EXHIBIT 10.3
GENERAL SECURITY AGREEMENT
This General Security Agreement ("Agreement") dated May 21, 1997 is by
L.A. Gear, Inc., a Delaware corporation ("Guarantor") in favor of Congress
Financial Corporation (Western) ("Lender").
W I T N E S S E T H
WHEREAS, Lender has entered or is about to enter into certain financing
arrangements with L.A. Gear California, Inc., a California corporation
("Borrower") pursuant to which Lender may make loans and provide other
financial accommodations to Borrower; and
WHEREAS, Guarantor has executed and delivered or is about to execute and
deliver to Lender a guarantee in favor of Lender pursuant to which Guarantor
absolutely and unconditionally guarantees to Lender the payment and
performance of all now existing and hereafter arising obligations,
liabilities and indebtedness of Borrower to Lender; and
NOW, THEREFORE, in consideration of the mutual conditions and agreements
set forth herein, and for other good and valuable consideration, the receipt
and sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
SECTION 1. DEFINITIONS
All terms used herein which are defined in Article 1 or Article 9 of the
Uniform Commercial Code shall have the meanings given therein unless otherwise
defined in this Agreement. All references to the plural herein shall also mean
the singular and to the singular shall also mean the plural. All references to
Guarantor, Borrower and Lender pursuant to the definitions set forth in the
recitals hereto, or to any other person herein, shall include their respective
successors and assigns. The words "hereof", "herein", "hereunder", "this
Agreement" and words of similar import when used in this Agreement shall refer
to this Agreement as a whole and not any particular provision of this Agreement
and as this Agreement now exists or may hereafter be amended, modified,
supplemented, extended, renewed, restated or replaced. An Event of Default
shall exist or continue or be continuing until such Event of Default is cured
or waived in accordance with Section 7.3. Any accounting term used herein
unless otherwise defined in this Agreement shall have the meanings customarily
given to such term in accordance with GAAP. For purposes of this Agreement,
the following terms shall have the respective meanings given to them below:
1.1 "Accounts" shall mean all present and future rights of Guarantor to
payment for goods sold or leased or for services rendered, which are not
evidenced by instruments or chattel paper, and whether or not earned by
performance.
1.2 "Equipment" shall mean all of Guarantor's now owned and hereafter
acquired equipment, machinery, computers and computer hardware and software
(whether owned or licensed), vehicles, tools, furniture, fixtures, all
attachments, accessions and property now or hereafter affixed thereto or used
in connection therewith, and substitutions and replacements thereof, wherever
located.
1.3 "Event of Default" shall have the meaning set forth in Section 6.1
hereof.
1.4 "Financing Agreements" shall mean, collectively, the Loan Agreement,
this Agreement and all notes, guarantees, security agreements and other
agreements, documents and
instruments now or at any time hereafter executed and/or delivered by
Borrower, Guarantor or any Obligor in connection with the Loan Agreement, as
the same now exist or may hereafter be amended, modified, supplemented,
extended, renewed, restated or replaced.
1.5 "GAAP" shall mean generally accepted accounting principles in the
United States of America as in effect from time to time as set forth in the
opinions and pronouncements of the Accounting Principles Board and the
American Institute of Certified Public Accountants and the statements and
pronouncements of the Financial Accounting Standards Boards which are
applicable to the circumstances as of the date of determination consistently
applied, except that, for purposes of Sections 5.13 and 5.14 hereof, GAAP
shall be determined on the basis of such principles in effect on the date
hereof and consistent with those used in the preparation of the audited
financial statements delivered to Lender prior to the date hereof.
1.6 "Information Certificate" shall mean the Information Certificate of
Guarantor constituting Exhibit A hereto containing material information with
respect to Guarantor, its business and assets provided by or on behalf of
Guarantor to Lender in connection with the preparation of this Agreement and
the other Financing Agreements and the financing arrangements provided for
herein.
1.7 "Inventory" shall mean all of Guarantor's now owned and hereafter
existing or acquired raw materials, work in process, finished goods and all
other inventory of whatsoever kind or nature, wherever located.
1.8 "Loan Agreement" shall mean the Loan and Security Agreement, dated
May 16, 1997, by and between Borrower and Lender, as the same now exists and
may hereafter be amended, modified, supplemented, extended, renewed, restated
or replaced.
1.9 "Obligations" shall mean any and all obligations, liabilities and
indebtedness of every kind, nature and description owing by Guarantor to
Lender and/or its affiliates, including principal, interest, charges, fees,
costs and expenses, however evidenced, whether as principal, surety,
endorser, guarantor or otherwise, whether arising under this Agreement or
otherwise, whether now existing or hereafter arising, whether arising before,
during or after the initial or any renewal term of this Agreement or after
the commencement of any case with respect to Guarantor under the United
States Bankruptcy Code or any similar statute (including, without limitation,
the payment of interest and other amounts which would accrue and become due
but for the commencement of such case), whether direct or indirect, absolute
or contingent, joint or several, due or not due, primary or secondary,
liquidated or unliquidated, secured or unsecured, and however acquired by
Lender.
1.10 "Obligor" shall mean any other guarantor, endorser, acceptor,
surety or other person liable on or with respect to the Obligations or who is
the owner of any property which is security for the Obligations, other than
Borrower.
1.11 "Person" or "person" shall mean any individual, sole
proprietorship, partnership, corporation (including, without limitation, any
corporation which elects subchapter S status under the Internal Revenue Code
of 1986, as amended), business trust, unincorporated association, joint stock
corporation, trust, joint venture or other entity or any government or any
agency or instrumentality or political subdivision thereof.
1.12 "Records" shall mean all of Guarantor's present and future books
of account of every kind or nature, purchase and sale agreements, invoices,
ledger cards, bills of lading and other shipping evidence, statements,
correspondence, memoranda, credit files and other data relating to the
Collateral or any account debtor, together with the tapes, disks, diskettes
and other data and software storage media and devices, file cabinets or
containers in or on which the
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foregoing are stored (including any rights of Guarantor with respect to the
foregoing maintained with or by any other person).
SECTION 2. GRANT OF SECURITY INTEREST
To secure payment and performance of all Obligations, Guarantor hereby
grants to Lender a continuing security interest in, a lien upon, and a right
of set off against, and hereby assigns to Lender as security, the following
property and interests in property, whether now owned or hereafter acquired
or existing, and wherever located (collectively, the "Collateral"):
2.1 Accounts;
2.2 All present and future contract rights, general intangibles
(including, but not limited to, tax and duty refunds, registered and
unregistered patents, trademarks, service marks, copyrights, trade names,
applications for the foregoing, trade secrets, goodwill, processes, drawings,
blueprints, customer lists, licenses, whether as licensor or licensee, choses
in action and other claims and existing and future leasehold interests in
equipment, real estate and fixtures), chattel paper, documents, instruments,
letters of credit, bankers' acceptances and guaranties;
2.3 All present and future monies, securities, credit balances,
deposits, deposit accounts and other property of Guarantor now or hereafter
held or received by or in transit to Lender or its affiliates or at any other
depository or other institution from or for the account of Guarantor whether
for safekeeping, pledge, custody, transmission, collection or otherwise, and
all present and future liens, security interests, rights, remedies, title and
interest in, to and in respect of Accounts and other Collateral, including,
without limitation, rights and remedies under or relating to guaranties,
contracts of suretyship, letters of credit and credit and other insurance
related to the Collateral, rights of stoppage in transit, replevin,
repossession, reclamation and other rights and remedies of an unpaid vendor,
lienor or secured party, goods described in invoices, documents, contracts
or instruments with respect to, or otherwise representing or evidencing,
Accounts or other Collateral, including, without limitation, returned,
repossessed and reclaimed goods, and deposits by and property of account
debtors or other persons securing the obligations of account debtors;
2.4 Inventory;
2.5 Equipment;
2.6 Records; and
2.7 all products and proceeds of the foregoing, in any form, including,
without limitation, insurance proceeds and any claims against third parties
for loss or damage to or destruction of any or all of the foregoing.
SECTION 3. COLLATERAL COVENANTS
3.1 ACCOUNTS COVENANTS.
(a) Lender shall have the right at any time or times, in Lender's
name or in the name of a nominee of Lender, to verify the validity, amount or
any other matter relating to any Account or other Collateral, by mail,
telephone, facsimile transmission or otherwise.
(b) Guarantor shall deliver or cause to be delivered to Lender,
with appropriate endorsement and assignment, with full recourse to Guarantor,
all chattel paper and instruments
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which Guarantor now owns or may at any time acquire immediately upon
Guarantor's receipt thereof, except as Lender may otherwise agree.
(c) Lender may, at any time or times that an Event of Default exists
or has occurred and is continuing, notify any or all account debtors that the
Accounts have been assigned to Lender and that Lender has a security interest
therein and Lender may direct any or all accounts debtors to make payment of
Accounts directly to Lender, extend the time of payment of, compromise, settle
or adjust for cash, credit, return of merchandise or otherwise, and upon any
terms or conditions, any and all Accounts or other obligations included in the
Collateral and thereby discharge or release the account debtor or any other
party or parties in any way liable for payment thereof without affecting any of
the Obligations, demand, collect or enforce payment of any Accounts or such
other obligations, but without any duty to do so, and Lender shall not be
liable for its failure to collect or enforce the payment thereof nor for the
negligence of its agents or attorneys with respect thereto and take whatever
other action Lender may deem necessary or desirable for the protection of its
interests. At any time that an Event of Default exists or has occurred and is
continuing, at Lender's request, all invoices and statements sent to any
account debtor shall state that the Accounts and such other obligations have
been assigned to Lender and are payable directly and only to Lender and
Guarantor shall deliver to Lender such originals of documents evidencing the
sale and delivery of goods or the performance of services giving rise to any
Accounts as Lender may require.
3.2 INVENTORY COVENANTS. With respect to the Inventory: Guarantor shall
at all times maintain inventory records reasonably satisfactory to Lender,
keeping correct and accurate records itemizing and describing the kind, type,
quality and quantity of Inventory, Guarantor's cost therefor and daily
withdrawals therefrom and additions thereto; Guarantor shall conduct a
physical count of the Inventory at least once each year, but at any time or
times as Lender may request during the continuance of an Event of Default, and
promptly following such physical inventory shall supply Lender with a report in
the form and with such specificity as may be reasonably satisfactory to Lender
concerning such physical count; Guarantor shall not remove any Inventory from
the locations set forth or permitted herein, without the prior written consent
of Lender, except for sales of Inventory in the ordinary course of Guarantor's
business and except to move Inventory directly from one location set forth or
permitted herein to another such location; upon Lender's request, Guarantor
shall, at its expense, no more than twice in any twelve (12) month period, but
at any time or times as Lender may request during the continuance of an Event
of Default, deliver or cause to be delivered to Lender written reports or
appraisals as to the Inventory in form, scope and methodology acceptable to
Lender and by an appraiser acceptable to Lender, addressed to Lender or upon
which Lender is expressly permitted to rely; Guarantor shall produce, use,
store and maintain the Inventory, with all reasonable care and caution and in
accordance with applicable standards of any insurance and in conformity with
applicable laws (including, but not limited to, the requirements of the Federal
Fair Labor Standards Act of 1938, as amended and all rules, regulations and
orders related thereto); Guarantor assumes all responsibility and liability
arising from or relating to the production, use, sale or other disposition of
the Inventory; Guarantor shall not sell Inventory to any customer on approval,
or any other basis which entitles the customer to return or may obligate
Guarantor to repurchase such Inventory; Guarantor shall keep the Inventory in
good and marketable condition; and Guarantor shall not, without prior written
notice to Lender, acquire or accept any Inventory on consignment or approval.
3.3 EQUIPMENT COVENANTS. With respect to the Equipment: upon Lender's
request, Guarantor shall, at its expense, at any time or times as Lender may
request during the continuance of Event of Default, deliver or cause to be
delivered to Lender written reports or appraisals as to the Equipment in
form, scope and methodology acceptable to Lender and by appraiser acceptable
to Lender; Guarantor shall keep the Equipment in good order, repair, running
and marketable condition (ordinary wear and tear excepted); Guarantor shall
use the Equipment with all reasonable care and caution and in accordance with
applicable standards of
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any insurance and in conformity with all applicable laws; the Equipment is
and shall be used in Guarantor's business and not for personal, family,
household or farming use; Guarantor shall not remove any Equipment from the
locations set forth or permitted herein, except to the extent necessary to
have any Equipment repaired or maintained in the ordinary course of the
business of Guarantor or to move Equipment directly from one location set
forth or permitted herein to another such location and except for the
movement of motor vehicles used by or for the benefit of Borrower in the
ordinary course of business; the Equipment is now and shall remain personal
property and Guarantor shall not permit any of the Equipment to be or become
a part of or affixed to real property; and Guarantor assumes all
responsibility and liability arising from the use of the Equipment.
3.4 POWER OF ATTORNEY. Guarantor hereby irrevocably designates and
appoints Lender (and all persons designated by Lender) as Guarantor's true
and lawful attorney-in-fact, and authorizes Lender, in Guarantor's or
Lender's name, to: at any time an Event of Default exists or has occurred
and is continuing demand payment on Accounts or other proceeds of Inventory
or other Collateral, enforce payment of Accounts by legal proceedings or
otherwise, exercise all of Guarantor's rights and remedies to collect any
Account or other Collateral, sell or assign any Account upon such terms, for
such amount and at such time or times as the Lender deems advisable, settle,
adjust, compromise, extend or renew an Account, discharge and release any
Account, prepare, file and sign Guarantor's name on any proof of claim in
bankruptcy or other similar document against an account debtor, notify the
post office authorities to change the address for delivery of Guarantor's
mail to an address designated by Lender, and open and dispose of all mail
addressed to Guarantor, and do all acts and things which are necessary, in
Lender's determination, to fulfill Guarantor's obligations under this
Agreement and the other Financing Agreements and at any time to take
control in any manner of any item of payment or proceeds thereof, have
access to any lockbox or postal box into which Guarantor's mail is deposited,
endorse Guarantor's name upon any items of payment or proceeds thereof and
deposit the same in the Lender's account for application to the Obligations,
endorse Guarantor's name upon any chattel paper, document, instrument,
invoice, or similar document or agreement relating to any Account or any
goods pertaining thereto or any other Collateral, and sign Guarantor's name
on any verification of Accounts and notices thereof to account debtors and
execute in Guarantor's name and file any UCC financing statements or
amendments thereto. Guarantor hereby releases Lender and its officers,
employees and designees from any liabilities arising from any act or acts
under this power of attorney and in furtherance thereof, whether of omission
or commission, except as a result of Lender's own gross negligence or willful
misconduct as determined pursuant to a final non-appealable order of a court
of competent jurisdiction.
3.5 RIGHT TO CURE. Lender may, at its option, cure any default by
Guarantor under any agreement with a third party or pay or bond on appeal any
judgment entered against Guarantor, discharge taxes, liens, security
interests or other encumbrances at any time levied on or existing with
respect to the Collateral and pay any amount, incur any expense or perform
any act which, in Lender's judgment, is necessary or appropriate to preserve,
protect, insure or maintain the Collateral and the rights of Lender with
respect thereto. Lender may add any amounts so expended to the Obligations
and charge Guarantor's account therefor, such amounts to be repayable by
Guarantor on demand. Lender shall be under no obligation to effect such
cure, payment or bonding and shall not, by doing so, be deemed to have
assumed any obligation or liability of Guarantor. Any payment made or other
action taken by Lender under this Section shall be without prejudice to any
right to assert an Event of Default hereunder and to proceed accordingly.
3.6 ACCESS TO PREMISES. From time to time as requested by Lender, at
the cost and expense of Guarantor, Lender or its designee shall have
complete access to all of Guarantor's premises during normal business hours
and after notice to Guarantor, or at any time and without notice to Guarantor
if an Event of Default exists or has occurred and is continuing, for the
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purposes of inspecting, verifying and auditing the Collateral and all of
Guarantor's books and records, including, without limitation, the Records,
and Guarantor shall promptly furnish to Lender such copies of such books and
records or extracts therefrom as Lender may request, and use during normal
business hours such of Guarantor's personnel, equipment, supplies and
premises as may be reasonably necessary for the foregoing and if an Event of
Default exists or has occurred and is continuing for the collection of
Accounts and realization of other Collateral.
SECTION 4. REPRESENTATIONS AND WARRANTIES
Guarantor hereby represents and warrants to Lender the following (which
shall survive the execution and delivery of this Agreement):
4.1 CORPORATE EXISTENCE, POWER AND AUTHORITY; SUBSIDIARIES. Guarantor is
a corporation duly organized and in good standing under the laws of its state
of incorporation and is duly qualified as a foreign corporation and in good
standing in all states or other jurisdictions where the nature and extent of
the business transacted by it or the ownership of assets makes such
qualification necessary, except for those jurisdictions in which the failure to
so qualify would not have a material adverse effect on Guarantor's financial
condition, results of operation or business or the rights of Lender in or to
any of the Collateral. The execution, delivery and performance of this
Agreement, the other Financing Agreements and the transactions contemplated
hereunder and thereunder are all within Guarantor's corporate powers, have been
duly authorized and are not in contravention of law or the terms of Guarantor's
certificate of incorporation, by-laws, or other organizational documentation,
or any indenture, agreement or undertaking to which Guarantor is a party or by
which Guarantor or its property are bound. This Agreement and the other
Financing Agreements constitute legal, valid and binding obligations of
Guarantor enforceable in accordance with their respective terms. Guarantor
does not have any subsidiaries except as set forth on the Information
Certificate.
4.2 FINANCIAL STATEMENTS; NO MATERIAL ADVERSE CHANGE. All financial
statements relating to Guarantor which have been or may hereafter be delivered
by Guarantor to Lender have been prepared in accordance with GAAP and fairly
present the financial condition and the results of operation of Guarantor as at
the dates and for the periods set forth therein. Except as disclosed in any
interim financial statements furnished by Guarantor to Lender prior to the date
hereof, there has been no material adverse change in the assets, liabilities,
properties and condition, financial or otherwise, of Guarantor, since the date
of the most recent audited financial statements furnished by Guarantor to
Lender prior to the date hereof.
4.3 CHIEF EXECUTIVE OFFICE; COLLATERAL LOCATIONS. The chief executive
office of Guarantor and Guarantor's Records concerning Accounts are located
only at the address set forth below and its only other places of business and
the only other locations of Collateral, if any, are the addresses set forth in
the Information Certificate, subject to the right of Guarantor to establish new
locations in accordance with Section 5.2 below. The Information Certificate
correctly identifies any of such locations which are not owned by Guarantor and
sets forth the owners and/or operators thereof, and to the best of Guarantor's
knowledge, the holders of any mortgages on such locations.
4.4 PRIORITY OF LIENS; TITLE TO PROPERTIES. The security interests and
liens granted to Lender under this Agreement and the other Financing Agreements
constitute valid and perfected first priority liens and security interests in
and upon the Collateral subject only to the liens indicated on Schedule 4.4
hereto and the other liens permitted under Section 5.8 hereof. Guarantor has
good and marketable title to all of its properties and assets subject to no
liens, mortgages, pledges, security interests, encumbrances or charges of any
kind, except those granted to Lender and such others as are specifically listed
on Schedule 4.4 hereto or permitted under Section 5.8 hereof.
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4.5 TAX RETURNS. Guarantor has filed, or caused to be filed, in a
timely manner all tax returns, reports and declarations which are required to
be filed by it (without requests for extension except as previously disclosed
in writing to Lender). All information in such tax returns, reports and
declarations is complete and accurate in all material respects. Guarantor
has paid or caused to be paid all taxes due and payable or claimed due and
payable in any assessment received by it, except taxes the validity of which
are being contested in good faith by appropriate proceedings diligently
pursued and available to Guarantor and with respect to which adequate
reserves have been set aside on its books. Adequate provision has been made
for the payment of all accrued and unpaid Federal, State, county, local,
foreign and other taxes whether or not yet due and payable and whether or not
disputed.
4.6 LITIGATION. Except as set forth on the Information Certificate,
there is no present investigation by any governmental agency pending, or to
the best of Guarantor's knowledge threatened, against or affecting Guarantor,
its assets or business and there is no action, suit, proceeding or claim by
any Person pending, or to the best of Guarantor's knowledge threatened,
against Guarantor or its assets or goodwill, or against or affecting any
transactions contemplated by this Agreement, which if adversely determined
against Guarantor would result in any material adverse change in the assets,
business or prospects of Guarantor or which would impair the ability of
Guarantor to perform its obligations hereunder or under any of the other
Financing Agreements to which it is a party or of Lender to enforce the
Obligations or realize upon any Collateral.
4.7 COMPLIANCE WITH OTHER AGREEMENTS AND APPLICABLE LAWS. Guarantor is
not in default in any material respect under, or in violation in any material
respect of any of the terms of, any agreement, contract, instrument, lease or
other commitment to which it is a party or by which it or any of its assets
are bound and Guarantor is in compliance in all material respects with all
applicable provisions of laws, rules, regulations, licenses, permits,
approvals and orders of any foreign, Federal, State or local governmental
authority, except as follows: Guarantor is in default under agreements
relating to its outstanding Series B Preferred Stock in that Guarantor has
failed to make certain quarterly dividend payments thereon, but Guarantor
represents and warrants to Lender that the only effect of such default is to
increase the rate at which dividends accrue thereon, and neither the holders
of the Series B Preferred Stock nor any other person has any other right or
remedy as a result of such default.
4.8 ACCURACY AND COMPLETENESS OF INFORMATION. All information
furnished by or on behalf of Guarantor in writing to Lender in connection
with this Agreement or any of the other Financing Agreements or any
transaction contemplated hereby or thereby, including, without limitation,
all information on the Information Certificate is true and correct in all
material respects on the date as of which such information is dated or
certified and does not omit any material fact necessary in order to make such
information not misleading. No event or circumstance has occurred which has
had or could reasonably be expected to have a material adverse affect on the
business, assets or prospects of Guarantor, which has not been fully and
accurately disclosed to Lender in writing.
4.9 SURVIVAL OF WARRANTIES; CUMULATIVE. All representations and
warranties contained in this Agreement or any of the other Financing
Agreements shall survive the execution and delivery of this Agreement and
shall be deemed to have been made again to Lender on the date of each
additional borrowing or other credit accommodation under the Loan Agreement
and shall be conclusively presumed to have been relied on by Lender
regardless of any investigation made or information possessed by Lender. The
representations and warranties set forth herein shall be cumulative and in
addition to any other representations or warranties which Guarantor shall now
or hereafter give, or cause to be given, to Lender.
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SECTION 5. AFFIRMATIVE AND NEGATIVE COVENANTS
5.1 MAINTENANCE OF EXISTENCE. Guarantor shall at all times preserve,
renew and keep in full, force and effect its corporate existence and rights
and franchises with respect thereto and maintain in full force and effect all
permits, licenses, trademarks, tradenames, approvals, authorizations, leases
and contracts necessary to carry on the business as presently or proposed to
be conducted. Guarantor shall give Lender thirty (30) days prior written
notice of any proposed change in its corporate name, which notice shall set
forth the new name and Guarantor shall deliver to Lender a copy of the
amendment to the Certificate of Incorporation of Guarantor providing for the
name change certified by the Secretary of State of the jurisdiction of
incorporation of Guarantor as soon as it is available.
5.2 NEW COLLATERAL LOCATIONS. Guarantor may open any new location
within the continental United States provided Guarantor gives Lender thirty
(30) days prior written notice of the intended opening of any such new
location and executes and delivers, or causes to be executed and delivered,
to Lender such agreements, documents, and instruments as Lender may deem
reasonably necessary or desirable to protect its interests in the Collateral
at such location, including, without limitation, UCC financing statements.
5.3 COMPLIANCE WITH LAWS, REGULATIONS, ETC. Guarantor shall, at all
times, comply in all material respects with all laws, rules, regulations,
licenses, permits, approvals and orders of any Federal, State or local
governmental authority applicable to it.
5.4 PAYMENT OF TAXES AND CLAIMS. Guarantor shall duly pay and
discharge all taxes, assessments, contributions and governmental charges upon
or against it or its properties or assets, except for taxes the validity of
which are being contested in good faith by appropriate proceedings diligently
pursued and available to Guarantor and with respect to which adequate
reserves have been set aside on its books. Guarantor shall be liable for any
tax or penalties imposed on Lender as a result of the financing arrangements
provided for herein and Guarantor agrees to indemnify and hold Lender
harmless with respect to the foregoing, and to repay to Lender on demand the
amount thereof, and until paid by Guarantor such amount shall be added and
deemed part of the Loans, provided, that, nothing contained herein shall be
construed to require Guarantor to pay any income or franchise taxes
attributable to the income of Lender from any amounts charged or paid
hereunder to Lender. The foregoing indemnity shall survive the payment of
the Obligations, the termination of this Agreement and the termination or
non-renewal of the Loan Agreement.
5.5 INSURANCE. Guarantor shall, at all times, maintain with
financially sound and reputable insurers insurance with respect to the
Collateral against loss or damage and all other insurance of the kinds and in
the amounts customarily insured against or carried by corporations of
established reputation engaged in the same or similar businesses and
similarly situated. Said policies of insurance shall be satisfactory to
Lender as to form, amount and insurer. Guarantor shall furnish certificates,
policies or endorsements to Lender as Lender shall require as proof of such
insurance, and, if Guarantor fails to do so, Lender is authorized, but not
required, to obtain such insurance at the expense of Guarantor. All policies
shall provide for at least thirty (30) days prior written notice to Lender of
any cancellation or reduction of coverage and that Lender may act as attorney
for Guarantor in obtaining, and at any time an Event of Default exists or has
occurred and is continuing, adjusting, settling, amending and canceling such
insurance. Guarantor shall cause Lender to be named as a loss payee and an
additional insured (but without any liability for any premiums) under such
insurance policies and Guarantor shall obtain non-contributory lender's loss
payable endorsements to all insurance policies in form and substance
satisfactory to Lender. Such lender's loss payable endorsements shall
specify that the proceeds of such insurance shall be payable to Lender as its
interests may appear and further specify that Lender shall be paid regardless
of any act or omission by Guarantor or any of its affiliates. At its option,
Lender may apply any insurance proceeds received by Lender at any time to the
cost of
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repairs or replacement of Collateral and/or to payment of the Obligations,
whether or not then due, in any order and in such manner as Lender may
determine or hold such proceeds as cash collateral for the Obligations.
5.6 FINANCIAL STATEMENTS AND OTHER INFORMATION.
(a) Guarantor shall keep proper books and records in which true
and complete entries shall be made of all dealings or transactions of or in
relation to the Collateral and the business of Guarantor and its subsidiaries
(if any) in accordance with GAAP and Guarantor shall furnish or cause to be
furnished to Lender the financial statements with respect to Guarantor set
forth in the Loan Agreement.
(b) Guarantor shall promptly notify Lender in writing of the
details of any loss, damage, investigation, action, suit, proceeding or
claim relating to the Collateral or any other property which is security for
the Obligations or which would result in any material adverse change in
Guarantor's business, properties, assets, goodwill or condition, financial or
otherwise and the occurrence of any Event of Default or event which, with
the passage of time or giving of notice or both, would constitute an Event of
Default.
(c) Guarantor shall promptly after the sending or filing thereof
furnish or cause to be furnished to Lender copies of all reports which
Guarantor sends to its stockholders generally and copies of all reports and
registration statements which Guarantor files with the Securities and
Exchange Commission, any national securities exchange or the National
Association of Securities Dealers, Inc.
(d) Guarantor shall furnish or cause to be furnished to Lender
such budgets, forecasts, projections and other information respecting the
Collateral and the business of Guarantor, as Lender may, from time to time,
reasonably request. Lender is hereby authorized to deliver a copy of any
financial statement or any other information relating to the business of
Guarantor to any court or other government agency or to any participant or
assignee or prospective participant or assignee. Guarantor hereby
irrevocably authorizes and directs all accountants or auditors to deliver to
Lender, at Guarantor's expense, copies of the financial statements of
Guarantor and any reports or management letters prepared by such accountants
or auditors on behalf of Guarantor and to disclose to Lender such information
as they may have regarding the business of Guarantor. Any documents,
schedules, invoices or other papers delivered to Lender may be destroyed or
otherwise disposed of by Lender one (1) year after the same are delivered to
Lender, except as otherwise designated by Guarantor to Lender in writing.
5.7 SALE OF ASSETS, CONSOLIDATION, MERGER, DISSOLUTION, ETC. Guarantor
shall not, directly or indirectly, merge into or with or consolidate with
any other Person or permit any other Person to merge into or with or
consolidate with it, or sell, assign, lease, transfer, abandon or otherwise
dispose of any stock or indebtedness to any other Person or any of its assets
to any other Person (except for sales of Inventory in the ordinary course of
business and the disposition of worn-out or obsolete Equipment or Equipment
no longer used in the business of Guarantor so long as if an Event of Default
exists or has occurred and is continuing, any proceeds are paid to Lender and
such sales do not involve Equipment having an aggregate net book value
(together with any such Equipment so sold by the Borrower) in excess of
$250,000 for all such Equipment disposed of in any fiscal year of Guarantor
and Borrower), or form or acquire any subsidiaries, or wind up, liquidate or
dissolve or agree to do any of the foregoing.
5.8 ENCUMBRANCES. Guarantor shall not create, incur, assume or suffer
to exist any security interest, mortgage, pledge, lien, charge or other
encumbrance of any nature whatsoever on any of its assets or properties,
including, without limitation, the Collateral, except: liens and security
interests of Lender; liens securing the payment of taxes, either not yet
overdue or the validity of which are being contested in good faith by
appropriate proceedings diligently pursued and available to Guarantor and
with respect to which adequate reserves have been set aside on its books;
non-consensual statutory liens (other than liens securing the payment of
taxes) arising in the ordinary course of Guarantor's business to the extent:
such liens secure indebtedness which is not overdue or such liens secure
indebtedness relating to claims or liabilities which are fully insured and
being defended at the sole cost and expense and at the sole risk of the
insurer or being contested in good faith by appropriate proceedings
diligently pursued
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and available to Guarantor, in each case prior to the commencement of
foreclosure or other similar proceedings and with respect to which adequate
reserves have been set aside on its books; zoning restrictions, easements,
licenses, covenants and other restrictions affecting the use of real property
which do not interfere in any material respect with the use of such real
property or ordinary conduct of the business of Guarantor as presently
conducted thereon or materially impair the value of the real property which
may be subject thereto; purchase money security interests in Equipment
(including capital leases) and purchase money mortgages on real estate not to
exceed $1,000,000 in the aggregate (combined with Borrower) at any time
outstanding, so long as such security interests and mortgages do not apply to
any property of Guarantor other than the Equipment or real estate so
acquired, and the indebtedness secured thereby does not exceed the cost of
the Equipment or real estate so acquired, as the case may be; and the
security interests and liens set forth on Schedule 4.4 hereto; pledges or
deposits under workers' compensation, unemployment insurance, social security
and other similar laws by Borrower; and deposits, bids or performance bonds
made or issued in the ordinary course of business, in connection with
acquisitions or sales of goods or services in the ordinary course of business.
5.9 INDEBTEDNESS. Guarantor shall not incur, create, assume, become or
be liable in any manner with respect to, or permit to exist, any obligations
or indebtedness, except the Obligations; trade obligations and normal
accruals in the ordinary course of business not yet due and payable, or with
respect to which the Guarantor is contesting in good faith the amount or
validity thereof by appropriate proceedings diligently pursued and available
to Guarantor, and with respect to which adequate reserves have been set aside
on its books; purchase money indebtedness (including capital leases) to the
extent not incurred or secured by liens (including capital leases) in
violation of any other provision of this Agreement; and obligations or
indebtedness set forth on the Information Certificate; provided, that (i)
with respect to such indebtedness other than the Debentures, Guarantor may
only make regularly scheduled payments of principal and interest in respect
of such indebtedness in accordance with the terms of the agreement or
instrument evidencing or giving rise to such indebtedness as in effect on the
date hereof, and (ii) as to the Debentures, Guarantor may only make regularly
scheduled payments of interest (not principal) in respect of the Debentures
in accordance with the terms of the agreement or instrument evidencing or
giving rise to the Debentures, and Guarantor may only make such interest
payments if no Event of Default and no event which, with notice or passage of
time or both, would constitute an Event of Default hereunder, has occurred
and is continuing. Guarantor shall not, directly or indirectly, amend,
modify, alter or change the terms of such indebtedness or any agreement,
document or instrument related thereto, or (except as permitted under the
Loan Agreement), directly or indirectly, redeem, retire, defease, purchase or
otherwise acquire the Debentures or other indebtedness, or set aside or
otherwise deposit or invest any sums for such purpose, and Guarantor shall
furnish to Lender all notices or demands in connection with the Debentures or
other indebtedness either received by Guarantor or on its behalf, promptly
after the receipt thereof, or sent by Guarantor or on its behalf,
concurrently with the sending thereof, as the case may be.
5.10 LOANS, INVESTMENTS, GUARANTEES, ETC. Guarantor shall not,
directly or indirectly, make any loans or advance money or property to any
person, or invest in (by capital contribution, dividend or otherwise) or
purchase or repurchase the stock or indebtedness or all or a substantial part
of the assets or property of any person, or guarantee, assume, endorse, or
otherwise become responsible for (directly or indirectly) the indebtedness,
performance, obligations or dividends of any Person or agree to do any of the
foregoing, except: the endorsement of instruments for collection or deposit
in the ordinary course of business;
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investments in: short-term direct obligations of the United States
Government, negotiable certificates of deposit issued by any bank
satisfactory to Lender, payable to the order of the Guarantor or to bearer
and delivered to Lender, commercial paper rated A1 or P1, and investments
permitted by Borrower's Investment Policy attached as Exhibit C to the Loan
Agreement; provided, that, as to any of the foregoing, unless waived in
writing by Lender, Guarantor shall take such actions as are deemed necessary
by Lender to perfect the security interest of Lender in such investments and
the guarantees set forth in the Information Certificate.
5.11 DIVIDENDS AND REDEMPTIONS. Guarantor shall not, directly or
indirectly, declare or pay any dividends on account of any shares of class of
capital stock of Guarantor now or hereafter outstanding, or set aside or
otherwise deposit or invest any sums for such purpose, or redeem, retire,
defease, purchase or otherwise acquire any shares of any class of capital
stock (or set aside or otherwise deposit or invest any sums for such purpose)
for any consideration other than common stock or apply or set apart any sum,
or make any other distribution (by reduction of capital or otherwise) in
respect of any such shares or agree to do any of the foregoing, except that
Guarantor may pay dividends on its Series B Preferred Stock to the extent
permitted under Section 9.11 of the Loan Agreement.
5.12 TRANSACTIONS WITH AFFILIATES. Guarantor shall not enter into any
transaction for the purchase, sale or exchange of property or the rendering
of any service to or by any affiliate. Without limiting any of the other
terms and provisions of this Agreement, Parent shall not make any transfers
of money or property of any kind to any affiliate, regardless of the form of
transaction in which such transfer is to occur, except as permitted under
Section 9.12 of the Loan Agreement.
5.13 COSTS AND EXPENSES. Guarantor shall pay to Lender on demand all
costs, expenses, filing fees and taxes paid or payable in connection with the
preparation, negotiation, execution, delivery, recording, administration,
collection, liquidation, enforcement and defense of the Obligations, Lender's
rights in the Collateral, this Agreement, the other Financing Agreements and
all other documents related hereto or thereto, including any amendments,
supplements or consents which may hereafter be contemplated (whether or not
executed) or entered into in respect hereof and thereof, including, but not
limited to: all costs and expenses of filing or recording (including Uniform
Commercial Code financing statement filing taxes and fees, documentary taxes,
intangibles taxes and mortgage recording taxes and fees, if applicable); all
title insurance and other insurance premiums, appraisal fees and search fees;
costs and expenses of preserving and protecting the Collateral; costs and
expenses paid or incurred in connection with obtaining payment of the
Obligations, enforcing the security interests and liens of Lender, selling or
otherwise realizing upon the Collateral, and otherwise enforcing the
provisions of this Agreement and the other Financing Agreements or defending
any claims made or threatened against Lender arising out of the transactions
contemplated hereby and thereby (including, without limitation, preparations
for and consultations concerning any such matters); and the fees and
disbursements of counsel (including legal assistants) to Lender in connection
with any of the foregoing.
5.14 FURTHER ASSURANCES. At the request of Lender at any time and from
time to time, Guarantor shall, at its expense, at any time or times duly
execute and deliver, or cause to be duly executed and delivered, such further
agreements, documents and instruments, and do or cause to be done such
further acts as may be necessary or proper to evidence, perfect, maintain and
enforce the security interests and the priority thereof in the Collateral and
to otherwise effectuate the provisions or purposes of this Agreement or any
of the other Financing Agreements. Where permitted by law, Guarantor hereby
authorizes Lender to execute and file one or more UCC financing statements
signed only by Lender.
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SECTION 6. EVENTS OF DEFAULT AND REMEDIES
6.1 EVENTS OF DEFAULT. The occurrence or existence of any Event of
Default under the Loan Agreement is referred to herein individually as an
"Event of Default", and collectively as "Events of Default".
6.2 REMEDIES.
(a) At any time an Event of Default exists or has occurred and is
continuing, Lender shall have all rights and remedies provided in this
Agreement, the other Financing Agreements, the Uniform Commercial Code and
other applicable law, all of which rights and remedies may be exercised
without notice to or consent by Guarantor or any Obligor, except as such
notice or consent is expressly provided for hereunder or required by
applicable law. All rights, remedies and powers granted to Lender hereunder,
under any of the other Financing Agreements, the Uniform Commercial Code or
other applicable law, are cumulative, not exclusive and enforceable, in
Lender's discretion, alternatively, successively, or concurrently on any one
or more occasions, and shall include, without limitation, the right to apply
to a court of equity for an injunction to restrain a breach or threatened
breach by Guarantor of this Agreement or any of the other Financing
Agreements. Lender may, at any time or times, proceed directly against
Guarantor or any Obligor to collect the Obligations without prior recourse to
the Collateral.
(b) Without limiting the foregoing, at any time an Event of
Default exists or has occurred and is continuing, Lender may, in its
discretion and without limitation, accelerate the payment of all Obligations
and demand immediate payment thereof to Lender (provided, that, upon the
occurrence of any Event of Default described in Sections 10.1(g) and 10.1(h)
of the Loan Agreement, all Obligations shall automatically become immediately
due and payable), with or without judicial process or the aid or assistance
of others, enter upon any premises on or in which any of the Collateral may
be located and take possession of the Collateral or complete processing,
manufacturing and repair of all or any portion of the Collateral, require
Guarantor, at Guarantor's expense, to assemble and make available to Lender
any part or all of the Collateral at any place and time designated by Lender,
collect, foreclose, receive, appropriate, setoff and realize upon any and
all Collateral, remove any or all of the Collateral from any premises on or
in which the same may be located for the purpose of effecting the sale,
foreclosure or other disposition thereof or for any other purpose, sell,
lease, transfer, assign, deliver or otherwise dispose of any and all
Collateral (including, without limitation, entering into contracts with
respect thereto, public or private sales at any exchange, broker's board, at
any office of Lender or elsewhere) at such prices or terms as Lender may deem
reasonable, for cash, upon credit or for future delivery, with the Lender
having the right to purchase the whole or any part of the Collateral at any
such public sale, all of the foregoing being free from any right or equity of
redemption of Guarantor, which right or equity of redemption is hereby
expressly waived and released by Guarantor. If any of the Collateral is sold
or leased by Lender upon credit terms or for future delivery, the Obligations
shall not be reduced as a result thereof until payment therefor is finally
collected by Lender. If notice of disposition of Collateral is required by
law, five (5) days prior notice by Lender to Guarantor designating the time
and place of any public sale or the time after which any private sale or
other intended disposition of Collateral is to be made, shall be deemed to be
reasonable notice thereof and Guarantor waives any other notice. In the
event Lender institutes an action to recover any Collateral or seeks recovery
of any Collateral by way of prejudgment remedy, Guarantor waives the posting
of any bond which might otherwise be required.
(c) Lender may apply the cash proceeds of Collateral actually
received by Lender from any sale, lease, foreclosure or other disposition of
the Collateral to payment of the Obligations, in whole or in part and in such
order as Lender may elect, whether or not then due. Guarantor shall remain
liable to Lender for the payment of any deficiency with interest at the
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highest rate provided for in the Loan Agreement and all costs and expenses of
collection or enforcement, including attorneys' fees and legal expenses.
SECTION 7. JURY TRIAL WAIVER; OTHER WAIVERS
AND CONSENTS; GOVERNING LAW
7.1 GOVERNING LAW; CHOICE OF FORUM; SERVICE OF PROCESS; JURY TRIAL
WAIVER.
(a) The validity, interpretation and enforcement of this Agreement
and the other Financing Agreements and any dispute arising out of the
relationship between the parties hereto, whether in contract, tort, equity or
otherwise, shall be governed by the internal laws of the State of California
(without giving effect to principles of conflicts of law).
(b) Guarantor irrevocably consents and submits to the
non-exclusive jurisdiction of the state courts of the County of Los Angeles,
State of California and the United States District Court for the Central
District of California and waives any objection based on venue or forum non
conveniens with respect to any action instituted therein arising under this
Agreement or any of the other Financing Agreements or in any way connected or
related or incidental to the dealings of Guarantor and Lender in respect of
this Agreement or the other Financing Agreements or the transactions related
hereto or thereto, in each case whether now existing or hereafter arising,
and whether in contract, tort, equity or otherwise, and agrees that any
dispute with respect to any such matters shall be heard only in the courts
described above (except that Lender shall have the right to bring any action
or proceeding against Guarantor or its property in the courts of any other
jurisdiction which Lender deems necessary or appropriate in order to realize
on the Collateral or to otherwise enforce its rights against Guarantor or its
property).
(c) Guarantor hereby waives personal service of any and all
process upon it and consents that all such service of process may be made by
certified mail (return receipt requested) directed to its address set forth
on the signature pages hereof and service so made shall be deemed to be
completed five (5) days after the same shall have been so deposited in the
U.S. mails, or, at Lender's option, by service upon Guarantor in any other
manner provided under the rules of any such courts. Within thirty (30) days
after such service, Guarantor shall appear in answer to such process, failing
which Guarantor shall be deemed in default and judgment may be entered by
Lender against Guarantor for the amount of the claim and other relief
requested.
(d) GUARANTOR HEREBY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY
CLAIM, DEMAND, ACTION OR CAUSE OF ACTION ARISING UNDER THIS AGREEMENT OR ANY
OF THE OTHER FINANCING AGREEMENTS OR IN ANY WAY CONNECTED WITH OR RELATED OR
INCIDENTAL TO THE DEALINGS OF GUARANTOR AND LENDER IN RESPECT OF THIS
AGREEMENT OR ANY OF THE OTHER FINANCING AGREEMENTS OR THE TRANSACTIONS
RELATED HERETO OR THERETO IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER
ARISING, AND WHETHER IN CONTRACT, TORT, EQUITY OR OTHERWISE. GUARANTOR
HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF
ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY AND THAT GUARANTOR OR
LENDER MAY FILE AN ORIGINAL COUNTERPART OF A COPY OF THIS AGREEMENT WITH ANY
COURT AS WRITTEN EVIDENCE OF THE CONSENT OF GUARANTOR AND LENDER TO THE
WAIVER OF THEIR RIGHT TO TRIAL BY JURY.
(e) Lender shall not have any liability to Guarantor (whether in
tort, contract, equity or otherwise) for losses suffered by Guarantor in
connection with, arising out of, or in any way related to the transactions or
relationships contemplated by this Agreement, or any act, omission or event
occurring in connection herewith, unless it is determined by a final and
non-appealable judgment or court order binding on Lender that the losses were
the result of acts or
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omissions constituting gross negligence or willful misconduct. In any such
litigation, Lender shall be entitled to the benefit of the rebuttable
presumption that it acted in good faith and with the exercise of ordinary
care in the performance by it of the terms of this Agreement and the other
Financing Agreements.
7.2 WAIVER OF NOTICES. Guarantor hereby expressly waives demand,
presentment, protest and notice of protest and notice of dishonor with
respect to any and all instruments and commercial paper, included in or
evidencing any of the Obligations or the Collateral, and any and all other
demands and notices of any kind or nature whatsoever with respect to the
Obligations, the Collateral and this Agreement, except such as are expressly
provided for herein. No notice to or demand on Guarantor which Lender may
elect to give shall entitle Guarantor to any other or further notice or
demand in the same, similar or other circumstances.
7.3 AMENDMENTS AND WAIVERS. Neither this Agreement nor any provision
hereof shall be amended, modified, waived or discharged orally or by course
of conduct, but only by a written agreement signed by an authorized officer
of Lender. Lender shall not, by any act, delay, omission or otherwise be
deemed to have expressly or impliedly waived any of its rights, powers and/or
remedies unless such waiver shall be in writing and signed by an authorized
officer of Lender. Any such waiver shall be enforceable only to the extent
specifically set forth therein. A waiver by Lender of any right, power
and/or remedy on any one occasion shall not be construed as a bar to or
waiver of any such right, power and/or remedy which Lender would otherwise
have on any future occasion, whether similar in kind or otherwise.
7.4 WAIVER OF COUNTERCLAIMS. Guarantor waives all rights to interpose
any claims, deductions, setoffs or counterclaims of any nature (other then
compulsory counterclaims) in any action or proceeding with respect to this
Agreement, the Obligations, the Collateral or any matter arising therefrom or
relating hereto or thereto.
7.5 INDEMNIFICATION. Guarantor shall indemnify and hold Lender, and
its directors, agents, employees and counsel, harmless from and against any
and all losses, claims, damages, liabilities, costs or expenses imposed on,
incurred by or asserted against any of them in connection with any
litigation, investigation, claim or proceeding commenced or threatened
related to the negotiation, preparation, execution, delivery, enforcement,
performance or administration of this Agreement, any other Financing
Agreements, or any undertaking or proceeding related to any of the
transactions contemplated hereby or any act, omission, event or transaction
related or attendant thereto, including, without limitation, amounts paid in
settlement, court costs, and the fees and expenses of counsel. To the extent
that the undertaking to indemnify, pay and hold harmless set forth in this
Section may be unenforceable because it violates any law or public policy,
Guarantor shall pay the maximum portion which it is permitted to pay under
applicable law to Lender in satisfaction of indemnified matters under this
Section. The foregoing indemnity shall survive the payment of the
Obligations, the termination of this Agreement and the termination or
non-renewal of the Loan Agreement. All of the foregoing costs and expenses
shall be part of the Obligations and secured by the Collateral.
SECTION 8. MISCELLANEOUS
8.1 NOTICES. All notices, requests and demands hereunder shall be in
writing and (a) made to Lender at 000 Xxxxx Xxxx Xxxxxx, Xxxxx 0000,
Xxxxxxxx, Xxxxxxxxxx 00000 and to Guarantor at its chief executive office
set forth below, or to such other address as either party may designate by
written notice to the other in accordance with this provision, and (b) deemed
to have been given or made: if delivered in person, immediately upon
delivery; if by telex, telegram or facsimile transmission, immediately upon
sending and upon confirmation of receipt; if by nationally recognized
overnight courier service with instructions to deliver the next business day,
one (1) business day after sending; and if by certified mail, return receipt
requested, five (5) days after mailing.
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8.2 PARTIAL INVALIDITY. If any provision of this Agreement is held to
be invalid or unenforceable, such invalidity or unenforceability shall not
invalidate this Agreement as a whole, but this Agreement shall be construed
as though it did not contain the particular provision held to be invalid or
unenforceable and the rights and obligations of the parties shall be
construed and enforced only to such extent as shall be permitted by
applicable law.
8.3 SUCCESSORS. This Agreement, the other Financing Agreements and any
other document referred to herein or therein shall be binding upon Guarantor
and its successors and assigns and inure to the benefit of and be enforceable
by Lender and its successors and assigns, except that Guarantor may not
assign its rights under this Agreement, the other Financing Agreements and
any other document referred to herein or therein without the prior written
consent of Lender.
8.4 ENTIRE AGREEMENT. This Agreement, the other Financing Agreements,
any supplements hereto or thereto, and any instruments or documents delivered
or to be delivered in connection herewith or therewith represents the entire
agreement and understanding concerning the subject matter hereof and thereof
between the parties hereto, and supersede all other prior agreements,
understandings, negotiations and discussions, representations, warranties,
commitments, proposals, offers and contracts concerning the subject matter
hereof, whether oral or written.
IN WITNESS WHEREOF, Guarantor has caused these presents to be duly
executed as of the day and year first above written.
Guarantor:
L.A. GEAR, INC.
Attest:
By: /s/ [ILLEGIBLE]
/s/ [ILLEGIBLE] --------------------------------
--------------------------------------- Title: [ILLEGIBLE]
Secretary -----------------------------
CHIEF EXECUTIVE OFFICE:
0000 Xxxxx Xxxx Xxxx.
Xxxxx Xxxxxx, Xxxxxxxxxx 00000
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