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CREDIT AND SECURITY AGREEMENT
BY AND BETWEEN
EDUCATIONAL INSIGHTS, INC.
AND
XXXXX FARGO BUSINESS CREDIT, INC.
Dated as of: June 28, 1999
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TABLE OF CONTENTS
ARTICLE I DEFINITIONS................................................................................1
Section 1.1 Definitions...........................................................................1
Section 1.2 Cross References.....................................................................10
ARTICLE II AMOUNT AND TERMS OF THE CREDIT FACILITY...................................................10
Section 2.1 Revolving Advances...................................................................10
Section 2.2 Letters of Credit....................................................................11
Section 2.3 Payment of Amounts Drawn Under Letters of Credit;
Obligation of Reimbursement..........................................................12
Section 2.4 Special Account......................................................................12
Section 2.5 Obligations Absolute.................................................................13
Section 2.6 Interest; Minimum Interest Charge; Default Interest;
Participations; Usury................................................................13
Section 2.7 Fees.................................................................................15
Section 2.8 Computation of Interest and Fees; When Interest Due and Payable......................16
Section 2.9 Capital Adequacy; Increased Costs and Reduced Return.................................16
Section 2.10 Maturity Date........................................................................17
Section 2.11 Voluntary Prepayment; Reduction of the Maximum Line;
Termination of the Credit Facility by the Borrower...................................17
Section 2.12 Termination and Line Reduction Fees; Waiver of Termination
and Line Reduction Fees..............................................................17
Section 2.13 Mandatory Prepayment.................................................................18
Section 2.14 Payment..............................................................................18
Section 2.15 Payment on Non-Banking Days..........................................................18
Section 2.16 Use of Proceeds......................................................................18
Section 2.17 Liability Records....................................................................18
ARTICLE III SECURITY INTEREST; OCCUPANCY; SETOFF......................................................19
Section 3.1 Grant of Security Interest...........................................................19
Section 3.2 Notification of Account Debtors and Other Obligors...................................19
Section 3.3 Assignment of Insurance..............................................................19
Section 3.4 Occupancy............................................................................19
Section 3.5 License..............................................................................20
Section 3.6 Financing Statement..................................................................20
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TABLE OF CONTENTS
(continued)
Section 3.7 Setoff...............................................................................21
ARTICLE IV CONDITIONS OF LENDING.....................................................................21
Section 4.1 Conditions Precedent to the Initial Revolving Advance
and the Initial Letter of Credit.....................................................21
Section 4.2 Conditions Precedent to All Advances and Letters of Credit...........................23
ARTICLE V REPRESENTATIONS AND WARRANTIES............................................................24
Section 5.1 Corporate Existence and Power; Name; Chief Executive Office;
Inventory and Equipment Locations; Tax Identification Number.........................24
Section 5.2 Authorization of Borrowing; No Conflict as to Law or Agreements......................24
Section 5.3 Legal Agreements.....................................................................25
Section 5.4 Subsidiaries.........................................................................25
Section 5.5 Financial Condition; No Adverse Change...............................................25
Section 5.6 Litigation...........................................................................25
Section 5.7 Regulation U.........................................................................25
Section 5.8 Taxes................................................................................25
Section 5.9 Titles and Liens.....................................................................25
Section 5.10 Plans................................................................................26
Section 5.11 Default..............................................................................26
Section 5.12 Environmental Matters................................................................26
Section 5.13 Submissions to Lender................................................................27
Section 5.14 Financing Statements.................................................................27
Section 5.15 Rights to Payment....................................................................27
Section 5.16 Financial Solvency...................................................................28
ARTICLE VI BORROWER'S AFFIRMATIVE COVENANTS..........................................................28
Section 6.1 Reporting Requirements...............................................................28
Section 6.2 Books and Records; Inspection and Examination........................................31
Section 6.3 Account Verification.................................................................31
Section 6.4 Compliance with Laws.................................................................31
Section 6.5 Payment of Taxes and Other Claims....................................................31
Section 6.6 Maintenance of Properties............................................................32
Section 6.7 Insurance............................................................................32
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TABLE OF CONTENTS
(continued)
Section 6.8 Preservation of Existence............................................................32
Section 6.9 Delivery of Instruments, etc.........................................................32
Section 6.10 Collateral Account...................................................................33
Section 6.11 Performance by the Lender............................................................33
Section 6.12 Minimum Book Net Worth...............................................................34
Section 6.13 Minimum Net Income...................................................................34
Section 6.15 Year 2000 Compliance.................................................................34
ARTICLE VII NEGATIVE COVENANTS........................................................................35
Section 7.1 Liens................................................................................35
Section 7.2 Indebtedness.........................................................................35
Section 7.3 Guaranties...........................................................................36
Section 7.4 Investments and Subsidiaries.........................................................36
Section 7.5 Dividends............................................................................36
Section 7.6 Sale or Transfer of Assets; Suspension of Business Operations........................37
Section 7.7 Consolidation and Merger; Asset Acquisitions.........................................37
Section 7.8 Sale and Leaseback...................................................................37
Section 7.9 Restrictions on Nature of Business...................................................37
Section 7.10 Capital Expenditures.................................................................37
Section 7.11 Accounting...........................................................................37
Section 7.12 Discounts, etc.......................................................................37
Section 7.13 Defined Benefit Pension Plans........................................................37
Section 7.14 Other Defaults.......................................................................38
Section 7.15 Place of Business; Name..............................................................38
Section 7.16 Organizational Documents.............................................................38
Section 7.17 Salaries.............................................................................38
Section 7.18 Change in Ownership..................................................................38
Section 7.19 Transactions with Affiliates.........................................................38
ARTICLE VIII EVENTS OF DEFAULT, RIGHTS AND REMEDIES....................................................38
Section 8.1 Events of Default....................................................................38
Section 8.2 Rights and Remedies..................................................................40
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TABLE OF CONTENTS
(continued)
Section 8.3 Certain Notices......................................................................41
ARTICLE IX MISCELLANEOUS.............................................................................42
Section 9.1 No Waiver; Cumulative Remedies.......................................................42
Section 9.2 Amendments, Etc...........................................................................42
Section 9.3 Addresses for Notices, Etc................................................................42
Section 9.4 Further Documents.........................................................................43
Section 9.5 Collateral................................................................................43
Section 9.6 Costs and Expenses...................................................................43
Section 9.7 Indemnity............................................................................43
Section 9.8 Participants.........................................................................44
Section 9.9 Execution in Counterparts............................................................44
Section 9.10 Binding Effect; Assignment; Complete Agreement; Exchanging
Information..........................................................................44
Section 9.11 Severability of Provisions...........................................................45
Section 9.12 Headings.............................................................................45
Section 9.13 Governing Law; Jurisdiction, Venue; Waiver of Jury Trial.............................45
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CREDIT AND SECURITY AGREEMENT
Dated as of June 28, 1999
EDUCATIONAL INSIGHTS, INC., a California corporation (the "BORROWER"),
and XXXXX FARGO BUSINESS CREDIT, INC., a Minnesota corporation (the "LENDER"),
hereby agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1 DEFINITIONS. For all purposes of this Agreement, except
as otherwise expressly provided or unless the context otherwise requires:
(a) the terms defined in this Article have the meanings assigned to
them in this Article, and include the plural as well as the singular; and
(b) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with GAAP.
"ACCOUNTS" means all of the Borrower's accounts, as such term is
defined in the UCC, including without limitation the aggregate unpaid
obligations of customers and other account debtors to the Borrower arising
out of the sale or lease of goods or rendition of services by the Borrower
on an open account or deferred payment basis.
"ADVANCE" means a Revolving Advance.
"AFFILIATE" or "AFFILIATES" means Educational Insights, Ltd. and any
other Person controlled by, controlling or under common control with the
Borrower, including (without limitation) any Subsidiary of the Borrower.
For purposes of this definition, "control," when used with respect to any
specified Person, means the power to direct the management and policies of
such Person, directly or indirectly, whether through the ownership of
voting securities, by contract or otherwise.
"AGREEMENT" means this Credit and Security Agreement, as amended,
supplemented or restated from time to time.
"AGGREGATE FACE AMOUNT" has the meaning specified in Section 2.7(c).
"APPRAISED VALUE" means, with respect to Eligible Inventory, the
appraised net orderly liquidation value of such Eligible Inventory (as
estimated by an independent appraiser acceptable to Lender in its sole
discretion), expressed as a percentage of the Value of Eligible Inventory
as of the appraisal date.
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"AVAILABILITY" means the difference of (i) the Borrowing Base and (ii)
the sum of (A) the outstanding principal balance of the Revolving Note and
(B) the L/C Amount.
"AVAILABILITY RESERVE" means as of any date of determination, such
amount or amounts as Lender may from time to time establish and revise in
good faith reducing the amount of Revolving Advances 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 its value, (ii) the assets, business or prospects of
Borrower, 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 that any collateral report or
financial information furnished by or on behalf of Borrower to Lender is or
may have been incomplete, inaccurate or misleading in any material respect,
or (c) 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.
"AVERAGE ANNUAL MAXIMUM LINE" means Eight Million Six Hundred
Sixty-Six Thousand Six Hundred Sixty-Six Dollars ($8,666,666).
"BANKING DAY" means a day other than a Saturday, Sunday or other day
on which banks are generally not open for business in Minneapolis,
Minnesota.
"BASE RATE" means the rate of interest publicly announced from time to
time by Xxxxx Fargo Bank, National Association as its "base rate" or, if
such bank ceases to announce a rate so designated, any similar successor
rate designated by the Lender.
"BOOK NET WORTH" means the aggregate of the common and preferred
stockholders' equity in the Borrower, determined in accordance with GAAP.
"BORROWING BASE" means, at any time the lesser of:
(a) the Maximum Line; or
(b) subject to change from time to time in the Lender's sole
discretion, the sum of:
(i) eighty percent (80%) of Eligible Accounts, PLUS
(ii) the least of (A) thirty percent (30%) of the Value of
Eligible Inventory, (B) eighty-five percent (85%) of the
Appraised Value of Eligible Inventory or (C) Three Million
Dollars ($3,000,000), and MINUS
(iii) any Availability Reserves.
"CAPITAL EXPENDITURES" for a period means any expenditure of money for
the purchase or construction of assets, or for improvements or additions
thereto, which are
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capitalized on the Borrower's balance sheet or for the lease, purchase or
other acquisition of any capital asset, or for the lease of any other asset
whether payable currently or in the future.
"COLLATERAL" means all current or hereafter acquired or arising
Equipment, General Intangibles, Inventory, Receivables, Investment
Property, deposit accounts, letters of credit, proceeds of letters of
credit, chattel paper and all sums on deposit in any Collateral Account,
and any items in any Lockbox; together with (i) all substitutions and
replacements for and products of any of the foregoing; (ii) proceeds of any
and all of the foregoing; (iii) in the case of all tangible goods, all
accessions; (iv) all accessories, attachments, parts, equipment and repairs
now or hereafter attached or affixed to or used in connection with any
tangible goods; (v) all warehouse receipts, bills of lading and other
documents of title now or hereafter covering such goods; and (vi) all sums
on deposit in the Special Account.
"COLLATERAL ACCOUNT" means the "WFBCI Account" as defined in the
Collection Account Agreement and the "Lender Account" as defined in the
Lockbox Agreement.
"COLLECTION ACCOUNT AGREEMENT" means the Collection Account Agreement
of even date herewith by and among the Borrower, Xxxxx Fargo Bank, National
Association and the Lender.
"COMMITMENT" means the Lender's commitment to make Advances and to
cause the Issuer to issue Letters of Credit to or for the Borrower's
account pursuant to Article II.
"COPYRIGHT SECURITY AGREEMENT" means the Copyright Security Agreement
by the Borrower in favor of the Lender of even date herewith.
"CREDIT FACILITY" means the credit facility being made available to
the Borrower by the Lender pursuant to Article II.
"DEBT" of any Person means all items of indebtedness or liability
which in accordance with GAAP would be included in determining total
liabilities as shown on the liabilities side of a balance sheet of that
Person as at the date as of which Debt is to be determined. For purposes of
determining a Person's aggregate Debt at any time, "Debt" shall also
include the aggregate payments required to be made by such Person at any
time under any lease that is considered a capitalized lease under GAAP.
"DEFAULT" means an event that, with giving of notice or passage of
time or both, would constitute an Event of Default.
"DEFAULT PERIOD" means any period of time beginning on the first day
of any month during which a Default or Event of Default has occurred and
ending on the date the Lender notifies the Borrower in writing that such
Default or Event of Default has been cured or waived.
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"DEFAULT RATE" means an annual rate equal to two percent (2.0%) over
the Floating Rate, which rate shall change when and as the Floating Rate
changes.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"ELIGIBLE ACCOUNTS" means all unpaid Accounts, net of any credits,
except the following shall not in any event be deemed Eligible Accounts:
(i) That portion of Accounts which is unpaid more than sixty
(60) days past the stated due date or more than one hundred fifty
(150) days past the invoice date;
(ii) That portion of Accounts that is disputed or subject to a
claim of offset or a contra account;
(iii) That portion of Accounts not yet earned by the final
delivery of goods or rendition of services, as applicable, by the
Borrower to the customer;
(iv) Accounts owed by any federal unit of government, whether
foreign or domestic (provided, however, that there shall be included
in Eligible Accounts that portion of Accounts owed by such units of
government for which the Borrower has provided evidence satisfactory
to the Lender that (A) the Lender has a first priority perfected
security interest, and (B) if such unit of government is the United
States of America, or political subdivision, department, agency or
instrumentality thereof, upon Lender's request, the Federal Assignment
of Claims Act of 1940, as amended, or any similar law, if applicable,
has been complied with in a manner satisfactory to Lender);
(v) Accounts owed by an account debtor located outside the
United States or Canada which are not (A) backed by a bank letter of
credit naming the Lender as beneficiary or assigned to the Lender, in
the Lender's possession and acceptable to the Lender in all respects,
in its sole discretion, or (B) covered by a foreign receivables
insurance policy acceptable to the Lender in its sole discretion;
(vi) Accounts owed by an account debtor that is insolvent, the
subject of bankruptcy proceedings or has gone out of business;
(vii) Accounts owed by a shareholder, Subsidiary, Affiliate,
officer or employee of the Borrower;
(viii) Accounts not subject to a duly perfected security interest
in the Lender's favor or which are subject to any lien, security
interest or claim in favor of any Person other than the Lender
including without limitation any payment or performance bond;
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(ix) That portion of Accounts that has been restructured,
extended, amended or modified;
(x) That portion of Accounts that constitutes advertising,
finance charges, service charges or sales or excise taxes;
(xi) Accounts owed by an account debtor, regardless of whether
otherwise eligible, if twenty-five percent (25%) or more of the total
amount due under Accounts from such debtor is ineligible under clauses
(i), (ii)or (ix) above;
(xii) That portion of Accounts of a single debtor or its
affiliates which constitute more than twenty-five percent (25%) of all
otherwise Eligible Accounts; and
(xiii) Accounts, or portions thereof, otherwise deemed ineligible
by the Lender in its sole discretion.
"ELIGIBLE INVENTORY" means all Inventory of the Borrower located at
the Tennessee Facility; provided, however, that the following shall not in
any event be deemed Eligible Inventory:
(i) Inventory that is: in-transit; located at any warehouse,
job site or other premises other than the Tennessee Facility; located
outside of the states, or localities, as applicable, in which the
Lender has filed financing statements to perfect a first priority
security interest in such Inventory; covered by any negotiable or
non-negotiable warehouse receipt, xxxx of lading or other document of
title; on consignment from any Person; on consignment to any Person or
subject to any bailment unless such consignee or bailee has executed
an agreement with the Lender;
(ii) Inventory at a location owned by a party other than
Borrower for which the owner thereof has not entered into an agreement
relative to Lender's rights with respect to such Inventory, in form
and content satisfactory to Lender;
(iii) Supplies, packaging, maintenance parts or sample
Inventory;
(iv) Work-in-process Inventory; PROVIDED, HOWEVER, certain
components Inventory consisting of semi-finished goods which require
only minimal assembly and/or packaging and are balanced in appropriate
quantities so that, when assembled, yield determinable quantities of
finished goods may be deemed finished goods in Lender's sole
discretion;
(v) Inventory that is damaged, obsolete, slow moving or not
currently saleable in the normal course of the Borrower's operations;
(vi) Inventory that the Borrower has returned, has attempted to
return, is in the process of returning or intends to return to the
vendor thereof;
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(vii) Inventory that is perishable or live; PROVIDED, HOWEVER,
Inventory under the "Sea Monkey" product line shall not be deemed
Inventory that is perishable or live for purposes of this clause
(vii);
(viii) Inventory manufactured by the Borrower pursuant to a
license unless the applicable licensor has agreed in writing to permit
the Lender to exercise its rights and remedies against such Inventory;
(ix) Inventory that is subject to a security interest in favor
of any Person other than the Lender; and
(x) Inventory otherwise deemed ineligible by the Lender in its
sole discretion.
"ENVIRONMENTAL LAWS" has the meaning specified in Section 5.12.
"EQUIPMENT" means all of the Borrower's equipment, as such term is
defined in the UCC, whether now owned or hereafter acquired, including but
not limited to all present and future machinery, vehicles, furniture,
fixtures, manufacturing equipment, shop equipment, office and recordkeeping
equipment, parts, tools, supplies, and including specifically (without
limitation) the goods described in any equipment schedule or list herewith
or hereafter furnished to the Lender by the Borrower.
"EVENT OF DEFAULT" has the meaning specified in Section 8.1.
"FLOATING RATE" means an annual rate equal to the sum of the Base Rate
plus one-half of one percent (0.5%), which annual rate shall change when
and as the Base Rate changes; PROVIDED, HOWEVER, the "Floating Rate" shall
be reduced to an annual rate equal to the sum of the Base Rate plus
one-quarter of one percent (0.25%) during the twelve (12) month period
following a satisfactory review by Lender of Borrower's annual audited
financial statements for the fiscal year period ending December 31, 1999
and if Borrower achieves Net Income of at least Five Hundred Thousand
Dollars ($500,000) for said fiscal year.
"FUNDING DATE" has the meaning specified in Section 2.1.
"GAAP" means generally accepted accounting principles, applied on a
basis consistent with the accounting practices applied in the financial
statements described in Section 5.5, except for any change in accounting
practices to the extent that, due to a promulgation of the Financial
Accounting Standards Board changing or implementing any new accounting
standard, the Borrower either (i) is required to implement such change, or
(ii) for future periods will be required to and for the current period may
in accordance with generally accepted accounting principles implement such
change, for its financial statements to be in conformity with generally
accepted accounting principles (any such change is herein referred to as a
"REQUIRED GAAP CHANGE"), provided that (1) the Borrower shall fully
disclose in such financial statements any such Required GAAP Change and the
effects of the Required GAAP Change on the Borrower's income,
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retained earnings or other accounts, as applicable, and (2) the Borrower's
financial covenants set forth in Sections 6.12, 6.13 and 7.10 shall be
adjusted as necessary to reflect the effects of such Required GAAP Change.
"GENERAL INTANGIBLES" means all of the Borrower's general intangibles,
as such term is defined in the UCC, whether now owned or hereafter
acquired, including (without limitation) all present and future patents,
patent applications, copyrights, trademarks, trade names, trade secrets,
customer or supplier lists and contracts, manuals, operating instructions,
permits, franchises, the right to use the Borrower's name, and the goodwill
of the Borrower's business.
"HAZARDOUS SUBSTANCE" has the meaning specified in Section 5.12.
"INDEMNITEES" has the meaning specified in Section 9.7.
"INDEMNIFIED LIABILITIES" has the meaning specified in Section 9.7.
"INVENTORY" means all of the Borrower's inventory, as such term is
defined in the UCC, whether now owned or hereafter acquired, whether
consisting of whole goods, spare parts or components, supplies or
materials, whether acquired, held or furnished for sale, for lease or under
service contracts or for manufacture or processing, and wherever located.
"INVESTMENT PROPERTY" means all of the Borrower's investment property,
as such term is defined in the UCC, whether now owned or hereafter
acquired, including but not limited to all securities, security
entitlements, securities accounts, commodity contracts, commodity accounts,
stocks, bonds, mutual fund shares, money market shares and U.S. Government
securities.
"ISSUER" means the issuer of any Letter of Credit.
"L/C AMOUNT" means the sum of (i) the aggregate face amount of any
issued and outstanding Letters of Credit and (ii) the unpaid amount of the
Obligation of Reimbursement.
"L/C APPLICATION" means an application and agreement for letters of
credit in a form acceptable to the Issuer and the Lender.
"LETTER OF CREDIT" has the meaning specified in Section 2.2.
"LOAN DOCUMENTS" means this Agreement, the Note, any Subordination
Agreement and the Security Documents.
"LOCKBOX" has the meaning given in the Lockbox Agreement.
"LOCKBOX AGREEMENT" means the Lockbox Agreement by and among the
Borrower, Xxxxx Fargo Bank, National Association and, the Lender, of even
date herewith.
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"MATURITY DATE" has the meaning specified in Section 2.10.
"MAXIMUM LINE" means (a) Eight Million Dollars ($8,000,000) during the
period commencing January 1 through June 30 of each calendar year and (b)
Ten Million Dollars ($10,000,000) during the period commencing July 1
through December 31 of each calendar year, unless said amount is reduced
pursuant to Section 2.11, in which event it means the amount to which said
amount is reduced.
"MINIMUM INTEREST CHARGE" has the meaning specified in 2.5.2(b).
"NET INCOME" means fiscal year-to-date after-tax net income, DECREASED
by the sum of any extraordinary, non-operating or non-cash income recorded
by the Borrower and INCREASED by any extraordinary, non-cash or
non-operating expense or loss recorded by the Borrower, as determined in
accordance with GAAP.
"NOTE" means the Revolving Note.
"OBLIGATIONS" means the Note and each and every other debt, liability
and obligation of every type and description which the Borrower may now or
at any time hereafter owe to the Lender, whether such debt, liability or
obligation now exists or is hereafter created or incurred, whether it
arises in a transaction involving the Lender alone or in a transaction
involving other creditors of the Borrower, and whether it is direct or
indirect, due or to become due, absolute or contingent, primary or
secondary, liquidated or unliquidated, or sole, joint, several or joint and
several, and including specifically, but not limited to, the Obligation of
Reimbursement and all indebtedness of the Borrower arising under this
Agreement, the Note, any L/C Application completed by the Borrower, or any
other loan or credit agreement or guaranty between the Borrower and the
Lender, whether now in effect or hereafter entered into.
"OBLIGATION OF REIMBURSEMENT" has the meaning specified in Section
2.3(a).
"PATENT AND TRADEMARK SECURITY AGREEMENT" means the Patent and
Trademark Security Agreement by the Borrower in favor of the Lender of even
date herewith.
"PERMITTED LIEN" has the meaning specified in Section 7.1.
"PERSON" means any individual, corporation, partnership, joint
venture, limited liability company, association, joint-stock company,
trust, unincorporated organization or government or any agency or political
subdivision thereof.
"PLAN" means an employee benefit plan or other plan maintained for the
Borrower's employees and covered by Title IV of ERISA.
"PREMISES" means all premises where the Borrower conducts its business
and has any rights of possession, including (without limitation) the
premises legally described in EXHIBIT C attached hereto.
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"RECEIVABLES" means each and every right of the Borrower to the
payment of money, whether such right to payment now exists or hereafter
arises, whether such right to payment arises out of a sale, lease or other
disposition of goods or other property, out of a rendering of services, out
of a loan, out of the overpayment of taxes or other liabilities, or
otherwise arises under any contract or agreement, whether such right to
payment is created, generated or earned by the Borrower or by some other
person who subsequently transfers such person's interest to the Borrower,
whether such right to payment is or is not already earned by performance,
and howsoever such right to payment may be evidenced, together with all
other rights and interests (including all liens and security interests)
which the Borrower may at any time have by law or agreement against any
account debtor or other obligor obligated to make any such payment or
against any property of such account debtor or other obligor; all including
but not limited to all present and future accounts, contract rights, loans
and obligations receivable, chattel papers, bonds, notes and other debt
instruments, tax refunds and rights to payment in the nature of general
intangibles.
"RELATED DOCUMENTS" has the meaning specified in Section 2.5(a).
"REPORTABLE EVENT" shall have the meaning assigned to that term in
Title IV of ERISA.
"REVOLVING ADVANCE" has the meaning specified in Section 2.1.
"REVOLVING NOTE" means the Borrower's revolving promissory note,
payable to the order of the Lender in substantially the form of EXHIBIT A
hereto and any note or notes issued in substitution therefor, as the same
may hereafter be amended, supplemented or restated from time to time.
"SECURITY DOCUMENTS" means this Agreement, the Collection Account
Agreement, the Lockbox Agreement, the Patent and Trademark Security
Agreement, the Copyright Security Agreement and any other document
delivered to the Lender from time to time to secure the Obligations, as the
same may hereafter be amended, supplemented or restated from time to time.
"SECURITY INTEREST" has the meaning specified in Section 3.1.
"SPECIAL ACCOUNT" means a specified cash collateral account maintained
by a financial institution acceptable to the Lender in connection with
Letters of Credit, as contemplated by Section 2.4.
"SUBORDINATION AGREEMENT" means any subordination agreement accepted
by the Lender from time to time, as the same may hereafter be amended,
supplemented or restated from time to time.
"SUBSIDIARY" means any corporation of which more than fifty percent
(50%) of the outstanding shares of capital stock having general voting
power under ordinary circumstances to elect a majority of the board of
directors of such corporation,
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irrespective of whether or not at the time stock of any other class or
classes shall have or might have voting power by reason of the happening of
any contingency, is at the time directly or indirectly owned by the
Borrower, by the Borrower and one or more other Subsidiaries, or by one or
more other Subsidiaries.
"TENNESSEE FACILITY" means the distribution facility of Borrower
located in the State of Tennessee.
"TERMINATION DATE" means the earliest of (i) the Maturity Date, (ii)
the date the Borrower terminates the Credit Facility, or (iii) the date the
Lender demands payment of the Obligations.
"UCC" means the Uniform Commercial Code as in effect from time to time
in the state designated in Section 9.13 as the state whose laws shall
govern this Agreement, or in any other state whose laws are held to govern
this Agreement or any portion hereof.
"VALUE" means, with respect to Eligible Inventory, as determined by
Lender in good faith, the lower of (a) cost computed on a
first-in-first-out basis in accordance with GAAP, or (b) market value.
"YEAR 2000 COMPLIANT" has the meaning specified in Section 6.15.
Section 1.2 CROSS REFERENCES. All references in this Agreement
to Articles, Sections and subsections, shall be to Articles, Sections and
subsections of this Agreement unless otherwise explicitly specified.
ARTICLE II
AMOUNT AND TERMS OF THE CREDIT FACILITY
Section 2.1 REVOLVING ADVANCES. The Lender agrees, on the terms and
subject to the conditions herein set forth, to make advances to the Borrower
from time to time from the date all of the conditions set forth in Section 4.1
are satisfied (the "FUNDING DATE") to the Termination Date (the "REVOLVING
ADVANCES"). The Lender shall have no obligation to make a Revolving Advance if,
after giving effect to such requested Revolving Advance, the sum of the
outstanding and unpaid Revolving Advances under this Section 2.1 or otherwise
would exceed the Borrowing Base less the L/C Amount. The Borrower's obligation
to pay the Revolving Advances shall be evidenced by the Revolving Note and shall
be secured by the Collateral as provided in Article III. Within the limits set
forth in this Section 2.1, the Borrower may borrow, prepay pursuant to Section
2.11 and reborrow. The Borrower agrees to comply with the following procedures
in requesting Revolving Advances under this Section 2.1:
(a) The Borrower shall make each request for a Revolving Advance to
the Lender before 10:00 a.m. (California time) of the day of the requested
Revolving Advance. Requests may be made in writing or by telephone,
specifying the date of the requested Revolving Advance and the amount
thereof. Each request shall be by (i) any officer of the Borrower; or (ii)
any person designated as the Borrower's agent by any
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officer of the Borrower in a writing delivered to the Lender; or (iii) any
person whom the Lender reasonably believes to be an officer of the Borrower
or such a designated agent.
(b) Upon fulfillment of the applicable conditions set forth in Article
IV, the Lender shall disburse the proceeds of the requested Revolving
Advance by crediting the same to the Borrower's demand deposit account
maintained with Xxxxx Fargo Bank, National Association unless the Lender
and the Borrower shall agree in writing to another manner of disbursement.
Upon the Lender's request, the Borrower shall promptly confirm each
telephonic request for an Advance by executing and delivering an
appropriate confirmation certificate to the Lender. The Borrower shall
repay all Advances even if the Lender does not receive such confirmation
and even if the person requesting an Advance was not in fact authorized to
do so. Any request for an Advance, whether written or telephonic, shall be
deemed to be a representation by the Borrower that the conditions set forth
in Section 4.2 have been satisfied as of the time of the request.
Section 2.2 LETTERS OF CREDIT
(a) The Lender agrees, on the terms and subject to the conditions
herein set forth, to cause an Issuer to issue, from the Funding Date to the
Termination Date, one or more irrevocable standby or documentary letters of
credit (each, a "LETTER OF CREDIT") for the Borrower's account and to
guaranty the Borrower's obligations with respect thereto. The Lender shall
have no obligation to cause an Issuer to issue, or to guaranty, any Letter
of Credit if the face amount of the Letter of Credit to be issued or
guarantied, would exceed the lesser of:
(i) One Million Five Hundred Thousand Dollars ($1,500,000) less
the L/C Amount, or
(ii) the Borrowing Base less the sum of (A) all outstanding and
unpaid Revolving Advances and (B) the L/C Amount.
Each Letter of Credit, if any, shall be issued pursuant to a separate L/C
Application entered into by the Borrower and the Lender for the benefit of
the Issuer, completed in a manner satisfactory to the Lender and the
Issuer. The terms and conditions set forth in each such L/C Application
shall supplement the terms and conditions hereof, but if the terms of any
such L/C Application and the terms of this Agreement are inconsistent, the
terms hereof shall control.
(b) No Letter of Credit shall be issued with an expiry date later than
the Termination Date in effect as of the date of issuance.
(c) Any request for the Lender to guaranty a Letter of Credit or to
cause an Issuer to issue a Letter of Credit under this Section 2.2 shall be
deemed to be a representation by the Borrower that the conditions set forth
in Section 4.2 have been satisfied as of the date of the request.
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Section 2.3 PAYMENT OF AMOUNTS DRAWN UNDER LETTERS OF CREDIT;
OBLIGATION OF REIMBURSEMENT. The Borrower acknowledges that the Lender, as
co-applicant and guarantor on the Letters of Credit, will be liable to the
Issuer for reimbursement of any and all draws under Letters of Credit and for
all other amounts required to be paid under the applicable L/C Application.
Accordingly, the Borrower agrees to pay to the Lender any and all amounts
required to be paid under the applicable L/C Application, when and as required
to be paid thereby, and the amounts designated below, when and as designated:
(a) The Borrower hereby agrees to pay the Lender on the day a draft is
honored under any Letter of Credit a sum equal to all amounts drawn under
such Letter of Credit plus any and all reasonable charges and expenses that
the Issuer or the Lender may pay or incur relative to such draw and the
applicable L/C Application, plus interest on all such amounts, charges and
expenses as set forth below (the Borrower's obligation to pay all such
amounts is herein referred to as the "OBLIGATION OF REIMBURSEMENT").
(b) Whenever a draft is submitted under a Letter of Credit, the Lender
shall make a Revolving Advance in the amount of the Obligation of
Reimbursement and shall apply the proceeds of such Revolving Advance
thereto. Such Revolving Advance shall be repayable in accordance with and
be treated in all other respects as a Revolving Advance hereunder.
(c) If a draft is submitted under a Letter of Credit when the Borrower
is unable, because a Default Period then exists or for any other reason, to
obtain a Revolving Advance to pay the Obligation of Reimbursement, the
Borrower shall pay to the Lender on demand and in immediately available
funds, the amount of the Obligation of Reimbursement together with
interest, accrued from the date of the draft until payment in full at the
Default Rate. Notwithstanding the Borrower's inability to obtain a
Revolving Advance for any reason, the Lender is irrevocably authorized, in
its sole discretion, to make a Revolving Advance in an amount sufficient to
discharge the Obligation of Reimbursement and all accrued but unpaid
interest thereon.
(d) The Borrower's obligation to pay any Revolving Advance made under
this Section 2.3, shall be evidenced by the Revolving Note and shall bear
interest as provided in 2.5.2.
Section 2.4 SPECIAL ACCOUNT. If the Credit Facility is terminated
for any reason whatsoever while any Letter of Credit is outstanding, the
Borrower shall thereupon pay the Lender in immediately available funds for
deposit in the Special Account an amount equal to the L/C Amount. The Special
Account shall be an interest bearing account maintained for the Lender by any
financial institution acceptable to the Lender. Any interest earned on amounts
deposited in the Special Account shall be credited to the Special Account.
Amounts on deposit in the Special Account may be applied by the Lender at any
time or from time to time to the Obligations in the Lender's sole discretion,
and shall not be subject to withdrawal by the Borrower so long as the Lender
maintains a security interest therein. The Lender agrees to transfer any balance
in the Special Account to the Borrower at such time as the Lender is required to
release its security interest in the Special Account under applicable law.
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Section 2.5 OBLIGATIONS ABSOLUTE. The Borrower's obligations
arising under Section 2.3 shall be absolute, unconditional and irrevocable, and
shall be paid strictly in accordance with the terms of Section 2.3, under all
circumstances whatsoever, including (without limitation) the following
circumstances:
(a) any lack of validity or enforceability of any Letter of Credit or
any other agreement or instrument relating to any Letter of Credit
(collectively the "RELATED DOCUMENTS");
(b) any amendment or waiver of or any consent to departure from all or
any of the Related Documents;
(c) the existence of any claim, setoff, defense or other right which
the Borrower may have at any time, against any beneficiary or any
transferee of any Letter of Credit (or any persons or entities for whom any
such beneficiary or any such transferee may be acting), or other person or
entity, whether in connection with this Agreement, the transactions
contemplated herein or in the Related Documents or any unrelated
transactions;
(d) any statement or any other document presented under any Letter of
Credit proving to be forged, fraudulent, invalid or insufficient in any
respect or any statement therein being untrue or inaccurate in any respect
whatsoever;
(e) payment by or on behalf of the Issuer or the Lender under any
Letter of Credit against presentation of a draft or certificate which does
not strictly comply with the terms of such Letter of Credit; or
(f) any other circumstance or happening whatsoever, whether or not
similar to any of the foregoing.
2.5.2 INTEREST; MINIMUM INTEREST CHARGE; DEFAULT INTEREST;
PARTICIPATIONS; USURY.
(a) REVOLVING NOTE. Except as set forth in Sections 2.6(c) and 2.6(e),
the outstanding principal balance of the Revolving Note shall bear interest
at the Floating Rate.
(b) MINIMUM INTEREST CHARGE. Notwithstanding the interest payable
pursuant to 2.5.2(a) and the fees with respect to Letters of Credit payable
pursuant to Section 2.7(c), the aggregate amount of interest and Letter of
Credit fees payable by Borrower pursuant to Section 2.6(a) and Section
2.7(c), respectively, during each of the calendar quarters ending on the
following dates shall not be less than the amounts set forth opposite such
dates (the "MINIMUM INTEREST CHARGE") during the term of this Agreement,
and the Borrower shall pay any deficiency between the Minimum Interest
Charge and the aggregate amount of interest otherwise calculated under
Sections 2.6(a) and 2.6(e) and Letter of Credit fees otherwise calculated
under Section 2.7(c) for each such calendar quarter:
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MINIMUM INTEREST FISCAL QUARTER ENDING
------------------------- ----------------------------
$ 42,500 March 31
$ 46,500 June 30
$ 51,500 September 30
$ 56,500 December 31
Such deficiency shall be payable in arrears on the first day of each calendar
quarter and on the Termination Date.
(c) DEFAULT INTEREST RATE. At any time during any Default Period, in
the Lender's sole discretion and without waiving any of its other rights
and remedies, the principal of the Advances outstanding from time to time
shall bear interest at the Default Rate, effective for any periods
designated by the Lender from time to time during that Default Period.
(d) PARTICIPATIONS. If any Person shall acquire a participation in the
Advances under this Agreement, the Borrower shall be obligated to the
Lender to pay the full amount of all interest calculated under, along with
all other fees, charges and other amounts due under this Agreement,
regardless if such Person elects to accept interest with respect to its
participation at a lower rate than the Floating Rate, or otherwise elects
to accept less than its prorata share of such fees, charges and other
amounts due under this Agreement.
(e) USURY. In any event no rate change shall be put into effect which
would result in a rate greater than the highest rate permitted by law.
Notwithstanding anything to the contrary contained in any Loan Document,
all agreements which either now are or which shall become agreements
between the Borrower and the Lender are hereby limited so that in no
contingency or event whatsoever shall the total liability for payments in
the nature of interest, additional interest and other charges exceed the
applicable limits imposed by any applicable usury laws. If any payments in
the nature of interest, additional interest and other charges made under
any Loan Document are held to be in excess of the limits imposed by any
applicable usury laws, it is agreed that any such amount held to be in
excess shall be considered payment of principal hereunder, and the
indebtedness evidenced hereby shall be reduced by such amount so that the
total liability for payments in the nature of interest, additional interest
and other charges shall not exceed the applicable limits imposed by any
applicable usury laws, in compliance with the desires of the Borrower and
the Lender. This provision shall never be superseded or waived and shall
control every other provision of the Loan Documents and all agreements
between the Borrower and the Lender, or their successors and assigns.
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Section 2.6 FEES.
(a) ORIGINATION FEE. The Borrower hereby agrees to pay the Lender a
fully earned and non-refundable origination fee of Forty-Three Thousand
Three Hundred Thirty-Three Dollars ($43,333), due and payable upon the
execution of this Agreement.
(b) UNUSED LINE FEE. For the purposes of this Section 2.6(b), "Unused
Amount" means the Maximum Line reduced by (1) outstanding Revolving
Advances and (2) the L/C Amount. The Borrower agrees to pay to the Lender
an unused line fee at the rate of one-quarter of one percent (0.25%) per
annum on the average daily Unused Amount from the date of this Agreement to
and including the Termination Date, due and payable monthly in arrears on
the first day of each month and on the Termination Date.
(c) LETTER OF CREDIT FEES. The Borrower agrees to pay the Lender a fee
with respect to each Letter of Credit, if any, accruing on a daily basis
and computed at the annual rate of one and one-half percent (1.50%) of the
aggregate amount that may then be drawn on all issued and outstanding
Letters of Credit assuming compliance with all conditions for drawing
thereunder (the "AGGREGATE FACE AMOUNT"), from and including the date of
issuance of such Letter of Credit until such date as such Letter of Credit
shall terminate by its terms or be returned to the Lender, due and payable
monthly in arrears on the first day of each month and on the Termination
Date; PROVIDED, HOWEVER that during Default Periods, in the Lender's sole
discretion and without waiving any of its other rights and remedies, such
fee shall increase to three and one-half percent (3.50%) of the Aggregate
Face Amount. The foregoing fee shall be in addition to any and all fees,
commissions and charges of any Issuer of a Letter of Credit with respect to
or in connection with such Letter of Credit.
(d) LETTER OF CREDIT ADMINISTRATIVE FEES. The Borrower agrees to pay
the Lender, on written demand, the administrative fees charged by the
Issuer in connection with the honoring of drafts under any Letter of
Credit, amendments thereto, transfers thereof and all other activity with
respect to the Letters of Credit at the then-current rates published by the
Issuer for such services rendered on behalf of customers of the Issuer
generally.
(e) AUDIT FEES. The Borrower hereby agrees to pay the Lender, on
demand, audit fees in connection with any audits or inspections conducted
by the Lender of any Collateral or the Borrower's operations or business at
the rates established from time to time by the Lender as its audit fees
(which fees are currently seventy-five dollars ($75.00) per hour, per
auditor), together with all actual out-of-pocket costs and expenses
incurred in conducting any such audit or inspection.
Section 2.7 COMPUTATION OF INTEREST AND FEES; WHEN INTEREST DUE
AND PAYABLE. Interest accruing on the outstanding principal balance of the
Advances and fees hereunder outstanding from time to time shall be computed on
the basis of actual number of days elapsed in a year of 360 days. Interest shall
be due and payable in arrears on the first day of each month and on the
Termination Date.
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Section 2.8 CAPITAL ADEQUACY; INCREASED COSTS AND REDUCED
RETURN. If any Related Lender determines at any time that its Return has been
reduced as a result of any Rule Change, such Related Lender may require the
Borrower to pay it the amount necessary to restore its Return to what it would
have been had there been no Rule Change. For purposes of this Section 2.8:
(a) "CAPITAL ADEQUACY RULE" means any law, rule, regulation,
guideline, directive, requirement or request regarding capital adequacy, or
the interpretation or administration thereof by any governmental or
regulatory authority, central bank or comparable agency, whether or not
having the force of law, that applies to any Related Lender. Such rules
include rules requiring financial institutions to maintain total capital in
amounts based upon percentages of outstanding loans, binding loan
commitments and letters of credit.
(b) "L/C RULE" means any law, rule, regulation, guideline, directive,
requirement or request regarding letters of credit, or the interpretation
or administration thereof by any governmental or regulatory authority,
central bank or comparable agency, whether or not having the force of law,
that applies to any Related Lender. Such rules include rules imposing
taxes, duties or other similar charges, or mandating reserves, special
deposits or similar requirements against assets of, deposits with or for
the account of, or credit extended by any Related Lender, on letters of
credit.
(c) "RETURN", for any period, means the return as determined by such
Related Lender on the Advances and Letters of Credit based upon its total
capital requirements and a reasonable attribution formula that takes
account of the Capital Adequacy Rules then in effect and costs of issuing
or maintaining any Letter of Credit. Return may be calculated for each
calendar quarter and for the shorter period between the end of a calendar
quarter and the date of termination in whole of this Agreement.
(d) "RULE CHANGE" means any change in any Capital Adequacy Rule or L/C
Rule occurring after the date of this Agreement, but the term does not
include any changes in applicable requirements that at the Closing Date are
scheduled to take place under the existing Capital Adequacy Rules or L/C
Rules or any increases in the capital that any Related Lender is required
to maintain to the extent that the increases are required due to a
regulatory authority's assessment of the financial condition of such
Related Lender.
(e) "RELATED LENDER" includes (but is not limited to) the Lender, the
Issuer, , any parent corporation of the Lender or the Issuer and any
assignee of any interest of the Lender hereunder and any participant in the
loans made hereunder.
Certificates of any Related Lender sent to the Borrower from time to time
claiming compensation under this Section 2.8, stating the reason therefor and
setting forth in reasonable detail the calculation of the additional amount or
amounts to be paid to the Related Lender hereunder to restore its Return shall
be conclusive absent manifest error. In determining such amounts, the Related
Lender may use any reasonable averaging and attribution methods.
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Section 2.9 MATURITY DATE. This Agreement and the other Loan
Documents 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 June 30,
2001 (the "MATURITY DATE"), unless earlier terminated by Lender or Borrower
pursuant to the terms hereof. Upon the Termination Date, Borrower shall
immediately 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 checks and other payments provisionally credited to the
Obligations and/or as to which Lender has not yet received final and
indefeasible payment.
Section 2.10 VOLUNTARY PREPAYMENT; REDUCTION OF THE MAXIMUM LINE;
TERMINATION OF THE CREDIT FACILITY BY THE BORROWER. Except as otherwise provided
herein, the Borrower may prepay the Advances in whole at any time or from time
to time in part. The Borrower may terminate the Credit Facility or reduce the
Maximum Line at any time if it (i) gives the Lender at least thirty (30) days'
prior written notice and (ii) pays the Lender termination or line reduction fees
in accordance with Section 2.11. Any reduction in the Maximum Line must be in an
amount not less than One Million Dollars ($1,000,000) or an integral multiple
thereof. If the Borrower reduces the Maximum Line to zero, all Obligations shall
be immediately due and payable. Upon termination of the Credit Facility and
payment and performance of all Obligations, the Lender shall release or
terminate the Security Interest and the Security Documents to which the Borrower
is entitled by law.
Section 2.11 TERMINATION AND LINE REDUCTION FEES; WAIVER OF
TERMINATION AND LINE REDUCTION FEES.
(a) TERMINATION AND LINE REDUCTION FEES. If the Credit Facility is
terminated for any reason as of a date other than the Maturity Date, or the
Borrower reduces the Maximum Line, the Borrower shall pay to the Lender a
fee in an amount equal to a percentage of the Average Annual Maximum Line
(or the reduction, as the case may be) as follows: (A) two percent (2.0%)
if the termination or reduction occurs on or before the first anniversary
of the Funding Date; and (B) one percent (1.0%) if the termination or
reduction occurs after the first anniversary of the Funding Date.
(b) WAIVER OF TERMINATION AND LINE REDUCTION FEES. The Borrower will
not be required to pay the termination or line reduction fees otherwise due
under this Section 2.11 if such termination or line reduction is made
because of refinancing by an affiliate of the Lender.
Section 2.12 MANDATORY PREPAYMENT. Without notice or demand, if
the sum of the outstanding principal balance of the Revolving Advances plus the
L/C Amount shall at any time exceed the Borrowing Base, the Borrower shall (i)
first, immediately prepay the Revolving Advances to the extent necessary to
eliminate such excess; and (ii) if prepayment in full of the Revolving Advances
is insufficient to eliminate such excess, pay to the Lender in immediately
available funds for deposit in the Special Account an amount equal to the
remaining excess. Any payment received by the Lender under this Section 2.12 or
under Section 2.11 may be applied to
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the Obligations, in such order and in such amounts as the Lender, in its
discretion, may from time to time determine.
Section 2.13 PAYMENT. For purposes of calculating the amount of
Revolving Advances available to Borrower, each payment will be applied
(conditional upon final collection) to the outstanding principal balance of the
Revolving Note on the Banking Day of receipt by Lender of advices of deposit, if
such advices are received within sufficient time (in accordance with Lender's
usual and customary practices as in effect from time to time) to credit
Borrower's loan account on such day, and if not, then on the next Banking Day.
Lender shall be entitled to charge Borrower for one (1) Banking Day of clearance
at the Floating Rate on all payments deposited into the Collateral Account,
whether or not such payments are applied to reduce the outstanding principal
balance of the Revolving Note. This clearance charge is acknowledged to
constitute an integral part of the pricing of the loans and financial
accommodations contemplated herein, and shall apply whether or not the amount of
payments deposited exceeds the obligations outstanding. Notwithstanding anything
in Section 2.1. the Borrower hereby authorizes the Lender, in its discretion at
any time or from time to time without the Borrower's request and even if the
conditions set forth in Section 4.2 would not be satisfied, to make a Revolving
Advance in an amount equal to the portion of the Obligations from time to time
due and payable. At Lender's option, all principal, interest, fees, costs,
expenses and other charges provided for in this Agreement or the other Loan
Documents may be charged directly to the loan account(s) of Borrower.
Section 2.14 PAYMENT ON NON-BANKING DAYS. Whenever any payment to
be made hereunder shall be stated to be due on a day which is not a Banking Day,
such payment may be made on the next succeeding Banking Day, and such extension
of time shall in such case be included in the computation of interest on the
Advances or the fees hereunder, as the case may be.
Section 2.15 USE OF PROCEEDS. The Borrower shall use the proceeds
of Advances, and each Letter of Credit, if any, to refinance Borrower's
outstanding indebtedness to Union Bank of California, N.A., and thereafter for
ordinary working capital purposes and other proper corporate purposes of
Borrower not otherwise prohibited by the terms of this Agreement.
Section 2.16 LIABILITY RECORDS. The Lender may maintain from time
to time, at its discretion, liability records as to the Obligations. All entries
made on any such record shall be presumed correct until the Borrower establishes
the contrary. Upon the Lender's demand, the Borrower will admit and certify in
writing the exact principal balance of the Obligations that the Borrower then
asserts to be outstanding. Any billing statement or accounting rendered by the
Lender shall be conclusive and fully binding on the Borrower unless the Borrower
gives the Lender specific written notice of exception within thirty (30) days
after receipt.
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ARTICLE III
SECURITY INTEREST; OCCUPANCY; SETOFF
Section 3.1 GRANT OF SECURITY INTEREST. The Borrower hereby
pledges, assigns and grants to the Lender a security interest (collectively
referred to as the "SECURITY INTEREST") in the Collateral, as security for the
payment and performance of the Obligations.
Section 3.2 NOTIFICATION OF ACCOUNT DEBTORS AND OTHER OBLIGORS.
The Lender may at any time (whether or not a Default Period then exists) notify
any account debtor or other person obligated to pay the amount due that such
right to payment has been assigned or transferred to the Lender for security and
shall be paid directly to the Lender. The Borrower will join in giving such
notice if the Lender so requests. At any time after the Borrower or the Lender
gives such notice to an account debtor or other obligor, the Lender may, but
need not, in the Lender's name or in the Borrower's name, (a) demand, xxx for,
collect or receive any money or property at any time payable or receivable on
account of, or securing, any such right to payment, or grant any extension to,
make any compromise or settlement with or otherwise agree to waive, modify,
amend or change the obligations (including collateral obligations) of any such
account debtor or other obligor; and (b) as the Borrower's agent and
attorney-in-fact, notify the United States Postal Service to change the address
for delivery of the Borrower's mail to any address designated by the Lender,
otherwise intercept the Borrower's mail, and receive, open and dispose of the
Borrower's mail, applying all Collateral as permitted under this Agreement and
holding all other mail for the Borrower's account or forwarding such mail to the
Borrower's last known address.
Section 3.3 ASSIGNMENT OF INSURANCE. As additional security for
the payment and performance of the Obligations, the Borrower hereby assigns to
the Lender any and all monies (including, without limitation, proceeds of
insurance and refunds of unearned premiums) due or to become due under, and all
other rights of the Borrower with respect to, any and all policies of insurance
now or at any time hereafter covering the Collateral or any evidence thereof or
any business records or valuable papers pertaining thereto, and the Borrower
hereby directs the issuer of any such policy to pay all such monies directly to
the Lender. At any time, whether or not a Default Period then exists, the Lender
may (but need not), in the Lender's name or in the Borrower's name, execute and
deliver proof of claim, receive all such monies, endorse checks and other
instruments representing payment of such monies, and adjust, litigate,
compromise or release any claim against the issuer of any such policy.
Section 3.4 OCCUPANCY.
(a) The Borrower hereby irrevocably grants to the Lender the right to
take possession of the Premises at any time during a Default Period.
(b) The Lender may use the Premises only to hold, process,
manufacture, sell, use, store, liquidate, realize upon or otherwise dispose
of goods that are Collateral and for other purposes that the Lender may in
good xxxxx xxxx to be related or incidental purposes.
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(c) The Lender's right to hold the Premises shall cease and terminate
upon the earlier of (i) payment in full and discharge of all Obligations
and termination of the Commitment, and (ii) final sale or disposition of
all goods constituting Collateral and delivery of all such goods to
purchasers.
(d) The Lender shall not be obligated to pay or account for any rent
or other compensation for the possession, occupancy or use of any of the
Premises; provided, however, that if the Lender does pay or account for any
rent or other compensation for the possession, occupancy or use of any of
the Premises, the Borrower shall reimburse the Lender promptly for the full
amount thereof. In addition, the Borrower will pay, or reimburse the Lender
for, all taxes (other than the income taxes of Lender), fees, duties,
imposts, charges and expenses at any time incurred by or imposed upon the
Lender by reason of the execution, delivery, existence, recordation,
performance or enforcement of this Agreement or the provisions of this
Section 3.4.
Section 3.5 LICENSE. Without limiting the generality of the
Patent Security Agreement, Copyright Security Agreement, Trademark Security
Agreement, the Borrower hereby grants to the Lender a non-exclusive, worldwide
and royalty-free license to use or otherwise exploit all trademarks, franchises,
trade names, copyrights and patents of the Borrower for the purpose of selling,
leasing or otherwise disposing of any or all Collateral during any Default
Period.
Section 3.6 FINANCING STATEMENT. A carbon, photographic or other
reproduction of this Agreement or of any financing statements signed by the
Borrower is sufficient as a financing statement and may be filed as a financing
statement in any state to perfect the security interests granted hereby. For
this purpose, the following information is set forth:
Name and address of Debtor:
Educational Insights, Inc.
00000 Xxxxxx Xxxxxx
Xxxxxx, Xxxxxxxxxx 00000
Federal Tax Identification No. 00-0000000
Name and address of Secured Party:
Xxxxx Fargo Business Credit, Inc.
000 Xxxxx Xxxxxx Xxxxxx, Xxxxx 000
Xxxxxxxx, Xxxxxxxxxx 00000
Section 3.7 SETOFF. The Borrower agrees that the Lender may at
any time or from time to time, at its sole discretion and without demand and
without notice to anyone, setoff any liability owed to the Borrower by the
Lender, whether or not due, against any Obligation, whether or not due. In
addition, each other Person holding a participating interest in any Obligations
shall have the right to appropriate or setoff any deposit or other liability
then owed
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by such Person to the Borrower, whether or not due, and apply the same
to the payment of said participating interest, as fully as if such Person had
lent directly to the Borrower the amount of such participating interest.
ARTICLE IV
CONDITIONS OF LENDING
Section 4.1 CONDITIONS PRECEDENT TO THE INITIAL REVOLVING ADVANCE
AND THE INITIAL LETTER OF CREDIT. The Lender's obligation to make the initial
Revolving Advance or to cause to be issued the initial Letter of Credit
hereunder shall be subject to the condition precedent that the Lender shall have
received all of the following, each in form and substance satisfactory to the
Lender:
(a) This Agreement, properly executed by the Borrower.
(b) The Note, properly executed by the Borrower.
(c) A true and correct copy of any and all leases pursuant to which
the Borrower is leasing the Premises, together with a landlord's disclaimer
and consent with respect to each such lease.
(d) A true and correct copy of any and all agreements pursuant to
which the Borrower's property is in the possession of any Person other than
the Borrower, together with, in the case of any goods held by such Person
for resale, (i) a consignee's acknowledgment and waiver of liens, (ii) UCC
financing statements sufficient to protect the Borrower's and the Lender's
interests in such goods, and (iii) UCC searches showing that no other
secured party has filed a financing statement against such Person and
covering property similar to the Borrower's other than the Borrower, or if
there exists any such secured party, evidence that each such secured party
has received notice from the Borrower and the Lender sufficient to protect
the Borrower's and the Lender's interests in the Borrower's goods from any
claim by such secured party.
(e) An acknowledgment and agreement from each licensor in favor of the
Lender, together with a true, correct and complete copy of all license
agreements.
(f) The Collection Account Agreement, properly executed by the
Borrower and Xxxxx Fargo Bank, National Association.
(g) The Lockbox Agreement, properly executed by the Borrower and Xxxxx
Fargo Bank, National Association.
(h) The Patent and Trademark Security Agreement, properly executed by
the Borrower.
(i) The Copyright Security Agreement, properly executed by the
Borrower.
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(j) A mortgagee's disclaimer and waiver, properly executed by Union
Bank of California, N.A., and acknowledged by Borrower, together with a
true and correct copy of any and all mortgages pursuant to which the
Borrower has mortgaged the Premises.
(k) Current searches of appropriate filing offices showing that (i) no
state or federal tax liens have been filed and remain in effect against the
Borrower, (ii) no financing statements or assignments of patents,
trademarks or copyrights have been filed and remain in effect against the
Borrower except those financing statements and assignments of patents,
trademarks or copyrights relating to Permitted Liens or to liens held by
Persons who have agreed in writing that upon receipt of proceeds of the
Advances, they will deliver UCC releases and/or terminations and releases
of such assignments of patents, trademarks or copyrights satisfactory to
the Lender, and (iii) the Lender has duly filed all financing statements
necessary to perfect the Security Interest, to the extent the Security
Interest is capable of being perfected by filing.
(l) A certificate of the Borrower's Secretary or Assistant Secretary
certifying as to (i) the resolutions of the Borrower's directors and, if
required, shareholders, authorizing the execution, delivery and performance
of the Loan Documents, (ii) the Borrower's articles of incorporation and
bylaws, and (iii) the signatures of the Borrower's officers or agents
authorized to execute and deliver the Loan Documents and other instruments,
agreements and certificates, including Advance requests, on the Borrower's
behalf.
(m) A current certificate issued by the Secretary of State of
California, certifying that the Borrower is in compliance with all
applicable organizational requirements of the State of California.
(n) Evidence that the Borrower is duly licensed or qualified to
transact business in all jurisdictions where the character of the property
owned or leased or the nature of the business transacted by it makes such
licensing or qualification necessary.
(o) A certificate of an officer of the Borrower confirming the
representations and warranties set forth in Article V.
(p) An opinion of counsel to the Borrower, addressed to the Lender.
(q) Certificates of the insurance required hereunder, with all hazard
insurance containing a lender's loss payable endorsement in the Lender's
favor and with all liability insurance naming the Lender as an additional
insured.
(r) Payment of the fees and commissions due through the date of the
initial Advance or Letter of Credit under Section 2.6 and expenses incurred
by the Lender through such date and required to be paid by the Borrower
under Section 9.6, including all legal expenses incurred through the date
of this Agreement.
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(s) Evidence that Availability as of the Funding Date is not less than
One Million Dollars ($1,000,000) after giving effect to the amount paid or
to be paid to Borrower's prior lender to retire Borrower's line of credit
with such prior lender and bringing all other obligations to a current
status satisfactory to Lender.
(t) At Borrower's cost, an appraisal of all Inventory, issued by an
appraiser acceptable to Lender and in form, substance and reflecting values
satisfactory to Lender, in its sole discretion.
(u) Completion of a field review of the books and records of Borrower
and such other information with respect to the Collateral as Lender may
require, the results of which shall be satisfactory to Lender in its sole
discretion.
(v) Evidence that there has been no material adverse change, as
determined by Lender, in the financial condition or business of Borrower,
nor any material decline, as determined by Lender, in the market value of
any Collateral or a substantial or material portion of the assets of
Borrower since the date of the latest financial statements of Borrower
delivered to Lender prior to the Funding Date.
(w) Evidence that Borrower has opened bank accounts of a type mutually
acceptable to Borrower and Lender, including, without limitation, the
Collateral Account and any accounts contemplated by the Lockbox Agreement.
(x) Evidence that the structure of the Credit Facility and the other
financial accommodations contemplated herein have been reviewed and
approved to the satisfaction of Lender and its legal counsel.
(y) Final approval of the Credit Facility and the other financial
accommodations contemplated herein by senior management of Lender.
(z) The Funding Date shall occur on or prior to June 30, 1999.
(aa) Such other documents as the Lender in its sole discretion may
require.
Section 4.2 CONDITIONS PRECEDENT TO ALL ADVANCES AND LETTERS OF
CREDIT. The Lender's obligation to make each Advance or to cause the Issuer to
issue any Letter of Credit shall be subject to the further conditions precedent
that on such date:
(a) the representations and warranties contained in Article V are
correct on and as of the date of such Advance or issuance of Letter of
Credit as though made on and as of such date, except to the extent that
such representations and warranties relate solely to an earlier date; and
(b) no event has occurred and is continuing, or would result from such
Advance or the issuance of such Letter of Credit, as the case may be, which
constitutes a Default or an Event of Default.
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(c) no material adverse change, as determined by Lender, shall have
occurred in the financial condition or business of Borrower nor any
material decline, as determined by Lender, in the market value of any
Collateral or a substantial or material portion of the assets of Borrower
since the date of the latest audited financial statements delivered to
Lender prior to the Funding Date.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants to the Lender as follows:
Section 5.1 CORPORATE EXISTENCE AND POWER; NAME; CHIEF EXECUTIVE
OFFICE; INVENTORY AND EQUIPMENT LOCATIONS; TAX IDENTIFICATION NUMBER. The
Borrower is a corporation, duly organized, validly existing and in good standing
under the laws of the State of California and is duly licensed or qualified to
transact business in all jurisdictions where the character of the property owned
or leased or the nature of the business transacted by it makes such licensing or
qualification necessary. The Borrower has all requisite power and authority,
corporate or otherwise, to conduct its business, to own its properties and to
execute and deliver, and to perform all of its obligations under, the Loan
Documents. During the last five (5) years, the Borrower has done business solely
under the names set forth in SCHEDULE 5.1 hereto. The Borrower's chief executive
office and principal place of business is located at the address set forth in
Schedule 5.1 hereto, and all of the Borrower's records relating to its business
or the Collateral are kept at that location. All Inventory and Equipment is
located at that location or at one of the other locations set forth in SCHEDULE
5.1 hereto. The Borrower's tax identification number is correctly set forth in
Section 3.6 hereto.
Section 5.2 AUTHORIZATION OF BORROWING; NO CONFLICT AS TO LAW OR
AGREEMENTS. The execution, delivery and performance by the Borrower of the Loan
Documents and the borrowings from time to time hereunder have been duly
authorized by all necessary corporate action and do not and will not (i) require
any consent or approval of the Borrower's stockholders; (ii) require any
authorization, consent or approval by, or registration, declaration or filing
with, or notice to, any governmental department, commission, board, bureau,
agency or instrumentality, domestic or foreign, or any third party, except such
authorization, consent, approval, registration, declaration, filing or notice as
has been obtained, accomplished or given prior to the date hereof; (iii) violate
any provision of any law, rule or regulation (including, without limitation,
Regulation X of the Board of Governors of the Federal Reserve System) or of any
order, writ, injunction or decree presently in effect having applicability to
the Borrower or of the Borrower's articles of incorporation or bylaws; (iv)
result in a breach of or constitute a default under any indenture or loan or
credit agreement or any other material agreement, lease or instrument to which
the Borrower is a party or by which it or its properties may be bound or
affected; or (v) result in, or require, the creation or imposition of any
mortgage, deed of trust, pledge, lien, security interest or other charge or
encumbrance of any nature (other than the Security Interest) upon or with
respect to any of the properties now owned or hereafter acquired by the
Borrower.
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Section 5.3 LEGAL AGREEMENTS. This Agreement constitutes and,
upon due execution by the Borrower, the other Loan Documents will constitute the
legal, valid and binding obligations of the Borrower, enforceable against the
Borrower in accordance with their respective terms.
Section 5.4 SUBSIDIARIES. Except as set forth in SCHEDULE 5.4
hereto, the Borrower has no Subsidiaries.
Section 5.5 FINANCIAL CONDITION; NO ADVERSE CHANGE. The Borrower
has heretofore furnished to the Lender its audited financial statements for its
fiscal year ended December 31, 1998 and unaudited financial statements for the
fiscal year-to-date period ended April 30, 1999 and those statements fairly
present the Borrower's financial condition on the dates thereof and the results
of its operations and cash flows for the periods then ended and were prepared in
accordance with GAAP. Since the date of the most recent financial statements,
there has been no material adverse change in the Borrower's business, properties
or condition (financial or otherwise).
Section 5.6 LITIGATION. There are no actions, suits or proceedings
pending or, to the Borrower's knowledge, threatened against or affecting the
Borrower or any of its Affiliates or the properties of the Borrower or any of
its Affiliates before any court or governmental department, commission, board,
bureau, agency or instrumentality, domestic or foreign, which, if determined
adversely to the Borrower or any of its Affiliates, would have a material
adverse effect on the financial condition, properties or operations of the
Borrower or any of its Affiliates.
Section 5.7 REGULATION U. The Borrower is not engaged in the
business of extending credit for the purpose of purchasing or carrying margin
stock (within the meaning of Regulation U of the Board of Governors of the
Federal Reserve System), and no part of the proceeds of any Advance will be used
to purchase or carry any margin stock or to extend credit to others for the
purpose of purchasing or carrying any margin stock.
Section 5.8 TAXES. To the best of Borrower's knowledge, the
Borrower and its Affiliates have paid or caused to be paid to the proper
authorities when due all federal, state and local taxes required to be withheld
by each of them. The Borrower and its Affiliates have filed all federal, state
and local tax returns which to the knowledge of the officers of the Borrower or
any Affiliate, as the case may be, are required to be filed, and the Borrower
and its Affiliates have paid or caused to be paid to the respective taxing
authorities all taxes as shown on said returns or on any assessment received by
any of them to the extent such taxes have become due.
Section 5.9 PRIORITY, TITLES AND LIENS. The Security Interest
and other liens granted to Lender under this Agreement and the other Security
Documents constitute valid and perfected first priority liens and security
interests in and upon the Collateral. The Borrower has good and absolute title
to all Collateral described in the collateral reports provided to the Lender and
all other Collateral, properties and assets reflected in the latest financial
statements referred to in Section 5.5 and all proceeds thereof, free and clear
of all mortgages, security interests, liens and encumbrances, except for
Permitted Liens. No financing statement naming the Borrower as debtor is on file
in any office except to perfect only Permitted Liens. None of the Collateral or
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other collateral covered by the Security Documents is or will become a fixture
on real estate, unless a fixture filing is in effect with respect thereto.
Section 5.10 PLANS. Except as disclosed to the Lender in writing
prior to the date hereof, neither the Borrower nor any of its Affiliates
maintains or has maintained any Plan. Neither the Borrower nor any Affiliate has
received any notice or has any knowledge to the effect that it is not in full
compliance with any of the requirements of ERISA. No Reportable Event or other
fact or circumstance which may have an adverse effect on the Plan's tax
qualified status exists in connection with any Plan. Neither the Borrower nor
any of its Affiliates has:
(a) Any accumulated funding deficiency within the meaning of ERISA; or
(b) Any liability or knows of any fact or circumstances which could
result in any liability to the Pension Benefit Guaranty Corporation, the
Internal Revenue Service, the Department of Labor or any participant in
connection with any Plan (other than accrued benefits which or which may
become payable to participants or beneficiaries of any such Plan).
Section 5.11 DEFAULT. The Borrower is in compliance with all
provisions of all agreements, instruments, decrees and orders to which it is a
party or by which it or its property is bound or affected, the breach or default
of which could have a material adverse effect on the Borrower's financial
condition, properties or operations.
Section 5.12 ENVIRONMENTAL MATTERS.
(a) DEFINITIONS. As used in this Agreement, the following terms shall
have the following meanings:
(i) "ENVIRONMENTAL LAW" means any federal, state, local or other
governmental statute, regulation, law or ordinance dealing with the
protection of human health and the environment (other than any
statute, regulation, law or ordinance under any applicable health code
relating to the cafeteria located on the Premises and the
non-compliance with which would not have a material adverse affect on
the business, operations or financial condition of Borrower).
(ii) "HAZARDOUS SUBSTANCES" means pollutants, contaminants,
hazardous substances, hazardous wastes, petroleum and fractions
thereof, and all other chemicals, wastes, substances and materials
listed in, regulated by or identified in any Environmental Law.
(b) To the Borrower's best knowledge, there are not present in, on or
under the Premises any Hazardous Substances in such form or quantity as to
create any liability or obligation for either the Borrower or the Lender
under common law of any jurisdiction or under any Environmental Law, and no
Hazardous Substances have ever been stored, buried, spilled, leaked,
discharged, emitted or released in, on or under the Premises in such a way
as to create any such liability.
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(c) To the Borrower's best knowledge, the Borrower has not disposed of
Hazardous Substances in such a manner as to create any liability under any
Environmental Law.
(d) To the Borrower's best knowledge, there are not and there never
have been any requests, claims, notices, investigations, demands,
administrative proceedings, hearings or litigation, relating in any way to
the Premises or the Borrower, alleging liability under, violation of, or
noncompliance with any Environmental Law or any license, permit or other
authorization issued pursuant thereto. To the Borrower's best knowledge, no
such matter is threatened or impending.
(e) To the Borrower's best knowledge, the Borrower's businesses are
and have in the past always been conducted in accordance with all
Environmental Laws and all licenses, permits and other authorizations
required pursuant to any Environmental Law and necessary for the lawful and
efficient operation of such businesses are in the Borrower's possession and
are in full force and effect. No permit required under any Environmental
Law is scheduled to expire within 12 months and there is no threat that any
such permit will be withdrawn, terminated, limited or materially changed.
(f) To the Borrower's best knowledge, the Premises are not and never
have been listed on the National Priorities List, the Comprehensive
Environmental Response, Compensation and Liability Information System or
any similar federal, state or local list, schedule, log, inventory or
database.
(g) The Borrower has delivered to Lender all environmental
assessments, audits, reports, permits, licenses and other documents
describing or relating in any way to the Premises or Borrower's businesses
to the best of Borrower's knowledge.
Section 5.13 SUBMISSIONS TO LENDER. All financial and other
information provided to the Lender by or on behalf of the Borrower in connection
with the Borrower's request for the credit facilities contemplated hereby is
true and correct in all material respects and, as to projections, valuations or
proforma financial statements, present a good faith opinion as to such
projections, valuations and proforma condition and results.
Section 5.14 RIGHTS TO PAYMENT. Each right to payment and each
instrument, document, chattel paper and other agreement constituting or
evidencing Collateral or other collateral covered by the Security Documents is
(or, in the case of all future Collateral or such other collateral, will be when
arising or issued) the valid, genuine and legally enforceable obligation,
subject to no defense, setoff or counterclaim, of the account debtor or other
obligor named therein or in the Borrower's records pertaining thereto as being
obligated to pay such obligation, other than any defense, setoff or counterclaim
incurred in the ordinary course of Borrower's business and disclosed to Lender.
Section 5.15 FINANCIAL SOLVENCY. Both before and after giving
effect to the transactions contemplated in the Loan Documents, none of the
Borrower or its Affiliates:
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(a) was or will be insolvent, as that term is used and defined in
Section 101(32) of the United States Bankruptcy Code and Section 2 of the
Uniform Fraudulent Transfer Act;
(b) has unreasonably small capital or is engaged or about to engage in
a business or a transaction for which any remaining assets of the Borrower
or such Affiliate are unreasonably small;
(c) by executing, delivering or performing its obligations under the
Loan Documents or other documents to which it is a party or by taking any
action with respect thereto, intends to, nor believes that it will, incur
debts beyond its ability to pay them as they mature;
(d) by executing, delivering or performing its obligations under the
Loan Documents or other documents to which it is a party or by taking any
action with respect thereto, intends to hinder, delay or defraud either its
present or future creditors; and
(e) at this time contemplates filing a petition in bankruptcy or for
an arrangement or reorganization or similar proceeding under any law any
jurisdiction, nor, to the best knowledge of the Borrower, is the subject of
any actual, pending or threatened bankruptcy, insolvency or similar
proceedings under any law of any jurisdiction.
ARTICLE VI
BORROWER'S AFFIRMATIVE COVENANTS
So long as the Obligations shall remain unpaid, or the Credit Facility
shall remain outstanding, the Borrower will comply with the following
requirements, unless the Lender shall otherwise consent in writing:
Section 6.1 REPORTING REQUIREMENTS. The Borrower will deliver,
or cause to be delivered, to the Lender each of the following, which shall be in
form and detail acceptable to the Lender:
(a) as soon as available, and in any event within ninety (90) days
after the end of each fiscal year of the Borrower, the Borrower's audited
financial statements with the unqualified opinion of independent certified
public accountants selected by the Borrower and acceptable to the Lender,
which annual financial statements shall include the Borrower's balance
sheet as at the end of such fiscal year and the related statements of the
Borrower's income, retained earnings and cash flows for the fiscal year
then ended, prepared, if the Lender so requests, on a consolidating and
consolidated basis to include any Affiliates, all in reasonable detail and
prepared in accordance with GAAP, together with (i) copies of all
management letters prepared by such accountants; and (ii) a certificate of
the Borrower's chief financial officer stating that such financial
statements have been prepared in accordance with GAAP and whether or not
such officer has knowledge of the occurrence of any Default or Event of
Default hereunder and, if so, stating in reasonable detail the facts with
respect thereto;
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(b) as soon as available and in any event within thirty (30) days
after the end of each month, an unaudited/internal balance sheet and
statements of income and retained earnings of the Borrower as at the end of
and for such month and for the year to date period then ended, prepared, if
the Lender so requests, on a consolidating and consolidated basis to
include any Affiliates, in reasonable detail and stating in comparative
form the figures for the corresponding date and periods in the previous
year, all prepared in accordance with GAAP, subject to year-end audit
adjustments; and accompanied by a certificate of the Borrower's chief
financial officer, substantially in the form of EXHIBIT B hereto stating
(i) that such financial statements have been prepared in accordance with
GAAP, subject to year-end audit adjustments, (ii) whether or not such
officer has knowledge of the occurrence of any Default or Event of Default
hereunder not theretofore reported and remedied and, if so, stating in
reasonable detail the facts with respect thereto, and (iii) all relevant
facts in reasonable detail to evidence, and the computations as to, whether
or not the Borrower is in compliance with the requirements set forth in
Sections 6.12, 6.13 and 7.10;
(c) within ten (10) days after the end of each month or more
frequently if the Lender so requires, agings of the Borrower's accounts
receivable and its accounts payable, an inventory certification report, and
a calculation of the Borrower's Accounts, Eligible Accounts, Inventory and
Eligible Inventory as at the end of such month or shorter time period;
(d) at least thirty (30) days before the beginning of each fiscal year
of the Borrower, the projected balance sheets and income statements for
each month of such year, each in reasonable detail, representing the
Borrower's good faith projections and certified by the Borrower's chief
financial officer as being the most accurate projections available and
identical to the projections used by the Borrower for internal planning
purposes, together with such supporting schedules and information as the
Lender may in its discretion require and on or prior to March 31 of each
year, such projected balance sheets and income statements shall be updated
by Borrower based on orders received by Borrower during its annual toy show
held in February;
(e) immediately after the commencement thereof, notice in writing of
all litigation and of all proceedings before any governmental or regulatory
agency affecting the Borrower of the type described in Section 5.12 or
which seek a monetary recovery against the Borrower in excess of One
Hundred Thousand Dollars ($100,000);
(f) as promptly as practicable (but in any event not later than five
business days) after an officer of the Borrower obtains knowledge of the
occurrence of any breach, default or event of default under any Security
Document or any event which constitutes a Default or Event of Default
hereunder, notice of such occurrence, together with a detailed statement by
a responsible officer of the Borrower of the steps being taken by the
Borrower to cure the effect of such breach, default or event;
(g) as soon as possible and in any event within thirty (30) days after
the Borrower knows or has reason to know that any Reportable Event with
respect to any Plan has occurred, the statement of the Borrower's chief
financial officer setting forth
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details as to such Reportable Event and the action which the Borrower
proposes to take with respect thereto, together with a copy of the notice
of such Reportable Event to the Pension Benefit Guaranty Corporation;
(h) as soon as possible, and in any event within ten (10) days after
the Borrower fails to make any quarterly contribution required with respect
to any Plan under Section 412(m) of the Internal Revenue Code of 1986, as
amended, the statement of the Borrower's chief financial officer setting
forth details as to such failure and the action which the Borrower proposes
to take with respect thereto, together with a copy of any notice of such
failure required to be provided to the Pension Benefit Guaranty
Corporation;
(i) promptly upon knowledge thereof, notice of (i) any disputes or
claims by the Borrower's customers exceeding Twenty-Five Thousand Dollars
($25,000) individually or One Hundred Thousand Dollars ($100,000) in the
aggregate during any fiscal year; (ii) credit memos; (iii) any goods
returned to or recovered by the Borrower; and (iv) any change in the
persons constituting the Borrower's officers and directors;
(j) promptly upon knowledge thereof, notice of any material loss of or
material damage to any Collateral or other collateral covered by the
Security Documents or of any substantial adverse change in any Collateral
or such other collateral or the prospect of payment thereof;
(k) within ten (10) days of the distribution thereof, copies of all
financial statements, reports and proxy statements which the Borrower shall
have sent to its stockholders;
(l) within ten (10) days of filing thereof, copies of all regular and
periodic reports which the Borrower shall file with the Securities and
Exchange Commission or any national securities exchange;
(m) promptly upon knowledge thereof, notice of the Borrower's
violation of any law, rule or regulation, the non-compliance with which
could materially and adversely affect the Borrower's business or its
financial condition; and
(n) from time to time, with reasonable promptness, any and all
receivables schedules, collection reports, deposit records, equipment
schedules, copies of invoices to account debtors, shipment documents and
delivery receipts for goods sold, and such other material, reports, records
or information as the Lender may request, including without limitation,
daily or weekly borrowing base certificates.
Section 6.2 BOOKS AND RECORDS; INSPECTION AND EXAMINATION. The
Borrower will keep accurate books of record and account for itself pertaining to
the Collateral and pertaining to the Borrower's business and financial condition
and such other matters as the Lender may from time to time request in which true
and complete entries will be made in accordance with GAAP and, upon the Lender's
request, will permit any officer, employee, attorney or accountant for the
Lender to audit, review, make extracts from or copy any and all
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corporate and financial books and records of the Borrower at all times during
ordinary business hours, to send and discuss with account debtors and other
obligors requests for verification of amounts owed to the Borrower, and to
discuss the Borrower's affairs with any of its directors, officers, employees or
agents. The Borrower will permit the Lender, or its employees, accountants,
attorneys or agents, to examine and inspect any Collateral, other collateral
covered by the Security Documents or any other property of the Borrower at any
time during ordinary business hours.
Section 6.3 ACCOUNT VERIFICATION. The Lender may at any time and
from time to time send or require the Borrower to send requests for verification
of accounts or notices of assignment to account debtors and other obligors. The
Lender may also at any time and from time to time telephone account debtors and
other obligors to verify accounts.
Section 6.4 COMPLIANCE WITH LAWS.
(a) The Borrower will (i) comply with the requirements of applicable
laws and regulations, the non-compliance with which would materially and
adversely affect its business or its financial condition and (ii) use and
keep the Collateral, and require that others use and keep the Collateral,
only for lawful purposes, without violation of any federal, state or local
law, statute or ordinance.
(b) Without limiting the foregoing undertakings, the Borrower
specifically agrees that it will comply with all applicable Environmental
Laws and obtain and comply with all permits, licenses and similar approvals
required by any Environmental Laws, and will not generate, use, transport,
treat, store or dispose of any Hazardous Substances in such a manner as to
create any liability or obligation under the common law of any jurisdiction
or any Environmental Law.
Section 6.5 PAYMENT OF TAXES AND OTHER CLAIMS. The Borrower will
pay or discharge, when due, (a) all taxes, assessments and governmental charges
levied or imposed upon it or upon its income or profits, upon any properties
belonging to it (including, without limitation, the Collateral) or upon or
against the creation, perfection or continuance of the Security Interest, prior
to the date on which penalties attach thereto, (b) all federal, state and local
taxes required to be withheld by it, and (c) all lawful claims for labor,
materials and supplies which, if unpaid, might by law become a lien or charge
upon any properties of the Borrower; provided, that the Borrower shall not be
required to pay any such tax, assessment, charge or claim whose amount,
applicability or validity is being contested in good faith by appropriate
proceedings and for which proper reserves have been made.
Section 6.6 MAINTENANCE OF PROPERTIES.
(a) The Borrower will keep and maintain the Collateral, the other
collateral covered by the Security Documents and all of its other
properties necessary or useful in its business in good condition, repair
and working order (normal wear and tear excepted) and will from time to
time replace or repair any worn, defective or broken parts; provided,
however, that nothing in this Section 6.6 shall prevent the Borrower from
discontinuing the operation and maintenance of any of its properties if
such
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discontinuance is, in the Lender's judgment, desirable in the conduct of
the Borrower's business and not disadvantageous in any material respect to
the Lender.
(b) The Borrower will defend the Collateral against all claims or
demands of all persons (other than the Lender) claiming the Collateral or
any interest therein.
(c) The Borrower will keep all Collateral and other collateral covered
by the Security Documents free and clear of all security interests, liens
and encumbrances except Permitted Liens.
Section 6.7 INSURANCE. The Borrower will obtain and at all times
maintain insurance with insurers believed by the Borrower to be responsible and
reputable, in such amounts and against such risks as may from time to time be
required by the Lender, but in all events in such amounts and against such risks
as is usually carried by companies engaged in similar business and owning
similar properties in the same general areas in which the Borrower operates.
Without limiting the generality of the foregoing, the Borrower will at all times
maintain business interruption insurance and keep all tangible Collateral
insured against risks of fire, theft, collision (for Collateral consisting of
motor vehicles) and such other risks and in such amounts as the Lender may
reasonably request, with any loss payable to the Lender to the extent of its
interest, and all policies of such insurance shall contain a lender's loss
payable endorsement for the Lender's benefit acceptable to the Lender. All
policies of liability insurance required hereunder shall name the Lender as an
additional insured.
Section 6.8 PRESERVATION OF EXISTENCE. The Borrower will
preserve and maintain its existence and all of its rights, privileges and
franchises necessary or desirable in the normal conduct of its business and
shall conduct its business in an orderly, efficient and regular manner.
Section 6.9 DELIVERY OF INSTRUMENTS, ETC. Upon request by the
Lender, the Borrower will promptly deliver to the Lender in pledge all
instruments, documents and chattel papers constituting Collateral, duly endorsed
or assigned by the Borrower.
Section 6.10 COLLATERAL ACCOUNT.
(a) If, notwithstanding the instructions to debtors to make payments
to the Lockbox, the Borrower receives any payments on Receivables, the
Borrower shall deposit such payments into the Collateral Account. Until so
deposited, the Borrower shall hold all such payments in trust for and as
the property of the Lender and shall not commingle such payments with any
of its other funds or property.
(b) Amounts deposited in the Collateral Account shall not bear
interest and shall not be subject to withdrawal by the Borrower, except
after full payment and discharge of all Obligations.
(c) All deposits in the Collateral Account shall constitute proceeds
of Collateral and shall not constitute payment of the Obligations. The
Lender from time to time at its discretion may, after allowing one (1)
Banking Day, apply deposited funds in
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the Collateral Account to the payment of the Obligations, in any order or
manner of application satisfactory to the Lender, by transferring such
funds to the Lender's general account.
(d) All items deposited in the Collateral Account shall be subject to
final payment. If any such item is returned uncollected, the Borrower will
immediately pay the Lender, or, for items deposited in the Collateral
Account, the bank maintaining such account, the amount of that item, or
such bank at its discretion may charge any uncollected item to the
Borrower's commercial account or other account. The Borrower shall be
liable as an endorser on all items deposited in the Collateral Account,
whether or not in fact endorsed by the Borrower.
Section 6.11 PERFORMANCE BY THE LENDER. If the Borrower at any
time fails to perform or observe any of the foregoing covenants contained in
this Article VI or elsewhere herein, and if such failure shall continue for a
period of ten (10) calendar days after the Lender gives the Borrower written
notice thereof (or in the case of the agreements contained in Sections 6.5, 6.7
and 6.10, immediately upon the occurrence of such failure, without notice or
lapse of time), the Lender may, but need not, perform or observe such covenant
on behalf and in the name, place and stead of the Borrower (or, at the Lender's
option, in the Lender's name) and may, but need not, take any and all other
actions which the Lender may reasonably deem necessary to cure or correct such
failure (including, without limitation, the payment of taxes, the satisfaction
of security interests, liens or encumbrances, the performance of obligations
owed to account debtors or other obligors, the procurement and maintenance of
insurance, the execution of assignments, security agreements and financing
statements, and the endorsement of instruments); and the Borrower shall
thereupon pay to the Lender on demand the amount of all monies expended and all
costs and expenses (including reasonable attorneys' fees and legal expenses)
incurred by the Lender in connection with or as a result of the performance or
observance of such agreements or the taking of such action by the Lender,
together with interest thereon from the date expended or incurred at the
Floating Rate. To facilitate the Lender's performance or observance of such
covenants of the Borrower, the Borrower hereby irrevocably appoints the Lender,
or the Lender's delegate, acting alone, as the Borrower's attorney in fact
(which appointment is coupled with an interest) with the right (but not the
duty) from time to time to create, prepare, complete, execute, deliver, endorse
or file in the name and on behalf of the Borrower any and all instruments,
documents, assignments, security agreements, financing statements, applications
for insurance and other agreements and writings required to be obtained,
executed, delivered or endorsed by the Borrower under this Section 6.11.
Section 6.12 MINIMUM BOOK NET WORTH. The Borrower will maintain,
during each period described below, its Book Net Worth, determined as at the end
of each month, at an amount not less that the amount set forth opposite such
period:
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PERIOD MINIMUM BOOK NET WORTH
------ ----------------------
July 1, 1999 through and $20,000,000
including August 31, 1999
September 1, 1999 through and including $20,500,000
November 30, 1999
December 1, 1999 through and including $21,000,000
December 31, 1999
Section 6.13 MINIMUM NET INCOME. The Borrower will achieve as of
the dates set forth below Net Income, determined on a year-to-date basis, of an
amount not less than the amount set forth opposite such date:
YEAR-TO-DATE PERIOD ENDING MINIMUM NET INCOME
-------------------------- ------------------
July 31, 1999 ($400,000)
September 30, 1999 $0
December 31, 1999 $250,000
Section 6.14 NEW COVENANTS. On or before December 31, 1999, the
Borrower and Lender shall agree on new covenant levels for Sections 6.12
and 6.13 for periods after such date. The new covenants shall be based on
projections for such periods received by Lender pursuant to Section 6.1(d)
and shall be no less stringent than the present levels.
Section 6.15 YEAR 2000 COMPLIANCE. Borrower agrees to perform all
acts reasonably necessary to ensure that: (a) Borrower and any business in which
Borrower holds a substantial interest; and (b) all customers, suppliers and
vendors that are material to Borrower's business, become Year 2000 Compliant in
a timely manner. Such acts shall include, without limitation, performing a
comprehensive review and assessment of all of Borrower's systems and adopting a
detailed plan, with itemized budget, for the remediation, monitoring and testing
of such systems and upgrading its accounting system to a system that is Year
2000 Compliant on or prior to September 30, 1999. As used herein, "YEAR 2000
COMPLIANT" shall mean, in regard to any entity, that all software, hardware,
firmware, equipment, goods or systems utilized by or material to the business
operations or financial condition of such entity, will properly perform date
sensitive functions before, during and after the year 2000. Borrower shall,
immediately upon request, provide to Lender such certifications or other
evidence of Borrower's compliance with the terms hereof as Lender may from time
to time require.
Section 6.16 LICENSOR'S CONSENTS. Upon request by Lender,
Borrower shall deliver a consent and acknowledgement in form and substance
satisfactory to Lender, from any licensor of Borrower and if Borrower fails to
deliver such consent and acknowledgement, the Inventory subject to the license
agreement entered into with such licensor shall not be deemed Eligible
Inventory.
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ARTICLE VII
NEGATIVE COVENANTS
So long as the Obligations shall remain unpaid, or the Credit Facility
shall remain outstanding, the Borrower agrees that, without the Lender's prior
written consent:
Section 7.1 LIENS. The Borrower will not create, incur or suffer
to exist any mortgage, deed of trust, pledge, lien, security interest,
assignment or transfer upon or of any of its assets, now owned or hereafter
acquired, to secure any indebtedness; EXCLUDING, HOWEVER, from the operation of
the foregoing, the following (collectively, "PERMITTED LIENS"):
(a) in the case of any of the Borrower's property which is not
Collateral or other collateral described in the Security Documents,
covenants, restrictions, rights, easements and minor irregularities in
title which do not materially interfere with the Borrower's business or
operations as presently conducted;
(b) mortgages, deeds of trust, pledges, liens, security interests and
assignments in existence on the date hereof and listed in SCHEDULE 7.1
hereto, securing indebtedness for borrowed money permitted under Section
7.2;
(c) the Security Interest and liens and security interests created by
the Security Documents; and
(d) purchase money security interests relating to the acquisition of
machinery and equipment of the Borrower not exceeding the lesser of cost or
fair market value thereof, not exceeding One Hundred Thousand Dollars
($100,000) for any one purchase or Three Hundred Thousand Dollars
($300,000) in the aggregate during any fiscal year and so long as no
Default Period is then in existence and none would exist immediately after
such acquisition.
Section 7.2 INDEBTEDNESS. The Borrower will not incur, create,
assume or permit to exist any indebtedness or liability on account of deposits
or advances or any indebtedness for borrowed money or letters of credit issued
on the Borrower's behalf, or any other indebtedness or liability evidenced by
notes, bonds, debentures or similar obligations, except:
(a) indebtedness arising hereunder;
(b) indebtedness of the Borrower in existence on the date hereof and
listed in SCHEDULE 7.2 hereto; PROVIDED, THAT such indebtedness shall at
all times be subject to a Subordination Agreement, in form and substance
satisfactory to Lender; and
(c) indebtedness relating to liens permitted in accordance with
Section 7.1.
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Section 7.3 GUARANTIES. The Borrower will not assume, guarantee,
endorse or otherwise become directly or contingently liable in connection with
any obligations of any other Person, except:
(a) the endorsement of negotiable instruments by the Borrower for
deposit or collection or similar transactions in the ordinary course of
business; and
(b) guaranties, endorsements and other direct or contingent
liabilities in connection with the obligations of other Persons, in
existence on the date hereof and listed in SCHEDULE 7.2 hereto.
Section 7.4 INVESTMENTS AND SUBSIDIARIES.
(a) The Borrower will not purchase or hold beneficially any stock or
other securities or evidences of indebtedness of, make or permit to exist
any loans or advances to, or make any investment or acquire any interest
whatsoever in, any other Person, including specifically but without
limitation any partnership or joint venture, except:
(i) investments in direct obligations of the United States
of America or any agency or instrumentality thereof whose obligations
constitute full faith and credit obligations of the United States of
America having a maturity of one year or less, commercial paper
issued by U.S. corporations rated "A-1" or "A-2" by Standard & Poors
Corporation or "P-1" or "P-2" by Xxxxx'x Investors Service or
certificates of deposit or bankers' acceptances having a maturity of
one year or less issued by members of the Federal Reserve System
having deposits in excess of $100,000,000 (which certificates of
deposit or bankers' acceptances are fully insured by the Federal
Deposit Insurance Corporation);
(ii) travel advances or loans to the Borrower's officers and
employees not exceeding at any one time an aggregate of Fifty
Thousand Dollars ($50,000); and
(iii) advances in the form of progress payments (other than to
vendors of Borrower in the normal course of business), prepaid
rent not exceeding three (3) months or security deposits.
(b) The Borrower will not create or permit to exist any Subsidiary,
other than the Subsidiary in existence on the date hereof and listed in
SCHEDULE 5.4.
Section 7.5 DIVIDENDS. Borrower will not declare or pay any
dividends (other than dividends payable solely in stock of the Borrower) on any
class of its stock or make any payment for the purchase, redemption or other
retirement of any shares of such stock or make any distribution in respect
thereof, either directly or indirectly.
Section 7.6 SALE OR TRANSFER OF ASSETS; SUSPENSION OF BUSINESS
OPERATIONS. The Borrower will not sell, lease, assign, transfer or otherwise
dispose of (i) the stock of any Subsidiary, (ii) all or a substantial part of
its assets, or (iii) any Collateral or any interest therein
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(whether in one transaction or in a series of transactions) to any other Person
other than the sale of Inventory in the ordinary course of business and will not
liquidate, dissolve or suspend business operations. The Borrower will not in any
manner transfer any property without prior or present receipt of full and
adequate consideration.
Section 7.7 CONSOLIDATION AND MERGER; ASSET ACQUISITIONS. The
Borrower will not consolidate with or merge into any Person, or permit any other
Person to merge into it, or acquire (in a transaction analogous in purpose or
effect to a consolidation or merger) all or substantially all the assets of any
other Person.
Section 7.8 SALE AND LEASEBACK. The Borrower will not enter into
any arrangement, directly or indirectly, with any other Person whereby the
Borrower shall sell or transfer any real or personal property, whether now owned
or hereafter acquired, and then or thereafter rent or lease as lessee such
property or any part thereof or any other property which the Borrower intends to
use for substantially the same purpose or purposes as the property being sold or
transferred.
Section 7.9 RESTRICTIONS ON NATURE OF BUSINESS. The Borrower will
not engage in any line of business materially different from that presently
engaged in by the Borrower and will not purchase, lease or otherwise acquire
assets not related to its business.
Section 7.10 CAPITAL EXPENDITURES. The Borrower will not incur or
contract to incur Capital Expenditures of more than One Million Five Hundred
Thousand Dollars ($1,500,000) in the aggregate during any fiscal year, or more
than One Hundred Thousand Dollars ($100,000) in any one transaction.
Section 7.11 ACCOUNTING. The Borrower will not adopt any material
change in accounting principles other than as required by GAAP. The Borrower
will not adopt, permit or consent to any change in its fiscal year.
Section 7.12 DISCOUNTS, ETC. The Borrower will not, after notice
from the Lender, grant any discount, credit or allowance to any customer of the
Borrower or accept any return of goods sold, or at any time (whether before or
after notice from the Lender) modify, amend, subordinate, cancel or terminate
the obligation of any account debtor or other obligor of the Borrower PROVIDED,
THAT, prior to a notice from Lender, Borrower may modify, amend, subordinate,
cancel or terminate such obligations of an account debtor or obligor in the
ordinary course of its business so long as such modification, amendment,
subordination, cancellation or termination is disclosed to Lender.
Section 7.13 DEFINED BENEFIT PENSION PLANS. The Borrower will not
adopt, create, assume or become a party to any defined benefit pension plan,
unless disclosed to the Lender pursuant to Section 5.10.
Section 7.14 OTHER DEFAULTS. The Borrower will not permit any
breach, default or event of default to occur under any note, loan agreement,
indenture, lease, mortgage, contract for deed, security agreement or other
contractual obligation binding upon the Borrower, which
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breach, default or event of default would have a material adverse affect on the
financial condition, business, or operation of Borrower.
Section 7.15 PLACE OF BUSINESS; NAME. The Borrower will not
transfer its chief executive office or principal place of business, or move,
relocate, close or sell any business location unless Borrower gives Lender
thirty (30) days prior written notice and executes and delivers to Lender such
agreements, documents and instruments as Lender may deem necessary to protect
its Security Interest, including, without limitation, UCC Financing Statements,
and if Borrower leases such new location favorable, landlord waivers. The
Borrower will not permit any tangible Collateral or any records pertaining to
the Collateral to be located in any state or area in which, in the event of such
location, a financing statement covering such Collateral would be required to
be, but has not in fact been, filed in order to perfect the Security Interest.
Except upon thirty (30) days prior written notice, the Borrower will not change
its name.
Section 7.16 ORGANIZATIONAL DOCUMENTS. The Borrower will not amend
its certificate of incorporation, articles of incorporation or bylaws. The
Borrower will not become an S Corporation within the meaning of the Internal
Revenue Code of 1986, as amended.
Section 7.17 SALARIES. The Borrower will not pay excessive or
unreasonable salaries, bonuses, commissions, consultant fees or other
compensation.
Section 7.18 TRANSACTIONS WITH AFFILIATES. Borrower shall not
enter into any transaction for the purchase, sale or exchange of property or the
rendering of any service to or by any Affiliate, except in the ordinary course
of and pursuant to the reasonable requirements of Borrower's business and (a)
upon fair and reasonable terms no less favorable to Borrower than Borrower would
obtain in a comparable arms length transaction with an unaffiliated Person or
(b) consistent with past practices of Borrower which in Borrower's reasonable
business judgment does not have a material adverse affect on the financial
condition, operations or business of Borrower.
ARTICLE VIII
EVENTS OF DEFAULT, RIGHTS AND REMEDIES
Section 8.1 EVENTS OF DEFAULT. "EVENT OF DEFAULT", wherever used
herein, means any one of the following events:
(a) Default in the payment of the Obligations when they become due and
payable;
(b) Failure to pay when due any amount specified in Section 2.3
relating to the Borrower's Obligation of Reimbursement, or failure to pay
immediately when due or upon termination of the Credit Facility any amounts
required to be paid for deposit in the Special Account under Section 2.4;
(c) Default in the payment of any fees, commissions, costs or expenses
required to be paid by the Borrower under this Agreement;
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(d) Default in the performance, or breach, of any covenant or
agreement of the Borrower contained in this Agreement;
(e) The Borrower shall be or become insolvent, or admit in writing its
inability to pay its debts as they mature, or make an assignment for the
benefit of creditors; or the Borrower shall apply for or consent to the
appointment of any receiver, trustee, or similar officer for it or for all
or any substantial part of its property; or such receiver, trustee or
similar officer shall be appointed without the application or consent of
the Borrower, as the case may be; or the Borrower shall institute (by
petition, application, answer, consent or otherwise) any bankruptcy,
insolvency, reorganization, arrangement, readjustment of debt, dissolution,
liquidation or similar proceeding relating to it under the laws of any
jurisdiction; or any such proceeding shall be instituted (by petition,
application or otherwise) against the Borrower; or any judgment, writ,
warrant of attachment or execution or similar process shall be issued or
levied against a substantial part of the property of the Borrower;
(f) A petition shall be filed by or against the Borrower under the
United States Bankruptcy Code naming the Borrower as debtor;
(g) The rendering against the Borrower of a final judgment, decree or
order for the payment of money in excess of One Hundred Thousand Dollars
($100,000) and the continuance of such judgment, decree or order
unsatisfied and in effect for any period of thirty (30) consecutive days
without a stay of execution;
(h) A default under any bond, debenture, note or other evidence of
indebtedness of the Borrower owed to any Person other than the Lender, or
under any indenture or other instrument under which any such evidence of
indebtedness has been issued or by which it is governed, or under any lease
of any of the Premises, and the expiration of the applicable period of
grace, if any, specified in such evidence of indebtedness, indenture, other
instrument or lease;
(i) Any Reportable Event, which the Lender determines in good faith
might constitute grounds for the termination of any Plan or for the
appointment by the appropriate United States District Court of a trustee to
administer any Plan, shall have occurred and be continuing 30 days after
written notice to such effect shall have been given to the Borrower by the
Lender; or a trustee shall have been appointed by an appropriate United
States District Court to administer any Plan; or the Pension Benefit
Guaranty Corporation shall have instituted proceedings to terminate any
Plan or to appoint a trustee to administer any Plan; or the Borrower shall
have filed for a distress termination of any Plan under Title IV of ERISA;
or the Borrower shall have failed to make any quarterly contribution
required with respect to any Plan under Section 412(m) of the Internal
Revenue Code of 1986, as amended, which the Lender determines in good faith
may by itself, or in combination with any such failures that the Lender may
determine are likely to occur in the future, result in the imposition of a
lien on the Borrower's assets in favor of the Plan;
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(j) An event of default shall occur under any Security Document or
under any other security agreement, mortgage, deed of trust, assignment or
other instrument or agreement securing any obligations of the Borrower
hereunder or under any note due to Lender;
(k) The Borrower shall liquidate, dissolve, terminate or suspend its
business operations or otherwise fail to operate its business in the
ordinary course, or sell all or substantially all of its assets, without
the Lender's prior written consent;
(l) The Borrower shall fail to pay, withhold, collect or remit any tax
or tax deficiency when assessed or due (other than any tax deficiency which
is being contested in good faith and by proper proceedings and for which it
shall have set aside on its books adequate reserves therefor) or notice of
any state or federal tax liens shall be filed or issued;
(m) Default in the payment of any amount owed by the Borrower to the
Lender other than any indebtedness arising hereunder;
(n) The Borrower shall take or participate in any action which would
be prohibited under the provisions of any Subordination Agreement or make
any payment on the Subordinated Indebtedness (as defined in the
Subordination Agreement) that any Person was not entitled to receive under
the provisions of the Subordination Agreement;
(o) Any event or circumstance with respect to the Borrower shall occur
such that the Lender shall believe in good faith that the prospect of
payment of all or any part of the Obligations or the performance by the
Borrower under the Loan Documents is impaired or any material adverse
change in the business or financial condition of the Borrower shall occur.
(p) Any breach, default or event of default by or attributable to any
Affiliate under any agreement between such Affiliate and the Lender.
(q) Without the prior written consent of Lender, any "person" or
"group" (within the meaning of Section 13(d) and 14(d) (2) of The Exchange
Act) becomes the "beneficial owner" (as defined in Rules 13d-3 and 13d-5
under the Exchange Act, provided that a Person shall be deemed to have
"beneficial ownership" of all securities that such Person has the right to
acquire, whether such right is exercisable immediately or only after the
passage of time), directly or indirectly, of an equal or greater percentage
of the total economic interests in the equity of the Borrower than the
percentage beneficially owned by Xxxxxx Xxxxxx and Xxx Xxxxxx in the
aggregate. For purposes hereof, "Exchange Act" shall mean the Securities
Exchange Act of 1934, and regulations promulgated thereunder.
Section 8.2 RIGHTS AND REMEDIES. During any Default Period, the
Lender may exercise any or all of the following rights and remedies:
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(a) the Lender may, by notice to the Borrower, declare the Commitment
to be terminated, whereupon the same shall forthwith terminate;
(b) the Lender may, by notice to the Borrower, declare the Obligations
to be forthwith due and payable, whereupon all Obligations shall become and
be forthwith due and payable, without presentment, notice of dishonor,
protest or further notice of any kind, all of which the Borrower hereby
expressly waives;
(c) the Lender may, without notice to the Borrower and without further
action, apply any and all money owing by the Lender to the Borrower to the
payment of the Obligations;
(d) the Lender may make demand upon the Borrower and, forthwith upon
such demand, the Borrower will pay to the Lender in immediately available
funds for deposit in the Special Account pursuant to Section 2.12 an amount
equal to the aggregate maximum amount available to be drawn under all
Letters of Credit then outstanding, assuming compliance with all conditions
for drawing thereunder;
(e) the Lender may exercise and enforce any and all rights and
remedies available upon default to a secured party under the UCC,
including, without limitation, the right to take possession of Collateral,
or any evidence thereof, proceeding without judicial process or by judicial
process (without a prior hearing or notice thereof, which the Borrower
hereby expressly waives) and the right to sell, lease or otherwise dispose
of any or all of the Collateral, and, in connection therewith, the Borrower
will on demand assemble the Collateral and make it available to the Lender
at a place to be designated by the Lender which is reasonably convenient to
both parties;
(f) the Lender may exercise and enforce its rights and remedies under
the Loan Documents; and
(g) the Lender may exercise any other rights and remedies available to
it by law or agreement.
Notwithstanding the foregoing, upon the occurrence of an Event of Default
described in subsections (e) or (f) of Section 8.1, the Obligations shall be
immediately due and payable automatically without presentment, demand, protest
or notice of any kind.
Section 8.3 CERTAIN NOTICES. If notice to the Borrower of any
intended disposition of Collateral or any other intended action is required by
law in a particular instance, such notice shall be deemed commercially
reasonable if given (in the manner specified in Section 9.3) at least ten (10)
calendar days before the date of intended disposition or other action.
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ARTICLE IX
MISCELLANEOUS
Section 9.1 NO WAIVER; CUMULATIVE REMEDIES. No failure or delay
by the Lender in exercising any right, power or remedy under the Loan Documents
shall operate as a waiver thereof; nor shall any single or partial exercise of
any such right, power or remedy preclude any other or further exercise thereof
or the exercise of any other right, power or remedy under the Loan Documents.
The remedies provided in the Loan Documents are cumulative and not exclusive of
any remedies provided by law.
Section 9.2 AMENDMENTS, ETC. No amendment, modification,
termination or waiver of any provision of any Loan Document or consent to any
departure by the Borrower therefrom or any release of a Security Interest shall
be effective unless the same shall be in writing and signed by the Lender, and
then such waiver or consent shall be effective only in the specific instance and
for the specific purpose for which given. No notice to or demand on the Borrower
in any case shall entitle the Borrower to any other or further notice or demand
in similar or other circumstances.
Section 9.3 ADDRESSES FOR NOTICES, ETC. Except as otherwise
expressly provided herein, all notices, requests, demands and other
communications provided for under the Loan Documents shall be in writing and
shall be (a) personally delivered, (b) sent by first class United States mail,
(c) sent by overnight courier of national reputation, or (d) transmitted by
telecopy, in each case addressed or telecopied to the party to whom notice is
being given at its address or telecopier number as set forth below:
If to the Borrower:
Educational Insights, Inc.
00000 Xxxxxx Xxxxxx
Xxxxxx, Xxxxxxxxxx 00000
Telecopier: (000) 000-0000
Attention: Xxxxxxx X. Xxxxxx
If to the Lender:
Xxxxx Fargo Business Credit, Inc.
000 Xxxxx Xxx Xxxxxx Xxxxxx, Xxxxx 000
Xxxxxxxx, Xxxxxxxxxx 00000
Telecopier: (000) 000-0000
Attention: Account Executive
or, as to each party, at such other address or telecopier number as may
hereafter be designated by such party in a written notice to the other party
complying as to delivery with the terms of this Section. All such notices,
requests, demands and other communications shall be deemed to have been given on
(a) the date received if personally delivered, (b) when deposited in the mail if
delivered by mail, (c) the date sent if sent by overnight courier, or (d) the
date of transmission if
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delivered by telecopy, except that notices or requests to the Lender pursuant to
any of the provisions of Article II shall not be effective until received by the
Lender.
Section 9.4 FURTHER DOCUMENTS. The Borrower will from time to
time execute and deliver or endorse any and all instruments, documents,
conveyances, assignments, security agreements, financing statements and other
agreements and writings that the Lender may reasonably request in order to
secure, protect, perfect or enforce the Security Interest or the Lender's rights
under the Loan Documents (but any failure to request or assure that the Borrower
executes, delivers or endorses any such item shall not affect or impair the
validity, sufficiency or enforceability of the Loan Documents and the Security
Interest, regardless of whether any such item was or was not executed, delivered
or endorsed in a similar context or on a prior occasion).
Section 9.5 COLLATERAL. This Agreement does not contemplate a
sale of accounts, contract rights or chattel paper, and, as provided by law, the
Borrower is entitled to any surplus and shall remain liable for any deficiency.
The Lender's duty of care with respect to Collateral in its possession (as
imposed by law) shall be deemed fulfilled if it exercises reasonable care in
physically keeping such Collateral, or in the case of Collateral in the custody
or possession of a bailee or other third person, exercises reasonable care in
the selection of the bailee or other third person, and the Lender need not
otherwise preserve, protect, insure or care for any Collateral. The Lender shall
not be obligated to preserve any rights the Borrower may have against prior
parties, to realize on the Collateral at all or in any particular manner or
order or to apply any cash proceeds of the Collateral in any particular order of
application.
Section 9.6 COSTS AND EXPENSES. The Borrower agrees to pay on
demand all costs and expenses, including (without limitation) attorneys' fees,
incurred by the Lender in connection with the Obligations, this Agreement, the
Loan Documents, any Letters of Credit, and any other document or agreement
related hereto or thereto, and the transactions contemplated hereby, including
without limitation all such costs, expenses and fees incurred in connection with
the negotiation, preparation, execution, amendment, administration, performance,
collection and enforcement of the Obligations and all such documents and
agreements and the creation, perfection, protection, satisfaction, foreclosure
or enforcement of the Security Interest.
Section 9.7 INDEMNITY. In addition to the payment of expenses
pursuant to Section 9.6, the Borrower agrees to indemnify, defend and hold
harmless the Lender, and any of its participants, parent corporations,
subsidiary corporations, affiliated corporations, successor corporations, and
all present and future officers, directors, employees, attorneys and agents of
the foregoing (the "INDEMNITEES") from and against any of the following
(collectively, "INDEMNIFIED LIABILITIES"):
(i) any and all transfer taxes, documentary taxes,
assessments or charges made by any governmental authority by reason of
the execution and delivery of the Loan Documents or the making of the
Advances;
(ii) any claims, loss or damage to which any Indemnitee may
be subjected if any representation or warranty contained in Section
5.12 proves to be incorrect in any respect or as a result of any
violation of the covenant contained in Section 6.4(b); and
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(iii) any and all other liabilities, losses, damages,
penalties, judgments, suits, claims, costs and expenses of any kind or
nature whatsoever (including, without limitation, the reasonable fees
and disbursements of counsel) in connection with the foregoing and any
other investigative, administrative or judicial proceedings, whether
or not such Indemnitee shall be designated a party thereto, which may
be imposed on, incurred by or asserted against any such Indemnitee, in
any manner related to or arising out of or in connection with the
making of the Advances and the Loan Documents or the use or intended
use of the proceeds of the Advances.
If any investigative, judicial or administrative proceeding arising from any of
the foregoing is brought against any Indemnitee, upon such Indemnitee's request,
the Borrower, or counsel designated by the Borrower and satisfactory to the
Indemnitee, will resist and defend such action, suit or proceeding to the extent
and in the manner directed by the Indemnitee, at the Borrower's sole costs and
expense. Each Indemnitee will use its best efforts to cooperate in the defense
of any such action, suit or proceeding. If the foregoing undertaking to
indemnify, defend and hold harmless may be held to be unenforceable because it
violates any law or public policy, the Borrower shall nevertheless make the
maximum contribution to the payment and satisfaction of each of the Indemnified
Liabilities which is permissible under applicable law. The Borrower's obligation
under this Section 9.7 shall survive the termination of this Agreement and the
discharge of the Borrower's other obligations hereunder.
Section 9.8 PARTICIPANTS. The Lender and its participants, if
any, are not partners or joint venturers, and the Lender shall not have any
liability or responsibility for any obligation, act or omission of any of its
participants. All rights and powers specifically conferred upon the Lender may
be transferred or delegated to any of the Lender's participants, successors or
assigns.
Section 9.9 EXECUTION IN COUNTERPARTS. This Agreement and other
Loan Documents may be executed in any number of counterparts, each of which when
so executed and delivered shall be deemed to be an original and all of which
counterparts, taken together, shall constitute but one and the same instrument.
Section 9.10 BINDING EFFECT; ASSIGNMENT; COMPLETE AGREEMENT;
EXCHANGING INFORMATION. The Loan Documents shall be binding upon and inure to
the benefit of the Borrower and the Lender and their respective successors and
assigns, except that the Borrower shall not have the right to assign its rights
thereunder or any interest therein without the Lender's prior written consent.
This Agreement, together with the Loan Documents, comprises the complete and
integrated agreement of the parties on the subject matter hereof and supersedes
all prior agreements, written or oral, on the subject matter hereof. Without
limiting the Lender's right to share information regarding the Borrower and its
Affiliates with the Lender's participants, accountants, lawyers and other
advisors, the Lender, Xxxxx Fargo Corporation, and all direct and indirect
subsidiaries of Xxxxx Fargo Corporation, may exchange any and all information
they may have in their possession regarding the Borrower and its Affiliates, and
the Borrower waives any right of confidentiality it may have with respect to
such exchange of such information.
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Section 9.11 SEVERABILITY OF PROVISIONS. Any provision of this
Agreement which is prohibited or unenforceable shall be ineffective to the
extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof.
Section 9.12 HEADINGS. Article and Section headings in this
Agreement are included herein for convenience of reference only and shall not
constitute a part of this Agreement for any other purpose.
Section 9.13 GOVERNING LAW; JURISDICTION, VENUE; WAIVER OF JURY
TRIAL. This Agreement and the other Loan Documents shall be governed by and
construed in accordance with the substantive laws (other than conflict laws) of
the State of California. The parties hereto hereby (i) consents to the personal
jurisdiction of the state and federal courts located in the State of California
in connection with any controversy related to this Agreement; (ii) waives any
argument that venue in any such forum is not convenient, (iii) agrees that any
litigation initiated by the Lender or the Borrower in connection with this
Agreement or the other Loan Documents shall be venued in either the State Courts
of the County of Los Angeles, State of California, or the United States District
Court for the Central District of California; and (iv) agrees that a final
judgment in any such suit, action or proceeding shall be conclusive and may be
enforced in other jurisdictions by suit on the judgment or in any other manner
provided by law. THE PARTIES WAIVE ANY RIGHT TO TRIAL BY JURY IN ANY ACTION OR
PROCEEDING BASED ON OR PERTAINING TO THIS AGREEMENT.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their respective officers thereunto duly authorized as of the
date first above written.
XXXXX FARGO BUSINESS CREDIT, INC. EDUCATIONAL INSIGHTS, INC.,
a Minnesota corporation a California corporation
By /s/ Xxxxx X. Xxxxxx By /s/ Xxxxxxx X. Xxxxxx
------------------------------- -----------------------------
Name: Xxxxx X. Xxxxxx Name: Xxxxxxx X. Xxxxxx
Its: Vice President Its: Chief Financial Officer
and Secretary
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----------------------------------------------
----------------------------------------------
CREDIT AND SECURITY AGREEMENT
BY AND BETWEEN
EDUCATIONAL INSIGHTS, INC.
AND
XXXXX FARGO BUSINESS CREDIT, INC.
Dated as of: June 28, 1999
----------------------------------------------
----------------------------------------------
TABLE OF CONTENTS
ARTICLE I DEFINITIONS................................................................................1
Section 1.1 Definitions...........................................................................1
Section 1.2 Cross References.....................................................................10
ARTICLE II AMOUNT AND TERMS OF THE CREDIT FACILITY...................................................10
Section 2.1 Revolving Advances...................................................................10
Section 2.2 Letters of Credit....................................................................11
Section 2.3 Payment of Amounts Drawn Under Letters of Credit;
Obligation of Reimbursement..........................................................12
Section 2.4 Special Account......................................................................12
Section 2.5 Obligations Absolute.................................................................13
Section 2.6 Interest; Minimum Interest Charge; Default Interest;
Participations; Usury................................................................13
Section 2.7 Fees.................................................................................15
Section 2.8 Computation of Interest and Fees; When Interest Due and Payable......................16
Section 2.9 Capital Adequacy; Increased Costs and Reduced Return.................................16
Section 2.10 Maturity Date........................................................................17
Section 2.11 Voluntary Prepayment; Reduction of the Maximum Line;
Termination of the Credit Facility by the Borrower...................................17
Section 2.12 Termination and Line Reduction Fees; Waiver of Termination
and Line Reduction Fees..............................................................17
Section 2.13 Mandatory Prepayment.................................................................18
Section 2.14 Payment..............................................................................18
Section 2.15 Payment on Non-Banking Days..........................................................18
Section 2.16 Use of Proceeds......................................................................18
Section 2.17 Liability Records....................................................................18
ARTICLE III SECURITY INTEREST; OCCUPANCY; SETOFF......................................................19
Section 3.1 Grant of Security Interest...........................................................19
Section 3.2 Notification of Account Debtors and Other Obligors...................................19
Section 3.3 Assignment of Insurance..............................................................19
Section 3.4 Occupancy............................................................................19
Section 3.5 License..............................................................................20
Section 3.6 Financing Statement..................................................................20
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TABLE OF CONTENTS
(continued)
Section 3.7 Setoff...............................................................................21
ARTICLE IV CONDITIONS OF LENDING.....................................................................21
Section 4.1 Conditions Precedent to the Initial Revolving Advance
and the Initial Letter of Credit.....................................................21
Section 4.2 Conditions Precedent to All Advances and Letters of Credit...........................23
ARTICLE V REPRESENTATIONS AND WARRANTIES............................................................24
Section 5.1 Corporate Existence and Power; Name; Chief Executive Office;
Inventory and Equipment Locations; Tax Identification Number.........................24
Section 5.2 Authorization of Borrowing; No Conflict as to Law or Agreements......................24
Section 5.3 Legal Agreements.....................................................................25
Section 5.4 Subsidiaries.........................................................................25
Section 5.5 Financial Condition; No Adverse Change...............................................25
Section 5.6 Litigation...........................................................................25
Section 5.7 Regulation U.........................................................................25
Section 5.8 Taxes................................................................................25
Section 5.9 Titles and Liens.....................................................................25
Section 5.10 Plans................................................................................26
Section 5.11 Default..............................................................................26
Section 5.12 Environmental Matters................................................................26
Section 5.13 Submissions to Lender................................................................27
Section 5.14 Financing Statements.................................................................27
Section 5.15 Rights to Payment....................................................................27
Section 5.16 Financial Solvency...................................................................28
ARTICLE VI BORROWER'S AFFIRMATIVE COVENANTS..........................................................28
Section 6.1 Reporting Requirements...............................................................28
Section 6.2 Books and Records; Inspection and Examination........................................31
Section 6.3 Account Verification.................................................................31
Section 6.4 Compliance with Laws.................................................................31
Section 6.5 Payment of Taxes and Other Claims....................................................31
Section 6.6 Maintenance of Properties............................................................32
Section 6.7 Insurance............................................................................32
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TABLE OF CONTENTS
(continued)
Section 6.8 Preservation of Existence............................................................32
Section 6.9 Delivery of Instruments, etc.........................................................32
Section 6.10 Collateral Account...................................................................33
Section 6.11 Performance by the Lender............................................................33
Section 6.12 Minimum Book Net Worth...............................................................34
Section 6.13 Minimum Net Income...................................................................34
Section 6.15 Year 2000 Compliance.................................................................34
ARTICLE VII NEGATIVE COVENANTS........................................................................35
Section 7.1 Liens................................................................................35
Section 7.2 Indebtedness.........................................................................35
Section 7.3 Guaranties...........................................................................36
Section 7.4 Investments and Subsidiaries.........................................................36
Section 7.5 Dividends............................................................................36
Section 7.6 Sale or Transfer of Assets; Suspension of Business Operations........................37
Section 7.7 Consolidation and Merger; Asset Acquisitions.........................................37
Section 7.8 Sale and Leaseback...................................................................37
Section 7.9 Restrictions on Nature of Business...................................................37
Section 7.10 Capital Expenditures.................................................................37
Section 7.11 Accounting...........................................................................37
Section 7.12 Discounts, etc.......................................................................37
Section 7.13 Defined Benefit Pension Plans........................................................37
Section 7.14 Other Defaults.......................................................................38
Section 7.15 Place of Business; Name..............................................................38
Section 7.16 Organizational Documents.............................................................38
Section 7.17 Salaries.............................................................................38
Section 7.18 Change in Ownership..................................................................38
Section 7.19 Transactions with Affiliates.........................................................38
ARTICLE VIII EVENTS OF DEFAULT, RIGHTS AND REMEDIES....................................................38
Section 8.1 Events of Default....................................................................38
Section 8.2 Rights and Remedies..................................................................40
-iii-
TABLE OF CONTENTS
(continued)
Section 8.3 Certain Notices......................................................................41
ARTICLE IX MISCELLANEOUS.............................................................................42
Section 9.1 No Waiver; Cumulative Remedies.......................................................42
Section 9.2 Amendments, Etc...........................................................................42
Section 9.3 Addresses for Notices, Etc................................................................42
Section 9.4 Further Documents.........................................................................43
Section 9.5 Collateral................................................................................43
Section 9.6 Costs and Expenses...................................................................43
Section 9.7 Indemnity............................................................................43
Section 9.8 Participants.........................................................................44
Section 9.9 Execution in Counterparts............................................................44
Section 9.10 Binding Effect; Assignment; Complete Agreement; Exchanging
Information..........................................................................44
Section 9.11 Severability of Provisions...........................................................45
Section 9.12 Headings.............................................................................45
Section 9.13 Governing Law; Jurisdiction, Venue; Waiver of Jury Trial.............................45
-iv-
CREDIT AND SECURITY AGREEMENT
Dated as of June 28, 1999
EDUCATIONAL INSIGHTS, INC., a California corporation (the "BORROWER"),
and XXXXX FARGO BUSINESS CREDIT, INC., a Minnesota corporation (the "LENDER"),
hereby agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1 DEFINITIONS. For all purposes of this Agreement, except
as otherwise expressly provided or unless the context otherwise requires:
(a) the terms defined in this Article have the meanings assigned to
them in this Article, and include the plural as well as the singular; and
(b) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with GAAP.
"ACCOUNTS" means all of the Borrower's accounts, as such term is
defined in the UCC, including without limitation the aggregate unpaid
obligations of customers and other account debtors to the Borrower arising
out of the sale or lease of goods or rendition of services by the Borrower
on an open account or deferred payment basis.
"ADVANCE" means a Revolving Advance.
"AFFILIATE" or "AFFILIATES" means Educational Insights, Ltd. and any
other Person controlled by, controlling or under common control with the
Borrower, including (without limitation) any Subsidiary of the Borrower.
For purposes of this definition, "control," when used with respect to any
specified Person, means the power to direct the management and policies of
such Person, directly or indirectly, whether through the ownership of
voting securities, by contract or otherwise.
"AGREEMENT" means this Credit and Security Agreement, as amended,
supplemented or restated from time to time.
"AGGREGATE FACE AMOUNT" has the meaning specified in Section 2.7(c).
"APPRAISED VALUE" means, with respect to Eligible Inventory, the
appraised net orderly liquidation value of such Eligible Inventory (as
estimated by an independent appraiser acceptable to Lender in its sole
discretion), expressed as a percentage of the Value of Eligible Inventory
as of the appraisal date.
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"AVAILABILITY" means the difference of (i) the Borrowing Base and (ii)
the sum of (A) the outstanding principal balance of the Revolving Note and
(B) the L/C Amount.
"AVAILABILITY RESERVE" means as of any date of determination, such
amount or amounts as Lender may from time to time establish and revise in
good faith reducing the amount of Revolving Advances 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 its value, (ii) the assets, business or prospects of
Borrower, 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 that any collateral report or
financial information furnished by or on behalf of Borrower to Lender is or
may have been incomplete, inaccurate or misleading in any material respect,
or (c) 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.
"AVERAGE ANNUAL MAXIMUM LINE" means Eight Million Six Hundred
Sixty-Six Thousand Six Hundred Sixty-Six Dollars ($8,666,666).
"BANKING DAY" means a day other than a Saturday, Sunday or other day
on which banks are generally not open for business in Minneapolis,
Minnesota.
"BASE RATE" means the rate of interest publicly announced from time to
time by Xxxxx Fargo Bank, National Association as its "base rate" or, if
such bank ceases to announce a rate so designated, any similar successor
rate designated by the Lender.
"BOOK NET WORTH" means the aggregate of the common and preferred
stockholders' equity in the Borrower, determined in accordance with GAAP.
"BORROWING BASE" means, at any time the lesser of:
(a) the Maximum Line; or
(b) subject to change from time to time in the Lender's sole
discretion, the sum of:
(i) eighty percent (80%) of Eligible Accounts, PLUS
(ii) the least of (A) thirty percent (30%) of the Value of
Eligible Inventory, (B) eighty-five percent (85%) of the
Appraised Value of Eligible Inventory or (C) Three Million
Dollars ($3,000,000), and MINUS
(iii) any Availability Reserves.
"CAPITAL EXPENDITURES" for a period means any expenditure of money for
the purchase or construction of assets, or for improvements or additions
thereto, which are
-2-
capitalized on the Borrower's balance sheet or for the lease, purchase or
other acquisition of any capital asset, or for the lease of any other asset
whether payable currently or in the future.
"COLLATERAL" means all current or hereafter acquired or arising
Equipment, General Intangibles, Inventory, Receivables, Investment
Property, deposit accounts, letters of credit, proceeds of letters of
credit, chattel paper and all sums on deposit in any Collateral Account,
and any items in any Lockbox; together with (i) all substitutions and
replacements for and products of any of the foregoing; (ii) proceeds of any
and all of the foregoing; (iii) in the case of all tangible goods, all
accessions; (iv) all accessories, attachments, parts, equipment and repairs
now or hereafter attached or affixed to or used in connection with any
tangible goods; (v) all warehouse receipts, bills of lading and other
documents of title now or hereafter covering such goods; and (vi) all sums
on deposit in the Special Account.
"COLLATERAL ACCOUNT" means the "WFBCI Account" as defined in the
Collection Account Agreement and the "Lender Account" as defined in the
Lockbox Agreement.
"COLLECTION ACCOUNT AGREEMENT" means the Collection Account Agreement
of even date herewith by and among the Borrower, Xxxxx Fargo Bank, National
Association and the Lender.
"COMMITMENT" means the Lender's commitment to make Advances and to
cause the Issuer to issue Letters of Credit to or for the Borrower's
account pursuant to Article II.
"COPYRIGHT SECURITY AGREEMENT" means the Copyright Security Agreement
by the Borrower in favor of the Lender of even date herewith.
"CREDIT FACILITY" means the credit facility being made available to
the Borrower by the Lender pursuant to Article II.
"DEBT" of any Person means all items of indebtedness or liability
which in accordance with GAAP would be included in determining total
liabilities as shown on the liabilities side of a balance sheet of that
Person as at the date as of which Debt is to be determined. For purposes of
determining a Person's aggregate Debt at any time, "Debt" shall also
include the aggregate payments required to be made by such Person at any
time under any lease that is considered a capitalized lease under GAAP.
"DEFAULT" means an event that, with giving of notice or passage of
time or both, would constitute an Event of Default.
"DEFAULT PERIOD" means any period of time beginning on the first day
of any month during which a Default or Event of Default has occurred and
ending on the date the Lender notifies the Borrower in writing that such
Default or Event of Default has been cured or waived.
-3-
"DEFAULT RATE" means an annual rate equal to two percent (2.0%) over
the Floating Rate, which rate shall change when and as the Floating Rate
changes.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"ELIGIBLE ACCOUNTS" means all unpaid Accounts, net of any credits,
except the following shall not in any event be deemed Eligible Accounts:
(i) That portion of Accounts which is unpaid more than sixty
(60) days past the stated due date or more than one hundred fifty
(150) days past the invoice date;
(ii) That portion of Accounts that is disputed or subject to a
claim of offset or a contra account;
(iii) That portion of Accounts not yet earned by the final
delivery of goods or rendition of services, as applicable, by the
Borrower to the customer;
(iv) Accounts owed by any federal unit of government, whether
foreign or domestic (provided, however, that there shall be included
in Eligible Accounts that portion of Accounts owed by such units of
government for which the Borrower has provided evidence satisfactory
to the Lender that (A) the Lender has a first priority perfected
security interest, and (B) if such unit of government is the United
States of America, or political subdivision, department, agency or
instrumentality thereof, upon Lender's request, the Federal Assignment
of Claims Act of 1940, as amended, or any similar law, if applicable,
has been complied with in a manner satisfactory to Lender);
(v) Accounts owed by an account debtor located outside the
United States or Canada which are not (A) backed by a bank letter of
credit naming the Lender as beneficiary or assigned to the Lender, in
the Lender's possession and acceptable to the Lender in all respects,
in its sole discretion, or (B) covered by a foreign receivables
insurance policy acceptable to the Lender in its sole discretion;
(vi) Accounts owed by an account debtor that is insolvent, the
subject of bankruptcy proceedings or has gone out of business;
(vii) Accounts owed by a shareholder, Subsidiary, Affiliate,
officer or employee of the Borrower;
(viii) Accounts not subject to a duly perfected security interest
in the Lender's favor or which are subject to any lien, security
interest or claim in favor of any Person other than the Lender
including without limitation any payment or performance bond;
-4-
(ix) That portion of Accounts that has been restructured,
extended, amended or modified;
(x) That portion of Accounts that constitutes advertising,
finance charges, service charges or sales or excise taxes;
(xi) Accounts owed by an account debtor, regardless of whether
otherwise eligible, if twenty-five percent (25%) or more of the total
amount due under Accounts from such debtor is ineligible under clauses
(i), (ii)or (ix) above;
(xii) That portion of Accounts of a single debtor or its
affiliates which constitute more than twenty-five percent (25%) of all
otherwise Eligible Accounts; and
(xiii) Accounts, or portions thereof, otherwise deemed ineligible
by the Lender in its sole discretion.
"ELIGIBLE INVENTORY" means all Inventory of the Borrower located at
the Tennessee Facility; provided, however, that the following shall not in
any event be deemed Eligible Inventory:
(i) Inventory that is: in-transit; located at any warehouse,
job site or other premises other than the Tennessee Facility; located
outside of the states, or localities, as applicable, in which the
Lender has filed financing statements to perfect a first priority
security interest in such Inventory; covered by any negotiable or
non-negotiable warehouse receipt, xxxx of lading or other document of
title; on consignment from any Person; on consignment to any Person or
subject to any bailment unless such consignee or bailee has executed
an agreement with the Lender;
(ii) Inventory at a location owned by a party other than
Borrower for which the owner thereof has not entered into an agreement
relative to Lender's rights with respect to such Inventory, in form
and content satisfactory to Lender;
(iii) Supplies, packaging, maintenance parts or sample
Inventory;
(iv) Work-in-process Inventory; PROVIDED, HOWEVER, certain
components Inventory consisting of semi-finished goods which require
only minimal assembly and/or packaging and are balanced in appropriate
quantities so that, when assembled, yield determinable quantities of
finished goods may be deemed finished goods in Lender's sole
discretion;
(v) Inventory that is damaged, obsolete, slow moving or not
currently saleable in the normal course of the Borrower's operations;
(vi) Inventory that the Borrower has returned, has attempted to
return, is in the process of returning or intends to return to the
vendor thereof;
-5-
(vii) Inventory that is perishable or live; PROVIDED, HOWEVER,
Inventory under the "Sea Monkey" product line shall not be deemed
Inventory that is perishable or live for purposes of this clause
(vii);
(viii) Inventory manufactured by the Borrower pursuant to a
license unless the applicable licensor has agreed in writing to permit
the Lender to exercise its rights and remedies against such Inventory;
(ix) Inventory that is subject to a security interest in favor
of any Person other than the Lender; and
(x) Inventory otherwise deemed ineligible by the Lender in its
sole discretion.
"ENVIRONMENTAL LAWS" has the meaning specified in Section 5.12.
"EQUIPMENT" means all of the Borrower's equipment, as such term is
defined in the UCC, whether now owned or hereafter acquired, including but
not limited to all present and future machinery, vehicles, furniture,
fixtures, manufacturing equipment, shop equipment, office and recordkeeping
equipment, parts, tools, supplies, and including specifically (without
limitation) the goods described in any equipment schedule or list herewith
or hereafter furnished to the Lender by the Borrower.
"EVENT OF DEFAULT" has the meaning specified in Section 8.1.
"FLOATING RATE" means an annual rate equal to the sum of the Base Rate
plus one-half of one percent (0.5%), which annual rate shall change when
and as the Base Rate changes; PROVIDED, HOWEVER, the "Floating Rate" shall
be reduced to an annual rate equal to the sum of the Base Rate plus
one-quarter of one percent (0.25%) during the twelve (12) month period
following a satisfactory review by Lender of Borrower's annual audited
financial statements for the fiscal year period ending December 31, 1999
and if Borrower achieves Net Income of at least Five Hundred Thousand
Dollars ($500,000) for said fiscal year.
"FUNDING DATE" has the meaning specified in Section 2.1.
"GAAP" means generally accepted accounting principles, applied on a
basis consistent with the accounting practices applied in the financial
statements described in Section 5.5, except for any change in accounting
practices to the extent that, due to a promulgation of the Financial
Accounting Standards Board changing or implementing any new accounting
standard, the Borrower either (i) is required to implement such change, or
(ii) for future periods will be required to and for the current period may
in accordance with generally accepted accounting principles implement such
change, for its financial statements to be in conformity with generally
accepted accounting principles (any such change is herein referred to as a
"REQUIRED GAAP CHANGE"), provided that (1) the Borrower shall fully
disclose in such financial statements any such Required GAAP Change and the
effects of the Required GAAP Change on the Borrower's income,
-6-
retained earnings or other accounts, as applicable, and (2) the Borrower's
financial covenants set forth in Sections 6.12, 6.13 and 7.10 shall be
adjusted as necessary to reflect the effects of such Required GAAP Change.
"GENERAL INTANGIBLES" means all of the Borrower's general intangibles,
as such term is defined in the UCC, whether now owned or hereafter
acquired, including (without limitation) all present and future patents,
patent applications, copyrights, trademarks, trade names, trade secrets,
customer or supplier lists and contracts, manuals, operating instructions,
permits, franchises, the right to use the Borrower's name, and the goodwill
of the Borrower's business.
"HAZARDOUS SUBSTANCE" has the meaning specified in Section 5.12.
"INDEMNITEES" has the meaning specified in Section 9.7.
"INDEMNIFIED LIABILITIES" has the meaning specified in Section 9.7.
"INVENTORY" means all of the Borrower's inventory, as such term is
defined in the UCC, whether now owned or hereafter acquired, whether
consisting of whole goods, spare parts or components, supplies or
materials, whether acquired, held or furnished for sale, for lease or under
service contracts or for manufacture or processing, and wherever located.
"INVESTMENT PROPERTY" means all of the Borrower's investment property,
as such term is defined in the UCC, whether now owned or hereafter
acquired, including but not limited to all securities, security
entitlements, securities accounts, commodity contracts, commodity accounts,
stocks, bonds, mutual fund shares, money market shares and U.S. Government
securities.
"ISSUER" means the issuer of any Letter of Credit.
"L/C AMOUNT" means the sum of (i) the aggregate face amount of any
issued and outstanding Letters of Credit and (ii) the unpaid amount of the
Obligation of Reimbursement.
"L/C APPLICATION" means an application and agreement for letters of
credit in a form acceptable to the Issuer and the Lender.
"LETTER OF CREDIT" has the meaning specified in Section 2.2.
"LOAN DOCUMENTS" means this Agreement, the Note, any Subordination
Agreement and the Security Documents.
"LOCKBOX" has the meaning given in the Lockbox Agreement.
"LOCKBOX AGREEMENT" means the Lockbox Agreement by and among the
Borrower, Xxxxx Fargo Bank, National Association and, the Lender, of even
date herewith.
-7-
"MATURITY DATE" has the meaning specified in Section 2.10.
"MAXIMUM LINE" means (a) Eight Million Dollars ($8,000,000) during the
period commencing January 1 through June 30 of each calendar year and (b)
Ten Million Dollars ($10,000,000) during the period commencing July 1
through December 31 of each calendar year, unless said amount is reduced
pursuant to Section 2.11, in which event it means the amount to which said
amount is reduced.
"MINIMUM INTEREST CHARGE" has the meaning specified in 2.5.2(b).
"NET INCOME" means fiscal year-to-date after-tax net income, DECREASED
by the sum of any extraordinary, non-operating or non-cash income recorded
by the Borrower and INCREASED by any extraordinary, non-cash or
non-operating expense or loss recorded by the Borrower, as determined in
accordance with GAAP.
"NOTE" means the Revolving Note.
"OBLIGATIONS" means the Note and each and every other debt, liability
and obligation of every type and description which the Borrower may now or
at any time hereafter owe to the Lender, whether such debt, liability or
obligation now exists or is hereafter created or incurred, whether it
arises in a transaction involving the Lender alone or in a transaction
involving other creditors of the Borrower, and whether it is direct or
indirect, due or to become due, absolute or contingent, primary or
secondary, liquidated or unliquidated, or sole, joint, several or joint and
several, and including specifically, but not limited to, the Obligation of
Reimbursement and all indebtedness of the Borrower arising under this
Agreement, the Note, any L/C Application completed by the Borrower, or any
other loan or credit agreement or guaranty between the Borrower and the
Lender, whether now in effect or hereafter entered into.
"OBLIGATION OF REIMBURSEMENT" has the meaning specified in Section
2.3(a).
"PATENT AND TRADEMARK SECURITY AGREEMENT" means the Patent and
Trademark Security Agreement by the Borrower in favor of the Lender of even
date herewith.
"PERMITTED LIEN" has the meaning specified in Section 7.1.
"PERSON" means any individual, corporation, partnership, joint
venture, limited liability company, association, joint-stock company,
trust, unincorporated organization or government or any agency or political
subdivision thereof.
"PLAN" means an employee benefit plan or other plan maintained for the
Borrower's employees and covered by Title IV of ERISA.
"PREMISES" means all premises where the Borrower conducts its business
and has any rights of possession, including (without limitation) the
premises legally described in EXHIBIT C attached hereto.
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"RECEIVABLES" means each and every right of the Borrower to the
payment of money, whether such right to payment now exists or hereafter
arises, whether such right to payment arises out of a sale, lease or other
disposition of goods or other property, out of a rendering of services, out
of a loan, out of the overpayment of taxes or other liabilities, or
otherwise arises under any contract or agreement, whether such right to
payment is created, generated or earned by the Borrower or by some other
person who subsequently transfers such person's interest to the Borrower,
whether such right to payment is or is not already earned by performance,
and howsoever such right to payment may be evidenced, together with all
other rights and interests (including all liens and security interests)
which the Borrower may at any time have by law or agreement against any
account debtor or other obligor obligated to make any such payment or
against any property of such account debtor or other obligor; all including
but not limited to all present and future accounts, contract rights, loans
and obligations receivable, chattel papers, bonds, notes and other debt
instruments, tax refunds and rights to payment in the nature of general
intangibles.
"RELATED DOCUMENTS" has the meaning specified in Section 2.5(a).
"REPORTABLE EVENT" shall have the meaning assigned to that term in
Title IV of ERISA.
"REVOLVING ADVANCE" has the meaning specified in Section 2.1.
"REVOLVING NOTE" means the Borrower's revolving promissory note,
payable to the order of the Lender in substantially the form of EXHIBIT A
hereto and any note or notes issued in substitution therefor, as the same
may hereafter be amended, supplemented or restated from time to time.
"SECURITY DOCUMENTS" means this Agreement, the Collection Account
Agreement, the Lockbox Agreement, the Patent and Trademark Security
Agreement, the Copyright Security Agreement and any other document
delivered to the Lender from time to time to secure the Obligations, as the
same may hereafter be amended, supplemented or restated from time to time.
"SECURITY INTEREST" has the meaning specified in Section 3.1.
"SPECIAL ACCOUNT" means a specified cash collateral account maintained
by a financial institution acceptable to the Lender in connection with
Letters of Credit, as contemplated by Section 2.4.
"SUBORDINATION AGREEMENT" means any subordination agreement accepted
by the Lender from time to time, as the same may hereafter be amended,
supplemented or restated from time to time.
"SUBSIDIARY" means any corporation of which more than fifty percent
(50%) of the outstanding shares of capital stock having general voting
power under ordinary circumstances to elect a majority of the board of
directors of such corporation,
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irrespective of whether or not at the time stock of any other class or
classes shall have or might have voting power by reason of the happening of
any contingency, is at the time directly or indirectly owned by the
Borrower, by the Borrower and one or more other Subsidiaries, or by one or
more other Subsidiaries.
"TENNESSEE FACILITY" means the distribution facility of Borrower
located in the State of Tennessee.
"TERMINATION DATE" means the earliest of (i) the Maturity Date, (ii)
the date the Borrower terminates the Credit Facility, or (iii) the date the
Lender demands payment of the Obligations.
"UCC" means the Uniform Commercial Code as in effect from time to time
in the state designated in Section 9.13 as the state whose laws shall
govern this Agreement, or in any other state whose laws are held to govern
this Agreement or any portion hereof.
"VALUE" means, with respect to Eligible Inventory, as determined by
Lender in good faith, the lower of (a) cost computed on a
first-in-first-out basis in accordance with GAAP, or (b) market value.
"YEAR 2000 COMPLIANT" has the meaning specified in Section 6.15.
Section 1.2 CROSS REFERENCES. All references in this Agreement
to Articles, Sections and subsections, shall be to Articles, Sections and
subsections of this Agreement unless otherwise explicitly specified.
ARTICLE II
AMOUNT AND TERMS OF THE CREDIT FACILITY
Section 2.1 REVOLVING ADVANCES. The Lender agrees, on the terms and
subject to the conditions herein set forth, to make advances to the Borrower
from time to time from the date all of the conditions set forth in Section 4.1
are satisfied (the "FUNDING DATE") to the Termination Date (the "REVOLVING
ADVANCES"). The Lender shall have no obligation to make a Revolving Advance if,
after giving effect to such requested Revolving Advance, the sum of the
outstanding and unpaid Revolving Advances under this Section 2.1 or otherwise
would exceed the Borrowing Base less the L/C Amount. The Borrower's obligation
to pay the Revolving Advances shall be evidenced by the Revolving Note and shall
be secured by the Collateral as provided in Article III. Within the limits set
forth in this Section 2.1, the Borrower may borrow, prepay pursuant to Section
2.11 and reborrow. The Borrower agrees to comply with the following procedures
in requesting Revolving Advances under this Section 2.1:
(a) The Borrower shall make each request for a Revolving Advance to
the Lender before 10:00 a.m. (California time) of the day of the requested
Revolving Advance. Requests may be made in writing or by telephone,
specifying the date of the requested Revolving Advance and the amount
thereof. Each request shall be by (i) any officer of the Borrower; or (ii)
any person designated as the Borrower's agent by any
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officer of the Borrower in a writing delivered to the Lender; or (iii) any
person whom the Lender reasonably believes to be an officer of the Borrower
or such a designated agent.
(b) Upon fulfillment of the applicable conditions set forth in Article
IV, the Lender shall disburse the proceeds of the requested Revolving
Advance by crediting the same to the Borrower's demand deposit account
maintained with Xxxxx Fargo Bank, National Association unless the Lender
and the Borrower shall agree in writing to another manner of disbursement.
Upon the Lender's request, the Borrower shall promptly confirm each
telephonic request for an Advance by executing and delivering an
appropriate confirmation certificate to the Lender. The Borrower shall
repay all Advances even if the Lender does not receive such confirmation
and even if the person requesting an Advance was not in fact authorized to
do so. Any request for an Advance, whether written or telephonic, shall be
deemed to be a representation by the Borrower that the conditions set forth
in Section 4.2 have been satisfied as of the time of the request.
Section 2.2 LETTERS OF CREDIT
(a) The Lender agrees, on the terms and subject to the conditions
herein set forth, to cause an Issuer to issue, from the Funding Date to the
Termination Date, one or more irrevocable standby or documentary letters of
credit (each, a "LETTER OF CREDIT") for the Borrower's account and to
guaranty the Borrower's obligations with respect thereto. The Lender shall
have no obligation to cause an Issuer to issue, or to guaranty, any Letter
of Credit if the face amount of the Letter of Credit to be issued or
guarantied, would exceed the lesser of:
(i) One Million Five Hundred Thousand Dollars ($1,500,000) less
the L/C Amount, or
(ii) the Borrowing Base less the sum of (A) all outstanding and
unpaid Revolving Advances and (B) the L/C Amount.
Each Letter of Credit, if any, shall be issued pursuant to a separate L/C
Application entered into by the Borrower and the Lender for the benefit of
the Issuer, completed in a manner satisfactory to the Lender and the
Issuer. The terms and conditions set forth in each such L/C Application
shall supplement the terms and conditions hereof, but if the terms of any
such L/C Application and the terms of this Agreement are inconsistent, the
terms hereof shall control.
(b) No Letter of Credit shall be issued with an expiry date later than
the Termination Date in effect as of the date of issuance.
(c) Any request for the Lender to guaranty a Letter of Credit or to
cause an Issuer to issue a Letter of Credit under this Section 2.2 shall be
deemed to be a representation by the Borrower that the conditions set forth
in Section 4.2 have been satisfied as of the date of the request.
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Section 2.3 PAYMENT OF AMOUNTS DRAWN UNDER LETTERS OF CREDIT;
OBLIGATION OF REIMBURSEMENT. The Borrower acknowledges that the Lender, as
co-applicant and guarantor on the Letters of Credit, will be liable to the
Issuer for reimbursement of any and all draws under Letters of Credit and for
all other amounts required to be paid under the applicable L/C Application.
Accordingly, the Borrower agrees to pay to the Lender any and all amounts
required to be paid under the applicable L/C Application, when and as required
to be paid thereby, and the amounts designated below, when and as designated:
(a) The Borrower hereby agrees to pay the Lender on the day a draft is
honored under any Letter of Credit a sum equal to all amounts drawn under
such Letter of Credit plus any and all reasonable charges and expenses that
the Issuer or the Lender may pay or incur relative to such draw and the
applicable L/C Application, plus interest on all such amounts, charges and
expenses as set forth below (the Borrower's obligation to pay all such
amounts is herein referred to as the "OBLIGATION OF REIMBURSEMENT").
(b) Whenever a draft is submitted under a Letter of Credit, the Lender
shall make a Revolving Advance in the amount of the Obligation of
Reimbursement and shall apply the proceeds of such Revolving Advance
thereto. Such Revolving Advance shall be repayable in accordance with and
be treated in all other respects as a Revolving Advance hereunder.
(c) If a draft is submitted under a Letter of Credit when the Borrower
is unable, because a Default Period then exists or for any other reason, to
obtain a Revolving Advance to pay the Obligation of Reimbursement, the
Borrower shall pay to the Lender on demand and in immediately available
funds, the amount of the Obligation of Reimbursement together with
interest, accrued from the date of the draft until payment in full at the
Default Rate. Notwithstanding the Borrower's inability to obtain a
Revolving Advance for any reason, the Lender is irrevocably authorized, in
its sole discretion, to make a Revolving Advance in an amount sufficient to
discharge the Obligation of Reimbursement and all accrued but unpaid
interest thereon.
(d) The Borrower's obligation to pay any Revolving Advance made under
this Section 2.3, shall be evidenced by the Revolving Note and shall bear
interest as provided in 2.5.2.
Section 2.4 SPECIAL ACCOUNT. If the Credit Facility is terminated
for any reason whatsoever while any Letter of Credit is outstanding, the
Borrower shall thereupon pay the Lender in immediately available funds for
deposit in the Special Account an amount equal to the L/C Amount. The Special
Account shall be an interest bearing account maintained for the Lender by any
financial institution acceptable to the Lender. Any interest earned on amounts
deposited in the Special Account shall be credited to the Special Account.
Amounts on deposit in the Special Account may be applied by the Lender at any
time or from time to time to the Obligations in the Lender's sole discretion,
and shall not be subject to withdrawal by the Borrower so long as the Lender
maintains a security interest therein. The Lender agrees to transfer any balance
in the Special Account to the Borrower at such time as the Lender is required to
release its security interest in the Special Account under applicable law.
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Section 2.5 OBLIGATIONS ABSOLUTE. The Borrower's obligations
arising under Section 2.3 shall be absolute, unconditional and irrevocable, and
shall be paid strictly in accordance with the terms of Section 2.3, under all
circumstances whatsoever, including (without limitation) the following
circumstances:
(a) any lack of validity or enforceability of any Letter of Credit or
any other agreement or instrument relating to any Letter of Credit
(collectively the "RELATED DOCUMENTS");
(b) any amendment or waiver of or any consent to departure from all or
any of the Related Documents;
(c) the existence of any claim, setoff, defense or other right which
the Borrower may have at any time, against any beneficiary or any
transferee of any Letter of Credit (or any persons or entities for whom any
such beneficiary or any such transferee may be acting), or other person or
entity, whether in connection with this Agreement, the transactions
contemplated herein or in the Related Documents or any unrelated
transactions;
(d) any statement or any other document presented under any Letter of
Credit proving to be forged, fraudulent, invalid or insufficient in any
respect or any statement therein being untrue or inaccurate in any respect
whatsoever;
(e) payment by or on behalf of the Issuer or the Lender under any
Letter of Credit against presentation of a draft or certificate which does
not strictly comply with the terms of such Letter of Credit; or
(f) any other circumstance or happening whatsoever, whether or not
similar to any of the foregoing.
2.5.2 INTEREST; MINIMUM INTEREST CHARGE; DEFAULT INTEREST;
PARTICIPATIONS; USURY.
(a) REVOLVING NOTE. Except as set forth in Sections 2.6(c) and 2.6(e),
the outstanding principal balance of the Revolving Note shall bear interest
at the Floating Rate.
(b) MINIMUM INTEREST CHARGE. Notwithstanding the interest payable
pursuant to 2.5.2(a) and the fees with respect to Letters of Credit payable
pursuant to Section 2.7(c), the aggregate amount of interest and Letter of
Credit fees payable by Borrower pursuant to Section 2.6(a) and Section
2.7(c), respectively, during each of the calendar quarters ending on the
following dates shall not be less than the amounts set forth opposite such
dates (the "Minimum Interest Charge") during the term of this Agreement,
and the Borrower shall pay any deficiency between the Minimum Interest
Charge and the aggregate amount of interest otherwise calculated under
Sections 2.6(a) and 2.6(e) and Letter of Credit fees otherwise calculated
under Section 2.7(c) for each such calendar quarter:
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Minimum Interest Fiscal Quarter Ending
------------------------- ----------------------------
$ 42,500 March 31
$ 46,500 June 30
$ 51,500 September 30
$ 56,500 December 31
Such deficiency shall be payable in arrears on the first day of each calendar
quarter and on the Termination Date.
(c) DEFAULT INTEREST RATE. At any time during any Default Period, in
the Lender's sole discretion and without waiving any of its other rights
and remedies, the principal of the Advances outstanding from time to time
shall bear interest at the Default Rate, effective for any periods
designated by the Lender from time to time during that Default Period.
(d) PARTICIPATIONS. If any Person shall acquire a participation in the
Advances under this Agreement, the Borrower shall be obligated to the
Lender to pay the full amount of all interest calculated under, along with
all other fees, charges and other amounts due under this Agreement,
regardless if such Person elects to accept interest with respect to its
participation at a lower rate than the Floating Rate, or otherwise elects
to accept less than its prorata share of such fees, charges and other
amounts due under this Agreement.
(e) USURY. In any event no rate change shall be put into effect which
would result in a rate greater than the highest rate permitted by law.
Notwithstanding anything to the contrary contained in any Loan Document,
all agreements which either now are or which shall become agreements
between the Borrower and the Lender are hereby limited so that in no
contingency or event whatsoever shall the total liability for payments in
the nature of interest, additional interest and other charges exceed the
applicable limits imposed by any applicable usury laws. If any payments in
the nature of interest, additional interest and other charges made under
any Loan Document are held to be in excess of the limits imposed by any
applicable usury laws, it is agreed that any such amount held to be in
excess shall be considered payment of principal hereunder, and the
indebtedness evidenced hereby shall be reduced by such amount so that the
total liability for payments in the nature of interest, additional interest
and other charges shall not exceed the applicable limits imposed by any
applicable usury laws, in compliance with the desires of the Borrower and
the Lender. This provision shall never be superseded or waived and shall
control every other provision of the Loan Documents and all agreements
between the Borrower and the Lender, or their successors and assigns.
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Section 2.6 FEES.
(a) ORIGINATION FEE. The Borrower hereby agrees to pay the Lender a
fully earned and non-refundable origination fee of Forty-Three Thousand
Three Hundred Thirty-Three Dollars ($43,333), due and payable upon the
execution of this Agreement.
(b) UNUSED LINE FEE. For the purposes of this Section 2.6(b), "Unused
Amount" means the Maximum Line reduced by (1) outstanding Revolving
Advances and (2) the L/C Amount. The Borrower agrees to pay to the Lender
an unused line fee at the rate of one-quarter of one percent (0.25%) per
annum on the average daily Unused Amount from the date of this Agreement to
and including the Termination Date, due and payable monthly in arrears on
the first day of each month and on the Termination Date.
(c) LETTER OF CREDIT FEES. The Borrower agrees to pay the Lender a fee
with respect to each Letter of Credit, if any, accruing on a daily basis
and computed at the annual rate of one and one-half percent (1.50%) of the
aggregate amount that may then be drawn on all issued and outstanding
Letters of Credit assuming compliance with all conditions for drawing
thereunder (the "AGGREGATE FACE AMOUNT"), from and including the date of
issuance of such Letter of Credit until such date as such Letter of Credit
shall terminate by its terms or be returned to the Lender, due and payable
monthly in arrears on the first day of each month and on the Termination
Date; PROVIDED, HOWEVER that during Default Periods, in the Lender's sole
discretion and without waiving any of its other rights and remedies, such
fee shall increase to three and one-half percent (3.50%) of the Aggregate
Face Amount. The foregoing fee shall be in addition to any and all fees,
commissions and charges of any Issuer of a Letter of Credit with respect to
or in connection with such Letter of Credit.
(d) LETTER OF CREDIT ADMINISTRATIVE FEES. The Borrower agrees to pay
the Lender, on written demand, the administrative fees charged by the
Issuer in connection with the honoring of drafts under any Letter of
Credit, amendments thereto, transfers thereof and all other activity with
respect to the Letters of Credit at the then-current rates published by the
Issuer for such services rendered on behalf of customers of the Issuer
generally.
(e) AUDIT FEES. The Borrower hereby agrees to pay the Lender, on
demand, audit fees in connection with any audits or inspections conducted
by the Lender of any Collateral or the Borrower's operations or business at
the rates established from time to time by the Lender as its audit fees
(which fees are currently seventy-five dollars ($75.00) per hour, per
auditor), together with all actual out-of-pocket costs and expenses
incurred in conducting any such audit or inspection.
Section 2.7 COMPUTATION OF INTEREST AND FEES; WHEN INTEREST DUE
AND PAYABLE. Interest accruing on the outstanding principal balance of the
Advances and fees hereunder outstanding from time to time shall be computed on
the basis of actual number of days elapsed in a year of 360 days. Interest shall
be due and payable in arrears on the first day of each month and on the
Termination Date.
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Section 2.8 CAPITAL ADEQUACY; INCREASED COSTS AND REDUCED
RETURN. If any Related Lender determines at any time that its Return has been
reduced as a result of any Rule Change, such Related Lender may require the
Borrower to pay it the amount necessary to restore its Return to what it would
have been had there been no Rule Change. For purposes of this Section 2.8:
(a) "CAPITAL ADEQUACY RULE" means any law, rule, regulation,
guideline, directive, requirement or request regarding capital adequacy, or
the interpretation or administration thereof by any governmental or
regulatory authority, central bank or comparable agency, whether or not
having the force of law, that applies to any Related Lender. Such rules
include rules requiring financial institutions to maintain total capital in
amounts based upon percentages of outstanding loans, binding loan
commitments and letters of credit.
(b) "L/C RULE" means any law, rule, regulation, guideline, directive,
requirement or request regarding letters of credit, or the interpretation
or administration thereof by any governmental or regulatory authority,
central bank or comparable agency, whether or not having the force of law,
that applies to any Related Lender. Such rules include rules imposing
taxes, duties or other similar charges, or mandating reserves, special
deposits or similar requirements against assets of, deposits with or for
the account of, or credit extended by any Related Lender, on letters of
credit.
(c) "RETURN", for any period, means the return as determined by such
Related Lender on the Advances and Letters of Credit based upon its total
capital requirements and a reasonable attribution formula that takes
account of the Capital Adequacy Rules then in effect and costs of issuing
or maintaining any Letter of Credit. Return may be calculated for each
calendar quarter and for the shorter period between the end of a calendar
quarter and the date of termination in whole of this Agreement.
(d) "RULE CHANGE" means any change in any Capital Adequacy Rule or L/C
Rule occurring after the date of this Agreement, but the term does not
include any changes in applicable requirements that at the Closing Date are
scheduled to take place under the existing Capital Adequacy Rules or L/C
Rules or any increases in the capital that any Related Lender is required
to maintain to the extent that the increases are required due to a
regulatory authority's assessment of the financial condition of such
Related Lender.
(e) "RELATED LENDER" includes (but is not limited to) the Lender, the
Issuer, , any parent corporation of the Lender or the Issuer and any
assignee of any interest of the Lender hereunder and any participant in the
loans made hereunder.
Certificates of any Related Lender sent to the Borrower from time to time
claiming compensation under this Section 2.8, stating the reason therefor and
setting forth in reasonable detail the calculation of the additional amount or
amounts to be paid to the Related Lender hereunder to restore its Return shall
be conclusive absent manifest error. In determining such amounts, the Related
Lender may use any reasonable averaging and attribution methods.
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Section 2.9 MATURITY DATE. This Agreement and the other Loan
Documents 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 June 30,
2001 (the "MATURITY DATE"), unless earlier terminated by Lender or Borrower
pursuant to the terms hereof. Upon the Termination Date, Borrower shall
immediately 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 checks and other payments provisionally credited to the
Obligations and/or as to which Lender has not yet received final and
indefeasible payment.
Section 2.10 VOLUNTARY PREPAYMENT; REDUCTION OF THE MAXIMUM LINE;
TERMINATION OF THE CREDIT FACILITY BY THE BORROWER. Except as otherwise provided
herein, the Borrower may prepay the Advances in whole at any time or from time
to time in part. The Borrower may terminate the Credit Facility or reduce the
Maximum Line at any time if it (i) gives the Lender at least thirty (30) days'
prior written notice and (ii) pays the Lender termination or line reduction fees
in accordance with Section 2.11. Any reduction in the Maximum Line must be in an
amount not less than One Million Dollars ($1,000,000) or an integral multiple
thereof. If the Borrower reduces the Maximum Line to zero, all Obligations shall
be immediately due and payable. Upon termination of the Credit Facility and
payment and performance of all Obligations, the Lender shall release or
terminate the Security Interest and the Security Documents to which the Borrower
is entitled by law.
Section 2.11 TERMINATION AND LINE REDUCTION FEES; WAIVER OF
TERMINATION AND LINE REDUCTION FEES.
(a) TERMINATION AND LINE REDUCTION FEES. If the Credit Facility is
terminated for any reason as of a date other than the Maturity Date, or the
Borrower reduces the Maximum Line, the Borrower shall pay to the Lender a
fee in an amount equal to a percentage of the Average Annual Maximum Line
(or the reduction, as the case may be) as follows: (A) two percent (2.0%)
if the termination or reduction occurs on or before the first anniversary
of the Funding Date; and (B) one percent (1.0%) if the termination or
reduction occurs after the first anniversary of the Funding Date.
(b) WAIVER OF TERMINATION AND LINE REDUCTION FEES. The Borrower will
not be required to pay the termination or line reduction fees otherwise due
under this Section 2.11 if such termination or line reduction is made
because of refinancing by an affiliate of the Lender.
Section 2.12 MANDATORY PREPAYMENT. Without notice or demand, if
the sum of the outstanding principal balance of the Revolving Advances plus the
L/C Amount shall at any time exceed the Borrowing Base, the Borrower shall (i)
first, immediately prepay the Revolving Advances to the extent necessary to
eliminate such excess; and (ii) if prepayment in full of the Revolving Advances
is insufficient to eliminate such excess, pay to the Lender in immediately
available funds for deposit in the Special Account an amount equal to the
remaining excess. Any payment received by the Lender under this Section 2.12 or
under Section 2.11 may be applied to
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the Obligations, in such order and in such amounts as the Lender, in its
discretion, may from time to time determine.
Section 2.13 PAYMENT. For purposes of calculating the amount of
Revolving Advances available to Borrower, each payment will be applied
(conditional upon final collection) to the outstanding principal balance of the
Revolving Note on the Banking Day of receipt by Lender of advices of deposit, if
such advices are received within sufficient time (in accordance with Lender's
usual and customary practices as in effect from time to time) to credit
Borrower's loan account on such day, and if not, then on the next Banking Day.
Lender shall be entitled to charge Borrower for one (1) Banking Day of clearance
at the Floating Rate on all payments deposited into the Collateral Account,
whether or not such payments are applied to reduce the outstanding principal
balance of the Revolving Note. This clearance charge is acknowledged to
constitute an integral part of the pricing of the loans and financial
accommodations contemplated herein, and shall apply whether or not the amount of
payments deposited exceeds the obligations outstanding. Notwithstanding anything
in Section 2.1. the Borrower hereby authorizes the Lender, in its discretion at
any time or from time to time without the Borrower's request and even if the
conditions set forth in Section 4.2 would not be satisfied, to make a Revolving
Advance in an amount equal to the portion of the Obligations from time to time
due and payable. At Lender's option, all principal, interest, fees, costs,
expenses and other charges provided for in this Agreement or the other Loan
Documents may be charged directly to the loan account(s) of Borrower.
Section 2.14 PAYMENT ON NON-BANKING DAYS. Whenever any payment to
be made hereunder shall be stated to be due on a day which is not a Banking Day,
such payment may be made on the next succeeding Banking Day, and such extension
of time shall in such case be included in the computation of interest on the
Advances or the fees hereunder, as the case may be.
Section 2.15 USE OF PROCEEDS. The Borrower shall use the proceeds
of Advances, and each Letter of Credit, if any, to refinance Borrower's
outstanding indebtedness to Union Bank of California, N.A., and thereafter for
ordinary working capital purposes and other proper corporate purposes of
Borrower not otherwise prohibited by the terms of this Agreement.
Section 2.16 LIABILITY RECORDS. The Lender may maintain from time
to time, at its discretion, liability records as to the Obligations. All entries
made on any such record shall be presumed correct until the Borrower establishes
the contrary. Upon the Lender's demand, the Borrower will admit and certify in
writing the exact principal balance of the Obligations that the Borrower then
asserts to be outstanding. Any billing statement or accounting rendered by the
Lender shall be conclusive and fully binding on the Borrower unless the Borrower
gives the Lender specific written notice of exception within thirty (30) days
after receipt.
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ARTICLE III
SECURITY INTEREST; OCCUPANCY; SETOFF
Section 3.1 GRANT OF SECURITY INTEREST. The Borrower hereby
pledges, assigns and grants to the Lender a security interest (collectively
referred to as the "SECURITY INTEREST") in the Collateral, as security for the
payment and performance of the Obligations.
Section 3.2 NOTIFICATION OF ACCOUNT DEBTORS AND OTHER OBLIGORS.
The Lender may at any time (whether or not a Default Period then exists) notify
any account debtor or other person obligated to pay the amount due that such
right to payment has been assigned or transferred to the Lender for security and
shall be paid directly to the Lender. The Borrower will join in giving such
notice if the Lender so requests. At any time after the Borrower or the Lender
gives such notice to an account debtor or other obligor, the Lender may, but
need not, in the Lender's name or in the Borrower's name, (a) demand, xxx for,
collect or receive any money or property at any time payable or receivable on
account of, or securing, any such right to payment, or grant any extension to,
make any compromise or settlement with or otherwise agree to waive, modify,
amend or change the obligations (including collateral obligations) of any such
account debtor or other obligor; and (b) as the Borrower's agent and
attorney-in-fact, notify the United States Postal Service to change the address
for delivery of the Borrower's mail to any address designated by the Lender,
otherwise intercept the Borrower's mail, and receive, open and dispose of the
Borrower's mail, applying all Collateral as permitted under this Agreement and
holding all other mail for the Borrower's account or forwarding such mail to the
Borrower's last known address.
Section 3.3 ASSIGNMENT OF INSURANCE. As additional security for
the payment and performance of the Obligations, the Borrower hereby assigns to
the Lender any and all monies (including, without limitation, proceeds of
insurance and refunds of unearned premiums) due or to become due under, and all
other rights of the Borrower with respect to, any and all policies of insurance
now or at any time hereafter covering the Collateral or any evidence thereof or
any business records or valuable papers pertaining thereto, and the Borrower
hereby directs the issuer of any such policy to pay all such monies directly to
the Lender. At any time, whether or not a Default Period then exists, the Lender
may (but need not), in the Lender's name or in the Borrower's name, execute and
deliver proof of claim, receive all such monies, endorse checks and other
instruments representing payment of such monies, and adjust, litigate,
compromise or release any claim against the issuer of any such policy.
Section 3.4 OCCUPANCY.
(a) The Borrower hereby irrevocably grants to the Lender the right to
take possession of the Premises at any time during a Default Period.
(b) The Lender may use the Premises only to hold, process,
manufacture, sell, use, store, liquidate, realize upon or otherwise dispose
of goods that are Collateral and for other purposes that the Lender may in
good xxxxx xxxx to be related or incidental purposes.
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(c) The Lender's right to hold the Premises shall cease and terminate
upon the earlier of (i) payment in full and discharge of all Obligations
and termination of the Commitment, and (ii) final sale or disposition of
all goods constituting Collateral and delivery of all such goods to
purchasers.
(d) The Lender shall not be obligated to pay or account for any rent
or other compensation for the possession, occupancy or use of any of the
Premises; provided, however, that if the Lender does pay or account for any
rent or other compensation for the possession, occupancy or use of any of
the Premises, the Borrower shall reimburse the Lender promptly for the full
amount thereof. In addition, the Borrower will pay, or reimburse the Lender
for, all taxes (other than the income taxes of Lender), fees, duties,
imposts, charges and expenses at any time incurred by or imposed upon the
Lender by reason of the execution, delivery, existence, recordation,
performance or enforcement of this Agreement or the provisions of this
Section 3.4.
Section 3.5 LICENSE. Without limiting the generality of the
Patent Security Agreement, Copyright Security Agreement, Trademark Security
Agreement, the Borrower hereby grants to the Lender a non-exclusive, worldwide
and royalty-free license to use or otherwise exploit all trademarks, franchises,
trade names, copyrights and patents of the Borrower for the purpose of selling,
leasing or otherwise disposing of any or all Collateral during any Default
Period.
Section 3.6 FINANCING STATEMENT. A carbon, photographic or other
reproduction of this Agreement or of any financing statements signed by the
Borrower is sufficient as a financing statement and may be filed as a financing
statement in any state to perfect the security interests granted hereby. For
this purpose, the following information is set forth:
Name and address of Debtor:
Educational Insights, Inc.
00000 Xxxxxx Xxxxxx
Xxxxxx, Xxxxxxxxxx 00000
Federal Tax Identification No. 00-0000000
Name and address of Secured Party:
Xxxxx Fargo Business Credit, Inc.
000 Xxxxx Xxxxxx Xxxxxx, Xxxxx 000
Xxxxxxxx, Xxxxxxxxxx 00000
Section 3.7 SETOFF. The Borrower agrees that the Lender may at
any time or from time to time, at its sole discretion and without demand and
without notice to anyone, setoff any liability owed to the Borrower by the
Lender, whether or not due, against any Obligation, whether or not due. In
addition, each other Person holding a participating interest in any Obligations
shall have the right to appropriate or setoff any deposit or other liability
then owed
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by such Person to the Borrower, whether or not due, and apply the same
to the payment of said participating interest, as fully as if such Person had
lent directly to the Borrower the amount of such participating interest.
ARTICLE IV
CONDITIONS OF LENDING
Section 4.1 CONDITIONS PRECEDENT TO THE INITIAL REVOLVING ADVANCE
AND THE INITIAL LETTER OF CREDIT. The Lender's obligation to make the initial
Revolving Advance or to cause to be issued the initial Letter of Credit
hereunder shall be subject to the condition precedent that the Lender shall have
received all of the following, each in form and substance satisfactory to the
Lender:
(a) This Agreement, properly executed by the Borrower.
(b) The Note, properly executed by the Borrower.
(c) A true and correct copy of any and all leases pursuant to which
the Borrower is leasing the Premises, together with a landlord's disclaimer
and consent with respect to each such lease.
(d) A true and correct copy of any and all agreements pursuant to
which the Borrower's property is in the possession of any Person other than
the Borrower, together with, in the case of any goods held by such Person
for resale, (i) a consignee's acknowledgment and waiver of liens, (ii) UCC
financing statements sufficient to protect the Borrower's and the Lender's
interests in such goods, and (iii) UCC searches showing that no other
secured party has filed a financing statement against such Person and
covering property similar to the Borrower's other than the Borrower, or if
there exists any such secured party, evidence that each such secured party
has received notice from the Borrower and the Lender sufficient to protect
the Borrower's and the Lender's interests in the Borrower's goods from any
claim by such secured party.
(e) An acknowledgment and agreement from each licensor in favor of the
Lender, together with a true, correct and complete copy of all license
agreements.
(f) The Collection Account Agreement, properly executed by the
Borrower and Xxxxx Fargo Bank, National Association.
(g) The Lockbox Agreement, properly executed by the Borrower and Xxxxx
Fargo Bank, National Association.
(h) The Patent and Trademark Security Agreement, properly executed by
the Borrower.
(i) The Copyright Security Agreement, properly executed by the
Borrower.
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(j) A mortgagee's disclaimer and waiver, properly executed by Union
Bank of California, N.A., and acknowledged by Borrower, together with a
true and correct copy of any and all mortgages pursuant to which the
Borrower has mortgaged the Premises.
(k) Current searches of appropriate filing offices showing that (i) no
state or federal tax liens have been filed and remain in effect against the
Borrower, (ii) no financing statements or assignments of patents,
trademarks or copyrights have been filed and remain in effect against the
Borrower except those financing statements and assignments of patents,
trademarks or copyrights relating to Permitted Liens or to liens held by
Persons who have agreed in writing that upon receipt of proceeds of the
Advances, they will deliver UCC releases and/or terminations and releases
of such assignments of patents, trademarks or copyrights satisfactory to
the Lender, and (iii) the Lender has duly filed all financing statements
necessary to perfect the Security Interest, to the extent the Security
Interest is capable of being perfected by filing.
(l) A certificate of the Borrower's Secretary or Assistant Secretary
certifying as to (i) the resolutions of the Borrower's directors and, if
required, shareholders, authorizing the execution, delivery and performance
of the Loan Documents, (ii) the Borrower's articles of incorporation and
bylaws, and (iii) the signatures of the Borrower's officers or agents
authorized to execute and deliver the Loan Documents and other instruments,
agreements and certificates, including Advance requests, on the Borrower's
behalf.
(m) A current certificate issued by the Secretary of State of
California, certifying that the Borrower is in compliance with all
applicable organizational requirements of the State of California.
(n) Evidence that the Borrower is duly licensed or qualified to
transact business in all jurisdictions where the character of the property
owned or leased or the nature of the business transacted by it makes such
licensing or qualification necessary.
(o) A certificate of an officer of the Borrower confirming the
representations and warranties set forth in Article V.
(p) An opinion of counsel to the Borrower, addressed to the Lender.
(q) Certificates of the insurance required hereunder, with all hazard
insurance containing a lender's loss payable endorsement in the Lender's
favor and with all liability insurance naming the Lender as an additional
insured.
(r) Payment of the fees and commissions due through the date of the
initial Advance or Letter of Credit under Section 2.6 and expenses incurred
by the Lender through such date and required to be paid by the Borrower
under Section 9.6, including all legal expenses incurred through the date
of this Agreement.
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(s) Evidence that Availability as of the Funding Date is not less than
One Million Dollars ($1,000,000) after giving effect to the amount paid or
to be paid to Borrower's prior lender to retire Borrower's line of credit
with such prior lender and bringing all other obligations to a current
status satisfactory to Lender.
(t) At Borrower's cost, an appraisal of all Inventory, issued by an
appraiser acceptable to Lender and in form, substance and reflecting values
satisfactory to Lender, in its sole discretion.
(u) Completion of a field review of the books and records of Borrower
and such other information with respect to the Collateral as Lender may
require, the results of which shall be satisfactory to Lender in its sole
discretion.
(v) Evidence that there has been no material adverse change, as
determined by Lender, in the financial condition or business of Borrower,
nor any material decline, as determined by Lender, in the market value of
any Collateral or a substantial or material portion of the assets of
Borrower since the date of the latest financial statements of Borrower
delivered to Lender prior to the Funding Date.
(w) Evidence that Borrower has opened bank accounts of a type mutually
acceptable to Borrower and Lender, including, without limitation, the
Collateral Account and any accounts contemplated by the Lockbox Agreement.
(x) Evidence that the structure of the Credit Facility and the other
financial accommodations contemplated herein have been reviewed and
approved to the satisfaction of Lender and its legal counsel.
(y) Final approval of the Credit Facility and the other financial
accommodations contemplated herein by senior management of Lender.
(z) The Funding Date shall occur on or prior to June 30, 1999.
(aa) Such other documents as the Lender in its sole discretion may
require.
Section 4.2 CONDITIONS PRECEDENT TO ALL ADVANCES AND LETTERS OF
CREDIT. The Lender's obligation to make each Advance or to cause the Issuer to
issue any Letter of Credit shall be subject to the further conditions precedent
that on such date:
(a) the representations and warranties contained in Article V are
correct on and as of the date of such Advance or issuance of Letter of
Credit as though made on and as of such date, except to the extent that
such representations and warranties relate solely to an earlier date; and
(b) no event has occurred and is continuing, or would result from such
Advance or the issuance of such Letter of Credit, as the case may be, which
constitutes a Default or an Event of Default.
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(c) no material adverse change, as determined by Lender, shall have
occurred in the financial condition or business of Borrower nor any
material decline, as determined by Lender, in the market value of any
Collateral or a substantial or material portion of the assets of Borrower
since the date of the latest audited financial statements delivered to
Lender prior to the Funding Date.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants to the Lender as follows:
Section 5.1 CORPORATE EXISTENCE AND POWER; NAME; CHIEF EXECUTIVE
OFFICE; INVENTORY AND EQUIPMENT LOCATIONS; TAX IDENTIFICATION NUMBER. The
Borrower is a corporation, duly organized, validly existing and in good standing
under the laws of the State of California and is duly licensed or qualified to
transact business in all jurisdictions where the character of the property owned
or leased or the nature of the business transacted by it makes such licensing or
qualification necessary. The Borrower has all requisite power and authority,
corporate or otherwise, to conduct its business, to own its properties and to
execute and deliver, and to perform all of its obligations under, the Loan
Documents. During the last five (5) years, the Borrower has done business solely
under the names set forth in SCHEDULE 5.1 hereto. The Borrower's chief executive
office and principal place of business is located at the address set forth in
Schedule 5.1 hereto, and all of the Borrower's records relating to its business
or the Collateral are kept at that location. All Inventory and Equipment is
located at that location or at one of the other locations set forth in SCHEDULE
5.1 hereto. The Borrower's tax identification number is correctly set forth in
Section 3.6 hereto.
Section 5.2 AUTHORIZATION OF BORROWING; NO CONFLICT AS TO LAW OR
AGREEMENTS. The execution, delivery and performance by the Borrower of the Loan
Documents and the borrowings from time to time hereunder have been duly
authorized by all necessary corporate action and do not and will not (i) require
any consent or approval of the Borrower's stockholders; (ii) require any
authorization, consent or approval by, or registration, declaration or filing
with, or notice to, any governmental department, commission, board, bureau,
agency or instrumentality, domestic or foreign, or any third party, except such
authorization, consent, approval, registration, declaration, filing or notice as
has been obtained, accomplished or given prior to the date hereof; (iii) violate
any provision of any law, rule or regulation (including, without limitation,
Regulation X of the Board of Governors of the Federal Reserve System) or of any
order, writ, injunction or decree presently in effect having applicability to
the Borrower or of the Borrower's articles of incorporation or bylaws; (iv)
result in a breach of or constitute a default under any indenture or loan or
credit agreement or any other material agreement, lease or instrument to which
the Borrower is a party or by which it or its properties may be bound or
affected; or (v) result in, or require, the creation or imposition of any
mortgage, deed of trust, pledge, lien, security interest or other charge or
encumbrance of any nature (other than the Security Interest) upon or with
respect to any of the properties now owned or hereafter acquired by the
Borrower.
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Section 5.3 LEGAL AGREEMENTS. This Agreement constitutes and,
upon due execution by the Borrower, the other Loan Documents will constitute the
legal, valid and binding obligations of the Borrower, enforceable against the
Borrower in accordance with their respective terms.
Section 5.4 SUBSIDIARIES. Except as set forth in Schedule 5.4
hereto, the Borrower has no Subsidiaries.
Section 5.5 FINANCIAL CONDITION; NO ADVERSE CHANGE. The Borrower
has heretofore furnished to the Lender its audited financial statements for its
fiscal year ended December 31, 1998 and unaudited financial statements for the
fiscal year-to-date period ended April 30, 1999 and those statements fairly
present the Borrower's financial condition on the dates thereof and the results
of its operations and cash flows for the periods then ended and were prepared in
accordance with GAAP. Since the date of the most recent financial statements,
there has been no material adverse change in the Borrower's business, properties
or condition (financial or otherwise).
Section 5.6 LITIGATION. There are no actions, suits or proceedings
pending or, to the Borrower's knowledge, threatened against or affecting the
Borrower or any of its Affiliates or the properties of the Borrower or any of
its Affiliates before any court or governmental department, commission, board,
bureau, agency or instrumentality, domestic or foreign, which, if determined
adversely to the Borrower or any of its Affiliates, would have a material
adverse effect on the financial condition, properties or operations of the
Borrower or any of its Affiliates.
Section 5.7 REGULATION U. The Borrower is not engaged in the
business of extending credit for the purpose of purchasing or carrying margin
stock (within the meaning of Regulation U of the Board of Governors of the
Federal Reserve System), and no part of the proceeds of any Advance will be used
to purchase or carry any margin stock or to extend credit to others for the
purpose of purchasing or carrying any margin stock.
Section 5.8 TAXES. To the best of Borrower's knowledge, the
Borrower and its Affiliates have paid or caused to be paid to the proper
authorities when due all federal, state and local taxes required to be withheld
by each of them. The Borrower and its Affiliates have filed all federal, state
and local tax returns which to the knowledge of the officers of the Borrower or
any Affiliate, as the case may be, are required to be filed, and the Borrower
and its Affiliates have paid or caused to be paid to the respective taxing
authorities all taxes as shown on said returns or on any assessment received by
any of them to the extent such taxes have become due.
Section 5.9 PRIORITY, TITLES AND LIENS. The Security Interest
and other liens granted to Lender under this Agreement and the other Security
Documents constitute valid and perfected first priority liens and security
interests in and upon the Collateral. The Borrower has good and absolute title
to all Collateral described in the collateral reports provided to the Lender and
all other Collateral, properties and assets reflected in the latest financial
statements referred to in Section 5.5 and all proceeds thereof, free and clear
of all mortgages, security interests, liens and encumbrances, except for
Permitted Liens. No financing statement naming the Borrower as debtor is on file
in any office except to perfect only Permitted Liens. None of the Collateral or
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other collateral covered by the Security Documents is or will become a fixture
on real estate, unless a fixture filing is in effect with respect thereto.
Section 5.10 PLANS. Except as disclosed to the Lender in writing
prior to the date hereof, neither the Borrower nor any of its Affiliates
maintains or has maintained any Plan. Neither the Borrower nor any Affiliate has
received any notice or has any knowledge to the effect that it is not in full
compliance with any of the requirements of ERISA. No Reportable Event or other
fact or circumstance which may have an adverse effect on the Plan's tax
qualified status exists in connection with any Plan. Neither the Borrower nor
any of its Affiliates has:
(a) Any accumulated funding deficiency within the meaning of ERISA; or
(b) Any liability or knows of any fact or circumstances which could
result in any liability to the Pension Benefit Guaranty Corporation, the
Internal Revenue Service, the Department of Labor or any participant in
connection with any Plan (other than accrued benefits which or which may
become payable to participants or beneficiaries of any such Plan).
Section 5.11 DEFAULT. The Borrower is in compliance with all
provisions of all agreements, instruments, decrees and orders to which it is a
party or by which it or its property is bound or affected, the breach or default
of which could have a material adverse effect on the Borrower's financial
condition, properties or operations.
Section 5.12 ENVIRONMENTAL MATTERS.
(a) DEFINITIONS. As used in this Agreement, the following terms shall
have the following meanings:
(i) "ENVIRONMENTAL LAW" means any federal, state, local or other
governmental statute, regulation, law or ordinance dealing with the
protection of human health and the environment (other than any
statute, regulation, law or ordinance under any applicable health code
relating to the cafeteria located on the Premises and the
non-compliance with which would not have a material adverse affect on
the business, operations or financial condition of Borrower).
(ii) "HAZARDOUS SUBSTANCES" means pollutants, contaminants,
hazardous substances, hazardous wastes, petroleum and fractions
thereof, and all other chemicals, wastes, substances and materials
listed in, regulated by or identified in any Environmental Law.
(b) To the Borrower's best knowledge, there are not present in, on or
under the Premises any Hazardous Substances in such form or quantity as to
create any liability or obligation for either the Borrower or the Lender
under common law of any jurisdiction or under any Environmental Law, and no
Hazardous Substances have ever been stored, buried, spilled, leaked,
discharged, emitted or released in, on or under the Premises in such a way
as to create any such liability.
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(c) To the Borrower's best knowledge, the Borrower has not disposed of
Hazardous Substances in such a manner as to create any liability under any
Environmental Law.
(d) To the Borrower's best knowledge, there are not and there never
have been any requests, claims, notices, investigations, demands,
administrative proceedings, hearings or litigation, relating in any way to
the Premises or the Borrower, alleging liability under, violation of, or
noncompliance with any Environmental Law or any license, permit or other
authorization issued pursuant thereto. To the Borrower's best knowledge, no
such matter is threatened or impending.
(e) To the Borrower's best knowledge, the Borrower's businesses are
and have in the past always been conducted in accordance with all
Environmental Laws and all licenses, permits and other authorizations
required pursuant to any Environmental Law and necessary for the lawful and
efficient operation of such businesses are in the Borrower's possession and
are in full force and effect. No permit required under any Environmental
Law is scheduled to expire within 12 months and there is no threat that any
such permit will be withdrawn, terminated, limited or materially changed.
(f) To the Borrower's best knowledge, the Premises are not and never
have been listed on the National Priorities List, the Comprehensive
Environmental Response, Compensation and Liability Information System or
any similar federal, state or local list, schedule, log, inventory or
database.
(g) The Borrower has delivered to Lender all environmental
assessments, audits, reports, permits, licenses and other documents
describing or relating in any way to the Premises or Borrower's businesses
to the best of Borrower's knowledge.
Section 5.13 SUBMISSIONS TO LENDER. All financial and other
information provided to the Lender by or on behalf of the Borrower in connection
with the Borrower's request for the credit facilities contemplated hereby is
true and correct in all material respects and, as to projections, valuations or
proforma financial statements, present a good faith opinion as to such
projections, valuations and proforma condition and results.
Section 5.14 RIGHTS TO PAYMENT. Each right to payment and each
instrument, document, chattel paper and other agreement constituting or
evidencing Collateral or other collateral covered by the Security Documents is
(or, in the case of all future Collateral or such other collateral, will be when
arising or issued) the valid, genuine and legally enforceable obligation,
subject to no defense, setoff or counterclaim, of the account debtor or other
obligor named therein or in the Borrower's records pertaining thereto as being
obligated to pay such obligation, other than any defense, setoff or counterclaim
incurred in the ordinary course of Borrower's business and disclosed to Lender.
Section 5.15 FINANCIAL SOLVENCY. Both before and after giving
effect to the transactions contemplated in the Loan Documents, none of the
Borrower or its Affiliates:
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(a) was or will be insolvent, as that term is used and defined in
Section 101(32) of the United States Bankruptcy Code and Section 2 of the
Uniform Fraudulent Transfer Act;
(b) has unreasonably small capital or is engaged or about to engage in
a business or a transaction for which any remaining assets of the Borrower
or such Affiliate are unreasonably small;
(c) by executing, delivering or performing its obligations under the
Loan Documents or other documents to which it is a party or by taking any
action with respect thereto, intends to, nor believes that it will, incur
debts beyond its ability to pay them as they mature;
(d) by executing, delivering or performing its obligations under the
Loan Documents or other documents to which it is a party or by taking any
action with respect thereto, intends to hinder, delay or defraud either its
present or future creditors; and
(e) at this time contemplates filing a petition in bankruptcy or for
an arrangement or reorganization or similar proceeding under any law any
jurisdiction, nor, to the best knowledge of the Borrower, is the subject of
any actual, pending or threatened bankruptcy, insolvency or similar
proceedings under any law of any jurisdiction.
ARTICLE VI
BORROWER'S AFFIRMATIVE COVENANTS
So long as the Obligations shall remain unpaid, or the Credit Facility
shall remain outstanding, the Borrower will comply with the following
requirements, unless the Lender shall otherwise consent in writing:
Section 6.1 REPORTING REQUIREMENTS. The Borrower will deliver,
or cause to be delivered, to the Lender each of the following, which shall be in
form and detail acceptable to the Lender:
(a) as soon as available, and in any event within ninety (90) days
after the end of each fiscal year of the Borrower, the Borrower's audited
financial statements with the unqualified opinion of independent certified
public accountants selected by the Borrower and acceptable to the Lender,
which annual financial statements shall include the Borrower's balance
sheet as at the end of such fiscal year and the related statements of the
Borrower's income, retained earnings and cash flows for the fiscal year
then ended, prepared, if the Lender so requests, on a consolidating and
consolidated basis to include any Affiliates, all in reasonable detail and
prepared in accordance with GAAP, together with (i) copies of all
management letters prepared by such accountants; and (ii) a certificate of
the Borrower's chief financial officer stating that such financial
statements have been prepared in accordance with GAAP and whether or not
such officer has knowledge of the occurrence of any Default or Event of
Default hereunder and, if so, stating in reasonable detail the facts with
respect thereto;
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(b) as soon as available and in any event within thirty (30) days
after the end of each month, an unaudited/internal balance sheet and
statements of income and retained earnings of the Borrower as at the end of
and for such month and for the year to date period then ended, prepared, if
the Lender so requests, on a consolidating and consolidated basis to
include any Affiliates, in reasonable detail and stating in comparative
form the figures for the corresponding date and periods in the previous
year, all prepared in accordance with GAAP, subject to year-end audit
adjustments; and accompanied by a certificate of the Borrower's chief
financial officer, substantially in the form of EXHIBIT B hereto stating
(i) that such financial statements have been prepared in accordance with
GAAP, subject to year-end audit adjustments, (ii) whether or not such
officer has knowledge of the occurrence of any Default or Event of Default
hereunder not theretofore reported and remedied and, if so, stating in
reasonable detail the facts with respect thereto, and (iii) all relevant
facts in reasonable detail to evidence, and the computations as to, whether
or not the Borrower is in compliance with the requirements set forth in
Sections 6.12, 6.13 and 7.10;
(c) within ten (10) days after the end of each month or more
frequently if the Lender so requires, agings of the Borrower's accounts
receivable and its accounts payable, an inventory certification report, and
a calculation of the Borrower's Accounts, Eligible Accounts, Inventory and
Eligible Inventory as at the end of such month or shorter time period;
(d) at least thirty (30) days before the beginning of each fiscal year
of the Borrower, the projected balance sheets and income statements for
each month of such year, each in reasonable detail, representing the
Borrower's good faith projections and certified by the Borrower's chief
financial officer as being the most accurate projections available and
identical to the projections used by the Borrower for internal planning
purposes, together with such supporting schedules and information as the
Lender may in its discretion require and on or prior to March 31 of each
year, such projected balance sheets and income statements shall be updated
by Borrower based on orders received by Borrower during its annual toy show
held in February;
(e) immediately after the commencement thereof, notice in writing of
all litigation and of all proceedings before any governmental or regulatory
agency affecting the Borrower of the type described in Section 5.12 or
which seek a monetary recovery against the Borrower in excess of One
Hundred Thousand Dollars ($100,000);
(f) as promptly as practicable (but in any event not later than five
business days) after an officer of the Borrower obtains knowledge of the
occurrence of any breach, default or event of default under any Security
Document or any event which constitutes a Default or Event of Default
hereunder, notice of such occurrence, together with a detailed statement by
a responsible officer of the Borrower of the steps being taken by the
Borrower to cure the effect of such breach, default or event;
(g) as soon as possible and in any event within thirty (30) days after
the Borrower knows or has reason to know that any Reportable Event with
respect to any Plan has occurred, the statement of the Borrower's chief
financial officer setting forth
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details as to such Reportable Event and the action which the Borrower
proposes to take with respect thereto, together with a copy of the notice
of such Reportable Event to the Pension Benefit Guaranty Corporation;
(h) as soon as possible, and in any event within ten (10) days after
the Borrower fails to make any quarterly contribution required with respect
to any Plan under Section 412(m) of the Internal Revenue Code of 1986, as
amended, the statement of the Borrower's chief financial officer setting
forth details as to such failure and the action which the Borrower proposes
to take with respect thereto, together with a copy of any notice of such
failure required to be provided to the Pension Benefit Guaranty
Corporation;
(i) promptly upon knowledge thereof, notice of (i) any disputes or
claims by the Borrower's customers exceeding Twenty-Five Thousand Dollars
($25,000) individually or One Hundred Thousand Dollars ($100,000) in the
aggregate during any fiscal year; (ii) credit memos; (iii) any goods
returned to or recovered by the Borrower; and (iv) any change in the
persons constituting the Borrower's officers and directors;
(j) promptly upon knowledge thereof, notice of any material loss of or
material damage to any Collateral or other collateral covered by the
Security Documents or of any substantial adverse change in any Collateral
or such other collateral or the prospect of payment thereof;
(k) within ten (10) days of the distribution thereof, copies of all
financial statements, reports and proxy statements which the Borrower shall
have sent to its stockholders;
(l) within ten (10) days of filing thereof, copies of all regular and
periodic reports which the Borrower shall file with the Securities and
Exchange Commission or any national securities exchange;
(m) promptly upon knowledge thereof, notice of the Borrower's
violation of any law, rule or regulation, the non-compliance with which
could materially and adversely affect the Borrower's business or its
financial condition; and
(n) from time to time, with reasonable promptness, any and all
receivables schedules, collection reports, deposit records, equipment
schedules, copies of invoices to account debtors, shipment documents and
delivery receipts for goods sold, and such other material, reports, records
or information as the Lender may request, including without limitation,
daily or weekly borrowing base certificates.
Section 6.2 BOOKS AND RECORDS; INSPECTION AND EXAMINATION. The
Borrower will keep accurate books of record and account for itself pertaining to
the Collateral and pertaining to the Borrower's business and financial condition
and such other matters as the Lender may from time to time request in which true
and complete entries will be made in accordance with GAAP and, upon the Lender's
request, will permit any officer, employee, attorney or accountant for the
Lender to audit, review, make extracts from or copy any and all
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corporate and financial books and records of the Borrower at all times during
ordinary business hours, to send and discuss with account debtors and other
obligors requests for verification of amounts owed to the Borrower, and to
discuss the Borrower's affairs with any of its directors, officers, employees or
agents. The Borrower will permit the Lender, or its employees, accountants,
attorneys or agents, to examine and inspect any Collateral, other collateral
covered by the Security Documents or any other property of the Borrower at any
time during ordinary business hours.
Section 6.3 ACCOUNT VERIFICATION. The Lender may at any time and
from time to time send or require the Borrower to send requests for verification
of accounts or notices of assignment to account debtors and other obligors. The
Lender may also at any time and from time to time telephone account debtors and
other obligors to verify accounts.
Section 6.4 COMPLIANCE WITH LAWS.
(a) The Borrower will (i) comply with the requirements of applicable
laws and regulations, the non-compliance with which would materially and
adversely affect its business or its financial condition and (ii) use and
keep the Collateral, and require that others use and keep the Collateral,
only for lawful purposes, without violation of any federal, state or local
law, statute or ordinance.
(b) Without limiting the foregoing undertakings, the Borrower
specifically agrees that it will comply with all applicable Environmental
Laws and obtain and comply with all permits, licenses and similar approvals
required by any Environmental Laws, and will not generate, use, transport,
treat, store or dispose of any Hazardous Substances in such a manner as to
create any liability or obligation under the common law of any jurisdiction
or any Environmental Law.
Section 6.5 PAYMENT OF TAXES AND OTHER CLAIMS. The Borrower will
pay or discharge, when due, (a) all taxes, assessments and governmental charges
levied or imposed upon it or upon its income or profits, upon any properties
belonging to it (including, without limitation, the Collateral) or upon or
against the creation, perfection or continuance of the Security Interest, prior
to the date on which penalties attach thereto, (b) all federal, state and local
taxes required to be withheld by it, and (c) all lawful claims for labor,
materials and supplies which, if unpaid, might by law become a lien or charge
upon any properties of the Borrower; provided, that the Borrower shall not be
required to pay any such tax, assessment, charge or claim whose amount,
applicability or validity is being contested in good faith by appropriate
proceedings and for which proper reserves have been made.
Section 6.6 MAINTENANCE OF PROPERTIES.
(a) The Borrower will keep and maintain the Collateral, the other
collateral covered by the Security Documents and all of its other
properties necessary or useful in its business in good condition, repair
and working order (normal wear and tear excepted) and will from time to
time replace or repair any worn, defective or broken parts; provided,
however, that nothing in this Section 6.6 shall prevent the Borrower from
discontinuing the operation and maintenance of any of its properties if
such
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discontinuance is, in the Lender's judgment, desirable in the conduct of
the Borrower's business and not disadvantageous in any material respect to
the Lender.
(b) The Borrower will defend the Collateral against all claims or
demands of all persons (other than the Lender) claiming the Collateral or
any interest therein.
(c) The Borrower will keep all Collateral and other collateral covered
by the Security Documents free and clear of all security interests, liens
and encumbrances except Permitted Liens.
Section 6.7 INSURANCE. The Borrower will obtain and at all times
maintain insurance with insurers believed by the Borrower to be responsible and
reputable, in such amounts and against such risks as may from time to time be
required by the Lender, but in all events in such amounts and against such risks
as is usually carried by companies engaged in similar business and owning
similar properties in the same general areas in which the Borrower operates.
Without limiting the generality of the foregoing, the Borrower will at all times
maintain business interruption insurance and keep all tangible Collateral
insured against risks of fire, theft, collision (for Collateral consisting of
motor vehicles) and such other risks and in such amounts as the Lender may
reasonably request, with any loss payable to the Lender to the extent of its
interest, and all policies of such insurance shall contain a lender's loss
payable endorsement for the Lender's benefit acceptable to the Lender. All
policies of liability insurance required hereunder shall name the Lender as an
additional insured.
Section 6.8 PRESERVATION OF EXISTENCE. The Borrower will
preserve and maintain its existence and all of its rights, privileges and
franchises necessary or desirable in the normal conduct of its business and
shall conduct its business in an orderly, efficient and regular manner.
Section 6.9 DELIVERY OF INSTRUMENTS, etc. Upon request by the
Lender, the Borrower will promptly deliver to the Lender in pledge all
instruments, documents and chattel papers constituting Collateral, duly endorsed
or assigned by the Borrower.
Section 6.10 COLLATERAL ACCOUNT.
(a) If, notwithstanding the instructions to debtors to make payments
to the Lockbox, the Borrower receives any payments on Receivables, the
Borrower shall deposit such payments into the Collateral Account. Until so
deposited, the Borrower shall hold all such payments in trust for and as
the property of the Lender and shall not commingle such payments with any
of its other funds or property.
(b) Amounts deposited in the Collateral Account shall not bear
interest and shall not be subject to withdrawal by the Borrower, except
after full payment and discharge of all Obligations.
(c) All deposits in the Collateral Account shall constitute proceeds
of Collateral and shall not constitute payment of the Obligations. The
Lender from time to time at its discretion may, after allowing one (1)
Banking Day, apply deposited funds in
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the Collateral Account to the payment of the Obligations, in any order or
manner of application satisfactory to the Lender, by transferring such
funds to the Lender's general account.
(d) All items deposited in the Collateral Account shall be subject to
final payment. If any such item is returned uncollected, the Borrower will
immediately pay the Lender, or, for items deposited in the Collateral
Account, the bank maintaining such account, the amount of that item, or
such bank at its discretion may charge any uncollected item to the
Borrower's commercial account or other account. The Borrower shall be
liable as an endorser on all items deposited in the Collateral Account,
whether or not in fact endorsed by the Borrower.
Section 6.11 PERFORMANCE BY THE LENDER. If the Borrower at any
time fails to perform or observe any of the foregoing covenants contained in
this Article VI or elsewhere herein, and if such failure shall continue for a
period of ten (10) calendar days after the Lender gives the Borrower written
notice thereof (or in the case of the agreements contained in Sections 6.5, 6.7
and 6.10, immediately upon the occurrence of such failure, without notice or
lapse of time), the Lender may, but need not, perform or observe such covenant
on behalf and in the name, place and stead of the Borrower (or, at the Lender's
option, in the Lender's name) and may, but need not, take any and all other
actions which the Lender may reasonably deem necessary to cure or correct such
failure (including, without limitation, the payment of taxes, the satisfaction
of security interests, liens or encumbrances, the performance of obligations
owed to account debtors or other obligors, the procurement and maintenance of
insurance, the execution of assignments, security agreements and financing
statements, and the endorsement of instruments); and the Borrower shall
thereupon pay to the Lender on demand the amount of all monies expended and all
costs and expenses (including reasonable attorneys' fees and legal expenses)
incurred by the Lender in connection with or as a result of the performance or
observance of such agreements or the taking of such action by the Lender,
together with interest thereon from the date expended or incurred at the
Floating Rate. To facilitate the Lender's performance or observance of such
covenants of the Borrower, the Borrower hereby irrevocably appoints the Lender,
or the Lender's delegate, acting alone, as the Borrower's attorney in fact
(which appointment is coupled with an interest) with the right (but not the
duty) from time to time to create, prepare, complete, execute, deliver, endorse
or file in the name and on behalf of the Borrower any and all instruments,
documents, assignments, security agreements, financing statements, applications
for insurance and other agreements and writings required to be obtained,
executed, delivered or endorsed by the Borrower under this Section 6.11.
Section 6.12 MINIMUM BOOK NET WORTH. The Borrower will maintain,
during each period described below, its Book Net Worth, determined as at the end
of each month, at an amount not less that the amount set forth opposite such
period:
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Period Minimum Book Net Worth
------ ----------------------
July 1, 1999 through and $20,000,000
including August 31, 1999
September 1, 1999 through and including $20,500,000
November 30, 1999
December 1, 1999 through and including $21,000,000
December 31, 1999
Section 6.13 MINIMUM NET INCOME. The Borrower will achieve as of
the dates set forth below Net Income, determined on a year-to-date basis, of an
amount not less than the amount set forth opposite such date:
Year-to-date Period Ending Minimum Net Income
-------------------------- ------------------
July 31, 1999 ($400,000)
September 30, 1999 $0
December 31, 1999 $250,000
Section 6.14 NEW COVENANTS. On or before December 31, 1999, the
Borrower and Lender shall agree on new covenant levels for Sections 6.12
and 6.13 for periods after such date. The new covenants shall be based on
projections for such periods received by Lender pursuant to Section 6.1(d)
and shall be no less stringent than the present levels.
Section 6.15 YEAR 2000 COMPLIANCE. Borrower agrees to perform all
acts reasonably necessary to ensure that: (a) Borrower and any business in which
Borrower holds a substantial interest; and (b) all customers, suppliers and
vendors that are material to Borrower's business, become Year 2000 Compliant in
a timely manner. Such acts shall include, without limitation, performing a
comprehensive review and assessment of all of Borrower's systems and adopting a
detailed plan, with itemized budget, for the remediation, monitoring and testing
of such systems and upgrading its accounting system to a system that is Year
2000 Compliant on or prior to September 30, 1999. As used herein, "Year 2000
Compliant" shall mean, in regard to any entity, that all software, hardware,
firmware, equipment, goods or systems utilized by or material to the business
operations or financial condition of such entity, will properly perform date
sensitive functions before, during and after the year 2000. Borrower shall,
immediately upon request, provide to Lender such certifications or other
evidence of Borrower's compliance with the terms hereof as Lender may from time
to time require.
Section 6.16 LICENSOR'S CONSENTS. Upon request by Lender,
Borrower shall deliver a consent and acknowledgement in form and substance
satisfactory to Lender, from any licensor of Borrower and if Borrower fails to
deliver such consent and acknowledgement, the Inventory subject to the license
agreement entered into with such licensor shall not be deemed Eligible
Inventory.
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ARTICLE VII
NEGATIVE COVENANTS
So long as the Obligations shall remain unpaid, or the Credit Facility
shall remain outstanding, the Borrower agrees that, without the Lender's prior
written consent:
Section 7.1 LIENS. The Borrower will not create, incur or suffer
to exist any mortgage, deed of trust, pledge, lien, security interest,
assignment or transfer upon or of any of its assets, now owned or hereafter
acquired, to secure any indebtedness; EXCLUDING, HOWEVER, from the operation of
the foregoing, the following (collectively, "PERMITTED LIENS"):
(a) in the case of any of the Borrower's property which is not
Collateral or other collateral described in the Security Documents,
covenants, restrictions, rights, easements and minor irregularities in
title which do not materially interfere with the Borrower's business or
operations as presently conducted;
(b) mortgages, deeds of trust, pledges, liens, security interests and
assignments in existence on the date hereof and listed in SCHEDULE 7.1
hereto, securing indebtedness for borrowed money permitted under Section
7.2;
(c) the Security Interest and liens and security interests created by
the Security Documents; and
(d) purchase money security interests relating to the acquisition of
machinery and equipment of the Borrower not exceeding the lesser of cost or
fair market value thereof, not exceeding One Hundred Thousand Dollars
($100,000) for any one purchase or Three Hundred Thousand Dollars
($300,000) in the aggregate during any fiscal year and so long as no
Default Period is then in existence and none would exist immediately after
such acquisition.
Section 7.2 INDEBTEDNESS. The Borrower will not incur, create,
assume or permit to exist any indebtedness or liability on account of deposits
or advances or any indebtedness for borrowed money or letters of credit issued
on the Borrower's behalf, or any other indebtedness or liability evidenced by
notes, bonds, debentures or similar obligations, except:
(a) indebtedness arising hereunder;
(b) indebtedness of the Borrower in existence on the date hereof and
listed in SCHEDULE 7.2 hereto; PROVIDED, THAT such indebtedness shall at
all times be subject to a Subordination Agreement, in form and substance
satisfactory to Lender; and
(c) indebtedness relating to liens permitted in accordance with
Section 7.1.
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Section 7.3 GUARANTIES. The Borrower will not assume, guarantee,
endorse or otherwise become directly or contingently liable in connection with
any obligations of any other Person, except:
(a) the endorsement of negotiable instruments by the Borrower for
deposit or collection or similar transactions in the ordinary course of
business; and
(b) guaranties, endorsements and other direct or contingent
liabilities in connection with the obligations of other Persons, in
existence on the date hereof and listed in Schedule 7.2 hereto.
Section 7.4 INVESTMENTS AND SUBSIDIARIES.
(a) The Borrower will not purchase or hold beneficially any stock or
other securities or evidences of indebtedness of, make or permit to exist
any loans or advances to, or make any investment or acquire any interest
whatsoever in, any other Person, including specifically but without
limitation any partnership or joint venture, except:
(i) investments in direct obligations of the United States
of America or any agency or instrumentality thereof whose obligations
constitute full faith and credit obligations of the United States of
America having a maturity of one year or less, commercial paper
issued by U.S. corporations rated "A-1" or "A-2" by Standard & Poors
Corporation or "P-1" or "P-2" by Xxxxx'x Investors Service or
certificates of deposit or bankers' acceptances having a maturity of
one year or less issued by members of the Federal Reserve System
having deposits in excess of $100,000,000 (which certificates of
deposit or bankers' acceptances are fully insured by the Federal
Deposit Insurance Corporation);
(ii) travel advances or loans to the Borrower's officers and
employees not exceeding at any one time an aggregate of Fifty
Thousand Dollars ($50,000); and
(iii) advances in the form of progress payments (other than to
vendors of Borrower in the normal course of business), prepaid
rent not exceeding three (3) months or security deposits.
(b) The Borrower will not create or permit to exist any Subsidiary,
other than the Subsidiary in existence on the date hereof and listed in
Schedule 5.4.
Section 7.5 DIVIDENDS. Borrower will not declare or pay any
dividends (other than dividends payable solely in stock of the Borrower) on any
class of its stock or make any payment for the purchase, redemption or other
retirement of any shares of such stock or make any distribution in respect
thereof, either directly or indirectly.
Section 7.6 SALE OR TRANSFER OF ASSETS; SUSPENSION OF BUSINESS
OPERATIONS. The Borrower will not sell, lease, assign, transfer or otherwise
dispose of (i) the stock of any Subsidiary, (ii) all or a substantial part of
its assets, or (iii) any Collateral or any interest therein
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(whether in one transaction or in a series of transactions) to any other Person
other than the sale of Inventory in the ordinary course of business and will not
liquidate, dissolve or suspend business operations. The Borrower will not in any
manner transfer any property without prior or present receipt of full and
adequate consideration.
Section 7.7 CONSOLIDATION AND MERGER; ASSET ACQUISITIONS. The
Borrower will not consolidate with or merge into any Person, or permit any other
Person to merge into it, or acquire (in a transaction analogous in purpose or
effect to a consolidation or merger) all or substantially all the assets of any
other Person.
Section 7.8 SALE AND LEASEBACK. The Borrower will not enter into
any arrangement, directly or indirectly, with any other Person whereby the
Borrower shall sell or transfer any real or personal property, whether now owned
or hereafter acquired, and then or thereafter rent or lease as lessee such
property or any part thereof or any other property which the Borrower intends to
use for substantially the same purpose or purposes as the property being sold or
transferred.
Section 7.9 RESTRICTIONS ON NATURE OF BUSINESS. The Borrower will
not engage in any line of business materially different from that presently
engaged in by the Borrower and will not purchase, lease or otherwise acquire
assets not related to its business.
Section 7.10 CAPITAL EXPENDITURES. The Borrower will not incur or
contract to incur Capital Expenditures of more than One Million Five Hundred
Thousand Dollars ($1,500,000) in the aggregate during any fiscal year, or more
than One Hundred Thousand Dollars ($100,000) in any one transaction.
Section 7.11 ACCOUNTING. The Borrower will not adopt any material
change in accounting principles other than as required by GAAP. The Borrower
will not adopt, permit or consent to any change in its fiscal year.
Section 7.12 DISCOUNTS, ETC. The Borrower will not, after notice
from the Lender, grant any discount, credit or allowance to any customer of the
Borrower or accept any return of goods sold, or at any time (whether before or
after notice from the Lender) modify, amend, subordinate, cancel or terminate
the obligation of any account debtor or other obligor of the Borrower PROVIDED,
THAT, prior to a notice from Lender, Borrower may modify, amend, subordinate,
cancel or terminate such obligations of an account debtor or obligor in the
ordinary course of its business so long as such modification, amendment,
subordination, cancellation or termination is disclosed to Lender.
Section 7.13 DEFINED BENEFIT PENSION PLANS. The Borrower will not
adopt, create, assume or become a party to any defined benefit pension plan,
unless disclosed to the Lender pursuant to Section 5.10.
Section 7.14 OTHER DEFAULTS. The Borrower will not permit any
breach, default or event of default to occur under any note, loan agreement,
indenture, lease, mortgage, contract for deed, security agreement or other
contractual obligation binding upon the Borrower, which
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breach, default or event of default would have a material adverse affect on the
financial condition, business, or operation of Borrower.
Section 7.15 PLACE OF BUSINESS; NAME. The Borrower will not
transfer its chief executive office or principal place of business, or move,
relocate, close or sell any business location unless Borrower gives Lender
thirty (30) days prior written notice and executes and delivers to Lender such
agreements, documents and instruments as Lender may deem necessary to protect
its Security Interest, including, without limitation, UCC Financing Statements,
and if Borrower leases such new location favorable, landlord waivers. The
Borrower will not permit any tangible Collateral or any records pertaining to
the Collateral to be located in any state or area in which, in the event of such
location, a financing statement covering such Collateral would be required to
be, but has not in fact been, filed in order to perfect the Security Interest.
Except upon thirty (30) days prior written notice, the Borrower will not change
its name.
Section 7.16 ORGANIZATIONAL DOCUMENTS. The Borrower will not amend
its certificate of incorporation, articles of incorporation or bylaws. The
Borrower will not become an S Corporation within the meaning of the Internal
Revenue Code of 1986, as amended.
Section 7.17 SALARIES. The Borrower will not pay excessive or
unreasonable salaries, bonuses, commissions, consultant fees or other
compensation.
Section 7.18 TRANSACTIONS WITH AFFILIATES Borrower shall not
enter into any transaction for the purchase, sale or exchange of property or the
rendering of any service to or by any Affiliate, except in the ordinary course
of and pursuant to the reasonable requirements of Borrower's business and (a)
upon fair and reasonable terms no less favorable to Borrower than Borrower would
obtain in a comparable arms length transaction with an unaffiliated Person or
(b) consistent with past practices of Borrower which in Borrower's reasonable
business judgment does not have a material adverse affect on the financial
condition, operations or business of Borrower.
ARTICLE VIII
EVENTS OF DEFAULT, RIGHTS AND REMEDIES
Section 8.1 EVENTS OF DEFAULT. "EVENT OF DEFAULT", wherever used
herein, means any one of the following events:
(a) Default in the payment of the Obligations when they become due and
payable;
(b) Failure to pay when due any amount specified in Section 2.3
relating to the Borrower's Obligation of Reimbursement, or failure to pay
immediately when due or upon termination of the Credit Facility any amounts
required to be paid for deposit in the Special Account under Section 2.4;
(c) Default in the payment of any fees, commissions, costs or expenses
required to be paid by the Borrower under this Agreement;
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(d) Default in the performance, or breach, of any covenant or
agreement of the Borrower contained in this Agreement;
(e) The Borrower shall be or become insolvent, or admit in writing its
inability to pay its debts as they mature, or make an assignment for the
benefit of creditors; or the Borrower shall apply for or consent to the
appointment of any receiver, trustee, or similar officer for it or for all
or any substantial part of its property; or such receiver, trustee or
similar officer shall be appointed without the application or consent of
the Borrower, as the case may be; or the Borrower shall institute (by
petition, application, answer, consent or otherwise) any bankruptcy,
insolvency, reorganization, arrangement, readjustment of debt, dissolution,
liquidation or similar proceeding relating to it under the laws of any
jurisdiction; or any such proceeding shall be instituted (by petition,
application or otherwise) against the Borrower; or any judgment, writ,
warrant of attachment or execution or similar process shall be issued or
levied against a substantial part of the property of the Borrower;
(f) A petition shall be filed by or against the Borrower under the
United States Bankruptcy Code naming the Borrower as debtor;
(g) The rendering against the Borrower of a final judgment, decree or
order for the payment of money in excess of One Hundred Thousand Dollars
($100,000) and the continuance of such judgment, decree or order
unsatisfied and in effect for any period of thirty (30) consecutive days
without a stay of execution;
(h) A default under any bond, debenture, note or other evidence of
indebtedness of the Borrower owed to any Person other than the Lender, or
under any indenture or other instrument under which any such evidence of
indebtedness has been issued or by which it is governed, or under any lease
of any of the Premises, and the expiration of the applicable period of
grace, if any, specified in such evidence of indebtedness, indenture, other
instrument or lease;
(i) Any Reportable Event, which the Lender determines in good faith
might constitute grounds for the termination of any Plan or for the
appointment by the appropriate United States District Court of a trustee to
administer any Plan, shall have occurred and be continuing 30 days after
written notice to such effect shall have been given to the Borrower by the
Lender; or a trustee shall have been appointed by an appropriate United
States District Court to administer any Plan; or the Pension Benefit
Guaranty Corporation shall have instituted proceedings to terminate any
Plan or to appoint a trustee to administer any Plan; or the Borrower shall
have filed for a distress termination of any Plan under Title IV of ERISA;
or the Borrower shall have failed to make any quarterly contribution
required with respect to any Plan under Section 412(m) of the Internal
Revenue Code of 1986, as amended, which the Lender determines in good faith
may by itself, or in combination with any such failures that the Lender may
determine are likely to occur in the future, result in the imposition of a
lien on the Borrower's assets in favor of the Plan;
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(j) An event of default shall occur under any Security Document or
under any other security agreement, mortgage, deed of trust, assignment or
other instrument or agreement securing any obligations of the Borrower
hereunder or under any note due to Lender;
(k) The Borrower shall liquidate, dissolve, terminate or suspend its
business operations or otherwise fail to operate its business in the
ordinary course, or sell all or substantially all of its assets, without
the Lender's prior written consent;
(l) The Borrower shall fail to pay, withhold, collect or remit any tax
or tax deficiency when assessed or due (other than any tax deficiency which
is being contested in good faith and by proper proceedings and for which it
shall have set aside on its books adequate reserves therefor) or notice of
any state or federal tax liens shall be filed or issued;
(m) Default in the payment of any amount owed by the Borrower to the
Lender other than any indebtedness arising hereunder;
(n) The Borrower shall take or participate in any action which would
be prohibited under the provisions of any Subordination Agreement or make
any payment on the Subordinated Indebtedness (as defined in the
Subordination Agreement) that any Person was not entitled to receive under
the provisions of the Subordination Agreement;
(o) Any event or circumstance with respect to the Borrower shall occur
such that the Lender shall believe in good faith that the prospect of
payment of all or any part of the Obligations or the performance by the
Borrower under the Loan Documents is impaired or any material adverse
change in the business or financial condition of the Borrower shall occur.
(p) Any breach, default or event of default by or attributable to any
Affiliate under any agreement between such Affiliate and the Lender.
(q) Without the prior written consent of Lender, any "person" or
"group" (within the meaning of Section 13(d) and 14(d) (2) of The Exchange
Act) becomes the "beneficial owner" (as defined in Rules 13d-3 and 13d-5
under the Exchange Act, provided that a Person shall be deemed to have
"beneficial ownership" of all securities that such Person has the right to
acquire, whether such right is exercisable immediately or only after the
passage of time), directly or indirectly, of an equal or greater percentage
of the total economic interests in the equity of the Borrower than the
percentage beneficially owned by Xxxxxx Xxxxxx and Xxx Xxxxxx in the
aggregate. For purposes hereof, "Exchange Act" shall mean the Securities
Exchange Act of 1934, and regulations promulgated thereunder.
Section 8.2 RIGHTS AND REMEDIES. During any Default Period, the
Lender may exercise any or all of the following rights and remedies:
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(a) the Lender may, by notice to the Borrower, declare the Commitment
to be terminated, whereupon the same shall forthwith terminate;
(b) the Lender may, by notice to the Borrower, declare the Obligations
to be forthwith due and payable, whereupon all Obligations shall become and
be forthwith due and payable, without presentment, notice of dishonor,
protest or further notice of any kind, all of which the Borrower hereby
expressly waives;
(c) the Lender may, without notice to the Borrower and without further
action, apply any and all money owing by the Lender to the Borrower to the
payment of the Obligations;
(d) the Lender may make demand upon the Borrower and, forthwith upon
such demand, the Borrower will pay to the Lender in immediately available
funds for deposit in the Special Account pursuant to Section 2.12 an amount
equal to the aggregate maximum amount available to be drawn under all
Letters of Credit then outstanding, assuming compliance with all conditions
for drawing thereunder;
(e) the Lender may exercise and enforce any and all rights and
remedies available upon default to a secured party under the UCC,
including, without limitation, the right to take possession of Collateral,
or any evidence thereof, proceeding without judicial process or by judicial
process (without a prior hearing or notice thereof, which the Borrower
hereby expressly waives) and the right to sell, lease or otherwise dispose
of any or all of the Collateral, and, in connection therewith, the Borrower
will on demand assemble the Collateral and make it available to the Lender
at a place to be designated by the Lender which is reasonably convenient to
both parties;
(f) the Lender may exercise and enforce its rights and remedies under
the Loan Documents; and
(g) the Lender may exercise any other rights and remedies available to
it by law or agreement.
Notwithstanding the foregoing, upon the occurrence of an Event of Default
described in subsections (e) or (f) of Section 8.1, the Obligations shall be
immediately due and payable automatically without presentment, demand, protest
or notice of any kind.
Section 8.3 CERTAIN NOTICES. If notice to the Borrower of any
intended disposition of Collateral or any other intended action is required by
law in a particular instance, such notice shall be deemed commercially
reasonable if given (in the manner specified in Section 9.3) at least ten (10)
calendar days before the date of intended disposition or other action.
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ARTICLE IX
MISCELLANEOUS
Section 9.1 NO WAIVER; CUMULATIVE REMEDIES. No failure or delay
by the Lender in exercising any right, power or remedy under the Loan Documents
shall operate as a waiver thereof; nor shall any single or partial exercise of
any such right, power or remedy preclude any other or further exercise thereof
or the exercise of any other right, power or remedy under the Loan Documents.
The remedies provided in the Loan Documents are cumulative and not exclusive of
any remedies provided by law.
Section 9.2 AMENDMENTS, ETC. No amendment, modification,
termination or waiver of any provision of any Loan Document or consent to any
departure by the Borrower therefrom or any release of a Security Interest shall
be effective unless the same shall be in writing and signed by the Lender, and
then such waiver or consent shall be effective only in the specific instance and
for the specific purpose for which given. No notice to or demand on the Borrower
in any case shall entitle the Borrower to any other or further notice or demand
in similar or other circumstances.
Section 9.3 ADDRESSES FOR NOTICES, ETC. Except as otherwise
expressly provided herein, all notices, requests, demands and other
communications provided for under the Loan Documents shall be in writing and
shall be (a) personally delivered, (b) sent by first class United States mail,
(c) sent by overnight courier of national reputation, or (d) transmitted by
telecopy, in each case addressed or telecopied to the party to whom notice is
being given at its address or telecopier number as set forth below:
If to the Borrower:
Educational Insights, Inc.
00000 Xxxxxx Xxxxxx
Xxxxxx, Xxxxxxxxxx 00000
Telecopier: (000) 000-0000
Attention: Xxxxxxx X. Xxxxxx
If to the Lender:
Xxxxx Fargo Business Credit, Inc.
000 Xxxxx Xxx Xxxxxx Xxxxxx, Xxxxx 000
Xxxxxxxx, Xxxxxxxxxx 00000
Telecopier: (000) 000-0000
Attention: Account Executive
or, as to each party, at such other address or telecopier number as may
hereafter be designated by such party in a written notice to the other party
complying as to delivery with the terms of this Section. All such notices,
requests, demands and other communications shall be deemed to have been given on
(a) the date received if personally delivered, (b) when deposited in the mail if
delivered by mail, (c) the date sent if sent by overnight courier, or (d) the
date of transmission if
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delivered by telecopy, except that notices or requests to the Lender pursuant to
any of the provisions of Article II shall not be effective until received by the
Lender.
Section 9.4 FURTHER DOCUMENTS. The Borrower will from time to
time execute and deliver or endorse any and all instruments, documents,
conveyances, assignments, security agreements, financing statements and other
agreements and writings that the Lender may reasonably request in order to
secure, protect, perfect or enforce the Security Interest or the Lender's rights
under the Loan Documents (but any failure to request or assure that the Borrower
executes, delivers or endorses any such item shall not affect or impair the
validity, sufficiency or enforceability of the Loan Documents and the Security
Interest, regardless of whether any such item was or was not executed, delivered
or endorsed in a similar context or on a prior occasion).
Section 9.5 COLLATERAL. This Agreement does not contemplate a
sale of accounts, contract rights or chattel paper, and, as provided by law, the
Borrower is entitled to any surplus and shall remain liable for any deficiency.
The Lender's duty of care with respect to Collateral in its possession (as
imposed by law) shall be deemed fulfilled if it exercises reasonable care in
physically keeping such Collateral, or in the case of Collateral in the custody
or possession of a bailee or other third person, exercises reasonable care in
the selection of the bailee or other third person, and the Lender need not
otherwise preserve, protect, insure or care for any Collateral. The Lender shall
not be obligated to preserve any rights the Borrower may have against prior
parties, to realize on the Collateral at all or in any particular manner or
order or to apply any cash proceeds of the Collateral in any particular order of
application.
Section 9.6 COSTS AND EXPENSES. The Borrower agrees to pay on
demand all costs and expenses, including (without limitation) attorneys' fees,
incurred by the Lender in connection with the Obligations, this Agreement, the
Loan Documents, any Letters of Credit, and any other document or agreement
related hereto or thereto, and the transactions contemplated hereby, including
without limitation all such costs, expenses and fees incurred in connection with
the negotiation, preparation, execution, amendment, administration, performance,
collection and enforcement of the Obligations and all such documents and
agreements and the creation, perfection, protection, satisfaction, foreclosure
or enforcement of the Security Interest.
Section 9.7 INDEMNITY. In addition to the payment of expenses
pursuant to Section 9.6, the Borrower agrees to indemnify, defend and hold
harmless the Lender, and any of its participants, parent corporations,
subsidiary corporations, affiliated corporations, successor corporations, and
all present and future officers, directors, employees, attorneys and agents of
the foregoing (the "INDEMNITEES") from and against any of the following
(collectively, "INDEMNIFIED LIABILITIES"):
(i) any and all transfer taxes, documentary taxes,
assessments or charges made by any governmental authority by reason of
the execution and delivery of the Loan Documents or the making of the
Advances;
(ii) any claims, loss or damage to which any Indemnitee may
be subjected if any representation or warranty contained in Section
5.12 proves to be incorrect in any respect or as a result of any
violation of the covenant contained in Section 6.4(b); and
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(iii) any and all other liabilities, losses, damages,
penalties, judgments, suits, claims, costs and expenses of any kind or
nature whatsoever (including, without limitation, the reasonable fees
and disbursements of counsel) in connection with the foregoing and any
other investigative, administrative or judicial proceedings, whether
or not such Indemnitee shall be designated a party thereto, which may
be imposed on, incurred by or asserted against any such Indemnitee, in
any manner related to or arising out of or in connection with the
making of the Advances and the Loan Documents or the use or intended
use of the proceeds of the Advances.
If any investigative, judicial or administrative proceeding arising from any of
the foregoing is brought against any Indemnitee, upon such Indemnitee's request,
the Borrower, or counsel designated by the Borrower and satisfactory to the
Indemnitee, will resist and defend such action, suit or proceeding to the extent
and in the manner directed by the Indemnitee, at the Borrower's sole costs and
expense. Each Indemnitee will use its best efforts to cooperate in the defense
of any such action, suit or proceeding. If the foregoing undertaking to
indemnify, defend and hold harmless may be held to be unenforceable because it
violates any law or public policy, the Borrower shall nevertheless make the
maximum contribution to the payment and satisfaction of each of the Indemnified
Liabilities which is permissible under applicable law. The Borrower's obligation
under this Section 9.7 shall survive the termination of this Agreement and the
discharge of the Borrower's other obligations hereunder.
Section 9.8 PARTICIPANTS. The Lender and its participants, if
any, are not partners or joint venturers, and the Lender shall not have any
liability or responsibility for any obligation, act or omission of any of its
participants. All rights and powers specifically conferred upon the Lender may
be transferred or delegated to any of the Lender's participants, successors or
assigns.
Section 9.9 EXECUTION IN COUNTERPARTS. This Agreement and other
Loan Documents may be executed in any number of counterparts, each of which when
so executed and delivered shall be deemed to be an original and all of which
counterparts, taken together, shall constitute but one and the same instrument.
Section 9.10 BINDING EFFECT; ASSIGNMENT; COMPLETE AGREEMENT;
EXCHANGING INFORMATION. The Loan Documents shall be binding upon and inure to
the benefit of the Borrower and the Lender and their respective successors and
assigns, except that the Borrower shall not have the right to assign its rights
thereunder or any interest therein without the Lender's prior written consent.
This Agreement, together with the Loan Documents, comprises the complete and
integrated agreement of the parties on the subject matter hereof and supersedes
all prior agreements, written or oral, on the subject matter hereof. Without
limiting the Lender's right to share information regarding the Borrower and its
Affiliates with the Lender's participants, accountants, lawyers and other
advisors, the Lender, Xxxxx Fargo Corporation, and all direct and indirect
subsidiaries of Xxxxx Fargo Corporation, may exchange any and all information
they may have in their possession regarding the Borrower and its Affiliates, and
the Borrower waives any right of confidentiality it may have with respect to
such exchange of such information.
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Section 9.11 SEVERABILITY OF PROVISIONS. Any provision of this
Agreement which is prohibited or unenforceable shall be ineffective to the
extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof.
Section 9.12 HEADINGS. Article and Section headings in this
Agreement are included herein for convenience of reference only and shall not
constitute a part of this Agreement for any other purpose.
Section 9.13 GOVERNING LAW; JURISDICTION, VENUE; WAIVER OF JURY
TRIAL. This Agreement and the other Loan Documents shall be governed by and
construed in accordance with the substantive laws (other than conflict laws) of
the State of California. The parties hereto hereby (i) consents to the personal
jurisdiction of the state and federal courts located in the State of California
in connection with any controversy related to this Agreement; (ii) waives any
argument that venue in any such forum is not convenient, (iii) agrees that any
litigation initiated by the Lender or the Borrower in connection with this
Agreement or the other Loan Documents shall be venued in either the State Courts
of the County of Los Angeles, State of California, or the United States District
Court for the Central District of California; and (iv) agrees that a final
judgment in any such suit, action or proceeding shall be conclusive and may be
enforced in other jurisdictions by suit on the judgment or in any other manner
provided by law. THE PARTIES WAIVE ANY RIGHT TO TRIAL BY JURY IN ANY ACTION OR
PROCEEDING BASED ON OR PERTAINING TO THIS AGREEMENT.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their respective officers thereunto duly authorized as of the
date first above written.
XXXXX FARGO BUSINESS CREDIT, INC. EDUCATIONAL INSIGHTS, INC.,
a Minnesota corporation a California corporation
By /s/ Xxxxx X. Xxxxxx By /s/ Xxxxxxx X. Xxxxxx
------------------------------- -----------------------------
Name: Xxxxx X. Xxxxxx Name: Xxxxxxx X. Xxxxxx
Its: Vice President Its: Chief Financial Officer
and Secretary
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