EXHIBIT 10.14
Loan and Security Agreement
by and between
CONGRESS FINANCIAL CORPORATION (CENTRAL)
as Lender
and
CTI INDUSTRIES CORPORATION
as Borrower
Dated: January 12, 2001
TABLE OF CONTENTS
Page
SECTION 1. DEFINITIONS .................................................... 1
SECTION 2. CREDIT FACILITIES .............................................. 9
2.1. Revolving Loans ................................................ 9
2.2. Letter of Credit Accommodations ................................ 10
2.3. Term Loan ...................................................... 13
2.4. Availability Reserves .......................................... 13
2.5. Licensed Inventory Limit ....................................... 13
SECTION 3. INTEREST AND FEES .............................................. 13
3.1. Interest ....................................................... 13
3.2. Closing Fee .................................................... 14
3.3. Servicing Fee .................................................. 14
3.4. Unused Line Fee ................................................ 15
SECTION 4. CONDITIONS PRECEDENT ........................................... 15
4.1. Conditions Precedent to Initial Loans and Letter
of Credit Accommodations ....................................... 15
4.2. Conditions Precedent to All Loans and Letter of
Credit Accommodations .......................................... 17
SECTION 5. GRANT OF SECURITY INTEREST ..................................... 17
SECTION 6. COLLECTION AND ADMINISTRATION .................................. 18
6.1. Borrower's Loan Account ........................................ 18
6.2. Statements ..................................................... 18
6.3. Collection of Accounts ......................................... 18
6.4. Payments ....................................................... 20
6.5. Authorization to Make Loans .................................... 20
6.6. Use of Proceeds ................................................ 20
SECTION 7. COLLATERAL REPORTING AND COVENANTS ............................. 21
7.1. Collateral Reporting ........................................... 21
7.2. Accounts Covenants ............................................. 21
7.3. Inventory Covenants ............................................ 23
7.4. Equipment Covenants ............................................ 24
7.5. Power of Attorney .............................................. 24
7.6. Right to Cure .................................................. 25
7.7. Access to Premises ............................................. 25
SECTION 8. REPRESENTATIONS AND WARRANTIES ................................. 25
8.1. Corporate Existence, Power and Authority;
Subsidiaries ................................................... 26
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8.2. Financial Statements; No Material Adverse Change ............... 26
8.3. Chief Executive Office; Collateral Locations ................... 26
8.4. Priority of Liens; Title to Properties ......................... 26
8.5. Tax Returns .................................................... 27
8.6. Litigation ..................................................... 27
8.7. Compliance with Other Agreements and Applicable
Laws ........................................................... 27
8.8. Bank Accounts .................................................. 27
8.9. Accuracy and Completeness of Information ....................... 28
8.10. Survival of Warranties; Cumulative ............................. 28
8.11. Employee Benefits .............................................. 28
8.12. Environmental Compliance ....................................... 29
SECTION 9. AFFIRMATIVE AND NEGATIVE COVENANTS ............................. 30
9.1. Maintenance of Existence ....................................... 30
9.2. New Collateral Locations ....................................... 30
9.3. Compliance with Laws, Regulations, Etc. ........................ 30
9.4. Payment of Taxes and Claims .................................... 31
9.5. Insurance ...................................................... 32
9.6. Financial Statements and Other Information ..................... 32
9.7. Sale of Assets, Consolidation, Merger,
Dissolution, Etc. .............................................. 33
9.8. Encumbrances ................................................... 34
9.9. Indebtedness ................................................... 34
9.10. Loans, Investments, Guarantees, Etc. ........................... 35
9.11. Dividends and Redemptions ...................................... 36
9.12. Transactions with Affiliates ................................... 36
9.13. Additional Bank Accounts ....................................... 36
9.14. Costs and Expenses ............................................. 36
9.15. Further Assurances ............................................. 37
9.16. Compliance with ERISA .......................................... 38
SECTION 10. EVENTS OF DEFAULT AND REMEDIES ................................. 38
10.1. Events of Default .............................................. 38
10.2. Remedies ....................................................... 40
SECTION 11. JURY TRIAL WAIVER; OTHER WAIVERS AND CONSENTS;
GOVERNING LAW .................................................. 42
11.1. Governing Law; Choice of Forum; Service of
Process; Jury Trial Waiver ..................................... 42
11.2. Waiver of Notices .............................................. 43
11.3. Amendments and Waivers ......................................... 43
11.4. Waiver of Counterclaims ........................................ 43
11.5. Indemnification ................................................ 44
SECTION 12. TERM OF AGREEMENT; MISCELLANEOUS ............................... 44
12.1. Term ........................................................... 44
12.2. Notices ........................................................ 46
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12.3. Partial Invalidity ............................................. 46
12.4. Successors ..................................................... 46
12.5. Entire Agreement ............................................... 46
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INDEX TO
EXHIBITS AND SCHEDULES
Exhibit A Information Certificate
Exhibit B New West Letter of Credit
Schedule 2.5A Form of Agreement re License
Schedule 2.5B Specified Licensors
Schedule 8.4 Existing Liens
Schedule 8.8 Bank Accounts
Schedule 8.12 Environmental Matters
Schedule 9.9 Existing Indebtedness
Schedule 9.10 Existing Loans, Advances and Guarantees
Schedule 9.12 Affiliate Transactions
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LOAN AND SECURITY AGREEMENT
This Loan and Security Agreement dated January 12, 2001 is entered into by
and between Congress Financial Corporation (Central), an Illinois corporation
("Lender") and CTI Industries Corporation, a Delaware corporation ("Borrower").
W I T N E S S E T H
WHEREAS, Borrower has requested that Lender enter into certain financing
arrangements with Borrower pursuant to which Lender may make loans and provide
other financial accommodations to Borrower; and
WHEREAS, Lender is willing to make such loans and provide such financial
accommodations on the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the mutual conditions and agreements
set forth herein, and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
SECTION 1. DEFINITIONS
All terms used herein which are defined in Article 1 or Article 9 of the
Uniform Commercial Code shall have the meanings given therein unless otherwise
defined in this Agreement. All references to the plural herein shall also mean
the singular and to the singular shall also mean the plural unless the context
otherwise requires. All references to Borrower and Lender pursuant to the
definitions set forth in the recitals hereto, or to any other person herein,
shall include their respective successors and assigns. The words "hereof",
"herein", "hereunder", "this Agreement" and words of similar import when used in
this Agreement shall refer to this Agreement as a whole and not any particular
provision of this Agreement and as this Agreement now exists or may hereafter be
amended, modified, supplemented, extended, renewed, restated or replaced. The
word "including" when used in this Agreement shall mean "including, without
limitation". An Event of Default shall exist or continue or be continuing until
such Event of Default is waived in accordance with Section 11.3 or is cured in a
manner satisfactory to Lender, if such Event of Default is capable of being
cured as determined by Lender. Any accounting term used herein unless otherwise
defined in this Agreement shall have the meanings customarily given to such term
in accordance with GAAP. For purposes of this Agreement, the following terms
shall have the respective meanings given to them below:
1.1. "Accounts" shall mean all present and future rights of Borrower to
payment for goods sold or leased or for services rendered, which are not
evidenced by instruments or chattel paper, and whether or not earned by
performance.
1.2. "Appraised Value" shall mean the appraised value of Inventory, with
such appraised value determined on a net orderly liquidation basis, by an
appraiser
acceptable to Lender. The Appraised Value shall be based on the most recent such
appraisal obtained at the request of Lender.
1.3. "Availability Reserves" shall mean, as of any date of determination,
such amounts as Lender may from time to time establish and revise in good faith
reducing the amount of Revolving Loans and Letter of Credit Accommodations which
would otherwise be available to Borrower under the lending formula(s) provided
for herein: (a) to reflect events, conditions, contingencies or risks which, as
determined by Lender in good faith, do or may affect either (i) the Collateral
or any other property which is security for the Obligations or its value, (ii)
the assets, business or prospects of Borrower or any Obligor or (iii) the
security interests and other rights of Lender in the Collateral (including the
enforceability, perfection and priority thereof) or (b) to reflect Lender's good
faith belief that any collateral report or financial information furnished by or
on behalf of Borrower or any Obligor to Lender is or may have been incomplete,
inaccurate or misleading in any material respect or (c) to reflect outstanding
Letter of Credit Accommodations as provided in Section 2.2 hereof or (d) in
respect of any state of facts which Lender determines in good faith constitutes
an Event of Default or may, with notice or passage of time or both, constitute
an Event of Default. Without limiting the foregoing, Lender shall establish
reserves (in such amounts as are determined by Lender in good faith) for accrued
rebates.
1.4. "Blocked Accounts" shall have the meaning set forth in Section 6.3
hereof.
1.5. "Code" shall mean the Internal Revenue Code of 1986, as the same now
exists or may from time to time hereafter be amended, modified, recodified or
supplemented, together with all rules, regulations and interpretations
thereunder or related thereto.
1.6. "Collateral" shall have the meaning set forth in Section 5 hereof.
1.7. "Eckerd" shall mean Eckerd Corporation.
1.8. "Eligible Accounts" shall mean Accounts created by Borrower which are
and continue to be acceptable to Lender based on the criteria set forth below.
In general, Accounts shall be Eligible Accounts if:
(a) such Accounts arise from the actual and bona fide sale and delivery of
goods by Borrower or rendition of services by Borrower in the ordinary course of
its business which transactions are completed in accordance with the terms and
provisions contained in any documents related thereto;
(b) such Accounts are not unpaid more than ninety (90) days after the date
of the original invoice for them;
(c) such Accounts comply with the terms and conditions contained in Section
7.2(c) of this Agreement;
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(d) such Accounts do not arise from sales on consignment, guaranteed sale,
sale and return, sale on approval, or other terms under which payment by the
account debtor may be conditional or contingent, except for Accounts arising
from sales to Eckerd in the ordinary course of Borrower's business pursuant to
past practices pursuant to which Eckerd has a right of return with respect to up
to thirty percent (30%) of such Accounts (but only so long as the amount of
Accounts owing by Eckerd reported to Lender and reflected on Borrower's books
has been reduced by at least twenty percent (20%) of such Accounts);
(e) the chief executive office of the account debtor with respect to such
Accounts is located in the United States of America, or, at Lender's option, if
either: (i) the account debtor has delivered to Borrower an irrevocable letter
of credit issued or confirmed by a bank satisfactory to Lender and payable only
in the United States of America and in U.S. dollars, sufficient to cover such
Account, in form and substance satisfactory to Lender and, if required by
Lender, the original of such letter of credit has been delivered to Lender or
Lender's agent and the issuer thereof notified of the assignment of the proceeds
of such letter of credit to Lender, or (ii) such Account is subject to credit
insurance payable to Lender issued by an insurer and on terms and in an amount
acceptable to Lender, or (iii) such Account is otherwise acceptable in all
respects to Lender (subject to such lending formula with respect thereto as
Lender may determine);
(f) such Accounts do not consist of progress xxxxxxxx, xxxx and hold
invoices or retainage invoices, except as to xxxx and hold invoices, if Lender
shall have received an agreement in writing from the account debtor, in form and
substance satisfactory to Lender, confirming the unconditional obligation of the
account debtor to take the goods related thereto and pay such invoice;
(g) the account debtor with respect to such Accounts has not asserted a
counterclaim, defense or dispute and does not have, and does not engage in
transactions which may give rise to, a contra or any right of setoff against
such Accounts (but the portion of the Accounts of such account debtor in excess
of the amount at any time and from time to time owed by Borrower to such account
debtor or claimed owed by such account debtor may be deemed Eligible Accounts);
(h) there are no facts, events or occurrences which would impair the
validity, enforceability or collectability of such Accounts or reduce the amount
payable or delay payment thereunder;
(i) such Accounts are subject to the first priority, valid and perfected
security interest of Lender and any goods giving rise thereto are not, and were
not at the time of the sale thereof, subject to any liens except those permitted
in this Agreement;
(j) neither the account debtor nor any officer or employee of the account
debtor with respect to such Accounts is an officer, employee or agent of or
affiliated with Borrower directly or indirectly by virtue of family membership,
ownership, control, management or otherwise (provided, that Accounts owing by
Packaging Systems, Inc. up to $250,000 shall be Eligible Accounts even though
Xxxx X. Xxxxxx is an officer of Packaging
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Systems, Inc. so long as such Accounts are on terms substantially the same as
the terms of Borrower's other Accounts and such Accounts are otherwise Eligible
Accounts);
(k) the account debtors with respect to such Accounts are not any foreign
government, the United States of America, any State, political subdivision,
department, agency or instrumentality thereof, unless, if the account debtor is
the United States of America, any State, political subdivision, department,
agency or instrumentality thereof, upon Lender's request, the Federal Assignment
of Claims Act of 1940, as amended or any similar State or local law, if
applicable, has been complied with in a manner satisfactory to Lender;
(l) there are no proceedings or actions which are threatened or pending
against the account debtors with respect to such Accounts which might result in
any material adverse change in any such account debtor's financial condition;
(m) such Accounts of a single account debtor or its affiliates do not
constitute more than twelve and one-half percent (12.5%) of all otherwise
Eligible Accounts (but the portion of the Accounts not in excess of such
percentage may be deemed Eligible Accounts), except for (i) Accounts of Eckerd
or its affiliates to the extent such Accounts do not constitute more than
fifteen percent (15%) of all otherwise Eligible Accounts (but the portion of the
Accounts not in excess of such percentage may be deemed Eligible Accounts), and
(ii) Accounts of New West to the extent permitted under clause (q) below;
(n) such Accounts are not owed by an account debtor who has Accounts unpaid
more than ninety (90) days after the date of the original invoice for them which
constitute more than fifty percent (50%) of the total Accounts of such account
debtor;
(o) such Accounts are owed by account debtors whose total indebtedness to
Borrower does not exceed the credit limit with respect to such account debtors
as determined by Lender from time to time (but the portion of the Accounts not
in excess of such credit limit may be deemed Eligible Accounts);
(p) such Accounts are owed by account debtors deemed creditworthy at all
times by Lender, as determined by Lender; and
(q) such Accounts are owed by New West to the extent (i) the total
indebtedness owing thereunder does not exceed the New West Credit Sublimit (but
the portion of the Accounts not in excess of such credit limit may be deemed
Eligible Accounts) and (ii) such Accounts are otherwise Eligible Accounts.
General criteria for Eligible Accounts may be established and revised from time
to time by Lender in good faith. Any Accounts which are not Eligible Accounts
shall nevertheless be part of the Collateral.
1.9. "Eligible Inventory" shall mean Inventory consisting of finished goods
held for resale in the ordinary course of the business of Borrower and raw
materials and work-in-process for such finished goods which are acceptable to
Lender based on the criteria
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set forth below. In general, Eligible Inventory shall not include (a) components
which are not part of finished goods; (b) spare parts for equipment; (c)
supplies used or consumed in Borrower's business; (d) Inventory at premises
other than those owned and controlled by Borrower, except if Lender shall have
received an agreement in writing from the person in possession of such Inventory
and/or the owner or operator of such premises in form and substance satisfactory
to Lender acknowledging Lender's first priority security interest in the
Inventory, waiving security interests and claims by such person against the
Inventory and permitting Lender access to, and the right to remain on, the
premises so as to exercise Lender's rights and remedies and otherwise deal with
the Collateral; (e) Inventory subject to a security interest or lien in favor of
any person other than Lender except those permitted in this Agreement; (f) xxxx
and hold goods; (g) unserviceable, obsolete or slow moving Inventory; (h)
Inventory which is not subject to the first priority, valid and perfected
security interest of Lender; (i) returned (except for Inventory returned in the
ordinary course of Borrower's business that will be resold as new and unused
Inventory by Borrower in the ordinary course of its business), damaged and/or
defective Inventory; (j) any Licensed Inventory with respect to which the
applicable license agreement has terminated; (k) the portion of the Licensed
Inventory, which in the aggregate, exceeds the Licensed Inventory Limit unless
the licensor, with respect to such Licensed Inventory, has agreed to permit
Lender to dispose of such Licensed Inventory on terms and conditions
satisfactory to Lender; and (l) Inventory purchased or sold on consignment.
General criteria for Eligible Inventory may be established and revised from time
to time by Lender in good faith. Any Inventory which is not Eligible Inventory
shall nevertheless be part of the Collateral.
1.10. "Environmental Laws" shall mean all foreign, Federal, State and local
laws (including common law), legislation, rules, codes, licenses, permits
(including any conditions imposed therein), authorizations, judicial or
administrative decisions, injunctions or agreements between Borrower and any
governmental authority, (a) relating to pollution and the protection,
preservation or restoration of the environment (including air, water vapor,
surface water, ground water, drinking water, drinking water supply, surface
land, subsurface land, plant and animal life or any other natural resource), or
to human health or safety, (b) relating to the exposure to, or the use, storage,
recycling, treatment, generation, manufacture, processing, distribution,
transportation, handling, labeling, production, release or disposal, or
threatened release, of Hazardous Materials, or (c) relating to all laws with
regard to recordkeeping, notification, disclosure and reporting requirements
respecting Hazardous Materials. The term "Environmental Laws" includes (i) the
Federal Comprehensive Environmental Response, Compensation and Liability Act of
1980, the Federal Superfund Amendments and Reauthorization Act, the Federal
Water Pollution Control Act of 1972, the Federal Clean Water Act, the Federal
Clean Air Act, the Federal Resource Conservation and Recovery Act of 1976
(including the Hazardous and Solid Waste Amendments thereto), the Federal Solid
Waste Disposal and the Federal Toxic Substances Control Act, the Federal
Insecticide, Fungicide and Rodenticide Act, and the Federal Safe Drinking Water
Act of 1974, (ii) applicable state counterparts to such laws, and (iii) any
common law or equitable doctrine that may impose liability or obligations for
injuries or damages due to, or threatened as a result of, the presence of or
exposure to any Hazardous Materials.
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1.11. "Equipment" shall mean all of Borrower's now owned and hereafter
acquired equipment, machinery, computers and computer hardware and software
(whether owned or licensed), vehicles, tools, furniture, fixtures, all
attachments, accessions and property now or hereafter affixed thereto or used in
connection therewith, and substitutions and replacements thereof, wherever
located.
1.12. "ERISA" shall mean the United States Employee Retirement Income
Security Act of 1974, as the same now exists or may hereafter from time to time
be amended, modified, recodified or supplemented, together with all rules,
regulations and interpretations thereunder or related thereto.
1.13. "ERISA Affiliate" shall mean any person required to be aggregated
with Borrower or any of its Subsidiaries under Sections 414(b), 414(c), 414(m)
or 414(o) of the Code.
1.14. "Event of Default" shall mean the occurrence or existence of any
event or condition described in Section 10.1 hereof.
1.15. "Excess Availability" shall mean the amount, as determined by Lender,
calculated at any time, equal to: (a) the lesser of: (i) the amount of the
Revolving Loans available to Borrower as of such time based on the applicable
lending formulas multiplied by the Net Amount of Eligible Accounts and the Value
of Eligible Inventory, as determined by Lender, and subject to the sublimits and
Availability Reserves from time to time established by Lender hereunder, and
(ii) the Maximum Credit (less the then outstanding principal amount of the Term
Loan), minus (b) the sum of: (i) the amount of all then outstanding and unpaid
Obligations (but not including for this purpose the then outstanding principal
amount of the Term Loan), plus (ii) the aggregate amount of all then outstanding
and unpaid trade payables of Borrower which are more than sixty (60) days past
due as of such time, plus (iii) the amount of checks issued by Borrower to pay
trade payables, but not yet sent and the book overdraft of Borrower.
1.16. "Financing Agreements" shall mean, collectively, this Agreement and
all notes, guarantees, security agreements and other agreements, documents and
instruments now or at any time hereafter executed and/or delivered by Borrower
or any Obligor in connection with this Agreement, as the same now exist or may
hereafter be amended, modified, supplemented, extended, renewed, restated or
replaced.
1.17. "GAAP" shall mean generally accepted accounting principles in the
United States of America as in effect from time to time as set forth in the
opinions and pronouncements of the Accounting Principles Board and the American
Institute of Certified Public Accountants and the statements and pronouncements
of the Financial Accounting Standards Board which are applicable to the
circumstances as of the date of determination consistently applied.
1.18. "Hazardous Materials" shall mean any hazardous, toxic or dangerous
substances, materials and wastes, including hydrocarbons (including naturally
occurring or
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man-made petroleum and hydrocarbons), flammable explosives, asbestos, urea
formaldehyde insulation, radioactive materials, biological substances,
polychlorinated biphenyls, pesticides, herbicides and any other kind and/or type
of pollutants or contaminants (including materials which include hazardous
constituents), sewage, sludge, industrial slag, solvents and/or any other
similar substances, materials, or wastes and including any other substances,
materials or wastes that are or become regulated under any Environmental Law
(including any that are or become classified as hazardous or toxic under any
Environmental Law).
1.19. "Information Certificate" shall mean the Information Certificate of
Borrower constituting Exhibit A hereto containing material information with
respect to Borrower, its business and assets provided by or on behalf of
Borrower to Lender in connection with the preparation of this Agreement and the
other Financing Agreements and the financing arrangements provided for herein.
1.20. "Inventory" shall mean all of Borrower's now owned and hereafter
existing or acquired raw materials, work in process, finished goods and all
other inventory of whatsoever kind or nature, wherever located.
1.21. "Licensed Inventory" shall mean Inventory, the sale of which by
Borrower is subject to the terms of a license agreement.
1.22. "Licensed Inventory Limit" shall mean $1,500,000 as such limit may be
reduced pursuant to Section 2.5.
1.23. "Letter of Credit Accommodations" shall mean the letters of credit,
merchandise purchase or other guaranties which are from time to time either (a)
issued or opened by Lender for the account of Borrower or any Obligor or (b)
with respect to which Lender has agreed to indemnify the issuer or guaranteed to
the issuer the performance by Borrower of its obligations to such issuer.
1.24. "Loans" shall mean the Revolving Loans and the Term Loan.
1.25. "Maximum Credit" shall mean the amount of $9,500,000.
1.26. "Net Amount of Eligible Accounts" shall mean the gross amount of
Eligible Accounts less (a) sales, excise or similar taxes included in the amount
thereof and (b) returns, discounts, claims, credits and allowances of any nature
at any time issued, owing, granted, outstanding, available or claimed with
respect thereto.
1.27. "New West" shall mean New West Products, Inc.
1.28. "New West Credit Sublimit" shall mean the lesser of (A) the sum of
(x) $850,000 plus (y) the lesser of (i) the undrawn face amount of the New West
Letter of Credit and (ii) $250,000, and (B) thirty-five percent (35%) of all
Accounts.
1.29. "New West Joint Venture" shall mean the joint venture between
Borrower and New West to manufacture and sell space bags.
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1.30. "New West Letter of Credit" shall mean that certain letter of credit
in the face amount of $250,000 issued by American National Bank & Trust Company
of Chicago for the account of Xxxx X. Xxxxxx, a copy of which is attached hereto
as Exhibit B.
1.31. "Obligations" shall mean any and all Revolving Loans, the Term Loan,
Letter of Credit Accommodations and all other obligations, liabilities and
indebtedness of every kind, nature and description owing by Borrower to Lender
and/or its affiliates, including principal, interest, charges, fees, costs and
expenses, however evidenced, whether as principal, surety, endorser, guarantor
or otherwise, whether arising under this Agreement or otherwise, whether now
existing or hereafter arising, whether arising before, during or after the
initial or any renewal term of this Agreement or after the commencement of any
case with respect to Borrower under the United States Bankruptcy Code or any
similar statute (including the payment of interest and other amounts which would
accrue and become due but for the commencement of such case, whether or not such
amounts are allowed or allowable in whole or in part in such case), whether
direct or indirect, absolute or contingent, joint or several, due or not due,
primary or secondary, liquidated or unliquidated, secured or unsecured, and
however acquired by Lender.
1.32. "Obligor" shall mean any guarantor, endorser, acceptor, surety or
other person liable on or with respect to the Obligations or who is the owner of
any property which is security for the Obligations, other than Borrower.
1.33. "Payment Account" shall have the meaning set forth in Section 6.3
hereof.
1.34. "Person" or "person" shall mean any individual, sole proprietorship,
partnership, corporation (including any corporation which elects subchapter S
status under the Internal Revenue Code of 1986, as amended), limited liability
company, limited liability partnership, business trust, unincorporated
association, joint stock corporation, trust, joint venture or other entity or
any government or any agency or instrumentality or political subdivision
thereof.
1.35. "Prime Rate" shall mean the rate from time to time publicly announced
by First Union National Bank, or its successors, as its prime rate, whether or
not such announced rate is the best rate available at such bank.
1.36. "Real Estate Documents" means the Real Estate Mortgage, the Secured
Promissory Note for $173,000 due 2004, the Secured Promissory Note for
$2,700,000 due 2006, the Assignment of Leases and Rents and the Environmental
Indemnity, together with the agreements, instruments and documents executed in
connection therewith.
1.37. "Records" shall mean all of Borrower's present and future books of
account of every kind or nature, purchase and sale agreements, invoices, ledger
cards, bills of lading and other shipping evidence, statements, correspondence,
memoranda, credit files and other data relating to the Collateral or any account
debtor, together with the tapes, disks, diskettes and other data and software
storage media and devices, file cabinets or containers in
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or on which the foregoing are stored (including any rights of Borrower with
respect to the foregoing maintained with or by any other person).
1.38. "Revolving Loans" shall mean the loans now or hereafter made by
Lender to or for the benefit of Borrower on a revolving basis (involving
advances, repayments and readvances) as set forth in Section 2.1 hereof.
1.39. "Term Loan" shall mean the term loan made by Lender to Borrower as
provided for in Section 2.3 hereof.
1.40. "Value" shall mean, as determined by Lender in good faith, with
respect to Inventory, the lower of (a) cost computed on a first-in-first-out
basis in accordance with GAAP or (b) market value.
SECTION 2. CREDIT FACILITIES
2.1. Revolving Loans.
(a) Subject to and upon the terms and conditions contained herein, Lender
agrees to make Revolving Loans to Borrower from time to time in amounts
requested by Borrower up to the amount equal to the sum of:
(i) eighty-five percent (85%) of the Net Amount of Eligible Accounts,
plus
(ii) the lesser of: (A) the sum of fifty percent (50%) of the Value of
Eligible Inventory (provided, that the foregoing advance rate applicable to
Eligible Inventory shall at no time exceed the quotient, expressed as a
percentage, equal to eighty-seven percent (87%) multiplied by the Appraised
Value of Eligible Inventory, divided by the Value of such Eligible
Inventory), or (B) $3,500,000, less
(iii) any Availability Reserves.
(b) Lender may, in its discretion, from time to time, upon not less than
five (5) days prior notice to Borrower, (i) reduce the lending formula with
respect to Eligible Accounts to the extent that Lender determines in good faith
that: (A) the dilution with respect to the Accounts for any period (based on the
ratio of (1) the aggregate amount of reductions in Accounts other than as a
result of payments in cash to (2) the aggregate amount of total sales) has
increased in any material respect or may be reasonably anticipated to increase
in any material respect above historical levels, or (B) the general
creditworthiness of account debtors has declined or (ii) reduce the lending
formula(s) with respect to Eligible Inventory to the extent that Lender
determines that: (A) the number of days of the turnover of the Inventory for any
period has changed in any material respect or (B) the liquidation value of the
Eligible Inventory, or any category thereof, has decreased, or (C) the nature
and quality of the Inventory has deteriorated. In determining whether to reduce
the lending
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formula(s), Lender may consider events, conditions, contingencies or risks which
are also considered in determining Eligible Accounts, Eligible Inventory or in
establishing Availability Reserves.
(c) Except in Lender's discretion, the aggregate amount of the Loans and
the Letter of Credit Accommodations outstanding at any time shall not exceed the
Maximum Credit. In the event that the outstanding amount of any component of the
Revolving Loans, or the aggregate amount of the outstanding Revolving Loans and
Letter of Credit Accommodations, exceed the amounts available under the lending
formulas, the sublimits for Letter of Credit Accommodations set forth in Section
2.2(d) or the Maximum Credit (less the outstanding principal balance of the Term
Loan), as applicable, such event shall not limit, waive or otherwise affect any
rights of Lender in that circumstance or on any future occasions and Borrower
shall, upon demand by Lender, which may be made at any time or from time to
time, immediately repay to Lender the entire amount of any such excess(es) for
which payment is demanded.
(d) For purposes only of applying the sublimit on Revolving Loans based on
Eligible Inventory pursuant to Section 2.1(a)(ii)(B), Lender may treat the then
undrawn amounts of outstanding Letter of Credit Accommodations for the purpose
of purchasing Eligible Inventory as Revolving Loans to the extent Lender is in
effect basing the issuance of the Letter of Credit Accommodations on the Value
of the Eligible Inventory being purchased with such Letter of Credit
Accommodations. In determining the actual amounts of such Letter of Credit
Accommodations to be so treated for purposes of the sublimit, the outstanding
Revolving Loans and Availability Reserves shall be attributed first to any
components of the lending formulas in Section 2.1(a) that are not subject to
such sublimit, before being attributed to the components of the lending formulas
subject to such sublimit.
2.2. Letter of Credit Accommodations.
(a) Subject to and upon the terms and conditions contained herein, at the
request of Borrower, Lender agrees to provide or arrange for Letter of Credit
Accommodations for the account of Borrower containing terms and conditions
acceptable to Lender and the issuer thereof. Any payments made by Lender to any
issuer thereof and/or related parties in connection with the Letter of Credit
Accommodations shall constitute additional Revolving Loans to Borrower pursuant
to this Section 2.
(b) In addition to any charges, fees or expenses charged by any bank or
issuer in connection with the Letter of Credit Accommodations, Borrower shall
pay to Lender a letter of credit fee at a rate equal to one and one-half percent
(1.5%) per annum on the daily outstanding balance of the Letter of Credit
Accommodations for the immediately preceding month (or part thereof), payable in
arrears as of the first day of each succeeding month, except that Borrower shall
pay to Lender such letter of credit fee, at Lender's option, without notice, at
a rate equal to three and one-half percent (3.5%) per annum on such daily
outstanding balance for: (i) the period from and after the date of termination
or non-renewal hereof until Lender has received full and final payment of all
Obligations (notwithstanding entry of a judgment against Borrower) and (ii) the
period from and after the date of the
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occurrence of an Event of Default for so long as such Event of Default is
continuing as determined by Lender. Such letter of credit fee shall be
calculated on the basis of a three hundred sixty (360) day year and actual days
elapsed and the obligation of Borrower to pay such fee shall survive the
termination or non-renewal of this Agreement.
(c) No Letter of Credit Accommodations shall be available unless on the
date of the proposed issuance of any Letter of Credit Accommodations, the
Revolving Loans available to Borrower (subject to the Maximum Credit and any
Availability Reserves) are equal to or greater than: (i) if the proposed Letter
of Credit Accommodation is for the purpose of purchasing Eligible Inventory and
all documents of title with respect to such Eligible Inventory have been
consigned to the issuing bank, the sum of (A) the percentage equal to one
hundred percent (100%) minus the then applicable percentage set forth in Section
2.1(a)(ii)(A) above of the Value of such Eligible Inventory, plus (B) freight,
taxes, duty and other amounts which Lender estimates must be paid in connection
with such Inventory upon arrival and for delivery to one of Borrower's locations
for Eligible Inventory within the United States of America and (ii) if the
proposed Letter of Credit Accommodation is for any other purpose, an amount
equal to one hundred percent (100%) of the face amount thereof and all other
commitments and obligations made or incurred by Lender with respect thereto.
Effective on the issuance of each Letter of Credit Accommodation, an
Availability Reserve shall be established in the applicable amount set forth in
Section 2.2(c)(i) or Section 2.2(c)(ii).
(d) Except in Lender's discretion, the amount of all outstanding Letter of
Credit Accommodations and all other commitments and obligations made or incurred
by Lender in connection therewith shall not at any time exceed $1,500,000. At
any time an Event of Default exists or has occurred and is continuing, upon
Lender's request, Borrower will either furnish cash collateral to secure the
reimbursement obligations to the issuer in connection with any Letter of Credit
Accommodations or furnish cash collateral to Lender for the Letter of Credit
Accommodations, and in either case, the Revolving Loans otherwise available to
Borrower shall not be reduced as provided in Section 2.2(c) to the extent of
such cash collateral.
(e) Borrower shall indemnify and hold Lender harmless from and against any
and all losses, claims, damages, liabilities, costs and expenses which Lender
may suffer or incur in connection with any Letter of Credit Accommodations and
any documents, drafts or acceptances relating thereto, including any losses,
claims, damages, liabilities, costs and expenses due to any action taken by any
issuer or correspondent with respect to any Letter of Credit Accommodation.
Borrower assumes all risks with respect to the acts or omissions of the drawer
under or beneficiary of any Letter of Credit Accommodation and for such purposes
the drawer or beneficiary shall be deemed Borrower's agent. Borrower assumes all
risks for, and agrees to pay, all foreign, Federal, State and local taxes,
duties and levies relating to any goods subject to any Letter of Credit
Accommodations or any documents, drafts or acceptances thereunder. Borrower
hereby releases and holds Lender harmless from and against any acts, waivers,
errors, delays or omissions, whether caused by Borrower, by any issuer or
correspondent or otherwise with respect to or relating to any Letter of Credit
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Accommodation. The provisions of this Section 2.2(e) shall survive the payment
of Obligations and the termination or non-renewal of this Agreement.
(f) Nothing contained herein shall be deemed or construed to grant Borrower
any right or authority to pledge the credit of Lender in any manner. Lender
shall have no liability of any kind with respect to any Letter of Credit
Accommodation provided by an issuer other than Lender unless Lender has duly
executed and delivered to such issuer the application or a guarantee or
indemnification in writing with respect to such Letter of Credit Accommodation.
Borrower shall be bound by any interpretation made in good faith by Lender, or
any other issuer or correspondent under or in connection with any Letter of
Credit Accommodation or any documents, drafts or acceptances thereunder,
notwithstanding that such interpretation may be inconsistent with any
instructions of Borrower. Lender shall have the sole and exclusive right and
authority to, and Borrower shall not: (i) at any time an Event of Default exists
or has occurred and is continuing, (A) approve or resolve any questions of
non-compliance of documents, (B) give any instructions as to acceptance or
rejection of any documents or goods or (C) execute any and all applications for
steamship or airway guaranties, indemnities or delivery orders, and (ii) at all
times, (A) grant any extensions of the maturity of, time of payment for, or time
of presentation of, any drafts, acceptances, or documents, and (B) agree to any
amendments, renewals, extensions, modifications, changes or cancellations of any
of the terms or conditions of any of the applications, Letter of Credit
Accommodations, or documents, drafts or acceptances thereunder or any letters of
credit included in the Collateral. Lender may take such actions either in its
own name or in Borrower's name.
(g) Any rights, remedies, duties or obligations granted or undertaken by
Borrower to any issuer or correspondent in any application for any Letter of
Credit Accommodation, or any other agreement in favor of any issuer or
correspondent relating to any Letter of Credit Accommodation, shall be deemed to
have been granted or undertaken by Borrower to Lender. Any duties or obligations
undertaken by Lender to any issuer or correspondent in any application for any
Letter of Credit Accommodation, or any other agreement by Lender in favor of any
issuer or correspondent relating to any Letter of Credit Accommodation, shall be
deemed to have been undertaken by Borrower to Lender and to apply in all
respects to Borrower.
2.3. Term Loan.
Lender is making a Term Loan to Borrower in the original principal amount
of $1,426,000. The Term Loan is (a) evidenced by a Term Promissory Note in such
original principal amount duly executed and delivered by Borrower to Lender
concurrently herewith; (b) to be repaid, together with interest and other
amounts, in accordance with this Agreement, the Term Promissory Note, and the
other Financing Agreements and (c) secured by all of the Collateral. In addition
to monthly principal payments set forth in the Term Promissory Note, in the
event at any time the outstanding principal balance of the Term Loan exceeds
eighty-five percent (85%) of the appraised net orderly liquidation value (based
on the appraisals required under Section 7.4) of the Equipment of Borrower that
is subject to the first priority lien of Lender and that is otherwise acceptable
to Lender, at the written request
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of Lender, Borrower shall make a mandatory prepayment of the Term Loan in
an amount equal to such excess. Any such mandatory prepayment shall be applied
to the installments owing in respect of the Term Loan in the inverse order of
their maturity.
2.4. Availability Reserves.
All Revolving Loans otherwise available to Borrower pursuant to the lending
formulas and subject to the Maximum Credit and other applicable limits hereunder
shall be subject to Lender's continuing right to establish and revise
Availability Reserves.
2.5. Licensed Inventory Limit.
In the event Lender has not received an executed Agreement re License in
the form of Schedule 2.5A from each of the licensors listed on Schedule 2.5B on
or before March 31, 2001, Lender may reduce the Licensed Inventory Limit in its
good faith discretion.
SECTION 3. INTEREST AND FEES
3.1. Interest.
(a) Borrower shall pay to Lender interest on (i) the outstanding principal
amount of the non-contingent Obligations (other than the Term Loan) at the rate
of one-half of one percent (0.5%) per annum in excess of the Prime Rate (the
"Revolving Rate") and (ii) on the outstanding principal amount of the Term Loan
at the rate of three-quarters of one percent (0.75%) per annum in excess of the
Prime Rate (the "Term Rate"), except that, at Lender's option, without notice,
Borrower shall pay to Lender interest at the rate of two percent (2%) per annum
in excess of the rate otherwise payable hereunder: (i) on the non-contingent
Obligations (including the Term Loan) for (A) the period from and after the date
of termination or non-renewal hereof until such time as Lender has received full
and final payment of all such Obligations (notwithstanding entry of any judgment
against Borrower), and (B) the period from and after the date of the occurrence
of an Event of Default for so long as such Event of Default is continuing as
determined by Lender and (ii) on the Revolving Loans at any time outstanding in
excess of the amounts available to Borrower under Section 2 (whether or not such
excess(es), arise or are made with or without Lender's knowledge or consent and
whether made before or after an Event of Default); provided, that if no Event of
Default exists and the audited financial statements of Borrower for any twelve
(12) month fiscal year ending on or after December 31, 2001 show that Borrower's
net income before taxes exceeded $750,000 for such fiscal year, on the tenth day
after Lender's receipt of such financial statements, the Revolving Rate and the
Term Rate shall each be reduced twenty-five (25) basis points; provided,
further, that the Revolving Rate and the Term Rate may not be reduced more than
once during the term of this Agreement and if the audited financial statements
of Borrower for any twelve (12) month fiscal year ending on or after December
31, 2002 show a net loss for such fiscal year, the Revolving Rate shall revert
to one-half of one percent (0.5%) per annum in excess of the Prime Rate and the
Term Rate shall revert to three-quarters of one percent (0.75%) per annum in
excess of the Prime Rate.
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For purposes hereof, net income and net loss shall be calculated exclusive of
nonrecurring or one time gains and extraordinary gains.
(b) Interest shall be payable by Borrower to Lender monthly in arrears not
later than the first day of each calendar month and shall be calculated on the
basis of a three hundred sixty (360) day year and actual days elapsed. The
interest rate shall increase or decrease by an amount equal to each increase or
decrease in the Prime Rate effective on the first day of the month after any
change in such Prime Rate is announced. The increase or decrease shall be based
on the Prime Rate in effect on the last day of the month in which any such
change occurs. All interest accruing hereunder on and after an Event of Default
or termination or non-renewal hereof shall be payable on demand. In no event
shall charges constituting interest payable by Borrower to Lender exceed the
maximum amount or the rate permitted under any applicable law or regulation, and
if any part or provision of this Agreement is in contravention of any such law
or regulation, such part or provision shall be deemed amended to conform
thereto.
3.2. Closing Fee.
Borrower shall pay to Lender as a closing fee the amount of $71,250, which
shall be fully earned as of the date hereof, and of which $35,625 shall be
payable on the date hereof and of which $35,625 shall be payable upon the
earlier of the first anniversary of the date hereof and the termination of this
Agreement.
3.3. Servicing Fee.
Borrower shall pay to Lender quarterly a servicing fee in an amount equal
to $3,000 in respect of Lender's services for each quarter (or part thereof)
while this Agreement remains in effect and for so long thereafter as any of the
Obligations are outstanding, which fee shall be fully earned as of and payable
in advance on the date hereof and on the first day of each quarter hereafter.
3.4. Unused Line Fee.
Borrower shall pay to Lender monthly an unused line fee at a rate equal to
three-eighths of one percent (0.375%) per annum calculated upon the amount by
which the Maximum Credit exceeds the average daily principal balance of the
outstanding Loans and Letter of Credit Accommodations during the immediately
preceding month (or part thereof) while this Agreement is in effect and for so
long thereafter as any of the Obligations are outstanding, which fee shall be
payable on the first day of each month in arrears.
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SECTION 4. CONDITIONS PRECEDENT
4.1. Conditions Precedent to Initial Loans and Letter of Credit
Accommodations.
Each of the following is a condition precedent to Lender making the initial
Loans and providing the initial Letter of Credit Accommodations hereunder:
(a) Lender shall have received, in form and substance satisfactory to
Lender, all releases, terminations and such other documents as Lender may
request to evidence and effectuate the termination by the existing lender or
lenders to Borrower of their respective financing arrangements with Borrower and
the termination and release by it or them, as the case may be, of any interest
in and to any assets and properties of Borrower and each Obligor, duly
authorized, executed and delivered by it or each of them, including, but not
limited to, (i) UCC termination statements for all UCC financing statements
previously filed by it or any of them or their predecessors, as secured party
and Borrower or any Obligor, as debtor and (ii) satisfactions and discharges of
any mortgages, deeds of trust or deeds to secure debt by Borrower or any Obligor
in favor of such existing lender or lenders, in form acceptable for recording in
the appropriate government office;
(b) Lender shall have received evidence, in form and substance satisfactory
to Lender, that Lender has valid perfected and first priority security interests
in and liens upon the Collateral and any other property which is intended to be
security for the Obligations or the liability of any Obligor in respect thereof,
subject only to the security interests and liens permitted herein or in the
other Financing Agreements;
(c) all requisite corporate action and proceedings in connection with this
Agreement and the other Financing Agreements shall be satisfactory in form and
substance to Lender, and Lender shall have received all information and copies
of all documents, including records of requisite corporate action and
proceedings which Lender may have requested in connection therewith, such
documents where requested by Lender or its counsel to be certified by
appropriate corporate officers or governmental authorities;
(d) no material adverse change shall have occurred in the assets, business
or prospects of Borrower since the date of Lender's latest field examination and
no change or event shall have occurred which would impair the ability of
Borrower or any Obligor to perform its obligations hereunder or under any of the
other Financing Agreements to which it is a party or of Lender to enforce the
Obligations or realize upon the Collateral;
(e) Lender shall have completed a field review of the Records and such
other information with respect to the Collateral as Lender may require to
determine the amount of Revolving Loans available to Borrower, the results of
which shall be satisfactory to Lender, not more than seven (7) business days
prior to the date hereof;
(f) Lender shall have received, in form and substance satisfactory to
Lender, all consents, waivers, acknowledgments and other agreements from third
persons
-15-
which Lender may deem necessary or desirable in order to permit, protect and
perfect its security interests in and liens upon the Collateral or to effectuate
the provisions or purposes of this Agreement and the other Financing Agreements,
including acknowledgments by lessors, mortgagees and warehousemen of Lender's
security interests in the Collateral, waivers by such persons of any security
interests, liens or other claims by such persons to the Collateral and
agreements permitting Lender access to, and the right to remain on, the premises
to exercise its rights and remedies and otherwise deal with the Collateral; (g)
Lender shall have received evidence of insurance and loss payee endorsements
required hereunder and under the other Financing Agreements, in form and
substance satisfactory to Lender, and certificates of insurance policies and/or
endorsements naming Lender as loss payee;
(h) the Excess Availability as determined by Lender, as of the date hereof,
shall be not less than $500,000 after giving effect to the initial Loans made or
to be made and Letter of Credit Accommodations issued or to be issued in
connection with the initial transactions hereunder;
(i) Lender shall have received evidence satisfactory to Lender that the
real estate refinancing evidenced by the Real Estate Documents has been
consummated and that Borrower has received proceeds thereunder of at least
$2,800,000, and Lender shall have a received a mortgagee waiver in form and
substance satisfactory to Lender;
(j) Borrower's licensing and royalty agreements shall be in form and
substance satisfactory to Lender;
(k) Lender shall have received, in form and substance satisfactory to
Lender, such opinion letters of counsel to Borrower with respect to the
Financing Agreements and such other matters as Lender may request; and
(l) the other Financing Agreements (including, without limitation, personal
guaranties of Xxxxxxx X. Xxxxxxx and Xxxx X. Xxxxxx, stock pledge agreements
pertaining to Borrower's subsidiaries and subordination agreements pertaining to
indebtedness owing to certain of Borrower's shareholders) and all instruments
and documents hereunder and thereunder shall have been duly executed and
delivered to Lender, in form and substance satisfactory to Lender.
4.2. Conditions Precedent to All Loans and Letter of Credit Accommodations.
Each of the following is an additional condition precedent to Lender making
Loans and/or providing Letter of Credit Accommodations to Borrower, including
the initial Loans and Letter of Credit Accommodations and any future Loans and
Letter of Credit Accommodations:
(a) all representations and warranties contained herein and in the other
Financing Agreements shall be true and correct in all material respects with the
same effect
-16-
as though such representations and warranties had been made on and as of the
date of the making of each such Loan or providing each such Letter of Credit
Accommodation and after giving effect thereto; and
(b) no Event of Default and no event or condition which, with notice or
passage of time or both, would constitute an Event of Default, shall exist or
have occurred and be continuing on and as of the date of the making of such Loan
or providing each such Letter of Credit Accommodation and after giving effect
thereto.
SECTION 5. GRANT OF SECURITY INTEREST
To secure payment and performance of all Obligations, Borrower hereby
grants to Lender a continuing security interest in, a lien upon, and a right of
set off against, and hereby assigns to Lender as security, the following
property and interests in property of Borrower, whether now owned or hereafter
acquired or existing, and wherever located (collectively, the "Collateral"):
5.1. Accounts;
5.2. all present and future contract rights, general intangibles (including
tax and duty refunds, registered and unregistered patents, trademarks, service
marks, copyrights, trade names, applications for the foregoing, trade secrets,
goodwill, processes, drawings, blueprints, customer lists, licenses, whether as
licensor or licensee, choses in action and other claims and existing and future
leasehold interests in equipment, real estate and fixtures), chattel paper,
documents, instruments, securities and other investment property, letters of
credit, bankers' acceptances and guaranties;
5.3. all present and future monies, securities, credit balances, deposits,
deposit accounts and other property of Borrower now or hereafter held or
received by or in transit to Lender or its affiliates or at any other depository
or other institution from or for the account of Borrower, whether for
safekeeping, pledge, custody, transmission, collection or otherwise, and all
present and future liens, security interests, rights, remedies, title and
interest in, to and in respect of Accounts and other Collateral, including (a)
rights and remedies under or relating to guaranties, contracts of suretyship,
letters of credit and credit and other insurance related to the Collateral, (b)
rights of stoppage in transit, replevin, repossession, reclamation and other
rights and remedies of an unpaid vendor, lienor or secured party, (c) goods
described in invoices, documents, contracts or instruments with respect to, or
otherwise representing or evidencing, Accounts or other Collateral, including
returned, repossessed and reclaimed goods, and (d) deposits by and property of
account debtors or other persons securing the obligations of account debtors;
5.4. Inventory;
5.5. Equipment;
5.6. Records; and
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5.7. all products and proceeds of the foregoing, in any form, including
insurance proceeds and all claims against third parties for loss or damage to or
destruction of any or all of the foregoing.
SECTION 6. COLLECTION AND ADMINISTRATION
6.1. Borrower's Loan Account.
Lender shall maintain one or more loan account(s) on its books in which
shall be recorded (a) all Loans, Letter of Credit Accommodations and other
Obligations and the Collateral, (b) all payments made by or on behalf of
Borrower and (c) all other appropriate debits and credits as provided in this
Agreement, including fees, charges, costs, expenses and interest. All entries in
the loan account(s) shall be made in accordance with Lender's customary
practices as in effect from time to time.
6.2. Statements.
Lender shall render to Borrower each month a statement setting forth the
balance in the Borrower's loan account(s) maintained by Lender for Borrower
pursuant to the provisions of this Agreement, including principal, interest,
fees, costs and expenses. Each such statement shall be subject to subsequent
adjustment by Lender but shall, absent manifest errors or omissions, be
considered correct and deemed accepted by Borrower and conclusively binding upon
Borrower as an account stated except to the extent that Lender receives a
written notice from Borrower of any specific exceptions of Borrower thereto
within thirty (30) days after the date such statement has been mailed by Lender.
Until such time as Lender shall have rendered to Borrower a written statement as
provided above, the balance in Borrower's loan account(s) shall be presumptive
evidence of the amounts due and owing to Lender by Borrower.
6.3. Collection of Accounts.
(a) Borrower shall establish and maintain, at its expense, blocked accounts
or lockboxes and related blocked accounts (in either case, "Blocked Accounts"),
as Lender may specify, with such banks as are acceptable to Lender into which
Borrower shall promptly deposit and direct its account debtors to directly remit
all payments on Accounts and all payments constituting proceeds of Inventory or
other Collateral in the identical form in which such payments are made, whether
by cash, check or other manner. The banks at which the Blocked Accounts are
established shall enter into an agreement, in form and substance satisfactory to
Lender, providing that all items received or deposited in the Blocked Accounts
are the property of Lender, that the depository bank has no lien upon, or right
to setoff against, the Blocked Accounts, the items received for deposit therein,
or the funds from time to time on deposit therein and that the depository bank
will wire, or otherwise transfer, in immediately available funds, on a daily
basis, all funds received or deposited into the Blocked Accounts to such bank
account of Lender as Lender may from time to time designate for such purpose
("Payment Account"). Borrower agrees that all payments made to such Blocked
Accounts or other funds received and collected by Lender,
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whether on the Accounts or as proceeds of Inventory or other Collateral or
otherwise shall be the property of Lender.
(b) For purposes of calculating the amount of the Loans available to
Borrower, such payments will be applied (conditional upon final collection) to
the Obligations on the business day of receipt by Lender of immediately
available funds in the Payment Account provided such payments and notice thereof
are received in accordance with Lender's usual and customary practices as in
effect from time to time and within sufficient time to credit Borrower's loan
account on such day, and if not, then on the next business day. For the purposes
of calculating interest on the Obligations, such payments or other funds
received will be applied (conditional upon final collection) to the Obligations
one (1) business day following the date of receipt of immediately available
funds by Lender in the Payment Account provided such payments or other funds and
notice thereof are received in accordance with Lender's usual and customary
practices as in effect from time to time and within sufficient time to credit
Borrower's loan account on such day, and if not, then on the next business day.
(c) Borrower and all of its affiliates, subsidiaries, shareholders,
directors, employees or agents shall, acting as trustee for Lender, receive, as
the property of Lender, any monies, checks, notes, drafts or any other payment
relating to and/or proceeds of Accounts or other Collateral which come into
their possession or under their control and immediately upon receipt thereof,
shall deposit or cause the same to be deposited in the Blocked Accounts, or
remit the same or cause the same to be remitted, in kind, to Lender. In no event
shall the same be commingled with Borrower's own funds. Borrower agrees to
reimburse Lender on demand for any amounts owed or paid to any bank at which a
Blocked Account is established or any other bank or person involved in the
transfer of funds to or from the Blocked Accounts arising out of Lender's
payments to or indemnification of such bank or person. The obligation of
Borrower to reimburse Lender for such amounts pursuant to this Section 6.3 shall
survive the termination or non-renewal of this Agreement.
6.4. Payments.
All Obligations shall be payable to the Payment Account as provided in
Section 6.3 or such other place as Lender may designate from time to time.
Lender may apply payments received or collected from Borrower or for the account
of Borrower (including the monetary proceeds of collections or of realization
upon any Collateral) to such of the Obligations, whether or not then due, in
such order and manner as Lender determines. At Lender's option, all principal,
interest, fees, costs, expenses and other charges provided for in this Agreement
or the other Financing Agreements may be charged directly to the loan account(s)
of Borrower. Borrower shall make all payments to Lender on the Obligations free
and clear of, and without deduction or withholding for or on account of, any
setoff, counterclaim, defense, duties, taxes, levies, imposts, fees, deductions,
withholding, restrictions or conditions of any kind. If after receipt of any
payment of, or proceeds of Collateral applied to the payment of, any of the
Obligations, Lender is required to surrender or return such payment or proceeds
to any Person for any reason, then the Obligations intended to be satisfied by
such payment or proceeds shall be reinstated and continue and this
-19-
Agreement shall continue in full force and effect as if such payment or proceeds
had not been received by Lender. Borrower shall be liable to pay to Lender, and
does hereby indemnify and hold Lender harmless for the amount of any payments or
proceeds surrendered or returned. This Section 6.4 shall remain effective
notwithstanding any contrary action which may be taken by Lender in reliance
upon such payment or proceeds. This Section 6.4 shall survive the payment of the
Obligations and the termination or non-renewal of this Agreement.
6.5. Authorization to Make Loans.
Lender is authorized to make the Loans and provide the Letter of Credit
Accommodations based upon telephonic or other instructions received from anyone
purporting to be an officer of Borrower or other authorized person or, at the
discretion of Lender, if such Loans are necessary to satisfy any Obligations.
All requests for Loans or Letter of Credit Accommodations hereunder shall
specify the date on which the requested advance is to be made or Letter of
Credit Accommodations established (which day shall be a business day) and the
amount of the requested Loan. Requests received after 11:00 a.m. Chicago time on
any day shall be deemed to have been made as of the opening of business on the
immediately following business day. All Loans and Letter of Credit
Accommodations under this Agreement shall be conclusively presumed to have been
made to, and at the request of and for the benefit of, Borrower when deposited
to the credit of Borrower or otherwise disbursed or established in accordance
with the instructions of Borrower or in accordance with the terms and conditions
of this Agreement.
6.6. Use of Proceeds.
Borrower shall use the initial proceeds of the Loans provided by Lender to
Borrower hereunder only for: (a) payments to each of the persons listed in the
disbursement direction letter furnished by Borrower to Lender on or about the
date hereof and (b) costs, expenses and fees in connection with the preparation,
negotiation, execution and delivery of this Agreement and the other Financing
Agreements. All other Loans made or Letter of Credit Accommodations provided by
Lender to Borrower pursuant to the provisions hereof shall be used by Borrower
only for general operating, working capital and other proper corporate purposes
of Borrower not otherwise prohibited by the terms hereof. None of the proceeds
will be used, directly or indirectly, for the purpose of purchasing or carrying
any margin security or for the purposes of reducing or retiring any indebtedness
which was originally incurred to purchase or carry any margin security or for
any other purpose which might cause any of the Loans to be considered a "purpose
credit" within the meaning of Regulation G of the Board of Governors of the
Federal Reserve System, as amended.
SECTION 7. COLLATERAL REPORTING AND COVENANTS
7.1. Collateral Reporting.
Borrower shall provide Lender with the following documents in a form
satisfactory to Lender: (a) on a regular basis as required by Lender, a schedule
of Accounts,
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sales made, credits issued and cash received; (b) on a monthly basis or more
frequently as Lender may request, (i) perpetual inventory reports, (ii)
inventory reports by category (and separately listing the Licensed Inventory)
and in the same format as provided by Ozer Valuation Services LLC in its
appraisal dated October, 2000, (iii) agings of accounts payable, and (iv) proof
of payment of royalty and licensing fees due under applicable licensing
agreements; (c) upon Lender's request, (i) copies of customer statements and
credit memos, remittance advices and reports, and copies of deposit slips and
bank statements, (ii) copies of shipping and delivery documents, and (iii)
copies of purchase orders, invoices and delivery documents for Inventory and
Equipment acquired by Borrower; (d) agings of accounts receivable on a monthly
basis or more frequently as Lender may request; and (e) such other reports as to
the Collateral as Lender shall request from time to time. If any of Borrower's
records or reports of the Collateral are prepared or maintained by an accounting
service, contractor, shipper or other agent, Borrower hereby irrevocably
authorizes such service, contractor, shipper or agent to deliver such records,
reports, and related documents to Lender and to follow Lender's instructions
with respect to further services at any time that an Event of Default exists or
has occurred and is continuing.
7.2. Accounts Covenants.
(a) Borrower shall notify Lender promptly of: (i) any material delay in
Borrower's performance of any of its obligations to any account debtor or the
assertion of any claims, offsets, defenses or counterclaims by any account
debtor, or any disputes with account debtors, or any settlement, adjustment or
compromise thereof, (ii) all material adverse information relating to the
financial condition of any account debtor and (iii) any event or circumstance
which, to Borrower's knowledge would cause Lender to consider any then existing
Accounts as no longer constituting Eligible Accounts. No credit, discount,
allowance or extension or agreement for any of the foregoing shall be granted to
any account debtor without Lender's consent, except in the ordinary course of
Borrower's business in accordance with practices and policies previously
disclosed in writing to Lender. So long as no Event of Default exists or has
occurred and is continuing, Borrower shall settle, adjust or compromise any
claim, offset, counterclaim or dispute with any account debtor. At any time that
an Event of Default exists or has occurred and is continuing, Lender shall, at
its option, have the exclusive right to settle, adjust or compromise any claim,
offset, counterclaim or dispute with account debtors or grant any credits,
discounts or allowances.
(b) Without limiting the obligation of Borrower to deliver any other
information to Lender, Borrower shall promptly report to Lender any return of
Inventory by any one account debtor if the inventory so returned in such case
has a value in excess of $5,000. At any time that Inventory is returned,
reclaimed or repossessed, the Account (or portion thereof) which arose from the
sale of such returned, reclaimed or repossessed Inventory shall not be deemed an
Eligible Account. In the event any account debtor returns Inventory when an
Event of Default exists or has occurred and is continuing, Borrower shall, upon
Lender's request, (i) hold the returned Inventory in trust for Lender, (ii)
segregate all returned Inventory from all of its other property, (iii) dispose
of the returned Inventory solely according to Lender's instructions, and (iv)
not issue any credits, discounts or allowances with respect thereto without
Lender's prior written consent.
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(c) With respect to each Account: (i) the amounts shown on any invoice
delivered to Lender or schedule thereof delivered to Lender shall be true and
complete, (ii) no payments shall be made thereon except payments immediately
delivered to Lender pursuant to the terms of this Agreement, (iii) no credit,
discount, allowance or extension or agreement for any of the foregoing shall be
granted to any account debtor except as reported to Lender in accordance with
this Agreement and except for credits, discounts, allowances or extensions made
or given in the ordinary course of Borrower's business in accordance with
practices and policies previously disclosed to Lender, (iv) there shall be no
setoffs, deductions, contras, defenses, counterclaims or disputes existing or
asserted with respect thereto except as reported to Lender in accordance with
the terms of this Agreement, (v) none of the transactions giving rise thereto
will violate any applicable State or Federal laws or regulations, all
documentation relating thereto will be legally sufficient under such laws and
regulations and all such documentation will be legally enforceable in accordance
with its terms.
(d) Lender shall have the right at any time or times, in Lender's name or
in the name of a nominee of Lender, to verify the validity, amount or any other
matter relating to any Account or other Collateral, by mail, telephone,
facsimile transmission or otherwise.
(e) Borrower shall deliver or cause to be delivered to Lender, with
appropriate endorsement and assignment, with full recourse to Borrower, all
chattel paper and instruments which Borrower now owns or may at any time acquire
immediately upon Borrower's receipt thereof, except as Lender may otherwise
agree.
(f) Lender may, at any time or times that an Event of Default exists or has
occurred and is continuing, (i) notify any or all account debtors that the
Accounts have been assigned to Lender and that Lender has a security interest
therein and Lender may direct any or all accounts debtors to make payment of
Accounts directly to Lender, (ii) extend the time of payment of, compromise,
settle or adjust for cash, credit, return of merchandise or otherwise, and upon
any terms or conditions, any and all Accounts or other obligations included in
the Collateral and thereby discharge or release the account debtor or any other
party or parties in any way liable for payment thereof without affecting any of
the Obligations, (iii) demand, collect or enforce payment of any Accounts or
such other obligations, but without any duty to do so, and Lender shall not be
liable for its failure to collect or enforce the payment thereof nor for the
negligence of its agents or attorneys with respect thereto and (iv) take
whatever other action Lender may deem necessary or desirable for the protection
of its interests. At any time that an Event of Default exists or has occurred
and is continuing, at Lender's request, all invoices and statements sent to any
account debtor shall state that the Accounts and such other obligations have
been assigned to Lender and are payable directly and only to Lender and Borrower
shall deliver to Lender such originals of documents evidencing the sale and
delivery of goods or the performance of services giving rise to any Accounts as
Lender may require.
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7.3. Inventory Covenants.
With respect to the Inventory: (a) Borrower shall at all times maintain
inventory records reasonably satisfactory to Lender, keeping correct and
accurate records itemizing and describing the kind, type, quality and quantity
of Inventory, Borrower's cost therefor and daily withdrawals therefrom and
additions thereto; (b) Borrower shall conduct a physical count of the Inventory
at least once each year, but at any time or times as Lender may request on or
after an Event of Default, and promptly following such physical inventory shall
supply Lender with a report in the form and with such specificity as may be
reasonably satisfactory to Lender concerning such physical count; (c) Borrower
shall not remove any Inventory from the locations set forth or permitted herein,
without the prior written consent of Lender, except for sales of Inventory in
the ordinary course of Borrower's business and except to move Inventory directly
from one location set forth or permitted herein to another such location; (d)
upon Lender's request, Borrower shall, at its expense, no more than once in any
twelve (12) month period, but at any time or times as Lender may request on or
after an Event of Default, deliver or cause to be delivered to Lender written
reports or appraisals as to the Inventory in form, scope and methodology
acceptable to Lender and by an appraiser acceptable to Lender, addressed to
Lender or upon which Lender is expressly permitted to rely; (e) Borrower shall
produce, use, store and maintain the Inventory with all reasonable care and
caution and in accordance with applicable standards of any insurance and in
conformity with applicable laws (including the requirements of the Federal Fair
Labor Standards Act of 1938, as amended and all rules, regulations and orders
related thereto); (f) Borrower assumes all responsibility and liability arising
from or relating to the production, use, sale or other disposition of the
Inventory; (g) Borrower shall not sell Inventory to any customer on approval, or
any other basis which entitles the customer to return or may obligate Borrower
to repurchase such Inventory (except that Borrower may sell to Eckerd on terms
that allow Eckerd a right of return of up to thirty percent (30%) of such sales
in the ordinary course of Borrower's business consistent with Borrower's past
practices); (h) Borrower shall keep the Inventory in good and marketable
condition; (i) Borrower shall immediately notify Lender if Borrower has breached
any of the terms of any of its license agreements or if any of its license
agreements are terminated; and (j) Borrower shall not, without prior written
notice to Lender, acquire or accept any Inventory on consignment or approval.
7.4. Equipment Covenants.
With respect to the Equipment: (a) Borrower shall, at its expense, no more
than once in any twelve (12) month period, but at any time or times as Lender
may request on or after an Event of Default, deliver or cause to be delivered to
Lender written reports or appraisals as to the Equipment in form, scope and
methodology acceptable to Lender and by an appraiser acceptable to Lender; (b)
Borrower shall keep the Equipment in good order, repair, running and marketable
condition (ordinary wear and tear excepted); (c) Borrower shall use the
Equipment with all reasonable care and caution and in accordance with applicable
standards of any insurance and in conformity with all applicable laws; (d) the
Equipment is and shall be used in Borrower's business and not for personal,
family, household or farming use; (e) Borrower shall not remove any Equipment
from the locations
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set forth or permitted herein, except to the extent necessary to have any
Equipment repaired or maintained in the ordinary course of the business of
Borrower or to move Equipment directly from one location set forth or permitted
herein to another such location and except for the movement of motor vehicles
used by or for the benefit of Borrower in the ordinary course of business; (f)
the Equipment is now and shall remain personal property and Borrower shall not
permit any of the Equipment to be or become a part of or affixed to real
property; and (g) Borrower assumes all responsibility and liability arising from
the use of the Equipment.
7.5. Power of Attorney.
Borrower hereby irrevocably designates and appoints Lender (and all persons
designated by Lender) as Borrower's true and lawful attorney-in-fact, and
authorizes Lender, in Borrower's or Lender's name, to: (a) at any time an Event
of Default or event which with notice or passage of time or both would
constitute an Event of Default exists or has occurred and is continuing (i)
demand payment on Accounts or other proceeds of Inventory or other Collateral,
(ii) enforce payment of Accounts by legal proceedings or otherwise, (iii)
exercise all of Borrower's rights and remedies to collect any Account or other
Collateral, (iv) sell or assign any Account upon such terms, for such amount and
at such time or times as the Lender deems advisable, (v) settle, adjust,
compromise, extend or renew an Account, (vi) discharge and release any Account,
(vii) prepare, file and sign Borrower's name on any proof of claim in bankruptcy
or other similar document against an account debtor, (viii) notify the post
office authorities to change the address for delivery of Borrower's mail to an
address designated by Lender, and open and dispose of all mail addressed to
Borrower, and (ix) do all acts and things which are necessary, in Lender's
determination, to fulfill Borrower's obligations under this Agreement and the
other Financing Agreements and (b) at any time to (i) take control in any manner
of any item of payment or proceeds thereof, (ii) have access to any lockbox or
postal box into which Borrower's mail is deposited, (iii) endorse Borrower's
name upon any items of payment or proceeds thereof and deposit the same in the
Lender's account for application to the Obligations, (iv) endorse Borrower's
name upon any chattel paper, document, instrument, invoice, or similar document
or agreement relating to any Account or any goods pertaining thereto or any
other Collateral, (v) sign Borrower's name on any verification of Accounts and
notices thereof to account debtors and (vi) execute in Borrower's name and file
any UCC financing statements or amendments thereto. Borrower hereby releases
Lender and its officers, employees and designees from any liabilities arising
from any act or acts under this power of attorney and in furtherance thereof,
whether of omission or commission, except as a result of Lender's own gross
negligence or willful misconduct as determined pursuant to a final
non-appealable order of a court of competent jurisdiction.
7.6. Right to Cure.
Lender may, at its option, (a) cure any default by Borrower under any
agreement with a third party or pay or bond on appeal any judgment entered
against Borrower, (b) discharge taxes, liens, security interests or other
encumbrances at any time levied on or existing with respect to the Collateral
and (c) pay any amount, incur any expense
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or perform any act which, in Lender's judgment, is necessary or appropriate to
preserve, protect, insure or maintain the Collateral and the rights of Lender
with respect thereto. Lender may add any amounts so expended to the Obligations
and charge Borrower's account therefor, such amounts to be repayable by Borrower
on demand. Lender shall be under no obligation to effect such cure, payment or
bonding and shall not, by doing so, be deemed to have assumed any obligation or
liability of Borrower. Any payment made or other action taken by Lender under
this Section shall be without prejudice to any right to assert an Event of
Default hereunder and to proceed accordingly.
7.7. Access to Premises.
From time to time as requested by Lender, at the cost and expense of
Borrower, (a) Lender or its designee shall have complete access to all of
Borrower's premises during normal business hours and after notice to Borrower,
or at any time and without notice to Borrower if an Event of Default exists or
has occurred and is continuing, for the purposes of inspecting, verifying and
auditing the Collateral and all of Borrower's books and records, including the
Records, and (b) Borrower shall promptly furnish to Lender such copies of such
books and records or extracts therefrom as Lender may request, and (c) use
during normal business hours such of Borrower's personnel, equipment, supplies
and premises as may be reasonably necessary for the foregoing and if an Event of
Default exists or has occurred and is continuing for the collection of Accounts
and realization of other Collateral.
SECTION 8. REPRESENTATIONS AND WARRANTIES
Borrower hereby represents and warrants to Lender the following (which
shall survive the execution and delivery of this Agreement), the truth and
accuracy of which are a continuing condition of the making of Loans and
providing Letter of Credit Accommodations by Lender to Borrower:
8.1. Corporate Existence, Power and Authority; Subsidiaries.
Borrower is a corporation duly organized and in good standing under the
laws of its state of incorporation and is duly qualified as a foreign
corporation and in good standing in all states or other jurisdictions where the
nature and extent of the business transacted by it or the ownership of assets
makes such qualification necessary, except for those jurisdictions in which the
failure to so qualify would not have a material adverse effect on Borrower's
financial condition, results of operation or business or the rights of Lender in
or to any of the Collateral. The execution, delivery and performance of this
Agreement, the other Financing Agreements and the transactions contemplated
hereunder and thereunder are all within Borrower's corporate powers, have been
duly authorized and are not in contravention of law or the terms of Borrower's
certificate of incorporation, by-laws, or other organizational documentation, or
any indenture, agreement or undertaking to which Borrower is a party or by which
Borrower or its property are bound. This Agreement and the other Financing
Agreements constitute legal, valid and binding obligations of Borrower
enforceable in accordance with their respective terms. Borrower does not have
any subsidiaries except as set forth on the Information Certificate.
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8.2. Financial Statements; No Material Adverse Change.
All financial statements relating to Borrower which have been or may
hereafter be delivered by Borrower to Lender have been prepared in accordance
with GAAP and fairly present the financial condition and the results of
operation of Borrower as at the dates and for the periods set forth therein.
Except as disclosed in any interim financial statements furnished by Borrower to
Lender prior to the date of this Agreement, there has been no material adverse
change in the assets, liabilities, properties and condition, financial or
otherwise, of Borrower, since the date of the most recent audited financial
statements furnished by Borrower to Lender prior to the date of this Agreement.
8.3. Chief Executive Office; Collateral Locations.
The chief executive office of Borrower and Borrower's Records concerning
Accounts are located only at the address set forth below and its only other
places of business and the only other locations of Collateral, if any, are the
addresses set forth in the Information Certificate, subject to the right of
Borrower to establish new locations in accordance with Section 9.2 below. The
Information Certificate correctly identifies any of such locations which are not
owned by Borrower and sets forth the owners and/or operators thereof and to the
best of Borrower's knowledge, the holders of any mortgages on such locations.
8.4. Priority of Liens; Title to Properties.
The security interests and liens granted to Lender under this Agreement and
the other Financing Agreements constitute valid and perfected first priority
liens and security interests in and upon the Collateral subject only to the
liens indicated on Schedule 8.4 hereto and the other liens permitted under
Section 9.8 hereof. Borrower has good and marketable title to all of its
properties and assets subject to no liens, mortgages, pledges, security
interests, encumbrances or charges of any kind, except those granted to Lender
and such others as are specifically listed on Schedule 8.4 hereto or permitted
under Section 9.8 hereof.
8.5. Tax Returns.
Borrower has filed, or caused to be filed, in a timely manner all tax
returns, reports and declarations which are required to be filed by it (without
requests for extension except as previously disclosed in writing to Lender). All
information in such tax returns, reports and declarations is complete and
accurate in all material respects. Borrower has paid or caused to be paid all
taxes due and payable or claimed due and payable in any assessment received by
it, except taxes the validity of which are being contested in good faith by
appropriate proceedings diligently pursued and available to Borrower and with
respect to which adequate reserves have been set aside on its books. Adequate
provision has been made for the payment of all accrued and unpaid Federal,
State, county, local, foreign and other taxes whether or not yet due and payable
and whether or not disputed.
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8.6. Litigation.
Except as set forth on the Information Certificate, there is no present
investigation by any governmental agency pending, or to the best of Borrower's
knowledge threatened, against or affecting Borrower, its assets or business and
there is no action, suit, proceeding or claim by any Person pending, or to the
best of Borrower's knowledge threatened, against Borrower or its assets or
goodwill, or against or affecting any transactions contemplated by this
Agreement, which if adversely determined against Borrower would result in any
material adverse change in the assets, business or prospects of Borrower or
would impair the ability of Borrower to perform its obligations hereunder or
under any of the other Financing Agreements to which it is a party or of Lender
to enforce any Obligations or realize upon any Collateral.
8.7. Compliance with Other Agreements and Applicable Laws.
Borrower is not in default in any material respect under, or in violation
in any material respect of any of the terms of, any agreement, contract,
instrument, lease or other commitment to which it is a party or by which it or
any of its assets are bound and Borrower is in compliance in all material
respects with all applicable provisions of laws, rules, regulations, licenses,
permits, approvals and orders of any foreign, Federal, State or local
governmental authority.
8.8. Bank Accounts.
All of the deposit accounts, investment accounts or other accounts in the
name of or used by Borrower maintained at any bank or other financial
institution are set forth on Schedule 8.8 hereto, subject to the right of
Borrower to establish new accounts in accordance with Section 9.13 below.
8.9. Accuracy and Completeness of Information.
All information furnished by or on behalf of Borrower in writing to Lender
in connection with this Agreement or any of the other Financing Agreements or
any transaction contemplated hereby or thereby, including all information on the
Information Certificate is true and correct in all material respects on the date
as of which such information is dated or certified and does not omit any
material fact necessary in order to make such information not misleading. No
event or circumstance has occurred which has had or could reasonably be expected
to have a material adverse affect on the business, assets or prospects of
Borrower, which has not been fully and accurately disclosed to Lender in
writing.
8.10. Survival of Warranties; Cumulative.
All representations and warranties contained in this Agreement or any of
the other Financing Agreements shall survive the execution and delivery of this
Agreement and shall be deemed to have been made again to Lender on the date of
each additional borrowing or other credit accommodation hereunder and shall be
conclusively presumed to have been relied on by Lender regardless of any
investigation made or information possessed by
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Lender. The representations and warranties set forth herein shall be cumulative
and in addition to any other representations or warranties which Borrower shall
now or hereafter give, or cause to be given, to Lender.
8.11. Employee Benefits.
(a) Borrower has not engaged in any transaction in connection with which
Borrower or any of its ERISA Affiliates could be subject to either a civil
penalty assessed pursuant to Section 502(i) of ERISA or a tax imposed by Section
4975 of the Code, including any accumulated funding deficiency described in
Section 8.11(c) hereof and any deficiency with respect to vested accrued
benefits described in Section 8.11(d) hereof.
(b) No liability to the Pension Benefit Guaranty Corporation has been or is
expected by Borrower to be incurred with respect to any employee benefit plan of
Borrower or any of its ERISA Affiliates. There has been no reportable event
(within the meaning of Section 4043(b) of ERISA) or any other event or condition
with respect to any employee pension benefit plan of Borrower or any of its
ERISA Affiliates which presents a risk of termination of any such plan by the
Pension Benefit Guaranty Corporation.
(c) Full payment has been made of all amounts which Borrower or any of its
ERISA Affiliates is required under Section 302 of ERISA and Section 412 of the
Code to have paid under the terms of each employee benefit plan as contributions
to such plan as of the last day of the most recent fiscal year of such plan
ended prior to the date hereof, and no accumulated funding deficiency (as
defined in Section 302 of ERISA and Section 412 of the Code), whether or not
waived, exists with respect to any employee benefit plan, including any penalty
or tax described in Section 8.11(a) hereof and any deficiency with respect to
vested accrued benefits described in Section 8.11(d) hereof.
(d) The current value of all vested accrued benefits under all employee
benefit plans maintained by Borrower that are subject to Title IV of ERISA does
not exceed the current value of the assets of such plans allocable to such
vested accrued benefits, including any penalty or tax described in Section
8.11(a) hereof and any accumulated funding deficiency described in Section
8.11(c) hereof. The terms "current value" and "accrued benefit" have the
meanings specified in ERISA.
(e) Neither Borrower nor any of its ERISA Affiliates is or has ever been
obligated to contribute to any "multiemployer plan" (as such term is defined in
Section 4001(a)(3) of ERISA) that is subject to Title IV of ERISA.
8.12. Environmental Compliance.
(a) Except as set forth on Schedule 8.12 hereto, Borrower has not
generated, used, stored, treated, transported, manufactured, handled, produced
or disposed of any Hazardous Materials, on or off its premises (whether or not
owned by it) in any manner which at any time violates any applicable
Environmental Law or any license, permit, certificate, approval or similar
authorization thereunder and the operations of Borrower
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complies in all material respects with all Environmental Laws and all licenses,
permits, certificates, approvals and similar authorizations thereunder.
(b) Except as set forth on Schedule 8.12 hereto, there has been no
investigation, proceeding, complaint, order, directive, claim, citation or
notice by any governmental authority or any other person nor is any pending or
to the best of Borrower's knowledge threatened, with respect to any
non-compliance with or violation of the requirements of any Environmental Law by
Borrower or the release, spill or discharge, threatened or actual, of any
Hazardous Material or the generation, use, storage, treatment, transportation,
manufacture, handling, production or disposal of any Hazardous Materials or any
other environmental, health or safety matter, which affects Borrower or its
business, operations or assets or any properties at which Borrower has
transported, stored or disposed of any Hazardous Materials.
(c) Borrower has no material liability (contingent or otherwise) in
connection with a release, spill or discharge, threatened or actual, of any
Hazardous Materials or the generation, use, storage, treatment, transportation,
manufacture, handling, production or disposal of any Hazardous Materials.
(d) Borrower has all licenses, permits, certificates, approvals or similar
authorizations required to be obtained or filed in connection with the
operations of Borrower under any Environmental Law and all of such licenses,
permits, certificates, approvals or similar authorizations are valid and in full
force and effect.
SECTION 9. AFFIRMATIVE AND NEGATIVE COVENANTS
9.1. Maintenance of Existence.
Borrower shall at all times preserve, renew and keep in full, force and
effect its corporate existence and rights and franchises with respect thereto
and maintain in full force and effect all permits, licenses, trademarks,
tradenames, approvals, authorizations, leases and contracts necessary to carry
on the business as presently or proposed to be conducted. Borrower shall give
Lender thirty (30) days prior written notice of any proposed change in its
corporate name, which notice shall set forth the new name and Borrower shall
deliver to Lender a copy of the amendment to the Certificate of Incorporation of
Borrower providing for the name change certified by the Secretary of State of
the jurisdiction of incorporation of Borrower as soon as it is available.
9.2. New Collateral Locations.
Borrower may open any new location within the continental United States
provided Borrower (a) gives Lender thirty (30) days prior written notice of the
intended opening of any such new location and (b) executes and delivers, or
causes to be executed and delivered, to Lender such agreements, documents, and
instruments as Lender may deem reasonably necessary or desirable to protect its
interests in the Collateral at such location, including UCC financing
statements.
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9.3. Compliance with Laws, Regulations, Etc.
(a) Borrower shall, at all times, comply in all material respects with all
laws, rules, regulations, licenses, permits, approvals and orders applicable to
it and duly observe all requirements of any Federal, State or local governmental
authority, including the Employee Retirement Security Act of 1974, as amended,
the Occupational Safety and Health Act of 1970, as amended, the Fair Labor
Standards Act of 1938, as amended, and all statutes, rules, regulations, orders,
permits and stipulations relating to environmental pollution and employee health
and safety, including all of the Environmental Laws.
(b) Borrower shall establish and maintain, at its expense, a system to
assure and monitor its continued compliance with all Environmental Laws in all
of its operations, which system shall include annual reviews of such compliance
by employees or agents of Borrower who are familiar with the requirements of the
Environmental Laws. Copies of all environmental surveys, audits, assessments,
feasibility studies and results of remedial investigations shall be promptly
furnished, or caused to be furnished, by Borrower to Lender. Borrower shall take
prompt and appropriate action to respond to any non-compliance with any of the
Environmental Laws and shall regularly report to Lender on such response.
(c) Borrower shall give both oral and written notice to Lender immediately
upon Borrower's receipt of any notice of, or Borrower's otherwise obtaining
knowledge of, (i) the occurrence of any event involving the release, spill or
discharge, threatened or actual, of any Hazardous Material or (ii) any
investigation, proceeding, complaint, order, directive, claims, citation or
notice with respect to: (A) any non-compliance with or violation of any
Environmental Law by Borrower or (B) the release, spill or discharge, threatened
or actual, of any Hazardous Material or (C) the generation, use, storage,
treatment, transportation, manufacture, handling, production or disposal of any
Hazardous Materials or (D) any other environmental, health or safety matter,
which affects Borrower or its business, operations or assets or any properties
at which Borrower transported, stored or disposed of any Hazardous Materials.
(d) Without limiting the generality of the foregoing, whenever Lender
reasonably determines that there is non-compliance, or any condition which
requires any action by or on behalf of Borrower in order to avoid any material
non-compliance, with any Environmental Law, Borrower shall, at Lender's request
and Borrower's expense: (i) cause an independent environmental engineer
acceptable to Lender to conduct such tests of the site where Borrower's
non-compliance or alleged non-compliance with such Environmental Laws has
occurred as to such non-compliance and prepare and deliver to Lender a report as
to such non-compliance setting forth the results of such tests, a proposed plan
for responding to any environmental problems described therein, and an estimate
of the costs thereof and (ii) provide to Lender a supplemental report of such
engineer whenever the scope of such non-compliance, or Borrower's response
thereto or the estimated costs thereof, shall change in any material respect.
(e) Borrower shall indemnify and hold harmless Lender, its directors,
officers, employees, agents, invitees, representatives, successors and assigns,
from and
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against any and all losses, claims, damages, liabilities, costs, and expenses
(including attorneys' fees and legal expenses) directly or indirectly arising
out of or attributable to the use, generation, manufacture, reproduction,
storage, release, threatened release, spill, discharge, disposal or presence of
a Hazardous Material, including the costs of any required or necessary repair,
cleanup or other remedial work with respect to any property of Borrower and the
preparation and implementation of any closure, remedial or other required plans.
All representations, warranties, covenants and indemnifications in this Section
9.3 shall survive the payment of the Obligations and the termination or
non-renewal of this Agreement.
9.4. Payment of Taxes and Claims.
Borrower shall duly pay and discharge all taxes, assessments, contributions
and governmental charges upon or against it or its properties or assets, except
for taxes the validity of which are being contested in good faith by appropriate
proceedings diligently pursued and available to Borrower and with respect to
which adequate reserves have been set aside on its books. Borrower shall be
liable for any tax or penalties imposed on Lender as a result of the financing
arrangements provided for herein and Borrower agrees to indemnify and hold
Lender harmless with respect to the foregoing, and to repay to Lender on demand
the amount thereof, and until paid by Borrower such amount shall be added and
deemed part of the Loans, provided, that nothing contained herein shall be
construed to require Borrower to pay any income or franchise taxes attributable
to the income of Lender from any amounts charged or paid hereunder to Lender.
The foregoing indemnity shall survive the payment of the Obligations and the
termination or non-renewal of this Agreement.
9.5. Insurance.
Borrower shall, at all times, maintain with financially sound and reputable
insurers insurance with respect to the Collateral against loss or damage and all
other insurance of the kinds and in the amounts customarily insured against or
carried by corporations of established reputation engaged in the same or similar
businesses and similarly situated. Said policies of insurance shall be
satisfactory to Lender as to form, amount and insurer. Borrower shall furnish
certificates, policies or endorsements to Lender as Lender shall require as
proof of such insurance, and, if Borrower fails to do so, Lender is authorized,
but not required, to obtain such insurance at the expense of Borrower. All
policies shall provide for at least thirty (30) days prior written notice to
Lender of any cancellation or reduction of coverage and that Lender may act as
attorney for Borrower in obtaining, and at any time an Event of Default exists
or has occurred and is continuing, adjusting, settling, amending and canceling
such insurance. Borrower shall cause Lender to be named as a loss payee and an
additional insured (but without any liability for any premiums) under such
insurance policies and Borrower shall obtain non-contributory lender's loss
payable endorsements to all insurance policies in form and substance
satisfactory to Lender. Such lender's loss payable endorsements shall specify
that the proceeds of such insurance shall be payable to Lender as its interests
may appear and further specify that Lender shall be paid regardless of any act
or omission by Borrower or any of its affiliates. At its option, Lender may
apply any insurance proceeds received by Lender at any time to the cost of
repairs or replacement of Collateral and/or to payment of the Obligations,
whether
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or not then due, in any order and in such manner as Lender may determine or hold
such proceeds as cash collateral for the Obligations.
9.6. Financial Statements and Other Information.
(a) Borrower shall keep proper books and records in which true and complete
entries shall be made of all dealings or transactions of or in relation to the
Collateral and the business of Borrower and its subsidiaries (if any) in
accordance with GAAP and Borrower shall furnish or cause to be furnished to
Lender: (i) within thirty (30) days after the end of each fiscal month, separate
monthly unaudited financial statements for each of Borrower and each subsidiary
of Borrower (and, in addition, if such fiscal month is the last month of a
fiscal quarter, financial statements of Borrower and its subsidiaries on a
consolidated basis) (including in each case balance sheets, statements of income
and loss, statements of cash flow, and statements of shareholders' equity), all
in reasonable detail, fairly presenting the financial position and the results
of the operations of Borrower and its subsidiaries as of the end of and through
such fiscal month and (ii) within ninety (90) days after the end of each fiscal
year, audited consolidated financial statements and, if Borrower has any
subsidiaries, audited consolidating financial statements of Borrower and its
subsidiaries (including in each case balance sheets, statements of income and
loss, statements of cash flow and statements of shareholders' equity), and the
accompanying notes thereto, all in reasonable detail, fairly presenting the
financial position and the results of the operations of Borrower and its
subsidiaries as of the end of and for such fiscal year, together with the
unqualified opinion of independent certified public accountants, which
accountants shall be an independent accounting firm selected by Borrower and
reasonably acceptable to Lender, that such financial statements have been
prepared in accordance with GAAP, and present fairly the results of operations
and financial condition of Borrower and its subsidiaries as of the end of and
for the fiscal year then ended.
(b) Borrower shall promptly notify Lender in writing of the details of (i)
any loss, damage, investigation, action, suit, proceeding or claim relating to
the Collateral or any other property which is security for the Obligations or
which would result in any material adverse change in Borrower's business,
properties, assets, goodwill or condition, financial or otherwise and (ii) the
occurrence of any Event of Default or event which, with the passage of time or
giving of notice or both, would constitute an Event of Default.
(c) Borrower shall promptly after the sending or filing thereof furnish or
cause to be furnished to Lender copies of all reports which Borrower sends to
its stockholders generally and copies of all reports and registration statements
which Borrower files with the Securities and Exchange Commission, any national
securities exchange or the National Association of Securities Dealers, Inc.
(d) Borrower shall, on an annual basis, deliver to Lender the personal
financial statements of the guarantors of any of the Obligations, which personal
financial statements shall be in form and substance satisfactory to Lender.
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(e) Borrower shall furnish or cause to be furnished to Lender such budgets,
forecasts, projections and other information respecting the Collateral and the
business of Borrower, as Lender may, from time to time, reasonably request.
Lender is hereby authorized to deliver a copy of any financial statement or any
other information relating to the business of Borrower to any court or other
government agency or to any participant or assignee or prospective participant
or assignee. Borrower hereby irrevocably authorizes and directs all accountants
or auditors to deliver to Lender, at Borrower's expense, copies of the financial
statements of Borrower and any reports or management letters prepared by such
accountants or auditors on behalf of Borrower and to disclose to Lender such
information as they may have regarding the business of Borrower. Any documents,
schedules, invoices or other papers delivered to Lender may be destroyed or
otherwise disposed of by Lender one (1) year after the same are delivered to
Lender, except as otherwise designated by Borrower to Lender in writing.
9.7. Sale of Assets, Consolidation, Merger, Dissolution, Etc.
Borrower shall not, directly or indirectly, (a) merge into or with or
consolidate with any other Person or permit any other Person to merge into or
with or consolidate with it, or (b) sell, assign, lease, transfer, abandon or
otherwise dispose of any stock or indebtedness to any other Person or any of its
assets to any other Person (except for (i) sales of Inventory in the ordinary
course of business and (ii) the disposition of worn-out or obsolete Equipment or
Equipment no longer used in the business of Borrower so long as (A) if an Event
of Default exists or has occurred and is continuing, any proceeds are paid to
Lender and (B) such sales do not involve Equipment having an aggregate fair
market value in excess of $100,000 for all such Equipment disposed of in any
fiscal year of Borrower), or (c) form or acquire any subsidiaries, or (d) wind
up, liquidate or dissolve or (e) agree to do any of the foregoing. Nothing
contained herein shall prohibit Borrower from issuing common stock.
9.8. Encumbrances.
Borrower shall not create, incur, assume or suffer to exist any security
interest, mortgage, pledge, lien, charge or other encumbrance of any nature
whatsoever on any of its assets or properties, including the Collateral, except:
(a) liens and security interests of Lender; (b) liens securing the payment of
taxes, either not yet overdue or the validity of which are being contested in
good faith by appropriate proceedings diligently pursued and available to
Borrower and with respect to which adequate reserves have been set aside on its
books; (c) non-consensual statutory liens (other than liens securing the payment
of taxes) arising in the ordinary course of Borrower's business to the extent:
(i) such liens secure indebtedness which is not overdue or (ii) such liens
secure indebtedness relating to claims or liabilities which are fully insured
and being defended at the sole cost and expense and at the sole risk of the
insurer or being contested in good faith by appropriate proceedings diligently
pursued and available to Borrower, in each case prior to the commencement of
foreclosure or other similar proceedings and with respect to which adequate
reserves have been set aside on its books; (d) zoning restrictions, easements,
licenses, covenants and other restrictions affecting the use of real property
which do not interfere in any material respect with the use of such real
property or ordinary conduct of the business of Borrower as presently conducted
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thereon or materially impair the value of the real property which may be subject
thereto; (e) purchase money security interests in Equipment (including capital
leases) and purchase money mortgages on real estate not to exceed $1,000,000 in
the aggregate at any time outstanding so long as such security interests and
mortgages do not apply to any property of Borrower other than the Equipment or
real estate so acquired, and the indebtedness secured thereby does not exceed
the cost of the Equipment or real estate so acquired, as the case may be; and
(f) the security interests and liens set forth on Schedule 8.4 hereto.
9.9. Indebtedness.
Borrower shall not incur, create, assume, become or be liable in any manner
with respect to, or permit to exist, any obligations or indebtedness, except:
(a) the Obligations; (b) trade obligations and normal accruals in the ordinary
course of business not yet due and payable, or with respect to which the
Borrower is contesting in good faith the amount or validity thereof by
appropriate proceedings diligently pursued and available to Borrower, and with
respect to which adequate reserves have been set aside on its books; (c)
purchase money indebtedness (including capital leases) to the extent not
incurred or secured by liens (including capital leases) in violation of any
other provision of this Agreement; (d) a loan by Bank One, NA to Borrower in an
amount not to exceed $250,000; and (e) the indebtedness set forth on Schedule
9.9 hereto; provided, that (i) Borrower may only make regularly scheduled
payments of principal and interest in respect of such indebtedness in accordance
with the terms of the agreement or instrument evidencing or giving rise to such
indebtedness as in effect on the date hereof, (ii) Borrower shall not, directly
or indirectly, (A) amend, modify, alter or change the terms of such indebtedness
or any agreement, document or instrument related thereto as in effect on the
date hereof, or (B) redeem, retire, defease, purchase or otherwise acquire such
indebtedness, or set aside or otherwise deposit or invest any sums for such
purpose, and (iii) Borrower shall furnish to Lender all notices or demands in
connection with such indebtedness either received by Borrower or on its behalf,
promptly after the receipt thereof, or sent by Borrower or on its behalf,
concurrently with the sending thereof, as the case may be.
9.10. Loans, Investments, Guarantees, Etc.
Borrower shall not, directly or indirectly, make any loans or advance money
or property to any person, or invest in (by capital contribution, dividend or
otherwise) or purchase or repurchase the stock or indebtedness or all or a
substantial part of the assets or property of any person, or guarantee, assume,
endorse, or otherwise become responsible for (directly or indirectly) the
indebtedness, performance, obligations or dividends of any Person or agree to do
any of the foregoing, except: (a) the endorsement of instruments for collection
or deposit in the ordinary course of business; (b) loans and advances to, and
investments in, CTI Ballons, Ltd. in an aggregate amount not to exceed $500,000
at any time, provided, that Borrower may not make any such loan, advance or
investment after the date hereof unless after giving effect to such loan,
advance or investment, Excess Availability is at least $500,000 and no Event of
Default then exists or would be caused thereby; (c) loans and advances to, and
investments in, CTI Mexico Corporation, S.A. de C.V. in an aggregate amount not
to exceed $3,000,000 at any time, provided, that Borrower may not make any
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such loan, advance or investment after the date hereof unless after giving
effect to such loan, advance or investment, Excess Availability is at least
$500,000 and no Event of Default then exists or would be caused thereby; (d)
loans and advances to, and investments in, the New West Joint Venture in an
aggregate amount not to exceed $500,000 at any time, provided, that Borrower may
not make any such loan, advance or investment after the date hereof unless after
giving effect to such loan, advance or investment, Excess Availability is at
least $500,000 and no Event of Default then exists or would be caused thereby;
(e) investments in: (i) short-term direct obligations of the United States
Government, (ii) negotiable certificates of deposit issued by any bank
satisfactory to Lender, payable to the order of the Borrower or to bearer and
delivered to Lender, and (iii) commercial paper rated A1 or P1; provided, that
as to any of the foregoing, unless waived in writing by Lender, Borrower shall
take such actions as are deemed necessary by Lender to perfect the security
interest of Lender in such investments; and (f) the loans, advances and
guarantees set forth on Schedule 9.10 hereto; provided, that as to such loans,
advances and guarantees, (i) Borrower shall not, directly or indirectly, (A)
amend, modify, alter or change the terms of such loans, advances or guarantees
or any agreement, document or instrument related thereto, or (B) as to such
guarantees, redeem, retire, defease, purchase or otherwise acquire the
obligations arising pursuant to such guarantees, or set aside or otherwise
deposit or invest any sums for such purpose, and (ii) Borrower shall furnish to
Lender all notices or demands in connection with such loans, advances or
guarantees or other indebtedness subject to such guarantees either received by
Borrower or on its behalf, promptly after the receipt thereof, or sent by
Borrower or on its behalf, concurrently with the sending thereof, as the case
may be.
9.11. Dividends and Redemptions.
Borrower shall not, directly or indirectly, declare or pay any dividends on
account of any shares of any class of capital stock of Borrower now or hereafter
outstanding, or set aside or otherwise deposit or invest any sums for such
purpose, or redeem, retire, defease, purchase or otherwise acquire any shares of
any class of capital stock (or set aside or otherwise deposit or invest any sums
for such purpose) for any consideration other than common stock or apply or set
apart any sum, or make any other distribution (by reduction of capital or
otherwise) in respect of any such shares or agree to do any of the foregoing;
provided, that Borrower may declare and pay dividends in an aggregate amount not
to exceed $300,000 in any calendar year so long as after giving effect to the
payment of any such dividend, Excess Availability is at least $500,000 and no
Event of Default then exists or would be caused thereby.
9.12. Transactions with Affiliates.
Except as described on Schedule 9.12, Borrower shall not, directly or
indirectly, (a) purchase, acquire or lease any property from, or sell, transfer
or lease any property to, any officer, director, agent or other person
affiliated with Borrower, except in the ordinary course of and pursuant to the
reasonable requirements of Borrower's business and upon fair and reasonable
terms no less favorable to the Borrower than Borrower would obtain in a
comparable arm's length transaction with an unaffiliated person or (b) make any
payments of management, consulting or other fees for management or similar
services, or of
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any indebtedness owing to any officer, employee, shareholder, director or other
person affiliated with Borrower except reasonable compensation to officers,
employees and directors for services rendered to Borrower in the ordinary course
of business.
9.13. Additional Bank Accounts.
Borrower shall not, directly or indirectly, open, establish or maintain any
deposit account, investment account or any other account with any bank or other
financial institution, other than the Blocked Accounts and the accounts set
forth in Schedule 8.8 hereto, except: (a) as to any new or additional Blocked
Accounts and other such new or additional accounts which contain any Collateral
or proceeds thereof, with the prior written consent of Lender and subject to
such conditions thereto as Lender may establish and (b) as to any accounts used
by Borrower to make payments of payroll, taxes or other obligations to third
parties, after prior written notice to Lender.
9.14. Costs and Expenses.
Borrower shall pay to Lender on demand all costs, expenses, filing fees and
taxes paid or payable in connection with the preparation, negotiation,
execution, delivery, recording, administration, collection, liquidation,
enforcement and defense of the Obligations, Lender's rights in the Collateral,
this Agreement, the other Financing Agreements and all other documents related
hereto or thereto, including any amendments, supplements or consents which may
hereafter be contemplated (whether or not executed) or entered into in respect
hereof and thereof, including: (a) all costs and expenses of filing or recording
(including Uniform Commercial Code financing statement filing taxes and fees,
documentary taxes, intangibles taxes and mortgage recording taxes and fees, if
applicable); (b) costs and expenses and fees for insurance premiums,
environmental audits, surveys, assessments, engineering reports and inspections,
appraisal fees and search fees; (c) costs and expenses of remitting loan
proceeds, collecting checks and other items of payment, and establishing and
maintaining the Blocked Accounts, together with Lender's customary charges and
fees with respect thereto; (d) charges, fees or expenses charged by any bank or
issuer in connection with the Letter of Credit Accommodations; (e) costs and
expenses of preserving and protecting the Collateral; (f) costs and expenses
paid or incurred in connection with obtaining payment of the Obligations,
enforcing the security interests and liens of Lender, selling or otherwise
realizing upon the Collateral, and otherwise enforcing the provisions of this
Agreement and the other Financing Agreements or defending any claims made or
threatened against Lender arising out of the transactions contemplated hereby
and thereby (including preparations for and consultations concerning any such
matters); (g) all out-of-pocket expenses and costs heretofore and from time to
time hereafter incurred by Lender during the course of periodic field
examinations of the Collateral and Borrower's operations, plus a per diem charge
at the rate of $650 per person per day for Lender's examiners in the field and
office (provided, that Borrower shall not be liable for expenses, costs and
charges hereafter incurred after the date hereof by Lender unless an Event of
Default exists); and (h) the fees and disbursements of counsel (including legal
assistants) to Lender in connection with any of the foregoing.
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9.15. Further Assurances.
At the request of Lender at any time and from time to time, Borrower shall,
at its expense, duly execute and deliver, or cause to be duly executed and
delivered, such further agreements, documents and instruments, and do or cause
to be done such further acts as may be necessary or proper to evidence, perfect,
maintain and enforce the security interests and the priority thereof in the
Collateral and to otherwise effectuate the provisions or purposes of this
Agreement or any of the other Financing Agreements. Lender may at any time and
from time to time request a certificate from an officer of Borrower representing
that all conditions precedent to the making of Loans and providing Letter of
Credit Accommodations contained herein are satisfied. In the event of such
request by Lender, Lender may, at its option, cease to make any further Loans or
provide any further Letter of Credit Accommodations until Lender has received
such certificate and, in addition, Lender has determined that such conditions
are satisfied. Where permitted by law, Borrower hereby authorizes Lender to
execute and file one or more UCC financing statements signed only by Lender.
9.16. Compliance with ERISA.
(a) Borrower shall not with respect to any "employee benefit plans"
maintained by Borrower or any of its ERISA Affiliates: (i) terminate any of such
employee benefit plans so as to incur any liability to the Pension Benefit
Guaranty Corporation established pursuant to ERISA, (ii) allow or suffer to
exist any prohibited transaction involving any of such employee benefit plans or
any trust created thereunder which would subject Borrower or such ERISA
Affiliate to a tax or penalty or other liability on prohibited transactions
imposed under Section 4975 of the Code or ERISA, (iii) fail to pay to any such
employee benefit plan any contribution which it is obligated to pay under
Section 302 of ERISA, Section 412 of the Code or the terms of such plan, (iv)
allow or suffer to exist any accumulated funding deficiency, whether or not
waived, with respect to any such employee benefit plan, (v) allow or suffer to
exist any occurrence of a reportable event or any other event or condition which
presents a material risk of termination by the Pension Benefit Guaranty
Corporation of any such employee benefit plan that is a single employer plan,
which termination could result in any liability to the Pension Benefit Guaranty
Corporation or (vi) incur any withdrawal liability with respect to any
multiemployer pension plan.
(b) As used in this Section 9.18, the terms "employee benefit plans",
"accumulated funding deficiency" and "reportable event" shall have the
respective meanings assigned to them in ERISA, and the term "prohibited
transaction" shall have the meaning assigned to it in Section 4975 of the Code
and ERISA.
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SECTION 10. EVENTS OF DEFAULT AND REMEDIES
10.1. Events of Default.
The occurrence or existence of any one or more of the following events are
referred to herein individually as an "Event of Default", and collectively as
"Events of Default":
(a) Borrower fails to pay when due any of the Obligations or fails to
perform any of the terms, covenants, conditions or provisions contained in this
Agreement or any of the other Financing Agreements;
(b) any representation, warranty or statement of fact made by Borrower to
Lender in this Agreement, the other Financing Agreements or any other agreement,
schedule, confirmatory assignment or otherwise shall when made or deemed made be
false or misleading in any material respect;
(c) any Obligor revokes, terminates or fails to perform any of the terms,
covenants, conditions or provisions of any guarantee, endorsement or other
agreement of such party in favor of Lender;
(d) any judgment for the payment of money is rendered against Borrower or
any Obligor in excess of $100,000 in any one case or in excess of $250,000 in
the aggregate and shall remain undischarged or unvacated for a period in excess
of thirty (30) days or execution shall at any time not be effectively stayed, or
any judgment other than for the payment of money, or injunction, attachment,
garnishment or execution is rendered against Borrower or any Obligor or any of
their assets;
(e) any Obligor (being a natural person or a general partner of an Obligor
which is a partnership) dies or Borrower or any Obligor, which is a partnership,
limited liability company, limited liability partnership or a corporation,
dissolves or suspends or discontinues doing business;
(f) Borrower or any Obligor becomes insolvent (however defined or
evidenced), makes an assignment for the benefit of creditors, makes or sends
notice of a bulk transfer or calls a meeting of its creditors or principal
creditors;
(g) a case or proceeding under the bankruptcy laws of the United States of
America now or hereafter in effect or under any insolvency, reorganization,
receivership, readjustment of debt, dissolution or liquidation law or statute of
any jurisdiction now or hereafter in effect (whether at law or in equity) is
filed against Borrower or any Obligor or all or any part of its properties and
such petition or application is not dismissed within thirty (30) days after the
date of its filing or Borrower or any Obligor shall file any answer admitting or
not contesting such petition or application or indicates its consent to,
acquiescence in or approval of, any such action or proceeding or the relief
requested is granted sooner;
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(h) a case or proceeding under the bankruptcy laws of the United States of
America now or hereafter in effect or under any insolvency, reorganization,
receivership, readjustment of debt, dissolution or liquidation law or statute of
any jurisdiction now or hereafter in effect (whether at a law or equity) is
filed by Borrower or any Obligor or for all or any part of its property; or
(i) any default by Borrower or any Obligor under any of the Real Estate
Documents; or any default by Borrower or any Obligor under any agreement,
document or instrument relating to any indebtedness for borrowed money owing to
any person other than Lender, or any capitalized lease obligations, contingent
indebtedness in connection with any guarantee, letter of credit, indemnity or
similar type of instrument in favor of any person other than Lender, in any case
in an amount in excess of $100,000, which default continues for more than the
applicable cure period, if any, with respect thereto, or any default by Borrower
or any Obligor under any material contract, lease, license or other obligation
to any person other than Lender, which default continues for more than the
applicable cure period, if any, with respect thereto;
(j) Xxxx X. Xxxxxx and Xxxxxxx X. Xxxxxxx shall fail to own, in the
aggregate, at least twenty-three percent (23%) of the issued and outstanding
capital stock of Borrower;
(k) the indictment or threatened indictment of Borrower or any Obligor
under any criminal statute, or commencement or threatened commencement of
criminal or civil proceedings against Borrower or any Obligor, pursuant to which
statute or proceedings the penalties or remedies sought or available include
forfeiture of any of the property of Borrower or such Obligor;
(l) there shall be a material adverse change in the business, assets or
prospects of Borrower or any Obligor after the date hereof; or
(m) there shall be an event of default under any of the other Financing
Agreements.
10.2. Remedies.
(a) At any time an Event of Default exists or has occurred and is
continuing, Lender shall have all rights and remedies provided in this
Agreement, the other Financing Agreements, the Uniform Commercial Code and other
applicable law, all of which rights and remedies may be exercised without notice
to or consent by Borrower or any Obligor, except as such notice or consent is
expressly provided for hereunder or required by applicable law. All rights,
remedies and powers granted to Lender hereunder, under any of the other
Financing Agreements, the Uniform Commercial Code or other applicable law, are
cumulative, not exclusive and enforceable, in Lender's discretion,
alternatively, successively, or concurrently on any one or more occasions, and
shall include, without limitation, the right to apply to a court of equity for
an injunction to restrain a breach or threatened breach by Borrower of this
Agreement or any of the other Financing Agreements. Lender may, at any
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time or times, proceed directly against Borrower or any Obligor to collect the
Obligations without prior recourse to the Collateral.
(b) Without limiting the foregoing, at any time an Event of Default exists
or has occurred and is continuing, Lender may, in its discretion and without
limitation, (i) accelerate the payment of all Obligations and demand immediate
payment thereof to Lender (provided, that upon the occurrence of any Event of
Default described in Sections 10.1(g) and 10.1(h), all Obligations shall
automatically become immediately due and payable), (ii) with or without judicial
process or the aid or assistance of others, enter upon any premises on or in
which any of the Collateral may be located and take possession of the Collateral
or complete processing, manufacturing and repair of all or any portion of the
Collateral, (iii) require Borrower, at Borrower's expense, to assemble and make
available to Lender any part or all of the Collateral at any place and time
designated by Lender, (iv) collect, foreclose, receive, appropriate, setoff and
realize upon any and all Collateral, (v) remove any or all of the Collateral
from any premises on or in which the same may be located for the purpose of
effecting the sale, foreclosure or other disposition thereof or for any other
purpose, (vi) sell, lease, transfer, assign, deliver or otherwise dispose of any
and all Collateral (including entering into contracts with respect thereto,
public or private sales at any exchange, broker's board, at any office of Lender
or elsewhere) at such prices or terms as Lender may deem reasonable, for cash,
upon credit or for future delivery, with the Lender having the right to purchase
the whole or any part of the Collateral at any such public sale, all of the
foregoing being free from any right or equity of redemption of Borrower, which
right or equity of redemption is hereby expressly waived and released by
Borrower and/or (vii) terminate this Agreement. If any of the Collateral is sold
or leased by Lender upon credit terms or for future delivery, the Obligations
shall not be reduced as a result thereof until payment therefor is finally
collected by Lender. If notice of disposition of Collateral is required by law,
five (5) days prior notice by Lender to Borrower designating the time and place
of any public sale or the time after which any private sale or other intended
disposition of Collateral is to be made, shall be deemed to be reasonable notice
thereof and Borrower waives any other notice. In the event Lender institutes an
action to recover any Collateral or seeks recovery of any Collateral by way of
prejudgment remedy, Borrower waives the posting of any bond which might
otherwise be required.
(c) Lender may apply the cash proceeds of Collateral actually received by
Lender from any sale, lease, foreclosure or other disposition of the Collateral
to payment of the Obligations, in whole or in part and in such order as Lender
may elect, whether or not then due. Borrower shall remain liable to Lender for
the payment of any deficiency with interest at the highest rate provided for
herein and all costs and expenses of collection or enforcement, including
attorneys' fees and legal expenses.
(d) Borrower irrevocably grants Lender a non-exclusive license to, upon an
Event of Default, use all present and future patents, trademarks, copyrights,
licenses and other intellectual property owned or used by Borrower from time to
time. No royalties or other compensation shall be payable by Lender to Borrower
with respect to the such license. The rights of Lender hereunder are assignable
in connection with any (a) sale or other disposition of Collateral in accordance
with the Financing Agreements, to the extent
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necessary or appropriate to permit the purchaser of such Collateral to have
unfettered rights with respect to such Collateral, or (b) assignment by Lender
of all or part of its rights under and in accordance with the Financing
Agreements. In addition, Lender may sublicense its rights under such license.
(e) Without limiting the foregoing, upon the occurrence of an Event of
Default or an event which with notice or passage of time or both would
constitute an Event of Default, Lender may, at its option, without notice, (i)
cease making Loans or arranging for Letter of Credit Accommodations or reduce
the lending formulas or amounts of Revolving Loans and Letter of Credit
Accommodations available to Borrower and/or (ii) terminate any provision of this
Agreement providing for any future Loans or Letter of Credit Accommodations to
be made by Lender to Borrower.
SECTION 11. JURY TRIAL WAIVER; OTHER WAIVERS AND CONSENTS; GOVERNING LAW
11.1. Governing Law; Choice of Forum; Service of Process; Jury Trial
Waiver.
(a) The validity, interpretation and enforcement of this Agreement and the
other Financing Agreements and any dispute arising out of the relationship
between the parties hereto, whether in contract, tort, equity or otherwise,
shall be governed by the internal laws of the State of Illinois (without giving
effect to principles of conflicts of law).
(b) Borrower and Lender irrevocably consent and submit to the non-exclusive
jurisdiction of the State courts in Xxxx County, Illinois and the United States
District Court for the Northern District of Illinois and waive any objection
based on venue or forum non conveniens with respect to any action instituted
therein arising under this Agreement or any of the other Financing Agreements or
in any way connected with or related or incidental to the dealings of the
parties hereto in respect of this Agreement or any of the other Financing
Agreements or the transactions related hereto or thereto, in each case whether
now existing or hereafter arising, and whether in contract, tort, equity or
otherwise, and agree that any dispute with respect to any such matters shall be
heard only in the courts described above (except that Lender shall have the
right to bring any action or proceeding against Borrower or its property in the
courts of any other jurisdiction which Lender deems necessary or appropriate in
order to realize on the Collateral or to otherwise enforce its rights against
Borrower or its property).
(c) Borrower hereby waives personal service of any and all process upon it
and consents that all such service of process may be made by certified mail
(return receipt requested) directed to its address set forth on the signature
pages hereof and service so made shall be deemed to be completed five (5) days
after the same shall have been so deposited in the U.S. mails, or, at Lender's
option, by service upon Borrower in any other manner provided under the rules of
any such courts. Within thirty (30) days after such service, Borrower shall
appear in answer to such process, failing which Borrower shall be deemed in
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default and judgment may be entered by Lender against Borrower for the amount of
the claim and other relief requested.
(d) BORROWER AND LENDER EACH HEREBY WAIVES ANY RIGHT TO TRIAL BY JURY OF
ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (i) ARISING UNDER THIS AGREEMENT OR
ANY OF THE OTHER FINANCING AGREEMENTS OR (ii) IN ANY WAY CONNECTED WITH OR
RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO IN RESPECT OF THIS
AGREEMENT OR ANY OF THE OTHER FINANCING AGREEMENTS OR THE TRANSACTIONS RELATED
HERETO OR THERETO IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, AND
WHETHER IN CONTRACT, TORT, EQUITY OR OTHERWISE. BORROWER AND LENDER EACH HEREBY
AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL
BE DECIDED BY COURT TRIAL WITHOUT A JURY AND THAT BORROWER OR LENDER MAY FILE AN
ORIGINAL COUNTERPART OF A COPY OF THIS AGREEMENT WITH ANY COURT AS WRITTEN
EVIDENCE OF THE CONSENT OF THE PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO
TRIAL BY JURY.
(e) Lender shall not have any liability to Borrower (whether in tort,
contract, equity or otherwise) for losses suffered by Borrower in connection
with, arising out of, or in any way related to the transactions or relationships
contemplated by this Agreement, or any act, omission or event occurring in
connection herewith, unless it is determined by a final and non-appealable
judgment or court order binding on Lender, that the losses were the result of
acts or omissions constituting gross negligence or willful misconduct. In any
such litigation, Lender shall be entitled to the benefit of the rebuttable
presumption that it acted in good faith and with the exercise of ordinary care
in the performance by it of the terms of this Agreement.
11.2. Waiver of Notices.
Borrower hereby expressly waives demand, presentment, protest and notice of
protest and notice of dishonor with respect to any and all instruments and
commercial paper, included in or evidencing any of the Obligations or the
Collateral, and any and all other demands and notices of any kind or nature
whatsoever with respect to the Obligations, the Collateral and this Agreement,
except such as are expressly provided for herein. No notice to or demand on
Borrower which Lender may elect to give shall entitle Borrower to any other or
further notice or demand in the same, similar or other circumstances.
11.3. Amendments and Waivers.
Neither this Agreement nor any provision hereof shall be amended, modified,
waived or discharged orally or by course of conduct, but only by a written
agreement signed by an authorized officer of Lender, and as to amendments, as
also signed by an authorized officer of Borrower. Lender shall not, by any act,
delay, omission or otherwise be deemed to have expressly or impliedly waived any
of its rights, powers and/or remedies unless such
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waiver shall be in writing and signed by an authorized officer of Lender. Any
such waiver shall be enforceable only to the extent specifically set forth
therein. A waiver by Lender of any right, power and/or remedy on any one
occasion shall not be construed as a bar to or waiver of any such right, power
and/or remedy which Lender would otherwise have on any future occasion, whether
similar in kind or otherwise.
11.4. Waiver of Counterclaims.
Borrower waives all rights to interpose any claims, deductions, setoffs or
counterclaims of any nature (other than compulsory counterclaims) in any action
or proceeding with respect to this Agreement, the Obligations, the Collateral or
any matter arising therefrom or relating hereto or thereto.
11.5. Indemnification.
Borrower shall indemnify and hold Lender, and its directors, agents,
employees and counsel, harmless from and against any and all losses, claims,
damages, liabilities, costs or expenses imposed on, incurred by or asserted
against any of them in connection with any litigation, investigation, claim or
proceeding commenced or threatened related to the negotiation, preparation,
execution, delivery, enforcement, performance or administration of this
Agreement, any other Financing Agreements, or any undertaking or proceeding
related to any of the transactions contemplated hereby or any act, omission,
event or transaction related or attendant thereto, including amounts paid in
settlement, court costs, and the fees and expenses of counsel. To the extent
that the undertaking to indemnify, pay and hold harmless set forth in this
Section may be unenforceable because it violates any law or public policy,
Borrower shall pay the maximum portion which it is permitted to pay under
applicable law to Lender in satisfaction of indemnified matters under this
Section. The foregoing indemnity shall survive the payment of the Obligations
and the termination or non-renewal of this Agreement.
SECTION 12. TERM OF AGREEMENT; MISCELLANEOUS
12.1. Term.
(a) THIS AGREEMENT AND THE OTHER FINANCING AGREEMENTS SHALL BECOME
EFFECTIVE AS OF THE DATE SET FORTH ON THE FIRST PAGE HEREOF AND SHALL CONTINUE
IN FULL FORCE AND EFFECT FOR A TERM ENDING ON THE DATE THREE (3) YEARS FROM THE
DATE HEREOF (THE "RENEWAL DATE"), AND FROM YEAR TO YEAR THEREAFTER, UNLESS
SOONER TERMINATED PURSUANT TO THE TERMS HEREOF. LENDER OR BORROWER MAY TERMINATE
THIS AGREEMENT AND THE OTHER FINANCING AGREEMENTS EFFECTIVE ON THE RENEWAL DATE
OR ON THE ANNIVERSARY OF THE RENEWAL DATE IN ANY YEAR BY GIVING TO THE OTHER
PARTY AT LEAST SIXTY (60) DAYS PRIOR WRITTEN NOTICE; PROVIDED, THAT THIS
AGREEMENT AND ALL OTHER FINANCING AGREEMENTS MUST BE TERMINATED SIMULTANEOUSLY.
Upon the effective
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date of termination or non-renewal of the Financing Agreements, Borrower shall
pay to Lender, in full, all outstanding and unpaid Obligations and shall furnish
cash collateral to Lender in such amounts as Lender determines are reasonably
necessary to secure Lender from loss, cost, damage or expense, including
attorneys' fees and legal expenses, in connection with any contingent
Obligations, including issued and outstanding Letter of Credit Accommodations
and checks or other payments provisionally credited to the Obligations and/or as
to which Lender has not yet received final and indefeasible payment. Such
payments in respect of the Obligations and cash collateral shall be remitted by
wire transfer in Federal funds to such bank account of Lender, as Lender may, in
its discretion, designate in writing to Borrower for such purpose. Interest
shall be due until and including the next business day, if the amounts so paid
by Borrower to the bank account designated by Lender are received in such bank
account later than 12:00 noon, Chicago time.
(b) No termination of this Agreement or the other Financing Agreements
shall relieve or discharge Borrower of its respective duties, obligations and
covenants under this Agreement or the other Financing Agreements until all
Obligations have been fully and finally discharged and paid, and Lender's
continuing security interest in the Collateral and the rights and remedies of
Lender hereunder, under the other Financing Agreements and applicable law, shall
remain in effect until all such Obligations have been fully and finally
discharged and paid.
(c) If for any reason this Agreement is terminated prior to the end of the
then current term or renewal term of this Agreement, in view of the
impracticality and extreme difficulty of ascertaining actual damages and by
mutual agreement of the parties as to a reasonable calculation of Lender's lost
profits as a result thereof, Borrower agrees to pay to Lender, upon the
effective date of such termination, an early termination fee in the amount set
forth below if such termination is effective in the period indicated:
Amount Period
------ ------
(i) 2% of Maximum Credit From the date hereof to and
including the first anniversary of
the date hereof
(ii) 1% of Maximum Credit From the first anniversary of the
date hereof to and including the
second anniversary of the date
hereof
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Amount Period
------ ------
(iii) 0.5% of Maximum Credit From the second anniversary of the
date hereof to but not including
the 90-day period ending on the
third anniversary of the date
hereof or if the term of this
Agreement is extended for an
additional year as provided above,
then to but not including the last
day of such renewal term
Such early termination fee shall be presumed to be the amount of damages
sustained by Lender as a result of such early termination and Borrower agrees
that it is reasonable under the circumstances currently existing. In addition,
Lender shall be entitled to such early termination fee upon the occurrence of
any Event of Default described in Sections 10.1(g) and 10.1(h) hereof, even if
Lender does not exercise its right to terminate this Agreement, but elects, at
its option, to provide financing to Borrower or permit the use of cash
collateral under the United States Bankruptcy Code. The early termination fee
provided for in this Section 12.1 shall be deemed included in the Obligations.
12.2. Notices.
All notices, requests and demands hereunder shall be in writing and (a)
made to Lender at its address set forth below and to Borrower at its chief
executive office set forth below, or to such other address as either party may
designate by written notice to the other in accordance with this provision, and
(b) deemed to have been given or made: if delivered in person, immediately upon
delivery; if by telex, telegram or facsimile transmission, immediately upon
sending and upon confirmation of receipt; if by nationally recognized overnight
courier service with instructions to deliver the next business day, one (1)
business day after sending; and if by certified mail, return receipt requested,
five (5) days after mailing.
12.3. Partial Invalidity.
If any provision of this Agreement is held to be invalid or unenforceable,
such invalidity or unenforceability shall not invalidate this Agreement as a
whole, but this Agreement shall be construed as though it did not contain the
particular provision held to be invalid or unenforceable and the rights and
obligations of the parties shall be construed and enforced only to such extent
as shall be permitted by applicable law.
12.4. Successors.
This Agreement, the other Financing Agreements and any other document
referred to herein or therein shall be binding upon and inure to the benefit of
and be
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enforceable by Lender, Borrower and their respective successors and assigns,
except that Borrower may not assign its rights under this Agreement, the other
Financing Agreements and any other document referred to herein or therein
without the prior written consent of Lender. Lender may, after notice to
Borrower, assign its rights and delegate its obligations under this Agreement
and the other Financing Agreements and further may assign, or sell
participations in, all or any part of the Loans, the Letter of Credit
Accommodations or any other interest herein to another financial institution or
other person, in which event, the assignee or participant shall have, to the
extent of such assignment or participation, the same rights and benefits as it
would have if it were the Lender hereunder, except as otherwise provided by the
terms of such assignment or participation.
12.5. Entire Agreement.
This Agreement, the other Financing Agreements, any supplements hereto or
thereto, and any instruments or documents delivered or to be delivered in
connection herewith or therewith represents the entire agreement and
understanding concerning the subject matter hereof and thereof between the
parties hereto, and supersede all other prior agreements, understandings,
negotiations and discussions, representations, warranties, commitments,
proposals, offers and contracts concerning the subject matter hereof, whether
oral or written. In the event of any inconsistency between the terms of this
Agreement and any schedule or exhibit hereto, the terms of this Agreement shall
govern.
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IN WITNESS WHEREOF, Lender and Borrower have caused these presents to be
duly executed as of the day and year first above written.
LENDER BORROWER
------ --------
CONGRESS FINANCIAL CORPORATION CTI INDUSTRIES CORPORATION
(CENTRAL)
By /s/ Xxxxxxx Xxxxxxx By /s/ Xxxxxx Xxxxxx
--------------------------- -----------------------
Title Senior Vice President Title President
Address: Chief Executive Office:
------- ----------------------
000 Xxxxx Xxxxxx Xxxxx 00000 Xxxxx Xxxxxx Xxxx
Xxxxx 0000 Xxxxxxxxxx, Xxxxxxxx 00000
Xxxxxxx, Xxxxxxxx 00000
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