Exhibit 10.40
Loan and Security Agreement
by and between
CONGRESS FINANCIAL CORPORATION (CENTRAL)
as Lender
and
TEARDROP GOLF COMPANY
as Borrower
Dated: January 20, 2000
TABLE OF CONTENTS
Page
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SECTION 1 DEFINITIONS......................................................1
SECTION 2 CREDIT FACILITIES...............................................10
2.1 Revolving Loans.................................................10
2.2 Letter of Credit Accommodations.................................11
2.3 Term Loan.......................................................13
2.4 Availability Reserves...........................................14
2.5 Acceptances.....................................................14
SECTION 3 INTEREST AND FEES...............................................17
3.1 Interest........................................................17
3.2 Closing Fee.....................................................17
3.3 Unused Line Fee.................................................17
SECTION 4 CONDITIONS PRECEDENT............................................18
4.1 Conditions Precedent to Initial Loans and Letter of Credit
Accommodations..................................................18
4.2 Conditions Precedent to All Loans, Letter of Credit
Accommodations and Acceptances..................................20
SECTION 5 GRANT OF SECURITY INTEREST......................................21
SECTION 6 COLLECTION AND ADMINISTRATION...................................22
6.1 Borrower's Loan Account.........................................22
6.2 Statements......................................................22
6.3 Collection of Accounts..........................................22
6.4 Payments........................................................23
6.5 Authorization to Make Loans.....................................24
6.6 Use of Proceeds.................................................24
SECTION 7 COLLATERAL REPORTING AND COVENANTS..............................24
7.1 Collateral Reporting............................................24
7.2 Accounts Covenants..............................................25
7.3 Inventory Covenants.............................................26
7.4 Equipment Covenants.............................................27
7.5 Power of Attorney...............................................28
7.6 Right to Cure...................................................28
7.7 Access to Premises..............................................28
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SECTION 8 REPRESENTATIONS AND WARRANTIES..................................29
8.1 Corporate Existence, Power and Authority; Subsidiaries..........29
8.2 Financial Statements; No Material Adverse Change................29
8.3 Chief Executive Office; Collateral Locations....................30
8.4 Priority of Liens; Title to Properties..........................30
8.5 Tax Returns.....................................................30
8.6 Litigation......................................................30
8.7 Compliance with Other Agreements and Applicable Laws............30
8.8 Bank Accounts...................................................31
8.9 Solvency........................................................31
8.10 Year 2000 Representations.......................................31
8.11 [Intentionally Deleted].........................................31
8.12 Employee Benefits...............................................31
8.13 Environmental Compliance........................................32
8.14 Accuracy and Completeness of Information........................33
8.15 Survival of Warranties; Cumulative..............................33
SECTION 9 AFFIRMATIVE AND NEGATIVE COVENANTS..............................33
9.1 Maintenance of Existence........................................33
9.2 New Collateral Locations........................................34
9.3 Compliance with Laws, Regulations, Etc..........................34
9.4 Payment of Taxes and Claims.....................................35
9.5 Insurance.......................................................35
9.6 Financial Statements and Other Information......................36
9.7 Sale of Assets, Consolidation, Merger, Dissolution, Etc.........37
9.8 Encumbrances....................................................37
9.9 Indebtedness....................................................38
9.10 Loans, Investments, Guarantees, Etc.............................38
9.11 Dividends and Redemptions.......................................39
9.12 Transactions with Affiliates....................................39
9.13 Additional Bank Accounts........................................39
9.14 [Intentionally Deleted].........................................40
9.15 [Intentionally Deleted].........................................40
9.16 Costs and Expenses..............................................40
9.17 Further Assurances..............................................40
9.18 Year 2000 Covenant..............................................41
9.19 Compliance with ERISA...........................................41
9.20 Customs, Duty and Freight.......................................41
9.21 In-Transit Inventory............................................42
9.22 Booking of In-Transit Inventory and Related Liabilities.........42
9.23 Transporter Agreements..........................................42
9.24 Subsidiary Business Activities..................................42
9.25 Illinois Qualification..........................................42
9.26 Accounts Payable................................................42
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9.27 Canadian Operations.............................................42
9.28 Intellectual Property...........................................43
SECTION 10 EVENTS OF DEFAULT AND REMEDIES................................43
10.1 Events of Default...............................................43
10.2 Remedies........................................................45
10.3 ................................................................46
SECTION 11 JURY TRIAL WAIVER; OTHER WAIVERS AND CONSENTS; GOVERNING LAW.....46
11.1 Governing Law; Choice of Forum; Service of Process; Jury Trial
Waiver..........................................................46
11.2 Waiver of Notices...............................................48
11.3 Amendments and Waivers..........................................48
11.4 Waiver of Counterclaims.........................................48
11.5 Indemnification.................................................48
SECTION 12 TERM OF AGREEMENT; MISCELLANEOUS..............................49
12.1 Term............................................................49
12.2 Notices.........................................................50
12.3 Partial Invalidity..............................................50
12.4 Successors......................................................50
12.5 Entire Agreement................................................51
12.6 Participant's Security Interest.................................51
12.7 Restatement of Assignment Documents.............................51
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INDEX TO
EXHIBITS AND SCHEDULES
Exhibit A Information Certificate
Exhibit 4.1 Closing Checklist
Schedule 8.1 Foreign Qualification
Schedule 8.3 Collateral Locations
Schedule 8.4 Existing Liens
Schedule 8.7 Defaults
Schedule 8.8 Bank Accounts
Schedule 8.13 Environmental Matters
Schedule 9.9 Existing Indebtedness
Schedule 9.10 Existing Loans, Advances and Guarantees
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LOAN AND SECURITY AGREEMENT
This Loan and Security Agreement dated January 20, 2000 is entered into by
and between Congress Financial Corporation (Central), an Illinois corporation
("Lender"), and TearDrop Golf Company, a Delaware corporation ("Borrower").
W I T N E S S E T H:
WHEREAS, Borrower has requested that Lender enter into certain financing
arrangements with Borrower pursuant to which Lender may make loans and provide
other financial accommodations to Borrower; and
WHEREAS, Lender is willing to make such loans and provide such financial
accommodations on the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the mutual conditions and agreements
set forth herein, and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
SECTION 1 DEFINITIONS
All terms used herein which are defined in Article 1 or Article 9 of the
Uniform Commercial Code shall have the meanings given therein unless otherwise
defined in this Agreement. All references to the plural herein shall also mean
the singular and to the singular shall also mean the plural unless the context
otherwise requires. All references to Borrower and Lender pursuant to the
definitions set forth in the recitals hereto, or to any other person herein,
shall include their respective successors and assigns. The words "hereof",
"herein", "hereunder", "this Agreement" and words of similar import when used in
this Agreement shall refer to this Agreement as a whole and not any particular
provision of this Agreement and as this Agreement now exists or may hereafter be
amended, modified, supplemented, extended, renewed, restated or replaced. The
word "including" when used in this Agreement shall mean "including, without
limitation". An Event of Default shall exist or continue or be continuing until
such Event of Default is waived in accordance with Section 11.3 hereof or is
cured in a manner satisfactory to Lender, if such Event of Default is capable of
being cured as determined by Lender. Any accounting term used herein unless
otherwise defined in this Agreement shall have the meanings customarily given to
such term in accordance with GAAP. For purposes of this Agreement, the following
terms shall have the respective meanings given to them below:
1.1 "Acceptance" shall mean a time draft (including, without limitation,
any banker's acceptance or xxxx or letter of exchange) naming Borrower or First
Union National Bank as drawee which is used to finance the purchase by Borrower
of In-Transit Inventory and which has been accepted by Lender, on behalf of
Borrower or First Union National Bank, pursuant to the terms hereof and the
Documentation Agent Agreement.
1.2 "Acceptance Reserve" shall mean, at any time, a reserve against
Revolving Loans in an amount equal to one hundred percent (100%) of the
outstanding amount (including principal, interest and fees) on all Acceptances.
1.3 "Accounts" shall mean all present and future rights of Borrower to
payment for goods sold or leased or for services rendered, which are not
evidenced by instruments or chattel paper, and whether or not earned by
performance.
1.4 "Availability Reserves" shall mean, as of any date of determination,
the Acceptance Reserve, the In-Transit Reserve, the Trade Reserve and such other
amounts as Lender may from time to time establish and revise in good faith
reducing the amount of Revolving Loans, Acceptances and Letter of Credit
Accommodations which would otherwise be available to Borrower under the lending
formula(s) provided for herein: (a) to reflect events, conditions, contingencies
or risks not otherwise adjusted for by the Dilution Reserve, In-Transit Reserve
or Trade Reserve which, as determined by Lender in good faith, do or may affect
either (i) the Collateral or any other property which is security for the
Obligations or its value, (ii) the assets, business or prospects of Borrower or
any Obligor or (iii) the security interests and other rights of Lender in the
Collateral (including the enforceability, perfection and priority thereof) or
(b) to reflect Lender's good faith belief that any collateral report or
financial information furnished by or on behalf of Borrower or any Obligor to
Lender is or may have been incomplete, inaccurate or misleading in any material
respect or (c) to reflect outstanding Letter of Credit Accommodations and
Acceptances as provided in Sections 2.2 and 2.5 hereof or (d) in respect of any
state of facts which Lender determines in good faith constitutes an Event of
Default or may, with notice or passage of time or both, constitute an Event of
Default.
1.5 "Blocked Accounts" shall have the meaning set forth in Section 6.3
hereof.
1.6 "Carrier Letter" shall mean a letter agreement executed by a common
carrier of Borrower's Inventory in favor of and in form and substance acceptable
to Lender prohibiting such carrier from diverting such Inventory and waiving
such carrier's offset rights against such Inventory.
1.7 "Collateral" shall have the meaning set forth in Section 5 hereof.
1.8 "Dilution Reserve" shall mean an amount, calculated for each month as
of the last business day of the prior month, equal to the product of (a) the
gross amount of all Accounts of Borrower as of the last business day of such
prior month and (b) the amount (expressed as a percentage), if any, by which all
write-offs, returns, offsets and other non-cash reductions in Borrower's
Accounts for the 12 month period then ended expressed as a percentage of sales
for such period exceeds twenty percent (20%), as determined by Lender using its
customary auditing procedures. For administrative convenience, Lender may elect
to determine the amount of the Dilution Reserve by making estimates based on
what Lender reasonably believes to be the most accurate financial information
which is available to Lender if reliable data for the date in question is not
available.
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1.9 "Documentation Agent Agreement" shall mean that certain Documentation
Agent Agreement dated as of the date hereof among Borrower, Lender and First
Union National Bank with respect to Qualifying Bills of Lading.
1.10 "Eligible Accounts" shall mean Accounts created by Borrower which are
and continue to be acceptable to Lender based on the criteria set forth below.
In general, Accounts shall be Eligible Accounts if:
(a) such Accounts arise from the actual and bona fide sale and
delivery of goods by Borrower or rendition of services by Borrower in the
ordinary course of its business which transactions are completed in accordance
with the terms and provisions contained in any documents related thereto;
(b) such Accounts are not unpaid more than sixty (60) days after the
date due or one hundred twenty (120) days after the date of the original invoice
for them;
(c) such Accounts comply with the terms and conditions contained in
Section 7.2(c) of this Agreement;
(d) such Accounts do not arise from sales on consignment, guaranteed
sale, sale and return, sale on approval, or other terms under which payment by
the account debtor may be conditional or contingent;
(e) the chief executive office of the account debtor with respect to
such Accounts is located in the United States of America or Canada, or, at
Lender's option, if either: (i) the account debtor has delivered to Borrower an
irrevocable letter of credit issued or confirmed by a bank satisfactory to
Lender and payable only in the United States of America and in U.S. dollars,
sufficient to cover such Account, in form and substance satisfactory to Lender
and, if required by Lender, the original of such letter of credit has been
delivered to Lender or Lender's agent and the issuer thereof notified of the
assignment of the proceeds of such letter of credit to Lender, or (ii) such
Account is subject to credit insurance payable to Lender issued by an insurer
and on terms and in an amount acceptable to Lender, or (iii) such Account is
otherwise acceptable in all respects to Lender (subject to such lending formula
with respect thereto as Lender may determine);
(f) such Accounts do not consist of progress xxxxxxxx, xxxx and hold
invoices or retainage invoices, except as to xxxx and hold invoices, if Lender
shall have received an agreement in writing from the account debtor, in form and
substance satisfactory to Lender, confirming the unconditional obligation of the
account debtor to take the goods related thereto and pay such invoice;
(g) the account debtor with respect to such Accounts has not
asserted a counterclaim, defense or dispute and does not have, and does not
engage in transactions which may give rise to, any right of setoff against such
Accounts (but the portion of the Accounts of such account debtor in excess of
the amount at any time and from time to
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time owed by Borrower to such account debtor or claimed owed by such account
debtor may be deemed Eligible Accounts);
(h) there are no facts, events or occurrences which would impair the
validity, enforceability or collectability of such Accounts or reduce the amount
payable or delay payment thereunder;
(i) such Accounts are subject to the first priority, valid and
perfected security interest of Lender and any goods giving rise thereto are not,
and were not at the time of the sale thereof, subject to any liens except those
permitted in this Agreement;
(j) neither the account debtor nor any officer or employee of the
account debtor with respect to such Accounts is an officer, employee or agent of
or affiliated with Borrower directly or indirectly by virtue of family
membership, ownership, control, management or otherwise;
(k) the account debtors with respect to such Accounts are not any
foreign government, the United States of America, any State, political
subdivision, department, agency or instrumentality thereof, unless, if the
account debtor is the United States of America, any State, political
subdivision, department, agency or instrumentality thereof, upon Lender's
request, the Federal Assignment of Claims Act of 1940, as amended or any similar
State or local law, if applicable, has been complied with in a manner
satisfactory to Lender;
(l) there are no proceedings or actions which are threatened or
pending against the account debtors with respect to such Accounts which might
result in any material adverse change in any such account debtor's financial
condition;
(m) such Accounts of a single account debtor or its affiliates do
not constitute more than fifteen percent (15%) of all otherwise Eligible
Accounts (but the portion of the Accounts not in excess of such percentage may
be deemed Eligible Accounts);
(n) such Accounts are not owed by an account debtor who has Accounts
unpaid more than one hundred twenty (120) days after the date of the original
invoice for them which constitute more than fifty percent (50%) of the total
Accounts of such account debtor;
(o) such Accounts are owed by account debtors whose total
indebtedness to Borrower does not exceed the credit limit with respect to such
account debtors as determined by Lender from time to time (but the portion of
the Accounts not in excess of such credit limit may be deemed Eligible
Accounts); and
(p) such Accounts are owed by account debtors deemed creditworthy at
all times by Lender, as determined by Lender.
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General criteria for Eligible Accounts may be established and revised from time
to time by Lender in good faith. Any Accounts which are not Eligible Accounts
shall nevertheless be part of the Collateral.
1.11 "Eligible Inventory" shall mean Inventory (including In-Transit
Inventory) consisting of finished goods held for resale in the ordinary course
of the business of Borrower and raw materials for such finished goods which are
acceptable to Lender based on the criteria set forth below. In general, Eligible
Inventory shall not include (a) work-in-process; (b) components which are not
part of finished goods; (c) spare parts for equipment; (d) packaging and
shipping materials; (e) supplies used or consumed in Borrower's business; (f)
Inventory (other than In-Transit Inventory) at premises other than those owned
and controlled by Borrower, except if Lender shall have received an agreement in
writing from the person in possession of such Inventory and/or the owner or
operator of such premises in form and substance satisfactory to Lender
acknowledging Lender's first priority security interest in the Inventory,
waiving security interests and claims by such person against the Inventory and
permitting Lender access to, and the right to remain on, the premises so as to
exercise Lender's rights and remedies and otherwise deal with the Collateral;
(g) Inventory subject to a security interest or lien in favor of any person
other than Lender except those permitted in this Agreement; (h) xxxx and hold
goods; (i) unserviceable, obsolete or slow moving Inventory; (j) Inventory which
is not subject to the first priority, valid and perfected security interest of
Lender; (k) returned, damaged and/or defective Inventory; and (l) Inventory
purchased or sold on consignment. General criteria for Eligible Inventory may be
established and revised from time to time by Lender in good faith. Any Inventory
which is not Eligible Inventory shall nevertheless be part of the Collateral.
1.12 "Environmental Laws" shall mean all foreign, Federal, State and local
laws (including common law), legislation, rules, codes, licenses, permits
(including any conditions imposed therein), authorizations, judicial or
administrative decisions, injunctions or agreements between Borrower and any
governmental authority, (a) relating to pollution and the protection
preservations or restoration of the environment (including air, water vapor,
surface water, ground water, drinking water, drinking water supply, surface
land, subsurface land, plant and animal life or any other natural resource), or
to human health or safety, (b) relating to the exposure to, or the use, storage,
recycling, treatment, generation, manufacture, processing, distribution ,
transportation, handling, labeling, production, release or disposal, or
threatened release, of Hazardous Materials, or (c) relating to all laws with
regard to recordkeeping, notification, disclosure and reporting requirements
respecting Hazardous Materials. The term "Environmental Laws" includes (i) the
Federal Comprehensive Environmental Response, Compensation and Liability Act of
1980, the Federal Superfund Amendments and Reauthorization Act, the Federal
Water Pollution Control Act of 1972, the Federal Clean Water Act, the Federal
Clean Air Act, the Federal Resource Conservation and Recovery Act of 1976
(including the Hazardous and the Solid Waste Amendments thereto), the Federal
Solid Waste Disposal and the Federal Toxic Substances Control Act, the Federal
Insecticide, Fungicide and Rodenticide Act, and the Federal Safe Drinking Water
Act of 1974, (ii) applicable state counterparts to such laws, and (iii) any
common law or equitable doctrine that may impose liability or obligations for
injuries or documents, certificates and instruments now or at any time hereafter
executed and/or delivered
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by Borrower or any Obligor in connection with this Agreement, as the same now
exist or may hereafter be amended, modified, supplemented, extended, renewed,
restated or replaced.
1.13 "Equipment" shall mean all of Borrower's now owned and hereafter
acquired equipment, machinery, computers and computer hardware and software
(whether owned or licensed), vehicles, tools, furniture, fixtures, all
attachments, accessions and property now or hereafter affixed thereto or used in
connection therewith, and substitutions and replacements thereof, wherever
located.
1.14 "ERISA" shall mean the United States Employee Retirement Income
Security Act of 1974, as the same now exists or may hereafter from time to time
be amended, modified, recodified or supplemented, together with all rules,
regulations and interpretations thereunder or related thereto.
1.15 "ERISA Affiliate" shall mean any person required to be aggregated
with Borrower or any of its Subsidiaries under Sections 414(b), 414(c), 414(m)
or 414(o) of the Code.
1.16 "Excess Availability" shall mean the amount, as determined by Lender,
calculated at any time, equal to: (a) the lesser of: (i) the amount of the
Revolving Loans available to Borrower as of such time based on the applicable
lending formulas under Section 2.1, and (ii) the Maximum Credit (less the then
outstanding principal amount of the Term Loans), minus (b) the sum of: (i) the
amount of all then outstanding and unpaid Obligations (but not including for
this purpose the then outstanding principal amount of the Term Loans), plus (ii)
the aggregate amount of all then outstanding and unpaid trade payables of
Borrower which are more than ninety (90) days past due as of such time, plus
(iii) the amount of checks issued by Borrower to pay trade payables, but not yet
sent and the book overdraft of Borrower, plus (iv) any taxes due and unpaid.
1.17 "Event of Default" shall mean the occurrence or existence of any
event or condition described in Section 10.1 hereof.
1.18 "Financing Agreements" shall mean, collectively, this Agreement and
all notes, guarantees, security agreements, pledge agreements, the Mortgage,
subordination agreements and other agreements, documents, certificates and
instruments now or at any time hereafter executed and/or delivered by Borrower
or any Obligor in connection with this Agreement (including those listed on
Exhibit 4.1 hereto), as the same now exist or may hereafter be amended,
modified, supplemented, extended, renewed, restated or replaced.
1.19 "GAAP" shall mean generally accepted accounting principles in the
United States of America as in effect from time to time as set forth in the
opinions and pronouncements of the Accounting Principles Board and the American
Institute of Certified Public Accountants and the statements and pronouncements
of the Financial Accounting Standards Board which are applicable to the
circumstances as of the date of determination consistently applied.
1.20 "Hazardous Materials" shall mean any hazardous, toxic or dangerous
substances, materials and wastes, including hydrocarbons (including naturally
occurring or man-made
6
petroleum and hydrocarbons), flammable explosives, asbestos, urea formaldehyde
insulation radioactive materials, biological substances, polychlorinated
biphenyls, pesticides, herbicides and any other kind and/or type of pollutants
or contaminants (including materials which include hazardous constituents),
sewage, sludge, industrial slag, solvents and/or any other similar substances,
materials, or wastes and including any other substances, materials or wastes
that are or become regulated under any Environmental Law (including any that are
or become classified as hazardous or toxic under any Environmental Law).
1.21 "Information Certificate" shall mean the Information Certificate of
Borrower constituting Exhibit A hereto containing material information with
respect to Borrower, its business and assets provided by or on behalf of
Borrower to Lender in connection with the preparation of this Agreement and the
other Financing Agreements and the financing arrangements provided for herein.
1.22 "In-Transit Inventory" shall mean Eligible Inventory which consists
of first quality raw materials of the type normally used for the production of
Borrower's Eligible Inventory consisting of finished goods which are currently
in-transit to Borrower from a supplier thereof and (I) if located outside the
United States, are (a) either evidenced by a Qualifying Xxxx of Lading or to be
acquired by Borrower from a supplier to which a Letter of Credit Accommodation
has been issued for the full purchase price thereof which contains as a
condition to drawing thereunder the presentation of a Qualifying Xxxx of Lading,
(b) fully insured in-transit against such risks (including war risks) and
pursuant to such terms and conditions and in such amounts as Lender may deem
appropriate which insurance shall name Lender loss payee thereunder and (c)
subject to agreements from Borrower's customs agents, freight forwarders and/or
documentation agents as Lender shall require, in form and substance satisfactory
to Lender; or (II) if located in the United States, are (a) under the control of
a common carrier which has executed a Carrier Letter and/or (b) evidenced by
bills of lading or other documents of title issued by a common carrier in
non-negotiable form in the name of Borrower and (c) fully insured in-transit
against such risks and pursuant to such terms and conditions and in such amounts
as Lender may deem appropriate which insurance shall name Lender loss payee
thereunder.
1.23 "In-Transit Reserve" means a reserve against Revolving Loans in an
amount determined by Lender in its discretion to reflect the estimated costs
relating to unpaid freight charges, warehousing or storage charges, taxes,
duties and other similar unpaid costs associated with the acquisition or
transportation of In-Transit Inventory.
1.24 "Inventory" shall mean all of Borrower's now owned and hereafter
existing or acquired raw materials, work in process, finished goods and all
other inventory of whatsoever kind or nature, wherever located.
1.25 "Letter of Credit Accommodations" shall mean the letters of credit,
merchandise purchase guarantee or other guarantees which are from time to time
either (a) issued or opened by Lender for the account of Borrower or any Obligor
or (b) with respect to which Lender has
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agreed to indemnify the issuer or guaranteed to the issuer the performance by
Borrower of its obligations to such issuer.
1.26 "Loans" shall mean the Revolving Loans and the Term Loans.
1.27 "Maximum Credit" shall mean the amount of $28,000,000.
1.28 "Mortgage" shall mean the Future Advances Open End Mortgage, Security
Agreement, Assignment of Leases and Rents, Financing Statement and Fixture
Filing, dated as of even date herewith (as amended or modified from time to
time), by Borrower in favor of Lender with respect to the Real Property and
related assets of Borrower.
1.29 "Net Amount of Eligible Accounts" shall mean the gross amount of
Eligible Accounts less (a) sales, excise or similar taxes included in the amount
thereof and (b) returns, discounts, claims, credits and allowances of any nature
at any time issued, owing, granted, outstanding, available or claimed with
respect thereto.
1.30 "Net Orderly Liquidation Value" shall mean the liquidation value of
Eligible Inventory less liquidation expenses, in each case as determined by Ozer
Valuation Services LLC (or another appraiser acceptable to Lender in its sole
discretion) from time to time pursuant to its most recently completed appraisal
of Borrower's Inventory.
1.31 "Obligations" shall mean any and all Revolving Loans, the Term Loans,
Letter of Credit Accommodations, Acceptances and all other obligations,
liabilities and indebtedness of every kind, nature and description owing by
Borrower to Lender and/or its affiliates, including principal, interest,
charges, fees, costs and expenses, however evidenced, whether as principal,
surety, endorser, guarantor or otherwise, whether arising under this Agreement
or otherwise, whether now existing or hereafter arising, whether arising before,
during or after the initial or any renewal term of this Agreement or after the
commencement of any case with respect to Borrower under the United States
Bankruptcy Code or any similar statute (including the payment of interest and
other amounts which would accrue and become due but for the commencement of such
case, whether or not such amounts are allowed or allowable in whole or in part
in such case), whether direct or indirect, absolute or contingent, joint or
several, due or not due, primary or secondary, liquidated or unliquidated,
secured or unsecured, and however acquired by Lender.
1.32 "Obligor" shall mean any guarantor, endorser, acceptor, surety or
other person liable on or with respect to the Obligations or who is the owner of
any property which is security for the Obligations, other than Borrower.
1.33 "Participant" shall mean any person which at any time participates
with Lender in respect of the Loans, the Letter of Credit Accommodations,
Acceptances or other Obligations or any portion thereof.
1.34 "Payment Account" shall have the meaning set forth in Section 6.3
hereof.
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1.35 "Person" or "person" shall mean any individual, sole proprietorship,
partnership, corporation (including any corporation which elects subchapter S
status under the Internal Revenue Code of 1986, as amended), limited liability
company, limited liability partnership, business trust, unincorporated
association, joint stock corporation, trust, joint venture or other entity or
any government or any agency or instrumentality or political subdivision
thereof.
1.36 "Prime Rate" shall mean the rate from time to time publicly announced
by First Union National Bank, or its successors, at its office in Charlotte,
North Carolina, as its prime rate, whether or not such announced rate is the
best rate available at such bank.
1.37 "Qualifying Xxxx(s) of Lading" means a negotiable xxxx of lading
issued by a common carrier in form and substance acceptable to Lender (i)
specifying as the consignee thereof the issuer of the applicable Letter of
Credit Accommodation issued to facilitate the payment of the goods represented
by such negotiable xxxx of lading or (ii) which, pursuant to the Documentation
Agent Agreement, has been properly endorsed to Lender (or Lender's duly
appointed agent) if no Letter of Credit Accommodation was required to be issued
as a condition to the issuance of such negotiable xxxx of lading.
1.38 "Real Property" shall mean the real property of Borrower, including
leasehold interests, together with all buildings, structures, and other
improvements located thereon and all licenses, easements and appurtenances
relating thereto and related assets of Borrower.
1.39 "Records" shall mean all of Borrower's present and future books of
account of every kind or nature, purchase and sale agreements, invoices, ledger
cards, bills of lading and other shipping evidence, statements, correspondence,
memoranda, credit files and other data relating to the Collateral or any account
debtor, together with the tapes, disks, diskettes and other data and software
storage media and devices, file cabinets or containers in or on which the
foregoing are stored (including any rights of Borrower with respect to the
foregoing maintained with or by any other person).
1.40 "Renewal Date" shall have the meaning set forth in Section 12.1(a)
hereof.
1.41 "Revolving Loans" shall mean the loans now or hereafter made by
Lender to or for the benefit of Borrower on a revolving basis (involving
advances, repayments and readvances) as set forth in Section 2.1 hereof.
1.42 "Subordinated Debt" shall have the meaning set forth in Section
4.1(k) hereof.
1.43 "Term Loans" shall mean collectively, the Term Loan A and Term Loan B
made by Lender to Borrower as provided for in Section 2.3 hereof.
1.44 "Term Loan A" shall have the meaning set forth in Section 2.3(a)
hereof.
1.45 "Term Loan B" shall have the meaning set forth in Section 2.3(b)
hereof.
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1.46 "Trade Reserve" shall mean a reserve against Revolving Loans in the
amount of $1,000,000 which reserve shall be reduced by (i) $500,000 on the date
that is forty-five (45) days after the date hereof if Lender determines in its
sole discretion that Borrower has an acceptable level of trade credit as of such
date and (ii) the remaining $500,000 on the date that is ninety (90) days after
the date hereof if Lender determines in its sole discretion that Borrower has an
acceptable level of trade credit as of such date.
1.47 "Value" shall mean, as determined by Lender in good faith, with
respect to Inventory, the lower of (a) cost computed on a first-in-first-out
basis in accordance with GAAP or (b) market value.
SECTION 2 CREDIT FACILITIES
2.1 Revolving Loans.
(a) Subject to and upon the terms and conditions contained herein,
Lender agrees to make Revolving Loans to Borrower from time to time in amounts
requested by Borrower up to the amount equal to the sum of:
(i) seventy percent (70%) of the total obtained by subtracting
the Dilution Reserve from the Net Amount of Eligible Accounts, plus
(ii) the lesser of: (A) (1) prior to June 30, 2000, sixty
percent (60%) of the Value of Eligible Inventory consisting of finished
goods and raw materials for such finished goods or (2) from and after June
30, 2000, eighty percent (80%) of the Net Orderly Liquidation Value of
Eligible Inventory consisting of finished goods and raw materials for such
finished goods or (B) $10,000,000; provided that in no event may the
amount of Revolving Loans at any time outstanding based on Eligible
Inventory consisting of raw materials exceed $5,000,000, less
(iii) any Availability Reserves other than the Dilution
Reserve.
(b) Lender may, in its discretion, from time to time, upon not less
than five (5) days prior notice to Borrower, (i) reduce the lending formula with
respect to Eligible Accounts to the extent that Lender determines in good faith
that: (A) to the extent not reflected in the Dilution Reserve, the dilution with
respect to the Accounts for any period (based on the ratio of (1) the aggregate
amount of reductions in Accounts other than as a result of payments in cash to
(2) the aggregate amount of total sales) has increased in any material respect
or may be reasonably anticipated to increase in any material respect above
historical levels, or (B) the general creditworthiness of account debtors has
declined or (ii) reduce the lending formula(s) with respect to Eligible
Inventory to the extent that Lender determines that: (A) the number of days of
the turnover of the Inventory for any period has changed in any material respect
or (B) the liquidation value of the Eligible Inventory, or any category thereof,
has decreased, or (C) the nature and quality of the Inventory has deteriorated.
In determining whether to reduce
10
the lending formula(s), Lender may consider events, conditions, contingencies or
risks which are also considered in determining Eligible Accounts, Eligible
Inventory or in establishing Availability Reserves.
(c) Except in Lender's discretion, the aggregate amount of the
Loans, Acceptances and the Letter of Credit Accommodations outstanding at any
time shall not exceed the Maximum Credit. In the event that the outstanding
amount of any component of the Loans, or the aggregate amount of the outstanding
Loans, Acceptances and Letter of Credit Accommodations, exceed the amounts
available under the lending formulas, the sublimits for Letter of Credit
Accommodations set forth in Section 2.2(d) hereof, the sublimits for Acceptances
set forth in Section 2.5(d) hereof or the Maximum Credit, as applicable, such
event shall not limit, waive or otherwise affect any rights of Lender in that
circumstance or on any future occasions and Borrower shall, upon demand by
Lender, which may be made at any time or from time to time, immediately repay to
Lender the entire amount of any such excess(es) for which payment is demanded.
(d) For purposes only of applying the sublimits on Revolving Loans
based on Eligible Inventory pursuant to Section 2.1(a)(ii) hereof, Lender may
treat the then undrawn amounts of outstanding Letter of Credit Accommodations
for the purpose of purchasing Eligible Inventory as Revolving Loans to the
extent Lender is in effect basing the issuance of the Letter of Credit
Accommodations on the Value of the Eligible Inventory being purchased with such
Letter of Credit Accommodations. In determining the actual amounts of such
Letter of Credit Accommodations to be so treated for purposes of the sublimits,
the outstanding Revolving Loans and Availability Reserves shall be attributed
first to any components of the lending formulas in Section 2.1(a) hereof that
are not subject to such sublimits, before being attributed to the components of
the lending formulas subject to such sublimits.
2.2 Letter of Credit Accommodations.
(a) Subject to and upon the terms and conditions contained herein,
at the request of Borrower, Lender agrees to provide or arrange for Letter of
Credit Accommodations for the account of Borrower containing terms and
conditions acceptable to Lender and the issuer thereof. Any payments made by
Lender to any issuer thereof and/or related parties in connection with the
Letter of Credit Accommodations shall constitute additional Revolving Loans to
Borrower pursuant to this Section 2. Any Letter of Credit Accommodation shall
have an expiry date no later than thirty (30) days prior to the last day of the
Renewal Date.
(b) In addition to any charges, fees or expenses charged by any bank
or issuer in connection with the Letter of Credit Accommodations, Borrower shall
pay to Lender a letter of credit fee at a rate equal to one and one-half percent
(1.50%) per annum on the daily outstanding balance of the Letter of Credit
Accommodations for the immediately preceding month (or part thereof), payable in
arrears as of the first day of each succeeding month, except that Borrower shall
pay to Lender such letter of credit fee,
11
at Lender's option, without notice, at a rate equal to four and one-half percent
(4.50%) per annum on such daily outstanding balance for: (i) the period from and
after the date of termination or non-renewal of the Financing Agreements until
Lender has received full and final payment of all Obligations (notwithstanding
entry of a judgment against Borrower) and (ii) the period from and after the
date of the occurrence of an Event of Default for so long as such Event of
Default is continuing as determined by Lender. Such letter of credit fee shall
be calculated on the basis of a three hundred sixty (360) day year and actual
days elapsed and the obligation of Borrower to pay such fee shall survive the
termination or non-renewal of this Agreement.
(c) No Letter of Credit Accommodations shall be available unless on
the date of the proposed issuance of any Letter of Credit Accommodations, the
Revolving Loans available to Borrower (subject to the Maximum Credit and any
Availability Reserves) are equal to or greater than: (i) if the proposed Letter
of Credit Accommodation is for the purpose of purchasing Eligible Inventory, the
sum of (A) the percentage equal to one hundred (100%) percent minus the then
applicable percentage set forth in Section 2.1(a)(ii)(A)(1) or (2), as
applicable, above of the Value or Net Orderly Liquidation Value, as applicable,
of such Eligible Inventory, plus (B) freight, taxes, duty and other amounts
which Lender estimates must be paid in connection with such Inventory upon
arrival and for delivery to one of Borrower's locations for Eligible Inventory
within the United States of America and (ii) if the proposed Letter of Credit
Accommodation is for any other purpose, an amount equal to one hundred (100%)
percent of the face amount thereof and all other commitments and obligations
made or incurred by Lender with respect thereto. Effective on the issuance of
each Letter of Credit Accommodation, an Availability Reserve shall be
established in the applicable amount set forth in Section 2.2(c)(i) or Section
2.2(c)(ii) hereof.
(d) Except in Lender's discretion, the amount of all outstanding
Letter of Credit Accommodations and all other commitments and obligations made
or incurred by Lender in connection therewith shall not at any time exceed
$2,000,000. At any time an Event of Default exists or has occurred and is
continuing, upon Lender's request, Borrower will either furnish cash collateral
to secure the reimbursement obligations to the issuer in connection with any
Letter of Credit Accommodations or furnish cash collateral to Lender for the
Letter of Credit Accommodations, and in either case, the Revolving Loans
otherwise available to Borrower shall not be reduced as provided in Section
2.2(c) hereof to the extent of such cash collateral.
(e) Borrower shall indemnify and hold Lender harmless from and
against any and all losses, claims, damages, liabilities, costs and expenses
which Lender may suffer or incur in connection with any Letter of Credit
Accommodations and any documents, drafts or acceptances relating thereto,
including any losses, claims, damages, liabilities, costs and expenses due to
any action taken by any issuer or correspondent with respect to any Letter of
Credit Accommodation. Borrower assumes all risks with respect to the acts or
omissions of the drawer under or beneficiary of any Letter of Credit
Accommodation and for such purposes the drawer or beneficiary shall be deemed
12
Borrower's agent. Borrower assumes all risks for, and agrees to pay, all
foreign, Federal, State and local taxes, duties and levies relating to any goods
subject to any Letter of Credit Accommodations or any documents, drafts or
acceptances thereunder. Borrower hereby releases and holds Lender harmless from
and against any acts, waivers, errors, delays or omissions, whether caused by
Borrower, by any issuer or correspondent or otherwise with respect to or
relating to any Letter of Credit Accommodation. The provisions of this Section
2.2(e) shall survive the payment of Obligations and the termination or
non-renewal of this Agreement.
(f) Nothing contained herein shall be deemed or construed to grant
Borrower any right or authority to pledge the credit of Lender in any manner.
Lender shall have no liability of any kind with respect to any Letter of Credit
Accommodation provided by an issuer other than Lender unless Lender has duly
executed and delivered to such issuer the application or a guarantee or
indemnification in writing with respect to such Letter of Credit Accommodation.
Borrower shall be bound by any interpretation made in good faith by Lender, or
any other issuer or correspondent under or in connection with any Letter of
Credit Accommodation or any documents, drafts or acceptances thereunder,
notwithstanding that such interpretation may be inconsistent with any
instructions of Borrower. Lender shall have the sole and exclusive right and
authority to, and Borrower shall not: (i) at any time an Event of Default exists
or has occurred and is continuing, (A) approve or resolve any questions of
non-compliance of documents, (B) give any instructions as to acceptance or
rejection of any documents or goods or (C) execute any and all applications for
steamship or airway guarantees, indemnities or delivery orders, and (ii) at all
times, (A) grant any extensions of the maturity of, time of payment for, or time
of presentation of, any drafts, acceptances, or documents, and (B) agree to any
amendments, renewals, extensions, modifications, changes or cancellations of any
of the terms or conditions of any of the applications, Letter of Credit
Accommodations, or documents, drafts or acceptances thereunder or any letters of
credit included in the Collateral. Lender may take such actions either in its
own name or in Borrower's name.
(g) Any rights, remedies, duties or obligations granted or
undertaken by Borrower to any issuer or correspondent in any application for any
Letter of Credit Accommodation, or any other agreement in favor of any issuer or
correspondent relating to any Letter of Credit Accommodation, shall be deemed to
have been granted or undertaken by Borrower to Lender. Any duties or obligations
undertaken by Lender to any issuer or correspondent in any application for any
Letter of Credit Accommodation, or any other agreement by Lender in favor of any
issuer or correspondent relating to any Letter of Credit Accommodation, shall be
deemed to have been undertaken by Borrower to Lender and to apply in all
respects to Borrower.
2.3 Term Loan. Lender is making Term Loans to Borrower as follows:
(a) Lender is making a Term Loan A to Borrower in the original
principal amount of $2,175,000 ("Term Loan A"). Term Loan A shall be payable by
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Borrower as follows: (i) successive monthly principal installments in the amount
of Thirty-Six Thousand Two Hundred Fifty Dollars ($36,250) on the first business
day of each month, beginning March 1, 2000 and continuing each month thereafter
and (ii) a final installment in the amount of all unpaid principal and interest
on Term Loan A due and payable upon termination of this Agreement, whether by
its terms, by prepayment, by acceleration or otherwise.
(b) Lender is making a Term Loan B to Borrower in the original
principal amount of $4,500,000 ("Term Loan B"). Term Loan B shall be payable by
Borrower as follows: (i) successive quarterly principal installments in the
amount of Five Hundred Thousand Dollars ($500,000) beginning August 1, 2000 and
on the first business day of each November, February, May and August thereafter
and (ii) a final installment in the amount of all unpaid principal and interests
on Term Loan B due and payable upon termination of this Agreement, whether by
its terms, by prepayment, by acceleration or otherwise. Notwithstanding the
foregoing, Lender may require that Borrower make mandatory prepayments against
Term Loan B from time to time based on updated appraisals of Borrower's
intellectual property which appraisals Lender may request at any time at
Borrower's expense and which shall be conducted by Business Valuation Services,
Inc. or another appraiser designated by Lender in its sole discretion. If at any
time Lender determines, based upon the most recent intellectual property
appraisal, that the outstanding principal amount of Term Loan B exceeds nineteen
percent (19%) of the orderly liquidation value of the Borrower's intellectual
property based on such appraisal, then upon demand by Lender, Borrower shall
make a prepayment of Term Loan B in an amount equal to such excess. Each
prepayment shall be applied to prepay the scheduled installments of Term Loan B
in inverse order of maturity.
(c) Borrower may at any time on at least five (5) days' prior
written notice to Lender voluntarily prepay all or part of the Term Loans;
provided that any such prepayments shall be in a minimum amount of $36,250 with
respect to Term Loan A and $500,000 with respect to Term Loan B. Any prepayment
of the Term Loans shall be applied to prepay the scheduled installments of the
applicable Term Loans in inverse order of maturity.
2.4 Availability Reserves(a) . All Revolving Loans otherwise available to
Borrower pursuant to the lending formulas and subject to the Maximum Credit and
other applicable limits hereunder shall be subject to Lender's continuing right
to establish and revise Availability Reserves.
2.5 Acceptances.
(a) Subject to and upon the terms and conditions contained herein
and in that certain Documentation Agent Agreement, at the request of Borrower,
Lender agrees to arrange for payment, on behalf of Borrower, on any Acceptance
for the account of Borrower; provided, that the terms of such Acceptance are
acceptable to Lender. Any payments made by Lender to any drawer or payee of an
Acceptance and/or related parties
14
in connection with an Acceptance shall constitute additional Revolving Loans to
Borrower pursuant to this Section 2. Borrower shall take all actions to ensure
that the final payment date of any Acceptance shall have an expiry date no later
than thirty (30) days prior to the last day of the Renewal Date. Should the
final payment date of any Acceptance for any reason have an expiry date later
than thirty (30) days prior to the last day of the Renewal Date, Borrower shall
furnish cash collateral to Lender for the outstanding amount of all Acceptances
not matured as of such date.
(b) In addition to any charges, fees or expenses charged by any bank
or issuer in connection with an Acceptance, Borrower shall pay to Lender an
acceptance fee at a rate equal to four percent (4.00%) per annum on the daily
outstanding balance of all Acceptances for the immediately preceding month (or
part thereof), payable in arrears as of the first day of each succeeding month,
except that Borrower shall pay to Lender such acceptance fee, at Lender's
option, without notice, at a rate equal to seven and one-half percent (7.50%)
per annum on such daily outstanding balance for: (i) the period from and after
the date of termination or non-renewal of the Financing Agreements until Lender
has received full and final payment of all Obligations (notwithstanding entry of
a judgment against Borrower) and (ii) the period from and after the date of the
occurrence of an Event of Default for so long as such Event of Default is
continuing as determined by Lender. Such acceptance fee shall be calculated on
the basis of a three hundred sixty (360) day year and actual days elapsed and
the obligation of Borrower to pay such fee shall survive the termination or
non-renewal of this Agreement.
(c) No Acceptance shall be deemed accepted by Lender, on behalf of
Borrower or First Union National Bank, pursuant to the terms hereof and the
Documentation Agent Agreement unless on the date of such proposed acceptance by
Lender, (i) Lender has approved of the terms and conditions of such Acceptance
in its sole discretion, (ii) the Revolving Loans available to Borrower (subject
to the Maximum Credit and any Availability Reserves) are equal to or greater
than one hundred (100%) percent of the face amount thereof and all other
commitments and obligations made or incurred by Lender with respect thereto and
(iii) no Event of Default exists. Effective upon Lender's acceptance thereof, an
Acceptance Reserve shall be established in the applicable amount.
(d) Except in Lender's discretion, the amount of all outstanding
Acceptances and all other commitments and obligations made or incurred by Lender
in connection therewith shall not at any time exceed $1,000,000. At any time an
Event of Default exists or has occurred and is continuing, upon Lender's
request, Borrower will furnish cash collateral to Lender for the outstanding
amount of all Acceptances, and in such case, the Revolving Loans otherwise
available to Borrower shall not be reduced as provided in this Section 2.5 to
the extent of such cash collateral.
(e) Borrower shall indemnify and hold Lender harmless from and
against any and all losses, claims, damages, liabilities, costs and expenses
which Lender may suffer or incur in connection with any Acceptance and any
documents, drafts or
15
acceptances relating thereto, including any losses, claims, damages,
liabilities, costs and expenses due to any action taken by any issuer or
correspondent with respect to any Acceptance. Borrower assumes all risks with
respect to the acts or omissions of the drawer under or beneficiary of any
Acceptance and for such purposes the drawer or beneficiary shall be deemed
Borrower's agent. Borrower assumes all risks for, and agrees to pay, all
foreign, Federal, State and local taxes, duties and levies relating to any goods
subject to any Acceptance or any documents, drafts or acceptances thereunder.
Borrower hereby releases and holds Lender harmless from and against any acts,
waivers, errors, delays or omissions, whether caused by Borrower, by any issuer
or correspondent or otherwise with respect to or relating to any Acceptance. The
provisions of this Section 2.5(e) shall survive the payment of Obligations and
the termination or non-renewal of this Agreement.
(f) Nothing contained herein shall be deemed or construed to grant
Borrower any right or authority to pledge the credit of Lender in any manner.
Lender shall have no liability of any kind with respect to any Acceptance unless
Lender has duly executed and delivered to the drawer, payee or First Union
National Bank, as applicable, the application or a guarantee or indemnification
in writing with respect to such Acceptance. Borrower shall be bound by any
interpretation made in good faith by Lender, or any other issuer or
correspondent under or in connection with any Acceptance or any documents,
drafts or acceptances thereunder, notwithstanding that such interpretation may
be inconsistent with any instructions of Borrower. Lender shall have the sole
and exclusive right and authority to, and Borrower shall not: (i) at any time an
Event of Default exists or has occurred and is continuing, (A) approve or
resolve any questions of non-compliance of documents, (B) give any instructions
as to acceptance or rejection of any documents or goods or (C) execute any and
all applications for steamship or airway guarantees, indemnities or delivery
orders, and (ii) at all times, (A) grant any extensions of the maturity of, time
of payment for, or time of presentation of, any Acceptance or related documents,
and (B) agree to any amendments, renewals, extensions, modifications, changes or
cancellations of any of the terms or conditions of any Acceptance or related
documents. Lender may take such actions either in its own name or in Borrower's
name.
(g) Any rights, remedies, duties or obligations granted or
undertaken by Borrower to any issuer or correspondent in any Acceptance, or any
other agreement in favor of any issuer or correspondent relating to any
Acceptance, shall be deemed to have been granted or undertaken by Borrower to
Lender. Any duties or obligations undertaken by Lender to any issuer or
correspondent in any Acceptance, or any other agreement by Lender in favor of
any issuer or correspondent relating to any Acceptance, shall be deemed to have
been undertaken by Borrower to Lender and to apply in all respects to Borrower.
16
SECTION 3 INTEREST AND FEES
3.1 Interest.
(a) Borrower shall pay to Lender interest on the outstanding
principal amount of the non-contingent Obligations at the rate of (i) one
percent (1%) per annum in excess of the Prime Rate for all Loans other than Term
Loan B and (ii) one and one-half percent (1.50%) per annum in excess of the
Prime Rate for Term Loan B. Notwithstanding the foregoing, at Lender's option,
without notice, Borrower shall pay to Lender interest at the rate of (i) four
percent (4.0%) per annum in excess of the Prime Rate for all Loans other than
Term Loan B and (ii) four and one-half percent (4.50%) per annum in excess of
the Prime Rate for Term Loan B for (A) the period from and after the date of
termination or non-renewal of the Financing Agreements until such time as Lender
has received full and final payment of all such Obligations (notwithstanding
entry of any judgment against Borrower), (B) the period from and after the date
of the occurrence of an Event of Default for so long as such Event of Default is
continuing as determined by Lender and (C) on the Revolving Loans at any time
outstanding in excess of the amounts available to Borrower under Section 2
hereof (whether or not such excess(es), arise or are made with or without
Lender's knowledge or consent and whether made before or after an Event of
Default).
(b) Interest shall be payable by Borrower to Lender monthly in
arrears not later than the first day of each calendar month and shall be
calculated on the basis of a three hundred sixty (360) day year and actual days
elapsed. The interest rate shall increase or decrease by an amount equal to each
increase or decrease in the Prime Rate effective on the first day of the month
after any change in such Prime Rate is announced. The increase or decrease shall
be based on the Prime Rate in effect on the last day of the month in which any
such change occurs. All interest accruing hereunder on and after an Event of
Default or termination or non-renewal hereof shall be payable on demand. In no
event shall charges constituting interest payable by Borrower to Lender exceed
the maximum amount or the rate permitted under any applicable law or regulation,
and if any part or provision of this Agreement is in contravention of any such
law or regulation, such part or provision shall be deemed amended to conform
thereto.
3.2 Closing Fee. Borrower shall pay to Lender as a closing fee the amount
of $210,000, which shall be fully earned as of the date hereof and payable in
seven monthly installments of $30,000 commencing on the date hereof and on each
one month anniversary of the date hereof until paid in full.
3.3 Unused Line Fee. Borrower shall pay to Lender monthly an unused line
fee at a rate equal to one-quarter of one percent (0.25%) per annum calculated
upon the amount by which $28,000,000 exceeds the average daily principal balance
of the outstanding Revolving Loans, Term Loans, Acceptances and Letter of Credit
Accommodations during the immediately preceding month (or part thereof) while
this Agreement is in effect and for so long thereafter as
17
any of the Obligations are outstanding, which fee shall be payable on the first
day of each month in arrears.
SECTION 4 CONDITIONS PRECEDENT
4.1 Conditions Precedent to Initial Loans and Letter of Credit
Accommodations. Each of the following is a condition precedent to Lender making
the initial Loans and providing the initial Letter of Credit Accommodations
hereunder:
(a) Lender shall have received evidence, in form and substance
satisfactory to Lender, that Lender has valid perfected and first priority
security interests in and liens upon the Collateral and any other property which
is intended to be security for the Obligations or the liability of any Obligor
in respect thereof, subject only to the security interests and liens permitted
herein or in the other Financing Agreements;
(b) all requisite corporate action and proceedings in connection
with this Agreement and the other Financing Agreements shall be satisfactory in
form and substance to Lender, and Lender shall have received all information and
copies of all documents, including records of requisite corporate action and
proceedings which Lender may have requested in connection therewith, such
documents where requested by Lender or its counsel to be certified by
appropriate corporate officers or governmental authorities;
(c) no material adverse change shall have occurred in the assets,
business or prospects of Borrower since the date of Lender's latest field
examination and no change or event shall have occurred which would impair the
ability of Borrower or any Obligor to perform its obligations hereunder or under
any of the other Financing Agreements to which it is a party or of Lender to
enforce the Obligations or realize upon the Collateral;
(d) Lender shall have completed a field review of the Records and
such other information with respect to the Collateral as Lender may require to
determine the amount of Revolving Loans available to Borrower, the results of
which shall be satisfactory to Lender, not more than three (3) business days
prior to the date hereof;
(e) Lender shall have received, in form and substance satisfactory
to Lender, all consents, waivers, acknowledgments and other agreements from
third persons which Lender may deem necessary or desirable in order to permit,
protect and perfect its security interests in and liens upon the Collateral or
to effectuate the provisions or purposes of this Agreement and the other
Financing Agreements, including acknowledgments by lessors, mortgagees and
warehousemen of Lender's security interests in the Collateral, waivers by such
persons of any security interests, liens or other claims by such persons to the
Collateral and agreements permitting Lender access to, and the right to remain
on, the premises to exercise its rights and remedies and otherwise deal with the
Collateral;
18
(f) Lender shall have received evidence of insurance and loss payee
endorsements required hereunder and under the other Financing Agreements, in
form and substance satisfactory to Lender, and certificates of insurance
policies and/or endorsements naming Lender as loss payee;
(g) Lender shall have received, in form and substance satisfactory
to Lender, such opinion letters of counsel to Borrower with respect to the
Financing Agreements and such other matters as Lender may request;
(h) Borrower shall have established the Blocked Accounts and Payment
Account and Lender shall have received, in form and substance satisfactory to
Lender, all agreements with the depository banks and Borrower with respect to
such Blocked Accounts and Payment Account as Lender may require pursuant to
Section 6.3 hereof, duly authorized, executed and delivered by such depository
banks and Borrower;
(i) Lender shall have received, in form and substance satisfactory
to Lender, agreements from Borrower's customs agents, freight forwarders,
documentation agents, and domestic common carriers as Lender shall require;
(j) Lender shall have received, in form and substance satisfactory
to Lender, a valid and effective title insurance policy with respect to the
Mortgage issued by a company and agent acceptable to Lender (i) insuring the
priority, amount and sufficiency of the Mortgage, (ii) insuring against matters
that would be disclosed by surveys and (iii) containing any legally available
endorsement, assurances or affirmative coverage requested by Lender for
protection of its interests;
(k) Lender shall have received satisfactory evidence that Xxxx
Xxxxxxx shall have made a subordinated loan to Borrower in the amount of
$1,000,000 (the "Subordinated Debt") on terms and conditions acceptable to
Lender. Lender shall have received, in form and substance satisfactory to
Lender, a subordination agreement between Lender and Xxxx Xxxxxxx as
acknowledged and agreed to by Borrower, providing for such parties' relative
rights and priorities with respect to the Borrower's obligations under this
Agreement and the Subordinated Debt;
(l) Borrower shall have Excess Availability as determined by Lender,
as of the date hereof, in amount not less than $3,800,000 (taking into account
the Trade Reserve) after giving effect to (i) the initial Loans made or to be
made, (ii) Letter of Credit Accommodations issued or to be issued in connection
with the initial transaction hereunder, (iii) the incurrence of the Subordinated
Debt and (iv) payment of any and all fees and expenses due on the date hereof in
connection with the transactions contemplated by this Agreement;
(m) Lender shall have received, in form and substance satisfactory
to Lender, (i) a limited guaranty of Term Loan B executed by Xxxx Xxxxxxx in
favor of Lender and (ii) guarantees against fraud and/or misrepresentations
executed by Xxxx Xxxxxxx and Xxx Xxxxx in favor of Lender;
19
(n) Lender shall be satisfied that Borrower shall have established a
system of monitoring its Collateral in a manner consistent with Section 7.1;
(o) Lender shall have received, in form and substance satisfactory
to Lender, an Assignment and Assumption Agreement executed by First Union
National Bank and Borrower and such other documents as Lender may reasonably
request to evidence and effectuate the assignment of certain loan documents and
the assumption of debt with respect to the financing arrangements between First
Union National Bank and Borrower existing prior to the date hereof;
(p) Lender shall have sold participation interests or entered into
co-lending arrangements, in either case on terms acceptable to, and with
participants or lenders acceptable to, Lender in Lender's sole discretion, for
portions of the Maximum Credit aggregating at least $10,000,000;
(q) Lender shall have received, in form and substance satisfactory
to Lender, such terminations and releases by First Union National Bank and such
other Persons as Lender shall determine to evidence and effectuate the
termination and release of security interests in any assets and properties of
Borrower; and
(r) the other Financing Agreements and all instruments and documents
hereunder and thereunder (including those listed on Exhibit 4.1) shall have been
duly executed and/or delivered to Lender, in form and substance satisfactory to
Lender.
4.2 Conditions Precedent to All Loans, Letter of Credit Accommodations and
Acceptances. Each of the following is an additional condition precedent to
Lender making Loans, providing Letter of Credit Accommodations and/or approving
Acceptances, including the initial Loans and Letter of Credit Accommodations and
any future Loans, Letter of Credit Accommodations and Acceptances:
(a) all representations and warranties contained herein and in the
other Financing Agreements shall be true and correct in all material respects
with the same effect as though such representations and warranties had been made
on and as of the date of the making of each such Loan, providing each such
Letter of Credit Accommodation or approving any Acceptance and after giving
effect thereto; and
(b) no Event of Default and no event or condition which, with notice
or passage of time or both, would constitute an Event of Default, shall exist or
have occurred and be continuing on and as of the date of the making of such
Loan, providing each such Letter of Credit Accommodation or approving each such
Acceptance and after giving effect thereto.
SECTION 5 GRANT OF SECURITY INTEREST
To secure payment and performance of all Obligations, Borrower hereby
grants to Lender a continuing security interest in, a lien upon, and a right of
set off against, and hereby assigns to
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Lender as security, the following property and interests in property of
Borrower, whether now owned or hereafter acquired or existing, and wherever
located (collectively, the "Collateral"):
5.1 Accounts;
5.2 all present and future contract rights, general intangibles (including
tax and duty refunds, registered and unregistered patents, trademarks, service
marks, copyrights, trade names, applications for the foregoing, trade secrets,
goodwill, processes, drawings, blueprints, customer lists, licenses, whether as
licensor or licensee, choses in action and other claims and existing and future
leasehold interests in equipment, real estate and fixtures), chattel paper,
documents, instruments, securities and other investment property, letters of
credit, bankers' acceptances and guarantees;
5.3 all present and future monies, securities, credit balances, deposits,
deposit accounts and other property of Borrower now or hereafter held or
received by or in transit to Lender or its affiliates or at any other depository
or other institution from or for the account of Borrower, whether for
safekeeping, pledge, custody, transmission, collection or otherwise, and all
present and future liens, security interests, rights, remedies, title and
interest in, to and in respect of Accounts and other Collateral, including (a)
rights and remedies under or relating to guarantees, contracts of suretyship,
letters of credit and credit and other insurance related to the Collateral, (b)
rights of stoppage in transit, replevin, repossession, reclamation and other
rights and remedies of an unpaid vendor, lienor or secured party, (c) goods
described in invoices, documents, contracts or instruments with respect to, or
otherwise representing or evidencing, Accounts or other Collateral, including
returned, repossessed and reclaimed goods, and (d) deposits by and property of
account debtors or other persons securing the obligations of account debtors;
5.4 Inventory;
5.5 Equipment;
5.6 Records;
5.7 Real Property; and
5.8 all products and proceeds of the foregoing, in any form, including
insurance proceeds and all claims against third parties for loss or damage to or
destruction of any or all of the foregoing.
SECTION 6 COLLECTION AND ADMINISTRATION
6.1 Borrower's Loan Account. Lender shall maintain one or more loan
account(s) on its books in which shall be recorded (a) all Loans, Letter of
Credit Accommodations, Acceptances and other Obligations and the Collateral, (b)
all payments made by or on behalf of Borrower and (c) all other appropriate
debits and credits as provided in this Agreement,
21
including fees, charges, costs, expenses and interest. All entries in the loan
account(s) shall be made in accordance with Lender's customary practices as in
effect from time to time.
6.2 Statements. Lender shall render to Borrower each month a statement
setting forth the balance in the Borrower's loan account(s) maintained by Lender
for Borrower pursuant to the provisions of this Agreement, including principal,
interest, fees, costs and expenses. Each such statement shall be subject to
subsequent adjustment by Lender but shall, absent manifest errors or omissions,
be considered correct and deemed accepted by Borrower and conclusively binding
upon Borrower as an account stated except to the extent that Lender receives a
written notice from Borrower of any specific exceptions of Borrower thereto
within thirty (30) days after the date such statement has been mailed by Lender.
Until such time as Lender shall have rendered to Borrower a written statement as
provided above, the balance in Borrower's loan account(s) shall be presumptive
evidence of the amounts due and owing to Lender by Borrower.
6.3 Collection of Accounts.
(a) Borrower shall establish and maintain, at its expense, blocked
accounts or lockboxes and related blocked accounts (in either case, "Blocked
Accounts"), as Lender may specify, with such banks as are acceptable to Lender
into which Borrower shall promptly deposit and direct its account debtors to
directly remit all payments on Accounts and all payments constituting proceeds
of Inventory or other Collateral in the identical form in which such payments
are made, whether by cash, check or other manner. The banks at which the Blocked
Accounts are established shall enter into an agreement, in form and substance
satisfactory to Lender, providing that all items received or deposited in the
Blocked Accounts are the property of Lender, that the depository bank has no
lien upon, or right to setoff against, the Blocked Accounts, the items received
for deposit therein, or the funds from time to time on deposit therein and that
the depository bank will wire, or otherwise transfer, in immediately available
funds, on a daily basis, all funds received or deposited into the Blocked
Accounts to such bank account of Lender as Lender may from time to time
designate for such purpose ("Payment Account"). Borrower agrees that all
payments made to such Blocked Accounts or other funds received and collected by
Lender, whether on the Accounts or as proceeds of Inventory or other Collateral
or otherwise shall be the property of Lender.
(b) For purposes of calculating the amount of the Loans available to
Borrower, such payments will be applied (conditional upon final collection) to
the Obligations on the business day of receipt by Lender of immediately
available funds in the Payment Account provided such payments and notice thereof
are received in accordance with Lender's usual and customary practices as in
effect from time to time and within sufficient time to credit Borrower's loan
account on such day, and if not, then on the next business day. For the purposes
of calculating interest on the Obligations, such payments or other funds
received will be applied (conditional upon final collection) to the Obligations
one (1) business day following the date of receipt of immediately available
funds by Lender in the Payment Account provided such payments or other funds and
notice thereof are received in accordance with Lender's usual and customary
22
practices as in effect from time to time and within sufficient time to credit
Borrower's loan account on such day, and if not, then on the next business day.
(c) Borrower and all of its affiliates, subsidiaries, shareholders,
directors, employees or agents shall, acting as trustee for Lender, receive, as
the property of Lender, any monies, checks, notes, drafts or any other payment
relating to and/or proceeds of Accounts or other Collateral which come into
their possession or under their control and immediately upon receipt thereof,
shall deposit or cause the same to be deposited in the Blocked Accounts, or
remit the same or cause the same to be remitted, in kind, to Lender. In no event
shall the same be commingled with Borrower's own funds. Borrower agrees to
reimburse Lender on demand for any amounts owed or paid to any bank at which a
Blocked Account is established or any other bank or person involved in the
transfer of funds to or from the Blocked Accounts arising out of Lender's
payments to or indemnification of such bank or person. The obligation of
Borrower to reimburse Lender for such amounts pursuant to this Section 6.3 shall
survive the termination or non-renewal of this Agreement.
6.4 Payments. All Obligations shall be payable to the Payment Account as
provided in Section 6.3 hereof or such other place as Lender may designate from
time to time. Lender may apply payments received or collected from Borrower or
for the account of Borrower (including the monetary proceeds of collections or
of realization upon any Collateral) to such of the Obligations, whether or not
then due, in such order and manner as Lender determines. At Lender's option, all
principal, interest, fees, costs, expenses and other charges provided for in
this Agreement or the other Financing Agreements may be charged directly to the
loan account(s) of Borrower. Borrower shall make all payments to Lender on the
Obligations free and clear of, and without deduction or withholding for or on
account of, any setoff, counterclaim, defense, duties, taxes, levies, imposts,
fees, deductions, withholding, restrictions or conditions of any kind. If after
receipt of any payment of, or proceeds of Collateral applied to the payment of,
any of the Obligations, Lender is required to surrender or return such payment
or proceeds to any Person for any reason, then the Obligations intended to be
satisfied by such payment or proceeds shall be reinstated and continue and this
Agreement shall continue in full force and effect as if such payment or proceeds
had not been received by Lender. Borrower shall be liable to pay to Lender, and
does hereby indemnify and hold Lender harmless for the amount of any payments or
proceeds surrendered or returned. This Section 6.4 shall remain effective
notwithstanding any contrary action which may be taken by Lender in reliance
upon such payment or proceeds. This Section 6.4 shall survive the payment of the
Obligations and the termination or non-renewal of this Agreement.
6.5 Authorization to Make Loans. Lender is authorized to make the Loans
and provide the Letter of Credit Accommodations based upon telephonic or other
instructions received from anyone purporting to be an officer of Borrower or
other authorized person or, at the discretion of Lender, if such Loans are
necessary to satisfy any Obligations. All requests for Loans or Letter of Credit
Accommodations hereunder shall specify the date on which the requested advance
is to be made or Letter of Credit Accommodations established (which day shall be
a business day) and the amount of the requested Loan. Requests received after
11:00
23
a.m. Chicago time on any day shall be deemed to have been made as of the opening
of business on the immediately following business day. All Loans and Letter of
Credit Accommodations under this Agreement shall be conclusively presumed to
have been made to, and at the request of and for the benefit of, Borrower when
deposited to the credit of Borrower or otherwise disbursed or established in
accordance with the instructions of Borrower or in accordance with the terms and
conditions of this Agreement.
6.6 Use of Proceeds. Borrower shall use the initial proceeds of the Loans
provided by Lender to Borrower hereunder only for: (a) payments to each of the
persons listed in the disbursement direction letter furnished by Borrower to
Lender on or about the date hereof and (b) costs, expenses and fees in
connection with the preparation, negotiation, execution and delivery of this
Agreement and the other Financing Agreements. All other Loans made or Letter of
Credit Accommodations provided by Lender to Borrower pursuant to the provisions
hereof shall be used by Borrower only for general operating, working capital and
other proper corporate purposes of Borrower not otherwise prohibited by the
terms hereof. None of the proceeds will be used, directly or indirectly, for the
purpose of purchasing or carrying any margin security or for the purposes of
reducing or retiring any indebtedness which was originally incurred to purchase
or carry any margin security or for any other purpose which might cause any of
the Loans to be considered a "purpose credit" within the meaning of Regulation G
of the Board of Governors of the Federal Reserve System, as amended.
SECTION 7 COLLATERAL REPORTING AND COVENANTS
7.1 Collateral Reporting. Borrower shall provide Lender with the following
documents in a form satisfactory to Lender: (a) on a regular basis as required
by Lender, a schedule of Accounts, sales made, credits issued and cash received;
(b) on a monthly basis by the fifteenth day of the following month or more
frequently as Lender may request, (i) perpetual inventory reports, (ii)
inventory reports by category and (iii) agings of accounts payable, (c) upon
Lender's request, (i) copies of customer statements and credit memos, remittance
advices and reports, and copies of deposit slips and bank statements, (ii)
copies of shipping and delivery documents, and (iii) copies of purchase orders,
invoices and delivery documents for Inventory and Equipment acquired by
Borrower; (d) agings of accounts receivable on a monthly basis by the fifteenth
day of the following month or more frequently as Lender may request; and (e)
such other reports as to the Collateral as Lender shall request from time to
time. If any of Borrower's records or reports of the Collateral are prepared or
maintained by an accounting service, contractor, shipper or other agent,
Borrower hereby irrevocably authorizes such service, contractor, shipper or
agent to deliver such records, reports, and related documents to Lender and to
follow Lender's instructions with respect to further services at any time that
an Event of Default exists or has occurred and is continuing.
7.2 Accounts Covenants.
(a) Borrower shall notify Lender promptly of: (i) any material delay
in Borrower's performance of any of its obligations to any account debtor or the
assertion of any claims, offsets, defenses or counterclaims by any account
debtor, or any disputes with
24
account debtors, or any settlement, adjustment or compromise thereof, (ii) all
material adverse information relating to the financial condition of any account
debtor and (iii) any event or circumstance which, to Borrower's knowledge would
cause Lender to consider any then existing Accounts as no longer constituting
Eligible Accounts. No credit, discount, allowance or extension or agreement for
any of the foregoing shall be granted to any account debtor without Lender's
consent, except in the ordinary course of Borrower's business in accordance with
practices and policies previously disclosed in writing to Lender. So long as no
Event of Default exists or has occurred and is continuing, Borrower shall
settle, adjust or compromise any claim, offset, counterclaim or dispute with any
account debtor. At any time that an Event of Default exists or has occurred and
is continuing, Lender shall, at its option, have the exclusive right to settle,
adjust or compromise any claim, offset, counterclaim or dispute with account
debtors or grant any credits, discounts or allowances.
(b) Without limiting the obligation of Borrower to deliver any other
information to Lender, Borrower shall promptly report to Lender any return of
Inventory by any one account debtor if the inventory so returned in such case
has a value in excess of $100,000. At any time that Inventory is returned,
reclaimed or repossessed, the Account (or portion thereof) which arose from the
sale of such returned, reclaimed or repossessed Inventory shall not be deemed an
Eligible Account. In the event any account debtor returns Inventory when an
Event of Default exists or has occurred and is continuing, Borrower shall, upon
Lender's request, (i) hold the returned Inventory in trust for Lender, (ii)
segregate all returned Inventory from all of its other property, (iii) dispose
of the returned Inventory solely according to Lender's instructions, and (iv)
not issue any credits, discounts or allowances with respect thereto without
Lender's prior written consent.
(c) With respect to each Account: (i) the amounts shown on any
invoice delivered to Lender or schedule thereof delivered to Lender shall be
true and complete, (ii) no payments shall be made thereon except payments
immediately delivered to Lender pursuant to the terms of this Agreement, (iii)
no credit, discount, allowance or extension or agreement for any of the
foregoing shall be granted to any account debtor except as reported to Lender in
accordance with this Agreement and except for credits, discounts, allowances or
extensions made or given in the ordinary course of Borrower's business in
accordance with practices and policies previously disclosed to Lender, (iv)
there shall be no setoffs, deductions, contras, defenses, counterclaims or
disputes existing or asserted with respect thereto except as reported to Lender
in accordance with the terms of this Agreement, (v) none of the transactions
giving rise thereto will violate any applicable State or Federal laws or
regulations, all documentation relating thereto will be legally sufficient under
such laws and regulations and all such documentation will be legally enforceable
in accordance with its terms.
(d) Lender shall have the right at any time or times, in Lender's
name or in the name of a nominee of Lender, to verify the validity, amount or
any other matter
25
relating to any Account or other Collateral, by mail, telephone, facsimile
transmission or otherwise.
(e) Borrower shall deliver or cause to be delivered to Lender, with
appropriate endorsement and assignment, with full recourse to Borrower, all
chattel paper and instruments which Borrower now owns or may at any time acquire
immediately upon Borrower's receipt thereof, except as Lender may otherwise
agree.
(f) Lender may, at any time or times that an Event of Default exists
or has occurred and is continuing, (i) notify any or all account debtors that
the Accounts have been assigned to Lender and that Lender has a security
interest therein and Lender may direct any or all accounts debtors to make
payment of Accounts directly to Lender, (ii) extend the time of payment of,
compromise, settle or adjust for cash, credit, return of merchandise or
otherwise, and upon any terms or conditions, any and all Accounts or other
obligations included in the Collateral and thereby discharge or release the
account debtor or any other party or parties in any way liable for payment
thereof without affecting any of the Obligations, (iii) demand, collect or
enforce payment of any Accounts or such other obligations, but without any duty
to do so, and Lender shall not be liable for its failure to collect or enforce
the payment thereof nor for the negligence of its agents or attorneys with
respect thereto and (iv) take whatever other action Lender may deem necessary or
desirable for the protection of its interests. At any time that an Event of
Default exists or has occurred and is continuing, at Lender's request, all
invoices and statements sent to any account debtor shall state that the Accounts
and such other obligations have been assigned to Lender and are payable directly
and only to Lender and Borrower shall deliver to Lender such originals of
documents evidencing the sale and delivery of goods or the performance of
services giving rise to any Accounts as Lender may require.
7.3 Inventory Covenants. With respect to the Inventory: (a) Borrower shall
at all times maintain inventory records reasonably satisfactory to Lender,
keeping correct and accurate records itemizing and describing the kind, type,
quality and quantity of Inventory, Borrower's cost therefor and daily
withdrawals therefrom and additions thereto; (b) Borrower shall conduct a
physical count of the Inventory at least once each year, but at any time or
times as Lender may request on or after an Event of Default, and promptly
following such physical inventory shall supply Lender with a report in the form
and with such specificity as may be reasonably satisfactory to Lender concerning
such physical count; (c) Borrower shall not remove any Inventory from the
locations set forth or permitted herein, without the prior written consent of
Lender, except for sales of Inventory in the ordinary course of Borrower's
business and except to move Inventory directly from one location set forth or
permitted herein to another such location; (d) upon Lender's request, Borrower
shall, at its expense, no more than twice in any twelve (12) month period, but
at any time or times as Lender may request on or after an Event of Default,
deliver or cause to be delivered to Lender written reports or appraisals as to
the Inventory in form, scope and methodology acceptable to Lender and by an
appraiser acceptable to Lender, addressed to Lender or upon which Lender is
expressly permitted to rely; (e) Borrower shall produce, use, store and maintain
the Inventory with all reasonable care and caution and in
26
accordance with applicable standards of any insurance and in conformity with
applicable laws (including the requirements of the Federal Fair Labor Standards
Act of 1938, as amended and all rules, regulations and orders related thereto);
(f) Borrower assumes all responsibility and liability arising from or relating
to the production, use, sale or other disposition of the Inventory; (g) Borrower
shall not sell Inventory to any customer on approval, or any other basis which
entitles the customer to return or may obligate Borrower to repurchase such
Inventory; (h) Borrower shall keep the Inventory in good and marketable
condition; and (i) Borrower shall not, without prior written notice to Lender,
acquire or accept any Inventory on consignment or approval.
7.4 Equipment Covenants. With respect to the Equipment: (a) upon Lender's
request, Borrower shall, at its expense, at any time or times as Lender may
request on or after an Event of Default, deliver or cause to be delivered to
Lender written reports or appraisals as to the Equipment in form, scope and
methodology acceptable to Lender and by an appraiser acceptable to Lender; (b)
Borrower shall keep the Equipment in good order, repair, running and marketable
condition (ordinary wear and tear excepted); (c) Borrower shall use the
Equipment with all reasonable care and caution and in accordance with applicable
standards of any insurance and in conformity with all applicable laws; (d) the
Equipment is and shall be used in Borrower's business and not for personal,
family, household or farming use; (e) Borrower shall not remove any Equipment
from the locations set forth or permitted herein, except to the extent necessary
to have any Equipment repaired or maintained in the ordinary course of the
business of Borrower or to move Equipment directly from one location set forth
or permitted herein to another such location and except for the movement of
motor vehicles used by or for the benefit of Borrower in the ordinary course of
business; (f) the Equipment is now and shall remain personal property and
Borrower shall not permit any of the Equipment to be or become a part of or
affixed to real property; and (g) Borrower assumes all responsibility and
liability arising from the use of the Equipment.
7.5 Power of Attorney. Borrower hereby irrevocably designates and appoints
Lender (and all persons designated by Lender) as Borrower's true and lawful
attorney-in-fact, and authorizes Lender, in Borrower's or Lender's name, to: (a)
at any time an Event of Default or event which with notice or passage of time or
both would constitute an Event of Default exists or has occurred and is
continuing (i) demand payment on Accounts or other proceeds of Inventory or
other Collateral, (ii) enforce payment of Accounts by legal proceedings or
otherwise, (iii) exercise all of Borrower's rights and remedies to collect any
Account or other Collateral, (iv) sell or assign any Account upon such terms,
for such amount and at such time or times as the Lender deems advisable, (v)
settle, adjust, compromise, extend or renew an Account, (vi) discharge and
release any Account, (vii) prepare, file and sign Borrower's name on any proof
of claim in bankruptcy or other similar document against an account debtor,
(viii) notify the post office authorities to change the address for delivery of
Borrower's mail to an address designated by Lender, and open and dispose of all
mail addressed to Borrower, and (ix) do all acts and things which are necessary,
in Lender's determination, to fulfill Borrower's obligations under this
Agreement and the other Financing Agreements and (b) at any time to (i) take
control in any manner of any item of payment or proceeds thereof, (ii) have
access to any lockbox or postal box into which Borrower's mail is deposited,
(iii) endorse Borrower's name upon any items of payment or proceeds thereof and
deposit the same in the Lender's account for application to the
27
Obligations, (iv) endorse Borrower's name upon any chattel paper, document,
instrument, invoice, or similar document or agreement relating to any Account or
any goods pertaining thereto or any other Collateral, (v) sign Borrower's name
on any verification of Accounts and notices thereof to account debtors and (vi)
execute in Borrower's name and file any UCC financing statements or amendments
thereto. Borrower hereby releases Lender and its officers, employees and
designees from any liabilities arising from any act or acts under this power of
attorney and in furtherance thereof, whether of omission or commission, except
as a result of Lender's own gross negligence or willful misconduct as determined
pursuant to a final non-appealable order of a court of competent jurisdiction.
7.6 Right to Cure. Lender may, at its option, (a) cure any default by
Borrower under any agreement with a third party or pay or bond on appeal any
judgment entered against Borrower, (b) discharge taxes, liens, security
interests or other encumbrances at any time levied on or existing with respect
to the Collateral and (c) pay any amount, incur any expense or perform any act
which, in Lender's judgment, is necessary or appropriate to preserve, protect,
insure or maintain the Collateral and the rights of Lender with respect thereto.
Lender may add any amounts so expended to the Obligations and charge Borrower's
account therefor, such amounts to be repayable by Borrower on demand. Lender
shall be under no obligation to effect such cure, payment or bonding and shall
not, by doing so, be deemed to have assumed any obligation or liability of
Borrower. Any payment made or other action taken by Lender under this Section
shall be without prejudice to any right to assert an Event of Default hereunder
and to proceed accordingly.
7.7 Access to Premises. From time to time as requested by Lender, at the
cost and expense of Borrower, (a) Lender or its designee shall have complete
access to all of Borrower's premises during normal business hours and after
notice to Borrower, or at any time and without notice to Borrower if an Event of
Default exists or has occurred and is continuing, for the purposes of
inspecting, verifying and auditing the Collateral and all of Borrower's books
and records, including the Records, and (b) Borrower shall promptly furnish to
Lender such copies of such books and records or extracts therefrom as Lender may
request, and (c) use during normal business hours such of Borrower's personnel,
equipment, supplies and premises as may be reasonably necessary for the
foregoing and if an Event of Default exists or has occurred and is continuing
for the collection of Accounts and realization of other Collateral.
SECTION 8 REPRESENTATIONS AND WARRANTIES
Borrower hereby represents and warrants to Lender the following (which
shall survive the execution and delivery of this Agreement), the truth and
accuracy of which are a continuing condition of the making of Loans, providing
Letter of Credit Accommodations and approving Acceptances by Lender:
8.1 Corporate Existence, Power and Authority; Subsidiaries. Borrower is a
corporation duly organized and in good standing under the laws of its state of
incorporation and, except as set forth on Schedule 8.1 hereto, is duly qualified
as a foreign corporation and in good standing in all states, provinces or other
jurisdictions where the nature and extent of the business
28
transacted by it or the ownership of assets makes such qualification necessary,
except for those jurisdictions in which the failure to so qualify would not have
a material adverse effect on Borrower's financial condition, results of
operation or business or the rights of Lender in or to any of the Collateral.
The execution, delivery and performance of this Agreement, the other Financing
Agreements and the transactions contemplated hereunder and thereunder are all
within Borrower's corporate powers, have been duly authorized and are not in
contravention of law or the terms of Borrower's certificate of incorporation,
by-laws, or other organizational documentation, or any indenture, agreement or
undertaking to which Borrower is a party or by which Borrower or its property
are bound. This Agreement and the other Financing Agreements constitute legal,
valid and binding obligations of Borrower enforceable in accordance with their
respective terms. Borrower does not have any subsidiaries except as set forth on
the Information Certificate.
8.2 Financial Statements; No Material Adverse Change. All financial
statements relating to Borrower which have been or may hereafter be delivered by
Borrower to Lender have been prepared in accordance with GAAP and fairly present
the financial condition and the results of operation of Borrower as at the dates
and for the periods set forth therein. Except as disclosed in any interim
financial statements furnished by Borrower to Lender prior to the date of this
Agreement, there has been no material adverse change in the assets, liabilities,
properties and condition, financial or otherwise, of Borrower, since the date of
the most recent audited financial statements furnished by Borrower to Lender
prior to the date of this Agreement.
8.3 Chief Executive Office; Collateral Locations. The chief executive
office of Borrower and Borrower's Records concerning Accounts are located only
at the addresses set forth on Schedule 8.3 hereto and its only other places of
business and the only other locations of Collateral, if any, are the addresses
set forth in the Information Certificate, subject to the right of Borrower to
establish new locations in accordance with Section 9.2 below. The Information
Certificate correctly identifies any of such locations which are not owned by
Borrower and sets forth the owners and/or operators thereof and to the best of
Borrower's knowledge, the holders of any mortgages on such locations.
8.4 Priority of Liens; Title to Properties. The security interests and
liens granted to Lender under this Agreement and the other Financing Agreements
constitute valid and perfected first priority liens and security interests in
and upon the Collateral subject only to the liens indicated on Schedule 8.4
hereto and the other liens permitted under Section 9.8 hereof. Borrower has good
and marketable title to all of its properties and assets subject to no liens,
mortgages, pledges, security interests, encumbrances or charges of any kind,
except those granted to Lender and such others as are specifically listed on
Schedule 8.4 hereto or permitted under Section 9.8 hereof.
8.5 Tax Returns. Borrower has filed, or caused to be filed, in a timely
manner all tax returns, reports and declarations which are required to be filed
by it (without requests for extension except as previously disclosed in writing
to Lender). All information in such tax returns, reports and declarations is
complete and accurate in all material respects. Borrower has paid or caused to
be paid all taxes due and payable or claimed due and payable in any assessment
29
received by it, except taxes the validity of which are being contested in good
faith by appropriate proceedings diligently pursued and available to Borrower
and with respect to which adequate reserves have been set aside on its books.
Adequate provision has been made for the payment of all accrued and unpaid
Federal, State, county, local, foreign and other taxes whether or not yet due
and payable and whether or not disputed.
8.6 Litigation. Except as set forth on the Information Certificate, there
is no present investigation by any governmental agency pending, or to the best
of Borrower's knowledge threatened, against or affecting Borrower, its assets or
business and there is no action, suit, proceeding or claim by any Person
pending, or to the best of Borrower's knowledge threatened, against Borrower or
its assets or goodwill, or against or affecting any transactions contemplated by
this Agreement, which if adversely determined against Borrower would result in
any material adverse change in the assets, business or prospects of Borrower or
would impair the ability of Borrower to perform its obligations hereunder or
under any of the other Financing Agreements to which it is a party or of Lender
to enforce any Obligations or realize upon any Collateral.
8.7 Compliance with Other Agreements and Applicable Laws. Except as set
forth on Schedule 8.7 hereto, Borrower is not in default in any material respect
under, or in violation in any material respect of any of the terms of, any
agreement, contract, instrument, lease or other commitment to which it is a
party or by which it or any of its assets are bound and Borrower is in
compliance in all material respects with all applicable provisions of laws,
rules, regulations, licenses, permits, approvals and orders of any foreign,
Federal, State or local governmental authority.
8.8 Bank Accounts. All of the deposit accounts, investment accounts or
other accounts in the name of or used by Borrower maintained at any bank or
other financial institution are set forth on Schedule 8.8 hereto, subject to the
right of Borrower to establish new accounts in accordance with Section 9.13
below.
8.9 Solvency. Borrower is solvent and will continue to be solvent after
the creation of the Obligations, the security interests of Lender and the other
transactions contemplated hereunder, is able to pay its debts as they mature and
has (and has reason to believe it will continue to have) sufficient capital (and
not unreasonably small capital) to carry on its business and all businesses in
which it is about to engage. The assets and properties of Borrower at a fair
valuation and at their present fair salable value are, and will be, greater than
the indebtedness of Borrower, and including subordinated and contingent
liabilities computed at the amount which, to the best of Borrower's knowledge,
represents an amount which can reasonably be expected to become an actual or
matured liability.
8.10 Year 2000 Representations. Borrower has taken all action necessary to
assure that there will be no material adverse change to Borrower's business by
reason of the advent of the year 2000, including that all computer-based
systems, embedded microchips and other processing capabilities effectively
recognize and process dates after December 31, 1999.
8.11 [Intentionally Deleted]
30
8.12 Employee Benefits.
(a) Borrower has not engaged in any transaction in connection with
which Borrower or any of its ERISA Affiliates could be subject to either a civil
penalty assessed pursuant to Section 502(i) of ERISA or a tax imposed by Section
4975 of the Code, including any accumulated funding deficiency described in
Section 8.12(c) hereof and any deficiency with respect to vested accrued
benefits described in Section 8.12(d) hereof.
(b) Except as disclosed in Borrower's annual year-end financial
statements for 1998, no liability to the Pension Benefit Guaranty Corporation
has been or is expected by Borrower to be incurred with respect to any employee
benefit plan of Borrower or any of its ERISA Affiliates. There has been no
reportable event (within the meaning of Section 4043(b) of ERISA) or any other
event or condition with respect to any employee pension benefit plan of Borrower
or any of its ERISA Affiliates which presents a risk of termination of any such
plan by the Pension Benefit Guaranty Corporation.
(c) Full payment has been made of all amounts which Borrower or any
of its ERISA Affiliates is required under Section 302 of ERISA and Section 412
of the Code to have paid under the terms of each employee benefit plan as
contributions to such plan as of the last day of the most recent fiscal year of
such plan ended prior to the date hereof, and no accumulated funding deficiency
(as defined in Section 302 of ERISA and Section 412 of the Code), whether or not
waived, exists with respect to any employee benefit plan, including any penalty
or tax described in Section 8.12(a) hereof and any deficiency with respect to
vested accrued benefits described in Section 8.12(d) hereof.
(d) The current value of all vested accrued benefits under all
employee benefit plans maintained by Borrower that are subject to Title IV of
ERISA does not exceed the current value of the assets of such plans allocable to
such vested accrued benefits, including any penalty or tax described in Section
8.12(a) hereof and any accumulated funding deficiency described in Section
8.12(c) hereof. The terms "current value" and "accrued benefit" have the
meanings specified in ERISA.
(e) Neither Borrower nor any of its ERISA Affiliates is or has ever
been obligated to contribute to any "multiemployer plan" (as such term is
defined in Section 4001(a)(3) of ERISA) that is subject to Title IV of ERISA.
8.13 Environmental Compliance.
(a) Except as set forth on Schedule 8.13 hereto, Borrower has not
generated, used, stored, treated, transported, manufactured, handled, produced
or disposed of any Hazardous Materials, on or off its premises (whether or not
owned by it) in any manner which at any time violates any applicable
Environmental Law or any license, permit, certificate, approval or similar
authorization thereunder and the
31
operations of Borrower complies in all material respects with all Environmental
Laws and all licenses, permits, certificates, approvals and similar
authorizations thereunder.
(b) Except as set forth on Schedule 8.13 hereto, there has been no
investigation, proceeding, complaint, order, directive, claim, citation or
notice by any governmental authority or any other person nor is any pending or
to the best of Borrower's knowledge threatened, with respect to any
non-compliance with or violation of the requirements of any Environmental Law by
Borrower or the release, spill or discharge, threatened or actual, of any
Hazardous Material or the generation, use, storage, treatment, transportation,
manufacture, handling, production or disposal of any Hazardous Materials or any
other environmental, health or safety matter, which affects Borrower or its
business, operations or assets or any properties at which Borrower has
transported, stored or disposed of any Hazardous Materials.
(c) Borrower has no material liability (contingent or otherwise) in
connection with a release, spill or discharge, threatened or actual, of any
Hazardous Materials or the generation, use, storage, treatment, transportation,
manufacture, handling, production or disposal of any Hazardous Materials.
(d) Borrower has all licenses, permits, certificates, approvals or
similar authorizations required to be obtained or filed in connection with the
operations of Borrower under any Environmental Law and all of such licenses,
permits, certificates, approvals or similar authorizations are valid and in full
force and effect.
8.14 Accuracy and Completeness of Information. All information furnished
by or on behalf of Borrower in writing to Lender in connection with this
Agreement or any of the other Financing Agreements or any transaction
contemplated hereby or thereby, including all information on the Information
Certificate is true and correct in all material respects on the date as of which
such information is dated or certified and does not omit any material fact
necessary in order to make such information not misleading. No event or
circumstance has occurred which has had or could reasonably be expected to have
a material adverse effect on the business, assets or prospects of Borrower,
which has not been fully and accurately disclosed to Lender in writing.
8.15 Survival of Warranties; Cumulative. All representations and
warranties contained in this Agreement or any of the other Financing Agreements
shall survive the execution and delivery of this Agreement and shall be deemed
to have been made again to Lender on the date of each additional borrowing or
other credit accommodation hereunder and shall be conclusively presumed to have
been relied on by Lender regardless of any investigation made or information
possessed by Lender. The representations and warranties set forth herein shall
be cumulative and in addition to any other representations or warranties which
Borrower shall now or hereafter give, or cause to be given, to Lender.
SECTION 9 AFFIRMATIVE AND NEGATIVE COVENANTS
9.1 Maintenance of Existence. Borrower shall at all times preserve, renew
and keep in full, force and effect its corporate existence and rights and
franchises with respect thereto and
32
maintain in full force and effect all permits, licenses, trademarks, tradenames,
approvals, authorizations, leases and contracts necessary to carry on the
business as presently or proposed to be conducted. Borrower shall give Lender
thirty (30) days prior written notice of any proposed change in its corporate
name, which notice shall set forth the new name and Borrower shall deliver to
Lender a copy of the amendment to the Certificate of Incorporation of Borrower
providing for the name change certified by the Secretary of State of the
jurisdiction of incorporation of Borrower as soon as it is available.
9.2 New Collateral Locations. Borrower may open any new location within
the continental United States provided Borrower (a) gives Lender thirty (30)
days prior written notice of the intended opening of any such new location and
(b) executes and delivers, or causes to be executed and delivered, to Lender
such agreements, documents, and instruments as Lender may deem reasonably
necessary or desirable to protect its interests in the Collateral at such
location, including UCC financing statements.
9.3 Compliance with Laws, Regulations, Etc.
(a) Borrower shall, at all times, comply in all material respects
with all laws, rules, regulations, licenses, permits, approvals and orders
applicable to it and duly observe all requirements of any Federal, State or
local governmental authority, including the Employee Retirement Security Act of
1974, as amended, the Occupational Safety and Health Act of 1970, as amended,
the Fair Labor Standards Act of 1938, as amended, and all statutes, rules,
regulations, orders, permits and stipulations relating to environmental
pollution and employee health and safety, including all of the Environmental
Laws.
(b) Borrower shall give both oral and written notice to Lender
immediately upon Borrower's receipt of any notice of, or Borrower's otherwise
obtaining knowledge of, (i) the occurrence of any event involving the release,
spill or discharge, threatened or actual, of any Hazardous Material or (ii) any
investigation, proceeding, complaint, order, directive, claims, citation or
notice with respect to: (A) any non-compliance with or violation of any
Environmental Law by Borrower or (B) the release, spill or discharge, threatened
or actual, of any Hazardous Material or (C) the generation, use, storage,
treatment, transportation, manufacture, handling, production or disposal of any
Hazardous Materials or (D) any other environmental, health or safety matter,
which affects Borrower or its business, operations or assets or any properties
at which Borrower transported, stored or disposed of any Hazardous Materials.
(c) Without limiting the generality of the foregoing, whenever
Lender reasonably determines that there is non-compliance, or any condition
which requires any action by or on behalf of Borrower in order to avoid any
material non-compliance, with any Environmental Law, Borrower shall, at Lender's
request and Borrower's expense: (i) cause an independent environmental engineer
acceptable to Lender to conduct such tests of the site where Borrower's
non-compliance or alleged non-compliance with such Environmental Laws has
occurred as to such non-compliance and prepare and deliver to Lender a report as
to such non-compliance setting forth the results of such tests, a
33
proposed plan for responding to any environmental problems described therein,
and an estimate of the costs thereof and (ii) provide to Lender a supplemental
report of such engineer whenever the scope of such non-compliance, or Borrower's
response thereto or the estimated costs thereof, shall change in any material
respect.
(d) Borrower shall indemnify and hold harmless Lender, its
directors, officers, employees, agents, invitees, representatives, successors
and assigns, from and against any and all losses, claims, damages, liabilities,
costs, and expenses (including attorneys' fees and legal expenses) directly or
indirectly arising out of or attributable to the use, generation, manufacture,
reproduction, storage, release, threatened release, spill, discharge, disposal
or presence of a Hazardous Material, including the costs of any required or
necessary repair, cleanup or other remedial work with respect to any property of
Borrower and the preparation and implementation of any closure, remedial or
other required plans. All representations, warranties, covenants and
indemnifications in this Section 9.3 shall survive the payment of the
Obligations and the termination or non-renewal of this Agreement.
9.4 Payment of Taxes and Claims. Borrower shall duly pay and discharge all
taxes, assessments, contributions and governmental charges upon or against it or
its properties or assets, except for taxes the validity of which are being
contested in good faith by appropriate proceedings diligently pursued and
available to Borrower and with respect to which adequate reserves have been set
aside on its books. Borrower shall be liable for any tax or penalties imposed on
Lender as a result of the financing arrangements provided for herein and
Borrower agrees to indemnify and hold Lender harmless with respect to the
foregoing, and to repay to Lender on demand the amount thereof, and until paid
by Borrower such amount shall be added and deemed part of the Loans, provided,
that, nothing contained herein shall be construed to require Borrower to pay any
income or franchise taxes attributable to the income of Lender from any amounts
charged or paid hereunder to Lender. The foregoing indemnity shall survive the
payment of the Obligations and the termination or non-renewal of this Agreement.
9.5 Insurance. Borrower shall, at all times, maintain with financially
sound and reputable insurers insurance with respect to the Collateral against
loss or damage and all other insurance of the kinds and in the amounts
customarily insured against or carried by corporations of established reputation
engaged in the same or similar businesses and similarly situated. Said policies
of insurance shall be satisfactory to Lender as to form, amount and insurer.
Borrower shall furnish certificates, policies or endorsements to Lender as
Lender shall require as proof of such insurance, and, if Borrower fails to do
so, Lender is authorized, but not required, to obtain such insurance at the
expense of Borrower. All policies shall provide for at least thirty (30) days
prior written notice to Lender of any cancellation or reduction of coverage and
that Lender may act as attorney for Borrower in obtaining, and at any time an
Event of Default exists or has occurred and is continuing, adjusting, settling,
amending and canceling such insurance. Borrower shall cause Lender to be named
as a loss payee and an additional insured (but without any liability for any
premiums) under such insurance policies and Borrower shall obtain
non-contributory lender's loss payable endorsements to all insurance policies in
form and substance satisfactory to Lender. Such lender's loss payable
endorsements shall specify that the proceeds
34
of such insurance shall be payable to Lender as its interests may appear and
further specify that Lender shall be paid regardless of any act or omission by
Borrower or any of its affiliates. At its option, Lender may apply any insurance
proceeds received by Lender at any time to the cost of repairs or replacement of
Collateral and/or to payment of the Obligations, whether or not then due, in any
order and in such manner as Lender may determine or hold such proceeds as cash
collateral for the Obligations.
9.6 Financial Statements and Other Information.
(a) Borrower shall keep proper books and records in which true and
complete entries shall be made of all dealings or transactions of or in relation
to the Collateral and the business of Borrower and its subsidiaries (if any) in
accordance with GAAP and Borrower shall furnish or cause to be furnished to
Lender: (i) within thirty (30) days after the end of each fiscal month, monthly
unaudited consolidated financial statements, and, if Borrower has any
subsidiaries, unaudited consolidating financial statements (including in each
case balance sheets, statements of income and loss, statements of cash flow, and
statements of shareholders' equity), all in reasonable detail, fairly presenting
the financial position and the results of the operations of Borrower and its
subsidiaries as of the end of and through such fiscal month and (ii) within
ninety (90) days after the end of each fiscal year, audited financial statements
and, if Borrower has any subsidiaries, unaudited consolidating financial
statements of Borrower and its subsidiaries (including in each case balance
sheets, statements of income and loss, statements of cash flow and statements of
shareholders' equity), and the accompanying notes thereto, all in reasonable
detail, fairly presenting the financial position and the results of the
operations of Borrower and its subsidiaries as of the end of and for such fiscal
year, together with the unqualified opinion of independent certified public
accountants (in the case of audited financial statements), which accountants
shall be an independent accounting firm selected by Borrower and reasonably
acceptable to Lender, that such financial statements have been prepared in
accordance with GAAP, and present fairly the results of operations and financial
condition of Borrower and its subsidiaries as of the end of and for the fiscal
year then ended.
(b) Borrower shall promptly notify Lender in writing of the details
of (i) any loss, damage, investigation, action, suit, proceeding or claim
relating to the Collateral or any other property which is security for the
Obligations or which would result in any material adverse change in Borrower's
business, properties, assets, goodwill or condition, financial or otherwise and
(ii) the occurrence of any Event of Default or event which, with the passage of
time or giving of notice or both, would constitute an Event of Default.
(c) Borrower shall promptly after the sending or filing thereof
furnish or cause to be furnished to Lender copies of all reports which Borrower
sends to its stockholders generally and copies of all reports and registration
statements which Borrower files with the Securities and Exchange Commission, any
national securities exchange or the National Association of Securities Dealers,
Inc.
35
(d) Borrower shall furnish or cause to be furnished to Lender such
budgets, forecasts, projections and other information respecting the Collateral
and the business of Borrower, as Lender may, from time to time, reasonably
request. Lender is hereby authorized to deliver a copy of any financial
statement or any other information relating to the business of Borrower to any
court or other government agency or to any participant or assignee or
prospective participant or assignee. Borrower hereby irrevocably authorizes and
directs all accountants or auditors to deliver to Lender, at Borrower's expense,
copies of the financial statements of Borrower and any reports or management
letters prepared by such accountants or auditors on behalf of Borrower and to
disclose to Lender such information as they may have regarding the business of
Borrower. Any documents, schedules, invoices or other papers delivered to Lender
may be destroyed or otherwise disposed of by Lender one (1) year after the same
are delivered to Lender, except as otherwise designated by Borrower to Lender in
writing.
9.7 Sale of Assets, Consolidation, Merger, Dissolution, Etc. Borrower
shall not, directly or indirectly, (a) merge into or with or consolidate with
any other Person or permit any other Person to merge into or with or consolidate
with it, or (b) sell, assign, lease, transfer, abandon or otherwise dispose of
any stock or indebtedness to any other Person or any of its assets to any other
Person (except for (i) sales of Inventory in the ordinary course of business and
(ii) the disposition of worn-out or obsolete Equipment or Equipment no longer
used in the business of Borrower so long as (A) if an Event of Default exists or
has occurred and is continuing, any proceeds are paid to Lender and (B) such
sales do not involve Equipment having an aggregate fair market value in excess
of $50,000 for all such Equipment disposed of in any fiscal year of Borrower),
or (c) form or acquire any subsidiaries, or (d) wind up, liquidate or dissolve
or (e) agree to do any of the foregoing.
9.8 Encumbrances. Borrower shall not create, incur, assume or suffer to
exist any security interest, mortgage, pledge, lien, charge or other encumbrance
of any nature whatsoever on any of its assets or properties, including the
Collateral, except: (a) liens and security interests of Lender; (b) liens
securing the payment of taxes, either not yet overdue or the validity of which
are being contested in good faith by appropriate proceedings diligently pursued
and available to Borrower and with respect to which adequate reserves have been
set aside on its books; (c) non-consensual statutory liens (other than liens
securing the payment of taxes) arising in the ordinary course of Borrower's
business to the extent: (i) such liens secure indebtedness which is not overdue
or (ii) such liens secure indebtedness relating to claims or liabilities which
are fully insured and being defended at the sole cost and expense and at the
sole risk of the insurer or being contested in good faith by appropriate
proceedings diligently pursued and available to Borrower, in each case prior to
the commencement of foreclosure or other similar proceedings and with respect to
which adequate reserves have been set aside on its books; (d) zoning
restrictions, easements, licenses, covenants and other restrictions affecting
the use of real property which do not interfere in any material respect with the
use of such real property or ordinary conduct of the business of Borrower as
presently conducted thereon or materially impair the value of the real property
which may be subject thereto; (e) purchase money security interests in Equipment
(including capital leases) and purchase money mortgages on real estate not to
exceed $50,000 in the aggregate at any time outstanding so long as such security
interests and
36
mortgages do not apply to any property of Borrower other than the Equipment or
real estate so acquired, and the indebtedness secured thereby does not exceed
the cost of the Equipment or real estate so acquired, as the case may be; and
(f) the security interests and liens set forth on Schedule 8.4 hereto.
9.9 Indebtedness. Borrower shall not incur, create, assume, become or be
liable in any manner with respect to, or permit to exist, any obligations or
indebtedness, except: (a) the Obligations; (b) trade obligations and normal
accruals in the ordinary course of business not yet due and payable, or with
respect to which the Borrower is contesting in good faith the amount or validity
thereof by appropriate proceedings diligently pursued and available to Borrower,
and with respect to which adequate reserves have been set aside on its books;
(c) purchase money indebtedness (including capital leases) to the extent not
incurred or secured by liens (including capital leases) in violation of any
other provision of this Agreement; and (d) the indebtedness set forth on
Schedule 9.9 hereto including the Subordinated Debt; provided, that, (i)
Borrower may only make regularly scheduled payments of principal and interest in
respect of such indebtedness in accordance with the terms of the agreement or
instrument evidencing or giving rise to such indebtedness as in effect on the
date hereof subject to the terms of any subordination agreement governing such
indebtedness, (ii) Borrower shall not, directly or indirectly, (A) amend,
modify, alter or change the terms of such indebtedness or any agreement,
document or instrument related thereto as in effect on the date hereof, or (B)
redeem, retire, defease, purchase or otherwise acquire such indebtedness, or set
aside or otherwise deposit or invest any sums for such purpose, and (iii)
Borrower shall furnish to Lender all notices or demands in connection with such
indebtedness either received by Borrower or on its behalf, promptly after the
receipt thereof, or sent by Borrower or on its behalf, concurrently with the
sending thereof, as the case may be.
9.10 Loans, Investments, Guarantees, Etc. Borrower shall not, directly or
indirectly, make any loans or advance money or property to any person, or invest
in (by capital contribution, dividend or otherwise) or purchase or repurchase
the stock or indebtedness or all or a substantial part of the assets or property
of any person, or guarantee, assume, endorse, or otherwise become responsible
for (directly or indirectly) the indebtedness, performance, obligations or
dividends of any Person or agree to do any of the foregoing, except: (a) the
endorsement of instruments for collection or deposit in the ordinary course of
business; (b) investments in: (i) short-term direct obligations of the United
States Government, (ii) negotiable certificates of deposit issued by any bank
satisfactory to Lender, payable to the order of the Borrower or to bearer and
delivered to Lender, and (iii) commercial paper rated A1 or P1; provided, that,
as to any of the foregoing, unless waived in writing by Lender, Borrower shall
take such actions as are deemed necessary by Lender to perfect the security
interest of Lender in such investments and (c) the loans, advances and
guarantees set forth on Schedule 9.10 hereto; provided, that, as to such loans,
advances and guarantees, (i) Borrower shall not, directly or indirectly, (A)
amend, modify, alter or change the terms of such loans, advances or guarantees
or any agreement, document or instrument related thereto, or (B) as to such
guarantees, redeem, retire, defease, purchase or otherwise acquire the
obligations arising pursuant to such guarantees, or set aside or otherwise
deposit or invest any sums for such purpose, and (ii) Borrower shall furnish to
Lender all notices or demands in connection with such loans, advances or
guarantees or other indebtedness subject to such
37
guarantees either received by Borrower or on its behalf, promptly after the
receipt thereof, or sent by Borrower or on its behalf, concurrently with the
sending thereof, as the case may be.
9.11 Dividends and Redemptions. Borrower shall not, directly or
indirectly, declare or pay any dividends on account of any shares of class of
capital stock of Borrower now or hereafter outstanding, or set aside or
otherwise deposit or invest any sums for such purpose, or redeem, retire,
defease, purchase or otherwise acquire any shares of any class of capital stock
(or set aside or otherwise deposit or invest any sums for such purpose) for any
consideration other than common stock or apply or set apart any sum, or make any
other distribution (by reduction of capital or otherwise) in respect of any such
shares or agree to do any of the foregoing.
9.12 Transactions with Affiliates. Borrower shall not, directly or
indirectly, (a) purchase, acquire or lease any property from, or sell, transfer
or lease any property to, any officer, director, agent or other person
affiliated with Borrower, except in the ordinary course of and pursuant to the
reasonable requirements of Borrower's business and upon fair and reasonable
terms no less favorable to the Borrower than Borrower would obtain in a
comparable arm's length transaction with an unaffiliated person or (b) make any
payments of management, consulting or other fees for management or similar
services, or of any indebtedness owing to any officer, employee, shareholder,
director or other person affiliated with Borrower except reasonable compensation
to officers, employees and directors for services rendered to Borrower in the
ordinary course of business.
9.13 Additional Bank Accounts. Borrower shall not, directly or indirectly,
open, establish or maintain any deposit account, investment account or any other
account with any bank or other financial institution, other than the Blocked
Accounts and the accounts set forth in Schedule 8.8 hereto, except: (a) as to
any new or additional Blocked Accounts and other such new or additional accounts
which contain any Collateral or proceeds thereof, with the prior written consent
of Lender and subject to such conditions thereto as Lender may establish and (b)
as to any accounts used by Borrower to make payments of payroll, taxes or other
obligations to third parties, after prior written notice to Lender.
9.14 [Intentionally Deleted].
9.15 [Intentionally Deleted].
9.16 Costs and Expenses. Borrower shall pay to Lender on demand all costs,
expenses, filing fees and taxes paid or payable in connection with the
preparation, negotiation, execution, delivery, recording, administration,
collection, liquidation, enforcement and defense of the Obligations, Lender's
rights in the Collateral, this Agreement, the other Financing Agreements and all
other documents related hereto or thereto, including any amendments, supplements
or consents which may hereafter be contemplated (whether or not executed) or
entered into in respect hereof and thereof, including: (a) all costs and
expenses of filing or recording (including Uniform Commercial Code financing
statement filing taxes and fees, documentary taxes, intangibles taxes and
mortgage recording taxes and fees, if applicable); (b) all insurance premiums,
appraisal fees and search fees; (c) costs and expenses of remitting loan
proceeds, collecting checks and other items of payment, and establishing and
maintaining the Blocked
38
Accounts, together with Lender's customary charges and fees with respect
thereto; (d) charges, fees or expenses charged by any bank or issuer in
connection with the Letter of Credit Accommodations or Acceptances; (e) costs
and expenses of preserving and protecting the Collateral; (f) costs and expenses
paid or incurred in connection with obtaining payment of the Obligations,
enforcing the security interests and liens of Lender, selling or otherwise
realizing upon the Collateral, and otherwise enforcing the provisions of this
Agreement and the other Financing Agreements or defending any claims made or
threatened against Lender arising out of the transactions contemplated hereby
and thereby (including preparations for and consultations concerning any such
matters); (g) all out-of-pocket expenses and costs heretofore and from time to
time hereafter incurred by Lender during the course of periodic field
examinations of the Collateral and Borrower's operations, plus a per diem charge
at the rate of $650 per person per day for Lender's examiners in the field and
office; and (h) the fees and disbursements of counsel (including legal
assistants) to Lender in connection with any of the foregoing.
9.17 Further Assurances. At the request of Lender at any time and from
time to time, Borrower shall, at its expense, duly execute and deliver, or cause
to be duly executed and delivered, such further agreements, documents and
instruments, and do or cause to be done such further acts as may be necessary or
proper to evidence, perfect, maintain and enforce the security interests and the
priority thereof in the Collateral and to otherwise effectuate the provisions or
purposes of this Agreement or any of the other Financing Agreements. Lender may
at any time and from time to time request a certificate from an officer of
Borrower representing that all conditions precedent to the making of Loans,
providing Letter of Credit Accommodations and approving Acceptances contained
herein are satisfied. In the event of such request by Lender, Lender may, at its
option, cease to make any further Loans, provide any further Letter of Credit
Accommodations or approve any further Acceptances until Lender has received such
certificate and, in addition, Lender has determined that such conditions are
satisfied. Where permitted by law, Borrower hereby authorizes Lender to execute
and file one or more UCC financing statements signed only by Lender.
9.18 Year 2000 Covenant. Borrower shall take all action necessary to
assure that there will be no material adverse change to Borrower's business by
reason of the advent of the year 2000, including without limitation that all
computer-based systems, embedded microchips and other processing capabilities
effectively recognize and process dates after December 31, 1999.
9.19 Compliance with ERISA.
(a) Borrower shall not with respect to any "employee benefit plans"
maintained by Borrower or any of its ERISA Affiliates: (i) terminate any of such
employee benefit plans so as to incur any liability to the Pension Benefit
Guaranty Corporation established pursuant to ERISA, (ii) allow or suffer to
exist any prohibited transaction involving any of such employee benefit plans or
any trust created thereunder which would subject Borrower or such ERISA
Affiliate to a tax or penalty or other liability on prohibited transactions
imposed under Section 4975 of the Code or ERISA, (iii) fail to pay to any such
employee benefit plan any contribution which it is obligated to pay under
Section 302 of ERISA, Section 412 of the Code or the terms of such plan, (iv)
39
allow or suffer to exist any accumulated funding deficiency, whether or not
waived, with respect to any such employee benefit plan, (v) allow or suffer to
exist any occurrence of a reportable event or any other event or condition which
presents a material risk of termination by the Pension Benefit Guaranty
Corporation of any such employee benefit plan that is a single employer plan,
which termination could result in any liability to the Pension Benefit Guaranty
Corporation or (vi) incur any withdrawal liability with respect to any
multiemployer pension plan.
(b) As used in this Section 9.19, the terms "employee benefit
plans", "accumulated funding deficiency" and "reportable event" shall have the
respective meanings assigned to them in ERISA, and the term "prohibited
transaction" shall have the meaning assigned to it in Section 4975 of the Code
and ERISA.
9.20 Customs, Duty and Freight. Promptly, but in no event later than three
(3) Business Days after any Inventory ceases to be covered by a xxxx of lading
from the carrier transporting such goods to the applicable United States port,
Borrower shall (i) pay all applicable freight costs and duties, tariffs, taxes
and any other governmental assessments applicable to the importation and/or sale
of all such Inventory no longer constituting In-Transit Inventory and (ii)
satisfy all other requirements necessary for permitting all such Inventory to
gain entry into the United States through the United States Customs Service in
compliance with any applicable import quotas for immediate sale and/or
distribution in the United States.
9.21 In-Transit Inventory. Borrower shall cause all bills of lading and
other documents of title issued by any carrier of goods owned by Borrower being
transported to the United States or Canada from any other country to issue only
documents of title constituting a Qualifying Xxxx of Lading. If such goods are
being transported other than from overseas, Borrower shall cause all bills of
lading and other documents of title issued by any carrier of goods owned by
Borrower to be in non-negotiable form in the name of Borrower or such other
Person as Lender shall designate.
9.22 Booking of In-Transit Inventory and Related Liabilities. Borrower
shall reflect all purchases of Inventory and related liabilities resulting
therefrom in its financial books and records upon the issuance of a Qualifying
Xxxx of Lading in respect of such Inventory (or, if such goods are being
transported other than by sea, any other negotiable document of title which has
been issued in a manner consistent with the requirements of Section 9.21 hereof
and for a Qualifying Xxxx of Lading).
9.23 Transporter Agreements. Borrower shall not enter into any arrangement
or agreement with any customs agents, freight forwarders or principal domestic
common carriers, unless Lender receives an agreement with such party on terms
and conditions acceptable to Lender.
9.24 Subsidiary Business Activities. Other than the existing lines of
business carried on by TearDrop U.K. Ltd. and TearDrop Germany OMG as of the
date hereof (collectively, the "Foreign Subsidiaries"), Borrower shall not
permit any of its subsidiaries to engage in any line of business or maintain any
material assets. Borrower shall not permit the Foreign Subsidiaries to
40
engage in any other lines of business or materially increase their respective
operations, assets or liabilities from levels existing as of the date hereof.
9.25 Illinois Qualification. Within two (2) business days after the date
hereof, Borrowers shall have taken all actions necessary to cause it to be
qualified to do business in the state of Illinois and Borrower shall have
provided Lender with satisfactory evidence of such qualification.
9.26 Accounts Payable. Within thirty (30) days after the Closing Date,
Borrower shall have used at least $2,800,000 of its Excess Availability required
by Section 4.1 hereof to reduce its outstanding accounts payable to a level and
condition acceptable to Lender.
9.27 Canadian Operations. Borrower shall not permit its office located at
0000 Xxxxxx Xxxxxx Xxxxx xx Xxxxxxxxx, Xxxxxxx, Xxxxxx to maintain aggregate
funds in excess of (i) $75,000 at any time during the period in any year from
July 1 to December 31, (ii) $100,000 at any time during the period in any year
from January 1 to February 29 and (iii) $150,000 at any time during the period
in any year from March 1 to June 30. Borrower shall cause any funds received by
such office in excess of the amounts permitted in the preceding sentence to be
immediately remitted into the Payment Account.
9.28 Intellectual Property. Within twenty (20) days after the date hereof,
Borrower shall have (i) caused to be filed in the United States Patent and
Trademark Office (the "Office") all certificates of merger relating to the
merger of TearDrop Putter Corporation, TearDrop Promotions, Inc., TearDrop
Acquisition Corp., Ram Golf Corporation and Xxxxx Xxxxxx Golf Corporation with
and into Borrower and all applicable assignments and other documents required to
be filed by the Office to evidence ownership by Borrower of all intellectual
property that may be registered in the name of any of the foregoing entities at
the Office as of the date hereof and (ii) delivered to Lender satisfactory
evidence that all such certificates of merger, assignments and other applicable
documents were filed in the Office along with copies thereof. As soon as
available thereafter, Borrower shall have delivered to Lender recorded copies of
all the foregoing documents filed in the Office showing Borrower as the
registered owner of all the patents and trademarks disclosed on the Information
Certificate.
SECTION 10 EVENTS OF DEFAULT AND REMEDIES
10.1 Events of Default. The occurrence or existence of any one or more of
the following events are referred to herein individually as an "Event of
Default", and collectively as "Events of Default":
(a) Borrower fails to pay when due any of the Obligations or fails
to perform any of the terms, covenants, conditions or provisions contained in
this Agreement or any of the other Financing Agreements;
(b) any representation, warranty or statement of fact made by
Borrower to Lender in this Agreement, the other Financing Agreements or any
other
41
agreement, schedule, confirmatory assignment or otherwise shall when made or
deemed made be false or misleading in any material respect;
(c) any Obligor revokes, terminates or fails to perform any of the
terms, covenants, conditions or provisions of any guarantee, endorsement or
other agreement of such party in favor of Lender;
(d) any judgment for the payment of money is rendered against
Borrower or any Obligor in excess of $50,000 in any one case or in excess of
$100,000 in the aggregate with all other outstanding judgments and shall remain
undischarged or unvacated for a period in excess of thirty (30) days or
execution shall at any time not be effectively stayed, or any judgment other
than for the payment of money, or injunction, attachment, garnishment or
execution is rendered against Borrower or any Obligor or any of their assets;
(e) any Obligor (being a natural person or a general partner of an
Obligor which is a partnership) dies or Borrower or any Obligor, which is a
partnership, limited liability company, limited liability partnership or a
corporation, dissolves or suspends or discontinues doing business;
(f) Borrower or any Obligor becomes insolvent (however defined or
evidenced), makes an assignment for the benefit of creditors, makes or sends
notice of a bulk transfer or calls a meeting of its creditors or principal
creditors;
(g) a case or proceeding under the bankruptcy laws of the United
States of America now or hereafter in effect or under any insolvency,
reorganization, receivership, readjustment of debt, dissolution or liquidation
law or statute of any jurisdiction now or hereafter in effect (whether at law or
in equity) is filed against Borrower or any Obligor or all or any part of its
properties and such petition or application is not dismissed within thirty (30)
days after the date of its filing or Borrower or any Obligor shall file any
answer admitting or not contesting such petition or application or indicates its
consent to, acquiescence in or approval of, any such action or proceeding or the
relief requested is granted sooner;
(h) a case or proceeding under the bankruptcy laws of the United
States of America now or hereafter in effect or under any insolvency,
reorganization, receivership, readjustment of debt, dissolution or liquidation
law or statute of any jurisdiction now or hereafter in effect (whether at a law
or equity) is filed by Borrower or any Obligor or for all or any part of its
property; or
(i) any default by Borrower or any Obligor under any agreement,
document or instrument relating to any indebtedness for borrowed money owing to
any person other than Lender, or any capitalized lease obligations, contingent
indebtedness in connection with any guarantee, letter of credit, indemnity or
similar type of instrument in favor of any person other than Lender, in any case
in an amount in excess of $50,000, which default continues for more than the
applicable cure period, if any, with respect
42
thereto, or any default by Borrower or any Obligor under any material contract,
lease, license or other obligation to any person other than Lender, which
default continues for more than the applicable cure period, if any, with respect
thereto;
(j) Xxxx Xxxxxxx ceases to serve as Chief Executive Officer of the
Borrower;
(k) the indictment or threatened indictment of Borrower or any
Obligor under any criminal statute, or commencement or threatened commencement
of criminal or civil proceedings against Borrower or any Obligor, pursuant to
which statute or proceedings the penalties or remedies sought or available
include forfeiture of any of the property of Borrower or such Obligor;
(l) there shall be a material adverse change in the business, assets
or prospects of Borrower or any Obligor after the date hereof; or
(m) there shall be an event of default under any of the other
Financing Agreements.
10.2 Remedies.
(a) At any time an Event of Default exists or has occurred and is
continuing, Lender shall have all rights and remedies provided in this
Agreement, the other Financing Agreements, the Uniform Commercial Code and other
applicable law, all of which rights and remedies may be exercised without notice
to or consent by Borrower or any Obligor, except as such notice or consent is
expressly provided for hereunder or required by applicable law. All rights,
remedies and powers granted to Lender hereunder, under any of the other
Financing Agreements, the Uniform Commercial Code or other applicable law, are
cumulative, not exclusive and enforceable, in Lender's discretion,
alternatively, successively, or concurrently on any one or more occasions, and
shall include, without limitation, the right to apply to a court of equity for
an injunction to restrain a breach or threatened breach by Borrower of this
Agreement or any of the other Financing Agreements. Lender may, at any time or
times, proceed directly against Borrower or any Obligor to collect the
Obligations without prior recourse to the Collateral.
(b) Without limiting the foregoing, at any time an Event of Default
exists or has occurred and is continuing, Lender may, in its discretion and
without limitation, (i) accelerate the payment of all Obligations and demand
immediate payment thereof to Lender (provided, that, upon the occurrence of any
Event of Default described in Sections 10.1(g) and 10.1(h) hereof, all
Obligations shall automatically become immediately due and payable), (ii) with
or without judicial process or the aid or assistance of others, enter upon any
premises on or in which any of the Collateral may be located and take possession
of the Collateral or complete processing, manufacturing and repair of all or any
portion of the Collateral, (iii) require Borrower, at Borrower's expense, to
assemble and make available to Lender any part or all of the Collateral at any
43
place and time designated by Lender, (iv) collect, foreclose, receive,
appropriate, setoff and realize upon any and all Collateral, (v) remove any or
all of the Collateral from any premises on or in which the same may be located
for the purpose of effecting the sale, foreclosure or other disposition thereof
or for any other purpose, (vi) sell, lease, transfer, assign, deliver or
otherwise dispose of any and all Collateral (including entering into contracts
with respect thereto, public or private sales at any exchange, broker's board,
at any office of Lender or elsewhere) at such prices or terms as Lender may deem
reasonable, for cash, upon credit or for future delivery, with the Lender having
the right to purchase the whole or any part of the Collateral at any such public
sale, all of the foregoing being free from any right or equity of redemption of
Borrower, which right or equity of redemption is hereby expressly waived and
released by Borrower, (vii) require Borrower to permit any agents and/or
consultants designated by Lender to have full access to Borrower's books,
records, and operations for the purpose of monitoring and analyzing them and/or
(viii) terminate this Agreement. If any of the Collateral is sold or leased by
Lender upon credit terms or for future delivery, the Obligations shall not be
reduced as a result thereof until payment therefor is finally collected by
Lender. If notice of disposition of Collateral is required by law, five (5) days
prior notice by Lender to Borrower designating the time and place of any public
sale or the time after which any private sale or other intended disposition of
Collateral is to be made, shall be deemed to be reasonable notice thereof and
Borrower waives any other notice. In the event Lender institutes an action to
recover any Collateral or seeks recovery of any Collateral by way of prejudgment
remedy, Borrower waives the posting of any bond which might otherwise be
required.
(c) Lender may apply the cash proceeds of Collateral actually
received by Lender from any sale, lease, foreclosure or other disposition of the
Collateral to payment of the Obligations, in whole or in part and in such order
as Lender may elect, whether or not then due. Borrower shall remain liable to
Lender for the payment of any deficiency with interest at the highest rate
provided for herein and all costs and expenses of collection or enforcement,
including attorneys' fees and legal expenses.
10.3 Without limiting the foregoing, upon the occurrence of an Event of
Default or an event which with notice or passage of time or both would
constitute an Event of Default, Lender may, at its option, without notice, (i)
cease making Loans or arranging for Letter of Credit Accommodations or
Acceptances or reduce the lending formulas or amounts of Revolving Loans, Letter
of Credit Accommodations or Acceptances available to Borrower and/or (ii)
terminate any provision of this Agreement providing for any future Loans, Letter
of Credit Accommodations or Acceptances to be made by Lender to Borrower.
SECTION 11 JURY TRIAL WAIVER; OTHER WAIVERS
AND CONSENTS; GOVERNING LAW
11.1 Governing Law; Choice of Forum; Service of Process; Jury Trial
Waiver.
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(a) The validity, interpretation and enforcement of this Agreement
and the other Financing Agreements and any dispute arising out of the
relationship between the parties hereto, whether in contract, tort, equity or
otherwise, shall be governed by the internal laws of the State of Illinois
(without giving effect to principles of conflicts of law).
(b) Borrower and Lender irrevocably consent and submit to the
non-exclusive jurisdiction of the Circuit Court of Xxxx County, Illinois and the
United States District Court for the Northern District of Illinois and waive any
objection based on venue or forum non conveniens with respect to any action
instituted therein arising under this Agreement or any of the other Financing
Agreements or in any way connected with or related or incidental to the dealings
of the parties hereto in respect of this Agreement or any of the other Financing
Agreements or the transactions related hereto or thereto, in each case whether
now existing or hereafter arising, and whether in contract, tort, equity or
otherwise, and agree that any dispute with respect to any such matters shall be
heard only in the courts described above (except that Lender shall have the
right to bring any action or proceeding against Borrower or its property in the
courts of any other jurisdiction which Lender deems necessary or appropriate in
order to realize on the Collateral or to otherwise enforce its rights against
Borrower or its property).
(c) Borrower hereby waives personal service of any and all process
upon it and consents that all such service of process may be made by certified
mail (return receipt requested) directed to its address set forth on the
signature pages hereof and service so made shall be deemed to be completed five
(5) days after the same shall have been so deposited in the U.S. mails, or, at
Lender's option, by service upon Borrower in any other manner provided under the
rules of any such courts. Within thirty (30) days after such service, Borrower
shall appear in answer to such process, failing which Borrower shall be deemed
in default and judgment may be entered by Lender against Borrower for the amount
of the claim and other relief requested.
(d) BORROWER AND LENDER EACH HEREBY WAIVES ANY RIGHT TO TRIAL BY
JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (i) ARISING UNDER THIS
AGREEMENT OR ANY OF THE OTHER FINANCING AGREEMENTS OR (ii) IN ANY WAY CONNECTED
WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO IN RESPECT
OF THIS AGREEMENT OR ANY OF THE OTHER FINANCING AGREEMENTS OR THE TRANSACTIONS
RELATED HERETO OR THERETO IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER
ARISING, AND WHETHER IN CONTRACT, TORT, EQUITY OR OTHERWISE. BORROWER AND LENDER
EACH HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF
ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY AND THAT BORROWER OR
LENDER MAY FILE AN ORIGINAL COUNTERPART OF A COPY OF THIS AGREEMENT WITH ANY
COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE PARTIES HERETO TO THE WAIVER OF
THEIR RIGHT TO TRIAL BY JURY.
45
(e) Lender shall not have any liability to Borrower (whether in
tort, contract, equity or otherwise) for losses suffered by Borrower in
connection with, arising out of, or in any way related to the transactions or
relationships contemplated by this Agreement, or any act, omission or event
occurring in connection herewith, unless it is determined by a final and
non-appealable judgment or court order binding on Lender, that the losses were
the result of acts or omissions constituting gross negligence or willful
misconduct. In any such litigation, Lender shall be entitled to the benefit of
the rebuttable presumption that it acted in good faith and with the exercise of
ordinary care in the performance by it of the terms of this Agreement.
11.2 Waiver of Notices. Borrower hereby expressly waives demand,
presentment, protest and notice of protest and notice of dishonor with respect
to any and all instruments and commercial paper, included in or evidencing any
of the Obligations or the Collateral, and any and all other demands and notices
of any kind or nature whatsoever with respect to the Obligations, the Collateral
and this Agreement, except such as are expressly provided for herein. No notice
to or demand on Borrower which Lender may elect to give shall entitle Borrower
to any other or further notice or demand in the same, similar or other
circumstances.
11.3 Amendments and Waivers. Neither this Agreement nor any provision
hereof shall be amended, modified, waived or discharged orally or by course of
conduct, but only by a written agreement signed by an authorized officer of
Lender, and as to amendments, as also signed by an authorized officer of
Borrower. Lender shall not, by any act, delay, omission or otherwise be deemed
to have expressly or impliedly waived any of its rights, powers and/or remedies
unless such waiver shall be in writing and signed by an authorized officer of
Lender. Any such waiver shall be enforceable only to the extent specifically set
forth therein. A waiver by Lender of any right, power and/or remedy on any one
occasion shall not be construed as a bar to or waiver of any such right, power
and/or remedy which Lender would otherwise have on any future occasion, whether
similar in kind or otherwise.
11.4 Waiver of Counterclaims. Borrower waives all rights to interpose any
claims, deductions, setoffs or counterclaims of any nature (other then
compulsory counterclaims) in any action or proceeding with respect to this
Agreement, the Obligations, the Collateral or any matter arising therefrom or
relating hereto or thereto.
11.5 Indemnification. Borrower shall indemnify and hold Lender, and its
directors, agents, employees and counsel, harmless from and against any and all
losses, claims, damages, liabilities, costs or expenses imposed on, incurred by
or asserted against any of them in connection with any litigation,
investigation, claim or proceeding commenced or threatened related to the
negotiation, preparation, execution, delivery, enforcement, performance or
administration of this Agreement, any other Financing Agreements, or any
undertaking or proceeding related to any of the transactions contemplated hereby
or any act, omission, event or transaction related or attendant thereto,
including amounts paid in settlement, court costs, and the fees and expenses of
counsel. To the extent that the undertaking to indemnify, pay and hold harmless
set forth in this Section may be unenforceable because it violates any law or
public policy, Borrower shall pay the maximum portion which it is permitted to
pay under applicable
46
law to Lender in satisfaction of indemnified matters under this Section. The
foregoing indemnity shall survive the payment of the Obligations and the
termination or non-renewal of this Agreement.
SECTION 12 TERM OF AGREEMENT; MISCELLANEOUS
12.1 Term.
(a) This Agreement and the other Financing Agreements shall become
effective as of the date set forth on the first page hereof and shall continue
in full force and effect for a term ending on the date two (2) years from the
date hereof (the "Renewal Date"), and, if agreed to in writing by both Lender
and Borrower, from year to year thereafter, unless sooner terminated pursuant to
the terms hereof. Lender or Borrower may terminate this Agreement and the other
Financing Agreements effective on the Renewal Date or on the anniversary of the
Renewal Date in any year by giving to the other party at least ninety (90) days
prior written notice; provided, that, this Agreement and all other Financing
Agreements must be terminated simultaneously. Upon the effective date of
termination or non-renewal of the Financing Agreements, Borrower shall pay to
Lender, in full, all outstanding and unpaid Obligations and shall furnish cash
collateral to Lender in such amounts as Lender determines are reasonably
necessary to secure Lender from loss, cost, damage or expense, including
attorneys' fees and legal expenses, in connection with any contingent
Obligations, including issued and outstanding Letter of Credit Accommodations,
Acceptances and checks or other payments provisionally credited to the
Obligations and/or as to which Lender has not yet received final and
indefeasible payment. Such payments in respect of the Obligations and cash
collateral shall be remitted by wire transfer in Federal funds to such bank
account of Lender, as Lender may, in its discretion, designate in writing to
Borrower for such purpose. Interest shall be due until and including the next
business day, if the amounts so paid by Borrower to the bank account designated
by Lender are received in such bank account later than 12:00 noon, Chicago time.
(b) No termination of this Agreement or the other Financing
Agreements shall relieve or discharge Borrower of its respective duties,
obligations and covenants under this Agreement or the other Financing Agreements
until all Obligations have been fully and finally discharged and paid, and
Lender's continuing security interest in the Collateral and the rights and
remedies of Lender hereunder, under the other Financing Agreements and
applicable law, shall remain in effect until all such Obligations have been
fully and finally discharged and paid.
(c) If for any reason this Agreement is terminated prior to the end
of the then current term or renewal term of this Agreement, in view of the
impracticality and extreme difficulty of ascertaining actual damages and by
mutual agreement of the parties as to a reasonable calculation of Lender's lost
profits as a result thereof, Borrower agrees to pay to Lender, upon the
effective date of such termination, an early termination fee in the amount set
forth below if such termination is effective in the period indicated:
47
===============================================================================
Amount Period
------ ------
-------------------------------------------------------------------------------
.(i) 2% of the total obtained From the date hereof to and
by subtracting the including the first anniversary
original principal date of the date hereof
amount of Term Loan B
from the Maximum Credit
--------------------------------------------------------------------------------
.(ii) 1% of the total obtained From the first anniversary date of
by subtracting the the date hereof to and including
original principal the second anniversary date of the
amount of Term Loan B date hereof or if the term of this
from the Maximum Credit Agreement is extended for an
additional year as provided above,
then to and including each
successive anniversary date of the
date hereof
===============================================================================
Such early termination fee shall be presumed to be the amount of damages
sustained by Lender as a result of such early termination and Borrower agrees
that it is reasonable under the circumstances currently existing. In addition,
Lender shall be entitled to such early termination fee upon the occurrence of
any Event of Default described in Sections 10.1(g) and 10.1(h) hereof, even if
Lender does not exercise its right to terminate this Agreement, but elects, at
its option, to provide financing to Borrower or permit the use of cash
collateral under the United States Bankruptcy Code. The early termination fee
provided for in this Section 12.1 shall be deemed included in the Obligations.
12.2 Notices. All notices, requests and demands hereunder shall be in
writing and (a) made to Lender at its address set forth below and to Borrower at
its chief executive office set forth below, or to such other address as either
party may designate by written notice to the other in accordance with this
provision, and (b) deemed to have been given or made: if delivered in person,
immediately upon delivery; if by telex, telegram or facsimile transmission,
immediately upon sending and upon confirmation of receipt; if by nationally
recognized overnight courier service with instructions to deliver the next
business day, one (1) business day after sending; and if by certified mail,
return receipt requested, five (5) days after mailing.
12.3 Partial Invalidity. If any provision of this Agreement is held to be
invalid or unenforceable, such invalidity or unenforceability shall not
invalidate this Agreement as a whole, but this Agreement shall be construed as
though it did not contain the particular provision held to be invalid or
unenforceable and the rights and obligations of the parties shall be construed
and enforced only to such extent as shall be permitted by applicable law.
12.4 Successors. This Agreement, the other Financing Agreements and any
other document referred to herein or therein shall be binding upon and inure to
the benefit of and be enforceable by Lender, Borrower and their respective
successors and assigns, except that Borrower may not assign its rights under
this Agreement, the other Financing Agreements and any other document referred
to herein or therein without the prior written consent of Lender. Lender may,
after notice to Borrower, assign its rights and delegate its obligations under
this Agreement and the other Financing Agreements and further may assign, or
sell participations in,
48
all or any part of the Loans, the Letter of Credit Accommodations, the
Acceptances or any other interest herein to another financial institution or
other person, in which event, the assignee or participant shall have, to the
extent of such assignment or participation, the same rights and benefits as it
would have if it were the Lender hereunder, except as otherwise provided by the
terms of such assignment or participation.
12.5 Entire Agreement. This Agreement, the other Financing Agreements, any
supplements hereto or thereto, and any instruments or documents delivered or to
be delivered in connection herewith or therewith represents the entire agreement
and understanding concerning the subject matter hereof and thereof between the
parties hereto, and supersede all other prior agreements, understandings,
negotiations and discussions, representations, warranties, commitments,
proposals, offers and contracts concerning the subject matter hereof, whether
oral or written. In the event of any inconsistency between the terms of this
Agreement and any schedule or exhibit hereto, the terms of this Agreement shall
govern.
12.6 Participant's Security Interest. If a Participant shall at any time
participate with Lender in the Loans, Letter of Credit Accommodations, the
Acceptances or other Obligations, Borrower hereby grants to such Participant and
such Participant shall have and is hereby given, a continuing lien on and
security interest in any money, securities and other property of Borrower in the
custody or possession of the Participant, including the right of setoff, to the
extent of the Participant's participation in the Obligations, and such
participant shall be deemed to have the same right of setoff to the extent of
its participation in the Obligations, as it would have if it were a direct
lender.
12.7 Restatement of Assignment Documents. Borrower and Lender agree that
on the date hereof, the following transactions shall be deemed to occur
automatically, without further action by any party hereto: (a) the Loan and
Security Agreement dated as of November 10, 1997 (as amended, the "1997 Loan
Agreement") and the other Assigned Loan Documents (as defined in that certain
Assignment and Assumption Agreement dated as of the date hereof between Lender
and First Union National Bank but excluding therefrom any UCC financing
statements) shall be deemed to be amended and restated in their entirety in the
form of this Agreement and (b) all "Liabilities" (as defined in the Assignment
and Assumption Agreement) outstanding under the 1997 Loan Agreement and the
other Assigned Loan Documents (collectively, the "Prior Obligations") shall, to
the extent not paid on the date hereof, be deemed to be Obligations outstanding
hereunder. The parties acknowledge and agree that this Agreement and the other
Financing Agreements do not constitute a novation, payment and reborrowing or
termination of the Prior Obligations under the 1997 Loan Agreement and the other
Assigned Loan Documents delivered thereunder (except that the Borrower hereby
represents and warrants that it has paid all accrued and unpaid interest and/or
fees under the 1997 Loan Agreement) and that all such Prior Obligations are in
all respects continued and outstanding as Obligations under this Agreement with
only the terms being modified from and after the date hereof as provided in this
Agreement.
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IN WITNESS WHEREOF, Lender and Borrower have caused these presents to be
duly executed as of the day and year first above written.
================================================================================
LENDER BORROWER
CONGRESS FINANCIAL CORPORATION TEARDROP GOLF COMPANY
(CENTRAL)
/s/ Xxxxxx X. Xxxxxx /s/ Xxxx Xxxxxxx
------------------------------------ -------------------------------------
By: Xxxxxx X. Xxxxxx By: Xxxx Xxxxxxx
--------------------------------- ----------------------------------
Title: Vice President Title: President
------------------------------ -------------------------------
Address: Chief Executive Office:
000 Xxxxx Xxxxxx Xxxxx, Xxxxx 0000 0000 Xxxxxxx Xxxx
Xxxxxxx, Xxxxxxxx 00000 Xxxxx, Xxx Xxxxxx 00000
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[Signature Page to Loan and Security Agreement]
S-1
