EXHIBIT 10.1
LOAN AND SECURITY AGREEMENT
BETWEEN
XXXXX FARGO RETAIL FINANCE, LLC
AND
NATIONAL HOME CENTERS, INC.
Dated as of August 2, 2001
TABLE OF CONTENTS
-----------------
Page
----
ARTICLE 1 - THE REVOLVING CREDIT ............................................... 1
1-1 Establishment of Revolving Credit ...................................... 1
1-2 Availability ........................................................... 1
1-3 Risks of Value of Inventory ............................................ 2
1-4 Procedures Under Revolving Credit ...................................... 2
1-5 The Loan Account ....................................................... 4
1-6 The Master Note ........................................................ 5
1-7 Payment of Loan Account ................................................ 5
1-8 Interest ............................................................... 6
1-9 Fees ................................................................... 7
1-10 Lender's Discretion .................................................... 8
1-11 Fees for L/C's ......................................................... 9
1-12 Concerning L/C's ....................................................... 9
1-13 LIBOR Option ........................................................... 11
1-14 Capital Requirements ................................................... 13
ARTICLE 2 - GRANT OF SECURITY INTEREST.......................................... 14
2-1 Grant of Security Interest.............................................. 14
2-2 Negotiable Collateral................................................... 14
2-3 Collection of Accounts, General Intangibles, and Negotiable Collateral.. 14
2-4 Delivery of Additional Documentation Required .......................... 14
2-5 Power of Attorney ...................................................... 15
2-6 Right to Inspect ....................................................... 15
2-7 Control Agreements ..................................................... 15
2-8 Extent and Duration of Security Interest ............................... 15
ARTICLE 3 - DEFINITIONS ........................................................ 16
3-1 Definitions ............................................................ 16
3-2 Accounting Terms ....................................................... 16
3-3 Construction ........................................................... 16
3-4 Exhibits ............................................................... 16
ARTICLE 4 - CONDITIONS PRECEDENT ............................................... 16
4-1 Corporate Due Diligence ................................................ 17
4-2 Opinion ................................................................ 17
4-3 Cash Management and Additional Documents ............................... 17
4-4 Officers' Certificates ................................................. 17
4-5 Representations and Warranties ......................................... 17
4-6 Initial Minimum Excess Availability .................................... 17
4-7 No Event of Default .................................................... 17
4-8 No Material Adverse Change ............................................. 18
(ii)
4-9 Delivery of Documents ........................................... 18
4-10 Perfection Requirements ......................................... 18
4-11 Insurance ....................................................... 18
4-12 Existing Indebtedness ........................................... 18
ARTICLE 5 - GENERAL REPRESENTATIONS, WARRANTIES AND COVENANTS ............. 18
5-1 Payment and Performance of Liabilities .......................... 18
5-2 Due Organization - Authorization - No Conflicts ................. 18
5-3 Trade Names ..................................................... 20
5-4 Locations. Landlord's Consents, Waivers ......................... 20
5-5 Title to Assets ................................................. 21
5-6 Indebtedness .................................................... 22
5-7 Insurance Policies .............................................. 22
5-8 Licenses ........................................................ 23
5-9 Intellectual Property ........................................... 23
5-10 Leases .......................................................... 23
5-11 Depository Accounts ............................................. 23
5-12 Requirements of Law ............................................. 23
5-13 Maintain Properties ............................................. 23
5-14 Pay Taxes ....................................................... 24
5-15 No Margin Stock ................................................. 25
5-16 ERISA ........................................................... 25
5-17 Hazardous Materials ............................................. 26
5-18 Litigation ...................................................... 26
5-19 Dividends or Investments ........................................ 26
5-20 Loans ........................................................... 27
5-21 Protection of Assets ............................................ 27
5-22 Line of Business ................................................ 27
5-23 Affiliate Transactions .......................................... 27
5-24 Executive Pay ................................................... 28
5-25 Additional Assurances ........................................... 28
5-26 Adequacy of Disclosure .......................................... 29
5-27 Minimum Excess Availability ..................................... 29
5-28 No Material Adverse Change ...................................... 29
5-29 Securities Accounts ............................................. 29
5-30 Disclosure Updates .............................................. 29
5-31 Brokerage Commissions ........................................... 30
5-32 Other Covenants ................................................. 30
ARTICLE 6 - USE AND COLLECTION OF COLLATERAL .............................. 30
6-1 Use of Inventory Collateral ..................................... 30
6-2 Inventory Quality ............................................... 30
6-3 Adjustments and Allowances ...................................... 30
6-4 Validity of Accounts ............................................ 30
6-5 Notification to Account Debtors ................................. 31
(iii)
ARTICLE 7 - CASH MANAGEMENT ................................................ 31
7-1 Cash Management Accounts ........................................ 31
7-2 Credit Card Receipts ............................................ 32
7-3 Crediting Payments; Float Charge ................................ 32
7-4 Designated Account .............................................. 33
7-5 Maintenance of Loan Account; Statements of Liabilities .......... 33
7-6 The Funding Account ............................................. 33
7-7 Capital Infusions, Etc. ......................................... 33
ARTICLE 8 - LENDER AS BORROWER'S ATTORNEY-IN-FACT .......................... 33
8-1 Appointment as Attorney-In-Fact ................................. 33
8-2 No Obligation to Act ............................................ 34
ARTICLE 9 - FINANCIAL AND OTHER REPORTING REQUIREMENTS/FINANCIAL COVENANTS.. 35
9-1 Maintain Records ................................................ 35
9-2 Access to Records ............................................... 35
9-3 Immediate Notice to Lender ...................................... 36
9-4 Borrowing Base Certificate ...................................... 37
9-5 Collateral Reporting ............................................ 37
9-6 Annual Reports .................................................. 38
9-7 Officers' Certificates .......................................... 39
9-8 Inventories. Appraisals. and Audits ............................. 39
9-9 Additional Financial Information ................................ 40
9-10 Financial Performance and Inventory Covenants ................... 40
9-11 Electronic Reporting ............................................ 40
9-12 Guarantor Reports ............................................... 40
ARTICLE 10 - EVENTS OF DEFAULT ............................................. 41
10-1 Failure to Pay Revolving Credit ................................. 41
10-2 Failure To Make Other Payments .................................. 41
10-3 Failure to Perform Covenant or Liability (No Grace Period) ...... 41
10-4 Failure to Perform Covenant or Liability (Grace Period) ......... 41
10-5 Misrepresentation ............................................... 42
10-6 Acceleration of Other Debt. Breach of Lease ..................... 42
10-7 Default Under Other Agreements .................................. 42
10-8 Casualty Loss. Non-Ordinary Course Sales ........................ 42
10-9 Judgment. Restraint of Business ................................. 42
10-10 Business Failure ................................................ 42
10-11 Bankruptcy ...................................................... 43
10-12 Insecurity ...................................................... 43
10-13 Default by Guarantor or Related Entity .......................... 43
10-14 Indictment - Forfeiture ......................................... 43
10-15 Termination of Guaranty ......................................... 43
10-16 Challenge to Loan Documents ..................................... 43
10-17 Executive Management ............................................ 43
(iv)
10-18 Change in Control ............................................... 44
10-19 Material Adverse Change ......................................... 44
ARTICLE 11 - RIGHTS AND REMEDIES UPON DEFAULT ............................. 44
11-1 Rights of Enforcement ........................................... 44
11-2 Sale of Collateral .............................................. 44
11-3 Occupation of Business Location ................................. 45
11-4 Grant of Nonexclusive License ................................... 45
11-5 Assembly of Collateral .......................................... 45
11-6 Rights and Remedies ............................................. 46
ARTICLE 12 - NOTICES ...................................................... 46
12-1 Notice Addresses ................................................ 46
12-2 Notice Given .................................................... 47
ARTICLE 13 - TERM ......................................................... 47
13-1 Termination of Revolving Credit ................................. 47
13-2 Effect of Termination ........................................... 48
13-3 Prepayment Premium .............................................. 48
ARTICLE 14 - GENERAL ...................................................... 49
14-1 Protection of Collateral ........................................ 49
14-2 Successors and Assigns .......................................... 49
14-3 Severability .................................................... 49
14-4 Amendments. Course of Dealing ................................... 49
14-5 Power of Attorney ............................................... 50
14-6 Application of Proceeds ......................................... 50
14-7 Lender's Costs and Expenses ..................................... 50
14-8 Copies and Facsimiles ........................................... 50
14-9 New York Law ................................................... 50
14-10 Consent to Jurisdiction ......................................... 51
14-11 Indemnification ................................................. 51
14-12 Right of Set-Off ................................................ 51
14-13 Usury Savings Clause ............................................ 52
14-14 Waivers ......................................................... 52
14-15 Confidentiality ................................................. 53
14-16 Right to Publish Notice ......................................... 53
14-17 Withholding Taxes ............................................... 53
14-18 Credit Inquiries ................................................ 54
14-19 Revival and Reinstatement of Liabilities ........................ 54
(v)
EXHIBITS
1-6 Master Note
3 Definitions
5-2(a) Chief Executive Office; FEIN; Organizational Number
5-2(b) Related Entities
5-3 Trade Names
5-4 Locations
5-5 Encumbrances
5-6 Indebtedness
5-7 Insurance Policies
5-9 Intellectual Property
5-10 Leases
5-11 Depository Accounts
5-14 Taxes
5-17 Hazardous Materials disclosures
5-18 Litigation
7-1 Cash Management Arrangements
7-2 Credit Card Arrangements
7-6 Funding Account
9-4 Borrowing Base Certificate
9-10 Financial Performance Covenants
E-1 Eligible Inventory Locations
L-1 LIBOR Notice
R-1 Real Property Collateral
-i-
THIS AGREEMENT is made between XXXXX FARGO RETAIL FINANCE, LLC
(hereinafter, "Lender"), a Delaware limited liability company with its principal
executive offices at Xxx Xxxxxx Xxxxx, Xxxxx 0000, Xxxxxx, Xxxxxxxxxxxxx 00000,
and NATIONAL HOME CENTERS, INC. (hereinafter, the "Borrower"), an Arkansas
corporation with its principal executive offices at Xxxxxxx 000 Xxxxx, X.X. Xxx
000, Xxxxxxxxxx, Xxxxxxxx 00000-0000 in consideration of the mutual covenants
contained herein and benefits to be derived herefrom,
W I T N E S S E T H:
ARTICLE 1- THE REVOLVING CREDIT
-------------------------------
1-1 Establishment of Revolving Credit.
---------------------------------
(a) The Lender establishes a revolving line of credit (the
"Revolving Credit") in the Borrower's favor pursuant to which the Lender,
subject to, and in accordance with, this Agreement, shall make Advances to and
for the account of the Borrower as provided herein. The amount of the Revolving
Credit shall be determined by the Lender by reference to Availability, as
determined by the Lender from time to time hereafter. The Loan made by the
Lender under this Agreement, and all of the Borrower's other Liabilities to the
Lender under or pursuant to this Agreement, are payable as provided herein.
(b) The Lender hereby agrees, subject to the terms and
conditions of this Agreement, to make Advances to the Borrower in an amount
outstanding not to exceed at any one time the lesser of (i) the Credit Limit,
minus the then unpaid principal balance of the Loan, minus the then aggregate of
----- -----
such Reserves as may have been established by Lender, minus the then outstanding
-----
Stated Amount of all L/C's; or (ii) the Borrowing Base.
(c) Availability shall be based upon Borrowing Base
Certificates furnished as provided in Section 9-4, below.
(d) Anything to the contrary in Section 1-1(b) above
notwithstanding, Lender may, in its discretion exercised in good faith, reduce
Advance Rates or create Reserves without declaring an Event of Default if it
determines that (i) there has occurred a Material Adverse Change; or (ii)
Borrower is not in compliance with covenants set forth in EXHIBIT 9-10.
------------
(e) The proceeds of Advances under the Revolving Credit shall
be used solely for working capital purposes of the Borrower and for its Capital
Expenditures, all solely to the extent permitted by this Agreement.
1-2 Availability. The Lender does not have any obligation to make any
------------
Advance, or otherwise to provide any credit for the benefit of the Borrower such
that the outstanding principal balance of the Loan exceeds Availability. The
making of Advances and the providing of financial accommodations in excess of
Availability is for the benefit of the Borrower and does not affect the
obligations of the Borrower hereunder; such Advances and financial
accommodations constitute Liabilities. The making of any such Advances and the
providing of financial accommodations, on any one occasion such that
Availability is exceeded shall not obligate the Lender to make any such Advances
or to provide any financial accommodation on any other occasion nor to permit
such Advances to remain outstanding.
1-3 Risks of Value of Inventory. The Lender's reference to a given
---------------------------
asset in connection with the making of Advances and the providing of financial
accommodations under the Revolving Credit and/or the monitoring of compliance
with the provisions hereof shall not be deemed a determination by the Lender
relative to the actual value of the asset in question. All risks concerning the
saleability of the Inventory are and remain upon the Borrower. All Collateral
secures the prompt, punctual, and faithful performance of the Liabilities
whether or not relied upon by the Lender in connection with the making of loans,
credits, and advances and the providing of financial accommodations under the
Revolving Credit.
1-4 Procedures Under Revolving Credit.
---------------------------------
(a) The Borrower may request Advances under the Revolving
Credit, each in an amount of not less than Ten Thousand ($10,000) Dollars. Each
such request shall be in such manner as may from time to time be acceptable to
the Lender.
(b) The Lender, subject to the terms and conditions of this
Agreement, will provide the Borrower with the Advance so requested by the end of
business on a Business Day if such request is received by 1:30 P.M., Boston,
Massachusetts time on that Business Day; otherwise, such Advance will be
provided by the end of the then next Business Day.
(c) Provided that Availability will not be exceeded (but
subject, however, to Subsection 1-4(i), below (which deals with the effect of a
Suspension Event)), an Advance under the Revolving Credit so requested by the
Borrower shall be made by the transfer of the proceeds of such Advance to the
Funding Account.
(d) An Advance shall be deemed to have been made under the
Revolving Credit upon:
(i) The Lender's initiation of the transfer of the
proceeds of such Advance in accordance with the Borrower's instructions (if such
Advance is of funds requested by the Borrower).
(ii) The charging of the amount of such Advance to
the Loan Account (in all other circumstances).
(e) There shall not be any recourse to, nor liability of, the
Lender on account of:
(i) Any delay in the making of any Advance
requested under the Revolving Credit.
(ii) Any delay in the proceeds of any such Advance
constituting collected funds.
(iii) Any delay in the receipt, and/or any loss, of
funds which constitute an Advance under the Revolving Credit, the wire transfer
of which was initiated by the Lender in accordance with wire instructions
provided to the Lender by the Borrower.
(f) The Lender may rely on any request for an Advance or
financial accommodation which the Lender, in good faith, believes to have been
made by a person duly authorized to act on behalf of the Borrower and may
decline to make any such requested Advance or to provide any such financial
2
accommodation until the Lender is furnished with such documentation concerning
that Person's authority to act as may be satisfactory to the Lender.
(g) A request by the Borrower for any Advance under the
Revolving Credit or of the issuance of an L/C shall be irrevocable and shall
constitute certification by the Borrower that as of the date of such request,
each of the following is true and correct:
(i) There has been no Material Adverse Change.
(ii) The Borrower is in compliance with, and is not
then in breach, of any of its covenants contained in this Agreement (unless such
non-compliance or breach has been waived by Lender).
(iii) Each representation which is made herein or in
any of the Loan Documents is then true and in all material respects complete as
of and as if made on the date of such request.
(iv) No Suspension Event is then in existence.
(h) The Borrower shall immediately become indebted to the
Lender for the amount of each Advance under or pursuant to this Agreement when
such Advance is deemed to have been made.
(i) Upon the occurrence from time to time of any Suspension
Event, the Lender may suspend the Revolving Credit immediately and shall not be
obligated, during such suspension, to make any Advance or to provide any
financial accommodation hereunder.
(j) The Borrower may request that the Lender cause the
issuance of L/C's for the account of the Borrower.
(i) Each such request shall be in such manner as
may from time to time be reasonably acceptable to the Lender.
(ii) The Lender will endeavor to cause the issuance
of any L/C so requested by the Borrower, provided that the requested L/C is in
form satisfactory to the Lender and if so issued:
(A) The aggregate Stated Amount of all
L/C's then outstanding, does not
exceed Two Million ($2,000,000)
Dollars.
(B) The expiry of the L/C is not later
than the earlier of thirty (30) days
prior to the Maturity Date or the
following:
(I) L/C's other than Documentary
L/C's: One (1) year from initial
issuance.
(II) Documentary L/C's: forty five
(45) days from issuance; and
(C) Availability would not be exceeded.
3
(iii) The Borrower shall execute such documentation to
apply for and support the issuance of an L/C as may be required by the
Issuer.
(iv) There shall not be any recourse to, nor liability of, the
Lender on account of:
(A) Any delay or refusal by an Issuer to issue an L/C.
(B) Any action or inaction of an Issuer on account of or
in respect to, any L/C.
(v) The Borrower shall reimburse the Issuer, immediately upon the
drawing under any L/C, for the amount of such drawing. In the event that the
Borrower fails to so reimburse the Issuer, the Borrower immediately shall
reimburse the Lender for the amount of such drawing. To the extent which the
Borrower fails to so reimburse the Issuer or the Lender, the Lender, without the
request of the Borrower, may advance under the Revolving Credit any amount which
the Borrower is so obligated to pay to the Lender or the Issuer, or for which
the Borrower, the Issuer, or the Lender becomes obligated on account of, or in
respect to, any L/C. Such Advance shall bear interest at the rate then
applicable to Advances that are Base Rate Loans under Section 1-8. To the extent
an Advance is made hereunder, Borrower's reimbursement obligation shall be
discharged and replaced by the resulting Advance. Such Advance shall be made
whether or not a Suspension Event is then in existence or such Advance would
result in Availability being exceeded. Such action shall not constitute a waiver
of the Lender's rights under Section 1-7(b), below.
1-5 The Loan Account.
----------------
(a) An account ("Loan Account") shall be opened on the books
of the Lender in which Loan Account a record may be kept of all Advances made
under or pursuant to this Agreement and of all payments thereon.
(b) The Lender may also keep a record (e)ther in the Loan
Account or elsewhere, as the Lender may from time to time elect) of all
interest, fees, service charges, costs, expenses, and other debits owed the
Lender on account of the Liabilities and of all credits against such amounts so
owed.
(c) All credits against the Liabilities shall be conditional
upon final payment to the Lender of the items giving rise to such credits. The
amount of any item credited against the Liabilities which is charged back
against the Lender for any reason or is not so paid shall be a Liability and
shall be added to the Loan Account, whether or not the item so charged back or
not so paid is returned.
(d) Except as otherwise provided herein, all fees, service
charges, costs, and expenses for which the Borrower is obligated hereunder are
payable on demand. In the determination of Availability, the Lender may deem
fees, service charges, accrued interest, and other payments or deposits as
having been advanced under the Revolving Credit if such amounts are then due and
payable.
(e) The Lender, without the request of the Borrower, may
advance under the Revolving Credit any interest, fee, service charge, or other
payment to which the Lender is entitled from the Borrower pursuant hereto and
may charge the same to the Loan Account notwithstanding that such amount so
advanced may result in an Overadvance. Such action on the part of the Lender
shall not constitute a waiver of the Lender's rights under Section 1-7(b),
below. Any amount which is added to the
4
principal balance of the Loan as provided in this Section shall bear interest at
the interest rate applicable from time to time to the unpaid principal balance
of the Loan.
(f) Any statement rendered by the Lender to the Borrower concerning
the Liabilities shall be considered correct and accepted by the Borrower and
shall be conclusively binding upon the Borrower unless the Borrower provides the
Lender with written objection thereto within thirty (30) days from the mailing
of such statement, which written objection shall indicate, with particularity,
the reason for such objection. The Loan Account and the Lender's books and
records concerning the loan arrangement contemplated herein and the Liabilities
shall be prima facie evidence and proof of the items described therein.
1-6 The Master Note. The obligation to repay Advances under the
---------------
Revolving Credit, with interest as provided herein, may be evidenced by a note
(the "Master Note") in the form of EXHIBIT 1-6, annexed hereto, executed by the
-----------
Borrower. Neither the original nor a copy of the Master Note shall be required,
however, to establish or prove any Liability. In the event that the Master Note
is ever lost, mutilated, or destroyed, the Borrower shall execute a replacement
thereof and deliver such replacement to the Lender.
1-7 Payment of Loan Account.
-----------------------
(a) The Borrower may repay all or any portion of the principal
balance of the Loan from time to time until the Termination Date.
(b) The Borrower, without notice or demand from the Lender, shall
pay the Lender that amount, from time to time, which is necessary so that the
balance of the Loan Account does not exceed Availability.
(c) The Borrower shall pay the then entire unpaid balance of the
Loan Account and all other Liabilities on the Termination Date.
1-8 Interest.
--------
(a) Except as provided in clause (c) below, all Liabilities (except
for undrawn Letters of Credit) that have been charged to the Loan Account
pursuant to the terms hereof shall bear interest on the Daily Balance thereof as
follows (i) if the relevant Obligation is an Advance that is a LIBOR Rate Loan,
at a per annum rate equal to the LIBOR Rate plus the LIBOR Rate Margin, and (ii)
otherwise, at a per annum rate equal to the Base Rate plus the Base Rate Margin.
(b) Upon the occurrence and during the continuation of an Event of
Default,
(i) all Liabilities (except for undrawn L/Cs) that have been
charged to the Loan Account pursuant to the terms hereof shall bear
interest on the Daily Balance thereof at a per annum rate equal to
2.125% above the per annum rate otherwise applicable hereunder, and
(ii) the L/C fees provided for in Section 1-11 shall be
increased to 2.125% percentage points above the per annum rate
otherwise applicable hereunder.
5
(c) Interest, Letter of Credit fees, and all other fees payable
hereunder shall be due and payable, in arrears, on the first day of each month
at any time that Liabilities or an obligation to extend credit hereunder are
outstanding. Borrower hereby authorizes Lender, from time to time without prior
notice to Borrower, to charge such interest and fees, all Lender Expenses (as
and when incurred), the charges, commissions, fees, and costs provided for in
Section 1-11 (as and when accrued or incurred), the fees and costs provided for
in Section1-9 (as and when accrued or incurred), and all other payments as and
when due and payable under any Loan Document to Borrower's Loan Account, which
amounts thereafter constitute Advances hereunder and shall accrue interest at
the rate then applicable to Advances hereunder. Any interest not paid when due
shall be compounded by being charged to Borrower's Loan Account and shall
thereafter constitute Advances hereunder and shall accrue interest at the rate
then applicable to Advances that are Base Rate Loans hereunder.
(d) All interest and fees chargeable under the Loan Documents shall
be computed on the basis of a 360 day year for the actual number of days
elapsed. In the event the Base Rate is changed from time to time hereafter, the
rates of interest hereunder based upon the Base Rate automatically and
immediately shall be increased or decreased by an amount equal to such change in
the Base Rate.
(e) In no event shall the interest rate or rates payable under this
Agreement, plus any other amounts paid in connection herewith, exceed the
highest rate permissible under any law that a court of competent jurisdiction
shall, in a final determination, deem applicable. Borrower and Lender, in
executing and delivering this Agreement, intend legally to agree upon the rate
or rates of interest and manner of payment stated within it; provided, however,
that, anything contained herein to the contrary notwithstanding, if said rate or
rates of interest or manner of payment exceeds the maximum allowable under
applicable law, then, ipso facto, as of the date of this Agreement, Borrower is
and shall be liable only for the payment of such maximum as allowed by law, and
payment received from Borrower in excess of such legal maximum, whenever
received, shall be applied to reduce the principal balance of the Liabilities to
the extent of such excess.
1-9 Fees. Borrower shall pay to the Lender the following fees:
----
(a) Loan Maintenance Fee., Borrower shall pay, on the first day of
each month, a loan maintenance fee in the amount of $1,500 per month, which fee
shall be fully earned and payable on the first day of each month.
(b) Unused Line Fee. On the first day of each month during the term
of this Agreement, an Unused Line Fee in an amount equal to two-tenths of one
(.20%) percent of the Average Unused Portion of the Credit Limit.
(c) Financial Examination, Legal Investigation, Documentation, and
Appraisal Fees. Lender's actual charges paid or incurred for each financial
analysis and examination (i.e., audits) of Borrower performed by personnel
employed by Lender; Lender's actual charges paid or incurred for each appraisal
of the Collateral performed by personnel employed by Lender; and, the actual
charges paid or incurred by Lender if it elects to employ the services of one or
more third Persons to perform legal investigation, documentation financial
analysis and examinations (i.e., audits) of Borrower or to appraise the
Collateral. Borrower shall be periodically charged for all due diligence and
loan administration costs from time to time incurred by Lender at the rate of
(i) $750 per man per day plus out-of-pocket expenses for Lender's financial
auditors both in the filed and in the office and (ii) $1,500
6
per man per day plus out-of-pocket expenses for each appraisal of any of the
collateral conduced at Lender's expense. So long as no Event of Default exists,
with respect to audits, Borrower's obligation to reimburse Lender shall not
exceed Thirty Thousand ($30,000) Dollars per year, and with respect to
appraisals, Lender agrees not to conduct more than two (2) appraisals during
each year.
(d) In addition to any other right to which the Lender is then
entitled on account thereof, the Lender may assess an additional fee payable by
the Borrower on account of the accommodation of Lender to the Borrower's request
that the Lender depart or dispense with one or more of the administrative
provisions of this Agreement.
(i) By way of non-exclusive example, the Lender may assess a
fee on account of any of the following:
(A) The Borrower's failure to pay that amount
which is necessary so that the principal
balance of the Loan does not exceed
Availability (as required under Section
1-7(b), above).
(B) The providing of an Advance under the
Revolving Credit such that Availability would
be exceeded.
(C) The providing of a same Business Day loan
requested after the time set forth in Section
1-4(b)(i), above.
(D) The Borrower's failure to provide a financial
statement or report within the applicable
time-frame provided for such report under
Article 9, below.
(ii) The inclusion of the foregoing right on the part of the
Lender to assess a fee does not constitute an obligation, on the part of the
Lender, to waive any provision of this Agreement under any circumstances. The
assessment of any such fee in any particular circumstance shall not constitute
the Lender's waiver of any breach of this Agreement on account of which such fee
was assessed nor a course of action on which the Borrower may rely.
(e) The Borrower shall not be entitled to any credit, rebate or
repayment of any Loan Maintenance Fee, Unused Line Fee or other fee previously
earned by the Lender pursuant to this Section notwithstanding any termination of
this Agreement or suspension or termination of the Lender's obligation to make
Advances hereunder.
1-10 Lender's Discretion.
-------------------
(a) Each reference in the Loan Documents to the exercise of
discretion or the like by the Lender shall be to Lender's exercise of its
judgement, in good faith (which shall be presumed), based upon that Lender's
consideration of any such factor as the Lender, taking into account information
of which that Lender then has actual knowledge, believes:
(i) Will or reasonably could be expected to affect the value
of the Collateral, the enforceability of the Lender's security and collateral
interests therein, or the amount which the Lender
7
would likely realize therefrom (taking into account delays which may possibly be
encountered in the Lender's realizing upon the Collateral and likely Costs of
Collection).
(ii) Indicates that any report or financial information
delivered to the Lender by or on behalf of the Borrower is incomplete,
inaccurate, or misleading in any material manner or was not prepared in
accordance with the requirements of this Agreement.
(iii) Suggests an increase in the likelihood that the Borrower
will become the subject of a bankruptcy or insolvency proceeding.
(iv) Constitutes a Suspension Event.
(b) In the exercise of such judgement, the Lender also may take into
account any of the following factors:
(i) Those included in, or tested by, the definitions of
"Acceptable Inventory", "Retail", and "Cost".
(ii) The current financial and business climate of the industry
in which the Borrower competes (having regard for the Borrower's position in
that industry).
(iii) General economic conditions which have a material effect
on cost structure.
(iv) Material changes in or to the mix of the Borrower's
Inventory.
(v) Seasonality with respect to the Borrower's Inventory and
pattern of the Borrower's retail sales versus that which was projected.
(vi) Material changes in Availability versus that which was
projected.
(vii) Such other factors as the Lender determines, in good
faith, as having a material bearing on credit risks associated with the
providing of Advances and financial accommodations to the Borrower.
(c) The burden of establishing the failure of the Lender to
have acted in a reasonable manner in such Lender's exercise of discretion shall
be the Borrower's.
1-11 Fees for L/C's.
--------------
(a) Prior to the issuance of any L/C, the Borrower shall pay to the
Lender a fee for each L/C equal to fifty (50) Basis Points times the Stated
Amount of that L/C times the initial term of that L/C.
(b) In addition to the fee to be paid as provided in Subsection
1-11(a), above, the Borrower shall pay to the Lender (or to the Issuer, if so
requested by the Lender), on demand, all issuance, processing, negotiation,
amendment, and administrative fees and other amounts charged by the Issuer on
account of, or in respect to, any L/C.
8
1-12 Concerning L/C's.
----------------
(a) None of the Issuer, the Issuer's correspondents, or any
advising, negotiating, or paying bank with respect to any L/C shall be
responsible in any way for:
(i) The performance by any beneficiary under any L/C of that
beneficiary's obligations to the Borrower.
(ii) The form, sufficiency, correctness, genuineness, authority
of any person signing; falsification; or the legal effect of; any documents
called for under any L/C if such documents on their face appear to be in order.
(b) The Issuer may honor, as complying with the terms of any L/C and
of any drawing thereunder, any drafts or other documents otherwise in order, but
signed or issued by an administrator, executor, conservator, trustee in
bankruptcy, debtor in possession, assignee for the benefit of creditors,
liquidator, receiver, or other legal representative of the party authorized
under such L/C to draw or issue such drafts or other documents.
(c) Unless otherwise agreed to, in the particular instance, the
Borrower hereby authorizes any Issuer to:
(i) Select an advising bank, if any.
(ii) Select a paying bank, if any.
(iii) Select a negotiating bank.
(d) All directions, correspondence, and funds transfers relating to
any L/C are at the risk of the Borrower. The Issuer shall have discharged the
Issuer's obligations under any L/C which, or the drawing under which, includes
payment instructions, by the initiation of the method of payment called for in,
and in accordance with, such instructions (or by any other commercially
reasonable and comparable method). Neither the Lender nor the Issuer shall have
any responsibility for any inaccuracy, interruption, error, or delay in
transmission or delivery by post, telegraph or cable, or for any inaccuracy of
translation.
(e) The Lender's and the Issuer's rights, powers, privileges and
immunities specified in or arising under this Agreement are in addition to any
heretofore or at any time hereafter otherwise created or arising, whether by
statute or rule of law or contract.
(f) Except to the extent otherwise expressly provided hereunder or
agreed to in writing by the Issuer and the Borrower, the L/C will be governed by
the Uniform Customs and Practice for Documentary Credits (1993 Revision),
International Chamber of Commerce, Publication No.500, and any subsequent
revisions thereof.
(g) If any change in any law, executive order or regulation, or any
directive of any administrative or governmental authority (whether or not having
the force of law), or in the interpretation thereof by any court or
administrative or governmental authority charged with the administration
thereof, shall either:
9
(i) Impose, modify or deem applicable any reserve, special
deposit or similar requirements against letters of credit heretofore or
hereafter issued by any Issuer or with respect to which the Lender or any Issuer
has an obligation to lend to fund drawings under any L/C; or
(ii) Impose on any Issuer any other condition or requirements
relating to any such letters of credit; and the result of any event referred to
in Section 1-12(g)(i) or 1-12(g)(ii), above, shall be to increase the cost to
any Issuer of issuing or maintaining any L/C (which increase in cost shall be
the result of such Issuer's reasonable allocation among that Issuer's letter of
credit customers of the aggregate of such cost increases resulting from such
events),
then, upon demand by the Lender and delivery by the Lender to the Borrower of a
certificate of an officer of the subject Issuer describing such change in law,
executive order, regulation, directive, or interpretation thereof, its effect on
such Issuer, and the basis for determining such increased costs and their
allocation, the Borrower shall immediately pay to the Lender, from time to time
as specified by the Lender, together with interest on such amount from the date
of such demand until payment in full thereof at the rate then applicable to Base
Rate Loans hereunder, such amounts as shall be sufficient to compensate such
Issuer for such increased cost. Any Issuer's determination of costs incurred
under Section 1-12(g)(i) or 1-12(g)(ii), above, and the allocation, if any, of
such costs among the Borrower and other letter of credit customers of such
Issuer, if done in good faith and made on an equitable basis and in accordance
with the officer's certificate, shall be conclusive and binding on the Borrower.
(h) The obligations of the Borrower under this Agreement with respect
to L/C's are absolute, unconditional, and irrevocable and shall be performed
strictly in accordance with the terms hereof under all circumstances whatsoever
including, without limitation, the following:
(i) Any lack of validity or enforceability or restriction,
restraint, or stay in the enforcement of this Agreement, any L/C, or any other
agreement or instrument relating thereto.
(ii) Any amendment or waiver of, or consent to the departure
from, any L/C.
(iii) The existence of any claim, set-off, defense, or other
right which the Borrower may have at any time against the beneficiary of any
L/C.
(iv) Any honoring of a drawing under any L/C, which drawing
possibly could have been dishonored based upon
a strict construction of the terms of the L/C.
(v) The Borrower shall not present to Lender or cause the
amendment of an L/C without satisfactory evidence of one or more of the
following: (A) change in delivery date; (B) Borrower's receipt of partial
shipment; or (C) change to original order reflected in OTB (open to Buy) or
other information which may be so reasonably requested by the Lender.
(i) In no event, shall Lender or Issuer have any obligation to honor
any L/C presented for payment after its expiration. In the event no payment has
been made, the Stated Amount of such L/C shall continue to be deducted from
Availability for thirty (30) business days beyond expiration of said L/C.
1-13 LIBOR Option.
------------
10
(a) Interest and Interest Payment Dates. In lieu of having
-----------------------------------
interest charged at the rate based upon the Base Rate, Borrower shall have the
option (the "LIBOR Option") to have interest on all or a portion of the Advances
be charged at the LIBOR Rate. Interest on LIBOR Rate Loans shall be payable on
the earliest of (i) the last day of the Interest Period applicable thereto, (ii)
the occurrence of an Event of Default in consequence of which Lender has elected
to accelerate the maturity of the Liabilities, (iii) termination of this
Agreement pursuant to the terms hereof, or (iv) the first day of each month that
such LIBOR Rate Loan is outstanding. On the last day of each applicable Interest
Period, unless Borrower properly has exercised the LIBOR Option with respect
thereto, the interest rate applicable to such LIBOR Rate Loan automatically
shall convert to the rate of interest then applicable to Base Rate Loans of the
same type hereunder. At any time that an Event of Default has occurred and is
continuing, Borrower no longer shall have the option to request that Advances
bear interest at the LIBOR Rate and Lender shall have the right to convert the
interest rate on all outstanding LIBOR Rate Loans to the rate then applicable to
Base Rate Loans hereunder.
(b) LIBOR Election.
--------------
(i) Borrower may, at any time and from time to time, so
long as no Event of Default has occurred and is continuing, elect to exercise
the LIBOR Option by notifying Lender prior to 1:00 P.M. (Boston, Massachusetts
time) at least 3 Business Days prior to the commencement of the proposed
Interest Period (the "LIBOR Deadline"). Notice of Borrower's election of the
LIBOR Option for a permitted portion of the Advances and an Interest Period
pursuant to this Section shall be made by delivery to Lender of a LIBOR Notice
received by Lender before the LIBOR Deadline, or by telephonic notice received
by Lender before the LIBOR Deadline (to be confirmed by delivery to Lender of a
LIBOR Notice received by Lender prior to 5:00p.m. (Boston, Massachusetts time)
on the same day.
(ii) Each LIBOR Notice shall be irrevocable and binding
on Borrower. In connection with each LIBOR Rate Loan, Borrower shall indemnify,
defend, and hold Lender harmless against any loss, cost, or expense incurred by
Lender as a result of (A) the payment of any principal of any LIBOR Rate Loan
other than on the last day of an Interest Period applicable thereto (including
as a result of an Event of Default), (B) the conversion of any LIBOR Rate Loan
other than on the last day of the Interest Period applicable thereto, or (C) the
failure to borrow, convert, continue or prepay any LIBOR Rate Loan on the date
specified in any LIBOR Notice delivered pursuant hereto (such losses, costs, and
expenses, collectively, "Funding Losses"). Funding Losses shall be deemed to
equal the amount determined by Lender to be the excess, if any, of (I) the
amount of interest that would have accrued on the principal amount of such LIBOR
Rate Loan had such event not occurred, at the LIBOR Rate that would have been
applicable thereto, for the period from the date of such event to the last day
of the then current Interest Period therefor (or, in the case of a failure to
borrow, convert, or continue, for the period that would have been the Interest
Period therefor), minus (II) the amount of interest that would accrue on such
principal amount for such period at the interest rate which Lender would be
offered were it to be offered, at the commencement of such period, Dollar
deposits of a comparable amount and period in the London interbank market. A
certificate of Lender delivered to Borrower setting forth any amount or amounts
that Lender is entitled to receive pursuant to this Section shall be conclusive
absent manifest error.
(iii) Borrower shall have not more than 5 LIBOR Rate
Loans in effect at any given time. Borrower only may exercise the LIBOR Option
for LIBOR Rate Loans of at least $1,000,000 and integral multiples of $500,000
in excess thereof.
11
(c) Prepayments. Borrower may prepay LIBOR Rate Loans at any time;
-----------
provided, however, that in the event that LIBOR Rate Loans are prepaid on any
-------- -------
date that is not the last day of the Interest Period applicable thereto,
including as a result of any automatic prepayment through the required
application by Lender of proceeds of Collections in accordance with the terms
hereof or for any other reason, including early termination of the term of this
Agreement or acceleration of the Liabilities pursuant to the terms hereof,
Borrower shall indemnify, defend, and hold Lender and its Participants harmless
against any and all Funding Losses in accordance with clause (b)(ii) above.
(d) Special Provisions Applicable to LIBOR Rate.
-------------------------------------------
(i) The LIBOR Rate may be adjusted by Lender on a
prospective basis to take into account any additional or increased costs to
Lender of maintaining or obtaining any Eurodollar deposits or increased costs
due to changes in applicable law occurring subsequent to the commencement of the
then applicable Interest Period, including changes in tax laws (except changes
of general applicability in corporate income tax laws) and changes in the
reserve requirements imposed by the Board of Governors of the Federal Reserve
System (or any successor), excluding the Reserve Percentage, which additional or
increased costs would increase the cost of funding loans bearing interest at the
LIBOR Rate. In any such event, Lender shall give Borrower notice of such a
determination and adjustment and, upon its receipt of the notice from Lender,
Borrower may, by notice to Lender (y) require Lender to furnish to Borrower a
statement setting forth the basis for adjusting such LIBOR Rate and the method
for determining the amount of such adjustment, or (z) repay the LIBOR Rate Loans
with respect to which such adjustment is made (together with any amounts due
under clause (b)(ii) above).
(ii) In the event that any change in market conditions or any
law, regulation, treaty, or directive, or any change therein or in the
interpretation of application thereof, shall at any time after the date hereof,
in the reasonable opinion of Lender, make it unlawful or impractical for Lender
to fund or maintain LIBOR Advances or to continue such funding or maintaining,
or to determine or charge interest rates at the LIBOR Rate, Lender shall give
notice of such changed circumstances to Borrower and (y) in the case of any
LIBOR Rate Loans that are outstanding, the date specified in Lender's notice
shall be deemed to be the last day of the Interest Period of such LIBOR Rate
Loans, and interest upon the LIBOR Rate Loans thereafter shall accrue interest
at the rate then applicable to Base Rate Loans, and (z) Borrower shall not be
entitled to elect the LIBOR Option until Lender determines that it would no
longer be unlawful or impractical to do so.
(e) No Requirement of Matched Funding. Anything to the contrary
---------------------------------
contained herein notwithstanding, neither Lender, nor any of its Participants,
is required actually to acquire Eurodollar deposits to fund or otherwise match
fund any Obligation as to which interest accrues at the LIBOR Rate. The
provisions of this Section shall apply as if Lender or its Participants had
match funded any Obligation as to which interest is accruing at the LIBOR Rate
by acquiring Eurodollar deposits for each Interest Period in the amount of the
LIBOR Rate Loans.
1-14 Capital Requirements. If, after the date hereof, Lender determines
--------------------
that (a) the adoption of or change in any law, rule, regulation or guideline
regarding capital requirements for banks or bank holding companies, or any
change in the interpretation or application thereof by any Governmental
Authority charged with the administration thereof, or (b) compliance by Lender
or its parent bank holding company with any guideline, request, or directive of
any such entity regarding capital adequacy (whether or not having the force of
law), the effect of which reduces the return on Lender's or such
12
holding company's capital solely as a consequence of Lender's obligations
hereunder to a level below that which Lender or such holding company could have
achieved but for such adoption, change, or compliance (taking into consideration
Lender's or such holding company's then existing policies with respect to
capital adequacy and assuming the full utilization of such entity's capital) by
any amount deemed by Lender to be material, then Lender may notify Borrower
thereof. Following receipt of such notice, Borrower agrees to pay Lender on
demand the amount of such reduction of return of capital as and when such
reduction is determined, payable within 90 days after presentation by Lender of
a statement in the amount and setting forth in reasonable detail Lender's
calculation thereof and the assumptions upon which such calculation was based
(which statement shall be deemed true and correct absent manifest error). In
determining such amount, Lender may use any reasonable averaging and attribution
methods.
ARTICLE 2 - GRANT OF SECURITY INTEREST
--------------------------------------
2-1 Grant of Security Interest. Borrower hereby grants to Lender a
--------------------------
continuing security interest in all of its right, title, and interest in all
currently existing and hereafter acquired or arising Personal Property
Collateral in order to secure prompt repayment of any and all of the Liabilities
in accordance with the terms and conditions of the Loan Documents and in order
to secure prompt performance by Borrower of each of its covenants and duties
under the Loan Documents. The Lender's Liens in and to the Personal Property
Collateral shall attach to all Personal Property Collateral without further act
on the part of Lender or Borrower. Anything contained in this Agreement or any
other Loan Document to the contrary notwithstanding, except for Permitted
Dispositions, Borrower has no authority, express or implied, to dispose of any
item or portion of the Collateral.
2-2 Negotiable Collateral. In the event that any Collateral, including
---------------------
proceeds, is evidenced by or consists of Negotiable Collateral, and if and to
the extent that perfection or priority of Lender's security interest is
dependent on or enhanced by possession, Borrower, promptly upon the request of
Lender, shall endorse and deliver physical possession of such Negotiable
Collateral to Lender.
2-3 Collection of Accounts, General Intangibles, and Negotiable
-----------------------------------------------------------
Collateral. At any time after the occurrence and during the continuation of an
----------
Event of Default, Lender or Lender's designee may (a) notify Account Debtors of
Borrower that the Accounts, Chattel Paper, or General Intangibles have been
assigned to Lender or that Lender has a security interest therein, or (b)
collect the Accounts, Chattel Paper, or General Intangibles directly and charge
the collection costs and expenses to the Loan Account. Borrower agrees that it
will hold in trust for Lender, as Lender's trustee, any Collections that it
receives and immediately will deliver said Collections to Lender or a Cash
Management Bank in their original form as received by Borrower.
2-4 Delivery of Additional Documentation Required. At any time upon the
---------------------------------------------
request of Lender, Borrower shall execute and deliver to Lender, any and all
financing statements, original financing statements in lieu of continuation
statements, fixture filings, security agreements, pledges, assignments,
endorsements of certificates of title, and all other documents (the "Additional
----------
Documents") that Lender may request in its Permitted Discretion, in form and
---------
substance satisfactory to Lender, to perfect and continue perfected or better
perfect the Lender's Liens in the Collateral (whether now owned or hereafter
arising or acquired), to create and perfect Liens in favor of Lender in any Real
Property Collateral acquired after the Closing Date, and in order to fully
consummate all of the transactions contemplated hereby and under the other Loan
Documents. To the maximum extent permitted by applicable law,
13
Borrower authorizes Lender to execute any such Additional Documents in
Borrower's name and authorizes Lender to file such executed Additional Documents
in any appropriate filing office. In addition, on such periodic basis as Lender
shall require, Borrower shall (a) provide Lender with a report of all new
patentable or copyrightable materials acquired or generated by Borrower during
the prior period, (b) cause all patents, copyrights, and trademarks acquired or
generated by Borrower that are not already the subject of a registration with
the appropriate filing office (or an application therefor diligently prosecuted)
to be registered with such appropriate filing office in a manner sufficient to
impart constructive notice of Borrower's ownership thereof, and (c) cause to be
prepared, executed, and delivered to Lender supplemental schedules to the
applicable Loan Documents to identify such patents, copyrights, and trademarks
as being subject to the security interests created thereunder.
2-5 Power of Attorney. Borrower hereby irrevocably makes, constitutes, and
-----------------
appoints Lender (and any of Lender's officers, employees, or agents designated
by Lender) as Borrower's true and lawful attorney, with power to (a) if Borrower
refuses to, or fails timely to execute and deliver any of the documents
described in Section 2.4, sign the name of Borrower on any of the documents
described in Section 2.4, (b) at any time that an Event of Default has occurred
and is continuing, sign Borrower's name on any invoice or xxxx of lading
relating to the Collateral, drafts against Account Debtors, or notices to
Account Debtors, (c) send requests for verification of Accounts, (d) endorse
Borrower's name on any Collection item that may come into Lender's possession,
(e) at any time that an Event of Default has occurred and is continuing, make,
settle, and adjust all claims under Borrower's policies of insurance and make
all determinations and decisions with respect to such policies of insurance, and
(f) at any time that an Event of Default has occurred and is continuing, settle
and adjust disputes and claims respecting the Accounts, Chattel Paper, or
General Intangibles directly with Account Debtors, for amounts and upon terms
that Lender determines to be reasonable, and Lender may cause to be executed and
delivered any documents and releases that Lender determines to be necessary. The
appointment of Lender as Borrower's attorney, and each and every one of its
rights and powers, being coupled with an interest, is irrevocable until all of
the Liabilities have been fully and finally repaid and performed and Lender's
obligations to extend credit hereunder are terminated.
2-6 Right to Inspect. Lender and its officers, employees, or agents shall
----------------
have the right, from time to time hereafter, upon notice and during Borrower's
normal business hours so long as no Event of Default exists and is continuing
hereunder or at any time, without notice, after the occurrence of an Event of
Default and during its continuance, to inspect the Books and to check, test, and
appraise the Collateral in order to verify Borrower's financial condition or the
amount, quality, value, condition of, or any other matter relating to, the
Collateral.
2-7 Control Agreements. Borrower agrees that it will not transfer assets
------------------
out of any Securities Accounts other than as permitted under Section 5-29 and,
if to another securities intermediary, unless each of Borrower, Lender, and the
substitute securities intermediary have entered into a Control Agreement. No
arrangement contemplated hereby or by any Control Agreement in respect of any
Securities Accounts or other Investment Property shall be modified by Borrower
without the prior written consent of Lender. Upon the occurrence and during the
continuance of a Default or Event of Default, Lender may notify any securities
intermediary to liquidate the applicable Securities Account or any related
Investment Property maintained or held thereby and remit the proceeds thereof to
the Lender's Account.
14
2-8 Extent and Duration of Security Interest. This grant of a security
----------------------------------------
interest is in addition to, and supplemental of, any security interest
previously granted by the Borrower to the Lender and shall continue in full
force and effect applicable to all Liabilities until all Liabilities have been
paid and/or satisfied in full and the security interest granted herein is
specifically terminated in writing by a duly authorized officer of the Lender.
ARTICLE 3 - DEFINITIONS
-----------------------
3-1 Definitions. All capitalized terms used in this agreement which are not
-----------
otherwise defined herein or in the UCC shall have the meanings assigned to them
in EXHIBIT 3, annexed hereto.
---------
3-2 Accounting Terms. All accounting terms not specifically defined herein
----------------
shall be construed in accordance with GAAP. When used herein, the term
"financial statements" shall include the notes and schedules thereto. Whenever
the term "Borrower" is used in respect of a financial covenant or a related
definition, it shall be understood to mean Borrower and its Subsidiaries on a
consolidated basis unless the context clearly requires otherwise.
3-3 Construction. Unless the context of this Agreement or any other Loan
------------
Document clearly requires otherwise, references to the plural include the
singular, references to the singular include the plural, the term "including" is
not limiting, and the term "or" has, except where otherwise indicated, the
inclusive meaning represented by the phrase "and/or." The words "hereof,"
"herein," "hereby," "hereunder," and similar terms in this Agreement or any
other Loan Document refer to this Agreement or such other Loan Document, as the
case may be, as a whole and not to any particular provision of this Agreement or
such other Loan Document, as the case may be. Section, subsection, clause,
schedule, and exhibit references herein are to this Agreement unless otherwise
specified. Any reference in this Agreement or in the other Loan Documents to any
agreement, instrument, or document shall include all alterations, amendments,
changes, extensions, modifications, renewals, replacements, substitutions,
joinders, and supplements, thereto and thereof, as applicable (subject to any
restrictions on such alterations, amendments, changes, extensions,
modifications, renewals, replacements, substitutions, joinders, and supplements
set forth herein). Any reference herein to any Person shall be construed to
include such Person's successors and assigns. Any requirement of a writing
contained herein or in the other Loan Documents shall be satisfied by the
transmission of a Record and any Record transmitted shall constitute a
representation and warranty as to the accuracy and completeness of the
information contained therein.
3-4 Exhibits. All of the exhibits attached to this Agreement shall be
--------
deemed incorporated herein by reference.
ARTICLE 4 - CONDITIONS PRECEDENT
--------------------------------
The effectiveness of this Agreement, the establishment of the Revolving
Credit, and the making of the first loan under the Revolving Credit, is
conditioned upon the delivery to Lender of the documents described below, each
in form and substance satisfactory to the Lender, and the satisfaction of the
conditions described below:
15
4-1 Corporate Due Diligence.
-----------------------
(a) A Certificate of legal existence and good standing issued by
the Secretary of State or other governing authority of the State of Borrower's
legal formation.
(b) Certificates of due qualification and good standing, issued by
the Secretary(ies) of State or other governing authority of each state in which
the nature of the Borrower's business conducted or assets owned could require
such qualification.
(c) A Certificate of the Borrower's secretary, clerk or otherwise
authorized officer or other Person attesting to the due adoption, continued
effectiveness, and setting forth the texts of, each resolution or authorization
adopted in connection with the establishment of the loan arrangement
contemplated by the Loan Documents and attesting to the true signatures of each
Person authorized as a signatory to any of the Loan Documents.
4-2 Opinion. An opinion of counsel to the Borrower in form and substance
-------
satisfactory to Lender and Lender's counsel.
4-3 Cash Management and Additional Documents. Such additional instruments
----------------------------------------
and documents including, without limitation, an agreement for the Blocked
Account executed by the Borrower, Lender and the applicable bank, Lender and
each such processor or service provider, and any other notices or agreements
required under Article 7 hereof, as the Lender or its counsel reasonably may
require or request, in each case in form and substance satisfactory to Lender
and its counsel.
4-4 Officers' Certificates. Certificates executed by the president or chief
----------------------
executive officer and the chief financial officer of the Borrower and stating
that the representations and warranties made by the Borrower to the Lender in
the Loan Documents are true and complete as of the date of such Certificate, and
that no event has occurred which is or which, solely with the giving of notice
or passage of time (or both) would be an Event of Default.
4-5 Representations and Warranties. Each of the representations made by or
------------------------------
on behalf of the Borrower in this Agreement or in any of the other Loan
Documents or in any other report, statement, document, or paper provided by and
or on behalf of the Borrower shall be true and in all material respects, correct
and complete as of the date as of which such representation or warranty was
made.
4-6 Initial Minimum Excess Availability. Availability, after giving effect
-----------------------------------
to the first Advances to be made under the Revolving Credit; any charges to the
Loan Account made in connection with the establishment of the credit facility
contemplated hereby; and L/C's to be issued at, or immediately subsequent to,
the establishment of such Revolving Credit, is not less than One Million Two
Hundred Fifty Thousand ($1,250,000) Dollars.
4-7 No Event of Default. No event shall have occurred, or failed to occur,
-------------------
which occurrence or which failure constitutes, or which, solely with the passage
of time or the giving of notice (or both) would constitute, an Event of Default.
4-8 No Material Adverse Change. No Material Adverse Change has occurred.
--------------------------
16
4-9 Delivery of Documents. This Agreement, the other Loan Documents
---------------------
and all instruments and documents hereunder shall have been duly executed and
delivered to Lender, in form and substance satisfactory to Lender. No document
shall be deemed delivered to the Lender until received and accepted by the
Lender at its head offices in Boston, Massachusetts. Under no circumstances will
this Agreement take effect until executed and accepted by the Lender at said
head office.
4-10 Perfection Requirements. Lender shall have received evidence, in
-----------------------
form and substance reasonably satisfactory to Lender, that Lender has a valid
perfected first priority security interest in all of the Collateral, and Lender
shall have received and reviewed UCC search results for all jurisdictions in
which assets of Borrower are located, which search results shall be in form and
substance satisfactory to Lender.
4-11 Insurance. Lender shall have received evidence of insurance and
---------
loss payee endorsements required hereunder and under the other Loan Documents,
in form and substance satisfactory to Lender, and certificates of insurance
policies and/or endorsements naming Lender as loss payee.
4-12 Existing Indebtedness. Lender shall have received, in form and
---------------------
substance reasonably satisfactory to Lender, an Assignment Agreement with the
existing lender assigning to Lender all of Borrower's Liabilities owing to
existing lender, together with all assignments and documents necessary to
consummate such assignment and assign to Lender all collateral security
heretofore granted to existing lender by Borrower.
ARTICLE 5 - GENERAL REPRESENTATIONS, WARRANTIES AND COVENANTS
-------------------------------------------------------------
To induce the Lender to establish the loan arrangement contemplated
herein and to make Advances and to provide financial accommodations under the
Revolving Credit (each of which shall be deemed to have been made in reliance
thereupon) the Borrower, in addition to all other representations, warranties,
and covenants made by the Borrower in any other Loan Document, makes those
representations, warranties, and covenants included in this Agreement.
5-1 Payment and Performance of Liabilities. The Borrower shall pay
--------------------------------------
each Liability due Lender when due (or when demanded if payable on demand) and
shall promptly, punctually, and faithfully perform each other Liability due
Lender and pay each Liability due others in accordance with its current custom
and practice. If Borrower has any dispute with any Person with respect to any
Liability, Borrower shall give Lender notice of said dispute.
5-2 Due Organization - Authorization - No Conflicts.
-----------------------------------------------
(a) The chief executive office of Borrower is located at the
address indicated in EXHIBIT 5-2(a) and Borrower's FEIN and, if applicable,
--------------
organizational number from its state of incorporation is identified in EXHIBIT
-------
5-2(a). The Borrower presently is and shall hereafter remain in good standing as
------
a legal entity in the state in which it is legally formed and is and shall
hereafter remain duly qualified and in good standing in every other state in
which, by reason of the nature or location of the Borrower's assets or operation
of the Borrower's business, such qualification may be necessary.
(b) Each Related Entity is listed on EXHIBIT 5-2(b), annexed
--------------
hereto. Each Related Entity is and shall hereafter remain in good standing in
the state in which legally formed and is and
17
shall hereafter remain duly qualified in every other state in which, by reason
of the nature and location of that entity's assets or the operation of such
entity's business, such qualification may be necessary. The Borrower shall
provide the Lender with prior written notice of any entity's becoming or ceasing
to be a Related Entity.
(c) The Borrower has all legal corporate power and authority to
execute and deliver all and singular the Loan Documents to which the Borrower is
a party and has and will hereafter retain all requisite legal power and
authority to perform any and all of the Liabilities.
(d) The execution and delivery by the Borrower of each Loan Document
to which it is a party; the Borrower's consummation of the transactions
contemplated by such Loan Documents (including, without limitation, the creation
of security interests by the Borrower as contemplated hereby); the Borrower's
performance under those of the Loan Documents to which it is a party; the
borrowings hereunder; and the use of the proceeds thereof:
(i) Have been duly authorized by all necessary legal action.
(ii) Do not, and will not, contravene in any material respect
any provision of any Requirement of Law or obligation of the Borrower.
(iii) Will not result in the creation or imposition of, or the
obligation to create or impose, any Encumbrance upon any assets of the Borrower
pursuant to any Requirement of Law or obligation, except pursuant to the Loan
Documents.
(e) The Loan Documents have been duly executed and delivered by
Borrower and are the legal, valid and binding obligations of the Borrower,
enforceable against the Borrower in accordance with their respective terms.
(f) At all times Borrower shall (iv) preserve and keep in full force
and effect Borrower's valid existence and good standing and any rights and
franchises material to Borrower's businesses; and (v) Borrower shall not change
Borrower's name; FEIN; if applicable, organizational number; corporate
structure; or identity; or add any new fictitious name; provided, however, that
-------- -------
Borrower may change its name upon at least 30 days prior written notice to
Lender of such change and so long as, at the time of such written notification,
Borrower provides any financing statements or fixture filings necessary to
perfect and continue perfected the Lender's Liens.
(g) The execution, delivery, and performance by Guarantor of the Loan
Documents to which Guarantor is a party do not and will not require any
registration with, consent, or approval of, or notice to, or other action with
or by, any Governmental Authority or other Person.
(h) The Loan Documents to which Guarantor is a party, and all other
documents contemplated hereby and thereby, when executed and delivered by
Guarantor will be the legally valid and binding obligations of Guarantor,
enforceable against Guarantor in accordance with their respective terms, except
as enforcement may be limited by equitable principles or by bankruptcy,
insolvency, reorganization, moratorium, or similar laws relating to or limiting
creditors' rights generally.
5-3 Trade Names.
-----------
18
(a) EXHIBIT 5-3, annexed hereto, is a listing of:
-----------
(vi) All names under which the Borrower ever
conducted its business, all trademark and service xxxx registrations and
applications with respect to any trademark or service xxxx; and all licenses
pursuant to which Borrower has the right to use any trademark or service xxxx.
(vii) All entities and/or Persons with whom the
Borrower ever consolidated or merged, or from whom the Borrower ever acquired in
a single transaction or in a series of related transactions substantially all of
such Person's assets.
(b) Except (i) upon not less than twenty-one (21) days prior
written notice given the Lender, and (ii) in compliance with all other
provisions of this Agreement, the Borrower will not undertake or commit to
undertake any action such that the results of that action, if undertaken prior
to the date of this Agreement, would have been reflected on EXHIBIT 5-3.
-----------
(c) The Borrower owns and possesses, or has the right to use
all patents, industrial designs, trademarks, trade names, trade styles, brand
names, service marks, logos, copyrights, trade secrets, know-how, confidential
information, and other intellectual or proprietary property of any third Person
necessary for the Borrower's conduct of the Borrower's business.
(d) To the knowledge of Borrower, the conduct by the Borrower
of the Borrower's business does not infringe on the patents, industrial designs,
trademarks, trade names, trade styles, brand names, service marks, logos,
copyrights, trade secrets, know-how, confidential information, or other
intellectual or proprietary property of any third Person.
5-4 Locations. Landlord's Consents, Waivers.
---------------------------------------
(a) The Collateral, and the books, records, and papers of
Borrower pertaining thereto, are kept and maintained solely at the Borrower's
chief executive offices as set forth at the beginning of this Agreement and at
those locations which are listed on EXHIBIT 5-4, annexed hereto, which exhibit
-----------
includes all service bureaus with which any such records are maintained and the
names and addresses of each of the Borrower's landlords. Except (iii) to
accomplish sales of Inventory in the ordinary course of business or (iv) to
utilize such of the Collateral as is removed from such locations in the ordinary
course of business (such as motor vehicles), the Borrower shall not remove any
Collateral from said chief executive offices or those locations listed on
EXHIBIT 5-4.
-----------
(b) The Borrower shall use its best efforts to obtain and
deliver to the Lender a consent, waiver and subordination (reasonably
satisfactory to the Lender) by the landlord for:
(v) All of Borrower's warehouse and distribution
center locations and store locations which in the aggregate account for one
third (_) of Borrower's sales volume, before execution hereof.
(vi) For the balance of store locations within
thirty (30) days of the date of execution hereof.
(c) Upon expiration of the thirty (30) day period referenced
in Section 5-4(b)(ii) above, Lender will establish an Availability Reserve for
up to ninety (90) days rent for each of the Borrower's
19
locations in a Landlord Lien State or in a One Turn State for which a
satisfactory consent, waiver and subordination has not been received. Such
Availability Reserve may be reduced or eliminated but only if no Suspension
Event is then in existence or has not theretofore occurred, upon the furnishing
to the Lender of a consent, waiver and subordination (in form reasonably
satisfactory to the Lender) by the landlord for the subject location.
(d) The Borrower will not:
(vii) Terminate or, in any material respect, alter,
modify, or amend, any Lease, except for Borrower's benefit and with at least ten
(10) days prior written notice to Lender.
(viii) Relocate its chief executive office to a new
location or enter into any Lease with respect to a new location without
providing 30 days prior written notification thereof to Lender and so long as,
at the time of such written notification, Borrower provides any financing
statements or fixture filings necessary to perfect and continue perfected the
Lender's Liens and also provides to Lender a Collateral Access Agreement with
respect to such new location. The Inventory and Equipment shall not at any time
now or hereafter be stored with a bailee, warehouseman, or similar party without
Lender's prior written consent.
(e) Except as otherwise disclosed on EXHIBIT 5-4, no tangible
-----------
personal property of the Borrower is in the care or custody of any third party
or stored or entrusted with a bailee or other third party and none shall
hereafter be placed under such care, custody, storage, or entrustment. Borrower
shall obtain and deliver a consent, waiver and subordination (in form reasonably
satisfactory to the Lender) from each bailee disclosed on EXHIBIT 5-4 on or
-----------
prior to the date of execution hereof.
5-5 Title to Assets.
---------------
(a) The Borrower is, and shall hereafter remain, the owner of
the Collateral free and clear of all Encumbrances with the exceptions of the
following:
(ix) The security interest created herein.
(x) Those Encumbrances (if any) listed on EXHIBIT
-------
5-5, annexed hereto.
---
(b) The Borrower does not and shall not have possession of any
property on consignment to the Borrower.
5-6 Indebtedness. The Borrower does not and shall not hereafter have
------------
any Indebtedness with the exceptions of:
(a) Any Indebtedness to the Lender.
(b) The Indebtedness (if any) listed on EXHIBIT 5-6, annexed
-----------
hereto.
(c) Capital Leases, not to exceed $100,000 per year, provided
Lender is given prompt written notice of any Capital Lease and no Lien on the
Collateral arises as a result thereof.
5-7 Insurance Policies.
------------------
20
(a) EXHIBIT 5-7, annexed hereto, is a schedule of all
-----------
insurance policies owned by the Borrower or under which the Borrower is the
named insured. Each of such policies is in full force and effect. Neither the
issuer of any such policy nor the Borrower is in default or violation of any
such policy.
(b) The Borrower shall have and maintain at all times
insurance covering such risks, in such amounts, containing such terms, in such
form, for such periods, and written by such companies as may be reasonably
satisfactory to the Lender. The coverage reflected on EXHIBIT 5-7 presently
satisfies the foregoing requirements, it being recognized by the Borrower,
however, that such requirements may change hereafter to reflect changing
circumstances. All insurance carried by the Borrower shall provide for a minimum
of twenty (20) days' written notice of cancellation to the Lender and all such
insurance which covers the Collateral shall include an endorsement in favor of
the Lender, which endorsement shall provide that the insurance, to the extent of
the Lender's interest therein, shall not be impaired or invalidated, in whole or
in part, by reason of any act or neglect of the Borrower or by the failure of
the Borrower to comply with any warranty or condition of the policy. In the
event of the failure by the Borrower to maintain insurance as required herein,
the Lender, at its option, may obtain such insurance, provided, however, the
Lender's obtaining of such insurance shall not constitute a cure or waiver of
any Event of Default occasioned by the Borrower's failure to have maintained
such insurance. The Borrower shall furnish to the Lender certificates or other
evidence satisfactory to the Lender regarding compliance by the Borrower with
the foregoing insurance provisions.
(c) The Borrower shall advise the Lender of each claim in
excess of One Hundred Thousand ($100,000) Dollars made by the Borrower under any
policy of insurance which covers the Collateral and will permit the Lender, at
the Lender's option in each instance, to the exclusion of the Borrower, to
conduct the adjustment of each such claim (and of all claims following the
occurrence of any Suspension Event). The Borrower hereby appoints the Lender as
the Borrower's attorney in fact to obtain, adjust, settle, and cancel any
insurance described in this section and to endorse in favor of the Lender any
and all drafts and other instruments with respect to such insurance. This
appointment, being coupled with an interest, is irrevocable until this Agreement
is terminated by a written instrument executed by a duly authorized officer of
the Lender. The Lender shall not be liable on account of any exercise pursuant
to said power except for any exercise in actual willful misconduct and bad
faith. So long as no Event of Default exists and is continuing, Lender agrees
not to compromise or settle any insurance claims without the prior written
consent of Borrower, which consent shall not be unreasonably withheld. The
Lender may apply any proceeds of such insurance against the Liabilities, whether
or not such have matured, in such order of application as the Lender may
determine.
(d) The Borrower shall maintain at all times those policies of
insurance obtained by the Borrower and assigned to the Lender as required by
Section 4-4, above.
5-8 Licenses. Each license, distributorship, franchise, and similar
--------
agreement issued to, or to which the Borrower is a party is in full force and
effect. To the knowledge of Borrower, no party to any such license or agreement
is in default or violation thereof. The Borrower has not received any notice or
threat of cancellation of any such license or agreement.
5-9 Intellectual Property. Borrower owns, or holds licenses in, all
---------------------
trademarks, trade names, copyrights, patents, patent rights, and licenses that
are necessary to the conduct of its business as currently conducted. Attached
hereto as EXHIBIT 5-9 is a true, correct, and complete listing of all
-----------
21
material patents, patent applications, trademarks, trademark applications,
copyrights, and copyright registrations as to which Borrower is the owner or is
an exclusive licensee.
5-10 Leases. EXHIBIT 5-10, annexed hereto, is a schedule of all presently
------ ------------
effective Leases and Capital Leases. Each of such Leases and Capital Leases is
in full force and effect. To the knowledge of Borrower, no party to any such
Lease or Capital Lease is in default or violation of any such Lease or Capital
Lease and the Borrower has not received any notice or threat of cancellation of
any such Lease or Capital Lease. The Borrower hereby authorizes the Lender at
any time and from time to time to contact any of the Borrower's landlords in
order to confirm the Borrower's continued compliance with the terms and
conditions of the Lease(s) between the Borrower and that landlord and to discuss
such issues, concerning the Borrower's occupancy under such Lease(s), as the
Lender may determine.
5-11 Depository Accounts. Set forth on EXHIBIT 5-11 are all of
------------------- ------------
Borrower's checking or other demand daily deposit accounts, including, with
respect to each depository (a) the name and address of such depository, and (b)
the account numbers of the accounts maintained with such depository.
5-12 Requirements of Law. The Borrower is in material compliance with, and
-------------------
shall hereafter materially comply with and use its assets in material compliance
with, all Requirements of Law. The Borrower has not received any notice of any
violation of any Requirement of Law (whether or not such violation is material),
which violation has not been cured or otherwise remedied.
5-13 Maintain Properties. The Borrower shall:
-------------------
(a) Keep the Collateral in good order and repair (ordinary reasonable
wear and tear and insured casualty excepted).
(b) Not suffer or cause the waste or destruction of any material part
of the Collateral.
(c) Not use any of the Collateral in violation of any policy of
insurance thereon.
(d) Not sell, lease, or otherwise dispose of any of the Collateral,
other than the following, in each case, subject to the turning over to the
Lender of all Receipts with respect to the same as provided herein,
(xi) The sale of Inventory in compliance with this Agreement.
(xii) The disposal of Equipment which is obsolete, worn out,
or damaged beyond repair, which Equipment is replaced to the extent necessary to
preserve or improve the operating efficiency of the Borrower.
5-14 Pay Taxes.
---------
(a) The federal income tax returns of the Borrower have been audited
by the Internal Revenue Service (or closed by applicable statutes) for all
fiscal years through and including the Borrower's taxable year referenced on
EXHIBIT 5-14, annexed hereto, and all deficiencies, assessments, and other
------------
amounts asserted as a result of such examinations have been fully paid or
settled. No agreement is in existence which waives or extends any statute of
limitations applicable to the right of the
22
Internal Revenue Service to assert a deficiency or make any other claim for or
in respect to federal income taxes. No issue has been raised in any such
examination which reasonably could be expected to result in the assertion of a
deficiency for any fiscal year open for examination, assessment, or claim by the
Internal Revenue Service.
(b) All returns of the Borrower for state and local income, excise,
sales, and other taxes have been audited (or closed by applicable statutes) for
all fiscal years through and including the Borrower's taxable year referenced on
EXHIBIT 5-14, annexed hereto, and all deficiencies, assessments, and other
------------
amounts asserted as a result of such examinations have been fully paid or
settled. No agreement is in existence which waives or extends any statute of
limitations applicable to the right of any state taxing authority to assert a
deficiency or make any other claim for or in respect to any such state taxes. No
issue has been raised in any such examination which reasonably could be expected
to result in the assertion of a deficiency for any fiscal year open for
examination, assessment, or claim by any state or local taxing authority.
(c) Except as disclosed on said EXHIBIT 5-14, there are no examinations
------------
of or with respect to the Borrower presently being conducted by the Internal
Revenue Service or any state taxing authority.
(d) The Borrower has, and hereafter shall: pay, as they become due and
payable, all taxes and unemployment contributions and other charges of any kind
or nature levied, assessed or claimed against the Borrower or the Collateral by
any Person or entity whose claim could result in an Encumbrance upon any asset
of the Borrower or by any governmental authority; properly exercise any trust
responsibilities imposed upon the Borrower by reason of withholding from
employees' pay; timely make all contributions and other payments as may be
required pursuant to any Employee Benefit Plan now or hereafter established by
the Borrower; and timely file all tax and other returns and other reports with
each governmental authority to whom the Borrower is obligated to so file.
(e) At its option, the Lender may, but shall not be obligated to, pay
any taxes, unemployment contributions, and any and all other charges levied or
assessed upon the Borrower or the Collateral by any Person or entity or
governmental authority, and make any contributions or other payments on account
of the Borrower's Employee Benefit Plan as the Lender, in the Lender's
discretion, may deem necessary or desirable, to protect, maintain, preserve,
collect, or realize upon any or all of the Collateral or the value thereof or
any right or remedy pertaining thereto, provided, however, the Lender's making
of any such payment shall not constitute a cure or waiver of any Event of
Default occasioned by the Borrower's failure to have made such payment.
5-15 No Margin Stock. The Borrower is not engaged in the business of
---------------
extending credit for the purpose of purchasing or carrying any margin stock
(within the meaning of Regulations U, T, and X, of the Board of Governors of the
Federal Reserve System of the United States). No part of the proceeds of any
borrowing hereunder will be used at any time to purchase or carry any such
margin stock or to extend credit to others for the purpose of purchasing or
carrying any such margin stock.
5-16 ERISA. Neither the Borrower nor any ERISA Affiliate ever has or
-----
hereafter shall:
(a) Violate or fail to be in full compliance with the Borrower's
Employee Benefit Plan.
23
(b) Fail timely to file all reports and filings required by ERISA to
be filed by the Borrower.
(c) Engage in any "prohibited transactions" or "reportable events"
(respectively as described in ERISA).
(d) Engage in, or commit, any act such that a tax or penalty could be
imposed on account thereof pursuant to ERISA.
(e) Accumulate any material funding deficiency within the meaning of
ERISA.
(f) Terminate any Employee Benefit Plan such that a Lien could be
asserted of the Borrower on account thereof pursuant to ERISA.
(g) Be a member of, contribute to, or have any obligation under any
Employee Benefit Plan which is a multiemployer plan within the meaning of
Section 4001(a) of ERISA.
5-17 Hazardous Materials.
-------------------
(a) Except as set forth in Exhibit 5-17, the Borrower has never:
(xiii) Been legally responsible for any release or threat of
release of any Hazardous Material.
(xiv) Received notification of any release or threat of
release of any Hazardous Material from any site or vessel occupied or operated
by the Borrower and/or of the incurrence of any expense or loss in connection
with the assessment, containment, or removal of any release or threat of release
of any Hazardous Material from any such site or vessel.
(b) The Borrower shall:
(xv) Dispose of any Hazardous Material only in compliance
with all Environmental Laws.
(xvi) Not store on any site or vessel occupied or operated by
the Borrower and not transport or arrange for the transport of any Hazardous
Material, except if such storage or transport is in the ordinary course of the
Borrower's business and is in compliance with all Environmental Laws.
(c) The Borrower shall provide the Lender with written notice upon the
Borrower's obtaining knowledge of any incurrence of any expense or loss by any
governmental authority or other Person in connection with the assessment,
containment, or removal of any Hazardous Material, for which expense or loss the
Borrower may be liable.
5-18 Litigation. Other than those matters disclosed on EXHIBIT 5-18, there
---------- ------------
are no actions, suits, or proceedings pending or, to the best knowledge of
Borrower, threatened against Borrower, or any of its Subsidiaries, as
applicable, except for (a) matters that are fully covered by insurance (subject
to customary deductibles), and (b) matters arising after the Closing Date that,
if decided adversely to
24
Borrower, or any of its Subsidiaries, as applicable, reasonably could not be
expected to result in a Material Adverse Change.
5-19 Dividends or Investments. The Borrower shall not, without the
------------------------
prior written consent of Lender:
(a) Pay any cash dividend or make any other distribution in respect of
any class of the Borrower's capital stock.
(b) Own, redeem, retire, purchase, or acquire any of the Borrower's
capital stock.
(c) Invest in or purchase any stock or securities or rights to
purchase any stock or securities of any corporation or other entity.
(d) Merge or consolidate or be merged or consolidated with or into any
other corporation or other entity.
(e) Consolidate any of the Borrower's operations with those of any
other corporation or other entity.
(f) Organize or create any Related Entity.
(g) Subordinate any debts or obligations owed to the Borrower by any
third party to any other debts owed by such third party to any other Person.
5-20 Loans. The Borrower shall not make any loans or advances to, nor
-----
acquire the Indebtedness of, any Person, provided, however, the foregoing does
not prohibit any of the following:
(a) Advance payments made to the Borrower's suppliers in the ordinary
course.
(b) Advances to the Borrower's officers, employees, and salespersons
with respect to reasonable expenses to be incurred by such officers, employees,
and salespersons for the benefit of the Borrower, which expenses are properly
substantiated by the Person seeking such advance and properly reimbursable by
the Borrower.
(c) Loans to the Borrower's officers and employees in amounts not to
exceed $50,000 to any one individual and $200,000 outstanding to all such
individuals at any one time.
5-21 Protection of Assets. The Lender, in the Lender's discretion, and from
--------------------
time to time, may discharge any tax or Encumbrance on any of the Collateral, or
take any other action that the Lender may deem necessary or desirable to repair,
insure, maintain, preserve, collect, or realize upon any of the Collateral. The
Lender shall not have any obligation to undertake any of the foregoing and shall
have no liability on account of any action so undertaken except where there is a
specific finding in a judicial proceeding (in which the Lender has had an
opportunity to be heard), from which finding no further appeal is available,
that the Lender had acted in actual bad faith or in a grossly negligent manner.
The Borrower shall pay to the Lender, on demand, or the Lender, in its
discretion, may add to the Loan Account, all amounts paid or incurred by the
Lender pursuant to this section. The obligation of the Borrower to pay such
amounts is a Liability.
25
5-22 Line of Business. The Borrower shall not engage in any business other
----------------
than the business in which it is currently engaged or a business reasonably
related thereto.
5-23 Affiliate Transactions. The Borrower shall not make any payment, nor
----------------------
give any value to any Related Entity except for goods and services actually
purchased by the Borrower from, or sold by the Borrower to, such Related Entity
for a price which shall:
(a) Be competitive and fully deductible as an "ordinary and necessary
business expense" and/or fully depreciable under the Internal Revenue Code of
1986 and the Treasury Regulations, each as amended; and
(b) Not differ from that which would have been charged in an arms
length transaction.
5-24 Executive Pay.
-------------
(a) The only Executive Officers of the Borrower, at the execution of
this Agreement, are those individuals referenced in the definition of "Executive
Officers".
(b) Prior to the execution of this Agreement, the Borrower furnished
the Lender with copies of all written Executive Agreements and outlines of the
salient features of all unwritten Executive Agreements (as amended to date) then
in existence. There are no unwritten agreements or understandings between the
Borrower and any Executive Officer which relate to Executive Pay, written
disclosure of which has not been made to the Lender.
(c) The Borrower will not:
(xvii) Enter into any Executive Agreement not existing at the
execution of this Agreement.
(xviii) Alter, amend, supplement, or otherwise change any
Executive Agreement.
(xix) Pay, provide, or facilitate any Executive Pay other than
as provided in an Executive Agreement or, if not covered by an Executive
Agreement, as permitted pursuant to Section 5-23, above.
5-25 Additional Assurances.
---------------------
(a) The Borrower is not the owner of, nor has it any interest in, any
property or asset which, immediately upon the satisfaction of the conditions
precedent to the effectiveness of the credit facility contemplated hereby
(Article 4) will not be subject to a perfected security interest in favor of the
Lender (subject only to those Encumbrances (if any) described on EXHIBIT 5-5,
-----------
annexed hereto) to secure the Liabilities.
(b) The Borrower will not hereafter acquire any asset or any interest
in property which is not, immediately upon such acquisition, subject to such a
perfected security interest in favor of the Lender to secure the Liabilities
(subject only to Encumbrances (if any) permitted pursuant to Section 5-5,
above).
26
(c) The Borrower shall execute and deliver to the Lender such
instruments, documents, and papers, and shall do all such things from time to
time hereafter as the Lender may request to carry into effect the provisions and
intent of this Agreement; to protect and perfect the Lender's security interests
in the Collateral; and to comply with all applicable statutes and laws, and
facilitate the collection of any Receivables Collateral. The Borrower shall
execute all such instruments as may be required by the Lender with respect to
the recordation and/or perfection of the security interests created herein.
(d) A carbon, photographic, or other reproduction of this Agreement or
of any financing statement or other instrument executed pursuant to this Section
5-23 shall be sufficient for filing to perfect the security interests granted
herein.
5-26 Adequacy of Disclosure.
----------------------
(a) All financial statements furnished to the Lender by the Borrower
have been prepared in accordance with GAAP consistently applied and present
fairly the condition of the Borrower at the date(s) thereof and the results of
operations and cash flows for the period(s) covered. There has been no change in
the financial condition, results of operations, or cash flows of the Borrower
since the date(s) of such financial statements, other than changes in the
ordinary course of business, which changes have not been materially adverse,
either singularly or in the aggregate.
(b) The Borrower does not have any contingent obligations or
obligation under any Lease or Capital lease which is not noted in the Borrower's
financial statements furnished to the Lender prior to the execution of this
Agreement.
(c) No document, instrument, agreement, or paper now or hereafter
given the Lender by or on behalf of the Borrower or any guarantor of the
Liabilities in connection with the execution of this Agreement by the Lender
contains or will contain any untrue statement of a material fact or omits or
will omit to state a material fact necessary in order to make the statements
therein not misleading. There is no fact known to the Borrower which has, or
which, in the foreseeable future could have, a material adverse effect on the
financial condition of the Borrower or any such guarantor which has not been
disclosed in writing to the Lender.
5-27 Minimum Excess Availability. At all times, Borrower shall have
---------------------------
Availability of not less than $1,250,000.
5-28 No Material Adverse Change. There has not been a Material Adverse
--------------------------
Change.
5-29 Securities Accounts. Borrower shall not establish or maintain any
-------------------
Securities Account unless Lender shall have received a Control Agreement in
respect of such Securities Account. Borrower shall not transfer assets out of
any Securities Account; provided, however, that, so long as no Event of Default
-------- -------
has occurred and is continuing or would result therefrom, Borrower may use such
assets (and the proceeds thereof) to the extent not prohibited by this
Agreement.
5-30 Disclosure Updates. Borrower shall promptly and in no event later than
------------------
five (5) Business Days after obtaining knowledge thereof, (a) notify Lender if
any written information, exhibit, or report furnished to Lender contained any
untrue statement of a material fact or omitted to state any material fact
necessary to make the statements contained therein not misleading in light of
the circumstances in
27
which made, and (b) correct any defect or error that may be discovered therein
or in any Loan Document or in the execution, acknowledgment, filing, or
recordation thereof.
5-31 Brokerage Commissions. Borrower has not utilized the services of any
---------------------
broker or finder in connection with Borrower's obtaining financing from Lender
under this Agreement and no brokerage commission or finders fee is payable by
Borrower in connection herewith. Borrower agrees to indemnify, defend, and hold
Lender harmless from and against any claim of any broker or finder arising out
of Borrower's obtaining financing from Lender under this Agreement.
5-32 Other Covenants. The Borrower shall not indirectly do or cause to be
---------------
done any act which, if done directly by the Borrower, would breach any covenant
contained in this Agreement.
ARTICLE 6 - USE AND COLLECTION OF COLLATERAL
--------------------------------------------
6-1 Use of Inventory Collateral.
---------------------------
(a) The Borrower shall not engage in any sale of the Inventory
other than for fair consideration in the conduct of the Borrower's business in
the ordinary course and shall not engage in sales or other dispositions to
creditors; sales or other dispositions in bulk; and any use of any of the
Inventory in breach of any provision of this Agreement.
(b) No sale of Inventory shall be on consignment, approval, or
under any other circumstances such that, with the exception of the Borrower's
customary return policy applicable to the return of Inventory purchased by the
Borrower's retail customers in the ordinary course, such Inventory may be
returned to the Borrower without the consent of the Lender.
6-2 Inventory Quality. All Inventory now owned or hereafter acquired by
-----------------
the Borrower is and will be of good and merchantable quality and free from
defects (other than defects within customary trade tolerances).
6-3 Adjustments and Allowances. The Borrower may grant such allowances or
--------------------------
other adjustments to the Borrower's Account Debtors (exclusive of extending the
time for payment of any Account or Account Receivable, which shall not be done
without first obtaining the Lender's prior written consent in each instance) as
the Borrower may reasonably deem to accord with sound business practice,
provided, however, the authority granted the Borrower pursuant to this Section
6-3 may be limited or terminated by the Lender at any time in the Lender's
discretion.
6-4 Validity of Accounts.
--------------------
(a) The amount of each Account shown on the books, records, and
invoices of the Borrower represented as owing by each Account Debtor is and will
be the correct amount actually owing by such Account Debtor and shall have been
fully earned by performance by the Borrower.
(b) The Borrower has no knowledge of any impairment of the
validity or collectibility of any of the Accounts and shall notify the Lender of
any such fact immediately after Borrower becomes aware of any such impairment.
28
(c) The Borrower shall not post any bond to secure the Borrower's
performance under any agreement to which the Borrower is a party nor cause any
surety, guarantor, or other third party obligee to become liable to perform any
obligation of the Borrower (other than to the Lender) in the event of the
Borrower's failure so to perform.
6-5 Notification to Account Debtors. After the occurrence of an Event of
-------------------------------
Default and during its continuance, the Lender shall have the right at any time
to notify any of the Borrower's Account Debtors to make payment directly to the
Lender and to collect all amounts due on account of the Collateral.
ARTICLE 7 - CASH MANAGEMENT
---------------------------
7-1 Cash Management Accounts.
------------------------
(a) Borrower shall (xx) establish and maintain cash management
services of a type and on terms satisfactory to Lender at one or more of the
banks set forth on EXHIBIT 7-1 (each, a "Cash Management Bank"), and shall take
such reasonable steps to ensure that all payments of the amounts owed by its
Account Debtors are forwarded directly to such Cash Management Bank, and (xxi)
deposit or cause to be deposited promptly, and in any event no later than the
third (3/rd/) Business Day after the date of receipt thereof, all Collections
(including those sent directly by Account Debtors to a Cash Management Bank)
into a bank account (a "Cash Management Account") at one of the Cash Management
Banks.
(b) Each Cash Management Bank shall establish and maintain Cash
Management Agreements with Lender and Borrower, in form and substance acceptable
to Lender. Each such Cash Management Agreement shall provide, among other
things, that (xxii) all items of payment deposited in such Cash Management
Account and proceeds thereof are held by such Cash Management Bank as agent or
bailee-in-possession for Lender, (xxiii) the Cash Management Bank has no rights
of setoff or recoupment or any other claim against the applicable Cash
Management Account other than for payment of its service fees and other charges
directly related to the administration of such Cash Management Account and for
returned checks or other items of payment, and (iii) it promptly will forward by
daily sweep all amounts in the applicable Cash Management Account to the
Lender's Account.
(c) So long as no Default or Event of Default has occurred and is
continuing, Borrower may amend EXHIBIT 7-1 to add or replace a Cash Management
-----------
Bank or Cash Management Account; provided, however, that (xxiv) such prospective
Cash Management Bank shall be satisfactory to Lender and Lender shall have
consented in writing in advance to the opening of such Cash Management Account
with the prospective Cash Management Bank, and (xxv) prior to the time of the
opening of such Cash Management Account, Borrower and such prospective Cash
Management Bank shall have executed and delivered to Lender a Cash Management
Agreement. Borrower shall close any of its Cash Management Accounts (and
establish replacement cash management accounts in accordance with the foregoing
sentence) promptly and in any event within 30 days of notice from Lender that
the creditworthiness of any Cash Management Bank is no longer acceptable in
Lender's reasonable judgment, or as promptly as practicable and in any event
within 60 days of notice from Lender that the operating performance, funds
transfer, or availability procedures or performance of the Cash Management Bank
with respect to Cash Management Accounts or Lender's liability under any Cash
Management Agreement with such Cash Management Bank is no longer acceptable in
Lender's reasonable judgment.
29
(d) The Cash Management Accounts shall be cash collateral accounts,
with all cash, checks and similar items of payment in such accounts securing
payment of the Liabilities, and in which Borrower is hereby deemed to have
granted a Lien to Lender.
7-2 Credit Card Receipts.
--------------------
(a) Annexed hereto as EXHIBIT 7-2, is a schedule which describes all
-----------
Credit Card Processors, which term shall include any "instant credit" providers
and any other arrangements to which the Borrower is a party with respect to the
payment to the Borrower of the proceeds of all credit card charges for sales by
the Borrower.
(b) After the occurrence of an Event of Default, at Lender's request,
Borrower shall deliver to the Lender the written acknowledgment and consent of
each of the Credit Card Processors to a notice in form satisfactory to the
Lender, which notice provides that payment of all credit card charges submitted
by the Borrower to that Credit Card Processor payable to the Borrower by such
Credit Card Processor shall be directed to the Blocked Account. The Borrower
shall not change such direction or designation except upon and with the prior
written consent of the Lender.
7-3 Crediting Payments; Float Charge. The receipt of any payment item by
--------------------------------
Lender (whether from transfers to Lender by the Cash Management Banks pursuant
to the Cash Management Agreements or otherwise) shall not be considered a
payment on account unless such payment item is a wire transfer of immediately
available federal funds made to the Lender's Account or unless and until such
payment item is honored when presented for payment. Should any payment item not
be honored when presented for payment, then Borrower shall be deemed not to have
made such payment and interest shall be calculated accordingly. Anything to the
contrary contained herein notwithstanding, any payment item shall be deemed
received by Lender only if it is received into the Lender's Account on a
Business Day on or before 1:00 p.m. (Boston, Massachusetts time). If any payment
item is received into the Lender's Account on a non-Business Day or after 1:00
p.m. (Boston, Massachusetts time) on a Business Day, it shall be deemed to have
been received by Lender as of the opening of business on the immediately
following Business Day. From and after the Closing Date, Lender shall be
entitled to charge Borrower for one (1) Business Days of "clearance" or "float"
at the rate applicable to Base Rate Loans under Section 1-8 on all Collections
that are received by Borrower (regardless of whether forwarded by the Cash
Management Banks to Lender). This across-the-board one (1) Business Day
clearance or float charge on all Collections is acknowledged by the parties to
constitute an integral aspect of the pricing of the financing of Borrower and
shall apply irrespective of whether or not there are any outstanding monetary
Liabilities; the effect of such clearance or float charge being the equivalent
of charging one (1) Business Days of interest on such Collections.
7-4 Designated Account. Lender is authorized to make the Advances, and
------------------
Lender is authorized to issue the L/C's, under this Agreement based upon
telephonic or other instructions received from anyone purporting to be an
Authorized Person, or without instructions if pursuant to Section 1-8(d).
Borrower agrees to establish and maintain the Designated Account with the
Designated Account Bank for the purpose of receiving the proceeds of the
Advances requested by Borrower and made by Lender hereunder. Unless otherwise
agreed by Lender and Borrower, any Advance requested by Borrower and made by
Lender hereunder shall be made to the Designated Account.
30
7-5 Maintenance of Loan Account; Statements of Liabilities. Lender shall
------------------------------------------------------
maintain an account on its books in the name of Borrower (the "Loan Account") on
which Borrower will be charged with all Advances made by Lender to Borrower or
for Borrower's account, the L/C's issued by Lender for Borrower's account, and
with all other payment Liabilities hereunder or under the other Loan Documents,
including, accrued interest, fees and expenses, and Lender Expenses. In
accordance with Section 7-3, the Loan Account will be credited with all payments
received by Lender from Borrower or for Borrower's account, including all
amounts received in the Lender's Account from any Cash Management Bank. Lender
shall render statements regarding the Loan Account to Borrower, including
principal, interest, fees, and including an itemization of all charges and
expenses constituting Lender Expenses owing, and such statements shall be
conclusively presumed to be correct and accurate and constitute an account
stated between Borrower and Lender unless, within 30 days after receipt thereof
by Borrower, Borrower shall deliver to Lender written objection thereto
describing the error or errors contained in any such statements.
7-6 The Funding Account. All checks shall be drawn by the Borrower upon,
-------------------
and other disbursements made by the Borrower solely from, the accounts set forth
on EXHIBIT 7-6 (the "Funding Account").
-----------
7-7 Capital Infusions, Etc. The proceeds of any investment in the Borrower
----------------------
from any source, including without limitation, proceeds of the issuance or sale
of any capital stock or debt instruments, shall be deposited by the purchaser
thereof directly into a Cash Management Account. In addition, any funds received
by Borrower other than from ordinary business operations, including without
limitation, tax refunds, insurance or condemnation proceeds or damage awards,
shall be deposited directly into a Cash Management Account.
ARTICLE 8 - LENDER AS BORROWER'S ATTORNEY-IN-FACT
-------------------------------------------------
8-1 Appointment as Attorney-In-Fact. The Borrower hereby irrevocably
-------------------------------
constitutes and appoints the Lender as the Borrower's true and lawful attorney,
with full power of substitution, to convert the Collateral into cash at the sole
risk, cost, and expense of the Borrower, but for the sole benefit of the Lender.
The rights and powers granted the Lender by this appointment include but are not
limited to the right and power to:
(a) After the occurrence of an Event of Default and during its
continuance, prosecute, defend, compromise, or release any action relating to
the Collateral.
(b) (xxvi) Sign, after the occurrence of an Event of Default and
during its continuance, change of address forms to change the address to which
the Borrower's mail is to be sent to such address as the Lender shall designate;
and/or (xxvii) receive and open the Borrower's mail and remove any Receivables
Collateral and Proceeds of Collateral therefrom and turn over the balance of
such mail either to the Borrower or to any trustee in bankruptcy, receiver,
assignee for the benefit of creditors of the Borrower, or other legal
representative of the Borrower whom the Lender determines to be the appropriate
Person to whom to so turn over such mail.
(c) Endorse the name of the Borrower in favor of the Lender upon any
and all checks, drafts, notes, acceptances, or other items or instruments; sign
and endorse the name of the Borrower on, and receive as secured party, any of
the Collateral, any invoices, schedules of Collateral, freight or
31
express receipts, or bills of lading, storage receipts, warehouse receipts, or
other documents of title respectively relating to the Collateral.
(d) (i) Sign the name of the Borrower on any notice to the
Borrower's Account Debtors or verification of the Receivables Collateral; and/or
(ii) sign, after the occurrence of an Event of Default and during its
continuance, Borrower's name on any Proof of Claim in Bankruptcy against Account
Debtors, and/or (iii) sign the Borrower's name on notices of lien, claims of
mechanic's liens, or assignments or releases of mechanic's liens securing the
Accounts.
(e) Take all such action as may be necessary to obtain the
payment of any letter of credit and/or banker's acceptance of which the Borrower
is a beneficiary.
(f) After the occurrence of an Event of Default and during its
continuance, repair, manufacture, assemble, complete, package, deliver, alter or
supply goods, if any, necessary to fulfill in whole or in part the purchase
order of any customer of the Borrower.
(g) After the occurrence of an Event of Default and during its
continuance, use, license or transfer any or all General Intangibles of the
Borrower.
(h) Sign and file or record any financing or other statements
in order to perfect or protect the Lender's security interest in the Collateral.
8-2 No Obligation to Act. (a) The Lender shall not be obligated to do
--------------------
any of the acts or to exercise any of the powers authorized by Section 8-1
herein, but if the Lender elects to do any such act or to exercise any of such
powers, it shall not be accountable for more than it actually receives as a
result of such exercise of power, and shall not be responsible to the Borrower
for any act or omission to act except for any act or omission to act as to which
there is a final determination made in a judicial proceeding (in which
proceeding the Lender has had an opportunity to be heard) which determination
includes a specific finding that the subject act or omission to act had been
grossly negligent or in actual bad faith.
(b) Without in any way limiting the foregoing, if Borrower
fails to pay any monies (whether taxes, assessments, insurance premiums, or, in
the case of leased properties or assets, rents or other amounts payable under
such leases) due to third Persons, or fails to make any deposits or furnish any
required proof of payment or deposit, all as required under the terms of this
Agreement, then, Lender, in its sole discretion and without prior notice to
Borrower, may do any or all of the following: (i) make payment of the same or
any part thereof, (ii) set up such reserves in Borrower's Loan Account as Lender
deems necessary to protect Lender from the exposure created by such failure, or
(iii) obtain and maintain insurance policies of the type described in Section
5-7 and take any action with respect to such policies as Lender deems prudent.
Any such amounts paid by Lender shall constitute Lender Expenses and any such
payments shall not constitute an agreement by Lender to make similar payments in
the future or a waiver by Lender of any Event of Default under this Agreement.
Lender need not inquire as to, or contest the validity of, any such expense,
tax, or Lien and the receipt of the usual official notice for the payment
thereof shall be conclusive evidence that the same was validly due and owing.
32
ARTICLE 9 - FINANCIAL AND OTHER REPORTING REQUIREMENTS/FINANCIAL COVENANTS
--------------------------------------------------------------------------
9-1 Maintain Records. The Borrower shall:
----------------
(a) At all times, keep proper books of account, in which full,
true, and accurate entries shall be made of all of the Borrower's transactions,
all in accordance with GAAP applied consistently with prior periods to fairly
reflect the financial condition of the Borrower at the close of, and its results
of operations for, the periods in question.
(b) Timely provide the Lender with those financial reports,
statements, and schedules required by this Article 9 or otherwise, each of which
reports, statements and schedules shall be prepared, to the extent applicable,
in accordance with GAAP applied consistently with prior periods to fairly
reflect the financial condition of the Borrower at the close of, and its results
of operations for, the period(s) covered therein.
(c) At all times, keep accurate current records of the
Collateral including, without limitation, accurate current stock, cost, and
sales records of its Inventory, accurately and sufficiently itemizing and
describing the kinds, types, and quantities of Inventory and the cost and
selling prices thereof.
(d) At all times, retain independent certified public
accountants who are reasonably satisfactory to the Lender and instruct such
accountants to fully cooperate with, and be available to, the Lender to discuss
the Borrower's financial performance, financial condition, operating results,
controls, and such other matters, within the scope of the retention of such
accountants, as may be raised by the Lender.
(e) Not change the Borrower's fiscal year.
(f) Not change the Borrower's taxpayer identification number.
9-2 Access to Records.
-----------------
(a) The Borrower shall accord the Lender and the Lender's
representatives with access from time to time as the Lender and such
representatives may reasonably require to all properties owned by or over which
the Borrower has control. The Lender and the Lender's representatives shall have
the right, and the Borrower will permit the Lender and such representatives from
time to time as the Lender and such representatives may reasonably request, to
examine, inspect, copy, and make extracts from any and all of the Borrower's
books, records, electronically stored data, papers, and files. The Borrower
shall make all of the Borrower's copying facilities available to the Lender.
(b) The Borrower hereby authorizes the Lender and the Lender's
representatives to:
(i) Inspect, copy, duplicate, review, cause to be
reduced to hard copy, run off, draw off, and otherwise use any and all computer
or electronically stored information or data which relates to the Borrower, or
any service bureau, contractor, accountant, or other Person, and directs any
such service bureau, contractor, accountant, or other Person fully to cooperate
with the Lender and the Lender's representatives with respect thereto.
33
(ii) Verify at any time the Collateral or any
portion thereof, including verification with Account Debtors, and/or with the
Borrower's computer billing companies, collection agencies, and accountants and
to sign the name of the Borrower on any notice to the Borrower's Account Debtors
or verification of the Collateral.
9-3 Immediate Notice to Lender.
--------------------------
(a) The Borrower shall provide the Lender with written notice
promptly upon the occurrence of any of the following events, which written
notice shall be with reasonable particularity as to the facts and circumstances
in respect of which such notice is being given:
(i) Any change in the Borrower's Executive
Officers, officers, directors, controllers or key employees.
(ii) The completion of any physical count of the
Borrower's Inventory (together with a copy of the certified or such other
results as may then be available thereof).
(iii) Any ceasing of the Borrower's making of
payment, in the ordinary course, to any of its creditors (including the ceasing
of the making of such payments on account of a dispute with the subject
creditor).
(iv) Any failure by the Borrower to pay rent at any
of the Borrower's locations, which failure continues for more than fifteen (15)
days following the day on which such rent first came due. If Borrower has any
dispute with any Landlord with respect to rent payable or other matters,
Borrower shall give Lender written notice of said dispute.
(v) Any failure by Borrower to pay trade
liabilities or other expense liabilities in accordance with their past business
practices.
(vi) Any material change in the business,
operations, or financial affairs of the Borrower.
(vii) The occurrence of any Suspension Event.
(viii) Any intention on the part of the Borrower to
discharge the Borrower's present independent accountants or any withdrawal or
resignation by such independent accountants from their acting in such capacity
(as to which, see Subsection 9-1(d)).
(ix) Any litigation not covered by insurance which,
if determined adversely to the Borrower, might have a material adverse effect on
the financial condition of the Borrower.
(x) The reduction by any of Borrower's material
vendors in the amount of trade credit or terms provided by such vendor to
Borrower on the date of execution hereof.
(xi) The engagement or employment by Borrower of
any bankruptcy, restructuring or "turn-around" professionals.
(b) The Borrower shall:
34
(i) Provide the Lender, when so distributed, with copies
of any materials distributed to the shareholders of the Borrower (qua such
shareholders).
(ii) Add the Lender as an addressee on all mailing lists
maintained by or for the Borrower.
(iii) At the request of the Lender, from time to time,
provide the Lender with copies of all advertising (including copies of all print
advertising and duplicate tapes of all video and radio such advertising).
(iv) Provide the Lender, when received by the Borrower,
with a copy of any audit report or similar communications from any accountant of
the Borrower.
9-4 Borrowing Base Certificate. The Borrower shall provide the Lender,
--------------------------
daily, with a Borrowing Base Certificate (in the form of EXHIBIT 9-4 annexed
-----------
hereto, as such form may be revised from time to time by the Lender). Such
Certificate may be sent to the Lender by facsimile transmission, provided that
the original thereof is forwarded to the Lender on the date of such transmission
at its request. No adjustments to the Borrowing Base Certificate may be made
without support documentation and such other documentation as may be requested
by Lender from time to time.
9-5 Collateral Reporting. Borrower shall provide Lender with the
--------------------
following documents at the following times in form satisfactory to Lender:
---------------------------------------------------------------------------
Daily (a) Accounts Receivable summary, Inventory values
summary, daily sales and gross profit report,
and a Borrowing Base Certificate.
---------------------------------------------------------------------------
Monthly (not (b) a detailed calculation of the Borrowing Base,
----------------------------------------------------
later than the 10/th/
day of each month) (c) a detailed schedule of all Accounts that are not
Eligible Accounts and all Inventory that is not
Eligible Inventory,
----------------------------------------------------
(d) a detailed aging, by total, of the Accounts,
together with a reconciliation to the detailed
calculation of the Borrowing Base previously
provided to Lender,
----------------------------------------------------
(e) Inventory reports specifying Borrower's cost and
the wholesale market value of its Inventory, by
category,
----------------------------------------------------
(f) a summary aging, by vendor, of Borrower's
accounts payable and any book overdraft, and
----------------------------------------------------
(g) a calculation of Dilution for the prior month.
---------------------------------------------------------------------------
Upon request by (h) a detailed list of Borrower's customers,
----------------------------------------------------
Lender
35
----------------------------------------------------------
(i) a report regarding Borrower's accrued, but
unpaid, ad valorem taxes,
----------------------------------------------------------
(j) copies of invoices in connection with the
Accounts, credit memos, remittance advices,
deposit slips, shipping and delivery documents in
connection with the Accounts and, for Inventory
and Equipment acquired by Borrower, purchase
orders and invoices, and
----------------------------------------------------------
(k) such other reports as to the Collateral, or the
financial condition of Borrower, as Lender may
request.
----------------------------------------------------------------------------
In addition, Borrower agrees to cooperate fully with Lender to
facilitate and implement a system of electronic collateral reporting in order to
provide electronic reporting of each of the items set forth above.
9-6 Annual Reports.
--------------
(a) In addition to the reports required under Section 9-5,
annually, within ninety (90) days following the end of the Borrower's fiscal
year, the Borrower shall furnish the Lender with an original signed counterpart
of the Borrower's annual financial statement, which statement shall have been
prepared by, and bearing the unqualified opinion of, the Borrower's independent
certified public accountants (i.e. said statement shall be "certified" by such
accountants). Such annual statement shall include, at a minimum (with
comparative information for the then prior fiscal year) a balance sheet, income
statement, statement of changes in shareholders' equity, and cash flows.
(b) Borrower shall provide interim draft annual financial
statements (inclusive of subsequent periods, until year end statements are
delivered) within thirty (30) days of each year end.
9-7 Officers' Certificates. The Borrower shall cause the Borrower's
----------------------
President and Chief Financial Officer respectively to provide such Person's
certificate with those monthly, quarterly, and annual statements to be furnished
pursuant to this Agreement, which certificate shall:
(a) Indicate that the subject statement was prepared in
accordance with GAAP consistently applied, and presents fairly the financial
condition of the Borrower at the close of, and the results of the Borrower's
operations and cash flows for, the period(s) covered, subject, however (with the
exception of the certificate which accompanies such annual statement) to usual
year end adjustments.
(b) Indicate either that (i) no Suspension Event has occurred
or (ii) if such an event has occurred, its nature (in reasonable detail) and the
steps (if any) being taken or contemplated by the Borrower to be taken on
account thereof.
(c) Include calculations concerning the Borrower's compliance
(or failure to comply) at the date of the subject statement with each of the
financial performance covenants included in Section 9-10, below.
36
(d) Indicate that all taxes (broken down by type and taxing
authority) have or have not been paid.
(e) Indicate that all rent and additional rent (broken down by
store location) due pursuant to any store lease have or have not been paid.
9-8 Inventories. Appraisals, and Audits.
-----------------------------------
(a) The Lender, at the expense of the Borrower, may
participate in and/or observe each physical count and/or inventory of so much of
the Collateral as consists of Inventory which is undertaken on behalf of the
Borrower.
(b) Upon the Lender's request from time to time, the Borrower
shall obtain, or shall permit the Lender to obtain (in all events, at the
Borrower's expense) financial or SKU based physical counts and/or inventories of
the Collateral, conducted by such inventory takers as are satisfactory to the
Lender and following such methodology as may be required by the Lender, each of
which physical counts and/or financial or SKU based inventories shall be
observed by the Borrower's accountants. The Lender will require the Borrower to
conduct two (2) such counts and/or inventories during each twelve (12) month
period during which this Agreement is in effect, but in its discretion, may
undertake additional such counts or inventories during such period. The draft or
unaudited results of all inventories or counts shall be furnished to Lender
promptly thereafter and final, reconciled results within fifteen (15) business
days of the taking of such inventories or counts. The Borrower agrees that the
Lender is entitled to request and receive directly from the inventory taker the
unaudited or draft results of any such inventory or audit.
(c) Upon the Lender's request from time to time, the Borrower
shall permit the Lender to obtain appraisals (in all events, at the Borrower's
expense) conducted by such appraisers as are reasonably satisfactory to the
Lender.
(d) The Lender contemplates conducting three (3) commercial
finance audits (in each event, at the Borrower's expense) of the Borrower's
books and records during any twelve (12) month period during which this
Agreement is in effect, but in its discretion, may undertake additional such
audits during such period.
(e) The Lender from time to time (in all events, at the
Borrower's expense) may undertake "mystery shopping" (so-called) visits to all
or any of the Borrower's business premises. The Lender shall provide the
Borrower with a copy of any non-company confidential results of such mystery
shopping upon Borrower's written request.
9-9 Additional Financial Information.
--------------------------------
(a) In addition to all other information required to be
provided pursuant to this Article 9, the Borrower promptly shall provide the
Lender with such other and additional information concerning the Borrower and
any guarantor of the Liabilities, the Collateral, the operation of the
Borrower's business, and the Borrower's financial condition, including original
counterparts of financial reports and statements, as the Lender may from time to
time request from the Borrower.
37
(b) As soon as available, but in any event within 30 days prior to
the start of each of Borrower's fiscal years, copies of Borrower's Projections,
in form and substance (including as to scope and underlying assumptions)
reasonably satisfactory to Lender for the forthcoming 2 years, year by year, and
for the forthcoming fiscal year, month by month, certified by the chief
financial officer of Borrower as being such officer's good faith estimate of the
financial performance of Borrower during the periods covered thereby,
(c) If and when filed by Borrower: (i) Form 10-Q quarterly
reports, Form 10-K annual reports, and Form 8-K current reports, (ii) any other
filings made by Borrower with the SEC, (iii) copies of Borrower's federal income
tax returns, and any amendments thereto, filed with the Internal Revenue
Service, and (iv) any other information that is provided by Borrower to its
shareholders generally.
9-10 Financial Performance and Inventory Covenants. The Borrower shall
---------------------------------------------
observe and comply with those financial performance and inventory covenants set
forth on EXHIBIT 9-10 annexed hereto.
------------
9-11 Electronic Reporting. At Lender's option all information and
--------------------
reports required to be supplied to Lender by Borrower shall be transmitted
electronically pursuant to an electronic transmitting reporting system and shall
be in a record layout format designated by Lender from time to time.
9-12 Guarantor Reports. The Borrower shall cause Guarantor to deliver
-----------------
copies of Guarantor's federal income tax returns as soon as the same are
available and in any event no later than 30 days after the same are required to
be filed by law.
ARTICLE 10 - EVENTS OF DEFAULT
------------------------------
The occurrence of any event described in this Article 10 which has not
been waived, in writing, by Lender respectively shall constitute an "Event of
Default" herein. Upon the occurrence of any Event of Default described in
Section 10-11, any and all Liabilities shall become due and payable without any
further act on the part of the Lender. Upon the occurrence of any other Event of
Default, any and all Liabilities shall become immediately due and payable, at
the option of the Lender and without notice or demand. The occurrence of any
Event of Default shall also constitute, without notice or demand, a default
under all other agreements between the Lender and the Borrower and instruments
and papers given the Lender by the Borrower, whether such agreements,
instruments, or papers now exist or hereafter arise.
10-1 Failure to Pay Revolving Credit. The failure by the Borrower to
-------------------------------
pay any amount when due under the Revolving Credit.
10-2 Failure To Make Other Payments. The failure by the Borrower to pay
------------------------------
when due (or upon demand, if payable on demand) any payment Liability other than
under the Revolving Credit.
10-3 Failure to Perform Covenant or Liability (No Grace Period). The
----------------------------------------------------------
failure by the Borrower to promptly, punctually, faithfully and timely perform,
discharge, or comply with any covenant or Liability not otherwise described in
section 10-1 or section 10-2, above, and included in any of the following
provisions hereof:
Section Relates to:
------------------
38
5-4 Location of Collateral
5-5 Title to Assets
5-6 Indebtedness
5-7 Insurance Policies
5-12 Pay Taxes
5-21 Affiliate Transactions
5-23 Additional Assurances
Article 7 Cash Management
Article 9 Financial Reporting Requirements and Financial
Covenants
10-4 Failure to Perform Covenant or Liability (Grace Period). The
-------------------------------------------------------
failure by the Borrower to promptly, punctually and faithfully perform, or
observe any term, covenant or agreement on its part to be performed or observed
pursuant to any of the provisions of this Agreement, other than those described
in Sections 10-1, 10-2 or 10-3, or in any other agreement with Lender which is
not remedied within the earlier of thirty (30) days after (a) notice thereof by
Lender to Borrower, or (b) the date Borrower was required to give notice to
Lender pursuant to Section 9-3(a)(vi) hereof.
10-5 Misrepresentation. The determination by the Lender that any
-----------------
representation or warranty at any time made by the Borrower to the Lender was
not true or complete in all material respects when given.
10-6 Acceleration of Other Debt. Breach of Lease. The occurrence of any
--------------------------
event such that any Indebtedness of the Borrower to any creditor other than the
Lender could be accelerated or, without the consent of the Borrower, any Lease
could be terminated (whether or not the subject creditor or lessor takes any
action on account of such occurrence).
10-7 Default Under Other Agreements. The occurrence of any breach or
------------------------------
default under any agreement between the Lender and the Borrower or instrument or
paper given the Lender by the Borrower, whether such agreement, instrument, or
paper now exists or hereafter arises (notwithstanding that the Lender may not
have exercised its rights upon default under any such other agreement,
instrument or paper).
10-8 Casualty Loss. Non-Ordinary Course Sales. The occurrence of any
-------------
(a) uninsured loss, theft, damage, or destruction of or to any portion of the
Collateral in an amount exceeding $500,000, or (b) sale (other than sales in the
ordinary course of business) of any portion of the Collateral in an amount
exceeding $500,000.
10-9 Judgment. Restraint of Business.
-------------------------------
39
(a) The service of process upon the Lender or any Participant
seeking to attach, by trustee, mesne, or other process, any of the Borrower's
funds on deposit with, or assets of the Borrower in the possession of, the
Lender or such Participant.
(b) The entry of any judgment against the Borrower, which
judgment is not satisfied (if a money judgment) or appealed from (with execution
or similar process stayed) within forty-five (45) days of its entry.
(c) The entry of any final non-appealable order or the imposition
of any other process having the force of law, the effect of which is to restrain
in any material way the conduct by the Borrower of its business in the ordinary
course.
10-10 Business Failure. Any act by, against, or relating to the
----------------
Borrower, or its property or assets, which act constitutes the application for,
consent to, or sufferance of the appointment of a receiver, trustee, or other
Person, pursuant to court action or otherwise, over all, or any material part of
the Borrower's property; the granting of any trust mortgage or execution of an
assignment for the benefit of the creditors of the Borrower, or the occurrence
of any other voluntary or involuntary liquidation or extension of debt agreement
for the Borrower; or the offering by or entering into by the Borrower of any
composition, extension, or any other arrangement seeking relief from or
extension of the debts of the Borrower, or the initiation of any other judicial
or non-judicial proceeding or agreement by, against, or including the Borrower
which seeks or intends to accomplish a reorganization or arrangement with
creditors.
10-11 Bankruptcy. The failure by the Borrower to generally pay the
----------
debts of the Borrower as they mature; the filing of any complaint, application,
or petition by or against the Borrower initiating any matter in which the
Borrower is or may be granted any relief from the debts of the Borrower pursuant
to the Bankruptcy Code or any other insolvency statute or procedure.
10-12 Insecurity. The occurrence of any event or circumstance with
----------
respect to the Borrower such that Lender shall believe in good faith that the
prospect of payment of all or any part of the Liabilities or the performance by
the Borrower under this Agreement or any other agreement between the Lender and
the Borrower is impaired.
10-13 Default by Guarantor or Related Entity. The occurrence of any of
--------------------------------------
the foregoing Events of Default with respect to any guarantor of the
Liabilities, or the occurrence of any of the foregoing Events of Default with
respect to any parent (if the Borrower is a corporation), Subsidiary, or Related
Entity, as if such guarantor, parent, or Related Entity were the "Borrower"
described therein.
10-14 Indictment - Forfeiture. The indictment of, or institution of any
-----------------------
legal process or proceeding against, the Borrower, any Executive Officer or any
guarantor of the Liabilities under any federal, state, municipal, and other
civil or criminal statute, rule, regulation, order, or other requirement having
the force of law where the relief, penalties, or remedies sought or available
include the forfeiture of any material portion of the property of the Borrower
and/or the imposition of any stay or other order, the effect of which could be
to restrain in any material way the conduct by the Borrower of its business in
the ordinary course.
40
10-15 Termination of Guaranty. The termination or attempted termination
-----------------------
of any guaranty by any guarantor of the Liabilities.
10-16 Challenge to Loan Documents.
---------------------------
(a) Any challenge by or on behalf of the Borrower or any
guarantor of the Liabilities to the validity of any Loan Document or the
applicability or enforceability of any Loan Document which seeks to void, avoid,
limit, or otherwise adversely affect any security interest created by or in any
Loan Document or any payment made pursuant thereto.
(b) Any determination by any court or any other judicial or
government authority that any Loan Document is not enforceable strictly in
accordance with the subject Loan Document's terms or which voids, avoids,
limits, or otherwise adversely affects any security interest created by any Loan
Document or any payment made pursuant thereto.
10-17 Executive Management. The death, disability, or failure of any
--------------------
Executive Officer at any time to exercise that authority and discharge those
management responsibilities with respect to the Borrower as are exercised and
discharged by such Person at the execution of this Agreement; provided however
that if any Executive Officer dies, becomes disabled, or otherwise fails to
exercise and discharge management responsibilities, Borrower shall have thirty
(30) days to appoint a successor, acceptable to Lender, to the office of such
Executive Officer.
10-18 Change in Control. Any change in the ownership of the capital
-----------------
stock of the Borrower such that Xxxxx Xxxxxx or a Xxxxxx Family - owned entity
does not Control the Borrower.
10-19 Material Adverse Change. If there is a Material Adverse
-----------------------
Change.
ARTICLE 11 - RIGHTS AND REMEDIES UPON DEFAULT
---------------------------------------------
In addition to all of the rights, remedies, powers, privileges, and
discretions which the Lender is provided prior to the occurrence of an Event of
Default, the Lender shall have the following rights and remedies upon the
occurrence of any Event of Default and at any time thereafter. No stay which
otherwise might be imposed pursuant to the Bankruptcy Code or otherwise shall
stay, limit, prevent, hinder, delay, restrict, or otherwise prevent the Lender's
exercise of any of such rights and remedies.
11-1 Rights of Enforcement. The Lender shall have all of the rights and
---------------------
remedies of a secured party upon default under the UCC, in addition to which the
Lender shall have all and each of the following rights and remedies:
(a) To collect the Receivables Collateral with or without the
taking of possession of any of the Collateral.
(b) To take possession of all or any portion of the Collateral.
(c) To sell, lease, or otherwise dispose of any or all of the
Collateral, in its then condition or following such preparation or processing as
the Lender deems advisable and with or without the taking of possession of any
of the Collateral.
41
(d) To conduct one or more going out of business sales,
strategic sales or other sales which include the sale or other disposition of
the Collateral.
(e) To apply the Receivables Collateral or the proceeds of the
Collateral towards (but not necessarily in complete satisfaction of) the
Liabilities.
(f) To exercise all or any of the rights, remedies, powers,
privileges, and discretions under all or any of the Loan Documents.
11-2 Sale of Collateral.
------------------
(a) Any sale or other disposition of the Collateral may be at
public or private sale upon such terms and in such manner as the Lender deems
advisable, having due regard to compliance with any statute or regulation which
might affect, limit, or apply to the Lender's disposition of the Collateral.
(b) The Lender, in the exercise of the Lender's rights and
remedies upon default, may conduct one or more going out of business sales, in
the Lender's own right or by one or more agents and contractors. Such sale(s)
may be conducted upon any premises owned, leased, or occupied by the Borrower.
To the extent permitted by law, the Lender and any such agent or contractor, in
conjunction with any such sale, may augment the Inventory with other goods
(all of which other goods shall remain the sole property of the Lender or such
agent or contractor). Any amounts realized from the sale of such goods which
constitute augmentations to the Inventory (net of an allocable share of the
costs and expenses incurred in their disposition) shall be the sole property of
the Lender or such agent or contractor and neither the Borrower nor any Person
claiming under or in right of the Borrower shall have any interest therein.
(c) Unless the Collateral is perishable or threatens to
decline speedily in value, or is of a type customarily sold on a recognized
market (in which event the Lender shall provide the Borrower with such notice as
may be practicable under the circumstances), the Lender shall give the Borrower
at least five (5) days prior written notice of the date, time, and place of any
proposed public sale, and of the date after which any private sale or other
disposition of the Collateral may be made. The Borrower agrees that such written
notice shall satisfy all requirements for notice to the Borrower which are
imposed under the UCC or other applicable law with respect to the exercise of
the Lender's rights and remedies upon default.
(d) The Lender may purchase the Collateral, or any portion of
it at any sale held under this Article.
(e) The Lender shall apply the proceeds of any exercise of the
Lender's Rights and Remedies under this Article 11 towards the Liabilities in
such manner, and with such frequency, as the Lender determines.
11-3 Occupation of Business Location. In connection with the Lender's
-------------------------------
exercise of the Lender's rights under this Article 11, the Lender may enter
upon, occupy, and use any premises owned or occupied by the Borrower, and may
exclude the Borrower from such premises or portion thereof as may have been so
entered upon, occupied, or used by the Lender . The Lender shall not be required
to remove any of the Collateral from any such premises upon the Lender's taking
possession thereof, and may render any Collateral unusable to the Borrower. In
no event shall the Lender be liable to the
42
Borrower for use or occupancy by the Lender of any premises pursuant to this
Article 11, nor for any charge (such as wages for the Borrower's employees and
utilities) incurred in connection with the Lender's exercise of the Lender's
Rights and Remedies.
11-4 Grant of Nonexclusive License. The Borrower hereby grants to the
-----------------------------
Lender a royalty free nonexclusive irrevocable license to use, apply, and affix
any trademark, tradename, logo, or the like in which the Borrower now or
hereafter has rights, such license being with respect to the Lender's exercise
of the rights hereunder including, without limitation, in connection with any
completion of the manufacture of Inventory or sale or other disposition of
Inventory.
11-5 Assembly of Collateral. The Lender may require the Borrower to
----------------------
assemble the Collateral and make it available to the Lender at the Borrower's
sole risk and expense at a place or places which are reasonably convenient to
both the Lender and Borrower.
11-6 Rights and Remedies. The rights, remedies, powers, privileges, and
-------------------
discretions of the Lender hereunder (herein, the "Lender's Rights and Remedies")
shall be cumulative and not exclusive of any rights or remedies which it would
otherwise have. No delay or omission by the Lender in exercising or enforcing
any of the Lender's Rights and Remedies shall operate as, or constitute, a
waiver thereof. No waiver by the Lender of any Event of Default or of any
default under any other agreement shall operate as a waiver of any other default
hereunder or under any other agreement. No single or partial exercise of any of
the Lender's Rights or Remedies, and no express or implied agreement or
transaction of whatever nature entered into between the Lender and any Person,
at any time, shall preclude the other or further exercise of the Lender's Rights
and Remedies. No waiver by the Lender of any of the Lender's Rights and Remedies
on any one occasion shall be deemed a waiver on any subsequent occasion, nor
shall it be deemed a continuing waiver. All of the Lender's Rights and Remedies
and all of the Lender's rights, remedies, powers, privileges, and discretions
under any other agreement or transaction are cumulative, and not alternative or
exclusive, and may be exercised by the Lender at such time or times and in such
order of preference as the Lender in its sole discretion may determine. The
Lender's Rights and Remedies may be exercised without resort or regard to any
other source of satisfaction of the Liabilities.
ARTICLE 12 - NOTICES
---------------------
12-1 Notice Addresses. All notices, demands, and other communications
----------------
made in respect of this Agreement (other than a request for an Advance or other
financial accommodation under the Revolving Credit) shall be made to the
following addresses, each of which may be changed upon seven (7) days written
notice to all others given by certified mail, return receipt requested:
If to the Lender: XXXXX FARGO RETAIL FINANCE, LLC
Xxx Xxxxxx Xxxxx, Xxxxx 0000
Xxxxxx, Xxxxxxxxxxxxx 00000
Attention: Xx. Xxxx Xxxxxxxx
Phone: 000 000-0000
Fax: 000 000-0000
With a copy to: Xxxxxxxx X. Brand, Esq.
OTTERBOURG, STEINDLER, HOUSTON &
43
XXXXX, P.C.
000 Xxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Phone: 000 000-0000
Fax: 000 000-0000
If to the Borrower: NATIONAL HOME CENTERS, INC.
Xxxxxxx 000 Xxxxx
X.X. Xxx 000
Xxxxxxxxxx, Xxxxxxxx 00000-0000
Attention: Xx. Xxxxx Xxxxx
Phone: 000-000-0000
Fax: 000-000-0000
With a copy to: M. Xxxx Xxxxx, Esq.
XXXXXX, XXXXXXX & XXXXXXXX, LLP
000 Xxxx Xxxxxxx Xxxxxx, Xxxxx 0000
Xxxxxx Xxxx, Xxxxxxxx 00000
Phone: 000-000-0000
Fax: 000-000-0000
12-2 Notice Given.
------------
(a) Except as otherwise specifically provided herein, notices shall be
deemed made and correspondence received, as follows (all times being local to
the place of delivery or receipt):
(i) By mail: the sooner of when actually received or three (3)
days following deposit in the United States mail, postage prepaid.
(ii) By recognized overnight express delivery: the Banking Day
following the day when sent.
(iii) By hand: If delivered on a Business Day after 9:00 A.M. and
no later than three (3) hours prior to the close of customary business hours of
the recipient, when delivered. Otherwise, at the opening of the then next
Business Day.
(iv) By facsimile transmission (which must include a header
indicating the party sending such transmission): If sent on a Business Day after
9:00 A.M. and no later than Three (3) hours prior to the close of customary
business hours of the recipient, one (1) hour after being sent. Otherwise, at
the opening of the then next Business Day.
(b) Rejection or refusal to accept delivery and inability to deliver
because of a changed address or facsimile number for which no due notice was
given shall each be deemed receipt of the notice sent.
ARTICLE 13 - TERM
-----------------
44
13-1 Termination of Revolving Credit. This Agreement is, and is
-------------------------------
intended to be, a continuing agreement and shall remain in full force and effect
for an initial term ending on the Maturity Date, and shall automatically be
renewed for successive one (1) year periods thereafter, unless sooner terminated
pursuant to the terms hereof. Either party may terminate this Agreement as of
the end of the initial term or any subsequent renewal term by giving the other
party notice to terminate in writing at least ninety (90) days prior to the end
of any such period whereupon at the end of such period all Liabilities shall be
due and payable in full without presentation, demand, or further notice of any
kind, whether or not all or any part of the Liabilities is otherwise due and
payable pursuant to the agreement or instrument evidencing same. Lender may
terminate this Agreement immediately and without notice upon the occurrence of
an Event of Default. Notwithstanding the foregoing or anything in this Agreement
or elsewhere to the contrary, the security interest, Lender's rights and
remedies hereunder and Borrower's obligations and liabilities hereunder shall
survive any termination of this Agreement and shall remain in full force and
effect until all of the Liabilities outstanding, or contracted or committed for
(whether or not outstanding), before the receipt of such notice by Lender, and
any extensions or renewals thereof (whether made before or after receipt of such
notice), together with interest accruing thereon after such notice, shall be
finally and irrevocably paid in full. No Collateral shall be released or
financing statement terminated until such final and irrevocable payment in full
of the Liabilities, as described in the preceding sentence.
13-2 Effect of Termination. Upon the termination of Revolving Credit,
---------------------
the Borrower shall pay the Lender (whether or not then due), in immediately
available funds, all then Liabilities including, without limitation: the entire
balance of the Loan Account; any then remaining installments of the Commitment
Fee; any then remaining balances of the Annual Facility Fee and Loan Maintenance
Fee; any accrued and unpaid Unused Line Fee; any Prepayment Premium and all
unreimbursed costs and expenses of the Lender for which the Borrower is
responsible, and shall make such arrangements concerning any L/C's then
outstanding are reasonably satisfactory to the Lender. Until such payment, all
provisions of this Agreement, other than those contained in Article 1 which
place an obligation on the Lender to make any Advances or to provide financial
accommodations under the Revolving Credit or otherwise, shall remain in full
force and effect until all Liabilities shall have been paid in full. The release
by the Lender of the security interests granted the Lender by the Borrower
hereunder may be upon such conditions and indemnifications as the Lender may
require.
13-3 Prepayment Premium. If Borrower pays in full all or substantially
------------------
all of the Liabilities prior to the end of the initial term of this Agreement
(or any renewal term), other than temporarily from funds internally generated in
the ordinary course of business, at the time of such payment Borrower shall also
pay to Lender a prepayment premium in an amount equal to: (a) three percent (3%)
multiplied by the Credit Limit, if paid from the Closing Date through July 14,
2002; (b) two percent (2%) of the Credit Limit, if prepaid from July 15, 2002
through July 14, 2003; (c) one percent (1%) of the Credit Limit, if prepaid from
July 15, 2003 through July 14, 2004, and (d) zero percent (0%) of the Credit
Limit, if prepaid after the July 15, 2004. Any tender of payment in full of the
Liabilities following an acceleration by Lender of the Liabilities pursuant to
Article 10 hereof, shall be for purposes of this section deemed to be a
prepayment requiring Borrower to pay the aforementioned prepayment premium.
Such prepayment premium shall be paid to Lender as liquidated
damages for the loss of the bargain by Lender and not as a penalty.
45
ARTICLE 14 - GENERAL
--------------------
14-1 Protection of Collateral. The Lender has no duty as to the
------------------------
collection or protection of the Collateral beyond the safe custody of such of
the Collateral as may come into the possession of the Lender and shall have no
duty as to the preservation of rights against prior parties or any other rights
pertaining thereto. The Lender may include reference to the Borrower (and may
utilize any logo or other distinctive symbol associated with the Borrower) in
connection with any advertising, promotion, or marketing undertaken by the
Lender.
14-2 Successors and Assigns. This Agreement shall be binding upon the
----------------------
Borrower and the Borrower's representatives, successors, and assigns and shall
enure to the benefit of the Lender and the Lender's successors and assigns
provided, however, no trustee or other fiduciary appointed with respect to the
Borrower shall have any rights hereunder. In the event that the Lender assigns
or transfers its rights under this Agreement, the assignee shall thereupon
succeed to and become vested with all rights, powers, privileges, and duties of
the Lender hereunder and the Lender shall thereupon be discharged and relieved
from its duties and obligations hereunder.
14-3 Severability. Any determination that any provision of this
------------
Agreement or any application thereof is invalid, illegal, or unenforceable in
any respect in any instance shall not affect the validity, legality, or
enforceability of such provision in any other instance, or the validity,
legality, or enforceability of any other provision of this Agreement.
14-4 Amendments. Course of Dealing.
-----------------------------
(a) This Agreement and the other Loan Documents incorporate
all discussions and negotiations between the Borrower and the Lender, either
express or implied, concerning the matters included herein and in such other
instruments, any custom, usage, or course of dealings to the contrary
notwithstanding. No such discussions, negotiations, custom, usage, or course of
dealings shall limit, modify, or otherwise affect the provisions thereof. No
failure by the Lender to give notice to the Borrower of the Borrower's having
failed to observe and comply with any warranty or covenant included in any Loan
Document shall constitute a waiver of such warranty or covenant or the amendment
of the subject Loan Document. No change made by the Lender in the manner by
which Availability is determined shall obligate the Lender to continue to
determine Availability in that manner.
(b) The Borrower may undertake any action otherwise prohibited
hereby, and may omit to take any action otherwise required hereby, upon and with
the express prior written consent of the Lender. No consent, modification,
amendment, or waiver of any provision of any Loan Document shall be effective
unless executed in writing by or on behalf of the party to be charged with such
modification, amendment, or waiver (and if such party is the Lender, then by a
duly authorized officer thereof). Any modification, amendment, or waiver
provided by the Lender shall be in reliance upon all representations and
warranties theretofore made to the Lender by or on behalf of the Borrower (and
any guarantor, endorser, or surety of the Liabilities) and consequently may be
rescinded in the event that any of such representations or warranties was not
true and complete in all material respects when given.
14-5 Power of Attorney. In connection with all powers of attorney
-----------------
included in this Agreement, the Borrower hereby grants unto the Lender full
power to do any and all things necessary or appropriate in connection with the
exercise of such powers as fully and effectually as the Borrower might or could
46
do, hereby ratifying all that said attorney shall do or cause to be done by
virtue of this Agreement. No power of attorney set forth in this Agreement shall
be affected by any disability or incapacity suffered by the Borrower and each
shall survive the same. All powers conferred upon the Lender by this Agreement,
being coupled with an interest, shall be irrevocable until this Agreement is
terminated by a written instrument executed by a duly authorized officer of the
Lender.
14-6 Application of Proceeds. The proceeds of any collection, sale, or
-----------------------
disposition of the Collateral, or of any other payments received hereunder,
shall be applied towards the Liabilities in such order and manner as the Lender
determines in its sole discretion. The Borrower shall remain liable for any
deficiency remaining following such application.
14-7 Lender's Costs and Expenses. The Borrower shall pay on demand all
---------------------------
Costs of Collection and all reasonable expenses of the Lender in connection with
the preparation, execution, and delivery of this Agreement and of any other Loan
Documents, whether now existing or hereafter arising, and all other reasonable
expenses which may be incurred by the Lender in monitoring compliance with this
Agreement and in preparing or amending this Agreement and all other agreements,
instruments, and documents related thereto, or otherwise incurred with respect
to the Liabilities, including, without limiting the generality of the foregoing,
any counsel fees or expenses incurred in any bankruptcy or insolvency
proceedings. The Borrower specifically authorizes the Lender to pay all such
fees and expenses and in the Lender's discretion, to add such fees and expenses
to the Loan Account. Borrower shall be obligated, from time to time, to pay
Lender's fees, including reasonable attorneys' fees and expenses for the
preparation, negotiation, amendment and interpretation of this Agreement and
related documents.
14-8 Copies and Facsimiles. This Agreement and all documents which relate
---------------------
thereto, which have been or may be hereinafter furnished the Lender may be
reproduced by the Lender by any photographic, microfilm, xerographic, digital
imaging, or other process, and the Lender may destroy any document so
reproduced. Any such reproduction shall be admissible in evidence as the
original itself in any judicial or administrative proceeding (whether or not the
original is in existence and whether or not such reproduction was made in the
regular course of business). Any facsimile which bears proof of transmission
shall be binding on the party which or on whose behalf such transmission was
initiated and likewise shall be so admissible in evidence as if the original of
such facsimile had been delivered to the party which or on whose behalf such
transmission was received.
14-9 New York Law. THE VALIDITY OF THIS AGREEMENT AND THE OTHER LOAN
------------
DOCUMENTS (UNLESS EXPRESSLY PROVIDED TO THE CONTRARY IN ANOTHER LOAN DOCUMENT IN
RESPECT OF SUCH OTHER LOAN DOCUMENT), THE CONSTRUCTION, INTERPRETATION, AND
ENFORCEMENT HEREOF AND THEREOF, AND THE RIGHTS OF THE PARTIES HERETO AND THERETO
WITH RESPECT TO ALL MATTERS ARISING HEREUNDER OR THEREUNDER OR RELATED HERETO OR
THERETO SHALL BE DETERMINED UNDER, GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF NEW YORK.
14-10 Consent to Jurisdiction. THE PARTIES AGREE THAT ALL ACTIONS OR
-----------------------
PROCEEDINGS ARISING IN CONNECTION WITH THIS AGREEMENT AND THE OTHER LOAN
DOCUMENTS SHALL BE TRIED AND LITIGATED ONLY IN THE STATE AND FEDERAL COURTS
LOCATED IN XXX XXXXXX XX XXX XXXX, XXXXX XX XXX XXXX,
00
PROVIDED, HOWEVER, THAT ANY SUIT SEEKING ENFORCEMENT AGAINST ANY COLLATERAL OR
-------- -------
OTHER PROPERTY MAY BE BROUGHT, AT LENDER'S OPTION, IN THE COURTS OF ANY
JURISDICTION WHERE LENDER ELECTS TO BRING SUCH ACTION OR WHERE SUCH COLLATERAL
OR OTHER PROPERTY MAY BE FOUND. BORROWER AND LENDER WAIVE, TO THE EXTENT
PERMITTED UNDER APPLICABLE LAW, ANY RIGHT EACH MAY HAVE TO ASSERT THE DOCTRINE
OF FORUM NON CONVENIENS OR TO OBJECT TO VENUE TO THE EXTENT ANY PROCEEDING IS
----- --- ----------
BROUGHT IN ACCORDANCE WITH THIS SECTION 14-10.
14-11 Indemnification. Borrower shall pay, indemnify, defend, and hold the
---------------
Lender-Related Persons, each Participant, and each of their respective officers,
directors, employees, agents, and attorneys-in-fact (each, an "Indemnified
-----------
Person") harmless (to the fullest extent permitted by law) from and against any
------
and all claims, demands, suits, actions, investigations, proceedings, and
damages, and all reasonable attorneys fees and disbursements and other costs and
expenses actually incurred in connection therewith (as and when they are
incurred and irrespective of whether suit is brought), at any time asserted
against, imposed upon, or incurred by any of them (a) in connection with or as a
result of or related to the execution, delivery, enforcement, performance, or
administration of this Agreement, any of the other Loan Documents, or the
transactions contemplated hereby or thereby, and (b) with respect to any
investigation, litigation, or proceeding related to this Agreement, any other
Loan Document, or the use of the proceeds of the credit provided hereunder
(irrespective of whether any Indemnified Person is a party thereto), or any act,
omission, event, or circumstance in any manner related thereto (all the
foregoing, collectively, the "Indemnified Liabilities"). The foregoing to the
-----------------------
contrary notwithstanding, Borrower shall have no obligation to any Indemnified
Person under this Section 14-11 with respect to any Indemnified Liability that a
court of competent jurisdiction finally determines to have resulted from the
gross negligence or willful misconduct of such Indemnified Person. This
provision shall survive the termination of this Agreement and the repayment of
the Liabilities. If any Indemnified Person makes any payment to any other
Indemnified Person with respect to an Indemnified Liability as to which Borrower
was required to indemnify the Indemnified Person receiving such payment, the
Indemnified Person making such payment is entitled to be indemnified and
reimbursed by Borrower with respect thereto. WITHOUT LIMITATION, THE FOREGOING
INDEMNITY SHALL APPLY TO EACH INDEMNIFIED PERSON WITH RESPECT TO INDEMNIFIED
LIABILITIES WHICH IN WHOLE OR IN PART CAUSED BY OR ARISE OUT OF ANY NEGLIGENT
ACT OR OMISSION OF SUCH INDEMNIFIED PERSON OR OF ANY OTHER PERSON.
14-12 Right of Set-Off. Any and all deposits or other sums at any time
----------------
credited by or due to the undersigned from the Lender or from any participant (a
"Participant") with the Lender in the credit facility contemplated hereby and
any cash, securities, instruments or other property of the undersigned in the
possession of the Lender or any Participant, whether for safekeeping or
otherwise (regardless of the reason such Person had received the same) shall at
all times constitute security for all Liabilities and for any and all
obligations of the undersigned to the Lender and any Participant, and may be
applied or set off against the Liabilities and against such obligations at any
time, whether or not such are then due and whether or not other collateral is
then available to the Lender or any Participant.
14-13 Usury Savings Clause. It is the intention of the parties hereto to
--------------------
comply strictly with applicable usury laws, if any; accordingly, notwithstanding
any provisions to the contrary in this Agreement or any other Loan Documents, in
no event shall this Agreement or such Loan Document
48
require or permit the payment, taking, reserving, receiving, collecting or
charging of any sums constituting interest under applicable laws which exceed
the maximum amount permitted by such laws. If any such excess interest is called
for, contracted for, charged, paid, taken, reserved, collected or received in
connection with the Liabilities or in any communication by Lender or any other
Person to the Borrower or any other Person, or in the event all or part of the
principal of the Liabilities or interest thereon shall be prepaid or
accelerated, so that under any of such circumstances or under any other
circumstance whatsoever the amount of interest contracted for, charged, taken,
collected, reserved, or received on the amount of principal actually outstanding
from time to time under this Agreement shall exceed the maximum amount of
interest permitted by applicable usury laws, if any, then in any such event it
is agreed as follows: (a) the provisions of this paragraph shall govern and
control, (b) neither the Borrower nor any other Person or entity now or
hereafter liable for the payment of the Liabilities shall be obligated to pay
the amount of such interest to the extent such interest is in excess of the
maximum amount of interest permitted by applicable usury laws, if any, (c) any
such excess which is or has been received notwithstanding this paragraph shall
be credited against the then unpaid principal balance hereof or, if the
Liabilities have been or would be paid in full by such credit, refunded to the
Borrower, and (d) the provisions of this Agreement and the other Loan Documents,
and any communication to the Borrower, shall immediately be deemed reformed and
such excess interest reduced, without the necessity of executing any other
document, to the maximum lawful rate allowed under applicable laws as now or
hereafter construed by courts having jurisdiction hereof or thereof. Without
limiting the foregoing, all calculations of the rate of interest contracted for,
charged, taken, collected, reserved, or received in connection herewith which
are made for the purpose of determining whether such rate exceeds the maximum
lawful rate shall be made to the extent permitted by applicable laws by
amortizing, prorating, allocating and spreading during the period of the full
term of the Liabilities, including all prior and subsequent renewals and
extensions, all interest at any time contracted for, charged, taken, collected,
reserved or received. The terms of this paragraph shall be deemed to be
incorporated in every Loan Document and communication relating to the
Liabilities.
14-14 Waivers.
-------
(a) The Borrower and each and every guarantor, endorser, and surety
of the Liabilities) makes each of the waivers included in Section 14-14(b),
below, knowingly, voluntarily, and intentionally, and understands that the
Lender, in entering into the financial arrangements contemplated hereby and in
providing Advances and other financial accommodations to or for the account of
the Borrower as provided herein, whether not or in the future, is relying on
such waivers.
(b) THE BORROWER, AND EACH SUCH GUARANTOR, ENDORSER, AND SURETY
RESPECTIVELY WAIVES THE FOLLOWING.
(i) Except as otherwise specifically required in this
Agreement, notice of non-payment, demand, presentment, protest and all forms of
demand and notice, both with respect to the Liabilities and the Collateral.
(ii) Except as otherwise specifically required in this
Agreement, the right to notice and/or hearing prior to the Lender's exercising
of the Lender's rights upon default.
(iii) THE RIGHT TO A JURY IN ANY TRIAL OF ANY CASE OR
CONTROVERSY IN WHICH THE LENDER IS OR BECOMES A PARTY (WHETHER SUCH
49
CASE OR CONTROVERSY IS INITIATED BY OR AGAINST THE LENDER OR IN WHICH THE LENDER
IS JOINED AS A PARTY LITIGANT), WHICH CASE OR CONTROVERSY ARISES OUT OF OR IS IN
RESPECT OF, ANY RELATIONSHIP AMONGST OR BETWEEN THE BORROWER OR ANY OTHER PERSON
AND THE LENDER (AND THE LENDER LIKEWISE WAIVES THE RIGHT TO A JURY IN ANY TRIAL
OF ANY SUCH CASE OR CONTROVERSY).
(iv) The benefits or availability of any stay, limitation,
hindrance, delay, or restriction (including, without limitation, any automatic
stay which otherwise might be imposed pursuant to Section 362 of the Bankruptcy
Code) with respect to any action which the Lender may or may become entitled to
take hereunder.
(v) Any defense, counterclaim, set-off, recoupment, or other
basis on which the amount of any Liability, as stated on the books and records
of the Lender, could be reduced or claimed to be paid otherwise than in
accordance with the tenor of and written terms of such Liability.
(vi) Any claim to consequential, special, or punitive damages.
14-15 Confidentiality. This Agreement and the terms hereof are
---------------
confidential, and neither the contents of this Agreement or the details of this
Agreement may be shown or disclosed by the Borrower to any bank, finance company
or other lender without the prior written consent of the Lender.
14-16 Right to Publish Notice. Lender may, at Lender's discretion and
-----------------------
expense, publicize or otherwise advertise by so-called "tombstone" advertising
or otherwise Lender's and any Participant's financing transaction with the
Borrower.
14-17 Withholding Taxes. All payments made by Borrower hereunder or under
-----------------
any note will be made without setoff, counterclaim, or other defense, except as
required by applicable law other than for Taxes (as defined below). All such
payments will be made free and clear of, and without deduction or withholding
for, any present or future taxes, levies, imposts, duties, fees, assessments or
other charges of whatever nature now or hereafter imposed by any jurisdiction
(other than the United States) or by any political subdivision or taxing
authority thereof or therein (other than of the United States) with respect to
such payments (but excluding, any tax imposed by any jurisdiction or by any
political subdivision or taxing authority thereof or therein (a) measured by or
based on the net income or net profits of Lender, or (b) to the extent that such
tax results from a change in the circumstances of Lender, including a change in
the residence, place of organization, or principal place of business of Lender,
or a change in the branch or lending office of Lender participating in the
transactions set forth herein) and all interest, penalties or similar
liabilities with respect thereto (all such non-excluded taxes, levies, imposts,
duties, fees, assessments or other charges being referred to collectively as
"Taxes"). If any Taxes are so levied or imposed, Borrower agrees to pay the full
-----
amount of such Taxes, and such additional amounts as may be necessary so that
every payment of all amounts due under this Agreement or under any note,
including any amount paid pursuant to this Section 14-17 after withholding or
deduction for or on account of any Taxes, will not be less than the amount
provided for herein; provided, however, that Borrower shall not be required to
-------- -------
increase any such amounts payable to Lender if the increase in such amount
payable results from Lender's own willful misconduct or gross negligence.
Borrower will
50
furnish to Lender as promptly as possible after the date the payment of any
Taxes is due pursuant to applicable law certified copies of tax receipts
evidencing such payment by Borrower.
14-18 Credit Inquiries. Borrower authorizes Lender to (provided,
----------------
however, Lender shall incur no liability for the failure to) respond to credit
inquiries concerning Borrower in accordance with Lender's normal and customary
practices. Borrower hereby indemnifies and holds Lender harmless for any action
taken by Lender in reliance upon the foregoing authorization.
14-19 Revival and Reinstatement of Liabilities. If the incurrence or
----------------------------------------
payment of the Liabilities by Borrower or any guarantor or the transfer to
Lender of any property should for any reason subsequently be declared to be void
or voidable under any state or federal law relating to creditors' rights,
including provisions of the Bankruptcy Code relating to fraudulent conveyances,
preferences, or other voidable or recoverable payments of money or transfers of
property (collectively, a "Voidable Transfer"), and if Lender is required to
-----------------
repay or restore, in whole or in part, any such Voidable Transfer, or elects to
do so upon the reasonable advice of its counsel, then, as to any such Voidable
Transfer, or the amount thereof that Lender is required or elects to repay or
restore, and as to all reasonable costs, expenses, and attorneys fees of Lender
related thereto, the liability of Borrower or any guarantor automatically shall
be revived, reinstated, and restored and shall exist as though such Voidable
Transfer had never been made.
Executed as a sealed instrument this _____ day of ___________, 2001.
NATIONAL HOME CENTERS, INC.
(BORROWER)
By:______________________________________
Print Name:______________________________
Title: __________________________________
XXXXX FARGO RETAIL FINANCE, LLC
(LENDER)
By:______________________________________
Print Name:______________________________
Title:___________________________________
51
