EXHIBIT 10.17
CREDIT AGREEMENT
THIS AGREEMENT is entered into as of February 27, 2001, by and between SHOE
PAVILION CORPORATION, a Washington corporation ("Borrower"), and XXXXX FARGO
BANK, NATIONAL ASSOCIATION ("Bank").
RECITALS
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Borrower has requested that Bank extend or continue credit to Borrower as
described below, and Bank has agreed to provide such credit to Borrower on the
terms and conditions contained herein.
NOW, THEREFORE, for valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, Bank and Borrower hereby agree as follows:
ARTICLE I
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CREDIT TERMS
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SECTION 1.1. LINE OF CREDIT.
(a) Line of Credit. Subject to the terms and conditions of this Agreement,
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Bank hereby agrees to make advances to Borrower from time to time up to and
including June 1, 2002, not to exceed at any time the aggregate principal amount
of Twenty Million Dollars ($20,000,000.00) ("Line of Credit"), the proceeds of
which shall be used for working capital requirements, including without
limitation, inventory purchases. Borrower's obligation to repay advances under
the Line of Credit shall be evidenced by a promissory note substantially in the
form of Exhibit A attached hereto ("Line of Credit Note"), all terms of which
are incorporated herein by this reference.
(b) Limitation on Borrowings. The sum of outstanding borrowings under the
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Line of Credit and outstanding Letters of Credit, as defined below, under the
Letter of Credit Subfeature, to a maximum of the principal amount set forth
above, shall not at any time exceed an aggregate of fifty percent (50%) of the
value of Borrower's eligible inventory (exclusive of work in process and
inventory which is obsolete, unsaleable or damaged), with value defined as the
lower of cost or market value, plus, without duplication, fifty percent (50%) of
the amount available to be drawn under outstanding sight commercial Letters of
Credit issued under the Letter of Credit Subfeature to finance the purchase of
inventory. All of the foregoing shall be determined by Bank upon receipt and
review of all collateral reports required hereunder and such other documents and
collateral information as Bank may from time to time require; provided however,
that Bank, in its sole discretion, may reduce the advance rate to below 50% if
Bank considers it appropriate based on Bank's review of the appraisal of
inventory currently being performed by Schottenstein/Xxxxxxxxx.
(c) Letter of Credit Subfeature. As a subfeature under the Line of Credit,
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Bank agrees from time to time during the term thereof to issue or cause an
affiliate to issue commercial and/or standby letters of credit for the account
of Borrower to finance inventory purchases (each, a "Letter of Credit" and
collectively, "Letters of Credit"); provided, however, that the form and
substance of each Letter of Credit shall be subject to approval by Bank, in its
sole discretion, which forms shall be substantially as set forth in Exhibits B
and C, and provided
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further, that the aggregate undrawn amount of all outstanding Letters of Credit
shall not at any time exceed Five Million Dollars ($5,000,000.00). Each Letter
of Credit shall be issued for a term not to exceed three hundred sixty-five
(365) days, as designated by Borrower; provided however, that no Letter of
Credit shall have an expiration date more than six (6) months beyond the
maturity date of the Line of Credit. The undrawn amount of all Letters of Credit
shall be reserved under the Line of Credit and shall not be available for
borrowings thereunder. Each Letter of Credit shall be subject to the additional
terms and conditions of the Letter of Credit agreements, applications and any
related documents required by Bank in connection with the issuance thereof. Each
draft paid under a Letter of Credit shall be deemed an advance under the Line of
Credit and shall be repaid by Borrower in accordance with the terms and
conditions of this Agreement applicable to such advances; provided however, that
if advances under the Line of Credit are not available, for any reason, at the
time any draft is paid, then Borrower shall immediately pay to Bank the full
amount of such draft, together with interest thereon from the date such draft is
paid to the date such amount is fully repaid by Borrower, at the rate of
interest applicable to advances under the Line of Credit. In such event Borrower
agrees that Bank, in its sole discretion, may debit the following demand deposit
accounts maintained by Borrower with Bank for the amount of any such draft:
4038-148870, 4038-148953, 4038-148912, and 4038-148995 or if there are
insufficient funds for such purpose in said accounts, any other demand deposit
account maintained by Borrower with Bank.
(d) Borrowing and Repayment. Borrower may from time to time during the term
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of the Line of Credit borrow, partially or wholly repay its outstanding
borrowings, and reborrow, subject to all of the limitations, terms and
conditions contained herein or in the Line of Credit Note; provided however,
that the total outstanding borrowings under the Line of Credit shall not at any
time exceed the maximum principal amount available thereunder, as set forth
above.
SECTION 1.2. INTEREST/FEES.
(a) Interest. The outstanding principal balance of the Line of Credit
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shall bear interest at the rate of interest set forth in the Line of Credit
Note.
(b) Computation and Payment. Interest (and fees computed on a "per annum"
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basis) shall be computed on the basis of a 360-day year, actual days elapsed.
Interest shall be payable at the times and place set forth in each promissory
note or other instrument required hereby.
(c) Unused Commitment Fee. Borrower shall pay to Bank a fee equal to one-
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quarter percent (.25%) per annum (computed on the basis of a 360-day year,
actual days elapsed) on the average daily unused amount of the Line of Credit,
which fee shall be calculated on a monthly basis by Bank and shall be due and
payable by Borrower in arrears on the first day of each month, commencing April
1, 2001.
(d) Standby Letter of Credit Fees. Borrower shall pay to Bank fees upon the
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issuance of each standby Letter of Credit, upon the payment or negotiation of
each draft under any standby Letter of Credit and upon the occurrence of any
other activity with respect to any standby Letter of Credit (including without
limitation, the transfer, amendment or cancellation of any standby Letter of
Credit) determined in accordance with Bank's standard fees and charges then in
effect for such activity.
(e) Commercial Letter of Credit Fees. Borrower shall pay to Bank (i) fees
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upon the issuance of each commercial Letter of Credit equal to one-quarter
percent (.25%) of the face
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amount thereof, (ii) fees upon the payment or negotiation of each draft under
any commercial Letter of Credit equal to the greater of one-quarter percent
(0.25%) of the amount of such draft or $235.00, and (iii) fees upon the
occurrence of any other activity with respect to any commercial Letter of Credit
(including without limitation, the transfer, amendment or cancellation of any
commercial Letter of Credit) determined in accordance with Bank's standard fees
and charges then in effect for such activity.
SECTION 1.3. COLLECTION OF PAYMENTS. Borrower authorizes Bank to collect
all principal, interest and fees due under the Line of Credit by charging
Borrower's deposit account numbers 4038-148870, 4038-148953, 4038-148912, and
4038-148995 with Bank, or any other deposit account maintained by Borrower with
Bank, for the full amount thereof. Should there be insufficient funds in any
such deposit account to pay all such sums when due, the full amount of such
deficiency shall be immediately due and payable by Borrower.
SECTION 1.4. COLLATERAL.
As security for all indebtedness of Borrower to Bank subject hereto,
Borrower hereby grants to Bank security interests of first priority in all
Borrower's accounts, general intangibles, other rights to payment, and
inventory (with accounts, general intangibles and inventory as defined in the
California Uniform Commercial Code). All of the foregoing shall be evidenced by
and subject to the terms of a Continuing Security Agreement (Rights to Payment
and Inventory) and a UCC-1 Financing Statement, all in form and substance
satisfactory to Bank. Borrower shall reimburse Bank immediately upon demand for
all filing fees incurred in perfecting such security interests.
SECTION 1.5. GUARANTIES. All indebtedness of Borrower to Bank shall be
guaranteed by Shoe Pavilion, Inc. in the principal amount of Twenty Million
Dollars ($20,000,000.00), as evidenced by and subject to the terms of a
Continuing Guaranty in form and substance satisfactory to Bank.
ARTICLE II
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REPRESENTATIONS AND WARRANTIES
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Borrower makes the following representations and warranties to Bank, which
representations and warranties shall survive the execution of this Agreement and
shall continue in full force and effect until the full and final payment, and
satisfaction and discharge, of all obligations of Borrower to Bank subject to
this Agreement.
SECTION 2.1. LEGAL STATUS. Borrower is a corporation, duly organized and
existing and in good standing under the laws of the State of Washington, and is
qualified or licensed to do business (and is in good standing as a foreign
corporation, if applicable) in all jurisdictions in which such qualification or
licensing is required or in which the failure to so qualify or to be so licensed
could have a material adverse effect on Borrower.
SECTION 2.2. AUTHORIZATION AND VALIDITY. This Agreement and each
promissory note, contract, instrument and other document required hereby or at
any time hereafter delivered to Bank in connection herewith (collectively, the
"Loan Documents") have been duly authorized, and upon their execution and
delivery in accordance with the provisions hereof will constitute legal, valid
and binding agreements and obligations of Borrower or the party which executes
the same, enforceable in accordance with their respective terms.
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SECTION 2.3. NO VIOLATION. The execution, delivery and performance by
Borrower of each of the Loan Documents do not violate any provision of any law
or regulation, or contravene any provision of the Articles of Incorporation or
By-Laws of Borrower, or result in any breach of or default under any contract,
obligation, indenture or other instrument to which Borrower is a party or by
which Borrower may be bound.
SECTION 2.4. LITIGATION. There are no pending, or to the best of
Borrower's knowledge threatened, actions, claims, investigations, suits or
proceedings by or before any governmental authority, arbitrator, court or
administrative agency which could have a material adverse effect on the
financial condition or operation of Borrower other than those disclosed by
Borrower to Bank in writing prior to the date hereof.
SECTION 2.5. CORRECTNESS OF FINANCIAL STATEMENT. The financial statement
of Borrower dated September 30, 2000, a true copy of which has been delivered by
Borrower to Bank prior to the date hereof, (a) is complete and correct and
presents fairly the financial condition of Borrower, (b) discloses all
liabilities of Borrower that are required to be reflected or reserved against
under generally accepted accounting principles, whether liquidated or
unliquidated, fixed or contingent, and (c) has been prepared in accordance with
generally accepted accounting principles consistently applied. Since the date
of such financial statement there has been no material adverse change in the
financial condition of Borrower, nor has Borrower mortgaged, pledged, granted a
security interest in or otherwise encumbered any of its assets or properties
except in favor of Bank or as disclosed in Schedule 2.5 hereto.
SECTION 2.6. INCOME TAX RETURNS. Borrower has no knowledge of any pending
assessments or adjustments of its income tax payable with respect to any year.
SECTION 2.7. NO SUBORDINATION. There is no agreement, indenture, contract
or instrument to which Borrower is a party or by which Borrower may be bound
that requires the subordination in right of payment of any of Borrower's
obligations subject to this Agreement to any other obligation of Borrower.
SECTION 2.8. PERMITS, FRANCHISES. Borrower possesses, and will hereafter
possess, all permits, consents, approvals, franchises and licenses required and
rights to all trademarks, trade names, patents, and fictitious names, if any,
necessary to enable it to conduct the business in which it is now engaged in
compliance with applicable law.
SECTION 2.9. ERISA. Borrower is in compliance in all material respects
with all applicable provisions of the Employee Retirement Income Security Act of
1974, as amended or recodified from time to time ("ERISA"); Borrower has not
violated any provision of any defined employee pension benefit plan (as defined
in ERISA) maintained or contributed to by Borrower (each, a "Plan"); no
Reportable Event as defined in ERISA has occurred and is continuing with respect
to any Plan initiated by Borrower; Borrower has met its minimum funding
requirements under ERISA with respect to each Plan; and each Plan will be able
to fulfill its benefit obligations as they come due in accordance with the Plan
documents and under generally accepted accounting principles.
SECTION 2.10. OTHER OBLIGATIONS. Borrower is not in default on any
obligation for borrowed money, any purchase money obligation or any other
material lease, commitment, contract, instrument or obligation.
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SECTION 2.11. ENVIRONMENTAL MATTERS. Except as disclosed by Borrower to
Bank in writing prior to the date hereof, Borrower is, to Borrower's knowledge
(based on Borrower's reasonable due diligence), in compliance in all material
respects with all applicable federal or state environmental, hazardous waste,
health and safety statutes, and any rules or regulations adopted pursuant
thereto, which govern or affect any of Borrower's operations and/or properties,
including without limitation, the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, the Superfund Amendments and
Reauthorization Act of 1986, the Federal Resource Conservation and Recovery Act
of 1976, and the Federal Toxic Substances Control Act, as any of the same may be
amended, modified or supplemented from time to time. To Borrower's knowledge
(based on Borrower's reasonable due diligence), none of the operations of
Borrower is the subject of any federal or state investigation evaluating whether
any remedial action involving a material expenditure is needed to respond to a
release of any toxic or hazardous waste or substance into the environment. To
Borrower's knowledge (based on Borrower's reasonable due diligence), Borrower
has no material contingent liability in connection with any release of any toxic
or hazardous waste or substance into the environment.
SECTION 2.12. RETAIL SALES. To the best of Borrower's knowledge, 75% or
more in dollar volume of Borrower's total sales of all goods in the 12 month
period preceding the date of this Agreement were for personal, family or
household purposes.
ARTICLE III
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CONDITIONS
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SECTION 3.1. CONDITIONS OF INITIAL EXTENSION OF CREDIT. The obligation of
Bank to extend any credit contemplated by this Agreement is subject to the
fulfillment to Bank's satisfaction of all of the following conditions:
(a) Approval of Bank Counsel. All legal matters incidental to the extension
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of credit by Bank shall be satisfactory to Bank's counsel.
(b) Documentation. Bank shall have received, in form and substance
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satisfactory to Bank, each of the following, duly executed:
(i) This Agreement and the Line of Credit Note.
(ii) Continuing Security Agreement: Rights to Payment and Inventory.
(iii) Corporate Resolution: Borrowing.
(iv) Certificate of Incumbencies.
(v) Continuing Guaranty.
(vi) Corporate Resolution: Continuing Guaranty.
(vii) UCC Financing Statements.
(viii) Such other documents as Bank may require under any other Section
of this Agreement.
(c) Financial Condition. There shall have been no material adverse change,
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as determined by Bank, in the financial condition or business of Borrower or any
guarantor hereunder, nor any material decline, as determined by Bank, in the
market value of any collateral required hereunder or a substantial or material
portion of the assets of Borrower or any such guarantor.
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(d) Insurance. Borrower shall have delivered to Bank evidence of insurance
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coverage on all Borrower's property, in form, substance, amounts, covering risks
and issued by companies satisfactory to Bank, and with respect to inventory
only, with loss payable endorsements in favor of Bank for claims in excess of
$500,000.00 individually or in the aggregate, provided that Bank shall have the
right to receive payments of all claims with respect to inventory following
written notice from Bank to the insurance company(ies) and Borrower that an
Event of Default exists.
SECTION 3.2. CONDITIONS OF EACH EXTENSION OF CREDIT. The obligation of Bank to
make each extension of credit requested by Borrower hereunder shall be subject
to the fulfillment to Bank's satisfaction of each of the following conditions:
(a) Compliance. The representations and warranties contained herein and in
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each of the other Loan Documents shall be true on and as of the date of the
signing of this Agreement and on the date of each extension of credit by Bank
pursuant hereto, with the same effect as though such representations and
warranties had been made on and as of each such date, and on each such date, no
Event of Default as defined herein, and no condition, event or act which with
the giving of notice or the passage of time or both would constitute such an
Event of Default, shall have occurred and be continuing or shall exist.
ARTICLE IV
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AFFIRMATIVE COVENANTS
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Borrower covenants that so long as Bank remains committed to extend credit
to Borrower pursuant hereto, or any liabilities (whether direct or contingent,
liquidated or unliquidated) of Borrower to Bank under any of the Loan Documents
remain outstanding, and until payment in full of all obligations of Borrower
subject hereto, Borrower shall, unless Bank otherwise consents in writing:
SECTION 4.1. PUNCTUAL PAYMENTS. Punctually pay all principal, interest,
fees or other liabilities due under any of the Loan Documents at the times and
place and in the manner specified therein, and immediately upon demand by Bank,
the amount by which the outstanding principal balance of any credit subject
hereto at any time exceeds any limitation on borrowings applicable thereto.
SECTION 4.2. ACCOUNTING RECORDS. Maintain adequate books and records in
accordance with generally accepted accounting principles consistently applied,
and permit any representative of Bank, at any reasonable time (subject, if no
Event of Default exists, to reasonable notice), to inspect, audit and examine
such books and records, to make copies of the same, and to inspect the
properties of Borrower.
SECTION 4.3. FINANCIAL STATEMENTS. Provide to Bank all of the following,
in form and detail satisfactory to Bank:
(a) not later than 120 days after and as of the end of each fiscal year, an
audited financial statement of Borrower, prepared by a certified public
accountant acceptable to Bank, to include balance sheet, income statement,
statement of cash flows, together with all supporting schedules and footnotes;
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(b) not later than 45 days after and as of the end of each fiscal quarter, a
financial statement of Borrower, prepared by Borrower, to include balance sheet,
income statement and the total of outstanding Letters of Credit;
(c) semi-annually as soon as available, but in no event later than each June
1 and December 1, but only to the extent that Borrower has account debtors, an
accounts receivable listing of the names, telephone numbers and addresses of all
Borrower's account debtors;
(d) not later than 20 days after and as of the end of each month, an
accounts payable aging, and an inventory report and any documents as required by
Bank's Collateral Control Administration, which they may be provided on a
diskette.
(e) not later than ten (10) days after the filing thereof, copies of all
proxy statements, financial statements, reports, and notices sent or made
available generally by Borrower to its security holders or to any holders of its
debt and all regular, periodic and special reports, and all registration
statements filed with the Securities and Exchange Commission or any governmental
authority that may be substituted therefor, or with any national securities
exchange; and
(f) from time to time such other information as Bank may reasonably request.
SECTION 4.4. COMPLIANCE. Preserve and maintain all licenses, permits,
governmental approvals, rights, privileges and franchises necessary for the
conduct of its business; and comply with the provisions of all documents
pursuant to which Borrower is organized and/or which govern Borrower's continued
existence and with the requirements of all laws, rules, regulations and orders
of any governmental authority applicable to Borrower and/or its business.
SECTION 4.5. INSURANCE. Maintain and keep in force insurance as required
under Section 3.1(d), with all such insurance carried with companies rated not
less than A-/VII and in amounts currently carried by Borrower (except that
Borrower may reduce coverage on property to an amount not less than 85% of the
replacement cost thereof), and deliver to Bank from time to time at Bank's
request schedules setting forth all insurance then in effect.
SECTION 4.6. FACILITIES. Keep all properties useful or necessary to
Borrower's business in good repair and condition, and from time to time make
necessary repairs, renewals and replacements thereto so that such properties
shall be fully and efficiently preserved and maintained.
SECTION 4.7. TAXES AND OTHER LIABILITIES. Pay and discharge when due any
and all indebtedness, obligations, assessments and taxes, both real or personal,
including without limitation federal and state income taxes and state and local
property taxes and assessments, except such (a) as Borrower may in good faith
contest or as to which a bona fide dispute may arise, and (b) for which Borrower
has made provision, to Bank's satisfaction, for eventual payment thereof in the
event Borrower is obligated to make such payment.
SECTION 4.8. FINANCIAL CONDITION. Maintain Borrower's financial condition
as follows using generally accepted accounting principles consistently applied
and used consistently with prior practices (except to the extent modified by the
definitions herein):
(a) Total Liabilities divided by Tangible Net Worth not at any time greater
than 1.5 to 1.0, with "Total Liabilities" defined as the aggregate of current
liabilities and non-current
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liabilities plus (inclusive of the amount available to be drawn under
outstanding Letters of Credit) less subordinated debt, and with "Tangible Net
Worth defined as the aggregate of total stockholders' equity plus subordinated
debt less any intangible assets.
(b) Net income after taxes not less than $1.00 on an annual basis,
determined as of each fiscal year end, and pre-tax profit not less than $1.00 on
a quarterly basis, determined as of each fiscal quarter end, except (a) a net
loss is permitted in the last quarter of fiscal year ending 2000 and (b) a net
loss of up to $200,000.00 is permitted in the first quarter of fiscal year
ending 2001.
(c) EBITDA, determined as of each fiscal quarter end on a rolling four
quarter basis, not less than $3,500,000.00 as of fiscal quarter ending December
30, 2000 to and including the third quarter of fiscal year ending 2001, and not
less than $4,500,000.00 as of fiscal quarter ending December 30, 2001 and
thereafter, with "EBITDA" defined as net profit before tax plus interest expense
(net of capitalized interest expense), depreciation expense and amortization
expense.
SECTION 4.9. NOTICE TO BANK. Promptly (but in no event more than five (5)
days after the occurrence of each such event or matter) give written notice to
Bank in reasonable detail of: (a) the occurrence of any Event of Default; (b)
any change in the name or the organizational structure of Borrower; (c) the
occurrence and nature of any Reportable Event or Prohibited Transaction, each as
defined in ERISA, or any funding deficiency with respect to any Plan; or (d) any
termination or cancellation of any insurance policy which Borrower is required
to maintain, or any uninsured or partially uninsured loss through liability or
property damage, or through fire, theft or any other cause affecting Borrower's
property.
ARTICLE V
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NEGATIVE COVENANTS
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Borrower further covenants that so long as Bank remains committed to extend
credit to Borrower pursuant hereto, or any liabilities (whether direct or
contingent, liquidated or unliquidated) of Borrower to Bank under any of the
Loan Documents remain outstanding, and until payment in full of all obligations
of Borrower subject hereto, Borrower will not without Bank's prior written
consent:
SECTION 5.1. USE OF FUNDS. Use any of the proceeds of any credit extended
hereunder except for the purposes stated in Article I hereof.
SECTION 5.2. OTHER INDEBTEDNESS. Create, incur, assume or permit to exist
any indebtedness or liabilities resulting from borrowings, loans or advances,
whether secured or unsecured, matured or unmatured, liquidated or unliquidated,
joint or several, except (a) the liabilities of Borrower to Bank, (b) any other
liabilities of Borrower existing as of, and disclosed to Bank prior to, the date
hereof, and (c) additional purchase money indebtedness incurred to purchase
equipment or real estate not to exceed $1,000,000.00.
SECTION 5.3. MERGER, CONSOLIDATION, TRANSFER OF ASSETS. Merge into or
consolidate with any other entity (other than with entities acquired pursuant to
Section 5.5, so long as Borrower is the surviving entity); make any substantial
change in the nature of Borrower's business as conducted as of the date hereof;
acquire all or substantially all of the assets of any other entity in excess of
$3,000,000.00 per fiscal year, subject to the terms of
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Section 5.5; nor sell, lease, transfer or otherwise dispose of all or a
substantial or material portion of Borrower's assets except in the ordinary
course of its business.
SECTION 5.4. GUARANTIES. Guarantee or become liable in any way as surety,
endorser (other than as endorser of negotiable instruments for deposit or
collection in the ordinary course of business), accommodation endorser or
otherwise for, nor pledge or hypothecate any assets of Borrower as security for,
any liabilities or obligations of any other person or entity, except any of the
foregoing in favor of Bank.
SECTION 5.5. LOANS, ADVANCES, INVESTMENTS. Make any loans or advances to
or investments in any person or entity, except any of the foregoing existing as
of, and disclosed to Bank prior to, the date hereof, except for acquisitions of
entities in the retail shoe business for an aggregate amount not to exceed
$3,000,000.00 per fiscal year, when added to the consideration for assets
acquired in such fiscal year under Section 5.3 above, provided however, that if
such entities are not, contemporaneously with their acquisition, merged into
Borrower, Bank shall be granted a first priority security interest in the
accounts, general intangibles, other rights to payment and inventory thereof.
SECTION 5.6. DIVIDENDS, DISTRIBUTIONS. Declare or pay any dividend or
distribution either in cash, stock or any other property on Borrower's stock now
or hereafter outstanding, nor redeem, retire, repurchase or otherwise acquire
any shares of any class of Borrower's stock now or hereafter outstanding.
SECTION 5.9. PLEDGE OF ASSETS. Mortgage, pledge, grant or permit to exist
a security interest in, or lien upon, all or any portion of Borrower's assets
now owned or hereafter acquired, except any of the foregoing (a) in favor of
Bank, (b) which is existing as of, and disclosed to Bank in writing prior to,
the date hereof , and (c) subject to the terms of Section 5.2 (c), purchase
money security interests.
ARTICLE VI
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EVENTS OF DEFAULT
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SECTION 6.1. The occurrence of any of the following shall constitute an
"Event of Default" under this Agreement:
(a) Borrower shall fail to pay when due any principal, interest, fees or
other amounts payable under any of the Loan Documents.
(b) Any financial statement or certificate furnished to Bank in connection
with, or any representation or warranty made by Borrower or any other party
under this Agreement or any other Loan Document shall prove to be incorrect,
false or misleading in any material respect when furnished or made.
(c) Any default in the performance of or compliance with any obligation,
agreement or other provision contained herein or in any other Loan Document
(other than those referred to in subsections (a) and (b) above), and with
respect to any such default which by its nature can be cured (other than a
breach of Section 4.9(d)), such default shall continue for a period of twenty
(20) days from its occurrence, or, with respect to a breach of Section 4.9(d),
such default shall continue for a period of 15 days from the date Borrower first
knew (or, using reasonable due diligence, should first have known) thereof.
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(d) Any default in the payment or performance of any obligation, or any
defined event of default, under the terms of any contract or instrument (other
than any of the Loan Documents) pursuant to which Borrower or any guarantor
hereunder has incurred any debt or other liability to any person or entity,
including Bank, provided, however, that if the defaulted obligation(s) arises
under operating or real estate leases, the amount of thereof exceeds an
aggregate of $500,000.00.
(e) The filing of a notice of judgment lien against Borrower or any
guarantor hereunder; or the recording of any abstract of judgment against
Borrower or any guarantor hereunder in any county in which Borrower or such
guarantor has an interest in real property; or the service of a notice of levy
and/or of a writ of attachment or execution, or other like process, against the
assets of Borrower or any guarantor hereunder; or the entry of a judgment
against Borrower or any guarantor hereunder; and, with respect to any of the
foregoing, the amount in dispute exceeds an aggregate of $500,000.00.
(f) Borrower or any guarantor hereunder shall become insolvent, or shall
suffer or consent to or apply for the appointment of a receiver, trustee,
custodian or liquidator of itself or any of its property, or shall generally
fail to pay its debts as they become due, or shall make a general assignment for
the benefit of creditors; Borrower or any guarantor shall file a voluntary
petition in bankruptcy, or seeking reorganization, in order to effect a plan or
other arrangement with creditors or any other relief under the Bankruptcy Reform
Act, Title 11 of the United States Code, as amended or recodified from time to
time ("Bankruptcy Code"), or under any state or federal law granting relief to
debtors, whether now or hereafter in effect; or any involuntary petition or
proceeding pursuant to the Bankruptcy Code or any other applicable state or
federal law relating to bankruptcy, reorganization or other relief for debtors
is filed or commenced against Borrower or any guarantor hereunder, or Borrower
or any such guarantor shall file an answer admitting the jurisdiction of the
court and the material allegations of any involuntary petition; or Borrower or
any such guarantor shall be adjudicated a bankrupt, or an order for relief shall
be entered against Borrower or any such guarantor by any court of competent
jurisdiction under the Bankruptcy Code or any other applicable state or federal
law relating to bankruptcy, reorganization or other relief for debtors.
(g) There shall exist or occur any event or condition which Bank reasonably
and in good faith believes impairs, or is substantially likely to impair, the
prospect of payment by Borrower of its obligations under any of the Loan
Documents.
(h) The dissolution or liquidation of Borrower or any guarantor hereunder;
or any of its directors, stockholders or members, shall take action seeking to
effect the dissolution or liquidation of Borrower or such guarantor.
(i) Any change in ownership during the term of this Agreement of an
aggregate of twenty-five percent (25%) or more of the common stock of Borrower
in a single or in affiliated transactions.
SECTION 6.2. REMEDIES. Upon the occurrence of any Event of Default:
(a) all indebtedness of Borrower under each of the Loan Documents, any term
thereof to the contrary notwithstanding, shall at Bank's option (and, without
notice if the Event of Default arises under Section 6.1(f), or, upon 5 days
written notice for all other Events of Default) become immediately due and
payable without presentment, demand, protest or notice of dishonor, all of which
are hereby expressly waived by each Borrower; (b) the obligation, if any, of
Bank to extend any further credit under any of the Loan
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Documents shall immediately cease and terminate; and (c) Bank shall have all
rights, powers and remedies available under each of the Loan Documents, or
accorded by law, including without limitation the right to resort to any or all
collateral for any credit accommodation from Bank subject hereto and to exercise
any or all of the rights of a beneficiary or secured party pursuant to
applicable law. All rights, powers and remedies of Bank may be exercised at any
time by Bank and from time to time after the occurrence of an Event of Default,
are cumulative and not exclusive, and shall be in addition to any other rights,
powers or remedies provided by law or equity.
ARTICLE VII
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MISCELLANEOUS
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SECTION 7.1. NO WAIVER. No delay, failure or discontinuance of Bank in
exercising any right, power or remedy under any of the Loan Documents shall
affect or operate as a waiver of such right, power or remedy; nor shall any
single or partial exercise of any such right, power or remedy preclude, waive or
otherwise affect any other or further exercise thereof or the exercise of any
other right, power or remedy. Any waiver, permit, consent or approval of any
kind by Bank of any breach of or default under any of the Loan Documents must be
in writing and shall be effective only to the extent set forth in such writing.
SECTION 7.2. NOTICES. All notices, requests and demands which any party is
required or may desire to give to any other party under any provision of this
Agreement must be in writing delivered to each party at the following address:
BORROWER: SHOE PAVILION CORPORATION
0000-X Xxxxxxx Xxxxxxxxx
Xxxxxxxx, XX 00000
BANK: XXXXX FARGO BANK, NATIONAL ASSOCIATION
East Bay Regional Commercial Banking Xxxxxx
Xxx Xxxxxx Xxxxx, Xxxxx 000
Xxxxxxx, XX 00000
or to such other address as any party may designate by written notice to all
other parties. Each such notice, request and demand shall be deemed given or
made as follows: (a) if sent by hand delivery by courier providing proof of
delivery, upon delivery; (b) if sent by registered or certified mail, upon the
earlier of the date of receipt or three (3) days after deposit in the U.S. mail,
first class and postage prepaid.
SECTION 7.3. COSTS, EXPENSES AND ATTORNEYS' FEES. Borrower shall pay to
Bank immediately upon demand the full amount of all payments, advances, charges,
costs and expenses, including reasonable attorneys' fees (to include outside
counsel fees and all allocated costs of Bank's in-house counsel), expended or
incurred by Bank in connection with the negotiation and preparation of this
Agreement and the other Loan Documents (not to exceed $2,500.00), and the
preparation of any amendments and waivers hereto and thereto. The non-prevailing
party shall pay to the prevailing party immediately upon demand the full amount
of all payments, advances, charges, costs and expenses, including reasonable
attorneys' fees (to include outside counsel fees and all allocated costs of in-
house counsel), expended or incurred by the prevailing party in connection with
(a) the enforcement of the Bank's rights and/or the collection of any amounts
which become due to Bank under any of the Loan Documents, and (b) the
prosecution or defense of any action in any way related to any of the Loan
Documents, including without limitation, any action for declaratory relief,
whether
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incurred at the trial or appellate level, in an arbitration proceeding or
otherwise, and including any of the foregoing incurred in connection with any
bankruptcy proceeding (including without limitation, any adversary proceeding,
contested matter or motion brought by Bank, Borrower or any other person)
relating to any Borrower or any other person or entity.
SECTION 7.4. SUCCESSORS, ASSIGNMENT. This Agreement shall be binding upon
and inure to the benefit of the heirs, executors, administrators, legal
representatives, successors and assigns of the parties; provided however, that
Borrower may not assign or transfer its interest hereunder without Bank's prior
written consent. Bank reserves the right to sell, assign, transfer, negotiate
or grant participations in all or any part of, or any interest in, Bank's rights
and benefits under each of the Loan Documents to any bank or other financial
institution. In connection therewith, Bank may disclose all documents and
information which Bank now has or may hereafter acquire relating to any credit
extended by Bank to Borrower, Borrower or its business, any guarantor hereunder
or the business of such guarantor, or any collateral required hereunder, subject
to the terms of a confidentiality agreement reasonably acceptable to Borrower
and the proposed transferee.
SECTION 7.5. ENTIRE AGREEMENT; AMENDMENT. This Agreement and the other
Loan Documents constitute the entire agreement between Borrower and Bank with
respect to each credit subject hereto and supersede all prior negotiations,
communications, discussions and correspondence concerning the subject matter
hereof. This Agreement may be amended or modified only in writing signed by
each party hereto.
SECTION 7.6. NO THIRD PARTY BENEFICIARIES. This Agreement is made and
entered into for the sole protection and benefit of the parties hereto and their
respective permitted successors and assigns, and no other person or entity shall
be a third party beneficiary of, or have any direct or indirect cause of action
or claim in connection with, this Agreement or any other of the Loan Documents
to which it is not a party.
SECTION 7.7. TIME. Time is of the essence of each and every provision of
this Agreement and each other of the Loan Documents.
SECTION 7.8. SEVERABILITY OF PROVISIONS. If any provision of this
Agreement shall be prohibited by or invalid under applicable law, such provision
shall be ineffective only to the extent of such prohibition or invalidity
without invalidating the remainder of such provision or any remaining provisions
of this Agreement.
SECTION 7.9. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which when executed and delivered shall be deemed to be an
original, and all of which when taken together shall constitute one and the same
Agreement.
SECTION 7.10. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of California.
SECTION 7.11. ARBITRATION.
(a) Arbitration. Upon the demand of any party, any Dispute shall be
-----------
resolved by binding arbitration (except as set forth in (e) below) in accordance
with the terms of this Agreement. A "Dispute" shall mean any action, dispute,
claim or controversy of any kind, whether in contract or tort, statutory or
common law, legal or equitable, now existing or hereafter arising under or in
connection with, or in any way pertaining to, any of the Loan Documents, or
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any past, present or future extensions of credit and other activities,
transactions or obligations of any kind related directly or indirectly to any of
the Loan Documents, including without limitation, any of the foregoing arising
in connection with the exercise of any self-help, ancillary or other remedies
pursuant to any of the Loan Documents. Any party may by summary proceedings
bring an action in court to compel arbitration of a Dispute. Any party who fails
or refuses to submit to arbitration following a lawful demand by any other party
shall bear all costs and expenses incurred by such other party in compelling
arbitration of any Dispute.
(b) Governing Rules. Arbitration proceedings shall be administered by the
---------------
American Arbitration Association ("AAA") or such other administrator as the
parties shall mutually agree upon in accordance with the AAA Commercial
Arbitration Rules. All Disputes submitted to arbitration shall be resolved in
accordance with the Federal Arbitration Act (Title 9 of the United States Code),
notwithstanding any conflicting choice of law provision in any of the Loan
Documents. The arbitration shall be conducted at a location in San Francisco or
Oakland, California selected by the AAA or other administrator. If there is any
inconsistency between the terms hereof and any such rules, the terms and
procedures set forth herein shall control. All statutes of limitation
applicable to any Dispute shall apply to any arbitration proceeding. All
discovery activities shall be expressly limited to matters directly relevant to
the Dispute being arbitrated. Judgment upon any award rendered in an
arbitration may be entered in any court having jurisdiction; provided however,
that nothing contained herein shall be deemed to be a waiver by any party that
is a bank of the protections afforded to it under 12 U.S.C. (S)91 or any similar
applicable state law.
(c) No Waiver; Provisional Remedies, Self-Help and Foreclosure. No
----------------------------------------------------------
provision hereof shall limit the right of any party to exercise self-help
remedies such as setoff, foreclosure against or sale of any real or personal
property collateral or security, or to obtain provisional or ancillary remedies,
including without limitation injunctive relief, sequestration, attachment,
garnishment or the appointment of a receiver, from a court of competent
jurisdiction before, after or during the pendency of any arbitration or other
proceeding. The exercise of any such remedy shall not waive the right of any
party to compel arbitration or reference hereunder.
(d) Arbitrator Qualifications and Powers; Awards. Arbitrators must be
--------------------------------------------
active members of the California State Bar or retired judges of the state or
federal judiciary of California, with expertise in the substantive laws
applicable to the subject matter of the Dispute. Arbitrators are empowered to
resolve Disputes by summary rulings in response to motions filed prior to the
final arbitration hearing. Arbitrators (i) shall resolve all Disputes in
accordance with the substantive law of the state of California, (ii) may grant
any remedy or relief that a court of the state of California could order or
grant within the scope hereof and such ancillary relief as is necessary to make
effective any award, and (iii) shall have the power to award recovery of all
costs and fees, to impose sanctions and to take such other actions as they deem
necessary to the same extent a judge could pursuant to the Federal Rules of
Civil Procedure, the California Rules of Civil Procedure or other applicable
law. Any Dispute in which the amount in controversy is $5,000,000 or less shall
be decided by a single arbitrator who shall not render an award of greater than
$5,000,000 (including damages, costs, fees and expenses). By submission to a
single arbitrator, each party expressly waives any right or claim to recover
more than $5,000,000. Any Dispute in which the amount in controversy exceeds
$5,000,000 shall be decided by majority vote of a panel of three arbitrators;
provided however, that all three arbitrators must actively participate in all
hearings and deliberations.
(e) Judicial Review. Notwithstanding anything herein to the contrary, in
---------------
any arbitration in which the amount in controversy exceeds $25,000,000, the
arbitrators shall be required to make specific, written findings of fact and
conclusions of law. In such arbitrations (i) the arbitrators shall not have the
power to make any award which is not supported by substantial
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evidence or which is based on legal error, (ii) an award shall not be binding
upon the parties unless the findings of fact are supported by substantial
evidence and the conclusions of law are not erroneous under the substantive law
of the state of California, and (iii) the parties shall have in addition to the
grounds referred to in the Federal Arbitration Act for vacating, modifying or
correcting an award the right to judicial review of (A) whether the findings of
fact rendered by the arbitrators are supported by substantial evidence, and (B)
whether the conclusions of law are erroneous under the substantive law of the
state of California. Judgment confirming an award in such a proceeding may be
entered only if a court determines the award is supported by substantial
evidence and not based on legal error under the substantive law of the state of
California.
(f) Real Property Collateral; Judicial Reference. Notwithstanding anything
--------------------------------------------
herein to the contrary, no Dispute shall be submitted to arbitration if the
Dispute concerns indebtedness secured directly or indirectly, in whole or in
part, by any real property unless (i) the holder of the mortgage, lien or
security interest specifically elects in writing to proceed with the
arbitration, or (ii) all parties to the arbitration waive any rights or benefits
that might accrue to them by virtue of the single action rule statute of
California, thereby agreeing that all indebtedness and obligations of the
parties, and all mortgages, liens and security interests securing such
indebtedness and obligations, shall remain fully valid and enforceable. If any
such Dispute is not submitted to arbitration, the Dispute shall be referred to a
referee in accordance with California Code of Civil Procedure Section 638 et
seq., and this general reference agreement is intended to be specifically
enforceable in accordance with said Section 638. A referee with the
qualifications required herein for arbitrators shall be selected pursuant to the
AAA's selection procedures. Judgment upon the decision rendered by a referee
shall be entered in the court in which such proceeding was commenced in
accordance with California Code of Civil Procedure Sections 644 and 645.
(g) Miscellaneous. To the maximum extent practicable, the AAA, the
-------------
arbitrators and the parties shall take all action required to conclude any
arbitration proceeding within 180 days of the filing of the Dispute with the
AAA. No arbitrator or other party to an arbitration proceeding may disclose the
existence, content or results thereof, except for disclosures of information by
a party required in the ordinary course of its business, by applicable law or
regulation, or to the extent necessary to exercise any judicial review rights
set forth herein. If more than one agreement for arbitration by or between the
parties potentially applies to a Dispute, the arbitration provision most
directly related to the Loan Documents or the subject matter of the Dispute
shall control. This arbitration provision shall survive termination, amendment
or expiration of any of the Loan Documents or any relationship between the
parties.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first written above.
SHOE PAVILION CORPORATION XXXXX FARGO BANK,
NATIONAL ASSOCIATION
By: By:
---------------------------- -------------------------------------
Xxxxx Xxxxxxxx
Title: Vice President
-------------------------
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SCHEDULE 2.5
Since September 30, 1998, there has been no material adverse change in the
financial condition of Borrower, nor has Borrower mortgaged, pledged, granted a
security interest in or otherwise encumbered any of its assets or properties
except in favor of Bank or as disclosed below:
If none, so state.
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