Exhibit 10.5
FINANCING AGREEMENT
Dated as of February 13, 1996
by and among
HAPPY KIDS, LTD.,
CERTAIN AFFILIATES OF
HAPPY KIDS, LTD.,
THE LENDERS LISTED IN SCHEDULE A HERETO,
and
THE CIT GROUP/COMMERCIAL SERVICES, INC.,
as Agent
TABLE OF CONTENTS
PAGE
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ARTICLE I
DEFINITIONS; CERTAIN TERMS
SECTION 1.01. Definitions................................................ 1
SECTION 1.02. Accounting and Other Terms................................. 16
SECTION 1.03. Time References............................................ 17
ARTICLE II
THE LOANS
SECTION 2.01. Credit Exposure............................................ 17
SECTION 2.02. Loans...................................................... 17
SECTION 2.03. Making the Loans........................................... 17
SECTION 2.04. Notes; Repayment of Loans.................................. 18
SECTION 2.05. Funding and Settlement Procedures.......................... 18
SECTION 2.06. Interest................................................... 20
(a) Loan............................................................... 20
(b) Default Interest................................................... 20
(c) Interest Payment................................................... 20
(d) General............................................................ 20
SECTION 2.07. Prepayment of Loans........................................ 20
ARTICLE III
LETTERS OF CREDIT
SECTION 3.01. General.................................................... 21
SECTION 3.02. Participations............................................. 24
SECTION 3.03. Letters of Credit.......................................... 25
ARTICLE IV
FEES, PAYMENTS AND OTHER COMPENSATION
SECTION 4.01. Fees....................................................... 27
SECTION 4.02. Payments; Computations and Statements...................... 27
SECTION 4.03. Sharing of Payments, Etc................................... 28
SECTION 4.04. Apportionment of Payments.................................. 29
SECTION 4.05. Increased Costs and Reduced Return......................... 29
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ARTICLE V
CONDITIONS OF EFFECTIVENESS, LETTER OF CREDIT ISSUANCE AND LENDING
SECTION 5.01. Conditions Precedent to Effectiveness....................... 31
SECTION 5.02. Conditions Precedent to Loans and Letters of Credit......... 36
ARTICLE VI
REPRESENTATIONS AND WARRANTIES
SECTION 6.01. Representations and Warranties of the Borrower.............. 37
ARTICLE VII
COVENANTS OF THE BORROWER
SECTION 7.01. Affirmative Covenants....................................... 42
SECTION 7.02. Negative Covenants.......................................... 51
ARTICLE VIII
MANAGEMENT, COLLECTION AND STATUS OF ACCOUNTS RECEIVABLE AND
OTHER COLLATERAL
SECTION 8.01. Management of Collateral.................................... 56
SECTION 8.02. Accounts Receivable Documentation........................... 58
SECTION 8.03. Status of Accounts Receivable and Other Collateral.......... 58
SECTION 8.04. Collateral Custodian........................................ 60
ARTICLE IX
THE AGENT AND L/C ISSUER
SECTION 9.01. Authorization and Action.................................... 60
SECTiON 9.02. Borrower's Default.......................................... 61
SECTION 9.03. Agent's Reliance, Etc....................................... 61
SECTION 9.04. CIT......................................................... 62
SECTION 9.05. Lender Credit Decision...................................... 62
SECTION 9.06. Indemnification............................................. 63
SECTION 9.07. Successor Agent............................................. 63
SECTION 9.08. Collateral Matters.......................................... 64
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ARTICLE X
EVENTS OF DEFAULT
SECTION 10.01. Events of Default.......................................... 64
SECTION 10.02. Deposit for Letters of Credit.............................. 67
ARTICLE XI
MISCELLANEOUS
SECTION 11.01. Termination................................................ 68
SECTION 11.02. Notices, Etc............................................... 69
SECTION 11.03. Amendments, Etc............................................ 70
SECTION 11.04. No Waiver; Remedies, Etc................................... 70
SECTION 11.05. Fees, Costs, Expenses and Taxes............................ 71
SECTION 11.06. Happy Kids as Agent for Borrowers.......................... 72
SECTION 11.07. Right of Set-off........................................... 72
SECTION 11.08. Severability............................................... 73
SECTION 11.09. Assignments and Participations............................. 73
SECTION 11.10. Counterparts............................................... 75
SECTION 11.11. Headings................................................... 75
SECTION 11.12. Governing Law; Service of Process.......................... 75
SECTION 11.13. Waiver of Jury Trial, Etc.................................. 76
SECTiON 11.14. Consent by the Agent....................................... 76
SECTION 11.15. No Party Deemed Drafter.................................... 76
SECTION 11.16. Reinstatement; Certain Payments............................ 76
SECTION 11.17. Indemnification............................................ 77
SECTION 11.18. Binding Effect............................................. 77
ARTICLE XII
GUARANTY
SECTION 12.01. Guaranty................................................... 78
SECTION 12.02. Obligations Unconditional.................................. 78
SECTION 12.03. Waivers.................................................... 79
SECTION 12.04. Subrogation................................................ 79
SECTION 12.05. No Waiver; Remedies........................................ 79
SECTION 12.06. Stay of Acceleration....................................... 79
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EXHIBIT A Form of Note
EXHIBIT B Form of Guaranty
EXHIBIT C Form of Security Agreement
EXHIBIT D Form of Cash Collateral Agreement
EXHIBIT E Form of Letter of Credit Application
EXHIBIT F Form of New York Counsel Opinion
EXHIBIT G Form of Local Counsel Opinion
EXHIBIT H Form of Assignment and Acceptance
EXHIBIT I Form of Notice of Borrowing
EXHIBIT J Form of Subordination Agreement
SCHEDULE A Lenders and Lenders' Credit Exposure
SCHEDULE B Guarantors
SCHEDULE 3.03(c) Existing Letters of Credit
SCHEDULE 6.01(e) Inventory Locations
SCHEDULE 6.01(f) Subsidiaries
SCHEDULE 6.01(g) Litigation
SCHEDULE 6.01(s) Operating Lease Obligations
SCHEDULE 6.01(t) Environmental
SCHEDULE 6.0l(y) Tradenames
SCHEDULE 6.01(aa) Material Contracts
SCHEDULE 7.02(a)(ii) Liens
SCHEDULE 7.02(b)(ii) Indebtedness
SCHEDULE 7.02(c)(ii) Guaranties
SCHEDULE 7.02(f)(ii) Investments
SCHEDULE 7.02(g) Capitalized Lease Obligations
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FINANCING AGREEMENT
FINANCING AGREEMENT, dated as of February 13,1996 by and among Happy
Kids, Ltd., a New York corporation ("Happy Kids"), O'Boy Inc. a New York
corporation ("O'Boy"), Talk of the Town Apparel Corp., a New York corporation
("TOT Apparel") and O.P. Kids, L.L.C., a New Jersey limited liability company
("OP, LLC" and together with Happy Kids, O'Boy and TOT Apparel, each a
"Borrower" and collectively the "Borrowers"), the guarantors listed on Schedule
B hereto (each a "Guarantor" and collectively, the "Guarantors"), the lenders
listed on Schedule A hereto (each a "Lender" and collectively, the "Lenders")
and The CIT Group/Commercial Services, Inc., as agent for the Lenders (in such
capacity, the "Agent").
RECITALS
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The Borrowers and the Guarantors have asked the Lenders to extend
credit to the Borrowers, from the date hereof through the Final Maturity Date
(as hereinafter defined) in the form of discretionary revolving credit loans to
the Borrowers at any time and from time to time prior to the Final Maturity Date
in an aggregate principal amount not in excess of $36,000,000 at any time
outstanding, reducing to an aggregate principal amount not in excess of
$32,000,000 at any time outstanding on and after May 31, 1996. This revolving
credit facility may include a $18,000,000 letter of credit subfacility. The
proceeds of the discretionary revolving credit loans shall be used to refinance
existing indebtedness of the Borrowers to The Chase Manhattan Bank, N.A.
("Chase"), Chemical Bank ("Chemical") and Israel Discount Bank of New York
("IDB" and together with Chase and Chemical, each an "Existing Lender" and
collectively the "Existing Lenders") and for general working capital purposes.
The letters of credit will be used to finance the purchase of finished goods
inventory in the normal course of the Borrowers' business. The Lenders are
severally, and not jointly, willing to consider extending such credit to the
Borrowers on a discretionary basis and subject to the terms and conditions
hereinafter set forth. Accordingly, the Borrowers, the Guarantors, the Lenders
and the Agent hereby agree as follows:
ARTICLE I
DEFINITIONS; CERTAIN TERMS
SECTION 1.01. Definitions. As used in this Agreement, the following
-----------
terms shall have the respective meanings indicated below, such meanings to be
applicable equally to both the singular and plural forms of such terms:
"Account Debtor" means each debtor, customer or obligor in any way
--------------
obligated on or in connection with any Account Receivable.
"Account Receivable" means any and all rights of a Borrower to payment
------------------
for goods sold, including accounts, contract rights, general intangibles and any
such right evidenced
by chattel paper, instruments or documents, whether due or to become due and
whether or not it has been earned by performance, and whether now or hereafter
acquired or arising in the future and any proceeds arising therefrom or relating
thereto.
"Action" has the meaning specified therefor in Section 11.14 hereof.
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"Administrative Borrower" has the meaning specified therefor in
-----------------------
Section 11.06 hereof.
"Agreement" means this Financing Agreement, including all amendments,
---------
modifications and supplements and any exhibit or schedule to any of the
foregoing, and shall refer to the Agreement as the same may be in effect at the
time such reference becomes operative.
"Affiliate" means, as to any Person, (i) any other Person that
---------
directly or indirectly through one or more intermediaries, controls, is
controlled by, or is under common control with, such Person, or (ii) any trade
or business (whether or not incorporated) which is a member of a group of which
such Person is a member and which is under common control within the meaning of
Section 414 of the IRC and the rules and regulations promulgated thereunder from
time to time. Notwithstanding anything to the contrary, for purposes of this
Agreement and the other Loan Documents, the term "Affiliate" shall also include
any Family Member of an Individual Guarantor and any Person controlled by a
Family Member of an Individual Guarantor.
"Agent" has the meaning specified therefor in the preamble hereto.
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"Agent Advances" has the meaning specified therefor in Section 9.08(a)
--------------
hereof.
"Assignment and Acceptance" means an assignment and acceptance entered
-------------------------
into by an assigning Lender and an assignee and accepted by the Agent, in
accordance with Section 11.09 hereof and substantially in the form of Exhibit H
hereto.
"Borrower" and "Borrowers" has the meaning specified therefor in the
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preamble hereto.
"Borrowing Base" means, as of any date, the sum of (i) up to 85% of
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the value of the Borrowers' Net Amount of Eligible Accounts Receivable, (ii) up
to 50% of the value of the Borrowers' Eligible Inventory, (iii) up to 50% of the
Borrowers' L/C Inventory, provided that the Inventory with respect thereto is
not otherwise included in the Borrowing Base, and (iv) the Overadvance Amount.
The value of all Inventory shall be determined at the lower of cost or market
value in accordance with GAAP.
"BUM" means B.U.M. International, Inc., a Nevada corporation.
---
"BUM License Agreement" means the License Agreement, dated as of June
---------------------
1, 1995, as amended to the date of this Agreement, between BUM and Happy Kids,
as the same
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may be further amended, modified or supplemented from time to time in accordance
with the provisions of Section 7.02(n) of this Agreement.
"Business Day" means any day, other than a Saturday, Sunday or legal
------------
holiday, on which banks are required or authorized to close in New York City.
"Capital Guideline" means any law, rule, regulation, policy, guideline
-----------------
or directive, whether or not having the force of law and whether or not the
failure to comply therewith would be unlawful: (i) regarding capital adequacy,
capital ratios, capital requirements, the calculation of a bank's capital or
similar matters, or (ii) affecting the amount of capital required to be obtained
or maintained by the Lenders, the Affiliates of the Lenders or the L/C Issuer or
the manner in which the Lenders, the Affiliates of the Lenders or the L/C Issuer
allocate capital to any of their contingent liabilities (including letters of
credit), advances, acceptances, commitments, assets or liabilities.
"Capitalized Lease" means any lease which is required under GAAP to be
-----------------
capitalized on the balance sheet of the lessee.
"Capital Stock" means any and all shares, interests, participations,
-------------
warrants, options or other equivalents (however designated) of capital stock of
a corporation or any and all equivalent ownership interest in a Person (other
than a corporation).
"Capitalized Lease Obligations" means obligations for the payment of
-----------------------------
rent for any real or personal property under leases or agreements to lease that,
in accordance with GAAP, have been or should be capitalized on the books of the
lessee and, for purposes hereof, the amount of any such obligation shall be the
capitalized amount thereof determined in accordance with such principles.
"Cash Collateral Agreement" means the Cash Collateral Agreement, dated
-------------------------
as of the Effective Date, made by Xxxx X. Xxxxx in favor of the Agent,
substantially in the form of Exhibit D hereto, securing the Obligations and
delivered to the Agent pursuant to Article V hereof, as the same may be amended
or otherwise modified from time to time.
"Change of Control" means (i) Xxxx X. Xxxxx shall cease to own and
-----------------
control, of record and beneficially, at least 50% of the then-outstanding
Capital Stock of each Borrower and Corporate Guarantor other than O'Boy, free
and clear of all Liens, (ii) Xxxx X. Xxxxx shall cease to own and control, of
record and beneficially, at least 33-1/3% of the then-outstanding Capital Stock
of O'Boy free and clear of all Liens, (iii) Xxxx X. Xxxxx shall cease to own and
control, of record and beneficially, at least 50% of the then-outstanding
Capital Stock of each Borrower and Corporate Guarantor other than O'Boy, free
and clear of all Liens, (iv) Xxxx X. Xxxxx shall cease to own and control, of
record and beneficially, at least 33-1/3% of the then-outstanding Capital Stock
of O'Boy free and clear of all Liens, (v) Xxxxx Xxxx shall cease to own and
control, of record and beneficially, at least 33-1/3% of the then-outstanding
Capital Stock of O'Boy free and clear of all Liens, or (vi) Xxxx X. Xxxxx shall
cease to be involved in the day-to-day operations and management of the business
of each Borrower and Corporate Guarantor, provided that for
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the purposes of clauses (iii), (iv) and (v) above, a transfer by Xxxx X. Xxxxx
or Xxxxx Xxxx of all or any part of their Capital Stock of any Borrower or
Corporate Guarantor or any rights therein to Xxxx X. Xxxxx shall not constitute
a Change of Control.
"Chase" has the meaning specified therefor in the RECITALS.
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"Chemical" has the meaning specified therefor in the RECITALS.
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"CIT" means The CIT Group/Commercial Services, Inc., a New York
---
corporation.
"CIT Assignment Agreement" means the Intercreditor Agreement and
------------------------
Assignment of Factoring Proceeds dated the date hereof among the Factor, the
Agent and the Borrowers.
"Collateral" means all of the property (tangible and intangible)
----------
purported to be subject to the lien or security interest purported to be created
by any mortgage, deed of trust, security agreement, cash collateral agreement,
pledge agreement, assignment or other security document heretofore or hereafter
executed by any Person as security for all or any part of the Obligations.
"Combined Current Assets" means, with respect to the Borrowers, H.O.T.
-----------------------
Kidz and their Subsidiaries, at any date, the aggregate amount of all cash,
Accounts Receivable (excluding Accounts Receivable due from an Affiliate of the
Borrower or any Guarantor) and Inventory which would be properly classified as
current assets of the Borrowers, H.O.T. Kidz and their Subsidiaries at such date
all computed and combined in accordance with GAAP.
"Combined Current Liabilities" means, with respect to the Borrowers,
----------------------------
H.O.T. Kidz and their Subsidiaries, at any date, the aggregate amount of all
liabilities (including tax and other proper accruals) which would be classified
as current liabilities of the Borrowers, H.O.T. Kidz and their Subsidiaries and
for purposes of this Agreement, including the outstanding principal amount of
the Notes, all computed and combined in accordance with GAAP.
"Combined Tangible Net Worth" means, with respect to the Borrowers,
---------------------------
H.O.T. Kidz and each of their Subsidiaries, the excess of (i) the aggregate net
book value of the assets (other than patents, patent rights, trademarks, trade
name, franchises, copyrights, licenses, permits, goodwill and other intangible
assets classified as such in accordance with GAAP) of the Borrowers, H.O.T. Kidz
and each of their Subsidiaries after all appropriate adjustments in accordance
with GAAP applied on a consistent basis (including, without limitation, reserves
for doubtful receivables, obsolescence, depreciation and amortization and
excluding the amount of any write-up or revaluation of any asset) over (ii) the
Combined Total Unsubordinated Liabilities of the Borrowers, H.O.T. Kidz and each
of their Subsidiaries, in each case computed and combined in accordance with
GAAP applied on a consistent basis.
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"Combined Total Unsubordinated Liabilities" means, with respect to the
-----------------------------------------
Borrowers, H.O.T. Kidz and each of their Subsidiaries, all items which, in
accordance with GAAP applied on a consistent basis, would properly be included
on the liability side of the balance sheet of the Borrowers, H.O.T. Kidz and
each of their Subsidiaries (other than indebtedness subject to the Subordination
Agreement, capital stock, capital surplus and retained earnings), as of the date
on which the amount of Combined Total Unsubordinated Liabilities is to be
computed and combined in accordance with GAAP applied on a consistent basis.
"Corporate Guarantors" mean H.O.T. Kidz, Hawk and J&B.
--------------------
"Credit Exposure" means, with respect to each Lender, the total credit
---------------
exposure of such Lender (i) prior to May 31, 1996, as set forth in Part A of
Schedule A hereto and (ii) on and after May 31, 1996, as set forth in Part B of
Schedule A hereto, in each case as the same may be adjusted from time to time
pursuant to Sections 10.01 or 11.01 hereof.
"Cumulative Net Loss" means, for each fiscal quarter of Happy Kids,
-------------------
the Net Loss for the period beginning on the first day of the fiscal year and
ending at the end of such fiscal quarter.
"Disney" means The Xxxx Disney Company.
------
"Disney License Agreements" means (i) the License Agreement dated as
-------------------------
of September 30, 1994, as amended to the date of this Agreement, between Disney
and Happy Kids with respect to certain characters relating to the motion picture
entitled, "Disney's Pocohontas" and (ii) the License Agreement dated as of June
27, 1995, as amended to the date of this Agreement, between Disney and Happy
Kids with respect to certain characters relating to the motion picture entitled,
"The Hunchback of Notre Dame", in each case, as the same may be further
amended, modified or supplemented from time to time in accordance with the
provisions of Section 7.02(n) of this Agreement.
"Effective Date" has the meaning specified therefor in Article V
--------------
hereof.
"Eligible Accounts Receivable" means such Accounts Receivable of a
----------------------------
Borrower which are and at all times shall continue to be, acceptable to the
Agent in all respects. Criteria for eligibility may be fixed and revised from
time to time solely by the Agent in its exclusive judgment exercised reasonably.
In general, Accounts Receivable shall be deemed to be eligible if such Accounts
Receivable of a Borrower are generated in the ordinary course of business of
such Borrower and are either (a) purchased, credit approved and continue to be
credit approved under the Factoring Agreements or (b) "Approved Accounts" and
continue to be "Approved Accounts" under the Existing Factoring Agreement. In
addition, Accounts Receivable that are not purchased and credit approved and do
not remain credit approved under the Factoring Agreements and that are not
"Approved Accounts" and do not remain Approved Accounts under the Existing
Factoring Agreement may, in the sole and absolute discretion of the Agent, be
deemed to be eligible if: (i) (A) the Account Debtor with respect to such
Account Receivable is on the list of Account Debtors for which the Factor
charges a surcharge, which may include
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Account Debtors subject to a Bankruptcy Proceeding (as hereinafter defined), and
(B) such Account Receivable is not credit approved under the Factoring
Agreements solely because the Borrower is not paying the surcharge applicable to
the Account Debtor with respect to such Account Receivable under the Factoring
Agreements; (ii) delivery of the merchandise has been completed; (iii) no
return, rejection or repossession has occurred; (iv) such merchandise has been
accepted by the Account Debtor without dispute, setoff, defense or counterclaim;
(v) such Account Receivable is owned by a Borrower free and clear of any Lien
other than in favor of the Agent for the benefit of the Lenders, in favor of the
Factor under the Factoring Agreements or in favor of Trust Company Bank under
the Existing Factoring Agreement and otherwise continues to be in full
conformity with any and all representations and warranties made by such Borrower
to the Agent and the Lenders with respect thereto in the Loan Documents; (vi)
such Account Receivable is unconditionally payable in U.S. dollars within 90
days from the invoice date and is not evidenced by a promissory note, chattel
paper or any other instrument or document; (vii) no more than 60 days have
elapsed from the invoice due date and no more than 120 days have elapsed from
the invoice date; (viii) the Account Debtor with respect thereto is not an
Affiliate of any Borrower or any Corporate Guarantor; (ix) such Account
Receivable does not constitute an obligation of the United States or Canada or
any other Governmental Authority other than a post exchange; (x) the Account
Debtor (or the applicable office of the Account Debtor) with respect thereto is
located in the continental United States, unless the Account Receivable is
supported by a letter of credit or other similar obligation satisfactory to the
Agent; (xi) the Account Debtor with respect thereto is not also a supplier to or
creditor of a Borrower or Corporate Guarantor, unless such supplier or creditor
has executed a no-offset letter satisfactory to the Agent; (xii) not more than
50% of the aggregate amount of all Accounts Receivable of the Account Debtor
with respect to such Account Receivable have remained unpaid 60 days past the
invoice due date or 120 days past the invoice date; (xiii) subject to clause (i)
above, the Account Debtor is not the subject of a "Bankruptcy Proceeding"; for
purposes hereof an Account Debtor is subject to a "Bankruptcy Proceeding" if
that Account Debtor has filed a petition for bankruptcy or any other relief
under the United States Bankruptcy Code or any other law relating to bankruptcy,
insolvency, reorganization or relief of debtors, made an assignment for the
benefit of creditors, had filed against it any petition or other application for
relief under the United States Bankruptcy Code or any such other law, has
failed, suspended business operations, become insolvent, called a meeting of its
creditors for the purpose of obtaining any financial concession or
accommodation, or had or suffered a receiver or a trustee to be appointed for
all or a significant portion of its assets or affairs; and (xiv) the Agent is,
and continues to be, satisfied with the credit standing of the Account Debtor in
relation to the amount of credit extended.
"Eligible Inventory" means all finished goods Inventory which is owned
------------------
by a Borrower and held for sale or to be furnished under contracts of sale,
which meet all of the following specifications: (i) the Inventory is lawfully
owned by a Borrower and is not subject to any existing Lien, other than that of
the Agent for the benefit of the Lenders under the Loan Documents, is not held
on consignment and may be lawfully sold, and continues to be in full conformity
with any representations and warranties made in the Loan Documents by the
Borrowers to the Agent and the Lenders with respect thereto; (ii) a Borrower has
the right to grant Liens thereon; (iii) the Inventory arose or was acquired in
the ordinary course of the business of a Borrower and such Inventory does not
represent damaged goods; (iv) no Account
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Receivable or, except as permitted by clause (vi)(B) below, document of title
has been created or issued with respect to such Inventory; (v) the Inventory is
readily marketable for sale by a Borrower; (vi) the Inventory is (A) located in
one of the locations listed on Schedule 6.01(e) hereto or such other locations
in the continental United States as the Agent shall approve in writing from time
to time or (B) "in transit", provided that such "in-transit" Inventory is
finished goods Inventory that is shipped under a Letter of Credit issued by the
L/C Issuer pursuant to this Agreement; (vii) except as permitted by clause
(vi)(B) above, such Inventory is located within the United States; (viii) the
Inventory is not Prior Season Inventory, raw materials, work in process, piece
goods or supplies; (ix) if the Inventory is sold under a licensed trademark (A)
the Agent shall have entered into a licensor waiver letter, in form and
substance satisfactory to the Agent, with the licensor with respect to the
rights of the Agent to use the trademark to sell or otherwise dispose of such
Inventory or (B) the Agent shall otherwise be satisfied, in its sole discretion
exercised reasonably, that the Agent has rights to sell or dispose of such
Inventory; and (x) the Inventory is not otherwise regarded by Agent, in its sole
and absolute discretion, exercised reasonably, as unsuitable Collateral for the
Obligations.
"Employee Plan" means an employee benefit plan (other than a
-------------
Multiemployer Plan) covered by Title IV of ERISA and maintained (or was
maintained at any time during the five (5) calendar years preceding the date of
any borrowing hereunder) for employees of a Borrower or any of their ERISA
Affiliates.
"Environmental Law" means the Comprehensive Environmental Response.
-----------------
Compensation, and Liability Act (42 U.S.C. (S) 9601, et seq.), the Hazardous
-- ---
Materials Transportation Act (49 U.S.C. (S) 1801, et seq.), the Resource
-- ---
Conservation and Recovery Act (42 U.S.C. (S) 6901, et seq.), the Federal Water
-- ---
Pollution Control Act (33 U.S.C. (S) 1251 et seq.), the Clean Air Act (42 U.S.C.
-- ---
(S) 7401 et seq.), the Toxic Substances Control Act (15 U.S.C. (S) 2601 et
-- --- --
seq.) and the Occupational Safety and Health Act (29 U.S.C. (S) 651 et seq.), as
--- -- ---
such laws have been amended or supplemented from time to time, and any other
present or future Federal, state, local or foreign statute, ordinance, rule,
regulation, order, judgment, decree, permit, license or other binding
determination of any Governmental Authority relating to Hazardous Materials.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
-----
amended from time to time, and, unless the context otherwise requires, the rules
and regulations promulgated thereunder from time to time.
"ERISA Affiliate" means, with respect to any Person, any trade or
---------------
business (whether or not incorporated) which is a member of a group of which
such Person is a member and which would be deemed to be a "controlled group"
within the meaning the Sections 414(b), (c), (m) and (o) of the IRC.
"Event of Default" means any of the events set forth in Section 10.01
----------------
hereof.
"Existing Factoring Agreement" means the Factoring Agreement, dated as
----------------------------
of September 14, 1995, as amended, among the Borrowers, H.O.T. Kidz and the
Trust Company Bank.
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"Existing Lenders" has the meaning specified therefor in the RECITALS.
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"Existing Letters of Credit" has the meaning specified in Section
--------------------------
3.03(c) hereof.
"Existing Line Letters" means the line letter or other agreements or
---------------------
documents among Happy Kids, certain other Borrowers and Chemical with respect to
the discretionary financing provided by Chemical to Happy Kids and such other
Borrowers prior to the Effective Date, the line letter or other agreements or
documents among Happy Kids, certain other Borrowers and Chase with respect to
the discretionary financing provided by Chase to Happy Kids and such other
Borrowers prior to the Effective Date, and the line letter or other agreements
or documents among Happy Kids, certain other Borrowers and IDB with respect to
the discretionary financing provided by IDB to Happy Kids and such other
Borrowers prior to the Effective Date.
"Facility Fee" has the meaning specified in Section 4.01(c) hereof.
------------
"Factor" means CIT, in its capacity as factor under the Factoring
------
Agreements.
"Factoring Agreement" has the meaning specified in Section 5.01(d)(xv)
-------------------
hereof.
"Family Member" means, as applied to any individual, any parent,
-------------
spouse, child, spouse of a child, brother or sister of the individual, cousin of
the individual, and each trust created for the benefit of one or more of such
Persons and each custodian of a property of one or more such Persons.
"Federal Funds Rate" means, for any period, a fluctuating interest
------------------
rate per annum equal for each day during such period to the weighted average of
the rates on overnight Federal funds transactions with members of the Federal
Reserve System arranged by Federal funds brokers, as published for such day (or,
if such day is not a Business Day, for the next preceding Business Day) by the
Federal Reserve Bank of New York, or, if such rate is not so published for any
day which is a Business Day, the average of the quotations for such day on such
transactions received by the Agent from three Federal funds brokers of
recognized standing selected by it.
"Final Maturity Date" means the date this Agreement is terminated
-------------------
pursuant to Section 11.01 hereof.
"Financial Statements" means the financial statements of the Borrowers
--------------------
and H.O.T. Kidz and of Hawk and J&B delivered to the Lenders pursuant to Section
5.01(d)(xiii) hereof.
"GAAP" means generally accepted accounting principles in effect from
----
time to time in the United States, applied on a consistent basis.
-8-
"Governmental Authority" means any nation or government, any federal,
----------------------
xxxxx, xxxx, xxxx, xxxxxxxxxxxx, xxxxxx, local or other political subdivision
thereof or thereto and any department, commission, board, bureau,
instrumentality, agency or other entity exercising executive, legislative,
judicial, regulatory or administrative functions of or pertaining to government.
"Guaranteed Obligations" means (i) with respect to any Borrower, all
----------------------
obligations of the other Borrowers, including, without limitation, all amounts
now or hereafter owing by such other Borrowers in respect of the Loan Documents
and (ii) with respect to each Guarantor, all obligations of the Borrowers
including, without limitation, all amounts now or hereafter owing by the
Borrowers in respect of the Loan Documents.
"Guarantors" has the meaning specified in the preamble hereto and
----------
shall include the Borrowers, the Corporate Guarantors, the Individual Guarantors
and all other Persons which hereafter guarantee, pursuant to Sections 5.01
(d)(xxvii) or 7.01(b) hereof or otherwise, all or any part of the Obligations.
"Guaranty" means (i) the guaranty contained in Article XII hereof made
--------
by each of the Guarantors in favor of the Lenders guaranteeing the Obligations,
(ii) the guaranty made by Xxxxxxxx Xxxxx and delivered to the Agent pursuant to
Section 5.01(d)(xxvii) hereof, and (iii) any guaranty, substantially in the
form of Exhibit B hereto, made by the Guarantors in favor of the Lenders
guaranteeing the Obligations and delivered to the Agent pursuant to Section
7.01(b) hereof.
"Hawk" means Hawk Industries, Inc., a New Jersey corporation.
----
"H.O.T. Kidz" means H.O.T. Kidz, L.L.C., a New York limited liability
-----------
company.
"Happy Kids" has the meaning therefor in the preamble hereto.
----------
"Happy Kids License Agreement" means the License Agreement, dated as
----------------------------
of June 10, 1988, as amended to the date of this Agreement, between Xxxxxxx'x
and Happy Kids, as the same may be amended, modified or supplemented from time
to time in accordance with the provisions of Section 7.02(n) of this Agreement.
"Hazardous Materials" means, without limit, any pollutant, flammable
-------------------
explosives, radioactive materials, hazardous materials, hazardous wastes,
hazardous or toxic substances, or other materials defined in, regulated under
or which form the basis of liability under any Environmental Law.
"IDB" has the meaning specified therefor in the RECITALS.
---
"Indebtedness" means, with respect to any Person, (i) all indebtedness
------------
or other obligations of such Person for borrowed money or for the deferred
purchase price of property or
-9-
services, (ii) all Capitalized Lease Obligations of such Person, (iii) all
obligations of such Person under guaranties in respect of, and contingent or
other obligations of such Person to purchase or otherwise acquire or otherwise
assure a creditor against loss in respect of, indebtedness or other obligations
of any other Person for borrowed money or for the deferred purchase price of
property or services or Capitalized Lease Obligations of any other Person, (iv)
all indebtedness or other obligations of any other Person for borrowed money or
for the deferred purchase price of property or services secured by (or for which
the holder of such indebtedness has an existing right, contingent or otherwise,
to be secured by) any lien, security interest or other charge or encumbrance
upon or in property owned by such Person, (v) all obligations of such Person in
respect of letters of credit and bankers' acceptances, (vi) all liabilities
incurred under Title IV of ERISA with respect to any plan (other than a
Multiemployer Plan) covered by Title IV of ERISA and maintained for employees of
such Person or any of its Affiliates, and (vii) withdrawal liability incurred
under ERISA by such Person or any of its Affiliates to any Multiemployer Plan.
"Indemnitees" has the meaning specified therefor in Section 11.17
-----------
hereof.
"Individual Guarantors" means Xxxx X. Xxxxx, Xxxx X. Xxxxx and Xxxxx
---------------------
Levy.
"IRC" means the Internal Revenue Code of 1986, as amended from time to
---
time.
"Inventory" means all goods and merchandise of a Borrower including,
---------
but not limited to, all raw materials, work in process, piece goods, finished
goods, materials and supplies of every nature used or usable in connection with
the shipping, storing, advertising or sale of such goods and merchandise,
whether now owned or hereafter acquired and all such property, the sale or other
disposition of which would give rise to Accounts Receivable.
"Jeanjer" means Jeanjer Ltd., a Delaware corporation.
-------
"Jordache" means Jordache Enterprises Inc., a New York corporation.
--------
"Jordache License Agreements" means the (i) the License Agreement,
---------------------------
dated as of May 22, 1991, as amended to the date of this Agreement, between
Jordache and TOT Apparel with respect to girl's activewear, (ii) the License
Agreement, dated as of May 22, 1991, as amended to the date of this Agreement,
between Jordache and TOT Apparel with respect to infant and toddler playwear and
activewear, (iii) the License Agreement, dated as of June 30, 1992, as amended
to the date of this Agreement, between Jordache and O'Boy with respect to boy's
activewear, (iv) the License Agreement, dated as of March 1, 1993, as amended to
the date of this Agreement, between Jeanjer and TOT Apparel with respect to
girl's activewear and infant and toddler playwear, activewear and dresses, (v)
the License Agreement, dated as of August 10, 1993, as amended to the date of
this Agreement, between Jeanjer and O'Boy with respect to boy's activewear, (vi)
the License Agreement, dated as of May 2, 1995, as amended to the date of this
Agreement, between Jordache and TOT Apparel with respect to infant and toddler
outerwear, and (vii) the License Agreement, dated as of May 2, 1995, as amended
to the date of this Agreement, between Jordache and TOT Apparel with respect to
girl's outerwear, in each case, as the same may be further amended, modified or
supplemented from time to time in
-10-
accordance with the provisions of Section 7.02(n) of this Agreement.
"J&B" means J & B 18 Corp., a New York corporation.
---
"LA Gear" means L.A. Gear, Inc., a California corporation.
-------
"LA Gear License Agreement" means the License Agreement, dated as of
-------------------------
December 1, 1994, as amended to the date of this Agreement, between LA Gear and
Happy Kids, as the same may be further amended, modified or supplemented from
time to time in accordance with the provisions of Section 7.02(n) of this
Agreement.
"L/C Inventory" means the undrawn stated amount of documentary Letters
-------------
of Credit for the importation of finished goods Eligible Inventory which has
been or will be consigned to a common carrier that has or will issue documents
of title covering such Inventory to the Agent or the L/C Issuer (and shall not
include Eligible Inventory supported by Letters of Credit issued for the benefit
of domestic trade creditors).
"L/C Issuer" means Chemical or its successor and, with respect to any
----------
Existing Letter of Credit, the Existing Lender that issued such Existing Letter
of Credit.
"L/C Subfacility" shall mean that portion of the Total Credit Exposure
---------------
equal to $18,000,000, or such other amount as shall be agreed to in writing by
the Agent, the Lenders and Happy Kids.
"Letter of Credit" has the meaning specified therefor in Section
----------------
3.01(a) hereof.
"Letter of Credit Application" has the meaning specified therefor in
----------------------------
Section 3.01(a) hereof.
"Letter of Credit Obligations" means, at any time and without
----------------------------
duplication, the sum of (i) the Reimbursement Obligations at such time, plus
----
(ii) the aggregate maximum amount available for drawing under the outstanding
Letters of Credit at such time, plus (iii) all amounts for which the Agent may
----
be liable to the L/C Issuer in connection with any steamship guaranty, airway
release, indemnity or deliver order issued by the L/C Issuer at the request of
or for the benefit of a Borrower, in each case as calculated by the L/C Issuer.
"License Agreements" means the BUM License Agreement, the Jordache
------------------
License Agreements, the LA Gear License Agreement, the OP License Agreement, the
Disney License Agreements and the Happy Kids License Agreement and each license
agreement entered into by any Borrower or Corporate Guarantor after the
Effective Date.
"Licensor" means BUM, Xxxxx Xxxxxxx, LA Gear, Jeanjer, Jordache,
--------
Disney, Xxxxxxx'x and any Person entering into a license agreement with any
Borrower or Corporate Guarantor after the Effective Date.
-11-
"Lien" means any mortgage, deed of trust, pledge, lien, security
----
interest, charge or other encumbrance or security arrangement of any nature
whatsoever, including but not limited to any conditional sale or title retention
arrangement, and any assignment, deposit arrangement or lease intended as, or
having the effect of, security.
"Loan" means any revolving credit loan made by a Lender or the Agent
----
to a Borrower pursuant to Section 2.02 or Section 2.05 hereof.
"Loan Account" means the Borrowers' joint account maintained at the
------------
Payment Office of the Agent and designated by the Agent as the "Happy Kids Loan
Account", or such other account as the Agent shall designate from time to time.
"Loan Documents" means this Agreement, the Notes, the Security
--------------
Agreements, the CIT Assignment Agreement, the Guaranties, the Cash Collateral
Agreement, the Letter of Credit Applications, the Mortgage, the Subordination
Agreement and all other instruments, documents and agreements executed and
delivered pursuant hereto.
"Material Adverse Effect" means a material adverse effect upon (i) the
-----------------------
business, operations, condition (financial or otherwise) or prospects of any
Borrower or any Guarantor, (ii) the ability of any Borrower or any Guarantor to
perform its obligations hereunder or under any other Loan Documents, (iii) the
legality, validity or enforceability of this Agreement or any other Loan
Document, or (iv) the aggregate value of the property included in the
calculation of the Borrowing Base, provided that a Material Adverse Effect shall
not arise solely by reason of the loss before taxes of not more than $2,160,000,
excluding any LIFO adjustments made for the prior fiscal year in accordance with
GAAP, incurred by the Borrower and the Corporate Guarantor prior to December 31,
1995.
"Material Contracts" means, with respect to any Person, each contract
------------------
to which such Person is a party involving aggregate consideration payable to or
by such Person of $100,000 or more (other than contracts that by their terms
may be terminated by any party thereto in the ordinary course of its business
upon less than 60 days notice and purchase orders for piece goods) or otherwise
material to the business, condition (financial or otherwise), operations,
performance, properties or prospects of such Person.
"Mortgage" has the meaning specified therefor in Section 5.01(d)(xxi)
--------
hereof.
"Multiemployer Plan" means a "multiemployer plan" as defined in
------------------
Section 4001(a)(3) of ERISA for which a Borrower or any ERISA Affiliate has
contributed to, or has been obligated to contribute to, during the preceding 5
years.
"Net Amount of Eligible Accounts Receivable" means the outstanding
------------------------------------------
balance of the invoice amount of Eligible Accounts Receivable less (i) sales,
excise or similar taxes and less returns, discounts, chargebacks, claims,
advance payments, credits and allowances of any nature at any time issued,
owing, granted, outstanding, available or claimed, and (ii) in the case of sums
due a Borrower under the Factoring Agreements or the Existing Factoring
Agreement, less
-12-
deductions for factoring charges, interest, discounts, estimated anticipation,
chargebacks based upon disputes and returns, chargebacks of client risk accounts
purchased with recourse, and all other charges, offsets and reserves under the
Factoring Agreements or the Existing Factoring Agreement.
"Net Income (Loss)" means, for any period, the net income (or loss) of
-----------------
a Person after income taxes for such period, but excluding any extraordinary
gains, all computed in accordance with GAAP applied on a basis consistent with
the corresponding prior period.
"Notes" means the joint and several promissory notes of the Borrowers,
-----
substantially in the form of Exhibit A hereto, evidencing the Indebtedness
resulting from the making of the Loans and delivered to the Lenders pursuant to
Article II hereof, as such promissory notes may be modified or extended from
time to time, and any promissory note or notes issued in exchange or replacement
therefor.
"Notice of Borrowing" has the meaning specified therefor in Section
-------------------
2.03 hereof.
"O'Boy" has the meaning specified therefor in the preamble hereto.
-----
"Obligations" means (i) the joint and several obligations of the
-----------
Borrowers to pay, as and when due and payable (by scheduled maturity or
otherwise), all amounts from time to time owing by it in respect of any Loan
Document, whether for principal, interest (including, without limitation, all
interest that accrues after the commencement of any case, proceeding or other
action relating to the bankruptcy, insolvency or reorganization of any
Borrower), Reimbursement Obligations, Letter of Credit Obligations fees or
otherwise, and (ii) the joint and several obligations of the Borrowers to
perform or observe all of their other obligations from time to time existing
under any Loan Document.
"Xxxxx Xxxxxxx" means Xxxxx Xxxxxxx Apparel Corp., a Delaware
-------------
corporation.
"OP,LLC" has the meaning specified therefor in the preamble hereto.
------
"OP License Agreement" means the License Agreement, dated as of
--------------------
October 27, 1994, as amended to the date of this Agreement, between Xxxxx
Xxxxxxx and Happy Kids, as the same may be further amended, modified or
supplemented from time to time in accordance with the provisions of Section
7.02(n) of this Agreement.
"Operating Lease Obligations" means all obligations for the payment of
---------------------------
rent for any real or personal property under leases or agreements to lease,
other than Capitalized Lease Obligations.
"Overadvance Amount" means any amount agreed to by the Agent, in its
------------------
sole and absolute discretion, for a period of time specified by the Agent,
provided that the Agent shall have no obligation whatsoever to agree to any
such amount or period of time.
-13-
"Payment Office" means the Agent's office located at 1211 Avenue of
--------------
the Americas, Xxx Xxxx, Xxx Xxxx 00000 or such other offices as the Agent may
designate.
"PBGC" means the Pension Benefit Guaranty Corporation.
----
"Permitted Investments" means (i) marketable direct obligations issued
---------------------
or unconditionally guaranteed by the United States Government or issued by any
agency thereof and backed by the full faith and credit of the United States, in
each case maturing within six months from the date of acquisition thereof; (ii)
commercial paper, maturing not more than 270 days after the date of issue
rated P-1 by Xxxxx'x Investors Service, Inc. or A-1 by Standard & Poor's
Corporation, (iii) certificates of deposit maturing not more than 270 days after
the date of issue, issued by commercial banking institutions and money market or
demand deposit accounts maintained at commercial banking institutions, each of
which is a member of the Federal Reserve System and has a combined capital and
surplus and undivided profits of not less than $500,000,000, and (iv) repurchase
agreements having maturities of not more than 90 days from the date of
acquisition which are entered into with major money center banks included in the
commercial banking institutions described in clause (iii) above and which are
secured by readily marketable direct obligations of the Government of the United
States of America or any agency thereof.
"Person" means an individual, corporation, limited liability company,
------
partnership, association, joint-stock company, trust, unincorporated
organization, joint venture or governmental authority.
"Post-Default Rate" means a rate of interest per annum equal to the
-----------------
Prime Rate plus 2-1/2%.
"Potential Default" means an event which, with the giving of notice or
-----------------
the lapse of time or both, would constitute an Event of Default.
"Prime Rate" means the rate of interest publicly announced by Chemical
----------
Bank in New York, New York or its successor from time to time as its prime
rate. The Prime Rate is determined from time to time by Chemical Bank as a means
of pricing some loans to its borrowers and neither is tied to any external rate
of interest or index, nor necessarily reflects the lowest rate of interest
actually charged by Chemical Bank to any particular class or category of
customers. Each change in the Prime Rate shall be effective on the date such
change is announced.
"Prior Season Inventory" means finished goods Inventory that is
----------------------
manufactured to be sold in prior selling seasons of the Borrowers, provided that
finished goods Inventory is not Prior Season Inventory to the extent that a
Borrower has valid purchase orders for the purchase of such goods.
"Pro Rata Share" means, with respect to any Lender, a fraction
--------------
(expressed as a percentage), the numerator of which shall be the amount of such
Lender's Credit Exposure and
-14-
the denominator of which shall be the aggregate amount of all of the Lenders'
Credit Exposures, as adjusted from time to time in accordance with the
provisions of Sections 11.01 or 11.07, provided that, if the Credit Exposures
have been reduced to zero, the numerator shall be the unpaid amount of such
Lender's Loans (including Agent Advances) and its interest in the Letter of
Credit Obligations and the denominator shall be the aggregate amount of all
unpaid Loans (including Agent Advances) and Letter of Credit Obligations.
"Reimbursement Obligations" means the aggregate joint and several
-------------------------
obligations of the Borrowers to reimburse CIT and the Lenders for amounts
payable by CIT and the Lenders in respect of any drawings made under any Letter
of Credit issued by the L/C Issuer, together with interest thereon.
"Release" means any spilling, leaking, pumping, pouring, emitting,
-------
emptying, discharging, injecting, escaping, leaching, seeping, migrating,
dumping, or disposing of any Hazardous Material into the indoor or outdoor
environment, including ambient air, soil, surface or ground water (including the
abandonment or discarding of barrels, containers, and other closed receptacles
containing any Hazardous Material).
"Reportable Event" means an event described in Section 4043 of ERISA
----------------
(other than an event not subject to the provision for 30 day notice to the PBGC
under the regulations promulgated under such Section).
"Required Lenders" means, at any time, the holders of at least 75% of
----------------
the aggregate unpaid principal amount of the Notes and the Letter of Credit
Obligations, or, if no amounts are outstanding under the Notes and no Letter of
Credit Obligations are outstanding, the Lenders having at least 75% of the Total
Credit Exposure.
"Retained Obligations" has the meaning specified therefor in Section
--------------------
11.01(b) hereof.
"Security Agreement(s)" means the Security Agreement(s), dated as of
---------------------
the date hereof, made by each Borrower and Corporate Guarantor in favor of the
Agent, substantially in the form of Exhibit C hereto, securing the Obligations
and delivered to the Agent pursuant to Article V hereof, as the same may be
amended or otherwise modified from time to time.
"Settlement Period" has the meaning specified therefor in Section
-----------------
2.05(b)(i) hereof.
"Xxxxxxx'x" means Xxxxxxx'x Incorporated of Mount Airy, N.C., a North
---------
Carolina corporation.
"Subordinated Note" means the Subordinated Note, dated February 13,
-----------------
1996 made by the Borrowers payable to the order of Xxxx X. Xxxxx in the
principal amount of $1,200,000.
-15-
"Subordination Agreement" means the Subordination Agreement made by
-----------------------
the Borrowers, as obligors and Xxxx X. Xxxxx, as subordinated creditor, in favor
of the Agent and the Lenders, in the form of Exhibit J hereto, as the same may
be amended or otherwise modified from time to time.
"Subsidiary" means, as to any Person, any corporation of which more
----------
than 50% of the outstanding capital stock having (in the absence of
contingencies) ordinary voting power to elect directors (or Persons performing
similar functions) of such corporation is, at the time of determination, owned
directly, or indirectly through one or more intermediaries, by such Person.
"Termination Anniversary Date" means December 31, 1996 and thereafter
----------------------------
December 31 of each succeeding calendar year.
"Termination Event" means (i) a Reportable Event with respect to any
-----------------
Employee Plan, (ii) any event that causes a Borrower or any of its ERISA
Affiliates to incur liability under Section 409, 502(i), 502(l), 515, 4062,
4063, 4064, 4069, 4201, 4204 or 4212 of ERISA or Section 4971 or 4975 of the
IRC, (iii) the filing of a notice of intent to terminate an Employee Plan or the
treatment of an Employee Plan amendment as a termination under Section 4041 of
ERISA, (iv) the institution of proceedings by the PBGC to terminate an Employee
Plan, or (v) any other event or condition which might constitute grounds under
Section 4042 of ERISA for the termination of, or the appointment of a trustee to
administer, any Employee Plan.
"TOT Apparel" has the meaning specified therefor in the preamble
-----------
hereto.
"Total Credit Exposure" means (i) prior to May 31, 1996, the sum of
---------------------
the Lenders' Credit Exposures in Part A of Schedule A hereto and (ii) on or
after May 31, 1996, the sum of the Lenders' Credit Exposures in Part B of
Schedule A hereto, in each case as the same may be reduced from time to time
pursuant to Sections 10.01 and 11.01 of this Agreement.
"Trust Company Assignment Agreement" means the Intercreditor Agreement
----------------------------------
and Assignment of Factoring Proceeds dated February 13; 1996 between the Agent,
the Factor, the Borrowers and Trust Company Bank.
"UCC" means the Uniform Commercial Code in effect in the State of New
---
York.
"Working Capital" means with respect to the Borrowers, H.O.T. Kidz and
---------------
their Subsidiaries, at any time, the excess of Combined Current Assets over
Combined Current Liabilities at such time.
SECTION 1.02. Accounting and Other Terms. Unless otherwise expressly
--------------------------
provided herein, each accounting term used herein has the meaning given it under
GAAP applied on a basis consistent with those used in preparing the financial
statements referred to in Section 5.01(d)(xiii) hereof. All terms used in this
Agreement which are defined in Article 9 of the UCC on the date hereof and which
are not otherwise defined herein shall have the same meanings herein as set
forth therein.
-16-
SECTION 1.03. Time References. Unless otherwise indicated herein,
---------------
all references to time of day refer to Eastern standard time or Eastern daylight
saving time, as in effect in New York City on such day. For purposes of the
computation of a period of time from a specified date to a later specified date,
the word "from" means "from and including" and the words "to" and "until" each
means "to but excluding", provided, however, that with respect to a computation
-------- -------
of fees or interest payable to the Agent, the Lenders or the L/C Issuer, such
period shall in any event consist of at least one full day.
ARTICLE II
THE LOANS
SECTION 2.01. Credit Exposure. Subject to the terms and conditions
---------------
and relying upon the representations and warranties herein set forth, each
Lender, in its sole and absolute discretion, may make Loans to a Borrower, at
any time and from time to time from the Effective Date to the Final Maturity
Date, or until the earlier reduction of its Credit Exposure to zero in
accordance with the terms hereof, in an aggregate principal amount at any time
outstanding to the Borrowers not to exceed the amount of such Lender's Credit
Exposure set forth opposite its name in Schedule A, as such Credit Exposure may
be reduced to zero in accordance with the provisions of this Agreement.
Notwithstanding the foregoing, the aggregate principal amount of Loans
outstanding at any time to the Borrowers shall not exceed the lower of (i) the
difference between (A) the Total Credit Exposure, and (B) the aggregate Letter
of Credit Obligations, (ii) the difference between (A) the then current
Borrowing Base and (B) the aggregate Letter of Credit Obligations, and (iii)
prior to May 31, 1996, $31,000,000 and thereafter, $26,000,000. The Credit
Exposure of each Lender shall automatically and permanently be reduced to zero
on the Final Maturity Date. Within the foregoing limits and in the sole and
absolute discretion of the Lenders, the Borrowers may borrow, repay and
reborrow, on or after the Effective Date and prior to the Final Maturity Date,
subject to the terms, provisions and limitations set forth herein.
SECTION 2.02. Loans. Except as otherwise provided in Section 2.05,
-----
Loans shall be made ratably by the Lenders in accordance with their respective
Credit Exposures. The initial Loans shall be made on or after the Effective Date
by the Lenders against delivery of Notes, payable to the order of the Lenders,
as referred to in Section 2.04 hereof.
SECTION 2.03. Making the Loans. The Administrative Borrower, on
----------------
behalf of itself or any other Borrower, shall give the Agent prior written or
telephone notice (which notice, if requested by the Agent, must be promptly
confirmed in writing in substantially the form of Exhibit I hereto (a "Notice of
Borrowing")) no later than 12:00 noon on the date of each proposed borrowing.
Such Notice of Borrowing shall be irrevocable and shall specify the principal
amount of the proposed borrowing and the proposed borrowing date, which must be
a Business Day and, if the Agent agrees in its sole and absolute discretion to
make such Loan to a Borrower, such Borrower shall be bound to make a borrowing
in accordance therewith. The Agent may act without liability upon the basis of
written, telecopy, or telephone notice believed
-17-
by the Agent in good faith to be from the Administrative Borrower (or from any
officer thereof designated in writing to the Agent) and the Borrowers hereby
waive the right to dispute the Agent's record of the terms of any such
telephonic Notice of Borrowing.
SECTION 2.04. Notes: Repayment of Loans. (a) All Loans made by a
-------------------------
Lender shall be evidenced by a single Note, duly executed on behalf of the
Borrowers, dated the Effective Date, and delivered and jointly and severally
payable to such Lender in a principal amount equal to its Credit Exposure on
such date.
(b) The outstanding principal balance of each Loan, as evidenced by
the Notes, shall be due and payable on the Final Maturity Date. Each Note shall
bear interest from its date on the outstanding principal balance thereof, as
provided in Section 2.06(a) hereof.
(c) The Notes and the books and records of the Agent and the Lenders
shall be presumptive evidence of the Loans absent manifest error.
SECTION 2.05. Funding and Settlement Procedures. (a) (i)
---------------------------------
Notwithstanding any other provision of this Agreement, in order to reduce the
number of fund transfers among the Borrowers, the Lenders and the Agent, the
Borrowers, the Lenders and the Agent agree that the Agent may, but shall not be
obligated to, and the Borrowers and the Lenders hereby irrevocably authorize the
Agent to, fund, on behalf of the Lenders, Loans pursuant to Section 2.02,
subject to the procedures for settlement set forth in subsection 2.05(b);
provided, however, that the Agent shall not be required to determine that, or
-------- -------
take notice whether, the conditions precedent in Section 5.02 have been
satisfied. If the Agent advises the Lenders that the Agent will make a Loan to
the Administrative Borrower and the Agent requests that each Lender make its Pro
Rata Share of such Loan available to the Agent, each Lender shall make its Pro
Rata Share of the Loan available to the Agent, in immediately available funds,
at the Payment Office no later than 3:00 p.m. (provided that the Agent requests
payment from such Lender not later than 12:00 noon) on the date of the proposed
Loan. The Agent may, in its sole and absolute discretion, make the proceeds of
such Loans available to the Administrative Borrower on the day of the proposed
Loan by causing an amount, in immediately available funds, equal to the
proceeds of all such Loans received by the Agent at the Payment Office or the
amount funded by the Agent on behalf of the Lenders to be deposited in an
account designated by the Administrative Borrower.
(ii) If the Agent has notified the Lenders that the Agent, on
behalf of the Lenders, will fund a particular Loan pursuant to subsection
2.05(a)(i) and the Agent requests that each Lender make its Pro Rata Share of
such Loan available to the Agent, the Agent may assume that such Lender has
made such amount available to the Agent on such day and the Agent, in its sole
and absolute discretion, may, but shall not be obligated to, cause a
corresponding amount to be made available to the Administrative Borrower on such
day. If the Agent makes such corresponding amount available to the
Administrative Borrower and such corresponding amount is not in fact made
available to the Agent by such Lender, the Agent shall be entitled to recover
such corresponding amount on demand from such Lender together with interest
thereon, for each day from the date such payment was due until the date such
amount is
-18-
paid to the Agent, at the Federal Funds Rate for three Business Days and
thereafter at the Prime Rate. During the period in which such Lender has not
paid such corresponding amount to the Agent, notwithstanding anything to the
contrary contained in this Agreement or any other Loan Document, the amount so
advanced by the Agent to the Administrative Borrower shall, for all purposes
hereof, be a Loan made by the Agent for its own account. Upon any such failure
by a Lender to pay the Agent, the Agent shall promptly thereafter notify the
Administrative Borrower of such failure and the Borrowers shall immediately pay
such corresponding amount to the Agent for its own account.
(b) (i) With respect to all periods for which the Agent has funded
Loans pursuant to Subsection 2.05(a), on the first Business Day after the last
day of each week, or such shorter period as the Agent may from time to time
select (any such week or shorter period being herein called a "Settlement
Period"), the Agent shall notify each Lender of the average daily unpaid
principal amount of the Loans outstanding during such Settlement Period. In the
event that such amount is greater than the average daily unpaid principal amount
of the Loans outstanding during the Settlement Period immediately preceding such
Settlement Period (or, if there has been no preceding Settlement Period, the
amount of the Loans made on the date of such Lender's initial funding), each
Lender shall promptly (and in any event not later than 2:00 p.m. if the Agent
requests payment from such Lender not later than 11:00 a.m. on such day) make
available to the Agent its Pro Rata Share of the difference in immediately
available funds. In the event that such amount is less than such average daily
unpaid principal amount, the Agent shall promptly pay over to each other Lender
its Pro Rata Share of the difference in immediately available funds. In
addition, if the Agent shall so request at any time when an Event of Default
shall have occurred and be continuing, or any other event shall have occurred as
a result of which the Agent shall determine that it is desirable to present
claims against the Borrowers for repayment, each Lender shall promptly remit to
the Agent or, as the case may be, the Agent shall promptly remit to each Lender,
sufficient funds to adjust the interests of the Lenders in the then outstanding
Loans to such an extent that, after giving effect to such adjustment, each
Lender's interest in the then outstanding Loans will be equal to its Pro Rata
Share thereof. The obligations of the Agent and each Lender under this
subsection 2.05(b) shall be absolute and unconditional. Each Lender shall only
be entitled to receive interest on its Pro Rata Share of the Loans which have
been funded by such Lender.
(ii) In the event that any Lender fails to make any payment
required to be made by it pursuant to Subsection 2.05(b)(i), the Agent shall be
entitled to recover such corresponding amount on demand from such Lender
together with interest thereon, for each day from the date such payment was due
until the date such amount is paid to the Agent, at the Federal Funds Rate for
three Business Days and thereafter at the Prime Rate. During the period in which
such Lender has not paid such corresponding amount to the Agent, notwithstanding
anything to the contrary contained in this Agreement or any other Loan Document,
the amount so advanced by the Agent to the Borrowers shall, for all purposes
hereof, be a Loan made by the Agent for its own account. Upon any such failure
by a Lender to pay the Agent, the Agent shall promptly thereafter notify the
Borrowers of such failure and the Borrower shall immediately pay such
corresponding amount to the Agent for its own account.
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(iii) Except with respect to the payments required to be made
between the Agent and the Lenders pursuant to this Section 2.05, nothing in this
Section 2.05 shall impose on the Agent or any Lender any commitment or other
obligation to make Loans or otherwise extend credit to the Borrowers.
SECTION 2.06. Interest.
--------
(a) Loan. Each Loan shall bear interest on the principal amount
----
thereof from time to time outstanding from the date of such Loan until such
principal amount becomes due, at the Prime Rate plus 1%.
(b) Default Interest. Any amount of principal of any Loan and (to
----------------
the extent permitted by law) interest which is not paid when due, whether upon
demand, by acceleration or otherwise, shall bear interest from the day when due
until such amount is paid in full at a fluctuating interest rate per annum equal
at all times to the Post-Default Rate.
(c) Interest Payment. Interest on each Loan shall be payable monthly,
----------------
in arrears, on the first day of each month, commencing on March 1, 1996, and at
maturity (whether at stated maturity, demand made pursuant to the terms of this
Agreement, acceleration or otherwise). Interest at the Post-Default Rate shall
be payable on demand. The Borrowers hereby authorize the Agent to, and the Agent
may, from time to time, charge the Borrowers' Loan Account pursuant to Section
4.02 of this Agreement with the amount of any interest payment due hereunder.
(d) General. All interest shall be computed on the basis of a year of
-------
360 days for the actual number of days, including the first day but excluding
the last day, elapsed.
SECTION 2.07. Prepayment of Loans.
-------------------
(a) Subject to the terms and conditions contained in this Section
2.07 and elsewhere in this Agreement, the Borrowers shall have the right to
prepay any Loan in whole or, from time to time, in part together with, in the
case of a prepayment in whole, accrued interest to the date of such prepayment
on the amount prepaid.
(b) The Borrowers agree that at any time the Borrowing Base is less
than the sum of (i) the outstanding principal on all Loans outstanding plus (ii)
the outstanding amount of all Letter of Credit Obligations, the Borrowers will
(A) upon becoming aware of the existence of the differential, immediately give
notice of such occurrence to the Agent and (B) upon demand by the Agent, prepay
the Loans in an amount which will reduce the sum of the outstanding principal on
all Loans outstanding to an amount less than or equal to the then current
Borrowing Base. If at any time after the Borrower has complied with the first
sentence of this Section 2.07(b), the sum of the aggregate Letter of Credit
Obligations is greater than the then current Borrowing Base, the Borrowers shall
provide cash collateral to the Agent in the amount of such excess, which cash
collateral shall be deposited in a joint non-interest bearing account maintained
at the Payment Office of the Agent and returned to the Borrowers, provided that
no
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Event of Default shall have occurred and be continuing, at such time as the
aggregate Letter of Credit Obligations plus the aggregate principal amount of
all outstanding Loans no longer exceeds the then current Borrowing Base.
(c) The Agent shall on each Business Day, apply all funds received
pursuant to the Factoring Agreements, the CIT Assignment Agreement and the Trust
Company Assignment Agreement to the payment, in whole or in part, of the
Obligations then outstanding.
(d) On the date of receipt thereof, the Borrowers and the Corporate
Guarantors shall prepay the Loans in an amount equal to the federal, state and
local tax refunds received by the Borrowers or any Corporate Guarantors in any
year.
(e) On the date of receipt of any federal, state or local tax refunds
by the Individual Guarantors or, if such Individual Guarantors file jointly with
their spouses, such spouses for 1995, the Borrowers shall prepay the Loans in an
amount equal to such refunds.
(f) Except as otherwise expressly provided in this Section 2.07,
payments with respect to any paragraph of this Section 2.07 are in addition to
payments made or required to be made under any other paragraph of this Section
2.07.
ARTICLE III
LETTERS OF CREDIT
SECTION 3.01. General.
-------
(a) In order to assist the Borrowers in establishing or opening
documentary letters of credit, which shall not have expiration dates that exceed
120 days (or, with the prior approval of the Agent, such longer period as may be
approved by the Agent) from the date of issuance (the "Letters of Credit"), with
the L/C Issuer, the Borrowers have requested CIT to guarantee payment or
performance of such Letters of Credit, thereby lending CIT's credit to the
Borrowers, and CIT may, in its sole and absolute discretion, do so. These
arrangements shall be handled by CIT subject to the terms and conditions set
forth below. No Letter of Credit shall be issued by the L/C Issuer without the
consent of CIT in the exercise of its sole and absolute discretion. CIT shall
not be required to be the issuer of any Letter of Credit and no Lender shall be
required to do so unless such Lender shall consent. Any Borrower,may be the
account party for any application for a Letter of Credit, which shall be
substantially in the form of Exhibit E hereto or on a computer transmission
system approved by the L/C Issuer or such other written form or computer
transmission system as may from time to time be approved by the L/C Issuer and
shall be duly completed in a manner acceptable to the L/C Issuer, together with
such other certificates', agreements, documents and other papers and information
as the L/C Issuer may request (the "Letter of Credit Application"). In the event
of any conflict between the terms of the Letter of Credit Application and this
Agreement, the terms of this Agreement shall control.
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(i) The aggregate Letter of Credit Obligations shall not
exceed the lesser of (A) the difference between (x) the Total Credit Exposure
and (y) the aggregate principal amount of Loans then outstanding, (B) the
difference between (x) the then current Borrowing Base and (y) the aggregate
principal amount of Loans then outstanding and (C) the L/C Subfacility. In
addition, changes or modifications of the Letters of Credit by a Borrower and/or
the L/C Issuer of the terms and conditions thereof that result in an increase in
the amount available to be drawn under any Letter of Credit or result in an
extension of the expiration date of any Letter of Credit shall in all respects
be subject to the prior approval of CIT in the exercise of its sole and absolute
discretion, provided, however, that (1) any other changes or modifications may
-------- -------
be made without the consent of CIT, (2) the L/C Issuer shall promptly notify CIT
of all changes or modifications of the Letters of Credit whether or not such
changes or modifications require the consent of CIT, (3) the expiry date of all
Letters of Credit shall be no later than one day prior to the Final Maturity
Date unless, in the case of Letters of Credit, on or prior to 15 days prior to
the Final Maturity Date either such Letters of Credit shall be cash
collateralized in an amount equal to 105% of the face amount of such Letters
of Credit or the Borrowers shall provide the Lenders with an indemnification, in
form and substance satisfactory to the Agent, from a commercial bank or other
financial institution acceptable to the Agent for any Letter of Credit
Obligations with respect to such Letters of Credit, and (4) the Letters of
Credit and all documentation in connection therewith shall be in form and
substance satisfactory to CIT and the L/C Issuer.
(ii) The Agent shall have the right, without notice to the
Borrowers, to charge the Loan Account with the amount of any and all
indebtedness, liability or obligation of any kind (including indemnification for
breakage costs, capital adequacy and reserve requirement charges) incurred by
the Agent, CIT or the Lenders or incurred by any L/C Issuer with respect to any
Letter of Credit at the earlier of (A) payment by CIT or the Lenders to the L/C
Issuer of any Letter of Credit Obligations, (B) the occurrence of an Event of
Default, or (C) payment by an L/C Issuer with respect to a drawing under an
Letter of Credit. Any amount charged to the Loan Account shall be deemed a Loan
hereunder made by the Lenders to the Borrowers, funded by the Agent on behalf of
the Lenders and subject to subsections 2.05(a) and (b) hereof. Any charges,
fees, commissions, costs and expenses charged to CIT for the Borrowers' account
by the L/C Issuer in connection with or arising out of Letters of Credit issued
pursuant to this Agreement or out of transactions relating thereto will be
charged to the Loan Account in full when charged to or paid by CIT and when
charged shall be conclusive on the Borrowers. Each of the Lenders and the
Borrowers (1) agree that the Agent shall have the right to make such charges
regardless of whether any Event of Default or Potential Default shall have
occurred and be continuing or whether any of the conditions precedent in Section
5.02 have been satisfied and (2) authorize and instruct the Agent to charge the
Loan Account and to transfer funds (by wire transfer or other transfer of good
funds) to an Existing Lender, in connection with an Existing Letter of Credit,
if such Existing Lender makes a payment or is obligated to make a payment in
connection with such Existing Letter of Credit.
(iii) The Borrowers unconditionally and jointly and severally
indemnify the Agent, CIT, the L/C Issuer and each Lender and hold the Agent,
CIT, the L/C Issuer and each Lender harmless from any and all loss, claim or
liability incurred by the Agent, CIT, the L/C
-22-
Issuer or any Lender arising from any transactions or occurrences relating to
Letters of Credit established or opened for the Borrowers' account, the
Collateral relating thereto, and all Obligations thereunder, including any such
loss or claim due to any action taken by the L/C Issuer, other than for any such
loss, claim or liability arising out of the gross negligence or willful
misconduct of the Agent, CIT, the L/C Issuer or any Lender as determined by a
final judgment of a court of competent jurisdiction. The Borrowers further agree
to jointly and severally hold the Agent, CIT and each Lender harmless from any
errors or omission, negligence or misconduct by the L/C Issuer. The Borrowers'
unconditional joint and several obligations to the Agent, CIT, the L/C Issuer
and each Lender hereunder shall not be modified or diminished for any reason or
in any manner whatsoever, other than as a result of the Agent's, CIT'S, the L/C
Issuer's or such Lender's gross negligence or willful misconduct as determined
by a final judgment of a court of competent jurisdiction. The Borrowers agree
that any charges incurred by CIT for the Borrowers' account by the L/C Issuer
shall be conclusive on the Borrower and may be charged to the Loan Account.
(iv) None of the Agent, CIT, the Lenders or the L/C Issuer
shall be responsible for the existence, character, quality, quantity, condition,
packing, value or delivery of the goods purporting to be represented by any
documents; any difference or variation in the character, quality, quantity,
condition, packing, value or delivery of the goods from that expressed in the
documents; the validity, sufficiency or genuineness of any documents or of any
endorsements thereof even if such documents should in fact prove to be in any or
all respects invalid, insufficient, fraudulent or forged; the time, place,
manner or order in which shipment is made; partial or incomplete shipments, or
failure or omission to ship any or all of the goods referred to in the Letters
of Credit or documents; any deviation from instructions; delay, default, or
fraud by the shipper and/or anyone else in connection with the Collateral or the
shipping thereof; or any breach of contract between the shipper or vendors and
the Borrowers. Furthermore, without being limited by the foregoing, none of the
Agent, CIT, the L/C Issuer and the Lenders shall be responsible for any act or
omission with respect to or in connection with any goods covered by Letters of
Credit.
(v) The Borrowers agree that any action taken by the Agent,
CIT, the L/C Issuer or any Lender in connection with the Letters of Credit or
any drafts presented, pursuant thereto, or the goods purported to be covered
thereby, if taken in the absence of gross negligence or willful misconduct on
the part of the Agent, CIT, the L/C Issuer or any Lender, shall be binding on
the Borrowers (with respect to the L/C Issuer, the Agent, CIT and the Lenders)
and shall not put the Agent, CIT, the L/C Issuer or the Lenders in any resulting
liability to the Borrowers.
(vi) Without CIT's express written consent, the L/C Issuer and
the Borrowers agree: (x) not to apply for or execute any and all steamship or
airway guaranties, indemnities or delivery orders; not to grant any extensions
of the maturity of, time of payment for, or time of presentation of, any drafts
or documents; and not to agree to any amendments, renewals, extensions,
modifications, changes, cancellations or waivers of any of the terms or
conditions of any of the applications, Letters of Credit or drafts that result
in any increase in the amount available to be drawn under any Letter of Credit
or result in any extension of the
-23-
expiration date of any Letter of Credit; and (y) after the occurrence of an
Event of Default which is not cured within any applicable grace period, if any,
or waived by the Required Lenders. (A) not to clear and resolve any questions of
non-compliance of documents, and (B) not to give any instructions as to
acceptances or rejection of any documents or goods. The L/C Issuer will promptly
notify CIT of all such actions, whether or not the consent of CIT is required by
this Agreement.
(vii) The Borrowers agree that any necessary and material
import, export or other license or certificates for the import or handling of
Inventory will have been promptly procured; all foreign and domestic material
governmental laws and regulations in regard to the shipment and importation of
Inventory or the financing thereof will have been promptly and fully complied
with, in each case, where the failure to obtain such certificate or license or
the failure to comply with such laws would result in a Material Adverse Effect;
and any certificates in that regard that the L/C Issuer may at any time
reasonably request will be promptly furnished. In this connection, the Borrowers
jointly and severally warrant and represent that all shipments made under any
Letters of Credit are in accordance with the laws and regulations of the
countries in which the shipments originate and terminate, and are not prohibited
by any such laws and regulations. As between the Borrowers, on the one hand, and
the Agent, CIT, the Lenders and the L/C Issuer, on the other hand, the Borrowers
assume all risk, liability and responsibility for, and agree to pay and
discharge, all present and future local, state, federal or foreign taxes,
duties, or levies. As between the Borrowers, on the one hand, and the Agent,
CIT, the Lenders and the L/C Issuer, on the other hand, any embargo,
restriction, laws, customs or regulations of any country, state, city, or other
political subdivision, where such Inventory is or may be located, or wherein
payments are to be made, or wherein drafts may be drawn, negotiated, accepted,
or paid, shall be solely the Borrower's joint and several risk, liability and
responsibility.
(viii) Upon any payments made to the L/C Issuer by CIT or the
Lenders, CIT or the Lenders, as the case may be, shall, without prejudice to its
rights under this Agreement (including that such unreimbursed amounts shall
constitute Loans hereunder), acquire by subrogation, any rights, remedies,
duties or obligations granted or undertaken by the Borrowers to the L/C Issuer
in any Letters of Credit Applications, any drafts, any standing agreement
relating to Letters of Credit, drafts or otherwise, all of which shall be deemed
to have been granted to CIT and the Lenders and apply in all respects to CIT and
the Lenders and shall be in addition to any rights, remedies, duties or
obligations contained herein.
SECTION 3.02. Participations.
--------------
(a) Purchase of Participations. Immediately upon issuance by the L/C
--------------------------
Issuer of any Letter of Credit pursuant to this Agreement, each Lender (except
with respect to an Existing Letter of Credit, other than CIT) shall be deemed to
have irrevocably and unconditionally purchased and received from CIT (or the L/C
Issuer in the case of an Existing Letter of Credit), without recourse or
warranty, an undivided interest and participation, to the extent of such
Lender's Pro Rata Share, in all obligations of CIT (or the L/C Issuer in the
case of
-24-
an Existing Letter of Credit) in such Letter of Credit (including, without
limitation, all Reimbursement Obligations of the Borrowers with respect
thereto).
(b) Sharing of Payments. In the event that CIT or the Lenders make
-------------------
any payment in respect of a Letter of Credit to the L/C Issuer (or an L/C Issuer
makes any payment in respect of an Existing Letter of Credit) and the Borrowers
shall not have repaid such amount to the Agent for the account of CIT and the
Lenders (or such L/C Issuer), the Agent shall charge the Loan Account in the
amount of the Reimbursement Obligation, in accordance with Sections 3.01(a)(ii)
and 4.02 hereof.
(c) Obligations Irrevocable. The obligations of a Lender to make
-----------------------
payments to the Agent for the account of the Agent, CIT or an L/C Issuer with
respect to a Letter of Credit shall be irrevocable, not subject to any
qualification or exception whatsoever and shall be made in accordance with, but
not subject to, the terms and conditions of this Agreement under all
circumstances, including, without limitation, any of the following
circumstances:
(i) any lack of validity or enforceability of this Agreement
or any of the other Loan Documents;
(ii) the existence of any claim, setoff, defense or other
right which a Borrower may have at any time against a beneficiary named in
a Letter of Credit or any transferee of any Letter of Credit or any holder
of a draft (or any Person for whom any such transferee may be acting), the
Agent, L/C Issuer, any Lender, or any other Person. whether in connection
with this Agreement, any Letter of Credit or draft, the transactions
contemplated herein or any unrelated transactions (including any underlying
transactions between a Borrower or any other party and the beneficiary
named in any Letter of Credit);
(iii) any draft, certificate or any other document presented
under the Letter of Credit proving to be forged, fraudulent, invalid or
insufficient in any respect or any statement therein being untrue or
inaccurate in any respect;
(iv) the surrender or impairment of any security for the
performance or observance of any of the terms of any of the Loan Documents;
(v) any failure by the Agent or the L/C Issuer to provide any
notices required pursuant to this Agreement relating to Letters of Credit
or drafts; or
(vi) the occurrence of any Event of Default or Potential
Default.
SECTION 3.03. Letters of Credit.
-----------------
(a) Request for Issuance. Any Borrower may from time to time, upon
--------------------
notice not later than 12:00 noon, at least two Business Days in advance, request
the L/C Issuer to establish or open a Letter of Credit by delivering to the L/C
Issuer, a Letter of Credit
-25-
Application, together with any necessary related documents or information.
Neither CIT, the L/C Issuer nor the Agent shall be required to determine that,
or take notice whether, the conditions precedent set forth in Section 5.02 have
been satisfied.
(b) Letters of Credit Fees. (i) The Borrowers shall pay to the Agent
----------------------
for the account of the Lenders in accordance with the Lenders' respective Pro
Rata Shares a nonrefundable issuance fee for each Letter of Credit equal to .25%
of the stated amount of such Letter of Credit, provided that if an issuance fee
has already been paid at the time of issuance of an Existing Letter of Credit
another issuance fee shall not be payable on such Existing Letter of Credit.
This fee shall be payable on the date of issuance of a Letter of Credit. In
addition, the Borrowers shall also pay to the Agent for the account of the
Lenders in accordance with the Lenders' respective Pro Rata Shares a fee equal
to .25% of the amount of any increase of the stated amount of any Letter of
Credit, such fee to be payable on the date of any such increase. The amount of
the fees for Letters of Credit set forth in this Section 3.03(b)(i) may be
changed by the Lenders, in their discretion, from time to time, provided that,
-------- ----
in the absence of an Event of Default, such issuance fees shall not be changed
prior to the first Termination Anniversary Date.
(ii) L/C Issuer Charges. The Borrowers shall pay to the L/C
------------------
Issuer and CIT for their own accounts the standard charges assessed by the L/C
Issuer and CIT in connection with the issuance, administration, amendment,
payment or cancellation of Letters of Credit.
(iii) Charges to Loan Account. The Borrowers hereby authorize
-----------------------
the Agent to, and the Agent may, from time to time, charge the Loan Account
pursuant to Sections 3.01(a)(ii) and 4.02 of this Agreement with the amount of
any Letter of Credit fees or charges due hereunder.
(c) Existing Letters of Credit. Schedule 3.03(c) hereto contains a
--------------------------
description of all letters of credit issued by the Existing Lenders for the
account of the Borrowers pursuant to the Existing Line Letters and outstanding
on the Effective Date. Each such letter of credit (each an "Existing Letter of
Credit") shall constitute a "Letter of Credit" for all purposes of this
Agreement issued on the Effective Date. Changes or modifications of the terms or
conditions of the Existing Letters of Credit and waivers of any non-compliance
of documents with the terms or conditions of the Existing Letters of Credit that
in any case result in an increase in the amount available to be drawn under any
Existing Letter of Credit or result in an extension of the expiration date of
any Existing Letter of Credit shall be subject to the prior approval of CIT in
the exercise of its sole discretion. Any other changes, modifications or waivers
may be made without the consent of CIT, provided that the Existing Lender making
any such change or modification or consenting to any such waiver shall promptly
notify CIT of such change, modification or waiver.
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ARTICLE IV
FEES, PAYMENTS AND OTHER COMPENSATION
SECTION 4.01. Fees.
----
(a) Agent and Collateral Management Fee. The Borrowers shall jointly
-----------------------------------
and severally pay to the Agent for its own account (or the Agent may charge the
Loan Account pursuant to Section 4.02), on the last day of each calendar month a
non-refundable agent and collateral management fee in the amount of $6,250 for
each such month.
(b) Field Examination Fee. In addition to the agent and collateral
---------------------
management fee described in Section 4.01(a) above, the Borrowers, jointly and
severally, agree to pay the Agent for its own account (or the Agent may charge
the Loan Account pursuant to Section 4.02) $750 per day per examiner plus the
examiner's out-of-pocket costs and expenses incurred in connection with all
visits, inspections, audits and examinations conducted by the Agent, provided
that in the absence of a continuing Event of Default the aggregate per diem fee
and out-of-pocket costs and expenses shall not exceed $10,000 for any year.
(c) Facility Fee. From and after the Effective Date until the Final
------------
Maturity Date, the Borrowers shall jointly and severally pay to the Agent for
the account of the Lenders in accordance with the Lenders' respective Pro Rata
Shares (or the Agent may charge the Loan Account pursuant to Section 4.02) a
facility fee ("Facility Fee") of $150,000 per annum. The Facility Fee shall be
owing by the Borrowers and earned in full by the Lenders on the Effective Date'
and on the first day of each February thereafter; however, the Facility Fee
shall be paid in advance in four equal quarterly installments on the Effective
Date and thereafter on the first day of January, April, July and October of each
year.
(d) Letters of Credit Fee for Existing Letters of Credit. The
----------------------------------------------------
Borrowers shall jointly and severally pay to the Agent for the account of the
Lenders a fee with respect to the Existing Letters of Credit in the amount of
$15,718.83 on or prior to the Effective Date.
SECTION 4.02. Payments; Computations and Statements. (a) The
-------------------------------------
Borrowers will make each payment under the Notes not later than 11:00 a.m. on
the day when due, in lawful money of the United States of America and in
immediately available funds, to the Agent at the Payment Office. All payments
shall be made by the Borrowers without defense, set-off or counterclaim to the
Agent. Except as provided in Section 2.05, after receipt, the Agent will
promptly thereafter cause to be distributed like funds relating to the payment
of principal ratably to the Lenders and like funds relating to the payment of
any other amount payable to any Lenders to such Lenders in each case to be
applied in accordance with the terms of this Agreement, provided that the Agent
will cause to be distributed all interest and fees received from or for the
account of the Borrowers not less than once each month. The Lenders and the
Borrowers hereby authorize the Agent to, and the Agent may, from time to time
charge the Borrowers' Loan Account with any amount due and payable under any
Loan Document to which any Borrower is a party. The Lenders and the Borrowers
confirm that any charges which the
-27-
Agent may so make to the Borrowers' Loan Account as herein provided will be made
as an accommodation to the Borrowers and solely at the Agent's discretion. The
Agent shall maintain a common Loan Account on its books in the joint name of the
Borrowers. It is expressly understood and agreed by the Borrowers that the Agent
and the Lenders shall have no responsibility to inquire into the correctness of
the apportionment, allocation or disposition of Loans, Agent's Advances or
Letters of Credit made to the Borrowers or any fees, costs or expenses for which
the Borrowers are jointly and severally obligated under this Agreement. Whenever
any payment to be made under any such Loan Document shall be stated to be due on
a day other than a Business Day, such payment shall be made on the next
succeeding Business Day and such extension of time shall in such case be
included in the computation of interest or fees as the case may be. All
computations of interest under the Notes and all fees shall be made by the Agent
on the basis of a year of 360 days for the actual number of days (including the
first day but excluding the last day) occurring in the period for which such
interest is payable. Each determination by the Agent of an interest rate or fees
hereunder shall be conclusive and binding for all purposes in the absence of
manifest error.
(b) The Agent shall provide the Administrative Borrower, promptly
after the end of each calendar month, a summary statement (in the form from time
to time used by Agent) of (A) the opening and closing daily balances in the Loan
Account during such month, (B) the amounts and dates on all Loans and Agent
Advances made during such month, (C) the amounts and dates of all payments on
account of the Loans and Agent Advances during such month and the Loans and
Agent Advances to which such payments were applied, (D) the amount of interest
accrued on the Loans and Agent Advances during such month, (E) any Letters of
Credit issued by the L/C Issuer during such month, specifying the face amount
thereof, (F) the amount of charges to the Loan Account and/or Loans made during
such month to reimburse the Lenders for drawings made under Letters of Credit,
and (G) the amount and nature of any charges to the Loan Account made during
such month on account of fees, commissions, expenses and other obligations. All
entries on any such statement shall be presumed to be correct 30 days after the
same is sent, and shall constitute presumptive evidence of the information
contained in such statement absent manifest error.
(c) Unless the Agent shall have received notice from the
Administrative Borrower prior to the date on which any payment is due to the
Lenders hereunder that the Borrowers will not make such payment in full, the
Agent may assume that the Borrowers have made such payment in full to the Agent
on such date and the Agent may, in reliance upon such assumption, cause to be
distributed to each Lender on such due date an amount equal to the amount then
due such Lender. If and to the extent the Borrowers shall not have so made such
payment in full to the Agent, each Lender shall repay to the Agent forthwith on
demand such amount distributed to such Lender together with interest thereon,
for each day from the date such amount is distributed to such Lender to the date
such Lender repays such amount to the Agent, at the Federal Funds Rate for three
Business Days and thereafter at the Prime Rate.
SECTION 4.03. Sharing of Payments, Etc. Except as provided in Section
------------------------
2.05 of this Agreement, if any Lender shall obtain any payment (whether
voluntary, involuntary, through the exercise of any right of set-off or
otherwise) on account of any Obligations or
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Guaranteed Obligations of any Borrower or Guarantor hereunder or under any other
Loan Document in excess of its ratable share of payments on account of similar
Obligations or Guaranteed Obligations obtained by all the Lenders, such Lender
shall forthwith purchase from the other Lenders such participations in such
similar obligations held by them as shall be necessary to cause such purchasing
Lender to share the excess payment ratably with each of them; provided, however,
-------- -------
that if all or any portion of such excess payment is thereafter recovered from
such purchasing Lender, such purchase from each Lender shall be rescinded and
such Lender shall repay to the purchasing Lender the purchase price to the
extent of such recovery together with an amount equal to such Lender's ratable
share (according to the proportion of (i) the amount of such Lender's required
repayment) to (ii) the total amount so recovered from the purchasing Lender of
any interest or other amount paid by the purchasing Lender in respect of the
total amount so recovered. The Borrowers agree that any Lender so purchasing a
participation from another Lender pursuant to this Section 4.03 may, to the
fullest extent permitted by law, exercise all its rights (including the Lender's
right of set-off) with respect to such participation as fully as if such Lender
were the direct creditor of the Borrowers in the amount of such participation.
SECTION 4.04. Apportionment of Payments. (a) Subject to Sections 2.05
-------------------------
and 11.01 hereof, all payments of principal and interest in respect of
outstanding Loans, all payments in respect of the Reimbursement Obligations, all
payments of fees (other than the fees with respect to Letters of Credit provided
for in Section 3.03(b)(ii) and the fees provided for in Sections 4.01(a) and
(b)), and all other payments in respect of any other Obligations, shall be
allocated among such of the Lenders as are entitled thereto, in proportion to
their respective Pro Rata Shares or otherwise as provided herein or, in respect
of payments not made on account of Loans or Letter of Credit Obligations, as
designated by the Person making payment when the payment is made.
(b) After the occurrence and during the continuance of an Event of
Default, the Agent may, and upon the direction of the Required Lenders shall,
apply all payments in respect of any Obligations and all proceeds of the
Collateral, subject to the provisions of this Agreement (i) first, to pay the
-----
Obligations in respect of any fees, expense reimbursements or indemnities then
due to the Agent, in its capacity as Agent, and the L/C Issuer, in its capacity
as L/C Issuer; (ii) second, to pay the Obligations in respect of any fees and
------
indemnities then due to the Lenders; (iii) third, ratably to pay interest due
-----
in respect of the Loans and Reimbursement Obligations; (iv) fourth, ratably to
------
pay or prepay principal of the Loans and Letter of Credit Obligations (or, to
the extent such Obligations are contingent, to prepay or provide cash collateral
in respect of such Obligations); and (v) fifth, to the ratable payment of all
-----
other Obligations then due and payable.
SECTION 4.05. Increased Costs and Reduced Return.
----------------------------------
(a) If any Lender or the L/C Issuer shall have determined that the
adoption or implementation of, or any change in, any law, rule, treaty or
regulation, or any policy, guideline or directive of, or any change in the
interpretation or administration thereof by, any court, central bank or other
administrative or Governmental Authority, or compliance by the L/C Issuer or
any
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Lender or any Affiliate of any Lender or the L/C Issuer with any directive of or
guideline from any central bank or other Governmental Authority or the
introduction of or change in any accounting principles applicable to the L/C
Issuer or any Lender or any Affiliate of any Lender or the L/C Issuer (in each
case, whether or not having the force of law), shall (i) change the basis of
taxation of payments to the L/C Issuer or any Lender or any Affiliate of any
Lender or the L/C Issuer of any amounts payable hereunder (except for taxes on
the overall net income of the L/C Issuer or any Lender or any Affiliate of any
Lender or the L/C Issuer), (ii) impose, modify or deem applicable any reserve,
special deposit or similar requirement against any Loan, Letter of Credit or
against assets of or held by, or deposits with or for the account of, or credit
extended by, the L/C Issuer or any Lender, or any Affiliate of any Lender or the
L/C Issuer or (iii) impose on the L/C Issuer or any Lender or any Affiliate of
any Lender or the L/C Issuer any other condition regarding this Agreement or any
Loan or Letter of Credit, and the result of any event referred to in clauses
(i), (ii) or (iii) above shall be to increase the cost to the L/C Issuer or any
Lender of making any Loan, issuing, guaranteeing or participating in any Letter
of Credit or agreeing to make any Loan, issue, guaranty or participate in any
Letter of Credit or to reduce any amount received or receivable by the L/C
Issuer or any Lender hereunder, then, within three Business Days after demand by
the L/C Issuer or such Lender, the Borrowers shall pay to the L/C Issuer or such
Lender such additional amounts as will compensate the L/C Issuer or such Lender
for such increased costs or reductions in amount, together with interest on such
additional amounts.
(b) If any Lender or the L/C Issuer shall have determined that any
Capital Guideline or adoption or implementation of, or any change in, any
Capital Guideline by the Governmental Authority charged with the interpretation
or administration thereof, or compliance by the L/C Issuer, any Lender or any
Affiliate of the L/C Issuer or any Lender with any Capital Guideline or with any
request or directive of any such Governmental Authority with respect to any
Capital Guideline, or the implementation of, or any change in, any applicable
accounting principles (in each case, whether or not having the force of law),
either (i) affects or would affect the amount of capital required or expected to
be maintained by the L/C Issuer, any Lender or any Affiliate of the L/C Issuer
or any Lender, and the L/C Issuer or any Lender determines that the amount of
such capital is increased as a direct or indirect consequence of any Loans made
or maintained, Letters of Credit issued or any guaranty or participation with
respect thereto, or the L/C Issuer's, any Lender's or any such Affiliate's other
obligations hereunder, or (ii) has or would have the effect of reducing the rate
of return on the L/C Issuer's, any Lender's, any such Affiliate's capital to a
level below that which such L/C Issuer, such Lender or such Affiliate could have
achieved but for such circumstances as a consequence of any Loans made or
maintained, Letters of Credit issued, or any guaranty or participation with
respect thereto or any agreement to make Loans or to issue Letters of Credit, or
such L/C Issuer's, such Lender's, such Affiliate's other obligations hereunder
(in each case, taking into consideration such L/C Issuer's, such Lender's or
such Affiliate's policies with respect to capital adequacy), then, within three
Business Days after demand by the L/C Issuer or any Lender, the Borrowers shall
pay to the L/C Issuer or such Lender from time to time such additional amounts
as will compensate the L/C Issuer or such Lender for such cost of maintaining
such increased capital or such reduction in the rate of return on such L/C
Issuer's, such Lender's or such Affiliate's capital.
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(c) All amounts payable under this Section 4.05 shall bear interest
from the date that is three Business Days after the date of demand by the L/C
Issuer or a Lender until payment in full to the L/C Issuer or such Lender at the
Post-Default Rate. A certificate of the L/C Issuer or any Lender claiming
compensation under this Section 4.05 shall be submitted by the L/C Issuer or
such Lender to the Borrower, setting forth the amount due and the L/C Issuer's,
or such Lender's reasons for invoking the provisions of this Section, and shall
be final and conclusive, absent manifest error.
ARTICLE V
CONDITIONS OF EFFECTIVENESS, LETTER OF CREDIT
ISSUANCE AND LENDING
SECTION 5.01. Conditions Precedent to Effectiveness. This Agreement
-------------------------------------
shall become effective as of the Business Day (the "Effective Date") when each
of the following conditions precedent shall have been satisfied:
(a) Payment of Fees, Etc. The Borrowers shall have paid on or before
--------------------
the date of this Agreement, all fees, costs, expenses and taxes then payable by
the Borrower pursuant to Sections 4.01 and 11.05 hereof.
(b) Representation and Warranties: No Event of Default. The
--------------------------------------------------
representations and warranties contained in Section 6.01 of this Agreement and
in each other Loan Document and certificate or other writing delivered to the
Lenders or the L/C Issuer pursuant hereto on or prior to the Effective Date
shall be correct on and as of the Effective Date as though made on and as of
such date; and no Event of Default or Potential Default shall have occurred and
be continuing on the Effective Date or would result from this Agreement becoming
effective in accordance with its terms.
(c) Legality. The making of the initial Loans or the issuance of the
--------
initial Letter of Credit shall not contravene any law, rule or regulation
applicable to the Lenders or the L/C Issuer.
(d) Delivery of Documents. The Agent shall have received on or before
---------------------
the Effective Date the following, each in form and substance satisfactory to the
Agent and, unless indicated otherwise, dated the Effective Date:
(i) a Note payable to the order of each Lender, duly executed
by each Borrower;
(ii) a Security Agreement, duly executed by each Borrower and
Corporate Guarantor;
(iii) a Cash Collateral Agreement, duly executed by Xxxx X.
Xxxxx;
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(iv) appropriate financing statements on Form UCC-1, duly executed
by each Borrower and Corporate Guarantor and duly filed in such office or
offices as may be necessary or, in the opinion of the Agent, desirable to
perfect the security interests purported to be created by the Security
Agreements;
(v) certified copies of requests for copies of information on
Form UCC-11, listing all effective financing statements which name as
debtors each Borrower and Corporate Guarantor and which are filed in the
offices referred to in paragraph (iv) above, together with copies of such
financing statements, none of which, except as otherwise agreed to in
writing by the Agent, shall cover any of the Collateral;
(vi) a copy of the resolutions adopted by the Board of Directors
of each Borrower and Corporate Guarantor, certified as of the Effective
Date by authorized officers thereof, authorizing (A) the borrowings
hereunder and the transactions contemplated by the Loan Documents to which
such Borrower and Corporate Guarantor is or will be a party, and (B) the
execution, delivery and performance by each Borrower and Corporate
Guarantor of each Loan Document and the execution and delivery of the other
documents to be delivered by each Borrower and Corporate Guarantor in
connection herewith;
(vii) a certificate of authorized officers of each Borrower and
Corporate Guarantor, certifying the names and true signatures of the
officers of such Borrower and Corporate Guarantor authorized to sign each
Loan Document to which such Borrower and Corporate Guarantor is or will be
a party and the other documents to be executed and delivered by such
Borrower and Corporate Guarantor in connection herewith, together with
evidence of the incumbency of such authorized officers;
(viii) a certificate of the appropriate official(s) of the states of
incorporation or organization and each state of foreign qualification of
each Borrower and Corporate Guarantor, certifying as to the subsistence in
good standing of, and the payment of taxes by, each Borrower and Corporate
Guarantor in such states and listing all charter or organizational
documents of such Borrower and Corporate Guarantor on file with such
official(s), together with confirmation by telephone or telegram (where
available) on the Effective Date from such official(s) as to such matters;
(ix) a copy of the charter, articles of organization or
certificate of formation, as appropriate, of each Borrower and Corporate
Guarantor certified by the appropriate official(s) of the state of
organization of such Borrower and Corporate Guarantor and as of the
Effective Date by an authorized officer of the Borrower;
(x) a copy of the by-laws or operating agreement, as appropriate,
of each Borrower and Corporate Guarantor, certified as of the Effective
Date by an authorized officer of such Borrower and Corporate Guarantor;
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(xi) an opinion of Xxxxxxxx, Hertan & Ives, New York counsel to
the Borrowers and Guarantors, substantially in the form of Exhibit F
hereto, and an opinion of special New Jersey counsel to the Borrowers and
Corporate Guarantors, substantially in the form of Exhibit G hereto and in
each case as to such other matters as the Agent may reasonably request;
(xii) a certificate of the chief executive officer or the chief
financial officer of Happy Kids, certifying as to the matters set forth in
subsection (b) of this Section 5.01;
(xiii) a copy of (A) the Financial Statements together with a
certificate of the chief executive officer or chief financial officer of
Happy Kids setting forth (x) all existing Indebtedness, guarantees, pending
or threatened litigation or claims and other contingent liabilities of the
Borrowers and Corporate Guarantors, and (y) all dividends declared or paid
since the date of such Financial Statements and all intercompany payments
made or obligations incurred to Affiliates outside the ordinary course of
Borrowers' business since such date, (B) the preliminary combined balance
sheets and combined statements of income and retained earnings of the
Borrowers and H.O.T. Kidz as at December 31, 1995, (C) the preliminary
individual balance sheet and statements of income and retained earnings of
Hawk and J&B as at December 31, 1995, and (D) the projections described in
Section 6.01(h)(ii) hereof,
(xiv) a breakdown of Inventory of each Borrower by location in the
form specified in Section 7.01(a)(viii)(B) of this Agreement certified by
the chief financial officer of Happy Kids;
(xv) a copy, certified by the chief executive officer of each
Borrower, of each executed factoring agreement, (each a "Factoring
Agreement" and collectively the "Factoring Agreements"), between a Borrower
and the Factor and the Existing Factoring Agreement, and the Factor and
each Borrower shall have entered into the CIT Assignment Agreement
satisfactory in form and scope to the Agent;
(xvi) execution and delivery by (A) each of the Existing Lenders of
assignments (including UCC-3 assignments) of all rights of the Existing
Lenders under the Existing Line Letters and all related security documents
and other related agreements, including, without limitation, an assignment
by Chemical of the $700,000 mortgage covering the real property located at
0000 Xxxx Xxxxxx Xxxxxx, Xxxxxxxx, Xxx Xxxx owned by Xxxx X. Xxxxx and
Xxxxxxxx Xxxxx, (B) each of the Existing Lenders of a termination of any
existing collateral assignment of the key man life insurance policy on the
life of Xxxx X. Xxxxx and (C) the Trust Company Bank and the Borrowers of
the Trust Company Assignment Agreement satisfactory in form and scope to
the Agent (including UCC-3 partial releases);
(xvii) a certificate of insurance evidencing insurance on the
property of the Borrowers and the Corporate Guarantors as is required by
Section 7.01(h) of this Agreement, naming the Agent as additional insured
and loss payee, using a long form
-33-
loss payee endorsement, for all insurance maintained by the Borrowers and
the Corporate Guarantors;
(xviii) a certificate of an authorized officer of Happy Kids
certifying the names and true signatures of those officers of each Borrower
and Corporate Guarantor that are authorized to provide Notices of
Borrowings and Letter of Credit Applications and all other notices under
this Agreement and the Loan Documents;
(xix) licensor waiver letters, in form and substance satisfactory
to the Agent, executed by the Licensors in existence on the date hereof
other than Xxxxxxx'x;
(xx) a copy of each of the License Agreements as in effect on the
date hereof, certified as a true and correct copy thereof by the chief
executive officer or the chief financial officer of each of the Borrowers
together with a certification that such License Agreements remain in full
force and effect and that the Borrowers have not breached or defaulted in
any of the obligations under the License Agreement;
(xxi) (A) a duly executed and delivered mortgage in the amount of
$1,199,999 in recordable form in favor of the Agent which shall cover the
real property owned by Xxxx X. Xxxxx and Xxxxxxxx Xxxxx and located at 0000
Xxxx Xxxxxx Xxxxxx, Xxxxxxxx, Xxx Xxxx (the "Mortgage"), (B) a current ALTA
survey of such property certified to the Agent and to such parties as the
Agent may request, accompanied by a satisfactory legal description of such
property, (C) a report of a title insurance policy covering such real
property interest in an amount reasonably acceptable to the Agent on a form
of and issued by a title company reasonably satisfactory to the Agent (the
"Title Company") subject only to such exceptions as are satisfactory to the
Agent, and (D) evidence that Xxxx X. Xxxxx shall have paid to the Title
Company all expenses of the Title Company in connection with the issuance
of such report and in addition shall have paid to the Title Company an
amount equal to the recording and stamp taxes (including mortgage recording
taxes), if any, payable in connection with recording such mortgage in the
appropriate county land offices, each in form and substance reasonably
satisfactory to the Agent;
(xxii) a copy of a key man life insurance policy on the life of Xxxx
X. Xxxxx from a responsible and reputable life insurance company in the
amount of $3,000,000, together with a collateral assignment of such life
insurance policy to the Agent for the benefit of the Lenders, duly executed
by each of the Borrowers, and acknowledged by the home office of the
insurance company;
(xxiii) completed personal financial statements of each of the
Individual Guarantors, prepared as of a date no earlier than 30 days prior
to the Effective Date, in form and substance reasonably satisfactory to the
Agent, together with a schedule of contingent liabilities and guarantees;
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(xxiv) landlord waivers from each of the Borrowers' landlords and
contractor waivers from each of the Borrowers' contractors that may from
time to time have possession of the Borrowers' Inventory, in each case in
form and substance satisfactory to the Agent;
(xxv) the Subordination Agreement executed by each of the Borrowers
and Xxxx X. Xxxxx;
(xxvi) a copy of the Subordinated Note, certified by the chief
executive officer of Happy Kids;
(xxvii) a limited guaranty executed by Xxxx X. Xxxxx and Xxxxxxxx
Xxxxx in favor of the Lenders, which party shall provide that recourse
thereunder is limited to her interest in the real property located at 0000
Xxxx Xxxxxx Xxxxxx, Xxxxxxxx, Xxx Xxxx;
(xxviii) an assignment of tax refunds duly executed by each of the
Individual Guarantors and Xxxxxxxx Xxxxx;
(xxix) a certificate of the chief financial officer of Happy Kids,
certifying as to the matters set forth in subsection (h) of this Section
5.01;
(xxx) the letter agreement executed by the Borrowers, the
Guarantors and Xxxxxxxx Xxxxx with respect to (a) the release of the
$500,000 cash collateral pledged to the Agent for the benefit of the
Lenders by Xxxx X. Xxxxx pursuant to the terms of the Cash Collateral
Agreement and (b) the reduction of the principal amount of the Mortgage by
$499,999 to $700,000; and
(xxxi) such other agreements, instruments, approvals, opinions and
other documents as the Agent may reasonably request.
(e) Proceedings; Receipt of Documents. All proceedings in connection
---------------------------------
with the transactions contemplated by this Agreement, and all documents
incidental thereto, shall be satisfactory to the Agent and its special counsel,
and the Agent and such special counsel shall have received all such information
and such counterpart originals or certified or other copies of such documents as
the Agent or such special counsel may reasonably request.
(f) Audit. The Agent may, at its option, obtain an update of the
-----
audit of the assets and liabilities of the Borrowers and the Corporate
Guarantors and the Agent shall be satisfied (in its sole discretion) with the
results of such updated audit.
(g) Material Adverse Effect. The Lenders shall have determined, in
-----------------------
their sole judgment, that no Material Adverse Effect shall have occurred after
December 31, 1994.
(h) Overadvance Amount. After giving effect to all Loans made and
------------------
all Letters of Credit issued or deemed issued on the Effective Date, and after
deducting such
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reserves to the Borrowing Base as the Agent determines to be appropriate for
duty and freight in connection with the importation of Inventory, the
Overadvance Amount shall not exceed $14,000,000.
SECTION 5.02. Conditions Precedent to Loans and Letters of Credit. In
---------------------------------------------------
addition to the requirements of Section 5.01, as a condition precedent to the
Agent or any Lender making any Loan, or CIT assisting the Borrowers in
establishing, or opening any Letter of Credit, each of the following conditions
precedent shall be fulfilled in a manner satisfactory to the Agent:
(a) Payment of Fees, Etc. The Borrowers shall have paid all fees,
--------------------
costs, expenses and taxes then payable by the Borrower pursuant to Sections 4.01
and 11.05 hereof.
(b) Representations and Warranties; No Event of Default. The
---------------------------------------------------
following statements shall be true, and the submission by the Administrative
Borrower to the Agent of a Notice of Borrowing with respect to a Loan and a
Borrower's acceptance of the proceeds of such Loan, or the submission by a
Borrower of a Letter of Credit Application with respect to a Letter of Credit
and the issuance of such Letter of Credit shall be deemed to be a representation
and warranty by the Borrowers on the date of such Loan and the date of the
issuance of such Letter of Credit that (i) the representations and warranties
contained in Section 6.01 of this Agreement and in each other Loan Document and
certificate or other writing delivered to the Lenders pursuant hereto on or
prior to the date of such Loan or Letter of Credit are correct on and as of such
date as though made on and as of such date; and (ii) no Event of Default or
Potential Default has occurred and is continuing or would result from the making
of the Loan to be made on such date, the issuance of the Letter of Credit to be
issued on such date or the acceptance of the Draft to be accepted on such date.
(c) Legality. The making of such Loan or the issuance of such Letter
--------
of Credit shall not contravene any law, rule or regulation applicable to the
Agent, CIT, the Lenders or the L/C Issuer.
(d) Notices. Except in the case of a borrowing of a Loan pursuant to
-------
Sections 3.01(a)(ii), 3.07 and 3.08, the Agent shall have received, if requested
by the Agent, a Notice of Borrowing pursuant to Section 2.03 hereof no later
than 12:00 noon on the date of the proposed borrowing with respect to a Loan or
the L/C Issuer shall have received a Letter of Credit Application pursuant to
Section 3.03 hereof not later than 12:00 noon three Business Days prior to the
proposed date of issuance of a Letter of Credit.
(e) Delivery of Documents. The Agent shall have received such other
---------------------
agreements, instruments, approvals, opinions and other documents, each in form
and substance satisfactory to the Agent, as the Agent may reasonably request.
(f) Proceedings; Receipt of Documents. All proceedings in connection
---------------------------------
with the making of such Loan or the issuance of such Letter of Credit and the
other transactions contemplated by this Agreement, and all documents incidental
thereto, shall be satisfactory to the
-36-
Agent and its special counsel, and the Agent and such special counsel shall have
received all such information and such counterpart originals or certified or
other copies of such documents as the Agent or such special counsel may
reasonably request.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES
SECTION 6.01. Representations and Warranties of the Borrower. Each
----------------------------------------------
Borrower and Guarantor represents and warrants as follows:
(a) Organization, Good Standing, Etc. Each Borrower and Corporate
--------------------------------
Guarantor (i) is a corporation or limited liability company duly organized,
validly existing and in good standing under the laws of the state of its
organization set forth in the preamble hereto, (ii) has all requisite power and
authority to conduct its business as now conducted and as presently contemplated
and to make the borrowings hereunder and to consummate the transactions
contemplated hereby, and (iii) is duly qualified to do business and is in good
standing in each jurisdiction in which the character of the properties owned or
leased by it or in which the transaction of its business makes such
qualification necessary.
(b) Authorization, Etc. The execution, delivery and performance by
------------------
each Borrower and Corporate Guarantor of each Loan Document to which it is a
party, (i) have been duly authorized by all necessary action, (ii) do not and
will not contravene the charter, articles of organization, certificate of
formation, by-laws or operating agreement, any applicable law or any contractual
restriction binding on or otherwise affecting it or any of its properties, (iii)
do not and will not result in or require the creation of any Lien (other than
pursuant to any such Loan Document) upon or with respect to any of its
properties, and (iv) do not and will not result in any suspension, revocation,
impairment, forfeiture or nonrenewal of any permit, license, authorization or
approval applicable to its operations or any of its properties.
(c) Governmental Approvals. No authorization or approval or other
----------------------
action by, and no notice to or filing with, any Governmental Authority or other
regulatory body is required in connection with the due execution, delivery and
performance by each Borrower and Guarantor of any Loan Document to which it or
will be a party.
(d) Enforceability of Loan Documents. This Agreement is, and each
--------------------------------
other Loan Document to which each Borrower and Guarantor is or will be a party,
when delivered hereunder, will be, a legal, valid and binding obligation of the
Borrower and the Guarantors, enforceable against each Borrower and Guarantor in
accordance with its terms.
(e) Inventory Locations; Places of Business; Chief Executive Office.
---------------------------------------------------------------
There is no location at which any Borrower has any Inventory (except for
Inventory in transit) other than (i) those locations listed on Part A of
Schedule 6.01(e) hereto and (ii) any other locations approved in writing by the
Agent pursuant to the definition of "Eligible Inventory". Part B of
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Schedule 6.01(e) hereto contains a true, correct and complete list, as of the
Effective Date, of the legal names and addresses of each warehouse at which
Inventory of any Borrower is stored. None of the receipts received by a Borrower
from any warehouse states that the goods covered thereby are to be delivered to
bearer or to the order of a named Person or to a named Person and such named
Person's assigns. Part C of Schedule 6.01(e) sets forth a complete and accurate
list as of the date hereof of (a) each place of business of each Borrower and
Corporate Guarantor; and (B) the chief executive office of each Borrower and
Corporate Guarantor. Part D of Schedule 6.01(e) sets forth a complete and
accurate description and list as of the date hereof of the location, by state
and street address, of all real property owned and leased by the Borrowers and
the Corporate Guarantors.
(f) Subsidiaries. Schedule 6.01(f) hereto is a complete and correct
------------
description of the name, jurisdiction of incorporation and ownership of the
outstanding Capital Stock of each Subsidiary and Affiliate of each Borrower and
Corporate Guarantor in existence on the date hereof, including, in the case of
Affiliates of each Borrower and Corporate Guarantor, a description of the
relationship, including transactions, between such Affiliates and Borrowers or
Corporate Guarantors. All shares of Capital Stock owned by each Borrower and
Corporate Guarantor or one or more of its Subsidiaries or Affiliates, as
indicated in such Schedule, are owned free and clear of all liens, security
interests and other charges and encumbrances.
(g) Litigation. Except as set forth on Schedule 6.01(g) hereto, on
----------
the Effective Date there is no pending or, to the knowledge of the Borrowers and
the Guarantors, threatened action, suit or proceeding affecting any Borrower or
Guarantor or any of their respective Subsidiaries before any court or other
Governmental Authority or any arbitrator. There is no pending or threatened
action, suit or proceeding affecting any Borrower or Guarantor or any of their
respective Subsidiaries before any court or other Governmental Authority or any
arbitrator which is reasonably likely to result in a Material Adverse Effect.
(h) Financial Condition.
-------------------
(i) The Financial Statements, copies of which have been
delivered to the Lenders, fairly present the financial condition of each
Borrower and H.O.T. Kidz and of J&B and Hawk, as applicable, as at the
respective dates thereof and the results of operations of such Borrowers
and H.O.T. Kidz and J&B and Hawk, as applicable, for the fiscal periods
ended on such respective dates, all in accordance with generally accepted
accounting principles consistently applied, and since December 31, 1994
there has been no Material Adverse Effect.
(ii) Happy Kids has heretofore furnished to the Agent and the
Lenders projected balance sheets, income statements and statements of cash
flow for the Borrowers and H.O.T. Kidz prepared on a monthly basis for the
period from January 1, 1996 through December 31, 1996. Such projections
were believed at the time furnished and on the Effective Date to be
reasonable, have been prepared on a reasonable basis and in good faith by
Happy Kids, and have been based on assumptions believed by Happy Kids to be
reasonable at the time made and on the Effective Date and upon the best
-38-
information then reasonably available to Happy Kids and have been reviewed
by and are acceptable to a financial consultant, acceptable to the Agent
and the Lenders, retained by the Borrowers.
(i) Compliance with Law, Etc. No Borrower or Corporate Guarantor is
------------------------
in violation of its charter, articles of organization, certificate of formation,
by-laws or operating agreement, any law or any material term of any agreement or
instrument binding on or otherwise affecting it or any of its properties.
(j) ERISA. (i) Each Employee Plan is in substantial compliance with
-----
ERISA and the IRC, (ii) no Termination Event has occurred nor is reasonably
expected to occur with respect to any Employee Plan, (iii) the most recent
annual report (Form 5500 Series) with respect to each Employee Plan, including
Schedule B (Actuarial Information) thereto, copies of which have been filed with
the Internal Revenue Service and delivered to the Agent, is complete and correct
and fairly presents the funding status of such Employee Plan, and since the date
of such report there has been no material adverse change in such funding status,
(iv) no Employee Plan had an accumulated or waived funding deficiency or
permitted decreases which would create a deficiency in its funding standard
account or has applied for an extension of any amortization period within the
meaning of Section 412 of the IRC at any time during the previous 60 months, and
(v) no lien, security interest or other charge or encumbrance imposed under the
IRC or ERISA exists or is likely to arise on account of any Employee Plan within
the meaning of Section 412 of the IRC at any time during the previous 60 months.
No Borrower or Corporate Guarantor nor any of their respective ERISA Affiliates
have incurred any withdrawal liability under ERISA with respect to any
Multiemployer Plan, and no Borrower or Corporate Guarantor is aware of any facts
indicating that any Borrower or Corporate Guarantor or any of their respective
ERISA Affiliates may in the future incur any such withdrawal liability. Except
as required by Section 4980B of the IRC, neither any Borrower or Corporate
Guarantor nor any of their respective ERISA Affiliates maintains an employee
welfare benefit plan (as defined in Section 3(1) of ERISA) which provides health
or welfare benefits (through the purchase of insurance or otherwise) for any
retired or former employee of any Borrower or Corporate Guarantor or any of
their respective ERISA Affiliates or coverage after a participant's termination
of employment. Neither any Borrower nor any Corporate Guarantor nor any of their
respective ERISA Affiliates has incurred any liability or obligation under the
Worker Adjustment and Retraining Notification Act ("WARN") or similar state law,
which remains unpaid or unsatisfied. Neither any Borrower nor any Corporate
Guarantor nor any of their respective ERISA Affiliates has laid off more than
33% of its employees at any single site of employment in any 90-day period
during the last 12 months.
(k) Taxes, Etc. All Federal, state and local tax returns and other
----------
reports required by applicable law to be filed by each Borrower and Guarantor
have been filed, and all taxes, assessments and other governmental charges
imposed upon each Borrower or Guarantor or any property of such Borrower or
Guarantor and which have become due and payable on or prior to the date hereof
have been paid, except to the extent contested in good faith by proper
proceedings which stay the imposition of any penalty, fine or lien resulting
from the non-
-39-
payment thereof and with respect to which adequate reserves have been set aside
for the payment thereof.
(l) Regulation U. No Borrower or Corporate Guarantor is or will be
------------
engaged in the business of extending credit for the purpose of purchasing or
carrying margin stock (within the meaning of Regulation U issued by the Board of
Governors of the Federal Reserve System), and no proceeds of any Loan will be
used to purchase or carry any margin stock or to extend credit to others for the
purpose of purchasing or carrying any margin stock.
(m) Nature of Business. No Borrower or Corporate Guarantor or any of
------------------
their respective Subsidiaries are engaged in any business other than the
importation, distribution and sale of infant's and children's apparel.
(n) Adverse Agreements, Etc. No Borrower or Guarantor nor any of
-----------------------
their respective Subsidiaries are a party to any agreement or instrument, or
subject to any charter or other restriction or any judgment, order, regulation,
ruling or other requirement of a court or other Governmental Authority or
regulatory body, which is reasonably likely to have a Material Adverse Effect.
(o) Holding Company and Investment Company Acts. No Borrower or
-------------------------------------------
Corporate Guarantor is (i) a "holding company" or a "subsidiary company" of a
"holding company" or an "affiliate" of a "holding company", as such terms are
defined in the Public Utility Holding Company Act of 1935, as amended, or (ii)
an "investment company" or an "affiliated person" or "promoter" of, or
"principal underwriter" of or for, an "investment company", as such terms are
defined in the Investment Company Act of 1940, as amended.
(p) Permits, Etc. The Borrowers, the Corporate Guarantors and their
------------
respective Subsidiaries have all permits, licenses, authorizations and approvals
required for them lawfully to own and operate their business.
(q) Title to Properties. The Borrowers, the Corporate Guarantors and
-------------------
their respective Subsidiaries have good and marketable title to all of their
properties and assets, free and clear of all Liens except such as are permitted
by Section 7.02(a) hereof.
(r) Full Disclosure. No Loan Document or schedule or exhibit thereto
---------------
and no certificate, report, statement or other document or information furnished
to the Lenders in connection herewith or with the consummation of the
transactions contemplated hereby, contains any material misstatement of fact or
omits to state a material fact or any fact necessary to make the statements
contained herein or therein not misleading. There is no fact materially
adversely affecting the condition or operations, financial or otherwise, or the
business or prospects of the Borrowers, the Guarantors or any of their
respective Subsidiaries which has not been set forth in a footnote included in
the Financial Statements or a Schedule hereto.
-40-
(s) Operating Lease Obligations. The Borrowers and the Corporate
---------------------------
Guarantors do not have any obligations as lessee for the payment of rent for any
real or personal property other than the Operating Lease Obligations set forth
in Schedule 6.01(s) hereto.
(t) Environmental Matters. Except as disclosed in Schedule 6.01(t)
---------------------
hereto, (i) none of the operations of the Borrowers, the Corporate Guarantors or
their respective Subsidiaries are the subject of any federal, state or local
investigation to determine whether any remedial action is needed to address the
presence, Release or threatened Release of any Hazardous Material into the
environment, (ii) the Borrowers, the Corporate Guarantors and their respective
Subsidiaries do not have any liability or contingent or potential liability in
connection with any Release of any Hazardous Material into the indoor or outdoor
environment and none of the Borrowers or Corporate Guarantors knows of any
facts, circumstances or conditions likely to give rise to such liability, (iii)
the operations of and the properties owned or used by the Borrowers, the
Corporate Guarantors and their respective Subsidiaries comply in all respects
with all Environmental Laws, and (iv) there has been no Release, generation,
use, storage, recycling or treatment of any Hazardous Material on, the
Collateral or, to the best knowledge of the Borrowers and the Corporate
Guarantors, any property or facility owned, operated or occupied by the
Borrowers and the Corporate Guarantors or any of their Subsidiaries.
(u) Schedules. All of the information which is required to be
---------
scheduled to this Agreement is set forth on the Schedules attached hereto, is
correct and accurate and does not omit to state any information material
thereto.
(v) Insurance. The Borrowers, the Corporate Guarantors and their
---------
respective Subsidiaries keep their properties adequately insured and maintain
(i) insurance to such extent and against such risks, including fire, as is
customary with companies in the same or similar businesses, (ii) workmen's
compensation insurance in the amount required by applicable law, (iii) public
liability insurance, which shall include product liability insurance, in the
amount customary with companies in the same or similar business against claims
for personal injury or death on properties owned, occupied or controlled by
them, and (iv) such other insurance as may be required by law or as may be
reasonably required in writing by the Agent.
(w) Use of Proceeds. The proceeds of the Loans shall be used to repay
---------------
existing indebtedness of the Borrowers to the Existing Lenders and for general
working capital purposes. The Letters of Credit will be used to purchase and
finance Inventory in the ordinary course of the Borrowers' business.
(x) Security Interest. The Security Agreements and the Cash
-----------------
Collateral Agreement create and grant to the Agent, for the benefit of the
Lenders, a legal, valid and perfected first priority (except as permitted by
Section 7.02(a) hereof) security interest in the Collateral. Such Collateral is
not subject to any other Lien whatsoever, except as permitted by Section 7.02(a)
hereof.
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(y) Tradenames. Schedule 6.01(y) hereto sets forth a complete and
----------
accurate list as of the Effective Date of all tradenames used by the Borrowers
and the Corporate Guarantor on or before the Effective Date.
(z) Solvency. After giving effect to the transactions contemplated by
--------
the terms of this Agreement and before and after giving effect to each Loan and
Letter of Credit: (i) the fair value of the assets of each Borrower exceeds the
book value of the liabilities of each Borrower and each Corporate Guarantor,
(ii) each Borrower and each Corporate Guarantor is generally able to pay its
debts as they become due and payable, and (iii) each Borrower and each Corporate
Guarantor does not have unreasonably small capital to carry on its business as
it is currently conducted.
(aa) Material Contracts. Set forth on Schedule 6.01 (aa) hereto is a
------------------
complete and accurate list as of the Effective Date of all Material Contracts of
the Borrowers and the Corporate Guarantors, showing the parties and subject
matter thereof and amendments and modifications thereto. Each such Material
Contract (i) is in full force and effect and is binding upon and enforceable
against each Borrower and Corporate Guarantor that is a party thereto and, to
the best of such Person's knowledge, all other parties thereto in accordance
with its terms, (ii) has not been otherwise amended or modified, and (iii) there
exists no default under any Material Contract by any Borrower and Corporate
Guarantor, or to such Person's knowledge, any other party thereto.
ARTICLE VII
COVENANTS OF THE BORROWER
SECTION 7.01. Affirmative Covenants. So long as any principal of or
---------------------
interest on the Loans or the Reimbursement Obligations or any other Letter of
Credit Obligations (whether or not due) shall remain unpaid or the Lenders shall
have any Credit Exposure hereunder, each Borrower, each Corporate Guarantor and,
where appropriate, each Individual Guarantor will, unless the Required Lenders
shall otherwise consent in writing:
(a) Reporting Requirements. Furnish to the Lenders:
----------------------
(i) as soon as available, and in any event within 45 days after
the end of each of the first and third fiscal quarters in each fiscal year
of Happy Kids, combined and combining balance sheets, combined and
combining statements of income and retained earnings and combined and
combining statements of cash flow of the Borrowers and H.O.T. Kidz as at
the end of such quarter; and for the period commencing at the end of the
immediately preceding fiscal year and ending with the end of such quarter,
setting forth in comparative form the corresponding figures for the
corresponding date or period of the immediately preceding fiscal year and
setting forth in comparative form the corresponding figures set forth in
the financial projections delivered to the Lenders on or prior to the
Effective Date and in the most recent financial projections delivered by
the Borrowers to the Lenders pursuant to clause (x) of this Section
7.01(a), all in reasonable
-42-
detail and prepared in accordance with GAAP, duly certified by the chief
executive officer of Happy Kids as (A) fairly presenting the financial
condition of the Borrowers and H.O.T. Kidz at the end of such quarter and
the results of the operations of the Borrowers and H.O.T. Kidz for such
periods (subject to normal year-end audit adjustments), and (B) having been
prepared in accordance with GAAP;
(ii) as soon as available and in any event within 60 days after
the end of the second fiscal quarter of Happy Kids, combined and combining
balance sheets, combined and combining statements of income and retained
earnings and combined and combining statements of cash flow of the
Borrowers and H.O.T. Kidz for such fiscal quarter and for the six-month
period ended at the end of such quarter, setting forth in each case in
comparative form the figures for the corresponding quarter and the
corresponding six-month period of the previous fiscal year and setting
forth in comparative form the corresponding figures set forth in the
financial projections delivered to the Lenders on or prior to the Effective
Date and in the most recent financial projections delivered by the
Borrowers to the Lenders pursuant to clause (x) of this Section 7.01 (a),
all in reasonable detail and prepared in accordance with GAAP and, in the
case of the combined financial statements, accompanied by a review report
thereon of the Happy Kids' certified public accountants Xxxxx Xxxxxxxx, LLP
or other independent public accountants acceptable to the Agent and the
Required Lenders, which report shall state that such accountants reviewed
such semi-annual financial statements and that based on such review, such
accountants are not aware of any material modifications that should be made
in such financial statements in order for them to be in conformity with
GAAP;
(iii) as soon as available, and in any event within 90 days
after the end of each fiscal year of Happy Kids, combined and combining
balance sheets, combined and combining statements of income and retained
earnings and combined and combining statements of cash flow of the
Borrowers and H.O.T. Kidz as at the end of such fiscal year, setting forth
in comparative form the corresponding figures for the immediately preceding
fiscal year and setting forth in comparative form the corresponding figures
set forth in the financial projections delivered to the Lenders on or prior
to the Effective Date and in the most recent financial projections
delivered by the Borrowers to the Lenders pursuant to clause (x) of this
Section 7.01(a), all in reasonable detail and prepared in accordance with
GAAP, and, in the case of the combined financial statements accompanied by
an audit report and with an unqualified opinion of Xxxxx Xxxxxxxx, LLP or
other independent certified public accountants of recognized standing
selected by Happy Kids and satisfactory to the Agent and the Required
Lenders, together with a written statement of such accountants (A) to the
effect that, in making the examination necessary for their unqualified
opinion of such financial statements, they have not obtained any knowledge
of the existence of an Event of Default as it relates to Sections 7(l)(i)
through (iii) and insofar as it relates to accounting matters and (B) if
such accountants shall have obtained any knowledge of the existence of such
Event of Default described in clause (A) above, describing the nature
thereof;
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(iv) as soon as available and in any event within 60 days after
the end of the second fiscal quarter of Hawk and J&B, balance sheets,
statements of income and retained earnings and statements of cash flow of
each such Corporate Guarantor for the six-month period ended at the end of
such quarter, setting forth in each case in comparative form the figures
for the corresponding six-month period of the previous fiscal year, all in
reasonable detail and prepared in accordance with GAAP, duly certified by
the chief executive officer of each such Corporate Guarantor as (A) fairly
presenting the financial condition of such Corporate Guarantor at the end
of such six-month period and the results of operations of such Corporate
Guarantors for such period (subject to year-end adjustments) and (B) having
been prepared in accordance with GAAP;
(v) as soon as available, and in any event within 90 days
after the end of each fiscal year of Hawk and J&B, balance sheets,
statements of income and retained earnings and statements of cash flow of
each such Corporate Guarantor as at the end of such fiscal year, setting
forth in comparative form the corresponding figures for the immediately
preceding fiscal year, all in reasonable detail and prepared in accordance
with GAAP and accompanied by a review report thereon of Xxxxx Xxxxxxxx, LLP
or other independent public accountants acceptable to the Agent and the
Required Lenders, which report shall state that such accountants reviewed
such annual financial statements and that based on such review, such
accountants are not aware of any material modifications that should be made
in such financial statements in order for them to be in conformity with
GAAP;
(vi) as soon as available and in any event within 30 days of
the end of each month, an internally prepared combined balance sheets,
combined statements of income and retained earnings and combined statements
of cash flow for such month of the Borrowers and H.O.T. Kidz and for the
period commencing at the end of the immediately preceding fiscal year and
ending at the end of such month, setting forth in comparative form the
corresponding figures for the corresponding period of the immediately
preceding fiscal year, all in reasonable detail and prepared in accordance
with GAAP;
(vii) simultaneously with the delivery of the financial
statements required by clauses (i), (ii), (iii), (iv) and (v) of this
Section 7.01(a), a certificate of the chief executive officer of Happy
Kids, (A) stating that such officer has reviewed the provisions of this
Agreement and the other Loan Documents to which the Borrowers and the
Corporate Guarantors are a party and has made or caused to be made under
his supervision a review of the condition and operations of the Borrowers
and the Corporate Guarantors during the period covered by such financial
statements with a view to determining whether the Borrowers and the
Corporate Guarantors were in compliance with all of the provisions of such
Loan Documents at the times such compliance is required by the Loan
Documents, and that such review has not disclosed, and such officer has no
knowledge of, the existence during such period of an Event of Default or
Potential Default or, if an Event of Default or such Potential Default
existed, describing the nature and period of existence thereof and the
action which the Borrowers and the Corporate
-44-
Guarantors propose to take or took with respect thereto, (B) containing a
breakdown of the expenses set forth on such financial statements together
with any back-up requested by the Agent, and (C) containing a schedule
showing the calculations specified in Section 7.01(1) of this Agreement;
(viii) within 15 days after the end of each month, a schedule, in
form and substance reasonably satisfactory to the Agent, current as of the
close of business on the last day of such month, certified by the chief
executive officer of Happy Kids (A) of all Accounts Receivable of the
Borrowers existing on the Effective Date showing separately those which are
more than 30, 60, 90 and 120 days old and a description of all Liens, set-
offs, defenses and counterclaims with respect thereto reasonably
satisfactory to the Agent and current as of the close of business on the
last day of such month together with a reconciliation of such schedule with
the schedule delivered to the Lenders pursuant to this clause (A) for the
prior month and (B) containing a breakdown of the Borrowers' Inventory on a
combined basis for all Borrowers and on an individual basis by Borrower, by
amount and valued at the lower of cost or market value (which shall include
dollar valuation by location and dollar valuation by the season for which
the Inventory was manufactured to be sold) and warehouse and production
facility location, appropriately completed with information satisfactory to
the Agent, incorporating all appropriate month-end adjustments and current
as of the close of business on the last day of such month immediately prior
to such date;
(ix) within 15 days after the end of each month, a schedule, in
form and substance satisfactory to the Agent, current as of the close of
business on the last day of such month, certified by the chief executive
officer of Happy Kids, containing all Inventory by style and season, all
open orders by style and season and all Inventory by style and season
available to be shipped against such orders;
(x) financial projections, prepared on a monthly basis on or
before November 1 of each calendar year for the succeeding calendar year
for the Borrowers and H.O.T. Kidz and on or before August 15 of each
calendar year for the following "spring season" of the Borrowers and H.O.T.
Kidz, such financial projections to be reasonable, to be prepared on a
reasonable basis and in good faith, and to be based on assumptions believed
by the Borrowers and H.O.T. Kidz to be reasonable at the time made and from
the best information then available to the Borrowers and H.O.T. Kidz,
provided that, in order to satisfy the requirements of this clause (x),
such financial projections must (A) be reasonably acceptable to the Agent
and the Lenders and (B) be reviewed by and be acceptable to a financial
consultant, acceptable to the Agent and the Lenders, retained by the
Borrowers;
(xi) promptly after submission to any Government Authority all
documents and information furnished to such Government Authority in
connection with any investigation of any Borrower or Guarantor other than
inquiries by such Governmental Authority that will not adversely effect in
any material respect any
-45-
Borrower, any Guarantor, the Collateral or the rights of the Lenders, CIT,
the Agent or the L/C Issuer under this Agreement or the other Loan
Documents.;
(xii) as soon as possible, and in any event within five days
after the occurrence of an Event of Default or Potential Default, or a
material adverse change in the condition or operations, financial or
otherwise, of the Borrowers, the Guarantors or any of their respective
Subsidiaries, the written statement of the chief executive officer or the
chief financial officer of Happy Kids, setting forth the details of such
Event of Default, Potential Default or material adverse change and the
action which the Borrowers and the Guarantors propose to take with respect
thereto;
(xiii) (A) as soon as possible and in any event (1) within 30
days after the Borrowers, the Corporate Guarantors or any of their
respective ERISA Affiliates knows or has reason to know that any
Termination Event described in clause (i) of the definition of Termination
Event with respect to any Employee Plan has occurred, (2) within 10 days
after the Borrowers, the Corporate Guarantors or any of their respective
ERISA Affiliates knows or has reason to know that any other Termination
Event with respect to any Employee Plan has occurred, and (3) within 10
days after any of the Borrowers, any of the Corporate Guarantors or any of
their respective ERISA Affiliates knows or has reason to know that an
accumulated funding deficiency has been incurred or an application has been
made to the Secretary of the Treasury for a waiver or modification of the
minimum funding standard (including installment payments) or an extension
of any amortization period under Section 412 of the IRC with respect to an
Employee Plan, a statement of the chief financial officer of Happy Kids
setting forth the details of such occurrence and the action, if any, which
the Borrowers, the Corporate Guarantors or any of their respective ERISA
Affiliate proposes to take with respect thereto, (B) promptly and in any
event within two Business Days after receipt thereof by the Borrowers, the
Corporate Guarantors or any of their respective ERISA Affiliates from the
PBGC, copies of each notice received by the Borrowers, the Corporate
Guarantors or any of their respective ERISA Affiliates of the PBGC's
intention to terminate any Plan or to have a trustee appointed to
administer any Plan, (C) promptly and in any event within 30 days after the
filing thereof with the Internal Revenue Service, copies of each Schedule B
(Actuarial Information) to the annual report (Form 5500 Series) with
respect to each Employee Plan and Multiemployer Plan, (D) promptly and in
any event within five Business Days after receipt thereof by the Borrowers,
the Corporate Guarantors or any of their respective ERISA Affiliates from a
sponsor of a Multiemployer Plan or from the PBGC, a copy of each notice
received by the Borrowers, the Corporate Guarantors or any of their
respective ERISA Affiliates concerning the imposition or amount of
withdrawal liability under Section 4202 of ERISA or indicating that such
Multiemployer Plan may enter reorganization status under Section 4241 of
ERISA and (E) promptly and in any event within 1O days after any of the
Borrowers, any of the Corporate Guarantors or any of their respective ERISA
Affiliates sends notice of a plant closing or mass layoff (as defined in
WARN) to employees, copies of each such notice sent by the Borrowers, the
Corporate Guarantors or any of their respective ERISA Affiliates;
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(xiv) promptly after the commencement thereof but in any event
not later than five days after service of process with respect thereto on,
or the obtaining of knowledge thereof by, the Borrowers or the Guarantors,
notice of each action, suit or proceeding before any court or other
Governmental Authority or other regulatory body or any arbitrator which may
materially adversely affect the operations or condition, financial or
otherwise, of the Borrowers or the Corporate Guarantors;
(xv) with respect to each Individual Guarantor (A) complete
annual financial statements, in form and substance reasonably satisfactory
to the Agent, together with a schedule of contingent liabilities, no later
than April 30 of each year for the prior calendar year and (B) federal,
state and local tax returns no later than 45 days after the filing date,
each certified as a true and correct copy thereof, by each of the
Individual Guarantors;
(xvi) as soon as available and in any event (A) within 5 days
after receipt or delivery thereof, copies of any notices that the Borrowers
receive from or send to any Licensor, other than notices that (1) are made
in the ordinary course of business, (2) do not involve matters that will
result in a material increase in the obligations or liabilities of the
Borrowers under any License Agreement and (3) will not adversely effect in
any material respect the Borrowers, the Collateral or the rights of the
Lenders, CIT, the Agent or the L/C Issuer under this Agreement or the other
Loan Agreements (B) within 5 Business Days after entering into any License
Agreement not in effect on the Effective Date, a copy of the License
Agreement, and (C) within 5 Business Days prior to the effective date
thereof, copies of any amendments, modifications, waivers or other changes
to the License Agreements or the Subordinated Note; and
(xvii) promptly upon request, such other information concerning
the condition or operations, financial or otherwise, of the Borrowers or
the Guarantors as the Agent from time to time may reasonably request.
(b) Guaranties, Etc. Cause each of the Subsidiaries of each Borrower
---------------
and Corporate Guarantor to execute and deliver to the Agent promptly upon the
formation or acquisition thereof (i) a guaranty, substantially in the form of
Exhibit B hereto, guaranteeing the Obligations, and (ii) a security agreement,
in form and substance satisfactory to the Agent, securing such guaranty,
securing such guaranty, and, in connection with such delivery, cause to be
delivered to the Agent, in form and substance satisfactory to the Agent, a
favorable written opinion of counsel satisfactory to the Agent as to such
matters relating thereto as the Agent may reasonably request, together with such
other agreements, instruments, approvals or other documents as the Agent may
reasonably request.
(c) Compliance with Laws, Etc. Comply, and cause each of their
-------------------------
respective Subsidiaries to comply, in all material respects with all applicable
laws, rules, regulations and orders (including, without limitation,
Environmental Laws), such compliance to include, without limitation, (i) paying
before the same become delinquent all taxes, assessments and governmental
charges or levies imposed upon it or upon its income or profits or upon any of
its properties, and
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(ii) paying all lawful claims which if unpaid might become a lien or charge upon
any of its properties, except to the extent contested in good faith by proper
proceedings which stay the imposition of any penalty, fine or lien resulting
from the non-payment thereof and with respect to which adequate reserves have
been set aside for the payment thereof.
(d) Preservation of Existence, Etc. Maintain and preserve, and cause
------------------------------
each of their Subsidiaries to maintain and preserve, its existence, rights and
privileges, and become or remain duly qualified and in good standing in each
jurisdiction in which the character of the properties owned or leased by them or
in which the transaction of their business makes such qualification necessary.
(e) Keeping of Records and Books of Account. Keep, and cause each of
---------------------------------------
their Subsidiaries to keep, adequate records and books of account, with complete
entries made in accordance with generally accepted accounting principles
consistently applied.
(f) Inspection Rights. Permit, and cause each of their Subsidiaries
-----------------
to permit, the Agent, or any agents or representatives thereof at any time and
from time to time during normal business hours to examine and make copies of and
abstracts from their records and books of account, to visit and inspect their
properties, to conduct audits or examinations and to discuss their affairs,
finances and accounts with any of the directors, officers, managerial employees,
independent accountants or other representatives thereof.
(g) Maintenance of Properties, Etc. Maintain and preserve, and cause
------------------------------
each of their Subsidiaries to maintain and preserve, all of their properties
which are necessary or useful in the proper conduct of their business in good
working order and condition, ordinary wear and tear excepted, and comply, and
cause each of their Subsidiaries to comply, at all times with the provisions of
all leases to which each of them is a party as lessee or under which each of
them occupies property, so as to prevent any loss or forfeiture thereof or
thereunder.
(h) Maintenance of Insurance. Maintain, and cause each of their
------------------------
Subsidiaries to maintain, with responsible and reputable insurance companies or
associations insurance (including, without limitation, comprehensive general
liability and hazard insurance) with respect to their properties and business,
in such amounts and covering such risks, as is required by any Governmental
Authority or other regulatory body having jurisdiction with respect thereto and
as is carried generally in accordance with sound business practice by companies
in similar businesses similarly situated.
(i) Environmental Indemnity. (a) Comply with the requirements of all
-----------------------
Environmental Laws applicable to each Borrower and Corporate Guarantor and
provide to the Agent all documentation in connection with such compliance that
the Agent may reasonably request; and (b) not cause or permit the Collateral or
any property or facility owned, operated or occupied by the Borrowers, the
Corporate Guarantors or any of their respective Subsidiaries to be used for any
activities involving, directly or indirectly, the use, generation, treatment,
storage, release or disposal of any Hazardous Materials. On behalf of the
Borrowers, the Corporate Guarantors and their respective Subsidiaries, the
Borrowers jointly and severally hereby agree to
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defend, indemnify, and hold harmless the Agent, the Lenders and the L/C Issuer,
their employees, agents, officers, and directors, from and against any claims,
demands, penalties, fines, liabilities, settlements, damages, costs, or expenses
(including, without limitation, attorney and consultant fees, investigation and
laboratory fees, court costs, and litigation expenses) arising out of (i) the
presence, disposal, release, or threatened release of any Hazardous Materials
on any property at any time owned or occupied by the Borrowers or the Corporate
Guarantors (or its predecessors in interest or title); (ii) any personal injury
(including wrongful death) or property damage (real or personal) arising out of
or related to such Hazardous Materials; (iii) any investigation, lawsuit brought
or threatened, settlement reached, or government order relating to such
Hazardous Materials; (iv) any violation of any Environmental Law, and/or (v)
the breach of any representation or warranty made by the Borrowers and the
Corporate Guarantors in Section 6.01(t) hereof or the breach of any covenant
made by any of the Borrowers in this Section 7.01(i).
(j) Further Assurances. The Borrowers and the Guarantor shall, and
------------------
shall cause each Subsidiary to, do, execute, acknowledge and deliver, at the
sole cost and expense of the Borrowers all such further acts, deeds,
conveyances, mortgages, assignments, estoppel certificates, financing
statements, notices of assignment, transfers and assurances as the Agent may
require from time to time in order to better assure, convey, grant, assign,
transfer and confirm unto the Agent, the Lenders and the L/C Issuer the rights
now or hereafter intended to be granted to the Agent, the Lenders and the L/C
Issuer under this Agreement, any Loan Document or any other instrument under
which the Borrowers, the Guarantors or any of their respective Subsidiaries may
be or may hereafter become bound for carrying out the intention or facilitating
the performance of the terms of the Agreement.
(k) Borrowing Base. Maintain all Loans and Letters of Credit in
--------------
compliance with the then current Borrowing Base.
(l) Financial Covenants.
-------------------
(i) Tangible Net Worth. Maintain Combined Tangible Net Worth (before
------------------
any LIFO adjustments made for the prior fiscal year in accordance with
GAAP) on each date set forth below of at least:
Minimum Combined
Date Tangible Net Worth
---- ------------------
December 31, 1995 $5,550,000
March 31, 1996 $6,500,000
June 30, 1996 $6,100,000
September 30, 1996 $7,300,000
December 31, 1996 $7,250,000
-49-
(ii) Working Capital. Maintain Working Capital (before any LIFO
---------------
adjustments made for the prior fiscal year in accordance with GAAP) on each
date set forth below of at least:
Minimum Working
Date Capital
---- ------------------
March 31, 1996 $750,000
June 30, 1996 $850,000
September 30, 1996 $2,450,000
December 31, 1996 $2,350,000
(iii) Net Loss. (A) Not incur a Cumulative Net Loss (before any LIFO
--------
adjustments made for the prior fiscal year in accordance with XXXX) for
the Borrowers and H.O.T. Kidz at the end of any fiscal quarter of Happy
Kids.
(B) Not incur a Net Loss of more than $100,000 on a combined
basis for Hawk and J&B in any calendar year
(iv) Upon receipt of the financial projections required to be
delivered to the Lenders pursuant to Section 7.01(a)(x) for a calendar
year, Happy Kids and the Lenders shall negotiate in good faith to determine
minimum Combined Tangible Net Worth, minimum Working Capital, and combined
and individual Net Loss for each Borrower and Corporate Guarantor for the
calendar year covered by such projections.
(m) Key Man Life Insurance. Maintain at all times key man or other
----------------------
life insurance policies on the life of Xxxx Xxxxx from a responsible and
reputable life insurance company in an amount of not less than $3,000,000,
together with an assignment of such life insurance policies to the Agent for the
benefit of the Lenders.
(n) Change in Collateral; Collateral Records. Give the Agent not
----------------------------------------
less than thirty days' prior written notice of any change in the location of any
Collateral, other than Collateral to be moved to locations that as of the date
hereof are known to the Agent and at which the Agent has filed financing
statements and otherwise fully perfected its Liens thereon. The Borrowers shall
also advise the Agent promptly, in sufficient detail, of any material adverse
change relating to the type, quantity or quality of the Collateral or the Lien
granted thereon. The Borrowers agree to execute and deliver to the Agent for the
benefit of the Lenders from time to time, solely for the Agent's convenience in
maintaining a record of Collateral, such written statements and schedules as the
Agent may reasonably require, designating, identifying or describing the
Collateral. The Borrowers' failure, however, to promptly give the Agent such
-50-
statements or schedules shall not effect, diminish or modify or otherwise limit
the Lenders' security interest in the Collateral.
(o) Financial Consultant. The Borrowers and the Corporate Guarantors
--------------------
shall retain and cause to be retained at all times during the term of this
Agreement a financial consultant reasonably acceptable to the Lenders, and the
nature and scope of the work to be performed by such financial consultant shall
be reasonably acceptable to the Lenders.
(p) Subordinated Debt. On or before February 28, 1996, the Agent
-----------------
shall have received evidence satisfactory to it that the Borrowers have received
from Xxxx X. Xxxxx proceeds of subordinated debt in an aggregate amount of not
less than $200,000, which together with the subordinated debt of $1,200,000
existing on the Effective Date shall be subject to the terms of the
Subordination Agreement.
(q) Tax Returns. As soon as possible and in any event on or before
-----------
April 15, 1996, the Individual Guarantors shall file all federal, state and
local tax returns and other information necessary to obtain any tax refunds for
the 1995 tax year.
(r) Tax Audits. As soon as possible and in any event within five
----------
days after a written settlement is executed by Happy Kids and the Internal
Revenue Service, the Agent shall have received evidence satisfactory to it that
the audit by the Internal Revenue Service for the 1991, 1992 and 1993 tax years
of Happy Kids has been settled and that the aggregate payments made by Happy
Kids in connection with such settlement did not exceed $250,000.
SECTION 7.02. Negative Covenants. So long as any principal of or
------------------
interest on the Loans or the Reimbursement Obligations or any Letter of Credit
Obligations (whether or not due) shall remain unpaid or any Lender shall have
any Credit Exposure hereunder, no Borrower or Corporate Guarantor will, without
the prior written consent of the Required Lenders:
(a) Liens, Etc, Create or suffer to exist, or permit any of their
----------
Subsidiaries to create or suffer to exist, any Lien upon or with respect to any
of their properties, rights or other assets, whether now owned or hereafter
acquired, or assign or otherwise transfer, or permit any of its Subsidiaries to
assign or otherwise transfer, any right to receive income, other than:
(i) Liens created pursuant to the Loan Documents;
(ii) Liens existing on the date hereof, as set forth in Schedule
7.02(a)(ii) hereto, but not the (A) extension of coverage thereof to other
property or the extension of maturity, refinancing or other modification of
the terms thereof or of the Indebtedness secured thereby;
(iii) Liens for taxes, assessments or governmental charges or levies
to the extent that the payment thereof shall not be required by Section
7.01(c) hereof;
-51-
(iv) Liens created by operation of law, such as materialmen's Liens,
mechanics' Liens and other similar Liens, arising in the ordinary course of
business and securing claims the payment of which shall not be required by
Section 7.01(c) hereof,
(v) deposits, pledges or Liens (other than Liens arising under
ERISA or the IRC) securing (A) obligations incurred in respect of workers'
compensation, unemployment insurance or other forms of governmental
insurance or benefits, (B) the performance of bids, tenders, leases,
contracts (other than for the payment of money) and statutory obligations,
or (C) obligations on surety or appeal bonds, but only to the extent such
deposits, pledges or liens are incurred or otherwise arise in the ordinary
course of business and secure obligations which are not past due;
(vi) restrictions on the use of real property and minor
irregularities in the title thereto which do not (A) secure obligations for
the payment of money or (B) materially impair the value of such property or
its use by the Borrowers, the Corporate Guarantors or any of their
Subsidiaries in the normal conduct of such Person's business;
(vii) Liens created under the Factoring Agreements;
(viii) purchase money Liens on or purchase money security interests in
equipment acquired or held in the ordinary course of business of the
Borrowers, the Corporate Guarantors and their Subsidiaries securing
Indebtedness not exceeding the aggregate principal amount of $200,000 in
any year for the Borrowers, the Corporate Guarantors and their
Subsidiaries; and
(ix) Liens created under the Existing Factoring Agreement.
(b) Indebtedness. Create, incur or suffer to exist, or permit any
------------
of their Subsidiaries to create, incur or suffer to exist, any Indebtedness,
other than:
(i) Indebtedness created hereunder or under the Notes or any Letter
of Credit;
(ii) Indebtedness existing on the date hereof, as set forth in
Schedule 7.02(b)(ii) hereto, but not the extension of maturity, refinancing
or other modification of the terms thereof if such extension, refinancing
or other modification increases the amount of such Indebtedness or results
in terms that are more restrictive to the Borrower or Corporate Guarantor;
(iii) Indebtedness represented by accounts payable incurred in the
ordinary course of business;
(iv) Indebtedness owing to any Borrower or Corporate Guarantor by
any other Borrower or Corporate Guarantor;
-52-
(v) Indebtedness permitted by subsection (c) of this Section 7.02;
(vi) Indebtedness of any Borrower the payment of which is fully
subordinated to the payment of the Obligations on terms fully approved in
writing by each Lender, provided that such Indebtedness is not secured;
(vii) Indebtedness evidenced by the Subordinated Note;
(viii) Indebtedness represented by minimum royalty payments under any
License Agreement not existing on the Effective Date, provided that the
aggregate amount of all such Indebtedness does not exceed $250,000 in any
year; and
(ix) Indebtedness secured by Liens permitted by clause (viii) of
subsection (a) of this Section 7.02.
(c) Guaranties, Etc. Assume, guarantee, endorse or otherwise become
---------------
directly or contingently liable (including, without limitation, liable by way of
agreement, contingent or otherwise, to purchase, to provide funds for payment,
to supply funds to or otherwise invest in the debtor or otherwise to assure the
creditor against loss), in connection with any Indebtedness of any other Person,
other than:
(i) guaranties by endorsement of negotiable instruments for deposit
or collection in the ordinary course of business;
(ii) guaranties existing on the date hereof, as set forth in
Schedule 7.02(c)(ii) hereto, but not any renewal or other modification
thereof; and
(iii) guaranties of the Indebtedness permitted by clause (viii) of
subsection (b) of this Section 7.02.
(d) Merger, Consolidation, Sale of Asset Etc.
----------------------------------------
(A) Merge or consolidate with any Person, or permit any of
their Subsidiaries to merge or consolidate with, any Person; provided, however,
-------- -------
that any Subsidiary of the Borrowers or the Corporate Guarantors may be merged
into a Borrower or a Corporate Guarantor or another such Subsidiary, or may
consolidate with another such Subsidiary, so long as (i) no other provision of
this Agreement would be violated thereby, and (ii) Happy Kids gives the Lenders
at least 30 days' prior written notice of such merger or consolidation.
(B) Sell, assign, lease or otherwise transfer or dispose of, or
permit any of their Subsidiaries to sell, assign, lease or otherwise transfer or
dispose of, whether in one transaction or in a series of related transactions,
any substantial portion of its properties, rights or other assets (whether now
owned or hereafter acquired) to any Person; provided, however, that any
-------- -------
Subsidiary of the Borrowers or the Corporate Guarantors may sell, assign or
otherwise transfer its properties, rights or other assets to the Borrowers or
the Corporate Guarantors or to
-53-
another such Subsidiary so long as (x) no other provision of this Agreement
would be violated thereby and (y) Happy Kids gives the Lender at least 30 days'
prior written notice of such sale, assignment or other transfer.
(e) Change in Nature of Business. Make, or permit any of their
----------------------------
Subsidiaries to make, any change in the nature of its business as carried on at
the date hereof.
(f) Investments, Etc. Make, or permit any of its Subsidiaries to
----------------
make, any loan or advance to any Person or purchase or otherwise acquire, or
permit any of its Subsidiaries to purchase or otherwise acquire, any capital
stock, properties, assets or obligations of, or any interest in, any Person,
other than:
(i) Permitted Investments; and
(ii) investments existing on the date hereof, as set forth in Schedule
7.02(f)(ii) hereto.
(g) Lease Obligations. Create, incur or suffer to exist, or permit
-----------------
any of their Subsidiaries to create, incur or suffer to exist, any obligations
as lessee (i) for the payment of rent for any real or personal property in
connection with any sale and leaseback transaction, or (ii) for the payment of
rent for any real or personal property under leases or agreements to lease other
than (A) obligations under Capitalized Leases (other than the existing
Capitalized Leases set forth on Schedule 7.02(g) hereto) which would not cause
the aggregate amount of all obligations under Capitalized Leases entered into
after the Effective Date owing by the Borrowers, the Corporate Guarantors and
their respective Subsidiaries in any 12-month period to exceed the amounts set
forth in subsection (h) of this Section 7.02, and (B) Operating Lease
Obligations which would not cause the aggregate amount of all Operating Lease
Obligations owing by the Borrowers, the Corporate Guarantors and their
Subsidiaries in any 12-month period to exceed $100,000 or such greater amount as
shall be approved by the Required Lenders.
(h) Capital Expenditures. Make or be committed to make, or permit any
--------------------
of its Subsidiaries to make or be committed to make, any expenditure (by
purchase or capitalized lease) for fixed or capital assets other than
expenditures (including obligations under Capitalized Leases) which would not
cause the aggregate amount of all such expenditures to exceed $200,000.
(i) Dividends, Prepayments, Etc.
---------------------------
(1) Declare or pay any dividends or distributions, purchase or
otherwise acquire for value any of its Capital Stock now or hereafter
outstanding, return any capital to its stockholders or members as such, or
make any other payment or distribution of assets to its stockholders or
members as such, or permit any of its Subsidiaries to do any of the
foregoing, provided that, so long as after giving effect to any Tax
--------
Distribution no Event of Default shall have occurred and be continuing, any
Borrower or Corporate Guarantor that is a Subchapter S Corporation or a
limited liability
-54-
company (a "Non-Taxed Entity") may make a tax distribution (the "Tax
---
Distribution") with respect to each fiscal year of such Non-Taxed Entity
------------
which, in the aggregate, may be equal to the amount of the income tax
liability such Non-Taxed Entity would have had for such fiscal year if such
Non-Taxed Entity were an individual subject to federal, state of New York
and City of New York income tax at the highest applicable marginal tax
rates in effect in each jurisdiction for such year and taking into account
the deductibility of the state and city income taxes for federal purposes
and the characterization of the income of such Non-Taxed Entity as ordinary
income or capital gain, as appropriate, provided further, that the Tax
-------- -------
Distribution with respect to a fiscal year of such Non-Taxed Entity is paid
by such Non-Taxed Entity, within 20 days of (A) the estimated tax payment
date, in the amount of the estimated tax due on such date calculated in
accordance with this proviso or (B) the date the tax return with respect to
such taxes is due, in the amount of such taxes less all prior Tax
Distributions.
(2) Purchase or otherwise acquire for value any Capital Stock of
any Borrower or Corporate Guarantor or make any payment or prepayment of
principal of, premium, if any, or interest on, or redeem, defease or
otherwise retire, any other Indebtedness of any Borrower or any Corporate
Guarantor before its scheduled due date.
(j) Sale of Notes, Etc. Sell, discount or otherwise dispose of notes,
------------------
Accounts Receivable or other obligations owing to the Borrowers or the Corporate
Guarantors except for collection in the ordinary course of business.
(k) Compromise of Receivable. Compromise or adjust any of the
------------------------
Accounts Receivable (or extend the time for payment thereof) or grant any
discounts, allowance or credits thereon, in each case other than in the normal
course of business.
(1) Federal Reserve Regulations. Permit any Loan or the proceeds of
---------------------------
any Loan under this Agreement to be used for any purpose which violates or is
inconsistent with the provisions of Regulations G, T, U or X of the Board of
Governors of the Federal Reserve System.
(m) Transactions with Affiliates.
----------------------------
(1) Enter into or be a party to, or permit any of its
Subsidiaries to enter into or be a party to, any transaction with any
Affiliate of the Borrowers or the Guarantors except (i) as otherwise
provided herein and in the ordinary course of business in a manner and to
an extent consistent with past practice and necessary or desirable for the
prudent operation of its business for fair consideration and on terms no
less favorable to such Borrower, Guarantor or such Subsidiary as are
available from unaffiliated third parties and (ii) transactions among the
Borrowers and the Corporate Guarantors.
(2) Permit (i) the aggregate invoice amount of all Accounts
Receivable due to the Borrowers and the Corporate Guarantors from Xxxxxxxx
Kiddie Togs to exceed $390,000 on the Closing Date, provided that such
amount shall be reduced upon each
-55-
payment with respect to such Accounts Receivable until such amount is
reduced to an amount of not more than $350,000 and therefore such amount
shall not exceed $350,000 at any time or (ii) the aggregate Accounts
Receivable due to the Borrowers and H.O.T. Kidz from Hawk and J&B to exceed
$1,450,000 at any time outstanding, provided that any reduction (cash or
otherwise) of such Accounts Receivable shall permanently reduce the amount
of Accounts Receivable permitted by this clause (ii).
(n) License Agreements. Agree to any material amendment or other
------------------
material change to, or waive any of its rights under, any License Agreement
without the prior written consent of all the Lenders, which consent shall not be
unreasonably withheld, provided that, any amendment or change that extends or
-------------
expands the product categories set forth in any License Agreement (on terms
substantially the same as those in such License Agreement) shall not require the
prior written consent of all Lenders if any increase in the minimum royalty
payment accompanying such amendment or change is permitted under clause (viii)
of Section 7.02(b) hereof.
(o) Amendment or Waiver of Subordinated Notes; Prepayment of
--------------------------------------------------------
Subordinated Debt. (i) Agree, or permit any of its Subsidiaries to agree, to any
-----------------
amendment or other change to (or make any payment consistent with any amendment
or other change to), or waive any of its rights under, the Subordinated Note or
refinance any of the Subordinated Debt evidenced by the Subordinated Note
without obtaining the prior written consent of the Required Lenders to such
amendment, modification, payment, waiver, change or refinancing.
(ii) Directly or indirectly, by deposit of monies or otherwise,
prepay, purchase, redeem, retire, defease or otherwise acquire, or make any
payment on account of any principal of, premium or interest payable in
connection with the payment, prepayment, redemption, defeasance or retirement of
any Subordinated Debt, provided that the Borrowers may make interest payments on
--------
not more than S500,000 of the principal amount of such Subordinated Debt
pursuant to the terms of the Subordination Agreement.
ARTICLE VIII
MANAGEMENT, COLLECTION AND STATUS OF
ACCOUNTS RECEIVABLE AND OTHER COLLATERAL
SECTION 8.01. Management of Collateral. After the occurrence of an
------------------------
Event of Default, the Agent may, subject to the requirements of the Factoring
Agreements and the CIT Assignment Agreement, send a notice of assignment and/or
notice of the Agent's security interest to any and all Account Debtors or any
third party holding or otherwise concerned with any of the Collateral, and
thereafter the Agent shall have the sole right to collect the Accounts
Receivable and/or take possession of the Collateral and the books and records
relating thereto. The Borrowers and the Corporate Guarantors shall not without
prior written consent of the Agent, grant any extension of time of payment of
any Account Receivable, compromise or settle any Account Receivable for less
than the full amount thereof, release, in
-56-
whole or in part, any Person or property liable for the payment thereof, or
allow any credit or discount whatsoever thereon, except, prior to the occurrence
of an Event of Default, as permitted by Section 7.02(k) hereof.
(b) (i) Subject to the requirements of the Factoring Agreements
and the CIT Assignment Agreement, the Borrowers and the Corporate Guarantors
hereby constitute the Agent or its designee on behalf of the Agent as the
Borrowers' and the Corporate Guarantors' attorney-in-fact with power to endorse
a Borrower's or Corporate Guarantor's name upon any notes, acceptances, checks,
drafts, money orders or other evidences of payment or Collateral that may come
into its possession, to sign a Borrower's or Corporate Guarantor's name on any
invoice or xxxx of lading relating to any of the Accounts Receivable, drafts
against Account Debtors, assignments and verifications of Accounts Receivable
and notices to Account Debtors, to send verification of Accounts Receivable, and
upon the acceleration of the Loans and any other Obligations under the Loan
Documents following an Event of Default, to notify the Postal Service
authorities to change the address for delivery of mail addressed to the
Borrowers and the Corporate Guarantors to such address as the Agent may
designate and to do all other acts and things necessary to carry out this
Agreement. All acts of said attorney or designee are hereby ratified and
approved, and said attorney or designate shall not be liable for any acts of
omission or commission (other than acts or omissions constituting gross
negligence or willful misconduct as determined by a final judgment of a court of
competent jurisdiction), nor for any error of judgment or mistake of fact or
law; this power being coupled with an interest is irrevocable until all of the
Loans and any other Obligations under the Loan Documents are paid in full and
all of the Loan Documents are terminated.
(iii) Subject to the requirements of the Factoring Agreements
and the CIT Assignment Agreement, the Agent, without notice to or consent of any
Borrower or any Corporate Guarantor upon the occurrence and during the
continuance of an Event of Default (A) may xxx upon or otherwise collect, extend
the time of payment of, or compromise or settle for cash, credit or otherwise
upon any terms, any of the Accounts Receivable or any securities, instruments or
insurance applicable thereto and/or release the Account Debtor thereon; (B) is
authorized and empowered to accept the return of the goods represented by any of
the Accounts Receivable, and (C) shall have the right to receive, endorse,
assign and/or deliver in its name or the name of any Borrower or Corporate
Guarantor any and all checks, drafts, and other instruments for the payment of
money relating to the Accounts Receivable. Each Borrower or Corporate Guarantor
hereby waives notice of presentment, protest and non-payment of any instrument
so endorsed, all in a commercially reasonable manner and without discharging or
in any way affecting liability hereunder.
(c) Nothing herein contained shall be construed to constitute any
Borrower or any Corporate Guarantor as agent of the Agent or the Lenders or any
purpose whatsoever, and the Agent and the Lenders shall not be responsible or
liable for any shortage, discrepancy, damage, loss or destruction of any part of
the Collateral wherever the same may be located and regardless of the cause
thereof (other than from acts or omissions of the Agent or the Lenders
constituting gross negligence or willful misconduct as determined by a final
judgment of a court of competent jurisdiction). The Agent or the Lenders shall
not, under any circumstances or in
-57-
any event whatsoever, have any liability for any error or omission or delay of
any kind occurring in the settlement, collection or payment of any of the
Accounts Receivable or any instrument received in payment thereof or for any
damage resulting therefrom (other than acts or omissions of the Agent or the
Lenders constituting gross negligence or willful misconduct as determined by a
final judgment of a court of competent jurisdiction). The Agent or the Lenders,
by anything herein or in any assignment or otherwise, do not assume any of
Borrowers' or Corporate Guarantors' obligations under any contract or agreement
assigned to the Agent and the Agent or the Lenders shall not be responsible in
any way for the performance by such Borrower or Corporate Guarantor of any of
the terms and conditions thereof
(d) If any of the Accounts Receivable includes a charge for any tax
payable to any Governmental Authority, the Agent is hereby authorized (but in no
event obligated) in its discretion to pay the amount thereof to the proper
taxing authority for any Borrower's or any Corporate Guarantor's account and to
charge such Borrowers or Corporate Guarantors therefor. Such Borrower or
Corporate Guarantor shall notify the Agent if any Accounts Receivable include
any taxes due to any such authority and, in the absence of such notice, the
Agent shall have the right to retain the full proceeds of such Accounts
Receivable and shall not be liable for any taxes that may be due from such
Borrower or Corporate Guarantor by reason of the sale and delivery creating such
Accounts Receivable.
SECTION 8.02. Accounts Receivable Documentation. Subject to the
---------------------------------
requirements of the Factoring Agreements and the CIT Assignment Agreement, each
Borrower and Corporate Guarantor will at such intervals as the Agent may
require, execute and deliver confirmatory written assignments of the Accounts
Receivable to the Agent and furnish such further schedules and/or information as
the Agent may require relating to the Accounts Receivable, including, without
limitation, sales invoices or the equivalent, credit memos issued, remittance
advises, reports and copies of deposit slips and copies of original shipping or
delivery receipts for all merchandise sold. In addition, each Borrower or
Corporate Guarantor shall notify the Agent of any non-compliance in respect of
the representations, warranties and covenants contained in Section 8.03 below.
The items to be provided under this Section 8.02 are to be in form reasonably
satisfactory to the Agent and are to be executed and delivered to the Agent from
time to time solely for its convenience in maintaining records of the
Collateral. Any Borrower's or Corporate Guarantor's failure to give any of such
items to the Agent shall not affect, terminate, modify or otherwise limit the
Agent's Lien on the Collateral. Subject to the requirements of the Factoring
Agreements, each Borrower and Corporate Guarantor shall not re-date any invoice
or sale or make sales on extended dating beyond that customary in such
Borrower's or Corporate Guarantor's industry, and shall not re-xxxx any Accounts
Receivable without promptly disclosing the same to the Agent and providing the
Agent with copy of such re-billing, identifying the same as such. If any
Borrower or Corporate Guarantor becomes aware of anything materially detrimental
to any of Borrower's or Corporate Guarantor's customers' credit, such Borrower
or Corporate Guarantor will promptly advise the Agent thereof.
SECTION 8.03. Status of Accounts Receivable and Other Collateral.
--------------------------------------------------
With respect to Collateral of any Borrower or any Corporate Guarantor at the
time the Collateral
-58-
becomes subject to the Agent's security interests, each Borrower or Corporate
Guarantor covenants, represents and warrants:
(a) such Borrower or Corporate Guarantor shall be the sole owner,
free and clear of all Liens, except in the favor of the Agent for the benefit of
the Lenders or otherwise permitted hereunder, of and fully authorized to sell,
transfer, pledge and/or grant a security interest in each and every item of said
Collateral;
(b) each Account Receivable shall be a good and valid account
representing an undisputed bona fide indebtedness incurred or an amount
indisputably owed by the Account Debtor therein named, for a fixed sum as set
forth in the invoice relating thereto with respect to any absolute sale and
delivery upon the specified terms of goods sold by such Borrower or Corporate
Guarantor, or work, labor and/or services theretofore rendered by such Borrower
or Corporate Guarantor;
(c) no Account Receivable is subject to any defense, offset,
counterclaim, discount or allowance except as may be stated in the invoice
relating thereto or discounts and allowances as may be customary in such
Borrower's or Corporate Guarantor's business, and each of such Accounts
Receivable will be paid when due;
(d) none of the transactions underlying or giving rise to any
Accounts Receivable shall violate any applicable state or federal laws or
regulations, and all documents relating thereto shall be legally sufficient
under such laws or regulations and shall be legally enforceable in accordance
with their terms;
(e) no agreement under which any deduction or offset of any kind,
other than normal trade discounts, may be granted or shall have been made by
such Borrower or Corporate Guarantor at or before the time such Accounts
Receivable is created;
(f) all documents and agreements relating to Accounts Receivable
shall be true and correct and in all respects what they purport to be;
(g) all signatures and endorsements that appear on all documents and
agreements relating to Accounts Receivable shall be genuine and all signatories
and endorsers shall have full capacity to contract;
(h) such Borrower and Corporate Guarantor shall maintain books and
records pertaining to said Collateral in such detail, form and scope as the
Agent shall reasonably require;
(i) such Borrower and Corporate Guarantor will immediately notify the
Agent if any of their accounts arise out of contracts with the United States or
any department, agency, or instrumentality thereof and will execute any
instruments and take any steps required by the Agent in order that all monies
due or to become due under any such contract shall be assigned to the Agent and
notice thereof given to the United States Government under the Federal
Assignment of Claims Act;
-59-
(j) such Borrower and Guarantor will, immediately upon learning
thereof, report to the Agent any material loss or destruction of, or substantial
damage to, any of the Collateral, and any other matters affecting the value,
enforceability or collectibility of any of the Collateral;
(k) if any amount payable under or in connection with any Account
Receivable is evidenced by a promissory note or other instrument, as such term
is defined in the UCC, such promissory note or instrument shall be immediately
pledged, endorsed, assigned and delivered to the Agent as additional Collateral;
(l) such Borrower and Corporate Guarantor shall not redate any
invoice or sale or make sales on extended dating beyond that which is customary
in the ordinary course of its business and in the industry;
(m) such Borrower and Corporate Guarantor shall conduct a physical
count of its Inventory at such intervals as the Agent may request and such
Borrower and Corporate Guarantor shall promptly supply the Agent with a copy of
such count accompanied by a report of the value (based on the lower of cost or
market value) of such Inventory, provided that prior to the occurrence of an
Event of Default or Potential Default such Borrower or Corporate Guarantor shall
not be required to conduct a physical count of its Inventory more frequently
than twice each fiscal year; and
(n) such Borrower and Corporate Guarantor is not and shall not be
entitled to pledge the Agent's or the Lenders' credit on any purchases for or
any purpose whatsoever.
SECTION 8.04. Collateral Custodian. Upon the occurrence of an Event
--------------------
of Default or Potential Default, the Agent may at any time and from time to time
employ and maintain in the premises of such Borrower and Corporate Guarantor a
custodian selected by the Agent who shall have full authority to do all acts
necessary to protect the Agent's interests. Such Borrower and Corporate
Guarantor hereby agrees to cooperate with any such custodian and to do whatever
the Agent may reasonably request to preserve the Collateral. All costs and
expenses incurred by the Agent, by reason of the employment of the custodian
shall be charged to the Loan Account.
ARTICLE IX
THE AGENT AND L/C ISSUER
SECTION 9.01. Authorization and Action. Each Lender (and each
------------------------
subsequent holder of any Note by its acceptance thereof) hereby irrevocably
appoints and authorizes CIT, in its capacity as Agent (i) to receive on behalf
of each Lender any payment of principal of or interest on the Notes outstanding
hereunder and all other amounts accrued hereunder paid to the Agent, and,
subject to Section 2.05 of this Agreement, to distribute
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promptly to each Lender its Pro Rata Share of all payments so received, (ii) to
distribute to each Lender copies of all material notices and agreements received
by the Agent and not required to be delivered to each Lender pursuant to the
terms of this Agreement, provided that the Agent shall not have any liability to
the Lenders for the Agent's inadvertent failure to distribute any such notice or
agreements to the Lenders, and (iii) subject to Section 11.03 of this Agreement,
to take such action as Agent deems appropriate on its behalf to administer the
Loans, Letters of Credit and the Loan Documents and to exercise such other
powers delegated to the Agent by the terms hereof or the Loan Documents
(including, without limitation, the power to give or to refuse to give notices,
waivers, consents, approvals and instructions and the power to make or to refuse
to make determinations and calculations) and authorizes Chemical, in its
capacity as L/C Issuer to issue and administer the Letter of Credit, in each
case together with such powers as are reasonably incidental thereto to carry out
the purposes hereof and thereof. As to any matters not expressly provided for by
this Agreement and the other Loan Documents (including, without limitation,
enforcement or collection of the Notes), the Agent and the L/C Issuer shall not
be required to exercise any discretion or take any action, but shall be required
to act or to refrain from acting (and shall be fully protected in so acting or
refraining from acting) upon the instructions of the Required Lenders, and such
instructions of the Required Lenders shall be binding upon all Lenders and all
holders of Notes; provided, however, that the L/C Issuer shall not be required
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to refuse to honor a drawing under any Letter of Credit and the Agent shall not
be required to take any action which, in the reasonable opinion of the Agent,
exposes the Agent to liability or which is contrary to this Agreement or any
Loan Document or applicable law. If the Agent seeks the consent or approval of
the Required Lenders to the taking or refraining from taking any action
hereunder, the Agent shall send notice thereof to all Lenders. The Agent shall
promptly notify each Lender anytime that the Required Lenders have instructed
the Agent to act or to refrain from acting pursuant to this Agreement.
SECTION 9.02. Borrower's Default. In the event that (i) any Borrower
------------------
fails to pay when due the principal of or interest on any Note or any
Reimbursement Obligation or any fee payable hereunder, or (ii) the Agent
receives written notice of the occurrence of an Event of Default, the Agent
shall promptly give written notice thereof to the Lenders, and shall take such
action with respect to such Event of Default as it shall be directed to take by
the Required Lenders; provided, however, that, unless and until the Agent
-------- -------
shall have received such directions, the Agent may take such action or refrain
from taking such action hereunder or under the other Loan Documents with respect
to an Event of Default, or Potential Default, as it shall deem advisable in the
best interest of the Lenders.
SECTION 9.03. Agent's Reliance, Etc. The Agent and the L/C Issuer or
---------------------
any of their directors, officers, agents or employees shall not be liable for
any action taken or omitted to be taken by it or them under or in connection
with this Agreement or the other Loan Documents, except for its own gross
negligence or willful misconduct as determined by a final judgment of a court of
competent jurisdiction. Without limiting the generality of the foregoing, the
Agent and the L/C Issuer, as appropriate (i) may treat the payee of any Note as
the holder thereof until the Agent receives written notice of the assignment or
transfer thereof, pursuant to Section 11.09 hereof, signed by such payee and in
form satisfactory to the Agent; (ii) may consult with legal counsel (including,
without limitation, counsel to the Agent or the L/C Issuer
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or counsel to the Borrower), independent public accountants, and other experts
selected by it and shall not be liable for any action taken or omitted to be
taken in good faith by it in accordance with the advice of such counsel,
accountants or experts; (iii) makes no warranty or representation to any Lender
and shall not be responsible to any Lender for any statements, certificates,
warranties or representations made in or in connection with this Agreement or
the other Loan Documents; (iv) shall not have any duty to ascertain or to
inquire as to the performance or observance of any of the terms, covenants or
conditions of this Agreement or the other Loan Documents on the part of any
Person or to inspect the Collateral or other property (including, without
limitation, the books and records) of any Person; (v) shall not be responsible
to any Lender for the due execution, legality, validity, enforceability,
genuineness, sufficiency or value of this Agreement or the other Loan Documents
or any other instrument or document furnished pursuant hereto or thereto; (vi)
shall not be deemed to have made any representation or warranty regarding the
existence, value or collectibility of the Collateral, the existence, priority or
perfection of the Lenders' lien or security interest thereon, or the Borrowing
Base or any certificate prepared by the Borrower in connection therewith, nor
shall the Agent be responsible or liable to the Lenders for any failure to
monitor or maintain the Borrowing Base or any portion of the Collateral; and
(vii) shall incur no liability under or in respect of this Agreement or the
other Loan Documents by acting upon any notice, consent, certificate or other
instrument or writing (which may be by telegram, telecopy, cable or telex)
believed by it to be genuine and signed or sent by the proper party or parties.
SECTION 9.04. CIT. With respect to the Loans made by it and the Notes
---
issued to it and the Letters of Credit, CIT and its Affiliates shall have the
same rights and powers under this Agreement as any other Lender and may
exercise the same as though it were not the Agent; and the term "Lender" or
"any Lenders" shall, unless otherwise expressly indicated, include CIT in its
individual capacity. CIT and its Affiliates may accept deposits from, lend money
to, act as trustee or paying agent under indentures of, and generally engage in
any kind of business with, any Borrower or any Guarantor, any of their
Affiliates, or any Person who may do business with or own securities of any
Borrower or Guarantor, or any of their Affiliates, all as if CIT were not the
Agent and without any duty to account therefor to any Lenders. The Lenders
acknowledge and agree that the Factor and the L/C Issuer, an Affiliate of the
Agent, may take actions which are not in the interests of, or may have an
adverse effect on, the Lenders, or may omit to take actions which would be in
the interests of, or would have a favorable effect on, the Lenders, and (iii)
the Lenders will not assert any claim against the Agent based on actions or
omissions by the L/C Issuer and will not assert any such actions or omissions as
a defense or offset to the Lenders' obligations hereunder.
SECTION 9.05. Lender Credit Decision. Each Lender acknowledges that
----------------------
it has, independently and without reliance upon the Agent or any other Lender,
made its own credit analysis and decision to enter into this Agreement. Each
Lender also acknowledges that it will, independently and without reliance upon
any Agent or any other Lender and based on such documents and information as it
shall deem appropriate at the time, continue to make its own credit decisions in
taking or not taking action under this Agreement and the other Loan Documents.
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SECTION 9.06. Indemnification. Each Lender agrees to indemnify and
---------------
hold harmless the Agent and the L/C Issuer (to the extent not reimbursed by any
Borrower or any Guarantor), ratably according to the Pro Rata Shares of each
Lender, from and against any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements of any
kind or nature whatsoever which may be imposed on, incurred by, or asserted
against the Agent or the L/C Issuer in any way relating to or arising out of
this Agreement or the other Loan Documents or any action taken or omitted by the
Agent or the L/C Issuer under this Agreement or the other Loan Documents;
provided, however, that no Lender shall be liable to the Agent or the L/C Issuer
-------- -------
for any portion of such liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses or disbursements for which there has
been a final judicial determination that such resulted from the Agent's or the
L/C Issuer's gross negligence or willful misconduct. Without limiting the
foregoing, each Lender agrees to reimburse the Agent and the L/C Issuer promptly
upon demand for its ratable share of any out-of-pocket expenses (including
reasonable counsel fees, disbursements and other charges) incurred by the Agent
and the L/C Issuer in connection with the preparation, execution, delivery,
administration, modification, amendment or enforcement (whether through
negotiation, legal proceedings or otherwise) of, or legal advice in respect of
rights or responsibilities under, this Agreement or the other Loan Documents, to
the extent that the Agent or the L/C Issuer is not reimbursed in full for such
expenses by the Borrowers. The obligations of each Lender under this Section
9.06 shall survive the termination of the Agreement and the other Loan Documents
and the payment of all other obligations of the Agent and the Lenders under the
Agreement and the other Loan Documents.
SECTION 9.07 Successor Agent. The Agent may resign at any time by
---------------
giving written notice thereof to the Lenders and Happy Kids and the Agent may be
removed at any time with or without cause by all Lenders other than CIT,
provided that the Agent may not be removed unless, as a condition to any such
removal, all Loans, Letters of Credit Obligations and all other Obligations or
amounts payable to CIT by the Borrowers and the other Lenders are paid in full
or purchased in full. Upon any such resignation, the Required Lenders shall have
the right to appoint a successor Agent, reasonably acceptable to Happy Kids,
with such rights and obligations hereunder as those previously held by the
retiring Agent, provided, the successor Agent may be appointed by the Required
--------
Lenders without any consultation with or consent of Happy Kids if an Event of
Default or Potential Default has occurred. If no successor Agent shall have been
so appointed by the Required Lenders, been accepted by Happy Kids, and shall
have accepted such appointment, within 30 days after the retiring Agent's giving
of notice of resignation, then the retiring Agent may, on behalf of the Lenders,
appoint a successor Agent, which shall be a commercial bank or other financing
institution organized under the laws of the United States of America or any
State thereof. Upon the acceptance of any appointment as Agent hereunder by a
successor Agent, such successor Agent shall thereupon succeed to and become
vested with all the rights, powers, privileges and duties of the retiring or
removed Agent, and the retiring or removed Agent shall be discharged from its
duties and obligations under this Agreement and the other Loan Documents. After
any Agent's resignation or removal hereunder as the Agent, the provisions of
this Article IX shall inure to its benefit as to any actions taken or omitted to
be taken by it while it was Agent under this Agreement and the other Loan
Documents.
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SECTION 9.08. Collateral Matters.
------------------
(a) The Agent may from time to time, make such disbursements and
advances ("Agent Advances") which the Agent, in its sole discretion, deems
necessary or desirable to preserve or protect the Collateral or any portion
thereof, to enhance the likelihood or maximize the amount of repayment by any
Borrower, any Guarantor or other Person of the Loans, Reimbursement Obligations
or Letters of Credit and other Obligations or to pay any other amount chargeable
to such Borrower or Guarantor pursuant to the terms of this Agreement,
including, without limitation, costs, fees and expenses as described in Section
11.05. The Agent Advances shall be repayable on demand and be secured by the
Collateral. The Agent Advances shall not constitute Loans but shall otherwise
constitute Obligations hereunder. Without limitation to its obligations pursuant
to Section 9.06, each Lender agrees that it shall make available to the Agent,
upon the Agent's demand, in dollars in immediately available funds, the amount
equal to such Lender's Pro Rata Share of each such Agent Advance. If such funds
are not made available to the Agent by such Lender, the Agent shall be entitled
to recover such funds, on demand from such Lender together with interest
thereon, for each day from the date such payment was due until the date such
amount is paid to the Agent, at the Federal Funds Rate for three Business Days
and thereafter at the Prime Rate.
(b) The Agent shall have no obligation whatsoever to any Lenders to
assure that the Collateral exists or is owned by any Borrower or any Guarantor
or is cared for, protected or insured or has been encumbered or that the Liens
granted to the Agent herein or pursuant hereto, have been properly or
sufficiently or lawfully created, perfected, protected or enforced or are
entitled to any particular priority, or to exercise at all or in any particular
manner or under any duty of care, disclosure or fidelity, or to continue
exercising, any of the rights, authorities and powers granted or available to
the Agent in this Section 9.08 or in any of the Loan Documents, it being
understood and agreed that in respect of the Collateral, or any act, omission or
event related thereto, the Agent may act in any manner it may deem appropriate,
in its sole discretion, given the Agent's own interest in the Collateral as one
of the Lenders and that the Agent shall have no duty or liability whatsoever to
any other Lender.
ARTICLE X
EVENTS OF DEFAULT
SECTION 10.01. Event of Default. If any of the following Events of
----------------
Default shall occur and be continuing:
(a) Any Borrower or any Guarantor shall (i) fail to pay any principal
of any Loan, any Agent Advance or any Reimbursement Obligation when due (whether
by scheduled maturity, required prepayment, acceleration, demand or otherwise)
or (ii) fail to pay any interest on any Loan. any Agent Advance or any
Reimbursement Obligation, or any fee or other amount
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when due (whether by scheduled maturity, required prepayment, acceleration,
demand or otherwise) and in the case of clause (ii), such failure shall remain
unremedied for three days;
(b) Any representation or warranty made by any Borrower or Guarantor
or any officer of such Borrower or Guarantor under or in connection with any
Loan Document shall have been incorrect in any material respect when made;
(c) Any Borrower or any Guarantor shall fail to perform or observe
(i) any covenant contained in paragraphs (b), (c), (d), (f), (h), (j) (k), (1),
(m), (n), (o), (p) or (q) of Section 7.01, Section 7.02 or Article VIII hereof,
(ii) any covenant contained in paragraphs (a) (other than clauses (viii), (ix),
(xii), (xiv) and (xvi) thereof), (e), (g), (i) or (r) of Section 7.01 hereof and
such failure shall continue unremedied for ten days, or (iii) any covenant
contained in clauses (viii), (ix), (xii), (xiv) and (xvi) of Section 7.01 (a)
and such failure shall continue unremedied for three days;
(d) Any Borrower or any Guarantor shall fail to perform or observe
any other term, covenant or agreement contained in any Loan Document and to be
performed or observed by such Borrower or Guarantor and such failure, if capable
of being remedied, shall remain unremedied for 10 days after written notice
thereof shall have been given by the Agent to such Borrower;
(e) Any Borrower or any Guarantor shall fail to pay any principal or
interest on any of its Indebtedness (excluding Indebtedness evidenced by the
Notes) in excess of $100,000, or any interest or premium thereon, when due
(whether by scheduled maturity, required prepayment, acceleration, demand or
otherwise) and such failure shall continue after the applicable grace period, if
any, specified in the agreement or instrument relating to such Indebtedness, or
any other default under any agreement or instrument relating to any such
Indebtedness, or any other event, shall occur and shall continue after the
applicable grace period, if any, specified in such agreement or instrument, if
the effect of such default or event is to accelerate, or to permit the
acceleration of, the maturity of such Indebtedness; or any such Indebtedness in
excess of such amount shall be declared to be due and payable, or required to be
prepaid (other than by a regularly scheduled required prepayment), prior to the
stated maturity thereof,
(f) Any Borrower or any Guarantor (i) shall institute any proceeding
or voluntary case seeking to adjudicate it a bankrupt or insolvent, or seeking
dissolution, liquidation, winding up, reorganization, arrangement, adjustment,
protection, relief or composition of it or its debts under any law relating to
bankruptcy, insolvency, reorganization or relief of debtors, or seeking the
entry of an order for relief or the appointment of a receiver, trustee,
custodian or other similar official for such Borrower or Guarantor or for any
substantial part of its property, (ii) shall be generally not paying its debts
as such debts become due, or shall admit in writing its inability to pay its
debts generally, (iii) shall make a general assignment for the benefit of
creditors, or (iv) shall take any action to authorize or effect any of the
actions set forth above in this subsection (f);
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(g) Any proceeding shall be instituted against any Borrower or
any Guarantor seeking to adjudicate it a bankrupt or insolvent, or seeking
dissolution, liquidation, winding up, reorganization, arrangement, adjustment,
protection, relief of debtors, or seeking the entry of an order for relief or
the appointment of a receiver, trustee, custodian or other similar official for
such Borrower or such Guarantor or for any substantial part of its property, and
either such proceeding shall remain undismissed or unstayed for a period of 60
days or any of the actions sought in such proceeding (including, without
limitation, the entry of an order for relief against it or the appointment of a
receiver, trustee, custodian or other similar official for it or for any
substantial part of its property) shall occur;
(h) Any material provision of any Loan Document shall at any
time for any reason be declared to be null and void, or the validity or
enforceability thereof shall be contested by any Borrower or Guarantor, or a
proceeding shall be commenced by any Borrower, any Guarantor or any
Governmental Authority or other regulatory body having jurisdiction over such
Borrower or Guarantor, seeking to establish the invalidity or unenforceability
thereof, or any Borrower or any Guarantor shall deny in writing that such
Borrower or such Guarantor has any liability or obligation purported to be
created under any Loan Document;
(i) The Security Agreements, the Mortgage, the Cash Collateral
Agreement, or any other security document, after delivery thereof pursuant
hereto, shall for any reason fail or cease to create a valid and perfected and,
except to the extent permitted by the terms hereof or thereof, first priority
Lien on any Collateral purported to be covered thereby;
(j) One or more judgments or orders (other than a judgment or
award described in subsections (f) or (g) of this Section 10.01) for the payment
of money exceeding any applicable insurance or bond coverage by more than
$100,000 in the aggregate for the Borrowers or the Guarantors shall be rendered
against any Borrowers or any Guarantors and either (i) enforcement proceedings
shall have been commenced by any creditor upon any such judgment or order, or
(ii) there shall be any period of 30 consecutive days during which a stay of
enforcement of any such judgment or order, by reason of a pending appeal or
otherwise, shall not be in effect;
(k) Any Borrower or Corporate Guarantor or any of its ERISA
Affiliates shall have made a complete or partial withdrawal from a Multiemployer
Plan, and, as a result of such complete or partial withdrawal, such Borrower or
such ERISA Affiliate incurs a withdrawal liability in an annual amount exceeding
$100,000; or a Multiemployer Plan enters reorganization status under Section
4241 of ERISA, and, as a result thereof, such Borrower's or such ERISA
Affiliate's annual contribution requirement with respect to such Multiemployer
Plan increases in an annual amount exceeding $100,000;
(l) Any Termination Event with respect to any Employee Plan
shall have occurred, and, 30 days after notice thereof shall have been given to
any Borrower by the Agent, (i) such Termination Event (if correctable) shall not
have been corrected, and (ii) the then current value of such Employee Plan's
vested benefits exceeds the then current value of assets allocable to such
benefits in such Employee Plan by more than $100,000 (or, in the case of a
Termination
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Event involving liability under Section 409, 502(i), 502(l), 515, 4062, 4063,
4064, 4069, 4201, 4204 or 4212 of ERISA or Section 4971 or 4975 of the IRC, the
liability is in excess of such amount);
(m) A change in the condition or operations, financial or
otherwise, of any Borrower or any Guarantor that may have a Material Adverse
Effect, as determined by the Required Lenders in their sole discretion, shall
occur after the Effective Date and written notice thereof shall have been given
to such Borrower or Guarantor by the Agent;
(n) A default or event of default shall occur under any
Factoring Agreement, any Factoring Agreement shall terminate or any Borrower
shall give a notice to the Factor terminating any Factoring Agreement;
(o) A Change of Control shall have occurred; or
(p) A breach, default or event of default shall occur under any
License Agreement if the effect of such breach, default or event of default is
to permit any Licensor to terminate its respective License Agreement, or any
Licensor shall exercise any remedy with respect to a breach, default or event of
default under any License Agreement; then, and in any such event, the Agent may
and, upon the direction of the Required Lenders, shall by notice to any
Borrower, (i) declare the Total Credit Exposure to be reduced to zero, whereupon
the Total Credit Exposure shall forthwith be reduced to zero, (ii) declare all
Loans and all Reimbursement Obligations, all interest thereon and all other
amounts payable under this Agreement to be forthwith due and payable, whereupon
the Loans, all Reimbursement Obligations, all such interest and all such amounts
shall become and be forthwith due and payable, without presentment, demand,
protest or further notice of any kind, all of which are hereby expressly waived
by each Borrower and Guarantor; provided, however, that upon the occurrence of
-------- -------
any Event of Default described in subsections (f) or (g) of this Section 10.01,
the Loans and all Reimbursement Obligations, all such interest and all such
amounts shall become and be forthwith due and payable, without presentment,
demand, protest or further notice of any kind, all of which are expressly waived
by each Borrower and Guarantor, and (iii) exercise any and all of its other
rights under applicable law, hereunder and under the other Loan Documents.
SECTION 10.02. Deposit for Letters of Credit. Upon demand by the
-----------------------------
Agent after the occurrence of any Event of Default, the Borrowers shall deposit
with the Agent with respect to each Letter of Credit then outstanding cash or
equivalents, acceptable to the Agent, readily convertible into cash in an
amount equal to the greatest amount for which such Letter of Credit may be
drawn. Such deposits shall be held by the Agent in a joint non-interest bearing
account maintained at the Payment Office of the Agent as security for, and to
provide for the payment of, the Letter of Credit Obligations.
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ARTICLE XI
MISCELLANEOUS
SECTION 11.01 Termination. (a) Except as otherwise permitted
-----------
herein, the Administrative Borrower may terminate the Total Credit Exposure and
this Agreement only as of a Termination Anniversary Date and then only by giving
the Agent not less than sixty (60) days prior written notice of termination.
Notwithstanding the foregoing, the Agent may terminate the Total Credit Exposure
and this Agreement immediately, by notice to the Administrative Borrower upon
the occurrence of an Event of Default, provided, however, that if the Event of
Default is an event listed in Sections 10.01(f) or (g) of this Agreement, the
Agent may regard the Total Credit Exposure and the Agreement as terminated and
notice to that effect is not required. The Total Credit Exposure and this
Agreement, unless terminated as herein provided on a Termination Anniversary
Date, shall automatically continue to the next Termination Anniversary Date. All
Obligations shall become due and payable as of the date of any termination under
this Section 11.01 and, pending a final accounting, the Agent may withhold any
balances in the Loan Account (unless supplied with an indemnity satisfactory to
the Agent) to cover all of the Obligations, whether absolute or contingent. All
of the Agent's and the Lenders' rights and Liens shall continue after any
termination until all Obligations for the payment of money have been paid in
cash and satisfied in full and all Letters of Credit have been canceled and
returned to the L/C Issuer. After such payment and satisfaction, the Agent and
the Lenders will, upon the reasonable request of the Administrative Borrower,
execute all documents necessary to release, without recourse, representation and
warranty and at the expense of the Borrowers, its Liens granted pursuant to the
terms of this Agreement and the other Loan Documents.
(b) Any Lender may elect not to renew its Credit Exposure by
giving the Agent, the other Lenders and the Administrative Borrower written
notice of its intention not to renew its Credit Exposure not less than sixty
(60) days prior to a Termination Anniversary Date. If such Lender does not
assign its rights, interests and obligations under this Agreement pursuant to
Section 11.09 hereof, then the Credit Exposure of such Lender shall be
terminated as of such Termination Anniversary Date. The Borrowers hereby,
jointly and severally, agree to pay to the Agent on such Termination Anniversary
Date, for the account of such non-renewing Lender, the principal amount of, and
all accrued interest on, such Lender's Pro Rata Share of all funded Loans and
Reimbursement Obligations, together with any amounts payable to such Lender
pursuant to Section 11.17 and any fees or other amounts owing to such Lender
under this Agreement and such Lender's Note. If the Agent makes any Loan or
Agent Advance or assists a Borrower in opening or establishing any Letter of
Credit, during the period between giving notice of its intention to not renew
its Credit Exposure and such Termination Anniversary Date, the obligations of
such non-renewing Lender pursuant to Sections 2.05, 3.01 (a)(ii), 3.02, 4.02 and
9.08 of the Financing Agreement shall be irrevocable, absolute and unconditional
with respect to such Loan, Agent Advance or Letter of Credit. Notwithstanding
such termination and repayment, the non-renewing Lender shall remain obligated
to the Agent under Sections 3.02, 3.03(b), 3.07 and 3.08 for its Pro Rata Share
(calculated immediately prior to the Termination Anniversary Date on which such
termination became effective) of the aggregate maximum amount available for
drawing under all outstanding Letters of Credit on such Termination
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Anniversary Date (the "Retained Obligations") until all Retained Obligations
have been paid in full and the Letters of Credit giving rise to such Retained
Obligations have been canceled. After the effective date of any such termination
and repayment pursuant to this Section 11.01(b), for purposes of Sections
3.02, 3.03(b), 3.07 and 3.08 of this Agreement such non-renewing Lender's Pro
Rata Share shall be a fraction (expressed as a percentage) the numerator of
which shall be the Retained Obligations and the denominator of which shall be
the aggregate amount of all unpaid Loans, Agent Advances and Letters of Credit
Obligations.
SECTION 11.02. Notices, Etc. All notices and other communications
------------
provided for hereunder shall be in writing and shall be mailed, telecopied,
telexed, telegraphed or delivered, if to any Lender, at its address specified
under its signature on the signature pages hereof, if to any Borrower or any
Guarantor, at the following address:
Happy Kids, Ltd.
000 Xxxx 00xx Xxxxxx
Xxxxx 0000
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxx X. Xxxxx
Telephone: (000) 000-0000
Telecopier: (000) 000-0000
with a copy to:
Xxxxxxxx, Hertan & Ives
000 Xxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxx Xxxxxxxx, Esq.
Telephone: (000) 000-0000
Telecopier: (000) 000-0000
and if to the Agent, to it at the following address:
The CIT Group/Commercial Services, Inc.
0000 Xxxxxx xx xxx Xxxxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxxxx Xxxxxxxx
Vice President
Telephone: (000) 000-0000
Telecopier: (000) 000-0000
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with a copy to:
Xxxxxxx Xxxx & Xxxxx
000 Xxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxxxxx X. Xxxxxxx, Esq.
Telephone: (000) 000-0000
Telecopier: (000) 000-0000
or, as to each party, at such other address as shall be designated by such party
in a written notice to the other party complying as to delivery with the terms
of this Section 11.02. All such notices and other communications shall be
effective (i) if mailed, when received or five days after deposited in the
mails, whichever occurs first, (ii) if telecopied, when transmitted and such
telecopy is confirmed within a reasonable time by mail or by delivery, (iii) if
telexed, when the appropriate answerback is received, (iv) if telegraphed, when
delivered to the telegraph company, or (v) if delivered, upon delivery, except
that notices to the Agent or the L/C Issuer pursuant to Articles II and III
hereof shall not be effective until received by the Agent.
SECTION 11.03. Amendments, Etc. No amendment or waiver of any
---------------
provision of this Agreement or the other Loan Documents. and no consent to any
departure by any Borrower or Guarantor therefrom, shall in any event be
effective unless the same shall be in writing and signed by such Borrower or
Guarantor and the Required Lenders, and then such waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
given; provided, however, that no amendment, waiver or consent shall, unless in
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writing and signed by all the Lenders, (i) increase the Total Credit Exposure,
(ii) reduce the principal of, or interest on, the Loans or the Reimbursement
Obligations, (iii) postpone any date, fixed for any payment of principal of, or
interest or fees on. the Loans or Reimbursement Obligations, (iv) change the
percentage of the Credit Exposures or of the aggregate unpaid principal amount
of the Notes, or the number of Lenders, which shall be required for the Lenders
or any of them to take any action hereunder, (v) release all or a substantial
portion of the Collateral (except as otherwise provided in this Agreement and
the other Loan Documents) or the Guarantors (other than inactive Guarantors),
(vi) amend Sections 7.01(a)(i), 7.01(a)(ii), 7.01(a)(iii), 7.01(a)(iv),
7.01(a)(v), 7.01(a)(vi), 7.01(a)(vii), 7.01(a)(x) or, 7.01(a)(xii), (vii) amend,
modify or waive Sections 7.01(I) or 11.01 or this Section 11.03, or (viii) amend
the definition of "Eligible Inventory",. "Eligible Receivables" or "Borrowing
Base" if the effect of such amendment is to increase the Borrowing Base
availability of the Borrowers, provided, further, that (A) no amendment, waiver
-------- -------
or consent shall, unless in writing and signed by the Agent and L/C Issuer,
affect the rights or duties of the Agent or L/C Issuer with respect to the
Letters of Credit (but not in its capacity as a Lender) under this Agreement or
the other Loan Documents, and (B) no amendment, waiver or consent shall, unless
in writing and signed by the L/C Issuer, amend any provision of Article III.
SECTION 11.04. No Waiver: Remedies, Etc. No failure on the part
------------------------
of the L/C Issuer, any Lender or the Agent to exercise, and no delay in
exercising, any night hereunder
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or under any other Loan Document shall operate as a waiver thereof; nor shall
any single or partial exercise of any right under any Loan Document preclude any
other or further exercise thereof or the exercise of any other right. The rights
and remedies of the L/C Issuer, the Lenders and the Agent provided herein and in
the other Loan Documents are cumulative and are in addition to, and not
exclusive of, any rights or remedies provided by law. The rights of the Lenders,
the L/C Issuer and the Agent under any Loan Document against any party thereto
are not conditional or contingent on any attempt by the Lenders, the L/C Issuer
and the Agent to exercise any of their rights under any other Loan Document
against such party or against any other Person.
SECTION 11.05. Fees, Costs, Expenses and Taxes. The Borrowers
-------------------------------
agree to jointly and severally pay or cause to be paid, on demand, and to save
the Agent and the Lenders harmless against liability for the payment of, all
reasonable out-of-pocket expenses, regardless of whether the transactions
contemplated hereby are consummated, including but not limited to reasonable
fees and expenses of counsel for the Agent and the Lenders, accounting, due
diligence, periodic field audits, investigation, monitoring of assets,
syndication, miscellaneous disbursements, examination, travel, lodging and
meals, incurred by the Agent and the Lenders from time to time arising from or
relating to: (a) the negotiation, preparation, execution, delivery, performance
and administration of this Agreement and the other Loan Documents, (b) any
requested amendments, waivers or consents to this Agreement or the other Loan
Documents whether or not such documents become effective or are given, (c) the
preservation and protection of any of the Agent's and the Lenders' rights under
this Agreement or the other Loan Documents,, (d) the defense of any claim or
action asserted or brought against the Agent or the Lenders by any Person that
arises from or relates to this Agreement, any other Loan Document, the Agent's
or the Lenders' claims against the Borrowers or the Guarantors, or any and all
matters in connection therewith, (e) the commencement or defense of, or
intervention in, any court proceeding arising from or related to this Agreement
or any other Loan Document, (f) the filing of any petition, complaint, answer,
motion or other pleading by the Agent or the Lenders, or the taking of any
action in respect of the Collateral or other security, in connection with this
Agreement or any other Loan Document, (g) the protection, collection, lease,
sale, taking possession of or liquidation of, any Collateral or other security
in connection with this Agreement or any other Loan Document, (h) any attempt to
enforce any Lien on any Collateral or other security in connection with this
Agreement or any other Loan Document, (i) any attempt to collect from the
Borrowers or any Guarantors, (j) the receipt of any advice with respect to any
of the foregoing, (k) all liabilities and reasonable costs arising from or in
connection with the past, present or future operations of the Borrowers and the
Guarantors involving any damage to real or personal property or natural
resources or harm or injury alleged to have resulted from any Release of
Hazardous Materials on, upon or into such property, (l) any reasonable costs or
liabilities incurred in connection with the investigation, removal, cleanup
and/or remediation of any Hazardous Materials present or arising out of the
operations of any facility of the Borrowers and the Guarantors, or (m) any
liabilities or reasonable costs incurred in connection with any Lien arising
under any Environmental Law. Without limitation of the foregoing or any other
provision of any Loan Document: (x) the Borrowers jointly and severally agree to
pay all stamp, document, transfer, recording or filing taxes or fees (including,
without limitation, mortgage recording taxes) and similar impositions now or
hereafter reasonably determined by the Agent or
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any of the Lenders to be payable in connection with this Agreement or any other
Loan Document, and the Borrowers jointly and severally agree to save the Agent
and the Lenders harmless from and against any and all present or future claims,
liabilities or losses with respect to or resulting from any omission to pay or
delay in paying any such taxes, fees or impositions, and (y) upon the occurrence
and during the continuance of an Event of Default, if the Borrowers or any Loan
Party fail to perform any covenant or agreement contained herein or in any other
Loan Document, the Agent may itself perform or cause performance of such
covenant or agreement, and the expenses of the Agent incurred in connection
therewith shall be reimbursed on demand by the Borrowers.
SECTION 11.06. Happy Kids as Agent for Borrowers. Each Borrower
---------------------------------
hereby irrevocably appoints Happy Kids as the borrowing agent and attorney-in-
fact for the Borrowers (the "Administrative Borrower") which appointment shall
remain in full force and effect unless and until the Agent shall have received
prior written notice signed by all of the Borrowers that such appointment has
been revoked and that another Borrower has been appointed Administrative
Borrower). Each Borrower hereby irrevocably appoints and authorizes the
Administrative Borrower (i) to provide the Agent with all notices with respect
to Loans obtained for the benefit of any Borrower and all other notices and
instructions under this Agreement and (ii) to take such action as the
Administrative Borrower deems appropriate on its behalf to obtain Loans and to
exercise such other powers as are reasonably incidental thereto to carry out the
purposes of this Agreement. Each Borrower hereby irrevocably appoints and
authorizes the Administrative Borrower to provide the Agent with all notices and
to take all action as the Administrative Borrower deems appropriate with respect
to all Letters of Credit under this Agreement. It is understood that the
handling of the Loan Account and Collateral of the Borrowers in a combined
fashion, as more fully set forth herein, is done solely as an accommodation to
the Borrowers in order to utilize the collective borrowing powers of the
Borrowers in the most efficient and economical manner and at their request, and
that neither the Agent, the L/C Issuer nor the Lenders shall incur liability to
the Borrowers as a result hereof. Each of the Borrowers expects to derive
benefit, directly or indirectly, from the handling of the Loan Account and the
Collateral in a combined fashion since the successful operation of each Borrower
is dependent on the continued successful performance of the integrated group. To
induce the Agent, the L/C Issuer and the Lenders to do so, and in consideration
thereof, each of the Borrowers hereby jointly and severally agrees to indemnify
the Indemnitees (as hereinafter defined) and hold the Indemnitees harmless
against any and all liability, expense, loss or claim of damage or injury, made
against such Indemnitee by any of the Borrowers or by any third party whosoever,
arising from or incurred by reason of (a) the handling of the Loan Account and
Collateral of the Borrowers as herein provided, (b) the Agent, the Lenders and
the L/C Issuer relying on any instructions of the Administrative Borrower, or
(c) any other action taken by the Agent, the L/C Issuer or any Lender hereunder
or under the other Loan Documents.
SECTION 11.07. Right of Set-off. Upon the occurrence and during
----------------
the continuance of any Event of Default, each Lender may, and is hereby
authorized to, at any time and from time to time, without notice to any Borrower
or Guarantor (any such notice being expressly waived by the Borrowers and
Guarantors) and to the fullest extent permitted by law, set-off and apply any
and all deposits (general or special, time or demand, provisional or final) at
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any time held and other indebtedness at any time owing by such Lender to or for
the credit or the account of any Borrower or Guarantor against any and all joint
and several obligations of the Borrowers now or hereafter existing under any
Loan Document, irrespective of whether or not such Lender shall have made any
demand hereunder or thereunder and although such obligations may be contingent
or unmatured. Such set-off shall be subject to the provisions of Section 4.03.
Such Lender agrees to notify the Administrative Borrower promptly after any such
set-off and application made by such Lender provided that the failure to give
such notice shall not affect the validity of such set-off and application. The
rights of the Agent under this Section 11.07 are in addition to the other
rights and remedies (including, without limitation, other rights of set-off)
which such Lender may have.
SECTION 11.08. Severability. Any provision of this Agreement, or
------------
of any other Loan Document to which any Borrower or any Guarantor is a party,
which is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining portions hereof or thereof
or affecting the validity or enforceability of such provision in any other
jurisdiction.
SECTION 11.09. Assignments and Participations.
------------------------------
(a) Each Lender may, except as otherwise provided in clause
(f) of this Section 11.09, with the written consent of the Agent which consent
shall not be unreasonably withheld, assign to one or more other lenders or other
entities, all or a portion of its rights and obligations under this Agreement
(including, without limitation, all or a portion of its Credit Exposure, the
Loans made by it, the Notes held by it and its Pro Rata Share of Letter of
Credit Obligations); provided, however, that (i) any such assignment shall be in
-------- -------
a minimum principal of not less than $5,000,000 or an amount equal to all of the
assigning Lender's Credit Exposure, (ii) such assignee enter into an agreement
among Lenders, in form and substance satisfactory to the Agent and each Lender
and (iii) the parties to each such assignment shall execute and deliver to the
Agent, for its acceptance, an Assignment and Acceptance, together with any Note
subject to such assignment and such parties shall deliver to the Agent a
processing and recordation fee of $3,000, provided that such fee shall not be
payable upon any assignment arising from the merger between Chase and Chemical.
Upon such execution, delivery and acceptance, from and after the effective date
specified in each Assignment and Acceptance, which effective date shall be at
least three Business Days after the delivery thereof to the Agent (or such
shorter period as shall be agreed to by the Agent and the parties to such
assignment), (A) the assignee thereunder shall, in addition to the rights and
obligations hereunder held by it immediately prior to such effective date, have
the rights and obligations hereunder that have been assigned to it pursuant to
such Assignment and Acceptance and (B) the assigning Lender thereunder shall, to
the extent that rights and obligations hereunder have been assigned by it
pursuant to such Assignment and Acceptance, relinquish its rights and be
released from its obligations under this Agreement (and, in the case of an
Assignment and Acceptance covering all or the remaining portion of an assigning
Lender's rights and obligations under this Agreement, such Lender shall cease to
be a party hereto). Any such assignment shall not adversely affect the
Borrowers' rights under this Agreement except that the assigning Lender shall
not be responsible for the obligations assigned.
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(b) By executing and delivering an Assignment and Acceptance,
the assigning Lender thereunder and the assignee thereunder confirm to and agree
with each other and the other parties hereto that: (i) other than as provided in
such Assignment and Acceptance, such assigning Lender makes no representation or
warranty and assumes no responsibility with respect to any statements,
warranties or representations made in or in connection with this Agreement or
the execution, legality, validity, enforceability, genuineness, sufficiency or
value of this Agreement of any other instrument or document furnished pursuant
hereto, and (ii) such assigning Lender makes no representation or warranty and
assumes no responsibility with respect to the financial condition of any
Borrower or any Guarantor or any of their Subsidiaries or the performance or
observance by such Borrower or such Guarantor or any of their Subsidiaries of
any of their obligations under this Agreement, any other Loan Document or any
other instrument or document furnished pursuant hereto.
(c) The Agent shall maintain at its address referred to in
Section 11.02 hereof a copy of each Assignment and Acceptance delivered to and
accepted by it. Such copies shall be available for inspection by any Borrower or
any Guarantor or any Lender at any reasonable time and from time to time upon
reasonable prior notice.
(d) Upon its receipt of an Assignment and Acceptance executed by
an assigning Lender and an assignee Lender, together with the Notes subject to
such assignment and the processing and recordation fee, the Agent shall, if such
Assignment and Acceptance has been completed and is in substantially the form of
Exhibit H hereto, (i) accept such Assignment and Acceptance, and (ii) give
prompt notice thereof to the Borrower. Within three Business Days after its
receipt of such notice, any Borrower or any Guarantor, at its own expense, shall
execute and deliver to the Agent in exchange for the surrendered Note a new Note
to the order of such assignee Lender in an aggregate principal amount equal to
the Loan amount assumed by it pursuant to such Assignment and Acceptance, and if
the assigning Lender has retained any Loan amount hereunder, a new Note to the
order of the assigning Lender in an aggregate principal amount equal to the Loan
amount retained by it hereunder. Such new Note or Notes shall be in an aggregate
principal amount equal to the aggregate principal amount of such surrendered
Note or Notes, shall be dated the date of the Agent's acceptance of such
Assignment and Acceptance and shall otherwise be in substantially the form of
Exhibit A hereto.
(e) Each Lender may sell participations to one or more lenders
or other entities in or to all or a portion of its rights and obligations under
this Agreement (including, without limitation, all or a portion of its Credit
Exposure, the Loans made by it, the Notes held by it and its Pro Rata Share of
the Letter of Credit Obligations); provided, however, that (i) such
-------- -------
participation shall be in a minimum principal amount of not less than $2,000,000
or an amount equal to all of the selling Lender's Credit Exposure, (ii) such
Lender's obligations under this Agreement shall remain unchanged, (iii) such
Lender shall remain solely responsible to the other parties hereto for the
performance of such obligations, (iv) such Lender shall remain the holder of any
such Notes for all purposes of this Agreement, and (v) any Borrower or any
Guarantor, the Agent, the L/C Issuer and the other Lenders shall continue to
deal solely and directly with such Lender in connection with such Lender's
rights and obligations under this Agreement. Participants shall have no direct
rights under this Agreement except that participants shall have
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the rights of a Lender under Sections 4.05 and 11.07 hereof, provided that no
Lender may grant any participant any rights to consent to any amendment, waiver,
consent or other modification hereunder other than the rights set forth in
Section 11.03.
(f) Nothing contained in this Section 11.09 shall prohibit any
Lender from (i) pledging its Loans hereunder to a Federal Reserve Bank in
support of borrowings made by such Lender from such Federal Reserve Bank and
(ii) assigning its Loans hereunder to its parent or any of its subsidiaries,
provided the creditworthiness of any such parent or subsidiary is comparable to
the assigning Lender.
SECTION 11.10. Counterparts. This Agreement may be executed in
------------
any number of counterparts and by different parties hereto in separate
counterparts, each of which shall be deemed to be an original, but all of which
taken together shall constitute one and the same agreement.
SECTION 11.12. Headings. Section headings herein are included for
--------
convenience of reference only and shall not constitute a part of this Agreement
for any other purpose.
SECTION 11.12. GOVERNING LAW-SERVICE OF PROCESS. THIS AGREEMENT.
--------------------------------
THE NOTES AND THE OTHER LOAN DOCUMENTS SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS
MADE, AND TO BE PERFORMED IN THE STATE OF NEW YORK WITHOUT REGARD TO CONFLICTS
OF LAW PRINCIPLES. ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT
OR ANY OTHER LOAN DOCUMENT MAY BE BROUGHT IN THE COURTS OF THE STATE OF NEW YORK
OR OF THE UNITED STATES FOR THE SOUTHERN DISTRICT OF NEW YORK, AND, BY EXECUTION
AND DELIVERY OF THIS AGREEMENT, EACH BORROWER AND GUARANTOR HEREBY IRREVOCABLY
ACCEPT IN RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY. THE
JURISDICTION OF THE AFORESAID COURTS EACH BORROWER AND GUARANTOR FURTHER
IRREVOCABLY CONSENT TO THE SERVICE OF PROCESS OUT OF ANY OF THE AFOREMENTIONED
COURTS AND IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY
REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO SUCH BORROWER AND/OR GUARANTOR
AT ITS ADDRESS FOR NOTICES CONTAINED IN SECTION 11.02, SUCH SERVICE TO BECOME
EFFECTIVE TEN (10) DAYS AFTER SUCH MAILING. EACH BORROWER AND GUARANTOR HEREBY
IRREVOCABLY APPOINT THE SECRETARY OF STATE OF THE STATE OF NEW YORK AS ITS AGENT
FOR SERVICE OF PROCESS IN RESPECT OF ANY SUCH ACTION OR PROCEEDING. NOTHING
HEREIN SHALL AFFECT THE RIGHT OF THE AGENT TO SERVICE OF PROCESS IN ANY OTHER
MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED
AGAINST SUCH BORROWER AND/OR GUARANTOR IN ANY OTHER JURISDICTION.
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SECTION 11.13. WAIVER OF JURY TRIAL, ETC. EACH BORROWER AND
-------------------------
GUARANTOR, THE LENDERS AND THE AGENT HEREBY WAIVE ANY RIGHT TO A TRIAL BY JURY
IN ANY ACTION, PROCEEDING OR COUNTERCLAIM CONCERNING ANY RIGHTS UNDER THIS
AGREEMENT, THE NOTES OR OTHER LOAN DOCUMENTS, OR UNDER ANY AMENDMENT, WAIVER,
CONSENT, INSTRUMENT, DOCUMENT OR OTHER AGREEMENT DELIVERED OR WHICH IN THE
FUTURE MAY BE DELIVERED IN CONNECTION THEREWITH, OR ARISING FROM ANY BANKING
RELATIONSHIP EXISTING IN CONNECTION WITH THIS AGREEMENT, AND AGREE THAT ANY SUCH
ACTION, PROCEEDINGS OR COUNTERCLAIM SHALL BE TRIED BEFORE A COURT AND NOT BEFORE
A JURY. EACH BORROWER AND GUARANTOR CERTIFIES THAT NO OFFICER, REPRESENTATIVE,
AGENT OR ATTORNEY OF THE AGENT OR ANY LENDER HAS REPRESENTED, EXPRESSLY OR
OTHERWISE, THAT THE AGENT OR ANY LENDER WOULD NOT, IN THE EVENT OF ANY ACTION,
PROCEEDING OR COUNTERCLAIM, SEEK TO ENFORCE THE FOREGOING WAIVERS. EACH BORROWER
AND GUARANTOR HEREBY ACKNOWLEDGES THAT THIS PROVISION IS A MATERIAL INDUCEMENT
FOR THE AGENT AND THE LENDERS ENTERING INTO THIS AGREEMENT.
SECTION 11.14. Consent by the Agent. Except as otherwise
--------------------
expressly set forth herein to the contrary, if the consent, approval,
satisfaction, determination, judgment, acceptance or similar action (an
"Action") of the Agent or the Lenders shall be permitted or required pursuant to
any provision hereof or any provision of any other agreement to which any
Borrower or Guarantor is a party and to which the Agent or the Lenders has
succeeded thereto, such Action shall be required to be in writing and may be
withheld or denied by the Agent or any Lender, as the case may be, with or
without any reason, and without being subject to question or challenge on the
grounds that such Action was not taken in good faith.
SECTION 11.15. No Party Deemed Drafter. Each of the Borrowers,
-----------------------
the Guarantors, the Lenders and the Agent agrees that no party hereto shall be
deemed to be the drafter of this Agreement, and each of the Borrowers, the
Guarantors, the Lenders and the Agent further agrees that, in the event this
Agreement is ever construed by a court of law, such court shall not construe
this Agreement or any provision of this Agreement against any party hereto as
the drafter of this Agreement.
SECTION 11.16. Reinstatement; Certain Payments. If claim is ever
-------------------------------
made upon the Agent, the Lenders or the L/C Issuer for repayment or recovery of
any amount or amounts received by the Agent, the Lenders or the L/C Issuer in
payment or on account of any of the Obligations under this Agreement, the Agent,
the Lenders or the L/C Issuer shall give prompt notice of such claim to each
other Lender and the L/C Issuer, any Borrower, or any Guarantor and if the
Agent, the Lenders or the L/C Issuer repays all or part of said amount by reason
of (i) any judgment, decree or order of any court or administrative body having
jurisdiction over the Agent, the Lenders or the L/C Issuer or any of their
property, or (ii) any good faith settlement or compromise of any such claim
effected by the Agent with any such claimant, provided that, in the absence of
-------- ----
an Event of Default, reasonable efforts have been made by the Agent to give
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notice of such settlement or compromise to the Administrative Borrower, then and
in such event each Borrower and Guarantor agrees that (A) any such judgment,
decree, order, settlement or compromise shall be binding upon such Borrower or
such Guarantor notwithstanding the cancellation of any Note or other instrument
evidencing the Obligations under this Agreement or the other Loan Documents or
the termination of this Agreement or the other Loan Documents, and (B) it shall
be and remain liable to the Agent, the Lenders or the L/C Issuer hereunder for
the amount so repaid or recovered to the same extent as if such amount had never
originally been received by the Agent, the Lenders or the L/C Issuer.
SECTION 11.17. Indemnification. In addition to all of any
---------------
Borrower's or any Guarantor's other Obligations under this Agreement, each
Borrower and Guarantor agrees to, jointly and severally, defend, protect,
indemnify and hold harmless the Agent, the L/C Issuer, each Lender, and all of
the respective officers, directors, employees, attorneys, consultants and agents
of the Agent, the L/C Issuer and each Lender (collectively called the
"Indemnitees") from and against any and all losses, damages, liabilities,
obligations, penalties, fees, costs and expenses (including, without limitation,
attorneys' fees, costs and expenses) incurred by such Indemnitees, whether prior
to or from and after the Effective Date, whether direct, indirect or
consequential, as a result of or arising from or relating to or in connection
with any of the following: (i) the negotiation, preparation, execution or
performance or enforcement of this Agreement or of any document executed in
connection with the transactions contemplated by this Agreement, (ii) the
Lender's furnishing of funds to such Borrower or such Guarantor or the L/C
Issuer's issuing Letters of Credit for the account of such Borrower or such
Guarantor under this Agreement, including, without limitation, the management of
any such Loans, or the Reimbursement Obligations, (iii) any matter relating to
the financing transactions contemplated by this Agreement or by any document
executed in connection with the transactions contemplated by this Agreement, or
(iv) any claim, litigation, investigation or proceeding relating to any of the
foregoing, whether or not any Indemnitee is a party thereto (collectively, the
"Indemnified Matters"); provided, however, that the Borrowers or such Guarantors
-------- -------
shall have no obligation to any Indemnitee hereunder for any Indemnified Matter
caused by or resulting from the gross negligence or willful misconduct of such
Indemnitee, as determined by a final judgment of a court of competent
jurisdiction. Such indemnification for all of the foregoing losses, damages,
fees, costs and expenses of the Indemnitees chargeable against the Loan Account.
To the extent that the undertaking to indemnify, pay and hold harmless set forth
in this Section 11.17 may be unenforceable because it is violative of any law
or public policy, the Borrowers and Guarantors shall contribute the maximum
portion which they are permitted to pay and satisfy under applicable law, to the
payment and satisfaction of all Indemnified Matters incurred by the Indemnitees.
SECTION 11.18. Binding Effect. This Agreement shall become
--------------
effective when it shall have been executed by the Borrowers, the Guarantors, the
Agent and the Lenders and when the conditions precedent set forth in Section
5.01 hereof have been satisfied or waived by the Agent, and thereafter shall be
binding upon and inure to the benefit of each Borrower, each Guarantor, the
Agent and each Lender, and their respective successors and assigns, except that
the Borrowers and the Guarantors shall not have the right to assign its rights
hereunder or
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any interest herein without the prior written consent of all the Lenders, and
the assignment by any Lender shall be governed by Section 11.09 hereof.
ARTICLE XII
GUARANTY
SECTION 12.01. Guaranty. Each Guarantor, jointly and severally,
--------
hereby (i) irrevocably, absolutely and unconditionally guarantees the prompt
payment, as and when due and payable (whether by scheduled maturity, required
prepayment, acceleration, demand or otherwise), of (A) all of the Guaranteed
Obligations of such Guarantor, including, without limitation, all amounts now or
hereafter owing in respect of the Loan Documents, whether for principal,
interest, fees, expenses or otherwise, and (B) all indebtedness, obligations and
other liabilities, direct or indirect, absolute or contingent, now existing or
hereafter arising of any Borrower to the Lenders and (ii) agree to pay any and
all expenses (including reasonable counsel fees and expenses) incurred by the
Agent and the Lenders in enforcing its rights under this Article XII, provided
that, notwithstanding anything to the contrary contained in this Agreement, the
Guaranteed Obligations of Xxxxx Xxxx under clause (i) above this Section 12.01
are limited to the principal amount of $2,000,000 and all accrued and unpaid
interest on such principal amount (the "Limitation").
SECTION 12.02. Obligations Unconditional.
-------------------------
(a) Each of the Guarantors hereby jointly and severally
guarantees that, subject to the Limitation, the Guaranteed Obligations of such
Guarantor will be paid strictly in accordance with the terms of the Loan
Documents, regardless of any law, regulation or order now or hereafter in effect
in any jurisdiction affecting any of such terms or the rights of the Lenders
with respect thereto. Each Guarantor agrees that its guarantee constitutes a
guaranty of payment when due and not of collection, and waives any right to
require that any resort be had by the Lenders to any security held for payment
of the Guaranteed Obligations or to any balance of any deposit account or credit
on the books of the Lenders in favor of any Borrower or for any other reason.
The liability of each of the Guarantors hereunder shall be absolute and
unconditional, joint and several, irrespective of: (i) any lack of validity or
enforceability of any Loan Document or any agreement or instrument relating
thereto; (ii) any extension or change in the time, manner or place of payment
of, or in any other term in respect of, all or any of the Guaranteed Obligations
(including, without limitation, any extension for longer than the original
period), or any other amendment or waiver of or consent to any departure from
any provision of any Loan Document; (iii) any exchange or release of, or non-
perfection of any lien on or security interest in, any Collateral, or any
release or amendment or waiver of or consent to any departure from any other
guaranty, for all or any of the Guaranteed Obligations; or (iv) any other
circumstance which might otherwise constitute a defense available to, or a
discharge of, any Borrower or any other guarantor in respect of the Guaranteed
Obligations of the Guarantors in respect hereof.
(b) This Guaranty (i) is a continuing guaranty and shall remain
in full force and effect until such date on which all of the Guaranteed
Obligations and all other expenses to be
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paid by any Guarantors pursuant hereto shall have been satisfied in full after
the Total Credit Exposure shall have been terminated, (ii) shall continue to be
effective or shall be reinstated, as the case may be, if at any time any payment
of any of the Guaranteed Obligations is rescinded or must otherwise be returned
by the Agent or the Lenders upon the insolvency, bankruptcy or reorganization of
any Borrower or any Guarantor or otherwise, all as though such payment had not
been made, and (iii) shall be binding upon each Guarantor, their heirs,
executors, successors and assigns.
SECTION 12.03. Waivers. Each of the Guarantors hereby waive, to
-------
the extent permitted by applicable law, (i) promptness and diligence, (ii)
notice of acceptance and notice of the incurrence of any Guaranteed Obligation,
(iii) notice of any action taken by the Agent, the Lenders or any Borrower or
any other agreement or instrument relating thereto, (iv) all other notices,
demands and protests, and all other formalities of every kind in connection with
the enforcement of the Guaranteed Obligations or of the obligations of the
Guarantors hereunder, the omission of or delay in which, but for the provisions
of this Section 12.03, might constitute grounds for relieving the Guarantors of
their obligations hereunder, (v) any requirement that the Agent or the Lenders
protect, secure, perfect or insure any security interest or lien or any property
subject thereto or exhaust any right or take any action against any Person or
any Collateral, and (vi) any other defenses available to the Borrower or such
Guarantor. All such waivers by any Guarantor shall be effective only to the
extent permitted by applicable law.
SECTION 12.04. Subrogation. Each of the Guarantors hereby
-----------
irrevocably waives and agrees that it will not exercise any and all rights which
it has or may have at any time or from time to time (whether arising directly
or indirectly by operation of law or contract) to assert any claim against any
Borrower or any other Guarantor on account of any payments made under this
Agreement, including, without limitation, any and all existing and future rights
of subrogation, reimbursement, exoneration, contribution and/or indemnity. If
any amount shall be paid to any Guarantor on account of such rights at any time
when all of such Guaranteed Obligations and all other Guaranteed Obligations
shall not have been paid in full, such amount shall be held in trust for the
benefit of the Agent or the Lenders, shall be segregated from the other funds of
such Guarantor and shall forthwith be paid over to the Agent to be applied in
whole or in part by the Agent against the Guaranteed Obligations, whether
matured or unmatured, in accordance with the terms of this Agreement.
SECTION 12.05. No Waiver: Remedies. No failure on the part of the
-------------------
Agent or the Lenders to exercise, and no delay in exercising, any right
hereunder shall operate as a waiver thereof; nor shall any single or partial
exercise of any right hereunder preclude any other or further exercise thereof
or the exercise of any other right. The remedies herein provided are cumulative
and not exclusive of any remedy provided by law.
SECTION 12.06. Stay of Acceleration. If acceleration of the time
--------------------
for payment of any amount payable by any Borrower in respect of the Guaranteed
Obligations is stayed upon the insolvency, bankruptcy or reorganization of such
Borrower, all such amounts otherwise subject to acceleration under the terms of
this Agreement shall nonetheless be payable by the Guarantors hereunder
forthwith on demand by the Agent or the Lenders.
-79-
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be executed by their respective officers thereunto duly authorized, as of the
date first above written.
BORROWERS
---------
HAPPY KIDS, LTD.
By: /s/ Xxxx X. Xxxxx
-------------------------------
Title: President
------------------------
Name: Xxxx X. Xxxxx
------------------------
O'BOY INC.
By: /s/ Xxxx X. Xxxxx
-------------------------------
Title: President
------------------------
Name: Xxxx X. Xxxxx
------------------------
TALK OF THE TOWN APPAREL CORP.
By: /s/ Xxxx X. Xxxxx
-------------------------------
Title: President
------------------------
Name: Xxxx X. Xxxxx
------------------------
O.P. KIDS, L.L.C.
By: /s/ Xxxx X. Xxxxx
-------------------------------
Title: President
------------------------
Name: Xxxx X. Xxxxx
------------------------
GUARANTORS
----------
H.O.T. KIDZ, L.L.C.
By: /s/ Xxxx X. Xxxxx
-------------------------------
Title: President
------------------------
Name: Xxxx X. Xxxxx
------------------------
-80-
HAWK INDUSTRIES, INC.
By: /s/ Xxxx X. Xxxxx
-------------------------------
Title: President
------------------------
Name: Xxxx X. Xxxxx
------------------------
J&B 18 CORP
By: /s/ Xxxx X. Xxxxx
-------------------------------
Title: President
------------------------
Name: Xxxx X. Xxxxx
------------------------
/s/ Xxxx X. Xxxxx
-----------------------------------
XXXX X. XXXXX
/s/ Xxxx X Xxxxx
-----------------------------------
XXXX X. XXXXX
/s/ Xxxxx Xxxx
-----------------------------------
XXXXX XXXX
AGENT AND LENDER
----------------
THE CIT GROUP/COMMERCIAL SERVICES,
INC.
By: /s/ Xxxxxxx Xxxxxx
-------------------------------
Title: Vice President
------------------------
Name: Xxxxxxx Xxxxxx
------------------------
-81-
LENDERS
-------
CHEMICAL BANK
By: /s/ Xxxxxxxx Xxxxx
-------------------------------
Title: Vice President
---------------------
Name: Xxxxxxxx Xxxxx
---------------------
Address:
-------
000 Xxxx 00xx Xxxxxx, 00xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxxxxx X. Xxxxx
Vice President
Telephone: (000) 000-0000
Telecopier: (000) 000-0000
THE CHASE MANHATTAN BANK, N.A.
By: /s/ Xxxxxxx Xxxxxxxxxxx
-------------------------------
Title: Vice President
------------------------
Name: Xxxxxxx Xxxxxxxxxxx
------------------------
Address:
-------
0000 Xxxxxxxx, 0xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxxxx X. Xxxxxxxxxxx
Vice President
Telephone: (000) 000-0000
Telecopier: (000) 000-0000
-00-
XXXXXX XXXXXXXX XXXX XX XXX XXXX
By: /s/ Xxxxx Xxxxxx & Xxxxxxx Xxxxxxxxx
------------------------------------------
Title: Vice President
-----------------------------------
Name: Xxxxx Xxxxxx & Xxxxxxx Xxxxxxxxx
-----------------------------------
Address:
-------
000 Xxxxx Xxxxxx, 0xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxx Xxxxxx
Vice President
--------------
Telephone: (000) 000-0000
Telecopier: (212) 551-8720
000 Xxxxx Xxxxxx, 0xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxxxxx Xxxxxxxxx, Esq.
General Counsel
Telephone: (000) 000-0000
(000) 000-0000
-83-
SCHEDULE A
----------
PART A: Prior to May 31, 1996
-------
Lender Exposure Percentage
------ -------- ----------
The CIT Group/Commercial Services, Inc. $10,000,000.00 27.7778%
Chemical Bank $12,187,500.00 33.8542%
The Chase Manhattan Bank, N.A. $ 8,125,000.00 22.5694%
Israel Discount Bank of New York $ 5,687,500.00 15.7986%
-------------- -------
$36,000,000.00 100.00%
PART B: On and after May 31, 1996
-------
Lender Exposure Percentage
------ -------- ----------
The CIT Group/Commercial Services Inc. $ 8,888,888.89 27.7778%
Chemical Bank $10,833,333.33 33.8542%
The Chase Manhattan Bank, N.A. $ 7,222,222.22 22.5694%
Israel Discount Bank of New York $ 5,055,555.56 15.7986%
-------------- -------
$32,000,000.00 100.00%
SCHEDULE B
----------
Guarantors
----------
H.O.T. Kidz, a New York limited liability company
Hawk Industries, Inc., a New Jersey corporation
J & B 18 Corp., a New York corporation
Xxxx X. Xxxxx
Xxxx X. Xxxxx
Xxxxx Xxxx
FIRST AMENDMENT
TO THE
FINANCING AGREEMENT
FIRST AMENDMENT, dated as of February 13, 1997 (this "Amendment"), to
the Financing Agreement, dated as of February 13, 1996 (the "Financing
Agreement"), by and among Happy Kids, Ltd., a New York corporation ("Happy
Kids"), O'Boy Inc., a New York corporation ("O'Boy"), Talk of the Town Apparel
Corp., a New York corporation ("TOT Apparel") and O.P. Kids L.L.C., a New Jersey
limited liability company ("OP, LLC" and together with Happy Kids, O'Boy and TOT
Apparel, each a "Borrower" and collectively, the "Borrowers"), the guarantors
listed on Schedule B to the Financing Agreement (each a "Guarantor" and
collectively, the "Guarantors"), the lenders listed on Schedule A to the
Financing Agreement (each a "Lender" and collectively the "Lenders") and The CIT
Group/Commercial Services, Inc., as agent for the Lenders (in such capacity, the
"Agent").
The Borrowers, the Guarantors, the Lenders and the Agent wish to amend
the Financing Agreement to (i) increase the Credit Exposure (as defined in the
Financing Agreement) of each Lender and the Total Credit Exposure (as defined in
the Financing Agreement), (ii) amend the tangible net worth financial covenant,
and (ii) eliminate the working capital financial covenant. Accordingly, the
Borrowers, the Guarantors, the Lenders and the Agent hereby agree as follows:
1. Definitions. All terms which are defined in the Financing
-----------
Agreement and not otherwise defined herein are used herein as defined therein.
2. Recitals. The Recitals are hereby amended by deleting the words",
--------
reducing to an aggregate principal amount not in excess of $32,000,000 at any
time outstanding on and after May 31, 1996 "and substituting in lieu thereof"
reducing to an aggregate principal amount not in excess of $32,000,000 during
the periods from April 1, 1997 through May 31, 1997 and after September 30,
1997 and reducing to aggregate principal amount not in excess of $35,000,000
during the period from January 1, 1997 through March 31, 1997."
3. Changes to Existing, Definitions. The definitions of the terms
--------------------------------
"Credit Exposure" and "Total Credit Exposure" in Section 1.01 of the Financing
Agreement are hereby amended in their entirety to read as follows:
"Credit Exposure" means, with respect to each Lender, the total
----------------
credit exposure of such Lender (i) prior to April 1, 1997, as set
forth in Part A of Schedule A hereto, (ii) during the periods from
April 1, 1997 through May 31, 1997 and after September 30, 1997, as
set forth in Part B of Schedule A hereto, and (iii) during the
period from June 1, 1997 through September
30, 1997, as set forth in Part C of Schedule A hereto, in each case
as the same may be adjusted from time to time pursuant to Sections
10.01 or 11.01 hereof."
"Total Credit Exposure" means (i) prior to April 1, 1997, as set
---------------------
forth in Part A of Schedule A hereto, (ii) during the periods from
April 1,1997 through May 31, 1997 and after September 30, 1997, as
set forth in Part B of Schedule A hereto, and (iii) during the
period from June 1, 1997 through September 30, 1997, as set forth
in Part C of Schedule A hereto, in each case as the same may be
adjusted from time to time pursuant to Sections 10.01 or 11.01
hereof."
4. Credit Exposure. Section 2.01 of the Financing Agreement is
---------------
hereby amended by deleting clause (iii) thereof in its entirety and substituting
in lieu thereof "(iii) $26,000,000 increasing to $30,500,000 during the period
from June 1, 1997 through September 30, 1997".
5. Financial Covenants.
-------------------
(a) Tanigible Net Worth. Clause (i) of Section 7.01(1) of the
-------------------
Financing Agreement is hereby amended to read in its entirety as follows:
"(i) Tangible Net Worth. Maintained Combined Tangible Net Worth
------------------
(before any LIFO adjustments made for the prior fiscal year in
accordance with GAAP) on each date set forth below of at least:
Date Minimum Combined Tangible Net Worth
---- -----------------------------------
December 31, 1996 $6,500,000
March 31, 1997 $7,250,000
June 30, 1997 $6,250,000
September 30,1997 $8,100,000
December 31, 1997 $7,750,000"
(b) Working Capital. Clause (ii) of Section 7.01(1) of the
---------------
Financing Agreement is hereby amended to read in its entirety as follows:
"(ii) intentionally omitted"
(c) Miscellaneous. Clause (iv) of Section 7.01(l) of the
-------------
Finanicing Agreement is hereby amended by deleting the words "minimum Working
Capital," in the fourth line thereof.
6. Schedule. Schedule A to the Financing Agreement is hereby amended
--------
by deleting such Schedule in its entirety and substituting in lieu thereof new
Schedule A, which is attached hereto as Annex 1.
2
7. Conditions. This Amendment shall become effective only upon
----------
satisfaction in full of the following conditions precedent (the first date upon
which all such conditions have been satisfied being herein called the "Amendment
Effective Date"):
(a) The representations and warranties contained in this
Amendment and in Article VI of the Financing Agreement and each other Loan
Document shall be correct in all material respects on and as of the Amendment
Effective Date as though made on and as of such date (except where such
representations and warranties relate to an earlier date in which case such
representations and warranties shall be true and correct as of such earlier
date); no Event of Default or Potential Default shall have occurred and be
continuing on the Amendment Effective Date or result from this Amendment
becoming effective in accordance with its terms.
(b) The Agent shall have received counterparts of this Amendment,
duly executed by the Borrowers, the Guarantors and the Lenders.
(c) All legal matters incident to this Amendement shall be
satisfactory to the Agent and its counsel.
8. Representations and Warranties. Each of the Borrowers and the
------------------------------
Guarantors represents and warrants as follows:
(a) Each Borrower and Corporate Guarantor (i) is a corporation
or limited liability company duly organized, validly existing and in good
standing under the laws of the state of its organization and (ii) has all
requisite power, authority and legal right to execute, deliver and perform each
Amendment Document to which it is a party, and to perform the Financing
Agreement, as amended hereby.
(b) The execution, delivery and performance by each Borrower and
Corporate Guarantor of each Amendment Document to which it is a party and the
performance by each Borrowers and Corporate Guarantor of the Financing Agreement
as amended hereby (i) have been duly authorized by all necessary action, (ii) do
not and will not violate or create a default under any Borrower's or Corporate
Guarantor's charter, articles of organization, by-laws or operating agreement,
any such applicable law or any contractual restriction binding or otherwise
affecting any Borrower or Corporate Guarantor or any of such Borrower's or
Corporate Guarantor's properties, and (iii) except as provided in the Loan
Documents, do not and will not result in or require the creation of any lien,
security interest or other charge or encumbrance upon or with respect to any
Borrower's or Corporate Guarantor's property.
(c) No authorization or approval or other action by, and no
notice to or filing with, any Governmental Authority or other regulatory body is
required in connection with the due execution, delivery and performance by any
of the Borrowers and the Guarantors of each Amendment Document to which it is a
party and the performance by the Borrowers and the Guarantors of the Financing
Agreement as amended hereby.
3
(d) Each Amendment Document and the Financing Agreement, as
amended hereby, constitute the legal, valid and binding obligations of the
Borrowers and the Guarantors party thereto, enforceable against each such Person
in accordance with their terms.
(e) The representations and warranties contained in Article VI of
the Financing Agreement are correct on and as of the Amendment Effective Date as
though made on and as of the Amendment Effective Date (except to the extent such
representations and warranties expressly relate to an earlier date), and no
Event of Default or Potential Default has occurred and is continuing on and as
of the Amendment Effective Date or will result from this Amendment becoming
effective in accordance with its terms.
9. Waiver and Consent. (a) Pursuant to the request of the Borrowers
------------------
and Guarantors and in accordance with Section 11.03 of the Financing Agreement,
and subject to the satisfaction of the conditions to the effectiveness set forth
in Section 7 of this Amendment, the Lenders and the Agent hereby consent to, and
waive any Event of Default that would otherwise arise under Section 10.01 of the
Financing Agreement from, any non-compliance by the Borrowers with (i) the
provisions of (i) the provisions of Section 7.01 (1)(i) of the Financing
Agreement by reason of the failure of the Borrowers and the Corporate Guarantors
to maintain a Combined Tangible Net Worth Tangible Net Worth of at least
$7,300,000 on September 30, 1996 and $7,250,000 on December 31, 1996, provided
that the Combined Tangible Net Worth was at least $5,900,000 on September 30,
1996 and $6,500,000 on December 31, 1996, (ii) the provisions of Section 7.01(r)
of the Financing Agreement by reason of the aggregate payments made by Happy
Kids in connection with the settlement of the Internal Revenue Service audit for
the 1991, 1992 and 1993 tax years of Happy Kids exceeding $250,000, provided
that such payments do not exceed $290,000, (iii) Sections 7.02(b)(viii) and
7.02(n) of the Financing Agreement by reason of the incurrence of minimum
royalty payments under License Agreements not existing on the Effective Date in
an amount in excess of $250,000 in 1996, provided that such minimum royalty
payments did not exceed $330,000 in 1996, (iv) Section 7.02(h) of the Financing
Agreement by reason of the Borrowers and Corporate Guarantors making capital
expenditures in 1996 exceeding $200,000, provided that the amount of such
capital expenditures did not exceed $493,000 in 1996, and (v) Section 7.02(m)(2)
of the Financing Agreement by reason of the failure of the Borrowers and the
Corporate Guarantors to reduce the Accounts Receivable owing from Xxxxxxxx
Kiddie Togs to an amount of not more than $350,000, provided that (A) prior to
June 30, 1997, the amount of such Accounts Receivable does not exceed $366,500,
and (B) on and after June 30, 1997, the amount of such Accounts Receivable does
not exceed $350,000.
(b) The waivers and consents in this Section 9 shall be effective
only in this specific instance and for the specific purposes set forth herein
and do not allow for any other or further departure from the terms and
conditions of the Financing Agreement or any other Loan Document, which terms
and conditions shall continue in full force and effect.
10. Continued Effectivenes of the Financing Agreement. Each of the
-------------------------------------------------
Borrowers and the Guarantors hereby (i) confirms and that each Loan Document to
which it is a party is, and shall continue to be, in full force and effect and
is hereby ratified and confirmed in all respects except that on and after the
Amendment Effective Date all references in
4
any such Loan Document to "the Financing Agreement", "thereto", thereof",
"thereunder" or words of like import referring to the Financing Agreement shall
mean the Financing Agreement as amended by this Amendment, and (ii) confirms and
agrees that to the extent any such Loan Document purports to assign or pledge to
the Agent, or to grant to the Agent a security interest in or lien on, any
collateral as security for the Obligations of the Borrowers or the Guarantors
from time to time existing in respect of the Financing Agreement and the Loan
Documents, such pledge, assignment and/or grant of the security interest or lien
is hereby ratified and confirmed in all respects.
11. Miscellaneous.
-------------
(a) This Amendment may be executed in any number of counterparts
and by different parties hereto in separate counterparts, each of which shall be
deemed to be an original, but all of which taken together shall constitute one
and the same agreement.
(b) Section and paragraph headings herein are included for
convenience of reference only and shall not constitute a part of this Amendment
for any other purpose.
(c) This Amendment shall be governed by, and construed in
accordance with, the laws of the State of New York.
(d) The Borrowers will pay on demand all reasonable fees, costs
and expenses of the Agent in connection with the preparation, execution and
delivery of this Amendment and the other Amendment Documents, including, without
limitation, the reasonable fees, disbursements and other charges of Xxxxxxx Xxxx
& Xxxxx LLP, counsel to the Agent.
5
IN WITNESS WHEREOF, the parties hereto) have caused this Amendment to
be executed by their respective officers thereunto duly authorized, as of the
date first above written.
BORROWERS
---------
HAPPY KIDS, LTD.
By: /s/ Xxxx X. Xxxxx
-------------------------------------
Title: PRES
------------------------------
Name: XXXX X XXXXX
-------------------------------
O'BOY INC.
By: /s/ Xxxx X. Xxxxx
--------------------------------------
Title: PRES
------------------------------
Name: XXXX X XXXXX
-------------------------------
TALK OF THE TOWN APPAREL CORP.
By: /s/ Xxxx X. Xxxxx
-------------------------------------
Title: PRES
------------------------------
Name: XXXX X XXXXX
-------------------------------
O.P. KIDS, L.L.C.
By: /s/ Xxxx X Xxxxx
------------------------------------
Title: PRES
------------------------------
Name: XXXX X XXXXX
-------------------------------
GUARANTORS
----------
H.O.T. KIDZ, L.L.C.
By: /s/ Xxxx X. Xxxxx
-------------------------------------
Title: PRES
------------------------------
Name: XXXX X XXXXX
-------------------------------
6
HAWK INDUSTRIES, INC.
By: /s/ Xxxx X. Xxxxx
------------------------------------
Title:____________________________
Name:_____________________________
J&B 18 CORP.
By: /s/ Xxxx X. Xxxxx
-------------------------------------
Title:_____________________________
Name:______________________________
/s/ Xxxx X. Xxxxx
-----------------------------------------
XXXX X. XXXXX
/s/ Xxxx X. Xxxxx
-----------------------------------------
XXXX X. XXXXX
/s/ Xxxxx Xxxx
-----------------------------------------
XXXXX XXXX
AGENT AND LENDER
----------------
THE CIT GROUP/COMMERCIAL SERVICES, INC.
By: _____________________________________
Title:_____________________________
Name:______________________________
LENDERS
-------
THE CHASE MANHATTAN BANK, formerly known
as Chemical Bank
By: /s/ Xxxxxxx X. Allerdyee
--------------------------------------
Title: VP
------------------------------
Name: Xxxxxxx X. Allerdyee
------------------------------
7
HAWK INDUSTRIES, INC.
By: /s/ Xxxx X. Xxxxx
---------------------------------------
Title:________________________________
Name:_________________________________
J&B 18 CORP.
By: /s/ Xxxx X. Xxxxx
---------------------------------------
Title:________________________________
Name:_________________________________
/s/ Xxxx X. Xxxxx
-------------------------------------------
XXXX X. XXXXX
/s/ Xxxx X. Xxxxx
-------------------------------------------
XXXX X. XXXXX
/s/ Xxxxx Xxxx
-------------------------------------------
XXXXX XXXX
AGENT AND LENDER
----------------
THE CIT GROUP/COMMERCIAL SERVICES, INC.
By: /s/ Xxxxxxx Xxxxx
---------------------------------------
Title: AVP
------------------------------
Name: Xxxxxxx Xxxxx
------------------------------
LENDERS
-------
THE CHASE MANATTAN BANK, formerly
known as Chemical Bank
By:________________________________________
Title:______________________________
Name:_______________________________
7
ISRAEL DISCOUNT BANK OF NEW YORK
By: /s/ [ILLEGIBLE SIGNATURE]
-------------------------------------
Title: AVP
----------------------------
Name: [ILLEGIBLE]
----------------------------
By: /s/ [ILLEGIBLE SIGNATURE]
-------------------------------------
Title: VP
----------------------------
Name: [ILLEGIBLE]
-----------------------------
8
SECOND AMENDMENT
TO THE
FINANCING AGREEMENT
SECOND AMENDMENT, dated as of June 1, 1997 (this "Amendment"), to
the Financing Agreement, dated as of February 13, 1996, as amended by the First
Amendment dated as of February 13, 1997 (the "Financing Agreement"), by and
among Happy Kids, Ltd., a New York corporation ("Happy Kids"), O'Boy Inc., a New
York corporation ("O'Boy"), Talk of the Town Apparel Corp., a New York
corporation ("TOT Apparel") and O.P. Kids L.L.C., a New Jersey limited liability
company ("OP, LLC" and together with Happy Kids, O'Boy and TOT Apparel, each a
"Borrower" and collectively, the "Borrowers"), the guarantors listed on Schedule
B to the Financing Agreement (each a "Guarantor' and collectively, the
"Guarantors"), the lenders listed on Schedule A to the Financing Agreement (each
a "Lender" and collectively the "Lenders") and The CIT Group/Commercial
Services, Inc., as agent for the Lenders (in such capacity, the "Agent").
The Borrowers, the Guarantors, the Lenders and the Agent wish to
amend the Financing Agreement to (i) change the Credit Exposure (as defined in
the Financing Agreement) of each Lender and the Total Credit Exposure (as
defined in the Financing Agreement), (ii) to increase the maximum amount of
permitted Loans and the L/C Subfacility (as defined in the Financing Agreement),
(iii) to increase the interest rate on up to $5 million of the outstanding Loans
by 3% per annum until the Borrowers receive the proceeds of Additional Financing
(as defined in the Financing Agreement), and (iv) to amend certain other terms
and conditions in the Financing Agreement. Accordingly, the Borrowers, the
Guarantors, the Lenders and the Agent hereby agree as follows:
1. Definitions. All terms which are defined in the Financing
-----------
Agreement and not otherwise defined herein are used herein as defined therein.
2. Recitals. The first two sentences in the Recitals are hereby
--------
amended in their entirety to read as follows: "The Borrowers and the Guarantors
have asked the Lenders to extend credit to the Borrowers, from the date hereof
through the Final Maturity Date (as hereinafter defined) in the form of
discretionary revolving credit loans to the Borrowers at any time and from time
to time prior to the Final Maturity Date in an aggregate principal amount not in
excess of $41,500,000 (i) reducing to an aggregate principal amount not in
excess of $32,000,000 during the period after September 30, 1997 and (ii)
reducing by the cash proceeds received by the Borrower from any Additional
Financing (as hereinafter defined). This revolving credit facility may include a
$21,000,000 letter of credit subfacility."
3. Existing Definitions. (a) The definition of the term "Credit
--------------------
Exposure" in Section 1.01 of the Financing Agreement is hereby amended in its
entirety to read as follows:
"Credit Exposure" means, with respect to each Lender, the
---------------
total credit exposure of such Lender (i) (A) during the period
from June 1, 1997 through September 30, 1997, as set forth in
Part A of Schedule A hereto and (B) during the period after
September 30, 1997, as set forth in Part B of Schedule A hereto,
less (ii) in the case of each subclause (A) and (B) in clause (i)
----
above, each such Lender's Pro Rata Share of the cash proceeds of
any Additional Financing received by the Borrowers, in each case
as the same may be further adjusted from time to time pursuant to
Sections 10.01 or 11.01 hereof."
(b) The definition of the term "L/C Subfacility" in Section 1.01
of the Financing Agreement is hereby amended by deleting the amount
"$18,000,000" and substituting in lieu thereof "$21,000,000".
(c) The definition of the term "Total Credit Exposure" in
Section 1.01 of the Financing Agreement is hereby amended in its entirety to
read as follows:
"Total Credit Exposure" means (i) (A) during the period from
---------------------
June 1, 1997 through September 30, 1997, as set forth in Part A
of Schedule A hereto and (B) during the period after September
30, 1997, as set forth in Part B of Schedule A hereto, less (ii)
in the case of each subclause (A) and (B) above, the cash
proceeds of any Additional Financing received by the Borrowers,
in each case as the same may be further adjusted from time to
time pursuant to Sections 10.01 or 11.01 hereof."
4. New Definitions. The following definitions of the terms
---------------
"Additional Financing" and "Increased Interest Amount" are hereby added to
Section 1.01 to the Financing Agreement:
"Additional Financing" has the meaning specified therefor
--------------------
in Section 2.06(a) hereof."
"Increased Interest Amount" has the meaning specified
-------------------------
therefor in Section 2.06(a) hereof."
5. Credit Exposure. Section 2.01 of the Financing Agreement is
---------------
hereby amended by deleting clause (iii) thereof in its entirety and substituting
in lieu thereof (iii) $26,000,000 increasing to $34,000,000 during the period
from June 1, 1997 through September 30, 1997."
6. Interest.
--------
(a) Loans. Section 2.06(a) of the Financing Agreement is
-----
hereby amended to read in its entirety as follows:
"Each Loan will bear interest on the principal amount
thereof from time to time outstanding from the date of such Loan
until such principal amount becomes
2
due (i) on the Increased Interest Amount (as hereinafter defined)
of the Loans, at the Prime Rate plus 4% and (ii) on the
outstanding principal amount of the Loans in excess of the
Increased Interest Amount, at the Prime Rate plus 1%. The
Increased Interest Amount shall mean, on and after June 1, 1997,
the difference, if any, between (A) $5,000,000 and (B) the amount
of cash equity contributed to the Borrowers or other financing
obtained by the Borrowers, in each case pursuant to
documentation, on terms and in all other respects satisfactory to
the Lenders (the equity contribution or financing described in
this clause (B) is hereinafter referred to as the "Additional
Financing"). The Increased Interest Amount shall only be reduced
to the extent that the Borrowers have provided the Lenders with
evidence, reasonably satisfactory to the Lenders, that the cash
proceeds of such Additional Financing have been received by the
Borrowers. The Increased Interest Amount of the Loans shall be
allocated among the Lenders based on their respective Pro Rata
Shares."
(b) Default Interest. Section 2.06(b) of the Financing
----------------
Agreement is hereby amended in its entirety to read as follows:
"Any amount of principal of any Loan and (to the extent
permitted by law) interest and other amounts which are not paid
when due, whether upon demand, by acceleration or otherwise,
shall bear interest from the day when due until such amount is
paid in full at a fluctuating interest rate per annum equal at
all times to (i) on any principal amount of the Loans, up to the
Increased Interest Amount, which is not paid when due, at the
Post Default Rate plus 1-1/2% and (ii) on any principal amount of
the Loans which is not paid when due, in excess of the Increased
Interest Amount, and all other amounts not paid when due, at the
Post Default Rate."
7. Collateral Deficiency Fee. The following new Section 4.01(e)
-------------------------
is hereby added to the Financing Agreement:
"(e) Collateral Deficiency Fee. If on or before September
-------------------------
30, 1997, the Borrowers shall fail to deliver to, or cause to be
delivered to, the Agent $500,000 to be held as cash collateral for the
Obligations pursuant to documentation, on terms and in all other
respects satisfactory to the Agent in its sole discretion, the
Borrowers shall jointly and severally pay to the Agent for the account
of the Lenders in accordance with the Lenders' respective Pro Rata
Shares (or the Agent may charge the Loan Account pursuant to Section
4.02) a collateral deficiency fee of $50,000, which fee shall be
earned in full on September 30, 1997."
8. Cash Collateral. The following new Section 7.01(s) is hereby
---------------
added to the Financing Agreement:
"(s) Additional Cash Collateral. On or before September 30,
--------------------------
1997, the Borrowers shall deliver, or cause to be delivered, to the
Agent $500,000 to be held
3
as cash collateral for the Obligations pursuant to documentation,
on terms and in all other respects satisfactory to the Agent in
its sole discretion."
9. Schedule. Schedule A to the Financing Agreement is hereby
--------
amended by deleting such Schedule in its entirety and substituting in lieu
thereof new Schedule A, which is attached hereto as Annex I.
10. Assignments. (a) On and as of the Second Amendment Effective
-----------
Date (as hereinafter defined), Chase hereby sells and assigns to CIT, and CIT
hereby purchases and assumes from Chase, a 7.48% interest in and to all of
Chase's rights and obligations as a Lender under the Financing Agreement as of
the Second Amendment Effective Date (including, without limitation (i) Chase's
Credit Exposure set forth in Section 2.01 of the Financing Agreement, (ii) the
outstanding principal amount of the Loans made by Chase, and (iii) Chase's
interest in all outstanding Letter of Credit Obligations): Such assignment and
purchase shall be without recourse or representation,except that Chase
represents and warrants to CIT that it is the legal and beneficial owner of the
interests assigned by it free and clear of any Lien.
(b) On the Second Amendment Effective Date (i) CIT, shall
pay the purchase price for the Loans purchased by it pursuant to paragraph (a)
of this Section 10 by wire transfer of immediately available funds to the Agent
in New York, New York, not later than 12:00 noon, New York City time, and (ii)
the Agent shall promptly pay to Chase, out of the amounts received by it
pursuant to clause (i) of this paragraph (b), the purchase price for the
interests assigned by it pursuant to such paragraph (a) by wire transfer of
immediately available funds to an account designated by Chase.
(c) The Borrowers and each Guarantor hereby consent to the
assignment and purchase provided for in paragraphs (a) and (b) of this Section
10 and agree that, commencing on the Second Amendment Effective Date, CIT shall
have all the rights of a Lender under the Financing Agreement with respect to
the interest purchased by it pursuant to, such paragraphs.
11. Delivery of Notes. Each Lender shall deliver to the Agent,
-----------------
for delivery to and cancellation by the Borrowers, all Notes issued by the
Borrowers and held by the Lenders under the Financing Agreement (collectively,
the "Old Notes"). Thee Borrowers shall execute and deliver to the Agent for the
account of each Lender the Notes which such Lender is entitled to receive
pursuant to Section 2.04 of the Financing Agreement, in the form of Exhibit A
thereto and in the principal amount for each Lender equal to its Pro Rata Share
of the Total Credit Exposure, as set forth in Annex I to this Amendment (the
"New Notes"). The Agent shall release and deliver the Old Notes to the Borrowers
for cancellation and deliver the New Notes to the Lenders.
12. Accrued Interest and Fees. At the times and pursuant to the
-------------------------
terms contained in the Financing Agreement, the Agent will pay all accrued
interest and fees payable pursuant to Sections 2.06(a), 3.03(b) and 4.01(c) of
the Financing Agreement to the Lenders entitled thereto after giving effect to
the assignments and purchases made pursuant to Section 10 above.
4
13. Conditions. This Amendment shall become effective only upon
----------
satisfaction in full of the following conditions precedent (the first date upon
which all such conditions have been satisfied being herein called the "Second
Amendment Effective Date"):
(a) The representations and warranties contained in this
Amendment and in Article VI of the Financing Agreement and each other Loan
Document shall be correct on and as of the Second Amendment Effective Date as
though made on and as of such date (except where such representations and
warranties relate to an earlier date in which case such representations and
warranties shall be true and correct as of such earlier date); no Event of
Default or Potential Default shall have occurred and be continuing on the Second
Amendment Effective Date or result from this Amendment becoming effective in
accordance with its terms.
(b) The Agent shall have received counterparts of this
Amendment, duly executed by the Borrowers, the Guarantors and the Lenders.
(c) The Agent shall have received the New Notes (the New
Notes together with this Amendment, the "Amendment Documents"), duly executed by
each of the Borrowers.
(d) The Borrowers shall pay to the Agent for the account
of the Lenders in accordance with the Lenders' respective Pro Rata Shares (or
the Agent may charge the Loan Account pursuant to Section 4.02) a non-refundable
amendment fee of $125,000, which fee is earned, in full, on the date hereof.
(e) - The Agent shall have received a copy of the
resolutions adopted by the Board of Directors or other governing body of each of
the Borrowers and the Corporate Guarantors, certified as of the Second Amendment
Effective Date by authorized officers thereof, authorizing (A) the transactions
contemplated by the Amendment Documents, and the Financing Agreement as amended
hereby, and (B) the execution, delivery and performance by each of the Borrowers
and the Corporate Guarantors of the Amendment Documents to which it is a party.
(f) The Agent shall have received a certificate of
authorized officers of the Borrowers and Corporate Guarantors certifying the
names and true signatures of the officers of the Borrowers and the Corporate
Guarantors authorized to sign the Amendment Documents, together with evidence of
the incumbency of such authorized officers.
(g) The Agent shall have received a certificate of the
chief executive officer or the chief financial officer of each of the Borrowers
and Corporate Guarantors certifying as to the matters set forth in subsection
(a) of this Section 13.
(h) All legal matters incident to this Amendment shall be
satisfactory to the Agent and its counsel.
14. Representations and Warranties. Each of the Borrowers and
------------------------------
the Guarantors represents and warrants as follows:
5
(a) Each Borrower and Corporate Guarantor (i) is a
corporation or limited liability company duly organized, validly existing and in
good standing under the laws of the state of its organization and (ii) has all
requisite power, authority and legal right to execute, deliver and perform the
Amendment Documents to which it is a party, and to perform the Financing
Agreement, as amended hereby.
(b) The execution, delivery and performance by it of each
Amendment Document to which it is a party and the performance by it of the
Financing Agreement, as amended hereby (i) have been duly authorized by all
necessary action, (ii) do not and will not violate or create a default under its
articles of organization, by-laws or operating agreement or any applicable law
or any contractual restriction binding or otherwise affecting it or any of its
properties, and (iii) except as provided in the Loan Documents, do not and will
not result in or require the creation of any Lien upon or with respect to its
property.
(c) No authorization or approval or other action by, and no
notice to or filing with, any Governmental Authority or other regulatory body is
required in connection with (i) the due execution, delivery and performance by
it of each Amendment Document to which it is a party and (ii) the performance by
it of each Amendment Document to which it is a party and the Financing
Agreement, as amended hereby.
(d) Each Amendment Document and the Financing Agreement, as
amended hereby, is a legal, valid and binding obligation of each Borrower
and Guarantor that is a party thereto enforceable against each such Person in
accordance with the terms thereof.
(e) The representations and warranties contained in Article
VI of the Financing Agreement are correct on and as of the Second Amendment
Effective Date as though made on and as of the Second Amendment Effective Date
(except to the extent such representations and warranties expressly relate to an
earlier date in which case such representations and warranties shall be true and
correct as of such earlier date), and no Event of Default or Potential Default
has occurred and is continuing on and as of the Second Amendment Effective Date
or will result from this Amendment becoming effective in accordance with its
terms.
15. Continued Effectiveness of the Financing Agreement. Each of
--------------------------------------------------
the Borrowers and the Guarantors hereby (i) confirms and agrees that each Loan
Document to which it is a party is, and shall continue to be, in full force and
effect and is hereby ratified and confirmed in all respects except that on and
after the Second Amendment Effective Date all references in any such Loan
Document to "the Financing Agreement", "thereto", "thereof", "thereunder" or
words of like import referring to the Financing Agreement shall mean the
Financing Agreement as amended by this Amendment, and (ii) confirms and agrees
that to the extent any such Loan Document purports to assign or pledge to the
Agent, or to grant to the Agent a Lien on any collateral as security for the
Obligations of the Borrowers or the Guarantors from time to time existing in
respect of the Financing Agreement and the Loan Documents, such pledge,
assignment and/or grant of the Lien is hereby ratified and confirmed in all
respects.
6
16. Miscellaneous.
-------------
(a) This Amendment may be executed in any number of
counterparts and by different parties hereto in separate counterparts, each of
which shall be deemed to be an original, but all of which taken together shall
constitute one and the same agreement.
(b) Section and paragraph headings herein are included for
convenience of reference only and shall not constitute a part of this Amendment
for any other purpose.
(c) This Amendment shall be governed by, and construed in
accordance with, the laws of the State of New York.
(d) The Borrowers will pay on demand all reasonable fees,
costs and expenses of the Agent in connection with the preparation, execution
and delivery of this Amendment and the other Amendment Documents, including,
without limitation, the reasonable fees, disbursements and other charges of
Xxxxxxx Xxxx & Xxxxx LLP, counsel to the Agent.
7
IN WITNESS WHEREOF, the parties hereto have caused this Amendment
to be executed by their respective officers thereunto duly authorized, as of the
date first above written.
BORROWERS
---------
HAPPY KIDS, LTD.
By: /s/ Xxxx X. Xxxxx
-------------------------------
Title:_____________________
Name:______________________
O'BOY INC.
By: /s/ Xxxx X. Xxxxx
-------------------------------
Title:_____________________
Name:______________________
TALK OF THE TOWN APPAREL CORP.
BY: /s/ Xxxx X. Xxxxx
-------------------------------
Title:_____________________
Name:______________________
O.P. KIDS, L.L.C.
By: /s/ Xxxx X. Xxxxx
------------------------------
Title:_____________________
Name:______________________
GUARANTORS
----------
H.O.T KIDZ, L.L.C.
BY: /s/ Xxxx X. Xxxxx
-------------------------------
Title:_____________________
Name:______________________
HAWK INDUSTRIES, INC
By: /s/ Xxxx X. Xxxxx
-------------------------------
Title:_____________________
Name:______________________
8
J&B 18 CORP.
By: /s/ Xxxx X. Xxxxx
-------------------------------
Title:_____________________
Name:______________________
/s/ Xxxx X. Xxxxx
----------------------------------
XXXX X. XXXXX
/s/ Xxxx X. Xxxxx
----------------------------------
XXXX X. XXXXX
/s/ Xxxxx Xxxx
----------------------------------
XXXXX XXXX
AGENT AND LENDER
----------------
THE CIT GROUP/COMMERCIAL SERVICES,
INC.
By:_______________________________
Title:_____________________
Name:______________________
LENDERS
-------
THE CHASE MANHATTAN BANK, formerly
known as Chemical Bank
By:_______________________________
Title:_____________________
Name:______________________
9
J&B 18 CORP.
By:_______________________________
Title:_____________________
Name:______________________
__________________________________
XXXX X. XXXXX
__________________________________
XXXX X. XXXXX
__________________________________
XXXXX XXXX
AGENT AND LENDER
----------------
THE CIT GROUP/COMMERCIAL SERVICES,
INC.
By: /s/ Xxxxxxx Xxxxx
-------------------------------
Title: AVP
---------------------
Name: Xxxxxxx Xxxxx
---------------------
LENDERS
-------
THE CHASE MANHATTAN BANK, formerly
known as Chemical Bank
By:_______________________________
Title:_____________________
Name:______________________
9
J&B 18 CORP.
By:_______________________________
Title:_____________________
Name:______________________
__________________________________
XXXX X. XXXXX
__________________________________
XXXX X. XXXXX
__________________________________
XXXXX XXXX
AGENT AND LENDER
----------------
THE CIT GROUP/COMMERCIAL SERVICES,
INC.
By:_______________________________
Title:_____________________
Name:______________________
LENDERS
-------
THE CHASE MANHATTAN BANK, formerly
known as Chemical Bank
By: /s/ Xxxxxxx X. Xxxxxxxx
-------------------------------
Title: Vice President
---------------------
Name: Xxxxxxx X. Xxxxxxxx
----------------------
9
ISRAEL DISCOUNT BANK OF NEW YORK
By: /s/ [ILLEGIBLE SIGNATURE]
-------------------------------
Title: VP
---------------------
Name: [ILLEGIBLE]
----------------------
By: /s/ Xxxx Xxxxxxx
-------------------------------
Title: AVP
---------------------
Name: Xxxx Xxxxxxx
----------------------
10
ANNEX I
SCHEDULE A
----------
PART A: From June 1, 1997 through September 30, 1997
------
Lender Exposure Percentage
------ -------- ----------
The CIT Group/Commercial Services, Inc. $14,632,900.00 35.26%
The Chase Manhattan Bank $20,310,100.00 48.94%
Israel Discount Bank of New York $ 6,557,000.00 15.80%
-------------- ------
$41,500,000.00 100.00%
PART B: After September 30, 1997
------
Lender Exposure Percentage
------ -------- ----------
The CIT Group/Commercial Services, Inc. $11,283,200.00 35.26%
The Chase Manhattan Bank $15,660,800.00 48.94%
Israel Discount Bank of New York $ 5,056,000.00 15.80%
-------------- ------
$32,000,000.00 100.00%
11
THIRD AMENDMENT
TO THE
FINANCING AGREEMENT
THIRD AMENDMENT, dated as of October 1, 1997 (this "Amendment"), to
the Financing Agreement, dated as of February 13, 1996, as amended by the First
Amendment dated as of February 13, 1997 and the Second Amendment dated as of
June 1, 1997 (the "Financing Agreement"), by and among Happy Kids, Ltd., a New
York corporation ("Happy Kids"), O'Boy Inc., a New York corporation ("O'Boy"),
Talk of the Town Apparel Corp., a New York corporation ("TOT Apparel") and O.P.
Kids L.L.C., a New Jersey limited liability company ("OP, LLC" and together with
Happy Kids, O'Boy and TOT Apparel, each a "Borrower" and collectively, the
"Borrowers"), the guarantors listed on Schedule B to the Financing Agreement
(each a "Guarantor" and collectively, the "Guarantors"), the lenders listed on
Schedule A to the Financing Agreement (each a "Lender" and collectively the
"Lenders") and The CIT Group/Commercial Services, Inc., as agent for the Lenders
(in such capacity, the "Agent").
The Borrowers, the Guarantors, the Lenders and the Agent wish to amend
the Financing Agreement to (i) change the Credit Exposure (as defined in the
Financing Agreement) of each Lender and the Total Credit Exposure (as defined in
the Financing Agreement) and (ii) to amend certain other terms and conditions in
the Financing Agreement. Accordingly, the Borrowers, the Guarantors, the Lenders
and the Agent hereby agree as follows:
1. Definitions. All terms which are defined in the Financing
-----------
Agreement and not otherwise defined herein are used herein as defined therein.
2. Recitals. The first two sentences in the Recitals are hereby
--------
amended in their entirety to read as follows: "The Borrowers and the Guarantors
have asked the Lenders to extend credit to the Borrowers, from the date hereof
through the Final Maturity Date (as hereinafter defined), in the form of
discretionary revolving credit loans to the Borrowers at any time and from time
to time prior to the Final Maturity Date in an aggregate principal amount not in
excess of $42,000,000 (i) increasing to an aggregate principal amount not in
excess of $47,000,000 during the period from January 1, 1998 through April 30,
1998 if the Increased Financing Condition (as hereafter defined) is satisfied
and (ii) permanently reducing by the cash proceeds received by the Borrower from
any Additional Financing (as hereinafter defined). This revolving credit
facility may include a $23,000,000 letter of credit subfacility."
3. Existing Definitions. (a) The definition of the term "Credit
--------------------
Exposure" in Section 1.01 of the Financing Agreement is hereby amended in its
entirety to read as follows :
"Credit Exposure" means, with respect to each Lender, the total
---------------
credit exposure of such Lender (i) during the period from October 1,
1997 through December 31, 1998, as set forth in Part A of Schedule A
hereto, provided that, if the Increased Financing Condition is
satisfied (A) during the period from January 1, 1998 through April 30,
1998 the total credit exposure of each Lender shall be as set forth in
Part B of Schedule A hereto and (B) during the period from May 1, 1998
through December 31, 1998 the total credit exposure of each Lender
shall be as set forth in Part C of Schedule A hereto, less (ii) each
----
such Lender's Pro Rata Share of the cash proceeds of any Additional
Financing received by the Borrowers, in each case as the same may be
further adjusted from time to time pursuant to Sections 10.01 or 11.01
hereof."
(b) The definition of the term "L/C Subfacility" in Section 1.01 of
the Financing Agreement is hereby amended by deleting the amount "$21,000,000"
and substituting in lieu thereof "$23,000,000".
(c) The definition of the term "Total Credit Exposure" in Section
1.01 of the Financing Agreement is hereby amended in its entirety to read as
follows:
"Total Credit Exposure" means (i) during the period from October
---------------------
1, 1997 through December 30, 1998, as set forth in Part A of Schedule
A hereto, provided that, if the Increased Financing Condition is
satisfied (A) during the period from January 1, 1998 through April 30,
1998, as set forth in Part B of Schedule A hereto and (B) during the
period from May 1, 1998 through December 31, 1998, as set forth in
Part C of Schedule A hereto, less (ii) the cash proceeds of any
Additional Financing received by the Borrowers, in each case as the
same may be further adjusted from time to time pursuant to Sections
10.01 or 11.01 hereof."
4. New Definitions. The following definitions of the terms
---------------
"Additional Lender" and "Increased Financing Condition" are hereby added to
Section 1.01 to the Financing Agreement:
"Additional Lender" means a financial institution, acceptable to
-----------------
the Lenders, that becomes a Lender under this Agreement on or before
November 30, 1997 in connection with the increase in the Total Credit
Exposure to $47,000,000."
"Increased Financing Condition" means that an Additional Lender
-----------------------------
has agreed in writing to become a Lender under this Agreement with a
Credit Exposure of not less than $7,500,000."
2
5. Credit Exposure. Section 2.01 of the Financing Agreement is
---------------
hereby amended by deleting clause (iii) thereof in its entirety and substituting
in lieu thereof"(iii) $34,000,000 prior to April 1, 1998 and $30,000,000
thereafter."
6. Prepayment of Loans. (a) Section 2.07(b) of the Financing
-------------------
Agreement is hereby amended by adding the following at the end thereof:
"In addition, the Borrowers agree that at any time the Total Credit
Exposure is less than the sum of (i) the outstanding principal on all
Loans outstanding plus (ii) the outstanding amount of all Letter of
Credit Obligations, the Borrowers will (A) upon becoming aware of the
existence of the differential, immediately give notice of such
occurrence to the Agent and (B) upon demand by the Agent, prepay the
Loans in an amount which will reduce the sum of the outstanding
principal on all Loans outstanding to an amount less than or equal to
the then current Total Credit Exposure. If at any time after the
Borrowers have complied with the immediately preceding sentence, the
sum of the aggregate Letter of Credit Obligations is greater than the
then current Total Credit Exposure, the Borrowers shall provide cash
collateral to the Agent in the amount of such excess, which cash
collateral shall be deposited in a joint non-interest bearing account
maintained at the Payment Office of the Agent and returned to the
Borrowers, provided that no Event of Default shall have occurred and
be continuing, at such time as the aggregate Letter of Credit
Obligations plus the aggregate principal amount of all outstanding
Loans no longer exceeds the then current Total Credit Exposure."
(b) Section 2.07 of the Financing Agreement is hereby amended by (i)
redesignating existing paragraph (f) as new paragraph (g) and (ii) adding
the following new paragraph (f):
"(f) On the date of receipt of the cash proceeds (net of reasonable
and customary expenses) from an Additional Financing, the Borrowers
shall prepay the Loans in an amount equal to such net proceeds."
7. Fees. (a) The last sentence of Section 4.01(c) of the Financing
----
Agreement is hereby amended to read in its entirety as follows:
"The Facility Fee shall be owing by the Borrowers and earned in full
by the Lenders on the Effective Date and on the first day of each
February thereafter, provided that (i) in 1998, the Facility Fee (A)
shall be paid on June 1, 1998 if on or prior to such date the
Borrowers shall not have received from an Additional Financing cash
proceeds (net of reasonable and customary expenses) in an amount of
(1) not less than $ 10 million from an initial public offering of the
Borrowers or (2) not less than $5 million from an issuance of
subordinated debt by the Borrowers or (B) shall not be required to be
paid if the Borrowers have received the cash proceeds from an
Additional Financing described in subclause (A) above
3
on or before June 1, 1998 and (ii) in 1999 and thereafter, the
Facility Fee shall be paid annually in advance in four equal quarterly
installments on the first day of January, April, July and October of
each year."
(b) The following new Section 4.01(f) is hereby added to the
Financing Agreement:
"(f) Restructuring Fee. The Borrowers shall jointly and severally
-----------------
pay to the Agent for the account of the Lenders in accordance with the
Lenders' respective Pro Rata Shares (or the Agent may charge the Loan
Account pursuant to Section 4.02) a restructuring fee of $300,000,
which fee shall be paid and be earned in full on the date on which the
Borrowers receive from an Additional Financing cash proceeds (net of
reasonable and customary expenses) in an amount of (A) not less than
$10 million from an initial public offering of the Borrowers or (B)
not less than $5 million from an issuance of subordinated debt by the
Borrowers, provided that, if, on or before April 30, 1998, the Lenders
have not received evidence, satisfactory to the Lenders in their sole
discretion, that the Borrowers have received or will receive from an
Additional Financing cash proceeds in the amounts described above,
such $300,000 fee shall be earned in full on April 30, 1998 and shall
be paid in installments of $100,000 on each of April 30, 1998, May 29,
1998 and June 30, 1998."
8. Additional Financing. Section 7.01(s) is hereby amended in its
--------------------
entirety to read as follows:
"(s) Additional Financing. On or before February 28, 1998, the
--------------------
Borrowers shall provide the Lenders with evidence, satisfactory to the
Lenders in their sole discretion, that the Borrowers have received or
will receive from an Additional Financing cash proceeds (net of
reasonable and customary expenses) in an amount of not less than (A)
$10 million from an initial public offering of the Borrowers or (B)
$5 million from an issuance of subordinated debt by the Borrowers
pursuant to documentation, on terms and in all other respects
satisfactory to the Lenders in their sole discretion. The Borrowers
acknowledge and agree that the Lenders may change the terms, pricing
or amount of, or eliminate all or any part of, the revolving credit
facility under this Agreement if the Borrowers have not established on
such date, to the satisfaction of the Lenders in their sole
discretion, that such cash proceeds from an Additional Financing have
been received or will be received."
9. Schedule. Schedule A to the Financing Agreement is hereby amended
--------
by deleting such Schedule in its entirety and substituting in lieu thereof new
Schedule A, which is attached hereto as Annex I.
4
10. Delivery of Notes. Each Lender shall deliver to the Agent, for
-----------------
delivery to and cancellation by the Borrowers, all Notes issued by the Borrowers
and held by the Lenders under the Financing Agreement (collectively, the "Old
Notes"). The Borrowers shall execute and deliver to the Agent for the account of
each Lender the Notes which such Lender is entitled to receive pursuant to
Section 2.04 of the Financing Agreement, in the form of Exhibit A thereto and in
the principal amount for each Lender equal to its Pro Rata Share of the Total
Credit Exposure, as set forth in Annex I to this Amendment (the "New Notes").
The Agent shall release and deliver the Old Notes to the Borrowers for
cancellation and deliver the New Notes to the Lenders.
11. Conditions. This Amendment shall become effective only upon
----------
satisfaction in full of the following conditions precedent (the first date upon
which all such conditions have been satisfied being herein called the "Third
Amendment Effective Date"):
(a) The representations and warranties contained in this
Amendment and in Article VI of the Financing Agreement and each other Loan
Document shall be correct on and as of the Third Amendment Effective Date as
though made on and as of such date (except where such representations and
warranties relate to an earlier date in which case such representations and
warranties shall be true and correct as of such earlier date); no Event of
Default or Potential Default shall have occurred and be continuing on the Third
Amendment Effective Date or result from this Amendment becoming effective in
accordance with its terms.
(b) The Agent shall have received counterparts of this
Amendment, duly executed by the Borrowers, the Guarantors and the Lenders.
(c) The Agent shall have received the New Notes (the New Notes
together with this Amendment, the "Amendment Documents"), duly executed by each
of the Borrowers.
(d) The Borrowers shall pay to the Agent for the account of the
Lenders in accordance with the Lenders' respective Pro Rata Shares (or the Agent
may charge the Loan Account pursuant to Section 4.02) a non-refundable amendment
fee of $200,000, which fee is earned, in full, on the date hereof.
(e) The Agent shall have received a copy of the resolutions
adopted by the Board of Directors or other governing body of each of the
Borrowers and the Corporate Guarantors, certified as of the Third Amendment
Effective Date by authorized officers thereof, authorizing (A) the transactions
contemplated by the Amendment Documents, and the Financing Agreement as amended
hereby, and (B) the execution, delivery and performance by each of the Borrowers
and the Corporate Guarantors of the Amendment Documents to which it is a party.
(f) The Agent shall have received a certificate of authorized
officers of the Borrowers and Corporate Guarantors certifying the names and true
signatures of the officers of the Borrowers and the Corporate Guarantors
authorized to sign the Amendment Documents, together with evidence of the
incumbency of such authorized officers.
5
(g) The Agent shall have received a certificate of the chief
executive officer or the chief financial officer of each of the Borrowers and
Corporate Guarantors certifying as to the matters set forth in subsection (a) of
this Section 11.
(h) All legal matters incident to this Amendment shall be
satisfactory to the Agent and its counsel.
12. Representations and Warranties. Each of the Borrowers and the
------------------------------
Guarantors represents and warrants as follows:
(a) Each Borrower and Corporate Guarantor (i) is a corporation
or limited liability company duly organized, validly existing and in good
standing under the laws of the state of its organization and (ii) has all
requisite power, authority and legal right to execute, deliver and perform the
Amendment Documents to which it is a party, and to perform the Financing
Agreement, as amended hereby.
(b) The execution, delivery and performance by it of each
Amendment Document to which it is a party and the performance by it of the
Financing Agreement, as amended hereby (i) have been duly authorized by all
necessary action, (ii) do not and will not violate or create a default under its
articles of organization, by-laws or operating agreement or any applicable law
or any contractual restriction binding or otherwise affecting it or any of its
properties, and (iii) except as provided in the Loan Documents, do not and will
not result in or require the creation of any Lien upon or with respect to its
property.
(c) No authorization or approval or other action by, and no
notice to or filing with, any Governmental Authority or other regulatory body is
required in connection with (i) the due execution, delivery and performance by
it of each Amendment Document to which it is a party and (ii) the performance by
it of each Amendment Document to which it is a party and the Financing
Agreement, as amended hereby.
(d) Each Amendment Document and the Financing Agreement, as
amended hereby, is a legal, valid and binding obligation of each Borrower and
Guarantor that is a party thereto enforceable against each such Person in
accordance with the terms thereof.
(e) The representations and warranties contained in Article VI
of the Financing Agreement are correct on and as of the Third Amendment
Effective Date as though made on and as of the Third Amendment Effective Date
(except to the extent such representations and warranties expressly relate to an
earlier date in which case such representations and warranties shall be true and
correct as of such earlier date), and no Event of Default or Potential Default
has occurred and is continuing on and as of the Third Amendment Effective Date
or will result from this Amendment becoming effective in accordance with its
terms.
13. Continued Effectiveness of the Financing Agreement. Each of the
--------------------------------------------------
Borrowers and the Guarantors hereby (i) confirms and agrees that each Loan
Document to which it is a party is, and shall continue to be, in full force and
effect and is hereby ratified and
6
confirmed in all respects except that on and after the Third Amendment Effective
Date all references in any such Loan Document to "the Financing Agreement",
"thereto", "thereof", "thereunder" or words of like import referring to the
Financing Agreement shall mean the Financing Agreement as amended by this
Amendment, and (ii) confirms and agrees that to the extent any such Loan
Document purports to assign or pledge to the Agent, or to grant to the Agent a
Lien on any collateral as security for the Obligations of the Borrowers or the
Guarantors from time to time existing in respect of the Financing Agreement and
the Loan Documents, such pledge, assignment and/or grant of the Lien is hereby
ratified and confirmed in all respects.
14. Miscellaneous.
-------------
(a) This Amendment may be executed in any number of counterparts
and by different parties hereto in separate counterparts, each of which shall be
deemed to be an original, but all of which taken together shall constitute one
and the same agreement.
(b) Section and paragraph headings herein are included for
convenience of reference only and shall not constitute a part of this Amendment
for any other purpose.
(c) This Amendment shall be governed by, and construed in
accordance with, the laws of the State of New York.
(d) The Borrowers will pay on demand all reasonable fees, costs
and expenses of the Agent in connection with the preparation, execution and
delivery of this Amendment and the other Amendment Documents, including, without
limitation, the reasonable fees, disbursements and other charges of Xxxxxxx Xxxx
& Xxxxx LLP, counsel to the Agent.
7
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be executed by their respective officers thereunto duly authorized, as of the
date first above written.
BORROWERS
---------
HAPPY KIDS, LTD
By: /s/ Xxxx X. Xxxxx
----------------------------
Title: Pres.
--------------------
Name: Xxxx X. Xxxxx
---------------------
O'BOY INC.
By: /s/ Xxxx X. Xxxxx
----------------------------
Title: Pres.
--------------------
Name: Xxxx X. Xxxxx
---------------------
TALK OF THE TOWN APPAREL CORP.
By: /s/ Xxxx X. Xxxxx
----------------------------
Title: Pres.
--------------------
Name: Xxxx X. Xxxxx
---------------------
O.P KIDS, L.L.C.
By: /s/ Xxxx X. Xxxxx
----------------------------
Title: Pres.
--------------------
Name: Xxxx X. Xxxxx
---------------------
GUARANTORS
----------
H.O.T KIDS, L.L.C.
By: /s/ Xxxx X. Xxxxx
----------------------------
Title: Pres.
--------------------
Name: Xxxx X. Xxxxx
---------------------
HAWK INDUSTRIES, INC.
By: /s/ Xxxx X. Xxxxx
----------------------------
Title: Pres.
--------------------
Name: Xxxx X. Xxxxx
---------------------
8
J&B 18 CORP.
By: /s/ Xxxx X. Xxxxx
----------------------------
Title: Pres.
--------------------
Name: Xxxx X. Xxxxx
---------------------
/s/ Xxxx X. Xxxxx
-------------------------------
XXXX X. XXXXX
/s/ Xxxx X. Xxxxx
-------------------------------
XXXX X. XXXXX
/s/ Xxxxx xxxx
-------------------------------
XXXXX XXXX
AGENT AND LENDER
----------------
THE CIT GROUP/COMMERCIAL SERVICES,
INC.
By:___________________________
Title:___________________
Name:____________________
LENDERS
-------
THE CHASE MANHATTAN BANK
By:___________________________
Title:___________________
Name:____________________
9
J&B 18 CORP.
By:____________________________
Title:____________________
Name:_____________________
_______________________________
XXXX X. XXXXX
_______________________________
XXXX X. XXXXX
_______________________________
XXXXX XXXX
AGENT AND LENDER
----------------
THE CIT GROUP/COMMERCIAL SERVICES,
INC.
By: /s/ Xxxxxxx Xxxxx
----------------------------
Title: Vice President
--------------------
Name: Xxxxxxx Xxxxx
---------------------
LENDERS
-------
THE CHASE MANHATTAN BANK
By:____________________________
Title:____________________
Name:_____________________
9
J&B 18 CORP.
By:___________________________
Title:___________________
Name:____________________
______________________________
XXXX X. XXXXX
______________________________
XXXX X. XXXXX
______________________________
XXXXX XXXX
AGENT AND LENDER
----------------
THE CIT GROUP/COMMERCIAL SERVICES,
INC.
By:___________________________
Title:___________________
Name:____________________
LENDERS
-------
THE CHASE MANHATTAN BANK
By: /s/ Xxxxxxx Xxxxxxxx
---------------------------
Title: Vice President
---------------------
Name: Xxxxxxx Xxxxxxxx
---------------------
9
ISRAEL DISCOUNT BANK OF NEW YORK
By: /s/ Xxxx Xxxxxxx
-----------------------------
Title: AVP
---------------------
Name: Xxxx Xxxxxxx
---------------------
By: /s/ [ILLEGIBLE SIGNATURE APPEARS HERE]
----------------------------
Title: VP
--------------------
Name: Xxxxxx ????
--------------------
10
ANNEX I
SCHEDULE A
----------
PART A: From October 1, 1997 through December 31, 1998, provided that, if the
------
Increased Financing Condition is satisfied, Part B hereof shall be
applicable for the period from January 1, 1998 through April 30, 1998
and Part C hereof shall be applicable for the period from May 1, 1998
through December 31, 1998.
Lender Exposure Percentage
------ -------- ----------
The CIT Group/Commercial Services, Inc. $14,809,200 35.26%
The Chase Manhattan Bank $20,554,800 48.94%
Israel Discount Bank of New York $ 6,636,000 15.80%
----------- ------
$42,000,000 100.00%
PART B: From January 1, 1998 through April 30, 1998 if the Increased Financing
------
Condition is satisfied.
Lender Exposure Percentage
------ -------- ----------
The CIT Group/Commercial Services, Inc. $13,927,700 29.63%
The Chase Manhattan Bank $19,331,300 41.13%
Israel Discount Bank of New York $ 6,241,000 13.28%
[Additional Lender] $ 7,500,000 15.96%
-----------
$47,000,000 100.00%
PART C: From May 1, 1998 through December 31, 1998 if the Increased Financing
------
Condition is satisfied.
Lender Exposure Percentage
------ -------- ----------
The CIT Group/Commercial Services, Inc. $12,444,600 29.63%
The Chase Manhattan Bank $17,274,600 41.13%
Israel Discount Bank of New York $ 5,577,600 13.28%
[Additional Lender] $ 6,703,200 15.96%
-----------
$42,000,000 100.00%
11
