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Exhibit 99.1
XXXXXX FINANCIAL, INC.
FACTORING AND REVOLVING INVENTORY LOAN AND SECURITY AGREEMENT
This FACTORING AND REVOLVING INVENTORY LOAN AND SECURITY AGREEMENT
(this "Agreement") is dated and effective as of the Effective Date and entered
into among THE HE-RO GROUP, INC., a New York corporation whose chief executive
office is 000 Xxxxxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000, telecopy number (212)
268-1625 ("HG"), NAH NAH COLLECTION, INC., a New York corporation, whose chief
executive office is 000 Xxxx 00xx Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000, telecopy
number (000) 000-0000 ("NN"), HRNL, Inc., a New York corporation, whose chief
executive office is 000 Xxxxxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000, telecopy
number (000) 000-0000 ("HRNL", NN and HG hereafter collectively and severally
referred to as "Client"), the other Loan Parties signatory hereto and XXXXXX
FINANCIAL, INC., a Delaware corporation, with offices at 000 Xxxx 00xx Xxxxxx,
Xxx Xxxx, Xxx Xxxx 00000, telecopy number (000) 000-0000 ("Xxxxxx").
WHEREAS, Client has requested and Xxxxxx has agreed to purchase all of
Client's Accounts, provide Advances against such Accounts, provide a Revolving
Loan against each Loan Party's Inventory, guaranty Letters of Credit and provide
certain services (see Section 16 for the definitions of certain capitalized
terms); and
WHEREAS, each Guarantor is willing to guaranty all of the obligations
of Client to Xxxxxx under the Loan Documents and to grant to Xxxxxx a security
interest hereunder in certain property of such Guarantor to secure such
guaranty.
NOW, THEREFORE, in consideration of the agreements, provisions, and
covenants herein contained, and for other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, each Loan Party and
Xxxxxx agree as follows:
SECTION 1. PURCHASE OF ACCOUNTS
1.1. Client hereby sells, assigns, and transfers to Xxxxxx, and
Xxxxxx hereby agrees to purchase all of Client's Accounts, with full power to
Xxxxxx to collect and otherwise deal with such Accounts as the sole and
exclusive owner thereof.
1.2. (a) Client will submit for Xxxxxx'x credit approval the
credit requirements of Client's customers, a description of Client's normal
selling terms and such other information as Xxxxxx requests concerning Client's
customers. Xxxxxx may, in Xxxxxx'x sole credit judgment, establish credit lines
for sales to Client's customers on Client's normal selling terms or on other
selling terms approved by Xxxxxx by Written Notice. Client may also submit for
Xxxxxx'x credit approval specific orders from Client's customers and Xxxxxx may,
in Xxxxxx'x sole credit judgment, approve such orders on a single order credit
approval basis. All of Xxxxxx'x credit approvals will be by Written Notice
and/or Transmission to Client.
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(b) Xxxxxx may amend or withdraw a credit line or single
order credit approval at any time prior to the Delivery by notifying Client
verbally and/or by Written Notice or Transmission. A single order credit
approval will be automatically withdrawn: (i) in the event Delivery is not made
on or prior to the expiration date indicated on the single order credit
confirmation form Xxxxxx sends to Client by Written Notice or Transmission or
(ii) in the event any change is made in any of the terms of the Account without
Xxxxxx'x prior approval by Written Notice or Transmission.
(c) Xxxxxx will have no liability to Client or to any
customer for Xxxxxx'x refusal to credit approve an Account or Xxxxxx'x
withdrawal or amendment of a credit approval.
1.3. Xxxxxx will assume the Credit Risk on all Approved Accounts.
Xxxxxx will have full recourse to Client for all Non-Approved Accounts.
1.4. In the event that monies are at any time owing by a customer
for both Approved Accounts and Non-Approved Accounts, any amount when paid by or
credited to the customer will be deemed applied first to Approved Accounts.
1.5. If a bankruptcy or insolvency proceeding is instituted by or
against a customer and if Xxxxxx agrees by Written Notice to Client to make a
claim in such proceeding for Non-Approved Accounts, all amounts distributed to
Xxxxxx in such proceeding will be shared pro rata between Approved Accounts and
Non-Approved Accounts.
SECTION 2. ADVANCES
2.1. As payment for an Account, (a) the Collected Amount of the
Purchase Price of an Account will be credited to Client's account as of the
Collection Date and (b) if an Approved Account remains partially or fully unpaid
solely as a result of the financial inability of the customer thereon to pay
such Approved Account and if such Account is not subject to a Dispute, the
Purchase Price of such Approved Account less any Collected Amounts previously
credited to Client's account with respect to such Approved Account will be
credited to Client's account on the Approved Payment Date for such Approved
Account. The payments, when credited to Client's account, shall first be applied
to all interest, Advances, and other amounts due Xxxxxx hereunder.
2.2. Subject to the terms and conditions of this Agreement, Xxxxxx
may, upon any Client's request, and in Xxxxxx'x sole discretion, make advances
to such Client or for such Client's account of up to eighty five percent (85%)
of the Purchase Price of such Client's Eligible Accounts, but in no event shall
the total of outstanding Advances to all Clients at any one time exceed the
Maximum Advance Amount. To the extent that the total of aggregate outstanding
Advances to all Clients exceeds the Maximum Advance Amount, Client shall pay to
Xxxxxx upon its demand any and all amounts necessary to reduce the aggregate
outstanding Advances to or below the Maximum Advance Amount. Xxxxxx shall
establish and may adjust, in its sole discretion, standards to determine whether
an Account
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purchased by Xxxxxx is eligible for an Advance ("Eligible Account(s)") and the
rate of such Advance at such time as any Client requests an Advance. Each such
increase or decrease in the rate or amount of any Advance shall become effective
immediately for the purposes of calculating availability of Advances hereunder.
In addition to the foregoing, at any time Dilution is in excess ("Excess") of
(a) ten percent (10%), the advance rate shall be reduced by one percent (1%) for
each percent of such Excess and (b) fifteen percent (15%), the advance rate
shall be reduced by two percent (2%) for each percent of such Excess. Without
limiting the generality of the foregoing, the following Accounts may, in
Xxxxxx'x sole discretion, not be considered Eligible Accounts: (1) Accounts
which are not Approved Accounts; (2) Accounts with respect to which the customer
is an Affiliate of Client's or a director, officer, agent, stockholder, or
employee of Client's or any of Client's Affiliates; (3) Accounts with respect to
which there is any Dispute with the respective customer; (4) any Account with
respect to which the customer is a person to which Client is indebted, provided,
however, that any such Account shall only be ineligible as to that portion of
such Account which is less than or equal to the amount owed by Client to such
person; (5) Accounts which have been charged back to Client pursuant to Sections
8.1, 8.2, and 8.3 hereof; (6) cash-on-delivery Accounts; (7) cash sale Accounts;
(8) Accounts arising from sales to one customer in excess of thirty-five percent
(35%) of all outstanding Accounts, but only to the extent of such excess; and
(9) Accounts due from a customer whose principal place of business is located
outside the United States of America that are not covered by a letter of credit,
in acceptable form to Xxxxxx, in its sole discretion or which are not otherwise
Approved Accounts.
SECTION 3. REVOLVING LOANS/LETTERS OF CREDIT
3.1. (a) In addition to Advances described in Section 2 above,
subject to the terms and conditions of this Agreement, Xxxxxx will make
Revolving Loans to each Client upon such Client's request therefor and in
Xxxxxx'x sole discretion up to, in the case of (1) NN, the NN Borrowing Base
plus the Undrawn Supplemental Amount, (2) HG, the HG Borrowing Base plus the
Undrawn Supplemental Amount and (3) HRNL, the HRNL Borrowing Base plus the
Undrawn Supplemental Amount; provided, however, in no event shall the aggregate
Revolving Loans to all Clients exceed (i) the Maximum Revolving Loan Amount plus
(ii) the Supplemental Amount; provided, further, the Supplemental Amount shall
equal zero ($0) during at least one consecutive thirty (30) day period during
each Contract Year (the "Clean Up Period"). In the event a Clean Up Period has
not occurred prior to the last month of any Contract Year, the Clean Up Period
shall be deemed to be the last consecutive thirty (30) day period of such
Contract Year. Amounts borrowed hereunder may be repaid and reborrowed from time
to time until such time as this Agreement terminates. "Eligible Inventory"
means, as at any date of determination, the value (determined at the lower of
cost or market on a first-in, first-out basis) of all Specified Finished Goods
Inventory owned by the applicable Client or other HG Entity, as the case may be,
and in the applicable Client's or other HG Entity's possession, as the case may
be, and located in the United States of America. Xxxxxx shall establish and may
adjust, in its sole discretion, standards to determine whether Inventory is
eligible for a Revolving Loan. Without limiting the foregoing, the following are
not Eligible Inventory: (a) work-in-process that is not readily marketable in
its current form, (b) finished goods which do not
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meet the specifications of the purchase order for such goods, off-quality goods
and goods classified as seconds; (c) Inventory which Xxxxxx determines, in the
exercise of reasonable discretion and in accordance with Xxxxxx'x or the
applicable Client's or other HG Entity's, as the case may be, customary business
practices, to be unacceptable for borrowing purposes due to age, quality, type,
category, quantity, and/or any other reason; (d) Inventory with respect to which
Xxxxxx does not have a valid, first priority and fully perfected security
interest; (e) Inventory with respect to which there exists any lien in favor of
any person other than Permitted Encumbrances; (f) Inventory produced in
violation of the Fair Labor Standards Act and subject to the so-called "hot
goods" provisions contained in Title 25 U.S.C. 215 (a) (i); (g) Inventory
located at any location other than those locations set forth on Schedule 7.8;
(h) other than Inventory located at a Retail Location, excess, non-active and
discontinued goods; (i) shop supplies and packaging materials; (j) goods subject
to a proprietary or private label restriction on disposition and (k) Inventory
which is not Specified Finished Goods Inventory.
(b) To the extent that, at any time, the total of all
Revolving Loans outstanding exceeds the Maximum Revolving Loan Amount, Client
shall pay to Xxxxxx upon its demand any and all amounts necessary to reduce the
aggregate outstanding Revolving Loans below the Maximum Revolving Loan Amount.
3.2. (a) Subject to the terms and conditions of this Agreement
and provided that there does not exist a Default or an Event of Default and in
reliance upon each Loan Party's representations and warranties herein set forth
and provided that there exists sufficient Letter of Credit Availability, Xxxxxx
shall issue guaranties ("Letter of Credit Guaranties") to banks ("Bank") to
induce Bank to issue letters of credit ("Letter of Credit") for Client's
account.
(b) The aggregate amount of Letter of Credit Guaranties
outstanding at any time shall not exceed the Letter of Credit Limit.
(c) The Letter of Credit Availability shall be reduced by
the amount of the Letter of Credit Reserve. In no event shall any Letter of
Credit Guaranty be issued to the extent that the issuance of such Letter of
Credit Guaranty would cause the sum of the Letter of Credit Reserve (after
giving effect to such issuance) plus the outstanding principal balance of the
Revolving Loan and Advances to exceed the Maximum Obligations. At such time as
Xxxxxx makes payment to Bank on such Letter of Credit Guaranties on Client's
behalf, all such payments shall be accounted for first as Advances to the extent
of Advance Availability, then as Revolving Loans to the extent of Revolving Loan
Availability, and shall bear interest as provided herein. Client shall be
irrevocably and unconditionally obligated forthwith without presentment, demand,
protest or other formalities of any kind, to reimburse Xxxxxx for any amounts
paid by Xxxxxx with respect to a Letter of Credit Guaranty including all fees,
costs and expenses paid by Xxxxxx to any bank that issues Letters of Credit.
Client hereby authorizes and directs Xxxxxx, at its option, to debit Client's
account in the amount of any payment made by Xxxxxx with respect to any Letter
of Credit.
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(d) (i) Xxxxxx shall deliver a guaranty in form
acceptable to Bank to cause a Letter of Credit to be issued only to the extent
that sufficient Letter of Credit Availability exists under this Agreement.
(ii) In addition to all other terms and
conditions set forth in this Agreement, the issuance of any Letter of Credit
shall be subject to the conditions precedent that the Letter of Credit which
Client requests, be in such form, be for such amount, contain such terms and
support such transactions as are reasonably satisfactory to Xxxxxx. The
expiration date of each Letter of Credit shall be on a date which is at least
thirty (30) days prior to the Termination Date.
(e) Client shall give Xxxxxx at least three (3) business
days prior notice specifying the date a Letter of Credit is to be issued,
identifying the beneficiary and describing the nature of the transactions
proposed to be supported thereby. The notice shall be accompanied by the form of
the Letter of Credit being requested. No extensions, modifications, or
amendments to the Letter of Credit, the payment of which Xxxxxx has guarantied,
shall be made without Xxxxxx'x prior written consent. The Letter of Credit shall
be drawn for valid purchases of merchandise or for the other purposes
specifically identified on Schedule 3.2(e) and shall be issued for payment at
sight. The execution hereof by Client shall be a continuing authorization and
direction to Xxxxxx to pay any draft presented with respect to a Letter of
Credit guarantied by Xxxxxx from any of Client's funds in Xxxxxx'x hands or
under Xxxxxx'x control and such payment shall be considered made for Client's
benefit and at Client's request.
(f) Client's obligation to reimburse Xxxxxx for payments
made under any Letter of Credit shall be unconditional and irrevocable and shall
be paid strictly in accordance with the terms of this Agreement under all
circumstances including the following circumstances:
(i) any lack of validity or enforceability of
any Letter of Credit or any other agreement;
(ii) the existence of any claim, set-off, defense
or other right which Client, any of its Affiliates or Xxxxxx, on the one hand,
may at any time have against any beneficiary or transferee of any Letter of
Credit (or any persons for whom any such transferee may be acting), Xxxxxx or
any other person, on the other hand, whether in connection with this Agreement,
the transactions contemplated herein or any unrelated transaction (including any
underlying transaction between Client or any of its Affiliates and the
beneficiary of the Letter of Credit);
(iii) any draft, demand, certificate or any other
document presented under any Letter of Credit, forged, fraudulent, invalid or
insufficient in any respect or any statement therein being untrue or inaccurate
in any respect;
(iv) payment under any Letter of Credit against
presentation of a demand, draft or certificate or other document which does not
comply with the terms of such Letter of Credit; provided that, in the case of
any payment by Xxxxxx under any
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Letter of Credit, Xxxxxx has not acted with gross negligence or willful
misconduct (as determined by a court of competent jurisdiction) in determining
that the demand for payment under such Letter of Credit complies on its face
with any applicable requirements for a demand for payment under such Letter of
Credit;
(v) any other circumstance or happening
whatsoever, which is similar to any of the foregoing; or
(vi) the fact that a Default or an Event of
Default shall have occurred and be continuing.
(g) As between the parties hereto, Client assumes all
risks of the acts and omissions of, or misuse of any Letter of Credit by the
beneficiary thereof. In furtherance and not in limitation of the foregoing,
Xxxxxx shall not be responsible: (a) for the form, validity, sufficiency,
accuracy, genuineness or legal effect of any document by any party in connection
with the application for and issuance of any Letter of Credit, even if it should
in fact prove to be in any or all respects invalid, insufficient, inaccurate,
fraudulent or forged; (b) for the validity or sufficiency of any instrument
transferring or assigning or purporting to transfer or assign any Letter of
Credit or the rights or benefits thereunder or proceeds thereof, in whole or in
part, which may prove to be invalid or ineffective for any reason; (c) for
failure of the beneficiary of any Letter of Credit to comply fully with
conditions required in order to demand payment thereunder; provided that, in the
case of any payment by Xxxxxx under any Letter of Credit, Xxxxxx has not acted
with gross negligence or willful misconduct (as determined by a court of
competent jurisdiction) in determining that the demand for payment under such
Letter of Credit complies on its face with any applicable requirements for a
demand for payment thereunder; (d) for errors, omissions, interruptions or
delays in transmission or delivery of any messages, by mail, cable, telegraph,
telex or otherwise, whether or not they be in cipher; (e) for errors in
interpretation of technical terms; (f) for any loss or delay in the transmission
or otherwise of any document required in order to make a payment under any
Letter of Credit or of the proceeds thereof; (g) for the credit of the proceeds
of any drawing under any Letter of Credit; or (h) for any consequences arising
from causes beyond Xxxxxx'x control. None of the above shall affect, impair, or
prevent the vesting of any of Xxxxxx'x rights or powers hereunder.
(h) In furtherance and extension of and not in limitation
of, the specific provisions hereinabove set forth, any action taken or omitted
by Xxxxxx under or in connection with any Letter of Credit if taken or omitted
in good faith, shall not put Xxxxxx under any resulting liability to Client.
(i) Client shall comply with all of the terms and
conditions imposed upon Client by the Bank, whether such terms and conditions
are contained in the application for such Letter of Credit or any agreement with
respect thereto.
(j) In the event Client fails to pay to Xxxxxx, upon
demand, the total amount of any Letter of Credit Guaranty incurred by Xxxxxx on
Client's behalf in connection with any such Letter of Credit Guaranty, Xxxxxx
shall have, in addition to its
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rights under the Uniform Commercial Code and under this Agreement, the same
rights as the Bank may have under any agreement relating to the issuance of the
Letters of Credit supported by such Letter of Credit Guaranty, each such
agreement being incorporated herein by reference, including, but without
limitation, the right to dispose of any and all Letters of Credit, and any and
all goods represented thereby, without further notice to Client, at public or
private sale and in accordance with the provisions hereof, for such price or
prices and upon such terms and conditions as Xxxxxx deems proper, and to apply
the net proceeds to the Obligations, as applicable, and Client hereby waives any
requirement of law for notice, advertising, or other formalities in connection
with any such sale or sales. Xxxxxx shall have the right to buy any such Letters
of Credit or goods represented thereby at any such sale.
(k) Each Loan Party hereby unconditionally agrees to
indemnify Xxxxxx and hold Xxxxxx harmless from any and all losses, claims, or
liabilities arising from any transactions or occurrences relating to any Letter
of Credit Guaranties, and any drafts or acceptances in connection therewith, and
all obligations incurred in connection therewith, including any such loss or
claim due to any action taken or omitted by the Bank. Each Loan Party's
unconditional obligations to Xxxxxx hereunder shall not be modified or
diminished for any reason or in any manner whatsoever. Each Loan Party agrees
that any charges made to Xxxxxx for Client's account by the Bank shall be
conclusive as between the parties hereto and may be charged to Client's account
hereunder. Each Loan Party hereby agrees that any action taken by Xxxxxx, if
taken in good faith, or any action taken by any Bank, under or in connection
with the Letter of Credit Guaranties, the drafts or acceptances in connection
therewith, or the Collateral relating thereto, shall be binding on each Loan
Party as to Xxxxxx and shall not impose any resulting liability on Xxxxxx.
3.3. (a) In no event shall the total amount of Revolving Loans
and Letter of Credit Reserve exceed the Revolving Loan Maximum. To the extent
that, at any time, the foregoing limit is exceeded, Client shall pay on demand
any and all amounts necessary to reduce the aggregate outstanding Revolving
Loans and Letter of Credit Reserve to or below the Revolving Loan Maximum.
(b) In no event shall the total amount outstanding of
Advances, Revolving Loans, Letter of Credit Reserve, Ledger Debt, and any other
Obligations exceed the Maximum Obligations. To the extent that, at any time, the
foregoing limit is exceeded, Client shall pay on demand any and all amounts
necessary to reduce the aggregate outstanding Obligations to or below such
amount.
SECTION 4. INTEREST AND COLLECTION CLEARANCE CHARGE/FEES AND EXPENSES
4.1. Client will pay Xxxxxx interest on the Daily Balance of
outstanding Advances and Revolving Loans at the Applicable Interest Rate.
Interest will be calculated daily and will be paid by Client or charged to
Client's account monthly at the end of each month. For purposes of interest
calculations hereunder, Client shall receive credit for all funds received by
Xxxxxx from Client or on Client's behalf, including the Collected Amount of
Accounts that is credited to Client's account, on the Collection Date. For
purposes of
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availability of Advances, and Revolving Loans, and the issuance of Letter of
Credit Guaranties, Client shall receive credit for any such funds on the date
such funds become immediately available for Xxxxxx'x use. The Applicable
Interest Rate will also be charged to Client on all other Obligations except
those specifying a different rate, from the date incurred through the date paid.
Any publicly announced decrease or increase in the Base Rate will result in an
adjustment to the Applicable Interest Rate on the next Business Day. Interest
will be calculated on the basis of a 360-day year for the actual number of days
elapsed. After the occurrence of an Event of Default and for so long as such
Event of Default continues, all Obligations under the Loan Documents will, at
Xxxxxx'x option, bear interest at a rate per annum equal to the Default Rate.
4.2. In no event will the total amount of interest received by
Xxxxxx pursuant to the terms of this Agreement exceed the maximum rate permitted
by applicable law and in the event excess interest is determined by a court of
competent jurisdiction to have been paid by Client to Xxxxxx, such excess
interest will be applied as a credit against the outstanding Obligations and
Client will not have any action against Xxxxxx for any damages arising out of
the payment or collection of such excess interest.
4.3. If funds remain with Xxxxxx past the Payment Date and there
are no outstanding Advances, Revolving Loans, or other Obligations ("Matured
Funds"), Xxxxxx will credit Client's account with interest on such Matured Funds
at the rate per annum equal to the Base Rate minus three percent (3%).
4.4. If an Account or any payment is charged back to Client after
the Collection Date or Approved Payment Date, Client will pay Xxxxxx interest at
the Advance Interest Rate on the Net Amount of such Account or on such payment
from the Payment Date to the charge back date.
4.5. At the time Xxxxxx purchases an Account, Xxxxxx will charge
Client's account with a factoring commission of seven tenths of one percent
(0.7%) of the Net Amount of each Account. On Accounts bearing terms in excess of
sixty (60) days, the factoring commission will be increased by one-quarter of
one percent (.25%) for each thirty (30) days or part thereof that the stated
terms exceed sixty (60) days.
4.6. Client will pay to Xxxxxx or Xxxxxx may charge Client's
account (i) wire transfer fees for all wire transfers, (ii) all data
transmission telephone charges relating to Transmissions, (iii) exchanges on
checks, charges for returned items, and all other bank charges, (iv) all Costs,
(v) all other amounts owing by Loan Parties to Xxxxxx under this Agreement, and
(vi) all other Obligations.
4.7. Xxxxxx shall charge Clients for each audit (a) Xxxxxx performs
(utilizing an internal auditor) at a rate of $550.00 per auditor per day or any
portion thereof, together with out-of-pocket expenses and (b) Xxxxxx performs
(utilizing an independent auditor) at the daily rate charged by such independent
auditor, together with out-of-pocket expenses, not to exceed an aggregate amount
(with respect to the foregoing clause "(a)" and this clause "(b)" on a combined
basis) equal to $4,500 (exclusive of out-of-pocket expenses) per Contract Year
(absent the occurrence of a Default or an Event of Default).
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4.8. Client shall pay to Xxxxxx on the Effective Date a closing fee
in the amount of $25,000 and a due diligence fee of $10,000.
4.9. [Intentionally Omitted.]
4.10. If Client terminates this facility in full prior to the
Termination Date, at the time of such termination, Client shall pay to Xxxxxx,
as compensation for the costs of being prepared to make funds available to
Client under this Agreement, and not as a penalty a termination fee as follows:
If Termination Occurs Fee
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From the Effective Date through June 30, 1998 $160,000
From July 1, 1998 through December 31, 1998 $120,000
From January 1, 1999 through June 30, 1999 $ 80,000
From July 1, 1999 through December 31, 1999 $ 40,000
From January 1, 2000 and thereafter $ 0
4.11. Client shall pay to Xxxxxx an annual administration fee of
$6,000 which shall be payable in equal monthly installments of $500, commencing
on January 1, 1998 and on the first day of each month thereafter during the term
of this Agreement.
4.12. Client shall pay to Xxxxxx a fee with respect to Letters of
Credit in the amount of (a) one quarter of one percent (.25%) of the face amount
thereof upon causing the opening of a Letter of Credit and (b) one eighth of one
percent (.125%) for each thirty (30) days or part thereof that such Letter of
Credit remains outstanding payable monthly in arrears on the first day of each
month. Client shall also reimburse Xxxxxx for any and all fees and expenses, if
any, paid by Xxxxxx to the issuer of Bank Letters of Credit.
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SECTION 5. ADMINISTRATION
5.1. (a) Client will, from time to time, (i) execute and
deliver to Xxxxxx confirmatory schedules of Accounts assigned to Xxxxxx (each an
"Assignment Schedule"), together with one copy of each invoice, acceptable
evidence of shipment and such other documentation and proofs of delivery as
Xxxxxx may require or (ii) transmit to Xxxxxx by Transmission information
concerning Accounts in a format acceptable to Xxxxxx and, upon Xxxxxx'x request,
deliver to Xxxxxx copies of invoices, acceptable evidence of shipment and such
other documentation and proofs of deliver as Xxxxxx may require relating to
Accounts so transmitted. Client will not will deliver Assignment Schedules in
connection with Transmissions, but Client acknowledges and agrees that every
invoice transmitted to Xxxxxx by Transmission will be deemed to have been sent
pursuant to the terms and conditions of an Assignment Schedule. Each Client
invoice relating to an Account and all copies and Transmissions thereof will
bear a notice, in form satisfactory to Xxxxxx, that the Account has been sold
and assigned to and is payable only to Xxxxxx. Client agrees that Client will
not change such notice on invoices and will not direct its customers to pay
Client or any third party amounts due under invoices. Client, at Xxxxxx'x
discretion, agrees to prepare and mail (or, when required, send by Transmission)
all invoices relating to Accounts, but Xxxxxx may do so at Xxxxxx'x option. Each
Loan Party agrees to execute and deliver to Xxxxxx such further instruments of
assignment, financing statements, and instruments of further assurance as Xxxxxx
may reasonably require. Each Loan Party authorizes Xxxxxx to execute on such
Loan Party's behalf and file such UCC financing statements as Xxxxxx may xxxx
necessary in order to perfect and maintain the security interests granted by
such Loan Party in accordance with this Agreement. Each Loan Party further
agrees that Xxxxxx may file this Agreement or a copy hereof as such UCC
financing statement.
(b) If any remittances are made directly to any Loan
Party or any Loan Party's employees or agents, such Loan Party shall act as
trustee of an express trust for Xxxxxx'x benefit, hold the same as Xxxxxx'x
property, and deliver the same to Xxxxxx forthwith in kind. Xxxxxx, and/or such
designee as Xxxxxx may from time to time appoint, are hereby appointed each Loan
Party's attorney-in-fact to endorse such Loan Party's name on any and all checks
or other forms of remittances received by Xxxxxx where such endorsement is
required to effect collection and transmit notices to customers, in such Loan
Party's or Xxxxxx'x name, that amounts owing by them have been assigned and are
payable directly to Xxxxxx; this power, being coupled with an interest, is
irrevocable.
(c) Each Client will supply customers, in the format
required by customers, with all forms, documents, certificates, etc. that
customer requires to process the Account for payment. If Xxxxxx notifies any
Client verbally and/or by Written Notice or Transmission that a customer which
only accepts invoices for payment from Client through Transmission is requesting
that such Client review its invoice data for correctness and re-transmit
invoices by Transmission and if after thirty (30) days from the date of such
Notice such invoices remain unposted to such customer's records, Xxxxxx will
place the Accounts evidenced by such invoices in Dispute.
5.2. On any day when Client desires to have an Advance or Revolving
Loan made in accordance with Subsection 2.2 or 3.1 hereof, Client shall give
Xxxxxx telephone
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notice of the requested Advance or Revolving Loan by 12:00 p.m. New York, New
York time. Xxxxxx shall not incur any liability to Client for acting upon any
telephonic notice that Xxxxxx believes in good faith to have been given by a
duly authorized officer or other person authorized to request Advances or
Revolving Loans on Client's behalf or for otherwise acting in good faith under
this subsection. Xxxxxx reserves the right, at its option, to not make any
Revolving Loan pursuant to any telephonic notice unless Xxxxxx has also received
the Borrowing Base Certificate for such day and all other documents required by
Section 5.3 by 12:00 p.m. (New York, New York) time.
5.3. Each Loan Party will maintain a system of accounting
established and administered in accordance with sound business practices to
permit preparation of financial statements in conformity with GAAP. Each Loan
Party will promptly furnish Xxxxxx with such statements prepared by or for such
Loan Party showing such Loan Party's financial condition and the results of
their operations as Xxxxxx requests verbally or by Written Notice. Client and
Parent will deliver to Xxxxxx the financial statements and other reports
described below:
(a) Quarterly Financials. As soon as available and in any
event within forty-five (45) days after the end of each quarter of a Fiscal
Year, Parent will deliver the consolidating balance sheet of Parent and its
Reporting Subsidiaries as at the end of such period and the related
consolidating statements of income, stockholders' equity, and cash flow for such
quarter of a Fiscal Year and for the period from the beginning of the then
current Fiscal Year to the end of such quarter of a Fiscal Year and such
financial statements shall have been reviewed by XX Xxxxxx & Co. or such other
firm of independent certified public accountants selected by Parent and
reasonably acceptable to Xxxxxx to the extent Parent delivers reviewed financial
statements to the Securities and Exchange Commission.
(b) Year-End Financials. As soon as available and in any
event within one hundred and five (105) days after the end of each Fiscal Year,
Parent will deliver to Xxxxxx Parent's and the Reporting Subsidiaries'
consolidated annual financial statements and a report with respect to the
financial statements issued by XX Xxxxxx & Co. or such other firm of independent
certified public accountants selected by Parent and reasonably acceptable to
Xxxxxx, which report shall be unqualified as to Parent's and the Reporting
Subsidiaries' going concern and scope of audit and shall state that (a) such
consolidated financial statements present fairly Parent's and the Reporting
Subsidiaries consolidated financial condition as at the dates indicated and the
results of Parent's and the Reporting Subsidiaries' operations and cash flow for
the periods indicated in conformity with GAAP applied on a basis consistent with
prior years and (b) the examination by such accountants in connection with such
consolidated financial statements has been made in accordance with generally
accepted auditing standards.
(c) Accountants' Reports. Promptly upon receipt thereof,
Parent will deliver to Xxxxxx copies of all significant reports submitted to
Parent by Parent's independent public accountants in connection with each of
Parent's and the Reporting Subsidiaries' annual, interim, or special audit of
the financial statements made by such accountants, including the comment letter
submitted by such accountants to management in connection with their annual
audit.
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(d) Compliance Certificate. Together with the delivery of
each set of financial statements referenced in subparts (a), (b) and (c) and (2)
of this subsection, Client and Parent will deliver to Xxxxxx a Compliance
Certificate in form attached as Schedule 5.3.
(e) Access to Accountants. Parent authorizes Xxxxxx to
communicate directly with its independent certified public accountants and
authorizes such accountants to discuss Parent's and the Reporting Subsidiaries'
financial condition and financial statements directly with Xxxxxx to the extent
Parent delivers reviewed financial statements to the Securities and Exchange
Commission.
(f) Projections. Within thirty (30) days of the first six
(6) months of each Fiscal Year and Fiscal Year end, Parent and the Reporting
Subsidiaries shall provide to Xxxxxx Projections for their next twelve (12)
months of operations.
(g) Reports. On the Effective Date and within five (5)
Business Days after the last day of each month and from time to time upon
Xxxxxx'x request, Client will deliver, and at Xxxxxx'x request each other Loan
Party will, deliver to Xxxxxx with respect to each Loan Party, as applicable:
(i) a list of open orders, (ii) an Inventory and Reconciliation Report, (iii) an
aged trial balance of all then existing accounts payable; and (iv) a schedule of
all outstanding Letters of Credit and acceptances listing opening date,
expiration date, face amount (and a letter supported by Xxxxxx or Client's
affiliate). All such reports shall be in form and substance satisfactory to
Xxxxxx. If Xxxxxx requests, each Loan Party agrees to provide Xxxxxx with copies
of all of such Loan Party's bills of lading or proofs of delivery and supplier
invoices and receiving evidence and of such Loan Party's sales registry, sales
journal, or other information regarding sales, including customer open order
reports.
(h) Borrowing Base Certificates, Registers, and Journals.
On Monday of each week, Client shall deliver to Xxxxxx (i) a Borrowing Base
Certificate as of Friday of the previous week updated to reflect each Loan
Party's most recent purchases of Inventory and sales and, at Xxxxxx'x request an
assignment schedule of all Accounts created by Client since submission of the
most recent Borrowing Base Certificate; (ii) an invoice register or sales
journal describing all of Client's Loan Party's sales for that day, in form and
substance satisfactory to Xxxxxx, and, if Xxxxxx so requests, copies of invoices
evidencing such sales and proofs of delivery relating thereto; and (iii) a cash
receipts journal.
(i) Appraisals. At Xxxxxx'x request, each Loan Party, at
such Loan Party's expense, will obtain and deliver to Xxxxxx appraisal reports
in form and substance and from appraisers satisfactory to Xxxxxx, stating the
then current fair market and orderly liquidation values of all or any portion of
the Collateral; provided, however, so long as no Event of Default shall then be
in existence, no such Loan Party shall be required to obtain and deliver any
such appraisal report in the event the aggregate expenses incurred by the Loan
Parties under this clause "(i)" (with supporting backup for such expenses
delivered to Xxxxxx) during any Contract Year exceed $16,000; provided, further,
in connection with any such appraisal Xxxxxx shall use its reasonable efforts to
instruct the applicable appraiser to conduct such appraisal in a manner which
would not reasonably be expected to interfere with the ordinary operation of
such Loan Party's business.
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5.4. If Xxxxxx determines that the credit standing of a customer
has deteriorated after Xxxxxx has assumed the Credit Risk on an Account, Client
will, at Xxxxxx'x request, exercise such rights as Client may have to reclaim or
stop the goods in transit, and Client hereby grants to Xxxxxx the right to take
such steps in Client's or Xxxxxx'x name.
5.5. Xxxxxx will render a monthly statement of account to Client
within twenty (20) days after the end of each month. Such statement of account
will constitute an account stated unless Client makes objection thereto by
Written Notice within forty-five (45) days from the date such statement is
rendered to Client.
5.6. Client authorizes Xxxxxx to disclose such information as
Xxxxxx deems appropriate to persons making credit inquiries about any Loan
Party.
5.7. (a) Each Advance and Revolving Loan to Client hereunder
shall be deposited in immediately available funds in such account as Client may
from time to time designate to Xxxxxx in writing. Unless payment is otherwise
timely made by Client, the becoming due of any amount required to be paid under
this Agreement or any other documents as principal, accrued interest, or fees
shall be deemed irrevocably to be a request by Client for an Advance or a
Revolving Loan on the due date of, and in the amount required to pay, such
principal, accrued interest, and fees, and the proceeds of each such Advance or
Revolving Loan if made by Xxxxxx shall be disbursed by Xxxxxx by way of direct
payment of the relevant Obligation.
(b) All requests for funds by Client shall first be
accounted for as Advances, to the extent of availability of Advances, and then
as Revolving Loans, to the extent of availability of Revolving Loans.
5.8. Each Loan Party shall permit Xxxxxx and any authorized
representatives designated by Xxxxxx to visit and inspect any of the properties
of such Loan Party or any of such Loan Party's Subsidiaries, including its and
their financial and accounting records, and to make copies and take extracts
therefrom, and to discuss its and their affairs, finances, and business with its
and their officers at such times during normal business hours and as often as
Xxxxxx requests. (Each Loan Party acknowledges that Xxxxxx intends to make such
inspections on at least a quarterly basis.) Xxxxxx may, at any time after the
occurrence and declaration of an Event of Default and acceleration of the
Obligations, remove from such Loan Party's premises all such records, files, and
books relating to Accounts.
SECTION 6. CONDITIONS
6.1. Xxxxxx'x obligation to make Revolving Loans, Advances, and
issue Letter of Credit Guaranties hereunder on the Effective Date and thereafter
are subject to satisfaction of all of the conditions set forth below:
(a) Xxxxxx shall have received, in form and substance
satisfactory to Xxxxxx, the duly executed Loan Documents and all other
documents, instruments, and information and agreements, notes, guarantees,
certificates, orders, authorizations, financing
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statements, mortgages, and other documents which Xxxxxx may at any time
reasonably request, including, but not limited to, appropriate landlord and
licensor consents and waivers and evidence of insurance.
(b) Xxxxxx shall have received satisfactory evidence that
all security interests and liens granted to Xxxxxx pursuant to this Agreement or
the other Loan Documents have been duly perfected and constitute first priority
liens in the Collateral.
(c) The representations and warranties contained herein
must be true, correct, and complete in all material respects on and as of the
Effective Date and the date of each request for an Advance or a Revolving Loan
to the same extent as though made on and as of that date, except for any
representation or warranty limited by its terms to a specific date or such
changes thereto which have been expressly consented to in writing by Xxxxxx. Any
Loan Party may at any time amend any Schedule referred to in this Agreement,
provided that in no event may any Loan Party amend any such Schedule if the
existence of the information contained in such amendment would reflect or
evidence a Default or Event of Default or if the information contained in such
amendment relates to a fact or circumstance occurring prior to such amendment
and the applicable Loan Party was required under the terms of this Agreement to
give prior notice to Xxxxxx and such proper notice was not so given.
(d) No event shall have occurred and be continuing or
would result from the consummation of the requested Advance or Revolving Loan or
notice requesting issuance of a Letter of Credit that would constitute a Default
or an Event of Default.
(e) No order, judgment, or decree of any court,
arbitrator, or governmental authority shall purport to enjoin or restrain Xxxxxx
from making Advances or Revolving Loans or issuing any Letters of Credit
Guaranties.
(f) Except as set forth on Schedule 6.1(f), there shall
not be pending or, to Client's knowledge, threatened, any action, charge, claim,
demand, suit, proceeding, petition, governmental investigation, or arbitration
by, against, or affecting Client or any of its Subsidiaries or any of Client's
property or any of Client's Subsidiaries' properties that has not been disclosed
by Client in writing, and there shall have occurred no development in any such
action, charge, claim, demand, suit, proceeding, petition, governmental
investigation, or arbitration that, in Xxxxxx'x opinion, would reasonably be
expected to have a Material Adverse Effect.
(g) The Acquisition shall have been completed on terms
and conditions satisfactory to Xxxxxx.
(h) Xxxxxx shall have received (i) a subordination
agreement with each of Mr. Hong Han and Xx. Xxxxx Xxxxxxx with respect to
indebtedness owing to them by HG, (ii) a subordination agreement with Mr. Hong
Han with respect to indebtedness owing to him by NN, (iii) [a subordination and
intercreditor agreement with Xxx Xxxx Bank of New York, (iv) a subordination and
intercreditor agreement with Mr. Hong Han
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and (v) an agreement with each Licensor, each of which shall be in form and
substance satisfactory to Xxxxxx.
SECTION 7. REPRESENTATIONS, WARRANTIES, AND COVENANTS
7.1. Each Client represents, warrants, and covenants as to each
Account that, at the time of its sale and assignment to Xxxxxx, the Account is a
valid, bona fide Account, representing an undisputed indebtedness incurred by
the named customer for goods actually sold and delivered or for services
completely rendered; the Account is payable in United States dollars; there are
no set offs, offsets, counterclaims, or other defenses, genuine or otherwise, to
the payment or collection of the Account; the Account does not represent a sale
to any Client's Subsidiaries or Affiliates other than Accounts arising out of
any Client's sale to any other Loan Party of Inventory in the ordinary course of
business for retail sale, directors, officers, agents, stockholders, or
employees or a consignment sale, guaranteed sale or xxxx and hold transaction or
a cash on delivery sale (other than in connection with the sale by any Client to
any other Loan Party of Inventory in the ordinary course of business for retail
sale); no agreement exists permitting any deduction or discount (other than the
discount stated on the invoice); such Client is the lawful owner of the Account
and has the right to sell and assign the same to Xxxxxx; the Account is free of
all security interests, liens, and encumbrances (including tax liens) other than
those in favor of Xxxxxx and Permitted Encumbrances; and the Account is due and
payable in accordance with its terms.
7.2. Except for Permitted Encumbrances, no Loan Party will grant or
suffer to exist in favor of any other party other than Xxxxxx any Lien upon or
security interest in the Collateral.
7.3. All books and records pertaining to the Accounts or to any
Inventory owned by each Loan Party will be maintained solely and exclusively at
the above address or the addresses set forth on Schedule 7.8 hereof and no such
books and records shall be moved or transferred without giving Xxxxxx thirty
(30) days prior Written Notice.
7.4. After Xxxxxx'x request, each Loan Party will hold all
returned, replevied, or reclaimed goods relating to Accounts coming into such
Loan Party's possession in trust for Xxxxxx and all such goods will be
segregated and identified as held in trust for Xxxxxx'x benefit and each Loan
Party will, at Xxxxxx'x request, and at such Loan Party's expense, deliver such
goods to such place or places as Xxxxxx may designate.
7.5. (a) The trade names or styles set forth on Schedule 7.5
are the only trade names or styles under which the Loan Parties transact
business or have transacted business during the last five (5) years; Accounts
sold to Xxxxxx hereunder and represented by invoices bearing such trade names or
styles are wholly-owned by the applicable Loan Party; the undertakings,
representations, and warranties made in connection therewith will be identical
to and of the same force and effect as those made with respect to invoices
bearing such Loan Party's corporate name; each Loan Party's use of any trade
names or styles is in compliance with all laws regarding the use of such trade
names or styles. Each Loan Party
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will give Xxxxxx thirty (30) days prior Written Notice of the change of any
trade name or style or such Loan Party's use of any new trade name or style.
(b) Each Loan Party hereby assigns, transfers, and
conveys to Xxxxxx, effective upon the occurrence of any Event of Default
hereunder and acceleration of the Obligations, the non-exclusive right and
license to use all trade names or styles owned by such Loan Party and, to the
extent such Loan Party has the legal right to do so, a license to use all
tradenames or styles not owned but used by such Loan Party, together with any
goodwill associated therewith, all to the extent necessary to enable Xxxxxx to
realize on any assets of such Loan Party in which such Loan Party has granted
Xxxxxx a security interest. Such right and license is granted free of charge
without requirement that any monetary payment whatsoever be made to such Loan
Party or any third party by Xxxxxx.
7.6. No discounts, credits, or allowances will be issued, granted,
or allowed by Client to customers and no returns will be accepted without
Xxxxxx'x prior written consent; provided, however, that until Xxxxxx notifies
such Client to the contrary, such Client may presume Xxxxxx'x consent.
Discounts, credits, or allowances once issued may be claimed only by the
customer.
7.7. After giving effect to the Acquisition and the transactions
contemplated by this Agreement, each Loan Party is a corporation or limited
liability company, as applicable, duly formed and, except as set forth on
Schedule 7.7, in good standing under the laws of the State of its formation and
qualified in all States where such qualification is required, except where the
failure to be so qualified could not reasonably be expected to have a Material
Adverse Effect; the execution, delivery, and performance of this Agreement have
been duly authorized and are not in contravention of any applicable law, any
Loan Party's corporate charter, by-laws, certificate of formation, operating
agreement or any agreement or order by which such Loan Party is bound; no Loan
Party is, to the best of such Loan Party's knowledge, in violation of any law,
ordinance, rule, regulation, order, or other requirement of any government or
instrumentality or agency thereof.
7.8. No Loan Party shall change its corporate name or the location
of its office or open any new offices without giving Xxxxxx at least thirty (30)
days prior Written Notice. At the present time, each Loan Party carries on
business and maintains Inventory only at the above address and the addresses set
forth on Schedule 7.8 applicable to such Loan Party.
7.9. Except for sales of Inventory in the ordinary course of each
Loan Party's business, no Loan Party shall sell, lease, transfer, or otherwise
dispose of all or substantially all of such Loan Party's property or assets, or
acquire assets of (outside the ordinary course of business purchases),
consolidate with or merge into or with any corporation or entity without
Xxxxxx'x prior written consent; provided, however, with prior written notice to
Xxxxxx any Loan Party (other than a Client) may merge with any other Loan Party
(other than a Client).
7.10. Each Loan Party covenants and agrees that until payment in
full of all Obligations, each such Loan Party shall comply with all covenants in
this Section 7.10. All
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of the following covenants shall be calculated on a consolidated basis with
respect to Parent and Reporting Subsidiaries.
(a) Tangible Net Worth. Parent and Reporting Subsidiaries
shall at the end of each Fiscal Quarter set forth below maintain Tangible Net
Worth of not less than the amount set forth opposite such Fiscal Quarter end as
follows:
Fiscal Year Ending: Tangible Net Worth:
------------------- -------------------
5/31/98 $ 4,250,000
5/31/99 7,000,000
5/31/00 10,500,000
5/31/01 and each Fiscal Year 15,500,000
end thereafter
(b) Working Capital. Parent and Reporting Subsidiaries
shall at the end of each Fiscal Quarter maintain Working Capital of not less
than $2,200,000.
(c) Current Ratio. Parent and Reporting Subsidiaries
shall maintain at the end of each Fiscal Quarter a Current Ratio of not less
than 1.30 to 1.00.
(d) Capital Expenditure Limits. The aggregate amount of
the Loan Parties' Capital Expenditures on a consolidated basis (excluding
trade-ins and excluding Capital Expenditures in respect of replacement assets to
the extent funded with casualty insurance proceeds) will not exceed $300,000 per
Fiscal Year. In the event that any Loan Party enters into a Capital Lease or
other contract with respect to fixed assets, for purposes of calculating Capital
Expenditures under this subsection only, the amount of the Capital Lease or
contract initially capitalized on such Loan Party's balance sheet prepared in
accordance with GAAP shall be considered expended in full on the date that such
Loan Party enters into such Capital Lease or contract. Permitted Capital
Expenditures not made in any Fiscal Year may be carried over for one year only
to the next Fiscal Year, provided, however, any carried over Capital Expenditure
will be deemed used only after all otherwise permitted Capital Expenditures for
that Fiscal Year have been used.
7.11. In order to induce Xxxxxx to enter into this Agreement and to
make Advances, and Revolving Loans, and issue Letter of Credit Guaranties, each
Loan Party represents and warrants to Xxxxxx that the following statements are
and at all times will be true, correct, and complete:
(a) There are no judgments outstanding, against, or
affecting any Loan Party's property nor is there any action, charge, claim,
demand, suit, proceeding, petition, governmental investigation, or arbitration
now pending or, to the best of such Loan Party's knowledge after due inquiry,
threatened against or affecting any Loan Party or any of its property which
could reasonably be expected to result in any Material Adverse Effect. No Loan
Party has received any opinion or memorandum or legal advice from legal counsel
to
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the effect that such Loan Party is exposed to any liability or disadvantage
which could reasonably be expected to result in any Material Adverse Effect.
(b) All of each Loan Party's material tax returns and
reports required to be filed have been timely filed (including permitted
extensions), and all taxes, assessments, fees, and other governmental charges
upon each Loan Party and upon each Loan Party's respective properties, assets,
income, and franchises which are shown on such returns as due and payable have
been paid when due and payable, other than any tax which such Loan Party is
contesting in good faith by appropriate proceedings promptly instituted and
diligently conducted so long as such Loan Party has established appropriate
reserves as shall be required in conformity with GAAP. No Loan Party's United
States income tax returns are under audit as of the date of this Agreement. No
tax liens have been filed and no claims are being asserted with respect to any
such taxes which have not been discharged, released, vacated, bonded, or stayed
within ten (10) days after the filing thereof. The charges, accruals, and
reserves on any Loan Party's books in respect of any taxes or other governmental
charges are in accordance with GAAP.
(c) Except as set forth on Schedule 7.11(c), no Loan
Party is in default in the performance, observance, or fulfillment of any of the
obligations, covenants, or conditions contained in any of such Loan Party's
contractual obligations and no condition exists that, with the giving of notice
or the lapse of time or both, would constitute such a default, where such
default could reasonably be expected to have a Material Adverse Effect.
(d) No Loan Party is in violation of any law, ordinance,
rule, regulation, order, policy, guideline, or other requirement of any domestic
or foreign government or any instrumentality or agency thereof, having
jurisdiction over the conduct of such Loan Party's business or the ownership of
such Loan Party's properties, including, without limitation, any violation
relating to any use, release, storage, transport, or disposal of any hazardous
material, which violation would subject such Loan Party or any of such Loan
Party's respective officers to criminal liability or have any Material Adverse
Effect and no such violation has been alleged.
(e) All information furnished to Xxxxxx concerning the
Collateral, Accounts, Inventory, contracts relating thereto, and proceeds
thereof, each Loan Party's financial condition or otherwise, is and will be
complete, accurate, and correct in all material respects at the time the same is
furnished.
(f) All covenants, representations, and warranties
contained in this Agreement shall be true and correct on the Effective Date and
shall be deemed continuing, other than any representation or warranty limited by
its terms to a specific date or such changes thereto which have been expressly
consented to in writing by Xxxxxx.
7.12. Each Loan Party will maintain or cause to be maintained in
good repair, working order, and condition all material properties used in such
Loan Party's business and will make or cause to be made all appropriate repairs,
renewals, and replacements thereof. Each Loan Party has and will maintain or
cause to be maintained, with financially sound and reputable insurers, public
liability, product liability, and property damage insurance
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with respect to such Loan Party's business and properties against loss or damage
of the kinds customarily carried or maintained by corporations of established
reputation engaged in similar businesses and in amounts acceptable to Xxxxxx,
including business interruption insurance. At all times each Loan Party shall
have and maintain insurance with respect to all Inventory, to the fullest extent
of the insurable value thereof, against risks of fire, theft, sprinklers, and
such other risks as Xxxxxx may require, in such form, for such periods, and
written by such insurers as may be satisfactory to Xxxxxx, such insurance to
bear endorsements, in form acceptable to Xxxxxx, naming Xxxxxx as additional
insured and designating Xxxxxx as loss payee. Each Loan Party shall deliver to
Xxxxxx promptly as rendered true copies of all monthly reports made to insurance
companies under any reporting forms of insurance policies. If requested by
Xxxxxx, originals of all such policies shall be delivered to and held by Xxxxxx
for so long as any of the Obligations are unpaid or unperformed. After the
occurrence of an Event of Default, Xxxxxx may act as agent for any Loan Party in
making, adjusting, settling, instituting suit upon, and prosecuting claims
regarding, obtaining, and canceling such insurance and in endorsing and
collecting any drafts and other forms of payment. Except as to business record
insurance, if any Loan Party fails to maintain such insurance, Xxxxxx may, but
need not, obtain the same and charge the cost thereof to Client's Revolving Loan
or Advances. The proceeds of any such insurance shall be applied in reduction of
Client's Revolving Loan.
7.13. All of the Inventory now owned or hereafter acquired by any
Loan Party is and will be of good and merchantable quality, and each Loan Party
is and will be the owner of such Inventory free from any lien, security
interest, or encumbrance, except Permitted Encumbrances; that none of the
Inventory is or will be stored with a bailee (hereinafter called "Warehouseman")
without Xxxxxx'x written consent, and, in such event, such Loan Party will
immediately cause the Warehouseman to issue and deliver to Xxxxxx, should Xxxxxx
so require, warehouse receipts or other documents in Xxxxxx'x name and in form
acceptable to Xxxxxx, evidencing the storage of such Inventory; that such Loan
Party warrants and will defend the Inventory against all claims and demands of
any persons at any time; and that such Loan Party has good, legal, and absolute
right and power to pledge and grant liens and security interests in the
Inventory to Xxxxxx. Except as set forth on Schedule 7.8, no Loan Party does nor
shall, without Xxxxxx'x prior written consent, maintain any Inventory at any
contractor's location. To the extent any Loan Party uses contractors, such Loan
Party shall execute such documents as Xxxxxx may request, and such Loan Party
shall require its contractor to execute such documents as Xxxxxx may request in
order for Xxxxxx to protect its security interest in any Inventory located at a
contractor. Whenever any Inventory is located upon leased premises, the
applicable Loan Party shall, at Xxxxxx'x request, use reasonable efforts to
cause the owner and lessor of such premises to execute and deliver to Xxxxxx
consents and subordination's of lien in form acceptable to Xxxxxx.
7.14. Each Loan Party covenants and agrees:
(a) To notify Xxxxxx immediately of any event causing
loss or depreciation (not previously reflected in the then current Borrowing
Base) in the value of Inventory and the amount of such loss or depreciation to
the extent such loss or
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depreciation at any time exceeds $75,000 with respect to any item of Inventory
or $150,000 with respect to all items of Inventory;
(b) To keep correct current stock, cost and sales records
of such Loan Party's Inventory, accurately and sufficiently itemizing and
describing the kinds, type, and quantities of Inventory and the cost and selling
prices thereof, all of which records shall be continuously available to Xxxxxx
for inspection, and Xxxxxx shall at all reasonable times have access to and the
right to inspect and draw off data from any of such Loan Party's other books and
records for the purposes of checking and verifying all such statements, stock,
cost and sales records;
(c) At all reasonable times and from time to time, by or
through any of such Loan Party's officers, agents, attorneys, or accountants,
permit Xxxxxx to examine or inspect the Inventory wherever located and, for such
purposes, to enter upon such Loan Party's premises or wherever any of the
Inventory may be found; and
(d) Until the occurrence of an Event of Default, each
Loan Party may use the Inventory in any lawful manner not inconsistent with this
Agreement or with the terms or conditions of any policy of insurance thereon,
may use and consume any raw materials or supplies, the use and consumption of
which is necessary in order to carry on such Loan Party's business, and may also
sell the Inventory in the ordinary course of business. (A sale in the ordinary
course of business does not include a transfer in partial or total satisfaction
of a debt owing by any Loan Party to any person other than Xxxxxx.)
7.15. Each Loan Party covenants and agrees that so long as any
Obligations remain outstanding such Loan Party shall not, without Xxxxxx'x prior
written consent:
(a) Directly or indirectly create, incur, assume,
guaranty (other than the guaranty by one Loan Party of the obligations for which
another Loan Party is the primary obligor), or otherwise become or remain
directly or indirectly liable, on a fixed or contingent basis, with respect to
any Indebtedness except the Obligations, Permitted Intercompany Debt and trade
payables and normal accruals in the ordinary course of business not yet due and
payable or with respect to which such Loan Party is contesting in good faith the
amount or validity thereof by appropriate proceedings and then only to the
extent that such Loan Party has established adequate reserves therefor, if
appropriate under GAAP.
(b) Except for endorsements of instruments or items of
payment for collection in the ordinary course of business, guaranty (other than
pursuant to a Permitted Guaranty), endorse, or otherwise in any way become or be
responsible for any obligations of any other person, whether directly or
indirectly by agreement to purchase the indebtedness of any other person or
through the purchase of goods, supplies or services, or maintenance of Working
Capital or other balance sheet covenants or conditions, or by way of stock
purchase, capital contribution, advance or loan for the purpose of paying or
discharging any indebtedness or obligation of such other person or otherwise.
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(c) Directly or indirectly create, incur, assume or
permit to exist any Lien on or with respect to any of the Collateral or any
proceeds, income, or profits therefrom, other than Permitted Encumbrances.
(d) Except as set forth on Schedule 7.14(d), enter into
or assume any agreement (other than this Agreement) prohibiting the creation or
assumption of any Lien upon any of such Loan Party's properties or assets,
whether now owned or hereafter acquired.
(e) Except as provided herein, directly or indirectly
create or otherwise cause or suffer to exist or become effective any consensual
encumbrance or restriction of any kind on the ability of any Loan Party's
Subsidiaries to: (1) pay dividends or make any other distribution on any of such
Subsidiary's capital stock owned by such Loan Party or any of such Loan Party's
Subsidiaries; (2) subject to subordination provisions, pay any indebtedness owed
to such Loan Party's Subsidiaries or Affiliates; (3) other than in connection
with Permitted Intercompany Debt, make loans or advances to any of such Loan
Party's Subsidiaries or Affiliates; or (4) transfer any of such Loan Party's
property or assets to any of such Loan Party's Subsidiaries or Affiliates, other
than the sale of Inventory in the ordinary course of business for retail sale.
(f) Make or permit to exist investments in or loans to
any other person except loans and advances to employees for moving,
entertainment, travel, and other similar expenses in the ordinary course of
business and in connection with Permitted Intercompany Debt.
(g) Directly or indirectly declare, order, pay, make or
set apart any sum for any Restricted Junior Payment.
(h) Except as set forth in Schedule 7.14(h), directly or
indirectly enter into or permit to exist any transaction (including the
purchase, sale, or exchange of property or the rendering of any service) with
any Affiliate or with any officer, director, or employee of any Affiliate,
except for transactions in the ordinary course of and pursuant to the reasonable
requirements of such Loan Party's business and upon fair and reasonable terms
which are fully disclosed to Xxxxxx and which are no less favorable to such Loan
Party than such Loan Party would obtain in a comparable arm's length transaction
with an unaffiliated person and for the sale of Inventory by any Client to any
other Loan Party in the ordinary course of business for retail sale.
(i) From and after the Effective Date, engage in any
business, other than the businesses of the type engaged in by such Loan Party or
its Affiliates on the Effective Date.
(j) Establish any new bank accounts, or amend or
terminate any agreement without Xxxxxx'x prior written consent. As of the date
hereof, each Loan Party maintains only those bank accounts set forth on Schedule
7.15(j).
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(k) Change or amend the terms of the Subordinated Debt if
the effect thereof would be to: (a) increase the interest rate on such
Indebtedness; (b) change the dates upon which payments of principal or interest
are due on such Indebtedness; (c) change any event of default or add any
covenant with respect to such Indebtedness; (d) change the payment provisions of
such Indebtedness; (e) change the subordination provisions thereof; or (f)
change or amend any other term if such change or amendment would materially
increase the obligations of the obligor or confer additional material rights on
the holder of such Indebtedness in a manner adverse to any Loan Party or Xxxxxx.
7.16. Client shall use the proceeds of all Advances and Revolving
Loans for proper business purposes consistent with all applicable laws,
statutes, rules and regulations. No portion of the proceeds of any Advance or
Revolving Loan shall be used by any Loan Party or any of its Subsidiaries for
the purpose of purchasing or carrying margin stock within the meaning of
Regulation G or Regulation U, or in any manner that might cause the borrowing or
the application of such proceeds to violate Regulation T or Regulation X or any
other regulation of the Board of Governors of the Federal Reserve System or to
violate the Securities and Exchange Act of 1934, as amended.
7.17. On and after that date which is thirty (30) days from the
Effective Date, Client shall maintain key man life insurance covering Mr. Hong
Han in the amount of $1,500,000, which policy shall contain a loss payable
clause in form satisfactory to Xxxxxx naming Xxxxxx as loss payee and providing
that all proceeds payable thereunder shall be payable in any event to Xxxxxx,
unless written consent to the contrary is obtained from Xxxxxx.
7.18. Each Loan Party shall provide Xxxxxx prompt Written Notice in
the event the United States income tax returns of such Loan Party are under
audit.
7.19. Each entity set forth on Schedule 7.19 is an inactive
Subsidiary of Parent (each, an "Inactive Subsidiary") conducting no business of
any nature whatsoever and owning no assets. No Loan Party shall at any time
during the term of this Agreement make loans to or investments in any such
Inactive Subsidiary.
SECTION 8. DISPUTES, CHARGE BACKS, AND RESERVES
8.1. With respect to any Account, upon the occurrence of a breach
of any of the representations or warranties contained in Sections 7.1 and 7.2,
or upon the assertion by a customer of a Dispute such Account may, at Xxxxxx'x
option, be charged back to Client. In the event Client does not, within fifteen
(15) days of Xxxxxx'x request, deliver to Xxxxxx a copy of the invoice and such
other information as Xxxxxx requests relating to an Account with respect to
which information was transmitted to Xxxxxx through Transmission, Xxxxxx will
have the right to charge back such Account to Client.
8.2. Each Loan Party will notify Xxxxxx immediately by Written
Notice in the event that a customer alleges any Dispute, or returns or desires
to return any goods purchased from Client relating to an Account. After an Event
of Default, Xxxxxx may, but
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is not obligated to settle, compromise, adjust, or litigate all such Disputes or
returns upon such terms as Xxxxxx deems advisable. If any unadjusted Dispute
delays the payment of any Approved Account when due, Xxxxxx will have the right,
within sixty (60) days of the occurrence of such Dispute, to charge back to
Client that Account.
8.3. Xxxxxx may, at Xxxxxx'x option, charge back to Client all
amounts owing on Non-Approved Accounts which are not paid when due.
8.4. Client will pay Xxxxxx or Xxxxxx may charge Client's account
with the amount of any payment which Xxxxxx receives with respect to a
Non-Approved Account if such payment is subsequently disgorged by Xxxxxx,
whether as a result of any proceeding in bankruptcy or otherwise.
8.5. Client shall purchase promptly all Accounts charged back by
Xxxxxx, provided, however, that until payment by Client to Xxxxxx of all monies
due with respect to such charged back Account, title thereto shall remain with
Xxxxxx. At such time as Client shall pay to Xxxxxx all monies due with respect
to such charged back Account, title shall pass to Client subject, however, to
Xxxxxx'x security interest therein. Client agrees to indemnify and save Xxxxxx
harmless from and against any and all loss, costs and expenses caused by or
arising out of Disputed Accounts, including, but to limited to, collection
expenses and attorneys' fees incurred with respect thereto.
8.6. Xxxxxx may maintain such reserves as Xxxxxx, in Xxxxxx'x sole
discretion, deems advisable as security for the payment and performance of the
Obligations, including, without limitation reserves for the amount of any
Account which is subject to a Dispute.
SECTION 9. COLLATERAL SECURITY
9.1. As security for all Obligations, each Loan Party hereby
assigns and grants to Xxxxxx a continuing security interest, in and to all of
such Loan Party's right, title, and interest on the following collateral,
whether now owned or existing or hereafter acquired or arising and regardless of
wherever located (the "Collateral"): (A) Accounts, and all guaranties and
security therefor, and all goods and rights represented thereby or arising
therefrom including the right of stoppage in transit, replevin, and reclamation;
(B) Inventory (other than raw materials and work-in-process); (C) general
intangibles (as defined in the UCC); (D) documents (as defined in the UCC) or
other receipts covering, evidencing, or representing goods; (E) instruments (as
defined in the UCC); (F) chattel paper (as defined in the UCC); (G) Equipment;
(H) Intellectual Property; (I) all of such Loan Party's deposit accounts
maintained with any bank or financial institution; (J) all of such Loan Party's
cash and other monies and property in the possession or under the control of
Xxxxxx; (K) all books, records, ledger cards, files, correspondence, computer
programs, tapes, disks and related data processing software that at any time
evidence or contain information relating to any of the property described above
or are otherwise necessary or helpful in the collection thereof or realization
thereon; (L) all tax refunds from whatever sources; (M) products and proceeds of
all or any of the property described above, including, without limitation, the
proceeds of any insurance policies covering any of the
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above described property. Recourse to the Collateral herein provided shall not
be required, and such Loan Party shall at all times remain liable for the
payment and performance of all Obligations upon demand by Xxxxxx.
SECTION 10. EVENTS OF DEFAULT
10.1. The occurrence of any of the following acts or events will
constitute an Event of Default: (a) if any Loan Party fails to make payment of
any of the Obligations when due, (b) if any Loan Party fails to make any
remittance required by this Agreement, (c) if any Loan Party fails to perform or
comply with any term or condition contained in subsections 5.3 (a), (b) or (c),
7.2, 7.10, 7.15 or 7.17, (d) if any Loan Party commits any breach of any of the
terms, representations, warranties, covenants, conditions, or provisions of this
Agreement, other than those set forth in subsection (c) above, or of any present
or future supplement or amendment hereto or of any other agreement between any
Loan Party and Xxxxxx and such Default is not remedied or waived within thirty
(30) days (other than the occurrences described in other provisions of this
subsection 10.1 for which a different grace or cure period is specified or which
constitutes immediate Events of Default), (e) any representation, warranty,
certification, or other statement made by any Loan Party in any Loan Document or
in any statement or certificate at any time given by such person in writing
pursuant to or in connection with any Loan Document is false in any material
respect on the date made, (f) if any Client becomes insolvent or unable to meet
such Client's debts as they mature, (g) if any Loan Party delivers to Xxxxxx a
false financial statement, (h) if any Client calls, or has called by a third
party, a meeting of creditors, (i) if any bankruptcy proceeding, insolvency
arrangement, or similar proceeding is commenced by or against any Client, (j) if
any Client suspends or discontinues doing business for any reason, (k) if a
receiver or trustee of any kind is appointed for any Client or any Client's
property, (l) if any Loan Party fails to pay any of its taxes when due, other
than (subject to clause "(q)" of this Section 10.1) any tax which such Loan
Party is contesting in good faith by appropriate proceedings promptly instituted
and diligently conducted so long as such Loan Party has established appropriate
reserves as shall be required in conformity with GAAP, (m) if any guarantor of
any Loan Party's Obligations dies or becomes insolvent or has commenced by or
against such guarantor any bankruptcy proceeding, insolvency arrangement, or
similar proceeding, (n) if any guaranty of any Loan Party's Obligations is
terminated or if there is a default under any such guaranty, (o) other than the
change of ownership occurring on the Effective Date expressly contemplated by
the Acquisition, if any change of ownership occurs with respect to more than (i)
forty percent (40%) of Parent's capital stock or (ii) one hundred percent (100%)
of any Loan Party's capital stock or membership interests, (p) if any Loan Party
fails to pay when due any principal or interest on any Indebtedness or a breach
or default occurs with respect to any Indebtedness if such failure to pay,
breach, or default entitles the holder to cause such Indebtedness having an
individual principal amount in excess of $100,000 or having an aggregate
principal amount in excess of $200,000 to become or be declared due prior to its
stated maturity, (q) if any Lien, money judgment, levy, assessment, seizure, or
writ or warrant of attachment is entered or filed against any Loan Party with
respect to the Accounts or any other Collateral in which such Loan Party has
granted Xxxxxx a security interest or any of such Loan Party's assets and any
such Lien, judgment, levy, assessment,
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seizure, or writ, or warrant of attachment remains undischarged, unreleased,
unvacated, unbonded, or unstayed for a period of ten (10) days, (r) if any Loan
Party sells, leases, transfers, or otherwise disposes of all or substantially
all of such Loan Party's property, assets, or inventory, or consolidates with or
merges into or with any corporation or entity or (s) if Mr. Hong X. Xxx shall at
any time fail to act in the capacity as a principal officer and director of
Parent and HGI.
10.2. (a) (i) Upon the occurrence and during the
continuance of an Event of Default, notwithstanding any grace period or right to
cure, Xxxxxx, without notice or demand, may immediately cease making additional
Advances, or Revolving Loans, or issue Letter of Credit Guaranties, provided
that, in the case of a Default, if the subject condition or event is waived or
cured within any applicable grace or cure period, Xxxxxx'x obligation to make
such Advances, or Revolving Loans, or issue Letter of Credit Guaranties shall be
reinstated.
(ii) Upon the occurrence and during the
continuance of an Event of Default described in the foregoing subsections 10.1
(i) or (k), all Obligations shall automatically become immediately due and
payable, without presentment, demand, protest, or other requirements of any
kind, all of which are hereby expressly waived by each Loan Party and Xxxxxx'x
obligation to make Advances or Revolving Loans shall thereupon terminate. Upon
the occurrence and during the continuance of any other Event of Default, Xxxxxx
may, by Written Notice to Client on behalf of all Loan Parties, (a) declare all
or any portion of the Obligations to be, and the same shall forthwith become,
immediately due and payable and the commitments shall thereupon terminate and
(b) demand that Client immediately deposit with Xxxxxx an amount equal to one
hundred five percent (105%) of the Letter of Credit Reserve to enable Xxxxxx to
make payments under the Letters of Credit when required and such amount shall
become immediately due and payable.
(b) In addition to the foregoing, upon the occurrence of
an Event of Default, Xxxxxx shall have the right to:
(i) take possession of the Collateral without
judicial process and to enter any premises without hindrance and without any
Loan Party's consent where any Collateral may be located, for the purpose of
taking possession of the Collateral; however, should Xxxxxx seek to take
possession of any or all of the Inventory by court process, each Loan Party
hereby irrevocably waives any bonds and any surety or security relating thereto
required by any statute, court rule, or otherwise as an incident to such
possession, and waives any demand for possession prior to the commencement of
any suit or action to recover possession thereof;
(ii) sell or to otherwise dispose of all or any
Collateral in its then condition, or after any further manufacturing or
processing thereof, at public or private sale or sales, with or without notice,
demand, or advertisement, in lots or in bulk, for cash or on credit, all as
Xxxxxx in its sole discretion may deem advisable; such sales may be adjourned
from time to time with or without notice. If any Collateral is in process or
otherwise unfinished, Xxxxxx may, but need not, complete the manufacturing or
processing
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thereof, utilizing without charge each Loan Party's plant, machinery, equipment,
and processes, and any expenses incurred in connection therewith shall be
charged to Client's Revolving Loan. Xxxxxx shall have the right to conduct such
sales on each Loan Party's premises or elsewhere and shall have the right to use
each Loan Party's premises without charge for such sales for such term or times
as Xxxxxx may see fit. Xxxxxx is hereby granted a lien and security interest in
and the right to use (to the extent such Loan Party has the legal right to xxxxx
Xxxxxx such a license with respect to names such Loan Party does not own),
without charge, each Loan Party's labels, patents, copyrights, rights of use of
any name, trade secrets, trade names, trade marks and advertising matter, or any
property of a similar nature, in completing the manufacturing, advertising for
sale and selling any Collateral, and each Loan Party's rights under all licenses
and all franchise agreements shall inure to Xxxxxx'x benefit. Xxxxxx reserves
the right to purchase any Collateral at any such sale. The proceeds realized
from the sale of any Collateral shall be applied first to the costs, expenses,
and reasonable attorneys' fees incurred by Xxxxxx for collection and for
acquisition, completion, protection, removal, storage, sale, and delivery of
each Loan Party's Collateral; second to the interest due upon the Obligations;
and third to the principal of each Loan Party's Obligations. The surplus, if
any, shall be paid to the applicable Loan Parties, or if any deficiency shall
arise, each Loan Party shall remain liable to Xxxxxx therefor.
(c) Xxxxxx shall not be liable or responsible in any way
for the safeguarding of any of said Collateral, for any loss or damage thereto,
for any diminution in the value thereof, or for any act or default of any
carrier, Warehouseman, forwarding agency, or other person whomsoever, but the
same shall be at all times at each Loan Party's risk.
10.3. EXCEPT AS OTHERWISE PROVIDED FOR IN THIS AGREEMENT, EACH LOAN
PARTY WAIVES (a) PRESENTMENT, DEMAND, AND PROTEST AND NOTICE OF PRESENTMENT,
PROTEST, DEFAULT, NON-PAYMENT, MATURITY, RELEASE, COMPROMISE, SETTLEMENT,
EXTENSION, OR RENEWAL OF ANY OR ALL COMMERCIAL PAPER, ACCOUNTS, CONTRACT RIGHTS,
DOCUMENTS, INSTRUMENTS, CHATTEL PAPER, AND GUARANTIES AT ANY TIME HELD BY XXXXXX
ON WHICH SUCH LOAN PARTY MAY IN ANY WAY BE LIABLE AND HEREBY RATIFIES AND
CONFIRMS WHATEVER XXXXXX MAY DO IN THIS REGARD; (b) NOTICE PRIOR TO TAKING
POSSESSION OR CONTROL OF THE COLLATERAL OR ANY BOND OR SECURITY WHICH MIGHT BE
REQUIRED BY ANY COURT PRIOR TO ALLOWING XXXXXX TO EXERCISE ANY OF ITS REMEDIES;
AND (c) THE BENEFIT OF ALL VALUATION, APPRAISEMENT, AND EXEMPTION LAWS.
10.4. UPON THE OCCURRENCE OF AN EVENT OF DEFAULT, EACH LOAN PARTY
HEREBY WAIVES ALL RIGHTS TO NOTICE AND HEARING OF ANY KIND PRIOR TO THE EXERCISE
BY XXXXXX OF ITS RIGHTS TO REPOSSESS THE COLLATERAL WITHOUT JUDICIAL PROCESS OR
TO REPLEVY, ATTACH, OR LEVY UPON THE COLLATERAL WITHOUT PRIOR NOTICE OR HEARING.
EACH LOAN PARTY ACKNOWLEDGES THAT CLIENT
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HAS BEEN ADVISED BY COUNSEL OF SUCH LOAN PARTY'S CHOICE WITH RESPECT TO THIS
WAIVER AND THIS AGREEMENT.
10.5. Xxxxxx shall not be under any obligation to marshal any assets
in any Loan Party's favor or any other party or against or in payment of any or
all of the Obligations. To the extent that a payment is made to Xxxxxx or Xxxxxx
enforces its security interests or exercises its rights of set off, and such
payment or payments or the proceeds of such enforcement or set off or any part
thereof is subsequently invalidated, declared to be fraudulent or preferential,
set aside and/or required to be repaid to a trustee, receiver or any other party
under any bankruptcy law, state or federal law, common law or equitable cause,
then to the extent of such recovery, the Obligations or part thereof originally
intended to be satisfied, and all Liens, rights and remedies therefor, shall be
revived and continued in full force and effect as if such payment had not been
made or such enforcement or set off had not occurred.
10.6. In addition to any rights now or hereafter granted under
applicable law and not by way of limitation of any such rights, upon the
occurrence of any Event of Default, Xxxxxx, and each assignee of Xxxxxx'x
interest, is hereby authorized by each Loan Party at any time or from time to
time, without notice to such Loan Party or to any other person, any such notice
being hereby expressly waived, to set off and to appropriate and to apply any
and all balances held by Xxxxxx at any of Xxxxxx'x offices for any Loan Party's
account (regardless of whether such balances are then due to such Loan Party)
and any other property at any time held or owing that Xxxxxx or its assignee to
or for the credit or for Client's account against and on account of any of the
Obligations then outstanding.
10.7. (a) No provision in this Agreement or in any of the other
Loan Documents and no course of dealing between the parties shall be deemed to
create any fiduciary duty by Xxxxxx or any Loan Party.
(b) Neither Xxxxxx, nor any of its parent, affiliates,
officers, directors, shareholders, employees, attorneys, or agents shall have
any liability with respect to, and each Loan Party hereby waives, releases, and
agrees not to xxx any of them, upon any claim for any special, indirect,
incidental, or consequential damages suffered or incurred by such Loan Party in
connection with, arising out of, or in any way related to, this Agreement or any
of the other Loan Documents, or any of the transactions contemplated by this
Agreement or any of the other Loan Documents. Each Loan Party hereby waives,
releases, and agrees not to xxx Xxxxxx or any of its parent, affiliates,
officers, directors, shareholders, employees, attorneys, or agents for punitive
damages in respect of any claim in connection with, arising out of, or in any
way related to, this Agreement or any of the other Loan Documents, or any of the
transactions contemplated by this Agreement or any of the transactions
contemplated hereby other than claims arising out of such party's gross (not
mere) negligence or willful misconduct.
10.8. Each Loan Party hereby assigns, transfers, and conveys to
Xxxxxx, effective upon the occurrence of any Event of Default hereunder, the
non-exclusive right and license to use all Intellectual Property owned or (to
the extent such Loan Party has the legal right to do so with respect to
Intellectual Property it does not own) used by such Loan Party
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together with any goodwill associated therewith, all to the extent necessary to
enable Xxxxxx to realize on the Collateral and any successor or assign to enjoy
the benefits of the Collateral. This right and license shall inure to the
benefit of all successors, assigns, and transferees of Xxxxxx and its
successors, assigns, and transferees, whether by voluntary conveyance, operation
of law, assignment, transfer, foreclosure, deed in lieu of foreclosure, or
otherwise. Such right and license is granted free of charge without requirement
that any monetary payment whatsoever be made to Client by Xxxxxx.
10.9. If either party to this Agreement shall bring any action for
any relief against the other, declaratory or otherwise, arising out of this
Agreement, the losing party shall pay to the prevailing party a reasonable sum
for attorney fees incurred in bringing such suit and/or enforcing any judgment
granted therein, all of which shall be deemed to have accrued upon the
commencement of such action and shall be paid whether or not such action is
prosecuted to judgment. Any judgment or order entered in such action shall
contain a specific provision providing for the recovery of attorney fees and
costs incurred in enforcing such judgment. For the purposes of this section,
attorney fees shall include, without limitation, fees incurred in the following:
(1) postjudgment motions; (2) contempt proceedings; (3) garnishment, levy, and
debtor and third party examinations; (4) discovery; and (5) bankruptcy
litigation.
SECTION 11. TERM AND TERMINATION
11.1. This Agreement will continue in force and effect for two (2)
years from the Effective Date and shall renew for annual terms thereafter unless
terminated by Client upon not less than thirty (30) days Written Notice but no
more than sixty (60) days Written Notice prior to the end of the initial or any
renewal term; provided, however, Xxxxxx may terminate this Agreement at any time
by giving Client not less than sixty (60) days Written Notice. Upon termination,
Client shall cause Xxxxxx to be released from all liability under the Letters of
Credit, or, at Xxxxxx'x option, Client will deposit cash collateral with Xxxxxx
in an amount equal to one hundred five percent (105%) of the Letter of Credit
Liability that will remain outstanding after repayment.
11.2. Notice of termination shall be given by messenger, registered
or certified mail, facsimile or commercial delivery service; provided, however,
that Client shall not terminate this Agreement so long as Client is indebted or
obligated to Xxxxxx in connection with any other financing arrangements.
Notwithstanding any such Written Notice of termination, each Loan Party's and
Xxxxxx'x respective rights and obligations arising out of transactions having
their inception prior to the date of termination of this Agreement will not be
affected by the termination of this Agreement and all terms, provisions, and
conditions hereof, including, but not limited to, the security interests
hereinabove granted to Xxxxxx (including Xxxxxx'x security interest in the
Collateral arising, acquired, or created after the date of termination of this
Agreement), will continue in full force and effect until all Obligations have
been paid in full. All of the representations, warranties, indemnities, and
covenants made by each Loan Party herein (including, without limitation, the
undertaking set forth in Section 8.4 hereof) will survive the termination of
this Agreement.
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SECTION 12. MODIFICATIONS
12.1. This Agreement and the other Loan Documents embody the entire
agreement among the parties hereto and supersede all prior commitments,
agreements, representations, and understandings, whether written or oral,
relating to the subject matter hereof, and may not be contradicted or varied by
evidence of prior, contemporaneous, or subsequent oral agreements or discussions
of the parties hereto. This Agreement will be binding upon each Loan Party's and
Xxxxxx'x respective successors and assigns, but may not be assigned by any Loan
Party without Xxxxxx'x prior written consent. No delay or failure on Xxxxxx'x
part in exercising any right, privilege, or option hereunder will operate as a
waiver thereof or of any other right, privilege, or option. No waiver whatsoever
will be valid unless in a Written Notice, signed by Xxxxxx, and then only to the
extent therein set forth. If any term or provision of this Agreement is held
invalid under any statute, rule or regulation of any jurisdiction competent to
make such a decision, the remaining terms and provisions will not be affected
but will remain in full force and effect.
SECTION 13. GOVERNING LAW, VENUE, AND WAIVER OF JURY
13.1. APPLICABLE LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND SHALL
BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF
NEW YORK, WITHOUT REGARD TO CONFLICTS OF LAW PRINCIPLES.
13.2. CONSENT TO JURISDICTION. EACH LOAN PARTY HEREBY CONSENTS TO
THE JURISDICTION OF ANY STATE OR FEDERAL COURT LOCATED WITHIN THE COUNTY OF NEW
YORK, STATE OF NEW YORK AND IRREVOCABLY AGREES THAT, SUBJECT TO XXXXXX'X
ELECTION, ALL ACTIONS OR PROCEEDINGS ARISING OUT OF OR RELATING TO THIS
AGREEMENT OR THE OTHER LOAN DOCUMENTS SHALL BE LITIGATED IN SUCH COURTS. EACH
LOAN PARTY EXPRESSLY SUBMITS AND CONSENTS TO THE JURISDICTION OF THE AFORESAID
COURTS AND WAIVES ANY DEFENSE OF FORUM NON CONVENIENS. EACH LOAN PARTY HEREBY
WAIVES PERSONAL SERVICE OF ANY AND ALL PROCESS AND AGREES THAT ALL SUCH SERVICE
OF PROCESS MAY BE MADE UPON SUCH LOAN PARTY BY CERTIFIED OR REGISTERED MAIL,
RETURN RECEIPT REQUESTED, ADDRESSED TO SUCH LOAN PARTY, AT THE ADDRESS SET FORTH
IN THIS AGREEMENT AND SERVICE SO MADE SHALL BE COMPLETE TEN (10) DAYS AFTER THE
SAME HAS BEEN POSTED.
13.3. WAIVER OF JURY TRIAL. EACH LOAN PARTY AND XXXXXX HEREBY WAIVE
THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED
UPON OR ARISING OUT OF THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS. EACH LOAN
PARTY AND XXXXXX ACKNOWLEDGE THAT THIS WAIVER IS A MATERIAL INDUCEMENT TO ENTER
INTO A BUSINESS RELATIONSHIP, THAT EACH HAS RELIED ON THE WAIVER IN ENTERING
INTO THIS AGREEMENT AND
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THE OTHER LOAN DOCUMENTS AND THAT EACH WILL CONTINUE TO RELY ON THE WAIVER IN
THEIR RELATED FUTURE DEALINGS. CLIENT AND XXXXXX WARRANT AND REPRESENT THAT EACH
HAS HAD THE OPPORTUNITY OF REVIEWING THIS JURY WAIVER WITH LEGAL COUNSEL, AND
THAT EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS.
SECTION 14. APPLICATION OF PAYMENTS
14.1. All payments made by or on behalf of any Loan Party and all
credits due to any Loan Party may be applied and reapplied in whole or in part
to any of the Obligations to the extent and in the manner that Xxxxxx may see
fit.
SECTION 15. MISCELLANEOUS AND NOTICES
15.1. In the event that any provision of this Agreement is deemed to
be invalid by reason of the operation of any law or by reason of the
interpretation placed thereon by any court, this Agreement shall be construed as
not containing such provision, the invalidity of such provision will not affect
the validity of any other provision of this Agreement and all other provisions
of this Agreement which are otherwise lawful and valid shall remain in full
force and effect.
15.2. Any Written Notice to be given under this Agreement (or such
other address as may have been designated in a Written Notice) will be in
writing addressed to the respective party as set forth in this Agreement and
will be personally served, telecopied, or sent by overnight courier service or
United States mail and will be deemed to have been given (a) if delivered in
person, when delivered; (b) if delivered by telecopy, on the date of
transmission if transmitted on a Business Day before 4:00 p.m. New York, New
York time) or, if not, on the next succeeding Business Day; (c) if delivered by
overnight courier, on the day of delivery or refusal; or (d) if by United States
mail, certified mail, return receipt requested, on the day of delivery or
refusal, four (4) Business Days after depositing the same in the United States
mail, postage prepared and properly addressed.
15.3. Each Loan Party agrees to jointly and severally indemnify, pay
and hold Xxxxxx and its parent, officers, directors, shareholders, employees,
agents, affiliates, and attorneys and such holders (collectively called the
"Indemnities") harmless from and against any and all liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, claims, costs, expenses,
and disbursements of any kind or nature whatsoever (including the fees and
disbursements of counsel for such Indemnities in connection with any
investigative, administrative, or judicial proceeding commenced or threatened,
whether or not such Indemnitee shall be designated a party thereto) that may be
imposed on, incurred by, or asserted against that Indemnitee, in any manner
relating to or arising out of this Agreement or any other Loan Documents, the
consummation of the transactions contemplated by this Agreement, Xxxxxx'x
agreement to make the Advances, and Revolving Loans, and issue Letter of Credit
Guaranties hereunder, the use or intended use of the
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proceeds of any of the Advances or Revolving Loans or the exercise of any right
or remedy hereunder or under any other Loan Documents (the "Indemnified
Liabilities"); provided that no Loan Party shall have any obligation to an
Indemnitee hereunder with respect or Indemnified Liabilities arising from
willful misconduct or gross (not mere) negligence of that Indemnitee as
determined by a court of competent jurisdiction.
15.4. This Agreement, together with any and all other Loan
Documents, constitutes the final and entire agreement between the parties hereto
and supersedes any and all prior commitments, agreements, representations, and
understandings, whether written or oral, relating to the subject matter hereof
and may not be contradicted or varied by evidence of prior, contemporaneous, or
subsequent oral agreements or discussions of the parties hereto and no
amendment, modification, termination, or waiver of any provision of this
Agreement or of any other Loan Documents, or consent to any departure by any
Loan Party therefrom, shall be effective unless the same shall be by Written
Notice.
SECTION 16. DEFINITIONS
16.1. The defined terms used in this Agreement shall have the
following meanings:
"Accounts" means all presently existing or outstanding and all
hereafter created or acquired accounts (as defined in the UCC), contract rights,
documents, notes, drafts, instruments, and other forms of obligations owed to or
owned by any Loan Party arising or resulting from the sale of goods or the
rendering of services by any Loan Party, all general intangibles relating
thereto, all proceeds thereof, all guaranties and security therefor, and all
goods and rights represented thereby or arising therefrom, including, but not
limited to, returned, reclaimed, and repossessed goods and the right of stoppage
in transit, replevin, and reclamation.
"Acquisition" means (1) the sale of all of the issued and outstanding
shares of capital stock of NN to Parent and the issuance to Mr. Hong Han of not
less than forty-four percent (44%) of the issued and outstanding capital stock
of Parent and (2) the purchase of certain indebtedness presently due and owing
by Parent to (a) Marine Midland Bank et al and (b) Ms. Xxxxxxxx Xxxxx
Pasvantidou Rounick.
"Advance Availability" means the difference between (i) the Maximum
Advance Amount and (ii) Advances outstanding.
"Advance Interest Rate means the Base Rate plus one percent (1%).
"Advances" means all Advances made by Xxxxxx to Client pursuant to
Sections 2.2 and 2.3 hereof.
"Affiliate" means any person (other than Xxxxxx): (a) directly or
indirectly controlling, controlled by, or under common control with any Loan
Party; (b) directly or indirectly owning or holding five percent (5%) or more of
any equity interest in any Loan Party; and (c) five percent (5%) or more of
whose voting stock or other equity interest is
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directly or indirectly owned or held by any Loan Party. For the purposes of this
definition, "control" (including with the correlative meanings, the terms
"controlling", "controlled by", and "under common control with") means the
possession directly or indirectly of the power to direct or cause the direction
of the management and policies of a person, whether through the ownership of
voting securities or by contract or otherwise.
"Applicable Interest Rate" means (a) the Advance Interest Rate with
respect to Advances and (b) the Revolving Loan Interest Rate with respect to
Revolving Loans.
"Approved Account" means an Account representing a sale to a customer
within the credit line established for such customer on Client's normal selling
terms or within the single order credit approval given by Xxxxxx for orders from
such customer provided that Delivery is completed while the credit line or
single order credit approval remains in effect and which has not been charged
back to Client.
"Approved Payment Date" means the date which is one hundred twenty
(120) days after the due date for payment of an Approved Account.
"Base Rate" means a variable rate of interest per annum equal to the
higher of (a) the rate of interest from time to time published by the Board of
Governors of the Federal Reserve System as the "Bank Prime Loan" rate in Federal
Reserve Statistical Release H.15(519) entitled "Selected Interest Rates" or any
successor publication of the Federal Reserve System reporting the Bank Prime
Loan rate or its equivalent or (b) the Federal Funds Effective Rate. The
statistical release generally sets forth a Bank Prime Loan rate for each
Business Day. In the event the Board of Governors of the Federal Reserve System
ceases to publish a Bank Prime Loan rate or its equivalent, the term "Base Rate"
shall mean a variable rate of interest per annum equal to the highest of "prime
rate", "reference rate", "base rate", or other similar rate announced from time
to time by any of The Chase Manhattan Bank, Citibank or Bankers Trust Company,
or their successors (with the understanding that any such rate may merely be a
reference rate and may not necessarily represent the lowest or best rate
actually charged to any customer by any such bank).
"Borrowing Base" means, as applicable, the NN Borrowing Base, the HG
Borrowing Base and the HRNL Borrowing Base.
"Borrowing Base Certificate" means a certificate and assignment
schedule duly executed by an officer of Client appropriately completed and in
substantially the form of Exhibit A.
"Business Day" means any day excluding Saturday, Sunday, and any day
which is a legal holiday under the laws of the States of Illinois, Pennsylvania,
or New York or is a day on which banking institutions located in any such states
are closed.
"Capital Expenditures" means all expenditures (including deposits) for,
or contracts for expenditures (excluding contracts for expenditures under or
with respect to Capital Leases entered into prior to the Effective Date, but
including cash down payments for assets acquired under Capital Leases after the
Effective Date) with respect to any fixed
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assets or improvements, or for replacements, substitutions or additions thereto,
which have a useful life of more than one year, including the direct or indirect
acquisition of such assets by way of increased product or service charges,
offset items or otherwise.
"Collateral" has the meaning ascribed to that term in Section 9 hereof.
"Collected Amount" means the amount received by Xxxxxx from a customer
in payment of an Account up to the Net Amount of such Account.
"Collection Date" means five (5) Business Days after the date on which
Xxxxxx receives payment of an Account.
"Compliance Certificate" means a certificate duly executed by Client's
chief executive officer or chief financial officer appropriately completed and
in substantially the form of Schedule 5.3.
"Contract Year" means the twelve (12) month period immediately
following the Effective Date and each anniversary thereof.
"Costs" means all costs fees and expenses (including attorney's fees
and the allocated costs of internal counsel) incurred by Xxxxxx in connection
with (i) the creation, negotiation or administration of this Agreement, any
related instrument, document or agreement, or any waiver, forbearance, amendment
or modification thereof, (ii) the perfection, protection, preservation or
enforcement of Xxxxxx'x rights in any collateral in which Xxxxxx has been
granted a security interest and (iii) all filing fees, filing taxes or search
reports. Audit costs incurred by Xxxxxx and appraisal costs incurred by the Loan
Parties shall be subject to the limitations set forth in Sections 4.7 and
5.3(I), as applicable.
"Credit Risk" means the risk that a customer will be financially unable
to pay an Account at maturity, provided that the merchandise has been received
or services rendered and accepted by the customer without Dispute.
"Current Ratio" means the ratio of current assets to current
liabilities, provided, however, for purposes of this calculation, current assets
shall not include intangibles, notes receivable, and amounts due from Affiliates
and current liabilities shall exclude the Revolving Loan.
"Daily Balance" means the outstanding balance of all monies remitted,
paid, or otherwise advanced by Xxxxxx to Client or for Client's account plus all
commissions, fees, charges, and expenses charged to Client's account in
accordance with the terms hereof less all amounts credited to Client's account
in accordance with the terms hereof.
"Default" means a condition or event that, after notice or lapse of
time or both, would constitute an Event of Default if that condition or event
were not cured or removed within any applicable grace or cure period.
"Default Rate" means the Applicable Interest Rate plus three percent
(3%).
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"Delivery" means the delivery of goods or performance of services in
accordance with the terms agreed to in writing between the applicable Loan Party
and a customer, provided that if no such terms are specified in writing,
Delivery shall mean delivery of goods or performance of services at the
customer's place of business.
"Dilution" means the percentage calculated as of January 1, 1998 and as
of the first day of each month thereafter resulting from dividing (a) the
aggregate "chargebacks" made by Xxxxxx to Client's account hereunder over the
immediately preceding three-month period (the "Period") by (b) the gross
collections of Accounts over the Period.
"Dispute" means a dispute or claim, bona fide or otherwise, as to
price, terms, quantity, quality, Delivery, or any claim or defense to collection
or payment of an Account whatsoever other than financial inability of a customer
to pay the Account.
"Effective Date" means the date set forth below Xxxxxx'x signature
hereto.
"Eligible Accounts" has the meaning assigned to that term in Section
2.2 hereof.
"Eligible Inventory" has the meaning absorbed to that term in Section
3.1(a).
"Environmental Claims" means claims, liabilities, investigations,
litigation, administrative proceedings, judgments or orders relating to
Hazardous Materials.
"Environmental Laws" means any present or future federal, state or
local law, rule, regulation or order relating to pollution, waste, disposal or
the protection of human health or safety, plant life or animal life, natural
resources or the environment.
"Equipment" means all "equipment" (as defined in the UCC), including,
without limitation, all machinery, motor vehicles, trucks, trailers, vessels,
aircraft and rolling stock and all parts thereof and all additions and
accessions thereto and replacements therefor.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and any successor statute and all rules and
regulations promulgated thereunder.
"Event of Default" means each of the events set forth in Section 10.1
hereof.
"Fiscal Quarter" means each three month period ending on the last day
of August, November, February and May of each Fiscal Year.
"Fiscal Year" means the twelve month period ending on May 31 of each
year.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board that are applicable to the
circumstances as of the date of determination.
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"Guarantor" means each Loan Party (other than Clients).
"Guaranty" means collectively the continuing guaranty by Guarantors
substantially in the form reasonably acceptable to Xxxxxx as such agreement may
hereafter be amended, restated, supplemented, or otherwise modified from time to
time.
"Hazardous Material" means all or any of the following: (a) substances
that are defined or listed in, or otherwise classified pursuant to, any
Environmental Laws or regulations as "hazardous substances", "hazardous
materials", "hazardous wastes", "toxic substances" or any other formulation
intended to define, list or classify substances by reason of deleterious
properties such as ignitability, corrosivity, reactivity, carcinogenicity,
reproductive toxicity or "EP toxicity"; (b) oil, petroleum or petroleum derived
substances, natural gas, natural gas liquids or synthetic gas and drilling
fluids, produced waters and other wastes associated with the exploration,
development or production of crude oil, natural gas or geothermal resources; (c)
any flammable substances or explosives or any radioactive materials; and (d)
asbestos in any form or electrical equipment which contains any oil or
dielectric fluid containing levels of polychlorinated biphenyls in excess of
fifty parts per million.
"Xxxxxx Clients" means any persons, corporations, partnerships,
companies, associations, or entities (other than Client) which have entered into
any other factoring, intercredit, or financing arrangements with Xxxxxx.
"HG Borrowing Base" means an amount equal to the sum of, without
duplication, up to (i) fifty percent (50%) of the HG Entities' Eligible
Inventory bearing the Xxxx Xxxxxxx or Black Tie by Xxxx Xxxxxxx label, (ii)
fifty percent (50%) of the HG Entities' Eligible Inventory in-transit from Hong
Kong to the United States of America, (iii) sixty percent (60%) of the HG
Entities' Eligible Inventory not covered by the foregoing clauses "(i)" or
"(ii)" and (iv) fifty percent (50%) times the aggregate amount of outstanding
Letters of Credit relating to finished goods Inventory of the HG Entities.
"HG Entities" means, collectively, HG, H.R.I. Inc., European
Collections of Reading Station, Inc., European Collections of Xxxxxxxx, Inc.,
European Collections of Gilroy, Inc., European Collections of Chattanooga, Inc.,
European Collections Outlet, Inc., European Collections of Williamsburg, Inc.,
European Collections of Queenstown, Inc., and European Collections of
Silverthorne, Inc.
"HRNL Borrowing Base" means an amount equal to the sum of, without
duplication, up to (i) fifty percent (50%) of HRNL's Eligible Inventory
in-transit from Hong Kong to the United States of America, (ii) sixty percent
(60%) of HRNL's Eligible Inventory not covered by the foregoing clause "(i)" and
(iii) fifty percent (50%) times the aggregate amount of outstanding Letters of
Credit relating to finished goods Inventory of HRNL.
"Indebtedness" means, at a particular time, (a) indebtedness for
borrowed money or for the deferred purchase price of property or services in
respect of which any Loan Party is liable, contingently or otherwise, as
obligor, guarantor, or otherwise
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or any commitment by which any Loan Party assures a creditor against loss,
including, but not limited to, subordinated indebtedness, (b) obligations under
leases which shall have been or should be, in accordance with GAAP, recorded as
Capital Leases in respect of which obligations any Loan Party is liable,
contingently or otherwise, as obligor, guarantor or otherwise, or in respect of
which obligations any Loan Party assures a creditor against loss, and (c) any
Loan Party's obligation to a multiemployer plan or any other unfunded pension
obligations and liabilities with respect to any other plan.
"Intellectual Property" means all present and future designs, patents,
patent rights and applications therefor, trademarks and registrations or
applications therefor, trade names, inventions, copyrights and all applications
and registrations therefor, software or computer programs, license rights, trade
secrets, methods, processes, know-how, drawings, specifications, descriptions,
and all memoranda, notes and records with respect to any research and
development, whether now owned or hereafter acquired, all goodwill associated
with any of the foregoing, and proceeds of all of the foregoing, including,
without limitation, proceeds of insurance policies thereon.
"Intercreditor Agreements" means (i) the Subordination and
Intercreditor Agreement to be executed by Xxxxxx and Xx. Xxxx Han on the
Effective Date and (ii) the Subordination and Intercreditor Agreement to be
executed by Xxxxxx and Xxx Xxxx Bank on the Effective Date, each in form and
substance acceptable to Xxxxxx, as the same may be amended, modified and
supplemented from time to time.
"Inventory" means all "inventory" (as defined in the UCC) now owned or
hereafter acquired by any Loan Party, wherever located including finished goods,
raw materials, work in process, and other materials and supplies used or
consumed in any Loan Party's business and goods which are returned to or
repossessed by any Loan Party.
"Inventory Report" means a report duly executed by an officer of Client
appropriately completed and in substantially the form of Exhibit B.
"Ledger Debt" means indebtedness owing by Client to Xxxxxx as a result
of Xxxxxx'x purchases of invoices evidencing sales to Client by Xxxxxx Clients.
"Letter of Credit" has the meaning ascribed to that term in Section 3.2
hereof.
"Letter of Credit Availability" means the sum of (a) Advances
Availability and (b) Revolving Loan Availability, less the sum of all Advances,
Revolving Loans, and Letter of Credit Reserves outstanding, but in no event in
excess of the Letter of Credit Limit.
"Letter of Credit Guaranty" has the meaning ascribed to that term in
Section 3.2 hereof.
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"Letter of Credit Liability" means the reimbursement and other
liabilities of Client with respect to each Letter of Credit, whether contingent
or otherwise, including (a) the amount available to be drawn or which may become
available to be drawn; (b) all amounts which have been paid or made available by
the issuing bank to the extent not reimbursed; and (c) all unpaid interest,
fees, and expenses.
"Letter of Credit Limit" means $2,000,000.
"Letter of Credit Reserve" means at any time an amount equal to (a) one
hundred percent (100%) of the aggregate amount of Letter of Credit Liability
with respect to all standby Letters of Credit outstanding at such time, plus (b)
one hundred percent (100%) of the aggregate amount of Letter of Credit Liability
with respect to all documentary Letters of Credit outstanding at such time, plus
(c) the aggregate amount theretofore paid by Xxxxxx under Letters of Credit and
not debited to Client's account, otherwise reimbursed by Client.
"Licensor" means each of Xxxx Xxxxxxx, N.N.C.S. LLC, Xxxxxxxxx Xxxxxxxx
and Xxxxxxxx Xxxxx Pasvantidou Rounick.
"Lien" means any lien, mortgage, pledge, security interest, charge, or
encumbrance of any kind, whether voluntary or involuntary, (including any
conditional sale or other title retention agreement, any lease in the nature
thereof, and any agreement to give any security interest).
"Loan Documents" means collectively this Agreement, the Guaranty, the
Subordination Agreement, the Intercreditor Agreements and all other instruments,
documents and agreements executed by or on behalf of the Loan Parties and
delivered concurrently herewith or at any time hereafter to Xxxxxx in connection
with the Advances or Revolving Loan and other transactions contemplated by this
Agreement, all as amended, restated, supplemented, or modified from time to
time.
"Loan Party" means, collectively, each Client, Parent, H.R.I. Inc.,
N.N.C.S. LLC, NNCS-NJ LLC, European Collections of Reading Station, Inc.,
European Collections of Xxxxxxxx, Inc., European Collections of Gilroy, Inc.,
European Collections of Chattanooga, Inc., European Collections Outlet, Inc.,
European Collections of Williamsburg, Inc., European Collections of Queenstown,
Inc., and European Collections of Silverthorne, Inc.
"Material Adverse Effect" means a material adverse effect upon (a) the
business, operations, prospects, properties, assets, or condition (financial or
otherwise) of any Loan Party (other than any Client) taken as a whole together
with all other Loan Parties (other than Clients) or any Client on an individual
basis or (b) the ability of any Loan Party (other than any Client) taken as a
whole together with all other Loan Parties (other than Clients) to perform their
respective obligations under any Loan Document to which they are a party or of
any Client on an individual basis to perform its respective obligations under
any Loan Document to which it is a party or of Xxxxxx to enforce or collect any
of the Obligations.
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"Maximum Advance Amount" means the lesser of (i) $20,000,000 or (ii)
the percentage rate of Advances provided for in section 2.2 multiplied by the
amount of Eligible Accounts, less any reserves established by Xxxxxx hereunder.
"Maximum Obligations" means $20,000,000.
"Maximum Revolving Loan Amount" means the lesser of (i) the appropriate
percentage rate for Revolving Loans provided for in Section 3.1 hereof
multiplied by the amount of Eligible Inventory, less any reserves established by
Xxxxxx hereunder, (ii) $8,000,000 or (iii) forty percent (40%) of the total of
all Advances and Revolving Loans outstanding, less any reserves established by
Xxxxxx hereunder.
"Net Amount" means the gross amount of an Account less the discount
offered by Client and taken by Xxxxxx at the time Xxxxxx purchases such Account
and less the amount of credit memos assigned by Client to Xxxxxx.
"NN Borrowing Base" means an amount equal to the sum of, without
duplication, up to (i) fifty percent (50%) of NN's Eligible Inventory in-transit
from Hong Kong to the United States of America, (ii) sixty percent (60%) of NN's
Eligible Inventory not covered by the foregoing clause "(i)" and (iii) fifty
percent (50%) times the aggregate amount of all outstanding Letters of Credit
relating to finished goods Inventory of NN.
"Non-Approved Account" means (a) an Account with respect to which
Xxxxxx has not issued a credit approval or has subsequently withdrawn a credit
approval or (b) an Approved Account that has been charged back to Client.
"Obligations" means all Revolving Loans, Advances, Indebtedness, debts,
liabilities, obligations, covenants, and duties owing by Loan Party to Xxxxxx,
direct or indirect, absolute or contingent, due or to become due, now existing
or hereafter arising, including, without limitation, Ledger Debt, and
indebtedness arising under any guaranty made by any Loan Party for Xxxxxx'x
benefit or issued by Xxxxxx on any Loan Party's behalf.
"Parent" means The He-Ro Group, Ltd., a Delaware corporation.
"Payment Date" means the Collection Date or the Approved Payment Date
as applicable.
"Permitted Encumbrances" means the following types of Liens: (a) Liens
(other than Liens relating to Environmental Claims or ERISA) for taxes,
assessments or other governmental charges not yet due and payable; (b) statutory
Liens of landlords, carriers, Warehousemen, mechanics, materialmen and other
similar liens imposed by law, which are incurred in the ordinary course of
business for sums not more than thirty (30) days delinquent; (c) Liens (other
than any Lien imposed by ERISA) incurred or deposits made in the ordinary course
of business in connection with workers' compensation, unemployment insurance and
other types of social
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security, statutory obligations, surety and appeal bonds, bids, leases,
government contracts, trade contracts, performance and return-of-money bonds and
other similar obligations (exclusive of obligations for the payment of borrowed
money); (d) easements, rights-of-way, restrictions, and other similar charges or
encumbrances not interfering in any material respect with the ordinary conduct
of the business of any Loan Party or any of its Subsidiaries; (e) Liens for
purchase money obligations, provided that (i) the purchase of the asset subject
to any such Lien is permitted hereunder, (ii) the Indebtedness secured by any
such Lien is permitted hereunder, and (iii) such Lien encumbers only the asset
so purchased; (f) Liens in favor of Xxxxxx, and (g) Liens set forth on Schedule
7.2.
"Permitted Intercompany Debt" means loans and advances made by a Loan
Party to another Loan Party in connection with ordinary course transactions
among the Loan Parties consistent with past practice.
"Projections" means Parent's and its Reporting Subsidiaries forecasted
consolidated and consolidating: (a) balance sheets; (b) profit and loss
statements; (c) cash flow statements; and (d) capitalization statements, all
prepared on a GAAP basis consistent with Parent's historical financial
statements, together with appropriate supporting details and a statement of
underlying assumptions.
"Purchase Price" means an amount equal to the Net Amount of an Account,
less factoring commissions, credits, (including, without limitation, merchandise
returns and credit memos) charge backs, allowances, and all other fees and
charges provided hereunder.
"Reconciliation Report" means a report duly executed by Client's chief
executive officer or chief financial officer appropriately completed and in
substantially the form of Exhibit C.
"Reporting Subsidiaries" means each Loan Party (other than Parent).
"Restricted Junior Payment" means: (a) any dividend or other
distribution, direct or indirect, on account of any Loan Party's shares of any
class of stock or membership interests, as applicable, now or hereafter
outstanding, except a stock dividend; (b) any payment or prepayment of principal
of, premium, if any, or interest on, or any redemption, conversion, exchange,
retirement, defeasance, sinking fund or similar payment, purchase or other
acquisition for value, direct or indirect, of any Subordinated Debt or any Loan
Party's shares of any class of stock or membership interests, as applicable, now
or hereafter outstanding, other than in accordance with the terms and provisions
of the Subordination Agreement and the Intercreditor Agreements; (c) any payment
made to retire, or to obtain the surrender of, any outstanding warrants, options
or other rights to acquire shares of any Loan Party's class of stock or
membership interests, as applicable, now or hereafter outstanding; and (d) any
payment by any Loan Party of any management fees or similar fees to any
Affiliate, whether pursuant to a management agreement or otherwise, other than
ordinary salary and other compensation paid to employees of such Loan Party.
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"Retail Location" means each location identified on Schedule 3.1(a)(h).
"Revolving Loan" means the loans extended to Client by Xxxxxx pursuant
to Section 3 hereof and any amounts added to the principal balance pursuant to
this Agreement.
"Revolving Loan Availability" means the difference between (i) the
Maximum Revolving Loan Amount and the (ii) (a) the sum of Revolving Loans
outstanding and (b) Letter of Credit Reserves.
"Revolving Loan Interest Rate" means the Base Rate plus one and one
quarter percent (1.25%).
"Revolving Loan Maximum" means $10,000,000.
"Specified Finished Goods Inventory" means finished goods Inventory
relating solely to the then most recent five Spring and Fall selling seasons of
the applicable Client or other HG Entity. In determining the foregoing, each
Spring season shall be deemed to commence on December 1 and end on May 31 of
each calendar year and each Fall season shall be deemed to commence on June 1
and end on November 30 of each calendar year.
"Subordinated Debt" means all Indebtedness owing by Client to Mr. Hong
Han, and Ms. Xxxxxxxx Xxxxx Pasvantidou Rounick.
"Subordination Agreement" means the Subordination Agreement to be
executed by each of Mr. Hong Han and Ms. Xxxxxxxx Xxxxx Pasvantidou Rounick, in
form reasonably acceptable to Xxxxxx, as amended, modified and supplemented from
time to time.
"Subsidiary" means, with respect to any person, any corporation,
association, or other business entity of which more than fifty percent (50%) of
the total voting power of shares of stock (or equivalent ownership or
controlling interest) entitled (without regard to the occurrence of any
contingency) to vote in the election of directors, managers, or trustees thereof
is at the time owned or controlled, directly or indirectly, by that person or
one or more of the other subsidiaries of that person or a combination thereof.
"Supplemental Amount" means $1,500,000.
"Supplemental Amount Revolving Loans" means, with respect to any
Client, Revolving Loans extended to such Client pursuant to Section 3 hereof in
amounts in excess of its respective Borrowing Base.
"Tangible Net Worth" means an amount equal to: (a) Parent's net worth
as calculated (on a consolidated basis, together with the Reporting
Subsidiaries) in accordance with GAAP; plus (b) the amount of any indebtedness
owing to any person
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by any Loan Party which is subordinated to Xxxxxx; less (c) each Loan Party's
intangible assets; less (d) each Loan Party's prepaid expenses; less (e) all
obligations owed to any Loan Party by any Loan Party's Affiliates; and less (f)
all loans by any Loan Party to any Loan Party's officers, stockholders, or
employees.
"Termination Date" means the date described in Section 11.1 hereof.
"Transmission" means Transmission through Xxxxxx'x proprietary system
or through Electronic Data Interchange.
"UCC" means the Uniform Commercial Code as in effect on the date hereof
in the State of New York as amended from time to time, and any successor
statute.
"Undrawn Supplemental Amount" at a particular date means with respect
to any Client the Supplemental Amount minus the aggregate Supplemental Amount
Revolving Loans then outstanding to all Clients.
"Working Capital" means: (a) Parent and the Reporting Subsidiaries'
current assets on a consolidated basis; less (b) Parent and the Reporting
Subsidiaries' current liabilities on a consolidated basis; and less (c) the
amount of any obligations owed to Parent or any Reporting Subsidiary by any such
entity's Affiliates; and less (d) deferred tax assets.
"Written Notice" means notice given in writing in accordance with
Section 15 hereof.
16.2. For purposes of this Agreement, all accounting terms not
otherwise defined herein shall have the meanings assigned to such terms in
conformity with GAAP. Financial statements and other information furnished to
Xxxxxx pursuant to this Agreement shall be prepared in accordance with GAAP (as
in effect at the time of such preparation) on a consistent basis. In the event
any Accounting Changes (as defined below) shall occur and such changes affect
the financial covenants, standards, or terms of this Agreement, then the Loan
Parties and Xxxxxx each agree to enter into negotiations in order to amend such
provisions of this Agreement so as to equitably reflect such Accounting Changes
with the desired result that the criteria for evaluating each Loan Party's
financial condition shall be the same after such Accounting Changes as if such
Accounting Changes had not been made, and until such time as such an amendment
shall have been executed and delivered by each Loan Party and Xxxxxx, (A) all
financial covenants, standards, and terms of this Agreement shall be calculated
and/or construed as if such Accounting Changes had not been made and (B) each
Loan Party shall prepare footnotes to the financial statements required to be
delivered hereunder that show the differences between the financial statements
delivered (which reflect such Accounting Changes) and the basis for calculating
financial covenant compliance (without reflecting such Accounting Changes).
"Accounting Changes" means: (a) changes in accounting principles required by
GAAP and implemented by each Loan Party; (b) changes in accounting principles
recommended by each Loan Party's certified public accountants; and (c) changes
in carrying value of each Loan
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Party's (or any Loan Party's Subsidiaries') assets, liabilities or equity
accounts resulting from the application of purchase accounting principles
(A.P.B. 16 and/or 17 and EITF 88-16 and FASB 109). All such adjustments
resulting from expenditures made subsequent to the Effective Date (including,
but not limited to, capitalization of costs and expenses or payment of
pre-Effective Date liabilities) shall be treated as expenses in the period the
expenditures are made.
16.3. References to "Sections", "subsections", "Exhibits" and
"Schedules" shall be to Sections, subsections, Exhibits and Schedules,
respectively, of this Agreement unless otherwise specifically provided. Any of
the terms defined in subsection 16.1 may, unless the context otherwise requires,
be used in the singular or the plural depending on the reference. In this
Agreement, words importing any gender include the other genders; the words
"including," "includes" and "include" shall be deemed to be followed by the
words "without limitation"; references to agreements and other contractual
instruments shall be deemed to include subsequent amendments, assignments, and
other modifications thereto, but only to the extent such amendments, assignments
and other modifications are not prohibited by the terms of this Agreement or any
other Loan Documents; references to persons include their respective permitted
successors and assigns or, in the case of governmental persons, persons
succeeding to the relevant functions of such persons; and all references to
statutes and related regulations shall include any amendments of the same and
any successor statutes and regulations.
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WITNESS the due execution hereof by the respective duly authorized
officers of the undersigned as of the Effective Date.
THE HE-RO GROUP, INC.
By: /s/ Xxx Xxxxxx
--------------------------------
Title: Vice President
FEIN: 00-0000000
NAH NAH COLLECTION INC.
By: /s/ Hong X. Xxx
---------------------------------
Title: President
FEIN: 00-0000000
HRNL, INC.
By: /s/ Xxx Xxxxxx
----------------------------------
Title: Vice President
FEIN: 00-0000000
THE HE-RO GROUP, LTD.
By: /s/ Xxx Xxxxxx
-----------------------------------
Title: Vice President
FEIN: 00-0000000
H.R.I. INC.
By: /s/ Xxx Xxxxxx
-----------------------------------
Title: Vice President
FEIN: 00-0000000
[SIGNATURE LINES CONTINUED ON FOLLOWING PAGE]
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44
N.N.C.S. LLC
By: /s/ Hong X. Xxx
-----------------------------
Title: President
FEIN: 00-0000000
NNCS-NJ LLC
By: /s/ Hong X. Xxx
-----------------------------
Title: President
FEIN: 00-0000000
EUROPEAN COLLECTIONS OF
READING STATION, INC.
By: /s/ Xxx Xxxxxx
-----------------------------
Title: Vice President
FEIN: 00-0000000
EUROPEAN COLLECTIONS OF
XXXXXXXX, INC.
By: /s/ Xxx Xxxxxx
-----------------------------
Title: Vice President
FEIN: 00-0000000
EUROPEAN COLLECTIONS OF GILROY,
INC.
By: /s/ Xxx Xxxxxx
-----------------------------
Title: Vice President
FEIN: 00-0000000
-44-
45
[SIGNATURE LINES CONTINUED ON FOLLOWING PAGE]
EUROPEAN COLLECTIONS OF
CHATTANOOGA, INC.
By: /s/ Xxx Xxxxxx
-------------------------------
Title: Vice President
FEIN: 00-0000000
EUROPEAN COLLECTIONS OUTLET, INC.
By: /s/ Xxx Xxxxxx
------------------------------
Title: Vice President
FEIN: 00-0000000
EUROPEAN COLLECTIONS OF
WILLIAMSBURG, INC.
By: /s/ Xxx Xxxxxx
------------------------------
Title: Vice President
FEIN: 00-0000000
EUROPEAN COLLECTIONS OF
QUEENSTOWN, INC.
By: /s/ Xxx Xxxxxx
------------------------------
Title: Vice President
FEIN: 00-0000000
EUROPEAN COLLECTIONS OF
SILVERTHORNE, INC.
By: /s/ Xxx Xxxxxx
------------------------------
Title: Vice President
FEIN: 00-0000000
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46
XXXXXX FINANCIAL, INC.
By: /s/ Xxxxxxx Xxxxxx
------------------------------
Title: Vice President
EFFECTIVE DATE: December 24, 1997
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47
SCHEDULES
3.1(a)(h) Retail Locations
3.2(e) Non-Merchandise Letters of Credit
5.3 Compliance Certificate
6.1(f) Litigation
7.2 Permitted Encumbrances
7.5 Trade styles/names
7.7 No Good Standing/Qualification
7.8 Locations
7.11(c) Defaults
7.14(d) Agreements Prohibiting Liens
7.14(h) Affiliate Transactions
7.15(j) Bank Accounts
7.19 Inactive Subsidiaries
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48
EXHIBITS
A Borrowing Base Certificates
B Inventory and Reconciliation Report
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