THIS AGREEMENT is made between Paragon Capital LLC (hereinafter,
"Paragon" or "Lender"), a Delaware limited liability company with its principal
executive offices at Hillsite Office Building, 00 Xxxxxx Xxxxxx, Xxxxx 000,
Xxxxxxx, Xxxxxxxxxxxxx 00000 and The Right Start, Inc. (hereinafter, the
"Borrower"), a California corporation with its principal executive offices at
0000 Xxxxxxxx Xxxxxx Xxxxx, Xxxxxxxx Xxxxxxx, Xxxxxxxxxx 00000, in consideration
of the mutual covenants contained herein and benefits to be derived herefrom,
WITNESSETH:
ARTICLE 1 - THE REVOLVING CREDIT
1-1. Establishment of Revolving Credit.
(a) The Lender establishes a revolving line of credit (the
"Revolving Credit") in the Borrower's favor pursuant to which the Lender,
subject to, and in accordance with, this Agreement, shall make loans and
advances and otherwise provide financial accommodations to and for the account
of the Borrower as provided herein. The amount of the Revolving Credit shall be
determined by the Lender by reference to Availability, as determined by the
Lender from time to time hereafter. All loans made by the Lender under this
Agreement, and all of the Borrower's other Liabilities to the Lender under or
pursuant to this Agreement, are payable as provided herein.
(b) The Lender agrees, subject to the terms and conditions of
this Agreement, to make loans to the Borrower in an amount outstanding not to
exceed Availability at any one time.
(c) Availability shall be based upon Borrowing Base
Certificates furnished as provided in Section 9-4, below.
(d) Anything to the contrary in Section 1-1(b) above
notwithstanding, Lender, in the exercise of its discretion, may reduce Advance
Rates, maximum Effective Advance Rates or create Reserves without declaring an
Event of Default if it determines that (i) there has occurred a Material Adverse
Change; or (ii) Borrower is not in compliance with covenants set forth in
EXHIBIT 9-11.
(e) The proceeds of loans and advances under the Revolving
Credit shall be used solely in accordance with the Business Plan for working
capital purposes of the Borrower and for its Capital Expenditures, all solely to
the extent permitted by this Agreement.
1-2. Availability. The Lender does not have any obligation to make any
loan or advance, or otherwise to provide any credit for the benefit of the
Borrower such that the outstanding principal balance of the Loan Account exceeds
Availability. The making of loans, advances, and credits and the providing of
financial accommodations in excess of Availability is for the benefit of the
Borrower and does not affect the obligations of the Borrower hereunder; such
loans, advances, credits, and financial accommodations constitute Liabilities.
The making of any such loans, advances, and credits and the providing of
financial accommodations, on any one occasion such that Availability is exceeded
shall not obligate the Lender to make any such loans, credits, or advances or to
provide any financial accommodation on any other occasion nor to permit such
loans, credits, or advances to remain outstanding.
1-3. Risks of Value of Inventory. The Lender's reference to a given
asset in connection with the making of loans and advances and the providing of
financial accommodations under the Revolving Credit and/or the monitoring of
compliance with the provisions hereof shall not be deemed a determination by the
Lender relative to the actual value of the asset in question. All risks
concerning the saleability of the Inventory are and remain upon the Borrower.
All Collateral secures the prompt, punctual, and faithful performance of the
Liabilities whether or not relied upon by the Lender in connection with the
making of loans, credits, and advances and the providing of financial
accommodations under the Revolving Credit.
1-4. Procedures Under Revolving Credit.
(a) The Borrower may request loans and advances under the
Revolving Credit, each in an amount of not less than Ten Thousand ($10,000)
Dollars. Each such request shall be in such manner as may from time to time be
reasonably acceptable to the Lender.
(b) The Lender, subject to the terms and conditions of this
Agreement, will provide the Borrower with the loan or advance so requested, if
such request is received by 1:00 P.M., Boston time on a Banking Day, by the end
of business on that Banking Day; otherwise, by the end of the then next Banking
Day. The Lender may revise such schedule, from time to time, by giving notice to
Borrower at least one day in advance.
(c) Provided that Availability will not be exceeded (but
subject, however, to Subsection 1-4(i), below (which deals with the effect of a
Suspension Event)), a loan or advance under the Revolving Credit so requested by
the Borrower shall be made by the transfer of the proceeds of such loan or
advance to the Funding Account.
(d) A loan or advance shall be deemed to have been made under
the Revolving Credit upon:
(i) The Lender's initiation of the transfer of the
proceeds of such loan or advance in accordance with the Borrower's instructions
(if such loan or advance is of funds requested by the Borrower).
(ii) The charging of the amount of such loan or
advance to the Loan Account (in all other circumstances).
(e) There shall not be any recourse to, nor liability of,
the Lender on account of:
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(i) Any delay in the making of any loan or advance
requested under the Revolving Credit.
(ii) Any delay in the proceeds of any such loan or
advance constituting collected funds.
(iii) Any delay in the receipt, and/or any loss, of
funds which constitute a loan or advance under the Revolving Credit, the wire
transfer of which was initiated by the Lender in accordance with wire
instructions provided to the Lender by the Borrower.
(f) The Lender may rely on any request for a loan or advance
or financial accommodation which the Lender, in good faith, believes to have
been made by a person duly authorized to act on behalf of the Borrower and may
decline to make any such requested loan or advance or to provide any such
financial accommodation until the Lender is furnished with such documentation
concerning that Person's authority to act as may be satisfactory to the Lender.
(g) A request by the Borrower for any loan or advance or
financial accommodation under the Revolving Credit or of the issuance of an L/C
shall be irrevocable and shall constitute certification by the Borrower that as
of the date of such request, each of the following is true and correct:
(i) There has been no Material Adverse Change.
(ii) The Borrower is in compliance with, and has
not breached any of, its covenants contained in this Agreement.
(iii) Each representation which is made herein or
in any of the Loan Documents is then true and complete as of and as if made on
the date of such request.
(iv) No Suspension Event is then in existence.
(h) The Borrower shall immediately become indebted to the
Lender for the amount of each loan or advance under or pursuant to this
Agreement when such loan or advance is deemed to have been made.
(i) Upon the occurrence from time to time of any Suspension
Event, the Lender may suspend the Revolving Credit immediately and shall not be
obligated, during such suspension, to make any loan or advance or to provide any
financial accommodation hereunder.
(j) The Borrower may request that the Lender cause the
issuance of L/C's for the account of the Borrower.
(i) Each such request shall be in such manner as
may from time to time be reasonably acceptable to the Lender.
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(ii) The Lender will endeavor to cause the
issuance of any L/C so requested by the Borrower, provided that the requested
L/C is in form reasonably satisfactory to the Lender and if so issued:
(A) The aggregate Stated Amount of all
L/C's then outstanding, does not
exceed Two Million ($2,000,000.00)
Dollars.
(B) The expiry of the L/C is not later
than the earlier of thirty (30) days
prior to the Maturity Date or the
following:
(I) L/C's other than Documentary
L/C's: One (1) year from initial issuance.
(II) Documentary L/C's: forty five
(45) days from issuance; and
(C) Availability would not be exceeded.
(iii) The Borrower shall execute such
documentation to apply for and support the issuance of an L/C as may be required
by the Issuer.
(iv) There shall not be any recourse to, nor
liability of, the Lender on account of:
(A) Any delay or refusal by an Issuer to
issue an L/C.
(B) Any action or inaction of an Issuer on
account of or in respect to, any L/C.
(v) The Borrower shall reimburse the Issuer,
immediately upon the drawing under any L/C, for the amount of such drawing. In
the event that the Borrower fails to so reimburse the Issuer, the Borrower
immediately shall reimburse the Lender for the amount of such drawing. To the
extent which the Borrower fails to so reimburse the Issuer or the Lender, the
Lender, without the request of the Borrower, may advance under the Revolving
Credit any amount which the Borrower is so obligated to pay to the Lender or the
Issuer, or for which the Borrower, the Issuer, or the Lender becomes obligated
on account of, or in respect to, any L/C. Such advance shall be made whether or
not a Suspension Event is then in existence or such advance would result in
Availability being exceeded. Such action shall not constitute a waiver of the
Lender's rights under Section 1-7(b), below.
1-5. The Loan Account.
(a) An account ("Loan Account") shall be opened on the books
of the Lender in which Loan Account Lender shall keep an accurate record of all
loans made under or pursuant to this Agreement and of all payments thereon.
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(b) The Lender may also keep a record (either in the Loan
Account or elsewhere, as the Lender may from time to time elect) of all
interest, fees, service charges, costs, expenses, and other debits owed the
Lender on account of the Liabilities and of all credits against such amounts so
owed.
(c) All credits against the Liabilities shall be conditional
upon final payment to the Lender of the items giving rise to such credits. The
amount of any item credited against the Liabilities which is charged back
against the Lender for any reason or is not so paid shall be a Liability and
shall be added to the Loan Account, whether or not the item so charged back or
not so paid is returned.
(d) Except as otherwise provided herein, all fees, service
charges, costs, and expenses for which the Borrower is obligated hereunder are
payable on demand. In the determination of Availability, the Lender may deem
fees, service charges, accrued interest, and other payments or deposits as
having been advanced under the Revolving Credit if such amounts are then due and
payable inclusive of deposits for fees whether incurred at the time of deposit
or as duly accounted for in accordance with the terms set forth herein.
(e) The Lender, without the request of the Borrower, may
advance under the Revolving Credit any interest, fee, service charge, or other
payment to which the Lender is entitled from the Borrower pursuant hereto and
may charge the same to the Loan Account notwithstanding that such amount so
advanced may result in an Overadvance. Such action on the part of the Lender
shall not constitute a waiver of the Lender's rights under Section 1-7(b),
below. Any amount which is added to the principal balance of the Loan Account as
provided in this Section shall bear interest at the interest rate applicable
from time to time to the unpaid principal balance of the Loan Account.
(f) Any statement rendered by the Lender to the Borrower
concerning the Liabilities shall be considered correct and accepted by the
Borrower and shall be conclusively binding upon the Borrower unless the Borrower
provides the Lender with written objection thereto within twenty (20) days from
the mailing of such statement, which written objection shall indicate, with
particularity, the reason for such objection. The Loan Account and the Lender's
books and records concerning the loan arrangement contemplated herein and the
Liabilities shall be prima facie evidence of the items described therein.
1-6. The Master Note. The obligation to repay loans and advances under
the Revolving Credit, with interest as provided herein, may be evidenced by a
note (the "Master Note") in the form of EXHIBIT 1-6, annexed hereto, executed by
the Borrower. Neither the original nor a copy of the Master Note shall be
required, however, to establish or prove any Liability. In the event that the
Master Note is ever lost, mutilated, or destroyed, the Borrower shall execute a
replacement thereof and deliver such replacement to the Lender.
1-7. Payment of Loan Account.
(a) The Borrower may repay all or any portion of the principal
balance of the Loan Account from time to time until the Termination Date.
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(b) The Borrower, without notice or demand from the Lender,
shall pay the Lender that amount, from time to time, which is necessary so that
the balance of the Loan Account does not exceed Availability.
(c) The Borrower shall pay the then entire unpaid balance of
the Loan Account and all other Liabilities on the Termination Date.
1-8. Interest.
(a) The unpaid principal balance of the Loan Account shall
bear interest, until repaid (calculated based upon a 360-day year and actual
days elapsed), with respect to advances under the:
(i) Standard Line at the rate of interest of
the aggregate of Base plus three quarters
of one (.75%) percent per annum; and
(ii) Special Subline at the rate of interest of
the aggregate of Base plus one and one half
(1.5%) percent; provided, however, that in
the event that the Borrower achieves EBITDA
for the period ending February 2, 2002 of
not less than ninety (90%) percent of that
set forth on EXHIBIT 9-10, such rate of
interest shall be reduced to the aggregate
of Base plus one (1%) percent;
but in no event shall any rate of interest payable hereunder be less than eight
(8%) percent per annum or in excess of the maximum rate permitted by applicable
law.
(b) Following the occurrence of any Event of Default (and
whether or not the Lender exercises any of the Lender's rights on account of
such Event of Default), all loans and advances made under the Revolving Credit
shall bear interest, through the End Date, at a rate which is the aggregate of
that provided for in Section 1-8(a), above, plus four (4%) percent per annum.
(c) Accrued interest shall be payable:
(i) Monthly in arrears on the first day of the
month next following that during which such interest accrued.
(ii) On the Termination Date.
(iii) On the End Date.
1-9. Fees. Borrower shall pay to the Lender the following fees:
(a) Annual Facility Fee. On each anniversary of the Closing
Date hereof, a facility fee in an amount equal to three quarters of one (.75%)
percent of the Special Subline amount (which shall be fully earned at each
anniversary date of execution hereof), shall be due and payable.
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(b) Loan Maintenance Fee. On the Closing Date and on the same
day of each subsequent month that Borrower has outstanding balances under the
Standard Line a Loan Maintenance Fee in an amount equal to Two Thousand
($2,000.00) Dollars; and in addition (i) during any month that Lender makes any
Advances under the Special Subline, an additional loan maintenance fee of Four
Thousand ($4,000.00) Dollars, and (ii) during any month in which Lender makes
any Advances in excess of $2,000,000 under the Special Subline, an additional
monthly loan maintenance fee of Four Thousand ($4,000.00) Dollars.
(c) Unused Line Fee. Intentionally deleted.
(d) Commitment Fee. On the Closing Date, a commitment
fee of one and one quarter (1.25%) percent of the Credit Limit or One Hundred
Twenty-Five Thousand ($125,000.00) Dollars.
(e) Financial Examination, Legal Investigation, Documentation,
and Appraisal Fees. Subject to the provisions of Article 9-10, Lender's actual
charges paid or incurred for each financial analysis and examination (i.e.,
audits) of Borrower performed by personnel employed by Lender; Lender's actual
charges paid or incurred for each appraisal of the Collateral performed by
personnel employed by Lender; and, the actual charges paid or incurred by Lender
if it elects to employ the services of one or more third Persons to perform
legal investigation, documentation financial analysis and examinations (i.e.,
audits) of Borrower or to appraise the Collateral. Notwithstanding the
aforesaid, absent the occurrence of an Event of Default hereunder, Lender shall
limit the number of audits and appraisals to three (3) each per year based upon
fees of Nine Hundred ($900.00) Dollars per day per person for audits and One
Thousand ($1,000.00) Dollars per day per person for appraisals plus reasonable
actual out-of-pocket expenses in conducting such audits and appraisals.
(f) In addition to any other right to which the Lender is then
entitled on account thereof, the Lender may assess an additional reasonable fee
payable by the Borrower on account of the accommodation of Lender to the
Borrower's request that the Lender depart or dispense with one or more of the
administrative provisions of this Agreement and/or the Borrower's failure to
comply with any of such provisions.
(i) By way of non-exclusive example, the Lender
may assess a reasonable fee on account of any of the following:
(A) The Borrower's failure to pay that
amount which is necessary so that
the principal balance of the Loan
Account does not exceed Availability
(as required under Section 1-7(b),
above).
(B) The providing of a loan or advance
under the Revolving Credit such that
Availability would be exceeded.
(C) The providing of a same Banking Day
loan requested after the time set
forth in Section 1-4(b)(i), above.
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(ii) The inclusion of the foregoing right on the
part of the Lender to assess a fee does not constitute an obligation, on the
part of the Lender, to waive any provision of this Agreement under any
circumstances. The assessment of any such fee in any particular circumstance
shall not constitute the Lender's waiver of any breach of this Agreement on
account of which such fee was assessed nor a course of action on which the
Borrower may rely.
(g) The Borrower shall not be entitled to any credit, rebate
or repayment of any Annual Facility Fee, Loan Maintenance Fee, Commitment Fee,
or other fee previously earned by the Lender pursuant to this Section
notwithstanding any termination of this Agreement or suspension or termination
of the Lender's obligation to make loans and advances hereunder.
1-10. Lender's Discretion.
(a) Each reference in the Loan Documents to the exercise of
discretion or the like by the Lender shall be to that Lender's exercise of its
judgement, in good faith (which shall be presumed), based upon that Lender's
consideration of any such factor as the Lender, taking into account information
of which that Lender then has actual knowledge, believes:
(i) Will or reasonably could be expected to
affect the value of the Collateral, the enforceability of the Lender's security
and collateral interests therein, or the amount which the Lender would likely
realize therefrom (taking into account delays which may possibly be encountered
in the Lender's realizing upon the Collateral and likely Costs of Collection).
(ii) Indicates that any report or financial
information delivered to the Lender by or on behalf of the Borrower is
incomplete, inaccurate, or misleading in any material manner or was not prepared
in accordance with the requirements of this Agreement.
(iii) Suggests a substantial increase in the
likelihood that the Borrower will become the subject of a bankruptcy or
insolvency proceeding.
(iv) Constitutes a Suspension Event.
(b) In the exercise of such judgement, the Lender also may
take into account any of the following factors:
(i) Those included in, or tested by, the
definitions of "Acceptable Inventory", "Retail", and "Cost".
(ii) The current financial and business climate
of the industry in which the Borrower competes (having regard for the Borrower's
position in that industry).
(iii) General economic conditions which have a
material effect on cost structure.
(iv) Material changes in or to the mix of the
Borrower's Inventory.
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(v) Seasonality with respect to the Borrower's
Inventory and pattern of the Borrower's retail sales versus that which was
projected.
(vi) Material changes in Availability versus that
which was projected.
(vii) Such other factors as the Lender determines
as having a material bearing on credit risks associated with the providing of
loans and financial accommodations to the Borrower.
(c) The burden of establishing the failure of the Lender to
have acted in a reasonable manner in such Lender's exercise of discretion shall
be the Borrower's.
1-11. Fees for L/C's.
(a) Borrower shall pay to the Lender a monthly fee for each
outstanding L/C equal to ten (10) Basis Points times the Stated Amount of that
L/C (based upon the average amount of all issued and outstanding L/Cs in any
particular month).
(b) In addition to the fee to be paid as provided in
Subsection 1-11(a), above, the Borrower shall pay to the Lender (or to the
Issuer, if so requested by the Lender), on demand, all reasonable issuance,
processing, negotiation, amendment, and administrative fees and other amounts
charged by the Issuer on account of, or in respect to, any L/C.
1-12. Concerning L/C's.
(a) None of the Issuer, the Issuer's correspondents, or any
advising, negotiating, or paying bank with respect to any L/C shall be
responsible in any way for:
(i) The performance by any beneficiary under any
L/C of that beneficiary's obligations to the Borrower.
(ii) The form, sufficiency, correctness,
genuineness, authority of any person signing; falsification; or the legal effect
of; any documents called for under any L/C if such documents on their face
appear to be in order.
(b) The Issuer may honor, as complying with the terms of any
L/C and of any drawing thereunder, any drafts or other documents otherwise in
order, but signed or issued by an administrator, executor, conservator, trustee
in bankruptcy, debtor in possession, assignee for the benefit of creditors,
liquidator, receiver, or other legal representative of the party authorized
under such L/C to draw or issue such drafts or other documents.
(c) Unless otherwise agreed to, in the particular
instance, the Borrower hereby authorizes any Issuer to:
9
(i) Select an advising bank, if any.
(ii) Select a paying bank, if any.
(iii) Select a negotiating bank.
(d) As among the Borrower, the Issuer and the Lender, all
directions, correspondence, and funds transfers relating to any L/C are at the
risk of the Borrower. The Issuer shall have discharged the Issuer's obligations
under any L/C which, or the drawing under which, includes payment instructions,
by the initiation of the method of payment called for in, and in accordance
with, such instructions (or by any other commercially reasonable and comparable
method). Neither the Lender nor the Issuer shall have any responsibility for any
inaccuracy, interruption, error, or delay in transmission or delivery by post,
telegraph or cable, or for any inaccuracy of translation.
(e) The Lender's and the Issuer's rights, powers, privileges
and immunities specified in or arising under this Agreement are in addition to
any heretofore or at any time hereafter otherwise created or arising, whether by
statute or rule of law or contract.
(f) Except to the extent otherwise expressly provided
hereunder or agreed to in writing by the Issuer and the Borrower, the L/C will
be governed by the Uniform Customs and Practice for Documentary Credits (1993
Revision), International Chamber of Commerce, Publication No. 500, and any
subsequent revisions thereof.
(g) If any change in any law, executive order or regulation,
or any directive of any administrative or governmental authority (whether or not
having the force of law), or in the interpretation thereof by any court or
administrative or governmental authority charged with the administration
thereof, shall either:
(i) Impose, modify or deem applicable any
reserve, special deposit or similar requirements against letters of credit
heretofore or hereafter issued by any Issuer or with respect to which the Lender
or any Issuer has an obligation to lend to fund drawings under any L/C; or
(ii) Impose on any Issuer any other condition or
requirements relating to any such letters of credit;
The result of any event referred to in Section 1-12(g)(i) or
Section 1-12(g)(ii), above, shall be to increase the cost to any Issuer of
issuing or maintaining any L/C (which increase in cost shall be the result of
such Issuer's reasonable allocation among that Issuer's letter of credit
customers of the aggregate of such cost increases resulting from such events),
then, upon demand by the Lender and delivery by the Lender to the Borrower of a
certificate of an officer of the subject Issuer describing such change in law,
executive order, regulation, directive, or interpretation thereof, its effect on
such Issuer, and the basis for determining such increased costs and their
allocation, the Borrower shall immediately pay to the Lender, from time to time
as specified by the Lender, such amounts as shall be sufficient to compensate
such Issuer for such increased cost. Any Issuer's determination of costs
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incurred under Section 1-12(g)(i) or 1-12(g)(ii), above, and the allocation, if
any, of such costs among the Borrower and other letter of credit customers of
such Issuer, if done in good faith and made on an equitable basis and in
accordance with the officer's certificate, shall be conclusive and binding on
the Borrower.
(h) The obligations of the Borrower under this Agreement with
respect to L/C's are absolute, unconditional, and irrevocable and shall be
performed strictly in accordance with the terms hereof under all circumstances
whatsoever including, without limitation, the following:
(i) Any lack of validity or enforceability or
restriction, restraint, or stay in the enforcement of this Agreement, any L/C,
or any other agreement or instrument relating thereto.
(ii) Any amendment or waiver of, or consent to
the departure from, any L/C.
(iii) The existence of any claim, set-off,
defense, or other right which the Borrower may have at any time against the
beneficiary of any L/C.
(iv) Any honoring of a drawing under any L/C,
which drawing possibly could have been dishonored based upon a strict
construction of the terms of the L/C.
(v) The Borrower shall not present to Lender or
cause the amendment of an L/C without satisfactory evidence of one or more of
the following: (a) change in delivery date; (b) Borrower's receipt of partial
shipment; or (c) change to original order reflected in OTB (open to buy) or
other information which may be so reasonably requested by the Lender.
(i) In no event, shall Lender or Issuer have any obligation to honor any L/C
presented for payment after its expiration. In the event no payment has been
made after expiration, the Stated Amount of such L/C shall continue to be
deducted from Availability for thirty (30) business days beyond expiration of
said L/C.
ARTICLE 2 - GRANT OF SECURITY INTEREST
2-1. Grant of Security Interest. To secure the Borrower's prompt,
punctual, and faithful performance of all and each of the Liabilities, the
Borrower hereby grants to the Lender a continuing security interest in and to,
and assigns to the Lender, the following, and each item thereof, whether now
owned or now due, or in which the Borrower has an interest, or hereafter
acquired, arising, or to become due, or in which the Borrower obtains an
interest (all of which, together with any other property in which the Lender may
in the future be granted a security interest, is referred to herein as the
"Collateral"):
(a) All Inventory.
(b) All Accounts, accounts receivable, contracts, contract
rights, notes, bills, drafts, acceptances, General Intangibles, Instruments,
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Documents, Document of Title, Chattel Paper, securities, Security Entitlements,
Security Accounts, Investment Property, choses in action, and all other debts,
obligations and liabilities in whatever form, owing to Borrower from any Person,
firm or corporation or any other legal entity, whether now existing or hereafter
arising, now or hereafter received by or belonging or owing to Borrower, for
goods sold by it or for services rendered by it, or however otherwise same may
have been established or created, all guarantees and securities therefor, all
right, title and interest of Borrower in the merchandise or services which gave
rise thereto, including the rights of reclamation and stoppage in transit, all
rights to replevy goods, and all rights of an unpaid seller of merchandise or
services.
(c) All machinery, Equipment, Fixtures and other Goods whether
now owned or hereafter acquired by the Borrower and wherever located, all
replacements and substitutions therefor or accessions thereto and all proceeds
thereof.
(d) Leasehold Interests and rights of occupancy, to the
extent permissible under the applicable leases.
(e) Real Estate.
(f) All proceeds, products, substitutions and accessions of or
to any of the foregoing in any form, including, without limitation, all
proceeds, refunds and premium rebates of credit, fire or other insurance, and
also including, without limitation, rents and profits resulting from the
temporary use of any of the foregoing.
2-2. Extent and Duration of Security Interest. This grant of a security
interest is in addition to, and supplemental of, any security interest
previously granted by the Borrower to the Lender and shall continue in full
force and effect applicable to all Liabilities until all Liabilities have been
paid and/or satisfied in full and the security interest granted herein is
specifically terminated in writing by a duly authorized officer of the Lender.
ARTICLE 3 - DEFINITIONS
All capitalized terms used in this agreement which are not otherwise
defined herein or in the UCC shall have the meanings assigned to them in EXHIBIT
3, annexed hereto.
ARTICLE 4 - CONDITIONS PRECEDENT
The effectiveness of this Agreement, the establishment of the Revolving
Credit, and the making of the first loan under the Revolving Credit, is
conditioned upon the delivery to Lender of the documents described below, each
in form and substance satisfactory to the Lender, and the satisfaction of the
conditions described below:
4-1. Corporate Due Diligence.
(a) A Certificate of legal existence and good standing issued
by the Secretary of State or other governing authority of the State of
Borrower's legal formation.
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(b) Certificates of due qualification and good standing,
issued by the Secretary(ies) of State or other governing authority of each state
in which the nature of the Borrower's business conducted or assets owned could
require such qualification.
(c) A Certificate of the Borrower's secretary, clerk or
otherwise authorized officer or other Person attesting to the due adoption,
continued effectiveness, and setting forth the texts of, each resolution or
authorization adopted in connection with the establishment of the loan
arrangement contemplated by the Loan Documents and attesting to the true
signatures of each Person authorized as a signatory to any of the Loan
Documents.
4-2. Opinion. An opinion of counsel to the Borrower in form and
substance satisfactory to Lender and Lender's counsel. Such opinion may be
submitted in two separate opinions, one as to due authority and a second opinion
as to the enforceability of the Loan Documents and perfection of the Lender's
security interest in the Collateral.
4-3. Cash Management and Additional Documents. Such additional
instruments and documents including, without limitation, an agreement for the
Blocked Account executed by the Borrower, Lender and the applicable bank,
agreements with Borrower's credit card processors and/or other credit service
providers executed by the Borrower, Lender and each such processor or service
provider, and any other notices or agreements required under Article 7 hereof,
as the Lender or its counsel reasonably may require or request, in each case in
form and substance reasonably satisfactory to Lender and its counsel.
4-4. Key Life Policies. Intentionally deleted.
4-5. Officers' Certificates. Certificates executed by the president or
chief executive officer and the chief financial officer of the Borrower and
stating that the representations and warranties made by the Borrower to the
Lender in the Loan Documents are true and complete as of the date of such
Certificate, and that no event has occurred which is or which, solely with the
giving of notice or passage of time (or both) would be an Event of Default.
4-6. Representations and Warranties. Each of the representations made
by or on behalf of the Borrower in this Agreement or in any of the other Loan
Documents or in any other report, statement, document, or paper provided by and
or on behalf of the Borrower shall, in the aggregate with all documents provided
in connection herewith, be true and complete as of the date as of which such
representation or warranty was made.
4-7. Initial Minimum Excess Availability. Availability, after giving
effect to the first loans and advances to be made under the Revolving Credit;
any charges to the Loan Account made in connection with the establishment of the
credit facility contemplated hereby; and L/C's to be issued at, or immediately
subsequent to, the establishment of such Revolving Credit, is not less than Two
Million Five Hundred Thousand ($2,500,000.00) Dollars.
4-8. No Event of Default. No event shall have occurred, or
failed to occur, which occurrence or which failure constitutes, or which,
solely with the passage of time or the giving of notice (or both) would
constitute, an Event of Default.
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4-9. No Material Adverse Change. No Material Adverse Change has
occurred.
4-10. Delivery of Warrants. Intentionally deleted.
4-11. Landlord Waivers and "Access Agreements". Such agreements from
landlords (in Landlord Lien States) and warehousemen, bailees and any other
third parties who may control any premises upon which any of the Collateral is
located as Lender may in its discretion reasonably require in form and substance
satisfactory to Lender.
4-12. Delivery of Documents. No document shall be deemed delivered to
the Lender until received and accepted by the Lender at its head offices in
Needham, Massachusetts. Under no circumstances will this Agreement take effect
until executed and accepted by the Lender at said head office. In the event that
Lender agrees to make the initial advance or any subsequent advance hereunder,
prior to Borrower's delivery of any documents required under this Article 4 or
otherwise by this Agreement, an additional fee, equal to the greater of
one-tenth of one (0.1%) percent of the then outstanding amount of the Loan
Account or Five Hundred ($500) Dollars shall be payable weekly on Thursday until
such time as all such documents are provided.
ARTICLE 5 - GENERAL REPRESENTATIONS. WARRANTIES AND COVENANTS
To induce the Lender to establish the loan arrangement contemplated
herein and to make loans and advances and to provide financial accommodations
under the Revolving Credit (each of which loans shall be deemed to have been
made in reliance thereupon) the Borrower, in addition to all other
representations, warranties, and covenants made by the Borrower in any other
Loan Document, makes those representations, warranties, and covenants included
in this Agreement.
5-1. Payment and Performance of Liabilities. The Borrower shall pay
each Liability due Lender when due (or promptly upon demand if payable on
demand) and shall promptly, punctually, and faithfully perform each other
Liability due Lender and pay each obligation due others in accordance with its
current custom and practice. If Borrower has any dispute with any Person with
respect to any Liability or other obligation material to its business, Borrower
shall give Lender notice of said dispute.
5-2. Due Organization - Authorization - No Conflicts.
(a) The Borrower presently is and shall hereafter remain in
good standing as a legal entity in the state in which it is legally formed and
is and shall hereafter remain duly qualified and in good standing in every other
state in which, by reason of the nature or location of the Borrower's assets or
operation of the Borrower's business, such qualification may be reasonably
necessary.
(b) Each Related Entity is listed on EXHIBIT 5-2, annexed
hereto. Each Related Entity is and shall hereafter remain in good standing in
the state in which legally formed and is and shall hereafter remain duly
qualified in every other state in which, by reason of the nature and location of
that entity's assets or the operation of such entity's business, such
14
qualification may be reasonably necessary. The Borrower shall provide the Lender
with prior written notice of any entity's becoming or ceasing to be a Related
Entity.
(c) The Borrower has all legal corporate power and authority
to execute and deliver all and each of the Loan Documents to which the Borrower
is a party and has and will hereafter retain all requisite legal power and
authority to perform any and all of the Liabilities.
(d) The execution and delivery by the Borrower of each Loan
Document to which it is a party; the Borrower's consummation of the transactions
contemplated by such Loan Documents (including, without limitation, the creation
of security interests by the Borrower as contemplated hereby); the Borrower's
performance under those of the Loan Documents to which it is a party; the
borrowings hereunder; and the use of the proceeds thereof:
(i) Have been duly authorized by all necessary
legal action.
(ii) Do not, and will not, contravene in any
material respect any provision of any Requirement of Law
or obligation of the Borrower.
(iii) Will not result in the creation or
imposition of, or the obligation to create or impose, any Encumbrance upon any
assets of the Borrower pursuant to any Requirement of Law or obligation, except
pursuant to the Loan Documents.
(e) The Loan Documents have been duly executed and delivered
by Borrower and are the legal, valid and binding obligations of the Borrower,
enforceable against the Borrower in accordance with their respective terms,
except as may be limited by bankruptcy, insolvency, reorganization, moratorium,
or other similar laws and equitable principles affecting the enforcement of
rights of creditors generally.
5-3. Trade Names.
(a) EXHIBIT 5-3, annexed hereto, is a listing of:
(i) All names under which the Borrower
conducts its business, all trademark and service xxxx registrations and
applications with respect to any trademark or service xxxx owned by the
Borrower; and all licenses pursuant to which Borrower has the right to use any
trademark or service xxxx other than licenses granted in the ordinary course of
business.
(ii) All entities and/or Persons with whom the
Borrower ever consolidated or merged, or from whom the Borrower ever acquired in
a single transaction or in a series of related transactions substantially all of
Person's assets.
(b) Except (i) upon not less than twenty-one (21) days or such
shorter time period as is reasonable under the circumstances, prior written
notice given the Lender, and (ii) in compliance with all other provisions of
this Agreement, the Borrower will not undertake or commit to undertake any
action such that the results of that action, if undertaken prior to the date of
this Agreement, would have been reflected on EXHIBIT 5-3.
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(c) The Borrower owns and possesses, or has the right to use
all patents, industrial designs, trademarks, trade names, trade styles, brand
names, service marks, logos, copyrights, trade secrets, know-how, confidential
information, and other intellectual or proprietary property of any third Person
necessary for the Borrower's conduct of the Borrower's business.
(d) The conduct by the Borrower of the Borrower's business
does not infringe on the patents, industrial designs, trademarks, trade names,
trade styles, brand names, service marks, logos, copyrights, trade secrets,
know-how, confidential information, or other intellectual or proprietary
property of any third Person.
5-4. Location, Landlord's Consents, Waivers.
(a) The Collateral, and the books, records, and papers of
Borrower pertaining thereto, are kept and maintained solely at the Borrower's
chief executive offices as set forth at the beginning of this Agreement and at
those locations which are listed on EXHIBIT 5-4, annexed hereto as updated by
Borrower from time to time, which exhibit includes all service bureaus with
which any such records are maintained and the names and addresses of each of the
Borrower's landlords. Except (i) to accomplish sales of Inventory in the
ordinary course of business or (ii) to utilize such of the Collateral as is
removed from such locations in the ordinary course of business (such as motor
vehicles), the Borrower shall not remove any Collateral from said chief
executive offices or those locations listed on EXHIBIT 5-4 as updated by
Borrower from time to time.
(b) The Borrower shall obtain and deliver to the Lender a
consent, waiver and subordination (reasonably satisfactory to the Lender) by the
landlord for:
(i) All of Borrower's warehouse and
distribution center locations and such store locations as are available upon a
good faith effort from Borrower to obtain upon or before execution hereof.
(ii) For the balance of store locations within
thirty (30) days of the date of execution hereof, to the extent reasonably
possible.
(c) Lender may, in its discretion, establish an Availability
Reserve for up to thirty (30) days rent for each of the Borrower's locations in
a Landlord Lien State or in a One Turn State for which a satisfactory consent,
waiver and subordination has not been received. Such Availability Reserve may be
reduced or eliminated but only if no Suspension Event is then in existence or
has not theretofore occurred, upon the furnishing to the Lender of a consent,
waiver and subordination (in form reasonably satisfactory to the Lender) by the
landlord for the subject location.
(d) Without duplication of any Availability Reserve described
above, the Lender may establish an Availability Reserve for unpaid rent up to
the amount of such rent.
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(e) The Borrower will not:
(i) Execute, alter, modify, or amend any Lease,
except for Borrower's benefit and with at least ten (10) days prior written
notice to Lender and except as may occur in Subordination, Non-Disturbance and
Attornment Agreements executed in the ordinary course of business.
(ii) Commit to, or open or close any location at
which the Borrower maintains, offers for sale, or stores any of the Collateral,
except (x) Borrower may open up new store locations but only to the extent
provided in the Business Plan (as revised from time to time), approved by
Borrower's Board of Directors and with at least fifteen (15) days prior written
notice to Lender and (y) Borrower may close existing store locations but only to
the extent provided for in the Business Plan or as a result of a landlord
election not to renew a lease.
(f) Except as otherwise disclosed on EXHIBIT 5-4 as amended
from time to time, no tangible personal property of the Borrower is in the care
or custody of any third party or stored or entrusted with a bailee or other
third party and none shall hereafter be placed under such care, custody,
storage, or entrustment. Borrower shall obtain and deliver a consent, waiver and
subordination (in form reasonably satisfactory to the Lender) from each bailee
disclosed on EXHIBIT 5-4 on or prior to the date of execution hereof.
5-5. Title to Assets.
(a) The Borrower is, and shall hereafter remain, the owner of
the Collateral free and clear of all Encumbrances with the exceptions of the
following:
(i) The security interest created herein.
(ii) Those Encumbrances (if any) listed on
EXHIBIT 5-5, annexed hereto and Collateral permitted to be disposed of under
Section 5.11.
(b) The Borrower does not and shall not have possession
of any property on consignment to the Borrower.
5-6. Indebtedness. The Borrower does not and shall not hereafter
have any Indebtedness with the exceptions of:
(a) Any Indebtedness to the Lender.
(b) The Indebtedness (if any) listed on EXHIBIT 5-6,
annexed hereto.
(c) Capital Leases, not to exceed aggregate annual payments of
One Million Five Hundred Thousand ($1,500,000.00) Dollars per year, provided
Lender is given prompt written notice of any Capital Lease and no lien on the
Collateral arises as a result thereof.
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5-7. Insurance Policies.
(a) EXHIBIT 5-7 as amended from time to time, annexed hereto,
is a schedule of all insurance policies owned by the Borrower or under which the
Borrower is the named insured. Each of such policies is in full force and
effect. Neither the issuer of any such policy nor the Borrower is in default or
violation of any such policy.
(b) The Borrower shall have and maintain at all times
insurance covering such risks, in such amounts, containing such terms, in such
form, for such periods, and written by such companies as may be reasonably
satisfactory to the Lender except to the extent that failure to maintain
policies would not result in a Material Adverse Change if the uninsured event
were to occur. The coverage reflected on EXHIBIT 5-7 presently satisfies the
foregoing requirements, it being recognized by the Borrower, however, that such
requirements may change hereafter to reflect changing circumstances. All
insurance carried by the Borrower shall provide for a minimum of twenty (20)
days' written notice of cancellation to the Lender and all such insurance which
covers the Collateral shall include an endorsement in favor of the Lender, which
endorsement shall provide that the insurance, to the extent of the Lender's
interest therein, shall not be impaired or invalidated, in whole or in part, by
reason of any act or neglect of the Borrower or by the failure of the Borrower
to comply with any warranty or condition of the policy, except where failure to
so provide for endorsements would not materially impact Lender's ability to
realize on the Collateral. In the event of the failure by the Borrower to
maintain insurance as required herein, the Lender, at its option, may obtain
such insurance, provided, however, the Lender's obtaining of such insurance
shall not constitute a cure or waiver of any Event of Default occasioned by the
Borrower's failure to have maintained such insurance. The Borrower shall furnish
to the Lender upon request certificates or other evidence reasonably
satisfactory to the Lender regarding compliance by the Borrower with the
foregoing insurance provisions.
(c) The Borrower shall advise the Lender of each claim in
excess of Ten Thousand ($10,000) Dollars made by the Borrower under any policy
of insurance which covers the Collateral and will permit the Lender, at the
Lender's option in each instance, to the exclusion of the Borrower, to conduct
the adjustment of each such claim (and of all claims following the occurrence of
any Suspension Event). The Borrower hereby appoints the Lender as the Borrower's
attorney in fact to obtain, adjust, settle, and cancel any insurance described
in this section and to endorse in favor of the Lender any and all drafts and
other instruments with respect to such insurance. This appointment, being
coupled with an interest, is irrevocable until this Agreement is terminated by a
written instrument executed by a duly authorized officer of the Lender. The
Lender shall not be liable on account of any exercise pursuant to said power
except for any exercise in actual willful misconduct or bad faith. The Lender
may apply any proceeds of such insurance against the Liabilities, whether or not
such have matured, in such order of application as the Lender may determine.
(d) The Borrower shall maintain at all times those policies of
insurance obtained by the Borrower and assigned to the Lender as required by
Section 4-4, above, if applicable, except to the extent that failure to so
maintain policies would not result in a Material Adverse Change if the uninsured
event were to occur.
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5-8. Licenses. Each license, distributorship, franchise, and
similar agreement, which is material to Borrower's business, issued to, or to
which the Borrower is a party is in full force and effect. No party to any such
license or agreement is in material default or material violation thereof. The
Borrower has not received any notice or threat of cancellation of any such
license or agreement.
5-9. Leases. EXHIBIT 5-9 as amended from time to time, annexed hereto,
is a schedule of all presently effective Leases and Capital Leases. Each of such
Leases and Capital Leases is in full force and effect. No party to any such
Lease or Capital Lease is in material default or material violation of any such
Lease or Capital Lease and the Borrower has not received any notice or threat of
cancellation of any such Lease or Capital Lease. The Borrower hereby authorizes
the Lender at any time and from time to time to contact any of the Borrower's
landlords in order to confirm the Borrower's continued compliance with the terms
and conditions of the Lease(s) between the Borrower and that landlord and to
discuss such issues, concerning the Borrower's occupancy under such Lease(s), as
the Lender may determine.
5-10. Requirements of Law. The Borrower is in material compliance with,
and shall hereafter comply with and use its assets in material compliance with,
all Requirements of Law. The Borrower has not received any notice of any
material violation of any Requirement of Law (whether or not such violation is
material), which violation has not been cured or otherwise remedied.
5-11. Maintain Properties. The Borrower shall:
(a) Keep the Collateral in good order and repair
(ordinary reasonable wear and tear and insured casualty excepted).
(b) Not suffer or cause the waste or destruction of any
material part of the Collateral.
(c) Not use any of the Collateral in violation of any policy
of insurance thereon except to the extent that failure to maintain policies
would not result in a Material Adverse Change if the uninsured event were to
occur.
(d) Not sell, lease, or otherwise dispose of any of the
Collateral, other than the following, in each case, subject to the turning over
to the Lender of all Receipts with respect to the same as provided herein,
(i) The sale of Inventory in compliance with
this Agreement.
(ii) The disposal of Equipment which is obsolete,
worn out, or damaged beyond repair, which Equipment is replaced to the extent
reasonably necessary to preserve or improve the operating efficiency of the
Borrower.
(iii) The sale of Equipment in connection with any
store closing.
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5-12. Pay Taxes.
(a) The federal income tax returns of the Borrower have been
filed for all fiscal years through and including the Borrower's taxable year
referenced on EXHIBIT 5-12 as amended from time to time, annexed hereto, the
Borrower is not currently subject to any audits and all deficiencies,
assessments, and other amounts asserted as a result of examinations have been
fully paid or settled. No agreement is in existence which waives or extends any
statute of limitations applicable to the right of the Internal Revenue Service
to assert a deficiency or make any other claim for or in respect to federal
income taxes. No issue has been raised in any such examination which reasonably
could be expected to result in the assertion of a deficiency for any fiscal year
open for examination, assessment, or claim by the Internal Revenue Service.
(b) All returns of the Borrower for state and local income,
excise, sales, and other taxes have been audited (or closed by applicable
statutes) for all fiscal years through and including the Borrower's taxable year
referenced on EXHIBIT 5-12 as amended from time to time, annexed hereto, and all
deficiencies, assessments, and other amounts asserted as a result of such
examinations have been fully paid or settled. No agreement is in existence which
waives or extends any statute of limitations applicable to the right of any
state taxing authority to assert a deficiency or make any other claim for or in
respect to any such state taxes. No issue has been raised in any such
examination which reasonably could be expected to result in the assertion of a
deficiency for any fiscal year open for examination, assessment, or claim by any
state or local taxing authority.
(c) Except as disclosed on said EXHIBIT 5-12 as amended from
time to time, there are no examinations of or with respect to the Borrower
presently being conducted by the Internal Revenue Service or any state taxing
authority.
(d) The Borrower has, and hereafter shall: pay, as they become
due and payable, all taxes and unemployment contributions and other charges of
any kind or nature levied, assessed or claimed against the Borrower or the
Collateral by any Person or entity whose claim could result in an Encumbrance
upon any asset of the Borrower or by any governmental authority; properly
exercise any trust responsibilities imposed upon the Borrower by reason of
withholding from employees' pay; timely make all contributions and other
payments as may be required pursuant to any Employee Benefit Plan now or
hereafter established by the Borrower; and timely file all tax and other returns
and other reports with each governmental authority to whom the Borrower is
obligated to so file except, in each case under this Subsection (d), to the
extent that failure to take the described action would not materially impact
Lender's rights in the Collateral.
(e) At its option, the Lender may, but shall not be obligated
to, pay any taxes, unemployment contributions, and any and all other charges
levied or assessed upon the Borrower or the Collateral by any Person or entity
or governmental authority, and make any contributions or other payments on
account of the Borrower's Employee Benefit Plan as the Lender, in the Lender's
discretion, may deem necessary or desirable, to protect, maintain, preserve,
collect, or realize upon any or all of the Collateral or the value thereof or
any right or remedy pertaining thereto, provided, however, the Lender's making
of any such payment shall not constitute a cure or waiver of any Event of
Default occasioned by the Borrower's failure to have made such payment.
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5-13. No Margin Stock. The Borrower is not engaged in the business of
extending credit for the purpose of purchasing or carrying any margin stock
(within the meaning of Regulations G, U, T, and X, of the Board of Governors of
the Federal Reserve System of the United States). No part of the proceeds of any
borrowing hereunder will be used at any time to purchase or carry any such
margin stock or to extend credit to others for the purpose of purchasing or
carrying any such margin stock.
5-14. ERISA. Neither the Borrower nor any ERISA Affiliate ever has
or hereafter shall:
(a) Violate or fail to be in full compliance with the
Borrower's Employee Benefit Plan, except Borrower's ESOP, which Borrower is in
the process of terminating and which event could not reasonably be expected to
result in a Material Adverse Change (the "Terminating ESOP").
(b) Fail timely to file all reports and filings required by
ERISA to be filed by the Borrower except with respect to the Terminating ESOP.
(c) Engage in any "prohibited transactions" or "reportable
events" (respectively as described in ERISA) except with respect to the
Terminating ESOP.
(d) Engage in, or commit, any act such that a tax or penalty
could be imposed on account thereof pursuant to ERISA except with respect to the
Terminating ESOP.
(e) Accumulate any material funding deficiency within the
meaning of ERISA.
(f) Terminate any Employee Benefit Plan such that a lien could
be asserted against the Borrower on account thereof pursuant to ERISA except
Borrower's ESOP which Borrower is in the process of terminating.
(g) Be a member of, contribute to, or have any obligation
under any Employee Benefit Plan which is a multiemployer plan within the meaning
of Section 4001(a) of ERISA except employee benefit plans shared between the
Borrower and XxxxxXxxxx.xxx (".Com").
5-15. Hazardous Materials.
(a) The Borrower has never:
(i) Been legally responsible for any release or
threat of release of any Hazardous Material.
(ii) Received notification of any release or
threat of release of any Hazardous Material from any site or vessel occupied or
21
operated by the Borrower and/or of the incurrence of any expense or loss in
connection with the assessment, containment, or removal of any release or threat
of release of any Hazardous Material from any such site or vessel.
(b) The Borrower shall:
(i) Dispose of any Hazardous Material only in
compliance with all Environmental Laws.
(ii) Not store on any site or vessel occupied or
operated by the Borrower and not transport or arrange for the transport of any
Hazardous Material, except if such storage or transport is in the ordinary
course of the Borrower's business and is in compliance with all Environmental
Laws.
(c) The Borrower shall provide the Lender with written notice
upon the Borrower's obtaining knowledge of any incurrence of any expense or loss
by any governmental authority or other Person in connection with the assessment,
containment, or removal of any Hazardous Material, for which expense or loss the
Borrower may be liable.
5-16. Litigation. There is not presently pending or threatened by or
against the Borrower any suit, action, proceeding, or investigation which, if
determined adversely to the Borrower, would have a material adverse effect upon
the Borrower's financial condition or ability to conduct its business as such
business is presently conducted or is contemplated to be conducted in the
foreseeable future.
5-17. Dividends or Investments. The Borrower shall not:
(a) Pay any cash dividend or make any other distribution in
respect of any class of the Borrower's capital stock, except for dividends paid
on Series D stock and provided that after giving effect to any such dividends,
Borrower has sufficient availability and cash flow to operate its business in
accordance with the Business Plan.
(b) Own, redeem, retire, purchase, or acquire any of the
Borrower's capital stock except for mandatory redemption of Series A stock.
(c) Invest in or purchase any stock or securities or rights to
purchase any stock or securities of any corporation or other entity, except
.Com.
(d) Merge or consolidate or be merged or consolidated with or
into any other corporation or other entity except .Com and provided that such
merger or consolidation does not require the payment of cash by the Borrower.
(e) Consolidate any of the Borrower's operations with those of
any other corporation or other entity except .Com.
(f) Organize or create any Related Entity.
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(g) Subordinate any debts or obligations owed to the Borrower
by any third party to any other debts owed by such third party to any other
Person.
5-18. Loans. The Borrower shall not make any loans or Advances to,
nor acquire the Indebtedness of, any Person, provided, however, the foregoing
does not prohibit any of the following:
(a) Advance payments made to the Borrower's suppliers in the
ordinary course.
(b) Advances to the Borrower's officers, employees, and
salespersons with respect to reasonable expenses to be incurred by such
officers, employees, and salespersons for the benefit of the Borrower, which
expenses are properly substantiated by the Person seeking such Advance and
properly reimbursable by the Borrower.
5-19. Protection of Assets. The Lender, in the Lender's discretion, and
from time to time, may discharge any tax or Encumbrance on any of the
Collateral, or take any other action that the Lender may deem necessary or
desirable to repair, insure, maintain, preserve, collect, or realize upon any of
the Collateral. The Lender shall not have any obligation to undertake any of the
foregoing and shall have no liability on account of any action so undertaken
except where there is a specific finding in a judicial proceeding (in which the
Lender has had an opportunity to be heard), from which finding no further appeal
is available, that the Lender had acted in actual bad faith or in a grossly
negligent manner. The Borrower shall pay to the Lender, on demand, or the
Lender, in its discretion, may add to the Loan Account, all amounts reasonably
paid or incurred by the Lender pursuant to this section. The obligation of the
Borrower to pay such amounts is a Liability.
5-20. Line of Business. The Borrower shall not engage in any business
other than the business in which it is currently engaged or a business
reasonably related thereto.
5-21. Affiliate Transactions. The Borrower shall not make any payment,
nor give any value to any Related Entity except as disclosed in its Proxy
Statement for fiscal 2000 and the ordinary continuation of such disclosed
agreements and understandings and except as set forth in any management
agreements between the Borrower and .Com or any Related Entity and except for
goods and services actually purchased by the Borrower from, or sold by the
Borrower to, such Related Entity for a price which shall:
(a) Be competitive and fully deductible as an "ordinary and
necessary business expense" and/or fully depreciable under the Internal Revenue
Code of 1986 and the Treasury Regulations, each as amended, except as disclosed
in its last 10 K/A report; and
(b) Not differ from that which would have been charged in an
arms length transaction.
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5-22. Executive Pay.
(a) The only Executive Officers of the Borrower, at the
execution of this Agreement, are those individuals referenced in the definition
of "Executive Officers".
(b) Prior to the execution of this Agreement, the Borrower
furnished the Lender with copies of all written Executive Agreements and
outlines of the salient features of all unwritten Executive Agreements (as
amended to date) then in existence. There are no unwritten agreements or
understandings between the Borrower and any Executive Officer which relate to
Executive Pay, written disclosure of which has not been made to the Lender.
(c) The Borrower will not:
(i) Enter into any agreement not existing as
of the date of execution of this Agreement, except as approved by the Board of
Directors and as set forth in the Business Plan, with prompt notice to Lender
following the execution of any such Executive Agreement(s).
(ii) Alter, amend, supplement, or otherwise
change any Executive Agreement in any material respect except as approved by the
Board of Directors and with notice to Lender.
(iii) Pay, provide, or facilitate any Executive
Pay other than as provided in an Executive Agreement or, if not covered by an
Executive Agreement, as permitted pursuant to Section 5-21, above or as approved
by the Board of Directors.
5-23. Additional Assurances.
(a) The Borrower is not on the Closing Date the owner of, nor
has it any interest in, any property or asset which, immediately upon the
satisfaction of the conditions precedent to the effectiveness of the credit
facility contemplated hereby (Article 4) will not be subject to a perfected
security interest in favor of the Lender (subject only to those Encumbrances (if
any) described on EXHIBIT 5-5, annexed hereto as amended) to secure the
Liabilities.
(b) The Borrower will not after the Closing Date acquire any
asset or any interest in property which is not, reasonably promptly following
such acquisition, subject to such a perfected security interest in favor of the
Lender to secure the Liabilities (subject only to Encumbrances (if any)
permitted pursuant to Section 5-5, above, as may be amended from time to time).
(c) The Borrower shall execute and deliver to the Lender on a
timely basis such instruments, documents, and papers, and shall do all such
things from time to time hereafter as the Lender may request to carry into
effect the provisions and intent of this Agreement; to protect and perfect the
Lender's security interests in the Collateral; and to comply with all applicable
statutes and laws, and facilitate the collection of any Receivables Collateral.
The Borrower shall execute all such instruments as may be required by the Lender
with respect to the recordation and/or perfection of the security interests
created herein.
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(d) A carbon, photographic, or other reproduction of this
Agreement or of any financing statement or other instrument executed pursuant to
this Section 5-23 shall be sufficient for filing to perfect the security
interests granted herein.
5-24. Adequacy of Disclosure.
(a) All financial statements furnished to the Lender by the
Borrower have been prepared in accordance with GAAP consistently applied and
present fairly the condition of the Borrower at the date(s) thereof and the
results of operations and cash flows for the period(s) covered, subject to
year-end adjustments. There has been no change in the financial condition,
results of operations, or cash flows of the Borrower since the date(s) of such
financial statements, other than changes in the ordinary course of business,
which changes have not been materially adverse, either singularly or in the
aggregate.
(b) The Borrower does not have any contingent obligations or
obligation under any Lease or Capital lease which is not noted in the Borrower's
financial statements furnished to the Lender prior to the execution of this
Agreement.
(c) No document, instrument, agreement, or paper now or
hereafter given the Lender by or on behalf of the Borrower or any guarantor of
the Liabilities in connection with the execution of this Agreement by the Lender
contains or will contain in the aggregate when considered with all such other
documents, instruments, agreements or papers given to Lender any untrue
statement of a material fact or omits or will omit to state a material fact
necessary in order to make the statements therein not misleading. There is no
fact known to the Borrower which has, or which, in the foreseeable future could
have, a material adverse effect on the financial condition of the Borrower or
any such guarantor which has not been disclosed in writing to the Lender.
5-25. Minimum Excess Availability. Intentionally deleted.
5-26. No Material Adverse Change. There has not been a Material
Adverse Change.
5-27. Other Covenants. The Borrower shall not indirectly do or
cause to be done any act which, if done directly by the Borrower, would breach
any covenant contained in this Agreement.
ARTICLE 6 - USE AND COLLECTION OF COLLATERAL
6-1. Use of Inventory Collateral.
(a) The Borrower shall not engage in any sale of the Inventory
other than for fair consideration in the conduct of the Borrower's business in
the ordinary course and shall not engage in sales or other dispositions to
creditors; sales or other dispositions in bulk; and any use of any of the
Inventory in breach of any provision of this Agreement, except for employee
discounts in the ordinary course of business.
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(b) No sale of Inventory shall be on consignment, approval, or
under any other circumstances such that, with the exception of the Borrower's
customary return policy applicable to the return of Inventory purchased by the
Borrower's retail customers in the ordinary course, such Inventory may be
returned to the Borrower without the consent of the Lender.
6-2. Inventory Quality. All Inventory now owned or hereafter
acquired by the Borrower is and will be of good and merchantable quality and
free from defects (other than defects within customary trade tolerances).
6-3. Adjustments and Allowances. The Borrower may grant such allowances
or other adjustments to the Borrower's Account Debtors (exclusive of extending
the time for payment of any Account or Account Receivable, which shall not be
done without first obtaining the Lender's prior written consent in each
instance) as the Borrower may reasonably deem to accord with sound business
practice, provided, however, the authority granted the Borrower pursuant to this
Section 6-3 may be limited or terminated by the Lender at any time in the
Lender's discretion.
6-4. Validity of Accounts.
(a) Except as adjusted in the ordinary course of bookkeeping
the amount of each Account shown on the books, records, and invoices of the
Borrower represented as owing by each Account Debtor is and will be the correct
amount actually owing by such Account Debtor and shall have been fully earned by
performance by the Borrower.
(b) The Borrower has no knowledge of any impairment of the
validity or collectibility of any of the Accounts and shall notify the Lender of
any such fact immediately after Borrower becomes aware of any such impairment.
(c) The Borrower shall not post any bond, except in the
ordinary course of business and except as related to any litigation affecting
Borrower, to secure the Borrower's performance under any agreement to which the
Borrower is a party nor cause any surety, guarantor, or other third party
obligee to become liable to perform any obligation of the Borrower (other than
to the Lender) in the event of the Borrower's failure so to perform.
6-5. Notification to Account Debtors. The Lender shall have the
right at any time (whether or not an Event of Default has occurred) to notify
any of the Borrower's Account Debtors to make payment directly to the Lender
and to collect all amounts due on account of the Collateral.
ARTICLE 7 - CASH MANAGEMENT
7-1. Depository Accounts.
(a) Annexed hereto as EXHIBIT 7-1 as amended from time to
time, is a Schedule of all present DDA's, which Schedule includes, with respect
to each depository (i) the name and address of that depository; (ii) the account
number(s) of the account(s) maintained with such depository; (iii) a contact
Person at such depository; and (iv) the telephone number of the contact Person.
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(b) The Borrower shall, as a condition to the effectiveness
of this Agreement:
(i) Establish an account in the name of, for the
benefit of and under the control of, Lender into which all Receipts shall be
deposited (the "Blocked Account")
(ii) Deliver to Lender proof of the mailing, to
each depository institution with which any DDA is maintained (other than the
Funding Account or any Local DDA) of notification (in form satisfactory to the
Lender) of the Lender's interest in such DDA. In the event that Agent or
Borrower shall receive notice that any depository at which a DDA is maintained
on the date hereof, or is subsequently established as contemplated under
paragraph (c) below, refuses to accept and comply with the notifications
delivered by the Borrower to such depository institution of the Lender's
interest in such DDA, Borrower will immediately close all DDAs maintained with
such depository institution and establish new DDAs with depository institutions
which accept and agree to such notifications.
(iii) Deliver to Lender an agreement (in form
satisfactory to the Lender) with any depository institution at which a Blocked
Account is maintained.
(c) The Borrower will not establish any DDA hereafter (other
than a Local DDA) unless Borrower, contemporaneous with such establishment, the
Borrower delivers to the Lender proof of mailing to any such institution, a
notification (in form satisfactory to the Lender) of the Lender's interest in
such DDA.
(d) The Borrower will establish and maintain separate accounts
exclusively for purposes of payroll and payroll tax deposits and payments.
(e) The contents of each DDA constitutes Collateral and
Proceeds of Collateral.
7-2. Credit Card Receipts.
(a) Annexed hereto as EXHIBIT 7-2 as amended from time to
time, is a Schedule which describes all Credit Card Processors, which term shall
include any "instant credit" providers and any other arrangements to which the
Borrower is a party with respect to the payment to the Borrower of the proceeds
of all credit card charges for sales by the Borrower.
(b) The Borrower shall deliver to the Lender the written
acknowledgment and consent of each of the Credit Card Processors to a notice in
form satisfactory to the Lender, which notice provides that payment of all
credit card charges submitted by the Borrower to that Credit Card Processor
payable to the Borrower by such Credit Card Processor shall be directed to the
Blocked Account. The Borrower shall not change such direction or designation
except upon and with the prior written consent of the Lender.
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7-3. The Concentration Account, the Blocked Account and the Funding
Accounts.
(a) The following accounts have been or will be established
(and are so referred to herein):
(i) The Concentration Account: Established by
the Lender with The Chase Manhattan Bank, N.A.
(ii) The Funding Account: Established by the
Borrower with Bank One.
(iii) The Blocked Account: Established by the
Borrower with Xxxxx Fargo Bank.
(b) The contents of all DDA's and the Blocked Account
constitute Collateral and Proceeds of Collateral.
(c) The Borrower shall pay all fees and charges of, and
maintain such impressed balances as may be required by the Lender or by any bank
in which any account is opened as required hereby (even if such account is
opened by the Lender).
7-4. Proceeds and Collection of Accounts.
(a) All Receipts constitute Collateral and proceeds of
Collateral and shall be held in trust by the Borrower for the Lender; shall not
be commingled with any of the Borrower's other funds; and shall be deposited
and/or transferred only to the Blocked Account.
(b) The Borrower shall cause the ACH or wire transfer to the
Blocked Account, no less frequently than weekly (and whether or not there is
then an outstanding balance in the Loan Account) provided, however, that Lender
reserve the right to require ACH or wire transfers to the Blocked Account more
frequently than once a week if the activity level of deposits into Borrower's
DDA warrants more frequent transfers to the Blocked Account of:
(i) The then contents of each DDA (other than
(A) any Local DDA and (B) the Funding Account), each such transfer to be net of
any minimum balance, not to exceed Two Thousand ($2,000.00) Dollars, as may be
required to be maintained in the subject DDA by the bank at which such DDA is
maintained.
(ii) The proceeds of all credit card charges not
otherwise provided for pursuant hereto.
(c) Whether or not any Liabilities are then outstanding, the
Borrower shall cause the ACH or wire transfer to the Concentration Account, no
less frequently than daily, of the entire previous day's closing collected
balance of the Blocked Account.
(d) In the event that, notwithstanding the provisions of this
Section 7-4, the Borrower receives or otherwise has dominion and control of any
28
Receipts, or any proceeds or collections of any Collateral, such Receipts,
proceeds, and collections shall be held in trust by the Borrower for the Lender
and shall not be commingled with any of the Borrower's other funds or deposited
in any account of the Borrower other than as instructed by the Lender.
7-5. Payment of Liabilities.
(a) On each Banking Day, upon receipt by Lender, the Lender
may apply towards the Liabilities, the then collected balance of the
Concentration Account (net of fees charged, and of such impressed balances as
may be required by the bank at which the Concentration Account is maintained),
provided, however, for purposes of the calculation of interest on the unpaid
principal balance of the Loan Account, such payment shall be deemed to have been
made one (1) Banking Day after such transfer.
(b) The Lender shall transfer to the Funding Account any
surplus in excess of the Liabilities in the Concentration Account (attributable
to Borrower) remaining after the application towards the Liabilities referred to
in Section 7-5(a), above (less those amounts which are to be netted out, as
provided therein) provided, however, in the event that both (i) a Suspension
Event has occurred and (ii) one or more L/C's are then outstanding, the Lender
may establish a funded reserve of up to one hundred ten (110%) percent of the
aggregate Stated Amounts of such L/C's.
7-6. The Funding Account. All checks shall be drawn by the Borrower
upon, and other disbursements made by the Borrower solely from, the Funding
Account or the payroll account, accounts payable account or customer refund
account funded from the Funding Account; provided that any amounts remaining in
the payroll account, accounts payable account and customer refund account at the
end of a day shall be returned to the Funding Account.
7-7. Capital Infusions, Etc. The proceeds of any investment in the
Borrower from any source, including without limitation, proceeds of the issuance
or sale of any capital stock or debt instruments, shall be deposited by the
purchaser thereof directly into the Blocked Account. In addition, any funds
received by Borrower other than from ordinary business operations, including
without limitation, proceeds or payments under any contracts for liquidation of
any Collateral, tax refunds, insurance or condemnation proceeds or damage
awards, shall be deposited directly into the Blocked Account.
ARTICLE 8 - LENDER AS BORROWER'S ATTORNEY-IN-FACT
8-1. Appointment as Attorney-In-Fact. The Borrower hereby irrevocably
constitutes and appoints the Lender as the Borrower's true and lawful attorney,
with full power of substitution, to convert the Collateral into cash at the sole
risk, cost, and expense of the Borrower, but for the sole benefit of the Lender.
The rights and powers granted the Lender by this appointment shall not (except
for subsection (c) below) be exercised by Lender absent the occurrence of an
Event of Default hereunder, but shall include but are not limited to the right
and power to:
(a) Prosecute, defend, compromise, or release any action
relating to the Collateral.
29
(b) Sign change of address forms to change the address to
which the Borrower's mail is to be sent to such address as the Lender shall
designate; receive and open the Borrower's mail; remove any Receivables
Collateral and Proceeds of Collateral therefrom and turn over the balance of
such mail either to the Borrower or to any trustee in bankruptcy, receiver,
assignee for the benefit of creditors of the Borrower, or other legal
representative of the Borrower whom the Lender determines to be the appropriate
Person to whom to so turn over such mail.
(c) Endorse the name of the Borrower in favor of the Lender
upon any and all checks, drafts, notes, acceptances, or other items or
instruments; sign and endorse the name of the Borrower on, and receive as
secured party, any of the Collateral, any invoices, schedules of Collateral,
freight or express receipts, or bills of lading, storage receipts, warehouse
receipts, or other documents of title respectively relating to the Collateral.
(d) Sign the name of the Borrower on any notice to the
Borrower's Account Debtors or verification of the Receivables Collateral; sign
the Borrower's name on any Proof of Claim in Bankruptcy against Account Debtors,
and on notices of lien, claims of mechanic's liens, or assignments or releases
of mechanic's liens securing the Accounts.
(e) Take all such action as may be necessary to obtain the
payment of any letter of credit and/or banker's acceptance of which the Borrower
is a beneficiary.
(f) Repair, manufacture, assemble, complete, package, deliver,
alter or supply goods, if any, necessary to fulfill in whole or in part the
purchase order of any customer of the Borrower.
(g) Use, license or transfer any or all General Intangibles of
the Borrower.
(h) Sign and file or record any financing or other statements
in order to perfect or protect the Lender's security interest in the Collateral.
8-2. No Obligation to Act. The Lender shall not be obligated to do any
of the acts or to exercise any of the powers authorized by Section 8-1 herein,
but if the Lender elects to do any such act or to exercise any of such powers,
it shall not be accountable for more than it actually receives as a result of
such exercise of power, and shall not be responsible to the Borrower for any act
or omission to act except for any act or omission to act as to which there is a
final determination made in a judicial proceeding (in which proceeding the
Lender has had an opportunity to be heard) which determination includes a
specific finding that the subject act or omission to act had been grossly
negligent or in actual bad faith.
ARTICLE 9 - FINANCIAL AND OTHER REPORTING REQUIREMENTS/FINANCIAL COVENANTS
9-1. Maintain Records. The Borrower shall:
30
(a) At all times, keep proper books of account, in which full,
true, and accurate entries shall be made of all of the Borrower's transactions,
all in accordance with GAAP applied consistently with prior periods to fairly
reflect the financial condition of the Borrower at the close of, and its results
of operations for, the periods in question.
(b) Timely provide the Lender with those financial reports,
statements, and schedules required by this Article 9 or otherwise, each of which
reports, statements and schedules shall be prepared, to the extent applicable,
in accordance with GAAP applied consistently with prior periods to fairly
reflect the financial condition of the Borrower at the close of, and its results
of operations for, the period(s) covered therein.
(c) At all times, keep substantially accurate current records
of the Collateral including, without limitation, accurate current stock, cost,
and sales records of its Inventory, accurately and sufficiently itemizing and
describing the kinds, types, and quantities of Inventory and the cost and
selling prices thereof.
(d) At all times, retain independent certified public
accountants who are reasonably satisfactory to the Lender and instruct such
accountants to fully cooperate with, and be available to, the Lender to discuss
the Borrower's financial performance, financial condition, operating results,
controls, and such other matters, within the scope of the retention of such
accountants, as may be raised by the Lender.
(e) Not change the Borrower's fiscal year.
(f) Not change the Borrower's taxpayer identification number.
9-2. Access to Records.
(a) The Borrower shall accord the Lender and the Lender's
representatives with access from time to time as the Lender and such
representatives may require to all properties owned by or over which the
Borrower has control. The Lender and the Lender's representatives shall have the
right, and the Borrower will permit the Lender and such representatives from
time to time as the Lender and such representatives may request, to examine,
inspect, copy, and make extracts from any and all of the Borrower's books,
records, electronically stored data, papers, and files. The Borrower shall make
all of the Borrower's copying facilities available to the Lender.
(b) The Borrower hereby authorizes the Lender and the
Lender's representatives to:
(i) Inspect, copy, duplicate, review, cause to
be reduced to hard copy, run off, draw off, and otherwise use any and all
computer or electronically stored information or data which relates to the
Borrower, or any service bureau, contractor, accountant, or other Person, and
directs any such service bureau, contractor, accountant, or other Person fully
to cooperate with the Lender and the Lender's representatives with respect
thereto.
31
(ii) Verify at any time the Collateral or any
portion thereof, including verification with Account Debtors, and/or with the
Borrower's computer billing companies, collection agencies, and accountants and
to sign the name of the Borrower on any notice to the Borrower's Account Debtors
or verification of the Collateral.
9-3. Immediate Notice to Lender.
(a) The Borrower shall provide the Lender with written notice
promptly after the occurrence of any of the following events, which written
notice shall be with reasonable particularity as to the facts and circumstances
in respect of which such notice is being given:
(i) Any change in the Borrower's Executive
Officers, officers, directors, controllers or key employees.
(ii) The completion of any physical count of the
Borrower's Inventory (together with a copy of the certified or such other
results as may then be available thereof).
(iii) Any ceasing of the Borrower's making of
payment, in the ordinary course, to any of its creditors (including the ceasing
of the making of such payments on account of a dispute with the subject
creditor).
(iv) Any failure by the Borrower to pay rent
at any of the Borrower's locations, which failure continues for more than three
(3) days following the day on which such rent first came due. If Borrower has
any dispute with any Landlord with respect to rent payable or other matters,
Borrower shall give Lender written notice of said dispute.
(v) Any failure by Borrower to pay trade
liabilities or other expense liabilities in accordance with its past business
practices.
(vi) Any material change in the business,
operations, or financial affairs of the Borrower.
(vii) The occurrence of any Suspension Event.
(viii) Any intention on the part of the Borrower
to discharge the Borrower's present independent accountants or any withdrawal or
resignation by such independent accountants from their acting in such capacity
(as to which, see Subsection 9-1(d)).
(ix) Any litigation which, if determined
adversely to the Borrower, could reasonably be expected to have a material
adverse effect on the financial condition of the Borrower.
(x) The reduction by any of Borrower's
material vendors in the amount of trade credit or terms provided by such vendor
to Borrower on the date of execution hereof.
32
(xi) The engagement or employment by Borrower
of any bankruptcy, restructuring or "turn-around" professionals.
(b) The Borrower shall:
(i) Provide the Lender, when so distributed,
with copies of any materials distributed to the shareholders of the Borrower
(qua such shareholders).
(ii) Add the Lender as an addressee on all
mailing lists maintained by or for the Borrower.
(iii) At the request of the Lender, from time to
time, provide the Lender with copies of all advertising (including copies of all
print advertising and duplicate tapes of all video and radio such advertising).
(iv) Provide the Lender, substantially when
received by the Borrower, with a copy of any management letter or similar
communications from any accountant of the Borrower.
9-4. Borrowing Base Certificate. The Borrower shall provide the Lender
daily with a Borrowing Base Certificate (in the form of EXHIBIT 9-4 annexed
hereto, as such form may be revised from time to time by the Lender, in
accordance with this Agreement). Such Certificate may be sent to the Lender by
facsimile transmission, provided that the original thereof is forwarded to the
Lender on the date of such transmission at its request. No adjustments to the
Borrowing Base Certificate may be made without support documentation and such
other documentation as may reasonably be requested by Lender from time to time.
9-5. Weekly Reports. Weekly, not later than Wednesday for the
immediately preceding fiscal week:
See EXHIBIT 9-R.
In the event that Availability equals Two Hundred Fifty Thousand ($250,000)
Dollars or less for seven (7) consecutive days, then Borrower shall provide
Lender with weekly cash flow reports in form and content satisfactory to Lender.
Failure on not more than two occasions to provide such reports by Wednesday
shall not constitute an Event of Default under Section 10.3; provided such
reports are provided by Friday of such week.
9-6. Monthly Reports.
(a) Monthly, the Borrower shall provide the Lender with
original counterparts of (each in such form as the Lender from time to time may
specify):
(i) Within fifteen (15) days of the end of the
previous month:
See EXHIBIT 9-R
33
(ii) Within thirty (30) days of the end of the
previous month:
Statement of Gross Margin (Paragon format)
See EXHIBIT 9-R
Failure on not more than two occasions to provide such reports
by the time specified shall not constitute an Event of Default under Section
10.3; provided such reports are provided within five (5) days of the time
specified.
(b) For purposes of Section 9-6(a)(i), above, the first
"previous month" in respect of which the items required by that Section shall be
provided shall be December, 2000 and for purposes of Section 9-6(a)(ii), above,
the first "previous month" in respect of which the items required by that
Section shall be provided shall be December, 2000. For purposes of this section,
reports for the month of January shall be due no later than thirty (30) days
after the execution of this Agreement.
9-7. Annual Reports.
(a) In addition to the monthly reports required under Article
9-6, annually, within sixty (60) days following the end of the Borrower's fiscal
year, the Borrower shall furnish the Lender with draft financial statements
certified by the Chief Financial Officer of Borrower that, to the best of
his/her knowledge, such financial statements fairly present the financial
condition of the Borrower, and annually within one hundred and twenty (120) days
following the end of the Borrower's fiscal year an original signed counterpart
of the Borrower's annual financial statement, which statement shall have been
prepared by, and bearing the unqualified opinion of, the Borrower's independent
certified public accountants (i.e. said statement shall be "certified" by such
accountants). Such annual statement shall include, at a minimum (with
comparative information for the then prior fiscal year) a balance sheet, income
statement, statement of changes in shareholders' equity, and cash flows.
(b) Each annual statement shall be accompanied by such
accountant's certificate indicating that to the best knowledge of such
accountant, no event has occurred which is or which, solely with the passage of
time or the giving of notice (or both) would be, an Event of Default.
(c) Borrower shall provide interim draft annual financial
statements (inclusive of subsequent periods, until year end statements are
delivered) within thirty (30) days of each year end.
9-8. Officers' Certificates. The Borrower shall cause the
Borrower's Chief Financial Officer to provide such Person's Certificate with
those monthly, quarterly, and annual statements to be furnished pursuant to this
Agreement, which Certificate shall:
(a) Indicate that the subject statement was prepared in
accordance with GAAP consistently applied, and presents fairly the financial
condition of the Borrower at the close of, and the results of the Borrower's
34
operations and cash flows for, the period(s) covered, subject, however (with the
exception of the Certificate which accompanies such annual statement) to usual
year end adjustments.
(b) Indicate either that (i) no Suspension Event has occurred
or (ii) if such an event has occurred, its nature (in reasonable detail) and the
steps (if any) being taken or contemplated by the Borrower to be taken on
account thereof.
(c) Include calculations concerning the Borrower's compliance
(or failure to comply) at the date of the subject statement with each of the
financial performance covenants included in Section 9-11 (and Exhibit 9-11) ,
below.
(d) Indicate that all taxes (broken down by type and taxing
authority) have or have not been paid.
(e) Indicate that all rent and additional rent (broken down by
store location) due pursuant to any store lease have or have not been paid.
9-9. Inventories. Appraisals. and Audits.
(a) The Lender, at the expense of the Borrower, may
participate in and/or observe each physical count and/or inventory of so much of
the Collateral as consists of Inventory which is undertaken on behalf of the
Borrower.
(b) Upon the Lender's request from time to time, the Borrower
shall obtain, or shall permit the Lender to obtain (in all events, at the
Borrower's expense) financial or SKU based physical counts and/or inventories of
the Collateral, conducted by such inventory takers as are reasonably
satisfactory to the Lender and following such methodology as reasonably may be
required by the Lender, each of which physical counts and/or financial or SKU
based inventories shall be observed by the Borrower's accountants. The Lender
will require the Borrower to conduct two (2) such counts and/or inventories
during each twelve (12) month period during which this Agreement is in effect,
but in its discretion, may undertake additional such counts or inventories
during such period. The draft or unaudited results of all inventories or counts
shall be furnished to Lender promptly thereafter and final, reconciled results
within ten (10) business days of the taking of such inventories or counts. The
Borrower agrees that the Lender is entitled to request and receive directly from
the inventory taker the unaudited or draft results of any such inventory or
audit.
(c) Upon the Lender's request from time to time, the Borrower
shall permit the Lender to obtain appraisals (in all events, at the Borrower's
expense) conducted by such appraisers as are reasonably satisfactory to the
Lender.
(d) The Lender contemplates conducting three (3) commercial
finance audits (in each event, at the Borrower's expense) of the Borrower's
books and records during any twelve (12) month period during which this
Agreement is in effect, but in its discretion, may undertake additional such
audits during such period.
35
(e) The Lender from time to time (in all events, at the
Borrower's expense) may undertake "mystery shopping" (so-called) visits to all
or any of the Borrower's business premises. The Lender shall provide the
Borrower with a copy of any non-company confidential results of such mystery
shopping upon Borrower's written request.
9-10. Additional Financial Information.
(a) In addition to all other information required to be
provided pursuant to this Article 9, the Borrower promptly shall provide the
Lender with such other and additional information concerning the Borrower and
any guarantor of the Liabilities, the Collateral, the operation of the
Borrower's business, and the Borrower's financial condition, including original
counterparts of financial reports and statements, as the Lender may from time to
time request from the Borrower.
(b) The Borrower has provided the Lender with its current
Business Plan, a copy of which is annexed hereto as EXHIBIT 9-10. The Borrower
may provide the Lender, from time to time hereafter, with updated Business
Plans. In all events, the Borrower, not later than sixty (60) days prior to the
end of each of the Borrower's fiscal years, shall furnish the Lender with an
updated and extended Business Plan which shall go out at least through the end
of the then next fiscal year and the final Business Plan within fifteen (15)
days prior to the end of Borrower's fiscal year. In each event, such updated and
extended Business Plans shall be prepared pursuant to a methodology and shall
include such assumptions as are reasonably satisfactory to the Lender. Routinely
throughout the year, the Lender, following the receipt of any of such revised
forecast which reflects a material adverse change in Borrower's business
performance, may, but shall not be under any obligation to, revise the financial
performance covenants included on EXHIBIT 9-11, annexed hereto.
9-11. Financial Performance and Inventory Covenants. The
Borrower shall observe and comply with those financial performance and
inventory covenants set forth on EXHIBIT 9-11 annexed hereto.
9-12. Electronic Reporting. At Lender's option all information and
reports required to be supplied to Lender by Borrower shall, to the extent
readily available, be transmitted electronically pursuant to an electronic
transmitting reporting system and shall be in a record layout format designated
by Lender from time to time.
ARTICLE 10 - EVENTS OF DEFAULT
The occurrence of any event described in this Article 10 respectively
shall constitute an "Event of Default" herein. Upon the occurrence of any Event
of Default described in Section 10-11, any and all Liabilities shall become due
and payable without any further act on the part of the Lender. Upon the
occurrence of any other Event of Default, any and all Liabilities shall become
immediately due and payable, at the option of the Lender and without notice or
demand. The occurrence of any Event of Default shall also constitute, without
notice or demand, a default under all other agreements between the Lender and
the Borrower and instruments and papers given the Lender by the Borrower,
whether such agreements, instruments, or papers now exist or hereafter arise.
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10-1. Failure to Pay Revolving Credit. The failure by the Borrower
to pay any amount when due under the Revolving Credit.
10-2. Failure To Make Other Payments. The failure by the Borrower
to pay within ten (10) days of the date when due (or upon demand, if payable on
demand) any payment Liability other than under the Revolving Credit.
10-3. Failure to Perform Covenant or Liability (No Grace Period). The
failure by the Borrower to promptly, punctually, faithfully and timely perform,
discharge, or comply with any covenant or Liability not otherwise described in
section 10-1 or section 10-2, above, and included in any of the following
provisions hereof:
Section Relates to:
5-4 Location of Collateral
5-5 Title to Assets
5-6 Indebtedness
5-7 Insurance Policies
5-12 Pay Taxes
5-21 Affiliate Transactions
5-23 Additional Assurances
Article 7 Cash Management
Article 9 Financial Reporting Requirements and
Officer's Certificates
10-4. Failure to Perform Covenant or Liability (Grace Period). The
failure by the Borrower to promptly, punctually and faithfully perform, or
observe any term, covenant or agreement on its part to be performed or observed
pursuant to any of the provisions of this Agreement, other than those described
in Sections 10-1, 10-2 or 10-3, or in any other agreement with Lender which is
not remedied within the earlier of twenty (20) days after (i) notice thereof by
Lender to Borrower, or (ii) the date Borrower was required to give notice to
Lender pursuant to Section 9-3(a)(vi) hereof.
10-5. Misrepresentation. The determination by the Lender that any
material representation or warranty at any time made by the Borrower to the
Lender was not true or complete in all material respects when given.
10-6. Acceleration of Other Debt. Breach of Lease. The occurrence
of any event such that any Indebtedness of the Borrower to any creditor other
than the Lender in excess of $100,000.00 is accelerated.
10-7. Default Under Other Agreements. The occurrence of any material
breach or material default under any agreement (other than this Agreement)
between the Lender and the Borrower or instrument or paper given the Lender by
the Borrower, whether such agreement, instrument, or paper now exists or
hereafter arises (notwithstanding that the Lender may not have exercised its
rights upon default under any such other agreement, instrument or paper).
37
10-8. Casualty Loss. Non-Ordinary Course Sales. The occurrence of
any (a) uninsured loss, theft, damage, or destruction of or to any material
portion of the Collateral, or (b) sale (other than sales in the ordinary course
of business) of any material portion of the Collateral.
10-9. Judgment. Restraint of Business.
(a) The service of process upon the Lender or any Participant
seeking to attach, by trustee, mesne, or other process, any of the Borrower's
funds on deposit with, or assets of the Borrower in the possession of, the
Lender or such Participant in excess of $100,000.00.
(b) The entry of any judgment against the Borrower, in excess
of $100,000.00 which judgment is not satisfied (if a money judgment) or appealed
from (with execution or similar process stayed) within thirty (30) days of its
entry.
(c) The entry of any order or the imposition of any other
process having the force of law, the effect of which is to restrain in any
material way the conduct by the Borrower of its business in the ordinary course.
10-10. Business Failure. Any act by, against, or relating to the
Borrower, or its property or assets, which act constitutes the application for,
consent to, or sufferance of the appointment of a receiver, trustee, or other
Person, pursuant to court action or otherwise, over all, or any part of the
Borrower's property; the granting of any trust mortgage or execution of an
assignment for the benefit of the creditors of the Borrower, or the occurrence
of any other voluntary or involuntary liquidation or extension of debt agreement
for the Borrower; or the offering by or entering into by the Borrower of any
composition, extension, or any other arrangement seeking relief from or
extension of the debts of the Borrower, or the initiation of any other judicial
or non-judicial proceeding or agreement by, against, or including the Borrower
which seeks or intends to accomplish a reorganization or arrangement with
creditors.
10-11. Bankruptcy. The failure by the Borrower to generally pay the
debts of the Borrower as they mature; the filing of any complaint, application,
or petition by or against the Borrower initiating any matter in which the
Borrower is or may be granted any relief from the debts of the Borrower pursuant
to the Bankruptcy Code or any other insolvency statute or procedure.
10-12. Insecurity. The occurrence of any event or circumstance with
respect to the Borrower such that Lender shall believe in good faith that the
prospect of payment of all or any part of the Liabilities or the performance by
the Borrower under this Agreement or any other agreement between the Lender and
the Borrower is materially impaired and it is unlikely that Borrower would be
able to cure such event or circumstance.
10-13. Default by Guarantor or Related Entity. The occurrence of any of
the foregoing Events of Default with respect to any guarantor of the
Liabilities, or the occurrence of any of the foregoing Events of Default with
respect to any parent (if the Borrower is a corporation), subsidiary, or Related
Entity, as if such guarantor, parent, or Related Entity were the "Borrower"
described therein. For purposes of this Agreement .Com shall not be considered a
"Related Entity".
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10-14. Indictment - Forfeiture. The indictment of, or institution of
any legal process or proceeding against, the Borrower, any Executive Officer or
any guarantor of the Liabilities under any federal, state, municipal, and other
civil or criminal statute, rule, regulation, order, or other requirement having
the force of law where the relief, penalties, or remedies sought or available
include the forfeiture of any property of the Borrower and/or the imposition of
any stay or other order, the effect of which could be to restrain in any
material way the conduct by the Borrower of its business in the ordinary course.
10-15. Termination of Guaranty. The termination or attempted
termination of any guaranty by any guarantor of the Liabilities.
10-16. Challenge to Loan Documents.
(a) Any challenge by or on behalf of the Borrower or any
guarantor of the Liabilities to the validity of any Loan Document or the
applicability or enforceability of any Loan Document strictly in accordance with
the subject Loan Document's terms or which seeks to void, avoid, limit, or
otherwise adversely affect any security interest created by or in any Loan
Document or any payment made pursuant thereto.
(b) Any determination by any court or any other judicial or
government authority that any Loan Document is not enforceable strictly in
accordance with the subject Loan Document's terms or which voids, avoids,
limits, or otherwise adversely affects any security interest created by any Loan
Document or any payment made pursuant thereto.
10-17. Executive Management. The death, disability, or failure of
any two of the following Persons: Xxxxx X. Xxxxx, Xxxxxxx X. Xxxxxxxx and
Xxxxxxx Xxxxxxxx at any time to exercise that authority and discharge those
management responsibilities with respect to the Borrower as are exercised and
discharged by such Person at the execution of this Agreement unless such
Person(s) is replaced within sixty (60) days of the operative event with a new
Person(s) charged with exercising such management responsibilities.
10-18. Change in Control. Any change in the ownership of the capital
stock of the Borrower such that Control of the Borrower is no longer vested in
parties, individually or collectively with other such parties, that were
reported as beneficial owners on the Company's Annual Report on Form 10K/A filed
May 12, 2000.
10-19. Material Adverse Change. If there is a Material Adverse Change.
ARTICLE 11 - RIGHTS AND REMEDIES UPON DEFAULT
In addition to all of the rights, remedies, powers, privileges, and
discretions which the Lender is provided prior to the occurrence of an Event of
Default, the Lender shall have the following rights and remedies upon the
occurrence of any Event of Default and at any time thereafter. No stay which
otherwise might be imposed pursuant to the Bankruptcy Code or otherwise shall
39
stay, limit, prevent, hinder, delay, restrict, or otherwise prevent the Lender's
exercise of any of such rights and remedies.
11-1. Rights of Enforcement. The Lender shall have all of the
rights and remedies of a secured party upon default under the UCC, in addition
to which the Lender shall have all and each of the following rights and
remedies:
(a) To collect the Receivables Collateral with or without
the taking of possession of any of the Collateral.
(b) To take possession of all or any portion of the
Collateral.
(c) To sell, lease, or otherwise dispose of any or all of the
Collateral, in its then condition or following such preparation or processing as
the Lender deems advisable and with or without the taking of possession of any
of the Collateral.
(d) To conduct one or more going out of business sales,
strategic sales or other sales which include the sale or other disposition of
the Collateral.
(e) To apply the Receivables Collateral or the proceeds
of the Collateral towards (but not necessarily in complete satisfaction of)
the Liabilities.
(f) To exercise all or any of the rights, remedies,
powers, privileges, and discretions under all or any of the Loan Documents.
11-2. Sale of Collateral.
(a) Any sale or other disposition of the Collateral may be at
public or private sale upon such terms and in such manner as the Lender deems
advisable, having due regard to compliance with any statute or regulation which
might affect, limit, or apply to the Lender's disposition of the Collateral.
(b) The Lender, in the exercise of the Lender's rights and
remedies upon default, may conduct one or more going out of business sales, in
the Lender's own right or by one or more agents and contractors. Such sale(s)
may be conducted upon any premises owned, leased, or occupied by the Borrower.
To the extent permitted by law, the Lender and any such agent or contractor, in
conjunction with any such sale, may augment the Inventory with other goods (all
of which other goods shall remain the sole property of the Lender or such agent
or contractor). Any amounts realized from the sale of such goods which
constitute augmentations to the Inventory (net of an allocable share of the
costs and expenses incurred in their disposition) shall be the sole property of
the Lender or such agent or contractor and neither the Borrower nor any Person
claiming under or in right of the Borrower shall have any interest therein.
(c) Unless the Collateral is perishable or threatens to
decline speedily in value, or is of a type customarily sold on a recognized
market (in which event the Lender shall provide the Borrower with such notice as
may be practicable under the circumstances), the Lender shall give the Borrower
at least five (5) days prior written notice of the date, time, and place of any
40
proposed public sale, and of the date after which any private sale or other
disposition of the Collateral may be made. The Borrower agrees that such written
notice shall satisfy all requirements for notice to the Borrower which are
imposed under the UCC or other applicable law with respect to the exercise of
the Lender's rights and remedies upon default.
(d) The Lender may purchase the Collateral, or any portion of
it at any sale held under this Article.
(e) The Lender shall apply the proceeds of any exercise of the
Lender's Rights and Remedies under this Article 11 towards the Liabilities in
such manner, and with such frequency, as the Lender determines.
11-3. Occupation of Business Location. In connection with the Lender's
exercise of the Lender's rights under this Article 11, the Lender may enter
upon, occupy, and use any premises owned or occupied by the Borrower, and may
exclude the Borrower from such premises or portion thereof as may have been so
entered upon, occupied, or used by the Lender. The Lender shall not be required
to remove any of the Collateral from any such premises upon the Lender's taking
possession thereof, and may render any Collateral unusable to the Borrower. In
no event shall the Lender be liable to the Borrower for use or occupancy by the
Lender of any premises pursuant to this Article 11, nor for any charge (such as
wages for the Borrower's employees and utilities) incurred in connection with
the Lender's exercise of the Lender's Rights and Remedies.
11-4. Grant of Nonexclusive License. The Borrower hereby grants to the
Lender a royalty free nonexclusive irrevocable license to use, apply, and affix
any trademark, tradename, logo, or the like in which the Borrower now or
hereafter has rights, such license being with respect to the Lender's exercise
of the rights hereunder including, without limitation, in connection with any
completion of the manufacture of Inventory or sale or other disposition of
Inventory.
11-5. Assembly of Collateral. The Lender may require the Borrower to
assemble the Collateral and make it available to the Lender at the Borrower's
sole risk and expense at a place or places which are reasonably convenient to
both the Lender and Borrower.
11-6. Rights and Remedies. The rights, remedies, powers, privileges,
and discretions of the Lender hereunder (herein, the "Lender's Rights and
Remedies") shall be cumulative and not exclusive of any rights or remedies which
it would otherwise have. No delay or omission by the Lender in exercising or
enforcing any of the Lender's Rights and Remedies shall operate as, or
constitute, a waiver thereof. No waiver by the Lender of any Event of Default or
of any default under any other agreement shall operate as a waiver of any other
default hereunder or under any other agreement. No single or partial exercise of
any of the Lender's Rights or Remedies, and no express or implied agreement or
transaction of whatever nature entered into between the Lender and any Person,
at any time, shall preclude the other or further exercise of the Lender's Rights
and Remedies. No waiver by the Lender of any of the Lender's Rights and Remedies
on any one occasion shall be deemed a waiver on any subsequent occasion, nor
shall it be deemed a continuing waiver. All of the Lender's Rights and Remedies
and all of the Lender's rights, remedies, powers, privileges, and discretions
under any other agreement or transaction are cumulative, and not alternative or
41
exclusive, and may be exercised by the Lender at such time or times and in such
order of preference as the Lender in its sole discretion may determine. The
Lender's Rights and Remedies may be exercised without resort or regard to any
other source of satisfaction of the Liabilities.
ARTICLE 12 - NOTICES
12-1. Notice Addresses. All notices, demands, and other communications
made in respect of this Agreement (other than a request for a loan or advance or
other financial accommodation under the Revolving Credit) shall be made to the
following addresses, each of which may be changed upon seven (7) days written
notice to all others given by certified mail, return receipt requested:
If to the Lender: Paragon Capital LLC
Xxxxxxxx Xxxxxx Xxxxxxxx
00 Xxxxxx Xxxxxx, Xxxxx 000
Xxxxxxx, Xxxxxxxxxxxxx 00000
Attention: Xxxxxx X. Xxxxx, President
Phone: (000) 000-0000
Fax: (000) 000-0000
With a copy to: Xxxx Xxxxx Xxxxx Xxxxxx, Esq.
Xxxxx X. Xxxxxxx, Esq.
Xxxxxxx, Xxxxxx & Xxxxxx, P.C.
000 Xxxxx Xxxxxxxxxx Xxxxxx
Xxxxxx, Xxxxxxxxxxxxx 00000
Phone: (000) 000-0000
Fax: (000) 000-0000
If to the Borrower: The Right Start, Inc.
0000 Xxxxxxxx Xxxxxx Xxxxx
Xxxxxxxx Xxxxxxx, Xxxxxxxxxx 00000
Attention: Xxxxx X. Xxxxx/Legal
Phone: (000) 000-0000
Fax: (000) 000-0000
12-2. Notice Given.
(a) Except as otherwise specifically provided herein, notices
shall be deemed made and correspondence received, as follows (all times being
local to the place of delivery or receipt):
(i) By mail: the sooner of when actually
received or three (3) days following deposit in the United States mail, postage
prepaid.
(ii) By recognized overnight express delivery:
the Banking Day following the day when sent.
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(iii) By hand: If delivered on a Banking Day
after 9:00 A.M. and no later than three (3) hours prior to the close of
customary business hours of the recipient, when delivered. Otherwise, at the
opening of the then next Banking Day.
(iv) By facsimile transmission (which must
include a header indicating the party sending such transmission): If sent on a
Banking Day after 9:00 A.M. and no later than Three (3) hours prior to the close
of customary business hours of the recipient, one (1) hour after being sent.
Otherwise, at the opening of the then next Banking Day.
(b) Rejection or refusal to accept delivery and inability to
deliver because of a changed address or facsimile number for which no due notice
was given shall each be deemed receipt of the notice sent.
ARTICLE 13 - TERM
13-1. Termination of Revolving Credit. This Agreement is, and is
intended to be, a continuing agreement and shall remain in full force and effect
for an initial term ending on the Maturity Date, and thereafter for successive
twelve-month periods, each beginning on the 23rd day of January (commencing
January 23, 2006) of each year and ending on January 22nd of the following year
(each such twelve-month period is hereinafter referred to as a "renewal term");
provided, however, that either party may terminate this Agreement as of the end
of the initial term or any subsequent renewal term by giving the other party
notice to terminate in writing at least one hundred twenty (120) days prior to
the end of any such period whereupon at the end of such period all Liabilities
shall be due and payable in full without presentation, demand, or further notice
of any kind, whether or not all or any part of the Liabilities is otherwise due
and payable pursuant to the agreement or instrument evidencing same. Lender may
terminate this Agreement immediately and without notice upon the occurrence of
an Event of Default. Notwithstanding the foregoing or anything in this Agreement
or elsewhere to the contrary, the security interest, Lender's rights and
remedies hereunder and Borrower's obligations and liabilities hereunder shall
survive any termination of this Agreement and shall remain in full force and
effect until all of the Liabilities outstanding, or contracted or committed for
(whether or not outstanding), before the receipt of such notice by Lender, and
any extensions or renewals thereof (whether made before or after receipt of such
notice), together with interest accruing thereon after such notice, shall be
finally and irrevocably paid in full. No Collateral shall be released or
financing statement terminated until such final and irrevocable payment in full
of the Liabilities, as described in the preceding sentence.
13-2. Effect of Termination. Upon the termination of Revolving Credit,
the Borrower shall pay the Lender (whether or not then due), in immediately
available funds, all then Liabilities including, without limitation: the entire
balance of the Loan Account; any then remaining installments of the Commitment
Fee; any then remaining balances of the Annual Facility Fee and Loan Maintenance
Fee; any accrued and unpaid Unused Line Fee; any Prepayment Premium and all
unreimbursed costs and expenses of the Lender for which the Borrower is
responsible, and shall make such arrangements concerning any L/C's then
outstanding are reasonably satisfactory to the Lender. Until such payment, all
provisions of this Agreement, other than those contained in Article 1 which
place an obligation on the Lender to make any loans or advances or to provide
financial accommodations under the Revolving Credit or otherwise, shall remain
43
in full force and effect until all Liabilities shall have been paid in full. The
release by the Lender of the security interests granted the Lender by the
Borrower hereunder may be upon such conditions and indemnifications as the
Lender may require.
13-3. Prepayment Premium. If (A) Borrower pays in full all or
substantially all of the Liabilities prior to the end of the initial term of
this Agreement (or any renewal term), other than (i) temporarily from funds
internally generated in the ordinary course of business or (ii) as a result of
the Borrower obtaining a larger credit facility from Lender from time to time or
(iii) as a result of payment in full made in the last ninety (90) days of the
initial term of this Agreement (or any renewal term) or (iv) payment in full
within sixty (60) days after Lender adds Availability Reserves of a type not
included in the Borrowing Base Certificate at Closing in an aggregate amount in
excess of $250,000.00 (in which event one-half of the then applicable prepayment
premium shall be due and payable) or (B) following an acceleration by Lender of
the Liabilities pursuant to Article 10 hereof, at the time of such payment, or
upon acceleration as the case may be, Borrower shall also pay to Lender a
prepayment premium in an amount equal to (i) three (3%) percent of the Credit
Limit if prepaid during the first year after the Closing Date of this Agreement;
provided, however, in the event that during the first year after the Closing
Date of this Agreement only (a) Borrower obtains an equity injection of at least
$10,000,000.00 and pays off Lender in full, provided Lender is granted a right
of first option to provide any new debt financing which the Borrower seeks to
obtain at that time or (b) if the Lender is paid in full due to the sale or
acquisition of the Borrower then such fee will be reduced to one and one half
(1.5%) percent of the Credit Limit; or (ii) one (1%) percent of the Credit
Limit, if prepaid after the first anniversary of the Closing Date.
Such prepayment premium shall be paid to Lender as liquidated
damages for the loss of the bargain by Lender and not as a penalty.
ARTICLE 14 - GENERAL
14-1. Protection of Collateral. The Lender has no duty as to the
collection or protection of the Collateral beyond the safe custody of such of
the Collateral as may come into the possession of the Lender and shall have no
duty as to the preservation of rights against prior parties or any other rights
pertaining thereto. The Lender may include reference to the Borrower (and may
utilize any logo or other distinctive symbol associated with the Borrower) in
connection with any advertising, promotion, or marketing undertaken by the
Lender, provided Lender shall use and display symbols and notices of ownership
of the Borrower's marks clearly and sufficiently indicating ownership status of
the marks (if known by Lender) and in accordance with applicable trademark law
and practice. Lender shall use all reasonable efforts to insure that Borrower's
marks are not impaired and that Lender does not damage the reputation for
quality inherent in the marks. When using the marks, Lender shall use all
reasonable efforts not to create any composite or unitary marks.
14-2. Successors and Assigns. This Agreement shall be binding upon the
Borrower and the Borrower's representatives, successors, and assigns and shall
enure to the benefit of the Lender and the Lender's successors and assigns
provided, however, no trustee or other fiduciary appointed with respect to the
Borrower shall have any rights hereunder. In the event that the Lender assigns
or transfers its rights under this Agreement, the assignee shall thereupon
44
succeed to and become vested with all rights, powers, privileges, and duties of
the Lender hereunder and the Lender shall thereupon be discharged and relieved
from its duties and obligations hereunder.
14-3. Severability. Any determination that any provision of this
Agreement or any application thereof is invalid, illegal, or unenforceable in
any respect in any instance shall not affect the validity, legality, or
enforceability of such provision in any other instance, or the validity,
legality, or enforceability of any other provision of this Agreement.
14-4. Amendments. Course of Dealing.
(a) This Agreement and the other Loan Documents incorporate
all discussions and negotiations between the Borrower and the Lender, either
express or implied, concerning the matters included herein and in such other
instruments, any custom, usage, or course of dealings to the contrary
notwithstanding. No such discussions, negotiations, custom, usage, or course of
dealings shall limit, modify, or otherwise affect the provisions thereof. No
failure by the Lender to give notice to the Borrower of the Borrower's having
failed to observe and comply with any warranty or covenant included in any Loan
Document shall constitute a waiver of such warranty or covenant or the amendment
of the subject Loan Document. No change made by the Lender in the manner by
which Availability is determined shall obligate the Lender to continue to
determine Availability in that manner.
(b) The Borrower may undertake any action otherwise prohibited
hereby, and may omit to take any action otherwise required hereby, upon and with
the express prior written consent of the Lender. No consent, modification,
amendment, or waiver of any provision of any Loan Document shall be effective
unless executed in writing by or on behalf of the party to be charged with such
modification, amendment, or waiver (and if such party is the Lender, then by a
duly authorized officer thereof). Any modification, amendment, or waiver
provided by the Lender shall be in reliance upon all representations and
warranties theretofore made to the Lender by or on behalf of the Borrower (and
any guarantor, endorser, or surety of the Liabilities) and consequently may be
rescinded in the event that any of such representations or warranties was not
true and complete in all material respects when given.
14-5. Power of Attorney. In connection with all powers of attorney
included in this Agreement, the Borrower hereby grants unto the Lender full
power to do any and all things necessary or appropriate in connection with the
exercise of such powers as fully and effectually as the Borrower might or could
do, hereby ratifying all that said attorney shall do or cause to be done by
virtue of this Agreement. No power of attorney set forth in this Agreement shall
be affected by any disability or incapacity suffered by the Borrower and each
shall survive the same. All powers conferred upon the Lender by this Agreement,
being coupled with an interest, shall be irrevocable until this Agreement is
terminated by a written instrument executed by a duly authorized officer of the
Lender.
14-6. Application of Proceeds. The proceeds of any collection, sale, or
disposition of the Collateral, or of any other payments received hereunder,
shall be applied towards the Liabilities in such order and manner as the Lender
determines in its sole discretion. The Borrower shall remain liable for any
deficiency remaining following such application.
45
14-7. Lender's Costs and Expenses. The Borrower shall pay on demand all
Costs of Collection and all reasonable expenses of the Lender in connection with
the preparation, execution, and delivery of this Agreement and of any other Loan
Documents, whether now existing or hereafter arising, and all other reasonable
expenses which may be incurred by the Lender in monitoring compliance with this
Agreement and in preparing or amending this Agreement and all other agreements,
instruments, and documents related thereto, or otherwise incurred with respect
to the Liabilities, including, without limiting the generality of the foregoing,
any counsel fees or expenses incurred in any bankruptcy or insolvency
proceedings. The Borrower specifically authorizes the Lender to pay all such
fees and expenses and in the Lender's discretion, to add such fees and expenses
to the Loan Account. Borrower shall be obligated, from time to time, to pay
Lender's fees, including reasonable attorneys' fees and expenses for the
preparation, negotiation, amendment and interpretation of this Agreement and
related documents.
14-8. Copies and Facsimiles. This Agreement and all documents which
relate thereto, which have been or may be hereinafter furnished the Lender may
be reproduced by the Lender by any photographic, microfilm, xerographic, digital
imaging, or other process, and the Lender may destroy any document so
reproduced. Any such reproduction shall be admissible in evidence as the
original itself in any judicial or administrative proceeding (whether or not the
original is in existence and whether or not such reproduction was made in the
regular course of business). Any facsimile which bears proof of transmission
shall be binding on the party which or on whose behalf such transmission was
initiated and likewise shall be so admissible in evidence as if the original of
such facsimile had been delivered to the party which or on whose behalf such
transmission was received.
14-9. Massachusetts Law. This Agreement and all rights and
obligations hereunder, including matters of construction, validity, and
performance, shall be governed by the laws of The Commonwealth of Massachusetts.
14-10. Consent to Jurisdiction.
(a) The Borrower agrees that any legal action, proceeding,
case, or controversy against the Borrower with respect to any Loan Document may
be brought in the Superior Court of Middlesex County, Massachusetts or in the
United States District Court, District of Massachusetts, sitting in Boston,
Massachusetts, as the Lender may elect in the Lender's sole discretion. By
execution and delivery of this Agreement, the Borrower, for itself and in
respect of its property, accepts, submits, and consents generally and
unconditionally, to the jurisdiction of the aforesaid courts.
(b) Nothing herein shall affect the right of the Lender to
bring legal actions or proceedings in any other competent jurisdiction.
(c) The Borrower agrees that any action commenced by the
Borrower asserting any claim or counterclaim arising under or in connection with
this Agreement or any other Loan Document shall be brought solely in the
Superior Court of Middlesex County, Massachusetts or in the United States
District Court, District of Massachusetts, sitting in Boston, Massachusetts, and
46
that such Courts shall have exclusive jurisdiction with respect to any such
action.
14-11. Indemnification. The Borrower shall indemnify, defend, and hold
the Lender and any employee, officer, or agent of the Lender (each, an
"Indemnified Person") harmless of and from any damages, losses, obligations,
liabilities, claims, actions or causes of action, including without limitation,
with respect to taxes and interest and penalties with respect thereto, brought
or threatened against any Indemnified Person by the Borrower, any guarantor or
endorser of the Liabilities, or any other Person (as well as from attorneys'
reasonable fees and expenses in connection therewith) on account of the
relationship of the Borrower or of any guarantor or endorser of the Liabilities
with the Lender or any other Indemnified Person(each of which claims may be
defended, compromised, settled, or pursued by the Indemnified Person with
counsel of the Lender's selection, but at the expense of the Borrower) other
than any claim as to which a final determination is made in a judicial
proceeding (in which the Lender and any other Indemnified Person has had an
opportunity to be heard), which determination includes a specific finding that
the Indemnified Person seeking indemnification had acted in a grossly negligent
manner or in actual bad faith. This indemnification shall survive payment of the
Liabilities and/or any termination, release, or discharge executed by the Lender
in favor of the Borrower.
14-12. Right of Set-Off. Any and all deposits or other sums at any time
credited by or due to the undersigned from the Lender or from any participant (a
"Participant") with the Lender in the credit facility contemplated hereby and
any cash, securities, instruments or other property of the undersigned in the
possession of the Lender or any Participant, whether for safekeeping or
otherwise (regardless of the reason such Person had received the same) shall at
all times constitute security for all Liabilities and for any and all
obligations of the undersigned to the Lender and any Participant, and may be
applied or set off against the Liabilities and against such obligations at any
time, whether or not such are then due and whether or not other collateral is
then available to the Lender or any Participant.
14-13. Usury Savings Clause. It is the intention of the parties hereto
to comply strictly with applicable usury laws, if any; accordingly,
notwithstanding any provisions to the contrary in this Agreement or any other
Loan Documents, in no event shall this Agreement or such Loan Document require
or permit the payment, taking, reserving, receiving, collecting or charging of
any sums constituting interest under applicable laws which exceed the maximum
amount permitted by such laws. If any such excess interest is called for,
contracted for, charged, paid, taken, reserved, collected or received in
connection with the Liabilities or in any communication by Lender or any other
Person to the Borrower or any other Person, or in the event all or part of the
principal of the Liabilities or interest thereon shall be prepaid or
accelerated, so that under any of such circumstances or under any other
circumstance whatsoever the amount of interest contracted for, charged, taken,
collected, reserved, or received on the amount of principal actually outstanding
from time to time under this Agreement shall exceed the maximum amount of
interest permitted by applicable usury laws, if any, then in any such event it
is agreed as follows: (i) the provisions of this paragraph shall govern and
control, (ii) neither the Borrower nor any other Person or entity now or
hereafter liable for the payment of the Liabilities shall be obligated to pay
the amount of such interest to the extent such interest is in excess of the
maximum amount of interest permitted by applicable usury laws, if any, (iii) any
such excess which is or has been received notwithstanding this paragraph shall
be credited against the then unpaid principal balance hereof or, if the
47
Liabilities have been or would be paid in full by such credit, refunded to the
Borrower, and (iv) the provisions of this Agreement and the other Loan
Documents, and any communication to the Borrower, shall immediately be deemed
reformed and such excess interest reduced, without the necessity of executing
any other document, to the maximum lawful rate allowed under applicable laws as
now or hereafter construed by courts having jurisdiction hereof or thereof.
Without limiting the foregoing, all calculations of the rate of interest
contracted for, charged, taken, collected, reserved, or received in connection
herewith which are made for the purpose of determining whether such rate exceeds
the maximum lawful rate shall be made to the extent permitted by applicable laws
by amortizing, prorating, allocating and spreading during the period of the full
term of the Liabilities, including all prior and subsequent renewals and
extensions, all interest at any time contracted for, charged, taken, collected,
reserved or received. The terms of this paragraph shall be deemed to be
incorporated in every Loan Document and communication relating to the
Liabilities.
14-14. Waivers.
(a) The Borrower and each and every guarantor, endorser, and
surety of the Liabilities) makes each of the waivers included in Section
14-14(b), below, knowingly, voluntarily, and intentionally, and understands that
the Lender, in entering into the financial arrangements contemplated hereby and
in providing loans and other financial accommodations to or for the account of
the Borrower as provided herein, whether not or in the future, is relying on
such waivers.
(b) THE BORROWER, AND EACH SUCH GUARANTOR, ENDORSER, AND
SURETY RESPECTIVELY WAIVES THE FOLLOWING.
(i) Except as otherwise specifically required
in this Agreement, notice of non-payment, demand, presentment, protest and all
forms of demand and notice, both with respect to the Liabilities and the
Collateral.
(ii) Except as otherwise specifically required
in this Agreement, the right to notice and/or hearing prior to the Lender's
exercising of the Lender's rights upon default.
(iii) THE RIGHT TO A JURY IN ANY TRIAL OF ANY CASE
OR CONTROVERSY IN WHICH THE LENDER IS OR BECOMES A PARTY (WHETHER SUCH CASE OR
CONTROVERSY IS INITIATED BY OR AGAINST THE LENDER OR IN WHICH THE LENDER IS
JOINED AS A PARTY LITIGANT), WHICH CASE OR CONTROVERSY ARISES OUT OF OR IS IN
RESPECT OF, ANY RELATIONSHIP AMONGST OR BETWEEN THE BORROWER OR ANY OTHER PERSON
AND THE LENDER (AND THE LENDER LIKEWISE WAIVES THE RIGHT TO A JURY IN ANY TRIAL
OF ANY SUCH CASE OR CONTROVERSY).
(iv) Intentionally deleted.
(v) Any defense, counterclaim, set-off,
recoupment, or other basis on which the amount of any Liability, as stated on
the books and records of the Lender, could be reduced or claimed to be paid
48
otherwise than in accordance with the tenor of and written terms of such
Liability.
(vi) Any claim to consequential, special, or
punitive damages.
14-15. Confidentiality. This Agreement and the terms hereof are
confidential, and neither the contents of this Agreement or the details of this
Agreement may be shown or disclosed by the Borrower to any bank, finance
company or other lender without the prior written consent of the Lender.
14-16. Right to Publish Notice. Lender may, at Lender's discretion
and expense, publicize or otherwise advertise by so-called "tombstone"
advertising or otherwise Lender's and any Participant's financing transaction
with the Borrower.
14-17. Entities Related to Lender. Borrower acknowledges notice that
Lender is affiliated with The Ozer Group, LLC ("Ozer"), Ozer Valuation Services,
Inc. ("Ozer Valuation"), Ozer Wholesale Services, Inc. ("OWS") and Ozer Retail
Services LLC ("ORS"). Ozer, Ozer Valuation, OWS, ORS and other entities related
to Lender may, from time to time act as a merchant consultant or provide
merchant services, appraisal services or other services (including without
limitation, observation of physical inventories conducted in the ordinary course
or in connection with store closings) to Lender with respect to Borrower.
Borrower agrees that none of Lender, Ozer, Ozer Valuation, OWS, ORS nor any
other related entities shall have any liability to Borrower, and Borrower agrees
that Borrower shall have no claim against any of such entities, based on the
existence of such relationship.
14-18. Credit Inquiries. Borrower authorizes Lender to (provided,
however, Lender shall incur no liability for the failure to) respond to credit
inquiries concerning Borrower in accordance with Lender's normal and customary
practices. Borrower hereby indemnifies and holds Lender harmless for any action
taken by Lender in reliance upon the foregoing authorization.
Executed as a sealed instrument this 23rd day of January 2001.
THE RIGHT START, INC.
(BORROWER)
By:/s/ Xxxxx X. Xxxxx
Print Name: Xxxxx X. Xxxxx
Title: President and Chief Executive Officer
PARAGON CAPITAL LLC
(LENDER)
By:/s/ Xxxxxx X. Xxxxx
Print Name: Xxxxxx X. Xxxxx
Title: President & COO
49
EXHIBIT 1-6 TO LOAN AND SECURITY AGREEMENT
MASTER NOTE
(REVOLVING)
$10,000,000.00 Needham, Massachusetts
_____________, 2001
For value received, the undersigned, The Right Start, Inc., a
California corporation (the "Borrower"), hereby promises to pay on the Maturity
Date (as defined in the Loan Agreement) to the order of Paragon Capital LLC, a
Delaware limited liability company (the "Lender"), at its main office in
Needham, Massachusetts, or at any other place designated at any time by the
holder hereof, in lawful money of the United States of America and in
immediately available funds, the principal sum of Ten Million ($10,000,000.00)
Dollars or, if less, the aggregate unpaid principal amount of all advances made
by the Lender to the Borrower hereunder, together with interest on the principal
amount hereunder remaining unpaid from time to time, computed on the basis of
the actual number of days elapsed and a 360-day year, from the date hereof until
this Note is fully paid at the rate from time to time in effect under the Loan
and Security Agreement of even date herewith (the "Loan Agreement") by and
between the Lender and the Borrower. The principal hereof and interest accruing
thereon shall be due and payable as provided in the Loan Agreement. This Note
may be prepaid only in accordance with the Loan Agreement.
This Note is issued pursuant, and is subject, to the Loan Agreement,
which provides, among other things, for acceleration hereof. This Note is the
Master Note referred to in the Loan Agreement.
This Note is secured, among other things, pursuant to the Loan
Agreement and may now or hereafter be secured by one or more other security
agreements, mortgages, deeds of trust, assignments or other instruments or
agreements.
The Borrower hereby agrees to pay all costs of collection, including
attorneys' fees and legal expenses in the event this Note is not paid when due,
whether or not legal proceedings are commenced.
Presentment or other demand for payment, notice of dishonor and protest
are expressly waived.
This Note shall be deemed to be under seal.
THE RIGHT START, INC.
By:______________________________________
50
EXHIBIT 3
"Acceptable Inventory": Such of the Borrower's Inventory, at such
locations, and of such types, character, qualities and quantities, (net of
Inventory Reserves), as to which Inventory, the Lender has a perfected security
interest which is prior and superior to all security interests, claims, and
Encumbrances.
"Account Debtor": Has the meaning given that term in the UCC.
"Accounts Receivable" include, without limitation, "accounts" as
defined in the UCC.
"ACH": Automated clearing house.
"Advances": Means funds advanced to Borrower or otherwise in accordance
with this Agreement.
"Advance Rates": Means the percentage(s) of the Cost of Acceptable
Inventory or Net Retail Liquidation Value used to calculate the Borrowing Base.
"Affiliate": With respect to any two Persons, a relationship in which
(a) one holds, directly or indirectly, not less than twenty-five (25%) percent
of the capital stock, beneficial interests, partnership interests, or other
equity interests of the other; or (b) one has, directly or indirectly, Control
of the other; or (c) not less than twenty-five (25%) percent of their respective
ownership is directly or indirectly held by the same third Person.
"Annual Facility Fee": Is defined in Section 1-9(a).
"Availability": Means at any time of determination an amount equal to
the lesser of the Borrowing Base and the Credit Limit in either case, minus (i)
the then unpaid principal balance of the Loan Account, minus (ii) the then
aggregate of such Reserves (other than Inventory Reserves) as may have been
established by Lender, minus (iii) one hundred (100%) percent of the then
outstanding Stated Amount of all standby L/C's; minus (iv) the greater of (x)
thirty (30%) percent or (y) the reciprocal of the applicable Advance Rate for
the Standard Line of the then Stated Amount of all Documentary L/C's, plus all
freight and duty charges applicable thereto
"Availability Reserves": Such reserves as the Lender from time to time
determines in the Lender's reasonable discretion as being appropriate to reflect
impediments to the Lender's ability to realize upon the Collateral as of the
Closing Date or any increase in such impediments subsequent to the Closing Date.
Without limiting the generality of the foregoing, Availability Reserves may
include (but are not limited to) reserves based on (but in each case not greater
than) the following:
(a) Rent (in the amount of past due rent and in which no
landlord's waiver, acceptable to the Lender, has been received by the Lender in
accordance with Section 5.4).
51
(b) In store customer credits and gift certificates.
(c) Payables (based upon payables which are past due
normal trade terms).
(d) Taxes and other governmental charges, including, ad
valorem, personal property, and other taxes which may have priority over the
security interests of the Lender in the Collateral.
(e) Held or post-dated checks.
"Average Unused Portion of the Credit Limit": Means, as of any date of
determination, (a) the Credit Limit, minus (b) the sum of (i) the average daily
balance of advances that were outstanding during the immediately preceding
month, plus, (ii) the average daily balance of the undrawn L/C's outstanding
during the immediately preceding month.
"Banking Day": Any day other than (a) a Saturday, Sunday; (b) any day
on which banks in Boston, Massachusetts are not open to the general public for
the purpose of conducting commercial banking business; or (c) a day on which the
Lender is not open to the general public to conduct business.
"Bankruptcy Code": Title 11, U.S.C., as amended from time to time.
"Base": The Base Rate announced from time to time by Xxxxx Fargo Bank,
N.A. (or any successor in interest to Xxxxx Fargo Bank, N.A). In the event that
said bank (or any such successor) ceases to announce such a rate, "Base" shall
refer to that rate or index announced or published from time to time as the
Lender, in good faith, designates as the functional equivalent to said Base
Rate. Any change in "Base" shall be effective, for purposes of the calculation
of interest due hereunder, when such change is made effective generally by the
bank on whose rate or index "Base" is being set.
"Basis Point(s)": An amount which is equal to 1/100th of one (1%)
percent. For example, one and one-half (1.5%) percent equals 150 basis points.
"Blocked Account": Is defined in Article 7-1(b)(i).
"Borrower": Is defined in the Preamble.
"Borrowing Base": Means amounts up to the lesser of (i) the aggregate
of the Standard Line and the Special Subline of the Cost value of Acceptable
Inventory (as described in subsection (i) of the definition of each such term)
and (ii) one hundred (100%) percent of the Net Retail Liquidation Value.
"Borrowing Base Certificate": Means the certificate in the same form
attached as EXHIBIT 9-4, provided to Lender in connection with any request for
advances and/or L/C's, setting forth, among other things, Availability.
52
"Business Plan": The Borrower's business plan annexed hereto as EXHIBIT
9-10 and any revision, amendment, or update of such business plan to which the
Lender has provided its written sign-off.
"Capital Expenditures": The expenditure of funds or the incurrence
of liabilities which may be capitalized in accordance with GAAP.
"Capital Lease": Any lease which may be capitalized in accordance with
GAAP.
"Chattel Paper": Has the meaning given that term in the UCC.
"Closing Date": means the date of the first to occur of the making of
the initial Advance or the issuance of the initial L/C.
"Collateral": Is defined in Section 2-1.
"Concentration Account": Is defined in Section 7-3.
"Control": The direct or indirect power to direct or cause the
direction of the management and policies of another Person, whether through
ownership of voting securities, by contract, or otherwise. Included among such
powers, with respect to a corporation, are power to cause any of following: (a)
the election of a majority of its Board of Directors; (b) the issuance of
additional shares of its common stock; (c) the issuance and designation of
rights and shares of its preferred stock (if any); (d) the distribution and
timing of dividends; (e) the award of performance bonuses to its management; (f)
the termination or severance of officers or key employees; and (g) all or any
similar matters.
"Cost": The calculated cost of purchases, as determined from invoices
received by the Borrower, the Borrower's Purchase Journal or Stock Ledger, based
upon the Borrower's accounting practices, known to the Lender, which practices
are in effect on the date on which this Agreement was executed. "Cost" does not
include any inventory capitalization costs inclusive of advertising, but may
include other charges used in the Borrower's determination of cost of goods sold
and bringing goods to market, all within Lender's sole discretion and in
accordance with GAAP.
"Cost Factor": The result of 1 minus the Borrower's then cumulative
markup percent derived from the Borrower's purchase journal on a rolling twelve
(12) month basis.
"Costs of Collection": includes, without limitation, all attorneys'
reasonable fees and reasonable out-of-pocket expenses incurred by the Lender's
attorneys, and all reasonable costs incurred by the Lender in the administration
of the Liabilities and/or the Loan Documents, including, without limitation,
reasonable costs and expenses associated with travel on behalf of the Lender,
which costs and expenses are directly or indirectly related to or in respect of
the Lender's: administration and management of the Liabilities; negotiation,
documentation, and amendment of any Loan Document; or efforts to preserve,
protect, collect, or enforce the Collateral, the Liabilities, and/or the
Lender's Rights and Remedies and/or any of the Lender's rights and remedies
against or in respect of any guarantor or other Lender liable in respect of the
53
Liabilities (whether or not suit is instituted in connection with such efforts).
The Costs of Collection are Liabilities, and at the Lender's option may bear
interest at the highest post-default rate which the Lender may charge the
Borrower hereunder as if such had been lent, advanced, and credited by the
Lender to, or for the benefit of, the Borrower.
"Credit Card Processor": Means any Person which acts as a credit card
clearinghouse or processor of credit card payments accepted by Borrower.
"Credit Limit": Means Ten Million ($10,000,000.00) Dollars.
"DDA": Any checking or other demand daily depository account maintained
by the Borrower.
"Documentary L/C": Means a documentary L/C issued to support the
purchase by Borrower of Inventory prior to its transport to a location set forth
on EXHIBIT 5-4 that provides that all draws thereunder must require presentation
of customary documentation (including, if applicable, commercial invoices,
packing lists, certificate of origin, xxxx of lading, an airway xxxx, customs
clearance documents, quota statement, certificate, beneficiaries statement and
xxxx of exchange, bills of lading, dock warrants, dock receipts, warehouse
receipts or other documents of title), in form and substance reasonably
satisfactory to Lender and reflecting passage to Borrower of title to first
quality Inventory conforming to Borrower's contract with the seller thereof.
"Duly Authorized Person": Means any individual authorized by the
Borrower to request loans or financial accommodations
and/or sign reports to Lender.
"EBITDA": Means the Borrower's earnings from continuing operations
(excluding extraordinary items), before interest, taxes, depreciation and
amortization, each as determined in accordance with GAAP.
"Effective Advance Rate": Means the percentage obtained by dividing the
sum of the then existing balance of the Loan Account plus the Stated Amount of
outstanding L/C's by the then Cost value of Acceptable Inventory.
"Employee Benefit Plan": As defined in ERISA.
"Encumbrance": Each of the following:
(a) security interest, mortgage, pledge, hypothecation, lien,
attachment, or charge of any kind (including any agreement to give any
of the foregoing); the interest of a lessor under a Capital Lease;
conditional sale or other title retention agreement; sale of accounts
receivable or chattel paper; or other arrangement pursuant to which any
Person is entitled to any preference or priority with respect to the
property or assets of another Person or the income or profits of such
other Person or which constitutes an interest in property to secure an
obligation; each of the foregoing whether consensual or nonconsensual
and whether arising by way of agreement, operation of law, legal
process or otherwise.
54
(b) The filing of any financing statement under the UCC or
comparable law of any jurisdiction.
"End Date": The date upon which both (a) all Liabilities have been paid
in full and (b) all obligations of the Lender to make loans and advances and to
provide other financial accommodations to the Borrower hereunder shall have been
irrevocably terminated.
"Environmental Laws": (a) Any and all federal, state, local or
municipal laws, rules, orders, regulations, statutes, ordinances, codes, decrees
or requirements which regulates or relates to, or imposes any standard of
conduct or liability on account of or in respect to environmental protection
matters, including, without limitation, Hazardous Materials, as is now or
hereafter in effect; and (b) the common law relating to damage to Persons or
property from Hazardous Materials.
"ERISA": The Employee Retirement Security Act of 1974, as amended.
"ERISA Affiliate": Any Person which is under common control with the
Borrower within the meaning of Section 4001 of ERISA or is part of a group which
includes the Borrower and which would be treated as a single employer under
Section 414 of the Internal Revenue Code of 1986, as amended.
"Events of Default": Is defined in Article 10.
"Executive Agreement": Any agreement or understanding (whether or not
written) to which the Borrower is a party or by which the Borrower may be bound,
which agreement or understanding relates to Executive Pay.
"Executive Officer": Each of Xxxxx X. Xxxxx, Xxxxxxx X. Xxxxxxxx and
Xxxxxxx Xxxxxxxx and any other Person who (without regard to title) is the
successor to such individuals(s) appointed within sixty (60) days of the date
when such individuals(s) is/are no longer an Executive Officer for any reason,
and who is reasonably satisfactory to Lender.
"Executive Pay": All salary, bonuses, and other value directly or
indirectly provided by or on behalf of the Borrower to or for the benefit of any
Executive Officer or any Affiliate, spouse, parent, or child of any Executive
Officer.
"Funding Account": Is defined in Section 7-6.
"GAAP": Principles which are consistent with those promulgated or
adopted by the Financial Accounting Standards Board and its predecessors (or
successors) in effect and applicable to that accounting period in respect of
which reference to GAAP is being made.
"General Intangibles": Includes, without limitation, "general
intangibles" as defined in the UCC; and also all: rights to payment for credit
extended; deposits; amounts due to the Borrower; credit memoranda in favor of
the Borrower; warranty claims; tax refunds and abatements; insurance refunds and
premium rebates; all Investment Property and all means and vehicles of
investment or hedging, including, without limitation, options, warrants, and
55
futures contracts; records; customer lists; mailing lists; telephone numbers;
goodwill; causes of action; judgments; payments under any settlement or other
agreement; literary rights; rights to performance; royalties; license and/or
franchise fees; rights of admission; licenses; franchises; license agreements,
including all rights of the Borrower to enforce same; permits, certificates of
convenience and necessity, and similar rights granted by any governmental
authority; patents, patent applications, patents pending, and other intellectual
property; Internet addresses and domain names; developmental ideas and concepts;
proprietary processes; blueprints, drawings, designs, diagrams, plans, reports,
and charts; catalogs; manuals; technical data; computer software programs
(including the source and object codes therefor), computer records, computer
software, rights of access to computer record service bureaus, service bureau
computer contracts, and computer data; tapes, disks, semiconductors chips and
printouts; trade secrets rights, copyrights, mask work rights and interests, and
derivative works and interests; user, technical reference, and other manuals and
materials; trade names, trademarks, service marks, and all good will relating
thereto; applications for registration of the foregoing; and all other general
intangible property of the Borrower in the nature of intellectual property;
proposals; cost estimates, and reproductions on paper, or otherwise, of any and
all concepts or ideas, and any matter related to, or connected with, the design,
development, manufacture, sale, marketing, leasing, or use of any or all
property produced, sold, or leased, by the Borrower or credit extended or
services performed, by the Borrower, whether intended for an individual customer
or the general business of the Borrower, or used or useful in connection with
research by the Borrower.
"Gross Margin": With respect to the subject accounting period for
which being calculated, the following (determined in accordance with the cost
method of accounting):
Sales (Minus) Cost of Goods Sold
Sales
"Hazardous Materials": Any (a) hazardous materials, hazardous waste,
hazardous or toxic substances, petroleum products, which (as to any of the
foregoing) are defined or regulated as a hazardous material in or under any
Environmental Law and (b) oil in any physical state other than, in each case,
cleaning materials in ordinary amounts used in the ordinary course of Borrower's
business.
"Indebtedness": All indebtedness and obligations of or assumed by
any Person on account of or in respect to any of the following:
(a) In respect of money borrowed (including any indebtedness
which is non-recourse to the credit of such Person but which is secured
by an Encumbrance on any asset of such Person) whether or not evidenced
by a promissory note, bond, debenture or other written obligation to
pay money.
(b) For the payment of the purchase price of goods or services
deferred for more than thirty (30) days beyond then current trade terms
provided to such Person by the supplier of such goods or services.
56
(c) In connection with any letter of credit or acceptance
transaction (including, without limitation, the face amount of all
letters of credit and acceptances issued for the account of such Person
or reimbursement on account of which such Person would be obligated).
(d) In connection with the sale or discount of accounts
receivable or chattel paper of such Person.
(e) On account of deposits or advances.
(f) As lessee under Capital Leases.
"Indebtedness" of any Person shall also include:
(a) Indebtedness of others secured by an Encumbrance on any
asset of such Person, whether or not such Indebtedness is assumed by
such Person.
(b) Any guaranty, endorsement, suretyship or other undertaking
pursuant to which that Person may be liable on account of any
obligation of any third party.
(c) The Indebtedness of a partnership or joint venture
in which such Person is a general partner or joint venturer.
"Indemnified Person": Is defined in Section 14-11.
"Inventory": Includes, without limitation, "inventory" as defined in
the Uniform Commercial Code and including all goods, merchandise, raw materials,
goods and work in process, finished goods, and other tangible personal property
now owned or hereafter acquired and held for sale or lease or furnished or to be
furnished under contracts of service or used or consumed in Borrower's business.
"Inventory Reserves": Such reserves as may be established from time to
time by the Lender in the Lender's discretion with respect to the determination
of conditions affecting the saleability, at retail, of the Acceptable Inventory
or which reflect such other factors as affect the current Retail or market value
of the Acceptable Inventory and which conditions or factors having changed
materially from those existing at the time of execution of this Agreement.
Without limiting the generality of the foregoing, Inventory Reserves may include
(but are not limited to) reserves based on the following:
(a) Obsolescence (determined based upon Inventory on hand
beyond a given number of days), consistent with Borrower's past history
with respect to such obsolescence and any changes thereto and
Borrower's Business Plan satisfactory to Lender.
(b) Seasonality.
(c) Shrinkage.
57
(d) Imbalance.
(e) Change in Inventory character, composition or mix.
(f) Markdowns (both permanent and point of sale).
(g) Retail markons or markups inconsistent with prior period
practice and performance; current business plans; or advertising
calendar and planned advertising events.
(h) The relationship between the amount expended for
Inventory purchases and the cost of goods sold.
"Investment Property": Has the meaning given that term in the Uniform
Commercial Code.
"Issuer": The issuer of any L/C.
"L/C": Any letter of credit, the issuance of which is procured by
the Lender for the account of the Borrower and any acceptance made on account
of such letter.
"Landlord Lien State": Any state or other jurisdiction under whose
statutory or common law the rights of a landlord in assets of that landlord's
tenant, for unpaid rent, are senior to a perfected security interest in such
assets.
"Lease": Any lease or other agreement, no matter how styled or
structured, which the Borrower is entitled to the use or occupancy of any space.
"Leasehold Interests": Shall mean the Borrower's leasehold estate or
interest in each of the properties at or upon which the Borrower conducts
business, offers any Inventory for sale, or maintains any of the Collateral,
whether or not for retail sale, together with Borrower's interest in any of the
improvements and fixtures located upon or appurtenant to each leasehold
interest.
"Lender's Rights and Remedies": Is defined in Section 11-6.
"Liabilities" (in the singular, "Liability"): Includes, without
limitation, all and each of the following, whether now existing or hereafter
arising:
(a) Any and all direct and indirect liabilities, debts, and
obligations of the Borrower to the Lender under any Loan Document, as
amended from time to time, each of every kind, nature, and description.
(b) Each obligation to repay any loan, advance, indebtedness,
note, obligation, overdraft, or amount now or hereafter owing by the
Borrower to the Lender (including all future advances whether or not
made pursuant to a commitment by the Lender) under any Loan Documents,
as amended from time to time, whether or not any of such are
58
liquidated, unliquidated, primary, secondary, secured, unsecured,
direct, indirect, absolute, contingent, or of any other type, nature,
or description, or by reason of any cause of action which the Lender
may hold against the Borrower under any Loan Documents, as amended from
time to time.
(c) All notes and other obligations of the Borrower under any
Loan Documents now or hereafter assigned to or held by the Lender, each
of every kind, nature, and description.
(d) All interest, fees, and charges and other amounts which
may be charged by the Lender to the Borrower and/or which may be due
from the Borrower to the Lender from time to time under any Loan
Documents.
(e) All costs and expenses incurred or paid by the Lender in
respect of any agreement between the Borrower and the Lender under any
Loan Documents, as amended from time to time or instrument furnished by
the Borrower to the Lender under any Loan Documents, as amended from
time to time (including, without limitation, Costs of Collection,
attorneys' reasonable fees, and all court and litigation costs and
expenses).
(f) Any and all covenants of the Borrower to or with the
Lender and any and all obligations of the Borrower to act or to refrain
from acting in accordance with any agreement between the Borrower and
the Lender or instrument furnished by the Borrower to the Lender.
"Loan Account": Is defined in Section 1-5.
"Loan Documents": This Agreement, each instrument and document executed
and/or delivered as contemplated by Article 4, and each other instrument or
document from time to time executed and/or delivered in connection with the
arrangements contemplated hereby other than strictly for informational purposes,
as each may be amended from time to time.
"Local DDA": A depository account maintained by the Borrower, the only
contents of which may be transfers from the Funding Account and actually used
solely (i) for xxxxx cash purposes; or (ii) for payroll.
"Loan Maintenance Fee": Is defined in Section 1-9(b).
"Master Note": Is defined in Section 1-6.
"Material Adverse Change": Means (a) a material adverse change in the
business, prospects, operations, results of operations, assets, liabilities or
condition (financial or otherwise) of Borrower, including, without limitation, a
material adverse change in the business, prospects, operations, results of
operations, assets, liabilities or condition since the date of the latest
financial information submitted to Lender on or before the Closing Date, and
since the date of the latest financial information supplied hereunder or at any
time as compared to the Business Plan attached hereto on the date of execution
hereof as EXHIBIT 9-10; (b) the material impairment of Borrower's ability to
perform its obligations under the Loan Documents to which it is a party or of
59
Lender to enforce the Liabilities or realize upon the Collateral, (c) a material
adverse effect on the value of the Collateral or the amount that Lender would be
likely to receive (after giving consideration to delays in payment and costs of
enforcement) in the liquidation of such Collateral, or (d) a material impairment
of the priority of Lender's liens with respect to the Collateral, other than as
permitted under this Agreement.
"Maturity Date": Means that date which is five (5) years from the
Closing Date.
"Net Retail Liquidation Value": Means the appraised liquidation value
of Acceptable Inventory less liquidation expenses as reasonably determined by
Lender or its agents from time to time, consistent with the appraisal prepared
by Lender as of the Closing Date, or any subsequent appraisal.
"One Turn State": Any state or other jurisdiction under whose statutory
or common law the relative priority of the rights of a landlord in assets of
that landlord's tenant, for unpaid rent, vis a vis the rights of the holder of a
perfected security interest therein is dependent upon whether such security
interest arose prior or subsequent to the subject asset's coming onto the
demised premises.
"Overadvance": Any amounts advanced hereunder which exceed
Availability.
"Participant": Is defined in Section 14-12.
"Percentage Points": The number of whole (and, if indicated, fractions
(or decimal equivalents) of) integers of a percentage referred to in a financial
performance covenant. For example, if a projected percentage were fifty (50%)
percent and the actual percentage turned out to be fifty-five and 6/10 (55.6%)
percent, the variance would be 5.6 Percentage Points.
"Person": Any natural person, and any corporation, limited liability
company, trust, partnership, joint venture, or other enterprise or entity.
"Real Estate": Means any estates or interests in real property now
owned or hereafter acquired by Borrower.
"Receipts": All cash, cash equivalents, checks, and credit card slips
and receipts as arise out of the sale of the Collateral and any other cash, cash
equivalents or checks otherwise received by Borrower, whether as a result of any
loan, investment by the Borrower, investment in the Borrower or otherwise.
"Receivables Collateral": That portion of the Collateral which consists
of the Borrower's Accounts, Accounts Receivable, Contract Rights, General
Intangibles, Chattel Paper, Instruments, Investment Property, Documents of
Title, Documents, Securities, letters of credit for the benefit of the Borrower,
and bankers' acceptances held by the Borrower, and any rights to payment.
60
"Related Entity":
(a) Any corporation, limited liability company, trust,
partnership, joint venture, or other enterprise which: is a parent,
brother, sister, subsidiary, or affiliate, of the Borrower; has such
enterprise's tax returns or financial statements consolidated with the
Borrower's; is a member of the same controlled group of corporations
(within the meaning of Section 1563(a)(1), (2) and (3) of the Internal
Revenue Code of 1986, as amended from time to time) of which the
Borrower is a member; Controls or is Controlled by the Borrower or by
any Affiliate of the Borrower.
(b) Any Affiliate.
"Requirement of Law": As to any Person:
(a) (i) All statutes, rules, regulations, orders, or other
requirements having the force of law and (ii) all court orders and
injunctions, arbitrator's decisions, and/or similar rulings, in each
instance ((i) and (ii)) of or by any federal, state, municipal, and
other governmental authority, or court, tribunal, panel, or other body
which has jurisdiction over such Person, or any property of such
Person, or of any other Person for whose conduct such Person would be
responsible;
(b) That Person's charter, certificate of incorporation,
articles of organization, and/or other organizational documents, as applicable;
and
(c) That Person's by-laws and/or other instruments which deal
with corporate or similar governance, as applicable.
"Reserves": All (if any) Availability Reserves, Inventory Reserves,
and any other reserves which may be established in accordance with the Loan
Agreement.
"Retail": The Cost of Inventory divided by the Cost Factor.
"Revolving Credit": Is defined in Section 1-1.
" Special Subline": Means amounts, up to the lesser of (a) Three
Million ($3,000,000) Dollars, or (b) the lesser of: (i) twelve and five tenths
of one (12.5%) percent of the Net Retail Liquidation Value or (ii) calculated
together with amounts available under the Standard Line, the following
percentages of the Cost value of Acceptable Inventory during the following
periods:
January1 eighty (80%) per cent
February eighty (80%) per cent
March eighty (80%) per cent
April eighty (80%) per cent
May eighty (80%) per cent
June eighty (80%) per cent
July eighty (80%) per cent
August eighty-four (84%) per cent
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September eighty-four (84%) per cent
October eighty-four (84%) per cent
November eighty-four (84%) per cent
December eighty-four (84%) per cent
---------------------------------
1 The total combined Advance Rate for January of 80% of Cost
Value of Acceptable Inventory is allowed so long as Excess Availability
for the preceding 60 days is within 90% of the projected Excess
Availability, otherwise the Special Sub-line will be reduced to 6.3%
for a total combined advance rate of 72.0%. Note: this requirement has
been waived for January 2001 (Standard Line Advance rate = 65.7%,
Special Sub-line = 14.3%, Total Combined Advance Rate = 80.0%).
Under this Special Subline and absent the occurrence of an Event of
Default hereunder, upon fifteen (15) days prior written notice to Lender,
Borrower may convert $2,000,000.00 of the Special Subline into a Term Loan to be
repaid in equal consecutive monthly principal installments (except the final
installment), plus interest, based upon a five (5) year amortization schedule,
for the number of months remaining prior to the Maturity Date, with all
remaining principal and accrued, but unpaid interest, to be due and payable on
the Maturity Date.
Standard Line": Means amounts up to the lesser of (a) Seven Million
($7,000,000) Dollars or (b) the lesser of:(i) eighty-seven and five tenths of
one (87.5%) percent of the Net Retail Liquidation Value and (ii) the following
percentages of the Cost Value of Acceptable Inventory during the following
periods:
January sixty-five and seven tenths (65.7%) per cent
February seventy and six tenths (70.6%) per cent
March seventy-two and seven tenths (72.7%) per cent
April seventy and six tenths (70.6%) per cent
May seventy-four (74%) per cent
June seventy-four (74%) per cent
July seventy and five tenths (70.5%) per cent
August seventy-two and six tenths (72.6%) per cent
September seventy-two (72%) per cent
October seventy and six tenths (70.6%) per cent
November seventy-four (74%) per cent
December seventy-four (74%) per cent
"Stated Amount": The maximum amount for which an L/C may be honored.
"Suspension Event": Any occurrence, circumstance, or state of facts
which (a) is an Event of Default; or (b) becomes an Event of Default following
any requisite notice and/or any requisite period of time runs and such
occurrence, circumstance, or state of facts is not absolutely cured within any
applicable grace period.
"Termination Date": The earliest of (a) the Maturity Date; or (b) the
occurrence of any event described in Section 10-11; or (c) the date set forth in
Lender's notice to the Borrower setting the Termination Date on account of the
occurrence of any Event of Default other than as described in Section 10-11.
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"UCC": The Uniform Commercial Code as presently in effect in
Massachusetts (Mass. Gen. Laws, Ch. 106).
63
EXHIBIT 5-2
Related Entities
(1) 49.4% of the outstanding common stock of XxxxxXxxxx.xxx Inc. is owned by the
Company and (2) the Company's beneficial owners hold, beneficially and directly,
substantially the amounts of the Company's common stock shown in the Company's
Current Report on Form 8K filed November 21, 2000. XxxxxXxxxx.xxx Inc. is not a
subsidiary nor controlled by the Company for purposes of consolidation of the
two entities' financial statements. The Company's financial statements are not
consolidated with the financial statements of any of its beneficial owners.
(2) The Company has two wholly-owned inactive subsidiaries, The Right Start,
Inc. Subsidiary I and The Right Start, Inc. Subsidiary II, which it is in the
process of eliminating.
EXHIBIT 5-3
Trade Names; Trademarks, Service Marks, Etc.
[Intentionally Omitted]
EXHIBIT 5-4
Locations
[Intentionally Omitted]
EXHIBIT 5-5
Encumbrances and Liens
Secured Party Description Payment Terms
or Mortgagee of Collateral and Dates of Maturity
1. ARBCO Associates, L.P. Blanket Lien PIK Notes Due Sept. 1, 2005
Xxxxx Xxxxxxxx Non-Traditional $3,000,000 in aggregate
Investments, L.P. principal amount
Xxxxx Xxxxxxxx Diversified
Capital Partners, L.P. UCCs filed in states in which
Xxxxx Xxxxxxxx Capital collateral is located
Partners, L.P.
2. Liens imposed for taxes, assessments or other charges.
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3. Non-consensual statutory Liens including, without limitation, carriers',
mechanics', warehousemen's, artisans', service, suppliers', depositaries' and
other like Liens arising in the ordinary course of business.
4. Pledges or deposits in respect of workers' compensation, unemployment
insurance and other social security legislation.
5. Deposits to secure performance of bids, trade contracts, leases, statutory
obligations, surety and appeal bonds, performance bonds and other similar
obligations incurred in the ordinary course of business.
6. Easements, rights-of-way, restrictions and similar encumbrances incurred in
the ordinary course of business and encumbrances consisting of zoning
restrictions, easements, licenses and restrictions on the use of property or
minor imperfections in title that do not materially interfere with the Company's
business.
7. Liens in favor of credit card processors.
8. Purchase money security interests.
9. Liens on indebtedness permitted under Section 5-6.
10. Liens of landlords and their lenders against leasehold interests.
11. Liens of customs and revenue authorities.
12. Liens existing on acquired property.
13. Any extension, renewal or replacement of the foregoing.
65
EXHIBIT 5-6
Indebtedness
Principal Monthly
Creditor Amount Maturity Date Payment Collateral
1. ARBCO Associates, L.P. $3,000,000 Sept. 1, 2005 PIK 8% Substantially
Xxxxx Xxxxxxxx per all of the
Non-Traditional anum Company's
Investments, L.P. Assets
Xxxxx Xxxxxxxx Diversified
Capital Partners, L.P.
Xxxxx Xxxxxxxx Capital
Partners, L.P.
2. Intercompany payables between the Company and XxxxxXxxxx.xxx in amounts up
to $750,000.
3. Trade obligations and accruals in the ordinary course of business.
4. Purchase money indebtedness including capital leases.
5. Unsecured indebtedness.
6. Indebtedness arising under agreements providing for indemnification,
adjustment of purchase price or similar obligations, or obligations to perform
bids, trade contracts, leases, statutory obligations or surety and appeal bonds,
performance bonds and other similar obligations incurred in the ordinary course
of business.
7. Indebtedness to secure workers' compensation, unemployment insurance and
other social security legislation obligations.
8. Indebtedness of the Company incurred in exchange for or the net proceeds of
which are used to extend, refinance, renew, replace, substitute or refund
Indebtedness referred to above.
Guaranties
Amount and Description
Primary Obligor of Obligation Guaranteed Beneficiary of Guaranty
None.
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EXHIBIT 5-7
Insurance Policies
Insurance Company Type and Amount of Coverage
[Intentionally Omitted]
EXHIBIT 5-9
Leases
[Intentionally Omitted]
EXHIBIT 5-12
Taxes
The Company has paid taxes through Fiscal Year End January 2000.
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EXHIBIT 7-1
Demand Deposit Accounts
[Intentionally Omitted]
EXHIBIT 7-2
Credit Card Arrangements
The Borrower has payment processing agreements with Paymentech,
Novus and American Express.
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EXHIBIT 9-R
[Intentionally Omitted]
69
EXHIBIT 9-11
Covenants:
FINANCIAL AND INVENTORY COVENANTS
(Based on current applicable approved business plan set forth on Exhibit 9-12):
Minimum Excess Availability
Minimum Excess Availability at closing shall be at least $2,500,000.
Measured at month end, on a rolling two-month average basis. Excess
Availability shall be no less than 85% of Excess Availability for the same
periods projected in the Business Plan.
Maximum Capital Expenditures
Measured every six months, beginning July 2001, year-to-date Capital
Expenditures for each six-month period shall not exceed 110% of the total
Capital Expenditures for the same period projected in the Business Plan.
Ratio of Inventory Receipts to Cost of Sales
Measured monthly (i) on a trailing three-month basis, the ratio of Inventory
Receipts to Cost of Goods Sold shall be no less than 85% of the ratio projected
in the Business Plan and (ii) the annualized twelve month average inventory
turnover rate not less than 2.7 times for the periods January 2001 through April
2001 and 3.0 times each month thereafter. Annualized inventory turnover shall
be calculated as the rolling twelve-months Cost of Goods Sold divided by the
corresponding rolling twelve-months average EOM Inventory at Cost. Average EOM
Inventory at Cost shall be calculated as the total Company Inventory less
inventory allocated to XxxxxXxxxx.xxx, in each case, at the end of each month
during the period for which the calculation is made. Inventory Receipts shall
mean the cost to the Company of all Inventory received by the Company plus
freight-in. Cost of Goods Sold shall mean an amount calculated consistently
from an accounting perspective with the Cost of Goods Sold on the Company's
Borrowing Base certificate provided at Closing.
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