Loan and Security Agreement
by and between
CONGRESS FINANCIAL CORPORATION
as Lender
and
XXX XXXXXX LTD.
as Borrower
Dated: August 13, 1996
TABLE OF CONTENTS
Page
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SECTION ..........................................................................................................5
SECTION 2. CREDIT FACILITIES...................................................................................10
2.1 Revolving Loans...........................................................................10
2.2 Letter of Credit Accommodations...........................................................11
2.3 Availability Reserves.....................................................................12
SECTION 3. INTEREST AND FEES...................................................................................13
3.1 Interest..................................................................................13
3.2 Closing Fee...............................................................................13
3.3 Servicing Fee.............................................................................13
SECTION 4. CONDITIONS PRECEDENT.................................................................................14
4.1 Conditions Precedent to Initial Loans and Letter of Credit Accommodations.................14
4.2 Conditions Precedent to All Loans and Letter of Credit Accommodations.....................16
SECTION 5. GRANT OF SECURITY INTEREST..........................................................................16
5.1 Grant....................................................................................16
SECTION 6. COLLECTION AND ADMINISTRATION.......................................................................17
6.1 Borrower's Loan Account...................................................................17
6.2 Statements................................................................................17
6.3 Collection of Accounts....................................................................18
6.4 Payments..................................................................................19
6.5 Authorization to Make Loans...............................................................19
6.6 Use of Proceeds...........................................................................19
SECTION 7. COLLATERAL REPORTING AND COVENANTS..................................................................20
7.1 Collateral Reporting......................................................................20
7.2 Accounts Covenants........................................................................20
7.3 Inventory Covenants.......................................................................22
7.4 Equipment Covenants.......................................................................22
7.5 Power of Attorney.........................................................................23
7.6 Right to Cure.............................................................................23
7.7 Access to Premises........................................................................24
SECTION 8. REPRESENTATIONS AND WARRANTIES......................................................................24
8.1 Corporate Existence, Power and Authority; Subsidiaries....................................24
8.2 Financial Statements; No Material Adverse Change..........................................24
8.3 Chief Executive Office; Collateral Locations..............................................25
8.4 Priority of Liens; Title to Properties....................................................25
8.5 Tax Returns...............................................................................25
8.6 Litigation................................................................................25
8.7 Compliance with Other Agreements and Applicable Laws......................................26
8.8 ERISA.....................................................................................26
8.9 Capitalization............................................................................26
8.10 Accuracy and Completeness of Information.................................................26
8.11 Survival of Warranties; Cumulative.......................................................26
SECTION 9. AFFIRMATIVE AND NEGATIVE COVENANTS..................................................................26
9.1 Maintenance of Existence..................................................................26
9.2 New Collateral Locations..................................................................27
9.3 Compliance with Laws, Regulations, Etc....................................................27
9.4 Payment of Taxes and Claims...............................................................27
9.5 Insurance.................................................................................27
9.6 Financial Statements and Other Information................................................28
9.7 Sale of Assets, Consolidation, Merger, Dissolution, Etc...................................29
9.8 Encumbrances..............................................................................29
9.9 Indebtedness..............................................................................29
9.10 Loans, Investments, Guarantees, Etc......................................................30
9.11 Dividends and Redemptions................................................................31
9.12 Transactions with Affiliates.............................................................32
9.13 Working Capital..........................................................................32
9.14 Adjusted Net Worth.......................................................................32
9.15 ERISA....................................................................................32
9.16 Costs and Expenses.......................................................................32
9.17 Further Assurances.......................................................................32
SECTION 10. EVENTS OF DEFAULT AND REMEDIES.....................................................................33
10.1 Events of Default........................................................................33
10.2 Remedies.................................................................................34
SECTION 11. JURY TRIAL WAIVER; OTHER WAIVERS ..................................................................36
11.1 Governing Law; Choice of Forum; Service of Process; Jury Trial Waiver....................36
11.2 Waiver of Notices........................................................................37
11.3 Amendments and Waivers...................................................................37
11.4 Waiver of Counterclaims..................................................................37
11.5 Indemnification..........................................................................37
11.6 Confidentiality of Mailing Lists ........................................................38
SECTION 12. TERM OF AGREEMENT; MISCELLANEOUS....................................................................38
12.1 Term.....................................................................................38
12.2 Notices..................................................................................39
12.3 Partial Invalidity.......................................................................39
12.4 Successors...............................................................................39
12.5 Entire Agreement.........................................................................40
INDEX TO
EXHIBITS AND SCHEDULES
Exhibit A Information Certificate
Schedule 8.4 Existing Liens
LOAN AND SECURITY AGREEMENT
This Loan and Security Agreement dated August 13, 1996 is entered into by
and between Congress Financial Corporation, a California corporation (ALender")
and Xxx Xxxxxx Ltd., a New York corporation (ABorrower").
W I T N E S S E T H:
WHEREAS, Borrower has requested that Lender enter into certain financing
arrangements with Borrower pursuant to which Lender may make loans and provide
other financial accommodations to Borrower; and
WHEREAS, Lender is willing to make such loans and provide such financial
accommodations on the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the mutual conditions and
agreements set forth herein, and for other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties hereto
agree as follows:
SECTION
1. DEFINITIONS
All terms used herein which are defined in Article 1 or Article 9 of the
Uniform Commercial Code shall have the meanings given therein unless otherwise
defined in this Agreement. All references to the plural herein shall also mean
the singular and to the singular shall also mean the plural. All references to
Borrower and Lender pursuant to the definitions set forth in the recitals
hereto, or to any other person herein, shall include their respective successors
and assigns. The words "hereof", "herein", "hereunder", "this Agreement" and
words of similar import when used in this Agreement shall refer to this
Agreement as a whole and not any particular provision of this Agreement and as
this Agreement now exists or may hereafter be amended, modified, supplemented,
extended, renewed, restated or replaced. An Event of Default shall exist or
continue or be continuing until such Event of Default is waived in accordance
with Section 11.3. Any accounting term used herein unless otherwise defined in
this Agreement shall have the meanings customarily given to such term in
accordance with GAAP. For purposes of this Agreement, the following terms shall
have the respective meanings given to them below:
1.1 "Accounts" shall mean all present and future rights of Borrower to
payment for goods sold or leased or for services rendered, which are not
evidenced by instruments or chattel paper, and whether or not earned by
performance, and including, without limitation, all amounts payable by any
charge or credit card issuer or charge or credit card sale processor in respect
of charge or credit card sales.
1.2 "Adjusted Net Income" shall mean, for any fiscal year, the amount equal
to: (a) Borrower's net income or loss after provision for taxes for such fiscal
year, minus, (b) to the extent included in
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calculating such net income or loss: (i) all gains arising from the sale of
capital assets; (ii) gain arising from any write-up in book value of an asset;
(iii) income or gain of any person acquired by Borrower in any manner to the
extent realized in any period prior to the date of acquisition; (iv) income or
gain of any person in which Borrower has an ownership interest (other than a
wholly owned subsidiary) except and only to the extent that Borrower has
actually received such income or gain in the form of cash distributions; (v)
gain from the cancellation or forgiveness of indebtedness; (vi) gain arising
from the initial implementation of a change in GAAP; and (vii) gain from
extraordinary items or any other nonrecurring transaction.
1.3 "Adjusted Net Worth" shall mean as to any Person, at any time, in
accordance with GAAP (except as otherwise specifically set forth below), on a
consolidated basis for such Person and its subsidiaries (if any), the amount
equal to: (a) the difference between: (i) the aggregate net book value of all
assets of such Person and its subsidiaries, calculating the book value of
inventory for this purpose on a first-in-first-out basis, after deducting from
such book values all appropriate reserves in accordance with GAAP (including all
reserves for doubtful receivables, obsolescence, depreciation and amortization)
and (ii) the aggregate amount of the indebtedness and other liabilities of such
Person and its subsidiaries (including tax and other proper accruals) plus (b)
indebtedness of such Person and its subsidiaries which is subordinated in right
of payment to the full and final payment of all of the Obligations on terms and
conditions acceptable to Lender.
1.4 "Availability Reserves" shall mean, as of any date of determination,
such amounts as Lender may from time to time establish and revise in good faith
and in a commercially reasonable manner reducing the amount of Revolving Loans
and Letter of Credit Accommodations which would otherwise be available to
Borrower under the lending formula(s) provided for herein: (a) to reflect
events, conditions, contingencies or risks which, as determined by Lender in
good faith, do or can reasonably be expected to affect either (i) the Collateral
or any other property which is security for the Obligations or its value, (ii)
the assets, business or prospects of Borrower or (iii) the security interests
and other rights of Lender in the Collateral (including the enforceability,
perfection and priority thereof) or (b) to reflect Lender's good faith belief
that any collateral report or financial information furnished by or on behalf of
Borrower or any Obligor to Lender is or may have been incomplete, inaccurate or
misleading in any material respect or (c) in respect of any state of facts which
Lender determines in good faith constitutes an Event of Default or can
reasonably be expected to, with notice or passage of time or both, constitute an
Event of Default.
1.5 "Blocked Accounts" shall have the meaning set forth in Section 6.3
hereof.
1.6 "Collateral" shall have the meaning set forth in Section 5 hereof.
1.7 "Cost" shall mean, as to any Inventory, the cost thereof on a first-in,
first-out basis as would be reflected on a balance sheet of Borrower prepared in
accordance with GAAP.
1.8 "Eligible Inventory" shall mean Inventory consisting of finished goods
held or acquired for resale in the ordinary course of the business of Borrower
(including, without limitation, finished goods purchased under a Letter of
Credit Accommodation provided by Lender and for which Lender has received all
necessary bills of lading and other documents evidencing title relating thereto,
and as to
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which the draft under the letter of credit has been paid) all of which are
acceptable to Lender based on the criteria set forth below. In general, Eligible
Inventory shall not include (a) raw materials or work-in-process; (b) components
which are not part of finished goods; (c) spare parts for equipment; (d)
packaging and shipping materials; (e) supplies used or consumed in Borrower's
business; (f) Inventory at premises other than those owned or leased and
controlled by Borrower, except if Lender shall have received an agreement in
writing from the person in possession of such Inventory and/or the owner or
operator of such premises in form and substance satisfactory to Lender
acknowledging Lender's first priority security interest in the Inventory,
waiving security interests and claims by such person against the Inventory and
permitting Lender access to, and the right to remain on, the premises so as to
exercise Lender's rights and remedies and otherwise deal with the Collateral;
(g) Inventory subject to a security interest or lien in favor of any person
other than Lender except those permitted in this Agreement; (h) xxxx and hold
goods; (i) unserviceable, obsolete or slow moving Inventory; (j) Inventory which
is not subject to the first priority, valid and perfected security interest of
Lender; (k) damaged and/or defective Inventory; and (l) Inventory purchased or
sold on consignment. General criteria for Eligible Inventory may be established
and revised from time to time by Lender in good faith. Any Inventory which is
not Eligible Inventory shall nevertheless be part of the Collateral.
1.9 "Equipment" shall mean all of Borrower's now owned and hereafter
acquired equipment, machinery, computers and computer hardware and software
(whether owned or licensed), vehicles, tools, furniture, fixtures, all
attachments, accessions and property now or hereafter affixed thereto or used in
connection therewith, and substitutions and replacements thereof, wherever
located.
1.10 "Excess Availability" shall mean the amount, as determined by Lender,
calculated at any time, equal to: (a) the lesser of (i) the amount of the
Revolving Loans available to Borrower as of such time based on the applicable
lending formulas set forth in or established pursuant to Section 2.1, as
determined by Lender, and subject to the sublimits and Availability Reserves
from time to time established by Lender hereunder and (ii) the Maximum Credit,
minus (b) the sum of: (i) the amount of all then outstanding and unpaid
Obligations, plus (ii) the aggregate amount of all trade payables of Borrower
which are more than sixty (60) days past due at such time.
1.11 "Excess Cash Flow" shall mean, for any fiscal year, the amount, as
determined from the audited financial statements of Borrower for such fiscal
year delivered pursuant to and meeting the requirements of Section 9.6(a), equal
to: (a) Adjusted Net Income for such fiscal year; plus (b) the depreciation and
amortization expense deducted in determining such Adjusted Net Income; minus, to
the extent not already deducted in calculating Adjusted Net Income, (c)(1) all
capital expenditures paid during such fiscal year, excluding capital
expenditures financed with the proceeds of indebtedness for borrowed money other
than the Loans hereunder, (2) all payments of principal in respect of
indebtedness for borrowed money (other than the Loans) made or required to be
made during such fiscal year, including, without limitation, all payments of the
principal portion of rentals under capitalized leases made or required to be
made during such fiscal year, and (3) all dividends and other distributions paid
to Borrower's stockholders during such fiscal year in respect of, or redemption
of, Borrower's capital stock (provided, that the inclusion of such payments in
determining Excess Cash Flow shall not be construed to permit any such payment
except in accordance with the other terms and conditions of the Financing
Agreements).
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1.12 "Event of Default" shall mean the occurrence or existence of any event
or condition described in Section 10.1 hereof.
1.13 "Financing Agreements" shall mean, collectively, this Agreement and
all notes, guarantees, security agreements and other agreements, documents and
instruments now or at any time hereafter executed and/or delivered by Borrower
or any Obligor in connection with this Agreement, as the same now exist or may
hereafter be amended, modified, supplemented, extended, renewed, restated or
replaced.
1.14 "GAAP" shall mean generally accepted accounting principles in the
United States of America as in effect from time to time as set forth in the
opinions and pronouncements of the Accounting Principles Board and the American
Institute of Certified Public Accountants and the statements and pronouncements
of the Financial Accounting Standards Boards which are applicable to the
circumstances as of the date of determination consistently applied, except that,
for purposes of Sections 9.13 and 9.14 hereof, GAAP shall be determined on the
basis of such principles in effect on the date hereof and consistent with those
used in the preparation of the audited financial statements delivered to Lender
prior to the date hereof.
1.15 "Information Certificate" shall mean the Information Certificate of
Borrower constituting Exhibit A hereto containing material information with
respect to Borrower, its business and assets provided by or on behalf of
Borrower to Lender in connection with the preparation of this Agreement and the
other Financing Agreements and the financing arrangements provided for herein.
1.16 "Inventory" shall mean all of Borrower's now owned and hereafter
existing or acquired raw materials, work in process, finished goods and all
other inventory of whatsoever kind or nature, wherever located.
1.17 "Letter of Credit Accommodations" shall mean the letters of credit,
merchandise purchase or other guaranties which are from time to time either (a)
issued or opened by Lender for the account of Borrower or (b) with respect to
which Lender has agreed to indemnify the issuer or guaranteed to the issuer the
performance by Borrower of its obligations to such issuer.
1.18 "Loans" shall mean the Revolving Loans.
1.19 "Magram Guarantee" shall mean the Limited Guarantee of the Obligations
dated the date hereof made by Xxxxxx Xxxxxx in favor of Lender.
1.20 "Maximum Credit" shall mean the amount of Five Million Dollars
($5,000,000).
1.21 "Net Recovery Cost Percentage" shall mean the fraction, expressed as a
percentage, (a) the numerator of which is the amount equal to the recovery on
the aggregate amount of the Inventory on an orderly liquidation value basis as
set forth in the most recent acceptable appraisal of Inventory received by
Lender in accordance with Section 7.3, net of operating expenses, liquidation
expenses, and commissions and (b) the denominator of which is the original Cost
of the aggregate amount of the Inventory subject to such appraisal.
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1.22 "Obligations" shall mean any and all Revolving Loans, Letter of Credit
Accommodations and all other obligations, liabilities and indebtedness of every
kind, nature and description owing by Borrower to Lender and/or its affiliates,
including principal, interest, charges, fees, costs and expenses, however
evidenced, whether as principal, surety, endorser, guarantor or otherwise,
arising under this Agreement or under any other agreement between Borrower and
Lender (other than those which have been acquired by Lender or an Affiliate of
Lender), whether now existing or hereafter arising, whether arising before,
during or after the initial or any renewal term of this Agreement or after the
commencement of any case with respect to Borrower under the United States
Bankruptcy Code or any similar statute (including, without limitation, the
payment of interest and other amounts which would accrue and become due but for
the commencement of such case), whether direct or indirect, absolute or
contingent, joint or several, due or not due, primary or secondary, liquidated
or unliquidated, secured or unsecured, and however acquired by Lender.
1.23 "Obligor" shall mean any guarantor (including, without limitation,
Xxxxxx Xxxxxx), endorser, acceptor, surety or other person liable on or with
respect to the Obligations or who is the owner of any property which is security
for the Obligations, other than Borrower.
1.24 "Payment Account" shall have the meaning set forth in Section 6.3
hereof.
1.25 "Person" or "person" shall mean any individual, sole proprietorship,
partnership, corporation (including, without limitation, any corporation which
elects subchapter S status under the Internal Revenue Code of 1986, as amended),
limited liability company business trust, unincorporated association, joint
stock corporation, trust, joint venture or other entity or any government or any
agency or instrumentality or political subdivision thereof.
1.26 "Prime Rate" shall mean the rate from time to time publicly announced
by CoreStates Bank, N.A., or its successors, at its office in Philadelphia,
Pennsylvania, as its prime rate, whether or not such announced rate is the best
rate available at such bank.
1.27 "Records" shall mean all of Borrower's present and future books of
account of every kind or nature, purchase and sale agreements, invoices, ledger
cards, bills of lading and other shipping evidence, statements, correspondence,
memoranda, credit files and other data relating to the Collateral or any account
debtor, together with the tapes, disks, diskettes and other data and software
storage media and devices, file cabinets or containers in or on which the
foregoing are stored (including any rights of Borrower with respect to the
foregoing maintained with or by any other person).
1.28 "Revolving Loans" shall mean the loans now or hereafter made by Lender
to or for the benefit of Borrower on a revolving basis (involving advances,
repayments and readvances) as set forth in Section 2.1 hereof.
1.29 "Twelve Month Average Utilization" shall mean the average daily
outstanding principal balance of Revolving Loans for the twelve calendar-month
period ended on or immediately preceding the early termination date of this
Agreement (or the period from the date hereof through the end of the most
recently ended calendar month preceding such termination date if termination
occurs within twelve months after the date hereof).
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1.30 "Value" shall mean, as determined by Lender in good faith, with
respect to Inventory, the lower of (a) cost computed on a first-in-first-out
basis in accordance with GAAP or (b) market value.
1.31 "Working Capital" shall mean as to any Person, at any time, in
accordance with GAAP, on a consolidated basis for such Person and its
subsidiaries (if any), the amount equal to the difference between: (a) the
aggregate net book value of all current assets of such Person and its
subsidiaries (as determined in accordance with GAAP), calculating the book value
of inventory for this purpose on a first-in-first-out basis, and (b) all current
liabilities of such Person and its subsidiaries (as determined in accordance
with GAAP), provided, that, as to Borrower, for purposes of Section 9.13, the
liabilities of Borrower and its subsidiaries to Lender under this Agreement
shall not be considered current liabilities (whether or not classified as
current liabilities in accordance with GAAP).
SECTION 2. CREDIT FACILITIES
2.1 Revolving Loans.
(a) Subject to, and upon the terms and conditions contained herein, Lender
agrees to make Revolving Loans to Borrower from time to time in amounts
requested by Borrower up to the amount equal to the sum of:
(i) the lesser of: (A) the amount equal to the lesser of: (1) fifty
percent (50%) of the Value of Eligible Inventory; or (2) eighty percent
(80%) of the Net Recovery Cost Percentage, multiplied by the Cost of
Eligible Inventory; or (B) $5,000,000; minus
(ii) any Availability Reserves.
(b) Lender may, in its discretion, from time to time, upon not less than
ten (10) days prior notice to Borrower, reduce the lending formula(s) with
respect to Eligible Inventory to the extent that Lender determines in good faith
that: (i) the number of days of the turnover of the Inventory for any period,
when compared to the turnover rate for the same period of the immediately
preceding year or the forecasted turnover rate for such period, has changed in
any material respect or (ii) the liquidation value of the Eligible Inventory, or
any category thereof, has decreased, or (iii) the nature and quality of the
Inventory has deteriorated. In determining whether to reduce the lending
formula(s), Lender may consider events, conditions, contingencies or risks which
are also considered in determining Eligible Inventory or in establishing
Availability Reserves.
(c) Except in Lender's discretion, the aggregate amount of the Loans and
the Letter of Credit Accommodations outstanding at any time shall not exceed the
Maximum Credit. In the event that the outstanding amount of any component of the
Loans, or the aggregate amount of the outstanding Loans and Letter of Credit
Accommodations, exceed the amounts available under the lending formulas, the
sublimits for Letter of Credit Accommodations set forth in Section 2.2(c) or the
Maximum Credit, as applicable, such event shall not limit, waive or otherwise
affect any rights of Lender in that circumstance or on any future occasions and
Borrower shall, upon demand by Lender, which may be made at any time
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or from time to time, immediately repay to Lender the entire amount of any such
excess(es) for which payment is demanded.
2.2 Letter of Credit Accommodations.
(a) Subject to, and upon the terms and conditions contained herein, at the
request of Borrower, Lender agrees to provide or arrange for Letter of Credit
Accommodations for the account of Borrower containing terms and conditions
acceptable to Lender and the issuer thereof. Any payments made by Lender to any
issuer thereof and/or related parties in connection with the Letter of Credit
Accommodations shall constitute additional Revolving Loans to Borrower pursuant
to this Section 2.
(b) In addition to any charges, fees or expenses charged by any bank or
issuer in connection with the Letter of Credit Accommodations, Borrower shall
pay to Lender a letter of credit fee at a rate equal to two (2%) percent per
annum on the daily outstanding balance of the Letter of Credit Accommodations
for the immediately preceding month (or part thereof), payable in arrears as of
the first day of each succeeding month. Such letter of credit fee shall be
calculated on the basis of a three hundred sixty (360) day year and actual days
elapsed and the obligation of Borrower to pay such fee shall survive the
termination or non-renewal of this Agreement.
(c) No Letter of Credit Accommodations shall be available unless on the
date of the proposed issuance of any Letter of Credit Accommodations, the
Revolving Loans available to Borrower (subject to the Maximum Credit and any
Availability Reserves) are equal to or greater than: (i) if the proposed Letter
of Credit Accommodation is for the purpose of purchasing Eligible Inventory, the
sum of (A) fifty (50%) percent of the cost of such Eligible Inventory, plus (B)
freight, taxes, duty and other amounts which Lender estimates must be paid in
connection with such Inventory upon arrival and for delivery to one of
Borrower's locations for Eligible Inventory within the United States of America
and (ii) if the proposed Letter of Credit Accommodation is for any other
purpose, an amount equal to one hundred (100%) percent of the face amount
thereof and all other commitments and obligations made or incurred by Lender
with respect thereto. Effective on the issuance of each Letter of Credit
Accommodation, the amount of Revolving Loans which might otherwise be available
to Borrower shall be reduced by the applicable amount set forth in Section
2.2(c)(i) or Section 2.2(c)(ii).
(d) Except in Lender's discretion, the amount of all outstanding Letter of
Credit Accommodations and all other commitments and obligations made or incurred
by Lender in connection therewith, shall not at any time exceed $1,000,000. At
any time an Event of Default exists or has occurred and is continuing, upon
Lender's request, Borrower will either furnish cash collateral to secure the
reimbursement obligations to the issuer in connection with any Letter of Credit
Accommodations or furnish cash collateral to Lender for the Letter of Credit
Accommodations, and in either case, the Revolving Loans otherwise available to
Borrower shall not be reduced as provided in Section 2.2(c) to the extent of
such cash collateral.
(e) Borrower shall indemnify and hold Lender harmless from and against any
and all losses, claims, damages, liabilities, costs and expenses which Lender
may suffer or incur in connection with any Letter of Credit Accommodations and
any documents, drafts or acceptances relating thereto, including, but not
limited to, any losses, claims, damages, liabilities, costs and expenses due to
any action
11
taken by any issuer or correspondent with respect to any Letter of Credit
Accommodation; provided, however, that Lender shall not be so indemnified or
held harmless from Lender's gross negligence or wilful misconduct (as determined
by a final nonappealable judgment of a court of competent jurisdiction).
Borrower assumes all risks with respect to the acts or omissions of the drawer
under or beneficiary of any Letter of Credit Accommodation and for such purposes
the drawer or beneficiary shall be deemed Borrower's agent. Borrower assumes all
risks for, and agrees to pay, all foreign, Federal, State and local taxes,
duties and levies relating to any goods subject to any Letter of Credit
Accommodations or any documents, drafts or acceptances thereunder. Borrower
hereby releases and holds Lender harmless from and against any acts, waivers,
errors, delays or omissions, whether caused by Borrower, by any issuer or
correspondent or otherwise with respect to or relating to any Letter of Credit
Accommodation; provided, however, that Lender shall not be so released or held
harmless with respect to Lender's gross negligence or wilful misconduct (as
determined by a final nonappealable judgment of a court of competent
jurisdiction). The provisions of this Section 2.2(e) shall survive the payment
of Obligations and the termination or non-renewal of this Agreement. For the
purposes of this Section, the negligence, misconduct, or bad faith of an issuer
or correspondent shall not be imputed to Lender.
(f) Nothing contained herein shall be deemed or construed to grant Borrower
any right or authority to pledge the credit of Lender in any manner. Lender
shall have no liability of any kind with respect to any Letter of Credit
Accommodation provided by an issuer other than Lender unless Lender has duly
executed and delivered to such issuer the application or a guarantee or
indemnification in writing with respect to such Letter of Credit Accommodation.
Borrower shall be bound by any interpretation made in good faith by Lender, or
any other issuer or correspondent under or in connection with any Letter of
Credit Accommodation or any documents, drafts or acceptances thereunder,
notwithstanding that such interpretation may be inconsistent with any
instructions of Borrower. Lender shall have the sole and exclusive right and
authority to, and Borrower shall not: (i) at any time an Event of Default exists
or has occurred and is continuing, (A) approve or resolve any questions of
non-compliance of documents, (B) give any instructions as to acceptance or
rejection of any documents or goods or (C) execute any and all applications for
steamship or airway guaranties, indemnities or delivery orders, and (ii) at all
times, (A) grant any extensions of the maturity of, time of payment for, or time
of presentation of, any drafts, acceptances, or documents, and (B) agree to any
amendments, renewals, extensions, modifications, changes or cancellations of any
of the terms or conditions of any of the applications, Letter of Credit
Accommodations, or documents, drafts or acceptances thereunder or any letters of
credit included in the Collateral. Lender may take such actions either in its
own name or in Borrower's name.
(g) Any rights, remedies, duties or obligations granted or undertaken by
Borrower to any issuer or correspondent in any application for any Letter of
Credit Accommodation, or any other agreement in favor of any issuer or
correspondent relating to any Letter of Credit Accommodation, shall be deemed to
have been granted or undertaken by Borrower to Lender. Any duties or obligations
undertaken by Lender to any issuer or correspondent in any application for any
Letter of Credit Accommodation, or any other agreement by Lender in favor of any
issuer or correspondent relating to any Letter of Credit Accommodation, shall be
deemed to have been undertaken by Borrower to Lender and to apply in all
respects to Borrower.
2.3 Availability Reserves. All Revolving Loans otherwise available to
Borrower pursuant to the lending formulas and subject to the Maximum Credit and
other applicable limits hereunder shall be subject to Lender's continuing right
to establish and revise Availability Reserves.
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SECTION 3. INTEREST AND FEES
3.1 Interest.
(a) Borrower shall pay to Lender interest on the outstanding principal
amount of the non-contingent Obligations at the rate of one and one-half
(1-1/2%) percent per annum in excess of the Prime Rate, except that Borrower
shall pay to Lender interest, at Lender's option, without notice, at the rate of
three and one-half (3-1/2%) percent per annum in excess of the Prime Rate: (i)
on the non-contingent Obligations for the period from and after the date of
termination or non-renewal hereof, or the date of the occurrence of an Event of
Default, and for so long as such Event of Default is continuing as determined by
Lender and until such time as Lender has received full and final payment of all
such Obligations (notwithstanding entry of any judgment against Borrower) and
(ii) on the Revolving Loans at any time outstanding in excess of the amounts
available to Borrower under Section 2 (whether or not such excess(es), arise or
are made with or without Lender's knowledge or consent and whether made before
or after an Event of Default). Notwithstanding anything in the foregoing to the
contrary, if, for any month, the average daily unpaid principal balance of the
Revolving Loans does not equal at least $2,000,000, then, in addition to the
interest accruing as provided above, Borrower shall pay Lender interest
(AAdditional Interest") at a rate per annum equal to the rate determined as
provided above on the amount by which $2,000,000 exceeded the average daily
unpaid principal balance of the Revolving Loans for such month. All interest
(including, without limitation, Additional Interest) accruing hereunder on and
after the occurrence of any of the events referred to in Sections 3.1(a)(i) or
3.1(a)(ii) above shall be payable on demand.
(b) Interest shall be payable by Borrower to Lender monthly in arrears not
later than the first day of each calendar month and shall be calculated on the
basis of a three hundred sixty (360) day year and actual days elapsed. The
interest rate shall increase or decrease by an amount equal to each increase or
decrease in the Prime Rate effective on the first day of the month after any
change in such Prime Rate is announced based on the Prime Rate in effect on the
last day of the month in which any such change occurs. In no event shall charges
constituting interest payable by Borrower to Lender exceed the maximum amount or
the rate permitted under any applicable law or regulation, and if any part or
provision of this Agreement is in contravention of any such law or regulation,
such part or provision shall be deemed amended to conform thereto.
3.2 Closing Fee. Borrower shall pay to Lender as a closing fee the amount
of $50,000, which shall be fully earned as of and payable on the date hereof.
3.3 Servicing Fee. Borrower shall pay to Lender monthly a servicing fee in
an amount equal to $1,500 in respect of Lender's services for each month (or
part thereof) while this Agreement remains in effect and for so long thereafter
while there remain outstanding any of the Obligations for the payment of money
or with respect to Letter of Credit Accommodations, which fee shall be fully
earned as of and payable in advance on the date hereof and on the first day of
each month hereafter.
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SECTION 4. CONDITIONS PRECEDENT
4.1 Conditions Precedent to Initial Loans and Letter of Credit
Accommodations. Each of the following is a condition precedent to Lender making
the initial Loans and providing the initial Letter of Credit Accommodations
hereunder:
(a) Lender shall have received evidence, in form and substance
satisfactory to Lender, that Lender has valid perfected and first priority
security interests in and liens upon the Collateral and any other property
which is intended to be security for the Obligations, subject only to the
security interests and liens permitted herein or in the other Financing
Agreements; without limiting the foregoing, Lender shall have received, in
form and substance satisfactory to Lender, all releases, terminations and
such other documents as Lender may request to evidence and effectuate the
termination by the existing lender or lenders to Borrower of their
respective financing arrangements with Borrower and the termination and
release by it or them, as the case may be, of any interest in and to any
Collateral or other property of Borrower which is intended as security for
the Obligation, duly authorized, executed and delivered by it or each of
them, including, but not limited to, (i) UCC termination statements for all
UCC financing statements previously filed by it or any of them or their
predecessors, as secured party, and Borrower, as debtor, and (ii)
satisfactions and discharges of any mortgages, deeds of trust or deeds to
secure debt by Borrower in favor of such existing lender or lenders, in
form acceptable for recording in the appropriate government office;
(b) all requisite corporate action and proceedings in connection with
this Agreement and the other Financing Agreements shall be reasonably
satisfactory in form and substance to Lender, and Lender shall have
received all information and copies of all documents, including, without
limitation, records of requisite corporate action and proceedings which
Lender may have reasonably requested in connection therewith, such
documents where requested by Lender or its counsel to be certified by
appropriate corporate officers or governmental authorities;
(c) no material adverse change shall have occurred in the assets,
business or prospects of Borrower since the date of Lender's latest field
examination and no change or event shall have occurred which would impair
the ability of Borrower or any Obligor to perform its obligations hereunder
or under any of the other Financing Agreements to which it is a party or of
Lender to enforce the Obligations or realize upon the Collateral;
(d) Lender shall have completed an update of its field review of the
Records and such other information with respect to the Collateral as Lender
may require to determine the amount of Revolving Loans available to
Borrower, the results of which shall be satisfactory to Lender, not more
than three (3) business days prior to the date hereof;
(e) Lender shall have received, in form and substance satisfactory to
Lender, all consents, waivers, acknowledgments and other agreements from
third persons which Lender may deem necessary or desirable in order to
permit, protect and perfect its security interests in and liens upon the
Collateral or to effectuate the provisions or purposes of this Agreement
and the other Financing Agreements, including, without limitation: (i)
acknowledgements by lessors, mortgagees and
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warehousemen of Lender's security interests in the Collateral, waivers by
such persons of any security interests, liens or other claims by such
persons to the Collateral and agreements permitting Lender access to, and
the right to remain on, the premises to exercise its rights and remedies
and otherwise deal with the Collateral; (ii) an agreement from each charge
or credit card issuer and charge or credit card sale processor with respect
to each charge or credit card now accepted by Borrower, in which Borrower
notifies such person of Lender's security interest in the amounts due from
such Person to Borrower and irrevocably instructs such Person to pay such
amounts directly to the Blocked Account, and in which such Person waives
any security interest in such amounts; (iii) an agreement from each Person
in possession or control of Borrower's mailing or customer lists, or any
electronic or other medium of storage thereof, in which such Person agrees
to deliver such list or storage medium to Lender at Lender's request; and
(iv) an agreement with each Person who, on behalf of Borrower, licenses or
rents Borrower's mailing or customer lists to third parties, or collects
the proceeds from such licenses or rentals, in which such Person agrees to
pay all amounts due to Borrower in respect of such collections directly to
the Blocked Account and, upon Lender's request when an Event of Default has
occurred and is continuing, to comply with Lender's instructions with
respect to all such licenses and rentals.
(f) Lender shall have received evidence of insurance and loss payee
endorsements required hereunder and under the other Financing Agreements,
in form and substance satisfactory to Lender, and certificates of insurance
policies and/or endorsements naming Lender as loss payee;
(g) the Excess Availability, as determined by Lender, as of the date
of the initial Loans and Letter of Credit Accommodations, shall be not less
than $250,000, after giving effect to the initial Loans made or to be made
and Letter of Credit Accommodations issued or to be issued in connection
with the initial transactions hereunder;
(h) Lender shall have received, in form and substance satisfactory to
Lender, such opinion letters of counsel to Borrower with respect to the
Financing Agreements and such other matters as Lender may request;
(i) Lender shall have received evidence satisfactory in form and
substance to it that Xxxxxx Xxxxxx has contributed to the capital of
Borrower, or otherwise converted to equity, indebtedness owed to him by
Borrower in the aggregate principal amount of $1,000,000;
(j) Lender shall have received, in form and substance satisfactory to
it, a subordination agreement duly executed and delivered by Xxx Xxxxxx and
Xxxxxx Xxxxxx, subordinating payment of all indebtedness owed by Borrower
to them to the prior payment of the Obligations;
(k) Lender shall have received the audited financial statements of
Borrower for the six months ended December 30, 1995, prepared in accordance
with GAAP and fairly presenting the financial position and results of
operations of Borrower as at such date and for the period then ended,
accompanied by the unqualified examination report thereon of BDO Xxxxxxx,
LLP, and Lender shall be satisfied with the financial position and results
of operations of Borrower set forth therein;
(l) Lender shall have received evidence satisfactory to it that
Borrower has paid in full all amounts due from Borrower to Xxxxxxx Xxxxxx
Xxxxxxxxxx pursuant to or in connection with the
15
transactions contemplated by the Redemption Agreement dated as of April 29,
1995 by and among Borrower, Xxxxxxx Xxxxxx Xxxxxxxxxx, and Xxxxxx Xxxxxx
and the Consulting Services Agreement dated as of April 29, 1995 by and
between Borrower and Xxxxxxx Xxxxxx Xxxxxxxxxx;
(m) the other Financing Agreements and all instruments and documents
hereunder and thereunder shall have been duly executed and delivered to
Lender, in form and substance satisfactory to Lender; and
(n) Lender shall have received such other agreements, documents,
instruments, certificates and opinions as Lender may reasonable request.
4.2 Conditions Precedent to All Loans and Letter of Credit Accommodations.
Each of the following is an additional condition precedent to Lender making
Loans and/or providing Letter of Credit Accommodations to Borrower, including
the initial Loans and Letter of Credit Accommodations and any future Loans and
Letter of Credit Accommodations:
(a) all representations and warranties contained herein and in the
other Financing Agreements, except those that relate to a specific date or
a specific time period, shall be true and correct in all material respects
with the same effect as though such representations and warranties had been
made on and as of the date of the making of each such Loan or providing
each such Letter of Credit Accommodation and after giving effect thereto,
and all such representations and warranties relating to a specific date or
a specific time period shall have been true and correct in all material
respects when made; and
(b) no Event of Default and no event or condition which, with notice
or passage of time or both, would constitute an Event of Default, shall
exist or have occurred and be continuing on and as of the date of the
making of such Loan or providing each such Letter of Credit Accommodation
and after giving effect thereto.
SECTION 5. GRANT OF SECURITY INTEREST
5.1 Grant. To secure payment and performance of all Obligations, Borrower
hereby grants to Lender a continuing security interest in, a lien upon, and a
right of set off against, and hereby assigns to Lender as security, the
following property and interests in property, whether now owned or hereafter
acquired or existing, and wherever located (collectively, the ACollateral"):
(a) Accounts;
(b) all present and future contract rights, general intangibles
(including, but not limited to, tax and duty refunds, registered and
unregistered patents, trademarks, service marks, copyrights, trade names,
applications for the foregoing, trade secrets, goodwill, processes,
drawings, blueprints, customer and mailing lists and all proceeds from the
license or rental thereof, licenses, whether as licensor or licensee,
choses in action and other claims and existing and future leasehold
interests in
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equipment, real estate and fixtures), chattel paper, documents,
instruments, letters of credit, bankers' acceptances and guaranties;
(c) all present and future monies, securities, credit balances,
deposits, deposit accounts and other property of Borrower now or hereafter
held or received by or in transit to Lender or its affiliates or at any
other depository or other institution from or for the account of Borrower,
whether for safekeeping, pledge, custody, transmission, collection or
otherwise, and all present and future liens, security interests, rights,
remedies, title and interest in, to and in respect of Accounts and other
Collateral, including, without limitation, (i) rights and remedies under or
relating to guaranties, contracts of suretyship, letters of credit and
credit and other insurance related to the Collateral, (ii) rights of
stoppage in transit, replevin, repossession, reclamation and other rights
and remedies of an unpaid vendor, lienor or secured party, (iii) goods
described in invoices, documents, contracts or instruments with respect to,
or otherwise representing or evidencing, Accounts or other Collateral,
including, without limitation, returned, repossessed and reclaimed goods,
and (iv) deposits by and property of account debtors or other persons
securing the obligations of account debtors;
(d) Inventory;
(e) Equipment, except Equipment that has been leased by Borrower under
a capital lease, the terms of which prohibit the granting by Borrower to
Lender of a security interest therein;
(f) Records; and
(g) all products and proceeds of the foregoing, in any form,
including, without limitation, insurance proceeds and all claims against
third parties for loss or damage to or destruction of any or all of the
foregoing.
SECTION 6. COLLECTION AND ADMINISTRATION
6.1 Borrower's Loan Account. Lender shall maintain one or more loan
account(s) on its books in which shall be recorded (a) all Loans, Letter of
Credit Accommodations and other Obligations and the Collateral, (b) all payments
made by or on behalf of Borrower and (c) all other appropriate debits and
credits as provided in this Agreement, including, without limitation, fees,
charges, costs, expenses and interest. All entries in the loan account(s) shall
be made in accordance with Lender's customary practices as in effect from time
to time and in accordance with the terms of this Agreement.
6.2 Statements. Lender shall render to Borrower each month a statement
setting forth the balance in the Borrower's loan account(s) maintained by Lender
for Borrower pursuant to the provisions of this Agreement, including principal,
interest, fees, costs and expenses. Each such statement shall be subject to
subsequent adjustment by Lender but shall, absent manifest errors or omissions,
be considered prima facie correct and deemed accepted by Borrower except to the
extent that Lender receives a written notice from Borrower of any specific
exceptions of Borrower thereto within thirty (30) days after the date such
statement has been mailed by Lender. Until such time as Lender shall have
rendered to Borrower a
17
written statement as provided above, the balance in Borrower's loan account(s)
shall be presumptive evidence of the amounts due and owing to Lender by
Borrower.
6.3 Collection of Accounts.
(a) Borrower shall establish and maintain, at its expense,
blocked accounts or lockboxes and related blocked accounts (in either case,
ABlocked Accounts"), as Lender may specify, with such banks as are acceptable to
Lender into which Borrower shall promptly deposit and direct its account debtors
to directly remit all payments on Accounts and all payments constituting
proceeds of Inventory or other Collateral (including, without limitation,
proceeds of cash sales of Inventory) in the identical form in which such
payments are made, whether by cash, check or other manner. The banks at which
the Blocked Accounts are established shall enter into an agreement, in form and
substance reasonably satisfactory to Lender, providing that all items received
or deposited in the Blocked Accounts are the property of Lender, that the
depository bank has no lien upon, or right to setoff against, the Blocked
Accounts, the items received for deposit therein, or the funds from time to time
on deposit therein and that the depository bank will wire, or otherwise
transfer, in immediately available funds, on a daily basis, all funds received
or deposited into the Blocked Accounts to such bank account of Lender as Lender
may from time to time designate for such purpose (APayment Account"). Borrower
agrees that all payments made to such Blocked Accounts or other funds received
and collected by Lender, whether on the Accounts or as proceeds of Inventory or
other Collateral or otherwise shall be the property of Lender. Without limiting
the generality of the foregoing, Borrower shall, within 45 days after the date
hereof, establish a Blocked Account with a bank acceptable to Lender, to replace
the Blocked Account with Summit Bank.
(b) For purposes of calculating interest on the Obligations, such payments
or other funds received will be applied (conditional upon final collection) to
the Obligations two (2) business days following the date of receipt of
immediately available funds by Lender in the Payment Account. For purposes of
calculating the amount of the Revolving Loans available to Borrower such
payments will be applied (conditional upon final collection) to the Obligations
on the business day of receipt by Lender in the Payment Account, if such
payments are received within sufficient time (in accordance with Lender's usual
and customary practices as in effect from time to time) to credit Borrower's
loan account on such day, and if not, then on the next business day.
(c) Borrower and all of its affiliates, subsidiaries, shareholders,
directors, employees or agents shall, acting as trustee for Lender, receive, as
the property of Lender, any monies, checks, notes, drafts or any other payment
relating to and/or proceeds of Accounts or other Collateral which come into
their possession or under their control and immediately upon receipt thereof,
shall deposit or cause the same to be deposited in the Blocked Accounts, or
remit the same or cause the same to be remitted, in kind, to Lender. In no event
shall the same be commingled with Borrower's own funds. Borrower agrees to
reimburse Lender on demand for any amounts owed or paid to any bank at which a
Blocked Account is established or any other bank or person involved in the
transfer of funds to or from the Blocked Accounts arising out of Lender's
payments to or indemnification of such bank or person. The obligation of
Borrower to reimburse Lender for such amounts pursuant to this Section 6.3 shall
survive the termination or non-renewal of this Agreement.
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6.4 Payments. All Obligations shall be payable to the Payment Account
as provided in Section 6.3 or such other place as Lender may designate from time
to time. Lender may apply payments received or collected from Borrower or for
the account of Borrower (including, without limitation, the monetary proceeds of
collections or of realization upon any Collateral) to such of the Obligations,
whether or not then due, in such order and manner as Lender determines. At
Lender's option, all principal, interest, fees, costs, expenses and other
charges provided for in this Agreement or the other Financing Agreements may be
charged directly to the loan account(s) of Borrower. Borrower shall make all
payments to Lender on the Obligations free and clear of, and without deduction
or withholding for or on account of, any setoff, counterclaim, defense, duties,
taxes, levies, imposts, fees, deductions, withholding, restrictions or
conditions of any kind. If after receipt of any payment of, or proceeds of
Collateral applied to the payment of, any of the Obligations, Lender is required
to surrender or return such payment or proceeds to any Person for any reason,
then the Obligations intended to be satisfied by such payment or proceeds shall
be reinstated and continue and this Agreement shall continue in full force and
effect as if such payment or proceeds had not been received by Lender. Borrower
shall be liable to pay to Lender, and does hereby indemnify and hold Lender
harmless for the amount of any payments or proceeds surrendered or returned.
This Section 6.4 shall remain effective notwithstanding any contrary action
which may be taken by Lender in reliance upon such payment or proceeds. This
Section 6.4 shall survive the payment of the Obligations and the termination or
non-renewal of this Agreement.
6.5 Authorization to Make Loans. Lender is authorized to make the Loans and
provide the Letter of Credit Accommodations based upon telephonic or other
instructions received from anyone purporting to be one of such persons as the
President of Borrower may, from time to time, designate in a written notice to
Lender or, at the discretion of Lender, if such Loans are necessary to satisfy
any Obligations. All requests for Loans or Letter of Credit Accommodations
hereunder shall specify the date on which the requested advance is to be made or
Letter of Credit Accommodations established (which day shall be a business day)
and the amount of the requested Loan. Requests for Revolving Loans received
before 11:00 a.m., New York time, shall be deemed to have been made on that day,
and requests received after 11:00 a.m., New York time, on any day shall be
deemed to have been made as of the opening of business on the immediately
following business day. Revolving Loans shall be transferred to an account
designated by Borrower on the day requested or deemed requested as provided in
the preceding sentence. All Loans and Letter of Credit Accommodations under this
Agreement shall be conclusively presumed to have been made to, and at the
request of and for the benefit of, Borrower when deposited to the credit of
Borrower or otherwise disbursed or established in accordance with the
instructions of Borrower or in accordance with the terms and conditions of this
Agreement.
6.6 Use of Proceeds. Borrower shall use the initial proceeds of the Loans
provided by Lender to Borrower hereunder only for: (a) payments to each of the
persons listed in the disbursement direction letter furnished by Borrower to
Lender on or about the date hereof and (b) costs, expenses and fees in
connection with the preparation, negotiation, execution and delivery of this
Agreement and the other Financing Agreements. All other Loans made or Letter of
Credit Accommodations provided by Lender to Borrower pursuant to the provisions
hereof shall be used by Borrower only for general operating, working capital and
other proper corporate purposes of Borrower not otherwise prohibited by the
terms hereof. None of the proceeds will be used, directly or indirectly, for the
purpose of purchasing or carrying any margin security or for the purposes of
reducing or retiring any indebtedness which was originally incurred to purchase
or carry any margin security or for any other purpose which might cause any of
the Loans to
19
be considered a Apurpose credit" within the meaning of Regulation G of the Board
of Governors of the Federal Reserve System, as amended.
SECTION 7. COLLATERAL REPORTING AND COVENANTS
7.1 Collateral Reporting. Borrower shall provide Lender with the following
documents in a form satisfactory to Lender: (a) on a weekly or more frequent
basis as reasonably required by Lender, a sales report and inventory report by
location, setting forth, among other things the Cost of Inventory, and a report
of amounts paid by and due from charge and credit card issuers and sale
processors; (b) on a weekly basis, perpetual inventory reports; (c) on a monthly
basis or more frequently as Lender may request, (i) inventory reports by
category and (ii) agings of accounts payable, (d) upon Lender's request, (i)
copies of customer statements and credit memos, remittance advices and reports,
and copies of deposit slips and bank statements, (ii) copies of shipping and
delivery documents, and (iii) copies of purchase orders, invoices and delivery
documents for Inventory and Equipment acquired by Borrower; and (e) such other
reports as to the Collateral as Lender shall reasonably request from time to
time. If any of Borrower's records or reports of the Collateral are prepared or
maintained by an accounting service, contractor, shipper or other agent,
Borrower hereby irrevocably authorizes such service, contractor, shipper or
agent to deliver such records, reports, and related documents to Lender and to
follow Lender's instructions with respect to further services at any time that
an Event of Default exists or has occurred and is continuing.
7.2 Accounts Covenants.
(a) Borrower shall notify Lender promptly of (i) any material delay in
Borrower's ability to fulfill a substantial portion of customer orders, (ii) the
assertion of any material claims, offsets, defenses or counterclaims by any
charge or credit card issuer or processor with respect to any amounts payable by
such issuer or processor in connection with its acquisition of Accounts, or
(iii) the imposition by any charge or credit card issuer or processor of any
holdback, reserve, or reduction in the percentage of the face amount of a sale
paid to Borrower (except for an increase in the merchant fee applied to all of
such issuer's or processor's customers similarly situated with Borrower). No
credit, discount, allowance or extension or agreement with any customer or with
respect to any Account shall be granted without Lender's consent, except in the
ordinary course of Borrower's business in accordance with practices and policies
previously disclosed in writing to Lender. So long as no Event of Default exists
or has occurred and is continuing, Borrower shall settle, adjust or compromise
any claim, offset, counterclaim or dispute. At any time that an Event of Default
exists or has occurred and is continuing, Lender shall, at its option, have the
exclusive right to settle, adjust or compromise any claim, offset, counterclaim
or dispute or grant any credits, discounts or allowances.
(b) Borrower shall promptly report to Lender any returns of Inventory if,
as a result thereof, the aggregate original sales price of all goods returned
during the preceding seven-day period is in excess of $1,000,000. In the event
any customer returns Inventory, Borrower shall segregate all returned Inventory
according to whether or not it is resalable, and shall not report as Eligible
Inventory any returned goods that Borrower intends to return to the supplier or
manufacturer or to dispose of in any manner other than retail sale in the
ordinary course of business.
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(c) With respect to each Account (other than an Account owed directly by a
retail consumer) and each sale of Inventory: (i) the amounts shown on any
schedule thereof delivered to Lender shall be true and complete, in all material
respects, (ii) no payments shall be made thereon except payments immediately
delivered to Lender pursuant to the terms of this Agreement, (iii) no credit,
discount, allowance or extension, or agreement for any of the foregoing, shall
be granted except as reported to Lender in accordance with this Agreement and
except for credits, discounts, allowances or extensions made or given in the
ordinary course of Borrower's business in accordance with practices and policies
previously disclosed to Lender, (iv) there shall be no setoffs, deductions,
contras, defenses, counterclaims or disputes existing or asserted with respect
thereto except as reported to Lender in accordance with the terms of this
Agreement, and except for discounts, fees and chargebacks permitted under the
terms of the agreements between Borrower and charge or credit card issuers or
credit card processors with respect to Accounts acquired by such issuers or
processors, and (v) none of the transactions giving rise thereto will violate
any applicable State or Federal laws or regulations, all documentation relating
thereto will be legally sufficient under such laws and regulations and all such
documentation will be legally enforceable in accordance with its terms.
(d) Lender shall have the right at any time or times, in Lender's name or
in the name of a nominee of Lender, to verify the validity, amount or any other
matter relating to any Account or other Collateral, by mail, telephone,
facsimile transmission or otherwise.
(e) Borrower shall deliver or cause to be delivered to Lender, with
appropriate endorsement and assignment, with full recourse to Borrower, all
chattel paper and instruments which Borrower now owns or may at any time acquire
immediately upon Borrower's receipt thereof, except as Lender may otherwise
agree.
(f) On and after September 30, 1996, Borrower will not issue any
merchandise certificate, return credit, or similar agreement or instrument
unless it provides that it may not be valid for purchases of selected items or
from selected catalogues. Whenever an Event of Default has occurred and is
continuing, Borrower will not, to the extent not prohibited by applicable law,
accept any merchandise certificate, return credit, or similar agreement or
instrument, whenever issued, except on such terms and conditions as are approved
in writing by Lender from time to time.
(g) Borrower will, at any time upon Lender's reasonable request, provide
Lender with complete copies of Borrower's mailing and customer lists. On a
monthly basis or more frequently as Lender requests, Borrower will provide
Lender with a written report of all proceeds received since the last such report
from the license or rental of its mailing and customer lists and of each new
license and rental entered into since the last such report, all in such detail
as Lender requires.
(h) Whenever, after the date hereof, Borrower accepts any charge or credit
card not accepted on the date hereof or changes or adds any Person through which
charge or credit card sales are processed, Borrower shall obtain from the card
issuer or such processor an agreement of the type described in Section
4.1(e)(ii), in form and substance satisfactory to Lender. Lender may, at any
time or times that an Event of Default exists or has occurred and is continuing,
(i) extend the time of payment of, compromise, settle or adjust for cash,
credit, return of merchandise or otherwise, and upon any terms or
21
conditions, any and all Accounts or other obligations included in the Collateral
and thereby discharge or release the party or parties in any way liable for
payment thereof without affecting any of the Obligations, (ii) demand, collect
or enforce payment of any Accounts or such other obligations, but without any
duty to do so, and Lender shall not be liable for its failure to collect or
enforce the payment thereof nor for the negligence of its agents or attorneys
with respect thereto and (iii) take whatever other action Lender may reasonably
deem necessary or desirable for the protection of its interests.
7.3 Inventory Covenants. With respect to the Inventory: (a) Borrower shall
at all times maintain inventory records reasonably satisfactory to Lender,
keeping correct and accurate records itemizing and describing the kind, type,
quality and quantity of Inventory, Borrower's cost therefor and withdrawals
therefrom and additions thereto; (b) Borrower shall conduct a physical count of
the Inventory at least once each year, but at any time or times as Lender may
request on or after an Event of Default, and promptly following such physical
inventory shall supply Lender with a report in the form and with such
specificity as may be reasonably satisfactory to Lender concerning such physical
count; (c) Borrower shall not remove any Inventory from the locations set forth
or permitted herein, without the prior written consent of Lender, except for
sales of Inventory in the ordinary course of Borrower's business and except to
move Inventory directly from one location set forth or permitted herein to
another such location; (d) Borrower shall, at its expense, at least once each
year or, upon Lender's request, once in each six (6) month period, but at any
time or times as Lender may request on or after an Event of Default, deliver or
cause to be delivered to Lender written reports or appraisals as to the
Inventory in form, scope and methodology acceptable to Lender and by an
appraiser acceptable to Lender, addressed to Lender or upon which Lender is
expressly permitted to rely; (e) if the negative variance between the Cost or
quantity of Inventory determined from any physical count thereof and the Cost or
quantity of such Inventory at such date reflected on Borrower's books is equal
to or greater than four (4.0%), then Borrower shall, at its expense, conduct
such further periodic physical counts of the Inventory at such time or times as
Lender shall require until such time as Lender is reasonably satisfied that such
negative variance has been reduced to less than four percent (4.0%); and if such
negative variance at any time is greater than five percent (5.0%), then for so
long as Lender deems appropriate in its reasonable judgment, Borrower shall at
its expense retain an independent counting service reasonably acceptable to
Lender to conduct such periodic counts of Borrower's Inventory as Lender
reasonably requires; (f) Borrower shall produce, use, store and maintain the
Inventory, with all reasonable care and caution and in accordance with
applicable standards of any insurance and in conformity with applicable laws
(including, but not limited to, the requirements of the Federal Fair Labor
Standards Act of 1938, as amended and all rules, regulations and orders related
thereto); (g) Borrower assumes all responsibility and liability arising from or
relating to the production, use, sale or other disposition of the Inventory; (h)
Borrower shall keep the Inventory in good and marketable condition; (i) Borrower
shall not, without prior written notice to Lender, acquire or accept any
Inventory on consignment or approval; and (j) Borrower shall send Lender a copy
of each catalogue, advertisement, or other sales material sent by Borrower to
any customers, not later than the time that it is sent to such customers.
7.4 Equipment Covenants. With respect to the Equipment: (a) upon Lender's
request, Borrower shall, at its expense, at any time or times as Lender may
request on or after an Event of Default, deliver or cause to be delivered to
Lender written reports as to the Equipment in form, scope and methodology
acceptable to Lender and by an appraiser acceptable to Lender; (b) Borrower
shall keep the Equipment in operating order (ordinary wear and tear excepted);
(c) Borrower shall use the Equipment with all
22
reasonable care and caution and in accordance with applicable standards of any
insurance and in conformity with all applicable laws; (d) Borrower shall not
remove any Equipment from the locations set forth or permitted herein, except to
the extent necessary to have any Equipment repaired or maintained in the
ordinary course of the business of Borrower or to move Equipment directly from
one location set forth or permitted herein to another such location and except
for the movement of motor vehicles used by or for the benefit of Borrower in the
ordinary course of business; (e) the Equipment is now and shall remain personal
property and Borrower shall not permit any of the Equipment to be or become a
part of or affixed to real property; and (f) Borrower assumes all responsibility
and liability arising from the use of the Equipment.
7.5 Power of Attorney. Borrower hereby irrevocably designates and appoints
Lender (and all persons designated by Lender) as Borrower's true and lawful
attorney-in-fact, and authorizes Lender, in Borrower's or Lender's name, to: (a)
at any time an Event of Default or event which with notice or passage of time or
both would constitute an Event of Default exists or has occurred and is
continuing (i) demand payment on Accounts or other proceeds of Inventory or
other Collateral, (ii) enforce payment of Accounts by legal proceedings or
otherwise, (iii) exercise all of Borrower's rights and remedies to collect any
Account or other Collateral, (iv) sell or assign any Account upon such terms,
for such amount and at such time or times as the Lender deems advisable, (v)
settle, adjust, compromise, extend or renew an Account, (vi) discharge and
release any Account, (vii) prepare, file and sign Borrower's name on any proof
of claim in bankruptcy or other similar document against a person obligated on
an Account or other Collateral, (viii) notify the post office authorities to
change the address for delivery of Borrower's mail to an address designated by
Lender, and open and dispose of all mail addressed to Borrower, and (ix) do all
acts and things which are necessary, in Lender's determination, to fulfill
Borrower's obligations under this Agreement and the other Financing Agreements
and (b) at any time to (i) take control in any manner of any item of payment or
proceeds thereof, (ii) have access to any lockbox or postal box into which
Borrower's mail is deposited, (iii) endorse Borrower's name upon any items of
payment or proceeds thereof and deposit the same in the Lender's account for
application to the Obligations, (iv) endorse Borrower's name upon any chattel
paper, document, instrument, invoice, or similar document or agreement relating
to any Account or any goods pertaining thereto or any other Collateral, (v) sign
Borrower's name on any verification of Accounts and notices thereof to any
person obligated thereon and (vi) execute in Borrower's name and file any UCC
financing statements or amendments thereto. Borrower hereby releases Lender and
its officers, employees and designees from any liabilities arising from any act
or acts under this power of attorney and in furtherance thereof, whether of
omission or commission, except as a result of Lender's own gross negligence or
wilful misconduct as determined pursuant to a final non-appealable order of a
court of competent jurisdiction.
7.6 Right to Cure. Lender may, at its option, provided Lender has first
given written notice to Borrower of its intended action and Borrower has failed,
within five (5) days after its receipt of such notice to itself take the action
proposed to be taken by Lender, (a) cure any default by Borrower under any
agreement with a third party or pay or bond on appeal any judgment entered
against Borrower, (b) discharge taxes, liens, security interests or other
encumbrances at any time levied on or existing with respect to the Collateral
and (c) pay any amount, incur any expense or perform any act which, in Lender's
judgment, is necessary or appropriate to preserve, protect, insure or maintain
the Collateral and the rights of Lender with respect thereto. Lender may add any
amounts so expended to the Obligations and charge
23
Borrower's account therefor, such amounts to be repayable by Borrower on demand.
Lender shall be under no obligation to effect such cure, payment or bonding and
shall not, by doing so, be deemed to have assumed any obligation or liability of
Borrower. Any payment made or other action taken by Lender under this Section
shall be without prejudice to any right to assert an Event of Default hereunder
and to proceed accordingly. Lender may take any action or make any payment
described above without prior notice to Borrower if (x) the Obligations have
been declared to be or have become immediately due and payable or (y) Lender
determines, in its sole judgment exercised in good faith, that delaying such
action would materially adversely affect the Collateral or Lender's rights with
respect thereto or the Business's ability to pay and perform the Obligations.
7.7 Access to Premises. From time to time as reasonably requested by
Lender, at the cost and expense of Borrower, (a) Lender or its designee shall
have complete access to all of Borrower's premises during normal business hours
and after notice to Borrower, or at any time and without notice to Borrower if
an Event of Default exists or has occurred and is continuing, for the purposes
of inspecting, verifying and auditing the Collateral and all of Borrower's books
and records, including, without limitation, the Records, and (b) Borrower shall
promptly furnish to Lender such copies of such books and records or extracts
therefrom as Lender may request, and (c) use during normal business hours such
of Borrower's personnel, equipment, supplies and premises as may be reasonably
necessary for the foregoing and if an Event of Default exists or has occurred
and is continuing for the collection of Accounts and realization of other
Collateral.
SECTION 8. REPRESENTATIONS AND WARRANTIES
Borrower hereby represents and warrants to Lender the following (which
shall survive the execution and delivery of this Agreement), the truth and
accuracy of which are a continuing condition of the making of Loans and
providing Letter of Credit Accommodations by Lender to Borrower:
8.1 Corporate Existence, Power and Authority; Subsidiaries. Borrower is a
corporation duly organized and in good standing under the laws of its state of
incorporation and is duly qualified as a foreign corporation and in good
standing in all states or other jurisdictions where the nature and extent of the
business transacted by it or the ownership of assets makes such qualification
necessary, except for those jurisdictions in which the failure to so qualify
would not have a material adverse effect on Borrower's financial condition,
results of operation or business or the rights of Lender in or to any of the
Collateral. The execution, delivery and performance of this Agreement, the other
Financing Agreements and the transactions contemplated hereunder and thereunder
are all within Borrower's corporate powers, have been duly authorized and are
not in contravention of law or the terms of Borrower's certificate of
incorporation, by-laws, or other organizational documentation, or any indenture,
agreement or undertaking to which Borrower is a party or by which Borrower or
its property are bound. This Agreement and the other Financing Agreements
constitute legal, valid and binding obligations of Borrower enforceable in
accordance with their respective terms. Borrower does not have any subsidiaries
except as set forth on the Information Certificate.
8.2 Financial Statements; No Material Adverse Change. Borrower's audited
financial statements for the fiscal year ended December 31, 1995 and all
financial statements of Borrower for any
24
subsequent interim or annual period which have been or may hereafter be
delivered by Borrower to Lender have been or will be prepared in accordance with
GAAP and fairly present the financial condition and the results of operation of
Borrower as at the dates and for the periods set forth therein; provided,
however, all interim period financial statements shall be subject to normal year
end and audit adjustments in accordance with GAAP. Except as disclosed in any
interim financial statements furnished by Borrower to Lender prior to the date
of this Agreement, there has been no material adverse change in the assets,
liabilities, properties and condition, financial or otherwise, of Borrower,
since the date of the audited financial statements of Borrower for the fiscal
year ended December 31, 1995, which were furnished by Borrower to Lender prior
to the date of this Agreement.
8.3 Chief Executive Office; Collateral Locations. The chief executive
office of Borrower and Borrower's Records concerning Accounts are located only
at the address set forth below and its only other places of business and the
only other locations of Collateral, if any, are the addresses set forth in the
Information Certificate, subject to the right of Borrower to establish new
locations in accordance with Section 9.2 below. The Information Certificate
correctly identifies any of such locations which are not owned by Borrower and
sets forth the owners and/or operators thereof and to the best of Borrower's
knowledge, the holders of any mortgages on such locations.
8.4 Priority of Liens; Title to Propertiess. The security interests and
liens granted to Lender under this Agreement and the other Financing Agreements
constitute valid and perfected first priority liens and security interests in
and upon the Collateral subject only to the liens indicated on Schedule 8.4
hereto and the other liens permitted under Section 9.8 hereof. Borrower has good
and freely transferrable title to all of its properties and assets subject to no
liens, mortgages, pledges, security interests, encumbrances or charges of any
kind, except those granted to Lender and such others as are specifically listed
on Schedule 8.4 hereto or permitted under Section 9.8 hereof.
8.5 Tax Returns. Borrower has filed, or caused to be filed, in a timely
manner all tax returns, reports and declarations which are required to be filed
by it (without requests for extension except as previously disclosed in writing
to Lender). All information in such tax returns, reports and declarations is
complete and accurate in all material respects. Borrower has paid or caused to
be paid all taxes due and payable or claimed due and payable in any assessment
received by it, except taxes the validity of which are being contested in good
faith by appropriate proceedings diligently pursued and available to Borrower
and with respect to which adequate reserves have been set aside on its books.
Adequate provision has been made for the payment of all accrued and unpaid
Federal, State, county, local, foreign and other taxes whether or not yet due
and payable and whether or not disputed.
8.6 Litigation. Except as set forth on the Information Certificate, there
is no present investigation by any governmental agency pending, or to the best
of Borrower's knowledge threatened, against Borrower, its assets or business and
there is no action, suit, proceeding or claim by any Person pending, or to the
best of Borrower's knowledge threatened, against Borrower or its assets or
goodwill, or against any transactions contemplated by this Agreement, which if
adversely determined against Borrower would result in any material adverse
change in the assets, business or prospects of Borrower or would impair the
ability of Borrower to perform its obligations hereunder or under any of the
other Financing Agreements to which it is a party or of Lender to enforce any
Obligations or realize upon any Collateral.
25
8.7 Compliance with Other Agreements and Applicable Laws. Except as set
forth on Schedule 8.7, Borrower is not in default in any material respect under,
or in violation in any material respect of any of the terms of, any agreement,
contract, instrument, lease or other commitment to which it is a party or by
which it or any of its assets are bound, which default or violation could have a
material adverse effect on Borrower's assets, business, or prospects, and
Borrower is in compliance in all material respects with all applicable
provisions of laws, rules, regulations, licenses, permits, approvals and orders
of any foreign, Federal, State or local governmental authority.
8.8 ERISA. Borrower does not maintain any employee benefit plan that is
subject to Title IV of the Employee Retirement Income Security Act of 1974, as
amended, or to the minimum fundings standards of Section 412 of the Internal
Revenue Code of 1986, as amended.
8.9 Capitalization. All of the issued and outstanding shares of capital
stock of Borrower are directly and beneficially owned and held by the Persons
named in the Information Certificate; all of such shares have been duly
authorized, are fully paid and non-assessable, and are free and clear of all
claims, liens, pledges, and encumbrances of any kind, except as disclosed in
writing to Lender.
8.10 Accuracy and Completeness of Information. All information furnished by
or on behalf of Borrower in writing to Lender in connection with this Agreement
or any of the other Financing Agreements or any transaction contemplated hereby
or thereby, including, without limitation, all information on the Information
Certificate, taken as a whole, is true and correct in all material respects on
the date as of which such information is dated or certified and does not omit
any material fact necessary in order to make such information not misleading. No
event or circumstance has occurred which has had or could reasonably be expected
to have a material adverse affect on the business, assets or prospects of
Borrower, which has not been fully and accurately disclosed to Lender in
writing, other than general economic or business trends affecting Borrower's
business or the general business community.
8.11 Survival of Warranties; Cumulative. All representations and warranties
contained in this Agreement or any of the other Financing Agreements shall
survive the execution and delivery of this Agreement and shall be deemed to have
been made again to Lender on the date of each additional borrowing or other
credit accommodation hereunder and shall be conclusively presumed to have been
relied on by Lender regardless of any investigation made or information
possessed by Lender.
SECTION 9. AFFIRMATIVE AND NEGATIVE COVENANTS
9.1 Maintenance of Existence. Borrower shall at all times preserve, renew
and keep in full, force and effect its corporate existence and rights and
franchises with respect thereto and maintain in full force and effect all
permits, licenses, trademarks, tradenames, approvals, authorizations, leases and
contracts without which Borrower could not carry on the business as presently or
proposed to be conducted. Borrower shall give Lender thirty (30) days prior
written notice of any proposed change in its corporate name, which notice shall
set forth the new name and Borrower shall deliver to Lender a copy of the
amendment to the Certificate of Incorporation of Borrower providing for the name
change certified by the Secretary of State of the jurisdiction of incorporation
of Borrower as soon as it is available.
26
9.2 New Collateral Locations. Borrower may open any new location within the
continental United States provided Borrower (a) gives Lender thirty (30) days
prior written notice of the intended opening of any such new location and (b)
executes and delivers, or causes to be executed and delivered, to Lender such
agreements, documents, and instruments as Lender may deem reasonably necessary
or desirable to protect its interests in the Collateral at such location,
including, without limitation, UCC financing statements.
9.3 Compliance with Laws, Regulations, Etc. Borrower shall, at all times,
comply in all material respects with all laws, rules, regulations, licenses,
permits, approvals and orders of any Federal, State or local governmental
authority applicable to it.
9.4 Payment of Taxes and Claims. Borrower shall duly pay and discharge all
taxes, assessments, contributions and governmental charges upon or against it or
its properties or assets, except for taxes the validity of which are being
contested in good faith by appropriate proceedings diligently pursued and
available to Borrower and with respect to which adequate reserves have been set
aside on its books. Borrower shall be liable for any tax or penalties imposed on
Lender as a result of the financing arrangements provided for herein and
Borrower agrees to indemnify and hold Lender harmless with respect to the
foregoing, and to repay to Lender on demand the amount thereof, and until paid
by Borrower such amount shall be added and deemed part of the Loans, provided,
that, nothing contained herein shall be construed to require Borrower to pay any
income or franchise taxes attributable to the income of Lender from any amounts
charged or paid hereunder to Lender. Lender represents and warrants to Borrower
that it has no knowledge of any tax or penalty that would currently be payable
by Borrower pursuant to the preceding sentence. The foregoing indemnity shall
survive the payment of the Obligations and the termination or non-renewal of
this Agreement.
9.5 Insurance. Borrower shall, at all times, maintain with financially
sound and reputable insurers insurance with respect to loss or damage to the
Collateral and other risks, of such kinds and in such amounts as are
satisfactory to Lender in its reasonable judgment. Said policies of insurance
shall be satisfactory to Lender as to form and insurer. Lender acknowledges that
the form and amount of the insurance policies presently in effect with respect
to loss or damage to the Collateral and other risks which may affect Borrower
and Lender, as evidenced by the Certificate of Insurance delivered to Lender on
or prior to the date hereof, are satisfactory as of the date hereof; provided,
however, nothing shall prohibit Lender, in its reasonable judgment, from
hereafter requiring Borrower to maintain insurance policies with an insurer, in
an amount, and in a form differing from that which is in effect on the date
hereof. Borrower shall furnish certificates, policies or endorsements to Lender
as Lender shall require as proof of such insurance, and, if Borrower fails to do
so, Lender is authorized, but not required, to obtain such insurance at the
expense of Borrower. All policies shall provide for at least thirty (30) days
prior written notice to Lender of any cancellation or reduction of coverage and
that Lender may act as attorney for Borrower in obtaining, and at any time an
Event of Default exists or has occurred and is continuing, adjusting, settling,
amending and canceling such insurance. Borrower shall cause Lender to be named
as a loss payee and an additional insured (but without any liability for any
premiums) under such insurance policies and Borrower shall obtain
non-contributory lender's loss payable endorsements to all insurance policies in
form and substance satisfactory to Lender. Such lender's loss payable
endorsements shall specify that the proceeds of such insurance shall be payable
to Lender as its interests may appear and further specify that Lender shall be
paid regardless of any act or omission by Borrower or any of its affiliates. At
its option, Lender may apply any insurance proceeds received by Lender at any
time to the
27
cost of repairs or replacement of Collateral and/or to payment of the
Obligations, whether or not then due, in any order and in such manner as Lender
may determine or hold such proceeds as cash collateral for the Obligations.
9.6 Financial Statements and Other Information.
(a) Borrower shall keep proper books and records in which true and complete
entries shall be made of all dealings or transactions of or in relation to the
Collateral and the business of Borrower and its subsidiaries (if any) in
accordance with GAAP and Borrower shall furnish or cause to be furnished to
Lender: (i) within forty (40) days after the end of each fiscal month, monthly
unaudited financial statements of Borrower, or, if Borrower has any
subsidiaries, monthly unaudited consolidated financial statements and unaudited
consolidating financial statements of Borrower and its subsidiaries (including
in each case balance sheets, statements of income and loss and statements of
shareholders' equity), all in reasonable detail, fairly presenting the financial
position and the results of the operations of Borrower and its subsidiaries as
of the end of and through such fiscal month, and (ii) within one hundred (100)
days after the end of each fiscal year, audited financial statements of
Borrower, or, if Borrower has any subsidiaries, audited consolidated financial
statements and audited consolidating financial statements of Borrower and its
subsidiaries (including in each case balance sheets, statements of income and
loss, statements of cash flow and statements of shareholders' equity), and the
accompanying notes thereto, all in reasonable detail, fairly presenting the
financial position and the results of the operations of Borrower and its
subsidiaries as of the end of and for such fiscal year, together with the
opinion of independent certified public accountants, which accountants shall be
an independent accounting firm selected by Borrower and reasonably acceptable to
Lender, that such financial statements have been prepared in accordance with
GAAP, and present fairly the results of operations and financial condition of
Borrower and its subsidiaries as of the end of and for the fiscal year then
ended.
(b) Borrower shall promptly notify Lender in writing of the details of (i)
any loss, damage, investigation, action, suit, proceeding or claim relating to
the Collateral or any other property which is security for the Obligations or
which would result in any material adverse change in Borrower's business,
properties, assets, goodwill or condition, financial or otherwise and (ii) the
occurrence of any Event of Default or event which, with the passage of time or
giving of notice or both, would constitute an Event of Default.
(c) Borrower shall promptly after the sending or filing thereof furnish or
cause to be furnished to Lender copies of all reports which Borrower sends to
its stockholders generally and copies of all reports and registration statements
which Borrower files with the Securities and Exchange Commission, any national
securities exchange or the National Association of Securities Dealers, Inc.
(d) Borrower shall furnish or cause to be furnished to Lender such budgets,
forecasts, projections and other information respecting the Collateral and the
business of Borrower, as Lender may, from time to time, reasonably request.
Lender is hereby authorized to deliver a copy of any financial statement or any
other information relating to the business of Borrower to any court or other
government agency or to any participant or assignee or prospective participant
or assignee; provided, however, Lender shall not disclose Borrower's mailing
lists to any prospective assignee or prospective participant unless such
prospective assignee or participant enters into a written confidentiality
agreement reasonably
28
acceptable to Borrower. Borrower hereby irrevocably authorizes and directs all
accountants or auditors to deliver to Lender, at Borrower's expense, copies of
the financial statements of Borrower and any reports or management letters
prepared by such accountants or auditors on behalf of Borrower and to disclose
to Lender such information as they may have regarding the business of Borrower.
Any documents, schedules, invoices or other papers delivered to Lender may be
destroyed or otherwise disposed of by Lender one (1) year after the same are
delivered to Lender, except as otherwise designated by Borrower to Lender in
writing.
9.7 Sale of Assets, Consolidation, Merger, Dissolution, Etc. Borrower shall
not, directly or indirectly, (a) merge into or with or consolidate with any
other Person or permit any other Person to merge into or with or consolidate
with it, or (b) sell, assign, lease, transfer, abandon or otherwise dispose of
any of its assets to any other Person (except for (i) sales of Inventory in the
ordinary course of business and (ii) the disposition of worn-out or obsolete
Equipment or Equipment no longer used in the business of Borrower so long as (A)
any proceeds are paid to Lender and (B) such sales do not involve Equipment
having an aggregate fair market value in excess of $100,000 for all such
Equipment disposed of in any fiscal year of Borrower), or (c) form or acquire
any subsidiaries, or (d) wind up, liquidate or dissolve or (e) agree to do any
of the foregoing.
9.8 Encumbrances. Borrower shall not create, incur, assume or suffer to
exist any security interest, mortgage, pledge, lien, charge or other encumbrance
of any nature whatsoever on any of its assets or properties, including, without
limitation, the Collateral, except: (a) liens and security interests of Lender;
(b) liens securing the payment of taxes, either not yet overdue or the validity
of which are being contested in good faith by appropriate proceedings diligently
pursued and available to Borrower and with respect to which adequate reserves
have been set aside on its books; (c) non-consensual statutory liens (other than
liens securing the payment of taxes) arising in the ordinary course of
Borrower's business to the extent: (i) such liens secure indebtedness which is
not overdue or (ii) such liens secure indebtedness relating to claims or
liabilities which are fully insured and being defended at the sole cost and
expense and at the sole risk of the insurer or being contested in good faith by
appropriate proceedings diligently pursued and available to Borrower, in each
case prior to the commencement of foreclosure or other similar proceedings and
with respect to which adequate reserves have been set aside on its books; (d)
zoning restrictions, easements, licenses, covenants and other restrictions
affecting the use of real property which do not interfere in any material
respect with the use of such real property or ordinary conduct of the business
of Borrower as presently conducted thereon or materially impair the value of the
real property which may be subject thereto; (e) purchase money security
interests in Equipment (including capital leases) and purchase money mortgages
on real estate granted after the date hereof not to exceed $250,000 in the
aggregate at any time outstanding so long as such security interests and
mortgages do not apply to any property of Borrower other than the Equipment or
real estate so acquired, and the indebtedness secured thereby does not exceed
the cost of the Equipment or real estate so acquired, as the case may be; and
(f) the security interests and liens set forth on Schedule 8.4 hereto.
9.9 Indebtedness. Borrower shall not incur, create, assume, become or be
liable in any manner with respect to, or permit to exist, any obligations or
indebtedness, except (a) the Obligations; (b) trade obligations in the ordinary
course of business not yet due and payable or with respect to which Borrower is
contesting in good faith the amount or validity thereof by appropriate
proceedings diligently pursued
29
and available to Borrower; (c) purchase money indebtedness (including capital
leases) to the extent not incurred or secured by liens (including capital
leases) in violation of any other provision of this Agreement; (d) obligations
or indebtedness set forth on the Information Certificate; provided, that, (i)
Borrower may only make regularly scheduled payments of principal and interest in
respect of such indebtedness in accordance with the terms of the agreement or
instrument evidencing or giving rise to such indebtedness as in effect on the
date hereof, (ii) Borrower shall not, directly or indirectly, (A) amend, modify,
alter or change the terms of such indebtedness or any agreement, document or
instrument related thereto as in effect on the date hereof, or (B) redeem,
retire, defease, purchase or otherwise acquire such indebtedness, or set aside
or otherwise deposit or invest any sums for such purpose, and (iii) Borrower
shall furnish to Lender all notices or demands in connection with such
indebtedness either received by Borrower or on its behalf, promptly after the
receipt thereof, or sent by Borrower or on its behalf, concurrently with the
sending thereof, as the case may be; and (e) unsecured indebtedness of Borrower
to Xxx Xxxxxx and Xxxxxx Xxxxxx evidenced by a note, dated April 3, 1991, issued
by Borrower payable to Xxx Xxxxxx and Xxxxxx Xxxxxx not to exceed the aggregate
principal amount of $351,212 so long as such indebtedness is and remains subject
to, and subordinate in right or payment to, the right of Lender to receive the
prior payment in full of all of the Obligations in accordance with the
subordination agreement delivered to Lender pursuant to Section 4.1(k);
provided, that: (i) Borrower shall not, directly or indirectly, make any
payments in respect to such indebtedness, including, but not limited to, any
prepayments or other non-mandatory payments, except as expressly permitted by
such subordination agreement, (ii) Borrower shall not, directly or indirectly,
(A) amend, modify, alter or change any terms of such indebtedness or any
agreement, document or instrument related thereto, or (B) redeem, retire,
defease, purchase or otherwise acquire such indebtedness, or set aside or
otherwise deposit or invest any sums for such purpose, and (iii) Borrower shall
furnish to Lender all notices, demands or other materials concerning such
indebtedness either received by Borrower or on its behalf, promptly after
receipt thereof, or sent by Borrower or on its behalf, concurrently with the
sending thereof, as the case may be.
9.10 Loans, Investments, Guarantees, Etc. Borrower shall not, directly or
indirectly, make any loans or advance money or property to any person, or invest
in (by capital contribution, dividend or otherwise) or purchase or repurchase
the stock or indebtedness or all or a substantial part of the assets or property
of any person, or guarantee, assume, endorse, or otherwise become responsible
for (directly or indirectly) the indebtedness, performance, obligations or
dividends of any Person or agree to do any of the foregoing, except: (a)
advances to employees of Borrower in the ordinary course of business in amounts
not to exceed $5,000 for any one employee and $50,000 in the aggregate, (b)
existing loans in the aggregate principal amount of $75,000 as of the date
hereof to Xxxxxx Xxxxxx and Xxxxxxxxx Xxxxx, the proceeds of which were used to
purchase stock of the Borrower, provided such loans shall be permitted hereunder
only until December 31, 1996, at which time they are to be repaid; (c) the
endorsement of instruments for collection or deposit in the ordinary course of
business; (d) investments in: (i) short-term direct obligations of the United
States Government, (ii) negotiable certificates of deposit issued by any bank
satisfactory to Lender, payable to the order of the Borrower or to bearer and
delivered to Lender, and (iii) commercial paper rated A1 or P1; provided, that,
as to any of the foregoing, unless waived in writing by Lender, Borrower shall
take such actions as are deemed necessary by Lender to perfect the security
interest of Lender in such investments and (e) the guarantees set forth in the
Information Certificate.
30
9.11 Dividends and Redemptions. Borrower shall not, directly or indirectly,
declare or pay any dividends on account of any shares of class of capital stock
of Borrower now or hereafter outstanding, or set aside or otherwise deposit or
invest any sums for such purpose, or redeem, retire, defease, purchase or
otherwise acquire any shares of any class of capital stock (or set aside or
otherwise deposit or invest any sums for such purpose) for any consideration
other than common stock or apply or set apart any sum, or make any other
distribution (by reduction of capital or otherwise) in respect of any such
shares or agree to do any of the foregoing, except as follows:
(a) So long as no Event of Default has occurred and is continuing or
would occur as a result of the following distributions, Borrower may pay
distributions to its shareholders, on or about the date corresponding to
the date that such person's estimated income tax payments are due, in an
aggregate amount sufficient to pay federal, state, and local income taxes
payable by such shareholders in respect of their allocable share of the
income of Borrower by virtue of Borrower's elected S Corporation status
under the Internal Revenue Code of 1986, as amended (the ATax Amount"). The
amounts to be distributed shall be determined based on a reasonable
estimate of the Tax Amount at the time of the distribution, which shall be
determined based on reasonable assumptions regarding the shareholders'
marginal tax bracket. The amount distributed cumulatively during any year
shall not exceed the cumulative percentage of the estimated Tax Amount for
which estimated taxes have become payable. If, by virtue of any loss,
credit, or other circumstance, the income of Borrower subject to the
payment of tax by Borrower's Shareholders, as reported on Borrower's
informational returns filed with the Internal Revenue Service, for any
prior tax year is subsequently reduced below or increased above the amount
upon which the Tax Amount for such year was determined, then for purposes
of determining the applicable Tax Amount for the current and subsequent tax
years, the shareholders' taxable income shall be deemed reduced by the
amount of such reduction or increased by the amount of such increase in the
taxable income until such reduction or increase has been fully applied. If
the quarterly distributions permitted hereunder in respect of a tax year
are either less than or exceed the Tax Amount finally determined for filing
tax returns of the shareholders for such tax year, then the amount of such
deficiency or excess, as the case may be, shall be credited to or deducted
from the amount of subsequent distributions otherwise permitted hereunder
to the shareholders until such deficiency or excess has been fully offset
in such manner.
(b) Within 30 days after the date in each year that Borrower delivers
to Lender its annual audited financial statements for the preceding fiscal
year pursuant to and meeting the requirements of Section 9.6(a), commencing
with the financial statements for the fiscal year ending December 31, 1997,
Borrower may pay dividends and make other distributions to its shareholders
or redeem its capital stock in an amount not to exceed (a) 50% of the
Excess Cash Flow for the fiscal year to which such financial statements
relate, minus (b) any payments made during such 30-day period to Xxx Xxxxxx
and Xxxxxx Xxxxxx in accordance with the terms of that Subordination
Agreement of even date herewith by and among Xxx Xxxxxx, Xxxxxx Xxxxxx and
Lender; so long as each of the following conditions precedent has been
satisfied: (i) no Event of Default has occurred and is continuing or would
occur as a result of such dividend, distribution, or redemption (ii)
assuming Borrower had paid such dividend or made such distribution or
redemption at the beginning of the 30-day period immediately preceding the
proposed date of the dividend, distribution or redemption, Borrower would
have had Excess Availability of not less than $750,000 on an average daily
basis during such 30-day period, (iii) Borrower has Excess Availability of
not less than $750,000 on the proposed date of the dividend, distribution
or redemption after giving effect
31
thereto; and (iv) Excess Cash Flow for the fiscal year to which such
financial statements relate is not less than $200,000.
9.12 Transactions with Affiliates. Borrower shall not enter into any
transaction for the purchase, sale or exchange of property or the rendering of
any service to or by any affiliate, except in the ordinary course of and
pursuant to the reasonable requirements of Borrower's business and upon fair and
reasonable terms no less favorable to the Borrower than Borrower would obtain in
a comparable arm's length transaction with an unaffiliated person.
9.13 Working Capital. Borrower shall, at all times on or before December
30, 1996, maintain Working Capital of not less than zero, and at all times
thereafter maintain Working Capital of not less than $1,500,000.
9.14 Adjusted Net Worth. Borrower shall, at all times on or before December
30, 1996, maintain Adjusted Net Worth of not less than $1,000,000, and at all
times thereafter maintain Adjusted Net Worth of not less than $1,600,000.
9.15 ERISA. Borrower will not establish or become liable to contribute to
any employee benefit plan of the type described in Section 8.8.
9.16 Costs and Expenses. Borrower shall pay to Lender on demand all costs,
expenses, filing fees and taxes paid or payable (but in no case income or
franchise taxes) in connection with the preparation, negotiation, execution,
delivery, recording, administration, collection, liquidation, enforcement and
defense of the Obligations, Lender's rights in the Collateral, this Agreement,
the other Financing Agreements and all other documents related hereto or
thereto, including any amendments, supplements or consents which may hereafter
be contemplated (whether or not executed) or entered into in respect hereof and
thereof, including, but not limited to: (a) all costs and expenses of filing or
recording (including Uniform Commercial Code financing statement filing taxes
and fees, documentary taxes, intangibles taxes and mortgage recording taxes and
fees, if applicable); (b) all title insurance and other insurance premiums,
appraisal fees and search fees; (c) costs and expenses of remitting loan
proceeds, collecting checks and other items of payment, and establishing and
maintaining the Blocked Accounts, together with Lender's customary charges and
fees with respect thereto; (d) charges, fees or expenses charged by any bank or
issuer in connection with the Letter of Credit Accommodations; (e) costs and
expenses of preserving and protecting the Collateral; (f) costs and expenses
paid or incurred in connection with obtaining payment of the Obligations,
enforcing the security interests and liens of Lender, selling or otherwise
realizing upon the Collateral, and otherwise enforcing the provisions of this
Agreement and the other Financing Agreements or defending any claims made or
threatened against Lender arising out of the transactions contemplated hereby
and thereby (including, without limitation, preparations for and consultations
concerning any such matters); (g) all out-of-pocket expenses and costs
heretofore and from time to time hereafter incurred by Lender during the course
of periodic field examinations of the Collateral and Borrower's operations, plus
a per diem charge at the rate of $600 per person per day for Lender's examiners
in the field and office; and (h) the fees and disbursements of counsel
(including legal assistants) to Lender in connection with any of the foregoing.
9.17 Further Assurances. At the request of Lender at any time and from time
to time, Borrower shall, at its expense, duly execute and deliver, or cause to
be duly executed and delivered, such further
32
agreements, documents and instruments, and do or cause to be done such further
acts as may be necessary or proper to evidence, perfect, maintain and enforce
the security interests and the priority thereof in the Collateral and to
otherwise effectuate the provisions or purposes of this Agreement or any of the
other Financing Agreements. Lender may at any time and from time to time, but
not more frequently than monthly unless an Event of Default has occurred,
request a certificate from an officer of Borrower representing that all
conditions precedent to the making of Loans and providing Letter of Credit
Accommodations contained herein are satisfied. In the event of such request by
Lender, Lender may, at its option, cease to make any further Loans or provide
any further Letter of Credit Accommodations until Lender has received such
certificate and, in addition, Lender has determined that such conditions are
satisfied. Where permitted by law, Borrower hereby authorizes Lender to execute
and file one or more UCC financing statements signed only by Lender.
SECTION 10. EVENTS OF DEFAULT AND REMEDIES
10.1 Events of Default. The occurrence or existence of any one or more of
the following events are referred to herein individually as an AEvent of
Default", and collectively as AEvents of Default":
(a) Borrower fails to pay when due any of the Obligations or fails to
perform any of the terms, covenants, conditions or provisions contained in
this Agreement or any of the other Financing Agreements;
(b) any representation, warranty or statement of fact made by Borrower
to Lender in this Agreement, the other Financing Agreements or any other
agreement, schedule, confirmatory assignment or otherwise shall when made
or deemed made be false or misleading in any material respect;
(c) any Obligor revokes, terminates or fails to perform any of the
terms, covenants, conditions or provisions of any guarantee, endorsement or
other agreement of such party in favor of Lender;
(d) any judgment for the payment of money is rendered against Borrower
or any Obligor in excess of $25,000 in any one case or in excess of $25,000
in the aggregate and shall remain undischarged or unvacated for a period in
excess of thirty (30) days or execution shall at any time not be
effectively stayed, or any judgment other than for the payment of money, or
injunction, attachment, garnishment or execution is rendered against
Borrower or any Obligor or any of their assets;
(e) any Obligor (being a natural person or a general partner of an
Obligor which is a partnership) dies or Borrower or any Obligor, which is a
partnership or corporation, dissolves or suspends or discontinues doing
business;
(f) Borrower or any Obligor becomes insolvent (however defined or
evidenced), makes an assignment for the benefit of creditors, makes or
sends notice of a bulk transfer or calls a meeting of its creditors or
principal creditors;
33
(g) a case or proceeding under the bankruptcy laws of the United
States of America now or hereafter in effect or under any insolvency,
reorganization, receivership, readjustment of debt, dissolution or
liquidation law or statute of any jurisdiction now or hereafter in effect
(whether at law or in equity) is filed against Borrower or any Obligor or
all or any part of its properties and such petition or application is not
dismissed within thirty (30) days after the date of its filing or Borrower
or any Obligor shall file any answer admitting or not contesting such
petition or application or indicates its consent to, acquiescence in or
approval of, any such action or proceeding or the relief requested is
granted sooner;
(h) a case or proceeding under the bankruptcy laws of the United
States of America now or hereafter in effect or under any insolvency,
reorganization, receivership, readjustment of debt, dissolution or
liquidation law or statute of any jurisdiction now or hereafter in effect
(whether at a law or equity) is filed by Borrower or any Obligor or for all
or any part of its property; or
(i) any default by Borrower or any Obligor under any agreement,
document or instrument relating to any indebtedness for borrowed money
owing to any person other than Lender, or any capitalized lease
obligations, contingent indebtedness in connection with any guarantee,
letter of credit, indemnity or similar type of instrument in favor of any
person other than Lender, in any case in an amount in excess of $50,000,
which default continues for more than the applicable cure period, if any,
with respect thereto, or any default by Borrower or any Obligor under any
material contract, lease, license or other obligation to any person other
than Lender, which default continues for more than the applicable cure
period, if any, with respect thereto;
(j) any change in the controlling ownership of Borrower;
(k) the indictment or threatened indictment of Borrower or any Obligor
under any criminal statute, or commencement or threatened commencement of
criminal or civil proceedings against Borrower or any Obligor, pursuant to
which statute or proceedings the penalties or remedies sought or available
include forfeiture of any of the property of Borrower or such Obligor;
(l) there shall be a material adverse change in the business, assets
or prospects of Borrower or any Obligor after the date hereof; or
(m) there shall be an event of default under any of the other
Financing Agreements.
10.2 Remedies.
(a) At any time an Event of Default exists or has occurred and is
continuing, Lender shall have all rights and remedies provided in this
Agreement, the other Financing Agreements, the Uniform Commercial Code and other
applicable law, all of which rights and remedies may be exercised without notice
to or consent by Borrower or any Obligor, except as such notice or consent is
expressly provided for hereunder or required by applicable law. All rights,
remedies and powers granted to Lender hereunder, under any of the other
Financing Agreements, the Uniform Commercial Code or other applicable law, are
cumulative, not exclusive and enforceable, in Lender's discretion,
alternatively, successively, or concurrently on any one or more occasions, and
shall include, without limitation, the right to apply to a court of equity for
an injunction to restrain a breach or threatened breach by Borrower
34
of this Agreement or any of the other Financing Agreements. Lender may, at any
time or times, proceed directly against Borrower or any Obligor to collect the
Obligations without prior recourse to the Collateral.
(b) Without limiting the foregoing, at any time an Event of Default exists
or has occurred and is continuing, Lender may, in its discretion and without
limitation, (i) accelerate the payment of all Obligations and demand immediate
payment thereof to Lender (provided, that, upon the occurrence of any Event of
Default described in Sections 10.1(g) and 10.1(h), all Obligations shall
automatically become immediately due and payable), (ii) with or without judicial
process or the aid or assistance of others, enter upon any premises on or in
which any of the Collateral may be located and take possession of the Collateral
or complete processing, manufacturing and repair of all or any portion of the
Collateral, (iii) require Borrower, at Borrower's expense, to assemble and make
available to Lender any part or all of the Collateral at any place and time
designated by Lender, (iv) collect, foreclose, receive, appropriate, setoff and
realize upon any and all Collateral, (v) remove any or all of the Collateral
from any premises on or in which the same may be located for the purpose of
effecting the sale, foreclosure or other disposition thereof or for any other
purpose, (vi) sell, lease, transfer, assign, deliver or otherwise dispose of any
and all Collateral (including, without limitation, entering into contracts with
respect thereto, public or private sales at any exchange, broker's board, at any
office of Lender or elsewhere) at such prices or terms as Lender may deem
reasonable, for cash, upon credit or for future delivery, with the Lender having
the right to purchase the whole or any part of the Collateral at any such public
sale, all of the foregoing being free from any right or equity of redemption of
Borrower, which right or equity of redemption is hereby expressly waived and
released by Borrower and/or (vii) terminate this Agreement. If any of the
Collateral is sold or leased by Lender upon credit terms or for future delivery,
the Obligations shall not be reduced as a result thereof until payment therefor
is finally collected by Lender. If notice of disposition of Collateral is
required by law, ten (10) days prior notice by Lender to Borrower designating
the time and place of any public sale or the time after which any private sale
or other intended disposition of Collateral is to be made, shall be deemed to be
reasonable notice thereof and Borrower waives any other notice. In the event
Lender institutes an action to recover any Collateral or seeks recovery of any
Collateral by way of prejudgment remedy, Borrower waives the posting of any bond
which might otherwise be required.
(c) Lender may apply the cash proceeds of Collateral actually received by
Lender from any sale, lease, foreclosure or other disposition of the Collateral
to payment of the Obligations, in whole or in part and in such order as Lender
may elect, whether or not then due. Borrower shall remain liable to Lender for
the payment of any deficiency with interest at the highest rate provided for
herein and all costs and expenses of collection or enforcement, including
attorneys' fees and legal expenses.
(d) Without limiting the foregoing, upon the occurrence of an Event of
Default or an event which with notice or passage of time or both would
constitute an Event of Default, Lender may, at its option, without notice, (i)
cease making Loans or arranging for Letter of Credit Accommodations or reduce
the lending formulas or amounts of Revolving Loans and Letter of Credit
Accommodations available to Borrower and/or (ii) terminate any provision of this
Agreement providing for any future Loans or Letter of Credit Accommodations to
be made by Lender to Borrower.
35
SECTION 11. JURY TRIAL WAIVER; OTHER WAIVERS
AND CONSENTS; GOVERNING LAW
11.1 Governing Law; Choice of Forum; Service of Process; Jury Trial Waiver.
(a) The validity, interpretation and enforcement of this Agreement and the
other Financing Agreements and any dispute arising out of the relationship
between the parties hereto, whether in contract, tort, equity or otherwise,
shall be governed by the internal laws of the State of New York (without giving
effect to principles of conflicts of law).
(b) Borrower and Lender irrevocably consent and submit to the non-exclusive
jurisdiction of the Supreme Court of the State of New York for New York County
and the United States District Court for the Southern District of New York and
waive any objection based on venue or forum non conveniens with respect to any
action instituted therein arising under this Agreement or any of the other
Financing Agreements or in any way connected with or related or incidental to
the dealings of the parties hereto in respect of this Agreement or any of the
other Financing Agreements or the transactions related hereto or thereto, in
each case whether now existing or hereafter arising, and whether in contract,
tort, equity or otherwise, and agree that any dispute with respect to any such
matters shall be heard only in the courts described above (except that Lender
shall have the right to bring any action or proceeding against Borrower or its
property in the courts of any other jurisdiction which Lender deems necessary or
appropriate in order to realize on the Collateral or to otherwise enforce its
rights against Borrower or its property).
(c) Borrower hereby waives personal service of any and all process upon it
and consents that all such service of process may be made by certified mail
(return receipt requested) directed to its address set forth on the signature
pages hereof and service so made shall be deemed to be completed five (5) days
after the same shall have been so deposited in the U.S. mails, or, at Lender's
option, by service upon Borrower in any other manner provided under the rules of
any such courts. Within thirty (30) days after such service, Borrower shall
appear in answer to such process, failing which Borrower shall be deemed in
default and judgment may be entered by Lender against Borrower for the amount of
the claim and other relief requested.
(d) BORROWER AND LENDER EACH HEREBY WAIVES ANY RIGHT TO TRIAL BY JURY OF
ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (i) ARISING UNDER THIS AGREEMENT OR
ANY OF THE OTHER FINANCING AGREEMENTS OR (ii) IN ANY WAY CONNECTED WITH OR
RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO IN RESPECT OF THIS
AGREEMENT OR ANY OF THE OTHER FINANCING AGREEMENTS OR THE TRANSACTIONS RELATED
HERETO OR THERETO IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, AND
WHETHER IN CONTRACT, TORT, EQUITY OR OTHERWISE. BORROWER AND LENDER EACH HEREBY
AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL
BE DECIDED BY COURT TRIAL WITHOUT A JURY AND THAT BORROWER OR LENDER MAY FILE AN
ORIGINAL COUNTERPART OF A COPY OF THIS AGREEMENT WITH ANY COURT AS WRITTEN
EVIDENCE OF THE CONSENT OF THE PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO
TRIAL BY JURY.
36
(e) Lender shall not have any liability to Borrower (whether in tort,
contract, equity or otherwise) for losses suffered by Borrower in connection
with, arising out of, or in any way related to the transactions or relationships
contemplated by this Agreement, or any act, omission or event occurring in
connection herewith, unless it is determined by a final and non-appealable
judgment or court order binding on Lender, that the losses were the result of
acts or omissions constituting gross negligence or willful misconduct. In any
such litigation, Lender shall be entitled to the benefit of the rebuttable
presumption that it acted in good faith and with the exercise of ordinary care
in the performance by it of the terms of this Agreement.
11.2 Waiver of Notices. Borrower hereby expressly waives demand,
presentment, protest and notice of protest and notice of dishonor with respect
to any and all instruments and commercial paper, included in or evidencing any
of the Obligations or the Collateral, and any and all other demands and notices
of any kind or nature whatsoever with respect to the Obligations, the Collateral
and this Agreement, except such as are expressly provided for herein. No notice
to or demand on Borrower which Lender may elect to give shall entitle Borrower
to any other or further notice or demand in the same, similar or other
circumstances.
11.3 Amendments and Waivers. Neither this Agreement nor any provision
hereof shall be amended, modified, waived or discharged orally or by course of
conduct, but only by a written agreement signed by an authorized officer of
Lender. Lender shall not, by any act, delay, omission or otherwise be deemed to
have expressly or impliedly waived any of its rights, powers and/or remedies
unless such waiver shall be in writing and signed by an authorized officer of
Lender. Any such waiver shall be enforceable only to the extent specifically set
forth therein. A waiver by Lender of any right, power and/or remedy on any one
occasion shall not be construed as a bar to or waiver of any such right, power
and/or remedy which Lender would otherwise have on any future occasion, whether
similar in kind or otherwise.
11.4 Waiver of Counterclaims. Borrower waives all rights to interpose any
claims, deductions, setoffs or counterclaims of any nature (other then
compulsory counterclaims) in any action or proceeding with respect to this
Agreement, the Obligations, the Collateral or any matter arising therefrom or
relating hereto or thereto.
11.5 Indemnification. Borrower shall indemnify and hold Lender, and its
directors, agents, employees and counsel, harmless from and against any and all
losses, claims, damages, liabilities, costs or expenses imposed on, incurred by
or asserted against any of them in connection with any litigation,
investigation, claim or proceeding commenced or threatened related to the
negotiation, preparation, execution, delivery, enforcement, performance or
administration of this Agreement, any other Financing Agreements, or any
undertaking or proceeding related to any of the transactions contemplated hereby
or any act, omission, event or transaction related or attendant thereto,
including, without limitation, amounts paid in settlement, court costs, and the
fees and expenses of counsel, unless it is determined by a final and
non-appealable judgment or court order binding on Lender, that the losses were
the result of acts or omissions constituting gross negligence or willful
misconduct. To the extent that the undertaking to indemnify, pay and hold
harmless set forth in this Section may be unenforceable because it violates any
law or public policy, Borrower shall pay the maximum portion which it is
permitted to pay under applicable law to Lender in satisfaction of indemnified
matters under this Section. The foregoing
37
indemnity shall survive the payment of the Obligations and the termination or
non-renewal of this Agreement.
11.6 Confidentiality of Mailing Lists. Lender agrees that, prior to such
time as it shall enforce its security interest in Borrower's mailing lists after
the occurrence of an Event of Default, Lender shall keep such mailing lists
confidential and not disclose them to any person except (a) as required by law
or the binding order of a court of competent jurisdiction, (b) to Lender's
agents and legal counsel to the extent necessary to advise and represent Lender
in connection with the transactions hereunder, and (c) to a person to which the
lists have already been disclosed without violating any other confidentiality
agreement with Borrower.
SECTION 12. TERM OF AGREEMENT; MISCELLANEOUS
12.1 Term.
(a) This Agreement and the other Financing Agreements shall become
effective as of the date set forth on the first page hereof and shall continue
in full force and effect for a term ending on the date three (3) years from the
date hereof (the ARenewal Date") and from year to year thereafter unless sooner
terminated pursuant to the terms hereof. Lender or Borrower may terminate this
Agreement and the other Financing Agreements effective on the Renewal Date or on
the anniversary of the Renewal Date in any year by giving to the other party at
least ninety (90) days prior written notice; provided, that this Agreement and
all other Financing Agreements must be terminated simultaneously. Upon the
effective date of termination or non-renewal of the Financing Agreements,
Borrower shall pay to Lender, in full, all outstanding and unpaid Obligations
and shall furnish cash collateral to Lender in such amounts as Lender determines
are reasonably necessary to secure Lender from loss, cost, damage or expense,
including attorneys' fees and legal expenses, in connection with any issued and
outstanding Letter of Credit Accommodations and checks or other payments
provisionally credited to the Obligations and/or as to which Lender has not yet
received final and indefeasible payment. Such cash collateral shall be remitted
by wire transfer in Federal funds to such bank account of Lender, as Lender may,
in its discretion, designate in writing to Borrower for such purpose. Interest
shall be due until and including the next business day, if the amounts so paid
by Borrower to the bank account designated by Lender are received in such bank
account later than 12:00 noon, New York time.
(b) No termination of this Agreement or the other Financing Agreements
shall relieve or discharge Borrower of its respective duties, obligations and
covenants under this Agreement or the other Financing Agreements until all
Obligations have been fully and finally discharged and paid, and Lender's
continuing security interest in the Collateral and the rights and remedies of
Lender hereunder, under the other Financing Agreements and applicable law, shall
remain in effect until all such Obligations have been fully and finally
discharged and paid.
(c) If for any reason this Agreement is terminated earlier than ninety (90)
days prior to the end of the term of this Agreement, in view of the
impracticality and extreme difficulty of ascertaining actual damages and by
mutual agreement of the parties as to a reasonable calculation of Lender's lost
profits as a result thereof, Borrower agrees to pay to Lender, upon the
effective date of such termination,
38
an early termination fee in an amount equal to the greater of $50,000 or the
amount set forth below with respect to the period in which such termination is
effective:
Amount Period
------ ------
(i) Five percent 5% of Twelve Month From and including the
Average Utilization date hereof to and
including the first
anniversary of the date
hereof
(ii) Three percent (3%) of Twelve Month From, but excluding, the
Average Utilization first anniversary of the
date hereof, to and
including the second
anniversary of the date
hereof.
(iii) One percent (1%) of Twelve Month From, but excluding, the
Average Utilization second anniversary of the
date hereof, to and
including the date ninety
days prior to the third
anniversary of the date
hereof.
Such early termination fee shall be presumed to be the amount of damages
sustained by Lender as a result of such early termination and Borrower agrees
that it is reasonable under the circumstances currently existing. The early
termination fee provided for in this Section 12.1 shall be deemed included in
the Obligations. No other fees or compensation shall be payable by Borrower to
Lender in respect of an early termination (but Borrower shall remain liable for
all fees under any other provision of the Financing Agreements to the extent
accrued but unpaid upon an early termination).
12.2 Notices. All notices, requests and demands hereunder shall be in
writing and (a) made to Lender at its address set forth below (with a copy to
Rosenman & Colin LLP, 000 Xxxxxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000-0000,
Attention: Xxxx X. Xxxxx, Esq.) and to Borrower at its chief executive office
set forth below, or to such other address as either party may designate by
written notice to the other in accordance with this provision, and (b) deemed to
have been given or made: if delivered in person, immediately upon delivery; if
by telex, telegram or facsimile transmission, immediately upon sending and upon
confirmation of receipt; if by nationally recognized overnight courier service
with instructions to deliver the next business day, one (1) business day after
sending; and if by certified mail, return receipt requested, five (5) days after
mailing.
12.3 Partial Invalidity. If any provision of this Agreement is held to be
invalid or unenforceable, such invalidity or unenforceability shall not
invalidate this Agreement as a whole, but this Agreement shall be construed as
though it did not contain the particular provision held to be invalid or
unenforceable and the rights and obligations of the parties shall be construed
and enforced only to such extent as shall be permitted by applicable law.
12.4 Successors. This Agreement, the other Financing Agreements and any
other document referred to herein or therein shall be binding upon and inure to
the benefit of and be enforceable by Lender, Borrower and their respective
successors and assigns, except that Borrower may not assign its rights under
this Agreement, the other Financing Agreements and any other document referred
to herein
39
or therein without the prior written consent of Lender. Lender may, after notice
to Borrower, assign its rights and delegate its obligations under this Agreement
and the other Financing Agreements and further may assign, or sell
participations in, all or any part of the Loans, the Letter of Credit
Accommodations or any other interest herein to another financial institution or
other person, in which event, the assignee or participant shall have, to the
extent of such assignment or participation, the same rights and benefits as it
would have if it were the Lender hereunder, except as otherwise provided by the
terms of such assignment or participation. In no event shall a participation or
assignment require Borrower to make or increase the payment of any taxes,
penalties, costs, fees or other sums under the terms of this Agreement that
Lender itself could not have required Borrower to have paid in connection with
the same event or circumstance, in respect of the amount of the interests
transferred to the assignee or participant had no assignment or participation
been made.
12.5 Entire Agreement. This Agreement, the other Financing Agreements, any
supplements hereto or thereto, and any instruments or documents delivered or to
be delivered in connection herewith or therewith represents the entire agreement
and understanding concerning the subject matter hereof and thereof between the
parties hereto, and supersede all other prior agreements, understandings,
negotiations and discussions, representations, warranties, commitments,
proposals, offers and contracts concerning the subject matter hereof, whether
oral or written.
[THIS SPACE INTENTIONALLY LEFT BLANK]
4
IN WITNESS WHEREOF, Lender and Borrower have caused these presents to be
duly executed as of the day and year first above written.
======================================== ======================================
LENDER BORROWER
------ --------
CONGRESS FINANCIAL CORPORATION XXX XXXXXX LTD.
By: /s/ Xxxxx X. Xxxxxxx By: /s/ Xxxxxx Xxxxxx
----------------------------------- ------------------------------
Xxxxx X. Xxxxxxx, Vice President Xxxxxx Xxxxxx, President and
Chief Executive Officer
Address:
--------
Chief Executive Office:
-----------------------
0000 Xxxxxx xx xxx Xxxxxxxx
Xxx Xxxx, Xxx Xxxx 00000 000 Xxxxxx Xxxxxx
Xxxxxxx, Xxx Xxxxxx 00000
======================================== ======================================
[EXHIBITS AND SCHEDULES OMITTED]
41
