EXHIBIT 10.38
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LOAN AND SECURITY AGREEMENT
XXXXX FARGO RETAIL FINANCE, LLC
THE LENDER
GADZOOKS, INC.
THE BORROWER
April 10, 2003
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TABLE OF CONTENTS
ARTICLE 1 - DEFINITIONS:
ARTICLE 2 - THE REVOLVING CREDIT:
2-1 ESTABLISHMENT OF REVOLVING CREDIT .............................................. 22
2-2 ADVANCES IN EXCESS OF BORROWING BASE (OVERLOANS)................................ 22
2-3 RISKS OF VALUE OF COLLATERAL.................................................... 22
2-4 COMMITMENT TO MAKE REVOLVING CREDIT LOANS AND SUPPORT LETTERS OF CREDIT......... 23
2-5 REVOLVING CREDIT LOAN REQUESTS ................................................. 23
2-6 MAKING OF REVOLVING CREDIT LOANS ............................................... 24
2-7 THE LOAN ACCOUNT ............................................................... 25
2-8 THE REVOLVING CREDIT NOTE....................................................... 26
2-9 PAYMENT OF THE LOAN ACCOUNT..................................................... 26
2-10 INTEREST ON REVOLVING CREDIT LOANS.............................................. 27
2-11 REVOLVING CREDIT COMMITMENT FEE................................................. 28
2-12 FACILITY FEE.................................................................... 28
2-13 UNUSED LINE FEE................................................................. 28
2-14 EARLY TERMINATION FEE........................................................... 28
2-15 LENDER'S DISCRETION............................................................. 28
2-16 PROCEDURES FOR ISSUANCE OF L/C'S ............................................... 29
2-17 FEES FOR L/C'S.................................................................. 30
2-18 CONCERNING L/C'S ............................................................... 31
2-19 CHANGED CIRCUMSTANCES........................................................... 33
ARTICLE 3 - CONDITIONS PRECEDENT:
3-1 CORPORATE DUE DILIGENCE......................................................... 33
3-2 OPINION......................................................................... 34
3-3 ADDITIONAL DOCUMENTS AND INFORMATION............................................ 34
3-4 OFFICERS' CERTIFICATES.......................................................... 34
3-5 REPRESENTATIONS AND WARRANTIES.................................................. 35
3-6 MINIMUM DAY ONE AVAILABILITY.................................................... 35
3-7 BORROWER NOT INDEFAULT.......................................................... 35
3-8 NO ADVERSE CHANGE............................................................... 35
3-9 BENEFIT OF CONDITIONS PRECEDENT................................................. 36
ARTICLE 4 - GENERAL REPRESENTATIONS, COVENANTS AND WARRANTIES:
4-1 PAYMENT AND PERFORMANCE OF LIABILITIES.......................................... 36
4-2 DUE ORGANIZATION. AUTHORIZATION. NO CONFLICTS................................... 36
4-3 TRADE NAMES..................................................................... 37
4-4 INFRASTRUCTURE.................................................................. 37
4-5 LOCATIONS....................................................................... 38
4-6 ENCUMBRANCES.................................................................... 39
4-7 INDEBTEDNESS.................................................................... 39
4-8 INSURANCE....................................................................... 39
4-9 LICENSES........................................................................ 40
4-10 LEASES.......................................................................... 40
4-11 REQUIREMENTS OF LAW ............................................................ 40
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4-12 LABOR RELATIONS................................................................. 41
4-13 MAINTAIN PROPERTIES............................................................. 41
4-14 TAXES........................................................................... 42
4-15 NO MARGIN STOCK................................................................. 43
4-16 ERISA........................................................................... 43
4-17 HAZARDOUS MATERIALS............................................................. 43
4-18 LITIGATION...................................................................... 44
4-19 DIVIDENDS INVESTMENTS. CORPORATE ACTION......................................... 44
4-20 LOANS........................................................................... 44
4-21 PROTECTION OF ASSETS............................................................ 45
4-22 LINE OF BUSINESS................................................................ 45
4-23 AFFILIATE TRANSACTIONS.......................................................... 45
4-24 FURTHER ASSURANCES.............................................................. 45
4-25 ADEQUACY OF DISCLOSURE.......................................................... 46
4-26 NO RESTRICTIONS ON LIABILITIES.................................................. 47
4-27 OTHER COVENANTS................................................................. 47
4-28 MAINTAIN RECORDS................................................................ 47
4-29 ACCESS TO RECORDS............................................................... 48
4-30 IMMEDIATE NOTICE TO LENDER...................................................... 48
4-31 BORROWING BASE CERTIFICATE...................................................... 49
4-32 WEEKLY REPORTS.................................................................. 49
4-33 MONTHLY REPORTS................................................................. 50
4-34 QUARTERLY REPORTS............................................................... 50
4-35 ANNUAL REPORTS.................................................................. 50
4-36 OFFICERS' CERTIFICATES.......................................................... 51
4-37 INVENTORIES, APPRAISALS, AND AUDITS ............................................ 51
4-38 ADDITIONAL FINANCIAL INFORMATION................................................ 52
ARTICLE 5 - USE OF COLLATERAL:
5-1 USE OF INVENTORY COLLATERAL..................................................... 53
5-2 INVENTORY QUALITY............................................................... 53
5-3 ADJUSTMENTS AND ALLOWANCES...................................................... 53
5-4 VALIDITY OF ACCOUNTS............................................................ 54
5-5 NOTIFICATION TO ACCOUNT DEBTORS ............................................... 54
ARTICLE 6 - CASH MANAGEMENT. PAYMENT OF LIABILITIES:
6-1 DEPOSITORY ACCOUNTS ............................................................ 54
6-2 CREDIT CARD RECEIPTS............................................................ 55
6-3 THE CONCENTRATION, RESTRICTED, AND OPERATING ACCOUNTS........................... 55
6-4 PROCEEDS AND COLLECTIONS........................................................ 55
6-5 PAYMENT OF LIABILITIES.......................................................... 56
6-6 THE OPERATING ACCOUNT........................................................... 57
ARTICLE 7 - GRANT OF SECURITY INTEREST:
7-1 GRANT OF SECURITY INTEREST...................................................... 58
7-2 EXTENT AND DURATION OF SECURITY INTEREST........................................ 59
ARTICLE 8 - LENDER AS BORROWER'S ATTORNEY-IN-FACT:
8-1 APPOINTMENT AS ATTORNEY-IN-FACT................................................. 59
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8-2 NO OBLIGATION TO ACT............................................................ 60
ARTICLE 9 - EVENTS OF DEFAULT:
9-1 FAILURE TO PAY THE REVOLVING CREDIT............................................. 60
9-2 FAILURE TO MAKE OTHER PAYMENTS.................................................. 60
9-3 FAILURE TO PERFORM COVENANT OR LIABILITY(NO GRACE PERIOD)....................... 60
9-4 FAILURE TO PERFORM COVENANT OR LIABILITY (GRACE PERIOD)......................... 61
9-5 MISREPRESENTATION............................................................... 61
9-6 ACCELERATION OF OTHER DEBT. BREACH OF LEASE..................................... 61
9-7 DEFAULT UNDER OTHER AGREEMENTS.................................................. 61
9-8 UNINSURED CASUALTY LOSS......................................................... 62
9-9 ATTACHMENT. JUDGMENT. RESTRAINT OF BUSINESS .................................... 62
9-10 BUSINESS FAILURE................................................................ 62
9-11 BANKRUPTCY...................................................................... 63
9-12 INDICTMENT - FORFEITURE......................................................... 63
9-13 CHALLENGE TO LOAN DOCUMENTS..................................................... 63
9-14 CHANGE IN CONTROL............................................................... 63
ARTICLE 10 - RIGHTS AND REMEDIES UPON DEFAULT:
10-1 ACCELERATION.................................................................... 64
10-2 RIGHTS OF ENFORCEMENT........................................................... 64
10-3 SALE OF COLLATERAL.............................................................. 64
10-4 OCCUPATION OF BUSINESS LOCATION................................................. 65
10-5 GRANT OF NONEXCLUSIVE LICENSE................................................... 66
10-6 ASSEMBLY OF COLLATERAL.......................................................... 66
10-7 RIGHTS AND REMEDIES............................................................. 66
ARTICLE 11 - NOTICES:
11-1 NOTICE ADDRESSES................................................................ 66
11-2 NOTICE GIVEN ................................................................... 67
ARTICLE 12 - TERM:
12-1 TERMINATION OF REVOLVING CREDIT................................................. 68
12-2 ACTIONS ON TERMINATION.......................................................... 68
ARTICLE 13 - GENERAL:
13-1 PROTECTION OF COLLATERAL........................................................ 69
13-2 PUBLICITY....................................................................... 69
13-3 SUCCESSORS AND ASSIGNS.......................................................... 69
13-4 SEVERABILITY.................................................................... 69
13-5 AMENDMENTS. COURSE OF DEALING................................................... 69
13-6 POWER OF ATTORNEY............................................................... 70
13-7 APPLICATION OF PROCEEDS......................................................... 70
13-8 INCREASED COSTS................................................................. 70
13-9 COSTS AND EXPENSES OF THE LENDER................................................ 71
13-10 COPIES AND FACSIMILES........................................................... 72
13-11 MASSACHUSETTS LAW............................................................... 72
13-12 CONSENT TO JURISDICTION......................................................... 72
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13-13 INDEMNIFICATION................................................................. 73
13-14 RULES OF CONSTRUCTION........................................................... 73
13-15 INTENT.......................................................................... 75
13-16 PARTICIPATIONS:................................................................. 75
13-17 RIGHT OF SET-OFF................................................................ 76
13-18 PLEDGES TO FEDERAL RESERVE BANKS: .............................................. 76
13-19 MAXIMUM INTEREST RATE........................................................... 76
13-20 WAIVERS......................................................................... 77
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EXHIBITS
2(i) : Revolving Credit Note
4(b) : Affiliates
4(c) : Trade Names
4(g) : Indebtedness
4(j) : Capital Leases
4(n) : Taxes
4(r) : Litigation
4(ff) : Borrowing Base Certificate
4(nn)(a) : Monthly Financial Reporting Requirements
4(nn)(b) : Business Plan
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LOAN AND SECURITY AGREEMENT XXXXX FARGO RETAIL FINANCE, LLC
THE LENDER
April 10, 2003
THIS AGREEMENT is made between
Xxxxx Fargo Retail Finance, LLC (the "LENDER"), a Delaware
limited liability company with offices at Xxx Xxxxxx Xxxxx - 00xx
Xxxxx, Xxxxxx, Xxxxxxxxxxxxx 00000,
and
Gadzooks, Inc. ( the " BORROWER"), a Texas corporation with
its principal executive offices at 0000 Xxxxxxxxxxxxx Xxxxxxx,
Xxxxxxxxxx, Xxxxx 00000
in consideration of the mutual covenants contained herein and benefits to be
derived herefrom,
WITNESSETH:
ARTICLE 1 - DEFINITIONS:
As used herein, the following terms have the following meanings or are
defined in the section of this Agreement so indicated:
"ACCOUNT DEBTOR": Has the meaning given that term in the UCC.
"ACCOUNTS" and "ACCOUNTS RECEIVABLE" include, without limitation,
"accounts" as defined in the UCC, and also all: accounts,
accounts receivable, receivables, and rights to payment
(whether or not earned by performance) arising out of:
property that has been or is to be sold, leased, licensed,
assigned, or otherwise disposed of; services rendered or to be
rendered; a policy of insurance issued or to be issued; a
secondary obligation incurred or to be incurred; energy
provided or to be provided; the use or hire of a vessel;
arising out of the use of a credit or charge card or
information contained on or used with that card; winnings in a
lottery or other game of chance; and also all Inventory which
gave rise thereto, and all rights associated with such
Inventory, including the right of stoppage in transit; all
reclaimed, returned, rejected or repossessed Inventory (if
any) the sale of which gave rise to any Account.
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"ACH": Automated clearing house.
"AFFILIATE": The following:
(a) With respect to any two Persons, a relationship in
which (i) one holds, directly or indirectly, not less than
Twenty Five Percent (25%) of the capital stock, beneficial
interests, partnership interests, or other equity interests of
the other; or (ii) one has, directly or indirectly, the right,
under ordinary circumstances, to vote for the election of a
majority of the directors (or other body or Person who has
those powers customarily vested in a board of directors of a
corporation); or (iii) not less than Twenty Five Percent (25%)
of their respective ownership is directly or indirectly held
by the same third Person.
(b) Any Person which: is a parent, brother-sister,
subsidiary, or affiliate, of the Borrower; could have such
enterprise's tax returns or financial statements consolidated
with the Borrower's; could be a member of the same controlled
group of corporations (within the meaning of Section
1563(a)(1), (2) and (3) of the Internal Revenue Code of 1986,
as amended from time to time) of which the Borrower is a
member; or controls or is controlled by the Borrower.
"APPLICABLE LAW": As to any Person: (i) All statutes, rules,
regulations, orders, or other requirements having the force of
law and (ii) all court orders and injunctions, arbitrator's
decisions, and/or similar rulings, in each instance ((i) and
(ii)) of or by any federal, state, municipal, and other
governmental authority, or court, tribunal, panel, or other
body which has or claims jurisdiction over such Person, or any
property of such Person, or of any other Person for whose
conduct such Person would be responsible.
"APPRAISED INVENTORY LIQUIDATION VALUE": The product of (a) the Cost
of Eligible Inventory (net of Inventory Reserves) multiplied
by (b) that percentage, determined from the then most recent
appraisal of the Borrower's Inventory undertaken at the
request of the Lender, to reflect the appraiser's reasonable
estimate of the net recovery on the Borrower's Inventory in
the event of an in-store liquidation of that Inventory.
"APPRAISED INVENTORY PERCENTAGE": 85%.
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"AVAILABILITY": The result of the following:
(i) The lesser of
(A) The Revolving Credit Ceiling
or
(B) The Borrowing Base
Minus
(ii) The aggregate unpaid balance of the Loan Account.
Minus
(iii) The aggregate undrawn Stated Amount of all then
outstanding L/C's.
Minus
(iv) The aggregate of the Availability Reserves.
"AVAILABILITY RESERVES": Such reserves as the Lender from time to
time reasonably determines in the Lender's discretion as being
appropriate to reflect the impediments to the Lender's ability
to realize upon the Collateral, without duplication of factors
considered in determining Inventory Reserves. Without limiting
the generality of the foregoing, Availability Reserves may
include (but are not limited to) reserves based on the
following (so long as such factors are not included in clause
(b) of the definition of "Excess Availability"):
(i) Rent (but only if a landlord's waiver, reasonably
acceptable to the Lender, has not been received by
the Lender).
(ii) Customer Credit Liabilities, initially established at
fifty percent (50%) of the outstanding amount
thereof.
(iii) Taxes and other governmental charges, including, ad
valorem, personal property, and other taxes which
might have priority over the Collateral Interests of
the Lender in the Collateral.
(iv) Bank Product Reserves.
(v) Permanent Availability Block at all times in the
amount of $3,000,000.00, to be reduced
dollar-for-dollar by the amount by which the
Borrowing Base exceeds $33,000,000.00, but in no
event less than $1.00.
""BANK PRODUCT AGREEMENTS" means those certain cash management service
agreements entered into from time to time by the Borrower in
connection with any of the Bank Products.
""BANK PRODUCT OBLIGATIONS" means all obligations, liabilities,
contingent reimbursement obligations, fees, and expenses owing
by the Borrower to the Lender, Xxxxx Fargo
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Bank, N. A., or any of their Affiliates pursuant to or
evidenced by the Bank Product Agreements and irrespective of
whether for the payment of money, whether direct or indirect,
absolute or contingent, due or to become due, now existing or
hereafter arising, and including all such amounts that the
Borrower is obligated to reimburse to the Lender as a result
of the Lender purchasing participations or executing
indemnities or reimbursement obligations with respect to the
Bank Products provided to the Borrower pursuant to the Bank
Product Agreements.
"BANK PRODUCTS" means any service or facility extended to the Borrower
by Xxxxx Fargo Bank, N. A. or any of its Affiliates: (a)
credit cards, (b) credit card processing services, (c) debit
cards, (d) purchase cards, (e) ACH Transactions, (f) cash
management, including controlled disbursement, accounts or
services, or (g) hedge agreements.
""BANK PRODUCT RESERVES" means, as of any date of determination, the
amount of reserves that the Lender has established (based upon
Xxxxx Fargo Bank, N. A.'s or its Affiliate's reasonable
determination of the credit exposure in respect of then extant
Bank Products) for Bank Products then provided or outstanding.
"BANKRUPTCY CODE": Title 11, of the United States Code, as amended from
time to time.
"BASE MARGIN LOAN ": Each Revolving Credit Loan while bearing
interest at the Base Margin Rate.
"BASE MARGIN RATE ": Means the following percentage based upon the
corresponding criteria:
Line Utilization Base Margin
-----------------------------------------------------------
Level I - - Up to $5,000,000.00 (0.25%)
-----------------------------------------------------------
Level II - - Greater than $5,000,000.00,
but less than $10,000,000.00 0.00%
-----------------------------------------------------------
Level III - - Greater than $10,000,000.00 0.50%
-----------------------------------------------------------
The Base Margin shall initially be established at Level II
until September 30, 2003. Thereafter, the Base Margin shall be
adjusted monthly on the first day of each calendar month,
commencing with October 1, 2003, based upon the average line
utilization during the prior month. Upon the occurrence and
during the continuance
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of an Event of Default, the Base Margin may, at the option of
the Lender, be immediately increased to the percentage set
forth in Level III (even if the line utilization requirement
for another Level has been met) and interest shall be
determined in the manner set forth in Section 2-10, below.
"BLOCKED ACCOUNT": Any DDA into which the contents of any other DDA
is transferred.
"BLOCKED ACCOUNT AGREEMENT": An Agreement, in form satisfactory to
the Lender, which Agreement recognizes the Lender's Collateral
Interest in the contents of the DDA which is the subject of
such Agreement and agrees that such contents shall be
transferred only to the Concentration Account or as otherwise
instructed by the Lender.
"BORROWER": Is defined in the Preamble.
"BORROWING BASE": The aggregate of the following:
The face amount of Eligible Credit Card Receivables multiplied
by the Credit Card Advance Rate.
Plus
The Appraised Inventory Percentage of the Appraised Inventory
Liquidation Value.
"BORROWING BASE CERTIFICATE": Is defined in Section 4-31.
"BUSINESS DAY": Any day other than (a) a Saturday or Sunday; (b) any
day on which banks in Boston, Massachusetts generally are not
open to the general public for the purpose of conducting
commercial banking business; or (c) a day on which the
principal office of the Lender is not open to the general
public to conduct business.
"BUSINESS PLAN ": The Borrower's business plan annexed hereto as
EXHIBIT 4-40(b) and any revision, amendment, or update of such
business plan prepared in a manner and bearing assumptions,
extensions, and projections reasonably consistent with the
business plan in effect at the execution of this Agreement,
and as to which the Lender has provided its written approval,
not to be unreasonably withheld.
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"CAPITAL EXPENDITURES": The expenditure of funds or the incurrence of
liabilities which may be capitalized in accordance with GAAP.
"CAPITAL LEASE": Any lease which may be capitalized in accordance with
GAAP.
"CASH CONCENTRATION TRIGGER EVENT": The occurrence of either of the
following:
(a) Any Event of Default; or
(b) Any Excess Availability Threshold Breach.
"CHANGE IN CONTROL ": The occurrence of any of the following:
(a) The acquisition, by any group of persons (within the
meaning of the Securities Exchange Act of 1934, as amended) or
by any Person other than Permitted Holders, of beneficial
ownership (within the meaning of Rule 13d-3 of the Securities
and Exchange Commission) of 50% or more of the issued and
outstanding capital stock of the Borrower having the right,
under ordinary circumstances, to vote for the election of
directors of the Borrower.
(b) During any period of two consecutive years,
individuals who at the beginning of such period were directors
of the Borrower (the "Board of Directors") (together with (A)
any new directors whose election by such Board of Directors or
whose nomination for election by the shareholders of the
Borrower was approved by a vote of the majority of the
directors of the Borrower then still in office who were either
directors at the beginning of such period or whose election or
nomination for election was previously so approved and (B) any
representative of a Permitted Holder) cease for any reason to
constitute a majority of the Board of Directors then in
office.
"CHATTEL PAPER": Has the meaning given that term in the UCC.
"COLLATERAL": Is defined in Section 7-1.
"COLLATERAL INTEREST ": Any interest in property to secure an
obligation, including, without limitation, a security
interest, mortgage, and deed of trust.
"CONCENTRATION ACCOUNT": Is defined in Section 6-3.
"COST": The lower of (a) or (b), where:
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(a) is the calculated cost of purchases, based upon the
Borrower's accounting practices, known to the Lender, which
practices are in effect on the date on which this Agreement
was executed, or as subsequently agreed in a document signed
by both the Borrower and the Lender, as such calculated cost
is determined from: invoices received by the Borrower; the
Borrower's purchase journal; or the Borrower's stock ledger.
(b) is the cost equivalent of the lowest ticketed or
promoted price at which the subject Inventory is offered to
the public, after all xxxx-xxxxx (whether or not such price is
then reflected on the Borrower's accounting system), which
cost equivalent is determined in accordance with the cost
method of accounting, reflecting the Borrower's historic
business practices.
("Cost" does not include inventory capitalization costs or
other non-purchase price charges (such as freight) used in the
Borrower's calculation of cost of goods sold).
"COSTS OF COLLECTION": Includes, without limitation, all attorneys'
reasonable fees and reasonable out-of-pocket expenses incurred
by the Lender's attorneys, and all reasonable out-of-pocket
costs incurred by the Lender in the administration of the
Liabilities and/or the Loan Documents, including, without
limitation, reasonable costs and expenses associated with
travel on behalf of the Lender, where such costs and expenses
are directly or indirectly related to or in respect of the
Lender's: administration and management of the Liabilities;
negotiation, documentation, and amendment of any Loan
Document; or efforts to preserve, protect, collect, or enforce
the Collateral, the Liabilities, and/or the Lender's Rights
and Remedies and/or any of the rights and remedies of the
Lender against or in respect of any guarantor or other person
liable in respect of the Liabilities (whether or not suit is
instituted in connection with such efforts). The Costs of
Collection are Liabilities, and at the Lender's option may
bear interest at the then effective Base Margin Rate.
"CREDIT CARD ADVANCE RATE": 85%
"CUSTOMER CREDIT LIABILITY": Gift certificates, customer deposits,
merchandise credits, layaway obligations, frequent shopping
programs, and similar liabilities of the Borrower to its
retail customers and prospective customers.
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"DDA": Any checking or other demand daily depository account
maintained by the Borrower other than any Exempt DDA.
"DEPOSIT ACCOUNT": Has the meaning given that term in the UCC and also
includes all demand, time, savings, passbook, or similar
accounts maintained with a bank.
"DOCUMENTS": Has the meaning given that term in the UCC.
"DOCUMENTS OF TITLE": Has the meaning given that term in the UCC.
"ELIGIBLE CREDIT CARD RECEIVABLES": Under 5 business day accounts due
on a non-recourse basis from major credit card processors
(which, if due on account of a private label credit card
program, are deemed in the discretion of the Lender to be
eligible).
"ELIGIBLE INVENTORY": Such of the Borrower's Inventory, at such
locations, and of such types, character, qualities and
quantities, as the Lender in its discretion from time to time
reasonably determines to be acceptable for borrowing, as to
which Inventory, the Lender has a perfected security interest
which is prior and superior to all security interests, claims,
and Encumbrances (other than Permitted Encumbrances), and
excluding such of the Borrower's Inventory as is shown on the
Borrowing Base Certificate as being ineligible due to its
condition as damaged, defective, or other such demonstrably
identifiable condition.
"EMPLOYEE BENEFIT PLAN": As defined in ERISA.
"ENCUMBRANCE": A Collateral Interest or agreement to create or grant
a Collateral Interest; the interest of a lessor under a
Capital Lease; conditional sale or other title retention
agreement; sale of accounts receivable or chattel paper; or
other arrangement pursuant to which any Person is entitled to
any preference or priority with respect to the property or
assets of another Person or the income or profits of such
other Person; each of the foregoing whether consensual or
non-consensual and whether arising by way of agreement,
operation of law, legal process or otherwise.
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"END DATE": The date upon which all of the following conditions are
met: (a) all payment Liabilities described in 12-2(a) have
been paid in full and (b) all obligations of the Lender to
make loans and advances and to provide other financial
accommodations to the Borrower hereunder shall have been
irrevocably terminated and (c) those arrangements concerning
L/C's which are described in Section 12-2(b) have been made.
"ENVIRONMENTAL LAWS": All of the following:
(a) Applicable Law which regulates or relates to, or imposes
any standard of conduct or liability on account of or in
respect to environmental protection matters, including,
without limitation, Hazardous Materials, as are now or
hereafter in effect.
(b) The common law relating to damage to Persons or property
from Hazardous Materials.
"EQUIPMENT": Includes, without limitation, "equipment" as defined in
the UCC, and also all furniture, store fixtures, motor
vehicles, rolling stock, machinery, office equipment, plant
equipment, tools, dies, molds, and other goods, property, and
assets which are used and/or were purchased for use in the
operation or furtherance of the Borrower's business, and any
and all accessions or additions thereto, and substitutions
therefor.
"ERISA": The Employee Retirement Income Security Act of 1974, as
amended.
"ERISA AFFILIATE": Any Person which is under common control with
the Borrower within the meaning of Section 4001 of ERISA or is
part of a group which includes the Borrower and which would be
treated as a single employer under Section 414 of the Internal
Revenue Code of 1986, as amended.
"EVENTS OF DEFAULT": Is defined in Article 9.
"EXCESS AVAILABILITY": The result of (a) Availability minus (b) all
then past due obligations of the Borrower, including held
checks, accounts payable which are beyond customary trade
terms extended to the Borrower, and rent obligations of the
Borrower which are beyond applicable grace periods (except as
permitted in Section 4-30(a)(iii)).
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"EXCESS AVAILABILITY THRESHOLD BREACH": Circumstances under which
the result of the following does not equal or exceed (i) $7.5
Million for ten (10) or more consecutive days, or (ii) $5
Million at any time: (a) Excess Availability, plus (b) the
Borrowers' then cash on hand, plus (c) the Borrowers' then
cash equivalents.
"EXECUTIVE OFFICER": Each of Xxxxx X. Xxxxxx, Xxxxx Xxxxxxx, and
Xxxxxx Xxxxxxxxxxx, and any other Person who (without regard
to title) is the successor to any of the foregoing or who
exercises a substantial portion of the authority being
exercised, at the execution of this Agreement, by any of the
foregoing or a combination of such authority of more than one
of the foregoing or who otherwise has Control of the Borrower.
"EXEMPT DDA": A depository account maintained by the Borrower, the
only contents of which may be transfers from the Operating
Account and actually used solely (i) for xxxxx cash purposes;
or (ii) for payroll.
"FACILITY FEE": Is defined in Section 2-12.
"FARM PRODUCTS": Has the meaning given that term in the UCC.
"FEE LETTER": Is defined in Section 2-11.
"FISCAL": When followed by "month" or "quarter", the relevant fiscal
period based on the Borrower's fiscal year and accounting
conventions (e.g. reference to "Fiscal 2003" is to the fiscal
month of the Borrower's's fiscal year commencing in 2003).
When followed by reference to a specific year, the fiscal year
which begins in a month of the year to which reference is
being made (e.g. if the Borrower's fiscal year ends in January
2003 reference to that year would be to the Borrower's "Fiscal
2002").
"FIXTURES": Has the meaning given that term in the UCC.
"GENERAL INTANGIBLES": Includes, without limitation, "general
intangibles" as defined in the UCC; and also all: rights to
payment for credit extended; deposits; amounts due to the
Borrower; credit memoranda in favor of the Borrower; warranty
claims;
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tax refunds and abatements; insurance refunds and premium
rebates; all means and vehicles of investment or hedging,
including, without limitation, options, warrants, and futures
contracts; records; customer lists; telephone numbers;
goodwill; causes of action; judgments; payments under any
settlement or other agreement; literary rights; rights to
performance; royalties; license and/or franchise fees; rights
of admission; licenses; franchises; license agreements,
including all rights of the Borrower to enforce same; permits,
certificates of convenience and necessity, and similar rights
granted by any governmental authority; patents, patent
applications, patents pending, and other intellectual
property; internet addresses and domain names; developmental
ideas and concepts; proprietary processes; blueprints,
drawings, designs, diagrams, plans, reports, and charts;
catalogs; manuals; technical data; computer software programs
(including the source and object codes therefor), computer
records, computer software, rights of access to computer
record service bureaus, service bureau computer contracts, and
computer data; tapes, disks, semi-conductors chips and
printouts; trade secrets rights, copyrights, mask work rights
and interests, and derivative works and interests; user,
technical reference, and other manuals and materials; trade
names, trademarks, service marks, and all goodwill relating
thereto; applications for registration of the foregoing; and
all other general intangible property of the Borrower in the
nature of intellectual property; proposals; cost estimates,
and reproductions on paper, or otherwise, of any and all
concepts or ideas, and any matter related to, or connected
with, the design, development, manufacture, sale, marketing,
leasing, or use of any or all property produced, sold, or
leased, by the Borrower or credit extended or services
performed, by the Borrower, whether intended for an individual
customer or the general business of the Borrower, or used or
useful in connection with research by the Borrower.
"GOODS": Has the meaning given that term in the UCC, and also
includes all things movable when a security interest therein
attaches and also all computer programs embedded in goods and
any supporting information provided in connection with a
transaction relating to the program if (i) the program is
associated with the goods in such manner that it customarily
is considered part of the goods or (ii) by becoming the owner
of the goods, a Person acquires a right to use the program in
connection with the goods.
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"HAZARDOUS MATERIALS": Any substance which is defined or regulated as
a hazardous material in or under any Environmental Law.
"INDEBTEDNESS": All indebtedness and obligations of or assumed by any
Person on account of or in respect to any of the following:
(a) In respect of money borrowed (including any
indebtedness which is non-recourse to the credit of such
Person but which is secured by an Encumbrance on any asset of
such Person) whether or not evidenced by a promissory note,
bond, debenture or other written obligation to pay money.
(b) In connection with any letter of credit or acceptance
transaction (including, without limitation, the face amount of
all letters of credit and acceptances issued for the account
of such Person or reimbursement on account of which such
Person would be obligated).
(c) In connection with the sale or discount of accounts
receivable or chattel paper of such Person.
(d) On account of deposits or advances.
(e) As lessee under Capital Leases.
(f) In connection with any sale and leaseback
transaction.
"Indebtedness" also includes:
(x) Indebtedness of others secured by an
Encumbrance on any asset of such Person, whether or
not such Indebtedness is assumed by such Person.
(y) Any guaranty, endorsement, suretyship or
other undertaking pursuant to which that Person may
be liable on account of any obligation of any third
party.
(z) The Indebtedness of a partnership or joint
venture for which such Person is liable as a general
partner or joint venturer.
"INDEFAULT": Any occurrence, circumstance, or state of facts with
respect to the Borrower which is an Event of Default.
"INDEMNIFIED PERSON": Is defined in Section 13-13.
"INSTRUMENTS": Has the meaning given that term in the UCC.
...April 11, 2003..
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"INTEREST PAYMENT DATE": With reference to:
Each Libor Loan: The last day of the Interest Period relating
thereto (and on the last day of month three for any such loan
which has a six month Interest Period); the Termination Date;
and the End Date.
Each Base Margin Loan: The first day of each month; the
Termination Date; and the End Date.
"INTEREST PERIOD": The following:
(a) With respect to each Libor Loan: Subject to
Subsection (c), below, the period commencing on the date of
the making or continuation of, or conversion to, the subject
Libor Loan and ending one, two, three, or six months
thereafter, as the Borrower may elect by notice (pursuant to
Section 2-5) to the Lender
(b) With respect to each Base Margin Loan: Subject to
Subsection (c), below, the period commencing on the date of
the making or continuation of or conversion to such Base
Margin Loan and ending on that date (i) as of which the
subject Base Margin Loan is converted to a Libor Loan, as the
Borrower may elect by notice (pursuant to Section 2-5) to the
Lender, or (ii) on which the subject Base Margin Loan is paid
by the Borrower.
(c) The setting of Interest Periods is in all instances
subject to the following:
(i) Any Interest Period for a Base Margin Loan
which would otherwise end on a day which is not a
Business Day shall be extended to the next succeeding
Business Day.
(ii) Any Interest Period for a Libor Loan which
would otherwise end on a day that is not a Business
Day shall be extended to the next succeeding Business
Day, unless that succeeding Business Day is in the
next calendar month, in which event such Interest
Period shall end on the last Business Day of the
month during which the Interest Period ends.
(iii) Subject to Subsection (iv), below, any
Interest Period applicable to a Libor Loan, which
Interest Period begins on a day for which there is no
numerically corresponding day in the calendar month
during which such Interest Period ends, shall end on
the last Business Day of the month during which that
Interest Period ends.
(iv) Any Interest Period which would otherwise
end after the Termination Date shall end on the
Termination Date.
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(v) The number of Interest Periods in effect at
any one time is subject to Section 2-10(e) hereof.
"INVENTORY": Includes, without limitation, "inventory" as defined in
the UCC and also all: (a) Goods which are leased by a Person
as lessor; are held by a Person for sale or lease or to be
furnished under a contract of service; are furnished by a
Person under a contract of service; or consist of raw
materials, work in process, or materials used or consumed in a
business; (b) Goods of said description in transit; (c) Goods
of said description which are returned, repossessed and
rejected; (d) packaging, advertising, and shipping materials
related to any of the foregoing; (e) all names, marks, and
General Intangibles affixed or to be affixed or associated
thereto; and (f) Documents and Documents of Title which
represent any of the foregoing.
"INVENTORY RESERVES": Such Reserves as reasonably may be established
from time to time by the Lender in the Lender's discretion
with respect to the determination of the saleability, at
retail, of the Eligible Inventory, or which reflect such other
identifiable factors as affect the market value of the
Eligible Inventory, such as those reserves set forth on the
Borrowing Base Certificate. Without limiting the generality of
the foregoing, Inventory Reserves may include (but are not
limited to) reserves based on the following (without
duplication):
(i) Seasonality.
(ii) Shrinkage.
(iii) Imbalance.
(iv) Change in Inventory character.
(v) Change in Inventory composition.
(vi) Change in Inventory mix.
(vii) Markdowns (both permanent and point of sale).
(vii) Retail markons and markups inconsistent with prior
period practice and performance; industry standards;
current business plans; or advertising calendar and
planned advertising events.
"INVESTMENT PROPERTY": Has the meaning given that term in the UCC.
"ISSUER": The issuer of any L/C.
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"L/C": Any letter of credit, the issuance of which is procured by
the Lender for the account of the Borrower and any acceptance
made on account of such letter of credit.
"L/C LANDING COSTS": To the extent not included in the Stated Amount
of an L/C, customs, duty, freight, and other out-of-pocket
costs and expenses which will be expended to "land" the
Inventory, the purchase of which is supported by such L/C.
"LEASE": Any lease or other agreement, no matter how styled or
structured, pursuant to which the Borrower is entitled to the
use or occupancy of any space.
"LEASEHOLD INTEREST": Any interest of the Borrower as lessee under
any Lease.
"LENDER": Is defined in the Preamble to this Agreement.
"LENDER'S RIGHTS AND REMEDIES": Is defined in Section 10-7.
"LETTER-OF-CREDIT RIGHT": Has the meaning given that term in UCC and
also refers to any right to payment or performance under an
L/C, whether or not the beneficiary has demanded or is at the
time entitled to demand payment or performance.
"LIABILITIES": Includes, without limitation or duplication,
the following:
(a) All and each of the following, whether now
existing or hereafter arising under this Agreement or under
any of the other Loan Documents:
(i) Any and all direct and indirect liabilities, debts,
and obligations of the Borrower to the Lender, each of every
kind, nature, and description.
(ii) Each obligation to repay any loan, advance,
indebtedness, note, obligation, overdraft, or amount now or
hereafter owing by the Borrower to the Lender (including all
future advances whether or not made pursuant to a commitment
by the Lender), whether or not any of such are liquidated,
unliquidated, primary, secondary, secured, unsecured, direct,
indirect, absolute, contingent, or of any other type, nature,
or description, or by reason of any cause of action which the
Lender may hold against the Borrower.
(iii) All Bank Product Obligations.
(iv) All notes and other obligations of the Borrower now
or hereafter assigned to or held by the Lender, each of every
kind, nature, and description.
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..15..
(v) All interest, fees, and charges and other amounts
which may be charged by the Lender to the Borrower and/or
which may be due from the Borrower to the Lender from time to
time.
(vi) All costs and expenses incurred or paid by the Lender
in respect of any agreement between the Borrower and the
Lender or instrument furnished by the Borrower to the Lender
(including, without limitation, Costs of Collection,
attorneys' reasonable fees, and all court and litigation costs
and expenses).
(vii) Any and all covenants of the Borrower to or with the
Lender and any and all obligations of the Borrower to act or
to refrain from acting in accordance with any agreement
between the Borrower and the Lender or instrument furnished by
the Borrower to the Lender.
(viii) Each of the foregoing as if each reference to the
"Lender" were to each Affiliate of the Lender.
(b) Any and all direct or indirect liabilities,
debts, and obligations of the Borrower to or any Affiliate of
the Borrower, each of every kind, nature, and description
owing on account of any service or accommodation provided to,
or for the account of the Borrower pursuant to this or any
other Loan Document, including cash management services and
the issuances of L/C's.
"LIBOR BUSINESS DAY": Any day which is both a Business Day and a day
on which the principal interbank market for Libor deposits in
London in which Xxxxx Fargo Bank, N.A. participates is open
for dealings in United States Dollar deposits.
"LIBOR LOAN": Any Revolving Credit Loan which bears interest at a
Libor Rate.
"LIBOR MARGIN": Means the following percentage based upon the
corresponding criteria:
Line Utilization LIBOR Margin
----------------------------------------------------------
Level I - - Up to $5,000,000.00 1.25%
----------------------------------------------------------
Level II - - Greater than $5,000,000.00,
but less than $10,000,000.00 1.50%
----------------------------------------------------------
Level III - - Greater than $10,000,000.00 2.00%
----------------------------------------------------------
The Libor Margin shall initially be established at Level II
until September 30, 2003. Thereafter, the Libor Margin shall
be adjusted monthly on the first day of each
...April 11, 2003..
..16..
calendar month, commencing with October 1, 2003, based upon
the average line utilization during the prior month. Upon the
occurrence and during the continuance of an Event of Default,
the Libor Margin may, at the option of the Lender, be
immediately increased to the percentage set forth in Level III
(even if the line utilization requirement for another Level
have been met) and interest shall be determined in the manner
set forth in Section 2-10, below.
"LIBOR OFFER RATE ": That rate of interest (rounded upwards, if
necessary, to the next 1/100 of 1%) determined by the Lender
to be the highest prevailing rate per annum at which deposits
on U.S. Dollars are offered to Xxxxx Fargo Bank, N.A., by
first-class banks in the London interbank market in which
Xxxxx Fargo Bank, N.A. participates at or about 10:00AM
(Boston Time) Two (2) Libor Business Days before the first day
of the Interest Period for the subject Libor Loan, for a
deposit approximately in the amount of the subject loan for a
period of time approximately equal to such Interest Period.
"LIBOR RATE": That per annum rate which is the aggregate
of the Libor Offer Rate plus the Libor Margin except that, in
the event that the Lender reasonably determines that the
Lender is subject to the Reserve Percentage, the "Libor Rate"
shall mean, with respect to any Libor Loans then outstanding
(from the date on which that Reserve Percentage first became
applicable to such loans), and with respect to all Libor Loans
thereafter made, an interest rate per annum equal the sum of
(a) plus (b), where:
(a) is the decimal equivalent of the
following fraction:
Libor Offer Rate
1 minus Reserve Percentage
(b) is the applicable Libor Margin.
"LOAN ACCOUNT": Is defined in Section 2-7.
"LOAN DOCUMENTS ": This Agreement and each other instrument or
document from time to time executed and/or delivered in
connection with the arrangements contemplated hereby or in
connection with any transaction contemplated herein, including
any Bank Product Agreements, as each may be amended from time
to time.
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..17..
"MATERIAL ACCOUNTING CHANGE": Any change in GAAP applicable to
accounting periods subsequent to the Borrower's fiscal year
most recently completed prior to the execution of this
Agreement, which change has a material effect on the
Borrower's financial condition or operating results, as
reflected on financial statements and reports prepared by or
for the Borrower, when compared with such condition or results
as if such change had not taken place or where preparation of
the Borrower's statements and reports in compliance with such
change results in the breach of a financial performance
covenant imposed pursuant to Section 4-40 where such a breach
would not have occurred if such change had not taken place or
visa versa.
"MATURITY DATE": April 31, 2006.
"OPERATING ACCOUNT ": Is defined in Section 6-3.
"OVERLOAN": A loan, advance, or providing of credit support (such as
the issuance of any L/C) to the extent that, immediately after
its having been made, Availability is less than zero.
"PARTICIPANT": Is defined in Section 13-16, hereof.
"PAYMENT INTANGIBLE ": As defined in the UCC and also any general
intangible under which the Account Debtor's primary obligation
is a monetary obligation.
"PERMITTED ENCUMBRANCES": the following:
Encumbrances in favor of the Lender.
Those Encumbrances (if any) listed on EXHIBIT 4-6,
annexed hereto.
Purchase money security interests in Equipment to
secure Indebtedness otherwise permitted hereby.
Encumbrances for taxes, assessments and governmental
charges or levies to the extent not required to be paid.
Encumbrances imposed by law or incurred pursuant to
ordinary course of business contracts, such as landlords',
materialmen's, mechanics', carriers', workmen's and
repairmen's liens and other such similar liens arising in the
ordinary course of business securing obligations that are not
overdue for a period of more than
...April 11, 2003..
..18..
45 days or which are being contested in good faith and by
appropriate proceedings and as to which appropriate reserves
are being maintained in accordance with GAAP.
Pledges or deposits to secure obligations under
worker's compensation laws or similar legislation or to secure
public or statutory obligations or other insurance related
obligations (including, without limitation, pledges or
deposits or other Encumbrances securing liability to insurance
carriers under insurance or self-insurance arrangements.
Zoning restrictions, easements, rights of way and
other encumbrances on title to real property none of which,
either individually or in the aggregate, would reasonably be
expected to have a material adverse effect.
Encumbrances of landlords or of mortgages of
landlords arising by operation of law or pursuant to the terms
of real property leases.
Encumbrances to secure the performance of bids,
tenders, trade contracts (other than for borrowed money),
obligations for utilities, leases, statutory obligations,
surety and appeal bonds, performance bonds, judgment and like
bonds, replevin and similar bonds and other obligations of a
like nature incurred in the ordinary course of business.
Licenses, sublicenses, leases and subleases granted
to third parties in the ordinary course of business.
Encumbrances arising from precautionary UCC financing
statements regarding leases.
Encumbrances arising out of consignment or similar
arrangements for the sale of good entered into in the ordinary
course of business.
"PERMITTED INDEBTEDNESS": The following:
Any Indebtedness on account of the Revolving Credit.
The Indebtedness (if any) listed on EXHIBIT 4-7,
annexed hereto.
Indebtedness on account of Equipment acquired in
compliance with the requirements of Section 4-6(c), the
incurrence of which would not otherwise be prohibited by this
Agreement.
Indebtedness not to exceed $1,000,000.00 in the
aggregate at any one time.
Indebtedness constituting ordinary trade indebtedness
incurred in the normal course of the Borrower's business.
...April 11, 2003..
..19..
"PERSON": Any natural person, and any corporation, limited liability
company, trust, partnership, joint venture, or other
enterprise or entity.
"PROCEEDS": Includes, without limitation, "Proceeds" as defined in
the UCC and each type of property described in Section 7-1
hereof.
"RECEIPTS": All cash, cash equivalents, money, checks, credit card
slips, receipts and other Proceeds from any sale of the
Collateral.
"RECEIVABLES COLLATERAL": That portion of the Collateral which
consists of Accounts, Accounts Receivable, General
Intangibles, Chattel Paper, Instruments, Documents of Title,
Documents, Investment Property, Payment Intangibles,
Letter-of-Credit Rights, bankers' acceptances, and all other
rights to payment.
"REQUIREMENTS OF LAW": As to any Person:
(a) Applicable Law.
(b) That Person's organizational documents.
(c) That Person's by-laws and/or other instruments which
deal with corporate or similar governance, as applicable.
"RESERVE PERCENTAGE": The decimal equivalent of that rate applicable
to the Lender under regulations issued from time to time by
the Board of Governors of the Federal Reserve System for
determining the maximum reserve requirement of the Lender with
respect to "Eurocurrency liabilities" as defined in such
regulations. The Reserve Percentage applicable to a particular
Eurodollar Loan shall be based upon that in effect during the
subject Interest Period, with changes in the Reserve
Percentage which take effect during such Interest Period to
take effect (and to consequently change any interest rate
determined with reference to the Reserve Percentage) if and
when such change is applicable to such loans.
"RESERVES": The following: Availability Reserves and Inventory
Reserves.
"REVOLVING CREDIT": Is defined in Section 2-1.
"REVOLVING CREDIT CEILING": $30,000,000.00.
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..20..
"REVOLVING CREDIT COMMITMENT FEE": Is defined in Section 2-11.
"REVOLVING CREDIT EARLY TERMINATION FEE ": Is defined in Section
2-14.
"REVOLVING CREDIT LOANS": Loans made under the Revolving Credit,
except that where the term "Revolving Credit Loan" is used
with reference to available interest rates applicable to the
loans under the Revolving Credit, it refers to so much of the
unpaid principal balance of the Loan Account as bears the same
rate of interest for the same Interest Period. (See Section
2-10(d)).
"REVOLVING CREDIT NOTE ": Is defined in Section 2-8.
"STATED AMOUNT": The maximum amount for which an L/C may be honored.
"SUPPORTING OBLIGATION ": Has the meaning given that term in the UCC
and also refers to a Letter-of-Credit Right or secondary
obligation which supports the payment or performance of an
Account, Chattel Paper, a Document, a General Intangible, an
Instrument, or Investment Property.
"TERMINATION DATE": The earliest of (a) the Maturity Date; or (b) the
occurrence of any event described in Section 9-11, below; or
(c) the Lender's notice to the Borrower setting the
Termination Date on account of the occurrence of any Event of
Default other than as described in Section 9-11, below; or (d)
that date, forty-five (45) days written notice of which is
provided by the Borrower to the Lender (unless revoked by the
Borrower in writing prior to the date set forth as the
Termination Date).
"UCC": The Uniform Commercial Code as in effect from time to time
in Massachusetts.
"UNUSED LINE FEE": Is defined in Section 2-13.
...April 11, 2003..
..21..
ARTICLE 2 - THE REVOLVING CREDIT:
2-1 ESTABLISHMENT OF REVOLVING CREDIT
(a) The Lender hereby establishes a revolving line of
credit (the "REVOLVING CREDIT") in the Borrower's favor pursuant to which the
Lender, subject to, and in accordance with, this Agreement, shall make loans and
advances and otherwise provide financial accommodations to and for the account
of the Borrower as provided herein.
(b) Loans, advances, and financial accommodations under
the Revolving Credit shall be made with reference to the Borrowing Base and
shall be subject to Availability. The Borrowing Base and Availability shall be
determined by the Lender by reference to Borrowing Base Certificates furnished
as provided in Section 4-31, below, and shall be subject to the following:
(i) Such determination shall take into account
such Reserves as the Lender reasonably may determine as being
applicable thereto.
(ii) The Cost of Eligible Inventory will be
determined in a manner consistent with current tracking practices,
based on the Borrower's stock ledger inventory.
(c) The proceeds of borrowings under the Revolving Credit
shall be used solely in accordance with the Business Plan for the Borrower's
working capital and Capital Expenditures, all solely to the extent permitted by
this Agreement. No proceeds of a borrowing under the Revolving Credit may be
used, nor shall any be requested, with a view towards the accumulation of any
general fund or funded reserve of the Borrower other than in the ordinary course
of the Borrower's business and consistent with the provisions of this Agreement.
2-2 ADVANCES IN EXCESS OF BORROWING BASE (OVERLOANS).
(a) The Lender does not have any obligation to the
Borrower to make any loan or advance, or otherwise to provide any credit to or
for the benefit of the Borrower where the result of such loan, advance, or
credit is an OverLoan.
(b) The Lender's providing of an OverLoan on any one
occasion does not affect the obligations of the Borrower hereunder (including
the Borrower's obligation to immediately repay any amount which otherwise
constitutes an OverLoan) nor obligate the Lender to do so on any other occasion.
2-3 RISKS OF VALUE OF COLLATERAL. The Lender's reference to a
given asset in connection with the making of loans, credits, and advances and
the providing of financial accommodations under the Revolving Credit and/or the
monitoring of compliance with the provisions hereof shall not be deemed a
determination by the Lender relative to the actual value of the asset in
question. All risks concerning the value of the Collateral are and remain upon
the
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..22..
Borrower. All Collateral secures the prompt, punctual, and faithful performance
of the Liabilities whether or not relied upon by the Lender in connection with
the making of loans, credits, and advances and the providing of financial
accommodations under the Revolving Credit.
2-4 COMMITMENT TO MAKE REVOLVING CREDIT LOANS AND SUPPORT LETTERS
OF CREDIT. Subject to the provisions of this Agreement, the Lender shall
make a loan or advance under the Revolving Credit and shall endeavor to have an
L/C issued for the account of the Borrower, in each instance if duly and timely
requested by the Borrower as provided herein provided that:
(a) No OverLoan is then outstanding and none will result
therefrom.
(b) The Borrower is not then InDefault and will not
thereby become InDefault.
2-5 REVOLVING CREDIT LOAN REQUESTS.
(a) Requests for loans and advances under the Revolving
Credit or for the continuance or conversion of an interest rate applicable to a
Revolving Credit Loan may be requested by the Borrower in such manner as may
from time to time be acceptable to the Lender.
(b) Subject to the provisions of this Agreement, the
Borrower may request a Revolving Credit Loan and elect an interest rate and
Interest Period to be applicable to that Revolving Credit Loan by giving notice
to the Lender by no later than the following:
(i) If such Revolving Credit Loan is to be or is
to be converted to a Base Margin Loan: By 12:00 Noon on the Business
Day on which the subject Revolving Credit Loan is to be made or is to
be so converted. Base Margin Loans requested by the Borrower, other
than those resulting from the conversion of a Libor Loan, shall not be
less than $10,000.00.
(ii) If such Revolving Credit Loan is to be, or
is to be continued as, or converted to, a Libor Loan: By 12:00 Noon
Three (3) Libor Business Days before the commencement of any new
Interest Period or the end of the then applicable Interest Period.
Libor Loans and conversions to Libor Loans shall each be not less than
$500,000.00 and in increments of $250,000.00 in excess of such minimum.
(iii) Any Libor Loan which matures while the
Borrower is InDefault shall be converted, at the option of the Lender,
to a Base Margin Loan notwithstanding any notice from the Borrower that
such Loan is to be continued as a Libor Loan.
(c) Any request for a Revolving Credit Loan or for the
continuance or conversion of an interest rate applicable to a Revolving Credit
Loan which is made after the applicable deadline
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..23..
therefor, as set forth above, shall be deemed to have been made at the opening
of business on the then next Business Day or Libor Business Day, as applicable.
(d) The Borrower may request that the Lender cause the
issuance by the Issuer of L/C's for the account of the Borrower as provided in
Section 2-16.
(e) The Lender may rely on any request for a loan or
advance, or other financial accommodation under the Revolving Credit which the
Lender, in good faith, believes to have been made by a Person duly authorized to
act on behalf of the Borrower and may decline to make any such requested loan or
advance, or issuance, or to provide any such financial accommodation pending the
Lender's being furnished with such documentation concerning that Person's
authority to act as may be satisfactory to the Lender.
(f) A request by the Borrower for loan or advance, or
other financial accommodation under the Revolving Credit shall constitute
certification by the Borrower that as of the date of such request, each of the
following is true and correct:
(i) There has been no material adverse change in
the Borrower's financial condition from the most recent financial
information furnished Lender pursuant to this Agreement.
(ii) All or a portion of any loan or advance so
requested will be set aside by the Borrower to cover the Borrower's
obligations for sales tax on account of sales since the then most
recent borrowing pursuant to the Revolving Credit.
(iii) Each representation which is made herein or
in any of the Loan Documents is then true and complete as of and as if
made on the date of such request; provided that if such representation
refers to a specific date, it shall be deemed to be true as of such
date.
(iv) Unless accompanied by a written Certificate
of the Borrower's President or its Chief Financial Officer describing
(in reasonable detail) the facts and circumstances thereof and the
steps (if any) being taken to remedy such condition, that the Borrower
is not InDefault.
2-6 MAKING OF REVOLVING CREDIT LOANS.
(a) A loan or advance under the Revolving Credit shall be
made by the transfer of the proceeds of such loan or advance to the Operating
Account or as otherwise instructed by the Borrower.
(b) A loan or advance shall be deemed to have been made
under the Revolving Credit (and the Borrower shall be indebted to the Lender for
the amount thereof immediately) at the following:
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..24..
(i) The Lender's initiation of the transfer of
the proceeds of such loan or advance in accordance with the Borrower's
instructions (if such loan or advance is of funds requested by the
Borrower).
(ii) The charging of the amount of such loan to
the Loan Account (in all other circumstances).
(c) There shall not be any recourse to or liability of
the Lender on account of:
(i) Any delay by any bank or other depository
institution in treating the proceeds of any such loan or advance as
collected funds.
(ii) Any delay in the receipt, and/or any loss,
of funds which constitute a loan or advance under the Revolving Credit,
the wire transfer of which was properly initiated by the Lender in
accordance with wire instructions provided to the Lender by the
Borrower.
2-7 THE LOAN ACCOUNT.
(a) An account ("LOAN ACCOUNT") shall be opened on the
books of the Lender in which a record shall be kept of all loans and advances
made under the Revolving Credit.
(b) The Lender shall also keep a record (either in the
Loan Account or elsewhere, as the Lender may from time to time elect) of all
interest, fees, service charges, costs, expenses, and other debits owed to the
Lender on account of the Liabilities and of all credits against such amounts so
owed.
(c) All credits against the Liabilities shall be
conditional upon final payment to the Lender of the items giving rise to such
credits. The amount of any item credited against the Liabilities which is
charged back against the Lender or is disgorged for any reason or is not so paid
shall be a Liability and shall be added to the Loan Account, whether or not the
item so charged back or not so paid is returned.
(d) Except as otherwise provided herein, all fees,
service charges, costs, and expenses for which the Borrower is obligated
hereunder are payable on demand. In the determination of Availability, the
Lender may deem fees, service charges, accrued interest, and other payments
which will be due and payable between the date of such determination and the
first day of the then next succeeding month as having been advanced under the
Revolving Credit whether or not such amounts are then due and payable.
(e) The Lender, without the request of the Borrower, may
advance under the Revolving Credit any interest, fee, service charge, or other
payment to which Lender is entitled from the Borrower pursuant hereto and may
charge the same to the Loan Account notwithstanding that an OverLoan may result
thereby. Such action on the part of the Lender shall not constitute a waiver
...April 11, 2003..
..25..
of the Lender's rights and the Borrower's obligations under Section 2-9(b). Any
amount which is added to the principal balance of the Loan Account as provided
in this Section 2-7(e) shall bear interest at the interest rate then and
thereafter applicable to Base Margin Loans.
(f) Any statement rendered by the Lender to the Borrower
concerning the Liabilities shall be considered correct and accepted by the
Borrower and shall be conclusively binding upon the Borrower unless the Borrower
provides the Lender with written objection thereto within thirty (30) days from
the mailing of such statement, which written objection shall indicate, with
particularity, the reason for such objection. The Loan Account and the Lender's
books and records concerning the loan arrangement contemplated herein and the
Liabilities shall be prima facie evidence and proof of the items described
therein.
2-8 THE REVOLVING CREDIT NOTE. The Borrower's obligation to repay
loans and advances under the Revolving Credit, with interest as provided herein,
shall be evidenced by a note (the "REVOLVING CREDIT NOTE") in the form of
EXHIBIT 2-8, annexed hereto, executed by the Borrower. Neither the original nor
a copy of the Revolving Credit Note shall be required, however, to establish or
prove any Liability. In the event that the Revolving Credit Note is ever lost,
mutilated, or destroyed, the Borrower shall execute a replacement thereof and
deliver such replacement to the Lender upon receipt of a lost note affidavit and
an indemnity reasonably satisfactory to the Borrower.
2-9 PAYMENT OF THE LOAN ACCOUNT.
(a) The Borrower may repay all or any portion of the
principal balance of the Loan Account from time to time until the Termination
Date.
(b) The Borrower, without notice or demand from the
Lender shall pay the Lender that amount, from time to time, which is necessary
so that there is no OverLoan outstanding.
(c) The Borrower shall repay the then entire unpaid
balance of the Loan Account and all other Liabilities on the Termination Date.
(d) The Lender shall endeavor to cause the application of
payments (if any), pursuant to Sections 2-9(a) and 2-9(b) against Libor Loans
then outstanding in such manner as results in the least cost to the Borrower,
but shall not have any affirmative obligation to do so nor liability on account
of the Lender's failure to have done so. In no event shall action or inaction
taken by the Lender excuse the Borrower from any indemnification obligation
under Section 2-9(e).
(e) The Borrower shall indemnify the Lender and hold the
Lender harmless from and against any loss, cost or expense (including loss of
anticipated profits and amounts payable by the Lender on account of "breakage
fees" (so-called)) which the Lender may sustain or incur
...April 11, 2003..
..26..
(including, without limitation, by virtue of acceleration after the occurrence
of any Event of Default) as a consequence of the following:
(i) Default by the Borrower in payment of the
principal amount of or any interest on any Libor Loan as and when due
and payable, including any such loss or expense arising from interest
or fees payable by the Lender in order to maintain its Libor Loans.
(ii) Default by the Borrower in making a
borrowing or conversion after the Borrower has given (or is deemed to
have given) a request for a Revolving Credit Loan or a request to
convert a Revolving Credit Loan from one applicable interest rate to
another.
(iii) The making of any payment on a Libor Loan or
the making of any conversion of any such Loan to a Base Margin Loan on
a day that is not the last day of the applicable Interest Period with
respect thereto.
2-10 INTEREST ON REVOLVING CREDIT LOANS.
(a) Each Revolving Credit Loan shall bear interest at the
Base Margin Rate unless timely notice is given (as provided in Section 2-5) that
the subject Revolving Credit Loan (or a portion thereof) is, or is to be
converted to, a Libor Loan.
(b) Each Revolving Credit Loan which consists of a Libor
Loan shall bear interest at the applicable Libor Rate.
(c) Subject to, and in accordance with, the provisions of
this Agreement, the Borrower may cause all or a part of the unpaid principal
balance of the Loan Account to bear interest at the Base Margin Rate or the
Libor Rate as specified from time to time by the Borrower by notice to the
Lender.
(d) For ease of reference and administration, each part
of the Loan Account which bears interest at the same rate interest and for the
same Interest Period is referred to herein as if it were a separate "Revolving
Credit Loan".
(e) The Borrower shall not select, renew, or convert any
interest rate for a Revolving Credit Loan such that, in addition to interest at
the Base Margin Rate, there are more than Three (3) Libor Rates applicable to
the Revolving Credit Loans at any one time.
(f) The Borrower shall pay accrued and unpaid interest on
each Revolving Credit Loan in arrears as follows:
(i) On the applicable Interest Payment Date for
that Revolving Credit Loan.
(ii) On the Termination Date and on the End Date.
(iii) Following the occurrence of any Event of
Default, with such frequency as may be determined by the Lender.
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..27..
(g) Following the occurrence and during the continuance
of any Event of Default (and whether or not the Lender exercises the Lender's
rights on account thereof), all Revolving Credit Loans shall bear interest, at
the option of the Lender at rate which is the aggregate of the rate applicable
to Base Margin Loans plus Two Percent (2%) per annum.
2-11 REVOLVING CREDIT COMMITMENT FEE. The Revolving Credit
Commitment Fee shall be in the amount, and paid in accordance with, the terms
and conditions set forth in that certain Fee Letter (the "FEE LETTER") of even
date entered into by and between the Lender and the Borrower.
2-12 FACILITY FEE. The Facility Fee shall be in the amount, and
paid in accordance with, the terms and conditions set forth in the Fee Letter.
2-13 UNUSED LINE FEE. The Unused Line Fee shall be in the amount,
and paid in accordance with, the terms and conditions set forth in the Fee
Letter.
2-14 EARLY TERMINATION FEE. The Early Termination Fee shall be in
the amount, and paid in accordance with, the terms and conditions set forth in
the Fee Letter.
2-15 LENDER'S DISCRETION.
(a) Each reference in the Loan Documents to the exercise
of discretion or the like by the Lender shall be to the Lender's exercise of its
judgment, in good faith (which shall be presumed), based upon such information
of which that Person then has actual knowledge.
(b) In the exercise of such discretion, the following may be
taken into account.
(i) The reasonable anticipation: of an adverse
change to the value of the Collateral; the enforceability of the
Lender's Collateral Interests therein; or the amount which the Lender
would likely realize therefrom (taking into account delays which may
possibly be encountered in the Lender's realizing upon the Collateral
and likely Costs of Collection).
(ii) The content, completeness, and accuracy of
any report or financial information delivered to the Lender by or on
behalf of the Borrower and the manner by such report or financial
information was prepared.
(iii) The existence of circumstances which suggest
that the Borrower will likely become the subject of a bankruptcy or
insolvency proceeding.
(iv) The existence of circumstances suggest that
the Borrower is InDefault.
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..28..
(c) In the exercise of such discretion, the Lender also
may take into account any of the following factors:
(i) The current financial and business climate
of the industry in which the Borrower competes (having regard for the
Borrower's position in that industry).
(ii) General macroeconomic conditions which have
a material effect on the Borrower's cost structure.
(iii) Material changes in or to the mix of the
Borrower's Inventory.
(iv) Seasonality with respect to the Borrower's
Inventory and patterns of retail sales.
(v) Such other factors as the Lender reasonably
determine as having a material bearing on credit risks associated with
the providing of loans and financial accommodations to the Borrower.
(d) The burden of establishing the failure of the Lender
to have acted in a reasonable manner in the Lender's exercise of such discretion
shall be the Borrower's.
2-16 PROCEDURES FOR ISSUANCE OF L/C'S.
(a) The Borrower may request that the Lender cause the
issuance by the Issuer of L/C's for the account of the Borrower. Each such
request shall be in such manner as may from time to time be acceptable to the
Lender.
(b) The Lender will endeavor to cause the issuance of any
L/C so requested by the Borrower, provided that, at the time that the request
is made, the Revolving Credit has not been suspended as provided in Section 2(f)
and if so issued:
(i) The aggregate Stated Amount of all L/C's
then outstanding, does not exceed Seven Million Dollars.
(ii) The expiry of the L/C is not later than the
earlier of Thirty (30) days prior to the Maturity Date or the
following:
(A) Standby's: One (1) year from
initial issuance.
(B) Documentary's: One hundred and
eighty (180) days from issuance; provided however, up to 25%
of the total outstanding face amount of all Documentary L/C's
then outstanding may have an expiry of up to two hundred and
forty (240) days.
(iii) If the expiry of an L/C is later than the
Maturity Date, it is 103% cash collateralized at its issuance.
(iv) An OverLoan will not result from the
issuance of the subject L/C.
...April 11, 2003..
..29..
(c) The Borrower shall execute such documentation to
apply for and support the issuance of an L/C as may be required by the Issuer.
(d) There shall not be any recourse to, nor liability of,
the Lender on account of
(i) Any delay or refusal by an Issuer to issue
an L/C;
(ii) Any action or inaction of an Issuer on
account of or in respect to, any L/C.
(e) The Borrower shall reimburse the Issuer for the
amount of any honoring of a drawing under an L/C on the same day on which such
honoring takes place. If the Borrower does not make such reimbursement, the
Lender, without the request of the Borrower, may advance under the Revolving
Credit (and charge to the Loan Account) the amount of any honoring of any L/C
and other amount for which the Borrower, the Issuer, or the Lender becomes
obligated on account of, or in respect to, any L/C. Such advance shall be made
whether or not the Borrower is InDefault or such advance would result in an
OverLoan. Such action shall not constitute a waiver of the Lender's rights under
Section 2-9(b) hereof.
2-17 FEES FOR L/C'S.
(a) The Borrower shall pay to the Lender a fee, on
account of L/C's, the issuance of which had been procured by the Lender, monthly
in arrears, and on the Termination Date and on the End Date, equal to the
following percentages per annum of the weighted average Stated Amount of all
L/C's outstanding during the period in respect of which such fee is being paid
except that, following the occurrence and during the continuance of any Event of
Default, such fee shall be increased by two percent (2%) per annum:
Line Utilization Standby L/C Fee Documentary L/C Fee
-------------------------------------------------------------------------
Level I - - Up to
$5,000,000.00 1.25% 0.75%
-------------------------------------------------------------------------
Level II - - Greater than
$5,000,000.00, but less than
$10,000,000.00 1.50% 1.00%
-------------------------------------------------------------------------
Level III - - Greater than
$10,000,000.00 2.00% 1.50%
-------------------------------------------------------------------------
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..30..
The L/C Margins shall initially be established at Level II until September 30,
2003. Thereafter, the L/C Margins shall be adjusted monthly on the first day of
each calendar month, commencing with October 1, 2003, based upon the average
line utilization during the prior month.
(b) In addition to the fee to be paid as provided in
Subsection 2-17(a), above, the Borrower shall pay to the Lender (or to the
Issuer, if so requested by Lender), on demand, all issuance, processing,
negotiation, amendment, and administrative fees and other amounts charged by the
Issuer on account of, or in respect to, any L/C.
(c) If any change in Applicable Law shall either:
(i) impose, modify or deem applicable any
reserve, special deposit or similar requirements against letters of
credit heretofore or hereafter issued by any Issuer or with respect to
which the Lender or any Issuer has an obligation to lend to fund
drawings under any L/C; or
(ii) impose on any Issuer any other condition or
requirements relating to any such letters of credit;
and the result of any event referred to in Section 2-17(c)(i) or 2-17(c)(ii),
above, shall be to increase the cost to the Lender or to any Issuer of issuing
or maintaining any L/C (which increase in cost shall be the result of such
Issuer's reasonable allocation among the Lender's or Issuer's letter of credit
customers of the aggregate of such cost increases resulting from such events),
then, upon demand by the Lender and delivery by the Lender to the Borrower of a
certificate of an officer of the Lender or the subject Issuer describing such
change in law, executive order, regulation, directive, or interpretation
thereof, its effect on the Lender or such Issuer, and the basis for determining
such increased costs and their allocation, the Borrower shall immediately pay to
the Lender, from time to time as specified by the Lender, such amounts as shall
be sufficient to compensate the Lender or the subject Issuer for such increased
cost. The Lender's or any Issuer's determination of costs incurred under Section
2-17(c)(i) or 2-17(c)(ii), above, and the allocation, if any, of such costs
among the Borrower and other letter of credit customers of the Lender or such
Issuer, if done in good faith and made on an equitable basis and in accordance
with such officer's certificate, shall be conclusive and binding on the
Borrower; provided that the Lender shall use commercially reasonable efforts to
minimize any such costs.
2-18 CONCERNING L/C'S.
(a) None of the Issuer, the Issuer's correspondents, the
Lender or any advising, negotiating, or paying bank with respect to any L/C
shall be responsible in any way for:
(i) The performance by any beneficiary under any
L/C of that beneficiary's obligations to the Borrower.
...April 11, 2003..
..31..
(ii) The form, sufficiency, correctness,
genuineness, authority of any person signing; falsification; or the
legal effect of; any documents called for under any L/C if (with
respect to the foregoing) such documents on their face appear to be in
order.
(b) The Issuer may honor, as complying with the terms of
any L/C and of any drawing thereunder, any drafts or other documents otherwise
in order, but signed or issued by an administrator, executor, conservator,
trustee in bankruptcy, debtor in possession, assignee for the benefit of
creditors, liquidator, receiver, or other legal representative of the party
authorized under such L/C to draw or issue such drafts or other documents.
(c) Unless otherwise agreed to, in the particular
instance, the Borrower hereby authorizes any Issuer to:
(i) Select an advising bank, if any.
(ii) Select a paying bank, if any.
(iii) Select a negotiating bank.
(d) All directions, correspondence, and funds transfers
relating to any L/C are at the risk of the Borrower. The Issuer shall have
discharged the Issuer's obligations under any L/C which, or the drawing under
which, includes payment instructions, by the initiation of the method of payment
called for in, and in accordance with, such instructions (or by any other
commercially reasonable and comparable method). Neither the Lender nor the
Issuer shall have any responsibility for any inaccuracy, interruption, error, or
delay in transmission or delivery by post, telegraph or cable, or for any
inaccuracy of translation.
(e) Lender's and the Issuer's rights, powers, privileges
and immunities specified in or arising under this Agreement are in addition to
any heretofore or at any time hereafter otherwise created or arising, whether by
statute or rule of law or contract.
(f) Except to the extent otherwise expressly provided
hereunder or agreed to in writing by the Issuer and the Borrower, documentary
and standby L/C's will be governed by the Uniform Customs and Practice for
Documentary Credits, International Chamber of Commerce, Publication No. 500.
(g) The obligations of the Borrower under this Agreement
with respect to L/C's are absolute, unconditional, and irrevocable and shall be
performed strictly in accordance with the terms hereof under all circumstances,
whatsoever including, without limitation, the following:
(i) Any lack of validity or enforceability or
restriction, restraint, or stay in the enforcement of this Agreement,
any L/C, or any other agreement or instrument relating thereto.
(ii) The existence of any claim, set-off,
defense, or other right which the Borrower may have at any time against
the beneficiary of any L/C.
...April 11, 2003..
..32..
(iii) Any good faith honoring of a drawing under
any L/C, which drawing possibly could have been dishonored based upon a
strict construction of the terms of the L/C.
2-19 CHANGED CIRCUMSTANCES.
(a) The Lender may advise the Borrower that the Lender
has made the good faith determination (which determination shall be final and
conclusive) of any of the following:
(i) Adequate and fair means do not exist for
ascertaining the rate for Libor Loans.
(ii) The continuation of or conversion of any
Revolving Credit Loan to a Libor Loan has been made impracticable or
unlawful by the occurrence of a contingency that materially and
adversely affects the applicable market or the compliance by the Lender
in good faith with any Applicable Law.
(iii) The indices on which the interest rates for
Libor Loans are based shall no longer represent the effective cost to
the Lender for U.S. dollar deposits in the interbank market for
deposits in which it regularly participates.
(b) In the event that the Lender advises the Borrower of
an occurrence described in Section 2-19(a), then, until the Lender notifies the
Borrower that the circumstances giving rise to such notice no longer apply:
(i) The obligation of to make loans of the type
affected by such changed circumstances or to permit the Borrower to
select the affected interest rate as otherwise applicable to any
Revolving Credit Loans shall be suspended.
(ii) Any notice which the Borrower had given the
Lender with respect to any Libor Loan, the time for action with respect
to which has not occurred prior to the Lender's having given notice
pursuant to Section 2-19(a), shall be deemed at the option of the
Lender to not having been given.
ARTICLE 3 - CONDITIONS PRECEDENT:
As a condition to the effectiveness of this Agreement, the
establishment of the Revolving Credit, and the making of the first loan under
the Revolving Credit, each of the documents respectively described in Sections
3-1 through and including 3-4, (each in form and substance satisfactory to the
Lender) shall have been delivered to the Lender, and the conditions respectively
described in Sections 3-5 through and including 3-8, shall have been satisfied:
3-1 CORPORATE DUE DILIGENCE.
(a) A Certificate of corporate good standing issued by
the Secretary of State of Texas.
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..33..
(b) Certificates of due qualification, in good standing,
issued by the Secretary(ies) of State of each State in which the nature the
Borrower's business conducted or assets owned would require such qualification.
(c) A Certificate the Borrower's Secretary of the due
adoption, continued effectiveness, and setting forth the texts of, each
corporate resolution adopted in connection with the establishment of the loan
arrangement contemplated by the Loan Documents and attesting to the true
signatures of each Person authorized as a signatory to any of the Loan
Documents.
3-2 OPINION. An opinion of counsel to the Borrower in form and
substance satisfactory to the Lender.
3-3 ADDITIONAL DOCUMENTS AND INFORMATION. Such additional
instruments, documents, reports, and information as the Lender or its counsel
reasonably may require or request including, without limitation, the following,
each of which shall be in form and substance acceptable to the Lender:
(a) Appraisal of the Borrower's Inventory.
(b) Commercial finance examination performed by the
Lender's examiners and/or agents.
(c) Business Plan, including monthly balance sheet,
profit and loss statements, and cash flow analysis that presents expected loan
usage and collateral availability consistent with the Borrowing Base.
(d) Background checks for key management.
(e) All Loan Documents.
(f) Lien search results with respect to all of the
Borrower's locations.
(g) Confirmation of filing of all necessary and
appropriate Financing Statements and such other documents as may be required to
perfect the Lender's security interest in the Collateral.
(h) Receipt of discharges, terminations, and releases
required to afford the Lender a first, perfected security interest in and to all
Collateral, free and clear of all liens and encumbrances other than Permitted
Encumbrances.
(i) Confirmation of insurance.
(j) Collateral access agreements.
(k) Bailee letters.
...April 11, 2003..
..34..
3-4 OFFICERS' CERTIFICATES. Certificates executed by the
President and the Chief Financial Officer of the Borrower which state that
(a) Such officer, acting on behalf of the Borrower, has
reviewed each of the Loan Documents and has had the benefit of independent
counsel (Attorneys Akin, Gump, Strauss, Xxxxx & Xxxx, LLP) of the Borrower's
selection in connection with the review and negotiation of the Loan Documents.
In particular, and without limiting the generality of such review, the following
provisions of the Loan Documents have been brought to the attention of the
undersigned by such counsel:
(i) The waiver of the right to a trial by jury
in connection with controversies arising out of the loan arrangement
contemplated by the Loan Documents.
(ii) The designation of, and submission to the
exclusive jurisdiction and venue of, certain courts.
(iii) Various other waivers and indemnifications
included therein.
(iv) The circumstances under which the
Liabilities could be accelerated and the grace periods available with
respect to certain Events of Default.
(b) The representations and warranties made by the
Borrower to the Lender in the Loan Documents are true and complete as of the
date of such Certificate, and that no event has occurred which is or which,
solely with the giving of notice or passage of time (or both) would be an Event
of Default.
3-5 REPRESENTATIONS AND WARRANTIES. Each of the representations
made by or on behalf of the Borrower in this Agreement or in any of the other
Loan Documents or in any other report, statement, document, or paper provided by
or on behalf of the Borrower shall be true and complete as of the date as of
which such representation or warranty was made.
3-6 MINIMUM DAY ONE AVAILABILITY. After giving effect to the
first funding under the Revolving Credit; all then held checks (if any);
accounts payable which are beyond credit terms then accorded the Borrower;
overdrafts; any charges to the Loan Account made in connection with the
establishment of the credit facility contemplated hereby; and L/C's to be issued
at, or immediately subsequent to, such establishment, Availability shall not be
less than $7,500,000.00.
3-7 BORROWER NOT INDEFAULT. The Borrower is not InDefault.
...April 11, 2003..
..35..
3-8 NO ADVERSE CHANGE. No event shall have occurred or failed to
occur, which occurrence or failure is or could have a materially adverse effect
upon the Borrower's financial condition when compared with such financial
condition at February 3, 2003.
3-9 BENEFIT OF CONDITIONS PRECEDENT. The conditions set forth in
this Article 3 are for the sole benefit of the Lender and may be waived by the
Lender in whole or in part without prejudice to the Lender.
No document shall be deemed delivered to the Lender until received and accepted
by the Lender at its offices in Boston, Massachusetts. Under no circumstances
shall this Agreement take effect until executed and accepted by the Lender at
said offices.
ARTICLE 4 - GENERAL REPRESENTATIONS, COVENANTS AND WARRANTIES:
To induce the Lender to establish the credit facility contemplated
herein and to induce the Lender to provide loans and advances under the
Revolving Credit (each of which loans shall be deemed to have been made in
reliance thereupon) the Borrower, in addition to all other representations,
warranties, and covenants made by the Borrower in any other Loan Document, makes
those representations, warranties, and covenants included in this Agreement.
4-1 PAYMENT AND PERFORMANCE OF LIABILITIES. The Borrower shall
pay each payment Liability when due (or when demanded, if payable on demand) and
shall promptly, punctually, and faithfully perform each other Liability.
4-2 DUE ORGANIZATION. AUTHORIZATION. NO CONFLICTS.
(a) The Borrower presently is and shall hereafter remain
in good standing as a Texas corporation and is and shall hereafter remain duly
qualified and in good standing in every other State in which, by reason of the
nature or location of the Borrower's assets or operation of the Borrower's
business, such qualification may be necessary, except where the failure to so
qualify would have no more than a de minimis adverse effect on the business or a
assets of the Borrower.
(b) The Borrower's organizational identification number
assigned to it by the Secretary of Sate of Texas is listed on EXHIBIT 4-2,
annexed hereto.
(c) The Borrower shall not change its State of
organization; any organizational identification number assigned to the Borrower
by that State; or the Borrower's federal taxpayer identification number.
...April 11, 2003..
..36..
(d) Each Affiliate is listed on EXHIBIT 4-2. The Borrower
shall provide the Lender with prior written notice of any entity's becoming or
ceasing to be an Affiliate.
(e) The Borrower has all requisite power and authority to
execute and deliver all Loan Documents to which the Borrower is a party and has
and will hereafter retain all requisite power to perform all Liabilities.
(f) The execution and delivery by the Borrower of each
Loan Document to which it is a party; the Borrower's consummation of the
transactions contemplated by such Loan Documents (including, without limitation,
the creation of Collateral Interests by the Borrower to secure the Liabilities);
the Borrower's performance under those of the Loan Documents to which it is a
party
(i) Have been duly authorized by all necessary
action.
(ii) Do not, and will not, contravene in any
material respect any provision of any Requirement of Law or obligation
of the Borrower.
(iii) Will not result in the creation or
imposition of, or the obligation to create or impose, any Encumbrance
upon any assets of the Borrower pursuant to any Requirement of Law or
obligation, except pursuant to the Loan Documents.
(g) The Loan Documents have been duly executed and
delivered by the Borrower and are the legal, valid and binding obligations of
the Borrower, enforceable against the Borrower in accordance with their
respective terms.
4-3 TRADE NAMES.
(a) EXHIBIT 4-3, annexed hereto, is a listing of:
(i) All names under which the Borrower ever
conducted its business.
(ii) All Persons with whom the Borrower ever
consolidated or merged, or from whom the Borrower ever acquired in a
single transaction or in a series of related transactions substantially
all of such Person's assets.
(b) The Borrower will provide the Lender with not less
than twenty-one (21) days prior written notice (with reasonable particularity)
of any change to the Borrower's name from that under which the Borrower is
conducting its business at the execution of this Agreement and will not effect
such change unless the Borrower is then in compliance with all provisions of
this Agreement.
4-4 INFRASTRUCTURE.
(a) The Borrower has and will maintain a sufficient
infrastructure to conduct its business as presently conducted and as
contemplated to be conducted following its execution of this Agreement.
...April 11, 2003..
..37..
(b) The Borrower owns and possesses, or has the right to
use (and will hereafter own, possess, or have such right to use) all patents,
industrial designs, trademarks, trade names, trade styles, brand names, service
marks, logos, copyrights, trade secrets, know-how, confidential information, and
other intellectual or proprietary property of any third Person necessary for the
Borrower's conduct of the Borrower's business.
(c) To the Borrower's knowledge, the conduct by the
Borrower of the Borrower's business does not presently infringe (nor will the
Borrower conduct its business in the future so as to infringe) the patents,
industrial designs, trademarks, trade names, trade styles, brand names, service
marks, logos, copyrights, trade secrets, know-how, confidential information, or
other intellectual or proprietary property of any third Person.
4-5 LOCATIONS.
(a) The Collateral, and the books, records, and papers of
Borrower's pertaining thereto, are kept and maintained solely at those locations
which are listed on EXHIBIT 4-5, annexed hereto, which EXHIBIT includes, with
respect to each such location, the name and address of the landlord on the Lease
which covers such location (or an indication that the Borrower owns the subject
location) and of all service bureaus with which any such records are maintained.
(b) The Borrower shall not remove any of the Collateral
from those locations listed on EXHIBIT 4-5 except for the following purposes:
(i) To accomplish sales of Inventory in the
ordinary course of business.
(ii) To move Inventory from one such location to
another such location.
(iii) To utilize such of the Collateral as is
removed from such locations in the ordinary course of business (such as
motor vehicles).
(c) Except as provided below, the Borrower will not:
(i) Execute, alter, modify, or amend any Lease.
(ii) Commit to, or open or close any location at
which the Borrower maintains, offers for sales, or stores any of the
Collateral.
Notwithstanding the foregoing, during any Fiscal Year, the Borrower may
(x) open new locations in an amount up to the amount of new stores
contemplated to be opened as set forth in the Business Plan, plus, upon
written notice to the Lender, an additional ten (10) new locations, (y)
close existing locations in an amount up to the amount of stores
contemplated to be closed as set forth in the Business Plan, plus, upon
written notice to the Lender, an additional ten (10) locations, and (z)
alter, modify, or amend an existing Lease, so long as any such
alteration, modification, or amendment is on financial terms and
conditions more favorable to the Borrower with respect to the subject
Lease.
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(d) Except as otherwise disclosed pursuant to, or
permitted by, this Section 4-5, no tangible personal property of the Borrower is
in the care or custody of any third party or stored or entrusted with a bailee
or other third party and none shall hereafter be placed under such care,
custody, storage, or entrustment.
4-6 ENCUMBRANCES.
(a) The Borrower is, and shall hereafter remain, the
owner of the Collateral free and clear of all Encumbrances other than any
Permitted Encumbrance.
(b) The Borrower does not and shall not have, possession
of any property on consignment to the Borrower.
(c) The Borrower shall not acquire or obtain the right to
use any Equipment, the acquisition or right to use of which Equipment is
otherwise permitted by this Agreement, in which Equipment any third party has an
interest, except for:
(i) Equipment which is merely incidental to the
conduct of the Borrower's business.
(ii) Equipment, the acquisition or right to use
of which has been consented to by the Lender, which consent may be
conditioned upon the Lender's receipt of such agreement with the third
party which has an interest in such Equipment as is satisfactory to the
Lender.
4-7 INDEBTEDNESS. The Borrower does not and shall not hereafter
have any Indebtedness other than any Permitted Indebtedness.
4-8 INSURANCE.
(a) EXHIBIT 4-8, annexed hereto, is a schedule of all
insurance policies owned by the Borrower or under which the Borrower is the
named insured. Each of such policies is in full force and effect. Neither the
issuer of any such policy nor the Borrower is in default or violation of any
such policy.
(b) The Borrower shall self-insure all Inventory and
other property located in the Borrower's retail store locations, and otherwise
shall have and maintain at all times insurance covering such risks, in such
amounts, containing such terms, in such form, for such periods, and written by
such companies as reasonably may be satisfactory to the Lender.
(c) All insurance carried by the Borrower shall provide
for a minimum of thirty (30) days' prior written notice of cancellation to the
Lender and all such insurance which covers the Collateral shall
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(i) Include an endorsement in favor of the
Lender, which endorsement shall provide that the insurance, to the
extent of the Lender's interest therein, shall not be impaired or
invalidated, in whole or in part, by reason of any act or neglect of
the Borrower or by the failure of the Borrower to comply with any
warranty or condition of the policy.
(ii) Not include an endorsement in favor of any
other Person.
(d) The coverage reflected on EXHIBIT 4-8 presently
satisfies the foregoing requirements, it being recognized by the Borrower,
however, that such requirements may change hereafter to reflect changing
circumstances.
(e) The Borrower shall furnish the Lender from time to
time with certificates or other evidence satisfactory to the Lender regarding
compliance by the Borrower with the foregoing requirements.
(f) In the event of the failure by the Borrower to
maintain insurance as required herein, the Lender, at its option and the
Borrower's expense, may obtain such insurance at the expense of the Borrower,
provided, however, the Lender's obtaining of such insurance shall not constitute
a cure or waiver of any Event of Default occasioned by the Borrower's failure to
have maintained such insurance.
4-9 LICENSES. Each license, distributorship, franchise, and
similar agreement issued to, or to which the Borrower is a party is in full
force and effect. No party to any such license or agreement is in default or
violation thereof. The Borrower has not received any notice or threat of
cancellation of any such license or agreement.
4-10 LEASES. EXHIBIT 4-10, annexed hereto, is a schedule of all
presently effective Capital Leases. (Exhibit 4-5 includes a list of all other
presently effective Leases). Each of such Leases and Capital Leases is in full
force and effect. No party to any such Lease or Capital Lease is in default or
violation of any such Lease or Capital Lease. The Borrower has not received any
notice or threat of cancellation of any such Lease or Capital Lease. The
Borrower hereby authorizes the Lender at any time and from time to time to
contact any of the Borrower's landlords in order to confirm the Borrower's
continued compliance with the terms and conditions of the Lease(s) between the
Borrower and that landlord and to discuss such issues, concerning the Borrower's
occupancy under such Lease(s), as the Lender may determine.
4-11 REQUIREMENTS OF LAW. The Borrower is in compliance with, and
shall hereafter comply with and use its assets in compliance with, all
Requirements of Law except where the failure of such compliance will not have
more than a de minimis adverse effect on the Borrower's business
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or assets. The Borrower has not received any notice of any violation of any
Requirement of Law (other than of a violation which has no more than a de
minimis adverse effect on the Borrower's business or assets), which violation
has not been cured or otherwise remedied.
4-12 LABOR RELATIONS.
(a) The Borrower has not been and is not presently a
party to any collective bargaining or other labor contract.
(b) There is not presently pending and, to the Borrower's
knowledge, there is not threatened any of the following:
(i) Any strike, slowdown, picketing, work
stoppage, or employee grievance process.
(ii) Any proceeding against or affecting the
Borrower relating to the alleged violation of any Applicable Law
pertaining to labor relations or before National Labor Relations Board,
the Equal Employment Opportunity Commission, or any comparable
governmental body, organizational activity, or other labor or
employment dispute against or affecting the Borrower, which, if
determined adversely to the Borrower could have more than a de minimis
adverse effect on the Borrower.
(iii) Any lockout of any employees by the Borrower
(and no such action is contemplated by the Borrower).
(iv) Any application for the certification of a
collective bargaining agent.
(c) No event has occurred or circumstance exists which
could provide the basis for any work stoppage or other labor dispute.
(d) The Borrower:
(i) Has complied in all material respects with
all Applicable Law relating to employment, equal employment
opportunity, nondiscrimination, immigration, wages, hours, benefits,
collective bargaining, the payment of social security and similar
taxes, occupational safety and health, and plant closing.
(ii) Is not liable for the payment of more than a
de minimius amount of compensation, damages, taxes, fines, penalties,
or other amounts, however designated, for the Borrower's failure to
comply with any Applicable Law referenced in Section 4-12(d)(i).
4-13 MAINTAIN PROPERTIES. The Borrower shall:
(a) Keep the Collateral in good order and repair
(ordinary reasonable wear and tear and insured casualty excepted).
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(b) Not suffer or cause the waste or destruction of any
material part of the Collateral.
(c) Not use any of the Collateral in violation of any
policy of insurance thereon.
(d) Not sell, lease, or otherwise dispose of any of the
Collateral, other than the following:
(i) The sale of Inventory in compliance with
this Agreement.
(ii) The disposal of Equipment which is obsolete,
worn out, or damaged beyond repair.
4-14 TAXES.
(a) With respect to the Borrower's federal, state, and
local tax liability and obligations:
(i) The Borrower, in compliance with all
Applicable Law, has properly filed all returns due to be filed up to
the date of this Agreement.
(ii) Except as described on EXHIBIT 4-14:
(A) At no time has the Borrower
received from any taxing authority any request to perform any
examination of or with respect to the Borrower nor any other
written or verbal notice in any way relating to any claimed
failure by the Borrower to comply with all Applicable Law
concerning payment of any taxes or other amounts in the nature
of taxes.
(B) No agreement is extant which waives
or extends any statute of limitations applicable to the right
of any taxing authority to assert a deficiency or make any
other claim for or in respect to federal income taxes.
(C) No issue has been raised in any tax
examination of the Borrower which, by application of similar
principles, reasonably could be expected to result in the
assertion of a deficiency for any fiscal year open for
examination, assessment, or claim by any taxing authority.
(b) The Borrower has, and hereafter shall: pay, as they
become due and payable, all taxes and unemployment contributions and other
charges of any kind or nature levied, assessed or claimed against the Borrower
or the Collateral by any person or entity whose claim could result in an
Encumbrance upon any asset of the Borrower or by any governmental authority;
properly exercise any trust responsibilities imposed upon the Borrower by reason
of withholding from employees' pay or by reason of the Borrower's receipt of
sales tax or other funds for the account of any third party; timely make all
contributions and other payments as may be required pursuant to any Employee
Benefit Plan now or hereafter established by the Borrower; and timely file all
tax and
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other returns and other reports with each governmental authority to whom the
Borrower is obligated to so file (other than non-material failures to pay which
are, once noted or brought to the Borrower's attention, promptly paid).
4-15 NO MARGIN STOCK. The Borrower is not engaged in the business
of extending credit for the purpose of purchasing or carrying any margin stock
(within the meaning of Regulations U, T, and X of the Board of Governors of the
Federal Reserve System of the United States). No part of the proceeds of any
borrowing hereunder will be used at any time to purchase or carry any such
margin stock or to extend credit to others for the purpose of purchasing or
carrying any such margin stock.
4-16 ERISA.
(a) Neither the Borrower nor any ERISA Affiliate has
ever:
(i) Violated or failed to be in full compliance
with the Borrower's Employee Benefit Plan.
(ii) Failed timely to file all reports and
filings required by ERISA to be filed by the Borrower.
(iii) Engaged in any nonexempt "prohibited
transactions" or "reportable events" (respectively as described in
ERISA).
(iv) Engaged in, or committed, any act such that
a tax or penalty reasonably could be imposed upon the Borrower on
account thereof pursuant to ERISA.
(v) Accumulate any material cumulative funding
deficiency within the meaning of ERISA.
(vi) Terminated any Employee Benefit Plan such
that a lien could be asserted against any assets of the Borrower on
account thereof pursuant to ERISA.
(vii) Been a member of, contributed to, or have
any obligation under any Employee Benefit Plan which is a multiemployer
plan within the meaning of Section 4001(a) of ERISA.
(b) Neither the Borrower nor any ERISA Affiliate shall
ever engage in any action of the type described in Section 4-16(a).
4-17 HAZARDOUS MATERIALS.
(a) The Borrower has never: (i) been legally responsible
for any release or threat of release of any Hazardous Material or (ii) received
notification of the incurrence of any expense
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in connection with the assessment, containment, or removal of any Hazardous
Material for which the Borrower would be responsible.
(b) The Borrower shall: (i) dispose of any Hazardous
Material only in compliance with all Environmental Laws and (ii) have possession
of any Hazardous Material only in the ordinary course of the Borrower's business
and in compliance with all Environmental Laws.
4-18 LITIGATION. Except as described in EXHIBIT 4-18, annexed
hereto, there is not presently pending or threatened by or against the Borrower
any suit, action, proceeding, or investigation which, if determined adversely to
the Borrower, would have more than a de minimis adverse effect upon the
Borrower's financial condition or ability to conduct its business as such
business is presently conducted or is contemplated to be conducted in the
foreseeable future.
4-19 DIVIDENDS. INVESTMENTS. CORPORATE ACTION. The Borrower shall
not:
(a) Except as provided below, pay any cash dividend or
make any other distribution in respect of any class of the Borrower's capital
stock. Notwithstanding the foregoing, the Borrower may issue dividends and
distributions and/or own, redeem, retire, purchase, or acquire any of the
Borrower's capital stock up to $3,000,000.00 in the aggregate in any calendar
year so long as Availability (X) is not less than $6,000,000.00 at the time of
the issuance of the dividend or the making of the distribution and immediately
after giving effect to the dividend or the distribution, and (Y) is projected to
be greater than $6,000,000.00 at all times for a period of one hundred and
eighty (180) days thereafter, as shown on the Borrower's projections delivered
to, and accepted by the Lender, in the Lender's discretion, prior to the
issuance of the dividend or the making of the distribution.
(b) Make any payment on account of any Indebtedness other
than payment of the Liabilities and Permitted Indebtedness.
(c) Invest in or purchase any stock or securities or
rights to purchase any such stock or securities, of any Person.
(d) Merge or consolidate or be merged or consolidated
with or into any other corporation or other entity.
(e) Consolidate any of the Borrower's operations with
those of any other Person.
(f) Organize or create any Affiliate.
(g) Subordinate any debts or obligations owed to the
Borrower by any third party to any other debts owed by such third party to any
other Person.
(h) Acquire any assets other than in the ordinary course
and conduct of the Borrower's business as conducted at the execution of this
Agreement.
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4-20 LOANS. The Borrower shall not make any loans or advances to,
nor acquire the Indebtedness of, any Person, provided, however, the foregoing
does not prohibit any of the following:
(a) Advance payments made to the Borrower's suppliers in
the ordinary course.
(b) Advances to the Borrower's officers, employees, and
salespersons with respect to reasonable expenses to be incurred by such
officers, employees, and salespersons for the benefit of the Borrower,
which expenses are properly substantiated by the person seeking such
advance and properly reimbursable by the Borrower.
4-21 PROTECTION OF ASSETS. The Lender, in the Lender's discretion,
and from time to time, may discharge any tax or Encumbrance on any of the
Collateral, or take any other action which the Lender may deem necessary or
desirable to repair, insure, maintain, preserve, collect, or realize upon any of
the Collateral. The Lender shall not have any obligation to undertake any of the
foregoing and shall have no liability on account of any action so undertaken
except where there is a specific finding in a judicial proceeding (in which the
Lender has had an opportunity to be heard), from which finding no further appeal
is available, that the Lender had acted in actual bad faith or in a grossly
negligent manner. The Borrower shall pay to the Lender, on demand, or the
Lender, in its discretion, may add to the Loan Account, all amounts paid or
incurred by the Lender pursuant to this section 4-21.
4-22 LINE OF BUSINESS. The Borrower shall not engage in any
business other than the business in which it is currently engaged or a business
reasonably related thereto. In this regard, the Lender acknowledges the
Borrower's intention, as set forth in the Business Plan, to liquidate its
Inventory consisting of "young men's apparel" and related accessories, footwear,
and other items, and to cease its operations in that segment of the market.
4-23 AFFILIATE TRANSACTIONS. The Borrower shall not make any
payment, nor give any value to any Affiliate except for goods and services
actually purchased by the Borrower from, or sold by the Borrower to, such
Affiliate for a price and on terms which shall
(a) be competitive and fully deductible as an "ordinary
and necessary business expense" and/or fully depreciable under the
Internal Revenue Code of 1986 and the Treasury Regulations, each as
amended; and
(b) be no less favorable to the Borrower than those which
would have been charged and imposed in an arms length transaction.
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4-24 FURTHER ASSURANCES.
(a) The Borrower is not the owner of, nor has it any
interest in, any property or asset which not be subject to a perfected
Collateral Interest in favor of the Lender (subject only to Permitted
Encumbrances) to secure the Liabilities.
(b) The Borrower will not hereafter acquire any asset or
any interest in property which is not, immediately upon such acquisition,
subject to such a perfected Collateral Interest in favor of the Lender to secure
the Liabilities (subject only to Permitted Encumbrances).
(c) The Borrower shall execute and deliver to the Lender
such instruments, documents, and papers, and shall do all such things from time
to time hereafter as the Lender may request to carry into effect the provisions
and intent of this Agreement; to protect and perfect the Lender's Collateral
Interests in the Collateral; and to comply with all applicable statutes and
laws, and facilitate the collection of the Receivables Collateral. The Borrower
shall execute all such instruments as may be required by the Lender with respect
to the recordation and/or perfection of the Collateral Interests created or
contemplated herein.
(d) The Borrower hereby designates the Lender as and for
the Borrower's true and lawful attorney, with full power of substitution, to
sign and file any financing statements in order to perfect or protect the
Lender's Collateral Interests in the Collateral.
(e) This Agreement constitutes an authenticated record
which authorizes the Lender to file such financing statements as the Lender
determines as appropriate to perfect or protect the Collateral Interests created
by this Agreement.
(f) A carbon, photographic, or other reproduction of this
Agreement or of any financing statement or other instrument executed pursuant to
this Section 4-24 shall be sufficient for filing to perfect the security
interests granted herein.
4-25 ADEQUACY OF DISCLOSURE.
(a) All financial statements furnished to the Lender by
the Borrower have been prepared in accordance with GAAP consistently applied and
present fairly in all material respects the condition of the Borrower at the
date(s) thereof and the results of operations and cash flows for the period(s)
covered (provided however, that unaudited financial statements are subject to
normal year end adjustments and to the absence of footnotes). There has been no
change in the financial condition, results of operations, or cash flows of the
Borrower since the date(s) of such financial statements, other than changes in
the ordinary course of business, which changes have not been materially adverse,
either singularly or in the aggregate.
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(b) The Borrower does not have any contingent obligations
or obligation under any Lease or Capital Lease which is not noted in the
Borrower's financial statements furnished to the Lender prior to the execution
of this Agreement.
(c) No document, instrument, agreement, or paper now or
hereafter given to the Lender by or on behalf of the Borrower or any guarantor
of the Liabilities in connection with the execution of this Agreement by the
Lender contains or will contain any untrue statement of a material fact or omits
or will omit to state a material fact necessary in order to make the statements
therein not misleading. There is no fact known to the Borrower which has, or
which, in the foreseeable future could have, a material adverse effect on the
financial condition of the Borrower or any such guarantor which has not been
disclosed in writing to the Lender.
4-26 NO RESTRICTIONS ON LIABILITIES. The Borrower shall not enter
into or directly or indirectly become subject to any agreement which prohibits
or restricts, in any manner, the Borrower's:
(a) Creation of, and granting of Collateral Interests in
favor of the Lender.
(b) Incurrence of Liabilities.
4-27 OTHER COVENANTS. The Borrower shall not indirectly do or cause
to be done any act which, if done directly by the Borrower, would breach any
covenant contained in this Agreement.
FINANCIAL REPORTING:
4-28 MAINTAIN RECORDS. The Borrower shall:
(a) At all times, keep proper books of account, in which
full, true, and accurate entries shall be made of all of the Borrower's
financial transactions, all in accordance with GAAP applied
consistently with prior periods to fairly reflect the financial
condition of the Borrower at the close of, and its results of
operations for, the periods in question.
(b) Timely provide the Lender with those financial
reports, statements, and schedules required by this Article 4 or
otherwise, each of which reports, statements and schedules shall be
prepared, to the extent applicable, in accordance with GAAP applied
consistently with prior periods to fairly reflect the financial
condition of the Borrower at the close of, and the results of
operations for, the period(s) covered therein.
(c) At all times, keep accurate current records of the
Collateral including, without limitation, accurate current stock, cost,
and sales records of its Inventory, accurately and
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sufficiently itemizing and describing the kinds, types, and quantities
of Inventory and the cost and selling prices thereof.
(d) At all times, retain independent certified public
accountants who are reasonably satisfactory to the Lender and instruct
such accountants to fully cooperate with, and be available to, the
Lender to discuss the Borrower's financial performance, financial
condition, operating results, controls, and such other matters, within
the scope of the retention of such accountants, as may be raised by the
Lender.
(e) Not change the Borrower's fiscal year.
4-29 ACCESS TO RECORDS.
(a) The Borrower shall accord the Lender with access from
time to time as the Lender may require to all properties owned by or over which
the Borrower has control. The Lender shall have the right, and the Borrower will
permit the Lender from time to time as Lender may request, to commence during
normal business hours to examine, inspect, copy, and make extracts from any and
all of the Borrower's books, records, electronically stored data, papers, and
files. The Borrower shall make all of the Borrower's copying facilities
available to the Lender. All such information obtained by the Lender shall be
kept confidential, subject to the requirements of Applicable Law.
(b) The Borrower hereby authorizes the Lender to:
(i) Inspect, copy, duplicate, review, cause to
be reduced to hard copy, run off, draw off, and otherwise use any and
all computer or electronically stored information or data which relates
to the Borrower, or any service bureau, contractor, accountant, or
other person, and directs any such service bureau, contractor,
accountant, or other person fully to cooperate with the Lender with
respect thereto.
(ii) Verify at any time the Collateral or any
portion thereof, including verification with Account Debtors, and/or
with the Borrower's computer billing companies, collection agencies,
and accountants and to sign the name of the Borrower on any notice to
the Borrower's Account Debtors or verification of the Collateral.
(c) The Lender from time to time may designate one or
more representatives to exercise the Lender's rights under this Section 4-29 as
fully as if the Lender were doing so.
4-30 IMMEDIATE NOTICE TO LENDER.
(a) The Borrower shall provide the Lender with written
notice promptly upon the occurrence of any of the following events, which
written notice shall be with reasonable particularity as to the facts and
circumstances in respect of which such notice is being given:
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(i) Any change in the Borrower's President,
chief executive officer, chief operating officer, and chief financial
officer (without regard to the title(s) actually given to the Persons
discharging the duties customarily discharged by officers with those
titles).
(ii) Any ceasing of the Borrower's making of
payment, in the ordinary course, to any of its creditors (other than
its ceasing of making of such payments on account of a de minimis
dispute).
(iii) Any failure by the Borrower to pay rent at
any of the Borrower's locations, which failure continues for more than
Ten (10) days following receipt by the Borrower of notice from the
subject landlord; except that the Borrower may, in its discretion,
consistent with the Borrower's operation of its business in the
ordinary course, withhold the payment of rent at up to Ten (10) of the
Borrower's retail store locations, in the aggregate during the term of
this Agreement.
(iv) Any material adverse change in the business,
operations, or financial affairs of the Borrower.
(v) The Borrower's becoming InDefault.
(vi) Any intention on the part of the Borrower to
discharge the Borrower's present independent accountants or any
withdrawal or resignation by such independent accountants from their
acting in such capacity (as to which, see Subsection 4-28(d)).
(vii) Any litigation which, if determined
adversely to the Borrower, would reasonably be expected to have a
material adverse effect on the financial condition of the Borrower.
(b) The Borrower shall:
(i) Provide the Lender, when so distributed,
with copies of any materials distributed to the shareholders of the
Borrower (qua such shareholders).
(ii) Add the Lender as an addressee on all
mailing lists maintained by or for the Borrower.
(iii) At the request of the Lender, from time to
time, provide the Lender with copies of all advertising (including
copies of all print advertising and duplicate tapes of all video and
radio advertising).
(iv) Provide the Lender, when received by the
Borrower, with a copy of any management letter or similar
communications from any accountant of the Borrower.
4-31 BORROWING BASE CERTIFICATE. The Borrower shall provide the
Lender simultaneously with the submission of any request for a loan, advance, or
any other financial accommodation with a Borrowing Base Certificate (in the form
of EXHIBIT 4-31 annexed hereto,
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as such form may be revised from time to time by the Lender). Such Certificate
may be sent to the Lender by facsimile transmission, provided that the original
thereof is forwarded to the Lender on the date of such transmission.
4-32 WEEKLY REPORTS. At all times that Availability is less than
$10,000,000.00, the Borrower shall weekly, on Tuesday of each week (as of the
then immediately preceding Saturday), provide the Lender with a sales audit
report and a flash collateral report (each in such form as may be specified from
time to time by the Lender). Such report may be sent to the Lender by facsimile
transmission, provided that the original thereof is forwarded to the Lender on
the date of such transmission.
4-33 MONTHLY REPORTS. Monthly, the Borrower shall provide the
Lender with those financial statements and reports described in EXHIBIT 4-33,
annexed hereto.
4-34 QUARTERLY REPORTS. Quarterly, within Forty Five (45) days
following the end of each of the Borrower's first three fiscal quarters, the
Borrower shall provide the Lender with the following:
(a) An original counterpart of a management prepared
financial statement of the Borrower for the period from the beginning
of the Borrower's then current fiscal year through the end of the
subject quarter, with comparative information for the same period of
the previous fiscal year, which statement shall include, at a minimum,
a balance sheet, income statement (on a "consolidated" basis), and cash
flows and comparisons for the corresponding quarter of the then
immediately previous year, as well as to the Business Plan.
(b) The officer's compliance certificate described in
Section 4-36
4-35 ANNUAL REPORTS.
(a) Annually, within ninety (90) days following the end
of the Borrower's fiscal year, the Borrower shall furnish the Lender with the
following:
(i) An original signed counterpart of the
Borrower's annual financial statement, which statement shall have been
prepared by, and bear the unqualified opinion of, the Borrower's
independent certified public accountants (i.e. said statement shall be
"certified" by such accountants) and shall include, at a minimum (with
comparative information for the then prior fiscal year) a balance
sheet, income statement, statement of changes in shareholders' equity,
and cash flows.
(ii) The officer's compliance certificate
described in Section 4-36.
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(b) No later than the earlier of Fifteen (15) days prior
to the end of each of the Borrower's fiscal years or the date on which such
accountants commence their work on the preparation of the Borrower's annual
financial statement, the Borrower shall give written notice to such accountants
(with a copy of such notice, when sent, to the Lender) that:
(i) Such annual financial statement will be
delivered by the Borrower to the Lender.
(ii) The Borrower has been advised that the
Lender will rely thereon with respect to the administration of, and
transactions under, the credit facility contemplated by this Agreement.
4-36 OFFICERS' CERTIFICATES. The Borrower shall cause either the
Borrower's President or its Chief Financial Officer, in each instance, to
provide such Person's Certificate with those monthly financial statements to be
provided within thirty (30) days of the end of each month and with those to be
provided quarterly and annual statements to be furnished pursuant to this
Agreement, which Certificate shall:
(a) Indicate that the financial information contained
therein fairly presents in all material respects the financial
condition, results of operations, and cash flows (to the extent a cash
flow statement is presented) as of, and for, the periods presented.
(b) Indicate either that (i) the Borrower is not
InDefault, or (ii) if such an event has occurred, its nature (in reasonable
detail) and the steps (if any) being taken or contemplated by the Borrower to be
taken on account thereof.
4-37 INVENTORIES, APPRAISALS, AND AUDITS.
(a) The Lender, at the expense of the Borrower in each
instance after the occurrence and during the continuance of an Event of Default,
may participate in and/or observe each physical count and/or inventory of so
much of the Collateral as consists of Inventory which is undertaken on behalf of
the Borrower.
(b) The Borrower, at its own expense, shall cause not
less than two (2) (one (1) for Fiscal 2003) physical inventories to be
undertaken in each twelve (12) month period during which this Agreement is in
effect (the spacing of the scheduling of which inventories shall be subject to
the Lender's discretion) conducted by such inventory takers as are satisfactory
to the Lender and following such methodology as may be satisfactory to the
Lender. Notwithstanding the foregoing, the Borrower may notify the Lender that
the Borrower only intends to conduct one (1) such physical inventory during a
particular period, in which event, no second inventory shall be undertaken,
unless
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the Lender reasonably determines, in the Lender's discretion, that a second
inventory should be undertaken, in which event, it shall be undertaken by the
Borrower.
(i) The Borrower shall provide the Lender with a
copy of the preliminary results of each such inventory (as well as of any other
physical inventory undertaken by the Borrower) within thirty (30) days following
the completion of such inventory.
(ii) The Borrower, within thirty (30) days
following the completion of such inventory, shall provide the Lender
with a reconciliation of the results of each such inventory (as well as
of any other physical inventory undertaken by the Borrower) and shall
post such results to the Borrower's stock ledger and, as applicable to
the Borrower's other financial books and records.
(iii) The Lender, in its discretion from and after
the occurrence and during the continuance of any Event of Default, may
cause such additional inventories to be taken as the Lender determines.
So long as the Borrower is not InDefault, then the Borrower shall only
be responsible for the first two (2) inventories in any twelve (12)
month period.
(c) The Lender may obtain appraisals of the Collateral,
from time to time conducted by such appraisers as are satisfactory to the Lender
(with the first appraisal after the execution of this Agreement contemplated to
be conducted in July, 2003). So long as the Borrower is not InDefault, then the
Borrower shall only be responsible for the cost of the first Two (2) appraisals
in any twelve (12) month period.
(d) The Lender contemplates conducting Two (2) commercial
finance field examinations of the Borrower's books and records during any twelve
(12) month period during which this Agreement is in effect, but in its
discretion, may undertake additional such audits during such period. So long as
(x) the Borrower is not InDefault, and (y) Availability has not ever been less
than $10,000,000.00 for ten (10) or more consecutive days during the preceding
six (6) month period, then the Borrower shall only be responsible for the first
of the examinations, except with respect to the first twelve (12) month period
that this Agreement is in effect, during which the Borrower shall be responsible
for both examinations. (The Borrower and the Lender acknowledge that the first
such examination for the opening twelve (12) month period that this Agreement is
in effect has already been undertaken).
4-38 ADDITIONAL FINANCIAL INFORMATION.
(a) In addition to all other information required to be
provided pursuant to this Article 4, the Borrower promptly shall provide the
Lender (and any guarantor of the Liabilities), with such other and additional
information concerning the Borrower, the Collateral, the operation
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of the Borrower's business, and the Borrower's financial condition, including
original counterparts of financial reports and statements, as the Lender may
from time to time request from the Borrower.
(b) The Borrower may provide the Lender, from time to
time hereafter, with updated forecasts of the Borrower's anticipated performance
and operating results.
(c) In all events, the Borrower, no sooner than Ninety
(90) nor later than Sixty (60) days prior to the end of each of the Borrower's
fiscal years, shall provide the Lender with an updated and extended forecast
which shall go out at least through the end of the then next fiscal year and
shall include an income statement, balance sheet, and statement of cash flow, by
month, each prepared in conformity with GAAP and consistent with the Borrower's
then current practices.
(d) The Borrower recognizes that all appraisals,
inventories, analysis, financial information, and other materials which the
Lender may obtain, develop, or receive with respect to the Borrower are
confidential to the Lender and that, except as otherwise provided herein, the
Borrower is not entitled to receipt of any of such appraisals, inventories,
analysis, financial information, and other materials, nor copies or extracts
thereof or therefrom. In this regard, upon execution by the Borrower and
delivery to the Lender of an appropriate waiver, the Lender shall deliver to the
Borrower a copy of the appraisals obtained by the Lender.
ARTICLE 5 - USE OF COLLATERAL:
5-1 USE OF INVENTORY COLLATERAL.
(a) Except with respect to the liquidation of the
Borrower's "young men's apparel" and related accessories, footwear, and other
items, as set forth in the Business Plan, the Borrower shall not engage in any
of the following with respect to its Inventory:
(i) Any sale other than for fair consideration
in the conduct of the Borrower's business in the ordinary course.
(ii) Sales or other dispositions to creditors.
(iii) Sales or other dispositions in bulk in
excess of twice per year, but in all events, in accordance with the
Business Plan.
(iv) Sales of any Collateral in breach of any
provision of this Agreement.
(b) No sale of Inventory shall be on consignment,
approval, or under any other circumstances such that, with the exception of the
Borrower's customary return policy applicable to the return of inventory
purchased by the Borrower's retail customers in the ordinary course, such
Inventory may be returned to the Borrower without the consent of the Lender.
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5-2 INVENTORY QUALITY. All Inventory now owned or hereafter
acquired by the Borrower is and will be of good and merchantable quality and
free from defects (other than defects within customary trade tolerances).
5-3 ADJUSTMENTS AND ALLOWANCES. The Borrower may grant such
allowances or other adjustments to the Borrower's Account Debtors (exclusive of
extending the time for payment of any Account or Account Receivable, which shall
not be done without first obtaining the Lender's prior written consent in each
instance) as the Borrower may reasonably deem to accord with sound business
practice, provided, however, the authority granted the Borrower pursuant to this
Section 5-3 may be limited or terminated by the Lender at any time in the
Lender's discretion.
5-4 VALIDITY OF ACCOUNTS.
(a) The amount of each Account shown on the books,
records, and invoices of the Borrower represented as owing by each Account
Debtor is and will be the correct amount actually owing by such Account Debtor
and shall have been fully earned by performance by the Borrower.
(b) Except as has it has occurred in the ordinary course
of the Borrower's business, the Borrower has no knowledge of any impairment of
the validity or collectibility of any of the Accounts. The Borrower shall notify
the Lender of any such impairment immediately after the Borrower becomes aware
of any such impairment.
5-5 NOTIFICATION TO ACCOUNT DEBTORS. From and after the occurrence
and during the continuance of an Event of Default, the Lender shall have the
right to notify any of the Borrower's Account Debtors to make payment directly
to the Lender and to collect all amounts due on account of the Collateral.
ARTICLE 6 - CASH MANAGEMENT. PAYMENT OF LIABILITIES:
6-1 DEPOSITORY ACCOUNTS.
(a) Annexed hereto as EXHIBIT 6-1 is a listing of all
present DDA's, which listing includes, with respect to each depository of the
following: (i) the name and address of that depository; (ii) the account
number(s) of the account(s) maintained with such depository; and (iii) a contact
person at such depository.
(b) The Borrower shall deliver the following to the
Lender, as a condition to the effectiveness of this Agreement:
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(i) Notification, executed on behalf of the
Borrower, to each depository institution with which any DDA is
maintained (other than any Exempt DDA), in form reasonably satisfactory
to the Lender of the Lender's interest in such DDA.
(c) The Borrower will not establish any DDA hereafter
(other than an Exempt DDA) unless, contemporaneous with such establishment, the
Borrower delivers to the Lender a copy of the notification to the depository at
which such DDA is established if the same would have been required pursuant to
Section 6-1(b)(i) if the subject DDA were open at the execution of this
Agreement.
6-2 CREDIT CARD RECEIPTS.
(a) Annexed hereto as EXHIBIT 6-2, is a Schedule which
describes all arrangements to which the Borrower is a party with respect to the
payment to the Borrower of the proceeds of credit card charges for sales by the
Borrower.
(b) The Borrower shall deliver to the Lender, as a
condition to the effectiveness of this Agreement, notification, executed on
behalf of the Borrower, to each of the Borrower's credit card clearinghouses and
processors of notice (in form satisfactory to the Lender), which notice provides
that payment of all credit card charges submitted by the Borrower to that
clearinghouse or other processor and any other amount payable to the Borrower by
such clearinghouse or other processor shall be directed to the Concentration
Account or as otherwise designated from time to time by the Lender. The Borrower
shall not change such direction or designation except upon and with the prior
written consent of the Lender.
6-3 THE CONCENTRATION, RESTRICTED, AND OPERATING ACCOUNTS.
(a) The following checking accounts have been or will be
established (and are so referred to herein):
(i) The "CONCENTRATION ACCOUNT" (so referred to
herein): Established by the Lender with Xxxxx Fargo Bank, N. A..
(ii) The "RESTRICTED ACCOUNT" (so referred to
herein): Established by the Borrower with Xxxxx Fargo Bank, N. A..
(iii) The "OPERATING ACCOUNT" (so referred to
herein): Established by the Borrower with Xxxxx Fargo Bank, N. A..
(b) The contents of each DDA (other than the Operating
Account) and of the Restricted Account constitutes Collateral and Proceeds of
Collateral. The contents of the Concentration Account constitutes the Lender's
property.
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(c) The Borrower shall pay all fees and charges of, and
maintain such impressed balances as may be required by the depository in which
any account is opened as required hereby (even if such account is opened by
and/or is the property of the Lender).
6-4 PROCEEDS AND COLLECTIONS.
(a) All Receipts and all cash proceeds of any sale or
other disposition of any of the Borrower's assets:
(i) Constitute Collateral and proceeds of
Collateral.
(ii) Shall be held in trust by the Borrower for
the Lender.
(iii) Shall not be commingled with any of the
Borrower's other funds.
(iv) Shall be deposited and/or transferred only
to the Restricted Account or the Concentration Account.
(b) The Borrower shall cause the ACH or wire transfer to
the Restricted or the Concentration Account, not less frequently than daily (and
whether or not there is then an outstanding balance in the Loan Account) of the
following:
(i) The then contents of each DDA (other than
any Exempt DDA), each such transfer to be net of any minimum balance,
not to exceed $1,000.00, as may be required to be maintained in the
subject DDA by the bank at which such DDA is maintained.
(ii) The proceeds of all credit card charges not
otherwise provided for pursuant hereto.
Telephone advice (confirmed by written notice) shall be provided to the Lender
on each Business Day on which any such transfer is made.
(c) After the occurrence of a Cash Concentration Trigger
Event, and whether or not any Liabilities are then outstanding, the Borrower
shall cause the ACH or wire transfer to the Concentration Account, no less
frequently than daily, of then entire ledger balance of the Restricted Account,
net of such minimum balance, not to exceed $500.00, as may be required to be
maintained in the Restricted Account by the depository at which the Restricted
Account is maintained.
(d) Unless a Cash Concentration Trigger Event has
occurred (in which event, the provisions of Section 6-4(e) shall control), the
Lender shall cause the transfer of the then contents of the Restricted Account
which consist of available funds to the Operating Account on each Business Day.
(e) Following the occurrence of any Cash Concentration
Trigger Event, the Lender may, in its discretion cease to transfer the contents
of the Concentration Account to the Operating Account. In the event that,
notwithstanding the foregoing, the Borrower receives or otherwise has dominion
and control of any Receipts, or any proceeds or collections of any
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Collateral, such Receipts, proceeds, and collections shall be held in trust by
the Borrower for the Lender and shall not be commingled with any of the
Borrower's other funds or deposited in any account of the Borrower other than as
instructed by the Lender.
6-5 PAYMENT OF LIABILITIES.
(a) On each Business Day, the Lender shall apply the then
collected balance of the Concentration Account (net of fees charged, and of such
impressed balances as may be required by the bank at which the Concentration
Account is maintained) towards the unpaid balance of the Loan Account and all
other Liabilities, provided, however, for purposes of the calculation of
interest on the unpaid principal balance of the Loan Account, such payment shall
be deemed to have been made Two (2) Business Days after such transfer.
(b) The following rules shall apply to deposits and
payments under and pursuant to this Section 6-5:
(i) Funds shall be deemed to have been deposited
to the Concentration Account on the Business Day on which deposited,
provided that notice of such deposit is available to the Lender by
2:00PM on that Business Day.
(ii) Funds paid to the Lender, other than by
deposit to the Concentration Account, shall be deemed to have been
received on the Business Day when they are good and collected funds,
provided that notice of such payment is available to the Lender by
2:00PM on that Business Day.
(iii) If notice of a deposit to the Concentration
Account (Section 6-5(b)(i)) or payment (Section 6-5(b)(ii)) is not
available to the Lender until after 2:00PM on a Business Day, such
deposit or payment shall be deemed to have been made at 9:00AM on the
then next Business Day.
(iv) All deposits to the Concentration Account
and other payments to the Lender are subject to clearance and
collection.
(c) The Lender shall transfer to the Operating Account
any surplus in the Concentration Account remaining after the application towards
the Liabilities referred to in Section 6-5(a), above (less those amount which
are to be netted out, as provided therein) provided, however, in the event that
(i) the Borrower is InDefault; and
(ii) one or more L/C's are then outstanding,
then the Lender may establish a funded reserve of up to 110% of the aggregate
Stated Amounts of such L/C's. Such funded reserve shall either be (i) returned
to the Borrower provided that the Borrower is not InDefault or (ii) applied
towards the Liabilities following the occurrence of any
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Event of Default described in Section 9-11 or acceleration following the
occurrence of any other Event of Default.
6-6 THE OPERATING ACCOUNT. Except as otherwise specifically
provided in, or permitted by, this Agreement, all checks shall be drawn by the
Borrower upon, and other disbursements shall be made by the Borrower solely
from, the Operating Account.
ARTICLE 7 - GRANT OF SECURITY INTEREST:
7-1 GRANT OF SECURITY INTEREST. To secure the Borrower's prompt,
punctual, and faithful performance of all and each of the Liabilities, the
Borrower hereby grants to the Lender a continuing security interest in and to,
and assigns to the Lender the following, and each item thereof, whether now
owned or now due, or in which the Borrower has an interest, or hereafter
acquired, arising, or to become due, or in which the Borrower obtains an
interest, and all products, Proceeds, substitutions, and accessions of or to any
of the following (all of which, together with any other property in which the
Lender may in the future be granted a security interest, is referred to herein
as the "COLLATERAL"):
(a) All Accounts and accounts receivable.
(b) All Inventory.
(c) All General Intangibles.
(d) All Equipment.
(e) All Goods.
(f) All Farm Products.
(g) All Fixtures.
(h) All Chattel Paper.
(i) All Letter-of-Credit Rights.
(j) All Payment Intangibles.
(k) All Supporting Obligations.
(l) All books, records, and information relating to the
Collateral and/or to the operation of the Borrower's
business, and all rights of access to such books,
records, and information, and all property in which
such books, records, and information are stored,
recorded, and maintained.
(m) All Leasehold Interests.
(n) All Investment Property, Instruments, Documents,
Deposit Accounts, money, policies and certificates of
insurance, deposits, impressed accounts, compensating
balances, cash, or other property.
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(o) All insurance proceeds, refunds, and premium rebates,
including, without limitation, proceeds of fire and
credit insurance, whether any of such proceeds,
refunds, and premium rebates arise out of any of the
foregoing. (7-1(a) through 7-1(n)) or otherwise.
(p) All liens, guaranties, rights, remedies, and
privileges pertaining to any of the foregoing (7-1(a)
through 7-1(o)), including the right of stoppage in
transit.
7-2 EXTENT AND DURATION OF SECURITY INTEREST.
(a) The security interest created and granted herein is
in addition to, and supplemental of, any security interest previously granted by
the Borrower to the Lender and shall continue in full force and effect
applicable to all Liabilities until both
(i) all Liabilities have been paid and/or
satisfied in full; and
(ii) the security interest created herein is
specifically terminated in writing by a duly authorized officer of the
Lender.
(b) It is intended that the Collateral Interests created
herein extend to and cover all assets of the Borrower.
ARTICLE 8 - LENDER AS BORROWER'S ATTORNEY-IN-FACT:
8-1 APPOINTMENT AS ATTORNEY-IN-FACT. The Borrower hereby
irrevocably constitutes and appoints the Lender (acting through any officer of
the Lender) as the Borrower's true and lawful attorney, with full power of
substitution, following the occurrence and during the continuance of an Event of
Default, to convert the Collateral into cash at the sole risk, cost, and expense
of the Borrower, but for the sole benefit of the Lender. The rights and powers
granted the Lender by this appointment include but are not limited to the right
and power to:
(a) Prosecute, defend, compromise, or release any action
relating to the Collateral.
(b) Sign change of address forms to change the address to
which the Borrower's mail is to be sent to such address as the Lender
shall designate; receive and open the Borrower's mail; remove any
Receivables Collateral and Proceeds of Collateral therefrom and turn
over the balance of such mail either to the Borrower or to any trustee
in bankruptcy or receiver of the Borrower, or other legal
representative of the Borrower whom the Lender determines to be the
appropriate person to whom to so turn over such mail.
(c) Endorse the name of the Borrower in favor of the
Lender upon any and all checks, drafts, notes, acceptances, or other
items or instruments; sign and endorse the name of the Borrower on, and
receive as secured party, any of the Collateral, any invoices,
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schedules of Collateral, freight or express receipts, or bills of
lading, storage receipts, warehouse receipts, or other documents of
title respectively relating to the Collateral.
(d) Sign the name of the Borrower on any notice to the
Borrower's Account Debtors or verification of the Receivables
Collateral; sign the Borrower's name on any Proof of Claim in
Bankruptcy against Account Debtors, and on notices of lien, claims of
mechanic's liens, or assignments or releases of mechanic's liens
securing the Accounts.
(e) Take all such action as may be necessary to obtain
the payment of any letter of credit and/or banker's acceptance of which
the Borrower is a beneficiary.
(f) Repair, manufacture, assemble, complete, package,
deliver, alter or supply goods, if any, necessary to fulfill in whole
or in part the purchase order of any customer of the Borrower.
(g) Use, license or transfer any or all General
Intangibles of the Borrower.
8-2 NO OBLIGATION TO ACT. The Lender shall not be obligated to do
any of the acts or to exercise any of the powers authorized by Section 8-1
herein, but if the Lender elects to do any such act or to exercise any of such
powers, it shall not be accountable for more than it actually receives as a
result of such exercise of power, and shall not be responsible to the Borrower
for any act or omission to act except for any act or omission to act as to which
there is a final determination made in a judicial proceeding (in which
proceeding the Lender has had an opportunity to be heard) which determination
includes a specific finding that the subject act or omission to act had been
grossly negligent or in actual bad faith.
ARTICLE 9 - EVENTS OF DEFAULT:
The occurrence of any event described in this Article 9 respectively
shall constitute an "EVENT OF DEFAULT" herein. The occurrence of any Event of
Default shall also constitute, without notice or demand, a default under all
other agreements between the Lender and the Borrower and instruments and papers
heretofore, now, or hereafter given the Lender by the Borrower. Further, upon
the occurrence of any event described in this Article 9 which does not
constitute an Event of Default due to, for example, the existence of sufficient
Availability (see e.g., Section 9-6, below), the Borrower shall nonetheless
provide the Lender with immediate written notice of the occurrence of such
event.
9-1 FAILURE TO PAY THE REVOLVING CREDIT. The failure by the
Borrower to pay when due any principal of, interest on, or fees in respect of,
the Revolving Credit.
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9-2 FAILURE TO MAKE OTHER PAYMENTS. The failure by the Borrower to
pay when due (or upon demand, if payable on demand) any payment Liability other
than any payment liability on account of the principal of, or interest on, or
fees in respect of, the Revolving Credit.
9-3 FAILURE TO PERFORM COVENANT OR LIABILITY(NO GRACE PERIOD). The
material failure by the Borrower to promptly, punctually, faithfully and timely
perform, discharge, or comply with any material covenant or Liability included
in any of the following provisions hereof (unless (to the extent applicable) any
such failure to pay is due to the existence of a good faith dispute which is
being contested and diligently pursued by the Borrower):
Section Relates to:
------- -----------
4-7 Indebtedness
4-14 Pay taxes (except as provided therein)
4-19 Dividends. Investments. Other Corporate Actions
4-23 Affiliate Transactions
Article 4 Reporting Requirements
Article 6 Cash Management
9-4 FAILURE TO PERFORM COVENANT OR LIABILITY (GRACE PERIOD). The
failure by the Borrower, within fifteen Business Days following the earlier of
the Borrower's knowledge of a breach of any covenant or Liability or of its
receipt of written notice from the Lender of the breach of any of any of such
covenants or Liabilities.
9-5 MISREPRESENTATION. The determination by the Lender that any
representation or warranty at any time made by the Borrower to the Lender was
not true or complete in all material respects when given.
9-6 ACCELERATION OF OTHER DEBT. BREACH OF LEASE. The occurrence
of any event such that any Indebtedness of the Borrower to any creditor other
than the Lender, (i) in the amount of $2,500,000.00 or more when Availability
has not ever been less than $10,000,000.00 for more than one (1) day during the
preceding thirty (30) consecutive days, or (ii) in the amount of $750,000.00 or
more when (x) Availability has been less than $10,000,000.00 for more than one
(1) day during the preceding thirty (30) consecutive days, or (y) if
Availability has ever been less than $5,000,000.00, could be accelerated or,
without the consent of the Borrower and except as permitted in Section
4-30(a)(iii), any Lease could be terminated (whether or not the subject creditor
or lessor
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takes any action on account of such occurrence), unless such event is due to the
existence of a good faith dispute which is being contested and diligently
pursued by the Borrower.
9-7 DEFAULT UNDER OTHER AGREEMENTS. The occurrence of any breach
of any covenant or Liability imposed by, or of any default under, any agreement
(including any Loan Document) between the Lender and the Borrower or instrument
given by the Borrower to the Lender and the expiry, without cure, of any
applicable grace period (notwithstanding that the Lender may not have exercised
all or any of its rights on account of such breach or default).
9-8 UNINSURED CASUALTY LOSS. The occurrence of any uninsured loss,
theft, damage, or destruction of or to any material portion of the Collateral
with a value (i) in excess of $2,500,000.00 when Availability has not ever been
less than $10,000,000.00 for more than one (1) day during the preceding thirty
(30) consecutive days, or (ii) in the amount of $750,000.00 or more when (x)
Availability has been less than $10,000,000.00 for more than one (1) day during
the preceding thirty (30) consecutive days, or (y) if Availability has ever been
less than $5,000,000.00.
9-9 ATTACHMENT. JUDGMENT. RESTRAINT OF BUSINESS. Unless
Availability has at all times been greater than $10,000,000.00 for at least
twenty-nine (29) out of the preceding thirty (30) consecutive days:
(a) The service of process upon the Lender or any
Participant seeking to attach, by trustee, mesne, or other process, any funds of
the Borrower on deposit with, or assets of the Borrower in the possession of,
the Lender or such Participant in excess of $1,000,000.00.
(b) The entry of any judgment against the Borrower, which
judgment is not satisfied (if a money judgment) or appealed from (with execution
or similar process stayed) within fifteen (15) Business Days of its entry.
(c) The entry of any order or the imposition of any other
process having the force of law, the effect of which is to restrain in any
material way the conduct by the Borrower of its business in the ordinary course,
unless the same has been appealed by the Borrower and is being diligently
pursued.
9-10 BUSINESS FAILURE. Any act by, against, or relating to the
Borrower, or its property or assets, which act constitutes the determination, by
the Borrower, to initiate a program of partial or total self-liquidation;
application for, consent to, or sufferance of the appointment of a receiver,
trustee, or other person, pursuant to court action or otherwise, over all, or
any part of the Borrower's property; the granting of any trust mortgage or
execution of an assignment for the benefit of the
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creditors of the Borrower, or the occurrence of any other voluntary or
involuntary liquidation or extension of debt agreement for the Borrower; the
offering by or entering into by the Borrower of any composition, extension, or
any other arrangement seeking relief from or extension of the debts of the
Borrower; or the initiation of any judicial or non-judicial proceeding or
agreement by, against, or including the Borrower which seeks or intends to
accomplish a reorganization or arrangement with creditors; and/or the initiation
by or on behalf of the Borrower of the liquidation or winding up of all or any
part of the Borrower's business or operations.
9-11 BANKRUPTCY. The failure by the Borrower to generally pay the
debts of the Borrower as they mature; adjudication of bankruptcy or insolvency
relative to the Borrower; the entry of an order for relief or similar order with
respect to the Borrower in any proceeding pursuant to the Bankruptcy Code or any
other federal bankruptcy law; the filing of any complaint, application, or
petition by the Borrower initiating any matter in which the Borrower is or may
be granted any relief from the debts of the Borrower pursuant to the Bankruptcy
Code or any other insolvency statute or procedure; the filing of any complaint,
application, or petition against the Borrower initiating any matter in which the
Borrower is or may be granted any relief from the debts of the Borrower pursuant
to the Bankruptcy Code or any other insolvency statute or procedure, which
complaint, application, or petition is not timely contested in good faith by the
Borrower by appropriate proceedings or, if so contested, is not dismissed within
thirty (30) days of when filed.
9-12 INDICTMENT - FORFEITURE. The indictment of, or institution of
any legal process or proceeding against, the Borrower, under any Applicable Law
where the relief, penalties, or remedies sought or available include the
forfeiture of any material property or material amount of cash of the Borrower
and/or the imposition of any stay or other order, the effect of which could be
to restrain in any material way the conduct by the Borrower of its business in
the ordinary course, unless such process or proceeding is timely contested in
good faith by the Borrower by appropriate proceedings, and, if so contested, is
not dismissed within sixty (60) days of when commenced.
9-13 CHALLENGE TO LOAN DOCUMENTS.
(a) Any challenge by or on behalf of the Borrower to the
validity of any Loan Document or the applicability or enforceability of any Loan
Document strictly in accordance with the subject Loan Document's terms or which
seeks to void, avoid, limit, or otherwise adversely affect any security interest
created by or in any Loan Document or any payment made pursuant thereto.
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(b) Any determination by any court or any other judicial
or government authority that any Loan Document is not enforceable strictly in
accordance with the subject Loan Document's terms or which voids, avoids,
limits, or otherwise adversely affects any security interest created by any Loan
Document or any payment made pursuant thereto.
9-14 CHANGE IN CONTROL. Any Change in Control.
ARTICLE 10 - RIGHTS AND REMEDIES UPON DEFAULT:
00-0 XXXXXXXXXXXX. Upon the occurrence of any Event of Default as
described in Section 9-11, all Indebtedness of the Borrower to the Lender shall
be immediately due and payable. Upon the occurrence of any Event of Default
other than as described in Section 9-11, the Lender may declare all Indebtedness
of the Borrower to the Lender to be immediately due and payable and may exercise
all of the Lender's Rights and Remedies as the Lender from time to time
thereafter determines as appropriate.
10-2 RIGHTS OF ENFORCEMENT. The Lender shall have all of the
rights and remedies of a secured party upon default under the UCC, in addition
to which the Lender shall have all and each of the following rights and
remedies:
(a) To give notice to any bank at which any DDA or
Blocked Account is maintained and in which Proceeds of Collateral are
deposited, to turn over such Proceeds directly to the Lender.
(b) To give notice to any of the Borrower's customs
brokers to follow the instructions of the Lender as provided in any
written agreement or undertaking of such broker in favor of the Lender.
(c) To collect the Receivables Collateral with or without
the taking of possession of any of the Collateral.
(d) To take possession of all or any portion of the
Collateral.
(e) To sell, lease, or otherwise dispose of any or all of
the Collateral, in its then condition or following such preparation or
processing as the Lender deems advisable and with or without the taking
of possession of any of the Collateral.
(f) To conduct one or more going out of business sales
which include the sale or other disposition of the Collateral.
(g) To apply the Receivables Collateral or the Proceeds
of the Collateral towards (but not necessarily in complete satisfaction
of) the Liabilities.
(h) To exercise all or any of the rights, remedies,
powers, privileges, and discretions under all or any of the Loan
Documents.
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10-3 SALE OF COLLATERAL.
(a) Any sale or other disposition of the Collateral may
be at public or private sale upon such terms and in such manner as the Lender
deems advisable, having due regard to compliance with any statute or regulation
which might affect, limit, or apply to the Lender's disposition of the
Collateral.
(b) The Lender, in the exercise of the Lender's rights
and remedies upon default, may conduct one or more going out of business sales,
in the Lender's own right or by one or more agents and contractors. Such sale(s)
may be conducted upon any premises owned, leased, or occupied by the Borrower.
The Lender and any such agent or contractor, in conjunction with any such sale,
may augment the Inventory with other goods (all of which other goods shall
remain the sole property of the Lender or such agent or contractor). Any amounts
realized from the sale of such goods which constitute augmentations to the
Inventory (net of an allocable share of the costs and expenses incurred in their
disposition) shall be the sole property of the Lender or such agent or
contractor and neither the Borrower nor any Person claiming under or in right of
the Borrower shall have any interest therein.
(c) Unless the Collateral is perishable or threatens to
decline speedily in value, or is of a type customarily sold on a recognized
market (in which event the Lender shall provide the Borrower such notice as may
be practicable under the circumstances), the Lender shall give the Borrower at
least ten (10) days prior notice, by authenticated record, of the date, time,
and place of any proposed public sale, and of the date after which any private
sale or other disposition of the Collateral may be made. The Borrower agrees
that such written notice shall satisfy all requirements for notice to the
Borrower which are imposed under the UCC or other applicable law with respect to
the exercise of the Lender's rights and remedies upon default.
(d) The Lender may purchase the Collateral, or any
portion of it at any sale held under this Article.
(e) If any of the Collateral is sold, leased, or
otherwise disposed of by the Lender on credit, the Liabilities shall not be
deemed to have been reduced as a result thereof unless and until payment is
finally received thereon by the Lender.
(f) The Lender shall apply the proceeds of the Lender's
exercise of its rights and remedies upon default pursuant to this Article 10 in
such manner, and with such frequency, as the Lender determines.
10-4 OCCUPATION OF BUSINESS LOCATION. In connection with the
Lender's exercise of the Lender's rights under this Article 10, the Lender may
enter upon, occupy, and use any premises owned or occupied by the Borrower, and
may exclude the Borrower from such premises
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or portion thereof as may have been so entered upon, occupied, or used by the
Lender. The Lender shall not be required to remove any of the Collateral from
any such premises upon the Lender's taking possession thereof, and may render
any Collateral unusable to the Borrower. In no event shall the Lender be liable
to the Borrower for use or occupancy by the Lender of any premises pursuant to
this Article 10, nor for any charge (such as wages for the Borrower's employees
and utilities) incurred in connection with the Lender's exercise of the Lender's
Rights and Remedies.
10-5 GRANT OF NONEXCLUSIVE LICENSE. The Borrower hereby grants to
the Lender a royalty free nonexclusive irrevocable license to use, apply, and
affix any trademark, trade name, logo, or the like in which the Borrower now or
hereafter has rights, such license being with respect to the Lender's exercise
of the rights hereunder including, without limitation, in connection with any
completion of the manufacture of Inventory or sale or other disposition of
Inventory.
10-6 ASSEMBLY OF COLLATERAL. The Lender may require the Borrower
to assemble the Collateral and make it available to the Lender at the Borrower's
sole risk and expense at a place or places which are reasonably convenient to
both the Lender and the Borrower.
10-7 RIGHTS AND REMEDIES. The rights, remedies, powers,
privileges, and discretions of the Lender hereunder (herein, the" LENDER'S
RIGHTS AND REMEDIES") shall be cumulative and not exclusive of any rights or
remedies which it would otherwise have. No delay or omission by the Lender in
exercising or enforcing any of the Lender's Rights and Remedies shall operate
as, or constitute, a waiver thereof. No waiver by the Lender of any Event of
Default or of any default under any other agreement shall operate as a waiver of
any other default hereunder or under any other agreement. No single or partial
exercise of any of the Lender's Rights or Remedies, and no express or implied
agreement or transaction of whatever nature entered into between the Lender and
any person, at any time, shall preclude the other or further exercise of the
Lender's Rights and Remedies. No waiver by the Lender of any of the Lender's
Rights and Remedies on any one occasion shall be deemed a waiver on any
subsequent occasion, nor shall it be deemed a continuing waiver. The Lender's
Rights and Remedies may be exercised at such time or times and in such order of
preference as the Lender may determine. The Lender's Rights and Remedies may be
exercised without resort or regard to any other source of satisfaction of the
Liabilities.
ARTICLE 11 - NOTICES:
11-1 NOTICE ADDRESSES. All notices, demands, and other
communications made in respect of any Loan Document (other than a request for a
loan or advance or other financial
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accommodation under the Revolving Credit) shall be made to the following
addresses, each of which may be changed upon seven (7) days written notice to
all others given by certified mail, return receipt requested:
If to the Lender: Xxxxx Fargo Retail
Xxx Xxxxxx Xxxxx - 00xx Xxxxx
Xxxxxx, Xxxxxxxxxxxxx 00000
Attention : Xxxx X. Xxxxxxxx
: Assistant Vice president
Fax : 000 000-0000
E-mail : xxxxx@xxxxxxxx.xxx
With a copy to: Xxxxxx & Xxxxxxxxxx LLP
Xxxxx Xxxxxx Xxxxx
Xxxxxx, Xxxxxxxxxxxxx 00000
Attention : Xxxxxx X. Xxxxxxx, Esquire
Fax : 000 000-0000
E-mail : xxxxxxxx@xxxxxxxxx.xxx
If to the Borrower: Gadzooks, Inc.
0000 Xxxxxxxxxxxxx Xxxxxxx
Xxxxxxxxxx, Xxxxx 00000
Attention : Xxxxx X. Xxxxxx
: Vice President, Chief Financial Officer
Fax : 000 000-0000
With a copy to: Akin, Gump, Strauss, Xxxxx & Xxxx, LLP
0000 Xxxxxxx Xxxxxx, Xxx 0000
Xxxxxx, XX 00000-0000
Attention : Xxxxx Xxxxxxxx, Esquire
Fax: : 000 000-0000
11-2 NOTICE GIVEN:
(a) Except as otherwise specifically provided herein,
notices shall be deemed made and correspondence received, as follows (all times
being local to the place of delivery or receipt):
(i) By mail: the sooner of when actually
received or Three (3) Business Days following deposit in the United
States mail, postage prepaid.
(ii) By recognized overnight express delivery:
the Business Day following the day when sent.
(iii) By Hand: If delivered on a Business Day
after 9:00 AM and no later than Three (3) hours prior to the close of
customary business hours of the recipient, when delivered. Otherwise,
at the opening of the then next Business Day.
(iv) By Facsimile transmission (which must
include a header on which the party sending such transmission is
indicated): If sent on a Business Day after 9:00 AM and
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no later than Three (3) hours prior to the close of customary business
hours of the recipient, one (1) hour after being sent. Otherwise, at
the opening of the then next Business Day.
(b) Rejection or refusal to accept delivery and inability
to deliver because of a changed address or Facsimile Number for which no due
notice was given shall each be deemed receipt of the notice sent.
ARTICLE 12 - TERM:
12-1 TERMINATION OF REVOLVING CREDIT. The Revolving Credit shall
remain in effect (subject to suspension as provided in Section 2(f) hereof)
until the Termination Date.
12-2 ACTIONS ON TERMINATION.
(a) On the Termination Date, the Borrower shall pay the
Lender (whether or not then due), in immediately available funds, all then
Liabilities including, without limitation: the following:
(i) The entire balance of the Loan Account
(including the unpaid principal balance of the Revolving Credit Loans).
(ii) Any then remaining installments of the
Revolving Credit Commitment Fee.
(iii) Any then remaining installments of the
Facility Fee.
(iv) Any payments due on account of the
indemnification obligations included in Section 2-9(e).
(v) Any accrued and unpaid Unused Line Fee.
(vi) Any applicable Revolving Credit Early
Termination Fee.
(vii) All unreimbursed costs and expenses of the
Lender; for which the Borrower is responsible.
(viii) All other Liabilities.
(b) On the Termination Date, the Borrower shall also
shall make such arrangements concerning any L/C's and Bank Products and Bank
Product Obligations then outstanding as are reasonably satisfactory to the
Lender.
(c) Until such payment (Section 12-2(a)) and arrangements
concerning L/C's (Section 12-2(b)), all provisions of this Agreement, other than
those included in Article 2 which place any obligation on the Lender to make any
loans or advances or to provide any financial accommodations to the Borrower
shall remain in full force and effect until all Liabilities shall have been paid
in full.
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(d) The release by the Lender of the Collateral Interests
granted the Lender by the Borrower hereunder may be upon such conditions and
indemnifications as the Lender, in its discretion, reasonably may require,
including the providing of cash collateral for outstanding L/C's,
indemnification for items which may be charged back or returned or to afford
appropriate time for all open items to clear and be finally paid, and to address
other similar claims which could be asserted or charged against the Lender.
ARTICLE 13 - GENERAL:
13-1 PROTECTION OF COLLATERAL. The Lender has no duty as to the
collection or protection of the Collateral beyond the safe custody of such of
the Collateral as may come into the possession of the Lender.
13-2 PUBLICITY. The Lender may issue a "tombstone" notice of the
establishment of the credit facility contemplated by this Agreement and may make
reference to the Borrower (and may utilize any logo or other distinctive symbol
associated with the Borrower) in connection with any advertising, promotion, or
marketing (including reference in any "case study" of the creditor facility
contemplated hereby) undertaken by the Lender.
13-3 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon
the Borrower and the Borrower's representatives, successors, and assigns and
shall enure to the benefit of the Lender and its successors and assigns,
provided, however, no trustee or other fiduciary appointed with respect to the
Borrower shall have any rights hereunder. In addition to any other assignment,
which shall be to a commercial bank or other recognized commercial lending or
similar financial institution with a combined capital and surplus of not less
than $100,000,000.00, the Borrower acknowledges that the Lender may assign this
Agreement and the Lender's rights hereunder to any Affiliate of the Lender at
any time. In the event that the Lender assigns or transfers its rights under
this Agreement, the assignee shall thereupon succeed to and become vested with
all rights, powers, privileges, and duties of the Lender hereunder and the
Lender shall thereupon be discharged and relieved from its duties and
obligations hereunder.
13-4 SEVERABILITY. Any determination that any provision of this
Agreement or any application thereof is invalid, illegal, or unenforceable in
any respect in any instance shall not affect the validity, legality, or
enforceability of such provision in any other instance, or the validity,
legality, or enforceability of any other provision of this Agreement.
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13-5 AMENDMENTS. COURSE OF DEALING.
(a) This Agreement and the other Loan Documents
incorporate all discussions and negotiations between the Borrower and the
Lender, either express or implied, concerning the matters included herein and in
such other instruments, any custom, usage, or course of dealings to the contrary
notwithstanding. No such discussions, negotiations, custom, usage, or course of
dealings shall limit, modify, or otherwise affect the provisions thereof. No
failure by the Lender to give notice to the Borrower of the Borrower's having
failed to observe and comply with any warranty or covenant included in any Loan
Document shall constitute a waiver of such warranty or covenant or the amendment
of the subject Loan Document. No change made by the Lender to the manner by
which Borrowing Base is determined shall obligate the Lender to continue to
determine Borrowing Base in that manner.
(b) The Borrower may undertake any action otherwise
prohibited hereby, and may omit to take any action otherwise required hereby,
upon and with the express prior written consent of the Lender. No consent,
modification, amendment, or waiver of any provision of any Loan Document shall
be effective unless executed in writing by or on behalf of the party to be
charged with such modification, amendment, or waiver (and if such party is the
Lender then by a duly authorized officer thereof).
13-6 POWER OF ATTORNEY. In connection with all powers of attorney
included in this Agreement, the Borrower hereby grants unto the Lender (acting
through any of its officers) full power to do any and all things necessary or
appropriate in connection with the exercise of such powers as fully and
effectually as the Borrower might, hereby ratifying all that said attorney shall
do or cause to be done by virtue of this Agreement. No power of attorney set
forth in this Agreement shall be affected by any disability or incapacity
suffered by the Borrower and each shall survive the same. All powers conferred
upon the Lender by this Agreement, being coupled with an interest, shall be
irrevocable until this Agreement is terminated by a written instrument executed
by a duly authorized officer of the Lender.
13-7 APPLICATION OF PROCEEDS. The proceeds of any collection,
sale, or disposition of the Collateral, or of any other payments received
hereunder, shall be applied towards the Liabilities in such order and manner as
the Lender determines in its sole discretion, consistent, however, with all
applicable provisions of this Agreement. The Borrower shall remain liable for
any deficiency remaining following such application.
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13-8 INCREASED COSTS. If, as a result of any Requirement of Law, or
of the interpretation or application thereof by any court or by any governmental
or other authority or entity charged with the administration thereof, whether or
not having the force of law, which:
(a) subjects the Lender to any taxes or changes the basis
of taxation, or increases any existing taxes, on payments of principal,
interest or other amounts payable by the Borrower to the Lender under
this Agreement (except for taxes on the Lender based on net income or
capital imposed by the jurisdiction in which the principal or lending
offices of the Lender are located);
(b) imposes, modifies or deems applicable any reserve,
cash margin, special deposit or similar requirements against assets
held by, or deposits in or for the account of or loans by or any other
acquisition of funds by the relevant funding office of the Lender;
(c) imposes on the Lender any other condition with
respect to any Loan Document; or
(d) imposes on the Lender a requirement to maintain or
allocate capital in relation to the Liabilities;
and the result of any of the foregoing, in the Lender's reasonable opinion, is
to increase the actual cost to the Lender of making or maintaining any loan,
advance or financial accommodation or to reduce the income receivable by the
Lender in respect of any loan, advance or financial accommodation by an amount
which the Lender deems to be material, then upon written notice from the Lender,
from time to time, to the Borrower (such notice to set out in reasonable detail
the facts giving rise to and a summary calculation of such increased cost or
reduced income), the Borrower shall forthwith pay to the Lender, upon receipt of
such notice, that amount which shall compensate the Lender for such additional
cost or reduction in income; provided that the Lender shall use commercially
reasonable efforts to minimize any such costs.
13-9 COSTS AND EXPENSES OF THE LENDER.
(a) The Borrower shall pay from time to time on demand
all Costs of Collection and all reasonable costs, expenses, and disbursements
(including attorneys' reasonable fees and expenses) which are incurred by the
Lender in connection with the preparation, negotiation, execution, and delivery
of this Agreement and of any other Loan Documents, and all other reasonable
costs, expenses, and disbursements which may be incurred in connection with or
in respect to the credit facility contemplated hereby or which otherwise are
incurred with respect to the Liabilities.
(b) The Borrower authorizes the Lender to pay all such
fees and expenses and in the Lender's discretion, to add such fees and expenses
to the Loan Account.
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(c) The undertaking on the part of the Borrower in this
Section 13-9 shall survive payment of the Liabilities and/or any termination,
release, or discharge executed by the Lender in favor of the Borrower, other
than a termination, release, or discharge which makes specific reference to this
Section 13-9.
13-10 COPIES AND FACSIMILES. Each Loan Document and all documents
and papers which relates thereto which have been or may be hereinafter furnished
the Lender may be reproduced by the Lender by any photographic, microfilm,
xerographic, digital imaging, or other process, and the Lender may destroy any
document so reproduced. Any such reproduction shall be admissible in evidence as
the original itself in any judicial or administrative proceeding (whether or not
the original is in existence and whether or not such reproduction was made in
the regular course of business). Any facsimile which bears proof of transmission
shall be binding on the party which or on whose behalf such transmission was
initiated and likewise shall be so admissible in evidence as if the original of
such facsimile had been delivered to the party which or on whose behalf such
transmission was received.
13-11 MASSACHUSETTS LAW. This Agreement and all rights and
obligations hereunder, including matters of construction, validity, and
performance, shall be governed by the law of The Commonwealth of Massachusetts.
13-12 CONSENT TO JURISDICTION.
(a) The Borrower agrees that any legal action,
proceeding, case, or controversy against the Borrower with respect to any Loan
Document may be brought in the Superior Court of Suffolk County Massachusetts or
in the United States District Court, District of Massachusetts, sitting in
Boston, Massachusetts, as the Lender may elect in the Lender's sole discretion.
By execution and delivery of this Agreement, the Borrower, for itself and in
respect of its property, accepts, submits, and consents generally and
unconditionally, to the jurisdiction of the aforesaid courts.
(b) The Borrower WAIVES personal service of any and all
process upon it, and irrevocably consents to the service of process out of any
of the aforementioned courts in any such action or proceeding by the mailing of
copies thereof by certified mail, postage prepaid, to the Borrower at the
Borrower's address for notices as specified herein, such service to become
effective five (5) Business Days after such mailing.
(c) The Borrower WAIVES any objection based on forum non
conveniens and any objection to venue of any action or proceeding instituted
under any of the Loan Documents and
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consents to the granting of such legal or equitable remedy as is deemed
appropriate by the Court.
(d) Nothing herein shall affect the right of the Lender
to bring legal actions or proceedings in any other competent jurisdiction.
(e) The Borrower agrees that any action commenced by the
Borrower asserting any claim arising under or in connection with this Agreement
or any other Loan Document shall be brought solely in the Superior Court of
Suffolk County Massachusetts or in the United States District Court, District of
Massachusetts, sitting in Boston, Massachusetts, and that such Courts shall have
exclusive jurisdiction with respect to any such action.
13-13 INDEMNIFICATION. The Borrower shall indemnify, defend, and
hold the Lender and any Participant and any of their respective employees,
officers, or agents (each, an "INDEMNIFIED PERSON") harmless of and from any
claim brought or threatened against any Indemnified Person by the Borrower, any
guarantor or endorser of the Liabilities, or any other Person (as well as from
attorneys' reasonable fees, expenses, and disbursements in connection therewith)
on account of the relationship of the Borrower or of any other guarantor or
endorser of the Liabilities, including all costs, expenses, liabilities, and
damages as may be suffered by any Indemnified Person in connection with (x) the
Collateral; (y) the occurrence of any Event of Default; or (z) the exercise of
any rights or remedies under any of the Loan Documents (each of claims which may
be defended, compromised, settled, or pursued by the Indemnified Person with
counsel of the Lender's selection, but at the expense of the Borrower) other
than any claim as to which a final determination is made in a judicial
proceeding (in which the Lender and any other Indemnified Person has had an
opportunity to be heard), which determination includes a specific finding that
the Indemnified Person seeking indemnification had acted in a grossly negligent
manner or in actual bad faith. This indemnification shall survive payment of the
Liabilities and/or any termination, release, or discharge executed by the Lender
in favor of the Borrower, other than a termination, release, or discharge duly
executed on behalf of the Lender which makes specific reference to this Section
13-13.
13-14 RULES OF CONSTRUCTION. The following rules of construction
shall be applied in the interpretation, construction, and enforcement of this
Agreement and of the other Loan Documents:
(a) Unless otherwise specifically provided for herein
(and then only to the extent so provided), interest and any fee or
charge which is stated as a per annum percentage shall be calculated
based on a 360 day year and actual days elapsed.
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(b) Words in the singular include the plural and words in
the plural include the singular.
(c) Unless otherwise specifically provided for herein or
in a specific Loan Document (and then only to the extent so provided),
as between the parties hereto or to any Loan Document, the definitions
of the following terms, as included in the UCC, are deemed to be as
follows for purposes of the performance of obligations arising under or
in respect of any Loan Document:
(i) "Authenticate" means "signed".
(ii) "Record" means written information in a
tangible form.
(d) Cross references to Sections in this Agreement begin
with the Article in which that Section appears, followed by a colon,
and then the Section to which reference is made. (For example, a
reference to "Section 5:5-6" is to Section 5-6, which appears in
Article 5 of this Agreement).
(e) Titles, headings (indicated by being underlined or
shown in SMALL CAPITALS) and any Table of Contents are solely for
convenience of reference; do not constitute a part of the instrument in
which included; and do not affect such instrument's meaning,
construction, or effect.
(f) The words "includes" and "including" are not
limiting.
(g) Text which follows the words "including, without
limitation" (or similar words) is illustrative and not limitational.
(h) Text which is shown in italics (except for
parenthesized italicized text), shown in BOLD, shown IN ALL CAPITAL
LETTERS, or in any combination of the foregoing, shall be deemed to be
conspicuous.
(i) The words "may not" are prohibitive and not
permissive.
(j) Any reference to a Person's "knowledge" (or words of
similar import) are to such Person's knowledge assuming that such
Person has undertaken reasonable and diligent investigation with
respect to the subject of such "knowledge" (whether or not such
investigation has actually been undertaken).
(k) Terms which are defined in one section of any Loan
Document are used with such definition throughout the instrument in
which so defined.
(l) The term "Dollars" and the symbol "$" each refers to
United States Dollars.
(m) Unless limited by reference to a particular Section
or provision, any reference to "herein", "hereof", or "within" is to
the entire Loan Document in which such reference is made.
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(n) References to "this Agreement" or to any other Loan
Document is to the subject instrument as amended to the date on which
application of such reference is being made.
(o) Except as otherwise specifically provided, all
references to time are to Boston time.
(p) In the determination of any notice, grace, or other
period of time prescribed or allowed hereunder:
(i) Unless otherwise provided (I) the
day of the act, event, or default from which the designated
period of time begins to run shall not be included and the
last day of the period so computed shall be included unless
such last day is not a Business Day, in which event the last
day of the relevant period shall be the then next Business Day
and (II) the period so computed shall end at 5:00 PM on the
relevant Business Day.
(ii) The word "from" means "from and
including".
(iii) The words "to" and "until" each
mean "to, but excluding".
(iv) The word "through" means "to and
including".
(q) The Loan Documents shall be construed and interpreted
in a harmonious manner and in keeping with the intentions set forth in
Section 13-15 hereof, provided, however, in the event of any
inconsistency between the provisions of this Agreement and any other
Loan Document, the provisions of this Agreement shall govern and
control.
13-15 INTENT. It is intended that:
(a) This Agreement take effect as a sealed instrument.
(b) The scope of all Collateral Interests created by the
Borrower to secure the Liabilities be broadly construed in favor of the
Lender and that they cover all assets of the Borrower.
(c) All Collateral Interests created in favor of the
Lender at any time and from time to time secure all Liabilities,
whether now existing or contemplated or hereafter arising.
(d) All reasonable costs, expenses, and disbursements
incurred by the Lender in connection with the Lender's relationship(s)
with the Borrower shall be borne by the Borrower.
(e) Unless otherwise explicitly provided herein, the
Lender's consent to any action of the Borrower which is prohibited
unless such consent is given may be given or refused by the Lender in
its sole discretion and without reference to Section 2(q) hereof.
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13-16 PARTICIPATIONS: The Lender may sell participations in the
Lender's interests herein to one or more financial institutions (each, a
"PARTICIPANT").
13-17 RIGHT OF SET-OFF. Any and all deposits or other sums at any
time credited by or due to the Borrower from the Lender or any Participant or
from any Affiliate of any of the foregoing, and any cash, securities,
instruments or other property of the Borrower in the possession of any of the
foregoing, whether for safekeeping or otherwise (regardless of the reason such
Person had received the same) shall at all times constitute security for all
Liabilities and for any and all obligations of the Borrower to the Lender or any
Participant or such Affiliate and may be applied or set off against the
Liabilities and against such obligations at any time, whether or not such are
then due and whether or not other collateral is then available to the Lender.
13-18 PLEDGES TO FEDERAL RESERVE BANKS: Nothing included in this
Agreement shall prevent or limit the Lender, to the extent that the Lender is
subject to any of the twelve Federal Reserve Banks organized under Section 4 of
the Federal Reserve Act (12 U.S.C. Section 341) from pledging all or any portion
of that Lender's interest and rights under this Agreement, provided, however,
neither such pledge nor the enforcement thereof shall release the Lender from
any of its obligations hereunder or under any of the Loan Documents.
13-19 MAXIMUM INTEREST RATE. Notwithstanding any other provision of
any Loan Document, interest on the indebtedness evidenced by any Loan Document
is expressly limited so that in no contingency or event whatsoever, whether by
acceleration of the maturity of any Loan Document or otherwise, shall the
interest contracted for, charged or received by the Lender exceed the maximum
amount permissible under Applicable Law. If from any circumstances whatsoever
fulfillment of any provisions of any Loan Document or of any other document
evidencing, securing or pertaining the indebtedness evidenced hereby, at the
time performance of such provision shall be due, shall involve transcending the
limit of validity prescribed by law, then ipso facto, the obligations to be
fulfilled shall be reduced to the limit of such validity, and if from any such
circumstances the Lender shall ever receive anything of value as interest or
deemed interest by Applicable Law under any Loan Document evidencing, securing
or pertaining to the Indebtedness or otherwise an amount that would exceed the
highest lawful rate, such amount that would be excessive interest shall be
applied to the reduction of the principal amount owing under the Loan Documents
or on account of any indebtedness of the Borrower to the Lender, and not to the
payment of interest, or if such excessive interest exceeds the unpaid balance of
the Indebtedness, such excess shall be refunded to the Borrower. In determining
whether or not the interest paid or payable with
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respect to the Indebtedness, under any specific contingency, exceeds the highest
lawful rate, the Borrower and the Lender shall, to the maximum extent permitted
by Applicable Law, (a) characterize any non-principal payment as an expense, fee
or premium rather than as interest, (b) exclude voluntary prepayments and the
effects thereof, (c) amortize, prorate, allocate and spread the total amount of
interest throughout the full term of such indebtedness so that the actual rate
of interest on account of such indebtedness does not exceed the maximum amount
permitted by Applicable Law, and/or (d) allocate interest between portions of
such Indebtedness, to the end that no such portion shall bear interest at a rate
greater than that permitted by Applicable Law. The terms and provisions of this
paragraph shall control and supercede every other conflicting provision of any
Loan Document and all other agreements between the Borrower and the Lender.
13-20 WAIVERS.
(a) The Borrower (and all guarantors, endorsers, and
sureties of the Liabilities) make each of the waivers included in Section
13-20(b), below, knowingly, voluntarily, and intentionally, and understands that
the Lender, in establishing the facilities contemplated hereby and in providing
loans and other financial accommodations to or for the account of the Borrower
as provided herein, whether not or in the future, is relying on such waivers.
(b) THE BORROWER, AND EACH SUCH GUARANTOR, ENDORSER, AND
SURETY RESPECTIVELY WAIVES THE FOLLOWING:
(i) Except as otherwise specifically required
hereby, notice of non-payment, demand, presentment, protest and all
forms of demand and notice, both with respect to the Liabilities and
the Collateral.
(ii) Except as otherwise specifically required
hereby, the right to notice and/or hearing prior to the Lender's
exercising of the Lender's rights upon default.
(iii) THE RIGHT TO A JURY IN ANY TRIAL OF ANY CASE
OR CONTROVERSY IN WHICH THE LENDER IS OR BECOMES A PARTY (WHETHER SUCH
CASE OR CONTROVERSY IS INITIATED BY OR AGAINST THE LENDER OR IN WHICH
THE LENDER IS JOINED AS A PARTY LITIGANT), WHICH CASE OR CONTROVERSY
ARISES OUT OF OR IS IN RESPECT OF, ANY RELATIONSHIP AMONG OR BETWEEN
THE BORROWER OR ANY OTHER PERSON AND THE LENDER LIKEWISE WAIVES THE
RIGHT TO A JURY IN ANY TRIAL OF ANY SUCH CASE OR CONTROVERSY).
(iv) The benefits or availability of any stay,
limitation, hindrance, delay, or restriction (including, without
limitation, any automatic stay which otherwise might be
...April 11, 2003..
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imposed pursuant to Section 362 of the Bankruptcy Code) with respect to
any action which the Lender may or may become entitled to take
hereunder.
(v) Any defense, counterclaim, set-off,
recoupment, or other basis on which the amount of any Liability, as
stated on the books and records of the Lender, could be reduced or
claimed to be paid otherwise than in accordance with the tenor of and
written terms of such Liability.
(vi) Any claim to consequential, special, or
punitive damages.
(vii) Any notice of the Lender's intent to
accelerate the Liabilities.
(viii) Any notice of the acceleration of the
Liabilities by the Lender.
[SIGNATURES FOLLOW]
GADZOOKS, INC.
("BORROWER")
By_________________________________
Print Name:________________________________
Title:________________________________
XXXXX FARGO RETAIL FINANCE, LLC
("LENDER")
By_________________________________
Print Name:________________________________
Title:________________________________
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