Exhibit 10.12
EXECUTION COPY
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SMARTBARGAINS, INC.
LOAN AND SECURITY AGREEMENT
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This LOAN AND SECURITY AGREEMENT is entered into as of December 20, 2002, by and
between COMERICA BANK-CALIFORNIA ("Bank") and SMARTBARGAINS, INC. ("Borrower").
RECITALS
Borrower wishes to obtain credit from time to time from Bank, and Bank desires
to extend credit to Borrower. This Agreement sets forth the terms on which Bank
will advance credit to Borrower, and Borrower will repay the amounts owing to
Bank.
AGREEMENT
The parties agree as follows:
1. DEFINITIONS AND CONSTRUCTION.
1.1 Definitions. As used in this Agreement, all capitalized
terms shall have the definitions set forth on Exhibit A. Any term used in the
Code and not defined herein shall have the meaning given to the term in the
Code.
1.2 Accounting Terms. Any accounting term not specifically
defined on Exhibit A shall be construed in accordance with GAAP and all
calculations shall be made in accordance with GAAP. The term "financial
statements" shall include the accompanying notes and schedules.
2. LOAN AND TERMS OF PAYMENT.
2.1 Credit Extensions.
(a) Promise to Pay. Borrower promises to pay to Bank,
in lawful money of the United States of America, the aggregate unpaid principal
amount of all Credit Extensions made by Bank to Borrower, together with interest
on the unpaid principal amount of such Credit Extensions at rates in accordance
with the terms hereof.
(b) Revolving Advances.
(i) Amount. Subject to and upon the terms and
conditions of this Agreement, and in reliance upon the representations,
warranties and covenants of Borrower made herein, (1) Bank shall make, upon
Borrower's request therefor from time to time, Advances in an aggregate
outstanding amount not to exceed the lesser of (A) the Committed Revolving Line
less any amounts outstanding under the Letter of Credit Sublimit, or (B) the
Borrowing Base and (2) amounts borrowed pursuant to this Section 2.1(b) may be
repaid and reborrowed at any time prior to the Revolving Maturity Date, at which
time all Advances under this Section 2.1(b) shall be immediately due and
payable. Borrower may prepay any Advances (and, in connection with a termination
by Borrower of this Agreement pursuant to the terms hereof, replace any
outstanding Letter of Credit) without penalty or premium. Notwithstanding the
foregoing, Borrower agrees that all outstanding Advances (for the sake of
clarity, the definition of "Advances" does not include outstanding Letters of
Credit) will be repaid in full and remain at a zero balance for a minimum of 30
consecutive days in the period between January 1 and February 28 of each year.
Borrower shall have discretion to determine which 30 consecutive days during
such period to maintain a zero balance, provided that Borrower must give Bank
notice at least 3 business days in advance of when such 30-day period shall
commence, and whether such period shall exceed 30 days.
(ii) Form of Request. Whenever Borrower desires
an Advance, Borrower will notify Bank by facsimile transmission or telephone no
later than 3:00 p.m. Eastern time, on the Business Day that the Advance is to be
made. Each such notification shall be promptly confirmed by a Payment/Advance
Form in substantially the form of Exhibit C. Bank is authorized to make Advances
under this Agreement, based upon instructions received from a Responsible
Officer or a designee of a Responsible Officer, or without instructions if in
Bank's discretion such Advances are necessary to meet Obligations which have
become due and remain unpaid.
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Bank shall be entitled to rely on any telephonic notice given by a person who
Bank reasonably believes to be a Responsible Officer or a designee thereof, and
Borrower shall indemnify and hold Bank harmless for any damages or loss suffered
by Bank as a result of such reliance. Bank will credit the amount of Advances
made under this Section 2.1(b) to Borrower's deposit account at Bank.
(iii) Letter of Credit Sublimit. Subject to
the availability under the Committed Revolving Line, and in reliance on the
representations and warranties of Borrower set forth herein, at any time and
from time to time from the date hereof through the Business Day immediately
prior to the Revolving Maturity Date, Bank shall issue for the account of
Borrower such Letters of Credit as Borrower may request by delivering to Bank a
duly executed letter of credit application on Bank's standard form; provided,
however, that the outstanding and undrawn amounts under all such Letters of
Credit (i) shall not at any time exceed the Letter of Credit Sublimit, and (ii)
shall be deemed to constitute Advances for the purpose of calculating
availability under the Committed Revolving Line. Any drawn but unreimbursed
amounts under any Letters of Credit shall be charged as Advances against the
Committed Revolving Line. Unless Borrower shall have deposited with Bank cash
collateral in an amount sufficient to cover all undrawn amounts under each such
Letter of Credit and Bank shall have agreed in writing, no Letter of Credit
shall have an expiration date that is later than the Revolving Maturity Date.
All Letters of Credit shall be in form and substance acceptable to Bank in its
sole discretion and shall be subject to the terms and conditions of Bank's form
application and letter of credit agreement. The parties agree that the $262,500
as cash collateral Borrower deposited with Bank on December 19, 2002 to secure a
$250,000 Letter of Credit issued by the Bank to NewRoads BPOi, Inc. on the same
date will be, upon the Closing, invested at the direction of Borrower in an
investment account at Bank and that such funds shall thereafter no longer secure
such Letter of Credit.
2.2 Overadvances. If the aggregate amount of the outstanding
Advances (including, without limitation, any amounts deemed to constitute
Advances under Section 2.1(b)(iii)) exceeds the lesser of the Committed
Revolving Line or the Borrowing Base at any time, Borrower shall immediately pay
to Bank, in cash, the amount of such excess.
2.3 Interest Rates, Payments, and Calculations.
(a) Interest Rates. Except as set forth in Section
2.3(b), the Advances shall bear interest, on the outstanding daily balance
thereof, at a variable rate equal to 2% above the Prime Rate.
(b) Late Fee; Default Rate. If any payment is not
made within 10 days after the date such payment is due, Borrower shall pay Bank
a late fee equal to the lesser of (i) 5% of the amount of such unpaid amount or
(ii) the maximum amount permitted to be charged under applicable law. All
Obligations shall bear interest, from and after the occurrence and during the
continuance of an Event of Default, at a rate equal to the lesser of (A) 4
percentage points above the interest rate applicable immediately prior to the
occurrence of the Event of Default or (B) the maximum amount permitted to be
charged under applicable law.
(c) Payments. Interest shall be due and payable on
the 1st calendar day of each month during the term hereof. Bank may, at its
option, charge such interest, all Bank Expenses, and all Periodic Payments
against any of Borrower's deposit accounts or against the Committed Revolving
Line, in which case those amounts shall thereafter accrue interest at the rate
then applicable hereunder. Any interest not paid when due shall be compounded by
becoming a part of the Obligations, and such interest shall thereafter accrue
interest at the rate then applicable hereunder.
(d) Computation. In the event the Prime Rate is
changed from time to time hereafter, the applicable rate of interest hereunder
shall be increased or decreased, effective as of the day the Prime Rate is
changed, by an amount equal to such change in the Prime Rate. All interest
chargeable under the Loan Documents shall be computed on the basis of a 360 day
year for the actual number of days elapsed.
2.4 Crediting Payments.
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(a) Prior to the occurrence of an Event of Default,
Bank shall credit a wire transfer of funds, check or other item of payment
received from or, subject to Section 6.13, on the account of Borrower, to such
deposit, investment or operating account or Obligation as Borrower may specify.
(b) After the occurrence of an Event of Default, the
receipt by Bank of any wire transfer of funds, check, or other item of payment
shall be applied to reduce the Obligations in such manner and order as Bank
shall determine in its sole discretion. Payments made in immediately available
federal funds shall be applied when received by Bank (subject to the provisions
of clause (c) below). Payments made in a form other than immediately available
federal funds, shall be conditionally applied when received by Bank (subject to
the provisions of clause (c) below), but shall not be considered a final payment
on account unless and until such check or other item of payment is honored
following presentment.
(c) Notwithstanding anything to the contrary
contained herein, any wire transfer or payment received by Bank after 3:00 pm
Eastern time shall be deemed to have been received by Bank as of the opening of
business on the immediately following Business Day. Whenever any payment to Bank
under the Loan Documents would otherwise be due (except by reason of
acceleration) on a date that is not a Business Day, such payment shall instead
be due on the next Business Day, and additional fees or interest, as the case
may be, shall accrue and be payable for the period of such extension.
2.5 Fees. Borrower shall pay to Bank the following:
(a) Commitment Fee. A Commitment Fee equal to 3/8%
per annum of the average Unused Commitment for each calendar quarter, which
shall be due and payable quarterly in arrears;
(b) Arrangement Fee. An Arrangement Fee equal to
$35,000, of which $17,500 has been paid as of the date hereof and is
nonrefundable and of which $17,500 shall be due and payable simultaneously with
the execution of this Agreement by Borrower;
(c) Letters of Credit. Borrower will pay any standard
issuance and other fees that Bank notifies Borrower will be charged for issuing
and processing Letters of Credit and, in addition, Borrower shall pay Bank an
amount equal to 1% per annum (the "Letter of Credit Rate") of the aggregate face
amount of all Letters of Credit outstanding hereunder, payable quarterly in
advance, provided however that the Letter of Credit Rate shall be increased to
1.25% during any period(s) that the amount maintained by Borrower in Bank money
market account(s) and/or Bank demand deposit account(s) is less than $3,000,000;
and
(d) Bank Expenses. On the Closing Date, all Bank
Expenses incurred through the Closing Date (up to a maximum of $30,000 through
the Closing Date), and, after the Closing Date, all Bank Expenses, as and when
they become due.
2.6 Term. This Agreement shall become effective on the Closing
Date and, subject to Section 12.7, shall continue in full force and effect for
so long as any Obligations remain outstanding or Bank has any obligation to make
Credit Extensions under this Agreement. Notwithstanding the foregoing, Bank
shall have the right to terminate its obligation to make Credit Extensions under
this Agreement immediately and without notice, except as may be provided herein
or required by law, upon the occurrence and during the continuance of an Event
of Default. Borrower shall have the right to terminate this Agreement by notice
to Bank at any time that there are no Advances or Letters of Credit outstanding,
provided that such termination shall not be effective unless and until all other
amounts owed by Borrower to Bank shall have been paid in full.
3. CONDITIONS OF LOANS.
3.1 Conditions Precedent to Initial Credit Extension. The
obligation of Bank to make the initial Credit Extension is subject to the
satisfaction of the conditions precedent that:
(a) Bank shall have received, in form and substance
satisfactory to Bank, the following:
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(i) corporate resolutions of Borrower
with respect to charter documents,
incumbency and resolutions
authorizing the execution and
delivery of this Agreement;
(ii) a financing statement (Form UCC-1);
(iii) an intellectual property security
agreement;
(iv) an agreement to provide insurance;
(v) payment of the fees and Bank
Expenses then due specified in
Section 2.5;
(vi) current SOS Reports indicating that
except for Permitted Liens, there
are no other security interests or
Liens of record in the Collateral;
(vii) current financial statements in
accordance with Section 6.2;
(viii) a Borrowing Base Certificate;
(ix) securities account control
agreement between Borrower, Bank
and Comerica Securities, Inc.;
(x) securities account control
agreement between Borrower, Bank,
and Forum Shareholder Services,
LLC, as agent for Monarch Funds;
(xi) Collateral Assignment of Agreement
and Subordination and Consent
Agreement between Borrower, Bank
and NewRoads BPOi, Inc.;
(xii) Collateral Assignment of Agreement
and Subordination and Consent
Agreement between Borrower, Bank
and Cable & Wireless Internet
Services Inc.;
(xiii) a Sublessor's Acknowledgment and
Subordination for each leased
location of Borrower; and
(xiv) such other documents or
certificates, and completion of
such other matters, as Bank may
reasonably deem necessary or
appropriate.
(b) Borrower shall have terminated its credit
arrangements with Xxxxxx Xxxxxxxx Group and any other lender(s) to Borrower
other than Bank and delivered to Bank documents effecting such termination(s) in
form reasonably satisfactory to Bank.
(c) Borrower shall have (i) opened its primary
deposit, checking, cash management and investment accounts with Bank; (ii)
transferred all of Borrower's cash reserves currently held with other financial
institutions to such accounts with Bank, except (A) funds in Borrower's Payroll
Account (as defined below) with Fleet National Bank in accordance with Section
6.6 and (B) an amount of funds in Borrower's operating account at Fleet National
Bank (the "Existing Fleet Checking Account") (not to exceed $4,800,000) that is
necessary to satisfy outstanding checks, provided that (x) Borrower may not
issue new checks from the Existing Fleet Checking Account after the Closing Date
and (y) the Existing Fleet Checking Account shall be closed by Borrower and any
remaining funds transferred to accounts with Bank no later than 90 days after
the Closing Date; and (iii) Borrower shall also have established a Sweep Account
with Bank and taken such other steps with respect thereto as are required
pursuant to Section 6.13 below.
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3.2 Conditions Precedent to all Credit Extensions. The
obligation of Bank to make each Credit Extension, including the initial Credit
Extension, is further subject to the following conditions:
(a) timely receipt by Bank of the Payment/Advance
Form as provided in Section 2.1; and
(b) the representations and warranties contained in
Section 5 shall be true and correct in all material respects on and as of the
date of such Payment/Advance Form and on the effective date of each Credit
Extension as though made at and as of each such date, and no Event of Default
shall have occurred and be continuing, or would exist after giving effect to
such Credit Extension (provided, however, that those representations and
warranties expressly referring to another date shall be true, correct and
complete in all material respects as of such date). The making of each Credit
Extension shall be deemed to be a representation and warranty by Borrower on the
date of such Credit Extension as to the accuracy of the facts referred to in
this Section 3.2.
4. CREATION OF SECURITY INTEREST.
4.1 Grant of Security Interest. Borrower grants and pledges to
Bank a continuing security interest in the Collateral to secure prompt repayment
of any and all Obligations and to secure prompt performance by Borrower of each
of its covenants and duties under the Loan Documents. Except to the extent that
Collateral may be subject to Permitted Liens, such security interest constitutes
a valid, first priority security interest in the presently existing Collateral
(except for funds in the Payroll Account consistent with Section 6.6 and the
Existing Fleet Checking Account consistent with Section 3.1(c)), and will
constitute a valid, first priority security interest in later-acquired
Collateral (except for funds in the Payroll Account consistent with Section 6.6
and the Existing Fleet Checking Account consistent with Section 3.1(c)).
Notwithstanding any termination of any Loan Document, Bank's Lien on the
Collateral (except for funds in the Payroll Account consistent with Section 6.6
and the Existing Fleet Checking Account consistent with Section 3.1(c)) shall
remain in effect for so long as any Obligations are outstanding.
4.2 Perfection of Security Interest. So long as Bank has any
commitment to make Advances hereunder or any Obligation remains outstanding,
Borrower authorizes Bank to file at any time financing statements, continuation
statements, and amendments thereto that describe the Collateral and to describe
the Collateral as all assets of Borrower of the kind pledged hereunder and which
contain any other information required by the Code for the sufficiency of filing
office acceptance of any financing statement, continuation statement, or
amendment, including, without limitation, whether Borrower is an organization,
the type of organization and any organizational identification number issued to
Borrower, if applicable. Any such financing statements may be signed by Bank on
behalf of Borrower, as provided in the Code, and may be filed at any time in any
jurisdiction whether or not Article 9 of the Code is then in effect in that
jurisdiction. Borrower shall from time to time execute and deliver to Bank, at
the request of Bank, all Negotiable Collateral and other documents that Bank may
reasonably request, in form satisfactory to Bank, to perfect and continue the
perfection of Bank's security interests in the Collateral and in order to fully
consummate all of the transactions contemplated under the Loan Documents.
Borrower shall have possession of the Collateral, except where expressly
otherwise provided in this Agreement or where Bank chooses to perfect its
security interest by possession with respect to Collateral consisting of
investment property, deposit accounts, letter-of-credit rights or electronic
chattel paper (as such items are defined in Article 9 of the Code) in addition
to the filing of a financing statement. Where Collateral is in possession of a
third party bailee, Borrower shall take such steps as Bank reasonably requests
for Bank to (i) obtain an acknowledgment, in form and substance satisfactory to
Bank, of the bailee that the bailee holds such Collateral for the benefit of
Bank, (ii) obtain "control" of any Collateral consisting of investment property,
deposit accounts, letter-of-credit rights or electronic chattel paper (as such
items and the term "control" are defined in Article 9 of the Code), with any
agreements establishing control to be in form and substance satisfactory to
Bank. Borrower will not create any chattel paper without placing a legend on the
chattel paper acceptable to Bank indicating that Bank has a security interest in
the chattel paper.
4.3 Right to Inspect. Bank (through any of its officers,
employees, or agents) shall have the right, subject to the rights of third
parties under applicable agreements, at Borrower's sole cost and expense, upon
reasonable prior notice, from time to time during Borrower's usual business
hours: (a) to inspect Borrower's Books and to make copies thereof; (b) to audit
Borrower's Inventory and Accounts; and (c) to otherwise check, test, and
appraise Borrower's properties, including the Collateral, in order to verify
Borrower's financial condition or the
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amount, condition of, or any other matter relating to, Borrower or the
Collateral; provided, that unless an Event of Default shall have occurred during
such calendar year, Borrower shall not be required to bear the cost and expense
of more than 2 such audits in any 12 month period. Notwithstanding anything to
the contrary stated in this Section 4.3, following the occurrence and during the
continuance of an Event of Default, Borrower shall bear the cost and expense of
all activity described in the preceding sentence without regard to the numerical
limitation stated in the preceding sentence.
5. REPRESENTATIONS AND WARRANTIES.
Borrower represents and warrants as follows:
5.1 Due Organization and Qualification. Each of Borrower and
any Subsidiary (a) is a corporation duly organized, validly existing and in good
corporate standing under the laws of the state of its incorporation or
organization, (b) has the corporate power and authority, and the legal right, to
own and operate its property, to lease the property it operates as lessee and to
conduct the business in which it is currently engaged and (c) is qualified and
licensed to do business in any state in which the conduct of its business or its
ownership of property requires that it be so qualified, except where the failure
to do so could not reasonably be expected to cause a Material Adverse Effect.
5.2 Due Authorization; No Conflict; Enforceable Obligations.
The execution, delivery, and performance of the Loan Documents by Borrower (a)
are within Borrower's powers, (b) have been duly authorized by all necessary
corporate or other proceedings, (c) do not conflict with or constitute a breach
or contravention of any provision of law, statute, rule or regulation to which
Borrower is subject, except to the extent such conflict, breach or contravention
could not reasonably be expected to cause a Material Adverse Effect, (d) do not
conflict with or result in any breach or contravention of any judgment, order,
writ, injunction, license or permit applicable to Borrower and (e) do not
conflict with or constitute a breach or contravention of any provisions
contained in Borrower's Certificate of Incorporation or Bylaws, each as amended,
or any material agreement by which Borrower or any Subsidiary is bound. Neither
Borrower nor any Subsidiary is in default under any agreement by which it is
bound, except to the extent such default could not reasonably be expected to
cause a Material Adverse Effect. This Agreement constitutes, and each other Loan
Document when executed and delivered will constitute, a legal, valid and binding
obligation of Borrower enforceable against Borrower in accordance with its
terms, except as, and to the extent only, enforceability is limited by
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium or
other laws relating to or affecting generally the enforcement of creditor's
rights and general equitable principles.
5.3 Collateral. Borrower has rights in or the power to
transfer the Collateral, and its title to the Collateral is free and clear of
Liens, adverse claims, and restrictions on transfer or pledge except for
Permitted Liens. All Collateral is located solely in the Collateral States. The
Accounts are bona fide existing obligations. The property or services giving
rise to such Accounts has been delivered or rendered to the account debtor or
its agent for immediate shipment to and, to the knowledge of Borrower, has been
unconditionally accepted by the account debtor. Borrower has not received any
notice of actual or imminent Insolvency Proceeding of any account debtor. All
Inventory is in all material respects of good and merchantable quality, free
from material defects, except for Inventory for which adequate reserves have
been made. All Equipment is in all material respects in good condition and free
from all material defects. Except as set forth in Section 5.3 of the Schedule or
as otherwise provided herein, none of the Collateral that consists of cash,
deposit accounts, or investment property is maintained or invested with a Person
other than Bank or Bank's Affiliates. The execution, delivery and performance of
the Loan Documents by Borrower will not result in, or require, the creation or
imposition of any Lien in or on the Collateral (other than pursuant to the Loan
Documents).
5.4 Intellectual Property Collateral. Borrower has all right,
title and interest in and to the Intellectual Property Collateral (subject to
Permitted Liens), except (a) for licenses and sublicenses granted by Borrower to
its customers in the ordinary course of business and (b) as set forth in Section
5.4 of the Schedule. To the best of Borrower's knowledge, (i) none of the
Copyrights, Trademarks and Patents comprising the Intellectual Property
Collateral violates or infringes on any valid Copyright, Trademark and/or Patent
of any third party, (ii) no part of the Intellectual Property Collateral has
been judged invalid or unenforceable, in whole or in part, and (iii) no claim
has been made to Borrower that any part of the Intellectual Property Collateral
violates the rights of any third party except to the extent such claim could not
reasonably be expected to cause a Material Adverse Effect.
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Borrower's rights as a licensee of intellectual property do not give rise to
more than 5% of its gross revenue in any given month, including without
limitation revenue derived from the sale, licensing, rendering or disposition of
any product or service.
5.5 Name; Location of Chief Executive Office. Except as
disclosed in Section 5.5 of the Schedule, Borrower has not done business under
any name other than that specified on the signature page hereof, and its exact
legal name is as set forth in the first paragraph of this Agreement. The chief
executive office of Borrower is located in the Chief Executive Office State at
the address indicated in Section 10 hereof.
5.6 Litigation. Except as set forth in Section 5.6 of the
Schedule, there are no actions, suits, investigations or proceedings pending or,
to the best of Borrower's knowledge, threatened by or against Borrower or any
Subsidiary before any court, tribunal or administrative agency in which an
adverse decision could reasonably be expected to have a Material Adverse Effect,
or a material adverse effect on Borrower's interest or Bank's Lien on the
Collateral.
5.7 No Material Adverse Change in Financial Statements.
All consolidated financial statements related to Borrower and any Subsidiary
that are delivered by Borrower to Bank have been prepared in accordance with
GAAP (but, in the case of interim unaudited financial statements, only to the
extent that GAAP is applied to such financial statements pursuant to applicable
pronouncements of the Financial Accounting Standards Board and the Accounting
Principles Board), applied consistently throughout the periods reflected
therein, and fairly present in all material respects Borrower's consolidated
financial condition as of the date thereof and Borrower's consolidated results
of operations for the period then ended. There are no contingent liabilities of
Borrower or any of its Subsidiaries as of such date involving material amounts,
known to the officers of Borrower, that are not disclosed in the financial
statements or notes thereto furnished by Borrower as required under this
Agreement. There has not been a material adverse change in the consolidated
financial condition of Borrower since the date of the most recent of such
financial statements submitted to Bank.
5.8 Solvency, Payment of Debts. Borrower is able to pay its
debts (including trade debts) as they mature; the fair saleable value of
Borrower's assets (including goodwill minus disposition costs) exceeds the fair
value of its liabilities; and Borrower is not left with inadequate capital after
the transactions contemplated by this Agreement.
5.9 Compliance with Laws and Regulations. Borrower and each
Subsidiary have met the minimum funding requirements of ERISA with respect to
any employee benefit plans subject to ERISA. No event has occurred resulting
from Borrower's failure to comply with ERISA that is reasonably likely to result
in Borrower's incurring any liability that could reasonably be expected to have
a Material Adverse Effect. Borrower is not an "investment company" or a company
"controlled" by an "investment company" within the meaning of the Investment
Company Act of 1940. Borrower is not engaged principally, or as one of the
important activities, in the business of extending credit for the purpose of
purchasing or carrying margin stock (within the meaning of Regulations T and U
of the Board of Governors of the Federal Reserve System). Borrower has complied
in all material respects with all the provisions of the Federal Fair Labor
Standards Act. Borrower is in compliance with all Environmental Laws,
regulations and ordinances except where the failure to comply is not reasonably
likely to have a Material Adverse Effect. Borrower has not violated any
statutes, laws, ordinances or rules applicable to it, violation of which could
have a Material Adverse Effect. Borrower and each Subsidiary have filed or
caused to be filed all tax returns, reports and declarations required to be
filed, or applicable extensions, and have paid, or have made adequate provision
for the payment of, all taxes, assessments and charges reflected therein except
those being contested in good faith and by proper proceedings with adequate
reserves under GAAP or where the failure to file such returns, reports or
declarations or pay such taxes, assessments or charges could not reasonably be
expected to have a Material Adverse Effect.
5.10 Subsidiaries. Borrower does not own any stock,
partnership interest or other equity securities of any Person, except for
Permitted Investments.
5.11 Government Consents. Borrower and each Subsidiary have
obtained all consents, approvals and authorizations of, made all declarations or
filings (except UCC filings) with, and given all notices to, all governmental
authorities that are necessary for the execution, delivery and performance of
this Agreement and
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the other Loan Documents and the continued operation of Borrower's business as
currently conducted, except where the failure to do so could not reasonably be
expected to cause a Material Adverse Effect.
5.12 Inbound Licenses. Except as disclosed on Section 5.12 of
the Schedule, Borrower is not a party to, nor is bound by, any license or other
agreement that prohibits or otherwise restricts Borrower from granting a
security interest in Borrower's interest in such license or agreement or any
other property.
5.13 Full Disclosure. No representation, warranty or other
statement made by Borrower in any document, certificate or written statement
furnished to Bank taken together with all such documents, certificates and
written statements furnished to Bank contains any untrue statement of a material
fact or omits to state a material fact necessary in order to make the statements
contained in such documents, certificates or statements not misleading, it being
recognized by Bank that the projections and forecasts provided by Borrower in
good faith and based upon reasonable assumptions are not to be viewed as facts
and that actual results during the period or periods covered by any such
projections and forecasts may differ from the projected or forecasted results.
6. AFFIRMATIVE COVENANTS.
Borrower covenants that, until payment in full of all outstanding
Obligations, and for so long as Bank may have any commitment to make a Credit
Extension hereunder, Borrower shall do all of the following:
6.1 Good Standing and Government Compliance. Borrower shall
maintain its and each of its Subsidiaries' corporate or other organizational
existence and good corporate standing in the respective state of its
incorporation or organization, as the case may be, shall maintain qualification
and good standing in each jurisdiction in which the failure to so qualify could
have a Material Adverse Effect, and shall furnish to Bank the organizational
identification number issued to Borrower by the authorities of the state in
which Borrower is organized, if applicable. Borrower shall meet, and shall cause
each Subsidiary to meet, the minimum funding requirements of ERISA with respect
to any employee benefit plans subject to ERISA, except where the failure to meet
such requirements could not reasonably be expected to have a Material Adverse
Effect. Borrower shall comply in all material respects with all applicable
Environmental Laws, and maintain all material permits, licenses and approvals
required thereunder where the failure to do so could have a Material Adverse
Effect. Borrower shall comply, and shall cause each Subsidiary to comply, with
all statutes, laws, ordinances and government rules and regulations to which it
is subject, and shall maintain, and shall cause each of its Subsidiaries to
maintain, in force all licenses, approvals and agreements, the loss of which or
failure to comply with which could reasonably be expected to have a Material
Adverse Effect, or a Material Adverse Effect on the Collateral or the priority
of Bank's Lien on the Collateral.
6.2 Financial Statements, Reports, Certificates. Borrower
shall deliver to Bank such information as Bank shall reasonably request from
time to time and, without limitation:
(a) as soon as available, but in any event within 30
days after the end of each calendar month, a company prepared consolidated
balance sheet, income statement, statement of cash flows, accounts receivable
aging report and accounts payable aging report, in each case covering Borrower's
consolidated operations during such period, in a form reasonably acceptable to
Bank and certified by a Responsible Officer;
(b) as soon as available, but in any event within 120
days after the end of Borrower's fiscal year, audited consolidated financial
statements of Borrower prepared in accordance with GAAP, consistently applied,
together with an opinion which is unqualified or otherwise consented to in
writing by Bank on such financial statements of an independent certified public
accounting firm reasonably acceptable to Bank;
(c) no later than February 28 of each year, annual
projections for such year in form and substance reasonably satisfactory to Bank
and approved by Borrower's Board of Directors;
(d) if applicable, copies of all statements, reports
and notices sent or made available generally by Borrower to its security holders
or to any holders of Subordinated Debt and all reports on Forms 10-K and 10-Q
filed with the Securities and Exchange Commission;
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(e) promptly upon receipt of notice thereof, a report
of any legal actions pending or threatened against Borrower or any Subsidiary
that could result in damages or costs to Borrower or any Subsidiary of $100,000
or more;
(f) such budgets, sales projections, operating plans
or other financial information generally prepared by Borrower in the ordinary
course of business as Bank may reasonably request from time to time;
(g) within 30 days of the last day of each fiscal
quarter, a report signed by Borrower, in form reasonably acceptable to Bank,
listing any applications or registrations that Borrower has made or filed (and
not already disclosed to Bank in accordance with the terms of this Agreement) in
respect of any Patents, Copyrights or Trademarks and any material change in the
status of any outstanding applications or registrations, as well as any material
change in Borrower's Intellectual Property Collateral, including but not limited
to any subsequent ownership right of Borrower in or to any Trademark, Patent or
Copyright not specified in Exhibits A, B, and C of the Intellectual Property
Security Agreement delivered to Bank by Borrower in connection with this
Agreement;
(h) On Monday of each week, Borrower shall deliver to
Bank a Borrowing Base Certificate covering the previous week signed by a
Responsible Officer in substantially the form of Exhibit D hereto, together with
aged listings of Inventory;
(i) Within 30 days after the last day of each month,
Borrower shall deliver to Bank a Compliance Certificate signed by a Responsible
Officer in substantially the form of Exhibit E hereto, and Borrower shall,
within 120 days after Borrower's fiscal year end, deliver to Bank a Compliance
Certificate that updates the monthly Compliance Certificate that was due within
30 days after Borrower's fiscal year end; and
(j) As soon as possible and in any event within 3
calendar days after becoming aware of the occurrence or existence of an Event of
Default hereunder, a written statement of a Responsible Officer setting forth
details of the Event of Default, and the action which Borrower has taken or
proposes to take with respect thereto.
6.3 Inventory; Returns. Borrower shall keep all Inventory in
good and merchantable condition, free from all material defects except for
Inventory for which adequate reserves have been made. Returns and allowances, if
any, as between Borrower and its account debtors shall be substantially on the
same basis and in accordance with the usual customary practices of Borrower, as
they exist on the Closing Date. Borrower shall promptly notify Bank of all
returns and recoveries and of all disputes and claims (a) with or by vendors or
suppliers to Borrower that involve more than $250,000 in the aggregate and (b)
in all other cases involving more than $100,000 in the aggregate and Borrower
shall report to Bank each month within 5 days after the end of such month
Borrower's returns as a percentage of its sales for such month.
6.4 Taxes. Borrower shall make, and cause each Subsidiary to
make, due and timely payment or deposit of all material federal, state, and
local taxes, assessments, or contributions required of it by law, including, but
not limited to, those laws concerning income taxes, F.I.C.A., F.U.T.A. and state
disability, and will execute and deliver to Bank, on demand, proof satisfactory
to Bank indicating that Borrower or a Subsidiary has made such payments or
deposits and any appropriate certificates attesting to the payment or deposit
thereof; provided that Borrower or a Subsidiary need not make any payment if the
amount or validity of such payment is contested in good faith by appropriate
proceedings and is reserved against (to the extent required by GAAP) by
Borrower.
6.5 Insurance.
(a) Borrower, at its expense, shall keep the
Collateral insured against loss or damage by fire, theft, explosion, sprinklers,
and all other hazards and risks, and in such amounts, as ordinarily insured
against by other owners in similar businesses conducted in the geographic areas
where Borrower's business is conducted on the date hereof. Borrower shall also
maintain liability and other insurance in amounts and of a type that are
customary to businesses similar to Borrower's, and, in any event, reasonably
satisfactory to Bank.
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(b) All such policies of insurance shall be in such
form, with such companies, and in such amounts as reasonably satisfactory to
Bank. All policies of property insurance shall contain a lender's loss payable
endorsement, in a form satisfactory to Bank, showing Bank as an additional loss
payee, and all liability insurance policies shall show Bank as an additional
insured and specify that the insurer must give at least 20 days notice to Bank
before canceling its policy for any reason. Upon Bank's request, Borrower shall
deliver to Bank certified copies of the policies of insurance and evidence of
all premium payments. If no Event of Default has occurred and is continuing,
proceeds payable under any casualty policy will, at Borrower's option, be
payable to Borrower to repair or replace the property subject to the claim,
provided that any such property shall be deemed Collateral in which Bank has
been granted a first priority security interest. If an Event of Default has
occurred and is continuing, all proceeds payable under any such policy shall, at
Bank's option, be payable to Bank to be applied on account of the Obligations.
6.6 Primary Depository. Borrower shall maintain all of its
depository, operating and investment accounts with Bank or Bank's Affiliates,
provided, however, that (a) Borrower shall be permitted to maintain at Fleet
National Bank an account (the "Payroll Account") for the sole purpose of
fulfilling Borrower's payroll obligations (including unemployment and payroll
taxes) and Borrower agrees that it shall not maintain in such account at any
time amounts in excess of what is reasonably required to meet such obligations
for the next payroll period and (b) Borrower shall be permitted to maintain such
amount of funds in the Existing Fleet Checking Account and for such amount of
time as is permitted by Section 3.1(c).
6.7 Financial Covenants. Borrower shall at all times maintain
the following financial ratios and covenants, measured as of the last day of
each calendar month unless stated otherwise:
(a) Current Assets to Liabilities Ratio. A ratio of
Current Assets to Current Liabilities of at least 1.4 to 1.00.
(b) Trailing Net Income (Loss). Trailing Fiscal Three
Month Net Income (Loss) of not more, in the case of a net loss, or not less
than, in the case of net income: ($1,100,000) during Borrower's 3 fiscal months
preceding December 28, 2002; ($750,000) during Borrower's 3 fiscal months
preceding February 1, 2003; ($300,000) during Borrower's 3 fiscal months
preceding March 1, 2003; ($1,400,000) during Borrower's 3 fiscal months
preceding April 5, 2003; ($1,100,000) during Borrower's 3 fiscal months
preceding May 3, 2003; ($900,000) during Borrower's 3 fiscal months preceding
May 31, 2003; ($750,000) during Borrower's 3 fiscal months preceding July 5,
2003; ($800,000) during Borrower's 3 fiscal months preceding August 2, 2003;
($100,000) during Borrower's 3 fiscal months preceding August 30, 2003; $600,000
during Borrower's 3 fiscal months preceding October 4, 2003; $1,200,000 during
Borrower's 3 fiscal months preceding November 1, 2003; $2,200,000 during
Borrower's 3 fiscal months preceding November 29, 2003; $3,300,000 during
Borrower's 3 fiscal months preceding January 3, 2004; and $3,800,000 during
Borrower's 3 fiscal months preceding January 31, 2004.
6.8 Registration of Intellectual Property Rights.
(a) Borrower shall register or cause to be registered
on an expedited basis (to the extent not already registered) with the United
States Patent and Trademark Office or the United States Copyright Office, as the
case may be, those registerable intellectual property rights now owned or
hereafter developed or acquired by Borrower, to the extent that Borrower, in its
reasonable business judgment, deems it appropriate to so protect such
intellectual property rights.
(b) Borrower shall promptly give Bank written notice
of any applications or registrations of intellectual property rights filed with
the United States Patent and Trademark Office, including the date of such filing
and the registration or application numbers, if any.
(c) Borrower shall (i) give Bank not less than 30
days prior written notice of the filing of any applications or registrations
with the United States Copyright Office, including the title of such
intellectual property rights to be registered, as such title will appear on such
applications or registrations, and the date such applications or registrations
will be filed, and (ii) prior to the filing of any such applications or
registrations, shall execute such documents as Bank may reasonably request for
Bank to maintain its perfection in such intellectual property rights to be
registered by Borrower, and upon the reasonable request of Bank, shall file such
documents
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simultaneously with the filing of any such applications or registrations. Upon
filing any such applications or registrations with the United States Copyright
Office, Borrower shall promptly provide Bank with (i) a copy of such
applications or registrations, without the exhibits, if any, thereto, (ii)
evidence of the filing of any documents reasonably requested by Bank to be filed
for Bank to maintain the perfection and priority of its security interest in
such intellectual property rights, and (iii) the date of such filing.
(d) Borrower shall execute and deliver such
additional instruments and documents from time to time as Bank shall reasonably
request to perfect and maintain the priority of Bank's security interest in the
Intellectual Property Collateral, subject to Permitted Liens.
(e) Borrower shall (i) use commercially reasonable
efforts to protect, defend and maintain the validity and enforceability of the
trade secrets, Trademarks, Patents and Copyrights, (ii) use commercially
reasonable efforts to detect infringements of the Trademarks, Patents and
Copyrights and promptly advise Bank in writing of material infringements
detected and (iii) not allow any material Trademarks, Patents or Copyrights to
be abandoned, forfeited or dedicated to the public without the written consent
of Bank, which shall not be unreasonably withheld, conditioned or delayed.
(f) Bank may audit Borrower's Intellectual Property
Collateral to confirm compliance with this Section 6.8, provided such audit may
not occur more often than once per year, unless an Event of Default has occurred
and is continuing. Bank shall have the right, but not the obligation, to take,
at Borrower's sole expense, any actions that Borrower is required under this
Section 6.8 to take but which Borrower fails to take, after 30 days' notice to
Borrower. Borrower shall reimburse and indemnify Bank for all reasonable costs
and reasonable expenses incurred in the reasonable exercise of its rights under
this Section 6.8.
6.9 Consent of Inbound Licensors. Borrower shall: (i) provide
written notice to Bank of the material terms of any material license or
agreement that it enters into; and (ii), upon request of Bank, in good faith use
commercially reasonable efforts to obtain the consent of, or waiver by, any
Person whose consent or waiver is necessary for Borrower's interest in such
licenses or contract rights to be deemed Collateral and for Bank to have a
security interest in it that might otherwise be restricted by the terms of the
applicable license or agreement, whether now existing or entered into in the
future, provided, however, that the failure to obtain any such consent or waiver
after exercise of such efforts shall not constitute a default under this
Agreement.
6.10 Books and Records. Borrower shall keep, and cause each of
its Subsidiaries to keep, true and accurate records and books of account in
which full, true and accurate entries in conformity with GAAP shall be made,
subject (in the case of unaudited, management prepared financial statements) to
normal year-end adjustments, none of which shall be materially adverse.
6.11 Maintenance of Properties. Borrower shall keep, and cause
each of its Subsidiaries to keep, any and all properties used or useful in the
conduct of Borrower's business or the business of any Subsidiary to be
maintained and kept in good working order and condition (normal wear and tear
excepted).
6.12 Further Assurances. At any time and from time to time
Borrower shall execute and deliver such further instruments and take such
further action as may reasonably be requested by Bank to effect the purposes of
this Agreement.
6.13 Sweep Account. As of the Closing Date, Borrower shall
open and shall thereafter at all times during the term of this Agreement
maintain with Bank an account (the "Sweep Account"), into which all funds
received by Borrower from any source shall be deposited and to which, without
limitation, all credit card receivables of Borrower shall be directed. Borrower
shall direct the company that processes its credit card transactions to deliver
all funds and/or direct all wire transfers in connection with such transactions
to the Sweep Account. Borrower shall hold in trust for Bank all amounts that
Borrower receives despite the directions to make payments to the Sweep Account
and immediately deliver such payments to Bank in their original form as received
from the customer or credit card processing company, with proper endorsements
(if applicable) for deposit into the Sweep Account. Borrower irrevocably
authorizes Bank to transfer to the Sweep Account any funds that have been
deposited or transferred into any other accounts or that Bank has received by
wire transfer, check, cash or otherwise that should have been deposited into the
Sweep Account pursuant to the foregoing. No party other than Bank shall
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have any right to access the funds in the Sweep Account, provided, however that
Borrower's credit card processors may obtain access to funds in the Sweep
Account if and to the extent of Borrower's agreement with such credit card
processors. Bank shall, on a daily basis, apply all funds in the Sweep Account
to repay amounts loaned to Borrower by Bank (including principal and outstanding
interest) pursuant to Credit Extensions, and, subject to Section 2.4(b), Bank
shall thereafter credit Borrower's investment account at Bank to the extent of
any remaining funds in the Sweep Account.
6.14 Changes to Terms of Warehouse Agreement. Borrower hereby
agrees to give Bank prompt written notice of any change in the payment terms
under the Warehouse Agreement pursuant to the Collateral Assignment of Agreement
and Subordination and Consent Agreement between Bank, Borrower and BPOi, Inc.
7. NEGATIVE COVENANTS.
Borrower covenants and agrees that, so long as any credit hereunder
shall be available and until payment in full of the outstanding Obligations or
for so long as Bank may have any commitment to make any Credit Extensions,
Borrower will not do any of the following without Bank's prior written consent,
which shall not be unreasonably withheld, conditioned or delayed:
7.1 Dispositions. Convey, sell, lease, license, transfer or
otherwise dispose of (collectively, to "Transfer"), or permit any of its
Subsidiaries to Transfer, all or any part of its business or property, other
than Permitted Transfers.
7.2 Change in Name, Location or Executive Office, Change in
Business; Change in Fiscal Year; Change in Control. Change its trade name, logo,
legal name, the Borrower State, or relocate its chief executive office without
30 days prior written notification to Bank (except that a relocation or change
in the legal name, Borrower State or chief executive office shall not require
Bank's consent); engage in any business, or permit any of its Subsidiaries to
engage in any business, other than or reasonably related or incidental to the
businesses currently engaged in by Borrower; change its fiscal year end; or have
a Change in Control (provided, however, that in connection with a Change in
Control Borrower may terminate this Agreement without penalty or premium
pursuant to Section 2.6 hereof and thereafter may consummate such Change in
Control).
7.3 Mergers or Acquisitions. Merge or consolidate, or permit
any of its Subsidiaries to merge or consolidate, with or into any other business
organization (other than mergers or consolidations of a Subsidiary into another
wholly-owned Subsidiary or into Borrower), or acquire, or permit any of its
Subsidiaries to acquire, all or substantially all of the capital stock or
property of another Person except where (i) such transactions do not in the
aggregate exceed $500,000 and (ii) no Event of Default has occurred, is
continuing or would exist after giving effect to the transactions.
7.4 Indebtedness. Create, incur, assume, guarantee or be or
remain liable with respect to any Indebtedness, or permit any Subsidiary so to
do, other than Permitted Indebtedness, or prepay any Indebtedness or take any
actions which impose on Borrower an obligation to prepay any Indebtedness,
except Indebtedness to Bank.
7.5 Encumbrances. Create, incur, assume or allow any Lien with
respect to any of its property, or assign or otherwise convey any right to
receive income, including the sale of any Accounts, or permit any of its
Subsidiaries so to do, except for Permitted Liens, or covenant to any other
Person that Borrower in the future will refrain from creating, incurring,
assuming or allowing any Lien with respect to any of Borrower's property, except
Permitted Liens.
7.6 Distributions. Pay any dividends or make any other
distribution or payment on account of or in redemption, retirement or purchase
of any capital stock, except that Borrower may (i) repurchase the stock of
former employees pursuant to stock option agreements or restricted stock
agreements as long as an Event of Default does not exist prior to such
repurchase or would not exist after giving effect to such repurchase, and (ii)
repurchase the stock of former employees pursuant to stock repurchase agreements
by the cancellation of indebtedness owed by such former employees to Borrower
regardless of whether an Event of Default exists.
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7.7 Investments. Directly or indirectly acquire or own, or
make any Investment in or to any Person, or permit any of its Subsidiaries so to
do, other than Permitted Investments, or maintain or invest any of its property
with a Person other than Bank or Bank's Affiliates unless such Person has
entered into a control agreement with Bank, in form and substance satisfactory
to Bank, or suffer or permit any Subsidiary to be a party to, or be bound by, an
agreement that restricts such Subsidiary from paying dividends or otherwise
distributing property to Borrower.
7.8 Transactions with Affiliates. Directly or indirectly enter
into or permit to exist any material transaction with any Affiliate of Borrower
except (a) for transactions that are in the ordinary course of Borrower's
business, upon fair and reasonable terms that are no less favorable to Borrower
than would be obtained in an arm's length transaction with a non-affiliated
Person and (b) for option or other stock award issuances pursuant to stock
option and incentive plans approved by Borrower's Board of Directors. Borrower
shall notify Bank in advance of any such material transaction.
7.9 Subordinated Debt. Make any payment in respect of any
Subordinated Debt, or permit any of its Subsidiaries to make any such payment,
except in compliance with the terms of such Subordinated Debt, or amend any
provision adversely affecting Bank's rights contained in any documentation
relating to the Subordinated Debt or in any intercreditor agreement or
subordination agreement entered into by Bank in connection therewith, without
Bank's prior written consent, or make any payment on account of Subordinated
Debt, except to the extent the payment is expressly allowed under any
subordination agreement entered into with Bank.
7.10 Inventory and Equipment. Store the Inventory or the
Equipment with a bailee, warehouseman, or similar third party unless the third
party has been notified of Bank's security interest and Bank has received an
acknowledgment in form satisfactory to Bank from the third party that it is
holding or will hold the Inventory or Equipment for Bank's benefit and that such
third party's security interest, if any, shall be subordinated to Bank's Lien,
except that Borrower may store Inventory with a bailee, warehouseman, or third
party without such an acknowledgment if the value of such Inventory does not
exceed $1,000,000 and, as is reflected in the definition of the Borrowing Base,
any such Inventory shall not be counted towards the Borrowing Base. Except for
Inventory sold in the ordinary course of business and except for such other
locations as Bank may approve in writing, Borrower shall keep the Inventory and
Equipment only at the location set forth in Section 10 or in Hebron, Kentucky
pursuant to the eCommerce, Storage and Distribution Agreement between Borrower
and NewRoads BPOi, Inc. (as assignee from GATX eLogistics Corp.) dated April 30,
2001 (as amended, the "Warehouse Agreement"), and such other locations of which
Borrower gives Bank prior written notice and as to which Bank files a financing
statement where needed to perfect its security interest.
7.11 No Investment Company. Become or be controlled by an
"investment company," within the meaning of the Investment Company Act of 1940,
or become principally engaged in, or undertake as one of its activities, the
business of extending credit for the purpose of purchasing or carrying margin
stock, or use the proceeds of any Credit Extension for such purpose.
8. EVENTS OF DEFAULT.
Any one or more of the following events shall constitute an Event of
Default by Borrower under this Agreement:
8.1 Payment Default. If Borrower fails to pay any of the
Obligations when due;
8.2 Covenant Default.
(a) If Borrower fails to perform any obligation under
Article 6 or violates any of the covenants contained in Article 7 of this
Agreement; or
(b) If Borrower fails or neglects to perform or
observe any other material term, provision, condition, covenant contained in
this Agreement, in any of the other Loan Documents, or in any other present or
future agreement between Borrower and Bank and as to any default under such
other term, provision,
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condition or covenant that can be cured, has failed to cure such default within
10 days after Borrower receives notice thereof or any officer of Borrower
otherwise becomes aware thereof; provided, however, that if the default cannot
by its nature be cured within the 10 day period or cannot after diligent
attempts by Borrower be cured within such 10 day period, and such default is
likely to be cured within a reasonable time, then Borrower shall have an
additional reasonable period (which shall not in any case exceed 30 days) to
attempt to cure such default, and within such reasonable time period the failure
to have cured such default shall not be deemed an Event of Default but no Credit
Extensions will be made;
8.3 Defective Perfection. If Bank shall receive at any time
following the Closing Date an SOS Report indicating that, except for Permitted
Liens, Bank's security interest in the Collateral is not prior to all other
security interests or Liens of record reflected in the report;
8.4 Material Adverse Change. If there occurs a material
adverse change in Borrower's business or financial condition, or if there is a
material impairment of the prospect of repayment of any portion of the
Obligations or a material impairment of the value or priority of Bank's security
interests in the Collateral;
8.5 Attachment. If any material portion of Borrower's assets
is attached, seized, subjected to a writ or distress warrant, or is levied upon,
or comes into the possession of any trustee, receiver or Person acting in a
similar capacity and such attachment, seizure, writ or distress warrant or levy
has not been removed, discharged or rescinded within 10 days, or if Borrower is
enjoined, restrained, or in any way prevented by court order from continuing to
conduct all or any material part of its business affairs, or if a judgment or
other claim becomes a lien or encumbrance upon any material portion of
Borrower's assets, or if a notice of lien, levy, or assessment is filed of
record with respect to any material portion of Borrower's assets by the United
States Government, or any department, agency, or instrumentality thereof, or by
any state, county, municipal, or governmental agency, and the same is not paid
within 10 days after Borrower receives notice thereof, provided that none of the
foregoing shall constitute an Event of Default where such action or event is
stayed or an adequate bond has been posted pending a good faith contest by
Borrower within such 10-day period (provided that no Credit Extensions will be
required to be made during such cure period);
8.6 Insolvency. If Borrower becomes insolvent, or if an
Insolvency Proceeding is commenced by Borrower, or if an Insolvency Proceeding
is commenced against Borrower and is not dismissed or stayed within 60 days
(provided that no Credit Extensions will be made prior to the dismissal of such
Insolvency Proceeding);
8.7 Other Agreements. If there is a default or other failure
to perform in any agreement to which Borrower is a party with a third party or
parties resulting in a right by such third party or parties, whether or not
exercised, to accelerate the maturity of any Indebtedness in an amount in excess
of $250,000 or that could have a Material Adverse Effect;
8.8 Subordinated Debt. If Borrower makes any payment on
account of Subordinated Debt, except to the extent the payment is allowed under
any subordination agreement entered into with Bank;
8.9 Judgments. If an uninsured or underinsured judgment or
judgments for the payment of money in an amount, individually or in the
aggregate, of at least $300,000 shall be rendered against Borrower and shall
remain unsatisfied and unstayed for a period of 10 days (provided that no Credit
Extensions will be made prior to the satisfaction or stay of the judgment); or
8.10 Misrepresentations. If any material misrepresentation or
material misstatement exists now or hereafter in any warranty or representation
set forth herein or in any certificate delivered to Bank by any Responsible
Officer pursuant to this Agreement or to induce Bank to enter into this
Agreement or any other Loan Document.
9. BANK'S RIGHTS AND REMEDIES.
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9.1 Rights and Remedies. Upon the occurrence and during the
continuance of an Event of Default, Bank may, at its election, without notice of
its election and without demand, do any one or more of the following, all of
which are authorized by Borrower:
(a) Declare all Obligations, whether evidenced by
this Agreement, by any of the other Loan Documents, or otherwise, immediately
due and payable (provided that upon the occurrence of an Event of Default
described in Section 8.6, all Obligations shall become immediately due and
payable without any action by Bank);
(b) Demand that Borrower (i) deposit cash with Bank
in an amount equal to the amount of any Letters of Credit remaining undrawn, as
collateral security for the repayment of any future drawings under such Letters
of Credit, and (ii) pay in advance all Letter of Credit fees scheduled to be
paid or payable over the remaining term of the Letters of Credit, and Borrower
shall promptly deposit and pay such amounts.
(c) Cease advancing money or extending credit to or
for the benefit of Borrower under this Agreement or under any other agreement
between Borrower and Bank;
(d) Settle or adjust disputes and claims directly
with account debtors for amounts, upon terms and in whatever order that Bank
reasonably considers advisable;
(e) Make such payments and do such acts as Bank
considers necessary or reasonable to protect its security interest in the
Collateral. Borrower agrees to assemble the Collateral if Bank so requires, and
to make the Collateral available to Bank as Bank may designate. Borrower
authorizes Bank to enter the premises where the Collateral is located, to take
and maintain possession of the Collateral, or any part of it, and to pay,
purchase, contest, or compromise any encumbrance, charge, or lien which in
Bank's determination appears to be prior or superior to its security interest
and to pay all expenses incurred in connection therewith. With respect to any of
Borrower's owned premises, Borrower hereby grants Bank a license to enter into
possession of such premises and to occupy the same, without charge, in order to
exercise any of Bank's rights or remedies provided herein, at law, in equity, or
otherwise;
(f) Set off and apply to the Obligations any and all
(i) balances and deposits of Borrower held by Bank (other than those held in
accounts specially designated for payroll or employment trust fund taxes), or
(ii) indebtedness at any time owing to or for the credit or the account of
Borrower held by Bank;
(g) Ship, reclaim, recover, store, finish, maintain,
repair, prepare for sale, advertise for sale, and sell (in the manner provided
for herein) the Collateral. Bank is hereby granted a license or other right,
solely pursuant to the provisions of this Section 9.1, to use solely upon the
occurrence and during the continuance of an Event of Default, without charge,
Borrower's labels, Patents, Copyrights, rights of use of any name, trade
secrets, trade names, Trademarks, and advertising matter, or any property of a
similar nature, as it pertains to the Collateral, in completing production of,
advertising for sale, and selling any Collateral and, in connection with Bank's
exercise of its rights under this Section 9.1, Borrower's rights under all
licenses and all franchise agreements shall inure to Bank's benefit;
(h) Sell the Collateral at either a public or private
sale, or both, by way of one or more contracts or transactions, for cash or on
terms, in such manner and at such places (including Borrower's premises) as Bank
determines is commercially reasonable, and apply any proceeds to the Obligations
in whatever manner or order Bank deems appropriate. Bank may sell the Collateral
without giving any warranties as to the Collateral. Bank may specifically
disclaim any warranties of title or the like. This procedure will not be
considered adversely to affect the commercial reasonableness of any sale of the
Collateral. If Bank sells any of the Collateral upon credit, Borrower will be
credited only with payments actually made by the purchaser, received by Bank,
and applied to the indebtedness of the purchaser. If the purchaser fails to pay
for the Collateral, Bank may resell the Collateral and Borrower shall be
credited with the proceeds of the sale;
(i) Credit bid and purchase at any public sale; and
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(j) Apply for the appointment of a receiver, trustee,
liquidator or conservator of the Collateral, without notice and without regard
to the adequacy of the security for the Obligations and without regard to the
solvency of Borrower, any guarantor or any other Person liable for any of the
Obligations; and
(k) Any deficiency that exists after disposition of
the Collateral as provided above will be paid immediately by Borrower to Bank.
Bank may comply with any applicable state or federal law requirements in
connection with a disposition of the Collateral and compliance will not be
considered adversely to affect the commercial reasonableness of any sale of the
Collateral.
9.2 Power of Attorney. Effective only upon the occurrence and
during the continuance of an Event of Default, Borrower hereby irrevocably
appoints Bank (and any of Bank's designated officers, employees or agents) as
Borrower's true and lawful attorney to: (a) send requests for verification of
Accounts or notify account debtors of Bank's security interest in the Accounts;
(b) sign Borrower's name on such documents and agreements as are necessary to
transfer ownership and/or control of any Internet domain names that constitute
Collateral from Borrower to Bank and/or to third Persons to whom Bank may sell
such domain names; (c) endorse Borrower's name on any checks or other forms of
payment or security that may come into Bank's possession; (d) sign Borrower's
name on any invoice or xxxx of lading relating to any Account, drafts against
account debtors, schedules and assignments of Accounts, verifications of
Accounts, and notices to account debtors; (e) dispose of any Collateral; (f)
make, settle, and adjust all claims under and decisions with respect to
Borrower's policies of insurance; (g) settle and adjust disputes and claims
respecting the accounts directly with account debtors, for amounts and upon
terms which Bank determines to be reasonable; (h) to modify, in its sole
discretion, any intellectual property security agreement entered into between
Borrower and Bank without first obtaining Borrower's approval of or signature to
such modification by amending Exhibits A, B, and C, thereof, as appropriate, to
include reference to any right, title or interest in or to any Copyrights,
Patents or Trademarks acquired by Borrower after the execution hereof or to
delete any reference to any right, title or interest in any Copyrights, Patents
or Trademarks in which Borrower no longer has or claims to have any right, title
or interest; (i) to file, in its sole discretion, one or more financing or
continuation statements and amendments thereto, relative to any of the
Collateral without the signature of Borrower where permitted by law; and (j) to
transfer the Intellectual Property Collateral into the name of Bank or a third
party to the extent permitted under the Code; provided Bank may exercise such
power of attorney to sign the name of Borrower on any of the documents described
in clauses (h) and (i) above regardless of whether an Event of Default has
occurred. The appointment of Bank as Borrower's attorney in fact, and each and
every one of Bank's rights and powers, being coupled with an interest, is
irrevocable until all of the Obligations have been fully repaid and performed
and Bank's obligation to provide advances hereunder is terminated.
9.3 Accounts Collection. At any time after the occurrence and
during the continuance of an Event of Default, Bank may notify any Person owing
funds to Borrower of Bank's security interest in such funds and verify the
amount of such Account. Borrower shall collect all amounts owing to Borrower for
Bank, receive in trust all payments as Bank's trustee, and immediately deliver
such payments to Bank in their original form as received from the account
debtor, with proper endorsements for deposit.
9.4 Bank Expenses. If Borrower fails to pay any amounts or
furnish any required proof of payment due to third Persons or entities, as
required under the terms of this Agreement, then Bank may do any or all of the
following after reasonable notice to Borrower: (a) make payment of the same or
any part thereof; (b) set up such reserves under the Revolving Facility as Bank
deems necessary to protect Bank from the exposure created by such failure; or
(c) obtain and maintain insurance policies of the type discussed in Section 6.5
of this Agreement, and take any action with respect to such policies as Bank
deems prudent. Any amounts so paid or deposited by Bank shall constitute Bank
Expenses, shall be immediately due and payable, and shall bear interest at the
then applicable rate hereinabove provided, and shall be secured by the
Collateral. Any payments made by Bank shall not constitute an agreement by Bank
to make similar payments in the future or a waiver by Bank of any Event of
Default under this Agreement.
9.5 Bank's Liability for Collateral. Bank has no obligation to
clean up or otherwise prepare the Collateral for sale. To the extent permitted
by the Code, all risk of loss, damage or destruction of the Collateral shall be
borne by Borrower, even when the Collateral is in the possession of Bank.
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9.6 No Obligation to Pursue Others. Bank has no obligation to
attempt to satisfy the Obligations by collecting them from any other Person
liable for them and Bank may release, modify or waive any collateral provided by
any other Person to secure any of the Obligations, all without affecting Bank's
rights against Borrower. Borrower waives any right it may have to require Bank
to pursue any other Person for any of the Obligations.
9.7 Remedies Cumulative. Bank's rights and remedies under this
Agreement, the other Loan Documents, and all other agreements with the Bank
shall be cumulative. Bank shall have all other rights and remedies not
inconsistent herewith as provided under the Code, by law, or in equity. No
exercise by Bank of one right or remedy shall be deemed an election, and no
waiver by Bank of any Event of Default on Borrower's part shall be deemed a
continuing waiver. No delay by Bank shall constitute a waiver, election, or
acquiescence by it. No waiver by Bank shall be effective unless made in a
written document signed on behalf of Bank and then shall be effective only in
the specific instance and for the specific purpose for which it was given.
Borrower expressly agrees that this Section 9.7 may not be waived or modified by
Bank by course of performance, conduct, estoppel or otherwise.
9.8 Demand; Protest. Borrower waives demand, protest, notice
of protest, notice of default or dishonor, notice of payment and nonpayment,
notice of any default, nonpayment at maturity, release, compromise, settlement,
extension, or renewal of accounts, documents, instruments, chattel paper, and
guarantees at any time held by Bank on which Borrower may in any way be liable.
10. NOTICES.
Unless otherwise provided in this Agreement, all notices or demands by
any party relating to this Agreement or any other agreement entered into in
connection herewith shall be in writing and (except for financial statements and
other informational documents which may be sent by first-class mail, postage
prepaid) shall be personally delivered or sent by a recognized overnight
delivery service, certified mail, postage prepaid, return receipt requested, or
by telefacsimile to Borrower or to Bank, as the case may be, at its addresses
set forth below:
If to Borrower: SMARTBARGAINS, INC.
00 Xxxx Xxxxxx, 00xx Xxxxx
Xxxxxx, Xxxxxxxxxxxxx 00000
Attn: Xxxxxx Xxxxxx, CFO
FAX: (000) 000-0000
with a copy to: Xxxx and Xxxx, LLP
00 Xxxxx Xxxxxx
Xxxxxx, XX 00000
Attn: Xxx Xxxxxxxx, Esq.
FAX: 000-000-0000
If to Bank: COMERICA BANK-CALIFORNIA
000 Xxxxxxx Xxxxxx, 00xx Xxxxx
Xxxxxx, Xxxxxxxxxxxxx 00000
Attn: C. Xxxxxx Xxxxxxx and/or Xxxxx Xxxxxxx
FAX: (000) 000-0000
with a copy to: Goulston & Storrs, P.C.
000 Xxxxxxxx Xxxxxx
Xxxxxx, Xxxxxxxxxxxxx 00000
Attn: Xxxxxx X. Xxxxxx, Esq.
FAX: (000) 000-0000
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Notices or demands shall be deemed to have been given (a) when
delivered if delivered by hand, (b) when sent if sent by telefacsimile, (c) when
delivered to any overnight delivery service or (d) 3 Business Days after being
placed in the United States mails if sent by certified mail. The parties hereto
may change the address at which they are to receive notices hereunder, by notice
in writing in the foregoing manner given to the other.
11. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER.
This Agreement shall be governed by, and construed in accordance with, the
internal laws of the State of California, without regard to principles of
conflicts of law. Each of Borrower and Bank hereby submits to the exclusive
jurisdiction of the state and Federal courts located in the County of Santa
Xxxxx, State of California. BANK AND BORROWER EACH ACKNOWLEDGE THAT THE RIGHT TO
TRIAL BY JURY IS A CONSTITUTIONAL ONE, BUT THAT IT MAY BE WAIVED. EACH OF THEM,
AFTER CONSULTING, OR HAVING HAD THE OPPORTUNITY TO CONSULT, WITH COUNSEL OF
THEIR CHOICE, KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES ANY RIGHT ANY OF
THEM MAY HAVE TO A TRIAL BY JURY IN ANY LITIGATION BASED UPON OR ARISING OUT OF
THIS AGREEMENT OR ANY RELATED INSTRUMENT OR LOAN DOCUMENT OR ANY OF THE
TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT OR ANY COURSE OF CONDUCT, DEALING,
STATEMENTS (WHETHER ORAL OR WRITTEN), OR ACTION OF ANY OF THEM. THESE PROVISIONS
SHALL NOT BE DEEMED TO HAVE BEEN MODIFIED IN ANY RESPECT OR RELINQUISHED BY BANK
OR BORROWER, EXCEPT BY A WRITTEN INSTRUMENT EXECUTED BY EACH OF THEM.
12. GENERAL PROVISIONS.
12.1 Successors and Assigns. This Agreement shall bind and
inure to the benefit of the respective successors and permitted assigns of each
of the parties and shall bind all Persons who become bound as a debtor to this
Agreement; provided, however, that neither this Agreement nor any rights
hereunder may be assigned by Borrower without Bank's prior written consent,
which consent may be granted or withheld in Bank's sole discretion. Bank shall
have the right without the consent of or notice to Borrower to sell, transfer,
negotiate, or grant participation in all or any part of, or any interest in,
Bank's obligations, rights and benefits hereunder to a bank or financial
institution.
12.2 Indemnification. Borrower shall defend, indemnify and
hold harmless Bank and its officers, employees, and agents against: (a) all
obligations, demands, claims, and liabilities claimed or asserted by any other
party in connection with the transactions contemplated by this Agreement; and
(b) all losses and Bank Expenses in any way suffered, incurred, or paid by Bank,
its officers, employees and agents as a result of or in any way arising out of,
following, or consequential to transactions between Bank and Borrower whether
under this Agreement or otherwise (including without limitation reasonable
attorneys' fees and expenses), except for losses caused by Bank's gross
negligence or willful misconduct.
12.3 Time of Essence. Time is of the essence for the
performance of all obligations set forth in this Agreement.
12.4 Severability of Provisions. Each provision of this
Agreement shall be severable from every other provision of this Agreement for
the purpose of determining the legal enforceability of any specific provision.
12.5 Amendments in Writing, Integration. All amendments to or
terminations of this Agreement must be in writing. All prior agreements,
understandings, representations, warranties, and negotiations between the
parties hereto with respect to the subject matter of this Agreement, if any, are
merged into this Agreement and the Loan Documents.
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12.6 Counterparts. This Agreement may be executed in any
number of counterparts and by different parties on separate counterparts, each
of which, when executed and delivered, shall be deemed to be an original, and
all of which, when taken together, shall constitute but one and the same
Agreement.
12.7 Survival. All covenants, representations and warranties
of Borrower made in this Agreement shall continue in full force and effect so
long as any Obligations remain outstanding. The indemnification obligations of
Borrower described in Section 12.2 shall survive until all applicable statute of
limitations periods with respect to actions that may be brought against the
applicable indemnitee(s) have run.
12.8 Confidentiality. In handling any confidential
information, Bank and all employees and agents of Bank shall exercise the same
degree of care that Bank exercises with respect to its own proprietary
information of the same types to maintain the confidentiality of any non-public
information thereby received or received pursuant to this Agreement except that
disclosure of such information may be made (i) to the subsidiaries or Affiliates
of Bank in connection with their present or prospective business relations with
Borrower, provided however that Bank shall be responsible to Borrower for any
action on the part of an Affiliate or subsidiary of Bank that would, if having
been taken by Bank, have constituted a breach of this Section 12.8, (ii) to
prospective transferees or purchasers of any interest in the Loans, provided
that they have entered into a comparable confidentiality agreement in favor of
Borrower and have delivered a copy to Borrower, (iii) as required by law,
regulations, rule or order, subpoena, judicial order or similar order, (iv) as
may be required in connection with the examination, audit or similar
investigation of Bank, (v) in connection with an audit of Borrower pursuant to
Section 4.3, provided however that, upon the request of Borrower, such recipient
of confidential information shall enter into a confidentiality agreement in
favor of Borrower with terms comparable to this Section 12.8 and (vi) as Bank
may determine in connection with the enforcement of any remedies hereunder.
Confidential information hereunder shall not include information that either:
(a) is in the public domain or in the knowledge or possession of Bank when
disclosed to Bank, or becomes part of the public domain after disclosure to Bank
through no fault of Bank; or (b) is disclosed to Bank by a third party, provided
Bank does not have actual knowledge that such third party is prohibited from
disclosing such information.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
by their duly authorized representatives as of the date first above written.
SMARTBARGAINS, INC.
By: /s/ Xxxxxx X. XxXxxxxxxx
----------------------------------
Title: EVP, CFO and Treasurer
-------------------------------
COMERICA BANK-CALIFORNIA
By: /s/ C. Xxxxxx Xxxxxxx
----------------------------------
Title: Vice President
-------------------------------
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EXHIBIT A
DEFINITIONS
"Accounts" means all presently existing and hereafter arising accounts, contract
rights, and all other forms of obligations owing to Borrower arising out of the
sale or lease of goods (including, without limitation, the licensing of software
and other technology) or the rendering of services by Borrower, whether or not
earned by performance, and any and all credit insurance, guaranties, and other
security therefor, as well as all merchandise returned to or reclaimed by
Borrower and Borrower's Books relating to any of the foregoing.
"Advance" or "Advances" means a cash advance or cash advances under the
Revolving Facility.
"Affiliate" means, with respect to any Person, any Person that owns or controls
directly or indirectly such Person, any Person that controls or is controlled by
or is under common control with such Person, and each of such Person's senior
executive officers, directors, and partners.
"Bank Expenses" means all: reasonable costs and expenses (including reasonable
attorneys' fees and expenses) incurred in connection with the preparation,
negotiation, administration, and enforcement of the Loan Documents; reasonable
Collateral audit fees; and Bank's reasonable attorneys' fees and expenses
incurred in amending, enforcing or defending the Loan Documents (including fees
and expenses of appeal), incurred before, during and after an Insolvency
Proceeding, whether or not suit is brought.
"Borrower State" means the State of Delaware, the state under whose laws
Borrower is organized.
"Borrower's Books" means all of Borrower's books and records including: ledgers;
records concerning Borrower's assets or liabilities, the Collateral, business
operations or financial condition; and all computer programs, or tape files, and
the equipment, containing such information.
"Borrowing Base" means an amount equal to 55% of the Eligible Inventory, as
determined by Bank with reference to the most recent Borrowing Base Certificate
delivered by Borrower, provided, however that (a) any Inventory that is held by
a warehouseman, bailee or other third party from whom Bank has not received a
satisfactory acknowledgment that such warehouseman, bailee or third party is
holding or will hold possession of the Inventory for Bank's benefit shall not be
included in the Borrowing Base, and (b), if a third party appraisal of the
Inventory causes Bank reasonably to be concerned that the Eligible Inventory
will not serve as adequate security for the maximum amount of Advances that may
be requested under Section 2.1(b)(i) at that percentage of Eligible Inventory,
Bank may reduce such percentage by notice to Borrower to the extent Bank deems
reasonably necessary so that Eligible Inventory will serve as adequate security
for the maximum amount of Advances, provided however that, if Bank reduces the
Borrowing Base and such reduction causes Borrower to be obligated to repay
amounts loaned, Borrower shall have 30 days to repay such amounts to Bank
provided that no other Event of Default has occurred and is then continuing.
"Business Day" means any day that is not a Saturday, Sunday, or other day on
which banks in the State of California are authorized or required to close.
"Change in Control" shall mean a transaction in which any "person" or "group"
(within the meaning of Section 13(d) and 14(d)(2) of the Securities Exchange Act
of 1934, as amended (the "Act")) becomes the "beneficial owner" (as defined in
Rule 13d-3 under the Act), directly or indirectly, of a sufficient number of
shares of all classes of stock then outstanding of Borrower ordinarily entitled
to vote in the election of directors, empowering such "person" or "group" to
elect a majority of the Board of Directors of Borrower, who did not have such
power before such transaction.
"Chief Executive Office State" means the Commonwealth of Massachusetts, where
Borrower's chief executive office is located.
"Closing Date" means the date of this Agreement.
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"Code" means the California Uniform Commercial Code as amended or supplemented
from time to time.
"Collateral" means the property described on Exhibit B attached hereto and all
Negotiable Collateral and Intellectual Property Collateral to the extent not
described on Exhibit B, except to the extent any such property (i) is
nonassignable by its terms without the consent of the licensor thereof or
another party (but only to the extent such prohibition on transfer is
enforceable under applicable law, including, without limitation, Sections 9406
and 9408 of the Code), or (ii) the granting of a security interest therein is
contrary to applicable law, provided that upon the cessation of any such
restriction or prohibition, such property shall automatically become part of the
Collateral. "Collateral State" means the state or states where the Collateral is
located, which are Massachusetts and Kentucky.
"Committed Revolving Line" means a Credit Extension of up to $7,000,000
(inclusive of any amounts outstanding under the Letter of Credit Sublimit).
"Contingent Obligation" means, as applied to any Person, any direct or indirect
liability, contingent or otherwise, of that Person with respect to (i) any
indebtedness, lease, dividend, letter of credit or other obligation of another,
including, without limitation, any such obligation directly or indirectly
guaranteed, endorsed, co-made or discounted or sold with recourse by that
Person, or in respect of which that Person is otherwise directly or indirectly
liable; (ii) any obligations with respect to undrawn letters of credit issued
for the account of that Person; and (iii) all obligations arising under any
interest rate, currency or commodity swap agreement, interest rate cap
agreement, interest rate collar agreement, or other agreement or arrangement
designated to protect a Person against fluctuation in interest rates, currency
exchange rates or commodity prices; provided, however, that the term "Contingent
Obligation" shall not include endorsements for collection or deposit in the
ordinary course of business. The amount of any Contingent Obligation shall be
deemed to be an amount equal to the stated or determined amount of the primary
obligation in respect of which such Contingent Obligation is made or, if not
stated or determinable, the maximum reasonably anticipated liability in respect
thereof as determined by such Person in good faith; provided, however, that such
amount shall not in any event exceed the maximum amount of the obligations under
the guarantee or other support arrangement.
"Copyrights" means any and all copyright rights, copyright applications,
copyright registrations and like protections in each work or authorship and
derivative work thereof, whether published or unpublished and whether or not the
same also constitutes a trade secret, now or hereafter existing, created,
acquired or held.
"Credit Extension" means each Advance or any other extension of credit by Bank
to or for the benefit of Borrower hereunder.
"Current Assets" means, as of any applicable date, all amounts that should, in
accordance with GAAP, be included as current assets on the consolidated balance
sheet of Borrower and its Subsidiaries as at such date.
"Current Liabilities" means, as of any applicable date, all amounts that should,
in accordance with GAAP, be included as current liabilities on the consolidated
balance sheet of Borrower and its Subsidiaries, as at such date, plus, to the
extent not already included therein, all outstanding Credit Extensions made
under this Agreement, including all Indebtedness that is payable upon demand or
within 1 year from the date of determination thereof unless such Indebtedness is
renewable or extendible at the option of Borrower or any Subsidiary to a date
more than 1 year from the date of determination.
"Sweep Account" has the meaning ascribed to it in Section 6.13.
"Eligible Inventory" means the value of the Inventory in Borrower's custody (or
being held for Borrower by NewRoads BPOi, Inc. pursuant to the Warehouse
Agreement) and in which Bank has a valid and perfected security interest that is
stored at a secure location (and, for the purpose of clarity, the current
NewRoads BPOi, Inc. facility in Hebron, Kentucky and substantially similar
facilities shall be deemed to be "secure" for purposes hereof), in the United
States of America, but excluding any slow-moving, damaged, obsolete, defective
or scrap items, provided, however, that (a) if more than 30% of the value of
Borrower's Inventory at any time is comprised of items constituting jewelry,
sportswear, women's outerwear, "sports plus," and children's apparel (with all
such terms including the types of items included in such categories on
Borrower's website as of the date of this Agreement and
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such other items as a reasonable person would consider to fall within such
categories), the excess value of such items (i.e., above 30%) shall not be
included in Eligible Inventory, (b) if the Inventory after the date of this
Agreement contains items of a type or types other than the types of Inventory
held by Borrower on the date of this Agreement or within the last 3 months,
Borrower shall notify Bank of such new type(s) of Inventory and Bank may decide
in its sole discretion whether such new type(s) of Inventory will be included in
Eligible Inventory and (c) if any Inventory is consigned to Borrower by a third
party, such Inventory shall not be Eligible Inventory. For purposes of valuing
Inventory, the lower of Borrower's cost and the fair market value of such
Inventory shall be deemed its "value."
"Environmental Laws" means all laws, rules, regulations, orders and the like
issued by any federal state, local foreign or other governmental or
quasi-governmental authority or any agency pertaining to the environment or to
any hazardous materials or wastes, toxic substances, flammable, explosive or
radioactive materials, asbestos or other similar materials.
"Equipment" means all present and future machinery, equipment, tenant
improvements, furniture, fixtures, vehicles, tools, parts and attachments in
which Borrower has any interest.
"ERISA" means the Employee Retirement Income Security Act of 1974, as amended,
and the regulations thereunder.
"Event of Default" has the meaning assigned in Article 8.
"GAAP" means generally accepted accounting principles, consistently applied, as
in effect from time to time.
"Indebtedness" means (a) all indebtedness for borrowed money or the deferred
purchase price of property or services, including without limitation
reimbursement and other obligations with respect to surety bonds and letters of
credit, (b) all obligations evidenced by notes, bonds, debentures or similar
instruments, (c) all capital lease obligations and (d) all Contingent
Obligations.
"Insolvency Proceeding" means any proceeding commenced by or against any Person
under any provision of the United States Bankruptcy Code, as amended, or under
any other bankruptcy or insolvency law, including assignments for the benefit of
creditors, formal or informal moratoria, compositions, extension generally with
its creditors, or proceedings seeking reorganization, arrangement, or other
relief.
"Intellectual Property Collateral" means all of Borrower's right, title, and
interest in and to the following:
(a) Copyrights, Trademarks and Patents;
(b) Any and all trade secrets, and any and all intellectual property rights
in computer software and computer software products now or hereafter
existing, created, acquired or held;
(c) Any and all design rights owned or licensed by Borrower now or
hereafter existing, created, acquired or held;
(d) Any and all claims for damages by way of past, present and future
infringement of any of the rights included above, with the right, but
not the obligation, to xxx for and collect such damages for said use or
infringement of the intellectual property rights identified above;
(e) All licenses or other rights to use any of the Copyrights, Patents or
Trademarks, and all license fees and royalties arising from such use to
the extent permitted by such license or rights, except to the extent
any such property (i) is nonassignable by its terms without the consent
of the licensor thereof or another party (but only to the extent such
prohibition on transfer is enforceable under applicable law, including,
without limitation, Sections 9406 and 9408 of the Code), or (ii) the
granting of a security interest therein is contrary to applicable law,
provided that upon the cessation of any such restriction or
prohibition, such property shall automatically become part of the
Intellectual Property Collateral;
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(f) All amendments, renewals and extensions of any of the Copyrights,
Trademarks or Patents;
(g) All Internet domain names, including without limitation
xxx.xxxxxxxxxxxxx.xxx, xxx.xxxxxxxxxxxxx.xxx and xxx.xxxxxxxxxxxxx.xxx;
and
(h) All proceeds and products of the foregoing, including without
limitation all payments under insurance or any indemnity or warranty
payable in respect of any of the foregoing.
"Inventory" means all present and future inventory in which Borrower has any
interest, including merchandise, raw materials, parts, supplies, packing and
shipping materials, work in process and finished products intended for sale or
lease or to be furnished under a contract of service, of every kind and
description now or at any time hereafter owned by or in the custody or
possession, actual or constructive, of Borrower, including such inventory as is
temporarily out of its custody or possession or in transit and including any
returns upon any accounts or other proceeds, including insurance proceeds,
resulting from the sale or disposition of any of the foregoing and any documents
of title representing any of the above, and Borrower's Books relating to any of
the foregoing.
"Investment" means any beneficial ownership of (including stock, partnership or
limited liability company interest or other securities) any Person, or any loan,
advance or capital contribution to any Person.
"Letter of Credit" means a commercial or standby letter of credit or similar
undertaking issued by Bank at Borrower's request in accordance with Section
2.1(b)(iii).
"Letter of Credit Sublimit" means a sublimit under the Committed Revolving Line
not to exceed $5,000,000 for Letters of Credit, provided however that Borrower
may request an increase or a decrease in the Letter of Credit Sublimit at any
time, and upon the approval of Bank thereof, in its sole discretion, the parties
shall amend this Agreement to provide for such change to the Letter of Credit
Sublimit using a form of amendment based on Exhibit F attached hereto.
"Lien" means any mortgage, lien, deed of trust, charge, pledge, security
interest or other encumbrance.
"Loan Documents" means, collectively, this Agreement, any note or notes executed
by Borrower, and any other document, instrument or agreement entered into
between Borrower and Bank in connection with this Agreement, all as amended or
extended from time to time.
"Material Adverse Effect" means a material adverse effect on (i) the business
operations or condition (financial or otherwise) of Borrower and its
Subsidiaries taken as a whole or (ii) the ability of Borrower to repay the
Obligations or otherwise perform its obligations under the Loan Documents.
"Negotiable Collateral" means all of Borrower's present and future letters of
credit of which it is a beneficiary, drafts, instruments (including promissory
notes), securities, documents of title, and chattel paper, and Borrower's Books
relating to any of the foregoing.
"Obligations" means all debt, principal, interest, Bank Expenses and other
amounts owed to Bank by Borrower pursuant to this Agreement or any other
agreement, whether absolute or contingent, due or to become due, now existing or
hereafter arising, including any interest that accrues after the commencement of
an Insolvency Proceeding.
"Patents" means all patents, patent applications and like protections including
without limitation improvements, divisions, continuations, renewals, reissues,
extensions and continuations-in-part of the same.
"Periodic Payments" means all installments or similar recurring payments that
Borrower may now or hereafter become obligated to pay to Bank pursuant to the
terms and provisions of any instrument, or agreement now or hereafter in
existence between Borrower and Bank.
"Permitted Indebtedness" means:
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(a) Indebtedness of Borrower in favor of Bank arising under this Agreement
or any other Loan Document;
(b) Indebtedness existing on the Closing Date and disclosed in Section 7.4
of the Schedule;
(c) Indebtedness for purchase money security interests not to exceed
$1,000,000 in the aggregate in any fiscal year of Borrower secured by a
lien described in clause (c) of the defined term "Permitted Liens,"
provided such Indebtedness does not at the time the financed equipment
is acquired, exceed the lesser of the cost or fair market value of the
equipment financed with such Indebtedness;
(d) Subordinated Debt, upon terms and conditions satisfactory to Bank and,
in any event, pursuant to a formal subordination agreement in form
satisfactory to Bank;
(e) Indebtedness to trade creditors incurred in the ordinary course of
business; and
(f) Extensions, refinancings and renewals of any items of Permitted
Indebtedness, provided that the principal amount is not increased or
the terms modified to impose more burdensome terms upon Borrower or its
Subsidiary, as the case may be.
"Permitted Investment" means:
(a) Investments existing on the Closing Date disclosed in Section 5.10 of
the Schedule;
(b) (i) Marketable direct obligations issued or unconditionally guaranteed
by the United States of America or any agency or any State thereof
maturing within 1 year from the date of acquisition thereof, (ii)
commercial paper maturing no more than 1 year from the date of creation
thereof and currently having rating of at least A-2 or P-2 from either
Standard & Poor's Corporation or Xxxxx'x Investors Service, (iii)
Bank's certificates of deposit maturing no more than 1 year from the
date of investment therein, and (iv) Bank's money market accounts;
(c) Repurchases of stock from former employees or directors of Borrower
under the terms of applicable repurchase agreements (i) in an aggregate
amount not to exceed $250,000 in any fiscal year, provided that, if an
Event of Default has occurred, is continuing or would exist after
giving effect to the repurchases, no repurchases may be made in any
amount, or (ii) in any amount where the consideration for the
repurchase is the cancellation of indebtedness owed by such former
employees to Borrower regardless of whether an Event of Default exists;
(d) Investments accepted in connection with Permitted Transfers;
(e) Investments of Subsidiaries in or to other Subsidiaries or Borrower and
Investments by Borrower in Subsidiaries not to exceed $100,000 in the
aggregate in any fiscal year;
(f) Investments consisting of (i) travel advances and employee relocation
loans and other employee loans and advances in the ordinary course of
business, and (ii) loans to employees, officers or directors relating
to the purchase of equity securities of Borrower or its Subsidiaries
pursuant to employee stock purchase plan agreements approved by
Borrower's Board of Directors;
(g) Investments (including debt obligations) received in connection with
the bankruptcy or reorganization of customers or suppliers and in
settlement of delinquent obligations of, and other disputes with,
customers or suppliers arising in the ordinary course of Borrower's
business;
(h) Investments consisting of notes receivable of, or prepaid royalties and
other credit extensions, to customers and suppliers who are not
Affiliates, in the ordinary course of business, provided that this
subparagraph (h) shall not apply to Investments of Borrower in any
Subsidiary;
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Comerica Bank-California -
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(i) Joint ventures or strategic alliances in the ordinary course of
Borrower's business consisting of the non-exclusive licensing of
technology, the development of technology or the providing of technical
support, provided that any cash Investments by Borrower do not exceed
$250,000 in the aggregate in any fiscal year- and
(j) Investments consisting of the funds in the Payroll Account, to the
extent permitted in Section 6.6 and in the Existing Fleet Checking
Account to the extent permitted and for such period of time as is
permitted in Section 3.1(c).
"Permitted Liens" means the following:
(a) Any Liens existing on the Closing Date and disclosed in Section 5.3 of
the Schedule (excluding Liens in favor of Xxxxxx Xxxxxxxx to be
satisfied with the proceeds of the Advances on the date of this
Agreement), provided however that the Fleet Bank Letters of Credits
listed in Section 5.3 of the Schedule shall be replaced by Letters of
Credit issued by Bank within 45 days after Closing and shall thereafter
not constitute Permitted Liens, or arising under this Agreement or the
other Loan Documents;
(b) Liens for taxes, fees, assessments or other governmental charges or
levies, either not delinquent or being contested in good faith by
appropriate proceedings and for which Borrower maintains adequate
reserves, provided the same have no priority over any of Bank's
security interests;
(c) Liens not to exceed $1,000,000 in the aggregate (i) upon or in any
Equipment acquired or held by Borrower or any of its Subsidiaries to
secure the purchase price of such Equipment or indebtedness incurred
solely for the purpose of financing the acquisition or lease of such
Equipment, or (ii) existing on such Equipment at the time of its
acquisition, provided that the Lien is confined solely to the property
so acquired and improvements thereon, and the proceeds of such
Equipment;
(d) Liens incurred in connection with the extension, renewal or refinancing
of the indebtedness secured by Liens of the type described in clauses
(a) through (c) above, provided that any extension, renewal or
replacement Lien shall be limited to the property encumbered by the
existing Lien and the principal amount of the indebtedness being
extended, renewed or refinanced does not increase;
(e) Liens arising from judgments, decrees or attachments in circumstances
not constituting an Event of Default under Sections 8.5 or 8.9;
(f) Liens in favor of other financial institutions arising in connection
with Borrower's deposit accounts and investment property held at such
institutions, provided that Bank has a perfected security interest in
the amounts held in such deposit accounts and Borrower is permitted to
maintain such accounts and investment property at such other financial
institutions pursuant to the terms of this Agreement;
(g) Lien (the "Star Lien") in favor of Star Diamond Group, Inc. ("Star")
arising from the consignment of Inventory goods by Star to Borrower
from time to time in the ordinary course of Borrower's business
consistent with past practice; and
(h) Other Liens not described above arising in the ordinary course of
business and not having or not reasonably likely to have a Material
Adverse Effect on Borrower and its Subsidiaries taken as a whole.
"Permitted Transfer" means the conveyance, sale, lease, transfer or disposition
by Borrower or any Subsidiary of:
(a) Inventory in the ordinary course of business;
(b) licenses, sublicenses and similar arrangements for the use of the
property of Borrower or its Subsidiaries in the ordinary course of
business;
(c) worn-out or obsolete Equipment; or
--------------------------------------------------------------------------------
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Comerica Bank-California -
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(d) other assets of Borrower or its Subsidiaries which do not in the
aggregate exceed $250,000 during any fiscal year.
"Person" means any individual, sole proprietorship, partnership, limited
liability company, joint venture, trust, unincorporated organization,
association, corporation, institution, public benefit corporation, firm, joint
stock company, estate, entity or governmental agency.
"Prime Rate" means the variable rate of interest, per annum, most recently
announced by Bank, as its "prime rate," whether or not such announced rate is
the lowest rate available from Bank.
"Responsible Officer" means each of the Chief Executive Officer, the Chief
Operating Officer, the Chief Financial Officer and the Controller of Borrower.
"Revolving Facility" means the facility under which Borrower may request Bank to
issue Advances, as specified in Section 2.1(b) hereof.
"Revolving Maturity Date" means January 31, 2004.
"Schedule" means the schedule of exceptions attached hereto and approved by
Bank, if any.
"SOS Reports" means the official reports from the Secretaries of State of each
Collateral State, Chief Executive Office State and the Borrower State and other
applicable federal, state or local government offices identifying all current
security interests filed in the Collateral and Liens of record as of the date of
such report.
"Subordinated Debt" means any debt incurred by Borrower that is subordinated to
the debt owing by Borrower to Bank on terms reasonably acceptable to Bank (and
identified as being such by Borrower and Bank).
"Subsidiary" means any corporation, partnership or limited liability company or
joint venture in which (i) any general partnership interest or (ii) more than
50% of the stock, limited liability company interest or joint venture of which
by the terms thereof ordinary voting power to elect the Board of Directors,
managers or trustees of the entity, at the time as of which any determination is
being made, is owned by Borrower, either directly or through an Affiliate.
"Trademarks" means any trademark and service xxxx rights, whether registered or
not, applications to register and registrations of the same and like
protections, and the entire goodwill of the business of Borrower connected with
and symbolized by such trademarks.
"Trailing Three Fiscal Month Net Income (Loss)" means, for the 3 fiscal months
of Borrower preceding the date that is specified in Section 6.7(b) as the end of
the relevant period, Borrower's net income (loss) determined in accordance with
GAAP.
"Transfer" has the meaning assigned to such term in Section 7.1.
"Unused Commitment" means at any particular time the difference between (a) the
Committed Revolving Line less (b) the sum of (i) the aggregate amount of all
Advances then outstanding, (ii) the Letter of Credit Sublimit and, (iii) if Bank
has reduced the percentage of Eligible Inventory that constitutes the Borrowing
Base pursuant to the definition of Borrowing Base, the Unqualifying Eligible
Inventory Amount. The "Unqualifying Eligible Inventory Amount" shall mean the
amount by which the reduction in the Borrowing Base has caused the amount of
Advances that Borrower may request from Bank pursuant to Section 2.1(b) to be
reduced. Without limiting the foregoing, Exhibit G is a worksheet for
calculating the Unqualifying Eligible Inventory Amount and the Unused
Commitment.
--------------------------------------------------------------------------------
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Comerica Bank-California -
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DEBTOR SMARTBARGAINS, INC.
SECURED PARTY: COMERICA BANK-CALIFORNIA
EXHIBIT B
COLLATERAL DESCRIPTION ATTACHMENT
TO LOAN AND SECURITY AGREEMENT
All personal property of Borrower (herein referred to as "Borrower" or "Debtor")
whether presently existing or hereafter created or acquired, and wherever
located, including, but not limited to:
(a) all accounts (including health-care-insurance receivables), chattel
paper (including tangible and electronic chattel paper), deposit
accounts, documents (including negotiable documents), equipment
(including all accessions and additions thereto), general intangibles
(including payment intangibles, software and any and all Internet
domain names, including without limitation xxx.xxxxxxxxxxxxx.xxx,
xxx.xxxxxxxxxxxxx.xxx and xxx.xxxxxxxxxxxxx.xxx), goods (including
fixtures), instruments (including promissory notes), inventory
(including all goods held for sale or lease or to be furnished under a
contract of service, and including returns and repossessions),
investment property (including securities and securities entitlements),
letter of credit rights, money, and all of Debtor's books and records
with respect to any of the foregoing, and the computers and equipment
containing said books and records;
(b) All of Debtor's present and future rights, title and interest in, to
and under Debtor's securities account(s) maintained with Comerica
Securities, Inc. and Monarch Fund, including without limitation account
number(s) _____________ with Comerica Securities, Inc. and
_____________ with Monarch Fund, and all Debtor's investment property
contained therein, including without limitation all securities and
securities entitlements, financial assets, instruments or other
property contained in such securities account(s), and all other
investment property, financial assets, instruments or other property at
any time held or maintained in the securities account(s), together with
all investment property, financial assets, instruments or other
property at any time substituted therefor or for any part thereof, and
all interest, dividends, increases, profits, new investment property,
financial assets, instruments or other property and or other
increments, distributions or rights of any kind received on account of
any of the foregoing, and all other income received in connection
therewith and all products or proceeds thereof (whether cash or
non-cash proceeds);
(c) all common law and statutory copyrights and copyright registrations,
applications for registration, now existing or hereafter arising, in
the United States of America or in any foreign jurisdiction, obtained
or to be obtained on or in connection with any of the forgoing, or any
parts thereof or any underlying or component elements of any of the
foregoing, together with the right to copyright and all rights to renew
or extend such copyrights and the right (but not the obligation) of
Secured Party to xxx in its own name and/or in the name of the Debtor
for past, present and future infringements of such copyrights;
(d) all trademarks, service marks, trade names and service names and the
goodwill associated therewith, together with the right to trademark and
all rights to renew or extend such trademarks and the right (but not
the obligation) of Secured Party to xxx in its own name and/or in the
name of the Debtor for past, present and future infringements of
trademarks, service marks, trade names and service names and the
goodwill;
(e) all (i) patents and patent applications filed in the United States
Patent and Trademark Office or any similar office of any foreign
jurisdiction, and interests under patent license agreements, including,
without limitation, the inventions and improvements described and
claimed therein, (ii) licenses pertaining to any patent whether Debtor
is licensor or licensee, (iii) income, royalties, damages, payments,
accounts and accounts receivable now or hereafter due and/or payable
under and with respect thereto, including, without limitation, damages
and payments for past, present or future infringements thereof, (iv)
right (but not the obligation) to xxx in the name of Debtor and/or in
the name of Secured Party for past, present and future infringements
thereof, (v) rights corresponding thereto throughout the world in all
jurisdictions in which such patents have been issued or applied for,
and (vi) reissues, divisions, continuations, renewals, extensions and
continuations-in-part with respect to any of the foregoing; and
(f) any and all cash proceeds and/or noncash proceeds of any of the
foregoing, including, without limitation, insurance proceeds, and all
supporting obligations and the security therefor or for any right to
payment. All terms above have the meanings given to them in the
California Uniform Commercial Code, as amended or supplemented from
time to time, including revised Division 9 of the Uniform Commercial
Code-Secured Transactions, added by Stats. 1999, c.991 (S.B. 45),
Section 35, operative July 1, 2001.
To the extent any of the foregoing is licensed by a third party to Debtor, the
foregoing shall not be deemed collateral to the extent any such property (i) is
nonassignable by its terms without the consent of the licensor thereof or
another party (but only to the extent such
8
prohibition on transfer is enforceable under applicable law, including, without
limitation, Sections 9406 and 9408 of the Code), or (ii) the granting of a
security interest therein is contrary to applicable law, provided that upon the
cessation of any such restriction or prohibition, such property shall
automatically become part of the collateral.
9
EXHIBIT C
LOAN PAYMENT/ADVANCE TELEPHONE REQUEST FORM
DEADLINE FOR SAME DAY PROCESSING IS 3:00 P.M., E.S.T.
TO: [_______________] DATE: _______________
FAX #: [_______________] TIME: _______________
FROM: SMARTBARGAINS, INC.
--------------------------------------------------------------------------
CLIENT NAME (BORROWER)
REQUESTED BY:
-------------------------------------------------------------------
AUTHORIZED SIGNER'S NAME
AUTHORIZED SIGNATURE:
----------------------------------------------------------
PHONE NUMBER:
------------------------------------------------------------------
FROM ACCOUNT # TO ACCOUNT #
--------------------- ------------------------------
REQUESTED TRANSACTION TYPE REQUEST DOLLAR AMOUNT
-------------------------- ---------------------
$ ___________________
PRINCIPAL INCREASE (ADVANCE) $ ___________________
PRINCIPAL PAYMENT (ONLY) $ ___________________
INTEREST PAYMENT (ONLY) $ ___________________
PRINCIPAL AND INTEREST (PAYMENT) $ ___________________
OTHER INSTRUCTIONS:
------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
All representations and warranties of Borrower stated in the Loan and Security
Agreement are true, correct and complete in all material respects as of the date
of the telephone request for an Advance confirmed by this Borrowing Certificate;
provided, however, that those representations and warranties expressly referring
to another date shall be true, correct and complete in all material respects as
of such date, and no other Event of Default has occurred and is continuing
through the date hereof.
BANK USE ONLY
TELEPHONE REQUEST:
The following person is authorized to request the loan payment transfer/loan
advance on the advance designated account and is known to me.
----------------------------------------- -----------------------------
Authorized Requester Phone #
----------------------------------------- -----------------------------
Received By (Bank) Phone #
-----------------------------------------
Authorized Signature (Bank)
10
EXHIBIT D
BORROWING BASE CERTIFICATE
Borrower: SMARTBARGAINS, INC. Lender: COMERICA BANK-CALIFORNIA
Commitment Amount: $7,000,000 (less Letter of Credit Sublimit of $5,000,000)
ELIGIBLE INVENTORY BEFORE ADJUSTMENT
1. Eligible Inventory before adjustment as of [DATE]* $___________
ADJUSTED ELIGIBLE INVENTORY
2. Value of Jewelry $___________
3. Value of Sportswear $___________
4. Value of Women's Outerwear $___________
5. Value of Sports Plus $___________
6. Value of Children's Apparel $___________
7. TOTAL OF LIMITED INVENTORY ITEMS (add #2 through #6) $___________
8. AMOUNT, IF ANY, BY WHICH LIMITED INVENTORY ITEMS
EXCEED THRESHOLD (List amount by which #7 exceeds
30% of #1) $___________
9. Value of Inventory Items of Type(s) not Held in
Inventory on the date of the Loan and Security
Agreement or the 3 months prior thereto, the
inclusion of which Bank has not agreed to $___________
10. Value of Inventory Items held by warehousemen,
bailees or other third parties from whom Bank has
not received an acknowledgment from the third party
meeting the requirements of Section 7.10. $___________
11. Value of All Inventory Consigned $___________
12. Sum of #8, #9, #10 and #11 $___________
13. ELIGIBLE INVENTORY (#1 minus #12) $___________
14. BORROWING BASE (55% of #13)** $____________
* PLEASE NOTE THAT ELIGIBLE INVENTORY DOES NOT INCLUDE ANY SLOW-MOVING, DAMAGED,
OBSOLETE, DEFECTIVE OR SCRAP ITEMS. FURTHERMORE, FOR PURPOSES OF VALUING
INVENTORY, THE LOWER OF BORROWER'S COST AND THE FAIR MARKET VALUE OF SUCH
INVENTORY SHALL BE DEEMED ITS "VALUE."
** IF PERCENTAGE OF ELIGIBLE INVENTORY CONSTITUTING BORROWING BASE DECREASES,
55% SHOULD BE DECREASED TO NEW PERCENTAGE.
The undersigned represents and warrants that the foregoing is true, complete and
correct in all material respects, and that the information reflected in this
Borrowing Base Certificate complies with the representations and warranties set
forth in the Loan and Security Agreement between the undersigned and Comerica
Bank-California.
SMARTBARGAINS, INC.
By:
-----------------------------------
Authorized Signer
11
EXHIBIT E
COMPLIANCE CERTIFICATE
TO: COMERICA BANK-CALIFORNIA
FROM:
SMARTBARGAINS, INC.
The undersigned authorized officer of
SMARTBARGAINS, INC. hereby certifies that,
in accordance with the terms and conditions of the Loan and Security Agreement
between Borrower and Bank (the "Agreement"), (i) Borrower is in complete
compliance for the period ending _______________ with all required covenants,
including without limitation the ongoing registration of intellectual property
rights in accordance with Section 6.8, except as noted below and (ii) all
representations and warranties of Borrower stated in the Agreement are true and
correct in all material respects as of the date hereof, except those which
relate to a specific prior date. Attached herewith are the required documents
supporting the above certification. The undersigned officer further certifies
that these are prepared in accordance with Generally Accepted Accounting
Principles (GAAP) and are consistently applied from one period to the next
except as explained in an accompanying letter or footnotes.
PLEASE INDICATE COMPLIANCE STATUS BY CIRCLING YES/NO UNDER "COMPLIES" COLUMN.
REPORTING COVENANT REQUIRED COMPLIES
------------------ ------------------------ --------------
Board Approved Projections February 28 of each year Yes No
Monthly financial statements and A/R & A/P Agings Monthly within 30 days Yes No
Annual (CPA Audited) FYE within 120 days Yes No
10-K and 10-Q (as applicable) Yes No
Borrowing Base Cert. and Inventory Agings Weekly Yes No
Inventory Audit Bi-Annual Yes No
FINANCIAL COVENANT REQUIRED ACTUAL COMPLIES
------------------ ------------------------ ---------- --------------
Minimum Current Ratio 1.40:1.00 _____:1.00 Yes No
Trailing Fiscal Three Month Net Income (Loss) $________ $-________ Yes No
RETURNS AS A PERCENTAGE OF SALES _________%
--------------------------------
COMMENTS REGARDING EXCEPTIONS: See Attached.
BANK USE ONLY
Received by:
----------------------------------
Sincerely, AUTHORIZED SIGNER
Date:
-----------------------------------------
Verified:
----------------------------------------- -------------------------------------
SIGNATURE AUTHORIZED SIGNER
Date:
----------------------------------------- -----------------------------------------
TITLE
Compliance Status Yes No
-----------------------------------------
DATE
12
EXHIBIT F
FORM OF AMENDMENT TO CHANGE LETTER OF CREDIT SUBLIMIT
AMENDMENT # ____ TO LOAN AND SECURITY AGREEMENT
This Amendment to Loan and Security Agreement (the "Loan Agreement")
dated December 20, 2002 between SmartBargains, Inc. ("Borrower") and Comerica
Bank-California ("Bank") is made as of _________ __, 200_.
WHEREAS, pursuant to the definition of the "Letter of Credit Sublimit"
in the Loan Agreement, the parties contemplated that, upon the request of
Borrower and the approval of Bank thereof, the Letter of Credit Sublimit might
be increased or decreased; and
WHEREAS, Borrower is hereby submitting a request to Bank to
[increase/decrease] the Letter of Credit Sublimit to [$insert new figure]; and
WHEREAS, by signing below, Bank is hereby approving of such change in
the Loan Agreement to the Letter of Credit Sublimit.
NOW THEREFORE, in consideration of the foregoing and for other good and
valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the parties hereby agree as follows:
1. Borrower hereby represents and warrants to Bank that, to Borrower's
knowledge, no circumstances exist that constitute an Event of Default under the
Loan Agreement or that would, with the passage of time or the giving of notice,
or both, constitute an Event of Default.
2. The Loan Agreement is hereby amended to [increase/decrease] the
Letter of Credit Subimit to [$insert new figure]. Borrower hereby acknowledges
that Bank's agreement to so amend the Letter of Credit Sublimit is in reliance
upon Borrower's representation and warranty contained in paragraph 1 hereof.
3. In all other respects, the Loan Agreement, as amended through the
date hereof, shall remain as is and in full force and effect.
IN WITNESS WHEREOF, the parties hereto have caused this amendment to the Loan
Agreement to be executed by their duly authorized representatives as of the date
first above written.
SMARTBARGAINS, INC.
By:
-----------------------------------
Title:
--------------------------------
COMERICA BANK-CALIFORNIA
By:
-----------------------------------
Title:
--------------------------------
13
EXHIBIT G
WORKSHEET FOR CALCULATING UNUSED COMMITMENT AND
UNQUALIFYING ELIGIBLE INVENTORY AMOUNT
1. Committed Revolving Line $ 7,000,000
2. Letter of Credit Sublimit $
3. Subtract line 2 from line 1 $
4. Outstanding Advances $
5. Eligible Inventory (Adjusted as reflected in the Borrowing Base Certificate) $
6 Multiply line 5 times 55% $
7. Reduced Borrowing Base (Multiply line 5 times the reduced percentage of Eligible $
Inventory as set by Bank pursuant to the definition of "Borrowing Base")
8. Unqualifying Eligible Inventory Amount (Subtract line 7 from the lesser of line $
3 or line 6)
9. Unused Commitment (Subtract the sum of lines 4 and 8 from line 3) $
AGREEMENT TO PROVIDE INSURANCE
TO: COMERICA BANK-CALIFORNIA Date: _______________
c/o Hibernia Xxxxxxx Insurance Services
Xxxx Xxxxxx Xxx 0000
Xxxxxx Xxxxx, XX 00000-0000 Borrower: SMARTBARGAINS, INC.
In consideration of a loan in the amount of 7,000,000, secured by all
tangible personal property including inventory and equipment.
Borrower agrees to obtain adequate insurance coverage to remain in force
during the term of the loan.
Borrower also agrees to advise the below named agent to add Comerica
Bank-California as lender's loss payable on the new or existing insurance
policy, and to furnish Bank at above address with a copy of said
policy/endorsements and any subsequent renewal policies.
Borrower understands that the policy must contain:
1. Fire and extended coverage in an amount sufficient to cover:
(a) The amount of the loan, OR
(b) All existing encumbrances, whichever is greater.
2. Lender's "Loss Payable" Endorsement Form 438 BFU in favor of
Comerica Bank-California, or any other form acceptable to Bank.
INSURANCE INFORMATION
Insurance Co./Agent Telephone No.:
Agent's Address:
Signature of Obligor:
----------------------------------------
Title:
-------------------------------------------------------
FOR BANK USE ONLY
INSURANCE VERIFICATION: Date:
---------------------------------
Person Spoken to:
---------------------------------------------
Policy Number:
------------------------------------------------
Effective From: To:
------------------ -----------------------
Verified by:
--------------------------------------------------
COMERICA BANK-CALIFORNIA
CALIFORNIA'S BUSINESS BANKS AUTOMATIC DEBIT AUTHORIZATION
MEMBER FDIC
To: COMERICA BANK-CALIFORNIA
Re: LOAN # ___________________________________
You are hereby authorized and instructed to charge account No. 1892029545 in the
name of SMARTBARGAINS, INC.
for principal, interest and other payments due on above referenced loan as set
forth below and credit the loan referenced above.
____ Debit each interest payment as it becomes due according
to the terms of the Loan and Security Agreement and any
renewals or amendments thereof.
____ Debit each principal payment as it becomes due according
to the terms of the Loan and Security Agreement and any
renewals or amendments thereof.
____ Debit each payment for Bank Expenses as it becomes due
according to the terms of the Loan and Security Agreement and
any renewals or amendments thereof.
This Authorization is to remain in full force and effect until revoked in
writing.
Borrower Signature Date
---------------------------------------- -------------------------------
---------------------------------------- -------------------------------
---------------------------------------- -------------------------------
COMERICA BANK-CALIFORNIA/BOSTON OFFICE
Phone: (000) 000-0000 CLIENT AUTHORIZATION
Fax (000) 000-0000
GENERAL AUTHORIZATION
I hereby authorize Comerica Bank-California to use my company name and logo in
its marketing and advertising campaigns which is intended for Comerica
Bank-California's customers, prospects and shareholders.
Comerica Bank-California will forward any advertising or article or press
release relating to SmartBargains, Inc. for prior review and approval in
client's reasonable discretion.
--------------------------------------------------------
Signature
--------------------------------------------------------
Printed Name Title
SmartBargains, Inc.
--------------------------------------------------------
Company
00 Xxxx Xxxxxx
--------------------------------------------------------
Mailing Address
Xxxxxx, XX 00000
--------------------------------------------------------
City, State, Zip Code
--------------------------------------------------------
Phone Number
--------------------------------------------------------
Fax Number
--------------------------------------------------------
E-Mail
--------------------------------------------------------
Date
January 31, 2003
SmartBargains, Inc.
00 Xxxx Xxxxxx, 00xx Xxxxx
Xxxxxx, Xxxxxxxxxxxxx 00000
Attention: Xxxxxx Xxxxxx, CFO
Re: Consent and Amendment to Loan and Security Agreement
Dear Xx. Xxxxxx:
Reference is hereby made to a certain Loan and Security Agreement (the
"Loan Agreement") dated as of December 20, 2002 between SmartBargains, Inc. (the
"Borrower") and Comerica Bank-California (the "Bank"). Capitalized terms used
herein and not otherwise defined shall have the meanings as set forth in the
Loan Agreement.
Subject to obtaining the Bank's consent herein, the Borrower has
informed the Bank that it has formed a wholly-owned subsidiary that will serve
solely as a so-called "Massachusetts security corporation" (the "Securities
Subsidiary") and that it intends to transfer to the Securities Subsidiary all
Securities (as defined below) owned by the Borrower for the Securities
Subsidiary to own such Securities, to sell such Securities from time to time and
from time to time to make Permitted Investments therewith and with the proceeds
therefrom. The Borrower hereby acknowledges that the Securities constitute
Collateral under the Loan Agreement and that the Bank therefore has a security
interest therein pursuant to the terms of the Loan Agreement. The Borrower
further acknowledges that the Borrower is not permitted under the terms of the
Loan Agreement to make the transfer of the Securities to the Securities
Subsidiary (the "Transfer"). Accordingly, the Borrower has requested that the
Bank consent to the Transfer.
For the purposes of this letter, "Securities" means $8 million in cash
deposits.
In accordance with the request made by the Borrower, the Bank hereby
consents to the Transfer and the Bank agrees that the Borrower's ownership of
the Securities Subsidiary shall be a Permitted Investment, all subject, however,
to the following:
1. The Bank shall have received, in form and substance
satisfactory to the Bank in its sole discretion, the
following: (a) a subsidiary guaranty from the Securities
Subsidiary, (b) a securities control agreement with the
Securities Subsidiary and each entity that holds or otherwise
has possession of any of the Securities or the proceeds
therefrom, (c) a security agreement between the Bank and the
Securities Subsidiary which shall provide, among other things,
that the Bank shall have a first priority security interest in
all of the assets of the Securities Subsidiary and that the
Securities Subsidiary will comply with all obligations of the
Borrower contained in Sections 4.3, 6.1, 6.4, 6.6, 6.10, 6.11,
6.12, 7.1, 7.2, 7.3, 7.4, 7.5, 7.6
(except that the Securities Subsidiary may make distributions
to the Borrower), 7.7, 7.8 (except for transactions between
the Borrower and the Securities Subsidiary), 7.9 and 7.11 of
the Loan Agreement as if the Securities Subsidiary were the
Borrower, (d) financing statements to reflect the Bank's first
priority, all-asset security interest in the Securities
Subsidiary, (e) a certificate from the Clerk of the Securities
Subsidiary with respect to charter documents, incumbency and
resolutions authorizing the execution and delivery of the
Consent Documents and (f) good standing certificates from the
Massachusetts Secretary of State dated within the last 30 days
for the Borrower and the Securities Subsidiary. The foregoing
agreements listed in clauses (a), (b) and (c) above shall be
referred to herein, together with this letter agreement, as
the "Consent Documents."
2. Except as expressly set forth herein or in the Consent
Documents, the consent by the Bank to the Transfer in
accordance with the terms hereof shall in no way constitute a
modification or waiver of (i) any of the Bank's rights under
the Loan Agreement or any of the other Loan Documents, or (ii)
any Events of Default now or hereafter existing, nor shall the
same constitute a consent or waiver by the Bank to any similar
or different requests by the Borrower after the date hereof.
Accordingly, this consent shall not be effective unless all of the
foregoing conditions and requirements have been satisfied, all by no later than
5:00 p.m. (Boston time) on January 31, 2003.
Borrower hereby agrees that it will provide to Bank, no later than
February 7, 2003, current SOS Reports indicating that, except for Permitted
Liens, there are no other security interests or Liens of record in the
Securities or the Collateral against either the Borrower or the Securities
Subsidiary.
The Borrower hereby represents and warrants to the Bank that all of the
representations and warranties stated in the Loan Agreement are true, correct
and complete in all material respects as of the date hereof, provided however
that those representations and warranties expressly referring to another date
shall be true, correct and complete in all material respects as of such date,
and no other Event of Default has occurred and is continuing through the date
hereof. The Borrower acknowledges that the Bank has relied on the foregoing
representation and warranty as a material inducement to the Bank to enter into
this letter agreement.
In addition, the parties hereto hereby agree that the Loan Agreement
shall be and hereby is amended as follows:
4. In the following definitions in Exhibit A to the Loan
Agreement, the phrase "or any Subsidiary" shall be added after
each instance where the word "Borrower" appears therein:
"Accounts," "Borrower's Books," "Change in Control, "Loan
Documents," "Obligations" and "Subordinated Debt." Without
limitation of the foregoing, the parties hereby agree that the
Consent Documents shall be deemed to be Loan Documents for all
purposes.
5. The definition of "Permitted Transfers" in Exhibit A to the
Loan Agreement is hereby amended to add a clause (e) which
shall be as follows: "or (e) securities and such other assets
as a "security corporation" under the meaning of Massachusetts
General Laws Chapter 63, Section 38B may hold to SmartBargains
Security Corporation by Borrower (provided that at such time
Bank has a valid, perfected, first-priority Lien covering all
assets of SmartBargains Security Corporation) and to Borrower
from SmartBargains Security Corporation."
6. The definition of "Permitted Liens" in Exhibit A to the Loan
Agreement is hereby amended to replace "45" with "90" in
clause (a) thereof and by adding a clause (i) which shall be
as follows: "and (i) Liens in favor of Bank.".
7. The definition of "Permitted Investments" in Exhibit A to the
Loan Agreement is hereby amended by adding a clause (k) which
shall be as follows: "and (k) Investments consisting of cash
maintained in depository, operating or investment accounts
with Bank in accordance with Section 6.6 hereof.".
8. In Section 6.2(a) and Section 6.2(b) of the Loan Agreement,
the phrase "and consolidating" shall be added after the word
"consolidated" in each place where such word appears.
9. All references to "Borrower" in Section 8 (other than Section
8.4) of the Loan Agreement shall be replaced with "Borrower or
any Subsidiary" and all references to "Borrower's" shall be
replaced with "Borrower's or any Subsidiary's".
10. Section 8.4 of the Loan Agreement is hereby amended by
replacing the existing Section 8.4 with the following:
"Material Adverse Change. If there occurs a material adverse
change in Borrower's business or financial condition (for such
purposes treating SmartBargains Security Corporation as part
of Borrower), or if there is a material impairment of the
prospect of repayment of any portion of the Obligations or a
material impairment of the value or priority of Bank's
security interests in the Collateral under this Agreement or
in the Collateral under the Third Party Security Agreement
with SmartBargains Security Corporation dated January 31,
2003, taken together;"
11. Section 8.10 of the Loan Agreement is hereby replaced with the
following:
"Misrepresentations. If any material misrepresentation or
material misstatement exists now or hereafter in any warranty
or representation set forth herein, in any
other Loan Document, or in any certificate delivered to Bank
by any Responsible Officer pursuant to this Agreement or to
induce Bank to enter into this Agreement or any other Loan
Document."
Except as is expressly set forth above, the Loan Agreement shall
otherwise be unchanged and in full force and effect.
Without limitation of Section 2.5(d) of the Loan Agreement, the
Borrower hereby agrees that it shall pay all Bank Expenses incurred in
connection herewith and in connection with the other Consent Documents and other
documents referred to in paragraph 1 hereof promptly after receipt of an invoice
therefor.
[remainder of this page intentionally left blank]
If the foregoing correctly sets forth our understanding, please
indicate your assent below.
Very truly yours,
COMERICA BANK-CALIFORNIA
By: /s/ C. Xxxxxx Xxxxxxx
--------------------------------
Print Name: C. Xxxxxx Xxxxxxx
Title: Vice President
AGREED:
SMARTBARGAINS, INC.
By: /s/ Xxxxxx X. XxXxxxxxxx
--------------------------------
Print Name: Xxxxxx X. XxXxxxxxxx
Title: EVP and CFO
SMARTBARGAINS SECURITY CORPORATION
By: /s/ Xxxxxx X. XxXxxxxxxx
--------------------------------
Print Name: Xxxxxx X. XxXxxxxxxx
Title: Treasurer
June 1, 2003
SmartBargains, Inc.
00 Xxxx Xxxxxx, 00xx Xxxxx
Xxxxxx, Xxxxxxxxxxxxx 00000
Attention: Xxxxxx Xxxxxx, CFO
Re: Consent and Amendment to Loan and Security Agreement
Dear Xx. Xxxxxx:
Reference is hereby made to a certain Loan and Security Agreement dated
as of December 20, 2002 between SmartBargains, Inc. (the "Borrower") and
Comerica Bank-California (the "Bank"), as amended by that certain Amendment
dated as of January 31, 2003 (collectively, and as further amended from time to
time and in effect, the "Loan Agreement"). Capitalized terms used herein and not
otherwise defined shall have the meanings as set forth in the Loan Agreement.
Subject to obtaining the Bank's consent herein, the Borrower has
informed the Bank that it has formed a wholly owned subsidiary named
XxxxxXxxxxxxx.xxx, LP (the "Limited Partnership Subsidiary") and that it intends
to transfer to the Limited Partnership Subsidiary all of the Borrower's Internet
retail sales operations (the "Assets"), effective as of June 1, 2003. The
Borrower hereby acknowledges that the Assets constitute Collateral under the
Loan Agreement and that the Bank therefore has a security interest therein
pursuant to the terms of the Loan Agreement. The Borrower further acknowledges
that the Borrower is not permitted under the terms of the Loan Agreement to make
the transfer of the Assets to the Limited Partnership Subsidiary (the
"Transfer"). Accordingly, the Borrower has requested that the Bank consent to
the Transfer.
In accordance with the request made by the Borrower, the Bank hereby
consents to the Transfer and the Bank agrees that the Borrower's ownership of
the Limited Partnership Subsidiary shall be a Permitted Investment, all subject,
however, to the following:
1. The Bank shall have received, in form and substance
satisfactory to the Bank in its sole discretion, the
following: (a) a subsidiary guaranty from the Limited
Partnership Subsidiary, (b) a security agreement between the
Bank and the Limited Partnership Subsidiary which shall
provide, among other things, that the Bank shall have a first
priority security interest in all of the assets of the Limited
Partnership Subsidiary and that the Limited Partnership
Subsidiary will comply with all obligations of the Borrower
contained in Sections 4.3, 6.1, 6.3, 6.4, 6.6, 6.8, 6.10,
6.11, 6.12, 7.1, 7.2, 7.3, 7.4, 7.5, 7.6 (except that the
Limited
-1-
Partnership Subsidiary may make distributions to the
Borrower), 7.7, 7.8 (except for transactions between the
Borrower and the Limited Partnership Subsidiary), 7.9, 7.10
and 7.11 of the Loan Agreement as if the Limited Partnership
Subsidiary were the Borrower, (c) an intellectual property
security agreement between the Bank and the Limited
Partnership Subsidiary, (d) financing statements to reflect
the Bank's first priority, all-asset security interest in the
Limited Partnership Subsidiary, (e) a certificate from the
Limited Partnership Subsidiary dated the date hereof and
signed by a duly authorized representative thereof with
respect to all organizational documents relating to the
formation of the Limited Partnership Subsidiary (all of which
shall be, in form and substance, reasonably satisfactory to
the Bank), incumbency and resolutions authorizing the
execution and delivery of the Consent Documents and (f) a good
standing certificate from the Secretary of State of the State
of Delaware, dated within the last 30 days, for the Borrower
and the Limited Partnership Subsidiary, respectively. The
foregoing agreements listed in clauses (a), (b) and (c) above
shall be referred to herein, together with this letter
agreement, as the "Consent Documents."
2. Except as expressly set forth herein or in the Consent
Documents, the consent by the Bank to the Transfer in
accordance with the terms hereof shall in no way constitute a
modification or waiver of (i) any of the Bank's rights under
the Loan Agreement or any of the other Loan Documents, or (ii)
any Events of Default now or hereafter existing, nor shall the
same constitute a consent or waiver by the Bank to any similar
or different requests by the Borrower after the date hereof.
Accordingly, this consent shall not be effective unless all of the
foregoing conditions and requirements have been satisfied, all by no later than
5:00 p.m. (Boston time) on May 31, 2003.
Borrower hereby agrees that it will provide to Bank, no later than May
28, 2003, current SOS Reports indicating that, except for Permitted Liens, there
are no other security interests or Liens of record in the Assets or the
Collateral against either the Borrower or the Limited Partnership Subsidiary.
The Borrower hereby represents and warrants to the Bank that all of the
representations and warranties stated in the Loan Agreement are true, correct
and complete in all material respects as of the date hereof, provided however
that those representations and warranties expressly referring to another date
shall be true, correct and complete in all material respects as of such date,
and no other Event of Default has occurred and is continuing through the date
hereof. The Borrower and the Limited Partnership Subsidiary each represents and
warrants to the Bank that each of the Consent Documents to which it is a party
and any other documents delivered by the Borrower or the Limited Partnership
Subsidiary, respectively, in connection with the transaction contemplated hereby
constitutes the legal, valid and binding obligations of the respective party,
enforceable against the Borrower or the Limited Partnership Subsidiary, as
-2-
the case may be, in accordance with their respective terms. The Borrower
acknowledges that the Bank has relied on the foregoing representations and
warranties as a material inducement to the Bank to enter into this letter
agreement.
In addition, the parties hereto hereby agree that the Loan Agreement
shall be and hereby is amended as follows:
3. In the following definitions in Exhibit A to the Loan
Agreement, the phrase "or any Subsidiary" shall be added after
each instance where the word "Borrower" appears therein:
"Accounts," "Borrower's Books," "Change in Control, "Eligible
Inventory," "Equipment," "Intellectual Property Collateral,"
"Inventory," "Loan Documents," "Obligations," "Subordinated
Debt" and "Trademarks." Without limitation of the foregoing,
the parties hereby agree that the Consent Documents shall be
deemed to be Loan Documents for all purposes.
4. The definition of "Permitted Transfers" in Exhibit A to the
Loan Agreement is hereby amended to add a clause (f) which
shall be as follows: "or (f) any assets of the Borrower by the
Borrower to XxxxxXxxxxxxx.xxx, LP (provided that at such time
Bank has a valid, perfected, first-priority Lien, other than a
Permitted Lien, covering all assets of XxxxxXxxxxxxx.xxx, LP)
and to Borrower from XxxxxXxxxxxxx.xxx, LP."
5. The definition of "Permitted Investments" in Exhibit A to the
Loan Agreement is hereby amended by adding the following
clause at the end of subsection (e): ", other than any
Investments by Borrower in or to XxxxxXxxxxxxx.xxx, LP or from
XxxxxXxxxxxxx.xxx, LP to the Borrower".
6. Section 8.4 of the Loan Agreement is hereby amended by
replacing the existing Section 8.4 with the following:
"Material Adverse Change. If there occurs a material adverse
change in Borrower's business or financial condition (for such
purposes treating SmartBargains Security Corporation or any
other Subsidiary, including, without limitation,
XxxxxXxxxxxxx.xxx, LP, as part of Borrower), or if there is a
material impairment of the prospect of repayment of any
portion of the Obligations or a material impairment of the
value or priority of Bank's security interests in the
Collateral under this Agreement or in the Collateral under
either of the Third Party Security Agreements with
SmartBargains Security Corporation and XxxxxXxxxxxxx.xxx, LP,
respectively, dated January 31, 2003 and June 1, 2003,
respectively, taken together;"
-3-
Except as is expressly set forth above, the Loan Agreement shall
otherwise be unchanged and in full force and effect.
Without limitation of Section 2.5(d) of the Loan Agreement, the
Borrower hereby agrees that it shall pay all Bank Expenses incurred in
connection herewith and in connection with the other Consent Documents and other
documents referred to in paragraph 1 hereof promptly after receipt of an invoice
therefor.
[remainder of this page intentionally left blank]
-4-
If the foregoing correctly sets forth our understanding, please
indicate your assent below.
Very truly yours,
COMERICA BANK-CALIFORNIA
By: /s/ C. Xxxxxx Xxxxxxx
--------------------------------
Print Name: C. Xxxxxx Xxxxxxx
Title: Vice President
AGREED:
SMARTBARGAINS, INC.
By: /s/ Xxxxxxx X. Xxxxxx
--------------------------------
Print Name: Xxxxxxx X. Xxxxxx
Title: Chief Financial Officer
XXXXXXXXXXXXX.XXX, LP
By: XX.XXX, INC.
Its General Partner
By: /s/ Xxxxxxx X. Xxxxxx
------------------------------
Print Name: Xxxxxxx X. Xxxxxx
Title: Treasurer
-5-
SMARTBARGAINS, INC.
00 Xxxx Xxxxxx, 00xx Xxxxx
Xxxxxx, XX 00000
Dated as of: June 26, 2003
Comerica Bank - California
000 Xxxxxxx Xxxxxx, 00xx Xxxxx
Xxxxxx, Xxxxxxxxxxxxx 00000
Re: Amendment to Loan and Security Agreement
Ladies and Gentlemen:
We refer to the Loan and Security Agreement between SmartBargains, Inc.
(the "Borrower") and Comerica Bank-California ("Comerica") dated as of December
20, 2002, as amended (the "Agreement").
Terms used in this letter of agreement (this "Amendment") which are not
defined herein, but which are defined in the Agreement, shall have the same
respective meanings herein as therein.
We have requested you to make certain amendments to the Agreement. You
have advised us that you are prepared and would be pleased to make the
amendments so requested by us on the condition that we join with you in this
Amendment.
Accordingly, in consideration of these premises, the promises, mutual
covenants and agreements contained in this Amendment, and fully intending to be
legally bound by this Amendment, we hereby agree with you as follows:
ARTICLE I
AMENDMENTS TO AGREEMENT
Effective as of May 3, 2003 (the "Effective Date"), and subject to the
fulfillment of the conditions precedent contained in Article II of this
Amendment, the Agreement is amended as follows:
(a) The term "Loan Documents" shall, wherever used in the Agreement or
any of the other Loan Documents, be deemed to also mean and include this
Amendment, dated as of the date hereof, between the Borrower and Comerica.
-1-
(b) Section 6.7(a) of the Agreement is amended to read in its entirety
as follows:
"(a) Current Assets to Liabilities. A ratio of Current Assets to
Current Liabilities at all times of at least 1.2 to 1.00."
(c) Section 6.7(b) of the Agreement is amended to read in its entirety
as follows:
"(b) Trailing Net Income (Loss). Trailing Fiscal Three Month Net Income
(Loss) of not more than, in the case of a net loss, or not less than, in the
case of net income, the amount set forth below opposite each such testing date:
Trailing Net Income
Date (Loss)
----------------- --------------------
May 3, 2003 $ (1,965,000)
May 31, 2003 $ (1,862,000)
July 5, 2003 $ (2,131,000)
August 2, 2003 $ (1,684,000)
August 30, 2003 $ (1,574,000)
October 4, 2003 $ (735,000)
November 1, 2003 $ (393,000)
November 29, 2003 $ 1,106,000
January 3, 2004 $ 2,503,000
January 31, 2004 $ 3,266,000
The parties hereto agree and acknowledge that the testing dates and amounts for
the Trailing Net Income (Loss) covenant for the period commencing February 1,
2004 through the Revolving Credit Maturity Date shall be determined by Comerica,
in its sole discretion, with reference to the annual projections of the Borrower
for the fiscal year 2005 approved by Borrower's Board of Directors."
(d) The definition of "Borrowing Base" is hereby amended to read in its
entirety as follows:
"Borrowing Base" means an amount equal to 53% of the Eligible
Inventory, as determined by Bank with reference to the most recent Borrowing
Base Certificate delivered by Borrower, provided, however that (a) any Inventory
that is held by a warehouseman, bailee or other third party from whom Bank has
not received a satisfactory acknowledgment that such warehouseman, bailee or
third party is holding or will hold possession of the Inventory for Bank's
benefit shall not be included in the Borrowing Base, and (b), if a third party
appraisal of the Inventory causes Bank reasonably to be concerned that the
Eligible Inventory will not serve as adequate security for the maximum amount of
Advances that may be requested under Section 2.1(b)(i) at that percentage of
Eligible Inventory, Bank may reduce such percentage by notice to Borrower to the
extent Bank deems reasonably necessary so that Eligible Inventory will serve as
adequate security for the maximum amount of Advances, provided however that, if
Bank reduces
-2-
the Borrowing Base and such reduction causes Borrower to be obligated to repay
amounts loaned, Borrower shall have 30 days to repay such amounts to Bank
provided that no other Event of Default has occurred and is then continuing.
(e) The definition of "Eligible Inventory" is hereby amended to read in
its entirety as follows:
"Eligible Inventory" means the value of the Inventory in
Borrower's custody (or being held for Borrower by NewRoads BPOi, Inc. pursuant
to the Warehouse Agreement) and in which Bank has a valid and perfected security
interest that is stored at a secure location (and, for the purpose of clarity,
the current NewRoads BPOi, Inc. facility in Hebron, Kentucky and substantially
similar facilities shall be deemed to be "secure" for purposes hereof), in the
United States of America, but excluding any slow-moving, damaged, obsolete,
defective or scrap items, provided, however, that (a) if more than 30% of the
value of Borrower's Inventory at any time is comprised of items constituting
jewelry, sportswear, women's outerwear, "sports plus," and children's apparel
(with all such terms including the types of items included in such categories on
Borrower's website as of the date of this Agreement and such other items as a
reasonable person would consider to fall within such categories), the excess
value of such items (i.e., above 30%) shall not be included in Eligible
Inventory, (b) if the Inventory after the date of this Agreement contains items
of a type or types other than the types of Inventory held by Borrower on the
date of this Agreement or within the last 3 months, Borrower shall notify Bank
of such new type(s) of Inventory and Bank may decide in its sole discretion
whether such new type(s) of Inventory will be included in Eligible Inventory,
(c) if any Inventory is consigned to Borrower by a third party, such Inventory
shall not be Eligible Inventory and (d) if any Inventory is held by Borrower for
more than 120 days, such Inventory shall not be Eligible Inventory. For purposes
of valuing Inventory, the lower of Borrower's cost and the fair market value of
such Inventory shall be deemed its "value."
(f) The definition of "Revolving Maturity Date" contained in Exhibit A
to the Agreement is hereby amended to read in its entirety as follows:
"Revolving Credit Maturity Date" means May 31, 2004.
(g) Exhibit D to the Agreement is hereby amended in its entirety to
read as set forth in Annex A to this Amendment.
(h) Exhibit E to the Agreement is hereby amended in its entirety to
read as set forth in Annex B to this Amendment.
-3-
ARTICLE II
CONDITIONS PRECEDENT TO AMENDMENT
Comerica's agreement to amend the Agreement as of the Effective Date is
subject to the fulfillment to the satisfaction of Comerica on the date hereof of
the following conditions precedent:
(a) The representations contained in Section 5 of the Agreement shall
be true and correct as of the date hereof as though made on and as of the date
hereof except with respect to representations that specifically relate to a
prior date;
(b) No default or Event of Default under any of the Loan Documents
shall have occurred and be continuing;
(c) The Borrower and Comerica shall each have duly executed and
delivered this Amendment;
(d) XxxxxXxxxxxxx.xxx, LP and SmartBargains Security Corporation shall
each have consented to this Amendment; and
(e) Comerica shall have received an amendment fee in the amount of
$37,500.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants to you as follows:
(a) Representations in Agreement. Each of the representations and
warranties made by the Borrower to Comerica in the Agreement was true, correct
and complete when made and is true, correct and complete on and as of the date
hereof with the same full force and effect as if each of such representations
and warranties had been made by the Borrower on the date of this Amendment and
in this Amendment.
(b) No Defaults or Events of Default. No default or Event of Default
exists on the date of this Amendment (after giving effect to all of the
arrangements and transactions contemplated by this Amendment).
(c) No Conflicts. The execution and delivery and performance by the
Borrower of this Amendment will not (i) conflict with or constitute a breach or
contravention of any provision of law, statute, rule or regulation to which
Borrower is subject, except to the extent such conflict, breach or contravention
would not reasonably be expected to cause a Material Adverse Effect, (ii)
conflict with or result in any breach or contravention of any judgment, order,
writ, injunction, license or permit applicable to Borrower, or (iii) result in
the creation or imposition of any lien,
-4-
charge or encumbrance of any nature whatsoever upon any of the property of or
assets of the Borrower, other than in favor of Comerica; and
(d) Binding Effect of Documents. This Amendment has been duly executed
and delivered to Comerica by the Borrower and is in full force and effect as of
the date hereof, and the agreements and obligations of the Borrower contained
herein constitute legal, valid and binding obligations of the Borrower
enforceable against the Borrower in accordance with their respective terms.
ARTICLE IV
MISCELLANEOUS
This Amendment may be executed in any number of counterparts, each of
which when executed and delivered shall be deemed an original, but all of which
together shall constitute one instrument. In making proof of this Amendment, it
shall not be necessary to produce or account for more than one counterpart
thereof signed by each of the parties hereto. Except to the extent specifically
amended and supplemented hereby, all of the terms, conditions and the provisions
of the Agreement and each of the Loan Documents shall remain unmodified, and the
Agreement and each of the Loan Documents, as amended and supplemented by this
Amendment, are confirmed as being in full force and effect.
-5-
If you are in agreement with the foregoing, please sign the form of
acceptance on the enclosed counterpart of this Amendment and return such
counterpart to the undersigned, whereupon this Amendment, as so accepted by you,
shall become a binding agreement between you and the undersigned.
Very truly yours,
SMARTBARGAINS, INC.
By: /s/ Xxxxxxx X. Xxxxxx
------------------------------------
Title: CFO
The foregoing Amendment is hereby accepted by the undersigned as of
June 26, 2003.
COMERICA BANK - CALIFORNIA
By: /s/ C. Xxxxxx Xxxxxxx
--------------------------------
Title: Vice President
-6-
CONSENT TO AMENDMENT TO LOAN AND SECURITY AGREEMENT
The undersigned have each previously executed an Unconditional Guaranty
and a Third Party Security Agreement with respect to the Obligations under the
Loan Agreement. By consenting below, each of the undersigned hereby absolutely
and unconditionally (i) reaffirms its respective unconditional guaranty and its
respective security agreement, and (ii) acknowledges and agrees to the terms and
conditions of this Amendment.
IN WITNESS WHEREOF, the parties hereto have executed this Consent under
seal as of June 26, 2003.
SMARTBARGAINS SECURITY CORPORATION
By: /s/ Xxxxxxx X. Xxxxxx
--------------------------------
Title: Treasurer
XXXXXXXXXXXXX.XXX, LP
By: /s/ Xxxxxxx X. Xxxxxx
--------------------------------
Title: Treasurer
-7-
Annex A
EXHIBIT D
BORROWING BASE CERTIFICATE
-----------------------------------------------------------------------------------------------------------------------------
Borrower: SMARTBARGAINS, INC. Lender: COMERICA BANK-CALIFORNIA
Commitment Amount: $7,000,000 (less Letter of Credit Sublimit of $5,000,000)
-----------------------------------------------------------------------------------------------------------------------------
ELIGIBLE INVENTORY BEFORE ADJUSTMENT
1. Eligible Inventory before adjustment as of [DATE]* $
-----------
ADJUSTED ELIGIBLE INVENTORY
2. Value of Jewelry $
-----------
3. Value of Sportswear $
-----------
4. Value of Women's Outerwear $
-----------
5. Value of Sports Plus $
-----------
6. Value of Children's Apparel $
-----------
7. TOTAL OF LIMITED INVENTORY ITEMS (add #2 through #6) $
-----------
8. AMOUNT, IF ANY, BY WHICH LIMITED INVENTORY ITEMS EXCEED THRESHOLD (List
amount by which #7 exceeds 30% of #1) $
-----------
9. Value of Inventory Items of Type(s) not Held in Inventory on the date of
the Loan and Security Agreement or the 3 months prior thereto, the
inclusion of which Bank has not agreed to $
-----------
10. Value of Inventory Items held by warehousemen, bailees or
other third parties from whom Bank has not received an
acknowledgment from the third party meeting the requirements
of Section 7.10. $
-----------
11. Value of All Inventory Consigned $
-----------
12. Value of All Inventory held for more than 120 days $
-----------
13. Sum of #0, #0, #00, #00 and #12 $
-----------
14. ELIGIBLE INVENTORY (#1 minus #13) $
-----------
15. BORROWING BASE (53% of #14)** $
-----------
* PLEASE NOTE THAT ELIGIBLE INVENTORY DOES NOT INCLUDE ANY SLOW-MOVING, DAMAGED,
OBSOLETE, DEFECTIVE OR SCRAP ITEMS. FURTHERMORE, FOR PURPOSES OF VALUING
INVENTORY, THE LOWER OF BORROWER'S COST AND THE FAIR MARKET VALUE OF SUCH
INVENTORY SHALL BE DEEMED ITS "VALUE."
** IF PERCENTAGE OF ELIGIBLE INVENTORY CONSTITUTING BORROWING BASE DECREASES,
53% SHOULD BE DECREASED TO NEW PERCENTAGE.
The undersigned represents and warrants that the foregoing is true, complete and
correct in all material respects, and that the information reflected in this
Borrowing Base Certificate complies with the representations and warranties set
forth in the Loan and Security Agreement between the undersigned and Comerica
Bank-California.
SMARTBARGAINS, INC.
By:
--------------------------------
Authorized Signer
-8-
ANNEX B
EXHIBIT E
COMPLIANCE CERTIFICATE
TO: COMERICA BANK-CALIFORNIA
FROM: SMARTBARGAINS, INC.
The undersigned authorized officer of SMARTBARGAINS, INC. hereby certifies that,
in accordance with the terms and conditions of the Loan and Security Agreement
between Borrower and Bank (the "Agreement"), (i) Borrower is in complete
compliance for the period ending _______________ with all required covenants,
including without limitation the ongoing registration of intellectual property
rights in accordance with Section 6.8, except as noted below and (ii) all
representations and warranties of Borrower stated in the Agreement are true and
correct in all material respects as of the date hereof, except those which
relate to a specific prior date. Attached herewith are the required documents
supporting the above certification. The undersigned officer further certifies
that these are prepared in accordance with Generally Accepted Accounting
Principles (GAAP) and are consistently applied from one period to the next
except as explained in an accompanying letter or footnotes.
PLEASE INDICATE COMPLIANCE STATUS BY CIRCLING YES/NO UNDER "COMPLIES" COLUMN.
REPORTING COVENANT REQUIRED COMPLIES
------------------ -------- --------
Board Approved Projections February 28 of each year Yes No
Monthly financial statements and A/R & A/P Agings Monthly within 30 days Yes No
Annual (CPA Audited) FYE within 120 days Yes No
10-K and 10-Q (as applicable) Yes No
Borrowing Base Cert. and Inventory Agings Weekly Yes No
Inventory Audit Bi-Annual Yes No
FINANCIAL COVENANT REQUIRED ACTUAL COMPLIES
------------------ -------- ------ --------
Minimum Current Ratio 1.2:1.00 :1.00 Yes No
-----
Trailing Fiscal Three Month Net Income (Loss) $ $ Yes No
-------- --------
RETURNS AS A PERCENTAGE OF SALES %
-------------------------------- ---------
COMMENTS REGARDING EXCEPTIONS: See Attached.
BANK USE ONLY
Received by:
-------------------------------------------------
Sincerely, AUTHORIZED SIGNER
Date:
--------------------------------------------------------
Verified:
--------------------------------------------- AUTHORIZED SIGNER
SIGNATURE
Date:
--------------------------------------------- --------------------------------------------------------
TITLE
Compliance Status Yes No
---------------------------------------------
DATE
-9-
SMARTBARGAINS, INC.
00 Xxxx Xxxxxx, 00xx Xxxxx
Xxxxxx, XX 00000
Dated as of March 12, 2004
Comerica Bank
000 Xxxxxxx Xxxxxx, 00xx Xxxxx
Xxxxxx, XX 00000
Re: Forbearance, Waiver and Amendment to Loan and Security Agreement
Ladies and Gentlemen:
Reference is hereby made to the Loan and Security Agreement between
SmartBargains, Inc. (the "Borrowers") and Comerica Bank ("Comerica") dated as of
December 20, 2002, as amended by letter agreements dated January 31, 2003 and
June 26, 2003 respectively (the "Agreement").
Capitalized terms used in this letter agreement (this "Amendment") that
are not defined herein shall have the meanings ascribed thereto in the
Agreement.
The Borrower has requested Comerica to make certain forbearances and
waivers under, and amendments to, the Agreement. Comerica has advised the
Borrower that Comerica is willing to make the forbearances, waiver and
amendments so requested on the terms and conditions set forth herein.
Accordingly, in consideration of these premises, the promises, mutual
covenants and agreements contained in this Amendment, the receipt and adequacy
of which are hereby acknowledged, and fully intending to be legally bound by
this Amendment, the parties hereto hereby agree as follows:
ARTICLE I
FORBEARANCE AND WAIVER
(a) Forbearance
The Borrower has informed Comerica that it has failed to comply with and
observe its obligations contained in Section 6.7(b) of the Agreement with
respect to the testing dates at November 29, 2003, January 3, 2004 and January
31, 2004. Effective as of the date hereof (the "Effective Date"), and subject to
the fulfillment of the conditions precedent contained in Article III of this
Amendment, so long as the Agreement is in effect and no other Event of
1
Default has occurred and is continuing, Comerica, without waiving any Default or
Event of Default under the Loan Documents, shall forebear from taking further
action at this time immediately to enforce payment and exercise its other rights
and remedies with respect to the aforementioned breaches of Section 6.7(b).
Neither the failure or delay by Comerica to exercise any of its rights or
remedies, nor the acceptance at any time by Comerica of any payments from the
Borrower, nor any provision of this Amendment, shall operate to amend, modify,
waive, release or limit the Lender's rights and remedies or the Borrower's
obligations with respect to the Borrower's breaches of Section 6.7(b) of the
Agreement or with respect to any other Event of Default, except that Comerica
agrees to forbear from exercising its rights and remedies to the extent and on
the terms and conditions specifically provided in this Amendment.
(b) Waiver.
Comerica hereby agrees to waive the provision at the end of Section 6.7(b)
which contemplates that Comerica will determine the testing dates and amounts
for the Trailing Net Income (Loss) covenant for the period commencing February
1, 2004 through the Revolving Credit Maturity Date.
ARTICLE II
AMENDMENTS TO AGREEMENT
Effective as of the Effective Date, and subject to the fulfillment of the
conditions precedent contained in Article III of this Amendment, the Agreement
is amended as follows:
(a) The term "Loan Documents" shall, wherever used in any Agreement or any
of the other Loan Documents, be deemed to also mean and include this Amendment.
(b) A new Section 6.7(c) shall be added, which shall be as follows:
"(c) Minimum Unrestricted Cash at Comerica. Without limiting Section
6.6, Borrower shall at all time maintain its accounts at Bank at
least $5 million in unrestricted cash that is not subject to any
Lien other than Bank's Lien with respect thereto."
(c) Exhibit E to the Agreement is hereby amended in its entirety to read
as set forth in Annex A to this Amendment.
2
ARTICLE III
CONDITIONS PRECEDENT TO AMENDMENT
Comerica's agreement to amend the Agreement as of the Effective Date is
subject to the fulfillment to the satisfaction of Comerica on the date hereof of
the following conditions precedent:
(a) The representations contained in Section 5 of the Agreement shall be
true and correct as of the date hereof as though made on and as of the date
hereof except with respect to representations that specifically relate to a
prior date;
(b) No default or Event of Default under any of the Loan Documents shall
have occurred and be occurring, except the Borrower's breaches of Section 6.7(b)
with respect to which Comerica is forbearing under Article I;
(c) The Borrower and Comerica shall each have duly executed and delivered
this Amendment;
(d) XxxxxXxxxxxxx.xxx, LP and SmartBargains Security Corporation shall
each have consents to this Amendment; and
(e) The Borrower shall have paid to Comerica an amendment fee in the
amount of $[TBD].
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants to Comerica as follows:
(a) Representations in Agreement. Each of the representations and
warranties made by the Borrower to Comerica in the Agreement was true, correct
and complete when made and is true, correct and complete on and as of the date
hereof (except with respect to representations that specifically relate to a
prior date) with the same force and effect as if each of such representations
and warranties had been made by the Borrower on the date of this Amendment and
in this Amendment.
(b) No Defaults or Events of Default. No default or Event of Default
exists on the date of this Amendment (except the Borrower's breaches of Section
6.7(b) with respect to which Comerica is forbearing under Article I).
(c) No Conflicts. The execution, delivery and performance by the Borrower
of this Amendment will not (i) conflict with or constitute a breach or
contravention of any provision of law, statute, rule or regulation to which
Borrower is subject, (ii) conflict with or result in any breach or contravention
of any judgment, order, writ, injunction, license or permit applicable to
3
Borrower, or (ii) result in the creation or imposition of any lien, charge or
encumbrance of any nature whatsoever upon any of the property of or assets of
the Borrower, other than in favor of Comerica; and
(d) Binding Effect of Documents. This Amendment has been duly executed and
delivered to Comerica by the Borrower and is in full force and effect as of the
date hereof, and the agreements and obligations of the Borrower contained herein
constitute legal, valid and binding obligations of the Borrower enforceable
against the Borrower in accordance with their respective terms.
ARTICLE V
MISCELLANEOUS
This Amendment may be executed in any number of counterparts, each of
which when executed and delivered shall be deemed an original, but all of which
together shall constitute one instrument. In making proof of this Amendment, it
shall not be necessary to produce or account for more than one counterpart
thereof signed by each of the parties hereto. Except to the extent specifically
amended and supplemented hereby, all of the terms, conditions and the provisions
of the Agreement and each of the Loan Documents shall remain unmodified, and the
Agreement and each of the Loan Documents, as amended and supplemented by this
Amendment, are confirmed as being in full force and effect.
4
If the foregoing correctly sets forth our understanding, please indicate
your assent below.
Very truly yours,
SMARTBARGAINS, INC.
By: /s/ Xxxxxxx X. Xxxxxx
--------------------------------
Title: Chief Financial Officer
The foregoing Amendment is hereby accepted by the undersigned as of March
12, 2004.
COMERICA BANK
By: Xxxxxxx Xxxxxx
---------------------------------
Title: Senior Vice President
5
CONSENT TO AMENDMENT TO LOAN AND SECURITY AGREEMENT
The undersigned have each previously executed an Unconditional Guaranty
and a Third Party Security Agreement with respect to the Obligations under the
Agreement. By consenting below, each of the undersigned hereby absolutely and
unconditionally (i) reaffirms its respective unconditional guaranty and its
respective security agreement, and (ii) acknowledges and agrees to the terms and
conditions of this Amendment.
IN WITNESS WHEREOF, the parties hereto have executed this Consent under
the seal as of March 12, 2004.
SMARTBARGAINS SECURITY CORPORATION
By: /s/ Xxxxxxx X. Xxxxxx
-----------------------------------------
Title: Chief Financial Officer
XXXXXXXXXXXXX.XXX, L.P.
By: /s/ Xxxxxxx X. Xxxxxx
-----------------------------------------
Title: Chief Financial OfficeHr
6
SMARTBARGAINS, INC.
00 Xxxx Xxxxxx, 00xx Xxxxx
Xxxxxx, XX 00000
Dated as of: May 25, 2004
Comerica Bank
000 Xxxxxxx Xxxxxx, 00xx Xxxxx
Xxxxxx, Xxxxxxxxxxxxx 00000
Re: Forbearance, Waiver and Amendment to Loan and Security
Agreement
Ladies and Gentlemen:
Reference is hereby made to the Loan and Security Agreement between
SmartBargains, Inc. (the "Borrower") and Comerica Bank ("Comerica") dated as of
December 20, 2002, as amended by letter agreements dated January 31, 2003, June
26, 2003, and March 12, 2004 respectively (the "Agreement").
Capitalized terms used in this letter agreement (this "Amendment") that
are not defined herein shall have the meanings ascribed thereto in the
Agreement.
The Borrower has requested Comerica to make certain forbearances and
waivers under, and amendments to, the Agreement. Comerica has advised the
Borrower that Comerica is willing to make the forbearances, waivers and
amendments so requested on the terms and conditions set forth herein.
Accordingly, in consideration of these premises, the promises, mutual
covenants and agreements contained in this Amendment, the receipt and adequacy
of which are hereby acknowledged, and fully intending to be legally bound by
this Amendment, the parties hereto hereby agree as follows:
ARTICLE I
FORBEARANCE
The Borrower has informed Comerica that it has failed to comply with
and observe its obligations contained in Section 6.2(b) of the Agreement with
respect to delivering to Comerica Borrower's 2003 fiscal year, audited
consolidated financial statements, within 120 days of fiscal year end and its
obligations contained in Section 6.7(b) of the Agreement with respect to the
testing dates at November 29, 2003, January 3, 2004 and January 31, 2004.
Effective as of the date hereof (the "Effective Date"), and subject to the
fulfillment of the conditions precedent contained in Article III of this
Amendment, so long as the Agreement is in effect and no other Event of Default
has occurred and is continuing, Comerica, without waiving any Default or Event
of Default under the Loan Documents, shall forbear from taking further action at
this time immediately to enforce payment and exercise its other rights and
remedies with respect to the aforementioned breaches of Sections 6.2(b) and
6.7(b) until June 30, 2004.
Neither the failure or delay by Comerica to exercise any of its rights
or remedies, nor the acceptance at any time by Comerica of any payments from the
Borrower, nor any provision of this Amendment, shall operate
-1-
to amend, modify, waive, release or limit the Lender's rights and remedies or
the Borrower's obligations with respect to the Borrower's breaches of Sections
6.2(b) and 6.7(b) of the Agreement or with respect to any other Event of
Default, except that Comerica agrees to forbear from exercising its rights and
remedies to the extent and on the terms and conditions specifically provided in
this Amendment.
ARTICLE II
AMENDMENTS TO AGREEMENT
Effective as of the Effective Date, and subject to the fulfillment of
the conditions precedent contained in Article III of this Amendment, the
Agreement is amended as follows:
(a) The term "Loan Documents" shall, wherever used in the Agreement or
any of the other Loan Documents, be deemed to also mean and include this
Amendment.
(b) The term "Revolving Maturity Date" is hereby amended to read as
follows:
"Revolving Maturity Date" means June 30, 2004."
(c) For the fiscal year ending 2003, the requirement to deliver audited
consolidated financial statements, set forth in Section 6.2(b) of the Agreement,
is hereby extended to June 30, 2004.
ARTICLE III
CONDITIONS PRECEDENT TO AMENDMENT
Comerica's agreement to amend the Agreement as of the Effective Date is
subject to the fulfillment to the satisfaction of Comerica on the date hereof of
the following conditions precedent:
(a) The representations contained in Section 5 of the Agreement shall
be true and correct as of the date hereof as though made on and as of the date
hereof except with respect to representations that specifically relate to a
prior date;
(b) No default or Event of Default under any of the Loan Documents
shall have occurred and be continuing, except the Borrower's breaches of
Sections 6.2(b) and 6.7(b) with respect to which Comerica is forbearing under
Article I;
(c) The Borrower and Comerica shall each have duly executed and
delivered this Amendment;
(d) XxxxxXxxxxxxx.xxx, LP and SmartBargains Security Corporation shall
each have consented to this Amendment; and
-2-
(e) The Borrower shall have paid to Comerica an amendment fee in the
amount of $250.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants to Comerica as follows:
(a) Representations in Agreement. Each of the representations and
warranties made by the Borrower to Comerica in the Agreement was true, correct
and complete when made and is true, correct and complete on and as of the date
hereof (except with respect to representations that specifically relate to a
prior date) with the same force and effect as if each of such representations
and warranties had been made by the Borrower on the date of this Amendment and
in this Amendment.
(b) No Defaults or Events of Default. No default or Event of Default
exists on the date of this Amendment (except the Borrower's breaches of Sections
6.2(b) and 6.7(b) with respect to which Comerica is forbearing under Article I).
(c) No Conflicts. The execution, delivery and performance by the
Borrower of this Amendment will not (i) conflict with or constitute a breach or
contravention of any provision of law, statute, rule or regulation to which
Borrower is subject, (ii) conflict with or result in any breach or contravention
of any judgment, order, writ, injunction, license or permit applicable to
Borrower, or (iii) result in the creation or imposition of any lien, charge or
encumbrance of any nature whatsoever upon any of the property of or assets of
the Borrower, other than in favor of Comerica; and
(d) Binding Effect of Documents. This Amendment has been duly executed
and delivered to Comerica by the Borrower and is in full force and effect as of
the date hereof, and the agreements and obligations of the Borrower contained
herein constitute legal, valid and binding obligations of the Borrower
enforceable against the Borrower in accordance with their respective terms.
ARTICLE V
MISCELLANEOUS
This Amendment may be executed in any number of counterparts, each of
which when executed and delivered shall be deemed an original, but all of which
together shall constitute one instrument. In making proof of this Amendment, it
shall not be necessary to produce or account for more than one counterpart
thereof signed by each of the parties hereto. Except to the extent specifically
amended and supplemented hereby, all of the terms, conditions and the provisions
of the Agreement and each of the Loan Documents shall remain unmodified, and the
Agreement and each of the Loan Documents, as amended and supplemented by this
Amendment, are confirmed as being in full force and effect.
-3-
If the foregoing correctly sets forth our understanding, please
indicate your assent below.
Very truly yours,
SMARTBARGAINS, INC.
By: /s/ Xxxxxxx X. Xxxxxx
-----------------------------------------
Title: CFO
The foregoing Amendment is hereby accepted by the undersigned as of May
26, 2004.
COMERICA BANK
By: /s/ Xxxxx Xxxxx
---------------------------------------
Title: Vice President
-4-
CONSENT TO AMENDMENT TO LOAN AND SECURITY AGREEMENT
The undersigned have each previously executed an Unconditional Guaranty
and a Third Party Security Agreement with respect to the Obligations under the
Agreement. By consenting below, each of the undersigned hereby absolutely and
unconditionally (i) reaffirms its respective unconditional guaranty and its
respective security agreement, and (ii) acknowledges and agrees to the terms and
conditions of this Amendment.
IN WITNESS WHEREOF, the parties hereto have executed this Consent under
seal as of May 26, 2004.
SMARTBARGAINS SECURITY CORPORATION
By: /s/ Xxxxxxx X. Xxxxxx
---------------------------------------
Title: Treasurer
XXXXXXXXXXXXX.XXX, LP
By: /s/ Xxxxxxx X. Xxxxxx
---------------------------------------
Title: Treasurer
-5-
SIXTH AMENDMENT
TO
LOAN AND SECURITY AGREEMENT
This Sixth Amendment to Loan and Security Agreement is entered into as
of June 29, 2004 (the "Amendment"), by and between COMERICA BANK, successor by
merger to COMERICA BANK - CALIFORNIA ("Bank") and SMARTBARGAINS, INC.
("Borrower").
RECITALS
Borrower and Bank are parties to that certain Loan and Security
Agreement dated as of December 20, 2002, as amended, including without
limitation by letter agreements dated January 31, 2003, June 1, 2003, June 26,
2003, March 12, 2004, and May 25, 2004 (collectively, the "Agreement"). The
parties desire to amend the Agreement in accordance with the terms of this
Amendment.
NOW, THEREFORE, the parties agree as follows:
1. Section 2.1(b)(iii) of the Agreement is hereby amended in its
entirety to read as follows:
(iii) Letter of Credit Sublimit. Subject to the availability
under the Committed Revolving Line, and in reliance on the
representations and warranties of Borrower set forth herein, at any
time and from time to time from the date hereof through the Business
Day immediately prior to the Revolving Maturity Date, Bank shall issue
for the account of Borrower such Letters of Credit as Borrower may
request by delivering to Bank a duly executed letter of credit
application on Bank's standard form; provided, however, that the
outstanding and undrawn amounts under all such Letters of Credit (i)
shall not at any time exceed the Letter of Credit Sublimit, and (ii)
shall be deemed to constitute Advances for the purpose of calculating
availability under the Committed Revolving Line. Any drawn but
unreimbursed amounts under any Letters of Credit shall be charged as
Advances against the Committed Revolving Line. Unless Borrower shall
have deposited with Bank cash collateral in an amount sufficient to
cover all undrawn amounts under each such Letter of Credit and Bank
shall have agreed in writing, no Letter of Credit shall have an
expiration date that is later than the Revolving Maturity Date. All
Letters of Credit shall be in form and substance acceptable to Bank in
its sole discretion and shall be subject to the terms and conditions of
Bank's form application and letter of credit agreement.
2. Section 2.3(a) of the Agreement is hereby amended to read as
follows:
(a) Interest Rates. Except as set forth in Section 2.3(b), the
Advances shall bear interest, on the outstanding daily balance thereof,
at a variable rate equal to 1% above the Prime Rate.
3. Section 2.5(a) of the Agreement is hereby amended to read as
follows:
(a) [Intentionally Omitted.]
4. Section 3.1(c) of the Agreement is hereby amended to read as
follows:
(c) Borrower shall have (i) opened its primary deposit,
checking, cash management and investment accounts with Bank; (ii)
transferred all of Borrower's cash reserves currently held with other
financial institutions to such accounts with Bank, except (A) funds in
Borrower's Payroll Account (as defined below) with Fleet National Bank
in accordance with Section 6.6 and (B) funds in Borrower's operating
account at Fleet National Bank (the "Existing Fleet Checking Account")
(not to exceed $100,000 at any time on deposit); and (iii) Borrower
shall also have established a Sweep Account with Bank and taken such
other steps with respect thereto as are required pursuant to Section
6.13 below.
1
5. Section 6.6 of the Agreement is hereby amended to read as follows:
6.6 Primary Depository. Borrower shall maintain all of its
depository, operating and investment accounts with Bank or Bank's
Affiliates, provided, however, that (a) Borrower shall be permitted to
maintain at Fleet National Bank an account (the "Payroll Account") for
the sole purpose of fulfilling Borrower's payroll obligations
(including unemployment and payroll taxes) and Borrower agrees that it
shall not maintain in such account at any time amounts in excess of
what is reasonably required to meet such obligations for the next
payroll period; (b) Borrower shall be permitted to maintain such amount
of funds in the Existing Fleet Checking Account as is permitted by
Section 3.1(c); and (c) upon the successful consummation of a
successful initial public offering of the stock of Borrower, Borrower
shall be permitted to maintain any funds in excess of $20,000,000 in
banks or financial institutions other than Bank or Bank's Affiliates,
and in each case under (a), (b) and (c) of this Section 6.6, Borrower
shall not be required to obtain a control agreement or other security
arrangement from such bank or financial institution.
6. Section 6.7 of the Agreement is hereby amended in its entirety to
read as follows:
6.7 Financial Covenants. Borrower shall maintain the following
financial ratios and covenants:
(a) Current Assets to Liabilities Ratio. At all times, a ratio
of Current Assets to Current Liabilities (a "Current Ratio") of at
least 1.45 to 1.00.
(b) Trailing Net Income (Loss). For each quarter preceding a
quarter in which Borrower does not maintain a Current Ratio of at least
2.00 to 1.00 at all times, Trailing Fiscal Three Month Net Income
(Loss) of not more, in the case of a net loss, or not less than, in the
case of net income: ($1,500,000) during Borrower's 3 fiscal months
preceding July 31, 2004; ($500,000) during Borrower's 3 fiscal months
preceding October 31, 2004; and $1,500,000 during Borrower's 3 fiscal
months preceding January 31, 2005. Thereafter, this covenant shall be
reset by Bank based on Borrower's projections delivered to Bank in
accordance with Section 6.2(c).
(c) [Intentionally Omitted.]
7. Section 6.13 of the Agreement is hereby amended in its entirety to
read as follows:
6.13 Sweep Account. As of the Closing Date, Borrower shall
open and shall thereafter at all times during the term of this
Agreement maintain with Bank an account (the "Sweep Account"), into
which all funds received by Borrower from any source shall be deposited
and to which, without limitation, all credit card receivables of
Borrower shall be directed. Borrower shall direct the company that
processes its credit card transactions to deliver all funds and/or
direct all wire transfers in connection with such transactions to the
Sweep Account. Borrower shall hold in trust for Bank all amounts that
Borrower receives despite the directions to make payments to the Sweep
Account and immediately deliver such payments to Bank in their original
form as received from the customer or credit card processing company,
with proper endorsements (if applicable) for deposit into the Sweep
Account. Borrower irrevocably authorizes Bank to transfer to the Sweep
Account any funds that have been deposited or transferred into any
other accounts or that Bank has received by wire transfer, check, cash
or otherwise that should have been deposited into the Sweep Account
pursuant to the foregoing. No party other than Bank shall have any
right to access the funds in the Sweep Account, provided, however that
Borrower's credit card processors may obtain access to funds in the
Sweep Account if and to the extent of Borrower's agreement with such
credit card processors. Bank shall, on a daily basis, apply all funds
in the Sweep Account to repay amounts loaned to Borrower by Bank
(including principal and outstanding interest) pursuant to Credit
Extensions, and, subject to Section 2.4(b), Bank shall thereafter
credit Borrower's investment account at Bank, or, at Borrower's
direction, to the extent permitted under Section 6.6 to another bank or
financial institution, any remaining funds in the Sweep Account.
2
8. Section 7.7 of the Agreement is hereby amended in its entirety to
read as follows:
7.7 Investments. Directly or indirectly acquire or own, or
make any Investment in or to any Person, or permit any of its
Subsidiaries so to do, other than Permitted Investments, or maintain or
invest any of its property with a Person other than Bank or Bank's
Affiliates unless (a) such Person has entered into a control agreement
with Bank, in form and substance satisfactory to Bank, or (b) otherwise
permitted under Section 6.6 hereof, or suffer or permit any Subsidiary
to be a party to, or be bound by, an agreement that restricts such
Subsidiary from paying dividends or otherwise distributing property to
Borrower.
9. A new Section 8.11 is hereby added to the Agreement as an additional
Event of Default to read as follows:
8.11 Guaranty. If any guaranty of all or a portion of the
Obligations (a "Guaranty") ceases for any reason to be in full force
and effect, or any guarantor fails to perform any obligation under any
Guaranty or a security agreement securing any Guaranty beyond any
applicable cure period provided for therein (collectively, the
"Guaranty Documents"), or any event of default occurs under any
Guaranty Document or any guarantor revokes or purports to revoke a
Guaranty, or any material misrepresentation or material misstatement
exists now or hereafter in any warranty or representation set forth in
any Guaranty Document or in any certificate delivered to Bank by any
officer of Borrower or a guarantor in connection with any Guaranty
Document, or if any of the circumstances described in Sections 8.3
through 8.8 occur with respect to any guarantor.
10. A new Section 13 is hereby added to the Agreement to read as
follows:
13. REFERENCE PROVISION.
If and only if the jury trial waiver set forth in Section 11
of this Agreement is invalidated for any reason by a court of law,
statute or otherwise, the reference provisions set forth below shall be
substituted in place of the jury trial waiver. So long as the jury
trial waiver remains valid, the reference provisions set forth in this
Section shall be inapplicable.
(a) Each controversy, dispute or claim (each, a "Claim")
between the parties arising out of or relating to this Agreement, any
security agreement executed by Borrower in favor of Bank, any note
executed by Borrower in favor of Bank or any other document, instrument
or agreement executed by Borrower with or in favor of Bank
(collectively in this Section, the "Loan Documents"), other than (i)
all matters in connection with nonjudicial foreclosure of security
interests in real or personal property; or (ii) the appointment of a
receiver or the exercise of other provisional remedies (any of which
may be initiated pursuant to applicable law) that are not settled in
writing within thirty (30) Business Days days after the date on which a
party subject to the Loan Documents gives written notice to all other
parties that a Claim exists (the "Claim Date") shall be resolved by a
reference proceeding in California in accordance with the provisions of
Section 638 et seq. of the California Code of Civil Procedure, or their
successor sections ("CCP"), which shall constitute the exclusive remedy
for the resolution of any Claim concerning the Loan Documents,
including whether such Claim is subject to the reference proceeding.
Except as set forth in this section, the parties waive the right to
initiate legal proceedings against each other concerning each such
Claim. Venue for these proceedings shall be in the Superior Court in
the County where the real property, if any, is located or in a County
where venue is otherwise appropriate under state law (the "Court"). By
mutual agreement, the parties shall select a retired Judge of the Court
to serve as referee, and if they cannot so agree within fifteen (15)
Business Days after the Claim Date, the Presiding Judge of the Court
(or his or her representative) shall promptly select the referee. A
request for appointment of a referee may be heard on an ex parte or
expedited basis. The referee shall be appointed to sit as a temporary
judge, with all the powers of a temporary judge, as authorized by law,
and upon selection should take and subscribe to the oath of office as
provided for in Rule 244 of the California Rules of Court (or any
subsequently enacted Rule). Each party shall have one peremptory
challenge pursuant to CCP Section 170.6. Upon being selected,
3
the referee shall (a) be requested to set the matter for a status and
trial-setting conference within fifteen (15) days after the date of
selection and (b) if practicable, try any and all issues of law or fact
and report a statement of decision upon them within one hundred eighty
(180) days of the date of selection. Any decision rendered by the
referee will be final, binding and conclusive, and judgment shall be
entered pursuant to CCP Section 644 in any court in the State of
California having jurisdiction. The parties shall complete all
discovery no later than fifteen (15) days before the first trial date
established by the referee. The referee may extend such period in the
event of a party's refusal to provide requested discovery for any
reason whatsoever, including, without limitation, legal objections
raised to such discovery or unavailability of a witness due to absence
or illness. No party shall be entitled to "priority" in conducting
discovery. Either party may take depositions upon thirty (30) days
written notice, and shall respond to requests for production or
inspection of documents within thirty (30) days after service. All
disputes relating to discovery which cannot be resolved by the parties
shall be submitted to the referee whose decision shall be final and
binding upon the parties. Pending appointment of the referee as
provided herein, the Superior Court is empowered to issue temporary
and/or provisional remedies, as appropriate.
(b) Except as expressly set forth herein, the referee shall
determine the manner in which the reference proceeding is conducted
including the time and place of all hearings, the order of presentation
of evidence, and all other questions that arise with respect to the
course of the reference proceeding. Except for trial, all proceedings
and hearings conducted before the referee shall be conducted without a
court reporter unless a party requests a court reporter. The party
making such a request shall have the obligation to arrange for and pay
for the court reporter. Subject to the referee's power to award costs
to the prevailing party, the parties shall equally bear the costs of
the court reporter at the trial and the referee's expenses.
(c) The referee shall determine all issues in accordance with
existing California case and statutory law. California rules of
evidence applicable to proceedings at law will apply to the reference
proceeding. The referee shall be empowered to enter equitable as well
as legal relief, to provide all temporary and/or provisional remedies
and to enter equitable orders that shall be binding upon the parties.
At the close of the reference proceeding, the referee shall issue a
single judgment disposing of all the claims of the parties that are the
subject of the reference. The parties reserve the right (i) to contest
or appeal from the final judgment or any appealable order or appealable
judgment entered by the referee and (ii) to obtain findings of fact,
conclusions of laws, and a written statement of decision, and (iii) to
move for a new trial or a different judgment, which new trial, if
granted, shall be a reference proceeding under this provision.
(d) If the enabling legislation which provides for appointment
of a referee is repealed (and no successor statute is enacted), any
dispute between the parties that would otherwise be determined by the
reference procedure herein described will be resolved and determined by
arbitration conducted by a retired judge of the Court, in accordance
with the California Arbitration Act Section 1280 through Section 1294.2
of the CCP as amended from time to time. The limitations with respect
to discovery as set forth in this Section shall apply to any such
arbitration proceeding.
11. Exhibit A to the Agreement is hereby amended to add or amend the
following defined terms to read as follows:
"Committed Revolving Line" means a Credit Extension of up to
$10,000,000 (inclusive of any amounts outstanding under the Letter of
Credit Sublimit).
"Current Liabilities" means, as of any applicable date, all
amounts that should, in accordance with GAAP, be included as current
liabilities on the consolidated balance sheet of Borrower and its
Subsidiaries, as at such date, including all Indebtedness that is
payable upon demand or within 1 year from the date of determination
thereof unless such Indebtedness is renewable or extendible at the
option of Borrower or any Subsidiary to a date more than 1 year from
the date of determination, plus, to the extent not already included
therein, all outstanding
4
Credit Extensions made under this Agreement (including issued and
outstanding letters of credit that do not have a corresponding accounts
payable).
"Letter of Credit Sublimit" means a sublimit under the
Committed Revolving Line not to exceed $3,500,000 for Letters of
Credit, provided however that Borrower may request an increase or a
decrease in the Letter of Credit Sublimit at any time, and upon the
approval of Bank thereof, in its sole discretion, the parties shall
amend this Agreement to provide for such change to the Letter of Credit
Sublimit using a form of amendment based on Exhibit F attached hereto.
"Permitted Indebtedness" means:
(a) Indebtedness of Borrower in favor of Bank arising under
this Agreement or any other Loan Document;
(b) Indebtedness existing on the date of this Sixth Amendment
and disclosed in Section 7.4 of the Schedule;
(c) Indebtedness for purchase money security interests not to
exceed $1,000,000 in the aggregate in any fiscal year of Borrower
secured by a lien described in clause (c) of the defined term
"Permitted Liens," provided such Indebtedness does not at the time the
financed equipment is acquired, exceed the lesser of the cost or fair
market value of the equipment financed with such Indebtedness;
(d) Subordinated Debt, upon terms and conditions satisfactory
to Bank and, in any event, pursuant to a formal subordination agreement
in form satisfactory to Bank;
(e) Indebtedness to trade creditors incurred in the ordinary
course of business; and
(f) Extensions, refinancings and renewals of any items of
Permitted Indebtedness, provided that the principal amount is not
increased or the terms modified to impose more burdensome terms upon
Borrower or its Subsidiary, as the case may be.
"Permitted Liens" means the following:
(a) Any Liens existing on the date of the Sixth Amendment and
disclosed in Section 5.3 of the Schedule;
(b) Liens for taxes, fees, assessments or other governmental
charges or levies, either not delinquent or being contested in good
faith by appropriate proceedings and for which Borrower maintains
adequate reserves, provided the same have no priority over any of
Bank's security interests;
(c) Liens not to exceed $1,000,000 in the aggregate for each
fiscal year of the Borrower (i) upon or in any Equipment acquired or
held by Borrower or any of its Subsidiaries to secure the purchase
price of such Equipment or indebtedness incurred solely for the purpose
of financing the acquisition or lease of such Equipment, or (ii)
existing on such Equipment at the time of its acquisition, provided
that the Lien is confined solely to the property so acquired and
improvements thereon, and the proceeds of such Equipment;
(d) Liens incurred in connection with the extension, renewal
or refinancing of the indebtedness secured by Liens of the type
described in clauses (a) through (c) above, provided that any
extension, renewal or replacement Lien shall be limited to the property
encumbered by the existing Lien and the principal amount of the
indebtedness being extended, renewed or refinanced does not increase;
5
(e) Liens arising from judgments, decrees or attachments in
circumstances not constituting an Event of Default under Sections 8.5
or 8.9;
(f) Liens in favor of other financial institutions arising in
connection with Borrower's deposit accounts and investment property
held at such institutions, provided that, except as set forth in
Section 6.6 hereof, Bank has a perfected security interest in the
amounts held in such deposit accounts and Borrower is permitted to
maintain such accounts and investment property at such other financial
institutions pursuant to the terms of this Agreement;
(g) Lien (the "Star Lien") in favor of Star Diamond Group,
Inc. ("Star") arising from the consignment of Inventory goods by Star
to Borrower from time to time in the ordinary course of Borrower's
business consistent with past practice; and
(h) Other Liens not described above arising in the ordinary
course of business and not having or not reasonably likely to have a
Material Adverse Effect on Borrower and its Subsidiaries taken as a
whole.
"Revolving Maturity Date" means June 30, 2005.
12. Exhibit D to the Agreement is hereby amended and replaced in its
entirety by Exhibit D attached hereto.
13. Exhibit E to the Agreement is hereby amended and replaced in its
entirety by Exhibit E attached hereto.
14. On or before July 31, 2004, Borrower shall deliver to Bank an
executed Warrant to Purchase Stock in substantially in the form attached as
Annex A hereto, such final form to be mutually agreed to by the parties hereto,
which Warrant shall be fully earned as of the date of this Amendment.
15. Waivers and Additional Covenants.
15.1 Subject to the satisfaction of the terms and conditions
set forth in Section 18 hereof, the Bank hereby waives any Events of
Default which have occurred by virtue of the failure of the Borrower to
comply with the provisions of Section 7.10 of the Credit Agreement as a
result of the Borrower storing Inventory with UPS Supply Chain
Solutions Inc. ("UPS") without notifying UPS of the Bank's security
interests and obtaining an acknowledgement from UPS. The Bank further
waives any Events of Default resulting from the inclusion by the
Borrower of any Inventory stored with UPS in the Borrowing Base and any
documents or certificates relating thereto. The Bank consents to the
Borrower storing its Inventory with UPS without such notice and
waivers, and to the inclusion of such Inventory in the Borrowing Base,
through July 31, 2004. The Borrower covenants to obtain an
acknowledgement of the Bank's first position lien on its Inventory from
UPS in a form reasonably satisfactory to Bank on or before July 31,
2004.
15.2 Subject to the satisfaction of the terms and conditions
set forth in Section 18 hereof, the Bank hereby waives any Events of
Default which have occurred by virtue of the failure of the Borrower to
comply with the provisions of Section 7.10 of the Credit Agreement as a
result of the Borrower storing Equipment with SAVVIS Asset Holdings,
Inc. or its affiliates ("SAVVIS") without notifying SAVVIS of the
Bank's security interests and obtaining an acknowledgement from SAVVIS.
The Bank consents to the Borrowing storing Equipment with SAVVIS
without such notice and waivers through August 31, 2004. The Borrower
covenants to obtain an acknowledgement from SAVVIS (including the
SAVVIS affiliate holding Borrower's Equipment) in a form reasonably
satisfactory to Bank on or before August 31, 2004.
15.3 Bank does not waive any other failure by Borrower to
perform its Obligations under the Loan Documents, and Bank waives
Borrower's obligations under Section 7.10 only with respect to the
transactions and for the time periods described above. This waiver is
not a continuing waiver with respect to any failure to perform any
Obligation after July 31, 2004, or August 31, 2004, as applicable.
6
16. Unless otherwise defined, all initially capitalized terms in this
Amendment shall be as defined in the Agreement. The Agreement, as amended
hereby, shall be and remain in full force and effect in accordance with its
respective terms and hereby is ratified and confirmed in all respects. Except as
expressly set forth herein, the execution, delivery, and performance of this
Amendment shall not operate as a waiver of, or as an amendment of, any right,
power, or remedy of Bank under the Agreement, as in effect prior to the date
hereof. Borrower ratifies and reaffirms the continuing effectiveness of all
promissory notes, guaranties, security agreements, mortgages, deeds of trust,
environmental agreements, and all other instruments, documents and agreements
entered into in connection with the Agreement. The Schedule is hereby amended by
replacing Sections 5.3, 5.6, 5.12 and 7.4 thereof with the corresponding
Sections of the Schedule attached to this Sixth Amendment.
17. This Amendment may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one instrument.
18. As a condition to the effectiveness of this Amendment, Bank shall
have received, in form and substance satisfactory to Bank, the following:
(a) this Amendment, duly executed by Borrower;
(b) Secretary's Certificate;
(c) two Affirmations of Guaranty;
(d) disbursement instructions, auto-debit authorization, and
agreement to provide insurance;
(e) a nonrefundable amendment fee equal to $7,500 plus an
amount equal to all Bank Expenses incurred through the date of this Amendment;
and
(f) such other documents, and completion of such other
matters, as Bank may reasonably deem necessary or appropriate.
IN WITNESS WHEREOF, the undersigned have executed this Amendment as of
the first date above written.
SMARTBARGAINS, INC.
By: /s/ Xxxxxxx X. Xxxxxx
----------------------------------
Title: CFO
-------------------------------
COMERICA BANK
By: /s/ Xxxxxxx X. Xxxxxxx
----------------------------------
Title: Assistant Vice President
-------------------------------
7
EXHIBIT D
BORROWING BASE CERTIFICATE
--------------------------------------------------------------------------------
Borrower: SMARTBARGAINS, INC. Lender: COMERICA BANK
Commitment Amount: $10,000,000 (less Letter of Credit Sublimit of $3,500,000)
--------------------------------------------------------------------------------
ELIGIBLE INVENTORY BEFORE ADJUSTMENT
1. Eligible Inventory before adjustment as of [DATE]* $___________
ADJUSTED ELIGIBLE INVENTORY
2. Value of Jewelry $___________
3. Value of Sportswear $___________
4. Value of Women's Outerwear $___________
5. Value of Sports Plus $___________
6. Value of Children's Apparel $___________
7. TOTAL OF LIMITED INVENTORY ITEMS (add #2 through #6) $___________
8. AMOUNT, IF ANY, BY WHICH LIMITED INVENTORY ITEMS EXCEED THRESHOLD (List $___________
amount by which #7 exceeds 30% of #1)
9. Value of Inventory Items of Type(s) not Held in Inventory on the date of $___________
the Loan and Security Agreement or the 3 months prior thereto, the
inclusion of which Bank has not agreed to
10. Value of Inventory Items held by warehousemen, bailees or other third $___________
parties from whom Bank has not received an acknowledgment from the
third party meeting the requirements of Section 7.10.
11. Value of All Inventory Consigned $___________
12. Value of all Inventory held for more than 120 days $___________
13. Sum of #0, #0, #00, #00 and #12 $___________
14. ELIGIBLE INVENTORY (#1 minus #13) $___________
15. BORROWING BASE (53% of #13)** $____________
* PLEASE NOTE THAT ELIGIBLE INVENTORY DOES NOT INCLUDE ANY SLOW-MOVING, DAMAGED,
OBSOLETE, DEFECTIVE OR SCRAP ITEMS. FURTHERMORE, FOR PURPOSES OF VALUING
INVENTORY, THE LOWER OF BORROWER'S COST AND THE FAIR MARKET VALUE OF SUCH
INVENTORY SHALL BE DEEMED ITS "VALUE."
** IF PERCENTAGE OF ELIGIBLE INVENTORY CONSTITUTING BORROWING BASE DECREASES,
53% SHOULD BE DECREASED TO NEW PERCENTAGE.
The undersigned represents and warrants that the foregoing is true, complete and
correct in all material respects, and that the information reflected in this
Borrowing Base Certificate complies with the representations and warranties set
forth in the Loan and Security Agreement between the undersigned and Comerica
Bank.
SMARTBARGAINS, INC.
By:
-----------------------------
Authorized Signer
8
EXHIBIT E
COMPLIANCE CERTIFICATE
TO: COMERICA BANK
FROM: SMARTBARGAINS, INC.
The undersigned authorized officer of SMARTBARGAINS, INC. hereby
certifies that, in accordance with the terms and conditions of the Loan
and Security Agreement between Borrower and Bank (the "Agreement"), (i)
Borrower is in complete compliance for the period ending
_______________ with all required covenants, including without
limitation the ongoing registration of intellectual property rights in
accordance with Section 6.8, except as noted below and (ii) all
representations and warranties of Borrower stated in the Agreement are
true and correct in all material respects as of the date hereof, except
those which relate to a specific prior date. Attached herewith are the
required documents supporting the above certification. The undersigned
officer further certifies that these are prepared in accordance with
Generally Accepted Accounting Principles (GAAP) and are consistently
applied from one period to the next except as explained in an
accompanying letter or footnotes.
PLEASE INDICATE COMPLIANCE STATUS BY CIRCLING YES/NO UNDER "COMPLIES"
COLUMN.
REPORTING COVENANT REQUIRED COMPLIES
Board Approved Projections February 28 of each year Yes No
Monthly financial statements and A/R & A/P Agings Monthly within 30 days Yes No
Annual (CPA Audited) FYE within 120 days Yes No
10K and 10Q (as applicable) Yes No
Borrowing Base Cert. and Inventory Agings Weekly Yes No
Inventory Audit Bi-Annual Yes No
FINANCIAL COVENANT REQUIRED ACTUAL COMPLIES
Minimum Current Ratio 1.45:1.00 _____:1.00 Yes No
Trailing Fiscal Three Month Net Income (Loss) * $________ Yes No
*For each quarter preceding a quarter in which Borrower does not maintain a Current Ratio of at least 2.00 to 1.00 at
all times, Trailing Fiscal Three Month Net Income (Loss) of not more, in the case of a net loss, or not less than, in
the case of net income: ($1,500,000) during Borrower's 3 fiscal months preceding July 31, 2004; ($500,000) during
Borrower's 3 fiscal months preceding October 31, 2004; and $1,500,000 during Borrower's 3 fiscal months preceding
January 31, 2005. Thereafter, this covenant shall be reset by Bank based on Borrower's projections delivered to Bank in
accordance with Section 6.2(c).
RETURNS AS A PERCENTAGE OF SALES _________%
COMMENTS REGARDING EXCEPTIONS: See Attached.
BANK USE ONLY
Received by:
---------------------
Sincerely, AUTHORIZED SIGNER
Date:
----------------------------
Verified:
------------------------------------ ------------------------
SIGNATURE AUTHORIZED SIGNER
Date:
------------------------------------ ----------------------------
TITLE
Compliance Status Yes No
------------------------------------
DATE
9
Annex A
Warrant to Purchase Stock
10
THIS WARRANT AND THE SHARES ISSUABLE HEREUNDER HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED OR
OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT
OR PURSUANT TO RULE 144 OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE
CORPORATION AND ITS COUNSEL THAT SUCH REGISTRATION IS NOT REQUIRED.
WARRANT TO PURCHASE STOCK
Company: SmartBargains, Inc., a Delaware corporation
Number of Shares: 125,000
Class of Stock: Common Stock
Warrant Price: See below
Issue Date: July __, 2004
Expiration Date: July __, 2009 (Subject to Section 4.1)
THIS WARRANT CERTIFIES THAT, for good and valuable consideration, the
receipt of which is hereby acknowledged, COMERICA BANK or its assignee
("Holder") is entitled to purchase the number of fully paid and nonassessable
shares of the class of securities (the "Shares") of SmartBargains, Inc. (the
"Company") at the initial exercise price per Share (the "Warrant Price") all as
set forth above and as adjusted pursuant to Article 2 of this warrant, subject
to the provisions and upon the terms and conditions set forth in this warrant.
The Warrant Price per share shall equal the initial "Price to Public"
specified in the final prospectus with respect to the initial public offering of
the Company's common stock (the "IPO").
Article 1. EXERCISE.
1.1 Method of Exercise. Holder may exercise this warrant by delivering
this warrant and a duly executed Notice of Exercise in substantially the form
attached as Appendix 1 to the principal office of the Company. Unless Holder is
exercising the conversion right set forth in Section 1.2, Holder shall also
deliver to the Company a check for the aggregate Warrant Price for the Shares
being purchased.
1.2 Conversion Right. In lieu of exercising this warrant as specified
in Section 1.1, Holder may from time to time convert this warrant, in whole or
in part, into a number of Shares determined by dividing (a) the aggregate fair
market value of the Shares or other securities otherwise issuable upon exercise
of this warrant minus the aggregate Warrant Price of such Shares by (b) the fair
market value of one Share. The fair market value of the Shares shall be
determined pursuant to Section 1.3.
1.3 Fair Market Value. If the Shares are traded regularly in a public
market, the fair market value of the Shares shall be the closing price of the
Shares reported for the business day immediately before Holder delivers its
Notice of Exercise to the Company. If the Shares are not regularly traded in a
public market, the Board of Directors of the Company shall determine fair market
value in its reasonable good faith judgment.
1.4 Delivery of Certificate and New Warrant. Promptly after Holder
exercises or converts this warrant, the Company shall deliver to Holder
certificates for the Shares acquired and, if this warrant has not been fully
exercised or converted and has not expired, a new warrant representing the
Shares not so acquired.
1.5 Replacement of Warrants. On receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this warrant and, in the case of loss, theft or destruction, on delivery of an
indemnity agreement reasonably satisfactory in form and amount to the Company
or, in the case of mutilation, on surrender and cancellation of this warrant,
the Company at its expense shall execute and deliver, in lieu of this warrant, a
new warrant of like tenor.
1.6 Repurchase on Sale, Merger, or Consolidation of the Company.
1.6.1 "Acquisition." For the purpose of this warrant, "Acquisition"
means any sale, license, or other disposition of all or substantially all of the
assets (including intellectual property) of the Company, or any reorganization,
consolidation, or merger of the Company where the holders of the Company's
securities before the transaction beneficially own less than 50% of the
outstanding voting securities of the surviving entity after the transaction.
1.6.2 Assumption of Warrant. If upon the closing of any Acquisition
the successor entity assumes the obligations of this warrant, then this warrant
shall be exercisable for the same securities, cash, and property as would be
payable for the Shares issuable upon exercise of the unexercised portion of this
warrant as if such Shares were outstanding on the record date for the
Acquisition and subsequent closing. The Warrant Price shall be adjusted
accordingly. The Company shall use reasonable efforts to cause the surviving
corporation to assume the obligations of this warrant.
1.6.3 Nonassumption. If upon the closing of any Acquisition the
successor entity does not assume the obligations of this warrant and Holder has
not otherwise exercised this warrant in full, then this warrant shall be deemed
to have been automatically converted pursuant to Section 1.2 and thereafter
Holder shall participate in the Acquisition on the same terms as other holders
of the same class of securities of the Company.
Article 2. ADJUSTMENTS TO THE SHARES.
2.1 Stock Dividends, Splits, Etc. If the Company declares or pays a
dividend on its common stock payable in common stock, or other securities,
subdivides the outstanding common stock into a greater amount of common stock,
then upon exercise of this warrant, for each Share acquired, Holder shall
receive, without cost to Holder, the total number and kind of securities to
which Holder would have been entitled had Holder owned the Shares of record as
of the date the dividend or subdivision occurred.
2.2 Reclassification, Exchange or Substitution. Upon any
reclassification, exchange, substitution, or other event that results in a
change of the number and/or class of the securities issuable upon exercise or
conversion of this warrant, Holder shall be entitled to receive, upon exercise
or conversion of this warrant, the number and kind of securities and property
that Holder would have received for the Shares if this warrant had been
exercised immediately before such reclassification, exchange, substitution, or
other event. The Company or its successor shall promptly issue to Holder a new
warrant for such new securities or other property. The new warrant shall provide
for adjustments which shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Article 2 including, without limitation,
adjustments to the Warrant Price and to the number of securities or property
issuable upon exercise of the new warrant. The provisions of this Section 2.2
shall similarly apply to successive reclassifications, exchanges, substitutions,
or other events.
2.3 Adjustments for Combinations, Etc. If the outstanding Shares are
combined or consolidated, by reclassification or otherwise, into a lesser number
of shares, the Warrant Price shall be proportionately increased. If the
outstanding Shares are combined or consolidated, by reclassification or
otherwise, into a greater number of shares, the Warrant Price shall be
proportionately decreased. Without
2
limiting the generality of the foregoing, the parties agree that the initial
number of Shares (125,000) shall be adjusted to reflect the reverse stock split
to be effected in connection with the IPO without any change to the Warrant
Price, which shall equal the "Price to Public" specified in the final prospectus
with respect to the IPO.
2.4 No Impairment. The Company shall not, by amendment of its
Certificate of Incorporation or through a reorganization, transfer of assets,
consolidation, merger, dissolution, issue, or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed under this warrant by the Company, but
shall at all times in good faith assist in carrying out all the provisions of
this Article 2.
2.5 Certificate as to Adjustments. Upon each adjustment of the Warrant
Price, the Company at its expense shall promptly compute such adjustment, and
furnish Holder with a certificate of its Chief Financial Officer setting forth
such adjustment and the facts upon which such adjustment is based. The Company
shall, upon written request, furnish Holder a certificate setting forth the
Warrant Price in effect upon the date thereof and the series of adjustments
leading to such Warrant Price.
2.6 Fractional Shares. No fractional Shares shall be issuable upon
exercise or conversion of the Warrant and the Number of Shares to be issued
shall be rounded down to the nearest whole Share. If a fractional share interest
arises upon any exercise or conversion of the Warrant, the Company shall
eliminate such fractional share interest by paying Holder amount computed by
multiplying the fractional interest by the fair market value of a full Share.
Article 3. REPRESENTATIONS AND COVENANTS OF THE COMPANY.
3.1 Representations and Warranties. The Company hereby represents and
warrants to the Holder as follows:
(a) All Shares which may be issued upon the exercise of the
purchase right represented by this warrant, and all securities, if any, issuable
upon conversion of the Shares, shall, upon issuance, be duly authorized, validly
issued, fully paid and nonassessable, and free of any liens and encumbrances
except for restrictions on transfer provided for herein or under applicable
federal and state securities laws.
(b) The Company's capitalization table attached to this warrant is
true and complete as of the Issue Date.
3.2 Notice of Certain Events. If the Company proposes at any time (a)
to declare any dividend or distribution upon its common stock, whether in cash,
property, stock, or other securities and whether or not a regular cash dividend;
(b) to offer for subscription pro rata to the holders of any class or series of
its stock any additional shares of stock of any class or series or other rights;
(c) to effect any reclassification or recapitalization of common stock; or (d)
to merge or consolidate with or into any other corporation, or sell, lease,
license, or convey all or substantially all of its assets, or to liquidate,
dissolve or wind up, then, in connection with each such event, the Company shall
give Holder (1) at least 20 days prior written notice of the date on which a
record will be taken for such dividend, distribution, or subscription rights
(and specifying the date on which the holders of common stock will be entitled
thereto) or for determining rights to vote, if any, in respect of the matters
referred to in (a) and (b) above; and (2) in the case of the matters referred to
in (c) and (d) above at least 20 days prior written notice of the date when the
same will take place (and specifying the date on which the holders of common
stock will be entitled to exchange their common stock for securities or other
property deliverable upon the occurrence of such event).
3
3.3 Information Rights. Unless the Company is filing financial
information with the SEC pursuant to the Securities Exchange Act of 1934, so
long as the Holder holds this warrant and/or any of the Shares, the Company
shall deliver to the Holder (a) promptly after mailing, copies of all notices
and reports to the shareholders of the Company, (b) within ninety (90) days
after the end of each fiscal year of the Company, the annual audited financial
statements of the Company certified by independent public accountants of
recognized standing and (c) within forty-five (45) days after the end of each of
the first three quarters of each fiscal year, the Company's quarterly, unaudited
financial statements.
3.4 Registration Under Securities Act of 1933, as amended. The Company
agrees that the Shares shall be subject to the registration rights set forth on
Exhibit B.
Article 4. MISCELLANEOUS.
4.1 Term: Notice of Expiration. This warrant is exercisable in whole or
in part, at any time and from time to time on or before the Expiration Date set
forth above. If this warrant has not been exercised prior to the Expiration
Date, this warrant shall be deemed to have been automatically exercised on the
Expiration Date by "cashless" conversion pursuant to Section 1.2.
4.2 Legends. This warrant and the Shares (and the securities issuable,
directly or indirectly, upon conversion of the Shares, if any) shall be
imprinted with a legend in substantially the following form:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHOUT AN
EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR PURSUANT TO RULE 144 OR AN
OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE CORPORATION AND ITS COUNSEL
THAT SUCH REGISTRATION IS NOT REQUIRED.
4.3 Compliance with Securities Laws on Transfer. This warrant and the
Shares issuable upon exercise of this warrant (and the securities issuable,
directly or indirectly, upon conversion of the Shares, if any) may not be
transferred or assigned in whole or in part without compliance with applicable
federal and state securities laws by the transferor and the transferee
(including, without limitation, the delivery of investment representation
letters and legal opinions reasonably satisfactory to the Company). The Company
shall not require Holder to provide an opinion of counsel if the transfer is to
an affiliate of Holder or if there is no material question as to the
availability of current information as referenced in Rule 144(c), Holder
represents that it has complied with Rule 144(d) and (e) in reasonable detail,
the selling broker represents that it has complied with Rule 144(f), and the
Company is provided with a copy of Holder's notice of proposed sale.
4.4 Transfer Procedure. Subject to the provisions of Section 4.3,
Holder may transfer all or part of this warrant or the Shares issuable upon
exercise of this warrant (or the securities issuable, directly or indirectly,
upon conversion of the Shares, if any) by giving the Company notice of the
portion of the warrant being transferred setting forth the name, address and
taxpayer identification number of the transferee and surrendering this warrant
to the Company for reissuance to the transferee(s) (and Holder, if applicable);
provided, however, that Holder may transfer all or part of this warrant to its
affiliates, including, without limitation, Comerica Incorporated, at any time
without notice to the Company, and such affiliate shall then be entitled to all
the rights of Holder under this warrant and any related agreements, and the
Company shall cooperate fully in ensuring that any stock issued upon exercise of
this warrant is issued in the name of the affiliate that exercises the warrant.
The terms and conditions of this warrant shall inure to the benefit of, and be
binding upon, the Company and the holders hereof and their
4
respective permitted successors and assigns. The Company shall have the right to
refuse to transfer any portion of this warrant to any person who directly
competes with the Company. 4.5 Notices. All notices and other communications
from the Company to the Holder, or vice versa, shall be deemed delivered and
effective when given personally or mailed by first-class registered or certified
mail, postage prepaid, at such address as may have been furnished to the Company
or the Holder, as the case may be, in writing by the Company or such Holder from
time to time. All notices to the Holder shall be addressed as follows:
Comerica Bank
Attn: Warrant Administrator
000 Xxxxxxxx Xxxxxx, 00xx Xxxxx, XX 0000
Xxxxxxx, XX 00000
All notices to the Company shall be addressed as follows:
SmartBargains, Inc.
Attn: Xxxxxx Xxxxxx, CFO
00 Xxxx Xxxxxx, 00xx Xxxxx
Xxxxxx, Xxxxxxxxxxxxx 00000
4.6 Amendments. This warrant and any term hereof may be changed,
waived, discharged or terminated only by an instrument in writing signed by the
party against which enforcement of such change, waiver, discharge or termination
is sought.
4.7 Attorneys' Fees. In the event of any dispute between the parties
concerning the terms and provisions of this warrant, the party prevailing in
such dispute shall be entitled to collect from the other party all costs
incurred in such dispute, including reasonable attorneys' fees.
4.8 Governing Law. This warrant shall be governed by and construed in
accordance with the laws of the State of Delaware, without giving effect to its
principles regarding conflicts of law.
SMARTBARGAINS, INC.
By:
-------------------------
Name:
-----------------------
Title:
----------------------
Authorized signatories under Corporate Resolutions to Borrow or an authorized
signer(s) under a resolution covering warrants must sign the warrant.
5
APPENDIX 1
NOTICE OF EXERCISE
1. The undersigned hereby elects to purchase ______________ shares of
the ______________ stock of SMARTBARGAINS, INC. pursuant to the terms of the
attached warrant, and tenders herewith payment of the purchase price of such
shares in full.
1. The undersigned hereby elects to convert the attached warrant into
shares in the manner specified in the warrant. This conversion is exercised with
respect to ______________ of the shares covered by the warrant.
[STRIKE PARAGRAPH THAT DOES NOT APPLY.]
2. Please issue a certificate or certificates representing said shares
in the name of the undersigned or in such other name as is specified below:
Comerica Bank
Attn: Warrant Administrator
000 Xxxxxxxx Xxxxxx, 00xx Xxxxx, XX 0000
Xxxxxxx, XX 00000
3. The undersigned represents it is acquiring the shares solely for its
own account and not as a nominee for any other party and not with a view toward
the resale or distribution thereof except in compliance with applicable
securities laws.
COMERICA BANK or Registered Assignee
------------------------------------
(Signature)
------------------------------------
(Date)
6
EXHIBIT A
Registration Rights
The Shares shall be entitled to "piggy back" registration rights in
accordance with the terms of the following agreement (the "Agreement") between
the Company and its investor(s): Second Amended and Restated Shareholders'
Agreement dated September 16, 2003.
The Company agrees that no amendments will be made to the Agreement,
which would have an adverse impact on Holder's registration rights thereunder
which is different than such amendment's impact on the other holders of
piggyback registration rights without the consent of Holder, not to be
unreasonably withheld. By acceptance of the Warrant to which this Exhibit A is
attached, Holder shall not be deemed to be a party to the Agreement, but shall
only be entitled to the piggyback registration rights described therein.
7
