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LOAN AND SECURITY AGREEMENT
between
CONGRESS FINANCIAL CORPORATION (WESTERN)
As Lender
And
L.A. GEAR CALIFORNIA, INC.
As Borrower
DATED: MAY 21, 1997
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TABLE OF CONTENTS
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PAGE(S)
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SECTION 1. DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 2. CREDIT FACILITIES. . . . . . . . . . . . . . . . . . . . . . .10
2.1 Revolving Loans. . . . . . . . . . . . . . . . . . . . . . . .10
2.2 Letter of Credit Accommodations. . . . . . . . . . . . . . . .11
SECTION 3. INTEREST AND FEES. . . . . . . . . . . . . . . . . . . . . . .14
3.1 Interest . . . . . . . . . . . . . . . . . . . . . . . . . . .14
3.2 Closing Fee. . . . . . . . . . . . . . . . . . . . . . . . . .15
3.3 Servicing Fee. . . . . . . . . . . . . . . . . . . . . . . . .15
3.4 Letter of Credit Fees. . . . . . . . . . . . . . . . . . . . .15
3.5 [Intentionally omitted]. . . . . . . . . . . . . . . . . . . .15
3.6 Compensation Adjustment. . . . . . . . . . . . . . . . . . . .16
3.7 Eurodollar Rate Loans-Changes in Laws and Increased
Costs ofLoans. . . . . . . . . . . . . . . . . . . . . . . . .17
SECTION 4. CONDITIONS PRECEDENT . . . . . . . . . . . . . . . . . . . . .17
4.1 Conditions Precedent to Initial Loans and Letter of Credit
Accommodations . . . . . . . . . . . . . . . . . . . . . . . .17
4.2 Conditions Precedent to All Loans and Letter of Credit
Accommodations . . . . . . . . . . . . . . . . . . . . . . . .19
SECTION 5. GRANT OF SECURITY INTEREST . . . . . . . . . . . . . . . . . .20
SECTION 6. COLLECTION AND ADMINISTRATION. . . . . . . . . . . . . . . . .20
6.1 Borrower's Loan Account. . . . . . . . . . . . . . . . . . . .20
6.1 Borrower's Loan Account. . . . . . . . . . . . . . . . . . . .21
6.2 Statements . . . . . . . . . . . . . . . . . . . . . . . . . .21
6.3 Collection of Accounts . . . . . . . . . . . . . . . . . . . .21
6.4 Payments . . . . . . . . . . . . . . . . . . . . . . . . . . .22
6.5 Authorization to Make Loans. . . . . . . . . . . . . . . . . .22
6.6 Use of Proceeds. . . . . . . . . . . . . . . . . . . . . . . .23
SECTION 7. COLLATERAL REPORTING AND COVENANTS . . . . . . . . . . . . . .23
7.1 Collateral Reporting . . . . . . . . . . . . . . . . . . . . .23
7.2 Accounts Covenants . . . . . . . . . . . . . . . . . . . . . .23
7.3 Inventory Covenants. . . . . . . . . . . . . . . . . . . . . .25
7.4 Equipment Covenants. . . . . . . . . . . . . . . . . . . . . .25
7.5 Power of Attorney. . . . . . . . . . . . . . . . . . . . . . .26
7.6 Right to Cure. . . . . . . . . . . . . . . . . . . . . . . . .26
7.7 Access to Premises . . . . . . . . . . . . . . . . . . . . . .26
SECTION 8. REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . .27
8.1 Corporate Existence, Power and Authority; Subsidiaries . . . .27
8.2 Financial Statements; No Material Adverse Change . . . . . . .27
8.3 Chief Executive Office; Collateral Locations . . . . . . . . .27
8.4 Priority of Liens; Title to Properties . . . . . . . . . . . .28
8.5 Tax Returns. . . . . . . . . . . . . . . . . . . . . . . . . .28
8.6 Litigation.. . . . . . . . . . . . . . . . . . . . . . . . . .28
8.7 Compliance with Other Agreements and Applicable Laws . . . . .28
8.8 Environmental Compliance . . . . . . . . . . . . . . . . . . .29
8.9 Employee Benefits. . . . . . . . . . . . . . . . . . . . . . .29
8.10 Accuracy and Completeness of Information . . . . . . . . . . .30
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TABLE OF CONTENTS
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(continued)
PAGE(S)
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8.11 Survival of Warranties; Cumulative . . . . . . . . . . . . . .30
SECTION 9. AFFIRMATIVE AND NEGATIVE COVENANTS . . . . . . . . . . . . . .30
9.1 Maintenance of Existence . . . . . . . . . . . . . . . . . . .30
9.2 New Collateral Locations . . . . . . . . . . . . . . . . . . .31
9.3 Compliance with Laws, Regulations. . . . . . . . . . . . . . .31
9.4 Payment of Taxes and Claims. . . . . . . . . . . . . . . . . .32
9.5 Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . .32
9.6 Financial Statements and Other Information . . . . . . . . . .33
9.7 Sale of Assets, Consolidation, Merger, Dissolution, Etc. . . .34
9.8 Encumbrances . . . . . . . . . . . . . . . . . . . . . . . . .34
9.9 Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . .35
9.10 Loans, Investments, Guarantees, Etc. . . . . . . . . . . . . .36
9.11 Dividends and Redemptions. . . . . . . . . . . . . . . . . . .36
9.12 Transactions with Affiliates . . . . . . . . . . . . . . . . .36
9.13 Import Documentation.. . . . . . . . . . . . . . . . . . . . .37
9.14 [Intentionally Omitted]. . . . . . . . . . . . . . . . . . . .37
9.15 Compliance with ERISA. . . . . . . . . . . . . . . . . . . . .37
9.16 Costs and Expenses . . . . . . . . . . . . . . . . . . . . . .37
9.17 Further Assurances . . . . . . . . . . . . . . . . . . . . . .38
SECTION 10. EVENTS OF DEFAULT AND REMEDIES . . . . . . . . . . . . . . . .38
10.1 Events of Default. . . . . . . . . . . . . . . . . . . . . . .38
10.2 Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . .40
SECTION 11. JURY TRIAL WAIVER; OTHER WAIVERS, AND CONSENTS;
GOVERNING LAW. . . . . . . . . . . . . . . . . . . . . . . . .41
11.1 Governing Law; Choice of Forum; Service of Process;
Jury Trial Waiver. . . . . . . . . . . . . . . . . . . . . . .41
11.2 Waiver of Notices. . . . . . . . . . . . . . . . . . . . . . .42
11.3 Amendments and Waivers . . . . . . . . . . . . . . . . . . . .42
11.4 Waiver of Counterclaims. . . . . . . . . . . . . . . . . . . .43
11.5 Indemnification. . . . . . . . . . . . . . . . . . . . . . . .43
SECTION 12. TERM OF AGREEMENT; MISCELLANEOUS . . . . . . . . . . . . . . .43
12.1 Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . .43
12.2 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . .44
12.3 Partial Invalidity . . . . . . . . . . . . . . . . . . . . . .44
12.4 Successors . . . . . . . . . . . . . . . . . . . . . . . . . .45
12.5 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . .45
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INDEX TO
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EXHIBITS AND SCHEDULES
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Exhibit A Information Certificate
Exhibit B Projections
Exhibit C Borrower Investment Policy
Schedule 8.4 Existing Liens
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LOAN AND SECURITY AGREEMENT
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This Loan and Security Agreement dated May 21, 1997 (this "Agreement) is
entered into by and between Congress Financial Corporation (Western), a
California corporation ("Lender") and L.A. Gear California, Inc., a California
corporation ("Borrower").
W I T N E S S E T H:
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WHEREAS, Borrower has requested that Lender enter into certain financing
arrangements with Borrower pursuant to which Lender may make loans and provide
other financial accommodations to Borrower; and
WHEREAS, Lender is willing to make such loans and provide such financial
accommodations on the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the mutual conditions and agreements
set forth herein, and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
SECTION 1. DEFINITIONS
All terms used herein which are defined in Article 1 or Article 9 of the
California Uniform Commercial Code shall have the respective meanings given
therein unless otherwise defined in this Agreement. All references to the
plural herein shall also mean the singular and to the singular shall also mean
the plural. All references to Borrower and Lender pursuant to the definitions
set forth in the recitals hereto, or to any other person herein, shall include
their respective successors and assigns. The words "hereof", "herein",
"hereunder", "this Agreement" and words of similar import when used in this
Agreement shall refer to this Agreement as a whole and not any particular
provision of this Agreement and as this Agreement now exists or may hereafter be
amended, modified, supplemented, extended, renewed, restated or replaced. An
Event of Default shall exist or continue or be continuing until such Event of
Default is cured or waived in accordance with Section 11.3. Any accounting term
used herein unless otherwise defined in this Agreement shall have the meaning
customarily given to such term in accordance with GAAP. For purposes of this
Agreement, the following terms shall have the respective meanings given to them
below:
1.1 "ACCOUNTS" shall mean all present and future rights of Borrower
to payment for goods sold or leased or for services rendered, which are not
evidenced by instruments or chattel paper, and whether or not earned by
performance.
1.2 "ADJUSTED EURODOLLAR RATE" shall mean, with respect to each
Interest Period for any Eurodollar Rate Loan, the rate per annum (rounded
upwards, if necessary, to the next one-sixteenth (1/16) of one (1%) percent)
determined by dividing the Eurodollar Rate for such Interest Period by a
percentage equal to: (i) one (1) minus (ii) the Reserve Percentage. For
purposes hereof, "Reserve Percentage" shall mean the reserve percentage,
expressed as a decimal, prescribed by any United States or foreign banking
authority for determining the reserve requirement which is or would be
applicable to deposits of United States dollars in a non-United States or an
international banking office of Reference Bank used to fund a Eurodollar Rate
Loan
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or any Eurodollar Rate Loan made with the proceeds of such deposit, whether or
not the Reference Bank actually holds or has made any such deposits or loans.
The Adjusted Eurodollar Rate shall be adjusted on and as of the effective day of
any change in the Reserve Percentage.
1.3 [Intentionally Omitted]
1.4 "AVAILABILITY RESERVES" shall mean, as of any date of
determination, such amounts as Lender may from time to time establish and revise
in its good faith business judgment reducing the amount of Revolving Loans and
Letter of Credit Accommodations which would otherwise be available to Borrower
under the lending formula(s) provided for herein: (a) to reflect events,
conditions, contingencies or risks which, as determined by Lender in its good
faith business judgment, do or may affect either (i) the Collateral or any other
property which is security for the Obligations or its value, (ii) the assets,
business or prospects of Borrower or any Obligor or (iii) the security interests
and other rights of Lender in the Collateral (including the enforceability,
perfection and priority thereof) or (b) to reflect Lender's good faith belief
that any collateral report or financial information furnished by or on behalf of
Borrower or any Obligor to Lender is or may have been incomplete, inaccurate or
misleading in any material respect or (c) to reflect any state of facts which
Lender determines in good faith constitutes an Event of Default or may, with
notice or passage of time or both, constitute an Event of Default. Without
limiting the generality of the foregoing, Lender (i) shall establish on the date
hereof and maintain throughout the term of this Agreement and throughout any
renewal term an Availability Reserve for an amount equal to three (3) months of
Borrower's gross rent and other obligations as lessee for each leased premises
of Borrower which is located in a state where a landlord may be entitled to a
priority lien on Collateral to secure unpaid rent and with respect to each such
property the landlord has not executed a form of waiver and consent acceptable
to Lender, (ii) may establish an additional Availability Reserve on the date
hereof, and from time to time hereafter, and maintain such reserve throughout
the term of this Agreement and throughout any renewal term in an amount
determined by Lender in its good faith business judgment to be sufficient to
cover the anticipated moving expenses and other costs associated with the
transfer of Inventory from each of Borrower's locations to another location
acceptable to Lender, (iii) may establish and maintain an additional
Availability Reserve from time to time in its good faith business judgment to
compensate for any increase in the percentage of Inventory represented by slow
moving Inventory (which shall include, but not be limited to, Inventory held for
longer than six (6) months), and (iv) may establish an additional Availability
Reserve on the date hereof, and from time to time hereafter, in its good faith
business judgment, to compensate for dilution in the Eligible Accounts
(including without limitation dilution and potential dilution as a result of
returns, discounts, allowances, co-op advertising and other items determined by
Lender in its good faith business judgment).
1.5 "BLOCKED ACCOUNT" shall have the meaning set forth in Section 6.3
hereof.
1.6 "BUSINESS DAY" shall mean any day other than a Saturday, Sunday,
or other day on which commercial banks are authorized or required to close under
the laws of the State of New York or the Commonwealth of Pennsylvania, and a day
on which CoreStates Bank, N.A., or such other bank as Lender may from time to
time designate, and Lender are open for the transaction of business; provided
that, for all Eurodollar Rate Loans, any such day as described above in this
definition of Business Day shall exclude any day on which banks are closed for
dealings in dollar deposits in the London interbank market or other applicable
Eurodollar Rate market.
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1.7 "CODE" shall mean the Internal Revenue Code of 1986, as the same
now exists or may from time to time hereafter be amended, modified, recodified
or supplemented, together with all rules, regulations and interpretations
thereunder or related thereto.
1.8 "COLLATERAL" shall have the meaning set forth in Section 5
hereof.
1.8A "DEBENTURE" shall mean the Parent's outstanding 7 3/4%
Convertible Subordinated Debentures.
1.9 "ELIGIBLE ACCOUNTS" shall mean Accounts created by Borrower which
are and continue to be acceptable to Lender based on the criteria set forth
below. In general, Accounts shall be Eligible Accounts if:
(a) such Accounts arise from the actual and BONA FIDE sale and
delivery of goods by Borrower or rendition of services by Borrower in the
ordinary course of its business which transactions are completed in accordance
with the terms and provisions contained in any documents related thereto;
(b) such Accounts are not unpaid more than 120 days after the
date of the original invoice for them and are not unpaid more than 60 days after
their due date;
(c) such Accounts comply with the terms and conditions contained
in Section 7.2(c) of this Agreement;
(d) such Accounts do not arise from sales on consignment,
guaranteed sale, sale and return, sale on approval, or other terms under which
payment by the account debtor may be conditional or contingent;
(e) the chief executive office of the account debtor with
respect to such Accounts is located in the United States of America or Canada,
or, at Lender's option, if either: (i) the account debtor has delivered to
Borrower an irrevocable letter of credit issued or confirmed by a bank in the
United States satisfactory to Lender, sufficient to cover such Account, payable
in the United States of America and in U.S. Dollars, in form and substance
satisfactory to Lender and, if required by Lender, the original of such letter
of credit has been delivered to Lender or Lender's agent and the issuer thereof
notified of the assignment of the proceeds of such letter of credit to Lender,
or (ii) such Account is subject to credit insurance payable to Lender issued by
an insurer and on terms and in an amount acceptable to Lender, or (iii) such
Account is otherwise acceptable in all respects to Lender including, but not
limited to, the creditworthiness of the account debtor and the political risk
associated therewith, and the ability of the Lender to collect the foreign
Account, subject to such lending formulas with respect to each foreign Account
as Lender may determine, and each such foreign Account is payable to Borrower at
a location in the United States of America and in U.S. Dollars;
(f) such Accounts do not consist of progress xxxxxxxx, xxxx and
hold invoices or retainage invoices, except as to xxxx and hold invoices, if
Lender shall have received an agreement in writing from the account debtor, in
form and substance satisfactory to Lender, confirming the unconditional
obligation of the account debtor to take the goods related thereto and pay such
invoice;
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(g) the account debtor with respect to such Accounts has not
asserted a counterclaim, defense or dispute and does not have, and does not
engage in transactions which may give rise to, any right of setoff against such
Accounts;
(h) there are no facts, events or occurrences which would impair
the validity, enforceability or collectability of such Accounts or reduce the
amount payable or delay payment thereunder;
(i) such Accounts are subject to the first priority, valid and
perfected security interest of Lender and any goods giving rise thereto are not,
and were not at the time of the sale thereof, subject to any liens except those
permitted in this Agreement;
(j) neither the account debtor nor any officer or employee of
the account debtor with respect to such Accounts is an officer, employee or
agent of or affiliated with Borrower directly or indirectly by virtue of family
membership, ownership, control, management or otherwise;
(k) the account debtors with respect to such Accounts are not
any foreign government, the United States of America, any State, political
subdivision, department, agency or instrumentality thereof (other than the
United States Armed Forces Exchange Services), unless, if the account debtor is
the United States of America, any State, political subdivision, department,
agency or instrumentality thereof, upon Lender's request, the Federal Assignment
of Claims Act of 1940, as amended or any similar State or local law, if
applicable, has been complied with in a manner satisfactory to Lender;
(l) there are no proceedings or actions which are threatened or
pending against the account debtors with respect to such Accounts which might
result in any material adverse change in any such account debtor's financial
condition;
(m) such Accounts of a single account debtor or its affiliates
do not constitute more than twenty percent (20%) (or, in the case of Wal-mart,
30%) of all otherwise Eligible Accounts (but the portion of the Accounts not in
excess of such percentage may be deemed Eligible Accounts);
(n) such Accounts are not owed by an account debtor who has
Accounts unpaid more than 120 days after the date of the original invoice or
more than 60 days after their due date, which constitute more than fifty percent
(50%) of the total Accounts of such account debtor;
(o) such Accounts are owed by account debtors whose total
indebtedness to Borrower does not exceed the credit limit with respect to such
account debtors as determined by Lender from time to time (but the portion of
the Accounts not in excess of such credit limit may still be deemed Eligible
Accounts); and
(p) such Accounts are owed by account debtors deemed
creditworthy at all times by Lender, as determined by Lender.
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General criteria for Eligible Accounts may be established and revised from time
to time by Lender in its good faith business judgment. Any Accounts which are
not Eligible Accounts shall nevertheless be part of the Collateral.
1.10 "ELIGIBLE INVENTORY" shall mean Inventory consisting of finished
goods held for resale in the ordinary course of the business of Borrower which
are acceptable to Lender based on the criteria set forth below. In general,
Eligible Inventory shall not include (a) work-in-process; (b) raw materials or
components which are not part of finished goods; (c) spare parts for equipment;
(d) packaging and shipping materials; (e) supplies used or consumed in
Borrower's business; (f) Inventory at premises other than those owned and
controlled by Borrower, except if Lender shall have received an agreement in
writing from the person in possession of such Inventory and/or the owner or
operator of such premises in form and substance satisfactory to Lender
acknowledging Lender's first priority security interest in the Inventory,
waiving security interests and claims by such person against the Inventory and
permitting Lender access to, and the right to remain on, the premises so as to
exercise Lender's rights and remedies and otherwise deal with the Collateral;
(g) Inventory in-transit; (h) Inventory subject to a security interest or lien
in favor of any person other than Lender except those permitted in this
Agreement; (i) xxxx and hold goods; (j) obsolete or slow moving Inventory; (k)
Inventory which is not subject to the first priority, valid and perfected
security interest of Lender; (l) returned, damaged and/or defective Inventory;
(m) Inventory purchased or sold on consignment; (n) Inventory held for longer
than six (6) months; or (o) Inventory not located at Borrower's Ontario,
California Distribution Center. General criteria for Eligible Inventory may be
established and revised from time to time by Lender in its good faith business
judgment. Any Inventory which is not Eligible Inventory shall nevertheless be
part of the Collateral.
1.11 "ENVIRONMENTAL LAWS" shall mean all federal, state, district,
local and foreign laws, rules, regulations, ordinances, and consent decrees
relating to health, safety, hazardous substances, pollution and environmental
matters, as now or at any time hereafter in effect, applicable to Borrower's
business and facilities (whether or not owned by it), including laws relating to
emissions, discharges, releases or threatened releases of pollutants,
contamination, chemicals, or hazardous, toxic or dangerous substances, materials
or wastes into the environment (including, without limitation, ambient air,
surface water, ground water, land surface or subsurface strata) or otherwise
relating to the generation, manufacture, processing, distribution, use,
treatment, storage, disposal, transport or handling of pollutants, contaminants,
chemicals, or hazardous, toxic or dangerous substances, materials or wastes.
1.12 "EQUIPMENT" shall mean all of Borrower's now owned and hereafter
acquired equipment, machinery, computers and computer hardware and software
(whether owned or licensed), vehicles, tools, furniture, fixtures, all
attachments, accessions and property now or hereafter affixed thereto or used in
connection therewith, and substitutions and replacements thereof, wherever
located.
1.13 "ERISA" shall mean the United States Employee Retirement Income
Security Act of 1974, as the same now exists or may hereafter from time to time
be amended, modified, recodified or supplemented, together with all rules,
regulations and interpretations thereunder or related thereto.
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1.14 "ERISA AFFILIATE" shall mean any person required to be aggregated
with Borrower or any of its affiliates under Sections 414(b), 414(c), 414(m) or
414(o) of the Code.
1.15 "EURODOLLAR RATE LOANS" shall mean any Loans or portion thereof
on which interest is payable based on the Adjusted Eurodollar Rate in accordance
with the terms hereof.
1.16 "EURODOLLAR RATE" shall mean with respect to the Interest Period
for a Eurodollar Rate Loan, the interest rate per annum equal to the arithmetic
average of the rates of interest per annum (rounded upwards, if necessary, to
the next one-sixteenth (1/16) of one (1%) percent) at which Reference Bank is
offered deposits of United States dollars in the London interbank market (or
other Eurodollar Rate market selected by Borrower and approved by Lender) on or
about 9:00 a.m. (New York time) two (2) Business Days prior to the commencement
of such Interest Period in amounts substantially equal to the principal amount
of the Eurodollar Rate Loans requested by and available to Borrower in
accordance with this Agreement, with a maturity of comparable duration to the
Interest Period selected by Borrower.
1.17 "EVENT OF DEFAULT" shall mean the occurrence or existence of any
event or condition described in Section 10.1 hereof.
1.18 "EXCESS AVAILABILITY" shall mean the amount, as determined by
Lender, calculated at any time, equal to: (a) Borrower's unrestricted cash and
XX Xxxx Collateral (as defined in Section 2.2(c)(3) below), PLUS (b) the lesser
of: (i) the amount of the Revolving Loans available to Borrower as of such time
based on the applicable lender advance rates multiplied by the Net Amount of
Eligible Accounts and the Value of Eligible Inventory, as determined by Lender,
and subject to the sublimits and Availability Reserves from time to time
established by Lender hereunder, and (ii) the Maximum Credit, MINUS (c) the sum
of: (i) the amount of all then outstanding and unpaid Obligations, (ii) the
aggregate amount of all then outstanding and unpaid trade payables of Borrower
which are more than thirty (30) days past due as of such time (other than
outstanding trade payables as to which Borrower contests liability in good faith
or which Borrower is reviewing to confirm the amounts payable thereunder in the
ordinary course of its business), (iii) the aggregate amount of Borrower's book
overdrafts, and (iv) the aggregate amount of Borrower's lease and note payments
which are due and payable.
1.19 "FINANCING AGREEMENTS" shall mean, collectively, this Agreement
and all notes, guarantees, security agreements and other agreements, documents
and instruments now or at any time hereafter executed and/or delivered by
Borrower or any Obligor in connection with this Agreement, as the same now exist
or may hereafter be amended, modified, supplemented, extended, renewed, restated
or replaced.
1.20 "GAAP" shall mean generally accepted accounting principles in the
United States of America as in effect from time to time as set forth in the
opinions and pronouncements of the Accounting Principles Board and the American
Institute of Certified Public Accountants and the statements and pronouncements
of the Financial Accounting Standards Boards which are applicable to the
circumstances as of the date of determination consistently applied.
1.21 "HAZARDOUS MATERIALS" shall mean any hazardous, toxic or
dangerous substances, materials and wastes, including, without limitation,
hydrocarbons (including naturally occurring or man-made petroleum and
hydrocarbons), flammable explosives, asbestos, urea formaldehyde
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insulation, radioactive materials, biological substances, polychlorinated
biphenyls, pesticides, herbicides and any other kind and/or type of pollutants
or contaminants (including, without limitation, materials which include
hazardous constituents), sewage, sludge, industrial slag, solvents and/or any
other similar substances, materials, or wastes and including any other
substances, materials or wastes that are or become regulated under any
Environmental Law (including, without limitation any that are or become
classified as hazardous or toxic under any Environmental Law).
1.22 "INFORMATION CERTIFICATE" shall mean the Information Certificate
of Borrower constituting Exhibit A hereto containing material information with
respect to Borrower, its business and assets provided by or on behalf of
Borrower to Lender in connection with the preparation of this Agreement and the
other Financing Agreements and the financing arrangements provided for herein.
1.23 "INTEREST PERIOD" shall mean for any Eurodollar Rate Loan, a
period of approximately one (1), two (2), or three (3) months duration as
Borrower may elect, the exact duration to be determined in accordance with the
customary practice in the applicable Eurodollar Rate market; PROVIDED, THAT,
Borrower may not elect an Interest Period which will end after the last day of
the then-current term of this Agreement.
1.24 "INTEREST RATE" shall mean, as to Prime Rate Loans:
(a) One-quarter of one percent (0.25%) per annum in excess
of the Prime Rate (the "Reduced Prime Rate"), on the first $5,000,000 principal
amount of outstanding Prime Rate Loans; and
(b) One-half of one percent (0.50%) per annum in excess of
the Prime Rate (the "Regular Prime Rate"), on all outstanding Prime Rate Loans
in excess of $5,000,000.
"INTEREST RATE" shall mean, as to Eurodollar Rate Loans:
(a) on the first $5,000,000 principal amount of outstanding
Eurodollar Rate Loans, two and three-quarters percent (2.75%) per annum in
excess of the Adjusted Eurodollar Rate (based on the Eurodollar Rate applicable
for the Interest Period selected by Borrower as in effect three (3) Business
Days after the date of receipt by Lender of the request of Borrower for such
Eurodollar Rate Loans in accordance with the terms hereof, whether such rate is
higher or lower than any rate previously quoted to Borrower) (the "Reduced
Eurodollar Rate"); and
(b) On all outstanding Eurodollar Rate Loans in excess of
$5,000,000, three percent (3.0%) per annum in excess of the Adjusted Eurodollar
Rate (based on the Eurodollar Rate applicable for the Interest Period selected
by Borrower as in effect three (3) Business Days after the date of receipt by
Lender of the request of Borrower for such Eurodollar Rate Loans in accordance
with the terms hereof, whether such rate is higher or lower than any rate
previously quoted to Borrower) (the "Regular Eurodollar Rate").
PROVIDED, THAT, the Interest Rate shall mean the rate of two and one-half
percent (2.50%) per annum in excess of the Prime Rate as to Prime Rate Loans and
the rate of five percent (5%) per annum in excess of the Adjusted Eurodollar
Rate as to Eurodollar Rate Loans, at Lender's option,
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without notice, (a) for the period on and after the date of termination or
non-renewal hereof, or the date of the occurrence of any Event of Default or
event which with notice or passage of time or both would constitute an Event of
Default, and for so long as such Event of Default or other event is continuing
as determined by Lender and until such time as all Obligations are indefeasibly
paid in full (notwithstanding entry of any judgment against Borrower) and (b) on
the Revolving Loans at any time outstanding in excess of the amounts available
to Borrower under Section 2 (whether or not such excess(es), arise or are made
with or without Lender's knowledge or consent and whether made before or after
an Event of Default).
AND PROVIDED FURTHER THAT, only the first $5,000,000 of total combined
Obligations shall be entitled to a Reduced Rate, so that, if, for example,
$5,000,000 of outstanding Obligations was bearing interest at the Eurodollar
Reduced Rate, then all other outstanding Obligations bearing interest at a rate
based on the Prime Rate would bear interest at the Regular Prime Rate, and vice
versa.
1.25 "INVENTORY" shall mean all of Borrower's now owned and hereafter
existing or acquired raw materials, work in process, finished goods and all
other inventory of whatsoever kind or nature, wherever located.
1.26 "LETTER OF CREDIT ACCOMMODATIONS" shall mean the letters of
credit, merchandise purchase or other guaranties, and indemnity agreements which
are from time to time either (a) issued, opened or provided by Lender for the
account of Borrower or any Obligor or (b) with respect to which Lender has
agreed to indemnify the issuer or guaranteed to the issuer the performance by
Borrower of its obligations to such issuer.
1.27 "LOANS" shall mean the Revolving Loans.
1.28 "MAXIMUM CREDIT" shall mean the amount of $40,000,000, except
that, at any time after six months after the date hereof, Borrower may, at its
option, increase the Maximum Credit in increments of $5,000,000 each, up to a
total Maximum Credit of $50,000,000, by giving Lender written notice thereof at
least 60 days prior to the effective date of the increase; provided that any
such increase in the Maximum Credit shall be subject to the following additional
conditions, all of which shall be satisfied 60 days prior to the date the
increase in the Maximum Credit is to go into effect and at the date the increase
in the Maximum Credit is to go into effect: (a) Borrower shall have paid all
Closing Fees when due, (b) no Event of Default and no event which, with notice
or passage of time or both, would constitute an Event of Default shall have
occurred, (c) Borrower's net income, for the Calculation Periods (as defined
below) shall not have been less than that set forth in the Projections for such
period by more than 20%, and (d) there has not, in Lender's good faith business
judgment, been a deterioration or decline in the value of the Collateral. For
purposes hereof, the "Calculation Periods" shall mean both of the following
periods: (i) the period from June 1, 1997 to the end of the month which, at
the date the notice to increase the Maximum Credit was received, is the most
recent month for which financial statements of the Borrower are available, and
(ii) the period from June 1, 1997 to the end of the month which, at the date the
increase in the Maximum Credit is to go into effect, is the most recent month
for which financial statements of the Borrower are available. For purposes of
the foregoing, Borrower's net income shall include extraordinary gains and
extraordinary losses.
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1.29 "NET AMOUNT OF ELIGIBLE ACCOUNTS" shall mean the gross amount of
Eligible Accounts less (a) sales, excise or similar taxes included in the amount
thereof and (b) returns, discounts, claims, credits and allowances of any nature
at any time issued, owing, granted, outstanding, available or claimed with
respect thereto.
1.30 "OBLIGATIONS" shall mean any and all Revolving Loans, Letter of
Credit Accommodations and all other obligations, liabilities and indebtedness of
every kind, nature and description owing by Borrower to Lender and/or its
affiliates, including principal, interest, charges, fees, costs and expenses,
however evidenced, whether as principal, surety, endorser, guarantor or
otherwise, whether arising under this Agreement or otherwise, whether now
existing or hereafter arising, whether arising before, during or after the
initial or any renewal term of this Agreement or after the commencement of any
case with respect to Borrower under the United States Bankruptcy Code or any
similar statute (including, without limitation, the payment of interest and
other amounts which would accrue and become due but for the commencement of such
case), whether direct or indirect, absolute or contingent, joint or several, due
or not due, primary or secondary, liquidated or unliquidated, secured or
unsecured, and however acquired by Lender.
1.31 "OBLIGOR" shall mean any guarantor, endorser, acceptor, surety or
other person liable on or with respect to the Obligations or who is the owner of
any property which is security for the Obligations, other than Borrower.
1.32 "PARENT" shall mean L.A. Gear, Inc.
1.33 "PARTICIPANT" shall mean any person which at any time
participates with Lender in respect of the Loans, the Letter of Credit
Accommodations or other Obligations or any portion thereof.
1.34 "PAYMENT ACCOUNT" shall have the meaning set forth in Section 6.3
hereof.
1.35 "PERSON" or "PERSON" shall mean any individual, sole
proprietorship, partnership, corporation (including, without limitation, any
corporation which elects subchapter S status under the Internal Revenue Code of
1986, as amended), business trust, unincorporated association, joint stock
corporation, trust, joint venture or other entity or any government or any
agency or instrumentality or political subdivision thereof.
1.36 "PRIME RATE" shall mean the rate from time to time publicly
announced by CoreStates Bank, N.A., or its successors, at its office in
Philadelphia, Pennsylvania, as its prime rate, whether or not such announced
rate is the best rate available at such bank.
1.37 "PRIME RATE LOANS" shall mean any Loans or portion thereof on
which interest is payable based on the Prime Rate in accordance with the terms
thereof.
1.38 "PROJECTIONS" shall mean the Projections dated February 20, 1997
provided by Borrower to Lender (a copy of which is attached hereto as Exhibit B)
and Projections subsequently provided by the Borrower to the Lender pursuant to
Section 9.6(d) below, which are acceptable to Lender.
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1.39 "RECORDS" shall mean all of Borrower's present and future books
of account of every kind or nature, purchase and sale agreements, invoices,
ledger cards, bills of lading and other shipping evidence, statements,
correspondence, memoranda, credit files and other data relating to the
Collateral or any account debtor, together with the tapes, disks, diskettes and
other data and software storage media and devices, file cabinets or containers
in or on which the foregoing are stored (including any rights of Borrower with
respect to the foregoing maintained with or by any other person).
1.40 "REFERENCE BANK" shall mean CoreStates Bank, N.A., or such other
bank as Lender may from time to time designate.
1.41 "REVOLVING LOANS" shall mean the loans now or hereafter made by
Lender to or for the benefit of Borrower on a revolving basis (involving
advances, repayments and readvances) as set forth in Section 2.1 hereof.
1.42 "VALUE" shall mean, with respect to Inventory, the lower of (a)
cost computed on a first-in-first-out basis in accordance with GAAP (as
determined by Borrower in good faith and approved by Lender in good faith) or
(b) market value (as determined by Lender in good faith).
SECTION 2. CREDIT FACILITIES
2.1 REVOLVING LOANS
(a) Subject to, and upon the terms and conditions contained
herein, Lender agrees to make Revolving Loans to Borrower from time to time in
amounts requested by Borrower up to an amount equal to the lesser of $25,000,000
(the "Maximum Revolving Loan Amount"), or the following:
(i) Eighty-five percent (85%) of the Net Amount of Eligible
Accounts,
PLUS
(ii) the lesser of sixty-five percent (65%) (the "Inventory
Advance Rate") of the Value, or eighty-five percent (85%) of the appraised
orderly liquidation value, of Eligible Inventory consisting of finished goods,
MINUS
(iii) any Availability Reserves.
For purposes of the foregoing, appraised orderly liquidation value shall be
determined by the appraisals referred to in Section 7.3 below and shall be net
of expenses which Lender determines in its good faith business judgment would be
incurred in a liquidation.
Without limiting any of the Lender's other rights to adjust advance rates or
Availability Reserves, as set forth in this Agreement, the Inventory Advance
Rate may be reduced by Lender to 60%, in the event Borrower's quarterly net
income in any fiscal quarter is less than that set forth in the Projections by
20% or more. (For purposes of the foregoing, Borrower's net income shall
include extraordinary gains and extraordinary losses.)
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(b) Lender may, in its discretion, from time to time, upon not
less than five (5) days prior notice to Borrower, (i) reduce the lending formula
with respect to Eligible Accounts to the extent that Lender determines in good
faith that: (A) the dilution with respect to the Accounts for any period (based
on the ratio of (1) the aggregate amount of reductions in Accounts other than as
a result of payments in cash to (2) the aggregate amount of total sales) has
increased in any material respect or may be reasonably anticipated to increase
in any material respect above historical levels, or (B) the general
creditworthiness of account debtors has declined or (ii) reduce the lending
formula(s) with respect to Eligible Inventory to the extent that Lender
determines that: (A) the number of days of the turnover, or the mix, of the
Inventory for any period has changed in any material respect or (B) the
liquidation value of the Eligible Inventory, or any category thereof, has
decreased, or (C) the nature and quality of the Inventory has deteriorated in
any material respect. In determining whether to reduce the lending formula(s),
Lender may consider events, conditions, contingencies or risks which are also
considered in determining Eligible Accounts, Eligible Inventory or in
establishing Availability Reserves.
(c) Except in Lender's discretion, the aggregate amount of the
Loans, the Letter of Credit Accommodations and other Obligations outstanding at
any time shall not exceed the Maximum Credit. In the event that the outstanding
amount of any component of the Loans, or the aggregate amount of the outstanding
Loans, Letter of Credit Accommodations and other Obligations exceed the amounts
available under the lending formulas set forth in Section 2.1(a) hereof, the
sublimits for Letter of Credit Accommodations set forth in Section 2.2(c) or the
Maximum Credit, as applicable, such event shall not limit, waive or otherwise
affect any rights of Lender in that circumstance or on any future occasions and
Borrower shall, upon demand by Lender, which may be made at any time or from
time to time, immediately repay to Lender the entire amount of any such
excess(es) for which payment is demanded.
2.2 LETTER OF CREDIT ACCOMMODATIONS.
(a) Subject to, and upon the terms and conditions contained
herein, at the request of Borrower, Lender agrees to provide or arrange for
Letter of Credit Accommodations for the account of Borrower containing terms and
conditions acceptable to Lender and the issuer thereof. Any payments made by
Lender to any issuer thereof and/or related parties in connection with the
Letter of Credit Accommodations shall constitute additional Revolving Loans to
Borrower pursuant to this Section 2.
(b) In addition to any charges, fees or expenses charged by any
bank or issuer in connection with the Letter of Credit Accommodations, Borrower
shall pay to Lender a letter of credit fee at a rate equal to one percent (1%)
per annum (in the case of Letter of Credit Accommodations which are not "Loan
Reserved LC Accommodations" as defined in Section 2.2(c)(2) below) and one and
one half percent (1.50%) per annum (in the case of Letter of Credit
Accommodations which are "Loan Reserved LC Accommodations" ), computed on the
daily outstanding balance of the Letter of Credit Accommodations for the
immediately preceding month (or part thereof), payable in arrears as of the
first day of each succeeding month; PROVIDED, HOWEVER, that such letter of
credit fee shall be increased, at Lender's option, without notice, to three and
one-half percent (3.50%) per annum for the period on or after (i) the date of
termination or non-renewal of this Agreement (unless Borrower either provides
cash collateral or standby letters of credit with respect thereto as provided in
Section 12.1(a)), or (ii) the date of the occurrence of an Event of Default.
Such letter of credit fee shall be calculated on the basis of
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a three hundred sixty (360) day year and actual days elapsed and the obligation
of Borrower to pay such fee shall survive the termination or non-renewal of this
Agreement.
(c) No Letter of Credit Accommodations shall be available except
as follows:
(1) No Letter of Credit Accommodations shall be available
unless on the date of the proposed issuance of any Letter of Credit
Accommodations, the Revolving Loans available to Borrower under Section 2.1
(subject to the Maximum Credit and any Availability Reserves, but without regard
to the Maximum Revolving Loan Amount) are equal to or greater than the following
(unless the Borrower has provided cash collateral as provided below):
(i) if the proposed Letter of Credit Accommodation is
for the purpose of purchasing Inventory which is to be delivered to the United
States and which would be Eligible Inventory (except for the fact that it has
not yet been delivered to Borrower's place of business), the sum of (A)
35% of the amount of such Letter of Credit
Accommodation (to be increased by 1% for each 1% reduction in the Inventory
Advance Rate below 65%), plus (B) freight, taxes, duty and other amounts which
Lender estimates (based on reasonable estimates provided by Borrower to Lender)
must be paid in connection with such Inventory upon arrival and for delivery to
Borrower (or its customer), and
(ii) if the proposed Letter of Credit Accommodation is
for standby letters of credit guaranteeing the purchase of Eligible Inventory or
the proposed Letter of Credit Accommodation is for any other purpose, an amount
equal to one hundred (100%) percent of the face amount thereof and all other
commitments and obligations made or incurred by Lender with respect thereto.
(2) Effective on the issuance of each Letter of Credit
Accommodation and while the same is outstanding, the amount of Revolving Loans
which would otherwise be available to Borrower (subject to the Maximum Credit
and any Availability Reserves, but without regard to the Maximum Revolving Loan
Amount) shall be reduced by the applicable amount set forth in Section
2.2(c)(1)(i) or Section 2.2(c)(1)(ii). Letter of Credit Accommodations as to
which there is, in whole or in part, a reduction in the amount of Revolving
Loans which would otherwise be available to Borrower are referred to herein as
"Loan Reserved LC Accommodations".
(3) In lieu of reductions in available Revolving Loans, as
set forth above in Section 2.2(c)(2), Borrower may provide Lender with cash
collateral (the "XX Xxxx Collateral") in an amount equal to the amount of said
required reductions in available Revolving Loans. Lender shall pay Borrower
interest on all XX Xxxx Collateral, from the date received by the Lender in
immediately available funds, at an interest rate equal to the Prime Rate minus
3.25% per annum. The XX Xxxx Collateral shall constitute Collateral for all
purposes of this Loan Agreement and shall secure all of the Obligations.
(d) At any time an Event of Default exists or has occurred and
is continuing, upon Lender's request, Borrower will either furnish cash
collateral to secure the reimbursement obligations to the issuer in connection
with any Letter of Credit Accommodations or furnish cash collateral to Lender
for the Letter of Credit Accommodations, and in either case, the Revolving
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Loans otherwise available to Borrower shall not be reduced as provided in
Section 2.2(c) to the extent of such cash collateral.
(e) Borrower shall indemnify and hold Lender harmless from and
against any and all losses, claims, damages, liabilities, costs and expenses
which Lender may suffer or incur in connection with any Letter of Credit
Accommodations and any documents, drafts or acceptances relating thereto,
including, but not limited to, any losses, claims, damages, liabilities, costs
and expenses due to any action taken by any issuer or correspondent with respect
to any Letter of Credit Accommodation. Borrower assumes all risks with respect
to the acts or omissions of the drawer under or beneficiary of any Letter of
Credit Accommodation and for such purposes the drawer or beneficiary shall be
deemed Borrower's agent. Borrower assumes all risks for, and agrees to pay, all
foreign, Federal, State and local taxes, duties and levies relating to any goods
subject to any Letter of Credit Accommodations or any documents, drafts or
acceptances thereunder. Borrower hereby releases and holds Lender harmless from
and against any acts, waivers, errors, delays or omissions, whether caused by
Borrower, by any issuer or correspondent or otherwise, unless caused by the
gross negligence or willful misconduct of Lender, with respect to or relating to
any Letter of Credit Accommodation. The provisions of this Section 2.2(e) shall
survive the payment of Obligations and the termination or non-renewal of this
Agreement.
(f) Nothing contained herein shall be deemed or construed to
grant Borrower any right or authority to pledge the credit of Lender in any
manner. Lender shall have no liability of any kind with respect to any Letter
of Credit Accommodation provided by an issuer other than Lender unless Lender
has duly executed and delivered to such issuer the application or a guarantee or
indemnification in writing with respect to such Letter of Credit Accommodation.
Borrower shall be bound by any interpretation made in good faith by Lender, or
any other issuer or correspondent under or in connection with any Letter of
Credit Accommodation or any documents, drafts or acceptances thereunder,
notwithstanding that such interpretation may be inconsistent with any
instructions of Borrower. Lender shall have the sole and exclusive right and
authority to, and Borrower shall not: (i) at any time an Event of Default exists
or has occurred and is continuing, (A) approve or resolve any questions of
non-compliance of documents, (B) give any instructions as to acceptance or
rejection of any documents or goods or (C) execute any and all applications for
steamship or airway guaranties, indemnities or delivery orders, and (ii) at all
times, (A) grant any extensions of the maturity of, time of payment for, or time
of presentation of, any drafts, acceptances, or documents, and (B) agree to any
amendments, renewals, extensions, modifications, changes or cancellations of any
of the terms or conditions of any of the applications, Letter of Credit
Accommodations, or documents, drafts or acceptances thereunder or any letters of
credit included in the Collateral. Lender may take such actions either in its
own name or in Borrower's name.
(g) Any rights, remedies, duties or obligations granted or
undertaken by Borrower to any issuer or correspondent in any application for any
Letter of Credit Accommodation, or any other agreement in favor of any issuer or
correspondent relating to any Letter of Credit Accommodation, shall be deemed to
have been granted or undertaken by Borrower to Lender. Any duties or
obligations undertaken by Lender to any issuer or correspondent in any
application for any Letter of Credit Accommodation, or any other agreement by
Lender in favor of any issuer or correspondent relating to any Letter of Credit
Accommodation, shall be deemed to have been undertaken by Borrower to Lender and
to apply in all respects to Borrower.
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SECTION 3. INTEREST AND FEES.
3.1 INTEREST.
(a) Borrower shall pay to Lender interest on the outstanding
principal amount of the non-contingent Obligations at the Interest Rate. All
interest accruing hereunder on and after the date of any Event of Default or
termination or non-renewal hereof shall be payable on demand.
(b) Borrower may from time to time request that Prime Rate Loans
be converted to Eurodollar Rate Loans or that any existing Eurodollar Rate Loans
continue for an additional Interest Period. Such request from Borrower shall
specify the amount of the Prime Rate Loans which will constitute Eurodollar Rate
Loans (subject to the limits set forth below) and the Interest Period to be
applicable to such Eurodollar Rate Loans. Subject to the terms and conditions
contained herein, three (3) Business Days after receipt by Lender of such a
request from Borrower, such Prime Rate Loans shall be converted to Eurodollar
Rate Loans or such Eurodollar Rate Loans shall continue, as the case may be,
PROVIDED, THAT, (i) no Event of Default, or event which with notice or passage
of time or both would constitute an Event of Default exists or has occurred and
is continuing, (ii) no party hereto shall have sent any notice of termination or
non-renewal of this Agreement, (iii) Borrower shall have complied with such
customary procedures as are established by Lender and specified by Lender to
Borrower from time to time for requests by Borrower for Eurodollar Rate Loans,
(iv) no more than four (4) Interest Periods may be in effect at any one time,
(v) the aggregate amount of the Eurodollar Rate Loans must be in an amount not
less than $5,000,000 or an integral multiple of $1,000,000 in excess thereof,
(vi) the maximum amount of the Eurodollar Rate Loans at any time requested by
Borrower shall not exceed the amount equal to eighty percent (80%) of the daily
average of the principal amount of the Revolving Loans which it is anticipated
will be outstanding during the applicable Interest Period, in each case as
determined by Lender (but with no obligation of Lender to make such Revolving
Loans) and (vii) Lender shall have determined that the Interest Period or
Adjusted Eurodollar Rate is available to Lender through the Reference Bank and
can be readily determined as of the date of the request for such Eurodollar Rate
Loan by Borrower. Any request by Borrower to convert Prime Rate Loans to
Eurodollar Rate Loans or to continue any existing Eurodollar Rate Loans shall be
irrevocable. Notwithstanding anything to the contrary contained herein, Lender
and Reference Bank shall not be required to purchase United States Dollar
deposits in the London interbank market or other applicable Eurodollar Rate
market to fund any Eurodollar Rate Loans, but the provisions hereof shall be
deemed to apply as if Lender and Reference Bank had purchased such deposits to
fund the Eurodollar Rate Loans.
(c) Any Eurodollar Rate Loans shall automatically convert to
Prime Rate Loans upon the last day of the applicable Interest Period, unless
Lender has received and approved a request to continue such Eurodollar Rate Loan
at least three (3) Business Days prior to such last day in accordance with the
terms hereof. Any Eurodollar Rate Loans shall, at Lender's option, upon notice
by Lender to Borrower, convert to Prime Rate Loans in the event that (i) an
Event of Default or event which with the notice or passage of time or both would
constitute an Event of Default, shall exist, (ii) this Agreement shall terminate
or not be renewed, or (iii) the aggregate principal amount of the Prime Rate
Loans which have previously been converted to Eurodollar Rate Loans or existing
Eurodollar Rate Loans continued, as the case may be, at the beginning of an
Interest Period shall at any time during such Interest Period exceed
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either (A) the aggregate principal amount of the Loans then outstanding, or (B)
the Revolving Loans then available to Borrower under Section 2 hereof. Borrower
shall pay to Lender, upon demand by Lender (or Lender may, at its option, charge
any loan account of Borrower) any amounts required to compensate Lender, the
Reference Bank or any participant with Lender for any loss (including loss of
anticipated profits), cost or expense incurred by such person, as a result of
the conversion of Eurodollar Rate Loans to Prime Rate Loans pursuant to any of
the foregoing.
(d) Interest shall be payable by Borrower to Lender monthly in
arrears not later than the first day of each calendar month and shall be
calculated on the basis of a three hundred sixty (360) day year and actual days
elapsed. The interest rate on non-contingent Obligations (other than Eurodollar
Rate Loans) shall increase or decrease by an amount equal to each increase or
decrease in the Prime Rate effective on the first day of the month after any
change in such Prime Rate is announced based on the Prime Rate in effect on the
last day of the month in which any such change occurs. In no event shall
charges constituting interest payable by Borrower to Lender exceed the maximum
amount or the rate permitted under any applicable law or regulation, and if any
such part or provision of this Agreement is in contravention of any such law or
regulation, such part or provision shall be deemed amended to conform thereto.
3.2 CLOSING FEE Borrower shall pay to Lender closing fees (the
"Closing Fees") as follows:
(a) A Closing Fee the amount of $400,000, which shall be fully
earned as of the date hereof, payable $133,333 on the date hereof, $133,333 on
February 15, 1998, and $133,334 on November 15, 1998; and
(b) If Borrower exercises its right, under Section 1.28 above, to
increase the Maximum Credit, an additional Closing Fee in the amount of 1% of
the increase shall be due and payable on the date each increase is to go into
effect.
Borrower shall be entitled to a credit against the Closing Fee in the amount of
any deposits previously paid to Lender which have not been utilized by Lender;
provided that nothing herein limits Borrower's responsibility for payment of
costs and expenses under Section 9.16 or any other provisions of this Agreement.
Lender agrees to waive the Closing Fees payable on November __, 1998, if
Borrower's net income for the fiscal year ending November 30, 1997 is at least
equal to the amount set forth in the Projections.
3.3 SERVICING FEE. Borrower shall pay to Lender an annual servicing
fee in the amount of $20,000, which shall be fully earned on the date hereof and
on each subsequent anniversary of the date hereof. Said servicing fee shall be
payable in quarterly installments of $5,000 each, commencing on the date hereof
and continuing quarterly hereafter.
3.4 LETTER OF CREDIT FEES. [See Section 2.2(b)]
3.5 [Intentionally omitted]
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3.6 COMPENSATION ADJUSTMENT
(a) If after the date of this Agreement the introduction of, or
any change in, any law or any governmental rule, regulation, policy, guideline
or directive (whether or not having the force of law), or any interpretation
thereof, or compliance by Lender or any Participant therewith:
(i) subjects Lender to any tax, duty, charge or
withholding on or from payments due from Borrower (excluding franchise taxes
imposed upon, and taxation of the overall net income of, Lender or any
Participant), or changes the basis of taxation of payments, in either case in
respect of amounts due it hereunder, or
(ii) imposes or increases or deems applicable any
reserve requirement or other reserve, assessment, insurance charge, special
deposit or similar requirement against assets of, deposits with or for the
account of, or credit extended by Lender or any Participant, or
(iii) imposes any other condition the result of which is
to increase the cost to Lender or any Participant of making, funding or
maintaining the Revolving Loans or Letter of Credit Accommodations or reduces
any amount receivable by Lender or any Participant in connection with the Loans
or Letter of Credit Accommodations, or requires Lender or any Participant to
make payment calculated by references to the amount of loans held or interest
received by it, by an amount deemed material by Lender or any Participant, or
(iv) imposes or increases any capital requirement or
affects the amount of capital required or expected to be maintained by Lender or
any Participant or any corporation controlling Lender or any Participant, and
Lender or any Participant determines that such imposition or increase in capital
requirements or increase in the amount of capital expected to be maintained is
based upon the existence of this Agreement or the Loans or Letter of Credit
Accommodations hereunder, all of which may be determined by Lender's reasonable
allocation of the aggregate of its impositions or increases in capital required
or expected to be maintained, and the result of any of the foregoing is to
increase the cost to Lender or any Participant of making, renewing or
maintaining the Loans or Letter of Credit Accommodations, or to reduce the rate
of return to Lender or any Participant on the Loans or Letter of Credit
Accommodations, then upon demand by Lender, Borrower shall pay to Lender, and
continue to make periodic payments to Lender or any Participant, such additional
amounts as may be necessary to compensate Lender or any Participant for any such
additional cost incurred or reduced rate of return realized.
(b) A certificate of Lender claiming entitlement to compensation
as set forth above will be conclusive in the absence of manifest error. Such
certificate will set forth the nature of the occurrence giving rise to such
compensation, the additional amount or amounts to be paid and the compensation
and the method by which such amounts were determined. In determining any
additional amounts due from Borrower under this Section 3.6, Lender shall act
reasonably and in good faith and will, to the extent that the increased costs,
reductions, or amounts received or receivable relate to the Lender's or a
Participant's loans or commitments generally and are not specifically
attributable to the Loans and commitments hereunder, use averaging and
attribution methods which are reasonable and equitable and which cover all loans
and commitments under this Agreement by the Lender or such Participant, as the
case may be, whether or not the loan
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documentation for such other loans and commitments permits the Lender or such
Participant to receive compensation costs of the type described in this Section
3.6.
3.7 EURODOLLAR RATE LOANS-CHANGES IN LAWS AND INCREASED COSTS OF
LOANS.
(a) Notwithstanding anything to the contrary contained herein,
all Eurodollar Rate Loans shall, upon notice by Lender to Borrower, convert to
Prime Rate Loans in the event that (i) any change in applicable law or
regulation (or the interpretation or administration thereof) shall either (A)
make it unlawful for Lender, Reference Bank or any participant to make or
maintain Eurodollar Rate Loans or to comply with the terms hereof in connection
with the Eurodollar Rate Loans, by an amount deemed by Lender to be material, or
(B) shall result in the increase in the costs to Lender, Reference Bank or any
participant of making or maintaining any Eurodollar Rate Loans or (C) reduce the
amounts received or receivable by Lender in respect thereof, by an amount deemed
by Lender to be material or (ii) the cost to Lender, Reference Bank or any
participant of making or maintaining any Eurodollar Rate Loans shall otherwise
increase by an amount deemed by Lender to be material. Borrower shall pay to
Lender, upon demand by Lender (or Lender may, at its option, charge any loan
account of Borrower) any amounts required to compensate Lender, the Reference
Bank or any participant with Lender for any loss (including loss of anticipated
profits), cost or expense incurred by such person as a result of the foregoing,
including, without limitation, any such loss, cost or expense incurred by reason
of the liquidation or reemployment of deposits or other funds acquired by such
person to make or maintain the Eurodollar Rate Loans or any portion thereof. A
certificate of Lender setting forth the basis for the determination of such
amount necessary to compensate Lender as aforesaid shall be delivered to
Borrower and shall be conclusive, absent manifest error.
(b) If any payments or prepayments in respect of the Eurodollar
Rate Loans are received by Lender other than on the last day of the applicable
Interest Period (whether pursuant to acceleration, upon maturity or otherwise),
including any payments pursuant to the application of collections under Section
6.3 or any other payments made with the proceeds of Collateral, Borrower shall
pay to Lender upon demand by Lender (or Lender may, at its option, charge any
loan account of Borrower) any amounts required to compensate Lender, the
Reference Bank or any participant with Lender for any additional loss (including
loss of anticipated profits), cost or expense incurred by such person as a
result of such prepayment or payment, including, without limitation, any loss,
cost or expense incurred by reason of the liquidation or reemployment of
deposits or other funds acquired by such person to make or maintain such
Eurodollar Rate Loans or any portion thereof.
SECTION 4. CONDITIONS PRECEDENT
4.1 CONDITIONS PRECEDENT TO INITIAL LOANS AND LETTER OF CREDIT
ACCOMMODATIONS. Each of the following is a condition precedent to Lender making
the initial Loans and providing the initial Letter of Credit Accommodations
hereunder:
(a) Lender shall have received, in form and substance
satisfactory to Lender, all releases, terminations and such other documents as
Lender may request to evidence and effectuate the termination of any interest in
and to any assets and properties of Borrower, duly authorized, executed and
delivered by it or each of them, including, but not limited to, UCC termination
statements for all UCC financing statements and Lender shall have satisfied
itself
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that it has valid, perfected and first priority security interests in and liens
upon the Collateral and any other property which is intended as security for the
Obligations, or the liability of any Obligor in respect thereto, subject only to
the security interests and liens permitted herein or in the other Financing
Agreements;
(b) all requisite corporate action and proceedings in connection
with this Agreement and the other Financing Agreements shall be satisfactory in
form and substance to Lender, and Lender shall have received all information and
copies of all documents, including, without limitation, records of requisite
corporate action and proceedings which Lender may have requested in connection
therewith, such documents where requested by Lender or its counsel to be
certified by appropriate corporate officers or governmental authorities;
(c) no material adverse change shall have occurred in the
assets, business or prospects of Borrower since the date of Lender's latest
field examination and no change or event shall have occurred which would impair
the ability of Borrower or any Obligor to perform its obligations hereunder or
under any of the other Financing Agreements to which it is a party or of Lender
to enforce the Obligations or realize upon the Collateral;
(d) Lender shall have completed a field review of the Records
and of such other financial information, projections, budgets, business plans
and cash flows as Lender shall reasonably request from time to time, including,
but not limited to, current agings of receivables, current perpetual inventory
records and/or rollforwards of Accounts and Inventory through the date of
closing, together with supporting documentation, including documentation with
respect to Inventory in-transit, goods in bonded warehouses or at other
third-party locations, that will enable Lender to accurately identify and verify
the eligible Collateral at or before closing in a manner satisfactory to Lender,
the results of which shall be satisfactory to Lender;
(e) Lender shall have received, in form and substance
satisfactory to Lender, all consents, waivers, acknowledgments and other
agreements from third persons which Lender may deem necessary or desirable in
order to permit, protect and perfect its security interests in and liens upon
the Collateral or to effectuate the provisions or purposes of this Agreement and
the other Financing Agreements, including, without limitation, acknowledgments
by lessors, mortgagees and warehousemen of Lender's security interests in the
Collateral, waivers by such persons of any security interests, liens or other
claims by such persons to the Collateral and agreements permitting Lender access
to, and the right to remain on, the premises to exercise its rights and remedies
and otherwise deal with the Collateral;
(f) Lender shall have received evidence of insurance and loss
payee endorsements required hereunder and under the other Financing Agreements,
in form and substance satisfactory to Lender, and certificates of insurance
policies and/or endorsements naming Lender as loss payee;
(g) Lender shall have received, in form and substance
satisfactory to Lender, such opinion letters of counsel to Borrower with respect
to the Financing Agreements and such other matters as Lender may request;
(h) the Excess Availability as determined by Lender as of the
date hereof, shall be not less than Eight Million Dollars ($8,000,000) after
giving effect to the initial Loans made or
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to be made hereunder and the payment of all fees and expenses payable upon the
consummation of the initial transactions contemplated by this Agreement;
(i) Lender shall have received, in form and substance
satisfactory to Lender and its counsel, the assignment of all of Borrower's
rights in registered patents, trademarks, service marks and copyrights, as
Collateral hereunder, on Lender's standard forms of Collateral Assignments;
(j) Lender shall have received, in form and substance
satisfactory to Lender, an executed copy of a Blocked Account Agreement,
pursuant to Section 6.3(ii) hereof, among Lender, Borrower and Bank of America;
and
(k) the other Financing Agreements and all instruments and
documents hereunder and thereunder shall have been duly executed and delivered
to Lender, in form and substance satisfactory to Lender; and
(l) Any holders of a security interest in Borrower's assets
including, without limitation, vendors of Inventory to Borrower, shall have
executed such intercreditor and subordination agreements in form and substance
satisfactory to Lender; and
(m) Lender shall have received the unconditional continuing
guaranty of Borrower's Parent and a Security Agreement executed by the Parent,
both on Lender's standard form, together with documents relating thereto; and
(n) Lender shall have received executed Bailee Agreements, in
such form as Lender shall specify, executed by all of Borrower's freight
forwarders and freight expeditors. In the event, in the future, Borrower shall
desire to use the services of a different freight forwarder or freight
expeditor, Borrower shall first cause such freight forwarder or freight
expeditor to execute and deliver to Lender a Bailee Agreement in such form as
Lender shall specify.
4.2 CONDITIONS PRECEDENT TO ALL LOANS AND LETTER OF CREDIT
ACCOMMODATIONS. Each of the following is an additional condition precedent to
Lender making Loans and/or providing Letter of Credit Accommodations to
Borrower, including the initial Loans and Letter of Credit Accommodations and
any future Loans and Letter of Credit Accommodations:
(a) all representations and warranties contained herein and in
the other Financing Agreements shall be true and correct in all material
respects with the same effect as though such representations and warranties had
been made on and as of the date of the making of each such Loan or providing
each such Letter of Credit Accommodation and after giving effect thereto; and
(b) no Event of Default and no event or condition which, with
notice or passage of time or both, would constitute an Event of Default, shall
exist or have occurred and be continuing on and as of the date of the making of
such Loan or providing each such Letter of Credit Accommodation and after giving
effect thereto.
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SECTION 5. GRANT OF SECURITY INTEREST
To secure payment and performance of all Obligations, Borrower hereby
grants to Lender a continuing security interest in, a lien upon, and a right of
set off against, and hereby assigns to Lender as security, the following
property and interests in property, whether now owned or hereafter acquired or
existing, and wherever located (collectively, the "Collateral"):
5.1 Accounts
5.2 All present and future contract rights, general intangibles
(including, but not limited to, tax and duty refunds, registered and
unregistered patents, trademarks, service marks, copyrights, trade names,
applications for the foregoing, trade secrets, goodwill, processes, drawings,
blueprints, customer lists, licenses, whether as licensor or licensee, choses in
action and other claims and existing and future leasehold interests in
equipment, real estate and fixtures), chattel paper, documents, instruments,
securities, financial assets, securities accounts, security entitlements,
investment property, letters of credit, bankers' acceptances and guaranties;
5.3 All present and future monies, securities, credit balances,
deposits, deposit accounts and other property of Borrower now or hereafter held
or received by or in transit to Lender or its affiliates or at any other
depository or other institution from or for the account of Borrower, whether for
safekeeping, pledge, custody, transmission, collection or otherwise, and all
present and future liens, security interests, rights, remedies, title and
interest in, to and in respect of Accounts and other Collateral, including,
without limitation, (a) rights and remedies under or relating to guaranties,
contracts of suretyship, letters of credit and credit and other insurance
related to the Collateral, (b) rights of stoppage in transit, replevin,
repossession, reclamation and other rights and remedies of an unpaid vendor,
lienor or secured party, (c) goods described in invoices, documents, contracts
or instruments with respect to, or otherwise representing or evidencing,
Accounts or other Collateral, including, without limitation, returned,
repossessed and reclaimed goods, and (d) deposits by and property of account
debtors or other persons securing the obligations of account debtors;
5.4 Inventory;
5.5 Equipment;
5.6 Records; and
5.7 All products and proceeds of the foregoing, in any form,
including, without limitation, insurance proceeds and all claims against third
parties for loss or damage to or destruction of any or all of the foregoing.
SECTION 6. COLLECTION AND ADMINISTRATION
6.1 BORROWER'S LOAN ACCOUNT. Lender shall maintain one or more loan
account(s) on its books in which shall be recorded (a) all Loans, all Letter of
Credit Accommodations and other Obligations and the Collateral, (b) all payments
made by or on behalf of Borrower and (c) all other appropriate debits and
credits as provided in this Agreement, including, without limitation, fees,
charges, costs, expenses and interest. All entries in the loan account(s) shall
be made in accordance with Lender's customary practices as in effect from time
to time.
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6.2 STATEMENTS. Lender shall render to Borrower each month a
statement setting forth the balance in the Borrower's loan account(s) maintained
by Lender for Borrower pursuant to the provisions of this Agreement, including
principal, interest, fees, costs and expenses. Each such statement shall be
subject to subsequent adjustment by Lender but shall, absent manifest errors or
omissions, be considered correct and deemed accepted by Borrower and
conclusively binding upon Borrower as an account stated except to the extent
that Lender receives a written notice from Borrower of any specific exceptions
of Borrower thereto within thirty (30) days after the date such statement has
been mailed by Lender. Until such time as Lender shall have rendered to
Borrower a written statement as provided above, the balance in Borrower's loan
account(s) shall be presumptive evidence of the amounts due and owing to Lender
by Borrower.
6.3 COLLECTION OF ACCOUNTS
(a) Borrower shall establish and maintain, at its expense,
blocked accounts or lockboxes and related blocked accounts (in either case,
"Blocked Accounts"), as Lender may specify, with such banks as are acceptable to
Lender into which Borrower shall promptly deposit and direct its account debtors
to directly remit all payments on Accounts and all payments constituting
proceeds of Inventory or other Collateral in the identical form in which such
payments are made, whether by cash, check or other manner. The banks at which
the Blocked Accounts are established shall enter into an agreement, in form and
substance satisfactory to Lender, providing that all items received or deposited
in the Blocked Accounts are the property of Lender, that the depository bank has
no lien upon, or right to setoff against, the Blocked Accounts, the items
received for deposit therein, or the funds from time to time on deposit therein
and that the depository bank will wire, or otherwise transfer, in immediately
available funds, on a daily basis, all funds received or deposited into the
Blocked Accounts to such bank account of Lender as Lender may from time to time
designate for such purpose ("Payment Account"). Borrower agrees that all
payments made to such Blocked Accounts or other funds received and collected by
Lender, whether on the Accounts or as proceeds of Inventory or other Collateral
or otherwise shall be the property of Lender.
(b) For purposes of calculating interest on the Obligations,
such payments or other funds received will be applied (conditional upon final
collection) to the Obligations one (1) Business Day following the date of
receipt of immediately available funds by Lender in the Payment Account, or two
(2) Business Days following the date of receipt of funds that are not
immediately available to Lender in the Payment Account, as applicable. For
purposes of calculating the amount of the Revolving Loans available to Borrower
such payments will be applied (conditional upon final collection) to the
Obligations on the Business Day of receipt by Lender in the Payment Account, if
such payments are received within sufficient time (in accordance with Lender's
usual and customary practices as in effect from time to time) to credit
Borrower's loan account on such day, and if not, then on the next Business Day.
In the event that there are no outstanding monetary Obligations at the time such
payments or other funds are received, Borrower shall pay Lender a charge in an
amount equal to interest at the Reduced Prime Rate on the amount of such payment
or other funds, for one (1) Business Day following the date of receipt of
immediately available funds by Lender in the Payment Account, or two (2)
Business Days following the date of receipt of funds that are not immediately
available to Lender in the Payment Account, as applicable.
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(c) Borrower and all of its affiliates, subsidiaries,
shareholders, directors, employees or agents shall, acting as trustee for
Lender, receive, as the property of Lender, any monies, checks, notes, drafts or
any other payment relating to and/or proceeds of Accounts or other Collateral
which come into their possession or under their control and immediately upon
receipt thereof, shall deposit or cause the same to be deposited in the Blocked
Accounts, or remit the same or cause the same to be remitted, in kind, to
Lender. In no event shall the same be commingled with Borrower's own funds.
Borrower agrees to reimburse Lender on demand for any amounts owed or paid to
any bank at which a Blocked Account is established or any other bank or person
involved in the transfer of funds to or from the Blocked Accounts arising out of
Lender's payments to or indemnification of such bank or person, unless such
payment or indemnification obligation of Lender was a result of Lender's gross
negligence or willful misconduct. The obligation of Borrower to reimburse
Lender for such amounts pursuant to this Section 6.3 shall survive the
termination or non-renewal of this Agreement.
6.4 PAYMENTS All Obligations shall be payable to the Payment Account
as provided in Section 6.3 or such other place as Lender may designate from time
to time. Lender may apply payments received or collected from Borrower or for
the account of Borrower (including, without limitation, the monetary proceeds of
collections or of realization upon any Collateral) to such of the Obligations,
whether or not then due, in such order and manner as Lender determines. At
Lender's option, all principal, interest, fees, costs, expenses and other
charges provided for in this Agreement or the other Financing Agreements may be
charged directly to the loan account(s) of Borrower. Borrower shall make all
payments to Lender on the Obligations free and clear of, and without deduction
or withholding for or on account of, any setoff, counterclaim, defense, duties,
taxes, levies, imposts, fees, deductions, withholding, restrictions or
conditions of any kind. If after receipt of any payment of, or proceeds of
Collateral applied to the payment of, any of the Obligations, Lender is required
to surrender or return such payment or proceeds to any Person for any reason,
then the Obligations intended to be satisfied by such payment or proceeds shall
be reinstated and continue and this Agreement shall continue in full force and
effect as if such payment or proceeds had not been received by Lender. Borrower
shall be liable to pay to Lender, and does hereby indemnify and hold Lender
harmless for the amount of any payments or proceeds surrendered or returned.
This Section 6.4 shall remain effective notwithstanding any contrary action
which may be taken by Lender in reliance upon such payment or proceeds. This
Section 6.4 shall survive the payment of the Obligations and the termination or
non-renewal of this Agreement.
6.5 AUTHORIZATION TO MAKE LOANS. Lender is authorized to make the
Loans and provide the Letter of Credit Accommodations based upon telephonic or
other instructions received from anyone purporting to be an officer of Borrower
or other authorized person or, at the discretion of Lender, if such Loans are
necessary to satisfy any Obligations. All requests for Loans or Letter of
Credit Accommodations hereunder shall specify the date on which the requested
advance is to be made or Letter of Credit Accommodations established (which day
shall be a Business Day) and the amount of the requested Loan. Requests
received after 10:30 a.m. (Los Angeles time) on any day shall be deemed to have
been made as of the opening of business on the immediately following Business
Day. All Loans and Letter of Credit Accommodations under this Agreement shall
be conclusively presumed to have been made to, and at the request of and for the
benefit of, Borrower when deposited to the credit of Borrower or otherwise
disbursed or established in accordance with the instructions of Borrower or in
accordance with the terms and conditions of this Agreement.
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6.6 USE OF PROCEEDS. All Loans made or Letter of Credit
Accommodations provided by Lender to Borrower pursuant to the provisions hereof
shall be used by Borrower only for general operating, working capital and other
proper corporate purposes of Borrower not otherwise prohibited by the terms
hereof. None of the proceeds will be used, directly or indirectly, for the
purpose of purchasing or carrying any margin security or for the purposes of
reducing or retiring any indebtedness which was originally incurred to purchase
or carry any margin security or for any other purpose which might cause any of
the Loans to be considered a "purpose credit" within the meaning of Regulation G
of the Board of Governors of the Federal Reserve System, as amended.
SECTION 7. COLLATERAL REPORTING AND COVENANTS
7.1 COLLATERAL REPORTING. Borrower shall provide Lender with the
following documents in a form satisfactory to Lender: (a) on a regular basis as
required by Lender, a schedule of Accounts; (b) on a monthly basis or more
frequently as Lender may request, (i) perpetual inventory reports, (ii)
inventory reports by category (comparable to those presently prepared by
Borrower), (iii) agings of accounts payable, (iv) letter of credit reports
setting forth the status of outstanding letters of credit, and (iv) xxxx curve
Inventory reports (by size and style); (c) upon Lender's request, (i) copies of
customer statements and credit memos, remittance advices and reports, and copies
of deposit slips and bank statements, (ii) copies of shipping and delivery
documents, and (iii) copies of purchase orders, invoices and delivery documents
for Inventory and Equipment acquired by Borrower; (d) agings of accounts
receivable on a monthly basis or more frequently as Lender may request; and (e)
such other reports as to the Collateral as Lender shall request from time to
time; (f) a report as to any planned introduction by Borrower of any new "high
fashion" or other category of product, prior to making any material purchase
commitments with respect thereto. If any of Borrower's records or reports of
the Collateral are prepared or maintained by an accounting service, contractor,
shipper or other agent, Borrower hereby irrevocably authorizes such service,
contractor, shipper or agent to deliver such records, reports, and related
documents to Lender and to follow Lender's instructions with respect to further
services at any time that an Event of Default exists or has occurred and is
continuing.
7.2 ACCOUNTS COVENANTS.
(a) Borrower shall notify Lender promptly (which notification
may be in the regular reports provided to Lender) of: (i) any material delay in
Borrower's performance of any of its obligations to any account debtor or the
assertion of any claims, offsets, defenses or counterclaims by any account
debtor, or any disputes with account debtors, or any settlement, adjustment or
compromise thereof, (ii) all material adverse information relating to the
financial condition of any account debtor and (iii) any event or circumstance
which, to Borrower's knowledge would cause Lender to consider any then existing
Accounts as no longer constituting Eligible Accounts. No credit, discount,
allowance or extension or agreement for any of the foregoing shall be granted to
any account debtor without Lender's consent, except in the ordinary course of
Borrower's business in accordance with practices and policies previously
disclosed in writing to Lender. So long as no Event of Default exists or has
occurred and is continuing, Borrower may settle, adjust or compromise any claim,
offset, counterclaim or dispute with any account debtor. At any time that an
Event of Default exists or has occurred and is continuing, Lender shall, at its
option, have the exclusive right to settle, adjust or compromise any claim,
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offset, counterclaim or dispute with account debtors or grant any credits,
discounts or allowances.
(b) Borrower shall promptly report to Lender any return of
Inventory by an account debtor having a sales price in excess of $100,000. At
any time that Inventory is returned, reclaimed or repossessed, the Account for
the returned, reclaimed or repossessed Inventory shall not be deemed an Eligible
Account. In the event any account debtor returns Inventory when an Event of
Default exists or has occurred and is continuing, Borrower shall, upon Lender's
request, (i) hold the returned Inventory in trust for Lender, (ii) segregate all
returned Inventory from all of its other property, (iii) dispose of the returned
Inventory solely according to Lender's instructions, and (iv) not issue any
credits, discounts or allowances with respect thereto without Lender's prior
written consent.
(c) With respect to each Account: (i) the amounts shown on any
invoice delivered to Lender or schedule thereof delivered to Lender shall be
true and complete, (ii) no payments shall be made thereon except payments
immediately delivered to Lender pursuant to the terms of this Agreement, (iii)
no credit, discount, allowance or extension or agreement for any of the
foregoing shall be granted to any account debtor except as reported to Lender in
accordance with this Agreement and except for credits, discounts, allowances or
extensions made or given in the ordinary course of Borrower's business in
accordance with practices and policies previously disclosed to Lender, (iv)
there shall be no setoffs, deductions, contras, defenses, counterclaims or
disputes existing or asserted with respect thereto except as reported to Lender
in accordance with the terms of this Agreement, (v) none of the transactions
giving rise thereto will violate any applicable State or Federal laws or
regulations, all documentation relating thereto will be legally sufficient under
such laws and regulations and all such documentation will be legally enforceable
in accordance with its terms.
(d) Lender shall have the right at any time or times, in
Lender's name or in the name of a nominee of Lender, to verify the validity,
amount or any other matter relating to any Account or other Collateral, by mail,
telephone, facsimile transmission or otherwise.
(e) Borrower shall deliver or cause to be delivered to Lender,
with appropriate endorsement and assignment, with full recourse to Borrower, all
chattel paper and instruments which Borrower now owns or may at any time acquire
immediately upon Borrower's receipt thereof, except as Lender may otherwise
agree.
(f) Lender may, at any time or times that an Event of Default
exists or has occurred and is continuing, (i) notify any or all account debtors
that the Accounts have been assigned to Lender and that Lender has a security
interest therein and Lender may direct any or all accounts debtors to make
payment of Accounts directly to Lender, (ii) extend the time of payment of,
compromise, settle or adjust for cash, credit, return of merchandise or
otherwise, and upon any terms or conditions, any and all Accounts or other
obligations included in the Collateral and thereby discharge or release the
account debtor or any other party or parties in any way liable for payment
thereof without affecting any of the Obligations, (iii) demand, collect or
enforce payment of any Accounts or such other obligations, but without any duty
to do so, and Lender shall not be liable for its failure to collect or enforce
the payment thereof nor for the negligence of its agents or attorneys with
respect thereto and (iv) take whatever other action Lender may deem necessary or
desirable for the protection of its interests. At any time that an
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Event of Default exists or has occurred and is continuing, at Lender's request,
all invoices and statements sent to any account debtor shall state that the
Accounts and such other obligations have been assigned to Lender and are payable
directly and only to Lender and Borrower shall deliver to Lender such originals
of documents evidencing the sale and delivery of goods or the performance of
services giving rise to any Accounts as Lender may require.
7.3 INVENTORY COVENANTS. With respect to the Inventory: (a) Borrower
shall at all times maintain inventory records reasonably satisfactory to Lender,
keeping correct and accurate records itemizing and describing the kind, type,
quality and quantity of Inventory, Borrower's cost therefor and daily
withdrawals therefrom and additions thereto; (b) Borrower shall conduct a
physical count of the Inventory at least once each year, but at any time or
times as Lender may request during the continuance of an Event of Default, and
promptly following such physical inventory shall supply Lender with a report in
the form and with such specificity as may be reasonably satisfactory to Lender
concerning such physical count; (c) Borrower shall not remove any Inventory from
the locations set forth or permitted herein, without the prior written consent
of Lender, except for sales of Inventory in the ordinary course of Borrower's
business and except to move Inventory directly from one location set forth or
permitted herein to another such location; (d) upon Lender's request, Borrower
shall, at its expense, no more than twice in any twelve (12) month period, but
at any time or times as Lender may request during the continuance of an Event of
Default, deliver or cause to be delivered to Lender written reports or
appraisals as to the Inventory in form, scope and methodology acceptable to
Lender and by an appraiser acceptable to Lender, addressed to Lender or upon
which Lender is expressly permitted to rely, and if Lender wishes appraisals of
the Inventory other than those referred to above, Lender may cause the same to
be done at its expense, and Borrower shall cooperate in connection therewith;
(e) Borrower shall produce, use, store and maintain the Inventory, with all
reasonable care and caution and in accordance with applicable standards of any
insurance and in conformity with applicable laws (including, but not limited to,
the requirements of the Federal Fair Labor Standards Act of 1938, as amended and
all rules, regulations and orders related thereto); (f) Borrower assumes all
responsibility and liability arising from or relating to the production, use,
sale or other disposition of the Inventory; (g) Borrower shall not sell
Inventory to any customer on approval, or any other basis which entitles the
customer to return or may obligate Borrower to repurchase such Inventory; (h)
Borrower shall keep the Inventory in good and marketable condition; and (i)
Borrower shall not, without prior written notice to Lender, acquire or accept
any Inventory on consignment or approval.
7.4 EQUIPMENT COVENANTS. With respect to the Equipment: (a) upon
Lender's request, Borrower shall, at its expense, at any time or times as Lender
may request during the continuance of an Event of Default, deliver or cause to
be delivered to Lender written reports or appraisals as to the Equipment in
form, scope and methodology acceptable to Lender and by an appraiser acceptable
to Lender; (b) Borrower shall keep the Equipment in good order, repair, running
and marketable condition (ordinary wear and tear excepted); (c) Borrower shall
use the Equipment with all reasonable care and caution and in accordance with
applicable standards of any insurance and in conformity with all applicable
laws; (d) the Equipment is and shall be used in Borrower's business and not for
personal, family, household or farming use; (e) Borrower shall not remove any
Equipment from the locations set forth or permitted herein, except to the extent
necessary to have any Equipment repaired or maintained in the ordinary course of
the business of Borrower or to move Equipment directly from one location set
forth or permitted herein to another such location and except for the movement
of motor vehicles used by or for the benefit of Borrower in
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the ordinary course of business; (f) the Equipment is now and shall remain
personal property and Borrower shall not permit any of the Equipment to be or
become a part of or affixed to real property; and (g) Borrower assumes all
responsibility and liability arising from the use of the Equipment.
7.5 POWER OF ATTORNEY. Borrower hereby irrevocably designates and
appoints Lender (and all persons designated by Lender) as Borrower's true and
lawful attorney-in-fact, and authorizes Lender, in Borrower's or Lender's name,
to: (a) at any time an Event of Default exists or has occurred and is continuing
(i) demand payment on Accounts or other proceeds of Inventory or other
Collateral, (ii) enforce payment of Accounts by legal proceedings or otherwise,
(iii) exercise all of Borrower's rights and remedies to collect any Account or
other Collateral, (iv) sell or assign any Account upon such terms, for such
amount and at such time or times as the Lender deems advisable, (v) settle,
adjust, compromise, extend or renew an Account, (vi) discharge and release any
Account, (vii) prepare, file and sign Borrower's name on any proof of claim in
bankruptcy or other similar document against an account debtor, (viii) notify
the post office authorities to change the address for delivery of Borrower's
mail to an address designated by Lender, and open and dispose of all mail
addressed to Borrower, and (ix) do all acts and things which are necessary, in
Lender's determination, to fulfill Borrower's obligations under this Agreement
and the other Financing Agreements and (b) at any time to (i) take control in
any manner of any item of payment or proceeds thereof, (ii) have access to any
lockbox or postal box into which Borrower's mail is deposited, (iii) endorse
Borrower's name upon any items of payment or proceeds thereof and deposit the
same in the Lender's account for application to the Obligations, (iv) endorse
Borrower's name upon any chattel paper, document, instrument, invoice, or
similar document or agreement relating to any Account or any goods pertaining
thereto or any other Collateral, (v) sign Borrower's name on any verification of
Accounts and notices thereof to account debtors and (vi) execute in Borrower's
name and file any UCC financing statements or amendments thereto. Borrower
hereby releases Lender and its officers, employees and designees from any
liabilities arising from any act or acts under this power of attorney and in
furtherance thereof, whether of omission or commission, except as a result of
Lender's own gross negligence or willful misconduct as determined pursuant to a
final non-appealable order of a court of competent jurisdiction.
7.6 RIGHT TO CURE. Lender may, at its option, (a) cure any default
by Borrower under any agreement with a third party or pay or bond on appeal any
judgment entered against Borrower, (b) discharge taxes, liens, security
interests or other encumbrances at any time levied on or existing with respect
to the Collateral and (c) pay any amount, incur any expense or perform any act
which, in Lender's judgment, is necessary or appropriate to preserve, protect,
insure or maintain the Collateral and the rights of Lender with respect thereto.
Lender may add any amounts so expended to the Obligations and charge Borrower's
account therefor, such amounts to be repayable by Borrower on demand. Lender
shall be under no obligation to effect such cure, payment or bonding and shall
not, by doing so, be deemed to have assumed any obligation or liability of
Borrower. Any payment made or other action taken by Lender under this Section
shall be without prejudice to any right to assert an Event of Default hereunder
and to proceed accordingly.
7.7 ACCESS TO PREMISES. From time to time as requested by Lender, at
the cost and expense of Borrower, (a) Lender or its designee shall have complete
access to all of Borrower's premises during normal business hours and after
notice to Borrower, or at any time and without
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notice to Borrower if an Event of Default exists or has occurred and is
continuing, for the purposes of inspecting, verifying and auditing the
Collateral and all of Borrower's books and records, including, without
limitation, the Records, and (b) Borrower shall promptly furnish to Lender such
copies of such books and records or extracts therefrom as Lender may request,
and (c) use during normal business hours such of Borrower's personnel,
equipment, supplies and premises as may be reasonably necessary for the
foregoing and if an Event of Default exists or has occurred and is continuing
for the collection of Accounts and realization of other Collateral.
SECTION 8. REPRESENTATIONS AND WARRANTIES
Borrower hereby represents and warrants to Lender the following (which
shall survive the execution and delivery of this Agreement), the truth and
accuracy of which are a continuing condition of the making of Loans and the
providing of Letter of Credit Accommodations by Lender to Borrower:
8.1 CORPORATE EXISTENCE, POWER AND AUTHORITY; SUBSIDIARIES. Borrower
is a corporation duly organized and in good standing under the laws of its state
of incorporation and is duly qualified as a foreign corporation and in good
standing in all states or other jurisdictions where the nature and extent of the
business transacted by it or the ownership of assets makes such qualification
necessary, except for those jurisdictions in which the failure to so qualify
would not have a material adverse effect on Borrower's financial condition,
results of operation or business or the rights of Lender in or to any of the
Collateral. The execution, delivery and performance of this Agreement, the
other Financing Agreements and the transactions contemplated hereunder and
thereunder are all within Borrower's corporate powers, have been duly authorized
and are not in contravention of law or the terms of Borrower's certificate of
incorporation, by-laws, or other organizational documentation, or any indenture,
agreement or undertaking to which Borrower is a party or by which Borrower or
its property are bound. This Agreement and the other Financing Agreements
constitute legal, valid and binding obligations of Borrower enforceable in
accordance with their respective terms. Borrower does not have any subsidiaries
except as set forth on the Information Certificate, and Borrower represents and
warrants that such subsidiaries are and shall at all times continue to be
inactive corporations without any assets (other than interests in foreign
subsidiaries).
8.2 FINANCIAL STATEMENTS; NO MATERIAL ADVERSE CHANGE. All financial
statements relating to Borrower which have been or may hereafter be delivered by
Borrower to Lender have been prepared in accordance with GAAP and fairly present
the financial condition and the results of operations of Borrower as at the
dates and for the periods set forth therein. Except as disclosed in any interim
financial statements furnished by Borrower to Lender prior to the date of this
Agreement, there has been no material adverse change in the assets, liabilities,
properties and condition, financial or otherwise, of Borrower, since the date of
the most recent audited financial statements furnished by Borrower to Lender
prior to the date of this Agreement.
8.3 CHIEF EXECUTIVE OFFICE; COLLATERAL LOCATIONS. The chief
executive office of Borrower and Borrower's Records concerning Accounts are
located only at the address set forth below and its only other places of
business and the only other locations of Collateral, if any, are the addresses
set forth in the Information Certificate, subject to the right of Borrower to
establish new locations in accordance with Section 9.2 below. The Information
Certificate correctly identifies any of such locations which are not owned by
Borrower and sets forth the owners
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and/or operators thereof and to the best of Borrower's knowledge, the holders of
any mortgages on such locations.
8.4 PRIORITY OF LIENS; TITLE TO PROPERTIES. The security interests
and liens granted to Lender under this Agreement and the other Financing
Agreements constitute valid and perfected first priority liens and security
interests in and upon the Collateral subject only to the liens indicated on
Schedule 8.4 hereto and the other liens permitted under Section 9.8 hereof.
Borrower has good and marketable title to all of its properties and assets
subject to no liens, mortgages, pledges, security interests, encumbrances or
charges of any kind, except those granted to Lender and such others as are
specifically listed on Schedule 8.4 hereto or permitted under Section 9.8
hereof.
8.5 TAX RETURNS. Borrower has filed, or caused to be filed, in a
timely manner all tax returns, reports and declarations which are required to be
filed by it (without requests for extension except as previously disclosed in
writing to Lender). All information in such tax returns, reports and
declarations is complete and accurate in all material respects. Borrower has
paid or caused to be paid all taxes due and payable or claimed due and payable
in any assessment received by it, except taxes the validity of which are being
contested in good faith by appropriate proceedings diligently pursued and
available to Borrower and with respect to which adequate reserves have been set
aside on its books. Adequate provision has been made for the payment of all
accrued and unpaid Federal, State, county, local, foreign and other taxes
whether or not yet due and payable and whether or not disputed.
8.6 LITIGATION. Except as set forth on the Information Certificate,
there is no present investigation by any governmental agency pending, or to the
best of Borrower's knowledge threatened, against or affecting Borrower, its
assets or business and there is no action, suit, proceeding or claim by any
Person pending, or to the best of Borrower's knowledge threatened, against
Borrower or its assets or goodwill, or against or affecting any transactions
contemplated by this Agreement, which if adversely determined against Borrower
would result in any material adverse change in the assets, business or prospects
of Borrower or would impair the ability of Borrower to perform its obligations
hereunder or under any of the other Financing Agreements to which it is a party
or of Lender to enforce any Obligations or realize upon any Collateral.
8.7 COMPLIANCE WITH OTHER AGREEMENTS AND APPLICABLE LAWS. Borrower is
not in default in any material respect under, or in violation in any material
respect of any of the terms of, any agreement, contract, instrument, lease or
other commitment to which it is a party or by which it or any of its assets are
bound and Borrower is in compliance in all material respects with all applicable
provisions of laws, rules, regulations, licenses, permits, approvals and orders
of any foreign, Federal, State or local governmental authority, except as
follows: Borrower is in default under agreements relating to its outstanding
Series B Preferred Stock in that Borrower has failed to make certain quarterly
dividend payments thereon, but Borrower represents and warrants to Lender that
the only effect of such default is to increase the rate at which dividends
accrue thereon, and neither the holders of the Series B Preferred Stock nor any
other person has any other right or remedy as a result of such default.
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8.8 ENVIRONMENTAL COMPLIANCE
(a) Borrower has not generated, used, stored, treated,
transported, manufactured, handled, produced or disposed of any Hazardous
Materials, on or off its premises (whether or not owned by it) in any manner
which at any time violates any applicable Environmental Law or any license,
permit, certificate, approval or similar authorization thereunder and the
operations of Borrower complies in all material respects with all Environmental
Laws and all licenses, permits, certificates, approvals and similar
authorizations thereunder.
(b) There has been no investigation, proceeding, complaint,
order, directive, claim, citation or notice by any governmental authority or any
other person nor is any pending or to the best of Borrower's knowledge
threatened, with respect to any non-compliance with or violation of the
requirements of any Environmental Law by Borrower or the release, spill or
discharge, threatened or actual, of any Hazardous Material or the generation,
use, storage, treatment, transportation, manufacture, handling, production or
disposal of any Hazardous Materials or any other environmental, health or safety
matter, which affects Borrower or its business, operations or assets or any
properties at which Borrower has transported, stored or disposed of any
Hazardous Materials.
(c) Borrower has no material liability (contingent or otherwise)
in connection with a release, spill or discharge, threatened or actual, of any
Hazardous Materials or the generation, use, storage, treatment, transportation,
manufacture, handling, production or disposal of any Hazardous Materials.
(d) Borrower has all licenses, permits, certificates, approvals
or similar authorizations required to be obtained or filed in connection with
the operations of Borrower under any Environmental Law and all of such licenses,
permits, certificates, approvals or similar authorizations are valid and in full
force and effect.
8.9 EMPLOYEE BENEFITS
(a) Borrower has not engaged in any transaction in connection
with which Borrower or any of its ERISA Affiliates could be subject to either a
civil penalty assessed pursuant to Section 502(i) of ERISA or a tax imposed by
Section 4975 of the Code, including any accumulated funding deficiency described
in Section 8.9(c) hereof and any deficiency with respect to vested accrued
benefits described in Section 8.9(d) hereof.
(b) No liability to the Pension Benefit Guaranty Corporation has
been or is expected by Borrower to be incurred with respect to any employee
pension benefit plan of Borrower or any of its ERISA Affiliates. There has been
no reportable event (within the meaning of Section 4043(b) of ERISA) or any
other event or condition with respect to any employee pension benefit plan of
Borrower or any of its ERISA Affiliates which presents a risk of termination of
any such plan by the Pension Benefit Guaranty Corporation.
(c) Full payment has been made of all amounts which Borrower or
any of its ERISA Affiliates is required under Section 302 of ERISA and Section
412 of the Code to have paid under the terms of each employee pension benefit
plan as contributions to such plan as of the last day of the most recent fiscal
year of such plan ended prior to the date hereof, and no
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accumulated funding deficiency (as defined in Section 302 of ERISA and Section
412 of the Code), whether or not waived, exists with respect to any employee
pension benefit plan, including any penalty or tax described in Section 8.9(a)
hereof and any deficiency with respect to vested accrued benefits described in
Section 8.9(d) hereof.
(d) The current value of all vested accrued benefits under all
employee pension benefit plans maintained by Borrower that are subject to Title
IV of ERISA does not exceed the current value of the assets of such plans
allocable to such vested accrued benefits, including any penalty or tax
described in Section 8.9(a) hereof and any accumulated funding deficiency
described in Section 8.9(c) hereof. The terms "current value" and "accrued
benefit" have the meanings specified in ERISA.
(e) Neither Borrower nor any of its ERISA Affiliates is or has
ever been obligated to contribute to any "multiemployer plan" (as such term is
defined in Section 4001(a)(3) of ERISA) that is subject to Title IV of ERISA.
8.10 ACCURACY AND COMPLETENESS OF INFORMATION. All information
furnished by or on behalf of Borrower in writing to Lender in connection with
this Agreement or any of the other Financing Agreements or any transaction
contemplated hereby or thereby, including, without limitation, all information
on the Information Certificate is true and correct in all material respects on
the date as of which such information is dated or certified and does not omit
any material fact necessary in order to make such information not misleading.
No event or circumstance has occurred which has had or could reasonably be
expected to have a material adverse affect on the business, assets or prospects
of Borrower, which has not been fully and accurately disclosed to Lender in
writing.
8.11 SURVIVAL OF WARRANTIES; CUMULATIVE. All representations and
warranties contained in this Agreement or any of the other Financing Agreements
shall survive the execution and delivery of this Agreement and shall be deemed
to have been made again to Lender on the date of each additional borrowing or
other credit accommodation hereunder and shall be conclusively presumed to have
been relied on by Lender regardless of any investigation made or information
possessed by Lender. The representations and warranties set forth herein shall
be cumulative and in addition to any other representations or warranties which
Borrower shall now or hereafter give, or cause to be given, to Lender.
SECTION 9. AFFIRMATIVE AND NEGATIVE COVENANTS
9.1 MAINTENANCE OF EXISTENCE. Borrower shall at all times preserve,
renew and keep in full, force and effect its corporate existence and rights and
franchises with respect thereto and maintain in full force and effect all
permits, licenses, trademarks, trade names, approvals, authorizations, leases
and contracts necessary to carry on the business as presently or proposed to be
conducted. Borrower shall give Lender thirty (30) days prior written notice of
any proposed change in its corporate name, which notice shall set forth the new
name and Borrower shall deliver to Lender a copy of the amendment to the
Certificate of Incorporation of Borrower providing for the name change certified
by the Secretary of State of the jurisdiction of incorporation of Borrower as
soon as it is available.
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9.2 NEW COLLATERAL LOCATIONS. Borrower may open any new location
within the continental United States provided Borrower (a) gives Lender thirty
(30) days prior written notice of the intended opening of any such new location
and (b) executes and delivers, or causes to be executed and delivered, to Lender
such agreements, documents, and instruments as Lender may deem reasonably
necessary or desirable to protect its interests in the Collateral at such
location, including, without limitation, UCC financing statements and, if
Borrower leases such new location, provides a favorable landlord waiver or
subordination, or, in the alternative, Lender may apply an Availability Reserve
in an amount equal to three (3) months gross rent in a manner consistent with
the Availability Reserve established to cover rent as defined in Section 1.4
hereof.
9.3 COMPLIANCE WITH LAWS, REGULATIONS.
(a) Borrower shall, at all times, comply in all material
respects with all laws, rules, regulations, licenses, permits, approvals and
orders applicable to it and duly observe all requirements of any Federal, State
or local governmental authority, including, without limitation, the Employee
Retirement Security Act of 1974, as amended, the Occupational Safety and Hazard
Act of 1970, as amended, the Fair Labor Standards Act of 1938, as amended, and
all statutes, rules, regulations, orders, permits and stipulations relating to
environmental pollution and employee health and safety, including, without
limitation, all of the Environmental Laws.
(b) Copies of all environmental surveys, audits, assessments,
feasibility studies and results of remedial investigations shall be promptly
furnished, or caused to be furnished, by Borrower to Lender. Borrower shall
take prompt and appropriate action to respond to any non-compliance with any of
the Environmental Laws and shall regularly report to Lender on such response.
(c) Borrower shall give both oral and written notice to Lender
immediately upon Borrower's receipt of any notice of, or Borrower's otherwise
obtaining knowledge of, (i) the occurrence of any event involving the release,
spill or discharge, threatened or actual, of any Hazardous Material or (ii) any
investigation, proceeding, complaint, order, directive, claims, citation or
notice with respect to: (A) any non-compliance with or violation of any
Environmental Law by Borrower or (B) the release, spill or discharge, threatened
or actual, of any Hazardous Material or (C) the generation, use, storage,
treatment, transportation, manufacture, handling, production or disposal of any
Hazardous Materials or (D) any other environmental, health or safety matter,
which affects Borrower or its business, operations or assets or any properties
at which Borrower transported, stored or disposed of any Hazardous Materials.
(d) Without limiting the generality of the foregoing, whenever
Lender reasonably determines that there is non-compliance, or any condition
which requires any action by or on behalf of Borrower in order to avoid any
material non-compliance, with any Environmental Law, Borrower shall, at Lender's
request and Borrower's expense: (i) cause an independent environmental engineer
acceptable to Lender to conduct such tests of the site where Borrower's
non-compliance or alleged non-compliance with such Environmental Laws has
occurred as to such non-compliance and prepare and deliver to Lender a report as
to such non-compliance setting forth the results of such tests, a proposed plan
for responding to any environmental problems described therein, and an estimate
of the costs thereof and (ii) provide to Lender a supplemental report of such
engineer whenever the scope of such non-compliance, or Borrower's response
thereto or the estimated costs thereof, shall change in any material respect.
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(e) Borrower shall indemnify and hold harmless Lender, its
directors, officers, employees, agents, invitees, representatives, successors
and assigns, from and against any and all losses, claims, damages, liabilities,
costs, and expenses (including attorneys' fees and legal expenses) directly or
indirectly arising out of or attributable to the use, generation, manufacture,
reproduction, storage, release, threatened release, spill, discharge, disposal
or presence of a Hazardous Material, including, without limitation, the costs of
any required or necessary repair, cleanup or other remedial work with respect to
any property of Borrower and the preparation and implementation of any closure,
remedial or other required plans. All representations, warranties, covenants
and indemnifications in this Section 9.3 shall survive the payment of the
Obligations and the termination or non-renewal of this Agreement.
9.4 PAYMENT OF TAXES AND CLAIMS. Borrower shall duly pay and
discharge all taxes, assessments, contributions and governmental charges upon or
against it or its properties or assets, except for taxes the validity of which
are being contested in good faith by appropriate proceedings diligently pursued
and available to Borrower and with respect to which adequate reserves have been
set aside on its books. Borrower shall be liable for any tax or penalties
imposed on Lender as a result of the financing arrangements provided for herein
and Borrower agrees to indemnify and hold Lender harmless with respect to the
foregoing, and to repay to Lender on demand the amount thereof, and until paid
by Borrower such amount shall be added and deemed part of the Loans, PROVIDED,
THAT, nothing contained herein shall be construed to require Borrower to pay any
income or franchise taxes attributable to the income of Lender from any amounts
charged or paid hereunder to Lender. The foregoing indemnity shall survive the
payment of the Obligations and the termination or non-renewal of this Agreement.
9.5 INSURANCE. Borrower shall, at all times, maintain with
financially sound and reputable insurers insurance with respect to the
Collateral against loss or damage and all other insurance of the kinds and in
the amounts customarily insured against or carried by corporations of
established reputation engaged in the same or similar businesses and similarly
situated. Said policies of insurance shall be satisfactory to Lender as to
form, amount and insurer. Borrower shall furnish certificates, policies or
endorsements to Lender as Lender shall require as proof of such insurance, and,
if Borrower fails to do so, Lender is authorized, but not required, to obtain
such insurance at the expense of Borrower. All policies shall provide for at
least thirty (30) days prior written notice to Lender of any cancellation or
reduction of coverage and that Lender may act as attorney for Borrower in
obtaining, and at any time an Event of Default exists or has occurred and is
continuing, adjusting, settling, amending and canceling such insurance.
Borrower shall cause Lender to be named as a loss payee and an additional
insured (but without any liability for any premiums) under such insurance
policies and Borrower shall obtain non-contributory lender's loss payable
endorsements to all insurance policies in form and substance satisfactory to
Lender. Such lender's loss payable endorsements shall specify that the proceeds
of such insurance shall be payable to Lender as its interests may appear and
further specify that Lender shall be paid regardless of any act or omission by
Borrower or any of its affiliates. At its option, Lender may apply any
insurance proceeds received by Lender at any time to the cost of repairs or
replacement of Collateral and/or to payment of the Obligations, whether or not
then due, in any order and in such manner as Lender may determine or hold such
proceeds as cash collateral for the Obligations.
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9.6 FINANCIAL STATEMENTS AND OTHER INFORMATION.
(a) Borrower shall keep proper books and records in which true
and complete entries shall be made of all dealings or transactions of or in
relation to the Collateral and the business of Borrower and its subsidiaries (if
any) in accordance with GAAP and Borrower shall furnish or cause to be furnished
to Lender:
(i) By March 31 of each year, monthly unaudited consolidated
and consolidating financial statements of Borrower and its Parent for the
preceding months of December and January (including in each case balance sheets,
statements of income and loss), all in reasonable detail, fairly presenting the
financial position and the results of the operations of Borrower and its Parent
and their subsidiaries as of the end of and through such fiscal months;
(ii) Within 45 days after the end of the months of February,
May and August in each year, monthly and quarterly unaudited consolidated and
consolidating financial statements of Borrower and its Parent for such months
and for the fiscal quarters ending in such months (including in each case
balance sheets, statements of income and loss and, for the Parent, a quarterly
consolidated statement of shareholders' equity), all in reasonable detail,
fairly presenting the financial position and the results of the operations of
Borrower and its Parent and their subsidiaries as of the end of and through such
fiscal months
(iii) Within 30 days after the end of the months of March,
April, June, July, September and October, monthly unaudited consolidated and
consolidating financial statements of Borrower and its Parent (including in each
case balance sheets and statements of income and loss), all in reasonable
detail, fairly presenting the financial position and the results of the
operations of Borrower and its Parent and their subsidiaries as of the end of
and through such fiscal months; and
(iv) within ninety (90) days after the end of each fiscal
year, audited consolidated and consolidating financial statements of Borrower
and its Parent (including in each case balance sheets, statements of income and
loss, and, for the Parent only, statements of cash flow and statements of
shareholders' equity), and the accompanying notes thereto, all in reasonable
detail, fairly presenting the financial position and the results of the
operations of Borrower and its Parent and their subsidiaries as of the end of
and for such fiscal year, together with the opinion of independent certified
public accountants, which accountants shall be an independent accounting firm
selected by Borrower and reasonably acceptable to Lender, that such financial
statements have been prepared in accordance with GAAP, and present fairly the
results of operations and financial condition of Borrower and its subsidiaries
as of the end of and for the fiscal year then ended.
(b) Borrower shall promptly notify Lender in writing of the
details of (i) any loss, damage, investigation, action, suit, proceeding or
claim relating to the Collateral or any other property which is security for the
Obligations or which would result in any material adverse change in Borrower's
business, properties, assets, goodwill or condition, financial or otherwise and
(ii) the occurrence of any Event of Default or event which, with the passage of
time or giving of notice or both, would constitute an Event of Default.
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(c) Borrower shall promptly after the sending or filing thereof
furnish or cause to be furnished to Lender copies of all financial reports which
Borrower sends to its stockholders generally and copies of all reports and
registration statements which Borrower files with the Securities and Exchange
Commission, any national securities exchange or the National Association of
Securities Dealers, Inc.
(d) Borrower shall furnish or cause to be furnished to Lender
such budgets, forecasts, projections and other information in respect of the
Collateral and the business of Borrower, as Lender may, from time to time,
reasonably request. Without limiting the generality of the foregoing, Borrower
shall deliver to Lender projections prepared in a comparable manner and with
detail comparable to the Projections dated February 20, 1997 and attached as
Exhibit B hereto, for each fiscal year of Borrower commencing during the term
hereof, within 60 days after the beginning of each such fiscal year, all of
which Projections shall be acceptable to the Lender in its discretion. Lender is
hereby authorized to deliver a copy of any financial statement or any other
information relating to the business of Borrower to any court or other
government agency (if so required) or to any participant or assignee or
prospective participant or assignee. Borrower hereby irrevocably authorizes and
directs all accountants or auditors to deliver to Lender, at Borrower's expense,
copies of the financial statements of Borrower and any reports or management
letters prepared by such accountants or auditors on behalf of Borrower and to
disclose to Lender such information as they may have regarding the business of
Borrower. Any documents, schedules, invoices or other papers delivered to
Lender may be destroyed or otherwise disposed of by Lender one (1) year after
the same are delivered to Lender, except as otherwise designated by Borrower to
Lender in writing.
9.7 SALE OF ASSETS, CONSOLIDATION, MERGER, DISSOLUTION, ETC.
Borrower shall not, directly or indirectly, (a) merge into or with or
consolidate with any other Person or permit any other Person to merge into or
with or consolidate with it, or (b) sell, assign, lease, transfer, abandon or
otherwise dispose of any stock or indebtedness to any other Person or any of its
assets to any other Person (except for (i) sales of Inventory in the ordinary
course of business and (ii) the disposition of worn-out or obsolete Equipment or
Equipment no longer used in the business of Borrower so long as (A) if an Event
of Default exists or has occurred and is continuing, any proceeds are paid to
Lender and (B) such sales do not involve Equipment having a net book value in
excess of $250,000 for all such Equipment disposed of in any fiscal year of
Borrower), or (c) form or acquire any subsidiaries, or (d) wind up, liquidate or
dissolve or (e) agree to do any of the foregoing.
9.8 ENCUMBRANCES. Borrower shall not create, incur, assume or suffer
to exist any security interest, mortgage, pledge, lien, charge or other
encumbrance of any nature whatsoever on any of its assets or properties,
including, without limitation, the Collateral, EXCEPT: (a) liens and security
interests of Lender; (b) liens securing the payment of taxes, either not yet
overdue or the validity of which are being contested in good faith by
appropriate proceedings diligently pursued and available to Borrower and with
respect to which adequate reserves have been set aside on its books; (c)
non-consentual statutory liens (other than liens securing the payment of taxes)
arising in the ordinary course of Borrower's business to the extent: (i) such
liens secure indebtedness which is not overdue or (ii) such liens secure
indebtedness relating to claims or liabilities which are fully insured and being
defended at the sole cost and expense and at the sole risk of the insurer or
being contested in good faith by appropriate proceedings diligently pursued and
available to Borrower, in each case prior to the commencement of foreclosure or
other similar
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proceedings and with respect to which adequate reserves have been set aside on
its books; (d) zoning restrictions, easements, licenses, covenants and other
restrictions affecting the use of real property which do not interfere in any
material respect with the use of such real property or ordinary conduct of the
business of Borrower as presently conducted thereon or materially impair the
value of the real property which may be subject thereto; (e) purchase money
security interests in Equipment (including capital leases) and purchase money
mortgages on real estate not to exceed $1,000,000 in the aggregate at any time
outstanding so long as such security interests and mortgages do not apply to any
property of Borrower other than the Equipment or real estate so acquired, and
the indebtedness secured thereby does not exceed the cost of the Equipment or
real estate so acquired, as the case may be; (f) the security interests and
liens set forth on Schedule 8.4 hereto; (g) pledges or deposits under workers'
compensation, unemployment insurance, social security and other similar laws by
Borrower; and (h) deposits, bids or performance bonds made or issued in the
ordinary course of business, in connection with acquisitions or sales of goods
or services in the ordinary course of business.
9.9 INDEBTEDNESS. Borrower shall not incur, create, assume, become
or be liable in any manner with respect to, or permit to exist, any obligations
or indebtedness, EXCEPT (a) the Obligations; (b) trade obligations and normal
accruals in the ordinary course of business not yet due and payable, or with
respect to which the Borrower is contesting in good faith the amount or validity
thereof by appropriate proceedings diligently pursued and available to Borrower,
and with respect to which adequate reserves have been set aside on its books;
(c) purchase money indebtedness (including capital leases) to the extent not
incurred or secured by liens (including capital leases) in violation of any
other provision of this Agreement; and (d) obligations or indebtedness set forth
on the Information Certificate; PROVIDED, THAT, (i) with respect to such
indebtedness other than the Debentures, Borrower may only make regularly
scheduled payments of principal and interest in respect of such indebtedness in
accordance with the terms of the agreement or instrument evidencing or giving
rise to such indebtedness as in effect on the date hereof, (ii) as to the
Debentures, Borrower may only make regularly scheduled payments of interest (not
principal) in respect of the Debentures in accordance with the terms of the
agreement or instrument evidencing or giving rise to the Debentures, and
Borrower may only make such interest payments if no Event of Default and no
event which, with notice or passage of time or both, would constitute an Event
of Default hereunder, has occurred and is continuing, (iii) Borrower shall not,
and shall not permit Parent to, directly or indirectly, (A) amend, modify, alter
or change the terms of any of the foregoing indebtedness or any agreement,
document or instrument related thereto as in effect on the date hereof, or (B)
except as otherwise permitted under this Agreement, directly or indirectly,
redeem, retire, defease, purchase or otherwise acquire the Debentures or other
indebtedness, or set aside or otherwise deposit or invest any sums for such
purpose, and (iv) Borrower shall furnish to Lender all notices or demands in
connection with the Debentures or other indebtedness either received by Borrower
or Parent or on behalf of either of them, promptly after the receipt thereof, or
sent by Borrower or Parent or behalf of either of them, concurrently with the
sending thereof, as the case may be. Notwithstanding the foregoing, Borrower
may, itself or through the Parent, redeem or purchase Debentures if, at the date
the redemption or purchase is to be consummated, and after giving effect
thereto, no Event of Default and no event which, with notice or passage of time
or both, would constitute an Event of Default hereunder, has occurred and is
continuing, and Borrower has Excess Availability of $8,000,000 or more.
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9.10 LOANS, INVESTMENTS, GUARANTEES, ETC. Except as permitted under
Section 9.12 below, Borrower shall not, directly or indirectly, make any loans
or advance money or property to any person, or invest in (by capital
contribution, dividend or otherwise) or purchase or repurchase the stock or
indebtedness or all or a substantial part of the assets or property of any
person, or guarantee, assume, endorse, or otherwise become responsible for
(directly or indirectly) the indebtedness, performance, obligations or dividends
of any Person or agree to do any of the foregoing, EXCEPT: (a) the endorsement
of instruments for collection or deposit in the ordinary course of business; (b)
investments in: (i) short-term direct obligations of the United States
Government, (ii) negotiable certificates of deposit issued by any bank
satisfactory to Lender, payable to the order of the Borrower or to bearer and
delivered to Lender, (iii) commercial paper rated A1 or P1 and (iv) investments
permitted by Borrower's Investment Policy attached hereto as Exhibit C;
PROVIDED, THAT, as to any of the foregoing, unless waived in writing by Lender,
Borrower shall take such actions as are deemed necessary by Lender to perfect
the security interest of Lender in such investments and (c) the guarantees set
forth in the Information Certificate.
9.11 DIVIDENDS AND REDEMPTIONS. Borrower shall not, and Borrower shall
not permit Parent to, directly or indirectly, declare or pay any dividends on
account of any shares of any class of capital stock of Borrower or Parent now or
hereafter outstanding, or set aside or otherwise deposit or invest any sums for
such purpose, or redeem, retire, defease, purchase or otherwise acquire any
shares of any class of capital stock (or set aside or otherwise deposit or
invest any sums for such purpose) for any consideration other than common stock
or apply or set apart any sum, or make any other distribution (by reduction of
capital or otherwise) in respect of any such shares or agree to do any of the
foregoing, except that Borrower may distribute adequate funds to Parent, so that
it is able to pay, and Parent may pay the following, provided, in each case, no
Event of Default and no event which, with notice or passage of time or both,
would constitute an Event of Default has occurred and is continuing: (a)
dividends on its Series B Preferred Stock, provided that, at the date each such
payment is to be made, and after giving effect to each such payment, Borrower
has Excess Availability of not less than $8,000,000, and (b) regularly scheduled
payments of interest on the Debentures, and payment of interest and principal on
other Indebtedness permitted under Section 9.9 hererof, and (c) fees to SCA
under the Management Agreement dated as of June 1, 1996 (the "Management
Agreement") between Parent and Shamrock Capital Advisors, Inc. ("SCA").
9.12 TRANSACTIONS WITH AFFILIATES; UPSTREAMING. Borrower shall not
enter into any transaction for the purchase, sale or exchange of property or the
rendering of any service to or by any affiliate. Without limiting any of the
other terms and provisions of this Agreement, Borrower shall not make any
transfers of money or property of any kind to the Parent, regardless of the form
of transaction in which such transfer is to occur, except for transfers of money
to Parent to redeem or purchase Debentures in compliance with Section 9.9 above
or to pay dividends on Parent's Series B Preferred Stock in compliance with
Section 9.11 above. The provisions of this Section 9.12 shall not, however,
prohibit sales of Inventory (which is not Eligible Inventory) to foreign
subsidiaries in the ordinary course of business or advances by Borrower to its
foreign subsidiaries in the ordinary course of business, provided that the
aggregate amount at any time owing to the Borrower from all foreign subsidiaries
for all such sales and advances (not including non-cash intercompany profit)
does not exceed $25,000,000 in the aggregate at any time outstanding.
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9.13 IMPORT DOCUMENTATION. Borrower shall cause CoreStates Bank, N.A.
to be named as the consignee on all documentation relating to the import of
Inventory and other goods by or for the Borrower, including without limitation
all Forwarder Cargo Receipts and Bills of Lading.
9.14 [INTENTIONALLY OMITTED]
9.15 COMPLIANCE WITH ERISA. Borrower shall not with respect to any
"employee pension benefit plan" maintained by Borrower or any of its ERISA
Affiliates:
(a) (i) terminate any of such employee pension benefit plans so
as to incur any liability to the Pension Benefit Guaranty Corporation
established pursuant to ERISA, (ii) allow or suffer to exist any prohibited
transaction involving any of such employee pension benefit plans or any trust
created thereunder which would subject Borrower or such ERISA Affiliate to a tax
or penalty or other liability on prohibited transactions imposed under Section
4975 of the Code or ERISA, (iii) fail to pay to any such employee pension
benefit plan any contribution which it is obligated to pay under Section 302 of
ERISA, Section 412 of the Code or the terms of such plan, (iv) allow or suffer
to exist any accumulated funding deficiency, whether or not waived, with respect
to any such employee pension benefit plan, (v) allow or suffer to exist any
occurrence of a reportable event or any other event or condition which presents
a material risk of termination by the Pension Benefit Guaranty Corporation of
any such employee pension benefit plan that is a single employer plan, which
termination could result in any liability to the Pension Benefit Guaranty
Corporation or (vi) incur any withdrawal liability with respect to any
multiemployer pension plan.
(b) As used in this Section 9.15, the term "employee pension
benefit plans," "employee benefit plans", "accumulated funding deficiency" and
"reportable event" shall have the respective meanings assigned to them in ERISA,
and the term "prohibited transaction" shall have the meaning assigned to it in
Section 4975 of the Code and ERISA.
9.16 COSTS AND EXPENSES. Borrower shall pay to Lender on demand all
costs, expenses, filing fees and taxes paid or payable in connection with the
preparation, negotiation, execution, delivery, recording, administration,
collection, liquidation, enforcement and defense of the Obligations, Lender's
rights in the Collateral, this Agreement, the other Financing Agreements and all
other documents related hereto or thereto, including any amendments, supplements
or consents which may hereafter be contemplated (whether or not executed) or
entered into in respect hereof and thereof, including, but not limited to: (a)
all costs and expenses of filing or recording (including Uniform Commercial Code
financing statement filing taxes and fees, documentary taxes, intangibles taxes
and mortgage recording taxes and fees, if applicable); (b) costs and expenses
and fees for title insurance and other insurance premiums, environmental audits,
surveys, assessments, engineering reports and inspections, appraisal fees and
search fees; (c) costs and expenses of remitting loan proceeds, collecting
checks and other items of payment, and establishing and maintaining the Blocked
Accounts, together with Lender's customary charges and fees with respect
thereto; (d) charges, fees or expenses charged by any bank or issuer in
connection with the Letter of Credit Accommodations; (e) costs and expenses of
preserving and protecting the Collateral; (f) costs and expenses paid or
incurred in connection with obtaining payment of the Obligations, enforcing the
security interests and liens of Lender, selling or otherwise realizing upon the
Collateral, and otherwise enforcing the provisions of this Agreement and the
other Financing Agreements or defending any claims made or threatened against
Lender
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arising out of the transactions contemplated hereby and thereby (including,
without limitation, preparations for and consultations concerning any such
matters); (g) all out-of-pocket expenses and costs heretofore and from time to
time hereafter incurred by Lender during the course of periodic field
examinations of the Collateral and Borrower's operations, plus a per diem charge
at the rate of $650 per person per day for Lender's examiners in the field and
office; and (h) the fees and disbursements of counsel (including legal
assistants) to Lender in connection with any of the foregoing.
9.17 FURTHER ASSURANCES. At the request of Lender at any time and
from time to time, Borrower shall, at its expense, duly execute and deliver, or
cause to be duly executed and delivered, such further agreements, documents and
instruments, and do or cause to be done such further acts as may be necessary or
proper to evidence, perfect, maintain and enforce the security interests and the
priority thereof in the Collateral and to otherwise effectuate the provisions or
purposes of this Agreement or any of the other Financing Agreements. Lender may
at any time and from time to time request a certificate from an officer of
Borrower representing that all conditions precedent to the making of Loans and
providing Letter of Credit Accommodations contained herein are satisfied. In
the event of such request by Lender, Lender may, at its option, cease to make
any further Loans or provide any further Letter of Credit Accommodations until
Lender has received such certificate and, in addition, Lender has determined
that such conditions are satisfied. Where permitted by law, Borrower hereby
authorizes Lender to execute and file one or more UCC financing statements
signed only by Lender.
SECTION 10. EVENTS OF DEFAULT AND REMEDIES
10.1 EVENTS OF DEFAULT. The occurrence or existence of any one or
more of the following events are referred to herein individually as an "EVENT OF
DEFAULT", and collectively as "EVENTS OF DEFAULT":
(a) Borrower fails to pay any of the Obligations within three
days after the date due, or fails to perform any of the terms, covenants,
conditions or provisions contained in this Agreement or any of the other
Financing Agreements, provided that, with respect to a breach of the following
provisions only, Borrower shall have ten (10) days to cure any such breach,
provided the breach was not intentional, provided the same or a similar breach
has not occurred in the prior six months, and provided the breach is capable of
being cured in such ten-day period: Sections 9.3, 9.4, 9.5, and 9.6;
(b) any representation, warranty or statement of fact made by
Borrower to Lender in this Agreement, the other Financing Agreements or any
other agreement, schedule, confirmatory assignment or otherwise shall when made
or deemed made be false or misleading in any material respect;
(c) any Obligor revokes, terminates or fails to perform any of
the terms, covenants, conditions or provisions of any guarantee, endorsement or
other agreement of such party in favor of Lender;
(d) any judgment for the payment of money is rendered against
Borrower or any Obligor in excess of $250,000 in any one case or in excess of
$500,000 in the aggregate and shall remain undischarged or unvacated for a
period in excess of thirty (30) days or execution
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shall at any time not be effectively stayed, or any judgment other than for the
payment of money, or injunction, attachment, garnishment or execution is
rendered against Borrower or any Obligor or any of their assets;
(e) any Obligor (being a natural person or a general partner of
an Obligor which is a partnership) dies or Borrower or any Obligor, which is a
partnership, limited liability company or corporation, dissolves or suspends or
discontinues doing business;
(f) Borrower or any Obligor becomes insolvent (however defined
or evidenced), makes an assignment for the benefit of creditors, makes or sends
notice of a bulk transfer or calls a meeting of its creditors or principal
creditors;
(g) a case or proceeding under the bankruptcy laws of the United
States of America now or hereafter in effect or under any insolvency,
reorganization, receivership, readjustment of debt, dissolution or liquidation
law or statute of any jurisdiction now or hereafter in effect (whether at law or
in equity) is filed against Borrower or any Obligor or all or any part of its
properties and such petition or application is not dismissed within forty-five
(45) days after the date of its filing or Borrower or any Obligor shall file any
answer admitting or not contesting such petition or application or indicates its
consent to, acquiescence in or approval of, any such action or proceeding or the
relief requested is granted sooner;
(h) a case or proceeding under the bankruptcy laws of the United
States of America now or hereafter in effect or under any insolvency,
reorganization, receivership, readjustment of debt, dissolution or liquidation
law or statute of any jurisdiction now or hereafter in effect (whether at a law
or equity) is filed by Borrower or any Obligor or for all or any part of its
property; or
(i) any default by Borrower or any Obligor under any agreement,
document or instrument relating to any indebtedness for borrowed money owing to
any person other than Lender (except for the Debentures, which are covered by
Section 10.1(n) below), or any capitalized lease obligations, contingent
indebtedness in connection with any guarantee, letter of credit, indemnity or
similar type of instrument in favor of any person other than Lender, in any case
in an amount in excess of $500,000, which default continues for more than the
applicable cure period, if any, with respect thereto, or any default by Borrower
or any Obligor under any material contract, lease, license or other obligation
to any person other than Lender, which default continues for more than the
applicable cure period, if any, with respect thereto;
(j) Sale by Trefoil Capital Investors, L.P. ("Trefoil") of its
beneficial ownership of the common stock of the Parent to a third-party
resulting in said third-party holding more than 44% of the beneficial ownership
of the common stock of the Parent, provided however that distributions to the
partners of Trefoil of common stock of the Parent shall not constitute an Event
of Default nor shall resales by such partners, except if such resales in a
single transaction or series of related transactions result in a third-party
acquiring beneficial ownership in excess of 44% of the common stock of the
Parent.
(k) the indictment or threatened indictment of Borrower or any
Obligor under any criminal statute, or commencement or threatened commencement
of criminal or civil proceedings against Borrower or any Obligor, pursuant to
which statute or proceedings the
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penalties or remedies sought or available include forfeiture of any of the
property of Borrower or such Obligor;
(l) there shall be a material adverse change in the business or
assets of Borrower or any Obligor after the date hereof; or
(m) there shall be an event of default under any of the other
Financing Agreements; or
(n) any Event of Default occurs under the Indenture dated as of
December 24, 1992 with respect to the Debentures, or any amendment, extension,
renewal or replacement thereof or therefor.
10.2 REMEDIES.
(a) at any time an Event of Default exists or has occurred and
is continuing, Lender shall have all rights and remedies provided in this
Agreement, the other Financing Agreements, the Uniform Commercial Code and other
applicable law, all of which rights and remedies may be exercised without notice
to or consent by Borrower or any Obligor, except as such notice or consent is
expressly provided for hereunder or required by applicable law. All rights,
remedies and powers granted to Lender hereunder, under any of the other
Financing Agreements, the Uniform Commercial Code or other applicable law, are
cumulative, not exclusive and enforceable, in Lender's discretion,
alternatively, successively, or concurrently on any one or more occasions, and
shall include, without limitation, the right to apply to a court of equity for
an injunction to restrain a breach or threatened breach by Borrower of this
Agreement or any of the other Financing Agreements. Lender may, at any time or
times, proceed directly against Borrower or any Obligor to collect the
Obligations without prior recourse to the Collateral.
(b) without limiting the foregoing, at any time an Event of
Default exists or has occurred and is continuing, Lender may, in its discretion
and without limitation, (i) accelerate the payment of all Obligations (including
without limitation any unpaid Closing Fees or other fees) and demand immediate
payment thereof to Lender (PROVIDED, THAT, upon the occurrence of any Event of
Default described in Sections 10.1(g) and 10.1(h), all Obligations shall
automatically become immediately due and payable), (ii) with or without judicial
process or the aid or assistance of others, enter upon any premises on or in
which any of the Collateral may be located and take possession of the Collateral
or complete processing, manufacturing and repair of all or any portion of the
Collateral, (iii) require Borrower, at Borrower's expense, to assemble and make
available to Lender any part or all of the Collateral at any place and time
designated by Lender, (iv) collect, foreclose, receive, appropriate, setoff and
realize upon any and all Collateral, (v) remove any or all of the Collateral
from any premises on or in which the same may be located for the purpose of
effecting the sale, foreclosure or other disposition thereof or for any other
purpose, (vi) sell, lease, transfer, assign, deliver or otherwise dispose of any
and all Collateral (including, without limitation, entering into contracts with
respect thereto, public or private sales at any exchange, broker's board, at any
office of Lender or elsewhere) at such prices or terms as Lender may deem
reasonable, for cash, upon credit or for future delivery, with the Lender having
the right to purchase the whole or any part of the Collateral at any such public
sale, all of the foregoing being free from any right or equity of redemption of
Borrower, which right or equity of redemption is hereby expressly waived and
released by Borrower and/or (vii) terminate this
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Agreement. If any of the Collateral is sold or leased by Lender upon credit
terms or for future delivery, the Obligations shall not be reduced as a result
thereof until payment therefor is finally collected by Lender. If notice of
disposition of Collateral is required by law, five (5) days prior notice by
Lender to Borrower designating the time and place of any public sale or the time
after which any private sale or other intended disposition of Collateral is to
be made, shall be deemed to be reasonable notice thereof and Borrower waives any
other notice. In the event Lender institutes an action to recover any
Collateral or seeks recovery of any Collateral by way of prejudgment remedy,
Borrower waives the posting of any bond which might otherwise be required.
(c) Lender may apply the cash proceeds of Collateral actually
received by Lender from any sale, lease, foreclosure or other disposition of the
Collateral to payment of the Obligations, in whole or in part and in such order
as Lender may elect, whether or not then due. Borrower shall remain liable to
Lender for the payment of any deficiency with interest at the highest rate
provided for herein and all costs and expenses of collection or enforcement,
including attorneys' fees and legal expenses.
(d) without limiting the foregoing, upon the occurrence of an
Event of Default or an event which with notice or passage of time or both would
constitute an Event of Default, Lender may, at its option, without notice, (i)
cease making Loans or arranging for Letter of Credit Accommodations or reduce
the lending formulas or amounts of Revolving Loans and Letter of Credit
Accommodations available to Borrower and/or (ii) terminate any provision of this
Agreement providing for any future Loans or Letter of Credit Accommodations to
be made by Lender to Borrower.
SECTION 11. JURY TRIAL WAIVER; OTHER WAIVERS, AND CONSENTS; GOVERNING LAW
11.1 Governing Law; Choice of Forum; Service of Process; Jury Trial
Waiver.
(a) The validity, interpretation and enforcement of this
Agreement and the other Financing Agreements and any dispute arising out of the
relationship between the parties hereto, whether in contract, tort, equity or
otherwise, shall be governed by the internal laws of the State of California
(without giving effect to principles of conflicts of law).
(b) Borrower and Lender irrevocably consent and submit to the
non-exclusive jurisdiction of the state courts of the County of Los Angeles,
State of California and of the United States District Court for the Central
District of California and waive any objection based on venue or FORUM NON
CONVENIENS with respect to any action instituted therein arising under this
Agreement or any of the other Financing Agreements or in any way connected with
or related or incidental to the dealings of the parties hereto in respect of
this Agreement or any of the other Financing Agreements or the transactions
related hereto or thereto, in each case whether now existing or hereafter
arising, and whether in contract, tort, equity or otherwise, and agree that any
dispute with respect to any such matters shall be heard only in the courts
described above (except that Lender shall have the right to bring any action or
proceeding against Borrower or its property in the courts of any other
jurisdiction which Lender deems necessary or appropriate in order to realize on
the Collateral or to otherwise enforce its rights against Borrower or its
property).
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(c) Borrower hereby waives personal service of any and all
process upon it and consents that all such service of process may be made by
certified mail (return receipt requested) directed to its address set forth on
the signature pages hereof and service so made shall be deemed to be completed
five (5) days after the same shall have been so deposited in the U.S. mails, or,
at Lender's option, by service upon Borrower in any other manner provided under
the rules of any such courts. Within thirty (30) days after such service,
Borrower shall appear in answer to such process, failing which Borrower shall be
deemed in default and judgment may be entered by Lender against Borrower for the
amount of the claim and other relief requested.
(D) BORROWER AND LENDER EACH HEREBY WAIVES ANY RIGHT TO TRIAL BY
JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (I) ARISING UNDER THIS
AGREEMENT OR ANY OF THE OTHER FINANCING AGREEMENTS OR (II) IN ANY WAY CONNECTED
WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO IN RESPECT
OF THIS AGREEMENT OR ANY OF THE OTHER FINANCING AGREEMENTS OR THE TRANSACTIONS
RELATED HERETO OR THERETO IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER
ARISING, AND WHETHER IN CONTRACT, TORT, EQUITY OR OTHERWISE. BORROWER AND
LENDER EACH HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR
CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY AND THAT BORROWER
OR LENDER MAY FILE AN ORIGINAL COUNTERPART OF A COPY OF THIS AGREEMENT WITH ANY
COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE PARTIES HERETO TO THE WAIVER OF
THEIR RIGHT TO TRIAL BY JURY.
(e) Lender shall not have any liability to Borrower (whether in
tort, contract, equity or otherwise) for losses suffered by Borrower in
connection with, arising out of, or in any way related to the transactions or
relationships contemplated by this Agreement, or any act, omission or event
occurring in connection herewith, unless it is determined by a final and
non-appealable judgment or court order binding on Lender, that the losses were
the result of acts or omissions constituting gross negligence or willful
misconduct. In any such litigation, Lender shall be entitled to the benefit of
the rebuttable presumption that it acted in good faith and with the exercise of
ordinary care in the performance by it of the terms of this Agreement.
11.2 WAIVER OF NOTICES. Borrower hereby expressly waives demand,
presentment, protest and notice of protest and notice of dishonor with respect
to any and all instruments and commercial paper, included in or evidencing any
of the Obligations or the Collateral, and any and all other demands and notices
of any kind or nature whatsoever with respect to the Obligations, the Collateral
and this Agreement, except such as are expressly provided for herein. No notice
to or demand on Borrower which Lender may elect to give shall entitle Borrower
to any other or further notice or demand in the same, similar or other
circumstances.
11.3 AMENDMENTS AND WAIVERS. Neither this Agreement nor any provision
hereof shall be amended, modified, waived or discharged orally or by course of
conduct, but only by a written agreement signed by an authorized officer of
Lender. Lender shall not, by any act, delay, omission or otherwise be deemed to
have expressly or impliedly waived any of its rights, powers and/or remedies
unless such waiver shall be in writing and signed by an authorized officer of
Lender. Any such waiver shall be enforceable only to the extent specifically
set forth therein. A waiver by Lender of any right, power and/or remedy on any
one occasion shall not be construed
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as a bar to or waiver of any such right, power and/or remedy which Lender would
otherwise have on any future occasion, whether similar in kind or otherwise.
11.4 WAIVER OF COUNTERCLAIMS. Borrower waives all rights to interpose
any claims, deductions, setoffs or counterclaims of any nature (other than
compulsory counterclaims) in any action or proceeding with respect to this
Agreement, the Obligations, the Collateral or any matter arising therefrom or
relating hereto or thereto.
11.5 INDEMNIFICATION. Borrower shall indemnify and hold Lender, and
its directors, agents, employees and counsel, harmless from and against any and
all losses, claims, damages, liabilities, costs or expenses imposed on, incurred
by or asserted against any of them in connection with any litigation,
investigation, claim or proceeding commenced or threatened related to the
negotiation, preparation, execution, delivery, enforcement, performance or
administration of this Agreement, any other Financing Agreements, or any
undertaking or proceeding related to any of the transactions contemplated hereby
or any act, omission, event or transaction related or attendant thereto,
including, without limitation, amounts paid in settlement, court costs, and the
fees and expenses of counsel. To the extent that the undertaking to indemnify,
pay and hold harmless set forth in this Section may be unenforceable because it
violates any law or public policy, Borrower shall pay the maximum portion which
it is permitted to pay under applicable law to Lender in satisfaction of
indemnified matters under this Section. The foregoing indemnity shall survive
the payment of the Obligations and the termination or non-renewal of this
Agreement.
SECTION 12. TERM OF AGREEMENT; MISCELLANEOUS
12.1 TERM.
(a) This Agreement and the other Financing Agreements shall
become effective as of the date set forth on the first page hereof and shall
continue in full force and effect for a term ending on May 31, 2000 (the
"Renewal Date"), and from year to year thereafter, unless sooner terminated
pursuant to the terms hereof. Lender or Borrower (subject to Lender's right to
extend the Renewal Date as provided above) may terminate this Agreement and the
other Financing Agreements effective on the Renewal Date or on the anniversary
of the Renewal Date in any year by giving to the other party at least sixty (60)
days prior written notice. Borrower may terminate this Agreement prior to the
end of the then current term, including any renewal term, for any reason upon
sixty (60) days prior written notice to Lender, and in such case Borrower agrees
to pay to Lender the applicable early termination fee provided for in Section
12.1(c) hereof. Regardless of the timing of termination, this Agreement and all
other Financing Agreements must be terminated simultaneously. Upon the
effective date of termination or non-renewal of the Financing Agreements,
Borrower shall pay to Lender, in full, all outstanding and unpaid Obligations
and shall furnish either cash collateral to Lender or standby letters of credit
in favor of Lender (in form and issued by Banks acceptable to Lender in its
good-faith discretion), in each case in such amounts as Lender determines are
reasonably necessary to secure Lender from loss, cost, damage or expense,
including attorneys' fees and legal expenses, in connection with any contingent
Obligations, including issued and outstanding Letter of Credit Accommodations
and checks or other payments provisionally credited to the Obligations and/or as
to which Lender has not yet received final and indefeasible payment. Such cash
collateral shall be remitted by wire transfer in Federal funds to such bank
account of Lender, as Lender may, in its discretion,
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designate in writing to Borrower for such purpose. Interest shall be due until
and including the next Business Day, if the amounts so paid by Borrower to the
bank account designated by Lender are received in such bank account later than
10:30 a.m., Los Angeles time.
(b) no termination of this Agreement or the other Financing
Agreements shall relieve or discharge Borrower of its respective duties,
obligations and covenants under this Agreement or the other Financing Agreements
until all Obligations have been fully and finally discharged and paid, and
Lender's continuing security interest in the Collateral and the rights and
remedies of Lender hereunder, under the other Financing Agreements and
applicable law, shall remain in effect until all such Obligations have been
fully and finally discharged and paid.
(c) if for any reason this Agreement is terminated prior to the
end of the then current term or renewal term of this Agreement, Borrower agrees
to pay to Lender, upon the effective date of such termination, an early
termination fee in the amount set forth below if such termination is effective
in the period indicated:
AMOUNT PERIOD
------ ------
(i) 3% of the then applicable Maximum from the date of this
Credit Agreement to and including
the day preceding the first
anniversary of this Agreement
(ii) 2% of the then applicable Maximum from the first anniversary of
Credit this Agreement to and
including the day preceding
the second anniversary of this
Agreement
(iii) 1% of the then applicable Maximum from the second anniversary of
this Agreement to and
including the Renewal Date,
and if the Renewal Date is
extended as provided in
Section 12.1(a), at any time
during a renewal term, if any.
The early termination fee provided for in this Section 12.1 shall be deemed
included in the Obligations.
12.2 NOTICES. All notices, requests and demands hereunder shall be in
writing and (a) made to Lender at its address set forth below and to Borrower at
its chief executive office set forth below, or to such other address as either
party may designate by written notice to the other in accordance with this
provision, and (b) deemed to have been given or made: if delivered in person,
immediately upon delivery; if by telex, telegram or facsimile transmission,
immediately upon sending and upon confirmation of receipt; if by nationally
recognized overnight courier service with instructions to deliver the next
Business Day, one (1) Business Day after sending; and if by certified mail,
return receipt requested, five (5) days after mailing.
12.3 PARTIAL INVALIDITY. If any provision of this Agreement is held
to be invalid or unenforceable, such invalidity or unenforceability shall not
invalidate this Agreement as a whole, but this Agreement shall be construed as
though it did not contain the particular provision held to
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be invalid or unenforceable and the rights and obligations of the parties shall
be construed and enforced only to such extent as shall be permitted by
applicable law.
12.4 SUCCESSORS. This Agreement, the other Financing Agreements and
any other document referred to herein or therein shall be binding upon and inure
to the benefit of and be enforceable by Lender, Borrower and their respective
successors and assigns, except that Borrower may not assign its rights under
this Agreement, the other Financing Agreements and any other document referred
to herein or therein without the prior written consent of Lender. Lender may,
after notice to Borrower, assign its rights and delegate its obligations under
this Agreement and the other Financing Agreements and further may assign, or
sell participations in, all or any part of the Loans, the Letter of Credit
Accommodations or any other interest herein to another financial institution or
other person, in which event, the assignee or participant shall have, to the
extent of such assignment or participation, the same rights and benefits as it
would have if it were the Lender hereunder, except as otherwise provided by the
terms of such assignment or participation.
12.5 ENTIRE AGREEMENT This Agreement, the other Financing Agreements,
any supplements hereto or thereto, and any instruments or documents delivered or
to be delivered in connection herewith or therewith represents the entire
agreement and understanding concerning the subject matter hereof and thereof
between the parties hereto, and supersede all other prior agreements,
understandings, negotiations and discussions, representations, warranties,
commitments, proposals, offers and contracts concerning the subject matter
hereof, whether oral or written.
IN WITNESS WHEREOF, Lender and Borrower have caused these presents to be
duly executed as of the day and year first above written.
Lender: Borrower:
CONGRESS FINANCIAL CORPORATION L.A. GEAR CALIFORNIA, INC.
(WESTERN)
By: /s/Xxxxxx X. XxXxxx By: /s/Xxxxxx X. Xxxxxxxxx
--------------------------- ----------------------------------
Title: Senior Vice President Title: Senior Vice President and CEO
------------------------ ------------------------------
Address: Chief Executive Office and
Location for Borrower's Records:
000 Xxxxx Xxxx Xxxxxx
Xxxxx 0000 0000 Xxxxx Xxxx Xxxx.
Xxxxxxxx, Xxxxxxxxxx 00000 Xxxxx Xxxxxx, Xxxxxxxxxx 00000
46,333-8
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