Execution Copy
LOAN AND SECURITY AGREEMENT
dated as of
September 19, 1997
BETWEEN
BANK ONE, NATIONAL ASSOCIATION as Bank
AND
DREW SHOE CORPORATION as Borrower
Porter, Wright, Xxxxxx & Xxxxxx
00 Xxxxx Xxxx Xxxxxx
Xxxxxxxx, Xxxx 00000
TABLE OF CONTENTS
SECTION PAGE
1 The Loans........................................................1
1.1 The Revolving Loan and Borrowing Base. ...................1
1.2 The Term Loan..............................................1
1.3 Pending Defaults. ........................................1
2 Eligibility......................................................1
2.1 Eligible Accounts..........................................1
2.2 Eligible Inventory.........................................2
2.3 Reserves. .................................................3
3 Terms and Uses of Loans. ........................................3
3.1 Interest Rates and Fees....................................3
3.2 Terms of Repayment.........................................3
3.3 Costs and Expenses.........................................3
3.4 Use of Proceeds............................................4
3.5 The Guarantor..............................................4
3.6 Amendment and Restatement..................................4
3.7 Increased Capital. ........................................5
3.8 Maximum Charges. ..........................................5
4 Security Agreement...............................................5
4.1 Grant of Security Interest.................................5
4.2 Representations and Covenants Regarding the Collateral.....7
4.3 Application of Proceeds from Collection of
Accounts; Setoff; Government Accounts; Perfection;
Lien Notation. ......................................... 7
4.4 Collateral Insurance.......................................8
4.5 Books and Records..........................................8
4.6 Collateral Administration..................................8
4.7 Preservation and Disposition of Collateral.................9
4.8 Waivers and Consents.......................................9
4.9 Financing Statements......................................10
4.10 Bank's Appointment as Attorney-in-Fact....................10
4.11 Remedies on Default.......................................11
5 Conditions Precedent............................................12
5.1 Effectiveness and Initial Advance.........................12
5.2 Conditions Precedent to Subsequent Advances...............12
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6 Warranties and Representations..................................13
6.1 Corporate Organization and Authority......................13
6.2 Borrowing is Legal and Authorized.........................13
6.3 Taxes.....................................................13
6.4 Capital Structure.........................................14
6.5 Compliance with Law.......................................14
6.6 Financial Statements; Full Disclosure.....................14
6.7 Litigation: Adverse Effects...............................14
6.8 No Insolvency.............................................15
6.9 Government Consent........................................15
6.10 Title to Properties.......................................15
6.11 No Defaults...............................................15
6.12 Environmental Protection..................................15
6.13 ERISA and Labor Matters...................................16
6.14 Regarding the Accounts and Inventory......................19
6.15 Margin Loans. ............................................19
7 Borrower Business Covenants.....................................19
7.1 Payment of Taxes and Claims...............................19
7.2 Maintenance of Properties and Corporate Existence.........20
7.3 Sale of Assets, Merger, Subsidiaries, Tradenames, Conduct
of Business............................................20
7.4 Negative Pledge...........................................21
7.5 Other Borrowings..........................................21
7.6 Contingent Obligations....................................22
7.7 Sale of Accounts; No Consignment..........................22
7.8 Minimum Security..........................................22
7.9 Management................................................22
7.10 Acquisition of Capital Stock. ............................22
7.11 Cash Dividends and Other Distributions....................22
7.12 Loans and Advances........................................23
7.13 Transactions with Affiliates..............................23
7.14 Tangible Net Worth........................................24
7.15 Debt Service Coverage Ratio...............................24
7.16 Environmental Compliance and Indemnification..............25
7.17 Maintenance of Accounts...................................25
7.18 Financial Information and Reporting. .....................25
7.19 Post Closing Matters. ....................................27
8 Default.........................................................27
8.1 Events of Default.........................................27
8.2 Default Remedies. ........................................28
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9 Miscellaneous...................................................28
9.1 Notices...................................................28
9.2 Access to Accountants. ...................................29
9.3 Reproduction of Documents.................................29
9.4 Survival, Successors and Assigns..........................30
9.5 Amendment and Waiver, Duplicate Originals.................30
9.6 Accounting Treatment and Fiscal Year......................30
9.7 Enforceability and Governing Law. ........................30
9.8 Confidentiality...........................................31
9.9 Waiver of Right to Trial by Jury..........................31
9.10 No Consequential Damages. ................................31
9.11 Indemnity.................................................31
10 Definitions ....................................................32
10.1 Uniform Commercial Code Terms. ...........................32
10.2 Accounting Terms..........................................32
10.3 Other Definitional Provisions.............................32
10.4 Index of Definitions. ...................................32
Exhibits
Exhibit A-1 - Revolving Note
Exhibit A-2 - Term Note
Exhibit B - Borrowing Base Certificate
Exhibit C - Conditions Precedent to Initial Disbursement
Schedules
Schedule 4.2 - Schedule of Business Locations
Schedule 6.4 - Capital Structure
Schedule 6.10 - Schedule of Permitted Encumbrances
Schedule 6.13(a) - ERISA Matters
Schedule 6.13(b) - Labor Matters
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LOAN AND SECURITY AGREEMENT
This Loan and Security Agreement (this "Agreement") is entered into at
Columbus, Ohio, between Bank One, National Association (the "Bank") and Drew
Shoe Corporation (the "Borrower") as of the _____ day of September, 1997.
1 The Loans. The Bank, subject to the terms and conditions hereof, will extend
credit to the Borrower up to the aggregate principal sum of $5,500,000.00 (the
"Loans").
1.1 The Revolving Loan and Borrowing Base. The Bank will extend a revolving
credit facility to the Borrower under which the Bank shall make, subject to the
terms and conditions hereof, loans and advances on a revolving basis up to the
principal sum of $4,500,000.00 (the "Revolving Loan"). The principal balance of
the Revolving Loan shall not exceed an amount equal to the sum of (i) the lesser
of up to 35% of Eligible Inventory or $2,500,000.00; plus (ii) up to 80% of
Eligible Accounts (collectively the "Borrowing Base").
1.2 The Term Loan. The Bank, subject to the terms and conditions hereof, will
extend to the Borrower a term facility in the principal sum of $1,000,000.00
(the "Term Loan")
1.3 Pending Defaults. The Bank shall have no obligation to advance or readvance
any sums pursuant to the Revolving Loan, if at any time (i) a set of facts or
circumstances exists, which, by itself, upon the giving of notice, the lapse of
time, or any one or more of the foregoing would constitute an Event of Default
under this Agreement (a "Pending Default"), or (ii) the Bank, in its sole good
faith discretion, determines that a Material Adverse Effect has occurred or that
a material adverse change has occurred in the financial condition, operations or
business of the Borrower, in the value of the Collateral or in the Bank's
interest in the Collateral.
2 Eligibility.
2.1 Eligible Accounts. The term "Eligible Accounts" means the portion of the
Borrower's accounts arising in the ordinary course of the Borrower's business
from the sale of goods or services that the Bank determines in its sole good
faith discretion, based on credit policies, market conditions, the Borrower's
business and other criteria, is eligible. An account shall not be deemed an
Eligible Account unless such account is subject to the Bank's perfected first
priority security interest and no other lien, encumbrance, or security interest,
is evidenced by an invoice or other documentary evidence satisfactory to the
Bank, is unconditionally due and payable in U.S. dollars to the Borrower from a
party (the "Account Debtor") and conforms to the warranties regarding the
accounts contained in this Agreement. Without limiting the generality of the
foregoing, no account shall be an Eligible Account if:
(a) the account is due and payable and (i) is more than 60 days past-due or (ii)
remains unpaid
more than 150 days after the date of the original invoice therefor; (b) the
account arises from uncompleted performance on the part of the Borrower,
constitutes a progress billing or advance billing, is a "xxxx and hold," or, if
involving a sale of goods, all such goods have not been lawfully shipped and
invoiced to the Account Debtor, (or if requested by the Bank, copies of all
invoices, together with all shipping documents and delivery receipts evidencing
such shipment have not been delivered to the Bank);
(c) the account arises from a contract with any government or agency thereof,
except for the Veterans Administration;
(d) the account is subject to any prior assignment, claim, lien, subrogation
rights or security interest, or subject to any levy or setoff;
(e) the account is subject to any credit, contra account, allowance, adjustment,
return of goods, or discount (collectively a "Contra"), provided, however, that
unless the Account Debtor has asserted a Contra, if the amount of the account
exceeds the amount of the Contra, such excess shall be considered for
eligibility if such excess is not otherwise excluded by this Section 2.1;
(f) the account arises from an Affiliate;
(g) the Account Debtor is subject to bankruptcy, receivership or similar
proceedings or is insolvent;
(h) the account is evidenced by any chattel paper, promissory note, payment
instrument or written agreement or arises from a consumer;
(i) the account arises from an Account Debtor whose mailing address or executive
office is located outside the United States or one of the Canadian Provinces (
excluding Quebec) unless (A) the payment for such account is assured by an
irrevocable letter of credit, such letter of credit is from a financial
institution acceptable to the Bank, the same has been assigned to the Bank and
the original has been delivered to the Bank or the same has been confirmed by a
financial institution acceptable to the Bank and is in form and substance
acceptable to the Bank, payable in the full amount of the account in United
States dollars at a place of payment located within the United States, or (B)
the payment for such account is insured by foreign credit insurance acceptable
to the Bank, which has been collaterally assigned to the Bank in form
satisfactory to the Bank, and the Bank has been named beneficiary with respect
thereto;
(j) the account arises from an Account Debtor who has more than 25% of its
accounts (in dollar value) not eligible pursuant to Section 2.1(a) above; or
(k) the Bank has notified the Borrower that the account or the Account Debtor is
unsatisfactory or unacceptable (which the Bank reserves the right to do in its
sole good faith discretion at any time).
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2.2 Eligible Inventory. The term "Eligible Inventory" means that portion of the
Borrower's inventory on which the Bank has a first and exclusive perfected
security interest (provided, however, that prior to November 19, 1997, inventory
shall not be deemed ineligible solely on account of the Borrower's failure to
obtain a landlord's waiver with respect to the same) and that the Bank
determines in its sole good faith discretion from time to time, based on credit
policies, market conditions, the Borrower's business and other matters, is
eligible for use in calculating the Borrowing Base. For purposes of determining
the Borrowing Base, Eligible Inventory shall not include (a) work in process,
(b) slow-moving, obsolete or discontinued inventory, (c) supply items,
packaging, or the freight portion of raw materials, (d) inventory in the control
of a third person for processing, storage, or otherwise unless the Borrower
shall have obtained and delivered to the Bank, a bailee's waiver or secured
party of bailee's waiver, in form satisfactory to the Bank, the original
documents or other instruments evidencing such inventory, or such other
agreements or other documents the Bank shall require in its sole and absolute
discretion, (e) consigned inventory, (f) inventory in transit, (g) inventory
associated with any contract of which the Borrower has knowledge that the same
may be subject to a material adverse development, (h) inventory located outside
the United States or (i) inventory associated with any contract to the extent
that progress or advance payments received from the Account Debtor would cause
such inventory to be identified to the contract. All inventory shall be valued
at the lesser of cost (on a FIFO basis) or market.
2.3 Reserves. The Bank reserves the right to deduct from any advances to be made
hereunder such amounts as the Bank may deem proper and necessary, in its sole
discretion, to establish reserves for the creditworthiness of any Account
Debtor, market fluctuations in the value of inventory, the payment of taxes or
contingent liabilities, customer advances and deposits, payment of interest,
fees, and expenses payable under this Agreement or any other agreement in favor
of the Bank, and such other purposes as the Bank may deem appropriate.
3 Terms and Uses of Loans.
3.1 Interest Rates and Fees. The Borrower agrees to pay the Bank (a) each month
interest on the unpaid balance of the Loans at the rates of interest set forth
in the note or notes evidencing the Loans, and (b) no later than the execution
of this Agreement, a closing fee of $22,500.00 with respect to the Revolving
Loan and $5,000.00 with respect to the Term Loan.
3.2 Terms of Repayment. The Loans shall be evidenced by one or more notes, each
in substantially the form set forth in Exhibit A-1 and A-2 attached hereto.
Repayment of the Loans shall be made in accordance with the terms of the
promissory notes then outstanding pursuant to this Agreement.
3.3 Costs and Expenses. The Borrower agrees to pay audit fees (in the amount of
$500.00 per day per auditor, plus the out-of-pocket expenses of such auditors).
In addition, the Borrower agrees to pay service charges, analysis fees, and all
costs and expenses incidental to or in
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connection with this Agreement or any service provided by the Bank, the
enforcement of the Bank's rights in connection therewith, any amendment or
modification of this Agreement or any other loan documents, any litigation,
contest, dispute, proceeding or action in any way relating to the Collateral or
to this Agreement, whether any of the foregoing are incurred prior to or after
maturity, the occurrence of an Event of Default, or the rendering of a judgment.
Such costs shall include, but not be limited to, fees and out-of-pocket expenses
of the Bank's counsel, recording fees, inspection fees, revenue stamps and note
and mortgage taxes.
3.4 Use of Proceeds. The net proceeds of the Loans will be used to refinance all
of the Borrower's existing bank indebtedness, and to pay in full its existing
debentures issued as part of the Borrower's 1986 reorganization, to provide for
working capital requirements of the Borrower and for any other lawful business
purpose in the Borrower's business.
3.5 The Guarantor. BCAM International, Inc. (the "Guarantor") shall
unconditionally guarantee the full and prompt payment of the Loans.
3.6 Amendment and Restatement. The indebtedness and obligations evidenced by
this Agreement and all instruments, agreements, and documents executed in
connection herewith constitute an amendment, renewal, and restatement of all
indebtedness and obligations of the Borrower evidenced by a certain Business
Loan Agreement dated August 30, 1996, as amended from time to time (the "Prior
Loan Agreement") and all promissory notes, instruments, security agreements and
other documents executed in connection therewith (collectively the "Prior Loan
Documents"). All Uniform Commercial Code financing statements, fixtures filings,
and all security agreements and/or collateral assignments executed and delivered
to the Bank in connection with the Prior Loan Agreement, or the Prior Loan
Documents shall remain in full force and effect in all respects as if the
indebtedness and obligations secured and perfected with respect to such Uniform
Commercial Code financing statements, security agreements and collateral
assignments had been payable originally as provided by this Agreement and by the
instruments, agreements and documents executed in connection herewith. The terms
and conditions of this Agreement and the Bank's rights and remedies hereunder,
shall apply to all of the obligations incurred under the Prior Loan Agreement.
It is expressly understood and agreed by the parties hereto that this Agreement
is in no way intended to constitute a novation of the indebtedness existing
under the Prior Loan Agreement or evidence payment of all or any of such
obligations and liabilities. The Borrower reaffirms the security interest and
liens granted to the Bank pursuant to each of the Prior Loan Documents executed
by the Borrower, which security interest and liens shall continue in full force
and effect during the terms of this Agreement and any renewals thereof and shall
continue to secure the obligations identified in the Prior Loan Documents. All
references to the Prior Loan Agreement in the Prior Loan Documents shall be
deemed to refer to this Agreement. If any inconsistency exists between this
Agreement and the Prior Loan Agreement or the Prior Loan Documents, the terms of
this Agreement shall prevail. Nothing contained in this Agreement or in any
security agreement, assignment, collateral assignment, mortgage or other
document or instrument executed contemporaneously herewith shall be deemed to
satisfy or discharge the indebtedness evidenced by the Prior Loan Agreement,
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or the Prior Loan Documents (this being an amendment and restatement only) or
terminate the security interests, assignments, mortgages, financing statements,
fixture filings, or other documents or instruments previously executed and
delivered granted to the Bank prior to the date hereof.
3.7 Increased Capital. If after the date hereof the Bank determines that (i) the
adoption or implementation of or any change in or the interpretation or
administration of any law or regulation or any guideline or request from any
central bank or other governmental authority or quasi-governmental authority
exercising jurisdiction, power or control over the Bank or banks or financial
institutions generally (whether or not having the force of law), compliance with
which affects or would affect the amount of capital required or expected to be
maintained by the Bank or any corporation controlling the Bank and (ii) the
amount of such capital is increased by or based upon the making or maintenance
by the Bank of any of the Loans, any participation in or obligation to
participate in the Loans, or other advances made hereunder or the existence of
any obligation to make the Loans then, in any such case, upon written demand by
the Bank, the Borrower shall immediately pay to the Bank, from time to time as
specified by the Bank, additional amounts sufficient to compensate the Bank or
such corporation therefor. Such demand shall be accompanied by a statement as to
the amount of such compensation and include a summary of the basis for such
demand with detailed calculations. Such statement shall be conclusive and
binding for all purposes, absent manifest error.
3.8 Maximum Charges. In no event whatsoever shall the interest rate and other
charges hereunder exceed the highest rate permissible under law which a court of
competent jurisdiction shall, in a final determination, deem applicable hereto.
In the event such a court determines that the Bank has received interest or
other charges hereunder in excess of the highest rate applicable thereto, the
Bank shall promptly refund such excess amount to the Borrower, and the
provisions hereof shall be deemed amended to provide for such permissible rate.
4 Security Agreement.
4.1 Grant of Security Interest. The Borrower hereby grants, pledges, conveys and
assigns to the Bank continuing security interests in all of Borrower's right,
title, and interest in the following property, whether the Borrower's interest
therein be as owner, co-owner, lessee, consignee, secured party or otherwise,
and whether the same be now owned or existing or hereafter arising or acquired,
and wherever located, together with all substitutions, replacements, additions
and accessions therefor or thereto, all documents, negotiable documents,
documents of title, warehouse receipts, storage receipts, dock receipts, dock
warrants, express bills, freight bills, airbills, bills of lading, and other
documents relating thereto, all products thereof and all cash and non-cash
proceeds thereof including, but not limited to, notes, drafts, checks,
instruments, insurance proceeds, indemnity proceeds, warranty and guaranty
proceeds (herein the "Proceeds"): (a) all inventory including, but not limited
to, all goods, merchandise and other personal property furnished under any
contract of service or intended for sale or lease, all parts, supplies, raw
materials, work in process, finished goods, materials used or consumed, and
repossessed and
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returned goods (herein the "Inventory"); (b) all accounts, accounts receivable,
contract rights, chattel paper, general intangibles, income or other tax
refunds, proceeds of letters of credit, preference recoveries and all claims in
respect of any transfers of any kind, instruments, negotiable documents, notes,
drafts, acceptances and other forms of obligations, all books, records, ledger
cards, computer programs, and other documents or property, including without
limitation such items which are evidencing or relating to the accounts and
inventory and including, but not limited to, any of the foregoing arising from
or in connection with the sale, lease or other disposition of Inventory (herein
the "Accounts"); (c) all machinery, equipment, tools, dies, molds, rolling
stock, furniture, furnishings and fixtures including, but not limited to, all
manufacturing, fabricating, processing, transporting and packaging equipment,
power systems, heating, cooling and ventilating systems, lighting and
communications systems, electric, gas and water distribution systems, food
service systems, fire prevention, alarm and security systems, laundry systems
and computing and data processing systems (herein the "Equipment"); (d) all
trade names, trademarks, trade secrets, service marks, data bases, software and
software systems, including the source and object codes, information systems,
discs, tapes, customer lists, telephone numbers, credit memoranda, goodwill,
patents, patent applications, patents pending, copyrights, royalties, literary
rights, licenses and franchises (herein the "Intellectual Property"); and (e)
all deposit accounts, whether general, special, time, demand, provisional, or
final, all cash or monies wherever located, any and all deposits or other sums
at any time due to Borrower, any and all policies or certificates of insurance,
stock, securities, investment property, securities accounts, goods, choses in
action, cash and property, which now or hereafter are at any time in the
possession or control of the Bank or in transit by mail or carrier to or from
the Bank, or in the possession of any third party acting in the Bank's behalf,
without regard to whether the Bank received the same in pledge for safekeeping,
as agent for collection or transmission or otherwise, or whether the Bank has
conditionally released the same (herein the "Deposits") (all of the Accounts,
the Inventory, the Equipment, the Intellectual Property, the Deposits and the
Proceeds herein are collectively termed the "Collateral"). Notwithstanding the
foregoing, the Bank agrees that Borrower's right, title and interest in the
following life insurance policies, any replacements or substitutes therefor, and
in all proceeds of the same (the "Excluded Property") shall not be included in
the definition of Collateral: (1) Massachusetts Mutual Policy #4150489 in the
face amount of $330,000.00 on the life of Xxxxxx Xxxxx and (2) Massachusetts
Mutual Policy #4150470 in the face amount of $330,000.00 on the life of Xxxxxx
X. Xxxxxxxx.
The security interests hereby granted are to secure the prompt and full
payment and complete performance of all Obligations to the Bank. The word
"Obligations" means all indebtedness, debts and liabilities (including
principal, interest, late charges, collection costs, attorneys' fees and the
like) of the Borrower to the Bank, whether now existing or hereafter arising,
either created by the Borrower alone or together with another or others, primary
or secondary, secured or unsecured, absolute or contingent, liquidated or
unliquidated, direct or indirect, whether evidenced by note, draft, application
for letter of credit or otherwise, and any and all renewals of or substitutes
therefor, including all indebtedness owed to the Bank in connection with the
Loans.
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The continuing security interests granted hereby shall extend to all
present and future Obligations, whether or not the Obligations are reduced or
extinguished and thereafter increased or reincurred, whether or not the
Obligations are related to the indebtedness identified above by class, type or
kind and whether or not the Obligations are specifically contemplated as of the
date hereof. The absence of any reference to this Agreement in any documents,
instruments or agreements evidencing or relating to any Obligation secured
hereby shall not limit or be construed to limit the scope or applicability of
this Agreement.
4.2 Representations and Covenants Regarding the Collateral. The Borrower
represents and warrants that except for the security interests granted hereby,
any liens set forth in Schedule 6.10, and liens permitted by this Agreement, the
Borrower is, or as to Collateral arising or to be acquired after the date
hereof, shall be, the sole and exclusive owner, lessee, or licensee, as the case
may be, of the Collateral, and the Collateral is and shall remain free from any
and all liens, security interests, encumbrances, claims and interests, and no
security agreement, financing statement, equivalent security or lien instrument
or continuation statement covering any of the Collateral is on file or of record
in any public office. The Borrower shall not create, permit or suffer to exist,
and shall take such action as is necessary to remove any claim to or interest in
or lien or encumbrance upon the Collateral except the security interest granted
hereby and any liens or encumbrances set forth in Schedule 6.10, and shall
defend the right, title and interest of the Bank in and to the Collateral
against all claims and demands of all persons and entities at any time claiming
the same or any interest therein. The Borrower shall (a) maintain its principal
place of business and chief executive office at the address set forth in
paragraph 9.1 of this Agreement, and the records concerning the Collateral shall
be kept at that address unless the Bank shall give its prior written consent
otherwise; (b) keep the Collateral at the locations set forth in Schedule 4.2
attached hereto and maintain no other place of business or place where
Collateral is located, except as shown in Schedule 4.2 attached hereto; and (c)
deliver to the Bank at least thirty (30) days prior to the occurrence of any of
the following events, written notice of such impending events: (i) a change in
the principal place of business or chief executive office; (ii) the opening or
closing of any place of business; or (iii) a change in name, identity or
corporate structure.
4.3 Application of Proceeds from Collection of Accounts; Setoff; Government
Accounts; Perfection; Lien Notation. All amounts received by the Bank
representing payment of Accounts or proceeds from the sale of Inventory or of
the Collateral may be applied by the Bank to the payment of the Obligations in
such order of preference as the Bank may determine. The Borrower also authorizes
the Bank at any time after the occurrence of an Event of Default, without
notice, to appropriate and apply any balances, credits, deposits, accounts or
money of the Borrower in the Bank's possession, custody or control to the
payment of any of the Obligations whether or not the Obligations are due or
matured. If any of the Accounts arise out of contracts with or orders from the
United States or any department, agency or instrumentality thereof, the Borrower
shall immediately (i) notify the Bank thereof in writing and (ii) execute any
instrument and take any steps which the Bank deems necessary and requests in
writing from the Borrower pursuant to the Federal Assignment of Claims Act of
1940, as amended (41 U.S.C. Section 15) in order that all money due and to
become due under such contract or order shall be assigned to the
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Bank. The Borrower agrees to execute, deliver, file and record all such notices,
affidavits, assignments, financing statements and other instruments as shall in
the judgment of the Bank be necessary or desirable to evidence, validate and
perfect the security interest of the Bank in the Accounts. If certificates of
title are issued or outstanding with respect to any Inventory or Equipment, the
Borrower will cause the interest of the Bank to be properly noted thereon at the
Borrower's expense.
4.4 Collateral Insurance. The Borrower shall have and maintain insurance at all
times with respect to all Inventory and Equipment insuring against risks of fire
(including so-called extended coverage), explosion, theft, sprinkler leakage and
such other casualties as the Bank may designate, containing such terms, in such
form, for such amounts, for such periods and written by such companies as may be
satisfactory to the Bank, and each such policy shall contain a clause or
endorsement satisfactory to the Bank that names the Bank as additional insured
and loss payee, as its interests may appear, that provides that no act, default
or breach of warranty or condition of the insured or any other person shall
affect the right of the Bank to recover under such policy or policies of
insurance or to pay any premium in whole or in part relating thereto, and that
provides for thirty (30) days' written minimum notice of cancellation or
alteration to the Bank. The Borrower shall deliver to the Bank certified copies
of all policies of insurance and evidence of the payment of all premiums
therefor, upon written request from the Bank. The Borrower hereby irrevocably
appoints the Bank (and any of the Bank's officers, employees or agents
designated by the Bank) as attorney-in-fact in obtaining and cancelling such
insurance and in making, settling and adjusting all claims under such policies
of insurance, endorsing any check, draft, instrument or other item of payment
for the proceeds of such policies of insurance and for making all determinations
and decisions with respect to such policies of insurance; provided, however,
that the Bank shall not exercise the power of attorney granted by this section
until and unless (a) an Event of Default shall have occurred or (b) an event of
loss shall have occurred and the Bank in good xxxxx xxxxx (i) that the Borrower,
after reasonable opportunity to do so, is not diligently pursuing its claims
with respect to such loss, and (ii) that the failure of Borrower to do so is
likely to have a Material Adverse Effect. In the event of failure to provide
insurance as herein provided, the Bank may, at its option, provide such
insurance, and the Borrower shall pay to the Bank, upon demand, the cost
thereof. Should said sum not be paid to the Bank upon demand, interest shall
accrue thereon from the date of demand until paid in full at the highest rate
set forth in any document or instrument evidencing any of the Obligations.
4.5 Books and Records. The Borrower shall (a) at all times keep accurate and
complete records of the Collateral in accordance with GAAP, including without
limitation, a perpetual inventory in respect of the Borrower's finished goods in
its retail locations (excluding its outlet stores) and a periodic inventory in
respect of all other inventory and complete and accurate stock records, and at
all reasonable times and from time to time, shall allow the Bank, by or through
any of its officers, agents, attorneys or accountants, to examine, inspect and
make extracts from such books and records and to arrange for verification of the
Collateral directly with Account Debtors or by other methods and to examine and
inspect the Collateral wherever located, and (b) upon request of the Bank,
provide the Bank with copies of agreements with, purchase orders from, and
invoices to, the Account Debtors, and copies of all shipping documents, delivery
receipts, and
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such other documentation and information relating to the Collateral as the
Bank may require.
4.6 Collateral Administration. The Borrower (a) shall promptly perform, on
request of the Bank, such acts as the Bank may determine to be necessary or
advisable to create, perfect, maintain, preserve, protect and continue the
perfection of any lien and security interest provided for in this Agreement or
otherwise to carry out the intent of this Agreement, including, without
limitation, (i) obtaining waivers or other similar documents reasonably
necessary to permit the enforcement of the remedies of the Bank hereunder, (ii)
delivering to the Bank warehouse receipts covering any portion of the Inventory
located in warehouses and for which warehouse receipts are issued, (iii)
delivering to the Bank copies, and originals upon the Bank's request, of all
letters of credit on which the Borrower is named beneficiary, and (iv) if any
Inventory is at any time in the possession or control of a warehouseman, bailee
or any agent, notifying such person of the Bank's lien and security interest in
the Collateral upon the Bank's request and, upon the Bank's request, instructing
such persons to hold all Collateral for the Bank's account subject to the Bank's
instruction; (b) shall not (i) extend, amend or otherwise modify the terms of
any Account, (ii) amend, modify or waive any term or condition of any
contractual obligation related thereto or (iii) redate any invoice or sale or
make sales on extended dating beyond that customary in the Borrower's industry;
provided, however, that the Borrower may extend, amend or otherwise modify the
terms of any Account in the ordinary course of business, if such extension,
amendment, modification or waiver does not cause an Account to become or
otherwise remain (but for such action) an Eligible Account; and (c) if there are
any disputes with any of the Accounts, will notify the Bank promptly and resolve
or settle such dispute at no expense or detriment to the Bank.
4.7 Preservation and Disposition of Collateral. The Borrower shall (a) use its
best efforts to obtain, prior to the placement of any Collateral in or upon any
leased real property, a waiver from the lessor with respect to the rights
(whether present or future) of the lessor with respect to that Collateral; (b)
advise the Bank promptly, in writing and in reasonable detail, (i) of any
material encumbrance or claim asserted against any of the Collateral; (ii) of
any material change in the composition of the Collateral; and (iii) of the
occurrence of any other event that would have a material adverse effect upon the
aggregate value of the Collateral or upon the security interest of the Bank; (c)
not sell or otherwise dispose of the Collateral, except for the Inventory or
Equipment as otherwise permitted by this Agreement or by any agreement executed
in connection herewith; (d) keep the Collateral in good condition and shall not
misuse, abuse, secrete, waste or destroy any of the same; and (e) not use the
Collateral in violation of any statute, ordinance, regulation, rule, decree or
order; (f) not permit any taxes, assessments, charges or levies to become liens
or encumbrances upon the Accounts or the Inventory or in respect to the income
or profits therefrom. At its option, the Bank may discharge taxes, liens,
security interests or other encumbrances at any time levied or placed on the
Collateral and may pay for the maintenance and preservation of the Collateral.
The Borrower agrees to reimburse the Bank upon demand for any payment made or
any expense incurred (including reasonable attorneys' fees) by the Bank pursuant
to the foregoing authorization. Should said sum not be paid to the Bank upon
demand, interest shall accrue thereon, from the date of demand until paid in
full, at the highest rate set
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forth in any document or instrument evidencing any of the Obligations.
4.8 Waivers and Consents. The Borrower waives presentment and demand for payment
of any of the Obligations, protests and notice of dishonor or Event of Default
with respect to any of the Obligations and all other notices to which the
Borrower might otherwise be entitled, except as otherwise expressly provided in
this Agreement. No failure to exercise or delay in exercising any right, power
or privilege under this Agreement on the part of the Bank shall operate as a
waiver thereof, and no single or partial exercise of any right, power or
privilege under this Agreement shall preclude any other or further exercise
thereof or the exercise of any other right, power or privilege. The Bank shall
have no duty as to the collection or protection of Collateral or any income
therefrom, nor as to the preservation of rights against prior parties, nor as to
the preservation of any right pertaining thereto, beyond the safe custody of
Collateral in the possession of the Bank and the occurrence of an Event of
Default and the exercise of remedies under this Agreement..
4.9 Financing Statements. At the request of the Bank, the Borrower shall join
with the Bank in executing, delivering and filing one or more financing
statements in a form satisfactory to the Bank and shall pay the cost of filing
the same in all public offices wherever filing is deemed by the Bank to be
necessary or desirable. A carbon, photographic or other reproduction of this
Agreement or of a financing statement shall be sufficient as a financing
statement.
4.10 Bank's Appointment as Attorney-in-Fact. The Borrower hereby irrevocably
constitutes and appoints the Bank and any officer or agent thereof, with full
power of substitution, as the Borrower's true and lawful attorney-in-fact with
full irrevocable power and authority in its place and stead and in its name or
in the Bank's own name, from time to time in the Bank's discretion, for the
purpose of carrying out the terms of this Agreement, and hereby grants to the
Bank the power and right, on behalf of the Borrower, without notice to or
assent: (a) to execute, file and record all such financing statements,
certificates of title and other certificates of registration and operation and
similar documents and instruments as the Bank may deem necessary or desirable to
protect, perfect and validate the Bank's security interest in the Collateral;
(b) after the occurrence of an Event of Default and during the continuance
thereof, to receive, collect, take, indorse, sign, and deliver in the Borrower's
or the Bank's name, any and all checks, notes, drafts, or other documents or
instruments relating to the Collateral; and (c) upon the occurrence of an Event
of Default, (i) to notify postal authorities to change the address for delivery
of the Borrower's mail to an address designated by the Bank, (ii) to open such
mail delivered to the designated address, (iii) to sign and indorse any
invoices, freight or express bills, bills of lading, storage or warehouse
receipts, drafts against debtors, assignments, verifications and notices in
connection with accounts and other documents relating to the Collateral; (iv) to
commence and prosecute any suits, actions or proceedings at law or in equity in
any court of competent jurisdiction to collect the Collateral or any part
thereof and to enforce any other right in respect of any Collateral; (v) to
defend any suit, action or proceeding brought with respect to any Collateral;
(vi) to negotiate, settle, compromise or adjust any account, suit, action or
proceeding described above and, in connection therewith, to give such discharges
or releases as the Bank may deem appropriate; and (vii)
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generally, to sell, transfer, pledge, make any agreement with respect to or
otherwise deal with any of the Collateral as fully and completely as though the
Bank were the absolute owner thereof for all purposes, and to do, at the Bank's
option, at any time or from time to time, all acts and things which the Bank
deems necessary to protect, preserve or realize upon the Collateral and the
Bank's security interest therein, in order to effect the intent of this
Agreement.
The Borrower hereby ratifies all that said attorneys shall lawfully do or
cause to be done by virtue hereof. This power of attorney is a power coupled
with an interest and shall be irrevocable. The powers conferred upon the Bank
hereunder are solely to protect its interests in the Collateral and shall not
impose any duty upon the Bank to exercise any such powers. The Bank shall be
accountable only for amounts that the Bank actually receives as a result of the
exercise of such powers and neither the Bank nor any of its officers, directors,
employees or agents shall be responsible to the Borrower for any act or failure
to act, except for the Bank's own gross negligence or willful misconduct, as
determined by a final non-appealable judgment by a court of competent
jurisdiction.
4.11 Remedies on Default. Upon the occurrence of an Event of Default and during
the continuance thereof, the Bank shall have the rights and remedies of a
secured party under this Agreement, under any other instrument or agreement
securing, evidencing or relating to the Obligations and under the laws of the
State of Ohio or any other applicable state law. Without limiting the generality
of the foregoing, the Bank shall have the right to take possession of the
Collateral and all books and records relating to the Collateral and for that
purpose the Bank may enter upon any premises on which the Collateral or books
and records relating to the Collateral or any part thereof may be situated and
remove the same therefrom. Except for the notices specified below of time and
place of public sale or disposition or time after which a private sale or
disposition is to occur, the Borrower expressly agrees that the Bank, without
demand of performance or other demand, advertisement or notice of any kind to or
upon the Borrower or any other person or entity (all and each of which demands,
advertisements and/or notices are hereby expressly waived), may forthwith
collect, receive, appropriate and realize upon the Collateral, or any part
thereof, and/or may forthwith sell, lease, assign, give option or options to
purchase or sell or otherwise dispose of and deliver the Collateral (or contract
to do so), or any part thereof, in one or more parcels at public or private sale
or sales, at any of the Bank's offices or elsewhere at such prices as the Bank
may deem best, for cash or on credit or for future delivery without assumption
of any credit risk. The Bank shall have the right upon any such public sale or
sales, and, to the extent permitted by law, upon any such private sale or sales,
to purchase the whole or any part of the Collateral so sold, free of any right
or equity of redemption. The Borrower further agrees, (a) at the Bank's request,
to assemble the Collateral and to make it available to the Bank at such places
as the Bank may reasonably select and (b) to allow the Bank to use or occupy the
Borrower's premises, without charge, for the purpose of effecting the Bank's
remedies in respect of the Collateral. The Bank shall apply the net proceeds of
any such collection, recovery, receipt, appropriation, realization or sale,
after deducting all reasonable costs and expenses of every kind incurred in
connection therewith or incidental to the care or safekeeping of any or all of
the Collateral or in any way relating to the rights of the Bank
-11-
hereunder, including reasonable attorneys' fees and legal expenses, to the
payment in whole or in part of the Obligations, in such order as the Bank may
elect, and only after so paying over such net proceeds and after the payment by
the Bank of any other amount required by any provision of law, need the Bank
account for the surplus, if any. To the extent permitted by applicable law, the
Borrower waives all claims, damages and demands against the Bank arising out of
the repossession, retention, sale or disposition of the Collateral and agrees
that the Bank need not give more than 10 days' notice pursuant to the terms of
this Agreement of the time and place of any public sale or of the time after
which a private sale may take place and that such notice is reasonable
notification of such matters. The Borrower shall remain liable for any
deficiency if the proceeds of any sale or disposition of the Collateral are
insufficient to pay all amounts to which the Bank is entitled and shall also be
liable for the costs of collecting any of the Obligations or otherwise enforcing
the terms thereof or of this Agreement, including reasonable attorneys' fees.
5 Conditions Precedent.
5.1 Effectiveness and Initial Advance. This Agreement shall become effective and
the Bank shall be obligated to make the initial advance hereunder only after the
Bank shall have received from the Borrower each of the following items in form
and substance satisfactory to the Bank:
(a) The Bank shall have received this Agreement, the promissory notes referenced
above and all other agreements, documents and instruments described in Exhibit C
attached hereto and made a part hereof, each duly executed where appropriate in
form and substance satisfactory to the Bank, and without limiting the foregoing,
the Borrower hereby directs its counsel Vorys, Xxxxx, Xxxxxxx & Xxxxx and
Ruskin, Moscou, Xxxxx & Faltischek, P.C. to prepare and deliver to the Bank the
opinions referred to in such Exhibit.
(b) The Bank shall have received a certificate signed by the Vice President of
Finance of the Borrower, stating to the best of his knowledge after due inquiry,
on such effective date no Event of Default has occurred and is continuing.
(c) The Bank shall have received (i) UCC-1 financing statements duly executed
that shall, when filed in the appropriate jurisdictions, be sufficient to
perfect liens on the Collateral, (ii) an open end mortgage assignment of rents
and security agreement, duly executed, that shall, when filed in the appropriate
jurisdiction, be sufficient to effect a mortgage lien on the real estate and
improvements located at 000 Xxxxxx Xxxx and 000 Xxxxxx Xxxx, Xxxxxxxxx, Xxxx
(collectively the "Real Property"), and (iii) Trademark Collateral Assignments
and Security Agreements sufficient to perfect liens on the Borrower's trademarks
and related property.
(d) The proforma borrowing base certificate shall reflect availability under the
Borrowing Base, after the initial draw hereunder, of not less than $700,000.00.
5.2 Conditions Precedent to Subsequent Advances. The obligation of the Bank to
make any disbursement or advance subsequent to the initial disbursement or
initial advance under the
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Revolving Loan, of any portion of any of the Loans is subject to all the
conditions and requirements of this Agreement and delivery of the following
required documents, or other action, all of which are conditions precedent:
(a) Warranties and Representations. On the date of each advance pursuant to the
Revolving Loan, the warranties and representations set forth in Section 6 hereof
and each of the representations and warranties contained in any certificate,
document or financial or other statement furnished at any time pursuant to this
Agreement or any related document shall be true and correct on and as of such
date with the same effect as though such warranties and representations had been
made on and as of such date, except to the extent that such warranties and
representations expressly relate to an earlier date.
(b) Compliance. The Borrower shall have complied and shall then be in compliance
with all the terms, covenants and conditions of this Agreement which are binding
upon it, and no Event of Default or Pending Default shall have occurred and be
continuing on such date or after giving effect to the advances requested to be
made.
(c) Confirmation of Conditions Precedent. The Borrower shall then be in
compliance with and able to confirm all the foregoing conditions precedent with
the same effect as though such conditions precedent were requirements to the
making of any advance contemplated herein.
6 Warranties and Representations. In order to induce the Bank to enter into this
Agreement and to make the Loans and the other financial accommodations to the
Borrower, the Borrower represents and warrants to the Bank that each of the
following statements is true and correct:
6.1 Corporate Organization and Authority. The Borrower (a) is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Ohio; (b) has all requisite corporate power and authority and all necessary
licenses and permits to own and operate its properties and to carry on its
business as now conducted and as presently proposed to be conducted; and (c) is
not doing business or conducting any activity in any jurisdiction in which it
has not duly qualified and become authorized to do business, except for the
State of Arizona; provided, however, the Borrower shall have taken steps
necessary to qualify in Arizona no later than 60 days from the date of this
Agreement.
6.2 Borrowing is Legal and Authorized. (a) The Board of Directors of the
Borrower has duly authorized the execution and delivery of this Agreement and of
the notes and documents contemplated herein; this Agreement, the notes and other
documents executed in connection with this Agreement will constitute valid and
binding obligations enforceable in accordance with their respective terms; (b)
the execution of this Agreement and related notes and documents and the
compliance with all the provisions of this Agreement (i) are within the
corporate powers of the Borrower; and (ii) are legal and will not conflict with,
result in any breach in any of the provisions of, constitute a default under, or
result in the creation of any lien or encumbrance upon any
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property of the Borrower under the provisions of any agreement, charter
instrument, bylaw, or other instrument to which the Borrower is a party or by
which it may be bound; (c) there are no limitations in any indenture, contract,
agreement, mortgage, deed of trust or other agreement or instrument to which the
Borrower is now a party or by which the Borrower may be bound with respect to
the payment of principal or interest on any indebtedness, or the Borrower's
ability to incur indebtedness including the notes to be executed in connection
with this Agreement.
6.3 Taxes. All tax returns required to be filed by the Borrower in any
jurisdiction have in fact been filed, and all taxes, assessments, fees and other
governmental charges upon the Borrower, or upon any of its properties, which are
due and payable have been paid, except to the extent that any of the same are
not required to be paid pursuant to the terms of this Agreement. The Borrower
does not know of any proposed additional tax assessment against it. The accruals
for taxes on the books of the Borrower for its current fiscal period are
adequate.
6.4 Capital Structure. Schedule 6.4 attached hereto accurately represents to the
Bank the following: (a) the classes of capital stock of the Borrower and par
value of each such class, all as authorized by the Borrower's Articles of
Incorporation , (b) the number of shares of each such class of stock issued and
outstanding, (c) the registered owner or holder (legally or beneficially)
thereof, (d) the certificate numbers evidencing the foregoing, and (e) the
Borrower's employer tax identification number. All shares of all classes of
capital stock issued are fully paid and nonassessable. The Borrower does not
have outstanding any other stock or other equity security, or any other
instrument convertible to an equity security of the Borrower, or any commitment,
understanding, agreement or arrangement to issue, sell or have outstanding any
of the foregoing.
6.5 Compliance with Law. The Borrower (a) is not in violation of any laws,
ordinances, governmental rules or regulations to which it is subject, including
without limitation any laws, rulings or regulations relating to the Employee
Retirement Income Security Act of 1974 or Section 4975 of the Internal Revenue
Code and (b) has not failed to obtain any licenses, permits, franchises or other
governmental or environmental authorizations necessary to the ownership of its
properties or to the conduct of its business, which violation or failure might
have a Material Adverse Effect.
6.6 Financial Statements; Full Disclosure. The financial statements for the
fiscal year ending December 31, 1996, which have been supplied to the Bank, have
been prepared in accordance with GAAP and fairly represent the Borrower's
financial condition as of such date, and the financial statements for the
interim period ending July 31, 1997, which have been supplied to the Bank,
fairly represent the Borrower's financial condition as of such date. No material
adverse change in the Borrower's financial condition has occurred since such
dates. The financial statements referred to in this paragraph do not, nor does
this Agreement or any written statement furnished by the Borrower to the Bank in
connection with obtaining the Loans, contain any untrue statement of a material
fact or omit a material fact necessary to make the statements contained therein
or herein not misleading. The Borrower has disclosed to the Bank in writing all
facts, including, without limitation, all pending litigation, administrative
proceedings, and arbitration
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proceedings, which materially affect the properties, business, prospects,
profits or condition (financial or otherwise) of the Borrower or the ability of
the Borrower to perform this Agreement.
6.7 Litigation: Adverse Effects. There is no action, suit, audit, proceeding,
investigation or arbitration (or series of related actions, suits, proceedings,
investigations or arbitrations) before or by any governmental authority or
private arbitrator pending or, to the knowledge of the Borrower, threatened
against the Borrower or any property of the Borrower (i) challenging the
validity or the enforceability of any of this Agreement, or any loan document,
agreement, or instrument executed in connection herewith, or (ii) which has had,
shall have or is reasonably likely to have a Material Adverse Effect, or (iii)
which involves individual claims against the Borrower in excess of the sum of
$100,000. The Borrower is not (A) in violation of any applicable requirements of
law which violation shall have or is likely to result in a Material Adverse
Effect, or (B) subject to or in default with respect to any final judgment,
writ, injunction, restraining order or order of any nature, decree, rule or
regulation of any court or governmental authority, in each case which shall have
or is likely to have a Material Adverse Effect. "Material Adverse Effect" means
a material adverse effect upon (a) the business, condition (financial or
otherwise), operations, performance, properties or prospects of the Borrower or
any Guarantor, (b) the ability of the Borrower or any Guarantor to perform its
obligations under this Agreement or any document, agreement, guaranty, or
instrument executed in connection herewith, or (c) the ability of the Bank to
enforce the terms of this Agreement, or any document, agreement, guaranty, or
instrument executed in connection herewith.
6.8 No Insolvency. After giving effect to all indebtedness of the Borrower
(including without limitation the Indebtedness outstanding under the Loans), the
Borrower (a) will be able to pay its obligations as they become due and payable;
(b) has assets, the present fair saleable value of which exceeds the amount that
will be required to pay its probable liability on its obligations as the same
become absolute and matured; (c) has sufficient property, the sum of which at a
fair valuation exceeds all of its indebtedness; and (d) will have sufficient
capital to engage in its business. In addition, the Borrower's grant of security
interests in the Collateral and mortgages and assignments of rent in respect of
the Real Property for the Loans constitutes fair consideration and reasonably
equivalent value because the Borrower has received the proceeds of the Loans.
6.9 Government Consent. Neither the nature of the Borrower or of its business or
properties, nor any relationship between the Borrower and any other entity or
person, nor any circumstance in connection with the execution of this Agreement,
is such as to require a consent, approval or authorization of, or filing,
registration or qualification with, any governmental authority on the part of
the Borrower as a condition to the execution and delivery of this Agreement and
the notes and documents contemplated herein.
6.10 Title to Properties. The Borrower (a) has good title to all property owned
and a valid leasehold interest in all leased property, free from any liens and
encumbrances, except as set forth on Schedule 6.10 attached to this Agreement,
and (b) has not agreed or consented to cause or
-15-
permit in the future (upon the happening of a contingency or otherwise) any of
its property whether now owned or hereafter acquired to be subject to a lien or
encumbrance except as provided in this paragraph.
6.11 No Defaults. No event has occurred and no condition exists which would
constitute a Pending Default or an Event of Default pursuant to this Agreement.
The Borrower is not in violation in any material respect of any term of any
agreement, charter instrument, bylaw or other instrument to which it is a party
or by which it may be bound.
6.12 Environmental Protection. Except as disclosed in two Phase I environmental
Site Assessments, each dated May 27, 1997, prepared by Dames & Xxxxx, including
the supplements thereto, the Borrower (a) has no actual knowledge of the
permanent placement, burial or disposal of any Hazardous Substances (as
hereinafter defined) on any real property owned, leased, or used by the Borrower
(the "Premises"), of any spills, releases, discharges, leaks, or disposal of
Hazardous Substances that have occurred or are presently occurring on, under, or
onto the Premises, or of any spills, releases, discharges, leaks or disposal of
Hazardous Substances that have occurred or are occurring off the Premises as a
result of the improvement, operation, or use of the Premises which would result
in material non-compliance with any of the Environmental Laws (as hereinafter
defined); (b) is and has been in compliance in all material respects with all
applicable Environmental Laws; (c) knows of no pending or threatened
environmental civil, criminal or administrative proceedings against the Borrower
relating to Hazardous Substances; (d) knows of no facts or circumstances that
would give rise to any future civil, criminal or administrative proceeding
against the Borrower relating to Hazardous Substances; and (e) will not permit
any of its employees, agents, contractors, subcontractors, or any other person
occupying or present on the Premises to generate, manufacture, store, dispose or
release on, about or under the Premises any Hazardous Substances which would
result in the Premises not complying in all material respects with the
Environmental Laws.
As used herein, "Hazardous Substances" shall mean and include all
hazardous and toxic substances, wastes, materials, compounds, pollutants and
contaminants (including, without limitation, asbestos, polychlorinated
biphenyls, and petroleum products) which are included under or regulated by the
Comprehensive Environmental Response, Compensation and Liability Act, as amended
(42 U.S.C. ss.9601, et seq.), the Hazardous Materials Transportation Act, as
amended (49 U.S.C. ss.1801, et seq.), the Toxic Substances Control Act, as
amended (15 U.S.C. ss.2601, et seq.), the Resource Conservation and Recovery
Act, as amended (42 U.S.C. ss.6901, et seq.), the Water Quality Act of 1987, as
amended (33 U.S.C. ss.1251, et seq.), the Clean Water Act, as amended (33 U.S.C.
ss.1321 et seq.), the Federal Insecticide, Fungicide, and Rodenticide Act, as
amended (7 U.S.C. Sec. 136, et seq.), the National Environmental Policy Act of
1969, as amended (42 U.S.C. Sec. 4321, et seq.), and the Clean Air Act, as
amended (42 U.S.C. ss.7401, et seq.), and any other federal, state or local
statute, ordinance, law, code, rule, regulation or order regulating or imposing
liability (including strict liability) or standards of conduct regarding
Hazardous Substances (hereinafter the "Environmental Laws"), but does not
include such substances as are permanently incorporated into a structure or any
part thereof in such a way as to
-16-
preclude their subsequent release into the environment, or the permanent or
temporary storage or disposal of household hazardous substances by tenants, and
which are thereby exempt from or do not give rise to any violation of any
Environmental Laws.
6.13 ERISA and Labor Matters. (a) None of the Borrower nor any ERISA Affiliate
maintains or contributes to any Plan other than those set forth in Schedule
6.13(a) attached hereto. Each Plan which is intended to be qualified under
Section 401(a) of the Internal Revenue Code of 1986, as amended to the date
hereof (the "Internal Revenue Code"), has been determined by the Internal
Revenue Service (the"IRS") to be so qualified, and each trust related to any
such Plan has been determined to be exempt from federal income tax under Section
501(a) of the Internal Revenue Code. None of the Borrower nor any ERISA
Affiliate knows of any reason why such Plans or trusts are no longer qualified
or exempt following such determination by the IRS. Except as disclosed in
Schedule 6.13(a), none of the Borrower or any ERISA affiliate maintains or
contributes to any employee welfare benefit plan within the meaning of Section
3(1) of ERISA which provides benefits to employees after termination of
employment other than as required by Section 601 of ERISA. The Borrower and all
ERISA Affiliates are in compliance in all material respects with the
responsibilities, obligations or duties imposed on them by ERISA, the Internal
Revenue Code and regulations promulgated thereunder with respect to all Plans.
No Benefit Plan has incurred any accumulated funding deficiency (as defined in
Sections 302(a)(2) of ERISA and 412(a) of the Internal Revenue Code) whether or
not waived. Neither the Borrower nor any ERISA Affiliate nor any fiduciary of
any Plan which is not a Multiemployer Plan (i) has engaged in a nonexempt
prohibited transaction described in Sections 406 of ERISA or 4975 of the
Internal Revenue Code or (ii) has taken or failed to take any action which would
constitute or result in a Termination Event. Neither the Borrower nor any ERISA
Affiliate has any potential liability under Sections 4063, 4064, 4069, 4204 or
4212(c) of ERISA. Neither the Borrower nor any ERISA Affiliate has incurred any
liability to the PBGC which remains outstanding other than the payment of
premiums, and there are no premium payments which have become due which are
unpaid. Schedule B to the most recent annual report filed with the IRS with
respect to each Benefit Plan and furnished to the Bank is complete and accurate
in material respects. Since the date of each such Schedule B, there has been no
material adverse change in the funding status or financial condition of the
Benefit Plan relating to such Schedule B. Neither the Borrower nor any ERISA
Affiliate has (i) failed to make a required contribution or payment to a
Multiemployer Plan or (ii) made a complete or partial withdrawal under Sections
4203 or 4205 of ERISA from a Multiemployer Plan. Neither the Borrower nor any
ERISA Affiliate has failed to make a required installment or any other required
payment under Section 412 of the Internal Revenue Code on or before the due date
for such installment or other payment. Neither the Borrower nor any ERISA
Affiliate is required to provide security to a Benefit Plan under Section
401(a)(29) of the Internal Revenue Code due to a Plan amendment that results in
an increase in current liability for the plan year. Except as set forth in
Schedule 6.13(a), the Borrower does not have, by reason of the transactions
contemplated hereby any obligation to make any payment to any employee pursuant
to any Plan or existing contract or arrangement. Upon written request of the
Bank, the Borrower will provide to the Bank copies of all of the following: each
Benefit Plan and related trust agreement (including all amendments to such Plan
and trust) in existence, or for which the Parent
-17-
or any ERISA Affiliate has taken any corporate action to authorize the adoption
thereof, as of the date of this Agreement, and in respect of which such Company
or any ERISA Affiliate is currently an "employer" as defined in Section 3(5) of
ERISA, and the most recent summary plan description, actuarial report,
determination letter issued by the IRS and Form 5500 filed in respect of each
such Benefit Plan in existence; a listing of all of the Multiemployer Plans
currently contributed to by such Company or any ERISA Affiliate with the
aggregate amount of the most recent annual contributions required to be made by
such Company and all ERISA Affiliates to each such Multiemployer Plan, any
information which has been provided to such Company or an ERISA Affiliate
regarding withdrawal liability under any Multiemployer Plan and the collective
bargaining agreement pursuant to which such contribution is required to be made;
each employee welfare benefit plan within the meaning of Section 3(1) of ERISA
which provides benefits to employees of such company or any of its subsidiaries
after termination of employment other than as required by Section 601 of ERISA,
the most recent summary plan description for such plan and the aggregate amount
of the most recent annual payments made to terminated employees under each such
plan.
As used herein, "ERISA" means the Employee Retirement Income Security Act
of 1974, as amended from time to time, and any successor statute. As used
herein, "ERISA Affiliate" means any (i) corporation which is a member of the
same controlled group of corporations (within the meaning of Section 414(b) of
the Internal Revenue Code) as the Borrower, (ii) partnership or other trade or
business (whether or not incorporated) under common control (within the meaning
of Section 414(c) of the Internal Revenue Code) with the Borrower, and (iii)
member of the same affiliated service group (within the meaning of section
414(m) of the Internal Revenue Code) as the Borrower, any corporation described
in clause (i) above or any partnership or trade or business described in clause
(ii) above. As used herein, "Plan" means an employee benefit plan defined in
Section 3(3) of ERISA in respect of which the Borrower or any ERISA Affiliate
is, or within the immediately preceding six years was, an "employer" as defined
in Section 3(5) of ERISA. As used herein,"Benefit Plan" means a defined benefit
plan as defined in Section 3(35) of ERISA (other than a Multi-employer Plan) in
respect of which the Borrower or any ERISA Affiliate is, or within the
immediately preceding six (6) years was, an "employer" as defined in Section
3(5) of ERISA. As used herein, "Multiemployer Plan" means a "multiemployer plan"
as defined in Section 4001(a)(3) of ERISA which is, or within the immediately
preceding six (6) years was, contributed to by the Borrower or any ERISA
Affiliate. As used herein,"Termination Event" means (i) a Reportable Event with
respect to any Benefit Plan; (ii) the withdrawal of the Borrower or any ERISA
Affiliate from a Benefit Plan during a plan year in which the Borrower or such
ERISA Affiliate was a "substantial employer" as defined in Section 4001(a)(2) of
ERISA or the cessation of operations which results in the termination of
employment of 20% of Benefit Plan participants who are employees of the Borrower
or any ERISA Affiliate; (iii) the imposition of an obligation on the Borrower or
any ERISA Affiliate under Section 4041 of ERISA to provide affected parties
written notice of intent to terminate a Benefit Plan in a distress termination
described in Section 4041(c) of ERISA; (iv) the institution by the Pension
Benefit Guaranty Corporation, or any Person succeeding to the functions thereof
(the "PBGC"), of proceedings to terminate a Benefit Plan; (v) any event or
condition which might constitute grounds under Section
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4042 of ERISA for the termination of, or the appointment of a trustee to
administer, any Benefit Plan; or (vi) the partial or complete withdrawal of the
Borrower or any ERISA Affiliate from a Multiemployer Plan
(b) Except as set forth in Schedule 6.13(b) attached hereto, as of the
date of this Agreement, there is no collective bargaining agreement covering any
of the employees of the Borrower. To the knowledge of the Borrower, except as
set forth in Schedule 6.13(b) as of the date of this Agreement, no attempt to
organize the employees of the Borrower is pending, threatened, planned or
contemplated. Set forth in Schedule 6.13(b), as the case may be, is a list, as
of the date of this Agreement, of all material consulting agreements, executive
employment agreements, executive compensation plans, deferred compensation
agreements, employee pension plans or retirement plans, and employee profit
sharing plans.
6.14 Regarding the Accounts and Inventory. (a) Each of the accounts is based on
an actual bona fide, and genuine (i) sale and delivery of goods or (ii)
rendering or performance of services in the ordinary course of business, the
Account Debtors have accepted such goods or services and unconditionally owe and
are obligated to pay the full amounts reflected in the invoices according to the
terms thereof without any defense, offset or counterclaim; (b) all of the
shipping and delivery receipts and other documents to be given to the Bank with
respect to the accounts are genuine; (c) to the best of the Borrower's
knowledge, pursuant to its customary credit investigation in the ordinary course
of business as of the date each account is created, each of the Account Debtors
is solvent and able to pay such account when due, or with respect to any Account
Debtors who are not solvent, the Borrower has set up on it books and in its
financial records bad debt reserves adequate to cover such accounts; (d) each of
the accounts referenced on the Borrower's most recent Borrowing Base or other
certificate against which the Borrower has requested an advance under the
Revolving Loan is an Eligible Account; and (e) all of the inventory referenced
on the Borrower's most recent Borrowing Base certificate or other certificate
against which the Borrower has requested an advance under the Revolving Loan is
Eligible Inventory.
6.15 Margin Loans. None of the transactions contemplated in the Agreement will
violate or result in a violation of Section 7 of the Securities Exchange Act of
1934, as amended, or any regulation issued pursuant thereto, including, without
limitation, Regulation U of the Board of Governors of the Federal Reserve
System, 12 C.F.R., Chapter II. The Borrower does not own or intend to carry or
purchase any "margin security" within the meaning of said Regulation U. None of
the proceeds of the Loans have been or will be used to purchase or refinance any
borrowing, the proceeds of which were used to purchase any "security" within the
meaning of the Securities Exchange Act of 1934, as amended.
0 Xxxxxxxx Xxxxxxxx Xxxxxxxxx. The Borrower covenants that on and after the date
of this Agreement until terminated pursuant to the terms of this Agreement, or
so long as any of the indebtedness provided for herein remains unpaid:
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7.1 Payment of Taxes and Claims. The Borrower will pay (a) all taxes, estimated
payments, assessments and governmental charges or levies imposed upon it or its
property or assets or in respect of any of its franchises, businesses, income or
property before any penalty or interest accrues thereon; and (b) all claims of
materialmen, mechanics, carriers, warehousemen, landlords, bailees and other
like persons, (including, without limitation, claims for labor, services,
materials and supplies) for sums which have become due and payable and which by
law have or may become a lien or encumbrance upon any of the Borrower's property
or assets, prior to the time when any penalty or fine shall be incurred with
respect thereto; provided, however, that no such taxes, assessments and
governmental charges referred to in clause (a) above or claims referred to in
clause (b) above are required to be paid if being contested in good faith by the
Borrower, by appropriate proceedings diligently instituted and conducted,
without danger of any material risk to the Collateral or the Bank's interest
therein, without any of the same becoming a lien upon the Collateral, and if
such reserve or other appropriate provision, if any, as shall be required in
conformity with GAAP, shall have been made therefor.
7.2 Maintenance of Properties and Corporate Existence. The Borrower shall (a)
maintain its property in good condition and make all renewals, replacements,
additions, betterments and improvements thereto which it deems necessary; (b)
maintain, with financially sound and reputable insurers, insurance with respect
to its properties and business against such casualties and contingencies, of
such types (including but not limited to fire and casualty, public liability,
products liability, larceny, embezzlement or other criminal misappropriation
insurance) and in such amounts as is customary in the case of entities of
established reputations engaged in the same or a similar business and similarly
situated, with each such policy of insurance containing a clause or endorsement
satisfactory to the Bank that names the Bank as additional insured and lender
loss payee, as its interest may appear, and that provides that no act, default
or breach of warranty or condition of the Borrower or any other person shall
affect the right of the Bank to recover under such policy or policies of
insurance or to pay any premium in whole or in part relating thereto, in such
amounts as is customary in the case of entities of established reputations
engaged in the same or a similar business and similarly situated; (c) reflect in
its financial statements adequate accruals and appropriations to reserves and
keep and maintain proper books of record and account in which entries in
conformity with GAAP shall be made of all dealings and transactions in relation
to its businesses and activities, including, without limitation, transactions
and other dealings with respect to the Collateral; (d) do or cause to be done
all things necessary (i) to preserve and keep in full force and effect its
existence, rights and franchises, and (ii) to maintain its status as a
corporation duly organized and existing and in good standing under the laws of
the state of its incorporation; (e) conduct continuously and operate actively
its business and take all actions necessary to enforce and protect the validity
of any intellectual property; and (f) not be in violation of any laws,
ordinances, or governmental rules and regulations or fail to obtain any
licenses, permits, franchises or other governmental authorizations necessary to
the ownership of its properties or to the conduct of its business, which
violation or failure to obtain might have a Material Adverse Effect.
7.3 Sale of Assets, Merger, Subsidiaries, Tradenames, Conduct of Business. The
Borrower shall not (a) except in the ordinary course of business, sell, lease,
transfer or otherwise dispose of,
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any of its assets and except for the sale or disposition of obsolete Equipment,
(b) consolidate with, merge into, enter into partnerships or joint ventures with
or make investments in any other entity, or permit any other entity to
consolidate with or merge into it, or (c) create or acquire any subsidiaries or
conduct business under any other tradenames without the prior written consent of
the Bank. The Borrower has no subsidiaries and conducts business only in the
name of the Borrower, those tradenames set forth on Schedule 4.2 attached
hereto, and those tradenames acquired pursuant to asset acquisitions permitted
in this Section 7.3. The Borrower shall not engage in any business other than
the businesses engaged in by the Borrower on the date hereof and any business or
activities which are substantially similar or related thereto. The Borrower
shall not without the prior written consent of the Bank acquire all or
substantially all of the assets or business of any other person, company, or
entity, except for the acquisition of new stores or other businesses in the
footwear industry not to exceed the aggregate sum of (i) $1,000,000.00 in total
purchase price (including without limitation liabilities assumed or debt
incurred) for assets purchased in any period of twelve consecutive months;
provided, however, that the Borrower shall provide to the Bank 30 days prior
written notice of any such acquisition and any tradenames to be purchased or
utilized in connection therewith and shall execute any documents deemed
necessary by the Bank to perfect or protect the Collateral; and provided,
further that the Borrower shall make no such acquisition if as a result thereof
or after such acquisition, an Event of Default or a Pending Default would occur
or exist hereunder.
7.4 Negative Pledge. The Borrower will not cause or permit or permit to exist or
agree or consent to cause or permit in the future (upon the happening of a
contingency or otherwise), any of its real or personal property, whether now
owned or hereafter acquired, to become subject to a lien or encumbrance, except:
(i) liens in connection with deposits required by workers' compensation,
unemployment insurance, social security and other like laws; (ii) taxes,
assessments, reservations, exceptions, encroachments, easements, rights of way,
covenants, conditions, restrictions, leases and other similar title exceptions
or encumbrances affecting real property, provided they do not in the aggregate
materially detract from the value of said property or materially interfere with
its use in the ordinary conduct of business; (iii) inchoate liens arising under
ERISA to secure the contingent liability of the Borrower; (iv) liens as set
forth in Schedule 6.10 attached to this Agreement; and (v) liens in connection
with secured borrowings permitted by Section 7.5 below. In addition, the
Borrower will not grant or agree to provide in the future (upon the happening of
a contingency or otherwise), a "negative pledge" or other covenant or agreement
similar to this Section 7.4 in favor of any other lender, creditor or third
party.
7.5 Other Borrowings. Except for (A) the Loans or other Indebtedness to the
Bank, (B) a certain existing loan from the 1955 Xxxxxx X. Xxxxx Trust in the
original principal amount of $213,869.18, (C) the Indebtedness disclosed on
Schedule 6.10 attached hereto, (D) purchase money financing in an amount not to
exceed the purchase price of the property acquired and secured only by such
property, not to exceed the aggregate sum of $250,000.00 outstanding at any
time, and (E) unsecured Indebtedness or secured Indebtedness, secured only by a
junior lien on Inventory issued to sellers of inventory or businesses acquired
by the Borrower not to exceed the aggregate sum of $1,000,000.00 in any period
of twelve consecutive months, which shall be
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subordinated to the Loans and if involving collateral, subject to intercreditor
provisions, pursuant to subordination agreements satisfactory to the Bank, the
Borrower will not directly or indirectly create, incur, assume or otherwise
become or remain liable with respect to any Indebtedness. "Indebtedness," as
applied to the Borrower or any other entity shall mean, at any time, (a) all
indebtedness, obligations or other liabilities (other than accounts payable
arising in the ordinary course of the Borrower's business payable on terms
customary in the trade) which in accordance with GAAP should be classified upon
the Borrower's balance sheet as liabilities, including, without limitation (i)
for borrowed money or evidenced by debt securities, debentures, acceptances,
notes or other similar instruments, and any accrued interest, fees and charges
relating thereto, (ii) under profit payment agreements or in respect of
obligations to redeem, repurchase or exchange any securities or to pay dividends
in respect of any stock, (iii) with respect to letters of credit issued, (iv) to
pay the deferred purchase price of property or services, except accounts payable
and accrued expenses arising in the ordinary course of business, or (v) in
respect of capital leases; (b) all indebtedness, obligations or other
liabilities secured by a lien on any property, whether or not such indebtedness,
obligations or liabilities are assumed by the owner of the same; and (c) all
indebtedness, obligations or other liabilities in respect of interest rate
contracts and currency agreements, net of liabilities owed by the counterparties
thereon.
7.6 Contingent Obligations. The Borrower shall not directly or indirectly create
or become liable with respect to any Contingent Obligation, except (a) recourse
obligations resulting from the indorsement of negotiable instruments for
collection in the ordinary course of business, (b) obligations, warranties and
indemnities not relating to Indebtedness, which have been or are undertaken or
made in the ordinary course of the Borrower's business or in connection with
asset acquisitions occurring prior to the date hereof or permitted hereunder,
and (c) Contingent Obligations with respect to surety, appeal and performance
bonds obtained by the Borrower. "Contingent Obligations" means any agreement,
undertaking or arrangement by which the Borrower assumes, guaranties, endorses,
agrees to provide funding, or otherwise becomes or is contingently liable upon
the obligation or liability of any other person, partnership, corporation,
limited liability company or other.
7.7 Sale of Accounts; No Consignment. The Borrower shall not sell, assign, or
encumber, except to the Bank, any of its Accounts or notes receivable and shall
not permit any of its Inventory to be sold or transferred on consignment except
to the extent of the aggregate sum of up to $100,000.00 of inventory at any one
time or from time to time on consignment in California and Michigan. In
addition, except in connection with acquisitions of existing inventory of
purchased retail locations, the Borrower will not acquire or possess any
inventory on consignment.
7.8 Minimum Security. The Borrower shall maintain, as minimum security for the
Revolving Loan, Eligible Inventory and Eligible Accounts having an aggregate
value such that the Borrowing Base will equal or exceed the aggregate unpaid
principal balance of the Revolving Loan, and if the Borrower fails to do so, the
Borrower shall immediately pay to the Bank the difference between the aggregate
unpaid principal balance of the Revolving Loan and the
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Xxxxxxxxx Xxxx.
7.9 Management. The Borrower shall not replace or change its chief executive
officer Xxxxxxx X. Xxxxxxxx or its chief financial officer Xxxxx X. Xxxxxx
without the prior written consent of the Bank, except for death or discharge for
cause, in which event, the Borrower shall have replaced such officer with a
person of similar experience and expertise reasonably acceptable to the Bank,
within 60 days of such death or discharge.
7.10 Acquisition of Capital Stock. The Borrower shall not redeem or acquire any
of its own capital stock, or any warrants or any securities for its capital
stock, except (i) through the use of the net proceeds from the simultaneous sale
of an equivalent amount of its capital stock for the same purchase or redemption
price, and (ii) up to the Maximum Excess Cash Flow Amount.
7.11 Cash Dividends and Other Distributions. Except for a single distribution to
the Guarantor in an amount not to exceed the sum of $250,000.00, which shall not
cause (a) the Borrower's availability under its Borrowing Base to be less than
$700,000.00 or (b) an Event of Default or a Pending Default hereunder, on or
after the date hereof, the Borrower shall not declare or pay any cash dividends
or make any other distributions of any kind to shareholders which total in
excess of the Maximum Excess Cash Flow Amount; provided, however, that no
dividends shall be paid if an Event of Default has occurred and is continuing
under this Agreement. The aggregate amount of all redemptions of capital stock,
dividends, distributions, management or other fees, loans, advances, royalties,
license fees, product development expenses or other payments to Affiliates
(collectively "Payments to Affiliates") shall be limited to an amount not to
exceed 50% of the Borrower's Excess Cash Flow (the "Maximum Excess Cash Flow
Amount"). "Excess Cash Flow" shall mean for any period the Borrower's EBITDA,
plus amounts accrued or paid in respect of management fees, royalties or other
similar charges to Affiliates, minus the sum of (i) scheduled principal payments
on the Term Loan and long-term Indebtedness for borrowed money and lease
payments on capital leases, (ii) the aggregate amount of capital expenditures,
(iii) charges for federal, state, local and foreign income taxes, (iv) Interest
Expense, and (v) minus, in the case of an increase, and plus, in the case of a
decrease, the increase or decrease in working capital (provided, however, that
any increase in current assets due to acquisitions permitted by this Agreement
using seller financing constituting long-term Indebtedness shall be net of the
amount of such long-term Indebtedness). The Borrower shall make no Payments to
Affiliates prior to March 31, 1998. Thereafter, the Borrower may make Payments
to Affiliates in an amount not to exceed the Maximum Excess Cash Flow Amount
quarterly in arrears, calculated upon the Borrower's cumulative Excess Cash Flow
for the period beginning October 1, 1997, and continuing through the end of the
most recently ended quarter until such time as the Loans are paid in full (with
deductions for all such Payments to Affiliates made prior to the most recent
calculation), and the Borrower has no rights to obtain or request advances under
this Agreement; provided, however, the Borrower shall not make any Payments to
Affiliates if immediately after making such payment (i) the Borrowing Base would
exceed the principal balance of the Revolving Loan by an amount less than
$200,000, or (ii) after making such payment, an Event of Default or a Pending
Default shall occur hereunder. In addition to the foregoing, the Borrower may
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distribute the Excluded Property or any portion thereof to the pledgees
thereof or to the Borrower's shareholder.
7.12 Loans and Advances. Except to the extent of the Maximum Excess Cash Flow
Amount, and except for advances to employees which in the aggregate do not
exceed $25,000 outstanding at any time, the Borrower will not make any loans or
advances to any person, corporation or entity.
7.13 Transactions with Affiliates. The Borrower shall not, except as otherwise
expressly permitted herein, directly or indirectly enter into or permit to exist
any of the following: (i) make any investment in an Affiliate of the Borrower;
(ii) transfer, sell, lease, assign or otherwise dispose of any asset to any
Affiliate of the Borrower, (iii) merge into or consolidate with or purchase or
acquire assets from any Affiliate of the Borrower; (iv) repay any Indebtedness
to any Affiliate of the Borrower; (v) pay any royalties or license fees to any
Affiliate of the Borrower; (vi) pay any management or consulting fees to any
Affiliate of the Borrower; (vii) enter into any other transaction directly or
indirectly with or for the benefit of any Affiliate of the Borrower (including,
without limitation, guaranties and assumptions of obligations of any such
Affiliate) except in each case for transactions (A) in the ordinary course of
business and (B) either on a basis no less favorable to the Borrower as would be
obtained in a comparable arm's length transaction with a person, entity or
corporation not an Affiliate, or in the case of compensation payable to any
officer or director of the Borrower, in an amount approved by the Board of
Directors of the Borrower. "Affiliate" shall mean any individual, partnership,
corporation, or other entity which, directly or indirectly, is in control of, is
controlled by, or is under common control with the Borrower, or is a family
member related by birth or marriage. For the purposes of this
definition,"control" of such entity shall mean the power, directly or
indirectly, to vote 5% or more of the securities, units or other measures having
ordinary voting power for the election of directors, management committees, or
similar committees of such entity, or the power to direct or cause the direction
of the management and policies of such entity, whether by contract or otherwise.
7.14 Tangible Net Worth. The Borrower shall maintain at all times a Tangible Net
Worth of not less than (a) $4,100,000.00 beginning with the date of this
Agreement and continuing through and including December 30, 1997, (b)
$4,100,000.00, plus 50% of the Borrower's Net Income in the period beginning
October 1, 1997, through and including December 31, 1997 the "Increased Amount,"
which shall be maintained at all times from January 1, 1998, through and
including December 30, 1998, and (c) the Increased Amount plus 50% of the
Borrower's Net Income in each fiscal year in which the Borrower's Net Income is
positive, beginning with the fiscal year ending December 31, 1998, and ending
with the most recently ended fiscal year at the date of calculation.
"Tangible Net Worth" shall mean the Borrower's shareholders' equity, minus,
without duplication, the sum of all of the following: (i) the excess of cost
over the value of net assets of purchased businesses, rights, and other similar
intangibles, (ii) organizational expenses, (iii)
-24-
intangible assets (other than deferred taxes and deferred pension assets), (iv)
goodwill, (v) deferred charges or deferred financing costs, (vi) loans or
advances to and/or accounts or notes receivable from Affiliates, (vii)
non-compete agreements, and (viii) any other asset not directly related to the
operation of the business of the Borrower.
7.15 Debt Service Coverage Ratio. The Borrower shall maintain at all times
specified below a ratio of (a) EBITDA minus expenditures for fixed or capital
assets (whether financed or unfinanced) and expenditures, including without
limitation, costs of any acquisition, which should be capitalized in accordance
with GAAP for such period, minus payments for federal, state, local and foreign
income taxes ("Adjusted EBITDA") to (b) Debt Service, of not less than 1.25 to
1.00. The ratio of Adjusted EBITDA to Debt Service shall be determined quarterly
during fiscal year 1998, beginning with the quarter ending March 31, 1998, for
the fiscal quarter ending on such date, continuing on June 30, 1998, for the two
fiscal quarters ending on such date, continuing on September 30, 1998 for the
three quarters ending on such date, and continuing on December 31, 1998, and as
of the end of each month thereafter as of the last day of each month for the
twelve month period ending on such date.
"EBITDA" means for any period, (i) the sum of the amounts for such period
of (A) Net Income, (B) Interest Expense, (C) charges for federal, state, local
and foreign income taxes, and (D) depreciation, amortization expense and
non-cash charges which were deducted in determining net income.
"Debt Service" means with respect to any period, the sum of (a) scheduled
principal payments on term obligations and capital leases for such period, plus
(d) Interest Expense.
"Net Income" means for any period the net income (or deficit) after taxes
of the Borrower for such period, which in accordance with GAAP would be included
as net income on the statements of income of the Borrower for such period.
"Interest Expense" means, for any period, as determined in conformity with
GAAP, total interest expense, whether paid or accrued or due and payable
(without duplication), including without limitation the interest component of
capital lease obligations for such period, all bank fees, commissions, discounts
and net costs under interest rate contracts.
7.16 Environmental Compliance and Indemnification. The Borrower hereby
indemnifies the Bank and holds the Bank harmless from and against any loss,
damage, cost, expense or liability (including strict liability) directly or
indirectly arising from or attributable to the generation, storage, release,
threatened release, discharge, disposal or presence (whether prior to or during
the term of the Loans) of Hazardous Substances on, under or about the Premises
(whether by the Borrower or any employees, agents, contractors or subcontractors
of the Borrower or any predecessor in title or any third persons occupying or
present on the Premises), or the breach of any of the representations and
warranties regarding the Premises, including, without limitation: (a) those
damages or expenses arising under the Environmental Laws; (b) the costs of any
repair, cleanup or detoxification of the Premises, including the soil and ground
water thereof, and the
-25-
preparation and implementation of any closure, remedial or other required plans;
(c) damage to any natural resources; and (d) all reasonable costs and expenses
incurred by the Bank in connection with clauses (a), (b) and (c) including, but
not limited to reasonable attorneys' fees.
The indemnification provided for herein shall not apply to any losses,
liabilities, damages, injuries, expenses or costs which: (i) arise from the
gross negligence or willful misconduct of the Bank, or (ii) relate to Hazardous
Substances placed or disposed of on the Premises after the Bank acquires title
to the Premises through foreclosure or otherwise.
7.17 Maintenance of Accounts. The Borrower shall not maintain or have any
operating accounts or other accounts at any bank, depositary source or other
financial institution where money or proceeds of Collateral are deposited or
maintained, other than (i) bank accounts established in connection with the
Borrower's retail stores with amounts not to exceed the aggregate sum of
$75,000.00 at any time, (ii) its accounts at the Bank or (iii) other accounts
acceptable to the Bank in its sole good faith discretion.
7.18 Financial Information and Reporting. The Borrower shall deliver the
following to the Bank:
(a) within 30 days after the end of each month, financial statements,
including a balance sheet and statements of income and surplus, and statement of
cash flows, certified by the president or chief financial officer of the
Borrower (a "Financial Officer") as fairly representing the Borrower's financial
condition as of the end of such period;
(b) within 30 days after the end of each month, statements signed by a
Financial Officer of the Borrower certifying the compliance of the Borrower with
the terms of this Agreement and the calculation of the financial covenants
contained in Section 7 above and calculating all Payments to Affiliates and the
Maximum Excess Cash Flow Amount;
(c) borrowing base certificate, or other writings satisfactory to the Bank
for the calculation of, or setting forth the calculation of, the Borrowing Base
with each advance request pursuant to the Revolving Loan, if the Borrowing Base
does not reflect sufficient availability for such advance, but, in any event, no
less frequently than once a month;
(d) within 30 days after the end of each month, a report, in form
satisfactory to the Bank, signed by a Financial Officer setting forth all of
Borrower's accounts receivable in form satisfactory to the Bank and consistent
with prior practices;
(e) within 30 days after the end of each month, a report, in form
satisfactory to the Bank, signed by a Financial Officer setting forth all of
Borrower's accounts payable in form satisfactory to the Bank and consistent with
prior practices;
(f) within 120 days after the end of each fiscal year, audited,
unqualified financial
-26-
statements prepared in accordance with GAAP and certified by independent public
accountants satisfactory to the Bank, containing a balance sheet, statements of
income and surplus, statements of cash flows and reconciliation of capital
accounts, and within 5 days after receipt thereof, any management letters
written by such accountants;
(g) within 120 days after the end of each fiscal year, a statement signed
by the Borrower's independent public accountants certifying that nothing has
come to their attention that would cause them to believe that the Borrower is in
violation of the terms of this Agreement;
(h) no later than 30 days prior to the end of each fiscal year, financial
projections for the Borrower for its next fiscal year, on a monthly basis,
including a projected income statement, balance sheet, and cash flow and
comparative information for the comparative period of the preceding fiscal year;
(i) within 45 days after the end of each quarter, financial statements of
the Guarantor, including a balance sheet and statements of income and surplus,
and a statement of cash flows in form filed with the Securities and Exchange
Commission, quarterly or annually as the case may be, fairly representing the
Guarantor's financial condition as of the end of such period;
(j) within 120 days after the end of each fiscal year, audited,
unqualified financial statements of the Guarantor prepared in accordance with
GAAP and certified by independent public accountants satisfactory to the Bank,
containing a balance sheet, statements of income and surplus, statements of cash
flows and reconciliation of capital accounts, and within 5 days after receipt
thereof, any management letters written by such accountants;
(k) immediately upon the filing or release, as the case may be, copies of
any Securities and Exchange Commission or State Securities Law disclosures,
filings, documents or any press releases in respect of the Guarantor;
(l) immediately upon becoming aware of the existence of any Pending
Default, Event of Default or breach of any term or conditions of this Agreement,
a written notice specifying the nature and period of existence thereof and what
action the Borrower is taking or proposes to take with respect thereto; and
(m) at the request of the Bank, such other information as the Bank may
from time to time reasonably require.
7.19 Post Closing Matters. To the extent not delivered prior to or on the date
of the initial funding hereunder, the Borrower shall deliver to the Bank, in
form and substance satisfactory to the Bank, each of the agreements,
instruments, opinions and other documents listed under the heading "Post Closing
Matters" on Exhibit C attached hereto, within the respective time periods set
forth on such Exhibit C.
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8 Default.
8.1 Events of Default. Each of the following shall constitute an "Event of
Default" hereunder: (a) the Borrower fails to make any payment of principal,
interest or any other sum due and payable under any note or reimbursement
agreement executed in connection with this Agreement on or before three days
after the date such payment is due; (b) the Borrower fails to perform or observe
any agreement, term, or covenant contained in Sections 1.1, 3.4, 4.4, 4.7, 7.1,
7.3, 7.4, 7.5, 7.6, 7.7, 7.8, 7.10, 7.11, 7.12, 7.13, 7.17 or 7.18 of this
Agreement; (c) the Borrower fails to comply with any other provision of this
Agreement, or fails to perform or observe any covenant contained in any
mortgage, security agreement or other agreement in favor of the Bank, and any
such failure continues for more than 15 days after such failure shall first
become known to any Financial Officer of the Borrower; (d) any warranty,
representation or other statement made or deemed to be made contained in this
Agreement or in any instrument furnished in compliance with or in reference to
this Agreement is false in any material respect when made or deemed to be made
or misleading in any material respect; (e) the Borrower or the Guarantor becomes
insolvent or makes an assignment for the benefit of creditors, or consents to
the appointment of a trustee, receiver or liquidator; (f) bankruptcy,
reorganization, arrangement, insolvency or liquidation proceedings are
instituted by the Borrower or the Guarantor; (g) bankruptcy, reorganization,
arrangement, insolvency or liquidation proceedings are instituted against the
Borrower or the Guarantor, and the same are not fully discharged within 90 days
after such filing; (h) a final judgment or judgments for the payment of money
aggregating in excess of $100,000 is or are outstanding against the Borrower,
and any such judgment or judgments have not been discharged in full or stayed;
(i) the occurrence of any event which allows the acceleration of the maturity of
any indebtedness of (A) the Borrower to the Bank or any of the Bank's affiliates
or (B) of the Guarantor to IMPLEO, LLC, a Delaware limited liability company or
to Xxxxx X. Xxxx, Xxxxxx Xxxxxxxxx, X. Xxxx & Associates, 621 Partners, Strafe &
Company for account of Xxxxx X. Xxxx, Strafe & Company for account of Xxxxx X.
Xxxxxxx, and Strafe & Company for account of Xxxxx X. Xxxxxxxxxxx; (j) the
occurrence of any event which allows the acceleration of the maturity of any
material Indebtedness of the Borrower or constitutes a default or breach under
any material lease or material contract to any other person, corporation or
entity (other than the Bank) under any indenture, agreement or undertaking; (k)
the default by, dissolution of the Guarantor, or any insurer or other surety for
the Borrower with respect to any obligation or liability to the Bank or any of
the Bank's affiliates; (l) a Change of Control of the Borrower shall have
occurred ("Change of Control" shall mean a company, person, entity or group of
companies, person or entities acting in concert, shall, as a result of a tender
or exchange offer, open market purchases, privately negotiated purchases,
exercise of the stock pledge or otherwise, have become the beneficial owner
(within the meaning of Rule 13d.3 under the Securities Exchange Act of 1934, as
amended) of securities of the Borrower representing more than 20% of the
combined voting power of the outstanding securities of the Borrower ordinarily
having the right to vote in the election of directors from the beneficial owners
as of the date hereof ); or (m) the property furnished as Collateral declines
materially in value, and the Borrower does not upon demand therefor, furnish
additional security satisfactory to the Bank within 30 days of such demand.
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8.2 Default Remedies. Upon the occurrence of an Event of Default, the Bank may
immediately exercise any right, power or remedy permitted to the Bank by law or
any provision of this Agreement, and shall have, in particular, without limiting
the generality of the foregoing, the right to declare the entire principal, all
interest accrued, and all other charges accruing on all Obligations to be
forthwith due and payable, without any presentment, demand, protest or other
notice of any kind, all of which are hereby expressly waived by the Borrower.
9 Miscellaneous.
9.1 Notices. (a) All communications under this Agreement or under the notes
executed pursuant hereto shall be in writing and shall be sent by facsimile or
by a nationally recognized overnight delivery service (1) if to the Bank, at the
following address, or at such other address as may have been furnished in
writing to the Borrower by the Bank:
Bank One, NA
000 Xxxx Xxxxx Xxxxxx
Xxxxxxxx, Xxxx 00000-0000
Loan Officer:
Xxxx X. Xxxxxxx, Assistant Vice President
(000) 000-0000
(000) 000-0000 (Fax)
(2) if to the Borrower, at the following address, or at such other address as
may have been furnished in writing to the Bank by the Borrower:
Xxxxx X. Xxxxxx, VP of Finance
Drew Shoe Corporation
000 Xxxxxx Xxxx
Xxxxxxxxx, Xxxx 00000
(000) 000-0000 (Fax)
With a copy to the Guarantor:
Xxxxxxx Xxxxxxx, Chairman & CEO
BCAM International, Inc.
0000 Xxxx Xxxxxxx Xxxx Xxxxxxxx, XX 00000 (516) 752-3550
(000) 000-0000 (Fax)
(b) any notice so addressed and sent by telecopier shall be deemed to be given
when confirmed,
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and any notice sent by nationally recognized overnight delivery service shall be
deemed to be given the next day after the same is delivered to such carrier.
9.2 Access to Accountants. Upon two business days', prior written notice to the
Borrower, the Borrower hereby irrevocably authorizes its certified public
accountants to provide to the Bank any and all information that the Bank
requests from time to time with regard to the Borrower, and to discuss with the
Bank from time to time any and all matters relating to the Borrower.
9.3 Reproduction of Documents. This Agreement and all documents relating hereto,
including, without limitation, (a) consents, waivers and modifications which may
hereafter be executed, (b) documents received by the Bank at the closing or
otherwise, and (c) financial statements, certificates and other information
previously or hereafter furnished to the Bank, may be reproduced by the Bank by
any photographic, photostatic, microfilm, micro-card, miniature photographic or
other similar process and the Bank may destroy any original document so
reproduced. The Borrower agrees and stipulates that 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 by the Bank in the regular course of
business) and that any enlargement, facsimile or further reproduction of such
reproduction shall likewise be admissible in evidence.
9.4 Survival, Successors and Assigns. All warranties, representations, and
covenants made by the Borrower herein or on any certificate or other instrument
delivered by it or on its behalf under this Agreement shall be considered to
have been relied upon by the Bank and shall survive the closing of the Loans
regardless of any investigation made by the Bank on its behalf. All statements
in any such certificate or other instrument shall constitute warranties and
representations by the Borrower. This Agreement shall inure to the benefit of
and be binding upon the heirs, successors and assigns of each of the parties.
9.5 Amendment and Waiver, Duplicate Originals. All references to this Agreement
shall also include all amendments, extensions, renewals, modifications, and
substitutions thereto and thereof made in writing and executed by both the
Borrower and the Bank. This Agreement may be amended, and the observance of any
term of this Agreement may be waived, with (and only with) the written consent
of the Borrower and the Bank; provided however that nothing herein shall change
the Bank's sole discretion (as set forth elsewhere in this Agreement) to make
advances, determinations, decisions or to take or refrain from taking other
actions. No delay or failure or other course of conduct by the Bank in the
exercise of any power or right shall operate as a waiver thereof; nor shall any
single or partial exercise of the same preclude any other or further exercise
thereof, or the exercise of any other power or right. Two or more duplicate
originals of this Agreement may be signed by the parties, each of which shall be
an original but all of which together shall constitute one and the same
instrument.
9.6 Accounting Treatment and Fiscal Year. The Borrower shall not change its
fiscal year for accounting or tax purposes from a period consisting of the
twelve month period ending on
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December 31 of each calendar year. The Borrower shall not make any material (as
defined in GAAP) change in accounting treatment and reporting practices or tax
reporting treatment, except as required by GAAP or law and disclosed to the
Bank.
9.7 Enforceability and Governing Law. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction, as to such jurisdiction, shall
be inapplicable or ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction. No delay or
omission on the part of the Bank in exercising any right shall operate as a
waiver of such right or any other right. All of the Bank's rights and remedies,
whether evidenced hereby or by any other agreement or instrument, shall be
cumulative and may be exercised singularly or concurrently. This Agreement shall
be governed by and construed in accordance with the laws of the State of Ohio
(without giving effect to the conflict of laws rules thereof). The Borrower
agrees that any legal suit, action or proceeding arising out of or relating to
this Agreement may be instituted in a state or federal court of appropriate
subject matter jurisdiction in the State of Ohio, waives any objection which it
may have now or hereafter to the venue of any suit, action or proceeding, and
irrevocably submits to the jurisdiction of any such court in any such suit,
action or proceeding.
9.8 Confidentiality. The Bank shall hold all non-public information obtained
pursuant to the requirements hereof and identified as such by the Borrower in
accordance with the Bank's customary procedures for handling confidential
information of this nature and in accordance with safe and sound banking
practices, and in any event may make disclosures reasonably required by a bona
fide participant in connection with the contemplated participation, or as
required or requested by any governmental authority or any representative
thereof, or pursuant to any legal process, or to its accountants, lawyers and
other advisors.
9.9 Waiver of Right to Trial by Jury. EACH PARTY TO THIS AGREEMENT HEREBY
EXPRESSLY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR
CAUSE OF ACTION (1) ARISING UNDER THIS AGREEMENT OR ANY OTHER INSTRUMENT,
DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH, OR (2) IN
ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES
HERETO OR ANY OF THEM WITH RESPECT TO THIS AGREEMENT OR ANY OTHER INSTRUMENT,
DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH, OR THE
TRANSACTIONS RELATED HERETO OR THERETO, IN EACH CASE WHETHER NOW EXISTING OR
HEREAFTER ARISING, AND WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE; AND
EACH PARTY HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR
CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY, AND THAT ANY
PARTY TO THIS AGREEMENT MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS
SECTION WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE PARTIES HERETO
TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY.
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9.10 No Consequential Damages. No claim may be made by the Borrower, any
officers, directors, or agents against the Bank or its affiliates, directors,
officers, employees, attorneys or agents for any special, indirect, punitive, or
consequential damages in respect of any breach or wrongful conduct (whether the
claim therefor is based in contract, tort or duty imposed by law) in connection
with, arising out of or in any way related to the transactions contemplated and
relationships established by this Agreement, or any act, omission or event
occurring in connection therewith, and the Borrower hereby waives, releases and
agrees not to xxx upon any such claim for any such damages, whether or not
accrued and whether or not known or suspected to exist in its favor.
9.11 Indemnity. The Borrower shall indemnify the Bank from and against any and
all liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses and disbursements of any kind or nature whatsoever
(including, without limitation, fees and disbursements of counsel) which may be
imposed on, incurred by, or asserted against the Bank in any litigation,
proceeding or investigation instituted or conducted by any governmental agency
or instrumentality or any other person or entity with respect to any aspect of,
or any transaction contemplated by, or referred to in, or any matter related to,
this Agreement, whether or not the Bank is a party thereto, except to the extent
that any of the foregoing arises out of the gross negligence or willful
misconduct of the Bank, as determined in a final, non-appealable judgment by a
court of competent jurisdiction.
10 Definitions
10.1 Uniform Commercial Code Terms. All terms defined in the Uniform Commercial
Code as adopted in the State of Ohio shall have the meanings given therein
unless otherwise defined herein.
10.2 Accounting Terms. As used in this Agreement, and any promissory notes,
certificates, reports or other documents made or delivered pursuant hereto,
accounting terms not defined in this Agreement shall have the respective
meanings given to such terms under GAAP. "GAAP" means generally accepted
accounting principles set forth in the opinions and pronouncements of the
Accounting Principles Board, the American Institute of Certified Public
Accountants and the Financial Accounting Standards Board as in effect on the
date hereof.
10.3 Other Definitional Provisions.
(a) The words "hereof," "herein," and "hereunder," and words of similar
import when used in this Agreement shall refer to this Agreement as a whole and
not to any particular provision of this Agreement;
(b) Whenever required by the context of this Agreement, the promissory
notes or other loan documents executed in connection herewith, the singular
shall include the plural, and
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vice versa and the masculine and feminine genders shall include the neuter
gender and vice versa.
10.4 Index of Definitions.
"Account Debtor" is defined in Section 2.1.
"Accounts" is defined in Section 4.1.
"Adjusted EBITDA" is defined in Section 7.15.
"Affiliate" is defined in Section 7.13
"Agreement" is defined in the preamble.
"Bank" is defined in the preamble.
"Benefit Plan" is defined in Section 6.13.
"Borrower" is defined in the preamble.
"Borrowing Base" is defined in Section 1.1.
"Change of Control" is defined in Section 8.1.
"Collateral" is defined in Section 4.1.
"Contingent Obligations" is defined in Section 7.6.
"Contra" is defined in Section 2.1.
"Control" is defined in Section 7.13.
"Debt Service" is defined in Section 7.15.
"Deposits" is defined in Section 4.1.
"EBITDA" is defined in Section 7.15.
"Eligible Accounts" is defined in Section 2.1.
"Eligible Inventory" is defined in Section 2.2.
"Environmental Laws" is defined in Section 6.12.
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"Equipment" is defined in Section 4.1.
"ERISA" is defined in Section 6.13.
"ERISA Affiliate" is defined in Section 6.13.
"Event of Default" is defined in Section 8.1.
"Excess Cash Flow" is defined in Section 7.11.
"Excluded Property" is defined in Section 4.1.
"Financial Officer" is defined in Section 7.18.
"GAAP" is defined in Section 10.2.
"Guarantor" is defined in Section 3.5.
"Hazardous Substances" is defined in Section 6.12.
"Increased Amount" is defined in Section 7.14.
"Indebtedness" is defined in Section 7.5.
"Intellectual Property" is defined in Section 4.1.
"Interest Expense" is defined in Section 7.15.
"Internal Revenue Code" is defined in Section 6.13.
"Inventory" is defined in Section 4.1.
"IRS" is defined in Section 6.13.
"Loans" is defined in Section 1.
"Material Adverse Effect" is defined in Section 6.7.
"Maximum Excess Cash Flow Amount" is defined in Section 7.11.
"Multiemployer Plan" is defined in Section 6.13.
"Net Income" is defined in Section 7.15.
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"Obligations" is defined in Section 4.1.
"Payments to Affiliates" is defined in Section 7.11.
"PBGC" is defined in Section 6.13.
"Pending Default" is defined in Section 1.3.
"Plan" is defined in Section 6.13.
"Premises" is defined in Section 6.12.
"Prior Loan Agreement" is defined in Section 3.6.
"Prior Loan Documents" is defined in Section 3.6.
"Proceeds" is defined in Section 4.1.
"Real Property" is defined in Section 5.1.
"Revolving Loan" is defined in Section 1.1.
"Tangible Net Worth" is defined in Section 7.14.
"Termination Event" is defined in Section 6.13.
"Term Loan" is defined in Section 1.2.
Each of the parties has signed this Agreement as of the date set forth in
the preamble above.
DREW SHOE CORPORATION
By__________________________________
Its_________________________________
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BANK ONE, NATIONAL ASSOCIATION
By__________________________________
Its_________________________________
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SCHEDULE 6.10
SCHEDULE OF PERMITTED ENCUMBRANCES
Maximum Amount
Secured Party Description of Items of Obligation
------------- -------------------- -------------
SCHEDULE 4.2
SCHEDULE OF BUSINESS LOCATIONS
