued pursuant to this Agreement, any applications for such letters of credit and any other documents executed in connection therewith, and may include, without limitation, a commitment letter that survives closing, this Agreement, the Notes, guaranty agreements, security agreements, security instruments, financing statements, mortgage instruments, any renewals or modifications, whenever any of the foregoing are executed, but does not include swap agreements (as defined in 11 U.S.C. ss. 101). Obligations. The term "Obligations", as used in this Agreement and the other Loan Documents, refers to any and all indebtedness and other obligations under the Notes, and any additional or replacement notes, all other obligations under any other Loan Document(s), and all obligations under any swap agreements (as defined in 11 U.S.C. ss. 101) between Borrower and Bank whenever executed. Certain Other Terms. All terms that are used but not otherwise defined in any of the Loan Documents shall have the definitions provided in the Uniform Commercial Code. LETTERS OF CREDIT. Upon the request of Borrower, Bank shall issue commercial letters of credit and standby letters of credit, provided, the aggregate amount available to be drawn under all commercial Letters of Credit and standby Letters of Credit plus the aggregate amount of unreimbursed drawings under all commercial Letters of Credit and standby Letters of Credit at any one time does not exceed $7,500,000.00, and further provided, no commercial letter of credit shall expire more than 180 days after the date it is issued and no standby letter of credit shall expire more than 365 days after the date it is issued. Notwithstanding anything to the contrary contained herein, the aggregate outstanding principal balance of Advances (as defined in the line of credit Promissory Note in the amount of $25,000,000.00, of even date), plus the aggregate amount available to be drawn under all Letters of Credit plus the aggregate amount of unreimbursed drawings under all Letters of Credit plus the aggregate face amount of all outstanding banker's acceptances created by Bank in its sole discretion at the request of Borrower at any one time shall not exceed $25,000,000.00. The Letters of Credit are to be used by Borrower solely for inventory purchases. Bank's obligation to issue Letters of Credit shall terminate if Borrower is in default (however denominated) under the Note or the other Loan Documents, or in any case, if not sooner terminated, on July 1, 2004. LETTER OF CREDIT FEES. Borrower shall pay to Bank, at such times as Bank shall require, Bank's standard fees in connection with Letters of Credit, as in effect from time to time, and with respect to standby Letters of Credit, an additional fee equal to 1.00% per annum on the face amount of each standby Letter of Credit, payable annually, in advance, for so long as such Letter of Credit is outstanding. REPRESENTATIONS. Borrower represents that from the date of this Agreement and until final payment in full of the Obligations: Accurate Information. All information now and hereafter furnished to Bank is and will be true, correct and complete. Any such information relating to Borrower's financial condition will accurately reflect Borrower's financial condition as of the date(s) thereof, (including all contingent liabilities of every type), and Borrower further represents that its financial condition has not changed materially or adversely since the date(s) of such documents. Authorization; Non-Contravention. The execution, delivery and performance by Borrower and any guarantor, as applicable, of this Agreement and other Loan Documents to which it is a party are within its power, have been duly authorized as may be required and, if necessary, by making appropriate filings with any governmental agency or unit and are the legal, binding, valid and enforceable obligations of Borrower and any guarantors; and do not (i) contravene, or constitute (with or without the giving of notice or lapse of time or both) a violation of any provision of applicable law, a violation of the organizational documents of Borrower or any guarantor, or a default under any agreement, judgment, injunction, order, decree or other instrument binding upon or affecting Borrower or any guarantor, (ii) result in the creation or imposition of any lien (other than the lien(s) created by the Loan Documents) on any of Borrower's or any guarantor's assets, or (iii) give cause for the acceleration of any obligations of Borrower or any guarantor to any other creditor. Asset Ownership. Borrower has good and marketable title to all of the properties and assets reflected on the balance sheets and financial statements supplied Bank by Borrower, and all such properties and assets are free and clear of mortgages, security deeds, pledges, liens, charges, and all other encumbrances, except as otherwise described on Exhibit A, attached hereto and made a part hereof (the "Permitted Liens"). To Borrower's knowledge, no default has occurred under any Permitted Liens and no claims or interests adverse to Borrower's present rights in its properties and assets have arisen. Discharge of Liens and Taxes. Borrower has duly filed, paid and/or discharged all taxes or other claims that may become a lien on any of its property or assets, except to the extent that such items are being appropriately contested in good faith and an adequate reserve for the payment thereof is being maintained. Sufficiency of Capital. Borrower is not, and after consummation of this Agreement and after giving effect to all indebtedness incurred and liens created by Borrower in connection with the Note and any other Loan Documents, will not be, insolvent within the meaning of 11 U.S.C. ss. 101(32). Compliance with Laws. Borrower is in compliance in all respects with all federal, state and Page 2 local laws, rules and regulations applicable to its properties, operations, business, and finances, including, without limitation, any federal or state laws relating to liquor (including 18 U.S.C. ss. 3617, et seq.) or narcotics (including 21 U.S.C. ss. 801, et seq.) and/or any commercial crimes; all applicable federal, state and local laws and regulations intended to protect the environment; and the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), if applicable. Organization and Authority. Each corporation, partnership or limited liability company Borrower and/or guarantor, as applicable, is duly created, validly existing and in good standing under the laws of the state of its organization, and has all powers, governmental licenses, authorizations, consents and approvals required to operate its business as now conducted. Each corporation, partnership or limited liability company Borrower and/or guarantor, as applicable, is duly qualified, licensed and in good standing in each jurisdiction where qualification or licensing is required by the nature of its business or the character and location of its property, business or customers, and in which the failure to so qualify or be licensed, as the case may be, in the aggregate, could have a material adverse effect on the business, financial position, results of operations, properties or prospects of Borrower or any such guarantor. No Litigation. As of the date hereof and as of the date of each advance under the Loan Documents, there are no pending or threatened suits, claims or demands against Borrower or any guarantor in excess of $250,000 in the aggregate and not covered by insurance that have not been disclosed to Bank by Borrower in writing, and approved by Bank. Regulation U. None of the proceeds of the credit extended pursuant to this Agreement shall be used directly or indirectly for the purpose of purchasing or carrying any margin stock in violation of any of the provisions of Regulation U of the Board of Governors of the Federal Reserve System ("Regulation U"), or for the purpose of reducing or retiring any indebtedness which was originally incurred to purchase or carry margin stock or for any other purchase which might render the Loan a "Purpose Credit" within the meaning of Regulation U. ERISA. Each employee pension benefit plan, as defined in ERISA, maintained by Borrower meets, as of the date hereof, the minimum funding standards of ERISA and all applicable regulations thereto and requirements thereof, and of the Internal Revenue Code of 1986, as amended. No "Prohibited Transaction" or "Reportable Event" (as both terms are defined by ERISA) has occurred with respect to any such plan. AFFIRMATIVE COVENANTS. Borrower agrees that from the date hereof and until final payment in full of the Obligations, unless Bank shall otherwise consent in writing, Borrower will: Access to Books and Records. Allow Bank, or its agents, upon reasonable prior notice and during normal business hours, access to the books, records and such other documents of Borrower as Bank shall reasonably require, and allow Bank, at Bank's expense, to inspect, audit and examine the same and to make extracts therefrom and to make copies thereof, provided that upon the occurrence and during the continuation of any Default, as defined in the Loan Documents, such inspection, audit, examination, extracts and copies shall be at Borrower's expense. Business Continuity. Conduct its business in substantially the same manner as such business is now and has previously been conducted. Compliance with Other Agreements. Comply with all terms and conditions contained in this Agreement, and any other Loan Documents, and swap agreements, if applicable, as defined in the 11 U.S.C. ss. 101. Estoppel Certificate. Furnish, within 15 days after written request by Bank, a written statement duly acknowledged of the amount due under the Loans and identifying each outstanding Letter of Credit, if any, and whether offsets or defenses exist against the Obligations. Insurance. Maintain adequate insurance coverage with respect to its properties and business against loss or damage of the kinds and in the amounts customarily insured against by companies of established reputation engaged in the same or similar businesses including, without limitation, commercial general liability insurance, workers compensation insurance, and business interruption insurance; all acquired in such amounts and from such companies as Bank may reasonably require. Management Letter. Borrower shall deliver to Bank within 90 days after the close of each fiscal year, its Management Letter, if any, in the same form and substance as is provided to Borrower and prepared by Borrower's independent certified public accountant. Maintain Properties. Maintain, preserve and keep its property in good repair, working order and condition, making all needed replacements, additions and improvements thereto, to the extent allowed by this Agreement. Non-Default Certificate From Borrower. Deliver to Bank, with the Financial Statements required below, a certificate signed by Borrower, in the form attached hereto as Exhibit B, if Borrower is an individual, or by a principal financial officer of Borrower warranting that no "Default" as specified in the Loan Documents nor any event which, upon the giving of notice or lapse of time or both, would constitute such a Default, has occurred and demonstrating Borrower's compliance with the financial covenants contained herein. Notice of Default and Other Notices. (a) Notice of Default. Furnish to Bank immediately upon becoming aware Page 3 of the existence of any condition or event which constitutes a Default (as defined in the Loan Documents) or any event which, upon the giving of notice or lapse of time or both, may become a Default, written notice specifying the nature and period of existence thereof and the action which Borrower is taking or proposes to take with respect thereto. (b) Other Notices. Promptly notify Bank in writing of (i) any material adverse change in its financial condition or its business; (ii) any default under any material agreement, contract or other instrument to which it is a party or by which any of its properties are bound, or any acceleration of the maturity of any indebtedness owing by Borrower; (iii) any material adverse claim against or affecting Borrower or any part of its properties; (iv) the commencement of, and any material determination in, any litigation with any third party or any proceeding before any governmental agency or unit affecting Borrower or the Project (as defined in the Construction Loan Agreement, of even date), which could result in an uninsured liability in excess of $250,000; and (v) at least 30 days prior thereto, any change in Borrower's name or address as shown above, and/or any change in Borrower's legal structure other than changes in share ownership of any Borrower that is publicly traded. Other Financial Information. Deliver promptly such other information regarding the operation, business affairs, and financial condition of Borrower which Bank may reasonably request. Payment of Debts. Pay and discharge when due, and before subject to penalty or further charge, and otherwise satisfy before maturity or delinquency, all obligations, debts, taxes, and liabilities of whatever nature or amount, except those which Borrower in good faith disputes. Reports and Proxies. Deliver to Bank, promptly, a copy of all financial statements, reports, notices, and proxy statements, sent by Borrower to stockholders, and all regular or periodic reports required to be filed by Borrower with any governmental agency or authority. NEGATIVE COVENANTS. Borrower agrees that from the date of this Agreement and until final payment in full of the Obligations, unless Bank shall otherwise consent in writing, Borrower will not: Change in Fiscal Year. Change its fiscal year. Change of Control. Make or suffer a change in the ownership of any publicly traded Borrower in excess of 50% of the outstanding stock or voting power of or in any such entity in a single transaction or a series of transactions. Encumbrances. Create, assume, or permit to exist any mortgage, security deed, deed of trust, pledge, lien, charge or other encumbrance on any of its assets, whether now owned or hereafter acquired, other than: (i) security interests required by the Loan Documents; (ii) liens for taxes contested in good faith; (iii) liens accruing by law for employee benefits; or (iv) Permitted Liens. Guarantees. Guarantee or otherwise become responsible for obligations of any other person or persons, other than the endorsement of checks and drafts for collection in the ordinary course of business. Investments. Purchase any stock, securities, or evidence of indebtedness of any other person or entity except investments in (i) direct obligations of the United States Government and certificates of deposit of United States commercial banks having a tier 1 capital ratio of not less than 6% and then in an amount not exceeding 10% of the issuing bank's unimpaired capital and surplus and (ii) investment grade securities with a rating, or effective rating, of at least A1 or P1. Default on Other Contracts or Obligations. Default on any contract with or obligation when due to a third party or default in the performance of any obligation to a third party incurred for borrowed money, the default of which could result in an uninsured liability in excess of $250,000. Government Intervention. Permit the assertion or making of any seizure, vesting or intervention by or under authority of any governmental entity, as a result of which the management of Borrower or any guarantor is displaced of its authority in the conduct of its respective business or such business is curtailed or materially impaired. Judgment Entered. Permit the entry of any monetary judgment or the assessment against, the filing of any tax lien against, or the issuance of any writ of garnishment or attachment against any property of or debts due Borrower in an amount in excess of $1,000,000.00, in the aggregate, which is not discharged or execution is not stayed within 30 days of entry. Prepayment of Other Debt. Retire any long-term debt entered into prior to the date of this Agreement at a date in advance of its legal obligation to do so; provided that Borrower may repay such long-term debt if such repayment shall not cause any condition or event which constitutes a Default (as defined in the Loan Documents executed by the Borrower) or any event which, upon the giving of notice or lapse of time or both, may become a Default. Retire or Repurchase Capital Stock. Retire or otherwise acquire any of its capital stock; provided that Borrower may retire or repurchase capital stock if such retirement or repurchase shall not cause any condition or event which constitutes a Default (as defined in the Loan Documents executed by the Borrower) or any event which, upon the giving of notice or lapse of time or both, may become a Default. Page 4 FINANCIAL REPORTING REQUIREMENTS. Borrower shall deliver to the Bank within 90 days after the close of each fiscal year a copy of its 10K report as required to be filed under the Securities and Exchange Act of 1934 ("Act") (and any amendments and modifications to the Act thereto). The 10K shall contain the audited annual consolidated financial statement for the fiscal year, including all notes and schedules, prepared in accordance with generally accepted accounting principles ("GAAP"). Borrower shall deliver to the Bank within 45 days after the close of each fiscal quarter a copy of its 10Q report as required to be filed under the Securities and Exchange Act of 1934 (and any amendments and modifications to the Act thereto). The 10Q shall contain the consolidated financial statement for the fiscal quarter, including all notes and schedules as required by the 10Q report. Borrower shall provide to Bank copies of all other reports required to be filed by the Borrower under the Securities and Exchange Act of 1934 (and any amendments and modifications to the Act thereto). Borrower shall deliver promptly such other information regarding the operation, business affairs, and financial condition of Borrower which Bank may reasonably request. FINANCIAL COVENANTS. Borrower agrees to the following provisions from the date hereof until final payment in full of the Obligations, unless Bank shall otherwise consent in writing, and the Debt Service Coverage Ratio, Leverage Ratio, and Current Ratio covenants shall be calculated on a consolidated basis, using the financial information for Borrower, its subsidiaries, affiliates and its holding or parent company, as applicable: Debt Service Coverage Ratio. Borrower shall maintain a Debt Service Coverage Ratio of not less than 1.35 to 1.00, to be calculated quarterly, on a rolling four quarters basis. "Debt Service Coverage Ratio" means the ratio of (i) the sum of net profit plus depreciation plus amortization plus interest expense plus operating lease (rent) expenses minus all cash dividends, withdrawals and/or other equity disbursements divided by (ii) the sum of the current portion of long term debt and capital lease obligations plus interest expenses plus operating lease (rent) expenses. Leverage Ratio. Borrower shall maintain a Leverage Ratio not greater than .40 to 1.00, to be calculated quarterly. "Leverage Ratio" means the ratio of (i) Funded Debt divided by (ii) the sum of Funded Debt plus Tangible Net Worth. "Funded Debt" shall mean, as applied to any person or entity, the sum of, (a) all indebtedness for borrowed money, including, without limitation, capital lease obligations, subordinated debt (including debt subordinated to the Bank), and unreimbursed drawings under letters of credit, or any other monetary obligation evidenced by a note, bond, debenture or other agreement of that person or entity, (b) letters of credit issued on behalf of the Borrower, (c) Synthetic Lease obligations of Borrower and that portion of any obligation of Borrower, as lessee, which in accordance with generally accepted accounting principles is required to be capitalized on the balance sheet of Borrower, and (d) any contingent obligations of Borrower of indebtedness of others. "Tangible Net Worth" shall mean total assets minus Total Liabilities. For purposes of this computation, the aggregate amount of any intangible assets of Borrower including, without limitation, goodwill, franchises, licenses, patents, trademarks, trade names, copyrights, service marks, and brand names, shall be subtracted from total assets. "Total Liabilities" shall mean all liabilities of Borrower, including capitalized leases and all reserves for deferred taxes, debt fully subordinated to Bank on terms and conditions acceptable to Bank, and other deferred sums appearing on the liabilities side of a balance sheet and all obligations as lessee under off-balance sheet synthetic leases of Borrower, all in accordance with generally accepted accounting principles applied on a consistent basis. Current Ratio. Borrower shall maintain a Current Ratio at each fiscal quarter and each fiscal year end of not less than 2.00 to 1.00, to be calculated quarterly. "Current Ratio" shall mean Current Assets divided by Current Liabilities. "Current Assets" shall mean all assets which are so classified in accordance with generally accepted accounting principles ("GAAP") and shall also include Marketable Securities classified as non-current according to GAAP for purposes of this ratio calculation. "Current Liabilities" shall mean all liabilities which are so classified in accordance with GAAP. Page 5 Deposit Relationship. Borrower shall maintain its primary depository account with Bank. Loans and Advances. Borrower shall not, during any fiscal year, make loans or advances, excepting (i) ordinary course of business travel and expense advances and (ii) payments made on a split-dollar life insurance policy in the amount of $514,000.00, to any person or entity, which total more than $1,000,000.00 in the aggregate. Material Acquisitions. Borrower shall not acquire substantially all of the business or assets or more than 50% of the outstanding stock or voting power of any other entity or entities requiring a cash expenditure of more than $10,000,000.00 in the aggregate and providing that such acquisition shall not cause any condition or event which constitutes a Default (as defined in the Loan Documents executed by the Borrower) or any event which, upon the giving of notice or lapse of time or both, may become a Default. Limitation on Debt. Borrower shall not, directly or indirectly, create, incur, assume or become liable for any additional indebtedness, whether contingent or direct, if, giving effect to such additional debt on a pro forma basis causes the aggregate amount of Borrower's debt, excluding obligations to Bank, to exceed $8,000,000.00. Notwithstanding this limitation on debt, Borrower shall be allowed to incur debt subordinated to Bank on terms and conditions satisfactory to Bank, providing that the repayment of such debt shall not cause any condition or event which constitutes a Default (as defined in the Loan Documents executed by the Borrower) or any event which, upon the giving of notice or lapse of time or both, may become a default. Debt in this paragraph shall mean indebtedness for borrowed money including capital leases. Optional Hedge. Borrower may, in Borrower's discretion, hedge any of the $7,500,000 and $22,500,000 Loans' floating interest expense for the full term of such Loans by maintaining an interest rate swap, cap or collar with Bank or other counterparty acceptable to Bank in a notional amount equal to the then principal balance of the Loans and providing for a fixed rate satisfactory to Bank, and containing such other items and conditions as shall be reasonably acceptable to Bank. CONDITIONS PRECEDENT. The obligations of Bank to make the loan and any advances and to issue any Letters of Credit pursuant to this Agreement are subject to the following conditions precedent: Letter of Credit Documents. Receipt by Bank of all documents required by Bank in connection with Letters of Credit, including without limitation, applications therefor, all in form satisfactory to Bank. Additional Documents. Receipt by Bank of such additional supporting documents as Bank or its counsel may reasonably request. Opinion of Counsel. On or prior to the date hereof, Bank shall have received a written opinion of the counsel of Borrower acceptable to Bank that includes confirmation of the following: (a) The accuracy, to such counsel's knowledge, of the representations set forth in this Agreement in the Representations Subparagraphs entitled "Authorization; Non-Contravention"; "Compliance with Laws", and "Organization and Authority". (b) This Agreement and other Loan Documents have been duly executed and delivered by Borrower and constitute the legal, valid and binding obligations of Borrower, enforceable in accordance with their terms, subject to general principles of bankruptcy and equity. (c) No registration with, consent of, approval of, or other action by, any federal, state or other governmental authority or regulatory body is required by law in connection with the execution and delivery of this Agreement and the other Loan Documents, or the extension of credit under this Agreement or the other Loan Documents, or, if so required, such registration has been made, and such consent or approval given or such other appropriate action taken. CURE PERIOD. Except as provided below, a Default based upon Nonpayment, as defined herein, may be cured within 5 days of the date such payment is due and any other Default may be cured within 30 days (or such longer period not to exceed 90 days if the default is incapable of cure within 30 days and provided that Borrower diligently pursues such cure) after written notice thereof is mailed to the Borrower by Bank. The Borrower's right to cure shall be applicable only to curable defaults and shall not apply, without limitation, to Defaults based upon False Warranty, Cessation or Bankruptcy. After three (3) defaults requiring mailing of notice during any 12 month period, Borrower shall no longer have the right to cure such subsequent Default. Bank shall not exercise its Page 6 remedies to collect the Obligations except as Bank reasonably deems necessary to protect its interest in collateral securing the Obligations during a cure period. DEFAULT. If any of the following occurs and is not cured within the applicable Cure Period, a default ("Default") under Loan Documents shall exist: Nonpayment; Nonperformance. The failure of timely payment or performance of the Obligations or Default, however denominated, under this Agreement or any other Loan Documents. False Warranty. A warranty or representation made or deemed made in the Loan Documents or furnished Bank in connection with the loan evidenced by this Agreement proves materially false, or if of a continuing nature, becomes materially false. Cross Default. At Bank's option, (i) any default in payment or performance of any obligation under any other loans, contracts or agreements of Borrower, any Subsidiary or Affiliate of Borrower, any general partner of or the holder(s) of the majority ownership interests of Borrower (except holder(s) of the common stock of the Borrower) with Bank or its affiliates ("Affiliate" shall have the meaning as defined in 11 U.S.C. ss. 101, except that the term "Borrower" shall be substituted for the term "Debtor" therein; "Subsidiary" shall mean any business in which Borrower holds, directly or indirectly, a controlling interest), or (ii) any default in payment or performance of any obligation under any other loans aggregating more than $2,500,000 of Borrower, any Subsidiary or Affiliate of Borrower. Cessation; Bankruptcy. The death of, appointment of a guardian for, dissolution of, termination of existence of, appointment of a receiver for, assignment for the benefit of creditors of, or commencement of any bankruptcy or insolvency proceeding by or against Borrower, its Subsidiaries or Affiliates, if any, or the holder(s) of the majority ownership interests of Borrower, or any party to the Loan Documents. Material Business Alteration. Without prior written consent of Bank, a material alteration in the kind or type of Borrower's business. Material Capital Structure or Business Alteration. Without prior written consent of Bank, (i) a material alteration in the kind or type of Borrower's business or that of Borrower's Subsidiaries or Affiliates, if any; (ii) the sale of substantially all of the business or assets of Borrower, any of Borrower's Subsidiaries or Affiliates or any guarantor, or a material portion (10% or more) of such business or assets if such a sale is outside the ordinary course of business of Borrower, or any of Borrower's Subsidiaries or Affiliates or any guarantor, or more than 50% of the outstanding stock or voting power of or in any such entity in a single transaction or a series of transactions; (iii) the acquisition of substantially all of the business or assets of any entity, which acquisition has a total cost, singly or in the aggregate, in excess of $10,000,000; or (iv) should any Borrower or any of Borrower's Subsidiaries or Affiliates or any guarantor enter into any merger or consolidation; or (v) should Borrower be delisted from the NASDAQ, unless Borrower is being listed on another recognized United States stock exchange. Material Adverse Change. Bank determines in good faith, in its sole discretion, that the prospects for payment or performance of the Obligations are impaired or there has occurred a material adverse change in the business or prospects of Borrower, financial or otherwise. ERISA Liabilities. Borrower incurs unpaid ERISA liabilities in excess of $1,000,000. REMEDIES UPON DEFAULT. If a Default occurs under the Loan Documents, upon notice to Borrower (provided that, if Default is due to bankruptcy, no notice to Borrower shall be required), Bank may, simultaneously with such notice or at any time thereafter, take the following actions: Bank Lien. Foreclose its security interest or lien against Borrower's accounts without notice. Acceleration Upon Default. Accelerate the maturity of any Note and, at Bank's option, any or all other Obligations, other than Obligations under any swap agreements (as defined in 11 U.S.C. ss. 101) between Borrower and Bank, which shall be governed by the default and termination provisions of said swap agreements; whereupon such Note and the accelerated Obligations shall be immediately due and payable; provided, however, if the Default is based upon a bankruptcy or insolvency proceeding commenced by or against Borrower or any guarantor or endorser of any Note, all Obligations (other than Obligations under any swap agreement as referenced above) shall automatically and immediately be due and payable. Cumulative. Exercise any rights and remedies as provided under the Note and other Loan Documents, or as provided by law or equity. WAIVERS AND AMENDMENTS. No waivers, amendments or modifications of any Loan Documents shall be valid unless in writing and signed by an officer of Bank. No waiver by Bank of any Default shall operate as a waiver of any other Default or the same Default on a future occasion. Neither the failure nor any delay on the part of Bank in exercising any right, power, or remedy under the Loan Documents Page 7 shall operate as a waiver thereof, nor shall a single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or remedy. Each Borrower or any person liable under the Notes waives presentment, protest, notice of dishonor, demand for payment, notice of intention to accelerate maturity, notice of acceleration of maturity, notice of sale and all other notices of any kind. Further, each agrees that Bank may extend, modify or renew any Note or make a novation of the loan evidenced by any Note for any period, and grant any releases, compromises or indulgences with respect to any collateral securing any Note, or with respect to any other Borrower or any other person liable under the Loan Documents, all without notice to or consent of each Borrower or each person who may be liable under any Loan Document and without affecting the liability of Borrower or any person who may be liable under the Loan Documents. MISCELLANEOUS PROVISIONS. Assignment. The Loan Documents shall inure to the benefit of and be binding upon the parties and their respective heirs, legal representatives, successors and assigns. Bank's interests in and rights under this Agreement and the other Loan Documents are freely assignable, in whole or in part, by Bank. In addition, nothing in the Loan Documents shall prohibit Bank from pledging or assigning any Loan Document or any interest therein to any Federal Reserve Bank. Borrower shall not assign its rights and interest hereunder without the prior written consent of Bank, and any attempt by Borrower to assign without Bank's prior written consent is null and void. Any assignment shall not release Borrower from the Obligations. Applicable Law; Conflict Between Documents. Unless otherwise provided in any other Loan Document, the Loan Documents shall be governed by and construed under the laws of the state named in Bank's address on the first page hereof without regard to that state's conflict of laws principles. If the terms of any Note should conflict with the terms of any loan agreement or any commitment letter that survives closing, the terms of such Note shall control. Borrower's Accounts. Except as prohibited by law, Borrower grants Bank a security interest in all of Borrower's accounts with Bank and any of its affiliates. Jurisdiction. Borrower irrevocably agrees to non-exclusive personal jurisdiction in the state named in Bank's address on the first page hereof. Severability. If any provision of the Loan Documents shall be prohibited or invalid under applicable law, such provision shall be ineffective but only to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of such document. Notices. Any notices to Borrower shall be sufficiently given, if in writing and mailed or delivered to the Borrower's address shown above or such other address as provided hereunder, and to Bank, if in writing and mailed or delivered to Wachovia Bank, National Association, Mail Code VA7391, P. O. Box 13327, Roanoke, VA 24040 or Wachovia Bank, National Association, Mail Code VA7391, 10 South Jefferson Street, Roanoke, VA 24011 or such other address as Bank may specify in writing from time to time. Notices to Bank must include the mail code. In the event that Borrower changes Borrower's address at any time prior to the date the Obligations are paid in full, Borrower agrees to promptly give written notice of said change of address by registered or certified mail, return receipt requested, all charges prepaid. Plural; Captions. All references in the Loan Documents to Borrower, guarantor, person, document or other nouns of reference mean both the singular and plural form, as the case may be, and the term "person" shall mean any individual, person or entity. The captions contained in the Loan Documents are inserted for convenience only and shall not affect the meaning or interpretation of the Loan Documents. Advances. Bank may, in its sole discretion, make other advances which shall be deemed to be advances under the Loan Documents, even though the stated principal amount of any Note may be exceeded as a result thereof. Posting of Payments. All payments received during normal banking hours after 2:00 p.m. local time at the office of Bank first shown above shall be deemed received at the opening of the next banking day. Fees and Taxes. Borrower shall promptly pay all documentary, intangible recordation and/or similar taxes on this transaction whether assessed at closing or arising from time to time. Page 8 IN WITNESS WHEREOF, Borrower and Bank, on the day and year first written above, have caused this Agreement to be executed under seal. A.C. Moore Arts & Crafts, Inc. By: Leslie H. Gordon -----------------------------------------(SEAL) Leslie H. Gordon, Chief Financial Officer A.C. Moore Incorporated By: Leslie H. Gordon -----------------------------------------(SEAL) Leslie H. Gordon, Chief Financial Officer Moorestown Finance, Inc. By: Leslie H. Gordon -----------------------------------------(SEAL) Leslie H. Gordon, Chief Financial Officer Blackwood Assets, Inc. By: Leslie H. Gordon -----------------------------------------(SEAL) Leslie H. Gordon, Chief Financial Officer A.C. Moore Urban Renewal, LLC By: Leslie H. Gordon -----------------------------------------(SEAL) Leslie H. Gordon, Member Wachovia Bank, National Association By: Dante Bucci -----------------------------------------(SEAL) Dante Bucci, Vice President [Docprep Access Tracking Number] Page 9 EX-10 4 ex10-2.txt EXHIBIT 10.2 Exhibit 10.2 CONSTRUCTION LOAN AGREEMENT Wachovia Bank, National Association 190 River Road Summit, New Jersey 07901 (Hereinafter referred to as the "Bank") A.C. Moore Arts & Crafts, Inc. 500 University Court Blackwood, New Jersey 08012 A.C. Moore Incorporated 500 University Court Blackwood, New Jersey 08012 Moorestown Finance, Inc. 300 Delaware Avenue - 9th Floor Wilmington, Delaware 19801 Blackwood Assets, Inc. 300 Delaware Avenue - 9th Floor Wilmington, Delaware 19801 A.C. Moore Urban Renewal, LLC 500 University Court Blackwood, New Jersey 08012 (Individually and collectively "Borrower") This Construction Loan Agreement ("Agreement") is entered into as of October 28, 2003, by and between Bank and Borrower. This Agreement applies to the loan or loans (individually and collectively, the "Loan") evidenced by one or more promissory notes, of even date, or other notes subject hereto, as modified from time to time (whether one or more, the "Note") and all Loan Documents. The terms "Loan Documents" and "Obligations," as used in this Agreement, are defined in the Note. The term "Security Instrument" means the Mortgage(s), Deed(s) of Trust, Deed(s) to Secure Debt, or Indemnity Deed(s) of Trust encumbering the Property and securing the Loan. Relying upon the covenants, agreements, representations and warranties contained in this Agreement, Bank is willing to extend credit to Borrower upon the terms and subject to the conditions set forth herein, and Bank and Borrower agree as follows: CONSTRUCTION AND TERM LOAN. Bank will make a Construction Loan in the principal amount of $22,500,000.00. The Loan proceeds are to be used by Borrower solely for the acquisition of land and the construction of a 730,000 +/- square foot office, warehouse and distribution facility (the "Project") upon the land described in the Security Instrument (the "Property") in accordance with the plans and specifications approved by Bank (as same may be modified from time to time with the written approval of Bank, the "Plans and Specifications"). Upon satisfaction of all terms and conditions of this Agreement, including without limitation all of the Completion Conditions and conditions for conversion set forth below, the Construction Loan will convert to a term loan (the "Term Loan"). THE LOAN AND ADVANCES. Advances. Subject to compliance by Borrower with the terms and conditions of this Agreement, Bank shall make advances of the Loan to Borrower for acquisition and direct construction costs incurred by Borrower in connection with the construction of the Project ("Direct Costs") and for all other costs, other than Direct Costs, incurred by Borrower in connection with the Loan or the construction of the Project ("Indirect Costs"), in accordance with the budget attached hereto as Schedule A (as same may be revised from time to time with the written approval of Bank, the "Approved Budget"); provided, however, that in no event shall Bank be obligated to make disbursements of the Loan in excess of Verified Project Costs (as hereafter defined). Verified Project Costs. As used in this Agreement, "Verified Project Costs" means the aggregate, from time to time, of (i) Indirect Costs actually incurred by Borrower and approved for funding by Bank, and (ii) Direct Costs actually incurred by Borrower for work in place as part of the Project, as certified by Bank's Inspector (as defined below) pursuant to the provisions of this Agreement, minus a sum equal to the aggregate of (i) the portion of the Equity Requirement (equal to twenty percent (20%) of the Project cost), which Borrower is required to have invested in the Project pursuant to this Agreement, and (ii) the Retainage, if any. Borrower may inject the entire Equity Requirement before seeking Loan advances or may inject the Equity Requirement pro rata with each Loan advance. Once Borrower has injected the entire Equity Requirement into the Project, Bank shall no longer reduce Loan Advances by the pro rata Equity Requirement. Retainage. Bank shall retain from each advance of Loan proceeds an amount equal to the greater of (i) 10.00% of Direct Costs actually incurred by Borrower for work in place as part of the Project, as certified from time to time by Bank's inspector, or (ii) the amount actually held back by Borrower from the general contractor and each subcontractor and supplier engaged in the construction of the Project (the "Retainage"). The Retainage shall not be released until the Project is completed as evidenced by satisfaction of all of the Completion Conditions (as hereinafter defined). Contingency Reserve. Advances from that portion of the Loan proceeds allocated to Contingency (the "Contingency Reserve") on the Approved Budget and/or Disbursement Schedule, if any, may be disbursed in Bank's sole and absolute discretion for payment of Direct Costs or Indirect Costs as documented by paid receipts and otherwise as provided herein. Bank may determine in its sole and absolute discretion whether to pay interest from the Contingency Reserve. Other Documents. If the Project involves a condominium, cooperative, subdivision, planned unit development or homeowner's association, all documents required in connection with the formation thereof shall be subject to Bank's prior review and approval. Deficiency in Loan Amount. If at any time it appears that the actual cost to complete construction of the Project, in the sole opinion of Bank or Bank's Inspector, exceeds the undisbursed balance of the Loan (the amount by which such cost exceeds the Loan balance hereinafter referred to as the "Deficiency"), Bank may require Borrower to deposit with Bank (and Borrower shall deposit within 7 days after written notice from Bank) funds in the amount of the Deficiency ("Deficiency Deposit"). At Bank's option, no Loan advances shall be made until Borrower has fully complied with this requirement. All such deposited funds shall be additional security for the Obligations. Bank may, at its option, use the Deficiency Deposit to pay costs to complete construction of the Project before any further Loan advances. Developer's Fees. Provided that all conditions to disbursement have otherwise been satisfied, disbursements from that portion of the Loan proceeds allocated in the Approved Budget to developer's fees shall be made prorata with the progress of the construction of the Project as determined by the Bank's Inspector. Limitations on Advances. Unless otherwise agreed, Bank shall not be obligated to make advances of the Loan more frequently than once every 30 days. Bank shall not be required to make disbursements of the Loan for costs incurred by Borrower with respect to materials stored on or off the Property unless Bank shall, in its sole discretion, deem it advisable to do so. If Bank elects to make a disbursement for stored materials, all stored materials must be incorporated into the Project within 45 days of Borrower's Request for Advance (as hereinafter defined) regarding such materials, and Bank may impose such additional conditions and requirements as it deems appropriate in its sole discretion. Bank's Inspector. Bank shall have the right to retain, at Borrower's expense, an independent architect or engineer ("Bank's Inspector") to review and advise Bank with respect to all Plans and Specifications, construction, architectural and other design professional contracts, change orders, governmental permits and approvals, and other matters related to the design, construction, operation and use of the Project, to monitor the progress of construction and to review on behalf of Bank all requests for Loan advances submitted by Borrower. The fees and expenses of Bank's Inspector, including all such fees and expenses incurred and unpaid to the date hereof, shall be due and payable by Borrower as provided for herein or otherwise on demand. Borrower acknowledges that (i) Bank's Inspector has been retained by Bank to act as a consultant, and only as a consultant, to Bank in connection with the Page 2 construction of the Project, (ii) Bank's Inspector shall in no event have any power or authority to make any decision or to give any approval or consent or to do any other thing which is binding upon Bank, and any such purported decision, approval, consent or act by Bank's Inspector on behalf of Bank shall be void and of no force or effect, (iii) Bank reserves the right to make any and all decisions required to be made by Bank under this Agreement, in its sole and absolute discretion, and without in any instance being bound or limited in any manner whatsoever by any opinion expressed or not expressed by Bank's Inspector to Bank or any other person with respect thereto, and (iv) Bank reserves the right in its sole and absolute discretion to replace Bank's Inspector with another inspector at any time and without prior notice to or approval by Borrower. LOAN REQUESTS. Request for Advance. For each request for an advance of the Loan, Borrower shall submit to Bank, at least 5 business days prior to the requested date of disbursement, a completed written disbursement request (each, a "Request for Advance") in such form and detail as required by Bank, together with a check in the amount of the inspection fee required hereunder. Each Request for Advance shall certify in detail acceptable to Bank the cost of the labor that has been performed and the materials that have been incorporated into the Project and all Indirect Costs that have been incurred since the date of the previous advance, and shall be accompanied by such supporting data as Bank may require, including, without limitation, receipts, vouchers, invoices, waivers of mechanic's and materialmen's liens, and AIA Forms G702 and G703 certified by the general contractor and architect/engineer for the Project. The proceeds of each advance shall be used by Borrower solely to pay or as reimbursement for the obligations for which the advance is sought. Inspection. Upon receiving each Request for Advance, Bank's Inspector will determine (a) whether the work completed to the date of such Request for Advance has been done satisfactorily and in accordance with the Plans and Specifications, (b) the percentage of construction of the Project completed as of the date of such Request for Advance, (c) the Direct Costs actually incurred for work in place as part of the Project as of the date of such Request for Advance, (d) the actual sum necessary to complete construction of the Project in accordance with the Plans and Specifications, and (e) the amount of time from the date of such Request for Advance which will be required to complete construction of the Project in accordance with the Plans and Specifications. Borrower shall pay an inspection fee in the amount of $500.00 to Bank upon submission of each Request for Advance. All inspections by or on behalf of Bank shall be solely for the benefit of Bank, and Borrower shall have no right to claim any loss or damage against Bank or Bank's Inspector arising from any alleged (i) negligence in or failure to perform such inspections, (ii) failure to monitor loan disbursements or the progress or quality of construction, or (iii) failure to otherwise properly administer the Loan. Disbursement of Advance. At its option, Bank may make advances of the Loan directly into a separate construction disbursement account or other Borrower account with Bank or to Borrower directly. Upon a Default, Bank may, at its option and in addition to the foregoing funding options, make Loan disbursements to a title insurance company or other third party, or directly to the general contractor, subcontractor, materialmen or other suppliers providing labor, services or materials in connection with the Project. Bank shall have no obligation after making Loan disbursements in a particular manner to continue to make Loan disbursements in that manner. Notwithstanding the foregoing, Bank's records of any advance made pursuant to this Agreement shall, in the absence of manifest error, be deemed correct and acceptable and binding upon Borrower. No Warranty by Bank; Indemnification. Nothing contained in this Agreement or any other Loan Document shall constitute or create any duty on or warranty by Bank regarding (i) the proper application by Borrower, general contractor or any subcontractor of the Loan proceeds, (ii) the quality or condition of the Project, or (iii) the competence or qualifications of the general contractor or any other party furnishing labor or materials in connection with construction of the Project. Borrower (a) acknowledges that Borrower has not relied and will not rely upon any experience, awareness or expertise of Bank regarding such matters, and (b) shall indemnify, hold harmless, and defend Bank from any costs, expenses, damages, judgments, or liabilities, including without limitation, reasonable attorneys' fees, arbitration fees, and expert witness fees, arising from or connected with (i) such matters, (ii) payment or non-payment for labor or materials furnished for construction of the Project, (iii) any claims of mechanics or materialmen, or (iv) any action or inaction by Borrower with respect to the foregoing. CONDITIONS TO ADVANCE. General Conditions. Bank will have no obligation to make any advance of the Loan: (a) unless Bank is satisfied, in its sole discretion, that the conditions precedent to the making of such advance have been satisfied Page 3 by Borrower; or (b) if a Default (as defined in the Loan Documents) or event which, with the giving of notice or the passage of time, or both, would constitute a Default under any of the Loan Documents has occurred and is continuing. Initial Advance. Bank will have no obligation to make the initial advance of the Loan unless it has received the following from Borrower or any guarantors, as applicable, all in form and substance satisfactory to Bank: (a) each of the Loan Documents duly executed by Borrower or any guarantors, as the case may be; (b) a paid standard non-expiring ALTA form of loan policy of title insurance (the "Title Policy"), insuring the Security Instrument to be a valid first lien on the Property for the full amount of the Loan, free and clear of all defects and encumbrances except as Bank shall approve, and providing affirmative coverage with respect to mechanic's and materialmen's liens; and (c) each of the other documents, certificates, affidavits, surveys, insurance policies and agreements required by Bank as condition precedent to the Loan. Subsequent Advances. Bank will have no obligation to make any advance after the initial advance unless it has received the following from Borrower, all in form and substance satisfactory to Bank: (a) if required by Bank, an updated title search and, as may be further required, an endorsement to the Title Policy, continuing the effective date of the policy through the date of the advance, insuring that there has been no change in the status of the title to the Property, and, if the Title Policy contains a pending disbursement clause, increasing the amount of the policy by the Loan advance being made in connection therewith; (b) the Request for Advance; (c) a satisfactory inspection report from Bank's Inspector; and (d) if applicable, evidence that Borrower has invested the required portion of the equity requirement of the Project; and (e) all other documents, certificates, affidavits, surveys, evidence of insurance, releases and agreements that Bank may request. Final Advance/Conversion. Bank will have no obligation to make the final advance of the Loan, or to convert to the Term Loan, unless it has received the following from Borrower, all in form and substance satisfactory to Bank: (a) all of the items described in the preceding section entitled "Subsequent Advances", except that the endorsement to the Title Policy shall also remove the survey exception and any pending disbursement clause; (b) the final certified "as-built" survey satisfactory to Bank showing the completed Project and any flood hazard area; (c) all of the insurance policies (including evidence of the payment of premiums therefor) required under the Security Instrument; and (d) satisfactory evidence that all of the Completion Conditions set forth below have been satisfied. REPRESENTATIONS. Borrower represents that from the date of this Agreement and until final payment in full of the Obligations: Corporate or Other Power. Borrower has the power and authority to execute and perform this Agreement, to borrow hereunder and to execute and deliver the Note, the Security Instrument and the other Loan Documents. Borrower's performance hereunder shall not constitute a breach of any agreement to which Borrower is a party. Financial Condition of Borrower. The financial statements which Borrower has submitted to Bank to induce it to make the Loan are correct and complete, and accurately present the financial condition of Borrower on the dates thereof and the results of their operations for the periods then ended. Litigation Disclosed. Borrower has disclosed all pending or threatened litigation to Bank. No Default. Borrower is not in default in the performance, observance or fulfillment of any (i) of the obligations, covenants or conditions contained in any Loan Document, or (ii) any other agreement or instrument under which the default could have a material adverse effect on the Borrower or the Project. Access and Utilities. (i) The Property has adequate legal vehicular and pedestrian access to public roads; (ii) sewer, water and all other appropriate utilities are available at ordinary costs at the Property through public or unencumbered private easements, and in sufficient quantities to serve the Project; and (iii) if applicable, required written approvals of septic tanks or wells have been issued by all appropriate governmental authorities. Laws, Zoning and Approvals. (i) The Plans and Specifications and the anticipated use of the Property and the Project comply with all applicable restrictive covenants, zoning ordinances, building laws and codes, and other applicable laws, regulations and requirements (including without limitation, the Americans with Disabilities Act, as amended); (ii) the current zoning classification of the Property and any covenants and restrictions affecting the Property permit the construction and intended use of the Project; and (iii) Borrower has obtained all permits and approvals of any type required to construct the Project, and all such permits and approvals are final and unappealable and remain in full force and effect without restriction or modification. Construction Documents. Borrower has furnished to Bank full and complete copies of all construction contracts, contracts with architects, engineers or other design professionals, Plans and Specifications, drawings, budgets, bonds and other agreements pertaining to construction of the Project, all engineering, soil and other reports and studies and all surveys pertaining Page 4 thereto and/or required by Bank's Inspector (together with all modifications and additions thereto, the "Construction Documents"), and there are no other oral or written agreements pertaining to the construction of the Project. Condemnation. No notice of taking by eminent domain or condemnation of any part of the Property has been received, and Borrower has no knowledge that any such proceeding is contemplated. Casualty Damage. No part of the Property or the Project has been damaged as a result of any fire, explosion, accident, flood or other casualty which in not now fully restored. CONSTRUCTION COVENANTS. Construction of Project. Construction of the Project shall commence (or shall have commenced) within 30 days from the date of this Agreement and be carried on diligently and without delay or interruption for more than 10 consecutive days, except for delays caused by weather conditions. The Project shall be constructed in a good and workmanlike manner, in accordance with the Plans and Specifications and the other Construction Documents submitted to Bank, and in compliance with the Approved Budget. Completion of Project. Borrower shall complete construction of the Project by no later than January 1, 2005 ("Completion Date"). For purposes of this Agreement, completion of the Project shall be deemed to have occurred only when the following completion conditions (the "Completion Conditions") shall have been satisfied: (i) the Project shall have been fully constructed and completed in a good and workmanlike manner in accordance with the Plans and Specifications and all applicable statutes, ordinances, codes, regulations and restrictions, (ii) completion of the Project shall have been certified by the construction architect and/or engineer, including, without limitation, certification that all mechanical, electrical, plumbing, structural and roof systems are in acceptable operating condition and the final Request for Advance shall have been approved by Bank's Inspector, (iii) a permanent certificate of occupancy or comparable written approval, if applicable, shall have been issued by appropriate governmental authorities as shall be required to establish to Bank's satisfaction that the Project (including, without limitation, all tenant improvement work) has been properly completed and is not subject to any violations or uncorrected conditions noted or filed in any municipal department including, without limitation, if required by Bank a final release from such municipality, (iv) Borrower shall have delivered to Bank a satisfactory as-built survey disclosing no conditions unacceptable to Bank, and full and complete lien releases from all contractors and/or suppliers or other evidence satisfactory to Bank confirming that final payment has been made for all materials supplied and labor furnished in connection with the Project (including, without limitation, all tenant improvement work), and (v) the Project is ready for use and occupancy, and shall have been accepted by Borrower and all applicable tenants. Bank reserves the right to require that an escrow be established in an amount satisfactory to Bank to remedy any physical or other deficiency of the Project. All remedial costs must, to the extent possible, be verified by fixed cost contracts, and all items of cost incapable of verification by means of fixed cost contracts must be supportable as reasonable estimates. Change Orders. No amendment shall be made to the Plans and Specifications or the other Construction Documents, nor shall any change orders be made thereunder without the prior written consent of Bank; provided, however, that Bank's consent shall not be required for (but Bank shall promptly receive copies of) any change orders which do not involve a change in the scope of the Project or a reduction in the value thereof and such change order does not (a) affect the electrical, plumbing, mechanical, HVAC or structural portions of the Project, (b) modify by more than five percent (5%): the gross square footage, number of rooms, units or floors, basic layout, parking or quality of materials; (c) extend the Completion Date, or (d) involve, as to the aggregate of all change orders, an expenditure in excess of $1,000,000.00. Liens and Lien Waivers. Borrower shall take all action necessary to have any mechanic's and materialmen's liens, judgment liens or other liens or encumbrances filed against the Property released or transferred to bond within 10 days of the date Borrower receives notice of the filing of such liens or encumbrances. If any such lien or encumbrance is filed, no Loan advances will be made until it is removed and a copy of the recorded release thereof is received by Bank and accepted by the title insurance company. Bank shall not be obligated to disburse any funds to Borrower if, in the opinion of Bank, any Loan advance, the Property, or any other collateral for the Loan would be subject to a mechanic's or materialmen's lien or any other lien or encumbrance. Borrower shall be fully and solely responsible for compliance in all respects whatsoever with the applicable mechanic's and materialmen's lien laws. Surveys. Borrower shall deliver to Bank, each in compliance with Bank's survey requirements, (i) a foundation survey within 30 days after completion of the foundation of the Project, and (ii) any additional surveys required by Bank, Bank's Inspector or the issuer of the Title Policy, within 30 days after such request. Any change in the state of facts shown in any such updated survey shall be subject to approval by Bank and Bank's Inspector. Compliance with Laws and Page 5 Restrictions. All construction shall be performed strictly in accordance with all applicable statutes, ordinances, codes, regulations and restrictions. The Project shall be constructed entirely on the Property and will not encroach upon or overhang any easement, right of way, or any other land, and shall be constructed wholly within applicable building setback restrictions. All contractors, subcontractors, mechanics or laborers and other persons providing labor or material in construction of the Project shall have or be covered by worker's compensation insurance, if required by applicable law. Assignment of Construction Documents. As additional security for the obligations of Borrower under this Agreement and the other Loan Documents, Borrower hereby collaterally assigns, transfers and grants a security interest in all of Borrower's right, title, interest and benefits in or under the Construction Documents. Leases. Borrower will comply with the terms and conditions of, and deliver leased premises at the time and in the condition required by any Bank-approved lease. Borrower will not enter into, amend or renew any leases or other occupancy agreements affecting the Property without Bank's prior written consent. Bank's consent may be conditioned upon receipt of such documents and agreements, including without limitation subordination and attornment agreements and tenant estoppel certificates, as Bank may require. Management and Leasing Agreements. All future management and leasing agreements shall be subject to prior review and approval by Bank, and shall provide that Bank shall have the right to terminate such agreements in the event Bank acquires title to the Project. Ownership of Material and Fixtures. No materials, equipment or fixtures incorporated by Borrower into the Project shall be purchased or installed under any security agreement, conditional sales contract, lease, or other arrangement wherein the seller reserves title or any interest in such items or the right to remove or repossess such items or to consider them personal property after their incorporation into the Project, without the prior written consent of Bank. Advertising. Bank shall have the right to erect one or more signs on the Property advertising its financing of the Project. DEFAULTS AND REMEDIES. If any of the following events occur, a default ("Default") under this Agreement shall exist: (i) Failure to timely pay or perform any of the terms, covenants or obligations under this Agreement or a default under any other Loan Document; (ii) Failure to complete the Project in accordance with the Plans and Specifications on or before the Completion Date or to obtain the prior written consent of Bank to changes to the Plans and Specifications, as required; and (iii) The commencement of any bankruptcy or insolvency proceeding by or against the general contractor for the Project or the termination of the construction contract without the prior written consent of Bank. Upon the occurrence of a Default, Bank may refuse to make any further advances hereunder and may terminate Bank's commitment to make the Loan. Thereupon, Bank shall have the right to declare immediately due and payable the outstanding principal balance of the Note, all accrued and unpaid interest thereon and all other sums due in connection therewith, and Bank may exercise any right, power or remedy permitted by law or as set forth in any of the Loan Documents. NO THIRD PARTY BENEFICIARY. The parties hereto do not intend the benefits of this Agreement to inure to any third party. Notwithstanding anything contained in this Agreement or any other Loan Document, or any course of conduct by any of the parties hereto, this Agreement shall not be construed as creating any rights, claims, or causes of action against Bank, or any of its officers, agents, or employees, in favor of any contractor, subcontractor, supplier of labor, materials or services, or any of their respective creditors, or any other person or entity other than Borrower. (Remainder of page intentionally left blank) Page 6 IN WITNESS WHEREOF, Borrower and Bank, on the day and year first written above, have caused this Agreement to be executed under seal. A.C. Moore Arts & Crafts, Inc. By: Leslie H. Gordon -----------------------------------------(SEAL) Leslie H. Gordon, Chief Financial Officer A.C. Moore Incorporated By: Leslie H. Gordon -----------------------------------------(SEAL) Leslie H. Gordon, Chief Financial Officer Moorestown Finance, Inc. By: Leslie H. Gordon -----------------------------------------(SEAL) Leslie H. Gordon, Chief Financial Officer Blackwood Assets, Inc. By: Leslie H. Gordon -----------------------------------------(SEAL) Leslie H. Gordon, Chief Financial Officer A.C. Moore Urban Renewal, LLC By: Leslie H. Gordon -----------------------------------------(SEAL) Leslie H. Gordon, Member Wachovia Bank, National Association By: Dante Bucci -----------------------------------------(SEAL) Dante Bucci, Vice President [Docprep Access Tracking Number] Page 7 EX-10 5 ex10-3.txt EXHIBIT 10.3 Exhibit 10.3 PREPARED BY: John W. Verlaque, Esquire RETURN TO: Post-Closing, PA4354 Wachovia Bank, National Association Commercial Loan Services 123 South Broad Street, MBO, 9th Floor Philadelphia, Pennsylvania 19109 MORTGAGE, ASSIGNMENT OF RENTS AND SECURITY AGREEMENT and FINANCING STATEMENT This MORTGAGE, ASSIGNMENT OF RENTS AND SECURITY AGREEMENT and FINANCING STATEMENT (hereafter referred to as "Mortgage") made as of October 28, 2003, by and between, A.C. Moore Urban Renewal, LLC, whose address is 500 University Court, Blackwood, New Jersey 08012 ("Mortgagor") and Wachovia Bank, National Association, a national banking association, whose address is 190 River Road, Summit, New Jersey 07901 ("Bank"). W I T N E S S E T H : To secure payment and performance of obligations under Promissory Notes (the "Notes"), of even date, in the original principal balance of $22,500,000 and $7,500,000, made by Mortgagor and others (collectively, the Borrower") and payable to Bank, this Mortgage, any present or future Letters of Credit issued by Bank for the account of any Borrower, other loan documents as defined in the Notes (the "Loan Documents"), and swap agreements (as defined in 11 U.S.C. ss. 101) between Bank and any Borrower, and any renewals, extensions, novations, or modifications of the foregoing (collectively the "Obligations"), and in consideration of these premises and for other consideration, Mortgagor does mortgage, grant and convey unto Bank, its successors and assigns, all of Mortgagor's right, title and interest now owned or hereafter acquired in and to each of the following (collectively, the "Property"): (i) all those certain tracts of land known as the A.C. Moore Distribution Facility located on Block 2601, Lot 21.04, as so designated on the Tax Map of the Town of Winslow, County of Camden, State of New Jersey described in EXHIBIT A attached hereto and made part hereof (the "Land"); (ii) all buildings and improvements now or hereafter erected on the Land; (iii) all fixtures, machinery, equipment and other articles of real, personal or mixed property attached to, situated or installed in or upon, or used in the operation or maintenance of, the Land or any buildings or improvements situated thereon, whether or not such real, personal or mixed property is or shall be affixed to the Land; (iv) all building materials, building machinery and building equipment delivered on site to the Land during the course of, or in connection with, any construction, repair or renovation of the buildings and improvements situated or to be situated thereon, including any equipment or machinery acquired with the proceeds of the $7,500,000 Promissory Note; (v) all leases, licenses or occupancy agreements of all or any part of the Land and all extensions, renewals, and modifications thereof, and any options, rights of first refusal or guarantees relating thereto; all rents, income, revenues, security deposits, issues, profits, awards and payments of any kind payable under the leases or otherwise arising from the Land; (vi) all contract rights, accounts receivable and general intangibles relating to the Land or the use, occupancy, maintenance, construction, repair or operation thereof; all management agreements, franchise agreements, utility agreements and deposits; all maps, plans, surveys and specifications; all warranties and guaranties; all permits, licenses and approvals; and all insurance policies; (vii) all estates, rights, tenements, hereditaments, privileges, easements, and appurtenances of any kind benefiting the Land; all means of access to and from the Land, whether public or private; and all water and mineral rights; and (viii) all "Proceeds" of any of the above-described property, which term shall have the meaning given to it in the Uniform Commercial Code of the jurisdiction where this Mortgage is recorded (the "UCC"), whether cash or non-cash, and including insurance proceeds and condemnation awards; and all replacements, substitutions and accessions thereof. In the event that Mortgagor is the owner of a leasehold estate with respect to any portion of the Property and Mortgagor obtains a fee estate in such portions of the Property, then, such fee estate shall automatically, and without further action of any kind on the part of the Mortgagor, be and become subject to the security title and lien of this Agreement. TO HAVE AND TO HOLD the Property and all the estate, right, title and interest, in law and in equity, of Mortgagor's in and to the Property unto Bank, its successors and assigns, forever. MORTGAGOR WARRANTS AND REPRESENTS that Mortgagor is lawfully seized of the Property, in fee simple, absolute, that Mortgagor has the legal right to convey and encumber the same, and that the Property is free and clear of all liens and encumbrances, except for those liens and encumbrances described in EXHIBIT B attached hereto and made a part hereof (the "Permitted Liens"). Mortgagor further warrants and will forever defend all and singular the Property and title thereto to Bank and Bank's successors and assigns, against the lawful claims of all persons whomsoever. PROVIDED ALWAYS that if (i) all the Obligations (including without limitation, all termination payments and any other amounts due under or in connection with any swap agreements (as defined in 11 U.S.C. ss. 101) secured hereunder) are paid in full, and (ii) any and all swap agreements (as defined in 11 U.S.C. ss. 101) secured hereunder have matured or been terminated, then this Mortgage and the estate hereby created shall cease and be null, void, and canceled of record. To protect the security of this Mortgage, Mortgagor further represents and agrees with Bank as follows: Payment of Obligations. That the Obligations shall be timely paid and performed. Future Advances. This Mortgage is given to secure not only existing Obligations, but also future advances, including swap agreements, plus all interest, costs, reimbursements, fees and expenses due under this Mortgage. Grant of Security Interest in Personal Property. This Mortgage constitutes a security agreement under the UCC and shall be deemed to constitute a fixture financing statement. Mortgagor hereby grants a security interest in any personal property included in the Property. On request of Bank, Mortgagor will execute one or more Financing Statements in form satisfactory to Bank and will pay all costs and expenses of filing the same in all public filing offices, where filing is deemed desirable by Bank. Bank is authorized to file Financing Statements relating to the Property without Mortgagor's signature where permitted by law. Mortgagor appoints Bank as its attorney-in-fact to execute such documents necessary to perfect Bank's security interest on Mortgagor's behalf. The appointment is coupled with an interest and shall be irrevocable as long as any Obligations remain outstanding. Nothing herein obligates Bank to provide credit in excess of the Obligations. Leases, Subleases and Easements. Mortgagor shall maintain, enforce and cause to be performed all of the terms and conditions under any lease, sublease or easement which may constitute a portion of the Property. Mortgagor shall not, without the consent of Bank, which consent shall not be unreasonably withheld or delayed, enter into any new lease or sublease of all or any portion of the Property with any party other than an Affiliate or Subsidiary of Borrower, agree to the cancellation or surrender under any lease of all or any portion of the Property, agree to prepayment of rents, issues or profits (other than rent paid at the signing of a lease or sublease), modify any such lease or sublease so as to shorten the term, decrease the rent, accelerate the payment of rent, or Page 2 change the terms of any renewal option; and any such purported new lease, sublease, cancellation, surrender, prepayment or modification made without the consent of Bank shall be void as against Bank. Required Insurance. Mortgagor shall maintain with respect to the Property: (i) during construction of any improvements on the Property, "all-risk" builders risk insurance which must include windstorm, hail damage, fire and vandalism (non-reporting Completed Value with Special Cause of Loss form), in an amount not less than the completed replacement value of the improvements under construction, naming Bank as mortgagee and loss payee, and endorsed to provide that occupancy by any person shall not void such coverage; (ii) upon completion of construction and at all other times, insurance against loss or damage by fire and other casualties and hazards by insurance written on an "all risks" basis, including malicious mischief coverage, in an amount not less than the replacement cost thereof, including coverage for loss of rents or business interruption if applicable, naming Bank as loss payee and mortgagee; (iii) if the Property is required to be insured pursuant to the National Flood Reform Act of 1994, and the regulations promulgated thereunder, flood insurance is required in the amount equal to the lesser of the loan amount or maximum available under the National Flood Insurance Program, but in no event should the amount of coverage be less than the value of the improved structure, naming Bank as mortgagee and loss payee. If, after closing, the Property (or any part thereof) is remapped and if the vertical improvements are determined to be located in a special flood hazard area, Mortgagor must obtain and maintain a flood insurance policy. If, within forty-five (45) days of receipt of notification from Bank that the Property has been reclassified by FEMA as being located in a special flood hazard area, Mortgagor has not provided sufficient evidence of flood insurance, Bank is mandated under federal law to purchase flood insurance on behalf of Mortgagor, and Bank will add the associated costs to the principal balance of the Note. If the land or any portion thereof is located in a special flood hazard area, this Agreement may be terminated by Bank at its sole option; (iv) as applicable, insurance which complies with the workers' compensation and employers' liability laws of all states in which Mortgagor shall be required to maintain such insurance; and (v) liability insurance providing coverage in such amount as Bank may reasonably require but in no event less than $1,000,000.00 combined single limit, naming Bank as an additional insured; and (vi) such other insurance as Bank may reasonably require from time to time. All property insurance policies shall contain an endorsement or agreement by the insurer in form satisfactory to Bank that any loss shall be payable in accordance with the terms of such policy notwithstanding any act or negligence of Mortgagor and the further agreement (within both the property and liability policies) of the insurer waiving rights of subrogation against Bank, and rights of set-off, counterclaim or deductions against Mortgagor. All insurance policies shall be in form, provide coverages, be issued by companies and be in amounts satisfactory to Bank. At least 30 days prior to the expiration of each such policy, Mortgagor shall furnish Bank with evidence satisfactory to Bank that such policy has been renewed or replaced or is no longer required hereunder. All such policies shall provide that the policy will not be canceled or materially amended without at least 30 days prior written notice to Bank. In the event Mortgagor fails to provide, maintain, keep in force, and furnish to Bank the policies of insurance required by this paragraph, Bank may procure such insurance or single-interest insurance in such amounts, at such premium, for such risks and by such means as Bank chooses, at Mortgagor's expense; provided however, Bank shall have no responsibility to obtain any insurance, but if Bank does obtain insurance, Bank shall have no responsibility to assure that the insurance obtained shall be adequate or provide any protection to Mortgagor. Insurance Proceeds. After occurrence of any loss in excess of $250,000, uninsured, to any of the Property, Mortgagor shall give prompt written notice thereof to Bank. In the event of such loss all insurance proceeds, including unearned premiums, shall be payable to Bank, and Mortgagor hereby authorizes and directs any affected insurance company to make payment of such proceeds directly to Bank and not to Bank and Mortgagor jointly. Mortgagor appoints Bank as its attorney-in-fact to receive and endorse any insurance proceeds to Bank, which appointment is coupled with an interest and shall be irrevocable as long as any Obligations remain unsatisfied. Mortgagor shall pay the costs of collection, including attorneys' fees, of insurance proceeds payable on account of such Page 3 damage or destruction. Mortgagor shall have no claim against the insurance proceeds, or be entitled to any portion thereof, and all rights to the insurance proceeds are hereby assigned to Bank as security for payment of the Obligations. In the event of any damage to or destruction of the Property, Bank shall have the option of applying or paying all or part of the insurance proceeds to (i) the Obligations in such order as Bank may determine, (ii) restoration, replacement or repair of the Property in accordance with Bank's standard construction loan disbursement conditions and requirements, or (iii) Mortgagor. Nothing herein shall be deemed to excuse Mortgagor from restoring, repairing and maintaining the Property as required herein. Notwithstanding the foregoing, provided that all of the following conditions are fully satisfied by Mortgagor, Bank shall disburse insurance proceeds for repair and restoration of the Property in accordance with Bank's standard construction loan disbursement conditions and requirements: (i) no Default or event which, with the giving of notice or the passage of time, or both, would constitute a Default shall have occurred; (ii) Mortgagor shall have delivered evidence satisfactory to Bank that the Property can be fully repaired and restored at least six (6) months prior to the maturity of the Obligations; (iii) no material lease of the Property (i.e., any lease for more than 25% of the leasable square footage) (as determined by Bank) is cancelable or terminable by the tenant or Mortgagor on account of the casualty or, if it is, the tenant or Mortgagor (as applicable) has waived in writing its right to cancel; (iv) the work is performed under a fixed price or guaranteed maximum price contract satisfactory to Bank in accordance with plans and specifications and a budget reasonably satisfactory to Bank in accordance with all legal requirements; (v) Mortgagor shall have deposited with Bank for disbursement in the connection with the restoration the greater of: (A) the applicable deductible under the insurance policies covering the loss; or (B) the amount by which the cost of restoration of the Property to substantially the same value, condition and character as existed prior to such damage is estimated by Bank to exceed the net insurance proceeds; (vi) Mortgagor has paid as and when due all of Bank's costs and expenses incurred in connection with the collection and disbursement of insurance proceeds, including without limitation, inspection, monitoring, engineering and legal fees. If not paid on demand, at Bank's option, such costs may be deducted from the disbursements made by Bank or added to the sums secured by this Mortgage; and (vii) such other terms and conditions as Bank may reasonably require. Impositions; Escrow Deposit. Mortgagor will pay all taxes, levies, assessments and other fees and charges imposed upon or which may become a lien upon the Property under any law or ordinance (all of the foregoing collectively "Impositions") before they become delinquent and in any event in the same calendar year in which they first become due. Upon a Default and request of Bank, Mortgagor shall add to each periodic payment required under the Note the amount estimated by Bank to be sufficient to enable Bank to pay, as they come due, all Impositions and insurance premiums which Mortgagor is required to pay hereunder. Payments requested under this provision shall be supplemented or adjusted as required by Bank from time to time. Such funds may be commingled with the general funds of Bank and shall not earn interest. Upon the occurrence of a Default, Bank may apply such funds to pay any of the Obligations. Use of Property. Mortgagor shall use and operate, and require its lessees or licensees to use and operate, the Property in compliance with all applicable laws (including, for example, the Americans with Disabilities Act and the Fair Housing Act) and ordinances, covenants, and restrictions, and with all applicable requirements of any lease or sublease now or hereafter affecting the Property. Mortgagor shall not permit any unlawful use of the Property or any use that may give rise to a claim of forfeiture of any of the Property. Mortgagor shall not allow changes in the stated use of Property from that disclosed to Bank at the time of execution hereof, except those changes for which governmental approval is not required. Mortgagor shall not initiate or acquiesce to a zoning change of the Property without prior notice to, and written consent of, Bank. Maintenance, Repairs and Alterations. Mortgagor shall keep and maintain the Property in good condition and repair and fully protected from the elements to the reasonable satisfaction of Bank. Mortgagor will not remove, demolish or structurally alter any of the buildings or other improvements on the Property (except such alterations as may be required by laws, ordinances or regulations) Page 4 without the prior written consent of Bank. Mortgagor shall promptly notify Bank in writing of any material loss, damage or adverse condition affecting the Property. Eminent Domain. Should the Property or any interest therein be taken or damaged by reason of any public use or improvement or condemnation proceeding ("Condemnation"), or should Mortgagor receive any written notice or other information regarding such Condemnation, Mortgagor shall give prompt written notice thereof to Bank. Bank shall be entitled to all compensation, awards and other payments or relief granted in connection with such Condemnation up to the amount of the Obligations. All compensation, awards, and damages awarded to Mortgagor related to any Condemnation (the "Proceeds") are hereby assigned to Bank and Mortgagor agrees to execute such further assignments of the Proceeds as Bank may require. Bank shall have the option of applying or paying the Proceeds in the same manner as insurance proceeds as provided herein. Mortgagor appoints Bank as its attorney-in-fact to receive and endorse the Proceeds to Bank, which appointment is coupled with an interest and shall be irrevocable as long as any Obligations remain unsatisfied. Environmental Condition of Property and Indemnity. Mortgagor warrants and represents to Bank, except as reported by Mortgagor to Bank in writing, that: (i) Mortgagor has inspected and is familiar with the environmental condition of the Property; (ii) the Property and Mortgagor, and any occupants of the Property, are in compliance with and shall continue to be in compliance with all applicable federal, state and local laws and regulations intended to protect the environment and public health and safety as the same may be amended from time to time ("Environmental Laws"); (iii) the Property is not and, to Mortgagor's knowledge, has never been used to generate, handle, treat, store or dispose of, in any quantity, oil, petroleum products, hazardous or toxic substances, hazardous waste, regulated substances or hazardous air pollutants ("Hazardous Materials") in violation of any Environmental Laws; (iv) to Mortgagor's knowledge, no Hazardous Materials (including asbestos or lead paint in any form) are located on or under the Property or emanate from the Property; (v) to Mortgagor's knowledge, there are no unregistered underground storage tanks on the Property that are subject to any underground storage tank registration laws or regulations; (vi) no notice has been received by Mortgagor with regard to any Hazardous Material on the Property; (vii) no action, investigation or proceeding is pending or to Mortgagor's knowledge threatened which seeks to enforce any right or remedy against Mortgagor or the Property under any Environmental Law; and (viii) all licenses, permits and other governmental or regulatory actions necessary for the Property to comply with Environmental Laws shall be obtained and maintained and Mortgagor shall assure compliance therewith. Mortgagor shall not permit any use of the Property or activity on the Property that constitutes an "Industrial Establishment" as defined in the New Jersey Industrial Site Recovery Act without prior written consent of Bank. Further, Mortgagor represents to Bank that a portion of the Property is a protected wetland. Mortgagor agrees to notify Bank immediately upon receipt of any citations, warnings, orders, notices, consent agreements, process or claims alleging or relating to violations of any Environmental Laws or to the environmental condition of the Property and shall conduct and complete all investigations and all cleanup actions necessary to comply with the Environmental Laws and to remove, in accordance with Environmental Laws, any Hazardous Material from the Property. Mortgagor shall indemnify, hold harmless, and defend Bank from and against any and all damages, penalties, fines, claims, suits, liabilities, costs, judgments and expenses, including reasonable attorneys', consultants' or experts' fees of every kind and nature incurred, suffered by or asserted against Bank as a direct or indirect result of: (i) representations made by Mortgagor in this Section being or becoming untrue in any material respect; (ii) Mortgagor's violation of or failure to meet the requirements of any Environmental Laws; or (iii) Hazardous Materials which, while the Property is subject to this Mortgage, exist on the Property. Bank shall have the right to arrange for or conduct environmental inspections of the Property from time to time (including the taking of soil, water, air or material samples). The cost of such inspections made after Default or which are required by laws or regulations applicable to Bank shall be borne by Mortgagor. However, Mortgagor's indemnity shall not apply to any negligent or intentional act of Bank which takes place after foreclosure or satisfaction of this Mortgage. These indemnification obligations are in addition to General Indemnification provisions set forth hereafter. Mortgagor's Obligations under this section shall continue, survive and remain in full force Page 5 and effect notwithstanding the repayment of the Obligations, a foreclosure of or exercise of power of sale under this instrument, a delivery of a deed in lieu of foreclosure, a cancellation or termination of record of this instrument and the transfer of the Property. Appraisals. Mortgagor agrees that Bank may obtain an appraisal of the Property when required by the regulations of the Federal Reserve Board or the Office of the Comptroller of the Currency, any other regulatory agency or at such other times as Bank may reasonably require. Such appraisals shall be performed by an independent third party appraiser selected by Bank. The reasonable cost of such appraisals shall be borne by Mortgagor. If requested by Bank, Mortgagor shall execute an engagement letter addressed to the appraiser selected by Bank. Mortgagor's failure or refusal to sign such an engagement letter, however, shall not impair Bank's right to obtain such an appraisal. Mortgagor agrees to pay the cost of such appraisal within 10 days after receiving an invoice for such appraisal. Inspections. Bank, or its representatives or agents, are authorized to enter at any reasonable time, during regular business hours, upon any part of the Property for the purpose of inspecting the Property and for the purpose of performing any of the acts it is authorized to perform under the terms of this Mortgage. Liens and Subrogation. Mortgagor shall pay and promptly discharge all liens, claims and encumbrances upon the Property, except for the Permitted Liens. Mortgagor shall have the right to contest in good faith the validity of any such lien, claim or encumbrance, provided: (i) such contest suspends the collection thereof or there is no danger of the Property being sold or forfeited while such contest is pending; (ii) Mortgagor first deposits with Bank a bond or other security satisfactory to Bank in such amounts as Bank shall reasonably require; and (iii) Mortgagor thereafter diligently proceeds to cause such lien, claim or encumbrance to be removed and discharged. Bank shall be subrogated to any liens, claims and encumbrances against Mortgagor or the Property that are paid or discharged through payment by Bank or with loan proceeds, notwithstanding the record cancellation or satisfaction thereof. Payments by Bank. In the event of default in the timely payment or performance of any of the Obligations beyond any cure period, Bank, at its option, may pay the sums for which Mortgagor is obligated. Further, Bank may pay such sums as Bank deems appropriate for the protection and maintenance of the Property including, without limitation, sums to pay Impositions and other levies, assessments or liens, maintain insurance, make repairs, secure the Property, maintain utility service, intervene in any condemnation, make advances under a construction loan to enable completion of construction and pay reasonable attorneys' fees and other fees and costs to enforce this Mortgage or protect the lien hereof (including foreclosure) or collect the Obligations, without limitation, including those incurred in any proceeding including Bankruptcy or arbitration. Any amounts so paid shall bear interest at the default rate stated in the Note and shall be secured by this Mortgage. Indemnification. Mortgagor shall protect, indemnify and save harmless Bank from and against all losses, liabilities, obligations, claims, damages, penalties, causes of action, costs and expenses (including, without limitation, reasonable attorneys' fees and expenses) (collectively, "Damages") imposed upon, incurred by or asserted against Bank on account of (i) the Loan Documents or any failure or alleged failure of Mortgagor to comply with any of the terms or representations of this Agreement; (ii) any claim of loss or damage to the Property or any injury or claim of injury to, or death of, any person or property that may be occasioned by any cause whatsoever pertaining to the Property or the use, occupancy or operation thereof, (iii) any failure or alleged failure of Mortgagor to comply with any law, rule or regulation applicable to the Property or the use, occupancy or operation of the Property (including, without limitation, the failure to pay any taxes, fees or other charges), provided that such indemnity shall be effective only to the extent of any Damages that may be sustained by Bank in excess of any net proceeds received by it from any insurance of Mortgagor (other than self-insurance) with respect to such Damages, (iv) any Damages whatsoever by reason of any alleged action, obligation or undertaking of Bank relating in any way to or any matter contemplated by the Loan Documents, (v) any claim for brokerage fees or such other commissions relating to the Property or any other Obligations, or (vi) any Page 6 and all liability arising from any leases related to the Property. Nothing contained herein shall require Mortgagor to indemnify Bank for any Damages resulting from Bank's gross negligence or its willful and wrongful acts. The indemnity provided for herein shall survive payment of the Obligations and shall extend to the officers, directors, employees and duly authorized agents of Bank. In the event the Bank incurs any Damages arising out of or in any way relating to the transaction contemplated by the Loan Documents (including any of the matters referred to in this section), the amounts of such Damages shall be added to the Obligations, shall bear interest, to the extent permitted by law, at the interest rate borne by the Obligations from the date incurred until paid and shall be payable on demand. Assignment of Rents. Mortgagor hereby absolutely assigns and transfers to Bank all the leases, rents, issues and profits of the Property (collectively "Rents"). Although this assignment is effective immediately, so long as no Default exists, Bank gives to and confers upon Mortgagor the privilege under a revocable license to collect as they become due, but not prior to accrual, the Rents and to demand, receive and enforce payment, give receipts, releases and satisfactions, and sue in the name of Mortgagor for all such Rents. Mortgagor represents there has been no prior assignment of leases or Rents, and agrees not to further assign such leases or Rents. Upon any occurrence of any uncured Default, the license granted to Mortgagor herein shall be automatically revoked without further notice to or demand upon Mortgagor, and Bank shall have the right, in its discretion, without notice, by agent or by a receiver appointed by a court, and without regard to the adequacy of any security for the Obligations, (i) to enter upon and take possession of the Property, (ii) notify tenants, subtenants and any property manager to pay Rents to Bank or its designee, and upon receipt of such notice such persons are authorized and directed to make payment as specified in the notice and disregard any contrary direction or instruction by Mortgagor, and (iii) in its own name, sue for or otherwise collect Rents, including those past due, and apply Rents, less costs and expenses of operation and collection, including attorneys' fees, to the Obligations in such order and manner as Bank may determine or as otherwise provided for herein. Bank's exercise of any one or more of the foregoing rights shall not cure or waive any Default or notice of Default hereunder. Due on Sale or Further Encumbrance or Transfer of an Interest in Mortgagor. Without the prior written consent of Bank in each instance, Mortgagor shall not (i) sell, convey, transfer or encumber the Property, or any part thereof or interest therein, whether legal or equitable, (ii) cause or permit any transfer of the Property or any part thereof, whether voluntarily, involuntarily or by operation of law, or (iii) enter into any agreement or transaction to transfer, or accomplish in form or substance a transfer, of the Property. A "transfer" of the Property includes: (a) the direct or indirect sale, transfer or conveyance of the Property or any portion thereof or interest therein; (b) the execution of an installment sale contract or similar instrument affecting all or any portion of the Property; (c) if Mortgagor is a corporation, partnership, limited liability company, trust or other business entity, the transfer (whether in one transaction or a series of transactions) of more than 50% of the outstanding stock, partnership, limited liability company or other ownership interests in such corporation, partnership, limited liability company or entity including, without limitation, changes in stockholders, partners, members, managers, trustees, beneficiaries, or their respective interests; (d) if Mortgagor, or any general partner or member of Mortgagor, is a corporation, the creation or issuance of new stock by which an aggregate of more than 10% of such corporation's stock shall be vested in a party or parties who are not now stockholders; and (e) an agreement by Mortgagor leasing all or a substantial part of the Property for other than actual occupancy by a space tenant thereunder or a sale, assignment or other transfer of or the grant of a security interest in and to any Leases. Bank's consent to any conveyance or encumbrance may be conditioned upon an increase in the interest rate specified in the Note (or other Obligations), an extension or curtailment of the maturity of the Obligations, or other modification of the Note or this instrument. Remedies of Bank on Default. Failure of Mortgagor or any other person liable to timely pay or perform any of the Obligations is a default ("Default") under this Mortgage. Upon the occurrence of Default the following remedies are available, without limitation, to Bank: (i) Bank may exercise any or all of Bank's remedies under this Mortgage or other Loan Documents including, without limitation, acceleration of the maturity of all payments and Obligations, Page 7 including any swap agreements (as defined in 11 U.S.C. ss. 101) with Bank (provided that the early termination shall be governed by the default and termination provisions of said swap agreements); (ii) Bank may take immediate possession of the Property or any part thereof (which Mortgagor agrees to surrender to Bank) and manage, control or lease the same to such persons and at such rental as it may deem proper and collect and apply Rents to the payment of: (a) the Obligations, together with all costs and attorneys' fees; (b) all Impositions and any other levies, assessments or liens which may be prior in lien or payment to the Obligations, and premiums for insurance, with interest on all such items; and (c) the cost of all alterations, repairs, replacements and expenses incident to taking and retaining possession of the Property and the management and operation thereof; all in such order or priority as Bank in its sole discretion may determine. The taking of possession shall not prevent concurrent or later proceedings for the foreclosure sale of the Property; (iii) Bank may apply to any court of competent jurisdiction for the appointment of a receiver for all purposes including, without limitation, to manage and operate the Property or any part thereof, and to apply the Rents therefrom as hereinabove provided. In the event of such application, Mortgagor consents to the appointment of a receiver, and agrees that a receiver may be appointed without notice to Mortgagor, without regard to whether Mortgagor has committed waste or permitted deterioration of the Property, without regard to the adequacy of any security for the Obligations, and without regard to the solvency of Mortgagor or any other person, firm or corporation who or which may be liable for the payment of the Obligations; (iv) Bank may exercise all the remedies of a mortgagee as provided by law and in equity including, without limitation, foreclosure upon this Mortgage and sale of the Property, or any part of the Property, at public sale conducted according to applicable law (referred to as "Sale") and conduct additional Sales as may be required until all of the Property is sold or the Obligations are satisfied; (v) With respect to any portion of the Property governed by the UCC, Bank shall have all of the rights and remedies of a secured party thereunder. Bank may elect to foreclose upon any Property that is fixtures under law applicable to foreclosure of interests in real estate or law applicable to personal property; (vi) Bank may bid at Sale and may accept, as successful bidder, credit of the bid amount against the Obligations as payment of any portion of the purchase price; and (vii) Bank shall apply the proceeds of Sale, first to any fees or reasonable attorney fees permitted Bank by law in connection with Sale, second to expenses of foreclosure, publication, and sale permitted Bank by law in connection with Sale, third to the Obligations, and any remaining proceeds as required by law. Miscellaneous Provisions. Mortgagor agrees to the following: (i) All remedies available to Bank with respect to this Mortgage or available at law or in equity shall be cumulative and may be pursued concurrently or successively. No delay by Bank in exercising any remedy shall operate as a waiver of that remedy or of any Default. Any payment by Bank or acceptance by Bank of any partial payment shall not constitute a waiver by Bank of any Default; (ii) Mortgagor represents that Mortgagor (a) is (1) an adult individual and is sui juris, or (2) a corporation, general partnership, limited partnership, limited liability company or other legal entity, duly organized, validly existing and in good standing under the laws of its state of organization, and is authorized to do business in each other jurisdiction wherein its ownership of property or conduct of business legally requires such organization (b) has the power and authority to own its properties and assets and to carry on its business as now being conducted and as now contemplated; and (c) has the power and authority to execute, deliver and perform, and by all necessary action has authorized the execution, delivery and performance of, all of its obligations under this Mortgage and any other Loan Document to which it is a party. (iii) The provisions hereof shall be binding upon and inure to the benefit of Mortgagor, its heirs, personal representatives, successors and assigns including, without limitation, subsequent owners of the Property or any part thereof, and shall be binding upon and inure to the benefit of Bank, its successors and assigns and any future holder of the Note or other Obligations; (iv) Any notices, demands or requests shall be sufficiently given Mortgagor if in writing and mailed or delivered to the address of Mortgagor shown above or to another address as provided herein and to Bank if in writing and mailed or delivered to Wachovia Bank, National Association, Mail Code VA7391, P. O. Box 13327, Roanoke, VA 24040 or Wachovia Bank, National Association, Mail Code VA7391, 10 South Jefferson Street, Roanoke, VA 24011, or such other address as Bank may specify from time to time and in the event that Mortgagor changes Mortgagor's address at any time prior to the date the Obligations are paid in full, that party shall promptly give written notice of such change of address by registered or certified mail, return receipt requested, all charges prepaid. Notices to Bank must include the mail code. (v) This Mortgage may not be changed, terminated or modified orally or in any manner other than by an instrument in writing signed by the parties hereto; (vi) The captions or headings at the beginning of each paragraph hereof Page 8 are for the convenience of the parties and are not a part of this Mortgage; (vii) If the lien of this Mortgage is invalid or unenforceable as to any part of the Obligations, the unsecured portion of the Obligations shall be completely paid (and all payments made shall be deemed to have first been applied to payment of the unsecured portion of the Obligations) prior to payment of the secured portion of the Obligations and if any clause, provision or obligation hereunder is determined invalid or unenforceable the remainder of this Mortgage shall be construed and enforced as if such clause, provision or obligation had not been contained herein; (viii) This Mortgage shall be governed by and construed under the laws of the jurisdiction where this Mortgage is recorded; (ix) Mortgagor by execution and Bank by acceptance of this Mortgage agree to be bound by the terms and provisions hereof. Minimum Standards. In addition to the requirements set forth in the Loan Documents, all surveys, insurance, title policies, construction documents, environmental reports, payment and performance bonds, and any other due diligence or additional documents required in connection with this Loan, shall comply with Bank's minimum standards in place from time to time for such documents, which shall be provided in writing by Bank to Borrower upon request. IN WITNESS WHEREOF, Mortgagor has signed and sealed this instrument as of the day and year first above written. Mortgagor A.C. Moore Urban Renewal, LLC By: Leslie H. Gordon ----------------------------------(SEAL) Leslie H. Gordon, Member Page 9 State of New Jersey County of Camden L. L. C. Acknowledgment I certify that before me appeared this day Leslie H. Gordon, a person known to me, who after being sworn stated he/she is Member of A.C. Moore Urban Renewal, LLC, a New Jersey limited liability company and is duly authorized to act on behalf of said Company, and being informed of the contents thereof, acknowledged execution of the foregoing instrument on behalf of said Company. Witness my hand and official seal, this 27th day of October, 2003. Patricia L. Olson ----------------------------------------- Notary Public Notary Seal ----------------------------------------- (Printed Name of Notary) My Commission Expires: June 11, 2007 ------------------ [Document Tracking Access Number] Page 10 EX-31 6 ex31-1.txt EXHIBIT 31.1 Exhibit 31.1 I, John E. Parker, certify that: 1. I have reviewed this quarterly report on Form 10-Q of A.C. Moore Arts & Crafts, Inc; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) [Intentionally omitted] (c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and 19 (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: November 14, 2003 /s/ John E. Parker -------------------------------------------- John E. Parker Chief Executive Officer (principal executive officer) 20 EX-31 7 ex31-2.txt EXHIBIT 31.2 Exhibit 31.2 I, Leslie H. Gordon, certify that: 1. I have reviewed this quarterly report on Form 10-Q of A.C. Moore Arts & Crafts, Inc; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) [intentionally omitted] (c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): 21 (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: November 14, 2003 /s/ Leslie H. Gordon ----------------------------------------------- Leslie H. Gordon Executive Vice President and Chief Financial Officer (principal financial officer) 22 EX-32 8 ex32.txt EXHIBIT 32 EXHIBIT 32 A.C. MOORE ARTS & CRAFTS, INC. CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 ( Section 1350 of Chapter 63 of Title 18 of the United States Code), each of the undersigned officers of A. C. Moore Arts & Craft, Inc. (the "Company"), does hereby certify with respect to the Quarterly Report of the Company on Form 10-Q for the period ended September 30, 2003 (the "Report") that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ John E. Parker ---------------------------------------- John E. Parker Chief Executive Officer Date: November 14, 2003 /s/ Leslie H. Gordon ---------------------------------------- Leslie H. Gordon Chief Financial Officer Date: November 14, 2003 The foregoing certification is being furnished solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Section 1350 of Chapter 63 of Title 18 of the United States Code) and is not being filed as part of the Report or as a separate disclosure document. 23 -----END PRIVACY-ENHANCED MESSAGE-----