LOAN AND SECURITY AGREEMENT
Dated as of June 12, 2001
among
SHERWOOD BRANDS OF VIRGINIA. LLC,
SHERWOOD BRANDS, LLC,
SHERWOOD BRANDS OF RI, INC.
as Borrowers,
SHERWOOD BRANDS, INC., as Guarantor
and
FIRST UNION NATIONAL BANK,
as Lender
TABLE OF CONTENTS
Page
----
SECTION 1. PARTIES ............................................................. 1
SECTION 2. LOANS AND LETTERS OF CREDIT ......................................... 1
2.1 Revolving Loans ............................................................ 1
2.2 Letters of Credit .......................................................... 4
2.3 Loans Generally ............................................................ 5
2.4 Authorization .............................................................. 7
SECTION 3. INTEREST AND FEES ................................................... 7
3.1 Interest/Termination ....................................................... 7
3.2 Closing Fee ................................................................ 8
3.3 Unused Line Fee ............................................................ 8
3.4 Termination of Revolving Loans and Termination Fee ......................... 9
3.5 Charges to Loan Account .................................................... 9
3.6 Taxes and Additional Costs ................................................. 9
3.7 Evidence of Amounts Outstanding ............................................ 10
3.8 Eurodollar Deposits Unavailable or Interest Rate Unascertainable ........... 10
3.9 Changes in Law Rendering Eurodollar Loans Unlawful ......................... 11
3.10 Funding Indemnity .......................................................... 11
3.11 Extensions and Conversions ................................................. 11
SECTION 4. GRANT OF SECURITY INTEREST .......................................... 12
4.1 Grant of Security Interest ................................................. 12
4.2 Obligations ................................................................ 12
4.3 Collateral ................................................................. 12
4.4 Insurance .................................................................. 14
4.5 Surety ..................................................................... 14
SECTION 5. COLLECTION AND ADMINISTRATION ....................................... 14
5.1 Collections ................................................................ 14
5.2 Payments ................................................................... 14
5.3 Loan Account Statement ..................................................... 15
5.4 Direct Collection .......................................................... 15
5.5 Attorney-in-Fact ........................................................... 15
5.6 Liability .................................................................. 16
5.7 Administration of Accounts ................................................. 16
5.8 Documents .................................................................. 16
5.9 Access ..................................................................... 16
5.10 Environmental Audits ....................................................... 17
SECTION 6. ADDITIONAL REPRESENTATIONS, WARRANTIES AND COVENANTS ............... 17
6.1 Incorporation, Good Standing, and Due Qualification ......................... 17
6.2 Power and Authority ......................................................... 18
6.3 Legally Enforceable Agreement ............................................... 18
6.4 Closing Financial Statements and Condition .................................. 18
6.5 Labor Disputes and Acts of God .............................................. 18
6.6 Other Agreements ............................................................ 19
6.7 Litigation .................................................................. 19
6.8 No Defaults on Outstanding Judgments or Orders .............................. 19
6.9 Margin Stock ................................................................ 19
6.10 Financial and Other Reports ................................................. 19
6.11 Trade Names ................................................................. 20
6.12 Notices ..................................................................... 21
6.13 Books and Records/Locations ................................................. 21
6.14 Title; Lien Restrictions .................................................... 21
6.15 No Corporate Change ......................................................... 22
6.16 Insurance ................................................................... 23
6.17 Compliance With Laws ........................................................ 23
6.18 Equipment ................................................................... 23
6.19 Financial Covenants ......................................................... 23
6.20 Affiliated and Other Transactions ........................................... 24
6.21 Fees and Expenses ........................................................... 25
6.22 Further Assurances .......................................................... 25
6.23 Use of Proceeds ............................................................. 26
6.24 Environmental Matters ....................................................... 26
6.25 Restrictions on Additional Indebtedness ..................................... 27
6.26 Issuance of Stock ........................................................... 27
6.27 Limitations ................................................................. 28
6.28 Restricted Payments ......................................................... 28
6.29 Tax Returns ................................................................. 28
6.30 Current Compliance .......................................................... 28
6.31 Pension Plans ............................................................... 28
6.32 Intellectual Property ....................................................... 28
6.33 Eligible Inventory Warranties ............................................... 29
6.34 Eligible Account Warranties ................................................. 29
6.35 Payment of Principal, Interest and Other Amounts Due ........................ 30
6.36 Limitation on Sale and Leaseback ............................................ 30
6.37 Ownership and Disposition of Assets ......................................... 30
6.38 Taxes; Claims for Labor and Materials ....................................... 30
6.39 Pension Plans ............................................................... 31
6.40 Bank of Account ............................................................. 31
6.41 Maintenance of Management ................................................... 31
6.42 Accounts Receivable ......................................................... 31
6.43 Keyman Insurance ............................................................ 32
6.44 Interrelatedness of Borrowers ............................................... 32
6.45 Control .................................................................... 33
6.46 Commerical Tort Claims ..................................................... 33
SECTION 7. EVENTS OF DEFAULT AND REMEDIES ...................................... 33
7.1 Events of Default .......................................................... 33
7.2 Remedies ................................................................... 35
7.3 Application of Proceeds .................................................... 36
7.4 Lender's Cure of Third Party Agreement ..................................... 36
7.5 Set-Off .................................................................... 36
7.6 Delay or Omission Not Waiver ............................................... 37
7.7 Time is of the Essence ..................................................... 37
7.8 Waivers .................................................................... 37
7.9 Forbearance ................................................................ 38
7.10 Limitation on Liability .................................................... 38
SECTION 8. JURY TRIAL WAIVER; CERTAIN OTHER WAIVERS AND CONSENTS ............... 38
8.1 JURY TRIAL WAIVER .......................................................... 38
8.2 Counterclaims .............................................................. 38
8.3 Jurisdiction ............................................................... 38
8.4 No Waiver by Lender ........................................................ 39
SECTION 9. TERM OF AGREEMENT; MISCELLANEOUS .................................... 39
9.1 Term ....................................................................... 39
9.2 Additional Cash Collateral ................................................. 39
9.3 Notices .................................................................... 39
9.4 Severability ............................................................... 39
9.5 Entire Agreement; Amendments; Assignments .................................. 39
9.6 Discharge of Borrowers ..................................................... 40
9.7 Usage ...................................................................... 40
9.8 Governing Law .............................................................. 40
9.9 Assignment or Sale by Lender ............................................... 40
9.10 Holidays ................................................................... 40
9.11 Integration ................................................................ 40
9.12 Exhibits and Schedules ..................................................... 40
9.13 Headings ................................................................... 40
9.14 Counterparts ............................................................... 40
9.15 Joint Liability ............................................................ 41
SECTION 10. ADDITIONAL DEFINITIONS AND TERMS .................................... 41
10.1 Borrowing Terms ............................................................ 41
10.2 Letters of Credit .......................................................... 42
10.3 Addresses .................................................................. 42
10.4 Term ....................................................................... 42
10.5 Interest/Fees .............................................................. 42
LOAN AND SECURITY AGREEMENT
This Loan and Security Agreement (the "Agreement") dated as of June 12,
2001, is among the undersigned Borrowers, the undersigned Guarantor and the
undersigned Lender concerning loans and other credit accommodations to be made
by Lender to Borrowers. All capitalized terms appearing herein which are not
defined have such meaning as provided in Section 10.
SECTION 1. PARTIES
1.1 The "Borrowers" are Sherwood Brands of Virginia, LLC, a Virginia
limited liability company ("VA"), Sherwood Brands, LLC, a Maryland limited
liability company ("MD"), and Sherwood Brands of RI, Inc., a Rhode Island
corporation ("RI"), and their respective successors and permitted assigns. All
references to Borrowers shall mean each of them, jointly and severally,
individually and collectively, and the successors and permitted assigns of each.
1.2 Guarantor is Sherwood Brands, Inc., a North Carolina corporation, its
successors and assigns.
1.3 The "Lender" is First Union National Bank, and its successors and
assigns.
SECTION 2. LOANS AND LETTERS OF CREDIT
2.1 Revolving Loans. Lender shall, subject to the terms and conditions
contained herein and the satisfaction of the closing and funding conditions set
forth in Schedule A hereto, make revolving loans to Borrowers ("Revolving
Loans") during the Term in amounts requested by Borrowers from time to time,
provided that the requested Revolving Loan would not cause the outstanding
Revolving Loans and Letters of Credit to exceed the lesser of (i) the Maximum
Revolving Credit and (ii) the Borrowing Base existing immediately prior to the
making of the requested Revolving Loan. Subject to the terms and conditions
hereof, Borrowers may borrow, repay and reborrow Revolving Loans, as set forth
in this Agreement.
(a) The "Maximum Revolving Credit" is set forth in Section 10.1(a)
hereof.
(b) The "Borrowing Base" shall be calculated at any time as the sum
of (i) the product obtained by multiplying the outstanding amount of Eligible
Accounts, net of all sales taxes, discounts, allowances and credits given, by
the Eligible Accounts Percentage set forth in Section 10.1(b) plus (ii) the
product(s) obtained by multiplying the applicable Eligible Inventory Percentage,
set forth in Section 10.1(b), by the values (as determined by Lender in its
reasonable discretion based on the lower of cost (on a FIFO basis) or market) of
Eligible Inventory, but the amount so added shall not exceed any sublimits
applicable thereto set forth in Section 10.1(c).
(c) "Eligible Accounts" are accounts created by a Borrower in the
ordinary course of its business which are and remain acceptable to Lender, in
its reasonable discretion, for lending purposes. General criteria for Eligible
Accounts are set forth below but may be revised from time to time by Lender, in
its sole reasonable judgment. Lender shall, in general, deem
-1-
accounts to be Eligible Accounts if: (1) such accounts arise from bona fide
completed transactions and have not remained unpaid for more than the number of
days after the invoice date set forth in Section 10.1(d) and for more than the
number of days after the due date set forth in Section 10.1(e) (2) the amounts
of the accounts reported to Lender are absolutely owing to a Borrower and do not
arise from sales on consignment, guaranteed sales or other terms under which
payment by the account debtors may be conditional or contingent; (3) the account
debtor's chief executive office or principal place of business is located in the
United States (unless payment of any such other account debtor's accounts is
backed by a letter of credit or credit insurance acceptable to, and approved by,
Lender); (4) such accounts do not arise from progress xxxxxxxx, retainages or
xxxx and hold sales; (5) there are no contra relationships, setoffs,
counterclaims or disputes existing with respect thereto and there are no other
facts existing or threatened which would impair or delay the collectability of
all or any portion thereof; (6) the goods giving rise thereto were not at the
time of the sale subject to any liens except in favor of Lender and such
accounts are free and clear of all liens except in favor of Lender; (7) such
accounts are not accounts with respect to which the account debtor or any
officer or employee thereof is an officer, employee or agent of or is affiliated
with any Borrower, directly or indirectly, whether by virtue of family
membership, ownership, control, management or otherwise; (8) such accounts, to
the extent they exceed $100,000 in the aggregate at any time, are not accounts
with respect to which the account debtor is the United States or any state or
political subdivision thereof or any department, agency or instrumentality of
the United States, any state or political subdivision, unless there has been
compliance with the Assignment of Claims Act or any similar state or local law,
if applicable; (9) Borrowers have delivered to Lender or Lender's representative
such documents as Lender may have requested pursuant to Section 5.8 hereof in
connection with such accounts and Lender shall have received a verification of
such account, satisfactory to it, if sent to the account debtor or any other
obligor or any bailee pursuant to Section 5.4 hereof; (10) there are no facts
existing or threatened which might result in any adverse change in the account
debtor's financial condition; (11) such accounts owed by a single account debtor
or its affiliates (other than the Selected Creditors, as hereinafter defined) do
not represent more than twenty-five percent (25%) of all otherwise Eligible
Accounts (accounts excluded from Eligible Accounts solely by reason of this
subsection (11) shall nevertheless be considered Eligible Accounts to the extent
of the amount of such accounts which does not exceed such percentage of all
otherwise Eligible Accounts); (12) such accounts owed by Sam's Club, Walmart
Stores, Inc. and/or XxXxxx Distributors (collectively the "Selected Creditors")
or their affiliates which individually or in the aggregate do not represent,
during the months of January through July, more than 40% of all otherwise
Eligible Accounts or, during the months of August through December, more than
70% of all otherwise Eligible Accounts (accounts excluded from Eligible Accounts
solely by reason of this subsection (12) shall nevertheless be considered
Eligible Accounts to the extent of the amount of such accounts which does not
exceed such applicable percentage of all otherwise Eligible Accounts); (13) such
accounts are not owed by an account debtor who is or whose affiliates are past
due upon other accounts owed to any Borrower comprising more than fifty percent
(50%) of the accounts of such account debtor or its affiliates owed to such
Borrower; (14) such accounts are owed by account debtors whose total
indebtedness to Borrowers does not exceed the amount of any customer credit
limits as established, and changed upon ten (10) days prior notice thereof from
Lender, from time to time by Lender (accounts excluded from Eligible Accounts
solely by reason of this subsection (pound)14.1 shall nevertheless be considered
Eligible Accounts to the extent the amount of such
-2-
accounts does not exceed such customer credit limit); and (15) such accounts are
owed by account debtors deemed creditworthy at all times by Lender.
(d) "Eligible Inventory" is inventory owned by a Borrower which is
and remains acceptable to Lender, in its reasonable discretion, for lending
purposes, and is located at one of the addresses set forth in Section 10.4(d).
General criteria for Eligible Inventory are set forth below but may be revised
from time to time by Lender, in its sole reasonable judgment. Lender shall, in
general, determine Eligible Inventory as follows: (1) the aggregate gross amount
of each item of Borrowers' inventory, valued at the lower of cost (on a FIFO
basis) or market, which (A) is owned solely by a Borrower and with respect to
which a Borrower has good, valid and marketable title, (B) is stored on property
that is either (i) owned or leased by a Borrower or (ii) owned or leased by a
warehouseman that has contracted with a Borrower to store inventory on such
warehouseman's property or by a filler, processor or packer of a Borrower
(provided, that, with respect to inventory stored on property leased by Borrower
or property owned or leased by a warehouseman, filler, processor or packer,
Borrower shall have delivered in favor of Lender a lien waiver in form and
substance satisfactory to Lender (a "Landlord Waiver") from such landlord,
warehouseman, filler, processor or packer, as applicable, in respect thereof);
(C) is subject to a valid, enforceable and first priority lien in favor of
Lender except, with respect to Eligible Inventory stored at sites described in
clause (B)(ii) above for normal and customary warehouseman, filler, packer and
processor charges); (D) is located in the United States; and (E) is not obsolete
or slow moving and for which a markdown reserve has not been made, and which
otherwise conforms to the warranties contained herein and which at all times
continues to be acceptable to Lender in its sole reasonable discretion, (2) less
inventory consisting of work-in-process, packaging or manufacturing supplies
(other than raw materials), (3) less markdown reserves, (4) less any goods
returned or rejected by a Borrower's customers for which a credit has not yet
been issued and goods in transit to third parties (other than to a Borrower's
agents, warehouses, fillers, processors or packers that comply with clause
(1)(B)(ii) above), (5) less any inventory that is slow-moving, obsolete or which
Lender determines in its commercially reasonable judgment to be a no charge or
sample item; (6) less a reserve equal to the amount of all accounts payable of
each Borrower owed or owing to any warehouseman, filler, packer or processor;
(7) less any reserves required by Lender in its sole reasonable discretion for
special order goods and market value declines; (8) less any inventory which is
held by a Borrower pursuant to consignment, sale or return, sale on approval or
similar arrangement; and (9) less any increase in inventory value representing
production variances. Inventory which satisfies all of the foregoing criteria
except that it is in transit to a site described in clause (B)(i) or (ii), may
be deemed Eligible Inventory if such inventory consists of finished goods, is
fully insured, Lender is named on such insurance as loss payee under a lender's
loss payable clause acceptable to Lender, except for the purpose of transporting
such inventory or clearing customs, Borrowers have not delivered or consigned to
any Person any documents, instruments, warehouse receipts, bills of lading or
other instruments evidencing such inventory or the right to receive such
inventory (collectively the "Title Items") and all negotiable Title Items bear a
legend evidencing Lender's security interest therein and in the inventory
covered thereby; and Borrowers satisfy all other conditions established by
Lender from time to time.
(e) In addition to the Letter of Credit Reserves described in Section
2.2(h), Lender shall, in its sole reasonable discretion, hive a continuing right
to deduct reserves in determining the Borrowing Base (such Letter of Credit
Reserves, together with the other reserves
-3-
established by Lender are referred to herein collectively as the "Reserves"),
and to increase and decrease such Reserves from time to time in Lender's
reasonable discretion. Lender may, at its option, implement Reserves by
designating as ineligible a sufficient amount of accounts or inventory which
would otherwise be Eligible Accounts or Eligible Inventory so as to reduce the
Borrowing Base by the amount of the intended Reserve. Without limiting the
foregoing, Lender may establish Reserves against dilution of Eligible Accounts
and Eligible Inventory and will establish the Letter of Credit Reserves.
2.2 Letters of Credit.
(a) Lender may, in its sole discretion, issue or cause to be
issued, from time to time at a Borrower's request and on terms and conditions
and for purposes satisfactory to Lender, commercial, merchandise letters of
credit for a Borrower's account ("Letters of Credit"). Borrowers shall execute
and perform additional agreements relating to the Letters of Credit in form and
substance acceptable to Lender and the issuer of any Letters of Credit, all of
which shall supplement the rights and remedies granted herein. Any payments made
by Lender or any affiliate of Lender in connection with the Letters of Credit
shall constitute additional Revolving Loans to Borrowers.
(b) In addition to the fees and costs of any issuer in connection
with issuing or administering the Letters of Credit, Borrowers shall pay monthly
to Lender, on the first day of each month, a charge on open Letters of Credit at
the rate per annum set forth in Section 10.2(a) (the "Letter of Credit
Charges").
(c) No Letter of Credit will be issued if (x) the sum of (i) the
stated amount of the Letter of Credit requested, plus fees and costs for
issuance (ii) all Revolving Loans and Letters of Credit then outstanding would
exceed the lesser of (A) the Maximum Revolving Credit and (B) the Borrowing Base
existing immediately prior to the issuance of the requested Letter of Credit or
(y) the aggregate stated amount of all outstanding Letters of Credit would
exceed, at any time, the Letter of Credit sublimit set forth in Section 10.2(b).
(d) All indebtedness, liabilities and obligations of any sort
whatsoever, however arising, whether present or future, fixed or contingent,
secured or unsecured, due or to become due, paid or incurred, arising or
incurred in connection with any Letter of Credit shall be included in the term
"Obligations", as defined herein, and shall include, without limitation, (i) all
amounts due or which may become due under or in connection with any Letter of
Credit; (ii) all amounts charged or chargeable to a Borrower or to Lender by any
bank, other finance institution or correspondent bank which opens, issues or is
involved with any Letter of Credit; (iii) Lender's Letter of Credit Charges and
all fees, costs and other charges of any issuer of any Letter of Credit; and
(iv) all duties, freight, taxes, costs, insurance and all such other charges and
expenses which may pertain directly or indirectly to any Obligations or Letters
of Credit or to the goods or documents relating thereto.
(e) Borrower unconditionally agrees to indemnify and hold Lender
harmless from any and all loss, claim or liability (including reasonable
attorneys' fees) arising from any transactions or occurrences relating to any
Letter of Credit established or opened for any Borrower's account, the
Collateral relating thereto and any drawings thereunder, including any
-4-
such loss or claim due to any action taken by an issuer of any Letters of
Credit. Each Borrower further agrees to indemnify and hold Lender harmless for
any errors or omissions in connection with the Letters of Credit, whether caused
by Lender, by the issuer of any Letter of Credit or otherwise. Each Borrower's
unconditional obligation to indemnify and hold Lender harmless under this
provision shall not be modified or diminished for any reason or in any manner
whatsoever, except for Lender's willful misconduct or gross negligence.
Borrowers agree that any charges made to Lender by any issuer of any Letter of
Credit shall be conclusive on Borrowers and may be charged to any Borrower's
account.
(f) Lender shall not be responsible for: the conformity of any goods to
the documents presented; the validity or genuineness of any documents; delay,
default, or fraud by any Borrower or shipper and/or anyone else in connection
with the Letters of Credit or any underlying transaction.
(g) Each Borrower agrees that any action taken by Lender, if taken in
good faith, or any action taken by an issuer of any Letter of Credit, under or
in connection with any Letter of Credit, shall be binding on all Borrowers and
shall not create any resulting liability to Lender. In furtherance thereof,
Lender shall have the full right and authority to clear and resolve any
questions of non-compliance of documents; to give any instructions as to
acceptance or rejection of any documents or goods; to execute for each
Borrower's account any and all applications for steamship or airway guarantees,
indemnities or delivery orders; to grant any extensions of the maturity of time
of payment for, or time of presentation of, any drafts, acceptances, or
documents; and to agree to any amendments, renewals, extensions, modifications,
changes or cancellations of any of the terms or conditions of any of the
applications or Letters of Credit. All of the foregoing actions may be taken in
Lender's sole name, and the issuer thereof shall be entitled to comply with and
honor any and all such documents or instruments executed by or received solely
from Lender, all without any notice to or any consent from Borrowers. None of
the foregoing actions described in this subsection (g) may be taken by Borrowers
without Lender's express written consent nor shall Lender be liable in any way
with respect thereto.
(h) Borrowers acknowledge and agree that Bank will deduct from the
Borrowing Base a reserve created in connection with each Letter of Credit issued
hereunder (individually a "Letter of Credit Reserve" and collectively the
"Letter of Credit Reserves") equal to (x) 100%, minus the applicable Eligible
Inventory Percentage, multiplied by (y) the cost of the goods to be purchased
with such Letter of Credit, (z) the total duty, freight and cost of transport
within the United States for the goods to be purchased with such Letter of
Credit; provided, however, that if such Letter of Credit is not for the purpose
of acquiring Eligible Inventory, and such purpose has been approved by Bank, the
Letter of Credit Reserve established for such Letter of Credit shall equal 100%
of the face amount of such Letter of Credit.
2.3 Loans Generally.
(a) For purposes hereof, "Loan" shall mean a Revolving Loan and shall
include any extension or conversion of an existing Loan (or portion thereof);
"Eurodollar Loan" shall mean any Revolving Loan (or portion thereof) bearing
interest at a rate determined by reference to LIBOR as defined herein; "LIBOR
Market Rate Loan" shall mean any Revolving
-5-
Loan (or portion thereof) bearing interest at the rate of interest determined by
reference to the LIBOR Market Index Rate as defined herein; and "Base Rate Loan"
shall mean any Loan (or portion thereof) bearing interest at a rate of interest
determined by reference to the Prime Rate as defined herein.
(b) Each Revolving Loan (or portion thereof) may be a Base Rate Loan, a
LIBOR Market Rate Loan or a Eurodollar Loan, as Borrowers may request pursuant
to the terms hereof. Revolving Loans having different Interest Periods,
regardless of whether they commence on the same date, shall be considered
separate Loans. No more than five (5) Eurodollar Loans and LIBOR Market Rate
Loans shall be outstanding at any one time. Eurodollar Loans shall be made in a
minimum principal amount of $500,000.00 and integral multiples of $100,000.00 in
excess thereof.
(c) Borrowers shall give Lender written or telecopy notice (i) in the case
of a Eurodollar Loan, not later than 10:00 a.m., Eastern Standard time, three
(3) Business Days before a proposed borrowing and (ii) in the case of a Base
Rate Loan or LIBOR Market Rate Loan, not later than 10:00 a.m., Eastern Standard
time, on the day of the proposed borrowing. Such notice shall be irrevocable and
shall in each case refer to this Agreement and specify (A) whether the Loan then
being requested is to be a Eurodollar, LIBOR Market Rate or a Base Rate Loan;
(B) the date of such borrowing (which shall be a Business Day) and the amount
thereof, and (C) if such Loan is to be a Eurodollar Loan, the Interest Period
with respect thereto, provided, however, that Borrowers shall not specify any
Interest Period which expires after the end of the Term. If no election as to
the type of Loan is specified in any such notice, then the requested Loan shall
be a Base Rate Loan. If no Interest Period with respect to any Eurodollar Loan
is specified in any such notice, then Borrowers shall be deemed to have selected
an Interest Period of one month's duration.
(d) Lender shall make a Loan on the proposed date thereof by wire transfer
of immediately available funds to Borrowers by 3:00 p.m., Eastern Standard time,
on such date, to Borrowers' Operating Account designated in Section 10.3(g)
hereof. The principal amount of each Revolving Loan shall be repaid on the
earlier of the last day of its corresponding Interest Period, unless converted
or extended in accordance with Section 3.12, and the last day of the Term.
(e) Lender may, in its sole discretion, make or permit Revolving Loans or
issue or permit the issuance of Letters of Credit in excess of the Maximum
Revolving Credit or the Borrowing Base or any other applicable formulas or
sublimits. If Lender makes or permits any such accommodations, all or any
portion of such excess(es) shall be immediately due and payable upon Lender's
demand. Should any such excess occur without Lender's prior written consent,
such excess shall be due and payable immediately and without demand by Lender.
(f) Borrowers may prepay (i) Revolving Loans which are Base Rate or LIBOR
Market Rate Loans on any Business Day and (ii) subject to the provisions of
Section 31.1 hereof, upon three (3) Business Days' written notice to Lender,
Revolving Loans which are Eurodollar Loans on a day other than the last day of
the applicable Interest Period.
-6-
(g) Each Revolving Loan shall be evidenced by a single promissory
note in the amount of the Maximum Revolving Credit and issued by Borrowers to
the order of Lender in substantially the form attached hereto on Schedule I
("Revolving Note" or "Promissory Note").
(h) Lender's agreement to extend any Loans or issue any Letters of
Credit after the date hereof is expressly subject to (i) the satisfaction of
each of the Closing Conditions described on Schedule A (ii) all representations
and warranties of Obligors contained in the Loan Documents being true and
complete as of the date of the making of such Loan or the issuance of such
Letter of Credit; and (iii) no Event of Default exists nor any event or
condition which with the passage of time or delivery of notice or otherwise
would constitute any such Event of Default.
2.4 Authorization. Each request for a Revolving Loan or Letter of Credit
delivered to Lender by any Borrower, and each other request, notice or
communication delivered by any Borrower to Lender, shall be irrevocably binding
on each Borrower. Each Borrower hereby expressly authorizes the elected officers
or managers of each other Borrower to request Revolving Loans and/or Letters of
Credit and to deliver to Lender each other request, notice or communication
deliverable by any Borrower to Lender hereunder. Borrowers expressly authorize
and direct Lender to rely on each such request, notice or communication
delivered to Lender by any Borrower as the act of each and every Borrower.
SECTION 3. INTEREST AND FEES
3.1 Interest/Termination.
(a) Interest accruing on Base Rate Loans and LIBOR Market Rate Loans
shall be payable by Borrowers on the first day of each month, calculated upon
the closing daily balances in the loan account of Borrowers for each day during
the immediately preceding month. Interest on Base Rate Loans shall accrue at the
Revolving Adjusted Base Rate then in effect. The Revolving Adjusted Base Rate
shall increase or decrease in an amount equal to each increase or decrease,
respectively, in the Prime Rate, effective as of the date of each such change.
Interest on LIBOR Market Rate Loans shall accrue at the Adjusted LIBOR Market
Rate then in effect. The Adjusted LIBOR Market Rate shall increase or decrease
in an amount equal to each increase or decrease, respectively, in the LIBOR
Market Rate effective as of the date of each such change. Interest on Eurodollar
Loans shall be payable by Borrowers on the last day of each Interest Period,
and, if the Interest Period exceeds three months, also at the end of three
months; all calculated upon the outstanding principal amount of such Eurodollar
Loan during the immediately preceding period at the Adjusted LIBOR Rate then in
effect. On and after any Event of Default or termination or non-renewal hereof,
interest on all unpaid Obligations shall accrue at a rate equal to three percent
(3%) per annum in excess of the maximum interest rate then payable on Base Rate
Loans (the "Default Rate") until such time as all Obligations are indefeasibly
paid in full (notwithstanding entry of any judgment against any Borrower or the
exercise of any other right or remedy by Lender), and all such interest shall be
payable on demand. In no event shall charges constituting interest exceed the
rate permitted under any applicable law or regulation, and if any provision of
this Agreement is in contravention of any such law or regulation, such provision
shall be deemed amended to conform thereto.
-7-
(b) The "Prime Rate" is the rate of interest publicly announced by
Lender, its successors and assigns, in Philadelphia, Pennsylvania, as its "prime
rate" with each change in such prime rate being effective on the date of such
change (the Prime Rate is not intended to be the lowest rate of interest charged
by Lender to its borrowers). The "Revolving Adjusted Base Rate" is the rate of
interest equal to the sum of the Prime Rate then in effect and the Applicable
Percentage for Revolving Loans which are Base Rate Loans as set forth in Section
10.5(a).
(c) "LIBOR" is, with respect to any Eurodollar Loan for the Interest
Period applicable thereto, the rate of interest per annum (rounded upwards, if
necessary, to the nearest 1/100 of 1%) appearing on Telerate Page 3750 (or any
successor page) - British Bankers Association Interest Settlement Rates, as the
London interbank offered rate for deposits in U.S. dollars at approximately
11:00 A.M. (London time) two (2) Business Days prior to the first day of such
Interest Period for a term comparable to such Interest Period; provided,
however, if more than one rate is specified on Telerate Page 3750 (or any
successor page), the applicable rate shall be the arithmetic mean of all such
rates and provided, further, LIBOR shall be increased by any then applicable
Eurocurrency liability reserve requirement imposed by the Board of Governors of
the Federal Reserve. The "Adjusted LIBOR Rate" is the rate of interest equal to
the sum of LIBOR then in effect and the Applicable Percentage for Eurodollar
Loans set forth in .Section 10.5(a).
(d) "Interest Period" is, as to any Eurodollar Loan, the period
commencing on the date of the borrowing (including extensions and conversions
thereof) and ending on the numerically corresponding day (or, if there is no
numerically corresponding day, on the last day) in the calendar month that is
one (1), two (2) or three (3) months thereafter, as Borrowers may elect;
provided, however, that if any Interest Period would end on a day other than a
Business Day, such Interest Period shall be extended to the next succeeding
Business Day unless such next succeeding Business Day would fall in the next
calendar month, in which case such Interest Period shall end on the next
preceding Business Day, and provided, further, that no Interest Period shall
extend beyond the end of the Term. Interest shall accrue from and including the
first day of an Interest Period to but excluding the last day of such Interest
Period.
(e) "LIBOR Market Rate" is, as to any LIBOR Market Rate Loan, the
rate for one month U.S. dollar deposits as reported on Telerate Page 3750 (or
any successor page) as of 11:00 a.m. London time, on such day, or if such day is
not a London business day, then the immediately preceding London business day
(or if not so reported, then as determined by Lender from another recognized
source or interbank quotation). The "Adjusted LIBOR Market Rate" is the rate of
interest equal to the sum of the LIBOR Market Rate then in effect plus the
Applicable Percentage for LIBOR Market Rate Loans set forth in Section 10.5(a).
3.2 Closing Fee. Borrowers shall pay Lender on the date hereof, a Closing
Fee in the amount set forth in Section 10.5(c), which fee is fully earned as of
the date hereof and is non
3.3 Unused Line Fee. Borrowers shall pay Lenders, monthly, on the first day
of each month, in arrears, an Unused Line Fee for each month during the Term
equal to the sum of: (i) .375% per annum of the amount, if any, by which
$15,000,000.00 exceeds the average outstanding daily principal balance during
the preceding month of all Revolving Loans and any
-8-
Letters of Credit plus (ii) .25% of the amount, if any, by which the Maximum
Revolving Credit exceeds the greater of $15,000,000.00 or the average
outstanding daily principal balance during the preceding month of all Revolving
Loans and any Letters of Credit.
3.4 Termination of Revolving Loans and Termination Fee. Borrowers may
terminate the Revolving Loans upon sixty (60) days' written notice to Lender. In
the event that (a) the Revolving Loans are terminated by Borrowers for any
reason, including, without limitation, refinancing of the Revolving Loans with
another lender, or (b) Borrowers default in their obligations hereunder and the
Revolving Loans are terminated, Borrowers shall pay to Lender a termination fee
calculated as follows:
(a) If the termination date is on or prior to June 12, 2002, the
termination fee will be equal to one percent (1%) of the Maximum Revolving
Credit; and
(b) If the termination date is after June 12, 2002, but prior to June
12, 2003, the termination fee will be equal to one-half percent (1/2 of 1%) of
the Maximum Revolving Credit.
Notwithstanding the foregoing: (i) Lender reserves the right to amend the
termination fees for subsequent periods as a condition of any extension of the
Term and (ii) Lender agrees to waive the termination fee if the Revolving Loans
are terminated and refinanced with another credit facility extended by Lender.
In the event the Revolving Loans are terminated as a result of an Event of
Default, expiration of the Term, or otherwise, the outstanding balance of each
Revolving Loan, together with any accrued and unpaid interest thereon and any of
the sums due pursuant to the terms hereof shall be due and payable immediately.
3.5 Charges to Loan Account. At Lender's option, all payments of
principal, interest, fees, costs, expenses and other charges provided for in
this Agreement or in any other agreement now or hereafter existing between
Lender and any Borrower, may be charged on the date when due, as Revolving
Loans. Interest, fees for Letters of Credit, the Unused Line Fee and any other
amounts payable by any Borrower to Lender based on a per annum rate shall be
calculated on the basis of actual days elapsed over a 360-day year.
3.6 Taxes and Additional Costs.
(a) Taxes; "Netting Up." All payments under this Agreement, under the
Promissory Note (including, without limitation, payments of principal and
interest) and under any other instruments, agreements or documents relating
hereto or thereto shall be payable to Lender free and clear of any and all
future taxes, levies, imposts, duties, deductions, withholdings, fees and
similar charges (the "Taxes"). If any Taxes are required to be withheld or
deducted from any amount payable under this Agreement, the Promissory Note or
such other instruments, agreements or documents, the amount payable under the
Agreement, the Promissory Note or such other instruments, agreements or
documents will be increased to the amount which, after deduction from such
increased amount of all. Taxes required to be withheld or deducted therefrom,
will yield to Lender the amount stated to be payable under this Agreement, the
Promissory Note or such other instruments, agreements or documents. Borrowers
-9-
will execute and deliver to Lender at its request such further instruments as
may be necessary to give full force and effect to any such increase. If any of
the Taxes specified in this Section are paid by Lender, Borrowers will, upon
demand of Lender, immediately reimburse Lender for such payments, whether or not
such Taxes are correctly or properly asserted. Nothing contained herein shall
apply to taxes measured by the overall net income of Lender. If either party
hereto shall receive actual notice that any payment must be adjusted pursuant to
this subsection, it shall give written notice to the other party with reasonable
promptness.
(b) Additional Costs. In the event that any applicable law or
regulation, or the interpretation thereof by any governmental authority charged
with the administration thereof, hereafter subjects Lender to any tax of any
kind whatsoever, whether foreign or domestic, with respect to this Agreement,
the Promissory Note or any other instruments, agreements or documents relating
hereto or thereto, or imposes, modifies or deems applicable any reserve
requirement against assets held by or deposits in or for the account of, or
loans by, Lender or imposes on Lender, directly or indirectly, any other charges
or conditions affecting this Agreement, the Promissory Note or any other
instruments, agreements or documents relating hereto or thereto, or in the event
Lender is subject to any change in its capital adequacy requirements with
respect to loans such as the Loans or other extensions of credit such as the
Letters of Credit, and the result of any of the foregoing is to materially
increase the cost to Lender of maintaining the Maximum Revolving Credit, the
Loans or the Letters of Credit, then Borrowers will pay to Lender the additional
amount or amounts specified in writing to Borrowers by Lender to be necessary to
compensate Lender for such additional cost.
(c) If any withholding tax paid by Borrowers pursuant to this section
shall be reimbursed to Lender by any taxing authority, Lender shall repay such
amount with reasonable promptness to Borrowers.
3.7 Evidence of Amounts Outstanding. Etc. Lender shall enter in its
internal records the date and amount of each Loan and Letter of Credit made or
issued by Lender to a Borrower hereunder, and the date and amount of each
repayment of principal and interest. Entries made in such internal records
reflecting said information as to the Loans and Letters of Credit shall, absent
manifest error, constitute prima facie evidence of the transactions represented
by such entries; provided, however, that the failure by Lender to make an entry
in such records shall not limit or otherwise affect the obligation of Borrowers
hereunder to repay the Obligations, including, without limitation, the principal
amount thereof and interest accrued thereon.
3.8 Eurodollar Deposits Unavailable or Interest Rate Unascertainable. In
the event that, prior to any Interest Period of a Eurodollar Loan, Lender shall
have determined (which determination shall be conclusive and binding on the
parties hereto) that deposits of the necessary amount for the relevant Interest
Period are not available to Lender in the interbank Eurodollar market or that,
by reason of circumstances affecting such market, adequate and reasonable means
do not exist for ascertaining LIBOR applicable to such Interest Period, Lender
shall promptly give notice of such determination to Borrowers, and Lender shall
not be obligated to make, convert any Base Rate Loan or LIBOR Market Rate Loan
to, or extend, a Eurodollar Loan to Borrowers pursuant to Section 2.1 or 3.11,
as applicable.
-10-
3.9 Changes in Law Rendering Eurodollar Loans Unlawful. If at any time due
to any new law, treaty or regulation, or any interpretation thereof by any
governmental or other regulatory authority charged with the administration
thereof, or for any other reason arising subsequent to the date hereof, it shall
become unlawful for Lender to fund a Eurodollar Loan, the obligation of Lender
to provide a Eurodollar Loan shall, upon the happening of such event, forthwith
be suspended for the duration of such illegality. In the event of such a change
occurring, Lender shall notify Borrowers thereof in writing stating the reasons
therefor, and Borrowers shall, on the earlier of (a) the last day of the then
current Interest Period with respect thereto or (b) if required by such law,
regulation or interpretation, on such date as shall be specified in such notice,
repay or prepay (as applicable) any outstanding Eurodollar Loan to Lender in
full.
3.10 Funding Indemnity. Borrowers promise, jointly and severally, to
indemnify Lender and to hold Lender harmless from any loss or expense which
Lender may sustain or incur (other than through Lender's gross negligence or
willful misconduct) as a consequence of (a) default by Borrowers in making a
borrowing of, conversion into or extension of Eurodollar Loans after Borrowers
have given a notice requesting the same in accordance with the provisions of
this Agreement, (b) default by Borrowers in making any prepayment of a
Eurodollar Loan after Borrowers have given a notice thereof in accordance with
the provisions of this Agreement. and (c) the making of a prepayment of
Eurodollar Loans on a day which is not the last day of an Interest Period with
respect thereto. With respect to Eurodollar Loans, such indemnification may
include an amount equal to the excess, if any, of (i) the amount of interest
which would have accrued on the amount so prepaid, or not so borrowed, converted
or extended, for the period from the date of such prepayment or of such failure
to borrow, convert or extend to the last day of the applicable Interest Period
(or, in the case of a failure to borrow, convert or extend, the Interest Period
that would have commenced on the date of such failure) in each case at the
applicable rate of interest for such Eurodollar Loans provided for herein over
(ii) the amount of interest (as reasonably determined by Lender) which would
have accrued to Lender on such amount by placing such amount on deposit for a
comparable period with leading banks in the interbank Eurodollar market. This
covenant shall survive the termination of this Agreement and the payment of the
Loans and all other amounts payable hereunder.
3.11 Extensions and Conversions. Subject to the terms and conditions
contained herein, Borrowers shall have the option, on any Business Day, to
extend existing Eurodollar Loans into a subsequent permissible Interest Period,
to convert Base Rate Loans and LIBOR Market Rate Loans into Eurodollar Loans, or
to convert Eurodollar Loans into Base Rate Loans or LIBOR Market Rate Loans;
provided, however, that (a) except as provided in Section 3.9, Eurodollar Loans
may be converted into Base Rate Loans or LIBOR Market Rate Loans only on the
last day of the Interest Period applicable thereto, (b) Eurodollar Loans may be
extended, and Base Rate Loans and LIBOR Market Rate Loans may be converted into
Eurodollar Loans, only if no Event of Default or any event which constitutes or
would, with the giving of notice or lapse of time or both, constitute an Event
of Default, is in existence on the date of extension or conversion, (c) Loans
extended as, or converted into, Eurodollar Loans shall be subject to the terms
of the definition of "Interest Period" and shall be in such minimum amounts as
provided in Section 2.4, and (d) no more than three (3) separate Eurodollar
Loans and LIBOR Market Rate Loans shall be outstanding hereunder at any one
time. Each such extension or conversion shall be effected by Borrowers by giving
a written notice (or telephone notice promptly confirmed in
-11-
writing) to Lender prior to 10:00 a.m., Eastern Standard time, on the Business
Day of, in the case of the conversion of a Eurodollar Loan into a Base Rate Loan
or LIBOR Market Rate Loan, and on the third Business Day prior to, in the case
of the extension of a Eurodollar Loan as, or conversion of a Base Rate Loan or
LIBOR Market Rate Loan, into a Eurodollar Loan, the date of the proposed
extension or conversion, specifying the date of the proposed extension or
conversion, the Loans to be so extended or converted, the types of Loans into
which such Loans are to be converted and, if appropriate, the applicable
Interest Periods with respect thereto. Each request for extension or conversion
shall constitute a representation and warranty by Borrowers of the matters
specified in Section 6 hereof. In the event Borrowers fail to request extension
or conversion of any Eurodollar Loan in accordance with this Section, or any
such conversion or extension is not permitted or required by this Section, then
such Loan shall be automatically converted into a Base Rate Loan at the end of
the Interest Period applicable thereto.
SECTION 4. GRANT OF SECURITY INTEREST
4.1 Grant of Security Interest. To secure the payment and performance
in full of all Obligations, Guarantor and each Borrower hereby grants to Lender
a continuing security interest in and lien upon and a right of setoff against,
and Guarantor and each Borrower hereby assigns and pledges to Lender, all of the
Collateral, including any Collateral not deemed eligible for lending purposes.
4.2 Obligations. "Obligations" shall mean any and all Revolving Loans,
reimbursement and other payment obligations under or in connection with the
Letters of Credit and all other indebtedness, liabilities and obligations of
every kind, nature and description owing by any Borrower to Lender and/or its
affiliates, including principal, interest, charges, fees and expenses, however
evidenced, whether as principal, surety, endorser, guarantor or otherwise,
whether arising under this Agreement or otherwise whether now existing or
hereafter arising, whether arising before, during or after the Term or after the
commencement of any case with respect to any Borrower under the United States
Bankruptcy Code or any similar statute, whether direct or indirect, absolute or
contingent, joint or several, due or not due, primary or secondary, liquidated
or unliquidated, secured or unsecured, original, renewed or extended and whether
arising directly or howsoever acquired by Lender including from any other entity
outright, conditionally or as collateral security, by assignment, merger with
any other entity, participations or interests of Lender in the obligations of
any Borrower to others, assumption, operation of law, subrogation or otherwise
and shall also include any existing and future obligations under or in
connection with any swap agreements (as defined in 11 U.S.C. (S) 101) with
Lender or any affiliate of Lender, and all amounts chargeable to a Borrower
under this Agreement or in connection with any of the foregoing.
4.3 Collateral. "Collateral" shall mean all now owned or hereafter
acquired personal property of Guarantor and each Borrower, including without
limitation, the following, together with the Pledged Interests and Insurance
Policy hereafter described in Sections 4.4 and 4.5 and any other property
hereafter pledged as security for any of the Obligations.
(a) All now owned and hereafter acquired right, title and interest
of Guarantor and/or each Borrower in, to and in respect of all: accounts
(including health care insurance receivables), interest in goods represented by
accounts, returned, reclaimed or repossessed goods
-12-
with respect thereto and rights as an unpaid vendor; contract rights; chattel
paper; investment property; general intangibles (including, but not limited to
payment intangibles, tax and duty refunds, registered and unregistered patents,
trademarks, service marks, copyrights, trade names, applications for the
foregoing, trade secrets, goodwill, processes, drawings, blueprints, customer
lists, licenses, whether as licensor or licensee, choses in action and other
claims, existing and future leasehold interests in equipment and fixtures,
goodwill, software and the Pledged Interests); stock and other ownership
interests in subsidiaries and other entities; documents (including bills of
lading, warehouse receipts and other documents of title); instruments; including
promissory notes, investment property and financial assets of every kind;
insurance policies (including, without limitation, the cash surrender value of
all life insurance policies); letters of credit, bankers' acceptances,
guaranties and letter of credit rights; and all supporting obligations and
rights to receive payment thereunder; cash monies, deposits, securities, bank
accounts, deposit accounts, reserves and credits; all property now or hereafter
held in any capacity by Lender, its affiliates or any entity which, at any time,
participates in Lender's financing of Guarantor or any Borrower or at any other
depository or other institution; agreements or property securing or relating to
any of the items referred to above; all commercial tort claims of Guarantor or
any Borrower based on or arising in connection with any of the matters described
on Schedule K, and all judgments, orders and awards issued in connection
therewith;
(b) All now owned and hereafter acquired right, title and interest
of Guarantor and/or each Borrower in, to and in respect of goods, including, but
not limited to:
(i) All inventory, wherever located, whether now owned or
hereafter acquired, of whatever kind, nature or description, including all
raw materials, work-in-process, finished goods, and materials to be used or
consumed in any Borrower's or Guarantor's business; all returned or
repossessed goods and all names or marks affixed to or to be affixed
thereto for purposes of selling same by the seller, manufacturer, lessor or
licensor thereof, and
(ii) All equipment and fixtures, wherever located whether now
owned or hereafter acquired, including, without limitation, all machinery,
equipment, motor vehicles, furniture and fixtures, and any and all
additions, substitutions, replacements (including spare parts), and
accessions thereof and thereto.
(c) All now owned and hereafter acquired right, title and interests
of Guarantor and/or each Borrower in, to and in respect of any personal property
in or upon which Lender has or may hereafter have a security interest, lien or
right of setoff;
(d) All present and future books and records relating to any of the
above including, without limitation, all computer programs, printed output and
computer readable data in the possession or control of Guarantor or any
Borrower, any computer service bureau or other third party;
(e) All accessories, commingled goods, products and proceeds of the
foregoing in whatever form and wherever located, including, without limitation,
all insurance
-13-
proceeds and all claims against third parties for loss or destruction of or
damage to any of the foregoing.
4.4 Insurance. As further security for the Obligations, Borrowers (and
all owners and beneficiaries applicable thereto) shall assign and grant to
Lender, following the issuance to any Borrower of such policy, a security
interest in a key man life insurance policy and the proceeds payable thereunder
issued by and maintained with an insurance company acceptable to Lender,
insuring the life of Xxxxx Xxxxxxx in an amount of not less than $1,000,000.00,
and on terms acceptable to Lender. Such insurance collateral shall be in
addition to all insurance required to be maintained under the other terms of
this Agreement.
4.5 Surety. As further security for the Obligations, Guarantor shall
execute and deliver to Lender the absolute, unconditional, unlimited surety
agreement (the "Surety Agreement") of Guarantor in form and content satisfactory
to Lender. The Obligations and the obligations of Guarantor under its Surety
Agreement shall be secured by the assets of Guarantor described in Section 4.3,
including, without limitation, by a first and prior (except to the extent
described on Schedule 0), pledge by Guarantor of, and security interest in, all
capital stock, membership interests and other equity interests of and in each
Borrower now owned or hereafter acquired by Guarantor, and in and to all
dividends and other proceeds thereof; which stock and interests (collectively
the "Pledged Interests") shall be fully paid and non-assessable and are further
described on Schedule 0 attached hereto and made a part hereof.
SECTION 5. COLLECTION AND ADMINISTRATION
5.1 Collections. Each Borrower shall, at such Borrower's expense and in
the manner requested by Lender from time to time, direct that remittances and
all other proceeds of accounts and other Collateral shall be sent to a lock box
designated by and/or maintained in the name of Lender, and deposited into a bank
account now or hereafter selected by Lender and maintained in the name of Lender
under arrangements with the depository bank under which all funds deposited to
such bank account are required to be transferred solely to Lender. Borrowers
shall bear all risk of loss of any funds deposited into such accounts. In
connection therewith, Borrowers shall execute such lock box and bank account
agreements as Lender shall specify. Any collections or other proceeds received
by a Borrower shall be held in trust for Lender and immediately remitted to
Lender in kind.
5.2 Payments. All Obligations shall be payable by 2:00 p.m., Eastern
Standard time, on the date such Obligations are due, at Lender's Office set
forth in Section l0.3(a) below or at such other place as Lender may expressly
designate from time to time for purposes of this Section. Lender shall apply all
proceeds of accounts or other Collateral received by Lender and all other
payments in respect of the Obligations to the Revolving Loans whether or not
then due or to any other Obligations then due, in whatever order or manner
Lender shall determine. For purposes of determining the Borrowing Base,
remittances and other payments with respect to the Collateral and Obligations
will be treated as credited to the loan account of Borrowers maintained by
Lender and Collateral balances to which they relate, upon the date of deposit
thereof with Lender, subject to final payment and collection. In computing
interest charges, the loan account of Borrowers maintained by Lender will be
credited with remittances and other payments the number of days set forth in
Section 10.5(b) after the day Lender has received
-14-
advice of receipt of remittances. For purposes of this Agreement, "Business Day"
shall mean any day other than a Saturday, Sunday or any other day on which banks
located in states where Lender has its offices, are authorized to close (or in
London, England in the case of notices and determinations in connection with
setting LIBOR).
5.3 Loan Account Statement. Lender shall render to Borrowers monthly a
loan account statement. Each such statement shall be considered correct and
binding upon Borrowers, except to the extent that Lender receives, within sixty
(60) days after the mailing of such statement, written notice from Borrowers of
any specific exceptions by Borrowers to that statement.
5.4 Direct Collection. Lender may, at any time, whether or not an Event
of Default has occurred (unless hereafter provided), without notice to or assent
of Borrowers, (a) notify any account debtor that the accounts and other
Collateral which includes a monetary obligation have been assigned to Lender by
Borrowers and, after the occurrence of an Event of Default, that payment thereof
is to be made to the order of and directly to Lender, (b) send, or cause to be
sent by its designee, requests (which may identify the sender by a pseudonym)
for verification of accounts and other Collateral directly to any account debtor
or any other obligor or any bailee with respect thereto, and (c) after the
occurrence of an Event of Default, demand, collect or enforce payment of any
accounts or such other Collateral, but without any duty to do so, and Lender
shall not be liable for any failure to collect or enforce payment thereof. At
Lender's request, all invoices and statements sent to any account debtor, other
obligor or bailee, shall state that the accounts and such other Collateral have
been assigned to Lender and are payable directly and only to Lender.
5.5 Attorney-in-Fact. Guarantor and each Borrower hereby appoints
Lender and any designee of Lender as Guarantor's and such Borrower's
attorney-in-fact and authorizes Lender or such designee, at Borrowers' sole
expense, to exercise at any time in Lender's or such designee's discretion all
or any of the following powers, which powers of attorney, being coupled with an
interest, shall be irrevocable until all Obligations have been paid in full: (a)
receive, take, endorse, assign, deliver, accept and deposit, in the name of
Lender, Guarantor or such Borrower, any and all cash, checks, commercial paper,
drafts, remittances and other instruments and documents relating to the
Collateral or the proceeds thereof, (b) transmit to account debtors, other
obligors or any bailees notice of the interest of Lender in the Collateral or
request from account debtors or such other obligors or bailees at any time, in
the name of Guarantor, such Borrower or Lender or any designee of Lender,
information concerning the Collateral and any amounts owing with respect
thereto, (c) notify account debtors or other obligors to make payment directly
to Lender, or notify bailees as to the disposition of Collateral, (d) after the
occurrence of an Event of Default, take or bring, in the name of Lender,
Guarantor or any Borrower, all steps, actions, suits or proceedings deemed by
Lender necessary or desirable to effect collection of or other realization upon
the accounts and other Collateral, (e) after an Event of Default, change the
address for delivery of mail to Guarantor or such Borrower and receive and open
mail addressed to Guarantor or any Borrower, (f) after an Event of Default,
extend the time of payment of, compromise or settle for cash, credit, return of
merchandise, and upon any terms or conditions, any and all accounts or other
Collateral which includes a monetary obligation and discharge or release the
account debtor or other obligor, without affecting any of the Obligations, and
(g) execute and/or deliver in the name of Guarantor or any Borrower and
-15-
file against Guarantor or any Borrower in favor of Lender financing statements
or amendments with respect to the Collateral.
5.6 Liability. Each Obligor hereby releases and exculpates Lender, its
officers, employees and designees, from any liability arising from any acts
under this Agreement or in furtherance thereof, whether as attorney-in-fact or
otherwise, whether of omission or commission, and whether based upon any error
of judgment or mistake of law or fact, except for willful misconduct or gross
negligence. In no event will Lender have any liability to any Obligor for lost
profits or other special or consequential damages.
5.7 Administration of Accounts. After written notice by Lender to
Borrowers and automatically, without notice after the occurrence of an Event of
Default, Obligors shall not, without the prior written consent of Lender in each
instance, (a) grant any extension of time of payment of any of the accounts or
any other Collateral which includes a monetary obligation, (b) compromise or
settle any of the accounts or any such other Collateral for less than the full
amount thereof, (c) release in whole or in part any account debtor or other
person liable for the payment of any of the accounts or any such other
Collateral, or (d) grant any credits, discounts, allowances, deductions, return
authorizations or the like with respect to any of the accounts or any such other
Collateral.
5.8 Documents. At such times as Lender may request and in the manner
specified by Lender, each Obligor shall deliver to Lender or Lender's
representative, as Lender shall designate, copies or original invoices,
agreements, proofs of rendition of services and delivery of goods and other
documents evidencing or relating to the transactions which gave rise to accounts
or other Collateral, together with customer statements, schedules describing the
accounts or other Collateral and/or statements of account and confirmatory
assignments to Lender of the accounts or other Collateral, in form and substance
satisfactory to Lender and duly executed by such Obligor. Without limiting the
provisions of Section 5.7, each Borrower's granting of credits, discounts,
allowances, deductions, return authorizations or the like affecting any Eligible
Accounts or Eligible Inventory which credits, discounts, etc. are not in the
ordinary course of Borrowers' business and consistent with Borrowers' past
practices, will be promptly reported to Lender in writing. In no event shall any
such schedule or confirmatory assignment (or the absence thereof or omission of
any of the accounts or other Collateral therefrom) limit or in any way be
construed as a waiver, limitation or modification of the security interests or
rights of Lender or the warranties, representations and covenants of Obligors
under this Agreement. Any documents, schedules, invoices or other paper
delivered to Lender by Obligors may be destroyed or otherwise disposed of by
Lender six months after receipt by Lender, unless Borrowers request their return
in writing in advance and makes prior arrangements for their return at
Borrowers' expense.
5.9 Access. From time to time as requested by Lender, at the sole
expense of Borrowers, Lender or its designee shall have access, prior to an
Event of Default during reasonable business hours and on or after an Event of
Default at any time, to all of the premises where Collateral is located for the
purposes of inspecting the Collateral, and all Obligors' books and records, and
Obligors shall permit Lender or its designee to make such copies of such books
and records or extracts therefrom as Lender my request. Without expense to
Lender, Lender may use such of Obligors' personnel, equipment, including
computer equipment, programs, printed
-16-
output and computer readable media, supplies and premises for the collection of
accounts and realization on other Collateral as Lender, in its sole discretion,
deems appropriate. Each Obligor hereby irrevocably authorizes all accountants
and third parties to disclose and deliver to Lender at such Borrower's expense
all financial information, books and records, work papers, management reports
and other information in their possession regarding such Obligor.
5.10 Environmental Audits. From time to time, as requested by Lender,
Borrowers shall provide Lender, or its designee, complete access to all of
Borrowers' facilities for the purpose of conducting an environmental audit of
such facilities as Lender or its designees may deem necessary. Borrowers agree
to cooperate with Lender with respect to any environmental audit conducted by
Lender or its designee pursuant to this Section 5.10. Any such audit conducted
after the occurrence of an Event of Default shall be at Borrowers' cost and
expense.
SECTION 6. ADDITIONAL REPRESENTATIONS, WARRANTIES AND COVENANTS
Each Obligor hereby represents, warrants and covenants to Lender the
following, the truth and accuracy of which, and compliance with which, shall be
continuing conditions of the making of any Loans or issuance of any Letters of
Credit by Lender to any Borrower:
6.1 Incorporation, Good Standing, and Due Qualification. Each Obligor
is a corporation or limited liability company as indicated on Schedules I
attached hereto, is duly incorporated or formed, as applicable, is validly
existing, and is in good standing under the laws of the jurisdiction of its
incorporation or formation as indicated on Schedule M, has the power and
authority to own its assets and transact the business in which it is now engaged
or proposed to be engaged, and is duly qualified as a foreign entity and in good
standing under the laws of each other jurisdiction in which the failure to be so
qualified could reasonably be expected to have a material adverse effect on the
business, operations or financial condition of such Obligor, on the Collateral
or on the enforceability or availability of rights and remedies of Lender
hereunder. No Obligor has any subsidiaries except as described on Schedule NI.
6.2 Power and Authority. The execution, delivery, and performance by
each Obligor of this Agreement have been duly authorized by all necessary
corporate or other action and do not and will not (a) require any consent or
approval of any stockholders, members or other owners; (b) contravene such
Articles or Certificate of Incorporation or bylaws, Certificate of Formation or
Registration, Operating Agreement or other governing agreement; (c) violate any
provision of any law, rule, regulation (including, without limitation,
Regulations G, T, U and X of the Board of Governors of the Federal Reserve
System), order, writ, judgment, injunction, decree, determination, or award
presently in effect having applicability to an Obligor; (d) result in a breach
of or constitute a default under any indenture, loan, or credit agreement, or
any other agreement, lease, or instrument to which an Obligor is a party or by
which any Obligor or its properties may be bound or affected; (c) result in, or
require, the creation or imposition of any lien upon or with respect to any of
the properties now owned or hereafter acquired by any Obligor; or (f) cause any
Obligor to be in default under any such law, rule, regulation, order, writ,
judgment, injunction, decree, determination, or award or any such indenture,
agreement, lease, or instrument.
-17-
6.3 Legally Enforceable Agreement. This Agreement constitutes the legal,
valid, and binding obligations of each Obligor, and is enforceable in accordance
with its terms, except to the extent that such enforcement may be limited by
applicable bankruptcy, insolvency, and other similar laws affecting creditors'
rights generally.
6.4 Closing Financial Statements and Condition.
(a) The audited consolidated balance sheet of Guarantors, Borrowers and
their subsidiaries as of July 31. 2000, and the related consolidated statements
of income and the statements of operations and of cash flows for Guarantor, the
Borrowers and their subsidiaries as of and for such fiscal period, and the
quarterly internally prepared financial statements of Guarantor, Borrowers and
their subsidiaries for the quarter ending April 30, 2001, copies of all of which
annual and quarterly statements have been furnished to Lender, are complete and
correct and fairly present the financial condition of Guarantor, Borrowers and
their subsidiaries as at such dates and the results of the operations of
Guarantor, Borrowers and their subsidiaries for the periods covered by such
statements all in accordance with GAAP consistently applied, and, since April
30, 2001, there has been no material adverse change in the condition (financial
or otherwise), business, properties, operations or prospects of Guarantor,
Borrowers or any of their subsidiaries, respectively. There are no liabilities
of Guarantor, Borrowers or any of their subsidiaries, fixed or contingent, which
are material but are not reflected in the financial statements or in the notes
thereto, other than liabilities arising in the ordinary course of business since
the date of these statements. No information, exhibit, or report furnished, or
written statement made, by Guarantor, Borrowers or any of their subsidiaries to
Lender in connection with the negotiation of this Agreement contains any
material misstatement of fact or omits to state a material fact or any fact
necessary to make the statements contained herein or therein not materially
misleading. No Event of Default or event which constitutes, or would, with the
giving of notice or lapse of time or both, constitute an Event of Default has
occurred and is continuing.
(b) As of June 5, 2001, (i) the principal balance owing to Obligors (or
any of them) to Wachovia Bank, N.A. was $765,000.00; and (ii) the total sums due
and owing by Obligors, or any of them, in connection with the Subordinated
Revenue Bonds was $239,193.00
6.5 Labor Disputes and Acts of God. Neither the business nor the properties
of any Obligor or any of its subsidiaries are affected by any fire, explosion,
accident, strike, lockout or other labor dispute, drought, storm, hail,
earthquake, embargo, act of God or of the public enemy, or other casualty
(whether or not covered by insurance) materially and adversely affecting such
business or properties or the operation of such Obligor or any of its
subsidiaries.
6.6 Other Agreements. No Obligor or any of its subsidiaries is a party to
any indenture, loan or credit agreement, or to any lease or other agreement or
instrument, or subject to any charter or corporate restriction which could have
a material adverse effect on the condition (financial or otherwise), business,
properties, operations or prospects of such Obligor or any of its subsidiaries,
or the ability of such Obligor to perform its obligations under this Agreement.
No Obligor or any of its subsidiaries is in default in any respect of the
performance, observance, or fulfillment of any of the obligations, covenants or
conditions contained in any agreement or instrument material to its business to
which it is a party
-18-
6.7 Litigation. Except as described on Schedule P., there is no pending or
threatened action or proceeding against or affecting any Obligor or any
Obligor's subsidiaries before any court, governmental agency, or arbitrator,
which may, in any one case or in the aggregate, materially and adversely affect
the condition (financial or otherwise), business, properties, operations or
prospects of such Obligor or any of its subsidiaries or the ability of such
Obligor to perform its obligations under this Agreement.
6.8 No Defaults on Outstanding Judgments or Orders. Obligors and their
respective subsidiaries have satisfied all judgments and none of them is in
default with respect to any judgment, writ, injunction, decree, rule, or
regulation of any court, arbitrator, or federal, state, municipal, or other
governmental authority, commission, board, bureau, agency, or instrumentality,
domestic or foreign.
6.9 Margin Stock. No Borrower is engaged in the business of extending
credit for the purpose of purchasing or carrying margin stock (within the
meaning of Regulation U issued by the Board of Governors of the Federal Reserve
System), and no proceeds of the Loans will be used to purchase or carry any
margin stock or to extend credit to others for the purpose of purchasing or
carrying any margin stock.
6.10 Financial and Other Reports. Guarantor, Borrowers and their
subsidiaries shall keep and maintain their books and records in accordance with
generally accepted accounting principles ("GAAP"), consistently applied.
(a) Annually, Borrowers shall deliver to Lender (i) audited
consolidated financial statements of Guarantor, Borrowers and their
subsidiaries, including balance sheet and income statement and statements of
operations and of cash flows for such year setting forth in comparative form the
corresponding figures for the preceding year accompanied by the report and
unqualified opinion thereon of independent certified public accountants
acceptable to Lender (the "Accountants"), as soon as available, but in no event
later than ninety (90) days after the end of Borrowers' fiscal year; and (ii) no
later than thirty (30) days prior to the beginning of each fiscal year, a budget
and business plan for such fiscal year of Borrowers which includes (A) a
projected consolidated balance sheet and statement of income of Borrowers for
such fiscal year and a projected consolidated statement of cash flows of
Borrowers for such fiscal year, (B) projected consolidated balance sheets,
statements of income and statements of cash flows of Borrowers on a monthly
basis for such fiscal year and (C) projected usage and excess availability of
Revolving Loans on a monthly basis for such fiscal year. All of the foregoing
shall be in such form, and shall be accompanied by, such information with
respect to the business of Guarantor, Borrowers and/or their subsidiaries as
Lender may request from time to time.
(b) Borrowers shall, at their expense and within forty-five (45) days
following the end of each fiscal quarter, deliver to Lender:
(i) a compliance certificate duly completed and certified by
Borrowers' chief executive officer or chief financial officer,
demonstrating Borrowers' compliance with the financial covenants set forth
in Section 6.19 for the immediately preceding fiscal quarter and showing
the calculations therefor in reasonable detail; and
-19-
(ii) Quarterly consolidated internally prepared interim
financial statements of Guarantor, Borrowers and their subsidiaries,
including a balance sheet and income statement and statements of
operations and of cash flows for such quarter, all in form acceptable
to Lender and in each case setting forth (i) in comparative form
figures for the corresponding quarterly period and year-to-date period
of the preceding fiscal year, (ii) year-to-date figures and (iii) in
comparative form figures for the corresponding period set forth in the
annual budget and business plan delivered pursuant hereto; and
(iii) in form acceptable to Lender, a separate internally
prepared report of the profits, assets and net worth of each subsidiary
of Guarantor or any Borrower which is not a Borrower under this
Agreement.
(c) Borrowers shall, at their expense, on or before the
twentieth (20th) day of each month (or more frequently if required by Lender),
deliver to Lender, in form acceptable to Lender: (1) true and complete monthly
agings of their respective accounts receivable and accounts payable, identifying
all Eligible Accounts; and (ii) monthly inventory reports, including an
identification of all Eligible Inventory, the location of all inventory; and
information as to all inventory in excess of a 12 months' supply and as to
out-of-season inventory.
(d) Borrowers shall, at their own expense on each Friday of the
calendar week (or more frequently if required by Lender), deliver to Lender a
borrowing base certificate in substantially the form of Schedule C hereto duly
completed and certified by Borrowers' chief executive officer or chief financial
officer, detailing Borrowers' Eligible Accounts and Eligible Inventory and
containing, without limitation, weekly sales and cash receipt reports.
(e) Borrowers shall cause to be delivered to Lender, within 30
days of filing, complete copies of each federal tax return filed by Guarantor
and/or any Borrower, which shall be signed and certified by the chief financial
officer of Borrowers to be a true and complete copy of such return. In the event
an extension is filed, Borrowers shall deliver a copy of the extension within 30
days of filing. Lender agrees that any positions, elections and valuations taken
by Borrowers on their tax returns solely for tax purposes, and which do not
affect the actual value of Borrowers' assets as shown on their then most recent
financial statements, shall not affect Lender's determination of the Borrowing
Base and/or the Eligibility Requirements hereunder.
(f) Borrowers shall furnish to Lender a copy of each "management
letter" and each "comment letter" received by any Obligor from any accountants
in connection with any annual or other financial report or audit, and any such
other information, reports and statements respecting the condition or
operations, financial or otherwise, of Obligors or of any Borrower's
subsidiaries as Lender may from time to time reasonably request.
6.11 Trade Names. Borrowers may from time to time render invoices to
account debtors under their trade names set forth in Section 10.3(e) after
Lender has received prior written notice from Borrowers of the use of such trade
names and as to which, Borrowers agree that: (a) each trade name does not refer
to another corporation or other legal entity, (b) all accounts and proceeds
thereof (including any returned merchandise) invoiced under any such trade names
are owned exclusively by a Borrower and are subject to the security interest of
Lender and the other terms of this Agreement, and (c) all schedules of accounts
and confirmatory
-20-
assignments including any sales made or services rendered using the trade name
shall show a Borrower's name as assignor and Lender is authorized to receive,
endorse and deposit to any loan account of each Borrower maintained by Lender
all checks or other remittances made payable to any trade name of a Borrower
representing payment with respect to such sales or services.
6.12 Notices. Borrowers shall promptly notify Lender in writing of (a) any
loss, damage, investigation, action, suit, proceeding or claim relating to a
material portion of the Collateral or which may result in any material adverse
change in Guarantor's or any Borrower's business, assets, liabilities or
condition, financial or otherwise; (b) the occurrence of any Event of Default or
event which constitutes or would, after the giving of notice or lapse of time or
both, constitute an Event of Default; (c) any action or proceeding brought
against any Obligor wherein such action or proceeding would, if determined
adversely to any Obligor result in liability of any Obligor in excess of
$100,000.00 individually, or $100,000.00 in the aggregate; (d) the failure of
any Obligor to observe any of its undertakings under the Loan Documents; (e) any
material adverse change in the assets, business, operations or financial
condition of any Obligor; or (f) the termination or expiration of, or the
occurrence of a default under, any of the license or distributions agreements
described on Schedule N.
6.13 Books and Records/Locations. The books and records of Guarantor,
Borrowers and their subsidiaries concerning accounts and the chief executive
office of each such entity are and shall be maintained only at the address set
forth in Section 10.3(b). The only other places of business and the only other
locations of Collateral, if any, of Guarantor and any Borrower are and shall be
the addresses set forth in Section 10.3 hereof, except Borrowers may change such
location or open a new place of business after thirty (30) days' prior written
notice from Borrowers to Lender. Prior to any change in location or opening of
any new place of business, Borrowers shall execute and deliver or cause to be
executed and delivered to Lender such financing statements, Landlord Waivers,
financing documents and security and other agreements as Lender may reasonably
require, including, without limitation, those described in Section 6.22. Without
limiting the foregoing, prior to the relocation of RI's operations and assets to
Virginia, Borrowers shall deliver to Lender a written plan or summary of such
relocation acceptable to Lender, and Obligors shall deliver to Lender, at
Obligors' cost and expense, any and all financing statements, landlord,
mortgagee and warehouse waiver agreements and other documents and agreements as
Lender may reasonably request to evidence or protect Lender's security interest
in, access to and rights and remedies with respect to the Collateral.
6.14 Title; Lien Restrictions.
(a) Obligors have and at all times will continue to have good and
marketable title to all of their respective properties, real and personal,
including without limitation, the Collateral, free and clear of all liens,
security interests, claims or encumbrances of any kind except in favor of Lender
and except only for the Permitted Liens, as hereafter defined. No Obligor shall
mortgage, assign, pledge, transfer or otherwise permit any lien or judgment
(whether as a result of a purchase money or title retention transaction, or
other security interest, or otherwise) to exist on any of its respective assets
or goods, whether real, personal or mixed, whether now owned or hereafter
acquired, except for the following (collectively the "Permitted Liens"): (i) the
existing liens described on Schedule B-i and (ii) future purchase money liens on
-21-
capital equipment provided that: (w) the property subject to any of such liens
is acquired by a Borrower in the ordinary course of such Borrower's business and
the lien is created simultaneously with such acquisition; (x) the purchase money
indebtedness so created does not exceed 100% of the cost of such equipment; (y)
the purchase money indebtedness shall only be secured by the equipment so
acquired; and (z) the purchase money indebtedness is permitted under the
provisions of Section 6.25 hereof.
(b) No Obligor shall enter into any agreement which shall: (i) prohibit
any Obligor from granting, creating or suffering to exist, or otherwise
restricting in any way (whether by covenant, by identifying such event as a
default under such agreement or otherwise) the ability of any Obligor or any of
its subsidiaries to grant, create or suffer to exist any lien, security interest
or other charge or encumbrance upon or with respect to any of its assets in
favor of Lender; or (ii) restrict or inhibit Lender's rights or ability to sell
or otherwise dispose of any of the Collateral or any part thereof after the
occurrence of an Event of Default.
(c) Lender agrees that upon Borrowers' request, Lender will subordinate
its security interest in the specific equipment described on Schedule B-2
attached hereto to the security interest therein of a creditor extending a loan
to Borrowers, or any of them (the "Equipment Debt") if (i) the principal amount
of the Equipment Debt does not exceed the lesser of(x) the appraised value of
such equipment or (y) $3,000,000.00, (ii) the Equipment Debt is secured solely
by a security interest in the equipment described on Schedule B-2, (iii) all
other terms and conditions of the Equipment Debt are acceptable to Lender in its
reasonable discretion and (iv) the creditor extending the Equipment Debt
executes an intercreditor agreement acceptable to Lender in its reasonable
discretion. If Lender fails to provide such subordination solely because the
conditions in (iii) or (iv) above have not been satisfied, and if (x) the
conditions of (i) and (ii) have been satisfied and (y) no Event of Default, nor
any event or condition which with the passage of time, delivery of notice or
otherwise would constitute any such Event of Default, exists, Lender agrees to
use best efforts to offer to Borrowers, within 30 days following the date of
Lender's refusal to provide the requested subordination, Equipment Debt on
substantially the same terms as offered by the original creditor. Should Lender
fail to comply with the foregoing, Borrowers may, within 120 days following such
failure, terminate the Revolving Loans and pay a termination fee equal to one
quarter of one percent less than the termination fee that would otherwise be due
under the provisions of Section 3.4.
6.15 No Corporate Change. Each Obligor and its subsidiaries shall maintain
its separate existence and shall maintain in full force and effect all material
licenses, bonds, franchises, leases, trademarks and qualifications to do
business in the jurisdictions in which it is required to do so by the nature and
extent of its activities in such jurisdictions. No Obligor or any of its
subsidiaries shall directly or indirectly: (a) without Lender's prior written
consent, alter its corporate existence or, in one transaction or a series of
transactions, consolidate with or merge with or into any other entity, or permit
any other entity to consolidate with or merge with or into any Obligor or any of
their subsidiaries, (b) form or acquire any interest in any firm, corporation or
other entity or (c) alter or modify any Obligor's articles or certificate of
incorporation or any operating agreement, name, mailing addresses, principal
places of business, structure, status or existence or enter into or engage in
any business, operation or activity materially different from that presently
being conducted by any.
-22-
6.16 Insurance. Obligors and their subsidiaries shall at all times maintain,
with financially sound and reputable insurers, insurance (including, without
limitation, at the option of Lender in its reasonable discretion, earthquake and
flood insurance) with respect to the Collateral and other assets and against all
such liability and hazards as are usually carried by entities engaged in the
same or a similar business similarly situated or as may be required by Lender
but expressly including product liability coverage. All such insurance policies
shall be in such form, substance, amounts and coverage as may be satisfactory to
Lender and shall provide for thirty (30) days' prior written notice to Lender of
cancellation or reduction of coverage. Guarantor and each Borrower hereby
irrevocably appoints Lender and any designee of Lender as attorney-in-fact for
Guarantor and such Borrower and its subsidiaries to obtain at Borrowers'
expense, any such insurance should any Obligor or any of its subsidiaries fail
to do so and, after an Event of Default, to adjust or settle any claim or other
matter under or arising pursuant to such insurance or to amend or cancel such
insurance. Obligors shall deliver to Lender evidence of all such insurance and a
lender's loss payable endorsement satisfactory to Lender as to all existing and
future insurance policies with respect to the Collateral. Obligors shall deliver
to Lender, in kind, all instruments representing proceeds of insurance received
by any Obligor. Lender may apply any insurance proceeds received at any time to
the cost of repairs to or replacement of any portion of the Collateral and/or,
at Lender's option, to payment of or as security for any of the Obligations,
whether or not due, in any order or manner as Lender determines.
6.17 Compliance With Laws. Each Obligor and its subsidiaries is and at all
times will continue to be in compliance in all material respects with the
requirements of all laws, rules, regulations and orders of any governmental
authority relating to its business (including laws, rules, regulations and
orders relating to taxes, payment and withholding of payroll taxes, employer and
employee contributions and similar items, securities, employee retirement and
welfare benefits, employee health and safety, or environmental matters) and all
material agreements or other instruments binding on such Obligor or any of its
subsidiaries or their respective property. All of Borrowers' inventory shall be
produced in accordance with the requirements of the Federal Fair Labor Standards
Act of 1938, as amended and all rules, regulations and orders related thereto.
Each Obligor and its subsidiaries has paid and discharged and shall pay and
discharge all taxes, assessments and governmental charges against it or any
Collateral prior to the date on which penalties are imposed or liens attach with
respect thereto, unless the same are being contested in good faith and, at
Lender's option exercised in its reasonable discretion, reserves are established
for the amount contested and penalties which may accrue thereon.
6.18 Equipment. With respect to equipment constituting Collateral, Obligors
shall keep the equipment in good order and repair, and in running and marketable
condition, ordinary wear and tear excepted.
6.19 Financial Covenants. Borrowers shall at all times comply with the
following:
(a) Borrowers shall maintain Tangible Net Worth of not less than (i)
$10,500,000.00 as of the date hereof and at all times hereafter through October
30, 2001; (ii) $11,500,000.00 as of October 31, 2001 and at all times thereafter
through January 30, 2002; (iii) $12,500,000.00 as of January 31, 2002 and at all
times thereafter through October 30, 2002; and (iv) $14,000,000.00 as of October
31, 2002 and at all times thereafter.
-23-
(b) Borrowers shall maintain a Fixed Charge Coverage Ratio, determined
as of the end of each fiscal quarter of Borrowers for the 12-month period then
ended, of not less than: (i) 1.75 to 1.0 as of July 31, 2001 and as of the end
of each fiscal quarter thereafter through April 30, 2002; and (ii) 3.0 to 1.0 as
of July 31, 2002 and as of the end of each fiscal quarter thereafter.
(c) Borrowers and Guarantor shall not, directly or indirectly, expend
or commit to expend, for fixed or capital assets (including capital lease
obligations) (collectively "Capital Expenditures") an aggregate amount in excess
of: (i) S 1,000,000.00 in the fiscal year ending July 31, 2001; (ii)
$2,000,000.00 in the fiscal year ending July 21, 2002; and (iii) $1,000,000.00
in the fiscal year ending July 31, 2003 and in any fiscal year thereafter.
(d) For purposes of the foregoing:
"Tangible Net Worth" means, as of any date, shareholders' equity or net
worth of Guarantor, Borrowers and their subsidiaries as determined in according
with GAAP, the amount of any assets classified as intangible assets under GAAP,
all determined on a consolidated basis.
"EBITDA" means, for the applicable period, the sum of net income of
Guarantor, Borrowers and their subsidiaries (exclusive of extraordinary items of
income or loss) or amounts which, in the determination of such net income, have
been deducted for interest expense, total federal, state, local and foreign
income, value added and similar taxes, and depreciation and amortization; all as
determined in accordance with GAAP and on a consolidated basis.
"Funded Indebtedness" means all indebtedness for borrowed money, all
indebtedness under bonds, notes or similar instruments on which interest
payments are customarily made, all indebtedness under conditional sales or title
retention documents, all indebtedness issued or assumed as the deferred purchase
price of property or services, the principal portion of obligations under
capital leases and any guaranties of any such foregoing indebtedness.
"Fixed Charge Coverage Ratio" means, for the applicable period, the ratio of
(i) EBITDA for such period, minus total Unfunded Capital Expenditures for such
period, minus cash taxes paid, to (ii) the sum of interest expense for such
period plus scheduled payments on the Funded Indebtedness paid in cash for such
period plus total dividends and distributions paid or declared by Borrowers
during such period; all determined as to Guarantor, Borrowers and their
subsidiaries on a consolidated basis.
"Unfunded Capital Expenditures" means Capital Expenditures which have not
been financed with financing from a third party permitted under the terms of
this Agreement.
6.20 Affiliated and Other Transactions. No Obligor will, directly or
indirectly: (a) lend or advance money or property to, guarantee or assume
indebtedness of, or, except for existing investments in subsidiaries described
on Schedule M, invest (by capital contribution or otherwise) in any person,
firm, corporation or other entity; (b) declare, pay or make any dividend,
redemption or other distribution on account of, or purchase, any shares of any
class of stock of any Obligor now or hereafter outstanding, provided that a
Borrower's subsidiaries may declare, pay or make any dividend, redemption or
other distribution to such Borrower; (c) make
-24-
any payment of the principal amount of or interest on any indebtedness owing to
any officer, director, shareholder, or affiliate of any Obligor, provided that a
Borrower's subsidiaries may make any payment of the principal amount of or
interest on any indebtedness owing to such Borrower; (d) make any loans or
advances to any officer, director, employee, shareholder or affiliate of any
Obligor, provided that Borrowers may make advances and reimbursements to their
employees in reasonable amounts for travel and other business expenses incurred
in the ordinary course of Borrowers' business; or (e) enter into any sale, lease
or other transaction with any officer, director, employee, shareholder or
affiliate of an Obligor or any of its subsidiaries on terms that are less
favorable to any Obligor or any of its subsidiaries than those which might be
obtained at the time from persons who are not an officer, director, employee,
shareholder or affiliate of any Obligor.
6.21 Fees and Expenses. Borrowers shall pay, on Lender's demand, all costs,
expenses, filing fees and taxes payable in connection with the preparation,
execution, delivery, recording, administration, collection, liquidation,
enforcement and defense of the Obligations, Lender's rights in the Collateral,
this Agreement and all other existing and future agreements or documents
contemplated herein or related hereto, including any amendments, waivers,
supplements or consents which may hereafter be made or entered into in respect
hereof, or in any way involving claims or defense asserted by Lender or claims
or defense against Lender asserted by any Obligor, any of its subsidiaries or
any third party directly or indirectly arising out of or related to the
relationship between Borrowers and Lender or any Obligor and Lender, including,
but not limited to the following, whether incurred before, during or after the
Term or after the commencement of any case with respect to a Borrower or any of
its subsidiaries or any Obligor under the United States Bankruptcy Code or any
similar statute: (a) all costs and expenses of filing or recording (including
Uniform Commercial Code financing statement filing taxes and fees, documentary
taxes, intangibles taxes and mortgage recording taxes and fees, if applicable);
(b) all title insurance and other insurance premiums, appraisal fees, fees
incurred in connection with any environmental report, audit or survey and search
fees; (c) all fees as then in effect relating to the wire transfer of loan
proceeds and other funds and fees then in effect for returned checks and credit
reports; (d) all expenses and costs heretofore and from time to time hereafter
incurred by Lender during the course of periodic field examinations of the
Collateral and Borrowers' operations provided that prior to the occurrence of an
Event of Default, such costs shall be in an amount equal to the Field
Examination Fee set forth in Section 10.5, plus such fees and disbursements
incurred as a result of litigation between the parties hereto, any third party
and in any appeals arising therefrom for Lender's examiners in the field and
office; (e) all costs, fees, penalties or other liabilities arising or incurred
in connection with any litigation, claims, judgments or suits (including,
without limitation, environmental liabilities); and (f) the costs, fees and
disbursements of outside counsel to Lender.
6.22 Further Assurances. At the request of Lender, at any time and from time
to time, at Borrowers' sole expense, Obligors shall execute and deliver or cause
to be executed and delivered to Lender, such agreements, documents and
instruments, including, without limitation, waivers, consents and subordination
agreements from mortgagees or other holders of security interests or liens,
landlords or bailees and stock certificates and other securities, instruments
and chattel paper, endorsed as Lender may direct, with, as appropriate, stock or
other powers executed in blank, and do or cause to be done such further acts as
Lender, in its discretion, deems necessary or desirable to create, preserve,
perfect or validate any security interest of Lender or
-25-
the priority thereof in the Collateral and otherwise to effectuate the
provisions and purposes of this Agreement. Each Obligor hereby authorizes
Lender, from time to time and at Borrowers' expense, to file financing
statements or amendments against such Obligor in favor of Lender with respect to
the Collateral, without such Obligor's signature or further consent and to file
as financing statements any carbon, photographic or other reproductions of this
Agreement or any financing statements signed by Obligor. Obligor shall promptly
notify Lender in writing of any trademarks, copyrights, patents, licenses or
other intellectual property that any of them acquires following the date hereof.
6.23 Use of Proceeds. The proceeds of the Revolving Loans shall be used
solely to refinance existing bank debt and for future working capital of
Borrowers.
6.24 Environmental Matters.
(a) None of Obligors' respective properties or assets has ever been
designated or identified in any manner pursuant to any environmental protection
statute as a hazardous waste or hazardous substance disposal site, or a
candidate for closure pursuant to any environmental protection statute. No lien
arising under any environmental protection statute has attached to any revenues
or to any real or personal property owned by any Borrower or any of its
subsidiaries. No Obligor has received a summons, citation, notice, or directive
from the Environmental Protection Agency or any other federal or state
governmental agency relating to any action or omission by any Obligor or any of
its subsidiaries resulting in the releasing, or otherwise exposing of hazardous
waste or hazardous substances into the environment. Each Obligor and its
subsidiaries is in compliance (in all material respects) with all statutes,
regulations, ordinances and other legal requirements pertaining to the
production, storage, handling, treatment, release. transportation or disposal of
any hazardous waste or hazardous substance.
(b) In the event an Obligor becomes aware of any past, present or
future facts or circumstances which have given rise or could give rise to a
claim against any Obligor related to a failure to comply with any Environmental
Requirements, Borrowers will promptly give Lender notice thereof, together with
a written statement of the chief financial officer of Borrowers setting forth
the details thereof and the action with respect thereto taken or proposed to be
taken by Obligors.
(c) Each Obligor agrees to indemnify, defend and hold harmless
Lender, its parents, subsidiaries, successors and assigns, and any officer,
director, shareholder, employee, Affiliate or agent of Lender, for all loss,
liability, damage, cost and expenses, including without limitation, attorney's
fees and disbursements (including the reasonable allocated costs of in-house
counsel) arising from or related to (i) the release of any Special Materials at
any facility at any time owned, leased or operated by an Obligor, (ii) the
release of any Special Materials treated, stored, transported, handled,
generated or disposed of by or on behalf of any Obligor at any third party owned
site, (iii) any claim against any Obligor that it has failed to comply with all
Environmental Requirements, and (iv) the breach by any Obligor of any
representation or covenant in this Section 6.24.
-26-
(d) The representations and covenants of Obligors contained in this
Section 6.24, including without limitation the indemnification obligation of
Obligors, shall survive the occurrence of any event whatsoever, including the
payment of the Obligations or any investigation by or knowledge of Lender.
(e) For purposes of the foregoing:
(i) "Environmental Requirements" means any and all applicable
federal, state or local laws, statutes, ordinances, regulations or
standards, administrative or court orders or decrees, common law doctrines
or private agreements, relating to (i) pollution or protection of the
environment and natural resources, (ii) exposure of employees or other
persons to Special Materials, (iii) protection of the public health and
welfare from the effects of Special Materials and their products,
by-products, wastes, emissions, discharges or releases, and (iv)
regulation, licensing, approval or authorization of the manufacture,
generation, use, formulation, packaging, labeling, transporting,
distributing, handling, storing or disposing of any Special Materials.
(ii) "Special Materials" means any and all materials which,
under Environmental Requirements, require special handling in use,
generation, collection, storage, treatment or disposal, or payment of costs
associated with responding to the lawful directives of any court or agency,
of competent jurisdiction. Special Materials shall include, without
limitation: (i) any flammable substance, explosive, radioactive material,
hazardous material, hazardous waste, toxic substance, solid waste,
pollutant, contaminant or any related material, raw material, substance,
product or by-product of any substance specified in or regulated or
otherwise affected by any Environmental Requirements (including but not
limited to any "hazardous substance" as defined in the Comprehensive
Environmental Response, Compensation and Liability Act of 1980 as amended
or any similar state or local law), (ii) any toxic chemical or other
substance from or related to industrial, commercial or institutional
activities, and (iii) asbestos, gasoline, diesel fuel, motor oil, waste and
used oil, heating oil and other petroleum products or compounds,
polychiorinated biphenyls, radon, urea formaldehyde and lead-containing
materials.
6.25 Restrictions on Additional Indebtedness. No Obligor shall, nor shall
it permit its subsidiaries to, incur or create any liability or indebtedness,
including capitalized leases, other than under this Agreement and the following
indebtedness (collectively the "Permitted Indebtedness") (i) existing
indebtedness set forth on Schedule D hereto; (ii) future purchase money
indebtedness for the acquisition of equipment provided that the total aggregate
principal amount thereof shall not at any time exceed S100,000.00, and (iii) the
Equipment Debt as described in and subject to the conditions of Section 6.14(c).
6.26 Issuance of Stock. Without Lender's prior written consent, no
Obligor shall, nor shall it permit its subsidiaries to, issue, distribute or
redeem any capital stock, membership interest or other securities for
consideration or otherwise, except, in the case of any such subsidiary, to a
Borrower. No Obligor shall permit the transfer of any shares of its capital
stock, membership interests or other equity interests, except that Guarantor may
permit such transfers of its capital stock if, as a result thereof, Xxxxx
Xxxxxxx and/or his immediate family would
-27-
continue to own, legally and beneficially, not less than 51% of the total issued
and capital stock of Guarantor and sufficient shares of Guarantor's stock to
enable Xxxxx Xxxxxxx and/or his immediate family to elect a majority of the
Board of Directors of Guarantor.
6.27 Limitations. Without Lender's prior written consent, except as
contained herein, no Obligor shall create, nor will it permit any of its
subsidiaries to, directly or indirectly, create or otherwise cause, incur,
assume, suffer or permit to exist or become effective any consensual encumbrance
or restriction of any kind on the ability of any such person to (a) pay
dividends or make any other distribution on any of such person's capital stock,
membership interests or other equity interests, (b) pay any indebtedness owed to
an Obligor, (c) make loans or advances to an Obligor or (d) transfer any of its
property to an Obligor, except for encumbrances or restrictions existing under
or by reason of (i) customary non-assignment provisions in any lease governing a
leasehold interest, (ii) any agreement or other instrument of a person existing
at the time it becomes a subsidiary of an Obligor; provided, that such
encumbrance or restriction was not entered into in contemplation of such person
becoming a subsidiary of an Obligor and (iii) this Agreement.
6.28 Restricted Payments. Without Lender's prior written consent, no
Obligor will pay dividends, make other distributions on account of its capital
stock or membership or other equity interests, make any payments on any sinking
fund or similar payment, make any payment to redeem, retire, purchase or obtain
the surrender of any outstanding warrants, options or other rights to acquire
any interest in an Obligor or make any payment to any affiliate of an Obligor.
6.29 Tax Returns. Obligors have filed all tax returns which they are
required to file and have paid, or made provision for the payment of, all taxes
which have or may have become due pursuant to such returns or pursuant to any
assessment received by them, except such taxes (other than real estate taxes
which must be paid regardless of challenge), if any, as are being contested in
good faith and as to which adequate reserves have been provided. Such tax
returns are complete and accurate in all respects. No Obligor knows of any
proposed additional assessment or basis for any assessment of additional taxes.
6.30 Current Compliance. Obligors are currently in compliance with all of
the terms
6.31 Pension Plans. Except as disclosed on Schedule L hereto, (a) no
Obligor has any obligations with respect to any employee pension benefit plan
("Plan") (as such term is defined in the Employee Retirement Income Security Act
of 1974, as amended ("ERISA")), (b) no events, including, without limitation,
any "Reportable Event" or "Prohibited Transaction" (as those terms are defined
under ERISA), have occurred in connection with any Plan of any Obligor which
might constitute grounds for the termination of any such Plan by the Pension
Benefit Guaranty Corporation ("PBGC") or for the appointment by any United
States District Court of a trustee to administer any such Plan, (c) all of the
Obligors' Plans meet with the minimum funding standards of Section 302 of ERISA,
and (d) No Obligor has existing liability to the PBGC. No Obligor is subject to
or bound to make contributions to any "multi-employer plan" as such term is
defined in Section 400 1(a)(3) of ERISA.
6.32 Intellectual Property. Borrowers own or possess the irrevocable right
to use all of the patents, trademarks, service marks, trade names, copyrights,
licenses, franchises and permits
-28-
and rights with respect to the foregoing necessary to own and operate the
Borrowers' properties and to carry on their business as presently conducted and
presently planned to be conducted without conflict with the rights of others.
Schedule H sets forth an accurate list and description of each such patent,
trademark, service xxxx, trade name, copyright, license, franchise and permit
and right with respect to the foregoing, together with all registration or
application numbers or information with respect thereto.
6.33 Eligible Inventory Warranties. With respect to Eligible Inventory from
time to time scheduled, listed or referred to in any certificate, statement or
report prepared by or for a Borrower and delivered to Lender and upon which
Borrowers are basing availability under the Borrowing Base, Borrowers warrant
and represent that (a) such inventory is located at the address or addresses
listed on Schedule E attached hereto and is not in transit; (b) a Borrower has
good, indefeasible and merchantable title to such inventory and such inventory
is not subject to any lien or security interest whatsoever except for the prior,
perfected security interest granted to Lender; (c) such inventory is of good and
merchantable quality, free from any defects; (d) such inventory is not subject
to any licensing, patent, royalty, trademark, trade name or copyright agreements
with any third parties; and (e) the completion of the manufacture and sale or
other disposition of such inventory by Lender following an Event of Default
shall not require the consent of any person and shall not constitute a breach or
default under any contract or agreement to which a Borrower is a party or to
which the inventory is subject.
6.34 Eligible Account Warranties. With respect to all Eligible Accounts
from time to time scheduled, listed or referred to in any certificate, statement
or report prepared by or for a Borrower and delivered to Lender and upon which
Borrowers are basing availability under the Borrowing Base, Borrowers warrant
and represent that (a) the accounts arose in the ordinary course of a Borrower's
business, (b) the accounts are genuine, are in all respects what they purport to
be, and are not evidenced by any chattel paper, note, instrument or judgment;
(c) a Borrower has absolute title to such accounts and the accounts represent
undisputed, bona tide transactions completed in accordance with the terms
thereof and as represented to Lender; (d) no payments have been or will be made
thereon, except payments immediately delivered to Lender pursuant to the Loan
Documents; (e) there are no setoffs, counterclaims, disputes, discounts,
credits, charge backs, freight claims; allowances or adjustments existing or
asserted with respect thereto and no Borrower has made any agreement with any
account debtor for any deduction therefrom; (f) there are no facts, events or
occurrences which impair the validity or enforcement thereof or may reduce the
amount payable thereunder as shown on any certificates, statements or reports,
prepared by or for a Borrower and delivered to Lender, Borrowers' books and
records and all invoices and statements delivered to Lender with respect
thereto; (g) to the best of Borrowers' knowledge, all account debtors have the
capacity to contract and are solvent; (h) the goods sold giving rise thereto are
not subject to any lien, claim, encumbrance or security interest except that of
Lender; (i) to the best of Borrowers' knowledge, there are no proceedings or
actions which are threatened or pending against any account debtor which might
result in any material adverse change in such account debtor's financial
condition; (j) the account is not an account with respect to which the account
debtor is an affiliate of any Obligor or a director, officer of employee of any
Obligor or their affiliates; (k) the account does not arise with respect to
goods which have been returned, rejected, lost or damaged or which have not been
shipped or arise with respect to services which have not been fully performed
and accepted as satisfactory by the account debtor; (1) the account is not an
account with respect to which the account
-29-
debtor's obligation to pay the account is conditional upon the account debtor's
approval or is otherwise subject to any repurchase obligation or return right,
as with sales made on a consignment, xxxx-and-hold, guaranteed sale,
sale-and-return, or sale on approval basis; (m) the amounts shown on the
applicable certificates, statements, on Borrowers' books and records and all
invoices and statements which may be delivered to Lender with respect to such
accounts are actually and absolutely owing to a Borrower and are not in any way
contingent; (n) the accounts have not been sold, assigned or transferred to any
other person and no person except a Borrower has any claim thereto or (with the
exception of the applicable account debtor) any claims to the goods sold; and
(o) to Borrowers' knowledge, such account satisfies all criteria for eligibility
established by Lender.
6.35 Payment of Principal, Interest and Other Amounts Due. Borrowers
will pay when due all Obligations and all other amounts payable by it hereunder
and under the Loan Documents.
6.36 Limitation on Sale and Leaseback. Except in connection with sale
and leaseback transactions entered into in connection with the relocation of
RI's operations and assets to Virginia pursuant to a plan acceptable to Lender
as provided in Section 6.13, no Obligor will enter into any arrangement whereby
it will sell or transfer any real property or improvements thereon or other
fixed assets owned by it and then or thereafter rent or lease as lessee such
property, improvements or assets or any part thereof, or other property which
any Obligor shall intend to use for substantially the same purposes as the
property sold or transferred
6.37 Ownership and Disposition of Assets.
(a) All operating assets and revenues shown on the financial
statements of Borrowers and Guarantor, and all accounts and inventory described
on each Borrowing Base Certificate delivered by Borrowers to Lender, are owned
and generated, as applicable, by Borrowers. Guarantor is a holding company and
its only assets are the stock and equity interests owned by Guarantor in
Borrowers.
(b) No Obligor will sell, lease, transfer, abandon or otherwise
dispose of all, substantially all, or any portion of its property or assets,
including, without limitation, any of the Collateral, except for sales of
inventory by Borrowers in the ordinary course for fair consideration and the
sale for fair consideration of obsolete equipment having a book value of not
more than $50,000 individually or in the aggregate.
6.38 Taxes; Claims for Labor and Materials. Each Obligor will pay or
cause to be paid when due all taxes, assessments, governmental charges or levies
imposed upon it or its income, profits, payroll or any property belonging to it,
including without limitation all withholding taxes, and all claims for labor,
materials and supplies which, if unpaid, might become a lien or charge upon any
of its properties or assets; provided that it shall not be required to pay any
such tax (other than real estate taxes which must be paid regardless of
challenge), assessment, charge, levy or claim so long as the validity thereof
shall be contested in good faith by appropriate proceedings promptly initiated
and diligently conducted by it, and neither execution nor foreclosure sale or
similar proceedings shall have been commenced in respect thereof (or such
proceedings shall have been stayed pending the disposition of such contest of
validity), and it
-30-
shall have set aside on its books, or at the request of Lender deposited with
Lender adequate reserves with respect thereto. No Obligor will file or consent
to the filing of, any consolidated income tax return with any person or entity
other than a subsidiary.
6.39 Pension Plans. Obligors will (a) keep in full force and effect any
and all Plans which are presently in existence or may, from time to time, come
into existence under ERISA, unless such Plans can be terminated without material
liability to any Obligor in connection with such termination (as distinguished
from any continuing funding obligation); (b) make contributions to all of
Obligors' Plans in a timely manner and in a sufficient amount to comply with the
requirements of ERISA; (c) comply with all material requirements of ERISA which
relate to such Plans so as to preclude the occurrence of any Reportable Event,
Prohibited Transaction or material "accumulated funding deficiency" as such term
is defined in ERISA; and (d) notify Lender immediately upon receipt by any
Obligor of any notice of the institution of any proceeding or other action which
may result in the termination of any Plan and deliver to Lender, promptly after
the filing or receipt thereof, copies of all reports or notices which any
Obligor files or receives under ERISA with or from the Internal Revenue Service,
the PBGC, or the U.S. Department of Labor.
6.40 Bank of Account. Obligors will maintain Lender as major bank of
account, unless otherwise agreed by Lender in writing. Obligors will notify
Lender in writing and on a continuing basis, of all deposit accounts and
certificates of deposit (including the numbers thereof) maintained with or
purchased by any Obligor from any other financial institutions.
6.41 Maintenance of Management. Obligor will cause their business to be
continuously managed by its present senior management or, in lieu thereof, such
other persons (serving in such senior management positions) as may be
satisfactory to Lender in its reasonable discretion. Borrowers will notify
Lender promptly in writing of any change in the board of directors, executive
officers, manager or other governing body of any Obligor and will provide Lender
with a copy of any proposed amendments to its Articles of Incorporation,
By-Laws, operating agreement or other governing documents, prior to adoption.
6.42 Accounts Receivable. Unless Lender notifies Borrowers in writing
that it dispenses with any one or more of the following requirements, Borrowers
will (a) inform Lender promptly of the rejection of goods, claims made or delay
in delivery or performance in regard to any account or contract right upon which
Borrowers have based availability for advances under the Borrowing Base and will
adjust the Borrowing Base to reduce the availability for advances by the amount
of such account and will repay any out-of-formula advance resulting therefrom;
(b) make no change in any account upon which Borrowers have based availability
for advances under the Borrowing Base, unless such change is reflected in the
Borrowing Base and does not result in any out-of-formula advance under the
Borrowing Base; (c) furnish to Lender all information received by a Borrower
affecting the financial standing of any account debtor whose account or contract
right has been specifically assigned to Lender; (d) pay Lender the amount loaned
against any account or contract right if the goods are returned by purchaser or
the contract is canceled or terminated or adjust the borrowing base calculation
to reduce the availability for advances under the Borrowing Base by the amount
of such account and repay any out-of-formula advance resulting therefrom; (e)
immediately notify Lender if any of its accounts arise out of contracts with the
United States or any department, agency or instrumentality thereof, and
-31-
execute any instruments and take any steps required by Lender in order that all
monies due and to become due under such contract shall be assigned to Lender and
notice thereof given to the Government under the Federal Assignment of Claims
Act; and (f) deliver to Lender, with appropriate endorsement or assignment, any
instrument or chattel paper representing an account or contract right. Any
permission granted to Borrowers by Lender to omit any of the requirements of
this Section 6.42 may be revoked by Lender at any time.
Borrowers will, if requested by Lender (a) give Lender assignments, in
form acceptable to Lender, of specific accounts or groups of accounts and monies
due and to become due under specific contracts and specific general intangibles;
(b) furnish to Lender a copy, with such duplicate copies as Lender may request,
of the invoice applicable to each account specifically assigned to Lender or
arising out of a contract right, bearing a statement that such account has been
assigned to Lender and such additional statements as Lender may require; (c)
xxxx its records evidencing its accounts in a manner satisfactory to Lender so
as to show which accounts have been assigned to Lender; (d) furnish to Lender
satisfactory evidence of the shipment and receipt of any goods specified by
Lender and the performance of any services or obligations covered by accounts or
contracts in which Lender has a security interest; (e) pay Lender the unpaid
portion of any account or contract right upon which Borrowers have based
availability for advances under the Borrowing Base if (i) such account is not
paid promptly after its maturity, (ii) an account debtor does not accept the
goods or services, (iii) any petition under the Bankruptcy Code or any similar
Federal or State statute is filed by or against a purchaser, or (iv) Lender
shall at any time reject the account as unsatisfactory; and until such payment
is made by Borrowers, Lender may retain any such account or contract right as
security and may charge any deposit account of any Borrower with any such
amounts; (f) join with Lender in executing a financing statement, notice,
affidavit or similar instrument, in form satisfactory to Lender, and such
continuation statements and other instruments as Lender may from time to time
request and pay the cost of filing the same in any public office deemed
advisable by Lender; (g) give Lender such financial statements, reports,
certificates, lists of purchasers (showing names, addresses, and amounts owing)
and other data concerning its accounts, contracts, collections, inventory,
general intangibles and other matters Lender may from time to time specify; (h)
segregate cash proceeds of Collateral so that they may be identified readily,
and deliver the same to the Lender at such time or times and in such manner and
form as the Lender may direct; (i) furnish such witnesses as may be necessary to
establish legal proof of the Collateral or records relating to the Collateral;
and (j) obtain from any owner, encumbrancer or other person having an interest
in the property where any Collateral is located, written consent to Lender's
removal of the Collateral therefrom, without liability on the part of Lender to
such owner, encumbrancer or other person, or from any such owner, encumbrancer
or other person such waivers of any interest in the Collateral as the Lender may
require.
6.43 Keyman Insurance. Borrowers will cause to be maintained the keyman
life insurance coverage required under Section 4.4 and will deliver to Lender
evidence of such coverage showing all premiums paid for the subsequent 12-month
period at least thirty (30) days prior to the expiration of such insurance
policy.
6.44 Interrelatedness of Borrowers. The business operations of
Borrowers and their subsidiaries are interrelated and complement one another and
such entities have a common business purpose, with intercompany bookkeeping and
accounting adjustments used to separate
-32-
their respective properties, liabilities, and transactions. To permit their
uninterrupted and continuous operations, Borrowers now require and will from
time to time hereafter require funds and credit accommodations for general
business purposes. The proceeds of Revolving Loans extended hereunder will
directly or indirectly benefit each Borrower, severally and jointly, regardless
of which Borrower requests or receives part or all of the proceeds of the
Revolving Loans.
6.45 Control. Obligors shall execute and deliver all agreements,
assignments, instruments or other documents as reasonably requested by Lender
for the purpose of obtaining and maintaining control within the meaning of the
Uniform Commercial Code with respect to any Collateral consisting of (i) deposit
accounts, (ii) investment property, (iii) letter of credit rights and (iv)
electronic chattel paper.
6.46 Commercial Tort Claims. Obligors shall (i) promptly forward to
Lender written notification of any and all commercial tort claims, including,
without limitation, any and all actions, suits and proceedings before any court
or governmental authority by or affecting any Obligor or any of its subsidiaries
and (ii) execute and deliver such statements, documents and notices and do and
cause to be done all such things as may be required by Lender or required by
law, including, without Imitation, all things which may from time to time be
necessary under the Uniform Commercial Code to fully create, preserve, perfect
and protect the priority of Lender's security interest in any commercial tort
claim.
SECTION 7. EVENTS OF DEFAULT AND REMEDIES
7.1 Events of Default. Except for Obligations arising under a swap
agreement as defined in ii U.S.C. (S) 101, if any, which shall be due at
Lender's option, all Obligations shall be immediately due and payable, without
notice or demand, and any provisions of this Agreement as to future loans and
credit accommodations by Lender shall terminate automatically, upon the
termination or non-renewal of this Agreement or upon the occurrence of an event
described in Section 7.1(h) or (I) below, or at Lender's option, upon or at any
time after the occurrence or existence of any one or more of the following
Events of Default:
(a) Any Obligor fails to pay when due any interest or principal due
on the Obligations, whether at the stated maturity, as a result of acceleration
or otherwise, or any Obligor fails to pay within five (5) business days of when
due any fees, expenses or other sums (other than principal or interest) due on
the Obligations whether at the due date therefor, or a result of acceleration or
otherwise.
(b) Any Obligor fails to perform, comply with or observe any of the
terms, covenants or agreements applicable to such Obligor under this Agreement
or of any of the other Loan Documents or any other existing or future financing,
security or other agreement between such Obligor and Lender or any affiliate of
Lender and such failure is not cured within thirty (30) days of receipt by
Borrowers of written notice of such failure; provided, however, that such notice
and opportunity to cure is expressly inapplicable to (i) any failure
constituting an Event of Default under any other subparagraph of this Section
7.1, (ii) any failure to comply with the provisions of Section 6.19 or (iii) any
failure which is incapable of cure or was willfully caused or permitted by an
Obligor.
-33-
(c) Any representation, warranty or statement of fact made by
any Obligor to Lender in this Agreement or any of the other Loan Documents or
any schedule, confirmatory assignment or otherwise, or to any affiliate of
Lender, shall prove inaccurate or misleading in any material respect.
(d) Any Obligor revokes, terminates or fails to perform any of
the terms of any guaranty, endorsement or other agreement of such party in favor
of Lender or any affiliate of Lender;
(e) Any judgment in excess of $250,000.00 is obtained against
any Obligor or one of its subsidiaries which remains unstayed for a period of
thirty (30) days; or any injunction or attachment is obtained against any
Obligor or any of their subsidiaries which remains unstayed for a period of
thirty (30) days or is enforced;
(f) Any Obligor is dissolved or terminates, fails to maintain
its separate existence or fails to remain in good standing, or the usual
business of any Obligor ceases or is suspended;
(g) Any change occurs in the senior management or ownership of
any Obligor not permitted by the terms of this Agreement;
(h) Any Obligor becomes insolvent, makes an assignment for the
benefit of creditors, makes or sends notice of a bulk transfer or calls a
general meeting of its creditors or principal creditors;
(i) Any petition or application for any relief under the
bankruptcy laws of the United States now or hereafter in effect or under any
insolvency, reorganization, receivership, readjustment of debt, dissolution or
liquidation law or statute of any jurisdiction now or hereafter in effect
(whether at law or in equity) is filed by or against any Obligor or any of its
subsidiaries;
(j) The indictment or threatened indictment of any Obligor or
any of its subsidiaries under any criminal statute, or commencement or
threatened commencement of criminal or civil proceedings against any Obligor or
any of its subsidiaries, pursuant to which statute or proceedings the penalties
or remedies sought or available include forfeiture of any of the property of any
Obligor or any of its subsidiaries;
(k) Any default or event of default occurs on the part of any
Obligor or any of its subsidiaries under any agreement, document or instrument
to which such Obligor or any such subsidiary is a party or by which such
Obligor, any of its subsidiaries or any of their respective property is bound,
creating or relating to any indebtedness of such Obligor or any of its
subsidiaries to any person or entity other than Lender in an amount exceeding
$100,000.00, if the effect of such default is to accelerate, or to permit the
acceleration of, the maturity of all or any part of such indebtedness, or all or
any part of any such indebtedness shall be declared to be due and payable or
required to be prepaid for any other reason, in either event prior to the stated
maturity thereof;
-34-
(l) Lender in good faith believes that either (i) the prospect of
payment or performance of the Obligations is impaired or (ii) the Collateral is
not sufficient to secure fully the Obligations;
(m) any material adverse change occurs in the nature or conduct of any
Obligor's business; or
(n) any covenant, agreement or obligation of any Obligor contained
herein or in any of the other Loan Documents shall cease to be enforceable in
accordance with its terms, or any Obligor denies or disaffirms any of its
obligations hereunder or thereunder or this Agreement or any of the other Loan
Documents shall be canceled, terminated, revoked or rescinded without the
express prior written consent of Lender, or any action or proceeding shall have
been commenced by any person or entity (other than Lender) seeking to cancel,
revoke, rescind or disaffirm the obligations of any party to any Loan Document,
or any court or other governmental authority shall issue a judgment, order,
decree or ruling to the effect that any of the obligations of any party to this
Agreement or any of the other Loan Documents are illegal, invalid or
unenforceable.
7.2 Remedies. Upon the occurrence of an Event of Default and at any time
thereafter, Lender shall have all rights and remedies provided in this Agreement
or any of the other Loan Documents, any other agreements between Obligors and
Lender, the Uniform Commercial Code or other applicable law, all of which rights
and remedies may be exercised without notice to Obligors, all such notices being
hereby waived, except such notice as is expressly provided for hereunder or is
not waivable under applicable law. All rights and remedies of Lender are
cumulative and not exclusive and are enforceable in Lender's discretion,
alternatively, successively, or concurrently on any one or more occasions and in
any order Lender may determine. Without limiting the foregoing, Lender may (a)
accelerate the payment of all Obligations and demand immediate payment thereof
to Lender, (b) with or without judicial process or the aid or assistance of
others, enter upon any premises on or in which any of the Collateral may be
located and take possession of the Collateral or complete processing,
manufacturing and repair of all or any portion of the Collateral, (c) require
Obligor, at Borrower's expense, to assemble and make available to Lender any
part or all of the Collateral at any place and time designated by Lender, (d)
collect, foreclose, receive, appropriate, setoff and realize upon any and all
Collateral, (e) extend the time of payment of, compromise or settle for cash,
credit, return of merchandise, and upon any terms or conditions any and all
accounts or other Collateral which includes a monetary obligation and discharge
or release the account debtor or other obligor, without affecting any of the
Obligations, or (f) sell, lease, transfer, assign, deliver or otherwise dispose
of any and all Collateral (including, without limitation, entering into
contracts with respect thereto, by public or private sales at any exchange,
broker's board, any office of Lender or elsewhere) at such prices or terms as
Lender may deem reasonable, for cash, upon credit or for future delivery, with
Lender having the right to purchase the whole or any part of the Collateral at
any such public sale, all of the foregoing being free from any right or equity
of redemption of any Obligor, which right or equity of redemption is hereby
expressly waived and released by Obligors. If any of the Collateral is sold or
leased by Lender upon credit terms or for future delivery, the Obligations shall
not be reduced as a result thereof until payment therefor is finally collected
by Lender. If notice of disposition of Collateral is required by law, seven
days' prior notice by Lender to Borrowers designating the time and
-35-
place of any public sale or the time after which any private sale or other
intended disposition of Collateral is to be made, shall be deemed to be
reasonable notice thereof and each Obligor (and any such subsidiary, if
applicable) hereby waives any other notice. Neither Lender's compliance with any
applicable state or federal law in the conduct of any sale, nor its disclaimer
of any warranties relating to the Collateral shall be considered to adversely
affect the commercial reasonableness of such sale. In the event Lender
institutes an action to recover any Collateral or seeks recovery of any
Collateral by way of prejudgment remedy, Obligors waive the posting of any bond
which might otherwise be required. Notwithstanding the foregoing to the
contrary, upon the occurrence of an Event of Default described in Section 7.1(h)
or (1), the obligation of Lender to make Loans and other extensions of credit
hereunder shall automatically terminate and, except for obligations under swap
agreements (as defined in II U.S.C. ss. 101) which shall be due at Lender's
option, the Loans and other Obligations hereunder shall become due and payable
without further act or notice.
7.3 Application of Proceeds. Lender may apply the cash proceeds of
Collateral actually received by Lender from any sale, lease, foreclosure or
other disposition of the Collateral to payment of any of the Obligations, in
whole or in part (including reasonable attorneys' fees and legal expenses
incurred by Lender with respect thereto or otherwise chargeable to Borrowers)
and in such order as Lender may elect, whether or not then due. Obligor shall
remain liable to Lender for the payment of any deficiency together with interest
at the highest rate provided for herein and all costs and expenses of collection
or enforcement, including reasonable attorneys' fees and legal expenses.
7.4 Lender's Cure of Third Party Agreement. Lender may, at its option, cure
any default by any Obligor or any of its subsidiaries under any agreement with a
third party or pay or bond on appeal any judgment entered against any Obligor or
any of its subsidiaries, discharge taxes, liens, security interests or other
encumbrances at any time levied on or existing with respect to the Collateral
and pay any amount, incur any expense or perform any act which, in Lender's sole
judgment, is necessary or appropriate to preserve, protect, insure, maintain, or
realize upon the Collateral. Lender may charge any Borrower's loan account for
any amounts so expended, such amounts to be repayable by Borrowers on demand.
Any sums not paid to Lender on demand shall bear interest at the Default Rate
until paid in full. Lender shall be under no obligation to effect such cure,
payment, bonding or discharge, and shall not, by doing so, be deemed to have
assumed any obligation or liability of Obligors.
7.5 Set-Off. Without limiting the rights of Lender under applicable law,
Lender has and may exercise a right of set-off, a lien against and a security
interest in all property of any Borrower now or at any time in Lender's
possession in any capacity whatsoever, including but not limited to any balance
of any deposit, trust or agency account, or any other bank account with Lender,
as security for all Obligations. At any time and from time to time following the
occurrence of an Event of Default, or an event which with the giving of notice
or passage of time or both would constitute an Event of Default, Lender may
without notice or demand, set off and apply any and all deposits (general or
special, time or demand, provisional or final) at any time held and other
indebtedness at any time owing by Lender to or for the credit of any Borrower
against any or all of the Obligations.
-36-
If any bank account of a Borrower with Lender is attached or otherwise liened or
levied upon by any third party, Lender need not await the running of any
applicable grace period hereunder, but Lender shall have and be deemed to have
the immediate right of set-off and may apply the funds or amount thus set-off
against the Obligations.
7.6 Delay or Omission Not Waiver. Neither the failure nor any delay on the
part of Lender to exercise any right, remedy, power or privilege hereunder or
otherwise available to Lender upon the occurrence of any Event of Default or
otherwise shall operate as a waiver thereof or impair any such right, remedy,
power or privilege. No waiver of any Event of Default shall affect any later
Event of Default or shall impair any rights of Lender. No single, partial or
full exercise of any rights, remedies, powers and privileges by the Lender shall
preclude further or other exercise thereof. No course of dealing between Lender
and any Obligor shall operate as or be deemed to constitute a waiver of Lender's
rights or affect the duties or obligations of any Obligor.
7.7 Time is of the Essence. Time is of the essence in Obligors' performance
of their obligations hereunder and under the other Loan Documents.
7.8 Waivers. In connection with any proceedings hereunder or in connection
with any of the Obligations, including without limitation any action by Lender
in replevin, foreclosure or other court process or in connection with any other
action related to the Obligations or the transactions contemplated hereunder,
Obligors waive:
(a) all procedural errors, defects and imperfections in such
proceedings;
(b) all benefits under any present or future laws exempting any
property, real or personal, or any part of any proceeds thereof from attachment,
levy or sale under execution, or providing for any stay of execution to be
issued on any judgment recovered under any of the Loan Documents or in any
replevin or foreclosure proceeding, or otherwise providing for any valuation,
appraisal or exemption;
(c) all rights to inquisition on any real estate, which real estate may
be levied upon pursuant to a judgment obtained under any of the Loan Documents
and sold upon any writ of execution issued thereon in whole or in part, in any
order desired by Lender;
(d) presentment for payment, demand, notice of demand, notice of
nonpayment, protest and notice of protest of any of the Loan Documents,
including the Promissory Note and Surety Agreement;
(e) any requirement for bonds, security or sureties required by
statute, court rule or otherwise;
(f) any demand for possession of Collateral prior to commencement of
any suit; and
(g) all rights to claim or recover attorney's fees and costs in the
event that any Obligor is successful in any action to remove, suspend or enforce
a judgment entered by confession.
-37-
7.9 Forbearance. Lender may release, compromise, forbear with respect to,
waive, suspend, extend or renew any of the terms of the Loan Documents, without
notice to any Obligor.
7.10 Limitation on Liability. Obligors shall be responsible for and Lender
is hereby released from any claim or liability in connection with:
(a) Safekeeping any Collateral;
(b) Any loss or damage to any Collateral;
(c) Any diminution in value of the Collateral; or
(d) Any act or default of another person or entity.
Lender shall only be liable for any act or omission on its part constituting
willful misconduct or gross negligence. In the event that Lender breaches its
required standard of conduct, Obligors agree that Lender's liability shall be
only for direct damages suffered and shall not extend to consequential or
incidental damages. In the event any Obligor brings suit against Lender in
connection with the transactions contemplated hereunder and Lender is found not
to be liable, Obligors will indemnify and hold Lender harmless from all costs
and expenses, including attorney's fees, incurred by Lender in connection with
such suit. This Agreement is not intended to obligate Lender to take any action
with respect to the Collateral or to incur expenses or perform any obligation or
duty of any Obligor.
SECTION 8.JURY TRIAL WAIVER; CERTAIN OTHER WAIVERS AND CONSENTS
8.1 JURY TRIAL WAIVER. OBLIGORS AND LENDER EACH WAIVE ALL RIGHTS TO TRIAL
BY JURY IN ANY ACTION OR PROCEEDING INSTITUTED BY ANY OF THEM AGAINST THE OTHER
WHICH PERTAINS DIRECTLY OR INDIRECTLY TO THIS AGREEMENT, THE OBLIGATIONS, THE
COLLATERAL, ANY ALLEGED TORTIOUS CONDUCT BY ANY OBLIGOR OR LENDER, OR WHICH IN
ANY WAY, DIRECTLY OR INDIRECTLY, ARISES OUT OF OR RELATES TO THE RELATIONSHIP
BETWEEN BORROWER AND LENDER. IN NO EVENT WILL LENDER BE LIABLE FOR LOST PROFITS
OR OTHER SPECIAL OR CONSEQUENTIAL DAMAGES.
8.2 Counterclaims. Each Obligor waives all rights to interpose any claims,
deductions, setoff or counterclaims of any kind, nature or description in any
action or proceeding instituted by Lender with respect to this Agreement, the
Obligations, the Collateral or any matter arising therefrom or relating thereto,
except compulsory counterclaims.
8.3 Jurisdiction. Each Obligor hereby irrevocably submits and consents to
the nonexclusive jurisdiction of the State and Federal Courts located in the
Commonwealth of Pennsylvania and any other State where any Collateral is located
with respect to any action or proceeding arising out of this Agreement, the
Obligations, the Collateral or any matter arising therefrom or relating thereto.
In any such action or proceeding, each Obligor waives personal service of the
summons and complaint or other process and papers therein and agrees that the
service thereof may be made by mail directed to Borrowers at its chief executive
office set forth
-38-
herein or other address thereof of which Lender has received notice as provided
herein, service to be deemed complete five (5) days after mailing, or as
permitted under the rules of either of said Courts. Any such action or
proceeding commenced by any Obligor against Lender will be litigated only in a
Federal Court located in the district, or a State Court in the State and County,
in which the office of Lender designated in Section 10.3(a) is located and each
Obligor waives any objection based on forum non conveniens and any objection to
venue in connection therewith.
8.4 No Waiver by Lender. Lender shall not, by any act, delay, omission or
otherwise be deemed to have expressly or impliedly waived any of its rights or
remedies unless such waiver shall be in writing and signed by an authorized
officer of Lender. A waiver by Lender of any right or remedy on any one occasion
shall not be construed as a bar to or waiver of any such right or remedy which
Lender would otherwise have on any future occasion, whether similar in kind or
otherwise.
SECTION 9. TERM OF AGREEMENT; MISCELLANEOUS
9.1 Term. This Agreement shall only become effective upon execution and
delivery by Borrowers, Guarantor and Lender and shall continue in full force and
effect for a term set forth in Section 10.5 from the date hereof (the "Term" ),
unless extended by notice or agreement signed by Lender.
9.2 Additional Cash Collateral. Upon termination of this Agreement by
Borrowers, as permitted herein, in addition to payment of all Obligations which
are not contingent, Borrowers shall deposit such amount of cash collateral as
Lender determines is necessary to secure Lender from loss, cost, damage or
expense, including reasonable attorneys' fees, in connection with any Letters of
Credit or remittance items or other payments provisionally credited to the
Obligations and/or to which Lender has not yet received final and indefeasible
9.3 Notices. Except as otherwise provided, all notices, requests and
demands hereunder shall be (a) made to Lender at its address set forth in
Section 10.3(a) and to Borrowers do Guarantor at its chief executive office set
forth-in Section 10.3(b), or to such other address as either party may designate
by written notice to the other in accordance with this provision, and (b) deemed
to have been given or made: if by hand, immediately upon delivery, if by telex,
telegram or telecopy (fax), immediately upon receipt; if by overnight delivery
service, one day after dispatch; and if by first class or certified mail, three
days after mailing.
9.4 Severability. If any provision of this Agreement is held to be invalid
or unenforceable, such provision shall not affect this Agreement as a whole, but
this Agreement shall be construed as though it did not contain the particular
provision held to be invalid or unenforceable.
9.5 Entire Agreement; Amendments; Assignments. This Agreement and the Loan
Documents contain the entire agreement of the parties as to the subject matter
hereof, all prior commitments, proposals and negotiations concerning the subject
matter hereof being merged herein. Neither this Agreement nor any provision
hereof shall be amended, modified or discharged orally or by course of conduct,
but only by a written agreement signed by an
-39-
authorized officer of Lender. This Agreement shall be binding upon and inure to
the benefit of each of the parties hereto and their respective successors and
assigns, except that any obligation of Lender under this Agreement shall not be
assignable nor inure to the successors and assigns of any Obligor.
9.6 Discharge of Borrowers. No termination of this Agreement shall relieve
or discharge Borrowers of their Obligations, grants of Collateral, duties and
covenants hereunder or otherwise until such time as all Obligations to Lender
have been indefeasibly terminated, paid and satisfied in full, including,
without limitation, the continuation and survival in full force and effect of
all security interests and liens of Lender in and upon all then existing and
thereafter arising or acquired Collateral and all warranties and waivers of
Borrower.
9.7 Usage. All terms used herein which are defined in the Uniform
Commercial Code shall have the meanings given therein unless otherwise defined
in this Agreement and all references to the singular or plural herein shall also
mean the plural or singular, respectively.
9.8 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of Pennsylvania. References herein
to the "Uniform Commercial Code" shall, unless otherwise provided herein, refer
to the Uniform Commercial Code in effect in such Commonwealth.
9.9 Assignment or Sale by Lender. Lender may sell, assign or participate
all or a portion of its interest in the Loans and the Loan Documents and in
connection therewith may make available to any prospective purchaser, assignee
or participant any information relative to any Obligor in its possession.
9.10 Holidays. If the day provided herein for the payment of any amount or
the taking of any action falls on a Saturday, Sunday or public holiday at the
place for payment or action, then the due date for such payment or action will
be the next succeeding Business Day.
9.11 Integration. This Agreement and the Loan Documents shall be construed
as integrated and complementary of each other, and as augmenting and not
restricting Lender's rights, powers, remedies and security. In the event of any
inconsistency between the terms of this Agreement and the terms of the other
Loan Documents, the terms of this Agreement shall prevail.
9.12 Exhibits and Schedules. All exhibits and schedules attached hereto are
hereby made a part of this Agreement.
9.13 Headings. The headings of the Articles, Sections, paragraphs and
clauses of this Agreement are inserted for convenience only and shall not be
deemed to constitute a part of this Agreement.
9.14 Counterparts. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument, and any of the parties hereto may execute this Agreement by signing
any such counterpart.
-40-
9.15 Joint Liability. Borrowers expressly acknowledge and agree that all
agreements, conditions, covenants, liabilities and provisions of the Loan
Documents shall be the joint and several obligation of each Borrower.
SECTION 10. ADDITIONAL DEFINITIONS AND TERMS
10.1 Borrowing Terms.
(a) Maximum Revolving Credit: $20,000,000.00
(b) Borrowing Base Formulas:
Eligible Accounts Percentage Up to 85%
Eligible Inventory Percentages:
Finished Goods Up to 60%*
Raw Materials and Component Inventory Up to 30%
* Such 60% advance rate shall increase to up to 70% (as determined by Lender) at
such time as Lender has received, at Borrowers' expense, an appraisal of
Borrowers' inventory prepared by an appraiser acceptable to Lender and on terms
and conditions acceptable to Lender, and such appraisal establishes a value for
such inventory which supports, in Lender's reasonable discretion, an increased
advance rate. Maintenance of any such increased advanced rate shall be subject
to Lender's receipt, from time to time, at Borrowers' expense, of subsequent
inventory appraisals to confirm values acceptable to Lender and upon Borrowers'
agreement to deliver financial or operating reports in addition to those
required under Section 6.10 above, and/or to deliver the items required under
Section 6.10 above more frequently than currently provided in such Section.
(c) Inventory Sublimits:
(i) Total Eligible Inventory $9,000,000.00
(ii) In-transit Eligible Inventory (which satisfies the $2,000,000.00 during
criteria therefor established in Section 2.1(d)) December through July;
$3,500,000 during August
through November
(iii) Component Inventory $1,500,000.00
(iv) Non-food, non-gift, imported inventory $2,000,000.00
(d) Maximum days after invoice date for Eligible Accounts: 120 for "datings"; 90 for
all other accounts
(e) Maximum days after due date for Eligible Accounts: 30 for "datings"; 60 for
all other accounts
-41-
10.2 Letters of Credit:
(a) Commercial Letters of Credit Charge: 1.25% per annum on daily
outstanding balance
(b) Sublimit for Letters of Credit: $2,000,000.00
10.3 Addresses.
(a) Lender's Xxxxxx 0000 Xxxxxxxx Xxxxxx, 0xx Xxxxx
Xxxxxxx Xxxxxxxx
Xxxxxxxxxxxx, XX 00000
Attention: Xxxxxx Xxxxxxxxxx, Vice President
Fax No. (000) 000-0000
(b) Obligors' Chief 0000 Xxxxxxxx Xxxx., Xxxxx 000
Executive Office: Xxxxxxxxx, XX 00000
Attention: Xxxx Xxxxxxxx, Vice President-Finance
Fax No. (000) 000-0000
(c) Locations of Inventory Collateral: See Schedule E
(d) Obligors' Other Offices and Locations of Collateral: See Schedule
F
(e) Borrowers' Trade Names for Invoicing: See Schedule G
(f) Borrowers' Operating Account: 2040000037536
10.4 Term: 3 Years (Terminating on June 12, 2004)
10.5 Interest/Fees:
(a) The Applicable Percentage for purposes of calculating the
applicable interest rate for any day for any Loan shall be determined in
accordance with the following chart and based on EBITDA (as defined in Section
6.19 and determined as of the end of the most recently ended fiscal quarter for
the 12 month period then ended) on the date the Applicable Percentage is to be
determined:
LIBOR Market Rate
EBITDA Base Rate Loan Eurodollar Loan Loan
---------------------------------------- ---------------- ---------------- ------------------
***$4,500,000.00 .25% 2.35% 2.35%
**$4,500,000.00 and .25% 2.15% 2.15%
***$7,000,000.00
***$7,000,000.00 .25% 1.85% 1.85%
*$7,000,000.00
__________________
* Less than.
** Is greater than.
*** Less than or equal to.
-42-
Until Lender's receipt of Borrowers' Quarterly Statements for the quarter ending
April 30, 2001, each Applicable Percentage shall be determined assuming that
EBITDA is * $4,500,000.00
(b) Clearance: One Business Day
(c) Closing Fee: $50,000.00
(d) Unused Line Fee: .375% on the unused line up to
$15,000,000; plus .25% for the
unused line between $15,000,000
and $20,000,000 (as further
described in Section 3.3)
(e) Field Examination Fee: $650 per person per day (plus
expenses)
(f) Servicing Fee $500 per month (payable in
advance)
10.6 "Loan Documents" means this Agreement, the Promissory Note,
the Surety Agreement and all security agreements, pledges, assignments and other
documents at any time executed or delivered by an Obligor pursuant to or in
connection with this Agreement, as any of them may be amended, modified,
restated or replaced from time to time.
10.7 "Obligors" means, collectively, Borrowers, Guarantor and any
other person or entity which now or hereafter guarantees or becomes liable,
directly or indirectly, for any of the Obligations or which pledges, grants or
provides any Collateral for any of the Obligations, and "Obligor" means each of
them.
IN WITNESS WHEREOF, Borrowers, Guarantor and Lender have duly
executed this Agreement as of the 12th day of June, 2001.
LENDER: BORROWERS
FIRST UNION NATIONAL BANK SHERWOOD BRANDS OF VIRGINIA, LLC,
a Virginia limited liability company
By: /s/ Xxxxxx X. Xxxxx By: SHERWOOD BRANDS, INC., Sole Member
----------------------------------
Xxxxxx X. Xxxxx, Vice President
By: /s/ Xxxx Xxxxxxxx
------------------------------
Xxxx Xxxxxxxx, Executive Vice
President
________________
* Less than
-43-
SHERWOOD BRANDS, LLC, a Maryland
limited liability company
By: SHERWOOD BRANDS, INC., Sole Member
By: /s/ Xxxx Xxxxxxxx
------------------------------
Xxxx Xxxxxxxx, Executive Vice
President
SHERWOOD BRANDS OF RI, INC.
By: /s/ Xxxx Xxxxxxxx
----------------------------
Xxxx Xxxxxxxx, Executive Vice
President
GUARANTOR:
SHERWOOD BRANDS, INC.
By: /s/ Xxxx Xxxxxxxx
----------------------------
Xxxx Xxxxxxxx, Executive Vice
President
-44-
