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AMENDED AND RESTATED
CREDIT AND SECURITY AGREEMENT
BY AND AMONG
THE LEATHER FACTORY, INC., a Delaware corporation;
XXXXXXX, XXXXXXX & COMPANY, INC., a New York corporation;
THE LEATHER FACTORY, INC., a Nevada corporation;
THE LEATHER FACTORY OF NEVADA INVESTMENTS INC., a Nevada corporation;
TANDY LEATHER COMPANY, INC., a Nevada corporation;
TANDY LEATHER COMPANY INVESTMENTS, INC., a Nevada corporation;
THE LEATHER FACTORY, L.P., a Texas limited partnership;
TANDY LEATHER COMPANY, L.P., a Texas limited partnership;
HI-LINE LEATHER & MANUFACTURING COMPANY, a California corporation; and
THE LEATHER FACTORY, INC., an Arizona corporation
AND
XXXXX FARGO BANK MINNESOTA, NATIONAL ASSOCIATION
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March 20, 2002
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Table of Contents
ARTICLE I DEFINITIONS.........................................................1
Section 1.1 Definitions....................................................1
Section 1.2 Other Definitional Terms; Rules of Interpretation.............12
ARTICLE II AMOUNT AND TERMS OF THE CREDIT FACILITY...........................13
Section 2.1 Existing Revolving Advances...................................13
Section 2.2 Revolving Advances............................................13
Section 2.3 Procedures for Requesting Advances............................13
Section 2.4 LIBO Rate Advances............................................14
Section 2.5 Letters of Credit.............................................16
Section 2.6 Payment of Amounts Drawn Under Letters of Credit;
Obligation of Reimbursement............................................17
Section 2.7 Special Account...............................................17
Section 2.8 Obligations Absolute..........................................18
Section 2.9 Interest; Minimum Interest Charge; Default Interest;
Participations; Clearance Days; Usury..................................18
Section 2.10 Fees.........................................................19
Section 2.11 Time for Interest Payments; Payment on Non-Banking Days;
Computation of Interest and Fees.......................................21
Section 2.12 Increased Costs; Capital Adequacy; Funding Exceptions........21
Section 2.13 Lockbox; Collateral Account; Application of Payments.........24
Section 2.14 Termination of Credit Facility; Automatic Renewal............25
Section 2.15 Voluntary Prepayment; Reduction of the Maximum Line;
Termination of the Credit Facility by the Borrowers....................25
Section 2.16 Mandatory Prepayment.........................................25
Section 2.17 Revolving Advances to Pay Obligations........................26
Section 2.18 Use of Proceeds..............................................26
Section 2.19 Liability Records............................................26
ARTICLE III SECURITY INTEREST; OCCUPANCY; SETOFF.............................26
Section 3.1 Grant of Security Interest....................................26
Section 3.2 Notification of Account Debtors and Other Obligors............26
Section 3.3 Assignment of Insurance.......................................27
Section 3.4 Occupancy.....................................................27
Section 3.5 License.......................................................27
Section 3.6 Financing Statement...........................................28
Section 3.7 Setoff........................................................28
Section 3.8 Collateral....................................................28
Section 3.9 Accommodation Party Defenses Waived...........................28
ARTICLE IV CONDITIONS OF LENDING.............................................29
Section 4.1 Conditions Precedent to the Initial Revolving Advance and
Letter of Credit.......................................................29
Section 4.2 Conditions Precedent to All Advances and Letters
of Credit..............................................................31
ARTICLE V REPRESENTATIONS AND WARRANTIES.....................................31
Section 5.1 Existence and Power; Name; Chief Executive Office;
Inventory and Equipment Locations;
Federal Employer Identification Number...............................31
Section 5.2 Capitalization................................................32
Section 5.3 Authorization of Borrowing; No Conflict as to
Law or Agreements..................................32
Section 5.4 Legal Agreements..............................................32
Section 5.5 Subsidiaries..................................................32
Section 5.6 Financial Condition; No Adverse Change........................32
Section 5.7 Litigation....................................................33
Section 5.8 Regulation U..................................................33
Section 5.9 Taxes.........................................................33
Section 5.10 Titles and Liens.............................................33
Section 5.11 Intellectual Property Rights.................................33
Section 5.12 Plans........................................................34
Section 5.13 Default......................................................35
Section 5.14 Environmental Matters........................................35
Section 5.15 Submissions to Lender........................................36
Section 5.16 Financing Statements.........................................36
Section 5.17 Rights to Payment............................................36
Section 5.18 Financial Solvency...........................................36
ARTICLE VI COVENANTS.........................................................37
Section 6.1 Reporting Requirements........................................37
Section 6.2 Financial Covenants...........................................41
Section 6.3 Permitted Liens; Financing Statements.........................42
Section 6.4 Indebtedness..................................................43
Section 6.5 Guaranties....................................................43
Section 6.6 Investments and Subsidiaries..................................43
Section 6.7 Dividends and Distributions...................................44
Section 6.8 Salaries......................................................44
Section 6.9 Books and Records; Inspection and Examination.................44
Section 6.10 Account Verification.........................................45
Section 6.11 Compliance with Laws.........................................45
Section 6.12 Payment of Taxes and Other Claims............................45
Section 6.13 Maintenance of Properties....................................45
Section 6.14 Insurance....................................................46
Section 6.15 Preservation of Existence....................................46
Section 6.16 Delivery of Instruments, etc.................................46
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Section 6.17 Sale or Transfer of Assets; Suspension of
Business Operations....................................................46
Section 6.18 Consolidation and Merger; Asset Acquisitions.................47
Section 6.19 Sale and Leaseback...........................................47
Section 6.20 Restrictions on Nature of Business...........................47
Section 6.21 Accounting...................................................47
Section 6.22 Discounts, etc...............................................47
Section 6.23 Plans........................................................47
Section 6.24 Place of Business; Name......................................47
Section 6.25 Constituent Documents; S Corporation Status..................48
Section 6.26 Performance by the Lender....................................48
ARTICLE VII EVENTS OF DEFAULT, RIGHTS AND REMEDIES...........................48
Section 7.1 Events of Default.............................................48
Section 7.2 Rights and Remedies...........................................51
Section 7.3 Certain Notices...............................................52
ARTICLE VIII MISCELLANEOUS...................................................52
Section 8.1 Restatement of Old Credit Agreement...........................52
Section 8.2 Release.......................................................52
Section 8.3 No Waiver; Cumulative Remedies; Compliance with Laws..........52
Section 8.4 Amendments, Etc...............................................53
Section 8.5 Addresses for Notices; Requests for Accounting................53
Section 8.6 Servicing of Credit Facility..................................53
Section 8.7 Further Documents.............................................54
Section 8.8 Costs and Expenses............................................54
Section 8.9 Indemnity.....................................................55
Section 8.10 Participants.................................................56
Section 8.11 Execution in Counterparts; Telefacsimile Execution...........56
Section 8.12 Retention of Borrowers' Records..............................56
Section 8.13 Binding Effect; Assignment; Complete Agreement;
Exchanging Information..........................56
Section 8.14 Severability of Provisions...................................56
Section 8.15 Headings.....................................................57
Section 8.16 Governing Law; Jurisdiction, Venue; Waiver of Jury Trial.....57
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AMENDED AND RESTATED CREDIT AND SECURITY AGREEMENT
Dated as of March 20, 2002
This Agreement is made by and among The Leather Factory, Inc., a
Delaware corporation; Xxxxxxx, Xxxxxxx & Company, Inc., a New York corporation;
The Leather Factory, Inc., a Nevada corporation; The Leather Factory of Nevada
Investments Inc., a Nevada corporation; Tandy Leather Company, Inc., a Nevada
corporation; Tandy Leather Company Investments, Inc., a Nevada corporation; The
Leather Factory, L.P., a Texas limited partnership; Tandy Leather Company, L.P.,
a Texas limited partnership; Hi-Line Leather & Manufacturing Company, a
California corporation; and The Leather Factory, Inc., an Arizona corporation
(collectively, the "Borrowers" and each a "Borrower"), and XXXXX FARGO BANK
MINNESOTA, NATIONAL ASSOCIATION, a national banking association (the "Lender").
RECITALS
Capitalized terms used in the following recitals have the meanings
given in Section 1.1 below.
The Borrowers and the Old Lender are parties to the Old Credit
Documents. Pursuant to an Assignment of Indebtedness and Loan Documents of even
date herewith, the Old Lender has assigned to the Lender all of its right, title
and interest in the Old Credit Documents.
As a condition to providing financial accommodations to the Borrowers,
the Lender has required the Borrowers to amend and restate the Old Credit
Agreement and the Old Note subject to the terms and conditions set forth in this
Agreement.
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Borrowers and the Lender hereby agree as follows:
ARTICLE I
DEFINITIONS
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Section 1.1 Definitions. For all purposes of this Agreement, except as
otherwise expressly provided, the following terms shall have the meanings
assigned to them in this Section or in the Section referenced after such term:
"Accounts" means as to any Person, all of that Person's accounts, as
such term is defined in the UCC, including each and every right of that Person
to the payment of money, whether such right to payment now exists or hereafter
arises, whether such right to payment arises out of a sale, lease or other
disposition of goods or other property, out of a rendering of services, out of a
loan, out of the overpayment of taxes or other liabilities, or otherwise arises
under any contract or agreement, whether such right to payment is created,
generated or earned by the Person or by some other person who subsequently
transfers such person's interest to the Person, whether such right to payment is
or is not already earned by performance, and howsoever such right to payment may
be evidenced, together with all other rights and interests (including all Liens)
which the Person may at any time have by law or agreement against any account
debtor or other obligor obligated to make any such payment or against any
property of such account debtor or other obligor; all including but not limited
to all present and future accounts, contract rights, loans and obligations
receivable, chattel papers, bonds, notes and other debt instruments, tax refunds
and rights to payment in the nature of general intangibles.
"Advance" means a Revolving Advance.
"Affiliate" or "Affiliates" means TLF Canada and any other Person
controlled by, controlling or under common control with any Borrower, including
any Subsidiary of any Borrower. For purposes of this definition, "control," when
used with respect to any specified Person, means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise.
"Agreement" means this Amended and Restated Credit and Security
Agreement.
"Availability" means the difference of (a) the Borrowing Base and (b)
the sum of (i) the outstanding principal balance of the Revolving Note and (ii)
the L/C Amount.
"Banking Day" means a day on which the Federal Reserve Bank of New York
is open for business and, if such day relates to a LIBO Rate Advance, a day on
which dealings are carried on in the London interbank eurodollar market.
"Base Rate" means the rate of interest publicly announced from time to
time by Xxxxx Fargo Bank, National Association at its principal office in San
Francisco as its "prime rate", with the understanding that the "prime rate" is
one of Xxxxx Fargo's base rates (not necessarily the lowest of such rates) and
serves as the basis upon which effective rates of interest are calculated for
loans making reference thereto.
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"Book Net Worth" means the aggregate of the common and preferred
stockholders' equity in the Borrower, determined in accordance with GAAP and on
a consolidated basis.
"Borrowing Base" means at any time the lesser of:
(a) the Maximum Line; or
(b) subject to change from time to time in the Lender's sole
discretion, the sum of:
(i) 85% of Eligible Accounts, plus
(ii) the lesser of (A) 60% of Eligible Inventory or (B)
$5,000,000.
"Capital Expenditures", as to any Person, means for a period, any
expenditure of money during such period for the lease, purchase or other
acquisition of any capital asset, or for the lease of any other asset whether
payable currently or in the future.
"Collateral" means all of the Borrowers' Accounts, chattel paper,
deposit accounts, documents, Equipment, General Intangibles, goods, instruments,
Inventory, Investment Property, letter-of-credit rights, letters of credit, all
sums on deposit in any Collateral Account, and any items in any Lockbox;
together with (a) all substitutions and replacements for and products of any of
the foregoing; (b) in the case of all goods, all accessions; (c) all
accessories, attachments, parts, equipment and repairs now or hereafter attached
or affixed to or used in connection with any goods; (d) all warehouse receipts,
bills of lading and other documents of title now or hereafter covering such
goods; (e) all collateral subject to the Lien of any Security Document; (f) any
money, or other assets of the Borrowers that now or hereafter come into the
possession, custody, or control of the Lender; (g) all sums on deposit in the
Special Account; and (h) proceeds of any and all of the foregoing.
"Collateral Account" means the "Lender Account" as defined in the
Collection Account Agreement.
"Collection Account Agreement" means the Amended and Restated
Collection Account Agreement by and among the Borrowers, the Lender and Xxxxx
Fargo Bank Texas, of even date herewith.
"Commitment" means the Lender's commitment to make Advances to, and to
cause the Issuer to issue Letters of Credit for the account of, the Borrowers
pursuant to Article II.
"Constituent Documents" means with respect to any Person, as
applicable, such Person's certificate of incorporation, articles of
incorporation, by-laws, certificate of formation, articles of organization,
limited liability company agreement, management agreement, operating agreement,
3
shareholder agreement, partnership agreement or similar document or agreement
governing such Person's existence, organization or management or concerning
disposition of ownership interests of such Person or voting rights among such
Person's owners.
"Copyright Security Agreement" means the Copyright Security Agreement
by the Borrowers in favor of the Lender dated as of November 22, 2000.
"Credit Facility" means the credit facility being made available to the
Borrowers by the Lender under Article II.
"Default" means an event that, with giving of notice or passage of time
or both, would constitute an Event of Default.
"Default Period" means any period of time beginning on the day a
Default or Event of Default occurs and ending on the date the Lender notifies
the Borrower in writing that such Default or Event of Default has been cured or
waived.
"Default Rate" means an annual interest rate equal to three percent
(3%) over the Floating Rate, which interest rate shall change when and as the
Floating Rate changes.
"Director" means with respect to any Borrower, a director if the
Borrower is a corporation, a governor if the Borrower is a limited liability
company, or a general partner if the Borrower is a partnership.
"ERISA" means the Employee Retirement Income Security Act of 1974.
"ERISA Affiliate" means any trade or business (whether or not
incorporated) that is a member of a group which includes any Borrower and which
is treated as a single employer under Section 414 of the IRC.
"Eligible Accounts" means all unpaid Accounts owed to any Eligible
Borrower arising from the sale or lease of goods or the performance of services,
net of any credits, but excluding any such Accounts having any of the following
characteristics:
(i) That portion of Accounts unpaid 90 days or more after the
invoice date;
(ii) That portion of Accounts that is disputed or subject to a
claim of offset or a contra account;
(iii) That portion of Accounts not yet earned by the final delivery
of goods or rendition of services, as applicable, by the applicable
Eligible Borrower to the customer, including progress xxxxxxxx, and
that portion of Accounts for which an invoice has not been sent to the
applicable account debtor;
4
(iv) Accounts constituting (i) proceeds of copyrightable material
unless such copyrightable material shall have been registered with the
United States Copyright Office, or (ii) proceeds of patentable
inventions unless such patentable inventions have been registered with
the United States Patent and Trademark Office;
(v) Accounts owed by any unit of government, whether foreign or
domestic (provided, however, that there shall be included in Eligible
Accounts that portion of Accounts owed by such units of government for
which the applicable Eligible Borrower has provided evidence
satisfactory to the Lender that (A) the Lender has a first priority
perfected security interest and (B) such Accounts may be enforced by
the Lender directly against such unit of government under all
applicable laws);
(vi) Accounts owed by an account debtor located outside the United
States which are not (A) backed by a bank letter of credit naming the
Lender as beneficiary or assigned to the Lender, in the Lender's
possession or control, and with respect to which a control agreement
concerning the letter-of-credit rights is in effect, and acceptable to
the Lender in all respects, in its sole discretion, or (B) covered by a
foreign receivables insurance policy acceptable to the Lender in its
sole discretion;
(vii) Accounts owed by an account debtor that is insolvent, the
subject of bankruptcy proceedings or has gone out of business;
(viii) Accounts owed by an Owner, Subsidiary, Affiliate, Officer or
employee of any Borrower or TLF Canada;
(ix) Accounts not subject to a duly perfected security interest in
the Lender's favor or which are subject to any Lien in favor of any
Person other than the Lender;
(x) That portion of Accounts that has been restructured, extended,
amended or modified;
(xi) That portion of Accounts that constitutes advertising, finance
charges, service charges or sales or excise taxes;
(xii) Accounts owed by an account debtor, regardless of whether
otherwise eligible, if 15% or more of the total amount due under
Accounts from such debtor is ineligible under clauses (i), (ii) or (x)
above; and
(xiii) Accounts, or portions thereof, otherwise deemed ineligible by
the Lender in its sole discretion.
"Eligible Borrower" means Xxxxxxx Xxxxxxx, TLF Texas LP, or Tandy Texas
LP and "Eligible Borrowers" means Xxxxxxx Xxxxxxx, TLF Texas LP, and Tandy Texas
LP.
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"Eligible Inventory" means all Inventory of the Eligible Borrowers, at
the lower of cost or market value as determined in accordance with GAAP; but
excluding any Inventory having any of the following characteristics:
(i) Inventory that is: in-transit; located at any warehouse, job
site or other premises not approved by the Lender in writing; located
outside of the states, or localities, as applicable, in which the
Lender has filed financing statements to perfect a first priority
security interest in such Inventory; covered by any negotiable or
non-negotiable warehouse receipt, xxxx of lading or other document of
title; on consignment from any Person; on consignment to any Person or
subject to any bailment unless such consignee or bailee has executed an
agreement with the Lender;
(ii) Supplies, packaging or maintenance parts;
(iii) Sample Inventory owned by TLF Texas LP or Tandy Texas LP;
(iv) Work-in-process Inventory;
(v) Inventory that is damaged, obsolete, slow moving or not
currently saleable in the normal course of the applicable Eligible
Borrower's operations;
(vi) Inventory that the applicable Eligible Borrower has returned,
has attempted to return, is in the process of returning or intends to
return to the vendor thereof;
(vii) Inventory that is perishable or live;
(viii) Inventory manufactured by the applicable Eligible Borrower
pursuant to a license unless the applicable licensor has agreed in a
writing acceptable to the Lender in its sole discretion to permit the
Lender to exercise its rights and remedies against such Inventory;
(ix) Inventory that is subject to a Lien in favor of any Person
other than the Lender; and
(x) Inventory otherwise deemed ineligible by the Lender in its
sole discretion.
"Environmental Law" means any federal, state, local or other
governmental statute, regulation, law or ordinance dealing with the protection
of human health and the environment.
"Equipment" means, as to any Person, all of that Person's equipment, as
such term is defined in the UCC, whether now owned or hereafter acquired,
including but not limited to all present and future machinery, vehicles,
furniture, fixtures, manufacturing equipment, shop equipment, office and
recordkeeping equipment, parts, tools, supplies, and including specifically the
goods described in any equipment schedule or list herewith or hereafter
furnished to the Lender by a Borrower.
6
"Event of Default" has the meaning specified in Section 7.1.
"Existing Revolving Advances" has the meaning given in Section 2.1.
"Financial Covenants" means the covenants set forth in Section 6.2.
"Floating Rate" means an annual interest rate equal to the Base Rate,
which interest rate shall change when and as the Base Rate changes.
"Floating Rate Advance" means an Advance bearing interest at the
Floating Rate.
"Funding Date" has the meaning given in Section 2.2.
"GAAP" means generally accepted accounting principles, applied on a
basis consistent with the accounting practices applied in the financial
statements described in Section 5.6.
"General Intangibles" means, as to any Person, all of that Person's
general intangibles, as such term is defined in the UCC, whether now owned or
hereafter acquired, including all present and future Intellectual Property
Rights, customer or supplier lists and contracts, manuals, operating
instructions, permits, franchises, the right to use that Person's name, and the
goodwill of that Person's business.
"Guarantor" means TLF Canada and any other Person now or hereafter
guaranteeing the Obligations.
"Hazardous Substances" means pollutants, contaminants, hazardous
substances, hazardous wastes, petroleum and fractions thereof, and all other
chemicals, wastes, substances and materials listed in, regulated by or
identified in any Environmental Law.
"IRC" means the Internal Revenue Code of 1986.
"Infringe" means when used with respect to Intellectual Property Rights
any infringement or other violation of Intellectual Property Rights.
"Intellectual Property Rights" means all actual or prospective rights
arising in connection with any intellectual property or other proprietary
rights, including all rights arising in connection with copyrights, patents,
service marks, trade dress, trade secrets, trademarks, trade names or mask
works.
"Interest Period" means relative to any LIBO Rate Advance, the period
beginning on (and including) the date on which such LIBO Rate Advance is made,
or continued as, or converted into, a LIBO Rate Advance pursuant to Sections
2.3(a), 2.4(a) or 2.4(b) and shall end on (but exclude) the day which
7
numerically corresponds to such date one (1), two (2), three (3), or six (6)
months thereafter (or, if such month has no numerically corresponding day, on
the last Banking Day of such month), as the Parent Borrower may select in its
relevant notice pursuant to Sections 2.3(a), 2.4(a) or 2.4(b); provided,
however, that:
(a) no more than three (3) different Interest Periods may be
outstanding at any one time;
(b) if an Interest Period would otherwise end on a day which is
not a Banking Day, such Interest Period shall end on the next following Banking
Day (unless such next following Banking Day is the first Banking Day of a month,
in which case such Interest Period shall end on the next preceding Banking Day);
and
(c) no Interest Period applicable to an Advance may end later than
thirty (30) days before a Maturity Date.
"Inventory" means as to any Person, all of that Person's inventory, as
such term is defined in the UCC, whether now owned or hereafter acquired,
whether consisting of whole goods, spare parts or components, supplies or
materials, whether acquired, held or furnished for sale, for lease or under
service contracts or for manufacture or processing, and wherever located.
"Investment Property" means as to any Person all of that Person's
investment property, as such term is defined in the UCC, whether now owned or
hereafter acquired, including but not limited to all securities, security
entitlements, securities accounts, commodity contracts, commodity accounts,
stocks, bonds, mutual fund shares, money market shares and U.S. Government
securities.
"Issuer" means the issuer of any Letter of Credit.
"L/C Amount" means the sum of (i) the aggregate face amount of any
issued and outstanding Letters of Credit and (ii) the unpaid amount of the
Obligation of Reimbursement.
"L/C Application" means an application and agreement for letters of
credit in a form acceptable to the Issuer and the Lender.
"LIBO Base Rate" means with respect to an Interest Period, the rate per
annum equal to the rate (rounded up to the nearest one-sixteenth of one percent
(1/16%)) determined by the Lender in accordance with Section 2.4(c) to be a rate
at which United States Dollar deposits are offered to major banks in the London
interbank eurodollar market for funds to be made available on the first day of
such Interest Period and maturing at the end of such Interest Period.
8
"LIBO Rate" means with respect to an Interest Period, the rate obtained
by adding (a) two and sixty hundredths of one percent (2.60%) to (b) the rate
obtained by dividing (i) the applicable LIBO Base Rate by (ii) a percentage
equal to one (1.00) minus the applicable percentage (expressed as a decimal)
prescribed by the Board of Governors of the Federal Reserve System (or any
successor thereto) for determining the maximum reserve requirements applicable
to eurodollar fundings (currently referred to as "Eurocurrency Liabilities" in
Regulation D) or any other maximum reserve requirements applicable to a member
bank of the Federal Reserve System with respect to LIBO Rate Advances.
"LIBO Rate Advance" means any Advance which bears interest at a rate
determined by reference to a LIBO Rate.
"Letter of Credit" has the meaning specified in Section 2.5.
"Licensed Intellectual Property" has the meaning given in Section
5.11(c).
"Lien" means any security interest, mortgage, deed of trust, pledge,
lien, charge, encumbrance, title retention agreement or analogous instrument or
device, including the interest of each lessor under any capitalized lease and
the interest of any bondsman under any payment or performance bond, in, of or on
any assets or properties of a Person, whether now owned or hereafter acquired
and whether arising by agreement or operation of law.
"Loan Documents" means this Agreement, the Note, the Security Documents
and any L/C Application.
"Lockbox" has the meaning given in Section 2.13(a).
"Maturity Date" has the meaning given in Section 2.14.
"Maximum Line" means $7,500,000 unless said amount is reduced pursuant
to Section 2.15, in which event it means such lower amount.
"Minimum Interest Charge" has the meaning given in Section 2.9(b).
"Multiemployer Plan" means a multiemployer plan (as defined in Section
4001(a)(3) of ERISA) to which any Borrower or any ERISA Affiliate contributes or
is obligated to contribute.
"Net Income" means after-tax net income from continuing operations as
determined in accordance with GAAP.
"Note" means the Revolving Note.
"Obligation of Reimbursement" has the meaning given in Section 2.6(a).
9
"Obligations" means the Note, the Obligation of Reimbursement and each
and every other debt, liability and obligation of every type and description
which any Borrower may now or at any time hereafter owe to the Lender, whether
such debt, liability or obligation now exists or is hereafter created or
incurred, whether it arises in a transaction involving the Lender alone or in a
transaction involving other creditors of such Borrower, and whether it is direct
or indirect, due or to become due, absolute or contingent, primary or secondary,
liquidated or unliquidated, or sole, joint, several or joint and several, and
including all indebtedness of the Borrowers arising under any Credit Document or
guaranty between any Borrower and the Lender, whether now in effect or hereafter
entered into.
"Officer" means with respect to any Borrower a (a) Chief Executive
Officer, President, Treasurer, Secretary or Assistant Secretary, if the Borrower
is a corporation, (b) manager if the Borrower is a limited liability company, or
(c) partner if the Borrower is a partnership.
"Old Credit Agreement" means the Credit and Security Agreement dated as
of November 22, 1999 by and among certain Borrowers and the Old Lender, as
amended before the date of this Agreement.
"Old Credit Documents" means the Old Credit Agreement, the Old
Revolving Note and all other related documents as set forth in that certain
Assignment of Indebtedness and Loan Documents of even date herewith by and
between the Old Lender and the Lender.
"Old Lender" means Xxxxx Fargo Business Credit, Inc., in its capacity
as lender under the Old Credit Documents.
"Old Revolving Note" means certain Borrowers' revolving promissory note
dated as of November 22, 1999, payable to the order of the Old Lender in the
original principal amount of $8,500,000.
"Original Maturity Date" means November 30, 2004.
"Owned Intellectual Property" has the meaning given in Section 5.11(a).
"Owner" means with respect to any Borrower, each Person having legal or
beneficial title to an ownership interest in any Borrower or a right to acquire
such an interest.
"Parent Borrower" means TLF Delaware.
"Pension Plan" means a pension plan (as defined in Section 3(2) of
ERISA) maintained for employees of any Borrower or any ERISA Affiliate and
covered by Title IV of ERISA.
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"Permitted Lien" has the meaning given in Section 6.3(a).
"Person" means any individual, corporation, partnership, joint venture,
limited liability company, association, joint-stock company, trust,
unincorporated organization or government or any agency or political subdivision
thereof.
"Plan" means an employee benefit plan (as defined in Section 3(3) of
ERISA) maintained for employees of any Borrower or any ERISA Affiliate.
"Premises" means all premises where the Borrowers conduct their
businesses and have any rights of possession, including the premises legally
described in Exhibit C attached hereto.
"Reportable Event" means a reportable event (as defined in Section 4043
of ERISA), other than an event for which the 30-day notice requirement under
ERISA has been waived in regulations issued by the Pension Benefit Guaranty
Corporation.
"Revolving Advance" has the meaning given in Section 2.2.
"Revolving Note" means the Borrowers' revolving promissory note,
payable to the order of the Lender in substantially the form of Exhibit A
hereto.
"Xxxxxxx Xxxxxxx" means Xxxxxxx, Xxxxxxx & Company, Inc., a New York
corporation.
"Security Documents" means this Agreement, the Collection Account
Agreement, and the Copyright Security Agreement, and any other document
delivered to the Lender from time to time to secure the Obligations.
"Security Interest" has the meaning given in Section 3.1.
"Servicer" means Xxxxx Fargo Business Credit, Inc., a Minnesota
corporation, or such other person as the Lender may from time to time designate.
"Special Account" means a specified cash collateral account maintained
by a financial institution acceptable to the Lender in connection with Letters
of Credit, as contemplated by Section 2.7.
"Subsidiary" means any corporation of which more than 50% of the
outstanding shares of capital stock having general voting power under ordinary
circumstances to elect a majority of the board of Directors of such corporation,
irrespective of whether or not at the time stock of any other class or classes
shall have or might have voting power by reason of the happening of any
contingency, is at the time directly or indirectly owned by any Borrower, by any
Borrower and one or more other Subsidiaries, or by one or more other
Subsidiaries.
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"TLF Canada" means The Leather Factory of Canada, Ltd., a Manitoba
corporation.
"TLF Delaware" means The Leather Factory, Inc., a Delaware corporation.
"TLF Texas LP" means The Leather Factory, L.P., a Texas limited
partnership.
"Tandy Texas LP" means Tandy Leather Company, L.P., a Texas limited
partnership.
"Termination Date" means the earliest of (a) the Maturity Date, (b) the
date the Borrowers terminate the Credit Facility, or (c) the date the Lender
demands payment of the Obligations after an Event of Default pursuant to Section
7.2.
"UCC" means the Uniform Commercial Code as in effect in the state
designated in Section 8.16 as the state whose laws shall govern this Agreement,
or in any other state whose laws are held to govern this Agreement or any
portion hereof.
"Xxxxx Fargo Bank Texas" means Xxxxx Fargo Bank Texas, National
Association, a national banking association.
Section 1.2 Other Definitional Terms; Rules of Interpretation. The
words "hereof", "herein" and "hereunder" and words of similar import when used
in this Agreement shall refer to this Agreement as a whole and not to any
particular provision of this Agreement. All accounting terms not otherwise
defined herein have the meanings assigned to them in accordance with GAAP. All
terms defined in the UCC and not otherwise defined herein have the meanings
assigned to them in the UCC. References to Articles, Sections, subsections,
Exhibits, Schedules and the like, are to Articles, Sections and subsections of,
or Exhibits or Schedules attached to, this Agreement unless otherwise expressly
provided. The words "include", "includes" and "including" shall be deemed to be
followed by the phrase "without limitation". Unless the context in which used
herein otherwise clearly requires, "or" has the inclusive meaning represented by
the phrase "and/or". Defined terms include in the singular number the plural and
in the plural number the singular. Reference to any agreement (including the
Loan Documents), document or instrument means such agreement, document or
instrument as amended or modified and in effect from time to time in accordance
with the terms thereof (and, if applicable, in accordance with the terms hereof
and the other Loan Documents), except where otherwise explicitly provided, and
reference to any promissory note includes any promissory note which is an
extension or renewal thereof or a substitute or replacement therefor. Reference
to any law, rule, regulation, order, decree, requirement, policy, guideline,
directive or interpretation means as amended, modified, codified, replaced or
reenacted, in whole or in part, and in effect on the determination date,
including rules and regulations promulgated thereunder.
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ARTICLE II
AMOUNT AND TERMS OF THE CREDIT FACILITY
Section 2.1 Existing Revolving Advances. The Old Lender has made
various revolving advances to certain Borrowers (the "Existing Revolving
Advances"), the Borrowers' obligation to pay which is evidenced by the Old
Revolving Note. As of the date hereof, the outstanding principal balance of the
Existing Revolving Advances was $__________, with interest paid through February
28, 2002. Upon execution and delivery of this Agreement, the Existing Revolving
Advances shall be deemed to be Revolving Advances made pursuant to Section 2.2
hereof and repayable in accordance with the Revolving Note. To the extent the
Revolving Note evidences the Existing Revolving Advances, the Revolving Note
shall be issued in substitution for and replacement of but not in payment of the
Old Revolving Note.
Section 2.2 Revolving Advances. The Lender agrees, on the terms and
subject to the conditions herein set forth, to make advances to the Borrowers
from time to time from the date all of the conditions set forth in Section 4.1
are satisfied (the "Funding Date") to the Termination Date (the "Revolving
Advances"). The Lender shall have no obligation to make a Revolving Advance to
the extent the amount of the requested Revolving Advance exceeds Availability.
The Borrowers' obligation to pay the Revolving Advances shall be evidenced by
the Revolving Note and shall be secured by the Collateral. Within the limits set
forth in this Section 2.2, the Borrowers may borrow, prepay pursuant to Section
2.15 and reborrow.
Section 2.3 Procedures for Requesting Advances. The Borrowers shall
comply with the following procedures in requesting Revolving Advances:
(a) Type of Advances. Each Advance shall be funded as either a
loating Rate Advance or a LIBO Rate Advance, as the Parent Borrower shall
specify in the related notice of borrowing or notice of conversion pursuant to
this Subsection (a) or Section 2.4(a), provided that during Default Periods, no
LIBO Rate Advances shall be made. Floating Rate Advances and LIBO Rate Advances
may be outstanding at the same time. Each request for a LIBO Rate Advance shall
be in an amount equal to $500,000 or a higher integral multiple of $250,000.
(b) Time for Requests. The Parent Borrower shall request each
Advance not later than 11:00 a.m., Dallas, Texas time on the Banking Day which,
in the case of a Floating Rate Advance, is the date the Advance is to be made,
and in the case of a LIBO Rate Advance, is at least three (3) Banking Days
before the date the Advance is to be made. Each such request shall be effective
upon receipt by the Lender, shall be in writing or by telephone or telecopy
transmission, to be confirmed in writing by the Parent Borrower if so requested
by the Lender (in the form of Exhibit D), shall be by (i) an Officer of the
Parent Borrower; or (ii) a person designated as the Parent Borrower's agent by
an Officer of the Parent Borrower in a writing delivered to the Lender; or (iii)
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a person whom the Lender reasonably believes to be an Officer of the Parent
Borrower or such a designated agent, and shall specify whether the Advance shall
be a Floating Rate Advance or a LIBO Rate Advance and in the case of a LIBO Rate
Advance, shall specify the Interest Period to be applicable thereto. The Parent
Borrower shall repay all Advances even if the Lender does not receive such
confirmation and even if the person requesting an Advance was not in fact
authorized to do so. Any request for an Advance, whether written or telephonic,
shall be deemed to be a representation by the Borrowers that the conditions set
forth in Section 4.2 have been satisfied as of the time of the request.
(c) Disbursement. Upon fulfillment of the applicable conditions set
forth in Article IV, the Lender shall disburse the proceeds of the requested
Advance by crediting the same to the Parent Borrower's demand deposit account
maintained with Xxxxx Fargo Bank Texas unless the Lender and the Parent Borrower
shall agree in writing to another manner of disbursement.
Section 2.4 LIBO Rate Advances.
(a) Converting Floating Rate Advances to LIBO Rate Advances;
Procedures. So long as no Default Period exists, the Parent Borrower may convert
all or any part of any outstanding Floating Rate Advance into a LIBO Rate
Advance by giving notice to the Lender of such conversion not later than 11:00
a.m., Dallas, Texas time, on a Banking Day which is at least three (3) Banking
Days prior to the date of the requested conversion. Each such notice shall be
effective upon receipt by the Lender, shall be in writing or by telephone or
telecopy transmission, to be confirmed in writing by the Parent Borrower if so
requested by the Lender (in the form of Exhibit E), shall specify the date and
amount of such conversion, the total amount of the Floating Rate Advance to be
so converted and the applicable Interest Period. Each such conversion shall
occur on a Banking Day, and the aggregate amount of Floating Rate Advances
converted to LIBO Rate Advances shall equal $500,000 or a higher integral
multiple of $250,000.
(b) Procedures at End of an Interest Period. Unless the Parent
Borrower requests a new LIBO Rate Advance in accordance with the procedures set
forth below, or prepays the principal of an outstanding LIBO Rate Advance at the
expiration of an Interest Period, the Lender shall automatically and without
request of the Parent Borrower convert each LIBO Rate Advance to a Floating Rate
Advance on the last day of the relevant Interest Period. So long as no Default
Period exists, the Parent Borrower may cause all or any part of any outstanding
LIBO Rate Advance to continue to bear interest at a LIBO Rate after the end of
the then applicable Interest Period by notifying the Lender not later than 11:00
a.m., Dallas, Texas time, on a Banking Day which is at least three (3) Banking
Days prior to the first day of the new Interest Period. Each such notice shall
be in writing (in the form of Exhibit F) or by telephone or telecopy
transmission, to be confirmed in writing by the Parent Borrower if the Lender so
requests, shall be effective when received by the Lender, and shall specify the
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first day of the applicable Interest Period, the amount of the expiring LIBO
Rate Advance to be continued and the applicable Interest Period. Each new
Interest Period shall begin on a Banking Day and the amount of each Advance
bearing a new LIBO Rate shall be equal to $500,000 or a higher integral multiple
of $250,000.
(c) Setting and Notice of Rates. The Lender shall determine
applicable LIBO Rate for each Interest Period between the opening of business
and 12:00 Noon, Dallas, Texas time, on the second Banking Day preceding the
beginning of such Interest Period, and shall notify the Parent Borrower thereof
by telephone or in writing. Each such determination of the applicable LIBO Rate
shall be conclusive and binding upon the parties hereto, in the absence of
demonstrable error. The Lender, upon written request of the Parent Borrower,
shall deliver to the Parent Borrower a statement showing the computations used
by the Lender in determining the applicable LIBO Rate.
(d) Funding Losses. The Borrowers shall, upon demand by the Lender
(which demand shall be accompanied by a statement setting forth the basis for
the calculations of the amount being claimed), indemnify the Lender against any
loss or expense which the Lender may have sustained or incurred (including any
net loss or expense incurred by reason of the liquidation or reemployment of
deposits or other funds acquired by the Lender to fund or maintain LIBO Rate
Advances) or which the Lender may be deemed to have sustained or incurred, as
reasonably determined by the Lender, due to (i) the Borrowers' failure to make
when due any payment in connection with any LIBO Rate Advances, (ii) the
Borrowers' failure to borrow or convert any LIBO Rate Advances on a date
specified therefor in a notice thereof or (iii) any payment or prepayment of any
LIBO Rate Advance on a date other than the last day of the applicable Interest
Period. For this purpose, all notices under Sections 2.3(a), 2.4(a) or 2.4(b)
shall be deemed to be irrevocable.
(e) Right of Lender to Fund through Other Offices. The Lender may
fulfill its agreements hereunder with respect to any LIBO Rate Advance by
causing a foreign branch or affiliate of the Lender to make such LIBO Rate
Advance; provided, that in such event the obligation of the Borrowers to repay
such LIBO Rate Advance shall nevertheless be to the Lender and such LIBO Rate
Advance shall be deemed held by the Lender for the account of such branch or
affiliate.
(f) Discretion of Lender as to Manner of Funding. Notwithstanding
any provision of this Agreement to the contrary, the Lender may fund and
maintain all or any part of its LIBO Rate Advances in any manner it deems fit,
it being understood, however, that for the purposes of this Agreement
(specifically including Subsection (d)) all determinations hereunder shall be
made as if the Lender had actually funded and maintained each LIBO Rate Advance
during each Interest Period for such LIBO Rate Advance through the purchase of
deposits having a maturity corresponding to such Interest Period and bearing an
interest rate equal to the appropriate LIBO Rate for such Interest Period.
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Section 2.5 Letters of Credit.
(a) The Lender agrees, on the terms and subject to the conditions
herein set forth, to cause an Issuer to issue, from the Funding Date to the
Termination Date, one or more irrevocable standby or documentary letters of
credit (each, a "Letter of Credit") for any Borrower's account by guaranteeing
payment of that Borrower's obligations or being a co-applicant. The Lender shall
have no obligation to cause an Issuer to issue any Letter of Credit if the face
amount of the Letter of Credit to be issued would exceed the lesser of:
i) $500,000 less the L/C Amount, or
ii) Availability.
Each Letter of Credit, if any, shall be issued pursuant to a separate L/C
Application entered into by the applicable Borrower and the Lender for the
benefit of the Issuer, completed in a manner satisfactory to the Lender and the
Issuer. The terms and conditions set forth in each such L/C Application shall
supplement the terms and conditions hereof, but if the terms of any such L/C
Application and the terms of this Agreement are inconsistent, the terms hereof
shall control.
(b) No Letter of Credit shall be issued with an expiry date later
than the Termination Date in effect as of the date of issuance.
(c) Any request to cause an Issuer to issue a Letter of Credit
shall be deemed to be a representation by the Borrowers that the conditions set
forth in Section 4.2 have been satisfied as of the date of the request.
Section 2.6 Payment of Amounts Drawn Under Letters of Credit;
Obligation of Reimbursement. Each Borrower acknowledges that the Lender, as
co-applicant, will be liable to the Issuer for reimbursement of any and all
draws under Letters of Credit and for all other amounts required to be paid
under the applicable L/C Application. Accordingly, the Borrowers shall pay to
the Lender any and all amounts required to be paid under the applicable L/C
Application, when and as required to be paid thereby, and the amounts designated
below, when and as designated:
(a) The Borrowers shall pay to the Lender on the day a draft is
honored under any Letter of Credit a sum equal to all amounts drawn under such
Letter of Credit plus any and all reasonable charges and expenses that the
Issuer or the Lender may pay or incur relative to such draw and the applicable
L/C Application, plus interest on all such amounts, charges and expenses as set
forth below (the Borrowers' obligation to pay all such amounts is herein
referred to as the "Obligation of Reimbursement").
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(b) Whenever a draft is submitted under a Letter of Credit, the
Lender shall make a Revolving Advance in the amount of the Obligation of
Reimbursement and shall apply the proceeds of such Revolving Advance thereto.
Such Revolving Advance shall be repayable in accordance with and be treated in
all other respects as a Revolving Advance hereunder.
(c) If a draft is submitted under a Letter of Credit when the
Borrowers are unable, because a Default Period exists or for any other reason,
to obtain a Revolving Advance to pay the Obligation of Reimbursement, the
Borrowers shall pay to the Lender on demand and in immediately available funds,
the amount of the Obligation of Reimbursement together with interest, accrued
from the date of the draft until payment in full at the Default Rate.
Notwithstanding the Borrowers' inability to obtain a Revolving Advance for any
reason, the Lender is irrevocably authorized, in its sole discretion, to make a
Revolving Advance in an amount sufficient to discharge the Obligation of
Reimbursement and all accrued but unpaid interest thereon.
(d) The Borrowers' obligation to pay any Revolving Advance made
under this Section 2.6, shall be evidenced by the Revolving Note and shall bear
interest as provided in Section 2.9.
Section 2.7 Special Account. If the Credit Facility is terminated for
any reason while any Letter of Credit is outstanding, the Borrowers shall
thereupon pay the Lender in immediately available funds for deposit in the
Special Account an amount equal to the L/C Amount. The Special Account shall be
an interest bearing account maintained for the Lender by any financial
institution acceptable to the Lender. Any interest earned on amounts deposited
in the Special Account shall be credited to the Special Account. The Lender may
apply amounts on deposit in the Special Account at any time or from time to time
to the Obligations in the Lender's sole discretion. No Borrower may withdraw any
amounts on deposit in the Special Account as long as the Lender maintains a
security interest therein. The Lender agrees to transfer any balance in the
Special Account to the Parent Borrower when the Lender is required to release
its security interest in the Special Account under applicable law.
Section 2.8 Obligations Absolute. The Borrowers' obligations arising
under Section 2.6 shall be absolute, unconditional and irrevocable, and shall be
paid strictly in accordance with the terms of Section 2.6, under all
circumstances whatsoever, including (without limitation) the following
circumstances:
(a) any lack of validity or enforceability of any Letter of Credit
or any other agreement or instrument relating to any Letter of Credit
(collectively the "Related Documents");
(b) any amendment or waiver of or any consent to departure from
all or any of the Related Documents;
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(c) the existence of any claim, setoff, defense or other right
which any Borrower may have at any time, against any beneficiary or any
transferee of any Letter of Credit (or any persons or entities for whom any such
beneficiary or any such transferee may be acting), or other person or entity,
whether in connection with this Agreement, the transactions contemplated herein
or in the Related Documents or any unrelated transactions;
(d) any statement or any other document presented under any Letter
of Credit proving to be forged, fraudulent, invalid or insufficient in any
respect or any statement therein being untrue or inaccurate in any respect
whatsoever;
(e) payment by or on behalf of the Issuer under any Letter of
Credit against presentation of a draft or certificate which does not strictly
comply with the terms of such Letter of Credit; or
(f) any other circumstance or happening whatsoever, whether or not
similar to any of the foregoing.
Section 2.9 Interest; Minimum Interest Charge; Default Interest;
Participations; Clearance Days; Usury.
(a) Revolving Note. Except as set forth in Subsections (c) and
(f), the outstanding principal balance of the Revolving Note shall bear interest
at the Floating Rate.
(b) Minimum Interest Charge. Notwithstanding the interest payable
pursuant to Subsection (a), the Borrowers shall pay to the Lender interest of
not less than $100,000 per Loan Year (the "Minimum Interest Charge") during the
term of this Agreement, and the Borrowers shall pay any deficiency between the
Minimum Interest Charge and the amount of interest otherwise calculated under
Subsection (a) on the first day following each anniversary of the Funding Date
and on the Termination Date. As used in this subsection (b), "Loan Year" means
each one-year period ending on an anniversary of the Funding Date.
(c) Default Interest Rate. Upon notice to the Parent Borrower from
the Lender from time to time, the principal of the Advances outstanding from
time to time shall bear interest at the Default Rate, effective as of the first
day of the fiscal month during which any Default Period begins through the last
day of such Default Period. The Lender's election to charge the Default Rate
shall be in its sole discretion and shall not be a waiver of any of its other
rights and remedies. The Lender's election to charge interest at the Default
Rate for less than the entire period during which the Default Rate may be
charged shall not be a waiver of its right to later charge the Default Rate for
the entire such period.
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(d) Clearance Days. Interest at the interest rate applicable under
this Section 2.9 shall accrue on the amount of all payments (even if in the form
of immediately available federal funds) for one (1) day for clearance.
(e) Participations. If any Person shall acquire a participation in
the Advances or the Obligation of Reimbursement under this Agreement, the
Borrowers shall be obligated to the Lender to pay the full amount of all
interest calculated under this Section 2.9, along with all other fees, charges
and other amounts due under this Agreement, regardless if such Person elects to
accept interest with respect to its participation at a lower rate than that
calculated under this Section 2.9, or otherwise elects to accept less than its
prorata share of such fees, charges and other amounts due under this Agreement.
(f) Usury. In any event no rate change shall be put into effect
which would result in a rate greater than the highest rate permitted by law.
Section 2.10 Fees.
(a) Unused Line Fee. For purposes of this Section 2.10(a), "Unused
Amount" means the Maximum Line reduced by (1) outstanding Revolving Advances and
(2) the L/C Amount. The Borrowers shall pay to the Lender an unused line fee at
the rate of one half of one percent (0.50%) per annum on the average daily
Unused Amount from the date of this Agreement to and including the Termination
Date, due and payable monthly in arrears on the first day of the month and on
the Termination Date.
(b) Letter of Credit Fees. The Borrowers shall pay to the Lender a
fee with respect to each Letter of Credit, if any, accruing on a daily basis and
computed at the annual rate of two percent (2%), of the aggregate amount that
may then be drawn assuming compliance with all conditions for drawing (the
"Aggregate Face Amount"), from and including the date of issuance of such Letter
of Credit until such date as such Letter of Credit shall terminate by its terms
or be returned to the Lender, due and payable monthly in arrears on the first
day of each month and on the Termination Date; provided, however that during
Default Periods, in the Lender's sole discretion and without waiving any of its
other rights and remedies, such fee shall increase to five percent (5%) of the
Aggregate Face Amount. The foregoing fee shall be in addition to any and all
fees, commissions and charges of the Issuer with respect to or in connection
with such Letter of Credit.
(c) Letter of Credit Administrative Fees. The Borrowers shall pay
to the Lender, on written demand, the administrative fees charged by the Issuer
in connection with the honoring of drafts under any Letter of Credit, amendments
thereto, transfers thereof and all other activity with respect to the Letters of
Credit at the then-current rates published by the Issuer for such services
rendered on behalf of customers of the Issuer generally.
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(d) Audit Fees. The Borrowers shall pay the Lender, on demand,
audit fees in connection with any audits or inspections conducted by or on
behalf of the Lender of any Collateral or the Borrowers' operations or business
at the rates established from time to time by the Lender as its audit fees
(which fees are currently $600 per day per auditor, together with all actual
out-of-pocket costs and expenses incurred in conducting any such audit or
inspection; provided, however, that except during Default Periods, the Borrowers
shall not have to reimburse the Lender for such fees, costs and expenses
incurred in connection with more than (i) two audits conducted by the Lender per
fiscal year and (ii) two audits conducted by a third party on behalf of the
Lender per fiscal year.
(e) Termination and Line Reduction Fees. If the Credit Facility is
terminated by the Lender during a Default Period that begins before a Maturity
Date, or by the Borrowers (i) as of a date other than a Maturity Date or (ii) as
of a Maturity Date but without the Lender having received written notice of such
termination at least 90 days before such Maturity Date, or if the Borrowers
reduce the Maximum Line, the Borrowers shall pay to the Lender a fee in an
amount equal to a percentage of the Maximum Line (or the reduction of the
Maximum Line, as the case may be) as follows: (A) two percent (2%) if the
termination or reduction occurs on or before November 30, 2002; (B) one percent
(1%) if the termination or reduction occurs after November 30, 2002 but on or
before November 30, 2003; and (C) one-half of one percent (0.50%) if the
termination or reduction occurs after November 30, 2003.
(f) Waiver of Termination Fees. The Borrowers will not be required
to pay the termination fees otherwise due under subsection (e) if such
termination is made because of increased cash flow generated from the Borrowers'
operations or because of refinancing by an affiliate of the Lender.
(g) Other Fees. The Lender may from time to time, upon five (5)
days prior notice to the Parent Borrower during a Default Period, charge
additional fees for Revolving Advances made and Letters of Credit issued in
excess of Availability, for late delivery of reports, in lieu of imposing
interest at the Default Rate, and for other reasons. The Parent Borrower's
request for a Revolving Advance or the issuance of a Letter of Credit at any
time after such notice is given and such five (5) day period has elapsed shall
constitute the Borrowers' agreement to pay the fees described in such notice.
Section 2.11 Time for Interest Payments; Payment on Non-Banking Days;
Computation of Interest
(a) Time For Interest Payments. Interest accruing on Floating Rate
Advances shall be due and payable in arrears on the first day of each month and
on the Termination Date. Interest accruing on each LIBO Rate Advance shall be
due and payable on the last day of the applicable Interest Period; provided,
however, for Interest Periods longer than three (3) months, interest shall be
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due and payable monthly in arrears on the last day of the third month occurring
after commencement of such Interest Period, on the last day of each three-month
period thereafter (if any) and on the last day of such Interest Period.
(b) Payment on Non-Banking Days. Whenever any payment to be made
hereunder shall be stated to be due on a day which is not a Banking Day, such
payment may be made on the next succeeding Banking Day, and such extension of
time shall in such case be included in the computation of interest on the
Advances or the fees hereunder, as the case may be.
(c) Computation of Interest and Fees. Interest accruing on the
outstanding principal balance of the Advances and fees hereunder outstanding
from time to time shall be computed on the basis of actual number of days
elapsed in a year of 360 days.
Section 2.12 Increased Costs; Capital Adequacy; Funding Exceptions.
(a) Increased Costs; Capital Adequacy. If the Lender determines at
any time that its Return has been reduced as a result of any Rule Change, such
Lender may so notify the Parent Borrower and require the Borrowers, beginning
fifteen (15) days after such notice, to pay it the amount necessary to restore
its Return to what it would have been had there been no Rule Change. For
purposes of this Section 2.12:
(i) "Capital Adequacy Rule" means any law, rule,
regulation, guideline, directive, requirement or request regarding
capital adequacy, or the interpretation or administration thereof by
any governmental or regulatory authority, central bank or comparable
agency, whether or not having the force of law, that applies to any
Related Lender, including rules requiring financial institutions to
maintain total capital in amounts based upon percentages of outstanding
loans, binding loan commitments and letters of credit.
(ii) "Eurodollar Rule" means Regulation D of the Board of
Governors of the Federal Reserve System and any law, rule, regulation,
guideline, directive, requirement or request regarding (A) taxes,
duties or other charges, exemptions with respect to LIBO Rate Advances
or the Lender's obligation to make LIBO Rate Advances, and (B) reserves
imposed by the Board of Governors of the Federal Reserve System (but
excluding any reserve included in the determination of the LIBO Rate),
special deposits or similar requirements against assets of, deposits
with or for the account of, or credit extended by, any Related Lender,
and any other condition affecting the Lender's making, maintaining or
funding of LIBO Rate Advances or its obligation to make LIBO Rate
Advances, or the interpretation or administration thereof by any
governmental or regulatory authority, central bank or comparable
agency, whether or not having the force of law, that applies to any
Related Lender.
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(iii) "L/C Rule" means any law, rule, regulation,
guideline, directive, requirement or request regarding letters of
credit, or the interpretation or administration thereof by any
governmental or regulatory authority, central bank or comparable
agency, whether or not having the force of law, that applies to any
Related Lender, including those that impose taxes, duties or other
similar charges, or mandate reserves, special deposits or similar
requirements against assets of, deposits with or for the account of, or
credit extended by any Related Lender, on letters of credit.
(iv) "Related Lender" includes (but is not limited to) the
Lender, the Issuer, any parent of the Lender or the Issuer, any
assignee of any interest of the Lender hereunder and any participant in
the Credit Facility.
(v) "Return", for any period, means the percentage
determined by dividing (i) the sum of interest and ongoing fees earned
by the Lender under this Agreement during such period, by (ii) the
average capital such Lender is required to maintain during such period
as a result of its being a party to this Agreement, as determined by
such Lender based upon its total capital requirements and a reasonable
attribution formula that takes account of the Capital Adequacy Rules,
Eurodollar Rules and L/C Rules then in effect, costs of issuing or
maintaining any Advance or Letter of Credit and amounts received or
receivable under this Agreement or the Notes with respect to any
Advance or Letter of Credit. Return may be calculated for each calendar
quarter and for the shorter period between the end of a calendar
quarter and the date of termination in whole of this Agreement.
(vi) "Rule Change" means any change in any Capital
Adequacy Rule, Eurodollar Rule, or L/C Rule occurring after the date of
this Agreement, or any change in the interpretation or administration
thereof by any governmental or regulatory authority, but the term does
not include any changes that at the Funding Date are scheduled to take
place under the existing Capital Adequacy Rules, Eurodollar Rules, or
L/C Rules or any increases in the capital that the Lender is required
to maintain to the extent that the increases are required due to a
regulatory authority's assessment of that Lender's financial condition.
The initial notice sent by the Lender shall be sent as promptly as practicable
after such Lender learns that its Return has been reduced, shall include a
demand for payment of the amount necessary to restore such Lender's Return for
the quarter in which the notice is sent, and shall state in reasonable detail
the cause for the reduction in its Return and its calculation of the amount of
such reduction. Thereafter, such Lender may send a new notice during each
calendar quarter setting forth the calculation of the reduced Return for that
quarter and including a demand for payment of the amount necessary to restore
its Return for that quarter. The Lender's calculation in any such notice shall
be conclusive and binding absent demonstrable error.
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(b) Basis for Determining Interest Rate Inadequate or Unfair. If
with respect to any Interest Period:
(i) the Lender determines that deposits in US dollars (in
the applicable amounts) are not being offered in the London interbank
eurodollar market for such Interest Period; or
(ii) the Lender otherwise determines that by reason of
circumstances affecting the London interbank eurodollar market adequate
and reasonable means do not exist for ascertaining the applicable LIBO
Rate; or
(iii) the LIBO Rate will not adequately and fairly reflect
the cost to the Lender of funding any LIBO Rate Advance for such
Interest Period, or that the funding of LIBO Rate Advances has become
impracticable as a result of an event occurring after the date of this
Agreement which in the opinion of the Lender materially affects such
LIBO Rate Advances;
then the Lender shall promptly notify the Parent Borrower and (A) in the event
of any occurrence described in the foregoing clauses (i) and (ii), the Parent
Borrower shall enter into good faith negotiations with the Lender in order to
determine an alternate method to determine the LIBO Rate, and during the
pendency of such negotiations with the Lender, the Lender shall be under no
obligation to make any new LIBO Rate Advances and (B) in the event of any
occurrence described in the foregoing clause (iii), for so long as such
circumstances shall continue, the Lender shall be under no obligation to make
any new LIBO Rate Advances.
(c) Illegality. If any Rule Change should make it or, in the good
faith judgment of the Lender, shall raise a substantial question as to whether
it is unlawful for the Lender to make, create, maintain or fund LIBO Rate
Advances, then (i) the Lender shall promptly notify the Parent Borrower, (ii)
the obligation of the Lender to make, maintain or convert into LIBO Rate
Advances shall, upon the effectiveness of such event, be suspended for the
duration of such unlawfulness, and (iii) for the duration of such unlawfulness,
any notice by the Parent Borrower pursuant to Sections 2.3(a), 2.4(a) or 2.4(b)
requesting the Lender to make, continue making or convert into LIBO Rate
Advances shall be construed as a request to make or to continue making Floating
Rate Advances.
Section 2.13 Lockbox; Collateral Account; Application of Payments.
(a) Lockbox. Upon the Lender's request during any Default Period,
each Borrower shall instruct all account debtors to pay all Accounts directly to
a special lockbox (the "Lockbox") to be under the Lender's control. After such
request, all invoices, account statements and other written or oral
communications directing, instructing, demanding or requesting payment of any
Account shall conspicuously direct that all payments be made to the Lockbox and
shall include the Lockbox address. If, notwithstanding such instructions, any
23
Borrower receives any payments on Accounts, such Borrower shall deposit such
payments into the Collateral Account. The Borrowers shall also deposit all other
cash proceeds of Collateral directly to the Collateral Account. Until so
deposited, each Borrower shall hold all such payments and cash proceeds in trust
for and as the property of the Lender and shall not commingle such property with
any of its other funds or property. All deposits in the Collateral Account shall
constitute proceeds of Collateral and shall not constitute payment of the
Obligations.
(b) Collateral Accounts.
(i) Each Borrower shall cause all checks and other
non-cash payments on Accounts to be deposited to account No. 4311266522
or to account No. 4166577288 maintained with Xxxxx Fargo Bank Texas
within one Banking Day of receipt. Until so deposited, each Borrower
shall hold all such payments in trust for and as the property of the
Lender and shall not commingle such payments with any of its other
funds or property.
(ii) Amounts deposited in a Collateral Account shall not
bear interest and shall not be subject to withdrawal by any Borrower,
except after full payment and discharge of all Obligations.
(iii) All deposits in a Collateral Account shall constitute
proceeds of Collateral and shall not constitute payment of the
Obligations. The Lender from time to time at its discretion may, after
allowing one Banking Day, apply deposited funds in any Collateral
Account to the payment of the Obligations, in any order or manner of
application satisfactory to the Lender, by transferring such funds to
the Lender's general account.
(iv) All items deposited in any Collateral Account shall
be subject to final payment. If any such item is returned uncollected,
the Borrowers will immediately pay the Lender, or, for items deposited
in a Collateral Account, the bank maintaining such account, the amount
of that item, or such bank at its discretion may charge any uncollected
item to the Borrowers' commercial account or other account. The
Borrowers shall be liable as an endorser on all items deposited in each
Collateral Account, whether or not in fact endorsed by a Borrower.
Section 2.14 Termination of Credit Facility; Automatic Renewal. Unless
terminated by the Lender during a Default Period or by the Parent Borrower
pursuant to Section 2.15, the Credit Facility shall remain in effect until the
Original Maturity Date and, thereafter, shall automatically renew for successive
one year periods (the Original Maturity Date and each anniversary date thereof
to which the Credit Facility has been automatically renewed, is herein referred
to as a "Maturity Date") unless the Parent Borrower provides the Lender with 90
days prior written notice of its election not to renew the Credit Facility.
Section 2.15 Voluntary Prepayment; Reduction of the Maximum Line;
Termination of the Credit Facility by the Borrowers. Except as otherwise
provided herein, the Borrowers may prepay the Advances in whole at any time or
24
from time to time in part. The Borrowers may terminate the Credit Facility or
reduce the Maximum Line at any time if they (a) give the Lender at least 30
days' prior written notice and (b) pay the Lender termination or Maximum Line
reduction fees in accordance with Section 2.10(e). Any reduction in the Maximum
Line must be in an amount of not less than $500,000 or an integral multiple
thereof. If the Borrowers reduce the Maximum Line to zero, all Obligations shall
be immediately due and payable. Subject to termination of the Credit Facility
and payment and performance of all Obligations, the Lender shall, at the
Borrowers' expense, release or terminate the Security Interest and the Security
Documents to which the Borrowers are entitled by law.
Section 2.16 Mandatory Prepayment. Without notice or demand, if the sum
of the outstanding principal balance of the Revolving Advances plus the L/C
Amount shall at any time exceed the Borrowing Base, the Borrowers shall (a)
first, immediately prepay the Revolving Advances to the extent necessary to
eliminate such excess; and (b) if prepayment in full of the Revolving Advances
is insufficient to eliminate such excess, pay to the Lender in immediately
available funds for deposit in the Special Account an amount equal to the
remaining excess. Any payment received by the Lender under this Section 2.16 or
under Section 2.15 may be applied to the Obligations, in such order and in such
amounts as the Lender, in its discretion, may from time to time determine.
Section 2.17 Revolving Advances to Pay Obligations. Notwithstanding
anything in Section 2.2, the Lender may, in its discretion at any time or from
time to time, without the Borrowers' request and even if the conditions set
forth in Section 4.2 would not be satisfied, make a Revolving Advance in an
amount equal to the portion of the Obligations from time to time due and
payable.
Section 2.18 Use of Proceeds. The Borrowers shall use the proceeds of
Advances and each Letter of Credit for ordinary working capital purposes.
Section 2.19 Liability Records. The Lender may maintain from time to
time, at its discretion, records as to the Obligations. All entries made on any
such record shall be presumed correct until the Borrowers establish the
contrary. Upon the Lender's demand, the Borrowers will admit and certify in
writing the exact principal balance of the Obligations that the Borrowers then
assert to be outstanding. Any billing statement or accounting rendered by the
Lender shall be conclusive and fully binding on the Borrowers unless the Parent
Borrower gives the Lender specific written notice of exception within 30 days
after receipt.
ARTICLE III
SECURITY INTEREST; OCCUPANCY; SETOFF
------------------------------------
Section 3.1 Grant of Security Interest. Each Borrower hereby pledges,
assigns and grants to the Lender a lien and security interest (collectively
25
referred to as the "Security Interest") in the Collateral, as security for the
payment and performance of the Obligations. Upon request by the Lender, each
Borrower will grant the Lender a security interest in all commercial tort claims
it may have against any Person.
Section 3.2 Notification of Account Debtors and Other Obligors. The
Lender may at any time during any Default Period notify any account debtor or
other person obligated to pay the amount due that such right to payment has been
assigned or transferred to the Lender for security and shall be paid directly to
the Lender. The applicable Borrower will join in giving such notice if the
Lender so requests. At any time after the applicable Borrower or the Lender
gives such notice to an account debtor or other obligor, the Lender may, but
need not, in the Lender's name or in the applicable Borrower's name, (a) demand,
xxx for, collect or receive any money or property at any time payable or
receivable on account of, or securing, any such right to payment, or grant any
extension to, make any compromise or settlement with or otherwise agree to
waive, modify, amend or change the obligations (including collateral
obligations) of any such account debtor or other obligor; and (b) as the
Borrowers' agent and attorney-in-fact, notify the United States Postal Service
to change the address for delivery of each Borrower's mail to any address
designated by the Lender, otherwise intercept each Borrower's mail, and receive,
open and dispose of each Borrower's mail, applying all Collateral as permitted
under this Agreement and holding all other mail for the Borrowers' account or
forwarding such mail to such Borrower's last known address.
Section 3.3 Assignment of Insurance. As additional security for the
payment and performance of the Obligations, each Borrower hereby assigns to the
Lender any and all monies (including proceeds of insurance and refunds of
unearned premiums) due or to become due under, and all other rights of such
Borrower with respect to, any and all policies of insurance now or at any time
hereafter covering the Collateral or any evidence thereof or any business
records or valuable papers pertaining thereto, and each Borrower hereby directs
the issuer of any such policy to pay all such monies directly to the Lender. At
any time, whether or not a Default Period then exists, the Lender may (but need
not), in the Lender's name or in any Borrower's name, execute and deliver proof
of claim, receive all such monies, endorse checks and other instruments
representing payment of such monies, and adjust, litigate, compromise or release
any claim against the issuer of any such policy.
Section 3.4 Occupancy.
(a) Each Borrower hereby irrevocably grants to the Lender the
right to take exclusive possession of the Premises at any time during a Default
Period.
(b) The Lender may use the Premises only to hold, process,
manufacture, sell, use, store, liquidate, realize upon or otherwise dispose of
goods that are Collateral and for other purposes that the Lender may in good
xxxxx xxxx to be related or incidental purposes.
26
(c) The Lender's right to hold the Premises shall cease and
terminate upon the earlier of (i) payment in full and discharge of all
Obligations and termination of the Credit Facility, and (ii) final sale or
disposition of all goods constituting Collateral and delivery of all such goods
to purchasers.
(d) The Lender shall not be obligated to pay or account for any
rent or other compensation for the possession, occupancy or use of any of the
Premises; provided, however, that if the Lender does pay or account for any rent
or other compensation for the possession, occupancy or use of any of the
Premises, the Borrowers shall reimburse the Lender promptly for the full amount
thereof. In addition, the Borrowers will pay, or reimburse the Lender for, all
taxes, fees, duties, imposts, charges and expenses at any time incurred by or
imposed upon the Lender by reason of the execution, delivery, existence,
recordation, performance or enforcement of this Agreement or the provisions of
this Section 3.4.
Section 3.5 License. Without limiting the generality of any other
Security Document, each Borrower hereby grants to the Lender a non-exclusive,
worldwide and royalty-free license to use or otherwise exploit all Intellectual
Property Rights of the Borrower for the purpose of: (a) completing the
manufacture of any in-process materials during any Default Period so that such
materials become saleable Inventory, all in accordance with the same quality
standards previously adopted by such Borrower for its own manufacturing and
subject to such Borrower's reasonable exercise of quality control; and (b)
selling, leasing or otherwise disposing of any or all Collateral during any
Default Period.
Section 3.6 Financing Statement. Each Borrower authorizes the Lender to
file from time to time where permitted by law, such financing statements against
collateral described as "all personal property" or describing specific items of
collateral including commercial tort claims as the Lender deems necessary or
useful to perfect the Security Interest. A carbon, photographic or other
reproduction of this Agreement or of any financing statement signed by a
Borrower is sufficient as a financing statement and may be filed as a financing
statement in any state to perfect the security interests granted hereby. For
this purpose, certain information is set forth in Schedule 3.6.
Section 3.7 Setoff. The Lender may at any time or from time to time, at
its sole discretion and without demand and without notice to anyone, setoff any
liability owed to any Borrower by the Lender, whether or not due, against any
Obligation, whether or not due. In addition, each other Person holding a
participating interest in any Obligations shall have the right to appropriate or
setoff any deposit or other liability then owed by such Person to any Borrower,
whether or not due, and apply the same to the payment of said participating
interest, as fully as if such Person had lent directly to that Borrower the
amount of such participating interest.
Section 3.8 Collateral. This Agreement does not contemplate a sale of
accounts, contract rights or chattel paper, and, as provided by law, the
Borrowers are entitled to any surplus and shall remain liable for any
deficiency. The Lender's duty of care with respect to Collateral in its
27
possession (as imposed by law) shall be deemed fulfilled if it exercises
reasonable care in physically keeping such Collateral, or in the case of
Collateral in the custody or possession of a bailee or other third person,
exercises reasonable care in the selection of the bailee or other third person,
and the Lender need not otherwise preserve, protect, insure or care for any
Collateral. The Lender shall not be obligated to preserve any rights the
Borrowers may have against prior parties, to realize on the Collateral at all or
in any particular manner or order or to apply any cash proceeds of the
Collateral in any particular order of application. The Lender has no obligation
to clean-up or otherwise prepare the Collateral for sale. Each Borrower waives
any right it may have to require the Lender to pursue any third person for any
of the Obligations.
Section 3.9 Accommodation Party Defenses Waived. The parties intend
that each Borrower shall be fully liable, jointly and severally, for all
Obligations. Nonetheless, in case a court finds that any Borrower is not such a
primary obligor with respect to all or any part of the Obligations, the
Borrowers expressly waive the benefit of any and all defenses and discharges
available to a guarantor, surety, endorser or accommodation party dependent on
an obligor's character as such. Without limiting the generality of the
foregoing, the liability of each Borrower hereunder shall not be affected or
impaired in any way by any of the following acts or things (which the Lender is
hereby expressly authorized to do, omit or suffer from time to time without
notice to or consent of anyone): (i) any acceptance of collateral security,
guarantors, accommodation parties or sureties for any Obligations; (ii) any
extension or renewal of any Obligations (whether or not for longer than the
original period) or any modification of the interest rate, maturity or other
terms of any Obligations; (iii) any waiver or indulgence granted to any other
Borrower or the Guarantor, and any delay or lack of diligence in the enforcement
of the Obligations; (iv) any full or partial release of, compromise or
settlement with, or agreement not to xxx, any other Borrower, the Guarantor or
other person liable on any Obligations; (v) any release, surrender, cancellation
or other discharge of any Obligations or the acceptance of any instrument in
renewal or substitution for any instrument evidencing any Obligations; (vi) any
failure to obtain collateral security (including rights of setoff) for any
Obligations, or to see to the proper or sufficient creation and perfection
thereof, or to establish the priority thereof, or to preserve, protect, insure,
care for, exercise or enforce any collateral security for any Obligations; (vii)
any modification, alteration, substitution, exchange, surrender, cancellation,
termination, release or other change, impairment, limitation, loss or discharge
of any Collateral, or other collateral security for the Obligations; (viii) any
assignment, sale, pledge or other transfer of any of Obligations; or (ix) any
manner, order or method of application of any payments or credits on any
Obligations.
ARTICLE IV
CONDITIONS OF LENDING
---------------------
Section 4.1 Conditions Precedent to the Initial Revolving Advance and
Letter of Credit. The Lender's obligation to make the initial Advance hereunder
28
or to cause any Letters of Credit to be issued shall be subject to the condition
precedent that the Lender shall have received all of the following, each in form
and substance satisfactory to the Lender:
(a) This Agreement, properly executed by each Borrower.
(b) The Note, properly executed by each Borrower.
(c) A true and correct copy of the leases for the Premises located
in Elgin, Illinois; Mesquite, Texas; Missouri City, Texas; and Oklahoma City,
Oklahoma; together with a landlord's disclaimer and consent with respect to each
such lease.
(d) The Collection Account Agreement, properly executed by each
Borrower.
(e) Current searches of appropriate filing offices showing that
(i) no Liens have been filed and remain in effect against any Borrower except
Permitted Liens or Liens held by Persons who have agreed in writing that upon
receipt of proceeds of the initial Advances, they will satisfy, release or
terminate such Liens in a manner satisfactory to the Lender, and (ii) the Lender
has duly filed all financing statements necessary to perfect the Security
Interest, to the extent the Security Interest is capable of being perfected by
filing.
(f) A certificate of each Borrower's Secretary or Assistant
Secretary certifying that attached to such certificate are (i) the resolutions
of the Borrower's Directors and, if required, Owners, authorizing the execution,
delivery and performance of the Loan Documents, (ii) true, correct and complete
copies of the Borrower's Constituent Documents, and (iii) examples of the
signatures of the Borrower's Officers or agents authorized to execute and
deliver the Loan Documents and other instruments, agreements and certificates,
including Advance requests, on that Borrower's behalf.
(g) For each Borrower, a current certificate issued by the
Secretary of State of that Borrower's jurisdiction of organization, certifying
that Borrower is in compliance with all applicable organizational requirements
of such State.
(h) Evidence that each Borrower is duly licensed or qualified to
transact business in all jurisdictions where the character of the property owned
or leased or the nature of the business transacted by it makes such licensing or
qualification necessary.
(i) An opinion of counsel to the Borrowers and the Guarantor,
addressed to the Lender.
(j) Certificates of the insurance required hereunder, with all
hazard insurance containing a lender's loss payable endorsement in the Lender's
favor and with all liability insurance naming the Lender as an additional
insured.
29
(k) An amended and restated guaranty, properly executed by TLF
Canada.
(l) A certificate of the secretary or assistant secretary of TLF
Canada certifying as to (i) the resolutions of the Directors and, if required,
Owners, of that company authorizing the execution, delivery and performance of
the guaranty and the security agreement executed and delivered to the Lender by
it; (ii) the company's articles of incorporation and bylaws; and (iii) the
signatures of the Officers or agents authorized to execute and deliver such
guaranty and security agreement on behalf of such company.
(m) Current searches of appropriate filing offices showing that
(i) no tax or judgment liens have been filed and remain in effect against TLF
Canada, (ii) no financing statements have been filed and remain in effect
against such company except financing statements acceptable to the Lender in its
sole discretion, and (iii) the Lender has duly filed all financing statements
necessary to perfect its security interest in the property of such company, to
the extent such security interests are capable of being perfected by filing.
(n) An amended and restated security agreement, duly executed by
TLF Canada.
(o) Payment of the fees and commissions due under Section 2.10
through the date of the initial Advance or Letter of Credit and expenses
incurred by the Lender through such date and required to be paid by the
Borrowers under Section 8.8, including all legal expenses incurred through the
date of this Agreement.
(p) Such other documents as the Lender in its sole discretion may
require.
Section 4.2 Conditions Precedent to All Advances and Letters of Credit
The Lender's obligation to make each Advance and to cause each Letter of Credit
to be issued shall be subject to the further conditions precedent that:
(a) the representations and warranties contained in Article V are
correct on and as of the date of such Advance or issuance of a Letter of Credit
as though made on and as of such date, except to the extent that such
representations and warranties relate solely to an earlier date; and
(b) no event has occurred and is continuing, or would result from
such Advance or issuance of a Letter of Credit which constitutes a Default or an
Event of Default.
30
ARTICLE V
REPRESENTATIONS AND WARRANTIES
------------------------------
Each Borrower represents and warrants to the Lender as follows:
Section 5.1 Existence and Power; Name; Chief Executive Office;
Inventory and Equipment Locations; Federal Employer Identification Number. Each
Borrower is duly organized, validly existing and in good standing under the laws
of the State of its organization and is duly licensed or qualified to transact
business in all jurisdictions where the character of the property owned or
leased or the nature of the business transacted by it makes such licensing or
qualification necessary. Each Borrower has all requisite power and authority to
conduct its business, to own its properties and to execute and deliver, and to
perform all of its obligations under, the Loan Documents. For each Borrower,
during its existence, (a) it has done business solely under the names set forth
in Schedule 5.1, (b) its chief executive office and principal place of business
is located at the address set forth in Schedule 5.1, (c) all of its records
relating to its business or the Collateral are kept at that location, (d) all of
its Inventory and Equipment is located at that location or at one of the other
locations set forth in Schedule 5.1 hereto, and (e) its tax identification and
organizational identification numbers are correctly set forth in Schedule 3.6
hereto.
Section 5.2 Capitalization. Schedule 5.2 constitutes a correct and
complete list of all Persons holding ownership interests and rights to acquire
ownership interests which if fully exercised would cause such Person to hold
more than ten percent (10%) of all ownership interests of any Borrower on a
fully diluted basis, and an organizational chart showing the ownership structure
of all Subsidiaries of each Borrower.
Section 5.3 Authorization of Borrowing; No Conflict as to Law or
Agreements. The execution, delivery and performance by each Borrower of the Loan
Documents and the borrowings from time to time hereunder have been duly
authorized by all necessary corporate or partnership action, as the case may be,
and do not and will not (a) require any consent or approval of any Borrower's
Owners; (b) require any authorization, consent or approval by, or registration,
declaration or filing with, or notice to, any governmental department,
commission, board, bureau, agency or instrumentality, domestic or foreign, or
any third party, except such authorization, consent, approval, registration,
declaration, filing or notice as has been obtained, accomplished or given prior
to the date hereof; (c) violate any provision of any law, rule or regulation
(including Regulation X of the Board of Governors of the Federal Reserve System)
or of any order, writ, injunction or decree presently in effect having
applicability to any Borrower or of any Borrower's Constituent Documents; (d)
result in a breach of or constitute a default under any indenture or loan or
credit agreement or any other material agreement, lease or instrument to which
any Borrower is a party or by which it or its properties may be bound or
affected; or (e) result in, or require, the creation or imposition of any Lien
(other than the Security Interest) upon or with respect to any of the properties
now owned or hereafter acquired by any Borrower.
31
Section 5.4 Legal Agreements. This Agreement constitutes and, upon due
execution by the Borrowers, the other Loan Documents will constitute the legal,
valid and binding obligations of the Borrowers, enforceable against each
Borrower in accordance with their respective terms.
Section 5.5 Subsidiaries. Except as set forth in Schedule 5.5 hereto,
no Borrower has any Subsidiaries.
Section 5.6 Financial Condition; No Adverse Change. The Borrowers have
furnished to the Lender audited financial statements for its fiscal year ended
December 31, 2000 and unaudited interim financial statements dated as of January
31, 2002, and those statements fairly present the Borrowers' financial condition
on the dates thereof and the results of their operations and cash flows for the
periods then ended and were prepared in accordance with generally accepted
accounting principles. Since the date of the most recent financial statements,
there has been no material adverse change in any Borrower's business, properties
or condition (financial or otherwise).
Section 5.7 Litigation. There are no actions, suits or proceedings
pending or, to any Borrower's knowledge, threatened against or affecting any
Borrower or any of its Affiliates or the properties of any Borrower or any of
its Affiliates before any court or governmental department, commission, board,
bureau, agency or instrumentality, domestic or foreign, which, if determined
adversely to that Borrower or any of its Affiliates, would have a material
adverse effect on the financial condition, properties or operations of that
Borrower or any of its Affiliates.
Section 5.8 Regulation U. No Borrower is engaged in the business of
extending credit for the purpose of purchasing or carrying margin stock (within
the meaning of Regulation U of the Board of Governors of the Federal Reserve
System), and no part of the proceeds of any Advance will be used to purchase or
carry any margin stock or to extend credit to others for the purpose of
purchasing or carrying any margin stock.
Section 5.9 Taxes. Each Borrower and its Affiliates has paid or caused
to be paid to the proper authorities when due all federal, state and local taxes
required to be withheld by each of them. Each Borrower and its Affiliates has
filed all federal, state and local tax returns which to the knowledge of the
Officers of that Borrower or any Affiliate, as the case may be, are required to
be filed, and each Borrower and its Affiliates has paid or caused to be paid to
the respective taxing authorities all taxes as shown on said returns or on any
assessment received by any of them to the extent such taxes have become due.
Section 5.10 Titles and Liens. Each Borrower has good and absolute
title to all Collateral free and clear of all Liens other than Permitted Liens.
No financing statement naming any Borrower as debtor is on file in any office
except to perfect only Permitted Liens.
32
Section 5.11 Intellectual Property Rights.
(a) Owned Intellectual Property. Schedule 5.11 is a complete list
of all patents, applications for patents, trademarks, applications for
trademarks, service marks, applications for service marks, mask works, trade
dress and copyrights for which any Borrower is the registered owner (the "Owned
Intellectual Property"). Except as disclosed on Schedule 5.11, (i) the Borrowers
own the Owned Intellectual Property free and clear of all restrictions
(including covenants not to xxx a third party), court orders, injunctions,
decrees, writs or Liens, whether by written agreement or otherwise, (ii) no
Person other than the Borrowers own or has been granted any right in the Owned
Intellectual Property, (iii) all Owned Intellectual Property is valid,
subsisting and enforceable and (iv) the Borrowers have taken all commercially
reasonable action necessary to maintain and protect the Owned Intellectual
Property.
(b) Agreements with Employees and Contractors. Each Borrower has
entered into a legally enforceable agreement with each of its employees and
subcontractors obligating each such Person to assign to such Borrower, without
any additional compensation, any Intellectual Property Rights created,
discovered or invented by such Person in the course of such Person's employment
or engagement with such Borrower (except to the extent prohibited by law), and
further requiring such Person to cooperate with such Borrower, without any
additional compensation, in connection with securing and enforcing any
Intellectual Property Rights therein; provided, however, that the foregoing
shall not apply with respect to employees and subcontractors whose job
descriptions are of the type such that no such assignments are reasonably
foreseeable.
(c) Intellectual Property Rights Licensed from Others. Schedule
5.11 is a complete list of all agreements under which the Borrowers have
licensed Intellectual Property Rights from another Person ("Licensed
Intellectual Property") other than readily available, non-negotiated licenses of
computer software and other intellectual property used solely for performing
accounting, word processing and similar administrative tasks ("Off-the-shelf
Software") and a summary of any ongoing payments the Borrowers are obligated to
make with respect thereto. Except as disclosed on Schedule 5.11 and in written
agreements copies of which have been given to the Lender, the Borrowers'
licenses to use the Licensed Intellectual Property are free and clear of all
restrictions, Liens, court orders, injunctions, decrees, or writs, whether by
written agreement or otherwise. Except as disclosed on Schedule 5.11, the
Borrowers are not obligated or under any liability whatsoever to make any
payments of a material nature by way of royalties, fees or otherwise to any
owner of, licensor of, or other claimant to, any Intellectual Property Rights.
(d) Other Intellectual Property Needed for Business. Except for
Off-the-shelf Software and as disclosed on Schedule 5.11, the Owned Intellectual
Property and the Licensed Intellectual Property constitute all Intellectual
Property Rights used or necessary to conduct each Borrower's business as it is
presently conducted or as such Borrower reasonably foresees conducting it.
(e) Infringement. Except as disclosed on Schedule 5.11, no
Borrower has have knowledge of, or has received any written claim or notice
alleging, any Infringement of another Person's Intellectual Property Rights
(including any written claim that a Borrower must license or refrain from using
33
the Intellectual Property Rights of any third party) nor, to any Borrower's
knowledge, is there any threatened claim or any reasonable basis for any such
claim.
Section 5.12 Plans. Except as disclosed to the Lender in writing prior
to the date hereof, neither the Borrowers nor any ERISA Affiliate (i) maintains
or has maintained any Pension Plan, (ii) contributes or has contributed to any
Multiemployer Plan or (iii) provides or has provided post-retirement medical or
insurance benefits with respect to employees or former employees (other than
benefits required under Section 601 of ERISA, Section 4980B of the IRC or
applicable state law). Neither the Borrowers nor any ERISA Affiliate has
received any notice or has any knowledge to the effect that it is not in full
compliance with any of the requirements of ERISA, the IRC or applicable state
law with respect to any Plan. No Reportable Event exists in connection with any
Pension Plan. Each Plan which is intended to qualify under the IRC is so
qualified, and no fact or circumstance exists which may have an adverse effect
on the Plan's tax-qualified status. Neither the Borrowers nor any ERISA
Affiliate has (i) any accumulated funding deficiency (as defined in Section 302
of ERISA and Section 412 of the IRC) under any Plan, whether or not waived, (ii)
any liability under Section 4201 or 4243 of ERISA for any withdrawal, partial
withdrawal, reorganization or other event under any Multiemployer Plan or (iii)
any liability or knowledge of any facts or circumstances which could result in
any liability to the Pension Benefit Guaranty Corporation, the Internal Revenue
Service, the Department of Labor or any participant in connection with any Plan
(other than routine claims for benefits under the Plan).
Section 5.13 Default. Each Borrower is in compliance with all
provisions of all agreements, instruments, decrees and orders to which it is a
party or by which it or its property is bound or affected, the breach or default
of which could have a material adverse effect on the Borrower's financial
condition, properties or operations.
Section 5.14 Environmental Matters.
(a) To each Borrower's best knowledge, there are not present in,
on or under the Premises any Hazardous Substances in such form or quantity as to
create any liability or obligation for any Borrower or the Lender under common
law of any jurisdiction or under any Environmental Law, and no Hazardous
Substances have ever been stored, buried, spilled, leaked, discharged, emitted
or released in, on or under the Premises in such a way as to create any such
liability.
34
(b) To each Borrower's best knowledge, no Borrower has disposed of
Hazardous Substances in such a manner as to create any liability under any
Environmental Law.
(c) There are not and there never have been any requests, claims,
notices, investigations, demands, administrative proceedings, hearings or
litigation, relating in any way to the Premises or any Borrower, alleging
liability under, violation of, or noncompliance with any Environmental Law or
any license, permit or other authorization issued pursuant thereto. To each
Borrower's best knowledge, no such matter is threatened or impending.
(d) To each Borrower's best knowledge, its businesses are and have
in the past always been conducted in accordance with all Environmental Laws and
all licenses, permits and other authorizations required pursuant to any
Environmental Law and necessary for the lawful and efficient operation of such
businesses are in that Borrower's possession and are in full force and effect.
No permit required under any Environmental Law is scheduled to expire within 12
months and there is no threat that any such permit will be withdrawn,
terminated, limited or materially changed.
(e) To each Borrower's best knowledge, the Premises are not and
never have been listed on the National Priorities List, the Comprehensive
Environmental Response, Compensation and Liability Information System or any
similar federal, state or local list, schedule, log, inventory or database.
(f) The Borrowers have delivered to Lender all environmental
assessments, audits, reports, permits, licenses and other documents describing
or relating in any way to the Premises or any Borrower's businesses.
Section 5.15 Submissions to Lender. All financial and other information
provided to the Lender by or on behalf of the Borrowers in connection with the
Borrowers' request for the credit facilities contemplated hereby is (i) true and
correct in all material respects, (ii) does not omit any material fact necessary
to make such information not misleading and, (iii) as to projections, valuations
or proforma financial statements, present a good faith opinion as to such
projections, valuations and proforma condition and results.
Section 5.16 Financing Statements. Each Borrower has authorized the
filing of financing statements sufficient when filed to perfect the Security
Interest and the other security interests created by the Security Documents.
When such financing statements are filed in the offices noted therein, the
Lender will have a valid and perfected security interest in all Collateral which
is capable of being perfected by filing financing statements. None of the
Collateral is or will become a fixture on real estate, unless a sufficient
fixture filing is in effect with respect thereto.
Section 5.17 Rights to Payment. Each right to payment and each
instrument, document, chattel paper and other agreement constituting or
35
evidencing Collateral is (or, in the case of all future Collateral, will be when
arising or issued) the valid, genuine and legally enforceable obligation,
subject to no defense, setoff or counterclaim, of the account debtor or other
obligor named therein or in the applicable Borrower's records pertaining thereto
as being obligated to pay such obligation.
Section 5.18 Financial Solvency. Both before and after giving effect to
the transactions contemplated in the Loan Documents, none of the Borrowers,
Guarantor or their Affiliates:
(a) was or will be insolvent, as that term is used and defined in
Section 101(32) of the United States Bankruptcy Code and Section 2 of the
Uniform Fraudulent Transfer Act;
(b) has unreasonably small capital or is engaged or about to
engage in a business or a transaction for which any remaining assets of such
Borrower or such Affiliate are unreasonably small;
(c) by executing, delivering or performing its obligations under
the Loan Documents or other documents to which it is a party or by taking any
action with respect thereto, intends to, nor believes that it will, incur debts
beyond its ability to pay them as they mature;
(d) by executing, delivering or performing its obligations under
the Loan Documents or other documents to which it is a party or by taking any
action with respect thereto, intends to hinder, delay or defraud either its
present or future creditors; and
(e) at this time contemplates filing a petition in bankruptcy or
for an arrangement or reorganization or similar proceeding under any law of any
jurisdiction, nor, to the best knowledge of the Borrowers, is the subject of any
actual, pending or threatened bankruptcy, insolvency or similar proceedings
under any law of any jurisdiction.
ARTICLE VI
COVENANTS
---------
So long as the Obligations shall remain unpaid, or the Credit Facility
shall remain outstanding, the Borrowers will comply with the following
requirements, unless the Lender shall otherwise consent in writing:
36
Section 6.1 Reporting Requirements. The Borrowers will deliver, or
cause to be delivered, to the Lender each of the following, which shall be in
form and detail acceptable to the Lender:
(a) Annual Financial Statements. As soon as available, and in any
event within 90 days after the end of each fiscal year of the Parent Borrower,
the Borrowers will deliver, or cause to be delivered, to the Lender, the Parent
Borrower's audited financial statements with the unqualified opinion of Xxxx &
Associates LLP or such other accountants as are selected by the Parent Borrower
and acceptable to the Lender, which annual financial statements shall include
the Parent Borrower's balance sheet as at the end of such fiscal year and the
related statements of the Parent Borrower's income, retained earnings and cash
flows for the fiscal year then ended, prepared, if the Lender so requests, on a
consolidating and consolidated basis to include any Affiliates, all in
reasonable detail and prepared in accordance with GAAP, together with (i) copies
of all management letters prepared by such accountants; (ii) a report signed by
such accountants stating that in making the investigations necessary for said
opinion they obtained no knowledge, except as specifically stated, of any
Default or Event of Default and all relevant facts in reasonable detail to
evidence, and the computations as to, whether or not the Parent Borrower is in
compliance with the Financial Covenants; and (iii) a certificate of the Parent
Borrower's chief financial officer, chief operating officer or chief executive
officer stating that such financial statements have been prepared in accordance
with GAAP, fairly represent the Parent Borrower's financial position and the
results of its operations, and whether or not such officer has knowledge of the
occurrence of any Default or Event of Default and, if so, stating in reasonable
detail the facts with respect thereto.
(b) Monthly Financial Statements. As soon as available and in any
event within 25 days after the end of each month, the Borrowers will deliver to
the Lender an unaudited/internal balance sheet and statements of income and
retained earnings of the Parent Borrower as at the end of and for such month and
for the year to date period then ended, prepared, if the Lender so requests, on
a consolidating and consolidated basis to include any Affiliates, in reasonable
detail and stating in comparative form the figures for the corresponding date
and periods in the previous year, all prepared in accordance with GAAP, subject
to year-end audit adjustments; and accompanied by a certificate of the Parent
Borrower's chief financial officer, chief operating officer or chief executive
officer, substantially in the form of Exhibit B hereto stating (i) that such
financial statements have been prepared in accordance with GAAP, subject to
year-end audit adjustments, and fairly represent the Parent Borrower's financial
position and the results of its operations (ii) whether or not such officer has
knowledge of the occurrence of any Default or Event of Default not theretofore
reported and remedied and, if so, stating in reasonable detail the facts with
respect thereto, and (iii) all relevant facts in reasonable detail to evidence,
and the computations as to, whether or not the Parent Borrower is in compliance
with the Financial Covenants.
37
(c) Collateral Reports. Within 25 days after the end of each month
or more frequently if the Lender so requires, the Borrowers will deliver to the
Lender agings of each Parent Borrower's accounts receivable and each Borrower's
accounts payable, an inventory certification report for each Borrower, and a
calculation of each Eligible Borrower's Accounts, Eligible Accounts, Inventory
and Eligible Inventory as at the end of such month or shorter time period (the
"Collateral Reports").
(d) Sales and Collection Reports. If Availability is less than
$750,000 at any time or if a Default Period exists, the Borrowers shall submit
sales and collection reports, including sales, collections and any adjustments
and such other reports as the Lender may reasonably require to support the sales
and collections reports, and shall submit such reports within two (2) days after
the end of each week until Availability has been greater than or equal to
$750,000 at all times for four (4) consecutive weeks.
(e) Projections. Before the beginning of each fiscal year of the
Borrowers, the Borrowers will deliver to the Lender the projected balance sheets
and income statements for each month of such year, each in reasonable detail,
representing the Borrowers' good faith projections and certified by the Parent
Borrower's chief financial officer, chief operating officer, or chief executive
officer as being the most accurate projections available and identical to the
projections used by the Borrowers for internal planning purposes, together with
a statement of underlying assumptions and such supporting schedules and
information as the Lender may in its discretion require.
(f) Litigation. Immediately after the commencement thereof, the
Borrowers will deliver to the Lender notice in writing of all litigation and of
all proceedings before any governmental or regulatory agency affecting any
Borrower (i) of the type described in Section 5.14(c) or (ii) which seek a
monetary recovery against any Borrower in excess of $100,000.
(g) Defaults. As promptly as practicable (but in any event not
later than five business days) after an Officer of a Borrower obtains knowledge
of the occurrence of any Default or Event of Default, the Borrowers will deliver
to the Lender notice of such occurrence, together with a detailed statement by a
responsible Officer of the Parent Borrower of the steps being taken by the
Borrowers to cure the effect thereof.
(h) Plans. As soon as possible, and in any event within 30 days
after the any Borrower knows or has reason to know that any Reportable Event
with respect to any Pension Plan has occurred, the Borrowers will deliver to the
Lender a statement of the Parent Borrower's chief financial officer, chief
operating officer or chief executive officer setting forth details as to such
Reportable Event and the action which the Borrowers propose to take with respect
thereto, together with a copy of the notice of such Reportable Event to the
Pension Benefit Guaranty Corporation. As soon as possible, and in any event
within 10 days after any Borrower fails to make any quarterly contribution
38
required with respect to any Pension Plan under Section 412(m) of the IRC, the
Borrowers will deliver to the Lender a statement of the Parent Borrower's chief
operating officer, chief financial officer or chief executive officer setting
forth details as to such failure and the action which the Borrowers propose to
take with respect thereto, together with a copy of any notice of such failure
required to be provided to the Pension Benefit Guaranty Corporation. As soon as
possible, and in any event with 10 days after any Borrower knows or has reason
to know that it has or is reasonably expected to have any liability under
Section 4201 or 4243 of ERISA for any withdrawal, partial withdrawal,
reorganization or other event under any Multiemployer Plan, such Borrower will
deliver to the Lender a statement of the Parent Borrower's chief operating
officer, chief financial officer or chief executive officer setting forth
details as to such liability and the action which the Borrowers proposes to take
with respect thereto.
(i) Disputes. Promptly upon knowledge thereof, the Borrowers will
deliver to the Lender notice of (i) any disputes or claims by any Borrower's
customers exceeding $100,000 individually or $200,000 in the aggregate during
any fiscal year; (ii) credit memos; (iii) any goods returned to or recovered by
any Borrower.
(j) Officers and Directors. Promptly upon knowledge thereof, the
Borrowers will deliver to the Lender notice any change in the persons
constituting any Borrower's Officers and Directors.
(k) Collateral. Promptly upon knowledge thereof, the Borrowers
will deliver to the Lender notice of any loss of or material damage to any
Collateral or of any substantial adverse change in any Collateral or the
prospect of payment thereof.
(l) Commercial Tort Claims. Promptly upon knowledge thereof, the
Borrowers will deliver to the Lender notice of any commercial tort claims any
Borrower may bring against any person, including the name and address of each
defendant, a summary of the facts, an estimate of the Borrower's damages, copies
of any complaint or demand letter submitted by the Borrowers, and such other
information as the Lender may request.
(m) Intellectual Property.
(i) The Borrowers will give the Lender 30 days prior
written notice of any intent to acquire material Intellectual Property
Rights; except for transfers permitted under Section 6.17, the
Borrowers will give the Lender 30 days prior written notice of any
intent to dispose of material Intellectual Property Rights; and upon
request, shall provide the Lender with copies of all applicable
documents and agreements.
(ii) Promptly upon knowledge thereof, the Borrowers will
deliver to the Lender notice of (A) any Infringement of Intellectual
Property Rights by others, (B) claims that the Borrowers are Infringing
39
another Person's Intellectual Property Rights and (C) any threatened
cancellation, termination or material limitation of Intellectual
Property Rights.
(iii) Promptly upon receipt, the Borrowers will give the
Lender copies of all registrations and filings with respect to
Intellectual Property Rights.
(n) Reports to Owners. Promptly upon their distribution, the
Borrowers will deliver to the Lender copies of all financial statements, reports
and proxy statements which the Borrowers shall have sent to their Owners.
(o) SEC Filings. Promptly after the sending or filing thereof, the
Borrowers will deliver to the Lender copies of all regular and periodic reports
which any Borrower shall file with the Securities and Exchange Commission or any
national securities exchange.
(p) Tax Returns. Promptly upon the Lender's request, copies of the
state and federal tax returns and all schedules thereto and an updated financial
statement of each Owner of a Borrower and each Guarantor.
(q) Violations of Law. Promptly upon knowledge thereof, the
Borrowers will deliver to the Lender notice of any Borrower's violation of any
law, rule or regulation, the non-compliance with which could materially and
adversely affect any Borrower's business or its financial condition.
(r) Other Reports. From time to time, with reasonable promptness,
the Borrowers will deliver to the Lender any and all receivables schedules,
collection reports, deposit records, equipment schedules, copies of invoices to
account debtors, shipment documents and delivery receipts for goods sold, and
such other material, reports, records or information as the Lender may request.
Section 6.2 Financial Covenants.
(a) Minimum Book Net Worth. The Parent Borrower will maintain,
during each period described below, its Book Net Worth, determined as at the end
of each month, at an amount not less than the amount set forth opposite such
period:
------------------------------------------------- ------------------------------------------------
Period Minimum Book Net Worth
------------------------------------------------- ------------------------------------------------
January 1st through March 30th of each year $100,000 less than actual Book Net Worth on the
preceding December 31st
------------------------------------------------- ------------------------------------------------
March 31st through June 29th of each year $225,000 more than the actual Book Net Worth on
the preceding December 31st
------------------------------------------------- ------------------------------------------------
June 30th through September 29th of each year $450,000 more than the actual Book Net Worth on
the preceding December 31st
------------------------------------------------- ------------------------------------------------
40
------------------------------------------------- ------------------------------------------------
Period Minimum Book Net Worth
------------------------------------------------- ------------------------------------------------
September 30th through December 30th of each year $675,000 more than the actual Book Net Worth on
the preceding December 31st
------------------------------------------------- ------------------------------------------------
December 31st of each year $900,000 more than the actual Book Net Worth on
the preceding December 31st
------------------------------------------------- ------------------------------------------------
(b) Minimum Year-to-Date Net Income. The Parent Borrower will
achieve during each period described below, fiscal year-to-date Net Income, of
not less than the amount set forth opposite such period:
------------------------------------------------- ------------------------------------------------
Period Minimum Net Income
------------------------------------------------- ------------------------------------------------
January 1st through March 30th of each year $(100,000)
------------------------------------------------- ------------------------------------------------
March 31st through June 29th of each year $225,000
------------------------------------------------- ------------------------------------------------
June 30th through September 29th of each year $450,000
------------------------------------------------- ------------------------------------------------
September 30th through December 30th of each year $675,000
------------------------------------------------- ------------------------------------------------
December 31st of each year $900,000
------------------------------------------------- ------------------------------------------------
(c) Minimum Net Income. The Parent Borrower will achieve as of the
end of each month, Net Income for the three-month period then ending, of not
less than $(200,000).
(d) Capital Expenditures. The Borrowers will not incur or contract
to incur Capital Expenditures of more than $700,000 in the aggregate during the
2001 fiscal year, or more than $500,000 in the aggregate during any fiscal year
thereafter.
Section 6.3 Permitted Liens; Financing Statements.
(a) No Borrower will create, incur or suffer to exist any Lien
upon or of any of its assets, now owned or hereafter acquired, to secure any
indebtedness; excluding, however, from the operation of the foregoing, the
following (collectively, "Permitted Liens"):
(i) in the case of any of a Borrower's property which is
not Collateral, covenants, restrictions, rights, easements and minor
irregularities in title which do not materially interfere with that
Borrower's business or operations as presently conducted;
(ii) Liens in existence on the date hereof and listed in
Schedule 6.3 hereto, securing indebtedness for borrowed money permitted
under Section 6.4;
41
(iii) the Security Interest and Liens created by the
Security Documents; and
(iv) purchase money Liens relating to the acquisition of
machinery and equipment of a Borrower not exceeding the lesser of cost
or fair market value thereof, not exceeding $100,000 for any one
purchase or $250,000 in the aggregate during any fiscal year, and so
long as no Default Period is then in existence and none would exist
immediately after such acquisition.
(b) No Borrower will amend any financing statements in favor of
the Lender except as permitted by law. Any authorization by the Lender to any
Person to amend financing statements in favor of the Lender shall be in writing.
Section 6.4 Indebtedness. No Borrower will incur, create, assume or
permit to exist any indebtedness or liability on account of deposits or advances
or any indebtedness for borrowed money or letters of credit issued on a
Borrower's behalf, or any other indebtedness or liability evidenced by notes,
bonds, debentures or similar obligations, except:
(a) indebtedness arising hereunder;
(b) indebtedness of the Borrowers in existence on the date hereof
and listed in Schedule 6.4 hereto; and
(c) indebtedness relating to Permitted Liens..
Section 6.5 Guaranties. No Borrower will assume, guarantee, endorse or
otherwise become directly or contingently liable in connection with any
obligations of any other Person, except:
(a) the endorsement of negotiable instruments by a Borrower for
deposit or collection or similar transactions in the ordinary course of
business; and
(b) guaranties, endorsements and other direct or contingent
liabilities in connection with the obligations of other Persons, in existence on
the date hereof and listed in Schedule 6.4 hereto.
Section 6.6 Investments and Subsidiaries. No Borrower will purchase or
hold beneficially any stock or other securities or evidences of indebtedness of,
make or permit to exist any loans or advances to, or make any investment or
acquire any interest whatsoever in, any other Person, including any partnership
or joint venture, except:
(a) investments in direct obligations of the United States of
America or any agency or instrumentality thereof whose obligations constitute
full faith and credit obligations of the United States of America having a
maturity of one year or less, commercial paper issued by U.S. corporations rated
"A-1" or "A-2" by Standard & Poors Corporation or "P-1" or "P-2" by Moody's
42
Investors Service or certificates of deposit or bankers' acceptances having a
maturity of one year or less issued by members of the Federal Reserve System
having deposits in excess of $100,000,000 (which certificates of deposit or
bankers' acceptances are fully insured by the Federal Deposit Insurance
Corporation);
(b) travel advances or loans to a Borrower's Officers and
employees not exceeding at any one time an aggregate of $35,000;
(c) existing officer and employee loans secured by stock of the
Parent Borrower as set out on Schedule 5.5.
(d) loans extended to managers of a Borrower as permitted under
such Borrower's bonus program;
(e) loans to TLF Canada not exceeding $500,000 outstanding at any
time;
(f) equity investment in TLF Canada not exceeding $600,000 at any
time;
(g) advances in the form of progress payments, prepaid rent not
exceeding two months or security deposits; and
(h) current investments in the Subsidiaries in existence on the
date hereof and listed in Schedule 5.5 hereto.
Section 6.7 Dividends and Distributions. No Borrower will declare or
pay any dividends (other than dividends payable solely in stock of the
applicable Borrower) on any class of its stock or make any payment on account of
the purchase, redemption or other retirement of any shares of such stock or make
any distribution in respect thereof, either directly or indirectly.
Section 6.8 Salaries. No Borrower will pay excessive or unreasonable
salaries, bonuses, commissions, consultant fees or other compensation; or
increase the salary, bonus, commissions, consultant fees or other compensation
of any Director, Officer or consultant, or any member of their families, by more
than 15% in any one year, either individually or for all such persons in the
aggregate, or pay any such increase from any source other than profits earned in
the year of payment.
Section 6.9 Books and Records; Inspection and Examination. Each
Borrower will keep accurate books of record and account for itself pertaining to
the Collateral and pertaining to its business and financial condition and such
other matters as the Lender may from time to time request in which true and
complete entries will be made in accordance with GAAP and, upon the Lender's
request, will permit any officer, employee, attorney or accountant for the
Lender to audit, review, make extracts from or copy any and all company and
financial books and records of any Borrower at all times during ordinary
business hours, to send and discuss with account debtors and other obligors
requests for verification of amounts owed to such Borrower, and to discuss such
43
Borrower's affairs with any of its Directors, Officers, employees or agents.
Each Borrower hereby irrevocably authorizes all accountants and third parties to
disclose and deliver to Lender, at the Borrower's expense, all financial
information, books and records, work papers, management reports and other
information in their possession regarding the Borrower. Each Borrower will
permit the Lender, or its employees, accountants, attorneys or agents, to
examine and inspect any Collateral or any other property of such Borrower at any
time during ordinary business hours.
Section 6.10 Account Verification. The Lender may at any time and from
time to time send or require any Borrower to send requests for verification of
accounts or notices of assignment to account debtors and other obligors. The
Lender may also at any time and from time to time telephone account debtors and
other obligors to verify accounts.
Section 6.11 Compliance with Laws.
(a) Each Borrower will (i) comply with the requirements of
applicable laws and regulations, the non-compliance with which would materially
and adversely affect its business or its financial condition and (ii) use and
keep the Collateral, and require that others use and keep the Collateral, only
for lawful purposes, without violation of any federal, state or local law,
statute or ordinance.
(b) Without limiting the foregoing undertakings, each Borrower
specifically agrees that it will comply with all applicable Environmental Laws
and obtain and comply with all permits, licenses and similar approvals required
by any Environmental Laws, and will not generate, use, transport, treat, store
or dispose of any Hazardous Substances in such a manner as to create any
liability or obligation under the common law of any jurisdiction or any
Environmental Law.
Section 6.12 Payment of Taxes and Other Claims. Each Borrower will pay
or discharge, when due, (a) all taxes, assessments and governmental charges
levied or imposed upon it or upon its income or profits, upon any properties
belonging to it (including the Collateral) or upon or against the creation,
perfection or continuance of the Security Interest, prior to the date on which
penalties attach thereto, (b) all federal, state and local taxes required to be
withheld by it, and (c) all lawful claims for labor, materials and supplies
which, if unpaid, might by law become a Lien upon any properties of such
Borrower; provided, that no Borrower will be required to pay any such tax,
assessment, charge or claim whose amount, applicability or validity is being
contested in good faith by appropriate proceedings and for which proper reserves
have been made.
Section 6.13 Maintenance of Properties.
(a) Each Borrower will keep and maintain the Collateral and all of
its other properties necessary or useful in its business in good condition,
repair and working order (normal wear and tear excepted) and will from time to
time replace or repair any worn, defective or broken parts; provided, however,
that nothing in this Section 6.13 shall prevent any Borrower from discontinuing
44
the operation and maintenance of any of its properties if such discontinuance
is, in such Borrower's judgment, desirable in the conduct of its business and
not disadvantageous in any material respect to the Lender. Each Borrower will
take all commercially reasonable steps necessary to protect and maintain its
Intellectual Property Rights.
(b) Each Borrower will defend the Collateral against all Liens,
claims or demands of all Persons (other than the Lender) claiming the Collateral
or any interest therein. Each Borrower will keep all Collateral free and clear
of all Liens except Permitted Liens. Each Borrower will take all commercially
reasonable steps necessary to prosecute any Person Infringing its Intellectual
Property Rights and to defend itself against any Person accusing it of
Infringing any Person's Intellectual Property Rights.
Section 6.14 Insurance. Each Borrower will obtain and at all times
maintain insurance with insurers believed by that Borrower to be responsible and
reputable, in such amounts and against such risks as may from time to time be
required by the Lender, but in all events in such amounts and against such risks
as is usually carried by companies engaged in similar business and owning
similar properties in the same general areas in which that Borrower operates.
Without limiting the generality of the foregoing, each Borrower will at all
times maintain business interruption insurance including coverage for force
majeure and keep all tangible Collateral insured against risks of fire
(including so-called extended coverage), theft, collision (for Collateral
consisting of motor vehicles) and such other risks and in such amounts as the
Lender may reasonably request, with any loss payable to the Lender to the extent
of its interest, and all policies of such insurance shall contain a lender's
loss payable endorsement for the Lender's benefit acceptable to the Lender. All
policies of liability insurance required hereunder shall name the Lender as an
additional insured.
Section 6.15 Preservation of Existence. Each Borrower will preserve and
maintain its existence and all of its rights, privileges and franchises
necessary or desirable in the normal conduct of its business and shall conduct
its business in an orderly, efficient and regular manner.
Section 6.16 Delivery of Instruments, etc. Upon request by the Lender,
each Borrower will promptly deliver to the Lender in pledge all instruments,
documents and chattel paper constituting Collateral, duly endorsed or assigned
by that Borrower.
Section 6.17 Sale or Transfer of Assets; Suspension of Business
Operations. No Borrower will sell, lease, assign, transfer or otherwise dispose
of (i) the stock of any Subsidiary, (ii) all or a substantial part of its
assets, or (iii) any Collateral or any interest therein (whether in one
transaction or in a series of transactions) to any other Person other than the
sale of Inventory in the ordinary course of business and will not liquidate,
dissolve or suspend business operations. No Borrower will transfer any part of
its ownership interest in any Intellectual Property Rights or permit any
agreement under which it has licensed Licensed Intellectual Property to lapse,
except that a Borrower may transfer such rights or permit such agreements to
lapse if it shall have reasonably determined that the applicable Intellectual
Property Rights are no longer useful in its business. If a Borrower transfers
45
any Intellectual Property Rights for value, that Borrower will pay over the
proceeds to the Lender for application to the Obligations. No Borrower will
license any other Person to use any of the Borrowers' Intellectual Property
Rights, except that a Borrower may grant licenses in the ordinary course of its
business in connection with sales of Inventory or provision of services to its
customers.
Section 6.18 Consolidation and Merger; Asset Acquisitions. No Borrower
will consolidate with or merge into any Person, or permit any other Person to
merge into it, or acquire (in a transaction analogous in purpose or effect to a
consolidation or merger) all or substantially all the assets of any other
Person; provided, however, the Borrower may purchase assets of small independent
leather craft retailers, or of similar businesses, in an amount up to $150,000
per transaction and up to $500,000 in the aggregate during any fiscal year so
long as (a) no Default Period is then in existence and no Event of Default would
occur as a result of such purchase, and (b) after subtracting the amount of such
purchase, all trade payables older than 60 days from invoice date, held checks
and book overdrafts, the sum of Availability and cash on hand shall be not less
than $500,000.
Section 6.19 Sale and Leaseback. No Borrower will enter into any
arrangement, directly or indirectly, with any other Person whereby such Borrower
shall sell or transfer any real or personal property, whether now owned or
hereafter acquired, and then or thereafter rent or lease as lessee such property
or any part thereof or any other property which the Borrower intends to use for
substantially the same purpose or purposes as the property being sold or
transferred.
Section 6.20 Restrictions on Nature of Business. No Borrower will
engage in any line of business materially different from that presently engaged
in by the Borrowers and will not purchase, lease or otherwise acquire assets not
related to its business.
Section 6.21 Accounting. No Borrower will adopt any material
change in accounting principles other than as required by GAAP. No Borrower will
adopt, permit or consent to any change in its fiscal year.
Section 6.22 Discounts, etc. After notice from the Lender, no Borrower
will grant any discount, credit or allowance to any customer of a Borrower or
accept any return of goods sold. No Borrower will at any time modify, amend,
subordinate, cancel or terminate the obligation of any account debtor or other
obligor of a Borrower.
Section 6.23 Plans. Unless disclosed to the Lender pursuant to Section
5.12, neither any Borrower nor any ERISA Affiliate will (a) adopt, create,
assume or become a party to any Pension Plan, (b) incur any obligation to
contribute to any Multiemployer Plan, (c) incur any obligation to provide
post-retirement medical or insurance benefits with respect to employees or
former employees (other than benefits required by law) or (d) amend any Plan in
a manner that would materially increase its funding obligations.
46
Section 6.24 Place of Business; Name. No Borrower will transfer its
chief executive office or principal place of business, or move, relocate, close
or sell any business location. No Borrower will permit any tangible Collateral
or any records pertaining to the Collateral to be located in any state or area
in which, in the event of such location, a financing statement covering such
Collateral would be required to be, but has not in fact been, filed in order to
perfect the Security Interest. No Borrower will change its name or jurisdiction
of organization.
Section 6.25 Constituent Documents; S Corporation Status. No Borrower
will amend its Constituent Documents. No Borrower will become an S Corporation.
Section 6.26 Performance by the Lender. If any Borrower at any time
fails to perform or observe any of the foregoing covenants contained in this
Article VI or elsewhere herein, and if such failure shall continue for a period
of ten calendar days after the Lender gives the Parent Borrower written notice
thereof (or in the case of the agreements contained in Sections 6.12 and 6.14,
immediately upon the occurrence of such failure, without notice or lapse of
time), the Lender may, but need not, perform or observe such covenant on behalf
and in the name, place and stead of the applicable Borrower (or, at the Lender's
option, in the Lender's name) and may, but need not, take any and all other
actions which the Lender may reasonably deem necessary to cure or correct such
failure (including the payment of taxes, the satisfaction of Liens, the
performance of obligations owed to account debtors or other obligors, the
procurement and maintenance of insurance, the execution of assignments, security
agreements and financing statements, and the endorsement of instruments); and
the Borrowers shall thereupon pay to the Lender on demand the amount of all
monies expended and all costs and expenses (including reasonable attorneys' fees
and legal expenses) incurred by the Lender in connection with or as a result of
the performance or observance of such agreements or the taking of such action by
the Lender, together with interest thereon from the date expended or incurred at
the Default Rate. To facilitate the Lender's performance or observance of such
covenants of the Borrowers, each Borrower hereby irrevocably appoints the
Lender, or the Lender's delegate, acting alone, as that Borrower's attorney in
fact (which appointment is coupled with an interest) with the right (but not the
duty) from time to time to create, prepare, complete, execute, deliver, endorse
or file in the name and on behalf of that Borrower any and all instruments,
documents, assignments, security agreements, financing statements, applications
for insurance and other agreements and writings required to be obtained,
executed, delivered or endorsed by the Borrower under this Section 6.26.
ARTICLE VII
EVENTS OF DEFAULT, RIGHTS AND REMEDIES
--------------------------------------
Section 7.1 Events of Default. "Event of Default", wherever used
herein, means any one of the following events:
47
(a) Default in the payment of any Obligations when they become due
and payable;
(b) Default in the performance, or breach, of any covenant or
agreement of any Borrower contained in this Agreement;
(c) Any Financial Covenant shall become inapplicable due to the
lapse of time and the failure to amend any such covenant to cover future
periods;
(d) Any Borrower or any Guarantor shall be or become insolvent, or
admit in writing its or his inability to pay its or his debts as they mature, or
make an assignment for the benefit of creditors; or any Borrower or any
Guarantor shall apply for or consent to the appointment of any receiver,
trustee, or similar officer for it or him or for all or any substantial part of
its or his property; or such receiver, trustee or similar officer shall be
appointed without the application or consent of the applicable Borrower or such
Guarantor, as the case may be; or any Borrower or any Guarantor shall institute
(by petition, application, answer, consent or otherwise) any bankruptcy,
insolvency, reorganization, arrangement, readjustment of debt, dissolution,
liquidation or similar proceeding relating to it or him under the laws of any
jurisdiction; or any such proceeding shall be instituted (by petition,
application or otherwise) against any Borrower or any such Guarantor; or any
judgment, writ, warrant of attachment or execution or similar process shall be
issued or levied against a substantial part of the property of any Borrower or
any Guarantor;
(e) A petition shall be filed by or against any Borrower or any
Guarantor under the United States Bankruptcy Code naming that Borrower or such
Guarantor as debtor;
(f) Any representation or warranty made by any Borrower in this
Agreement, by any Guarantor in any guaranty delivered to the Lender, or by any
Borrower (or any of its Officers) or any Guarantor in any agreement,
certificate, instrument or financial statement or other statement contemplated
by or made or delivered pursuant to or in connection with this Agreement or any
such guaranty shall prove to have been incorrect in any material respect when
deemed to be effective;
(g) The rendering against any Borrower of an arbitration award,
final judgment, decree or order for the payment of money in excess of $100,000
individually or $250,000 in the aggregate in any one fiscal year and the
continuance of such arbitration award, judgment, decree or order unsatisfied and
in effect for any period of 30 consecutive days without a stay of execution;
(h) A default under any bond, debenture, note or other evidence of
material indebtedness of any Borrower owed to any Person other than the Lender,
or under any indenture or other instrument under which any such evidence of
indebtedness has been issued or by which it is governed, or under any material
48
lease or other contract, and the expiration of the applicable period of grace,
if any, specified in such evidence of indebtedness, indenture, other instrument,
lease or contract;
(i) Any Reportable Event, which the Lender determines in good
faith might constitute grounds for the termination of any Pension Plan or for
the appointment by the appropriate United States District Court of a trustee to
administer any Pension Plan, shall have occurred and be continuing 30 days after
written notice to such effect shall have been given to the Parent Borrower by
the Lender; or a trustee shall have been appointed by an appropriate United
States District Court to administer any Pension Plan; or the Pension Benefit
Guaranty Corporation shall have instituted proceedings to terminate any Pension
Plan or to appoint a trustee to administer any Pension Plan; or any Borrower or
any ERISA Affiliate shall have filed for a distress termination of any Pension
Plan under Title IV of ERISA; or any Borrower or any ERISA Affiliate shall have
failed to make any quarterly contribution required with respect to any Pension
Plan under Section 412(m) of the IRC, which the Lender determines in good faith
may by itself, or in combination with any such failures that the Lender may
determine are likely to occur in the future, result in the imposition of a Lien
on any Borrower's assets in favor of the Pension Plan; or any withdrawal,
partial withdrawal, reorganization or other event occurs with respect to a
Multiemployer Plan which results or could reasonably be expected to result in a
material liability of a Borrower to the Multiemployer Plan under Title IV of
ERISA.
(j) An event of default shall occur under any Security Document;
(k) Any Borrower shall liquidate, dissolve, terminate or suspend
its business operations or otherwise fail to operate its business in the
ordinary course, or sell or attempt to sell all or substantially all of its
assets, without the Lender's prior written consent;
(l) Default in the payment of any amount owed by any Borrower to
the Lender other than any indebtedness arising hereunder;
(m) Any Guarantor or person signing a support agreement in favor
of the Lender shall repudiate, purport to revoke or fail to perform his
obligations under his guaranty or support agreement in favor of the Lender, any
individual Guarantor shall die or any other Guarantor shall cease to exist;
(n) Any event or circumstance with respect to any Borrower shall
occur such that the Lender shall believe in good faith that the prospect of
payment of all or any part of the Obligations or the performance by that
Borrower under the Loan Documents is impaired or any material adverse change in
the business or financial condition of any Borrower shall occur; or
(o) Any breach, default or event of default by or attributable to
any Affiliate under any agreement between such Affiliate and the Lender shall
occur.
49
Section 7.2 Rights and Remedies. During any Default Period, the Lender
may exercise any or all of the following rights and remedies:
(a) the Lender may, by notice to the Parent Borrower, declare the
Commitment to be terminated, whereupon the same shall forthwith terminate;
(b) the Lender may, by notice to the Parent Borrower, declare the
Obligations to be forthwith due and payable, whereupon all Obligations shall
become and be forthwith due and payable, without presentment, notice of
dishonor, protest or further notice of any kind, all of which each Borrower
hereby expressly waives;
(c) the Lender may, without notice to any Borrower and without
further action, apply any and all money owing by the Lender to any Borrower to
the payment of the Obligations;
(d) the Lender may exercise and enforce any and all rights and
remedies available upon default to a secured party under the UCC, including the
right to take possession of Collateral, or any evidence thereof, proceeding
without judicial process or by judicial process (without a prior hearing or
notice thereof, which each Borrower hereby expressly waives) and the right to
sell, lease or otherwise dispose of any or all of the Collateral (with or
without giving any warranties as to the Collateral, title to the Collateral or
similar warranties), and, in connection therewith, the Borrowers will on demand
assemble the Collateral and make it available to the Lender at a place to be
designated by the Lender which is reasonably convenient to both parties;
(e) the Lender may make demand upon the Borrowers and, forthwith
upon such demand, the Borrowers will pay to the Lender in immediately available
funds for deposit in the Special Account pursuant to Section 2.16 an amount
equal to the aggregate maximum amount available to be drawn under all Letters of
Credit then outstanding, assuming compliance with all conditions for drawing
thereunder;
(f) the Lender may exercise and enforce its rights and remedies
under the Loan Documents; and
(g) the Lender may exercise any other rights and remedies
available to it by law or agreement.
50
Notwithstanding the foregoing, upon the occurrence of an Event of Default
described in subsections (d) or (e) of Section 7.1, the Obligations shall be
immediately due and payable automatically without presentment, demand, protest
or notice of any kind. If the Lender sells any of the Collateral on credit, the
Obligations will be reduced only to the extent of payments actually received. If
the purchaser fails to pay for the Collateral, the Lender may resell the
Collateral and shall apply any proceeds actually received to the Obligations.
Section 7.3 Certain Notices. If notice to the Borrowers of any intended
disposition of Collateral or any other intended action is required by law in a
particular instance, such notice shall be deemed commercially reasonable if
given (in the manner specified in Section 8.5) at least ten calendar days before
the date of intended disposition or other action.
ARTICLE VIII
MISCELLANEOUS
-------------
Section 8.1 Restatement of Old Credit Agreement. This Agreement is
executed for the purpose of amending and restating the Old Credit Agreement.
Section 8.2 Release. Each Borrower, and the Guarantor by signing the
Acknowledgment and Agreement of Guarantor set forth below, hereby absolutely and
unconditionally releases and forever discharges the Lender, the Participants and
any and all parent corporations, subsidiary corporations, affiliated
corporations, insurers, indemnitors, successors and assigns thereof, together
with all of the present and former directors, officers, agents and employees of
any of the foregoing, from any and all claims, demands or causes of action of
any kind, nature or description, whether arising in law or equity or upon
contract or tort or under any state or federal law or otherwise, which a
Borrower or a Guarantor has had, now has or has made claim to have against any
such person for or by reason of any act, omission, matter, cause or thing
whatsoever arising from the beginning of time to and including the date of this
Agreement, whether such claims, demands and causes of action are matured or
unmatured or known or unknown.
Section 8.3 No Waiver; Cumulative Remedies; Compliance with Laws. No
failure or delay by the Lender in exercising any right, power or remedy under
the Loan Documents shall operate as a waiver thereof; nor shall any single or
partial exercise of any such right, power or remedy preclude any other or
further exercise thereof or the exercise of any other right, power or remedy
under the Loan Documents. The remedies provided in the Loan Documents are
cumulative and not exclusive of any remedies provided by law. The Lender may
comply with any applicable state or federal law requirements in connection with
a disposition of the Collateral and such compliance will not be considered
adversely to affect the commercial reasonableness of any sale of the Collateral.
51
Section 8.4 Amendments, Etc. No amendment, modification, termination or
waiver of any provision of any Loan Document or consent to any departure by any
Borrower therefrom or any release of a Security Interest shall be effective
unless the same shall be in writing and signed by the Lender, and then such
waiver or consent shall be effective only in the specific instance and for the
specific purpose for which given. No notice to or demand on any Borrower in any
case shall entitle any Borrower to any other or further notice or demand in
similar or other circumstances.
Section 8.5 Addresses for Notices; Requests for Accounting. Except as
otherwise expressly provided herein, all notices, requests, demands and other
communications provided for under the Loan Documents shall be in writing and
shall be (a) personally delivered, (b) sent by first class United States mail,
(c) sent by overnight courier of national reputation, or (d) transmitted by
telecopy, in each case addressed or telecopied to the party to whom notice is
being given at its address or telecopier number as set forth below next to its
signature or, as to each party, at such other address or telecopier number as
may hereafter be designated by such party in a written notice to the other party
complying as to delivery with the terms of this Section. All such notices,
requests, demands and other communications shall be deemed to have been given on
(a) the date received if personally delivered, (b) when deposited in the mail if
delivered by mail, (c) the date sent if sent by overnight courier, or (d) the
date of transmission if delivered by telecopy, except that notices or requests
to the Lender pursuant to any of the provisions of Article II shall not be
effective until received by the Lender. All requests under Section 9-210 of the
UCC (i) shall be made in a writing signed by a person authorized under Section
2.3(b), (ii) shall be personally delivered, sent by registered or certified
mail, return receipt requested, or by overnight courier of national reputation
(iii) shall be deemed to be sent when received by the Lender and (iv) shall
otherwise comply with the requirements of Section 9-210. The Borrowers request
that the Lender respond to all such requests which on their face appear to come
from an authorized individual and release the Lender from any liability for so
responding. The Borrowers shall pay Lender the maximum amount allowed by law for
responding to such requests.
Section 8.6 Servicing of Credit Facility.
(a) The Lender has entered into a servicing agreement (the
"Servicing Agreement") with the Servicer to service and enforce the Loan
Documents and collect the Obligations on the Lender's behalf. Pursuant to the
Servicing Agreement, the Lender has authorized the Servicer to take certain
actions, perform certain duties and exercise certain powers on the Lender's
behalf under the provisions of the Loan Documents and any other instruments and
agreements referred to in this Agreement.
(b) The Servicer shall have no duties or responsibilities to the
Borrowers, but only to the Lender and then only as expressly set forth in the
Servicing Agreement. Without limiting the generality of the foregoing, the
Servicer shall have no obligation to make any loans or advances to the
Borrowers. Neither the Servicer nor any of its Officers, Directors, employees or
52
agents shall be liable for any action taken or omitted by them hereunder or in
connection herewith, unless caused by its or their willful misconduct. The
Servicer's duties shall be mechanical and administrative in nature; nothing in
this Agreement, express or implied, is intended to or shall be so construed as
to impose upon the Servicer any obligations with respect to the Loan Documents
except as expressly set forth herein. Neither the Borrowers nor any Guarantor
shall in any way be construed to be a third party beneficiary of any
relationship between the Servicer and the Lender.
(c) The Servicer shall be entitled to rely, and shall be fully
protected in relying, upon any communication whether written or oral believed by
it to be genuine and correct and to have been signed, sent or made by the proper
Person, and, with respect to all legal matters pertaining to this Agreement and
its duties hereunder, upon advice of counsel selected by it.
(d) The Borrowers shall be entitled to rely upon any communication
whether written or oral sent or made by the Servicer for and on behalf of the
Lender with respect to all matters pertaining to the Loan Documents and the
Borrowers' duties and obligations hereunder, unless and until the Parent
Borrower receives written notice from the Lender that the Servicer is no longer
servicing the Credit Facility.
(e) The Servicer shall hold and be the custodian of the Loan
Documents on the Lender's behalf for so long as the Servicer is servicing the
Credit Facility.
(f) The Servicing Agreement may be terminated at any time without
prior notice to or consent of the Borrowers. Upon termination of the Servicing
Agreement and failure to replace the Servicing Agreement with a new servicing
agreement, all references herein to the Servicer shall thereafter mean and refer
to the Lender.
Section 8.7 Further Documents. Each Borrower will from time to time
execute and deliver or endorse any and all instruments, documents, conveyances,
assignments, security agreements, financing statements, control agreements and
other agreements and writings that the Lender may reasonably request in order to
secure, protect, perfect or enforce the Security Interest or the Lender's rights
under the Loan Documents (but any failure to request or assure that the
applicable Borrower executes, delivers or endorses any such item shall not
affect or impair the validity, sufficiency or enforceability of the Loan
Documents and the Security Interest, regardless of whether any such item was or
was not executed, delivered or endorsed in a similar context or on a prior
occasion).
Section 8.8 Costs and Expenses. The Borrowers shall pay on demand all
costs and expenses, including reasonable attorneys' fees, incurred by the Lender
in connection with the Obligations, this Agreement, the Loan Documents, any
Letter of Credit and any other document or agreement related hereto or thereto,
and the transactions contemplated hereby, including all such costs, expenses and
fees incurred in connection with the negotiation, preparation, execution,
53
amendment, administration, performance, collection and enforcement of the
Obligations and all such documents and agreements and the creation, perfection,
protection, satisfaction, foreclosure or enforcement of the Security Interest.
Section 8.9 Indemnity. In addition to the payment of expenses pursuant
to Section 8.8, the Borrowers shall indemnify, defend and hold harmless the
Lender, and any of its participants, parent corporations, subsidiary
corporations, affiliated corporations, successor corporations, and all present
and future officers, directors, employees, attorneys and agents of the foregoing
(the "Indemnitees") from and against any of the following (collectively,
"Indemnified Liabilities"):
(i) any and all transfer taxes, documentary taxes,
assessments or charges made by any governmental authority by reason of
the execution and delivery of the Loan Documents or the making of the
Advances;
(ii) any claims, loss or damage to which any Indemnitee
may be subjected if any representation or warranty contained in Section
5.14 proves to be incorrect in any respect or as a result of any
violation of the covenant contained in Section 6.11(b); and
(iii) any and all other liabilities, losses, damages,
penalties, judgments, suits, claims, costs and expenses of any kind or
nature whatsoever (including the reasonable fees and disbursements of
counsel) in connection with the foregoing and any other investigative,
administrative or judicial proceedings, whether or not such Indemnitee
shall be designated a party thereto, which may be imposed on, incurred
by or asserted against any such Indemnitee, in any manner related to or
arising out of or in connection with the making of the Advances and the
Loan Documents or the use or intended use of the proceeds of the
Advances.
If any investigative, judicial or administrative proceeding arising from any of
the foregoing is brought against any Indemnitee, upon such Indemnitee's request,
the Borrowers, or counsel designated by the Parent Borrower and satisfactory to
the Indemnitee, will resist and defend such action, suit or proceeding to the
extent and in the manner directed by the Indemnitee, at the Borrowers' sole
costs and expense. Each Indemnitee will use its best efforts to cooperate in the
defense of any such action, suit or proceeding. If the foregoing undertaking to
indemnify, defend and hold harmless may be held to be unenforceable because it
violates any law or public policy, the Borrowers shall nevertheless make the
maximum contribution to the payment and satisfaction of each of the Indemnified
Liabilities which is permissible under applicable law. The Borrowers'
obligations under this Section 8.9 shall survive the termination of this
Agreement and the discharge of the Borrowers' other obligations hereunder.
Section 8.10 Participants. The Lender and its participants, if
any, are not partners or joint venturers, and the Lender shall not have any
liability or responsibility for any obligation, act or omission of any of its
participants. All rights and powers specifically conferred upon the Lender may
54
be transferred or delegated to any of the Lender's participants, successors or
assigns.
Section 8.11 Execution in Counterparts; Telefacsimile Execution. This
Agreement and other Loan Documents may be executed in any number of
counterparts, each of which when so executed and delivered shall be deemed to be
an original and all of which counterparts, taken together, shall constitute but
one and the same instrument. Delivery of an executed counterpart of this
Agreement by telefacsimile shall be equally as effective as delivery of an
original executed counterpart of this Agreement. Any party delivering an
executed counterpart of this Agreement by telefacsimile also shall deliver an
original executed counterpart of this Agreement but the failure to deliver an
original executed counterpart shall not affect the validity, enforceability, and
binding effect of this Agreement.
Section 8.12 Retention of Borrowers' Records. The Lender shall have no
obligation to maintain any electronic records or any documents, schedules,
invoices, agings, or other papers delivered to the Lender by any Borrower or in
connection with the Loan Documents for more than four months after receipt by
the Lender.
Section 8.13 Binding Effect; Assignment; Complete Agreement; Exchanging
Information. The Loan Documents shall be binding upon and inure to the benefit
of each Borrower and the Lender and their respective successors and assigns,
except that no Borrower will have the right to assign its rights thereunder or
any interest therein without the Lender's prior written consent. To the extent
permitted by law, each Borrower waives and will not assert against any assignee
any claims, defenses or set-offs which such Borrower could assert against the
Lender. This Agreement shall also bind all Persons who become a party to this
Agreement as a borrower. This Agreement, together with the Loan Documents,
comprises the complete and integrated agreement of the parties on the subject
matter hereof and supersedes all prior agreements, written or oral, on the
subject matter hereof. Without limiting the Lender's right to share information
regarding any Borrower and its Affiliates with the Lender's participants,
accountants, lawyers and other advisors, the Lender, Xxxxx Fargo & Company, and
all direct and indirect subsidiaries of Xxxxx Fargo & Company, may exchange any
and all information they may have in their possession regarding any Borrower and
its Affiliates, and each Borrower any right of confidentiality it may have with
respect to such exchange of such information.
Section 8.14 Severability of Provisions. Any provision of this
Agreement which is prohibited or unenforceable shall be ineffective to the
extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof.
Section 8.15 Headings. Article, Section and subsection headings in this
Agreement are included herein for convenience of reference only and shall not
constitute a part of this Agreement for any other purpose.
55
Section 8.16 Governing Law; Jurisdiction, Venue; Waiver of Jury Trial.
THE PARTIES AGREE THAT THE LAW OF THE STATE OF MINNESOTA (OTHER THAN CONFLICT OF
LAWS RULES OF THE STATE OF MINNESOTA) SHALL BE APPLICABLE TO AND GOVERN ALL
ASPECTS OF THIS TRANSACTION AND, WITHOUT LIMITING THE GENERALITY OF THE
FOREGOING, THE PARTIES AGREE THAT ALL DOCUMENTS AND AGREEMENTS EXECUTED AND
DELIVERED IN CONNECTION WITH THIS AGREEMENT INCLUDING, WITHOUT LIMITATION, ALL
MATTERS PERTAINING TO THE VALIDITY OR ENFORCEABILITY OF SUCH DOCUMENTS AND
AGREEMENTS AS WELL AS ALL MATTERS PERTAINING TO THE INTERPRETATION OR
CONSTRUCTION OF SUCH DOCUMENTS AND AGREEMENTS, SHALL BE DETERMINED UNDER AND
GOVERNED BY THE LAWS (OTHER THAN CONFLICT OF LAWS RULES) OF THE STATE OF
MINNESOTA. FURTHER, THE PARTIES AGREE THAT THE TRANSACTIONS CONTEMPLATED BY THE
LOAN DOCUMENTS AND THE SUBJECT MATTER OF SUCH TRANSACTIONS BEAR A REASONABLE
RELATION TO THE STATE OF MINNESOTA. THE PARTIES HERETO HEREBY (i) CONSENT TO THE
PERSONAL JURISDICTION OF THE STATE AND FEDERAL COURTS LOCATED IN THE STATE OF
MINNESOTA IN CONNECTION WITH ANY CONTROVERSY RELATED TO THIS AGREEMENT; (ii)
WAIVE ANY ARGUMENT THAT VENUE IN ANY SUCH FORUM IS NOT CONVENIENT, (iii) AGREE
THAT ANY LITIGATION INITIATED BY THE LENDER OR ANY BORROWER IN CONNECTION WITH
THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS MAY BE VENUED IN EITHER THE DISTRICT
COURT OF HENNEPIN COUNTY, MINNESOTA, OR THE UNITED STATES DISTRICT COURT,
DISTRICT OF MINNESOTA, FOURTH DIVISION; AND (iv) AGREE THAT A FINAL JUDGMENT IN
ANY SUCH SUIT, ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN
OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY
LAW. THE PARTIES WAIVE ANY RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING
BASED ON OR PERTAINING TO THIS AGREEMENT.
56
THE PARTIES WAIVE ANY RIGHT TO TRIAL BY JURY IN ANY ACTION OR
PROCEEDING BASED ON OR PERTAINING TO THIS AGREEMENT.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized as of the date
first above written.
The Leather Factory, Inc. THE LEATHER FACTORY, INC., a
0000 X. Xxxx 000 Xxxxx Xxxxxxxx corporation; XXXXXXX,
X.X. Xxx 00000 XXXXXXX & XXXXXXX, XXX., a New
Ft. Xxxxx, Xxxxx 00000 York corporation; THE LEATHER
Telecopier: (000) 000-0000 FACTORY, INC., a Nevada
Attention: Xxxx Xxxxxxxx corporation; THE LEATHER FACTORY
OF NEVADA INVESTMENTS INC., a
With a copy to: Nevada corporation; TANDY
LEATHER COMPANY, INC., a Nevada
Xx. Xxxxxxx Xxxxxx corporation; TANDY LEATHER
Xxx, Warren, Rosenfield, Kaitcer & Xxxxx COMPANY INVESTMENTS, INC., a
4420 West Xxxxxxx Nevada corporation; HI-LINE
Ft. Xxxxx, Xxxxx 00000 LEATHER & MANUFACTURING COMPANY,
Telecopier: (000) 000-0000 a California corporation; and
THE LEATHER FACTORY, INC., an
Arizona corporation
By /s/ Xxxx Xxxxxxxx
------------------------------
Xxxx Xxxxxxxx
Its Chief Executive Officer
The Leather Factory, Inc. THE LEATHER FACTORY, L.P., a
0000 X. Xxxx 000 Xxxxx Xxxxx limited partnership
X.X. Xxx 00000
Xx. Xxxxx, Xxxxx 00000 By THE LEATHER FACTORY, INC., a
Telecopier: (000) 000-0000 Nevada corporation Its General
Attention: Xxxx Xxxxxxxx Partner
With a copy to:
Xx. Xxxxxxx Xxxxxx By /s/ Xxxx Xxxxxxxx
Xxx, Warren, Rosenfield, Kaitcer & Xxxxx ------------------------------
4420 West Xxxxxxx Xxxx Xxxxxxxx
Ft. Xxxxx, Xxxxx 00000 Its Chief Executive Officer
Telecopier: (000) 000-0000
57
The Leather Factory, Inc. TANDY LEATHER COMPANY, L.P., a
0000 X. Xxxx 000 Xxxxx Xxxxx limited partnership
X.X. Xxx 00000
Xx. Xxxxx, Xxxxx 00000 By TANDY LEATHER COMPANY, INC.,
Telecopier: (000) 000-0000 a Nevada corporation Its General
Attention: Xxxx Xxxxxxxx Partner
With a copy to: By /s/ Xxxx Xxxxxxxx
------------------------------
Xxxx Xxxxxxxx
Xx. Xxxxxxx Xxxxxx Its Chief Executive Officer
Xxx, Warren, Rosenfield, Kaitcer & Xxxxx
0000 Xxxx Xxxxxxx
Xx. Xxxxx, Xxxxx 00000
Telecopier: (000) 000-0000
Xxxxx Fargo Bank Minnesota, National XXXXX FARGO BANK MINNESOTA,
Association NATIONAL ASSOCIATION
c/o Wells Fargo Business Credit, Inc.
0000 Xxxxxxx Xxxx Xxxx., Xxxxx 000
Xxxxx, Xxxxx 00000
Telecopier: (000) 000-0000 By /s/ Xxxxxx X. Xxxxxx
Attention: Xxxxxx X. Xxxxxxx ------------------------------
Xxxxxx X. Xxxxxx
Its Senior Vice President
58
ACKNOWLEDGMENT AND AGREEMENT OF GUARANTOR
The undersigned, a guarantor of the indebtedness of The Leather
Factory, Inc., a Delaware corporation, Xxxxxxx, Xxxxxxx & Company, Inc., a New
York corporation, The Leather Factory, Inc., a Nevada corporation, The Leather
Factory Of Nevada Investments Inc., Tandy Leather Company, Inc., a Nevada
corporation, Tandy Leather Company Investments, Inc., a Nevada corporation, The
Leather Factory, L.P., a Texas limited partnership, Tandy Leather Company, L.P.,
a Texas limited partnership, Hi-Line Leather & Manufacturing Company, a
California corporation, The Leather Factory, Inc., an Arizona corporation to
Xxxxx Fargo Bank Minnesota, National Association pursuant to an Amended and
Restated Guaranty of even date herewith, hereby (i) acknowledges receipt of a
copy of the foregoing Amended and Restated Credit and Security Agreement (the
"Credit Agreement") and (ii) consents to the terms (including without limitation
the release set forth in Section 8.2 of the Credit Agreement) and execution
thereof.
Dated: March 20, 0000
XXX XXXXXXX XXXXXXX XX XXXXXX, LTD.
By /s/ Xxxx Xxxxxxxx
------------------
Xxxx Xxxxxxxx
Its Chief Executive Officer
Table of Exhibits and Schedules
Exhibit A Form of Revolving Note
Exhibit B Compliance Certificate
Exhibit C Premises
Exhibit D Form of Notice of Borrowing
Exhibit E Form of Notice of Conversion of Advances
Exhibit F Form of Notice to Continue LIBO Rate Advances
Schedule 3.6 Financing Statement Information
Schedule 5.1 Trade Names, Chief Executive Office, Principal
Place of Business, and Locations of Collateral
Schedule 5.2 Capitalization and Organizational Chart
Schedule 5.5 Subsidiaries
Schedule 5.11 Intellectual Property Disclosures
Schedule 6.3 Permitted Liens
Schedule 6.4 Permitted Indebtedness and Guaranties
Exhibit A to Amended and Restated
---------------------------------
Credit and Security Agreement
-----------------------------
REVOLVING NOTE
$7,500,000 Minneapolis, Minnesota
March 20, 2002
For value received, the undersigned, THE LEATHER FACTORY, INC., a
Delaware corporation, XXXXXXX, XXXXXXX & COMPANY, INC., a New York corporation,
THE LEATHER FACTORY, INC., a Nevada corporation, THE LEATHER FACTORY OF NEVADA
INVESTMENTS INC., TANDY LEATHER COMPANY, INC., a Nevada corporation, TANDY
LEATHER COMPANY INVESTMENTS, INC., a Nevada corporation, THE LEATHER FACTORY,
L.P., a Texas limited partnership, TANDY LEATHER COMPANY, L.P., a Texas limited
partnership, HI-LINE LEATHER & MANUFACTURING COMPANY, a California corporation,
THE LEATHER FACTORY, INC., an Arizona corporation (collectively, the "Borrowers"
and each a "Borrower"), hereby promise to pay on the Termination Date under the
Credit Agreement (defined below), to the order of XXXXX FARGO BANK MINNESOTA,
NATIONAL ASSOCIATION, a Minnesota corporation (the "Lender"), at its main office
in Minneapolis, Minnesota, or at any other place designated at any time by the
holder hereof, in lawful money of the United States of America and in
immediately available funds, the principal sum of Seven Million Five Hundred
Thousand Dollars and No Cents ($7,500,000) or, if less, the aggregate unpaid
principal amount of all Revolving Advances made by the Lender to any Borrower
under the Credit Agreement (defined below) together with interest on the
principal amount hereunder remaining unpaid from time to time, computed on the
basis of the actual number of days elapsed and a 360-day year, from the date
hereof until this Note is fully paid at the rate from time to time in effect
under the Amended and Restated Credit and Security Agreement of even date
herewith (the "Credit Agreement") by and between the Lender and the Borrowers.
The principal hereof and interest accruing thereon shall be due and payable as
provided in the Credit Agreement. This Note may be prepaid only in accordance
with the Credit Agreement.
This Note is issued pursuant, and is subject, to the Credit
Agreement, which provides, among other things, for acceleration hereof. This
Note is the Revolving Note referred to in the Credit Agreement. This Note is
issued in substitution for and replacement of, but not in payment of, the Old
Revolving Note (as defined in the Credit Agreement). This Note is secured, among
other things, pursuant to the Credit Agreement and the Security Documents as
therein defined, and may now or hereafter be secured by one or more other
security agreements, mortgages, deeds of trust, assignments or other instruments
or agreements.
The Borrowers shall pay all costs of collection, including
attorneys' fees and legal expenses if this Note is not paid when due, whether or
not legal proceedings are commenced.
Presentment or other demand for payment, notice of dishonor and
protest are expressly waived.
THE LEATHER FACTORY, L.P., THE LEATHER FACTORY, INC., a
a Texas limited partnership Delaware corporation; XXXXXXX,
XXXXXXX & COMPANY, INC., a New
By THE LEATHER FACTORY, INC., York corporation; THE LEATHER
a Nevada corporation FACTORY, INC., a Nevada
Its General Partner corporation; THE LEATHER FACTORY
OF NEVADA INVESTMENTS INC., a
By /s/ Xxxx Xxxxxxxx Nevada corporation; TANDY
------------------- LEATHER COMPANY, INC., a Nevada
Xxxx Xxxxxxxx corporation; TANDY LEATHER
Its Chief Executive Officer COMPANY INVESTMENTS, INC., a
Nevada corporation; HI-LINE
TANDY LEATHER COMPANY, L.P., LEATHER & MANUFACTURING COMPANY,
a Texas limitedpartnership a California corporation; and
THE LEATHER FACTORY, INC., an
By TANDY LEATHER COMPANY, INC., Arizona corporation
a Nevada corporation
Its General Partner By /s/ Xxxx Xxxxxxxx
----------------------------
By /s/ Xxxx Xxxxxxxx Xxxx Xxxxxxxx
------------------ Its Chief Executive Officer
Xxxx Xxxxxxxx
Its Chief Executive Officer
A-2
Exhibit B to Amended and Restated
---------------------------------
Credit and Security Agreement
-----------------------------
Compliance Certificate
To: Xxxxxx X. Xxxxxxx
Xxxxx Fargo Bank Minnesota, National Association
Date: ___________________________, 200___
Subject: The Leather Factory, Inc., Xxxxxxx, Xxxxxxx & Company, Inc., The
Leather Factory, Inc., The Leather Factory Of Nevada Investments Inc.,
Tandy Leather Company, Inc., Tandy Leather Company Investments, Inc.,
The Leather Factory, L.P., Tandy Leather Company, L.P., Hi-Line Leather
& Manufacturing Company, The Leather Factory, Inc.
Financial Statements
In accordance with our Amended and Restated Credit and Security
Agreement dated as of March 20, 2002 (the "Credit Agreement"), attached are the
financial statements of The Leather Factory, Inc., a Delaware corporation,
Xxxxxxx, Xxxxxxx & Company, Inc., a New York corporation, The Leather Factory,
Inc., a Nevada corporation, The Leather Factory Of Nevada Investments Inc.,
Tandy Leather Company, Inc., a Nevada corporation, Tandy Leather Company
Investments, Inc., a Nevada corporation, The Leather Factory, L.P., a Texas
limited partnership, Tandy Leather Company, L.P., a Texas limited partnership,
Hi-Line Leather & Manufacturing Company, a California corporation, The Leather
Factory, Inc., an Arizona corporation (collectively, the "Borrowers" and each a
"Borrower") as of and for ________________, 200___ (the "Reporting Date") and
the year-to-date period then ended (the "Current Financials"). All terms used in
this certificate have the meanings given in the Credit Agreement.
I certify that the Current Financials have been prepared in accordance
with GAAP, subject to year-end audit adjustments, and fairly present the
Borrowers' financial condition as of the date thereof.
Events of Default. (Check one):
-----------------
|_| The undersigned does not have knowledge of the occurrence of a
Default or Event of Default under the Credit Agreement except
as previously reported in writing to the Lender.
|_| The undersigned has knowledge of the occurrence of a Default
or Event of Default under the Credit Agreement not previously
reported in writing to the Lender and attached hereto is a
statement of the facts with respect to thereto. The Borrowers
acknowledge that pursuant to Section 2.9(c) of the Credit
Agreement, the Lender may impose the Default Rate at any time
during the resulting Default Period.
Financial Covenants. I further hereby certify as follows:
-------------------
1. Minimum Book Net Worth. Pursuant to Section 6.2(a) of the
Credit Agreement, as of the Reporting Date, the Parent Borrower's Book Net Worth
was $____________ which |_| satisfies |_| does not satisfy the requirement that
such amount be not less than $_____________ on the Reporting Date as set forth
in table below:
------------------------------------------------- ---------------------------------------------------
Period Minimum Book Net Worth
------------------------------------------------- ---------------------------------------------------
January 1st through March 30th of each $100,000 less than actual Book Net Worth on the
year preceding December 31st
------------------------------------------------- ---------------------------------------------------
March 31st through June 29th of each $225,000 more than the actual Book Net Worth on the
year preceding December 31st
------------------------------------------------- ---------------------------------------------------
June 30th through September 29th of $450,000 more than the actual Book Net Worth on the
each year preceding December 31st
------------------------------------------------- ---------------------------------------------------
September 30th through December 30th of $675,000 more than the actual Book Net Worth on the
each year preceding December 31st
------------------------------------------------- ---------------------------------------------------
December 31st of each year $900,000 more than the actual Book Net Worth on the
preceding December 31st
------------------------------------------------- ---------------------------------------------------
2. Minimum Year-to-Date Net Income. Pursuant to Section 6.2(b) of
the Credit Agreement, the Parent Borrower's fiscal year-to-date Net Income for
the ________ period ending on the Reporting Date, was $____________, which |_|
satisfies |_| does not satisfy the requirement that such amount be not less than
$_____________ during such period as set forth in table below:
----------------------------- ------------------- ---------------------------------------------------
Period Minimum Net Income
------------------------------------------------- ---------------------------------------------------
January 1st through March 30th of each year $(100,000)
------------------------------------------------- ---------------------------------------------------
March 31st through June 29th of each year $225,000
------------------------------------------------- ---------------------------------------------------
June 30th through September 29th of each year $450,000
------------------------------------------------- ---------------------------------------------------
September 30th through December 30th of each year $675,000
------------------------------------------------- ---------------------------------------------------
December 31st of each year $900,000
------------------------------------------------- ---------------------------------------------------
3. Minimum Net Income. Pursuant to Section 6.2(c) of the Credit
Agreement, the Parent Borrower's Net Income for the three-month period ending on
the Reporting Date, was $____________, which |_| satisfies |_| does not satisfy
the requirement that such amount be not less than $(200,000).
4. Capital Expenditures. Pursuant to Section 6.2(d) of the Credit
Agreement, for the year-to-date period ending on the Reporting Date, the
Borrowers have expended or contracted to expend during the fiscal year ended
______________, 200___, for Capital Expenditures, $__________________ in the
aggregate, which |_| satisfies |_| does not satisfy the requirement that such
expenditures not exceed $700,000 in the aggregate during the 2001 fiscal year,
or more than $500,000 in the aggregate during any fiscal year thereafter.
5. Salaries. As of the Reporting Date, the Borrowers |_| are |_|
are not in compliance with Section 6.8 of the Credit Agreement concerning
salaries.
Attached hereto are all relevant facts in reasonable detail to
evidence, and the computations of the financial covenants referred to above.
These computations were made in accordance with GAAP.
THE LEATHER FACTORY, INC., a Delaware
corporation
By ____________________________
Its Chief Financial Officer
B-3
Exhibit C to Amended and Restated
---------------------------------
Credit and Security Agreement
-----------------------------
Premises
The Premises referred to in the Amended and Restated Credit and
Security Agreement are described as follows:
------ ----------------------------------- ------ -----------------------------------
Xxxx # Xxxxxxxx Xxxx # Xxxxxxxx
------ ----------------------------------- ------ -----------------------------------
01 The Leather Factory, L.P. 02 The Leather Factory, L.P.
0000 Xxxxxxxx Xxxxxx 0000 Xxxxxx Xxxxxx
Xxxxxxxxxxx, XX 00000 Xxxxxx, XX 00000
------ ----------------------------------- ------ -----------------------------------
The Leather Factory, L.P. The Leather Factory, L.P.
03 0000 Xxxxx Xxxxxxx Xxxxxx 04 0000 Xxxx Xxxx 000 Xxxxx
Xxxxxxxxxx, XX 00000 Xxxx Xxxxx, XX 00000
------ ----------------------------------- ------ -----------------------------------
The Leather Factory, L.P. The Leather Factory, L.P.
05 0000 Xxxxx Xxxxxx Xxxxxx 06 0000 X.X. 00xx Xxxxxx
Xxxxxx, XX 00000 Xxx Xxxxxx, XX 00000
------ ----------------------------------- ------ -----------------------------------
The Leather Factory, L.P. The Leather Factory, L.P.
07 000 Xxxxx 00xx Xxxxxx 08 2341 East Xxxxxxx
Xxxxxxx, XX 00000 Xxxxxxxxxxx, XX 00000
------ ----------------------------------- ------ -----------------------------------
The Leather Factory, L.P. The Leather Factory, L.P.
09 28 West Xxxxx Avenue 10 2412 Xxxxxxxxxx, NE
Xxxxxxx, XX 00000 Xxxxxxxxxxx, XX 00000
------ ----------------------------------- ------ -----------------------------------
The Leather Factory, L.P. The Leather Factory, L.P.
11 0000 Xxxxx Xxxxx Xxxxxx 12 0000-X Xxxx Xxxxxx
Xxxx Xxxx Xxxx, XX 00000 Xxxxxxx Xxxx, XX 00000
------ ----------------------------------- ------ -----------------------------------
The Leather Factory, L.P. The Leather Factory, L.P.
13 4901-A Rio Vista 14 0000 Xxxxx Xxxxxx
Xxxxx, XX 00000 Xxx Xxxxxxx, XX 00000
------ ----------------------------------- ------ -----------------------------------
The Leather Factory, L.P. The Leather Factory, L.P.
15 0000 Xxxxx Xxxxxx Xxxxx 16 0000 Xxxxxxx Xxxx, Xxxxx 000
Xxxxxxxx, XX 00000 Xx Xxxx, XX 00000
------ ----------------------------------- ------ -----------------------------------
The Leather Factory, L.P. The Leather Factory, L.P.
17 000 Xxxx 00xx Xxxxxx 18 0000 Xxxxx Xxxxxxxx Xxxxxx
Xxxxxxx, XX 00000 Xxxxxxx, XX 00000
------ ----------------------------------- ------ -----------------------------------
The Leather Factory, L.P. The Leather Factory, L.P.
19 2435 West Pawnee 20 0000 Xxxxxxxx Xxxxxx
Xxxxxxx, XX 00000 Xxx Xxxxxxx, XX 00000
------ ----------------------------------- ------ -----------------------------------
The Leather Factory, L.P. The Leather Factory, L.P.
21 00000 X.X. Xxxxxxxx Xxx 22 0000 Xxxxx Xxxxx Xxxxxx
Xxxxxxxx, XX 00000 Xxxxxxxxx, XX 00000
------ ----------------------------------- ------ -----------------------------------
------ ----------------------------------- ------ -----------------------------------
Xxxx # Xxxxxxxx Xxxx # Xxxxxxxx
------ ----------------------------------- ------ -----------------------------------
The Leather Factory, L.P. The Leather Factory, L.P.
23 000 Xxxxx 00xx Xxxxxx 24 0000 Xxxxxxx Xxxx
Xxxxxxxx, XX 00000 Xxxxxx, XX 00000
------ ----------------------------------- ------ -----------------------------------
The Leather Factory, L.P. The Leather Factory, L.P.
25 0000 Xxxx 00xx Xxxxxx 26 0000 Xxxxx Xxxxxxx
Xxxxxx, XX 00000 Xxxxxxxx Xxxx, Xxxxx 00000-0000
------ ----------------------------------- ------ -----------------------------------
The Leather Factory, L.P. The Leather Factory, L.P.
27 0000 Xxxxxxxx Xxxxxxx #C-100 28 0000 Xxxxx Xxxx
Xxxxxxxx, Xxxxx 00000-0000 Xxxxx, Xxxxxxxx 00000
------ ----------------------------------- ------ -----------------------------------
Xxxxxxx, Xxxxxxx & Company, Inc. The Leather Factory of Canada, Ltd.
00 0000-00xx Xxxxxx 70 000 Xxxx Xxxxxx Xxxxxx Xxxx
Xxxx Xxxxxx Xxxx, XX 00000 Xxxxxxxx, Xxxxxxxx X0X XX0
------ ----------------------------------- ------ -----------------------------------
The Leather Factory of Canada, Ltd. Tandy Leather Company, L.P.
71 0000 Xxxxxx Xxxx 101 0000 X. Xxxxx Xxxxxx
Xxxxxxxxxxx, Xxxxxxx X0X 0X0 Xxxx Xxxxx, Xxxxx 00000-0000
------ ----------------------------------- ------ -----------------------------------
102 Tandy Leather Company, L.P. 103 Tandy Leather Company, L.P.
0000 Xxxxxxxxx 00xx Xxxxxx 000 Xxxxx Xxxxxxx Xxxxxx
Xxxxxxxx Xxxx, Xxxxxxxx 00000 Xxxxx, Xxxxx 00000
------ ----------------------------------- ------ -----------------------------------
C-2
Exhibit D to Amended and Restated
---------------------------------
Credit and Security Agreement
-----------------------------
NOTICE OF BORROWING
-------------, -------
TO: Xxxxx Fargo Bank Minnesota, National Association
c/x Xxxxx Fargo Business Credit, Inc.
0000 Xxxxxxx Xxxx Xxxx., Xxxxx 000
Xxxxx, Xxxxx 00000
Telecopier: (000) 000-0000
Attention: Xxxxxx X. Xxxxxxx
We refer to that certain Amended and Restated Credit and Security
Agreement dated as of March 20, 2002 (as amended or modified to date, the
"Credit Agreement") by and between The Leather Factory, Inc., a Delaware
corporation, Xxxxxxx, Xxxxxxx & Company, Inc., a New York corporation, The
Leather Factory, Inc., a Nevada corporation, The Leather Factory Of Nevada
Investments Inc., Tandy Leather Company, Inc., a Nevada corporation, Tandy
Leather Company Investments, Inc., a Nevada corporation, The Leather Factory,
L.P., a Texas limited partnership, Tandy Leather Company, L.P., a Texas limited
partnership, Hi-Line Leather & Manufacturing Company, a California corporation,
The Leather Factory, Inc., an Arizona corporation and Xxxxx Fargo Bank
Minnesota, National Association Capitalized terms used herein but not otherwise
defined shall have the same meanings assigned to them in the Credit Agreement.
Pursuant to Section 2.3(b) of the Credit Agreement, we hereby request
or confirm our request for an Advance on the date, of the type(s) and in the
amount(s) specified below.
Interest Period
(LIBO Rate
Amount of Advance Type of Advance Date of Borrowing Advances Only)
----------------- --------------- ----------------- ---------------
$
THE LEATHER FACTORY, INC., a Delaware
corporation
By
-----------------------------------
Its
----------------------------------
Exhibit E to Amended and Restated
---------------------------------
Credit and Security Agreement
-----------------------------
NOTICE OF CONVERSION TO LIBO RATE ADVANCES
-------------, -------
TO: Xxxxx Fargo Bank Minnesota, National Association
c/x Xxxxx Fargo Business Credit, Inc.
0000 Xxxxxxx Xxxx Xxxx., Xxxxx 000
Xxxxx, Xxxxx 00000
Telecopier: (000) 000-0000
Attention: Xxxxxx X. Xxxxxxx
We refer to that certain Amended and Restated Credit and Security
Agreement dated as of March 20, 2002 (as amended or modified to date, the
"Credit Agreement") by and between The Leather Factory, Inc., a Delaware
corporation, Xxxxxxx, Xxxxxxx & Company, Inc., a New York corporation, The
Leather Factory, Inc., a Nevada corporation, The Leather Factory Of Nevada
Investments Inc., Tandy Leather Company, Inc., a Nevada corporation, Tandy
Leather Company Investments, Inc., a Nevada corporation, The Leather Factory,
L.P., a Texas limited partnership, Tandy Leather Company, L.P., a Texas limited
partnership, Hi-Line Leather & Manufacturing Company, a California corporation,
The Leather Factory, Inc., an Arizona corporation and Xxxxx Fargo Bank
Minnesota, National Association Capitalized terms used herein but not otherwise
defined shall have the same meanings assigned to them in the Credit Agreement.
Pursuant to Section 2.4(a) of the Credit Agreement, we hereby request
or confirm our request that Floating Rate Advances in the aggregate amounts
specified below be converted to LIBO Rate Advances on the date(s) and for the
Interest Period(s) specified below.
Amount of Floating Rate
Advances To Be Converted Date of Conversion Interest Period
------------------------ ------------------ ---------------
$
THE LEATHER FACTORY, INC., a Delaware
corporation
By
-----------------------------------
Its
----------------------------------
E-2
Exhibit F to Amended and Restated
---------------------------------
Credit and Security Agreement
-----------------------------
NOTICE TO CONTINUE LIBO RATE ADVANCE
-------------, -------
TO: Xxxxx Fargo Bank Minnesota, National Association
c/x Xxxxx Fargo Business Credit, Inc.
0000 Xxxxxxx Xxxx Xxxx., Xxxxx 000
Xxxxx, Xxxxx 00000
Telecopier: (000) 000-0000
Attention: Xxxxxx X. Xxxxxxx
We refer to that certain Amended and Restated Credit and Security
Agreement dated as of March 20, 2002 (as amended or modified to date, the
"Credit Agreement") by and between The Leather Factory, Inc., a Delaware
corporation, Xxxxxxx, Xxxxxxx & Company, Inc., a New York corporation, The
Leather Factory, Inc., a Nevada corporation, The Leather Factory Of Nevada
Investments Inc., Tandy Leather Company, Inc., a Nevada corporation, Tandy
Leather Company Investments, Inc., a Nevada corporation, The Leather Factory,
L.P., a Texas limited partnership, Tandy Leather Company, L.P., a Texas limited
partnership, Hi-Line Leather & Manufacturing Company, a California corporation,
The Leather Factory, Inc., an Arizona corporation and Xxxxx Fargo Bank
Minnesota, National Association Capitalized terms used herein but not otherwise
defined shall have the same meanings assigned to them in the Credit Agreement.
Pursuant to Section 2.4(b) of the Credit Agreement, we hereby request
or confirm our request that LIBO Rate Advances in the aggregate amount(s)
specified below be renewed on the date(s) and for the Interest Period(s)
specified below.
Amount of LIBO Rate Date of
Advances to be Renewed Expiring Interest Period New Interest Period
---------------------- ------------------------ -------------------
$
THE LEATHER FACTORY, INC., a Delaware
corporation
By
-----------------------------------
Its
----------------------------------
Schedule 3.6 to Amended and Restated
------------------------------------
Credit and Security Agreement
-----------------------------
Financing Statement Information
------------------------------------------------------------- --------------------------------------------------------
Name, address and employer identification Name, address and
number of Debtor: number of Debtor:
The Leather Factory, Inc., a Delaware corporation The Leather Factory, L.P., a Texas limited partnership
0000 X. Xxxx 000 Xxxxx 0000 X. Xxxx 000 Xxxxx
X.X. Xxx 00000 X.X. Xxx 00000
Xx. Xxxxx, Xxxxx 00000 Ft. Xxxxx, Xxxxx 00000
Employer Identification No. 00-0000000 Employer Identification No. 00-0000000
Organization Identification No. 2390602 Organization Identification No. 14407810
------------------------------------------------------------- --------------------------------------------------------
Name, address and employer identification Name, address and employer identification
number of Debtor: number of Debtor:
The Leather Factory, Inc., an Arizona corporation Xxxxxxx, Xxxxxxx & Company, Inc.
0000 X. Xxxx 000 Xxxxx c/o The Leather Factory, Inc.
X.X. Xxx 00000 0000 X. Xxxx 000 Xxxxx
Xx. Xxxxx, Xxxxx 00000 X.X. Xxx 00000
Employer Identification No. 00-0000000 Ft. Xxxxx, Xxxxx 00000
Organization Identification No. 01831844 Employer Identification No. 00-0000000
Organization Identification No. N/A
------------------------------------------------------------- --------------------------------------------------------
Name, address and employer identification Name, address and employer identification
number of Debtor: number of Debtor:
Hi-Line Leather & Manufacturing Company The Leather Factory, Inc., a Nevada corporation
c/o The Leather Factory, Inc. c/o The Leather Factory, Inc.
0000 X. Xxxx 000 Xxxxx 0000 X. Xxxx 000 Xxxxx
X.X. Xxx 00000 X.X. Xxx 00000
Xx. Xxxxx, Xxxxx 00000 Ft. Xxxxx, Xxxxx 00000
Employer Identification No. 00-0000000 Employer Identification No. 00-0000000
Organization Identification No. CO202932 Organization Identification No. D32939-2000
------------------------------------------------------------- --------------------------------------------------------
------------------------------------------------------------- --------------------------------------------------------
Name, address and employer identification Name, address and employer identification
number of Debtor: number of Debtor:
The Leather Factory of Nevada Investments, Inc., a Nevada Tandy Leather Company, Inc., a Nevada corporation
corporation c/o The Leather Factory, Inc.
c/o The Leather Factory, Inc. 0000 X. Xxxx 000 Xxxxx
0000 X. Xxxx 000 Xxxxx X.X. Xxx 00000
X.X. Xxx 00000 Xx. Xxxxx, Xxxxx 00000
Ft. Xxxxx, Xxxxx 00000 Employer Identification No. 00-0000000
Employer Identification No. 00-0000000 Organization Identification No. C32944-2000
Organization Identification No. D32879-2000
------------------------------------------------------------- --------------------------------------------------------
Name, address and employer identification Name, address and employer identification
number of Debtor: number of Debtor:
Tandy Leather Company Investments, Inc., a Nevada corporation Tandy Leather Company, L.P., a Texas limited partnership
c/o The Leather Factory, Inc. c/o The Leather Factory, Inc.
0000 X. Xxxx 000 Xxxxx 0000 X. Xxxx 000 Xxxxx
X.X. Xxx 00000 X.X. Xxx 00000
Xx. Xxxxx, Xxxxx 00000 Ft. Xxxxx, Xxxxx 00000
Employer Identification No. 00-0000000 Employer Identification No. 00-0000000
Organization Identification No. C32877-2000 Organization Identification No. 14425210
------------------------------------------------------------- --------------------------------------------------------
Name, address and employer identification
number of Secured Party:
Xxxxx Fargo Bank Minnesota, National Association
c/x Xxxxx Fargo Business Credit, Inc.
0000 Xxxxxxx Xxxx Xxxx. Xxxxx 000
Xxxxx, Xxxxx 00000
Federal Tax Identification No. 00-0000000
------------------------------------------------------------- --------------------------------------------------------
-2-
Schedule 5.1 to Amended and Restated
------------------------------------
Credit and Security Agreement
-----------------------------
Trade Names, Chief Executive Office, Principal Place of
Business, and Locations of Collateral
Trade Names
-----------
The Leather Factory, Inc.
Xxxxxxx, Xxxxxxx & Company, Inc.
Hi-Line Leather & Manufacturing Company
The Leather Factory
Royal Crown Custom Leathers
Midas Leathercraft Tool Company
Tejas Lace
Midas Metals
Tandy Leather Company
Chief Executive Office/Principal Place of Business
--------------------------------------------------
0000 Xxxx Xxxx 000 Xxxxx
Xxxx Xxxxx, Xxxxx 00000
Other Inventory and Equipment Locations
---------------------------------------
See locations as listed on Exhibit C hereof
Schedule 5.2 to Amended and Restated
------------------------------------
Credit and Security Agreement
-----------------------------
Capitalization and Organizational Chart
Capitalization
---------------------------- ----------------------------- ----------------------------------
Type/Class/Series of Stock Number of authorized shares Number of issued and outstanding
shares
---------------------------- ----------------------------- ----------------------------------
Common 25,000,000 10,011,161
---------------------------- ----------------------------- ----------------------------------
Preferred 20,000,000 None
---------------------------- ----------------------------- ----------------------------------
Describe any outstanding subscriptions, options, warrants, calls, contracts,
--------------------------------------------------------------------------------
demands, commitments, or convertible securities.
------------------------------------------------
The shares beneficially owned by Xx. Xxxxxx and Xx. Xxxxxx are held as
community property.
Xxxxx X. Xxxxxxxxx also holds an option to acquire 200,000 shares at
approximately $.44 per share pursuant to a consulting agreement with the
Company. In May 1998 Xx. Xxxxxxxxx exercised an option to acquire 100,000 shares
which were concurrently donated to the Xxxxxxxxx Foundation, of which Xx.
Xxxxxxxxx is President and sole Trustee. Both the Foundation and Xx. Xxxxxxxxx
disclaim ownership of the share or options owned by the other.
The Trustee of the Employee's Stock Ownership Plan & Trust ("ESOP")
votes the shares held by ESOP which are allocated to participant accounts, as
directed by the participants or beneficiaries of the ESOP and, except in certain
limited circumstances, may acquire and dispose of the assets of the ESOP only as
the ESOP Committee of the ESOP directs. The ESOP Committee is made up of
officers and other employee participants of the Company and presently consists
of Xxxxxx X. Xxxxxx, Xxxxx X. Xxxxxx, Xxxxxxx Xxxxxx, Xxxxxxxx X. Xxxxx, Xxxxx
Xxxxxxxx and Xxx Xxxxxxxx. As members of this Committee, such persons may be
deemed to share investment power with respect to the allocated shares held by
the ESOP. Each of the members of the ESOP Committee disclaims any beneficial
ownership of the securities held by the ESOP except for those that have been
allocated to such member as a participant in the ESOP. The total number of
shares held by the ESOP includes 400,123 shares which are beneficially owned by
Directors and the above-names Executive Officers and are reflected in the table
as being owned by such persons.
Stock Option Plans
------------------
The Company has outstanding options to purchase its common stock under
the 1995 Stock Option Plan for officers and key management employees and the
1995 Director Non-qualified Stock Option Plan for non-employee directors. The
plan for employees provides for the granting of either qualified incentive stock
options or non-qualified options at the discretion of the Compensation Committee
of the Board of Directors. Options are granted at the fair market value of the
underlying common stock at the date of grant. Employee options vest over a
five-year period while the director options vest after six months. All options
expire ten years from the date of grant and are exercisable at any time after
vesting. The Company has reserved 1,100,000 shares of common stock for issuance
under these plans, and at December 31, 2001, 2000 and 1999, there were 116,000;
587,000; and 647,000; respectively, in un-optioned shares available for future
grants.
A summary of stock option transactions for the years ended December 31,
2000, 1999, and 1998, is as follows:
2001 2000 1999
---------------------- ---------------------- ----------------------
Weighted Weighted Weighted
Average Average Average
Option Exercise Option Exercise Option Exercise
Shares Price Shares Price Shares Price
--------- --------- --------- --------- --------- ---------
Outstanding at January 31 458,000 $ 0.814 453,000 $ 0.779 543,000 0.758
Granted 477,000 1.361 60,000 0.958 10,000 0.690
Forfeited or expired (6,000) 0.751 -- -- (100,000) 0.656
Exchanged -- -- -- -- -- --
Exercised (83,000) 0.761 (55,000) 0.676 -- --
--------- --------- --------- --------- --------- ---------
Outstanding at December 31 846,000 $ 1.128 458,000 $ 0.814 453,000 $ 0.779
========= ========= ========= ========= ========= =========
Exercisable at end of year 844,000 $ 1.123 358,000 $ 0.820 318,000 $ 0.813
========= ========= ========= ========= ========= =========
Weighted-average fair value of
Options granted during year $ 0.81 $ 0.61 $ 0.45
========= ========= =========
The following table summarizes outstanding options into groups based
upon exercise price ranges at December 31, 2001:
Options Outstanding Options Exercisable
---------------------------------- ----------------------------------
Weighted Weighted Weighted Weighted
Average Average Average Average
Option Exercise Maturity Option xercise Maturity
Exercise Price Range Shares Price (Years) Shares Price (Years)
-------------------- --------- --------- --------- --------- --------- ---------
$0.75 or Less 42,000 $ 0.584 6.29 42,000 $ 0.584 6.29
More than $0.75 and
Less Than $1.00 315,000 0.832 4.54 315,000 0.832 4.54
More than $1.00 489,000 1.365 9.67 487,000 1.358 9.69
--------- --------- --------- --------- --------- ---------
846,000 $ 1.128 7.59 844,000 $ 1.123 7.60
========= ========= ========= ========= ========= =========
Warrants
--------
In connection with the issuance of a Subordinated Debenture in 1997,
which has since then been satisfied in its entirety, the Company issued warrants
-2-
to acquire up to 100,000 shares of Common Stock at $.54 per share to certain
unrelated individuals. The warrants may be exercised at anytime until expiration
on November 21, 2002.
Warrants to acquire up to 200,000 shares of common stock at
approximately $0.44 per share were issued in conjunction with a consulting
agreement to an unrelated individual in August 1998. The warrants may be
exercised at anytime until expiration on August 3, 2003. The fair value for
these warrants was estimated at the date of grant using the Black Scholes option
pricing model with the following weighted-average assumptions: risk-free
interest rate of 5.0%; dividend yield of 0%; volatility factor of .645; and an
expected life of 3 years. The estimated fair value of the warrants of $40,000
was recorded as an expense in 1998.
Organizational Chart
The Leather Factory, Inc., a Delaware corporation (the "TLF Delaware")
Xxxxxxx, Xxxxxxx & Company, Inc., a New York corporation ("Xxxxxxx Xxxxxxx")
The Leather Factory of Canada, Ltd. ("TLF Canada")
The Leather Factory, Inc., a Nevada corporation ("TLF Nevada")
The Leather Factory of Nevada Investments, Inc., a Nevada corporation ("TLF
Investments")
Tandy Leather Company, Inc., a Nevada corporation ("Tandy Nevada")
Tandy Leather Company Investments, Inc., a Nevada corporation ("Tandy
Investments")
The Leather Factory, L.P., a Texas limited partnership ("TLF Texas LP")
Tandy Leather Company, L.P., a Texas limited partnership ("Tandy Texas LP")
The Leather Factory, Inc., an Arizona corporation ("TLF Arizona")
Hi-Line Leather & Manufacturing Company, a California corporation ("Hi-Line")
------------
TLF Delaware
------------
--------------- ---------- ------------- --------------- -----------------
Xxxxxxx Xxxxxxx XX Canada Hi-Line TLF Investments Tandy Investments
--------------- ---------- ------------- --------------- -----------------
TLF Nevada Tandy Nevada
--------------- -----------------
--------------- -----------------
TLF Texas XX Xxxxx Texas LP
--------------- -----------------
---------------
TLF Arizona
---------------
-3-
Schedule 5.5 to Amended and Restated
------------------------------------
Credit and Security Agreement
-----------------------------
SUBSIDIARIES
The Leather Factory of Canada, Ltd.
OFFICER AND EMPLOYEE LOANS SECURED
BY STOCK OF PARENT BORROWER
Xxxx Xxxxx - $52,783.09 (balance as of December 31, 2001)
Schedule 5.11 to Amended and Restated
-------------------------------------
Credit and Security Agreement
-----------------------------
INTELLECTUAL PROPERTY DISCLOSURES
[SEE ATTACHED]
Schedule 6.3 to Amended and Restated
------------------------------------
Credit and Security Agreement
-----------------------------
Permitted Liens
UCC liens securing the Permitted Indebtedness as listed on Schedule 6.4 hereof
Schedule 6.4 to Amended and Restated
------------------------------------
Credit and Security Agreement
-----------------------------
Permitted Indebtedness and Guaranties
Indebtedness
------------------ ---------------- ------------- ---------- ------------------------
Creditor Principal Amount Maturity Date Monthly Collateral
Payment
------------------ ---------------- ------------- ---------- ------------------------
AC Financial Corp. $65,150.00 August 2002 $2,599.00 Computer Equipment
------------------ ---------------- ------------- ---------- ------------------------
Toyota Financial $18,676.48 February 2004 $571.57 Forklift (Serial #61536)
------------------ ---------------- ------------- ---------- ------------------------
Guaranties
----------
NONE
