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EXHIBIT 10.2
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TERM LOAN AND SECURITY AGREEMENT
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Back Bay Capital, LLC
THE LENDER
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FACTORY CARD OUTLET OF AMERICA, LTD.
THE BORROWER
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316169.5
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TABLE OF CONTENTS
ARTICLE 1 - DEFINITIONS:
ARTICLE 2 - THE TERM LOAN:
2-1. Commitment To Make Term Loan . 14 .
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2-2. The Term Note . 14 .
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2-3. Payment of Principal of the Term Loan . 14 .
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2-4. Interest. . 14 .
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2-5. Commitment Fee . 15 .
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2-6. Anniversary Fee . 16 .
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2-7. Collateral Monitoring Fee . 16 .
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2-8. Lender's Discretion . 16 .
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ARTICLE 3 - CONDITIONS PRECEDENT:
3-1. Corporate Due Diligence. . 17 .
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3-2. Opinion. . 17 .
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3-3. Intercreditor Agreement. . 17 .
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3-4. Warrants. . 17 .
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3-5. Additional Documents. . 17 .
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3-6. Officers' Certificates. . 17 .
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3-7. Representations and Warranties. . 17 .
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3-8. Amendment of Tranche A Loan. . 18 .
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3-9. All Fees and Expenses Paid. . 18 .
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3-10. No Event of Default. . 18 .
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3-11. No Adverse Change. . 18 .
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ARTICLE 4 - GENERAL REPRESENTATIONS, COVENANTS AND WARRANTIES:
4-1. Payment and Performance of Liabilities. . 18 .
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4-2. Due Organization - Corporate Authorization - No Conflicts. . 18 .
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4-3. Trade Names. . 19 .
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4-4. Infrastructure. . 20 .
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4-5. Locations. . 20 .
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4-6. Title to Assets. . 21 .
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4-7. Indebtedness . 22 .
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4-8. Insurance Policies. . 22 .
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4-9. Licenses . 23 .
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4-10. Leases. . 23 .
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4-11. Requirements of Law . 24 .
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4-12. Maintain Properties . 24 .
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4-13. Pay Taxes. . 24 .
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4-14. No Margin Stock. . 26 .
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4-15. ERISA . 26 .
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4-17. Litigation . 27 .
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4-18. Dividends or Investments . 27 .
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4-19. Loans . 27 .
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4-20. Protection of Assets . 28 .
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4-21. Line of Business . 28 .
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4-22. Affiliate Transactions . 28 .
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4-23. Additional Assurances . 28 .
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4-24. Adequacy of Disclosure . 29 .
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4-25. Other Covenants . 29 .
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ARTICLE 5 - FINANCIAL REPORTING AND PERFORMANCE COVENANTS:
5-1. Maintain Records . 30 .
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5-2. Access to Records . 30 .
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5-3. Immediate Notice to Lender . 31 .
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5-4. Financial Reports Provided to Tranche A Agent . 32 .
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5-5. Annual Reports . 32 .
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5-6. Officers' Certificates . 33 .
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5-7. Inventories, Appraisals, and Audits . 34 .
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5-8. Additional Financial Information . 35 .
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5-9. Coordination With Tranche A Agent . 36 .
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5-10. Financial Performance Covenants . 36 .
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ARTICLE 6 - USE AND COLLECTION OF COLLATERAL:
6-1. Use of Inventory Collateral . 36 .
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6-2. Inventory Quality . 37 .
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6-3. Adjustments and Allowances . 37 .
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6-4. Validity of Accounts . 37 .
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6-5. Notification to Account Debtors . 37 .
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ARTICLE 7 - GRANT OF SECURITY INTEREST:
7-1. Grant of Security Interest . 37 .
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7-2. Extent and Duration of Security Interest . 38 .
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ARTICLE 8 - LENDER AS BORROWER'S ATTORNEY-IN-FACT:
8-1. Appointment as Attorney-In-Fact . 38 .
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8-2. No Obligation to Act . 39 .
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ARTICLE 9 - EVENTS OF DEFAULT:
9-1. Failure to Pay Term Loan . 40 .
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9-2. Failure To Make Other Payments . 40 .
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9-3. Failure to Perform Covenant or Liability (No Grace Period) . 40 .
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9-4. Failure to Perform Covenant or Liability (Grace Period) . 40 .
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9-5. Misrepresentation . 40 .
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9-6. Acceleration of Other Debt. Breach of Lease . 40 .
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9-7. Default Under Other Agreements . 41 .
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9-8. Casualty Loss. . 41 .
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9-9. Judgment. Restraint of Business . 41 .
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9-10. Business Failure . 41 .
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9-11. Bankruptcy . 42 .
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9-12. Indictment - Forfeiture . 42 .
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9-13. Default by Guarantor, Parent, or Related Entity . 42 .
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9-14. Termination of Guaranty . 42 .
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9-15. Challenge to Loan Documents . 42 .
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9-16. Change in Control. . 43 .
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ARTICLE 10 - RIGHTS AND REMEDIES UPON DEFAULT:
10-1. Rights of Enforcement . 43 .
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10-2. Sale of Collateral . 44 .
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10-3. Occupation of Business Location . 44 .
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10-4. Grant of Nonexclusive License. . 45 .
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10-5. Assembly of Collateral . 45 .
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10-6. Rights and Remedies . 45 .
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ARTICLE 11 - NOTICES:
11-1. Notice Addresses . 45 .
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11-2. Notice Given . 46 .
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ARTICLE 12 - MATURITY OF THE TERM LOAN:
12-1. Maturity . 47 .
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ARTICLE 13 - GENERAL:
13-1. Payments . 47 .
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13-2. Protection of Collateral . 47 .
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13-3. Successors, Assigns And Delegation of Authority. . 48 .
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13-4. Severability . 48 .
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13-5. Amendments. Course of Dealing . 48 .
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13-6. Power of Attorney . 49 .
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13-7. Application of Proceeds . 49 .
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13-8. Lender's Costs and Expenses . 49 .
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13-9. Copies and Facsimiles . 50 .
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13-10. Massachusetts Law . 50 .
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13-11. Consent to Jurisdiction . 50 .
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13-12. Indemnification . 51 .
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13-13. Rules of Construction. . 51 .
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13-14. Intent . 53 .
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13-15. Right of Set-Off . 53 .
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13-16. Maximum Interest Rate. . 53 .
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13-17. Waivers. . 53 .
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EXHIBITS
2-2 : Term Note
2-4(c) : PIK Note
3-11 : Certain Events
3-4 : Outline of Warrants
4-2 : Related Entities
4-3 : Trade Names
4-4 : Year 2000 Problem
4-5 : Locations, Leases, and Landlords
4-6 : Encumbrances
4-7 : Indebtedness
4-8 : Insurance Policies
4-10 : Capital Leases
4-13 : Taxes
4-17 : Litigation
5-4 : Borrowing Base Certificate
5-10(a) : Financial Performance Covenants
5-10(b) : Supplemental Financial Performance Covenants
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TERM LOAN AND SECURITY AGREEMENT BACK BAY CAPITAL, LLC
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July 17, 1998
THIS AGREEMENT is made between
Back Bay Capital, LLC (the "LENDER"), a Delaware limited liability
company with offices at 00 Xxxxx Xxxxxx, Xxxxxx, Xxxxxxxxxxxxx 00000,
and
Factory Card Outlet of America, Ltd. (hereinafter, the "BORROWER"), an
Illinois corporation with its principal executive offices at 0000 Xxxxx
Xxxx, Xxxxxxxxxx, Xxxxxxxx 00000
in consideration of the mutual covenants contained herein and benefits to be
derived herefrom,
WITNESSETH:
ARTICLE 1 - DEFINITIONS:
As herein used, the following terms have the following meanings or are
defined in the section of the within Agreement so indicated:
"ACCOUNTS" and "ACCOUNTS RECEIVABLE" include, without limitation,
"accounts" as defined in the UCC, and also all: accounts, accounts
receivable, credit card receivables, notes, drafts, acceptances, and
other forms of obligations and receivables and rights to payment for
credit extended and for goods sold or leased, or services rendered,
whether or not yet earned by performance; all "contract rights" as
formerly defined in the UCC; all Inventory which gave rise thereto,
and all rights associated with such Inventory, including the right
of stoppage in transit; all reclaimed, returned, rejected or
repossessed Inventory (if any) the sale of which gave rise to any
Account.
"ACCOUNT DEBTOR":Has the meaning given that term in the UCC.
"AFFILIATE": With respect to any two Persons, a relationship in which (a)
one holds, directly or
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indirectly, not less than Twenty Five Percent (25%) of the capital
stock, beneficial interests, partnership interests, or other equity
interests of the other; or (b) one has, directly or indirectly, the
right, under ordinary circumstances, to vote for the election of a
majority of the directors (or other body or Person who has those
powers customarily vested in a board of directors of a
corporation); or (c) not less than Twenty Five Percent (25%) of
their respective ownership is directly or indirectly held by the
same third Person.
"AGGREGATE INDEBTEDNESS COVENANT":Is defined on EXHIBIT 5-10(b), annexed
hereto.
"ANNIVERSARY FEE":Is defined in Section 2-6.
"BANKRUPTCY CODE":Title 11, U.S.C., as amended from time to time.
"BASELINE COVENANT":Is defined on EXHIBIT 5-10(a), annexed hereto.
"BORROWER": Is defined in the Preamble.
"BUSINESS DAY": Any day other than (a) a Saturday or Sunday; (b) any day
on which banks in Boston, Massachusetts or Chicago, Illinois,
generally are not open to the general public for the purpose of
conducting commercial banking business; or (c) a day on which the
Lender is not open to the general public to conduct business.
"BUSINESS PLAN": The Borrower's Business Plan provided, from time to
time, to the Tranche A Agent as provided in the Tranche A Loan
Agreement, provided, however, in the event of the termination of the
Tranche A Loan Agreement, those provisions of the Tranche A Loan
Agreement which require the Borrower's submission of a "Business
Plan" shall be deemed, for purposes of this Agreement, to remain in
full force and effect.
"CAPITAL LEASE": Any lease which may be capitalized in accordance with
GAAP.
"CHANGE IN CONTROL": The occurrence of any of the following:
(a) The acquisition, by any Person or by any group (within the
meaning of Section 13(d)(3) of the Exchange Act) or by any Person,
of beneficial ownership (within the meaning of Rule 13d-3 of the
Exchange Act) directly or indirectly of Fifty Percent
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(50%) or more of the issued and outstanding capital stock of the
Parent having the right, under ordinary circumstances, to vote for
the election of directors of the Parent, provided, however, a
"Change in Control" shall not be deemed to have occurred by reason
of such acquisition of Fifty Percent (50%) or more of such capital
stock if such Person or group holds such voting power (in good faith
and not for the purpose of circumventing the effect of Section 9-16)
as an agent, bank, broker, nominee, trustee, or holder of revocable
proxies given in response to a solicitation pursuant to the Exchange
Act, for one or more beneficial owners of such stock who do not,
individually, or, in a group acting in concert, as a group, have the
voting power specified in this clause.
(b) More than half of the persons who were directors of the
Parent (or of any parent of the Parent) on the first day of any
period consisting of six (6) consecutive calendar months (the first
of which six (6) month periods commencing with the first day of the
month during which the within Agreement was executed), cease, for
any reason other than death or disability, to be directors of the
Parent (or such parent, as applicable).
"CHATTEL PAPER": Has the meaning given that term in the UCC.
"CLOSING": The delivery, to the Lender, by, or on behalf of the Borrower,
at the offices of the Lender's counsel in Boston, Massachusetts, of
those of the Loan Documents to be executed by or on behalf of the
Borrower.
"COLLATERAL":Is defined in Section 7-1.
"COLLATERAL MONITORING FEE":Is defined in Section 2-7.
"COMMITMENT FEE": Is defined in Section 2-5.
"CONSOLIDATED": When used to modify a financial term, test, statement, or
report, refers to the application or preparation of such term, test,
statement, or report (as appropriate) based upon the consolidation,
in accordance with GAAP, of the financial condition or operating
results of the Borrower and the Parent.
"CONSOLIDATED CAPITAL EXPENDITURES": Cash payments for the purchase of
assets or the incurrence of liabilities, the purchase or incurrence
of which may be capitalized in accordance with GAAP.
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"CONSOLIDATED EBITDA": The Borrower's Consolidated earnings (excluding
any non-cash restructuring charges, non-cash write-offs or
write-downs of capital assets) before interest, taxes, depreciation,
and amortization, each as determined in accordance with GAAP.
"CONSOLIDATED FIXED CHARGES": Cash payments for Consolidated Capital
Expenditures and income taxes.
"CONSOLIDATED FIXED CHARGE RATIO": The following, for the period being
calculated:
(Consolidated EBITDA minus Consolidated Fixed Charges)
(Cash payments of principal of all funded debt other than the
Revolving Credit plus cash payments of interest on all funded debt
plus cash payments on Capital Leases)
"CONSOLIDATED NET INCOME": The Borrower's net income, as determined in
accordance with GAAP, provided, however, in the event of a Material
Accounting Change, "Consolidated Net Income" shall be determined as
if such Material Accounting Change had not taken effect.
"COSTS OF COLLECTION" includes, without limitation, all attorneys'
reasonable fees and reasonable out-of-pocket expenses incurred by
the Lender's attorneys, and all reasonable costs incurred by the
Lender in the administration of the Liabilities and/or the Loan
Documents, including, without limitation, reasonable costs and
expenses associated with travel on behalf of the Lender, which costs
and expenses are directly or indirectly related to or in respect of
the Lender's: administration and management of the Liabilities;
negotiation, documentation, and amendment of any Loan Document; or
efforts to preserve, protect, collect, or enforce the Collateral,
the Liabilities, and/or the Lender's Rights and Remedies and/or any
of the Lender's rights and remedies against or in respect of any
guarantor or other person liable in respect of the Liabilities
(whether or not suit is instituted in connection with such efforts).
Following the occurrence of any Event of Default, "Costs of
Collection" also includes all attorneys' reasonable fees and
reasonable out-of-pocket expenses incurred by each Participant's
attorneys (including, for such purpose, the reasonably allocated
cost of a Participant's in-house counsel), and all reasonable costs
incurred by each Lender in connection with efforts to preserve,
protect, collect, or enforce
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the Collateral, the Liabilities, and/or the Lender's Rights and
Remedies. The Costs of Collection are Liabilities, and at the
Lender's option may bear interest at the highest post-default rate
which the Lender may charge the Borrower hereunder as if such had
been lent, advanced, and credited by the Lender to, or for the
benefit of, the Borrower.
"DOCUMENTS":Has the meaning given that term in the UCC.
"DOCUMENTS OF TITLE": Has the meaning given that term in the UCC.
"EMPLOYEE BENEFIT PLAN":As defined in ERISA.
"ENCUMBRANCE": Each of the following:
(a) Any security interest, mortgage, pledge, hypothecation,
lien, attachment, or charge of any kind (including any agreement to
give any of the foregoing); the interest of a lessor under a
Capital Lease; conditional sale or other title retention agreement;
sale of accounts receivable or chattel paper; or other arrangement
pursuant to which any Person is entitled to any preference or
priority with respect to the property or assets of another Person
or the income or profits of such other Person or which constitutes
an interest in property to secure an obligation; each of the
foregoing whether consensual or non-consensual and whether arising
by way of agreement, operation of law, legal process or otherwise.
(b) The filing of any financing statement under the UCC or
comparable law of any jurisdiction.
"ENVIRONMENTAL LAWS": All of the following:
(a) Any and all federal, state, local or municipal laws,
rules, orders, regulations, statutes, ordinances, codes, decrees or
requirements which regulate or relate to, or impose any standard of
conduct or liability on account of or in respect to environmental
protection matters, including, without limitation, Hazardous
Materials, as are now or hereafter in effect.
(b) The common law relating to damage to Persons or property
from Hazardous Materials.
"EQUIPMENT": Includes, without limitation, "equipment" as defined in the
UCC, and also all motor vehicles, rolling stock, machinery, office
equipment, plant equipment, tools, dies, molds,
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store fixtures, furniture, and other goods, property, and assets
which are used and/or were purchased for use in the operation or
furtherance of the Borrower's business, and any and all accessions
or additions thereto, and substitutions therefor.
"ERISA": The Employee Retirement Security Act of 1974, as amended.
"ERISA AFFILIATE": Any Person which is under common control with the
Borrower within the meaning of Section 4001 of ERISA or is part of a
group which includes the Borrower and which would be treated as a
single employer under Section 414 of the Internal Revenue Code of
1986, as amended.
"EVENTS OF DEFAULT": Is defined in Article 9. Each reference herein to an
"Event of Default" is to an Event of Default not then duly waived by
the Lender in the manner prescribed in Section 13-5(b). In the
event of such due waiver, the so-waived Event of Default shall be
deemed never to have occurred (other than with respect to any Costs
of Collection incurred by any Participant prior to such waiver).
"EXCHANGE ACT":The Securities Exchange Act of 1934, as amended.
"FIXTURES": Has the meaning given that term in the UCC.
"GAAP": Principles which are consistent with those promulgated or adopted
by the Financial Accounting Standards Board and its predecessors (or
successors) in effect and applicable to that accounting period in
respect of which reference to GAAP is being made, provided, however,
in the event of a Material Accounting Change, then unless otherwise
specifically agreed to by the Lender, (a) the Borrower's compliance
with the financial performance covenants imposed pursuant to Section
5-10 shall be determined as if such Material Accounting Change had
not taken place and (b) the Borrower shall include, with its
monthly, quarterly, and annual financial statements a schedule,
certified by the Borrower's chief financial officer, on which the
effect of such Material Accounting Change to the statement with
which provided shall be described.
"GENERAL INTANGIBLES": Includes, without limitation, "general
intangibles" as defined in the UCC; and also all: rights to payment
for credit extended; deposits; amounts due to the Borrower; credit
memoranda in favor of the Borrower; warranty claims; tax refunds and
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abatements; insurance refunds and premium rebates; all means and
vehicles of investment or hedging, including, without limitation,
options, warrants, and futures contracts; records; customer lists;
telephone numbers; goodwill; causes of action; judgments; payments
under any settlement or other agreement; literary rights; rights to
performance; royalties; license and/or franchise fees; rights of
admission; licenses; franchises; license agreements, including all
rights of the Borrower to enforce same; permits, certificates of
convenience and necessity, and similar rights granted by any
governmental authority; patents, patent applications, patents
pending, and other intellectual property; internet addresses and
domain names; developmental ideas and concepts; proprietary
processes; blueprints, drawings, designs, diagrams, plans, reports,
and charts; catalogs; manuals; technical data; computer software
programs (including the source and object codes therefor), computer
records, computer software, rights of access to computer record
service bureaus, service bureau computer contracts, and computer
data; tapes, disks, semi-conductors chips and printouts; trade
secrets rights, copyrights, mask work rights and interests, and
derivative works and interests; user, technical reference, and
other manuals and materials; trade names, trademarks, service
marks, and all goodwill relating thereto; applications for
registration of the foregoing; and all other general intangible
property of the Borrower in the nature of intellectual property;
proposals; cost estimates, and reproductions on paper, or
otherwise, of any and all concepts or ideas, and any matter related
to, or connected with, the design, development, manufacture, sale,
marketing, leasing, or use of any or all property produced, sold or
leased, by the Borrower or credit extended or services performed,
by the Borrower, whether intended for an individual customer or the
general business of the Borrower, or used or useful in connection
with research by the Borrower.
"GOODS": Has the meaning given that term in the UCC.
"HAZARDOUS MATERIALS": Any (a) hazardous materials, hazardous waste,
hazardous or toxic substances, petroleum products, which (as to any
of the foregoing) are defined or regulated as a hazardous material
in or under any Environmental Law and (b) oil in any physical state.
"INDEBTEDNESS": All indebtedness and obligations of or assumed by any
Person on account of or in respect to any of the following:
(a) In respect of money borrowed (including any indebtedness
which is
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non-recourse to the credit of such Person but which is secured by an
Encumbrance on any asset of such Person) whether or not evidenced by
a promissory note, bond, debenture or other written obligation to
pay money.
(b) In connection with any letter of credit or acceptance
transaction (including, without limitation, the undrawn face amount
of all undrawn letters of credit and acceptances issued for the
account of such Person or reimbursement on account of which such
Person would be obligated).
(c) In connection with the sale or discount of accounts
receivable or chattel paper of such Person.
(d) On account of deposits or advances.
(e) As lessee under Capital Leases.
"Indebtedness" also includes:
(x) Indebtedness of others secured by an Encumbrance on
any asset of such Person, whether or not such Indebtedness is
assumed by such Person.
(y) Any guaranty, endorsement, suretyship or other
undertaking pursuant to which that Person may be liable on
account of any obligation of any third party.
(z) The Indebtedness of a partnership or joint venture
in which such Person is a general partner or joint venturer.
"INDEMNIFIED PERSON":Is defined in Section 13-12.
"INSTRUMENTS": Has the meaning given that term in the UCC.
"INVENTORY": Includes, without limitation, "inventory" as defined in the
UCC and also all: packaging, advertising, and shipping materials
related to any of the foregoing, and all names or marks affixed or
to be affixed thereto for identifying or selling the same; Goods
held for sale or lease or furnished or to be furnished under a
contract or contracts of sale or service by the Borrower, or used or
consumed or to be used or consumed in the Borrower's business; Goods
of said description in transit: returned, repossessed and rejected
Goods of said description; and all documents (whether or not
negotiable) which represent any of the foregoing.
"INVESTMENT PROPERTY": Has the meaning given that term in the UCC.
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"LEASE": Any lease or other agreement, no matter how styled or
structured, pursuant to which the Borrower is entitled to the use or
occupancy of any space.
"LEASEHOLD INTEREST":Any interest of the Borrower as lessee under any
Lease.
"LENDER":Is defined in the Preamble to the within Agreement.
"LENDER'S RIGHTS AND REMEDIES": Is defined in Section 10-6.
"LIABILITIES" (in the singular, "LIABILITY") includes, without
limitation, all and each of the following, whether now existing or
hereafter arising:
(a) Any and all direct and indirect liabilities, debts, and
obligations of the Borrower to the Lender under this Agreement or
any of the Loan Documents, each of every kind, nature, and
description.
(b) Each obligation to repay any loan, advance, indebtedness,
note, obligation, overdraft, or amount now or hereafter owing by
the Borrower to the Lender under this Agreement or any of the Loan
Documents (including all future advances whether or not made
pursuant to a commitment by the Lender ), whether or not any of
such are liquidated, unliquidated, primary, secondary, secured,
unsecured, direct, indirect, absolute, contingent, or of any other
type, nature, or description, or by reason of any cause of action
which the Lender may hold against the Borrower.
(c) The Term Note, any PIK Note, and all notes and other
obligations of the Borrower under the Loan Documents which are now
or hereafter assigned to or held by the Lender , each of every
kind, nature, and description.
(d) All interest, fees, and charges and other amounts which
may be charged by the Lender to the Borrower under this Agreement
or any of the Loan Documents, and/or which may be due from the
Borrower to the Lender from time to time under this Agreement or
any of the Loan Documents.
(e) All costs and expenses incurred or paid by the Lender in
respect of under this Agreement or any of the Loan Documents and
all costs and expenses of each Lender which the Borrower, pursuant
to Section 13-8(b), is obligated to pay (including, without
limitation, Costs of Collection, attorneys' reasonable fees, and
all court and litigation costs and expenses).
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(f) Any and all covenants of the Borrower to or with the
Lender under this Agreement or any of the Loan Documents, and any
and all obligations of the Borrower to act or to refrain from
acting in accordance with under this Agreement or any of the Loan
Documents.
"LOAN DOCUMENTS": The within Agreement, each instrument and document
executed and/or delivered as contemplated by Article 3, below, and
each other instrument or document from time to time executed and/or
delivered in connection with the arrangements contemplated hereby or
in connection with any transaction with the Lender or any Affiliate
of the Lender, including, without limitation, any transaction which
arises out of any cash management, depository, investment, letter of
credit, interest rate protection, or equipment leasing services
provided by the Lender or any Affiliate of the Lender, as each may
be amended from time to time. (The "Loan Documents" do not include
any Tranche A Loan Documents).
"MATERIAL ACCOUNTING CHANGE": Any change in GAAP applicable to accounting
periods subsequent to the Borrower's fiscal year most recently
completed prior to the execution of the within Agreement, which
change has a material effect on the Borrower's financial condition
or operating results, as reflected on financial statements and
reports prepared by or for the Borrower, when compared with such
condition or results as if such change had not taken place or where
preparation of the Borrower's statements and reports in compliance
with such change results in the breach of a financial performance
covenant imposed pursuant to Section 5-10 where such a breach would
not have occurred if such change had not taken place or visa versa.
"MATURITY DATE":The earliest of (a) December 31, 1999.; or (b)the
occurrence of any "Termination Date" within the meaning of the
Tranche A Loan Agreement; or (c) the occurrence of any event
described in Section 9-11, below; or (d) the Lender's notice to the
Borrower setting the Maturity Date on account of the occurrence of
any Event of Default other than as described in Section 9-11, below.
"PARENT":Factory Card Outlet Corp., a Delaware corporation. (The Parent
is a guarantor of
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the Liabilities).
"PARTICIPANT":Is defined in Section 13-15, hereof.
"PERMITTED DISTRIBUTIONS": (a) Cash dividends to the Parent, not to exceed
the following:
(i) The Parent's administrative and other expenses, paid by the
Parent, consistent with practices of prior to January 15, 1998.
(ii) The actual cost to acquire capital stock of the Parent for
use in fulfillment of an employee stock purchase plan which is
included as a component of an Employee Benefit Plan.
(b) Internal transfers to the Parent, consistent with
practices of prior to January 15, 1998.
"PERMITTED ENCUMBRANCES": Those Encumbrances permitted as provided in Section
4-6(a) hereof.
"PERMITTED EQUITY INJECTION" refers to (a) the issuance of capital stock or (b)
the incurrance of indebtedness on terms which are reasonably satisfactory
to the Tranche A Agent which indebtedness is subordinated to the
Borrower's obligations under the Tranche A Loan on terms which are
reasonably satisfactory to the Tranche A Agent.
"PERMITTED INVESTMENT": An investment which fulfills any of the following
numbered criteria, which investment is made solely through BankBoston N.A.
(or other securities intermediary (within the meaning of the UCC) which has
executed a "control agreement" (so-called) in favor of the Tranche A Agent
and the Lender) and maintained on the books and records of said bank or
such securities intermediary as (x)(i) owned by the Borrower and (ii)
subject to a perfected first security interest therein in favor of the
Tranche A Agent and the Lender or (y) held by the Tranche A Agent as
pledgee of the Borrower and as bailee for the Lender:
(1) Debt entitled to the full faith and credit of the United
States with maturities not to exceed ninety-one (91) days.
(2) Banker's Acceptances, "Repo's", or Certificates of Deposit
entitled to the full faith and credit of BankBoston, N.A. or other
bank whose credit rating, as assigned by a national recognized credit
rating service, is equal to, or higher than, that of BankBoston,
N.A.
.11.
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(3) Commercial Paper rated A-1/P-1.
(4) Money market funds (so-called) whose investments are
limited to those investments described in (1) through and
including (3) of this Definition.
"PERSON": Any natural person, and any corporation, limited liability
company, trust, partnership, joint venture, or other enterprise or
entity.
"PIK NOTE": Defined in Section 2-4(c).
"PIK RATE": Defined in Section 2-4(c).
"PROCEEDS": Includes, without limitation, "Proceeds" as defined in the
UCC (defined below), and each type of property described in Section
7-1 hereof.
"RECEIPTS": All cash, cash equivalents, checks, and credit card slips and
receipts as arise out of the sale of the Collateral.
"RECEIVABLES COLLATERAL": That portion of the Collateral which consists
of the Borrower's Accounts, Accounts Receivable, General
Intangibles, Chattel Paper, Instruments, Documents of Title,
Documents, Investment Property, letters of credit for the benefit of
the Borrower, and bankers' acceptances held by the Borrower, and any
rights to payment.
"RELATED ENTITY": (a) Any corporation, limited liability company, trust,
partnership, joint venture, or other enterprise which: is a parent,
brother-sister, subsidiary, or affiliate, of the Borrower; could
have such enterprise's tax returns or financial statements
consolidated with the Borrower's; could be a member of the same
controlled group of corporations (within the meaning of Section
1563(a)(1), (2) and (3) of the Internal Revenue Code of 1986, as
amended from time to time) of which the Borrower is a member;
controls or is controlled by the Borrower or by any Affiliate of the
Borrower.
(b) Any Affiliate.
"REQUIREMENT OF LAW": As to any Person:
(a)(i) All statutes, rules, regulations, orders, or other
requirements having the force of law and (ii) all court orders and
injunctions, arbitrator's decisions, and/or similar
.12.
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rulings, in each instance ((i) and (ii)) of or by any federal,
state, municipal, and other governmental authority, or court,
tribunal, panel, or other body which has or claims jurisdiction
over such Person, or any property of such Person, or of any other
Person for whose conduct such Person would be responsible.
(b) That Person's charter, certificate of incorporation,
articles of organization, and/or other organizational documents, as
applicable; and (c) that Person's by-laws and/or other instruments
which deal with corporate or similar governance, as applicable.
"TERM NOTE": Is defined in Section 2-2.
"TERM LOAN": Is defined in Section 2-6.
"TRANCHE A AGENT": BankBoston Retail Finance Inc., a Delaware corporation
with its principal executive offices at 00 Xxxxx Xxxxxx, Xxxxxx,
Xxxxxxxxxxxxx as Agent for the ratable benefit of the lenders under
the Tranche A Loan Agreement, as amended from time to time.
"TRANCHE A LOAN": The revolving credit facility, originally established
as of January 30, 1998, with the Tranche A Agent.
"TRANCHE A LOAN AGREEMENT": The Loan and Security Agreement, dated as of
January 30, 1998, between the Borrower and the Tranche A Agent, as
amended from time to time.
"TRANCHE A LOAN DOCUMENTS": Those instruments and documents which
evidence, govern, and control the Tranche A Loan.
"SEC": The Securities and Exchange Commission.
"UCC": The Uniform Commercial Code as presently in effect in
Massachusetts (Mass. Gen. Laws, Ch. 106).
"YEAR 2000 PROBLEM": The risk that a computer application which is
material to the operation of the Borrower is unlikely to recognize
certain dates or properly perform date sensitive functions involving
dates prior to and after December 31, 1999.
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ARTICLE 2- THE TERM LOAN:
2-1. Commitment To Make Term Loan. Subject to satisfaction of the
Conditions Precedent (Article 3) on or before July 31, 1998 (or the due waiver
(in accordance with Section 13-5(b)) of one or more of such Conditions Precedent
by the Lender), the Borrower shall borrow from the Lender and the Lender shall
lend to the Borrower the sum of $10,000,000.00 (the "TERM LOAN"), repayable with
interest as provided herein. The Term Loan shall be made by transfer to the
Tranche A Agent for application against the then unpaid principal balance of the
Tranche A Loan.
2-2. The Term Note. The obligation to repay the Term Loan, with interest
as provided herein, shall be evidenced by a note (the "TERM NOTE") in the form
of EXHIBIT 2-2, annexed hereto, executed by the Borrower. Neither the original
nor a copy of the Term Note shall be required, however, to establish or prove
any Liability. In the event that the Term Note is ever lost, mutilated, or
destroyed, the Borrower shall execute a replacement thereof and deliver such
replacement to the Lender.
2-3. Payment of Principal of the Term Loan.
(a) The Borrower may repay all or any portion of the principal balance
of the Term Loan from time to time until the Maturity Date. Amounts which are
so prepaid may not be reborrowed.
(b) The Borrower, without notice or demand from the Lender, shall
repay the Tranche A Lender that amount, from time to time, which is necessary so
that the Borrower is in compliance with the BaseLine Covenant .
(c) On the Maturity Date, the Borrower shall repay the then entire
unpaid balance of the Term Loan and all other Liabilities not otherwise duly
waived.
2-4. Interest.
(a) The unpaid principal balance of the Term Loan shall bear interest,
until repaid (calculated based upon a 360-day year and actual days elapsed),
fixed at 14.5% per annum, payable as follow:
(b) Interest on the unpaid principal balance of the Term loan, at
12.0% per annum shall be payable monthly in arrears, on the first day of each
month, and on the Maturity Date.
(c) Interest on the unpaid principal balance of the Term loan, at 2.5%
per annum (the "PIK RATE") , shall be evidenced by a series of Notes (each, a
"PIK NOTE"), each substantially in the form of EXHIBIT2-4(C), annexed hereto.
(i) A PIK Note shall be prepared and dated by the Lender as of
the last
.14.
21
day of each of the Borrower's fiscal quarters, for accrued interest, at
the PIK Rate, since the date (if any) of the then most recent PIK Note;
shall be presented to the Borrower; and in the absence of manifest error,
shall be accepted by the Borrower and returned to the Lender within five
(5) Business Days of when so presented. Each PIK Note shall mature on the
Maturity Date, on which date (unless waived in accordance with Section
2-4(c)(iv)) the then unpaid principal balance of the PIK Note, and all
accrued interest at the PIK Rate which has not then been added to the
unpaid principal balance of the PIK Note, shall be due and payable.
(ii) The unpaid principal balance of each PIK Note shall bear
interest (computed on a 360 day year and actual days elapsed) at the rate
of 12.5% per annum, which interest shall be compounded quarterly and
added to the then unpaid principal balance of such PIK Note as of the
first day of each fiscal quarter thereafter.
(iii) Neither the original nor a copy of any PIK Note shall be
required, however, to establish or prove any Liability on account of
interest at the PIK Rate. In the event that any PIK Note is ever lost,
mutilated, or destroyed, the Borrower shall execute a replacement thereof
and deliver such replacement to the Lender.
(iv) The Borrower's obligations under all PIK Notes, including each
PIK Note's unpaid principal balance and accrued interest which has not
then been added to the unpaid principal balance of a PIK Note, shall be
waived by the Lender in the event that on or prior to January 31, 1999,
the Term Loan, and all and any other amounts then payable hereunder
(other than interest at the PIK Rate) have been paid in full by the
Borrower (as distinguished from payment by reason of the application of
the proceeds of Collateral following the Lender's exercise of its rights
upon the occurrence of an Event of Default).
(d) Following the occurrence of any Event of Default (and whether or
not the Lender exercises any of the Lender's rights on account of such Event of
Default),
(i) the then unpaid principal balance of the Term Loan shall bear
interest, at the Lender's option, at 16.5% per annum; and
(ii) the then unpaid principal balance of each PIK Note shall
bear interest, at the Lender's option, at 14.5% per annum
2-5. Commitment Fee.
(a) As compensation for the Lender's having made the Term Loan, the
Lender has earned the "COMMITMENT FEE" (so referred to herein) of $350,000.00.
(b) The Commitment Fee shall be paid as follows:
(i) $175,000.00 has been paid prior to the execution of this
Agreement.
(ii) $175,000.00 shall be paid immediately following the making
of the Term
.15.
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Loan.
2-6. Anniversary Fee. Unless, prior to July 1, 1999, the Term Loan, and all
and any other amounts then payable hereunder have been paid in full by the
Borrower (as distinguished from payment by reason of the application of the
proceeds of Collateral following the Lender's exercise of its rights upon the
occurrence of an Event of Default), the Lender shall have earned, and the
Borrower shall pay on that date, the "ANNIVERSARY FEE" (so referred to herein)
of $200,000.00.
2-7. Collateral Monitoring Fee. As compensation for its monitoring the
Borrower's compliance with this Agreement, the Lender shall be paid a
"COLLATERAL MONITORING FEE" (so referred to herein) of $3,000.00, on the first
day of any month on which there is an unpaid principal balance of the Term Loan.
2-8. Lender's Discretion.
(a) Each reference in the Loan Documents to the exercise of discretion or
the like by the Lender shall be to that Person's exercise of its commercially
reasonable judgement, in good faith (which shall be presumed), based upon that
Person's consideration of any such factor as the Lender, taking into account
information of which that Person then has actual knowledge, believes:
(i) Will or reasonably could be expected to affect the value of the
Collateral, the enforceability of the Lender's security and collateral
interests therein, or the amount which the Lender would likely realize
therefrom (taking into account delays which may possibly be encountered
in the Lender's realizing upon the Collateral and likely Costs of
Collection).
(ii) Indicates that any report or financial information delivered to
the Lender by or on behalf of the Borrower is incomplete, inaccurate, or
misleading in any material manner or was not prepared in accordance with
the requirements of the within Agreement.
(iii) Suggests an increase in the likelihood that the Borrower will
become the subject of a bankruptcy or insolvency proceeding.
(iv) Constitutes an Event of Default.
(b) The burden of establishing the failure of the Lender to have acted in
a reasonable manner in such Person's exercise of discretion shall be the
Borrower's.
ARTICLE 3 - CONDITIONS PRECEDENT:
As a condition to the effectiveness of this Agreement and the making of
the Term Loan, each of the documents respectively described in Sections 3-1
through and including 3-6, (each in form and
.16.
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substance satisfactory to the Lender) shall have been delivered to the Lender,
and the conditions respectively described in Sections 3-7 through and including
3-11, shall have been satisfied:
3-1. Corporate Due Diligence.
(a) A Certificate of corporate good standing issued by the Secretary of
State of Illinois.
(b) Certificates of due qualification, in good standing, issued by the
Secretary(ies) of State of each State in which the Borrower is qualified to do
business.
(c) A Certificate of the Borrower's Secretary of the due adoption,
continued effectiveness, and setting forth the texts of, each corporate
resolution adopted in connection with the establishment of the loan arrangement
contemplated by the Loan Documents and attesting to the true signatures of each
Person authorized as a signatory to any of the Loan Documents.
3-2. Opinion. An opinion of counsel to the Borrower in form and substance
satisfactory to the Lender.
3-3. Intercreditor Agreement. An Intercreditor Agreement with the Tranche A
Agent in form and substance satisfactory to the Lender.
3-4. Warrants. There shall have been issued to those Persons designated by
the Lender, Warrants to purchase the common stock of the Parent as outlined on
EXHIBIT 3-4, annexed hereto.
3-5. Additional Documents. Such additional instruments and documents as the
Lender or its counsel reasonably may require or request.
3-6. Officers' Certificates. Certificates executed by the President and the
Chief Financial Officer of the Borrower and stating that the representations and
warranties made by the Borrower to the Lender in the Loan Documents are true and
complete as of the date of such Certificate, and that no event has occurred
which is or which, solely with the giving of notice or passage of time (or both)
would be an Event of Default.
3-7. Representations and Warranties. Each of the representations made by or
on behalf of the Borrower in this Agreement or in any of the other Loan
Documents or in any other report, statement, document, or paper provided by or
on behalf of the Borrower shall be true and complete as of
.17.
24
the date as of which such representation or warranty was made.
3-8. Amendment of Tranche A Loan. The amendment of the Tranche A Loan as
contemplated by the letter agreement, dated on or about July 2, 1998, between
the Tranche A Agent and the Borrower (or the amendment of the Tranche A Loan
contemporaneous with the closing on the Term Loan).
3-9. All Fees and Expenses Paid. All fees due at or immediately after the
first funding under the Term Loan and all out of pocket costs and expenses
incurred by the Lender in connection with the establishment of the credit
facility contemplated hereby (including the reasonable fees and expenses of
counsel to the Lender) shall have been paid.
3-10. No Event of Default. No Event of Default shall have occurred.
3-11. No Adverse Change. Except as described on EXHIBIT 3-11, annexed
hereto, no event shall have occurred or failed to occur, which occurrence or
failure is or could have a materially adverse effect upon the Borrower's
financial condition when compared with such financial condition at the end of
the Borrower's fiscal May, 1998.
No document shall be deemed delivered to the Lender until received and accepted
by the Lender at its head offices in Boston, Massachusetts or at the Closing.
Under no circumstances will the within Agreement take effect until executed and
accepted by the Lender at said head office.
ARTICLE 4 - GENERAL REPRESENTATIONS, COVENANTS AND WARRANTIES:
To induce the Lender to make the Term Loan, the Borrower, in addition to
all other representations, warranties, and covenants made by the Borrower in any
other Loan Document, makes those representations, warranties, and covenants
included in the within Agreement.
4-1. Payment and Performance of Liabilities. The Borrower shall pay each
Liability when due (or when demanded if payable on demand) and shall promptly,
punctually, and faithfully perform each other Liability.
4-2. Due Organization- Corporate Authorization - No Conflicts.
(a) The Borrower presently is and shall hereafter remain in good
standing as an Illinois corporation and is and shall hereafter remain duly
qualified and in good standing in every other State in which, by reason of the
nature or location of the Borrower's assets or operation of the Borrower's
.18.
25
business, such qualification is necessary.
(b) Each Related Entity is listed on EXHIBIT 4-2, annexed hereto.
The Parent is and shall hereafter remain in good standing in the State in which
incorporated and is and shall hereafter remain duly qualified in which other
State in which, by reason of that entity's assets or the operation of such
entity's business, such qualification is necessary. The Borrower shall provide
the Lender with prior written notice of any entity's becoming or ceasing to be a
Related Entity.
(c) The Borrower shall not change its State of incorporation nor its
taxpayer identification number.
(d) The Borrower has all requisite corporate power and authority to
execute and deliver all Loan Documents to which the Borrower is a party and has
and will hereafter retain all requisite corporate power to perform all
Liabilities.
(e) The execution and delivery by the Borrower of each Loan Document
to which it is a party; the Borrower's consummation of the transactions
contemplated by such Loan Documents (including, without limitation, the creation
of security interests by the Borrower as contemplated hereby); the Borrower's
performance under those of the Loan Documents to which it is a party; the
borrowings hereunder; and the use of the proceeds thereof:
(i) Have been duly authorized by all necessary corporate
action.
(ii) Do not, and will not, contravene in any material
respect any provision of any Requirement of Law or obligation of the
Borrower.
(iii) Will not result in the creation or imposition of, or
the obligation to create or impose, any Encumbrance upon any assets of
the Borrower pursuant to any Requirement of Law or obligation, except
pursuant to the Loan Documents.
(f) The Loan Documents have been duly executed and delivered by
Borrower and are the legal, valid and binding obligations of the Borrower,
enforceable against the Borrower in accordance with their respective terms.
4-3. Trade Names.
(a) EXHIBIT 4-3, annexed hereto, is a listing of:
(i) All names under which the Borrower ever conducted its
business.
(ii) All entities and/or persons with whom the Borrower ever
consolidated or merged, or from whom the Borrower ever acquired in a
single transaction or in a series of related transactions substantially
all of such entity's or person's assets.
(b) The Borrower will not change its name or conduct its business
under any name not listed on EXHIBIT 4-3 except (i) upon not less than
twenty-one (21) days prior written notice (with reasonable particularity) to the
Lender and (ii) in compliance with all other provisions of this Agreement.
.19.
26
4-4. Infrastructure.
(a) The Borrower has and will maintain a sufficient infrastructure to
conduct its business as presently conducted and as contemplated to be conducted
as described in the Business Plan.
(b) The Borrower's Year 2000 Problem is described on EXHIBIT 4-4,
annexed hereto. The Borrower will cure its Year 2000 Problem by no later than
August 31, 1999.
(c) The Borrower owns and possesses, or has the right to use (and will
hereafter own, possess, or have such right to use) all patents, industrial
designs, trademarks, trade names, trade styles, brand names, service marks,
logos, copyrights, trade secrets, know-how, confidential information, and other
intellectual or proprietary property of any third Person necessary for the
Borrower's conduct of the Borrower's business.
(d) The conduct by the Borrower of the Borrower's business does not
presently infringe (nor will the Borrower conduct its business in the future so
as to infringe) the patents, industrial designs, trademarks, trade names, trade
styles, brand names, service marks, logos, copyrights, trade secrets, know-how,
confidential information, or other intellectual or proprietary property of any
third Person.
4-5. Locations.
(a) At the execution of this Agreement, the Collateral, and the books,
records, and papers of Borrower pertaining thereto, are kept and maintained only
at the Borrower's chief executive offices at
(i) 0000 Xxxxx Xxxx, Xxxxxxxxxx, Xxxxxxxx 00000; and
(ii) those locations which are listed on EXHIBIT 4-5, annexed
hereto, which EXHIBIT includes, with respect to each such location, the
name and address of the landlord on the Lease which covers such location
(or an indication that the Borrower owns the subject location) and of all
service bureaus with which any such records are maintained and the names
and addresses of each of the Borrower's landlords.
(b) The Borrower shall not remove any of the Collateral from said chief
executive office or those locations listed on EXHIBIT 4-5 or those stores opened
as permitted by Section 4-5(d), except to:
(i) accomplish sales of Inventory in the ordinary course of
business; or
(ii) move Inventory from one such location to another such location;
or
(iii) store and transport the Collateral to and from such locations
and utilize such of the Collateral as is removed from such locations in
the ordinary course of business (such as motor vehicles).
.20.
27
(c) The Borrower will not:
(i) Alter, modify, or amend any Lease without prior written
notice to the Lender.
(ii) Commit to, or open any Store other than as permitted by
Section 4-5(d).
(iii) Close or permit to "go dark" an aggregate of more than 15
Stores in any 12 month period.
(d) The Borrower may open up to fifteen (15) new Stores during the
period July 1, 1998 and ending with the end of the Borrower's fiscal year in
January, 1999, provided that, in each instance, each of the following conditions
has been or is then satisfied:
(i) The additional Store is contemplated by the Business Plan.
(ii) The Borrower is in compliance with Section 4-23 of the
within Agreement (which Section 4-23 provides, among other things, that
the Borrower shall not be the owner of, nor have any interest in, any
property or asset which is not, immediately upon such acquisition, subject
to a perfected security interest in favor of the Lender) and shall have
executed such additional financing statements, on account of the subject
new location, as may then be required by the Lender.
(iii) The Borrower's performance to date is substantially
congruent with the Business Plan.
(iv) If the Store is located in Virginia, Pennsylvania, or
Washington (or such other states as to which the Lender, in its discretion
determines, as appropriate), the Borrower will use its best efforts to
provide the Lender with a Landlord's Waiver (in form reasonably
satisfactory to the Lender) duly executed by the landlord for that new
Store.
(v) No Event of Default has occurred and none will occur by
reason of the Borrower's so becoming obligated.
(e) Except as otherwise disclosed pursuant to, or permitted by, this
Section 4-5, no tangible personal property of the Borrower is in the care or
custody of any third party or stored or entrusted with a bailee or other third
party and none shall hereafter be placed under such care, custody, storage, or
entrustment.
4-6. Title to Assets.
(a) The Borrower is, and shall hereafter remain, the owner of the
Collateral free and clear of all Encumbrances with the exceptions of the
following (the "PERMITTED ENCUMBRANCES"):
(i) Encumbrances in favor of the Lender.
(ii) Those Encumbrances (if any) listed on EXHIBIT 4-6,
annexed hereto.
(iii) Purchase money security interests in Equipment to
secure Indebtedness
.21.
28
otherwise permitted hereby.
(b) The Borrower does not and shall not have possession of any
property on consignment to the Borrower.
(c) The Borrower shall not acquire any Equipment, the acquisition of
which Equipment is otherwise permitted by the within Agreement, in which
Equipment any third party has an interest, except for:
(i) Equipment which is merely incidental to the conduct of the
Borrower's business.
(ii) Equipment acquired pursuant to the Term Lease Master
Agreement dated as of October 28, 1996 between the Borrower and IBM Credit
Corporation, as supplemented through the date of this Agreement.
(iii) Equipment, the acquisition of which has been consented to
by the Lender, which consent may be conditioned upon the Lender's receipt
of such agreement with the third party which has an interest in such
Equipment as is satisfactory to the Lender.
4-7. Indebtedness.
(a) The Borrower does not and shall not hereafter have any
Indebtedness with the exceptions of:
(i) Any Indebtedness to the Lender.
(ii) The Indebtedness (if any) listed on EXHIBIT 4-7, annexed
hereto.
(iii) Indebtedness otherwise associated with the acquisition of
Equipment, provided, however, the maximum aggregate amount of such
Indebtedness permitted by this Section 4-7(a)(iii) to be outstanding at
any one time shall not exceed Fifteen Million Dollars ($15,000,000.00)
(Compliance with this Section 4-7(a)(iii) shall be based on Indebtedness,
incurred on or after the date of this Agreement, which is associated with
the acquisition of Equipment).
(b) The Borrower shall not amend any of the Tranche A Loan Documents,
except upon the prior written consent of the Lender in each instance.
4-8. Insurance Policies.
(a) EXHIBIT 4-8, annexed hereto, is a schedule of all insurance
policies owned by the Borrower or under which the Borrower is the named insured.
Each of such policies is in full force and effect. Neither the issuer of any
such policy nor the Borrower is in default or violation of any such policy.
(b) The Borrower shall have and maintain at all times insurance
covering such risks, in such amounts, containing such terms, in such form, for
such periods, and written by such companies as
.22.
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may be reasonably satisfactory to the Lender. The coverage reflected on
EXHIBIT 4-8 presently satisfies the foregoing requirements, it being recognized
by the Borrower, however, that such requirements may change hereafter to reflect
changing circumstances. All insurance carried by the Borrower shall provide for
a minimum of Thirty (30) days' written notice of cancellation to the Lender and
all such insurance which covers the Collateral shall include an endorsement in
favor of the Lender, which endorsement shall provide that the insurance, to the
extent of the Lender's interest therein, shall not be impaired or invalidated,
in whole or in part, by reason of any act or neglect of the Borrower or by the
failure of the Borrower to comply with any warranty or condition of the policy.
In the event of the failure by the Borrower to maintain insurance as required
herein, the Lender, at its option, may obtain such insurance, provided, however,
the Lender's obtaining of such insurance shall not constitute a cure or waiver
of any Event of Default occasioned by the Borrower's failure to have maintained
such insurance. The Borrower shall furnish to the Lender certificates or other
evidence satisfactory to the Lender regarding compliance by the Borrower with
the foregoing insurance provisions.
(c) The Borrower shall advise the Lender of each claim in excess of
$50,000.00 made by the Borrower under any policy of insurance which covers the
Collateral and will permit the Lender, at the Lender's option in each instance,
to the exclusion of the Borrower (but subject to any prior right of the Tranche
A Agent) to conduct the adjustment of each such claim (and of all claims
following the occurrence of any Event of Default). The Borrower hereby appoints
the Lender as the Borrower's attorney in fact to obtain, adjust, settle, and
cancel any insurance described in this section and (subject to any prior right
of the Tranche A Lender) to endorse in favor of the Lender any and all drafts
and other instruments with respect to such insurance. The within appointment,
being coupled with an interest, is irrevocable until this Agreement is
terminated by a written instrument executed by a duly authorized officer of the
Lender . The Lender shall not be liable on account of any exercise pursuant to
said power except for any exercise in actual willful misconduct and bad faith.
The Lender may apply any proceeds of such insurance against the Liabilities,
whether or not such have matured, in such order of application as the Lender may
determine.
4-9. Licenses. Each license, distributorship, franchise, and similar
agreement issued to, or to which the Borrower is a party and which is necessary
for the operation of the Borrower's business, as determined by the Borrower in
the exercise of the Borrower's best business judgment, is in full force and
effect. No party to any such license or agreement is in default or violation
thereof. The Borrower has not received any notice or threat of cancellation of
any such license or agreement.
4-10. Leases.
(a As of the date of this Agreement, each of the Leases of the
locations identified on
.23.
30
EXHIBIT 4-5 and Capital Leases identified on EXHIBIT 4-7 is in full force and
effect. As of the date of this Agreement, no party to any Lease or Capital
Lease is in default or violation of any such Lease or Capital Lease and the
Borrower has not received any notice or threat of cancellation of any such Lease
or Capital Lease.
(b The Borrower hereby authorizes the Lender at any time and from
time to time to contact any of the Borrower's landlords in order to confirm the
Borrower's continued compliance with the terms and conditions of the Lease(s)
between the Borrower and that landlord and to discuss such issues, concerning
the Borrower's occupancy under such Lease(s), as the Lender may determine.
4-11. Requirements of Law. The Borrower is in compliance with, and shall
hereafter comply with and use its assets in compliance with, all Requirements of
Law. The Borrower has not received any notice of any violation of any
Requirement of Law (whether or not such violation is material), which violation
has not been cured or otherwise remedied.
4-12. Maintain Properties. The Borrower shall:
(a Keep the Collateral in good order and repair (ordinary reasonable
wear and tear and insured casualty excepted).
(b Not suffer or cause the waste or destruction of any material
part of the Collateral.
(c Not use any of the Collateral in violation of any policy of
insurance thereon.
(d Not sell, lease, or otherwise dispose of any of the Collateral,
other than the following:
(i The sale of Inventory in the ordinary course and conduct of
the Borrower's business as conducted on July 1, 1998.
(ii The disposal of Equipment which is obsolete, worn out, or
damaged beyond repair, which Equipment is replaced to the extent
necessary, in the reasonable business judgment of the Borrower, to
preserve or improve the operating efficiency of the Borrower.
(iii The turning over to the Tranche A Agent of all Receipts as
provided in the Tranche A Loan Agreement.
4-13. Pay Taxes.
(a The Borrower has received written notice from the Internal Revenue
Service that the Internal Revenue Service has completed its examination of the
Borrower's federal income tax returns for all tax years through and including
the Borrower's taxable year referenced on EXHIBIT 4-13, annexed hereto, and that
all deficiencies, assessments, and other amounts asserted as a result of such
examinations have been fully paid or settled. As of the date of this Agreement,
no agreement exists
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which waives or extends any statute of limitations applicable to the right of
the Internal Revenue Service to assert a deficiency or make any other claim for
or in respect to federal income taxes. As of the date of this Agreement, no
issue has been raised in any such examination which, by application of similar
principles, reasonably could be expected to result in the assertion of a
deficiency for any fiscal year open for examination, assessment, or claim by the
Internal Revenue Service.
(b The Borrower has received written notice from the respective
state and local taxing authorities to which the Borrower is subject that such
authorities have completed their respective examination of the Borrower's
returns for all state and local income, excise, sales, and other taxes for which
the Borrower is liable for the respective tax years referenced on EXHIBIT 4-13,
annexed hereto, and that all deficiencies, assessments, and other amounts
asserted as a result of such examinations have been fully paid or settled. As
of the date of this Agreement, no agreement exists which waives or extends any
statute of limitations applicable to the right of any state taxing authority to
assert a deficiency or make any other claim for or in respect to any such state
taxes. As of the date of this Agreement, no issue has been raised in any such
examination which, by application of similar principles, reasonably could be
expected to result in the assertion of a deficiency for any fiscal year open for
examination, assessment, or claim by any state or local taxing authority.
(c Except as disclosed on said EXHIBIT 4-13, as of the date of this
Agreement, there are no examinations of or with respect to the Borrower
presently being conducted by the Internal Revenue Service or any other taxing
authority.
(d The Borrower has, and hereafter shall: pay, as they become due
and payable, all taxes and unemployment contributions and other charges of any
kind or nature levied, assessed or claimed against the Borrower or the
Collateral by any person or entity whose claim could result in an Encumbrance
upon any asset of the Borrower or by any governmental authority; properly
exercise any trust responsibilities imposed upon the Borrower by reason of
withholding from employees' pay or by reason of the Borrower's receipt of sales
tax or other funds for the account of any third party; timely make all
contributions and other payments as may be required pursuant to any Employee
Benefit Plan now or hereafter established by the Borrower; and timely file all
tax and other returns and other reports with each governmental authority to whom
the Borrower is obligated to so file, provided, however, nothing contained in
this Section 4-13(d) shall require the Borrower to pay and discharge, or cause
to be paid and discharged, any such tax, assessment, charge, levy or claim so
long as the Borrower is contesting the validity thereof in good faith by
appropriate proceedings and both: (x) has set aside on the Borrower's books
adequate reserves with respect thereto as required by GAAP and (y) no lien is
filed with respect to such tax, assessment, charge, levy or claim.
(e At its option, the Lender may, but shall not be obligated to, pay
any taxes, unemployment contributions, and any and all other charges levied or
assessed upon the Borrower or the
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Collateral by any person or entity or governmental authority, and make any
contributions or other payments on account of the Borrower's Employee Benefit
Plan as the Lender, in the Lender's discretion, may deem necessary or desirable,
to protect, maintain, preserve, collect, or realize upon any or all of the
Collateral or the value thereof or any right or remedy pertaining thereto,
provided, however, the Lender's making of any such payment shall not constitute
a cure or waiver of any Event of Default occasioned by the Borrower's failure to
have made such payment.
4-14. No Margin Stock. The Borrower is not engaged in the business of
extending credit for the purpose of purchasing or carrying any margin stock
(within the meaning of Regulations G,U,T, and X of the Board of Governors of the
Federal Reserve System of the United States). No part of the proceeds of any
borrowing hereunder will be used at any time to purchase or carry any such
margin stock or to extend credit to others for the purpose of purchasing or
carrying any such margin stock.
4-15. ERISA. Neither the Borrower nor any ERISA Affiliate ever has or
hereafter shall:
(a Violate or fail to be in compliance in all material respects
with the Borrower's Employee Benefit Plan.
(b Fail timely to file all reports and filings required by ERISA
to be filed by the Borrower.
(c Engage in any "prohibited transactions" or "reportable
events" (respectively as described in ERISA).
(d Engage in, or commit, any act such that a tax or penalty could be
imposed upon the Borrower on account thereof pursuant to ERISA.
(e Accumulate any material funding deficiency within the meaning of
ERISA.
(f Terminate any Employee Benefit Plan such that a lien could be
asserted against any assets of the Borrower on account thereof pursuant to
ERISA.
(g Be a member of, contribute to, or have any obligation under any
Employee Benefit Plan which is a multiemployer plan within the meaning of
Section 4001(a) of ERISA.
4-16. Hazardous Materials.
(a As of the date of this Agreement, the Borrower has never:
(i been legally responsible for any release or threat of
release of any Hazardous Material; or
(ii received notification of any release or threat of release of
any Hazardous Material from any site or vessel occupied or operated by the
Borrower and/or of the incurrence of any expense or loss in connection with the
assessment, containment, or removal of any release or threat of
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release of any Hazardous Material from any such site or vessel.
(b The Borrower shall:
(i dispose of any Hazardous Material only in compliance with all
Environmental Laws; and
(ii not store on any site or vessel occupied or operated by the
Borrower and not transport or arrange for the transport of any Hazardous
Material, except if such storage or transport is in the ordinary course of the
Borrower's business and is in compliance with all Environmental Laws.
(c The Borrower shall provide the Lender with written notice upon
the Borrower's obtaining knowledge of any incurrence of any expense or loss by
any governmental authority or other Person in connection with the assessment,
containment, or removal of any Hazardous Material, for which expense or loss the
Borrower may be liable.
4-17. Litigation. Except as described in EXHIBIT 4-17, annexed hereto,
there is not presently pending or threatened by or against the Borrower any
suit, action, proceeding, or investigation which, if determined adversely to the
Borrower, would have a material adverse effect upon the Borrower's financial
condition or ability to conduct its business as such business is presently
conducted or is contemplated to be conducted in the foreseeable future.
4-18. Dividends or Investments. The Borrower shall not:
(a Pay any cash dividend or make any other distribution in respect
of any class of the Borrower's capital stock other than cash dividends to the
Parent for Permitted Distributions.
(b Own, redeem, retire, purchase, or acquire any of the Borrower's
capital stock.
(c Invest in or purchase any stock or securities or rights to
purchase any such stock or securities, of any corporation or other entity other
than Permitted Investments.
(d Merge or consolidate or be merged or consolidated with or into
any other corporation or other entity.
(e Consolidate any of the Borrower's operations with those of any
other corporation or other entity.
(f Organize or create any Related Entity.
(g Subordinate any debts or obligations owed to the Borrower by any
third party to any other debts owed by such third party to any other Person.
4-19. Loans. The Borrower shall not make any loans or advances to, nor
acquire the Indebtedness of, any Person, provided, however, the foregoing does
not prohibit any of the following:
(a Advance payments made to the Borrower's suppliers in the
ordinary course.
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34
(b Advances to the Borrower's officers, employees, and
salespersons with respect to reasonable expenses to be incurred by such
officers, employees, and salespersons for the benefit of the Borrower, which
expenses are properly substantiated by the person seeking such advance and
properly reimbursable by the Borrower.
4-20. Protection of Assets. The Lender, in the Lender's discretion, with
prior written notice to the Borrower, and from time to time, may discharge any
tax or Encumbrance on any of the Collateral, or take any other action that the
Lender may deem necessary or desirable to repair, insure, maintain, preserve,
collect, or realize upon any of the Collateral. The Lender shall not have any
obligation to undertake any of the foregoing and shall have no liability on
account of any action so undertaken except where there is a specific finding in
a judicial proceeding (in which the Lender has had an opportunity to be heard),
from which finding no further appeal is available, that the Lender had acted in
actual bad faith or in a grossly negligent manner. The Borrower shall pay to
the Lender, on demand, or the Lender, in its discretion, may add to the Loan
Account, all amounts paid or incurred by the Lender pursuant to this section.
The obligation of the Borrower to pay such amounts is a Liability.
4-21. Line of Business. The Borrower shall not engage in any business other
than the business in which it is currently engaged.
4-22. Affiliate Transactions. The Borrower shall not make any payment, nor
give any value to any Related Entity other than Permitted Distributions, except
for goods and services actually purchased by the Borrower from, or sold by the
Borrower to, such Related Entity for a price which shall
(a be competitive and fully deductible as an "ordinary and necessary
business expense" and/or fully depreciable under the Internal Revenue Code of
1986 and the Treasury Regulations, each as amended; and
(b not differ from that which would have been charged in an arms
length transaction.
4-23. Additional Assurances.
(a The Borrower is not the owner of, nor has it any interest in, any
property or asset which, immediately upon the satisfaction of the conditions
precedent to the effectiveness of the credit facility contemplated hereby
(Article 3) will be not be subject to a perfected security interest or other
collateral interest in favor of the Lender (subject only to Permitted
Encumbrances) to secure the Liabilities.
(b The Borrower will not hereafter acquire any asset or any interest
in property which is not, immediately upon such acquisition, subject to such a
perfected security or other collateral interest in favor of the Lender to
secure the Liabilities (subject only to Permitted Encumbrances).
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35
(c The Borrower shall execute and deliver to the Lender such
instruments, documents, and papers, and shall do all such things from time to
time hereafter as the Lender may request to carry into effect the provisions and
intent of this Agreement; to protect and perfect the Lender's security interests
in the Collateral; and to comply with all applicable statutes and laws, and
facilitate the collection of the Receivables Collateral. The Borrower shall
execute all such instruments as may be required by the Lender with respect to
the recordation and/or perfection of the security interests created herein.
(d The Borrower hereby designates the Lender as and for the
Borrower's true and lawful attorney, with full power of substitution, to sign
and file or record any financing or other statements in order to perfect or
protect the Lender's security interest in the Collateral.
(e A carbon, photographic, or other reproduction of this Agreement
or of any financing statement or other instrument executed pursuant to this
Section 4-23 shall be sufficient for filing to perfect the security interests
granted herein.
4-24. Adequacy of Disclosure.
(a All financial statements furnished to the Lender by or on behalf
of the Borrower have been prepared in accordance with GAAP consistently applied
and present fairly the condition of the Borrower at the date(s) thereof and the
results of operations and cash flows for the period(s) covered. There has been
no change in the financial condition, results of operations, or cash flows of
the Borrower since the date(s) of such financial statements, other than changes
in the ordinary course of business, which changes have not been materially
adverse, either singularly or in the aggregate which has not been disclosed in
writing to the Lender prior to the exectuion of the within Agreement.
(b The Borrower does not have any contingent obligations or
obligation under any Lease or Capital Lease which is not noted in the Borrower's
financial statements or other written information furnished to the Lender prior
to the execution of the within Agreement.
(c No document, instrument, agreement, or paper now or hereafter
given the Lender by or on behalf of the Borrower or any guarantor of the
Liabilities in connection with the execution of the within Agreement by the
Lender contains or will contain any untrue statement of a material fact or omits
or will omit to state a material fact necessary in order to make the statements
therein not misleading. There is no fact known to the Borrower which has, or
which, in the foreseeable future could have, a material adverse effect on the
financial condition of the Borrower or any such guarantor which has not been
disclosed in writing to the Lender.
4-25. Other Covenants. The Borrower shall not indirectly do or cause to be
done any act which, if done directly by the Borrower, would breach any covenant
contained in this Agreement.
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ARTICLE 5 - FINANCIAL REPORTING AND PERFORMANCE COVENANTS:
5-1. Maintain Records. The Borrower shall:
(a At all times, keep proper books of account, in which full, true,
and accurate entries shall be made of all of the Borrower's transactions, all in
accordance with GAAP applied consistently with prior periods to fairly reflect
the financial condition of the Borrower at the close of, and its results of
operations for, the periods in question.
(b Timely provide the Lender with those financial reports,
statements, and schedules required by this Article 5 or otherwise, each of which
reports, statements and schedules shall be prepared, to the extent applicable,
in accordance with GAAP applied consistently with prior periods to fairly
reflect the financial condition of the Borrower at the close of, and its results
of operations for, the period(s) covered therein.
(c At all times, keep accurate current records of the Collateral
including, without limitation, accurate current stock, cost, and sales records
of its Inventory, accurately and sufficiently itemizing and describing the
kinds, types, and quantities of Inventory and the cost and selling prices
thereof.
(d At all times, retain independent certified public accountants who
are reasonably satisfactory to the Lender and instruct such accountants to fully
cooperate with, and be available to, the Lender to discuss the Borrower's
financial performance, financial condition, operating results, controls, and
such other matters, within the scope of the retention of such accountants, as
may be raised by the Lender.
(e Not change the Borrower's fiscal year.
5-2. Access to Records
(a The Borrower shall accord the Lender and the Lender's
representatives with access from time to time, on reasonable notice and during
the Borrower's normal business hours, as the Lender and such representatives
reasonably may require to all properties owned by or over which the Borrower has
control. The Lender and the Lender's representatives shall have the right, and
the Borrower will permit the Lender and such representatives from time to time,
on reasonable notice and during the Borrower's normal business hours, as the
Lender and such representatives reasonably may request, to examine, inspect,
copy, and make extracts from any and all of the Borrower's books, records,
electronically stored data, papers, and files. The Borrower shall make all of
the Borrower's copying facilities available to the Lender.`
(b The Borrower hereby authorizes the Lender and the Lender's
representatives to:
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37
(i Inspect, copy, duplicate, review, cause to be reduced to hard
copy, run off, draw off, and otherwise use any and all computer or
electronically stored information or data which relates to the Borrower,
or any service bureau, contractor, accountant, or other person, and
directs any such service bureau, contractor, accountant, or other person
fully to cooperate with the Lender and the Lender's representatives with
respect thereto.
(ii Verify at any time the Collateral or any portion thereof,
including verification with Account Debtors, and/or with the Borrower's
computer billing companies, collection agencies, and accountants and to
sign the name of the Borrower on any notice to the Borrower's Account
Debtors or verification of the Collateral.
5-3. Immediate Notice to Lender.
(a The Borrower shall provide the Lender with written notice
immediately upon the occurrence of any of the following events, which written
notice shall be with reasonable particularity as to the facts and circumstances
in respect of which such notice is being given:
(i Any change in the Borrower's officers.
(ii The completion of any physical count of the Borrower's
Inventory (together with a copy of the certified results thereof).
(iii Any failure of the Borrower to make payment to any creditor,
which payment, when aggregated with all other payments claimed by that
creditor to be due to that creditor, aggregates more than $250,000.00
prior to such amount's becoming more than the following number of days
past customary payment dates of such creditor (other than the failure to
make such payment on account of a bona fide good faith dispute with the
subject creditor): (x) if prior to October 1, 1998, sixty (60) days; (y)
if after October 1, 1998, thirty (30) days.
(iv Any failure by the Borrower to pay rent at any of the
Borrower's locations, which failure continues for more than Fifteen (15)
days following the day on which such rent first came due.
(v Any material change in the business, operations, or financial
affairs of the Borrower.
(vi The occurrence of any "Suspension Event" (within the meaning
of the Tranche A Loan Agreement) or of any Event of Default.
(vii Any intention on the part of the Borrower to discharge the
Borrower's present independent accountants or any withdrawal or
resignation by such independent accountants from their acting in such
capacity (as to which, see Subsection 5-1(d)).
(viii Any litigation which, if determined adversely to the
Borrower, is likely to have a material adverse effect on the financial
condition of the Borrower.
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(b The Borrower shall:
(i Provide the Lender, when so distributed, with copies of any
materials distributed to
the shareholders of the
Borrower (qua such
shareholders).
(ii Provide the Lender:
(A When filed, copies of all filings, by the Parent,
with the SEC.
(B When received by the Parent, copies of all
correspondence from the SEC, other than routine non-substantive general
communications from the SEC.
(iii Add the Lender as an addressee on all mailing lists
maintained by or for the Borrower.
(iv At the request of the Lender, from time to time, provide the
Lender with copies of all advertising (including copies of all print
advertising and duplicate tapes of all video and radio advertising).
(v Provide the Lender, when received by the Borrower, with a copy
of any management letter or similar communications from any accountant of
the Borrower.
5-4. Financial Reports Provided to Tranche A Agent. The Borrower shall
provide the Lender, when provided to the Tranche A Agent, those daily, weekly,
monthly, and quarterly financial statements and reports required, under the
Tranche A Loan Agreement, it being understood that
(a Unless and until the Lender gives notice to the Borrower to
provide such statements and reports directly to the Lender, the Borrower's
furnishing of such statements and reports to the Tranche A Agent shall satisfy
the requirements of this Section 5-4.
(b In the event of the termination of the Tranche A Loan Agreement,
the requirements included therein for the furnishing of daily, weekly, monthly,
and quarterly financial statements and reports shall be deemed, for purposes of
this Section 5-4, to remain in full force and effect until the Term Loan, and
all and any other amounts payable hereunder have been paid in full by the
Borrower.
5-5. Annual Reports.
(a Annually, within ninety (90) days following the end of the
Borrower's fiscal year, the Borrower shall furnish the Lender with an original
signed counterpart of the Parent's Consolidated annual financial statement,
which statement shall have been prepared by, and bear the unqualified opinion
of, the Borrower's independent certified public accountants (i.e. said statement
shall be "certified" by such
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39
accountants). Such annual statement shall include, at a minimum (with
comparative information for the then prior fiscal year) a balance sheet, income
statement, statement of changes in shareholders' equity, and cash flows.
(b No later than the earlier of Fifteen (15) days prior to the end
of each of the Borrower's fiscal years or the date on which such accountants
commence their work on the preparation of the Borrower's annual financial
statement, the Borrower shall give written notice to such accountants (with a
copy of such notice, when sent, to the Lender) that:
(i Such annual financial statement will be delivered by the
Borrower to the Lender.
(ii It is the primary intention of the Borrower, in its
engagement of such accountants, to satisfy the financial reporting
requirements set forth in this Article 5.
(iii The Borrower has been advised that the Lender will rely
thereon with respect to the administration of, and transactions under,
the credit facility contemplated by the within Agreement.
(c Each annual statement shall be accompanied by such accountant's
Certificate indicating that, in the preparation of such annual statement, such
accountants did not conclude that any Event of Default has occurred during the
subject fiscal year (or if one or more had occurred, the facts and circumstances
thereof).
5-6. Officers' Certificates.
(a The Borrower shall cause the Borrower's President and Chief
Financial Officer respectively to provide such PersZ12 on's Certificate with
those monthly, quarterly, and annual statements to be furnished pursuant to this
Agreement, which Certificate shall:
(i Indicate that the subject statement was prepared in accordance
with GAAP consistently applied and presents fairly the financial
condition of the Borrower at the close of, and the results of the
Borrower's operations and cash flows for, the period(s) covered, subject,
however to the following:
(A usual year end adjustments (this exception shall not
be included in the Certificate which accompanies such annual
statement).
(B Material Accounting Changes (in which event, such
Certificate shall include a schedule (in reasonable detail) of the
effect of each such Material Accounting Change) not previously
specifically taken into account in the determination of the
financial performance covenant imposed pursuant to Section 5-10.
(ii Indicate either that (x) no Event of Default has occurred or
(ii) if such an event has occurred, its nature (in reasonable detail) and
the steps (if any) being taken or
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40
contemplated by the Borrower to be taken on account thereof.
(iii Include calculations concerning the Borrower's compliance
(or failure to comply) at the date of the subject statement with each of
the financial performance covenants included in Section 5-10 hereof.
(b Unless and until the Lender gives notice to the Borrower, the
requirements of this Section 5-6 shall be satisfied by the Borrower's causing
of compliance with the cognate styled Section of the Tranche A Loan Agreement.
5-7. Inventories, Appraisals, and Audits. Unless and until the Lender gives
notice to the Borrower, the requirements of this Section 5-7 shall be satisfied
by the Borrower's compliance with the cognate styled Section of the Tranche A
Loan Agreement, and in all events, each of the limits (if any) on the number of
events which may take place in any Twelve (12) month period, and each "cap" (if
any) on costs and expenses for which the Borrower is obligated, as included in
this Section 5-7 shall be applied as if the like event or payment of such costs
and expenses, under such cognate styled Section of the Tranche A Loan Agreement
had taken place or been made under this Section 5-7, it being the intention of
the parties that the Borrower shall not be subjected to a doubling of the number
of such events or of such costs and expenses by reason of the inclusion of such
requirements in the Tranche A Loan Agreement and in this Section 5-7.
(a) The Lender, at the expense of the Borrower, may participate in
and/or observe each physical count and/or inventory of so much of the Collateral
as consists of Inventory which is undertaken on behalf of the Borrower. The
Borrower shall conduct not less than one (1) such count and/or inventory during
any Twelve (12) month period, each of which counts and/or inventories shall be
conducted by such inventory takers and shall employ such methodology as is
acceptable to the Lender.
(b Following the occurrence of any Suspension Event, the Borrower,
upon the Agent's request, shall obtain, or shall permit the Lender to obtain (in
all events, at the Borrower's expense) physical counts and/or inventories of the
Collateral, conducted by such inventory takers as are satisfactory to the Lender
and following such methodology as may be required by the Lender.
(c The Borrower shall permit the Lender to obtain appraisals of the
Borrower's Inventory, conducted by such appraisers as are satisfactory to the
Lender. Provided that no Suspension Event has occurred, the Borrower shall be
obligated to reimburse the Lender for not more than the aggregate of (i)
$55,000.00 of the fees charged, in any twelve (12) month period, plus (ii)
reasonable out of pocket expenses. In the event that an Event of Default has
occurred, the Borrower shall reimburse the Lender for the fees and expenses for
each such appraisal without regard to the forgoing fee cap. The Lender shall
provide the Borrower with a copy of each appraisal obtained pursuant to this
Section 5-7(c)promptly following receipt by the Lender. Notwithstanding any
input which may be provided to the
.34.
41
appraiser by or on behalf of the Lender in connection with the preparation of
the subject appraisal and the conclusions and recommendations included therein,
each such appraisal, conclusions, and recommendations, shall be deemed to have
been prepared and provided by a Person which, as to the Lender, is an
independent contractor.
(d The Lender contemplates conducting Four (4) commercial finance
audits (in each event, at the Borrower's expense) of the Borrower's books and
records during any Twelve (12) month period during which the within Agreement is
in effect, but in its discretion, may undertake additional such audits during
such period. The fees and expenses for a routine audit (by which it is meant an
audit in connection with which the Borrower has made available appropriate
financial information and personnel to facilitate its completion in the ordinary
course) for which the Borrower shall be obligated to reimburse the Lender shall
not exceed $7,000.00. In the event that an Event of Default has occurred and/or
in the event that the Borrower has not made available appropriate financial
information and personnel to facilitate the completion of an audit in the
ordinary course, the Borrower shall reimburse the Lender for the fees and
expenses of the subject audit or audits without regard to the forgoing cap.
(e The Lender from time to time (in all events, at the Borrower's
expense) may undertake "mystery shopping" (so-called) visits to all or any of
the Borrower's business premises. The Lender shall provide the Borrower with a
copy of any non-company confidential results of such mystery shopping. Provided
that no Suspension Event has occurred, the Borrower shall be obligated to
reimburse the Lender for not more than an aggregate of $1,000.00 of the fees and
expenses charged for such mystery shopping visits in any twelve (12) month
period plus. In the event that an Event of Default has occurred, the Borrower
shall reimburse the Lender for the fees and expenses of all such visits without
regard to the forgoing cap.
5-8. Additional Financial Information.
(a In addition to all other information required to be provided
pursuant to this Article 5, the Borrower promptly shall provide the Lender (and
any guarantor of the Liabilities), with such other and additional information
concerning the Borrower, the Collateral, the operation of the Borrower's
business, and the Borrower's financial condition, including original
counterparts of financial reports and statements, as the Lender may from time to
time request from the Borrower.
(b The Borrower may provide the Lender, from time to time hereafter,
with updated projections of the Borrower's anticipated performance and operating
results.
(c In all events, the Borrower, no sooner than Ninety (90) nor later
than Sixty (60) days prior to the end of each of the Borrower's fiscal years,
shall furnish the Lender with an updated and extended projection which shall go
out, on a monthly basis, at least through the end of the then next fiscal year.
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(d Such updated and extended projections shall be prepared pursuant
to a methodology and shall include such assumptions as are satisfactory to the
Lender.
(e The Borrower recognizes that all appraisals, inventories,
analysis, financial information, and other materials which the Lender may
obtain, develop, or receive with respect to the Borrower is confidential to the
Lender and that, except as otherwise provided herein, the Borrower is not
entitled to receipt of any of such appraisals, inventories, analysis, financial
information, and other materials, nor copies or extracts thereof or therefrom.
5-9. Coordination With Tranche A Agent.
(a The Lender shall endeavor to coordinate the application of the
financial reporting requirements included in the Loan Documents with those which
are imposed upon the Borrower under the Tranche A Loan Documents, with a view
towards the containment of compliance costs to, and avoidance of the imposition
of redundant compliance burdens on, the Borrower on account of such financial
reporting requirements imposed under the Tranche A Loan documents and those
which are included herein.
(b The Borrower hereby consents to and authorizes the Lender to
provide the Tranche A Lender with copies of all financial statements, reports,
analysis, inventory appraisals, field audits, and other materials received or
developed by or for the Lender in the Lender's administration of the financial
transaction contemplated by the Loan Documents and to share all information and
opinions likewise received, developed, or reached by the Lender in such
administration.
5-10. Financial Performance Covenants. The Borrower shall observe and
comply with those financial performance covenants set forth on EXHIBITS 5-10(A),
and 5-10(B) annexed hereto. Compliance with such financial performance covenants
shall be made as if no Material Accounting Changes had been made. The Lender
may determine the Borrower's compliance with such covenants based upon financial
reports and statements provided by the Borrower to the Lender (whether or not
such financial reports and statements are required to be furnished pursuant to
the within Agreement) .
ARTICLE 6 - USE AND COLLECTION OF COLLATERAL:
6-1. Use of Inventory Collateral-1.Use of Inventory Collateral.
(a The Borrower shall not engage in any sale of the Inventory
other than in the conduct of the Borrower's business in the ordinary course and
shall not engage in sales or other dispositions to creditors; sales or other
dispositions in bulk; and any use of any of the Inventory in breach
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of any provision of this Agreement.
(b No sale of Inventory shall be on consignment, approval, or under
any other circumstances such that, with the exception of the Borrower's
customary return policy applicable to the return of inventory purchased by the
Borrower's retail customers in the ordinary course, such Inventory may be
returned to the Borrower without the consent of the Lender .
6-2. Inventory Quality. All Inventory now owned or hereafter acquired by
the Borrower is and will be of good and merchantable quality and free from
defects (other than defects within customary trade tolerances).
6-3. Adjustments and Allowances. The Borrower may grant such allowances or
other adjustments to the Borrower's Account Debtors as the Borrower may
reasonably deem to accord with the Borrower's business practices prior to
January 1, 1998.
6-4. Validity of Accounts.
(a The amount of each Account shown on the books, records, and
invoices of the Borrower represented as owing by each Account Debtor is and will
be the correct amount actually owing by such Account Debtor and shall have been
fully earned by performance by the Borrower.
(b As of the date of this Agreement, the Borrower has no knowledge
of any impairment of the validity or collectability of any of the Accounts and
shall notify the Lender of any such fact immediately after Borrower becomes
aware of any such impairment.
6-5. Notification to Account Debtors. The Lender shall have the right at
any time (after an Event of Default has occurred) to notify any of the
Borrower's Account Debtors to make payment directly to the Lender and to collect
all amounts due on account of the Collateral.
ARTICLE 7 - GRANT OF SECURITY INTEREST:
7-1. Grant of Security Interest. To secure the Borrower's prompt, punctual,
and faithful performance of all and each of the Liabilities, the Borrower hereby
grants to the Lender a continuing security interest in and to, and assigns to
the Lender, the following, and each item thereof, whether now owned or now due,
or in which the Borrower has an interest, or hereafter acquired, arising, or to
become due, or in which the Borrower obtains an interest, and all products,
Proceeds, substitutions, and accessions of or to any of the following (all of
which is referred to herein as the "COLLATERAL"):
(a All Accounts and accounts receivable.
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(b All Inventory.
(c All General Intangibles.
(d All Equipment.
(e All Goods.
(f All Fixtures.
(g All Chattel Paper.
(h All books, records, and information relating to the
Collateral and/or to the operation of the Borrower's
business, and all rights of access to such books,
records, and information, and all property in which such
books, records, and information are stored, recorded,
and maintained.
(i All Investment Property, Instruments, Documents, Deposit
Accounts, policies and certificates of insurance,
deposits, impressed accounts, compensating balances,
money, cash, or other property.
(j All insurance proceeds, refunds, and premium rebates,
including, without limitation, proceeds of fire and
credit insurance, whether any of such proceeds, refunds,
and premium rebates arise out of any of the
foregoing.(7-1(a) through 7-1(i)) or otherwise.
(k All liens, guaranties, rights, remedies, and privileges
pertaining to any of the foregoing (7-1(a) through
7-1(i)), including the right of stoppage in transit.
(l All Leasehold Interests.
7-2. Extent and Duration of Security Interest. The within grant of a
security interest is in addition to, and supplemental of, any security interest
previously granted by the Borrower to the Lender and shall continue in full
force and effect applicable to all Liabilities until all Liabilities have been
paid and/or satisfied in full and the security interest granted herein is
specifically terminated in writing by a duly authorized officer of the Lender .
ARTICLE 8 - LENDER AS BORROWER'S ATTORNEY-IN-FACT:
8-1. Appointment as Attorney-In-Fact. The Borrower hereby irrevocably
constitutes and appoints the Lender, effective upon the occurrence of any Event
of Default, as the Borrower's true and lawful attorney, with full power of
substitution, to convert the Collateral into cash at the sole risk, cost, and
expense of the Borrower, but for the sole benefit of the Lender. The rights and
powers granted the Lender by the within appointment include but are not limited
to the right and power to:
(a) Prosecute, defend, compromise, or release any action relating to
the Collateral.
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(b) Sign change of address forms to change the address to which the
Borrower's mail is to be sent to such address as the Lender shall designate;
receive and open the Borrower's mail; remove any Receivables Collateral and
Proceeds of Collateral therefrom and turn over the balance of such mail either
to the Borrower or to any trustee in bankruptcy, receiver, assignee for the
benefit of creditors of the Borrower, or other legal representative of the
Borrower whom the Lender determines to be the appropriate person to whom to so
turn over such mail.
(c) Endorse the name of the Borrower in favor of the Lender upon any
and all checks, drafts, notes, acceptances, or other items or instruments; sign
and endorse the name of the Borrower on, and receive as secured party, any of
the Collateral, any invoices, schedules of Collateral, freight or express
receipts, or bills of lading, storage receipts, warehouse receipts, or other
documents of title respectively relating to the Collateral.
(d) Sign the name of the Borrower on any notice to the Borrower's
Account Debtors or verification of the Receivables Collateral; sign the
Borrower's name on any Proof of Claim in Bankruptcy against Account Debtors, and
on notices of lien, claims of mechanic's liens, or assignments or releases of
mechanic's liens securing the Accounts.
(e) Take all such action as may be necessary to obtain the payment
of any letter of credit and/or banker's acceptance of which the Borrower is a
beneficiary.
(f) Repair, manufacture, assemble, complete, package, deliver, alter
or supply goods, if any, necessary to fulfill in whole or in part the purchase
order of any customer of the Borrower.
(g) Use, license or transfer any or all General Intangibles of the
Borrower.
.
8-2. No Obligation to Act. The Lender shall not be obligated to do any of
the acts or to exercise any of the powers authorized by Section 8-1 herein, but
if the Lender elects to do any such act or to exercise any of such powers, it
shall not be accountable for more than it actually receives as a result of such
exercise of power, and shall not be responsible to the Borrower for any act or
omission to act except for any act or omission to act as to which there is a
final determination made in a judicial proceeding (in which proceeding the
Lender has had an opportunity to be heard) which determination includes a
specific finding that the subject act or omission to act had been grossly
negligent or in actual bad faith.
ARTICLE 9 - EVENTS OF DEFAULT:
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The occurrence of any event described in this Article 9 respectively shall
constitute an "EVENT OF DEFAULT" herein. Upon the occurrence of any Event of
Default described in Section 9-11, any and all Liabilities shall become due and
payable without any further act on the part of the Lender. Upon the occurrence
of any other Event of Default, any and all Liabilities shall become immediately
due and payable, at the option of the Lender and without notice or demand. The
occurrence of any Event of Default shall also constitute, without notice or
demand, a default under all other agreements between the Lender and the Borrower
and instruments and papers given the Lender by the Borrower, whether such
agreements, instruments, or papers now exist or hereafter arise.
9-1. Failure to Pay Term Loan. The failure by the Borrower to pay any
amount when due under the Term Loan.
9-2. Failure To Make Other Payments. The failure by the Borrower to pay
when due (or upon demand, if payable on demand) any payment Liability other than
under the Term Loan.
9-3. Failure to Perform Covenant or Liability (No Grace Period). The
failure by the Borrower to promptly, punctually, faithfully and timely perform,
discharge, or comply with any covenant or Liability not otherwise described in
Section 9-1 or Section 9-2 hereof, and included in any of the following
provisions hereof:
Section Relates to :
----------------------------------------------
4-5 Location of Collateral
4-6 Title to Assets
4-7 Indebtedness
4-8 Insurance Policies
4-13 Pay taxes
4-22 Affiliate Transactions
4-23 Additional Assurances
6-1 Use of Collateral
Article 5 Reporting Requirements and Financial Covenants
9-4. Failure to Perform Covenant or Liability (Grace Period). The failure
by the Borrower, upon Fifteen (15) days written notice by the Lender , to cure
the Borrower's failure to promptly, punctually and faithfully perform,
discharge, or comply with any covenant or Liability not described in any of
Sections 9-1, 9-2, or 9-3 hereof.
9-5. Misrepresentation. The determination by the Lender that any
representation or warranty at any time made by the Borrower to the Lender, was
not true or complete in all material respects
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when given.
9-6. Acceleration of Other Debt. Breach of Lease.
(a) The occurrence of any event such that any Indebtedness of the
Borrower in excess of One Million Dollars ($1,000,000.00) to any creditor other
than the Lender could be accelerated.
(b) The occurrence of any event such that, without the consent of
the Borrower, the Lease of any warehouse facility at which the Borrower's
Inventory having a Cost of more than One Million Dollars ($1,000,000.00) is
routinely stored, could be terminated.
(c) The occurrence of any "Event of Default" within the meaning of
the Tranche A Loan Agreement
9-7. Default Under Other Agreements. The occurrence of any breach or
default under any agreement between the Lender and the Borrower or instrument or
paper given the Lender by the Borrower, whether such agreement, instrument, or
paper now exists or hereafter arises (notwithstanding that the Lender or the
subject Lender may not have exercised its rights upon default under any such
other agreement, instrument or paper).
9-8. Casualty Loss. The occurrence of any uninsured loss, theft, damage, or
destruction of or to Collateral having a value of more than Two Million Five
Hundred Thousand Dollars ($2,500,000.00).
9-9. Judgment. Restraint of Business.
(a) The service of process upon the Lender or any Participant
seeking to attach, by trustee, mesne, or other process, any of the Borrower's
funds on deposit with, or assets of the Borrower in the possession of, the
Lender or such Participant.
(b) The entry of any judgment against the Borrower, which judgment
is not satisfied (if a money judgment) or appealed from (with execution or
similar process stayed) within Thirty (30) days of its entry.
(c) The entry of any order or the imposition of any other process
having the force of law, the effect of which is to restrain in any material way
the conduct by the Borrower of its business in the ordinary course.
9-10. Business Failure. Any act by, against, or relating to the Borrower,
or its property or assets, which act constitutes the application for, consent
to, or sufferance of the appointment of a receiver, trustee, or other person,
pursuant to court action or otherwise, over all, or any part of the Borrower's
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property; the granting of any trust mortgage or execution of an assignment for
the benefit of the creditors of the Borrower, or the occurrence of any other
voluntary or involuntary liquidation or extension of debt agreement for the
Borrower; the offering by or entering into by the Borrower of any composition,
extension, or any other arrangement seeking relief from or extension of the
debts of the Borrower; or the initiation of any judicial or non-judicial
proceeding or agreement by, against, or including the Borrower which seeks or
intends to accomplish a reorganization or arrangement with creditors; and/or the
initiation by or on behalf of the Borrower of the liquidation or winding up of
all or more than a de minimus part of the Borrower's business or operations.
9-11. Bankruptcy. The failure by the Borrower to generally pay the debts of
the Borrower as they mature; adjudication of bankruptcy or insolvency relative
to the Borrower; the entry of an order for relief or similar order with respect
to the Borrower in any proceeding pursuant to the Bankruptcy Code or any other
federal bankruptcy law; the filing of any complaint, application, or petition by
or against the Borrower initiating any matter in which the Borrower is or may be
granted any relief from the debts of the Borrower pursuant to the Bankruptcy
Code or any other insolvency statute or procedure.
9-12. Indictment - Forfeiture. The indictment of, or institution of any
legal process or proceeding against, the Borrower, under any federal, state,
municipal, and other civil or criminal statute, rule, regulation, order, or
other requirement having the force of law where the relief, penalties, or
remedies sought or available include the forfeiture of any property of the
Borrower and/or the imposition of any stay or other order, the effect of which
could be to restrain in any material way the conduct by the Borrower of its
business in the ordinary course.
9-13. Default by Guarantor, Parent, or Related Entity.
(a) The occurrence of any of the foregoing Events of Default with
respect to the Parent, as if the Parent were the "Borrower" described therein.
(b) The occurrence of an "Event of Default" or similar event under
any agreement between the Parent and the Lender, including, without limitation,
the Security Agreement of even date between the Parent and the Lender, each as
amended from time to time.
9-14. Termination of Guaranty. The termination or attempted termination of
any guaranty by any guarantor of the Liabilities.
9-15. Challenge to Loan Documents.
(a) Any challenge by or on behalf of the Borrower or any guarantor
of the Liabilities to
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the validity of any Loan Document or the applicability or enforceability of any
Loan Document strictly in accordance with the subject Loan Document's terms or
which seeks to void, avoid, limit, or otherwise adversely affect any security
interest created by or in any Loan Document or any payment made pursuant
thereto.
(b) Any determination by any court or any other judicial or
government authority that any Loan Document is not enforceable strictly in
accordance with the subject Loan Document's terms or which voids, avoids,
limits, or otherwise adversely affects any security interest created by any Loan
Document or any payment made pursuant thereto.
9-16. Change in Control.
(a) The Parent's not being the beneficial holder of all of the
issued and outstanding capital stock of the Borrower.
(b) Any Change in Control.
ARTICLE 10 - RIGHTS AND REMEDIES UPON DEFAULT:
In addition to all of the rights, remedies, powers, privileges, and
discretions which the Lender is provided prior to the occurrence of an Event of
Default, the Lender shall have the following rights and remedies upon the
occurrence of any Event of Default and at any time thereafter. No stay which
otherwise might be imposed pursuant to Section 362 of the Bankruptcy Code or
otherwise shall stay, limit, prevent, hinder, delay, restrict, or otherwise
prevent the Lender's exercise of any of such rights and remedies.
10-1. Rights of Enforcement. The Lender shall have all of the rights and
remedies of a secured party upon default under the UCC, in addition to which the
Lender shall have all and each of the following rights and remedies:
(a) To collect the Receivables Collateral with or without the taking
of possession of any of the Collateral.
(b) To take possession of all or any portion of the Collateral.
(c) To sell, lease, or otherwise dispose of any or all of the
Collateral, in its then condition or following such preparation or processing as
the Lender deems advisable and with or without the taking of possession of any
of the Collateral.
(d) To conduct one or more going out of business sales which include
the sale or other disposition of the Collateral.
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(e) To apply the Receivables Collateral or the Proceeds of the
Collateral towards (but not necessarily in complete satisfaction of) the
Liabilities.
(f) To exercise all or any of the rights, remedies, powers,
privileges, and discretions under all or any of the Loan Documents.
10-2. Sale of Collateral.
(a) Any sale or other disposition of the Collateral may be at public
or private sale upon such terms and in such manner as the Lender deems
advisable, having due regard to compliance with any statute or regulation which
might affect, limit, or apply to the Lender's disposition of the Collateral.
(b) The Lender, in the exercise of the Lender's rights and remedies
upon default, may conduct one or more going out of business sales, in the
Lender's own right or by one or more agents and contractors. Such sale(s) may be
conducted upon any premises owned, leased, or occupied by the Borrower. The
Lender and any such agent or contractor, in conjunction with any such sale, may
augment the Inventory with other goods (all of which other goods shall remain
the sole property of the Lender or such agent or contractor). Any amounts
realized from the sale of such goods which constitute augmentations to the
Inventory (net of an allocable share of the costs and expenses incurred in their
disposition) shall be the sole property of the Lender or such agent or
contractor and neither the Borrower nor any Person claiming under or in right of
the Borrower shall have any interest therein.
(c) Unless the Collateral is perishable or threatens to decline
speedily in value, or is of a type customarily sold on a recognized market (in
which event the Lender shall provide the Borrower with such notice as may be
practicable under the circumstances), the Lender shall give the Borrower at
least seven (7) days prior written notice of the date, time, and place of any
proposed public sale, and of the date after which any private sale or other
disposition of the Collateral may be made. The Borrower agrees that such
written notice shall satisfy all requirements for notice to the Borrower which
are imposed under the UCC or other applicable law with respect to the exercise
of the Lender's rights and remedies upon default.
(d) The Lender may purchase the Collateral, or any portion of it at
any sale held under this Article.
(e) The Lender shall apply the proceeds of any exercise of the
Lender's Rights and Remedies under this Article 10 towards the Liabilities in
such manner, and with such frequency, as the Lender determines.
10-3. Occupation of Business Location. In connection with the Lender's
exercise of the Lender's rights under this Article 10, the Lender may enter
upon, occupy, and use any premises owned or occupied by the Borrower, and may
exclude the Borrower from such premises or portion thereof as may
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have been so entered upon, occupied, or used by the Lender. The Lender shall not
be required to remove any of the Collateral from any such premises upon the
Lender's taking possession thereof, and may render any Collateral unusable to
the Borrower. In no event shall the Lender be liable to the Borrower for use or
occupancy by the Lender of any premises pursuant to this Article 10, nor for any
charge (such as wages for the Borrower's employees and utilities) incurred in
connection with the Lender's exercise of the Lender's Rights and Remedies.
10-4. Grant of Nonexclusive License. The Borrower hereby grants to the
Lender a royalty free nonexclusive irrevocable license to use, apply, and affix
any trademark, trade name, logo, or the like in which the Borrower now or
hereafter has rights, such license being with respect to the Lender's exercise
of the rights hereunder including, without limitation, in connection with any
completion of the manufacture of Inventory or sale or other disposition of
Inventory.
10-5. Assembly of Collateral. The Lender may require the Borrower to
assemble the Collateral and make it available to the Lender at the Borrower's
sole risk and expense at a place or places which are reasonably convenient to
both the Lender and Borrower.
10-6. Rights and Remedies. The rights, remedies, powers, privileges, and
discretions of the Lender hereunder (herein, the " LENDER'S RIGHTS AND
REMEDIES") shall be cumulative and not exclusive of any rights or remedies which
it would otherwise have. No delay or omission by the Lender in exercising or
enforcing any of the Lender's Rights and Remedies shall operate as, or
constitute, a waiver thereof. No waiver by the Lender of any Event of Default
or of any default under any other agreement shall operate as a waiver of any
other default hereunder or under any other agreement. No single or partial
exercise of any of the Lender's Rights or Remedies, and no express or implied
agreement or transaction of whatever nature entered into between the Lender and
any person, at any time, shall preclude the other or further exercise of the
Lender's Rights and Remedies. No waiver by the Lender of any of the Lender's
Rights and Remedies on any one occasion shall be deemed a waiver on any
subsequent occasion, nor shall it be deemed a continuing waiver. All of the
Lender's Rights and Remedies and all of the Lender's rights, remedies, powers,
privileges, and discretions under any other agreement or transaction are
cumulative, and not alternative or exclusive, and may be exercised by the Lender
at such time or times and in such order of preference as the Lender in its sole
discretion may determine. The Lender's Rights and Remedies may be exercised
without resort or regard to any other source of satisfaction of the Liabilities.
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ARTICLE 11 - NOTICES:
11-1. Notice Addresses. All notices, demands, and other communications made
in respect of this Agreement (other than a request for a loan or advance or
other financial accommodation under the Term Loan) shall be made to the
following addresses, each of which may be changed upon seven (7) days written
notice to all others given by certified mail, return receipt requested:
If to the Lender:
Back Bay Capital, LLC
00 Xxxxx Xxxxxx
Xxxxxx, Xxxxxxxxxxxxx 00000
Attention : Xx. Xxxxxx Xxxxxx
Director
Fax : 000 000-0000
With a copy to:
Xxxxxx & Xxxxxxxxxx
Xxxxx Xxxxxx Xxxxx
Xxxxxx, Xxxxxxxxxxxxx 00000
Attention : Xxxxxxx X. Xxxxxx, Esquire
Fax : 000 000-0000
If to the Borrower:
Factory Card Outlet of America, Ltd.
0000 Xxxxx Xxxx
Xxxxxxxxxx, Xxxxxxxx 00000
Attention : Xx. Xxxxxx X. Xxxxxx
Fax : 000 000-0000
With a copy to:
Sonnenschein, Nath & Xxxxxxxxx
0000 Xxxxx Xxxxx
Xxxxxxx, Xxxxxxxx 00000
Attention : Xxxx Xxxxxxxxxx, Esquire and
Attorney Xxxxxxxx Xxxxxxx
Fax : 000 000-0000
11-2. Notice Given.
(a) Except as otherwise specifically provided herein, notices shall
be deemed made and correspondence received, as follows (all times being local to
the place of delivery or receipt):
(i) By mail: the sooner of when actually received or Five (5)
days following deposit in the United States mail, postage prepaid.
(ii) By recognized overnight express delivery: the Business Day
following the
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day when sent.
(iii) By Hand: If delivered on a Business Day after 9:00 AM and
no later than Three (3) hours prior to the close of customary business
hours of the recipient, when delivered. Otherwise, at the opening of the
then next Business Day.
(iv) By Facsimile transmission (which must include a header on
which the party sending such transmission is indicated): If sent on a
Business Day after 9:00 AM and no later than Three (3) hours prior to the
close of customary business hours of the recipient, one (1) hour after
being sent. Otherwise, at the opening of the then next Business Day.
(b) Rejection or refusal to accept delivery and inability to deliver
because of a changed address or Facsimile Number for which no due notice was
given shall each be deemed receipt of the notice sent.
ARTICLE 12 - MATURITY OF THE TERM LOAN:
12-1. Maturity. The Term Loan shall mature on the Maturity Date, on which
date, the Borrower shall pay the Lender:
(a) The then unpaid principal balance of the Term Note and all
accrued interest thereon (other than any such accrued interest as is evidence by
a PIK Note or interest under a PIK Note).
(b) Except as provided in Section 2-4(c)(iv), the unpaid principal
balance of each PIK Note and all accrued interest thereon.
(c) Any accrued but unpaid Collateral Monitoring Fees.
(d) If the Maturity Date is after June 30, 1999, the Anniversary
Fee.
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ARTICLE 13 - GENERAL:
13-1. Payments. The following rules shall apply to deposits and payments
under and pursuant to this Agreement:
(a) Funds shall be deemed to have been received on that Business Day
on which notice of such receipt is available to the Lender by 2:00PM.
(b) If notice of such receipt is not available to the Lender until
after 2:00PM on a Business Day, such payment shall be deemed to have been made
at 9:00AM on the then next Business Day.
(c) All payments to the Lender are subject to clearance and
collection.
13-2. Protection of Collateral. The Lender has no duty as to the collection
or protection of the Collateral beyond the safe custody of such of the
Collateral as may come into the possession of the Lender and shall have no duty
as to the preservation of rights against prior parties or any other rights
pertaining thereto. The Lender may include reference to the Borrower (and may
utilize any logo or other distinctive symbol associated with the Borrower) in
connection with any advertising, promotion, or marketing undertaken by the
Lender.
13-3. Successors, Assigns And Delegation of Authority.
(a) The Lender, by written notice to the Borrower, may delegate the
administration of the loan arrangement contemplated hereby to BankBoston Retail
Finance Inc. or any other Affiliate of the Lender, in which event, until written
notice by the Lender to the Borrower which terminates such delegation, such
delegatee shall have all rights, powers, privileges and duties vested in or
accorded to the Lender hereunder and shall be entitled to all benefits of the
Lender hereunder.
(b) This Agreement shall be binding upon the Borrower and the
Borrower's representatives, successors, and assigns and shall enure to the
benefit of the Lender and the Lender's successors and assigns provided,
however, no trustee or other fiduciary appointed with respect to the Borrower
shall have any rights hereunder. In the event that the Lender assigns or
transfers its rights under this Agreement, the assignee shall thereupon succeed
to and become vested with all rights, powers, privileges, and duties of the
Lender hereunder and the Lender shall thereupon be discharged and relieved from
its duties and obligations hereunder.
13-4. Severability. Any determination that any provision of this Agreement
or any application thereof is invalid, illegal, or unenforceable in any respect
in any instance shall not affect the validity,
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legality, or enforceability of such provision in any other instance, or the
validity, legality, or enforceability of any other provision of this Agreement.
13-5. Amendments. Course of Dealing.
(a) This Agreement and the other Loan Documents incorporate all
discussions and negotiations between the Borrower and the Lender, either express
or implied, concerning the matters included herein and in such other
instruments, any custom, usage, or course of dealings to the contrary
notwithstanding. No such discussions, negotiations, custom, usage, or course of
dealings shall limit, modify, or otherwise affect the provisions thereof. No
failure by the Lender to give notice to the Borrower of the Borrower's having
failed to observe and comply with any warranty or covenant included in any Loan
Document shall constitute a waiver of such warranty or covenant or the amendment
of the subject Loan Document. No change made by the Lender in the manner by
which Availability is determined shall obligate the Lender to continue to
determine Availability in that manner.
(b) The Borrower may undertake any action otherwise prohibited
hereby, and may omit to take any action otherwise required hereby, upon and with
the express prior written consent of the Lender. No consent, modification,
amendment, or waiver of any provision of any Loan Document shall be effective
unless executed in writing by or on behalf of the party to be charged with such
modification, amendment, or waiver (and if such party is the Lender, then by a
duly authorized officer thereof). Any modification, amendment, or waiver
provided by the Lender shall be in reliance upon all representations and
warranties theretofore made to the Lender by or on behalf of the Borrower (and
any guarantor, endorser, or surety of the Liabilities) and consequently may be
rescinded in the event that any of such representations or warranties was not
true and complete in all material respects when given.
13-6. Power of Attorney. In connection with all powers of attorney included
in this Agreement, the Borrower hereby grants unto the Lender full power to do
any and all things necessary or appropriate in connection with the exercise of
such powers as fully and effectually as the Borrower might or could do, hereby
ratifying all that said attorney shall do or cause to be done by virtue of this
Agreement. No power of attorney set forth in this Agreement shall be affected
by any disability or incapacity suffered by the Borrower and each shall survive
the same. All powers conferred upon the Lender by this Agreement, being coupled
with an interest, shall be irrevocable until this Agreement is terminated by a
written instrument executed by a duly authorized officer of the Lender.
13-7. Application of Proceeds. The proceeds of any collection, sale, or
disposition of the Collateral, or of any other payments received hereunder,
shall be applied towards the Liabilities in such order and manner as the Lender
determines in its sole discretion. The Borrower shall remain liable for
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any deficiency remaining following such application.
13-8. Lender's Costs and Expenses.
(a) The Borrower shall pay on demand all Costs of Collection and all
reasonable expenses of the Lender in connection with the preparation, execution,
and delivery of this Agreement and of any other Loan Documents, whether now
existing or hereafter arising, and all other reasonable expenses which may be
incurred by the Lender in preparing or amending this Agreement and all other
agreements, instruments, and documents related thereto, or otherwise incurred
with respect to the Liabilities, and all costs and expenses of the Lender which
relate to the credit facility contemplated hereby.
(b) The Borrower shall pay on demand all costs and expenses
(including attorneys' reasonable fees (and including, for such purpose, the
reasonably allocated cost of a Lender's in-house counsel)) incurred by any
Participant in connection with the enforcement, attempted enforcement, or
preservation of any rights or remedies under this or any other Loan Document
following the occurrence of any Event of Default (including all such costs and
expenses incurred by each Lender in connection with any "workout", forbearance,
or restructuring regarding the Revolving Credit).
(c) The Borrower authorizes the Lender to pay all such fees and
expenses and in the Lender's discretion, to request that the Tranche A Agent
advance the amount of such fees and advances under the "Revolving Credit"
established under the Tranche A Loan Agreement and hereby instructs the Tranche
A Agent to honor such request, even if the result is to cause the unpaid balance
of the "Loan Account" thereunder to exceed the "Borrowing Base" as defined
therein.
(d) The undertaking on the part of the Borrower in this Section 13-8
shall survive payment of the Liabilities and/or any termination, release, or
discharge executed by the Lender in favor of the Borrower, other than a
termination, release, or discharge which makes specific reference to this
Section 13-8.
(e) Prior to, or within a reasonable period after, the Lender's charging
any cost or expense to the Borrower as provided in this Section 13-8, the
Lender shall provide the Borrower with a copy of the invoice against which such
cost or expense was so charged or other written explanation of such charge or
expense.
13-9. Copies and Facsimiles. This Agreement and all documents which relate
thereto, which have been or may be hereinafter furnished the Lender may be
reproduced by the Lender by any photographic, microfilm, xerographic, digital
imaging, or other process, and the Lender may destroy any document so
reproduced. Any such reproduction shall be admissible in evidence as the
original itself in any judicial or administrative proceeding (whether or not the
original is in existence and whether or not
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such reproduction was made in the regular course of business). Any facsimile
which bears proof of transmission shall be binding on the party which or on
whose behalf such transmission was initiated and likewise shall be so admissible
in evidence as if the original of such facsimile had been delivered to the party
which or on whose behalf such transmission was received.
13-10. Massachusetts Law. This Agreement and all rights and obligations
hereunder, including matters of construction, validity, and performance, shall
be governed by the laws of The Commonwealth of Massachusetts.
13-11. Consent to Jurisdiction.
(a) The Borrower agrees that any legal action, proceeding, case, or
controversy against the Borrower with respect to any Loan Document may be
brought in the Superior Court of Suffolk County Massachusetts or in the United
States District Court, District of Massachusetts, sitting in Boston,
Massachusetts, as the Lender may elect in the Lender's sole discretion. By
execution and delivery of this Agreement, the Borrower, for itself and in
respect of its property, accepts, submits, and consents generally and
unconditionally, to the jurisdiction of the aforesaid courts.
(b) The Borrower WAIVES personal service of any and all process upon
it, and irrevocably consents to the service of process out of any of the
aforementioned courts in any such action or proceeding by the mailing of copies
thereof by certified mail, postage prepaid, to the Borrower at the Borrower's
address for notices as specified herein, such service to become effective five
(5) Business Days after such mailing.
(c) The Borrower WAIVES any objection based on forum non conveniens
and any objection to venue of any action or proceeding instituted under any of
the Loan Documents and consents to the granting of such legal or equitable
remedy as is deemed appropriate by the Court.
(d) Nothing herein shall affect the right of the Lender to bring
legal actions or proceedings in any other competent jurisdiction.
(e) The Borrower agrees that any action commenced by the Borrower
asserting any claim or counterclaim arising under or in connection with this
Agreement or any other Loan Document shall be brought solely in the Superior
Court of Suffolk County Massachusetts or in the United States District Court,
District of Massachusetts, sitting in Boston, Massachusetts, and that such
Courts shall have exclusive jurisdiction with respect to any such action.
13-12. Indemnification. The Borrower shall indemnify, defend, and hold the
Lender and any employee, officer, agent of, or independent contractor retained
by, the Lender (each, an "INDEMNIFIED PERSON") harmless of and from any claim
brought or threatened against any Indemnified Person by the
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Borrower, any guarantor or endorser of the Liabilities, or any other Person (as
well as from attorneys' reasonable fees and expenses in connection therewith) on
account of the relationship of the Borrower or of any other guarantor or
endorser of the Liabilities (each of claims which may be defended, compromised,
settled, or pursued by the Indemnified Person with counsel of the such
Indemnified Person's selection, but at the expense of the Borrower) other than
any claim by the Borrower directed against an Indemnified Person as to which a
final determination is made in a judicial proceeding (in which the Lender and
any other Indemnified Person has had an opportunity to be heard), which
determination includes a specific finding that the Indemnified Person seeking
indemnification had acted in a grossly negligent manner or in actual bad faith.
The within indemnification shall survive payment of the Liabilities and/or any
termination, release, or discharge executed by the Lender in favor of the
Borrower, other than a termination, release, or discharge which makes specific
reference to this Section 13-12.
13-13. Rules of Construction. The following rules of construction shall be
applied in the interpretation, construction, and enforcement of this Agreement
and of the other Loan Documents:
(a) Words in the singular include the plural and words in the plural
include the singular.
(b) Titles, headings (indicated by being underlined or shown in Small
Capitals) and any Table of Contents are solely for convenience of reference; do
not constitute a part of the instrument in which included; and do not affect
such instrument's meaning, construction, or effect.
(c) The words "includes" and "including" are not limiting.
(d) Text which follows the words "including, without limitation" (or
similar words) is illustrative and not limitational.
(e) Except where the context otherwise requires or where the
relevant subsections are joined by "or", compliance with any Section or
provision of any Loan Document which constitutes a warranty or covenant requires
compliance with all subsections (if any) of that Section or provision. Except
where the context otherwise requires, compliance with any warranty or covenant
of any Loan Document which includes subsections which are joined by "or" may be
accomplished by compliance with any of such subsections.
(f) Text which is shown in italics, shown in BOLD, shown IN ALL
CAPITAL LETTERS, or in any combination of the foregoing, shall be deemed to be
conspicuous.
(g) The words "may not" are prohibitive and not permissive.
(h) The word "or" is not exclusive.
(i) Terms which are defined in one section of any Loan Document are
used with such definition throughout the instrument in which so defined.
(j) The symbol "$" refers to United States Dollars.
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(k) Unless limited by reference to a particular Section or
provision, any reference to "herein", "hereof", or "within" is to the entire
Loan Document in which such reference is made.
(l) References to "this Agreement" or to any other Loan Document is
to the subject instrument as amended to the date on which application of such
reference is being made.
(m) Except as otherwise specifically provided, all references to
time are to Boston time.
(n) In the determination of any notice, grace, or other period of
time prescribed or allowed hereunder:
(i) Unless otherwise provided (I) the day of the act, event, or
default from which the designated period of time begins to run shall not
be included and the last day of the period so computed shall be included
unless such last day is not a Business Day, in which event the last day
of the relevant period shall be the then next Business Day and (II) the
period so computed shall end at 5:00 PM on the relevant Business Day.
(ii) The word "from" means "from and including".
(iii) The words "to" and "until" each mean "to, but excluding".
(iv) The work "through" means "to and including".
(o) The Loan Documents shall be construed and interpreted in a
harmonious manner and in keeping with the intentions set forth in Section 13-14
hereof, provided, however, in the event of any inconsistency between the
provisions of the within Agreement and any other Loan Document, the provisions
of the within Agreement shall govern and control.
13-14. Intent. It is intended that:
(a) This Agreement take effect as a sealed instrument.
(b) The scope of the security interests created by this Agreement be
broadly construed in favor of the Lender.
(c) The security interests created by this Agreement secure all
Liabilities, whether now existing or hereafter arising.
(d) All reasonable costs and expenses incurred by the Lender in
connection with the Lender's relationship(s) with the Borrower shall be borne by
the Borrower.
13-15. Right of Set-Off. Any and all deposits or other sums at any time
credited by or due to the Borrower from the Lender or any participant (a
"PARTICIPANT") in the credit facility contemplated hereby or any from any
Affiliate of the Lender or any Participant and any cash, securities, instruments
or other property of the Borrower in the possession of the Lender any
Participant or any such Affiliate, whether for safekeeping or otherwise
(regardless of the reason such Person had received the same) shall at all times
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constitute security for all Liabilities and for any and all obligations of the
Borrower to the Lender or any Participant or any such Affiliate and may be
applied or set off against the Liabilities and against such obligations at any
time following the occurrence of any Event of Default (notice of which set off
shall be given to the Borrower).
13-16. Maximum Interest Rate. Regardless of any provision of any Loan
Document, the Lender shall never be entitled to contract for, charge, receive,
collect, or apply as interest on any Liability, any amount in excess of the
maximum rate imposed by applicable law. Any payment which is made which, if
treated as interest on a Liability would result in such interest's exceeding
such maximum rate shall be held, to the extent of such excess, as additional
collateral for the Liabilities as if such excess were "Collateral."
13-17. Waivers.
(a) The Borrower (and all guarantors, endorsers, and sureties of the
Liabilities) make each of the waivers included in Section 13-17(b), below,
knowingly, voluntarily, and intentionally, and understands that the Lender, in
entering into the financial arrangements contemplated hereby and in providing
loans and other financial accommodations to or for the account of the Borrower
as provided herein, whether not or in the future, is relying on such waivers.
(b) THE BORROWER, AND EACH SUCH GUARANTOR, ENDORSER, AND SURETY
RESPECTIVELY WAIVES THE FOLLOWING:
(i) Except as otherwise specifically required hereby, notice of
non-payment, demand, presentment, protest and all forms of demand and
notice, both with respect to the Liabilities and the Collateral.
(ii) Except as otherwise specifically required hereby, the right
to notice and/or hearing prior to the Lender's exercising of the
Lender's rights upon default.
(iii) THE RIGHT TO A JURY IN ANY TRIAL OF ANY CASE OR CONTROVERSY
IN WHICH THE LENDER IS OR BECOMES A PARTY (WHETHER SUCH CASE OR
CONTROVERSY IS INITIATED BY OR AGAINST THE LENDER OR IN WHICH THE LENDER
IS JOINED AS A PARTY LITIGANT), WHICH CASE OR CONTROVERSY ARISES OUT OF
OR IS IN RESPECT OF, ANY RELATIONSHIP AMONGST OR BETWEEN THE BORROWER OR
ANY OTHER PERSON AND THE LENDER (AND THE LENDER LIKEWISE WAIVES THE RIGHT
TO A JURY IN ANY TRIAL OF ANY SUCH CASE OR CONTROVERSY).
(iv) Any claim to consequential, special, or punitive damages.
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XXXXXXX XXXX XXXXXX XX XXXXXXX, LTD.
("BORROWER")
By_________________________________
Print Name:________________________________
Title:________________________________
BACK BAY CAPITAL, LLC
("LENDER")
By_________________________________
Print Name:________________________________
Title:________________________________
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