Exhibit 10.9.1
LOAN AGREEMENT
THIS LOAN AGREEMENT ("Agreement"), dated as of the 15th day of November,
1995, is made and entered into on the terms and conditions hereinafter set
forth, by and between FACTORY CARD OUTLET OF AMERICA LTD., an Illinois
corporation ("Borrower"), and SIRROM CAPITAL CORPORATION, a Tennessee
corporation ("Lender").
RECITALS:
WHEREAS, Borrower has requested that Lender make available to Borrower a
term loan in the original principal amount of Four Million and No/l00ths Dollars
($4,000,000) (the "Loan") on the terms and conditions hereinafter set forth, and
for the purpose(s) hereinafter set forth; and
WHEREAS, in order to induce Lender to make the Loan to Borrower, Borrower
has made certain representations to Lender; and
WHEREAS, Lender, in reliance upon the representations and inducements of
Borrower, has agreed to make the Loan upon the terms and conditions hereinafter
set forth.
AGREEMENT:
NOW, THEREFORE, in consideration of the agreement of Lender to make the
Loan, the mutual covenants and agreements hereinafter set forth, and other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Borrower and Lender hereby agree as follows:
ARTICLE 1
THE LOAN
1.1 Evidence of Loan Indebtedness and Repayment. Subject to the terms and
conditions hereof, the Lender shall make the Loan to Borrower by wire transfer
in immediately available funds. The Loan shall be evidenced by a Secured
Promissory Note in the original principal amount of Four Million and No/l00ths
Dollars ($4,000,000),
substantially in the form of Exhibit A attached hereto and incorporated herein
by this reference (the "Note"), dated as of the date hereof, executed by
Borrower, in favor of Lender. The Loan shall be payable in accordance with the
terms of the Note. The Note, this Agreement and any other instruments and
documents executed by Borrower, now or hereafter evidencing, securing or in any
way related to the indebtedness evidenced by the Note are herein individually
referred to as a "Loan Document" and collectively referred to as the "Loan
Documents."
1.2 Processing Fee. Borrower shall pay a processing fee of $80,000 to
Lender in one or more installments at or prior to closing.
1.3 Purpose(s) of Loan and Use of Proceeds. The purposes of the Loan shall
be (i) to provide working capital to Borrower, (ii) and to repay certain
indebtedness of Borrower, and (iii) to pay all costs and expenses incurred by
the parties hereto in connection with the making and documenting of the Loan,
including attorneys' fees and expenses. The proceeds of the Loan shall not be
used for any other purpose.
1.4 Prepayment. Borrower may prepay the indebtedness evidenced by the Note
in whole or in part at any time and from time to time without premium or
penalty.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES
2.1 Borrower's Representations. Borrower hereby represents and warrants to
Lender as follows:
(a) Corporate Status. Borrower is a corporation duly organized,
validly existing and in good standing under the laws of the State of
Illinois; and has the corporate power to own and operate its properties, to
carry on its business as now conducted and to enter into and to perform its
obligations under this Agreement and the other Loan Documents to which it
is a party. Except as set forth on Schedule 2.1(a), Borrower is duly
qualified to do business and in good standing in each state in which a
failure to be so qualified and in good standing would have a material
adverse effect on Borrower's financial position or its ability to conduct
its business in the manner now conducted.
(b) Other Business Organizations. Borrower neither owns nor has an
interest in, directly or indirectly, any other corporation, partnership,
joint venture or other business organization ("Subsidiaries").
(c) Authorization. Borrower has full legal right, power and authority
to conduct its business and affairs as they are presently conducted.
Borrower has full legal right, power and authority to enter into and
perform its obligations under the Loan Documents, without the consent or
approval of any other person, firm,
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governmental agency or other legal entity, except such consents and
approvals as have already been given to Borrower. The execution and
delivery of this Agreement, the borrowing hereunder, the execution and
delivery of each Loan Document to which Borrower is a party, and the
performance by Borrower of its obligations thereunder (i) are within the
corporate powers of Borrower, (ii) have been duly authorized by all
necessary corporate action properly taken, and (iii) do not and will not
contravene or conflict with (A) any provision of law, (B) any judgment,
ordinance, regulation or order of any court or governmental agency that is
applicable to Borrower or its property, (C) the articles of incorporation
or bylaws of Borrower, or (D) any agreement binding upon Borrower. The
officer(s) executing this Agreement, the Note and all of the other Loan
Documents to which Borrower is a party are duly authorized to act on behalf
of Borrower.
(d) Validity and Binding Effect. This Agreement and the other Loan
Documents are the legal, valid and binding obligations of Borrower,
enforceable in accordance with their respective terms, subject to
limitations imposed by bankruptcy, insolvency, moratorium or other similar
laws affecting the rights of creditors generally or the application of
general equitable principles.
(e) Capitalization. The authorized capital stock of Borrower consists
solely of 100,000 shares of common stock, no par value per share ("Borrower
Common Stock"), of which 2,500 shares (the "Borrower Shares") are issued
and outstanding. The authorized capital stock of FCOA Acquisition Corp., a
Delaware corporation and parent corporation of Borrower ("Guarantor"),
consists of (i) 1,000,000 shares of common stock, no par value per share
("Parent Common Stock"), of which 216,000 shares ("Parent Common Shares")
are issues and outstanding; (ii) 20,000 shares of Series A convertible
preferred stock, $.01 par value per share ("Parent Series A Preferred
Stock"), of which 20,000 shares ("Series A Shares") are issued and
outstanding; and (iii) 34,750 shares of Series B convertible preferred
stock, $.01 par value per share ("Series B Preferred Stock"), of which
31,214 shares ("Series B Shares") (the Borrower Shares, the Parent Common
Shares, the Series A Shares and the Series B Shares are sometimes
collectively referred to herein as the "Shares"). All of the Shares are
duly authorized, validly issued and outstanding, fully paid and
nonassessable and free of preemptive rights. Except for the Shares, there
are no shares of capital stock or other securities of Borrower or Guarantor
issued or outstanding. Except as set forth on Schedule 2.1(e) hereto, there
are no outstanding options, warrants or rights to purchase or acquire from
Borrower or Guarantor any securities of Borrower or Guarantor, and there
are no contracts, commitments, agreements, understandings, arrangements or
restrictions as to which Borrower or Guarantor is a party or by which it is
bound relating to any shares of capital stock or other securities of
Borrower or Guarantor (including the Shares), whether or not outstanding.
(f) Trademarks, Patents, Etc. Schedule 2.1(f) is an accurate and
complete list of all patents, trademarks, tradenames, trademark
registrations, service names,
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service marks, copyrights, licenses, formulas and applications therefor
owned by Borrower or used by Borrower in the operation of its business,
title to each of which is, except as set forth in Schedule 2.1(f) hereto,
held by Borrower free and clear of all adverse claims, liens, security
agreements, restrictions or other encumbrances. There is no infringement
action, lawsuit, claim or complaint pending against Borrower which asserts
that Borrower's operations violate or infringe the rights or the trade
names, trademarks, trademark registration, service name, service xxxx or
copyright of others with respect to any apparatus or method of Borrower,
nor is Borrower in any way making use of any confidential information or
trade secrets of any person except with the consent of such person.
(g) No Conflicts. Consummation of the transactions hereby contemplated
and the performance of the obligations of Borrower under and by virtue of
the Loan Documents will not result in any breach of, or constitute a
default under, any mortgage, security deed or agreement, deed of trust,
lease, bank loan or credit agreement, articles of incorporation or bylaws,
agreement or certificate of limited partnership, partnership agreement,
license, franchise or any other instrument or agreement to which Borrower
is a party or by which Borrower or its properties may be bound or affected,
except such agreements and other documents as to which Borrower has
obtained an effective waiver.
(h) Litigation. There are no actions, suits or proceedings pending,
or, to the knowledge of Borrower, threatened, against or affecting Borrower
involving the validity or enforceability of any of the Loan Documents at
law or in equity, and there are no proceedings pending, or, to the
knowledge of Borrower, threatened, against or affecting Borrower before any
governmental or administrative agency; and to Borrower's knowledge,
Borrower is not in default with respect to any order, writ, injunction,
decree or demand of any court or any governmental authority.
(i) Financial Statements. The consolidated financial statements of
Borrower and Guarantor, attached hereto as Schedule 2.1(i) (A), are true
and correct in all material respects have been prepared on the basis of
accounting principles consistently applied, and fairly present the
financial condition of Borrower and Guarantor as of the date(s) thereof. No
material adverse change has occurred in the financial condition of Borrower
or Guarantor since the date(s) thereof, and no additional borrowings have
been made by Borrower or Guarantor since the date(s) thereof other than as
set forth on Schedule 2.1(i)(B).
(j) Other Agreements; No Defaults. Borrower is not a party to
indentures, loan or credit agreements, leases or other agreements or
instruments, or subject to any articles of incorporation or corporate
restrictions that could have a material adverse effect on the ability of
Borrower to carry out its obligations under the Loan Documents to which it
is a party. Borrower is not in default in any respect in the performance,
observance or fulfillment of any of the obligations, covenants or
conditions contained in any agreement or instrument material to its
business to which
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it is a party, including but not limited to this Agreement and the other
Loan Documents, and to Borrower's knowledge, no other default or event has
occurred and is continuing that with notice or the passage of time or both
would constitute a default or event of default under any of same.
(k) Compliance With Law. Borrower has obtained all material licenses,
permits and approvals and authorizations necessary or required in order to
conduct its business and affairs as heretofore conducted and as intended to
be conducted as of the date of this Agreement. To Borrower's knowledge,
Borrower is in compliance with all laws, regulations, decrees and orders
applicable to it (including but not limited to laws, regulations, decrees
and orders relating to environmental, occupational and health standards and
controls, antitrust, monopoly, restraint of trade or unfair competition),
to the extent that noncompliance, in the aggregate, cannot reasonably be
expected to have a material adverse effect on its business, operations,
property or financial condition or to affect materially adversely
Borrower's ability to perform its obligations under the Loan Documents.
(1) Debt. Schedule 2.1(1) is a complete and correct list of all credit
agreements, indentures, purchase agreements, promissory notes and other
evidences of indebtedness, guaranties, capital leases and other
instruments, agreements and arrangements presently in effect providing for
or relating to extensions of credit (including agreements and arrangements
for the issuance of letters of credit or for acceptance financing) in
respect of which Borrower or Guarantor, or any of the properties thereof is
in any manner directly or contingently obligated; and the maximum principal
or face amounts of the credit in question that are outstanding and that are
available pursuant to the terms of such agreements are correctly stated,
and all liens of any nature given or agreed to be given as security
therefor are correctly described or indicated in such Schedule.
(m) Taxes. Borrower and Guarantor have filed or caused to be filed all
tax returns that to Borrower's knowledge are required to be filed (except
for returns that have been appropriately extended), and has paid, or will
pay when due, all taxes shown to be due and payable on said returns and all
other taxes, impositions, assessments, fees or other charges imposed on
them by any governmental authority, agency or instrumentality, prior to any
delinquency with respect thereto (other than taxes, impositions,
assessments, fees and charges currently being contested in good faith by
appropriate proceedings, for which appropriate amounts have been reserved).
To Borrower's knowledge, no tax liens have been filed against Borrower or
Guarantor or any of Borrower's or Guarantor's properties.
(n) Small Business Concern. The information set forth in the Small
Business Administration Forms 480, 652 and Part A of Form 1031 regarding
Borrower upon delivery thereof to Lender, pursuant to Section 4.1 hereof,
will be accurate and complete. Borrower will only use the proceeds of the
Loan as permitted in Section 1.3 hereof.
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(o) Certain Transactions. Except as set forth on Schedule 2.1(o)
hereto, Borrower is not indebted, directly or indirectly, to any of its
shareholders, officers, or directors or to their respective spouses or
children, in any amount whatsoever; none of said shareholders, officers or
directors or any members of their immediate families, are indebted to
Borrower or have any direct or indirect ownership interest in any firm or
corporation with which Borrower has a business relationship, or any firm or
corporation which competes with Borrower, except that shareholders,
officers and/or directors of Borrower may own no more than 4.9% of
outstanding stock of publicly traded companies which may compete with
Borrower. No officer or director of Borrower or any member of their
immediate families, is, directly or indirectly, interested in any material
contract with Borrower. Borrower is not a guarantor or indemnitor of any
indebtedness of any other person, firm or corporation.
(p) Statements Not False or Misleading. To Borrower's knowledge after
reasonable investigation, no representation or warranty given as of the
date hereof by Borrower contained in this Agreement or any schedule
attached hereto or any statement in any document, certificate or other
instrument furnished or to be furnished by Borrower to Lender pursuant
hereto, taken as a whole, contains or will (as of the time so furnished)
contain any untrue statement of a material fact, or omits or will (as of
the time so furnished) omit to state any material fact which is necessary
in order to make the statements contained therein not misleading.
(q) Margin Regulations. Borrower is not engaged in the business of
extending credit for the purpose of purchasing or carrying margin stock. No
proceeds received pursuant to this Agreement will be used to purchase or
carry any equity security of a class which is registered pursuant to
Section 12 of the Securities Exchange Act of 1934, as amended.
(r) Significant Contracts. Schedule 2.1(r) is a complete and correct
list of all contracts, agreements and other documents pursuant to which
Borrower receives revenues in excess of $25,000 per fiscal year. Each such
contract, agreement and other document is in full force and effect as of
the date hereof and Borrower knows of no reason why such contracts,
agreements and other documents would not remain in full force and effect
pursuant to the terms thereof.
(s) Environment. Borrower has duly complied with, and its business,
operations, assets, equipment, property, leaseholds or other facilities are
in compliance with, the applicable provisions of all applicable federal,
state and local environmental, health, and safety laws, codes and
ordinances, and all rules and regulations promulgated thereunder, except to
the extent that failure to so comply would not have a material adverse
effect on its business. Borrower has been issued and will maintain all
required federal, state and local permits, licenses, certificates and
approvals relating to (1) air emissions; (2) discharges to surface water or
groundwater; (3) noise emissions; (4) solid or liquid waste disposal; (5)
the use, generation, storage, transportation or disposal of toxic or
hazardous substances or
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wastes (which shall include any and all such materials listed in any
federal, state or local law, code or ordinance and all rules and
regulations promulgated thereunder as hazardous or potentially hazardous);
or (6) other environmental, health or safety matters, except to the extent
that failure to do so would not have a material adverse effect on its
business. Borrower has not received notice of, and is not otherwise aware
of facts which constitute material violations of any applicable federal,
state or local environmental, health or safety laws, codes or ordinances,
and any rules or regulations promulgated thereunder with respect to
Borrower's businesses, operations, assets, equipment, property, leaseholds,
or other facilities. In connection with property owned or leased by
Borrower, and except in accordance with a valid governmental permit,
license, certificate or approval, there has not been (during the period of
Borrower's ownership or lease thereof) any emission, spill, release or
discharge into or upon (1) the air; (2) soils, or any improvements located
thereon; (3) surface water or groundwater; or (4) the sewer, septic system
or waste treatment, storage or disposal system servicing the premises, of
any toxic or hazardous substances or wastes at or from the premises.
Borrower has not received any complaint, order, directive, claim, citation
or notice by any governmental authority or any person or entity against or
respecting Borrower with respect to (1) air emissions; (2) spills, releases
or discharges to soils or improvements located thereon, surface water,
groundwater or the sewer, septic system or waste treatment, storage or
disposal systems servicing the premises; (3) noise emissions; (4) solid or
liquid waste disposal; (5) the use, generation, storage, transportation or
disposal of toxic or hazardous substances or waste; or (6) other
environmental, health or safety matters affecting Borrower or its business,
operations, assets, equipment, property, leaseholds or other facilities.
Borrower has no indebtedness, obligation or liability (absolute or
contingent, matured or not matured), with respect to the storage,
treatment, cleanup or disposal of any solid wastes, hazardous wastes or
other toxic or hazardous substances (including without limitation any such
indebtedness, obligation, or liability with respect to any current
regulation, law or statute regarding such storage, treatment, cleanup or
disposal).
ARTICLE 3
COVENANTS AND AGREEMENTS
Borrower covenants and agrees that during the term of this Agreement:
3.1 Payment of Obligations. Borrower shall pay the indebtedness evidenced
by the Note according to the terms thereof, and shall timely pay or perform, as
the case may be, all of the other obligations of Borrower to Lender, direct or
contingent, described in the Loan Documents, together with interest thereon, and
any extensions, modifications, consolidations and/or renewals thereof and any
notes given in payment thereof.
3.2 Financial Statements and Reports. Borrower shall furnish to Lender (i)
as soon as practicable and in any event within one hundred twenty (120) days
after the end of each fiscal year of Borrower, a consolidated balance sheet of
Guarantor as of the close of
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such fiscal year, a consolidated statement of earnings and retained earnings of
Guarantor as of the close of such fiscal year and a consolidated statement of
cash flows for Guarantor for such fiscal year, prepared in accordance with
generally accepted accounting principles consistently applied ("GAAP"), audited
by an independent certified public accountant reasonably acceptable to Lender
(it being understood that any "Big 6" accounting firm would be acceptable to
Lender) and certified by an officer of Borrower and accompanied by a certificate
of the President of Borrower, stating that to the best of the knowledge of such
officer, Borrower has kept, observed, performed and fulfilled each covenant,
term and condition of this Agreement and the other Loan Documents during the
preceding fiscal year and that no Event of Default, as herein defined, has
occurred and is continuing (or if an Event of Default has occurred and is
continuing, specifying the nature of same, the period of existence of same and
the action Borrower has taken or proposes to take in connection therewith), (ii)
within thirty-five (35) days of the end of each calendar month, a consolidated
balance sheet of Guarantor as of the close of such month and a consolidated
statement of earnings and retained earnings of Guarantor as of the close of such
month, all in reasonable detail (including financial information for the
preceding six (6) months), and prepared substantially in accordance with GAAP
(except for the absence of footnotes and subject to year-end adjustments), and
(iii) with reasonable promptness, such other financial data as Lender may
reasonably request.
3.3 Maintenance of Books and Records; Inspection. Borrower and Guarantor
shall maintain their books, accounts and records in accordance with GAAP, and
five (5) days after written notice from Lender, shall permit Lender, its
officers, employees and any professionals designated by Lender in writing, at
Borrower's expense, to visit, inspect and/or audit any of Borrower's or
Guarantor's properties, books and financial records, and to discuss Borrower's
and Guarantor's accounts, affairs and finances with Borrower or Guarantor or the
principal officers of Borrower and/or Guarantor during reasonable business
hours, all at such times as Lender may reasonably request; provided that (i)
prior to an Event of Default, Lender shall not engage in an audit more than once
per six months, (ii) no such visit, inspection and/or audit shall materially
interfere with the conduct of Borrower's or Guarantor's business, and (iii) that
prior to an Event of Default, the expenses to be incurred by Borrower in
connection with any such visit, inspection or audit shall not exceed $25,000 in
any calendar year.
3.4 Insurance. Without limiting any of the requirements of any of the other
Loan Documents, Borrower shall maintain in amounts customary for entities
engaged in comparable business activities, (i) to the extent required by
applicable law, worker's compensation insurance (or maintain a legally
sufficient amount of self insurance against worker's compensation liabilities,
with adequate reserves, under a plan approved by Lender, such approval not to be
unreasonably withheld or delayed), and (ii) fire and "all risk" casualty
insurance on its properties against such hazards and in at least such amounts as
are customary in Borrower's business. Borrower will make commercially reasonable
efforts to
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obtain and maintain public liability insurance in an amount, and at a cost,
deemed reasonable to the Borrower's Board of Directors. At the reasonable
request of Lender, Borrower will promptly deliver a certificate specifying the
details of such insurance in effect.
3.5 Taxes and Assessments. Borrower and Guarantor shall (i) file all tax
returns and appropriate schedules thereto that are required to be filed under
applicable law, prior to the date of delinquency, (ii) pay and discharge all
taxes, assessments and governmental charges or levies imposed upon Borrower and
Guarantor upon their income and profits or upon any properties belonging to
them, prior to the date on which penalties attach thereto, and (iii) pay all
taxes, assessments and governmental charges or levies that, if unpaid, might
become a lien or charge upon any of their properties; provided, however, that
Borrower or Guarantor in good faith may contest any such tax, assessment,
governmental charge or levy described in the foregoing clauses (ii) and (iii) so
long as appropriate reserves are maintained with respect thereto.
3.6 Corporate Existence. Borrower and Guarantor shall maintain their
corporate existences and good standings in the states of their incorporation,
and their qualifications and good standings as foreign corporations in each
jurisdiction in which failure to be so qualified would have a material adverse
effect on Borrower's or Guarantor's financial position or their abilities to
conduct their businesses at a given time.
3.7 Compliance with Law and Other Agreements. Except where the failure to
do so would not materially adversely affect Borrower's operations or its ability
to fulfill its obligations under the Loan Documents, Borrower shall maintain its
business, operations and property owned or used in connection therewith in
compliance with (i) all applicable federal, state and local laws, regulations
and ordinances governing such business operations and the use and ownership of
such property, and (ii) all agreements, licenses, franchises, indentures and
mortgages to which Borrower is a party or by which Borrower or any of its
properties is bound. Without limiting the foregoing, Borrower shall pay all of
its indebtedness promptly in accordance with the terms thereof.
3.8 Notice of Default. Borrower shall give written notice to Lender of the
occurrence of any default, event of default or Event of Default under this
Agreement or any other Loan Document promptly upon Borrower's knowledge of the
occurrence thereof.
3.9 Notice of Litigation. Borrower shall give notice, in writing, to Lender
of (i) any actions, suits or proceedings instituted by any persons whomsoever
against Borrower, or affecting any of the assets of Borrower, wherein the amount
at issue is in excess of Two Hundred Fifty Thousand and No/l00ths Dollars
($250,000.00), and (ii) any dispute, not resolved within sixty (60) days of the
commencement thereof, between Borrower on the one hand and any governmental
regulatory body on the other hand, which dispute, if determined adversely to
Borrower, would have a material adverse effect on the normal operations of
Borrower.
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3.10 Conduct of Business. Borrower will continue to engage in a business of
the same general type and manner as conducted by it on the date of this
Agreement.
3.11 ERISA Plan. If Borrower institutes a pension plan that is subject to
the requirements of Title IV of the Employee Retirement Income Security Act of
1974, Pub. L. No.93-406, September 2,1974, 00 Xxxx. 000, 00 X.X.X.X. ss. 1001 et
seq. (1975), as amended from time to time ("ERISA"), then the following
covenants shall be applicable during such period as any such plan (the "Plan")
shall be in effect: (i) Borrower hereby covenants that throughout the existence
of the Plan, Borrower's contributions under the Plan will meet the minimum
funding standards required by ERISA, and (ii) Borrower covenants that it will
send to Lender a copy of any notice of a reportable event (as defined in ERISA)
required by ERISA to be filed with the Labor Department or the Pension Benefit
Guaranty Corporation, at the time that such notice is so filed.
3.12 Dividends, Distributions, Stock Rights, etc. Neither Borrower nor
Guarantor shall declare or pay any dividend of any kind (other than stock
dividends payable to all holders of any class of capital stock), in cash or in
property, on any class of the capital stock of Borrower or Guarantor, or
purchase, redeem, retire or otherwise acquire for value any shares of such
stock, nor make any distribution of any kind in cash or property in respect
thereof, nor make any return of capital of shareholders, nor make any payments
in cash or property in respect of any stock options, stock bonus or similar plan
(except as required or permitted hereunder), nor grant any preemptive rights
with respect to the capital stock of Borrower or Guarantor, without the prior
written consent of Lender. Borrower shall provide Lender with written notice of
any and all requests for redemption pursuant to Article 4 of Guarantor's
Articles of Incorporation made to Guarantor and/or Borrower by the holders of a
majority of the outstanding shares of Guarantor's Series A Preferred Stock, or
the holders of majority of the outstanding shares of Guarantor's Series B
Preferred Stock, within ten (10) days of Guarantor's or Borrower's receipt of
any such requests.
3.13 Guaranties; Loans; Payment of Debt. Without Lender's prior express
written consent, neither Borrower nor Guarantor shall guarantee nor be liable in
any manner, whether directly or indirectly, or become contingently liable after
the date of this Agreement in connection with the obligations or indebtedness of
any person or entity whatsoever, except for the endorsement of negotiable
instruments payable to Borrower or Guarantor for deposit or collection in the
ordinary course of business. Without Lender's prior express written consent,
neither Borrower nor Guarantor shall (i) make any loan, advance or extension of
credit to any person other than in the normal course of its business, or (ii)
make any payment on any debt that is subordinate to the Loan, if any, except for
trade accounts payable incurred in the ordinary course of Borrower's or
Guarantor's business.
3.14 Debt. Without the express prior written consent of Lender, neither
Borrower nor Guarantor shall create, incur, assume or suffer to exist
indebtedness of any description whatsoever, (excluding (i) the indebtedness
evidenced by the Note, (ii) the endorsement of negotiable instruments payable to
Borrower or Guarantor for deposit or collection in the
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xxxxxxxx xxxxxx xx xxxxxxxx, (xxx) indebtedness incurred in the ordinary course
of business (provided that no such debt, individually, exceeds $100,000) and
(iv) the indebtedness listed on Schedule 2.1(1) hereto).
3.15 No Liens. Neither Borrower nor Guarantor shall create, incur, assume
or suffer to exist any lien, security interest, security title, mortgage, deed
of trust or other encumbrance upon or with respect to any of its properties, now
owned or hereafter acquired, except:
a. liens in favor of Lender;
b. liens for taxes or assessments or other governmental charges or
levies if not yet due and payable;
c. liens in connection with the leasing of equipment in favor of the
lessor of such equipment;
d. purchase money security interest for specific equipment in favor of
the seller of such equipment; and
e. liens described on Schedule 2.1(1) hereto.
3.16 Mergers, Consolidations, Acquisitions and Sales. Without the prior
written consent of Lender, neither Borrower nor Guarantor shall (a) be a party
to any merger, consolidation or corporate reorganization, nor (b) purchase or
otherwise acquire all or substantially all of the assets or stock of, or any
partnership or joint venture interest in, any other person, firm or entity, nor
(c) sell, transfer, convey, grant a security interest in or lease all or any
substantial part of its assets, nor (d) create any Subsidiaries nor convey any
of its assets to any Subsidiary.
3.17 Transactions With Affiliates. Except as described on Schedule 2.1(o)
hereof, Borrower shall not enter into any transaction, including, without
limitation, the purchase, sale or exchange of property or the rendering of any
service, with any affiliate, except in the ordinary course of and pursuant to
the reasonable requirements of Borrower's business and upon fair and reasonable
terms approximately no less favorable to Borrower than Borrower would obtain in
a comparable arm's length transaction with a person not an affiliate. For the
purposes of this Section 3.17, "affiliate" shall mean a person, corporation,
partnership or other entity controlling, controlled by or under common control
with Borrower.
3.18 Environment. Borrower shall comply with all applicable provisions of
all applicable federal, state and local environmental, health, and safety laws,
codes and ordinances, and all rules and regulations issued thereunder; notify
Lender immediately of the receipt of any written notice of a hazardous discharge
or environmental complaint received from any governmental agency or any other
party; notify Lender immediately of any hazardous discharge from or affecting
Borrower's premises; contain and remove the same, in compliance with all
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applicable laws as quickly as practicable; promptly pay any fine or penalty
assessed in connection therewith (provided that Borrower may in good faith
contest any such fine or penalty); and following the receipt of any notice of
hazardous discharge or environmental complaint from any governmental authority
permit Lender to inspect the premises, to conduct tests thereon, and to inspect
all books, correspondence, and records pertaining thereto, and at Lender's
reasonable request, and at Borrower's expense, provide a report of a qualified
environmental engineer, satisfactory in scope, form, and content to Lender, and
such other and further assurances reasonably satisfactory to Lender that the
condition has been corrected.
ARTICLE 4
CONDITIONS TO CLOSING
4.1 Closing of the Loan. The obligation of Lender to fund the Loan on the
date hereof (the "Closing Date") is subject to the fulfillment, on or prior to
the Closing Date, of each of the following conditions:
(a) Borrower shall have performed and complied in all material
respects with all of the covenants, agreements, obligations and conditions
required by this Agreement.
(b) Lender shall have received an opinion of counsel for Borrower and
Guarantor, Pitney, Xxxxxx, Xxxx & Xxxxx, dated the Closing Date, in form
and substance satisfactory to Lender's counsel, Xxxxxxxxx & Xxxxxx.
(c) Borrower shall have delivered to Lender the Note executed by
Borrower.
(d) Lender shall have received a Stock Purchase Warrant and a Warrant
Valuation Letter both executed by Guarantor, all in form acceptable to
Lender.
(e) Borrower shall have delivered to Lender a Security Agreement
executed by Borrower (in form acceptable to Lender) and related UCC-1
Financing Statement(s) (in form acceptable to Lender) executed by Borrower.
(f) Borrower shall have delivered to Lender the Small Business
Administration Forms 480, 652 and 1031 (Part A) completed by Borrower.
(g) Borrower shall have delivered to Lender a Small Business
Administration Economic Impact Assessment completed by Borrower, in a form
acceptable to Lender.
(h) Lender shall have received copies of the articles of incorporation
and other publicly filed organizational documents of Borrower and
Guarantor, certified by the Secretary of State or other appropriate public
official in the jurisdictions in which Borrower and Guarantor are
incorporated.
12
(i) Lender shall have received certified (as of the date of this
Agreement) copies of all corporate action taken by Borrower and Guarantor,
including resolutions of their Board of Directors, authorizing the
execution, delivery and performance of the Loan Documents.
(j) Lender shall have received a certificate as to the legal existence
and good standing of Borrower and Guarantor, issued by the Secretary of
State or other appropriate public official in the jurisdictions in which
Borrower and Guarantor are incorporated.
(k) Lender shall have received certificates of the Secretaries of
State or other appropriate public officials as to Borrower's and
Guarantor's qualifications to do business and good standings in each
jurisdiction in which a failure to be so qualified would have a material
adverse effect on their financial positions or their ability to conduct
their business in the manner now conducted.
(1) Lender shall have received an Intercreditor Estoppel Agreement
executed by Bank One, Chicago, N.A. and Borrower.
(m) Lender shall have received a Guaranty Agreement executed by
Guarantor, in form acceptable to Lender.
(n) Lender shall have received the written consent and waivers of
Guarantor's shareholder's to the extent necessary for the execution of the
Loan Documents by Borrower and/or Guarantor (as applicable) (including
without limitation the stock purchase warrant issued by Guarantor in favor
of Lender) and the performance by Borrower and/or Guarantor (as applicable)
of the obligations thereunder.
ARTICLE 5
DEFAULT AND REMEDIES
5.1 Events of Default. The occurrence of any of the following shall
constitute an Event of Default hereunder:
(a) Default by Borrower in the payment of the principal of or interest
on the indebtedness evidenced by the Note in accordance with the terms of
the Note, which default is not cured within five (5) business days;
(b) Any misrepresentation by Borrower as to any material matter
hereunder or under any of the other Loan Documents, or delivery by Borrower
of any schedule, statement, resolution, report, certificate, notice or
writing to Lender that is untrue in any material respect on the date as of
which the facts set forth therein are stated or certified;
13
(c) Failure of Borrower to perform any of its obligations, covenants
or agreements under this Agreement, the Note or any of the other Loan
Documents or failure of Borrower to cause Guarantor to perform any
covenants under this Agreement or any of the other Loan Documents;
(d) Either Borrower or Guarantor (i) shall generally not pay its debts
as such debts become due; or (ii) shall make an assignment for the benefit
of creditors or petition or apply to any tribunal for the appointment of a
custodian, receiver or trustee for it or a substantial part of its assets;
or (iii) shall commence any proceeding under any bankruptcy,
reorganization, arrangement, readjustment of debt, dissolution or
liquidation law or statute of any jurisdiction, whether now or hereafter in
effect; or (iv) shall have had any such petition or application filed or
any such proceeding commenced against it in which an order for relief is
entered or an adjudication or appointment is made; or (v) shall indicate,
in writing or by failing to respond in writing within sixty (60) days, its
consent to, approval of or acquiescence in any such petition, application,
proceeding or order for relief or the appointment of a custodian, receiver
or trustee for it or a substantial part of its assets; or (vi) shall suffer
any such custodianship, receivership or trusteeship to continue
undischarged for a period of sixty (60) days or more;
(e) Either Borrower or Guarantor shall be liquidated, dissolved,
partitioned or terminated, or the charter thereof shall expire or be
revoked;
(f) A default or event of default shall occur under any of the other
Loan Documents and, if subject to a cure right, such default or event of
default shall not be cured within the applicable cure period;
(g) Either Borrower or Guarantor shall default in the timely payment
or performance of any obligation now or hereafter owed to Lender in
connection with any other indebtedness of Borrower or Guarantor now or
hereafter owed to Lender taking into account any grace period provided for
such obligation; or
(h) Either Borrower or Guarantor shall have defaulted and continue to
be in default in the timely payment or performance of any other
indebtedness or obligation, which in the aggregate exceeds One Hundred
Thousand and No/l00ths Dollars ($100,000.00) or materially adversely
affects Borrower's or Guarantor's financial condition.
With respect to any Event of Default described above that is capable of
being cured and that does not already provide its own cure procedure (a "Curable
Default"), the occurrence of such Curable Default shall not constitute an Event
of Default hereunder if such Curable Default is fully cured and/or corrected
within thirty (30) days (ten (10) days, if such Curable Default may be cured
solely by payment of a sum of money) of notice thereof to Borrower given in
accordance with the provisions hereof; provided, however, that this provision
shall not require notice to Borrower and an opportunity to cure any Curable
Default of which Borrower has had actual knowledge for the requisite number of
days set forth in this sentence.
14
5.2 Acceleration of Maturity; Remedies. If Borrower or Guarantor receives
any notice or request from the holders of a majority of the outstanding shares
of Guarantor's Series A Preferred Stock, or the holders of a majority of the
outstanding shares of Guarantor's Series B Preferred Stock, pursuant to which
the notifying shareholder(s) exercise any redemption rights in accordance with
Article 4 of Guarantor's Articles of Incorporation, Lender may immediately
accelerate the indebtedness evidenced by the Note as well as any and all other
indebtedness of Borrower to Lender under the Loan Documents, and upon such
acceleration such indebtedness shall be immediately due and payable in full.
Upon the occurrence of any Event of Default described in subsection 5.1(d), the
indebtedness evidenced by the Note as well as any and all other indebtedness of
Borrower to Lender under the Loan Documents shall be immediately due and payable
in full; and upon the occurrence of any other Event of Default described above,
Lender at any time thereafter may at its option accelerate the maturity of the
indebtedness evidenced by the Note as well as any and all other indebtedness of
Borrower to Lender under the Loan Documents; all without notice of any kind.
Upon the occurrence of any such Event of Default and the acceleration of the
maturity of the indebtedness evidenced by the Note:
(a) Lender shall be immediately entitled to exercise any and all
rights and remedies possessed by Lender pursuant to the terms of the Note
and all of the other Loan Documents; and
(b) Lender shall have any and all other rights and remedies that
Lender may now or hereafter possess at law, in equity or by statute.
5.3 Remedies Cumulative; No Waiver. No right, power or remedy conferred
upon or reserved to Lender by this Agreement or any of the other Loan Documents
is intended to be exclusive of any other right, power or remedy, but each and
every such right, power and remedy shall be cumulative and concurrent and shall
be in addition to any other right, power and remedy given hereunder, under any
of the other Loan Documents or now or hereafter existing at law, in equity or by
statute. No delay or omission by Lender to exercise any right, power or remedy
accruing upon the occurrence of any Event of Default shall exhaust or impair any
such right, power or remedy or shall be construed to be a waiver of any such
Event of Default or an acquiescence therein, and every right, power and remedy
given by this Agreement and the other Loan Documents to Lender may be exercised
from time to time and as often as may be deemed expedient by Lender.
5.4 Proceeds of Remedies. Any or all proceeds resulting from the exercise
of any or all of the foregoing remedies shall be applied as set forth in the
Loan Document(s) providing the remedy or remedies exercised; if none is
specified, or if the remedy is provided by this Agreement, then as follows:
First, to the costs and expenses, including, without limitation,
reasonable attorney's fees incurred by Lender in connection with the
exercise of its remedies;
Second, to the expenses of curing the default that has occurred, in
the event that Lender elects, in its sole discretion, to cure the default
that has occurred;
15
Third, to the payment of the obligations of Borrower under the Loan
Documents (the "Obligations"), including but not limited to the payment of
the principal of and interest on the indebtedness evidenced by the Note, in
such order of priority as Lender shall determine in its sole discretion;
and
Fourth, the remainder, if any, to Borrower or to any other person
lawfully thereunto entitled.
ARTICLE 6
TERMINATION
6.1 Termination of this Agreement. This Agreement shall remain in full
force and effect until the payment by Borrower of all amounts owed to Lender
hereunder, at which time Lender shall cancel the Note and deliver it to
Borrower.
ARTICLE 7
MISCELLANOUS
7.1 Performance By Lender. If Borrower shall default in the payment,
performance or observance of any covenant, term or condition of this Agreement,
which default is not cured within the applicable cure period, then Lender may,
at its option, pay, perform or observe the same, and all payments made or costs
or expenses incurred by Lender in connection therewith (including but not
limited to reasonable attorney's fees), with interest thereon at the highest
default rate provided in the Note (if none, then at the maximum rate from time
to time allowed by applicable law), shall be immediately repaid to Lender by
Borrower and shall constitute a part of the Obligations. Lender shall be the
sole judge of the reasonableness and necessity for any such actions and of the
amounts to be paid.
7.2 Successors and Assigns Included in Parties. Whenever in this Agreement
one of the parties hereto is named or referred to, legal representatives,
successors, successors-in-title and assigns of such parties shall be included,
and all covenants and agreements contained in this Agreement by or on behalf of
Borrower or by or on behalf of Lender shall bind and inure to the benefit of
their respective legal representatives, successors-in-title and assigns, whether
so expressed or not.
7.3 Costs and Expenses. Borrower agrees to pay all reasonable costs and
expenses incurred by Lender in connection with the making of the Loan, including
but not limited to filing fees, recording taxes, indebtedness taxes, and
reasonable attorneys' fees, promptly upon demand of Lender; provided that legal
fees of Lender's counsel exclusive of any out-of-pocket costs or expenses shall
not exceed $15,000. Borrower further agrees to pay all premiums for insurance
required to be maintained by Borrower pursuant to the terms of the Loan
Documents and all of the reasonable out-of-pocket costs and expenses incurred by
Lender in connection with the collection of the Loan, amendment to the Loan
Documents, or prepayment of the Loan,
16
including but not limited to reasonable attorneys' fees, promptly upon demand of
Lender; provided, however, that any amendment to the Loan Documents made
necessary solely because of a ministerial decision on the part of Lender (by way
of example, and not limitation, a name change or an address change of Lender)
shall be effected at Lender's expense, excluding any fees or expenses of
Borrower, Guarantor or counsel for Borrower or Guarantor.
7.4 Assignment. The Note, this Agreement and the other Loan Documents may
be endorsed, assigned and/or transferred in whole or in part by Lender, and any
such holder and/or assignee of the same shall succeed to and be possessed of the
rights and powers of Lender under all of the same to the extent transferred and
assigned; provided, however, that, prior to an Event of Default, Lender may not
transfer or assign any of the Loan Documents to a retailer in the social
expressions business, or to a lender or significant equity owner of any such
retailer, without the prior written consent of Borrower. Lender may grant
participations in all or any portion of its interest in the indebtedness
evidenced by the Note, and in such event Borrower shall continue to make
payments due under the Loan Documents to Lender and Lender shall have the sole
responsibility of allocating and forwarding such payments in the appropriate
manner and amounts, and the sole right to exercise the audit and inspection
rights under Section 3.3 hereof. Borrower shall not assign any of its rights nor
delegate any of its duties hereunder or under any of the other Loan Documents
without the prior express written consent of Lender.
7.5 Time of the Essence. Time is of the essence with respect to each and
every covenant, agreement and obligation of Borrower hereunder and under all of
the other Loan Documents.
7.6 Severability. If any provision(s) of this Agreement or the application
thereof to any person or circumstance shall be invalid or unenforceable to any
extent, the remainder of this Agreement and the application of such provisions
to other persons or circumstances shall not be affected thereby and shall be
enforced to the greatest extent permitted by law.
7.7 Interest and Loan Charges Not to Exceed Maximum Allowed by Law.
Anything in this Agreement, the Note or any of the other Loan Documents to the
contrary notwithstanding, in no event whatsoever, whether by reason of
advancement of proceeds of the Loan, acceleration of the maturity of the unpaid
balance of the Loan or otherwise, shall the interest and loan charges agreed to
be paid to Lender for the use of the money advanced or to be advanced hereunder
exceed the maximum amounts collectible under applicable laws in effect from time
to time. It is understood and agreed by the parties that, if for any reason
whatsoever the interest or loan charges paid or contracted to be paid by
Borrower in respect of the indebtedness evidenced by the Note shall exceed the
maximum amounts collectible under applicable laws in effect from time to time,
then ipso facto, the obligation to pay such interest and/or loan charges shall
be reduced to the maximum amounts collectible under applicable laws in effect
from time to time, and any amounts collected by Lender that exceed such maximum
amounts shall be applied to the reduction of the principal balance of the
indebtedness evidenced by the Note and/or refunded to Borrower so that at no
time shall the interest or loan charges paid or payable in respect of the
indebtedness evidenced by the Note exceed the maximum amounts permitted from
time to time by applicable law.
17
7.8 Article and Section Headings: Defined Terms. Numbered and titled
article and section headings and defined terms are for convenience only and
shall not be construed as amplifying or limiting any of the provisions of this
Agreement.
7.9 Notices. Any and all notices, elections or demands permitted or
required to be made under this Agreement or any of the Loan Documents shall be
in writing, signed by the party giving such notice, election or demand and shall
be delivered personally, telecopied, telexed, or sent by certified mail or
overnight via nationally recognized courier service (such as Federal Express),
to the other party at the address set forth below, or at such other address as
may be supplied in writing and of which receipt has been acknowledged in
writing. The date of personal delivery or delivery by such courier service,
telecopy or telex or four (4) business days after the date of mailing, as the
case may be, shall be the date of such notice, election or demand. For the
purposes of this Agreement:
The Address of Lender is: Sirrom Capital Corporation
Xxxxx 000
000 Xxxxxx Xxxxxx
Xxxxxxxxx, XX 00000
Attention: Xxx Xxxxxx
Telecopy: (000) 000-0000
with a copy to: Xxxxxxxxx & Xxxxxx
0000 Xxxxxx Xxxxxxxx
Xxx Xxxxx Xxxxxx
Xxxxxxxxxxx, XX 00000
Attention: J. Xxxxxxx Xxxxxx, Esq.
Telecopy: (000) 000-0000
The Address of Borrower is: Factory Card Outlet of America Ltd.
000 Xxxxxxxx Xxxxx
Xxxxxxxxxxx, XX 00000-0000
Attention: Xxxxxxx X. Xxxxxxx
Telecopy: (000) 000-0000
with copies to: Xxxxxxx X. Xxxxxxx
000 Xxxxxx Xxxxx Xxxx
Xxxxxxx, XX 00000
Telecopy: (000) 000-0000
18
and
Pitney, Xxxxxx, Xxxx & Xxxxx
000 Xxxxxx Xxxxx
Xxxxxxx Xxxx, XX 00000
Attention: Xxxxxx Xxxxx, Esq.
Telecopy: (000) 000-0000
7.10 Entire Agreement. This Agreement and the other written agreements
between Borrower and Lender represent the entire agreement between the parties
concerning the subject matter hereof, and all oral discussions and prior
agreements are merged herein; provided, if there is a conflict between this
Agreement and any other document executed contemporaneously herewith with
respect to the Obligations, the provision of this Agreement shall control. The
execution and delivery of this Agreement and the other Loan Documents by the
Borrower were not based upon any fact or material provided by Lender, nor was
the Borrower induced or influenced to enter into this Agreement or the other
Loan Documents by any representation, statement, analysis or promise by Lender.
7.11 Governing Law and Amendments. This Agreement and all of the Loan
Documents shall be construed and enforced under the laws of the State of
Tennessee applicable to contracts to be wholly performed in such State except to
the extent certain rights and privileges may be granted Lender under applicable
federal laws in which event federal law shall control. No amendment or
modification hereof shall be effective except in a writing executed by each of
the parties hereto.
7.12 Survival of Representations and Warranties. All covenants,
representations and warranties contained herein or in any of the Loan Documents,
or made by or furnished on behalf of the Borrower in connection herewith or any
of the Loan Documents, shall survive the execution and delivery of this
Agreement and all other Loan Documents and shall continue in full force and
effect so long as the Obligations are unpaid.
7.13 Jurisdiction and Venue. Borrower hereby consents to the jurisdiction
of the courts of the State of Tennessee and the United States District Court for
the Middle District of Tennessee, as well as to the jurisdiction of all courts
from which an appeal may be taken from such courts, for the purpose of any suit,
action or other proceeding arising out of any of its obligations arising under
this Agreement or any other Loan Documents or with respect to the transactions
contemplated hereby, and expressly waives any and all objections it may have as
to venue in any of such court.
19
7.14 Waiver of Trial by Jury. LENDER AND BORROWER HEREBY WAIVE TRIAL BY
JURY IN ANY ACTIONS, PROCEEDINGS, CLAIMS OR COUNTER-CLAIMS, WHETHER IN CONTRACT
OR TORT, AT LAW OR IN EQUITY, ARISING OUT OF OR IN ANY WAY RELATING TO THIS
AGREEMENT OR THE LOAN DOCUMENTS.
7.15 Counterparts. This Agreement may be executed in any number of
counterparts and by different parties to this Agreement in separate
counterparts, each of which when so executed shall be deemed to be an original
and all of which taken together shall constitute one and the same Agreement.
7.16 Construction and Interpretation. Should any provision of this
Agreement require judicial interpretation, the parties hereto agree that the
court interpreting or construing the same shall not apply a presumption that the
terms hereof shall be more strictly construed against one party by reason of the
rule of construction that a document is to be more strictly construed against
the party that itself or through its agent prepared the same, it being agreed
that the Borrower, Lender and their respective agents have participated in the
preparation hereof.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement, or
have caused this Agreement to be executed by their duly authorized officers, as
of the day and year first above written.
LENDER:
-------
SIRROM CAPITAL CORPORATION, a Tennessee
corporation
By: /s/ Xxx Xxxxxx
------------------------------------
Title: Vice President
---------------------------------
BORROWER:
---------
FACTORY CARD OUTLET OF AMERICA LTD.,
an Illinois corporation
By: /s/ X.X. Xxxxxxx
------------------------------------
Title: President
---------------------------------
ACKNOWLEDGED AND AGREED TO:
FCOA ACQUISITION CORP., a
Delaware corporation
By: /s/ Xxxxxxx X. Xxxxxxx
---------------------------------
Title: Chairman, CEO
------------------------------
20
Index of Schedules and Attachments
Exhibit A - Form of Note
Schedule 2.1(a) - Foreign Qualification
Schedule 2.1(e) - Options, Warrants, Stock Rights, Etc.
Schedule 2.1(f) - Trademarks, Patents, Etc.
Schedule 2.1(i)(A) and (B) - Financial Statements
Schedule 2.1(1) - Debt and Liens
Schedule 2.1(o) - Shareholder Transactions
Schedule 2.1(r) - Significant Contracts
21
EXHIBIT A
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR ANY STATE SECURITIES LAWS. IT HAS BEEN ACQUIRED FOR INVESTMENT PURPOSES ONLY,
WITHOUT A VIEW TO RESALE OR DISTRIBUTION AND MAY NOT BE PLEDGED, HYPOTHECATED,
SOLD, MADE SUBJECT TO A SECURITY INTEREST, OR OTHERWISE TRANSFERRED WITHOUT AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 AND APPLICABLE
STATE SECURITIES LAWS OR AN OPINION OF COUNSEL SATISFACTORY TO MAKER THAT
REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE
SECURITIES LAWS.
SECURED PROMISSORY NOTE
$4,000,000 November ___, 1995
FOR VALUE RECEIVED, the undersigned, FACTORY CARD OUTLET OF AMERICA LTD.,
an Illinois corporation ("Maker"), promises to pay to the order of SIRROM
CAPITAL CORPORATION, a Tennessee corporation ("Payee"; Payee and any subsequent
holder[s] hereof are hereinafter referred to collectively as "Holder"), at the
office of Payee at First American Trust Company, Custody Department, 000 Xxxxx
Xxxxxxxx Xxxxxx, Xxxxxxxxx, Xxxxxxxxx 00000, Attn: Xxxx Xxxxxxx, or at such
other place as Holder may designate to Maker in writing from time to time, the
principal sum of FOUR MILLION AND NO/l00THS DOLLARS ($4,000,000.00), together
with interest on the outstanding principal balance hereof from the date hereof
at the rate of twelve and one-half percent (12.5%) per annum (computed on the
basis of a 360-day year); provided, however, that Holder may charge and receive
interest upon any renewal or extension hereof at the greater of (i) the rate set
out above, or (ii) any rate agreed to by the undersigned that is not in excess
of the maximum rate of interest allowed to be charged under applicable law (the
"Maximum Rate") at the time of such renewal or extension.
Interest only on the outstanding principal balance hereof shall be due and
payable monthly, in arrears, with the first installment being payable on the
first (1st) day of January, 1996, and subsequent installments being payable on
the first (1st) day of each succeeding month thereafter until November __, 2000
(the "Maturity Date"), at which time the entire outstanding principal balance,
together with all accrued and unpaid interest, shall be immediately due and
payable in full; provided, however, that each interest payment prior to May 1,
1997 shall be payable only at a rate of seven and one-half percent (7.5%) per
annum with the remaining five percent (5%) per annum interest due hereunder
accruing from the date hereof until May 1, 1997 at which time all accrued and
unpaid interest shall be due and payable.
The indebtedness evidenced hereby may be prepaid in whole or in part, at
any time and from time to time, without penalty. Any such prepayments shall be
credited first to any accrued and unpaid interest and then to the outstanding
principal balance hereof.
Time is of the essence of this Note. It is hereby expressly agreed that in
the event that any default be made in the payment of principal or interest as
stipulated above, which default is not cured within five (5) business days; or
in the event that any default or event of default shall occur under that certain
Loan Agreement of even date herewith, between Maker and Payee (as may be amended
from time to time, the "Loan Agreement"), which default or event of default is
not cured following the giving of any applicable notice and within any
applicable cure period set forth in said Loan Agreement; or should any default
by Maker be made in the performance or observance of any covenants or conditions
contained in any other instrument or document now or hereafter evidencing, or
securing or otherwise relating to the indebtedness evidenced hereby (subject to
any applicable notice and cure period provisions that may be set forth therein);
then, and in such event, the entire outstanding principal balance of the
indebtedness evidenced hereby, together with any other sums advanced hereunder,
under the Loan Agreement and/or under any other instrument or document now or
hereafter evidencing, or securing the indebtedness evidenced hereby, together
with all unpaid interest accrued thereon, shall, at the option of Holder and
without notice to Maker, at once become due and payable and may be collected
forthwith, regardless of the stipulated date of maturity. Upon the occurrence of
any Event of Default (as defined in the Loan Agreement), at the option of Holder
and without notice to Maker, all accrued and unpaid interest, if any, shall be
added to the outstanding principal balance hereof, and the entire outstanding
principal balance, as so adjusted, shall bear interest thereafter until paid at
an annual rate (the "Default Rate") equal to the lesser of (i) the rate that is
seven percentage points (7.0%) in excess of the above-specified interest rate,
or (ii) the Maximum Rate in effect from time to time, regardless of whether or
not there has been an acceleration of the payment of principal as set forth
herein. All such interest shall be paid at the time of and as a condition
precedent to the curing of any such default.
In the event this Note is placed in the hands of an attorney for
collection, or if Holder incurs any costs incident to the collection of the
indebtedness evidenced hereby, Maker and any indorsers hereof agree to pay to
Holder an amount equal to all such costs, including without limitation all
actual reasonable attorney's fees and all court costs.
Presentment for payment, demand, protest and notice of demand, protest and
nonpayment are hereby waived by Maker and all other parties hereto. No failure
to accelerate the indebtedness evidenced hereby by reason of default hereunder,
acceptance of a past-due installment or other indulgences granted from time to
time, shall be construed as a novation of this Note or as a waiver of such right
of acceleration or of the right of Holder thereafter to insist upon strict
compliance with the terms of this Note or to prevent the exercise of such right
of acceleration or any other right granted hereunder or by applicable laws. No
extension of the time for payment of the indebtedness evidenced hereby or any
installment due hereunder, made by agreement with any person now or hereafter
liable for
2
payment of the indebtedness evidenced hereby, shall operate to release,
discharge, modify, change or affect the original liability of Maker hereunder or
that of any other person now or hereafter liable for payment of the indebtedness
evidenced hereby, either in whole or in part, unless Holder agrees otherwise in
writing. This Note may not be changed orally, but only by an agreement in
writing signed by the party against whom enforcement of any waiver, change,
modification or discharge is sought.
The indebtedness and other obligations evidenced by this Note are further
evidenced by (i) the Loan Agreement and (ii) certain other instruments and
documents, as may be required to protect and preserve the rights of Maker and
Payee as more specifically described in the Loan Agreement.
All agreements herein made are expressly limited so that in no event
whatsoever, whether by reason of advancement of proceeds hereof, acceleration of
maturity of the unpaid balance hereof or otherwise, shall the amount paid or
agreed to be paid to Holder for the use of the money advanced or to be advanced
hereunder exceed the Maximum Rate. If, from any circumstances whatsoever, the
fulfillment of any provision of this Note or any other agreement or instrument
now or hereafter evidencing, securing or in any way relating to the indebtedness
evidenced hereby shall involve the payment of interest in excess of the Maximum
Rate, then, ipso facto, the obligation to pay interest hereunder shall be
reduced to the Maximum Rate; and if from any circumstance whatsoever, Holder
shall ever receive interest, the amount of which would exceed the amount
collectible at the Maximum Rate, such amount as would be excessive interest
shall be applied to the reduction of the principal balance remaining unpaid
hereunder and not to the payment of interest. This provision shall control every
other provision in any and all other agreements and instruments existing or
hereafter arising between Maker and Holder with respect to the indebtedness
evidenced hereby.
This Note is intended as a contract under and shall be construed and
enforceable in accordance with the laws of the State of Tennessee, except to the
extent that federal law may be applicable to the determination of the Maximum
Rate.
As used herein, the terms "Maker" and "Holder" shall be deemed to include
their respective successors, legal representatives and assigns, whether by
voluntary action of the parties or by operation of law.
MAKER:
------
FACTORY CARD OUTLET OF AMERICA
LTD., an Illinois corporation
By:_____________________________
Title:__________________________
3
SCHEDULE 2.1 (a) TO LOAN AGREEMENT
Foreign Qualifications
Borrower's qualification to do business as a foreign corporation has been
revoked in the States of Indiana, Wisconsin, Iowa, Nebraska, Minnesota and North
Dakota. In each case the revocation was the result of an administrative error,
such as Borrower's failure to file annual reports, and in each case Borrower has
been in contact with the appropriate state authorities to determine how to
reinstate Borrower as a foreign corporation in good standing.
SCHEDULE 2.1(e) TO LOAN AGREEMENT
Capitalization
1. Borrower - none.
2. Guarantor - see attached capitalization table as of
November 3, 1995.
FCOA ACQUISITION CORP.
Summary of Fully Diluted Capital Structure
Number of Shares (a/o Nov. 3, 1995)
(1) (2) (3) (4) (5) (6) (7)
Series A Series B
Convertible Convertible
Preferred Preferred
Series A Series B Stock Stock Common* Common**
Convertible Convertible Common Common Stock Stock
Preferred Preferred Stock Stock Common Subordinated Options
Stock Stock Equivalents Equivalents Stock Debt Series I
------------------------------------------------------------------------------------------------------------------------------------
Brothers Investment Partnership 9,000 268 90,000 2,680 130,000 3,000
Jasmine Trustees Limited 5,001 50,010 10,000 7,500
Xxxxxx X. Xx-Xxxxxxx 1,000 267 10,000 2,670 40,000 3,000
Xxxxxxx X. Xxxxxxx 1,000 10,000 10,000 20,000#
Revocable Living Trust of X. Xxxxxx 1,834 18,340 12,500
Xxxxx
Xxxxxx X. Xxxxx, Xx. 20,000#
The Card Mart 16,000
Xxxxxxx X. Xxxxx 1,165 116,650
Xxxxx Xxxx Xx-Xxxxxx 1,000 10,000
Construction Counselors, Inc. 10,000
Estate of Xxxxxxx Xxxx 1,500
Allstate 18,716 187,160
Bessemer Ventre Partners FCOA 8,021 80,210
Xxxxxxxx Xx-Xxxxxx 3,208 32,080
Xxxxx Xx-Xxxxxxx 267 2,670
Xxxxx Xxxxxx 267 2,670
Xxxxx Xxxxx 100 1,000
Xxxxxx Xxxxxx 100 1,000
Xxxx X. Xxxxxxx 5,000
Xxxxx X. Xxxxxx 7,500
Xxxxxxx Xxxxxx
Xxxxxx Xxxxxxxxx
Xxxxxxxx Xxxxx
Xxxx X. Xxxxxx
Xxxxxxx X. Xxxxx
Xxxxxxx X. Xxxxxxxx
Xxxxx X. Xxxxxx
Xxxxxx X. Xxxxx
Xxxxxxx Xxxxxxx
Xxxxxx Matjek
D. Xxxxxxx Xxxxxxxxx
Xxxxxx Xxxxxx
Xxxxx Xxxxxxxxxx
Xxxxxxx Xxxxx
Xxxxx Xxxxxxx
Xxxxxx Xxxxx
Xxxxxx Xxxx
Xxxx Xxxxxxxx
(8) (9) (10) (11) (12)
Conversion@
of
Common Subordinated
Stock in Debt
Common** Common*** Lieu of to
Stock Stock Interest on Series B Columns
Options Options Bridge Pref. Stock (3)-11)
Series II ISO Loan CSE Total
-----------------------------------------------------------------------------------------------------------
Brothers Investment Partnership 1,500 2,670 229,850
Jasmine Trustees Limited 6,680 74,190
Xxxxxx X. Xx-Xxxxxxx 2,670 58,340
Xxxxxxx X. Xxxxxxx 40,000
Revocable Living Trust of X. Xxxxxx 4,000 7,000 41,840
Xxxxx
Xxxxxx X. Xxxxx, Xx. 20,000
The Card Mart 16,000
Xxxxxxx X. Xxxxx 11,650
Xxxxx Xxxx Xx-Xxxxxx 10,000
Construction Counselors, Inc. 10,000
Estate of Xxxxxxx Xxxx 1,500
Allstate 187,160
Bessemer Ventre Partners FCOA 80,210
Xxxxxxxx Xx-Xxxxxx 32,080
Xxxxx Xx-Xxxxxxx 3,670
Xxxxx Xxxxxx 2,670
Xxxxx Xxxxx 1,000
Xxxxxx Xxxxxx 1,000
Xxxx X. Xxxxxxx 4,000 4,000 13,000
Xxxxx X. Xxxxxx 1,000 500 9,000
Xxxxxxx Xxxxxx 5,000 4,000 9,000
Xxxxxx Xxxxxxxxx 3,000 2,000 5,000
Xxxxxxxx Xxxxx 1,000 - 1,000
Xxxx X. Xxxxxx 2,000 1,000 3,000
Xxxxxxx X. Xxxxx 1,500 1,000 2,500
Xxxxxxx X. Xxxxxxxx 1,000 500 1,500
Xxxxx X. Xxxxxx 500 500 1,000
Xxxxxx X. Xxxxx 500 500 1,000
Xxxxxxx Xxxxxxx 35,000 35,000
Xxxxxx Matjek 2,000 2,000
D. Xxxxxxx Xxxxxxxxx 2,000 2,000
Xxxxxx Xxxxxx 5,000 5,000
Xxxxx Xxxxxxxxxx 1,000 1,000
Xxxxxxx Xxxxx 1,000 1,000
Xxxxx Xxxxxxx 1,000 1,000
Xxxxxx Xxxxx 1,000 1,000
Xxxxxx Xxxx 1,000 1,000
Xxxx Xxxxxxxx 1,000 1,000
(1) (2) (3) (4) (5) (6) (7)
Series A Series B
Convertible Convertible
Preferred Preferred
Series A Series B Stock Stock Common* Common**
Convertible Convertible Common Common Stock Stock
Preferred Preferred Stock Stock Common Subordinated Options
Stock Stock Equivalents Equivalents Stock Debt Series I
------------------------------------------------------------------------------------------------------------------------------------
Xxxx Xxxxxxxx
Xxxxx Xxxxxxx
Xxxxx X. Xxxxxx
Xxxxxx Xxxxxxxxx
Xxxxxxx Xxxxxxxxx
Xxxxxxx Xxxxx
Xxxxx Xxxx
------ ------ ------- ------- ------- ------ ------
Total Issued and Outstanding 20,000 31,214 200,000 312,140 216,000 15,000 65,000
------ ------ ------- ------- ------- ------ ------
(8) (9) (10) (11)
Conversion@
of
Common Subordinated
Stock in Debt
Common** Common*** Lieu of to
Stock Stock Interest on Series B Columns
Options Options Bridge Pref. Stock (3)-11)
Series II ISO Loan CSE Total
-----------------------------------------------------------------------------------------------------------
Xxxx Xxxxxxxx 1,000 1,000
Xxxxx Xxxxxxx 1,000 1,000
Xxxxx X. Xxxxxx 500 500
Xxxxxx Xxxxxxxxx 2,500 2,500
Xxxxxxx Xxxxxxxxx 500 500
Xxxxxxx Xxxxx 500 500
Xxxxx Xxxx 500 500
------ ------ ----- ------ -------
Total Issued and Outstanding 26,000 75,000 1,500 12,020 922,660
------ ------ ----- ------ -------
* Adjusted to reflect extension of the subordinated debt maturity date to
June 30, 1994
** Original Management and Sponsor Stock Option Plans
*** Revised Management Stock Option Plan
@ Conversion of $450,000 of the $500,000 of Subordinated Debt at CSE per
share price of $37.40
# Sponsor
SCHEDULE 2.1(f) TO LOAN AGREEMENT
Intellectual Property
1. Patents - none.
2. Trademarks, Trade Names, Registrations, etc.:
PARTY MANIA - Registration Numbers 1,834,212 (logo)
and 1,834,213 (name), dated May 3, 1994.
FACTORY CARD OUTLET - Registration applied for with
the U.S.P.T.O. on May 9, 1994.
3. Copyrights - none.
4. Licenses - none.
5. Formulas - none.
SCHEDULE 2.1(i) TO LOAN AGREEMENT
Financial Statements
See attached consolidated financial statements of Borrower and Guarantor as
of July 1, 1995.
[LOGO] KPMG
FCOA ACQUISITION CORP.
AND SUBSIDIARIES
Consolidated Financial Statements and Schedules
July 1, 1995 and June 30, 1994
(With Independent Auditors' Report Thereon)
FCOA ACQUISITION CORP.
AND SUBSIDIARIES
TABLE OF CONTENTS
================================================================================
Page(s)
-------
Independent Auditors' Report ............................. 1
Financial Statements:
Consolidated Balance Sheets ........................... 2
Consolidated Statements of Income ..................... 3
Consolidated Statements of Stockholders' Equity ....... 4
Consolidated Statements of Cash Flows ................. 5
Notes to Consolidated Financial Statements ............... 6-16
Schedule
--------
Consolidating Schedule - Balance Sheet Information as
of July 1, 1995 ....................................... 1 17
Consolidating Schedule - Income and Expense
Information for the year ended July 1, 1995 ........... 2 18
Schedule of Historical Income and Expense Information
for the years ended July 1, 1995 and June 30, 1994,
1993, 1992, and 1991 .................................. 3 19
[LOGO] KPMG Peat Marwick LLP
Peat Marwick Plaza
000 Xxxx Xxxxxx Xxxxx
Xxxxxxx, XX 0X000-0000
Independent Auditors' Report
The Board of Directors
FCOA Acquisition Corp.:
We have audited the accompanying consolidated balance sheets of FCOA Acquisition
Corp. and subsidiaries as of July 1, 1995 and June 30, 1994, and the related
consolidated statements of income, stockholders' equity, and cash flows for the
years then ended. These consolidated financial statements are the responsibility
of the management of FCOA Acquisition Corp. and subsidiaries. Cur responsibility
is to express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of FCOA Acquisition
Corp. and subsidiaries as of July 1, 1995 and June 30, 1994, and the results of
their operations and their cash flows for the years then ended in conformity
with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the consolidated
financial statements taken as a whole. The consolidating information included in
Schedules 1 and 2 is presented for purposes of additional analysis of the
consolidated financial statements rather than to present the financial position
and results of operations of the individual companies. The historical
information included in Schedule 3 is also presented for purposes of additional
analysis. Such information has been subjected to the auditing procedures applied
in the audits of the consolidated financial statements and, in our opinion, is
fairly stated in all material respects in relation to the consolidated financial
statements taken as a whole.
/s/ KPMG Peat Marwick LLP
September 8, 1995
1
FCOA ACQUISITION CORP.
AND SUBSIDIARIES
Consolidated Balance Sheets
July 1, 1995 and June 30, 1994
================================================================================================
Assets 1995 1994
------------------------------------------------------------------------------------------------
Current assets:
Cash $ 515,212 402,965
Accounts receivable 121,996 170,596
Inventories 25,013,222 15,881,559
Prepaid expenses 388,490 310,223
Deferred income taxes 147,132 90,502
------------------------------------------------------------------------------------------------
Total current assets 26,186,052 16,855,845
Fixtures and equipment at cost, net 10,178,726 4,565,996
Organization costs, less accumulated amortization 6,644 14,130
Other assets 111,114 132,411
Deferred income taxes 318,579 319,943
------------------------------------------------------------------------------------------------
Total assets $ 36,801,115 21,888,325
================================================================================================
Liabilities and Stockholders' Equity
------------------------------------------------------------------------------------------------
Current liabilities:
Current maturities of long-term debt 496,612 705,247
Current portion of capital lease obligations 37,424 21,509
Revolving credit term note payable 5,800,000 4,800,000
Term loan -- 1,500,000
Accounts payable 8,143,660 6,320,433
Income taxes payable 41,699 328,808
Accrued expenses 1,842,098 1,276,055
------------------------------------------------------------------------------------------------
Total current liabilities 16,361,493 14,952,052
Long-term debt 751,661 175,334
Deferred rent liability 2,973,018 2,055,412
Capital lease obligations 74,854 48,970
------------------------------------------------------------------------------------------------
Total liabilities 20,161,026 17,231,768
------------------------------------------------------------------------------------------------
Minority interest in consolidated subsidiary -- 400,000
------------------------------------------------------------------------------------------------
Stockholders' equity:
Preferred stock - Series A convertible, $.01 par value
Authorized, issued, and outstanding 20,000 shares 3,077,248 3,077,248
Preferred stock - Series B convertible, $.01 par value
Authorized, issued, and outstanding 32A16 shares 11,379,258 --
Common stock - no par value. Authorized 1,000,000 shares;
232,500 and 200,000 shares issued and outstanding in 1995
and 1994, respectively 2,636,750 2,000,000
Accumulated deficit (453,167) (820,691)
------------------------------------------------------------------------------------------------
Total stockholders' equity 16,640,089 4,256,557
------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 36,801,115 21,888,325
================================================================================================
See accompanying notes to consolidated financial statements.
2
FCOA ACQUISITION CORP.
AND SUBSIDIARIES
Consolidated Statements of Income
Years ended July 1, 1995 and June 30, 1994
================================================================================
1995 1994
--------------------------------------------------------------------------------
Net sales $63,174,091 37,341,134
Cost of goods sold, including buying
and distribution expenses 32,183,209 18,227,595
--------------------------------------------------------------------------------
Gross profit 30,990,882 19,113,539
--------------------------------------------------------------------------------
Store operating expenses:
Payroll 9,558,322 5,667,597
Occupancy 7,573,442 4,999,463
General operating 7,684,269 4,379,689
--------------------------------------------------------------------------------
Total store operating expenses 24,816,033 15,046,749
Regional administrative expense 1,507,193 460,665
Corporate administrative expense 3,355,077 2,207,048
Distribution center relocation expense 39,438 52,028
--------------------------------------------------------------------------------
Total administrative and relocation expenses 4,901,708 2,719,741
--------------------------------------------------------------------------------
Income from operations 1,273,141 1,347,049
--------------------------------------------------------------------------------
Other expense:
Interest expense, net 411,553 496,929
Amortization of organization costs 7,393 76,578
Miscellaneous 138,009 19,821
--------------------------------------------------------------------------------
Total other expense 556,955 593,328
--------------------------------------------------------------------------------
Income before income taxes 716,186 753,721
--------------------------------------------------------------------------------
Income taxes 348,662 304,616
--------------------------------------------------------------------------------
Net income $ 367,524 449,105
================================================================================
See accompanying notes to consolidated financial statements.
3
FCOA ACQUISITION CORP.
AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
Years ended July 1, 1995 and June 30, 1994
=================================================================================================================
Series A Series B
convertible convertible Total
preferred preferred Common Accumulated stockholders'
stock stock stock deficit equity
-----------------------------------------------------------------------------------------------------------------
Balance at June 30, 1993 $2,823,163 -- 2,000,000 (1,015,711) 3,807,452
Net income -- -- -- 449,105 449,105
Series A convertible
preferred stock
accreted redemption 254,085 -- -- (254,085) --
-----------------------------------------------------------------------------------------------------------------
Balance at June 30, 1994 3,077,248 -- 2,000,000 (820,691) 4,256,557
Net income -- -- -- 367,524 367,524
Issuance of Series B
convertible preferred
stock -- 11,379,258 -- -- 11,379,258
Conversion of subsidiary's
stock to common stock -- -- 400,000 -- 400,000
Common stock issued in
lieu of interest on
debt instrument -- -- 236,750 -- 236,750
-----------------------------------------------------------------------------------------------------------------
Balance at July 1, 1995 $3,077,248 11,379,258 2,636,750 (453,167) 16,640,089
=================================================================================================================
See accompanying notes to consolidated financial statements
4
FCOA ACQUISITION CORP.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended July 1, 1995 and June 30, 1994
================================================================================
1995 1994
--------------------------------------------------------------------------------
Cash flows from operating activities:
Net income $ 367,524 449,105
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization of fixtures
and equipment 1,446,370 808,164
Amortization of organization costs 7,393 76,578
Accrual of stock on subordinated
debentures and bridge loan 11,849 91,568
Deferred rent liability 917,606 609,803
Deferred income taxes (55,266) (131,752)
Change in assets and liabilities:
Decrease (increase) in assets:
Accounts receivable 48,600 136,024
Inventories (9,131,663) (5,132,846)
Prepaid expenses (78,267) (188,547)
Other assets 21,390 (796)
Increase (decrease) in liabilities:
Accounts payable 1,823,227 1,414,275
Accrued expenses 790,944 539,786
Accrued income taxes (287,109) 128,292
--------------------------------------------------------------------------------
Net cash used in operating activities (4,117,402) (1,200,346)
--------------------------------------------------------------------------------
Net cash used in investing activities - purchase
of fixtures and equipment, net (6,867,162) (2,206,028)
--------------------------------------------------------------------------------
Cash flows from financing activities:
Increase in borrowings under revolving
credit term note payable 1,000,000 2,379,980
Proceeds from bridge loan -- 1,500,000
Payment of bridge loan (1,500,000) --
Payments of long-term debt (432,447) (276,230)
Payment of subordinated debentures (450,000) (50,000)
Proceeds from issuance of Series B
convertible preferred stock 11,379,258 --
Proceeds from term loan 1,100,000 --
--------------------------------------------------------------------------------
Net cash provided by financing activities 11,096,811 3,553,750
--------------------------------------------------------------------------------
Net increase in cash 112,247 147,376
Cash at beginning of year 402,965 255,589
--------------------------------------------------------------------------------
Cash at end of year $ 515,212 402,965
================================================================================
See accompanying notes to consolidated financial statements.
5
FCOA ACQUISITION CORP.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
July 1, 1995 and June 30, 1994
================================================================================
(1) Summary of Significant Accounting Policies
(a) Organization and Basis of Presentation
The consolidated financial statements include the accounts of FCOA
Acquisition Corp. (the Company) and its wholly owned subsidiary, Factory
Card Outlet of America, Ltd. (FCO). FCO is in the value segment of the
retail social expressions industry and is engaged in the sale of greeting
cards, party supplies, gift wrap, and other products.
On September 23, 1992, the Company entered into an agreement with The Card
Mart (Card Mart), a company in which a deceased former director of the
Company had a partnership interest, to form FCOA-Baltimore, Inc.
(FCOA-Baltimore). FCOA-Baltimore operated a chain of specialty stores in
the Baltimore-Washington metropolitan area under the name of "Factory Card
Outlet of America" offering a discount price format consistent with the
merchandising, purchasing, systems, and selling practices of the Company.
At June 30, 1994 the Company owned 100% of FCOA-Baltimore's common stock,
while Card Mart owned 100% of FCOA-Baltimore's preferred stock.
In October, 1994, FCOA-Baltimore was merged with and into Factory Card
Outlet of America, Ltd. In connection with the merger, Card Mart, the
holder of all of the FCOA-Baltimore preferred stock, converted all of their
FCOA-Baltimore preferred stock into the Company's common stock. Each share
of FCOA-Baltimore preferred stock was converted into one share of the
Company's common stock.
All intercompany balances have been eliminated in consolidation. Minority
interest in consolidated subsidiary of $400,000 at June 30, 1994 represents
the preferred stock in FCOA-Baltimore.
(b) Fiscal Year
In 1995, the Company adopted a policy in which its fiscal year ends on the
Saturday closest to June 30. The years ended July 1, 1995 and June 30,
1994, referred to as fiscal 1995 and 1994, respectively, each reflect a
52-week period.
(c) Inventories
Inventories are stated at the lower of cost (average) or net realizable
value. Cost has been determined by the retail method of accounting for
inventories. The Company includes costs incurred to purchase, store and
distribute goods prior to sale in determining the cost of inventory.
(d) Depreciation and Amortization
Depreciation of fixtures and equipment is computed as follows:
================================================================================
Method Estimated useful life
--------------------------------------------------------------------------------
Fixtures and equipment Straight-line 3 to 7 years
Leasehold improvements Straight-line Remaining initial term of the leases
================================================================================
(Continued)
6
FCOA ACQUISITION CORP.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
================================================================================
(e) Organization Costs
Organization costs are amortized using the straight-line method over a
five-year period. Accumulated amortization was $368,366 and $360,973 as of
July 1, 1995 and June 30, 1994, respectively.
(f) Store Preopening Costs
Store preopening costs are expensed within the fiscal year in which the
related store is opened. Prepaid expenses at July 1, 1995 include $61,489
of preopening costs for stores which have not yet been opened.
(g) Accounts Payable
Accounts payable with payment terms in excess of 60 days totaled $962,877
and $624,673 at July 1, 1995 and June 30, 1994, respectively.
(h) Income Taxes
The Company and its wholly owned subsidiary, FCO, file a consolidated
Federal income tax return. A separate Federal income tax return will be
filed for FCOA-Baltimore for the short period prior to the merger of
FCOA-Baltimore with and into Factory Card Outlet of America, Ltd.
In February 1992 the Financial Accounting Standards Board issued Statement
No.109, "Accounting for Income Taxes" (SFAS No. 109). In fiscal 1994 the
Company adopted SFAS No.109 retroactively to July 10, 1989, the date of
inception.
Under SFAS No. 109, deferred tax assets and liabilities are recognized for
the future tax consequences attributable to differences between financial
reporting and tax bases of assets and liabilities and are measured using
enacted tax rates and laws that will be in effect when the differences are
expected to reverse.
(i) Software
Software costs are capitalized and amortized on a straight-line basis over
a three- or five-year period. Unamortized software costs included in
fixtures and equipment were $1,019,218 as of July 1, 1995. There were no
unamortized software costs included in fixtures and equipment as of June
30, 1994.
(j) Reclassifications
Certain prior year amounts have been reclassified from amounts previously
reported to conform with the 1995 presentation.
(Continued)
7
FCOA ACQUISITION CORP.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
================================================================================
(2) Fixtures and Equipment
================================================================================
1995 1994
--------------------------------------------------------------------------------
Equipment $ 10,452,017 5,048,523
Leasehold improvements 3,389,984 1,836,360
--------------------------------------------------------------------------------
Total fixtures and equipment 13,842,001 6,884,883
Less accumulated depreciation and amortization 3,663,275 2,318,887
--------------------------------------------------------------------------------
Net fixtures and equipment $ 10,178,726 4,565,996
================================================================================
(3) Revolving Credit Agreement
The Company has a revolving credit agreement with its bank which permits
the Company to borrow up to $9,000,000 through September 30, 1995 and up to
$12,000,000 from October 1, 1995 to September 30, 1996. Amounts outstanding
under this and preceding agreements totaled $5,800,000 and $4,800,000 at
July 1, 1995 and June 30, 1994, respectively. Interest is payable monthly
at an annual rate equal to the bank's prime rate which was 9% at July 1,
1995. Borrowings under the revolving credit term note are secured by
accounts receivable, inventories, and equipment. This agreement contains
restrictive covenants, the more significant of which require the
maintenance of minimum ratios of total liabilities to net worth and minimum
levels of tangible net worth and net working capital.
(4) Debt
Long-term debt consists principally of a term loan agreement, motor vehicle
loans and amounts due to landlords for financed leasehold improvements.
================================================================================
1995 1994
--------------------------------------------------------------------------------
Term loan $ 1,100,000 --
Various installment notes payable, due in
monthly installments through fiscal 1999,
each including interest at rates ranging
from 2.9% to 11.0%, secured by motor vehicles 148,273 194,766
Landlord installment notes payable (interest
rates ranging from 10% to 12%, maturities
ranging from fiscal 1995 to fiscal 1998),
secured by equipment and leasehold improvements -- 235,815
Subordinated debentures -- 450,000
--------------------------------------------------------------------------------
Total long-term debt 1,248,273 880,581
Less current maturities 496,612 705,247
--------------------------------------------------------------------------------
Long-term portion $ 751,661 175,334
================================================================================
(Continued)
8
FCOA ACQUISITION CORP.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
================================================================================
On May 1, 1995 the Company entered into a term loan agreement with a bank
for an amount up to $1,500,000. At July 1, 1995 the Company had borrowed
$1,100,000 under this agreement. The term loan is secured by computer
equipment and software. The agreement also contains covenants which
includes the maintenance of minimum ratios of net income before interest,
depreciation and amortization to current maturities of long-term debt plus
interest. Interest on the amount borrowed is calculated at a fixed rate of
8.08%. Payments of principal and interest will begin July 31, 1995 and
continue through June 30, 1998.
The subordinated debentures held by shareholders and directors of the
Company matured on July 20, 1994. Interest on the debentures accrued at the
rate of two shares of common stock per quarter for each $1,000 of
debentures since issuance in 1991. Common stock totaling $236,750 was
issued upon the maturity of the debentures in fiscal 1995.
Maturities of long-term debt for each of the next five years are as
follows:
================================================================================
Fiscal year Amount
--------------------------------------------------------------------------------
1996 $ 496,612
1997 553,885
1998 192,087
1999 5,689
2000
--------------------------------------------------------------------------------
Total $1,248,273
================================================================================
On April 20, 1994 the Company entered into a term loan agreement for
$1,500,000 with one of the Company's shareholders. This term loan matured
on July 20, 1994. Interest on this loan accrued at a rate of 12% on the
outstanding and unpaid principal amount which was paid in common stock. In
addition, the Company paid a facility fee at maturity, as specified in the
term loan agreement.
(5) Lease Commitments
The Company, through its FCO subsidiary, conducts substantially all of its
operations using leased premises. Store and office leases provide that real
estate taxes, insurance, maintenance, and operating expenses are
obligations of FCO and/or the Company. Certain of the Company's leases
provide for scheduled increases in base rentals over their terms. The
Company recognizes the total rental amounts due over the lease term on a
straight-line basis and, accordingly, has established a corresponding
deferred rent obligation. Certain of the store leases provide for
percentage rentals or additional percentage rentals based on sales in
excess of specified minimums.
(Continued)
9
FCOA ACQUISITION CORP.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
================================================================================
The cost of property held under capital leases was $166,841 and $93,503 at
July 1, 1995 and June 30, 1994, respectively. Accumulated amortization
related to such property was $34,513 and $14,788 at July 1, 1995 and June
30, 1994, respectively. Property held under capital leases consists
principally of office and warehouse equipment. Rent expense charged to
operations under operating leases was $5,904,484 in 1995 and $3,930,191 in
1994.
The following is a schedule of future minimum lease payments for capital
and operating leases with initial or remaining terms in excess of one year
as of July 1, 1995:
================================================================================
Capital Operating
Fiscal year leases leases
--------------------------------------------------------------------------------
1996 $ 50,041 6,775,245
1997 44,815 6,647,037
1998 31,678 6,525,888
1999 7,902 6,298,881
2000 1,754 5,866,788
Thereafter -- 20,352,955
--------------------------------------------------------------------------------
Total minimum lease payments 136,190 52,466,794
Less amount representing interest 23,912 --
--------------------------------------------------------------------------------
Present value of net minimum lease
payments (including long-term
obligations of $74,854) $ 112,278 --
================================================================================
(Continued)
10
FCOA ACQUISITION CORP.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
================================================================================
(6) Income Taxes
Income tax expense (benefit) for the years ended July 1, 1995 and June 30,
1994 consists of:
================================================================================
Current Deferred Total
--------------------------------------------------------------------------------
Year ended July 1, 1995:
U.S. Federal $ 321,114 (48,680) 272,434
State and local 82,814 (6,586) 76,228
--------------------------------------------------------------------------------
$ 403,928 (55,266) 348,662
================================================================================
Year ended June 30, 1994:
U.S. Federal 331,526 (113,489) 218,037
State and local 104,842 (18,263) 86,579
--------------------------------------------------------------------------------
$ 436,368 (131,752) 304,616
================================================================================
Income tax expense for the years ended July 1, 1995 and June 30, 1994
differs from the amounts computed by applying the U.S Federal income tax
rate of 34% to income before income taxes as a result of the following:
================================================================================
1995 1994
---------------- ----------------
Dollar Percent Dollar Percent
--------------------------------------------------------------------------------
Computed "expected" tax expense $ 243,503 34.00% $ 256,265 34.00%
Increase in income taxes resulting from:
State and local income taxes, net of
Federal income tax benefit 54,657 7.63 34,671 4.60
Non-deductible meals and entertainment 14,792 2.07 5,459 .72
Non-deductible life insurance premiums 12,246 1.71 -- --
Non-deductible penalty 11,751 1.64 -- --
Other, net 11,713 1.63 8,221 1.09
--------------------------------------------------------------------------------
Income tax expense $ 348,662 48.68% $ 304,616 40.41%
================================================================================
(Continued)
11
FCOA ACQUISITION CORP.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
================================================================================
Deferred income taxes reflect the net tax effect of temporary differences
between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes.
Significant components of the Company's deferred tax assets and liabilities
are as follows:
================================================================================
1995 1994
--------------------------------------------------------------------------------
Deferred tax assets:
Alternative minimum tax credit $ 158,393 115,854
Accrued interest -- 86,812
Deferred rent obligation 444,325 360,650
Accrued vacation 124,994 59,041
Other 24,640 1,699
--------------------------------------------------------------------------------
Total gross deferred tax assets 752,352 624,056
--------------------------------------------------------------------------------
Deferred tax liabilities:
Property and equipment, due to differences
in depreciation 284,140 156,563
Overhead capitalized into inventory in excess
of tax amounts 2,501 57,048
--------------------------------------------------------------------------------
Total gross deferred tax liabilities 286,641 213,611
--------------------------------------------------------------------------------
Net deferred tax asset $ 465,711 410,445
================================================================================
Management believes that no valuation allowance was necessary at July 1,
1995 and June 30, 1994. In assessing the realizability of deferred tax
assets, management considers whether it is more likely than not that some
portion or all of the deferred tax assets will not be realized. The
ultimate realization of deferred tax assets is dependent upon the
generation of future taxable income during the periods in which those
temporary differences become deductible. Management considers the scheduled
reversal of deferred tax liabilities, projected future taxable income, and
tax planning strategies in making this assessment. Based upon these
criteria, management has determined that it is more likely than not the
Company will realize the benefits of these deductible differences.
(7) Stockholders' Equity
(a) Convertible Preferred Stock - Series A and B
Series A Convertible Preferred Stock, $.01 par value, was issued on July
10, 1989. Each share of this stock is convertible at the holders'
discretion into ten shares of common stock. Prior to the Series B
Convertible Preferred Stock offering outlined below, the Series A
Convertible Preferred Stock was redeemable at the holders' election at a
price equal to the liquidation amount defined in the stock purchase
agreement plus 9% compounded annually from July 10, 1989, reduced by any
prior distribution amounts. Upon issuance of the Series B Convertible
Preferred Stock, accretion related to the Series A Convertible Preferred
Stock ceased and the redemption amount was fixed at $3,077,248.
(Continued)
12
FCOA ACQUISITION CORP.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
================================================================================
Effective as of July 15, 1994, the Company concluded the Series B
Convertible Preferred Stock offering and entered into a stock purchase
agreement (Stock Purchase Agreement) whereby it issued its Series B
Convertible Preferred Stock, $.01 par value per share. Investors in this
offering included Allstate Venture Capital Corp., an arm of Allstate
Insurance Corporation and certain Allstate affiliates, Bessemer Venture
Partners and certain individual investors, along with some of the existing
stockholders of the Company. Each share of Series B Convertible Preferred
Stock is convertible at the holder's discretion into ten shares of common
stock. The Company may require the conversion of all of the outstanding
shares of Series B Convertible Preferred Stock into shares of the Company's
common stock in the event of an underwritten public offering of shares of
the Company's common stock within the guidelines set forth in the Stock
Purchase Agreement.
At any time on or alter June 15, 1999, by majority vote the Series B
Convertible Preferred Stockholders have the option to elect to be redeemed
as a class. Upon such election, the Company will redeem all Series B
Convertible Preferred Stock in two equal installments, the first of which
is payable 120 days following such election and the second payable one year
thereafter. The redemption provisions in place for the Series A Convertible
Preferred Stock were changed in conjunction with the issuance of the Series
B Convertible Preferred Stock so that the dates and terms are substantially
identical to those of the Series B Convertible Preferred Stock.
The Series A Convertible Preferred Stock and Series B Convertible Preferred
Stock (collectively, Preferred Stock) are structured as "participating"
preferred stock. That is, in the event of liquidation, dissolution, or
winding up of the Company, each holder of preferred stock will be entitled
to be paid, before any distribution or payment is made upon any junior
securities, an amount in cash equal to the aggregate liquidation value of
all such holder's shares of preferred stock, as determined in accordance
with the terms of the Company's Certificate of Incorporation, plus all
accrued and unpaid dividends thereon.
The holders of preferred stock are entitled to vote with the holders of the
Company's common stock on each matter submitted to a vote of the Company's
stockholders, with each share of preferred stock having a number of votes
equal to the number of votes possessed by the number of shares of common
stock into which such share of preferred stock is convertible as of the
record date for the determination of stockholders entitled to vote on such
matter.
(b) Preferred Stock
Preferred stock may be issued from time to time in one or more series at
the discretion of the Company's Board of Directors. Different series of
preferred stock shall not be construed to constitute different classes of
shares for the purposes of voting by classes unless expressly provided. All
preferred stock rights are granted at the discretion of the Board of
Directors.
(Continued)
13
FCOA ACQUISITION CORP.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
================================================================================
(c) Common Stock
The voting, dividend, and liquidation rights of the holders of the common
stock are subject to the rights of the holders of the preferred stock of
any series. The holders of the common stock are entitled to one vote for
each share.
At July 1, 1995 shares of common stock were reserved for the following
purposes:
================================================================================
Conversion of Series A Convertible Preferred Stock 200,000
Conversion of Series B Convertible Preferred Stock 324,160
Exercise of outstanding stock options 176,000
Granting of additional stock options 91,000
--------------------------------------------------------------------------------
791,160
================================================================================
(d) Dividend Restrictions
The Company must obtain written consent from the bank holding its revolving
credit term note and the consent of a majority of the then outstanding
shares of Series A Convertible Preferred Stock prior to declaring or paying
dividends at any time.
(8) Stock Option Plan
A stock option plan was approved by the stockholders of the Company on July
7, 1989, under which a maximum of 41,400 shares of common stock may be
issued to employees, outside directors, and consultants of the Company
pursuant to options granted. The stockholders also approved the issuance of
stock options for a maximum of 40,000 shares of common stock to sponsors of
the Company. On December 13, 1993, the Board of Directors of the Company
approved the allocation of 85,600 shares of common stock for the issuance
of options to employees and outside directors. In July, 1995, the Board of
Directors approved an increase in the number of shares of common stock
available for grant under the plan by 100,000 shares. The exercise price of
such options is to be determined by the Board of Directors within defined
guidelines. The term of each option will be determined in accordance with
certain events noted in the plan, but shall not be more than ten years from
the date of grant. Options are exercisable in accordance with the events
stated in the plan and vest at the rate of 25% per year from the date of
grant.
(Continued)
14
FCOA ACQUISITION CORP.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
================================================================================
Pertinent information covering the stock option plan follows:
=================================================================================================
1995 1994
--------------------------- -------------------------
Number Option price Number Option price
of shares per share of shares per share
-------------------------------------------------------------------------------------------------
Outstanding at beginning
of year 97,500 $ 2.50-25.00 65,000 $ 2.50-10.00
Options repurchased by Company (7,500) 25.00 -- --
Granted 86,000 10.00-25.00 32,500 25.00
-------------------------------------------------------------------------------------------------
Outstanding at end of year 176,000 $ 2.50-25.00 97,500 $ 2.50-25.00
=================================================================================================
Vested at end of year 78,200 $ 2.50-25.00 70,500 $ 2.50-25.00
Available for grant at end of year 91,000 69,500
=================================================================================================
(9) Incentive Savings Plan
The Incentive Savings Plan (the Plan) provides that employees of FCO who
have attained age 21 and completed six months of service can elect to
invest any whole percentage from 1% to 13% of their compensation in the
Plan. For each dollar the employee invests up to 6% of his or her earnings,
the Company will contribute 33 cents "matching contribution" to the Plan.
The Plan also has a profit sharing feature whereby the Company may elect at
its discretion to make a "basic contribution." The Company's total
contribution to the Plan was $53,661 in 1995 and $34,704 in 1994.
(10) Related-party Transactions
FCO made inventory purchases of approximately $3,246,082 and $1,932,194 in
fiscal 1995 and 1994, respectively, from a company which is owned by a
stockholder of the Company who is also a director of the Company. These
purchases represented approximately 8.6% and 9.4% of FCO's total inventory
purchases in fiscal 1995 and 1994, respectively. At June 30, .1994, FCO
owed $56,468 for these purchases. At July 1, 1995, FCO had no outstanding
amounts payable related to these purchases.
FCO also made wholesale sales of merchandise to Card Mart of approximately
$282,246 in fiscal 1995 and $200,370 in fiscal 1994. Included in the
accounts receivable balance at July 1, 1995 and June 30, 1994 is
approximately $41,325 and $53,907, respectively, relating to these sales.
FCOABaltimore engaged Card Mart to provide management and consulting
services, which subsequent to the merger of FCO and FCOA-Baltimore have
been discontinued. Management fees for fiscal years 1995 and 1994 were
$168,929 and $270,723, respectively. FCO is obligated to pay fees of
$10,000 per month to Card Mart through September 30, 1995.
(Continued)
15
FCOA ACQUISITION CORP.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
================================================================================
(11) Supplemental Cash Flow Information
================================================================================
1995 1994
--------------------------------------------------------------------------------
Cash paid during the year for:
Interest $ 634,910 403,799
Income taxes 688,574 125,864
================================================================================
Supplemental disclosure of non-cash financing activities:
The Company converted FCOA-Baltimore preferred stock (minority
interest) of $400,000 to FCOA Acquisition Corp. common stock of
$400,000 in 1995.
The Company incurred a charge of $11,849 in 1995 and $91,568 in 1994
in lieu of interest on the subordinated debentures and the bridge
loan. Accrued interest of $236,750 was repaid through the issuance of
$236,750 of common stock in 1995.
Capital lease obligations incurred and notes on vehicle purchases were
$191,938 in 1995 and $188,748 in 1994.
Accreted redemption on Series A convertible preferred stock was
$254,085 in 1994.
(12) Subsequent Events (Unaudited)
(a) Revolving Credit Agreement
The Company's revolving credit agreement has been renewed and increased to
a maximum borrowing of $20,000,000, which matures on December 31, 1996.
Advances under the agreement are limited based on inventory levels as
defined in the agreement. Interest under the agreement is payable monthly
at an annual rate equal to the bank's prime rate on the first $15,000,000
of borrowings under the agreement and the bank's prime rate plus 2 1/2% on
the next $5,000,000 of borrowings. A fee of 1/4% per year will be assessed
on the unused portion of the first $15,000,000 of the line. The collateral
related to this agreement is an interest in all business assets of the
company. The agreement also contains certain restrictive covenants.
(b) Secured Subordinated Debt
The Company is currently negotiating a $4,000,000 secured subordinated debt
facility bearing annual interest at 12.5% payable monthly except during the
first 18 months of the five year term when 7.5% of the interest will be
payable in cash and 5% will accrue. The lender would also receive a warrant
to purchase 2.5% of the fully-diluted outstanding common stock exercisable
at $.0l per share, and beginning after 18 months, additional shares accrue
at 1.0% per year until maturity or prepayment of the loan. There is no
penalty for prepayment of the loan at any time.
16
Schedule 1
----------
FCOA ACQUISITION CORP.
AND SUBSIDIARIES
Consolidating Schedule - Balance Sheet Information
July 1, 1995
====================================================================================================================
FCOA Factory Card Consolidating
Acquisition Outlet of and eliminating Xxxxxxx-
Assets Corp. America, Ltd. entries dated
--------------------------------------------------------------------------------------------------------------------
Current assets:
Cash $ 16,706 498,506 -- 515,212
Accounts receivable 121,996 -- 121,996
Intercompany accounts receivable 11,576,008 -- (11,576,008) --
Inventories -- 25,013,222 -- 25,013,222
Prepaid expenses 388,490 -- 388,490
Deferred income taxes 147,132 -- 147,132
--------------------------------------------------------------------------------------------------------------------
Total current assets 11,592,714 26,169,346 (11,576,008) 26,186,052
Fixtures and equipment at cost, net -- 10,178,726 -- 10,178,726
Organization costs, less
accumulated amortization -- 6,644 -- 6,644
Other assets 4,433,787 111,114 (4,433,787) 111,114
Deferred income taxes -- 318,579 -- 318,579
--------------------------------------------------------------------------------------------------------------------
Total assets $ 16,026,501 36,784,409 (16,009,795) 36,801,115
====================================================================================================================
Liabilities and
Stockholders' Equity
--------------------------------------------------------------------------------------------------------------------
Current liabilities:
Current portion of long-term debt -- 496,612 -- 496,612
Current portion of capital lease
obligations -- 37,424 -- 37,424
Revolving credit term note payable -- 5,800,000 -- 5,800,000
Accounts payable -- 8,143,660 -- 8,143,660
Intercompany accounts payable -- 11,576,008 (11,576,008) --
Income taxes payable -- 41,699 -- 41,699
Accrued expenses -- 1,842,098 -- 1,842,098
--------------------------------------------------------------------------------------------------------------------
Total current liabilities -- 27,937,501 (11,576,008) 16,361,493
Long-term debt -- 751,661 -- 751,661
Deferred rent liability -- 2,973,018 -- 2,973,018
Capital lease obligations -- 74,854 -- 74,854
--------------------------------------------------------------------------------------------------------------------
Total liabilities -- 31,737,034 (11,576,008) 20,161,026
--------------------------------------------------------------------------------------------------------------------
Stockholders' equity:
Preferred stock - Series A 3,077,248 -- -- 3,077,248
Preferred stock - Series B 11,379,258 -- -- 11,379,258
Common stock 2,636,750 4,433,787 (4,433,787) 2,636,750
(Accumulated deficit) retained
earnings (1,066,755) 613,588 -- (453,167)
--------------------------------------------------------------------------------------------------------------------
Total stockholders' equity $ 16,026,501 5,047,375 (4,433,787) 16,640,089
--------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 16,026,501 36,784,409 (16,009,795) 36,801,115
====================================================================================================================
See accompanying independent auditors' report
17
Schedule 2
----------
FCOA ACQUISITION CORP.
AND SUBSIDIARIES
Consolidating Schedule - Income and Expense Information
Year ended July 1, 1995
=====================================================================================================================
FCOA Factory Card Consolidating
Acquisition Outlet of and eliminating
Corp. America, Ltd. entries Consolidated
---------------------------------------------------------------------------------------------------------------------
Net sales $ -- 63,174,091 -- 63,174,091
Cost of goods sold, including
buying and distribution expenses -- 32,183,209 -- 32,183,209
---------------------------------------------------------------------------------------------------------------------
Gross profit -- 30,990,882 -- 30,990,882
---------------------------------------------------------------------------------------------------------------------
Store operating expenses: -- 9,558,322 -- 9,558,322
Payroll -- 7,573,442 -- 7,573,442
Occupancy
General operating -- 7,684,269 -- 7,684,269
---------------------------------------------------------------------------------------------------------------------
Total store operating expenses -- 24,816,033 -- 24,816,033
Regional administrative expense -- 1,507,193 -- 1,507,193
Corporate administrative expense -- 3,355,077 -- 3,355,077
Distribution center relocation expense -- 39,438 -- 39,438
---------------------------------------------------------------------------------------------------------------------
Total administrative and relocation
expenses -- 4,901,708 -- 4,901,708
---------------------------------------------------------------------------------------------------------------------
Income from operations -- 1,273,141 -- 1,273,141
---------------------------------------------------------------------------------------------------------------------
Other expense (income):
Interest expense (income), net (342) 411,895 -- 411,553
Amortization of organization costs -- 7,393 -- 7,393
Miscellaneous -- 138,009 -- 138,009
---------------------------------------------------------------------------------------------------------------------
Total other expense (income) (342) 557,297 -- 556,955
---------------------------------------------------------------------------------------------------------------------
Income before income taxes 342 715,844 -- 716,186
---------------------------------------------------------------------------------------------------------------------
Income taxes -- 348,662 -- 348,662
---------------------------------------------------------------------------------------------------------------------
Net income $ 342 367,182 -- 367,524
=====================================================================================================================
See accompanying independent auditors' report
18
Schedule 3
----------
FCOA ACQUISITION CORP.
AND SUBSIDIARIES
Schedule of Historical Income and Expense Information
Years ended July 1, 1995 and June 30, 1994, 1993, 1992, and 1991
===============================================================================================================================
1995 1994 1993 1992 1991
-------------------------------------------------------------------------------------------------------------------------------
Net sales $63,174,091 37,341,134 24,332,487 17,329,510 12,591,926
Cost of goods sold, including buying
and distribution expenses 32,183,209 18,227,595 11,858,979 8,559,662 6,571,906
-------------------------------------------------------------------------------------------------------------------------------
Gross profit 30,990,882 19,113,539 12,473,508 8,769,848 6,020,020
-------------------------------------------------------------------------------------------------------------------------------
Store operating expenses:
Payroll 9,558,322 5,667,597 3,851,810 2,842,705 2,181,889
Occupancy 7,573,442 4,999,463 3,300,046 2,555,489 2,145,181
General operating 7,684,269 4,379,689 2,420,105 1,472,091 1,240,616
-------------------------------------------------------------------------------------------------------------------------------
Total store operating expenses 24,816,033 15,046,749 9,571,961 6,870,285 5,567,686
Regional administrative expense 1,507,193 460,665 317,708 292,420 163,959
Corporate administrative expense 3,355,077 2,207,048 1,214,561 820,615 759,031
Distribution center relocation expense 39,438 52,028 177,020 -- --
-------------------------------------------------------------------------------------------------------------------------------
Total administrative and relocation expenses 4,901,708 2,719,741 1,709,289 1,113,035 922,990
-------------------------------------------------------------------------------------------------------------------------------
Income (loss) from operations $ 1,273,141 1,347,049 1,192,258 786,528 (470,656)
===============================================================================================================================
See accompanying independent auditors' report
19
SCHEDULE 2.1(1) TO LOAN AGREEMENT
Debts and Liens
Debt
----
1. Credit Agreements:
Business Loan Agreement among Borrower, Guarantor and Bank One,
Chicago, N.A. ("Bank One") dated November 10, 1995, increasing
Borrower's current secured line of credit to $20,000,000.00.
Principal amount outstanding as of November 13, 1995 is
$10,950,000.00, exclusive of the $1,500,000.00 term loan
described below.
Bank One extended a term loan to Borrower on May 1, 1995 in the
principal amount of $1,500,000.00 to purchase computer equipment
pursuant to the terms of Borrower's prior line of credit
facility.
2. Indentures - none.
3. Purchase Agreements - none.
4. Promissory Notes and other evidences of indebtedness:
Business Purpose Revolving Promissory Note from Borrower and
Guarantor to Bank One dated November 10, 1995 in the principal
amount of $15,000,000.00 to evidence a portion of the line of
credit described in #1 above.
Business Purpose Revolving Promissory Note from Borrower and
Guarantor to Bank One dated November 10, 1995 in the principal
amount of $5,000,000.00 to evidence a portion of the line of
credit described in #1 above.
Promissory Note from Borrower to Bank One dated May 1, 1995 in
the principal amount of $1,500,000.00 to evidence the term loan
described in #1 above.
Various installment notes payable in connection with purchases of
motor vehicles, due in monthly installments through 1999, with
interest rates ranging from 2.9% to 11%. $148,273 outstanding as
of July 1, 1995.
Life insurance policy loans in the amount of $101,165 as of July
1, 1995.
5. Guaranties:
Guarantor has guaranteed the obligations of Borrower to Bank One
under the term loan described in item #1 above.
6. Capital Leases:
Various equipment capital leases with maturities through 1999.
$112,278 outstanding as of July 1, 1995.
7. Other - none.
Liens
-----
1. Non-Titled Personal Property Security Agreement between Borrower
and Bank One granting a blanket lien on all of Borrower's assets
to secure the $20,000,000.00 line of credit described in #1
above.
2. Commercial Security Agreement between Borrower and Bank One
granting a purchase money security interest in certain computer
equipment and software purchased with the proceeds of the term
loan described in #1 above.
3. Security interest granted in certain motor vehicles to secure the
installment notes described in #4 above .
4. Borrower's landlord for Borrower's facility at 0000 Xxxx Xxxxxx
Xxxxx, Xxxxxxxxxxxx, Xxxxxxx, has filed a UCC-l financing
statement in connection with inventory, equipment and fixtures
located at or used in connection with such facility.
SCHEDULE 2.1(o) TO LOAN AGREEMENT
Certain Transactions
1. On or about September 1, 1995, Borrower made a loan to Xxxxxxx X.
Xxxxxxx in the principal amount of $175,000.00 to assist with relocation
expenses.
2. Xxxxxxx Xxxxxxx controls TRIWEF Corporation/Triad Sales International
("Triad"). Triad has made its offices, staff and foreign representative offices
available to Borrower and Guarantor for foreign sourcing, buying and freight
consolidation of imported goods. Triad has provided sourcing for such imported
goods and other services in return for a buying commission which is not in
excess of standard industry commissions.
SCHEDULE 2.1(r) TO LOAN AGREEMENT
Significant Contracts
None.
