SECURITY AGREEMENT
This Security Agreement (this "Agreement") is dated as of
May 19, 1998 by and between FLEET CAPITAL CORPORATION, as Agent ("Fleet"),
having an office at 000 Xxxxxxxxxxx Xxxxxxxxx, Xxxxxxxxxxx, Xxxxxxxxxxx and
CARPET BARN HOLDINGS, INC., a Delaware corporation (the "Company"), having its
principal place of business c/x Xxxxxx Investments, Inc., 000 Xxxxxx Xxxx,
00xx Xxxxx, Xxx Xxxx, Xxx Xxxx 00000.
BACKGROUND
Pursuant to the terms of a Loan and Security Agreement dated
as of May 19, 1998 (as amended, modified, restated or supplemented from time
to time, the "Loan Agreement") among Carpet Barn, Inc. ("Borrower"), the
lenders named therein or which hereafter become a party thereto ("Lenders")
and Fleet as agent for Lenders (in such capacity, "Secured Party"), Lenders
and Secured Party have agreed to make certain extensions of credit available
to Borrower. Lenders and Secured Party are willing to make such extensions of
credit available to the Borrower only upon the condition, among others, that
the Company execute and deliver its Guaranty of the obligations of Borrower to
Secured Party and that the Company secure its Guaranty by executing and
delivering this agreement to Secured Party.
NOW, THEREFORE, in consideration of the mutual covenants and
undertakings and the terms and conditions contained herein, the parties hereto
agree as follows:
1. (A) General Definitions. When used in this Agreement, the
following terms shall have the following meanings:
"Accounts" all accounts, contracts rights, chattel paper,
instruments and documents, whether now owned or hereafter created or acquired
by the Company or in which the Company now has or hereafter acquires any
interest.
"Affiliate" of any Person shall mean (a) any Person (other
than a Subsidiary) which, directly or indirectly, is in control of, is
controlled by, or is under common control with such Person, or (b) any Person
who is a director or officer (i) of such Person, (ii) of any Subsidiary of
such Person or (iii) of any Person described in clause (a) above. For purposes
of this definition, control of a Person shall mean the power, direct or
indirect, (x) to vote 5% or more of the securities having ordinary voting
power for the election of directors of such Person, or (y) to direct or cause
the direction of the management and policies of such Person whether by
contract or otherwise.
"Collateral" shall mean and include:
(a) all Accounts;
(b) all Inventory;
(c) all Equipment;
(d) all General Intangibles;
(e) all monies, securities, investment property
and other Property of any kind, now or at any tine or times hereafter, in the
possession or under the control of Secured Party or a bailee of Secured Party
or a bailee of Secured Party;
(f) all accessions to, substitutions for and all
replacements, products and cash and non-cash proceeds of (a), (b), (c), (d)
and (e) above, including, without limitation, proceeds of and unearned
premiums with respect to insurance policies insuring any of the Collateral;
and
(g) all books and records (including, without
limitation, customer lists, credit files, computer programs, printouts, and
other computer materials and records) of the Company pertaining to any of (a),
(b), (c), (d), (e) or (f) above.
"Company" shall have the meaning set forth in the introductory
paragraph hereof.
"Customer" means and includes the account debtor with
respect to any Account and/or the prospective purchaser of goods, services or
both with respect to any contract or contract right, and/or any party who
enters into or proposes to enter into any contract or other arrangement with
the Company, pursuant to which the Company is to deliver any personal property
or perform any services.
"Default" means any act or event which, with the giving of
notice or passage of time or both, would constitute an Event of Default.
"Environmental Complaint" means any notice of violation,
request for information or notification that the Company is potentially
responsible for investigation or cleanup of environmental conditions on its
property, demand letter or complaint, order, citation, or other written notice
with regard to any Hazardous Discharge or violation of any environmental laws
affecting its property or the Company's interest therein.
"Equipment" all machinery, apparatus, equipment, fittings,
furniture, fixtures and other tangible personal property (other than motor
vehicles and Inventory) of every kind and description used in the Company's
operations or owned by the Company or in which the Company has an interest,
whether now owned or hereafter acquired by the Company and wherever located,
and all parts, accessories and special tools and all increases and accessions
thereto and substitutions and replacements therefor.
"Event of Default" means the occurrence of any of the events
set forth in Section 12.
"GAAP" means generally accepted accounting principles,
practices and procedures in effect from time to time.
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"General Intangibles" all general intangibles of the
Company, whether now owned or hereafter created or acquired by the Company,
including, without limitation, all choses in action, causes of action,
corporate or other business records, deposit accounts, inventions, designs,
patents, patent applications, trademarks, trade names, trade secrets,
goodwill, copyrights, registrations, licenses, franchises, customer lists, tax
refund claims, computer programs, all claims under guaranties, security
interests or other security held by or granted to the Company to secure
payment of any of the Accounts by a Customer, all rights to indemnification
and all other intangible property of every kind and nature (other than
Accounts).
"Guaranty" means the Guaranty dated this date which is
executed by the Company in favor of Secured Party.
"Hazardous Discharge" means any release or threat of release
of a reportable quantity of any hazardous substances on the Company's
property.
"Inventory" all of the Company's inventory, whether now
owned or hereafter acquired by Borrower, including but not limited to, all
goods, intended for sale or lease by the Company, or for display or
demonstration; all work in process; and all documents evidencing and General
Intangibles relating to any of the foregoing, whether now or hereafter
acquired by the Company.
"Loans" means all extensions of credit under the Loan
Agreement.
"Loan Agreement" shall have the meaning set forth in the
Background paragraph hereof.
"Obligations" means and includes all Loans, all obligations
of the Company to Secured Party under the Guaranty, all advances, debts,
liabilities, obligations, covenants and duties owing by the Company to Secured
Party (or any corporation that directly or indirectly controls or is
controlled by or is under common control with Secured Party) of every kind and
description (whether or not evidenced by the Guaranty, any note or other
instrument and whether or not for the payment of money or the performance or
non-performance of any act), direct or indirect, absolute or contingent, due
or to become due, contractual or tortious, liquidated or unliquidated, whether
existing by operation of law or otherwise now existing or hereafter arising
including, without limitation, any debt, liability or obligation owing from
the Company to others which Secured Party may have obtained by assignment or
otherwise and further including, without limitation, all payments the Company
is required to make by law or otherwise arising under or as a result of this
Agreement, together with all reasonable expenses and reasonable attorneys'
fees chargeable to the Company's account or incurred by Secured Party in
connection with the Company's account whether provided for herein or in any
other agreement, instrument or document executed by or on behalf of the
Company or delivered to Secured Party relating to this Agreement or the
transactions contemplated hereby.
"Permitted Liens" means (i) liens of carriers, warehousemen,
mechanics and materialmen incurred in the ordinary course of business securing
sums not overdue; (ii) liens
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incurred in the ordinary course of business in connection with worker's
compensation, unemployment insurance or other forms of governmental insurance
or benefits, relating to employees, securing sums (a) not overdue or (b) being
diligently contested in good faith provided that adequate reserves with
respect thereto are maintained on the books of the Company in conformity with
GAAP, (iii) liens in favor of Secured Party, (iv) liens for taxes (a) not yet
due or (b) being diligently contested in good faith, provided that adequate
reserves with respect thereto are maintained on the books of the Company in
conformity with GAAP, provided, that, the lien shall have no effect on the
priority of the liens in favor of Secured Party or the value of the assets in
which Secured Party has such a lien and a stay of enforcement of any such lien
shall be in effect and (v) liens specified on Schedule 1(A) hereto.
"Person" means an individual, partnership, corporation,
trust or unincorporated organization, or a government or agency or political
subdivision thereof.
"Secured Party" shall have the meaning set forth in the
introductory paragraph hereof.
"Subsidiary" of any Person means a corporation or other
entity of whose shares of stock or other ownership interests having ordinary
voting power (other than stock or other ownership interests having such power
only by reason of the happening of a contingency) to elect a majority of the
directors of such corporation, or other Persons performing similar functions
for such entity, are owned, directly or indirectly, by such Person.
(B) Accounting Terms. Any accounting terms used in this
Agreement which are not specifically defined shall have the meanings
customarily given them in accordance with GAAP.
(C) Other Terms. All other terms used in this Agreement and
defined in the Uniform Commercial Code as adopted in the State of New York
("UCC"), shall have the meaning given therein unless otherwise defined herein.
2. Security Interest.
(a) To secure the prompt and complete payment
and performance to Secured Party of the Obligations, the Company hereby
assigns, pledges and grants to Secured Party a continuing security interest in
and to the Collateral, whether now owned or existing or hereafter acquired or
arising and wheresoever located, whether or not the same is subject to Article
9 of the UCC. All of the Company's ledger sheets, files, records, books of
account, business papers and documents relating to the Collateral shall, until
delivered to or removed by Secured Party, be kept by the Company in trust for
Secured Party until all Obligations have been paid in full.
(b) Secured Party may file one or more financing
statements disclosing Secured Party's security interest in the Collateral
without the Company's signature appearing thereon or Secured Party may sign
such financing statements on the Company's behalf as provided in Section 8
hereof. The parties agree that a carbon, photographic or other
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reproduction of this Agreement shall be sufficient as a financing statement.
If any Account becomes evidenced by a promissory note or any other instrument
for the payment of money, the Company will immediately deliver such instrument
to Secured Party appropriately endorsed.
3. Representations Concerning the Collateral. The Company
represents and warrants:
(a) the Collateral (i) is owned solely by the
Company free and clear of all claims, liens, security interests and
encumbrances (including without limitation any claims of infringement) except
(A) those in Secured Party's favor and (B) Permitted Liens and (ii) is not
subject to any agreement prohibiting the granting of a security interest or
requiring notice of or consent to the granting of a security interest;
(b) (i) all Accounts (x) represent complete bona
fide transactions with Customers in the ordinary course of the Company's
business which require no further act under any circumstances on the Company's
part to make such Accounts payable by the Customers, and (y) do not represent
xxxx and hold sales, consignment sales, guaranteed sales, sale or return or
other similar understandings or obligations of the Company and (ii) at the
time such Account arose the Company had no knowledge that any Customer is
unable generally to pay its debts as they become due.
(c) all Inventory is of good and merchantable
quality, free from any defects. No Inventory is subject to any licensing,
patent, royalty, trademark, tradename or copyright agreements with any third
parties. The completion of manufacture, sale or other disposition of Inventory
by Secured Party following an Event of Default shall not require the consent
of any Person and shall not constitute a breach or default under any contract
or agreement to which the Company is a party or to which such property is
subject.
4. Covenants Concerning the Collateral. The Company
covenants that from and after the date of this Agreement and until the
Obligations are paid in full it shall:
(a) not dispose of any of the Collateral whether
by sale, lease or otherwise except for (i) the sale of Inventory in the
ordinary course of business, and (ii) the disposition or transfer of obsolete
and worn-out Equipment in the ordinary course of business during any fiscal
year having an aggregate fair market value of not more than $50,000;
(b) not encumber, mortgage, pledge, assign or
grant any security interest in any Collateral or any of the Company's other
assets to anyone other than Secured Party, except for Permitted Liens;
(c) place notations upon the Company's books of
account and any financial statement prepared by the Company to disclose
Secured Party's security interest in the Collateral;
(d) defend the Collateral against the claims and
demands of all parties.
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(e) keep and maintain the Equipment in
sufficient operating condition for the conduct of its business in the ordinary
course; and
(f) perform all other steps requested by Secured
Party to create and maintain in Secured Party's favor a valid perfected first
priority security interest in all Collateral.
5. Collection and Maintenance of Collateral and Records. The
Company shall keep and maintain at its own cost and expense, satisfactory and
complete records of the Collateral including, without limitation, a record of
any and all payments received and any and all credits granted with respect to
the Collateral and all other dealings with the Collateral. Secured Party may
at any time verify the Company's Accounts utilizing an audit control company
or any other agent of Secured Party. Secured Party or Secured Party's designee
may notify Customers at any time following the occurrence and during
continuance of an Event of Default, at Secured Party's sole discretion, of
Secured Party's security interest in Accounts (contracts, instruments, or
chattel paper as the case may be), collect them directly from the Customers or
parties to contracts, instruments and chattel paper and charge the collection
costs and expenses to the Company's account, but, unless and until Secured
Party does so or gives the Company other instructions, the Company shall
collect all Accounts for Secured Party, receive all payments thereon for
Secured Party's benefit in trust as Secured Party's trustee and immediately
deliver them to Secured Party in their original form with all necessary
endorsements or, as directed by Secured Party, deposit such payments as
directed by Secured Party. The Company shall provide Secured Party, as
requested by Secured Party, such schedules, documents and/or information
regarding the Collateral as Secured Party may require.
6. Inspections. At all times during normal business hours,
Secured Party shall have the right to (a) visit and inspect the Company's
properties and the Collateral, (b) inspect, audit and make extracts from the
Company's relevant books and records, including, but not limited to,
management letters prepared by independent accountants, and (c) discuss with
the Company's principal officers, and independent accountants, the Company's
business, assets, liabilities, financial condition, results of operations and
business prospects, and the Company shall furnish all such assistance and
information as Secured Party may require in connection therewith. The Company
will deliver to Secured Party any instrument necessary for Secured Party to
obtain records from any service bureau maintaining records for the Company.
7. Additional Representations, Warranties and Covenants. The
Company represents, warrants, and covenants that:
(a) the Company is a corporation duly organized
and validly existing under the laws of the State of Delaware and duly
qualified and in good standing in every other state or jurisdiction in which
the nature of the Company's business or the ownership of its assets requires
such qualification.
(b) the execution, delivery and performance of
this Agreement (i) has been duly authorized, (ii) is not in contravention of
the Company's certificate of incorporation, by-laws or of any indenture,
agreement or undertaking to which the Company is a party or by which the
Company is bound and (iii) is within the Company's corporate powers.
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(c) this Agreement is the Company's legal, valid
and binding obligation, enforceable in accordance with its terms.
(d) it keeps and will continue to keep all of
its books and records concerning the Collateral at the Company's chief
executive offices located at the address set forth in the introductory
paragraph of this Agreement and will not move such books and records without
giving Secured Party at least thirty (30) days prior written notice and taking
all actions deemed by the Secured Party necessary to continuously protect and
perfect Secured Party's liens upon the Collateral; and the Collateral is not
stored or located at any locations other than as set forth on Schedule 7(d).
(e) (i) the operation of the Company's
business is and will continue to be in compliance in all material respects
with all applicable federal, state and local laws, including but not limited
to all applicable environmental laws and regulations;
(ii) the Company will establish and
maintain a system to assure and monitor continued compliance with all
applicable environmental laws, which system shall include periodic reviews of
such compliance;
(iii) the Company shall respond promptly
to any Hazardous Discharge or Environmental Complaint and take all necessary
action in order to safeguard the health of any Person and to avoid subjecting
the Collateral to any lien, charge, claim or encumbrance; and
(iv) the Company shall defend and
indemnify the Secured Party and hold the Secured Party harmless from and
against all loss, liability, damage and expense, claims, costs, fines and
penalties, including attorney's fees, suffered or incurred by the Secured
Party under or on account of any environmental laws.
(f) there is no pending or threatened
litigation, actions or proceeding which involve the possibility of materially
and adversely affecting the Company's business, assets, operations, condition
or prospects, financial or otherwise, or the Collateral or the ability of the
Company to perform this Agreement.
(g) it will pay or discharge when due all taxes,
assessments and governmental charges or levies imposed upon it unless same are
not delinquent or same constitute Permitted Liens.
(h) it will promptly inform Secured Party in
writing of: (i) the commencement of all proceedings and investigations by or
before and/or the receipt of any notices from, any governmental or
nongovernmental body and all actions and proceedings in any court or before
any arbitrator against or in any way concerning any of the Company's
properties, assets or business, which might singly or in the aggregate, have a
materially adverse effect on the Company; (ii) any amendment of the Company's
certificate of incorporation or by-laws; (iii) any change in the Company's
business, assets, liabilities, condition (financial or otherwise), results of
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operations or business prospects which has had or might have a materially
adverse effect on the Company; (iv) any Event of Default or Default; (v) any
default or any event which with the passage of time or giving of notice or
both would constitute a default under any agreement for the payment of money
to which the Company is a party or by which the Company or any of the
Company's properties may be bound which would have a material adverse effect
on the Company's business, operations, property or condition (financial or
otherwise) or the Collateral; (vi) any change in the location of the Company's
executive offices; (vii) any change in the location of the Company's Inventory
or Equipment from the locations listed on Schedule 7(d) attached hereto,
(viii) any additional licenses, patents, copyrights, trademarks, tradenames or
corporate names; (ix) any material delay in the Company's performance of any
of its obligations to any Customer and of any assertion of any material
claims, offsets or counterclaims by any Customer and of any allowances,
credits and/or other monies granted by it to any Customer; (x) furnish to and
inform Secured Party of all material adverse information relating to the
financial condition of any Customer; and (xi) any material return of goods.
(i) it will bear the full risk of loss from any
loss of any nature whatsoever with respect to the Collateral. At it's own cost
and expense in amounts and with carriers acceptable to Secured Party to the
extent available at commercially reasonable rates, it shall (i) keep all its
insurable properties and properties in which it has an interest insured
against the hazards of fire, flood, sprinkler leakage, those hazards covered
by extended coverage insurance and such other hazards, and for such amounts,
as is customary in the case of companies engaged in businesses similar to the
Company's including, without limitation, public and product liability
insurance, worker's compensation, insurance against larceny, embezzlement or
other criminal misappropriation of insured's officers and employees and
business interruption insurance; (ii) furnish Secured Party with (x) copies of
all policies and evidence of the maintenance of such policies at least thirty
(30) days before any expiration date, and (y) appropriate loss payable
endorsements in form and substance satisfactory to Secured Party, naming
Secured Party as loss payee and providing that as to Secured Party the
insurance coverage shall not be impaired or invalidated by any act or neglect
of the Company and the insurer will provide Secured Party with at least thirty
(30) days notice prior to cancellation. The Company shall instruct the
insurance carriers that following the occurrence of an Event of Default in the
event of any loss thereunder, the carriers shall make payment for such loss to
Secured Party and not to the Company and Secured Party jointly. If any
insurance losses are paid by check, draft or other instrument payable to the
Company and Secured Party jointly, Secured Party may endorse the Company's
name thereon and do such other things as Secured Party may deem advisable to
reduce the same to cash. Secured Party is hereby authorized to adjust and
compromise claims. All loss recoveries received by Secured Party upon any such
insurance may be applied to the Obligations, in such order as Secured Party in
its sole discretion shall determine. Any surplus shall be paid by Secured
Party to the Company or applied as may be otherwise required by law. Any
deficiency thereon shall be paid by the Company to Secured Party, on demand.
(j) any time and from time to time, upon the
written request of Secured Party and at the sole expense of the Company, the
Company shall promptly and duly execute and deliver any and all such further
instruments and documents and take such further
8
actions as Secured Party may reasonably deem desirable to obtain the full
benefits of this Agreement and of the rights and powers herein granted.
(k) it will not (i) create, incur, assume or
suffer to exist any indebtedness (exclusive of trade debt) whether secured or
unsecured other than the Company's indebtedness to Secured Party and as set
forth on Schedule 7(k) attached hereto and made a part hereof; (ii) declare,
pay or make any dividend or distribution on any shares of the common stock or
preferred stock of the Company or apply any of its funds, property or assets
to the purchase, redemption or other retirement of any common or preferred
stock of the Company other than the payment of dividends to its shareholders
which represent dividends received by the Company from Borrower pursuant to
the terms of the Loan Agreement; (iii) directly or indirectly, prepay any
indebtedness (other than to Secured Party), or repurchase, redeem, retire or
otherwise acquire any indebtedness of the Company; (iv) make advances, loans
or extensions of credit to any Person; (v) become either directly or
contingently liable upon the obligations of any Person by assumption,
endorsement or guaranty thereof or otherwise; (vi) enter into any merger,
consolidation or other reorganization with or into any other Person or acquire
all or a portion of the assets or stock of any Person or permit any other
Person to consolidate with or merge with it other than a merger of the Company
with and into Nations Flooring, Inc.; (vii) form any Subsidiary or enter into
any partnership, joint venture or similar arrangement; (viii) materially
change the nature of the business in which it is presently engaged; (ix) enter
into any transaction with any Affiliate, except in ordinary course on
arms-length terms; or (xi) xxxx Accounts under any name except the present
name of the Company.
8. Power of Attorney. The Company hereby irrevocably
appoints Secured Party or any other Person whom Secured Party may designate as
the Company's attorney-in-fact, with full power and authority in place and
stead of the Company and in the name of the Company or in its own name to: (i)
endorse the Company's name on any checks, notes, acceptances, money orders,
drafts or other forms of payment or security that may come into Secured
Party's possession; (ii) sign the Company's name on any invoice or xxxx of
lading relating to any Accounts, drafts against customers, schedules and
assignments of Accounts, notices of assignment, financing statements and other
public records, verifications of account and notices to or from Customers;
(iii) verify the validity, amount or any other matter relating to any Account
by mail, telephone, telegraph or otherwise with Customers; (iv) execute
customs declarations and such other documents as may be required to clear
Inventory through United States Customs; (v) do all things necessary to carry
out this Agreement, and all related documents; (vi) continue any insurance
existing pursuant to the terms of this Agreement and pay all or any part of
the premium therefor and the cost thereof; and (vii) on or after the
occurrence and continuation of an Event of Default, notify the post office
authorities to change the address for delivery of the Company's mail to an
address designated by Secured Party, and to receive, open and dispose of all
mail addressed to the Company. The Company hereby ratifies and approves all
acts of the attorney. The powers conferred on the Secured Party hereunder are
solely to protect its interests in the Collateral and shall not impose any
duty upon it to exercise any such powers. Neither Secured Party nor the
attorney will be liable for any acts or omissions or for any error of judgment
or mistake of fact or law. This power, being coupled with an interest, is
irrevocable so long as any Account which is assigned to Secured Party or in
which Secured Party has a security interest remains unpaid and until the
Obligations have been fully satisfied.
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9. Expenses. The Company shall pay all of Secured Party's
out-of-pocket costs and expenses, including without limitation reasonable fees
and disbursements of counsel and appraisers, in connection with the
preparation, execution and delivery of this Agreement and in connection with
the prosecution or defense of any action, contest, dispute, suit or proceeding
concerning any matter in any way arising out of, related to or connected with
this Agreement. The Company shall also pay all of Secured Party's
out-of-pocket costs and expenses, including without limitation reasonable fees
and disbursements of counsel, in connection with (a) the preparation,
execution and delivery of any waiver, any amendment thereto or consent
proposed or executed in connection with the transactions contemplated by this
Agreement, (b) Secured Party's obtaining performance of the Company's
obligations under this Agreement, including, but not limited to, the
enforcement or defense of Secured Party's security interests, assignments of
rights and liens hereunder as valid perfected security interests, (c) any
attempt to inspect or verify the Collateral, (d) any attempt to protect,
collect, sell, liquidate or otherwise dispose of any Collateral following the
occurrence of an Event of Default, and (d) any consultations in connection
with any of the foregoing. All such costs and expenses together with all
filing, recording and search fees, taxes and interest payable by the Company
to Secured Party shall be payable on demand and shall be secured by the
Collateral.
10. Assignment By Secured Party. Secured Party may assign to
the extent it is permitted to assign its obligations under the Loan Agreement,
any or all of the Obligations together with any or all of the security
therefor and any transferee shall succeed to all of Secured Party's rights
with respect thereto. Upon such transfer, Secured Party shall be released from
all responsibility for the Collateral to the extent same is assigned to any
transferee.
11. Waivers. The Company waives demand, notice, protest,
notice of acceptance of this Agreement, notice of loans made, credit extended,
Collateral received or delivered or other action taken in reliance hereon and
all other demands and notices of any description. With respect to both the
Obligations and the Collateral, the Company assents to any extension or
postponement of the time of payment or any other indulgence, to any
substitution, exchange or release of or failure to perfect any security
interest in any Collateral, to the addition or release of any party or person
primarily or secondarily liable, to the acceptance of partial payment thereon
and the settlement, compromising or adjusting of any thereof, all in such
manner and at such time or times as the Secured Party may deem advisable.
12. Events of Default. The occurrence of any one or more of
the following events shall constitute an "Event of Default":
(a) the occurrence of an Event of Default under
the Loan Agreement;
(b) failure by the Company to make payment of
any of its Obligations when required hereunder;
(c) failure to perform under and/or committing
any breach of this Agreement or the Guaranty or any other agreement between
the Company and Secured Party;
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(d) any representation, warranty or statement
made by the Company hereunder, or in any certificate, statement or document
delivered pursuant to the terms hereof, or in connection with the transactions
contemplated by this Agreement should at any time be false or misleading in
any material respect;
(e) an attachment or levy is made upon any of
the Company's assets having an aggregate value in excess of $500,000 or a
judgment is rendered against the Company or any of the Company's property
involving a liability of more than $500,000 which shall not have been vacated,
discharged, stayed or bonded pending appeal within thirty (30) days from the
entry thereof;
(f) any lien created hereunder for any reason
ceases to be or is not a valid and perfected lien having a first priority
interest;
(g) if the Company shall (i) apply for, consent
to or suffer to exist the appointment of, or the taking of possession by, a
receiver, custodian, trustee or liquidation of itself or of all or a
substantial part of its property, (ii) make a general assignment for the
benefit of creditors, (iii) commence a voluntary case under the federal
bankruptcy laws (as now or hereafter in effect), (iv) be adjudicated a
bankrupt or insolvent, (v) file a petition seeking to take advantage of any
other law providing for the relief of debtors, (vi) acquiesce to, or fail to
have dismissed, within thirty (30) days, any petition filed against it in any
involuntary case under such bankruptcy laws, or (vii) take any action for the
purpose of effecting any of the foregoing;
(h) the Company shall admit in writing its
inability, or be generally unable to pay its debts as they become due or cease
operations of its present business; or
(i) if the Company attempts to terminate or
challenges the validity of its liability under the Guaranty.
13. Remedies. Upon the occurrence and continuation of any
Event of Default, Secured Party shall have the right to demand repayment in
full of all Obligations, whether or not otherwise due (in such case Secured
Party may deposit any and all such amounts realized in a cash collateral
deposit account to be maintained as security for the Obligations). Until all
Obligations have been fully satisfied, Secured Party shall retain its security
interest in all Collateral. Secured Party shall have, in addition to all other
rights provided herein, the rights and remedies of a secured party under the
UCC, and under other applicable law, all other legal and equitable rights to
which Secured Party may be entitled, including without limitation, the right
to take immediate possession of the Collateral, to require the Company to
assemble the Collateral, at the Company's expense, and to make it available to
Secured Party at a place designated by Secured Party which is reasonably
convenient to both parties and to enter any of the premises of the Company or
wherever the Collateral shall be located, with or without force or process of
law, and to keep and store the same on said premises until sold (and if said
premises be the property of the Company, the Company agrees not to charge
Secured Party for storage thereof). Further, Secured Party may, at any time or
times after a Default, sell and deliver in any commercially reasonable manner
all Collateral held by or for Secured Party in one or more parcels at public
or private sale for cash, upon credit or otherwise, at such prices and upon
such terms as Secured
11
Party, in Secured Party's sole discretion, deems advisable or Secured Party
may otherwise recover upon the Collateral in any commercially reasonable
manner as Secured Party, in its sole discretion, deems advisable. Except as to
that part of the Collateral which is perishable or threatens to decline
speedily in nature or is of a type customarily sold on a recognized market,
the requirement of reasonable notice shall be met if such notice is mailed
postage prepaid to the Company at the Company's address as shown in Secured
Party's records, at least five (5) days before the time of the event of which
notice is being given. Secured Party may be the purchaser at any sale, if it
is public. Until Secured Party is able to effect a sale, lease, or other
disposition of Collateral, Secured Party shall have the right to use or
operate Collateral, or any part thereof, to the extent that it deems
appropriate for the purpose of preserving Collateral or its value or for any
other purpose deemed appropriate by Secured Party. Secured Party shall have no
obligation to the Company to maintain or preserve the rights of the Company as
against third parties with respect to Collateral while Collateral is in the
possession of Secured Party. Secured Party may, if it so elects, seek the
appointment of a receiver or keeper to take possession of Collateral and to
enforce any of Secured Party's remedies with respect to such appointment
without prior notice or hearing. In connection with the exercise of the
foregoing remedies, Secured Party is granted permission to use (a) all of the
Company's trademarks, tradenames, tradestyles, patents, patent applications,
licenses, franchises and other proprietary rights which are used in connection
with Inventory for the purpose of disposing of such Inventory and (b)
Equipment for the purpose of completing the manufacture of unfinished goods.
The proceeds of sale shall be applied first to all costs and expenses of sale,
including attorneys' fees, and second to the payment (in whatever order
Secured Party elects) of all Obligations. Secured Party will return any excess
to the Company and the Company shall remain liable to Secured Party for any
deficiency.
14. Waiver; Cumulative Remedies. Failure by Secured Party to
exercise any right, remedy or option under this Agreement or any supplement
hereto or any other agreement between the Company and Secured Party or delay
by Secured Party in exercising the same, will not operate as a waiver; no
waiver by Secured Party will be effective unless it is in writing and then
only to the extent specifically stated. Secured Party's rights and remedies
under this Agreement will be cumulative and not exclusive of any other right
or remedy which Secured Party may have.
15. Notices. Any notice or request hereunder may be given to
the Company or Secured Party at the respective addresses set forth below or as
may hereafter be specified in a written notice designated as a change of
address under this Section 15. Any notice or request hereunder shall be given
by hand, by registered or certified mail, return receipt requested, by
overnight mail or by telecopy (confirmed by first class mail). Notices and
requests shall be, in the case of those by mail or overnight mail, deemed to
have been given when deposited in the mail or with the overnight mail carrier,
and, in the case of a telecopy, when confirmed electronically (provided that a
confirmation is sent by mail).
Notices shall be provided as follows:
If to Secured Party: FLEET CAPITAL CORPORATION
000 Xxxxxxxxxxx Xxxxxxxxx
Xxxxxxxxxxx, Xxxxxxxxxxx 00000
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Attention: Northeast Loan
Administrator
Telecopy No.: (000) 000-0000
With a copy to: XXXX & HESSEN LLP
000 Xxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxxx X. Xxxxxx, Esq.
Telecopy No.: (000) 000-0000
If to Borrower: Carpet Barn Holdings, Inc
c/x Xxxxxx Investments, Inc.
000 Xxxxxx Xxxx, 00xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxxx X. Xxxxxx
Telecopy No.: (000) 000-0000
With a copy to: Xxxxxxxx & Xxxxx, P.C.
00 Xxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxxx X. Xxxxxxxx, Esq.
Facsimile No.: (000) 000-0000
16. Governing Law and Waiver of Jury Trial. THIS AGREEMENT
SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF
THE STATE OF NEW YORK. SECURED PARTY SHALL HAVE THE RIGHTS AND REMEDIES OF A
SECURED PARTY UNDER APPLICABLE LAW INCLUDING, BUT NOT LIMITED TO, THE UNIFORM
COMMERCIAL CODE OF NEW YORK. THE COMPANY AGREES THAT ALL ACTIONS AND
PROCEEDINGS RELATING DIRECTLY OR INDIRECTLY TO THIS AGREEMENT OR ANY ANCILLARY
AGREEMENT OR ANY OTHER OBLIGATIONS SHALL BE LITIGATED IN THE FEDERAL DISTRICT
COURT OF THE SOUTHERN DISTRICT OF NEW YORK OR, AT SECURED PARTY'S OPTION, IN
ANY OTHER COURTS LOCATED IN NEW YORK STATE OR ELSEWHERE AS SECURED PARTY MAY
SELECT AND THAT SUCH COURTS ARE CONVENIENT FORUMS AND THE COMPANY SUBMITS TO
THE PERSONAL JURISDICTION OF SUCH COURTS. THE COMPANY WAIVES PERSONAL SERVICE
OF PROCESS AND CONSENTS THAT SERVICE OF PROCESS UPON THE COMPANY MAY BE MADE
BY CERTIFIED OR REGISTERED MAIL, RETURN RECEIPT REQUESTED, DIRECTED TO THE
COMPANY AT THE COMPANY'S ADDRESS APPEARING ON SECURED PARTY'S RECORDS, AND
SERVICE SO MADE SHALL BE DEEMED COMPLETED TWO (2) DAYS AFTER THE SAME SHALL
HAVE BEEN SO MAILED. BOTH PARTIES HERETO WAIVE THE RIGHT TO A TRIAL BY JURY IN
ANY ACTION OR PROCEEDING BETWEEN THE COMPANY AND SECURED PARTY AND THE COMPANY
WAIVES THE RIGHT TO ASSERT IN ANY ACTION OR PROCEEDING INSTITUTED BY SECURED
PARTY WITH REGARD TO THIS AGREEMENT OR ANY OF THE OBLIGATIONS ANY OFFSETS OR
COUNTERCLAIMS WHICH IT MAY HAVE.
13
17. Limitation of Liability. The Company acknowledges and
understands that in order to assure repayment of the Obligations Secured Party
may be required to exercise any and all of Secured Party's rights and remedies
hereunder and agrees that neither Secured Party nor any of Secured Party's
agents shall be liable for acts taken or omissions made in connection herewith
or therewith except for actual bad faith.
18. Entire Understanding. This Agreement contain the entire
understanding between the Company and Secured Party and any promises,
representations, warranties or guarantees not herein contained shall have no
force and effect unless in writing, signed by the Company's and Secured
Party's respective officers. Neither this Agreement, nor any portion or
provisions thereof may be changed, modified, amended, waived, supplemented,
discharged, cancelled or terminated orally or by any course of dealing, or in
any manner other than by an agreement in writing, signed by the party to be
charged.
19. Severability. Wherever possible each provision of this
Agreement shall be interpreted in such manner as to be effective and valid
under applicable law, but if any provision of this Agreement shall be
prohibited by or invalid under applicable law such provision shall be
ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions
thereof.
20. Captions. All captions are and shall be without
substantive meaning or content of any kind whatsoever.
21. Marshaling. Secured Party shall not be required to
marshal any present or future collateral security (including but not limited
to this Agreement and the Collateral) for, or other assurances of payment of,
the Obligations or any of them or to resort to such collateral security or
other assurances of payment in any particular order, and all of its rights
hereunder and in respect of such collateral security and other assurances of
payment shall be cumulative and in addition to all other rights, however
existing or arising. To the extent that it lawfully may, the Company hereby
agrees that it will not invoke any law relating to the marshaling of
collateral which might cause delay in or impede the enforcement of the Secured
Party's rights under this Agreement or under any other instrument creating or
evidencing any of the Obligations or under which any of the Obligations is
outstanding or by which any of the Obligations is secured or payment thereof
is otherwise assured, and, to the extent that it lawfully may, the Company
hereby irrevocably waives the benefits of all such laws.
22. Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original and all of which
when taken together shall constitute one and the same instrument.
23. Construction. The parties acknowledge that each party
and its counsel have reviewed this Agreement and that the normal rule of
construction to the effect that any ambiguities are to be resolved against the
drafting party shall not be employed in the interpretation of this Agreement
or any amendments, schedules or exhibits thereto.
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IN WITNESS WHEREOF, this Agreement has been duly executed as
of the day and year first above written.
ATTEST: CARPET BARN HOLDINGS, INC., as Company
By: /s/ Xxxxxx X. Xxxxxx
------------------------- -----------------------------------
Name: Xxxxxx X. Xxxxxx
Title: President
FLEET CAPITAL CORPORATION, as Secured Party
By: /s/ Xxxxxxx Xxxxx
-----------------------------------
Name: Xxxxxxx Xxxxx
Title:
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SCHEDULES
Schedule 1(A) - Permitted Liens
None
Schedule 7(d) - Inventory Locations
None
[Schedule 7(k) - Permitted Indebtedness]
