SECOND AMENDMENT AND WAIVER TO CREDIT AGREEMENT
This is the second amendment and waiver (the "Amendment") dated as of
September 14, 1999, to the Credit Agreement dated as of March 26, 1998 as
amended by the First Amendment and Waiver to Credit Agreement dated as of March
23, 1999 (the "Credit Agreement") between Lechters, Inc., (the "Borrower"), The
Chase Manhattan Bank as agent and issuing bank (the "Agent"), and the Banks
listed on the signature pages thereof (individually, each a "Bank", and
collectively, the "Banks").
RECITALS
A. The Borrower and the Corporate Guarantors have (i) asked the Banks to
waive certain defaults that have arisen under the Credit Agreement, and (ii)
requested certain amendments to the Credit Agreement.
B. The Banks are willing to waive such defaults and make such amendments
subject to the terms and conditions set forth herein.
C. The Borrower, the Agent and The Chase Manhattan Bank as custodian (the
"Custodian") have entered into a Collateral and Account Control Agreement, as
defined herein, whereby the Custodian will hold and have control over certain
assets of the Borrower.
NOW, THEREFORE, in consideration of the agreement of the parties
contained herein, and intending to be legally bound, the parties hereto agree as
follows:
1. Definitions.
Capitalized terms used herein and not defined shall have the meanings
assigned to them in the Credit Agreement.
2. Amendments to Article 1 of the Credit Agreement.
Subsection 1.02(a) is replaced with the following:
The Borrower shall give the Agent notice (which shall be
irrevocable) no later than 10:00 a.m. (New York time) on, in the case of
Prime Rate Loans, the Business Day, and, in the case of LIBO Rate Loans,
the third Eurodollar Business Day, before the requested date for the
making of such Loans. Each such notice shall be in the form of Schedule
1.02 and shall specify (i) the requested date for the making of the
requested Loans, which shall be, in the case of Prime Rate Loans, a
Business Day and, in the case of LIBO Rate Loans, a Eurodollar Business
Day, (ii) the Type or Types of Loans requested, (iii) the amount of each
such Type of Loan, the aggregate of which amounts for (A) all Prime Rate
Loans requested shall be $500,000 or a greater integral multiple of
$100,000 or the aggregate amount of the unused Loan Commitments and (B) all
Types of LIBO Rate Loans shall be $2,000,000 or a greater integral multiple
of $500,000, and (iv) the difference between (A) the aggregate Margined
Value of all Collateral as of the Business Day before such notice, and (B)
the sum of the aggregate of the (1) Loan Exposures of all of the Banks, and
(2) LC Exposures of all of the Banks (in each case after giving effect to
any outstanding requests for Loans, Letters of Credit or Steamship
Indemnities). Upon receipt of any such notice, the Agent shall promptly
notify each Bank of the contents thereof and of the amount and Type of each
Loan to be made by such Bank on the requested date specified therein.
3. Amendments to Article 2 of the Credit Agreement.
The last sentence of Section 2.02 is deleted and replaced with the
following:
(e) Collateral Coverage
The Margined Value of the Collateral is at least equal to the
greater of (i) $15,000,000 or (ii) the sum of the aggregate of the (A)
Loan Exposures of all of the Banks, and (B) the LC Exposures of all of
the Banks (in each case after giving effect to the requested Credit
Extension and any other outstanding requests for Loans, Letters of
Credit or Steamship Indemnities). If the aggregate of the Loan Exposure
and LC Exposure of all of the Banks is reduced at any time to less than
$15,000,000, the Agent shall release upon the request of the Borrower
the amount of Collateral in excess of a Margined Value of $15,000,000.
The Borrower shall be deemed to have made a representation and
warranty as of the time of the requested Credit Extension that the
conditions specified in clauses (b), (c) and (e) above have been
fulfilled as of such time.
4. Amendments to Article 5 of the Credit Agreement.
a. Section 5.04 is deleted and replaced with the following:
(i) Declare or pay any dividends, either in cash or property, on any
shares of its capital stock of any class (except dividends or other
distributions payable solely in shares of common stock of the Borrower);
or (ii) directly or indirectly, purchase, redeem or retire any shares of
its capital stock of any class or any warrants, rights or options to
purchase or acquire any shares of its capital stock; or (iii) make any
other payment or distribution, either directly or indirectly, in respect of
capital stock of the Borrower; or (iv) make, directly or indirectly, any
Restricted Investment; it being specifically understood that the Borrower
and any Subsidiary will enter into a joint venture only with the prior
written consent of all the Banks; except the Borrower may (x) declare and
pay preferred dividends not to exceed 6% per annum in respect of the
Perpetual Convertible Preferred Stock, and (y) during such time as no
Default or Event of Default has occurred and is continuing and provided
that no Default or Event of Default shall be caused thereby, purchase,
redeem or retire after March 26, 1998 up to 1,000,000 shares in the
aggregate of the Borrower's common stock subsequent to the Closing Date,
provided that the aggregate price for all such shares purchased, redeemed
or retired after March 26, 1998 shall not exceed $2,500,000.
2
b. Section 5.11 is deleted and replaced with the following:
(i) Prepay, redeem, purchase, defease, retire or otherwise satisfy
in any manner prior to the scheduled maturity thereof any of its
Indebtedness, other than the Indebtedness under this Agreement or (ii)
amend, modify or change in any manner any term or condition of its
Indebtedness other than to prepay any Indebtedness payable by any
Subsidiary to the Borrower.
5. Amendments to Article 6 of the Credit Agreement.
a. Section 6.02 is deleted and replaced with the following:
Permit the ratio of (i) Consolidated EBITDAR minus Consolidated
Capital Expenditures to (ii) Consolidated Fixed Charges as determined as of
the last day of each fiscal quarter for the period of the four consecutive
preceding fiscal quarters ending on such day, to be less than 1.00 to
1.00; provided, however, for the period ending on the last day of the
third quarter of fiscal year 1999, such ratio may be less than 1.00 to
1.00, but shall not be less than 0.95 to 1.00.
b. Section 6.03 is deleted and replaced with the following:
Permit the ratio of (i) Consolidated Funded Debt to (ii)
Consolidated EBITDA as determined as of the last day of each fiscal
quarter for the period of the four consecutive preceding fiscal quarters
ending on such day to be greater than or equal to 3.00 to 1.00 as of the
end of the first quarter of fiscal year 2000 and as of the end of each
fiscal quarter thereafter.
c. Section 6.05 is deleted in its entirety.
d. Section 6.06 is deleted and replaced with the following:
6.06 Minimum Tangible Net Worth.
Have a Tangible Net Worth of less than (i) $140,000,000 as of the
end of the third quarter of fiscal year 1999, and (ii) $145,000,000 as of
the end of the fourth quarter of fiscal year 1999 and quarterly thereafter.
e. A new Section 6.07 is added to the Credit Agreement as follows:
3
6.07 Quick Ratio
Have, at any time after the second quarter of fiscal year
1999, a Quick Ratio of less than 1.0 to 1.0.
A new Section 6.08 is added to the Credit Agreement as follows:
6.08 Collateral Coverage
Permit the Collateral Account to have a Margined Value of
less than the greater of (i) $15,000,000 or (ii) the sum of the
aggregate of the (A) Loan Exposures of all of the Banks, and (B) the LC
Exposures of all of the Banks (in each case after giving effect to the
requested Credit Extension and any other outstanding requests for Loans,
Letters of Credit or Steamship Indemnities).
6. Amendments to Article 7 of the Credit Agreement.
a. Subsection 7.01(b)(iii) is amended to delete from the last line
"6.01, 6.02, 6.03, 6.04 and 6.05" and replace it with "6.01, 6.02, 6.03,
6.04, 6.06, 6.07 and 6.08".
b. Subsection 7.01(e) is deleted and replaced with the following:
(e) Projections.
(i) No later than 30 days following the start of each fiscal
year an annual budget or forecast including a projected profit and
loss statement, balance sheet and cash flow statements along with
a calculation of all covenants on a quarterly basis.
(ii) No later than 30 days following the end of each fiscal
month of the Borrower beginning at the end of August of 1999, a
forecast of cash flows for the period beginning at the end of such
month and ending March 1, 2001.
7. Amendment to Article 8 of the Credit Agreement.
a. A new Subsection 8.01(k) is added to the Credit Agreement as
follows:
(k) Material Adverse Change.
From and after the effectiveness hereof, there shall be a
material adverse change in the business, assets, liabilities,
financial condition, results of operation or business prospects
of the Borrower and its Subsidiaries taken as a whole.
b. A new Subsection 8.01(l) is added to the Credit Agreement as
follows:
(l) Delivery of Resolutions
The Borrower shall fail to deliver by the dates provided in
Section 17 of this Second Amendment and Waiver to Credit
Agreement resolutions of the Board of Directors of each of the
Borrower and Corporate Guarantors authorizing the due execution
and delivery of this Agreement.
4
8. Amendments to Article 12 of the Credit Agreement.
a. A new defined term "Collateral" is added as follows:
"Collateral" has the meaning assigned to that term in the Collateral
and Account Control Agreement.
b. A new defined term "Collateral Account" is added as follows:
"Collateral Account" has the meaning assigned to that term in the
Collateral and Account Control Agreement.
c. A new defined term "Collateral and Account Control Agreement"
is added as follows:
"Collateral and Account Control Agreement" means the Collateral and
Account Control Agreement between the Borrower, the Agent and the Custodian
dated as of September 14, 1999.
d. A new defined term "Custody Account Agreement" is added as
follows:
"Custody Account Agreement" has the meaning assigned to that term in
the Collateral and Account Control Agreement.
e. A new defined term "Fair Market Value" is added as follows:
"Fair Market Value" means the value of the Permitted Collateral
based on the price per share or unit of any of the securities, debt
instruments, mutual funds, financial assets or other investment property
which is a part of the Permitted Collateral as set forth on the New York
Stock Exchange, other exchanges, markets, or asset value listings where
such securities, debt instruments, mutual funds, financial assets, or other
investment property may be traded or the value quoted as stated in The
Wall Street Journal, or other customary publication of such information
if not available in The Wall Street Journal, at the close of the business
day, plus the face value (including accrued interest) of any certificates
of deposit, cash, or other financial assets comprising the Permitted
Collateral.
f. The term "Loan Documents" is deleted in its entirety and
replaced with the following:
"Loan Documents" means (a) this Agreement, the Notes, the
Subsidiary Guaranty, any Subsidiary Guaranty Supplement, the Collateral and
Account Control Agreement, the Letters of Credit, the Steamship Indemnities
and the Applications and (b)all other agreements, documents and instruments
relating to, arising out of, or in any way connected with (i) any
agreement, document or instrument referred to in clause (a), (ii) any
other agreement, document or instrument referred to in this clause (b)
or (iii) any of the transactions contemplated by any agreement, document
or instrument referred to in clause (a) or in this clause (b).
5
g A new defined term "Margined Value" is added as follows:
"Margined Value" means for each item of Permitted Collateral on any
date, the fair market value of such item of Permitted Collateral on
such date multiplied by a margin factor for such Permitted Collateral of
0.90, provided, however, that if any item of Permitted Collateral is (i)
cash, or (ii) time deposits and certificates of deposit having maturities
of not more than 90 days (from the date such deposits or certificates of
deposit are acquired) of any domestic commercial bank, the long-term debt
of which is rated at least A-2 or the equivalent thereof by Standard &
Poor's Corporation or a-2 or the equivalent thereof by Xxxxx'x Investors
Service, Inc. and having capital and surplus in excess of $500,000,000,
then the face value (including accrued interest) of such item of Permitted
Collateral on such date shall be multiplied by a margin factor of 1.00.
h. A new defined term "Permitted Collateral" is added as follows:
"Permitted Collateral": means (i) securities issued or directly and
fully guaranteed or insured by the United States Government or any
agency or instrumentality thereof having maturities of not more than two
years from the date of acquisition, (ii) time deposits and certificates
of deposit having maturities of not more than 90 days (from the date such
deposits or certificates of deposit are acquired) of any domestic
commercial bank the long-term debt of which is rated at least A-2 or the
equivalent thereof by Standard & Poor's Corporation or a-2 or the
equivalent thereof by Xxxxx'x Investors Service, Inc. and having capital
and surplus in excess of $500,000,000, and (iii) repurchase obligations
with a term of not more than seven days for underlying securities of the
types described in clauses (i) and (ii) entered into with any bank meeting
the qualifications specified in clause (ii) above.
i. A new defined term "Quick Ratio" is added as follows:
"Quick Ratio" means the ratio of (i) the sum of the value of
cash, marketable securities and accounts receivable of the Borrower, to (ii)
the current liabilities of the Borrower, all as determined on a consolidated
basis pursuant to GAAP.
9. Amendment to Schedules to the Credit Agreement.
Schedule 1.02 is deleted and replaced with Exhibit A to this Amendment.
10. Waiver.
Provided that the Borrower is in compliance with the covenants as amended
herein on the effective date of this Amendment, the Banks hereby waive any
Default or Event of Default arising out of a breach of Section 6.03 prior to
such section being amended herein.
6
11. General.
This Amendment is made pursuant to Section 11.06 of the Credit Agreement,
and the parties hereto acknowledge that all provisions of the Credit Agreement,
except as amended hereby, shall remain in full force and effect.
12. Definitions.
Whenever appearing in the Loan Agreement or any other Loan Document, the
term "Credit Agreement" shall be deemed to mean the Credit Agreement as amended
hereby.
13. Representations and Warranties.
The Borrower hereby represents and warrants to the Banks that, as of the
effectiveness of this Amendment: (a) each of the representations and warranties
contained in the Credit Agreement are accurate, (b) such representations and
warranties would continue to be accurate if, in each representation or warranty
where the term "Loan Documents" appears, the term "Amendment" was to be
substituted therefor, (c) no Event of Default has occurred and is continuing or
will result from the execution by the Borrower of this Amendment, and (d) that
the Loan Documents as amended herein are enforceable in accordance with their
terms without any offsets, counterclaims or defenses.
14. Amendment Fee.
The Borrower shall pay to the Agent for the benefit of the Banks an
amendment fee of $50,000 (the "Amendment Fee") in connection with this Amendment
which fee shall be due and payable upon the signing of this Amendment.
15. Arrangement Fee.
The Borrower shall pay an arrangement fee to the Agent for the Agent's own
account, as agreed between the Borrower and the Agent.
16. Fees of Bank's Counsel.
The Borrower shall pay the fees and expenses of XxXxxxxx & English in
connection with the preparation and negotiation of this Amendment and all
related documents.
17. Conditions to Effectiveness.
It shall be a condition to the effectiveness of this Amendment that the
Bank have received the following:
a. This Amendment, duly executed on behalf of the Borrower and the
Banks;
b. The Collateral and Account Control Agreement attached hereto as
Exhibit 17(b);
7
c. Collateral comprised of Permitted Collateral to be held in
the Collateral Account and having an aggregate Margined Value of at least
$15,000,000;
d Payment of the Amendment Fee;
e. Payment of the Arrangement Fee;
f. An opinion of counsel to the Borrower and Guarantors
satisfactory to the Agent;
g. On or before September 14, 1999, a certificate from the
Secretary of the Borrower (i) stating that there have been no amendments to
the Certificate of Incorporation or By-laws of such Borrower since the date
of the Credit Agreement, (ii) to which is attached a resolution of the
Board of Directors authorizing the execution, delivery and performance
of this Amendment, and (iii) setting forth the name and sample signature
of the officers of the Borrower authorized to execute and deliver this
Amendment; and
h. By no later than September 17, 1999, a certificate or
certificates from the Secretary of each of the Corporate Guarantors
(excluding Xxxxxxxx Investment, Inc., which shall deliver a certificate
from its Secretary by no later than September 24, 1999) to which is
attached a resolution of its Board of Directors authorizing the execution,
delivery and performance of such Corporate Guarantor's consent to this
Amendment.
18. Integration.
This Amendment together with the Credit Agreement and other Loan
Documents constitute the entire agreement and understanding among the parties
relating to the subject matter hereof and thereof and supersedes all prior
proposals, negotiations, agreements and understandings relating to such subject
matter. In the event of any conflict or inconsistency between this Agreement and
the Custody Account Agreement, the provisions of this Agreement shall supersede
such inconsistent or conflicting provision of the Custody Account Agreement.
19. Severability.
If any provision of this Amendment shall be held invalid or unenforceable
in whole or in part in any jurisdiction, such provision shall, as to such
jurisdiction, be ineffective to the extent of such invalidity or enforceability
without in any manner affecting the validity or enforceability of such provision
in any other jurisdiction or the remaining provisions of this Amendment in any
other jurisdiction.
8
20. No Defenses, Off-Sets or Counterclaims.
By executing this Amendment, Borrower confirms and acknowledges that as of
the date of execution hereof, Borrower has no defenses, off-sets or
counterclaims against any of Borrower's obligations to the Banks under the Loan
Documents, including the Credit Agreement (as amended hereby). Borrower hereby
acknowledges and agrees that the actual amounts outstanding on the date of
execution hereof are owing the Banks without defense, offset or counterclaim.
21. Incorporation by Reference.
This Amendment is incorporated by reference into the Credit Agreement and
the other Loan Documents. Except as otherwise provided herein, all of the other
provisions of the Credit Agreement and the other Loan Documents are hereby
confirmed and ratified and shall remain in full force and effect as of the date
of this Amendment.
22. Governing Law.
This Amendment is governed by the laws of the State of New York and is
binding upon the Borrower, the Agent and Issuing Bank and the Banks and their
respective successors and/or assigns and/or heirs and executors, as the case may
be.
23. Counterparts.
This Amendment may be executed by one or more of the parties in any number
of separate counterparts, and all of said counterparts taken together shall be
deemed to constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their respective officers thereunto duly authorized, on the date
first above written.
LECHTERS, INC.
By: ____________________________________
Name:
Title:
THE CHASE MANHATTAN BANK,
as Agent, Issuing Bank and as a Bank
By: ____________________________________
Xxxxxx Xxxxxxx
Vice President
FLEET BANK, NATIONAL ASSOCIATION
as Bank
By: ____________________________________
Xxxxx X. Xxxxxxxxx
Vice President
FIRST UNION NATIONAL BANK
as Bank
By: ____________________________________
Xxxxxx X. Xxxxxxx
Senior Vice President and Director
9
The undersigned, as guarantors, consent to the foregoing amendment:
LECHTERS ALABAMA, INC.
LECHTERS ARIZONA, INC.
LECTHERS ARKANSAS, INC.
LECHTERS CALIFORNIA, INC.
LECHTERS COLORADO, INC.
LECHTERS CONNECTICUT, INC.
LECHTERS DELAWARE, INC.
LECHTERS FLORIDA, INC.
LECHTERS GEORGIA, INC.
LECHTERS IDAHO, INC.
LECHTERS ILLINOIS, INC.
LECHTERS INDIANA, INC.
LECHTERS IOWA, INC.
LECHTERS KANSAS, INC.
LECHTERS KENTUCKY, INC.
LECHTERS LOUISIANA, INC.
LECHTERS MAINE, INC.
LECHTERS BALTIMORE, INC.
LECHTERS HOLYOKE, INC.
LECHTERS MICHIGAN, INC.
LECHTERS MINNESOTA, INC.
LECHTERS MISSISSIPPI, INC.
LECHTERS MISSOURI, INC.
LECHTERS NEBRASKA, INC.
LECHTERS NEVADA, INC.
LECHTERS NEW HAMPSHIRE, INC.
LECHTERS NEW JERSEY, INC.
LECHTERS NEW MEXICO, INC.
LECHTERS NEW YORK, INC.
LECHTERS N.Y.C., INC.
LECHTERS NORTH CAROLINA, INC.
LECHTERS OHIO, INC.
LECHTERS OKLAHOMA, INC.
LECHTERS OREGON, INC.
LECHTERS PENNSYLVANIA, INC.
LECHTERS RHODE ISLAND, INC.
LECHTERS SOUTH CAROLINA, INC.
LECHTERS TENNESSEE, INC.
LECHTERS TEXAS, INC.
LECHTERS UTAH, INC.
LECHTERS VERMONT, INC.
LECHTERS SPRINGFIELD, INC.
LECHTERS WASHINGTON, INC.
LECHTERS WEST VIRGINIA, INC.
LECHTERS WISCONSIN, INC.
COOKS CLUB, INC.
REGENT GALLERY, INC.
SIMPLE SOLUTIONS OF NJ, INC.
XXXXXXXX INVESTMENT, INC.
By: _____________________________
10
Exhibit A
to Second Amendment
and Waiver to Credit Agreement
Schedule 1.02
NOTICE OF BORROWING
The Chase Manhattan Bank
East 00 Xxxxxxx Xxxxxx
Xxxxxxx, XX 00000
Date: [insert]
Gentlemen:
Reference is made to the Credit Agreement, dated as of March 26, 1998 as amended
among Lechters, Inc., the Banks listed on the signature pages thereof and The
Chase Manhattan Bank, as Agent (the "Credit Agreement"). The undersigned hereby
gives notice pursuant to Section 1.02 of the Credit Agreement of its request to
have the following Loans made to it on [insert requested date of borrowing]:
Type of Loan (1) Amount
____ ____
____ ____
____ ____
[Please disburse the proceeds of the Loans by [insert requested method of
disbursement] .](2)
The undersigned represents and warrants that (a) the borrowing requested hereby
complies with the requirements of Section 1.02 of the Credit Agreement, (b) each
Representation and Warranty is true and correct at and as of the date hereof and
will be true and correct at and as of the time the Loans are made, in each case
both with and without giving effect to the Loans and the application of the
proceeds thereof, (c) no Default has occurred and is continuing as of the date
hereof or would result from the making of the Loans or from the application of
the proceeds thereof if the Loans were made on the date hereof, and no Default
will have occurred and be continuing at the time the Loans are to be made or
would result from the making of the Loans or from the application of the
proceeds thereof, and (d) (i) the Margined Value of the Collateral, (ii) the
aggregate Loan Exposures, and the (iii) the aggregate LC Exposures are as
follows:
-------------------------------- -------------------------------
Margined Value of Collateral:
(1) Be sure to specify the duration of the Interest Period in the case of
Eurodollar Rate Loans (e.g., one-month Eurodollar Rate).
(2) Include and complete this sentence if the proceeds of the requested
Loans are to be disbursed in a manner other than by credit to an account of the
Borrower at the Agent's Office.
-------------------------------- -------------------------------
-------------------------------- -------------------------------
Aggregate Loan Exposures:
-------------------------------- -------------------------------
-------------------------------- -------------------------------
Aggregate LC Exposures:
-------------------------------- -------------------------------
LECHTERS, INC.
By __________________________
Name:
Title:
11
Exhibit 17(b)
to Second Amendment
and Waiver to Credit Agreement
COLLATERAL AND ACCOUNT CONTROL AGREEMENT
This is a COLLATERAL AND ACCOUNT CONTROL AGREEMENT, dated as of September
14, 1999 between Lechters, Inc. (the "Pledgor") with an address at 0 Xxxx Xxx
Xxxxxx, Xxxxxxxx, Xxx Xxxxxx 00000, The Chase Manhattan Bank, individually,
having an address at Xxx Xxxxx Xxxxxxxxx Xxxxx, Xxx Xxxx, Xxx Xxxx 00000
("Chase"), and Chase, as agent under that certain Credit Agreement dated March
26, 1998 (the "Credit Agreement") between the Pledgor, Chase and the financial
institutions listed on the signature pages thereof (Chase or any successor, in
its capacity as agent under such agreement, is referred to herein as the
"Agent"), with an address at East 00 Xxxxxxx Xxxxxx, Xxxxxxx, Xxx Xxxxxx 00000.
W I T N E S S E T H:
WHEREAS, the Pledgor has requested that the Agent and the Banks which are
party to the Credit Agreement enter into a Second Amendment and Waiver to the
Credit Agreement;
WHEREAS, it is a condition to the effectiveness of the Second Amendment and
Waiver to the Credit Agreement that the Pledgor execute and deliver this
Collateral and Account Control Agreement; and
WHEREAS, the Pledgor has established Account No. 0000000 with Chase
pursuant to a Custody Account Agreement dated September 3, 1999 between the
Pledgor and Chase (the "Custody Account Agreement");
NOW, THEREFORE, in consideration of the premises, the Pledgor hereby agrees
with the Agent as follows:
1 Defined Terms.
a. Unless otherwise defined herein, terms defined in the Credit
Agreement and used herein shall have the meanings given to them therein.
b. The following terms shall have the following meanings:
"Agreement": this Collateral and Account Control Agreement, as the same may
be amended, supplemented or otherwise modified from time to time.
"Collateral": the collective reference to: (i) the Collateral Account; (ii)
all cash, instruments, securities, security entitlements, financial assets
(including certificates of deposit) and funds deposited from time to time in the
Collateral Account; (iii) all investments of funds in the Collateral Account and
all instruments and securities evidencing such investments; and (iv) all
interest, dividends, cash, instruments, securities, security entitlements,
financial assets (including certificates of deposit) and other property received
in respect of, or as proceeds of, or in substitution or exchange for, any of the
foregoing.
"Collateral Account": Account No. 0000000 established with Chase and
designated "Lechters, Inc. - Collateral Account".
"Collateral Account Agreement": that certain Custody Account Agreement
dated September 3, 1999 between the Pledgor and Chase pursuant to which the
Collateral Account has been established, and any successor agreement thereto.
"Code": the Uniform Commercial Code from time to time in effect in the
State of New York.
"Contractual Obligation": as to any Person, any provision of any security
issued by such Person or of any agreement, instrument or other undertaking to
which such Person is a party or by which it or any of its property is bound.
"Governmental Authority": any nation or government, any state of other
political subdivision thereof and any entity exercising executive, legislative,
judicial, regulatory or administrative functions of or pertaining to government.
"Obligations": the obligations and liabilities of the Pledgor to (i) the
Banks, the Agent, the Issuing Bank under the Credit Agreement including the
Agent in such capacities, and (ii) the Agent under this Agreement (including,
without limitation, any interest payable in respect thereof, including interest
accruing after the filing of any petition in bankruptcy, or the commencement of
any insolvency, reorganization or like proceeding, relating to the Pledgor,
whether or not a claim for post-filing or post-petition interest is allowed in
such proceeding) whether direct or indirect, absolute or contingent, due or to
become due, or now existing or hereafter incurred.
"Person": an individual, partnership, corporation, business trust, joint
stock company, trust, unincorporated association, joint venture, Governmental
Authority or other entity of whatever nature.
"Requirement of Law": as to any Person, the Certificate of Incorporation
and By-Laws or other organizational or governing documents of such Person, and
any law, treaty, rule or regulation or determination of an arbitrator or a court
or other Governmental Authority, in each case applicable to or binding upon such
Person or any of its property or to which such Person or any of its property is
subject.
c. The words "hereof," "herein" and "hereunder" and words of
similar import when used in this Agreement shall refer to this Agreement as
a whole and not to any particular provision of this Agreement, and
section and paragraph references are to this Agreement unless otherwise
specified.
2
d. The meanings given to terms defined herein shall be equally
applicable to both the singular and plural forms of such terms.
2. Grant of Security Interest; Collateral Assignment. As collateral
security for the prompt and complete payment and performance when due (whether
at the stated maturity, by acceleration or otherwise) of the Obligations, the
Pledgor hereby grants to the Agent for the benefit of the Banks, the Agent and
the Issuing Bank, a collateral assignment of and security interest in the
Collateral.
3. Control; Maintenance of Collateral Account.
a. The Collateral Account shall be maintained until the Obligations
have been paid and performed in full.
b. The Agent shall have such rights with respect to the Collateral
as are set forth in this Agreement, and shall hold and administer the
Collateral subject to the terms and conditions of this Agreement. Chase
agrees with the Agent and the Pledgor that it will comply with entitlement
orders originated by the Agent concerning the Collateral Account without
further consent of the Pledgor. The Pledgor shall have no right of
withdrawal from the Collateral Account nor any other right or power with
respect to the Collateral, except as expressly provided herein.
Subject to paragraphs 6 and 7, Chase shall make trades of financial
assets held in the Collateral Account at the direction of the Pledgor,
or its authorized representative, and comply with entitlement orders
concerning the Collateral Account from the Pledgor, or its authorized
representative, until such time as the Agent delivers a written notice
to Chase that the Agent is thereby exercising exclusive control over the
Collateral Account. Such notice may be referred to herein as the "Notice
of Exclusive Control." After Chase receives the Notice of Exclusive
Control, it will immediately cease complying with entitlement orders or
other directions concerning the Account originated by the Pledgor or its
representatives, until such time as the Agent withdraws such notice.
c. In the event the Fair Market Value of the Collateral shall be
less than the Margined Value of the Collateral required under the Credit
Agreement, then the Pledgor shall, within one business day following
notice from the Agent, provide or cause additional property to be
transferred to the Collateral Accounts such that the Fair Market Value of
the Collateral shall be equal to or greater than the Margined Value of
the Collateral required under the Credit Agreement. If any of the
Collateral is not subject to determination of a verifiable Fair Market
Value, then such Collateral shall have at all times a value as reasonably
determined by the Agent. If the aggregate of the Loan Exposure and the
LC Exposure of all the Banks is reduced at any time to less than
$15,000,000, the Agent shall release upon the request of the Pledgor the
amount of Collateral in excess of a Margined Value of $15,000,000.
4. Representations and Warranties. The Pledgor represents and warrants
to the Agent and Chase that:
a. The Pledgor has the corporate power and authority and the legal
right to execute and deliver, to perform its obligations under, and to
grant the security interest in the Collateral pursuant to, this Agreement
and has taken all necessary corporate action to authorize its
execution, delivery and performance of, and grant of the security interest
in the Collateral pursuant to, this Agreement.
b. This Agreement constitutes a legal, valid and binding obligation
of the Pledgor enforceable in accordance with its terms and creates in
favor of the Agent a perfected, first priority security interest in
the Collateral, enforceable in accordance with its terms.
c. The execution, delivery and performance of this Agreement by the
Pledgor will not violate any provision of any Requirement of Law or
Contractual Obligation of the Pledgor and will not result in the creation
or imposition of any Lien on any of the properties or revenues of the
Pledgor pursuant to any Requirement of Law or Contractual Obligation
of the Pledgor, except as contemplated hereby.
d . No consent or authorization of, filing with, or other act
by or in respect of, any arbitrator or Governmental Authority and no
consent of any other Person (including, without limitation, any
stockholder or creditor of the Pledgor), is required in connection with
the execution, delivery or performance of this Agreement by the Pledgor,
or the validity or enforceability of this Agreement against the Pledgor.
e. No litigation, investigation or proceeding of or before any
arbitrator or Governmental Authority is pending or, to the knowledge
of the Pledgor, threatened by or against the Pledgor or against any
of its properties or revenues with respect to this Agreement or any of the
transactions contemplated hereby.
5. Covenants. The Pledgor covenants and agrees with the Agent that:
a. The Pledgor will not (1) sell, assign, transfer, exchange, or
otherwise dispose of, or grant any option with respect to, the Collateral,
or (2) create, incur or permit to exist any Lien or option in favor of,
or any claim of any Person with respect to, any of the Collateral, or any
interest therein, except for the security interest created by this
Agreement and the security interest created in favor of Chase pursuant
to Section 12 of the Custody Account Agreement.
b. The Pledgor will maintain the security interest created
by this Agreement as a first priority, perfected security interest and
will defend the right, title and interest of the Agent in and to the
Collateral against the claims and demands of all Persons whomsoever. At any
time and from time to time, upon the written request of the Agent, and at
the sole expense of the Pledgor, the Pledgor will promptly and duly execute
and deliver such further instruments and documents and take such further
actions as the Agent reasonably may request for the purposes of obtaining
or preserving the full benefits of this Agreement and of the rights and
powers herein granted, including, without limitation, of financing
statements under the Code.
3
6. Management of Collateral; Fees.
a. Upon the occurrence and during the continuation of any Event of
Default, (i) the Agent shall have the right to deliver a Notice of
Exclusive Control to Chase, with the effect set forth in paragraph 3.b.,
and (ii) until the Agent withdraws such Notice of Exclusive Control,
Pledgor shall have no authority to, directly or indirectly, provide
investment direction with respect to the Collateral.
x. Xxxxx hereby subordinates any lien with respect to the
Collateral which it may have as securities intermediary or bank by law or
pursuant to the Custody Account Agreement to the security interest granted
in this Agreement to the Agent for the benefit of the Agent and the Banks.
c. The Agent shall have no responsibility to the Pledgor for any
loss or liability arising in respect of any investments of the Collateral
(including, without limitation, as a result of the liquidation of any
thereof before maturity), except to the extent that such loss or liability
arises from the Agent's gross negligence or willful misconduct.
d. The Pledgor will pay or reimburse the Agent for any and all
costs, expenses and liabilities of the Agent incurred in connection with
this Agreement (including enforcement hereof), the maintenance and
operation of the Collateral Account and the investment of the Collateral,
including, without limitation, any investment, brokerage or placement
commissions and fees incurred by the Agent in connection with the
investment or reinvestment of Collateral, and any investment charges or
other fees of the Agent in connection with maintenance of the Collateral
Account.
7. Remedies.
a. Upon the occurrence of an Event of Default, and while such
Event of Default continues: Agent may, without notice of any kind,
except for notices required by law which may not be waived, deal with any
and all of the Collateral as it deems fit, and/or may liquidate all or
a portion of the Collateral, applying the proceeds in any manner it deems
appropriate. Such rights include, but are not limited to, the right, at the
Agent's option, to:(i) deduct all costs and expenses of every kind incurred
in respect thereof or incidental to the care or safekeeping of any of
the Collateral or in any way relating to the Collateral or the rights of
the Agent hereunder,(including, without limitation, reasonable attorneys'
fees and disbursements of counsel to the Agent), (ii) apply such Collateral
or the proceeds thereof to the payment of such Obligations in such order as
the Agent in its sole discretion may elect, (iii) notify any third party
to terminate immediately any trading, other rights or entitlements with
respect to the Collateral and any distributions from the Collateral; (iv)
transfer into Agent's name or the name of its nominee, all or any part of
the Collateral or proceeds thereof; (v) receive all interest, dividends,
and other proceeds of the Collateral; (vi) notify any person obligated on
any Collateral of the security interest of Agent therein and require
such person to make payment directly to Agent; (vii) demand, xxx for,
collect or receive the Collateral and any proceeds thereof, and/or make
any settlement or compromise as Agent deems desirable with respect to any
Collateral; and (viii) exercise any voting, conversion, registration,
purchase or other rights of an owner, holder or entitlement holder of the
Collateral. Pledgor agrees that Agent may exercise its rights under this
Agreement without regard for the actual or potential tax consequences to
Pledgor under federal or state law and without regard to any instructions
or directives given Agent by Pledgor.
4
b. Pledgor acknowledges that some of the Collateral may be subject
to rapid decline in value and is customarily sold in recognized markets,
and upon the occurrence of an Event of Default, Agent may dispose of such
Collateral in its recognized market without providing notice of sale.
c. Upon the occurrence of an Event of Default, at Agent's request,
Pledgor will, at its own expense do or cause to be done all other acts and
things as may be necessary to make the sale of the Collateral valid,
binding and in compliance with applicable law.
d. Any Collateral remaining after application of Collateral by
Agent in accordance with the provisions hereof shall continue to be held
as Collateral pursuant to this Agreement for such of the Obligations as are
not then due and payable. Only after the termination or expiration of all
Letters of Credit, the payment in full of all Obligations and after the
payment by the Agent of any other amount required by any provision of law,
inducing, without limitation, Section 9-504(1)(c) of the Code, must the
Agent account for the surplus, if any, to the Pledgor. In addition to the
rights, powers and remedies granted to it under this Agreement and in any
other agreement securing, evidencing or relating to the Obligations, the
Agent shall have all the rights, powers and remedies available at law,
including, without limitation, the rights and remedies of a secured party
under the Code. To the extent permitted by law, the Pledgor waives
presentment, demand, protest and all notices of any kind and all claims,
damages and demands it may acquire against the Agent arising out of the
exercise by them of any rights hereunder.
e. The Pledgor shall remain liable for any deficiency if the
proceeds of any sale or other disposition of the Collateral are
insufficient to pay the Obligations and any costs and expenses of Agent
in connection therewith (including, without limitation, any fees and
disbursements of any attorneys employed by the Agent to collect such
deficiency).
8. Agent's Appointment as Attorney-in Fact.
a. The Pledgor hereby irrevocably constitutes and appoints the
Agent and any officer or agent of the Agent, with full power of
substitution, as its true and lawful attorney-in-fact with full
irrevocable power and authority in the place and stead of the Pledgor and
in the name of the Pledgor or in the Agent's own name, from time to time
in the Agent's discretion, for the purpose of carrying out the terms of
this Agreement, to take any and all appropriate action and to execute any
and all documents and instruments which may be necessary or desirable to
accomplish the purposes of this Agreement, including, without limitation,
any financing statements, endorsements, assignments or other instruments
of transfer.
b. The Pledgor hereby ratifies all that said attorneys shall
lawfully do or cause to be done pursuant to the power of attorney granted
in paragraph 8(a). All powers, authorizations and agencies contained in
this Agreement are coupled with an interest and are irrevocable until this
Agreement is terminated and the security interests created hereby are
released.
9. Duty of Agent. The Agent's sole duty with respect to the custody,
safekeeping and physical preservation of the Collateral in its possession, under
Section 9-207 of the Code or otherwise, shall be to comply with the specific
duties and responsibilities set forth herein. The powers conferred on the Agent
in this Agreement are solely for the protection of the Agent's interests in the
Collateral and shall not impose any duty upon the Agent to exercise any such
powers. Neither the Agent nor any of its directors, officers, employees or
agents shall be liable for any action lawfully taken or omitted to be taken by
any of them under or in connection with the Collateral or this Agreement, except
for its or their gross negligence or willful misconduct.
5
10. Execution of Financing Statements. Pursuant to Section 9-402 of the
Code, the Pledgor authorizes the Agent to file financing statements with respect
to the Collateral without the signature of the Pledgor in such form and in such
filing offices as the Agent reasonably determines appropriate to perfect the
security interests of the Agent under this Agreement. A carbon, photographic or
other reproduction of this Agreement shall be sufficient as a financing
statement for filing in any jurisdiction.
11. Notices. All notices, requests and demands to or upon the Agent
or the Pledgor to be effective shall be in writing (including fax or similar
electronic transfer) and shall be deemed to have been duly given or made (a)
when delivered by hand or (b) if given by mail, when deposited in the mails by
certified mail, return receipt requested, or (c) if by fax or similar electronic
transfer, when sent and receipt has been confirmed, to the Pledgor or the Agent,
as the case may be, at its address or transmission number for notices set forth
under its signature below. The Pledgor and the Agent may change their
addresses and transmission numbers for notices by notice in the manner
provided in this paragraph.
12. Severability. Any provision of this Agreement 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 provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
13. Integration; Interpretation. This Agreement represents the agreement
of the Pledgor with respect to the subject matter hereof and there are no
promises or representations by the Agent relative to the subject matter
hereof not reflected herein. If any provision of this Collateral and Account
Control Agreement shall conflict with, or be inconsistent with, any provision
of the Custody Account Agreement, then such provision of this Collateral and
Account Control Agreement shall supersede such inconsistent or conflicting
provision of the Custody Account Agreement.
14. Amendments in Writing; No Waiver; Cumulative Remedies.
a. None of the terms or provisions of this Agreement may be
waived, amended, supplemented or otherwise modified except by a written
instrument executed by the Pledgor, the Agent and Chase.
b. The Agent shall not by any act (except by a written instrument
pursuant to paragraph 14(a) hereof), delay, indulgence, omission or
otherwise be deemed to have waived any right or remedy hereunder or to have
acquiesced in any breach of any of the terms and conditions hereof. No
failure to exercise, nor any delay in exercising, on the part of the Agent,
any right, power or privilege hereunder shall operate as a waiver thereof.
No single or partial exercise of any right, power or privilege hereunder
shall preclude any other or further exercise thereof or the exercise of
any other right, power or privilege. A waiver by the Agent of any right
or remedy hereunder on any one occasion shall not be construed as a
bar to any right or remedy which the Agent would otherwise have on any
future occasion.
c. The rights and remedies herein provided are cumulative, may be
exercised singly or concurrently and are not exclusive of any other
rights or remedies provided by law.
15. Section Headings. The section headings used in this Agreement are
for convenience of reference only and are not to affect the construction hereof
or be taken into consideration in the interpretation hereof.
16. Successors and Assigns. This Agreement shall be binding upon the
successors and assigns of the Pledgor, the Agent and Chase and shall inure to
the benefit of their respective successors and assigns.
17. Governing Law. This Agreement shall be governed by, and construed and
interpreted in accordance with, the law of the State of New York.
IN WITNESS WHEREOF, the Pledgor, Chase and the Agent have caused this
Collateral and Account Control Agreement to be duly executed and delivered as of
the date first above written.
Lechters, Inc.
By:____________________
Name:
Title:
Fax:
The Chase Manhattan Bank, as agent
By:_____________________
Xxxxxx Xxxxxxx
Vice President
Fax: 000-000-0000
The Chase Manhattan Bank
By:______________________
Xxxxxx Xxxxxxxx
Vice President
Fax: 000-000-0000
6
