EXHIBIT 10.9
LOAN AND SECURITY AGREEMENT
DATED AS OF DECEMBER 28, 1999
AMONG
GENERAL ELECTRIC CAPITAL CORPORATION
AS LENDER
AND
CD WAREHOUSE, INC.
AND
COMPACT DISCS MANAGEMENT, INC.
AS BORROWERS
INDEX OF EXHIBITS AND SCHEDULES
-------------------------------
Schedule A - Definitions
Schedule B - Lender's and Borrowers' Addresses for Notices
Schedule C - Letters of Credit
Schedule D - Cash Management System
Schedule E - Fees and Expenses
Schedule F - Schedule of Documents
Schedule G - Financial Covenants
Disclosure Schedule (3.2) - Places of Business; Corporate Names
Disclosure Schedule (3.6) - Real Estate
Disclosure Schedule (3.7) - Stock; Affiliates
Disclosure Schedule (3.12) - ERISA
Disclosure Schedule (3.13) - Litigation
Disclosure Schedule (3.14) - Intellectual Property
Disclosure Schedule (3.16) - Environmental Matters
Disclosure Schedule (3.17) - Insurance
Disclosure Schedule (3.19) - Contracts (Offset Risk)
Disclosure Schedule (5(b)) - Indebtedness
Disclosure Schedule (5(e)) - Liens
Disclosure Schedule (6.1) - Actions to Perfect Liens
Exhibit A - Form of Notice of Revolving Credit Advance and Borrowing Base
Certificate
Exhibit B - Other Reports and Information
Exhibit C - Inventory Rollforward and Reconciliation
Exhibit D - Form of Accounts Payable Analysis
Exhibit E - Form of Revolving Credit Note
Exhibit F - Form of Store Account Agreement
Exhibit G - Form of Blocked Account Agreement
Exhibit H - Form of Secretarial Certificate
Exhibit I - Form of Power of Attorney
Exhibit J - Form of Certificate of Compliance
Exhibit K - Form of Lockbox Agreement
Exhibit L - Form of Landlord's Waiver and Consent (Warehouse Locations)
Exhibit M - Form of Landlord's Waiver and Consent (Store Locations)
Exhibit N - Form of Joint and Several Guarantee
Exhibit 0 - Form of Opinion of Counsel to Borrower
Exhibit P - Intentionally Deleted
Exhibit Q - Form of Standard Payoff Letter
Exhibit R - Form of U.C.C. Schedule
Exhibit S - Form of Payment of Proceeds Letter
GE Capital
TRANSACTION SUMMARY AS OF THE DATE OF THIS AGREEMENT
--------------------------------------------------------------------------------
REVOLVING CREDIT LOAN
Maximum Amount: $ 15,000,000
--------------
Term: 3 years
----
Revolving Credit Rate: Index Rate plus 2.75%
---------------------
Letter of Credit Subfacility: n/a
----------------------------
Borrowing Base: the lesser of (a) the sum at such
-------------- time of sixty five percent (65%) of
the value of such Borrower's Eligible
Inventory consisting of eligible pre-
owned compact disc inventory and
seventy percent (70%) of the value of
such Borrower's Eligible Inventory
consisting of eligible new compact
disc inventory, in each case as
determined by Lender, valued on a
first-in, first-out basis (at the
lower of cost or marker), or (b)
ninety percent (90%) of the GOB value
of the pre-owned and new compact disc
inventory of such Borrower as
reflected on the most recent
Inventory Appraisal obtained by
Lender.
FEES
Closing Fee: $112,500
-----------
Collateral Monitoring Fee: $25,000 per annum
-------------------------
Unused Line Fee: .25%
---------------
Letter of Credit Fee: n/a
--------------------
Prepayment Fee: 3% in year one; 2% in year two; and
-------------- 1% in year three.
The Loans described generally here are established and governed by the terms and
conditions set forth below in this Agreement and the other Loan Documents, and
if there is any conflict between this general description and the express terms
and conditions below or elsewhere in the Loan Documents, such other express
terms and conditions shall control.
--------------------------------------------------------------------------------
This LOAN AND SECURITY AGREEMENT is dated as of December 28, 1999, and
agreed to by and among CD WAREHOUSE. INC., a Delaware corporation ("Leading
Borrower"), and COMPACT DISCS MANAGEMENT, INC., a Delaware corporation ("Second
Borrower" (Leading Borrower and Second Borrower being collectively referred to
as "Borrowers" and each a "Borrower"), any other Credit Party executing this
Agreement, and GENERAL ELECTRIC CAPITAL CORPORATION, a New York corporation
("Lender").
Recitals
A. Borrowers desire to obtain the Loans and other financial
accommodations from Lender and Lender is willing to provide the Loans and
accommodations all in accordance with the terms of this Agreement.
B. Capitalized terms used herein shall have the meanings assigned to
them in Schedule A and, for purposes of this Agreement and the other Loan
----------
Documents, the rules of construction set forth in Schedule A shall govern. All
----------
Schedules, Attachments, Addenda and Exhibits (collectively, "Appendices")
hereto, or expressly identified to this Agreement, are incorporated herein by
reference, and taken together with this Agreement, constitute but a single
agreement.
Agreement
NOW, THEREFORE, in consideration of the premises and the mutual covenants
hereinafter contained, the parties hereto agree as follows:
1. Amount and Terms of Credit
1.1 Loans. (a) Subject to the terms and conditions of this Agreement,
-----
from the Closing Date and until the Commitment Termination Date (i) Lender
agrees (A) to make available advances (each, a "Revolving Credit Advance") and
(B) to incur Letter of Credit Obligations, in an aggregate outstanding amount
for any Borrower not to exceed the Borrowing Availability of such Borrower, and
(ii) any Borrower may at the request of Leading Borrower as agent for such
Borrower from time to time borrow, repay and reborrow, and may cause Lender to
incur Letter of Credit Obligations, under this Section 1.1.
(b) Leading Borrower, as agent for each Borrower, shall request each
Revolving Credit Advance by written notice to Lender substantially in the form
of Exhibit A (each a "Notice of Revolving Credit Advance") given no later than
---------
12:00 noon (New York City time) on the Business Day of the proposed Revolving
Credit Advance. Lender shall be fully protected under this Agreement in relying
upon, and shall be entitled to rely upon, (i) any Notice of Revolving Credit
Advance believed by Lender to be genuine, and (ii) the assumption that the
Persons making electronic requests or executing and delivering a Notice of
Revolving Credit Advance were duly authorized, unless the responsible individual
acting thereon for Lender shall have actual knowledge to the contrary. As an
accommodation to Borrowers, Lender may permit
1
telephonic or facsimile requests for a Revolving Credit Advance and electronic
or facsimile transmittal of instructions, authorizations, agreements or reports
to Lender by any Borrower. Unless each Borrower specifically directs Lender in
writing not to accept or act upon telephonic, facsimile or electronic
communications from any Borrower, Lender shall have no liability to any Borrower
for any loss or damage suffered by any Borrower as a result of Lender's honoring
of any requests, execution of any instructions, authorizations or agreements or
reliance on any reports communicated to it telephonically, by facsimile or
electronically and purporting to have been sent to Lender by any Borrower and
Lender shall have no duty to verify the origin of any such communication or the
identity or authority of the Person sending it. The Revolving Credit Loan shall
be evidenced by, and be repayable in accordance with the terms of, the Revolving
Credit Note and this Agreement.
(c) In making any Loan hereunder Lender, shall be entitled to rely upon
the most recent Borrowing Base Certificate delivered to Lender by such Borrower
and other information available to Lender. Lender shall be under no obligation
to make any further Revolving Credit Advance to any Borrower or incur any other
Obligation if any Borrower shall have failed to deliver a Borrowing Base
Certificate to Lender by the time specified in Section 4.1(b).
(d) Notwithstanding anything to the contrary contained in this Agreement,
including Schedule C, Lender shall have no obligations to incur Letter of Credit
----------
Obligations for the account of Borrower.
1.2 Term and Prepayment. Upon the Commitment Termination Date the
-------------------
obligation of Lender to make Revolving Credit Advances and extend other credit
hereunder shall immediately terminate and Borrowers shall pay to Lender in full,
in cash: (i) all outstanding Revolving Credit Advances and all accrued but
unpaid interest thereon; (ii) an amount sufficient to enable Lender to hold cash
collateral as specified in Schedule C and (iii) all other non-contingent
----------
Obligations due to or incurred by Lender.
(b) If the Revolving Credit Loan attributable to any Borrower shall at
any time exceed such Borrower's Borrowing Availability, then such Borrower shall
immediately repay the Revolving Credit Loan in the amount of such excess.
(c) Each Borrower shall have the right, at any time upon 30 days prior
written notice to Lender to (i) terminate voluntarily Borrowers' right to
receive or benefit from, and Lender's obligation to make and to incur, Revolving
Credit Advances and Letter of Credit Obligations and (ii) prepay all of the
Obligations. The effective date of termination of the Revolving Credit Loan
specified in such notice shall be the Commitment Termination Date. If any
Borrower exercises the right of termination and prepayment, or if Lender's
obligation to make Loans is terminated for any reason prior to the Stated Expiry
Date then in effect (including as a result of the occurrence of a Default),
Borrowers shall pay to Lender the applicable Prepayment Fee.
1.3 Use of Proceeds. Borrowers shall use the proceeds of the Loans to
---------------
refinance on the Closing Date certain outstanding Indebtedness as provided in
Section 2.1(b) and for working capital and other general corporate purposes.
2
1.4 Single Loan. The Loans and all of the other Obligations of any
-----------
Borrower to Lender shall constitute one general obligation of such Borrower
secured by all of the Collateral.
1.5 Interest (a) Each Borrower shall pay interest to Lender on the
--------
aggregate outstanding Revolving Credit Advances attributable to such Borrower at
a floating rate equal to the Index Rate plus two and seventy five hundredths
percent (2.75 %) per annum (the "Revolving Credit Rate"). All computations of
interest, and all calculations of the Letter of Credit Fee, shall be made by
Lender on the basis of a three hundred and sixty (360) day year, in each case
for the actual number of days occurring in the period for which such interest or
fee is payable. Each determination by Lender of an interest rate hereunder shall
be conclusive and binding for all purposes, absent manifest error. In no event
will Lender charge interest at a rate that exceeds the highest rate of interest
permissible under any law that a court of competent jurisdiction shall, in a
final determination, deem applicable.
(b) Interest shall be payable on the outstanding Revolving Credit
Advances (i) in arrears for the preceding calendar month on the first day of
each calendar month, (ii) on the Commitment Termination Date, and (iii) if any
interest accrues or remains payable after the Commitment Termination Date, upon
demand by Lender.
(c) Effective upon the occurrence of any Event of Default and for so long
as any Event of Default shall be continuing, the Revolving Credit Rate and the
Letter of Credit Fee shall automatically be increased by two percentage points
(2%) per annum (such increased rate, the "Default Rate"), and all outstanding
Obligations, including unpaid interest and Letter of Credit Fees, shall continue
to accrue interest from the date of such Event of Default at the Default Rate
applicable to such Obligations.
(d) If any interest or other payment (including Unused Line Fees, Letter
of Credit Fees and Collateral Monitoring Fees) to Lender under this Agreement
becomes due and payable on a day other than a Business Day, such payment date
shall be extended to the next succeeding Business Day and interest thereon shall
be payable at the then applicable rate during such extension.
1.6 Cash Management System. On or prior to the Closing Date and until the
----------------------
Termination Date, each Borrower will establish and maintain the cash management
system described in Schedule D. All payments in respect of the Collateral shall
----------
be made to or deposited in the accounts described in Schedule D in accordance
----------
with the terms thereof.
1.7 Fees. Borrowers agree to pay to Lender the Fees set forth in
----
Schedule E.
1.8 Receipt of Payments. Each Borrower shall make each payment under this
-------------------
Agreement (not otherwise made pursuant to Section 1.9) without set-off,
counterclaim or deduction and free and clear of all Taxes not later than 12:00
noon (New York City time) on the day when due in lawful money of the United
States of America in immediately available funds to the Collection Account. If
any Borrower shall be required by law to deduct any Taxes from any payment to
Lender under any Loan Document, then the amount payable to Lender shall
3
be increased so that, after making all required deductions, Lender receives an
amount equal to that which it would have received had no such deductions been
made. For purposes of computing interest and Fees, all payments shall be deemed
received by Lender 1 Business Day following receipt of immediately available
funds in the Collection Account. For purposes of determining the Borrowing
Availability, payments shall be deemed received by Lender upon receipt of
immediately available funds in the Collection Account.
1.9 Application and Allocation of Payments. Each Borrower irrevocably
--------------------------------------
agrees that Lender shall have the continuing and exclusive right to apply any
and all payments against the then due and payable Obligations in such order as
Lender may deem advisable. Lender is authorized to, and at its option may
(without prior notice or precondition and at any time or times), but shall not
be obligated to, make or cause to be made Revolving Credit Advances on behalf of
any Borrower for: (a) payment of all Fees, expenses, indemnities, charges,
costs, principal, interest, or other Obligations owing by such Borrower under
this Agreement or any of the other Loan Documents, (b) the payment, performance
or satisfaction of any of such Borrower's obligations with respect to
preservation of the Collateral or otherwise under this Agreement, or (c) any
premium in whole or in part required in respect of any of the policies of
insurance required by this Agreement, even if the making of any such Revolving
Credit Advance causes the outstanding balance of the Revolving Credit Loan
attributable to any Borrower to exceed such Borrower's Borrowing Availability,
and each Borrower agrees to repay immediately, in cash, any amount by which the
Revolving Credit Loan attributable to such Borrower exceeds its Borrowing
Availability.
1.10 Accounting. Lender is authorized to record on its books and records
----------
the date and amount of each Loan and each payment of principal thereof and such
recordation shall constitute prima facie evidence of the accuracy of the
information so recorded. Lender shall provide Borrowers on a monthly basis a
statement and accounting of such recordations but any failure on the part of the
Lender to keep any such recordation (or any errors therein) or to send a
statement thereof to any Borrower shall not in any manner affect the obligation
of any Borrower to repay (with applicable interest) the Loans made to such
Borrower under this Agreement. Except to the extent that any Borrower shall,
within 30 days after such statement and accounting is received, notify Lender in
writing of any objection such Borrower may have thereto (stating with
particularity the basis for such objection), such statement and accounting shall
be deemed final, binding and conclusive upon such Borrower, absent manifest
error.
1.11 Indemnity. Each Borrower and each other Credit Party executing this
---------
Agreement jointly and severally agree to indemnify and hold Lender and its
Affiliates, and their respective employees, attorneys and agents (each, an
"Indemnified Person"), harmless from and against any and all suits, actions,
proceedings, claims, damages, losses, liabilities and expenses of any kind or
nature whatsoever (including attorneys' fees and disbursements and other costs
of investigation or defense, including those incurred upon any appeal) which may
be instituted or asserted against or incurred by any such Indemnified Person as
the result of credit having been extended, suspended or terminated under this
Agreement and the other Loan Documents or with respect to the execution,
delivery, enforcement, performance and administration of, or in any other way
arising out of or relating to, this Agreement and the other Loan Documents or
any other documents or transactions contemplated by or referred to herein or
therein and any actions
4
or failures to act with respect to any of the foregoing, including any and all
product liabilities, Environmental Liabilities, Taxes and legal costs and
expenses arising out of or incurred in connection with disputes between or among
any parties to any of the Loan Documents (collectively, "Indemnified
Liabilities"), except to the extent that any such Indemnified Liability is
finally determined by a court of competent jurisdiction to have resulted solely
from such Indemnified Person's gross negligence or willful misconduct. NO
INDEMNIFIED PERSON SHALL BE RESPONSIBLE OR LIABLE TO ANY CREDIT PARTY, ANY
SUCCESSOR, ASSIGNEE OR THIRD PARTY BENEFICIARY OR ANY OTHER PERSON ASSERTING
CLAIMS DERIVATIVELY THROUGH SUCH PARTY, FOR ANY ACT OR FAILURE TO ACT UNDER ANY
POWER OF ATTORNEY OR FOR INDIRECT, PUNITIVE, EXEMPLARY OR CONSEQUENTIAL DAMAGES
WHICH MAY BE ALLEGED AS A RESULT OF CREDIT HAVING BEEN EXTENDED, SUSPENDED OR
TERMINATED UNDER THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR AS A RESULT OF ANY
OTHER TRANSACTION CONTEMPLATED HEREUNDER OR THEREUNDER.
1.12 Borrowing Base: Reserves. The Borrowing Base of each Borrower shall
------------------------
be determined by Lender (including the eligibility of Accounts and Inventory)
based on the most recent Borrowing Base Certificate delivered to Lender in
accordance with Section 4. 1(b) and such other information available to Lender.
Without limiting any other rights and remedies of Lender hereunder or under the
other Loan Documents, the Revolving Credit Loan shall be subject to Lender's
continuing right to withhold from any Borrower's Borrowing Availability
reserves, and to increase and decrease such reserves from time to time, if and
to the extent that in Lender's good faith credit judgment such reserves are
necessary, including to protect Lender's interest in the Collateral or possible
diminution of the value of any Collateral or possible non-payment of any of the
Obligations or for any Taxes or in respect of any state of facts which could
constitute a Default. Lender may, at its option, implement reserves by
designating as ineligible a sufficient amount of Inventory which would otherwise
be Eligible Inventory, so as to reduce any Borrower's Borrowing Base by the
amount of the intended reserves.
2. Conditions Precedent
2.1 Conditions to the Initial Loans. Lender shall not be obligated to
-------------------------------
make any of the Loans or to perform any other action hereunder, until the
following conditions have been satisfied in a manner satisfactory to Lender in
its sole discretion, or waived in writing by Lender:
(a) the Loan Documents to be delivered on or before the Closing Date
shall have been duly executed and delivered by the appropriate parties, all as
set forth in the Schedule of Documents (Schedule F)
----------
(b) all of the obligations of Borrowers to Bank One, Oklahoma, N.A. under
their financing documentation as in effect immediately prior to the Closing Date
will be performed and paid in full from the proceeds of the initial Loans and
all Liens upon any of the property of any Borrower or any other Credit Party in
respect thereof shall have been terminated immediately upon such payment;
5
(c) Lender shall have received evidence satisfactory to it that the
insurance policies provided for in Section 3.17 are in full force and effect,
together with appropriate evidence showing loss payable or additional insured
clauses or endorsements in favor of Lender as required under such Section;
(d) as of the Closing Date Net Borrowing Availability for all Borrowers
combined shall be not less than $500,000 after giving effect to the initial
Revolving Credit Advance (on a pro forma basis, with trade payables being paid
currently, and expenses and liabilities being paid in the ordinary course of
business and without acceleration of sales); and
(e) Lender shall have received an opinion of counsel to the Borrowers with
respect to the Loan Documents in form and substance satisfactory to Lender.
2.2 Further Conditions to the Loans. Lender shall not be obligated to
-------------------------------
fund any Loan (including the initial Loans), if, as of the date thereof:
(a) any representation or warranty by any Credit Party contained herein or
in any of the other Loan Documents shall be untrue or incorrect as of such date,
except to the extent that any such representation or warranty is expressly
stated to relate to a specific earlier date, in which case, such representation
and warranty shall be true and correct as of such earlier date; or
(b) any event or circumstance which has had or reasonably could be expected
to have a Material Adverse Effect shall have occurred since the Closing Date; or
(c) any Default shall have occurred and be continuing or would result after
giving effect to such Loan; or
(d) after giving effect to such Loan the Revolving Credit Loan attributable
to any Borrower would exceed the Borrowing Availability of such Borrower.
2.3 Agent. The request and acceptance by Leading Borrower, as agent for
-----
each Borrower, of the proceeds of any Loan, and the request by Leading Borrower,
as agent for each Borrower, for the incurrence by Lender of any Letter of Credit
Obligations, as the case may be, shall be deemed to constitute, as of the date
of such request and the date of such acceptance, (i) a representation and
warranty by each Borrower that the conditions in Section 2.2 have been satisfied
and (ii) a restatement by each Borrower of each of the representations and
warranties made by such Borrower in any Loan Document and a reaffirmation by
each Borrower of the granting and continuance of Lender's Liens pursuant to the
Loan Documents.
3. Representations, Warranties and Affirmative Covenants
To induce Lender to enter into this Agreement and to make the Loans, each
Borrower and each other Credit Party executing this Agreement represent and
warrant to Lender (each of which representations and warranties shall survive
the execution and delivery of this Agreement), and promise to and agree with
Lender until the Termination Date as follows:
6
3.1 Corporate Existence: Compliance with Law. Each Corporate Credit
----------------------------------------
Party: (a) is, as of the Closing Date, and will continue to be (i) a corporation
duly organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation or formation, (ii) duly qualified to do
business and in good standing in each other jurisdiction where its ownership or
lease of property or the conduct of its business requires such qualification,
except where the failure to be so qualified could not reasonably be expected to
have a Material Adverse Effect, and (iii) in compliance with all Requirements of
Law and Contractual Obligations, except to the extent failure to comply
therewith could not, individually or in the aggregate, reasonably be expected to
have a Material Adverse Effect; and (b) has and will continue to have (i) the .
requisite corporate power and authority and the legal right to execute, deliver
and perform its obligations under the Loan Documents, and to own, pledge,
mortgage or otherwise encumber and operate its properties, to lease the property
it operates under lease, and to conduct its business as now, heretofore or
proposed to be conducted, and (ii) all licenses, permits, franchises, rights,
powers, consents or approvals from or by all Persons or Governmental Authorities
having jurisdiction over such Corporate Credit Party which are necessary or
appropriate for the conduct of its business.
3.2 Executive Offices: Corporate or Other Names. The location of each
-------------------------------------------
Corporate Credit Party's chief executive office, corporate offices, warehouses,
other locations of Collateral and locations where records with respect to
Collateral are kept (including in each case the county of such locations) are as
set forth in Disclosure Schedule (3.2) and, except as set forth in such
-------------------------
Disclosure Schedule, such locations have not changed during the preceding twelve
months. As of the Closing Date, during the prior five years, except as set forth
in Disclosure Schedule (3.2), no Corporate Credit Party has been known as or
-------------------------
conducted business in any other name (including trade names).
3.3 Corporate Power: Authorization: Enforceable Obligations. The
-------------------------------------------------------
execution, delivery and performance by each Credit Party of the Loan Documents
to which it is a party, and the creation of all Liens provided for herein and
therein: (a) are and will continue to be within such Credit Party's power and
authority; (b) have been and will continue to be duly authorized by all
necessary or proper action; (c) are not and will not be in violation of any
Requirement of Law or Contractual Obligation of such Credit Party; (d) do not
and will not result in the creation or imposition of any Lien (other than
Permitted Encumbrances) upon any of the Collateral: and (e) do not and will not
require the consent or approval of any Governmental Authority or any other
Person. As of the Closing Date, each Loan Document shall have been duly executed
and delivered on behalf of each Credit Party party thereto, and each such Loan
Document upon such execution and delivery shall be and will continue to be a
legal, valid and binding obligation of such Credit Party, enforceable against it
in accordance with its terms, except as such enforcement may be limited by
bankruptcy, insolvency and other similar laws affecting creditors' rights
generally.
3.4 Financial Statements and Projections: Books and Records. (a) The
-------------------------------------------------------
Financial Statements delivered by each Borrower to Lender for its most recently
ended Fiscal Year and Fiscal Month, are true, correct and complete and reflect
fairly and accurately the financial condition of such Borrower as of the date of
each such Financial Statement in accordance with GAAP. The Projections most
recently delivered by each Borrower to Lender have been prepared
7
in good faith, with care and diligence and use assumptions that are reasonable
under the circumstances at the time such Projections were prepared and as of the
date delivered to Lender and all such assumptions are disclosed in the
Projections.
(b) Each Borrower and each other Corporate Credit Party shall keep
adequate Books and Records with respect to the Collateral and its business
activities in which proper entries, reflecting all consolidated and
consolidating financial transactions, and payments and credits received on, and
all other dealings with, the Collateral, will be made in accordance with GAAP
and all Requirements of Law and on a basis consistent with the Financial
Statements.
3.5 Material Adverse Change. Between the date of each Borrower's most
-----------------------
recently audited Financial Statements delivered to Lender and the Closing Date:
(a) no Corporate Credit Party has incurred any obligations, contingent or non-
contingent liabilities, or liabilities for Charges, long-term leases or unusual
forward or long-term commitments which are not reflected in the Projections
delivered on the Closing Date and which could, alone or in the aggregate,
reasonably be expected to have a Material Adverse Effect; (b) there has been no
material deviation from such Projections; and (c) no events have occurred which
alone or in the aggregate has had or could reasonably be expected to have a
Material Adverse Effect. No Requirement of Law or Contractual Obligation of any
Credit Party has or have had or could reasonably be expected to have a Material
Adverse Effect and no Credit Party is in default, and to such Credit Party's
knowledge no third party is in default, under or with respect to any of its
Contractual Obligations, which alone or in the aggregate has had or could
reasonably be expected to have a Material Adverse Effect.
3.6 Real Estate; Property. The real estate listed in Disclosure Schedule
--------------------- -------------------
(3.6) constitutes all of the real property owned, leased, or used by each
-----
Corporate Credit Party in its business, and such Credit Party will not execute
any material agreement or contract in respect of such real estate after the date
of this Agreement without giving Lender prompt prior written notice thereof.
Each Corporate Credit Party holds and will continue to hold good and marketable
fee simple title to all of its owned real estate, and good and marketable title
to all of its other properties and assets, and valid and insurable leasehold
interests in all of its leases (both as lessor and lessee, sublessee or
assignee), and none of the properties and assets of any Corporate Credit Party
are or will be subject to any Liens, except Permitted Encumbrances. With respect
to those premises identified in Disclosure Schedule (3.2) consisting of
-------------------------
warehouses or the corporate offices of a Credit Party, on or prior to the
Closing Date a landlord agreement in the form of Exhibit L to this Agreement or
otherwise acceptable to Lender has been obtained. With respect to all of the
other premises identified in Disclosure Schedule (3.2), each Credit Party shall
-------------------------
use its best efforts both before the Closing Date and thereafter to have
executed and delivered to Lender a landlord agreement in the form of Exhibit M
to this Agreement or otherwise acceptable to Lender.
3.7 Ventures. Subsidiaries and Affiliates: Outstanding Stock and
------------------------------------------------------------
Indebtedness. Except as set forth in Disclosure Schedule (3.7), as of the
------------ -------------------------
Closing Date no Corporate Credit Party has any Subsidiaries, is engaged in any
joint venture or partnership with any other Person, or is an Affiliate of any
other Person. All of the issued and outstanding Stock of each Corporate Credit
Party (including all rights to purchase, options, warrants or similar rights or
agreements pursuant
8
to which any Corporate Credit Party may be required to issue, sell, repurchase
or redeem any of its Stock) as of the Closing Date is owned by each of the
Stockholders (and in the amounts) set forth on Disclosure Schedule (3.7). All
-------------------------
outstanding Indebtedness of each Corporate Credit Party as of the Closing Date
is described in Disclosure Schedule (5(b)).
--------------------------
3.8 Government Regulation. No Corporate Credit Party is subject to or
---------------------
regulated under or any Federal or state statute, rule or regulation that
restricts or limits such Person's ability to incur Indebtedness, pledge its
assets, or to perform its obligations under the Loan Documents. The making of
the Loans, the application of the proceeds and repayment thereof, and the
consummation of the transactions contemplated by the Loan Documents do not and
will not violate any Requirement of Law.
3.9 Margin Regulations. No Corporate Credit Party is engaged, nor will it
------------------
engage, principally or as one of its important activities, in the business of
extending credit for the purpose of "purchasing" or "carrying" any "margin
security" as such terms are defined in Regulation U of the Federal Reserve Board
as now and from time to time hereafter in effect (such securities being referred
to herein as "Margin Stock"). No Corporate Credit Party owns any Margin Stock,
and none of the proceeds of the Loans or other extensions of credit under this
Agreement will be used, directly or indirectly, for the purpose of purchasing or
carrying any Margin Stock, for the purpose of reducing or retiring any
Indebtedness which was originally incurred to purchase or carry any Margin Stock
or for any other purpose which might cause any of the Loans or other extensions
of credit under this Agreement to be considered a "purpose credit" within the
meaning of Regulation T, U or X of the Federal Reserve Board. No Corporate
Credit Party will take or permit to be taken any action which might cause any
Loan Document to violate any regulation of the Federal Reserve Board.
3.10 Taxes: Charges. Except as disclosed on Disclosure Schedule (3.10) all
-------------- --------------------------
tax returns, reports and statements required by any Governmental Authority to be
filed by Borrower or any other Credit Party have, as of the Closing Date, been
filed and will, until the Termination Date, be filed with the appropriate
Governmental Authority and no tax Lien has been filed against any Credit Party
or any Credit Party's property. Proper and accurate amounts have been and will
be withheld by Borrower and each other Credit Party from their respective
employees for all periods in complete compliance with all Requirements of Law
and such withholdings have and will be timely paid to the appropriate
Governmental Authorities. Disclosure Schedule (3.10) sets forth as of the
--------------------------
Closing Date those taxable years for which any Credit Party's tax returns are
currently being audited by the IRS or any other applicable Governmental
Authority and any assessments or threatened assessments in connection with such
audit, or otherwise currently outstanding. Except as described on Disclosure
Schedule (3.10), none of the Credit Parties and their respective predecessors
are liable for any Charges: (a) under any agreement (including any tax sharing
agreements or agreement extending the period of assessment of any Charges) or
(b) to each Credit Party's knowledge, as a transferee. As of the Closing Date,
no Credit Party has agreed or been requested to make any adjustment under IRC
Section 481(a), by reason of a change in accounting method or otherwise, which
could reasonably be expected to have a Material Adverse Effect
9
3.11 Payment of Obligations. Each Credit Party will pay, discharge or
----------------------
otherwise satisfy at or before maturity or before they become delinquent, as the
case may be, all of its Charges and other obligations of whatever nature, except
where the amount or validity thereof is currently being contested in good faith
by appropriate proceedings and reserves in conformity with GAAP with respect
thereto have been provided on the books of such Credit Party and none of the
Collateral is or could reasonably be expected to become subject to any Lien or
forfeiture or loss as a result of such contest.
3.12 ERISA. No ERISA Event has occurred or is reasonably expected to occur
-----
that, when taken together with all other existing ERISA Events, could reasonably
be expected to result in a liability of any Credit Party of more than the
Minimum Actionable Amount. The present value of all accumulated benefit
obligations of the Credit Parties under each Plan (based on the assumptions used
for purposes of Statement of Financial Accounting Standards No. 87) did not, as
of the date of the most recent Financial Statements reflecting such amounts,
exceed the fair market value of the assets of such Plan by more than the Minimum
Actionable Amount, and the present value of all accumulated benefit obligations
of all underfunded Plans (based on the assumptions used for purposes of
Statement of Financial Account Standards No. 87) did not, as of the date of the
most recent Financial Statements reflecting such amounts, exceed the fair market
value of the assets of such underfunded Plans by more than the Minimum
Actionable Amount. No Credit Party or ERISA Affiliate has incurred or reasonably
expects to incur any Withdrawal Liability in excess of the Minimum Actionable
Amount.
3.13 Litigation. No Litigation is pending or, to the knowledge of any
----------
Credit Party, threatened by or against any Credit Party or against any Credit
Party's properties or revenues (a) with respect to any of the Loan Documents or
any of the transactions contemplated hereby or thereby, or (b) which could
reasonably be expected to have a Material Adverse Effect. Except as set forth on
Disclosure Schedule (3.13), as of the Closing Date there is no Litigation
--------------------------
pending or, to the knowledge of any Credit Parry, threatened against any Credit
Party which seeks damages in excess of the Minimum Actionable Amount or
injunctive relief or alleges criminal misconduct of any Credit Party. Each
Credit Party shall notify Lender promptly upon learning of the existence,
threatened or commencement of any Litigation against any Credit Party, any ERISA
Affiliate or any Plan which seeks damages in excess of the Minimum Actionable
Amount or any allegation of criminal misconduct against any Credit Party.
3.14 Intellectual Property. As of the Closing Date, all material
---------------------
Intellectual Property owned or used by any Corporate Credit Party is listed,
together with application or registration numbers, where applicable, in
Disclosure Schedule (3.14). Each Corporate Credit Party owns, or is licensed to
--------------------------
use, all Intellectual Property necessary to conduct its business as currently
conducted except for such Intellectual Property the failure of which to own or
license could not reasonably be expected to have a Material Adverse Effect. Each
Corporate Credit Party will maintain the patenting and registration of all
Intellectual Property with the United States Patent and Trademark Office, the
United States Copyright Office, or other appropriate Governmental Authority and
each Corporate Credit Party will promptly patent or register, as the case may
be, all new Intellectual Property and notify Lender in writing five (5) Business
Days prior to filing any such new patent or registration.
10
3.15 Full Disclosure. No information contained in any Loan Document, the
---------------
Financial Statements or any written statement furnished by or on behalf of any
Credit Party under any Loan Document, or to induce Lender to execute the Loan
Documents, contains any untrue statement of a material fact or omits to state a
material fact necessary to make the statements contained herein or therein not
misleading in light of the circumstances under which they were made.
3.16 Hazardous Materials. Except as set forth on Disclosure Schedule
------------------- -------------------
(3.16), as of the Closing Date, (a) each real property location owned, leased or
------
occupied by each Corporate Credit Party (the "Real Property") is, to the
knowledge of each Credit Party, maintained free of contamination from any
Hazardous Material, (b) to the knowledge of each Credit Party, no Corporate
Credit Party is subject to any Environmental Liabilities or potential
Environmental Liabilities, in excess of the Minimum Actionable Amount in the
aggregate, (c) no notice has been received by any Corporate Credit Party
identifying it as a "potentially responsible party" or requesting information
under CERCLA or analogous state statutes, and to the knowledge of any Credit
Party, there are no facts, circumstances or conditions that may result in any
Corporate Credit Party being identified as a "potentially responsible party"
under CERCLA or analogous state statutes; and (d) each Corporate Credit Party
has provided to Lender copies of all existing environmental reports, reviews and
audits and all written information pertaining to actual or potential
Environmental Liabilities, in each case relating to any Corporate Credit Party.
Each Corporate Credit Party: (i) shall comply in all material respects with all
applicable Environmental Laws and Environmental Permits; (ii) shall notify
Lender in writing within seven days if and when it becomes aware of any Release,
on, at, in, under, above, to, from or about any of its Real Property; and (iii)
shall promptly forward to Lender a copy of any order, notice, permit,
application, or any communication or report received by it or any other Credit
Party in 'connection with any such Release.
3.17 Insurance. As of the Closing Date, Disclosure Schedule (3.17) lists
--------- --------------------------
all insurance of any nature maintained for current occurrences by Borrowers and
each other Corporate Credit Party, as well as a summary of the terms of such
insurance. Each Corporate Credit Party shall deliver to Lender certified copies
and endorsements to all of its and those of its Subsidiaries (a) "All Risk" and
business interruption insurance policies naming Lender loss payee, and (b)
general liability and other liability policies naming Lender as an additional
insured. All policies of insurance on real and personal property will contain an
endorsement, in form and substance acceptable to Lender, showing loss payable to
Lender (Form 438 BFU or equivalent) and extra expense and business interruption
endorsements. Such endorsement, or an independent instrument furnished to
Lender, will provide that the insurance companies will give Lender at least 30
days prior written notice before any such policy or policies of insurance shall
be altered or canceled and that no act or default of any Borrower or any other
Person shall affect the right of Lender to recover under such policy or policies
of insurance in case of loss or damage. Each Corporate Credit Party shall direct
all present and future insurers under its "All Risk" policies of insurance to
pay all proceeds payable thereunder directly to Lender. If any insurance
proceeds are paid by check, draft or other instrument payable to any Credit
Party and Lender jointly, Lender may endorse such Credit Party's name thereon
and do such other things as Lender may deem advisable to reduce the same to
cash. Lender reserves the right at any time, upon review of each Credit Party's
risk profile, to require additional forms and limits of insurance. Each
11
Corporate Credit Party shall, on each anniversary of the Closing Date and from
time to time at Lender's request, deliver to Lender a report by a reputable
insurance broker, satisfactory to Lender, with respect to such Person's
insurance policies.
3.18 Deposit and Loan Disbursement Accounts. Attachments I and II to
--------------------------------------
Schedule D lists all banks and other financial institutions at which any
----------
Borrower or any other Corporate Credit Party maintains deposits and/or other
accounts, including the Loan Disbursement Accounts, and such Attachment
correctly identifies the name, address and telephone number of each such
depository, the name in which the account is held, a description of the purpose
of the account, and the complete account number.
3.19 Inventory. As of the date of each Borrowing Base Certificate
---------
delivered to Lender, all Inventory listed thereon as Eligible Inventory shall be
Eligible Inventory. Each Borrower shall notify Lender promptly of any event or
circumstance which to such Borrower's knowledge would cause Lender to consider
any then existing Inventory as no longer constituting Eligible Inventory.
3.20 Conduct of Business: Maintenance of Existence. Each Corporate Credit
---------------------------------------------
Party (a) shall conduct its business substantially as now conducted or as
otherwise permitted hereunder and preserve all of its rights, privileges and
franchises necessary and desirable in connection therewith, and (b) shall at all
times maintain, preserve and protect all of the Collateral and such Credit
Party's other property, used or useful in the conduct of its business and keep
the same in good repair, working order and condition (taking into consideration
ordinary wear and tear) and from time to time make, or cause to be made, all
necessary or appropriate repairs, replacements and improvements thereto
consistent with industry practices.
3.21 Further Assurances. At any time and from time to time, upon the
------------------
written request of Lender and at the sole expense of Borrowers, Borrowers and
each other Credit Party shall promptly and duly execute and deliver any and all
such further instruments and documents and take such further action as Lender
may reasonably deem desirable (a) to obtain the full benefits of this Agreement
and the other Loan Documents, (b)to protect, preserve and maintain Lender's
rights in the Collateral, or any of it, and under this Agreement, or (c) to
enable Lender to exercise all or any of the rights and powers herein granted.
3.22 Year 2000 Covenants. On or before December 31, 1999, each Corporate
-------------------
Credit Party shall eliminate all Year 2000 Problems, except where the failure to
correct the same could not reasonably be expected to have a Material Adverse
Effect, individually or in the aggregate.
4. Financial Matters; Reports
4.1 Reports and Notices. Each Borrower represents, agrees and promises
-------------------
that from and after the Closing Date until the Termination Date, each Borrower
shall deliver to Lender:
(a) no later than the second Business Day of each week, a summary of the
perpetual inventory as of the end of the previous week, accompanied by
supporting detail and documentation as Lender may request;
12
(b) within 20 days following the end of each Fiscal Month, an inventory,
perpetual or physical (as requested by Lender), and a reconciliation of the
inventory, perpetual or physical (as the case may be), to such Borrower's
general ledger and from the general ledger to the Financial Statements for such
Fiscal Month, accompanied by supporting detail and documentation as Lender may
request;
(c) as frequently as Lender may request and in any event no later than the
end of the second Business Day of each week, a Borrowing Base Certificate in the
form of Exhibit C as of the end of the previous week, detailing ineligible
---------
Inventory for adjustment to the Borrowing Base, certified as true and correct by
the Chief Financial Officer of such Borrower or such other officer as is
acceptable to Lender;
(d) within 20 days following the end of each Fiscal Month, an Accounts
Payable Analysis in the Form of Exhibit D (together with an accounts payable
---------
aging), certified as true and correct by the Chief Financial Officer of such
Borrower or such other officer as is acceptable to Lender;
(e) within 30 days following the end of each Fiscal Month, the Financial
Statements for such Fiscal Month, and accompanied by a certification in the form
of Exhibit J by the Chief Executive Officer or Chief Financial Officer of such
---------
Borrower that such Financial Statements are complete and correct, that there was
no Default (or specifying those Defaults of which he or she was aware), and
showing in reasonable detail the calculations used in determining compliance
with the financial covenants hereunder;
(f) within 45 days following the end of each Fiscal Quarter, the Financial
Statements for such Fiscal Quarter, and accompanied by a certification in the
form of Exhibit J by the Chief Executive Officer or Chief Financial Officer of
---------
such Borrower that such Financial Statements are complete and correct, that
there was no Default (or specifying those Defaults of which he or she was
aware), and showing in reasonable detail the calculations used in determining
compliance with the financial covenants hereunder, and providing comparisons to
budget and actual results for the corresponding period during the prior Fiscal
Year, both on a quarterly and year-to-date basis.
(g) within 90 days following the close of each Fiscal Year, the Financial
Statements for such Fiscal Year certified without qualification by an
independent certified accounting firm acceptable to Lender, which shall provide
comparisons to the prior Fiscal Year, and shall be accompanied by (i) a
statement in reasonable detail showing the calculations used in determining
compliance with the financial covenants hereunder, (ii) a report from such
Borrower's accountants to the effect that in connection with their audit
examination nothing has come to their attention to cause them to believe that a
Default has occurred or specifying those Defaults of which they are aware, and
(iii) any management letter that may be issued;
(h) not less than 30 days prior to the close of each Fiscal Year,
beginning with the Fiscal Year ending December 31, 2000, the Projections, which
will be prepared by such Borrower in good faith, with care and diligence, and
using assumptions which are reasonable
13
under the circumstances at the time such Projections are delivered to Lender and
disclosed therein when delivered; and
(i) all the reports and other information set forth on Exhibit B in the
---------
time frames set forth therein.
4.2 Financial Covenants. Each Borrower shall not breach any of the
-------------------
financial covenants set forth in Schedule G.
----------
4.3 Other Reports and Information. Each Borrower shall advise Lender
-----------------------------
promptly, in reasonable detail, of: (a) any Lien, other than Permitted
Encumbrances, attaching to or asserted against any of the Collateral or any
occurrence causing a material loss or decline in value of any Collateral and the
estimated (or actual, if available) amount of such loss or decline; (b) any
material change in the composition of the Collateral; and (c) the occurrence of
any Default or other event which has had or could reasonably be expected to have
a Material Adverse Effect. Each Borrower shall, upon request of Lender, furnish
to Lender such other reports and information in connection with the affairs,
business, financial condition, operations, prospects or management of such
Borrower or any other Credit Party or the Collateral as Lender may request, all
in reasonable detail.
5. Negative Covenants
Each Borrower and each Credit Party executing this Agreement covenants and
agrees (for itself and each other Credit Party) that, without Lender's prior
written consent, from the Closing Date until the Termination Date, neither any
Borrower nor any other Corporate Credit Party shall, directly or indirectly. by
operation of law or otherwise:
(a) merge with, consolidate with, acquire all or substantially all of the
assets or capital stock of, or otherwise combine with or make any investment in
or, except as provided in clause 5(c) below, loan or advance to, any Person or
form any Subsidiary; provided, however, the foregoing shall not prohibit the
-------- -------
acquisition (a "Store Acquisition") by Second Borrower of the assets of a retail
store in the same business as Second Borrower if, and only if, each of the
following conditions are first satisfied: (i) the total purchase price payable
for the assets being acquired in such Store Acquisition is no more than
$125,000, (ii) there is no more than one (1) Store Acquisition closed in any
Fiscal Quarter, (iii) immediately before and after giving effect to the closing
of such Store Acquisition, Net Borrowing Availability shall exceed $250,000 and
no Default or Event of Default shall exist, (iv) Borrowers and each Credit Party
shall have given Lender not less than thirty (30) days prior written notice of
the closing of such Store Acquisition and the material terms thereof, including
the location of the Collateral and other assets being acquired and the purchase
price payable therefor, and shall have taken all actions deemed necessary or
appropriate by Lender to continuously protect and perfect Lender's Liens upon
the Collateral;
(b) cancel any debt owing to it or create, incur. assume or permit to
exist any Indebtedness, except: (i) the Obligations, (ii) Indebtedness existing
as of the Closing Date set forth on Disclosure Schedule 5(b), (iii) deferred
taxes, (iv) by endorsement of instruments or
14
items of payment for deposit to the general account of such Credit Party, (v)
for Guaranteed Indebtedness incurred for the benefit of Borrower if the primary
obligation is permitted by this Agreement; and (vi) additional Indebtedness
(including Purchase Money Indebtedness) incurred after the Closing Date in an
aggregate outstanding amount for all such Corporate Credit Parties combined not
exceeding $50,000;
(c) enter into any lending, borrowing or other commercial transaction with
any of its employees, directors, Affiliates or any other Credit Party (including
upstreaming and downstreaming of cash and intercompany advances and payments by
a Credit Party on behalf of another Credit Party which are not otherwise
permitted hereunder) other than loans or advances to employees in the ordinary
course of business in an aggregate outstanding amount not exceeding $50,000;
(d) make any changes in any of its business objectives, purposes, or
operations which could reasonably be expected to adversely affect repayment of
the Obligations or could reasonably be expected to have a Material Adverse
Effect or engage in any business other than that presently engaged in or
proposed to be engaged in the Projections delivered to Lender on the Closing
Date or amend its charter or by-laws or other organizational documents;
(e) create or permit any Lien on any of its properties or assets, except
for Permitted Encumbrances;
(f) sell, transfer, issue, convey, assign or otherwise dispose of any of
its assets or properties, including its Accounts or any shares of its Stock or
engage in any sale-leaseback, synthetic lease or similar transaction; provided,
--------
however, the foregoing shall not prohibit: (i) the sale of Inventory or obsolete
-------
or unnecessary Equipment in the ordinary course of its business); or (ii) a sale
of the assets comprising a retail store (a "Store Sale") by Second Borrower if,
and only if, each of the following conditions are first satisfied: (1) the total
purchase price payable for the assets being sold in such Store Sale is payable
in cash at the closing and is in an amount not less than the amount of the
Borrowing Base attributable to the Inventory being sold in such Store Sale, (2)
there is no more than three (3) Store Sales closed in any Fiscal Quarter, (3)
Borrowers and each Credit Party shall have given Lender not less than thirty
(30) days prior written notice of the closing of such Store Sale and the
material terms thereof, including the description of the Collateral and other
assets being sold and the purchase price payable therefor, (4) immediately
before and after giving effect to the closing of such Store Acquisition, no
Default or Event of Default shall exist, and (5) all of the proceeds of such
Store Sale are paid to Lender for application to the Obligations;
(g) change its name, chief executive office, corporate offices, warehouses
or other Collateral locations, or location of its records concerning the
Collateral, or acquire, lease or use any real estate after the Closing Date
without such Person, in each instance, giving thirty (30) days prior written
notice thereof to Lender and taking all actions deemed necessary or appropriate
by Lender to continuously protect and perfect Lender's Liens upon the
Collateral;
15
(h) establish any depository or other bank account of any kind with any
financial institution (other than the accounts set forth on Attachment 1 to
Schedule D) without Lender's prior written consent; or
(i) make or permit any Restricted Payment.
6. Security Interest
6.1 Grant of Security Interest. (a) As collateral security for the prompt
--------------------------
and complete payment and performance of the Obligations, each of the Borrowers
and each other Credit Party executing this Agreement hereby grants to the Lender
a security interest in and Lien upon all of its property and assets, whether
real or personal, tangible or intangible, and whether now owned or hereafter
acquired, or in which it now has or at any time in the future may acquire any
right, title, or interest, including all of the following property in which it
now has or at any time in the future may acquire any right, title or interest:
all Accounts; all bank and deposit accounts and all funds on deposit therein;
all cash and cash equivalents; all commodity contracts; all investments and
Investment Property; all Inventory and Equipment; all Goods; all Chattel Paper,
Documents and Instruments; all Books and Records; all General Intangibles
(including all Intellectual Property, Stock, contract rights, and chooses in
action); and to the extent not otherwise included, all Proceeds and products of
all and any of the foregoing and all collateral security and guarantees given by
any Person with respect to any of the foregoing, but excluding in all events
Hazardous Waste (all of the foregoing, together with any other collateral
pledged to the Lender pursuant to any other Loan Document, collectively, the
"Collateral").
(b) Each Borrower, Lender and each other Credit Party executing this
Agreement agree that this Agreement creates, and is intended to create, valid
and continuing Liens upon the Collateral in favor of Lender. Each Borrower and
each other Credit Party executing this Agreement represents, warrants and
promises to Lender that: (i) each Borrower and each other Credit Party granting
a Lien in Collateral is the sole owner of each item of the Collateral upon which
it purports to ▇▇▇▇▇ ▇ ▇▇▇▇ pursuant to the Loan Documents, and has good and
marketable title thereto free and clear of any and all Liens or claims of
others, other than Permitted Encumbrances; (ii) the security interests granted
pursuant to this Agreement, upon completion of the filings and other actions
listed on Disclosure Schedule 6.1 (which, in the case of all filings and other
-----------------------
documents referred to in said Schedule, have been delivered to the Lender in
duly executed form) will constitute valid perfected security interests in all of
the Collateral in favor of the Lender as security for the prompt and complete
payment and performance of the Obligations, enforceable in accordance with the
terms hereof against any and all creditors of and purchasers from any Credit
Party (other than purchasers of Inventory in the ordinary course of business)
and such security interests are prior to all other Liens on the Collateral in
existence on the date hereof except for Permitted Encumbrances which have
priority by operation of law; and (iii) no effective security agreement,
financing statement, equivalent security or Lien instrument or continuation
statement covering all or any part of the Collateral is or will be on file or of
record in any public office, except those relating to Permitted Encumbrances.
Each Borrower and each other Credit Party executing this Agreement promise to
defend the right, title and interest of Lender in and to the Collateral against
the claims and demands of all Persons whomsoever, and each shall take such
actions, including (x) the prompt delivery of all original Instruments, Chattel
16
Paper and certificated Stock owned by such Borrower and each other Credit Party
granting a Lien on Collateral to Lender, (y) notification of Lender's interest
in Collateral at Lender's request, and (z) the institution of litigation against
third parties as shall be prudent in order to protect and preserve each Credit
Party's and Lender's respective and several interests in the Collateral. Each
Borrower (and any other Credit Party granting a Lien in Collateral) shall ▇▇▇▇
its Books and Records pertaining to the Collateral to evidence the Loan
Documents and the Liens granted under the Loan Documents. All Chattel Paper
shall be marked with the following legend: "This writing and the obligations
evidenced or secured hereby are subject to the security interest of General
Electric Capital Corporation."
6.2 Lender's Rights. (a) Lender may. (i) at any time in Lender's own name
---------------
or in the name of any Borrower, communicate with Account Debtors, parties to
Contracts, and obligors in respect of Instruments, Chattel Paper or other
Collateral to verify to Lender's satisfaction, the existence, amount and terms
of any such Accounts, Contracts, Instruments or Chattel Paper or other
Collateral, and (ii) at any time during the existence of an Event of Default,
and without prior notice to any Borrower or any other Credit Party, notify
Account Debtors, parties to Contracts, and obligors in respect of Chattel Paper,
Instruments, or other Collateral that the Collateral has been assigned to Lender
and that payments shall be made directly to Lender. Upon the request of Lender
made at any time during the existence of an Event of Default, each Borrower
shall so notify such Account Debtors, parties to Contracts, and obligors in
respect of Instruments, Chattel Paper or other Collateral. Each Borrower hereby
constitutes Lender or Lender's designee as such Borrower's attorney with power
to endorse such Borrower's name upon any notes, acceptance drafts, money orders
or other evidences of payment or Collateral.
(b) It is expressly agreed by each Borrower that, notwithstanding anything
herein to the contrary, each Borrower shall remain liable under each Contract,
Instrument and License to observe and perform all the conditions and obligations
to be observed and performed by it thereunder, and Lender shall have no
obligation or liability whatsoever to any Person under any Contract, Instrument
or License (between any Borrower or any other Credit Party and any Person other
than Lender) by reason of or arising out of the execution, delivery or
performance of this Agreement, and Lender shall not be required or obligated in
any manner (i) to perform or fulfill any of the obligations of any Borrower,
(ii) to make any payment or inquiry, or (iii) to take any action of any kind to
collect, compromise or enforce any performance or the payment of any amounts
which may have been assigned to it or to which it may be entitled at any time or
times under or pursuant to any Contract, Instrument or License.
(c) Each Borrower and each other Credit Party shall, with respect to each
owned, leased, or controlled property or facility, during normal business hours
and upon reasonable advance notice (unless a Default shall have occurred and be
continuing, in which event no notice shall be required and Lender shall have
access at any and all times): (i) provide access to such facility or property to
Lender and any of its officers, employees and agents, as frequently as Lender
determines to be appropriate; (ii) permit Lender and any of its officers,
employees and agents to inspect, audit and make extracts and copies from all of
such Borrower's and such Credit Party's Books and Records (or, take the
originals of that portion of such Books and Records which are reasonably
necessary for Lender's enforcement or collection of any of the Collateral); and
(iii) permit Lender to inspect, review, evaluate and make physical verifications
17
and appraisals of the Inventory and other Collateral in any manner and through
any medium that Lender considers advisable, and each Borrower and such Credit
Party agree to render to Lender, at such Borrower's and such Credit Party's cost
and expense, such clerical and other assistance as may be reasonably requested
with regard thereto.
(d) After the occurrence and during the continuance of a Default, each
Borrower at its own expense, shall cause the certified public accountant then
engaged by such Borrower to prepare and deliver to Lender at any time and from
time to time, promptly upon Lender's request, the following reports: (i) a
reconciliation of all Accounts; (ii) an aging of all Accounts; (iii) trial
balances; and (iv) test verifications of such Accounts as Lender may request.
Each Borrower, at its own expense, shall cause its certified independent public
accountants to deliver to Lender the results of any physical verifications of
all or any portion of the Inventory made or observed by such accountants when
and if such verification is conducted. Lender shall be permitted to observe and
consult with each Borrower's accountants in the performance of these tasks.
6.3 Lender's Appointment as Attorney-in-fact. On the Closing Date, each
----------------------------------------
Borrower and each other Credit Party executing this Agreement shall execute and
deliver a Power of Attorney in the form attached as Exhibit I. The power of
---------
attorney granted pursuant to the Power of Attorney and all powers granted under
any Loan Document are powers coupled with an interest and shall be irrevocable
until the Termination Date. The powers conferred on Lender under the Power of
Attorney are solely to protect Lender's interests in the Collateral and shall
not impose any duty upon it to exercise any such powers. Lender agrees and
promises that (a) it shall not exercise any power or authority granted under the
Power of Attorney unless an Event of Default has occurred and is continuing, (b)
Lender shall only exercise the powers granted under the Power of Attorney in
respect of Collateral, provided, except as otherwise required by applicable law,
Lender shall not have any duty as to any Collateral, and Lender shall be
accountable only for amounts that it actually receives as a result of the
exercise of such powers. Each Borrower and each other Credit Party executing
this Agreement also hereby authorizes Lender to file any financing or
continuation statement without the signature of such Borrower or such Credit
Party to the extent permitted by applicable law.
6.4 Grant of License to Use Intellectual Property Collateral. Each
--------------------------------------------------------
Borrower and each other Credit Party executing this Agreement hereby grants to
Lender an irrevocable, non-exclusive license (exercisable upon the occurrence
and during the continuance of an Event of Default without payment of royalty or
other compensation to any Borrower or such Credit Party) to use, transfer,
license or sublicense any Intellectual Property now owned, licensed to, or
hereafter acquired by such Borrower or such Credit Party, and wherever the same
may be located, and including in such license access to all media in which any
of the licensed items may be recorded or stored and to all computer and
automatic machinery software and programs used for the compilation or printout
thereof, and represents, promises and agrees that any such license or sublicense
is not and will not be in conflict with the contractual or commercial rights of
any third Person; provided, that such license will terminate on the Termination
Date.
18
7. Events of Default: Rights and Remedies
7.1 Events of Default. The occurrence of any one or more of the following
-----------------
events (regardless of the reason therefor) shall constitute an "Event of
Default" hereunder which shall be deemed to be continuing until waived in
writing by Lender in accordance with Section 10.3:
(a) any Borrower shall fail to make any payment in respect of any
Obligations when due and payable or declared due and payable; or
(b) Borrower or any other Credit Party shall fail or neglect to perform,
keep or observe any of the covenants, promises, agreements, requirements,
conditions or other terms or provisions contained in Section 1, Sections 3.1,
3.2, 3.17, 3.18, 3.19, 3.20, 4.2 or Section 5 of this Agreement; or (ii)
Borrower or any other Credit Party shall fail or neglect to perform, keep or
observe any of the other covenants, promises, agreements, requirements,
conditions or other terms or provisions contained in this Agreement (other than
those set forth in the Sections referred to in clause (i) immediately above) or
any of the other Loan Documents, regardless of whether such breach involves a
covenant, promise, agreement, condition, requirement, term or provision with
respect to a Credit Party that has not signed this Agreement, and such breach is
not remediable or, if remediable, continues unremedied for a period of five (5)
Business Days after the earlier to occur of (x) the date on which such breach is
known or reasonably should have become known to any officer of the Borrower or
such Credit Party and (y) the date on which Lender shall have notified the
Borrower or such other Credit Party of such breach; or
(c) an event of default shall occur under any Contractual Obligation of any
Borrower or any other Credit Party (other than this Agreement and the other Loan
Documents), and such event of default (i) involves the failure to make any
payment (whether or not such payment is blocked pursuant to the terms of an
intercreditor agreement or otherwise), whether of principal, interest or
otherwise, and whether due by scheduled maturity, required prepayment,
acceleration, demand or otherwise, in respect of any Indebtedness (other than
the Obligations) of such Person in an aggregate amount exceeding the Minimum
Actionable Amount, or (ii) causes (or permits any holder of such Indebtedness or
a trustee to cause) such Indebtedness, or a portion thereof, in an aggregate
amount exceeding the Minimum Actionable Amount to become due prior to its stated
maturity or prior to its regularly scheduled dates of payment; or
(d) any representation or warranty in this Agreement or any other Loan
Document, or in any written statement pursuant hereto or thereto, or in any
report, financial statement or certificate made or delivered to Lender by any
Borrower or any other Credit Party shall be untrue or incorrect as of the date
when made or deemed made, regardless of whether such breach involves a
representation or warranty with respect to a Credit Party that has not signed
this Agreement; or
(e) there shall be commenced against any Borrower or any other Credit Party
any Litigation seeking issuance of a warrant of attachment, execution, distraint
or similar process against all or any substantial part of its assets which
results in the entry of an order for any such relief which remains unstayed or
undismissed for thirty (30) consecutive days; or any Borrower or any other
Credit Party shall have concealed, removed or permitted to be concealed or
19
removed, any part of its property with intent to hinder, delay or defraud its
creditors or any of them or made or suffered a transfer of any of its property
or the incurring of an obligation which may be fraudulent under any bankruptcy,
fraudulent transfer or other similar law; or
(f) a case or proceeding shall have been commenced involuntarily against
any Borrower or any other Credit Party in a court having competent jurisdiction
seeking a decree or order: (i) under the United States Bankruptcy Code or any
other applicable Federal, state or foreign bankruptcy or other similar law, and
seeking either (x) the appointment of a custodian, receiver, liquidator,
assignee, trustee or sequestrator (or similar official) for such Person or of
any substantial part of its properties, or (y) the reorganization or winding up
or liquidation of the affairs of any such Person, and such case or proceeding
shall remain undismissed or unstayed for sixty (60) consecutive days or such
court shall enter a decree or order granting the relief sought in such case or
proceeding; or (ii) invalidating or denying any Person's right, power, or
competence to enter into or perform any of its obligations under any Loan
Document or invalidating or denying the validity or enforceability of this
Agreement or any other Loan Document or any action taken hereunder or
thereunder; or
(g) any Borrower or any other Credit Party shall (i) commence any case,
proceeding or other action under any existing or future law of any jurisdiction,
domestic or foreign, relating to bankruptcy, insolvency, reorganization,
conservatorship or relief of debtors, seeking to have an order for relief
entered with respect to it or seeking appointment of a custodian, receiver,
liquidator, assignee, trustee or sequestrator (or similar official) for it or
any substantial part of its properties, (ii) make a general assignment for the
benefit of creditors, (iii) consent to or rake any action in furtherance of, or,
indicating its consent to, approval of, or acquiescence in, any of the acts set
forth in paragraphs (e) or (f) of this Section 7.1 or clauses (i) and (ii) of
this paragraph (g), or (iv) shall admit in writing its inability to, or shall be
generally unable to, pay its debts as such debts become due; or
(h) a final judgment or judgments for the payment of money in excess of
the Minimum Actionable Amount in the aggregate shall be rendered against any
Borrower or any other Credit Party, unless the same shall be (i) fully covered
by insurance and the issuer(s) of the applicable policies shall have
acknowledged full coverage in writing within fifteen (15) days of judgment, or
(ii) vacated, stayed, bonded, paid or discharged within a period of fifteen (15)
days from the date of such judgment; or
(i) any other event shall have occurred which has had or could reasonably
be expected to have a Material Adverse Effect and Lender shall have given any
Borrower notice thereof; or
(j) any provision of any Loan Document shall for any reason cease to be
valid, binding and enforceable in accordance with its terms, or any Lien
granted, or intended by the Loan Documents to be granted, to Lender shall cease
to be a valid and perfected Lien having the first priority (or a lesser priority
if expressly permitted in the Loan Documents) in any of the Collateral (or any
Credit Party shall so assert any of the foregoing); or
(k) a Change of Control shall have occurred with respect to any Corporate
Credit Party; or
20
(l) an ERISA Event shall have occurred that, in the opinion of the Lender,
when taken together with all other ERISA Events that have occurred and are then
continuing, could reasonably be expected to result in liability of any Credit
Party in an aggregate amount exceeding the Minimum Actionable Amount.
7.2 Remedies. (a) If any Default shall have occurred and be continuing,
--------
then Lender may terminate or suspend its obligation to make further Revolving
Credit Advances and to incur additional Letter of Credit Obligations. In
addition, if any Event of Default shall have occurred and be continuing, Lender
may, without notice, take any one or more of the following actions: (i) declare
all or any portion of the Obligations to be forthwith due and payable, including
contingent liabilities with respect to Letter of Credit Obligations, whereupon
such Obligations shall become and be due and payable; (ii) require that all
Letter of Credit Obligations be fully cash collateralized pursuant to Schedule C
----------
or (iii) exercise any rights and remedies provided to Lender under the Loan
Documents or at law or equity, including all remedies provided under the Code:
provided, that upon the occurrence of any Event of Default specified in Sections
--------
7.1 (e), (f) or (g), the Obligations shall become immediately due and payable
(and any obligation of Lender to make further Loans, if not previously
terminated, shall immediately be terminated) without declaration, notice or
demand by Lender.
(b) Without limiting the generality of the foregoing, each Borrower and
each other Credit Party executing this Agreement expressly agrees that upon the
occurrence of any Event of Default, Lender may collect, receive, assemble,
process, appropriate and realize upon the Collateral, or any part thereof, and
may forthwith sell, lease, assign, give an option or options to purchase or
otherwise dispose of and deliver said Collateral (or contract to do so), or any
part thereof, in one or more parcels at public or private sale or sales, at any
exchange at such prices as it may deem best, for cash or on credit or for future
delivery without assumption of any credit risk. Lender shall have the right upon
any such public sale or sales and, to the extent permitted by law, upon any such
private sale or sales, to purchase for the benefit of Lender the whole or any
part of said Collateral so sold, free of any right or equity of redemption,
which equity of redemption each Borrower and each other Credit Party executing
this Agreement hereby releases. Such sales may be adjourned, or continued from
time to time with or without notice. Lender shall have the right to conduct such
sales on any Credit Party's premises or elsewhere and shall have the right to
use any Credit Party's premises without rent or other charge for such sales or
other action with respect to the Collateral for such time or times as Lender
deems necessary or advisable.
(c) Each Borrower and each other Credit Party executing this Agreement
further agrees, upon the occurrence and during the continuance of an Event of
Default and at Lender's request, to assemble the Collateral and make it
available to Lender at places which Lender shall reasonably select, whether at
its premises or elsewhere. Until Lender is able to effect a sale, lease, or
other disposition of the Collateral, Lender shall have the right to complete,
assemble, use or operate the Collateral or any part thereof, to the extent that
Lender deems appropriate, for the purpose of preserving such Collateral or its
value or for any other purpose. Lender shall have no obligation to any Credit
Party to maintain or preserve the rights of such Credit Party as against third
parties with respect to any Collateral while such Collateral is in the
possession of
21
Lender. Lender may, if it so elects, seek the appointment of a receiver or
keeper to take possession of any Collateral and to enforce any of Lender's
remedies with respect to such appointment without prior notice or hearing. To
the maximum extent permitted by applicable law, each Borrower and each other
Credit Party executing this Agreement waives all claims, damages, and demands
against Lender, its Affiliates, agents, and the officers and employees of any of
them arising out of the repossession, retention or sale of any Collateral except
such as are determined in a final judgment by a court of competent jurisdiction
to have arisen solely out of the gross negligence or willful misconduct of such
Person. Each Borrower and each other Credit Party executing this Agreement
agrees that ten (10) days prior notice by Lender to such Credit Party of the
time and place of any public sale or of the time after which a private sale may
take place is reasonable notification of such matters. Each Borrower and each
other Credit Party shall remain liable for any deficiency if the proceeds of any
sale or disposition of the Collateral are insufficient to pay all amounts to
which Lender is entitled.
(d) Lender's rights and remedies under this Agreement shall be cumulative
and nonexclusive of any other rights and remedies which Lender may have under
any Loan Document or at law or in equity. Recourse to the Collateral shall not
be required. All provisions of this Agreement are intended to be subject to all
applicable mandatory provisions of law that may be controlling and to be
limited, to the extent necessary, so that they do not render this Agreement
invalid or unenforceable, in whole or in part.
7.3 Waivers by Credit Parties. Except as otherwise provided for in this
-------------------------
Agreement and to the fullest extent permitted by applicable law, each Borrower
and each other Credit Party executing this Agreement waives: (a) presentment,
demand and protest, and notice of presentment, dishonor, intent to accelerate,
acceleration, protest, default, nonpayment, maturity, release, compromise.
settlement, extension or renewal of any or all Loan Documents, the Notes or any
other notes, commercial paper, Accounts, Contracts, Documents, Instruments,
Chattel Paper and guaranties at any time held by Lender on which such Credit
Party may in any way be liable, and hereby ratifies and confirms whatever Lender
may do in this regard; (b) all rights to notice and a hearing prior to Lender's
taking possession or control of, or to Lender's replevy, attachment or levy
upon, any Collateral or any bond or security which might be required by any
court prior to allowing Lender to exercise any of its remedies; and (c) the
benefit of all valuation, appraisal and exemption laws. Each Borrower and each
other Credit Party executing this Agreement acknowledges that it has been
advised by counsel of its choices and decisions with respect to this Agreement,
the other Loan Documents and the transactions evidenced hereby and thereby.
7.4 Proceeds. The Proceeds of any sale, disposition or other realization
--------
upon any Collateral shall be applied by Lender upon receipt to the Obligations
in such order as Lender may deem advisable in its sole discretion (including the
cash collateralization of any Letter of Credit Obligations), and after the
indefeasible payment and satisfaction in full in cash of all of the Obligations,
and after the payment by Lender of any other amount required by any provision of
law, including Section 9-504(1)(c) of the Code (but only after Lender has
received what Lender considers reasonable proof of a subordinate party's
security interest), the surplus, if any, shall be paid to Borrowers or their
representatives or to whomsoever may be lawfully entitled to receive the same,
or as a court of competent jurisdiction may direct.
22
8. Successors and Assigns
Each Loan Document shall be binding on and shall inure to the benefit of
each Borrower and each other Credit Party executing such Loan Document, Lender,
and their respective successors and assigns, except as otherwise provided herein
or therein. Neither any Borrower nor any other Credit Party may assign,
transfer, hypothecate, delegate or otherwise convey its rights, benefits,
obligations or duties under any Loan Document without the prior express written
consent of Lender. Any such purported conveyance by such Borrower or such Credit
Party without the prior express written consent of Lender shall be void. There
shall be no third party beneficiaries of any of the terms and provisions of any
of the Loan Documents. Lender reserves the right at any time to create and sell
participations in the Loans and the Loan Documents and to sell, transfer or
assign any or all of its rights in the Loans and under the Loan Documents.
9. Guarantor Waivers by Borrowers
IF AND TO THE EXTENT THAT ANY OBLIGATION OF ANY BORROWER TO LENDER SHALL BE
CONSIDERED AN OBLIGATION OF GUARANTY OR SURETYSHIP, THEN THIE FOLLOWING
PROVISIONS OF THIS SECTION 9 SHALL APPLY WITH RESPECT TO EACH SUCH BORROWER
SOLELY TO THE EXTENT THAT SUCH BORROWER IS DEEMED TO ACT IN THE CAPACITY OF A
GUARANTOR AND SHALL NOT EFFECT A WAIVER OF RIGHTS IN SUCH PERSON'S CAPACITY AS A
BORROWER: -
(A) SUCH BORROWER EXPRESSLY WAIVES THE RIGHT TO REQUIRE LENDER FIRST TO
PURSUE ANY OTHER PERSON, THE COLLATERAL, OR ANY OTHER SECURITY OR GUARANTY THAT
MAY BE HELD FOR THE OBLIGATIONS, OR TO APPLY ANY SUCH SECURITY OR GUARANTY TO
THE OBLIGATIONS BEFORE SEEKING FROM SUCH BORROWER PAYMENT IN FULL OF ITS
LIABILITIES TO LENDER OR PROCEEDING AGAINST SUCH BORROWER FOR SAME.
(B) SUCH BORROWER ACKNOWLEDGES THAT IF LENDER MAY, UNDER APPLICABLE LAW,
PROCEED TO REALIZE ITS BENEFITS UNDER ANY OF THE LOAN DOCUMENTS GIVING LENDER A
UEN UPON ANY COLLATERAL. WHETHER OWNED BY ANY BORROWER OR BY ANY OTHER PERSON,
EITHER BY JUDICIAL FORECLOSURE OR BY NON-JUDICIAL SALE OR ENFORCEMENT, LENDER
MAY, AT ITS SOLE OPTION, DETERMINE WHICH OF ITS REMEDIES OR RIGHTS IT MAY PURSUE
WITHOUT AFFECTING ANY OF ITS RIGHTS AND REMEDIES. IF, IN THE EXERCISE OF ANY OF
ITS RIGHTS AND REMEDIES, LENDER SHALL FORFEIT ANY OF ITS RIGHTS OR REMEDIES,
INCLUDING ITS RIGHT TO ENTER A DEFICIENCY JUDGMENT AGAINST ANY BORROWER OR ANY
OTHER PERSON, WHETHER BECAUSE OF ANY APPLICABLE LAWS PERTAINING TO "ELECTION OF
REMEDIES" OR THE LIKE, SUCH BORROWER HEREBY CONSENTS TO SUCH ACTION BY LENDER
AND WAIVES ANY CLAIM BASED UPON SUCH ACTION, EVEN IF SUCH ACTION BY LENDER SHALL
RESULT IN A FULL OR PARTIAL LOSS OF ANY RIGHTS OF SUBROGATION WHICH SUCH
BORROWER MIGHT OTHERWISE HAVE HAD BUT FOR SUCH ACTION BY LENDER. ANY ELECTION OF
REMEDIES WHICH RESULTS IN
23
THE DENIAL OR IMPAIRMENT OF THE RIGHT OF LENDER TO SEEK A DEFICIENCY JUDGMENT
AGAINST ANY BORROWER SHALL NOT IMPAIR ANY OTHER BORROWER'S OBLIGATION TO PAY THE
FULL AMOUNT OF THE OBLIGATIONS. IN THE EVENT LENDER SHALL BID AT ANY FORECLOSURE
OR TRUSTEE'S SALE OR AT ANY PRIVATE SALE PERMUTED BY LAW OR THE LOAN DOCUMENTS,
LENDER MAY BID ALL OR LESS THAN THE AMOUNT OF TITLE OBLIGATIONS AND THE AMOUNT
OF SUCH BID NEED NOT BE PAID BY LENDER BUT SHALL BE CREDITED AGAINST THE
OBLIGATIONS. THE AMOUNT OF THE SUCCESSFUL BID AT ANY SUCH SALE, WHIETIJER LENDER
OR ANY OTHER PARTY IS THE SUCCESSFUL BIDDER, SHALL BE CONCLUSIVELY DEEMED TO BE
THE FAIR MARKET VALUE OF THE COLLATERAL AND THE DIFFERENCE BETWEEN SUCH BID
AMOUNT AND THE REMAINING BALANCE OF THE OBLIGATIONS SHALL BE CONCLUSIVELY DEEMED
TO BE THE AMOUNT OF THE OBLIGATIONS GUARANTEED BY SUCH BORROWER, NOTWITHSTANDING
THAT ANY PRESENT OR FUTURE LAW OR COURT DECISION OR RULING MAY HAVE THE EFFECT
OF REDUCING THE AMOUNT OF ANY DEFICIENCY CLAIM TO WHICH LENDER MIGHT OTHERWISE
BE ENTITLED BUT FOR SUCH BIDDING AT ANY SUCH SALE.
(C) SUCH BORROWER AGREES THAT LENDER SHALL BE UNDER NO OBLIGATION TO (I)
MARSHAL ANY ASSETS IN FAVOR OF SUCH BORROWER, (II) PROCEED FIRST AGAINST ANY
OTHER BORROWER OR PERSON OR ANY PROPERTY OF ANY OTHER BORROWER OR PERSON OR
AGAINST ANY COLLATERAL, (III) ENFORCE FIRST ANY OTHER GUARANTY OBLIGATIONS WITH
RESPECT TO, OR SECURITY FOR, THE OBLIGATIONS, OR (IV) PURSUE ANY OTHER REMEDY IN
LENDER'S POWER THAT SUCH BORROWER MAY NOT BE ABLE TO PURSUE ITSELF AND THAT MAY
LIGHTEN SUCH BORROWER'S BURDEN, ANY RIGHT TO WHICH SUCH BORROWER HEREBY
EXPRESSLY WAIVES.
(D) EACH BORROWER ACKNOWLEDGES THAT THE FOREGOING WAIVERS ARE A MATERIAL
INDUCEMENT TO LENDER'S ENTERING INTO THIS AGREEMENT AND THAT LENDER IS RELYING
UPON THE FOREGOING WAIVERS IN ITS FUTURE DEALINGS WITH SUCH BORROWER. EACH
BORROWER WARRANTS AND REPRESENTS THAT IT HAS REVIEWED THE FOREGOING WAIVERS WITH
ITS LEGAL COUNSEL AND HAS KNOWINGLY AND VOLUNTARILY WAIVED ITS JURY TRIAL RIGHTS
FOLLOWING CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF LITIGATION, THIS
AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.
10. Miscellaneous
10.1 Complete Agreement: Modification of Agreement. This Agreement and
---------------------------------------------
the other Loan Documents constitute the complete agreement between the parties
with respect to the subject matter hereof and thereof, supersede all prior
agreements, commitments, understandings or inducements (oral or written,
expressed or implied), and no Loan Document may be modified, altered or amended
except by a written agreement signed by Lender, and each other Credit Party a
party to such Loan Document. Each Borrower and each other Credit Party executing
this
24
Agreement or any other Loan Document shall have all duties and obligations under
this Agreement and such other Loan Document from the date of its execution and
delivery, regardless of whether the initial Loan has been funded at that time.
10.2 Expenses. Borrowers agree to pay or reimburse Lender for all costs and
--------
expenses (including the fees and expenses of all special counsel, advisors,
consultants (including environmental and management consultants) and auditors
retained in connection therewith), incurred in connection with: (a) the
preparation, negotiation, execution, delivery, performance and enforcement of
the Loan Documents and the preservation of any rights thereunder; (b) collection
including deficiency collections; (c) the forwarding to a Borrower or any other
Person on behalf of a Borrower by Lender of the proceeds of any Loan (including
a wire transfer fee of $20 per wire transfer); (d) any amendment, extension,
modification or waiver of, or consent with respect to any Loan Document or
advice in connection with the administration of the Loans or the rights
thereunder; (e) any litigation, contest, dispute, suit, proceeding or action
(whether instituted by or between any combination of Lender, a Borrower or any
other Person or Persons), and an appeal or review thereof, in any way relating
to the Collateral, any Loan Document, or any action taken or any other
agreements to be executed or delivered in connection therewith, whether as a
party' witness or otherwise; and (f) any effort (i) to monitor the Loans, (ii)
to evaluate, observe or assess a Borrower or any other Credit Party or the
affairs of such Person, and (iii) to verify, protect, evaluate, assess,
appraise, collect, sell, liquidate or otherwise dispose of the Collateral.
Borrowers also agree to pay or reimburse Lender for the costs of conducting an
Inventory Appraisal consisting of an onsite visit and evaluation every twelve
(12) months or, during the existence of an Event of Default, at more frequent
intervals as Lender shall determine. For so long as no Event of Default exists,
Borrowers shall have no obligations to reimburse Lender for the costs and
expenses of Inventory Appraisals consisting of desktop evaluations.
10.3 No Waiver. Neither Lender's failure, at any time or times, to require
---------
strict performance by any Borrower or any other Credit Party of any provision of
any Loan Document, nor Lender's failure to exercise, nor any delay in
exercising, any right, power or privilege hereunder, (a) shall waive, affect or
diminish any right of Lender thereafter to demand strict compliance and
performance therewith, or (b) shall operate as a waiver thereof. No single or
partial exercise of any right, power or privilege hereunder shall preclude any
other or future exercise thereof or the exercise of any other right, power or
privilege. Any suspension or waiver of a Default or other provision under the
Loan Documents shall not suspend, waive or affect any other Default under any
Loan Document, whether the same is prior or subsequent thereto and whether of
the same or of a different type, and shall not be construed as a bar to any
right or remedy which Lender would otherwise have had on any future occasion.
None of the undertakings, indemnities, agreements, warranties, covenants and
representations of any Borrower or any other Credit Party to Lender contained in
any Loan Document and no Default by any Borrower or any other Credit Party under
any Loan Document shall be deemed to have been suspended or waived by Lender,
unless such waiver or suspension is by an instrument in writing signed by an
officer or other authorized employee of Lender and directed to such Borrower
specifying such suspension or waiver (and then such waiver shall be effective
only to the extent therein expressly set forth), and Lender shall not, by any
act (other than execution of a formal written waiver), delay, omission or
otherwise, be deemed to have waived any of its rights or remedies hereunder.
25
10.4 Severability: Section Titles. Wherever possible, each provision of the
----------------------------
Loan Documents shall be interpreted in such manner as to be effective and valid
under applicable law, but if any provision of any Loan Document shall be
prohibited by or invalid under applicable law, such provision shall be
ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of such
Loan Document. Except as otherwise expressly provided for in the Loan Documents,
no termination or cancellation (regardless of cause or procedure) of any
financing arrangement under the Loan Documents shall in any way affect or impair
the Obligations, duties, covenants, representations and warranties, indemnities,
and liabilities of any Borrower or any other Credit Party or the rights of
Lender relating to any unpaid Obligation (due or not due, liquidated, contingent
or unliquidated), or any transaction or event occurring prior to such
termination, or any transaction or event, the performance of which is not
required until after the Commitment Termination Date, all of which shall not
terminate or expire, but rather shall survive such termination or cancellation
and shall continue in full force and effect until the Termination Date;
provided, that all indemnity obligations of the Credit Parties under the Loan
Documents shall survive the Termination Date. The Section titles contained in
any Loan Document are and shall be without substantive meaning or content of any
kind whatsoever and are not a part of the agreement between the parties hereto.
10.5 Authorized Signature. Until Lender shall be notified in writing by any
--------------------
Borrower or any other Credit Party to the contrary, the signature upon any
document or instrument delivered pursuant hereto and believed by Lender or any
of Lender's officers, agents, or employees to be that of an officer of such
Borrower or such other Credit Party listed in the Secretarial Certificate in the
form of Exhibit H shall bind such Borrower and such other Credit Party and be
---------
deemed to be the act of such Borrower or such other Credit Party affixed
pursuant to and in accordance with resolutions duly adopted by such Borrower's
or such other Credit Party's Board of Directors, and Lender shall be entitled to
assume the authority of each signature and authority of the person whose
signature it is or appears to be unless the person acting in reliance of such
signature shall have actual knowledge of the fact that such signature is false
or the person whose signature or purported signature is presented is without
authority.
10.6 Notices. Except as otherwise provided herein, whenever any notice,
-------
demand, request or other communication shall or may be given to or served upon
any party by any other party, or whenever any party desires to give or serve
upon any other party any communication with respect to this Agreement, each such
notice, demand, request or other communication shall be in writing and shall be
deemed to have been validly served, given or delivered (a) upon the earlier of
actual receipt and three (3) days after deposit in the United States Mail,
registered or certified mail, return receipt requested, with proper postage
prepaid, (b) upon transmission, when sent by telecopy or other similar facsimile
transmission (with such telecopy or facsimile promptly confirmed by delivery of
a copy by personal delivery or United States Mail as otherwise provided in this
Section 10.6), (c) one (1) Business Day after deposit with a reputable overnight
courier with all charges prepaid or (d) when hand-delivered, all of which shall
be addressed to the party to be notified and sent to the address or facsimile
number indicated in Schedule B or to such other address (or facsimile number) as
----------
may be substituted by notice given as herein provided. The giving of any notice
required hereunder may be waived in writing by the
26
party entitled to receive such notice. Failure or delay in delivering copies of
any notice, demand, request or other communication to any Person (other than any
Borrower or Lender) designated in Schedule B to receive copies shall in no way
----------
adversely affect the effectiveness of such notice, demand, request or other
communication.
10.7 Counterparts. Any Loan Document may be executed in any number of
------------
separate counterparts by one or more of the parties thereto, and all of said
counterparts taken together shall constitute one and the same instrument.
10.8 Time of the Essence. Time is of the essence for performance of the
-------------------
Obligations under the Loan Documents.
10.9 GOVERNING LAW. THE LOAN DOCUMENTS AND THE OBLIGATIONS ARISING UNDER
--------- ---
THE LOAN DOCUMENTS SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN
ACCORDANCE WITH. THE LAWS OF THE STATE OF NORTH CAROLINA APPLICABLE TO CONTRACTS
MADE AND PERFORMED IN SUCH STATE, WITHOUT REGARD TO THE PRINCIPLES THEREOF
REGARDING CONFLICTS OF LAWS, AND ANY APPLICABLE LAWS OF THE UNITED STATES OF
AMERICA.
10.10 SUBMISSION TO JURISDICTION: WAIVER OF JURY TRIAL. (A) EACH BORROWER
------------------------------------------------
AND EACH OTHER CREDIT PARTY EXECUTING THIS AGREEMENT HEREBY CONSENT AND AGREE
THAT THE STATE OR FEDERAL COURTS LOCATED IN NORTH CAROLINA SHALL HAVE EXCLUSIVE
JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR DISPUTES BETWEEN SUCH BORROWER
AND SUCH CREDIT PARTY AND LENDER PERTAINING TO THIS AGREEMENT OR ANY OF THE
OTHER LOAN DOCUMENTS OR TO ANY MATTER ARISING OUT OF OR RELATED TO THIS
AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS; PROVIDED, THAT LENDER, SUCH
--------
BORROWER AND SUCH CREDIT PARTY ACKNOWLEDGE THAT ANY APPEALS FROM THOSE COURTS
MAY HAVE TO BE HEARD BY A COURT LOCATED OUTSIDE OF NORTH CAROLINA: AND FURTHER
--- -------
PROVIDED, THAT NOTHING IN THIS AGREEMENT SHALL BE DEEMED OR OPERATE TO PRECLUDE
--------
LENDER FROM BRINGING SUIT OR TAKING OTHER LEGAL ACTION IN ANY OTHER JURISDICTION
TO COLLECT THE OBLIGATIONS, TO REALIZE ON THE COLLATERAL OR ANY OTHER SECURITY
FOR THE OBLIGATIONS, OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER IN FAVOR OF
LENDER. SUCH BORROWER AND EACH OTHER CREDIT PARTY EXECUTING THIS AGREEMENT
EXPRESSLY SUBMIT AND CONSENT IN ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR
SUIT COMMENCED IN ANY SUCH COURT, AND SUCH BORROWER AND SUCH CREDIT PARTY HEREBY
WAIVE ANY OBJECTION WHICH IT MAY HAVE BASED UPON LACK OF PERSONAL JURISDICTION,
IMPROPER VENUE OR FORUM NON CONVENIENS. EACH BORROWER AND EACH OTHER CREDIT
----- --- ----------
PARTY EXECUTING THIS AGREEMENT HEREBY WAIVE PERSONAL SERVICE OF THE SUMMONS,
COMPLAINT AND OTHER PROCESS ISSUED IN ANY SUCH ACTION OR SUIT AND AGREE THAT
SERVICE OF SUCH SUMMONS, COMPLAINT AND OTHER PROCESS MAY BE MADE BY REGISTERED
OR CERTIFIED MAIL ADDRESSED TO SUCH
27
BORROWER OR SUCH CREDIT PARTY AT THE ADDRESS SET FORTH IN SCHEDULE B OF THIS
----------
AGREEMENT AND THAT SERVICE SO MADE SHALL BE DEEMED COMPLETED UPON THE EARLIER OF
SUCH BORROWER'S OR SUCH CREDIT PARTY'S ACTUAL RECEIPT THEREOF OR THREE (3) DAYS
AFTER DEPOSIT IN THE U.S. MAILS, PROPER POSTAGE PREPAID.
(B) THE PARTIES DESIRE THAT THEIR DISPUTES BE RESOLVED BY A JUDGE APPLYING
SUCH APPLICABLE LAWS. THEREFORE, TO ACHIEVE THE BEST COMBINATION OF THE BENEFITS
OF THE JUDICIAL SYSTEM AND OF ARBITRATION, THE PARTIES HERETO WAIVE ALL RIGHTS
TO TRIAL BY JURY IN ANY ACTION, SUIT, OR PROCEEDING BROUGHT TO RESOLVE ANY
DISPUTE, WHETHER ARISING IN CONTRACT, TORT, OR OTHERWISE BETWEEN LENDER, ANY
BORROWER AND ANY CREDIT PARTY ARISING OUT OF, CONNECTED WITH, RELATED OR
INCIDENTAL TO THE RELATIONSHIP ESTABLISHED BETWEEN THEM IN CONNECTION WITH THE
LOAN DOCUMENTS OR THE TRANSACTIONS RELATED THERETO.
10.11 Press Releases. Each Credit Party executing this Agreement agrees
--------------
that neither it nor its Affiliates will in the future issue any press release or
other public disclosure using the name of General Electric Capital Corporation
or its affiliates or referring to this Agreement or the other Loan Documents
without at least two (2) Business Days' prior notice to Lender and then only,
and to the extent that, the issuance of such press release or other public
disclosure is required by applicable law. Without the prior written consent of
Lender, no Credit Party nor any of its Affiliates shall issue any press release
or other public disclosure which is not required to be issued by applicable law
and which uses the name of General Electric Capital Corporation or its
affiliates or refers to this Agreement or the other Loan Documents. Each Credit
Party consents to the publication by Lender of a tombstone or similar
advertising material relating to the financing transactions contemplated by this
Agreement.
10.12 Reinstatement. This Agreement shall continue to be effective, or be
-------------
reinstated, as the case may be, if at any time payment of all or any part of the
Obligations is rescinded or must otherwise be returned or restored by the Lender
upon the insolvency, bankruptcy, dissolution, liquidation or reorganization of
any Borrower or any other Credit Party, or otherwise, all as though such
payments had not been made.
11. Cross-Guaranty
11.1 Cross-Guaranty. Each Borrower hereby absolutely and unconditionally
--------------
guarantees to Lender and its successors and assigns the full and prompt payment
(whether at stated maturity, by acceleration or otherwise) and performance of
all Obligations owed or hereafter owing to Lender by each other Borrower,
including that portion of the Revolving Credit Loan attributable to each other
Borrower. Each Borrower agrees that its guaranty obligation hereunder is a
continuing guaranty of payment and performance and not of collection, and that
its obligations under this Section 11 shall be absolute and unconditional,
irrespective of, and unaffected by:
28
(a) the genuineness, validity, regularity, enforceability or any future
amendment of, or change in, this Agreement, any other Loan Document or any other
agreement, document or instrument to which any Borrower is or may become a
party;
(b) the absence of any action to enforce this Agreement (including this
Section 11) or any other Loan Document or the waiver or consent by Lender with
respect to any of the provisions hereof or thereof;
(c) the existence, value or condition of, or failure to perfect its Lien
against, any security for the Obligations or any action, or the absence of any
action, by Lender in respect thereof (including the release of any such
security);
(d) the insolvency of any Credit Party; or
(e) any other action or circumstances which might otherwise constitute a
legal or equitable discharge or defense of a surety or guarantor, it being
agreed by each Borrower that its obligations under this Section 11 shall not be
discharged until the payment and performance, in full, of the Obligations has
occurred. Each Borrower shall be regarded, and shall be in the same position, as
principal debtor with respect to the Obligations guaranteed hereunder.
11.2 Waivers by Borrowers. Each Borrower expressly waives all rights it
--------------------
may have now or in the future under any statute, or at common law, or at law or
in equity, or otherwise, to compel Lender to ▇▇▇▇▇▇▇▇ assets or to proceed in
respect of the Obligations guaranteed hereunder against any other Credit Party,
any other party or against any security for the payment and performance of the
Obligations before proceeding against, or as a condition to proceeding against,
such Borrower. It is agreed among each Borrower and Lender that the foregoing
waivers are of the essence of the transactions contemplated by this Agreement
and the other Loan Documents and that, but for the provisions of this Section 11
and such waivers, Lender would decline to enter into this Agreement.
11.3 Benefit of Guaranty. Each Borrower agrees that the provisions of
-------------------
this Section 11 are for the benefit of Lender and its successors, transferees,
endorsees and assigns, and nothing herein contained shall impair, as between any
other Borrower and Lender, the obligations of such other Borrower under the Loan
Documents.
11.4 Subordination of Subrogation, Etc. Notwithstanding anything to the
----------------------------
contrary in this Agreement or in any other Loan Document, and except as set
forth in Section 11.7, each Borrower hereby expressly and irrevocably
subordinates to payment of the Obligations any and all rights at law or in
equity to subrogation, reimbursement, exoneration, contribution, indemnification
or set off and any and all defenses available to a surety, guarantor or
accommodation co-obligor until the Obligations are indefeasibly paid in full in
cash. Each Borrower acknowledges and agrees that this waiver is intended to
benefit Lender and shall not limit or otherwise affect such Borrower's liability
hereunder or the enforceability of this Section
29
11, and that Lender and its successors and assigns are intended third party
beneficiaries of the waivers and agreements set forth in this Section 11.4.
11.5 Election of Remedies. If Lender may, under applicable law, proceed
--------------------
to realize its benefits under any of the Loan Documents giving Lender a Lien
upon any Collateral, whether owned by any Borrower or by any other Person,
either by judicial foreclosure or by non-judicial sale or enforcement, Lender
may, at its sole option, determine which of its remedies or rights it may pursue
without affecting any of its rights and remedies under this Section 11. If, in
the exercise of any of its rights and remedies, Lender shall forfeit any of its
rights or remedies, including its right to enter a deficiency judgment against
any Borrower or any other Person. whether because of any applicable laws
pertaining to "election of remedies' or the like, each Borrower hereby consents
to such action by Lender and waives any claim based upon such action, even if
such action by Lender shall result in a full or partial loss of any rights of
subrogation which such Borrower might otherwise have had but for such action by
Lender. Any election of remedies which results in the denial or impairment of
the right of Lender to seek a deficiency judgment against any Borrower shall not
impair any other Borrower's obligation to pay the full amount of the
Obligations. In the event Lender shall bid at any foreclosure or trustee's sale
or at any private sale permitted by law or the Loan Documents, Lender may bid
all or less than the amount of the Obligations and the amount of such bid need
not be paid by Lender but may be credited against the Obligations. The amount of
the successful bid at any such sale, whether Lender or any other party is the
successful bidder, shall be conclusively deemed to be the fair market value of
the Collateral and the difference between such bid amount and the remaining
balance of the Obligations shall be conclusively deemed to be the amount of the
Obligations guaranteed under this Section 11, notwithstanding that any present
or future law or court decision or ruling may have the effect of reducing the
amount of any deficiency claim to which Lender might otherwise be entitled but
for such bidding at any such sale. In addition, each Borrower waives all rights
and defenses arising out of an election of remedies by Lender, even though the
election of remedies, such as a non-judicial foreclosure with respect to
security for the Obligations, has destroyed any Borrower's rights of subrogation
and reimbursement against the principal by the operation of Section 580d of the
California Code of Civil Procedure or otherwise.
11.6 Limitation. Notwithstanding any provision herein contained to the
----------
contrary, each Borrower's liability under this Section 11 (which liability is in
any event in addition to amounts for which such Borrower is primarily liable
under Section 1) shall be limited to an amount not to exceed as of any date of
determination the greater of:
(a) the net amount of all Loans advanced to any other Borrower under this
Agreement and then re-loaned or otherwise transferred to, or for the benefit of,
such Borrower; and
(b) the amount which could be claimed by Lender from such Borrower under
this Section 11 without rendering such claim voidable or avoidable under Section
548 of Chapter 11 of the United States Bankruptcy Code or under any applicable
state Uniform Fraudulent Transfer Act, Uniform Fraudulent Conveyance Act or
similar statute or common law after taking into account, among other things,
such Borrower's right of contribution and indemnification from each other
Borrower under Section 11.7.
30
11.7 Contribution with Respect to Guaranty Obligations. (a) To the extent
-------------------------------------------------
that any Borrower shall make a payment under this Section 11 of all or any of
the Obligations (other than Loans made to that Borrower for which it is
primarily liable) (a "Guarantor Payment") which, taking into account all other
Guarantor Payments then previously or concurrently made by any other Borrower,
exceeds the amount which such Borrower would otherwise have paid if each
Borrower had paid the aggregate Obligations satisfied by such Guarantor Payment
in the same proportion that such Borrower's "Allocable Amount" (as defined
below) (as determined immediately prior to such Guarantor Payment) bore to the
aggregate Allocable Amounts of each of the Borrowers as determined immediately
prior to the making of such Guarantor Payment, then, following indefeasible
payment in full in cash of the Obligations and termination of the Commitments,
such Borrower shall be entitled to receive contribution and indemnification
payments from, and be reimbursed by, each other Borrower for the amount of such
excess, pro rata based upon their respective Allocable Amounts in effect
immediately prior to such Guarantor Payment.
(b) As of any date of determination, the "Allocable Amount" of any
Borrower shall be equal to the maximum amount of the claim which could then be
recovered from such Borrower under this Section 11 without rendering such claim
voidable or avoidable under Section 548 of Chapter 11 of the United States
Bankruptcy Code or under any applicable state Uniform Fraudulent Transfer Act,
Uniform Fraudulent Conveyance Act or similar statute or common law.
(c) This Section 11.7 is intended only to define the relative rights of
Borrowers and nothing set forth in this Section 11.7 is intended to or shall
impair the obligations of each Borrower to pay any amounts as and when the same
shall become due and payable in accordance with the terms of this Agreement,
including Section 11.1. Nothing contained in this Section 11.7 shall limit the
liability of any Borrower to pay the Loans made directly or indirectly to that
Borrower and accrued interest, Fees and expenses with respect thereto for which
such Borrower shall be primarily liable.
(d) The parties hereto acknowledge that the rights of contribution and
indemnification hereunder shall constitute assets of Borrower to which such
contribution and indemnification is owing.
(e) The rights of the indemnifying Borrowers against other Credit Parties
under this Section 11.7 shall be exercisable upon the full and indefeasible
payment of the Obligations and the termination of Lender's obligation to extend
any credit under this Agreement.
11.8 Liability Cumulative. The liability of Borrowers under this Section 11
--------------------
is in addition to and shall be cumulative with all liabilities of each Borrower
to Lender under this Agreement and the other Loan Documents to which such
Borrower is a party or in respect of any Obligations or obligation of the other
Borrower, without any limitation as to amount, unless the instrument or
agreement evidencing or creating such other liability specifically provides to
the contrary.
[Signatures Begin on the Next Page]
31
IN WITNESS WHEREOF, this Loan and Security Agreement has been duly executed
as of the date first written above.
BORROWERS:
CD WAREHOUSE, INC.
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
--------------------------------------
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Title: President
COMPACT DISCS MANAGEMENT, INC.
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
--------------------------------------
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Title: Chairman
OTHER CREDIT PARTIES:
CD WAREHOUE FINANCE COMPANY
By: /s/▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
--------------------------------------
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Title: Chairman
CD ▇▇▇▇▇▇▇▇▇.▇▇▇, INC.
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
--------------------------------------
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Title: Chairman
COMPACT DISCS DISTRIBUTION, INC.
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
-------------------------------------
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Title: Chairman
32
LENDER:
GENERAL ELECTRIC CAPITAL CORPORATION
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
---------------------------------------
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: Duly Authorized Signatory
33
