CREDIT AGREEMENT
THIS AGREEMENT is entered into as of July 1, 1998 by and between NATURAL
WONDERS, INC. ("Borrower"), and XXXXX FARGO BANK, NATIONAL ASSOCIATION ("Bank").
RECITAL
Borrower has requested from Bank the credit accommodation described below,
and Bank has agreed to provide said credit accommodation to Borrower on the
terms and conditions contained herein.
NOW, THEREFORE, for valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, Bank and Borrower hereby agree as follows:
ARTICLE I
THE CREDIT
SECTION 1.1. LINE OF CREDIT.
(a) LINE OF CREDIT. Subject to the terms and conditions of this
Agreement, Bank hereby agrees to make advances to and issue letters of credit
for the account of Borrower (the "Line of Credit") from time to time up to and
including July 1, 1999 in an aggregate principal amount not to exceed the
Maximum Availability, the proceeds of which shall be used for working capital
and other corporate purposes. The term "Maximum Availability" means, from each
September 1 to and including each December 31 (with each such period hereinafter
referred to as an "Increase Period') during the term of the Line of Credit, the
aggregate principal amount of Twenty Three Million Dollars ($23,000,000.00), and
(ii) at any other time during the term of the Line of Credit, the aggregate
principal amount of Twelve Million Dollars ($12,000,000.00). Borrower's
obligation to repay advances under the Line of Credit shall be evidenced by a
promissory note in the form and content of Exhibit A hereto (the "Line of Credit
Note").
(b) LIMITATION ON BORROWINGS. Outstanding borrowings under the Line of
Credit as a result of advances shall not exceed an aggregate of (i) during each
Increase Period, $23,000,000.00, and (ii) at any other time $7,000,000.00.
(c) LETTERS OF CREDIT. Bank agrees from time to time during the term
of the Line of Credit to issue, under the Line of Credit, standby and
commercial letters of credit for the account of Borrower to finance the
importation of inventory and other corporate purposes (each, a "Letter of
Credit" and collectively,
"Letters of Credit"); provided however, that the form and substance of each
Letter of Credit shall be subject to approval by Bank, in its sole
discretion; and provided further, that the aggregate undrawn amount of: (i)
all outstanding standby Letters of Credit shall not exceed, during each
Increase Period, Four Million Dollars ($4,000,000.00); (ii) all outstanding
commercial Letters of Credit shall not exceed, during each Increase Period,
Four Million Dollars ($4,000,000.00); (iii) all outstanding standby Letters
of Credit shall not exceed, at any other time, Eight Million Dollars
($8,000,000.00); and (iv) all outstanding commercial Letters of Credit shall
not exceed, at any other time, Eight Million Dollars ($8,000,000.00). In no
event, however, shall the aggregate undrawn amount of all outstanding Letters
of Credit (the "L/C Contingent Obligations"), when added to the outstanding
principal balance of advances, exceed the Maximum Availability then in
effect. Each Letter of Credit shall be issued for a term not to exceed 365
days, as designated by Borrower; provided however, that no Letter of Credit
shall have an expiration date more than 90 days beyond the maturity date of
the Line of Credit. The amount of L/C Contingent Obligations shall be
reserved under the Line of Credit and shall not be available for borrowings
thereunder. Each Letter of Credit shall be subject to the additional terms
and conditions of the Letter of Credit Agreement and related documents, if
any, required by Bank in connection with the issuance thereof (each, a
"Letter of Credit Agreement" and collectively, "Letter of Credit
Agreements"). Each draft paid by Bank under a Letter of Credit shall be
deemed an advance under the Line of Credit (other than during each Out of
Debt Period, as defined below) and shall be repaid by Borrower in accordance
with the terms and conditions of this Agreement applicable to such advances;
provided however, that if advances under the Line of Credit are not
available, for any reason, at the time any draft is paid by Bank (including,
without limitation, during each Out of Debt Period) then Borrower shall
immediately pay, upon Bank's written demand, therefor to Bank the full amount
of such draft, together with interest thereon from the date such amount is
paid by Bank to the date such amount is fully repaid by Borrower, at the rate
of interest applicable to advances under the Line of Credit. In such event
Borrower agrees that Bank, in its sole discretion, may debit any demand
deposit account maintained by Borrower with Bank for the amount of any such
draft.
(b) BORROWING AND REPAYMENT. Borrower may from time to time during the
term of the Line of Credit borrow, partially or wholly repay its outstanding
borrowings, and reborrow, subject to all of the limitations, terms and
conditions contained herein or in the Line of Credit Note. Notwithstanding the
foregoing, Borrower shall maintain a zero balance (exclusive of L/C Contingent
Obligations) on advances under the Line of Credit for a period of at least 60
consecutive days (the "Out of Debt
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Period") between December 31, 1998 and the maturity date of the Line of
Credit.
SECTION 1.2. INTEREST/FEES.
(a) INTEREST. The outstanding principal balance of the Line of Credit
(exclusive of the L/C Contingent Obligations) shall bear interest at the rate
of interest set forth in the Line of Credit Note.
(b) COMPUTATION AND PAYMENT. Interest shall be computed on the basis of
a 360-day year, actual days elapsed. Interest shall be payable at the times and
place set forth in the Line of Credit Note.
(c) UNUSED COMMITMENT FEE. Borrower shall pay to Bank a fee equal to
one-tenth percent (0.10%) per annum (computed on the basis of a 360-day year,
actual days elapsed) on an amount by which the Maximum Availability exceeds the
average daily average outstanding principal balance of the Line of Credit
(inclusive of L/C Contingent Obligations) but not taking into account the Out of
Debt Period, which fee shall be calculated on a quarterly basis by Bank and
shall be due and payable by Borrower in arrears on September 30 and every 3
months thereafter.
(d) LETTER OF CREDIT FEES. Borrower shall pay to Bank fees upon the
issuance of each Letter of Credit, upon the payment or negotiation by Bank of
each draft under any Letter of Credit and upon the occurrence of any other
activity with respect to any Letter of Credit (including without limitation, the
transfer, amendment or cancellation of any Letter of Credit) determined in
accordance with Bank's standard fees and charges then in effect for such
activity.
SECTION 1.3. COLLECTION OF PAYMENTS. Borrower authorizes Bank to collect
all interest and fees due under the Line of Credit by charging Borrower's demand
deposit account number 4091-383331 with Bank, or any other demand deposit
account maintained by Borrower with Bank, for the full amount thereof. Should
there be insufficient funds in any such demand deposit account to pay all such
sums when due, the full amount of such deficiency shall be immediately due and
payable by Borrower.
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SECTION 1.4. COLLATERAL.
As security for all indebtedness of Borrower to Bank subject hereto,
Borrower hereby grants to Bank security interests of first priority in all
Borrower's accounts receivable, general intangibles (including, without
limitation , Borrower's licensing rights to tradenames, trademarks and other
intellectual property), deposit accounts, other rights to payment, inventory and
proceeds of the foregoing, and Borrower shall cause NWCMI to grant to Bank a
security interest of first priority in all NWCMI's accounts receivable, general
intangibles (excluding tradenames, trademarks and other intellectual property),
deposit accounts, other rights to payment and proceeds of the foregoing.
All of the foregoing shall be evidenced by and subject to the terms of such
security agreements, financing statements, deeds of trust and other documents as
Bank shall reasonably require, all in form and substance satisfactory to Bank,
which shall include an agreement among Bank, Borrower and NW Capital
Management, Inc. ("NWCMI") pursuant to which, subject to the occurrence of an
Event of Default, NWCMI shall grant to Bank a security interest in and to a
limited, non-exclusive sub-license of selling, liquidating or otherwise
disposing of Borrower's inventory which secures Borrower's obligations
hereunder. Borrower shall reimburse Bank immediately upon demand for all costs
and expenses incurred by Bank in connection with any of the foregoing security,
including without limitation, filing and recording fees and costs of appraisals
and audits.
SECTION 1.6. GUARANTIES. All indebtedness of Borrower to Bank shall be
guaranteed by NWMI in the principal amount of Twenty Three Million Dollars
($23,000,000.00), as evidenced by and subject to the terms of a guaranty in form
and substance satisfactory to Bank.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
Borrower makes the following representations and warranties to Bank, which
representations and warranties shall survive the execution of this Agreement and
shall continue in full force and effect until the full and final payment, and
satisfaction and discharge, of all obligations of Borrower to Bank subject to
this Agreement.
SECTION 2.1. LEGAL STATUS. Borrower is a corporation, duly organized and
existing and in good standing under the laws of the state of Delaware, and is
qualified or licensed to do business (and is in good standing as a foreign
corporation, if applicable) in all jurisdictions in which such qualification or
licensing is required or in which the failure to so qualify
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except where the failure to be so licensed is not reasonably likely to have a
material adverse effect on Borrower.
SECTION 2.2. AUTHORIZATION AND VALIDITY. This Agreement, the Line of
Credit Note, and each other document, contract and instrument required hereby or
at any time hereafter delivered to Bank in connection herewith (collectively,
the "Loan Documents") have been duly authorized, and upon their execution and
delivery in accordance with the provisions hereof will constitute legal, valid
and binding agreements and obligations of Borrower or the party which executes
the same, enforceable in accordance with their respective terms.
SECTION 2.3. NO VIOLATION. The execution, delivery and performance by
Borrower of each of the Loan Documents do not violate any provision of any law
or regulation, or contravene any provision of the Articles of Incorporation or
By-Laws of Borrower, or result in any breach of or default under any contract,
obligation, indenture or other instrument to which Borrower is a party or by
which Borrower may be bound.
SECTION 2.4. LITIGATION. There are no pending, or to Borrower's actual
knowledge, threatened actions, claims, investigations, suits or proceedings by
or before any governmental authority, arbitrator, court or administrative agency
which could have a material adverse effect on the financial condition or
operation of Borrower or NWCMI other than those disclosed by Borrower to Bank in
writing prior to the date hereof.
SECTION 2.5. CORRECTNESS OF FINANCIAL STATEMENT. The financial statement
of Borrower dated May 2, 1998, a true copy of which has been delivered by
Borrower to Bank prior to the date hereof, (a) is complete and correct and
presents fairly the financial condition of Borrower, (b) discloses all
liabilities of Borrower that are required to be reflected or reserved against
under generally accepted accounting principles, whether liquidated or
unliquidated, fixed or contingent, and (c) has been prepared in accordance with
generally accepted accounting principles consistently applied. Since the date
of such financial statement there has been no material adverse change in the
financial condition of Borrower, nor has Borrower mortgaged, pledged, granted a
security interest in or otherwise encumbered any of its assets or properties
except in favor of Bank or as otherwise permitted by Bank in writing.
SECTION 2.6. INCOME TAX RETURNS. Borrower has no knowledge of any
pending assessments or adjustments of its income tax payable with respect to any
year.
SECTION 2.7. NO SUBORDINATION. There is no agreement, indenture,
contract or instrument to which Borrower is a party or
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by which Borrower may be bound that requires the subordination in right of
payment of any of Borrower's obligations subject to this Agreement to any
other obligation of Borrower.
SECTION 2.8. PERMITS, FRANCHISES. Borrower possesses, and will hereafter
possess, all permits, consents, approvals, franchises and licenses required and
rights to all trademarks, trade names, patents, and fictitious names, if any,
necessary to enable it to conduct the business in which it is now engaged in
compliance with applicable law, other than those, which if not possessed, are
not reasonably likely to have a material adverse effect on Borrower's operations
or financial condition.
SECTION 2.9. ERISA. Borrower is in compliance in all material respects
with all applicable provisions of the Employee Retirement Income Security Act of
1974, as amended or recodified from time to time ("ERISA"); Borrower has not
violated any provision of any defined employee pension benefit plan (as defined
in ERISA) maintained or contributed to by Borrower (each, a "Plan"); no
Reportable Event as defined in ERISA has occurred and is continuing with respect
to any Plan initiated by Borrower; Borrower has met its minimum funding
requirements under ERISA with respect to each Plan; and each Plan will be able
to fulfill its benefit obligations as they come due in accordance with the Plan
documents and under generally accepted accounting principles.
SECTION 2.10. OTHER OBLIGATIONS. Borrower is not in default on any
obligation for borrowed money, any purchase money obligation or any other
material lease, commitment, contract, instrument or obligation.
SECTION 2.11. ENVIRONMENTAL MATTERS. Except as disclosed by Borrower to
Bank in writing prior to the date hereof, to the best of Borrower's knowledge,
Borrower is in compliance in all material respects with all applicable federal
or state environmental, hazardous waste, health and safety statutes, and any
rules or regulations adopted pursuant thereto, which govern or affect any of
Borrower's operations and/or properties, including without limitation, the
Comprehensive Environmental Response, Compensation and Liability Act of 1980,
the Superfund Amendments and Reauthorization Act of 1986, the Federal Resource
Conservation and Recovery Act of 1976, and the Federal Toxic Substances Control
Act, as any of the same may be amended, modified or supplemented from time to
time; to Borrower's actual knowledge, none of the operations of Borrower is the
subject of any federal or state investigation evaluating whether any remedial
action involving a material expenditure is needed to respond to a release of any
toxic or hazardous waste or substance into the environment. Borrower has no
material contingent
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liability in connection with any release of any toxic or hazardous waste or
substance into the environment.
ARTICLE III
CONDITIONS
SECTION 3.1. CONDITIONS OF INITIAL EXTENSION OF CREDIT. The obligation
of Bank to extend any credit contemplated by this Agreement is subject to the
fulfillment to Bank's satisfaction of all of the following conditions:
(a) APPROVAL OF BANK COUNSEL. All legal matters incidental to the
extension of credit by Bank shall be satisfactory to Bank's counsel.
(b) DOCUMENTATION. Bank shall have received, in form and substance
satisfactory to Bank, each of the following, duly executed:
(i) This Agreement and the Line of Credit Note.
(ii) Corporate Borrowing Resolution.
(iii) Security Agreement, Addendum, Third Party Security Agreement and
UCC-1's.
(iv) Agreement with NWCMI.
(v) Guaranty.
(vi) Such other documents as Bank may require under any other
Section of this Agreement.
(c) INVENTORY APPRAISAL. Bank shall have received an inventory
appraisal from an appraiser and in form and content satisfactory to Bank.
(d) FINANCIAL CONDITION. There shall have been no material adverse
change, as determined by Bank, in the financial condition or business of
Borrower, nor any material decline, as determined by Bank, in the market value
of any collateral required hereunder or a substantial or material portion of the
assets of Borrower.
(e) INSURANCE. Borrower shall have delivered to Bank evidence of
insurance coverage on all collateral required hereunder, in form, substance,
amounts, covering risks and issued by reputable companies, and where required by
Bank, with loss payable endorsements in favor of Bank.
SECTION 3.2. CONDITIONS OF EACH EXTENSION OF CREDIT. The obligation of
Bank to make each extension of credit requested by Borrower hereunder shall be
subject to the fulfillment to Bank's satisfaction of each of the following
conditions:
(a) COMPLIANCE. The representations and warranties contained herein and
in each of the other Loan Documents shall be
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true on and as of the date of the signing of this Agreement and on the date
of each extension of credit by Bank pursuant hereto, with the same effect as
though such representations and warranties had been made on and as of each
such date, and on each such date, no Event of Default as defined herein, and
no condition, event or act which with the giving of notice or the passage of
time or both would constitute such an Event of Default, shall have occurred
and be continuing or shall exist.
(b) DOCUMENTATION. Bank shall have received all additional documents
which may be required in connection with such extension of credit.
ARTICLE IV
AFFIRMATIVE COVENANTS
Borrower covenants that so long as Bank remains committed to extend credit
to Borrower pursuant hereto, or any liabilities (whether direct or contingent,
liquidated or unliquidated) of Borrower to Bank under any of the Loan Documents
remain outstanding, and until payment in full of all obligations of Borrower
subject hereto, Borrower shall, and, with respect to Sections 4.2 and following,
shall cause NWCMI to, unless Bank otherwise consents in writing:
SECTION 4.1. PUNCTUAL PAYMENTS. Punctually pay all principal, interest,
fees or other liabilities due under any of the Loan Documents at the times and
place and in the manner specified therein, and immediately upon demand by Bank,
the amount by which the outstanding principal balance of advances or L/C
Contingent Obligations under the Line of Credit at any time exceeds any
limitation applicable thereto.
SECTION 4.2. ACCOUNTING RECORDS. Maintain adequate books and records in
accordance with generally accepted accounting principles consistently applied,
and permit any representative of Bank, at any reasonable time and upon
reasonable notice, to inspect, audit and examine such books and records, to make
copies of the same, and to inspect the properties of Borrower and NWCMI.
SECTION 4.3. FINANCIAL STATEMENTS. Provide to Bank all of the following,
in form and detail satisfactory to Bank:
(a) not later than 120 days after and as of the end of each fiscal year,
an audited unqualified consolidated financial statement of Borrower, prepared by
independent certified public accountants acceptable to Bank, to include balance
sheet, income statement, statement of cash flows, and footnotes, if any,
together with a copy Borrower's filed 10K report as of the end of such fiscal
year;
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(b) not later than 60 days after and as of the end of each fiscal
quarter, a copy Borrower's filed 10Q report as of the end of such fiscal
quarter;
(c) not later than 45 days after and as of the end of each month, a
consolidated financial statement of Borrower, prepared by Borrower, to include
balance sheet, income statement and statement of cash flows;
(d) contemporaneously with each annual and quarterly financial statement
of Borrower required hereby, a certificate of the president or chief financial
officer of Borrower that said financial statements are accurate and that there
exists no Event of Default nor any condition, act or event which with the giving
of notice or the passage of time or both would constitute an Event of Default;
and
(e) from time to time such other information as Bank may reasonably
request.
SECTION 4.4. COMPLIANCE. Preserve and maintain all licenses, permits,
governmental approvals, rights, privileges and franchises necessary for the
conduct of its business; and comply with the provisions of all documents
pursuant to which Borrower is organized and/or which govern Borrower's and
NWCMI's continued existence and with the requirements of all laws, rules,
regulations and orders of any governmental authority applicable to Borrower,
NWCMI and/or their businesses, except those, which if not preserved, maintained
or complied with, are not reasonably likely to have a material adverse effect on
Borrower's or NWCMI's operations or financial condition.
SECTION 4.5. INSURANCE. Maintain and keep in force insurance of the
types and in amounts customarily carried in lines of business similar to that of
Borrower and NWCMI, including but not limited to fire, extended coverage, public
liability, flood, property damage and workers' compensation, with all such
insurance carried with companies and in amounts satisfactory to Bank, and
deliver to Bank from time to time at Bank's request schedules setting forth all
insurance then in effect.
SECTION 4.6. FACILITIES. Keep all properties useful or necessary to
Borrower's and NWCMI business in good repair and condition, normal wear and tear
excepted, and from time to time make necessary repairs, renewals and
replacements thereto so that such properties shall be fully and efficiently
preserved and maintained.
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SECTION 4.7. TAXES AND OTHER LIABILITIES. Pay and discharge when due any
and all indebtedness, obligations, assessments and taxes, both real or personal,
including without limitation federal and state income taxes and state and local
property taxes and assessments, except such (a) as Borrower or NWCMI may in good
faith contest or as to which a bona fide dispute may arise, and (b) for which
Borrower or NWCMI has made provision, to Bank's satisfaction, for eventual
payment thereof in the event Borrower or NWCMI is obligated to make such
payment.
SECTION 4.8. LITIGATION. Promptly give notice in writing to Bank of any
litigation pending or threatened against Borrower or NWCMI with a claim in
excess of $500,000.00.
SECTION 4.9. FINANCIAL CONDITION. Maintain Borrower's consolidated
financial condition as follows using generally accepted accounting principles
consistently applied and used consistently with prior practices (except to the
extent modified by the definitions herein), with compliance determined
commencing with Borrower's financial statements for the period ending August 3,
1998:
(a) Quick Ratio not less than 1.0 to 1.0, determined as of the end of
each fiscal year, with "Quick Ratio" defined as the aggregate of unrestricted
cash, unrestricted marketable securities and receivables convertible into cash
divided by total current liabilities.
(b) Working Capital not at less than $20,000,000.00 as of the end of
each first fiscal quarter, not less than $18,000,000.00 as of the end of each
second fiscal quarter, not less than $16,000,000.00 as of the end of each third
fiscal quarter, with "Working Capital" defined as total current assets minus
total current liabilities.
(c) Tangible Net Worth not less than $50,500,000.00 as of the end of
each first fiscal quarter, not less than $48,000,000.00 as of the end of each
second fiscal quarter, not less than $44,500,000.00 as of the end of each third
fiscal quarter, and not less than $55,000,000.00 as of the end of each fiscal
year, with "Tangible Net Worth" defined as the aggregate of total stockholders'
equity plus subordinated debt less any intangible assets.
(d) Total Liabilities divided by Tangible Net Worth not greater than
1.25 to 1.0 as of the end of each third fiscal quarter, and not greater than
0.65 to 1.0 as of the end of each fiscal year, with "Total Liabilities" defined
as the aggregate of current liabilities and non-current liabilities less
subordinated debt, and with "Tangible Net Worth" as defined above.
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(e) Net income after taxes not less than $1.00 on an annual basis,
determined as of each fiscal year end, net loss not greater than $4,580,000.00
in each first fiscal quarter, net loss not greater than $2,170,000.00 in each
second fiscal quarter, and net loss not greater than $3,000,000.00 in each third
fiscal quarter.
SECTION 4.10. NOTICE TO BANK. Promptly (but in no event more than five
(5) days after the occurrence of each such event or matter) give written notice
to Bank in reasonable detail of: (a) the occurrence of any Event of Default, or
any condition, event or act which with the giving of notice or the passage of
time or both would constitute an Event of Default; (b) any change in the name or
the organizational structure of Borrower or NWCMI; (c) the occurrence and nature
of any Reportable Event or Prohibited Transaction, each as defined in ERISA, or
any funding deficiency with respect to any Plan; or (d) any termination or
cancellation of any insurance policy which Borrower or NWCMI is required to
maintain, or any uninsured or partially uninsured loss through liability or
property damage, or through fire, theft or any other cause affecting Borrower's
or NWCMI's property in excess of an aggregate of $100,000.00.
SECTION 4.11. YEAR 2000 COMPLIANCE. Use all commercially reasonable
efforts to ensure that (a) Borrower and any business in which Borrower holds a
substantial interest, and (b) all customers, suppliers and vendors that are
material to Borrower's business, become Year 2000 Compliant in a timely manner.
As used herein, "Year 2000 Compliant" shall mean, in regard to any entity, that
all software, hardware, firmware, equipment, goods or systems utilized by or
material to the business operations or financial condition of such entity, will
properly perform date sensitive functions during and after the year 2000 in
substantially in the same manner as before the year 2000. Borrower shall,
immediately upon request, provide to Bank such certifications or other evidence
of Borrower's compliance with the terms hereof as Bank may from time to time
require.
ARTICLE V
NEGATIVE COVENANTS
Borrower further covenants that so long as Bank remains committed to extend
credit to Borrower pursuant hereto, or any liabilities (whether direct or
contingent, liquidated or unliquidated) of Borrower to Bank under any of the
Loan Documents remain outstanding, and until payment in full of all obligations
of Borrower subject hereto, Borrower will not without Bank's prior written
consent, nor cause or permit NWMI to:
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SECTION 5.1. USE OF FUNDS. Use any of the proceeds of any credit
extended hereunder except for the purposes stated in Article I hereof.
SECTION 5.2. CAPITAL EXPENDITURES. Make any additional investment in
fixed assets (inclusive of capitalized lease expenditures) in any fiscal year in
excess of an aggregate of $7,000,000.00.
SECTION 5.3. MERGER, CONSOLIDATION, TRANSFER OF ASSETS. Merge into or
consolidate with any other entity unless Borrower or NWMI, as applicable, is the
surviving entity and remains in compliance with all terms and conditions of this
Agreement; make any substantial change in the nature of Borrower's or NWCMI's
business as conducted as of the date hereof; acquire all or substantially all of
the assets of any other entity; nor sell, lease, transfer or otherwise dispose
of all or a substantial or material portion of Borrower's or NWCMI's assets
except (a) in the ordinary course of its business, and (b) unsecured loans
between Borrower and NWMI.
SECTION 5.4. GUARANTIES. Guarantee or become liable in any way as
surety, endorser (other than as endorser of negotiable instruments for deposit
or collection in the ordinary course of business), accommodation endorser or
otherwise for, nor pledge or hypothecate any assets of Borrower or NWMI as
security for, any liabilities or obligations of any other person or entity,
except any of the foregoing in favor of Bank.
SECTION 5.5. DIVIDENDS, DISTRIBUTIONS. Declare or pay any dividend or
distribution either in cash, stock or any other property on Borrower's or
NWCMI's stock now or hereafter outstanding, nor redeem, retire, repurchase or
otherwise acquire any shares of any class of Borrower's or NWCMI's stock now or
hereafter outstanding ; provided however, that Borrower may repurchase its
common stock during the third and fourth fiscal quarters of fiscal year ending
February 1, 1999 (so long as Borrower is and remains in compliance with all
terms and conditions of this Agreement) for an aggregate amount of $600,000.00
(inclusive of the amount already paid by Borrower in said fiscal year on account
of stock repurchases).
SECTION 5.6 OTHER INDEBTEDNESS. Create, incur, assume or permit to
exist any indebtedness or liabilities resulting from borrowings, loans or
advances, whether secured or unsecured, matured or unmatured, liquidated or
unliquidated, joint or several, except (a) the liabilities of Borrower to Bank,
(b) any other liabilities of Borrower or NWMI existing as of, and disclosed to
Bank prior to, the date hereof, (c) unsecured liabilities of Borrower to NWCMI,
(d) trade debt incurred in the ordinary course of business, and (e) new purchase
money
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indebtedness whether incurred form an equipment vendor or institutional lender
(inclusive of capitalized lease expenditures) of Borrower in an aggregate
amount not to exceed $3,500,000.00 outstanding at any time.
SECTION 5.7. PLEDGE OF ASSETS. Mortgage, pledge, grant or permit to
exist a security interest in, or lien upon, all or any portion of Borrower's or
NWCMI's assets now owned or hereafter acquired, except (a) any of the foregoing
in favor of Bank, (b) as reflected in Borrower's financial statement dated May
2, 1998, (c) liens for current taxes not yet delinquent, (d) liens imposed by
law or incurred in the ordinary course of business for obligations not yet due
to carriers, warehousemen, laborers, materialmen and the like, (e) liens in
respect of pledges or deposits under workers' compensation laws or similar
legislation, (f) personal property subject to lease by Borrower and which is
therefore subject to the interests of the lessor thereunder, (g) for minor
defects in title, none of which individually or in the aggregate, materially
interferes with the use of such property; (h) purchase money security interests
in real estate and equipment securing the indebtedness permitted under Section
5.6(c).
SECTION 5.8. LOANS, ADVANCES, INVESTMENTS. Make any loans or advances to
or investments in any person or entity, except any (a) of the foregoing existing
as of, and disclosed to Bank prior to, the date hereof, (b) reasonable royalty
payments to NWCMI as consideration for the license to use the trademarks and
tradenames owned by NWCMI, and (c) unsecured loans between NWCMI to Borrower.
ARTICLE VI
EVENTS OF DEFAULT
SECTION 6.1. The occurrence of any of the following shall constitute an
"Event of Default" under this Agreement:
(a) Borrower shall fail to pay when due any principal, interest, fees or
other amounts payable under any of the Loan Documents.
(b) Any financial statement or certificate furnished to Bank in
connection with, or any representation or warranty made by Borrower or NWCMI
under this Agreement or any other Loan Document shall prove to be incorrect,
false or misleading in any material respect when furnished or made.
(c) Any default in the performance of or compliance with any obligation,
agreement or other provision contained herein or in any other Loan Document
(other than those referred to in
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subsections (a) and (b) above), and with respect to any such default which by
its nature can be cured, such default shall continue for a period of twenty
(20) days from its occurrence.
(d) Any default in the payment or performance of any obligation, or any
defined event of default, under the terms of any contract or instrument (other
than any of the Loan Documents) pursuant to which Borrower has incurred any debt
or other liability to any person or entity, including Bank, subject to
applicable cure periods, and, if the debt or other liability is owed to a party
other than Bank, the amount thereof exceeds $50,000.00.
(e) The filing of a notice of judgment lien against Borrower or NWCMI;
or the recording of any abstract of judgment against Borrower in any county in
which Borrower or NWCMI has an interest in real property; or the service of a
notice of levy and/or of a writ of attachment or execution, or other like
process, against the assets of Borrower or NWCMI; or the entry of a judgment
against Borrower or NWCMI; and with respect to any of the foregoing, the amount
involved exceeds $25,000.00, and the proceeding in question is not vacated or
dismissed within 20 days after its occurrence, provided that Bank shall not be
obligated to make advances or issue Letters of Credit during such 20 day period.
(f) Borrower or NWMI shall become insolvent, or shall suffer or consent
to or apply for the appointment of a receiver, trustee, custodian or liquidator
of itself or any of its property, or shall generally fail to pay its debts as
they become due, or shall make a general assignment for the benefit of
creditors; Borrower or NWMI shall file a voluntary petition in bankruptcy, or
seeking reorganization, in order to effect a plan or other arrangement with
creditors or any other relief under the Bankruptcy Reform Act, Title 11 of the
United States Code, as amended or recodified from time to time ("Bankruptcy
Code"), or under any state or federal law granting relief to debtors, whether
now or hereafter in effect; or any involuntary petition or proceeding pursuant
to the Bankruptcy Code or any other applicable state or federal law relating to
bankruptcy, reorganization or other relief for debtors is filed or commenced
against Borrower or NWCMI (and such involuntary proceeding is not vacated or
dismissed within 60 days after its occurrence, provided that Bank shall not be
obligated to make advances or issue Letters of Credit during such 60 day
period), or Borrower or NWCMI shall file an answer admitting the jurisdiction of
the court and the material allegations of any involuntary petition; or Borrower
or NWCMI shall be adjudicated a bankrupt, or an order for relief shall be
entered against Borrower or NWCMI by any court of competent jurisdiction under
the Bankruptcy Code or any
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other applicable state or federal law relating to bankruptcy, reorganization
or other relief for debtors.
(g) There shall exist or occur any event or condition which Bank in good
faith and reasonably believes impairs, or is substantially likely to impair, the
prospect of payment or performance by Borrower of its obligations under any of
the Loan Documents, and if such event or condition is susceptible of being
cured, remains uncured longer than 20 days after written notice from Bank to
Borrower, provided that Bank shall not be obligated to make advances or issue
Letters of Credit during such 20 day period.
(h) The dissolution or liquidation of Borrower or NWCMI; or Borrower or
NWCMI or any of its directors or stockholders (holding in excess of 10% of
Borrower's common shares) shall take action seeking to effect the dissolution or
liquidation of Borrower or NWCMI.
(i) Any change in ownership during the term of this Agreement of an
aggregate of twenty-five percent (25%) or more of (y) the common stock of
Borrower, in a single or related transactions, or (z) the common stock of NWCMI.
(j) Xxxxx Xxxxxx shall cease, for any reason, to be a member of
Borrower's Board of Directors, provided, however, that if such cessation is
voluntary or results by reason of the death or disability of Xxxxx Xxxxxx, no
Event of Default shall be deemed to have occurred if at the time of or within 30
days after such cessation, Borrower shall have in place a Management Team
(defined as a chief executive officer, chief operating officer AND chief
financial officer) reasonably acceptable to Bank.
SECTION 6.2. REMEDIES. Upon the occurrence of any Event of Default:
(a) all indebtedness of Borrower under each of the Loan Documents, any term
thereof to the contrary notwithstanding, shall at Bank's option and without
notice become immediately due and payable without presentment, demand, protest
or notice of dishonor, all of which are hereby expressly waived by each
Borrower; (b) the obligation, if any, of Bank to extend any further credit under
any of the Loan Documents shall immediately cease and terminate; and (c) Bank
shall have all rights, powers and remedies available under each of the Loan
Documents, or accorded by law, including without limitation the right to resort
to any or all security for any credit accommodation from Bank subject hereto and
to exercise any or all of the rights of a beneficiary or secured party pursuant
to applicable law. All rights, powers and remedies of Bank may be exercised at
any time by Bank and from time to time after the occurrence of an Event of
Default, are cumulative and not exclusive, and shall be in
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addition to any other rights, powers or remedies provided by law or equity.
ARTICLE VII
MISCELLANEOUS
SECTION 7.1. NO WAIVER. No delay, failure or discontinuance of Bank in
exercising any right, power or remedy under any of the Loan Documents shall
affect or operate as a waiver of such right, power or remedy; nor shall any
single or partial exercise of any such right, power or remedy preclude, waive or
otherwise affect any other or further exercise thereof or the exercise of any
other right, power or remedy. Any waiver, permit, consent or approval of any
kind by Bank of any breach of or default under any of the Loan Documents must be
in writing and shall be effective only to the extent set forth in such writing.
SECTION 7.2. NOTICES. All notices, requests and demands which any party
is required or may desire to give to any other party under any provision of this
Agreement must be in writing delivered to each party at the following address:
BORROWER: NATURAL WONDERS, INC.
0000 Xxxxxxxxxx Xxxxx
Xxxxxxx, XX 00000
Attn: President
BANK: XXXXX FARGO BANK, NATIONAL ASSOCIATION
Santa Xxxxx Valley RCBO
000 Xxxx Xxxxxx Xxxxx, Xxxxx Xxxxx
Xxx Xxxx, XX 00000
or to such other address as any party may designate by written notice to all
other parties. Each such notice, request and demand shall be deemed given or
made as follows: (a) if sent by hand delivery, upon delivery; (b) if sent by
mail, upon the earlier of the date of receipt or three (3) days after deposit in
the U.S. mail, first class and postage prepaid; and (c) if sent by telecopy,
upon receipt.
SECTION 7.3. COSTS, EXPENSES AND ATTORNEYS' FEES. Borrower shall pay to
Bank immediately upon demand the full amount of all payments, advances, charges,
costs and expenses, including reasonable attorneys' fees (to include outside
counsel fees and all allocated costs of Bank's in-house counsel), expended or
incurred by Bank in connection with the negotiation and preparation of this
Agreement and the other Loan Documents in the amount of $3,000.00, Bank's
continued administration hereof and thereof, and the preparation of any
amendments and waivers hereto and thereto. The non-prevailing party shall pay to
the
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prevailing party immediately upon demand the full amount of all payments,
advances, charges, costs and expenses, including reasonable attorneys' fees
(to include outside counsel fees and all allocated costs of in-house
counsel), expended or incurred by the prevailing party in connection with (a)
the enforcement of Bank's rights and/or the collection of any amounts which
become due to Bank under any of the Loan Documents, and (b) the prosecution
or defense of any action in any way related to any of the Loan Documents,
including without limitation, any action for declaratory relief, whether
incurred at the trial or appellate level, in an arbitration proceeding or
otherwise, and including any of the foregoing incurred in connection with any
bankruptcy proceeding (including without limitation, any adversary
proceeding, contested matter or motion brought by Bank or any other person)
relating to any Borrower or any other person or entity.
SECTION 7.4. SUCCESSORS, ASSIGNMENT. This Agreement shall be binding
upon and inure to the benefit of the heirs, executors, administrators, legal
representatives, successors and assigns of the parties; provided however, that
Borrower may not assign or transfer its interest hereunder without Bank's prior
written consent. Bank reserves the right to sell, assign, transfer, negotiate
or grant participations in all or any part of, or any interest in, Bank's rights
and benefits under each of the Loan Documents. In connection therewith, Bank
may disclose all documents and information which Bank now has or may hereafter
acquire relating to any credit extended by Bank to Borrower, Borrower or its
business, or any collateral required hereunder, subject to reasonable
confidentiality requirements.
SECTION 7.5. ENTIRE AGREEMENT; AMENDMENT. This Agreement and the other
Loan Documents constitute the entire agreement between Borrower and Bank with
respect to any extension of credit by Bank subject hereto and supersede all
prior negotiations, communications, discussions and correspondence concerning
the subject matter hereof. This Agreement may be amended or modified only in
writing signed by each party hereto.
SECTION 7.6. NO THIRD PARTY BENEFICIARIES. This Agreement is made and
entered into for the sole protection and benefit of the parties hereto and their
respective permitted successors and assigns, and no other person or entity shall
be a third party beneficiary of, or have any direct or indirect cause of action
or claim in connection with, this Agreement or any other of the Loan Documents
to which it is not a party.
SECTION 7.7. TIME. Time is of the essence of each and every provision of
this Agreement and each other of the Loan Documents.
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SECTION 7.8. SEVERABILITY OF PROVISIONS. If any provision of this
Agreement shall be prohibited by or invalid under applicable law, such provision
shall be ineffective only to the extent of such prohibition or invalidity
without invalidating the remainder of such provision or any remaining provisions
of this Agreement.
SECTION 7.9. COUNTERPARTS. This Agreement may be executed in any number
of counterparts, each of which when executed and delivered shall be deemed to be
an original, and all of which when taken together shall constitute one and the
same Agreement.
SECTION 7.10. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of California.
SECTION 7.11. ARBITRATION.
(a) ARBITRATION. Upon the demand of any party, any Dispute shall be
resolved by binding arbitration (except as set forth in (e) below) in accordance
with the terms of this Agreement. A "Dispute" shall mean any action, dispute,
claim or controversy of any kind, whether in contract or tort, statutory or
common law, legal or equitable, now existing or hereafter arising under or in
connection with, or in any way pertaining to, any of the Loan Documents, or any
past, present or future extensions of credit and other activities, transactions
or obligations of any kind related directly or indirectly to any of the Loan
Documents, including without limitation, any of the foregoing arising in
connection with the exercise of any self-help, ancillary or other remedies
pursuant to any of the Loan Documents. Any party may by summary proceedings
bring an action in court to compel arbitration of a Dispute. Any party who
fails or refuses to submit to arbitration following a lawful demand by any other
party shall bear all costs and expenses incurred by such other party in
compelling arbitration of any Dispute.
(b) GOVERNING RULES. Arbitration proceedings shall be administered by
the American Arbitration Association ("AAA") or such other administrator as the
parties shall mutually agree upon in accordance with the AAA Commercial
Arbitration Rules. All Disputes submitted to arbitration shall be resolved in
accordance with the Federal Arbitration Act (Title 9 of the United States Code),
notwithstanding any conflicting choice of law provision in any of the Loan
Documents. The arbitration shall be conducted at a location in California
selected by the AAA or other administrator. If there is any inconsistency
between the terms hereof and any such rules, the terms and procedures set forth
herein shall control. All statutes of limitation applicable to any Dispute
shall apply to any arbitration proceeding. All discovery activities shall be
expressly limited to matters
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directly relevant to the Dispute being arbitrated. Judgment upon any award
rendered in an arbitration may be entered in any court having jurisdiction;
provided however, that nothing contained herein shall be deemed to be a
waiver by any party that is a bank of the protections afforded to it under 12
U.S.C. Section 91 or any similar applicable state law.
(c) NO WAIVER; PROVISIONAL REMEDIES, SELF-HELP AND FORECLOSURE. No
provision hereof shall limit the right of any party to exercise self-help
remedies such as setoff, foreclosure against or sale of any real or personal
property collateral or security, or to obtain provisional or ancillary remedies,
including without limitation injunctive relief, sequestration, attachment,
garnishment or the appointment of a receiver, from a court of competent
jurisdiction before, after or during the pendency of any arbitration or other
proceeding. The exercise of any such remedy shall not waive the right of any
party to compel arbitration or reference hereunder.
(d) ARBITRATOR QUALIFICATIONS AND POWERS; AWARDS. Arbitrators must be
active members of the California State Bar or retired judges of the state or
federal judiciary of California, with expertise in the substantive laws
applicable to the subject matter of the Dispute. Arbitrators are empowered to
resolve Disputes by summary rulings in response to motions filed prior to the
final arbitration hearing. Arbitrators (i) shall resolve all Disputes in
accordance with the substantive law of the state of California, (ii) may grant
any remedy or relief that a court of the state of California could order or
grant within the scope hereof and such ancillary relief as is necessary to make
effective any award, and (iii) shall have the power to award recovery of all
costs and fees, to impose sanctions and to take such other actions as they deem
necessary to the same extent a judge could pursuant to the Federal Rules of
Civil Procedure, the California Rules of Civil Procedure or other applicable
law. Any Dispute in which the amount in controversy is $5,000,000 or less shall
be decided by a single arbitrator who shall not render an award of greater than
$5,000,000 (including damages, costs, fees and expenses). By submission to a
single arbitrator, each party expressly waives any right or claim to recover
more than $5,000,000. Any Dispute in which the amount in controversy exceeds
$5,000,000 shall be decided by majority vote of a panel of three arbitrators;
provided however, that all three arbitrators must actively participate in all
hearings and deliberations.
(e) JUDICIAL REVIEW. Notwithstanding anything herein to the contrary,
in any arbitration in which the amount in controversy exceeds $25,000,000, the
arbitrators shall be required to make specific, written findings of fact and
conclusions of law. In such arbitrations (i) the arbitrators
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shall not have the power to make any award which is not supported by
substantial evidence or which is based on legal error, (ii) an award shall
not be binding upon the parties unless the findings of fact are supported by
substantial evidence and the conclusions of law are not erroneous under the
substantive law of the state of California, and (iii) the parties shall have
in addition to the grounds referred to in the Federal Arbitration Act for
vacating, modifying or correcting an award the right to judicial review of
(A) whether the findings of fact rendered by the arbitrators are supported by
substantial evidence, and (B) whether the conclusions of law are erroneous
under the substantive law of the state of California. Judgment confirming an
award in such a proceeding may be entered only if a court determines the
award is supported by substantial evidence and not based on legal error under
the substantive law of the state of California.
(f) REAL PROPERTY COLLATERAL; JUDICIAL REFERENCE. Notwithstanding
anything herein to the contrary, no Dispute shall be submitted to arbitration
if the Dispute concerns indebtedness secured directly or indirectly, in whole
or in part, by any real property unless (i) the holder of the mortgage, lien
or security interest specifically elects in writing to proceed with the
arbitration, or (ii) all parties to the arbitration waive any rights or
benefits that might accrue to them by virtue of the single action rule
statute of California, thereby agreeing that all indebtedness and obligations
of the parties, and all mortgages, liens and security interests securing such
indebtedness and obligations, shall remain fully valid and enforceable. If
any such Dispute is not submitted to arbitration, the Dispute shall be
referred to a referee in accordance with California Code of Civil Procedure
Section 638 et seq., and this general reference agreement is intended to be
specifically enforceable in accordance with said Section 638. A referee with
the qualifications required herein for arbitrators shall be selected pursuant
to the AAA's selection procedures. Judgment upon the decision rendered by a
referee shall be entered in the court in which such proceeding was commenced
in accordance with California Code of Civil Procedure Sections 644 and 645.
(g) MISCELLANEOUS. To the maximum extent practicable, the AAA, the
arbitrators and the parties shall take all action required to conclude any
arbitration proceeding within 180 days of the filing of the Dispute with the
AAA. No arbitrator or other party to an arbitration proceeding may disclose the
existence, content or results thereof, except for disclosures of information by
a party required in the ordinary course of its business, by applicable law or
regulation, or to the extent necessary to exercise any judicial review rights
set forth herein. If more than one agreement for arbitration by or between the
parties potentially applies to a Dispute, the arbitration
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provision most directly related to the Loan Documents or the subject matter
of the Dispute shall control. This arbitration provision shall survive
termination, amendment or expiration of any of the Loan Documents or any
relationship between the parties.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first written above.
XXXXX FARGO BANK,
NATURAL WONDERS, INC. NATIONAL ASSOCIATION
By: /s/ Xxxxx X. Xxxxxx By: /s/ Xxxxx Xxxxxxx
----------------------- -------------------------
Title: Acting CEO/CFO Title: Vice President
-------------------- ----------------------
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