Exhibit 10.1
--------------------------------------------------------------------------------
LOAN AND SECURITY AGREEMENT
--------------------------------------------------------------------------------
BANKBOSTON RETAIL FINANCE INC.
Agent for
The Lenders Referenced Herein
--------------------------------------------------------------------------------
COUNTY SEAT STORES, INC.
--------------------------------------------------------------------------------
............
255904.8
/October 28, 1997/
TABLE OF CONTENTS
ARTICLE 1 - DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE 2 - THE REVOLVING CREDIT . . . . . . . . . . . . . . . . . . . . . . .24
2-1. Establishment of Revolving Credit. . . . . . . . . . . . . . . .24
2-2. Advances in Excess of Maximum Loan Exposure. . . . . . . . . . .25
2-3. Risks of Value of Collateral . . . . . . . . . . . . . . . . . .26
2-4. Reserves. Changes to Reserves. . . . . . . . . . . . . . . . . .26
2-5. Loan Requests. . . . . . . . . . . . . . . . . . . . . . . . . .27
2-6. Making of Loans Under Revolving Credit . . . . . . . . . . . . .28
2-7. The Loan Account . . . . . . . . . . . . . . . . . . . . . . . .29
2-8. The Revolving Credit Notes . . . . . . . . . . . . . . . . . . .30
2-9. Voluntary Reduction of Commitment and Loan Ceiling . . . . . . .30
2-10. Payment of The Loan Account. . . . . . . . . . . . . . . . . . .30
2-11. Interest Rates. . . . . . . . . . . . . . . . . . . . . . . . .32
2-12. Certain Fees . . . . . . . . . . . . . . . . . . . . . . . . . .32
2-13. Agent's and Lenders' Discretion. . . . . . . . . . . . . . . . .33
2-14. Procedures For Issuance of L/C's . . . . . . . . . . . . . . . .34
2-15. Fees For L/C's and B/A's . . . . . . . . . . . . . . . . . . . .35
2-16. Concerning L/C's . . . . . . . . . . . . . . . . . . . . . . . .36
2-17. Changed Circumstances. . . . . . . . . . . . . . . . . . . . . .38
2-18. Increased Costs. . . . . . . . . . . . . . . . . . . . . . . . .39
2-19 Lenders' Commitments . . . . . . . . . . . . . . . . . . . . . .40
2-20. Replacement of Certain Lenders . . . . . . . . . . . . . . . . .41
ARTICLE 3 - CONDITIONS PRECEDENT.. . . . . . . . . . . . . . . . . . . . . . .42
3-1. Corporate Due Diligence. . . . . . . . . . . . . . . . . . . . .42
3-2. Emergence From Chapter 11. . . . . . . . . . . . . . . . . . . .43
3-3. Issuance of New Notes. . . . . . . . . . . . . . . . . . . . . .43
3-4. Opinions.. . . . . . . . . . . . . . . . . . . . . . . . . . . .43
3-5. Additional Documents.. . . . . . . . . . . . . . . . . . . . . .43
3-6. Officers' Certificates.. . . . . . . . . . . . . . . . . . . . .43
3-7. Representations and Warranties.. . . . . . . . . . . . . . . . .44
3-8. Minimum Excess Availability. . . . . . . . . . . . . . . . . . .44
3-9. No Adverse Actions.. . . . . . . . . . . . . . . . . . . . . . .44
3-10. Consents and Approvals . . . . . . . . . . . . . . . . . . . . .44
3-11. No Suspension Event. . . . . . . . . . . . . . . . . . . . . . .44
3-12. No Adverse Change. . . . . . . . . . . . . . . . . . . . . . . .44
3-13. All Fees and Expenses Paid. . . . . . . . . . . . . . . . . .45
ARTICLE 4 - GENERAL REPRESENTATIONS, WARRANTIES AND COVENANTS. . . . . . . . .45
4-1. Payment and Performance of Liabilities.. . . . . . . . . . . . .45
4-2. Due Organization - Corporate Authorization - No Conflicts. . . .45
4-3 Guaranties.. . . . . . . . . . . . . . . . . . . . . . . . . . .46
4-4. Trade Names. . . . . . . . . . . . . . . . . . . . . . . . . . .47
4-5. Locations. . . . . . . . . . . . . . . . . . . . . . . . . . . .47
4-6. Title to Assets. . . . . . . . . . . . . . . . . . . . . . . . .49
ii
/October 28, 1997/
4-7. Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . .50
4-8. Insurance Policies.. . . . . . . . . . . . . . . . . . . . . . .51
4-9. Licenses . . . . . . . . . . . . . . . . . . . . . . . . . . . .52
4-10. Leases.. . . . . . . . . . . . . . . . . . . . . . . . . . . . .53
4-11. Requirements of Law. . . . . . . . . . . . . . . . . . . . . . .53
4-12. Maintain Properties. . . . . . . . . . . . . . . . . . . . . . .53
4-13. Pay Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . .54
4-14. No Margin Stock. . . . . . . . . . . . . . . . . . . . . . . . .55
4-15. ERISA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .56
4-16. Hazardous Materials. . . . . . . . . . . . . . . . . . . . . . .56
4-17. Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . .57
4-18. Dividends or Investments . . . . . . . . . . . . . . . . . . . .57
4-19. Permitted Acquisitions . . . . . . . . . . . . . . . . . . . . .58
4-20. Loans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .58
4-21. Protection of Assets . . . . . . . . . . . . . . . . . . . . . .59
4-22. Line of Business . . . . . . . . . . . . . . . . . . . . . . . .59
4-23. Affiliate Transactions . . . . . . . . . . . . . . . . . . . . .59
4-24. Additional Assurances. . . . . . . . . . . . . . . . . . . . . .60
4-25. Adequacy of Disclosure . . . . . . . . . . . . . . . . . . . . .60
4-26. Other Covenants. . . . . . . . . . . . . . . . . . . . . . . . .61
ARTICLE 5 - REPORTING REQUIREMENTS / FINANCIAL COVENANTS . . . . . . . . . . .61
5-1. Maintain Records . . . . . . . . . . . . . . . . . . . . . . . .61
5-2. Access to Records. . . . . . . . . . . . . . . . . . . . . . . .62
5-3. Immediate Notice to Agent . . . . . . . . . . . . . . . . . . .63
5-4. Borrowing Base Certificate . . . . . . . . . . . . . . . . . . .64
5-5. Monthly Reports. . . . . . . . . . . . . . . . . . . . . . . . .64
5-6. Quarterly Reports. . . . . . . . . . . . . . . . . . . . . . . .65
5-7. Annual Reports . . . . . . . . . . . . . . . . . . . . . . . . .65
5-8. Officers' Compliance Certificates. . . . . . . . . . . . . . . .66
5-9. Inventories, Appraisals, and Audits. . . . . . . . . . . . . . .67
5-10. Additional Financial Information . . . . . . . . . . . . . . . .68
5-11. Fixed Charge Coverage Ratio. . . . . . . . . . . . . . . . . . .68
ARTICLE 6 - USE AND COLLECTION OF COLLATERAL.. . . . . . . . . . . . . . . . .69
6-1. Use of Inventory Collateral. . . . . . . . . . . . . . . . . . .69
6-2. Inventory Quality. . . . . . . . . . . . . . . . . . . . . . . .69
6-3. Adjustments and Allowances . . . . . . . . . . . . . . . . . . .69
6-4. Validity of Accounts . . . . . . . . . . . . . . . . . . . . . .69
6-5. Notification to Account Debtors. . . . . . . . . . . . . . . . .70
ARTICLE 7 - CASH MANAGEMENT. PAYMENT OF LIABILITIES. . . . . . . . . . . . . .70
7-1 Depository Accounts. . . . . . . . . . . . . . . . . . . . . . .70
7-2. Credit Card Receipts . . . . . . . . . . . . . . . . . . . . . .70
7-3. The Concentration and the Funding Accounts . . . . . . . . . . .71
7-4. Proceeds and Collection of Accounts. . . . . . . . . . . . . . .72
7-5. Payment of Liabilities . . . . . . . . . . . . . . . . . . . . .72
7-6. The Funding Account. . . . . . . . . . . . . . . . . . . . . . .73
ARTICLE 8 - GRANT OF SECURITY INTEREST . . . . . . . . . . . . . . . . . . . .73
iii
/October 28, 1997/
8-1. Grant of Security Interest . . . . . . . . . . . . . . . . . . .73
8-2. Extent and Duration of Security Interest . . . . . . . . . . . .74
ARTICLE 9 - AGENT AS BORROWER'S ATTORNEY-IN-FACT.. . . . . . . . . . . . . . .74
9-1. Appointment as Attorney-In-Fact. . . . . . . . . . . . . . . . .74
9-2. No Obligation to Act . . . . . . . . . . . . . . . . . . . . . .76
ARTICLE 10 - EVENTS OF DEFAULT.. . . . . . . . . . . . . . . . . . . . . . . .76
10-1. Failure to Pay Principal . . . . . . . . . . . . . . . . . . . .76
10-2. Failure To Make Other Payments . . . . . . . . . . . . . . . . .76
10-3. Failure to Perform Covenant or Liability (No Grace Period) . . .76
10-4. Failure to Perform Covenant or Liability (Limited Grace) . . . .77
10-5. Failure to Perform Covenant or Liability (Grace Period). . . . .78
10-6. Misrepresentation. . . . . . . . . . . . . . . . . . . . . . . .78
10-7. Default in Other Indebtedness. . . . . . . . . . . . . . . . . .78
10-8. Payment Default Under Any Lease. . . . . . . . . . . . . . . . .78
10-9. Default Under Other Agreements . . . . . . . . . . . . . . . . .78
10-10. Events with Respect To New Notes. . . . . . . . . . . . . . . .78
10-11. Casualty Loss. Non-Ordinary Course Sales . . . . . . . . . . . .78
10-12. Judgment. Restraint of Business . . . . . . . . . . . . . . . .79
10-13. Business Failure . . . . . . . . . . . . . . . . . . . . . . . .79
10-14. Bankruptcy . . . . . . . . . . . . . . . . . . . . . . . . . . .79
10-15. Default by Guarantor or Related Entity . . . . . . . . . . . . .80
10-16. Indictment - Forfeiture. . . . . . . . . . . . . . . . . . . . .80
10-17. Challenge to Loan Documents. . . . . . . . . . . . . . . . . . .80
10-18. Executive Management.. . . . . . . . . . . . . . . . . . . . . .80
10-19. Change in Control. . . . . . . . . . . . . . . . . . . . . . . .81
ARTICLE 11 - RIGHTS AND REMEDIES UPON DEFAULT. . . . . . . . . . . . . . . . .81
11-1. Rights of Enforcement. . . . . . . . . . . . . . . . . . . . . .81
11-2. Sale of Collateral . . . . . . . . . . . . . . . . . . . . . . .82
11-3. Occupation of Business Location. . . . . . . . . . . . . . . . .83
11-4. Grant of Nonexclusive License. . . . . . . . . . . . . . . . . .83
11-5. Assembly of Collateral . . . . . . . . . . . . . . . . . . . . .83
11-6. Rights and Remedies. . . . . . . . . . . . . . . . . . . . . . .83
ARTICLE 12 - NOTICES.. . . . . . . . . . . . . . . . . . . . . . . . . . . . .84
12-1. Notice Addresses . . . . . . . . . . . . . . . . . . . . . . . .84
12-2. Notice Given . . . . . . . . . . . . . . . . . . . . . . . . . .85
ARTICLE 13 - TERM. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .86
13-1. Termination of Revolving Credit. . . . . . . . . . . . . . . . .86
13-2. Effect of Termination. . . . . . . . . . . . . . . . . . . . . .86
ARTICLE 14 - GENERAL . . . . . . . . . . . . . . . . . . . . . . . . . . . .86
14-1. Protection of Collateral . . . . . . . . . . . . . . . . . . . .86
iv
/October 28, 1997/
14-2. Successors and Assigns.. . . . . . . . . . . . . . . . . . . . .87
14-3. Severability . . . . . . . . . . . . . . . . . . . . . . . . . .87
14-4. Amendments. Course of Dealing . . . . . . . . . . . . . . . . .87
14-5. Power of Attorney. . . . . . . . . . . . . . . . . . . . . . . .88
14-6. Application of Proceeds. . . . . . . . . . . . . . . . . . . . .88
14-7. Costs and Expenses of Agent and Of Lenders . . . . . . . . . . .88
14-8. Copies and Facsimiles. . . . . . . . . . . . . . . . . . . . . .88
14-9. Massachusetts Law. . . . . . . . . . . . . . . . . . . . . . . .89
14-10. Consent to Jurisdiction. . . . . . . . . . . . . . . . . . . . .89
14-11. Indemnification. . . . . . . . . . . . . . . . . . . . . . . . .90
14-12. Rules of Construction. . . . . . . . . . . . . . . . . . . . . .90
14-13. Intent . . . . . . . . . . . . . . . . . . . . . . . . . . . . .91
14-14. Right of Set-Off . . . . . . . . . . . . . . . . . . . . . . . .91
14-15. Maximum Interest Rate. . . . . . . . . . . . . . . . . . . . . .92
14-16. Waivers. . . . . . . . . . . . . . . . . . . . . . . . . . . . .92
14-17. Confidentiality. . . . . . . . . . . . . . . . . . . . . . . . .93
EXHIBITS
2-5 : Form of Loan Request.
2-8 : Revolving Credit Note
2-15 : Acceptable Voting Rights
3-4 : Form Of Opinions
4-2 : Related Entities
4-3 : Form of Guaranty
4-4 : Trade Names
4-5 : Locations.
4-5(b)(ii)(C) : Specific Store Closings
4-6(a) : Encumbrances.
4-6(b) : Consignments
4-7 : Indebtedness.
4-8 : Insurance Policies.
4-10 : Leases.
4-13 : Taxes
4-17 : Litigation
4-23 : Affiliate Transactions
5-4 : Borrowing Base Certificate
7-1 : DDA's.
7-2 : Credit Card Arrangements
v
/October 28, 1997/
--------------------------------------------------------------------------------
LOAN AND SECURITY AGREEMENT BankBoston
Retail Finance Inc.
--------------------------------------------------------------------------------
October 29, 1997
THIS AGREEMENT is made among
BankBoston Retail Finance Inc. (in such capacity, the "Agent"),
a Delaware corporation with offices at 00 Xxxxx Xxxxxx Xxxxxx,
Xxxxxxxxxxxxx 00000, as agent for the ratable benefit of the "Lenders", who
are, at present, those financial institutions identified on the signature
pages of the within Agreement and who in the future are those Persons (if
any) who become "Lenders" in accordance with the provisions of Section 219,
below,
the Lenders
and
County Seat Stores, Inc. (hereinafter, the "Borrower"), a
Minnesota corporation with its principal executive offices at 000 Xxxxxxx
Xxxxxx, Xxx Xxxx, Xxx Xxxx 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:
"Acceptable Inventory": All inventory of the Borrower (excluding any
supplies, goods returned or rejected by customers, goods to be
returned to suppliers and goods in transit to third persons
(other than the Borrower's agents or warehouses)) of a nature,
kind, and character comparable to that which existed on October
1, 1997, less any reserves to the extent permitted by Section 24,
as to which inventory the Lender has a perfected security
interest which is prior and superior to all security interests,
claims, and encumbrances (other than Permitted Encumbrances).
"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.
"ACH": Automated clearing house.
"Account Debtor": Has the meaning given that term in the UCC.
1
/October 28, 1997/
"Acquisition": The purchase or other acquisition, by the Borrower or by any
Subsidiary (no matter how structured in one transaction or in a
series of transactions) , of: (a) equity interests in any other
Person which would constitute or which results in a Change in
Control of such other Person, or (b) such of the assets of any
Person as would permit the Borrower or such Subsidiary to operate
one or more retail locations of such Person or to conduct other
business operations with such assets (provided, however, none of
the following shall constitute an "Acquisition": purchases of
inventory in the ordinary course of the Borrower's business;
purchases, leases or other acquisitions of Equipment in the
ordinary course of the Borrower's business; capital expenditures
permitted hereunder; and the acquisition of investments otherwise
permitted by the terms of this Agreement).
"Affected Lender": Is defined in Section 2-20.
"Affiliate": With respect to any two Persons, a relationship in which (a)
one holds, directly or indirectly, not less than Twenty Five
Percent (25%) of the Voting Stock of the other; or (b) one has,
directly or indirectly, Control of the other; or (c) not less
than Twenty Five Percent (25%) of their respective Voting Stock
is directly or indirectly held by the same third Person.
"Agency Agreement": That certain Agency Agreement among the Agent and the
Lenders regarding the loan arrangement contemplated by the Loan
Documents, as amended and in effect from time to time.
"Agent": Is defined in the Preamble.
"Agent's Fee": As defined in the Commitment Letter.
"Agent's Rights and Remedies": Is defined in Section 116.
"Applicable Advance Rate": The following percentage during the period
indicated:
From To Percentage
Execution of the within Agreement December 15, 1997 75%
December 16, 1997 January 31, 1998 65%
Each February 1 after closing Each June 30 after closing 70%
Each July 1 after closing Each December 15 after
closing, other than
December 15, 1997 73%
Each December 16 after closing, Each January 31 after
other than December 16, 1997 closing, other than
January 31, 1998 65%
"Availability": Is defined in Section 2-1(b).
/October 28, 1997/
2
"Availability Reserves: Such reserves, for the following, as the Agent
from time to time determines in the Agent's reasonable discretion
(subject to the maxima set forth in Section 2-4) as being
appropriate to reflect the impediments to the Agent's ability to
realize upon the Collateral or which constitutes contingent
obligations of the Borrower on account of which the Agent and
Lenders may have responsibility subsequent to acceleration: gift
certificates; merchandise credits; L/C Landing Costs; taxes for
which a lien has been filed, recorded, or otherwise arisen, which
lien has priority over the Encumbrances granted to the Agent
hereunder; and rent which is past due for more than Twenty -
Five (25) days after the expiration of any applicable grace
period in the subject lease (See Section 2-4, which deals with
certain maximum Reserves, initial Reserves and the basis under
which Reserves may be changed or supplemented from the initial
Reserves).
"Average Usage": For the period in respect of which Average Usage is
being determined: (a) the aggregate of the unpaid principal
balance of the Loan Account and the Stated Amounts of all
outstanding L/C's and B/A's on each day of such period divided by
(b) the number of days in such period.
"B/A": Banker's Acceptances.
"Backup L/C": The L/C which the Agent shall cause to be issued to support
the Borrower's obligations, at the execution of the within
Agreement, to Banker's Trust Company on account of letters of
credit and banker's acceptances issued, prior to the execution of
the within Agreement, by Banker's Trust Company for the account
of the Borrower.
"Bankruptcy Code": Title 11, U.S.C., as amended from time to time.
"Base": The greater, from time to time, of (a) the prime commercial rate
announced from time to time by BankBoston, N.A. or (b) the
aggregate of the Federal Funds Effective Rate plus 0.5% per
annum. Any change in "Base" shall be effective, for purposes of
the calculation of interest due hereunder, when such change is
made effective generally by the bank on whose rate or index
"Base" is being set.
"Base Margin Loan": Each Revolving Credit Loan while bearing interest at
the Base Margin Rate.
"Base Margin Rate": The aggregate of Base plus the Base Margin.
"Base Margin": 75 basis points, provided, however,
(a) In the event that the Borrower's actual EBITDA for the
Borrower's Fiscal 1998 is not less than $24,889,600.00, as such
actual EBITDA is determined from the Borrower's annual financial
statement for that Fiscal year and provided to the Agent
pursuant to Section 5-7(a), the Base Margin, commencing no later
than Three (3) Business Days after the delivery of such annual
financial statement, shall be 50 basis points and shall continue
to be 50 basis points until the anniversary of the date on which
the Base Margin so became 50 basis points, on which anniversary
date, unless the provisions of Clause (b) are then effective, the
Base Margin shall revert to 75 basis points.
(b) In the event that the Borrower's actual EBITDA for the
Borrower's Fiscal 1999 is not less than $27,395,200.00, as such
actual EBITDA is determined from the Borrower's annual financial
statement for that Fiscal year and provided to the Agent pursuant
to Section 5-7(a), the Base Margin, commencing no later than
Three (3) Business Days after the delivery of such annual
financial statement, shall be 50 basis points and shall continue
to
/October 28, 1997/
3
be 50 basis points until the Maturity Date, provided, however,
in the event that on the date on which the Borrower's annual
financial statement for its Fiscal 1999 is so delivered, the Base
Margin is 50 basis points, then Base Margin shall remain at 50
basis points until the Maturity Date.
"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 New York, New York, or
Minneapolis, Minnesota generally are not open to the general
public for the purpose of conducting commercial banking business;
or (c) a day on which the Agent is not open to the general public
to conduct business, and with respect to LIBOR Loans any day
which is also a day on which commercial banks are open for
international business (including dealings in dollar deposits) in
the London interbank market.
"Business Plan": The Borrower's business plan, dated October 28, 1997.
"Capital Expenditures": Gross Capital Expenditures which are required to
be included in, or reflected by, the property, plant and
equipment or similar fixed asset accounts on the balance sheet
prepared in accordance with GAAP, less Net Proceeds from the sale
or sale-leaseback of fixed assets.
"Capital Lease": Any lease which would be capitalized in accordance with
GAAP.
"Capital Stock": means (I) with respect to any Person that is a corporation,
any and all shares, interests, participations, rights or other
equivalents (however designated) of corporate stock including,
without limitation, partnership interests and other indicia of
ownership and (ii) with respect to any other Person, any and all
partnership or other equity interests of such Person.
"Cash Equivalents" shall mean, as to any Person, (I) securities issued or
directly and fully guaranteed or insured by the United States or
any agency or instrumentality thereof (provided that the full
faith and credit of the United States is pledged in support
thereof) having maturities of not more than six (6) months from
the date of acquisition by such Person, (ii) time deposits and
certificates of deposit of any commercial bank incorporated in
the United States of recognized standing having capital and
surplus in excess of $100,000,000 with maturities of not more
than six (6) months from the date of acquisition by such Person,
(iii) repurchase obligations with a term of not more than seven
(7) days for underlying securities of the types described in
clause (I) above, provided that there shall be no restriction on
the maturities of such underlying securities pursuant to this
clause (iii) entered into with a bank meeting the qualifications
specified in clause (ii) above, (iv) commercial paper issued by
the parent corporation of any commercial bank (provided that the
parent corporation and the bank are both incorporated in the
United States) of recognized standing having capital and surplus
in excess of $500,000,000 and commercial paper issued by any
Person incorporated in the United States rated at least A-1 or
the equivalent thereof by Standard & Poor's Ratings Group or at
least P-1 or the equivalent thereof by Xxxxx'x Investors Service,
Inc. and in each case maturing not more than six (6) months after
the date of acquisition by such Person, and (v) investments in
money market funds substantially all of whose assets are
comprised of securities of the types described in clauses (I)
through (v) above.
/October 28, 1997/
4
"Central Account": Defined in Section 7-3.
"Change in Control": The occurrence of any of the following (in one
transaction or a series of transactions): (I) the sale, lease,
transfer, conveyance or other disposition of all or substantially
all of the Borrower's assets to any "person" or "group" (as such
terms are used in Section 13(d) and 14(d) of the Exchange Act);
(ii) the liquidation or dissolution of the Borrower or the
adoption of a plan by the stockholders of the Borrower relating
to the dissolution or liquidation of the Borrower; (iii) at any
time, following the first anniversary of the date of this
Agreement, any "person" or "group" (as such terms are used in
Section 13(d) and 14(d) of the Exchange Act), except for one or
more Existing Holders, is or becomes the "beneficial owner" (as
such term is defined in Rules 13d-3 and 13d-5 under the Exchange
Act, except that a person shall be deemed to have "beneficial
ownership" of all securities that such person has the right to
acquire, whether such right is exercisable immediately or only
after the passage of time), directly or indirectly, of more than
50% of the aggregate ordinary voting power of the total
outstanding Voting Stock of the Borrower; or (iv) at any time,
following the first anniversary of the date of this Agreement,
with respect to the Borrower's Board of Directors, as such board
is constituted on and after the date of this Agreement, during
any period of two consecutive years, individuals who at the
beginning of such period constituted the Board of Directors of
the Borrower (together with any new directors who are approved by
a vote of at least 66 2/3% of the directors then still in office
who were either directors at the beginning of such period or
whose election or nomination for election was previously so
approved) cease for any reason to constitute a majority of the
Board of Directors of the Borrower then still in office.
"Chattel Paper": Has the meaning given that term in the UCC.
"Collateral": Is defined in Section 8-1.
"Commitment": Subject to 2-19, as follows:
LENDER Dollar Commitment Percentage Commitment
BankBoston Retail Finance Inc. $115,000,000.00 100%
"Commitment Letter": The letter agreement dated October 14, 1997
between the Borrower, on the one hand, and BankBoston Retail
Finance Inc. and BankBoston Securities Inc., on the other,
including the Term Sheet annexed to that Letter as EXHIBIT A.
"Control": As to any Person, means the possession of the power, directly or
indirectly, to direct or cause the direction of the management or
policies of such Person, whether through the ownership of voting
securities, by contract or otherwise.
"Concentration Account": Is defined in Section 7-3.
"Cost": The calculated cost of purchases, as determined from invoices
received by the Borrower, the Borrower's purchase journal or
stock ledger, based upon the Borrower's accounting practices
maintained in accordance with Section 5-1(a). "Cost" does not
include inventory capitalization costs or other non-purchase
price charges used in the Borrower's calculation of cost of goods
sold (but includes freight, duties and other landed costs (only
to the extent those costs were capitalized as of the date of this
Agreement).
/October 28, 1997/
5
"Costs of Collection" includes, without limitation, all attorneys'
reasonable fees and reasonable out-of-pocket expenses incurred by
the Agent's attorneys, and all reasonable costs incurred by the
Agent 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 Agent, which
costs and expenses are directly or indirectly related to or in
respect of the Agent'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 Agent's
Rights and Remedies and/or any of the Agent'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). The Costs of Collection are
Liabilities, and at the Agent's option may bear interest, if not
paid when due, at the highest post-default rate which the Agent
may charge the Borrower hereunder as if such had been lent,
advanced, and credited by the Agent to, or for the benefit of,
the Borrower.
"DDA": Any checking or other demand daily depository account maintained by
the Borrower.
"Deposit Account": Has the meaning given that term in the UCC.
"Distribution Facility": The Borrower's distribution facility located in
Brooklyn, Minnesota.
"Documents": Has the meaning given that term in the UCC.
"Documents of Title": Has the meaning given that term in the UCC.
"Dollar Commitment": As provided in the Definition of "Commitment",
above as reduced from time to time as the Loan Ceiling is reduced
pursuant to Section 2-10(c).
"EBITDA": The following, determined in accordance with GAAP: Net Income
before taxes plus (a) interest expense, whether paid or accrued,
plus/minus, (b) amortization, depreciation, and other non-cash
charges and credits (including, amortization of goodwill,
deferred financing fees, LIFO reserve adjustments and other
intangibles), plus (c) extraordinary charges deducted in
computing Net Income to the extent related to and incurred in
respect of the Proceedings, the Original New Notes and the New
Notes, paid after the date hereof, in an amount not to exceed
$200,000.00 for the period ending on the first anniversary of the
date of this Agreement.
"Early Termination Fee": Is defined in Section 2-12(c).
"Employee Benefit Plan": As defined in ERISA.
"Encumbrance": Each of the following:
(a) security interest, mortgage, pledge, hypothecation,
lien, attachment, or charge of any kind (including any agreement
to give any
/October 28, 1997/
6
of the foregoing); the interest of a lessor under a Capital
Lease; conditional sale or other title retention agreement; 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.
"End Date": The date upon which both (a) all Liabilities have been paid
in full and (b) all obligations of any Lender to make loans and
advances and to provide other financial accommodations to the
Borrower hereunder shall have been irrevocably terminated.
"Environmental Laws": (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; and
(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, 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, 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 10. Each reference herein to an
Event of Default or its consequences constitutes reference to an
Event of Default not then duly waived by the Agent pursuant to
Section 14-4(b).
"Excluded L/C Inventory": So much of the L/C Inventory, the purchase of
which is supported by documentary L/C's with an initial term in
excess of 120 days, as then exceeds 30% of the Stated Amount of
all documentary L/C's.
"Excluded Inventory Value": The then aggregate Stated Amount of L/C's
which support the purchase of Excluded L/C Inventory.
"Existing Holders": Collectively, the record and beneficial holders of
Borrower's common stock that receive such common stock in
connection with the Plan.
"Fiscal": When used with reference to a fiscal year, the Borrower's fiscal
year ending in January of the year following that to which
reference is made. E.g., "Fiscal 1998" refers to the Borrower's
fiscal year ending in January 1999.
/October 28, 1997/
7
Federal Funds Effective Rate: For any day, a fluctuating per annum interest
rate equal to the weighted average of the rates on overnight
federal funds transactions with members of the Federal Reserve
System arranged by federal funds brokers, as published on that
date (or on the then next succeeding Business Day, if not one) by
the Federal Reserve Bank of New York, provided that if such a
rate is not so published for a day which is a Business Day,
Federal Funds Effective Rate shall be the average of quotations
for such day on such transactions received by the Agent from
three federal funds brokers of recognized standing selected by
the Agent.
"Fixed Charge Coverage Ratio": The ratio of the following, each
determined for the period in respect of which compliance with
this ratio is being determined:
EBITDA less Fixed Charges
---------------------------------------------------------------
The sum of cash payments of interest and principal amortization.
"Fixed Charges": The sum of
(a) interest expense paid (except as provided below);
plus
(b) all cash dividend payments (which dividend
payments are subject, in any event, to limitations
included in Section 4-18(a)); plus
(c) principal payments on Indebtedness (excluding
payments on the Revolving Credit); plus
(d) principal payments on Capitalized Leases; plus
(e) the greater of Capital Expenditures or Zero (0);
plus
(f) cash payments of all taxes,
provided that, the following shall in no event be deemed to
constitute Fixed Charges: (I) the amount of fees and other debt
issuance costs related to the extension or amendment of this
Agreement, and (ii) amounts paid in the New Note Disbursement
Account on or about the date hereof, for the payment of interest
on the New Notes pursuant to the Indenture; and (iii) without
duplication, interest paid to the holders of the New Notes.
"Funding Account": Is defined in Section 7-3.
"GAAP": (a) For all purposes other than those specified in clause (b)
below, principles which are consistent with those promulgated or
adopted by the Financial Accounting Standards Board and its
predecessors (or successors) in effect as of the date of
determination and applicable to that accounting period in respect
of which reference to GAAP is being made, and (b) for purposes of
the financial covenant set forth in Section 5-11(a), principles
referred to in clause (a) above, which are applied in a manner
materially consistent with that used in preparing the Borrower's
financial statements for the fiscal year ending approximately as
of January 31, 1997, except for implementation of fresh start
accounting.
"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
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
/October 28, 1997/
8
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 similar 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 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) For the payment of the purchase price of goods or
services deferred for more than Thirty (30) days beyond then
current trade terms provided to such person by the supplier of
such goods or services.
(c) In connection with any letter of credit or acceptance
transaction (including, without limitation, the face amount of
all letters of credit and acceptances issued for the account of
such Person or reimbursement on account of which such Person
would be obligated).
(d) On account of deposits or advances from such Person's
customers.
(e) As lessee under Capital Leases.
"Indebtedness" of any Person shall also include:
(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 the type described in (a) above
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 14-11.
"Indenture": That certain Indenture dated as of October 29, 1997 between
the Borrower and First Trust, National Association, as Trustee
which relates to the New Notes, together with any amendment,
restatement or modification to such Indenture, prior written
approval of which amendment, restatement or
/October 28, 1997/
9
modification is given by the Agent, provided that the following
amendments, supplements or modifications shall not require the
prior written consent of the Agent:
(i) which decrease the rate of interest payable on the New
Notes;
(ii) which provide for payment in kind in lieu of cash of
any portion of the interest on the New Notes;
(iii) which provide for the extension of the maturity date
with respect to any principal or interest payment to be made
under the New Notes;
(iv) which provide more flexibility to the Borrower in
connection with any financial covenants; and
(v) which waive any defaults existing in connection with the
New Notes.
"Instruments": Has the meaning given that term in the UCC.
"Interest Payment Date": With reference to:
(a) Each LIBOR Loan: The last day of the Interest Period
relating thereto; the Termination Date, and the End Date.
(b) Each Base Margin Loan: the first day of each month; the
Termination Date; and the End Date.
"Interest Period": (a) With respect to each LIBOR Loan: Subject to
Subsection (d), below, the period commencing on the date of the
making or continuation of, or conversion to, such LIBOR Loan and
ending (but excluding) the day which corresponds numerically to
such date, one, two, or three months thereafter, as the Borrower
may elect by notice (pursuant to Section 2-5(b)) to the Agent.
(b) With respect to each Base Margin Loan: Subject to
Subsection (c), below, the period commencing on the date of the
making or continuation of or conversion to such Base Margin Loan
and ending on that date (I) as of which the subject Base Margin
Loan is converted to a LIBOR Loan, as the Borrower may elect by
notice (pursuant to Section 2-5(b)) to the Agent, or (ii) on
which the subject Base Margin Loan is paid by the Borrower.
(c) The setting of Interest Periods is in all instances
subject to the following:
(i) Any Interest Period for a Base Margin Loan which
would otherwise end on a day which is not a Business Day
shall be extended to the next succeeding Business Day.
(ii) Any Interest Period for a LIBOR Loan which would
otherwise end on a day that is not a Business Day shall be
extended to the next succeeding Business Day, unless that
succeeding Business Day is in the next calendar month, in
which event such Interest Period shall end on the last
Business Day of the month during which the Interest Period
ends.
(iii) Subject to Subsection (v), below, any
Interest Period applicable to a LIBOR Loan, which Interest
Period begins on a day for which there is no numerically
corresponding day in the calendar month during which such
Interest Period ends, shall end on the last Business Day of
the month during which that Interest Period ends.
(iv) Any Interest Period which would otherwise end
after the Termination Date shall end on the Termination
Date.
(v) No Interest Period applicable to a LIBOR Loan may
be less than one (1) month.
(vi) The number of Interest Periods applicable to LIBOR
Loans in effect at any one time is subject to Section 2-11(d)
hereof.
/October 28, 1997/
10
"Investment Property": 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.
Inventory Reserves": The following Reserves: shrinkage; return to
vendor; damaged inventory; seasonality; change in Inventory
character; change in Inventory mix; and markdowns, markons, and
markups which are out of the ordinary course of business and
inconsistent with prior practices (See Section 2-4, which deals
with initial Reserves and the basis under which Reserves may be
established, changed or supplemented from the initial Reserves).
"Issuer": The issuer of any L/C, which shall be BankBoston, N.A., or any
other bank approved by the Agent and the Borrower to issue L/Cs.
"L/C": Any letter of credit, the issuance of which is procured by the
Agent for the account of the Borrower.
"L/C Fee": Is defined in Section 2-15(a).
"L/C Inventory": Inventory, not yet delivered to the Borrower , the
purchase of which is supported by a documentary L/C or by a B/A
whether or not drawn or paid or by a letter of credit supported
by the Backup L/C whether or not drawn or paid, which Inventory,
at the drawing of the subject L/C, would constitute Acceptable
Inventory.
"L/C Inventory Value": The aggregate Stated Amount of L/C's and B/A's which
support the purchase of L/C Inventory.
"L/C Landing Costs": To the extent not included in the Stated Amount of an
L/C, customs, duty, freight, and other out-of-pocket costs and
expenses which will be expended to "land" the Inventory at the
Distribution Facility, the purchase of which is supported by such
L/C.
"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 real property.
"Lenders": Defined in the Preamble to the within Agreement
"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 Agent or any Lender, each of
every kind, nature, and description under the Loan Documents.
(b) Each obligation to repay any loan, advance,
indebtedness, note, obligation, overdraft, or amount now or
hereafter owing by the Borrower to the Agent or any Lender under
the Loan Documents (including all future advances whether or not
made pursuant to a commitment by the Agent
/October 28, 1997/
11
or any Lender under the Loan Documents, 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 Agent or any Lender may hold against the
Borrower.
(c) All notes and other obligations of the Borrower under
the Loan Documents, now or hereafter assigned to or held by the
Agent or any Lender, each of every kind, nature, and
description.
(d) All interest, fees, and charges and other amounts under
the Loan Documents, which may be charged by the Agent or any
Lender to the Borrower and/or which may be due from the Borrower
to the Agent or any Lender under the Loan Documents.
(e) All costs and expenses incurred or paid by the Agent or
any Lender in respect of any Loan Document (including, without
limitation, Costs of Collection, attorneys' reasonable fees, and
all court and litigation costs and expenses).
(f) Any and all covenants of the Borrower to or with the
Agent or any Lender under the Loan Documents and any other
instruments, documents, agreements and facilities entered into in
connection with or relating to this Agreement, including, without
limitation, cash management agreements, depository/investment
account agreements, letter of credit reimbursement agreements
with the Issuer and interest rate protection agreements, and any
and all obligations of the Borrower under the Loan Documents to
act or to refrain from acting in accordance with any Loan
Document.
"LIBOR Loan": Any Revolving Credit Loan which bears interest at a LIBOR
Rate.
"LIBOR Margin": 175 basis points, provided, however,
(a) In the event that the Borrower's actual EBITDA for the
Borrower's Fiscal 1998 is not less than $24,889,600.00, as such
actual EBITDA is determined from the Borrower's annual financial
statement for that Fiscal year and provided to the Agent pursuant
to Section 57(a), the LIBOR Margin, commencing no later than
Three (3) Business Days after the delivery of such annual
financial statement, shall be 150 basis points and shall continue
to be 150 basis points until the anniversary of the date on which
the LIBOR Margin so became 150 basis points, on which anniversary
date, unless the provisions of Clause (b) are then effective, the
LIBOR Margin shall revert to 175 basis points.
(b) In the event that the Borrower's actual EBITDA for the
Borrower's Fiscal 1999 is not less than $27,395,200.00, as such
actual EBITDA is determined from the Borrower's annual financial
statement for that Fiscal year and provided to the Agent pursuant
to Section 57(a), the LIBOR Margin, commencing no later than
Three (3) Business Days after the delivery of such annual
financial statement, shall be 150 basis points and shall continue
to be 150 basis points until the Maturity Date, provided,
however, in the event that on the date on which the Borrower's
annual financial statement for its Fiscal 1999 is so delivered,
the LIBOR Margin is 150 basis points, then LIBOR Margin shall
remain at 150 basis points until the Maturity Date.
"LIBOR Offer Rate": That rate of interest (rounded upwards, if necessary,
to the next 1/100 of 1%) determined by the Agent to be the
highest prevailing rate per annum at which deposits in U.S.
Dollars are offered to BankBoston, N.A., by first-class banks
in the London interbank market in which BankBoston, N.A.
participates at 10:00 AM (Boston Time) not less Two (2) Business
Days before the first day of the Interest Period for the subject
LIBOR Loan, for a deposit approximately in the amount of the
subject loan to be made by BankBoston Retail Finance Inc., for a
period of time approximately equal to such Interest Period.
/October 28, 1997/
12
"LIBOR Rate": That per annum rate determined as the aggregate of the LIBOR
Offer Rate plus the LIBOR Margin except that, in the event that
it is determined by the Agent that any Lender may be subject to
the Reserve Percentage, the "LIBOR Rate" shall mean, with respect
to any LIBOR Loans then outstanding (from the date on which that
Reserve Percentage first became applicable to such loans), and
with respect to all LIBOR Loans thereafter made until such
Reserve Percentage is determined to be no longer applicable, an
interest rate per annum equal to the sum of (a) plus (b), where:
(a) is the decimal equivalent of the following
fraction:
LIBOR Offer Rate
-------------------
1 minus Reserve Percentage
and
(b) is the applicable LIBOR Margin.
"Line Fee": Is defined in Section 2-12(c).
"Loan Account": Is defined in Section 2-7.
"Loan Ceiling": $115,000,000.00, as reduced from time to time pursuant to
the provisions of Section 2-9 and Section 2-10(c) hereof..
"Loan Documents": The within Agreement, each instrument and document
executed and delivered as contemplated by Article 3, below, each
other instrument or document from time to time executed and
delivered by the Borrower or any Subsidiary in connection with
the arrangements contemplated hereby, and any other instruments,
documents, agreements and facilities entered into in connection
with or relating to this Agreement, including, without
limitation, cash management agreements, depository/investment
account agreements, letter of credit reimbursement agreements
with the Issuer and interest rate protection agreements with any
Lender, as each may be amended from time to time.
"Local DDA": A depository account maintained by the Borrower, the only
contents of which may be transfers from the Funding Account and
actually used solely (I) for xxxxx cash purposes; or (ii) for
payroll.
"Margin Regulations": Is defined in Section 4-14 hereof.
"Material Adverse Effect": a material adverse effect on the business,
operations, financial condition or assets of the Borrower and its
Subsidiaries, taken as a whole.
"Maturity Date": October 31, 2000.
"Maximum Loan Exposure": The lesser, on any day, of
(a) the amount determined in accordance with Section 2-1(b)
(i); or
(b) the amount determined in accordance with Section 2-1(b)
(ii) hereof,
/October 28, 1997/
13
in each instance ((a) or (b)) determined without deduction from
said amount of the unpaid principal balance of the Loan Account
on that day.
"Net Proceeds": Gross proceeds from the sale or sale-leaseback of fixed
assets, less applicable expenses, taxes, and debt retirement
payments made which are associated with the sale or
sale-leaseback transactions.
"New Notes": The Original New Notes and any of the Exchange Notes which
replace the Original New Notes as permitted by Section 4-7(b).
"New Note Disbursement Account": The account established by the Borrower
upon the execution hereof with First Trust National Association
into which shall be deposited such amount as may be necessary
(together with the income earned thereon) to pay interest on the
New Notes which shall accrue over the eighteen month period
immediately following the date hereof.
"Original New Notes": The Initial Notes which are the subject of the
Indenture and are issued substantially contemporaneously with
the execution of the within Agreement.
"Participant": Is defined in Section 141-4, hereof.
"Permitted Encumbrances": Those Encumbrances permitted as provided in
Section 4-6(a) hereof.
"Person": Any natural person, and any corporation, limited liability
company, trust, partnership, joint venture, or other enterprise
or entity.
"Plan": The Borrower's plan of reorganization pursuant to Chapter 11 of
the Bankruptcy Code described in the Borrower's First Amended
Disclosure Statement approved, in the Proceedings, on August 22,
1997 together with the modifications thereto disclosed in the
confirmation order.
"Plan Payments:" All payments which, on the date on which the
"Plan Payments" are being determined, remain to be made under
or on account of the Plan.
"Proceedings": The case, pursuant to Chapter 11 of the Bankruptcy Code,
initiated on October 17, 1996 by the Debtor in the United States
Bankruptcy Court for the District of Delaware (Docket No. 96-1637
(HSB)).
"Proceeds": include, without limitation, "Proceeds" as defined in the
UCC (defined below), each type of property described in Section
81 hereof, and all Equipment.
"Projected EBITDA": EBITDA, calculated from the Business Plan, and without
regard to actual performance.
/October 28, 1997/
14
"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, contract rights,
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.
"Replacement Lender": Is defined in Section 2-20.
"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 rulings,
in each instance ((i) and (ii)) of or by any federal, state,
municipal, and other governmental authority, or court,
arbitrator, tribunal, panel, or other governmental body which has
or claims jurisdiction over such Person, or any property of such
Person.
(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.
"Reserve Percentage": The decimal equivalent of that rate applicable to
a Lender under regulations issued from time to time by the Board
of Governors of the Federal Reserve System for determining the
maximum reserve requirement of that Lender with respect to
"Eurocurrency liabilities" as defined in such regulations. The
Reserve Percentage applicable to a particular LIBOR Loan shall be
based upon that in effect during the subject Interest Period,
with changes in the Reserve Percentage which take effect during
such Interest Period to take effect (and to consequently change
any interest rate determined with reference to the Reserve
Percentage) if and when such change is applicable to such loans.
"Reserves": All (if any) Availability Reserves and Inventory Reserves.
"Revolving Credit": Is defined in Section 2-1.
"Revolving Credit Note": Is defined in Section 28.
"Revolving Credit Loan": A term of convenience which refers to so much of
the unpaid principal balance of the Loan Account as bears the
same rate of interest for the same Interest Period. (See Section
2-11(c)).
"Senior Officers" means with respect to the Borrower, the president, the
chief executive officer, any executive vice president, any senior
vice president, the chief financial officer, the controller, the
general counsel, and the secretary.
"Stated Amount": The maximum amount for which an L/C or a B/A may be
honored.
/October 28, 1997/
15
"Subsidiary" shall mean, as to any Person, (I) any corporation more than
50% of whose stock of any class or classes having by the terms
thereof ordinary voting power to elect a majority of the
directors of such corporation (irrespective of whether or not at
the time stock of any class or classes or such corporation shall
have or might have voting power by reason of the happening of any
contingency) is at the time owned by such Person and/or one or
more Subsidiaries of such Person and (ii) any partnership,
association, joint venture or other entity in which such Person
and/or one or more subsidiaries of such person has more than a
50% equity interest at the time.
"Suspension Event": Any occurrence, circumstance, or state of facts which
(a) is an Event of Default; or (b) would become an Event of
Default if any requisite notice were given and/or any requisite
period of time were to run and such occurrence, circumstance, or
state of facts were not cured or waived within any applicable
grace period. Each reference herein to a Suspension Default or
its consequences constitutes reference to a Suspension Event then
extant and not duly waived by the Agent pursuant to Section
14-4(b).
"Termination Date": The earliest of (a) the Maturity Date; or (b) the
occurrence of any event described in Section 1014 hereof; or (c)
the Agent's notice to the Borrower accelerating the Liabilities
on account of the occurrence of any Event of Default other than
as described in Section 10-14 hereof; or (d) that date (which
shall be a Business Day) irrevocably set by the Borrower by
written notice to the Agent no more than Fifteen (15) nor less
than Seven (7) days prior to the date so set.
"UCC": The Uniform Commercial Code as presently in effect in
Massachusetts (Mass. Gen. Laws, Ch. 106).
"Up Front Closing Fee": As defined in the Commitment Letter.
"Voting Stock": With respect to any Person, (I) one or more classes of
the Capital Stock of such Person having general voting power
under ordinary circumstances (A) to elect at least a majority of
the Board of Directors, managers or trustees of such Person
(irrespective of whether or not at the time Capital Stock of any
other class or classes shall have or might have voting power by
reason of the happening of any contingency) or (B) to exercise
Control over such Person, and (ii) any Capital Stock of such
Person convertible or exchangeable without restriction at the
option of the holder thereof into Capital Stock of such Person
described in clause (I) above.
ARTICLE 2 - THE REVOLVING CREDIT
2-1. Establishment of Revolving Credit.
(a) The Lenders hereby establish a revolving line of credit (the
"Revolving Credit") in the Borrower's favor pursuant to which each Lender,
subject to, and in accordance with, the within Agreement, acting through the
Agent, shall make loans and advances and otherwise provide financial
accommodations to and for the account of the Borrower as provided herein, in
each instance equal to that Lender's Commitment Percentage of Availability, up
to the maximum amount of that Lender's Commitment. The amount of the Revolving
Credit shall be determined by the Agent by reference to Availability, as
determined by the Agent from time to time hereafter as provided herein. All
loans made by each Lender under this Agreement, and all of the Borrower's other
Liabilities to the Lenders under or pursuant to this Agreement, are payable as
provided herein.
(b) As used herein, the term "Availability" refers at any time
to the lesser of (i) or (ii), below, where:
(i) Is the result of:
(A) The Loan Ceiling.
/October 28, 1997/
16
Minus
(B) The then unpaid principal balance of the Loan
Account.
Minus
(C) The then aggregate of such Availability Reserves
as may have been established by the Agent as
provided herein.
Minus
(D) The then outstanding Stated Amount of all L/C's
and B/A's.
(ii) Is the result of:
(A) up to the then Applicable Advance Rate of:
(I) the Cost of Acceptable Inventory, Plus
(II) L/C Inventory Value, Minus
(III) Excluded L/C Inventory Value, Minus
(IV) the then aggregate of such Inventory Reserves
as may have been established by the Agent as
provided herein.
Minus
(B) The then unpaid principal balance of the Loan
Account.
Minus
(C) The then aggregate of such Availability Reserves
as may have been established by the Agent as
provided herein.
Minus
(D) The then outstanding Stated Amount of all L/C's
and B/A's..
(c) Availability shall be based upon Borrowing Certificates
furnished as provided in Section 54 hereof.
(d) The proceeds of borrowings under the Revolving Credit shall
be used solely to facilitate the Borrower's emergence from the Proceedings and
for working capital, general corporate purposes and letters of credit and
banker's acceptances in accordance with the Business Plan, and not otherwise
prohibited pursuant to any Loan Document.
2-2. Advances in Excess of Maximum Loan Exposure. No Lender has any
obligation to make any loan or advance, or otherwise to provide any credit for
the benefit of the Borrower such that the balance of the Loan Account exceeds
Maximum Loan Exposure. The making of loans, advances, and credits and the
providing of financial accommodations hereunder in excess of Maximum Loan
Exposure is for the benefit of the Borrower and does not affect the obligations
of the Borrower hereunder; such loans, advances, credits, and financial
accommodations constitute Liabilities. The making of any such loans, advances,
and credits and the providing of financial accommodations, on any one occasion
such that Maximum Loan Exposure is exceeded shall not obligate any Lender to
make any such loans, credits, or advances or to provide any financial
accommodation on any other occasion nor to permit such loans, credits, or
advances to remain outstanding.
2-3. Risks of Value of Collateral. The Agent's reference to a given
asset in connection with the making of loans, credits, and advances and the
providing of financial accommodations under the Revolving Credit and/or the
monitoring of compliance with the provisions hereof shall not be deemed a
determination by the Agent or any Lender relative to
/October 28, 1997/
17
the actual value of the asset in question. All risks concerning the saleability
of the Borrower's Inventory are and remain upon the Borrower. All Collateral
secures the prompt, punctual, and faithful performance of the Liabilities
whether or not relied upon by the Agent or by any Lender in connection with the
making of loans, credits, and advances and the providing of financial
accommodations under the Revolving Credit.
2-4. Reserves. Changes to Reserves. (a) The following are the
Availability Reserves and their maxima:
(i) Gift certificates: 30%.
(ii) Merchandise credits: 30%.
(iii) L/C Landing Costs: 40%.
(iv) Rent past due by more than Twenty-Five (25) days
afterthe expiration of any grace period in the subject
lease, provided, however, an Availability Reserve for
such past due rent shall not be imposed for any
location, at which is located Inventory which is
excluded from "Acceptable Inventory" on account of
liens which arise in connection with, or as a result
of, past due rent.
(v) Taxes: The amount of the taxes subject to a lien which
has priority over the Encumbrances granted to the Agent
hereunder.
(b) At the execution of the within Agreement, there are no
Inventory Reserves it being understood, however that
(i) The Agent may establish Inventory Reserves for the
following only in the exercise of the reasonable judgment of the Agent:
change in Inventory character; change in Inventory mix; and markons and
markups which are out of the ordinary course of business and inconsistent
with prior practices.
(ii) The Agent may establish Inventory Reserves for the
following only in exercise of the reasonable judgment of the Agent where the
reserves maintained on the Borrower's books for the following are not sufficient
in the reasonable judgment of the Agent to determine the value of acceptable
inventory for lending purposes: shrinkage; seasonality; return to vendor;
markdowns, markons and markups which are out of the ordinary course of business
and inconsistent with prior practices; and damaged Inventory.
2-5. Loan Requests.
(a) Subject to the provisions of the within Agreement, a loan or
advance under the Revolving Credit duly and timely requested by the Borrower
shall be made pursuant hereto and at the time set forth in Section 2-5(b)
hereof, provided that:
(i) Maximum Loan Exposure will not be exceeded; and
(ii) The Revolving Credit has not been suspended as provided
in Section 2-5(h).
(b) Subject to the provisions of the within Agreement, the
Borrower may request a Revolving Credit Loan and elect an interest rate and
Interest Period to be applicable to that Revolving Credit Loan by giving the
Agent written notice or telephonic notice confirmed in writing (in the form of
EXHIBIT 2-5 hereof) no later than the following:
(i) If such Loan is or is to be converted to a Base Margin
Loan: By 11:30 AM on the Business Day on which the subject Revolving Credit
Loan is to be made or is to be so converted.
(ii) If such Loan is or is to be continued as a LIBOR Loan:
By 1:00 PM Three (3) Business Days before the end of the then applicable
Interest Period or before the day on which such Loan is to be made.
(iii) If such Loan is to be converted to a LIBOR Loan:
By 1:00PM Three (3) Business Days before the day on which such conversion
is to take place.
/October 28, 1997/
18
(c) (I) Base Margin Loans and conversions to Base Margin Loans
shall be in a minimum amount of $10,000.00 each.
(ii) LIBOR Loans and conversions to LIBOR Loans shall each
be not less than $700,000.00 and $100,000.00 increments in excess of such
minimum.
(d) Any request for a Revolving Credit Loan or for the
conversion of a Revolving Credit Loan which is made after the applicable
deadline therefor, as set forth above, shall be deemed to have been made at the
opening of business on the then next Business Day. Each request for the
conversion or continuation of a Revolving Credit Loan shall be made in such
manner as may from time to time be acceptable to the Agent.
(e) The Borrower may request the Agent to cause the issuance of
L/C's or B/As for the account of the Borrower as provided in Section 2-14.
(f) The Agent may rely on any request for a loan or advance, or
other financial accommodation under the Revolving Credit which the Agent, in
good faith, believes to have been made by a person duly authorized to act on
behalf of the Borrower and may decline to make any such requested loan or
advance, or issuance, or to provide any such financial accommodation pending the
Agent's being furnished with such documentation concerning that person's
authority to act as may be reasonably satisfactory to the Agent.
(g) A request by the Borrower for a loan or advance, or other
financial accommodation under the Revolving Credit shall be irrevocable and
shall constitute certification by the Borrower that as of the date of such
request, each of the following is true and correct:
(i) There has been no material adverse change in the
Borrower's financial condition from the most recent financial information
furnished Agent or any Lender pursuant to this Agreement.
(ii) Each representation which is made herein or in any of
the Loan Documents (defined below) is then true and complete, in all
material respects as of and as if made on the date of such request except
for any representation which, when made, expressly indicates that it is
being made as of a specific date.
(iii) No Suspension Event is then extant.
(h) Upon the occurrence and during the continuance from time to
time of any Suspension Event:
(i) The Agent may suspend the Revolving Credit immediately.
(ii) Neither the Agent nor any Lender shall be obligated,
during the continuation of such suspension, to make any loans or advance,
or to provide any other new financial accommodation hereunder or to seek
the issuance of any L/C or B/A.
(iii) The Agent may suspend the right of the Borrower to
request LIBOR Loans or to convert Base Rate Loans to LIBOR Loans.
2-6. Making of Loans Under Revolving Credit.
(a) A loan or advance under the Revolving Credit shall be made
by the Agent by the transfer of the proceeds of such loan or advance to the
Funding Account or as otherwise instructed by the Borrower on or before 5:00
p.m. on the Business Day on which the subject Revolving Credit Loan is timely
requested in the case of a Base Margin Loan and three (3) Business Days after
the subject Revolving Credit Loan is timely requested in the case of a LIBOR
Loan.
(b) A loan or advance shall be deemed to have been made under
the Revolving Credit at (and the Borrower shall be indebted to the Lenders for
their respective pro rata portions of the amount thereof immediately upon):
(i) The Agent's initiation of the transfer of the proceeds
of such loan or advance in accordance with the Borrower's instructions (if
such loan or advance is of funds requested by the Borrower).
(ii) The charging of the amount of such loan to the Loan
Account (in all other circumstances).
(c) There shall not be any recourse to, nor liability of, the
Agent or any Lender, on account of:
(i) Any delay in the proceeds of any such loan or advance
constituting collected funds.
/October 28, 1997/
19
(ii) Any delay in the receipt, and/or any loss, of funds
which constitute a loan or advance under the Revolving Credit, the wire
transfer of which was properly initiated by and in accordance with wire
instructions provided to the Agent by the Borrower.
2-7. The Loan Account.
(a) An account ("Loan Account") shall be opened on the books of
the Agent , in which Loan Account a record may be kept of all loans made under
or pursuant to this Agreement and of all payments thereon.
(b) The Agent may also keep a record (either in the Loan Account
or elsewhere, as the Agent may from time to time elect) of all interest, fees,
service charges, costs, expenses, and other debits owed each Lender on account
of the Liabilities and of all credits against such amounts so owed.
(c) All credits against the Liabilities shall be conditional
upon final payment to the Agent for the account of each Lender of the items
giving rise to such credits. The amount of any item credited against the
Liabilities which is charged back against Agent or any Lender for any reason or
is not so paid shall be a Liability and shall be added to the Loan Account,
whether or not the item so charged back or not so paid is returned.
(d) Except as otherwise provided herein, all fees, service
charges, costs, and expenses for which the Borrower is obligated hereunder are
payable on demand. In the determination of Availability, the Agent may deem
fees, service charges, accrued interest, and other payments as having been
advanced under the Revolving Credit if such amounts were then due and payable
after giving effect to any applicable grace period.
(e) The Agent, without the request of the Borrower, may advance
under the Revolving Credit any interest, fee, service charge, or other payment
to which the Agent or any Lender is entitled from the Borrower pursuant hereto
which is due and unpaid after the expiration of the applicable grace period and
may charge the same to the Loan Account notwithstanding that such amount so
advanced may result in Availability's being exceeded. Such action on the part
of the Agent shall not constitute a waiver of the Lender's rights under Section
210(b), below. Any amount which is added to the principal balance of the Loan
Account as provided in this Section shall bear interest at the interest rate
applicable from time to time to the unpaid principal balance of the Loan
Account.
(f) Any statement rendered by the Agent or any Lender to the
Borrower concerning the Liabilities shall be considered correct and accepted by
the Borrower and shall be conclusively binding upon the Borrower unless the
Borrower provides the Agent with written objection thereto within twenty (20)
Business Days from the mailing of such statement, which written objection shall
indicate, with particularity, the reason for such objection. The Loan Account
and the Agent's books and records concerning the loan arrangement contemplated
herein and the Liabilities shall be prima facie evidence and proof of the items
described therein.
2-8. The Revolving Credit Notes. The obligation to repay loans and
advances under the Revolving Credit, with interest as provided herein, shall be
evidenced by Notes (each, a "Revolving Credit Note") in the form of EXHIBIT 2-8,
annexed hereto, executed by the Borrower, one payable to each Lender. Neither
the original nor a copy of any Revolving Credit Note shall be required, however,
to establish or prove any Liability.
2-9. Voluntary Reduction of Commitment and Loan Ceiling. The Borrower
may reduce, or terminate, the Lenders' Commitment, pro rata, and the Loan
Ceiling, in whole or in part from time to time, by furnishing three (3) Business
Days' written notice to the Agent. Upon the effective date of any such
reduction, the Borrower shall pay to the Agent (a) any amounts required by under
Section 2-10(b) hereof as a result of such reduction or termination together
with (b) a pro rata portion (as to the amount of the reduction) of the Early
Termination Fees under Section 2-12(c) hereof, and (c) the accrued Line Fee as
of the date of such reduction or termination. No reduction or termination of
the Commitment or the Loan Ceiling may be reinstated.
2-10. Payment of The Loan Account.
/October 28, 1997/
20
(a) The Borrower may repay all or any portion of the principal
balance of the Loan Account from time to time until the Termination Date. Such
payments shall be applied first to Base Margin Loans and (subject to Section
2-10(e)) only then to LIBOR Loans.
(b) The Borrower, without notice or demand from the Agent or any
Lender, shall pay the Agent that amount, from time to time, which is necessary
so that the unpaid balance of the Loan Account does not exceed Maximum Loan
Exposure. Such payments shall be applied first to Base Margin Loans and (subject
to Section 2-10(e)) only then to LIBOR Loans.
(c) The Borrower, without notice or demand from the Agent or any
Lender, shall pay the Agent, for the ratable benefit of the Lenders, the
aggregate of Net Proceeds from the sale, by the Borrower, or by any Subsidiary,
of its assets (other than: sales or dispositions of Inventory in the ordinary
course; sales of fixed assets in connection with closing of stores permitted
hereunder; dispositions of worn out, damaged, or obsolete Equipment; and the Net
Proceeds of any sale of the Distribution Facility) immediately on receipt of
such Net Proceeds by the Borrower. Such payments shall be applied first to
Base Margin Loans and (subject to Section 2-10(e)) only then to LIBOR Loans.
The difference (if any) between the amount of such Net Proceeds and the amount
not reinvested in the Borrower's operations within Two Hundred Ten (210) days
following receipt of such Net Proceeds (such difference to be established by
one or more Certificates furnished to the Agent as contemplated by Section
5-3(b)(iii) of the within Agreement), shall constitute a permanent reduction to
the Loan Ceiling.
(d) Subject to Section 2-10(e), the Borrower shall repay the
then entire unpaid balance of the Loan Account and all other Liabilities on the
Termination Date.
(e) Upon the written request of any Lender showing its
calculations in reasonable detail, the Borrower shall indemnify each Lender and
hold each Lender harmless from and against any reasonable loss, cost or expense
(including loss of anticipated profits) which such Lender may sustain or incur
(including, without limitation, by virtue of acceleration after the occurrence
of any Event of Default) as a consequence of
(i) default by the Borrower in payment of the principal
amount of or any interest on any LIBOR Loans as and when due and payable,
including any such loss or expense arising from interest or fees payable by
such Lender to lenders of funds obtained by it in order to maintain its
LIBOR Loans;
(ii) default by the Borrower in making a borrowing or
conversion after the Borrower has given (or is deemed to have given) a
request for a LIBOR Loan or a request to convert a Revolving Credit Loan
from one applicable interest rate to another; or
(iii) the making of any payment of a LIBOR Loan or the
making of any conversion of any such Loan to a Base Margin Loan on a day
that is not the last day of the applicable Interest Period with respect
thereto, including interest or fees payable by such Lender to lenders of
funds obtained by it in order to maintain any such Loans as "breakage fees"
(so-called).
2-11. Interest Rates.
(a) Each Revolving Credit Loan shall bear interest (determined
based on a 360 day year and actual days elapsed) at the Base Margin Rate unless
timely notice is given (as provided in Section 2-5(b)) that the subject
Revolving Credit Loan (or a portion thereof) is, or is to be converted to, a
LIBOR Loan.
(b) Each Revolving Credit Loan which consists of a LIBOR Loan
shall bear interest at the applicable LIBOR Rate.
(c) Subject to the provisions hereof, the Borrower, by notice to
the Agent, may cause all or a part of the unpaid principal balance of the Loan
Account to bear interest at the Base Margin Rate or the LIBOR Rate as specified
from time to time by the Borrower. For ease of reference and administration,
each part of the Loan Account which bears interest at the same interest and for
the same Interest Period is referred to herein as if it were a separate
"Revolving Credit Loan".
(d) The Borrower shall not select, renew, or convert any
interest rate for a Revolving Credit Loan such that there are more than Eight
(8) interest rates applicable to the LIBOR Loans at any one time.
(e) The Borrower shall pay accrued and unpaid interest on each
Revolving Credit Loan in arrears
/October 28, 1997/
21
(i) On the applicable Interest Payment Date for that
Revolving Credit Loan.
(ii) On the Termination Date and on the End Date.
(iii) Following the occurrence of any Event of Default,
and during the continuance of any Event of Default, with such frequency as
may be determined by the Agent.
(f) Following the occurrence of any Event of Default, and during
the continuance of any Event of Default (and whether or not the Agent exercises
the Agent's rights on account thereof), all Revolving Credit Loans shall bear
interest, at the option of the Agent at the aggregate of the interest rate then
applicable to such loans plus Two Percent (2%) per annum.
2-12. Certain Fees.
(a) As compensation for the Lenders' respective commitments
included herein to make loans and advances to the Borrower and as compensation
for the Lenders' respective maintenance of sufficient funds available for such
purpose, the Lenders have earned the Upfront Closing Fee, which shall be paid as
provided in the Commitment Letter.
(b) In addition to any other fee or expense paid by the Borrower
on account of the Revolving Credit, the Borrower shall pay the Agent the Agent's
Fee at the times and subject to the provisions of the Commitment Letter.
(c) In the event that the Revolving Credit is voluntarily
terminated on a Termination Date set by the Borrower's written notice as
provided in the Definition of "Termination Date", which termination is not in
concert with the refinancing of the Revolving Credit with a credit facility
provided or led by BankBoston, N.A. or any unit thereof, then the Borrower shall
pay the Agent, for the account of the Lenders, an Early Termination Fee (so
referred to herein) equal to the following percentage of the then Loan Ceiling
on such Termination Date:
Termination Date Prior to October 30: Percentage of Loan Ceiling
1998 1.0%
1999 0.25%
2000 0.125%
(d) In addition to any other fee or expense paid by the Borrower
on account of the Revolving Credit, the Borrower shall pay the Agent for the
account of the Lenders, a Line Fee (so referred to herein) in arrears, on the
first day of each quarter (and on the Termination Date). The Line Fee shall be
equal to 0.375% per annum of the difference, during the quarter just ended (or
relevant period with respect to the payment being made on the Termination Date)
between the Loan Ceiling for such period and Average Usage.
(e) Except as provided in Section 2-12(b), the Borrower shall
not be entitled to any credit, rebate or repayment of any Commitment Fee, Line
Fee, or other fee previously earned by the Agent or any Lender pursuant to this
Section notwithstanding any termination of the within Agreement or suspension or
termination of the Agent's and any Lender's respective obligation to make loans
and advances hereunder.
2-13. Agent's and Lenders' Discretion.
(a) Except as otherwise provided hereunder and except in
determining the Availability Reserves and Inventory Reserves (where such
standards are already established), each reference in the Loan Documents to the
exercise of discretion or the like by the Agent or any Lender shall be to that
Person's exercise of its judgement, in good faith, based upon that Person's
consideration of any such factor as the Agent, or that Lender, taking into
account information of which that Person then has actual knowledge, believes:
/October 28, 1997/
22
(i) Will or reasonably could be expected to affect the
value of the Collateral, the enforceability of the Agent's security and
collateral interests therein, or the amount which the Agent 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 Agent, or any 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 a Suspension Event.
(b) In the exercise of such judgement, the Agent and each Lender
also may take into account any of the following factors:
(i) Those included in, or tested by, the definitions of
"Acceptable Inventory" and "Cost".
(ii) The current financial and business climate of the
industry in which the Borrower competes (having regard for the Borrower's
position in that industry).
(iii) General macroeconomic conditions which have a
material effect on the Borrower's cost structure.
(iv) Material changes in or to the mix of the Borrower's
Inventory.
(v) Seasonality with respect to the Borrower's Inventory
and patterns of retail sales.
(vi) Such other factors as the Agent and each Lender
determines as having a material bearing on credit risks associated with the
providing of loans and financial accommodations to the Borrower.
(c) The burden of establishing the failure of the Agent or any
Lender to have acted in a reasonable manner in such Person's exercise of
discretion shall be the Borrower's.
2-14. Procedures For Issuance of L/C's.
(a) The Borrower may request that the Agent cause the issuance
of L/C's or B/A's for the account of the Borrower. Each such request shall be
in such manner as may from time to time be acceptable to the Agent and the
Issuer.
(b) The Agent will cause the issuance of any L/C or B/A so
requested by the Borrower, provided that, at the time that the request is made,
the Revolving Credit has not been suspended as provided in Section 2-5(h) and if
so issued:
(i) The aggregate Stated Amount of all L/C's and B/A's
then outstanding, does not exceed Ninety Million Dollars ($90,000,000.00).
(ii) The aggregate Stated Amount of all Standby L/C's then
outstanding does not exceed Twenty Millions Dollars ($20,000,000.00).
(iii) The expiry of the L/C is not later than the
Maturity Date (unless the Borrower provides cash collateralization
reasonably satisfactory to the Agent in an amount of one hundred three
percent (103%) of the maximum amount available to be drawn under each such
L/C) or the following:
(A) Standby's: One (1) year from initial issuance.
(B) Documentary's: 150 days from issuance.
(iv) Maximum Loan Exposure would not be exceeded.
(c) The Borrower shall execute such documentation to apply for
and support the issuance of an L/C as may be reasonably and customarily required
by the Issuer.
(d) There shall not be any recourse to, nor liability of, the
Agent or any Lender (other than a Lender in its capacity as Issuer) on account
of
(i) Any delay by an Issuer to issue an L/C;
/October 28, 1997/
23
(ii) Any action or inaction of an Issuer on account of or in
respect to, any L/C.
(e) Immediately upon the drawing under any L/C, the Borrower
shall reimburse the Issuer, for the amount of such drawing. In the event the
Borrower does not so reimburse the Issuer, the Agent, without the request of the
Borrower, may cause the advance under the Revolving Credit of any amount which
the Borrower is so obligated to reimburse the Issuer or for which the Borrower,
the Issuer, or the Lenders become obligated on account of, or in respect to, any
L/C. Such advance shall be made whether or not a Suspension Event is then
extant or such advance would result in Maximum Loan Exposure's being exceeded.
Such action shall not constitute a waiver of the Agent's rights under Section
2-10(b) hereof.
2-15. Fees For L/C's and B/A's .
(a) The Borrower shall pay the Agent, for the account of the
Lenders, monthly in arrears, on the first day of the month then next following,
a (each, an "L/C Fee") fee equal to the following per annum percentage of the
average face amount of the following categories of L/C's outstanding during the
subject month:
(i) Standbys: 1.75%
(ii) Documentaries: 1.50%
(iii) BackUp L/C: 0.875%
(b) The Borrower shall pay the Agent, for the account of the
Lenders, monthly in arrears, on the first day of the month then next following,
a fee equal to 1.50% per annum on the average face amount of all B/A's
outstanding during the subject month.
(c) In addition to the fee to be paid as provided in Subsection
215(a), above, the Borrower shall pay to the Agent (or to the Issuer, if so
requested by Agent), on demand, all issuance, processing, negotiation,
amendment, and administrative fees and other amounts customarily charged by the
Issuer on account of, or in respect to, any L/C or B/A.
2-16. Concerning L/C's.
(a) None of the Issuer, the Issuer's correspondents, or any
advising, negotiating, or paying bank with respect to any L/C shall be
responsible (absent any gross negligence or willful misconduct of any of them)
in any way for:
(i) The performance by any beneficiary under any L/C of
that beneficiary's obligations to the Borrower.
(ii) The form, sufficiency, correctness, genuineness,
authority of any person signing; falsification; or the legal effect of; any
documents called for under any L/C if (with respect to the foregoing) such
documents on their face appear to be in order.
(b) The Issuer may honor, as complying with the terms of any L/C
and of any drawing thereunder, any drafts or other documents otherwise in order,
but signed or issued by an administrator, executor, conservator, trustee in
bankruptcy, debtor in possession, assignee for the benefit of creditors,
liquidator, receiver, or other legal representative of the party authorized
under such L/C to draw or issue such drafts or other documents.
(c) Unless otherwise agreed to, in the particular instance, the
Borrower hereby authorizes any Issuer to:
(i) Select an advising bank, if any.
(ii) Select a paying bank, if any.
(iii) Select a negotiating bank.
(d) All directions, correspondence, and funds transfers relating
to any L/C are at the risk of the Borrower (absent gross negligence or willful
misconduct on the Issuer's, the Agent's or any Lender's part). The Issuer shall
have discharged the Issuer's obligations under any L/C which, or the drawing
under which, includes payment instructions, by the initiation of the method of
payment called for in, and in accordance with, such instructions (or by any
other commercially reasonable and comparable method (absent
/October 28, 1997/
24
gross negligence or willful misconduct on its part). None of the Agent, any
Lender, nor the Issuer shall have any responsibility for any inaccuracy,
interruption, error, or delay in transmission or delivery by post, telegraph or
cable, or for any inaccuracy of translation (absent
gross negligence or willful misconduct on its part).
(e) The Agent's, each Lender's, and the Issuer's rights, powers,
privileges and immunities specified in or arising under this Agreement are in
addition to any heretofore or at any time hereafter otherwise created or
arising, whether by statute or rule of law or contract.
(f) Except to the extent otherwise expressly provided hereunder
or agreed to in writing by the Issuer and the Borrower, the L/C will be governed
by the Uniform Customs and Practice for Documentary Credits, International
Chamber of Commerce, Publication No. 500, and any subsequent revisions thereof.
(g) If any change in any law, executive order or regulation, or
any directive of any administrative or governmental authority (whether or not
having the force of law), or in the interpretation thereof by any court or
administrative or governmental authority charged with the administration
thereof, shall either:
(i) impose, modify or deem applicable any reserve, special
deposit or similar requirements against letters of credit heretofore or
hereafter issued by any Issuer or with respect to which the Agent, or any
Issuer has an obligation to lend to fund drawings under any L/C; or
(ii) impose on any Issuer any other condition or
requirements relating to any such letters of credit; and the result of any
event referred to in Section 2-16(g)(i) or 2-16(g)(ii), above, shall be to
increase the cost to such Issuer of issuing or maintaining any L/C (which
increase in cost shall be the result of such Issuer's reasonable allocation
among that Issuer's letter of credit customers of the aggregate of such cost
increases resulting from such events), then, upon demand by the Agent and
delivery by the Agent to the Borrower of a certificate of an officer of the
subject Issuer describing such change in law, executive order, regulation,
directive, or interpretation thereof, its effect on such Issuer, and the
basis for determining such increased costs and their allocation, the Borrower
shall immediately pay to the Agent , from time to time as specified by the
Agent , such amounts as shall be sufficient to compensate such Issuer for
such increased cost. Any Issuer's determination of costs incurred under
Section 2-16(g)(i) or 2-16(g)(ii), above, and the allocation, if any, of such
costs among the Borrower and other letter of credit customers of such Issuer,
if done in good faith and made on an equitable basis and in accordance with
the officer's certificate, shall be conclusive and binding on the Borrower.
(h) The obligations of the Borrower under the within Agreement
with respect to L/C's are absolute, unconditional, and irrevocable and shall be
performed strictly in accordance with the terms hereof under all circumstances,
whatsoever including, without limitation, the following:
(i) Any lack of validity or enforceability or restriction,
restraint, or stay in the enforcement of the within Agreement, any L/C, or
any other agreement or instrument relating thereto.
(ii) Any amendment or waiver of, or consent to the departure
from, any L/C.
(iii) The existence of any claim, set-off, defense, or
other right which the Borrower may have at any time against the beneficiary
of any L/C.
(iv) Any honoring of a drawing under any L/C, which drawing
possibly could have been dishonored based upon a strict construction of the
terms of the L/C.
2-17. Changed Circumstances.
(a) The Agent may give the Borrower notice of the occurrence of
the following:
(i) The Agent shall have determined in good faith (which
determination shall be final and conclusive) on any day on which the rate
for a LIBOR Loan would otherwise be set, that, by reason of changes arising
after the date of this Agreement affecting the London interbank market,
adequate and fair means do not exist for ascertaining such rate on the
basis provided for in the definition of LIBOR Offer Rate.
(ii) The Agent shall have determined in good faith (which
determination shall be final and conclusive) that:
(A) The continuation of or conversion of any Revolving
Credit Loan to a LIBOR Loan has been made impracticable or
/October 28, 1997/
25
unlawful by the occurrence of a change in law occurring after the
date of this Agreement that materially and adversely affects the
applicable market or compliance by the Agent or any Lender in
good faith with any applicable law or governmental regulation,
guideline or order or interpretation or change thereof by any
governmental authority charged with the interpretation or
administration thereof or with any request or directive of any
such governmental authority (whether or not having the force of
law).
(B) The indices on which the interest rates for LIBOR
Loans are determined shall no longer represent the effective cost
to the Agent or any Lender for U.S. dollar deposits in the
interbank market for deposits in which it regularly participates.
(b) In the event that the Agent gives the Borrower notice of an
occurrence described in Section 2-17(a), then, until the Agent notifies the
Borrower that the circumstances giving rise to such notice no longer apply:
(i) The obligation of the Agent and of each Lender to make
LIBOR Loans of the type affected by such changed circumstances or to permit
the Borrower to select the affected interest rate as otherwise applicable
to any Revolving Credit Loans shall be suspended.
(ii) Any notice which the Borrower had given the Agent with
respect to any LIBOR Loan, the time for action with respect to which has
not occurred prior to the Agent's having given notice pursuant to Section
2-17(a), shall be deemed at the option of the Agent to not having been
given and such loan shall be made or continued as, or converted into, as
appropriate, a Base Margin Loan.
(iii) Subject to the provisions of Section 2-10(e), the
Borrower may (and shall, with respect to the occurrence of any event described
in Section 2-17(a)(ii)), cancel the relevant borrowing or conversion notice on
the same date the Borrower was notified of such event, or if the LIBOR Loan is
then outstanding, prepay the affected LIBOR Loan.
2-18. Increased Costs. If, as a result of any change after the date
of this Agreement in any requirement of law, or of any change in the
interpretation or application thereof by any court or by any governmental or
other authority or entity charged with the administration thereof, whether or
not having the force of law, which:
(a) subjects any Lender to any taxes or changes the basis of
taxation, or increases any existing taxes, on payments of principal,
interest or other amounts payable by the Borrower to the Agent or any
Lender under this Agreement (except for taxes on or measured by the Agent
or any Lender's net or gross income or capital imposed by the United States
of America or by the jurisdiction in which the Agent or that Lender's
principal or lending offices are located or by the jurisdiction under which
the Agent or that Lender is organized);
(b) imposes, modifies or deems applicable any reserve, cash
margin, special deposit or similar requirements (but in all events
excluding reserves required under Regulation D to the extent included in
the calculation of LIBOR Rate) against assets held by, or deposits in or
for the account of or loans by or any other acquisition of funds by the
relevant funding office of any Lender with respect to LIBOR Loans;
(c). imposes on any Lender any other condition with respect to
LIBOR Loans; or
(d) with respect to any change in any law or regulation
regarding capital adequacy, imposes on any Lender a requirement to maintain
or allocate capital in relation to the Liabilities;
and the result of any of the foregoing, in the Agent's reasonable opinion, is
to increase the cost to any Lender of making or maintaining any loan, advance or
financial accommodation or to reduce the income receivable by any Lender in
respect of any loan, advance or financial accommodation by an amount which the
Agent deems to be material, then upon the Agent's giving written notice thereof,
from time to time, to the Borrower (such notice to set out in reasonable detail
the facts giving rise to and a summary calculation of such increased cost or
reduced income), the Borrower shall forthwith pay to the Agent, for the benefit
of the subject Lender, , upon receipt of such notice, that amount which shall
compensate the subject Lender for such additional cost or reduction in income.
/October 28, 1997/
26
2-19 Lenders' Commitments.
(a) The obligations of each Lender are several and not joint.
No Lender shall have any obligation to make any loan or advance under the
Revolving Credit (I) in excess of the lesser of that Lender's Commitment
Percentage (as defined in the Agency Agreement) of the subject loan or advance
or of Availability or (ii) in excess of that Lender's Commitment,
(b) No Lender shall have any liability to the Borrower on
account of the failure of any other Lender to provide any loan or advance under
the Revolving Credit nor any obligation to make up any shortfall which may be
created by such failure.
(c) The Dollar Commitments, Commitment Percentages, and
identities of the Lenders (but not the overall Commitment) may be changed, from
time to time by the reallocation or assignment of Dollar Commitments and
Commitment Percentages amongst the Lenders or with other financial institutions
(or other entities customarily engaged in the business of making commercial
loans) who determine to become "Lenders", provided, however,
(i) No such assignment shall be of less than Ten Million
Dollars ($10,000,000.00).
(ii) Unless an Event of Default has occurred, and is
continuing (in which event, no consent of the Borrower is required), any
assignment to a Person not then a Lender shall be subject to the prior
consent of the Borrower (not to be unreasonably withheld), which consent
will be deemed given unless the Borrower provides the Agent with written
objection, not more than Seven (7) Business Days after the Agent shall have
given the Borrower written notice of a proposed assignment).
(iii) Any such assignment or reallocation shall be on a
pro-rata basis such that each reallocated or assigned Dollar Commitment to
any Person remains the same percentage of the overall Commitment (in terms
of dollars) as the reallocated Commitment Percentage is to such Person.
(iv) The Dollar Commitment of BankBoston Retail Finance Inc.
shall not be less than Twenty Five Million Dollars ($25,000,000.00).
(v) There will not be more than Six (6) "Lenders" at any
one time.
(vi) Notwithstanding the foregoing, no such assignment
and no participation shall increase the Borrower's payment obligation to the
subject assignee or Participant from such obligation had such assignment or
participation not been made.
(d) Upon written notice given the Borrower from time to time by
the Agent, of any assignment or allocation referenced in Section 219(c):
(i) The Borrower shall execute one or more replacement
Revolving Credit Notes to reflect such changed Dollar Commitments, Commitment
Percentages, and identities and shall deliver such replacement Revolving Credit
Notes to the Agent (which promptly thereafter shall deliver to the Borrower the
Revolving Credit Notes so replaced) provided however, in the event that a
Revolving Credit Note is to be exchanged following its
/October 28, 1997/
27
acceleration or the entry of an order for relief under the Bankruptcy Code with
respect to the Borrower, the Agent, in lieu of causing the Borrower to execute
one or more new Revolving Credit Notes, may issue the Agent's Certificate
confirming the resulting Commitments and Commitment Percentages.
(Ii) Any such assignment shall be effective from the effective
date specified in such written notice and any Person added as a "Lender"
shall have all rights and privileges of a "Lender" hereunder thereafter as
if such Person had been a signatory to the within Agreement and any other
Loan Document to which a Lender is a signatory and any person removed as a
"Lender" shall be relieved of any obligations or responsibilities of a
"Lender" hereunder thereafter.
(e) The Borrower recognizes that the Agent's exercise of any
discretion accorded to the Agent herein and of its rights, remedies, powers,
privileges, and discretions with respect to the Borrower is subject to the
Agency Agreement amongst the Agent and the Lenders. The provisions of the
Agency Agreement relating to voting rights of the Lenders and Participants and
the replacement of the Agent shall be subject to the approval of the Borrower,
which approval shall not be unreasonably delayed or withheld. The Borrower
acknowledges that the Borrower's approval of the voting rights shall be deemed
furnished if the voting rights provision described in EXHIBIT 2-19 hereto are
incorporated in the Agency Agreement.
2-20. Replacement of Certain Lenders. If a Lender, other than the
Agent, as Lender (an "Affected Lender"), shall have requested compensation
from the Borrower under Sections 2-17 or 2-18 or other additional costs
incurred by such Lender which are not being incurred generally by the other
Lenders, or if the Agent shall have delivered a notice pursuant to Section
2-17 claiming that any Lender is unable to extend LIBOR Loans to the Borrower
for reasons not generally applicable to the other Lenders, then, in any such
case, so long as no Event of Default exists:
(a) The Borrower may make written demand on such Affected
Lender (with a copy to the Agent) no later than Thirty (30) days after such
request for the Affected Lender to assign, and such Affected Lender shall
assign in accordance with Section 2-19 within ten (10) Business Days after
the date of such demand, to one or more financial institutions which comply
with the provisions of Section 2-19(c) (and which institutions are reasonably
acceptable to the Agent) which the Borrower shall have engaged for such
purpose (a "Replacement Lender"), all of such Affected Lender's rights and
obligations under this Agreement and the other Loan Documents (including its
Dollar Commitment, all loans owing to it, all of its participation interests
in outstanding L/C's, and its obligation to participate in additional L/C's
hereunder) in accordance with Section 2-19(c). The Borrower shall be
responsible for the payment of all reasonable costs and expenses, including
reasonable attorney's fees and expenses, incurred by the Agent and the
successor Lender in connection with all matters relative to such assignment.
(b) The Affected Lender shall receive, concurrent with such
assignment, in cash, all amounts due and owing to such Affected Lender hereunder
or under any other Loan Document, including the aggregate outstanding principal
amount of the loans owed to such Lender, together with accrued interest thereon
through the date of such assignment from the Replacement Lender, amounts payable
under Section 218 with respect to such Affected Lender.
(c) Upon such Affected Lender's replacement, such Affected
Lender shall cease to be a party hereto and shall be released of all obligations
hereunder.
ARTICLE 3 - CONDITIONS PRECEDENT.
As a condition to the effectiveness of this Agreement, the establishment of
the Revolving Credit, and the making of the first loan under the Revolving
Credit, each of the documents respectively described in this Article 3 as
required to be delivered to the Agent or any Lender (each in form and substance
satisfactory to the Agent) shall have been so delivered and each of the
conditions respectively described in this Article 3 as required to be satisfied
shall have been satisfied (to the reasonable satisfaction of the Agent):
3-1. Corporate Due Diligence.
/October 28, 1997/
28
(a) A Certificate of corporate good standing issued by the
Secretary of State of Minnesota.
(b) Certificates of due qualification, in good standing, issued
by the Secretary(ies) of State of each State in which the nature of the
Borrower's business conducted or assets owned could require such qualification,
except where the failure to be so qualified would not have a Material Adverse
Effect.
(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. Emergence From Chapter 11. The Plan shall be been confirmed in
the Proceedings and a certified copy of the Docket for the Proceedings as of no
sooner than Eleven (11) days following the entry of the Confirmation Order
provided to the Agent, with either (a) no order or process entered in the
Proceedings or otherwise, which process has the effect of staying, modifying,
reversing, vacating, or otherwise affecting the effectiveness of such Plan in
accordance with its terms and as so confirmed or (b) if such an order or process
is so entered, the Agent's being furnished with an unqualified opinion of the
Borrower's bankruptcy or general counsel which concludes that such order does
not adversely affect (i) the operation and enforceability of the within
Agreement and (ii) the availability, in accordance with their respective terms,
of the Agent's Rights and Remedies.
3-3. Issuance of New Notes. The New Notes shall have been issued,
with net cash proceeds of not less than Sixty Million Five Hundred Thousand
Dollars ($60,500,000.00) from and on account of such issuance immediately
available to the Borrower for utilization in accordance with the Business Plan.
The Borrower shall provide the Agent with such evidence as the Agent may require
of the receipt by the Borrower of the aforementioned proceeds.
3-4. Opinions. Opinions of counsel to the Borrower in form and
substance reasonably satisfactory to the Agent in the forms attached hereto as
EXHIBIT 3-4 .
3-5. Additional Documents. Such additional instruments and
documents as the Agent or its counsel reasonably may require or request, which
additional instruments and documents shall include a negative pledge (in
recordable form) for the Distribution Facility.
3-6. Officers' Certificates. Certificates executed by the Chief
Financial Officer of the Borrower and stating that the representations and
warranties made by the Borrower to the Agent and the Lenders in the Loan
Documents are true and complete in all material respects 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
the Borrower shall be true and complete in all material respects as of the date
as of which such representation or warranty was made.
3-8. Minimum Excess Availability. Availability, after giving effect
to the first loans and advances to be made under the Revolving Credit; all then
held checks (if any); accounts payable which are beyond credit terms then
accorded the Borrower; overdrafts; any charges to the Loan Account made in
connection with the establishment of the credit facility contemplated hereby;
and L/C's to be issued at, or immediately subsequent to, the establishment of
such establishment, is not less than $4,000,000.00.
3-9. No Adverse Actions. No action, suit, investigation, litigation or
proceeding shall be pending or threatened in any court or before any arbitrator
or
/October 28, 1997/
29
governmental instrumentality that (i) reasonably could be expected to have a
material adverse effect on the business, condition (financial or otherwise),
operations, performance, properties or prospects of the Borrower and any of its
Subsidiaries, taken as a whole, other than that which has theretofore been
disclosed or (ii) would materially adversely affect the Revolving Credit. No
material adverse change shall have occurred to the status, or financial effect
on the Borrower, or any of its Subsidiaries, of such disclosed litigation from
that which has been theretofore disclosed.
3-10. Consents and Approvals. All governmental and third party
consents and approvals, if any, necessary in connection with the Revolving
Credit, shall have been obtained (without the imposition of any conditions that
are not reasonably acceptable to the Agent or any Lender) and shall remain in
effect; all applicable waiting periods with respect to such consents and
approvals shall have expired without any action being taken by any competent
authority; and, in the reasonable judgement of the Agent, no law or regulation
shall be applicable which restrains, prevents, or imposes materially adverse
conditions upon the Revolving Credit.
3-11. No Suspension Event. No Suspension Event shall then be
extant.
3-12. No Adverse Change. No material adverse change shall have
occurred in the business, condition (financial or otherwise), operations,
performance, properties or prospects of the Borrower and its subsidiaries taken
as a whole from (i) the Borrower's unaudited financial statements at, and for
the period closing at the end of August, 1997, except for such changes as are
reflected on the Business Plan and (ii) the Borrower's operating results from
those reflected on the Business Plan. All information previously provided to
the Agent shall be true and correct in all material respects.
3-13. All Fees and Expenses Paid. All accrued fees and expenses of
the Agent in connection with the establishment of the Revolving Credit
(including the fees and expenses of counsel to the Agent) shall have been paid.
No document shall be deemed delivered to the Agent or any Lender until received
and accepted by the Agent at its head offices in Boston, Massachusetts. Under
no circumstances will the within Agreement take effect until executed and
accepted by the Agent at said head office.
ARTICLE 4 - GENERAL REPRESENTATIONS, WARRANTIES AND COVENANTS
To induce each Lender to establish the loan arrangement contemplated herein
and to make loans and advances and to provide financial accommodations under the
Revolving Credit (each of which loans shall be deemed to have been made in
reliance thereupon) the Borrower, in addition to all other representations,
warranties, and covenants made by the Borrower in any other Loan Document, makes
those representations, warranties, and covenants included in 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.
/October 28, 1997/
30
4-2. Due Organization - Corporate Authorization - No Conflicts.
(a) The Borrower presently is and shall hereafter remain in good
standing as a Minnesota 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
business, such qualification may be necessary except where the failure to be so
qualified is not reasonably likely to have a material adverse effect on the
business, operations, conditions (financial or otherwise) performance, or
properties of the Borrower and its Subsidiaries, taken as a whole.
(b) Each Subsidiary of the Borrower existing as of the date of
this Agreement is listed on EXHIBIT 4-2, annexed hereto. The Borrower shall
provide the Agent with prior written notice of any entity's becoming or ceasing
to be Subsidiary.
(c) The Borrower has all requisite corporate power and authority
to execute and deliver the Loan Documents to which the Borrower is a party and
has and will hereafter retain all requisite corporate power to perform all and
singular the Liabilities.
(d) The execution and delivery by the Borrower of each Loan
Document to which it is a party; the Borrower's consummation of the transactions
contemplated by such Loan Documents (including, without limitation, the creation
of security interests by the Borrower as contemplated hereby); the Borrower's
performance under those of the Loan Documents to which it is a party; the
borrowings hereunder; and the use of the proceeds thereof:
(i) Have been duly authorized by all necessary 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.
(e) The Loan Documents have been duly executed and delivered by
Borrower and are the legal, valid and binding obligations of the Borrower,
enforceable against the Borrower in accordance with their respective terms.
4-3 Guaranties. On or before December 31, 1997, each Subsidiary of
the Borrower existing as of the date of this Agreement,
(a) Shall have caused its case pursuant to Chapter 11 of the
Bankruptcy Code to be dismissed, and
(b) Upon such dismissal, shall provide that Person's unlimited
guaranty of the Liabilities (in the form of EXHIBIT 4-3 hereto), which guaranty
is secured by substantially all assets of such Person, other than real estate.
In the event that any such Subsidiary is unable to obtain dismissal of its
bankruptcy case by December 31, 1997, no Event of Default shall be deemed to
have arisen hereunder if the said Subsidiary is diligently proceeding either
(I) to cause the dismissal of such proceeding or (ii) to obtain bankruptcy court
approval to undertake the actions described in subparagraph (b) above.
4-4. Trade Names.
(a) EXHIBIT 4-4, annexed hereto, is a listing as of the date of
this Agreement 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) Except (i) upon not less than twenty-one (21) days prior
written notice given the Agent , and (ii) in compliance with all other
provisions of the within Agreement, the Borrower will not undertake or commit to
undertake any action such that the results of that action, if undertaken prior
to the date of this Agreement, would have
/October 28, 1997/
31
been reflected on EXHIBIT 4-4.
(c) The Borrower owns, or has the right to use all patents,
industrial designs, trademarks, trade names, trade styles, brand names, service
marks, logos, copyrights, trade secrets, know-how, confidential information, and
other intellectual or proprietary property of any third Person material to the
Borrower's conduct of the Borrower's business.
(d) To the best of the Borrower's knowledge, the conduct by the
Borrower of the Borrower's business does not infringe in any material respect on
the patents, industrial designs, trademarks, trade names, trade styles, brand
names, service marks, logos, copyrights, trade secrets, know-how, confidential
information, or other intellectual or proprietary property of any third Person
except for such infringements as in the aggregate or individually will not have
a Material Adverse Effect.
4-5. Locations.
(a) The Collateral, and the books, records, and papers of
Borrower pertaining thereto, are kept and maintained at the Borrower's chief
executive offices at 000 Xxxxxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000 and at 0000
Xxxx Xxxx Xxxxxxx, Xxxx Xxxxxxx, Xxxxxxxxx 00000-0000 and at those locations
which are listed on EXHIBIT 4-5, annexed hereto, which EXHIBIT includes all
service bureaus with which any such records are maintained and the names and
addresses of each of the Borrower's landlords. Except (i) to accomplish
sales of Inventory in the ordinary course of business or other sales of
assets permitted hereunder or (ii) to utilize such of the Collateral as is
removed from such locations in the ordinary course of business (such as motor
vehicles), (iii) to move any of the Collateral among such locations, or (iv)
as long as the Agent's lien on the Collateral described in this clause (iv)
remains continuously perfected, to move the Collateral to temporary
warehouses for a period not to exceed 120 days, the Borrower shall not remove
any Collateral from said chief executive offices or those locations listed on
EXHIBIT 4-5 unless the Borrower gives the Agent 21 days prior notice of any
new location and complies with the requirements of Section 4-24 with respect
to such removal.
(b) The Borrower will not:
(i) Enter, alter, modify, amend, or terminate any Lease
other than
(A) in the ordinary course of the Borrower's business;
and
(B) as permitted pursuant to Section 4-5(b)(ii)
(ii) Commit to, or open or close any location at which the
Borrower maintains, offers for sales, or stores any of the Collateral other
than as follows:
(A) The Borrower may close up to Fifty (50) such
locations in any Fiscal year, net of store openings in such
Fiscal year (and may close a greater number of locations
upon the Agent's prior written consent, which consent shall
not be unreasonably withheld).
(B) The Borrower may open up to (I) Forty (40) such
locations in each of Fiscal years 1998 and 1999, and
(ii) Sixty (60) such locations in Fiscal year 2000, in each
case net of store closures in such Fiscal year, provided,
with respect to each such new location, the Borrower has
given the Lender not less than Thirty (30) days prior
written notice.
(C) In addition to those store closings permitted
pursuant to Section 4-5(b)(ii)(B), the Borrower may close
each of those retail locations listed on EXHIBIT
4-5(b)(ii)(C), annexed hereto.
(D) The limitations set forth in Section
4-5(b)(ii)(B) hereof shall not include, or apply to, (I) any
stores which the Borrower closed on or after May 1, 1997 and
which the Borrower decides to reopen, or (ii) to any new
locations acquired pursuant to an Acquisition permitted
hereunder.
(c) 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.
/October 28, 1997/
32
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) The security interest created herein.
(ii) Those Encumbrances (if any) listed on EXHIBIT 4-6(a),
annexed hereto.
(iii) Subject to Section 4-6(b), purchase money security
interests in Equipment to secure Indebtedness otherwise permitted hereby.
(iv) Encumbrances for taxes, governmental assessments
or charges in the nature of taxes not yet due, or Encumbrances for taxes,
governmental assessments or charges in the nature of taxes being contested
in good faith and by appropriate proceedings for which adequate reserves
(in the good faith judgment of the management of the Borrower) have been
established.
(v) Encumbrances in respect of property or assets of
the Borrower imposed by law, which were incurred in the ordinary course of
business, such as carriers', warehousemen's, materialmen's, repairmen's,
landlords' and mechanics' liens and other similar Encumbrances arising in
the ordinary course of business, and (A) which do not, in the aggregate,
materially detract from the value of such property or assets or materially
impair the operation of the business of the Borrower or any such Subsidiary
or (B) which are being contested in good faith by appropriate proceedings,
which proceedings have the effect of preventing the forfeiture or sale of
the property or assets subject to any such Encumbrance or (c) with respect
to which adequate reserves or other appropriate provisions are being
maintained in accordance with GAAP.
(vi) Utility deposits and pledges or deposits in
connection with worker's compensation, unemployment insurance and other
social security legislation.
(vii) Encumbrances arising under Capital Leases.
(viii) Other Encumbrances incidental to the conduct of
the business of the Borrower or the ownership of its property and assets
which were not incurred in connection with the borrowing of money or the
obtaining of advances or credit, and which do not in the aggregate
materially detract from the value of its property or assets, taken as a
whole, materially detract from the value of any material property or
materially impair the use of its property or assets in the operation of its
business.
/October 28, 1997/
33
(ix) Any Encumbrance renewing or extending any
Encumbrance permitted by clause (ii) above, provided, that the principal
amount secured is not increased, and the Encumbrance is not extended to
other property and the Indebtedness.
(x) Protective filings under the Uniform Commercial Code
in connection with operating leases and consignments of goods to the
Borrower permitted hereunder.
(xi) Encumbrances with respect to the amounts paid into the
New Note Disbursement Account for the payment of interest on the New Notes
pursuant to the Indenture.
(xii) Encumbrances, if any, in favor of Bankers Trust
Company as Agent in the form of cash collateral received under the Backup
L/C to secure letters of credit and bankers acceptances outstanding on the
date hereof.
(b) Except as disclosed on EXHIBIT 4-6(b), annexed hereto, as of
the date of this Agreement, the Borrower does not have possession of any goods
on consignment to the Borrower. The Borrower shall not have possession of goods
on consignment to the Borrower and shall not permit to exist any circumstance
under which the consignor could claim an Encumbrance on or to any proceeds of
any such consigned goods at any time having an aggregate cost in excess of One
Million Dollars ($1,000,000.00).
4-7. Indebtedness.
(a) The Borrower does not and shall not hereafter have any
Indebtedness with the exceptions of:
(i) Any Indebtedness to the Lenders .
(ii) The Indebtedness (if any) listed on EXHIBIT 4-7,
annexed hereto.
(iii) The New Notes and any refinancings thereof in
accordance with Section 4-6(b).
(iv) Purchase money Indebtedness on account of the
acquisition of equipment.
(v) Indebtedness under the Plan (provided however, the
Borrower shall not alter, amend, or otherwise modify the Plan in
a manner to create any additional Indebtedness).
(vi) Indebtedness of the Borrower arising under Capital
Leases of the Borrower.
(vii) Indebtedness of the Borrower of the type described
in clause (b) of the definition of Indebtedness which is being contested in
good faith and for which adequate reserves are maintained on the Borrower's
books.
(viii) Indebtedness of the Borrower with respect to customer
deposits and customer advances received in the ordinary course of business.
(b) The Borrower shall not prepay, redeem, purchase, defease or
otherwise satisfy, prior to maturity, or make any payment in violation of any
subordination terms of, any Indebtedness (other than the Revolving Credit)
except that
(i)the Borrower may retire the Original New Notes, which
retirement is effected with proceeds of an offering of the Borrower's
notes which is subject to an effective registration statement with the
Securities and Exchange Commission, including the Exchange Notes (as
defined in the Indenture), provided that, such notes which retire the
Original New Notes are on substantially the same terms as the Original New
Notes; and
(ii)the Borrower may refinance or repay any such
Indebtedness, which refinancing or repayment is effected with the proceeds
of (A) an initial public offering of the Borrower's stock and/or (B) other
Indebtedness of the Borrower, provided that the terms of such refinanced
indebtedness are not materially less favorable to the Borrower or the Agent
and the Lenders than the terms of the indebtedness so refinanced and do not
relax any obligation undertaken by the Borrower pursuant to any Loan
Document, which obligation is stated by reference to the New Notes or the
documentation relating to the New Notes. Upon and after any such
retirement, the notes which are used to so
/October 28, 1997/
34
retire the Original New
Notes shall be the "New Notes" for all purposes of this Agreement.
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
as of the date of this Agreement. 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 as are usually insured against by companies in the same or similar
business located in the same geographic area, and written by such companies as
may be reasonably satisfactory to the Agent . 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 Agent 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 Agent'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 Agent , at its option, may obtain such insurance, provided, however,
the Agent'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 Agent certificates or other
evidence reasonably satisfactory to the Agent regarding compliance by the
Borrower with the foregoing insurance provisions as the Agent reasonably may
request.
(c) The Borrower shall advise the Agent of each claim in excess
of $1,000,000.00 made by the Borrower under any policy of insurance which covers
the Collateral and if an Event of Default shall have occurred, and is
continuing, will permit the Agent, at the Agent's option in each instance, to
the exclusion of the Borrower, to conduct the adjustment of each such claim.
The Borrower hereby appoints the Agent as the Borrower's attorney in fact to
obtain, adjust, settle, and cancel any insurance described in this section and
to endorse in favor of the Agent any and all drafts and other instruments with
respect to such insurance. The within appointment, being coupled with an
interest, is not exercisable unless an Event of Default shall have occurred and
is continuing and is irrevocable until this Agreement is terminated by a written
instrument executed by a duly authorized officer of the Agent. The Agent shall
not be liable on account of any exercise pursuant to said power except for any
exercise in willful misconduct and bad faith or pursuant to its gross
negligence. The Agent may apply any proceeds of such insurance against the
Liabilities then due and thereafter against the Liabilities, whether or not such
have matured, in such order of application as the Agent may determine provided
that if no Event of Default shall have occurred and is continuing, the Borrower
may, subject to the terms hereof, reborrow such proceeds to reinvest in the
business of the Borrower.
4-9. Licenses. Each license, distributorship, franchise, and similar
agreement issued to, or to which the Borrower is a party and which is material
to the business of the Borrower is in full force and effect, except as such
force and effect is affected by the Proceedings. Neither the Borrower nor any
Subsidiary of Borrower is in default or violation thereof, which default or
violation would reasonably be expected to result in a Material Adverse Effect
upon the Borrower. The Borrower has not received any notice or threat of
cancellation of any such license or agreement.
4-10. Leases. EXHIBIT 4-10, annexed hereto, is a schedule of all
Leases and Capital Leases effective as of the date of this Agreement. Each of
such Leases and Capital Leases is in full force and effect as of the date of
this Agreement. Neither the Borrower nor any Subsidiary of the Borrower is in
default or violation of any such Lease or Capital Lease and the Borrower has not
received any notice of cancellation of any such Lease or Capital Lease except
(a) as disclosed in connection with the Plan; and (b) as will be "Cured"
pursuant to the Plan; and (c) as is not likely to have a Material Adverse Effect
on the Borrower. The Borrower hereby authorizes the Agent, following the
occurrence, and during the
/October 28, 1997/
35
continuance, of any Event of Default, 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 Agent 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, except where the failure to so comply would not have a
Material Adverse Effect. The Borrower has not received any notice of any
violation of any such Requirement of Law (whether or not such violation is
material), which violation has not been cured or otherwise remedied or which the
Borrower is in the process of remedying except in connection with the
Proceedings.
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 uninsured 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 assets
of the Borrower or its Subsidiaries, other than the following:
(i) The sale or other disposition of Inventory in the
ordinary course of business, in connection with store closing sales
contemplated by the Plan and in connection with store closings after the
date hereof permitted under this Agreement.
(ii) The disposal of Equipment (A) which is obsolete, worn
out, damaged beyond repair, which Equipment is replaced to the extent
necessary to preserve or improve the operating efficiency of the Borrower,
or (B) which is no longer necessary for the operation of the Borrower's
business in the ordinary course.
(iii) The turning over to the Agent of all Receipts as
provided herein.
(iv) Issuances of licenses and franchises in the ordinary
course.
(v) The sale of any real estate, including, without
limitation, the Distribution Facility.
(vi) The lease or sublease of Equipment in the ordinary
course of business.
(vii) The reinvestment of Cash Equivalents permitted
hereunder into other Cash Equivalents.
4-13. Pay Taxes.
(a) 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 or will be dealt
with in the Plan. No agreement is extant 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.
No issue has been raised as of the date of this Agreement in any such
examination which, by application of similar principles, reasonably could
reasonably be expected to result in the assertion of a material deficiency for
any fiscal year open for examination, assessment, or claim by the Internal
Revenue Service which has not been reserved for on the Borrower's books to the
extent, if any, required by GAAP.
(b) The respective state and local taxing authorities to which
the Borrower is subject 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 or will be dealt with in the Plan. No agreement is extant which waives
or extends any statute of limitations applicable to the right of any state
taxing authority to assert a deficiency or make any other claim for or in
respect to any such state taxes. No issue has been raised as of the date of
this Agreement, in any such examination which, by application of similar
principles, reasonably could be expected to result in the assertion of a
material
/October 28, 1997/
36
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
being conducted by the Internal Revenue Service or any other taxing authority.
(d) Except as otherwise provided in the Plan, the Borrower
hereafter shall: pay, as they become due and payable, all income, sales, ad
valorem, and other material taxes and unemployment contributions and other
material 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
other than those not yet delinquent and except for those contested in good faith
and for which adequate reserves (in the good faith judgment of the management of
the Borrower have been established; 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.
(e) At its option, to the extent the Borrower has failed to pay
such items as required by Section 4-13(d), the Agent may, but shall not be
obligated to, pay any taxes, unemployment contributions, and any and all other
charges levied or assessed upon the Borrower or the Collateral by any person or
entity or governmental authority, and make any contributions or other payments
on account of the Borrower's Employee Benefit Plan as the Agent , in the Agent'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 Agent'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. No part of the proceeds of any borrowing
hereunder will be used at any time to purchase or carry 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 (the "Margin Regulations")) in
violation of the Margin Regulations. As of the date of this Agreement, neither
the Borrower nor any of its Subsidiaries owns any such margin stock. The
Borrower will not, nor will it permit any of its Subsidiaries to, own any margin
stock, except pursuant to an Acquisition permitted under Section 4-19 hereof and
then only to the extent the value of all margin stock of the Borrower and its
Subsidiaries (on a consolidated and unconsolidated basis) would be less than 25%
of the value (as determined by any reasonable method) of the assets of the
Borrower and its Subsidiaries (on a consolidated and unconsolidated basis) taken
as a whole which are subject to any limitation on sale, pledge or other
restriction hereunder.
4-15. ERISA.
(a)Neither the Borrower nor any ERISA Affiliate ever has or
hereafter shall:
(I) Violate or fail to be in compliance in all material respects
with the Borrower's Employee Benefit Plan.
(ii) Fail timely to file all reports and filings required by
ERISA to be filed by the Borrower.
(b) Neither Borrower, nor to Borrower's knowledge, any ERISA
affiliate ever has, and Borrower hereinafter shall not:
(I) Engage in any "prohibited transactions" or "reportable
events" (respectively as described in ERISA).
(ii) Engage in, or commit, any act such that a tax or penalty
could be imposed upon the Borrower on account thereof pursuant to ERISA
which could reasonably be expected to have a material adverse effect on the
business, operations, conditions (financial or otherwise) performance, or
properties of the Borrower..
(iii) Accumulate any material funding deficiency within the
meaning of ERISA.
(iv) Terminate any Employee Benefit Plan such that a lien could
be asserted against any assets of the Borrower on account thereof pursuant
to ERISA.
(b) Neither Borrower nor any ERISA Affiliate is as of the date
hereof 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.
/October 28, 1997/
37
4-16. Hazardous Materials.
(a) Except for such releases of Hazardous Materials as have not
had, or would not be reasonably expected to have a Material Adverse Effect, 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 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 Agent with written notice
upon the Borrower's obtaining knowledge of any incurrence of any material
expense or material 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 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 unless payment of such cash dividend
is permitted as described in the Indenture and would not result in the violation
of the Fixed Charge Covenant contained in Section 5-11 hereof.
(b) Own, redeem, retire, purchase, or acquire any of the
Borrower's capital stock.
(c) Except as permitted by Sections 4-19 and 4-20(d), invest in
or purchase any stock or securities or rights to purchase any such stock or
securities, of any corporation or other entity.
(d) Merge or consolidate or be merged or consolidated with or
into any other corporation or other entity other than as permitted by Sections
4-18(e) or 4-19.
(e) Except as permitted by Section 4-19, consolidate any of the
Borrower's operations with those of any other corporation or other entity except
that any Subsidiary of the Borrower may merge with any other Subsidiary of the
Borrower or the Borrower but in the case of the Borrower, only if the Borrower
is the surviving entity.
(f) Except as permitted by Section 419, organize or create any
Subsidiary without the prior written consent of the Agent, which consent may be
conditioned upon, among other things, the execution of a guaranty by such
Subsidiary of the Liabilities substantially in the form of EXHIBIT 4-3, and the
grant of a lien and security interest in substantially all of such Subsidiary's
assets.
(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. Permitted Acquisitions. The Borrower may make Acquisitions
without the consent of the Agent or the Lenders; provided that:
/October 28, 1997/
38
(a) Not less than Twenty-five (25) days prior written notice
(with reasonable particularity as to the facts and circumstances in respect of
which such notice is being given) of such Acquisition is given to the Agent.
(b) The aggregate purchase price (exclusive of the portion of
the purchase price paid for with capital stock of the Borrower) of all such
Acquisitions is not greater than Thirty Million Dollars ($30,000,000.00).
(c) The aggregate consideration paid in cash for all such
acquisitions does not exceed Fifteen Million Dollars ($15,000,000.00) million
unless the target of such acquisition, treated together with the Borrower as an
economic unit and reflecting those economies which would be realized if the
acquisition were consummated, which economies, the Agent in its reasonable
judgment agrees are supported by the specific facts and circumstances of the
transaction, would have satisfied the Fixed Charge Coverage Ratio for the 12
month period prior to such acquisition (with appropriate adjustments to which
the Agent, in the Agent's reasonable judgment agrees are supported by the
specific facts and circumstances of the transaction to the calculation of such
Fixed Charge Coverage Ratio to reflect the circumstances).
(d) No Event of Default then exists or would result from any
such Acquisition.
(e) With respect, to and in the event of any Acquisition which
consists of, or results in the creation of, a Subsidiary, Agent shall be
provided with such Subsidiary's Unlimited Guaranty (substantially in the form
of the Unlimited Guaranty provided in fulfillment of Section 4-3), which
Unlimited Guaranty shall be secured by first perfected security interests and
liens on substantially all of the assets of such Subsidiary.
4-20. Loans. The Borrower shall not make any loans or advances to, nor
acquire the Indebtedness of, any Person, provided, however, the foregoing does
not prohibit any of the following:
(a) Advance payments made to the Borrower's suppliers in the
ordinary course.
(b) Advances to the Borrower's officers, employees, and
salespersons with respect to reasonable expenses to be incurred by such
officers, employees, and salespersons for the benefit of the Borrower, which
expenses are properly substantiated by the person seeking such advance and
properly reimbursable by the Borrower.
(c)The Borrower and its Subsidiaries may acquire and hold(I)
receivables owing to them, if created or acquired in the ordinary course of
business and payable or dischargeable in accordance with customary trade terms
and (ii) promissory notes and other evidence of indebtedness issued to them as
payment of trade payables arising in the ordinary course of business so long as
the holding of such promissory notes is in the ordinary course of business of
the Borrower and its Subsidiaries and each of such notes is delivered and
pledged to the Agent.
(d)As long as no Revolving Credit Loans are then outstanding,
investments consisting of Cash Equivalents maintained at BankBoston, N.A.,
provided that such investments are pledged to the Agent as collateral for the
Liabilities by pledge agreements in form and substance reasonably satisfactory
to the Agent.
4-21. Protection of Assets. The Agent, in the Agent's discretion, and
from time to time, may discharge any tax or Encumbrance on any of the
Collateral, or take any other action that the Agent may deem necessary or
desirable to repair, insure, maintain, preserve, collect, or realize upon any of
the Collateral if the Borrower fails to do so. The Agent 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 Agent has had an opportunity to be heard),
from which finding no further appeal is available, that the Agent had acted in
actual bad faith or in a grossly negligent manner. The Borrower shall pay to
the Agent, on demand, or the Agent, in its discretion, may add to the Loan
Account, all amounts paid or incurred by the Agent pursuant to this section.
The obligation of the Borrower to pay such amounts is a Liability.
4-22. Line of Business. The Borrower shall not engage in any business
other than the business in which it is currently engaged or a business
reasonably related thereto.
/October 28, 1997/
39
4-23. Affiliate Transactions. Except as otherwise permitted in
accordance with this Agreement, or as described in EXHIBIT 4-23, annexed
hereto, the Borrower shall not make any payment, nor give any value to any
Affiliate (including, without limitation, the purchase, sale, lease or
exchange of any property or the rendering of any services or the entering
into of any contract, agreement, understanding, or guaranty) except for
(a) transactions pursuant to terms and for a price (if
applicable) which shall not differ from that which would
have been charged in an arms length transaction to a Person
not an Affiliate;
(b) transactions between the Borrower and any wholly-owned
Subsidiary or among wholly-owned Subsidiaries otherwise
permitted hereunder;
(c) reasonable fees and compensation paid to, and indemnity
provided on behalf of any such Affiliates;
(d) dividends and payments under the New Notes otherwise
permitted under this Agreement.
4-24. Additional Assurances.
(a) The Borrower is not the owner of, nor has it any interest
in, any property or asset of a type which is included in the description of
"Collateral" 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 in favor of
the Agent (subject only to Permitted Encumbrances) to secure the Liabilities.
(b) The Borrower will not hereafter acquire any asset or any
interest in property of a type which is included in the description of
"Collateral" which is not, immediately upon such acquisition, subject to such
a perfected security interest in favor of the Agent to secure the Liabilities
(subject only to Permitted Encumbrances).
(c) The Borrower shall execute and deliver to the Agent such
instruments, documents, and papers, and shall do all such things from time to
time hereafter as the Agent may reasonably request to carry into effect the
provisions and intent of this Agreement; to protect and perfect the Agent's
security interests in the Collateral as the Agent may reasonably request; and to
comply with all applicable statutes and laws as required by this Agreement, and
facilitate the collection of the Receivables Collateral. The Borrower shall
execute all such instruments as may be reasonably required by the Agent with
respect to the recordation and/or perfection of the security interests created
herein.
(d) A carbon, photographic, or other reproduction of this
Agreement or of any financing statement or other instrument executed pursuant
to this Section 4-24 shall be sufficient for filing to perfect the security
interests granted herein.
4-25. Adequacy of Disclosure.
(a) All financial statements furnished to the Agent and each
Lender by the Borrower have been prepared in accordance with GAAP consistently
applied and present fairly the financial 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 the most recent
such financial statements, other than changes which have not been materially
adverse, either singularly or in the aggregate to the business, operations,
properties or performance of the Borrower and its Subsidiaries taken as a whole.
(b) The Borrower does not have any contingent obligations or
obligation under any Lease or Capital Lease as of the date of this Agreement
which is not noted in the Borrower's financial statements furnished to the Agent
and each Lender prior to the execution of the within Agreement.
(c) No document, instrument, agreement, or paper now or
hereafter given the Agent by the Borrower or any guarantor of the Liabilities in
connection with the execution of the within Agreement by the Agent and each
Lender contains or will contain, as of the date furnished, (taken as a whole)
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 in light of the
circumstances under which they were made not misleading. There is no fact known
to the Borrower which has, or which, in the foreseeable future could reasonably
be expected to 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
Agent and each Lender.
/October 28, 1997/
40
4-26. Other Covenants. The Borrower shall not indirectly do or cause
to be done any act which, if done directly by the Borrower, would breach any
covenant contained in this Agreement.
ARTICLE 5 - REPORTING REQUIREMENTS / FINANCIAL 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 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 Agent 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 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 Xxxxxx Xxxxxxxx or such other
independent certified public accountants who are reasonably satisfactory to the
Agent and instruct such accountants to fully cooperate with, and be available
to, the Agent and each 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 Agent or
that Lender.
(e) Not change the Borrower's fiscal year.
(f) Not change the Borrower's taxpayer identification number,
without prior notice to the Agent.
5-2. Access to Records.
(a) The Borrower shall accord the Agent and the Agent's
representatives with access from time to time as the Agent and such
representatives may reasonably require to all properties owned by or over which
the Borrower has control, all upon reasonably notice and at such reasonable
times during normal business hours. The Agent and the Agent's authorized
representatives shall have the right, and the Borrower will permit the Agent and
such representatives from time to time as the Agent and such representatives may
reasonably request, to examine, inspect, copy, and make extracts from any and
all of the Borrower's books, records, electronically stored data, papers, and
files, all upon reasonable notice and at such reasonable times during normal
business hours. The Borrower shall make all of the Borrower's copying
facilities available to the Lender, all upon reasonable notice and at such
reasonable times during normal business hours.
(b) The Borrower hereby authorizes the Agent and the Agent's
representatives to:
(i) Upon reasonable notice and at reasonable times during
normal business hours, 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 Agent and the Agent's representatives
with respect thereto.
(ii) Verify at any time the Collateral or any portion
thereof, including verification with depositories and credit card
clearinghouses and processors, 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 depositories and credit card
clearinghouses and processors, or verification of the Collateral.
/October 28, 1997/
41
5-3. Immediate Notice to Agent.
(a) The Borrower shall provide the Agent 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 Senior Officers.
(ii) The completion of any physical count of the Borrower's
Inventory (together with a copy of the certified results thereof, if any).
(iii) Any ceasing of the Borrower's making of payment,
in the ordinary course, to any of its creditors which could reasonably be
expected to have a Material Adverse Effect (excluding the ceasing of the
making of such payments on account of a dispute with the subject creditor).
(iv) Any failure by the Borrower to pay rent at any of the
Borrower's locations, which failure continues beyond Twenty-five (25) days
after the expiration of any applicable grace period under the subject
lease.
(v) Any material adverse change in the business,
operations, or financial affairs of the Borrower.
(vi) The occurrence of any Suspension Event of which a
Senior Officer of the Borrower obtains knowledge.
(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.
(viii) Any litigation which, if determined adversely to
the Borrower, might have a material adverse effect on the financial
condition of the Borrower.
(ix) The receipt of Net Proceeds from the sale, by the
Borrower, or by any Subsidiary of the Borrower, of its assets (other than sales
of Inventory in the ordinary course, sales of fixed assets in connection with
the closing of stores permitted hereunder, dispositions of worn out, damaged, or
obsolete Equipment, and the Net Proceeds of any sale of the Distribution
Facility).
(x) The occurrence of any event or circumstance which:
constitutes an event of default under the New Notes; constitutes the
acceleration of the New Notes; requires any mandatory prepayment of all or any
part of the principal of the New Notes.
(b) The Borrower shall:
(i) At the reasonable request of the Agent, from time to
time, provide the Agent with copies of all advertising (including copies of
all print advertising and duplicate tapes of all video and radio
advertising).
(ii) Provide the Agent, when received by the Borrower, with
a copy of any management letter or similar communications from any
accountant of the Borrower.
(iii) Provide the Agent with a Certificate (which
Certificate shall include reasonable particularity as to the facts and
circumstances in respect of which such Certificate is being so furnished),
signed by the Borrower's Controller or Chief Financial Officer, at the
earlier of (A) the reinvestment in the Borrower's operations of Net
Proceeds, notice of the receipt of which Net Proceeds was provided pursuant
to Section 53(a)(ix) or (B) the failure by the Borrower to have so
reinvested such Net Proceeds within Two Hundred Ten (210) days following
receipt of such Net Proceeds.
(iv) Provide the Agent, when received by the Borrower, of
any notice of the occurrence of any claimed event of default under the New
Notes; purporting to accelerate the New Notes; or claiming that any
mandatory prepayment of all or any part of the principal of the New Notes
is, or will be due.
5-4. Borrowing Base Certificate. The Borrower shall provide the
Agent, weekly, on Wednesday of each week (as of the immediately preceding
Saturday), with a Borrowing Base Certificate (in the form of EXHIBIT 5-4 annexed
hereto, as such form may be revised from time to time by the Agent); provided,
however, the Borrower shall submit Borrowing Base Certificates on each day that
the Borrower desires to obtain a Revolving Credit Loan or the issuance of an L/C
or B/A hereunder. Such Certificate may be sent to the Agent
/October 28, 1997/
42
by facsimile transmission, provided that the original thereof is forwarded to
the Agent on the date of such transmission, it being understood that inventory
values will be rolled forward weekly.
5-5. Monthly Reports.
(a) Monthly, the Borrower shall provide the Agent with original
counterparts of the following (each in such form as the Agent from time to time
may specify):
(i) Within Fifteen (15) days of the end of the previous
month:
(A) A "Stock Ledger Inventory Report" and a
Certificate (signed by the Borrower's Controller or Chief
Financial Officer, to the best of such officer's knowledge and
belief) concerning the Borrower's Inventory.
(B) An aging of the Borrower's Inventory.(1)
(ii) Within Thirty (30) days of the end of the previous
month:
(A) Reconciliations of the above described Report and
inventory Certificate (Section 5-5(a)(i)(A)) to Availability and
to the general ledger as of the end of the subject month.
(B) A Store Activity Report.
(C) An Ending Inventory Analysis Report.
(D) An internally prepared financial statement of the
Borrower's financial condition the results of its operations for,
the period ending with the end of the subject month, which
financial statement shall include, at a minimum, a balance sheet,
income statement (on a "consolidated" basis), and cash flow
statement.
(b) For purposes of Section 5-5(a)(I), above, the first
"previous month" in respect of which the items required by that Section shall be
provided shall be September, 1997 and for purposes of Section 5-5(a)(ii), above,
the first "previous month" in respect of which the items required by that
Section shall be provided shall be September, 1997.
5-6. Quarterly Reports. Quarterly, within Forty Five (45) days
following the end of each of the Borrower's fiscal quarters, the Borrower shall
provide the Agent with the following:
(a) A store ranking report year to date by EBIDTA.
(b) A Letter of Credit Inventory Report breaking out the face
value of L/C Inventory with landed cost included.
---------------
(1) The Aging of Borrower's Inventory Report shall only be required
after such time as such Report can be prepared as a matter of
course under the Borrower's planned upgrade to its financial
information system.
/October 28, 1997/
43
(c) For each of the first Three fiscal quarters of each year
only, an original counterpart of a management prepared financial statement of
the Borrower for the period from the beginning of the Borrower's then current
fiscal year through the end of the subject quarter, with comparative information
for the same period of the previous fiscal year, which statement shall include,
at a minimum, a balance sheet, income statement (on a "consolidated" basis),
statement of changes in shareholders' equity (to the extent required by GAAP),
and cash flows and comparisons for the corresponding quarter of the then
immediately previous year, as well as to the Business Plan.
5-7. Annual Reports.
(a) Annually, within one hundred (100) days following the end of
the Borrower's fiscal year, the Borrower shall furnish the Agent with an
original signed counterpart of the Borrower's annual financial statement, which
statement shall have been prepared by, and bearing the unqualified opinion
(except for a going concern qualification) of, the Borrower's independent
certified public accountants (i.e. said statement shall be "certified" by such
accountants). Such annual statement shall include, at a minimum (with
comparative information for the then prior fiscal year) a balance sheet, income
statement, statement of changes in shareholders' equity (to the extent required
by GAAP), 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 Agent) that:
(i) Such annual financial statement will be delivered by
the Borrower to the Agent (for subsequent distribution to each
Lender).
(ii) The Borrower has been advised that the Agent (and each
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 Suspension Event had
occurred during the subject fiscal year (or if one or more had occurred, the
facts and circumstances thereof).
5-8. Officers' Compliance Certificates. The Borrower shall cause any
of the Borrower's President, Controller, or Chief Financial Officer
respectively to provide such Person's Certificate, to the best of such officer's
knowledge and belief, with those monthly, quarterly, and annual statements to be
furnished pursuant to this Agreement, which Certificate shall:
(a) Indicate that the subject statement 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:
(i) With the exception of the Certificate which accompanies
such annual statement) usual year end adjustments.
(b) Indicate either that (i) no Suspension Event has occurred or
(ii) if such an event has occurred, its nature (in reasonable detail) and the
steps (if any) being taken or contemplated by the Borrower to be taken on
account thereof.
(c) With each quarterly and annual statement:
(ii) Include calculations concerning the Borrower's
compliance (or failure to comply) at the date of the subject statement with
the covenant included in Section 5-11(a).
(iii) Indicate that the statement was prepared in
accordance with GAAP consistently applied, with the exception of Material
Accounting Changes, written notice of each of which has been provided to
the Agent.
5-9. Inventories, Appraisals, and Audits.
(a) The Agent and each Lender, at the expense of the Borrower,
may participate in and/or observe each physical count and/or inventory of so
much
/October 28, 1997/
44
of the Collateral as consists of Inventory which is undertaken on behalf of the
Borrower; the Agent's right to be reimbursed for its expenses, prior to the
occurrence, and during the continuance, of an Event of Default, being subject to
the Agent's participation being undertaken in conjunction with a field audit by
the Agent of the Borrower.
(b) Upon the Agent's request from time to time, the Borrower
shall obtain, or shall permit the Agent 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 reasonably satisfactory to the Agent
and following such methodology as may be reasonably required by the Agent, each
of which physical counts and/or inventories shall be observed by the Borrower's
accountants. The Agent contemplates conducting One (1) such count and/or
inventory during any Twelve (12) month period during which the within Agreement
is in effect, but in its reasonable discretion, may undertake additional such
counts or inventories during such period.
(c) Upon the Agent's request from time to time, the Borrower
shall permit the Agent to obtain appraisals (in all events, at the Borrower's
expense) conducted by such appraisers as are satisfactory to the Agent.
(d) The Agent contemplates conducting up to 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, following the occurrence and
during the continuance of any Event of Default, may undertake additional such
audits during such period.
(e) The maximum aggregate cost for the following which the Agent
conducts or causes to be conducted in any Twelve (12) month period for which the
Borrower shall reimburse the Agent shall not exceed the aggregate of following,
it being understood, however, that (x) the maxima are subject to Borrower's
having made available, as appropriate, upon reasonable prior notice and during
normal business hours, its facilities, financial information, and personnel to
facilitate completion in the ordinary course of the following and (y) no Event
of Default having occurred and continuing (and that if either (x) or (y) does
not then obtain, there shall not be any such limitation on the aggregate of such
costs):
(i) Appraisals pursuant to Section 5-9(c): $80,000.00.
(ii) Commercial finance audits pursuant to Section 5-9(d):
$24,000.00.
5-10. Additional Financial Information. In addition to all other
information required to be provided pursuant to this Article 5, the Borrower
promptly shall provide the Agent (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 Agent reasonably may from time to time request from the Borrower,
including, without limitation:
(a) an Open to Buy Report;
(b) a Comparable Sales Report;
(c) a Marketing and Merchandise Calendar (to the extent one is
maintained by the Borrower;
(d) an Order Report by Department;
(e) a Velocity Report by Department; and
(f) a schedule of purchases from the Borrower's ten largest
vendors (in terms of year to date purchases), which schedule shall be in such
form as may be reasonably satisfactory to the Agent and shall include year to
date cumulative purchases and an aging of payables to each such vendor, to be
done in conjunction with the Agent's field audits.
5-11. Fixed Charge Coverage Ratio.
(a) The Borrower will not permit its Fixed Charge Coverage Ratio
to be less than 1.25 to 1.00.
(b) The Borrower's compliance with the covenant included in
Section 511(a) shall be measured at the end of each of the Borrower's Fiscal
quarters
/October 28, 1997/
45
(commencing with the Borrower's Fiscal quarter ending on or about January 31,
1998), based upon the Borrower's performance and results for the then most
recent twelve months, except that for the first three Fiscal quarters ending
after November 2, 1997, the Borrower's compliance with Section 5-11(a) shall be
based upon the period commencing with the Borrower's Fiscal quarter commencing
on or about November 3, 1997 and ending at the end of the then most recent
Fiscal quarter.
ARTICLE 6 - USE AND COLLECTION OF COLLATERAL.
6-1. Use of Inventory Collateral.
(a) The Borrower shall not engage in any sale of the Inventory
other than: sales in the ordinary course and sales or other dispositions
permitted by Section 4-12(d); and shall not engage in sales or other
dispositions to creditors; nor use of any of the Inventory in breach of any
provision of this Agreement.
(b) No sale of Inventory shall be on consignment, approval, or
under any other circumstances such that, with the exception of the Borrower's
customary return policy applicable to the return of inventory purchased by the
Borrower's retail customers in the ordinary course, such Inventory may be
returned to the Borrower without the consent of the Agent .
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 and "irregular"
inventory held for sale in outlet stores).
6-3. Adjustments and Allowances. The Borrower may grant such
allowances or other adjustments to the Borrower's Account Debtors (exclusive of
extending the time for payment of any Account or Account Receivable, which shall
not be done, if an Event of Default has occurred and is continuing, without
first obtaining the Agent's prior written consent in each instance) as the
Borrower may reasonably deem to accord with sound business practice, provided,
however, the authority granted the Borrower pursuant to this Section 63 may be
limited or terminated by the Agent at any time in the Agent's discretion.
6-4. Validity of Accounts.
(a) The amount of each Account shown on the books, records, and
invoices of the Borrower represented as owing by each Account Debtor to the best
of Borrower's knowledge is and will be the correct amount actually owing by such
Account Debtor and shall have been fully earned by performance by the Borrower.
(b) The Borrower has no knowledge of any impairment of the
validity or collectibility of any of the Accounts as of the date of this
Agreement and shall notify the Agent of any such fact immediately after Borrower
becomes aware of any such impairment.
(c) The Borrower shall not post any bond to secure the
Borrower's performance under any agreement to which the Borrower is a party nor
cause any surety, guarantor, or other third party obligee to become liable to
perform any obligation of the Borrower (other than to the Agent ) in the event
of the Borrower's failure so to perform.
6-5. Notification to Account Debtors. The Agent shall have the right
at any time (after an Event of Default has occurred and is continuing) to notify
any of the Borrower's Account Debtors to make payment directly to the Agent and
to collect all amounts due on account of the Collateral.
/October 28, 1997/
46
ARTICLE 7 - CASH MANAGEMENT. PAYMENT OF LIABILITIES.
7-1 Depository Accounts.
(a) Annexed hereto as EXHIBIT 7-1 is a Schedule of all present
DDA's maintained as of the date of this Agreement, which Schedule includes, with
respect to each depository (i) the name and address of that depository; (ii) the
account number(s) of the account(s) maintained with such depository; and (iii) a
contact person at such depository.
(b) The Borrower shall deliver to the Agent:
(i) Upon the request of the Agent, notification, executed
on behalf of the Borrower, to each depository institution with which any
DDA is now or hereafter maintained (other than the Funding Account or any
Local DDA), in form satisfactory to the Agent, of the Agent's interest in
such DDA.
(ii) As a condition to the effectiveness of this Agreement,
an agreement (generally referred to as a "Blocked Account Agreement"), in
form reasonably satisfactory to the Agent, with any depository institution
at which both any DDA (other than the Funding Account) and the Funding
Account is maintained.
(iii) As a condition to the effectiveness of this
Agreement, an agreement (generally referred to as a "Blocked Account
Agreement"), in form reasonably satisfactory to the Agent, with any
depository institution at which a Central Account is maintained
(c) The Borrower will not establish any DDA hereafter (other
than the New Note Disbursement Account and a Local DDA) unless, contemporaneous
with such establishment, the Borrower delivers to the Institution at which the
DDA is maintained, with a copy to the Agent, a notification of the type
described in Section 7-1(b)(I) above.
7-2. Credit Card Receipts.
(a) Annexed hereto as EXHIBIT 7-2, is a Schedule which describes
all arrangements to which the Borrower is a party with respect to the payment to
the Borrower of the proceeds of all credit card charges for sales by the
Borrower as of the date of this Agreement.
(b) The Borrower shall deliver to the Agent, as a condition to
the effectiveness of the within Agreement, notification, executed on behalf of
the Borrower, to each of the Borrower's credit card clearinghouses and
processors of notice (in form satisfactory to the Agent), which notice provides
that payment of all credit card charges submitted by the Borrower to that
clearinghouse or other processor and any other amount payable to the Borrower by
such clearinghouse or other processor shall be directed to the Concentration
Account. The Borrower shall not change such direction or designation except upon
and with the prior written consent of the Agent.
7-3. The Concentration and the Funding Accounts.
(a) The following checking accounts have been or will be
established as of the date of this Agreement (and are so referred to herein):
(i) The Concentration Account: Established by the Agent
with BankBoston, N.A.
(ii) The Funding Account: Established by the Borrower with
U.S. Bank National Association.
(iii) The Central Account: Established by the Borrower
with U.S. Bank National Association.
(b) The contents of each DDA (other than the Funding Account)
and of the Central Account constitutes Collateral and Proceeds of Collateral.
The contents of the Concentration Account constitutes the Agent's property.
(c) The Borrower shall not establish any Central Account
hereafter except upon not less than Thirty (30) days' prior written notice to
the Agent and the delivery to the Agent of a Blocked Account Agreement similar
to that executed pursuant to Section 7-1(b)(iii) hereof.
(d) The Borrower shall establish its cash management systems,
including, wthout limitation, any Central Account and Funding Account, with
BankBoston, N.A. within five Business Days after the Borrower's receipt of
notice from the Agent that such systems are available.
(e) The Borrower shall pay all fees and charges of, and maintain
such minimum balances as may be required by the Lender or by any bank in which
/October 28, 1997/
47
any account is opened (even if such account is opened by and/or is the property
of the Agent).
7-4. Proceeds and Collection of Accounts.
(a) All Receipts constitute Collateral and proceeds of
Collateral and shall be held in trust by the Borrower for the Agent; shall not
be commingled with any of the Borrower's other funds; and shall be deposited
and/or transferred only to the Central Account.
(b) The Borrower shall cause the ACH or wire transfer to the
Central Account, no less frequently than daily (and whether or not there is then
an outstanding balance in the Loan Account) of the then contents of each DDA
(other than (A) any Local DDA and (B) the Funding Account), each such transfer
to be net of any minimum balance, not to exceed $3,500.00, as may be required to
be maintained in the subject DDA by the bank at which such DDA is maintained).
(c) Whether or not any Liabilities are then outstanding, the
Borrower shall cause the ACH or wire transfer to the Concentration Account, no
less frequently than daily, of then entire ledger balance of the Central
Account, net of such minimum balance, not to exceed $5,000,000.00 as long as the
Central Account is maintained at U.S. Bank National Association, and otherwise
not to exceed $3,500.00 , as may be required to be maintained in the Central
Account by the bank at which the Central Account is maintained.
(d) In the event that, notwithstanding the provisions of this
Section 74, the Borrower receives or otherwise has dominion and control of any
Receipts, or any proceeds or collections of any Collateral, such Receipts,
proceeds, and collections shall be held in trust by the Borrower for the Agent
and shall not be commingled with any of the Borrower's other funds or deposited
in any account of the Borrower other than as instructed by the Agent.
7-5. Payment of Liabilities.
(a) On each Business Day, the Agent shall apply, towards the
Liabilities, the then collected balance of the Concentration Account (net of
fees charged, and of such impressed balances as may be required by the bank at
which the Concentration Account is maintained).
(b) The following rules shall apply to deposits and payments
under and pursuant to this Agreement:
(i) Funds shall be deemed to have been deposited to the
Concentration Account on the Business Day on which deposited,
provided that notice of such deposit is available to the Agent by
2:00 PM on that Business Day.
(ii) Funds paid to the Agent, other than by deposit to the
Concentration Account, shall be deemed to have been received on
the Business Day when paid, provided that notice of such payment
is available to the Agent by 2:00PM on that Business Day.
(iii) If notice of a deposit to the Concentration
Account (Section 7-5(b)(i)) or payment (Section 7-5(b)(ii)) is
not available to the Agent until after 2:00PM on a Business Day,
such deposit or payment shall be deemed to have been made at 9:00
AM on the then next Business Day.
(iv) All deposits to the Concentration Account and other
payments to the Agent are subject to clearance and collection.
(c) The Agent shall transfer to the Funding Account any surplus
in the Concentration Account remaining after the application towards the
Liabilities referred to in Section 7-5(a), above (less those amount which are to
be netted out, as provided therein) provided, however, in the event that both
(i) a Suspension Event has occurred and is continuing and (ii) one or more L/C's
are then outstanding, the Agent may establish a funded reserve of up to 110% of
the aggregate Stated Amounts of such L/C's.
7-6. The Funding Account. Except as otherwise specifically provided
in, or permitted by, the within Agreement, all checks shall be drawn by the
Borrower upon, and other disbursements made by the Borrower solely from, the
Funding Account. The Borrower may use funds in the Local DDAs for xxxxx cash
disbursements.
/October 28, 1997/
48
ARTICLE 8 - GRANT OF SECURITY INTEREST
8-1. Grant of Security Interest. To secure the Borrower's prompt,
punctual, and faithful performance of all and each of the Borrower's
Liabilities, the Borrower hereby grants to the Agent, for the ratable benefit of
the Lenders, a continuing security interest in and to, and assigns for security
to the Agent, for the ratable benefit of the Lenders, 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, together with any other
property in which the Agent may in the future be granted a security interest, is
referred to herein as the "Collateral"):
(a) All Accounts and accounts receivable.
(b) All Inventory.
(c) All General Intangibles.
(d) All Chattel Paper.
(e) 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.
(f) All Investment Property, Instruments, Documents, Deposit
Accounts, policies and certificates of insurance, deposits,
impressed accounts, compensating balances, money, cash, or
other property.
(g) 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.(8-1(a)
through 8-1(f)) or otherwise.
(h) All liens, guaranties, rights, remedies, and privileges
pertaining to any of the foregoing (8-1(a) through 8-1(f)),
including the right of stoppage in transit.
Notwithstanding anything in this Agreement to the contrary, (x) the
Collateral shall not include the New Note Disbursement Account) and (y) with
respect to each item of Collateral constituting an agreement, license, permit or
other instrument of the Borrower, such item shall be subject to the security
interest created hereby only to the extent that the granting of such security
interest, under the terms of such agreement, license, permit or other
instrument, or as provided by law, does not cause any default under or
termination of such agreement, license, permit or other instrument or the loss
of any material right of the Borrower thereunder; provided, however, that in no
event shall the foregoing be construed to exclude from the security interest
created by this Agreement, proceeds or products of any such agreement, license,
permit or other instrument of the Borrower or any accounts receivable or the
right to payments due or to become due the Borrower under any such agreement or
other instrument.
8-2. 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 Agent 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 Agent.
ARTICLE 9 - AGENT AS BORROWER'S ATTORNEY-IN-FACT.
9-1. Appointment as Attorney-In-Fact. The Borrower hereby
irrevocably constitutes and appoints the Agent as the Borrower's true and lawful
attorney, with full power of substitution, effective following the occurrence
and during the continuance of an Event of Default, to convert the Collateral
into cash at the sole risk, cost, and expense of
/October 28, 1997/
49
the Borrower, but for the sole benefit of the Agent and the Lenders. If the
power of attorney is exercised prior to acceleration of the Liabilities, the
Agent will endeavor to advise the Borrower of the exercise of any such power;
however, the failure of the Agent to so notify the Borrower shall not create any
liability or claim against the Agent or the Lenders. The rights and powers
granted the Agent 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.
(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 Agent 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 Agent 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 Agent 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, subject to the rights of any licensee existing on the date of this
Agreement.
(h) Sign and file or record any financing or other statements in
order to perfect or protect the Agent's security interest in the Collateral.
9-2. No Obligation to Act. The Agent shall not be obligated to do
any of the acts or to exercise any of the powers authorized by Section 9-1
herein, but if the Agent 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 Agent 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 10 - EVENTS OF DEFAULT.
The occurrence of any event described in this Article 10 respectively shall
constitute an "Event of Default" herein. Upon the occurrence of any Event of
Default described in Section 10-14, any and all Liabilities shall become due and
payable without any further act on the part of the Agent or any Lender. Upon
the occurrence and during the continuance of any other Event of Default, any and
all Liabilities may be declared immediately due and payable, at the option of
the Agent and without notice or demand.
10-1. Failure to Pay Principal. The failure by the Borrower to pay,
when due, any principal which constitutes a Liability.
10-2. Failure To Make Other Payments. The failure by the Borrower,
for a period longer than Five (5) consecutive days, to pay any amount, other
than principal, which consists of a Liability.
/October 28, 1997/
50
10-3. Failure to Perform Covenant or Liability (No Grace Period).
The failure by the Borrower to promptly, punctually, faithfully and timely
perform, discharge, or comply with any covenant or Liability not otherwise
described in Section 101 or Section 102 hereof, and included in any of the
following provisions hereof:
Section Relates to :
4-5(a) Location of Collateral - solely to the
extent that the failure to comply has
resulted in the Lender to fail to have a
continuously perfected security interest
in the Collateral so removed or
relocated.
4-6(a) Title to Assets - except where any
Encumbrance is involuntarily placed on
the Borrower's assets, is de minimis in
amount (as determined by the Agent in
its reasonable discretion), and is being
diligently contested by the Borrower.
4-7 Indebtedness
4-8 Insurance Policies - solely if the
insurance required to be maintained by
the Borrower in canceled.
4-23 Affiliate Transactions
5-7 Annual Financial Statements
5-11 Fixed Charge Coverage Ratio
Article 7 Cash Management
10-4. Failure to Perform Covenant or Liability (Limited Grace).
(a) The failure by the Borrower to promptly, punctually, and
faithfully perform, discharge, or comply with any provisions of Sections 4-4,
4-5 (other than 4-5(a)), 4-8 or 4-23 of this Agreement not described in Section
10-4 hereof, or of Section 5 not described in Section 10-4 hereof, which failure
continues for ten (10) days after the date when due.
(b)(i) The failure of the Borrower to promptly, punctually and
faithfully perform, discharge, or comply with
(A) the provisions of Section 5-4 hereof; provided no Event of
Default shall arise hereunder if the Borrower complies
therewith no more than two (2) days after the due date
thereof and such failure to comply on the due date does not
occur more than three (3) occasions in any twelve-month
period; provided further that the Lenders shall have no
obligation to make Revolving Credit Loans or to cause the
issuance of L/Cs and B/As until such Borrowing Base
Certificate is received
(B) the provisions of Section 5-5 hereof; provided no Event of
Default shall arise hereunder if the Borrower complies
therewith no more than ten (10) days after the due date
thereof and such failure to comply on the due date does not
occur more than four (4) occasions in any twelve-month
period;
(C) the provisions of Section 5-6 hereof; provided no Event of
Default shall arise hereunder if the Borrower complies
therewith no more than ten (10) days after the due date
thereof and such failure to comply on the due date does not
occur more than one (1) occasion in any twelve-month period;
(D) the provisions of Section 5-8 hereof, within the time
periods (including applicable grace periods) set forth with
respect to Sections 5-5, 5-6, above, and Section 5-7, as
applicable.
10-5. Failure to Perform Covenant or Liability (Grace Period).
The failure by the Borrower, upon Thirty (30) days written notice by the
Agent, to cure the
/October 28, 1997/
51
Borrower's failure to promptly, punctually and faithfully perform, discharge, or
comply with any covenant or Liability not described in any of Sections 10-1,
10-2, 10-3 or 10-4 hereof.
10-6. Misrepresentation. The failure of any representation or warranty
at any time made by the Borrower to the Agent or any Lender, to be true in all
material respects when given or confirmed.
10-7. Default in Other Indebtedness. The occurrence of any event
such that, after giving effect to the expiration of any applicable grace
periods, Indebtedness, which when aggregated with all other like Indebtedness of
the Borrower or any of its Subsidiaries to any creditor other than the Agent or
any Lender which could (after giving effect to the expiration of any applicable
grace periods) be accelerated, exceeds Three Million Dollars ($3,000,000.00).
10-8. Payment Default Under Any Lease. The occurrence of a material
payment default under any Lease, which default could reasonably be expected to
have a material adverse effect on the business or operations of the Borrower and
its subsidiaries, taken as a whole.
10-9. Default Under Other Agreements. The occurrence of any breach
or default (after giving effect to the expiration of any applicable grace
periods) under any Loan Documents, whether such Loan Document now exists or
hereafter arises (notwithstanding that the Agent or the subject Lender may not
have exercised its rights upon default under any such other Loan Document).
10-10. Events with Respect To New Notes The occurrence of any event
such that the New Notes, after the expiration of any applicable grace period,
could be accelerated or that prepayment of all or any part of the principal of
any New Note could be required.
10-11. Casualty Loss. Non-Ordinary Course Sales. The occurrence of
any (a) uninsured loss, theft, damage, or destruction of or to any material
portion of the Collateral, or (b) sale (other than sales in the ordinary course
of business or otherwise permitted hereunder) of any material portion of the
assets of the Borrower.
10-12. Judgment. Restraint of Business.
(a) The entry of any money judgment which, when aggregated with
like money judgments against the Borrower or any of its subsidiaries which are
neither satisfied nor appealed from (with execution or similar process stayed)
within Thirty (30) days of its entry, exceeds Three Million Dollars
($3,000,000.00).
(b) The entry of any nonmonetary judgment against the Borrower
or any of its subsidiaries, which judgement could reasonably be expected to
result in a material adverse effect on the Borrower and which judgement is
neither satisfied nor 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 adverse way the conduct by the Borrower or of its Subsidiaries of its
respective business in the ordinary course.
10-13. Business Failure. Any act by, 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
property; the granting of any trust mortgage or execution of an assignment for
the benefit of the creditors of 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 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 any part of the Borrower's
/October 28, 1997/
52
business or operations; or the initiation of any proceeding against the Borrower
or its property or assets, which proceeding is not timely contested or, if so
contested, is not dismissed within Sixty (60) days of when initiated.
10-14. 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 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; the filing of any complaint,
application, or petition against the Borrower seeking the entry of an order for
relief under the Bankruptcy Code, which filing is not timely contested or, if
timely contested, is not dismissed within Sixty (60) days of when filed.
10-15. Default by Guarantor or Related Entity. The occurrence of any of
the foregoing Events of Default with respect to any guarantor of the
Liabilities, or the occurrence of any of the foregoing Events of Default with
respect to any Subsidiary, as if such guarantor or Subsidiary were the
"Borrower" described therein.
10-16. 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 reasonable
likelihood of which could result in a material adverse restraint on the conduct
by the Borrower of its business in the ordinary course.
10-17. Challenge to Loan Documents.
(a) Any challenge by or on behalf of the Borrower or any
guarantor of the Liabilities to the validity of any Loan Document or the
applicability or enforceability of any Loan Document strictly in accordance with
the subject Loan Document's terms or which seeks to void, avoid, limit, or
otherwise materially 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 substantially in
accordance with the subject Loan Document's terms or which voids, avoids,
limits, or otherwise adversely affects any security interest created by any Loan
Document or any payment made pursuant thereto.
10-18. Executive Management. The death, disability, or failure of Xxx
Xxxxxx at any time to exercise that authority and discharge those management
responsibilities with respect to the Borrower as are exercised and discharged or
are anticipated to be exercised or discharged by such Person at the execution of
the within Agreement or the entry of judicial process (not dismissed or
dissolved within Seven (7) days of such entry), the effect of which process is
to restrain such Person from exercising any material portion of those
management responsibilities with respect to the Borrower as are exercised and
discharged or are anticipated to be exercised or discharged by such Person at
the execution of the within Agreement, provided, however,
(a) such death, disability, failure of said Person or entry of
such process shall not constitute an "Event of Default" until One Hundred Five
(105) days after such occurrence and, unless the Agent sooner waives such Event
of Default, or gives written notice of the acceleration of the Liabilities (as
to which, see Proviso (b), below) such death, disability, failure, or entry of
process shall cease to be an "Event of Default" One Hundred Thirty-five (135)
days after its having occurred; and
(b) the Agent shall not accelerate the Liabilities on account of
such death, disability, or failure or entry of such process, except upon and
with Thirty (30) days written notice given at any time during the "window"
period described in Proviso (a), above.
/October 28, 1997/
53
The provisions of this Section 10-18 shall be void and of no further effect
fifteen (15) Business Days after the Agent's receipt of the financial statements
described in Section 5-7 hereof for the Borrower's fiscal year ending January
31, 1999 as long as no other Event of Default then exists hereunder.
10-19. Change in Control. Any Change in Control other than on account
of an initial public offering of the capital stock of the Borrower.
ARTICLE 11 - RIGHTS AND REMEDIES UPON DEFAULT.
In addition to all of the rights, remedies, powers, privileges, and
discretions which the Agent is provided prior to the occurrence of an Event of
Default, the Agent shall have the rights and remedies set forth in Sections 11-1
through and including 11-6 upon the occurrence, and during the continuance, of
any Event of Default and at any time thereafter.
11-1. Rights of Enforcement. The Agent shall have all of the rights
and remedies of a secured party upon default under the UCC, in addition to which
the Agent 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 Agent 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.
(e) To apply the Receivables Collateral or the Proceeds of the
Collateral towards (but not necessarily in complete satisfaction of) the
Liabilities.
(f) To exercise all or any of the rights, remedies, powers,
privileges, and discretions under all or any of the Loan Documents.
11-2. Sale of Collateral.
(a) Any sale or other disposition of the Collateral may be at
public or private sale upon such terms and in such manner as the Agent deems
advisable, having due regard to compliance with any statute or regulation which
might affect, limit, or apply to the Agent's disposition of the Collateral.
(b) The Agent, in the exercise of the Agent's rights and
remedies upon default, may conduct one or more going out of business sales, in
the Agent'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
Agent 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 Agent 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 Agent 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 Agent shall provide the Borrower with such notice as may be
practicable under the circumstances), the Agent shall give the Borrower at least
ten (10) 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
Agent's rights and
/October 28, 1997/
54
remedies upon default.
(d) The Agent and any Lender may purchase the Collateral, or any
portion of it at any sale held under this Article.
(e) The Agent shall apply the proceeds of any exercise of the
Agent's Rights and Remedies under this Article 11 towards the Liabilities in
such manner, and with such frequency, as the Agent determines.
11-3. Occupation of Business Location. In connection with the Agent's
exercise of the Agent's rights under this Article 11, the Agent may enter upon,
occupy, and use any premises owned or occupied by the Borrower, and may exclude
the Borrower from such premises or portion thereof as may have been so entered
upon, occupied, or used by the Agent. The Agent shall not be required to remove
any of the Collateral from any such premises upon the Agent's taking possession
thereof, and may render any Collateral unusable to the Borrower. In no event
shall the Agent be liable to the Borrower for use or occupancy by the Agent of
any premises pursuant to this Article 11, nor for any charge (such as wages for
the Borrower's employees and utilities) incurred in connection with the Agent's
exercise of the Agent's Rights and Remedies.
11-4. Grant of Nonexclusive License. The Borrower hereby grants to
the Agent a royalty free nonexclusive irrevocable license to
(a) Use, apply, and affix any trademark, tradename, logo, or the
like in which the Borrower now or hereafter has rights, such license being with
respect to the Agent's exercise of the rights upon the occurrence and during the
continuance of an Event of Default under this Article 11 including, without
limitation, in connection with any completion of the manufacture of Inventory or
sale or other disposition of Inventory.
(b) Use all of the Borrower's Equipment and infrastructure.
11-5. Assembly of Collateral. The Agent may require the Borrower to
assemble the Collateral and make it available to the Agent at the Borrower's
sole risk and expense at a place or places which are reasonably convenient to
both the Agent and Borrower.
11-6. Rights and Remedies. The rights, remedies, powers,
privileges, and discretions of the Agent hereunder (herein, the " Agent'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 Agent in exercising
or enforcing any of the Agent's Rights and Remedies shall operate as, or
constitute, a waiver thereof. No waiver by the Agent 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 Agent's Rights or Remedies, and no express or implied agreement or
transaction of whatever nature entered into between the Agent and any person, at
any time, shall preclude the other or further exercise of the Agent's Rights and
Remedies. No waiver by the Agent of any of the Agent'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 Agent's Rights and Remedies and
all of the Agent'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 Agent at such time or times and in such
order of preference as the Agent in its sole discretion may determine. The
Agent's Rights and Remedies may be exercised without resort or regard to any
other source of satisfaction of the Liabilities.
ARTICLE 12 - NOTICES.
12-1. Notice Addresses. All notices, demands, and other
communications made in respect of this Agreement (other than a request for a
loan or advance or other financial accommodation under the Revolving Credit)
shall be made to the following addresses, each of which may be changed upon
seven (7) days written notice to all others given by certified mail, return
receipt requested:
/October 28, 1997/
55
If to the Agent:
BankBoston Retail Finance Inc.
00 Xxxxx Xxxxxx
Xxxxxx, Xxxxxxxxxxxxx 00000
Attention : Xx. Xxxxxxx Xxxxxxx
Vice President
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:
County Seat Stores, Inc.
000 Xxxxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention : Xx. Xxxx Xxxxxxx
Fax : 000 000-0000
With copies to:
Skadden, Arps, Slate, Xxxxxxx & Xxxx LLP
000 Xxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000-0000
Attention : Xxxxxx Xxxxxxxx, Esquire
Fax: : 000 000-0000
and
Skadden, Arps, Slate, Xxxxxxx & Xxxx (Illinois)
000 X. Xxxxxx Xxxxx
Xxxxxxx, Xxxxxxxx 00000
Attention : Xxxx XxXxxxxx, Esquire
Fax: : 000 000-0000
12-2. Notice Given.
(a) Except as otherwise specifically provided herein, notices
shall be deemed made and correspondence received, as follows (all times being
local to the place of delivery or receipt):
(i) By mail: the sooner of when actually received or Three
(3) days following deposit in the United States mail, postage prepaid.
(ii) By recognized overnight express delivery: the Business
Day following the 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
indicating the party sending such transmission): 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
/October 28, 1997/
56
the then next Business Day.
(b) Rejection or refusal to accept delivery and inability to
deliver because of a changed address or Facsimile Number for which no due notice
was given shall each be deemed receipt of the notice sent.
ARTICLE 13 - TERM.
13-1. Termination of Revolving Credit. The Revolving Credit shall
remain in effect (subject to suspension as provided in Section 2-5(h) hereof)
until the Termination Date.
13-2. Effect of Termination. Upon the termination of the Revolving
Credit, the Borrower shall pay the Agent (whether or not then due), in
immediately available funds, all then Liabilities including, without limitation:
the entire balance of the Loan Account; any accrued and unpaid Line Fee; any
Early Termination Fee; and all unreimbursed costs and expenses of the Agent and
of each Lender for which the Borrower is responsible, and shall make such
arrangements concerning any L/C's and B/A's then outstanding are reasonably
satisfactory to the Agent . Until such payment, all provisions of this
Agreement, other than those contained in Article 2 which place an obligation on
the Agent and any Lender to make any loans or advances or to provide financial
accommodations under the Revolving Credit or otherwise, shall remain in full
force and effect until all Liabilities shall have been paid in full and upon
such payment, the Agent, at the expense of the Borrower, shall execute and
deliver to the Borrower such releases (including UCC termination statements) as
the Borrower shall reasonably request. The Agent will also execute and deliver
to Borrower, at the expense of the Borrower, all such releases and UCC
termination statements as Borrower shall request in connection with any
permitted sales of Collateral under this Agreement and in connection with any
sale or other disposition of the Distribution Facility. The release by the
Agent of the security and other collateral interests granted the Agent by the
Borrower hereunder may be upon such conditions and indemnifications as the Agent
may require.
ARTICLE 14 - GENERAL.
14-1. Protection of Collateral. The Agent 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 Agent and shall have no
duty as to the preservation of rights against prior parties or any other rights
pertaining thereto. The Agent 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
Agent.
14-2. Successors and Assigns. This Agreement shall be binding upon the
Borrower and the Borrower's successors, and assigns and shall enure to the
benefit of the Agent and each Lender and the respective successors and assigns
of each provided, however, no trustee or other fiduciary appointed with respect
to the Borrower shall have any rights hereunder. In the event that the Agent or
any 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 such assignor hereunder and such assignor shall
thereupon be discharged and relieved from its duties and obligations hereunder
provided that such assignment is made in accordance with the requirements of
Section 219.
14-3. Severability. Any determination that any provision of this
Agreement or any application thereof is invalid, illegal, or unenforceable in
any respect in any
/October 28, 1997/
57
instance shall not affect the validity, legality, or enforceability of such
provision in any other instance, or the validity, legality, or enforceability of
any other provision of this Agreement.
14-4. Amendments. Course of Dealing.
(a) This Agreement and the other Loan Documents incorporate all
discussions and negotiations between the Borrower and the Agent and each 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 Agent or any 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
Agent in the manner by which Availability is determined shall obligate the Agent
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 Agent. 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 Agent and the Borrower.
14-5. Power of Attorney. In connection with all powers of attorney
included in this Agreement, the Borrower hereby grants unto the Agent 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 Agent.
14-6. Application of Proceeds. The proceeds of any collection, sale, or
disposition of the Collateral, or of any other payments received hereunder,
shall be applied towards the Liabilities in such order and manner as the Agent
determines in its sole discretion. The Borrower shall remain liable for any
deficiency remaining following such application.
14-7. Costs and Expenses of Agent and Of Lenders. The Borrower shall
pay on demand all Costs of Collection and all reasonable out-of-pocket expenses
of the Agent 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 out-of- pocket expenses which may be incurred
by the Agent in preparing or amending this Agreement and all other agreements,
instruments, and documents related thereto, or otherwise incurred with respect
to the Liabilities. The Borrower specifically authorizes the Agent to pay all
such fees and expenses and in the Agent's discretion, to add such fees and
expenses to the Loan Account. The within undertaking, on the part of the
Borrower, shall survive payment of the Liabilities and/or any termination,
release, or discharge executed by the Agent in favor of the Borrower, other than
a termination, release, or discharge which makes specific reference to this
Section 14-7. The Borrower shall pay on demand all Costs of Collection and
reasonable out-of-pocket costs and expenses of the Agent and each Lender
incurred in connection with the Liabilities after the occurrence and during the
continuance of an Event of Default.
14-8. Copies and Facsimiles. This Agreement and all documents which
relate thereto, which have been or may be hereinafter furnished the Agent or any
Lender may be reproduced by that Person or by the Agent by any photographic,
microfilm, xerographic, digital imaging, or other process, and that Person may
destroy any document so reproduced. Any such reproduction shall be admissible
in evidence as the original itself in any judicial or administrative proceeding
(whether or not the original is in existence and whether or not such
reproduction was made in the regular course of business). Any facsimile which
bears proof of transmission shall be binding on the party which or on whose
behalf such
/October 28, 1997/
58
transmission was initiated and likewise shall be so admissible in evidence as if
the original of such facsimile had been delivered to the party which or on whose
behalf such transmission was received.
14-9. 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.
14-10. 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 Agent 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 Agent 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.
14-11. Indemnification. The Borrower shall indemnify, defend, and
hold the Agent and each Lender and any employee, officer, or agent of any of the
foregoing (each, an "Indemnified Person") harmless of and from any claim brought
or threatened against any Indemnified Person by the 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 with the Agent or any Lender hereunder or under any of the other
Loan Documents (each of claims which may be defended, compromised, settled, or
pursued by the Indemnified Person with counsel of such Person's selection, but
at the expense of the Borrower) other than any claim as to which a final
judgment against the Indemnified Person is entered in a judicial proceeding (in
which the Agent and any other Indemnified Person has had an opportunity to be
heard). The within indemnification shall survive payment of the Liabilities
and/or any termination, release, or discharge executed by the Agent in favor of
the Borrower, other than a termination, release, or discharge which makes
specific reference to this Section 14-11.
14-12. 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) Headings (indicated by being underlined) and the Table of
Contents are solely for convenience of reference and do not constitute a part of
the instrument in which included and do not affect such instrument's meaning,
construction, or effect.
/October 28, 1997/
59
(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) Text which is underlined, shown in italics, shown in bold,
shown IN ALL CAPITAL LETTERS, or in any combination of the foregoing, shall be
deemed to be conspicuous.
(f) The words "may not" are prohibitive and not permissive.
(g) The word "or" is not exclusive.
(h) Terms which are defined in one section of an instrument are
used with such definition throughout the instrument in which so defined.
(i) The symbol "$" refers to United States Dollars.
(j) References to "herein", "hereof", and "within" are to this
entire Agreement and not merely the provision in which such reference is
included.
(k) Except as otherwise specifically provided, all references to
time are to Boston time.
(l) In the determination of any notice, grace, or other period
of time prescribed or allowed hereunder, unless otherwise provided (A) 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 (B) the period so
computed shall end at 5:00 PM on the relevant Business Day.
(m) The Loan Documents shall be construed and interpreted in a
harmonious manner and in keeping with the intentions set forth in Section 14-13
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.
14-13. 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 Agent.
(c) The security interests created by this Agreement secure all
Liabilities, whether now existing or hereafter arising.
(d) Unless otherwise explicitly provided herein, the Agent's
consent to any action of the Borrower which is prohibited unless such consent is
expressly given may be given or refused by the Agent in its sole discretion and
without reference to Section 2-13 hereof.
14-14. Right of Set-Off. Any and all deposits or other sums at any
time credited by or due to the undersigned from any Lender or from any
participant (a "Participant") with any Lender in the credit facility
contemplated hereby and any cash, securities, instruments or other property of
the undersigned in the possession of any Lender or any Affiliate of any Lender
or any Participant, whether for safekeeping or otherwise (regardless of the
reason such Person had received the same) shall at all times constitute security
for all Liabilities, and may be applied or set off against the Liabilities at
any time after the occurrence and during the continuance of an Event of Default,
whether or not such are then due and whether or not other collateral is then
available to the Agent or any Participant.
14-15. Maximum Interest Rate. Regardless of any provision of any Loan
Document, none of the Agent or any Lender shall 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."
/October 28, 1997/
60
14-16. Waivers.
(a) The Borrower makes each of the waivers included in Section
1416(b), below, knowingly, voluntarily, and intentionally, and understands that
the Agent and each 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 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 Agent's exercising of the
Agent's rights upon default.
(iii) THE RIGHT TO A JURY IN ANY TRIAL OF ANY CASE OR
CONTROVERSY IN WHICH THE AGENT OR ANY LENDER IS OR BECOMES A PARTY (WHETHER
SUCH CASE OR CONTROVERSY IS INITIATED BY OR AGAINST THE AGENT OR ANY LENDER
OR IN WHICH THE AGENT OR ANY 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 THE AGENT OR ANY LENDER IN CONNECTION
WITH ANY LOAN DOCUMENT (AND THE AGENT AND EACH LENDER LIKEWISE WAIVES THE
RIGHT TO A JURY IN ANY TRIAL OF ANY SUCH CASE OR CONTROVERSY).
(iv) Any defense, counterclaim, set-off, recoupment, or
other basis on which the amount of any Liability, as stated on the books
and records of the Agent or any Lender, could be reduced or claimed to be
paid otherwise than in accordance with the tenor of and written terms of
such Liability.
(v) Any claim to consequential, special, or punitive
damages.
14-17. Confidentiality. The Agent and each of the Lenders agrees that
they will not disclose without the prior consent of the Borrower (other than to
its employees, Affiliates, advisors or counsel, each of whom shall be directed
to observe this confidentiality obligation) any information with respect to the
Borrower or any of its Subsidiaries which is now or in the future furnished
pursuant to this Agreement or any other Loan Document and which is designated by
the Borrower in writing as confidential, provided, however, that the Agent and
the Lenders may disclose any such information (i) as has become generally
available to the public, (ii) as may be required or appropriate in any report,
statement or testimony submitted to any municipal, state, or federal regulatory
body having or claiming to have jurisdiction over the Agent, (iii) as may be
required or appropriate in respect to any summons or subpoena or in connection
with any litigation, (iv) in order to comply with any law, order, regulation or
ruling applicable to the Agent, (v) to any prospective or actual transferee or
participant in connection with any contemplated transfer or participation of
this Agreement, the Liabilities, or any interest therein by the Agent, which
transfer or participation is permitted by the terms of this Agreement and (vi)
to the Agent and other Lenders provided, however, that such prospective
transferee or participant executes a confidentiality agreement with the Agent
containing similar provisions to those set forth in this Section 14-17, and
(vi) as may be reasonably required in connection with the Agent's enforcement of
this Agreement or the other Loan Documents against the Borrower and/or its
Subsidiaries.
/October 28, 1997/
61
COUNTY SEAT STORES, INC.
("Borrower")
By
-------------------------------
Print Name:
-------------------------------
Title:
-------------------------------
BANKBOSTON RETAIL FINANCE INC.
("Agent")
By
--------------------------------
Print Name:
--------------------------------
Title:
--------------------------------
The "Lenders"
BANKBOSTON RETAIL FINANCE INC.
By
-------------------------------
Print Name:
-------------------------------
Title:
-------------------------------
/October 28, 1997/
62
