1
EXHIBIT 10.9
--------------------------------------------------------------------------------
LOAN AND SECURITY AGREEMENT
AMONG
MELLON BANK, N.A.
AS LENDER,
PIA MERCHANDISING CO., INC.
AND
PACIFIC INDOOR DISPLAY CO.
DBA RETAIL RESOURCES
AS BORROWERS,
AND
PIA MERCHANDISING SERVICES, INC.
AS PARENT
--------------------------------------------------------------------------------
2
TABLE OF CONTENTS
Page
----
1. DEFINITIONS AND CONSTRUCTION................................................1
1.1 Definitions............................................................1
1.2 Accounting Terms and Principles.......................................16
1.3 Code. ...............................................................16
1.4 Schedules and Exhibits................................................16
2. LOAN AND TERMS OF PAYMENT..................................................17
2.1 Revolving Credit......................................................17
2.2 Letters of Credit.....................................................19
2.3 Overadvances..........................................................20
2.4 Interest; Rates, Payments, and Calculations...........................20
(a) Initial Interest Rates.............................20
(b) Conditional, Performance-Based Interest Rate.......25
(c) Default Rate.......................................26
(d) Payments...........................................26
(e) Continuation of Interest Charges. ................26
(f) Applicable Interest Limitations. .................26
2.5 Collections, Disbursements and Borrowing Availability. ..............27
2.6 Statements of Obligations. ..........................................27
2.7 Fees. ...............................................................27
(a) Closing Fee. .....................................28
(b) Unused Line Fee. .................................28
(c) Field Examination Fees. ..........................28
3. CONDITIONS TO EFFECTIVENESS: TERM OF AGREEMENT.............................28
3.1 Conditions Precedent to Initial Advance or L/C. .....................28
3.2 Conditions Precedent to All Loans and L/Cs. .........................32
3.3 Term; Automatic Renewal. ............................................32
3.4 Effect of Termination. ..............................................32
-i-
3
3.5 Early Termination by Borrowers. .....................................33
3.6 Termination Upon Event of Default. ..................................33
4. CREATION OF SECURITY INTEREST..............................................34
4.1 Grant of Security Interest. .........................................34
4.2 Negotiable Collateral. ..............................................34
4.3 Collection of Accounts, General Intangibles, Negotiable Collateral. .34
4.4 Delivery of Additional Documentation Required. ......................34
4.5 Power of Attorney. ..................................................35
5. REPRESENTATIONS AND WARRANTIES.............................................35
5.1 No Prior Encumbrances.................................................35
5.2 Eligible Accounts. ..................................................35
5.3 Intentionally Deleted.................................................36
5.4 Location of Inventory and Equipment. ................................36
5.5 Inventory Records. ..................................................36
5.6 Location of Chief Executive Office. .................................36
5.7 Due Authorization and Qualification; Subsidiaries. ..................36
5.8 Due Authorization; No Conflict. .....................................37
5.9 Litigation. .........................................................37
5.10 No Material Adverse Change in Financial Condition. .................37
5.11 Solvency. ..........................................................37
5.12 ERISA................................................................37
5.13 Environmental Condition..............................................38
5.14 Patents, Copyrights and Trademarks. ................................39
5.15 Reliance by Lender; Cumulative. ....................................39
5.16 Governmental Consent. ..............................................39
5.17 Taxes. .............................................................40
5.18 Financial Statements. ..............................................40
5.19 Full Disclosure. ...................................................40
5.20 Guarantees, Contracts, etc...........................................41
5.21 Government Regulations, etc..........................................41
5.22 Business Interruptions...............................................42
5.23 Names. .............................................................42
5.24 Other Associations. ................................................42
5.25 Regulation O. .......................................................42
5.26 Capital Stock. .....................................................42
5.27 Year 2000 Compliance.................................................43
-ii-
4
5.28 Financing Statements..................................................43
6. AFFIRMATIVE COVENANTS......................................................43
6.1 Accounting System. .................................................43
6.2 Collateral Reports. ................................................44
6.3 Schedules of Accounts. .............................................44
6.4 Financial Statements, Reports, Certificates. .......................44
6.5 Tax Returns. .......................................................45
6.6 Disputes and Claims. ................................................45
6.7 Title to Equipment. ................................................45
6.8 Maintenance of Equipment. ..........................................46
6.9 Taxes. .............................................................46
6.10 Insurance............................................................46
6.11 Lender Expenses. ...................................................47
6.12 Financial Covenants. ...............................................47
6.13 No Setoffs or Counterclaims. .......................................49
6.14 Compliance with Laws, Regulations, Etc...............................49
6.15 Projections. .......................................................51
6.16 Bank Accounts. .....................................................51
6.17 Use of Lender's Name. ..............................................51
6.18 Miscellaneous Covenants..............................................51
6.19 Notice of Event of Default...........................................51
6.20 Notice of Claimed Default. .........................................52
6.21 Material Adverse Developments. .....................................52
6.22 Corporate Meeting Minutes............................................52
6.23 Information to Participant...........................................52
6.24 Year 2000 Compliance.................................................52
6.25 Additional Landlord Waivers..........................................53
6.26 Ownership.............................................................53
7. NEGATIVE COVENANTS.........................................................53
7.1 Indebtedness. .......................................................53
7.2 Liens. ..............................................................54
7.3 Restrictions on Fundamental Changes. ................................54
7.4 Extraordinary Transactions and Disposal of Assets.....................54
7.5 Change Name. ........................................................54
7.6 Guarantee. ..........................................................54
7.7 Restructure. ........................................................55
-iii-
5
7.8 Prepayments. .......................................................55
7.9 Intentionally Deleted................................................55
7.10 Intentionally Deleted................................................55
7.11 Capital Expenditures. ..............................................55
7.12 Consignments. ......................................................55
7.13 Distributions. .....................................................55
7.14 Accounting Methods. ................................................56
7.15 Investments. .......................................................56
7.16 Transactions with Affiliates. ......................................56
7.17 Suspension. ........................................................56
7.18 Compliance with ERISA................................................56
7.19 Permitted Acquisitions...............................................57
8. EVENTS OF DEFAULT..........................................................58
9. LENDER'S RIGHTS AND REMEDIES...............................................61
9.1 Rights and Remedies. ................................................61
9.2 Remedies Cumulative. ................................................63
10. TAXES AND EXPENSES REGARDING THE COLLATERAL................................63
11. WAIVERS; INDEMNIFICATION...................................................64
11.1 Demand, Protest, etc. ..............................................64
11.2 Lender's Liability for Collateral. .................................64
11.3 Indemnification; Loss of Margin......................................64
12. NOTICES....................................................................65
13. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER.................................67
14. DESTRUCTION OF BORROWERS' DOCUMENTS........................................68
15. GENERAL PROVISIONS.........................................................68
15.1 Effectiveness. .....................................................68
15.2 Successors and Assigns. ............................................68
15.3 Section Headings. ..................................................68
15.4 Interpretation. ....................................................68
-iv-
6
15.5 Severability of Provisions. .......................................69
15.6 Amendments in Writing. ............................................69
15.7 Counterparts; Facsimile Execution. ................................69
15.8 Revival and Reinstatement of Obligations. ..........................69
15.9 Withholding and Other Tax Liabilities. ............................69
15.10 Integration. ......................................................70
15.11 Publicity. ........................................................70
16. SURETYSHIP WAIVERS AND CONSENTS............................................70
EXHIBITS AND SCHEDULES
Exhibit 2.1(e) -- Form of Revolving Credit Note
Schedule P-1 -- Permitted Liens
Schedule P-2 -- Permitted Parent Pension Obligations
Schedule 5.4 -- Location of Inventory and Equipment
Schedule 5.9 -- Litigation
Schedule 5.12 -- ERISA
Schedule 5.13 -- Environmental Disclosures
Schedule 5.14 -- Patents, Copyrights and Trademarks
Schedule 5.20 -- Guarantees, Contracts, etc.
Schedule 5.23 -- Names of Borrowers
Schedule 5.24 -- Joint Ventures and Other Associations
Schedule 5.26 -- Capital Stock of Borrower
Exhibit 6.4 -- Form of Chief Financial Officer's Compliance Certificate
Schedule 7.1(b) -- Indebtedness
-v-
7
This LOAN AND SECURITY AGREEMENT is entered into as of December 7,
1998 by and among MELLON BANK, N.A. ("Lender"), with a place of business located
at Mellon Bank Center, 0000 Xxxxxx Xxxxxx, 0xx Xxxxx, Xxxxxxxxxxxx, Xxxxxxxxxxxx
00000-0000, PIA MERCHANDISING CO., INC., a California corporation, with its
chief executive office located at 00000 XxxXxxxxx Xxxxxxxxx, Xxxxx 000, Xxxxxx,
Xxxxxxxxxx 00000 ("PIA"), and PACIFIC INDOOR DISPLAY CO. dba RETAIL RESOURCES, a
California corporation, with its chief executive office located at 00 Xxxxxxx,
Xxxxxx, Xxxxxxxxxx 00000 ("Retail Resources," and collectively with PIA,
"Borrowers"), and PIA MERCHANDISING SERVICES, INC., a Delaware corporation, with
its chief executive office located at 00000 XxxXxxxxx Xxxxxxxxx, Xxxxx 000,
Xxxxxx, Xxxxxxxxxx 00000 ("Parent").
W I T N E S S E T H:
WHEREAS, Borrowers and Parent have requested that Lender enter into
certain financing arrangements with Borrowers pursuant to which Lender may make
loans and provide other financial accommodations to Borrowers; and
WHEREAS, Lender is willing to make such loans and provide such
financial accommodations on the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual conditions and
agreements set forth herein, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
1. DEFINITIONS AND CONSTRUCTION
1.1 Definitions. All terms used herein which are defined in
Article 1 or Article 9 of the Pennsylvania Uniform Commercial Code shall have
the respective meanings given therein unless otherwise defined in this
Agreement. All references to the plural herein shall also mean the singular and
to the singular shall also mean the plural. All references to Borrowers and
Lender pursuant to the definitions set forth in the recitals hereto, or to any
other person herein, shall include their respective successors and assigns. The
words "hereof", "herein", "hereunder", "this Agreement" and words of similar
import when used in this Agreement shall refer to this Agreement as a whole and
not any particular provision of this Agreement and as this Agreement now exists
or may hereafter be amended, modified, supplemented, extended, renewed, restated
or replaced. The word "including" when used in this Agreement is not limiting
and, unless the context of this Agreement clearly requires otherwise, the word
"or" as used herein has the alternatively conjunctive or disjunctive meaning
-1-
8
represented by the phrase "and/or". Section, subsection, clause, schedule and
exhibit references are to this Agreement unless otherwise specified. An Event of
Default shall exist or continue or be continuing until such Event of Default is
waived in writing. Any accounting term used herein unless otherwise defined in
this Agreement shall have the meaning customarily given to such term in
accordance with GAAP. For purposes of this Agreement, the following terms shall
have the respective meanings given to them below:
"Account Debtor" means any person who is or who may become obligated
under, with respect to, or on account of an Account.
"Accounts" means all presently existing and hereafter arising
accounts, contract rights, and all other forms of obligations owing to any
Borrower arising out of the sale or lease of goods or the rendition of services
by any Borrower, whether or not earned by performance, and any and all credit
insurance, guaranties, and other security therefor.
"Agreement" means this Loan and Security Agreement and any
extensions, riders, supplements, notes, amendments, or modifications to or in
connection with this Loan and Security Agreement.
"Authorized Officer" means any officer of any Borrower.
"Availability Reserves" means, as of any date of determination, such
amounts as Lender may from time to time establish and revise reducing the amount
of the Revolving Credit Loans and L/Cs which would otherwise be available to
Borrowers under the lending formula(s) provided for herein: (a) to reflect
events, conditions, contingencies or risks which, as determined by Lender,
affect or may affect (i) the Collateral, any other property which is security
for the Obligations, or the value of the Collateral or such other property, (ii)
the assets, business or prospects of any Borrower or Parent or (iii) the
security interests and other rights of Lender in the Collateral (including the
enforceability, perfection and priority thereof) or (b) to reflect Lender's
belief that any collateral report or financial information furnished by or on
behalf of Borrowers or Parent to Lender is or may have been incomplete,
inaccurate or misleading in any material respect or (c) in respect of any state
of facts which Lender determines constitutes an Event of Default or may, with
notice or passage of time or both, constitute an Event of Default.
"Average Unused Portion of Maximum Amount" means (a) the Maximum
Amount less (b) the greater of (i) $2,000,000 or (ii) the sum of (A) the average
Daily
-2-
9
Balance of the Revolving Credit Loans that were outstanding during the
immediately preceding calendar month and (B) the average Daily Balance of the
undrawn L/Cs issued by Lender under Section 2.2 that were outstanding during the
immediately preceding calendar month.
"Borrowers" has the meaning set forth in the introduction to this
Agreement.
"Borrowers' Books" means all books and records of Borrowers or any
Borrower, including: ledgers; records indicating, summarizing, or evidencing any
Borrowers' assets or liabilities, or the Collateral; all information relating to
any Borrower's business operations or financial condition; and all computer
programs, disc or tape files, printouts, runs, or other computer prepared
information, and the equipment containing such information.
"Borrowing Base" has the meaning set forth in Section 2.1(a).
"Borrowing Base Certificate" means a certificate signed by an
officer of a Borrower detailing, as of the Closing Date, the amount of such
Borrower's cash or cash equivalent balances, the Eligible Accounts, the L/C's,
the Obligations and other information required by Lender.
"Business Day" means any day which is not a Saturday, Sunday, or
other day on which national banks are authorized or required to close.
"Capital Expenditure" means any expenditure that would be classified
as a capital expenditure on a consolidated statement of cash flow of Parent and
its Subsidiaries prepared in accordance with GAAP, consistently applied.
"Capitalized Lease" means any lease of property which, in accordance
with GAAP, should be capitalized on the lessee's balance sheet, or for which the
amount of the assets and liabilities thereunder as if so capitalized should be
disclosed, in accordance with GAAP, in a note to such balance sheets.
"Cash Collateral Account" has the meaning set forth in Section 2.5.
"Change of Control" shall be deemed to have occurred at such times
as either (i) a "person" or "group" (within the meaning of Sections 13(d) and
14(d)(2) of the Securities and Exchange Act of 1934, as amended), other than a
"person" or "group" that is a stockholder as of the date hereof, becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Securities and Exchange
Act of 1934, as amended), directly or
-3-
10
indirectly, of more than twenty-five percent (25%) of the total voting power of
all classes of stock then outstanding of Parent normally entitled to vote in
elections of directors, or (ii) Parent's failure to be the beneficial owner,
directly or indirectly, of the total voting power of all classes of stock then
outstanding of each Subsidiary of Parent.
"Closing Date" means the date of the execution of all Loan Documents
and satisfaction or waiver by Lender of all conditions precedent set forth in
Section 3.
"Code" means the Pennsylvania Uniform Commercial Code.
"Collateral" means each of the following: the Accounts; Borrowers'
Books; the Equipment; the General Intangibles; the Inventory; the Negotiable
Collateral; any money or other assets of each Borrower (expressly excluding any
cash or assets held on behalf of or for the benefit of Borrowers' employees in
any 401(k) plan, employee savings plan, employee stock option plan, deferred
compensation plan or similar account) which hereafter come into the possession,
custody, or control of Lender; and the proceeds and products, whether tangible
or intangible, of any of the foregoing, including proceeds of insurance covering
any or all of the Collateral, and any and all Accounts, Borrowers' Books,
Equipment, General Intangibles, Inventory, Negotiable Collateral, money, deposit
accounts, or other tangible or intangible property resulting from the sale,
exchange, collection, or other disposition of the foregoing, or any portion
thereof or interest therein, and the proceeds thereof.
"Current Assets" means, at any time, all assets of Parent and its
Subsidiaries that should be classified as current assets on a consolidated
balance sheet of Parent and its Subsidiaries prepared in accordance with GAAP.
"Current Liabilities" means, at any time, all liabilities of Parent
and its Subsidiaries that should be classified as current liabilities on a
consolidated balance sheet of Parent and its Subsidiaries prepared in accordance
with GAAP, including, without duplication, all Obligations consisting of
Revolving Credit Loans.
"Daily Balance" means the amount of an Obligation owed at the end of
a given day.
"Default Pricing Event" has the meaning set forth in Section 2.4(c).
"Early Termination Premium" has the meaning set forth in Section
3.5.
-4-
11
"Eligible Accounts" means those Accounts created by any Borrower in
the ordinary course of business that arise out of such Borrower's sale of goods
or rendition of services, that strictly comply with all of such Borrower's
representations and warranties to Lender as set forth in the Loan Documents, and
that are and at all times shall continue to be acceptable to Lender in all
respects; provided, however, that standards of eligibility may be fixed and
revised from time to time by Lender. Eligible Accounts shall not include the
following:
(a) Accounts which the Account Debtor has failed to pay
within sixty (60) days after invoice date;
(b) All Accounts owed by any Account Debtor having
twenty-five percent (25%) or more of the aggregate amount of the
Accounts it owes to Borrower outstanding more than sixty (60) days
after invoice date unless specifically approved by Lender in its
sole discretion and with the establishment of such reserves as
Lender may require;
(c) Accounts with respect to which the Account Debtor is
an officer, employee, affiliate, or agent of Parent and its
Subsidiaries;
(d) Accounts with respect to which the Account Debtor is
not a resident of the United States, and which are not either (1)
covered by credit insurance in form and amount, and by an insurer
satisfactory to Lender, or (2) supported by one or more letters of
credit that are assignable and have been assigned and delivered to
Lender in an amount and of a tenor, and issued by a financial
institution, acceptable to Lender;
(e) Accounts with respect to which the Account Debtor is
a foreign government, the United States of America, any State,
political subdivision, department, agency or instrumentality
thereof, unless, if the Account Debtor is the United States of
America, any State, political subdivision, department, agency or
instrumentality thereof, the Federal Assignment of Claims Act of
1940, as amended, or any similar State or local law, if applicable,
has been complied with in a manner satisfactory to Lender;
(f) Accounts with respect to which the Account Debtor is
a Subsidiary of, related to, affiliated with or has common officers
with any Borrower;
-5-
12
(g) Accounts with respect to which any Borrower is or
may become liable to the Account Debtor for goods sold or leased or
for services rendered by the Account Debtor to any Borrower, to the
extent of such liability; provided, however, that Lender shall have
a right, in its sole discretion, to establish reserves in such
amount or hold such portion of said Accounts ineligible;
(h) Accounts with respect to which the Account Debtor
disputes liability or makes any claim with respect thereto, to the
extent of such dispute; provided, however, that Lender shall have a
right, in its sole discretion, to establish reserves in such amount
or hold such portion of said Accounts ineligible, or with respect to
which the Account Debtor is subject to any Insolvency Proceeding, or
becomes insolvent, or goes out of business;
(i) Accounts the collection of which Lender believes to
be doubtful by reason of the Account Debtor's financial condition;
(j) Accounts with respect to which the Account Debtor's
total obligations to such Borrower exceed twenty-five percent (25%)
of all Eligible Accounts relating to such Borrower, to the extent of
such excess; and
In the event of a dispute over the terms of "Eligible Accounts," Lender's
determination shall govern and apply.
"Eligible Cash Collateral" means cash pledged to Lender by PIA and
maintained in one or more deposit accounts under the satisfactory control and
dominion of Lender or its designee, but shall expressly exclude (a) the deposit
in the amount of Two Hundred Fifty Thousand Dollars deposit ($250,000)
maintained by PIA in Account No. 4509035582 with Union Bank of California, N.A.,
and (b) the deposit in the amount of Two Million Dollars ($2,000,000) plus
interest thereon presently maintained by PIA in Account No. 870-02172 with ING
Barings Xxxxxx Xxxx LLC.
"Eligible Corporate Bonds" means bonds or other debentures issued by
a corporation regularly quoted on a national bond exchange, possessing a Xxxxx'x
rating of Baa or a Standard & Poor's rating of BBB or higher, held in a
brokerage account maintained by Lender or its designee for PIA in which Lender
has a first priority lien perfected by control or possession, which are not
subject to any other claims or other liens and which meet all other
specifications established by Lender in its sole discretion from time to time.
-6-
13
"Eligible Government Treasury Bills" means bonds, bills and notes
issued by the United State of America or any agency thereof, quoted daily in the
Wall Street Journal (or similar publication acceptable to Lender in its
discretion), supported by the full faith and credit of the United States
government, held by Lender or its designee for the benefit of PIA, in which
Lender has a prior perfected, first priority lien, which are not subject to any
other claims or other liens and which meet all other specification established
by Lender in its sole discretion from time to time.
"Eligible Investment Property" means, collectively, Eligible Cash
Collateral, Eligible Corporate Bonds, Eligible Government Treasury Bills,
Eligible Listed Securities and Eligible Mutual Funds.
"Eligible Listed Securities" means equity securities registered and
listed for trading on a national exchange in the United States (e.g., NYSE,
AMEX, NASDAQ and OTC), having a $10 per share minimum value, trading at
sufficient volume as determined by Lender in its discretion to ensure ready
marketability under normal market conditions, held in a brokerage account
maintained by Lender or its designee for PIA, in which Lender has a first
priority lien perfected by control or possession, which are not subject to any
other claims or liens and which meet all other specifications established by
Lender in its sole discretion from time to time.
"Eligible Mutual Funds" means mutual funds listed daily in the Wall
Street Journal (or a similar publication acceptable to Lender in its
discretion), which are not deemed speculative in nature by Lender in its
discretion, which do not invest primarily in foreign securities, held by Lender
or its designee for the benefit of PIA, in which Lender has a prior perfected,
first priority lien, which are not subject to any other claims or liens and
which meet all other specifications established by Lender in its sole discretion
from time to time.
"Equipment" means all of Borrowers' present and hereafter acquired
machinery, machine tools, motors, equipment, furniture, furnishings, fixtures,
vehicles (including motor vehicles and trailers), tools, parts, dies, jigs,
goods (other than consumer goods, farm products, or Inventory), wherever
located, and any interest of Borrower in any of the foregoing, and all
attachments, accessories, accessions, replacements, substitutions, additions,
and improvements to any of the foregoing, wherever located.
"Environmental Laws" means all federal, state, district, local and
foreign laws, rules, regulations, ordinances, and consent decrees relating to
health, safety, hazardous substances, pollution and environmental matters, as
now or at any time hereafter in effect, applicable to any Borrower's business
and facilities (whether or not owned by
-7-
14
it), including laws relating to emissions, discharges, releases or threatened
releases of pollutants, contamination, chemicals, or hazardous, toxic or
dangerous substances, materials or wastes into the environment (including,
without limitation, ambient air, surface water, ground water, land surface or
subsurface strata) or otherwise relating to the generation, manufacture,
processing, distribution, use, treatment, storage, disposal, transport or
handling of pollutants, contaminants, chemicals, or hazardous, toxic or
dangerous substances, materials or wastes.
"ERISA" means the United States Employee Retirement Income Security
Act of 1974, as the same now exists or may hereafter from time to time be
amended, modified, recodified or supplemented, together with all rules,
regulations and interpretations thereunder and related thereto.
"ERISA Affiliate" means any person required to be aggregated with
any Borrower or Parent and its Subsidiaries under Sections 414(b), 414(c),
414(m) or 414(o) of the I.R. Code.
"Event of Default" has the meaning set forth in Section 8.
"Excess Availability" means the amount, as determined by Lender,
calculated at any time, equal to: (a) the lesser of: (i) the amount of the
Revolving Credit available to Borrowers as of such time based on the applicable
lending formulas multiplied by the amount of Eligible Accounts and the amount of
Eligible Cash Collateral, as determined by Lender, and subject to the sublimits
and Availability Reserves from time to time established by Lender hereunder, and
(ii) the Maximum Amount, minus (b) the sum of: (i) the amount of all then
outstanding and unpaid Obligations, and (ii) the aggregate amount of all then
outstanding and unpaid trade payables and other current obligations of Borrowers
which are past due as of such time.
"GAAP" means generally accepted accounting principles as in effect
from time to time in the United States, applied by Parent and its Subsidiaries
in a manner consistent with the most recent audited financial statements of
Parent and its Subsidiaries furnished to Lender under Section 6.4.
"General Intangibles" means all of each Borrower's present and
future general intangibles and other personal property (including choses or
things in action, goodwill, patents, trade names, trademarks, servicemarks,
copyrights, blueprints, drawings, purchase orders, customer lists, monies due or
recoverable from pension funds, route lists, rights to payment and other rights
under any royalty or licensing agreement, infringements, claims, computer
programs, computer discs, computer tapes, literature,
-8-
15
reports, catalogs, deposit accounts, insurance premium rebates, tax refunds, and
tax refund claims) other than goods, Accounts and Negotiable Collateral.
"Good Business Day" means any Business Day when banks in
Philadelphia, Pennsylvania, New York, New York and London, England are open for
business.
"Guarantor" means, collectively and individually, Parent, Borrowers
and each other current and future Subsidiary of Parent, and any other present or
future Person executing a guaranty with respect to the Obligations.
"Guaranty" means any present or future guaranty made and delivered
to Lender with respect to the Obligations.
"Hazardous Materials" means any hazardous, toxic or dangerous
substances, materials and wastes, including, without limitation, hydrocarbons
(including naturally occurring or, man-made petroleum and hydrocarbons),
flammable explosives, asbestos, urea formaldehyde insulation, radioactive
materials, biological substances, polychlorinated biphenyls, pesticides,
herbicides and any other kind and/or type of pollutants or contaminants
(including, without limitation, materials which include hazardous constituents),
sewage, sludge, industrial slag, solvents and/or any other similar substances,
materials, or wastes, and including any other substances, materials or wastes
that are or become regulated under any Environmental Law (including, without
limitation, any that are or become classified as hazardous or toxic under any
Environmental Law.
"Indebtedness" means: (a) all obligations of each Borrower for
borrowed money; (b) all obligations of each Borrower evidenced by bonds,
debentures, notes, or other similar instruments and all reimbursement or other
obligations of each Borrower in respect of letters of credit, letter of credit
guaranties, bankers acceptances, interest rate swaps, controlled disbursement
accounts, or other financial products; (c) all obligations under capitalized
leases; (d) all obligations or liabilities of others secured by a lien or
security interest on any asset of any Borrower, irrespective of whether such
obligation or liability is assumed; and (e) any obligation of any Borrower
guaranteeing or intended to guarantee (whether guaranteed, endorsed, co-made,
discounted, or sold with recourse to Borrower) any indebtedness, lease,
dividend, letter of credit, or other obligation of any other person.
"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
-9-
16
creditors, formal or informal moratoria, compositions, extensions generally with
its creditors, or proceedings seeking reorganization, arrangement, or other
similar relief.
"Inventory" means all present and future inventory in which any
Borrower has any interest, including goods held for sale or lease or to be
furnished under a contract of service and all of each Borrower's present and
future raw materials, work in process, finished goods, and packing and shipping
materials, wherever located, and any documents of title representing any of the
above.
"I.R. Code" means the Internal Revenue Code of 1986, as the same now
exists or may from time to time hereafter be amended, modified, recodified or
supplemented, together with all rules, regulations and interpretations
thereunder or related thereto.
"Judicial Officer or Assignee" means any trustee, receiver,
controller, custodian, assignee for the benefit of creditors, or any other
person or entity having powers or duties like or similar to the powers and
duties of a trustee, receiver, controller, custodian, or assignee for the
benefit of creditors.
"L/Cs" has the meaning set forth in Section 2.2(a).
"Lender" has the meaning set forth in the introduction to this
Agreement.
"Lender Expenses" means all: costs or expenses (including taxes,
photocopying, notarization, telecommunication and insurance premiums) required
to be paid by any Borrower under any of the Loan Documents that are paid or
advanced by Lender; documentation, filing, recording, publication, appraisal
(including periodic Collateral appraisals), real estate survey, environmental
audit, and search fees assessed, paid, or incurred by Lender in connection with
Lender's transactions with Borrowers; costs and expenses incurred by Lender in
the disbursement of funds to any Borrower (by wire transfer or otherwise);
charges paid or incurred by Lender resulting from the dishonor of checks; costs
and expenses paid or incurred by Lender to correct any default or enforce any
provision of the Loan Documents, or in gaining possession of, maintaining,
handling, preserving, storing, shipping, selling, preparing for sale, or
advertising to sell the Collateral, or any portion thereof, whether or not a
sale is consummated; costs and expenses paid or incurred by Lender in examining
any Borrower's Books; costs and expenses of third party claims or any other suit
paid or incurred by Lender in enforcing or defending the Loan Documents; and
Lender's reasonable attorneys' fees and expenses incurred in advising,
structuring, drafting, reviewing, administering, amending, terminating,
enforcing (including attorneys' fees and expenses incurred in connection with a
"workout", a "restructuring", or an
-10-
17
Insolvency Proceeding concerning any Borrower), defending, or concerning the
Loan Documents, whether or not suit is brought.
"LIBOR Based Loans" means all Revolving Credit Loans and all other
Obligations (other than contingent reimbursement obligations owing to Lender
under any outstanding L/Cs) bearing interest at the LIBOR Based Rate.
"LIBOR Based Rate" means the interest rate per annum equal to two
and three-quarters percent (2.75%) in excess of the LIBOR Rate.
"LIBOR Interest Period" shall have the meaning set forth in
Section 2.4(a)(iv)(B).
"LIBOR Rate" means the annual rate of interest determined by Lender
as being the rate available to Lender at approximately 11:00 a.m. London time in
the London Interbank Market, as referenced by Reuters Screen "LIBO," in
accordance with the usual practice in such market, for the LIBOR Interest Period
elected by any Borrower, in effect two (2) Good Business Days prior to the
funding date for a requested LIBOR Based Loan for deposits of dollars in amounts
equal (as nearly as may be estimated) to the amount of such LIBOR Based Loan
which shall then be made by Lender to any Borrower as of the time of such
determination, as such rate may be adjusted by the reserve percentage applicable
during the LIBOR Interest Period in effect (or if more than one such percentage
shall be applicable, the daily average of such percentages for those days in
such LIBOR Interest Period during which any such percentage shall be so
applicable) under regulations issued from time to time by the Board of Governors
of the Federal Reserve System (or any successor) for determining the maximum
reserve requirement (including, without limitation, any emergency, supplemental
or other marginal reserve requirement) for Lender with respect to liabilities or
assets consisting of or including "Eurocurrency Liabilities" as such term is
defined in Regulation D of the Board of Governors of the Federal Reserve System,
as in effect from time to time, having a term equal to such LIBOR Interest
Period (the "Eurocurrency Reserve Requirement"). Such adjustment shall be
effectuated by calculating, and the LIBOR Rate shall be equal to, the quotient
(rounded upward to the nearest 1/16 of 1%) of (i) the offered rate divided by
(ii) one minus the Eurocurrency Reserve Requirement.
"Loan Documents" means, collectively, this Agreement, the Revolving
Credit Notes, the Lockbox Agreements, any other note or notes executed by any
Borrower or Borrowers to the order of Lender, and Guaranty, and any other
agreement entered into in connection with this Agreement, together with all
alterations, amendments, changes,
-11-
18
extensions, modifications, refinancing, refundings, renewals, replacements,
restatements, or supplements, of or to any of the foregoing.
"Lockbox" has the meaning set forth in Section 2.5.
"Lockbox Agreements" has the meaning set forth in Section 2.5.
"Material Adverse Effect" means any material adverse effect on any
Borrower's or Parent's financial condition, assets, operating status or
projected financial condition or any fact or circumstance that singly or in the
aggregate with any other fact or circumstance, has a reasonable likelihood of
resulting in or leading to the inability of such Borrower or Parent to perform
in any material respect its obligations under this Agreement or under any other
Loan Document or the inability of Lender to enforce in any material respect the
rights purported to be granted to Lender under this Agreement or any other Loan
Document or which might have a material adverse effect on the ability of such
Borrower or Parent to effectuate (including hindering or unduly delaying) the
transactions contemplated by this Agreement and the other Loan Documents on the
terms contemplated hereby and thereby.
"Maximum Amount" has the meaning set forth in Section 2.1(c).
"Multiemployer Plan" means a "multiemployer plan" as defined in
ERISA Sections 3(37) or 4001(a)(3) or IRC Section 414(f) which covers employees
of Borrower or any ERISA Affiliate.
"Negotiable Collateral" means all of each Borrower's present and
future letters of credit, notes, drafts, instruments, certificated and
uncertificated securities, investment property (including, without limitation,
any and all Eligible Investment Property), documents, personal property leases
(wherein such Borrower is the lessor), chattel paper, and such Borrower's Books
relating to any of the foregoing.
"Net Income" means, in respect of each fiscal year of Parent and its
Subsidiaries, the net annual income after taxes of Parent and its Subsidiaries
as such would appear on a consolidated statement of earnings of Parent and its
Subsidiaries prepared in accordance with GAAP, consistently applied, excluding
any extraordinary gains.
"Obligations" means the Revolving Credit Loans, all other loans,
advances, debts, principal, interest (including any interest that, but for the
provisions of the United States Bankruptcy Code, would have accrued), contingent
reimbursement
-12-
19
obligations owing to Lender under any outstanding L/Cs, premiums (including
Early Termination Premiums), liabilities (including all amounts charged to any
Borrower's loan account pursuant to any agreement authorizing Lender to charge
such Borrower's loan account), obligations, fees, lease payments, guaranties,
covenants, and duties owing, by any Borrower to Lender of any kind and
description (whether pursuant to or evidenced by the Loan Documents, by any
other note or instrument, or by any other agreement between Lender and any
Borrower, and whether or not for the payment of money), whether direct or
indirect, absolute or contingent, due or to become due, now existing or
hereafter arising, and including any debt, liability, or obligation owing from
any Borrower to others that Lender may have obtained by assignment or otherwise,
and further including all interest not paid when due and all Lender Expenses
that any Borrower is required to pay or reimburse by the Loan Documents, by law,
or otherwise.
"Overadvance" has the meaning set forth in Section 2.3.
"Parent" means PIA Merchandising Services, Inc., a Delaware
corporation.
"Parent and its Subsidiaries" means Parent and each of its
Subsidiaries, (including Borrowers) and each Subsidiary of such Subsidiaries.
"PBGC" means the Pension Benefit Guaranty Corporation.
"Permitted Acquisitions" has the meaning set forth in Section 7.19
of this Agreement.
"Permitted Liens" means: (a) liens and security interests held by
Lender; (b) liens for unpaid taxes that are not yet due and payable; (c) liens
and security interests set forth on Schedule P-1 attached hereto; (d) purchase
money security interests and liens of lessors under capitalized leases to the
extent that the acquisition or lease of the underlying asset was permitted under
Section 7.11, and so long as the security interest or lien only secures the
purchase price of the asset; (e) liens on leasehold interests created by the
lessor in favor of any mortgagee of the leased premises; (f) liens for taxes,
assessments, governmental charges, levies or claims that are being diligently
contested in good faith by appropriate proceedings and for which adequate
reserves shall have been set aside, but only so long as no levy, foreclosure, or
similar proceedings have been commenced with respect thereto; (g) liens incurred
in the ordinary course of business in connection with worker's compensation,
unemployment insurance or similar legislation; (h) easements, right-of-way,
matters of public record, restrictions and other similar encumbrances on the use
of real property
-13-
20
which do not materially interfere with the ordinary conduct of business of any
Borrower as currently conducted; and (i) liens in respect of judgments or awards
for which appeals or proceedings for review are being prosecuted and in respect
of which a stay of execution upon any such appeal or proceeding for review shall
have been secured, provided that adequate reserves for such judgments or awards
have been established, or such judgments or awards are fully insured or been
fully bonded but only so long as no levy or similar proceedings have been
commenced with respect thereto.
"Permitted Parent Expenditures" means: expenditures which Parent is
obligated to make in the ordinary course of its business of serving as the
holding company for Borrowers, including, without limitation, the following: (i)
payments of Taxes; (ii) payments required by the Securities and Exchange
Commission (e.g. filing fees), the National Association of Securities Dealers or
the Nasdaq Stock Market; (iii) professional fees and expenses for accountants
and attorneys engaged in providing accounting and legal services, respectively,
to Parent for the collective benefit of Parent and its Subsidiaries; (iv)
payments under the Agreement dated as of August 10, 1998 between Parent and
Xxxxxxx X. Xxxxx as such Agreement exists as of the Closing Date; (v) payments
under the Employment Agreement dated June 25, 1997 between Parent and Xxxxx
Xxxxx, as amended by Amendment No. 1 to the Employment Agreement dated December
1, 1998, as such Employment Agreement, as amended, exists as of the Closing
Date; (vi) payments under the Amended and Restated Severance Agreement between
Parent and Xxxxx X. Xxxx dated December 1, 1998, as such Amended and Restated
Severance Agreement exists as of the Closing Date; (vii) payment of the pension
obligations of Parent as identified more particularly in, and not to exceed the
monthly payment amounts set forth in, Schedule P-2 attached hereto; and (viii)
other fees and expenses in an amount not to exceed $200,000 per year on a
non-cumulative basis.
"Person" means any individual, sole proprietorship, partnership,
limited liability partnership, joint venture, trust, unincorporated
organization, association, corporation, limited liability company, institution,
entity, party, or government (whether national, federal, state, county, city,
municipal or otherwise, including, without limitation, any instrumentality,
division, agency, body or department thereof).
"PIA" has the meaning set forth in the introduction to this
Agreement.
"Plan" means any plan described in ERISA Section 3(2) maintained for
employees of any Borrower or any ERISA Affiliate, other than a Multiemployer
Plan.
-14-
21
"Prime Based Loans" means all Revolving Credit Loans and all other
Obligations (other than contingent reimbursement obligations owing to Lender
under any outstanding L/Cs) bearing interest at the Prime Based Rate.
"Prime Based Rate" means the interest rate per annum equal to
one-quarter percent (.25%) in excess of the Prime Rate.
"Prime Rate" means the variable rate of interest, per annum, most
recently announced by Lender, or any successor, at its principal office as its
"prime rate", which may be greater or less than other interest rates charged by
Lender to other borrowers and is not necessarily solely based on, dependent upon
or equal to the interest rate that Lender may charge any particular borrower or
class of borrowers.
"Prohibited Transaction" means any transaction described in Section
406 of ERISA which is not exempt by reason of Section 408 of ERISA, and any
transaction described in Section 4975(c) of the I.R. Code which is not exempt by
reason of Section 4975(c)(2) of the I.R. Code.
"Reportable Event" means a reportable event described in Section
4043 of ERISA or the regulations thereunder, a withdrawal from a Plan described
in Section 4063 of ERISA, or a cessation of operations described in Section
4068(f) of ERISA.
"Retail Resources" has the meaning set forth in the introduction to
this Agreement.
"Retail Resources Line" means a maximum amount which may be advanced
against the Eligible Accounts of Retail Resources, which amount shall not at any
time exceed the lesser of (a) One Million Five Hundred Thousand Dollars
($1,500,000) or (b) the amount available under the Total Facility.
"Revolving Credit" has the meaning set forth in Section 2.1(a).
"Revolving Credit Loans" means all outstanding cash advances under
the Revolving Credit.
"Revolving Credit Maturity Date" has the meaning set forth in
Section 2.1(f).
"Revolving Credit Notes" has the meaning set forth in Section
2.1(e).
-15-
22
"Standby L/C's" means standby letters of credit issued for the
account of any Borrower for business purposes of such Borrower and having a
tenor of not more than one (1) year.
"Subsidiaries" means, as of any date of determination and with
respect to any Person, any corporation, limited liability company, partnership
or joint venture, whether now existing or hereafter organized or acquired: (a)
in the case of a corporation, of which a majority of the securities having
ordinary voting power for the election of directors or other governing body
(other than securities having such power only by reason of the happening of a
contingency) are at the time beneficially owned by such Person and/or one or
more Subsidiaries of such Person, or (b) in the case of a partnership or joint
venture, of which such Person or a Subsidiary of such Person is a general
partner or joint venturer or of which a majority of the partnership or other
ownership interests are at the time beneficially owned by such Person and/or one
or more of its Subsidiaries.
"Tangible Net Worth" means, at any time, the amount by which all
assets of Parent and its Subsidiaries in the aggregate, excluding intangible
assets, as that term would be defined under GAAP, together with deferred costs,
exceed all of Parent's and its Subsidiaries' liabilities, as would be shown on a
consolidated balance sheet of Parent and its Subsidiaries prepared as of such
date in accordance with GAAP.
"Tax" and "Taxes" means any tax, including, without limitation, any
income, gross receipts, sales, use, an valorem, transfer, franchise,
withholding, payroll, employment, excise, occupation, premium or property tax,
together with any interest, any penalties, additions to any such tax or
additional amounts imposed by any governmental body (domestic or foreign).
"Total Facility" means the aggregate principal amount of all
outstanding Revolving Credit Loans, which shall not, at any time, exceed the
lesser of the Maximum Amount or the Borrowing Base.
"Voidable Transfer" has the meaning set forth in Section 15.8.
"Working Capital" means, at any time, the amount by which the
Current Assets of Parent and its Subsidiaries exceed the Current Liabilities of
Parent and its Subsidiaries, as would be shown on a consolidated balance sheet
of Parent and its Subsidiaries prepared as of such date in accordance with GAAP.
-16-
23
1.2 Accounting Terms and Principles. All accounting terms not
specifically defined herein shall be construed in accordance with GAAP. When
used herein, the term "financial statements" shall include the notes and
schedules thereto. Where the character or amount or any asset or liability or
item of income or expense is required to be determined or any consolidation or
other accounting computation is required to be made for the purposes of this
Agreement, this shall be done in accordance with GAAP, to the extent applicable,
except where such principles are inconsistent with the requirements of this
Agreement.
1.3 Code. Any terms used in this Agreement which are defined in
the Code shall be construed and defined as set forth in the Code unless
otherwise defined herein.
1.4 Schedules and Exhibits. All of the schedules and exhibits
attached to this Agreement shall be deemed incorporated herein by reference.
2. LOAN AND TERMS OF PAYMENT
2.1 Revolving Credit.
(a) Subject to the terms and conditions of this
Agreement, Lender hereby establishes for the benefit of Borrowers a
revolving credit facility ("Revolving Credit") which shall include
advances extended by Lender to or for the benefit of Borrowers from
time to time hereunder. The aggregate principal amount of all
outstanding Revolving Credit Loans shall not, at any time, exceed
the lesser of the Maximum Amount or the Borrowing Base ("Total
Facility"). Subject to such limitation, the outstanding balance
under the Revolving Credit may fluctuate from time to time; the
Revolving Credit will be reduced by repayments made by any Borrower
and increased by future advances which may be made by Lender to or
for the benefit of any Borrower. For the purposes of this Agreement,
any determination as to whether there is availability within the
Borrowing Base for advances shall be determined by Lender in its
sole discretion and shall be final and binding upon Borrowers.
Subject to availability under the Borrowing Base, the fulfillment of
any other conditions to borrowing contained in this Agreement and
the absence of an Event of Default or any event which with the
giving of notice or passage of time or both would become an Event of
Default, Borrowers may borrow, repay and reborrow under the
Revolving Credit from time to time during the term of this
Agreement. Lender shall have the right from time to time to
establish reserves against the Borrowing Base in such amounts and
with respect to such matters as Lender in
-17-
24
its sole discretion deems appropriate. For the purposes of this
Agreement, "Borrowing Base" shall mean the sum of:
(i) an amount equal to eighty percent (80%)
of the amount of Eligible Accounts of PIA; plus
(ii) an amount equal to eighty percent (80%)
of the amount of Eligible Accounts of Retail Resources,
not to exceed the Retail Resources Line; plus
(iii) an amount equal to one hundred percent
(100%) of the amount of Eligible Cash Collateral; plus
(iv) an amount equal to ninety percent (90%)
of the value, as reasonably determined by Lender from
time to time, of PIA's Eligible Government Treasury
Bills; plus
(v) an amount equal to eighty percent (80%)
of the value, as reasonably determined by Lender from
time to time, of PIA's Eligible Corporate Bonds; plus
(vi) an amount equal to seventy percent
(70%) of the value, as reasonably determined by Lender
from time to time, of PIA's Eligible Listed Securities;
plus
(vii) an amount equal to fifty percent (50%)
of the value, as reasonably determined by Lender from
time to time, of PIA's Eligible Mutual Funds; less
(viii) any Availability Reserves; and less
(ix) outstanding L/C's.
(b) Lender may, in its sole discretion, from time to
time, among other permissible discretionary actions that Lender may
take with respect to the Revolving Credit, reduce the lending
formula with respect to Eligible Accounts, among other permissible
reasons, to the extent that Lender determines that: (A) the dilution
with respect to the Accounts for any period (based on the ratio of
(i) the aggregate amount of reductions in Accounts other than as a
result of payments in cash to (ii) the aggregate amount of total
sales)
-18-
25
exceeds five percent (5%), in which case Lender may reduce the
advance rate applicable to Eligible Accounts by one percent (1%) for
each percent of such dilution in excess of five percent (5%), or (B)
the general creditworthiness of account debtors has declined. In
determining whether to reduce the lending formula with respect to
Eligible Accounts, Lender may consider, among other factors, events,
conditions, contingencies or risks which are also considered in
determining Eligible Accounts or in establishing Availability
Reserves.
(c) Lender shall have no obligation to make Revolving
Credit Loans hereunder to the extent they would cause the aggregate
outstanding Obligations of Borrowers under this Section 2.1 and
under Section 2.2 to exceed Twenty Million Dollars ($20,000,000)
(the "Maximum Amount").
(d) Lender is authorized to make Revolving Credit Loans
under this Agreement based upon telephonic or other instructions
received from anyone purporting to be an Authorized Officer of any
Borrower or, without instructions, if pursuant to Section 2.4(d).
Each Borrower agrees to establish and maintain all operating
accounts with Lender for the purpose of receiving the proceeds of
the Revolving Credit Loans requested by such Borrower and made by
Lender hereunder. Unless otherwise agreed by Lender and Borrowers in
writing, any Revolving Credit Loan requested by any Borrower and
made by Lender hereunder shall be made to one of such operating
accounts. The proceeds of the Revolving Credit Loans made under this
Section 2.1 shall be used by each Borrower, consistent with this
Agreement, for each Borrower's general working capital purposes and,
with respect to PIA, for Permitted Acquisitions.
(e) Upon the Closing Date, each Borrower shall execute
and deliver a promissory note to Lender in the form of Exhibit 2.1
(e) attached hereto (the "Revolving Credit Notes") to evidence such
Borrower's unconditional obligation to repay Lender for all advances
made under the Revolving Credit, with interest as herein and therein
provided. Each advance under the Revolving Credit shall be deemed
evidenced by the Revolving Credit Note, which is deemed incorporated
herein by reference and made a part hereof.
(f) Subject to the terms of Section 3.3, the term of the
Revolving Credit shall expire on the third (3rd) anniversary of the
date of this Agreement (the "Revolving Credit Maturity Date"), on
which date all of the outstanding Revolving Credit Loans and other
Obligations of every kind whatsoever, unless having been sooner
accelerated pursuant to the terms hereof,
-19-
26
shall be due and payable in full, and as of and after which date no
further advances or extensions of credit shall be available from
Lender.
2.2 Letters of Credit.
(a) Subject to the terms and conditions of this
Agreement, Lender agrees to issue Standby L/C's for the account of a
Borrower (each, an "L/C") in an aggregate face amount not to exceed
the lesser of: (i) the Borrowing Base less the amount of outstanding
Revolving Credit Loans; or (ii) Two Million Dollars ($2,000,000).
Each L/C shall have an expiration date no later than sixty (60) days
prior to the date on which this Agreement is scheduled to terminate
under Section 3.3 hereof and all L/Cs shall be in form and substance
acceptable to Lender in its sole discretion. Lender shall not have
any obligation to issue L/Cs to the extent that the face amount of
all outstanding L/Cs plus the aggregate amount of the Revolving
Credit Loans outstanding pursuant to Section 2.1 would exceed the
Maximum Amount. The L/Cs issued under this Section 2.2 shall be used
by the account party Borrower, consistent with this Agreement, for
its general working capital purposes. If Lender is obligated to
advance funds under an L/C, the amount so advanced immediately shall
be deemed to be a Revolving Credit Loan made by Lender to the
account party Borrower pursuant to Section 2.1 and, thereafter,
shall bear interest at the rate then applicable under Section 2.4.
(b) Each Borrower hereby agrees to indemnify, save,
defend and hold Lender harmless from any loss, cost, expense, or
liability, including payments made by Lender, expenses, and
attorneys' fees incurred by Lender arising out of or in connection
with any L/Cs. Each Borrower agrees to be bound by Lender's
interpretation of any L/C issued by Lender to or for Borrowers'
account, even though this interpretation may be different from such
Borrower's own, and each Borrower understands and agrees that Lender
shall not be liable for any error, negligence, or mistake, whether
of omission or commission, in following any Borrower's instructions
or those contained in the L/Cs or any modifications, amendments, or
supplements thereto.
(c) Borrowers will pay Lender upon the issuance of each
Standby L/C a fee equal to two percent (2.0%) per annum times the
face amount of such L/C. Service and other standard Lender charges,
commissions, fees and costs relating to L/Cs may be charged to
Borrowers' loan account at the time the service is rendered or the
cost is incurred.
-20-
27
(d) Immediately upon the termination of this Agreement,
Borrowers agree either: (i) to provide cash collateral to be held by
Lender in an amount equal to the maximum amount of Lender's
obligations under all L/Cs, or (ii) to cause to be delivered to
Lender releases of all of Lender's obligations under all outstanding
L/Cs, including the return to Lender of all original, canceled L/Cs.
At Lender's discretion, any proceeds of Collateral received by
Lender may be held as the cash collateral required by this Section
2.2(d).
2.3 Overadvances. If, at any time or for any reason, the amount
of Obligations owed by Borrowers to Lender pursuant to Sections 2.1 and 2.2 is
greater than either the dollar or percentage limitations set forth in Sections
2.1 or 2.2 (an "Overadvance"), Borrowers immediately shall pay to Lender, in
cash, the amount of such excess.
2.4 Interest; Rates, Payments, and Calculations.
(a) Initial Interest Rates. All Revolving Credit Loans
shall bear interest, at the applicable Borrower's option, at either
the LIBOR Based Rate or the Prime Based Rate as set forth below.
(i) Prime Based Rate. Subject to the terms
and conditions set forth below and unless subject to the
LIBOR Based Rate, all Obligations (other than contingent
reimbursement obligations owing to Lender under any
outstanding LC/s) shall bear interest at the Prime Based
Rate.
(ii) LIBOR Based Rate. Subject to the terms
and conditions set forth below and unless subject to the
Prime Based Rate, all Obligations (other than contingent
reimbursement obligations owing to Lender under any
outstanding L/Cs) shall bear interest at the LIBOR Based
Rate.
(iii) Additional Interest Provisions for
Prime Based Loans.
(A) The interest rate charged on
Prime Based Loans shall change on the same
day as Lender's Prime Rate may change from
time to time.
-21-
28
(B) Interest on Prime Based
Loans shall be due and payable monthly, in
arrears, on the first day of each calendar
month, and shall be calculated on the basis
of a 360-day year for the actual number of
days elapsed, based upon the greater of Two
Million Dollars ($2,000,000) or the actual
average monthly balance of the Obligations
(other than contingent reimbursement
obligations owing to Lender under any
outstanding L/Cs).
(iv) Additional Interest Provisions for
LIBOR Based Loans.
(A) Each LIBOR Based Loan must
be for an integral multiple of One Million
Dollars ($1,000,000), but not less than Two
Million Dollars ($2,000,000). There may be
only three (3) LIBOR Based Loans outstanding
at any one time.
(B) (1) LIBOR Based Loans shall
be selected for a period of either a thirty
(30) day, sixty (60) day, ninety (90) day or
one hundred eighty (180) day duration, as
the applicable Borrower may elect, during
which the LIBOR Based Rate is applicable (a
"LIBOR Interest Period"); provided, however:
(x) if a LIBOR Interest Period would
otherwise end on a day which shall not be a
Good Business Day, such LIBOR Interest
Period shall be extended to the next
succeeding Good Business Day, unless such
Good Business Day falls in another calendar
month, in which case such LIBOR Interest
Period shall end on the immediately
preceding Good Business Day subject to
clause (z) below; (y) interest shall accrue
from and including the first day of each
LIBOR Interest Period, to, but excluding,
the day on which such LIBOR Interest Period
expires; and (z) with respect to any LIBOR
Interest Period which begins on the last
Good Business Day of a calendar month (or on
a day for which there is no numerically
corresponding day in the calendar month at
the end of such LIBOR Interest Period), the
LIBOR Interest Period shall end on the last
Good Business Day of the applicable calendar
month. Interest on a LIBOR Based Loan shall
be due and payable in arrears on the first
day of each calendar month, provided that
all remaining accrued and unpaid interest on
each LIBOR Based Loan must be repaid in full
on the day the applicable LIBOR
-22-
29
Interest Period expires. No LIBOR Interest
Period may end after the Revolving Credit
Maturity Date.
(2) Subject to all of the terms
and conditions applicable to a request that
all or a portion of a new Revolving Credit
Loan be a LIBOR Based Loan, the applicable
Borrower may extend a LIBOR Based Loan as of
the last day of its LIBOR Interest Period to
a new LIBOR Based Loan or may convert all or
a portion of the Prime Based Loans to a
LIBOR Based Loan. If the applicable Borrower
fails to notify Lender of the LIBOR Interest
Period for a new, renewed or converted LIBOR
Based Loan at least three (3) Good Business
Days prior to the last day of the then
current LIBOR Interest Period of an
outstanding LIBOR Based Loan, then such
outstanding LIBOR Based Loan shall become a
Prime Based Loan at the end of the current
LIBOR Interest Period for such outstanding
LIBOR Based Loan and shall accrue interest
accordingly.
(C) The LIBOR Rate may be
automatically adjusted by Lender on a
prospective basis to take into account the
additional or increased cost of maintaining
any necessary reserves for Eurodollar
deposits or increased costs due to changes
in applicable law or regulation or the
interpretation thereof occurring subsequent
to the commencement of the then applicable
LIBOR Interest Period, including, but not
limited to, changes in tax laws (except
changes of general applicability in
corporate income tax laws as they affect
financial institutions) and changes in the
reserve requirements imposed by the Board of
Governors of the Federal Reserve System (or
any successor) that increase the cost to
Lender of funding a LIBOR Based Loan. Lender
shall promptly give Borrowers notice of such
a determination and adjustment, which
determination shall be prima facie evidence
of the correctness of the fact and the
amount of such adjustment.
(D) In the event that a Borrower
shall have requested the LIBOR Rate option
and Lender shall have reasonably determined
that Eurodollar deposits equal to the amount
of the principal of the requested LIBOR
Based Loan and for the LIBOR Interest Period
specified are unavailable, impractical or
unlawful, or that the rate based on the
LIBOR Rate
-23-
30
will not adequately and fairly reflect the
cost of the LIBOR Based Rate applicable to
the specified LIBOR Interest Period, of
making or maintaining the principal amount
of the requested LIBOR Based Loan specified
by the applicable Borrower during the LIBOR
Interest Period specified, or that by reason
of circumstances affecting Eurodollar
markets, adequate and reasonable means do
not exist for ascertaining the rate based on
the LIBOR Rate applicable to the specified
LIBOR Interest Period, Lender shall promptly
give notice of such determination to the
applicable Borrower that the rate based on
the LIBOR Rate is not available. A
determination by Lender hereunder shall be
prima facie evidence of the correctness of
the fact and amount of such additional costs
or unavailability. Upon such a
determination, (1) the right of any Borrower
to select, convert to, or maintain a LIBOR
Based Loan at the rate based on the LIBOR
Rate shall be suspended until Lender shall
have notified the applicable Borrower that
such conditions shall have ceased to exist,
(2) Lender shall use reasonable efforts to
offer to the applicable Borrower a
replacement index at a rate with a margin
that gives Lender a comparable yield to the
LIBOR Rate option, and (3) the LIBOR Based
Loans subject to the requested LIBOR Rate
option shall accrue interest at the Prime
Based Rate.
(E) In the event that, as a
result of any changes in applicable law or
regulation or the interpretation thereof, it
becomes unlawful for Lender to maintain
Eurodollar liabilities sufficient to fund
any LIBOR Based Loan subject to the LIBOR
Based Rate, then Lender shall immediately
notify Borrowers thereof and Lender's
obligation to make, convert to, or maintain
a LIBOR Based Loan at the LIBOR Based Rate
shall be suspended until such time as Lender
may again cause the LIBOR Based Rate to be
applicable to any LIBOR Based Loans and the
LIBOR Based Loans subject to the LIBOR Based
Rate shall accrue interest at the Prime
Based Rate. Promptly after becoming aware
that it is no longer unlawful for Lender to
maintain such Eurodollar liabilities, Lender
shall notify Borrowers thereof and such
suspension shall cease to exist.
(F) Each Borrower shall
indemnify, defend and hold Lender harmless
against any and all loss, liability, cost or
-24-
31
expense Lender may sustain or incur as a
consequence of (1) any failure of any
Borrower to obtain, convert or extend any
LIBOR Based Loan after notice thereof has
been given to Lender or (2) any payment,
prepayment (voluntary or otherwise),
termination or conversion of a LIBOR Based
Loan made for any reason on a date other
than the last day of the applicable LIBOR
Interest Period; provided, however, any
Borrower may elect to require that Lender
avoid the incurrence of any loss, liability,
cost or expense pursuant to this clause (2)
by notifying Lender to deposit any such
payment or prepayment by any Borrower in a
non-interest-bearing deposit account with
Lender until the last day of the applicable
LIBOR Interest Period. Borrowers shall pay
to Lender the full amount payable under this
subsection (F) on demand by Lender.
(G) In the event that any
present or future law, rule, regulation,
treaty or official directive or the
interpretation or application thereof by any
central bank, monetary authority or
governmental authority, or the compliance
with any guideline or request of any central
bank, monetary authority or governmental
authority (whether or not having the force
of law) imposes, modifies or deems
applicable any reserve, special deposit, or
other similar requirement with respect to
LIBOR Based Loans, or commitments to make
such loans or advances by Lender, and the
result of any of the foregoing is to
increase the costs of Lender, reduce the
income receivable by or return on equity of
Lender or impose any expense upon Lender
with respect to any LIBOR Based Loans or
commitments to make such loans, Lender shall
so notify Borrowers in writing. Upon notice
from Lender, Borrowers shall pay Lender the
amount of such increase in cost, reduction
in income, reduced return on equity or
capital, or additional expense after
presentation by Lender of a statement
concerning such increase in cost, reduction
in income, reduced return on equity or
capital, or additional expense. Such
statement shall set forth Lender's
calculation of the amount (in determining
such amount, Lender may use any reasonable
averaging and attribution methods), which
statement shall be prima facie evidence of
the correctness of the fact.
-25-
32
(v) Requests for Loans. All requests by any
Borrower for a Prime Based Loan must be made by 1:00
p.m., Philadelphia time, on the date such requested
Prime Based Loan is to be made. All requests by any
Borrower for a LIBOR Based Loan (including renewals of
existing LIBOR Based Loans or conversions from a Prime
Based Loan), must be made by 1:00 p.m. Philadelphia
time, three (3) Good Business Days prior to the date of
such requested LIBOR Based Loan or conversion. Lender
may require that any Borrower accompany any request for
a LIBOR Based Loan or a Prime Based Loan with a written
confirmation of such request (including the amount so
requested) within one (1) Business Day after the date of
such request.
(vi) Limitation on LIBOR Based Loans. Upon
the occurrence of an Event of Default, Lender may, in
its sole discretion, eliminate the availability of LIBOR
Based Loans and convert all outstanding LIBOR Based
Loans to Prime Based Loans.
(b) Conditional, Performance-Based Interest Rate. The
LIBOR Based Rate and the Prime Based Rate each shall be subject to a
one-time reduction of one-eighth of one (1/8) percentage point which
shall apply if (i) Parent's audited financial statements for any
fiscal year delivered to Lender pursuant to Section 6.4 hereof
reflect that Parent and its Subsidiaries had positive Net Income for
such fiscal year of at least Two Hundred Fifty Thousand Dollars
($250,000), (ii) no Event of Default exists and (iii) Borrowers had
an aggregate average borrowing availability (excluding Eligible
Investment Property) for the preceding ninety-day period of at least
Four Million Dollars ($4,000,000).
(c) Default Rate. All Obligations (other than contingent
reimbursement obligations owing to Lender under any outstanding
L/Cs) shall bear interest at a rate equal to two (2) percentage
points above the interest rate applicable to the respective
Obligations from and after the occurrence and during the continuance
of either of the following events (collectively, the "Default
Pricing Events"): (i) an Event of Default; or (ii) an Overadvance.
From and after the occurrence and during the continuance of a
Default Pricing Event, the respective L/C fees provided in Section
2.2(c) each shall be increased by two percent (2%) per annum. A
Default Pricing Event shall no longer be continuing from and after
such time as (x) the Event of Default has been cured by Borrowers or
waived by Lender or this Agreement has been amended to eliminate
such Event of Default, in the case of a Default Pricing Event
-26-
33
described in clause (i) of the first sentence of this Section
2.4(c), or (y) the Overadvance has been eliminated, in the case of a
Default Pricing Event described in clause (ii) of this Section
2.4(c).
(d) Payments. Each Borrower hereby authorizes Lender, at
its option, to charge all interest payable hereunder, all Lender
Expenses and all fees payable under Section 2.7 hereof to Borrowers'
Revolving Credit loan account, which 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.
(e) Continuation of Interest Charges. All contractual
rates of interest chargeable on outstanding Revolving Credit Loans,
regardless of the rate option, shall continue to accrue and be paid
even after default, maturity, acceleration, judgment, bankruptcy,
insolvency proceedings of any kind or the happening of any event or
occurrences similar or dissimilar.
(f) Applicable Interest Limitations. In no contingency
or event whatsoever shall the aggregate of all amounts deemed
interest hereunder and charged or collected pursuant to the terms of
this Agreement exceed the highest rate permissible under any law
which a court of competent jurisdiction shall, in a final
determination, deem applicable hereto. In the event that such court
determines Lender has charged or received interest hereunder in
excess of the highest applicable rate, Lender shall in its sole
discretion, apply and set off such excess interest received by
Lender against other Obligations due or to become due and such rate
shall automatically be reduced to the maximum rate permitted by such
law.
2.5 Collections, Disbursements and Borrowing Availability. Each
Borrower shall maintain one or more lockbox accounts (each a "Lockbox") with
Lender or another depository institution acceptable to Lender ("Lender's Lockbox
bank") and one or more non-interest bearing depository accounts (each a "Cash
Collateral Account") with Lender or Lender's Lockbox bank subject to the
provisions of this Section 2.5, and shall enter into one or more lockbox
agreements with Lender or one or more tri-party lockbox agreements with Lender
and Lender's Lockbox bank (the "Lockbox Agreements"), and such other agreements
related thereto as Lender may require. All collections of Accounts shall be paid
directly from Account Debtors into Lender's Lockbox from which collected funds
shall be transferred to Lender's Cash Collateral Account, and from which funds
shall be applied by Lender, daily, to reduce
-27-
34
the outstanding Obligations under the Revolving Credit with future advances to
be made by Lender under the conditions set forth in this Section 2.5. In the
event that collections of Accounts and proceeds of other Collateral are received
at any time by any Borrower, such collections shall be held in trust for the
benefit of Lender and shall be remitted, in the form received, to Lender for
deposit in the Cash Collateral Account immediately upon receipt by such
Borrower. All funds transferred from the Cash Collateral Account shall, upon
application to any Borrower's Obligations to Lender, reduce the Revolving Credit
loan balance, but for the purpose of calculating interest, shall be subject to a
one (1) Business Day clearance period from the time such funds are transferred
from the Cash Collateral Account. No Borrower shall have a right of access to or
withdrawal from the Lockbox or Lender's Cash Collateral Account. At any time
prior to the occurrence of an Event of Default, if no Revolving Credit Loans are
outstanding, funds received in the Cash Collateral Account shall be transferred
to Borrowers' operating account with Lender. Anything to the contrary contained
herein notwithstanding, any wire transfer, check, or other item of payment
received by Lender after 1:00 p.m. Philadelphia time shall be deemed to have
been received by Lender as of the opening of business on the immediately
following Business Day. All returned or dishonored checks shall be debited from
such Borrower's operating account as of the date of receipt and deemed a
Revolving Credit Loan as of such date.
2.6 Statements of Obligations. Lender shall render to Borrowers
monthly statements of the Obligations, including principal, interest, fees, and
Lender Expenses owing, and, absent manifest error, such statements shall be
conclusively presumed to be correct and accurate and constitute an account
stated between Borrowers and Lender unless, within sixty (60) days after receipt
thereof by Borrowers, Borrowers deliver to Lender by registered or certified
mail at its address specified in Section 12, written objection thereto
describing the error or errors contained in any such statements.
2.7 Fees. Borrowers shall pay to Lender the following fees:
(a) Closing Fee. A one-time closing fee of One Hundred
Thousand Dollars ($100,000). Lender acknowledges prior receipt of
one-half of such fee from Borrowers in connection with the
acceptance of Lender's commitment letter dated October 28, 1998
respecting the financing contemplated hereunder. Borrowers shall pay
the remaining half of such fee on the first anniversary of the date
of this Agreement or upon the earlier termination of this Agreement.
-28-
35
(b) Unused Line Fee. On the first Business Day of each
calendar month during the term of this Agreement, a fee, in respect
of the Revolving Credit, in an amount equal to the sum of (i)
three-eighths percent (0.375%) per annum times the first Five
Million Dollars ($5,000,000) of the Average Unused Portion of the
Maximum Amount for the immediately preceding month and (ii) one-half
percent (0.50%) per annum times the remainder of the Average Unused
Portion of the Maximum Amount for such preceding month.
(c) Field Examination Fees. Lender's customary fee of
Six Hundred Seventy-Five Dollars ($675) per day per examiner, plus
out-of-pocket expenses for each field examination of Borrowers
performed by Lender or its agents.
3. CONDITIONS TO EFFECTIVENESS: TERM OF AGREEMENT
3.1 Conditions Precedent to Initial Advance or L/C. The
obligation of Lender to make the initial Revolving Credit Loan or provide the
initial L/C hereunder is subject to the fulfillment, to the satisfaction of
Lender and its counsel, of each of the following conditions on or before the
Closing Date.
(a) the Closing Date shall occur on or before December
11, 1998;
(b) Lender shall have received UCC search reports
reflecting the filing of its UCC-1 Financing Statements with the
California Secretary of State's Office, and with such other filing
offices as Lender may deem necessary or advisable, and indicating
that Lender has a first priority security interest in all of the
Collateral consisting of personal property;
(c) Lender shall have received copies of each Borrower's
and Parent's Articles of Incorporation and By-laws, as amended,
modified, or supplemented to the Closing Date, certified by the
Secretary of such Borrower or Parent;
(d) Lender shall have received a certificate of
corporate status with respect to each Borrower and Parent, dated
within ten (10) days of the Closing Date, issued by the Secretary of
State of the state of incorporation of such Borrower and Parent,
which certificate shall indicate that such Borrower and Parent is in
good standing in such state;
-29-
36
(e) Lender shall have received a certificate from the
Secretary of each Borrower and Parent attesting to the resolutions
of each Borrower's and Parent's Board of Directors authorizing such
Borrower's or Parent's execution and delivery of this Agreement and
the other Loan Documents to which such Borrower or Parent is a party
and authorizing specific officers of such Borrower and Parent to
execute such documents;
(f) Lender shall have received certificates of corporate
status with respect to each Borrower and Parent, each dated within
ten (10) days of the Closing Date, such certificates to be issued by
the Secretary of State of the states in which such Borrower's or
Parent's failure to be duly qualified or licensed as a foreign
corporation would have a material adverse effect on the financial
condition or assets of such Borrower or Parent, which certificates
shall indicate that such Borrower or Parent is in good standing as a
foreign corporation in such states;
(g) Lender shall have received the insurance
certificates and certified copies of policies required by Section
6.10 hereof, along with a 438BFU lender's loss payable endorsement,
all in form and substance satisfactory to Lender and its counsel;
(h) Lender shall have received each of the following
documents, duly executed, and each such document shall be in full
force and effect:
(1) this Agreement;
(2) the Lockbox Agreement (and Borrowers'
main operating deposit account shall have been
established with Lender);
(3) the Revolving Credit Note executed by
PIA;
(4) the Revolving Credit Note executed by
Retail Resources;
(5) the Guaranty executed by Parent;
(6) the Guaranty executed by PIA;
-30-
37
(7) the Guaranty executed by Retail
Resources;
(8) the Guaranty executed by Pivotal Sales
Company, Inc.;
(9) the Guaranty executed by PIA
Merchandising, Ltd. and
(10) such control agreements, pledge
agreements, security agreements or other agreements as
Lender may require to create or perfect its security
interest in the Eligible Investment Property.
(i) Lender shall have received a landlord waiver from
the lessor of PIA's and Parent's facility located at 00000 XxxXxxxxx
Xxxxxxxxx, Xxxxx 000, Xxxxxx, Xxxxxxxxxx 00000;
(j) Lender shall have received an opinion of counsel to
Borrowers and each Guarantor in form and substance satisfactory to
Lender and its counsel in their sole discretion;
(k) the Excess Availability as determined by Lender, as
of the Closing Date, shall be not less than Four Million Dollars
($4,000,000) after giving effect to the initial Revolving Credit
Loan made or to be made and L/Cs issued or to be issued and to all
Lender Expenses incurred in connection with the initial transactions
hereunder, and excluding cash and cash equivalents;
(l) Borrowers shall have aggregate cash and cash
equivalents of not less than Seven Million Five Hundred Thousand
Dollars ($7,500,000);
(m) Lender shall have received such financial
statements, reports, certifications and other operational
information required to be delivered hereunder, including, without
limitation, an initial Borrowing Base Certificate calculating the
Borrowing Base;
(n) Lender shall have received a certification by an
officer of each Borrower that (i) there has not occurred any
material adverse change in the operations, condition (financial or
otherwise) or business prospects of such Borrower from the
information presented to Lender on Parent and its Subsidiaries'
financial statements dated June 30, 1998 and projected through
December 31, 2001; (ii) all representations and warranties of such
Borrower
-31-
38
contained herein are true and correct as of the Closing Date; (iii)
no Event of Default, or event which, with the giving of notice or
the passage of time or both, would constitute an Event of Default,
has occurred; and (iv) all of the other conditions specified in
Section 3 of this Agreement have been fulfilled;
(o) Lender shall have received payment by Borrowers of
all fees required to be paid to Lender prior to the Closing Date and
of all Lender Expenses associated with the Revolving Credit Loans
incurred prior to the Closing Date;
(p) Lender shall have conducted and been satisfied with
the results of its "take-over" field examination;
(q) Lender shall have received satisfactory reference
checks with respect to each Borrower, Parent and their management;
(r) Lender shall have received and been satisfied with
its review of (i) the audited financial statements for Parent and
its Subsidiaries' fiscal year ended on December 31, 1997, which
audited financial statements shall have been prepared by an
accounting firm acceptable to Lender, and (ii) Parent and its
Subsidiaries' most recent consolidated projections, which shall have
included balance sheets, profit and loss statements, cash receipts
and disbursements and borrowing availability prepared on a monthly
basis, and the foregoing items shall not have revealed the
occurrence of any material adverse change in the financial condition
of such Borrower;
(s) Lender shall have received satisfactory consolidated
projections for Parent's and its Subsidiaries' 1999 fiscal year of
the type described in Section 6.15; and
(t) all other documents and legal matters in connection
with the transactions contemplated by this Agreement shall have been
delivered or executed or recorded and shall be in form and substance
satisfactory to Lender and its counsel.
3.2 Conditions Precedent to All Loans and L/Cs. The following
shall be conditions precedent to all Revolving Credit Loans and L/Cs hereunder:
(a) the representations and warranties contained in this
Agreement and the other Loan Documents shall be true and correct in
all
-32-
39
respects on and as of the date of such Revolving Credit Loan or L/C,
as though made on and as of such date (except to the extent that
such representations and warranties relate solely to an earlier
date);
(b) no Event of Default or event which with the giving
of notice or passage of time would constitute an Event of Default
shall have occurred and be continuing on the date of such Revolving
Credit Loan or L/C, nor shall either result from the making thereof;
and
(c) no injunction, writ, restraining order, or other
order of any nature prohibiting, directly or indirectly, the making
of such Revolving Credit Loan or the issuance of such L/C shall have
been issued and remain in force by any governmental authority
against any Borrower, Lender, or any of their affiliates.
3.3 Term; Automatic Renewal. The term ("Initial Term") of the
Revolving Credit shall expire on the Revolving Credit Maturity Date. On such
date, all of the outstanding Obligations under the Revolving Credit, unless
having been sooner demanded by Lender pursuant to the terms hereof or of the
Revolving Credit Notes, shall be due and payable in full and after which due
date no further advances or extensions of credit shall be available from Lender.
The Revolving Credit shall nonetheless automatically renew for one (1) year from
the expiration of the Initial Term and from year to year thereafter unless (i)
Borrowers or Lender (each in their respective sole discretion) notifies the
other in writing of the termination of the Revolving Credit at least ninety (90)
days prior to the end of the then current term; or (ii) an Event of Default or
event which, with the passage of time or giving of notice, or both, would become
an Event of Default hereunder has occurred and is continuing.
3.4 Effect of Termination. On the date of termination, all
Obligations (including contingent reimbursement obligations under any
outstanding L/Cs) shall become immediately due and payable without notice or
demand. No termination of this Agreement, however, shall relieve or discharge
any Borrower of such Borrower's duties, Obligations, or covenants hereunder, and
Lender's continuing security interest in the Collateral shall remain in effect
until all Obligations have been fully discharged and Lender's obligation to
provide advances hereunder is terminated. If Borrowers have sent a notice of
termination pursuant to the provisions of Section 3.3, but fail to pay all
Obligations as of the date set forth in such notice, then Lender may, but shall
not be required to, renew this Agreement for an additional term of one (1) year.
-33-
40
3.5 Early Termination by Borrowers. Notwithstanding the
provisions of Section 3.3 that allow termination of this Agreement by Borrowers
only on the Revolving Credit Maturity Date and certain anniversaries thereof,
Borrowers (collectively and not separately) have the option, upon ninety (90)
days prior written notice to Lender, to terminate this Agreement by paying to
Lender, in cash, the Obligations, (including any contingent reimbursement
obligations of Lender under any L/Cs), together with a premium (the "Early
Termination Premium") equal to the following percentage of the total committed
credit facilities hereunder (i.e., $20,000,000) at the time of early
termination:
Percentage of Total
Date of Termination Committed Credit Facilities
------------------- ---------------------------
1. Prior to the first 1.0%
anniversary of the date of
this Agreement
2. After the first anniversary 0.50%
of the date of this
Agreement
provided, however, Borrowers shall not be obligated to pay any Early Termination
Premium to Lender in connection with a refinancing of the Obligations by the
Middle Market Banking Department of either Mellon Bank, N.A. or Mellon 1st
Business Bank occurring after the eighteenth (18th) month of the term of this
Agreement; provided, further, however, if any Borrower subsequently terminates
its credit facilities with the Middle Market Banking Department of either Mellon
Bank, N.A. or Mellon 1st Business Bank prior to the Revolving Credit Maturity
Date, Borrowers shall be obligated to pay an Early Termination Premium to the
Middle Market Banking Department of Mellon Bank, N.A. or Mellon 1st Business
Bank, as applicable, in accordance with the premium schedule set forth above.
3.6 Termination Upon Event of Default. If Lender terminates this
Agreement upon the occurrence of an Event of Default, in view of the
impracticability and extreme difficulty of ascertaining actual damages and by
mutual agreement of the parties as to a reasonable calculation of Lender's lost
profits as a result thereof, Borrowers shall pay to Lender upon the effective
date of such termination, a premium in an amount equal to the Early Termination
Premium. The Early Termination Premium shall be presumed to be the amount of
damages sustained by Lender as the result of the early termination, and each
Borrower agrees that it is reasonable under the
-34-
41
circumstances currently existing. The Early Termination Premium provided for in
this Section 3.6 shall be deemed included in the Obligations.
4. CREATION OF SECURITY INTEREST
4.1 Grant of Security Interest. Each Borrower hereby grants to
Lender a continuing security interest in all currently existing and hereafter
acquired or arising Collateral in order to secure prompt repayment of any and
all Obligations and in order to secure prompt performance by each Borrower of
each of its covenants and duties under the Loan Documents. Lender's security
interest in the Collateral shall attach to all Collateral without further act on
the part of Lender or any Borrower.
4.2 Negotiable Collateral. In the event that any Collateral,
including proceeds, is evidenced by or consists of Negotiable Collateral, such
Borrower shall, immediately upon the request of Lender, endorse and assign such
Negotiable Collateral to Lender, deliver physical possession of such Negotiable
Collateral to Lender and/or take such action as Lender shall require to permit
Lender to exercise control over intangible Negotiable Collateral.
4.3 Collection of Accounts, General Intangibles, Negotiable
Collateral. At any time, Lender or Lender's designee may: (a) upon an Event of
Default, notify customers or Account Debtors of any Borrower that the Accounts,
General Intangibles, or Negotiable Collateral have been assigned to Lender or
that Lender has a security interest therein; (b) collect the Accounts, General
Intangibles, and Negotiable Collateral directly and charge the collection costs
and expenses to Borrowers' loan account. Each Borrower agrees that it will hold
in trust for Lender, as Lender's trustee, any cash receipts, checks, and other
items of payment that it receives on account of the Accounts, General
Intangibles, or Negotiable Collateral and immediately will deliver such cash
receipts, checks, and other items of payment to Lender in their original form as
received by such Borrower.
4.4 Delivery of Additional Documentation Required. Each Borrower
shall execute and deliver to Lender, prior to or concurrently with Borrowers'
execution and delivery of this Agreement and at any time thereafter at the
request of Lender, all financing statements, continuation financing statements,
fixture filings, security agreements, chattel mortgages, pledges, assignments,
endorsements of certificates of title, applications for title, affidavits,
reports, notices, schedules of accounts, letters of authority, and all other
documents that Lender may reasonably request, in form satisfactory to Lender, to
perfect and continue perfected Lender's security interests in
-35-
42
the Collateral and in order to fully consummate all of the transactions
contemplated hereby and under the other Loan Documents.
4.5 Power of Attorney. Each Borrower hereby irrevocably makes,
constitutes, and appoints Lender (and any of Lender's officers, employees, or
agents designated by Lender) as such Borrower's true and lawful attorney, with
power to: (a) sign the name of such Borrower on any of the documents described
in Section 4.4 or on any other similar documents to be executed, recorded, or
filed in order to perfect or continue perfected Lender's security interest in
the Collateral; (b) sign such 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; (c) send requests for verification of Accounts; (d) endorse such
Borrower's name on any checks, notices, acceptances, money orders, drafts, or
other items of payment or security that may come into Lender's possession; (e)
at any time that an Event of Default has occurred, notify the post office
authorities to change the address for delivery of such Borrower's mail to an
address designated by Lender, to receive and open all mail addressed to such
Borrower, and to retain all mail relating to the Collateral and forward copies
of all returned mail and originals of all other mail to such Borrower; (f) at
any time that an Event of Default has occurred or Lender deems itself insecure,
make, settle, and adjust all claims under such Borrower's policies of insurance
and make all determinations and decisions with respect to such policies of
insurance; and (g) at any time that an Event of Default has occurred or Lender
deems itself insecure, settle and adjust disputes and claims respecting the
Accounts directly with Account Debtors, for amounts and upon terms which Lender
determines to be reasonable, and Lender may cause to be executed and delivered
any documents and releases which Lender determines to be necessary. The
appointment of Lender as such Borrower's attorney, and each and every one of
Lender's rights and powers, being coupled with an interest, is irrevocable until
all of the Obligations have been fully repaid and performed and Lenders
obligation to provide advances hereunder is terminated.
5. REPRESENTATIONS AND WARRANTIES
Each Borrower represents and warrants to Lender as follows:
5.1 No Prior Encumbrances. Each Borrower has good and
indefeasible title to the Collateral, free and clear of liens, claims, security
interests, or encumbrances except for Permitted Liens.
-36-
43
5.2 Eligible Accounts. The Eligible Accounts are, and at all
times, hereafter shall be, bona fide existing obligations created by the sale
and delivery of Inventory or the rendition of services to Account Debtors in the
ordinary course of such Borrower's business, unconditionally owed to such
Borrower without defenses, disputes, offsets, counterclaims, or rights of return
or cancellation. The property giving rise to such Eligible Accounts has been
delivered to the Account Debtor, or to the Account Debtor's agent for immediate
shipment to and unconditional acceptance by the Account Debtor. No Borrower has,
and at all times hereafter, shall not have, received notice of actual or
imminent bankruptcy, insolvency or of a material adverse change in the financial
condition of any Account Debtor at the time an Account due from such Account
Debtor is created.
5.3 Intentionally Deleted.
5.4 Location of Inventory and Equipment. The Inventory and
Equipment are not now and shall not at any time hereafter be stored with a
bailee, warehouseman, or similar party without prior notice to and the written
consent of Lender. Except as provided in the preceding sentence, and except for
laptop computers removed from such locations by employees of Borrowers for use
at home or on travel in the ordinary course of business, Borrowers shall keep
the Inventory and Equipment only at the locations listed on Schedule 5.4 hereto.
5.5 Inventory Records. Each Borrower now keeps, and hereafter at
all times shall keep, correct and accurate records itemizing and describing the
kind, type, quality, and quantity of the Inventory, and such Borrower's cost
therefor.
5.6 Location of Chief Executive Office. The chief executive
office of each Borrower is located at the address indicated in the introduction
to this Agreement and each Borrower covenants and agrees that it will not,
without thirty (30) days prior written notification to Lender, relocate such
chief executive office.
5.7 Due Authorization and Qualification; Subsidiaries. Each
Borrower is and shall at all times hereafter be duly organized and existing and
in good standing under the laws of the State of California and qualified and
licensed to do business in, and in good standing in, any state in which the
conduct of its business or its ownership of property requires that it be so
qualified, except to the extent that the failure to be so qualified would not be
reasonably likely to have a Material Adverse Effect. Schedule 5.7, as such
Schedule hereafter may be amended from time to time to reflect future acquired
or created Subsidiaries, sets forth a complete and correct list of the Parent
and
-37-
44
its Subsidiaries, indicating in each case the outstanding capital stock of such
Subsidiary and the holder of such capital stock.
5.8 Due Authorization; No Conflict. The execution, delivery, and
performance of the Loan Documents are within each Borrower's and Parent's
corporate powers, have been duly authorized, and are not in conflict with nor
constitute a breach of any provision contained in such Borrower's or Parent's
Articles of Incorporation, or By-laws, nor will they constitute an event of
default under any material agreement to which any Borrower or Parent is a party
or by which its assets or properties may be bound.
5.9 Litigation. Except as disclosed on Schedule 5.9, there are no
actions or proceedings pending by or against any Borrower or Parent or any of
its Subsidiaries before any court or administrative agency and Borrowers do not
have knowledge or belief of any pending, threatened, or imminent litigation,
governmental investigations, or claims, complaints, actions, or prosecutions
involving any Borrower or Parent or any of its Subsidiaries or any Guarantor of
the Obligations, except for ongoing collection matters in which a Borrower is
the plaintiff.
5.10 No Material Adverse Change in Financial Condition. All
financial statements relating to Parent and its Subsidiaries, including any
Borrower that have been or may hereafter be delivered to Lender have been
prepared in accordance with GAAP and fairly present Parent and its Subsidiaries'
consolidated financial condition as of the date thereof and Parent and its
Subsidiaries' consolidated results of operations for the period then ended.
There has not been a material adverse change in the financial condition of
Parent and its Subsidiaries, including any Borrower since the date of the latest
financial statements submitted to Lender on or before the Closing Date.
5.11 Solvency. Each Borrower's assets at a fair valuation exceed
the amount of all of its debts at a fair valuation, and each Borrower is able to
pay all of its debts (including trade debts and contingent liabilities) as they
become due, and each Borrower has sufficient capital to conduct its business.
5.12 ERISA.
(a) No Borrower has engaged in any transaction in
connection with which such Borrower or any of its ERISA Affiliates
could be subject to either a civil penalty assessed pursuant to
Section 502(i) of ERISA or a tax imposed by Section 4975 of the I.R.
Code, including any accumulated funding
-38-
45
deficiency described in Section 5.12(c) hereof and any deficiency
with respect to vested accrued benefits described in Section 5.12(d)
hereof.
(b) No liability to the PBGC has been or is expected by
any Borrower to be incurred with respect to any employee pension
benefit plan of any Borrower or any of its ERISA Affiliates. There
has been no reportable event (within the meaning of Section 4043(b)
of ERISA) or any other event or condition with respect to any
employee pension benefit plan of any Borrower or any of its ERISA
Affiliates which presents a risk of termination of any such plan by
the PBGC.
(c) Full payment has been made of all amounts which any
Borrower or any of its ERISA Affiliates is required under Section
302 of ERISA and Section 412 of the I.R. Code to have paid under the
terms of each employee pension benefit plan as contributions to such
plan as of the last day of the most recent fiscal year of such plan
ended prior to the date hereof, and no accumulated funding
deficiency (as defined in Section 302 of ERISA and Section 412 of
the I.R. Code), whether or not waived, exists with respect to any
employee pension benefit plan, including any penalty or tax
described in Section 5.12(a) hereof and any deficiency with respect
to vested accrued benefits described in Section 5.12(d) hereof.
(d) The current value of all vested accrued benefits
under all employee pension benefit plans maintained by any Borrower
that are subject to Title IV of ERISA does not exceed the current
value of the assets of such plans allocable to such vested accrued
benefits, including any penalty or tax described in Section 5.12(a)
hereof and any accumulated funding deficiency described in Section
5.12(c) hereof. The terms "current value" and "accrued benefit" have
the meanings specified in ERISA.
(e) Except as set forth in Schedule 5.12(e) attached
hereto, neither any of the Borrowers nor any of the ERISA Affiliates
is or has ever been obligated to contribute to any "multiemployer
plan" (as such term is defined in Section 4001(a)(3) of ERISA) that
is subject to Title IV of ERISA.
5.13 Environmental Condition.
(a) Except as set forth on Schedule 5.13 hereto, no
Borrower has generated, used, stored, treated, transported,
manufactured, handled, produced or disposed of any Hazardous
Materials, on or off its premises
-39-
46
(whether or not owned by it) in any manner which at any time
violates any applicable Environmental Law or any license, permit,
certificate, approval or similar authorization thereunder, and the
operations of each Borrower complies in all material respects with
all Environmental Laws and all licenses, permits, certificates,
approvals and similar authorizations thereunder.
(b) Except as set forth on Schedule 5.13 hereto, there
has been no investigation, proceeding, complaint, order, directive,
claim, citation or notice by any governmental authority or any other
person nor is any pending or to the best of Borrowers' knowledge
threatened, with respect to any non-compliance with or violation of
the requirements of any Environmental Law by any Borrower or the
release, spill or discharge, threatened or actual, of any Hazardous
Material or the generation, use, storage, treatment, transportation,
manufacture, handling, production or disposal of any Hazardous
Materials or any other environmental, health or safety matter, which
affects any Borrower or its business, operations or assets or any
properties at which any Borrower has transported, stored or disposed
of any Hazardous Materials.
(c) No Borrower has material liability (contingent or
otherwise) in connection with a release, spill or discharge,
threatened or actual, of any Hazardous Materials or the generation,
use, storage, treatment, transportation, manufacture, handling,
production or disposal of any Hazardous Materials.
(d) Each Borrower has all licenses, permits,
certificates, approvals or similar authorizations required to be
obtained or filed in connection with the operations of such Borrower
under any Environmental Law and all of such licenses, permits,
certificates, approvals or similar authorizations are valid and in
full force and effect.
5.14 Patents, Copyrights and Trademarks. All of each Borrower's
registered trademarks and copyrights and issued or applied for patents are
listed in Schedule 5.14 hereto, if attached.
5.15 Reliance by Lender; Cumulative. Each warranty and
representation contained in this Agreement shall be automatically deemed
repeated with each advance or issuance of an L/C and shall be conclusively
presumed to have been relied on by Lender regardless of any investigation made
or information possessed by Lender. The warranties and representations set forth
herein shall be cumulative and in addition to
40
47
any and all other warranties and representations that any Borrower shall now or
hereinafter give, or cause to be given, to Lender.
5.16 Governmental Consent. Neither the nature of any Borrower or
such Borrower's business, assets or properties, nor any relationship between any
Borrower and any third party, nor any circumstance affecting any Borrower in
connection with this Agreement is such as to require a consent, approval or
authorization of, or filing, registration or qualification with, any
governmental authority on the part of such Borrower in conjunction with the
execution and delivery of this Agreement or the other Loan Documents.
5.17 Taxes. All tax returns required to be filed by Parent and
its Subsidiaries, including each Borrower in any jurisdiction have in fact been
filed, and all taxes, assessments, fees and other governmental charges upon
Parent and its Subsidiaries, including each Borrower, or upon any of any of
their assets, property, income or franchises, which are due and payable have
been paid, except for those taxes being contested in good faith with due
diligence by appropriate proceedings for which appropriate reserves have been
maintained under GAAP. Parent and Borrowers are not aware of any proposed
additional tax assessment or tax to be assessed against or applicable to Parent
and its Subsidiaries, including any Borrower.
5.18 Financial Statements. The audited financial statements for
Parent's fiscal year ended December 31, 1997 previously delivered to Lender,
were prepared in accordance with GAAP, and present fairly the financial position
of Parent and its Subsidiaries as of such date and the results of Parent's and
its Subsidiaries' operations for such period. The fiscal year and each fiscal
quarter of Parent and its Subsidiaries is as set forth in Schedule 5.18 attached
hereto. The federal tax identification number of PIA is 00-0000000; the federal
tax identification number of Retail Resources is 95- 4236931; and the federal
tax identification number of Parent is 00-0000000.
5.19 Full Disclosure. Neither the financial statements referred
to in Section 5.18, nor this Agreement or the other Loan Documents or any
written statement furnished by any Borrower or Parent to Lender in connection
with the negotiation hereof and contained in any financial statements or
documents relating to the Collateral contain any untrue statement of a material
fact or omit a material fact necessary to make the statements contained therein
or herein in light of the circumstances when made not misleading. There is no
fact known to any executive officer of any Borrower which such Borrower has not
disclosed to Lender in writing, which materially affects adversely or may
materially affect adversely the assets,
41
48
properties, business or financial condition or the ability of such Borrower to
perform under this Agreement.
5.20 Guarantees, Contracts, etc.
(a) No Borrower or Parent owns or holds any equity or
long term debt investments in, have any outstanding advances to, has
any outstanding guarantees for the obligations of, or has any
outstanding borrowings from, any third party except as described in
Schedule 5.20, attached hereto;
(b) No Borrower is a party to any contract or agreement,
or subject to any charter or other corporate restriction, which
presently materially and adversely affects its business;
(c) Except as otherwise specifically provided in this
Agreement, no Borrower has agreed or consented to cause or permit
any of its assets or properties whether now owned or hereafter
acquired to be subject in the future (upon the happening of a
contingency or otherwise), to a lien or security interest not
permitted by this Agreement;
5.21 Government Regulations, etc.
(a) The use of the proceeds of the Loans and Borrowers'
issuance of the Revolving Credit Notes will not directly or
indirectly violate or result in a violation of the Securities Act of
1933 or the Securities Exchange Act of 1934, as amended, or any
regulations issued pursuant thereto, including, without limitation,
Regulations U, T and X of the Board of Governors of the Federal
Reserve System, 12 C.F.R., Chapter II. Except as disclosed to lender
in connection with any Permitted Acquisition, no Borrower owns or
intends to carry or purchase any "margin security" within the
meaning of such Regulations;
(b) Each Borrower has obtained all licenses, permits,
franchises or other authorizations necessary to the ownership of its
assets and properties and to the conduct of its business, which
violation or failure to obtain is reasonably likely to materially
adversely affect the business, assets, properties or financial
condition of such Borrower or the ability of such Borrower to
perform under this Agreement;
(c) No Borrower is in violation of any applicable
statute,
42
49
regulation or ordinance of the United States of America, or of any
state, city, town, municipality, county or of any other
jurisdiction, or of any agency thereof (including without
limitation, environmental laws and regulations), which is reasonably
likely to materially and adversely affect the business, assets,
properties, or financial condition of such Borrower or the ability
of such Borrower to perform under this Agreement;
(d) Each Borrower and Parent are current with all
reports and documents required to be filed with any state or federal
securities commission or similar agency and is in full compliance in
all material respects with all applicable rules and regulations of
such commission;
5.22 Business Interruptions. Within five (5) years prior to the
date hereof, neither the business, assets, properties or operations of any
Borrower have been materially and adversely affected in any way by any casualty,
strike, lockout, combination of workers, order of the United States of America
or any state, or local government, or any political subdivision or agency
thereof, directed against any Borrower. To any Borrower's knowledge, there are
no pending or threatened labor disputes, strikes, lockouts or similar
occurrences or grievances affecting the business being operated by any Borrower;
5.23 Names. Within five (5) years prior to the Closing Date,
neither any Borrower nor any predecessor into or with which any Borrower has
merged or consolidated, has conducted business under or used any other name
(whether corporate or assumed) except for the names shown on Schedule 5.23
attached hereto. Borrowers are the sole owners of all names listed on such
Schedule 5.23, and any and all business conducted and all invoices issued in
such trade names are such Borrower's sales, business and invoices;
5.24 Other Associations. Neither Parent nor any Borrower is
engaged in any joint venture or partnership with any third person except as
described on Schedule 5.24 hereto;
5.25 Regulation O. No director, executive officer or principal
shareholder of any Borrower or of Parent is a director, executive officer or
principal shareholder of Lender. For the purposes hereof, the terms "director"
(when used with reference to Lender), executive officer" and "principal
shareholder" have the respective meanings assigned thereto in Regulation O
issued by the Board of Governors of the Federal Reserve System.
43
50
5.26 Capital Stock. As of the date hereof, the authorized and
outstanding capital stock of each Borrower is as set forth on Schedule 5.26
attached hereto. All such capital stock of each Borrower has been duly and
validly authorized and issued and is fully paid and nonassessable and has been
sold and delivered to the holders thereof in compliance with, or under valid
exemption from, all federal and state laws and the rules and regulations of all
regulatory bodies thereto governing the sale and delivery of securities. Except
for the rights, obligations and transactions set forth in Schedule 5.26, as of
the date hereof, there are no subscriptions, warrants, options, calls,
commitments, rights or agreements by which any Borrower is bound relating to the
issuance, transfer, voting or redemption of shares of its capital stock or any
pre-emptive rights held by any person with respect to the shares of capital
stock of such Borrower. Further, as of the date hereof, no Borrower has issued
any securities convertible into or exchangeable for shares of its capital stock
or any options, warrants or other rights to acquire such shares or securities
convertible into or exchangeable for such shares except as set forth on Schedule
5.26.
5.27 Year 2000 Compliance. Each Borrower and Parent have
performed all acts reasonably necessary to ensure that (a) such Borrower and
Parent and any business in which such Borrower or Parent holds a substantial
interest, and (b) all customers, suppliers and vendors that are material to such
Borrower's business, become Year 2000 Compliant in a timely manner. Such acts
have included, without limitation, performing comprehensive review and
assessment of all of each Borrower's and Parent's systems and adopting a
detailed plan, with itemized budget, for the remediation, monitoring and testing
of such systems. As used herein, the term "Year 2000 Compliant" means, in regard
to any entity, that all software, hardware, firmware, equipment, goods or
systems utilized by or material to the business operations or financial
condition of such entity, will properly perform date sensitive functions before,
during and after the year 2000.
5.28 Financing Statements. Except for those set forth in Schedule
P-1 attached hereto, no Borrower or Guarantor has executed any Uniform
Commercial Code financing statements.
6. AFFIRMATIVE COVENANTS
Each Borrower and Parent, as applicable, covenant and agree that, so
long as any credit hereunder shall be available and until payment in full of the
Obligations, and unless Lender shall otherwise consent in writing, each Borrower
and Parent, as applicable, shall do all of the following:
44
51
6.1 Accounting System. Parent and each Borrower at all times
hereafter shall maintain a standard and modern system of accounting in
accordance with GAAP with ledger and account cards or computer tapes, discs,
printouts, and records pertaining to the Collateral which contain information as
from time to time may be requested by Lender. Each Borrower also shall keep
proper books of account showing all sales, claims, and allowances on its
Inventory.
6.2 Collateral Reports. Each Borrower shall deliver to Lender, no
later than fifteen (15) Business Days after the end of each fiscal month until
January 31, 1999, and thereafter, no later than fifteen (15) calendar days after
the end of each month, a detailed aging, by total, of its Accounts and a summary
aging, by vendor, of all accounts payable. Each Borrower shall deliver to
Lender, at least weekly by the second Business Day of the succeeding week,
reports of collections with respect to its Accounts. Each Borrower also shall
deliver to Lender, no later than seven (7) Business Days after the end of each
month, monthly reports of sales, credit adjustments and all other information
pertaining to current balances with respect to its Accounts, all in a form
satisfactory to Lender. At its option after January 1, 1999, Lender may require
weekly reporting of all of the information respecting the Accounts described in
the immediately preceding sentence. Upon the occurrence of an Event of Default,
original sales invoices evidencing daily sales shall be mailed by each Borrower
to each Account Debtor with a copy to Lender, and, at Lender's direction, the
invoices shall indicate on their face that the Account has been assigned to
Lender and that all payments are to be made directly to Lender.
6.3 Schedules of Accounts. With such regularity as Lender shall
require, Borrowers shall provide Lender with schedules describing all Accounts.
Lender's failure to request such schedules or any Borrower's failure to execute
and deliver such schedules shall not affect or limit Lender's security interest
or other rights in and to the Accounts.
6.4 Financial Statements, Reports, Certificates. Parent and
Borrowers agree to deliver to Lender: (a) as soon as available, but in any event
before the last day of the immediately subsequent fiscal month after the end of
each fiscal month during each of Parent's and its Subsidiaries' fiscal years, a
company-prepared consolidated and consolidating balance sheet, income statement
and cash flow statement covering Parent's and its Subsidiaries' consolidated
operations during such period, prepared in accordance with GAAP and compared to
Borrowers' projections and to Parent's and its Subsidiaries' prior fiscal year
on a month-to-date and year-to-date basis; (b) as soon as available, but in any
event within ninety (90) days after the end of each of Parent's and its
Subsidiaries' fiscal years, consolidated and consolidating financial statements
of
45
52
Parent and its Subsidiaries for each such fiscal year, audited by a "big five
firm" or such other independent certified public accountants acceptable to
Lender and certified, without any qualifications, by such accountants to have
been prepared in accordance with GAAP, together with a certificate of such
accountants addressed to Lender stating that such accountants do not have
knowledge of the existence of any event or condition constituting an Event of
Default, unless such certification is included within the audited financial
statements. Such audited financial statements shall include a consolidated and
consolidating balance sheet, profit and loss statement, and cash flow statement,
and such accountants' opinion letter and letter to management. Borrowers and
Parent shall issue written instructions to their independent certified public
accountants, authorizing them to communicate with Lender and to release to
Lender whatever financial information concerning any Borrower or Parent and its
Subsidiaries that Lender may request, provided, Lender shall attempt to first
obtain any such information directly from Borrowers and Parent.
Within thirty (30) days after the end of each fiscal month, each
Borrower and Parent shall deliver to Lender a certificate signed by its chief
financial officer, substantially in the form of Exhibit 6.4 hereto, to the
effect that: (a) all reports, statements, or computer prepared information of
any kind or nature delivered or caused to be delivered to Lender hereunder have
been prepared in accordance with GAAP and fully and fairly present the
consolidated financial condition of Parent and its Subsidiaries; (b) such
Borrower and Parent are in timely compliance with all representations,
warranties, and covenants hereunder (including all of the financial covenants
set forth in Section 6.12, as to which such certificate shall demonstrate such
compliance); and (c) on the date of delivery of such certificate to Lender there
does not exist any condition or event which constitutes an Event of Default.
Each Borrower and Parent hereby irrevocably authorizes and directs
all auditors, accountants, or other third parties to deliver to Lender, at
Borrowers' expense, copies of such Borrower's and Parent's financial statements,
papers related thereto, and other accounting records of any nature in their
possession, and to disclose to Lender any information they may have regarding
such Borrower's business affairs and financial conditions; provided, Lender
shall attempt to obtain any such information directly from such Borrower or
Parent.
6.5 Tax Returns. Borrowers and Parent agree to deliver to Lender
copies of each of Parent's consolidated future federal income tax returns, and
any amendments thereto, within thirty (30) days of the filing thereof with the
Internal Revenue Service.
46
53
6.6 Disputes and Claims. Each Borrower shall report promptly to
Lender all disputes and claims by such Borrower's Account Debtors involving an
amount in excess of $100,000 individually or $250,000 in the aggregate.
6.7 Title to Equipment. Upon Lender's request, Borrowers shall
immediately deliver to Lender, properly endorsed, any and all evidences of
ownership of, certificates of title, or applications for title to, any items of
Equipment.
6.8 Maintenance of Equipment. Each Borrower shall keep and
maintain its Equipment in good operating condition and repair, and make all
necessary replacements thereto so that the value and operating efficiency
thereof shall at all times be maintained and preserved. No Borrower shall permit
any item of Equipment to become a fixture to real estate or an accession to
other property, and the Equipment is now and shall at all times remain personal
property.
6.9 Taxes. All assessments and taxes, whether real, personal, or
otherwise, due or payable by, or imposed, levied, or assessed against Parent and
its Subsidiaries or any of their properties have been paid, and shall hereafter
be paid in full, before delinquency or before the expiration of any extension
period. Parent and its Subsidiaries shall make due and timely payment or deposit
of all federal, state, and local taxes, assessments, or contributions required
by law, and will execute and deliver to Lender, on demand, appropriate
certificates attesting to the payment or deposit thereof. Parent and its
Subsidiaries will make timely payment or deposit of all tax payments and
withholding taxes required of it by applicable laws, including those laws
concerning F.I.C.A., F.U.T.A., State disability, and local, state, and federal
income taxes, and will, upon request, furnish Lender with proof satisfactory to
Lender indicating that Parent and its Subsidiaries have made such payments or
deposits.
6.10 Insurance.
(a) Each Borrower, at its expense, shall keep the
Collateral insured against loss or damage by fire, flood (if
Borrower's facilities are located in a flood plain), theft,
explosion, sprinklers, and all other hazards and risks. Each
Borrower also shall maintain business interruption, public
liability, product liability and property damage insurance relating
to such Borrower's ownership and use of the Collateral, as well as
insurance against larceny, embezzlement, and criminal
misappropriation.
(b) All such policies of insurance shall be in such
form, with such companies, and in such amounts as may be
satisfactory to Lender. All
47
54
such policies of insurance (except those of public liability and
property damage) shall contain a 438BFU lender's loss payable
endorsement and mortgagee endorsement, or equivalent endorsements in
a form satisfactory to Lender, showing Lender as sole loss payee
thereof, and shall contain a waiver of warranties, and shall specify
that the insurer must give at least ten (10) days prior written
notice to Lender before canceling its policy for any reason. Each
Borrower shall deliver to Lender certified copies of such policies
of insurance and evidence of the payment of all premiums therefor.
All proceeds payable under any such policy shall be payable to
Lender to be applied on account of the Obligations.
6.11 Lender Expenses. Borrowers shall immediately and without
demand reimburse Lender for all sums expended by Lender which constitute Lender
Expenses, and each Borrower hereby authorizes and approves all advances and
payments by Lender for items constituting Lender Expenses.
6.12 Financial Covenants. Parent and its Subsidiaries shall
comply with each of the following financial covenants:
(a) Current Ratio. At all times during the period
commencing on the Closing Date and ending on December 31, 1998,
Parent and its Subsidiaries shall maintain a ratio of Current Assets
to Current Liabilities of not less than 1.8 to 1.0, and at all times
from and after January 1, 1999, Parent and its Subsidiaries shall
maintain a ratio of Current Assets to Current Liabilities of not
less than 2.0 to 1.0;
(b) Total Liabilities to Tangible Net Worth Ratio. At
all times, Parent and its Subsidiaries shall maintain a ratio of
total liabilities to Tangible Net Worth of not more than 1.0 to 1.0;
(c) Net Income. Commencing with Parent's and its
Subsidiaries' fiscal year ending January 1, 1999, Parent and its
Subsidiaries shall achieve annual Net Income of not less than the
correlative amounts set forth below for the fiscal years indicated:
48
55
Fiscal Year Ended Minimum Net Income
----------------- ------------------
1/1/99 ($4,500,000)
12/31/99 ($500,000)
12/29/00 $2,000,000
12/28/01 $2,000,000;
(d) Tangible Net Worth. At all times, Parent and its
Subsidiaries shall maintain or achieve Tangible Net Worth of not
less than the correlative amounts set forth below as of the dates
indicated:
Date Minimum Tangible Net Worth
---- --------------------------
1/1/99 $13,935,000
4/2/99 $12,435,000
7/2/99 $12,935,000
10/1/99 $13,435,000
12/31/99 $13,435,000
3/31/00 $12,435,000
6/30/00 $11,995,000
9/29/00 $14,435,000
12/29/00 $15,435,000
3/30/01 $14,435,000
6/29/01 $14,435,000
9/28/01 $16,435,000
12/28/01 $17,435,000
49
56
Additionally, at all times, each Borrower shall have a Net Worth not
less than zero.
(e) Working Capital. At all times during each of the
periods indicated below, Parent and its Subsidiaries shall maintain
or achieve Working Capital of not less than the correlative amounts
set forth below for such periods:
Period Minimum Working Capital
------ -----------------------
Closing Date through
January 1, 1999 $ 8,500,000
Fiscal Year 1999 $ 9,500,000
Fiscal Year 2000 $11,650,000
Fiscal Year 2001 $15,575,000.
(f) Book Net Worth of Retail Resources. At all times,
Retail Resources shall maintain a book net worth of not less than
negative $880,000.
Lender shall test compliance with each of the foregoing financial covenants on a
quarterly basis (i.e., as of the last day of each fiscal quarter), except for
the Net Income covenant set forth in clause (c) above, as to which covenant
Lender shall test compliance on an annual basis (i.e., for the fiscal years
indicated).
6.13 No Setoffs or Counterclaims. All payments hereunder and
under the other Loan Documents made by or on behalf of any Borrower shall be
made without setoff or counterclaim and free and clear of, and without deduction
or withholding for or on account of, any federal, State or local taxes.
6.14 Compliance with Laws, Regulations, Etc.
(a) Each Borrower shall, at all times, comply in all
material respects with all laws, rules, regulations, licenses,
permits, approvals and orders applicable to it and duly observe all
requirements of any Federal, State or local governmental authority,
including, without limitation, the Employee Retirement Security Act
of 1974, as amended, the Occupational Safety and Hazard Act of
50
57
1970, as amended, the Fair Labor Standards Act of 1938, as amended,
and all statutes, rules, regulations, orders, permits and
stipulations relating to environmental pollution and employee health
and safety, including, without limitation, all of the Environmental
Laws.
(b) Each Borrower shall establish and maintain, at its
expense, a system to assure and monitor its continued compliance
with all Environmental Laws in all of its operations, which system
shall include annual reviews of such compliance by employees or
agents of such Borrower who are familiar with the requirements of
the Environmental Laws. Copies of all environmental surveys, audits,
assessments, feasibility studies and results of remedial
investigations shall be promptly furnished, or caused to be
furnished, by each Borrower to Lender. Each Borrower shall take
prompt and appropriate action to respond to any non-compliance with
any of the Environmental Laws and shall regularly report to Lender
on such response.
(c) Each Borrower shall give both oral and written
notice to Lender immediately upon such Borrower's receipt of any
notice of, or any Borrower's otherwise obtaining knowledge of, (i)
the occurrence of any event involving the release, spill or
discharge, threatened or actual, of any Hazardous Material or (ii)
any investigation, proceeding, complaint, order, directive, claims,
citation or notice with respect to: (A) any non-compliance with or
violation of any Environmental Law by any Borrower or (B) the
release, spill or discharge, threatened or actual, of any Hazardous
Material or (C) the generation, use, storage, treatment,
transportation, manufacture, handling, production or disposal of any
Hazardous Materials or (D) any other environmental, health or safety
matter which affects any Borrower or its business, operations or
assets or any properties at which any Borrower transported, stored
or disposed of any Hazardous Materials.
(d) Without limiting the generality of the foregoing,
whenever Lender reasonably determines that there is non-compliance,
or any condition which requires any action by or on behalf of any
Borrower in order to avoid any material non-compliance, with any
Environmental Law, such Borrower shall, at Lender's request and such
Borrower's expense: (i) cause an independent environmental engineer
acceptable to Lender to conduct such tests of the site where such
Borrower's non-compliance or alleged non-compliance with such
Environmental Laws has occurred as to such non-compliance and
prepare and deliver to Lender a report as to such non-compliance
setting forth the results of such tests, a proposed plan for
responding to any environmental problems
51
58
described therein, and an estimate of the costs thereof and (ii)
provide to Lender a supplemental report of such engineer whenever
the scope of such non-compliance, or such Borrower's response
thereto or the estimate costs thereof, shall change in any material
respect.
(e) Each Borrower shall indemnify and hold harmless
Lender, its directors, officers, employees, agents, invitees,
representatives, successors and assigns, from and against any and
all losses, claims, damages, liabilities, costs and expenses
(including attorneys' fees and legal expenses) directly or
indirectly arising out of or attributable to the use, generation,
manufacture, reproduction, storage, release, threatened release,
spill, discharge, disposal or presence of a Hazardous Material,
including, without limitation, the costs of any required or
necessary repair, cleanup or other remedial work with respect to any
property of any Borrower and the preparation and implementation of
any closure, remedial or other required plans. All representations,
warranties, covenants and indemnifications in this Section 6.14
shall survive the payment of the Obligations and the termination or
non-renewal of this Agreement.
6.15 Projections. No later than 30 days prior to the end of each
of Parent's and its Subsidiaries' fiscal years, beginning with fiscal year 1999,
each Borrower shall provide to Lender, in form and substance satisfactory to
Lender, projections of the upcoming year's profit and loss, balance sheet, cash
flow and availability, all on a monthly basis. On or before the Closing Date,
each Borrower shall provide to Lender, in form and substance satisfactory to
Lender, projections of fiscal year 1999's profit and loss, balance sheet, cash
flow and availability, all on a quarterly basis.
6.16 Bank Accounts. Each Borrower shall maintain its main
disbursement deposit account and all of each Borrower's other depository
accounts with Lender.
6.17 Use of Lender's Name. No Borrower may use Lender's name (or
the name of any of Lender's affiliates) in connection with any of its business
operations. Nothing herein contained is intended to permit or authorize any
Borrower to make any contract on behalf of Lender.
52
59
6.18 Miscellaneous Covenants.
(a) No Borrower may become or be a party to any contract
or agreement which impairs any Borrower's ability to perform under
this Agreement or under any other instrument, agreement or document
to which any Borrower is a party or by which it is or may be bound;
and
(b) No Borrower or Parent may carry or purchase any
"margin security" within the meaning of Regulations T, U or X of the
Board of Governors of the Federal Reserve System, 12 C.F.R., Chapter
II.
6.19 Notice of Event of Default. Within two (2) Business Days of
becoming aware of the existence of any condition or event which constitutes an
Event of Default under this Agreement, or which with the passage of time or the
giving of notice, or both, could become an Event of Default hereunder, Borrowers
shall provide Lender with a written notice specifying the nature and period of
existence thereof and what action Borrowers have taken or propose to take with
respect thereto.
6.20 Notice of Claimed Default. Within two (2) Business Days of
receipt thereof by any Borrower, such Borrower shall provide Lender with a copy
of any notice of default given to such Borrower by any creditor for borrowed
money of such Borrower for an amount in excess of $100,000 individually, or for
all such defaults if such defaults exceed $500,000 in the aggregate during any
fiscal year.
6.21 Material Adverse Developments. Promptly upon becoming aware
of any development or other information outside the ordinary course of business
and excluding matters of a general economic, financial or political nature which
is reasonably likely to materially and adversely affect the assets, properties,
businesses, prospects, or financial condition of any Borrower, or the
Collateral, or the ability of any Borrower, to perform under this Agreement,
Borrowers shall give to Lender telephonic or telegraphic notice specifying the
nature of such development or information and such anticipated effect. In
addition, such verbal communication shall be confirmed by written notice thereof
transmitted to Lender on the same day such verbal communication is made.
6.22 Corporate Meeting Minutes. Upon request, Parent and each
Borrower shall provide Lender with a copy of the minutes of each meeting of the
board of directors of such Parent or Borrower.
53
60
6.23 Information to Participant. Lender may divulge to any
participant or prospective participant it may obtain in the Obligations, or any
portion thereof, all financial and other information concerning Parent and its
Subsidiaries, and furnish to such participant copies of reports, financial
statements, certificates, and documents obtained under any provision of this
Agreement; provided however that any potential participant agrees to hold in
confidence all confidential information or proprietary information provided to
it by any Borrower or Lender except (a) to the extent that the production of
such information is required pursuant to any statute, ordinance, regulation,
rule or order or any subpoena or any governmental inquiry or by reason of any
bank regulation in connection with any bank examination, and (b) such potential
participant shall not be prohibited from disclosing any such information to any
of its agents, officers, employees, attorneys, accountants, or consultants, who
shall be informed of this provision.
6.24 Year 2000 Compliance. Each Borrower agrees to perform all
acts reasonably necessary to ensure that (a) such Borrower and any business in
which such Borrower holds a substantial interest, and (b) all customers,
suppliers and vendors that are material to such Borrower's business, become Year
2000 Compliant (as such term is defined in Section 5.27 above) in a timely
manner. Such acts shall include, without limitation, performing a comprehensive
review and assessment of all of such Borrower's systems and adopting a detailed
plan, with itemized budget, for the remediation, monitoring and testing of such
systems. Each Borrower shall, immediately upon Lender's request, provide Lender
such certifications or other evidence of such Borrower's compliance with the
terms of this Section 6.24 as Lender may from time to time require.
6.25 Additional Landlord Waivers. In addition to obtaining the
landlord waiver for Borrower's Irvine facility required under Section 3.1(i) as
a [CONDITION PRECEDENT] to the effectiveness of this Agreement, Borrowers shall
obtain landlord waivers, each in form and substance acceptable to Lender, from
the lessor of each of seventy-five percent (75%) of the other leased facilities
of Borrowers set forth in Schedule 5.4 by no later than March 31, 1999.
6.26 Ownership. At all times Parent shall own not less than one
hundred percent (100%) of all issued and outstanding stock of PIA and PIA shall
own not less than one hundred percent of all issued and outstanding stock of
Retail Resources.
54
61
7. NEGATIVE COVENANTS
Each Borrower and Parent, as applicable, covenant and agree that, so
long as any credit hereunder shall be available and until payment in full of the
Obligations, no Borrower or Parent, as applicable, will do any of the following
without Lender's prior written consent:
7.1 Indebtedness. Borrowers will not create, incur, assume,
permit, guarantee, or otherwise become or remain, directly or indirectly, liable
with respect to any Indebtedness, except:
(a) Indebtedness evidenced by this Agreement;
(b) Indebtedness set forth in Schedule 7.1 (b)
attached hereto;
(c) Indebtedness secured by Permitted Liens; and
(d) refinancings, renewals, or extensions of
Indebtedness permitted under clauses (b) and
(c) of this Section 7.1 (and the continuance
or renewal of any Permitted Liens associated
therewith) so long as: (i) the terms and
conditions of such refinancings, renewals,
or extensions do not materially impair the
prospect of repayment of the Obligations by
any Borrower, (ii) the net cash proceeds of
such refinancings, renewals, or extensions
do not result in an increase in the
aggregate principal amount of the
Indebtedness so refinanced, renewed, or
extended, and (iii) such refinancings,
renewals, refundings, or extensions do not
result in a shortening of the average
weighted maturity of the Indebtedness so
refinanced, renewed, or extended.
7.2 Liens. Borrowers will not create, incur, assume, or permit to
exist, directly or indirectly, any lien on or with respect to any of its
property or assets, of any kind, whether now owned or hereafter acquired, or any
income or profits therefrom, except for Permitted Liens (including Permitted
Liens that are continued or renewed as permitted under Section 7.1(d)).
7.3 Restrictions on Fundamental Changes. Except in connection
with a Permitted Acquisition, Borrowers and Parent will not enter into any
merger,
55
62
consolidation, reorganization, or recapitalization, or reclassify its capital
stock, or liquidate, wind up, or dissolve itself (or suffer any liquidation or
dissolution), or convey, sell, assign, lease, transfer, or otherwise dispose of,
in one transaction or a series of transactions, all or any substantial part of
its business, property, or assets, whether now owned or hereafter acquired, or
acquire by purchase or otherwise all or substantially all the assets, stock, or
other evidence of beneficial ownership of any person or entity.
7.4 Extraordinary Transactions and Disposal of Assets. Except for
Permitted Acquisitions, Borrowers and Parent will not enter into any transaction
not in the ordinary and usual course of such Person's business, including, but
not limited to, the sale, lease, or other disposition of, moving, relocation, or
transfer, whether by sale or otherwise, of any of such Person's assets (other
than sales of Inventory in the ordinary and usual course of such Person's
business as currently conducted), or the making of any advance or loan except in
the ordinary course of business as currently conducted.
7.5 Change Name. Borrowers and Parent will not change their
names, business structures, or identities, or add any new fictitious names.
7.6 Guarantee. Except in connection with a Permitted Acquisition,
guarantee or otherwise become in any way liable with respect to the obligations
of any third party except by endorsement of instruments or items of payment for
deposit to the account of any Borrower or which are transmitted or turned over
to Lender.
7.7 Restructure. Borrowers and Parent will not make any change in
any of their financial structures, the principal nature of their business
operations, or the date of their fiscal year.
7.8 Prepayments. Borrowers will not prepay any Indebtedness owing
to any third party.
7.9 Intentionally Deleted.
7.10 Intentionally Deleted.
7.11 Capital Expenditures. Parent and its Subsidiaries will not
make any plant or fixed Capital Expenditure, or any commitment therefor, or
purchase or lease any real or personal property or replacement Equipment subject
to a purchase money security interest, trust deed or lease which would cause the
aggregate amount of such
56
63
transactions in any fiscal year to exceed the applicable amount for Parent and
its Subsidiaries, on a consolidated basis, for such fiscal year set forth below:
Period Maximum Capital Expenditures
------ ----------------------------
Fiscal Year 1998 $ 1,100,000
Fiscal Year 1999 $ 2,500,000
Fiscal Year 2000 $ 3,000,000
Fiscal Year 2001 $ 2,500,000.
7.12 Consignments. Borrowers will not consign any Inventory, sell
any Inventory on xxxx and hold, sale or return, sale on approval, or other
conditional terms of sale.
7.13 Distributions. Except to the extent made to fund Permitted
Parent Expenditures, Borrowers will not make any distribution or declare or pay
any distributions (in cash or in stock) on, or purchase, acquire, redeem, or
retire any of any Borrower's capital stock, of any class, whether now or
hereafter outstanding.
7.14 Accounting Methods. Parent and Borrowers will not modify or
change their method of accounting or enter into, modify, or terminate any
agreement currently existing, or at any time hereafter entered into with any
third party accounting firm or service bureau for the preparation or storage of
Parent's or Borrowers' accounting records without such accounting firm or
service bureau agreeing to provide Lender information regarding the Collateral
or Parent's or Borrower's financial condition. Each Borrower and Parent and its
Subsidiaries waive the right to assert a confidential relationship, if any, it
may have with any accounting firm or service bureau in connection with any
information requested by Lender pursuant to or in accordance with this
Agreement, and agrees that Lender may contact directly any such accounting firm
or service bureau in order to obtain such information.
7.15 Investments. Parent and Borrowers will not, except in
connection with a Permitted Acquisition or except to the extent made to fund
Permitted Parent Expenditures, directly or indirectly make or own any beneficial
interest in (including stock, partnership interest, or other securities of), or
make any loan (other than loans to
57
64
employees of $50,000 individually, not to exceed $250,000 in total at any one
time), advance, or capital contribution to, any corporation, association,
person, or entity.
7.16 Transactions with Affiliates. Except in connection with
transactions intended to fund Permitted Parent Expenditures, Borrowers will not,
directly or indirectly, enter into or permit to exist any material transaction
with any person or entity controlling, controlled by, or under common control
(whether by contract, ownership of voting securities, or otherwise) with any
Borrower except for transactions that are (i) with any Subsidiary, in the
ordinary course of such Borrower's business, and in accordance with such
Borrower's historical activity, or (ii) in the ordinary course of such
Borrower's business, upon fair and reasonable terms, and that are fully
disclosed to Lender and no less favorable to such Borrower than would be
obtained in arm's length transaction with a non-affiliated person or entity.
7.17 Suspension. Parent and Borrowers will not suspend or go out
of a substantial portion of their business.
7.18 Compliance with ERISA. Borrowers and Parent will not:
(a) (i) terminate any "employee pension benefit plans"
maintained by any Borrower or any of its ERISA Affiliates so as to
incur any liability to the PBGC established pursuant to ERISA, (ii)
allow or suffer to exist any prohibited transaction involving any of
such employee pension benefit plans or any trust created thereunder
which would subject such Borrower or Parent or such ERISA Affiliate
to a tax or penalty or other liability on prohibited transactions
imposed under Section 4975 of the I.R. Code or ERISA, (iii) fail to
pay to any such employee pension benefit plan any contribution which
it is obligated to pay under Section 302 of ERISA, Section 412 of
the I.R. Code or the terms of such plan, (iv) allow or suffer to
exist any accumulated funding deficiency, whether or not waived,
with respect to any such employee pension benefit plan, (v) allow or
suffer to exist any occurrence of a reportable event or any other
event or condition which presents a material risk of termination by
the PBGC of any such employee pension benefit plan that is a single
employer plan, which termination could result in any liability to
the PBGC or (vi) incur any withdrawal liability with respect to any
multiemployer pension plan.
(b) As used in this Section 7.18, the term "employee
pension benefit plans," "employee benefit plans", "accumulated
funding deficiency" and "reportable event" shall have the respective
meanings assigned to them in
58
65
ERISA, and the term "prohibited transaction" shall have the meaning
assigned to it in Section 4975 of the I.R. Code and ERISA.
7.19 Permitted Acquisitions. Notwithstanding any contrary
provision of this Agreement, PIA may consummate acquisitions of the assets or
capital stock of other entities for aggregate purchase consideration (including
the stated purchase price, assumption of liabilities of the acquired entity,
non-competition payments, employment agreement payments, and any and all other
related payments which Lender determines constitute part of the purchase
consideration paid or purchase obligations incurred by PIA in connection with an
acquisition) during the term of this Agreement of not more than Five Million
Dollars ($5,000,000), provided that each of the following conditions is met:
(i) PIA's and Retail Resource's combined pro forma
borrowing availability, after giving effect to each such proposed
acquisition (including all borrowings, collateral availability and
cash on hand in connection therewith) exceeds Ten Million Dollars
($10,000,000);
(ii) Lender has completed an acceptable due diligence
investigation with respect to the target;
(iii) all purchase-money indebtedness incurred by PIA to
the seller shall be subordinated to the repayment of the Obligations
on terms and conditions acceptable to Lender;
(iv) based upon the most recent monthly financial
statements provided by Parent and its Subsidiaries to Lender
pursuant to Section 6.4(a) hereof, and the applicable financial
covenant requirements for the most recent fiscal quarter ended as
set forth in Section 6.12 hereof, Lender shall have determined that
Borrowers and Parent are then in compliance with each of the
financial covenants set forth in Section 6.12 hereof and that Parent
and its Subsidiaries would remain in compliance with each such
covenant after giving effect to the proposed acquisition; and
(v) both before and after giving effect to the proposed
acquisition no Event of Default shall exist.
59
66
Acquisitions satisfying all of the foregoing conditions
and complying with the foregoing dollar limitation on
purchase consideration shall be referred to herein
collectively as "Permitted Acquisitions."
Lender shall increase the aggregate purchase consideration dollar
limitation for Permitted Acquisitions to Ten Million Dollars ($10,000,000) upon
Lender's receipt of audited financial statements for Parent's and its
Subsidiaries' fiscal year ending on January 1, 1999, together with an
unqualified opinion and management letter in form and substance acceptable to
Lender and its counsel, which evidence that all items set forth in the
management letter for such Parent's and its Subsidiaries' 1997 fiscal year have
been resolved satisfactorily. Upon Lender's receipt of the items referred to in
the preceding sentence, the following shall occur: (x) the aggregate dollar
limitation on purchase consideration for Permitted Acquisitions shall increase
to Ten Million Dollars ($10,000,000); (y) conditions (i) through (v) set forth
in the preceding paragraph shall remain in effect; and (z) a limit of Five
Million Dollars ($5,000,000) shall apply to the aggregate purchase consideration
that PIA may expend for any single Permitted Acquisition.
8. EVENTS OF DEFAULT
Any one or more of the following events shall constitute an event of
default (each, an "Event of Default") under this Agreement:
8.1 If any Borrower fails to pay when due and payable or when
declared due and payable, any portion of the Obligations (whether of principal,
interest (including any interest which, but for the provisions of the United
States Bankruptcy Code, would have accrued on such amounts), fees and charges
due Lender, taxes, reimbursement of Lender Expenses, or other amounts
constituting obligations);
8.2 If any Borrower or Parent fails or neglects to perform, keep,
or observe any term, provision, condition, covenant, or agreement contained in
this Agreement, in any of the Loan Documents, or in any other present or future
agreement between any Borrower or Parent and Lender, and such failure or neglect
is not cured within ten consecutive days of the date on which such Borrower or
Parent first has or should have notice thereof; provided, however, that such
ten-day period shall not apply in the case of: (i) any failure or neglect to
perform, keep or observe any such term, provision, condition, covenant or
agreement that is not capable of being cured at all or within such ten-day
period; (ii) an intentional breach by such Borrower or Parent of any such term,
provision, condition, covenant or agreement; or (iii) any failure or neglect to
provide notice of an Event of Default pursuant to Section 6.19;
60
67
8.3 If there is a material impairment of the prospect of
repayment of any portion of the Obligations owing to Lender or a material
impairment of the value or priority of Lender's security interests in the
Collateral;
8.4 If any material portion of any Borrower's assets is attached,
seized, subjected to a writ or distress warrant, or is levied upon, or comes
into the possession of any Judicial Officer or Assignee;
8.5 If an Insolvency Proceeding is commenced by any Borrower or
Guarantor;
8.6 If an Insolvency Proceeding is commenced against any Borrower
or Guarantor and such Insolvency Proceeding remains undismissed and unstayed for
a period of sixty (60) days;
8.7 If any 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;
8.8 If a notice of lien, levy, or assessment is filed of record
with respect to any of any Borrower's assets by the United States Government, or
any department, agency, or instrumentality thereof, or by any state, county,
municipal, or governmental agency, or if any taxes or debts owing at any time
hereafter to any one or more of such entities becomes a lien, whether xxxxxx or
otherwise, upon any of any Borrower's assets and the same is not paid on the
payment date thereof;
8.9 If a judgment or other claim becomes a lien or encumbrance
upon a material portion of any Borrower's assets;
8.10 If there is a default in any material agreement to which any
Borrower is a party with one or more third parties resulting in a right by such
third parties, whether or not exercised, to accelerate the maturity of such
Borrower's obligations thereunder;
8.11 If any Borrower makes any payment on account of Indebtedness
that has been subordinated in right of payment to the payment of the Obligations
except to the extent such payment is allowed under the subordination provisions
applicable to such Indebtedness;
61
68
8.12 If any misstatement or misrepresentation exists now or
hereafter in any warranty, representation, statement, or report made to Lender
by Parent or any Borrower or any officer, employee, agent, or director of Parent
or any Borrower, or if any such warranty or representation is withdrawn;
8.13 If a Prohibited Transaction or Reportable Event shall occur
with respect to a Plan which would have a material adverse effect on the
financial condition of any Borrower; if any lien upon the assets of any Borrower
in connection with any Plan shall arise; if any Borrower or any ERISA Affiliate
shall completely or partially withdraw from a Multiemployer Plan or Multiple
Employer Plan of which such Borrower or such ERISA Affiliate was a substantial
employer, and such withdrawal could, in the opinion of Lender, have a material
adverse effect on the financial condition of any Borrower; if any Borrower or
any of its ERISA Affiliates shall fail to make full payment when due of all
amounts which any Borrower or any of its ERISA Affiliates may be required to pay
to any Plan or any Multiemployer Plan as one or more contributions thereto; if
any Borrower or any of its ERISA Affiliates creates or permits the creation of
any accumulated funding deficiency, whether or not waived; or upon the voluntary
or involuntary termination of any Plan which termination could, in the opinion
of Lender, have a material adverse effect on the financial condition of any
Borrower; or any Borrower shall fail to notify Lender promptly and in any event
within ten (10) days of the occurrence of any event that constitutes an Event of
Default under this clause or would constitute such an Event of Default upon the
exercise of Lender's judgment;
8.14 If any writing, document, aging, certificate or other
evidence of the Accounts or Inventory shall be materially incomplete, incorrect,
or misleading at the time the same is furnished to Lender; and
8.15 If any Guarantor shall revoke or terminate, or attempt to
revoke or terminate, its Guaranty.
9. LENDER'S RIGHTS AND REMEDIES
9.1 Rights and Remedies. Upon the occurrence of an Event of
Default, Lender 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 each
Borrower:
(a) Declare all Obligations, whether evidenced by this
Agreement, by any of the other Loan Documents, or otherwise,
immediately due and payable;
62
69
(b) Cease advancing money or extending credit to or for
the benefit of any Borrower or Borrowers under this Agreement, under
any of the other Loan Documents, or under any other agreement
between any Borrower or Borrowers and Lender;
(c) Terminate this Agreement and any of the other Loan
Documents as to any future liability or obligation of Lender, but
without affecting Lender's rights and security interests in the
Collateral and without affecting the Obligations;
(d) Settle or adjust disputes and claims directly with
Account Debtors for amounts and upon terms which Lender considers
advisable, and in such cases, Lender will credit such Borrower's
loan account with only the net amounts received by Lender in payment
of such disputed Accounts after deducting all Lender Expenses
incurred or expended in connection therewith;
(e) Without notice to or demand upon any Borrower or any
Guarantor, make such payments and do such acts as Lender considers
necessary or reasonable to protect its security interest in the
Collateral. Each Borrower agrees to assemble the Collateral if
Lender so requires, and to make the Collateral available to Lender
as Lender may designate. Each Borrower authorizes Lender 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
that in Lender's determination appears to be prior or superior to
its security interest and to pay all expenses incurred in connection
therewith; provided, however, that Lender will provide Parent and
Borrowers reasonable access to Borrowers' books. With respect to any
of any Borrower's owned premises, such Borrower hereby grants Lender
a license to enter into possession of such premises and to occupy
the same, without charge, for up to one hundred twenty (120) days in
order to exercise any of Lender's rights or remedies provided
herein, at law, in equity, or otherwise;
(f) Without notice to any Borrower (such notice being
expressly waived), and without constituting a retention of any
Collateral in satisfaction of an obligation (within the meaning of
Section 9505 of the Code), set off and apply to the Obligations any
and all (i) balances and deposits of any Borrower held by or for the
benefit of Lender (including any amounts received
63
70
at the Lockbox), or (ii) indebtedness at any time owing to or for
the credit or the account of any Borrower held by Lender;
(g) Hold, as cash collateral, any and all balances and
deposits of any Borrower held by Lender, and any amounts received in
the Lockbox Accounts, to secure the full and final repayment of all
of the Obligations;
(h) Ship, reclaim, recover, store, finish, maintain,
repair, prepare for sale, advertise for sale, and sell (in the
manner provided for herein) the Collateral. Lender is hereby granted
a license or other right to use, without charge, any Borrower's
labels, patents, copyrights, rights of use of any name, trade
secrets, trade names, trademarks, service marks, 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 any Borrower's rights under all licenses
and all franchise agreements shall inure to Lender's benefit;
(i) 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 any
Borrower's premises) as Lender determines is commercially
reasonable. It is not necessary that the Collateral be present at
any such sale;
(j) Lender shall give notice of the disposition of the
Collateral as follows:
(1) Lender shall give each Borrower and each
holder of a security interest in the Collateral who has
filed with Lender a written request for notice, a notice
in writing of the time and place of public sale, or, if
the sale is a private sale or some other disposition
other than a public sale is to be made of the
Collateral, then the time on or after which the private
sale or other disposition is to be made;
(2) The notice shall be personally delivered
or mailed, postage prepaid, to such Borrower as provided
in Section 12, at least five (5) calendar days before
the date fixed for the sale, or at least five (5)
calendar days before the date on or after which the
private sale or other disposition is to be made; no
notice needs to be given prior to the disposition of any
portion of the Collateral that is perishable or
threatens to decline speedily in value or is of a type
customarily sold on a
64
71
recognized market. Notice to persons other than such
Borrower claiming an interest in the Collateral shall be
sent to such addresses as they have furnished to Lender;
(3) If the sale is to be a public sale,
Lender also shall give notice of the time and place by
publishing a notice one time at least five (5) calendar
days before the date of the sale in a newspaper of
general circulation in the county in which the sale is
to be held;
(k) Lender may credit bid and purchase at any public
sale; and
(l) Any deficiency that exists after disposition of the
Collateral as provided above will be paid immediately by Borrowers.
Any excess will be returned, without interest and subject to the
rights of third parties, by Lender to Borrowers.
9.2 Remedies Cumulative. Lender's rights and remedies under this
Agreement, the other Loan Documents, and all other agreements shall be
cumulative. Lender shall have all other rights and remedies not inconsistent
herewith as provided under the Code, by law, or in equity. No exercise by Lender
of one right or remedy shall be deemed an election, and no waiver by Lender of
any Event of Default shall be deemed a continuing waiver. No delay by Lender
shall constitute a waiver, election, or acquiescence by it.
10. TAXES AND EXPENSES REGARDING THE COLLATERAL
If any Borrower fails to pay any monies (whether taxes, rents,
assessments, insurance premiums, or otherwise) due to third persons or entities,
or fails to make any deposits or furnish any required proof of payment or
deposit, all as required under the terms of this Agreement, then, to the extent
that Lender determines that such failure by such Borrower could have a material
adverse effect on Lender's interests in the Collateral, in its discretion and
without prior notice to Borrowers, Lender may do any or all of the following:
(a) make payment of the same or any part thereof; (b) set up such reserves in
such Borrower's loan account as Lender deems necessary to protect Lender from
the exposure created by such failure; or (c) obtain and maintain insurance
policies of the type described in Section 6.10, and take any action with respect
to such policies as Lender deems prudent. Any amounts paid or deposited by
Lender shall constitute Lender Expenses, shall be immediately charged to such
Borrower's loan account and become additional Obligations, shall bear interest
at the then applicable rate hereinabove provided, and shall be secured by the
Collateral. Any payments made
65
72
by Lender shall not constitute an agreement by Lender to make similar payments
in the future or a waiver by Lender of any Event of Default under this
Agreement. Lender need not inquire as to, or contest the validity of, any such
expense, tax, security interest, encumbrance, or lien and the receipt of the
usual official notice for the payment thereof shall be conclusive evidence that
the same was validly due and owing.
11. WAIVERS; INDEMNIFICATION
11.1 Demand, Protest, etc. Each Borrower and Parent waive 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 Lender on which such Borrower may in
any way be liable.
11.2 Lender's Liability for Collateral. So long as Lender
complies with its obligations, if any, under Section 9207 of the Code, Lender
shall not in any way or manner be liable or responsible for: (i) the safekeeping
of the Collateral; (ii) any loss or damage thereto occurring or arising in any
manner or fashion from any cause; (iii) any diminution in the value thereof; or
(iv) any act or default of any carrier, warehouseman, bailee, forwarding agency,
or other person whomsoever. All risk of loss, damage, or destruction of the
Collateral shall be borne by Borrowers.
11.3 Indemnification; Loss of Margin.
(a) Each Borrower agrees to defend and indemnify Lender
and its officers, employees, and agents and hold Lender harmless
against: (i) all obligations, demands, claims, and liabilities
claimed or asserted by any other party; and (ii) all losses
(including attorneys' fees and disbursements) in any way suffered,
incurred, or paid by Lender as a result of or in any way arising out
of, following, or consequential to the transactions with any
Borrower or Borrowers whether under this Agreement, the other Loan
Documents or otherwise. This provision shall survive the termination
of this Agreement.
(b) In the event that any present or future law, rule,
regulation, treaty or official directive or the interpretation or
application thereof by any central bank, monetary authority or
governmental authority, or the compliance with any guideline or
request of any central bank, monetary authority or governmental
authority (whether or not having the force of law) imposes, modifies
or deems applicable any deposit insurance, reserve, special deposit,
or
66
73
other similar requirement with respect to deposits in or for the
account of, or loans or advances or commitments to make loans or
advances by, Lender and the result of any of the foregoing is to
increase the costs of Lender, reduce the income receivable by or
return on equity of Lender or impose any expense upon Lender with
respect to any advances or extensions of credit or commitments to
make advances or extensions of credit under this Agreement, Lender
shall so notify Borrowers in writing. Upon notice from Lender,
Borrowers agree to pay Lender the amount of such increase in cost,
reduction in income, reduced return on equity or capital, or
additional expense after presentation by Lender of a statement
concerning such increase in cost, reduction in income, reduced
return on equity or capital, or additional expense. Such statement
shall set forth a brief explanation of the amount and Lender's
calculation of the amount (in determining such amount Lender may use
any reasonable averaging and attribution methods), which statement
shall be conclusively deemed correct absent manifest error. In the
event that a participant in this credit, other than Lender,
exercises any rights it may have under this Section 11.3(b),
Borrowers shall have the option to replace such participant with
another financial institution (acceptable to Lender) who will
purchase all (but not part) of such participant's pro rata share of
this credit facility on terms acceptable to Lender. Such participant
shall be required to assign and transfer to the financial
institution obtained by Borrowers, pursuant to an agreement
reasonably satisfactory to such participant and without
representation, warranty or recourse, its respective pro rata share
in this credit facility in exchange for full payment of the
outstanding balance thereof, with accrued interest and unpaid fees.
12. NOTICES
Unless otherwise provided in this Agreement, all notices or demands
by any party relating to this Agreement or any other Loan Document 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 registered or certified mail, postage prepaid, return
receipt requested, or by prepaid telex, TWX,
67
74
telefacsimile, or telegram (with messenger delivery specified) to Borrower or to
Lender, as the case may be, at its address set forth below:
If to Borrowers: PIA MERCHANDISING CO., INC.
00000 XxxXxxxxx Xxxxxxxxx, Xxxxx 000
Xxxxxx, Xxxxxxxxxx 00000
Attention: Xx. Xxxxx X. Xxxx
Facsimile No.: (000) 000-0000
Confirmation No.: (000) 000-0000
PACIFIC INDOOR DISPLAY CO.
dba RETAIL RESOURCES
00000 XxxXxxxxx Xxxxxxxxx, Xxxxx 000
Xxxxxx, Xxxxxxxxxx 00000
Attention: Xx. Xxxxx X. Xxxx
Facsimile No.: (000) 000-0000
Confirmation No.: (000) 000-0000
If to Parent: PIA MERCHANDISING SERVICES, INC.
00000 XxxXxxxxx Xxxxxxxxx, Xxxxx 000
Xxxxxx, Xxxxxxxxxx 00000
Attention: Xx. Xxxxx X. Xxxx
Facsimile No.: (000) 000-0000
Confirmation No.: (000) 000-0000
If to Lender: MELLON BANK, X.X.
Xxxxxx Bank Center
0000 Xxxxxx Xxxxxx, 0xx Xxxxx
Xxxxxxxxxxxx, Xxxxxxxxxxxx 00000-0000
Attention: Xx. Xxxx X. XxXxxxxx
Facsimile No.: (000) 000-0000
Confirmation No.: (000) 000-0000
With a copy to: SHEPPARD, MULLIN, XXXXXXX & XXXXXXX, LLP
000 Xxxxx Xxxx Xxxxxx, 00xx Xxxxx
Xxx Xxxxxxx, Xxxxxxxxxx 00000
Attention: Xxxxxxx X. Xxxxxxxx, Esq.
Facsimile No.: (000) 000-0000
Confirmation No.: (000) 000-0000
68
75
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. All notices or demands sent in accordance with this Section 12, other
than notices by Lender in connection with Sections 9504 or 9505 of the Code,
shall be deemed received on the earlier of the date of actual receipt or three
(3) calendar days after the deposit thereof in the mail. Each Borrower
acknowledges and agrees that notices sent by Lender in connection with Sections
9504 or 9505 of the Code shall be deemed sent when deposited in the mail or
transmitted by telefacsimile or other similar method set forth above.
13. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER
THE VALIDITY OF THIS AGREEMENT, ITS CONSTRUCTION, INTERPRETATION,
AND ENFORCEMENT, AND THE RIGHTS OF THE PARTIES HERETO SHALL BE DETERMINED UNDER,
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE
COMMONWEALTH OF PENNSYLVANIA, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW.
THE PARTIES AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING IN CONNECTION WITH
THIS AGREEMENT SHALL BE TRIED AND LITIGATED ONLY IN THE STATE AND FEDERAL COURTS
LOCATED IN THE COUNTY OF PHILADELPHIA, COMMONWEALTH OF PENNSYLVANIA OR, AT THE
SOLE OPTION OF LENDER, IN ANY OTHER COURT IN WHICH LENDER SHALL INITIATE LEGAL
OR EQUITABLE PROCEEDINGS AND WHICH HAS SUBJECT MATTER JURISDICTION OVER THE
MATTER IN CONTROVERSY. EACH BORROWER AND LENDER WAIVE, TO THE EXTENT PERMITTED
UNDER APPLICABLE LAW, ANY RIGHT EACH MAY HAVE TO ASSERT THE DOCTRINE OF FORUM
NON CONVENIENS OR TO OBJECT TO VENUE TO THE EXTENT ANY PROCEEDING IS BROUGHT IN
ACCORDANCE WITH THIS SECTION 13. EACH BORROWER, PARENT AND LENDER HEREBY WAIVE
THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED
UPON OR ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY OF THE TRANSACTIONS
CONTEMPLATED THEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY
CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS. EACH BORROWER, PARENT AND
LENDER REPRESENT THAT EACH HAS REVIEWED THIS WAIVER AND EACH KNOWINGLY AND
VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL
COUNSEL. IN THE EVENT OF LITIGATION, A COPY OF THIS AGREEMENT MAY BE FILED AS A
WRITTEN CONSENT TO A TRIAL BY THE COURT.
69
76
14. DESTRUCTION OF BORROWERS' DOCUMENTS
All documents, schedules, invoices, agings, or other papers
delivered to Lender may be destroyed or otherwise disposed of by Lender after
they are delivered to or received by Lender, unless Borrowers request, in
writing, the return of said documents, schedules, or other papers and makes
arrangements, at Borrowers' expense, for their return.
15. GENERAL PROVISIONS
15.1 Effectiveness. This Agreement shall be binding and deemed
effective when executed by each Borrower and by Lender.
15.2 Successors and Assigns. This Agreement shall bind and inure
to the benefit of the respective successors and assigns of each of the parties;
provided, however, that no Borrower or Parent may assign this Agreement or any
rights or duties hereunder without Lender's prior written consent and any
prohibited assignment shall be absolutely void. No consent to an assignment by
Lender shall release any Borrower from its Obligations. Lender may assign this
Agreement and its rights and duties hereunder and no consent or approval by any
Borrower or Parent is required in connection with any such assignment. Lender
reserves the right to sell, assign, transfer, negotiate, or grant participations
in all or any part of, or any interest in, Lender's rights and benefits
hereunder. In connection with any such assignment or participation, Lender may
disclose all documents and information which Lender now or hereafter may have
relating to any Borrower or Parent or any Borrower's business. To the extent
that Lender assigns its rights and obligations hereunder to a third party,
Lender shall thereafter be released from such assigned obligations to each
Borrower or Parent and such assignment shall effect a novation between each
Borrower, Parent and such third party.
15.3 Section Headings. Headings and numbers have been set forth
herein for convenience only. Unless the contrary is compelled by the context,
everything contained in each Section applies equally to this entire Agreement.
15.4 Interpretation. Neither this Agreement nor any uncertainty
or ambiguity herein shall be construed or resolved against Lender, Parent or any
Borrower, whether under any rule of construction or otherwise. On the contrary,
this
70
77
Agreement has been reviewed by all parties and shall be construed and
interpreted according to the ordinary meaning of the words used so as to fairly
accomplish the purposes and intentions of all parties hereto.
15.5 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.
15.6 Amendments in Writing. This Agreement cannot be changed or
terminated orally. All prior agreements, understandings, representations,
warranties, and negotiations, if any, are merged into this Agreement.
15.7 Counterparts; Facsimile Execution. 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. Delivery of an executed counterpart of this Agreement by
telefacsimile shall be equally as effective as delivering of a manually executed
counterpart of this Agreement. Any party delivering an executed counterpart of
this Agreement by telefacsimile also shall deliver a manually executed
counterpart of this Agreement but the failure to deliver a manually executed
counterpart shall not affect the validity, enforceability, and binding effect of
this Agreement.
15.8 Revival and Reinstatement of Obligations. If the incurrence
or payment of the Obligations by any Borrower or any Guarantor of the
Obligations or the transfer by either or both such parties to Lender of any
property of either or both of such parties should for any reason subsequently be
declared to be improper under any state or federal law relating to creditors'
rights, including, without limitation, provisions of the United States
Bankruptcy Code relating to fraudulent conveyances, preferences, and other
voidable or recoverable payments of money or transfers of property
(collectively, a "Voidable Transfer"), and if Lender is required to repay or
restore, in whole or in part, any such Voidable Transfers, or elects to do so
upon the reasonable advice of its counsel, then, as to any such Voidable
Transfer, or the amount thereof that Lender is required or elects to repay or
restore, and as to all reasonable costs, expenses and attorneys' fees of Lender
related thereto, the liability of such Borrower or such Guarantor automatically
shall be revived, reinstated and restored and shall exist as though such
Voidable Transfer had never been made.
15.9 Withholding and Other Tax Liabilities. Lender shall have the
right to refuse to make any advances from time to time unless such Borrower
shall, at
71
78
Lender's request, have given to Lender evidence, reasonably satisfactory to
Lender, that such Borrower has properly deposited or paid, as required by law,
all withholding taxes and all federal, state, city, county or other taxes due up
to and including the date of the loan. Until all of each Borrower's Obligations
to Lender have been paid in full, Lender shall be entitled to continue to hold
any and all of the Collateral until such Borrower has given to Lender evidence,
reasonably satisfactory to Lender, that such Borrower has properly deposited or
paid, as required by law, all federal withholding taxes due up to and including
the date of such expiration or termination. Copies of deposit slips showing
payment shall likewise constitute satisfactory evidence for such purpose. In the
event that any lien, assessment or tax liability against any Borrower shall
arise in favor of any taxing authority, whether or not notice thereof shall be
filed or recorded as may be required by law, Lender shall have the right (but
shall not be obligated, nor shall Lender hereby assume the duty) upon reasonable
prior notice to such Borrower to pay any such lien, assessment or tax liability
by virtue of which such charge shall have arisen; provided, however, that Lender
shall not pay any such tax, assessment or lien if the amount, applicability or
validity thereof is being contested in good faith and by appropriate proceedings
by such Borrower and further provided that such Borrower's title to and its
right to use, the Collateral are not materially adversely affected and Lender's
lien and priority in the Collateral are not affected, altered or impaired
thereby. In order to pay any such lien, assessment or tax liability, Lender
shall not be obligated to wait until such lien, assessment or tax liability is
filed before taking such action as hereinabove set forth. Any sum or sums which
Lender shall have paid for the discharge of any such lien shall be added to the
Revolving Credit and shall be paid by such Borrower to Lender with interest
thereon, upon demand, and Lender shall be subrogated to all rights of such
taxing authority against such Borrower.
15.10 Integration. This Agreement, together with the other Loan
Documents, reflects the entire understanding of the parties with respect to the
transactions contemplated hereby and shall not be contradicted, modified, or
qualified by any other agreement, oral or written, whether before or after the
date hereof.
15.11 Publicity. Lender may use its reasonable discretion in
disclosing the fact of the financing under this Agreement to a public forum
including, without limitation, "tombstone" announcements in the print media.
16. SURETYSHIP WAIVERS AND CONSENTS
The obligations of each Borrower are independent of the obligations
of each Borrower. Each Borrower expressly waives any right to require Lender to
proceed against any other Borrower, to proceed against or exhaust any Collateral
or
72
79
any other security for the Obligations or to pursue any remedy Lender may have
at any time. Each Borrower agrees that Lender may proceed against any one or
more Borrower and/or the Collateral in such order and manner as Lender shall
determine in its sole and absolute discretion. A separate action or actions may
be brought and prosecuted against any one or more Borrower whether an action is
brought or prosecuted against any other Borrower or with respect to any
Collateral or whether any other person shall be joined in any such action or
actions. Each Borrower expressly waives the benefit of any statute(s) of
limitations affecting its liability under this Agreement or the enforcement of
the Obligations or any rights of Lender created or granted under this Agreement.
Lender's rights hereunder shall be reinstated and revived, and the obligations
and liability of each Borrower hereunder shall continue, with respect to any
amount at any time paid on account of the Obligations which thereafter shall be
required to be restored or returned by Lender upon the bankruptcy, insolvency or
reorganization of any Borrower, or otherwise, all as though such amount had not
been paid.
Each Borrower expressly waives any and all defenses now or hereafter
arising or asserted by reason of (i) any disability or other defense of any
other Borrower or with respect to the Obligations; (ii) the cessation for any
cause whatsoever liability of any of the other Borrower and (iii) any act or
omission of Lender or others that directly or indirectly results in or aids the
discharge or release of any other Borrower or the Obligations or any Collateral
or any guaranty therefor by operation of law or otherwise. Each Borrower agrees
that any amounts received by Lender from whatever source on account of the
Obligations may be applied by Lender toward the payment of such of the
Obligations and in such order of application as Lender may from time to time
elect; and, notwithstanding any payments made by any Borrower, such Borrower
shall have no right of subrogation, reimbursement, exoneration, indemnity,
contribution or any other rights that would result in such Borrower being deemed
a creditor of any other Borrower under the federal Bankruptcy Code or any other
law or for any other purpose and such Borrower hereby irrevocably waives all
such rights, the right to assert any such rights and any right to enforce any
remedy which Lender now or may hereafter have against any Borrower and hereby
irrevocably waives any benefit of and any right to participate in, any security
now or hereafter held by Lender, whether any of the foregoing rights arise in
equity, at law or by contract.
Each Borrower represents and warrants to Lender that it has
established adequate means of obtaining from each other Borrower, on a
continuing basis, financial and other information pertaining to the businesses,
operations and condition (financial and otherwise) of each other Borrower and
their properties, and each Borrower now is and hereafter will be completely
familiar with the businesses,
73
80
operations and condition (financial and otherwise) or each other Borrower and
their properties. Each Borrower hereby expressly waives and relinquishes any
duty on the part of Lender (should any such duty exist) to disclose to any
Borrower any matter, fact or thing related to the businesses, operations or
condition (financial or otherwise) of each Borrower or their properties, whether
now known or hereafter known by Lender.
Each Borrower represents and warrants that each of the waivers set
forth herein are made with each Borrower's full knowledge of their significance
and consequences, and that under the circumstances the waivers are reasonable
and not contrary to public policy or law. If any of said waivers are determined
to be contrary to any applicable law or public policy, such waivers shall be
effective only to the maximum extent permitted by law.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed at Los Angeles, California.
Borrowers:
PIA MERCHANDISING CO., INC.,
a California corporation
By: /s/ Xxxxx X. Xxxx
----------------------------------------
Xxxxx X. Xxxx
Executive Vice President and
Chief Financial Officer
PACIFIC INDOOR DISPLAY CO.
dba RETAIL RESOURCES,
a California corporation
By: /s/ Xxxxx X. Xxxx
----------------------------------------
Xxxxx X. Xxxx
Executive Vice President and
Chief Financial Officer
74
81
Parent:
PIA MERCHANDISING SERVICES,
INC., a Delaware corporation
By: /s/ Xxxxx X. Xxxx
----------------------------------------
Xxxxx X. Xxxx
Executive Vice President and
Chief Financial Officer
Accepted and effective this 7th day of December, 1998.
Lender:
MELLON BANK, N.A.,
a national banking association
By: /s/ Xxxx X. XxXxxxxx
----------------------------------------
Xxxx X. XxXxxxxx
Vice President
75
82
FORM OF COMPLIANCE CERTIFICATE
OF CHIEF FINANCIAL OFFICER
Dated: ______________, _____
TO: Mellon Bank, X.X.
Xxxxxx Bank Center
0000 Xxxxxx Xxxxxx, 0xx Xxxxx
Xxxxxxxxxxxx, Xxxxxxxxxxxx 00000-0000
Ladies and Gentlemen:
The undersigned, the Chief Financial Officer of each of PIA
Merchandising Services, Inc., a Delaware corporation ("Parent"), PIA
Merchandising Co., Inc., a California corporation ("PIA"), and Pacific Indoor
Display Co., dba Retail Resources, a California corporation, ("Retail
Resources," and collectively with PIA, the "Borrowers") hereby certifies to you
pursuant to Section 6.4 of the Loan and Security Agreement, dated as of December
7, 1998, by and among Parent, Borrowers, and Mellon Bank, N.A., a national
banking association (the "Loan Agreement"), as follows:
1. Based upon my review of the balance sheets and statements of income
of Parent and its Subsidiaries for the month ending (month, date, year), (the
"Measurement Date"), copies of which, along with the calculations for each
covenant, are attached hereto, I hereby certify that, as of the Measurement
Date, Parent and its Subsidiaries maintain the following financial covenants
pursuant to Section 6.12 of the Loan Agreement:
A. Ratio of Current Assets to Current Liabilities;
Compliance
----------
Actual: ___:1.0 Required: ____:1.0(1) [ ] Yes [ ] No
--------
(1) Insert applicable amount required by Section 6.12(a) of the Loan
Agreement.
Exhibit 6.4
(Page 1 of 4)
83
B. Ratio of Total Liabilities to Tangible Net Worth;
Compliance
----------
Actual: ___:1.0 Required: 1.0:1.0 [ ] Yes [ ] No
C. Net Income(2);
Compliance
----------
Actual: $___ Required: $____(3) [ ] Yes [ ] No
D. Tangible Net Worth; and
Compliance
----------
Actual: $___ Required: $____(4) [ ] Yes [ ] No
E. Working Capital
Compliance
----------
Actual: $___ Required: $____(5) [ ] Yes [ ] No
4. As of the Measurement Date, Parent's and its Subsidiaries'
cumulative fiscal year to date Capital Expenditures, on a consolidated basis,
are as follows:
Compliance
----------
Actual: $___ Maximum Annual Capital [ ] Yes [ ] No
Expenditures: $____(6)
--------
(2) Compliance with this covenant shall be determined on an annual basis.
(3) Insert applicable amount required by Section 6.12(c) of the Loan
Agreement.
(4) Insert applicable amount required by Section 6.12(d) of the Loan
Agreement.
(5) Insert applicable amount required by Section 6.12(e) of the Loan
Agreement.
(6) Insert applicable amount required by Section 7.11 of the Loan
Agreement.
Exhibit 6.4
(Page 2 of 4)
84
5. As of the Measurement Date, the book net worth of Retail Resources
is as follows:
Compliance
----------
Actual: $___ Mimimum Book Net [ ] Yes [ ] No
Worth: negative $880,000
6. All reports, statements, or computer prepared information of any
kind or nature delivered or caused to be delivered to Lender under the Loan
Agreement have been prepared in accordance with GAAP and fully and fairly
present the financial condition of Parent and its Subsidiaries;
7. All representations and warranties contained in the Loan Agreement
are true and correct in all material respects as of the date hereof with the
same effect as if they were made on and as of the date hereof, except to the
extent such representations and warranties expressly relate to an earlier date,
and, unless noted to the contrary in Section 1 or 4 hereof, Borrowers are in
timely compliance with all of its covenants under the Loan Agreement.
8. As of the date hereof, no Event of Default or event which with the
lapse of time or the giving of notice, or both, would become an Event of Default
(an "Unmatured Event of Default") has occurred except: (specify nature and
extent of default)
________________________________________________________________________________
_______________________________________________________________________.
9. If applicable, the corrective action taken or proposed to be taken
to prevent or cure such Event of Default or Unmatured Event of Default is as
follows:
________________________________________________________________________________
_______________________________________________________________________.
Exhibit 6.4
(Page 3 of 4)
85
Any and all initially capitalized terms set forth in this certificate
without definition shall have the respective meanings ascribed thereto in the
Loan Agreement.
PIA MERCHANDISING SERVICES, INC.,
a Delaware corporation
By:
-----------------------------------------
Xxxxx X. Xxxx
Chief Financial Officer
PIA MERCHANDISING CO., INC.,
a California corporation
By:
-----------------------------------------
Xxxxx X. Xxxx
Chief Financial Officer
PACIFIC INDOOR DISPLAY CO.,
dba Retail Resources,
a California corporation
By:
-----------------------------------------
Xxxxx X. Xxxx
Chief Financial Officer
Exhibit 6.4
(Page 4 of 4)
86
PROMISSORY NOTE (REVOLVING CREDIT)
[$20,000,000/$1,500,000] December 7, 1998
FOR VALUE RECEIVED, [PIA MERCHANDISING CO., INC./PACIFIC INDOOR DISPLAY
dba RETAIL RESOURCES], a California corporation (the "Borrower"), promises to
pay to the order of MELLON BANK, N.A., a national banking association
("Lender"), on the Revolving Credit Maturity Date (as defined in the Loan
Agreement referred to below) the lesser of (i) [Twenty Million Dollars
($20,000,000)/ One Million Five Hundred Thousand Dollars ($1,500,000)] or (ii)
the unpaid principal amount of all advances made by Lender to the Borrower as
Revolving Credit Loans under the Loan Agreement referred to below.
The Borrower also promises to pay interest on the unpaid principal
amount hereof from the date hereof until paid in full at the rates and at the
times which shall be determined in accordance with the provisions of the Loan
Agreement, plus all other charges, fees and Obligations at any time owing under
or pursuant to the Loan Agreement.
This Promissory Note (Revolving Credit) ("Note") is one of the
"Revolving Credit Notes" referred to in, and is entitled to the benefits of, the
Loan and Security Agreement, of even date herewith, by and between the Borrower
and Pacific Indoor Display Co., Inc., dba Retail Resources, and Lender (the
"Loan Agreement"), to which reference is hereby made for a more complete
statement of the terms and conditions under which the Revolving Credit Loans
evidenced hereby were made and are to be repaid. (Initially capitalized terms
set forth without definition in this Note shall have the respective meanings
assigned to such terms in the Loan Agreement.) This Note is secured by the
Collateral described in the Loan Agreement.
All payments of principal and interest in respect of this Note shall be
made in lawful money of the United States of America in same day funds at
Lender's office located at Mellon Business Credit, Mellon Bank Center, 0000
Xxxxxx Xxxxxx, 0xx Xxxxx, Xxxxxxxxxxxx, Xxxxxxxxxxxx 00000-0000 or at such other
place as shall be designated in writing for such purpose in accordance with the
terms of the Loan Agreement. Until notified of the transfer of this Note, the
Borrower shall be entitled to deem Lender or such person who has been so
identified by the transferor in writing to the Borrower as the holder of this
Note, as the owner and holder of this Note. Each of the Lender and any
subsequent holder of this Note agrees that before disposing of this Note or any
part hereof, it will make a notation hereon of all principal payments previously
made hereunder and of the date to which interest hereon has been paid on the
schedule attached
Exhibit 2.1(e)
(Page 1 of 3)
87
hereto, if any; provided, however, that the failure to make notation of any
payment made on this Note shall not limit or otherwise affect the obligation of
the Borrower hereunder with respect to payments of principal or interest on this
Note.
The Borrower may prepay this Note only as permitted under the Loan
Agreement.
THIS NOTE AND THE RIGHTS AND OBLIGATIONS OF THE BORROWER AND LENDER
SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH,
THE INTERNAL LAWS OF THE COMMONWEALTH OF PENNSYLVANIA WITHOUT REGARD TO
CONFLICTS OF LAWS PRINCIPLES. THE BORROWER AGREES THAT ALL ACTIONS OR
PROCEEDINGS ARISING IN CONNECTION WITH THIS NOTE SHALL BE TRIED AND LITIGATED
ONLY IN THE STATE AND FEDERAL COURTS LOCATED IN THE COUNTY OF PHILADELPHIA,
COMMONWEALTH OF PENNSYLVANIA OR, AT THE SOLE OPTION OF LENDER, IN ANY OTHER
COURT IN WHICH LENDER SHALL INITIATE LEGAL OR EQUITABLE PROCEEDINGS AND WHICH
HAS SUBJECT MATTER JURISDICTION OVER THE MATTER IN CONTROVERSY.
THE BORROWER WAIVES, TO THE EXTENT PERMITTED UNDER APPLICABLE LAW, ANY
RIGHT IT MAY HAVE TO ASSERT THE DOCTRINE OF FORUM NON CONVENIENS OR TO OBJECT TO
VENUE TO THE EXTENT ANY PROCEEDING IS BROUGHT IN ACCORDANCE WITH THE PRECEDING
PARAGRAPH. THE BORROWER WAIVES ITS RIGHT TO A JURY TRIAL OF ANY CLAIM OR CAUSE
OF ACTION BASED UPON OR ARISING OUT OF THIS NOTE OR THE LOANS CONTEMPLATED
HEREUNDER, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND,
ALL OTHER COMMON LAW OR STATUTORY CLAIMS. THE BORROWER REPRESENTS THAT IT HAS
REVIEWED THIS WAIVER AND KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS
FOLLOWING CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF LITIGATION, A COPY OF
THIS NOTE MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.
Exhibit 2.1(e)
(Page 2 of 3)
88
Upon the occurrence of an Event of Default, the unpaid balance of the
principal amount of this Note, together with all accrued and unpaid interest,
fees and charges thereon, may become, or may be declared to be, due and payable
in the manner, upon the conditions and with the effect provided in the Loan
Agreement.
This Note is subject to restrictions on transfer or assignment as
provided in Section 15.2 of the Loan Agreement. The terms of this Note are
subject to amendment only in the manner provided in the Loan Agreement.
No reference herein to the Loan Agreement and no provision of this Note
or the Loan Agreement shall alter or impair the obligation of the Borrower,
which is absolute and unconditional, to pay the principal of and interest, fees
and charges on this Note at the place, at the respective times, and in United
States Dollars.
The Borrower promises to pay all costs and expenses, including
reasonable attorneys' fees, incurred in the collection and enforcement of this
Note. The Borrower hereby consents to renewals and extensions of time at or
after the maturity hereof, without notice, and hereby waives diligence,
presentment, protest, demand and notice of every kind and, to the full extent
permitted by law, the right to plead any statute of limitations as a defense to
any demand hereunder.
IN WITNESS WHEREOF, the Borrower has caused this Note to be executed
and delivered by its duly authorized officer as of the date and the place first
above written.
PIA MERCHANDISING CO., INC.,
a California corporation
By:
------------------------------------------
Xxxxx X. Xxxx
Chief Executive Officer and
Executive Vice President
Exhibit 2.1(e)
(Page 3 of 3)
