LOAN AND SECURITY AGREEMENT
JMCD, INCORPORATED
This Agreement is between the undersigned Borrower and the
undersigned Lender concerning loans and other credit accommodations to be made
by Lender to Borrower.
SECTION 1. PARTIES
1.1 The "Borrower" is the person, firm, corporation or other
entity, identified as the Borrower in Section 10 and its successors and assigns.
If more than one Borrower is specified in Section 10, all references to Borrower
shall mean each of them, jointly and severally, individually and collectively,
and the successors and assigns of each.
1.2 The "Lender" is The CIT Group/Credit Finance, Inc. and its
successors and assigns.
SECTION 2. LOANS AND OTHER CREDIT ACCOMMODATIONS
2.1 Revolving Loans. Lender shall, subject to the terms and
conditions contained herein, make revolving loans to Borrower ("Revolving
Loans") in amounts requested by Borrower from time to time, but not in excess of
the Net Availability existing immediately prior to the making of the requested
Revolving Loan and provided the requested Revolving Loan would not cause the
outstanding Obligations to exceed the Maximum Credit.
(a) The "Maximum Credit" is set forth in Section 10.1(a)
hereof.
(b) The "Gross Availability" shall be calculated at any time as
the sum of:
(i) the product obtained by multiplying the outstanding
amount of Eligible Accounts, net of all taxes, discounts,
allowances and credits given or claimed, by the Eligible
Accounts Percentage set forth in Section 10.1(b), plus:
(ii) the product obtained by multiplying the then
outstanding Eligible Inventory Percentage, if any, set forth in
Section 10.1(b) by the values (as determined by Lender based on
the lower of cost or market) of Eligible Inventory, but the
amount so added shall not exceed any sublimit set forth in
Section 10.1(c), minus:
(iii) any Reserves.
(c) The "Net Availability" shall be calculated at any time as
an amount equal to the Gross Availability minus the aggregate amount of all then
outstanding Obligations to Lender.
-1-
(d) "Eligible Accounts" are accounts created by Borrower in the
ordinary course of its business which are and remain acceptable to Lender for
lending purposes. General criteria for Eligible Accounts are set forth below but
may be revised from time to time by Lender, in its sole judgment, on fifteen
(15) days' prior written notice to Borrower. Lender shall, in general, deem
accounts to be Eligible Accounts if: (1) such accounts arise from bona fide
completed transactions and have not remained unpaid for more than the number of
days after the invoice date set forth in Section 10.1(d); (2) the amounts of the
accounts reported to Lender are absolutely owing to Borrower and do not arise
from sales on consignment, guaranteed sale or other terms under which payment by
the account debtors may be conditional or contingent; (3) the account debtor's
chief executive office or principal place of business is located in the United
States; (4) such accounts do not arise from progress ▇▇▇▇▇▇▇▇ or retainages or
▇▇▇▇ and hold sales; (5) there are no contra relationships, setoffs,
counterclaims or disputes existing with respect thereto and there are no other
facts existing or threatened which would impair or delay the collectability of
all or any portion thereof; (6) the goods giving rise thereto were not at the
time of the sale subject to any liens or taxes except those permitted in this
Agreement; (7) such accounts are not accounts with respect to which the account
debtor or any officer or employee thereof is an officer, employee or agent of or
is affiliated with Borrower, directly or indirectly, whether by virtue of family
membership, ownership, control, management or otherwise; (8) such accounts are
not accounts with respect to which the account debtor is the United States or
any State or political subdivision thereof or any department, agency or
instrumentality of the United States, any State or political subdivision, unless
there has been compliance with the Assignment of Claims Act or any similar State
or local law, if applicable; (9) Borrower has delivered to Lender or Lender's
representative such documents as Lender may have requested pursuant to Section
5.8 hereof in connection with such accounts and Lender shall have received a
verification of such account, satisfactory to it, if sent to the account debtor
or any other obligor or any bailee pursuant to Section 5.4 hereof; (10) there
are no facts existing or threatened which might result in any adverse change in
the account debtor's financial condition; (11) such accounts owed by a single
account debtor or its affiliates do not represent more than twenty percent (20%)
of all otherwise Eligible Accounts (accounts excluded from Eligible Accounts
solely by reason of this subsection (11) shall nevertheless be considered
Eligible Accounts to the extent of the amount of such accounts which does not
exceed twenty percent (20%) of all otherwise Eligible Accounts); (12) such
accounts are not owed by an account debtor whose accounts or whose affiliates'
accounts greater than the number of days past invoice date set forth in Section
10.1(d) comprise more than fifty (50%) percent of the accounts of such account
debtor or its affiliates owed to Borrower; (13) such accounts are owed by
account debtors whose total indebtedness to Borrower does not exceed the amount
of any customer credit limits as established, and changed, from time to time by
Lender on notice to Borrower (accounts excluded from Eligible Accounts solely by
reason of this subsection (13) shall nevertheless be considered Eligible
Accounts to the extent the amount of such accounts does not exceed such customer
credit limit); and (14) such accounts are owed by account debtors deemed
creditworthy at all times by Lender.
-2-
(e) "Eligible Inventory" is finished goods inventory owned by
Borrower which is and remains acceptable to Lender for lending purposes and is
located at one of the addresses set forth in Section 10.6(d).
(f) Lender shall have a continuing right to deduct reserves
("Reserves") in determining the Gross Availability, and to increase and decrease
such Reserves from time to time, if and to the extent that, in Lender's sole
judgement, such Reserves are necessary to protect Lender against any state of
facts which does, or would, with notice or passage of time or both, constitute
an Event of Default or have an adverse effect on any Collateral. Lender may, at
its option, implement Reserves by designating as ineligible a sufficient amount
of accounts or inventory which would otherwise be Eligible Accounts or Eligible
Inventory so as to reduce Gross Availability by the amount of the intended
Reserve.
(g) Subject to the terms and conditions hereof, including but
not limited to the existence of sufficient Gross and Net Availability, Borrower
agrees to borrow amounts from time to time such that the aggregate outstanding
principal amount of all Revolving Loans shall at all times equal or exceed the
principal amount set forth in Section 10.1(e) as the Minimum Borrowing;
provided, that the only consequence of a breach of the foregoing shall be the
required payment set forth in the following sentence. If the average outstanding
principal amount of the Revolving Loans for any month is less than the Minimum
Borrowing, Borrower shall also pay Lender a fee equal to the amount of interest
that would have accrued during such month on such difference. Such fee shall be
payable at the rate and in the manner provided herein for the payment of
interest.
2.2 [Intentionally deleted.]
2.3 Accommodations.
(a) Subject to the terms and conditions contained herein,
Lender may in its sole discretion, issue or cause to be issued, from time to
time at Borrower's request and on terms and conditions and for purposes
satisfactory to Lender, credit accommodations consisting of letters of credit,
bankers' acceptances, merchandise purchase guaranties or other guaranties or
indemnities for Borrower's account ("Accommodations"). Borrower shall execute
and perform additional agreements relating to the Accommodations in form and
substance acceptable to Lender and the issuer of any Accommodations, all of
which shall supplement the rights and remedies granted herein. Any payments made
by Lender or any affiliate of Lender in connection with the Accommodations shall
constitute additional Revolving Loans to Borrower.
(b) In addition to the fees and costs of any issuer in
connection with issuing or administering Accommodations, Borrower shall pay
monthly to Lender, on the first day of each month, a charge on the face amount
of all outstanding Accommodations computed daily from the date of issuance until
termination or payment, at the rate set forth in Section 10.3(a) (the
"Accommodation Charges").
-3-
(c) No Accommodation will be issued unless the full amount of
the Accommodation requested (but only 65% of the cost of the inventory plus duty
and freight charges in the case of Accommodations for the purchase of Eligible
Inventory), plus fees and costs for issuance, is less than the Net Availability
existing immediately prior to the issuance of the requested Accommodations, or
if the requested Accommodation would cause the sum of the outstanding
Obligations to exceed the Maximum Credit, or cause the sum of the open amount of
Accommodations to exceed, at any time, the Accommodation sublimit set forth in
Section 10.3(b).
(d) All indebtedness, liabilities and obligations of any sort
whatsoever, however arising, whether present or future, fixed or contingent,
secured or unsecured, due or to become due, paid or incurred, arising or
incurred in connection with any Accommodation shall be included in the term
"Obligations", as defined herein, and shall include, without limitation, (i) all
amounts due or which may become due under any Accommodation, (ii) all amounts
charged or chargeable to Borrower or to Lender by any bank, other financial
institution or correspondent bank which opens, issues or is involved with such
Accommodations; (iii) Lender's Accommodation Charges and all fees, costs and
other charges of any issuer of any Accommodation; and (iv) all duties, freight,
taxes, costs, insurance and all such other charges and expenses which may
pertain directly or indirectly to any Obligations or Accommodations or to the
goods or documents relating thereto.
(e) Borrower unconditionally agrees to indemnify and hold
Lender harmless from any and all loss, claim or liability (including reasonable
attorneys' fees) arising from any transactions or occurrences to any
Accommodation established or opened for Borrower's account, the Collateral
relating thereto and any drafts or acceptance thereunder, including any such
loss or claim due to any action taken by an issuer of any Accommodation.
Borrower further agrees to indemnify and hold Lender harmless for any errors or
omissions in connection with the Accommodations, whether caused by Lender, by
the issuer of any Accommodation or otherwise. Borrower's unconditional
obligation to indemnify and hold Lender harmless under this provision shall not
be modified or diminished for any reason or in any manner whatsoever, except for
Lender's gross negligence or wilful misconduct. Borrower agrees that any charges
made to Lender by any issuer of any Accommodation shall be conclusive on
Borrower and may be charged to Borrower's account.
(f) Lender shall not be responsible for: the conformity of any
goods to the documents presented; the validity or genuineness of any documents;
delay, default, or fraud by Borrower or shipper and/or anyone else in connection
with the Accommodations or any underlying transaction.
(g) Borrower agrees that any action taken by Lender, if taken
in good faith, or any action taken by an issuer of any Accommodation, under or
in connection with any Accommodation, shall be binding on Borrower and shall not
create any resulting liability to Lender. In furtherance thereof Lender shall,
upon an Event of Default or if Lender is directly collecting the accounts
pursuant to Section 5.4, have the full right and authority to clear and resolve
any questions of non-compliance of documents; to give any instructions as to
acceptance or rejection of any documents or goods; to execute for Borrower's
account any
-4-
and all applications for steamship or airway guarantees, indemnities or delivery
orders; to grant any extensions of the maturity of, time of payment for, or time
of presentation of, any drafts, acceptances, or documents; and to agree to any
amendments, renewals, extensions, modifications, changes or cancellations of any
of the terms or conditions of any of the applications or Accommodations. All of
the foregoing actions may be taken in Lender's sole name, and the issuer thereof
shall be entitled to comply with and honor any and all such documents or
instruments executed by or received solely from Lender, all without notice to or
any consent from Borrower. None of the foregoing actions described in this
subsection (g) may be taken by Borrower without Lender's express written
consent.
2.4 Certain Amounts Due on Demand. Lender may, in the exercise of
its reasonable credit judgment, make or permit Revolving Loans and
Accommodations or other Obligations in excess of the Maximum Credit, Gross or
Net Availability or applicable sublimits. To the extent such excess is permitted
by Lender, all or any portion of such excess(es) shall become due and payable
upon demand therefor. To the extent the aggregate amount of Revolving Loans,
Accommodations or other Obligations at any time exceeds, without the consent of
Lender, the Maximum Credit, Gross or Net Availability or applicable sublimits,
all of such excess(es) shall become immediately due and payable whether or not
Lender makes a demand therefor.
SECTION 3. INTEREST AND FEES
3.1 Interest. Interest on all Obligations shall be payable by
Borrower on the first day of each month, calculated upon the closing daily
outstanding principal balances in the loan accounts of Borrower for each day
during the immediately preceding month, at the per annum rate set forth as the
Interest Rate in Section 10.4(a). The Interest Rate shall increase or decrease
by an amount equal to each increase or decrease, respectively, in the Prime Rate
(as defined below), effective as of the date of each such change. On and after
any Event of Default or termination or non-renewal hereof, interest on all
unpaid Obligations shall, automatically and without notice by Lender, accrue at
a rate equal to two percent (2%) per annum in excess of the Interest Rate
otherwise payable until such time as all Obligations are indefeasibly paid in
full in immediately available funds (notwithstanding entry of any judgment
against Borrower or the exercise of any other right or remedy by Lender), and
all such interest shall be payable on demand. Interest, including interest
charged upon the occurrence of an Event of Default, shall be calculated on the
basis of actual days elapsed over a 360-day year. In no event shall charges
constituting interest exceed the rate permitted under any applicable law or
regulation. However, if any interest or other charges paid or payable in
connection with this Agreement are ever determined to exceed the maximum amount
or rate permitted by law, Borrower and Lender understand and agree that: (A) the
amount or rate of interest or other charges payable by Borrower pursuant to this
lending transaction shall be reduced to the maximum amount permitted by law; and
(B) any excess amount previously collected from Borrower in connection with this
lending transaction which exceeded the maximum amount permitted by law will be
credited against the outstanding principal balance. If the outstanding principal
balance has already been paid, the excess amount paid will be refunded to
Borrower.
-5-
The "Prime Rate" is the rate of interest from time to time publicly
announced by The Chase Manhattan Bank (or its successor) in New York, New York
as its prime rate or similar designation (such rate is not intended to be the
lowest rate charged by such bank to its borrowers).
3.2 Facility Fee. Borrower shall pay Lender a Facility Fee (fully
earned upon closing) in installments at each anniversary of the closing as set
forth in Section 10.4(b), provided that Borrower shall not be required to pay
Lender any additional annual installments of such Facility Fee if on or after
November 15th of any year Borrower terminates this Agreement early and pays
Lender, along with the full amount of the Obligations, the early termination fee
required by Section 9.2.
3.3 [Intentionally Deleted.]
3.4 [Intentionally Deleted.]
3.5 Closing Fee. Borrower shall pay Lender on the date hereof, a
Closing Fee in the amount set forth in Section 10.4(d), which fee is fully
earned as of the date hereof.
3.6 Charges to Loan Account. At Lender's option, all payments of
principal, interest, fees, costs, expenses and other charges provided for in
this Agreement, or in any other agreement now or hereafter existing between
Lender and Borrower, may be charged, on the date when due, as principal to any
loan account of Borrower maintained by Lender and shall thereafter bear interest
at the rate and be payable in the manner provided herein for accrual and payment
of interest on outstanding Obligations. No portion of any fees or charges
payable by Borrower hereunder shall be refundable for any reason including,
without limitation, termination of this Agreement.
SECTION 4. GRANT OF SECURITY INTEREST
4.1 To secure the payment and performance in full of all
Obligations, Borrower hereby grants to Lender a continuing security interest in
and lien upon, and a right of setoff against, and Borrower hereby assigns and
pledges to Lender, all of the Collateral, including any Collateral not deemed
eligible for lending purposes.
4.2 "Obligations" shall mean any and all Revolving Loans,
Accommodations and all other indebtedness, liabilities and obligations of every
kind, nature and description owing by Borrower to Lender and/or its affiliates,
including principal, interest, charges, fees and expenses, however evidenced,
whether as principal, surety, endorser, guarantor or otherwise, whether arising
under this Agreement or otherwise, whether now existing or hereafter arising,
whether arising before, during or after the initial or any renewal Term or after
the commencement of any case with respect to Borrower under the United States
Bankruptcy Code or any similar statute, whether direct or indirect, absolute or
contingent, joint or several, due or not due, primary or secondary, liquidated
or unliquidated, secured or unsecured, original, renewed or extended and whether
arising directly or howsoever acquired by Lender including from any other entity
-6-
outright, conditionally or as collateral security, by assignment, merger with
any other entity, participations or interests of Lender in the obligations of
Borrower to others, assumption, operation of law, subrogation or otherwise and
shall also include all amounts chargeable to Borrower under this Agreement or in
connection with any of the foregoing.
4.3 "Collateral" shall mean all of the following property of
Borrower:
(a) All now owned and hereafter acquired right, title and
interest of Borrower in, to and in respect of all accounts, including without
limitation all interests in goods represented by accounts, returned, reclaimed
or repossessed goods with respect thereto and rights as an unpaid vendor;
contract rights; chattel paper; general intangibles (including, but not limited
to, tax and duty claims and refunds, registered and unregistered patents,
trademarks, service marks, copyrights, trade names, applications for the
foregoing, trade secrets, goodwill, processes, drawings, blueprints, customer
lists, license agreements and licenses, whether as licensor or licensee,
computer software programs and systems, choses in action and other claims, and
existing and future leasehold interests in equipment, real estate and fixtures);
documents; instruments; letters of credit, bankers' acceptances or guaranties;
cash monies, deposits, securities, investment property, bank accounts, deposit
accounts, credits and other property now or hereafter held in any capacity by
Lender, its affiliates or any entity which, at any time, participates in
Lender's financing of Borrower or at any other depository or other institution;
agreements or property securing or relating to any of the items referred to
above;
(b) All now owned and hereafter acquired right, title and
interest of Borrower in, to and in respect of goods, including, but not limited
to:
(i) All inventory, wherever located, whether now owned or
hereafter acquired, of whatever kind, nature or description,
including all raw materials, work-in-process, finished goods,
and materials to be used or consumed in Borrower's business;
and all names or marks affixed to or to be affixed thereto for
purposes of selling same by the seller, manufacturer, lessor or
licensor thereof;
(ii) All equipment and fixtures, wherever located, whether
now owned or hereafter acquired, including, without limitation,
all machinery, equipment, motor vehicles, furniture and
fixtures, and any and all additions, substitutions,
replacements (including spare parts), and accessions thereof
and thereto;
(iii) All consumer goods, farm products, crops, timber,
minerals or the like (including oil and gas), wherever located,
whether now owned or hereafter acquired, of whatever kind,
nature or description;
(c) All now owned and hereafter acquired right, title and
interests of Borrower in, to and in respect of any other personal property or
fixtures in or upon which Lender has or may hereafter have a security interest,
lien or right of setoff;
-7-
(d) All present and future books and records relating to any of
the above including, without limitation, all computer programs, printed output
and computer readable data, in any media, in the possession or control of
Borrower, any computer service bureau or other third party;
(e) All notes, security interests and deeds of trust or
mortgages in favor of Borrower; and
(f) All products and proceeds of the foregoing in whatever form
and wherever located, including, without limitation, all insurance proceeds and
all claims against third parties for loss or destruction of or damage to any of
the foregoing.
SECTION 5. COLLECTION AND ADMINISTRATION
5.1 Collections. Borrower shall, at Borrower's expense and in the
manner requested by Lender from time to time, direct that remittances and all
other proceeds of accounts and other Collateral shall be sent to a lockbox
designated by and/or maintained in the name of Lender, and deposited into a bank
account maintained in the name of Lender under arrangements with the depository
bank under which all funds deposited to such bank account are required to be
transferred solely to Lender. Borrower shall bear all risk of loss of any funds
deposited into such account. In connection therewith, Borrower shall execute
such lockbox and bank account agreements as Lender shall specify. Any
collections or other proceeds received by Borrower shall be held in trust for
Lender and immediately remitted to Lender in kind.
5.2 Payments. All Obligations shall be payable at Lender's office
set forth below or at Bank of America, NT & SA in Los Angeles, California, or at
such substitute bank as Lender may determine ("Lender's Bank") or such other
place as Lender may expressly designate from time to time for purposes of this
Section. Lender shall apply all proceeds of accounts or other Collateral
received by Lender and all other payments in respect of the Obligations to the
Revolving Loans whether or not then due or to any other obligations then due, in
whatever order or manner Lender shall determine. For purposes of determining
Gross and Net Availability, remittances and other payments with respect to the
Collateral and Obligations will be treated as credited to the loan account of
Borrower maintained by Lender and Collateral balances to which they relate, upon
the date of Lender's receipt of advice from Lender's Bank that such remittances
or other payments have been credited to Lender's account (with the understanding
that Lender receives such advice regarding remittances on each day that both
Lender and Lender's Bank are open for business) or in the case of remittances or
other payments received directly in kind by Lender, upon the date of Lender's
deposit thereof at Lender's Bank (with the understanding that all such deposits
by Lender will be made in accordance with Lender's customary business
practices), subject to final payment and collection. In computing interest
charges, the loan account of Borrower maintained by Lender will be credited with
remittances and other payments the number of days set forth in Section 10.4(e)
after the day Lender has received advice of receipt of remittances in Lender's
account at Lender's Bank. For purposes of this Agreement,
-8-
"Business Day" shall mean any day other than a Saturday, Sunday or any other day
on which Lender or banks located in Los Angeles, California are authorized to
close.
5.3 Loan Account Statements. Lender shall deliver to Borrower
monthly a loan account statement. Each statement shall be considered correct and
binding upon Borrower as an account stated, except to the extent that Lender
receives, within sixty (60) days after the mailing of such statement, written
notice from Borrower of any specific exceptions by Borrower to that statement.
5.4 Direct Collections. Lender may, at any time, whether or not an
Event of Default has occurred, without notice to or consent of Borrower, (a)
notify any account debtor that the accounts and other Collateral which includes
a monetary obligation have been assigned to Lender by Borrower and that payment
thereof is to be made to the order of and directly to Lender; (b) send, or cause
to be sent by its designee, requests (which may identify the sender by a
pseudonym) for verification of accounts and other Collateral directly to any
account debtor or any other obligor or any bailee with respect thereto; and (c)
demand, collect or enforce payment of any accounts or such other Collateral, but
without any duty to do so, and Lender shall not be liable for any failure to
collect or enforce payment thereof. At Lender's request, all invoices and
statements sent to any account debtor, other obligor or bailee, shall state that
the accounts and such other Collateral have been assigned to Lender and are
payable directly and only to Lender.
5.5 Attorney-in-Fact. Borrower hereby appoints Lender and any
designee of Lender as Borrower's attorney-in-fact and authorizes Lender or such
designee, at Borrower's sole expense, to exercise at any time in Lender's or
such designee's discretion all or any of the following powers, which powers of
attorney, being coupled with an interest, shall be irrevocable until all
Obligations have been paid in full: (a) receive, take, endorse, assign, deliver,
accept and deposit, in the name of Lender or Borrower, any and all cash, checks.
commercial paper, drafts, remittances and other instruments and documents
relating to the Collateral or the proceeds thereof; (b) transmit to account
debtors, other obligors or any bailee's notice of the interest of Lender in the
Collateral or request from account debtors or such other obligors or bailees at
any time, in the name of Borrower or Lender or any designee of Lender,
information concerning the Collateral and any amounts owing with respect
thereto; (c) notify account debtors or other obligors to make payment directly
to Lender, or notify bailees as to the disposition of Collateral; (d) after an
Event of Default, take or bring, in the name of Lender or Borrower, all steps,
actions, suits or proceedings deemed by Lender necessary or desirable to effect
collection of or other realization upon the accounts and other Collateral; (e)
after an Event of Default, change the address for delivery of mail to Borrower
and to receive and open mail addressed to Borrower; (f) after an Event of
Default, extend the time of payment of, compromise or settle for cash, credit,
return of merchandise, and upon any terms or conditions, any and all accounts or
other Collateral which includes a monetary obligation and discharge or release
the account debtor or other obligor, without affecting any of the Obligations;
and (g) execute in the name of Borrower and file against Borrower in favor of
Lender financing statements or amendments with respect to the Collateral.
5.6 Liability. Borrower hereby releases and exculpates Lender, its
officers, employees and designees, from any liability arising from any acts
under this Agreement or in
-9-
furtherance thereof, whether as attorney-in-fact or otherwise, whether of
omission or commission, and whether based upon any error of judgment or mistake
of law or fact, except for gross negligence or wilful misconduct. In no event
will Lender have any liability to Borrower for lost profits or other special or
consequential damages.
5.7 Administration of Accounts. After written notice by Lender to
Borrower prior to an Event of Default and automatically, without notice, after
an Event of Default, Borrower shall not, without the prior written consent of
Lender in each instance, (a) grant any extension of time of payment of any of
the accounts or any other Collateral which includes a monetary obligation; (b)
compromise or settle any of the accounts or any such other Collateral for less
than the full amount thereof; (c) release in whole or in part any account debtor
or other person liable for the payment of any of the accounts or any such other
Collateral; or (d) grant any credits, discounts, allowances, deductions, return
authorizations or the like with respect to any of the accounts or any such other
Collateral.
5.8 Documents. At such times as Lender may request and in the
manner specified by Lender, Borrower shall deliver to Lender or Lender's
representative as Lender shall designate, copies or original invoices,
agreements, proofs of rendition of services and delivery of goods and other
documents evidencing or relating to the transactions which gave rise to accounts
or other Collateral, together with customer statements, schedules describing the
accounts or other Collateral and/or statements of account and confirmatory
assignments to Lender of the accounts or other Collateral, in form and substance
satisfactory to Lender and duly executed by Borrower. Without limiting the
provisions of Section 5.7, Borrower's granting of credits, discounts,
allowances, deductions, return authorizations or the like will promptly be
reported to Lender in writing. In no event shall any such schedule or
confirmatory assignment (or the absence thereof or omission of any of the
accounts or other Collateral therefrom) limit or in any way be construed as a
waiver, limitation or modification of the security interests or rights of Lender
or the warranties, representations and covenants of Borrower under this
Agreement. Any documents, schedules, invoices or other paper delivered to Lender
by Borrower may be destroyed or otherwise disposed of by Lender six (6) months
after receipt by Lender, unless Borrower requests their return in writing in
advance and makes prior arrangements for their return, at Borrower's expense.
5.9 Access. From time to time as requested by Lender, at the sole
expense of Borrower, Lender or its designee shall have complete access, prior to
an Event of Default during reasonable business hours and on or after an Event of
Default at any time, to all of the premises where Collateral is located for the
purposes of inspecting the Collateral, including all Borrower's books and
records, and Borrower shall permit Lender or its designee to make such copies of
such books and records or extracts therefrom as Lender may request. Without
expense to Lender, Lender may use such of Borrower's personnel, equipment,
including computer equipment, programs, printed output and computer readable
media, supplies and premises for the collection of accounts and realization on
other Collateral as Lender, in its sole discretion, deems appropriate. Borrower
hereby irrevocably authorizes all accountants and third parties to disclose and
deliver to Lender at Borrower's expense all financial information, books and
records, work papers, management reports and other information in their
possession regarding Borrower.
-10-
Lender shall use all reasonable efforts to keep confidential, in
accordance with its customary procedures for handling confidential information
and safe and sound lending practices, any non-public information supplied to it
by Borrower pursuant to this Agreement which is clearly and conspicuously marked
as confidential at the time such information is furnished by Borrower to Lender;
provided, however, nothing contained in this sentence shall limit Lender's
disclosure of any such information: (i) to the extent required by statute, rule,
regulation, subpoena or court order, (ii) to bank examiners and other
regulators, auditors and/or accountants, (iii) in connection with any litigation
to which Lender is a party, (iv) to any assignee or participant (or prospective
assignee or participant) so long as such assignee or participant (or prospective
assignee or participant) shall have first agreed in writing to treat such
information as confidential in accordance with this Section 5.9, or (v) to
counsel for Lender or any participant or assignee (or prospective participant or
assignee).
5.10 Environmental Audits. From time to time, as reasonably
requested by Lender, at the sole expense of Borrower, Borrower shall provide
Lender, or its designee, complete access to all of Borrower's facilities for the
purpose of conducting an environmental audit of such facilities as Lender or its
designees may deem necessary. Borrower agrees to cooperate with Lender with
respect to any environmental audit conducted by Lender or its designee pursuant
to this Section 5.10.
SECTION 6. ADDITIONAL REPRESENTATIONS. WARRANTIES AND COVENANTS
Borrower hereby represents, warrants and covenants to Lender the
following, the truth and accuracy of which, and compliance with which, shall be
continuing conditions of the making of loans or other credit accommodations by
Lender to Borrower:
6.1 Financial and Other Reports. Borrower shall keep and maintain
its books and records in accordance with generally accepted accounting
principles, consistently applied. Borrower shall, at its sole expense, deliver
to Lender the following true and complete statements and reports: (i) weekly,
summary inventory reports, (ii) on or before the 10th day of each month, a
monthly aging of its accounts receivable and accounts and notes payable, (iii)
on or before the 20th day of each month, perpetual inventory reports and monthly
internally prepared financial statements for the prior month, (iv) annually,
commencing with Borrower's fiscal year ending in 1998, audited financial
statements accompanied by the report and opinion thereon of independent
certified public accountants acceptable to Lender, as soon as available, but in
no event later than ninety (90) days after the end of Borrower's fiscal year,
and (v) with such frequency as Lender, in its reasonable credit judgment, may
request, cash flow projections. All such reports and statements shall be in such
form, and together with such other information with respect to the business of
Borrower or any guarantor, as Lender may request.
6.2 Trade Names. Borrower may from time to time render invoices to
account debtors under its trade names set forth in Section 10.6(f) after Lender
has received prior written notice from Borrower of the use of such trade names
and as to which, Borrower agrees that: (a) each trade name does not refer to
another corporation or other legal entity; (b) all accounts and proceeds thereof
(including any returned merchandise) invoiced under any such trade names are
-11-
owned exclusively by Borrower and are subject to the security interest of Lender
and the other terms of this Agreement; and (c) all schedules of accounts and
confirmatory assignments including any sales made or services rendered using the
trade name shall show Borrower's name as assignor and Lender is authorized to
receive, endorse and deposit to any loan account of Borrower maintained by
Lender all checks or other remittances made payable to any trade name of
Borrower representing payment with respect to such sales or services.
6.3 Losses. Borrower shall promptly notify Lender in writing of any
loss, damage, investigation, action, suit, proceeding or claim relating to a
material portion of the Collateral or which may result in any material adverse
change in Borrower's business, assets, liabilities or condition, financial or
otherwise.
6.4 Books and Records. Borrower's books and records concerning
accounts and its chief executive office are and shall be maintained only at the
address set forth in Section 10.6(c). Borrower's only other places of business
and the only other locations of Collateral, if any, are and shall be the
addresses set forth in Section 10.6(d) hereof, provided that Borrower may change
such locations or open a new place of business upon thirty (30) days' prior
written notice to Lender. Prior to any change in location or opening of any new
place of business, Borrower shall execute and deliver or cause to be executed
and delivered to Lender such financing statements, financing documents and
security and other agreements as Lender may require, including, without
limitation, those described in Section 6.14.
6.5 Title. Borrower has and at all times will continue to have good
and marketable title, free from defects, to all of the Collateral, free and
clear of all liens, security interests, claims or encumbrances of any kind
except in favor of Lender and except, if any, those set forth on Schedule 6.5
hereto.
6.6 Disposition of Assets. Borrower shall not directly or
indirectly: (a) sell, lease, transfer, assign, abandon or otherwise dispose of
any part of the Collateral or any material portion of its other assets (other
than sales of inventory to buyers in the ordinary course of business and sales
of obsolete equipment, worn-out equipment, or other equipment no longer used in
Borrower's business, so long as the aggregate fair market value of all such
equipment disposed of by Borrower during any year does not exceed $10,000) or
(b) consolidate with or merge with or into any other entity, or permit any other
entity to consolidate with or merge with or into Borrower, provided that
Borrower may merge with or into another entity so long as Lender continues to
provide financing to the resulting entity of such merger or (c) form or acquire
any interest in any firm, corporation or other entity.
6.7 Insurance. Borrower shall at all times maintain, with
financially sound and reputable insurers, casualty insurance with respect to the
Collateral and other assets. All such insurance policies shall be in such form,
substance, amounts and coverage as may be satisfactory to Lender and shall
provide for thirty (30) days' prior written notice to Lender of cancellation or
reduction of coverage. Borrower hereby irrevocably appoints Lender and any
designee of Lender as attorney-in-fact for Borrower to obtain at Borrower's
expense, any such insurance should Borrower fail to do so, and, after an Event
of Default, to adjust or settle any claim or other matter under or arising
pursuant to such insurance or to amend or cancel such insurance.
-12-
Borrower shall deliver to Lender evidence of such insurance and a lender's loss
payable endorsement satisfactory to Lender as to all existing and future
insurance policies with respect to the Collateral. Borrower shall deliver to
Lender, in kind, all instruments representing proceeds of insurance received by
Borrower. Lender may apply any insurance proceeds received at any time to the
cost of repairs to or replacement of any portion of the Collateral and/or, at
Lender's option, to payment of or as security for any of the Obligations,
whether or not due, in any order or manner as Lender determines.
6.8 Compliance with Laws. Borrower is and at all times will
continue to be in material compliance with the requirements of all applicable
laws, rules, regulations and orders of any governmental authority relating to
its business (including laws, rules, regulations and orders relating to taxes,
payment and withholding of payroll taxes, employer and employee contributions
and similar items, securities, employee retirement and welfare benefits,
employee health and safety, or environmental matters) and all material
agreements or other instruments binding on Borrower or its property. All of
Borrower's inventory shall be produced in accordance with the requirements of
the Federal Fair Labor Standards Act of 1938, as amended and all rules,
regulations and orders related thereto. Borrower shall pay and discharge all
taxes, assessments and governmental charges against Borrower or any Collateral
prior to the date on which penalties are imposed or liens attach with respect
thereto, unless the same are being contested in good faith and, at Lender's
option, Reserves are established for the amount contested and penalties which
may accrue thereon.
6.9 Accounts. With respect to each account deemed an Eligible
Account, except as reported in writing to Lender, Borrower has no knowledge that
any of the criteria for eligibility are not or are no longer satisfied. As to
each account, except as disclosed in writing to Lender at the time such account
arises (a) each is valid and legally enforceable and represents an undisputed
bona fide indebtedness incurred by the account debtor for the sum reported to
Lender; (b) each arises from an absolute and unconditional sale of goods,
without any right of return or consignment, or from a completed rendition of
services; (c) each is not, at the time such account arises, subject to any
defense, offset, dispute, contra relationship, counterclaim, or any given or
claimed credit, allowance or discount; and (d) all statements made and all
unpaid balances and other information appearing in the invoices, agreements,
proofs of rendition of services and delivery of goods and other documentation
relating to the accounts, and all confirmatory assignments, schedules,
statements of account and books and records with respect thereto, are true and
correct and in all respects what they purport to be.
6.10 Equipment. With respect to Borrower's equipment, Borrower
shall keep the equipment in good order and repair, and in running and marketable
condition, ordinary wear and tear excepted.
6.11 [Intentionally deleted]
6.12 Affiliate Transactions. Borrower will not, directly or
indirectly: (a) lend or advance money or property to, guarantee or assume
indebtedness of, or invest (by capital contribution or otherwise) in any person,
firm, corporation or other entity; or (b) declare, pay or make any dividend,
redemption or other distribution on account of any shares of any class of
-13-
stock of Borrower now or hereafter outstanding; or (c) subject to Section 6.16,
make any payment of the principal amount of or interest on any indebtedness
owing to any officer, director, shareholder, or affiliate of Borrower; or (d)
make any loans or advances to any officer, director, employee, shareholder or
affiliate of Borrower; (e) enter into any sale, lease or other transaction with
any officer, director, employee, shareholder or affiliate of Borrower on terms
that are less favorable to Borrower than those which might be obtained at the
time from persons who are not an officer, director, employee, shareholder or
affiliate of Borrower.
6.13 Fees and Expenses. Borrower shall pay, on Lender's demand, all
costs, expenses, fees, reasonable attorneys' fees, filing fees and taxes payable
in connection with the preparation, execution, delivery, recording,
administration, (including Lender's standard wire transfer and return check fees
as Lender shall, from time to time advise Borrower), collection, liquidation,
enforcement and defense of the Obligations, Lender's rights in the Collateral,
this Agreement and all other existing and future agreements or documents
contemplated herein or related hereto, including any amendments, waivers,
supplements or consents which may hereafter be made or entered into in respect
hereof, or in any way involving claims or defenses asserted by Lender or claims
asserted by or against Lender asserted by Borrower, any guarantor or any third
party, directly or indirectly arising out of or related to the relationship
between Borrower and Lender or any guarantor and Lender, including, but not
limited to the following, whether incurred before, during or after the initial
or any renewal Term or after the commencement of any case with respect to
Borrower or any guarantor under the United States Bankruptcy Code or any similar
statute: (a) all costs and expenses of filing or recording (including Uniform
Commercial Code financing statement filing taxes and fees, documentary taxes,
intangibles taxes and mortgage recording taxes and fees, if applicable); (b) all
title insurance and other insurance premiums, appraisal fees, search fees and
fees incurred in connection with any environmental audit, report, survey or
remediation; (c) all fees then in effect relating to the wire transfer of loan
proceeds and all other funds and fees then in effect for returned checks and
credit reports; (d) all expenses and costs heretofore and from time to time
hereafter incurred by Lender during the course of periodic field examinations of
the Collateral and Borrower's operations, including travel, hotel and other
out-of-pocket expenses, plus a per diem charge at the then prevailing rate
(currently $650.00 per person per day) for Lender's examiners in the field and
office, provided that, so long as no Event of Default exists, Borrower shall not
be obligated to pay Lender for more than forty (40) man days of field
examination expenses in any year; and (e) the costs, fees and disbursements of
in-house and outside counsel to Lender, including, without limitation such fees
and disbursements incurred as a result of litigation between the parties hereto,
any guarantors, any other third party, and any appeals thereof and in any other
action or proceeding relating to the enforcement of Lender's rights, including
any insolvency, liquidation or workout proceeding.
6.14 Further Assurances. At the request of Lender, at any time and
from time to time, at Borrower's sole expense, Borrower shall execute and
deliver or cause to be executed and delivered to Lender, such agreements,
documents and instruments, including waivers, consents and subordination
agreements from landlords, bailees, mortgagees or other holders of property of
Borrower or of loans due from Borrower or security interests or liens in the
Collateral, and do or cause to be done such further acts as Lender, in its
discretion, deems necessary or desirable to create, preserve, perfect or
validate any security interest of Lender or the priority thereof in the
-14-
Collateral and otherwise to effectuate the provisions and purposes of this
Agreement. Borrower hereby authorizes Lender to file financing statements or
amendments against Borrower in favor of Lender with respect to the Collateral,
without Borrower's signature and to file as financing statements any carbon,
photographic or other reproductions of this Agreement or any financing
statements signed by Borrower.
6.15 Environmental Condition. None of Borrower's properties or
assets has ever been designated or identified in any manner pursuant to any
environmental protection statute as a hazardous waste or hazardous substance
disposal site, or a candidate for closure pursuant to any environmental
protection statute. No lien arising under any environmental protection statute
has attached to any revenues or to any real or personal property owned by
Borrower. Borrower has not received a summons, citation, notice, or directive
from the Environmental Protection Agency or any other federal or state
governmental agency concerning any action or omission by Borrower resulting in
the releasing, or otherwise disposing of hazardous waste or hazardous substances
into the environment. Borrower is in compliance in all material respects with
all statutes, regulations, ordinances and other legal requirements pertaining to
the production, storage, handling, treatment, release, transportation or
disposal of any hazardous waste or hazardous substance.
6.16 Indebtedness and Purchase-Money Liens. Borrower may incur
indebtedness in addition to that in existence as of the date of this Agreement
and disclosed to Lender so long as the repayment of any such additional
indebtedness is subordinated to the repayment of the Obligations pursuant to a
written subordination agreement in form and substance acceptable to CIT in its
sole discretion. Borrower may grant purchase-money liens and security interests
in the Collateral provided (i) Borrower gives Lender prior written notice of any
such lien or security interest and (ii) all such liens and security interests
granted by Borrower during the trailing twelve month period do not secure
aggregate obligations of Borrower in excess of $50,000.
SECTION 7. EVENTS OF DEFAULT AND REMEDIES
7.1 Events of Default. All Obligations shall be immediately due and
payable, without notice or demand, and any provisions of this Agreement as to
future loans and credit accommodations by Lender shall terminate automatically,
upon the termination or non-renewal of this Agreement or, at Lender's option,
upon or at any time after the occurrence or existence of any one or more of the
following (each an "Event of Default"):
(a) Borrower fails to pay when due any of the Obligations or
fails to perform any of the terms of this Agreement or any other existing or
future note, financing, security or other agreement between Borrower and Lender
or any affiliate of Lender;
(b) Any representation, warranty or statement of fact made by
Borrower to Lender in this Agreement or any other agreement, schedule,
confirmatory assignment or other documents either referred to in this Agreement
or delivered by Borrower to Lender in
-15-
connection with this Agreement, or to any affiliate of Lender, shall prove
materially inaccurate or misleading;
(c) Any guarantor or subordinated creditor of Borrower revokes,
terminates or fails to perform any of the terms of any guaranty, endorsement
subordination agreement or other agreement of such party with or in favor of
Lender or any affiliate of Lender;
(d) Any judgment or judgments aggregating in excess of $75,000
or any injunction or attachment is obtained against Borrower or any guarantor
(or either of them) which remains unstayed for a period of ten (10) days or is
enforced;
(e) Borrower or any guarantor or a general partner of a
guarantor or Borrower (which is a partnership), being a natural person, dies, or
Borrower or any guarantor which is a partnership or corporation, is dissolved,
or Borrower or any guarantor which is a corporation fails to maintain its
corporate existence in good standing, or the usual business of Borrower or any
guarantor ceases or is suspended;
(f) Any change in the chief executive officer, chief operating
officer or chief financial officer of Borrower without prior written notice to
Lender or any change in the controlling ownership of Borrower without the prior
written consent of Lender;
(g) Borrower or any guarantor becomes insolvent, makes an
assignment for the benefit of creditors, makes or sends notice of a bulk
transfer or calls a general meeting of its creditors or principal creditors;
(h) Any petition or application for any relief under the
bankruptcy laws of the United States now or hereafter in effect or under any
insolvency, reorganization, receivership, readjustment of debt, dissolution or
liquidation law or statute of any jurisdiction now or hereafter in effect
(whether at law or in equity) is filed by or against Borrower or any guarantor;
(i) Any indictment or threatened indictment of Borrower or any
guarantor under any criminal statute occurs, or commencement or threatened
commencement of criminal or civil proceedings against Borrower or any guarantor
are commenced or threatened, pursuant to which statute or proceedings the
penalties or remedies sought or available include forfeiture of any of the
property of Borrower or any guarantor;
(j) Any default or event of default under any financing,
security or other agreement, document or instrument at any time executed and/or
delivered to, with or in favor of Lender or any of its affiliates by any
affiliate of Borrower;
(k) Lender in its reasonable credit judgment believes that
either (i) the prospect of payment or performance of the Obligations is
impaired; or (ii) the Collateral is not sufficient to secure fully the
Obligations;
-16-
(l) Any material change occurs in the type of Borrower's
business; or
(m) Any default or event of default occurs on the part of
Borrower under any agreement, document or instrument to which Borrower is a
party or by which Borrower or any of its property is bound, creating or relating
to any indebtedness of Borrower to any person or entity other than Lender in a
principal amount exceeding $50,000, if the effect of such default is to allow
the acceleration of the maturity of all or any part of such indebtedness, or all
or any part of any such indebtedness shall be declared to be due and payable or
required to be prepaid for any other reason, in either event prior to the stated
maturity thereof.
7.2 Remedies. Upon the occurrence of an Event of Default and at any
time thereafter, Lender shall have all the default rights and remedies provided
in this Agreement, any other agreements between Borrower and Lender, the Uniform
Commercial Code or other applicable law, all of which rights and remedies may be
exercised without notice to Borrower but in compliance with applicable law, all
such notices being hereby waived, except such notice as is expressly provided
for hereunder or is not waivable under applicable law. All rights and remedies
of Lender are cumulative and not exclusive and are enforceable, in Lender's
discretion, alternatively, successively, or concurrently on any one or more
occasions and in any order Lender may determine. Without limiting the foregoing,
Lender may (a) accelerate the payment of all Obligations and demand immediate
payment thereof to Lender; (b) with or without judicial process or the aid or
assistance of others, enter upon any premises on or in which any of the
Collateral may be located and take possession of the Collateral or complete
processing, manufacturing and repair of all or any portion of the Collateral;
(c) require Borrower, at Borrower's expense, to assemble and make available to
Lender any part or all of the Collateral at any place and time designated by
Lender; (d) collect, foreclose, receive, appropriate, setoff and realize upon
any and all Collateral; (e) extend the time of payment of, compromise or settle
for cash, credit, return of merchandise, and upon any terms or conditions, any
and all accounts or other Collateral which includes a monetary obligation and
discharge or release the account debtor or other obligor, without affecting any
of the Obligations; (f) sell, lease, transfer, assign, deliver or otherwise
dispose of any and all Collateral (including, without limitation, entering into
contracts with respect thereto, by public or private sales at any exchange,
broker's board, any office of Lender or elsewhere) at such prices or terms as
Lender may deem reasonable, for cash, upon credit or for future delivery, with
the Lender having the right to purchase the whole or any part of the Collateral
at any such public sale, all of the foregoing being free from any right or
equity of redemption of Borrower, which right or equity of redemption is hereby
expressly waived and released by Borrower. If any of the Collateral is sold or
leased by Lender upon credit terms or for future delivery, the Obligations shall
not be reduced as a result thereof until payment therefor is finally collected
by Lender. If notice of disposition of Collateral is required by law, five (5)
days prior notice by Lender to Borrower designating the time and place of any
public sale or the time after which any private sale or other intended
disposition of Collateral is to be made, shall be deemed to be reasonable notice
thereof and Borrower waives any other notice. In the event Lender institutes an
action to recover any Collateral or seeks recovery of any Collateral by way of
prejudgment remedy, Borrower waives the posting of any bond which might
otherwise be required.
-17-
7.3 Application of Proceeds. Lender may apply the cash proceeds of
Collateral actually received by Lender from any sale, lease, foreclosure or
other disposition of the Collateral to payment of any of the Obligations, in
whole or in part (including reasonable attorneys' fees and legal expenses
incurred by Lender with respect thereto or otherwise chargeable to Borrower) and
in such order as Lender may elect, whether or not then due. Borrower shall
remain liable to Lender for the payment of any deficiency together with interest
at the highest rate provided for herein and all costs and expenses of collection
or enforcement, including reasonable attorneys' fees and legal expenses.
7.4 Lender's Cure of Third Party Agreement Default. Lender may, at
its option, cure any default by Borrower under any agreement with a third party
or pay or bond on appeal any judgment entered against Borrower, discharge taxes,
liens, security interests or other encumbrances at any time levied on or
existing with respect to the Collateral and pay any amount, incur any expense or
perform any act which, in Lender's sole judgment, is necessary or appropriate to
preserve, protect, insure, maintain, or realize upon the Collateral. Lender may
charge Borrower's loan account for any amounts so expended, such amounts to be
repayable by Borrower on demand. Lender shall be under no obligation to effect
such cure, payment, bonding or discharge, and shall not, by doing so, be deemed
to have assumed any obligation or liability of Borrower.
SECTION 8. JURY TRIAL WAIVER: CERTAIN OTHER WAIVERS AND CONSENTS
8.1 JURY TRIAL WAIVER. BORROWER AND LENDER EACH WAIVE ALL RIGHTS TO
TRIAL BY JURY IN ANY ACTION OR PROCEEDING INSTITUTED BY EITHER OF THEM AGAINST
THE OTHER WHICH PERTAINS DIRECTLY OR INDIRECTLY TO THIS AGREEMENT, THE
OBLIGATIONS, THE COLLATERAL, ANY ALLEGED TORTIOUS CONDUCT BY BORROWER OR LENDER,
OR, IN ANY WAY, DIRECTLY OR INDIRECTLY, ARISES OUT OF OR RELATES TO THE
RELATIONSHIP BETWEEN BORROWER AND LENDER. IN NO EVENT WILL LENDER BE LIABLE FOR
LOST PROFITS OR OTHER SPECIAL OR CONSEQUENTIAL DAMAGES.
8.2 Counterclaims. Borrower waives all rights to interpose any
claims, deductions, setoffs or counterclaims of any kind, nature or description
in any action or proceeding instituted by Lender with respect to this Agreement,
the Obligations, the Collateral or any matter arising therefrom or relating
thereto, except compulsory counterclaims.
8.3 Jurisdiction. Borrower hereby irrevocably submits and consents
to the non-exclusive jurisdiction of the State and Federal Courts located in the
State of California and any other State where any Collateral is located, with
respect to any action or proceeding arising out of this Agreement, the
Obligations, the Collateral or any matter arising therefrom or relating thereto.
In any such action or proceeding, Borrower waives personal service of the
summons and complaint or other process and papers therein and agrees that the
service thereof may be made by mail (to be followed by two-day Federal Express
or similar courier service) directed to Borrower at its chief executive office
set forth herein or other address thereof of which Lender has received notice as
provided herein or as otherwise provided by law, service to be deemed
-18-
complete five (5) days after mailing, or as permitted under the rules of either
of said Courts. Any such action or proceeding commenced by Borrower against
Lender will be litigated only in a Federal Court located in the Central District
of California, or a State Court in the County of Los Angeles, California, and
Borrower waives any objection based on forum non conveniens and any objection to
venue in connection therewith.
8.4 No Waiver by Lender. Lender shall not, by any act, delay,
omission or otherwise be deemed to have expressly or impliedly waived any of its
rights or remedies unless such waiver shall be in writing and signed by an
authorized officer of Lender. A waiver by Lender of any right or remedy on any
one occasion shall not be construed as a bar to or waiver of any such right or
remedy which Lender would otherwise have on any future occasion, whether similar
in kind or otherwise.
SECTION 9. TERM OF AGREEMENT; MISCELLANEOUS
9.1 Term. This Agreement shall only become effective upon execution
and delivery by Borrower and Lender and shall continue in full force and effect
for a term of three (3) years from the date hereof and shall be deemed
automatically renewed for successive terms of three (3) years thereafter unless
terminated as of the end of the initial or any renewal term (each a "Term") by
either party giving the other written notice at least sixty (60) days' prior to
the end of the then-current Term.
9.2 Early Termination. Borrower may also terminate this Agreement
by giving Lender at least thirty (30) days' prior written notice at any time
upon payment in full of all of the Obligations as provided herein, including the
early termination fee provided below; provided, however, Borrower shall not be
obligated to pay to Lender the early termination fee provided below in
consequence of any voluntary termination of this Agreement by Borrower in
connection with either (i) Borrower's merger with or into another entity so long
as Lender continues to provide financing to the resulting entity of such merger,
or (ii) Borrower's refinancing of its obligations hereunder not earlier than one
(1) year after the date of this Agreement with financing provided by Sumitomo
Bank of California. Lender shall also have the right to terminate this Agreement
at any time upon or after the occurrence of an Event of Default. If Lender
terminates this Agreement upon or after the occurrence of an Event of Default,
or if Borrower shall terminate this Agreement as permitted herein effective
prior to the end of the then-current Term, in addition to all other Obligations,
Borrower shall pay to Lender, upon the effective date of termination, in view of
the impracticality and extreme difficulty of ascertaining actual damages and by
mutual agreement of the parties as to a reasonable calculation of Lender's lost
profits, an early termination fee equal to five percent (5%) of the Maximum
Credit if such termination is during the first year of the Term, three percent
(3%) of the Maximum Credit if such termination is during the second year of the
Term and thereafter at one percent (1%) of the Maximum Credit.
9.3 Additional Cash Collateral. Upon any termination of this
Agreement by Borrower as permitted herein, in addition to payment of all
Obligations which are not contingent, Borrower shall deposit such amount of cash
collateral as Lender determines is
-19-
necessary to secure Lender from loss, cost, damage or expense, including
reasonable attorneys' fees, in connection with any open Accommodations or
remittance items or other payments provisionally credited to the Obligations or
with respect to which Lender has not yet received final and indefeasible
payment.
9.4 Notices. Except as otherwise provided, all notices, requests
and demands hereunder shall be (a) made to Lender at its address set forth in
Section 10.6(a) and to Borrower at its chief executive office set forth in
Section 10.6(c), or to such other address as either party may designate by
written notice to the other in accordance with this provision; and (b) deemed to
have been given or made: if by hand, immediately upon delivery; if by telex,
telegram or facsimile (fax), immediately upon receipt; if by overnight delivery
service, one (1) day after dispatch; if by first class mail, five (5) days after
deposit in the U.S. Mail, postage prepaid and addressed as set forth herein; and
if by certified mail, on the earlier of the date of actual receipt or five (5)
days after deposit in the U.S. Mail, postage prepaid and addressed as set forth
herein.
9.5 Severability. If any provision of this Agreement is held to be
invalid or unenforceable, such provision shall not affect this Agreement as a
whole, but this Agreement shall be construed as though it did not contain the
particular provision held to be invalid or unenforceable.
9.6 Entire Agreement, Amendments, Assignments. This Agreement and
the Promissory Note referred to in Section 2.2, if any, contains the entire
agreement of the parties as to the subject matter hereof, all prior commitments,
proposals and negotiations concerning the subject matter hereof being merged
herein. Neither this Agreement nor any provision hereof shall be amended,
modified or discharged orally or by course of conduct, but only by a written
agreement signed by an authorized officer of Lender. This Agreement shall be
binding upon and inure to the benefit of each of the parties hereto and their
successors and assigned provided that Borrower may not sell, assign or transfer
this Agreement or any portion hereof, including, without limitation, Borrower's
right, title, interest, remedies, powers or duties hereunder without the express
prior written consent of Lender. Borrower hereby consents to Lender's
participation, sale, assignment, transfer or other disposition, at any time or
times hereafter, of this Agreement or of any portion hereof including, without
limitation, Lender's right, title, interest, remedies, powers or duties
hereunder, provided that any obligation of Lender hereunder shall continue
unless otherwise agreed to by Borrowers.
9.7 Discharge of Borrower. No termination of this Agreement shall
relieve or discharge Borrower of its obligations, grants of Collateral, duties
and covenants hereunder or otherwise until such time as all Obligations to
Lender have been indefeasibly paid and satisfied in full, including, without
limitation, the continuation and survival in full force and effect of all
security interests and liens of Lender in and upon all then-existing and
thereafter-arising or acquired Collateral and all warranties and waivers of
Borrower. Upon the indefeasible payment and satisfaction in full of the
Obligations, Lender promptly will execute financing statement terminations and
take all other action necessary to terminate its security interest in the
Collateral.
-20-
9.8 Usage. All terms used herein which are defined in the Uniform
Commercial Code shall have the meanings given therein unless otherwise defined
in this Agreement and all references to the singular or plural herein shall also
mean the plural or singular, respectively.
9.9 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of California.
-21-
SECTION 10. ADDITIONAL DEFINITIONS AND TERMS
10.1 (a) Maximum Credit: $12,000,000.00
(b) Gross Availability Formulas:
Eligible Accounts Percentage: 75%
provided that if dilution as determined by Lender
(non cash reduction in the value of the Accounts
caused by returns, allowances, credits or the like)
exceeds 10%, the Eligible Accounts percentage shall
be reduced by 1% for each percent of dilution in
excess of 10%.
Eligible Inventory Percentages
Finished Goods: 35%
Raw Materials: N/A
(c) Inventory Sublimit(s): $6,000,000.00
(d) Maximum days after Invoice
Date for Eligible Accounts: 90 days
(e) Minimum Borrowing $2,500,000.00
10.2 [Intentionally deleted]
10.3 Accommodations:
(a) Lender's Charge for
Accommodations: 1.5% over a 360-day year
(b) Sublimit for
Accommodations: $1,000,000
10.4 (a) Interest Rate: Prime Rate plus 1.25% over a 360-day year
----
(b) Facility Fee: .75% of the Maximum Credit
(c) [Intentionally deleted]
(d) Closing Fee .75% of the Maximum Credit
(e) Clearance Days 3 Business Days
10.5 [Intentionally Deleted]
10.6 (a) Lender's Office: ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
-▇▇-
▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
(b) Borrower Name: JMCD, INCORPORATED
(c) Borrower's Chief Executive Office:
▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
(d) Locations of Eligible Inventory Collateral:
▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
(Admin. Offices)
▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
(Warehouse)
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
(Warehouse/Sales Dept.)
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇ ▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
(Warehouse/Sales Dept.)
▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇.▇. ▇▇▇▇▇
(Warehouse/Sales Dept.)
(e) Borrower's other offices and Locations of Collateral:
None.
(f) Borrower's Trade Names for Invoicing:
WAWD-EAP
WAWD
EAP
-23-
SECTION 11. CONDITIONS PRECEDENT TO CLOSING.
11.1 Lender will not be obligated to make any loans or advances
hereunder unless the following conditions precedent have been satisfied as
determined by Lender:
(a) Borrower's representations and warranties contained in this
Agreement and in any related documents and agreements shall be correct and
complete; Borrower shall have performed and complied with all covenants,
agreements, and conditions contained herein and in any related documents and
agreements which are required to have been performed or complied with; and there
shall exist no Default or Event of Default.
(b) Borrower shall have delivered, or cause to be delivered, to
Lender such other documents, instruments and agreements as Lender shall request
in connection herewith, duly executed by all parties thereto other than Lender,
and in form and substance satisfactory to Lender and its counsel;
(c) ▇▇▇▇▇▇▇ ▇▇ ▇▇▇▇▇▇ and ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, as individual
guarantors, shall each have executed and delivered, or caused to be executed and
delivered, Continuing Guaranties, in form and substance acceptable to Lender,
and all other instruments, documents, agreements and waivers as in the opinion
of Lender may be necessary to give effect to such Continuing Guaranties and the
transactions contemplated thereby;
(d) Lender shall have received from counsel for Borrower and
guarantors an opinion letter in form and substance acceptable to Lender;
(e) Borrower shall have executed, and Lender shall have filed,
all financing statements deemed necessary or desirable by Lender to perfect
Lender's security interest in the Collateral, and Lender shall have received
assurances satisfactory to it that such security interests are duly perfected,
first priority security interests;
(f) Borrower shall have delivered to Lender evidence
satisfactory to Lender that the Collateral has been insured in such amounts as
may be acceptable to Lender and in compliance with the provisions of the
Agreement and Lender shall be named as lender loss payee or as additional
insured on endorsements in form and substance satisfactory to Lender;
(g) Subordination agreements, no-offset agreements and
intercreditor agreements, in form and substance satisfactory to Lender, shall
have been executed and delivered by Seller (as defined below) and such other
parties as Lender deems necessary, including without limitation the
subordination by WAWP-EAP Automotive Products, Inc. ("WAWP-EAP") and Echlin,
Inc. of the $1,500,000 note executed by Borrowers in favor of WAWP-EAP in
connection with Borrower's purchase of assets pursuant to the Purchase
Agreement, the terms of which shall be acceptable to Lender.
-24-
(h) Orderly liquidation in-place value appraisals of Borrower's
machinery and equipment shall have been delivered to Lender by an appraiser or
appraisers satisfactory to Lender.
(i) The Purchase Agreement ("Purchase Agreement") by and among
WAWP-EAP ("Seller") and Borrower shall have been executed and delivered by all
parties thereto, in form and substance and with detailed schedules of assets and
liabilities acceptable to Lender, the purchase and sale transaction contemplated
thereby shall have been completed and the assets (the "Purchased Assets")
acquired by Borrower pursuant thereto shall have been transferred to Borrower
free and clear of all liens, claims and encumbrances and rights of others,
except those of Lender and those expressly approved by Lender. The
representations, warranties, indemnifications and undertakings in the Purchase
Agreement shall also be assigned for the benefit of Lender.
(j) All applicable bulk transfer or similar laws shall have
been complied with by Seller and Borrower prior to the transfer to Borrower of
the Purchased Assets, or Lender shall have received an indemnification
agreement, in form and substance and from a person satisfactory to Lender, in
its sole and absolute discretion, indemnifying Lender for any loss or expense
incurred as a result of any failure to comply with such laws;
(k) No materially advantageous agreement now in effect between
Borrower and/or Seller and any other person or entity shall have been
terminated, modified or declared to be in default;
(l) All consents necessary to permit the acquisition of the
Purchased Assets by Borrower in accordance with applicable law and the
provisions of any agreement binding on Borrower or Seller and to permit the
secured financing transaction contemplated by this Agreement shall have been
obtained.
(m) Lender shall have received a description of all employees
pension benefit plans (if any) of Borrower and Seller which are now in existence
and confirmation that such plans have either been assumed by Borrower or Seller,
terminated or replaced in a manner satisfactory to Lender, and to the extent
such plans are to be assumed, that such plans are funded at a level satisfactory
to Lender;
(n) Lender shall have received evidence satisfactory to it that
no broker's fee, finder's fee or similar fee shall be payable by Borrower or by
any other Person in connection with the Purchase Agreement or the Agreement or
Lender shall have consented to the terms and payment of any such fee;
-25-
(o) Lender shall have received copies of all labor contracts to
which Borrower is a party and all labor contracts necessary to the continuation
of the business operations of Borrower shall be in effect on the closing;
(p) On the closing, the present fair saleable value of the
assets of Borrower shall be greater than the fair value of the total liabilities
of Borrower, including, without limitation, contingent liabilities, and Lender
shall be satisfied that the present fair saleable value of the assets of
Borrower will continue thereafter to be greater than the total fair value of the
liabilities of Borrower, including, without limitation, contingent liabilities,
and Lender shall have received a certificate from Borrower to that effect.
(q) On the closing, all of the assets supporting the loans
shall be sufficient in value, as determined by Lender, to provide Borrower with
(i) sufficient funds to purchase the Purchased Assets and (ii) working capital
to enable Borrower to profitably operate its business, and Lender shall have
received a certificate from Borrower to that effect.
(r) Lender shall have received an opening balance sheet of
Borrower, dated the closing, in form and substance satisfactory to Lender,
prepared by an accounting firm or officer of Borrower satisfactory to Lender,
which balance sheet shall reflect the purchase of the Purchased Assets by
Borrower and the initial loan.
(s) There shall have been contributed to the equity of Borrower
a cash amount equal to at least $100,000.00;
(t) With respect to the asset sale under the Purchase
Agreement: Borrower shall submit to Lender cash flow statements and pro forma
balance sheets with adjusting entries (a) showing that the proposed financing
will provide sufficient funds for the Borrower's projected needs; (b) showing
that the Borrower: (i) will have a minimum tangible net worth in an amount that
is acceptable to Lender and will otherwise be solvent immediately after initial
funding; (ii) will have reasonably sufficient capital to engage in its business
following the initial funding; and (iii) will not incur debts beyond its ability
to pay such debts as they mature; (c) in form and substance satisfactory to
Lender; (d) certified by an officer of Borrower; and (e) based upon assumptions
acceptable to Lender.
(u) Borrower must have a minimum of $1,000,000.00 in excess
borrowing availability at the closing, and Lender shall have received a
certificate from Borrower to that effect.
(v) Borrower shall have paid all fees and expenses of Lender,
including those specified in Section 3 hereof;
(w) Lender shall have received verifications of continued trade
credit on terms acceptable to Lender; and
-26-
IN WITNESS WHEREOF, Borrower and Lender have duly executed this
Agreement this 14th day of November, 1997.
LENDER: BORROWER:
THE CIT GROUP/CREDIT FINANCE, JMCD, INCORPORATED,
INC. a California corporation
By:/s/THE CIT GROUP/CREDIT FINANCE By: /s/ JMCD, INCORPORATED
------------------------------- ----------------------
Title:________________________ Title:_____________________
-27-
SCHEDULE 6.5
Permitted Liens
NONE
-28-