EXHIBIT 10.1
REVOLVING CREDIT
AND
SECURITY AGREEMENT
PNC BANK, NATIONAL ASSOCIATION
(AS LENDER AND AS AGENT)
WITH
SMALL WORLD TOYS
(BORROWER)
December 15, 2004
REVOLVING CREDIT
AND
SECURITY AGREEMENT
Revolving Credit and Security Agreement dated as of December 15, 2004
among SMALL WORLD TOYS, a corporation organized under the laws of the State of
California ("Borrower"), the financial institutions which are now or which
hereafter become a party hereto (collectively, the "Lenders" and individually a
"Lender") and PNC BANK, NATIONAL ASSOCIATION ("PNC"), as agent for Lenders (PNC,
in such capacity, the "Agent").
IN CONSIDERATION of the mutual covenants and undertakings herein
contained, Borrower, Lenders and Agent hereby agree as follows:
I. DEFINITIONS.
1.1 Accounting Terms. As used in this Agreement, the Other Documents or
any certificate, report or other document made or delivered pursuant to this
Agreement, accounting terms not defined in Section 1.2 or elsewhere in this
Agreement and accounting terms partly defined in Section 1.2 to the extent not
defined, shall have the respective meanings given to them under GAAP; provided,
however, whenever such accounting terms are used for the purposes of determining
compliance with financial covenants in this Agreement, such accounting terms
shall be defined in accordance with GAAP as applied in preparation of the
financial statements of Borrower for the interim period ended June 30, 2004.
1.2 General Terms. For purposes of this Agreement the following
terms shall have the following meanings:
"Accountants" shall have the meaning set forth in Section 9.7
hereof.
"Adjusted Undrawn Availability" at a particular date shall mean the
sum of Undrawn Availability plus, if a Seasonal Advance Period is in effect, the
Maximum Seasonal Advance Amount, less any outstanding Seasonal Advance.
"Advances" shall mean and include the Revolving Advances, Letters of
Credit, and the Seasonal Advance.
"Advance Rates" shall mean, collectively, the Receivables Advance
Rate and the Inventory Advance Rate.
"Affiliate" of any Person shall mean (a) any Person which, directly
or indirectly, is in control of, is controlled by, or is under common control
with such Person, or (b) any Person who is a director, managing member, general
partner or officer (i) of such Person, (ii) of any Subsidiary of such Person or
(iii) of any Person described in clause (a) above. For purposes of this
definition, control of a Person shall mean the power, direct or indirect, (x) to
vote 5% or more of the Equity Interests having ordinary voting power for the
election of directors of such Person or other Persons performing similar
functions for any such Person, or (y) to direct or cause the direction of the
management and policies of such Person whether by ownership of Equity Interests,
contract or otherwise.
"Agent" shall have the meaning set forth in the preamble to this
Agreement and shall include its successors and assigns.
"Agreement" shall mean this Revolving Credit and Security Agreement,
as the same may be amended, restated, supplemented or otherwise modified from
time to time.
"Alternate Base Rate" shall mean, for any day, a rate per annum
equal to the higher of (i) the Base Rate in effect on such day and (ii) the
Federal Funds Open Rate in effect on such day plus 1/2 of 1%.
"Anti-Terrorism Laws" shall mean any Applicable Laws relating to
terrorism or money laundering, including Executive Order No. 13224, the USA
Patriot Act, the Applicable Laws comprising or implementing the Bank Secrecy
Act, and the Applicable Laws administered by the United States Treasury
Department's Office of Foreign Asset Control (as any of the foregoing Applicable
Laws may from time to time be amended, renewed, extended, or replaced).
"Applicable Law" shall mean all laws, rules and regulations
applicable to the Person, conduct, transaction, covenant, Other Document or
contract in question, including all applicable common law and equitable
principles; all provisions of all applicable state, federal and foreign
constitutions, statutes, rules, regulations and orders of any Governmental Body,
and all orders, judgments and decrees of all courts and arbitrators.
"Appraisal" means an appraisal performed by an Appraiser, which
appraisal is, in form and substance, satisfactory to Agent in its sole
discretion.
"Appraiser" means an appraiser satisfactory to Agent in its sole
discretion.
"Authority" shall have the meaning set forth in Section 4.19(d).
"Base Rate" shall mean the base commercial lending rate of PNC as
publicly announced to be in effect from time to time, such rate to be adjusted
automatically, without notice, on the effective date of any change in such rate.
This rate of interest is determined from time to time by PNC as a means of
pricing some loans to its customers and is neither tied to any external rate of
interest or index nor does it necessarily reflect the lowest rate of interest
actually charged by PNC to any particular class or category of customers of PNC.
"Blocked Accounts" shall have the meaning set forth in Section
4.15(h).
"Blocked Account Bank" shall have the meaning set forth in Section
4.15(h).
"Blocked Person" shall have the meaning set forth in Section 5.24(b)
hereof.
"Borrower" shall have the meaning set forth in the preamble to this
Agreement and shall extend to all permitted successors and assigns of such
Person.
-2-
"Borrower's Account" shall have the meaning set forth in Section
2.8.
"Borrowing Base Certificate" shall mean a certificate in form and
substance satisfactory to Agent duly executed by the President, Chief Financial
Officer or Controller of the Borrower and delivered to the Agent, appropriately
completed, by which such officer shall certify to Agent, among other things, the
Formula Amount and calculation thereof as of the date of such certificate.
"Business Day" shall mean any day other than Saturday or Sunday or a
legal holiday on which commercial banks are authorized or required by law to be
closed for business in East Brunswick, New Jersey or Pasadena, California, and,
if the applicable Business Day relates to any Eurodollar Rate Loans, such day
must also be a day on which dealings are carried on in the London interbank
market.
"Capital Expenditures" shall mean expenditures made or liabilities
incurred for the acquisition of any fixed assets or improvements, replacements,
substitutions or additions thereto which have a useful life of more than one
year, including the total principal portion of Capitalized Lease Obligations,
which, in accordance with GAAP, would be classified as capital expenditures.
"Capitalized Lease Obligation" shall mean any Indebtedness of
Borrower represented by obligations under a lease that is required to be
capitalized for financial reporting purposes in accordance with GAAP.
"CERCLA" shall mean the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended, 42 U.S.C. ss.ss.9601 et seq.
"Change of Control" shall mean (a) the occurrence of any event
(whether in one or more transactions) which results in a transfer of control of
Borrower to a Person who is not an Original Owner, (b) any merger or
consolidation of or with Borrower with respect to which Borrower is not the
surviving corporation or which otherwise results in a Change of Control, or sale
of all or substantially all of the property or assets of Borrower, or (c) Xxxxx
Xxxx is no longer the chief executive officer and president of both Borrower and
Holdings. For purposes of this definition, "control of Borrower" shall mean the
power, direct or indirect (x) to vote 100% of the Equity Interests having
ordinary voting power for the election of directors (or the individuals
performing similar functions) of Borrower or (y) to direct or cause the
direction of the management and policies of Borrower by contract or otherwise.
"Change of Ownership" shall mean (a) 100% of the Equity Interests of
Borrower is no longer owned or controlled by (including for the purposes of the
calculation of percentage ownership, any Equity Interests into which any Equity
Interests of Borrower held by any of the Original Owners are convertible or for
which any such Equity Interests of Borrower or of any other Person may be
exchanged and any Equity Interests issuable to such Original Owners upon
exercise of any warrants, options or similar rights which may at the time of
calculation be held by such Original Owners) a Person who is an Original Owner
or (b) any merger, consolidation or sale of substantially all of the property or
assets of Borrower.
-3-
"Charges" shall mean all taxes, charges, fees, imposts, levies or
other assessments, including all net income, gross income, gross receipts,
sales, use, ad valorem, value added, transfer, franchise, profits, inventory,
capital stock, license, withholding, payroll, employment, social security,
unemployment, excise, severance, stamp, occupation and property taxes, custom
duties, fees, assessments, liens, claims and charges of any kind whatsoever,
together with any interest and any penalties, additions to tax or additional
amounts, imposed by any taxing or other authority, domestic or foreign
(including the Pension Benefit Guaranty Corporation or any environmental agency
or superfund), upon the Collateral, Borrower or any of its Affiliates.
"Closing Date" shall mean December 16, 2004 or such other date as
may be agreed to by the parties hereto.
"Code" shall mean the Internal Revenue Code of 1986, as the same may
be amended or supplemented from time to time, and any successor statute of
similar import, and the rules and regulations thereunder, as from time to time
in effect.
"Collateral" shall mean and include:
(a) all Receivables;
(b) all Equipment;
(c) all General Intangibles;
(d) all Inventory;
(e) all Investment Property;
(f) [omitted];
(g) all Subsidiary Stock;
(h) [omitted];
(i) all of Borrower's right, title and interest in and to,
whether now owned or hereafter acquired and wherever located, (i) its
respective goods and other property including, but not limited to, all
merchandise returned or rejected by Customers, relating to or securing
any of the Receivables; (ii) all of Borrower's rights as a consignor, a
consignee, an unpaid vendor, mechanic, artisan, or other lienor,
including stoppage in transit, setoff, detinue, replevin, reclamation and
repurchase; (iii) all additional amounts due to Borrower from any
Customer relating to the Receivables; (iv) other property, including
warranty claims, relating to any goods securing the Obligations; (v) all
of Borrower's contract rights, rights of payment which have been earned
under a contract right, instruments (including promissory notes),
documents, chattel paper (including electronic chattel paper), warehouse
receipts, deposit accounts, letters of credit and money; (vi) all
commercial tort claims (whether now existing or hereafter arising); (vii)
if and when obtained by Borrower, all real and personal property of third
parties in which Borrower has been granted a lien or security interest as
-4-
security for the payment or enforcement of Receivables; (viii) all letter
of credit rights (whether or not the respective letter of credit is
evidenced by a writing); (ix) all supporting obligations; and (x) any
other goods, personal property or real property now owned or hereafter
acquired in which Borrower has expressly granted a security interest or
may in the future grant a security interest to Agent hereunder, or in any
amendment or supplement hereto or thereto, or under any other agreement
between Agent and Borrower;
(j) all of Borrower's ledger sheets, ledger cards, files,
correspondence, records, books of account, business papers, computers,
computer software (owned by Borrower or in which it has an interest),
computer programs, tapes, disks and documents relating to (a), (b), (c),
(d), (e), (f), (g), (h) or (i) of this Paragraph; and
(k) all proceeds and products of (a), (b), (c), (d), (e), (f),
(g), (h), (i) and (j) in whatever form, including, but not limited to:
cash, deposit accounts (whether or not comprised solely of proceeds),
certificates of deposit, insurance proceeds (including hazard, flood and
credit insurance), negotiable instruments and other instruments for the
payment of money, chattel paper, security agreements, documents, eminent
domain proceeds, condemnation proceeds and tort claim proceeds.
"Commitment Percentage" of any Lender shall mean the percentage set
forth below such Lender's name on the signature page hereof as same may be
adjusted upon any assignment by a Lender pursuant to Section 15.3(b) hereof.
"Commitment Transfer Supplement" shall mean a document in the form
of Exhibit 15.3 hereto, properly completed and otherwise in form and substance
satisfactory to Agent by which the Purchasing Lender purchases and assumes a
portion of the obligation of Lenders to make Advances under this Agreement.
"Compliance Certificate" shall mean a compliance certificate to be
signed by the Chief Financial Officer or Controller of Borrower, which shall
state that, based on an examination sufficient to permit such officer to make an
informed statement, no Default or Event of Default exists, or if such is not the
case, specifying such Default or Event of Default, its nature, when it occurred,
whether it is continuing and the steps being taken by Borrower with respect to
such default and, such certificate shall have appended thereto calculations
which set forth Borrower's compliance with the requirements or restrictions
imposed by Sections 6.5, 7.4, 7.5, 7.6, 7.7, 7.8, 7.11 and 7.21.
"Consents" shall mean all filings and all licenses, permits,
consents, approvals, authorizations, qualifications and orders of Governmental
Bodies and other third parties, domestic or foreign, necessary to carry on
Borrower's business or necessary (including to avoid a conflict or breach under
any agreement, instrument, other document, license, permit or other
authorization) for the execution, delivery or performance of this Agreement, or
the Other Documents, including any Consents required under all applicable
federal, state or other Applicable Law.
-5-
"Consigned Inventory" shall mean Inventory of Borrower that is in
the possession of another Person on a consignment, sale or return, or other
basis that does not constitute a final sale and acceptance of such Inventory.
"Contract Rate" shall mean, as applicable, the Revolving Interest
Rate or the Seasonal Advance Rate.
"Controlled Group" shall mean, at any time, the Borrower and all
members of a controlled group of corporations and all trades or businesses
(whether or not incorporated) under common control and all other entities which,
together with Borrower, are treated as a single employer under Section 414 of
the Code.
"Customer" shall mean and include the account debtor with respect to
any Receivable and/or the prospective purchaser of goods, services or both with
respect to any contract or contract right, and/or any party who enters into or
proposes to enter into any contract or other arrangement with Borrower, pursuant
to which Borrower is to deliver any personal property or perform any services.
"Default" shall mean an event, circumstance or condition which, with
the giving of notice or passage of time or both, would constitute an Event of
Default (including, without limitation, the filing of a petition against
Borrower under any state or federal bankruptcy law).
"Default Rate" shall have the meaning set forth in Section 3.1
hereof.
"Defaulting Lender" shall have the meaning set forth in Section
2.23(a) hereof.
"Depository Accounts" shall have the meaning set forth in Section
4.15(h) hereof.
"Documents" shall have the meaning set forth in Section 8.1(c)
hereof.
"Dollar" and the sign "$" shall mean lawful money of the United
States of America.
"Domestic Rate Loan" shall mean any Advance that bears interest
based upon the Alternate Base Rate.
"Drawing Date" shall have the meaning set forth in Section 2.12(b)
hereof.
"Early Termination Date" shall have the meaning set forth in Section
13.1 hereof.
"Earnings Before Interest and Taxes" shall mean for any period the
sum of (i) net income (or loss) of Borrower for such period (excluding
extraordinary gains and losses), plus (ii) all interest expense of Borrower for
such period, plus (iii) all charges against income of Borrower for such period
for federal, state and local taxes actually paid.
"EBITDA" shall mean for any period the sum of (i) Earnings Before
Interest and Taxes for such period plus (ii) depreciation expenses for such
period, plus (iii) amortization expenses for such period.
-6-
"Eligible Inventory" shall mean and include finished goods Inventory
(excluding raw materials and work in process) valued at the lower of cost or
market value, determined on a weighted-average basis, which is not, in Agent's
opinion, obsolete, slow moving or unmerchantable and which Agent, in its sole
discretion, shall not deem ineligible Inventory, based on such considerations as
Agent may from time to time deem appropriate including whether the Inventory is
subject to a perfected, first priority security interest in favor of Agent and
no other Lien (other than a Permitted Encumbrance). In addition, Inventory shall
not be Eligible Inventory if it (i) does not conform to all standards imposed by
any Governmental Body which has regulatory authority over such goods or the use
or sale thereof, (ii) is in transit, except as otherwise specified below, (iii)
is located outside the continental United States or at a location that is not
otherwise in compliance with this Agreement, except as otherwise specified below
with respect to certain in-transit Inventory, (iv) constitutes Consigned
Inventory, (v) is the subject of an Intellectual Property Claim; (vi) is subject
to a License Agreement or other agreement that limits, conditions or restricts
Borrower's or Agent's right to sell or otherwise dispose of such Inventory,
unless Agent is a party to a Licensor/Agent Agreement with the Licensor under
such License Agreement; or (vii) or is situated at a location not owned by
Borrower unless the owner or occupier of such location has executed in favor of
Agent a Lien Waiver Agreement. Eligible Inventory shall include Inventory
in-transit to Borrower for which title has passed to Borrower, which is insured
to the full value thereof, for which Agent shall have in its possession (a) all
negotiable bills of lading properly endorsed and (b) all non-negotiable bills of
lading issued in Agent's name, and for which all steps shall have been taken to
perfect and protect Agent's interest therein. Eligible Inventory shall not
include Inventory drop-shipped to Borrower's customers. Without limiting the
generality of the foregoing, Eligible Inventory shall not include consigned
Inventory (as to which Borrower is consignor or consignee) or Restricted
Licensed Inventory, and not more than 5% of Eligible Inventory shall be
Inventory located at Borrower's location at 0000 Xxxxxxxxxx Xxxxxxx, Xxxxxx
Xxxx, Xxxxxxxxxx 00000.
"Eligible Receivables" shall mean and include with respect to
Borrower, each Receivable of Borrower arising in the Ordinary Course of Business
and which Agent, in its sole credit judgment, shall deem to be an Eligible
Receivable, based on such considerations as Agent may from time to time deem
appropriate. A Receivable shall not be deemed eligible unless such Receivable is
subject to Agent's first priority perfected security interest and no other Lien
(other than Permitted Encumbrances), and is evidenced by an invoice or other
documentary evidence satisfactory to Agent. In addition, no Receivable shall be
an Eligible Receivable if:
(a) it arises out of a sale made by Borrower to an Affiliate of
Borrower or to a Person controlled by an Affiliate of Borrower;
(b) it is due or unpaid more than sixty (60) days after the
original due date or more than 360 days after the original invoice date;
(c) twenty-five percent (25%) or more of the Receivables from
such Customer are not deemed Eligible Receivables hereunder. Such
percentage may, in Agent's good faith business judgment, be increased or
decreased from time to time;
-7-
(d) any covenant, representation or warranty contained in this
Agreement with respect to such Receivable has been breached;
(e) the Customer shall (i) apply for, suffer, or consent to the
appointment of, or the taking of possession by, a receiver, custodian,
trustee or liquidator of itself or of all or a substantial part of its
property or call a meeting of its creditors, (ii) admit in writing its
inability, or be generally unable, to pay its debts as they become due or
cease operations of its present business, (iii) make a general assignment
for the benefit of creditors, (iv) commence a voluntary case under any
state or federal bankruptcy laws (as now or hereafter in effect), (v) be
adjudicated a bankrupt or insolvent, (vi) file a petition seeking to take
advantage of any other law providing for the relief of debtors, (vii)
acquiesce to, or fail to have dismissed, any petition which is filed
against it in any involuntary case under such bankruptcy laws, or (viii)
take any action for the purpose of effecting any of the foregoing;
(f) the sale is to a Customer outside the continental United
States of America, Alaska, or Hawaii, unless the sale is on letter of
credit, guaranty or acceptance terms, in each case acceptable to Agent in
its sole discretion;
(g) the sale to the Customer is on a xxxx-and-hold, guaranteed
sale, sale-and-return, sale on approval, consignment or any other
repurchase or return basis or is evidenced by chattel paper;
(h) Agent believes, in its sole judgment, that collection of
such Receivable is insecure or that such Receivable may not be paid by
reason of the Customer's financial inability to pay;
(i) the Customer is the United States of America, any state or
any department, agency or instrumentality of any of them, unless Borrower
assigns its right to payment of such Receivable to Agent pursuant to the
Assignment of Claims Act of 1940, as amended (31 U.S.C. subsection 3727
et seq. and 41 U.S.C. subsection 15 et seq.) or has otherwise complied
with other applicable statutes or ordinances;
(j) the goods giving rise to such Receivable have not been
delivered to and accepted by the Customer or the services giving rise to
such Receivable have not been performed by Borrower and accepted by the
Customer or the Receivable otherwise does not represent a final sale;
(k) the Receivables of the Customer exceed a credit limit
determined by Agent, in its good faith business judgment, to the extent
such Receivable exceeds such limit;
(l) the Receivable is subject to any offset, deduction, defense,
dispute, or counterclaim, the Customer is also a creditor or supplier of
Borrower or the Receivable is contingent in any respect or for any
reason;
(m) Borrower has made any agreement with any Customer for any
deduction therefrom, except for discounts or allowances made in the
Ordinary Course of Business for prompt payment, all of which discounts or
allowances are reflected in the calculation of the face value of each
respective invoice related thereto;
-8-
(n) any return, rejection or repossession of the merchandise has
occurred or the rendition of services has been disputed;
(o) such Receivable is not payable to Borrower; or
(p) such Receivable is not otherwise satisfactory to Agent as
determined by Agent in its good faith business judgment.
In addition to the foregoing, to the extent (i) Receivables with standard terms
(N30, N60 and N90) owing from a Customer exceed 15% of total Receivables with
standard terms owing from all Customers, and (ii) Receivables with nonstandard
terms (other than X00, X00 and N90) owing from a Customer exceed 10% of total
Receivables with nonstandard terms owing from all Customers (the limits in "i"
and "ii" are collectively referred to as the "Concentration Limits"); such
excesses of the Receivables shall not be deemed Eligible Receivables. The
Concentration Limits may be increased or decreased by Agent at any time and from
time to time in the exercise of its good faith business judgment.
"Environmental Complaint" shall have the meaning set forth in
Section 4.19(d) hereof.
"Environmental Laws" shall mean all federal, state and local
environmental, land use, zoning, health, chemical use, safety and sanitation
laws, statutes, ordinances and codes relating to the protection of the
environment and/or governing the use, storage, treatment, generation,
transportation, processing, handling, production or disposal of Hazardous
Substances and the rules, regulations, policies, guidelines, interpretations,
decisions, orders and directives of federal, state and local governmental
agencies and authorities with respect thereto.
"Equipment" shall mean and include all of Borrower's goods (other
than Inventory) whether now owned or hereafter acquired and wherever located
including all equipment, machinery, apparatus, motor vehicles, fittings,
furniture, furnishings, fixtures, parts, accessories and all replacements and
substitutions therefor or accessions thereto.
"Equity Interests" of any Person shall mean any and all shares,
rights to purchase, options, warrants, general, limited or limited liability
partnership interests, member interests, participation or other equivalents of
or interest in (regardless of how designated) equity of such Person, whether
voting or nonvoting, including common stock, preferred stock, convertible
securities or any other "equity security" (as such term is defined in Rule
3a11-1 of the General Rules and Regulations promulgated by the SEC under the
Exchange Act).
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended from time to time and the rules and regulations promulgated
thereunder.
"Eurodollar Rate" shall mean for any Eurodollar Rate Loan for the
then current Interest Period relating thereto the interest rate per annum
determined by Agent by dividing (the resulting quotient rounded upwards, if
necessary, to the nearest 1/100th of 1% per annum) (i) the rate of interest
-9-
determined by Agent in accordance with its usual procedures (which determination
shall be conclusive absent manifest error) to be the average of the London
interbank offered rates for U.S. Dollars quoted by the British Bankers'
Association as set forth on Moneyline Telerate (or appropriate successor or, if
British Banker's Association or its successor ceases to provide such quotes, a
comparable replacement determined by Agent) display page 3750 (or such other
display page on the Moneyline Telerate system as may replace display page 3750)
two (2) Business Days prior to the first day of such Interest Period for an
amount comparable to such Eurodollar Rate Loan and having a borrowing date and a
maturity comparable to such Interest Period by (ii) a number equal to 1.00 minus
the Reserve Percentage. The Eurodollar Rate may also be expressed by the
following formula:
Average of London interbank offered rates quoted by BBA as shown on
Eurodollar Rate = Moneyline Telerate Service display page 3750
or appropriate successor
--------------------------------------------
1.00 - Reserve Percentage.
"Eurodollar Rate Loan" shall mean an Advance at any time that bears
interest based on the Eurodollar Rate.
"Event of Default" shall have the meaning set forth in Article X
hereof.
"Excess Cash Flow" for any fiscal period shall mean EBITDA of
Borrower for such fiscal period, minus non-financed Capital Expenditures made by
Borrower during such fiscal period, minus taxes actually paid by Borrower during
such fiscal period, and minus payments made to Holdings in accordance with
Section 7.21(b) hereof.
"Exchange Act" shall have the mean the Securities Exchange Act of
1934, as amended.
"Executive Order No. 13224" shall mean the Executive Order No. 13224
on Terrorist Financing, effective September 24, 2001, as the same has been, or
shall hereafter be, renewed, extended, amended or replaced.
"Federal Funds Effective Rate" for any day shall mean the rate per
annum (based on a year of 360 days and actual days elapsed and rounded upward to
the nearest 1/100 of 1%) announced by the Federal Reserve Bank of New York (or
any successor) on such day as being the weighted average of the rates on
overnight federal funds transactions arranged by federal funds brokers on the
-10-
previous trading day, as computed and announced by such Federal Reserve Bank (or
any successor) in substantially the same manner as such Federal Reserve Bank
computes and announces the weighted average it refers to as the "Federal Funds
Effective Rate" as of the date of this Agreement; provided, if such Federal
Reserve Bank (or its successor) does not announce such rate on any day, the
"Federal Funds Effective Rate" for such day shall be the Federal Funds Effective
Rate for the last day on which such rate was announced.
"Federal Funds Open Rate" shall mean the rate per annum determined
by the Agent in accordance with its usual procedures (which determination shall
be conclusive absent manifest error) to be the "open" rate for federal funds
transactions as of the opening of business for federal funds transactions among
members of the Federal Reserve System arranged by federal funds brokers on such
day, as quoted by Xxxxxx Guybutler Corporation, any successor entity thereto, or
any other broker selected by the Agent, as set forth on the applicable Telerate
display page; provided, however; that if such day is not a Business Day, the
Federal Funds Open Rate for such day shall be the "open" rate on the immediately
preceding Business Day, or if no such rate shall be quoted by a Federal funds
broker at such time, such other rate as determined by the Agent in accordance
with its usual procedures.
"Fixed Charge Coverage Ratio" shall mean and include, with respect
to any fiscal period, the ratio of (a) EBITDA, minus dividends, distributions,
and non-financed capitalized expenditures made during such period, and minus
cash taxes paid during such period, to (b) all Senior Debt Payments made during
such period.
"Foreign Subsidiary" of any Person, shall mean any Subsidiary of
such Person that is not organized or incorporated in the United States or any
State or territory thereof.
"Formula Amount" shall have the meaning set forth in Section 2.1(a).
"Funded Debt" shall mean, with respect to any Person, without
duplication, all Indebtedness for borrowed money evidenced by notes, bonds,
debentures, or similar evidences of Indebtedness that by its terms matures more
than one year from, or is directly or indirectly renewable or extendible at such
Person's option under a revolving credit or similar agreement obligating the
lender or lenders to extend credit over a period of more than one year from the
date of creation thereof, and specifically including Capitalized Lease
Obligations, current maturities of long-term debt, revolving credit and
short-term debt extendible beyond one year at the option of the debtor, and also
including, in the case of Borrower, the Obligations and, without duplication,
Indebtedness consisting of guaranties of Funded Debt of other Persons.
"GAAP" shall mean generally accepted accounting principles in the
United States of America in effect from time to time.
"General Intangibles" shall mean and include all of Borrower's
general intangibles, whether now owned or hereafter acquired, including all
payment intangibles, all choses in action, causes of action, corporate or other
business records, inventions, designs, patents, patent applications, equipment
formulations, manufacturing procedures, quality control procedures, trademarks,
trademark applications, service marks, trade secrets, goodwill, copyrights,
design rights, software, computer information, source codes, codes, records and
updates, registrations, licenses, franchises, customer lists, tax refunds, tax
refund claims, computer programs, all claims under guaranties, security
interests or other security held by or granted to Borrower to secure payment of
any of the Receivables by a Customer (other than to the extent covered by
Receivables) all rights of indemnification and all other intangible property of
every kind and nature (other than Receivables).
"Governmental Acts" shall have the meaning set forth in Section
2.17.
"Governmental Body" shall mean any nation or government, any state
or other political subdivision thereof or any entity, authority, agency,
division or department exercising the legislative, judicial, regulatory or
administrative functions of or pertaining to a government.
-11-
"Guarantor" shall mean Holdings, Xxxxx Xxxx, and any other Person
who may hereafter guarantee payment or performance of the whole or any part of
the Obligations and "Guarantors" means collectively all such Persons.
"Guarantor Security Agreement" shall mean any Security Agreement
executed by any Guarantor in favor of Agent securing the Guaranty of such
Guarantor.
"Guaranty" shall mean (i) a guaranty from Xxxxx Xxxx of $1,000,000
of the obligations of Borrower (plus cost and expenses of collecting on said
guaranty), expiring after certain dates if certain events occur, (ii) a full
continuing guaranty from Small World Kids, Inc., and (iii) any other guaranty of
the obligations of Borrower executed by a Guarantor in favor of Agent for its
benefit and for the ratable benefit of Lenders.
"Hazardous Discharge" shall have the meaning set forth in Section
4.19(d) hereof.
"Hazardous Substance" shall mean, without limitation, any flammable
explosives, radon, radioactive materials, asbestos, urea formaldehyde foam
insulation, polychlorinated biphenyls, petroleum and petroleum products,
methane, hazardous materials, Hazardous Wastes, hazardous or Toxic Substances or
related materials as defined in CERCLA, the Hazardous Materials Transportation
Act, as amended (49 U.S.C. Sections 1801, et seq.), RCRA, Articles 15 and 27 of
the New York State Environmental Conservation Law or any other applicable
Environmental Law and in the regulations adopted pursuant thereto.
"Hazardous Wastes" shall mean all waste materials subject to
regulation under CERCLA, RCRA or applicable state law, and any other applicable
Federal and state laws now in force or hereafter enacted relating to hazardous
waste disposal.
"Holdings" shall mean Small World Kids, Inc.
"Holdings Subordinated Debt" shall mean, collectively, the
Indebtedness owed by Holdings pursuant to (i) the promissory note, dated May 20,
2004, by Holdings, in favor of SWT, LLC, in the principal amount of $5,000,000,
(ii) the promissory note, dated September __, 2004, by Holdings, in favor of St.
Cloud, in the principal amount of $2,000,000, and (iii) the promissory note,
dated September 17, 2004, by Holdings, in favor of Xxxxxx, in the principal
amount of $1,200,000.
"Holdings Subordination Agreement" shall mean a subordination
agreement by Holdings, in favor of Agent, pursuant to which Holdings
subordinates the payment of all Indebtedness and other obligations owed to it by
Borrower, in favor of the Obligations.
"Indebtedness" of a Person at a particular date shall mean all
obligations of such Person which in accordance with GAAP would be classified
upon a balance sheet as liabilities (except capital stock and surplus earned or
otherwise) and in any event, without limitation by reason of enumeration, shall
include all indebtedness, debt and other similar monetary obligations of such
Person whether direct or guaranteed, and all premiums, if any, due at the
required prepayment dates of such indebtedness, and all indebtedness secured by
a Lien on assets owned by such Person, whether or not such indebtedness actually
shall have been created, assumed or incurred by such Person. Any indebtedness of
such Person resulting from the acquisition by such Person of any assets subject
-12-
to any Lien shall be deemed, for the purposes hereof, to be the equivalent of
the creation, assumption and incurring of the indebtedness secured thereby,
whether or not actually so created, assumed or incurred.
"Ineligible Security" shall mean any security which may not be
underwritten or dealt in by member banks of the Federal Reserve System under
Section 16 of the Banking Act of 1933 (12 U.S.C. Section 24, Seventh), as
amended.
"Intellectual Property" shall mean property constituting under any
Applicable Law a patent, patent application, copyright, trademark, service xxxx,
trade name, mask work, trade secret or license or other right to use any of the
foregoing.
"Intellectual Property Claim" shall mean the assertion by any Person
of a claim (whether asserted in writing, by action, suit or proceeding or
otherwise) that Borrower's ownership, use, marketing, sale or distribution of
any Inventory, Equipment, Intellectual Property or other property or asset is
violative of any ownership of or right to use any Intellectual Property of such
Person.
"Interest Period" shall mean the period provided for any Eurodollar
Rate Loan pursuant to Section 2.2(b).
"Interest Rate Hedge" shall mean an interest rate exchange, collar,
cap, swap, adjustable strike cap, adjustable strike corridor or similar
agreements entered into by the Borrower or its Subsidiaries in order to provide
protection to, or minimize the impact upon, the Borrower, any Guarantor and/or
their respective Subsidiaries of increasing floating rates of interest
applicable to Indebtedness.
"Inventory" shall mean and include all of Borrower's now owned or
hereafter acquired goods, merchandise and other personal property, wherever
located, to be furnished under any consignment arrangement, contract of service
or held for sale or lease, all raw materials, work in process, finished goods
and materials and supplies of any kind, nature or description which are or might
be used or consumed in Borrower's business or used in selling or furnishing such
goods, merchandise and other personal property, and all documents of title or
other documents representing them.
"Inventory Advance Rate" shall have the meaning set forth in Section
2.1(a)(y)(ii) hereof.
"Investment Property" shall mean and include all of Borrower's now
owned or hereafter acquired securities (whether certificated or uncertificated),
securities entitlements, securities accounts, commodities contracts and
commodities accounts.
"Issuer" shall mean any Person who issues a Letter of Credit and/or
accepts a draft pursuant to the terms hereof.
"Leasehold Interests" shall mean all of Borrower's right, title and
interest in and to the premises located at 0000 Xxxxxxxxxx Xxxxxxx, Xxxxxx Xxxx,
Xxxxxxxxxx 00000.
-13-
"Lender" and "Lenders" shall have the meaning ascribed to such term
in the preamble to this Agreement and shall include each Person which becomes a
transferee, successor or assign of any Lender.
"Letter of Credit Fees" shall have the meaning set forth in Section
3.2.
"Letter of Credit Borrowing" shall have the meaning set forth in
Section 2.12(d).
"Letter of Credit Sublimit" shall mean $5,000,000.
"Letters of Credit" shall have the meaning set forth in Section 2.9.
"License Agreement" shall mean any agreement between Borrower and a
Licensor pursuant to which Borrower is authorized to use any Intellectual
Property in connection with the manufacturing, marketing, sale or other
distribution of any Inventory of Borrower or otherwise in connection with
Borrower's business operations.
"Licensed Inventory Arrangement" shall have the meaning set forth in
Section 5.27.
"Licensor" shall mean any Person from whom Borrower obtains the
right to use (whether on an exclusive or non-exclusive basis) any Intellectual
Property in connection with Borrower's manufacture, marketing, sale or other
distribution of any Inventory or otherwise in connection with Borrower's
business operations.
"Licensor/Agent Agreement" shall mean an agreement between Agent and
a Licensor, in form and content satisfactory to Agent, by which Agent is given
the unqualified right, vis-a-vis such Licensor, to enforce Agent's Liens with
respect to and to dispose of Borrower's Inventory with the benefit of any
Intellectual Property applicable thereto, irrespective of Borrower's default
under any License Agreement with such Licensor.
"Lien" shall mean any mortgage, deed of trust, pledge,
hypothecation, assignment, security interest, lien (whether statutory or
otherwise), Charge, claim or encumbrance, or preference, priority or other
security agreement or preferential arrangement held or asserted in respect of
any asset of any kind or nature whatsoever including any conditional sale or
other title retention agreement, any lease having substantially the same
economic effect as any of the foregoing, and the filing of, or agreement to
give, any financing statement under the Uniform Commercial Code or comparable
law of any jurisdiction.
"Lien Waiver Agreement" shall mean an agreement which is executed in
favor of Agent by a Person who owns or occupies premises at which any Collateral
may be located from time to time and by which such Person shall waive any Lien
that such Person may ever have with respect to any of the Collateral and shall
authorize Agent from time to time to enter upon the premises to inspect or
remove the Collateral from such premises or to use such premises to store or
dispose of such Inventory.
"Material Adverse Effect" shall mean a material adverse effect on
(a) the condition (financial or otherwise), results of operations, assets,
-14-
business, properties or prospects of Borrower or any Guarantor, (b) Borrower's
ability to duly and punctually pay or perform the Obligations in accordance with
the terms thereof, (c) the value of the Collateral, or Agent's Liens on the
Collateral or the priority of any such Lien or (d) the practical realization of
the benefits of Agent's and each Lender's rights and remedies under this
Agreement and the Other Documents.
"Maximum Face Amount" shall mean, with respect to any outstanding
Letter of Credit, the face amount of such Letter of Credit including all
automatic increases provided for in such Letter of Credit, whether or not any
such automatic increase has become effective.
"Maximum Loan Amount" shall mean (a) $15,000,000 when the Seasonal
Advance Period is not in effect and (b) $16,500,000 when the Seasonal Advance
Period is in effect.
"Maximum Revolving Advance Amount" shall mean $15,000,000.
"Maximum Seasonal Advance Amount" shall mean $1,500,000.
"Maximum Undrawn Amount" shall mean with respect to any outstanding
Letter of Credit, the amount of such Letter of Credit that is or may become
available to be drawn, including all automatic increases provided for in such
Letter of Credit, whether or not any such automatic increase has become
effective.
"Multiemployer Plan" shall mean a "multiemployer plan" as defined in
Sections 3(37) and 4001(a)(3) of ERISA.
"Multiple Employer Plan" shall mean a Plan which has two or more
contributing sponsors (including the Borrower or any member of the Controlled
Group) at least two of whom are not under common control, as such a plan is
described in Section 4064 of ERISA.
"Net Worth" at a particular date, shall mean (a) the aggregate
amount of all assets of Borrower as may properly be classified as such in
accordance with GAAP consistently applied and such other assets as are properly
classified as "intangible assets", less (b) the aggregate amount of all
Indebtedness of Borrower.
"Note" shall mean collectively, the Seasonal Advance Note and the
Revolving Credit Note.
"Obligations" shall mean and include any and all loans, advances,
debts, liabilities, obligations, covenants and duties owing by the Borrower to
Lenders or Agent or to any other direct or indirect subsidiary or affiliate of
Agent or any Lender of any kind or nature, present or future (including any
interest accruing thereon after maturity, or after the filing of any petition in
bankruptcy, or the commencement of any insolvency, reorganization or like
proceeding relating to the Borrower, whether or not a claim for post-filing or
post-petition interest is allowed in such proceeding), whether or not evidenced
by any note, guaranty or other instrument, whether arising under any agreement,
instrument or document, (including this Agreement and the Other Documents)
whether or not for the payment of money, whether arising by reason of an
extension of credit, opening of a letter of credit, loan, equipment lease or
guarantee, under any interest or currency swap, future, option or other similar
agreement, or in any other manner, whether arising out of overdrafts or deposit
-15-
or other accounts or electronic funds transfers (whether through automated
clearing houses or otherwise) or out of the Agent's or any Lenders non-receipt
of or inability to collect funds or otherwise not being made whole in connection
with depository transfer check or other similar arrangements, whether direct or
indirect (including those acquired by assignment or participation), absolute or
contingent, joint or several, due or to become due, now existing or hereafter
arising, contractual or tortious, liquidated or unliquidated, regardless of how
such indebtedness or liabilities arise or by what agreement or instrument they
may be evidenced or whether evidenced by any agreement or instrument, including,
but not limited to, any and all of Borrower's Indebtedness and/or liabilities
under this Agreement, the Other Documents or under any other agreement between
Agent or Lenders and Borrower and any amendments, extensions, renewals or
increases and all costs and expenses of Agent and any Lender incurred in the
documentation, negotiation, modification, enforcement, collection or otherwise
in connection with any of the foregoing, including but not limited to reasonable
attorneys' fees and expenses and all obligations of Borrower to Agent or Lenders
to perform acts or refrain from taking any action.
"Ordinary Course of Business" shall mean the ordinary course of
Borrower's business as conducted on the Closing Date.
"Original Owners" shall mean Small World Kids, Inc.
"Other Documents" shall mean the Note, the Questionnaire, any
Guaranty, any Guarantor Security Agreement, and any and all other agreements,
instruments and documents, including guaranties, pledges, powers of attorney,
consents, interest or currency swap agreements or other similar agreements and
all other writings heretofore, now or hereafter executed by Borrower or any
Guarantor and/or delivered to Agent or any Lender in respect of the transactions
contemplated by this Agreement.
"Out-of-Formula Loans" shall have the meaning set forth in Section
15.2(b).
"Parent" of any Person shall mean a corporation or other entity
owning, directly or indirectly at least 50% of the shares of stock or other
ownership interests having ordinary voting power to elect a majority of the
directors of the Person, or other Persons performing similar functions for any
such Person.
"Participant" shall mean each Person who shall be granted the right
by any Lender to participate in any of the Advances and who shall have entered
into a participation agreement in form and substance satisfactory to such
Lender.
"Participation Advance" shall have the meaning set forth in Section
2.12(d).
"Participation Commitment" shall mean each Lender's obligation to
buy a participation of the Letters of Credit issued hereunder.
"Payment Office" shall mean initially Xxx Xxxxx Xxxxxx Xxxxxxxxx,
Xxxx Xxxxxxxxx, Xxx Xxxxxx 00000; thereafter, such other office of Agent, if
any, which it may designate by notice to Borrower and to each Lender to be the
Payment Office.
-16-
"PBGC" shall mean the Pension Benefit Guaranty Corporation
established pursuant to Subtitle A of Title IV of ERISA or any successor.
"Pension Benefit Plan" shall mean at any time any employee pension
benefit plan (including a Multiple Employer Plan, but not a Multiemployer Plan)
which is covered by Title IV of ERISA or is subject to the minimum funding
standards under Section 412 of the Code and either (i) is maintained by any
member of the Controlled Group for employees of any member of the Controlled
Group; or (ii) has at any time within the preceding five years been maintained
by any entity which was at such time a member of the Controlled Group for
employees of any entity which was at such time a member of the Controlled Group.
"Permitted Encumbrances" shall mean (a) Liens in favor of Agent for
the benefit of Agent and Lenders; (b) Liens for taxes, assessments or other
governmental charges not delinquent or being contested in good faith and by
appropriate proceedings and with respect to which proper reserves have been
taken by Borrower; provided, that, the Lien shall have no effect on the priority
of the Liens in favor of Agent or the value of the assets in which Agent has
such a Lien and a stay of enforcement of any such Lien shall be in effect; (c)
Liens disclosed in the financial statements referred to in Section 5.5, the
existence of which Agent has consented to in writing; (d) deposits or pledges to
secure obligations under worker's compensation, social security or similar laws,
or under unemployment insurance; (e) deposits or pledges to secure bids,
tenders, contracts (other than contracts for the payment of money), leases,
statutory obligations, surety and appeal bonds and other obligations of like
nature arising in the Ordinary Course of Business; (f) Liens arising by virtue
of the rendition, entry or issuance against Borrower or any Subsidiary, or any
property of Borrower or any Subsidiary, of any judgment, writ, order, or decree
for so long as each such Lien (a) is in existence for less than 20 consecutive
days after it first arises or is being Properly Contested and (b) is at all
times junior in priority to any Liens in favor of Agent; (g) mechanics',
workers', materialmen's or other like Liens arising in the Ordinary Course of
Business with respect to obligations which are not due or which are being
contested in good faith by Borrower; (h) Liens placed upon fixed assets
hereafter acquired to secure a portion of the purchase price thereof, provided
that (x) any such lien shall not encumber any other property of Borrower and (y)
the aggregate amount of Indebtedness secured by such Liens incurred as a result
of such purchases during any fiscal year shall not exceed the amount provided
for in Section 7.6; and (i) Liens disclosed on Schedule 1.2.
"Person" shall mean any individual, sole proprietorship,
partnership, corporation, business trust, joint stock company, trust,
unincorporated organization, association, limited liability company, limited
liability partnership, institution, public benefit corporation, joint venture,
entity or Governmental Body (whether federal, state, county, city, municipal or
otherwise, including any instrumentality, division, agency, body or department
thereof).
"Plan" shall mean any employee benefit plan within the meaning of
Section 3(3) of ERISA (including a Pension Benefit Plan), maintained for
employees of Borrower or any member of the Controlled Group or any such Plan to
which Borrower or any member of the Controlled Group is required to contribute
on behalf of any of its employees.
"PNC" shall have the meaning set forth in the preamble to this
Agreement and shall extend to all of its successors and assigns.
-17-
"Pro Forma Balance Sheet" shall have the meaning set forth in
Section 5.5(a) hereof.
"Pro Forma Financial Statements" shall have the meaning set forth in
Section 5.5(b) hereof.
"Properly Contested" shall mean, in the case of any Indebtedness of
any Person (including any taxes) that is not paid as and when due or payable by
reason of such Person's bona fide dispute concerning its liability to pay same
or concerning the amount thereof, (i) such Indebtedness is being properly
contested in good faith by appropriate proceedings promptly instituted and
diligently conducted; (ii) such Person has established appropriate reserves as
shall be required in conformity with GAAP; (iii) the non-payment of such
Indebtedness will not have a Material Adverse Effect and will not result in the
forfeiture of any assets of such Person; (iv) no Lien is imposed upon any of
such Person's assets with respect to such Indebtedness unless such Lien is at
all times junior and subordinate in priority to the Liens in favor of the Agent
(except only with respect to property taxes that have priority as a matter of
applicable state law) and enforcement of such Lien is stayed during the period
prior to the final resolution or disposition of such dispute; (v) if such
Indebtedness results from, or is determined by the entry, rendition or issuance
against a Person or any of its assets of a judgment, writ, order or decree,
enforcement of such judgment, writ, order or decree is stayed pending a timely
appeal or other judicial review; and (vi) if such contest is abandoned, settled
or determined adversely (in whole or in part) to such Person, such Person
forthwith pays such Indebtedness and all penalties, interest and other amounts
due in connection therewith.
"Projections" shall have the meaning set forth in Section
5.5(b) hereof.
"Purchasing Lender" shall have the meaning set forth in Section 16.3
hereof.
"Questionnaire" shall mean the pre-documentation Representation and
Warranty questionnaires and the responses thereto provided by Borrower and
delivered to Agent.
"RCRA" shall mean the Resource Conservation and Recovery Act, 42
U.S.C. ss.ss.6901 et seq., as same may be amended from time to time.
"Real Property" shall mean all of Borrower's right, title and
interest in and to the owned and leased premises of the Borrower and any other
real property, including, without limitation, the locations of Borrower listed
on Schedule 4.5 hereof.
"Receivables" shall mean and include, as to Borrower, all of
Borrower's accounts, contract rights, instruments (including those evidencing
indebtedness owed to Borrower by its Affiliates), documents, chattel paper
(including electronic chattel paper), general intangibles relating to accounts,
drafts and acceptances, credit card receivables and all other forms of
obligations owing to Borrower arising out of or in connection with the sale or
lease of Inventory or the rendition of services, all supporting obligations,
guarantees and other security therefor, whether secured or unsecured, now
existing or hereafter created, and whether or not specifically sold or assigned
to Agent hereunder.
-18-
"Receivables Advance Rate" shall have the meaning set forth in
Section 2.1(a)(y)(i) hereof.
"Reimbursement Obligation" shall have the meaning set forth in
Section 2.12(b) hereof.
"Release" shall have the meaning set forth in Section 5.7(c)(i)
hereof.
"Reportable Event" shall mean a reportable event described in
Section 4043(c) of ERISA or the regulations promulgated thereunder.
"Required Lenders" shall mean Lenders holding at least sixty-seven
percent (67%) of the Advances and, if no Advances are outstanding, shall mean
Lenders holding sixty-seven percent (67%) of the Commitment Percentages;
provided, however, if there are fewer than three (3) Lenders, Required Lenders
shall mean all Lenders.
"Reserve Percentage" shall mean as of any day the maximum percentage
in effect on such day as prescribed by the Board of Governors of the Federal
Reserve System (or any successor) for determining the reserve requirements
(including supplemental, marginal and emergency reserve requirements) with
respect to eurocurrency funding (currently referred to as "Eurocurrency
Liabilities".
"Restricted Licensed Inventory" shall mean Inventory that is subject
to a license agreement or other arrangement or limitation that restricts the
manner in which such Inventory may be sold, including, without limitation, any
such agreement, arrangement, or limitation that by its terms would restrict
Agent's ability to sell such Inventory pursuant to any enforcement of Agent's
security interest.
"Revolving Advances" shall mean Advances made other than Letters of
Credit and the Seasonal Advance.
"Revolving Credit Note" shall mean, collectively, the promissory
note(s) referred to in Section 2.1(a) hereof.
"Revolving Interest Rate" shall mean an interest rate per annum
equal to (a) the sum of the Alternate Base Rate plus one-half of one percent
(0.50%)with respect to Domestic Rate Loans and (b) the sum of the Eurodollar
Rate plus three and one-quarter of one percent (3.25%)with respect to Eurodollar
Rate Loans.
"Seasonal Advance" shall mean the Advances made pursuant to Section
2.4 hereof.
"Seasonal Advance Note" shall mean the promissory note(s) described
in Section 2.4 hereof.
"Seasonal Advance Period" shall mean, for each calendar year, the
period beginning with December 15 and ending with June 15, inclusive.
-19-
"Seasonal Advance Rate" shall mean an interest rate per annum equal
to the sum of the Alternate Base Rate plus one and one-half of one percent
(1.50%).
"SEC" shall mean the Securities and Exchange Commission or any
successor thereto.
"Section 20 Subsidiary" shall mean the Subsidiary of the bank
holding company controlling PNC, which Subsidiary has been granted authority by
the Federal Reserve Board to underwrite and deal in certain Ineligible
Securities.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Seller Note" shall mean, collectively, the Secured Promissory Note,
dated May 20, 2004, by Savon Team Sports, Inc. (now known as Small World Kids,
Inc.), in favor of Xxxx Xxxxxxxxxx, in the stated principal amount of
$1,000,000, and the Promissory Note, dated May 20, 2004, by Savon Team Sports,
Inc. (now known as Small World Kids, Inc.), in favor of Xxxx Xxxxxxxxxx, in the
stated principal amount of "$700,000 (Subject to Adjustment)".
"Senior Debt Payments" shall mean and include all cash actually
expended by Borrower to make (a) interest payments on any Advances hereunder,
plus (b) payments for all fees, commissions and charges set forth herein and
with respect to any Advances, plus (c) capitalized lease payments, plus (d) all
principal, interest and other payments with respect to any other Indebtedness
for borrowed money (including, without limitation, any principal, interest or
other payments on any seller carryback earnout obligations), plus (e) payments
made to Holdings described in Section 7.21(b) hereof.
"Settlement Date" shall mean the Closing Date and thereafter
Wednesday or Thursday of each week or more frequently if Agent deems appropriate
unless such day is not a Business Day in which case it shall be the next
succeeding Business Day.
"St. Cloud" shall mean St. Cloud Capital Partners L.P.
"Xxxxxx" shall mean Xxxxxx Hedgecap Ltd. and/or Xxxxxx Investment
Management.
"Subordinated Loan Documentation" shall mean the promissory notes,
agreements and other documentation evidencing or relating to the Seller Note
and/or the Holdings Subordinated Debt.
"Subsidiary" of any Person shall mean a corporation or other entity
of whose Equity Interests having ordinary voting power (other than Equity
Interests having such power only by reason of the happening of a contingency) to
elect a majority of the directors of such corporation, or other Persons
performing similar functions for such entity, are owned, directly or indirectly,
by such Person.
"Subsidiary Stock" shall mean all of the issued and outstanding
Equity Interests of any Subsidiary owned by the Borrower (not to exceed 65% of
the Equity Interests of any Foreign Subsidiary).
-20-
"Term" shall have the meaning set forth in Section 13.1 hereof.
"Termination Event" shall mean (i) a Reportable Event with respect
to any Plan or Multiemployer Plan; (ii) the withdrawal of Borrower or any member
of the Controlled Group from a Plan or Multiemployer Plan during a plan year in
which such entity was a "substantial employer" as defined in Section 4001(a)(2)
of ERISA; (iii) the providing of notice of intent to terminate a Plan in a
distress termination described in Section 4041(c) of ERISA; (iv) the institution
by the PBGC of proceedings to terminate a Plan or Multiemployer Plan; (v) any
event or condition (a) which might constitute grounds under Section 4042 of
ERISA for the termination of, or the appointment of a trustee to administer, any
Plan or Multiemployer Plan, or (b) that may result in termination of a
Multiemployer Plan pursuant to Section 4041A of ERISA; or (vi) the partial or
complete withdrawal within the meaning of Sections 4203 and 4205 of ERISA, of
Borrower or any member of the Controlled Group from a Multiemployer Plan.
"Tinkers & Chance License Agreement" shall mean the License
Agreement, dated as of September 17, 2004, among Borrower, on the one side, and
Xxxxxx X. Xxxx, and Xxxxx X. Xxxxxx as inventors and sole partners of Tinkers &
Chance, a California partnership, on the other side.
"Tinkers & Chance Release" shall mean the "T&C Release" required to
be delivered to Borrower pursuant to Section 2.2.2 of the Asset Purchase
Agreement among Borrower and Neurosmith, LLC.
"Toxic Substance" shall mean and include any material present on the
Real Property or the Leasehold Interests which has been shown to have
significant adverse effect on human health or which is subject to regulation
under the Toxic Substances Control Act (TSCA), 15 U.S.C. ss.ss.2601 et seq.,
applicable state law, or any other applicable Federal or state laws now in force
or hereafter enacted relating to toxic substances. "Toxic Substance" includes
but is not limited to asbestos, polychlorinated biphenyls (PCBs) and lead-based
paints.
"Trading with the Enemy Act" shall mean the foreign assets control
regulations of the United States Treasury Department (31 CFR, Subtitle B,
Chapter V, as amended) and any enabling legislation or executive order relating
thereto.
"Transactions" shall mean the transactions contemplated by this
Agreement.
"Transferee" shall have the meaning set forth in Section 15.3(c)
hereof.
"Undrawn Availability" at a particular date shall mean an amount
equal to (a) the lesser of (i) the Formula Amount or (ii) the Maximum Revolving
Advance Amount, minus (b) the sum of (i) the outstanding amount of Advances
(other than the Seasonal Advance) plus (ii) all amounts due and owing to
Borrower's trade creditors which are outstanding beyond 60 days, plus (iii) fees
and expenses for which Borrower is liable but which have not been paid or
charged to Borrower's Account.
"Uniform Commercial Code" shall have the meaning set forth in
Section 1.3 hereof.
-21-
"USA Patriot Act" shall mean the Uniting and Strengthening America
by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act
of 2001, Public Law 107-56, as the same has been, or shall hereafter be,
renewed, extended, amended or replaced.
"Week" shall mean the time period commencing with the opening of
business on a Wednesday and ending on the end of business the following Tuesday.
1.3 Uniform Commercial Code Terms. All terms used herein and defined in
the Uniform Commercial Code as adopted in the State of New York from time to
time (the "Uniform Commercial Code") shall have the meaning given therein unless
otherwise defined herein. Without limiting the foregoing, the terms "accounts",
"chattel paper", "instruments", "general intangibles", "payment intangibles",
"supporting obligations", "securities", "investment property", "documents",
"deposit accounts", "software", "letter of credit rights", "inventory",
"equipment" and "fixtures", as and when used in the description of Collateral
shall have the meanings given to such terms in Articles 8 or 9 of the Uniform
Commercial Code. To the extent the definition of any category or type of
collateral is expanded by any amendment, modification or revision to the Uniform
Commercial Code, such expanded definition will apply automatically as of the
date of such amendment, modification or revision.
1.4 Certain Matters of Construction. The terms "herein", "hereof" and
"hereunder" and other words of similar import refer to this Agreement as a whole
and not to any particular section, paragraph or subdivision. All references
herein to Articles, Sections, Exhibits and Schedules shall be construed to refer
to Articles and Sections of, and Exhibits and Schedules to, this Agreement. Any
pronoun used shall be deemed to cover all genders. Wherever appropriate in the
context, terms used herein in the singular also include the plural and vice
versa. All references to statutes and related regulations shall include any
amendments of same and any successor statutes and regulations. Unless otherwise
provided, all references to any instruments or agreements to which Agent is a
party, including references to any of the Other Documents, shall include any and
all modifications or amendments thereto and any and all extensions or renewals
thereof. Unless otherwise provided, all financial calculations shall be
performed with Inventory valued on a first-in, first-out basis. Whenever the
words "including" or "include" shall be used, such words shall be understood to
mean "including, without limitation" or "include, without limitation". A Default
or Event of Default shall be deemed to exist at all times during the period
commencing on the date that such Default or Event of Default occurs to the date
on which such Default or Event of Default is waived in writing pursuant to this
Agreement or, in the case of a Default, is cured within any period of cure
expressly provided for in this Agreement; and an Event of Default shall
"continue" or be "continuing" until such Event of Default has been waived in
writing by the Required Lenders. Any Lien referred to in this Agreement or any
of the Other Documents as having been created in favor of Agent, any agreement
entered into by Agent pursuant to this Agreement or any of the Other Documents,
any payment made by or to or funds received by Agent pursuant to or as
contemplated by this Agreement or any of the Other Documents, or any act taken
or omitted to be taken by Agent, shall, unless otherwise expressly provided, be
created, entered into, made or received, or taken or omitted, for the benefit or
account of Agent and Lenders. Wherever the phrase "to the best of Borrower's
knowledge" or words of similar import relating to the knowledge or the awareness
of Borrower are used in this Agreement or Other Documents, such phrase shall
mean and refer to (i) the actual knowledge of a senior officer of Borrower or
-22-
(ii) the knowledge that a senior officer would have obtained if he had engaged
in good faith and diligent performance of his duties, including the making of
such reasonably specific inquiries as may be necessary of the employees or
agents of Borrower and a good faith attempt to ascertain the existence or
accuracy of the matter to which such phrase relates. All covenants hereunder
shall be given independent effect so that if a particular action or condition is
not permitted by any of such covenants, the fact that it would be permitted by
an exception to, or otherwise within the limitations of, another covenant shall
not avoid the occurrence of a default if such action is taken or condition
exists. In addition, all representations and warranties hereunder shall be given
independent effect so that if a particular representation or warranty proves to
be incorrect or is breached, the fact that another representation or warranty
concerning the same or similar subject matter is correct or is not breached will
not affect the incorrectness of a breach of a representation or warranty
hereunder.
II. ADVANCES, PAYMENTS.
2.1 Revolving Advances.
(a) Subject to the terms and conditions set forth in this Agreement
including Section 2.1(b), each Lender, severally and not jointly, will make
Revolving Advances to Borrower in aggregate amounts outstanding at any time
equal to such Lender's Commitment Percentage of the lesser of (x) the Maximum
Revolving Advance Amount less the aggregate Maximum Undrawn Amount of all
outstanding Letters of Credit or (y) an amount equal to the sum of:
(i) up to the following percentages, subject to the provisions
of Section 2.1(b) and (c) hereof ("Receivables Advance Rate"), of Eligible
Receivables during the following periods:
A) 80% during the period from January 1 to June 30, inclusive,
of each year; and
B) 85% during the period from July 1 to December 31, inclusive,
of each year, plus
(ii) up to the lesser of (A) 60%, subject to the provisions of
Section 2.1(b) hereof, of the value of the Eligible Inventory, (B) 85% of the
appraised net orderly liquidation value of Eligible Inventory (as evidenced by
an Inventory appraisal satisfactory to Agent in its good faith business
judgment) or (C) $5,000,000 (provided that not more than $2,500,000 of said
amount may be based upon the foregoing percentages of Eligible Inventory that is
in-transit) in the aggregate at any one time ("Inventory Advance Rate" and
together with the Receivables Advance Rate, collectively, the "Advance Rates"),
minus
(iii) the aggregate Maximum Undrawn Amount of all outstanding
Letters of Credit, minus
-23-
(iv) such reserves as Agent may reasonably deem proper and
necessary from time to time.
The amount derived from (x) the sum of Sections 2.1(a)(y)(i) and (ii)
minus (y) the sum of Sections 2.1(a)(y)(iii) and (iv), at any time and from time
to time shall be referred to as the "Formula Amount". The Revolving Advances
shall be evidenced by one or more secured promissory notes (collectively, the
"Revolving Credit Note") substantially in the form attached hereto as Exhibit
2.1(a).
Without limiting the right of the Agent to establish such reserves as
it shall reasonably deem proper and necessary from time to time, Agent may
establish a reserve(s) in the amount of three months rent with respect to each
premises at which Borrower maintains any assets but which is not owned by
Borrower, for which Agent is not provided with an agreement from the landlord or
other party with an interest in the premises protecting Agent's and Lenders'
interest in those assets, satisfactory to Agent in its good faith business
judgment.
(b) Discretionary Rights. The Advance Rates may be increased or
decreased by Agent at any time and from time to time in the exercise of its good
faith business judgment. Borrower consents to any such increases or decreases
and acknowledges that decreasing the Advance Rates or increasing or imposing
reserves may limit or restrict Advances requested by Borrower. The rights of
Agent under this subsection are subject to the provisions of Section 15.2(b).
(c) Adjustment to Aggregate Eligible Receivables. For purposes of
determining the amount of Revolving Advances that will from time to time be
available, the aggregate amount of Eligible Receivables outstanding from time to
time shall be deemed reduced by an amount which shall equal $35,000 in January
of each year and which shall increase by $35,000 in each subsequent month in
such year until it equals $420,000 in December of such year (and then in January
of the next year such amount shall again start at $35,000 and increase by
$35,000 for each following month through December).
2.2 Procedure for Revolving Advances Borrowing.
(a) Borrower may notify Agent prior to 10:00 a.m. (California
time) on a Business Day of Borrower's request to incur, on that day, a Revolving
Advance hereunder. Should any amount required to be paid as interest hereunder,
or as fees or other charges under this Agreement or any other agreement with
Agent or Lenders, or with respect to any other Obligation, become due, same
shall be deemed a request for a Revolving Advance as of the date such payment is
due, in the amount required to pay in full such interest, fee, charge or
Obligation under this Agreement or any other agreement with Agent or Lenders,
and such request shall be irrevocable.
(b) Notwithstanding the provisions of subsection (a) above, in the
event Borrower desires to obtain a Eurodollar Rate Loan, Borrower shall give
Agent written notice by no later than 10:00 a.m. (California time) on the day
which is three (3) Business Days prior to the date such Eurodollar Rate Loan is
to be borrowed, specifying (i) the date of the proposed borrowing (which shall
be a Business Day), (ii) the type of borrowing and the amount on the date of
-24-
such Advance to be borrowed, which amount shall be an integral multiple of
$1,000,000, and (iii) the duration of the first Interest Period therefor.
Interest Periods for Eurodollar Rate Loans shall be for one, two, or three
months; provided, if an Interest Period would end on a day that is not a
Business Day, it shall end on the next succeeding Business Day unless such day
falls in the next succeeding calendar month in which case the Interest Period
shall end on the next preceding Business Day. No Eurodollar Rate Loan shall be
made available to Borrower during the continuance of a Default or an Event of
Default. After giving effect to each requested Eurodollar Rate Loan, including
those which are converted from a Domestic Rate Loan under Section 2.2(d), there
shall not be outstanding more than two (2) Eurodollar Rate Loans, in the
aggregate.
(c) Each Interest Period of a Eurodollar Rate Loan shall commence
on the date such Eurodollar Rate Loan is made and shall end on such date as
Borrower may elect as set forth in subsection (b)(iii) above provided that the
exact length of each Interest Period shall be determined in accordance with the
practice of the interbank market for offshore Dollar deposits and no Interest
Period shall end after the last day of the Term.
Borrower shall elect the initial Interest Period applicable to a
Eurodollar Rate Loan by its notice of borrowing given to Agent pursuant to
Section 2.2(b) or by its notice of conversion given to Agent pursuant to Section
2.2(d), as the case may be. Borrower shall elect the duration of each succeeding
Interest Period by giving irrevocable written notice to Agent of such duration
not later than 10:00 a.m. (California time) on the day which is three (3)
Business Days prior to the last day of the then current Interest Period
applicable to such Eurodollar Rate Loan. If Agent does not receive timely notice
of the Interest Period elected by Borrower, Borrower shall be deemed to have
elected to convert to a Domestic Rate Loan subject to Section 2.2(d)
hereinbelow.
(d) Provided that no Event of Default shall have occurred and be
continuing, Borrower may, on the last Business Day of the then current Interest
Period applicable to any outstanding Eurodollar Rate Loan, or on any Business
Day with respect to Domestic Rate Loans, convert any such loan into a loan of
another type in the same aggregate principal amount provided that any conversion
of a Eurodollar Rate Loan shall be made only on the last Business Day of the
then current Interest Period applicable to such Eurodollar Rate Loan. If
Borrower desires to convert a loan, Borrower shall give Agent written notice by
no later than 10:00 a.m. (California time) (i) on the day which is three (3)
Business Days' prior to the date on which such conversion is to occur with
respect to a conversion from a Domestic Rate Loan to a Eurodollar Rate Loan, or
(ii) on the day which is one (1) Business Day prior to the date on which such
conversion is to occur with respect to a conversion from a Eurodollar Rate Loan
to a Domestic Rate Loan, specifying, in each case, the date of such conversion,
the loans to be converted and if the conversion is from a Domestic Rate Loan to
any other type of loan, the duration of the first Interest Period therefor.
(e) At its option and upon written notice given prior to 10:00
a.m. (California time) at least three (3) Business Days' prior to the date of
such prepayment, Borrower may prepay the Eurodollar Rate Loans in whole at any
time or in part from time to time with accrued interest on the principal being
prepaid to the date of such repayment. Borrower shall specify the date of
-25-
prepayment of Advances which are Eurodollar Rate Loans and the amount of such
prepayment. In the event that any prepayment of a Eurodollar Rate Loan is
required or permitted on a date other than the last Business Day of the then
current Interest Period with respect thereto, Borrower shall indemnify Agent and
Lenders therefor in accordance with Section 2.2(f) hereof.
(f) Borrower shall indemnify Agent and Lenders and hold Agent and
Lenders harmless from and against any and all losses or expenses that Agent and
Lenders may sustain or incur as a consequence of any prepayment, conversion of
or any default by Borrower in the payment of the principal of or interest on any
Eurodollar Rate Loan or failure by Borrower to complete a borrowing of, a
prepayment of or conversion of or to a Eurodollar Rate Loan after notice thereof
has been given, including, but not limited to, any interest payable by Agent or
Lenders to lenders of funds obtained by it in order to make or maintain its
Eurodollar Rate Loans hereunder. A certificate as to any additional amounts
payable pursuant to the foregoing sentence submitted by Agent or any Lender to
Borrower shall be conclusive absent manifest error.
(g) Notwithstanding any other provision hereof, if any Applicable
Law, treaty, regulation or directive, or any change therein or in the
interpretation or application thereof, shall make it unlawful for any Lender
(for purposes of this subsection (g), the term "Lender" shall include any Lender
and the office or branch where any Lender or any corporation or bank controlling
such Lender makes or maintains any Eurodollar Rate Loans) to make or maintain
its Eurodollar Rate Loans, the obligation of Lenders to make Eurodollar Rate
Loans hereunder shall forthwith be cancelled and Borrower shall, if any affected
Eurodollar Rate Loans are then outstanding, promptly upon request from Agent,
either pay all such affected Eurodollar Rate Loans or convert such affected
Eurodollar Rate Loans into loans of another type. If any such payment or
conversion of any Eurodollar Rate Loan is made on a day that is not the last day
of the Interest Period applicable to such Eurodollar Rate Loan, Borrower shall
pay Agent, upon Agent's request, such amount or amounts as may be necessary to
compensate Lenders for any loss or expense sustained or incurred by Lenders in
respect of such Eurodollar Rate Loan as a result of such payment or conversion,
including (but not limited to) any interest or other amounts payable by Lenders
to lenders of funds obtained by Lenders in order to make or maintain such
Eurodollar Rate Loan. A certificate as to any additional amounts payable
pursuant to the foregoing sentence submitted by Lenders to Borrower shall be
conclusive absent manifest error.
2.3 Disbursement of Advance Proceeds. All Advances shall be disbursed
from whichever office or other place Agent may designate from time to time and,
together with any and all other Obligations of Borrower to Agent or Lenders,
shall be charged to Borrower's Account on Agent's books. During the Term,
Borrower may use the Revolving Advances by borrowing, prepaying and reborrowing,
all in accordance with the terms and conditions hereof. The proceeds of each
Revolving Advance requested by Borrower or deemed to have been requested by
Borrower under Section 2.2(a) hereof shall, with respect to requested Revolving
Advances to the extent Lenders make such Revolving Advances, be made available
to Borrower on the day so requested by way of credit to Borrower's operating
account at PNC, or such other bank as Borrower may designate following
notification to Agent, in immediately available federal funds or other
immediately available funds or, with respect to Revolving Advances deemed to
have been requested by Borrower, be disbursed to Agent to be applied to the
outstanding Obligations giving rise to such deemed request.
-26-
2.4 Seasonal Advance. Subject to the terms and conditions of this
Agreement, each year during the "Seasonal Advance Period" and so long as no
Event of Default has occurred and is continuing, each Lender, severally and not
jointly, will make a Seasonal Advance to Borrower in the sum equal to such
Lender's Commitment Percentage of $1,500,000. The Seasonal Advance made with
respect to any Seasonal Advance Period shall be, with respect to principal,
payable in full on the last day of such Seasonal Advance Period, subject to
acceleration upon the occurrence of an Event of Default under this Agreement or
termination of this Agreement. The Seasonal Advance shall be evidenced by one or
more secured promissory notes (collectively, the "Seasonal Advance Note") in
substantially the form attached hereto as Exhibit 2.4. Borrower and Agent agree
that the Seasonal Advance Note that evidences a Seasonal Advance for the
Seasonal Advance Period in one year may also evidence Seasonal Advances for
Seasonal Advance Periods in subsequent years, even though the original Seasonal
Advance that it evidenced will have been repaid.
2.5 Maximum Advances. The aggregate balance of Revolving Advances
outstanding at any time shall not exceed the lesser of (a) the Maximum Revolving
Advance Amount less the aggregate Maximum Undrawn Amount of all issued and
outstanding Letters of Credit or (b) the Formula Amount.
2.6 Repayment of Advances.
(a) The Revolving Advances shall be due and payable in full on the
last day of the Term subject to earlier prepayment as herein provided. Each
Seasonal Advance shall be due and payable on the last day of the Seasonal
Advance Period in which it was made, subject to mandatory prepayments as herein
provided.
(b) Borrower recognizes that the amounts evidenced by checks, notes,
drafts or any other items of payment relating to and/or proceeds of Collateral
may not be collectible by Agent on the date received. In consideration of
Agent's agreement to conditionally credit Borrower's Account as of the Business
Day on which Agent receives those items of payment, Borrower agrees that, in
computing the charges under this Agreement, all items of payment shall be deemed
applied by Agent on account of the Obligations one (1) Business Day after (i)
the Business Day Agent receives such payments via wire transfer or electronic
depository check or (ii) in the case of payments received by Agent in any other
form, the Business Day such payment constitutes good funds in Agent's account.
Agent is not, however, required to credit Borrower's Account for the amount of
any item of payment which is unsatisfactory to Agent and Agent may charge
Borrower's Account for the amount of any item of payment which is returned to
Agent unpaid.
(c) All payments of principal, interest and other amounts payable
hereunder, or under any of the Other Documents shall be made to Agent at the
Payment Office not later than 10:00 a.m. (California time) on the due date
therefor in lawful money of the United States of America in federal funds or
other funds immediately available to Agent. Agent shall have the right to
effectuate payment on any and all Obligations due and owing hereunder by
charging Borrower's Account or by making Advances as provided in Section 2.2
hereof.
-27-
(d) Borrower shall pay principal, interest, and all other amounts
payable hereunder, or under any related agreement, without any deduction
whatsoever, including, but not limited to, any deduction for any setoff or
counterclaim.
2.7 Repayment of Excess Advances. The aggregate balance of Advances
outstanding at any time in excess of the maximum amount of Advances permitted
hereunder shall be immediately due and payable without the necessity of any
demand, at the Payment Office, whether or not a Default or Event of Default has
occurred.
2.8 Statement of Account. Agent shall maintain, in accordance with its
customary procedures, a loan account ("Borrower's Account") in the name of
Borrower in which shall be recorded the date and amount of each Advance made by
Agent and the date and amount of each payment in respect thereof; provided,
however, the failure by Agent to record the date and amount of any Advance shall
not adversely affect Agent or any Lender. Each month, Agent shall send to
Borrower a statement showing the accounting for the Advances made, payments made
or credited in respect thereof, and other transactions between Agent and
Borrower, during such month. The monthly statements shall be deemed correct and
binding upon Borrower in the absence of manifest error and shall constitute an
account stated between Lenders and Borrower unless Agent receives a written
statement of Borrower's specific exceptions thereto within thirty (30) days
after such statement is received by Borrower. The records of Agent with respect
to the loan account shall be conclusive evidence absent manifest error of the
amounts of Advances and other charges thereto and of payments applicable
thereto.
2.9 Letters of Credit. Subject to the terms and conditions hereof, Agent
shall issue or cause the issuance of standby and/or trade Letters of Credit
("Letters of Credit") for the account of Borrower; provided, however, that Agent
will not be required to issue or cause to be issued any Letters of Credit to the
extent that the issuance thereof would then cause the sum of (i) the outstanding
Revolving Advances plus (ii) the Maximum Undrawn Amount of all outstanding
Letters of Credit to exceed the lesser of (x) the Maximum Revolving Advance
Amount or (y) the Formula Amount. The Maximum Undrawn Amount of all outstanding
Letters of Credit shall not exceed in the aggregate at any time the Letter of
Credit Sublimit. All disbursements or payments related to Letters of Credit
shall be deemed to be Domestic Rate Loans consisting of Revolving Advances and
shall bear interest at the applicable Contract Rate for Domestic Rate Loans;
Letters of Credit that have not been drawn upon shall not bear interest.
2.10 Issuance of Letters of Credit.
(a) Borrower may request Agent to issue or cause the issuance of a
Letter of Credit by delivering to Agent, at the Payment Office, prior to 10:00
a.m. (California time), at least five (5) Business Days' prior to the proposed
date of issuance, Agent's form of Letter of Credit Application (the "Letter of
Credit Application") completed to the satisfaction of Agent; and, such other
certificates, documents and other papers and information as Agent may reasonably
request. Borrower also has the right to give instructions and make agreements
with respect to any application, any applicable letter of credit and security
agreement, any applicable letter of credit reimbursement agreement and/or any
other applicable agreement, any letter of credit and the disposition of
documents, disposition of any unutilized funds, and to agree with Agent upon
any amendment, extension or renewal of any Letter of Credit.
-28-
(b) Each Letter of Credit shall, among other things, (i) provide for
the payment of sight drafts, other written demands for payment, or acceptances
of usance drafts when presented for honor thereunder in accordance with the
terms thereof and when accompanied by the documents described therein and (ii)
have an expiry date not later than twelve (12) months after such Letter of
Credit's date of issuance and in no event later than the last day of the Term.
Each standby Letter of Credit shall be subject either to the Uniform Customs and
Practice for Documentary Credits (1993 Revision), International Chamber of
Commerce Publication No. 500, and any amendments or revision thereof adhered to
by the Issuer ("UCP 500") or the International Standby Practices
(ISP98-International Chamber of Commerce Publication Number 590) ("ISP98
Rules"), as determined by Agent, and each trade Letter of Credit shall be
subject to UCP 500.
(c) Agent shall use its reasonable efforts to notify Lenders of the
request by Borrower for a Letter of Credit hereunder.
(d) [Omitted].
(e) [Omitted].
(f) [Omitted].
(g) [Omitted].
2.11 Requirements For Issuance of Letters of Credit. Borrower shall
authorize and direct any Issuer to name Borrower as the "Applicant" or "Account
Party" of each Letter of Credit. If Agent is not the Issuer of any Letter of
Credit, Borrower shall authorize and direct the Issuer to deliver to Agent all
instruments, documents, and other writings and property received by the Issuer
pursuant to the Letter of Credit and to accept and rely upon Agent's
instructions and agreements with respect to all matters arising in connection
with the Letter of Credit or the application therefor.
2.12 Disbursements, Reimbursement.
(a) Immediately upon the issuance of each Letter of Credit, each
Lender shall be deemed to, and hereby irrevocably and unconditionally agrees to,
purchase from Agent a participation in such Letter of Credit and each drawing
thereunder in an amount equal to such Lender's Commitment Percentage of the
Maximum Face Amount of such Letter of Credit and the amount of such drawing,
respectively.
(b) In the event of any request for a drawing under a Letter of
Credit by the beneficiary or transferee thereof, Agent will promptly notify
Borrower. Provided that it shall have received such notice, Borrower shall
reimburse (such obligation to reimburse Agent shall sometimes be referred to as
a "Reimbursement Obligation") Agent prior to 9:00 a.m., California time on
each date that an amount is paid by Agent under any Letter of Credit (each such
date, a "Drawing Date") in an amount equal to the amount so paid by Agent. In
the event Borrower fails to reimburse Agent for the full amount of any drawing
under any Letter of Credit by 9:00 a.m., California time, on the Drawing Date,
Agent will promptly notify each Lender thereof, and Borrower shall be deemed to
have requested that a Domestic Rate Loan be made by the Lenders to be disbursed
-29-
on the Drawing Date under such Letter of Credit, subject to the amount of the
unutilized portion of the lesser of Maximum Revolving Advance Amount or the
Formula Amount and subject to Section 8.2 hereof. Any notice given by Agent
pursuant to this Section 2.12(b) may be oral if immediately confirmed in
writing; provided that the lack of such an immediate confirmation shall not
affect the conclusiveness or binding effect of such notice.
(c) Each Lender shall upon any notice pursuant to Section 2.12(b)
make available to Agent an amount in immediately available funds equal to its
Commitment Percentage of the amount of the drawing, whereupon the participating
Lenders shall (subject to Section 2.12(d)) each be deemed to have made a
Domestic Rate Loan to Borrower in that amount. If any Lender so notified fails
to make available to Agent the amount of such Lender's Commitment Percentage of
such amount by no later than 11:00 a.m., California time on the Drawing Date,
then interest shall accrue on such Lender's obligation to make such payment,
from the Drawing Date to the date on which such Lender makes such payment (i) at
a rate per annum equal to the Federal Funds Rate during the first three days
following the Drawing Date and (ii) at a rate per annum equal to the rate
applicable to Domestic Rate Loans on and after the fourth day following the
Drawing Date. Agent will promptly give notice of the occurrence of the Drawing
Date, but failure of Agent to give any such notice on the Drawing Date or in
sufficient time to enable any Lender to effect such payment on such date shall
not relieve such Lender from its obligation under this Section 2.12(c), provided
that such Lender shall not be obligated to pay interest as provided in Section
2.12(c)(i) and (ii) until and commencing from the date of receipt of notice from
Agent of a drawing.
(d) With respect to any unreimbursed drawing that is not converted
into a Domestic Rate Loan to Borrower in whole or in part as contemplated by
Section 2.12(b), because of Borrower's failure to satisfy the conditions set
forth in Section 8.2 (other than any notice requirements) or for any other
reason, Borrower shall be deemed to have incurred from Agent a borrowing (each a
"Letter of Credit Borrowing") in the amount of such drawing. Such Letter of
Credit Borrowing shall be due and payable on demand (together with interest) and
shall bear interest at the rate per annum applicable to a Domestic Rate Loan.
Each Lender's payment to Agent pursuant to Section 2.12(c) shall be deemed to be
a payment in respect of its participation in such Letter of Credit Borrowing and
shall constitute a "Participation Advance" from such Lender in satisfaction of
its Participation Commitment under this Section 2.12.
(e) Each Lender's Participation Commitment shall continue until the
last to occur of any of the following events: (x) Agent ceases to be obligated
to issue or cause to be issued Letters of Credit hereunder; (y) no Letter of
Credit issued or created hereunder remains outstanding and uncancelled and (z)
all Persons (other than the Borrower) have been fully reimbursed for all
payments made under or relating to Letters of Credit.
2.13 Repayment of Participation Advances.
(a) Upon (and only upon) receipt by Agent for its account of
immediately available funds from Borrower (i) in reimbursement of any payment
made by the Agent under the Letter of Credit with respect to which any Lender
has made a Participation Advance to Agent, or (ii) in payment of interest on
such a payment made by Agent under such a Letter of Credit, Agent will pay to
each Lender, in the same funds as those received by Agent, the amount of such
-30-
Lender's Commitment Percentage of such funds, except Agent shall retain the
amount of the Commitment Percentage of such funds of any Lender that did not
make a Participation Advance in respect of such payment by Agent.
(b) If Agent is required at any time to return to Borrower, or to a
trustee, receiver, liquidator, custodian, or any official in any insolvency
proceeding, any portion of the payments made by Borrower to Agent pursuant to
Section 2.13(a) in reimbursement of a payment made under the Letter of Credit or
interest or fee thereon, each Lender shall, on demand of Agent, forthwith return
to Agent the amount of its Commitment Percentage of any amounts so returned by
Agent plus interest at the Federal Funds Effective Rate.
2.14 Documentation. Borrower agrees to be bound by the terms of the
Letter of Credit Application and by Agent's interpretations of any Letter of
Credit issued for Borrower's account and by Agent's written regulations and
customary practices relating to letters of credit, though Agent's
interpretations may be different from Borrower's own. In the event of a conflict
between the Letter of Credit Application and this Agreement, this Agreement
shall govern. It is understood and agreed that, except in the case of gross
negligence or willful misconduct, Agent shall not be liable for any error,
negligence and/or mistakes, whether of omission or commission, in following
Borrower's instructions or those contained in the Letters of Credit or any
modifications, amendments or supplements thereto.
2.15 Determination to Honor Drawing Request. In determining whether to
honor any request for drawing under any Letter of Credit by the beneficiary
thereof, Agent shall be responsible only to determine that the documents and
certificates required to be delivered under such Letter of Credit have been
delivered and that they comply on their face with the requirements of such
Letter of Credit and that any other drawing condition appearing on the face of
such Letter of Credit has been satisfied in the manner so set forth.
2.16 Nature of Participation and Reimbursement Obligations. Each Lender's
obligation in accordance with this Agreement to make the Revolving Advances or
Participation Advances as a result of a drawing under a Letter of Credit, and
the obligations of Borrower to reimburse Agent upon a draw under a Letter of
Credit, shall be absolute, unconditional and irrevocable, and shall be performed
strictly in accordance with the terms of this Section 2.16 under all
circumstances, including the following circumstances:
(i) any set-off, counterclaim, recoupment, defense or other right
which such Lender may have against Agent, Borrower or any other Person for any
reason whatsoever;
(ii) the failure of Borrower or any other Person to comply, in
connection with a Letter of Credit Borrowing, with the conditions set forth in
this Agreement for the making of a Revolving Advance, it being acknowledged that
such conditions are not required for the making of a Letter of Credit Borrowing
and the obligation of the Lenders to make Participation Advances under Section
2.12;
(iii) any lack of validity or enforceability of any Letter of
Credit;
-31-
(iv) any claim of breach of warranty that might be made by Borrower
or any Lender against the beneficiary of a Letter of Credit, or the existence of
any claim, set-off, recoupment, counterclaim, crossclaim, defense or other right
which Borrower or any Lender may have at any time against a beneficiary, any
successor beneficiary or any transferee of any Letter of Credit or the proceeds
thereof (or any Persons for whom any such transferee may be acting), Agent or
any Lender or any other Person, whether in connection with this Agreement, the
transactions contemplated herein or any unrelated transaction (including any
underlying transaction between Borrower or any Subsidiaries of Borrower and the
beneficiary for which any Letter of Credit was procured);
(v) the lack of power or authority of any signer of (or any defect
in or forgery of any signature or endorsement on) or the form of or lack of
validity, sufficiency, accuracy, enforceability or genuineness of any draft,
demand, instrument, certificate or other document presented under or in
connection with any Letter of Credit, or any fraud or alleged fraud in
connection with any Letter of Credit, or the transport of any property or
provisions of services relating to a Letter of Credit, in each case even if
Agent or any of Agent's Affiliates has been notified thereof;
(vi) payment by Agent under any Letter of Credit against
presentation of a demand, draft or certificate or other document which does not
comply with the terms of such Letter of Credit;
(vii) the solvency of, or any acts or omissions by, any beneficiary
of any Letter of Credit, or any other Person having a role in any transaction or
obligation relating to a Letter of Credit, or the existence, nature, quality,
quantity, condition, value or other characteristic of any property or services
relating to a Letter of Credit;
(viii) any failure by the Agent or any of Agent's Affiliates to
issue any Letter of Credit in the form requested by Borrower, unless the Agent
has received written notice from Borrower of such failure within three (3)
Business Days after the Agent shall have furnished Borrower a copy of such
Letter of Credit and such error is material and no drawing has been made thereon
prior to receipt of such notice;
(ix) any Material Adverse Effect on Borrower or any Guarantor;
(x) any breach of this Agreement or any Other Document by any
party thereto;
(xi) the occurrence or continuance of an insolvency proceeding with
respect to Borrower or any Guarantor;
(xii) the fact that a Default or Event of Default shall have
occurred and be continuing;
(xiii) the fact that the Term shall have expired or this Agreement
or the Obligations hereunder shall have been terminated; and
-32-
(xiv) any other circumstance or happening whatsoever, whether or not
similar to any of the foregoing.
2.17 Indemnity. In addition to amounts payable as provided in Section
15.5, the Borrower hereby agrees to protect, indemnify, pay and save harmless
Agent and any of Agent's Affiliates that have issued a Letter of Credit from and
against any and all claims, demands, liabilities, damages, taxes, penalties,
interest, judgments, losses, costs, charges and expenses (including reasonable
fees, expenses and disbursements of counsel and allocated costs of internal
counsel) which the Agent or any of Agent's Affiliates may incur or be subject to
as a consequence, direct or indirect, of the issuance of any Letter of Credit,
other than as a result of (a) the gross negligence or willful misconduct of the
Agent as determined by a final and non-appealable judgment of a court of
competent jurisdiction or (b) the wrongful dishonor by the Agent or any of
Agent's Affiliates of a proper demand for payment made under any Letter of
Credit, except if such dishonor resulted from any act or omission, whether
rightful or wrongful, of any present or future de jure or de facto Governmental
Body (all such acts or omissions herein called "Governmental Acts").
2.18 Liability for Acts and Omissions. As between Borrower and Agent and
Lenders, Borrower assumes all risks of the acts and omissions of, or misuse of
the Letters of Credit by, the respective beneficiaries of such Letters of
Credit. In furtherance and not in limitation of the respective foregoing, Agent
shall not be responsible for: (i) the form, validity, sufficiency, accuracy,
genuineness or legal effect of any document submitted by any party in connection
with the application for an issuance of any such Letter of Credit, even if it
should in fact prove to be in any or all respects invalid, insufficient,
inaccurate, fraudulent or forged (even if Agent shall have been notified
thereof); (ii) the validity or sufficiency of any instrument transferring or
assigning or purporting to transfer or assign any such Letter of Credit or the
rights or benefits thereunder or proceeds thereof, in whole or in part, which
may prove to be invalid or ineffective for any reason; (iii) the failure of the
beneficiary of any such Letter of Credit, or any other party to which such
Letter of Credit may be transferred, to comply fully with any conditions
required in order to draw upon such Letter of Credit or any other claim of
Borrower against any beneficiary of such Letter of Credit, or any such
transferee, or any dispute between or among Borrower and any beneficiary of any
Letter of Credit or any such transferee; (iv) errors, omissions, interruptions
or delays in transmission or delivery of any messages, by mail, cable,
telegraph, telex or otherwise, whether or not they be in cipher; (v) errors in
interpretation of technical terms; (vi) any loss or delay in the transmission or
otherwise of any document required in order to make a drawing under any such
Letter of Credit or of the proceeds thereof; (vii) the misapplication by the
beneficiary of any such Letter of Credit of the proceeds of any drawing under
such Letter of Credit; or (viii) any consequences arising from causes beyond the
control of Agent, including any governmental acts, and none of the above shall
affect or impair, or prevent the vesting of, any of Agent's rights or powers
hereunder. Nothing in the preceding sentence shall relieve Agent from liability
for Agent's gross negligence or willful misconduct in connection with actions or
omissions described in such clauses (i) through (viii) of such sentence. In no
event shall Agent or Agent's Affiliates be liable to the Borrower for any
indirect, consequential, incidental, punitive, exemplary or special damages or
expenses (including without limitation attorneys' fees), or for any damages
resulting from any change in the value of any property relating to a Letter of
Credit.
-33-
Without limiting the generality of the foregoing, Agent and each of
its Affiliates (i) may rely on any oral or other communication believed in good
faith by Agent or such Affiliate to have been authorized or given by or on
behalf of the applicant for a Letter of Credit, (ii) may honor any presentation
if the documents presented appear on their face substantially to comply with the
terms and conditions of the relevant Letter of Credit; (iii) may honor a
previously dishonored presentation under a Letter of Credit, whether such
dishonor was pursuant to a court order, to settle or compromise any claim of
wrongful dishonor, or otherwise, and shall be entitled to reimbursement to the
same extent as if such presentation had initially been honored, together with
any interest paid by Agent or its Affiliates; (iv) may honor any drawing that is
payable upon presentation of a statement advising negotiation or payment, upon
receipt of such statement (even if such statement indicates that a draft or
other document is being delivered separately), and shall not be liable for any
failure of any such draft or other document to arrive, or to conform in any way
with the relevant Letter of Credit; (v) may pay any paying or negotiating bank
claiming that it rightfully honored under the laws or practices of the place
where such bank is located; and (vi) may settle or adjust any claim or demand
made on Agent or its Affiliate in any way related to any order issued at the
applicant's request to an air carrier, a letter of guarantee or of indemnity
issued to a carrier or any similar document (each an "Order") and honor any
drawing in connection with any Letter of Credit that is the subject of such
Order, notwithstanding that any drafts or other documents presented in
connection with such Letter of Credit fail to conform in any way with such
Letter of Credit.
In furtherance and extension and not in limitation of the specific
provisions set forth above, any action taken or omitted by Agent under or in
connection with the Letters of Credit issued by it or any documents and
certificates delivered thereunder, if taken or omitted in good faith and without
gross negligence, shall not put Agent under any resulting liability to Borrower
or any Lender.
2.19 Additional Payments. Any sums expended by Agent or any Lender due to
Borrower's failure to perform or comply with its obligations under this
Agreement or any Other Document including Borrower's obligations under Sections
4.2, 4.4, 4.12, 4.13, 4.14 and 6.1 hereof, may be charged to Borrower's Account
as a Revolving Advance and added to the Obligations.
2.20 Manner of Borrowing and Payment.
(a) Each borrowing of Revolving Advances and Seasonal Advances shall
be advanced according to the applicable Commitment Percentages of Lenders.
(b) Each payment (including each prepayment) by Borrower on account
of the principal of and interest on the Revolving Advances, shall be applied
to the Revolving Advances pro rata according to the applicable Commitment
Percentages of Lenders. Each payment (including each prepayment) by Borrower on
account of the principal of and interest on the Seasonal Advance, shall be
applied to the Seasonal Advance pro rata according to the applicable Commitment
Percentages of Lenders. Except as expressly provided herein, all payments
(including prepayments) to be made by Borrower on account of principal, interest
and fees shall be made without set off or counterclaim and shall be made to
Agent on behalf of the Lenders to the Payment Office, in each case on or prior
to 10:00 a.m., California time, in Dollars and in immediately available funds.
(c) (i) Notwithstanding anything to the contrary contained in
Sections 2.20(a) and (b) hereof, commencing with the first Business Day
following the Closing Date, each borrowing of Revolving Advances shall be
advanced by Agent and each payment by Borrower on account of Revolving
Advances shall be applied first to those Revolving Advances advanced by
Agent. On or before 10:00 a.m., California time, on each Settlement Date
commencing with the first Settlement Date following the Closing Date,
Agent and Lenders shall make certain payments as follows: (I) if the
aggregate amount of new Revolving Advances made by Agent during the
preceding Week (if any) exceeds the aggregate amount of repayments
applied to outstanding Revolving Advances during such preceding Week,
then each Lender shall provide Agent with funds in an amount equal to its
applicable Commitment Percentage of the difference between (w) such
Revolving Advances and (x) such repayments and (II) if the aggregate
amount of repayments applied to outstanding Revolving Advances during
such Week exceeds the aggregate amount of new Revolving Advances made
during such Week, then Agent shall provide each Lender with funds in an
amount equal to its applicable Commitment Percentage of the difference
between (y) such repayments and (z) such Revolving Advances.
(ii) Each Lender shall be entitled to earn interest at the
applicable Contract Rate on outstanding Advances which it has funded.
(iii) Promptly following each Settlement Date, Agent shall
submit to each Lender a certificate with respect to payments received and
Advances made during the Week immediately preceding such Settlement Date.
Such certificate of Agent shall be conclusive in the absence of manifest
error.
(d) If any Lender or Participant (a "benefited Lender") shall at any
time receive any payment of all or part of its Advances, or interest thereon, or
receive any Collateral in respect thereof (whether voluntarily or involuntarily
or by set-off) in a greater proportion than any such payment to and Collateral
received by any other Lender, if any, in respect of such other Lender's
Advances, or interest thereon, and such greater proportionate payment or receipt
of Collateral is not expressly permitted hereunder, such benefited Lender shall
purchase for cash from the other Lenders a participation in such portion of each
such other Lender's Advances, or shall provide such other Lender with the
benefits of any such Collateral, or the proceeds thereof, as shall be necessary
to cause such benefited Lender to share the excess payment or benefits of such
Collateral or proceeds ratably with each of the other Lenders; provided,
however, that if all or any portion of such excess payment or benefits is
thereafter recovered from such benefited Lender, such purchase shall be
rescinded, and the purchase price and benefits returned, to the extent of such
recovery, but without interest. Each Lender so purchasing a portion of another
Lender's Advances may exercise all rights of payment (including rights of
set-off) with respect to such portion as fully as if such Lender were the direct
holder of such portion.
(e) Unless Agent shall have been notified by telephone, confirmed in
writing, by any Lender that such Lender will not make the amount which would
constitute its applicable Commitment Percentage of the Advances available to
-00-
Xxxxx, Xxxxx may (but shall not be obligated to) assume that such Lender shall
make such amount available to Agent on the next Settlement Date and, in reliance
upon such assumption, make available to Borrower a corresponding amount. Agent
will promptly notify Borrower of its receipt of any such notice from a Lender.
If such amount is made available to Agent on a date after such next Settlement
Date, such Lender shall pay to Agent on demand an amount equal to the product of
(i) the daily average Federal Funds Rate (computed on the basis of a year of 360
days) during such period as quoted by Agent, times (ii) such amount, times (iii)
the number of days from and including such Settlement Date to the date on which
such amount becomes immediately available to Agent. A certificate of Agent
submitted to any Lender with respect to any amounts owing under this paragraph
(e) shall be conclusive, in the absence of manifest error. If such amount is not
in fact made available to Agent by such Lender within three (3) Business Days
after such Settlement Date, Agent shall be entitled to recover such an amount,
with interest thereon at the rate per annum then applicable to such Revolving
Advances hereunder, on demand from Borrower; provided, however, that Agent's
right to such recovery shall not prejudice or otherwise adversely affect
Borrower's rights (if any) against such Lender.
2.21 Mandatory Prepayments.
(a) Subject to Section 4.3 hereof, when Borrower sells or otherwise
disposes of any Collateral other than Inventory in the Ordinary Course of
Business, Borrower shall repay the Advances in an amount equal to the net
proceeds of such sale (i.e., gross proceeds less the reasonable costs of such
sales or other dispositions), such repayments to be made promptly but in no
event more than one (1) Business Day following receipt of such net proceeds, and
until the date of payment, such proceeds shall be held in trust for Agent. The
foregoing shall not be deemed to be implied consent to any such sale otherwise
prohibited by the terms and conditions hereof. Such repayments shall be applied
(y) first, to the Seasonal Advance, and (z) second, to the remaining Advances in
such order as Agent may determine, subject to Borrower's ability to reborrow
Revolving Advances in accordance with the terms hereof.
(b) Borrower shall prepay the outstanding amount of the Advances in
an amount equal to 25% of Excess Cash Flow for each fiscal year commencing on or
after January 1, 2005, payable upon delivery of the financial statements to
Agent referred to in and required by Section 9.7 for such fiscal year but in any
event not later than ninety (90) days after the end of each such fiscal year,
which amount shall be applied (y) first, to the Seasonal Advance and (z) second,
to the remaining Advances in such order as Agent may determine subject to
Borrower's ability to reborrow Revolving Advances in accordance with the terms
hereof. In the event that the financial statement is not so delivered, then a
calculation based upon estimated amounts shall be made by Agent upon which
calculation Borrower shall make the prepayment required by this Section 2.21(b),
subject to adjustment when the financial statement is delivered to Agent as
required hereby. The calculation made by Agent shall not be deemed a waiver of
any rights Agent or Lenders may have as a result of the failure by Borrower to
deliver such financial statement.
-36-
2.22 Use of Proceeds.
(a) Borrower shall apply the proceeds of Advances to (i) repay
existing indebtedness owed to Manufacturers Bank, (ii) pay fees and expenses
relating to this transaction, and (iii) provide for its working capital needs
and reimburse drawings under Letters of Credit.
(b) Without limiting the generality of Section 2.22(a) above,
neither the Borrower, the Guarantors nor any other Person which may in the
future become party to this Agreement or the Other Documents as Borrower or
Guarantor, intends to use nor shall they use any portion of the proceeds of the
Advances, directly or indirectly, for any purpose in violation of the Trading
with the Enemy Act.
2.23 Defaulting Lender.
(a) Notwithstanding anything to the contrary contained herein, in
the event any Lender (x) has refused (which refusal constitutes a breach by such
Lender of its obligations under this Agreement) to make available its portion of
any Advance or (y) notifies either Agent or Borrower that it does not intend to
make available its portion of any Advance (if the actual refusal would
constitute a breach by such Lender of its obligations under this Agreement)
(each, a "Lender Default"), all rights and obligations hereunder of such Lender
(a "Defaulting Lender") as to which a Lender Default is in effect and of the
other parties hereto shall be modified to the extent of the express provisions
of this Section 2.23 while such Lender Default remains in effect.
(b) Advances shall be incurred pro rata from Lenders (the
"Non-Defaulting Lenders") which are not Defaulting Lenders based on their
respective Commitment Percentages, and no Commitment Percentage of any Lender or
any pro rata share of any Advances required to be advanced by any Lender shall
be increased as a result of such Lender Default. Amounts received in respect of
principal of any type of Advances shall be applied to reduce the applicable
Advances of each Lender pro rata based on the aggregate of the outstanding
Advances of that type of all Lenders at the time of such application; provided,
that, such amount shall not be applied to any Advances of a Defaulting Lender at
any time when, and to the extent that, the aggregate amount of Advances of any
Non-Defaulting Lender exceeds such Non-Defaulting Lender's Commitment Percentage
of all Advances then outstanding.
(c) A Defaulting Lender shall not be entitled to give instructions
to Agent or to approve, disapprove, consent to or vote on any matters relating
to this Agreement and the Other Documents. All amendments, waivers and other
modifications of this Agreement and the Other Documents may be made without
regard to a Defaulting Lender and, for purposes of the definition of "Required
Lenders", a Defaulting Lender shall be deemed not to be a Lender and not to have
Advances outstanding.
(d) Other than as expressly set forth in this Section 2.23, the
rights and obligations of a Defaulting Lender (including the obligation to
indemnify Agent) and the other parties hereto shall remain unchanged. Nothing in
this Section 2.23 shall be deemed to release any Defaulting Lender from its
obligations under this Agreement and the Other Documents, shall alter such
obligations, shall operate as a waiver of any default by such Defaulting Lender
hereunder, or shall prejudice any rights which Borrower, Agent or any Lender may
-37-
have against any Defaulting Lender as a result of any default by such Defaulting
Lender hereunder.
(e) In the event a Defaulting Lender retroactively cures to the
satisfaction of Agent the breach which caused a Lender to become a Defaulting
Lender, such Defaulting Lender shall no longer be a Defaulting Lender and shall
be treated as a Lender under this Agreement.
III. INTEREST AND FEES.
3.1 Interest. Interest on Advances shall be payable in arrears on the
first day of each month with respect to Domestic Rate Loans and, with respect to
Eurodollar Rate Loans, at the end of each Interest Period or, for Eurodollar
Rate Loans with an Interest Period in excess of three months (if any), at the
earlier of (a) each three months from the commencement of such Eurodollar Rate
Loan or (b) the end of the Interest Period. Interest charges shall be computed
on the actual principal amount of Advances outstanding during the month at a
rate per annum equal to (i) with respect to Revolving Advances, the Revolving
Interest Rate and (ii) with respect to the Seasonal Advance, the Seasonal
Advance Rate. Whenever, subsequent to the date of this Agreement, the Alternate
Base Rate is increased or decreased, the applicable Contract Rate for Domestic
Rate Loans shall be similarly changed without notice or demand of any kind by an
amount equal to the amount of such change in the Alternate Base Rate during the
time such change or changes remain in effect. The Eurodollar Rate shall be
adjusted with respect to Eurodollar Rate Loans without notice or demand of any
kind on the effective date of any change in the Reserve Percentage as of such
effective date. Upon and after the occurrence of an Event of Default, and during
the continuation thereof, at the option of Agent or at the direction of Required
Lenders, the Obligations shall bear interest at the applicable Contract Rate
plus two percent (2%) per annum (the "Default Rate").
3.2 Letter of Credit Fees.
(a) Borrower shall pay to Agent, for the ratable benefit of Lenders,
fees for each Letter of Credit for the period from and excluding the date of
issuance of same to and including the date of expiration or termination, equal
to the average daily face amount of each outstanding standby Letter of Credit
multiplied by two percent (2.0%) per annum, and equal to the average daily face
amount of each outstanding trade Letter of Credit multiplied by one percent
(1.0%) per annum, such fees to be calculated on the basis of a 360-day year for
the actual number of days elapsed and to be payable quarterly in arrears on the
first day of each quarter and on the last day of the Term, together with any and
all administrative, issuance, amendment, payment and negotiation charges of
Issuer with respect to Letters of Credit and all fees and expenses as agreed
upon by the Issuer and the Borrower in connection with any Letter of Credit,
including in connection with the opening, amendment or renewal of any such
Letter of Credit and any acceptances created thereunder and shall reimburse
Agent for any and all fees and expenses, if any, paid by Agent to the Issuer
(all of the foregoing fees, the "Letter of Credit Fees"). All such charges shall
be deemed earned in full on the date when the same are due and payable hereunder
and shall not be subject to rebate or pro-ration upon the termination of this
Agreement for any reason. Any such charge in effect at the time of a particular
transaction shall be the charge for that transaction, notwithstanding any
subsequent change in the Issuer's prevailing charges for that type of
-38-
transaction. All Letter of Credit Fees payable hereunder shall be deemed earned
in full on the date when the same are due and payable hereunder and shall not be
subject to rebate or pro-ration upon the termination of this Agreement for any
reason.
On demand made at any time (i) during the existence of an
Event of Default, with respect to all outstanding Letters of Credit or (ii)
within 30 days of the end of the Term, with respect to any outstanding Letters
of Credit with an expiry date, or that can be renewed, beyond the day before the
last day of the Term (without limitation upon any provision hereof which may
prohibit such an expiry date or renewal), Borrower will cause cash to be
deposited and maintained in an account with Agent, as cash collateral, in an
amount equal to one hundred five percent (105%) of the outstanding Letters of
Credit, and Borrower hereby irrevocably authorizes Agent, in its discretion, on
Borrower's behalf and in Borrower's name, to open such an account and to make
and maintain deposits therein, or in an account opened by Borrower, in the
amounts required to be made by Borrower, out of the proceeds of Receivables or
other Collateral or out of any other funds of Borrower coming into any Lender's
possession at any time. Agent will invest such cash collateral (less applicable
reserves) in such short-term money-market items as to which Agent and Borrower
mutually agree and the net return on such investments shall be credited to such
account and constitute additional cash collateral. Borrower may not withdraw
amounts credited to any such account except upon the occurrence of all of the
following: payment and performance in full of all Obligations, the termination
of this Agreement and the expiration of all Letters of Credit.
3.3 (a) Closing Fee. Upon the execution of this Agreement, Borrower
shall pay to Agent for the ratable benefit of Lenders a closing fee of $99,000
less that portion of the deposit fee and the commitment fee heretofore paid by
Borrower to Agent remaining after application of such fees to out-of-pocket
expenses.
(b) [Omitted].
3.4 (a) Collateral Evaluation Fee. Borrower shall pay Agent a collateral
evaluation fee equal to $1,500 per month commencing on the first day of the
month following the Closing Date and on the first day of each month thereafter
during the Term. The collateral evaluation fee shall be deemed earned in full on
the date when same is due and payable hereunder and shall not be subject to
rebate or proration upon termination of this Agreement for any reason.
(b) Collateral Monitoring Fee. Borrower shall pay to Agent on the
first day of each month following any month in which Agent performs any
collateral monitoring - namely any field examination, collateral analysis or
other business analysis, the need for which is to be determined by Agent and
which monitoring is undertaken by Agent or for Agent's benefit - a collateral
monitoring fee in an amount equal to $750 per day for each person employed to
perform such monitoring, plus all costs and disbursements incurred by Agent in
the performance of such examination or analysis.
3.5 Computation of Interest and Fees. Interest and fees hereunder shall
be computed on the basis of a year of 360 days and for the actual number of days
elapsed. If any payment to be made hereunder becomes due and payable on a day
other than a Business Day, the due date thereof shall be extended to the next
-39-
succeeding Business Day and interest thereon shall be payable at the applicable
Contract Rate during such extension.
3.6 Maximum Charges. In no event whatsoever shall interest and other
charges charged hereunder exceed the highest rate permissible under law. In the
event interest and other charges as computed hereunder would otherwise exceed
the highest rate permitted under law, such excess amount shall be first applied
to any unpaid principal balance owed by Borrower, and if the then remaining
excess amount is greater than the previously unpaid principal balance, Lenders
shall promptly refund such excess amount to Borrower and the provisions hereof
shall be deemed amended to provide for such permissible rate.
3.7 Increased Costs. In the event that any Applicable Law, treaty or
governmental regulation, or any change therein or in the interpretation or
application thereof, or compliance by any Lender (for purposes of this Section
3.7, the term "Lender" shall include Agent or any Lender and any corporation or
bank controlling Agent or any Lender) and the office or branch where Agent or
any Lender (as so defined) makes or maintains any Eurodollar Rate Loans with any
request or directive (whether or not having the force of law) from any central
bank or other financial, monetary or other authority, shall:
(a) subject Agent or any Lender to any tax of any kind whatsoever
with respect to this Agreement or any Other Document or change the basis of
taxation of payments to Agent or any Lender of principal, fees, interest or any
other amount payable hereunder or under any Other Documents (except for changes
in the rate of tax on the overall net income of Agent or any Lender by the
jurisdiction in which it maintains its principal office);
(b) impose, modify or hold applicable any reserve, special deposit,
assessment or similar requirement against assets held by, or deposits in or for
the account of, advances or loans by, or other credit extended by, any office of
Agent or any Lender, including pursuant to Regulation D of the Board of
Governors of the Federal Reserve System; or
(c) impose on Agent or any Lender or the London interbank Eurodollar
market any other condition with respect to this Agreement or any Other Document;
and the result of any of the foregoing is to increase the cost to Agent or any
Lender of making, renewing or maintaining its Advances hereunder by an amount
that Agent or such Lender deems to be material or to reduce the amount of any
payment (whether of principal, interest or otherwise) in respect of any of the
Advances by an amount that Agent or such Lender deems to be material, then, in
any case Borrower shall promptly pay Agent or such Lender, upon its demand, such
additional amount as will compensate Agent or such Lender for such additional
cost or such reduction, as the case may be, provided that the foregoing shall
not apply to increased costs which are reflected in the Eurodollar Rate, as the
case may be. Agent or such Lender shall certify the amount of such additional
cost or reduced amount to Borrower, and such certification shall be conclusive
absent manifest error.
3.8 Basis For Determining Interest Rate Inadequate or Unfair. In the
event that Agent or any Lender shall have determined that:
-40-
(a) reasonable means do not exist for ascertaining the Eurodollar Rate for any
Interest Period; or
(b) Dollar deposits in the relevant amount and for the relevant maturity are not
available in the London interbank Eurodollar market, with respect to an
outstanding Eurodollar Rate Loan, a proposed Eurodollar Rate Loan, or a proposed
conversion of a Domestic Rate Loan into a Eurodollar Rate Loan,
then Agent shall give Borrower prompt written, telephonic or telegraphic notice
of such determination. If such notice is given, (i) any such requested
Eurodollar Rate Loan shall be made as a Domestic Rate Loan, unless Borrower
shall notify Agent no later than 10:00 a.m. (California time) two (2) Business
Days prior to the date of such proposed borrowing, that its request for such
borrowing shall be cancelled or made as an unaffected type of Eurodollar Rate
Loan, (ii) any Domestic Rate Loan or Eurodollar Rate Loan which was to have been
converted to an affected type of Eurodollar Rate Loan shall be continued as or
converted into a Domestic Rate Loan, or, if Borrower shall notify Agent, no
later than 10:00 a.m. (California time) two (2) Business Days prior to the
proposed conversion, shall be maintained as an unaffected type of Eurodollar
Rate Loan, and (iii) any outstanding affected Eurodollar Rate Loans shall be
converted into a Domestic Rate Loan, or, if Borrower shall notify Agent, no
later than 10:00 a.m. (California time) two (2) Business Days prior to the last
Business Day of the then current Interest Period applicable to such affected
Eurodollar Rate Loan, shall be converted into an unaffected type of Eurodollar
Rate Loan, on the last Business Day of the then current Interest Period for such
affected Eurodollar Rate Loans. Until such notice has been withdrawn, Lenders
shall have no obligation to make an affected type of Eurodollar Rate Loan or
maintain outstanding affected Eurodollar Rate Loans and Borrower shall not have
the right to convert a Domestic Rate Loan or an unaffected type of Eurodollar
Rate Loan into an affected type of Eurodollar Rate Loan.
3.9 Capital Adequacy.
(a) In the event that Agent or any Lender shall have determined that
any Applicable Law, rule, regulation or guideline regarding capital adequacy, or
any change therein, or any change in the interpretation or administration
thereof by any Governmental Body, central bank or comparable agency charged with
the interpretation or administration thereof, or compliance by Agent or any
Lender (for purposes of this Section 3.9, the term "Lender" shall include Agent
or any Lender and any corporation or bank controlling Agent or any Lender) and
the office or branch where Agent or any Lender (as so defined) makes or
maintains any Eurodollar Rate Loans with any request or directive regarding
capital adequacy (whether or not having the force of law) of any such authority,
central bank or comparable agency, has or would have the effect of reducing the
rate of return on Agent or any Lender's capital as a consequence of its
obligations hereunder to a level below that which Agent or such Lender could
have achieved but for such adoption, change or compliance (taking into
consideration Agent's and each Lender's policies with respect to capital
adequacy) by an amount deemed by Agent or any Lender to be material, then, from
time to time, Borrower shall pay upon demand to Agent or such Lender such
additional amount or amounts as will compensate Agent or such Lender for such
reduction. In determining such amount or amounts, Agent or such Lender may use
any reasonable averaging or attribution methods. The protection of this Section
3.9 shall be available to Agent and each Lender regardless of any possible
-41-
contention of invalidity or inapplicability with respect to the Applicable Law,
regulation or condition.
(b) A certificate of Agent or such Lender setting forth such amount
or amounts as shall be necessary to compensate Agent or such Lender with respect
to Section 3.9(a) hereof when delivered to Borrower shall be conclusive absent
manifest error.
3.10 Gross Up for Taxes. If Borrower shall be required by Applicable Law
to withhold or deduct any taxes from or in respect of any sum payable under this
Agreement or any of the Other Documents to Agent, or any Lender, assignee of any
Lender, or Participant (each, individually, a "Payee" and collectively, the
"Payees"), (a) the sum payable to such Payee or Payees, as the case may be,
shall be increased as may be necessary so that, after making all required
withholding or deductions, the applicable Payee or Payees receives an amount
equal to the sum it would have received had no such withholding or deductions
been made (the "Gross-Up Payment"), (b) Borrower shall make such withholding or
deductions, and (c) Borrower shall pay the full amount withheld or deducted to
the relevant taxation authority or other authority in accordance with Applicable
Law. Notwithstanding the foregoing, Borrower shall not be obligated to make any
portion of the Gross-Up Payment that is attributable to any withholding or
deductions that would not have been paid or claimed had the applicable Payee or
Payees properly claimed a complete exemption with respect thereto pursuant to
Section 3.11 hereof.
3.11 Withholding Tax Exemption.
(a) Each Payee that is not incorporated under the Laws of the United
States of America or a state thereof (and, upon the written request of Agent,
each other Payee) agrees that it will deliver to Borrower and Agent two (2) duly
completed appropriate valid Withholding Certificates (as defined under
ss.1.1441-1(c)(16) of the Income Tax Regulations ("Regulations")) certifying its
status (i.e., U.S. or foreign person) and, if appropriate, making a claim of
reduced, or exemption from, U.S. withholding tax on the basis of an income tax
treaty or an exemption provided by the Code. The term "Withholding Certificate"
means a Form W-9; a Form W-8BEN; a Form W-8ECI; a Form W-8IMY and the related
statements and certifications as required under ss.1.1441-1(e)(2) and/or (3) of
the Regulations; a statement described in ss.1.871-14(c)(2)(v) of the
Regulations; or any other certificates under the Code or Regulations that
certify or establish the status of a payee or beneficial owner as a U.S. or
foreign person.
(b) Each Payee required to deliver to Borrower and Agent a valid
Withholding Certificate pursuant to Section 3.11(a) hereof shall deliver such
valid Withholding Certificate as follows: (A) each Payee which is a party hereto
on the Closing Date shall deliver such valid Withholding Certificate at least
five (5) Business Days prior to the first date on which any interest or fees are
payable by Borrower hereunder for the account of such Payee; (B) each Payee
shall deliver such valid Withholding Certificate at least five (5) Business Days
before the effective date of such assignment or participation (unless Agent in
its sole discretion shall permit such Payee to deliver such Withholding
Certificate less than five (5) Business Days before such date in which case it
shall be due on the date specified by Agent). Each Payee which so delivers a
valid Withholding Certificate further undertakes to deliver to Borrower and
Agent two (2) additional copies of such Withholding Certificate (or a successor
form) on or before the date that such Withholding Certificate expires or becomes
obsolete or after the occurrence of any event requiring a change in the most
-42-
recent Withholding Certificate so delivered by it, and such amendments thereto
or extensions or renewals thereof as may be reasonably requested by Borrower or
Agent.
(c) Notwithstanding the submission of a Withholding Certificate
claiming a reduced rate of or exemption from U.S. withholding tax required under
Section 3.11(b) hereof, Agent shall be entitled to withhold United States
federal income taxes at the full 30% withholding rate if in its reasonable
judgment it is required to do so under the due diligence requirements imposed
upon a withholding agent under ss.1.1441-7(b) of the Regulations. Further, Agent
is indemnified under ss.1.1461-1(e) of the Regulations against any claims and
demands of any Payee for the amount of any tax it deducts and withholds in
accordance with regulations under ss.1441 of the Code.
IV. COLLATERAL: GENERAL TERMS.
4.1 Security Interest in the Collateral. To secure the prompt payment
and performance to Agent and each Lender of the Obligations, Borrower hereby
assigns, pledges and grants to Agent for its benefit and for the ratable benefit
of each Lender a continuing security interest in and to and Lien on all of its
Collateral, whether now owned or existing or hereafter acquired or arising and
wheresoever located. Borrower shall xxxx its books and records as may be
necessary or appropriate to evidence, protect and perfect Agent's security
interest and shall cause its financial statements to reflect such security
interest. Borrower shall promptly provide Agent with written notice of all
commercial tort claims, such notice to contain the case title together with the
applicable court and a brief description of the claim(s). Upon delivery of each
such notice, Borrower shall be deemed to hereby grant to Agent a security
interest and lien in and to such commercial tort claims and all proceeds
thereof.
4.2 Perfection of Security Interest. Borrower shall take all action that
may be necessary or desirable, or that Agent may request, so as at all times to
maintain the validity, perfection, enforceability and priority of Agent's
security interest in and Lien on the Collateral or to enable Agent to protect,
exercise or enforce its rights hereunder and in the Collateral, including, but
not limited to, (i) immediately discharging all Liens other than Permitted
Encumbrances, (ii) obtaining Lien Waiver Agreements, (iii) delivering to Agent,
endorsed or accompanied by such instruments of assignment as Agent may specify,
and stamping or marking, in such manner as Agent may specify, any and all
chattel paper, instruments, letters of credits and advices thereof and documents
evidencing or forming a part of the Collateral, (iv) entering into warehousing,
lockbox and other custodial arrangements satisfactory to Agent, and (v)
executing and delivering financing statements, control agreements, instruments
of pledge, mortgages, notices and assignments, in each case in form and
substance satisfactory to Agent, relating to the creation, validity, perfection,
maintenance or continuation of Agent's security interest and Lien under the
Uniform Commercial Code or other Applicable Law. By its signature hereto,
Borrower hereby authorizes Agent to file against Borrower, one or more
financing, continuation or amendment statements pursuant to the Uniform
Commercial Code in form and substance satisfactory to Agent (which statements
may have a description of collateral which is broader than that set forth
herein). All charges, expenses and fees Agent may incur in doing any of the
foregoing, and any local taxes relating thereto, shall be charged to Borrower's
-43-
Account as a Revolving Advance of a Domestic Rate Loan and added to the
Obligations, or, at Agent's option, shall be paid to Agent for its benefit and
for the ratable benefit of Lenders immediately upon demand. Without limiting the
generality of the foregoing, Borrower represents and warrants that Borrower's
obligations to IBM Credit Corporation with respect to the following financing
statement have been satisfied and Borrower agrees to cause such financing
statement to be duly terminated within 45 days of the date hereof: no.
200016060526 filed on May 31, 2000 with the Office of the California Secretary
of State
4.3 Disposition of Collateral. Borrower will safeguard and protect all
Collateral for Agent's general account and make no disposition thereof whether
by sale, lease or otherwise except (a) the sale of Inventory in the Ordinary
Course of Business and (b) the disposition or transfer of obsolete and worn-out
Equipment, or of other Collateral (excluding Receivables), in the Ordinary
Course of Business during any fiscal year having an aggregate fair market value
of not more than $150,000.
4.4 Preservation of Collateral. Following the occurrence of a Default or
Event of Default, in addition to the rights and remedies set forth in Section
11.1 hereof, Agent: (a) may at any time take such steps as Agent deems necessary
to protect Agent's interest in and to preserve the Collateral, including the
hiring of such security guards or the placing of other security protection
measures as Agent may deem appropriate; (b) may employ and maintain at any of
Borrower's premises a custodian who shall have full authority to do all acts
necessary to protect Agent's interests in the Collateral; (c) may lease
warehouse facilities to which Agent may move all or part of the Collateral; (d)
may use Borrower's owned or leased lifts, hoists, trucks and other facilities or
equipment for handling or removing the Collateral; and (e) shall have, and is
hereby granted, a right of ingress and egress to the places where the Collateral
is located, and may proceed over and through any of Borrower's owned or leased
property. Borrower shall cooperate fully with all of Agent's efforts to preserve
the Collateral and will take such actions to preserve the Collateral as Agent
may direct. All of Agent's expenses of preserving the Collateral, including any
expenses relating to the bonding of a custodian, shall be charged to Borrower's
Account as a Revolving Advance and added to the Obligations.
4.5 Ownership of Collateral.
(a) With respect to the Collateral, at the time the Collateral
becomes subject to Agent's security interest: (i) Borrower shall be the sole
owner of and fully authorized and able to sell, transfer, pledge and/or grant a
first priority security interest in each and every item of the its respective
Collateral to Agent; and, except for Permitted Encumbrances the Collateral shall
be free and clear of all Liens and encumbrances whatsoever; (ii) each document
and agreement executed by Borrower or delivered to Agent or any Lender in
connection with this Agreement shall be true and correct in all respects; (iii)
all signatures and endorsements of Borrower that appear on such documents and
agreements shall be genuine and Borrower shall have full capacity to execute
same; and (iv) Borrower's Equipment and Inventory shall be located as set forth
on Schedule 4.5 and shall not be removed from such location(s) without the prior
written consent of Agent except with respect to the sale of Inventory in the
Ordinary Course of Business and Equipment to the extent permitted in Section 4.3
hereof.
-44-
(b) (i) There is no location at which Borrower has any Inventory
(except for Inventory in transit) other than those locations listed on Schedule
4.5; (ii) Schedule 4.5 hereto contains a correct and complete list, as of the
Closing Date, of the legal names and addresses of each warehouse at which
Inventory of Borrower is stored; none of the receipts received by Borrower from
any warehouse states that the goods covered thereby are to be delivered to
bearer or to the order of a named Person or to a named Person and such named
Person's assigns; (iii) Schedule 4.5 hereto sets forth a correct and complete
list as of the Closing Date of (A) each place of business of Borrower and (B)
the chief executive office of Borrower; and (iv) Schedule 4.5 hereto sets forth
a correct and complete list as of the Closing Date of the location, by state and
street address, of all Real Property owned or leased by Borrower, together with
the names and addresses of any landlords.
4.6 Defense of Agent's and Lenders' Interests. Until (a) payment and
performance in full of all of the Obligations and (b) termination of this
Agreement, Agent's interests in the Collateral shall continue in full force and
effect. During such period Borrower shall not, without Agent's prior written
consent, pledge, sell (except Inventory in the Ordinary Course of Business and
Equipment to the extent permitted in Section 4.3 hereof), assign, transfer,
create or suffer to exist a Lien upon or encumber or allow or suffer to be
encumbered in any way except for Permitted Encumbrances, any part of the
Collateral. Borrower shall defend Agent's interests in the Collateral against
any and all Persons whatsoever. At any time following demand by Agent for
payment of all Obligations, Agent shall have the right to take possession of the
indicia of the Collateral and the Collateral in whatever physical form
contained, including: labels, stationery, documents, instruments and advertising
materials. If Agent exercises this right to take possession of the Collateral,
Borrower shall, upon demand, assemble it in the best manner possible and make it
available to Agent at a place reasonably convenient to Agent. In addition, with
respect to all Collateral, Agent and Lenders shall be entitled to all of the
rights and remedies set forth herein and further provided by the Uniform
Commercial Code or other Applicable Law. Borrower shall, and Agent may, at its
option, instruct all suppliers, carriers, forwarders, warehousers or others
receiving or holding cash, checks, Inventory, documents or instruments in which
Agent holds a security interest to deliver same to Agent and/or subject to
Agent's order and if they shall come into Borrower's possession, they, and each
of them, shall be held by Borrower in trust as Agent's trustee, and Borrower
will immediately deliver them to Agent in their original form together with any
necessary endorsement.
4.7 Books and Records. Borrower shall (a) keep proper books of record
and account in which full, true and correct entries will be made of all dealings
or transactions of or in relation to its business and affairs; (b) set up on its
books accruals with respect to all taxes, assessments, charges, levies and
claims; and (c) on a reasonably current basis set up on its books, from its
earnings, allowances against doubtful Receivables, advances and investments and
all other proper accruals (including by reason of enumeration, accruals for
premiums, if any, due on required payments and accruals for depreciation,
obsolescence, or amortization of properties), which should be set aside from
such earnings in connection with its business. All determinations pursuant to
this subsection shall be made in accordance with, or as required by, GAAP
consistently applied in the opinion of such independent public accountant as
shall then be regularly engaged by Borrower.
-45-
4.8 Financial Disclosure. Borrower hereby irrevocably authorizes and
directs all accountants and auditors employed by Borrower at any time during the
Term to exhibit and deliver to Agent and each Lender copies of any of Borrower's
financial statements, trial balances or other accounting records of any sort
belonging to the Borrower in the accountant's or auditor's possession, and to
disclose to Agent and each Lender any information such accountants may have
concerning Borrower's financial status and business operations. Borrower hereby
authorizes all Governmental Bodies to furnish to Agent and each Lender copies of
reports or examinations relating to Borrower, whether made by Borrower or
otherwise; however, Agent and each Lender will attempt to obtain such
information or materials directly from Borrower prior to obtaining such
information or materials from such accountants or Governmental Bodies.
4.9 Compliance with Laws. Borrower shall comply with all Applicable Laws
with respect to the Collateral or any part thereof or to the operation of
Borrower's business the non-compliance with which could reasonably be expected
to have a Material Adverse Effect. The assets of Borrower at all times shall be
maintained in accordance with the requirements of all insurance carriers which
provide insurance with respect to the assets of Borrower so that such insurance
shall remain in full force and effect.
4.10 Inspection of Premises. At all reasonable times Agent and each
Lender shall have full access to and the right to audit, check, inspect and make
abstracts and copies from Borrower's books, records, audits, correspondence and
all other papers relating to the Collateral and the operation of Borrower's
business. Agent, any Lender and their agents may enter upon any of Borrower's
premises at any time during business hours and at any other reasonable time, and
from time to time, for the purpose of inspecting the Collateral and any and all
records pertaining thereto and the operation of Borrower's business. Borrower
acknowledges and agrees that as of the date hereof it is Agent's intention to
perform field examinations not less frequently than four times per year.
4.11 Insurance. The assets and properties of Borrower at all times shall
be maintained in accordance with the requirements of all insurance carriers
which provide insurance with respect to the assets and properties of Borrower so
that such insurance shall remain in full force and effect. Borrower shall bear
the full risk of any loss of any nature whatsoever with respect to the
Collateral. At Borrower's own cost and expense in amounts and with carriers
acceptable to Agent, Borrower shall (a) keep all its insurable properties and
properties in which Borrower has an interest insured against the hazards of
fire, flood, sprinkler leakage, those hazards covered by extended coverage
insurance and such other hazards, and for such amounts, as is customary in the
case of companies engaged in businesses similar to Borrower's including business
interruption insurance; (b) [omitted]; (c) maintain public and product liability
insurance against claims for personal injury, death or property damage suffered
by others; (d) maintain all such worker's compensation or similar insurance as
may be required under the laws of any state or jurisdiction in which Borrower is
engaged in business; (e) [omitted]; (f) furnish Agent with (i) copies of all
policies and evidence of the maintenance of such policies by the renewal thereof
at least thirty (30) days before any expiration date, and (ii) appropriate loss
payable endorsements in form and substance satisfactory to Agent, naming Agent
as a co-insured and loss payee as its interests may appear with respect to all
insurance coverage referred to in clauses (a) and (c) above, and providing (A)
that all proceeds thereunder shall be payable to Agent, (B) no such insurance
shall be affected by any act or neglect of the insured or owner of the property
-46-
described in such policy, and (C) that such policy and loss payable clauses may
not be cancelled, amended or terminated unless at least thirty (30) days' prior
written notice is given to Agent. In the event of any loss thereunder, the
carriers named therein hereby are directed by Agent and Borrower to make payment
for such loss to Agent and not to Borrower and Agent jointly. If any insurance
losses are paid by check, draft or other instrument payable to Borrower and
Agent jointly, Agent may endorse Borrower's name thereon and do such other
things as Agent may deem advisable to reduce the same to cash. Agent is hereby
authorized to adjust and compromise claims under insurance coverage referred to
in clauses (a) and (b) above. All loss recoveries received by Agent upon any
such insurance may be applied to the Obligations, in such order as Agent in its
sole discretion shall determine. Any surplus shall be paid by Agent to Borrower
or applied as may be otherwise required by law. Any deficiency thereon shall be
paid by Borrower to Agent, on demand. Anything hereinabove to the contrary
notwithstanding, and subject to the fulfillment of the conditions set forth
below, Agent shall remit to Borrower insurance proceeds received by Agent during
any calendar year under insurance policies procured and maintained by Borrower
which insure Borrower's insurable properties to the extent such insurance
proceeds do not exceed $100,000 in the aggregate during such calendar year or
$25,000 per occurrence. In the event the amount of insurance proceeds received
by Agent for any occurrence exceeds $25,000, then Agent shall not be obligated
to remit the insurance proceeds to Borrower unless Borrower shall provide Agent
with evidence reasonably satisfactory to Agent that the insurance proceeds will
be used by Borrower to repair, replace or restore the insured property which was
the subject of the insurable loss. In the event Borrower have previously
received (or, after giving effect to any proposed remittance by Agent to
Borrower would receive) insurance proceeds which equal or exceed $100,000 in the
aggregate during any calendar year, then Agent may, in its sole discretion,
either remit the insurance proceeds to Borrower upon Borrower providing Agent
with evidence reasonably satisfactory to Agent that the insurance proceeds will
be used by Borrower to repair, replace or restore the insured property which was
the subject of the insurable loss, or apply the proceeds to the Obligations, as
aforesaid. The agreement of Agent to remit insurance proceeds in the manner
above provided shall be subject in each instance to satisfaction of each of the
following conditions: (x) No Event of Default or Default shall then have
occurred, and (y) Borrower shall use such insurance proceeds to repair, replace
or restore the insurable property which was the subject of the insurable loss
and for no other purpose.
4.12 Failure to Pay Insurance. If Borrower fails to obtain insurance as
hereinabove provided, or to keep the same in force, Agent, if Agent so elects,
may obtain such insurance and pay the premium therefor on behalf of Borrower,
and charge Borrower's Account therefor as a Revolving Advance of a Domestic Rate
Loan and such expenses so paid shall be part of the Obligations.
4.13 Payment of Taxes. Borrower will pay, when due, all taxes,
assessments and other Charges lawfully levied or assessed upon Borrower or any
of the Collateral including real and personal property taxes, assessments and
charges and all franchise, income, employment, social security benefits,
withholding, and sales taxes. If any tax by any Governmental Body is or may be
imposed on or as a result of any transaction between Borrower and Agent or any
Lender which Agent or any Lender may be required to withhold or pay or if any
taxes, assessments, or other Charges remain unpaid after the date fixed for
their payment, or if any claim shall be made which, in Agent's or any Lender's
opinion, may possibly create a valid Lien on the Collateral, Agent may without
-47-
notice to Borrower pay the taxes, assessments or other Charges and Borrower
hereby indemnifies and holds Agent and each Lender harmless in respect thereof.
Agent will not pay any taxes, assessments or Charges to the extent that Borrower
has contested or disputed those taxes, assessments or Charges in good faith, by
expeditious protest, administrative or judicial appeal or similar proceeding
provided that any related tax lien is stayed and sufficient reserves are
established to the reasonable satisfaction of Agent to protect Agent's security
interest in or Lien on the Collateral. The amount of any payment by Agent under
this Section 4.13 shall be charged to Borrower's Account as a Revolving Advance
and added to the Obligations and, until Borrower shall furnish Agent with an
indemnity therefor (or supply Agent with evidence satisfactory to Agent that due
provision for the payment thereof has been made), Agent may hold without
interest any balance standing to Borrower's credit and Agent shall retain its
security interest in and Lien on any and all Collateral held by Agent.
4.14 Payment of Leasehold Obligations. Borrower shall at all times pay,
when and as due, its rental obligations under all leases under which it is a
tenant, and shall otherwise comply, in all material respects, with all other
terms of such leases and keep them in full force and effect and, at Agent's
request will provide evidence of having done so.
4.15 Receivables.
(a) Nature of Receivables. Each of the Receivables shall be a bona
fide and valid account representing a bona fide indebtedness incurred by the
Customer therein named, for a fixed sum as set forth in the invoice relating
thereto (provided immaterial or unintentional invoice errors shall not be deemed
to be a breach hereof) with respect to an absolute sale or lease and delivery of
goods upon stated terms of Borrower, or work, labor or services theretofore
rendered by Borrower as of the date each Receivable is created. Same shall be
due and owing in accordance with Borrower's standard terms of sale without
dispute, setoff or counterclaim except as may be stated on the accounts
receivable schedules delivered by Borrower to Agent.
(b) Solvency of Customers. Each Customer, to the best of Borrower's
knowledge, as of the date each Receivable is created, is and will be solvent and
able to pay all Receivables on which the Customer is obligated in full when due
or with respect to such Customers of Borrower who are not solvent Borrower has
set up on its books and in its financial records bad debt reserves adequate to
cover such Receivables.
(c) Location of Borrower. Borrower's chief executive office is
located at 0000 Xxxxxxxxxx Xxxxxxx, Xxxxxx Xxxx, Xxxxxxxxxx 00000. Until written
notice is given to Agent by Borrower of any other office at which Borrower keeps
its records pertaining to Receivables, all such records shall be kept at such
executive office.
(d) Collection of Receivables. Until Borrower's authority to do so
is terminated by Agent (which notice Agent may give at any time following the
occurrence of an Event of Default or a Default or when Agent in its sole
discretion deems it to be in Lenders' best interest to do so), Borrower will, at
Borrower's sole cost and expense, but on Agent's behalf and for Agent's account,
collect as Agent's property and in trust for Agent all amounts received on
Receivables, and shall not commingle such collections with Borrower's funds or
use the same except to pay Obligations. Borrower shall deposit in the Blocked
Account or, upon request by Agent, deliver to Agent, in original form and on the
-48-
date of receipt thereof, all checks, drafts, notes, money orders, acceptances,
cash and other evidences of Indebtedness.
(e) Notification of Assignment of Receivables. At any time following
the occurrence of an Event of Default or a Default, Agent shall have the right
to send notice of the assignment of, and Agent's security interest in and Lien
on, the Receivables to any and all Customers or any third party holding or
otherwise concerned with any of the Collateral. Thereafter, Agent shall have the
sole right to collect the Receivables, take possession of the Collateral, or
both. Agent's actual collection expenses, including, but not limited to,
stationery and postage, telephone and telegraph, secretarial and clerical
expenses and the salaries of any collection personnel used for collection, may
be charged to Borrower's Account and added to the Obligations.
(f) Power of Agent to Act on Borrower's Behalf. Agent shall have the
right to receive, endorse, assign and/or deliver in the name of Agent or
Borrower any and all checks, drafts and other instruments for the payment of
money relating to the Receivables, and Borrower hereby waives notice of
presentment, protest and non-payment of any instrument so endorsed. Borrower
hereby constitutes Agent or Agent's designee as Borrower's attorney with power
(i) to endorse Borrower's name upon any notes, acceptances, checks, drafts,
money orders or other evidences of payment or Collateral; (ii) to sign
Borrower's name on any invoice or xxxx of lading relating to any of the
Receivables, drafts against Customers, assignments and verifications of
Receivables; (iii) to send verifications of Receivables to any Customer; (iv) to
sign Borrower's name on all financing statements or any other documents or
instruments deemed necessary or appropriate by Agent to preserve, protect, or
perfect Agent's interest in the Collateral and to file same; (v) to demand
payment of the Receivables; (vi) to enforce payment of the Receivables by legal
proceedings or otherwise; (vii) to exercise all of Borrower's rights and
remedies with respect to the collection of the Receivables and any other
Collateral; (viii) to settle, adjust, compromise, extend or renew the
Receivables; (ix) to settle, adjust or compromise any legal proceedings brought
to collect Receivables; (x) to prepare, file and sign Borrower's name on a proof
of claim in bankruptcy or similar document against any Customer; (xi) to
prepare, file and sign Borrower's name on any notice of Lien, assignment or
satisfaction of Lien or similar document in connection with the Receivables; and
(xii) to do all other acts and things necessary to carry out this Agreement. All
acts of said attorney or designee are hereby ratified and approved, and said
attorney or designee shall not be liable for any acts of omission or commission
nor for any error of judgment or mistake of fact or of law, unless done
maliciously or with gross (not mere) negligence; this power being coupled with
an interest is irrevocable while any of the Obligations remain unpaid. Agent
shall have the right at any time following the occurrence of an Event of Default
or Default, to change the address for delivery of mail addressed to Borrower to
such address as Agent may designate and to receive, open and dispose of all mail
addressed to Borrower.
(g) No Liability. Neither Agent nor any Lender shall, under any
circumstances or in any event whatsoever, have any liability for any error or
omission or delay of any kind occurring in the settlement, collection or payment
of any of the Receivables or any instrument received in payment thereof, or for
any damage resulting therefrom. Following the occurrence of an Event of Default
or Default, Agent may, without notice or consent from Borrower, xxx upon or
otherwise collect, extend the time of payment of, compromise or settle for cash,
-49-
credit or upon any terms any of the Receivables or any other securities,
instruments or insurance applicable thereto and/or release any obligor thereof.
Agent is authorized and empowered to accept following the occurrence of an Event
of Default or Default the return of the goods represented by any of the
Receivables, without notice to or consent by Borrower, all without discharging
or in any way affecting Borrower's liability hereunder.
(h) Establishment of a Lockbox Account, Dominion Account. All
proceeds of Collateral shall be deposited by Borrower into either (i) a lockbox
account, dominion account or such other "blocked account" ("Blocked Accounts")
established at Agent (a "Blocked Account Bank") pursuant to an arrangement with
such Blocked Account Bank as may be selected by Borrower and be acceptable to
Agent or (ii) depository accounts ("Depository Accounts") established at the
Agent for the deposit of such proceeds. Borrower, Agent and each Blocked Account
Bank shall enter into a deposit account control agreement in form and substance
satisfactory to Agent directing such Blocked Account Bank to transfer such funds
so deposited to Agent, either to any account maintained by Agent at said Blocked
Account Bank or by wire transfer to appropriate account(s) of Agent. All funds
deposited in such Blocked Accounts shall immediately become the property of
Agent and Borrower shall obtain the agreement by such Blocked Account Bank to
waive any offset rights against the funds so deposited. Neither Agent nor any
Lender assumes any responsibility for such blocked account arrangement,
including any claim of accord and satisfaction or release with respect to
deposits accepted by any Blocked Account Bank thereunder. All deposit accounts
and investment accounts of Borrower and its Subsidiaries are set forth on
Schedule 4.15(h).
(i) Adjustments. Borrower will not, without Agent's consent,
compromise or adjust any Receivables (or extend the time for payment thereof) or
accept any returns of merchandise or grant any additional discounts, allowances
or credits thereon except for those compromises, adjustments, returns,
discounts, credits and allowances as have been heretofore customary in the
business of Borrower.
4.16 Inventory. To the extent Inventory held for sale or lease has been
produced by Borrower, it has been and will be produced by Borrower in accordance
with the Federal Fair Labor Standards Act of 1938, as amended, and all rules,
regulations and orders thereunder.
4.17 Maintenance of Equipment. The Equipment shall be maintained in good
operating condition and repair (reasonable wear and tear excepted) and all
necessary replacements of and repairs thereto shall be made so that the value
and operating efficiency of the Equipment shall be maintained and preserved.
Borrower shall not use or operate the Equipment in violation of any law,
statute, ordinance, code, rule or regulation. Borrower shall have the right to
sell Equipment to the extent set forth in Section 4.3 hereof.
4.18 Exculpation of Liability. Nothing herein contained shall be
construed to constitute Agent or any Lender as Borrower's agent for any purpose
whatsoever, nor shall Agent or any Lender be responsible or liable for any
shortage, discrepancy, damage, loss or destruction of any part of the Collateral
wherever the same may be located and regardless of the cause thereof. Neither
Agent nor any Lender, whether by anything herein or in any assignment or
otherwise, assume any of Borrower's obligations under any contract or agreement
assigned to Agent or such Lender, and neither Agent nor any Lender shall be
responsible in any way for the performance by Borrower of any of the terms and
conditions thereof.
-50-
4.19 Environmental Matters.
(a) Borrower shall ensure that the Real Property and all operations
and businesses conducted thereon remains in compliance with all Environmental
Laws and they shall not place or permit to be placed any Hazardous Substances on
any Real Property except as permitted by Applicable Law or appropriate
governmental authorities.
(b) Borrower shall establish and maintain a system to assure and
monitor continued compliance with all applicable Environmental Laws which system
shall include periodic reviews of such compliance.
(c) Borrower shall (i) employ in connection with the use of the Real
Property appropriate technology necessary to maintain compliance with any
applicable Environmental Laws and (ii) dispose of any and all Hazardous Waste
generated at the Real Property only at facilities and with carriers that
maintain valid permits under RCRA and any other applicable Environmental Laws.
Borrower shall use its best efforts to obtain certificates of disposal, such as
hazardous waste manifest receipts, from all treatment, transport, storage or
disposal facilities or operators employed by Borrower in connection with the
transport or disposal of any Hazardous Waste generated at the Real Property.
(d) In the event Borrower obtains, gives or receives notice of any
Release or threat of Release of a reportable quantity of any Hazardous
Substances at the Real Property (any such event being hereinafter referred to as
a "Hazardous Discharge") or receives any notice of violation, request for
information or notification that it is potentially responsible for investigation
or cleanup of environmental conditions at the Real Property, demand letter or
complaint, order, citation, or other written notice with regard to any Hazardous
Discharge or violation of Environmental Laws affecting the Real Property or
Borrower's interest therein (any of the foregoing is referred to herein as an
"Environmental Complaint") from any Person, including any state agency
responsible in whole or in part for environmental matters in the state in which
the Real Property is located or the United States Environmental Protection
Agency (any such person or entity hereinafter the "Authority"), then Borrower
shall, within five (5) Business Days, give written notice of same to Agent
detailing facts and circumstances of which Borrower is aware giving rise to the
Hazardous Discharge or Environmental Complaint. Such information is to be
provided to allow Agent to protect its security interest in and Lien on the Real
Property and the Collateral and is not intended to create nor shall it create
any obligation upon Agent or any Lender with respect thereto.
(e) Borrower shall promptly forward to Agent copies of any request
for information, notification of potential liability, demand letter relating to
potential responsibility with respect to the investigation or cleanup of
Hazardous Substances at any other site owned, operated or used by Borrower to
dispose of Hazardous Substances and shall continue to forward copies of
correspondence between Borrower and the Authority regarding such claims to Agent
until the claim is settled. Borrower shall promptly forward to Agent copies of
all documents and reports concerning a Hazardous Discharge at the Real Property
that Borrower is required to file under any Environmental Laws. Such information
-51-
is to be provided solely to allow Agent to protect Agent's security interest in
and Lien on the Real Property and the Collateral.
(f) Borrower shall respond promptly to any Hazardous Discharge or
Environmental Complaint and take all necessary action in order to safeguard the
health of any Person and to avoid subjecting the Collateral or Real Property to
any Lien. If Borrower shall fail to respond promptly to any Hazardous Discharge
or Environmental Complaint or Borrower shall fail to comply with any of the
requirements of any Environmental Laws, Agent on behalf of Lenders may, but
without the obligation to do so, for the sole purpose of protecting Agent's
interest in the Collateral: (A) give such notices or (B) enter onto the Real
Property (or authorize third parties to enter onto the Real Property) and take
such actions as Agent (or such third parties as directed by Agent) deem
reasonably necessary or advisable, to clean up, remove, mitigate or otherwise
deal with any such Hazardous Discharge or Environmental Complaint. All
reasonable costs and expenses incurred by Agent and Lenders (or such third
parties) in the exercise of any such rights, including any sums paid in
connection with any judicial or administrative investigation or proceedings,
fines and penalties, together with interest thereon from the date expended at
the Default Rate for Domestic Rate Loans constituting Revolving Advances shall
be paid upon demand by Borrower, and until paid shall be added to and become a
part of the Obligations secured by the Liens created by the terms of this
Agreement or any other agreement between Agent, any Lender and Borrower.
(g) Promptly upon the written request of Agent from time to time,
Borrower shall provide Agent, at Borrower's expense, with an environmental site
assessment or environmental audit report prepared by an environmental
engineering firm acceptable in the reasonable opinion of Agent, to assess with a
reasonable degree of certainty the existence of a Hazardous Discharge and the
potential costs in connection with abatement, cleanup and removal of any
Hazardous Substances found on, under, at or within the Real Property. Any report
or investigation of such Hazardous Discharge proposed and acceptable to an
appropriate Authority that is charged to oversee the clean-up of such Hazardous
Discharge shall be acceptable to Agent. If such estimates, individually or in
the aggregate, exceed $100,000, Agent shall have the right to require Borrower
to post a bond, letter of credit or other security reasonably satisfactory to
Agent to secure payment of these costs and expenses.
(h) Borrower shall defend and indemnify Agent and Lenders and hold
Agent, Lenders and their respective employees, agents, directors and officers
harmless from and against all loss, liability, damage and expense, claims,
costs, fines and penalties, including attorney's fees, suffered or incurred by
Agent or Lenders under or on account of any Environmental Laws, including the
assertion of any Lien thereunder, with respect to any Hazardous Discharge, the
presence of any Hazardous Substances affecting the Real Property, whether or not
the same originates or emerges from the Real Property or any contiguous real
estate, including any loss of value of the Real Property as a result of the
foregoing except to the extent such loss, liability, damage and expense is
attributable to any Hazardous Discharge resulting from actions on the part of
Agent or any Lender. Borrower's obligations under this Section 4.19 shall arise
upon the discovery of the presence of any Hazardous Substances at the Real
Property, whether or not any federal, state, or local environmental agency has
taken or threatened any action in connection with the presence of any Hazardous
Substances. Borrower's obligation and the indemnifications hereunder shall
survive the termination of this Agreement.
-52-
(i) For purposes of Section 4.19 and 5.7, all references to Real
Property shall be deemed to include all of Borrower's right, title and interest
in and to its owned and leased premises.
4.20 Financing Statements. Except as respects the financing statements
filed by Agent and the financing statements evidencing the security interests
described on Schedule 1.2, no financing statement covering any of the Collateral
or any proceeds thereof is on file in any public office.
V. REPRESENTATIONS AND WARRANTIES.
Borrower represents and warrants as follows:
5.1 Authority. Borrower has full power, authority and legal right to
enter into this Agreement and the Other Documents and to perform all its
respective Obligations hereunder and thereunder. This Agreement and the Other
Documents have been duly executed and delivered by Borrower, and this Agreement
and the Other Documents constitute the legal, valid and binding obligation of
Borrower enforceable in accordance with their terms, except as such
enforceability may be limited by any applicable bankruptcy, insolvency,
moratorium or similar laws affecting creditors' rights generally. The execution,
delivery and performance of this Agreement and of the Other Documents (a) are
within Borrower's corporate powers, have been duly authorized by all necessary
corporate action, are not in contravention of law or the terms of Borrower's
by-laws, certificate of incorporation or other applicable documents relating to
Borrower's formation or to the conduct of Borrower's business or of any material
agreement or undertaking to which Borrower is a party or by which Borrower is
bound, (b) will not conflict with or violate any law or regulation, or any
judgment, order or decree of any Governmental Body, (c) will not require the
Consent of any Governmental Body or any other Person, except those Consents set
forth on Schedule 5.1 hereto, all of which will have been duly obtained, made or
compiled prior to the Closing Date and which are in full force and effect and
(d) will not conflict with, nor result in any breach in any of the provisions of
or constitute a default under or result in the creation of any Lien except
Permitted Encumbrances upon any asset of Borrower under the provisions of any
agreement, charter document, instrument, by-law, or other instrument to which
Borrower is a party or by which it or its property is a party or by which it may
be bound.
5.2 Formation and Qualification.
(a) Borrower is duly incorporated and in good standing under the
laws of the state listed on Schedule 5.2(a) and is qualified to do business and
is in good standing in the states listed on Schedule 5.2(a) which constitute all
states in which qualification and good standing are necessary for Borrower to
conduct its business and own its property and where the failure to so qualify
could reasonably be expected to have a Material Adverse Effect. Borrower has
delivered to Agent true and complete copies of its certificate of incorporation
and will promptly notify Agent of any amendment or changes thereto.
-53-
(b) Borrower is a wholly-owned Subsidiary of Holdings. Borrower has
no Subsidiaries, and Borrower is the only Subsidiary of Holdings.
5.3 Survival of Representations and Warranties. All representations and
warranties of Borrower contained in this Agreement and the Other Documents shall
be true at the time of Borrower's execution of this Agreement and the Other
Documents, and shall survive the execution, delivery and acceptance thereof by
the parties thereto and the closing of the transactions described therein or
related thereto.
5.4 Tax Returns. Borrower's federal tax identification number is set
forth on Schedule 5.4. Borrower has filed all federal, state and local tax
returns and other reports it is required by law to file and has paid all taxes,
assessments, fees and other governmental charges that are due and payable.
Federal, state and local income tax returns of Borrower have been examined and
reported upon by the appropriate taxing authority or closed by applicable
statute and satisfied for all fiscal years prior to and including the fiscal
year ending December 31, 2003. The provision for taxes on the books of Borrower
is adequate for all years not closed by applicable statutes, and for its current
fiscal year, and Borrower has no knowledge of any deficiency or additional
assessment in connection therewith not provided for on its books.
5.5 Financial Statements.
(a) The pro forma projected balance sheet of Holdings (the "Pro
Forma Balance Sheet") furnished to Agent as of the end of the month containing
the Closing Date reflects the consummation of the Transactions. To Borrower's
knowledge, the Pro Forma Balance Sheet is accurate, complete and correct and
fairly reflects the financial condition of Borrower as of the Closing Date after
giving effect to the Transactions, and has been prepared in accordance with
GAAP, consistently applied. The Pro Forma Balance Sheet has been certified as
accurate, complete and correct in all material respects by the President and
Chief Financial Officer of Borrower. All financial statements referred to in
this subsection 5.5(a), including the related schedules and notes thereto, have
been prepared, in accordance with GAAP, except as may be disclosed in such
financial statements.
(b) The twelve-month profit and loss and balance sheet projections
of Borrower and its projected balance sheets as of the Closing Date, copies of
which are annexed to Borrower's Financial Condition Certificate which is being
delivered concurrently herewith (the "Projections"), were prepared by the Chief
Financial Officer of Borrower, are based on underlying assumptions which provide
a reasonable basis for the projections contained therein and reflect Borrower's
judgment based on present circumstances of the most likely set of conditions and
course of action for the projected period. The cash flow Projections together
with the Pro Forma Balance Sheet, are referred to as the "Pro Forma Financial
Statements".
(c) The consolidated and consolidating balance sheets of Holdings
and Borrower and such other Persons described therein as of September 30, 2004,
and the related statements of income, changes in stockholder's equity, and
changes in cash flow for the period ended on such date, all accompanied by
reports thereon containing opinions without qualification by independent
certified public accountants, copies of which have been delivered to Agent, have
been prepared in accordance with GAAP, consistently applied (except for changes
in application in which such accountants concur) and present fairly the
-54-
financial position of Holdings, Borrower, and any other Subsidiary of Holdings
or Borrower at such date and the results of their operations for such period.
Since September 30, 2004 there has been no adverse change in the condition,
financial or otherwise, of Holdings, Borrower, or any of such Subsidiaries as
shown on the consolidated balance sheet as of such date and no change in the
aggregate value of machinery, equipment and Real Property owned by them, except
changes in the Ordinary Course of Business, none of which individually or in the
aggregate has been materially adverse.
5.6 Entity Name. Borrower has not been known by any other corporate name
in the past five years and does not sell Inventory under any other name except
as set forth on Schedule 5.6, nor has Borrower been the surviving corporation of
a merger or consolidation or acquired all or substantially all of the assets of
any Person during the preceding five (5) years except as set forth on Schedule
5.6.
5.7 O.S.H.A. and Environmental Compliance.
(a) Borrower has duly complied with, and its facilities, business,
assets, property, leaseholds, Real Property and Equipment are in compliance in
all material respects with, the provisions of the Federal Occupational Safety
and Health Act, the Environmental Protection Act, RCRA and all other
Environmental Laws; there have been no outstanding citations, notices or orders
of non-compliance issued to Borrower or relating to its business, assets,
property, leaseholds or Equipment under any such laws, rules or regulations.
(b) Borrower has been issued all required federal, state and local
licenses, certificates or permits relating to all applicable Environmental Laws.
(c) (i) There are no visible signs of releases, spills, discharges,
leaks or disposal (collectively referred to as "Releases") of Hazardous
Substances at, upon, under or within any Real Property or any premises leased by
Borrower; (ii) there are no underground storage tanks or polychlorinated
biphenyls on the Real Property or any premises leased by Borrower; (iii) neither
the Real Property nor any premises leased by Borrower has ever been used as a
treatment, storage or disposal facility of Hazardous Waste; and (iv) no
Hazardous Substances are present on the Real Property or any premises leased by
Borrower, excepting such quantities as are handled in accordance with all
applicable manufacturer's instructions and governmental regulations and in
proper storage containers and as are necessary for the operation of the
commercial business of Borrower or of its tenants.
5.8 Solvency; No Litigation, Violation, Indebtedness or Default.
(a) Borrower is solvent, able to pay its debts as they mature, has
capital sufficient to carry on its business and all businesses in which it is
about to engage, and (i) as of the Closing Date, the fair present saleable value
of its assets, calculated on a going concern basis, is in excess of the amount
of its liabilities and (ii) subsequent to the Closing Date, the fair saleable
value of its assets (calculated on a going concern basis) will be in excess of
the amount of its liabilities.
-55-
(b) Except as disclosed in Schedule 5.8(b), Borrower has no (i)
pending or threatened litigation, arbitration, actions or proceedings which
involve the possibility of having a Material Adverse Effect, and (ii)
liabilities or indebtedness for borrowed money other than the Obligations.
(c) Borrower is not in violation of any applicable statute, law,
rule, regulation or ordinance in any respect which could reasonably be expected
to have a Material Adverse Effect, nor is Borrower in violation of any order of
any court, Governmental Body or arbitration board or tribunal.
(d) Neither Borrower nor any member of the Controlled Group
maintains or contributes to any Plan other than those listed on Schedule 5.8(d)
hereto. (i) No Plan has incurred any "accumulated funding deficiency," as
defined in Section 302(a)(2) of ERISA and Section 412(a) of the Code, whether or
not waived, and Borrower and each member of the Controlled Group has met all
applicable minimum funding requirements under Section 302 of ERISA in respect of
each Plan; (ii) each Plan which is intended to be a qualified plan under Section
401(a) of the Code as currently in effect has been determined by the Internal
Revenue Service to be qualified under Section 401(a) of the Code and the trust
related thereto is exempt from federal income tax under Section 501(a) of the
Code; (iii) neither Borrower nor any member of the Controlled Group has incurred
any liability to the PBGC other than for the payment of premiums, and there are
no premium payments which have become due which are unpaid; (iv) no Plan has
been terminated by the plan administrator thereof nor by the PBGC, and there is
no occurrence which would cause the PBGC to institute proceedings under Title IV
of ERISA to terminate any Plan; (v) at this time, the current value of the
assets of each Plan exceeds the present value of the accrued benefits and other
liabilities of such Plan and neither Borrower nor any member of the Controlled
Group knows of any facts or circumstances which would materially change the
value of such assets and accrued benefits and other liabilities; (vi) neither
Borrower nor any member of the Controlled Group has breached any of the
responsibilities, obligations or duties imposed on it by ERISA with respect to
any Plan; (vii) neither Borrower nor any member of a Controlled Group has
incurred any liability for any excise tax arising under Section 4972 or 4980B of
the Code, and no fact exists which could give rise to any such liability; (viii)
neither Borrower nor any member of the Controlled Group nor any fiduciary of,
nor any trustee to, any Plan, has engaged in a "prohibited transaction"
described in Section 406 of the ERISA or Section 4975 of the Code nor taken any
action which would constitute or result in a Termination Event with respect to
any such Plan which is subject to ERISA; (ix) Borrower and each member of the
Controlled Group has made all contributions due and payable with respect to each
Plan; (x) there exists no event described in Section 4043(b) of ERISA, for which
the thirty (30) day notice period has not been waived; (xi) neither Borrower nor
any member of the Controlled Group has any fiduciary responsibility for
investments with respect to any plan existing for the benefit of persons other
than employees or former employees of Borrower and any member of the Controlled
Group; (xii) neither Borrower nor any member of the Controlled Group maintains
or contributes to any Plan which provides health, accident or life insurance
benefits to former employees, their spouses or dependents, other than in
accordance with Section 4980B of the Code; (xiii) neither Borrower nor any
member of the Controlled Group has withdrawn, completely or partially, from any
Multiemployer Plan so as to incur liability under the Multiemployer Pension Plan
Amendments Act of 1980 and there exists no fact which would reasonably be
expected to result in any such liability; and (xiv) no Plan fiduciary (as
-56-
defined in Section 3(21) of ERISA) has any liability for breach of fiduciary
duty or for any failure in connection with the administration or investment of
the assets of a Plan.
5.9 Patents, Trademarks, Copyrights and Licenses. All patents, patent
applications, trademarks, trademark applications, service marks, service xxxx
applications, copyrights, copyright applications, design rights, trade names,
assumed names, trade secrets and licenses owned or utilized by Borrower are set
forth on Schedule 5.9, are valid and have been duly registered or filed with all
appropriate Governmental Bodies and constitute all of the intellectual property
rights which are necessary for the operation of its business; there is no
objection to or pending challenge to the validity of any such patent, trademark,
copyright, design rights, trade name, trade secret or license and Borrower is
not aware of any grounds for any challenge, except as set forth in Schedule 5.9
hereto. Each patent, patent application, patent license, trademark, trademark
application, trademark license, service xxxx, service xxxx application, service
xxxx license, design rights, copyright, copyright application and copyright
license owned or held by Borrower and all trade secrets used by Borrower consist
of original material or property developed by Borrower or was lawfully acquired
by Borrower from the proper and lawful owner thereof. Each of such items has
been maintained so as to preserve the value thereof from the date of creation or
acquisition thereof. With respect to all software used by Borrower, Borrower is
in possession of all source and object codes related to each piece of software
or is the beneficiary of a source code escrow agreement, each such source code
escrow agreement being listed on Schedule 5.9 hereto.
5.10 Licenses and Permits. Borrower (a) is in compliance with and (b) has
procured and is now in possession of, all material licenses or permits required
by any applicable federal, state, provincial or local law, rule or regulation
for the operation of its business in each jurisdiction wherein it is now
conducting or proposes to conduct business and where the failure to procure such
licenses or permits could have a Material Adverse Effect.
5.11 Default of Indebtedness. Borrower is not in default in the payment
of the principal of or interest on any Indebtedness or under any instrument or
agreement under or subject to which any Indebtedness has been issued and no
event has occurred under the provisions of any such instrument or agreement
which with or without the lapse of time or the giving of notice, or both,
constitutes or would constitute an event of default thereunder.
5.12 No Default. Borrower is not in default in the payment or
performance of any of its contractual obligations and no Default has occurred.
5.13 No Burdensome Restrictions. Borrower is not party to any contract or
agreement the performance of which could have a Material Adverse Effect.
Borrower has heretofore delivered to Agent true and complete copies of all
material contracts to which it is a party or to which it or any of its
properties is subject. Borrower has not agreed or consented to cause or permit
in the future (upon the happening of a contingency or otherwise) any of its
property, whether now owned or hereafter acquired, to be subject to a Lien which
is not a Permitted Encumbrance.
-57-
5.14 No Labor Disputes. Borrower is not involved in any labor dispute;
there are no strikes or walkouts or union organization of Borrower's employees
threatened or in existence and no labor contract is scheduled to expire during
the Term.
5.15 Margin Regulations. Borrower is not engaged, nor will it engage,
principally or as one of its important activities, in the business of extending
credit for the purpose of "purchasing" or "carrying" any "margin stock" within
the respective meanings of each of the quoted terms under Regulation U of the
Board of Governors of the Federal Reserve System as now and from time to time
hereafter in effect. No part of the proceeds of any Advance will be used for
"purchasing" or "carrying" "margin stock" as defined in Regulation U of such
Board of Governors.
5.16 Investment Company Act. Borrower is not an "investment company"
registered or required to be registered under the Investment Company Act of
1940, as amended, nor is it controlled by such a company.
5.17 Disclosure. No representation or warranty made by Borrower in this
Agreement, the Subordinated Loan Documentation, or in any financial statement,
report, certificate or any other document furnished in connection herewith or
therewith contains any untrue statement of a material fact or omits to state any
material fact necessary to make the statements herein or therein not misleading.
There is no fact known to Borrower or which reasonably should be known to
Borrower which Borrower has not disclosed to Agent in writing with respect to
the transactions contemplated by the Seller Note, the Holdings Subordinated
Debt, the stock purchase agreements between Holdings and Pewter Hill Partners,
LLC and between Holdings and Wire Mill Partners III, LLC, or this Agreement,
which could reasonably be expected to have a Material Adverse Effect.
5.18 Delivery of Documentation. Agent has received complete copies of the
documents evidencing (a) any obligations of Borrower and/or Holdings to Xxxx
Xxxxxxxxxx, including, without limitation, the Seller Note, (b) any obligations
of Borrower and/or Holdings to Xxxxxx and/or St. Cloud, (c) the asset purchase
by Borrower from Neurosmith, LLC, and (d) the Stock Purchase Agreements between
Holdings and Pewter Hill Partners, LLC and Holdings and Wire Mill Partners III,
LLC; (including all exhibits, schedules and disclosure letters referred to
therein or delivered pursuant thereto, if any) and all amendments thereto,
waivers relating thereto and other side letters or agreements affecting the
terms thereof. None of such documents and agreements has been amended or
supplemented, nor have any of the provisions thereof been waived, except
pursuant to a written agreement or instrument which has heretofore been
delivered to Agent.
5.19 Swaps. Borrower is not a party to, nor will it be a party to, any
swap agreement whereby Borrower has agreed or will agree to swap interest rates
or currencies unless same provides that damages upon termination following an
event of default thereunder are payable on an unlimited "two-way basis" without
regard to fault on the part of either party.
5.20 Conflicting Agreements. No provision of any mortgage, indenture,
contract, agreement, judgment, decree or order binding on Borrower or affecting
the Collateral conflicts with, or requires any Consent which has not already
been obtained to, or would in any way prevent the execution, delivery or
performance of, the terms of this Agreement or the Other Documents.
-58-
5.21 Application of Certain Laws and Regulations. Neither Borrower nor
any Affiliate of Borrower is subject to any law, statute, rule or regulation
which regulates the incurrence of any Indebtedness, including laws, statutes,
rules or regulations relative to common or interstate carriers or to the sale of
electricity, gas, steam, water, telephone, telegraph or other public utility
services.
5.22 Business and Property of Borrower. Upon and after the Closing Date,
Borrower does not propose to engage in any business other than the manufacture
and distribution of educational toys, and activities necessary to conduct the
foregoing. On the Closing Date, Borrower will own all the property and possess
all of the rights and Consents necessary for the conduct of the business of
Borrower.
5.23 Section 20 Subsidiaries. Borrower does not intend to use and shall
not use any portion of the proceeds of the Advances, directly or indirectly, to
purchase during the underwriting period, or for 30 days thereafter, Ineligible
Securities being underwritten by a Section 20 Subsidiary.
5.24 Anti-Terrorism Laws.
(a) General. Neither Borrower nor any Affiliate of Borrower is in
violation of any Anti-Terrorism Law or engages in or conspires to engage in any
transaction that evades or avoids, or has the purpose of evading or avoiding, or
attempts to violate, any of the prohibitions set forth in any Anti-Terrorism
Law.
(b) Executive Order No. 13224. Neither Borrower nor any Affiliate of
Borrower or their respective agents acting or benefiting in any capacity in
connection with the Advances or other transactions hereunder, is any of the
following (each a "Blocked Person"):
(i) a Person that is listed in the annex to, or is otherwise
subject to the provisions of, the Executive Order No. 13224;
(ii) a Person owned or controlled by, or acting for or on
behalf of, any Person that is listed in the annex to, or is otherwise
subject to the provisions of, the Executive Order No. 13224;
(iii) a Person or entity with which any Lender is prohibited
from dealing or otherwise engaging in any transaction by any
Anti-Terrorism Law;
(iv) a Person or entity that commits, threatens or conspires to
commit or supports "terrorism" as defined in the Executive Order No.
13224;
(v) a Person or entity that is named as a "specially
designated national" on the most current list published by the U.S.
Treasury Department Office of Foreign Asset Control at its official
website or any replacement website or other replacement official
publication of such ist, or
-59-
(vi) a Person or entity who is affiliated or associated with a
Person or entity listed above.
Neither Borrower or to the knowledge of Borrower, any of its agents acting in
any capacity in connection with the Advances or other transactions hereunder (i)
conducts any business or engages in making or receiving any contribution of
funds, goods or services to or for the benefit of any Blocked Person, or (ii)
deals in, or otherwise engages in any transaction relating to, any property or
interests in property blocked pursuant to the Executive Order No. 13224.
5.25 Trading with the Enemy. Borrower has not engaged, nor does it intend
to engage, in any business or activity prohibited by the Trading with the Enemy
Act.
5.26 Federal Securities Laws. Neither Borrower nor any of its
Subsidiaries (i) is required to file periodic reports under the Exchange Act,
(ii) has any securities registered under the Exchange Act or (iii) has filed a
registration statement that has not yet become effective under the Securities
Act.
5.27 Licensed Inventory Arrangements. Set forth on Schedule 5.27 is a
description of all arrangements pursuant to which Borrower sells (or may sell)
Inventory as a licensee, distributor, consignee or the like (a "Licensed
Inventory Arrangement").
5.28 Neurosmith. The Asset Purchase Agreement, dated September 17, 2004,
between Borrower, as buyer, and Neurosmith, Inc., as seller, closed and the
transactions contemplated thereby were consummated. Borrower has duly recorded
with the U.S. Patent and Trademark Office or U.S. Copyright Office (as
applicable) assignments of all registered patents, trademarks, service marks,
and copyrights, and applications therefore, that were to be transferred to
Borrower pursuant to said Asset Purchase Agreement, a list of which is attached
to said Asset Purchase Agreement. Without limiting the generality of the
foregoing, Borrower confirms that it made the payment to Tinkers & Chance that
is required by Section 3.2.2 of said Asset Purchase Agreement, and that it has
provided to Agent a true and correct copy of the Tinkers & Chance Release.
5.29 Location of Tinkers & Chance. To the best of Borrower's knowledge,
Tinkers & Chance's chief executive office has been located in California for at
least the last five years and the principal residence of each of Xxxxxx X. Xxxx
and Xxxxx X. Xxxxxx has been located in California for at least the last five
years.
VI. AFFIRMATIVE COVENANTS.
Borrower shall, until payment in full of the Obligations and termination
of this Agreement:
6.1 Payment of Fees. Pay to Agent on demand all usual and customary fees
and expenses which Agent incurs in connection with (a) the forwarding of Advance
proceeds and (b) the establishment and maintenance of any Blocked Accounts or
Depository Accounts as provided for in Section 4.15(h). Agent may, without
making demand, charge Borrower's Account for all such fees and expenses.
-60-
6.2 Conduct of Business and Maintenance of Existence and Assets. (a)
Conduct continuously and operate actively its business according to good
business practices and maintain all of its properties useful or necessary in its
business in good working order and condition (reasonable wear and tear excepted
and except as may be disposed of in accordance with the terms of this
Agreement), including all licenses, patents, copyrights, design rights, trade
names, trade secrets and trademarks and take all actions necessary to enforce
and protect the validity of any intellectual property right or other right
included in the Collateral; (b) keep in full force and effect its existence and
comply in all material respects with the laws and regulations governing the
conduct of its business where the failure to do so could reasonably be expected
to have a Material Adverse Effect; and (c) make all such reports and pay all
such franchise and other taxes and license fees and do all such other acts and
things as may be lawfully required to maintain its rights, licenses, leases,
powers and franchises under the laws of the United States or any political
subdivision thereof where the failure to do so could reasonably be expected to
have a Material Adverse Effect.
6.3 Violations. Promptly notify Agent in writing of any violation of any
law, statute, regulation or ordinance of any Governmental Body, or of any agency
thereof, applicable to Borrower which could reasonably be expected to have a
Material Adverse Effect.
6.4 Government Receivables. Take all steps necessary to protect Agent's
interest in the Collateral under the Federal Assignment of Claims Act, the
Uniform Commercial Code and all other applicable state or local statutes or
ordinances and deliver to Agent appropriately endorsed, any instrument or
chattel paper connected with any Receivable arising out of contracts between
Borrower and the United States, any state or any department, agency or
instrumentality of any of them.
6.5 (a) Net Worth. Maintain at all times a Net Worth in an amount not
less than a deficit of $700,000.
(b) Fixed Charge Coverage Ratio. Cause to be maintained a Fixed
Charge Coverage Ratio of not less than 1.0 to 1.0 as of (i) December 31, 2004,
for the quarter ending on that date, (ii) March 31, 2005, for the two quarter
period ending on that date, (iii) June 30, 2005, for the three quarter period
ending on that date, and (iv) September 30, 2005 and the last day of each
following quarter, for the four quarter periods ending on such dates.
6.6 Execution of Supplemental Instruments. Execute and deliver to Agent
from time to time, upon demand, such supplemental agreements, statements,
assignments and transfers, or instructions or documents relating to the
Collateral, and such other instruments as Agent may request, in order that the
full intent of this Agreement may be carried into effect.
6.7 Payment of Indebtedness. Pay, discharge or otherwise satisfy at or
before maturity (subject, where applicable, to specified grace periods and, in
the case of the trade payables, to normal payment practices) all its obligations
and liabilities of whatever nature, except when the failure to do so could not
reasonably be expected to have a Material Adverse Effect or when the amount or
validity thereof is currently being contested in good faith by appropriate
proceedings and Borrower shall have provided for such reserves as Agent may
-61-
reasonably deem proper and necessary, subject at all times to any applicable
subordination arrangement in favor of Lenders.
6.8 Standards of Financial Statements. Cause all financial statements
referred to in Sections 9.7, 9.8, 9.9, 9.10, 9.11, 9.12, 9.13 and 9.14 as to
which GAAP is applicable to be complete and correct in all material respects
(subject, in the case of interim financial statements, to normal year-end audit
adjustments) and to be prepared in reasonable detail and in accordance with GAAP
applied consistently throughout the periods reflected therein (except as
concurred in by such reporting accountants or officer, as the case may be, and
disclosed therein).
6.9 Tax Shelter Regulations. Not treat the Advances and related
transactions as being a "reportable transaction" (within the meaning of Treasury
Regulation Section 1.6011-4). In the event Borrower determines to take any
action inconsistent with such intention, Borrower will promptly (1) notify the
Agent thereof, and (2) deliver to the Agent a duly completed copy of IRS Form
8886 or any successor form. If the Borrower so notifies the Agent, the Borrower
acknowledges that one or more of the Lenders may treat its Advances as part of a
transaction that is subject to Treasury Regulation Section 301.6112-1, and such
Lender or Lenders, as applicable, will maintain the lists and other records
required by such Treasury Regulation.
6.10 Federal Securities Laws. Promptly notify Agent in writing if
Borrower or any of its Subsidiaries (i) is required to file periodic reports
under the Exchange Act, (ii) registers any securities under the Exchange Act or
(iii) files a registration statement under the Securities Act.
6.11 Licensed Inventory Arrangements. Notify Agent in writing of entering
into any new Licensed Inventory Arrangement or changing any existing Licensed
Inventory Arrangement, within ten days of doing so, and immediately notify Agent
in writing of any termination of any Licensed Inventory Arrangement, including,
without limitation, any termination of the Tinkers & Chance License Agreement.
VII. NEGATIVE COVENANTS.
Borrower shall not, until satisfaction in full of the Obligations and
termination of this Agreement:
7.1 Merger, Consolidation, Acquisition and Sale of Assets.
(a) Enter into any merger, consolidation or other reorganization
with or into any other Person or acquire all or a substantial portion of the
assets or Equity Interests of any Person or permit any other Person to
consolidate with or merge with it, except that with Agent's prior written
consent Borrower may acquire assets of Educational Insights, Inc., or enter into
a merger with Educational Insights, Inc. wherein Borrower is the surviving
corporation. Agent may decline to consent if, without limitation, (i) Agent
receives unsatisfactory results from an audit of Educational Insights, Inc. or
its collateral or from other due diligence, (ii) liens exist against the assets
of Educational Insights, Inc. which survive the acquisition or merger and would
not have been Permitted Encumbrances hereunder if they had related to Borrower,
(iii) Agent determines that the acquisition or merger may adversely affect the
Collateral, Agent's or Lender's security interest therein, or Borrower's or
Holdings financial condition, both before and after giving affect to such
-62-
acquisition or merger, or (iv) a Default or Event of Default exists prior to the
acquisition or merger or Agent determines that a Default or Event of Default is
likely to occur as a result of the acquisition or merger.
(b) Sell, lease, transfer or otherwise dispose of any of its
properties or assets, except (i) dispositions of Inventory and Equipment to the
extent expressly permitted by Section 4.3 and (ii) any other sales or
dispositions expressly permitted by this Agreement.
7.2 Creation of Liens. Create or suffer to exist any Lien or transfer
upon or against any of its property or assets now owned or hereafter acquired,
except Permitted Encumbrances.
7.3 Guarantees. Become liable upon the obligations or liabilities of any
Person by assumption, endorsement or guaranty thereof or otherwise (other than
to Lenders) except (a) as disclosed on Schedule 7.3 and (b) the endorsement of
checks in the Ordinary Course of Business.
7.4 Investments. Purchase or acquire obligations or Equity Interests of,
or any other interest in, any Person, except (a) obligations issued or
guaranteed by the United States of America or any agency thereof, (b) commercial
paper with maturities of not more than 180 days and a published rating of not
less than A-1 or P-1 (or the equivalent rating), (c) certificates of time
deposit and bankers' acceptances having maturities of not more than 180 days and
repurchase agreements backed by United States government securities of a
commercial bank if (i) such bank has a combined capital and surplus of at least
$500,000,000, or (ii) its debt obligations, or those of a holding company of
which it is a Subsidiary, are rated not less than A (or the equivalent rating)
by a nationally recognized investment rating agency, and (d) U.S. money market
funds that invest solely in obligations issued or guaranteed by the United
States of America or an agency thereof.
7.5 Loans. Make advances, loans or extensions of credit to any Person,
including any Parent, Subsidiary or Affiliate, except with respect to (a) the
extension of commercial trade credit in connection with the sale of Inventory in
the Ordinary Course of Business and (b) loans to its employees in the Ordinary
Course of Business not to exceed the aggregate amount of $50,000 at any time
outstanding.
7.6 Capital Expenditures. Contract for, purchase or make any expenditure
or commitments for Capital Expenditures in any fiscal year in an aggregate
amount in excess of $200,000.
7.7 Dividends. Declare, pay or make any dividend or distribution on any
shares of the common stock or preferred stock of Borrower (other than dividends
or distributions payable in its stock, or split-ups or reclassifications of its
stock) or apply any of its funds, property or assets to the purchase, redemption
or other retirement of any common or preferred stock, or of any options to
purchase or acquire any such shares of common or preferred stock of Borrower,
except that so long as (a) a notice of termination with regard to this Agreement
shall not be outstanding, (b) no Event of Default or Default shall have
occurred, and (c) the purpose for such purchase, redemption or dividend shall be
as set forth in writing to Agent at least ten (10) days prior to such purchase,
redemption or dividend and such purchase, redemption or dividend shall in fact
be used for such purpose, Borrower shall be permitted to pay dividends to
Holdings in order to pay professional fees, franchise taxes and other Ordinary
-63-
Course of Business operating expenses (excluding salaries and other employee
compensation) incurred by Holdings solely in its capacity as parent corporation
of Borrower; provided, however, that after giving effect to the payment of such
dividends there shall not exist any Event of Default or Default.
7.8 Indebtedness. Create, incur, assume or suffer to exist any
Indebtedness (exclusive of trade debt) except in respect of (i) Indebtedness to
Lenders; (ii) Indebtedness incurred for Capital Expenditures permitted under
Section 7.6 hereof; and (iii) Indebtedness due to Holdings which is subject to
the Holdings Subordination Agreement.
7.9 Nature of Business. Substantially change the nature of the business
in which it is presently engaged, nor except as specifically permitted hereby
purchase or invest, directly or indirectly, in any assets or property other than
in the Ordinary Course of Business for assets or property which are useful in,
necessary for and are to be used in its business as presently conducted.
7.10 Transactions with Affiliates. Directly or indirectly, purchase,
acquire or lease any property from, or sell, transfer or lease any property to,
or otherwise enter into any transaction or deal with, any Affiliate, except
transactions disclosed to the Agent, which are in the Ordinary Course of
Business, on an arm's-length basis on terms and conditions no less favorable
than terms and conditions which would have been obtainable from a Person other
than an Affiliate.
7.11 Leases. Enter as lessee into any lease arrangement for real or
personal property (unless capitalized and permitted under Section 7.6 hereof) if
after giving effect thereto, aggregate annual rental payments for all leased
property would exceed $750,000 in any one fiscal year in the aggregate for
Borrower.
7.12 Subsidiaries.
(a) Form any Subsidiary.
(b) Enter into any partnership, joint venture or similar
arrangement.
7.13 Fiscal Year and Accounting Changes. Change its fiscal year from
December 31 or make any significant change (i) in accounting treatment and
reporting practices except as required by GAAP or (ii) in tax reporting
treatment except as required by law.
7.14 Pledge of Credit. Now or hereafter pledge Agent's or any Lender's
credit on any purchases or for any purpose whatsoever or use any portion of any
Advance in or for any business other than Borrower's business as conducted on
the date of this Agreement.
7.15 Amendment of Articles of Incorporation. Amend, modify or waive any
term or material provision of its Articles of Incorporation unless required by
law.
7.16 Compliance with ERISA. (i) (x) Maintain, or permit any member of the
Controlled Group to maintain, or (y) become obligated to contribute, or permit
any member of the Controlled Group to become obligated to contribute, to any
Plan, other than those Plans disclosed on Schedule 5.8(d), (ii) engage, or
permit any member of the Controlled Group to engage, in any non-exempt
-64-
"prohibited transaction", as that term is defined in Section 406 of ERISA and
Section 4975 of the Code, (iii) incur, or permit any member of the Controlled
Group to incur, any "accumulated funding deficiency", as that term is defined in
Section 302 of ERISA or Section 412 of the Code, (iv) terminate, or permit any
member of the Controlled Group to terminate, any Plan where such event could
result in any liability of Borrower or any member of the Controlled Group or the
imposition of a lien on the property of Borrower or any member of the Controlled
Group pursuant to Section 4068 of ERISA, (v) assume, or permit any member of the
Controlled Group to assume, any obligation to contribute to any Multiemployer
Plan not disclosed on Schedule 5.8(d), (vi) incur, or permit any member of the
Controlled Group to incur, any withdrawal liability to any Multiemployer Plan;
(vii) fail promptly to notify Agent of the occurrence of any Termination Event,
(viii) fail to comply, or permit a member of the Controlled Group to fail to
comply, with the requirements of ERISA or the Code or other Applicable Laws in
respect of any Plan, (ix) fail to meet, or permit any member of the Controlled
Group to fail to meet, all minimum funding requirements under ERISA or the Code
or postpone or delay or allow any member of the Controlled Group to postpone or
delay any funding requirement with respect of any Plan.
7.17 Prepayment of Indebtedness. At any time, directly or indirectly,
prepay any Indebtedness (other than to Lenders or to Holdings in accordance with
Section 7.21 below), or repurchase, redeem, retire or otherwise acquire any
Indebtedness of Borrower.
7.18 Anti-Terrorism Laws. Borrower shall not, until satisfaction in full
of the Obligations and termination of this Agreement, nor shall it permit any
Affiliate or agent to:
(a) Conduct any business or engage in any transaction or dealing
with any Blocked Person, including the making or receiving any contribution of
funds, goods or services to or for the benefit of any Blocked Person.
(b) Deal in, or otherwise engage in any transaction relating to, any
property or interests in property blocked pursuant to the Executive Order No.
13224.
(c) Engage in or conspire to engage in any transaction that evades
or avoids, or has the purpose of evading or avoiding, or attempts to violate,
any of the prohibitions set forth in the Executive Order No. 13224, the USA
Patriot Act or any other Anti-Terrorism Law. Borrower shall deliver to Lenders
any certification or other evidence requested from time to time by any Lender in
its sole discretion, confirming Borrower's compliance with this Section.
7.19 Membership/Partnership Interests. Elect to treat or permit any of
its Subsidiaries to (x) treat its limited liability company membership interests
or partnership interests, as the case may be, as securities as contemplated by
the definition of "security" in Section 8-102(15) and by Section 8-103 of
Article 8 of Uniform Commercial Code or (y) certificate its limited liability
company membership interests or partnership interests, as the case may be.
7.20 Trading with the Enemy Act. Engage in any business or activity in
violation of the Trading with the Enemy Act.
-65-
7.21 Indebtedness to Holdings. At any time, directly or indirectly, pay,
prepay, repurchase, redeem, retire or otherwise acquire, or make any payment on
account of any principal of, interest on or premium payable in connection with
the repayment or redemption of, any Indebtedness or other obligation of Borrower
to Holdings, or make any other payment or transfer to Holdings, except as set
forth below and as may otherwise be expressly allowed under any other Section of
this Agreement. Borrower may pay the following amounts to Holdings as long as
(x) no Event of Default or Default shall exist or shall occur as a result of
such payment, (y) Borrower would have been in compliance with the Fixed Charge
Coverage Ratio requirements of Section 6.5(b) for the quarter that ended
immediately preceding such payment if such payment and all other amounts paid by
Borrower to Holdings since the end of such quarter had been given effect as of
such quarter for purposes of calculating said Fixed Charge Coverage Ratio, and
(z) based on Borrower's financial trends, Borrower will be in compliance with
Section 6.5(b) for future quarters (as determined by Agent in its good faith
business judgment based upon information provided by Borrower):
(a) professional fees, franchise taxes and other Ordinary Course of
Business operating expenses (excluding salaries and other employee compensation)
incurred by Holdings solely in its capacity as parent corporation of Borrower;
and
(b) (i) Amounts equal to the regularly scheduled payments of
principal, in the amounts and when due in the ordinary course of business, under
the terms of the Seller Note (as in effect on the date hereof),
(ii) Amounts equal to the regularly scheduled payments of
interest (at the non-default rate), in the amounts and when due in the ordinary
course of business under the terms of the Holdings Subordinated Debt (as in
effect on the date hereof), provided that, after giving effect to such payments,
the Borrower will have Adjusted Undrawn Availability of not less than $500,000,
and
(iii) Amounts equal to the regularly scheduled payments of
principal, in the amounts and when due in the ordinary course of business, under
the terms of the Holdings Subordinated Debt (as in effect on the date hereof),
provided that no Seasonal Advance is outstanding and, after giving effect to
such payments, the Borrower will have Undrawn Availability of not less than
$1,000,000.
VIII. CONDITIONS PRECEDENT.
8.1 Conditions to Initial Advances. The agreement of Lenders to make the
initial Advances requested to be made on the Closing Date is subject to the
satisfaction, or waiver by Agent, immediately prior to or concurrently with the
making of such Advances, of the following conditions precedent:
(a) Note. Agent shall have received the Note duly executed and
delivered by an authorized officer of Borrower;
(b) Filings, Registrations and Recordings. Each document (including
any Uniform Commercial Code financing statement) required by this Agreement, any
related agreement or under law or reasonably requested by the Agent to be filed,
-66-
registered or recorded in order to create, in favor of Agent, a perfected
security interest in or lien upon the Collateral shall have been properly filed,
registered or recorded in each jurisdiction in which the filing, registration or
recordation thereof is so required or requested, and Agent shall have received
an acknowledgment copy, or other evidence satisfactory to it, of each such
filing, registration or recordation and satisfactory evidence of the payment of
any necessary fee, tax or expense relating thereto;
(c) Corporate Proceedings of Borrower. Agent shall have received a
copy of the resolutions in form and substance reasonably satisfactory to Agent,
of the Board of Directors of Borrower authorizing (i) the execution, delivery
and performance of this Agreement, the Notes, and any other agreements related
thereto or contemplated thereby (collectively, the "Documents") and (ii) the
granting by Borrower of the security interests in and liens upon the Collateral,
in each case certified by the Secretary or an Assistant Secretary of Borrower as
of the Closing Date; and, such certificate shall state that the resolutions
thereby certified have not been amended, modified, revoked or rescinded as of
the date of such certificate;
(d) Incumbency Certificates of Borrower. Agent shall have received a
certificate of the Secretary or an Assistant Secretary of Borrower, dated the
Closing Date, as to the incumbency and signature of the officers of Borrower
executing this Agreement, the Other Documents, any certificate or other
documents to be delivered by it pursuant hereto, together with evidence of the
incumbency of such Secretary or Assistant Secretary;
(e) Corporate Proceedings of Guarantor. Agent shall have received a
copy of the resolutions in form and substance reasonably satisfactory to Agent,
of the Board of Directors of each Guarantor that is not an individual
authorizing the execution, delivery and performance of the Guaranty and each
Other Document to which it is a party certified by the Secretary or an Assistant
Secretary of such Guarantor as of the Closing Date; and, such certificate shall
state that the resolutions thereby certified have not been amended, modified,
revoked or rescinded as of the date of such certificate;
(f) Incumbency Certificates of Guarantor. Agent shall have received
a certificate of the Secretary or an Assistant Secretary of each Guarantor that
is not an individual, dated the Closing Date, as to the incumbency and signature
of the officers of such Guarantor executing this Agreement, any certificate or
other documents to be delivered by it pursuant hereto, together with evidence of
the incumbency of such Secretary or Assistant Secretary;
(g) Certificates. Agent shall have received a copy of the Articles
or Certificate of Incorporation of Holdings, Borrower and each Guarantor that is
not an individual, and all amendments thereto, certified by the Secretary of
State or other appropriate official of its jurisdiction of incorporation
together with all agreements of Holdings', Borrower's and each such Guarantor's
shareholders certified as accurate and complete by the Secretary of Holdings,
Borrower and such Guarantor;
(h) Good Standing Certificates. Agent shall have received good
standing certificates for Holdings, Borrower and each Guarantor that is not an
individual dated not more than 60 days prior to the Closing Date, issued by the
Secretary of State or other appropriate official of Holdings', Borrower's and
-67-
each such Guarantor's jurisdiction of incorporation and each jurisdiction where
the conduct of Holdings', Borrower's and such Guarantor's business activities or
the ownership of its properties necessitates qualification;
(i) Legal Opinion. Agent shall have received the executed legal
opinion of Loeb & Loeb in form and substance satisfactory to Agent which shall
cover such matters incident to the transactions contemplated by this Agreement,
the Note, the Other Documents, the Guaranty, and related agreements as Agent may
reasonably require and Borrower hereby authorizes and directs such counsel to
deliver such opinions to Agent and Lenders;
(j) No Litigation. (i) No litigation, investigation or proceeding
before or by any arbitrator or Governmental Body shall be continuing or
threatened against Holdings or Borrower or against the officers or directors of
Holdings or Borrower (A) in connection with this Agreement, the Other Documents
or any of the transactions contemplated thereby and which, in the reasonable
opinion of Agent, is deemed material or (B) which could, in the reasonable
opinion of Agent, have a Material Adverse Effect on Borrower; and (ii) no
injunction, writ, restraining order or other order of any nature materially
adverse to Holdings or Borrower or the conduct of its business or inconsistent
with the due consummation of the Transactions shall have been issued by any
Governmental Body;
(k) Financial Condition Certificate. Agent shall have received an
executed Financial Condition Certificate in the form previously provided to
Borrower.
(l) Collateral Examination. Agent shall have completed Collateral
examinations and field audits and received Appraisals, the results of which
shall be satisfactory in form and substance to Lenders, of the Receivables,
Inventory, General Intangibles, and Equipment of Borrower and all books and
records in connection therewith;
(m) Fees. Agent shall have received all fees payable to Agent and
Lenders on or prior to the Closing Date hereunder, including pursuant to Article
III hereof;
(n) Pro Forma Financial Statements. Agent shall have received a copy
of the Pro Forma Financial Statements which shall be satisfactory in all
respects to Lenders;
(o) Subordination Documentation. Agent shall have received copies
(conforming to the final executed copies) of the Subordinated Loan
Documentation, which shall contain such terms and provisions including
subordination terms, as are satisfactory to Agent;
(p) Subordination Agreements. Agent shall have entered into (i) the
Holdings Subordination Agreement, (ii) subordination agreements with Borrower
and St. Cloud and Borrower and Xxxxxx, and (iii) subordination agreements with
Holdings and SWT, LLC, Holdings and St. Cloud and Holdings and Xxxxxx; which
shall set forth the basis upon which said creditors may receive, and Borrower or
Holdings (as applicable) may make, payments to said creditors, which basis shall
be satisfactory in form and substance to Agent in its sole discretion;
(q) Insurance. Agent shall have received in form and substance
satisfactory to Agent, certified copies of Borrower's marine insurance policy
and casualty insurance policies, together with loss payable endorsements on
-68-
Agent's standard form of loss payee endorsement naming Agent as loss payee, and
certified copies of Borrower's liability insurance policies, together with
endorsements naming Agent as a co-insured;
(r) [Omitted];
(s) [Omitted];
(t) Payment Instructions. Agent shall have received written
instructions from Borrower directing the application of proceeds of the initial
Advances made pursuant to this Agreement;
(u) Blocked Accounts. Agent shall have received duly executed
agreements establishing the Blocked Accounts or Depository Accounts with
financial institutions acceptable to Agent for the collection or servicing of
the Receivables and proceeds of the Collateral;
(v) Consents. Agent shall have received any and all Consents
necessary to permit the effectuation of the transactions contemplated by this
Agreement and the Other Documents; and, Agent shall have received such Consents
and waivers of such third parties as might assert claims with respect to the
Collateral, as Agent and its counsel shall deem necessary;
(w) No Adverse Material Change. (i) since August 31, 2004, there
shall not have occurred any event, condition or state of facts which could
reasonably be expected to have a Material Adverse Effect and (ii) no
representations made or information supplied to Agent or Lenders shall have been
proven to be inaccurate or misleading in any material respect;
(x) Leasehold Agreements. Agent shall have received landlord,
mortgagee or warehouseman agreements satisfactory to Agent with respect to all
premises leased by Borrower at which Inventory and books and records are
located;
(y) [Omitted];
(z) [Omitted];
(aa) Guarantees and Other Documents. Agent shall have received (i)
the executed Guarantees, (ii) the executed Guarantor Security Agreement by
Holdings, and (iii) the executed Other Documents, all in form and substance
satisfactory to Agent;
(bb) Net Worth. Agent shall have received the Pro Forma Balance Sheet
reflecting a Net Worth including the Subordinated Indebtedness after giving
effect to the Transactions of not less than a deficit of $700,000;
(cc) Contract Review. Agent shall have reviewed all material
contracts of Borrower including leases, union contracts, labor contracts, vendor
supply contracts, license agreements and distributorship agreements (including
the Tinkers & Chance license agreement and the distribution agreements with
Little Tykes and TOLO) and such contracts and agreements shall be satisfactory
in all respects to Agent;
-69-
(dd) Closing Certificate. Agent shall have received a closing
certificate signed by the Chief Financial Officer of Holdings and Borrower dated
as of the date hereof, stating that (i) all representations and warranties set
forth in this Agreement and the Other Documents are true and correct on and as
of such date, (ii) Holdings and Borrower are on such date in compliance with all
the terms and provisions set forth in this Agreement and the Other Documents and
(iii) on such date no Default or Event of Default has occurred or is continuing;
(ee) Borrowing Base. Agent shall have received evidence from Borrower
that the aggregate amount of Eligible Receivables and Eligible Inventory is
sufficient in value and amount to support Advances in the amount requested by
Borrower on the Closing Date;
(ff) Undrawn Availability. After giving effect to the initial
Advances hereunder, Borrower shall have Undrawn Availability of at least
$1,000,000; and
(gg) Compliance with Laws. Agent shall be reasonably satisfied that
Borrower is in compliance with all pertinent federal, state, local or
territorial regulations, including those with respect to the Federal
Occupational Safety and Health Act, the Environmental Protection Act, ERISA and
the Trading with the Enemy Act.
(hh) Other. All corporate and other proceedings, and all documents,
instruments and other legal matters in connection with the Transactions shall be
satisfactory in form and substance to Agent and its counsel.
8.2 Conditions to Each Advance. The agreement of Lenders to make any
Advance requested to be made on any date (including the initial Advance), is
subject to the satisfaction of the following conditions precedent as of the date
such Advance is made:
(a) Representations and Warranties. Each of the representations and
warranties made by Holdings or Borrower in or pursuant to this Agreement, the
Other Documents and any related agreements to which it is a party, and each of
the representations and warranties contained in any certificate, document or
financial or other statement furnished at any time under or in connection with
this Agreement, the Other Documents or any related agreement shall be true and
correct in all material respects on and as of such date as if made on and as of
such date;
(b) No Default. No Event of Default or Default shall have occurred
and be continuing on such date, or would exist after giving effect to the
Advances requested to be made, on such date; provided, however that Agent, in
its sole discretion, may continue to make Advances notwithstanding the existence
of an Event of Default or Default and that any Advances so made shall not be
deemed a waiver of any such Event of Default or Default; and
(c) Maximum Advances. In the case of any type of Advance requested
to be made, after giving effect thereto, the aggregate amount of such type of
Advance shall not exceed the maximum amount of such type of Advance permitted
under this Agreement.
Each request for an Advance by Borrower hereunder shall constitute a
representation and warranty by Borrower as of the date of such Advance that the
conditions contained in this subsection shall have been satisfied.
-70-
IX. INFORMATION AS TO BORROWERS.
Borrower shall, until satisfaction in full of the Obligations and the
termination of this Agreement:
9.1 Disclosure of Material Matters. Immediately upon learning thereof,
report to Agent all matters materially affecting the value, enforceability or
collectibility of any portion of the Collateral, including Borrower's
reclamation or repossession of, or the return to Borrower of, a material amount
of goods or claims or disputes asserted by any Customer or other obligor.
9.2 Schedules. Deliver to Agent on or before the twentieth (20th) day of
each month as and for the prior month (a) accounts receivable ageings inclusive
of reconciliations to the general ledger (the accounts receivable ageings shall
be prepared on both a due date and invoice date basis), (b) accounts payable
schedules inclusive of reconciliations to the general ledger, (c) Inventory and
sales reports (which shall identify any Restricted License Inventory) and (d) a
Borrowing Base Certificate in form and substance satisfactory to Agent (which
shall be calculated as of the last day of the prior month and which shall not be
binding upon Agent or restrictive of Agent's rights under this Agreement). In
addition, Borrower will deliver to Agent at such intervals as Agent may require:
(i) confirmatory assignment schedules, (ii) copies of Customer's invoices, (iii)
evidence of shipment or delivery, and (iv) such further schedules, documents
and/or information regarding the Collateral as Agent may require including trial
balances and test verifications. (Without limiting the foregoing, Borrower shall
deliver to Agent weekly invoice registers and reports on collections and
credits.) Agent shall have the right to confirm and verify all Receivables by
any manner and through any medium it considers advisable and do whatever it may
deem reasonably necessary to protect its interests hereunder. The items to be
provided under this Section are to be in form satisfactory to Agent and executed
by Borrower and delivered to Agent from time to time solely for Agent's
convenience in maintaining records of the Collateral, and Borrower's failure to
deliver any of such items to Agent shall not affect, terminate, modify or
otherwise limit Agent's Lien with respect to the Collateral.
9.3 Environmental Reports. Furnish Agent, concurrently with the delivery
of the financial statements referred to in Sections 9.7 and 9.8, with a
certificate signed by the President of Borrower stating, to the best of his
knowledge, that Borrower is in compliance in all material respects with all
federal, state and local Environmental Laws. To the extent Borrower is not in
compliance with the foregoing laws, the certificate shall set forth with
specificity all areas of non-compliance and the proposed action Borrower will
implement in order to achieve full compliance.
9.4 Litigation. Promptly notify Agent in writing of any claim,
litigation, suit or administrative proceeding affecting Borrower, Holdings or
any Guarantor, whether or not the claim is covered by insurance, and of any
litigation, suit or administrative proceeding, which in any such case affects
the Collateral or which could reasonably be expected to have a Material Adverse
Effect.
9.5 Material Occurrences. Promptly notify Agent in writing upon the
occurrence of (a) any Event of Default or Default; (b) any event of default
under the Subordinated Loan Documentation; (c) any event which with the giving
-71-
of notice or lapse of time, or both, would constitute an event of default under
the Subordinated Loan Documentation; (d) any event, development or circumstance
whereby any financial statements or other reports furnished to Agent fail in any
material respect to present fairly, in accordance with GAAP consistently
applied, the financial condition or operating results of Borrower as of the date
of such statements; (e) any accumulated retirement plan funding deficiency
which, if such deficiency continued for two plan years and was not corrected as
provided in Section 4971 of the Code, could subject Borrower to a tax imposed by
Section 4971 of the Code; (f) each and every default by Borrower which might
result in the acceleration of the maturity of any Indebtedness, including the
names and addresses of the holders of such Indebtedness with respect to which
there is a default existing or with respect to which the maturity has been or
could be accelerated, and the amount of such Indebtedness; and (g) any other
development in the business or affairs of Borrower, Holdings or any Guarantor,
which could reasonably be expected to have a Material Adverse Effect; in each
case describing the nature thereof and the action Borrower propose to take with
respect thereto.
9.6 Government Receivables. Notify Agent immediately if any of its
Receivables arise out of contracts between Borrower and the United States, any
state, or any department, agency or instrumentality of any of them.
9.7 Annual Financial Statements. Furnish Agent and Lenders within one
hundred five (105) days after the end of each fiscal year of Borrower,
consolidated and consolidating financial statements of Holdings including, but
not limited to, statements of income and stockholders' equity and cash flow from
the beginning of the current fiscal year to the end of such fiscal year and the
balance sheet as at the end of such fiscal year, all prepared in accordance with
GAAP, and in reasonable detail and reported upon without qualification by an
independent certified public accounting firm selected by Borrower and
satisfactory to Agent (the "Accountants"). The report of the Accountants shall
be accompanied by a statement of the Accountants certifying that (i) they have
caused this Agreement to be reviewed, (ii) in making the examination upon which
such report was based either no information came to their attention which to
their knowledge constituted an Event of Default or a Default under this
Agreement or any related agreement or, if such information came to their
attention, specifying any such Default or Event of Default, its nature, when it
occurred and whether it is continuing, and such report shall contain or have
appended thereto calculations which set forth Borrower's compliance with the
requirements or restrictions imposed by Sections 6.5, 7.4, 7.5,7.6, 7.7, 7.8,
7.11 and 7.21 hereof. In addition, the reports shall be accompanied by a
Compliance Certificate.
9.8 Quarterly Financial Statements. Furnish Agent and Lenders within 50
days after the end of each fiscal quarter, balance sheets of Holdings and
Borrower and statements of income and stockholders' equity and cash flow of
Holdings and Borrower, reviewed by the Accountants, reflecting results of
operations from the beginning of the fiscal year to the end of such quarter and
for such quarter, and complete and correct in all material respects, subject to
normal and recurring year end adjustments that individually and in the aggregate
are not material to Borrower's business. The reports shall be accompanied by a
Compliance Certificate.
9.9 Monthly Financial Statements. Furnish Agent and Lenders within
thirty (30) days after the end of each month, unaudited balance sheets of
Holdings and Borrower and unaudited statements of income and stockholders'
-72-
equity and cash flow of Holdings and Borrower reflecting results of operations
from the beginning of the fiscal year to the end of such month and for such
month, and complete and correct in all material respects, subject to normal and
recurring year end adjustments that individually and in the aggregate are not
material to Borrower's business. The reports shall be accompanied by a
Compliance Certificate.
9.10 Other Reports. Furnish Agent as soon as available, but in any event
within ten (10) days after the issuance thereof, (i) with copies of such
financial statements, reports and returns as Borrower shall send to its
stockholders and (ii) copies of all notices, reports, financial statements and
other materials sent pursuant to the Subordinated Loan Documentation.
9.11 Additional Information. Furnish Agent with such additional
information as Agent shall reasonably request in order to enable Agent to
determine whether the terms, covenants, provisions and conditions of this
Agreement and the Notes have been complied with by Borrower including, without
the necessity of any request by Agent, (a) copies of all environmental audits
and reviews, (b) at least thirty (30) days prior thereto, notice of Borrower's
opening of any new office or place of business or Borrower's closing of any
existing office or place of business, and (c) promptly upon Borrower's learning
thereof, notice of any labor dispute to which Borrower may become a party, any
strikes or walkouts relating to any of its plants or other facilities, and the
expiration of any labor contract to which Borrower is a party or by which
Borrower is bound.
9.12 Projected Operating Budget. Furnish Agent and Lenders, no later than
ninety (90) days after the beginning of Borrower's fiscal years commencing with
fiscal year 2006, a month by month projected operating budget and cash flow of
Borrower for such fiscal year (including an income statement for each month and
a balance sheet as at the end of the last month in each fiscal quarter), such
projections to be accompanied by a certificate signed by the President or Chief
Financial Officer of Borrower to the effect that such projections have been
prepared on the basis of sound financial planning practice consistent with past
budgets and financial statements and that such officer has no reason to question
the reasonableness of any material assumptions on which such projections were
prepared.
9.13 [Intentionally Omitted].
9.14 Notice of Suits, Adverse Events. Furnish Agent with prompt written
notice of (i) any lapse or other termination of any Consent issued to Borrower
by any Governmental Body or any other Person that is material to the operation
of Borrower's business, (ii) any refusal by any Governmental Body or any other
Person to renew or extend any such Consent; and (iii) copies of any periodic or
special reports filed by Borrower or any Guarantor with any Governmental Body or
Person, if such reports indicate any material change in the business,
operations, affairs or condition of Borrower or any Guarantor, or if copies
thereof are requested by Lender, and (iv) copies of any material notices and
other communications from any Governmental Body or Person which specifically
relate to Borrower or any Guarantor.
9.15 ERISA Notices and Requests. Furnish Agent with immediate written
notice in the event that (i) Borrower or any member of the Controlled Group
knows or has reason to know that a Termination Event has occurred, together with
a written statement describing such Termination Event and the action, if any,
-73-
which Borrower or any member of the Controlled Group has taken, is taking, or
proposes to take with respect thereto and, when known, any action taken or
threatened by the Internal Revenue Service, Department of Labor or PBGC with
respect thereto, (ii) Borrower or any member of the Controlled Group knows or
has reason to know that a prohibited transaction (as defined in Sections 406 of
ERISA and 4975 of the Code) has occurred together with a written statement
describing such transaction and the action which Borrower or any member of the
Controlled Group has taken, is taking or proposes to take with respect thereto,
(iii) a funding waiver request has been filed with respect to any Plan together
with all communications received by Borrower or any member of the Controlled
Group with respect to such request, (iv) any increase in the benefits of any
existing Plan or the establishment of any new Plan or the commencement of
contributions to any Plan to which Borrower or any member of the Controlled
Group was not previously contributing shall occur, (v) Borrower or any member of
the Controlled Group shall receive from the PBGC a notice of intention to
terminate a Plan or to have a trustee appointed to administer a Plan, together
with copies of each such notice, (vi) Borrower or any member of the Controlled
Group shall receive any favorable or unfavorable determination letter from the
Internal Revenue Service regarding the qualification of a Plan under Section
401(a) of the Code, together with copies of each such letter; (vii) Borrower or
any member of the Controlled Group shall receive a notice regarding the
imposition of withdrawal liability, together with copies of each such notice;
(viii) Borrower or any member of the Controlled Group shall fail to make a
required installment or any other required payment under Section 412 of the Code
on or before the due date for such installment or payment; (ix) Borrower or any
member of the Controlled Group knows that (a) a Multiemployer Plan has been
terminated, (b) the administrator or plan sponsor of a Multiemployer Plan
intends to terminate a Multiemployer Plan, or (c) the PBGC has instituted or
will institute proceedings under Section 4042 of ERISA to terminate a
Multiemployer Plan.
9.16 Tax Shelter Provisions. Furnish Agent promptly after the Borrower
determines that it intends to treat any of the Advances or related transactions
as being a "reportable transaction" as provided in Section 6.9 with
(1) a written notice of such intention to the Agent; and
(2) a duly completed copy of IRS Form 8886 or any successor form.
9.17 Additional Documents. Execute and deliver to Agent, upon request,
such documents and agreements as Agent may, from time to time, reasonably
request to carry out the purposes, terms or conditions of this Agreement.
9.18 Inventory Appraisals. Borrower shall provide Inventory Appraisals to
Agent at least once each year and more frequently if recommended by the
Appraiser in order to provide an accurate net orderly liquidation value of the
Inventory.
X. EVENTS OF DEFAULT.
The occurrence of any one or more of the following events shall
constitute an "Event of Default":
-74-
10.1 failure by Borrower to pay any principal or interest on the
Obligations when due, whether at maturity or by reason of acceleration pursuant
to the terms of this Agreement or by notice of intention to prepay, or by
required prepayment or failure to pay any other liabilities or make any other
payment, fee or charge provided for herein when due or in any Other Document;
10.2 any representation or warranty made or deemed made by Borrower or
any Guarantor in this Agreement, any Other Document or any related agreement or
in any certificate, document or financial or other statement furnished at any
time in connection herewith or therewith shall prove to have been misleading in
any material respect on the date when made or deemed to have been made;
10.3 failure by Borrower to (i) furnish financial information when due or
when requested (y) more than five times in any 12 month period or (z) which is
not cured within four days after notice from Agent, or (ii) permit the
inspection of its books or records (y) more than two times in any 12 month
period or (z) which is not cured within two days after notice from Agent;
10.4 issuance(s) of a notice(s) of Lien, levy, assessment, injunction or
attachment involving an aggregate of $50,000 or more against Borrower's
Inventory or Receivables or against a material portion of Borrower's other
property;
10.5 except as otherwise provided for in Sections 10.1, 10.3 and
10.5(ii), (i) failure or neglect of Borrower or any Guarantor to perform, keep
or observe any term, provision, condition, covenant herein contained, or
contained in any Other Document or any other agreement or arrangement, now or
hereafter entered into between Borrower or any Guarantor, and Agent or any
Lender, or (ii) failure or neglect of Borrower to perform, keep or observe any
term, provision, condition or covenant, contained in Sections 4.6, 4.7, 4.9,
6.1, 6.3, 6.4, 9.4 or 9.6 hereof which is not cured within ten (10) days from
the occurrence of such failure or neglect;
10.6 any judgment or judgments are rendered against Borrower or any
Guarantor for an aggregate amount in excess of $150,000 and (i) enforcement
proceedings shall have been commenced by a creditor upon such judgment, (ii)
there shall be any period of thirty (30) consecutive days during which a stay of
enforcement of such judgment, by reason of a pending appeal or otherwise, shall
not be in effect, or (iii) any such judgment results in the creation of a Lien
upon any of the Collateral (other than a Permitted Encumbrance);
10.7 Borrower or any Guarantor shall (i) apply for, consent to or suffer
the appointment of, or the taking of possession by, a receiver, custodian,
trustee, liquidator or similar fiduciary of itself or of all or a substantial
part of its property, (ii) make a general assignment for the benefit of
creditors, (iii) commence a voluntary case under any state or federal bankruptcy
laws (as now or hereafter in effect), (iv) be adjudicated a bankrupt or
insolvent, (v) file a petition seeking to take advantage of any other law
providing for the relief of debtors, (vi) acquiesce to, or fail to have
dismissed, within thirty (30) days, any petition filed against it in any
involuntary case under such bankruptcy laws, or (vii) take any action for the
purpose of effecting any of the foregoing;
-75-
10.8 Borrower or any Guarantor shall admit in writing its inability, or
be generally unable, to pay its debts as they become due or cease operations of
its present business;
10.9 any Affiliate or any Subsidiary of Borrower, or any Guarantor, shall
(i) apply for, consent to or suffer the appointment of, or the taking of
possession by, a receiver, custodian, trustee, liquidator or similar fiduciary
of itself or of all or a substantial part of its property, (ii) admit in writing
its inability, or be generally unable, to pay its debts as they become due or
cease operations of its present business, (iii) make a general assignment for
the benefit of creditors, (iv) commence a voluntary case under any state or
federal bankruptcy laws (as now or hereafter in effect), (v) be adjudicated a
bankrupt or insolvent, (vi) file a petition seeking to take advantage of any
other law providing for the relief of debtors, (vii) acquiesce to, or fail to
have dismissed, within thirty (30) days, any petition filed against it in any
involuntary case under such bankruptcy laws, or (viii) take any action for the
purpose of effecting any of the foregoing;
10.10 any change in Borrower's or any Guarantor's results of operations
or condition (financial or otherwise) which in Agent's good faith business
judgment has a Material Adverse Effect;
10.11 any Lien created hereunder or provided for hereby or under any
related agreement, against Receivables or Inventory or against any other
Collateral with a value of $25,000 or more, for any reason ceases to be or is
not a valid and perfected Lien having a first priority interest;
10.12 an event of default has occurred under the Subordinated Loan
Documentation or any subordination agreement provided in favor of Agent in
connection herewith, which default shall not have been cured or waived within
any applicable grace period;
10.13 a default of the obligations of Borrower under any other agreement
to which it is a party shall occur which adversely affects its condition,
affairs or prospects (financial or otherwise) which default is not cured within
any applicable grace period;
10.14 termination or breach of any Guaranty or Guaranty Security
Agreement or similar agreement executed and delivered to Agent in connection
with the Obligations of Borrower, or if any Guarantor attempts to terminate,
challenges the validity of, or its liability under, any such Guaranty or
Guaranty Security Agreement or similar agreement;
10.15 any Change of Ownership or Change of Control shall occur;
10.16 any material provision of this Agreement or any Other Document
shall, for any reason, cease to be valid and binding on Borrower or any
Guarantor, or Borrower or any Guarantor shall so claim in writing to Agent or
any Lender;
10.17 (i) any Governmental Body shall (A) revoke, terminate, suspend
or adversely modify any license, permit, patent, trademark or trade name of
Borrower or any Guarantor, the continuation of which is material to the
continuation of Borrower's or such Guarantor's business, or (B) commence
proceedings to suspend, revoke, terminate or adversely modify any such license,
permit, trademark, trade name or patent and such proceedings shall not be
dismissed or discharged within sixty (60) days, or (c) schedule or conduct a
hearing on the renewal of any license, permit, trademark, trade name or patent
-76-
necessary for the continuation of Borrower's or any Guarantor's business and the
staff of such Governmental Body issues a report recommending the termination,
revocation, suspension or material, adverse modification of such license,
permit, trademark, trade name or patent; (ii) any agreement which is necessary
or material to the operation of Borrower's or any Guarantor's business shall be
revoked or terminated and not replaced by a substitute acceptable to Agent
within thirty (30) days after the date of such revocation or termination, and
such revocation or termination and non-replacement would reasonably be expected
to have a Material Adverse Effect;
10.18 any portion of the Collateral shall be seized or taken by a
Governmental Body, or Borrower or any Guarantor or the title and rights of
Borrower, any Guarantor or any Original Owner which is the owner of any material
portion of the Collateral shall have become the subject matter of claim,
litigation, suit or other proceeding which might, in the opinion of Agent, upon
final determination, result in impairment or loss of the security provided by
this Agreement or the Other Documents;
10.19 the operations of Borrower's or any Guarantor's manufacturing
facility are interrupted at any time for more than 72 hours during any period of
three consecutive days, unless Borrower or such Guarantor shall (i) be entitled
to receive for such period of interruption, proceeds of business interruption
insurance sufficient to assure that its per diem cash needs during such period
is at least equal to its average per diem cash needs for the consecutive three
month period immediately preceding the initial date of interruption and (ii)
receive such proceeds in the amount described in clause (i) preceding not later
than thirty (30) days following the initial date of any such interruption;
provided, however, that notwithstanding the provisions of clauses (i) and (ii)
of this section, an Event of Default shall be deemed to have occurred if
Borrower or any Guarantor shall be receiving the proceeds of business
interruption insurance for a period of thirty (30) consecutive days; or
10.20 an event or condition specified in Sections 7.16 or 9.15 hereof
shall occur or exist with respect to any Plan and, as a result of such event or
condition, together with all other such events or conditions, Borrower or any
member of the Controlled Group shall incur, or in the opinion of Agent be
reasonably likely to incur, a liability to a Plan or the PBGC (or both) which,
in the reasonable judgment of Agent, would have a Material Adverse Effect.
10.21 failure of the Holdings Subordinated Debt to be satisfied in full
on or before the first anniversary of the initial Revolving Advance hereunder.
XI. LENDERS' RIGHTS AND REMEDIES AFTER DEFAULT.
11.1 Rights and Remedies.
(a) Upon the occurrence of (i) an Event of Default pursuant to
Section 10.7 all Obligations shall be immediately due and payable and this
Agreement and the obligation of Lenders to make Advances shall be deemed
terminated; and, (ii) any of the other Events of Default and at any time
thereafter (such default not having previously been cured), at the option of
Required Lenders all Obligations shall be immediately due and payable and
Lenders shall have the right to terminate this Agreement and to terminate the
obligation of Lenders to make Advances. Upon the occurrence of any Event of
-77-
Default, Agent shall have the right to exercise any and all rights and remedies
provided for herein, under the Other Documents, under the Uniform Commercial
Code and at law or equity generally, including the right to foreclose the
security interests granted herein and to realize upon any Collateral by any
available judicial procedure and/or to take possession of and sell any or all of
the Collateral with or without judicial process. Agent may enter any of
Borrower's premises or other premises without legal process and without
incurring liability to Borrower therefor, and Agent may thereupon, or at any
time thereafter, in its discretion without notice or demand, take the Collateral
and remove the same to such place as Agent may deem advisable and Agent may
require Borrower to make the Collateral available to Agent at a convenient
place. With or without having the Collateral at the time or place of sale, Agent
may sell the Collateral, or any part thereof, at public or private sale, at any
time or place, in one or more sales, at such price or prices, and upon such
terms, either for cash, credit or future delivery, as Agent may elect. Except as
to that part of the Collateral which is perishable or threatens to decline
speedily in value or is of a type customarily sold on a recognized market, Agent
shall give Borrower reasonable notification of such sale or sales, it being
agreed that in all events written notice mailed to Borrower at least ten (10)
days prior to such sale or sales is reasonable notification. At any public sale
Agent or any Lender may bid for and become the purchaser, and Agent, any Lender
or any other purchaser at any such sale thereafter shall hold the Collateral
sold absolutely free from any claim or right of whatsoever kind, including any
equity of redemption and all such claims, rights and equities are hereby
expressly waived and released by Borrower. In connection with the exercise of
the foregoing remedies, including the sale of Inventory, Agent is granted a
perpetual nonrevocable, royalty free, nonexclusive license and Agent is granted
permission to use all of Borrower's (a) trademarks, trade styles, trade names,
patents, patent applications, copyrights, service marks, licenses, franchises
and other proprietary rights which are used or useful in connection with
Inventory for the purpose of marketing, advertising for sale and selling or
otherwise disposing of such Inventory and (b) Equipment for the purpose of
completing the manufacture of unfinished goods. The cash proceeds realized from
the sale of any Collateral shall be applied to the Obligations in the order set
forth in Section 11.5 hereof. Noncash proceeds will only be applied to the
Obligations as they are converted into cash. If any deficiency shall arise,
Borrower shall remain liable to Agent and Lenders therefor.
(b) To the extent that Applicable Law imposes duties on the Agent to
exercise remedies in a commercially reasonable manner, Borrower acknowledges and
agrees that it is not commercially unreasonable for the Agent (i) to fail to
incur expenses reasonably deemed significant by the Agent to prepare Collateral
for disposition or otherwise to complete raw material or work in process into
finished goods or other finished products for disposition, (ii) to fail to
obtain third party consents for access to Collateral to be disposed of, or to
obtain or, if not required by other law, to fail to obtain governmental or third
party consents for the collection or disposition of Collateral to be collected
or disposed of, (iii) to fail to exercise collection remedies against Customers
or other Persons obligated on Collateral or to remove Liens on or any adverse
claims against Collateral, (iv) to exercise collection remedies against
Customers and other Persons obligated on Collateral directly or through the use
of collection agencies and other collection specialists, (v) to advertise
dispositions of Collateral through publications or media of general circulation,
whether or not the Collateral is of a specialized nature, (vi) to contact other
-78-
Persons, whether or not in the same business as the Borrower, for expressions of
interest in acquiring all or any portion of such Collateral, (vii) to hire one
or more professional auctioneers to assist in the disposition of Collateral,
whether or not the Collateral is of a specialized nature, (viii) to dispose of
Collateral by utilizing internet sites that provide for the auction of assets of
the types included in the Collateral or that have the reasonable capacity of
doing so, or that match buyers and sellers of assets, (ix) to dispose of assets
in wholesale rather than retail markets, (x) to disclaim disposition warranties,
such as title, possession or quiet enjoyment, (xi) to purchase insurance or
credit enhancements to insure the Agent against risks of loss, collection or
disposition of Collateral or to provide to the Agent a guaranteed return from
the collection or disposition of Collateral, or (xii) to the extent deemed
appropriate by the Agent, to obtain the services of other brokers, investment
bankers, consultants and other professionals to assist the Agent in the
collection or disposition of any of the Collateral. Borrower acknowledges that
the purpose of this Section 11.1(b) is to provide non-exhaustive indications of
what actions or omissions by the Agent would not be commercially unreasonable in
the Agent's exercise of remedies against the Collateral and that other actions
or omissions by the Agent shall not be deemed commercially unreasonable solely
on account of not being indicated in this Section 11.1(b). Without limitation
upon the foregoing, nothing contained in this Section 11.1(b) shall be construed
to grant any rights to Borrower or to impose any duties on Agent that would not
have been granted or imposed by this Agreement or by Applicable Law in the
absence of this Section 11.1(b).
11.2 Agent's Discretion. Agent shall have the right in its sole
discretion to determine which rights, Liens, security interests or remedies
Agent may at any time pursue, relinquish, subordinate, or modify or to take any
other action with respect thereto and such determination will not in any way
modify or affect any of Agent's or Lenders' rights hereunder.
11.3 Setoff. Subject to Section 14.12, in addition to any other rights
which Agent or any Lender may have under Applicable Law, upon the occurrence of
an Event of Default hereunder, Agent and such Lender shall have a right,
immediately and without notice of any kind, to apply Borrower's property held by
Agent and such Lender to reduce the Obligations.
11.4 Rights and Remedies not Exclusive. The enumeration of the foregoing
rights and remedies is not intended to be exhaustive and the exercise of any
rights or remedy shall not preclude the exercise of any other right or remedies
provided for herein or otherwise provided by law, all of which shall be
cumulative and not alternative.
11.5 Allocation of Payments After Event of Default. Notwithstanding any
other provisions of this Agreement to the contrary, after the occurrence and
during the continuance of an Event of Default, all amounts collected or received
by the Agent on account of the Obligations or any other amounts outstanding
under any of the Other Documents or in respect of the Collateral may, at Agent's
discretion, be paid over or delivered as follows:
FIRST, to the payment of all reasonable out-of-pocket costs and
expenses (including reasonable attorneys' fees) of the Agent in connection with
enforcing its rights and the rights of the Lenders under this Agreement and the
Other Documents and any protective advances made by the Agent with respect to
the Collateral under or pursuant to the terms of this Document;
-79-
SECOND, to payment of any fees owed to the Agent;
THIRD, to the payment of all reasonable out-of-pocket costs and
expenses (including reasonable attorneys' fees) of each of the Lenders in
connection with enforcing its rights under this Agreement and the Other
Documents or otherwise with respect to the Obligations owing to such Lender;
FOURTH, to the payment of all of the Obligations consisting of accrued
fees and interest;
FIFTH, to the payment of the outstanding principal amount of the
Obligations (including the payment or cash collateralization of any outstanding
Letters of Credit);
SIXTH, to all other Obligations and other obligations which shall have
become due and payable under the Other Documents or otherwise and not repaid
pursuant to clauses "FIRST" through "FIFTH" above; and
SEVENTH, to the payment of the surplus, if any, to whoever may be
lawfully entitled to receive such surplus.
In carrying out the foregoing, (i) amounts received shall be applied in the
numerical order provided until exhausted prior to application to the next
succeeding category; (ii) each of the Lenders shall receive (so long as it is
not a Defaulting Lender) an amount equal to its pro rata share (based on the
proportion that the then outstanding Advances held by such Lender bears to the
aggregate then outstanding Advances) of amounts available to be applied pursuant
to clauses "FOURTH", "FIFTH" and "SIXTH" above; and (iii) to the extent that any
amounts available for distribution pursuant to clause "FIFTH" above are
attributable to the issued but undrawn amount of outstanding Letters of Credit,
such amounts shall be held by the Agent in a cash collateral account and applied
(A) first, to reimburse the Issuer from time to time for any drawings under such
Letters of Credit and (B) then, following the expiration of all Letters of
Credit, to all other obligations of the types described in clauses "FIFTH" and
"SIXTH" above in the manner provided in this Section 11.5.
XII. WAIVERS AND JUDICIAL PROCEEDINGS.
12.1 Waiver of Notice. Borrower hereby waives notice of non-payment of
any of the Receivables, demand, presentment, protest and notice thereof with
respect to any and all instruments, notice of acceptance hereof, notice of loans
or advances made, credit extended, Collateral received or delivered, or any
other action taken in reliance hereon, and all other demands and notices of any
description, except such as are expressly provided for herein.
12.2 Delay. No delay or omission on Agent's or any Lender's part in
exercising any right, remedy or option shall operate as a waiver of such or any
other right, remedy or option or of any Default or Event of Default.
12.3 Jury Waiver. EACH PARTY TO THIS AGREEMENT HEREBY EXPRESSLY WAIVES
ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (A)
ARISING UNDER THIS AGREEMENT OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT
-80-
EXECUTED OR DELIVERED IN CONNECTION HEREWITH, OR (B) IN ANY WAY CONNECTED WITH
OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO OR ANY OF THEM
WITH RESPECT TO THIS AGREEMENT OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT
EXECUTED OR DELIVERED IN CONNECTION HEREWITH, OR THE TRANSACTIONS RELATED HERETO
OR THERETO IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER
SOUNDING IN CONTRACT OR TORT OR OTHERWISE AND EACH PARTY HEREBY CONSENTS THAT
ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT
TRIAL WITHOUT A JURY, AND THAT ANY PARTY TO THIS AGREEMENT MAY FILE AN ORIGINAL
COUNTERPART OR A COPY OF THIS SECTION WITH ANY COURT AS WRITTEN EVIDENCE OF THE
CONSENTS OF THE PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY.
XIII. EFFECTIVE DATE AND TERMINATION.
13.1 Term. This Agreement, which shall inure to the benefit of and shall
be binding upon the respective successors and permitted assigns of Borrower,
Agent and each Lender, shall become effective on the date hereof and shall
continue in full force and effect until November 30, 2007 (the "Term") unless
sooner terminated as herein provided. Borrower may terminate this Agreement at
any time upon ninety (90) days' prior written notice upon payment in full of the
Obligations. In the event the Obligations are prepaid in full prior to the last
day of the Term (the date of such prepayment hereinafter referred to as the
"Early Termination Date"), Borrower shall pay to Agent for the benefit of
Lenders an early termination fee in an amount equal to (y) $150,000 if the Early
Termination Date occurs on or after the Closing Date to and including the date
immediately preceding the first anniversary of the Closing Date, and (z)
$112,500 if the Early Termination Date occurs on or after the first anniversary
of the Closing Date to and including the date immediately preceding the second
anniversary of the Closing Date.
13.2 Termination. The termination of the Agreement shall not affect
Borrower's, Agent's or any Lender's rights, or any of the Obligations having
their inception prior to the effective date of such termination, and the
provisions hereof shall continue to be fully operative until all transactions
entered into, rights or interests created or Obligations have been fully and
indefeasibly paid, disposed of, concluded or liquidated. The security interests,
Liens and rights granted to Agent and Lenders hereunder and the financing
statements filed hereunder shall continue in full force and effect,
notwithstanding the termination of this Agreement or the fact that Borrower's
Account may from time to time be temporarily in a zero or credit position, until
all of the Obligations of Borrower have been indefeasibly paid and performed in
full after the termination of this Agreement or Borrower has furnished Agent and
Lenders with an indemnification satisfactory to Agent and Lenders with respect
thereto. Accordingly, Borrower waives any rights which it may have under the
Uniform Commercial Code to demand the filing of termination statements with
respect to the Collateral, and Agent shall not be required to send such
termination statements to Borrower, or to file them with any filing office,
unless and until this Agreement shall have been terminated in accordance with
its terms and all Obligations have been indefeasibly paid in full in immediately
-81-
available funds. All representations, warranties, covenants, waivers and
agreements contained herein shall survive termination hereof until all
Obligations are indefeasibly paid and performed in full.
XIV. REGARDING AGENT.
14.1 Appointment. Each Lender hereby designates PNC to act as Agent for
such Lender under this Agreement and the Other Documents. Each Lender hereby
irrevocably authorizes Agent to take such action on its behalf under the
provisions of this Agreement and the Other Documents and to exercise such powers
and to perform such duties hereunder and thereunder as are specifically
delegated to or required of Agent by the terms hereof and thereof and such other
powers as are reasonably incidental thereto and Agent shall hold all Collateral,
payments of principal and interest, fees (except the fees set forth in Sections
3.3(a) and 3.4), charges and collections (without giving effect to any
collection days) received pursuant to this Agreement, for the ratable benefit of
Lenders. Agent may perform any of its duties hereunder by or through its agents
or employees. As to any matters not expressly provided for by this Agreement
(including collection of the Note) Agent shall not be required to exercise any
discretion or take any action, but shall be required to act or to refrain from
acting (and shall be fully protected in so acting or refraining from acting)
upon the instructions of the Required Lenders, and such instructions shall be
binding; provided, however, that Agent shall not be required to take any action
which exposes Agent to liability or which is contrary to this Agreement or the
Other Documents or Applicable Law unless Agent is furnished with an
indemnification reasonably satisfactory to Agent with respect thereto.
14.2 Nature of Duties. Agent shall have no duties or responsibilities
except those expressly set forth in this Agreement and the Other Documents.
Neither Agent nor any of its officers, directors, employees or agents shall be
(i) liable for any action taken or omitted by them as such hereunder or in
connection herewith, unless caused by their gross (not mere) negligence or
willful misconduct, or (ii) responsible in any manner for any recitals,
statements, representations or warranties made by Borrower or any officer
thereof contained in this Agreement, or in any of the Other Documents or in any
certificate, report, statement or other document referred to or provided for in,
or received by Agent under or in connection with, this Agreement or any of the
Other Documents or for the value, validity, effectiveness, genuineness, due
execution, enforceability or sufficiency of this Agreement, or any of the Other
Documents or for any failure of Borrower to perform its obligations hereunder.
Agent shall not be under any obligation to any Lender to ascertain or to inquire
as to the observance or performance of any of the agreements contained in, or
conditions of, this Agreement or any of the Other Documents, or to inspect the
properties, books or records of Borrower. The duties of Agent as respects the
Advances to Borrower shall be mechanical and administrative in nature; Agent
shall not have by reason of this Agreement a fiduciary relationship in respect
of any Lender; and nothing in this Agreement, expressed or implied, is intended
to or shall be so construed as to impose upon Agent any obligations in respect
of this Agreement except as expressly set forth herein.
14.3 Lack of Reliance on Agent and Resignation. Independently and without
reliance upon Agent or any other Lender, each Lender has made and shall continue
to make (i) its own independent investigation of the financial condition and
affairs of Borrower and each Guarantor in connection with the making and the
-82-
continuance of the Advances hereunder and the taking or not taking of any action
in connection herewith, and (ii) its own appraisal of the creditworthiness of
Borrower and each Guarantor. Agent shall have no duty or responsibility, either
initially or on a continuing basis, to provide any Lender with any credit or
other information with respect thereto, whether coming into its possession
before making of the Advances or at any time or times thereafter except as shall
be provided by Borrower pursuant to the terms hereof. Agent shall not be
responsible to any Lender for any recitals, statements, information,
representations or warranties herein or in any agreement, document, certificate
or a statement delivered in connection with or for the execution, effectiveness,
genuineness, validity, enforceability, collectibility or sufficiency of this
Agreement or any Other Document, or of the financial condition of Borrower or
any Guarantor, or be required to make any inquiry concerning either the
performance or observance of any of the terms, provisions or conditions of this
Agreement, the Note, the Other Documents or the financial condition of Borrower,
or the existence of any Event of Default or any Default.
Agent may resign on sixty (60) days' written notice to each of Lenders
and Borrower and upon such resignation, the Required Lenders will promptly
designate a successor Agent reasonably satisfactory to Borrower.
Any such successor Agent shall succeed to the rights, powers and duties
of Agent, and the term "Agent" shall mean such successor agent effective upon
its appointment, and the former Agent's rights, powers and duties as Agent shall
be terminated, without any other or further act or deed on the part of such
former Agent. After any Agent's resignation as Agent, the provisions of this
Article XIV shall inure to its benefit as to any actions taken or omitted to be
taken by it while it was Agent under this Agreement.
14.4 Certain Rights of Agent. If Agent shall request instructions from
Lenders with respect to any act or action (including failure to act) in
connection with this Agreement or any Other Document, Agent shall be entitled to
refrain from such act or taking such action unless and until Agent shall have
received instructions from the Required Lenders; and Agent shall not incur
liability to any Person by reason of so refraining. Without limiting the
foregoing, Lenders shall not have any right of action whatsoever against Agent
as a result of its acting or refraining from acting hereunder in accordance with
the instructions of the Required Lenders.
14.5 Reliance. Agent shall be entitled to rely, and shall be fully
protected in relying, upon any note, writing, resolution, notice, statement,
certificate, telex, teletype or telecopier message, cablegram, order or other
document or telephone message believed by it to be genuine and correct and to
have been signed, sent or made by the proper person or entity, and, with respect
to all legal matters pertaining to this Agreement and the Other Documents and
its duties hereunder, upon advice of counsel selected by it. Agent may employ
agents and attorneys-in-fact and shall not be liable for the default or
misconduct of any such agents or attorneys-in-fact selected by Agent with
reasonable care.
14.6 Notice of Default. Agent shall not be deemed to have knowledge or
notice of the occurrence of any Default or Event of Default hereunder or under
the Other Documents, unless Agent has received notice from a Lender or Borrower
referring to this Agreement or the Other Documents, describing such Default or
Event of Default and stating that such notice is a "notice of default". In the
-83-
event that Agent receives such a notice, Agent shall give notice thereof to
Lenders. Agent shall take such action with respect to such Default or Event of
Default as shall be reasonably directed by the Required Lenders; provided, that,
unless and until Agent shall have received such directions, Agent may (but shall
not be obligated to) take such action, or refrain from taking such action, with
respect to such Default or Event of Default as it shall deem advisable in the
best interests of Lenders.
14.7 Indemnification. To the extent Agent is not reimbursed and
indemnified by Borrower, each Lender will reimburse and indemnify Agent in
proportion to its respective portion of the Advances (or, if no Advances are
outstanding, according to its Commitment Percentage), from and against any and
all liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses or disbursements of any kind or nature whatsoever which
may be imposed on, incurred by or asserted against Agent in performing its
duties hereunder, or in any way relating to or arising out of this Agreement or
any Other Document; provided that, Lenders shall not be liable for any portion
of such liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements resulting from Agent's gross
(not mere) negligence or willful misconduct.
14.8 Agent in its Individual Capacity. With respect to the obligation of
Agent to lend under this Agreement, the Advances made by it shall have the same
rights and powers hereunder as any other Lender and as if it were not performing
the duties as Agent specified herein; and the term "Lender" or any similar term
shall, unless the context clearly otherwise indicates, include Agent in its
individual capacity as a Lender. Agent may engage in business with Borrower as
if it were not performing the duties specified herein, and may accept fees and
other consideration from Borrower for services in connection with this Agreement
or otherwise without having to account for the same to Lenders.
14.9 Delivery of Documents. To the extent Agent receives financial
statements required under Sections 9.7, 9.8, 9.9, 9.12 and 9.13 or Borrowing
Base Certificates from Borrower pursuant to the terms of this Agreement which
Borrower is not obligated to deliver to each Lender, Agent will promptly furnish
such documents and information to Lenders.
14.10 Borrower's Undertaking to Agent. Without prejudice to its
obligations to Lenders under the other provisions of this Agreement, Borrower
hereby undertakes with Agent to pay to Agent from time to time on demand all
amounts from time to time due and payable by it for the account of Agent or
Lenders or any of them pursuant to this Agreement to the extent not already
paid. Any payment made pursuant to any such demand shall pro tanto satisfy the
relevant Borrower's obligations to make payments for the account of Lenders or
the relevant one or more of them pursuant to this Agreement.
14.11 No Reliance on Agent's Customer Identification Program. Each Lender
acknowledges and agrees that neither such Lender, nor any of its Affiliates,
participants or assignees, may rely on the Agent to carry out such Lender's,
Affiliate's, participant's or assignee's customer identification program, or
other obligations required or imposed under or pursuant to the USA Patriot Act
or the regulations thereunder, including the regulations contained in 31 CFR
103.121 (as hereafter amended or replaced, the "CIP Regulations"), or any other
Anti-Terrorism Law, including any programs involving any of the following items
relating to or in connection with Borrower, its Affiliates or its agents, this
-84-
Agreement, the Other Documents or the transactions hereunder or contemplated
hereby: (1) any identity verification procedures, (2) any record-keeping, (3)
comparisons with government lists, (4) customer notices or (5) other procedures
required under the CIP Regulations or such other laws.
14.12 Other Agreements. Each of the Lenders agrees that it shall not,
without the express consent of Agent, and that it shall, to the extent it is
lawfully entitled to do so, upon the request of Agent, set off against the
Obligations, any amounts owing by such Lender to Borrower or any deposit
accounts of Borrower now or hereafter maintained with such Lender. Each of the
Lenders further agrees that it shall not, unless specifically requested to do so
by Agent, take or cause to be taken any action, including, the commencement of
any legal or equitable proceedings, to foreclose any Lien on, or otherwise
enforce any security interest in, any of the Collateral the purpose of which is,
or could be, to give such Lender any preference or priority against the other
Lenders with respect to the Collateral.
XV. MISCELLANEOUS.
15.1 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York applied to contracts to be
performed wholly within the State of New York. Any judicial proceeding brought
by or against Borrower with respect to any of the Obligations, this Agreement,
the Other Documents or any related agreement may be brought in any court of
competent jurisdiction in the State of New York, United States of America, and,
by execution and delivery of this Agreement, Borrower accepts for itself and in
connection with its properties, generally and unconditionally, the non-exclusive
jurisdiction of the aforesaid courts, and irrevocably agrees to be bound by any
judgment rendered thereby in connection with this Agreement. Borrower hereby
waives personal service of any and all process upon it and consents that all
such service of process may be made by registered mail (return receipt
requested) directed to Borrower at its address set forth in Section 15.6 and
service so made shall be deemed completed five (5) days after the same shall
have been so deposited in the mails of the United States of America. Nothing
herein shall affect the right to serve process in any manner permitted by law or
shall limit the right of Agent or any Lender to bring proceedings against
Borrower in the courts of any other jurisdiction. Borrower waives any objection
to jurisdiction and venue of any action instituted hereunder and shall not
assert any defense based on lack of jurisdiction or venue or based upon forum
non conveniens. Borrower waives the right to remove any judicial proceeding
brought against Borrower in any state court to any federal court. Any judicial
proceeding by Borrower against Agent or any Lender involving, directly or
indirectly, any matter or claim in any way arising out of, related to or
connected with this Agreement or any related agreement, shall be brought only in
a federal or state court located in the County of New York, State of New York.
15.2 Entire Understanding.
(a) This Agreement and the documents executed concurrently herewith
contain the entire understanding between Borrower, Agent and each Lender and
supersedes all prior agreements and understandings, if any, relating to the
subject matter hereof. Any promises, representations, warranties or guarantees
not herein contained and hereinafter made shall have no force and effect unless
-85-
in writing, signed by Borrower's, Agent's and each Lender's respective officers.
Neither this Agreement nor any portion or provisions hereof may be changed,
modified, amended, waived, supplemented, discharged, cancelled or terminated
orally or by any course of dealing, or in any manner other than by an agreement
in writing, signed by the party to be charged. Borrower acknowledges that it has
been advised by counsel in connection with the execution of this Agreement and
Other Documents and is not relying upon oral representations or statements
inconsistent with the terms and provisions of this Agreement.
(b) The Required Lenders, Agent with the consent in writing of the
Required Lenders, and Borrower may, subject to the provisions of this Section
15.2 (b), from time to time enter into written supplemental agreements to this
Agreement or the Other Documents executed by Borrower, for the purpose of adding
or deleting any provisions or otherwise changing, varying or waiving in any
manner the rights of Lenders, Agent or Borrower thereunder or the conditions,
provisions or terms thereof of waiving any Event of Default thereunder, but only
to the extent specified in such written agreements; provided, however, that no
such supplemental agreement shall, without the consent of all Lenders:
(i) increase the Commitment Percentage, the maximum dollar
commitment of any Lender or the Maximum Revolving Advance Amount.
(ii) extend the maturity of any Note or the due date for any
amount payable hereunder, or decrease the rate of interest or reduce any
fee payable by Borrower to Lenders pursuant to this Agreement.
(iii) alter the definition of the term Required Lenders or
alter, amend or modify this Section 15.2(b).
(iv) release any Collateral during any calendar year (other
than in accordance with the provisions of this Agreement) having an
aggregate value in excess of $250,000.
(v) change the rights and duties of Agent.
(vi) permit any Revolving Advance to be made if after giving
effect thereto the total of Revolving Advances outstanding hereunder
would exceed the Formula Amount for more than sixty (30) consecutive
Business Days or exceed one hundred five percent (105%) of the Formula
Amount.
(vii) increase the Advance Rates above the Advance Rates in
effect on the Closing Date.
(viii) release any Guarantor.
Any such supplemental agreement shall apply equally to each Lender and shall be
binding upon Borrower, Lenders and Agent and all future holders of the
Obligations. In the case of any waiver, Borrower, Agent and Lenders shall be
restored to their former positions and rights, and any Event of Default waived
shall be deemed to be cured and not continuing, but no waiver of a specific
Event of Default shall extend to any subsequent Event of Default (whether or not
-86-
the subsequent Event of Default is the same as the Event of Default which was
waived), or impair any right consequent thereon.
In the event that Agent requests the consent of a Lender pursuant to
this Section 15.2 and such Lender shall not respond or reply to Agent in writing
within five (5) days of delivery of such request, such Lender shall be deemed to
have consented to the matter that was the subject of the request. In the event
that Agent requests the consent of a Lender pursuant to this Section 15.2 and
such consent is denied, then PNC may, at its option, require such Lender to
assign its interest in the Advances to PNC or to another Lender or to any other
Person designated by the Agent (the "Designated Lender"), for a price equal to
the then outstanding principal amount thereof plus accrued and unpaid interest
and fees due such Lender, which interest and fees shall be paid when collected
from Borrower. In the event PNC elects to require any Lender to assign its
interest to PNC or to the Designated Lender, PNC will so notify such Lender in
writing within forty five (45) days following such Lender's denial, and such
Lender will assign its interest to PNC or the Designated Lender no later than
five (5) days following receipt of such notice pursuant to a Commitment Transfer
Supplement executed by such Lender, PNC or the Designated Lender, as
appropriate, and Agent.
Notwithstanding (a) the existence of a Default or an Event of Default,
(b) that any of the other applicable conditions precedent set forth in Section
8.2 hereof have not been satisfied or (c) any other provision of this Agreement,
Agent may at its discretion and without the consent of the Required Lenders,
voluntarily permit the outstanding Revolving Advances at any time to exceed the
Formula Amount by up to ten percent (10%) of the Formula Amount for up to thirty
(30) consecutive Business Days (the "Out-of-Formula Loans"). If Agent is willing
in its sole and absolute discretion to make such Out-of-Formula Loans, such
Out-of-Formula Loans shall be payable on demand and shall bear interest at the
Default Rate for Revolving Advances consisting of Domestic Rate Loans; provided
that, if Lenders do make Out-of-Formula Loans, neither Agent nor Lenders shall
be deemed thereby to have changed the limits of Section 2.1(a). For purposes of
this paragraph, the discretion granted to Agent hereunder shall not preclude
involuntary overadvances that may result from time to time due to the fact that
the Formula Amount was unintentionally exceeded for any reason, including, but
not limited to, Collateral previously deemed to be either "Eligible Receivables"
or "Eligible Inventory", as applicable, becomes ineligible, collections of
Receivables applied to reduce outstanding Revolving Advances are thereafter
returned for insufficient funds or overadvances are made to protect or preserve
the Collateral. In the event Agent involuntarily permits the outstanding
Revolving Advances to exceed the Formula Amount by more than ten percent (10%),
Agent shall use its efforts to have Borrower decrease such excess in as
expeditious a manner as is practicable under the circumstances and not
inconsistent with the reason for such excess. Revolving Advances made after
Agent has determined the existence of involuntary overadvances shall be deemed
to be involuntary overadvances and shall be decreased in accordance with the
preceding sentence.
In addition to (and not in substitution of) the discretionary Revolving
Advances permitted above in this Section 15.2, the Agent is hereby authorized by
Borrower and the Lenders, from time to time in the Agent's sole discretion, (A)
after the occurrence and during the continuation of a Default or an Event of
Default, or (B) at any time that any of the other applicable conditions
precedent set forth in Section 8.2 hereof have not been satisfied, to make
Revolving Advances to Borrower on behalf of the Lenders which the Agent, in its
reasonable business judgment, deems necessary or desirable (a) to preserve or
-87-
protect the Collateral, or any portion thereof, (b) to enhance the likelihood
of, or maximize the amount of, repayment of the Advances and other Obligations,
or (c) to pay any other amount chargeable to Borrower pursuant to the terms of
this Agreement; provided, that at any time after giving effect to any such
Revolving Advances the outstanding Revolving Advances do not exceed one hundred
ten percent (110%) of the Formula Amount.
15.3 Successors and Assigns; Participations; New Lenders.
(a) This Agreement shall be binding upon and inure to the benefit of
Borrower, Agent, each Lender, all future holders of the Obligations and their
respective successors and assigns, except that Borrower may not assign or
transfer any of its rights or obligations under this Agreement without the prior
written consent of Agent and each Lender.
(b) Borrower acknowledges that in the regular course of commercial
banking business one or more Lenders may at any time and from time to time sell
participating interests in the Advances to other financial institutions (each
such transferee or purchaser of a participating interest, a "Participant"). Each
Participant may exercise all rights of payment (including rights of set-off)
with respect to the portion of such Advances held by it or other Obligations
payable hereunder as fully as if such Participant were the direct holder thereof
provided that Borrower shall not be required to pay to any Participant more than
the amount which it would have been required to pay to Lender which granted an
interest in its Advances or other Obligations payable hereunder to such
Participant had such Lender retained such interest in the Advances hereunder or
other Obligations payable hereunder and in no event shall Borrower be required
to pay any such amount arising from the same circumstances and with respect to
the same Advances or other Obligations payable hereunder to both such Lender and
such Participant. Borrower hereby grants to any Participant a continuing
security interest in any deposits, moneys or other property actually or
constructively held by such Participant as security for the Participant's
interest in the Advances.
(c) Any Lender may with the consent of Agent which shall not be
unreasonably withheld or delayed sell, assign or transfer all or any part of its
rights under this Agreement and the Other Documents to one or more additional
banks or financial institutions and one or more additional banks or financial
institutions may commit to make Advances hereunder (each a "Purchasing Lender",
and together with each Participant, each a "Transferee" and collectively the
"Transferees"), in minimum amounts of not less than $7,500,000 (provided that if
the transferor Lender is not transferring all of its rights, it shall retain at
least $7,500,000), pursuant to a Commitment Transfer Supplement, executed by a
Purchasing Lender, the transferor Lender, and Agent and delivered to Agent for
recording. Upon such execution, delivery, acceptance and recording, from and
after the transfer effective date determined pursuant to such Commitment
Transfer Supplement, (i) Purchasing Lender thereunder shall be a party hereto
and, to the extent provided in such Commitment Transfer Supplement, have the
rights and obligations of a Lender thereunder with a Commitment Percentage as
set forth therein, and (ii) the transferor Lender thereunder shall, to the
extent provided in such Commitment Transfer Supplement, be released from its
obligations under this Agreement, the Commitment Transfer Supplement creating a
novation for that purpose. Such Commitment Transfer Supplement shall be deemed
to amend this Agreement to the extent, and only to the extent, necessary to
reflect the addition of such Purchasing Lender and the resulting adjustment of
-89-
the Commitment Percentages arising from the purchase by such Purchasing Lender
of all or a portion of the rights and obligations of such transferor Lender
under this Agreement and the Other Documents. Borrower hereby consents to the
addition of such Purchasing Lender and the resulting adjustment of the
Commitment Percentages arising from the purchase by such Purchasing Lender of
all or a portion of the rights and obligations of such transferor Lender under
this Agreement and the Other Documents. Borrower shall execute and deliver such
further documents and do such further acts and things in order to effectuate the
foregoing.
(d) Agent shall maintain at its address a copy of each Commitment
Transfer Supplement delivered to it and a register (the "Register") for the
recordation of the names and addresses of each Lender and the outstanding
principal, accrued and unpaid interest and other fees due hereunder. The entries
in the Register shall be conclusive, in the absence of manifest error, and
Borrower, Agent and Lenders may treat each Person whose name is recorded in the
Register as the owner of the Advance recorded therein for the purposes of this
Agreement. The Register shall be available for inspection by Borrower or any
Lender at any reasonable time and from time to time upon reasonable prior
notice. Agent shall receive a fee in the amount of $3,500 payable by the
applicable Purchasing Lender upon the effective date of each transfer or
assignment to such Purchasing Lender.
(e) Borrower authorizes each Lender to disclose to any Transferee
and any prospective Transferee any and all financial information in such
Lender's possession concerning Borrower which has been delivered to such Lender
by or on behalf of Borrower pursuant to this Agreement or in connection with
such Lender's credit evaluation of Borrower.
15.4 Application of Payments. Agent shall have the continuing and
exclusive right to apply or reverse and re-apply any payment and any and all
proceeds of Collateral to any portion of the Obligations. To the extent that
Borrower makes a payment or Agent or any Lender receives any payment or proceeds
of the Collateral for Borrower's benefit, which are subsequently invalidated,
declared to be fraudulent or preferential, set aside or required to be repaid to
a trustee, debtor in possession, receiver, custodian or any other party under
any bankruptcy law, common law or equitable cause, then, to such extent, the
Obligations or part thereof intended to be satisfied shall be revived and
continue as if such payment or proceeds had not been received by Agent or such
Lender.
15.5 Indemnity. Borrower shall indemnify Agent, each Lender and each of
their respective officers, directors, Affiliates, attorneys, employees and
agents from and against any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses and disbursements of any
kind or nature whatsoever (including fees and disbursements of counsel) which
may be imposed on, incurred by, or asserted against Agent or any Lender in any
claim, litigation, proceeding or investigation instituted or conducted by any
Governmental Body or instrumentality or any other Person with respect to any
aspect of, or any transaction contemplated by, or referred to in, or any matter
related to, this Agreement or the Other Documents, whether or not Agent or any
Lender is a party thereto, except to the extent that any of the foregoing arises
out of the willful misconduct of the party being indemnified (as determined by a
court of competent jurisdiction in a final and non-appealable judgment). Without
limiting the generality of the foregoing, this indemnity shall extend to any
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
-89-
costs, expenses and disbursements of any kind or nature whatsoever (including
fees and disbursements of counsel) asserted against or incurred by any of the
indemnitees described above in this Section 15.5 by any Person under any
Environmental Laws or similar laws by reason of Borrower's or any other Person's
failure to comply with laws applicable to solid or hazardous waste materials,
including Hazardous Substances and Hazardous Waste, or other Toxic Substances.
Additionally, if any taxes (excluding taxes imposed upon or measured solely by
the net income of Agent and Lenders, but including any intangibles taxes, stamp
tax, recording tax or franchise tax) shall be payable by Agent, Lenders or
Borrower on account of the execution or delivery of this Agreement, or the
execution, delivery, issuance or recording of any of the Other Documents, or the
creation or repayment of any of the Obligations hereunder, by reason of any
Applicable Law now or hereafter in effect, Borrower will pay (or will promptly
reimburse Agent and Lenders for payment of) all such taxes, including interest
and penalties thereon, and will indemnify and hold the indemnitees described
above in this Section 15.5 harmless from and against all liability in connection
therewith.
15.6 Notice. Any notice or request hereunder may be given to Borrower or
to Agent or any Lender at their respective addresses set forth below or at such
other address as may hereafter be specified in a notice designated as a notice
of change of address under this Section. Any notice, request, demand, direction
or other communication (for purposes of this Section 15.6 only, a "Notice") to
be given to or made upon any party hereto under any provision of this Loan
Agreement shall be given or made by telephone or in writing (which includes by
means of electronic transmission (i.e., "e-mail") or facsimile transmission or
by setting forth such Notice on a site on the World Wide Web (a "Website
Posting") if Notice of such Website Posting (including the information necessary
to access such site) has previously been delivered to the applicable parties
hereto by another means set forth in this Section 15.6) in accordance with this
Section 15.6. Any such Notice must be delivered to the applicable parties hereto
at the addresses and numbers set forth under their respective names on Section
15.6 hereof or in accordance with any subsequent unrevoked Notice from any such
party that is given in accordance with this Section 15.6. Any Notice shall be
effective:
(a) In the case of hand-delivery, when delivered;
(b) If given by mail, four days after such Notice is deposited with
the United States Postal Service, with first-class postage prepaid, return
receipt requested;
(c) In the case of a telephonic Notice, when a party is contacted by
telephone, if delivery of such telephonic Notice is confirmed no later than the
next Business Day by hand delivery, a facsimile or electronic transmission, a
Website Posting or an overnight courier delivery of a confirmatory Notice
(received at or before noon on such next Business Day);
(d) In the case of a facsimile transmission, when sent to the
applicable party's facsimile machine's telephone number, if the party sending
such Notice receives confirmation of the delivery thereof from its own facsimile
machine;
(e) In the case of electronic transmission, when actually received;
-90-
(f) In the case of a Website Posting, upon delivery of a Notice of
such posting (including the information necessary to access such site) by
another means set forth in this Section 15.6; and
(g) If given by any other means (including by overnight courier),
when actually received.
Any Lender giving a Notice to Borrower shall concurrently send a
copy thereof to the Agent, and the Agent shall promptly notify the other Lenders
of its receipt of such Notice.
(A) If to Agent or PNC Bank, National Association PNC at:
Xxx Xxxxx Xxxx Xxxxxx, Xxxxx 000
Xxxxxxxx, Xxxxxxxxxx 00000
Attention: Xxxxxxxx Xxxxxxxxx
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
with a copy to: PNC Bank, National Association
PNC Agency Services
PNC Firstside Center
000 Xxxxx Xxxxxx, 0xx Xxxxx
Xxxxxxxxxx, Xxxxxxxxxxxx 00000
Attention: Xxxx Xxxxxx
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
with an additional
copy to: Levy, Small & Xxxxxx
000 Xxxxxx Xxxxx
Xxx Xxxxxxx, Xxxxxxxxxx 00000
Attention: Xxxxxxx X. Xxxxxxx, Esq.
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
(B) If to a Lender other than
Agent, as specified on the
signature pages hereof
(C) If to Borrower: Small World Toys
0000 Xxxxxxxxxx Xxxxxxx
Xxxxxx Xxxx, Xxxxxxxxxx 00000
Attention: Xxx Xxxxxx
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
15.7 Survival. The obligations of Borrower under Sections 2.2(f), 3.7,
3.8, 3.9, 4.19(h), and 15.5 and the obligations of Lenders under Section 14.7,
shall survive termination of this Agreement and the Other Documents and payment
in full of the Obligations.
-91-
15.8 Severability. If any part of this Agreement is contrary to,
prohibited by, or deemed invalid under Applicable Laws or regulations, such
provision shall be inapplicable and deemed omitted to the extent so contrary,
prohibited or invalid, but the remainder hereof shall not be invalidated thereby
and shall be given effect so far as possible.
15.9 Expenses. All costs and expenses including reasonable attorneys'
fees (including the allocated costs of in house counsel) and disbursements
incurred by Agent on its behalf or on behalf of Lenders and Lenders (a) in all
efforts made to enforce payment of any Obligation or effect collection of any
Collateral, or (b) in connection with the entering into, modification,
amendment, administration and enforcement of this Agreement and the agreements,
documents and instruments contemplated hereby, or any consents or waivers
hereunder or thereunder, and all related agreements, documents and instruments,
or (c) in instituting, maintaining, preserving, enforcing and foreclosing on
Agent's security interest in or Lien on any of the Collateral, or maintaining,
preserving or enforcing any of Agent's or any Lender's rights hereunder, under
the agreements, documents and instruments contemplated hereby, and under all
related agreements, documents and instruments, whether through judicial
proceedings or otherwise, or (d) in defending or prosecuting any actions or
proceedings arising out of or relating to Agent's or any Lender's transactions
with Borrower, Holdings, any Guarantor or any subordinated lender, or (e) in
connection with any advice given to Agent or any Lender with respect to its
rights and obligations under this Agreement, the agreements, documents and
instruments contemplated hereby, and all related agreements, documents and
instruments, may be charged to Borrower's Account and shall be part of the
Obligations.
15.10 Injunctive Relief. Borrower recognizes that, in the event Borrower
fails to perform, observe or discharge any of its obligations or liabilities
under this Agreement, or threatens to fail to perform, observe or discharge such
obligations or liabilities, any remedy at law may prove to be inadequate relief
to Lenders; therefore, Agent, if Agent so requests, shall be entitled to
temporary and permanent injunctive relief in any such case without the necessity
of proving that actual damages are not an adequate remedy.
15.11 Damages. Neither Agent nor any Lender, nor any agent or attorney
for any of them, shall be liable to Borrower, Holdings or any Guarantor (or any
Affiliate of any such Person) for indirect, punitive, exemplary or consequential
damages arising from any breach of contract, tort or other wrong relating to the
establishment, administration or collection of the Obligations or as a result of
any transaction contemplated under this Agreement or any Other Document.
15.12 Captions. The captions at various places in this Agreement are
intended for convenience only and do not constitute and shall not be interpreted
as part of this Agreement.
15.13 Counterparts; Facsimile Signatures. This Agreement may be executed
in any number of and by different parties hereto on separate counterparts, all
of which, when so executed, shall be deemed an original, but all such
counterparts shall constitute one and the same agreement. Any signature
delivered by a party by facsimile transmission shall be deemed to be an original
signature hereto.
-92-
15.14 Construction. The parties acknowledge that each party and its
counsel have reviewed this Agreement and that the normal rule of construction to
the effect that any ambiguities are to be resolved against the drafting party
shall not be employed in the interpretation of this Agreement or any amendments,
schedules or exhibits thereto.
15.15 Confidentiality; Sharing Information.
(a) Agent, each Lender and each Transferee shall hold all
non-public information obtained by Agent, such Lender or such Transferee
pursuant to the requirements of this Agreement in accordance with Agent's, such
Lender's and such Transferee's customary procedures for handling confidential
information of this nature; provided, however, Agent, each Lender and each
Transferee may disclose such confidential information (a) to its examiners,
Affiliates, outside auditors, counsel and other professional advisors, (b) to
Agent, any Lender or to any prospective Transferees, and (c) as required or
requested by any Governmental Body or representative thereof or pursuant to
legal process; provided, further that (i) unless specifically prohibited by
Applicable Law or court order, Agent, each Lender and each Transferee shall use
its reasonable best efforts prior to disclosure thereof, to notify Borrower of
the applicable request for disclosure of such non-public information (A) by a
Governmental Body or representative thereof (other than any such request in
connection with an examination of the financial condition of a Lender or a
Transferee by such Governmental Body) or (B) pursuant to legal process and (ii)
in no event shall Agent, any Lender or any Transferee be obligated to return any
materials furnished by Borrower other than those documents and instruments in
possession of Agent or any Lender in order to perfect its Lien on the Collateral
once the Obligations have been paid in full and this Agreement has been
terminated.
(b) Borrower acknowledges that from time to time financial advisory,
investment banking and other services may be offered or provided to Borrower or
one or more of its Affiliates (in connection with this Agreement or otherwise)
by any Lender or by one or more Subsidiaries or Affiliates of such Lender and
Borrower hereby authorizes each Lender to share any information delivered to
such Lender by Borrower and its Subsidiaries pursuant to this Agreement, or in
connection with the decision of such Lender to enter into this Agreement, to any
such Subsidiary or Affiliate of such Lender, it being understood that any such
Subsidiary or Affiliate of any Lender receiving such information shall be bound
by the provisions of this Section 15.15 as if it were a Lender hereunder. Such
authorization shall survive the repayment of the other Obligations and the
termination of this Agreement.
Notwithstanding anything herein to the contrary, the information subject
to this Section 15.15 shall not include, and the Agent and each Lender may
disclose without limitation of any kind, any information with respect to the
"tax treatment" and "tax structure" (in each case, within the meaning of
Treasury Regulation Section 1.6011-4) of the transactions contemplated hereby
and all materials of any kind (including opinions or other tax analyses) that
are provided to Agent or such Lender relating to such tax treatment and tax
structure; provided that with respect to any document or similar item that in
either case contains information concerning the tax treatment or tax structure
of the transaction as well as other information, this sentence shall only apply
to such portions of the document or similar item that relate to the tax
treatment or tax structure of the Advances and transactions contemplated hereby.
-93-
15.16 Publicity. Borrower and each Lender hereby authorizes Agent to make
appropriate announcements of the financial arrangement entered into among
Borrower, Agent and Lenders, including announcements which are commonly known as
tombstones, in such publications and to such selected parties as Agent shall in
its sole and absolute discretion deem appropriate.
15.17 Certifications From Banks and Participants; US Patriot Act. Each
Lender or assignee or participant of a Lender that is not incorporated under the
Laws of the United States of America or a state thereof (and is not excepted
from the certification requirement contained in Section 313 of the USA Patriot
Act and the applicable regulations because it is both (i) an affiliate of a
depository institution or foreign bank that maintains a physical presence in the
United States or foreign country, and (ii) subject to supervision by a banking
authority regulating such affiliated depository institution or foreign bank)
shall deliver to the Agent the certification, or, if applicable,
recertification, certifying that such Lender is not a "shell" and certifying to
other matters as required by Section 313 of the USA Patriot Act and the
applicable regulations: (1) within 10 days after the Closing Date, and (2) as
such other times as are required under the USA Patriot Act.
-94-
Each of the parties has signed this Agreement as of the day and year first
above written.
ATTEST: SMALL WORLD TOYS
By:
------------------------------- ----------------------------------
Name:
----------------------------------
Title:
----------------------------------
PNC BANK, NATIONAL ASSOCIATION,
as Lender and as Agent
By:
----------------------------------
Name:
----------------------------------
Title:
----------------------------------
Commitment Percentage: 100%
-00-
XXXXX XX XXXXXXXXXX )
) ss.
COUNTY OF LOS ANGELES )
On this _____ day of ______________, 2004, before me personally came
____________________________, to me known, who, being by me duly sworn, did
depose and say that s/he is the __________________ of _______________________,
the corporation described in and which executed the foregoing instrument; and
that s/he signed her/his name thereto by order of the board of directors of said
corporation.
------------------------------
Notary Public
STATE OF CALIFORNIA )
) ss.
COUNTY OF LOS ANGELES )
On this _____ day of ______________, 2004, before me personally came
____________________________, to me known, who, being by me duly sworn, did
depose and say that s/he is the __________________ of _______________________,
the corporation described in and which executed the foregoing instrument; and
that s/he signed her/his name thereto by order of the board of directors of said
corporation.
------------------------------
Notary Public
STATE OF CALIFORNIA )
) ss.
COUNTY OF LOS ANGELES )
On this _____ day of ______________, 2004, before me personally came
______________________________, to me known, who, being by me duly sworn, did
depose and say that s/he is the __________________ of PNC BANK, NATIONAL
ASSOCIATION, and that s/he was authorized to sign her/his name thereto.
------------------------------
Notary Public
List of Exhibits and Schedules
------------------------------
Exhibits
--------
Exhibit 2.1(a) Revolving Credit Note
Exhibit 2.4 Seasonal Advance Note
Exhibit 16.3 Commitment Transfer Supplement
Schedules
---------
Schedule 1.2 Permitted Encumbrances
Schedule 4.5 Equipment and Inventory Locations; Real Property
Schedule 4.15(h) Deposit and Investment Accounts
Schedule 5.1 Consents
Schedule 5.2(a) States of Qualification and Good Standing
Schedule 5.4 Federal Tax Identification Number
Schedule 5.6 Prior Names
Schedule 5.8(b) Litigation; Indebtedness
Schedule 5.8(d) Plans
Schedule 5.9 Intellectual Property, Source Code Escrow Agreements
Schedule 5.27 Licensed Inventory Arrangements
Schedule 7.3 Guarantees
Exhibit 2.1(a)
Revolving Credit Note
$15,000,000 Date: December __, 2004
This Revolving Credit Note is executed and delivered under and pursuant to
the terms of that certain Revolving Credit and Security Agreement dated as of
December __, 2004 (as amended, restated, supplemented or modified from time to
time, the "Loan Agreement") by and among SMALL WORLD TOYS, a California
corporation ("Borrower"), with a place of business at 0000 Xxxxxxxxxx Xxxxxxx,
Xxxxxx Xxxx, Xxxxxxxxxx 00000 and PNC BANK, NATIONAL ASSOCIATION ("PNC"), the
various financial institutions named therein or which hereafter become a party
thereto, (together with PNC collectively, "Lenders") and PNC as agent for
Lenders (in such capacity, "Agent"). Capitalized terms not otherwise defined
herein shall have the meanings provided in the Loan Agreement.
FOR VALUE RECEIVED, Borrower hereby promises to pay to the order of PNC,
at the office of Agent located at PNC Bank Center, Xxx Xxxxx Xxxxxx, 0xx Xxxxx,
Xxxx Xxxxxxxxx, Xxx Xxxxxx 00000 or at such other place as Agent may from time
to time designate to Borrower in writing:
(i) the principal sum of Fifteen Million Dollars ($15,000,000) or, if
different from such amount, the unpaid principal balance of PNC's Commitment
Percentage of the Revolving Advances as may be due and owing under the Loan
Agreement, payable in accordance with the provisions of the Loan Agreement,
subject to acceleration upon the occurrence of an Event of Default under the
Loan Agreement or earlier termination of the Loan Agreement pursuant to the
terms thereof; and
(ii) interest on the principal amount of this Note from time to time
outstanding until such principal amount is paid in full at the applicable
Revolving Interest Rate in accordance with the provisions of the Loan Agreement.
In no event, however, shall interest exceed the maximum interest rate permitted
by law. Upon and after the occurrence of an Event of Default, and during the
continuation thereof, interest shall be payable at the Default Rate.
This Note is one of the Revolving Credit Notes referred to in the Loan
Agreement. This Note is secured by the liens granted pursuant to the Loan
Agreement and the Other Documents, is entitled to the benefits of the Loan
Agreement and the Other Documents and is subject to all of the agreements, terms
and conditions therein contained.
This Note is subject to mandatory prepayment and may be voluntarily
prepaid, in whole or in part, on the terms and conditions set forth in the Loan
Agreement.
-i-
If an Event of Default under Section 10.7 of the Loan Agreement shall
occur, then this Note shall immediately become due and payable, without notice,
together with reasonable attorneys' fees incurred to obtain or enforce payment
hereof. If any other Event of Default shall occur under the Loan Agreement or
any of the Loan Documents, which is not cured within any applicable grace
period, then this Note may, as provided in the Loan Agreement, be declared to be
immediately due and payable, without notice, together with reasonable attorneys'
fees incurred to obtain or enforce payment hereof.
This Note shall be construed and enforced in accordance with the laws of
the State of New York.
Borrower expressly waives any presentment, demand, protest, notice of
protest, or notice of any kind except as expressly provided in the Loan
Agreement.
SMALL WORLD TOYS
By:
--------------------------------------
Name:
--------------------------------------
Title:
--------------------------------------
STATE OF )
-------------------------- )
) SS.:
COUNTY OF )
-------------------------- )
On the ___ day of ___________, 2004, before me personally came
_________________, to me known, who being by me duly sworn, did depose and say
that he/she is the _______________ of _______________, the __________ described
in and which executed the foregoing instrument; and that he/she signed his/her
name thereto as the act and deed of such corporation by order of the board of
directors of said corporation.
---------------------------------------
Notary Public
-ii-
Exhibit 2.4
Seasonal Advance Note
$1,500,000 Date: December __, 2004
This Term Note is executed and delivered under and pursuant to the terms
of that certain Revolving Credit and Security Agreement dated as of December __,
2004 (as amended, restated, supplemented or modified from time to time, the
"Loan Agreement") by and among SMALL WORLD TOYS, a California corporation
("Borrower"), with its principal place of business located at 0000 Xxxxxxxxxx
Xxxxxxx, Xxxxxx Xxxx, Xxxxxxxxxx 00000, PNC BANK, NATIONAL ASSOCIATION ("PNC"),
the various financial institutions named therein or which hereafter become a
party thereto (together with PNC, collectively, "Lenders"), and PNC as agent for
Lenders (in such capacity "Agent"). Capitalized terms not otherwise defined
herein shall have the meanings provided in the Loan Agreement.
FOR VALUE RECEIVED, Borrower hereby promises to pay to the order of PNC,
at the office of Agent located at PNC Bank Center, Xxx Xxxxx Xxxxxx, 0xx Xxxxx,
Xxxx Xxxxxxxxx, Xxx Xxxxxx 00000, or at such other place as Agent may from time
to time designate to Borrower in writing:
(i) the principal sum of One Million Five Hundred Thousand Dollars
($1,500,000) or, if different from such amount, the unpaid principal balance of
PNC's Commitment Percentage of the Seasonal Advances as may from time to time be
due and owing under the Loan Agreement, payable in accordance with the
provisions of the Loan Agreement and subject to acceleration upon the occurrence
of an Event of Default under the Loan Agreement or earlier termination of the
Loan Agreement pursuant to the terms thereof; and
(ii) interest on the principal amount of this Note from time to time
outstanding, payable at the Seasonal Advance Rate in accordance with the
provisions of the Loan Agreement. In no event, however, shall interest exceed
the maximum interest rate permitted by law. Upon and after the occurrence of an
Event of Default, and during the continuation thereof, interest shall be payable
at the Default Rate.
This Note is one of the Seasonal Advance Notes referred to in the Loan
Agreement. This Note is secured, inter alia, by the liens granted pursuant to
the Loan Agreement and the Other Documents, is entitled to the benefits of the
Loan Agreement and the Other Documents, and is subject to all of the agreements,
terms and conditions therein contained.
This Note is subject to mandatory prepayment and may be voluntarily
prepaid, in whole or in part, on the terms and conditions set forth in the Loan
Agreement.
-iii-
If an Event of Default under Section 10.7 of the Loan Agreement shall
occur, then this Note shall immediately become due and payable, without notice,
together with reasonable attorneys' fees incurred to obtain or enforce payment
hereof. If any other Event of Default shall occur under the Loan Agreement or
any of the Loan Documents, which is not cured within any applicable grace
period, then this Note may, as provided in the Loan Agreement, be declared to be
immediately due and payable, without notice, together with reasonable attorneys'
fees incurred to obtain or enforce payment hereof.
This Note shall be construed and enforced in accordance with the laws of
the State of New York.
Borrower expressly waives any presentment, demand, protest, notice of
protest, or notice of any kind except as expressly provided in the Loan
Agreement.
SMALL WORLD TOYS
By:
---------------------------------------
Name:
-------------------------------------
Title:
------------------------------------
STATE OF )
-------------------------- )
) SS.:
COUNTY OF )
-------------------------- )
On the ___ day of ___________, 2004, before me personally came
_________________, to me known, who being by me duly sworn, did depose and say
that he/she is the _______________ of _______________, the __________ described
in and which executed the foregoing instrument; and that he/she signed his/her
name thereto as the act and deed of such corporation by order of the board of
directors of said corporation.
-------------------------------------
Notary Public
-iv-
Exhibit 15.3
Commitment Transfer Supplement
COMMITMENT TRANSFER SUPPLEMENT, dated as of _________ __, ____, among
__________________________________________ (the "Transferor Lender"), each
Purchasing Lender executing this Commitment Transfer Supplement (each, a
"Purchasing Lender"), and PNC Bank, National Association ("PNC") as agent for
the Lenders (as defined below) under the Loan Agreement (as defined below).
W I T N E S S E T H:
WHEREAS, this Commitment Transfer Supplement is being executed and
delivered in accordance with Section 15.3 of the Revolving Credit and Security
Agreement dated as of ________________ (as from time to time amended,
supplemented or otherwise modified in accordance with the terms thereof, the
"Loan Agreement") among ________________________________________________________
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
(each a "Borrower" and jointly and severally, "Borrowers"), PNC and the various
other financial institutions (collectively, the "Lenders") and PNC as agent for
Lenders (in such capacity, "Agent") named in or which hereafter become a party
to the Loan Agreement;
WHEREAS, each Purchasing Lender wishes to become a Lender party to the
Loan Agreement; and
WHEREAS, the Transferor Lender is selling and assigning to each Purchasing
Lender, rights, obligations and commitments under the Loan Agreement;
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. All capitalized terms used herein which are not defined shall have the
meanings given to them in the Loan Agreement.
2. Upon receipt by the Agent of four counterparts of this Commitment
Transfer Supplement, to each of which is attached a fully completed Schedule I,
and each of which has been executed by the Transferor Lender, Purchasing Lender
and Agent, Agent will transmit to Transferor Lender and each Purchasing Lender a
Transfer Effective Notice, substantially in the form of Schedule II to this
Commitment Transfer Supplement (a "Transfer Effective Notice"). Such Transfer
Effective Notice shall set forth, inter alia, the date on which the transfer
effected by this Commitment Transfer Supplement shall become effective (the
"Transfer Effective Date"), which date shall not be earlier than the first
Business Day following the date such Transfer Effective Notice is received. From
and after the Transfer Effective Date, each Purchasing Lender shall be a Lender
party to the Loan Agreement for all purposes thereof.
-v-
3. At or before 12:00 Noon (New York City time) on the Transfer Effective
Date each Purchasing Lender shall pay to Transferor Lender, in immediately
available funds, an amount equal to the purchase price, as agreed between
Transferor Lender and such Purchasing Lender (the "Purchase Price"), of the
portion of the Advances being purchased by such Purchasing Lender (such
Purchasing Lender's "Purchased Percentage") of the outstanding Advances and
other amounts owing to the Transferor Lender under the Loan Agreement and the
Note. Effective upon receipt by Transferor Lender of the Purchase Price from a
Purchasing Lender, Transferor Lender hereby irrevocably sells assigns and
transfers to such Purchasing Lender, without recourse, representation or
warranty, and each Purchasing Lender hereby irrevocably purchases, takes and
assumes from Transferor Lender, such Purchasing Lender's Purchased Percentage of
the Advances and other amounts owing to the Transferor Lender under the Loan
Agreement and the Note together with all instruments, documents and collateral
security pertaining thereto.
4. Transferor Lender has made arrangements with each Purchasing Lender
with respect to (i) the portion, if any, to be paid, and the date or dates for
payment, by Transferor Lender to such Purchasing Lender of any fees heretofore
received by Transferor Lender pursuant to the Loan Agreement prior to the
Transfer Effective Date and (ii) the portion, if any, to be paid, and the date
or dates for payment, by such Purchasing Lender to Transferor Lender of fees or
interest received by such Purchasing Lender pursuant to the Loan Agreement from
and after the Transfer Effective Date.
5. (a) All principal payments that would otherwise be payable from and
after the Transfer Effective Date to or for the account of Transferor Lender
pursuant to the Loan Agreement and the Note shall, instead, be payable to or for
the account of Transferor Lender and Purchasing Lender, as the case may be, in
accordance with their respective interests as reflected in this Commitment
Transfer Supplement.
(b) All interest, fees and other amounts that would otherwise accrue
for the account of Transferor Lender from and after the Transfer Effective Date
pursuant to the Loan Agreement and the Note shall, instead, accrue for the
account of, and be payable to, Transferor Lender and Purchasing Lender, as the
case may be, in accordance with their respective interests as reflected in this
Commitment Transfer Supplement. In the event that any amount of interest, fees
or other amounts accruing prior to the Transfer Effective Date was included in
the Purchase Price paid by any Purchasing Lender, Transferor Lender and each
Purchasing Lender will make appropriate arrangements for payment by Transferor
Lender to such Purchasing Lender of such amount upon receipt thereof from
Borrower.
6. Concurrently with the execution and delivery hereof, Transferor Lender
will provide to each Purchasing Lender conformed copies of the Loan Agreement
and all related documents delivered to Transferor Lender.
7. Each of the parties to this Commitment Transfer Supplement agrees that
at any time and from time to time upon the written request of any other party,
it will execute and deliver such further documents and do such further acts and
things as such other party may reasonably request in order to effect the
purposes of this Commitment Transfer Supplement.
-vi-
8. By executing and delivering this Commitment Transfer Supplement,
Transferor Lender and each Purchasing Lender confirm to and agree with each
other and Agent and Lenders as follows: (i) other than the representation and
warranty that it is the legal and beneficial owner of the interest being
assigned hereby free and clear of any adverse claim, Transferor Lender makes no
representation or warranty and assumes no responsibility with respect to any
statements, warranties or representations made in or in connection with the Loan
Agreement or the execution, legality, validity, enforceability, genuineness,
sufficiency or value of the Loan Agreement, the Note or any other instrument or
document furnished pursuant thereto; (ii) Transferor Lender makes no
representation or warranty and assumes no responsibility with respect to the
financial condition of Borrowers or the performance or observance Borrowers of
any of their Obligations under the Loan Agreement, the note or any other
instrument or document furnished pursuant hereto; (iii) each Purchasing Lender
confirms that it has received a copy of the Loan Agreement, together with copies
of such financial statements and such other documents and information as it has
deemed appropriate to make its own credit analysis and decision to enter into
this Commitment Transfer Supplement; (iv) each Purchasing Lender will,
independently and without reliance upon Agent, Transferor Lender or any other
Lenders and based on such documents and information as it shall deem appropriate
at the time, continue to make its own credit decisions in taking or not taking
action under the Loan Agreement; (v) each Purchasing Lender appoints and
authorizes Agent to take such action as agent on its behalf and to exercise such
powers under the Loan Agreement as are delegated to the Agent by the terms
thereof; (vi) each Purchasing Lender agrees that it will perform all of its
respective obligations as set forth in the Loan Agreement to be performed by
each as a Lender; and (vii) each Purchasing Lender represents and warrants to
Transferor Lender, Lenders, Agent and Borrower that it is either (x) entitled to
the benefits of an income tax treaty with the United States of America that
provides for an exemption from the United States withholding tax on interest and
other payments made by Borrowers under the Loan Agreement and the Other
Documents or (y) is engaged in trade or business within the United States of
America.
9. Schedule I hereto sets forth the revised Commitment Percentages of
Transferor Lender and the Commitment Percentage of each Purchasing Lender as
well as administrative information with respect to each Purchasing Lender.
10. This Commitment Transfer Supplement shall be governed by, and
construed in accordance with, the laws of the State of _________________.
-vii-
IN WITNESS WHEREOF, the parties hereto have caused this Commitment
Transfer Supplement to be executed by their respective duly authorized officers
on the date set forth above.
as Transferor Lender
By:
---------------------------------------------
Name:
-------------------------------------------
Title:
------------------------------------------
as a Purchasing Lender
By:
---------------------------------------------
Name:
-------------------------------------------
Title:
------------------------------------------
PNC BANK, NATIONAL ASSOCIATION
as Agent
By:
---------------------------------------------
Name:
-------------------------------------------
Title:
------------------------------------------
-viii-
Schedule 1.2
Permitted Encumbrances
1. The security interests in favor of St. Cloud Capital Partners L.P.
("St. Cloud") securing Holdings' obligation to pay the promissory note dated
September __, 2004 by Holdings, in favor of St. Cloud, in the original principal
amount of $2,000,000, provided that St. Cloud has signed a subordination
agreement in favor of Agent, in form and substance acceptable to Agent, which
among other things, subordinates said security interest in favor of the liens
and security interests in favor of Agent and in which St. Cloud agrees not to
take any action to enforce such security interest or any other remedies with
respect to Borrower so long as any Obligations remain outstanding, but only so
long as said subordination agreement is in full force and effect and St. Cloud
is not in breach thereof.
2. The security interests in favor of Xxxxxx Hedgecap Ltd. and/or Xxxxxx
Investment Management ("Xxxxxx"), as the case may be, securing Holdings'
obligation to pay the promissory note dated September 17, 2004, by Holdings, in
favor of Xxxxxx, in the original principal amount of $1,200,000, provided that
Xxxxxx has signed a subordination agreement in favor of Agent, in form and
substance acceptable to Agent, which among other things, subordinates said
security interest in favor of the liens and security interests in favor of Agent
and in which Xxxxxx agrees not to take any action to enforce such security
interest or any other remedies with respect to Borrower so long as any
Obligations remain outstanding, but only so long as said subordination agreement
is in full force and effect and Xxxxxx is not in breach thereof.
-ix-
Schedule 4.5
Equipment and Inventory Locations; Real Property
I. Borrower's Equipment and Inventory locations: None, except:
1. 0000 Xxxxxxxxxx Xxxxxxx, Xxxxxx Xxxx, Xxxxxxxxxx 00000
2. 0000 Xxxxx Xxxx Xxxxxx, Xxxxxx, Xxxxxxxxxx 00000
II. Legal names and addresses of each warehouse at which Inventory of Borrower
is stored: None, except Borrower's leased warehouse at 0000 Xxxxx Xxxx
Xxxxxx, Xxxxxx, Xxxxxxxxxx 00000.
III. The places of business and chief executive office of Borrower are listed
in "I" above and, in addition, Borrower has a sales office at 0000
Xxxxxxxx, Xxx Xxxx, Xxx Xxxx at which only samples of Inventory are kept,
none of which Borrower shall schedule to Agent as Eligible Inventory.
IV. All of the Real Property owned or leased by Borrower (together with the
name and address of the landlord, if leased) is as follows:
Address Landlord, if leased
------- -------------------
1. 0000 Xxxxxxxxxx Xxxxxxx Buckingham Heights Business Park, a
Xxxxxx Xxxx, XX 00000 California Limited Partnership,
0000 Xxxx Xxxxxxx Xxxxxx, Xxxxx 000,
Xxxxxx Xxxx, Xxxxxxxxxx 00000
2. 0000 Xxxxx Xxxx Xxxxxx Xxxxxxx Development Co.& Patrician
Xxxxxx, XX 00000 Assoc. Inc., 000 Xxxx 000xx Xx. #000,
Xxxxxxxx, Xxxxxxxxxx 00000
3. 0000 Xxxxxxxx 000 Xxxxx Xxxxxx Assoc. LLC, 200 5th
New York, Xxx Xxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000
-x-
Schedule 4.15(h)
Deposit and Investment Accounts
I. Deposit accounts (including, without limitation checking accounts and
accounts that may be designated as certificates of deposit) of Borrower:
1. Regular account no. 00032194664 at Manufacturers Bank, 000 X.
Xxxxxxxx Xx., Xxx Xxxxxxx, XX.
2. Payroll account no. 0003194744 at Manufacturers Bank, 000 X.
Xxxxxxxx Xx., Xxx Xxxxxxx, XX.
II. Investment accounts of Borrower: None.
-xi-
Schedule 5.1
Required Consents
None.
-xii-
Schedule 5.2(a)
States of Qualification and Good Standing
I. State of incorporation: California
II. States in which qualified to do business: California
Schedule 5.4
Federal Tax Identification Number
Federal Tax Identification No. for Borrower: 00-0000000.
-xiiv-
Schedule 5.6
Prior Names
I. Prior corporate names: None
II. Other names under which Inventory is sold: None
III. Mergers or acquisitions: Borrower acquired certain assets from Neurosmith,
LLC pursuant to an Asset Purchase Agreement dated September 7, 2004, a
copy of which has been provided to Agent.
-xv-
Schedule 5.8(b)
Litigation; Indebtedness
I. Litigation:
1. Xxxxxx Xxxxxxx has sued Borrower in the Superior Court of the State of
California, County of Los Angeles, Case No. BC322822, claiming Borrower is
liable to Xxxxxxx for $180,000 plus interest.
2. Borrower received a letter dated October 4, 2004 from attorneys for the
Public Broadcasting System ("PBS"), asserting a claim by PBS that Borrower
breached a letter of intent. The Borrower believes that the claim is without
merit.
II. The following are the Borrower's liabilities and indebtedness for borrowed
money:
1. $2,941,000 owed to Small World Kids, Inc.
-xvi-
Schedule 5.8(d)
Plans
None, except: 401(k) plan available to all employees.
-xvii-
Schedule 5.9
Intellectual Property, Source Code Escrow Agreements
I. As listed in the Intellectual Property Supplement to Revolving Credit and
Security Agreement, of substantially even date, by Borrower, in favor of
Agent.
II. Objections, challenges, or grounds therefor: None.
III. Source Code Escrow Agreements: None.
-xviii-
Schedule 5.27
Licensed Inventory Arrangements
None, except:
1. Borrower purchases Tolo Toys Ltd. products pursuant to an
arrangement entitled "Exclusive Distribution Agreement", but under
the arrangement Borrower purchases the product from Tolo Toys Ltd.
with no right to return the product if Borrower fails to resell it.
2. Borrower is the licensee under the Tinkers & Chance License
Agreement.
-xix-
Schedule 7.3
Guarantees
I. None, except that Borrower intends to provide a security interest in its
assets in favor of St. Cloud Capital Partners L.P. and Xxxxxx Hedgecap
Ltd. and/or Xxxxxx Investment Management as described in "Permitted
Encumbrances".
-xx-
TABLE OF CONTENTS
-----------------
-xxi-
