EXHIBIT 99.1
LOAN AND SECURITY AGREEMENT
AMONG
XXXXXX SNOWBOARDS, INC.
AND
WESTBEACH SNOWBOARD U.S.A. INC.
AS BORROWERS, ON THE ONE HAND,
AND
FOOTHILL CAPITAL CORPORATION,
ON THE OTHER HAND
DATED AS OF MAY 7, 1998
TABLE OF CONTENTS
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Page(s)
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1. DEFINITIONS AND CONSTRUCTION. 1
1.1 Definitions 1
1.2 Accounting Terms 15
1.3 Code 16
1.4 Construction 16
1.5 Schedules and Exhibits. 16
2. LOAN AND TERMS OF PAYMENT 16
2.1 Revolving Advances. 16
2.2 Letters of Credit. 17
2.3 Term Loan 19
2.4 Intentionally Omitted 20
2.5 Overadvances 20
2.6 Interest and Letter of Credit Fees: Rates,
Payments, and Calculations. 20
2.7 Collection of Accounts 21
2.8 Crediting Payments; Application of Collections 22
2.9 Designated Account. 22
2.10 Maintenance of Loan Account; Statements of Obligations. 23
2.11 Fees. 23
3. CONDITIONS; TERM OF AGREEMENT 24
3.1 Conditions Precedent to the Initial Advance,
the Initial Letter of Credit and the Term Loan. 24
3.2 Conditions Precedent to all Advances,
all Letters of Credit and the Term Loan. 26
3.3 Condition Subsequent 26
3.4 Term; Automatic Renewal. 26
3.5 Effect of Termination. 26
3.6 Early Termination by Borrowers. 27
3.7 Termination Upon Event of Default. 27
4. CREATION OF SECURITY INTEREST 27
4.1 Grant of Security Interest. 27
4.2 Negotiable Collateral. 27
4.3 Collection of Accounts, General Intangibles,
and Negotiable Collateral. 28
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4.4 Delivery of Additional Documentation Required. 28
4.5 Power of Attorney. 28
4.6 Right to Inspect. 29
5. REPRESENTATIONS AND WARRANTIES. 29
5.1 No Encumbrances. 29
5.2 Eligible Accounts. 29
5.3 Eligible Inventory. 29
5.4 Equipment 29
5.5 Location of Inventory and Equipment. 29
5.6 Inventory Records. 30
5.7 Location of Chief Executive Office; FEIN. 30
5.8 Due Organization and Qualification; Subsidiaries. 30
5.9 Due Authorization; No Conflict. 30
5.10 Litigation. 31
5.11 No Material Adverse Change. 31
5.12 Solvency. 32
5.13 Employee Benefits. 32
5.14 Environmental Condition. 32
5.15 Year 2000 Compliance 32
6. AFFIRMATIVE COVENANTS. 33
6.1 Accounting System. 33
6.2 Collateral Reporting. 33
6.3 Financial Statements, Reports, Certificates. 34
6.4 Tax Returns. 35
6.5 Guarantor Reports. 35
6.6 Returns. 35
6.7 Title to Equipment. 35
6.8 Maintenance of Equipment. 35
6.9 Taxes. 35
6.10 Insurance. 36
6.11 No Setoffs or Counterclaims. 37
6.12 Location of Inventory and Equipment. 37
6.13 Compliance with Laws. 38
6.14 Employee Benefits. 38
6.15 Leases. 39
6.16 Year 2000 Compliance 39
7. NEGATIVE COVENANTS. 39
7.1 Indebtedness. 39
7.2 Liens. 39
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7.3 Restrictions on Fundamental Changes. 40
7.4 Disposal of Assets. 40
7.5 Change Name. 40
7.6 Guarantee. 40
7.7 Nature of Business. 40
7.8 Prepayments and Amendments. 40
7.9 Change of Control. 40
7.10 Consignments. 40
7.11 Distributions. 40
7.12 Accounting Methods. 41
7.13 Investments. 41
7.14 Transactions with Affiliates. 41
7.15 Suspension. 41
7.16 Compensation. 41
7.17 Use of Proceeds. 41
7.18 Change in Location of Chief Executive Office;
Inventory and Equipment with Bailees. 42
7.19 No Prohibited Transactions Under ERISA 42
7.20 Financial Covenants. 43
7.21 Capital Expenditures. 43
8. EVENTS OF DEFAULT. 43
9. FOOTHILL'S RIGHTS AND REMEDIES. 45
9.1 Rights and Remedies. 45
9.2 Remedies Cumulative. 47
10. TAXES AND EXPENSES 47
11. WAIVERS; INDEMNIFICATION 48
11.1 Demand; Protest; etc. 48
11.2 Foothill's Liability for Collateral. 48
11.3 Indemnification. 48
11.4 Joint Borrowers 48
11.5 Westbeach Borrowings from Parent 54
12. NOTICES 54
13. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER. 55
14. DESTRUCTION OF BORROWERS' DOCUMENTS 56
iii
15. GENERAL PROVISIONS 56
15.1 Effectiveness. 56
15.2 Successors and Assigns. 56
15.3 Section Headings. 56
15.4 Interpretation. 57
15.5 Severability of Provisions. 57
15.6 Amendments in Writing. 57
15.7 Counterparts; Telefacsimile Execution. 57
15.8 Revival and Reinstatement of Obligations. 57
15.9 Integration. 57
SCHEDULES AND EXHIBITS
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Schedule P-1 Permitted Liens
Schedule R-1 Real Property Collateral
Schedule 5.8 Subsidiaries
Schedule 5.10 Litigation
Schedule 5.13 ERISA Benefit Plans
Schedule 6.12 Location of Inventory and Equipment
Schedule 7.1 Indebtedness
Exhibit C-1 Form of Compliance Certificate
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LOAN AND SECURITY AGREEMENT
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THIS LOAN AND SECURITY AGREEMENT (THIS "AGREEMENT"), is entered into as of
May 7, 1998, among FOOTHILL CAPITAL CORPORATION, a California corporation
("Foothill"), with a place of business located at 00000 Xxxxx Xxxxxx Xxxxxxxxx,
Xxxxx 0000, Xxx Xxxxxxx, Xxxxxxxxxx 00000-0000, on the one hand, and XXXXXX
SNOWBOARDS, INC., an Oregon corporation ("Parent") with its chief executive
office located at 0000 Xxxxxxx Xxxx, X.X., Xxxxx, Xxxxxx 00000 and WESTBEACH
SNOWBOARD U.S.A. INC., a Washington corporation ("Westbeach USA"), with its
chief executive office located at 000-000xx Xxxxxx, X.X., Xxxxxxxx, Xxxxxxxxxx
00000, on the other hand.
The parties agree as follows:
1. DEFINITIONS AND CONSTRUCTION.
1.1 DEFINITIONS. As used in this Agreement, the following terms shall
have the following definitions:
"Account Debtor" means any Person who is or who may become obligated
under, with respect to, or on account of, an Account.
"Accounts" means all currently existing and hereafter arising
accounts, contract rights, and all other forms of obligations owing to a Person
arising out of the sale or lease of goods or the rendition of services by such
Person, irrespective of whether earned by performance, and any and all credit
insurance, guaranties, or security therefor.
"Advances" has the meaning set forth in Section 2.1(a).
"Affiliate" means, as applied to any Person, any other Person who
directly or indirectly controls, is controlled by, is under common control with
or is a director or officer of such Person. For purposes of this definition,
"control" means the possession, directly or indirectly, of the power to vote 5%
or more of the securities having ordinary voting power for the election of
directors or the direct or indirect power to direct the management and policies
of a Person.
"Agreement" has the meaning set forth in the preamble hereto.
"Authorized Person" means any officer or other employee of Borrower.
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"Availability" means, as of the date of determination, Borrowers' cash
and cash equivalents plus unused borrowing availability pursuant to Section 2.1.
"Average Unused Portion of Maximum Revolving Amount" means, as of any
date of determination, (a) the Maximum Revolving Amount, less (b) the sum of (i)
the average Daily Balance of Advances that were outstanding during the
immediately preceding month, plus (ii) the average Daily Balance of the undrawn
Letters of Credit that were outstanding during the immediately preceding month.
"Bankruptcy Code" means the United States Bankruptcy Code (11 U.S.C.
(S) 101 et seq.), as amended, and any successor statute.
"Benefit Plan" means a "defined benefit plan" (as defined in Section
3(35) of ERISA) for which any Borrower, any Subsidiary of any Borrower, or any
ERISA Affiliate has been an "employer" (as defined in Section 3(5) of ERISA)
within the past six years.
"Borrower" means any one of Parent or Xxxxxx USA.
"Borrowers' Books" means all of Borrowers' books and records
including: ledgers; records indicating, summarizing, or evidencing Borrowers'
properties or assets (including the Collateral) or liabilities; all information
relating to Borrowers' business operations or financial condition; and all
computer programs, disk or tape files, printouts, runs, or other computer
prepared information.
"Borrowing Base" has the meaning set forth in Section 2.1(a).
"Business Day" means any day that is not a Saturday, Sunday, or other
day on which national banks are authorized or required to close.
"Change of Control" shall be deemed to have occurred at such time as a
"person" or "group" (within the meaning of Sections 13(d) and 14(d)(2) of the
Securities Exchange Act of 1934) becomes the "beneficial owner" (as defined in
Rule 13d-3 under the Securities Exchange Act of 1934), directly or indirectly,
(a) of more than 20% of the total voting power of all classes of stock then
outstanding of Parent entitled to vote in the election of directors or (b)
Xxxxxx USA or Westbeach ceases to be a direct or indirect wholly-owned
Subsidiary of Parent.
"Closing Date" means the date of the first to occur of the making of
the initial Advance, the issuance of the initial Letter of Credit or the funding
of the Term Loan.
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"Code" means the California Uniform Commercial Code.
"Collateral" means each Borrower's right, title, and interest in each
of the following:
(a) Accounts,
(b) Borrowers' Books,
(c) Equipment,
(d) General Intangibles,
(e) Inventory,
(f) Negotiable Collateral,
(g) Real Property Collateral,
(h) any money, or other assets of Borrowers that now or hereafter
come into the possession, custody, or control of Foothill, and
(i) the proceeds and products, whether tangible or intangible, of any
of the foregoing, including proceeds of insurance covering any or all of the
Collateral of Borrowers, and any and all Accounts, Borrowers' Books, Equipment,
General Intangibles, Inventory, Negotiable Collateral, Real Property, money,
deposit accounts, or other tangible or intangible property resulting from the
sale, exchange, collection, or other disposition of any of the foregoing, or any
portion thereof or interest therein, and the proceeds thereof.
"Collateral Access Agreement" means a landlord waiver, mortgagee
waiver, bailee letter, or acknowledgement agreement of any warehouseman,
processor, lessor, consignee, or other Person in possession of, having a Lien
upon, or having rights or interests in the Equipment or Inventory of any
Borrower, in each case, in form and substance satisfactory to Foothill.
"Collections" means all cash, checks, notes, instruments, and other
items of payment (including, insurance proceeds, proceeds of cash sales, rental
proceeds, and tax refunds).
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"Compliance Certificate" means a certificate substantially in the form
of Exhibit C-1 and delivered by the chief accounting officer of a Borrower to
Foothill.
"Daily Balance" means the amount of an Obligation owed at the end of a
given day.
"deems itself insecure" means that the Person deems itself insecure in
accordance with the provisions of Section 1208 of the Code.
"Default" means an event, condition, or default that, with the giving
of notice, the passage of time, or both, would be an Event of Default.
"Designated Account" means account number 2400014656 of Borrowers
maintained with Borrowers' Designated Account Bank, or such other deposit
account of Borrowers (located within the United States) which has been
designated, in writing and from time to time, by Borrowers to Foothill.
"Designated Account Bank" means U.S. Bank, whose office is located at
000 X.X. Xxx Xxxxxx, National Corporate Banking, PL-4, Xxxxxxxx, Xxxxxx 00000,
and whose ABA number is 000000000.
"Dilution" means, in each case based upon the experience of the
immediately prior three months, the result of dividing the Dollar amount of (a)
bad debt write-downs, discounts, advertising, returns, promotions, credits, or
other dilution with respect to the Accounts of Borrowers and Westbeach, by (b)
Borrowers' and Westbeach's Collections (excluding extraordinary items) plus the
Dollar amount of clause (a).
"Dilution Reserve" means, as of any date of determination, an amount
sufficient to reduce Foothill's advance rate against Eligible Accounts by one
percentage point for each percentage point by which Dilution is in excess of
8.00%.
"Disbursement Letter" means an instructional letter executed and
delivered by Borrowers to Foothill regarding the extensions of credit to be made
on the Closing Date, the form and substance of which shall be satisfactory to
Foothill.
"Dollars or $" means United States dollars.
"Early Termination Premium" has the meaning set forth in Section 3.6.
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"EBITDA" means, with respect to any period, the sum (without
duplication) of a Person's (i) consolidated net income for such period
(excluding extraordinary gains and losses); (ii) consolidated interest expense
during such period; (iii) accrued federal and state income taxes payable by such
Person and its Subsidiaries during such period which are included in the
determination of its consolidated net income; and (iv) such Person's and its
Subsidiaries' consolidated depreciation and amortization during such period;
calculated in accordance with GAAP.
"Eligible Accounts" means those Accounts created by a Borrower or
Westbeach in the ordinary course of business, that arise out of such Borrower's
or Westbeach's sale of goods or rendition of services, that strictly comply with
each and all of the representations and warranties respecting Accounts made by
such Borrower or Westbeach to Foothill in the Loan Documents, and that are and
at all times continue to be acceptable to Foothill in all respects; provided,
however, that standards of eligibility may be fixed and revised from time to
time by Foothill in Foothill's reasonable credit judgment. Eligible Accounts
shall not include the following:
(a) Accounts that the Account Debtor has failed to pay within 150 days
of invoice date or Accounts that are more than 60 days past due;
(b) Accounts owed by an Account Debtor or its Affiliates where 50% or
more of all Accounts owed by that Account Debtor (or its Affiliates) are deemed
ineligible under clause (a) above;
(c) Accounts with respect to which the Account Debtor is an employee,
Affiliate, or agent of a Borrower or Westbeach;
(d) Accounts with respect to which goods are placed on consignment,
guaranteed sale, sale or return, sale on approval, xxxx and hold, or other terms
by reason of which the payment by the Account Debtor may be conditional;
(e) Accounts that are not payable in Dollars or Canadian Dollars or
with respect to which the Account Debtor: (i) does not maintain its chief
executive office in the United States or Canada, or (ii) is not organized under
the laws of the United States or Canada or any State or Province thereof, or
(iii) is the government of any foreign country or sovereign state, or of any
state, province, municipality, or other political subdivision thereof, or of any
department, agency, public corporation, or other instrumentality thereof, unless
(y) the Account is supported by an irrevocable letter of credit satisfactory to
Foothill (as to form, substance, and issuer or domestic confirming bank) that
has been delivered to Foothill and is directly drawable by Foothill, or (z) the
Account is covered by credit insurance in form and amount, and by an insurer,
satisfactory
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to Foothill;
(f) Accounts with respect to which the Account Debtor is either (i)
the United States or any department, agency, or instrumentality of the United
States (exclusive, however, of Accounts with respect to which the relevant
Borrower or Westbeach has complied, to the satisfaction of Foothill, with the
Assignment of Claims Act, 31 U.S.C. (S) 3727), or (ii) any State of the United
States (exclusive, however, of Accounts owed by any State that does not have a
statutory counterpart to the Assignment of Claims Act);
(g) Accounts with respect to which the Account Debtor is a creditor of
any Borrower or Westbeach, has or has asserted a right of setoff, has disputed
its liability, or has made any claim with respect to the Account;
(h) Accounts with respect to an Account Debtor whose total obligations
owing to any Borrower or Westbeach exceed 10% of all Eligible Accounts of such
Borrower or Westbeach (except in the case of Xxxxxx Japan, Inc. whose total
obligations owing to Borrowers and Westbeach for the months of May through July
of each year exceed $3,500,000 and for the month of August of each year exceed
40% of all Eligible Accounts of Borrowers and Westbeach so long as such Account
Debtor qualifies under (e) above), to the extent of the obligations owing by
such Account Debtor in excess of such dollar amount or percentage;
(i) Accounts with respect to which the Account Debtor is subject to
any Insolvency Proceeding, or becomes insolvent, or goes out of business;
(j) Accounts the collection of which Foothill, in its reasonable
credit judgment, believes to be doubtful by reason of the Account Debtor's
financial condition;
(k) Accounts with respect to which the goods giving rise to such
Account have not been shipped and billed to the Account Debtor, the services
giving rise to such Account have not been performed and accepted by the Account
Debtor, or the Account otherwise does not represent a final sale;
(l) Accounts with respect to which the Account Debtor is located in
the states of Minnesota, Indiana, or West Virginia (or any other state that
requires a creditor to file a Business Activity Report or similar document in
order to bring suit or otherwise enforce its remedies against such Account
Debtor in the courts or through any judicial process of such state), unless the
relevant Borrower has qualified to do business in Minnesota, Indiana, West
Virginia, or such other states, or has filed a Notice of Business
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Activities Report with the applicable division of taxation, the department of
revenue, or with such other state offices, as appropriate, for the then-current
year, or is exempt from such filing requirement; and
(m) Accounts that represent progress payments or other advance
xxxxxxxx that are due prior to the completion of performance by a Borrower or
Westbeach of the subject contract for goods or services.
"Eligible Inventory" means Inventory consisting of first quality finished
goods held for sale in the ordinary course of a Borrower's or Westbeach's
business (including snowboards with cosmetic blemishes), that are located at or
in-transit between such Borrower's or Westbeach's premises identified on
Schedule 6.12, that strictly comply with each and all of the representations and
warranties respecting Inventory made by such Borrower or Westbeach to Foothill
in the Loan Documents, and that are and at all times continue to be acceptable
to Foothill in all respects; provided, however, that standards of eligibility
may be fixed and revised from time to time by Foothill in Foothill's reasonable
credit judgment. In determining the amount to be so included, Inventory shall
be valued at the lower of cost or market on a basis consistent with such
Borrower's or Westbeach's current and historical accounting practices. An item
of Inventory shall not be included in Eligible Inventory if:
(a) it is not owned solely by such Borrower or Westbeach or such
Borrower or Westbeach does not have good, valid, and marketable title thereto;
(b) it is not located at one of the locations set forth on Schedule
6.12;
(c) it is not located on property owned or leased by a Borrower or
Westbeach or in a contract warehouse, in each case, subject to a Collateral
Access Agreement executed by the mortgagee, lessor, the warehouseman, or other
third party, as the case may be, and segregated or otherwise separately
identifiable from goods of others, if any, stored on the premises;
(d) it is not subject to a valid and perfected first priority security
interest in favor of Foothill;
(e) it consists of goods returned or rejected by such Borrower's or
Westbeach's customers or goods in transit; and
(f) it is obsolete or slow moving, a restrictive or custom item, work-
in-process, a component that is not part of finished goods, or constitutes spare
parts,
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packaging and shipping materials, supplies used or consumed in such Borrower's
business, Inventory subject to a Lien in favor of any third Person, xxxx and
hold goods, defective goods, "seconds," or Inventory acquired on consignment.
"Equipment" means all of a Person's present and hereafter acquired
machinery, machine tools, motors, equipment, furniture, furnishings, fixtures,
vehicles (including motor vehicles and trailers), tools, parts, goods (other
than consumer goods, farm products, or Inventory), wherever located, including,
(a) any interest of such Person in any of the foregoing, and (b) all
attachments, accessories, accessions, replacements, substitutions, additions,
and improvements to any of the foregoing.
"ERISA" means the Employee Retirement Income Security Act of 1974, 29
U.S.C. (S)(S) 1000 et seq., amendments thereto, successor statutes, and
regulations or guidance promulgated thereunder.
"ERISA Affiliate" means (a) any corporation subject to ERISA whose
employees are treated as employed by the same employer as the employees of a
Borrower under IRC Section 414(b), (b) any trade or business subject to ERISA
whose employees are treated as employed by the same employer as the employees of
a Borrower under IRC Section 414(c), (c) solely for purposes of Section 302 of
ERISA and Section 412 of the IRC, any organization subject to ERISA that is a
member of an affiliated service group of which a Borrower is a member under IRC
Section 414(m), or (d) solely for purposes of Section 302 of ERISA and Section
412 of the IRC, any party subject to ERISA that is a party to an arrangement
with a Borrower and whose employees are aggregated with the employees of such
Borrower under IRC Section 414(o).
"ERISA Event" means (a) a Reportable Event with respect to any Benefit
Plan or Multiemployer Plan, (b) the withdrawal of a Borrower, any of its
Subsidiaries or ERISA Affiliates from a Benefit Plan during a plan year in which
it was a "substantial employer" (as defined in Section 4001(a)(2) of ERISA), (c)
the providing of notice of intent to terminate a Benefit Plan in a distress
termination (as described in Section 4041(c) of ERISA), (d) the institution by
the PBGC of proceedings to terminate a Benefit Plan or Multiemployer Plan, (e)
any event or condition (i) that provides a basis under Section 4042(a)(1), (2),
or (3) of ERISA for the termination of, or the appointment of a trustee to
administer, any Benefit Plan or Multiemployer Plan, or (ii) that may result in
termination of a Multiemployer Plan pursuant to Section 4041A of ERISA, (f) the
partial or complete withdrawal within the meaning of Sections 4203 and 4205 of
ERISA, of a Borrower, any of its Subsidiaries or ERISA Affiliates from a
Multiemployer Plan, or (g) providing any security to any Plan under Section
401(a)(29) of the IRC by a Borrower or its Subsidiaries or any of their ERISA
Affiliates .
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"Event of Default" has the meaning set forth in Section 8.
"Existing Lender" means LaSalle Business Credit, Inc.
"FEIN" means Federal Employer Identification Number.
"Foothill" has the meaning set forth in the preamble to this
Agreement.
"Foothill Account" has the meaning set forth in Section 2.7.
"Foothill Expenses" means all: costs or expenses (including taxes, and
insurance premiums) required to be paid by a Borrower under any of the Loan
Documents that are paid or incurred by Foothill; fees or charges paid or
incurred by Foothill in connection with Foothill's transactions with Borrowers,
including, fees or charges for photocopying, notarization, couriers and
messengers, telecommunication, public record searches (including tax lien,
litigation, and UCC searches and including searches with the patent and
trademark office, the copyright office, or the department of motor vehicles),
filing, recording, publication, appraisal (including periodic Personal Property
Collateral or Real Property Collateral appraisals), real estate surveys, real
estate title policies and endorsements, and environmental audits; costs and
expenses incurred by Foothill in the disbursement of funds to Borrowers (by wire
transfer or otherwise); charges paid or incurred by Foothill resulting from the
dishonor of checks; costs and expenses paid or incurred by Foothill to correct
any default or enforce any provision of the Loan Documents, or in gaining
possession of, maintaining, handling, preserving, storing, shipping, selling,
preparing for sale, or advertising to sell the Personal Property Collateral or
the Real Property Collateral, or any portion thereof, irrespective of whether a
sale is consummated; costs and expenses paid or incurred by Foothill in
examining Borrowers' Books; costs and expenses of third party claims or any
other suit paid or incurred by Foothill in enforcing or defending the Loan
Documents or in connection with the transactions contemplated by the Loan
Documents or Foothill's relationship with Borrowers or any guarantor; and
Foothill's reasonable attorneys fees and expenses incurred in advising,
structuring, drafting, reviewing, administering, amending, terminating,
enforcing (including attorneys fees and expenses incurred in connection with a
"workout," a "restructuring," or an Insolvency Proceeding concerning Borrowers
or any guarantor of the Obligations), defending, or concerning the Loan
Documents, irrespective of whether suit is brought.
"GAAP" means generally accepted accounting principles as in effect
from time to time in the United States, consistently applied.
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"General Intangibles" means all of any Person's present and future
general intangibles and other personal property (including contract rights,
rights arising under common law, statutes, or regulations, choses or things in
action, goodwill, patents, trade names, trademarks, servicemarks, copyrights,
blueprints, drawings, purchase orders, customer lists, monies due or recoverable
from pension funds, route lists, rights to payment and other rights under any
royalty or licensing agreements, infringement claims, computer programs,
information contained on computer disks or tapes, literature, reports, catalogs,
deposit accounts, insurance premium rebates, tax refunds, and tax refund
claims), other than goods, Accounts, and Negotiable Collateral.
"Governing Documents" means the certificate or articles of
incorporation, by-laws, or other organizational or governing documents of any
Person.
"Guaranty" means that certain Continuing Guaranty of the Obligations,
of even date herewith, from Westbeach.
"Hazardous Materials" means (a) substances that are defined or listed
in, or otherwise classified pursuant to, any applicable laws or regulations as
"hazardous substances," "hazardous materials," "hazardous wastes," "toxic
substances," or any other formulation intended to define, list, or classify
substances by reason of deleterious properties such as ignitability,
corrosivity, reactivity, carcinogenicity, reproductive toxicity, or "EP
toxicity", (b) oil, petroleum, or petroleum derived substances, natural gas,
natural gas liquids, synthetic gas, drilling fluids, produced waters, and other
wastes associated with the exploration, development, or production of crude oil,
natural gas, or geothermal resources, (c) any flammable substances or explosives
or any radioactive materials, and (d) asbestos in any form or electrical
equipment that contains any oil or dielectric fluid containing levels of
polychlorinated biphenyls in excess of 50 parts per million.
"Indebtedness" means: (a) all obligations of a Person for borrowed
money, (b) all obligations of a Person evidenced by bonds, debentures, notes, or
other similar instruments and all reimbursement or other obligations of a Person
in respect of letters of credit, bankers acceptances, interest rate swaps, or
other financial products, (c) all obligations of a Person under capital leases,
(d) all obligations or liabilities of others secured by a Lien on any property
or asset of a Person, irrespective of whether such obligation or liability is
assumed, and (e) any obligation of a Person guaranteeing or intended to
guarantee (whether guaranteed, endorsed, co-made, discounted, or sold with
recourse to such Person) any indebtedness, lease, dividend, letter of credit, or
other obligation of any other Person.
"Insolvency Proceeding" means any proceeding commenced by or
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against any Person under any provision of the Bankruptcy Code or under any other
bankruptcy or insolvency law, assignments for the benefit of creditors, formal
or informal moratoria, compositions, extensions generally with creditors, or
proceedings seeking reorganization, arrangement, or other similar relief.
"Intangible Assets" means, with respect to any Person, that portion of
the book value of all of such Person's assets that would be treated as
intangibles under GAAP, including trademarks.
"Intellectual Property Security Agreement" means that certain
Intellectual Property Security Agreement, of even date herewith, between Parent
and Foothill.
"Inventory" means all present and future inventory in which a Person
has any interest, including goods held for sale or lease or to be furnished
under a contract of service and all of such Person's present and future raw
materials, work in process, finished goods, and packing and shipping materials,
wherever located.
"Inventory Letter of Credit" means a documentary Letter of Credit
issued to support the purchase by a Borrower or Westbeach of Inventory prior to
transit to a location set forth on Schedule E-1, that provides that all draws
thereunder must require presentation of customary documentation (including, if
applicable, commercial invoices, packing list, certificate of origin, xxxx of
lading or airwaybill, customs clearance documents, quota statement, inspection
certificate, beneficiaries statement, and xxxx of exchange, bills of lading,
dock warrants, dock receipts, warehouse receipts, or other documents of title)
in form and substance satisfactory to Foothill and reflecting the passage to
such Borrower or Westbeach of title to first quality Inventory conforming to
such Borrower's or Westbeach's contract with the seller thereof. Any such Letter
of Credit shall cease to be an "Inventory Letter of Credit" at such time, if
any, as the goods purchased thereunder become Eligible Inventory.
"Inventory Reserves" means reserves (determined from time to time by
Foothill in its discretion) for (a) the estimated costs relating to unpaid
freight charges, warehousing or storage charges, taxes, duties, and other
similar unpaid costs associated with the acquisition of Eligible Inventory by
Borrowers, plus (b) the estimated reclamation claims of unpaid sellers of
Inventory sold to Borrowers.
"IRC" means the Internal Revenue Code of 1986, as amended, and the
regulations thereunder.
"L/C" has the meaning set forth in Section 2.2(a).
11
"L/C Guaranty" has the meaning set forth in Section 2.2(a).
"Letter of Credit" means an L/C or an L/C Guaranty, as the context
requires.
"Lien" means any interest in property securing an obligation owed to,
or a claim by, any Person other than the owner of the property, whether such
interest shall be based on the common law, statute, or contract, whether such
interest shall be recorded or perfected, and whether such interest shall be
contingent upon the occurrence of some future event or events or the existence
of some future circumstance or circumstances, including the lien or security
interest arising from a mortgage, deed of trust, encumbrance, pledge,
hypothecation, assignment, deposit arrangement, security agreement, adverse
claim or charge, conditional sale or trust receipt, or from a lease,
consignment, or bailment for security purposes and also including reservations,
exceptions, encroachments, easements, rights-of-way, covenants, conditions,
restrictions, leases, and other title exceptions and encumbrances affecting Real
Property.
"Line Blockage Reserve" means a reserve in the amount of $400,000 as
of October 1, 1998 and $800,000 at all times on or after November 1, 1998.
"Loan Account" has the meaning set forth in Section 2.10.
"Loan Documents" means this Agreement, the Intellectual Property
Security Agreement, the Disbursement Letter, the Letters of Credit, the Stock
Pledge, the Lockbox Agreements, the Mortgages, the Guaranty and all documents
securing the Guaranty, any note or notes executed by any Borrower and payable to
Foothill, and any other agreement entered into, now or in the future, in
connection with this Agreement.
"Lockbox Account" shall mean a depositary account established pursuant
to one of the Lockbox Agreements.
"Lockbox Agreements" means those certain Lockbox Operating Procedural
Agreements and those certain Depository Account Agreements, in form and
substance satisfactory to Foothill, each of which is among a Borrower or
Westbeach, Foothill, and one of the Lockbox Banks.
"Lockbox Banks" means U.S. Bank, Bank of Nova Scotia, or such other
banks as may be agreed to by Foothill and Borrowers from time to time.
"Lockboxes" has the meaning set forth in Section 2.7.
12
"Material Adverse Change" means (a) a material adverse change in the
business, prospects, operations, results of operations, assets, liabilities or
condition (financial or otherwise) of a Borrower, (b) the material impairment of
a Borrower's ability to perform its obligations under the Loan Documents to
which it is a party or of Foothill to enforce the Obligations or realize upon
the Collateral, (c) a material adverse effect on the value of the Collateral or
the amount that Foothill would be likely to receive (after giving consideration
to delays in payment and costs of enforcement) in the liquidation of such
Collateral, or (d) a material impairment of the priority of Foothill's Liens
with respect to the Collateral.
"Maximum Revolving Amount" means $10,000,000.
"Mortgages" means one or more mortgages, deeds of trust, or deeds to
secure debt, executed by a Borrower in favor of Foothill, the form and substance
of which shall be satisfactory to Foothill, that encumber the Real Property
Collateral and the related improvements thereto.
"Multiemployer Plan" means a "multiemployer plan" (as defined in
Section 4001(a)(3) of ERISA) to which a Borrower, any of its Subsidiaries, or
any ERISA Affiliate has contributed, or was obligated to contribute, within the
past six years.
"Negotiable Collateral" means all of a Person's present and future
letters of credit, notes, drafts, instruments, investment property, security
entitlements, securities (including the shares of stock of Subsidiaries of such
Person), documents, personal property leases (wherein such Person is the
lessor), and chattel paper.
"Obligations" means all loans, Advances, debts, principal, interest
(including any interest that, but for the provisions of the Bankruptcy Code,
would have accrued), contingent reimbursement obligations under any outstanding
Letters of Credit, premiums (including Early Termination Premiums), liabilities
(including all amounts charged to Borrowers' Loan Account pursuant hereto),
obligations, fees, charges, costs, or Foothill Expenses (including any fees or
expenses that, but for the provisions of the Bankruptcy Code, would have
accrued), lease payments, guaranties, covenants, and duties owing by a Borrower
to Foothill of any kind and description (whether pursuant to or evidenced by the
Loan Documents or pursuant to any other agreement between Foothill and any
Borrower, and irrespective of whether for the payment of money), whether direct
or indirect, absolute or contingent, due or to become due, now existing or
hereafter arising, and including any debt, liability, or obligation owing from a
Borrower to others that Foothill may have obtained by assignment or otherwise,
and further including all interest not paid when due and all Foothill Expenses
that a Borrower is required to pay or
13
reimburse by the Loan Documents, by law, or otherwise.
"Orderly Liquidation Value" means the orderly liquidation value of
Borrower's Inventory as determined by Foothill, in its reasonable business
judgment, based upon the most recent third party appraisal received by Foothill
from an independent appraiser hired by Foothill. Until Foothill receives an
updated appraisal, Orderly Liquidation Value shall be 55.20% for the months of
January through June and 65.20% for the months of July through December.
"Overadvance" has the meaning set forth in Section 2.5.
"Overadvance Line" means an amount equal to $1,000,000 as of the
Closing Date which amount shall decrease by $125,000 per month on the last
Business Day of each of May through July, 1998, and on August 31, 1998 it shall
be reduced to zero.
"Pay-Off Letter" means a letter, in form and substance reasonably
satisfactory to Foothill, from Existing Lender respecting the amount necessary
to repay in full all of the obligations of Borrowers owing to Existing Lender
and obtain a termination or release of all of the Liens existing in favor of
Existing Lender in and to the properties or assets of Borrowers.
"PBGC" means the Pension Benefit Guaranty Corporation as defined in
Title IV of ERISA, or any successor thereto.
"Permitted Liens" means (a) Liens held by Foothill, (b) Liens for
unpaid taxes that either (i) are not yet due and payable or (ii) are the subject
of Permitted Protests, (c) Liens set forth on Schedule P-1, (d) the interests of
lessors under operating leases and purchase money Liens of lessors under capital
leases to the extent that the acquisition or lease of the underlying asset is
permitted under Section 7.21 and so long as the Lien only attaches to the asset
purchased or acquired and only secures the purchase price of the asset, (e)
Liens arising by operation of law in favor of warehousemen, landlords, carriers,
mechanics, materialmen, laborers, or suppliers, incurred in the ordinary course
of business of a Borrower and not in connection with the borrowing of money, and
which Liens either (i) are for sums not yet due and payable, or (ii) are the
subject of Permitted Protests, (f) Liens arising from deposits made in
connection with obtaining worker's compensation or other unemployment insurance,
(g) Liens or deposits to secure performance of bids, tenders, or leases (to the
extent permitted under this Agreement), incurred in the ordinary course of
business of a Borrower and not in connection with the borrowing of money, (h)
Liens arising by reason of security for surety or appeal bonds in the ordinary
course of business of a Borrower, (i) Liens of or resulting
14
from any judgment or award that would not have a Material Adverse Change and as
to which the time for the appeal or petition for rehearing of which has not yet
expired, or in respect of which a Borrower is in good faith prosecuting an
appeal or proceeding for a review, and in respect of which a stay of execution
pending such appeal or proceeding for review has been secured, (j) Liens with
respect to the Real Property Collateral that are exceptions to the commitments
for title insurance issued in connection with the Mortgages, as accepted by
Foothill, and (k) with respect to any Real Property that is not part of the Real
Property Collateral, easements, rights of way, zoning and similar covenants and
restrictions, and similar encumbrances that customarily exist on properties of
Persons engaged in similar activities and similarly situated and that in any
event do not materially interfere with or impair the use or operation of the
Collateral by any Borrower or the value of Foothill's Lien thereon or therein,
or materially interfere with the ordinary conduct of the business of a Borrower.
"Permitted Protest" means the right of a Borrower to protest any Lien
(other than any such Lien that secures the Obligations), tax (other than payroll
taxes or taxes that are the subject of a United States federal tax lien), or
rental payment, provided that (a) a reserve with respect to such obligation is
established on the books of such Borrower in an amount that is reasonably
satisfactory to Foothill, (b) any such protest is instituted and diligently
prosecuted by such Borrower in good faith, and (c) Foothill is satisfied that,
while any such protest is pending, there will be no impairment of the
enforceability, validity, or priority of any of the Liens of Foothill in and to
the Collateral.
"Person" means and includes natural persons, corporations, limited
liability companies, limited partnerships, general partnerships, limited
liability partnerships, joint ventures, trusts, land trusts, business trusts, or
other organizations, irrespective of whether they are legal entities, and
governments and agencies and political subdivisions thereof.
"Personal Property Collateral" means all Collateral other than the
Real Property Collateral.
"Plan" means any employee benefit plan, program, or arrangement
maintained or contributed to by a Borrower or with respect to which it may incur
liability.
"Real Property" means any estates or interests in real property now
owned or hereafter acquired by a Borrower.
"Real Property Collateral" means the parcel or parcels of real
property and the related improvements thereto identified on Schedule R-1, and
any Real Property hereafter acquired by a Borrower.
15
"Reference Rate" means the variable rate of interest, per annum, most
recently announced by Norwest Bank Minnesota, National Association, or any
successor thereto, as its "base rate," irrespective of whether such announced
rate is the best rate available from such financial institution.
"Reportable Event" means any of the events described in Section
4043(c) of ERISA or the regulations thereunder other than a Reportable Event as
to which the provision of 30 days notice to the PBGC is waived under applicable
regulations.
"Retiree Health Plan" means an "employee welfare benefit plan" within
the meaning of Section 3(1) of ERISA that provides benefits to individuals after
termination of their employment, other than as required by Section 601 of ERISA.
"Solvent" means, with respect to any Person on a particular date, that
on such date (a) at fair valuations, all of the properties and assets of such
Person are greater than the sum of the debts, including contingent liabilities,
of such Person, (b) the present fair salable value of the properties and assets
of such Person is not less than the amount that will be required to pay the
probable liability of such Person on its debts as they become absolute and
matured, (c) such Person is able to realize upon its properties and assets and
pay its debts and other liabilities, contingent obligations and other
commitments as they mature in the normal course of business, (d) such Person
does not intend to, and does not believe that it will, incur debts beyond such
Person's ability to pay as such debts mature, and (e) such Person is not engaged
in business or a transaction, and is not about to engage in business or a
transaction, for which such Person's properties and assets would constitute
unreasonably small capital after giving due consideration to the prevailing
practices in the industry in which such Person is engaged. In computing the
amount of contingent liabilities at any time, it is intended that such
liabilities will be computed at the amount that, in light of all the facts and
circumstances existing at such time, represents the amount that reasonably can
be expected to become an actual or matured liability.
"Stock Pledge" means that certain Security Agreement - Stock Pledge,
of even date herewith, executed by Parent in favor of Foothill, respecting
capital stock of Xxxxxx International, Inc.
"Subsidiary" of a Person means a corporation, partnership, limited
liability company, or other entity in which that Person directly or indirectly
owns or controls the shares of stock or other ownership interests having
ordinary voting power to elect a majority of the board of directors (or appoint
other comparable managers) of such
16
corporation, partnership, limited liability company, or other entity.
"Tangible Net Worth" means, as of any date of determination, the
difference of (a) a Person's total stockholder's equity, minus (b) the sum of:
(i) all Intangible Assets of such Person, (ii) all of such Person's prepaid
expenses, and (iii) all amounts due to such Person from Affiliates.
"Term Loan" has the meaning set forth in Section 2.3.
"Termination Date" has the meaning set forth in Section 3.4.
"Voidable Transfer" has the meaning set forth in Section 15.8.
"Westbeach" means Xxxxxx Westbeach Canada ULC, a Nova Scotia unlimited
liability company.
"Year 2000 Compliant" means, with regard to any Person, that all
software in goods produced or sold by, or utilized by and material to the
business operations or financial condition of, such entity are able to interpret
and manipulate data on and involving all calendar dates correctly and without
causing any abnormal ending scenario, including in relation to dates in and
after the Year 2000.
1.2 ACCOUNTING TERMS. All accounting terms not specifically defined
herein shall be construed in accordance with GAAP. When used herein, the term
"financial statements" shall include the notes and schedules thereto. Whenever
the term "Borrower" is used in respect of a financial covenant or a related
definition, it shall be understood to mean Borrowers on a consolidated basis
unless the context clearly requires otherwise.
1.3 CODE. Any terms used in this Agreement that are defined in the
Code shall be construed and defined as set forth in the Code unless otherwise
defined herein.
1.4 CONSTRUCTION. Unless the context of this Agreement clearly
requires otherwise, references to the plural include the singular, references to
the singular include the plural, the term "including" is not limiting, and the
term "or" has, except where otherwise indicated, the inclusive meaning
represented by the phrase "and/or." The words "hereof," "herein," "hereby,"
"hereunder," and similar terms in this Agreement refer to this Agreement as a
whole and not to any particular provision of this Agreement. An Event of Default
shall "continue" or be "continuing" until such Event of Default has been waived
in writing by Foothill. Section, subsection, clause, schedule, and exhibit
17
references are to this Agreement unless otherwise specified. Any reference in
this Agreement or in the Loan Documents to this Agreement or any of the Loan
Documents shall include all alterations, amendments, changes, extensions,
modifications, renewals, replacements, substitutions, and supplements, thereto
and thereof, as applicable.
1.5 SCHEDULES AND EXHIBITS. All of the schedules and exhibits
attached to this Agreement shall be deemed incorporated herein by reference.
2. LOAN AND TERMS OF PAYMENT.
2.1 REVOLVING ADVANCES.
(a) Subject to the terms and conditions of this Agreement, Foothill
agrees to make advances ("Advances") to Borrowers in an amount outstanding not
to exceed at any one time the lesser of (i) the Maximum Revolving Amount less
the outstanding balance of all undrawn or unreimbursed Letters of Credit, and
less the outstanding balance of the Term Loan, or (ii) the Borrowing Base less
(A) the aggregate amount of all undrawn or unreimbursed Letters of Credit (other
than Inventory Letters of Credit), less (B) 50% of the aggregate amount of all
undrawn or unreimbursed Inventory Letters of Credit, less (C) the aggregate
amount of the Inventory Reserves. For purposes of this Agreement, "Borrowing
Base", as of any date of determination, shall mean the result of:
(w) 80% of Eligible Accounts that are outstanding less than
150 days from invoice date and 60 days from due date, less the
amount, if any, of the Dilution Reserve, plus
(x) the lower of (i) $3,000,000 for the months of December
through February, $3,500,000 for the months of March and April,
$4,250,000 for the months of May through July, $3,000,000 for the
month of August, and $2,500,000 for the months of September
through November, and (ii) the lower of 50% of the value of
Eligible Inventory (55% for the months of April through June of
each year) and 80% of the Orderly Liquidation Value of Eligible
Inventory (100% for the months of April through June 1998 and 90%
for the months of April through June of each subsequent year),
plus
(y) the amount of the Overadvance Line; minus
(z) the aggregate amount of the Line Blockage Reserve,
18
and the amount of reserves, if any, established by Foothill under
Sections 2.1(b), 6.15 and 10.
(b) Anything to the contrary in Section 2.1(a) above notwithstanding,
Foothill may create reserves against the Borrowing Base or reduce its advance
rates based upon Eligible Accounts or Eligible Inventory without declaring an
Event of Default if it determines that there has occurred a Material Adverse
Change.
(c) Intentionally Omitted.
(d) Amounts borrowed pursuant to this Section 2.1 may be repaid and,
subject to the terms and conditions of this Agreement, reborrowed at any time
during the term of this Agreement.
2.2 LETTERS OF CREDIT.
(a) Subject to the terms and conditions of this Agreement, Foothill
agrees to issue letters of credit for the account of a Borrower (each, an "L/C")
or to issue guarantees of payment (each such guaranty, an "L/C Guaranty") with
respect to letters of credit issued by an issuing bank for the account of a
Borrower. Foothill shall have no obligation to issue a Letter of Credit if any
of the following would result:
(i) the sum of 50% of the aggregate amount of all undrawn and
unreimbursed Inventory Letters of Credit plus 100% of the aggregate amount
of all other types of undrawn and unreimbursed Letters of Credit, would
exceed the Borrowing Base less the amount of outstanding Advances less the
aggregate amount of Inventory Reserves and reserves established under
Section 2.1(b); or
(ii) the aggregate amount of all undrawn or unreimbursed Letters of
Credit (including Inventory Letters of Credit) would exceed the lower of:
(x) the Maximum Revolving Amount less the amount of outstanding Advances,
less the outstanding amount of the Term Loan less the aggregate amount of
Inventory Reserves and reserves established under Section 2.1(b); or (y)
$5,000,000.
Each Borrower expressly understands and agrees that Foothill shall have no
obligation to arrange for the issuance by issuing banks of the letters of credit
that are to be the subject of L/C Guarantees. Each Borrower and Foothill
acknowledge and agree that certain of the letters of credit that are to be the
subject of L/C Guarantees may be outstanding on the Closing Date. Each Letter
of Credit shall have an expiry date no later than 60 days prior to the date on
which this Agreement is scheduled to terminate under Section 3.4 (without
19
regard to any potential renewal term) and all such Letters of Credit shall be in
form and substance acceptable to Foothill in its sole discretion. If Foothill is
obligated to advance funds under a Letter of Credit, Borrowers immediately shall
reimburse such amount to Foothill and, in the absence of such reimbursement, the
amount so advanced immediately and automatically shall be deemed to be an
Advance hereunder and, thereafter, shall bear interest at the rate then
applicable to Advances under Section 2.6.
(b) Each Borrower hereby agrees to indemnify, save, defend, and hold
Foothill harmless from any loss, cost, expense, or liability, including payments
made by Foothill, expenses, and reasonable attorneys fees incurred by Foothill
arising out of or in connection with any Letter of Credit. Each Borrower agrees
to be bound by the issuing bank's regulations and interpretations of any Letters
of Credit guarantied by Foothill and opened to or for such Borrower's account or
by Foothill's interpretations of any L/C issued by Foothill to or for such
Borrower's account, even though this interpretation may be different from such
Borrower's own, and Borrowers understand and agree that Foothill shall not be
liable for any error, negligence, or mistake, whether of omission or commission,
in following any Borrower's instructions or those contained in the Letter of
Credit or any modifications, amendments, or supplements thereto. Each Borrower
understands that the L/C Guarantees may require Foothill to indemnify the
issuing bank for certain costs or liabilities arising out of claims by a
Borrower against such issuing bank. Each Borrower hereby agrees to indemnify,
save, defend, and hold Foothill harmless with respect to any loss, cost, expense
(including reasonable attorneys fees), or liability incurred by Foothill under
any L/C Guaranty as a result of Foothill's indemnification of any such issuing
bank.
(c) Each Borrower hereby authorizes and directs any bank that issues a
letter of credit guaranteed by Foothill to deliver to Foothill all instruments,
documents, and other writings and property received by the issuing bank pursuant
to such letter of credit, and to accept and rely upon Foothill's instructions
and agreements with respect to all matters arising in connection with such
letter of credit and the related application. A Borrower may or may not be the
"applicant" or "account party" with respect to such letter of credit.
(d) Any and all charges, commissions, fees, and costs incurred by
Foothill relating to the letters of credit guaranteed by Foothill shall be
considered Foothill Expenses for purposes of this Agreement and immediately
shall be reimbursable by Borrowers to Foothill.
(e) Immediately upon the termination of this Agreement, Borrowers
agree to either (i) provide cash collateral to be held by Foothill in an amount
equal to 102% of the maximum amount of Foothill's obligations under Letters of
Credit,
20
or (ii) cause to be delivered to Foothill releases of all of Foothill's
obligations under outstanding Letters of Credit. At Foothill's discretion, any
proceeds of Collateral received by Foothill after the occurrence and during the
continuation of an Event of Default may be held as the cash collateral required
by this Section 2.2(e).
(f) If by reason of (i) any change in any applicable law, treaty,
rule, or regulation or any change in the interpretation or application by any
governmental authority of any such applicable law, treaty, rule, or regulation,
or (ii) compliance by the issuing bank or Foothill with any direction, request,
or requirement (irrespective of whether having the force of law) of any
governmental authority or monetary authority including, without limitation,
Regulation D of the Board of Governors of the Federal Reserve System as from
time to time in effect (and any successor thereto):
(A) any reserve, deposit, or similar requirement is or shall be
imposed or modified in respect of any Letters of Credit issued hereunder, or
(B) there shall be imposed on the issuing bank or Foothill any
other condition regarding any letter of credit, or Letter of Credit, as
applicable, issued pursuant hereto;
and the result of the foregoing is to increase, directly or indirectly, the cost
to the issuing bank or Foothill of issuing, making, guaranteeing, or maintaining
any letter of credit, or Letter of Credit, as applicable, or to reduce the
amount receivable in respect thereof by such issuing bank or Foothill, then, and
in any such case, Foothill may, at any time within a reasonable period after the
additional cost is incurred or the amount received is reduced, notify Borrowers,
and Borrowers shall pay on demand such amounts as the issuing bank or Foothill
may specify to be necessary to compensate the issuing bank or Foothill for such
additional cost or reduced receipt, together with interest on such amount from
the date of such demand until payment in full thereof at the rate set forth in
Section 2.6(a)(i) or (c)(i), as applicable. The determination by the issuing
bank or Foothill, as the case may be, of any amount due pursuant to this Section
2.2(f), as set forth in a certificate setting forth the calculation thereof in
reasonable detail, shall, in the absence of manifest or demonstrable error, be
final and conclusive and binding on all of the parties hereto.
2.3 TERM LOAN. Foothill has agreed to make a term loan (the "Term
Loan") to Borrowers in the original principal amount of $2,000,000. The Term
Loan shall be repaid in 48 installments of principal in the following amounts:
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MONTH INSTALLMENT AMOUNT
===============================================================================
[1] through [12] Interest Only
[13] through the termination of this Agreement $41,666.66
===============================================================================
Each such installment shall be due and payable on the first day of each month
commencing on the first day of the thirteenth month following the Closing Date
and continuing on the first day of each succeeding month until and including the
date on which the unpaid balance of the Term Loan is paid in full. The
outstanding principal balance and all accrued and unpaid interest under the Term
Loan shall be due and payable upon the termination of this Agreement, whether by
its terms, by prepayment, by acceleration, or otherwise. The unpaid principal
balance of the Term Loan may be prepaid in whole or in part without penalty or
premium at any time during the term of this Agreement upon 30 days prior written
notice by Borrowers to Foothill, all such prepaid amounts to be applied to the
installments due on the Term Loan in the inverse order of their maturity. All
amounts outstanding under the Term Loan shall constitute Obligations.
2.4 INTENTIONALLY OMITTED.
2.5 OVERADVANCES. If, at any time or for any reason, the amount of
Obligations owed by Borrowers to Foothill pursuant to Sections 2.1 and 2.2 is
greater than either the Dollar or percentage limitations set forth in Sections
2.1 or 2.2 (an "Overadvance"), Borrowers immediately shall pay to Foothill, in
cash, the amount of such excess to be used by Foothill first, to repay Advances
outstanding under Section 2.1 and, thereafter, to be held by Foothill as cash
collateral to secure Borrower's obligation to repay Foothill for all amounts
paid pursuant to Letters of Credit.
2.6 INTEREST AND LETTER OF CREDIT FEES: RATES, PAYMENTS, AND
CALCULATIONS.
(a) Interest Rate. Except as provided in clause (b) below, (i) all
Obligations (except for undrawn Letters of Credit) shall bear interest on the
Daily Balance at the following per annum percentage points above the Reference
Rate:
22
Average Outstanding Advances
Plus the Principal Balance of the Percentage Points Above
Term Loan for the Particular Month the Reference Rate
---------------------------------- -----------------------
Less than $5,000,000 0.50 percentage point
$5,000,000 or more and 1.00 percentage point
less than $7,500,000
$7,500,000 or more 1.50 percentage points
(b) Letter of Credit Fee. Borrowers shall pay Foothill a fee (in
addition to the charges, commissions, fees, and costs set forth in Section
2.2(d)) equal to 1.50% per annum times the aggregate undrawn amount of all
outstanding Letters of Credit.
(c) Default Rate. Upon the occurrence and during the continuation of
an Event of Default, (i) all Obligations (except for undrawn Letters of Credit)
shall bear interest at a per annum rate equal to 5.50 percentage points above
the Reference Rate, and (ii) the Letter of Credit fee provided in Section 2.6(b)
shall be increased to 5.50% per annum times the aggregate undrawn amount of all
outstanding Letters of Credit .
(d) Intentionally Omitted.
(e) Payments. Interest and Letter of Credit fees payable hereunder
shall be due and payable, in arrears, on the first day of each month during the
term hereof. Each Borrower hereby authorizes Foothill, at its option, without
prior notice to such Borrower, to charge such interest and Letter of Credit
fees, all Foothill Expenses (as and when incurred), the charges, commissions,
fees, and costs provided for in Section 2.2(d) (as and when accrued or
incurred), the fees and charges provided for in Section 2.11 (as and when
accrued or incurred), and all installments or other payments due under the Term
Loan, or any Loan Document to Borrowers' Loan Account, which amounts thereafter
shall accrue interest at the rate then applicable to Advances hereunder. Any
interest not paid when due shall be compounded and shall thereafter accrue
interest at the rate then applicable to Advances hereunder.
(f) Computation. The Reference Rate as of the date of this Agreement
is 8.50% per annum. In the event the Reference Rate is changed from time to time
hereafter, the applicable rate of interest hereunder automatically and
immediately shall be increased or decreased by an amount equal to such change in
the Reference Rate.
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All interest and fees chargeable under the Loan Documents shall be computed on
the basis of a 360 day year for the actual number of days elapsed.
(g) Intent to Limit Charges to Maximum Lawful Rate. In no event shall
the interest rate or rates payable under this Agreement, plus any other amounts
paid in connection herewith, exceed the highest rate permissible under any law
that a court of competent jurisdiction shall, in a final determination, deem
applicable. Borrowers and Foothill, in executing and delivering this Agreement,
intend legally to agree upon the rate or rates of interest and manner of payment
stated within it; provided, however, that, anything contained herein to the
contrary notwithstanding, if said rate or rates of interest or manner of payment
exceeds the maximum allowable under applicable law, then, ipso facto as of the
date of this Agreement, Borrowers are and shall be liable only for the payment
of such maximum as allowed by law, and payment received from Borrowers in excess
of such legal maximum, whenever received, shall be applied to reduce the
principal balance of the Obligations to the extent of such excess.
2.7 COLLECTION OF ACCOUNTS. Borrowers shall at all times maintain
lockboxes (the "Lockboxes") and, immediately after the Closing Date, shall
instruct all Account Debtors with respect to the Accounts, General Intangibles,
and Negotiable Collateral of Borrowers to remit all Collections in respect
thereof to such Lockboxes. Borrowers, Foothill, and the Lockbox Banks shall
enter into the Lockbox Agreements, which among other things shall provide for
the opening of a Lockbox Account for the deposit of Collections at a Lockbox
Bank. Each Borrower agrees that all Collections and other amounts received by
such Borrower from any Account Debtor or any other source immediately upon
receipt shall be deposited into a Lockbox Account. No Lockbox Agreement or
arrangement contemplated thereby shall be modified by a Borrower without the
prior written consent of Foothill. Upon the terms and subject to the conditions
set forth in the Lockbox Agreements, all amounts received in each Lockbox
Account shall be wired each Business Day into an account (the "Foothill
Account") maintained by Foothill at a depositary selected by Foothill.
2.8 CREDITING PAYMENTS; APPLICATION OF COLLECTIONS. The receipt of
any Collections by Foothill (whether from transfers to Foothill by the Lockbox
Banks pursuant to the Lockbox Agreements or otherwise) immediately shall be
applied provisionally to reduce the Obligations outstanding under Section 2.1,
but shall not be considered a payment on account unless such Collection item is
a wire transfer of immediately available federal funds and is made to the
Foothill Account or unless and until such Collection item is honored when
presented for payment. From and after the Closing Date, Foothill shall be
entitled to charge Borrowers for two Business Days of `clearance' or `float' at
the rate set forth in Section 2.6(a)(i) or Section 2.6(c)(i), as applicable, on
all Collections that are received by Foothill (regardless of whether forwarded
by the Lockbox
24
Banks to Foothill, whether provisionally applied to reduce the Obligations under
Section 2.1, or otherwise). This across-the-board two Business Day clearance or
float charge on all Collections is acknowledged by the parties to constitute an
integral aspect of the pricing of Foothill's financing of Borrowers, and shall
apply irrespective of the characterization of whether receipts are owned by a
Borrower or Foothill, and whether or not there are any outstanding Advances, the
effect of such clearance or float charge being the equivalent of charging two
Business Days of interest on such Collections. Should any Collection item not be
honored when presented for payment, then Borrowers shall be deemed not to have
made such payment, and interest shall be recalculated accordingly. Anything to
the contrary contained herein notwithstanding, any Collection item shall be
deemed received by Foothill only if it is received into the Foothill Account on
a Business Day on or before 11:00 a.m. California time. If any Collection item
is received into the Foothill Account on a non-Business Day or after 11:00 a.m.
California time on a Business Day, it shall be deemed to have been received by
Foothill as of the opening of business on the immediately following Business
Day.
2.9 DESIGNATED ACCOUNT. Foothill is authorized to make the Advances,
the Letters of Credit and the Term Loan under this Agreement based upon
telephonic or other instructions received from anyone purporting to be an
Authorized Person, or without instructions if pursuant to Section 2.6(e).
Borrowers agree to establish and maintain a single Designated Account with the
Designated Account Bank for the purpose of receiving the proceeds of the
Advances requested by Borrowers and made by Foothill hereunder. Unless otherwise
agreed by Foothill and Borrowers, any Advance requested by Borrowers and made by
Foothill hereunder shall be made to the Designated Account.
2.10 MAINTENANCE OF LOAN ACCOUNT; STATEMENTS OF OBLIGATIONS. At the
request of Borrowers, to facilitate and expedite the administration and
accounting processes and procedures of their borrowings under this Agreement,
Foothill has agreed, in lieu of maintaining separate loan accounts on Foothill's
books in the name of each of the Borrowers, that Foothill shall maintain a
single account on its books in the names of all of the Borrowers (the "Loan
Account"). All Advances and the Term Loan made by Foothill to Borrowers or for
Borrower's account, including accrued interest, Foothill Expenses, and any other
payment Obligations of Borrowers shall be made jointly and severally to the
Borrowers and shall be charged to the Loan Account. In accordance with Section
2.8, the Loan Account will be credited with all payments received by Foothill
from any Borrower or for any Borrowers' account, including all amounts received
in the Foothill Account from any Lockbox Bank. Foothill shall render one
statement regarding the Loan Account to Parent on behalf of Borrowers, including
principal, interest, fees, and including an itemization of all charges and
expenses constituting Foothill Expenses owing, and such statements shall be
conclusively presumed to be correct and accurate and constitute an account
stated between Borrowers and Foothill unless, within 45 days after receipt
thereof
25
by Borrowers, Borrowers shall deliver to Foothill written objection thereto
describing the error or errors contained in any such statements. Each Borrower
hereby expressly agrees and acknowledges that Foothill shall have no obligation
to account separately to such Borrower.
2.11 FEES. Borrowers shall pay to Foothill the following fees:
(a) Closing Fee. On the Closing Date, a closing fee of $200,000 shall
be fully earned, which fee shall be payable in three equal payments, one on the
Closing Date and one on each of the first and second anniversaries of the
Closing Date;
(b) Intentionally Omitted;
(c) Unused Line Fee. On the first day of each month during the term
of this Agreement, an unused line fee in an amount equal to 0.25% per annum
times the Average Unused Portion of the Maximum Revolving Amount;
(d) Financial Examination, Documentation, and Appraisal Fees.
Foothill's customary fee of $650 per day per examiner, plus out-of-pocket
expenses for each financial analysis and examination (i.e., audits) of Borrowers
performed by personnel employed by Foothill; and, the actual charges paid or
incurred by Foothill if it elects to employ the services of one or more third
Persons to perform such financial analyses and examinations (i.e., audits) of
Borrowers or to appraise the Collateral. Foothill presently intends to have the
Collateral appraised annually prior to the occurrence of an Event of Default;
and
(e) Servicing Fee. On the first day of each month during the term of
this Agreement, and thereafter so long as any Obligations are outstanding, a
servicing fee in an amount equal to $4,000.
3. CONDITIONS; TERM OF AGREEMENT.
3.1 CONDITIONS PRECEDENT TO THE INITIAL ADVANCE, THE INITIAL LETTER
OF CREDIT AND THE TERM LOAN. The obligation of Foothill to make the initial
Advance, to issue the initial Letter of Credit, or to make the Term Loan subject
to the fulfillment, to the satisfaction of Foothill and its counsel, of each of
the following conditions on or before the Closing Date:
(a) the Closing Date shall occur on or before May 15, 1998;
(b) Foothill shall have received searches reflecting the filing of
26
its financing statements and fixture filings;
(c) Foothill shall have received each of the following documents, duly
executed, and each such document shall be in full force and effect:
a. the Lockbox Agreements;
b. the Disbursement Letter;
c. the Pay-Off Letter, together with UCC termination statements
and other documentation evidencing the termination by
Existing Lender of its Liens in and to the properties and
assets of Borrowers;
d. the Mortgages;
e. the Stock Pledge;
f. the Intellectual Property Security Agreement; and
g. the Guaranty and related documents from Westbeach;
(d) Foothill shall have received a certificate from the Secretary of
each Borrower attesting to the resolutions of each Borrower's Board of Directors
authorizing its execution, delivery, and performance of this Agreement and the
other Loan Documents to which such Borrower is a party and authorizing specific
officers of such Borrower to execute the same;
(e) Foothill shall have received copies of each Borrower's Governing
Documents, as amended, modified, or supplemented to the Closing Date, certified
by the Secretary of such Borrower;
(f) Foothill shall have received a certificate of status with respect
to each Borrower, dated within 10 days of the Closing Date, such certificate to
be issued by the appropriate officer of the jurisdiction of organization of such
Borrower, which certificate shall indicate that such Borrower is in good
standing in such jurisdiction;
(g) Foothill shall have received certificates of status with respect
to each Borrower, each dated within 15 days of the Closing Date, such
certificates to be issued by the appropriate officer of the jurisdictions in
which its failure to be duly qualified or licensed would constitute a Material
Adverse Change, which certificates shall indicate that such Borrower is in good
standing in such jurisdictions;
27
(h) Foothill shall have received a certificate of insurance, together
with the endorsements thereto, as are required by Section 6.10, the form and
substance of which shall be satisfactory to Foothill and its counsel;
(i) Foothill shall have received duly executed certificates of title
with respect to that portion of the Collateral that is subject to certificates
of title;
(j) Foothill shall have received such Collateral Access Agreements
from lessors, warehousemen, bailees, and other third persons as Foothill may
require;
(k) Borrowers shall have not less than $2,500,000 of Availability on
the Closing Date;
(l) Foothill shall have received an opinion of Borrowers' counsel in
form and substance satisfactory to Foothill in its sole discretion;
(m) Foothill shall have received (i) appraisals of the Real Property
Collateral and appraisals of the Equipment of Borrowers, in each case
satisfactory to Foothill, and (ii) mortgagee title insurance policies (or marked
commitments to issue the same) for the Real Property Collateral issued by a
title insurance company satisfactory to Foothill (each a "Mortgage Policy" and,
collectively, the "Mortgage Policies") in amounts satisfactory to Foothill
assuring Foothill that the Mortgages on such Real Property Collateral are valid
and enforceable first priority mortgage Liens on such Real Property Collateral
free and clear of all defects and encumbrances except Permitted Liens, and the
Mortgage Policies shall otherwise be in form and substance reasonably
satisfactory to Foothill;
(n) Foothill shall have received a phase-I environmental report and a
real estate survey shall have been completed with respect to the Real Property
Collateral and copies thereof delivered to Foothill; the environmental
consultants and surveyors retained for such reports or surveys, the scope of the
reports or surveys, and the results thereof shall be acceptable to Foothill in
its sole discretion;
(o) Foothill shall have received satisfactory evidence that all tax
returns required to be filed by Borrowers have been timely filed and all taxes
upon each Borrower or its properties, assets, income, and franchises (including
real property taxes and payroll taxes) have been paid prior to delinquency,
except such taxes that are the subject of a Permitted Protest; and
28
(p) all other documents and legal matters in connection with the
transactions contemplated by this Agreement shall have been delivered, executed,
or recorded and shall be in form and substance satisfactory to Foothill and its
counsel.
3.2 CONDITIONS PRECEDENT TO ALL ADVANCES, ALL LETTERS OF CREDIT AND
THE TERM LOAN. The following shall be conditions precedent to all Advances, all
Letters of Credit and the Term Loan hereunder:
(a) the representations and warranties contained in this Agreement and
the other Loan Documents shall be true and correct in all respects on and as of
the date of such extension of credit, as though made on and as of such date
(except to the extent that such representations and warranties relate solely to
an earlier date);
(b) no Default or Event of Default shall have occurred and be
continuing on the date of such extension of credit, nor shall either result from
the making thereof; and
(c) no injunction, writ, restraining order, or other order of any
nature prohibiting, directly or indirectly, the extending of such credit shall
have been issued and remain in force by any governmental authority against any
Borrower, Foothill, or any of their Affiliates.
3.3 CONDITION SUBSEQUENT. As a condition subsequent to initial
closing hereunder, Borrowers shall perform or cause to be performed the
following (the failure by Borrowers to so perform or cause to be performed
constituting an Event of Default):
(a) within 30 days of the Closing Date, deliver to Foothill the
certified copies of the policies of insurance, together with the endorsements
thereto, as are required by Section 6.10, the form and substance of which shall
be satisfactory to Foothill and its counsel.
3.4 TERM; AUTOMATIC RENEWAL. This Agreement shall become effective
upon the execution and delivery hereof by Borrowers and Foothill and shall
continue in full force and effect for a term ending on the date (the
"Termination Date") that is four years from the Closing Date. The foregoing
notwithstanding, Foothill shall have the right to terminate its obligations
under this Agreement immediately and without notice upon the occurrence and
during the continuation of an Event of Default.
3.5 EFFECT OF TERMINATION. On the date of termination of this
Agreement, all Obligations (including contingent reimbursement obligations of
Borrowers with respect to any outstanding Letters of Credit) immediately shall
become due and
29
payable without notice or demand. No termination of this Agreement, however,
shall relieve or discharge Borrowers of Borrowers' duties, Obligations, or
covenants hereunder, and Foothill's continuing security interests in the
Collateral shall remain in effect until all Obligations have been fully and
finally discharged and Foothill's obligation to provide additional credit
hereunder is terminated. If Borrowers have sent a notice of termination pursuant
to the provisions of Section 3.4, but fail to pay the Obligations in full on the
date set forth in said notice, then Foothill may, but shall not be required to,
renew this Agreement for an additional term of one year.
3.6 EARLY TERMINATION BY BORROWERS. The provisions of Section 3.4
that allow termination of this Agreement by Borrowers only on the Termination
Date notwithstanding, Borrowers have the option, at any time upon 90 days prior
written notice to Foothill, to terminate this Agreement by paying to Foothill,
in cash, the Obligations (including an amount equal to 102% of the undrawn
amount of the Letters of Credit), in full, together with a premium (the "Early
Termination Premium") equal to the greater of (a) the total interest and Letter
of Credit fees for the immediately preceding six months, and (b) $150,000.
3.7 TERMINATION UPON EVENT OF DEFAULT. If Foothill terminates this
Agreement upon the occurrence of an Event of Default, in view of the
impracticability and extreme difficulty of ascertaining actual damages and by
mutual agreement of the parties as to a reasonable calculation of Foothill's
lost profits as a result thereof, Borrowers shall pay to Foothill upon the
effective date of such termination, a premium in an amount equal to the Early
Termination Premium. The Early Termination Premium shall be presumed to be the
amount of damages sustained by Foothill as the result of the early termination
and Borrowers agree that it is reasonable under the circumstances currently
existing. The Early Termination Premium provided for in this Section 3.7 shall
be deemed included in the Obligations.
30
4. CREATION OF SECURITY INTEREST.
4.1 GRANT OF SECURITY INTEREST. Each Borrower hereby grants to
Foothill a continuing security interest in all of such Borrower's currently
existing and hereafter acquired or arising Personal Property Collateral in order
to secure prompt repayment of any and all Obligations and in order to secure
prompt performance by such Borrower of each of its covenants and duties under
the Loan Documents. Foothill's security interests in the Personal Property
Collateral shall attach to all Personal Property Collateral without further act
on the part of Foothill or Borrowers. Anything contained in this Agreement or
any other Loan Document to the contrary notwithstanding, except for the sale of
Inventory to buyers in the ordinary course of business, no Borrower has any
authority, express or implied, to dispose of any item or portion of the Personal
Property Collateral or the Real Property Collateral.
4.2 NEGOTIABLE COLLATERAL. In the event that any Collateral,
including proceeds, is evidenced by or consists of Negotiable Collateral,
Borrowers, immediately upon the request of Foothill, shall endorse and deliver
physical possession of such Negotiable Collateral to Foothill.
4.3 COLLECTION OF ACCOUNTS, GENERAL INTANGIBLES, AND NEGOTIABLE
COLLATERAL. At any time, Foothill or Foothill's designee may (a) notify
customers or Account Debtors of any Borrower that the Accounts, General
Intangibles, or Negotiable Collateral of such Borrower have been assigned to
Foothill or that Foothill has a security interest therein, and (b) collect the
Accounts, General Intangibles, and Negotiable Collateral of such Borrower
directly and charge the collection costs and expenses to the Loan Account. Each
Borrower agrees that it will hold in trust for Foothill, as Foothill's trustee,
any Collections that it receives and immediately will deliver said Collections
to Foothill in their original form as received by Borrower.
4.4 DELIVERY OF ADDITIONAL DOCUMENTATION REQUIRED. At any time upon
the request of Foothill, Borrowers shall execute and deliver to Foothill all
financing statements, continuation financing statements, fixture filings,
security agreements, pledges, assignments, endorsements of certificates of
title, applications for title, affidavits, reports, notices, schedules of
accounts, letters of authority, and all other documents that Foothill reasonably
may request, in form satisfactory to Foothill, to perfect and continue perfected
Foothill's security interests in the Collateral, and in order to fully
consummate all of the transactions contemplated hereby and under the other the
Loan Documents.
4.5 POWER OF ATTORNEY. Each Borrower hereby irrevocably makes,
constitutes, and appoints Foothill (and any of Foothill's officers, employees,
or agents designated by Foothill) as such Borrower's true and lawful attorney,
with power to (a) if
31
such Borrower refuses to, or fails timely to execute and deliver any of the
documents described in Section 4.4, sign the name of such Borrower on any of the
documents described in Section 4.4, (b) at any time that an Event of Default has
occurred and is continuing or Foothill deems itself insecure, sign such
Borrower's name on any invoice or xxxx of lading relating to any Account of such
Borrower, drafts against Account Debtors, schedules and assignments of Accounts
of such Borrower, verifications of Accounts of such Borrower, and notices to
Account Debtors, (c) send requests for verification of Accounts of such
Borrower, (d) endorse such Borrower's name on any Collection item that may come
into Foothill's possession, (e) at any time that an Event of Default has
occurred and is continuing or Foothill deems itself insecure, notify the post
office authorities to change the address for delivery of such Borrower's mail to
an address designated by Foothill, to receive and open all mail addressed to
such Borrower, and to retain all mail relating to the Collateral of such
Borrower and forward all other mail to such Borrower, (f) at any time that an
Event of Default has occurred and is continuing or Foothill deems itself
insecure, make, settle, and adjust all claims under such Borrower's policies of
insurance and make all determinations and decisions with respect to such
policies of insurance, and (g) at any time that an Event of Default has occurred
and is continuing or Foothill deems itself insecure, settle and adjust disputes
and claims respecting the Accounts of such Borrower directly with Account
Debtors, for amounts and upon terms that Foothill determines to be reasonable,
and Foothill may cause to be executed and delivered any documents and releases
that Foothill determines to be necessary. The appointment of Foothill as such
Borrower's attorney, and each and every one of Foothill's rights and powers,
being coupled with an interest, is irrevocable until all of the Obligations have
been fully and finally repaid and performed and Foothill's obligation to extend
credit hereunder is terminated .
4.6 RIGHT TO INSPECT. Foothill (through any of its officers,
employees, or agents) shall have the right, from time to time hereafter to
inspect Borrowers' Books and to check, test, and appraise the Collateral in
order to verify Borrowers' financial condition or the amount, quality, value,
condition of, or any other matter relating to, the Collateral.
32
5. REPRESENTATIONS AND WARRANTIES.
In order to induce Foothill to enter into this Agreement, each Borrower
makes the following representations and warranties which shall be true, correct,
and complete in all respects as of the date hereof, and shall be true, correct,
and complete in all respects as of the Closing Date, and at and as of the date
of the making of each Advance, Letter of Credit or the Term Loan, as though made
on and as of the date of such Advance, Letter of Credit or Term Loan (except to
the extent that such representations and warranties relate solely to an earlier
date) and such representations and warranties shall survive the execution and
delivery of this Agreement:
5.1 NO ENCUMBRANCES. Each Borrower has good and indefeasible title
to its Collateral, free and clear of Liens except for Permitted Liens.
5.2 ELIGIBLE ACCOUNTS. The Eligible Accounts of each Borrower and
Westbeach are bona fide existing obligations created by the sale and delivery of
Inventory or the rendition of services to Account Debtors in the ordinary course
of such Borrower's or Westbeach's business, unconditionally owed to such
Borrower or Westbeach without defenses, disputes, offsets, counterclaims, or
rights of return or cancellation. The property giving rise to such Eligible
Accounts has been delivered to the Account Debtor, or to the Account Debtor's
agent for immediate shipment to and unconditional acceptance by the Account
Debtor. Borrowers have not received notice of actual or imminent bankruptcy,
insolvency, or material impairment of the financial condition of any Account
Debtor regarding any Eligible Account.
5.3 ELIGIBLE INVENTORY. All Eligible Inventory of Borrowers and
Westbeach is of good and merchantable quality, free from defects.
5.4 EQUIPMENT. All of the Equipment of Borrowers is used or held for
use in Borrowers' business and is fit for such purposes.
5.5 LOCATION OF INVENTORY AND EQUIPMENT. The Inventory and Equipment
of Borrowers are not stored with a bailee, warehouseman, or similar party
(without Foothill's prior written consent) and are located only at the locations
identified on Schedule 6.12 or otherwise permitted by Section 6.12.
5.6 INVENTORY RECORDS. Each Borrower and Westbeach keeps correct and
accurate records itemizing and describing the kind, type, quality, and quantity
of its Inventory, and such Borrower's and Westbeach's cost therefor.
5.7 LOCATION OF CHIEF EXECUTIVE OFFICE; FEIN. The chief executive
33
office of each Borrower and each Borrower's FEIN is set forth below:
Borrower Chief Executive Office FEIN
-------- ----------------------- ----
Xxxxxx Snowboards, Inc. 0000 Xxxxxxx Xxxx, X.X. 00-0000000
Xxxxx, Xxxxxx 00000
Westbeach Snowboard 000-000xx Xxxxxx X.X. 00-0000000
X.X.X. Inc. Xxxxxxxx, Xxxxxxxxxx 00000
5.8 DUE ORGANIZATION AND QUALIFICATION; SUBSIDIARIES.
(a) Each Borrower is duly organized and existing and in good standing
under the laws of the jurisdiction of its incorporation and qualified and
licensed to do business in, and in good standing in, any state where the failure
to be so licensed or qualified reasonably could be expected to have a Material
Adverse Change.
(b) Set forth on Schedule 5.8, is a complete and accurate list of each
Borrower's direct and indirect Subsidiaries, showing: (i) the jurisdiction of
their incorporation; (ii) the number of shares of each class of common and
preferred stock authorized for each of such Subsidiaries; and (iii) the number
and the percentage of the outstanding shares of each such class owned directly
or indirectly by such Borrower. All of the outstanding capital stock of each
such Subsidiary has been validly issued and is fully paid and non-assessable.
(c) Except as set forth on Schedule 5.8, no capital stock (or any
securities, instruments, warrants, options, purchase rights, conversion or
exchange rights, calls, commitments or claims of any character convertible into
or exercisable for capital stock) of any direct or indirect Subsidiary of any
Borrower is subject to the issuance of any security, instrument, warrant,
option, purchase right, conversion or exchange right, call, commitment or claim
of any right, title, or interest therein or thereto.
5.9 DUE AUTHORIZATION; NO CONFLICT.
(a) The execution, delivery, and performance by each Borrower of this
Agreement and the Loan Documents to which it is a party have been duly
authorized by all necessary corporate action.
(b) The execution, delivery, and performance by each Borrower of this
Agreement and the Loan Documents to which it is a party do not and will not (i)
violate any provision of federal, state, or local law or regulation (including
34
Regulations G, T, U, and X of the Federal Reserve Board) applicable to such
Borrower, the Governing Documents of such Borrower, or any order, judgment, or
decree of any court or other Governmental Authority binding on such Borrower,
(ii) conflict with, result in a breach of, or constitute (with due notice or
lapse of time or both) a default under any material contractual obligation or
material lease of such Borrower, (iii) result in or require the creation or
imposition of any Lien of any nature whatsoever upon any properties or assets of
such Borrower, other than Permitted Liens, or (iv) require any approval of
stockholders or any approval or consent of any Person under any material
contractual obligation of such Borrower.
(c) Other than the filing of appropriate financing statements, fixture
filings, and mortgages, the execution, delivery, and performance by each
Borrower of this Agreement and the Loan Documents to which such Borrower is a
party do not and will not require any registration with, consent, or approval
of, or notice to, or other action with or by, any federal, state, foreign, or
other Governmental Authority or other Person.
(d) This Agreement and the Loan Documents to which any Borrower is a
party, and all other documents contemplated hereby and thereby, when executed
and delivered by such Borrower will be the legally valid and binding obligations
of such Borrower, enforceable against such Borrower in accordance with their
respective terms, except as enforcement may be limited by equitable principles
or by bankruptcy, insolvency, reorganization, moratorium, or similar laws
relating to or limiting creditors' rights generally.
(e) The Liens granted by each Borrower to Foothill in and to its
properties and assets pursuant to this Agreement and the other Loan Documents
are validly created, perfected, and first priority Liens, subject only to
Permitted Liens.
5.10 LITIGATION. There are no actions or proceedings pending by or
against any Borrower before any court or administrative agency and no Borrower
has any knowledge or belief of any pending, threatened, or imminent litigation,
governmental investigations, or claims, complaints, actions, or prosecutions
involving any Borrower or any guarantor of the Obligations, except for: (a)
ongoing collection matters in which a Borrower is the plaintiff; (b) matters
disclosed on Schedule 5.10; and (c) matters arising after the date hereof that,
if decided adversely to a Borrower, would not have a Material Adverse Change.
5.11 NO MATERIAL ADVERSE CHANGE. All financial statements relating
to any Borrower or any guarantor of the Obligations that have been delivered by
any Borrower to Foothill have been prepared in accordance with GAAP (except, in
the case of unaudited financial statements, for the lack of footnotes and being
subject to year-end audit
35
adjustments) and fairly present such Borrower's (or such guarantor's, as
applicable) financial condition as of the date thereof and such Borrower's
results of operations for the period then ended. There has not been a Material
Adverse Change with respect to any Borrower (or such guarantor, as applicable)
since the date of the latest financial statements submitted to Foothill on or
before the Closing Date.
5.12 SOLVENCY. Upon completion of the financing contemplated by this
Agreement, each Borrower will be Solvent. No transfer of property is being made
by any Borrower and no obligation is being incurred by any Borrower in
connection with the transactions contemplated by this Agreement or the other
Loan Documents with the intent to hinder, delay, or defraud either present or
future creditors of any Borrower.
5.13 EMPLOYEE BENEFITS. None of Borrowers, any of their
Subsidiaries, or any of their ERISA Affiliates maintains or contributes to any
Benefit Plan, other than those listed on Schedule 5.13. Each Borrower, each of
its Subsidiaries and each ERISA Affiliate have satisfied the minimum funding
standards of ERISA and the IRC with respect to each Benefit Plan to which it is
obligated to contribute. No ERISA Event has occurred nor has any other event
occurred that may result in an ERISA Event that reasonably could be expected to
result in a Material Adverse Change. None of Borrowers or their Subsidiaries,
any ERISA Affiliate, or any fiduciary of any Plan is subject to any direct or
indirect liability with respect to any Plan under any applicable law, treaty,
rule, regulation, or agreement. None of Borrowers or their Subsidiaries or any
ERISA Affiliate is required to provide security to any Plan under Section
401(a)(29) of the IRC.
5.14 ENVIRONMENTAL CONDITION. None of Borrowers' properties or
assets has ever been used by any Borrower or, to the best of each Borrower's
knowledge, by previous owners or operators in the disposal of, or to produce,
store, handle, treat, release, or transport, any Hazardous Materials. None of
Borrowers' properties or assets has ever been designated or identified in any
manner pursuant to any environmental protection statute as a Hazardous Materials
disposal site, or a candidate for closure pursuant to any environmental
protection statute. No Lien arising under any environmental protection statute
has attached to any revenues or to any real or personal property owned or
operated by any Borrower. No Borrower has received a summons, citation, notice,
or directive from the Environmental Protection Agency or any other federal or
state governmental agency concerning any action or omission by any Borrower
resulting in the releasing or disposing of Hazardous Materials into the
environment.
36
5.15 YEAR 2000 COMPLIANCE.
(a) On the basis of a comprehensive inventory, review and
assessment currently being undertaken by each Borrower and Westbeach of such
Borrower's and Westbeach's computer applications utilized by such Borrower or
Westbeach, each Borrower's and Westbeach's management is of the considered view
that such Borrower and Westbeach will be Year 2000 Compliant before October 1,
1999. Each Borrower and Westbeach promptly shall make inquiry of its material
suppliers and vendors to assure that its products and all such suppliers and
vendors will be Year 2000 Compliant before October 1, 1999.
(b) Each Borrower (i) has undertaken a detailed inventory,
review and assessment of all areas within its business and operations that could
be adversely affected by the failure of such Borrower or its products to be Year
2000 Compliant on a timely basis, (ii) is developing a detail plan and timeline
for becoming Year 2000 Compliant on a timely basis, and (iii) to date, is
implementing that plan in accordance with that timetable in all material
respects. Each Borrower reasonably anticipates that it will be Year 2000
Compliant on a timely basis.
6. AFFIRMATIVE COVENANTS.
Each Borrower covenants and agrees that, so long as any credit hereunder
shall be available and until full and final payment of the Obligations, such
Borrower shall do all of the following:
6.1 ACCOUNTING SYSTEM. Maintain a standard and modern system of
accounting that enables such Borrower to produce financial statements in
accordance with GAAP, and maintain records pertaining to its Collateral that
contain information as from time to time may be requested by Foothill. Such
Borrower also shall keep a modern inventory reporting system that shows all
additions, sales, claims, returns, and allowances with respect to its Inventory.
6.2 COLLATERAL REPORTING. Provide Foothill with the following documents
at the following times in form satisfactory to Foothill: (a) on each Business
Day, a sales journal, collection journal, and credit register since the last
such schedule and a calculation of the Borrowing Base as of such date, (b) on a
monthly basis and, in any event, by no later than the 10th day of each month
during the term of this Agreement, (i) a detailed calculation of the Borrowing
Base, and (ii) a detailed aging, by total, of such Borrower's Accounts, together
with a reconciliation to the detailed calculation of the Borrowing Base
previously provided to Foothill, (c) on a monthly basis and, in any event, by no
later than the 10th day of each month during the term of this Agreement, a
summary
37
aging, by vendor, of such Borrower's accounts payable and any book overdraft,
(d) on a weekly basis, Inventory reports specifying such Borrower's cost and the
wholesale market value of its Inventory by category, with additional detail
showing additions to and deletions from its Inventory, (e) on each Business Day,
notice of all returns, disputes, or claims, (f) upon request, copies of invoices
in connection with its Accounts, customer statements, credit memos, remittance
advices and reports, deposit slips, shipping and delivery documents in
connection with its Accounts and for Inventory and Equipment acquired by such
Borrower, purchase orders and invoices, (g) on a quarterly basis, a detailed
list of such Borrower's customers, (h) on a monthly basis, a calculation of the
Dilution for the prior month; (i) upon Foothill's request, Borrowers' electronic
data; and (j) such other reports as to the Collateral or the financial condition
of such Borrower as Foothill may request from time to time. Original sales
invoices evidencing daily sales shall be mailed by such Borrower to each Account
Debtor and, at Foothill's direction, the invoices shall indicate on their face
that such Borrower's Account has been assigned to Foothill and that all payments
are to be made directly to Foothill.
6.3 FINANCIAL STATEMENTS, REPORTS, CERTIFICATES. Deliver to Foothill:
(a) as soon as available, but in any event within 30 days after the end of each
month during each of such Parent's fiscal years, a company prepared balance
sheet, income statement, and statement of cash flow covering Parent's operations
during such period; and (b) as soon as available, but in any event within 90
days after the end of each of Parent's fiscal years, financial statements of
Parent for each such fiscal year, audited by independent certified public
accountants reasonably acceptable to Foothill and certified, without any
qualifications, by such accountants to have been prepared in accordance with
GAAP, together with a certificate of such accountants addressed to Foothill
stating that such accountants do not have knowledge of the existence of any
Default or Event of Default. Such audited financial statements shall include a
balance sheet, profit and loss statement, and statement of cash flow and, if
prepared, such accountants' letter to management. In addition to the financial
statements referred to above, Parent agrees to deliver financial statements
prepared on a consolidating basis so as to present Parent and each Subsidiary
entity separately, and on a consolidating basis.
Together with the above, Parent also shall deliver to Foothill
Parent's Form 10-Q Quarterly Reports, Form 10-K Annual Reports, and Form 8-K
Current Reports, and any other filings made by Parent with the Securities and
Exchange Commission, if any, as soon as the same are filed, or any other
information that is provided by Parent to its shareholders, and any other report
reasonably requested by Foothill relating to the financial condition of such
Parent.
Each month, together with the financial statements provided
pursuant to Section 6.3(a), Parent shall deliver to Foothill a certificate
signed by its chief
38
financial officer to the effect that: (i) all financial statements delivered or
caused to be delivered to Foothill hereunder have been prepared in accordance
with GAAP (except, in the case of unaudited financial statements, for the lack
of footnotes and being subject to year-end audit adjustments) and fairly present
the financial condition of Parent, (ii) the representations and warranties of
Parent contained in this Agreement and the other Loan Documents are true and
correct in all material respects on and as of the date of such certificate, as
though made on and as of such date (except to the extent that such
representations and warranties relate solely to an earlier date), (iii) for each
month that also is the date on which a financial covenant in Section 7.20 is to
be tested, a Compliance Certificate demonstrating in reasonable detail
compliance at the end of such period with the applicable financial covenants
contained in Section 7.20, and (iv) on the date of delivery of such certificate
to Foothill there does not exist any condition or event that constitutes a
Default or Event of Default (or, in the case of clauses (i), (ii), or (iii), to
the extent of any non-compliance, describing such non-compliance as to which he
or she may have knowledge and what action Parent has taken, is taking, or
proposes to take with respect thereto).
Each Borrower and Westbeach shall have issued written instructions to
its independent certified public accountants authorizing them to communicate
with Foothill and to release to Foothill whatever financial information
concerning such Borrower that Foothill may request. Each Borrower and Westbeach
hereby irrevocably authorizes and directs all auditors, accountants, or other
third parties to deliver to Foothill, at Borrowers' expense, copies of such
Borrowers' financial statements, papers related thereto, and other accounting
records of any nature in their possession, and to disclose to Foothill any
information they may have regarding Borrower's business affairs and financial
conditions. Prior to the occurrence of an Event of Default, Foothill shall not
contact Borrowers' or Westbeach's auditors or accountants without telephonic or
written consent from Parent.
6.4 TAX RETURNS. Deliver to Foothill copies of each of such Borrower's
future federal income tax returns, and any amendments thereto, within 30 days of
the filing thereof with the Internal Revenue Service.
6.5 GUARANTOR REPORTS. Cause any guarantor of any of the Obligations to
deliver its annual financial statements at the time when such Borrower provides
its audited financial statements to Foothill and copies of all federal income
tax returns as soon as the same are available and in any event no later than 30
days after the same are required to be filed by law.
6.6 RETURNS. Cause returns and allowances, if any, as between such
Borrower and its Account Debtors to be on the same basis and in accordance with
the usual customary practices of such Borrower, as they exist at the time of the
execution and
39
delivery of this Agreement. If, at a time when no Event of Default has occurred
and is continuing, any Account Debtor returns any Inventory to such Borrower,
such Borrower promptly shall determine the reason for such return and, if such
Borrower accepts such return, issue a credit memorandum (with a copy to be sent
to Foothill) in the appropriate amount to such Account Debtor. If, at a time
when an Event of Default has occurred and is continuing, any Account Debtor
returns any Inventory to such Borrower, such Borrower promptly shall determine
the reason for such return and, if Foothill consents (which consent shall not be
unreasonably withheld), issue a credit memorandum (with a copy to be sent to
Foothill) in the appropriate amount to such Account Debtor.
6.7 TITLE TO EQUIPMENT. Upon Foothill's request, such Borrower
immediately shall deliver to Foothill, properly endorsed, any and all evidences
of ownership of, certificates of title, or applications for title to any items
of its Equipment.
6.8 MAINTENANCE OF EQUIPMENT. Maintain its Equipment in good operating
condition and repair (ordinary wear and tear excepted), and make all necessary
replacements thereto so that the value and operating efficiency thereof shall at
all times be maintained and preserved. Other than those items of Equipment that
constitute fixtures on the Closing Date, such Borrower shall not permit any item
of its Equipment to become a fixture to real estate or an accession to other
property, and such Equipment shall at all times remain personal property.
6.9 TAXES. Cause all assessments and taxes, whether real, personal, or
otherwise, due or payable by, or imposed, levied, or assessed against such
Borrower or any of its property to be paid in full, before delinquency or before
the expiration of any extension period, except to the extent that the validity
of such assessment or tax shall be the subject of a Permitted Protest. Such
Borrower shall make due and timely payment or deposit of all such federal,
state, and local taxes, assessments, or contributions required of it by law, and
will execute and deliver to Foothill, on demand, appropriate certificates
attesting to the payment thereof or deposit with respect thereto. Such Borrower
will make timely payment or deposit of all tax payments and withholding taxes
required of it by applicable laws, including those laws concerning F.I.C.A.,
F.U.T.A., state disability, and local, state, and federal income taxes, and
will, upon request, furnish Foothill with proof satisfactory to Foothill
indicating that such Borrower has made such payments or deposits.
40
6.10 INSURANCE.
(a) At its expense, keep its Personal Property Collateral insured
against loss or damage by fire, theft, explosion, sprinklers, and all other
hazards and risks, and in such amounts, as are ordinarily insured against by
other owners in similar businesses. Such Borrower also shall maintain business
interruption, public liability, product liability, and property damage insurance
relating to such Borrower's ownership and use of its Personal Property
Collateral, as well as insurance against larceny, embezzlement, and criminal
misappropriation.
(b) At its expense, obtain and maintain (i) insurance of the type
necessary to insure the Improvements and Chattels (as such terms are defined in
the Mortgages), for the full replacement cost thereof, against any loss by fire,
lightning, windstorm, hail, explosion, aircraft, smoke damage, vehicle damage,
earthquakes, elevator collision, and other risks from time to time included
under "extended coverage" policies, in such amounts as Foothill may require, but
in any event in amounts sufficient to prevent such Borrower from becoming a co-
insurer under such policies, (ii) combined single limit bodily injury and
property damages insurance (including umbrella policies) against any loss,
liability, or damages on, about, or relating to each parcel of Real Property
Collateral, in an amount of not less than $2,500,000; and (iii) insurance for
such other risks as Foothill may require. Replacement costs, at Foothill's
option, may be redetermined by an insurance appraiser, satisfactory to Foothill,
not more frequently than once every 12 months at such Borrower's cost.
(c) All such policies of insurance shall be in such form, with
such companies, and in such amounts as may be reasonably satisfactory to
Foothill. All insurance required herein shall be written by companies which are
authorized to do insurance business in the State of California. All hazard
insurance and such other insurance as Foothill shall specify, shall contain a
California Form 438BFU (NS) mortgagee endorsement, or an equivalent endorsement
satisfactory to Foothill, showing Foothill as sole loss payee thereof, and shall
contain a waiver of warranties. Every policy of insurance referred to in this
Section 6.10 shall contain an agreement by the insurer that it will not cancel
such policy except after 30 days prior written notice to Foothill and that any
loss payable thereunder shall be payable notwithstanding any act or negligence
of such Borrower or Foothill which might, absent such agreement, result in a
forfeiture of all or a part of such insurance payment and notwithstanding (i)
occupancy or use of the Real Property Collateral for purposes more hazardous
than permitted by the terms of such policy, (ii) any foreclosure or other action
or proceeding taken by Foothill pursuant to the Mortgages upon the happening of
an Event of Default, or (iii) any change in title or ownership of the Real
Property Collateral. Such Borrower shall deliver to Foothill certified copies of
such policies of insurance and evidence of the payment of all
41
premiums therefor.
(d) Original policies or certificates thereof satisfactory to
Foothill evidencing such insurance shall be delivered to Foothill at least 30
days prior to the expiration of the existing or preceding policies. Such
Borrower shall give Foothill prompt notice of any loss covered by such
insurance, and Foothill shall have the right to adjust any loss. Foothill shall
have the exclusive right to adjust all losses payable under any such insurance
policies without any liability to such Borrower whatsoever in respect of such
adjustments. Any monies received as payment for any loss under any insurance
policy including the insurance policies mentioned above, shall be paid over to
Foothill to be applied at the option of Foothill either to the prepayment of the
Obligations without premium, in such order or manner as Foothill may elect, or
shall be disbursed to such Borrower under stage payment terms satisfactory to
Foothill for application to the cost of repairs, replacements, or restorations.
All repairs, replacements, or restorations shall be effected with reasonable
promptness and shall be of a value at least equal to the value of the items or
property destroyed prior to such damage or destruction. Upon the occurrence of
an Event of Default, Foothill shall have the right to apply all prepaid premiums
to the payment of the Obligations in such order or form as Foothill shall
determine.
(e) Such Borrower shall not take out separate insurance
concurrent in form or contributing in the event of loss with that required to be
maintained under this Section 6.10, unless Foothill is included thereon as named
insured with the loss payable to Foothill under a standard California 438BFU
(NS) Mortgagee endorsement, or its local equivalent. Such Borrower immediately
shall notify Foothill whenever such separate insurance is taken out, specifying
the insurer thereunder and full particulars as to the policies evidencing the
same, and originals of such policies immediately shall be provided to Foothill.
6.11 NO SETOFFS OR COUNTERCLAIMS. Make payments hereunder and under the
other Loan Documents by or on behalf of such Borrower without setoff or
counterclaim and free and clear of, and without deduction or withholding for or
on account of, any federal, state, or local taxes.
6.12 LOCATION OF INVENTORY AND EQUIPMENT. Keep its Inventory and
Equipment only at the locations identified on Schedule 6.12; provided, however,
that Borrowers may amend Schedule 6.12 so long as such amendment occurs by
written notice to Foothill not less than 30 days prior to the date on which the
Inventory or Equipment of Borrowers is moved to such new location, so long as
such new location is within the continental United States, and so long as, at
the time of such written notification, Borrowers provide any financing
statements or fixture filings necessary to perfect and continue perfected
Foothill's security interests in such assets and also provides to Foothill
42
a Collateral Access Agreement.
6.13 COMPLIANCE WITH LAWS. Comply with the requirements of all
applicable laws, rules, regulations, and orders of any governmental authority,
including the Fair Labor Standards Act and the Americans With Disabilities Act,
other than laws, rules, regulations, and orders the non-compliance with which,
individually or in the aggregate, would not have and could not reasonably be
expected to have a Material Adverse Change.
6.14 EMPLOYEE BENEFITS.
(a) Deliver to Foothill: (i) promptly, and in any event within 10
Business Days after such Borrower or any of its Subsidiaries knows or has reason
to know that an ERISA Event has occurred that reasonably could be expected to
result in a Material Adverse Change, a written statement of the chief financial
officer of such Borrower describing such ERISA Event and any action that is
being taking with respect thereto by such Borrower, any such Subsidiary or ERISA
Affiliate, and any action taken or threatened by the IRS, Department of Labor,
or PBGC. Such Borrower or such Subsidiary, as applicable, shall be deemed to
know all facts known by the administrator of any Benefit Plan of which it is the
plan sponsor, (ii) promptly, and in any event within 3 Business Days after the
filing thereof with the IRS, a copy of each funding waiver request filed with
respect to any Benefit Plan and all communications received by such Borrower,
any of its Subsidiaries or, to the knowledge of such Borrower, any ERISA
Affiliate with respect to such request, and (iii) promptly, and in any event
within 3 Business Days after receipt by such Borrower, any of its Subsidiaries
or, to the knowledge of such Borrower, any ERISA Affiliate, of the PBGC's
intention to terminate a Benefit Plan or to have a trustee appointed to
administer a Benefit Plan, copies of each such notice.
(b) Cause to be delivered to Foothill, upon Foothill's request,
each of the following: (i) a copy of each Plan (or, where any such plan is not
in writing, complete description thereof) (and if applicable, related trust
agreements or other funding instruments) and all amendments thereto, all written
interpretations thereof and written descriptions thereof that have been
distributed to employees or former employees of such Borrower or its
Subsidiaries; (ii) the most recent determination letter issued by the IRS with
respect to each Benefit Plan; (iii) for the three most recent plan years, annual
reports on Form 5500 Series required to be filed with any governmental agency
for each Benefit Plan; (iv) all actuarial reports prepared for the last three
plan years for each Benefit Plan; (v) a listing of all Multiemployer Plans, with
the aggregate amount of the most recent annual contributions required to be made
by such Borrower or any ERISA Affiliate to each such plan and copies of the
collective bargaining agreements requiring such contributions; (vi) any
information that has been provided to such Borrower or any ERISA Affiliate
43
regarding withdrawal liability under any Multiemployer Plan; and (vii) the
aggregate amount of the most recent annual payments made to former employees of
such Borrower or its Subsidiaries under any Retiree Health Plan.
6.15 LEASES. Pay when due all rents and other amounts payable under any
leases to which such Borrower is a party or by which such Borrower's properties
and assets are bound, unless such payments are the subject of a Permitted
Protest. To the extent that such Borrower fails timely to make payment of such
rents and other amounts payable when due under its leases, Foothill shall be
entitled, in its discretion, to reserve an amount equal to such unpaid amounts
against the Borrowing Base.
6.16 YEAR 2000 COMPLIANCE. Each Borrower will be Year 2000 Compliant
by October 1, 1999.
7. NEGATIVE COVENANTS.
Each Borrower covenants and agrees that, so long as any credit hereunder shall
be available and until full and final payment of the Obligations, such Borrower
will not do any of the following:
7.1 INDEBTEDNESS. Create, incur, assume, permit, guarantee, or
otherwise become or remain, directly or indirectly, liable with respect to any
Indebtedness, except:
(a) Indebtedness evidenced by this Agreement, together with
Indebtedness to issuers of letters of credit that are the subject of L/C
Guarantees;
(b) Indebtedness set forth in Schedule 7.1;
------------
(c) Indebtedness secured by Permitted Liens; and
(d) refinancings, renewals, or extensions of Indebtedness
permitted under clauses (b) and (c) of this Section 7.1 (and continuance or
renewal of any Permitted Liens associated therewith) so long as: (i) the terms
and conditions of such refinancings, renewals, or extensions do not materially
impair the prospects of repayment of the Obligations by Borrowers, (ii) the net
cash proceeds of such refinancings, renewals, or extensions do not result in an
increase in the aggregate principal amount of the Indebtedness so refinanced,
renewed, or extended, (iii) such refinancings, renewals, refundings, or
extensions do not result in a shortening of the average weighted maturity of the
Indebtedness so refinanced, renewed, or extended, and (iv) to the extent that
Indebtedness that is refinanced was subordinated in right of payment to the
Obligations,
44
then the subordination terms and conditions of the refinancing Indebtedness must
be at least as favorable to Foothill as those applicable to the refinanced
Indebtedness.
7.2 LIENS. Create, incur, assume, or permit to exist, directly or
indirectly, any Lien on or with respect to any of its property or assets, of any
kind, whether now owned or hereafter acquired, or any income or profits
therefrom, except for Permitted Liens (including Liens that are replacements of
Permitted Liens to the extent that the original Indebtedness is refinanced under
Section 7.1(d) and so long as the replacement Liens only encumber those assets
or property that secured the original Indebtedness).
7.3 RESTRICTIONS ON FUNDAMENTAL CHANGES. Enter into any merger,
consolidation, reorganization, or recapitalization, or reclassify its capital
stock, or liquidate, wind up, or dissolve itself (or suffer any liquidation or
dissolution), or convey, sell, assign, lease, transfer, or otherwise dispose of,
in one transaction or a series of transactions, all or any substantial part of
its property or assets.
7.4 DISPOSAL OF ASSETS. Sell, lease, assign, transfer, or otherwise
dispose of any of such Borrower's properties or assets other than sales of
Inventory to buyers in the ordinary course of such Borrower's business as
currently conducted.
7.5 CHANGE NAME. Change such Borrower's name, FEIN, corporate
structure (within the meaning of Section 9402(7) of the Code), or identity, or
add any new fictitious name.
7.6 GUARANTEE. Guarantee or otherwise become in any way liable with
respect to the obligations of any third Person except: (a) by endorsement of
instruments or items of payment for deposit to the account of such Borrower or
which are transmitted or turned over to Foothill, (b) guarantees of equipment
and real property leases for wholly-owned Subsidiaries, and (c) guarantees for
wholly-owned Subsidiaries of Indebtedness and vendor obligations in the ordinary
course of business in an aggregate amount not to exceed $200,000 outstanding at
any one time.
7.7 NATURE OF BUSINESS. Make any change in the principal nature of such
Borrower's business.
45
7.8 PREPAYMENTS AND AMENDMENTS.
(a) Except in connection with a refinancing permitted by Section
7.1(d), prepay, redeem, retire, defease, purchase, or otherwise acquire any
Indebtedness owing to any third Person, other than the Obligations in accordance
with this Agreement, and
(b) Directly or indirectly, amend, modify, alter, increase, or
change any of the terms or conditions of any agreement, instrument, document,
indenture, or other writing evidencing or concerning Indebtedness permitted
under Sections 7.1(b), (c), or (d).
7.9 CHANGE OF CONTROL. Cause, permit, or suffer, directly or
indirectly, any Change of Control.
7.10 CONSIGNMENTS. Consign any Inventory or sell any of its Inventory
on xxxx and hold, sale or return, sale on approval, or other conditional terms
of sale.
7.11 DISTRIBUTIONS. Make any distribution or declare or pay any
dividends (in cash or other property, other than capital stock) on, or purchase,
acquire, redeem, or retire any of such Borrower's capital stock, of any class,
whether now or hereafter outstanding.
7.12 ACCOUNTING METHODS. Modify or change its method of accounting or
enter into, modify, or terminate any agreement currently existing, or at any
time hereafter entered into with any third party accounting firm or service
bureau for the preparation or storage of such Borrower's accounting records
without said accounting firm or service bureau agreeing to provide Foothill
information regarding the Collateral or such Borrower's financial condition.
Such Borrower waives the right to assert a confidential relationship, if any, it
may have with any accounting firm or service bureau in connection with any
information requested by Foothill pursuant to or in accordance with this
Agreement, and agrees that Foothill may contact directly any such accounting
firm or service bureau in order to obtain such information.
7.13 INVESTMENTS. Directly or indirectly make, acquire, or incur any
liabilities (including contingent obligations) for or in connection with (a) the
acquisition of the securities (whether debt or equity) of, or other interests
in, a Person, (b) loans, advances, capital contributions, or transfers of
property to a Person, or (c) the acquisition of all or substantially all of the
properties or assets of a Person.
7.14 TRANSACTIONS WITH AFFILIATES. Directly or indirectly enter into
46
or permit to exist any material transaction with any Affiliate of such Borrower
except for transactions that are in the ordinary course of such Borrower's
business, upon fair and reasonable terms, that are fully disclosed to Foothill,
and that are no less favorable to such Borrower than would be obtained in an
arm's length transaction with a non-Affiliate, including Parent's purchases of
tooling for snowboards, boots and bindings from Xxxxxx Aircraft Corporation.
7.15 SUSPENSION. Suspend or go out of a substantial portion of its
business.
7.16 COMPENSATION. Parent's director fees can be increased to $1,000
per month per director in Parent's discretion. Thereafter Parent shall not
increase the annual fee or per-meeting fees paid to directors during any year by
more than 15% over the prior year. Parent will not pay or accrue total cash
compensation in 1998 for officers of Parent and its Subsidiaries in an aggregate
amount in excess of the rates in effect as of January 1, 1998, or pay or accrue
total cash compensation, during 1999 and any subsequent year, to officers of
Parent and its Subsidiaries in an aggregate amount in excess of 115% of that
paid or accrued in the prior year.
7.17 USE OF PROCEEDS. Use the proceeds of the Advances and the Term
Loan made hereunder for any purpose other than (i) on the Closing Date, (y) to
repay in full the outstanding principal, accrued interest, and accrued fees and
expenses owing to Existing Lender, and (z) to pay transactional costs and
expenses incurred in connection with this Agreement, and (ii) thereafter,
consistent with the terms and conditions hereof, for its lawful and permitted
corporate purposes.
7.18 CHANGE IN LOCATION OF CHIEF EXECUTIVE OFFICE; INVENTORY AND
EQUIPMENT WITH BAILEES. Relocate its chief executive office to a new location
without providing 30 days prior written notification thereof to Foothill and so
long as, at the time of such written notification, such Borrower provides any
financing statements or fixture filings necessary to perfect and continue
perfected Foothill's security interests and also provides to Foothill a
Collateral Access Agreement with respect to such new location. The Inventory and
Equipment of such Borrower shall not at any time now or hereafter be stored with
a bailee, warehouseman, or similar party without Foothill's prior written
consent.
7.19 NO PROHIBITED TRANSACTIONS UNDER ERISA. Directly or indirectly:
(a) engage, or permit any Subsidiary of such Borrower to engage,
in any prohibited transaction which is reasonably likely to result in a civil
penalty
47
or excise tax described in Sections 406 of ERISA or 4975 of the IRC for which a
statutory or class exemption is not available or a private exemption has not
been previously obtained from the Department of Labor;
(b) permit to exist with respect to any Benefit Plan any
accumulated funding deficiency (as defined in Sections 302 of ERISA and 412 of
the IRC), whether or not waived;
(c) fail, or permit any Subsidiary of such Borrower to fail, to
pay timely required contributions or annual installments due with respect to any
waived funding deficiency to any Benefit Plan;
(d) terminate, or permit any Subsidiary of such Borrower to
terminate, any Benefit Plan where such event would result in any liability of
such Borrower, any of its Subsidiaries or any ERISA Affiliate under Title IV of
ERISA;
(e) fail, or permit any Subsidiary of such Borrower to fail, to
make any required contribution or payment to any Multiemployer Plan;
(f) fail, or permit any Subsidiary of such Borrower to fail, to
pay any required installment or any other payment required under Section 412 of
the IRC on or before the due date for such installment or other payment;
(g) amend, or permit any Subsidiary of such Borrower to amend, a
Plan resulting in an increase in current liability for the plan year such that
either of such Borrower, any Subsidiary of such Borrower or any ERISA Affiliate
is required to provide security to such Plan under Section 401(a)(29) of the
IRC; or
(h) withdraw, or permit any Subsidiary of such Borrower to
withdraw, from any Multiemployer Plan where such withdrawal is reasonably likely
to result in any liability of any such entity under Title IV of ERISA;
which, individually or in the aggregate, results in or reasonably would be
expected to result in a claim against or liability of such Borrower, any of its
Subsidiaries or any ERISA Affiliate.
48
7.20 FINANCIAL COVENANTS. Have Parent fail to maintain:
(a) EBITDA. EBITDA loss of not more than ($1,000,000) for the
quarter ending June 30, 1998, EBITDA of at least $3,750,000 for the six months
ending September 30, 1998 and EBITDA of at least $3,000,000 for the nine months
ending December 31, 1998; and
(b) Tangible Net Worth. Tangible Net Worth of at least
$10,500,000, measured on a fiscal quarter-end basis;
By June 30, 1998, Parent shall provide Foothill with projections,
reasonably satisfactory to Foothill, for the fiscal years ending December 31,
1999 through December 31, 2001 which projections shall be the basis for Foothill
determining the covenants for quarters ending after December 31, 1998 for EBITDA
and maximum capital expenditures.
7.21 CAPITAL EXPENDITURES. Borrowers, in the aggregate, make capital
expenditures in the fiscal year ending December 31, 1998 in excess of
$1,300,000.
8. EVENTS OF DEFAULT.
Any one or more of the following events shall constitute an event of
default (each, an "Event of Default") under this Agreement:
8.1 If Borrowers fail to pay when due and payable or when declared due
and payable, any portion of the Obligations (whether of principal, interest
(including any interest which, but for the provisions of the Bankruptcy Code,
would have accrued on such amounts), fees and charges due Foothill,
reimbursement of Foothill Expenses, or other amounts constituting Obligations);
8.2 If any Borrower fails to perform, keep, or observe any term,
provision, condition, covenant, or agreement contained in this Agreement, in any
of the Loan Documents, or in any other present or future agreement between such
Borrower and Foothill;
8.3 If there is a Material Adverse Change;
8.4 If any material portion of any Borrower's properties or assets is
attached, seized, subjected to a writ or distress warrant, or is levied upon, or
comes into the possession of any third Person;
49
8.5 If an Insolvency Proceeding is commenced by any Borrower;
8.6 If an Insolvency Proceeding is commenced against any Borrower and
any of the following events occur: (a) such Borrower consents to the
institution of the Insolvency Proceeding against it; (b) the petition commencing
the Insolvency Proceeding is not timely controverted; (c) the petition
commencing the Insolvency Proceeding is not dismissed within 45 calendar days of
the date of the filing thereof; provided, however, that, during the pendency of
such period, Foothill shall be relieved of its obligation to extend credit
hereunder; (d) an interim trustee is appointed to take possession of all or a
substantial portion of the properties or assets of, or to operate all or any
substantial portion of the business of, such Borrower; or (e) an order for
relief shall have been issued or entered therein;
8.7 If any Borrower is enjoined, restrained, or in any way prevented
by court order from continuing to conduct all or any material part of its
business affairs;
8.8 If a notice of Lien, levy, or assessment is filed of record with
respect to any of any Borrower's properties or assets by the United States
Government, or any department, agency, or instrumentality thereof, or by any
state, county, municipal, or governmental agency, or if any taxes or debts owing
at any time hereafter to any one or more of such entities becomes a Lien,
whether xxxxxx or otherwise, upon any of such Borrower's properties or assets
and the same is not paid on the payment date thereof;
8.9 If a judgment or other claim becomes a Lien or encumbrance upon
any material portion of any Borrower's properties or assets;
8.10 If there is a default in any material agreement to which any
Borrower is a party with one or more third Persons and such default (a) occurs
at the final maturity of the obligations thereunder, or (b) results in a right
by such third Person(s), irrespective of whether exercised, to accelerate the
maturity of such Borrower's obligations thereunder;
8.11 If any Borrower makes any payment on account of Indebtedness
that has been contractually subordinated in right of payment to the payment of
the Obligations, except to the extent such payment is permitted by the terms of
the subordination provisions applicable to such Indebtedness;
8.12 If any misstatement or misrepresentation exists now or hereafter
in any warranty, representation, statement, or report made to Foothill by any
Borrower or any officer, employee, agent, or director of any Borrower, or if any
such warranty or representation is withdrawn; or
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8.13 If the obligation of any guarantor under its guaranty or other
third Person under any Loan Document is limited or terminated by operation of
law or by the guarantor or other third Person thereunder, or any such guarantor
or other third Person becomes the subject of an Insolvency Proceeding.
9. FOOTHILL'S RIGHTS AND REMEDIES.
9.1 RIGHTS AND REMEDIES. Upon the occurrence, and during the
continuation, of an Event of Default Foothill may, at its election, without
notice of its election and without demand, do any one or more of the following,
all of which are authorized by Borrowers:
(a) Declare all Obligations, whether evidenced by this Agreement,
by any of the other Loan Documents, or otherwise, immediately due and payable;
(b) Cease advancing money or extending credit to or for the
benefit of Borrowers under this Agreement, under any of the Loan Documents, or
under any other agreement between Borrowers and Foothill;
(c) Terminate this Agreement and any of the other Loan Documents
as to any future liability or obligation of Foothill, but without affecting
Foothill's rights and security interests in the Personal Property Collateral or
the Real Property Collateral and without affecting the Obligations;
(d) Settle or adjust disputes and claims directly with Account
Debtors for amounts and upon terms which Foothill considers advisable, and in
such cases, Foothill will credit Borrowers' Loan Account with only the net
amounts received by Foothill in payment of such disputed Accounts after
deducting all Foothill Expenses incurred or expended in connection therewith;
(e) Cause Borrowers to hold all of their returned Inventory in
trust for Foothill, segregate all such returned Inventory from all other
property of any Borrower or in any Borrower's possession and conspicuously label
said returned Inventory as the property of Foothill;
(f) Without notice to or demand upon any Borrower or any
guarantor, make such payments and do such acts as Foothill considers necessary
or reasonable to protect its security interests in the Collateral. Borrowers
agree to assemble the Personal Property
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Collateral if Foothill so requires, and to make the Personal Property Collateral
available to Foothill as Foothill may designate. Each Borrower authorizes
Foothill to enter the premises where the Personal Property Collateral is
located, to take and maintain possession of the Personal Property Collateral, or
any part of it, and to pay, purchase, contest, or compromise any encumbrance,
charge, or Lien that in Foothill's determination appears to conflict with its
security interests and to pay all expenses incurred in connection therewith.
With respect to any of Borrowers' owned or leased premises, each Borrower hereby
grants Foothill a license to enter into possession of such premises and to
occupy the same, without charge, for up to 120 days in order to exercise any of
Foothill's rights or remedies provided herein, at law, in equity, or otherwise;
(g) Without notice to any Borrower (such notice being expressly
waived), and without constituting a retention of any collateral in satisfaction
of an obligation (within the meaning of Section 9505 of the Code), set off and
apply to the Obligations any and all (i) balances and deposits of any Borrower
held by Foothill (including any amounts received in the Lockbox Accounts), or
(ii) indebtedness at any time owing to or for the credit or the account of any
Borrower held by Foothill;
(h) Hold, as cash collateral, any and all balances and deposits of
any Borrower held by Foothill, and any amounts received in the Lockbox Accounts,
to secure the full and final repayment of all of the Obligations;
(i) Ship, reclaim, recover, store, finish, maintain, repair,
prepare for sale, advertise for sale, and sell (in the manner provided for
herein) the Personal Property Collateral. Foothill is hereby granted a license
or other right to use, without charge, any Borrower's labels, patents,
copyrights, rights of use of any name, trade secrets, trade names, trademarks,
service marks, and advertising matter, or any property of a similar nature, as
it pertains to the Personal Property Collateral, in completing production of,
advertising for sale, and selling any Personal Property Collateral and each
Borrower's rights under all licenses and all franchise agreements shall inure to
Foothill's benefit;
(j) Sell the Personal Property Collateral at either a public or
private sale, or both, by way of one or more contracts or transactions, for cash
or on terms, in such manner and at such places (including any Borrower's
premises) as Foothill determines is commercially reasonable. It is not necessary
that the Personal Property Collateral be present at any such sale;
(k) Foothill shall give notice of the disposition of the Personal
Property Collateral as follows:
(1) Foothill shall give Borrowers and each holder of a
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security interest in the Personal Property Collateral who has filed with
Foothill a written request for notice, a notice in writing of the time and place
of public sale, or, if the sale is a private sale or some other disposition
other than a public sale is to be made of the Personal Property Collateral, then
the time on or after which the private sale or other disposition is to be made;
(2) The notice shall be personally delivered or mailed,
postage prepaid, to Borrowers as provided in Section 12, at least five days
before the date fixed for the sale, or at least five days before the date on or
after which the private sale or other disposition is to be made; no notice needs
to be given prior to the disposition of any portion of the Personal Property
Collateral that is perishable or threatens to decline speedily in value or that
is of a type customarily sold on a recognized market. Notice to Persons other
than Borrowers claiming an interest in the Personal Property Collateral shall be
sent to such addresses as they have furnished to Foothill;
(3) If the sale is to be a public sale, Foothill also shall
give notice of the time and place by publishing a notice one time at least 5
days before the date of the sale in a newspaper of general circulation in the
county in which the sale is to be held;
(l) Foothill may credit bid and purchase at any public sale; and
(m) Any deficiency that exists after disposition of the Personal
Property Collateral as provided above will be paid immediately by Borrowers. Any
excess will be returned, without interest and subject to the rights of third
Persons, by Foothill to Borrowers.
9.2 REMEDIES CUMULATIVE. Foothill's rights and remedies under this
Agreement, the Loan Documents, and all other agreements shall be cumulative.
Foothill shall have all other rights and remedies not inconsistent herewith as
provided under the Code, by law, or in equity. No exercise by Foothill of one
right or remedy shall be deemed an election, and no waiver by Foothill of any
Event of Default shall be deemed a continuing waiver. No delay by Foothill shall
constitute a waiver, election, or acquiescence by it.
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10. TAXES AND EXPENSES.
If any Borrower fails to pay any monies (whether taxes, assessments,
insurance premiums, or, in the case of leased properties or assets, rents or
other amounts payable under such leases) due to third Persons, or fails to make
any deposits or furnish any required proof of payment or deposit, all as
required under the terms of this Agreement, then, to the extent that Foothill
determines that such failure by such Borrower could result in a Material Adverse
Change, in its discretion and without prior notice to Borrowers, Foothill may do
any or all of the following: (a) make payment of the same or any part thereof;
(b) set up such reserves in Borrowers' Loan Account as Foothill deems necessary
to protect Foothill from the exposure created by such failure; or (c) obtain and
maintain insurance policies of the type described in Section 6.10, and take any
action with respect to such policies as Foothill deems prudent. Any such
amounts paid by Foothill shall constitute Foothill Expenses. Any such payments
made by Foothill shall not constitute an agreement by Foothill to make similar
payments in the future or a waiver by Foothill of any Event of Default under
this Agreement. Foothill need not inquire as to, or contest the validity of,
any such expense, tax, or Lien and the receipt of the usual official notice for
the payment thereof shall be conclusive evidence that the same was validly due
and owing.
11. WAIVERS; INDEMNIFICATION.
11.1 DEMAND; PROTEST; ETC. Each Borrower waives demand, protest, notice
of protest, notice of default or dishonor, notice of payment and nonpayment,
nonpayment at maturity, release, compromise, settlement, extension, or renewal
of accounts, documents, instruments, chattel paper, and guarantees at any time
held by Foothill on which such Borrower may in any way be liable.
11.2 FOOTHILL'S LIABILITY FOR COLLATERAL. So long as Foothill complies
with its obligations, if any, under Section 9207 of the Code, Foothill shall not
in any way or manner be liable or responsible for: (a) the safekeeping of the
Collateral; (b) any loss or damage thereto occurring or arising in any manner or
fashion from any cause; (c) any diminution in the value thereof; or (d) any act
or default of any carrier, warehouseman, bailee, forwarding agency, or other
Person. All risk of loss, damage, or destruction of the Collateral shall be
borne by Borrowers.
11.3 INDEMNIFICATION. Borrowers shall pay, indemnify, defend, and hold
Foothill, each Participant, and each of their respective officers, directors,
employees, counsel, agents, and attorneys-in-fact (each, an "Indemnified
Person") harmless (to the fullest extent permitted by law) from and against any
and all claims, demands, suits, actions, investigations, proceedings, and
damages, and all reasonable attorneys fees and disbursements and other costs and
expenses actually incurred in connection therewith (as
54
and when they are incurred and irrespective of whether suit is brought), at any
time asserted against, imposed upon, or incurred by any of them in connection
with or as a result of or related to the execution, delivery, enforcement,
performance, and administration (including any of the foregoing arising out of
the administration of the credit facilities hereunder on a joint borrowing
basis) of this Agreement and any other Loan Documents or the transactions
contemplated herein, and with respect to any investigation, litigation, or
proceeding related to this Agreement, any other Loan Document, or the use of the
proceeds of the credit provided hereunder (irrespective of whether any
Indemnified Person is a party thereto), or any act, omission, event or
circumstance in any manner related thereto (all the foregoing, collectively, the
"Indemnified Liabilities"). Borrowers shall have no obligation to any
Indemnified Person under this Section 11.3 with respect to any Indemnified
Liability that a court of competent jurisdiction finally determines to have
resulted from the gross negligence or willful misconduct of such Indemnified
Person. This provision shall survive the termination of this Agreement and the
repayment of the Obligations.
11.4 JOINT BORROWERS.
(a) Each Borrower agrees that it is jointly and severally,
directly and primarily liable to Foothill for payment in full of all
Obligations, whether for principal, interest or otherwise and that such
liability is independent of the duties, obligations, and liabilities of the
other Borrowers. Foothill may bring a separate action or actions on each, any,
or all of the Obligations against any Borrower, whether action is brought
against the other Borrowers or whether the other Borrowers are joined in such
action. In the event that any Borrower fails to make any payment of any
Obligations on or before the due date thereof, the other Borrowers immediately
shall cause such payment to be made or each of such Obligations to be performed,
kept, observed, or fulfilled.
(b) The Loan Documents are a primary and original obligation of
each Borrower, are not the creation of a surety relationship, and are an
absolute, unconditional, and continuing promise of payment and performance which
shall remain in full force and effect without respect to future changes in
conditions, including any change of law or any invalidity or irregularity with
respect to the Loan Documents. Each Borrower agrees that its liability under the
Loan Documents shall be immediate and shall not be contingent upon the exercise
or enforcement by Foothill of whatever remedies it may have against the other
Borrowers, or the enforcement of any lien or realization upon any security
Foothill may at any time possess. Each Borrower consents and agrees that
Foothill shall be under no obligation (under Section 2899 or 3433 of the
California Civil Code or otherwise) to marshal any assets of any Borrower
against or in payment of any or all of the Obligations.
55
(c) Each Borrower acknowledges that it is presently informed as
to the financial condition of the other Borrowers and of all other circumstances
which a diligent inquiry would reveal and which bear upon the risk of nonpayment
of the Obligations. Each Borrower hereby covenants that it will continue to keep
informed as to the financial condition of the other Borrowers, the status of the
other Borrowers and of all circumstances which bear upon the risk of nonpayment
of the Obligations. Absent a written request from any Borrower to Foothill for
information, such Borrower hereby waives any and all rights it may have to
require Foothill to disclose to such Borrower any information which Foothill may
now or hereafter acquire concerning the condition or circumstances of the other
Borrowers.
(d) The liability of each Borrower under the Loan Documents
includes Obligations arising under successive transactions continuing,
compromising, extending, increasing, modifying, releasing, or renewing the
Obligations, changing the interest rate, payment terms, or other terms and
conditions thereof, or creating new or additional Obligations after prior
Obligations have been satisfied in whole or in part. To the maximum extent
permitted by law, each Borrower hereby waives any right to revoke its liability
under the Loan Documents as to future indebtedness, and in connection therewith,
each Borrower hereby waives any rights it may have under Section 2815 of the
California Civil Code. If such a revocation is effective notwithstanding the
foregoing waiver, each Borrower acknowledges and agrees that (a) no such
revocation shall be effective until written notice thereof has been received by
Foothill, (b) no such revocation shall apply to any Obligations in existence on
such date (including, any subsequent continuation, extension, or renewal
thereof, or change in the interest rate, payment terms, or other terms and
conditions thereof), (c) no such revocation shall apply to any Obligations made
or created after such date to the extent made or created pursuant to a legally
binding commitment of Foothill in existence on the date of such revocation, (d)
no payment by such Borrower or from any other source prior to the date of such
revocation shall reduce the maximum obligation of the other Borrowers hereunder,
and (e) any payment by such Borrower or from any source other than Borrowers,
subsequent to the date of such revocation, shall first be applied to that
portion of the Obligations as to which the revocation is effective and which are
not, therefore, guaranteed hereunder, and to the extent so applied shall not
reduce the maximum obligation of each Borrower hereunder.
(e) (i) Each Borrower absolutely, unconditionally,
knowingly, and expressly waives:
(1) (A) notice of acceptance hereof; (B) notice of any loans
or other financial accommodations made or extended under the Loan Documents or
the creation or existence of any Obligations; (C) notice of the amount of the
Obligations, subject, however, to each Borrower's right to make inquiry of
Foothill to ascertain the
56
amount of the Obligations at any reasonable time; (D) notice of any adverse
change in the financial condition of the other Borrowers or of any other fact
that might increase such Borrower's risk hereunder; (E) notice of presentment
for payment, demand, protest, and notice thereof as to any instruments among the
Loan Documents; and (F) all notices (except if such notice is specifically
required to be given to Borrowers hereunder or under the Loan Documents) and
demands to which such Borrower might otherwise be entitled.
(2) its right, under Sections 2845 or 2850 of the California
Civil Code, or otherwise, to require Foothill to institute suit against, or to
exhaust any rights and remedies which Foothill has or may have against, the
other Borrowers or any third party, or against any Collateral provided by the
other Borrowers, or any third party. In this regard, each Borrower agrees that
it is bound to the payment of all Obligations, whether now existing or hereafter
accruing, as fully as if such Obligations were directly owing to Foothill by
such Borrower. Each Borrower further waives any defense arising by reason of any
disability or other defense (other than the defense that the Obligations shall
have been fully and finally performed and indefeasibly paid) of the other
Borrowers or by reason of the cessation from any cause whatsoever of the
liability of the other Borrowers in respect thereof.
(3) (A) any rights to assert against Foothill any defense
(legal or equitable), set-off, counterclaim, or claim which such Borrower may
now or at any time hereafter have against the other Borrowers or any other party
liable to Foothill; (B) any defense, set-off, counterclaim, or claim, of any
kind or nature, arising directly or indirectly from the present or future lack
of perfection, sufficiency, validity, or enforceability of the Obligations or
any security therefor; (C) any defense such Borrower has to performance
hereunder, and any right such Borrower has to be exonerated, provided by
Sections 2819, 2822, or 2825 of the California Civil Code, or otherwise, arising
by reason of: the impairment or suspension of Foothill's rights or remedies
against the other Borrowers; the alteration by Foothill of the Obligations; any
discharge of the other Borrowers' obligations to Foothill by operation of law as
a result of Foothill's intervention or omission; or the acceptance by Foothill
of anything in partial satisfaction of the Obligations; (D) the benefit of any
statute of limitations affecting such Borrower's liability hereunder or the
enforcement thereof, and any act which shall defer or delay the operation of any
statute of limitations applicable to the Obligations shall similarly operate to
defer or delay the operation of such statute of limitations applicable to such
Borrower's liability hereunder.
(ii) Each Borrower absolutely, unconditionally, knowingly, and
expressly waives any defense arising by reason of or deriving from (i) any claim
or defense based upon an election of remedies by Foothill including any defense
based upon an election of remedies by Foothill under the provisions of Sections
580a, 580b, 580d, and
57
726 of the California Code of Civil Procedure or any similar law of California
or any other jurisdiction; or (ii) any election by Foothill under Bankruptcy
Code Section 1111(b) to limit the amount of, or any collateral securing, its
claim against the Borrowers. Pursuant to California Civil Code Section 2856(b):
"Each Borrower waives all rights and defenses arising out of an
election of remedies by the creditor, even though that election of
remedies, such as a nonjudicial foreclosure with respect to security for a
guaranteed obligation, has destroyed such Borrower's rights of subrogation
and reimbursement against the other Borrowers by the operation of Section
580(d) of the California Code of Civil Procedure or otherwise."
Each Borrower waives all rights and defenses that such Borrower may
have because the Obligations are secured by real property. This means,
among other things:
a. Foothill may collect from such Borrower without first foreclosing
on any real or personal property collateral pledged by the other Borrower
or any third Person.
b. If Foothill forecloses on any real property collateral pledged by
the other Borrower or any third Person:
1) The amount of the Obligations may be reduced only by the price
for which that collateral is sold at the foreclosure sale, even if the
collateral is worth more than the sale price.
2) Foothill may collect from such Borrower even if Foothill, by
foreclosing on the real property collateral, has destroyed any right
such Borrower may have to collect from the other Borrower or any third
Person.
This is an unconditional and irrevocable waiver of any rights and
defenses each Borrower may have because the Obligations are secured by real
property. These rights and defenses include, but are not limited to, any
rights or defenses based upon Section 580a, 580b, 580d, or 726 of the
California Code of Civil Procedure."
If any of the Obligations at any time is secured by a mortgage or deed of trust
upon real property, Foothill may elect, in its sole discretion, upon a default
with respect to the Obligations, to foreclose such mortgage or deed of trust
judicially or nonjudicially in any manner permitted by law, before or after
enforcing the Loan Documents, without
58
diminishing or affecting the liability of any Borrower hereunder except to the
extent the Obligations are repaid with the proceeds of such foreclosure. Each
Borrower understands that (a) by virtue of the operation of California's
antideficiency law applicable to nonjudicial foreclosures, an election by
Foothill nonjudicially to foreclose such a mortgage or deed of trust probably
would have the effect of impairing or destroying rights of subrogation,
reimbursement, contribution, or indemnity of such Borrower against the other
Borrowers or other guarantors or sureties, and (b) absent the waiver given by
such Borrower, such an election would prevent Foothill from enforcing the Loan
Documents against such Borrower. Understanding the foregoing, and understanding
that such Borrower is hereby relinquishing a defense to the enforceability of
the Loan Documents, such Borrower hereby waives any right to assert against
Foothill any defense to the enforcement of the Loan Documents, whether
denominated "estoppel" or otherwise, based on or arising from an election by
Foothill nonjudicially to foreclose any such mortgage or deed of trust. Each
Borrower understands that the effect of the foregoing waiver may be that each
Borrower may have liability hereunder for amounts with respect to which such
Borrower may be left without rights of subrogation, reimbursement, contribution,
or indemnity against the other Borrower or other guarantors or sureties. Each
Borrower also agrees that the "fair market value" provisions of Section 580a of
the California Code of Civil Procedure shall have no applicability with respect
to the determination of such Borrower's liability under the Loan Documents.
(iii) Until such time as all Obligations have been fully,
finally, and indefeasibly paid in full, in cash, each Borrower hereby
absolutely, unconditionally, knowingly, and expressly postpones: (1) any right
of subrogation such Borrower has or may have as against the other Borrowers with
respect to the Obligations; (2) any right to proceed against the other Borrowers
or any other Person, now or hereafter, for contribution, indemnity,
reimbursement, or any other suretyship rights and claims, whether direct or
indirect, liquidated or contingent, whether arising under express or implied
contract or by operation of law, which such Borrower may now have or hereafter
have as against the other Borrowers with respect to the Obligations; and (3) any
right to proceed or seek recourse against or with respect to any property or
asset of the other Borrowers.
(iv) WITHOUT LIMITING THE GENERALITY OF ANY OTHER WAIVER OR OTHER
PROVISION SET FORTH IN THIS SECTION 11.4, EACH BORROWER HEREBY ABSOLUTELY,
KNOWINGLY, UNCONDITIONALLY, AND EXPRESSLY WAIVES AND AGREES NOT TO ASSERT ANY
AND ALL BENEFITS OR DEFENSES ARISING DIRECTLY OR INDIRECTLY UNDER ANY ONE OR
MORE OF CALIFORNIA CIVIL CODE SECTIONS 2799, 2808, 2809, 2810, 2815, 2819, 2820,
2821, 2822, 2825, 2839, 2845, 2848, 2849, AND 2850, CALIFORNIA CODE OF CIVIL
PROCEDURE
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SECTIONS 580A, 580B, 580C, 580D, AND 726, CALIFORNIA UNIFORM COMMERCIAL CODE
SECTIONS 3116, 3118, 3119, 3419, 3605, 9504, 9505, AND 9507, AND CHAPTER 2 OF
TITLE 14 OF PART 4 OF DIVISION 3 OF THE CALIFORNIA CIVIL CODE.
(f) Each Borrower consents and agrees that, without notice to or by
such Borrower, and without affecting or impairing the liability of such Borrower
hereunder, Foothill may, by action or inaction:
(i) compromise, settle, extend the duration or the time for the
payment of, or discharge the performance of, or may refuse
to or otherwise not enforce the Loan Documents, or any part
thereof, with respect to the other Borrowers;
(ii) release the other Borrowers or grant other indulgences to
the other Borrowers in respect thereof; or
(iii) release or substitute any guarantor, if any, of the
Obligations, or enforce, exchange, release, or waive any
security for the Obligations or any guaranty of the
Obligations, or any portion thereof.
(g) Foothill shall have the right to seek recourse against each
Borrower to the fullest extent provided for herein, and no election by Foothill
to proceed in one form of action or proceeding, or against any party, or on any
obligation, shall constitute a waiver of Foothill's right to proceed in any
other form of action or proceeding or against other parties unless Foothill has
expressly waived such right in writing. Specifically, but without limiting the
generality of the foregoing, no action or proceeding by Foothill under the Loan
Documents shall serve to diminish the liability of any Borrower thereunder
except to the extent that Foothill finally and unconditionally shall have
realized indefeasible payment by such action or proceeding.
(h) The Obligations shall not be considered indefeasibly paid for
purposes of this Section 11.4 unless and until all payments to Foothill are no
longer subject to any right on the part of any person, including any Borrower,
any Borrower as a debtor in possession, or any trustee (whether appointed
pursuant to 11 U.S.C., or otherwise) of any Borrower's assets to invalidate or
set aside such payments or to seek to recoup the amount of such payments or any
portion thereof, or to declare same to be fraudulent or preferential. Upon such
full and final performance and indefeasible payment
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of the Obligations, Foothill shall have no obligation whatsoever to transfer or
assign its interest in the Loan Documents to any Borrower. In the event that,
for any reason, any portion of such payments to Foothill is set aside or
restored, whether voluntarily or involuntarily, after the making thereof, then
the obligation intended to be satisfied thereby shall be revived and continued
in full force and effect as if said payment or payments had not been made, and
each Borrower shall be liable for the full amount Foothill is required to repay
plus any and all costs and expenses (including attorneys' fees and attorneys'
fees incurred pursuant to 11 U.S.C.) paid by Foothill in connection therewith.
Borrowers and each of them warrant and agree that each of the
waivers and consents set forth herein are made after consultation with legal
counsel and with full knowledge of their significance and consequences, with the
understanding that events giving rise to any defense or right waived may
diminish, destroy or otherwise adversely affect rights which Borrowers otherwise
may have against other Borrowers, the Lender Group or others, or against
Collateral. If any of the waivers or consents herein are determined to be
contrary to any applicable law or public policy, such waivers and consents shall
be effective to the maximum extent permitted by law.
11.5 WESTBEACH BORROWINGS FROM PARENT. The parties acknowledge that a
principal purpose of this loan facility is to provide working capital for Parent
and its Subsidiaries, including Westbeach. To that end, the parties acknowledge
that Parent will be making interest free loans or advances to Westbeach from the
proceeds of this loan facility from time to time to provide Westbeach with
working capital.
12. NOTICES.
Unless otherwise provided in this Agreement, all notices or demands by any
party relating to this Agreement or any other Loan Document shall be in writing
and (except for financial statements and other informational documents which may
be sent by first-class mail, postage prepaid) shall be personally delivered or
sent by registered or certified mail (postage prepaid, return receipt
requested), overnight courier, or telefacsimile to Borrower or to Foothill, as
the case may be, at its address set forth below:
IF TO BORROWERS: C/X XXXXXX SNOWBOARDS, INC.
0000 Xxxxxxx Xxxx, X.X.
Xxxxx, Xxxxxx 00000
Attn: Xxxxx Xxxxxx, Chief Financial Officer
Fax No. 000.000.0000
61
WITH COPIES TO: XXXXXXXX & HUNTER
000 X. 00xx Xxxxxx
Xxxxxx, Xxxxxx 00000
Attn: Xxxxxx X. Xxxxx, Esq.
Fax No. 000.000.0000
IF TO FOOTHILL: FOOTHILL CAPITAL CORPORATION
00000 Xxxxx Xxxxxx Xxxxxxxxx
Xxxxx 0000
Xxx Xxxxxxx, Xxxxxxxxxx 00000-0000
Attn: Business Finance Division Manager
Fax No. 000.000.0000
WITH COPIES TO: BUCHALTER, NEMER, FIELDS & YOUNGER
000 Xxxxx Xxxxxxxx, Xxxxx 0000
Xxx Xxxxxxx, Xxxxxxxxxx 00000
Attn: Xxxxxx X. Xxxxxx, Esq.
Fax No. 000.000.0000
The parties hereto may change the address at which they are to receive
notices hereunder, by notice in writing in the foregoing manner given to the
other. All notices or demands sent in accordance with this Section 12, other
than notices by Foothill in connection with Sections 9504 or 9505 of the Code,
shall be deemed received on the earlier of the date of actual receipt or 3 days
after the deposit thereof in the mail. Each Borrower acknowledges and agrees
that notices sent by Foothill in connection with Sections 9504 or 9505 of the
Code shall be deemed sent when deposited in the mail or personally delivered,
or, where permitted by law, transmitted by telefacsimile or other similar method
set forth above.
62
13. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER.
THE VALIDITY OF THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS (UNLESS
EXPRESSLY PROVIDED TO THE CONTRARY IN AN ANOTHER LOAN DOCUMENT), THE
CONSTRUCTION, INTERPRETATION, AND ENFORCEMENT HEREOF AND THEREOF, AND THE RIGHTS
OF THE PARTIES HERETO AND THERETO WITH RESPECT TO ALL MATTERS ARISING HEREUNDER
OR THEREUNDER OR RELATED HERETO OR THERETO SHALL BE DETERMINED UNDER, GOVERNED
BY, AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA. THE
PARTIES AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING IN CONNECTION WITH THIS
AGREEMENT AND THE OTHER LOAN DOCUMENTS SHALL BE TRIED AND LITIGATED ONLY IN THE
STATE AND FEDERAL COURTS LOCATED IN THE COUNTY OF LOS ANGELES, STATE OF
CALIFORNIA OR, AT THE SOLE OPTION OF FOOTHILL, IN ANY OTHER COURT IN WHICH
FOOTHILL SHALL INITIATE LEGAL OR EQUITABLE PROCEEDINGS AND WHICH HAS SUBJECT
MATTER JURISDICTION OVER THE MATTER IN CONTROVERSY. EACH BORROWER AND FOOTHILL
WAIVES, TO THE EXTENT PERMITTED UNDER APPLICABLE LAW, ANY RIGHT EACH MAY HAVE TO
ASSERT THE DOCTRINE OF FORUM NON CONVENIENS OR TO OBJECT TO VENUE TO THE EXTENT
ANY PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS SECTION 13. EACH BORROWER AND
FOOTHILL HEREBY WAIVE ITS RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR
CAUSE OF ACTION BASED UPON OR ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY OF
THE TRANSACTIONS CONTEMPLATED THEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS,
BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS. EACH
BORROWER AND FOOTHILL REPRESENTS THAT IT HAS REVIEWED THIS WAIVER AND EACH
KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION
WITH LEGAL COUNSEL. IN THE EVENT OF LITIGATION, A COPY OF THIS AGREEMENT MAY BE
FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.
14. DESTRUCTION OF BORROWERS' DOCUMENTS.
All documents, schedules, invoices, agings, or other papers delivered to
Foothill may be destroyed or otherwise disposed of by Foothill four months after
they are delivered to or received by Foothill, unless Borrowers request, in
writing, the return of said documents, schedules, or other papers and makes
arrangements, at Borrowers' expense, for their return.
63
15. GENERAL PROVISIONS.
15.1 EFFECTIVENESS. This Agreement shall be binding and deemed
effective when executed by Borrowers and Foothill.
15.2 SUCCESSORS AND ASSIGNS. This Agreement shall bind and inure to
the benefit of the respective successors and assigns of each of the parties;
provided, however, that no Borrower may assign this Agreement or any rights or
duties hereunder without Foothill's prior written consent and any prohibited
assignment shall be absolutely void. No consent to an assignment by Foothill
shall release the assigning Borrower from its Obligations. Foothill may assign
this Agreement and its rights and duties hereunder and no consent or approval by
Borrowers is required in connection with any such assignment. Foothill reserves
the right to sell, assign, transfer, negotiate, or grant participations in all
or any part of, or any interest in Foothill's rights and benefits hereunder. In
connection with any such assignment or participation, Foothill may disclose all
documents and information which Foothill now or hereafter may have relating to
any Borrower or any Borrower's business. To the extent that Foothill assigns its
rights and obligations hereunder to a third Person, Foothill thereafter shall be
released from such assigned obligations to Borrowers and such assignment shall
effect a novation between Borrowers and such third Person.
15.3 SECTION HEADINGS. Headings and numbers have been set forth herein
for convenience only. Unless the contrary is compelled by the context,
everything contained in each section applies equally to this entire Agreement.
15.4 INTERPRETATION. Neither this Agreement nor any uncertainty or
ambiguity herein shall be construed or resolved against Foothill or Borrowers,
whether under any rule of construction or otherwise. On the contrary, this
Agreement has been reviewed by all parties and shall be construed and
interpreted according to the ordinary meaning of the words used so as to fairly
accomplish the purposes and intentions of all parties hereto.
15.5 SEVERABILITY OF PROVISIONS. Each provision of this Agreement
shall be severable from every other provision of this Agreement for the purpose
of determining the legal enforceability of any specific provision.
15.6 AMENDMENTS IN WRITING. This Agreement can only be amended by a
writing signed by both Foothill and Borrowers.
15.7 COUNTERPARTS; TELEFACSIMILE EXECUTION. This Agreement may be
64
executed in any number of counterparts and by different parties on separate
counterparts, each of which, when executed and delivered, shall be deemed to be
an original, and all of which, when taken together, shall constitute but one and
the same Agreement. Delivery of an executed counterpart of this Agreement by
telefacsimile shall be equally as effective as delivery of an original executed
counterpart of this Agreement. Any party delivering an executed counterpart of
this Agreement by telefacsimile also shall deliver an original executed
counterpart of this Agreement but the failure to deliver an original executed
counterpart shall not affect the validity, enforceability, and binding effect of
this Agreement.
15.8 REVIVAL AND REINSTATEMENT OF OBLIGATIONS. If the incurrence or
payment of the Obligations by any Borrower or any guarantor of the Obligations
or the transfer by either or both of such parties to Foothill of any property of
either or both of such parties should for any reason subsequently be declared to
be void or voidable under any state or federal law relating to creditors'
rights, including provisions of the Bankruptcy Code relating to fraudulent
conveyances, preferences, and other voidable or recoverable payments of money or
transfers of property (collectively, a "Voidable Transfer"), and if Foothill is
required to repay or restore, in whole or in part, any such Voidable Transfer,
or elects to do so upon the reasonable advice of its counsel, then, as to any
such Voidable Transfer, or the amount thereof that Foothill is required or
elects to repay or restore, and as to all reasonable costs, expenses, and
attorneys fees of Foothill related thereto, the liability of Borrowers or such
guarantor automatically shall be revived, reinstated, and restored and shall
exist as though such Voidable Transfer had never been made.
65
15.9 INTEGRATION. This Agreement, together with the other Loan
Documents, reflects the entire understanding of the parties with respect to the
transactions contemplated hereby and shall not be contradicted or qualified by
any other agreement, oral or written, before the date hereof.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed in Los Angeles, California.
XXXXXX SNOWBOARDS, INC.,
an Oregon corporation
By /s/ Xxxxx Xxxxxx
-----------------------------------------------
Title: CEO
------------------------------------------
WESTBEACH SNOWBOARD U.S.A. INC.,
a Washington corporation
By /s/ Xxxxx Xxxxxx
-----------------------------------------------
Title: CEO
------------------------------------------
FOOTHILL CAPITAL CORPORATION,
a California corporation
By /s/ Xxxxx Xxxxx
------------------------------------------------
Title: AVP
------------------------------------------
66
SCHEDULE P-1
PERMITTED LIENS
File Date Description of
Number Filed Type of Filing Secured Party Collateral
238676 9/29/94 UCC Lien AT&T Credit Corp. phone system
244007 11/16/94 UCC Lien Norwest Financial Leasing grindrite
202547 12/22/93 UCC Lien AT&T Credit Corp. phone system
243630 11/14/94 UCC Lien Norwest Financial Leasing wide belt waxer/grindrite
243911 11/15/94 UCC Xxxx Xxxxx Rental System forklift
236855 1/20/95 UCC Lien Commercial Equipment Lease structural blaster
260084 3/30/95 UCC Lien Colonial Pacific Leasing high pressure foam machine
262870 4/19/95 UCC Lien AT&T Capital Leasing Services, Inc. Sharp 9800 copier
274164 7/13/95 UCC Lien Colonial Pacific Leasing grindrites, stonegrinder
280878 8/29/95 UCC Lien New England Capital Corporation silkscreen machine
(assigned by Celtic Leasing Corp.)
280879 8/29/95 UCC Lien New England Capital Corporation 10 Dell computers
(assigned by Celtic Leasing Corp.)
280880 8/29/95 UCC Lien New England Capital Corporation UV Systems, conveyor
(assigned by Celtic Leasing Corp.)
241649 10/25/94 UCC Lien Seattle First National Bank Milling machine
(assigned by
1
File Date Description of
Number Filed Type of Filing Secured Party Collateral
Kenco Equipment Lease Co.)
263053 4/20/95 UCC Lien Blast Cleaning Services Econoline Blast Cabinet
178282 6/01/93 UCC Lien AVCO Financial (assigned by Sander, table saw, misc. equipment
Kenco Equipment Lease Co.)
191377 9/17/93 UCC Lien AVCO Financial (assigned by Sorters and misc. equipment
Kenco Equipment Lease Co.)
241172 10/20/94 UCC Lien U.S. Bank of WA (assigned by Financial UV conveyor
Pacific Company)
146557 8/05/92 UCC Lien Northwest Precision Plastics, Inc. Various molds
165564 2/08/93 UCC Lien Bank of America NT&SA, dba Press brake
Seafirst Bank (assigned by Kenco
Equipment Lease Co.)
183773 7/15/93 UCC Lien U.S. Bank of WA (assigned by Computers, related equipment
Financial Pacific Company)
189233 8/27/93 UCC Lien Kenco Equipment Lease Co. Shrink tunnel, film, heat seat
210395 3/03/94 UCC Lien AT&T Capital Corp. (assigned by Computerized pattern xxxxxx
Xxxxxxxx Financial, Inc.)
213673 3/24/94 UCC Lien Seafirst National Bank (assigned by Mold, baseplate, roto disk
Financial Pacific Company)
216677 4/15/94 UCC Lien AT&T Capital Corp. (assigned by Injection mold
Xxxxxxxx Financial, Inc.)
2
File Date Description of
Number Filed Type of Filing Secured Party Collateral
234785 8/26/94 UCC Lien Seattle First National Bank (assigned Hydraulics equipment
by Kenco Equipment Lease Co.)
236855 9/15/94 UCC Lien First Interstate Bank of Oregon Structural blaster
(assigned by Commercial Equipment
Lease Corp.)
239740 10/07/94 UCC Lien Seattle First National Bank (assigned Siphon blast machine
by Kenco Equipment Lease Co.)
243912 11/15/94 UCC Xxxx Xxxxx Credit Corporation (assigned by Scissor lift
Norlift of Oregon, Inc.)
253897 2/11/95 UCC Lien Safeco Credit Co., Inc. Epoxy meter mix and dispensing
machine
268973 6/01/95 UCC Lien Seattle First National Bank (assigned Computer equipment
by Kenco Equipment Lease Co.)
394581 10/15/97 UCC Lien Flow International Corporation Shapecutting system
3
SCHEDULE R-1
REAL PROPERTY
Parent owns its approximately 106,000 square foot administrative and
manufacturing facility located at 0000 Xxxxxxx Xxxx in Xxxxx, Xxxxxx 00000.
4
SCHEDULE 5.8
SUBSIDIARIES
1) Xxxxxx Snowboards, Inc. owns (a) 100 shares (100% of the issued and
outstanding shares) of Xxxxxx International, Inc., a Guam corporation and (b)
100% of the ownership interests in Xxxxxx, LLC, an Oregon limited liability
company.
2) Xxxxxx, LLC owns 100 shares (100% of the issued and outstanding shares) of
Xxxxxx Westbeach Canada ULC, a Canadian corporation.
3) Xxxxxx Westbeach Canada ULC owns 100% of the issued and outstanding shares
of each of (a) Westbeach Snowboard U.S.A. Inc., a Washington corporation; (b)
Westbeach Snowboard GmbH, an Austrian corporation and (c) Westbeach Snowboard UK
Limited, a Nova Scotia corporation.
5
6
SCHEDULE 5.10
PENDING LITIGATION
Parent is not currently involved in any material litigation or legal
proceedings and is not aware of any potentially material litigation or
proceeding threatened against it other than as described below.
1. In June 1995, Parent received notice from a German company alleging that
Parent's M-1 bindings sold prior to 1995 infringe on a patent held by that
company, which notice requests certain royalties based on M-1 binding sales.
Based on a review of the infringement claims and discussions with counsel,
Parent believes that it has defenses to such claims. No contact has been made
by the German company since this initial notice.
2. In early January 1996, Parent terminated its distribution arrangement with
its German distributor and appointed another company as its German distributor.
In late January 1996, Parent received notice from the terminated German
distributor alleging that Parent has an exclusive distribution agreement and
that such distributor is entitled to certain royalty payments and other rights.
There has been no contact from the German distributor since that time.
3. On January 29, 1998, Parent filed a claim against The Board Locker for
collections of receivables due in the amount of $479,000, a portion of which has
been reserved. Xxxxxx Snowboards, Inc. v. Principle Marketers, Inc., dba The
Board Locker and Xxxxx Xxxxx, Circuit Court Case No. 98C-10879, for the Circuit
Court of Xxxxxx County, Oregon. Parent is seeking to recover $478,715 from
Principle Marketers, Inc. directly and Xxxxx Xxxxx as a guarantor of such
obligations, for goods sold to Principle Marketers, Inc., plus accrued service
charges of $76,961.63 from January 1, 1997, through January 20, 1998, plus
service charges at 18% per annum from January 29, 1998, until judgment, plus
attorneys fees and costs and disbursements, plus 18% per annum interest from
the date of judgment until paid.
4. On April 8, 1998, a Writ of Summons was filed against Parent by Xxxxxxx
Xxxxxx Fashion Agency, Inc. in the Supreme Court of British Columbia, Vancouver
Registry No. C981832. The claim alleges breaches of a sales representation
contract and improper termination of the sales relationship under British
Columbia law. The plaintiff seeks damages of approximately $132,000.
5. K2 Corporation (K2) has contacted Parent alleging that Parent's new Engage
3 step-in boot and binding system ("Engage System") infringes a K2 patent and
requesting that Parent either cease using such Engage System or contact K2 to
discuss a potential license. K2 has also requested an accounting of unit sales
to determine damages it may have suffered. Parent, after reviewing this matter
with its outside patent counsel, believes that the Engage 3 does not infringe
such patent and is so notifying K2.
7
8
SCHEDULE 5.13
ERISA
None.
9
SCHEDULE 6.12
XXXXXX SNOWBOARDS
LOCATION OF INVENTORY AND EQUIPMENT
FOR THE PERIOD ENDING MAY 2, 1998
LOCATION INVENTORY DESCRIPTION FACILITY DESCRIPTION
----------------------------------- ------------------------------- -------------------------------
Xxxxxx Westbeach Canada Accessories, Footwear, Corporate Headquarters &
0000 XX Xxxxxx Xxxxx Snowboards, Boots, Bindings, Wholesale Distributor
Xxxxxxxxx, XX X0X 0X0 Apparel
Xxxxxx Snowboards, Inc. Snowboards, Boots, Bindings, Corporate Headquarters &
0000 Xxxxxxx Xxxx XX Apparel, Accessories, WIP, Wholesale Distributor
Xxxxx, XX 00000 Raw Materials
Westbeach Snowboard GmbH Snowboards, Boots, Bindings, Wholesale Distributor
Bachlechnerstrabe 23 Apparel
Innsbruck, A6020
Austria
Westbeach Snowboard UK Ltd. Apparel Wholesale Distributor
c/o MSAS Cargo Internat'l Ltd.
Ground Floor Office Suite
World Freight Terminal
Xxxxxxxxxx Xxxxxxx
Xxxxxxxxxx, Xxxxxxxx, X00 0XX
XX
10
LOCATION INVENTORY DESCRIPTION FACILITY DESCRIPTION
----------------------------------- ------------------------------- -------------------------------
Xxxxxx Westbeach Canada Accessories, Footwear, Retail Distributor
0000 Xxxx Xxxxxx Xxxxxx Snowboards, Boots, Bindings,
Xxxxxxxxx, XX X00 0X0 Apparel
Xxxxxx Westbeach Canada Accessories, Footwear, Retail Distributor
119 - 4350 Lorimer Road Snowboards, Boots, Bindings,
Xxxxxxxx, XX X0X 0X0 Apparel
Westbeach Snowboard U.S.A. Inc. Accessories, Footwear, Retail Distributor
No. 304 - 105th Avenue NE Snowboards, Boots, Bindings,
Xxxxxxxx, XX 00000 Apparel
Plasticos Duramas Raw Materials Public Warehouse
Xxxxx Xxxxxxxxx Xxxxxxxx Xxxxxx 000
Xxx Xxxxxxxx
Xxxxxxx-Xxxxxx Truck Line, Inc. Raw Materials Truck Line/Warehouse
000 X Xxxxxxxx Xxxxxx
Xxxxxxxxx, XX 00000
11
SCHEDULE 7.1
PERMITTED INDEBTEDNESS
1) Schedule of long-term leases payable at December 27, 1997:
Account Leasing Equipment Current Portion
Number Company Under Lease 12/27/97
2502-001 Celtic UV Systems, Conveyor 19,263.27
2502-002 Celtic Silk Screen Machine 79,931.50
2503-007 Kenco Dell Computers (10 PC s) 1,872.83
2504-002 Commercial Equipment Structural Blaster 3,674.93
0000-000 Xxxxxxxxx Financial Wide Belt Waxer/Grindrites 11,878.85
0000-000 Xxxxxxxxx Financial Grindrite 4,759.56
0000-000 Xxxxx Credit Forklift 8,916.76
2515-001 Colonial Pacific High Pressure Foam Machine 44,260.60
2515-002 Colonial Pacific 2 Grindrite, Stonegrinder 41,728.15
2528-000 AT&T Credit Phone System Claxter 14,949.11
2528-002 AT&T Credit Sharp 9800 Copier 853.16
2529-000 AT&T Credit Phone System Xxxxxxx 18,970.07
Flow International Corp. Flow Shapecutting System 141,634.03
Total: 392,692.92
2) Subsequent to the closing of this Agreement, Parent may sell convertible
securities (the sale of which will not create a Change of Control as defined in
the Agreement) or raise additional debt in a principal amount not to exceed
$5,000,000.
EXHIBIT C-1
COMPLIANCE CERTIFICATE SAMPLE COPY
(LOAN AND SECURITY AGREEMENT SECTION 6.3)
Date _______________, 199_
FOOTHILL CAPITAL CORPORATION
000000 Xxxxx Xxxxxx Xxxxxxxxx, Xxxxx 0000
Xxxxx Xxxxxx, Xxxxxxxxxx 00000-0000
Attention: ________________________
RE: LOAN AND SECURITY AGREEMENT, DATED AS OF MAY 7, 1998 (THE "AGREEMENT") BY
AND AMONG FOOTHILL CAPITAL CORPORATION ("FOOTHILL") AND XXXXXX SNOWBOARDS,
INC. AND XXXXXX SNOWBOARD U.S.A. INC. (COLLECTIVELY, "BORROWERS").
Dear _______________:
In accordance with Section 6.3 of the Agreement, this letter shall serve as
certification to Foothill that to the best of my knowledge: (i) all financial
statements have been prepared in accordance with GAAP and fairly represent the
financial condition of Borrowers, (ii) the representations and warranties of
Borrowers set forth in the Agreement and other Loan Documents are true and
correct in all material respects on and as of the date of this certification,
(iii) as demonstrated on Exhibit 1 attached hereto, Borrowers are in compliance
with each of their financial covenants set forth in Section 7.20 of the
Agreement as of the date of this certification, and (iv) there does not exist
any condition or event that constitutes a Default or Event of Default. Such
certification is made as of the fiscal month ending ______________, 199___.
Sincerely,
Chief Financial Officer
EXHIBIT C-1
