Loan and Security Agreement
by and between
CONGRESS FINANCIAL CORPORATION (WESTERN)
as Lender
and
WEI ACQUISITION CO.
as Borrower
Dated: January 31, 1997
TABLE OF CONTENTS
PAGE(S)
SECTION 1. DEFINITIONS. . . . . . . . . . . . . . . . 1
SECTION 2. CREDIT FACILITIES. . . . . . . . . . . . . 10
2.1 Revolving Loans. . . . . . . . . . . . . . 10
2.2 Letter of Credit Accommodations. . . . . . 11
SECTION 3. INTEREST AND FEES. . . . . . . . . . . . . 13
3.1 Interest . . . . . . . . . . . . . . . . . 13
3.2 Closing Fee. . . . . . . . . . . . . . . . 14
3.3 Loan Servicing and Audit Fee . . . . . . . 14
3.4 Changes in Laws and Increased Costs of Loans 15
3.5 Compensation Adjustment . . . . . . . . . 15
SECTION 4. CONDITIONS PRECEDENT . . . . . . . . . . . 17
4.1 Conditions Precedent to Initial Loans and the
Letter of Credit Accommodations . . . . . . . . 17
4.2 Conditions Precedent to All Loans and Letter of
Credit Accommodations . . . . . . . . . . . . . 19
4.3 Condition Subsequent To All Loans And Letter Of
Credit Accommodations.. . . . . . . . . . . . . 20
SECTION 5. GRANT OF SECURITY INTEREST . . . . . . . . 20
SECTION 6. COLLECTION AND ADMINISTRATION. . . . . . . 21
6.1 Borrower's Loan Account. . . . . . . . . . 21
6.2 Statements . . . . . . . . . . . . . . . . 21
6.3 Collection of Accounts . . . . . . . . . . 22
6.4 Payments . . . . . . . . . . . . . . . . . 23
6.5 Authorization to Make Loans. . . . . . . . 24
6.6 Use of Proceeds. . . . . . . . . . . . . . 24
SECTION 7. COLLATERAL REPORTING AND COVENANTS . . . . 24
7.1 Collateral Reporting . . . . . . . . . . . 24
7.2 Accounts Covenants . . . . . . . . . . . . 25
7.3 Inventory Covenants. . . . . . . . . . . . 26
7.4 Equipment Covenants. . . . . . . . . . . . 27
7.5 Power of Attorney. . . . . . . . . . . . . 27
7.6 Right to Cure. . . . . . . . . . . . . . . 28
7.7 Access to Premises . . . . . . . . . . . . 28
SECTION 8. REPRESENTATIONS AND WARRANTIES . . . . . . 29
8.1 Corporate Existence, Power and Authority;
Subsidiaries. . . . . . . . . . . . . . . . . . 29
8.2 Financial Statements; No Material Adverse
Change. . . . . . . . . . . . . . . . . . . . . 29
8.3 Chief Executive Office; Collateral Locations. 29
8.4 Priority of Liens; Title to Properties . . 29
8.5 Tax Returns. . . . . . . . . . . . . . . . 30
8.6 Litigation . . . . . . . . . . . . . . . . 30
8.7 Compliance with Other Agreements and Applicable
Laws. . . . . . . . . . . . . . . . . . . . . . 30
8.8 Environmental Compliance . . . . . . . . . 30
8.9 Acquisition of Purchased Assets. . . . . . 31
8.10 Capitalization . . . . . . . . . . . . . . 32
8.11 Employee Benefits. . . . . . . . . . . . . 32
8.12 Accuracy and Completeness of Information.. 33
8.13 Survival of Warranties; Cumulative . . . . 33
SECTION 9. AFFIRMATIVE AND NEGATIVE COVENANTS . . . . 33
9.1 Maintenance of Existence . . . . . . . . . 33
9.2 New Collateral Locations . . . . . . . . . 33
9.3 Compliance with Laws, Regulations, Etc . . 34
9.4 Payment of Taxes and Claims. . . . . . . . 34
9.5 Insurance. . . . . . . . . . . . . . . . . 35
9.6 Financial Statements and Other Information 35
9.7 Sale of Assets, Consolidation, Merger, Dissolution,
Etc . . . . . . . . . . . . . . . . . . . . . . 37
9.8 Encumbrances . . . . . . . . . . . . . . . 37
9.9 Indebtedness . . . . . . . . . . . . . . . 37
9.10 Loans, Investments, Guarantees; Dividends and
Redemptions . . . . . . . . . . . . . . . . . . 38
9.11 Transactions with Affiliates . . . . . . . 39
9.12 Compliance with ERISA. . . . . . . . . . . 39
9.13 Adjusted Net Worth . . . . . . . . . . . . 39
9.14 Costs and Expenses . . . . . . . . . . . . 39
9.15 Further Assurances . . . . . . . . . . . . 40
SECTION 10. EVENTS OF DEFAULT AND REMEDIES . . . . . . 40
10.1 Events of Default. . . . . . . . . . . . . 40
10.2 Remedies . . . . . . . . . . . . . . . . . 42
SECTION 11. JURY TRIAL WAIVER; OTHER WAIVERS
AND CONSENTS; GOVERNING LAW. . . . . . . . . . . . . . 44
11.1 Governing Law; Choice of Forum; Service of Process;
Jury Trial Waiver . . . . . . . . . . . . . . . 44
11.2 Waiver of Notices. . . . . . . . . . . . . 45
11.3 Amendments and Waivers . . . . . . . . . . 45
11.4 Indemnification. . . . . . . . . . . . . . 45
SECTION 12. TERM OF AGREEMENT; MISCELLANEOUS . . . . . 46
12.1 Term . . . . . . . . . . . . . . . . . . . 46
12.2 Notices. . . . . . . . . . . . . . . . . . 48
12.3 Partial Invalidity . . . . . . . . . . . . 48
12.4 Successors . . . . . . . . . . . . . . . . 48
12.5 Entire Agreement . . . . . . . . . . . . . 48
12.6 Publicity. . . . . . . . . . . . . . . . . 49
12.7 Confidentiality. . . . . . . . . . . . . . 49
LOAN AND SECURITY AGREEMENT
This Loan and Security Agreement dated January 31, 1997 is
entered into by and between Congress Financial Corporation
(Western), a California corporation ("Lender"), and WEI
Acquisition Co., a Delaware corporation (which will change its
name to Wherehouse Entertainment, Inc.) ("Borrower").
W I T N E S S E T H:
WHEREAS, Borrower has requested that Lender enter into
certain financing arrangements with Borrower pursuant to which
Lender may make loans and provide other financial accommodations
to Borrower; and
WHEREAS, Lender is willing to make such loans and provide
such financial accommodations on the terms and conditions set
forth herein;
NOW, THEREFORE, in consideration of the mutual conditions
and agreements set forth herein, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
SECTION 1. DEFINITIONS
All terms used herein which are defined in Article 1 or
Article 9 of the California Uniform Commercial Code shall have
the respective meanings given therein unless otherwise defined in
this Agreement. All references to the plural herein shall also
mean the singular and to the singular shall also mean the plural.
All references to Borrower and Lender pursuant to the definitions
set forth in the recitals hereto, or to any other person herein,
shall include their respective successors and assigns. The words
"hereof", "herein", "hereunder", "this Agreement" and words of
similar import when used in this Agreement shall refer to this
Agreement as a whole and not any particular provision of this
Agreement and as this Agreement now exists or may hereafter be
amended, modified, supplemented, extended, renewed, restated or
replaced. Any accounting term used herein unless otherwise
defined in this Agreement shall have the meaning customarily
given to such term in accordance with GAAP. For purposes of this
Agreement, the following terms shall have the respective meanings
given to them below:
1.1 "Accounts" shall mean all present and future rights of
Borrower to payment for goods sold or leased or for services
rendered, which are not evidenced by instruments or chattel
paper, and whether or not earned by performance.
1.2 "Adjusted Eurodollar Rate" shall mean, with respect to
each Interest Period for any Eurodollar Rate Loan, the rate per
annum (rounded upwards, if necessary, to the next one-sixteenth
(1/16) of one percent (1%), determined by dividing (a) the
Eurodollar Rate for such Interest Period by (b) a percentage
equal to: (i) one (1) minus (ii) the Reserve Percentage. For
purposes hereof, "Reserve Percentage" shall mean the reserve
percentage, expressed as a decimal, prescribed by any United
States or foreign banking authority for determining the reserve
requirement which is or would be applicable to deposits of United
States dollars in a non-United States or an international banking
office of Reference Bank used to provide funding for a Eurodollar
Rate Loan or any Eurodollar Rate Loan made with the proceeds of
such deposit, whether or not the Reference Bank actually holds or
has made any such deposits or loans. The Adjusted Eurodollar
Rate shall be adjusted on and as of the effective day of any
change in the Reserve Percentage.
1.3 "Adjusted Net Worth" shall mean as to any Person, at
any time, in accordance with GAAP (except as otherwise
specifically set forth below), on a consolidated basis for such
Person and its subsidiaries (if any), the amount equal to: (a)
the difference between: (i) the aggregate net book value of all
assets of such Person and its subsidiaries, calculating the book
value of inventory for this purpose on a first-in-first-out
basis, at the lower of cost or market, after deducting from such
book values all appropriate reserves in accordance with GAAP
(including all reserves for doubtful receivables, obsolescence,
depreciation and amortization) and (ii) the aggregate amount of
the indebtedness and other liabilities of such Person and its
subsidiaries (including tax and other proper accruals) plus (b)
indebtedness of such Person and its subsidiaries which is
subordinated in right of payment to the full and final payment of
all of the Obligations on terms and conditions acceptable to
Lender.
1.4 "Adjusted Appraised Value" shall mean, with respect to
Eligible Inventory, the appraised value of such Eligible
Inventory, determined as of any date on a "going out of business
sale" basis, net of all estimated liquidation expenses, shrinkage
and markdowns, based on the appraisal percentages and
methodologies set forth in the then most recent appraisal, which
appraisal shall be conducted by an independent appraisal firm
acceptable to Lender in its sole and absolute discretion,
adjusted to reflect the amount of Eligible Inventory as of the
date of any Loan.
1.5 "Availability Reserves" shall mean, as of any date of
determination, such amounts (without duplication of reductions in
value in this definition or the effect of the definition of
Eligible Inventory) as Lender may from time to time establish and
revise in good faith and in a commercially reasonable manner
reducing the amount of Revolving Loans and Letter of Credit
Accommodations which would otherwise be available to Borrower
under the lending formula(s) provided for herein: (a) to reflect
events, conditions, contingencies or risks which, as determined
by Lender in commercially reasonable good faith, do or may affect
either (i) the Collateral or any other property which is security
for the Obligations or its value, (ii) the assets, business or
prospects of Borrower, (iii) the security interests and other
rights of Lender in the Collateral (including the enforceability,
perfection and priority thereof), or (iv) to reflect markdowns in
excess of historical amounts experienced in Borrower's business
or (b) to reflect Lender's good faith belief that any Collateral
report or financial information furnished by or on behalf of
Borrower to Lender is or may have been incomplete, inaccurate or
misleading in any material respect or (c) to reflect any state of
facts which Lender determines in good faith constitutes an Event
of Default. Without limiting the generality of the foregoing,
Lender (i) shall establish on the date hereof and maintain
throughout the term of this Agreement and throughout any renewal
term an Availability Reserve for an amount equal to two months of
Borrower's gross rent and other obligations as lessee for all
locations where Eligible Inventory is or is permitted hereunder
to be located (other than in California), and where Lender has
determined a landlord may have lien rights with respect to the
Collateral to secure unpaid rent and such landlord has not waived
such lien in an agreement acceptable to Lender, (ii) shall
establish Availability Reserves equal to the Shrinkage Reserve,
and (iii) shall establish temporary Availability Reserves equal
to five percent (5%) of Eligible Inventory for Inventory test
count variances with such amount to be adjusted in Lender's
reasonable determination based upon results of audits, Inventory
counts, test counts and other matters Lender reasonably deems
necessary. Notwithstanding the foregoing, Lender agrees that, to
the extent that a particular item of Inventory is excluded from
Eligible Inventory, no Availability Reserve shall be established
with respect to such item of Inventory.
1.6 "Bankruptcy Case" shall mean that Chapter 11 Case No.
95-911 (HSB) (Jointly Administered) in the United States
Bankruptcy Court for the District of Delaware wherein Seller is
the debtor.
1.7 "Blocked Account" shall have the meaning set forth in
Section 6.3 hereof.
1.8 "Business Day" shall mean (a) for the Prime Rate Loans,
any day (1) other than a Saturday, Sunday, or other day on which
commercial banks are authorized or required to close under the
laws of the State of California or the Commonwealth of
Pennsylvania, and (2) a day on which the Reference Bank and
Lender are open for the transaction of business, and (b) for all
Eurodollar Rate Loans, any such day as described in (a) above in
this definition of Business Day, excluding any day on which banks
are closed for dealings in dollar deposits in the London
interbank market or other applicable Eurodollar Rate market.
1.9 "Cerberus" means Cerberus Partners, L.P., a Delaware
limited partnership.
1.10 "Confirmation Order" shall mean the Findings of Fact,
Conclusions of Law and Order Confirming Debtors' First Amended
Chapter 11 Plan Under Chapter 11 of the Bankruptcy Code dated
January 7, 1997 and entered in the Bankruptcy Case.
1.11 "Confirmation Plan" shall mean the Debtors' First
Amended Chapter 11 Plan in the Bankruptcy Case dated October 4,
1996, as amended.
1.12 "Code" shall mean the Internal Revenue Code of 1986, as
the same now exists or may from time to time hereafter be
amended, modified, recodified or supplemented, together with all
rules, regulations and interpretations thereunder or related
thereto.
1.13 "Collateral" shall have the meaning set forth in
Section 5 hereof.
1.14 "Credit Card Agreements" shall mean all agreements now
or hereafter entered into by Borrower with any Credit Card Issuer
or Credit Card Processor as the same may now exist or may
hereafter be amended, modified, supplemented, extended, renewed,
restated or replaced.
1.15 "Credit Card Issuer" shall mean any person who issues
or whose members issue credit cards used by customers of the
Borrower to purchase goods, including, without limitation,
MasterCard or VISA bank credit or debit cards or other bank
credit or debit cards, and American Express, Discover, Diners
Club, ▇▇▇▇▇ ▇▇▇▇▇▇▇, and other non-bank credit or debit cards.
1.16 "Credit Card Processor" shall mean any servicing or
processing agent or any factor or financial intermediary who
facilities, services, processes or manages the credit
authorization, billing transfer and/or payment from a Credit Card
Issuer or Credit Card Processor and other procedures with respect
to any sales transactions of the Borrower involving credit card
or debit card purchases by customers using credit cards or debit
cards issued by any Credit Card Issuer.
1.17 "Credit Card Receivables" shall mean all Accounts
consisting of the present and future rights of Borrower to
payment by Credit Card Issuers or Credit Card Processors for
merchandise sold and delivered to customers of Borrower who have
purchased such goods using a credit card or a debit card issued
by a Credit Card Issuer.
1.18 "Distributions" shall have the meaning set forth in
Section 9.10 hereof.
1.19 "Eligible Inventory" shall mean Inventory consisting of
finished merchandise held for sale in the ordinary course of the
business of Borrower which are located either at one of
Borrower's retail stores, its distribution center in the United
States, or in transit between any such location of Borrower,
provided that, in any case, such location is in a jurisdiction
where Lender has a first priority security interest in the
Collateral, and which are acceptable to Lender based on the
criteria set forth below. In general, Eligible Inventory shall
not include (without duplication in the following exclusions or
the effect of the definition of Availability Reserves) (a) raw
materials, (b) work-in-process; (c) components which are not part
of finished goods; (d) spare parts for equipment; (e) packaging
and shipping materials; (f) supplies used or consumed in
Borrower's business; (g) Inventory at premises not owned or
controlled by Borrower, (h) Inventory in transit (other than
Inventory in transit from one location of Borrower to another
location satisfying the requirements set forth in this Section
1.19); (i) Inventory subject to a security interest or lien in
favor of any person other than Lender except those permitted in
this Agreement; (j) layaway; (k) unserviceable Inventory; (l)
Inventory which is not subject to the first priority, valid and
perfected security interest of Lender; (m) damaged and/or
defective Inventory; (n) Inventory held for return to vendors;
(o) liquidation Inventory; (p) Inventory consisting of samples;
(q) display or used Inventory (including, without limitation,
used Inventory returned by customers); (r) Rental Inventory; (s)
Inventory purchased or sold on consignment; (t) Inventory which
is not actively held by Borrower for sale to retail customers;
(u) clothing Inventory; (v) overstocked Inventory (it being
understood that any such Inventory may be considered Eligible
Inventory if it is moved to one of Borrower's locations
satisfying the requirements set forth in this Section 1.19 where
it does not constitute overstocked Inventory, and such Inventory
otherwise satisfies the requirements for Eligible Inventory set
forth in this Section 1.19); (w) clearance Inventory or Inventory
located at supermarkets or grocery stores; and (x) printed
materials including, but not limited to, software manuals,
booklets, magazines and paperback books. General criteria for
Eligible Inventory may be established and revised from time to
time by Lender in its reasonable credit judgment. Any Inventory
which is not Eligible Inventory shall nevertheless be part of the
Collateral.
1.20 "Environmental Laws" shall mean all federal, state,
district, local and foreign laws, rules, regulations, ordinances,
and consent decrees relating to hazardous substances, pollution
and environmental matters, as now or at any time hereafter in
effect, applicable to Borrower's business and facilities (whether
or not owned by it), including laws relating to emissions,
discharges, releases or threatened releases of pollutants,
contamination, hazardous or toxic substances, materials or wastes
into the environment (including, without limitation, ambient air,
surface water, ground water, land surface or subsurface strata)
or otherwise relating to the generation, manufacture, processing,
distribution, use, treatment, storage, disposal, transport or
handling of pollutants, contaminants, hazardous or toxic
substances, materials or wastes.
1.21 "Equipment" shall mean all of Borrower's now owned and
hereafter acquired equipment, machinery, computers and computer
hardware and software (whether owned or licensed), vehicles,
tools, furniture, fixtures, all attachments, accessions and
property now or hereafter affixed thereto or used in connection
therewith, and substitutions and replacements thereof, wherever
located and used by Borrower or useful in connection with the
sale of the Inventory to customers (including, without
limitation, shelving, display racks and computer and cash
register equipment).
1.22 "ERISA" shall mean the United States Employee
Retirement Income Security Act of 1974, as the same now exists or
may hereafter from time to time be amended, modified, recodified
or supplemented, together with all rules, regulations and
interpretations thereunder or related thereto.
1.23 "ERISA Affiliate" shall mean any person required to be
aggregated with Borrower or any of its affiliates under Sections
414(b), 414(c), 414(m) or 414(o) of the Code.
1.24 "Eurodollar Rate Loans" shall mean any Loans or portion
thereof on which interest is payable based on the Adjusted
Eurodollar Rate in accordance with the terms hereof.
1.25 "Eurodollar Rate" shall mean with respect to the
Interest Period for a Eurodollar Rate Loan, the interest rate per
annum equal to the rate of interest per annum (rounded upwards,
if necessary, to the next one-sixteenth (1/16) of one percent
(1%)) at which Reference Bank offers deposits of United States
dollars in the London interbank market (or other Eurodollar Rate
market selected by Borrower and approved by Lender) on or about
9:00 a.m. (New York time) two (2) Business Days prior to the
commencement of such Interest Period (whether such rate is higher
or lower than any rate previously quoted to Borrower) in amounts
substantially equal to the principal amount of the Eurodollar
Rate Loans requested by and available to Borrower in accordance
with this Agreement, with a maturity of comparable duration to
the Interest Period selected by Borrower.
1.26 "Event of Default" shall mean the occurrence or
existence of any event or condition described in Section 10.1
hereof.
1.27 "Excess Availability" shall mean the amount, as
determined by Lender, calculated at any time, equal to:
(a) the lesser of (i) the amount of the Revolving
Loans available to Borrower as of such time (based
on the applicable advance rate set forth in
Section 2.1(a)(i) hereof multiplied by the Value
or Adjusted Appraised Value, as applicable, as
determined by Lender and without deducting
outstanding Obligations) plus cash or deposit
accounts which are Collateral (other than cash in
Borrower's cash registers) and in which Lender has
a perfected and first priority security interest,
subject to the sublimits and Availability Reserves
from time to time established by Lender hereunder
and (ii) the Maximum Credit,
minus (b) the sum of: (i) the liquidated and non-
contingent amount of all then outstanding and
unpaid Obligations, (ii) the aggregate amount of
all trade payables of Borrower which are more than
sixty (60) days past due as of such time, and
(iii) the aggregate amount of Borrower's book
overdrafts.
1.28 "Excess Cash Flow Available for Investments and
Distributions" shall mean for the period (treated as a single
accounting period) from January 31, 1997 and ending on the last
day of the fiscal quarter of the Borrower most recently ended an
amount equal to 75% of (y) the sum of (i) Borrower's net income
or loss (without providing for tax benefits and excluding unusual
or extraordinary gains) for such period plus (ii) depreciation
and amortization expense for such period plus (or minus if a
negative number) (iii) the excess of the amount of Working
Capital on the first day of such period over the amount of
Working Capital on the last day of such period less (z) the sum
of (i) capital expenditures made during such period, plus (ii)
principal payments on capital lease obligations and on long-term
Indebtedness made during such period plus (iii) Investments and
Distributions made during such period pursuant to the exception
provided by Section 9.10(e) hereof.
1.29 "Financing Agreements" shall mean, collectively, this
Agreement and all notes, guarantees, security agreements and
other agreements, documents and instruments now or at any time
hereafter executed and/or delivered by Borrower in connection
with this Agreement, as the same now exist or may hereafter be
amended, modified, supplemented, extended, renewed, restated or
replaced.
1.30 "GAAP" shall mean generally accepted accounting
principles in the United States of America as in effect from time
to time as set forth in the opinions and pronouncements of the
Accounting Principles Board and the American Institute of
Certified Public Accountants and the statements and
pronouncements of the Financial Accounting Standards Boards which
are applicable to the circumstances as of the date of
determination consistently applied, except that, for purposes of
Section 9.14 hereof, GAAP shall be determined on the basis of
such principles in effect on the date hereof and consistent with
those used in the preparation of the audited financial statements
delivered to Lender prior to the date hereof.
1.31 "Hazardous Materials" shall mean any hazardous or toxic
substances, materials and wastes, including, without limitation,
hydrocarbons (including naturally occurring or man-made petroleum
and hydrocarbons), flammable explosives, asbestos, urea
formaldehyde insulation, radioactive materials, polychlorinated
biphenyls, pesticides, herbicides and any other kind and/or type
of pollutants or contaminants (including, without limitation,
materials which include hazardous constituents), sewage, sludge,
industrial slag, solvents and/or any other similar substances,
materials, or wastes and including any other substances,
materials or wastes that are or become regulated under any
Environmental Law (including, without limitation any that are or
become classified as hazardous or toxic under any Environmental
Law); provided, however, that Hazardous Materials shall not
include any materials in a non-hazardous form such as asphalt
contained in road-surfacing materials or hazardous materials
customarily used in the operation of retail businesses and
properly stored and maintained or hazardous materials customarily
used in the maintenance and cleaning (including janitorial
services) of commercial facilities and properly stored and
maintained.
1.32 "Indebtedness", as applied to any Person, means (i) all
indebtedness for borrowed money, (ii) that portion of obligations
with respect to capital leases that is properly classified as a
liability on a balance sheet in conformity with GAAP, (iii) notes
payable and drafts accepted representing extensions of credit
whether or not representing obligations for borrowed money, (iv)
any obligation owed for all or any part of the deferred purchase
price of property or services (excluding any such obligations
incurred under ERISA), which purchase price is (a) due more than
six months from the date of incurrence of the obligation in
respect thereof or (b) evidenced by a note or similar written
instrument, and (v) all indebtedness secured by any lien on any
property or asset owned or held by that Person regardless of
whether the indebtedness secured thereby shall have been assumed
by that Person or is nonrecourse to the credit of that Person.
1.33 "Information Certificate" shall mean the Information
Certificate of Borrower constituting Exhibit A hereto containing
material information with respect to Borrower, its business and
assets provided by or on behalf of Borrower to Lender in
connection with the preparation of this Agreement and the other
Financing Agreements and the financing arrangements provided for
herein.
1.34 "Interest Period" shall mean for any Eurodollar Rate
Loan, a period of approximately one (1), two (2) or three (3)
months duration as Borrower may elect, the exact duration to be
determined in accordance with the customary practice in the
applicable Eurodollar Rate market; provided, that, Borrower may
not elect an Interest Period which will end after the last day of
the then-current term of this Agreement.
1.35 "Interest Rate" shall mean, as to Prime Rate Loans, a
rate equal to the Prime Rate and, as to Eurodollar Rate Loans, a
rate of two and one-half (2.50) percentage points per annum in
excess of the Adjusted Eurodollar Rate; provided however, the
Interest Rate shall mean the rate of two (2.0) percentage points
per annum in excess of the Prime Rate as to Prime Rate Loans and
the rate of four and one-half (4.50) percentage points percent
per annum in excess of the Adjusted Eurodollar Rate as to
Eurodollar Rate Loans, at Lender's option, without notice, (a)
for the period on and after the date of termination or non-
renewal hereof, until such time as all Obligations are
indefeasibly paid in full (notwithstanding entry of any judgment
against Borrower) or during the period in which an Event of
Default has occurred and is continuing and (b) on the Revolving
Loans at any time outstanding in excess of the amounts available
to Borrower under Section 2 (whether or not such excess(es) arise
or are made with or without Lender's knowledge or consent and
whether made before or after an Event of Default).
1.36 "Inventory" shall mean all of Borrower's now owned and
hereafter existing or acquired raw materials, work in process,
finished goods and all other inventory of whatsoever kind or
nature, wherever located, but shall not include Rental Inventory.
1.37 "Inventory Advance Rate" shall mean the advance rate
applicable to Eligible Inventory as determined in accordance with
subsections 2.1(a).
1.38 "Investments" shall have the meaning set forth in
Section 9.10 hereof.
1.39 "Letter of Credit Accommodations" shall mean the
letters of credit, merchandise purchase or other guaranties which
are from time to time either (a) issued or opened by Lender for
the account of Borrower or (b) with respect to which Lender has
agreed to indemnify the issuer or guaranteed to the issuer the
performance by Borrower of its obligations to such issuer.
1.40 "Loans" shall mean the Revolving Loans.
1.41 "Maximum Credit" shall mean, with reference to the
Revolving Loans and the Letter of Credit Accommodations, the
amount of Thirty Million Dollars ($30,000,000).
1.42 "Obligations" shall mean any and all Revolving Loans,
the Letter of Credit Accommodations and all other obligations,
liabilities and indebtedness of every kind, nature and
description owing by Borrower to Lender and/or its affiliates,
including principal, interest, charges, fees, costs 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
of this Agreement or after the commencement of any case with
respect to Borrower under the United States Bankruptcy Code
(including payments made pursuant to the Confirmation Plan) 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, and
however acquired by Lender.
1.43 "Participant" shall mean any person which at any time
participates with Lender in respect of the Loans, the Letter of
Credit Accommodations or other Obligations or any portion
thereof.
1.44 "Payment Account" shall have the meaning set forth in
Section 6.3 hereof.
1.45 "Person" or "person" shall mean any individual, sole
proprietorship, partnership, corporation (including, without
limitation, any corporation which elects subchapter S status
under the Internal Revenue Code of 1986, as amended), business
trust, unincorporated association, joint stock corporation,
trust, joint venture or other entity or any government or any
agency or instrumentality or political subdivision thereof.
1.46 "Purchase Agreements" shall mean, individually and
collectively, the Asset Purchase Agreement, dated January 31,
1997, between Borrower and Seller, together with bills of sale,
quitclaim deeds, assignment and assumption agreements and such
other instruments of transfer as are referred to therein and all
side letters with respect thereto, and all agreements, documents
and instruments executed and/or delivered in connection
therewith, as all of the foregoing now exist or may hereafter be
amended, modified, supplemented, extended, renewed, restated or
replaced, all pursuant to the Confirmation Plan and the
Confirmation Order; provided, that, the term "Purchase
Agreements" as used herein shall not include any of the
"Financing Agreements" as such term is defined herein.
1.47 "Purchased Assets" shall mean all of the assets and
properties acquired by Borrower from Seller pursuant to the
Purchase Agreements and the Confirmation Plan and the
Confirmation Order.
1.48 "Prime Rate" shall mean the rate from time to time
publicly announced by CoreStates Bank, N.A., or its successors,
at its office in Philadelphia, Pennsylvania, as its prime rate,
whether or not such announced rate is the best rate available at
such bank.
1.49 "Prime Rate Loans" shall mean any Loans or portion
thereof on which interest is payable based on the Prime Rate in
accordance with the terms thereof.
1.50 "Records" shall mean all of Borrower's present and
future books of account of every kind or nature, purchase and
sale agreements, invoices, ledger cards, bills of lading and
other shipping evidence, statements, correspondence, memoranda,
credit files and other data relating to the Collateral or any
account debtor, together with the tapes, disks, diskettes and
other data and software storage media and devices, file cabinets
or containers in or on which the foregoing are stored (including
any rights of Borrower with respect to the foregoing maintained
with or by any other person).
1.51 "Reference Bank" shall mean CoreStates Bank, N.A., or
such other bank as Lender may from time to time designate.
1.52 "Renewal Date" shall have the meaning set forth in
Section 12.1(a) hereof.
1.53 "Rental Inventory" means all finished merchandise of
Borrower held for rental to retail customers, provided that such
merchandise has not previously been reported to Congress as
comprising part of the Borrower's Inventory.
1.54 "Revolving Loans" shall mean the loans now or hereafter
made by Lender to or for the benefit of Borrower on a revolving
basis (involving advances, repayments and readvances) as set
forth in Section 2.1 hereof.
1.55 "Seasonal Period" shall mean the period from October 1
through December 31 of each calendar year.
1.56 "Seller" shall mean WEI Holdings, Inc. and Wherehouse
Entertainment, Inc., debtors and debtors-in-possession, and
Delaware corporations.
1.57 "Shrinkage Reserve" shall mean an amount equal to the
Value of Eligible Inventory (less Availability Reserves) divided
by the Value of Inventory multiplied by the amount of Borrower's
shrinkage reserve on its general ledger as such amount may be
reasonably adjusted by Lender from time-to-time based upon
results of physical Inventory counts, audits, adjustments made by
Borrower and other matters which Lender reasonably deems
necessary in order to calculate the potential shrinkage of
Inventory.
1.58 "Value" shall mean, as determined by Lender in good
faith, with respect to Inventory, the lower of (a) cost under the
first-in-first-out method, net of vendor discounts or (b) market
value.
1.59 "Working Capital" shall mean the current assets of the
Borrower (other than cash or cash equivalents) minus the current
liabilities of the Borrower, expressed as either a positive or
negative arithmetic result.
SECTION 2. CREDIT FACILITIES
2.1 Revolving Loans.
(a) Subject to, and upon the terms and conditions
contained herein, Lender agrees to make Revolving Loans to
Borrower from time to time in amounts requested by Borrower up to
the amount equal to the sum of:
(i) the lesser of: (A) the sum of fifty-four
percent (54%) (sixty percent (60%) during the
Seasonal Period) of the Value of Eligible Inventory
consisting of music products, plus forty-five percent
(45%) (forty-nine percent (49%) during the Seasonal
Period) of the Value of Eligible Inventory consisting
of video products, plus forty-eight percent (48%)
(fifty-three percent (53%) during the Seasonal
Period) of the Value of all other Eligible Inventory,
or (B) fifty percent (50%) (fifty-five percent (55%)
during the Seasonal Period) of the aggregate Value of
Eligible Inventory, or (C) eighty-five percent (85%)
of the Adjusted Appraised Value of Eligible
Inventory; minus
(ii) the then undrawn amounts of outstanding
Letter of Credit Accommodations, minus
(iii) any Availability Reserves.
(b) Lender may, in its good faith determination, from
time to time, upon not less than seven (7) Business Days prior
notice to Borrower, reduce the lending formula(s) with respect to
Eligible Inventory to the extent that Lender determines that: (A)
the number of days of the turnover of such Inventory for any
period has changed in any materially adverse respect or (B) the
nature and quality of the Inventory has deteriorated in any
material respect. In determining whether to reduce the lending
formula(s), Lender may consider events, conditions, contingencies
or risks which are also considered in determining Eligible
Inventory or in establishing Availability Reserves.
(c) Except in Lender's discretion, the aggregate
amount of the Loans, the Letter of Credit Accommodations and
other Obligations outstanding at any time shall not exceed the
Maximum Credit. In the event that the outstanding amount of any
component of the Loans and Letter of Credit Accommodations or the
aggregate amount of the outstanding Loans and Letter of Credit
Accommodations and other Obligations exceeds the amounts
available under the lending formulas set forth in Section 2.1(a)
hereof, the sublimits for Letter of Credit Accommodations set
forth in Section 2.2(c), or the Maximum Credit, as applicable,
such event shall not limit, waive or otherwise affect any rights
of Lender in that circumstance or on any future occasions and
Borrower shall, upon demand by Lender, which may be made at any
time or from time to time, immediately repay to Lender the entire
amount of any such excess(es) for which payment is demanded.
2.2 Letter of Credit Accommodations.
(a) Subject to, and upon the terms and conditions
contained herein, at the request of Borrower, Lender agrees to
provide or arrange for Letter of Credit Accommodations with the
Reference Bank, Swiss Bank Corporation or The Chase Manhattan
Bank, or if none of the foregoing, an issuer reasonably
acceptable to Borrower and Lender, for the account of Borrower
containing terms and conditions acceptable to Lender and the
issuer thereof. Any payments made by Lender to any issuer
thereof and/or related parties in connection with the Letter of
Credit Accommodations shall constitute additional Revolving Loans
to Borrower pursuant to this Section 2.
(b) In addition to any charges, fees or expenses
charged by any bank or issuer in connection with the Letter of
Credit Accommodations, Borrower shall pay to Lender a letter of
credit fee at a rate equal to one and one-half percent (1.5%) per
annum on the daily outstanding balance of the Letter of Credit
Accommodations for the immediately preceding month (or part
thereof), payable in arrears as of the first day of each
succeeding month; provided, however, that such letter of credit
fee shall be increased, at Lender's option without notice, to
three and one-half percent (3.5%) per annum for the period on or
after the date of termination or non-renewal of this Agreement,
or upon the occurrence and during the continuation of an Event of
Default. Such letter of credit fee shall be calculated on the
basis of a three hundred sixty (360) day year and actual days
elapsed and the obligation of Borrower to pay such fee shall
survive the termination or non-renewal of this Agreement.
(c) No Letter of Credit Accommodations shall be
available unless on the date of the proposed issuance of any
Letter of Credit Accommodations, the Revolving Loans available to
Borrower (subject to the Maximum Credit and any Availability
Reserves) are equal to or greater than an amount equal to one
hundred percent (100%) of the face amount of the proposed Letter
of Credit Accommodation and all other commitments and obligations
made or incurred by Lender with respect thereto. Effective on
the issuance of each Letter of Credit Accommodation, the amount
of Revolving Loans which might otherwise be available to Borrower
shall be reduced by the applicable amount set forth in this
Section.
(d) Except in Lender's discretion, the amount of all
outstanding Letter of Credit Accommodations and all other
commitments and obligations made or incurred by Lender in
connection therewith shall not at any time exceed Ten Million
Dollars ($10,000,000). At any time an Event of Default exists or
has occurred and is continuing, upon Lender's request, Borrower
will either furnish cash collateral to secure the reimbursement
obligations to the issuer in connection with any Letter of Credit
Accommodations or furnish cash collateral to Lender for the
Letter of Credit Accommodations, and in either case, the
Revolving Loans otherwise available to Borrower shall not be
reduced as provided in Section 2.2(c) to the extent of such cash
collateral.
(e) Borrower shall indemnify and hold Lender harmless
from and against any and all losses, claims, damages,
liabilities, costs and expenses which Lender may suffer or incur
in connection with any Letter of Credit Accommodations and any
documents, drafts or acceptances relating thereto, including, but
not limited to, any losses, claims, damages, liabilities, costs
and expenses due to any action taken by any issuer or
correspondent with respect to any Letter of Credit Accommodation
unless caused by the gross negligence or willful misconduct of
such issuer or correspondent. Borrower assumes all risks with
respect to the acts or omissions of the drawer under or
beneficiary of any Letter of Credit Accommodation and for such
purposes the drawer or beneficiary shall be deemed Borrower's
agent. Borrower assumes all risks for, and agrees to pay, all
foreign, Federal, State and local taxes, duties and levies
relating to any goods subject to any Letter of Credit
Accommodations or any documents, drafts or acceptances
thereunder. Borrower hereby releases and holds Lender harmless
from and against any acts, waivers, errors, delays or omissions,
whether caused by Borrower, by any issuer or correspondent or
otherwise, unless caused by the gross negligence or willful
misconduct of Lender, with respect to or relating to any Letter
of Credit Accommodation. The provisions of this Section 2.2(e)
shall survive the payment of Obligations and the termination or
non-renewal of this Agreement.
(f) Nothing contained herein shall be deemed or
construed to grant Borrower any right or authority to pledge the
credit of Lender in any manner. Lender shall have no liability
of any kind with respect to any Letter of Credit Accommodation
provided by an issuer other than Lender unless Lender has duly
executed and delivered to such issuer the application or a
guarantee or indemnification in writing with respect to such
Letter of Credit Accommodation. Borrower shall be bound by any
interpretation made in good faith by Lender, or any other issuer
or correspondent under or in connection with any Letter of Credit
Accommodation or any documents, drafts or acceptances thereunder,
notwithstanding that such interpretation may be inconsistent with
any instructions of Borrower. Lender shall have the sole and
exclusive right and authority to, and Borrower shall not: (i) at
any time an Event of Default exists or has occurred and is
continuing, (A) approve or resolve any questions of non-
compliance of documents, (B) give any instructions as to
acceptance or rejection of any documents or goods or (C) execute
any and all applications for steamship or airway guaranties,
indemnities or delivery orders, and (ii) at all times, (A) grant
any extensions of the maturity of, time of payment for, or time
of presentation of, any drafts, acceptances, or documents, and
(B) agree to any amendments, renewals, extensions, modifications,
changes or cancellations of any of the terms or conditions of any
of the applications, Letter of Credit Accommodations, or docu-
ments, drafts or acceptances thereunder or any letters of credit
included in the Collateral. Lender may take such actions either
in its own name or in Borrower's name.
(g) Any rights, remedies, duties or obligations
granted or undertaken by Borrower to any issuer or correspondent
in any application for any Letter of Credit Accommodation, or any
other agreement in favor of any issuer or correspondent relating
to any Letter of Credit Accommodation, shall be deemed to have
been granted or undertaken by Borrower to Lender. Any duties or
obligations undertaken by Lender to any issuer or correspondent
in any application for any Letter of Credit Accommodation, or any
other agreement by Lender in favor of any issuer or correspondent
relating to any Letter of Credit Accommodation, in each case in
good faith and in accordance with this Agreement, shall be deemed
to have been undertaken by Borrower to Lender and to apply in all
respects to Borrower.
SECTION 3. INTEREST AND FEES
3.1 Interest.
(a) Borrower shall pay to Lender interest on the
outstanding principal amount of the non-contingent Obligations at
the Interest Rate. All interest accruing hereunder on and after
the date of any Event of Default or termination or non-renewal
hereof shall be payable on demand.
(b) Borrower may from time to time request that Prime
Rate Loans be converted to Eurodollar Rate Loans or that any
existing Eurodollar Rate Loans continue for an additional
Interest Period. Such request from Borrower shall specify the
amount of the Prime Rate Loans which will constitute Eurodollar
Rate Loans (subject to the limits set forth below) and the
Interest Period to be applicable to such Eurodollar Rate Loans.
Subject to the terms and conditions contained herein, three (3)
Business Days (or such later date as specified in such request)
after receipt by Lender of such a request from Borrower, such
Prime Rate Loans shall be converted to Eurodollar Rate Loans or
such Eurodollar Rate Loans shall continue, as the case may be,
provided, that, (i) no Event of Default, or event of which with
notice or passage of time or both would constitute an Event of
Default exists or has occurred and is continuing, (ii) no party
hereto shall have sent any notice of termination or non-renewal
of this Agreement, (iii) Borrower shall have complied with such
customary procedures as are established by Lender and specified
by Lender to Borrower from time to time for requests by Borrower
for Eurodollar Rate Loans, (iv) no more than four (4) Interest
Periods may be in effect at any one time, (v) the aggregate
amount of the Eurodollar Rate Loans must be in an amount not less
than $5,000,000 or an integral multiple of $1,000,000 in excess
thereof; (vi) the maximum amount of the Eurodollar Rate Loans at
any time requested by Borrower shall not exceed the amount equal
to eighty percent (80%) of the daily average of the principal
amount of the Revolving Loans which it is anticipated will be
outstanding during the applicable Interest Period, in each case
as determined by Lender (but with no obligation of Lender to make
such Revolving Loans) and (vii) Lender shall have determined that
the Interest Period or Adjusted Eurodollar Rate is available to
Lender through the Reference Bank and can be readily determined
as of the date of the request for such Eurodollar Rate Loan by
Borrower. Any request by Borrower to convert Prime Rate Loans to
Eurodollar Rate Loans or to continue any existing Eurodollar Rate
Loans shall be irrevocable. Notwithstanding anything to the
contrary contained herein, Lender and Reference Bank shall not be
required to purchase United States Dollar deposits in the London
interbank market or other applicable Eurodollar Rate market to
fund any Eurodollar Rate Loans, but the provisions hereof shall
be deemed to apply as if Lender and Reference Bank had purchased
such deposits to fund the Eurodollar Rate Loans.
(c) Any Eurodollar Rate Loans shall automatically
convert to Prime Rate Loans upon the last day of the applicable
Interest Period, unless Lender has received and approved a
request to continue such Eurodollar Rate Loan at least three (3)
Business Days prior to such last day in accordance with the terms
hereof. Any Eurodollar Rate Loans shall, at Lender's option,
upon notice by Lender to Borrower, convert to Prime Rate Loans in
the event that (i) an Event of Default or event which with the
notice or passage of time or both would constitute an Event of
Default, shall exist, (ii) this Agreement shall terminate or not
be renewed, or (iii) the aggregate principal amount of the Prime
Rate Loans which have previously been converted to Eurodollar
Rate Loans or existing Eurodollar Rate Loans continued, as the
case may be, at the beginning of an Interest Period shall at any
time during such Interest Period exceed the Revolving Loans then
available to Borrower under Section 2 hereof. Borrower shall pay
to Lender, upon demand by Lender (or Lender may, at its option,
charge any loan account of Borrower) any amounts required to
compensate Lender, the Reference Bank or any participant with
Lender for any loss (other than loss of anticipated profits),
cost or expense incurred by such person, as a result of the
conversion of Eurodollar Rate Loans to Prime Rate Loans pursuant
to any of the foregoing.
(d) Interest shall be payable by Borrower to Lender
monthly in arrears not later than the first day of each calendar
month and shall be calculated on the basis of a three hundred
sixty (360) day year and actual days elapsed. Such interest
shall be charged against Borrower's loan account. The interest
rate on non-contingent Obligations (other than Eurodollar Rate
Loans) shall increase or decrease by an amount equal to each
increase or decrease in the Prime Rate effective on the first day
of the month after any change in such Prime Rate is announced
based on the Prime Rate in effect on the last day of the month in
which any such change occurs. In no event shall charges
constituting interest payable by Borrower to Lender exceed the
maximum amount or the rate permitted under any applicable law or
regulation, and if any such part or provision of this Agreement
is in contravention of any such law or regulation, such part or
provision shall be deemed amended to conform thereto.
3.2 Closing Fee. Borrower shall pay to Lender as a closing
fee (inclusive of any commitment fees paid to Lender by Borrower
or Seller) of One Hundred Fifty Thousand Dollars ($150,000),
which fee shall be fully earned as of the date hereof. The
commitment fee of Seventy-Five Thousand Dollars ($75,000)
previously paid by Seller to Lender shall be applied to the
closing fee. The remaining Seventy-Five Thousand Dollars
($75,000) shall be paid on the first anniversary of the date of
this Agreement.
3.3 Loan Servicing and Audit Fee. Borrower shall pay to
Lender quarterly, in advance, a loan servicing and audit fee in
an amount equal to Six Thousand Dollars ($6,000), plus out-of-
pocket costs and expenses, in respect of Lender's services for
each fiscal quarter (or part thereof) other than the fiscal
quarter ended January 31, 1997 while this Agreement remains in
effect and for so long thereafter as any of the Obligations are
outstanding, which fee shall be fully earned as of and payable in
advance on the date hereof and on the first day of each quarter
hereafter.
3.4 Changes in Laws and Increased Costs of Loans.
(a) Notwithstanding anything to the contrary contained
herein, all Eurodollar Rate Loans shall, upon notice by Lender to
Borrower, convert to Prime Rate Loans in the event that (i) any
change in applicable law or regulation (or the interpretation or
administration thereof) shall either (A) make it unlawful for
Lender or Reference Bank to make or maintain Eurodollar Rate
Loans or to comply with the terms hereof in connection with the
Eurodollar Rate Loans, by an amount deemed by Lender to be
material, or (B) shall result in the increase in the costs to
Lender or Reference Bank of making or maintaining any Eurodollar
Rate Loans or (C) reduce the amounts received or receivable by
Lender in respect thereof, by an amount deemed by Lender to be
material or (ii) the cost to Lender or Reference Bank of making
or maintaining any Eurodollar Rate Loans shall otherwise increase
by an amount deemed by Lender to be material. Borrower shall pay
to Lender, upon demand by Lender (or Lender may, at its option,
charge any loan account of Borrower) any amounts required to
compensate Lender or the Reference Bank for any loss (including
loss of anticipated profits), cost or expense incurred by such
person as a result of the foregoing, including, without
limitation, any such loss, cost or expense incurred by reason of
the liquidation or reemployment of deposits or other funds
acquired by such person to make or maintain the Eurodollar Rate
Loans or any portion thereof. A certificate of Lender setting
forth the basis for the determination of such amount necessary to
compensate Lender as aforesaid shall be delivered to Borrower and
shall be conclusive, absent manifest error.
(b) If any payments (other than regularly scheduled
payments of interest) or prepayments in respect of the Eurodollar
Rate Loans are received by Lender other than on the last day of
the applicable Interest Period (whether pursuant to acceleration,
upon maturity or otherwise), including any payments pursuant to
the application of collections under Section 6.3 or any other
payments made with the proceeds of Collateral, Borrower shall pay
to Lender upon demand by Lender (or Lender may, at its option,
charge any loan account of Borrower) any amounts required to
compensate Lender or the Reference Bank for any additional loss
(including loss of anticipated profits), cost or expense incurred
by such person as a result of such prepayment or payment,
including, without limitation, any loss, cost or expense incurred
by reason of the liquidation or reemployment of deposits or other
funds acquired by such person to make or maintain such Eurodollar
Rate Loans or any portion thereof.
3.5 Compensation Adjustment
(a) If after the date of this Agreement the
introduction of, or any change in, any law or any governmental
rule, regulation, policy, guideline or directive (whether or not
having the force of law), or any interpretation thereof, or
compliance by Lender or any Participant therewith:
(i) subjects Lender to any tax, duty, charge or
withholding on or from payments due from Borrower (excluding
franchise taxes imposed upon, and taxation of the overall net
income of, Lender or any Participant), or changes the basis of
taxation of payments, in either case in respect of amounts due it
hereunder, or
(ii) imposes or increases or deems applicable any
reserve requirement or other reserve, assessment, insurance
charge, special deposit or similar requirement against assets of,
deposits with or for the account of, or credit extended by Lender
or any Participant, or
(iii) imposes any other condition the result
of which is to increase the cost to Lender or any Participant of
making, funding or maintaining the Revolving Loans or Letter of
Credit Accommodations or reduces any amount receivable by Lender
or any Participant in connection with the Loans or Letter of
Credit Accommodations, or requires Lender or any Participant to
make payment calculated by references to the amount of loans held
or interest received by it, by an amount deemed material by
Lender or any Participant, or
(iv) imposes or increases any capital requirement
or affects the amount of capital required or expected to be
maintained by Lender or any Participant or any corporation
controlling Lender or any Participant, and Lender or any
Participant determines that such imposition or increase in
capital requirements or increase in the amount of capital
expected to be maintained is based upon the existence of this
Agreement or the Loans or Letter of Credit Accommodations
hereunder, all of which may be determined by Lender's reasonable
allocation of the aggregate of its impositions or increases in
capital required or expected to be maintained, and the result of
any of the foregoing is to increase the cost to Lender or any
Participant of making, renewing or maintaining the Loans or
Letter of Credit Accommodations, or to reduce the rate of return
to Lender or any Participant on the Loans or Letter of Credit
Accommodations, then, to the extent consistent with Lender's
treatment of other similarly situated customers, upon demand by
Lender, Borrower shall pay to Lender, and continue to make
periodic payments to Lender or any Participant, such additional
amounts as may be necessary to compensate Lender or any
Participant for any such additional cost incurred or reduced rate
of return realized.
(b) A certificate of Lender claiming entitlement to
compensation as set forth above will be conclusive in the absence
of manifest error. Such certificate will set forth the nature of
the occurrence giving rise to such compensation, the additional
amount or amounts to be paid and the compensation and the method
by which such amounts were determined. In determining any
additional amounts due from Borrower under this Section 3.5,
Lender shall act reasonably and in good faith and will, to the
extent that the increased costs, reductions, or amounts received
or receivable relate to the Lender's or a Participant's loans or
commitments generally and are not specifically attributable to
the Loans and commitments hereunder, use averaging and
attribution methods which are reasonable and equitable and which
cover all loans and commitments under this Agreement by the
Lender or such Participant, as the case may be, whether or not
the loan documentation for such other loans and commitments
permits the Lender or such Participant to receive compensation
costs of the type described in this Section 3.5.
SECTION 4. CONDITIONS PRECEDENT
4.1 Conditions Precedent to Initial Loans and the Letter of
Credit Accommodations. Each of the following is a condition
precedent to Lender making the initial Loans and the initial
Letter of Credit Accommodations hereunder:
(a) Lender shall have received, in form and substance
satisfactory to Lender, all releases, terminations and such other
documents as Lender may request to evidence and effectuate the
termination of any interest in and to any Collateral (including
assets and property sold by Seller constituting part of the
Collateral), duly authorized, executed and delivered by it or
each of them, including, but not limited to, UCC termination
statements for all UCC financing statements and Lender shall have
satisfied itself that it has valid, perfected, fully enforceable
(including, without limitation, no contractual or other
restrictions or limitations held by third parties with respect to
Lender's rights to take a security interest in or dispose of the
Collateral) and first priority security interests in and liens
upon the Collateral and any other property which is intended as
security for the Obligations, subject only to the security
interests and liens permitted herein or in the other Financing
Agreements;
(b) Lender shall have received, in form and substance
satisfactory to Lender, evidence that the Purchase Agreements
have been duly executed and delivered by and to the appropriate
parties thereto and the transactions contemplated under the terms
of the Purchase Agreements have been or will be consummated prior
to or contemporaneously with the execution of this Agreement;
(c) Lender shall have received, in form and substance
satisfactory to Lender, a pro-forma balance sheet of Borrower
reflecting the initial transactions contemplated hereunder,
including, but not limited to, (i) the consummation of the
acquisition of the Purchased Assets by Borrower from Seller and
the other transactions contemplated by the Purchase Agreements
and the Confirmation Plan and (ii) the Loans and Letter of Credit
Accommodations provided by Lender to Borrower on the date hereof
and the use of the proceeds of the initial Loans as provided
herein, accompanied by a certificate, dated of even date
herewith, of the chief financial officer of Borrower stating that
such pro-forma balance sheet represents the reasonable, good
faith opinion of such officer as to the subject matter thereof as
of the date of such certificate;
(d) all requisite corporate action and proceedings in
connection with this Agreement and the other Financing Agreements
shall be satisfactory in form and substance to Lender, and Lender
shall have received all information and copies of all documents,
including, without limitation, records of requisite corporate
action and proceedings which Lender may have requested in
connection therewith, such documents where requested by Lender or
its counsel to be certified by appropriate corporate officers or
governmental authorities;
(e) no material adverse change shall have occurred in
the assets, business or prospects of Borrower since January 1,
1997 and no change or event shall have occurred which would
impair the ability of Borrower to perform its obligations
hereunder or under any of the other Financing Agreements to which
it is a party or of Lender to enforce the Obligations or realize
upon the Collateral;
(f) Not more than five (5) Business Days prior
thereto, Lender shall have completed a field review of the
Records and such other information with respect to the Collateral
as Lender may require to determine the amount of Revolving Loans
available to Borrower, the results of which shall be satisfactory
to Lender (including, without limitation, approval of the results
of such field review by Lender's senior credit committee in its
sole discretion); and Lender shall have received current
perpetual Inventory records and/or rollforwards of Inventory
through the date hereof, together with all supporting
documentation and such other documents and information as Lender
shall request in its sole discretion to enable Lender to
accurately identify and verify the Eligible Inventory at or
before the date hereof in a manner satisfactory to Lender,
including, but not limited to, Inventory in transit, and goods in
bonded warehouses or at third party locations.
(g) Lender shall have received, in form and substance
satisfactory to Lender, all consents, waivers, acknowledgments
and other agreements from third persons which Lender reasonably
may deem necessary or desirable in order to permit, protect and
perfect its security interests in and liens upon the Collateral
or to effectuate the provisions or purposes of this Agreement and
the other Financing Agreements.
(h) all Credit Card Issuers and Credit Card Processors
shall have been irrevocably directed by the parties to Credit
Card Agreements, and such Credit Card Companies and Credit Card
Processors shall agree, that all proceeds of Credit Card
Receivables shall be remitted to the Blocked Account;
(i) Lender shall have received evidence of insurance
and loss payee endorsements required hereunder and under the
other Financing Agreements, in form and substance satisfactory to
Lender, and certificates of insurance policies and/or endorse-
ments naming Lender as loss payee, in each case, in respect of
the Collateral;
(j) Lender shall have received, in form and substance
satisfactory to Lender, such opinion letters of counsel to
Borrower with respect to the Financing Agreements, the Purchase
Agreements and the Confirmation Order and such other matters as
Lender may reasonably request;
(k) the Excess Availability as determined by Lender as
of the date hereof, shall be not less than Five Million Dollars
($5,000,000) after giving effect to the initial Loans made or to
be made hereunder and the payment of all fees and expenses
payable upon the consummation of the initial transactions
contemplated by this Agreement;
(l) each of the depository banks used by Borrower's
retail store locations for the deposit of receipts from the sale
of merchandise or for the deposit of other proceeds of Collateral
and other property which is security for the Obligations shall
have been notified of Lender's security interested therein and
shall have been irrevocably authorized and directed to send all
funds on deposit with such banks only to the Blocked Account or
as Lender otherwise directs;
(m) the other Financing Agreements and all instruments
and documents hereunder and thereunder shall have been duly
executed and delivered to Lender, in form and substance
satisfactory to Lender;
(n) the Confirmation Order approving the Confirmation
Plan has become a final order, is acceptable to Lender in all
respects (and a certified copy of which has been delivered to
Lender). The Confirmation Order shall be accompanied by findings
of fact and conclusions of law, and the Confirmation Order shall
determine and order that in making the financing pursuant to this
commitment, Lender is a good faith lender within the meaning of,
and subject to the protections and benefits of Bankruptcy Code
Section 364(e), and shall further provide that:
(i) if the Confirmation Order is reversed or
modified and the Seller resumes operations as
a debtor in possession, subject to a Chapter
11 trustee, or if following such reversal or
modification the case is converted to Chapter
7, then the Seller shall be obligated for
Borrower's Obligations to Lender and Lender
shall have a first and superpriority lien,
security interest and administrative claim
pursuant to Sections 503(b), 507(b) and
364(c) and (d) of the Bankruptcy Code in all
of the Seller's present and future inventory
and all proceeds (including accounts)
therefrom, all general intangibles and all of
the Seller's unencumbered assets and the
proceeds therefrom;
(ii) if the Confirmation Order is reversed or the
Plan is later modified in a manner that
affects the rights, liens or priorities of
Lender, Lender shall receive subordination
agreements from the holders of the Seller's
senior debt in form and substance
satisfactory to Lender;
(iii) the liens, security interests and
administrative priorities granted to
Lender shall be irrevocably in full
force and effect without subsequent
modification; and
(o) any holders of a security interest in any portion
of the Collateral, including, without limitation, vendors of
Inventory to Borrower, shall have executed such intercreditor and
subordination agreements in form and substance satisfactory to
Lender.
4.2 Conditions Precedent to All Loans and Letter of Credit
Accommodations. Each of the following is an additional condition
precedent to Lender making Loans and/or providing Letter of
Credit Accommodations to Borrower, including the initial Loans
and Letter of Credit Accommodations and any future Loans and
Letter of Credit Accommodations:
(a) all representations and warranties contained
herein and in the other Financing Agreements shall be true and
correct in all material respects with the same effect as though
such representations and warranties had been made on and as of
the date of the making of each such Loan or providing each such
Letter of Credit Accommodation and after giving effect thereto;
and
(b) no Event of Default and no event or condition
which, with notice or passage of time or both, would constitute
an Event of Default, shall exist or have occurred and be
continuing on and as of the date of the making of such Loan or
providing each such Letter of Credit Accommodation and after
giving effect thereto.
4.3 Condition Subsequent To All Loans And Letter Of Credit
Accommodations.
Each of the following is an additional condition subsequent to
Lender making Loans and/or providing Letter of Credit
Accommodations to Borrower, including the initial Loans and
Letter of Credit Accommodations and any future Loans and Letter
of Credit Accommodations. Failure to complete the foregoing
condition subsequent within said time period shall constitute an
Event of Default under this Agreement:
(a) No later than forty-five (45) days from the date
hereof, Borrower shall have entered into a Blocked Account
Agreement with Bank of America, N.A., or such other institution
reasonably acceptable to Lender, in form and substance reasonably
satisfactory to Lender;
(b) No later than sixty (60) days after January 31 and
August 31 of each year, Lender shall have received a physical
count of the Inventory by RGIS or another third party acceptable
to Lender;
(c) No later than sixty (60) days from the date
hereof, Lender shall have received projections of Borrower which
are in form and substance satisfactory to Lender; and
(d) No later than sixty (60) days from the date
hereof, Borrower shall have received a reconciliation to the
general ledger of Borrower in form and substance satisfactory to
Lender.
SECTION 5. GRANT OF SECURITY INTEREST
To secure payment and performance of all Obligations,
Borrower hereby grants to Lender a continuing security interest
in, a lien upon, and a right of set off against, and hereby
assigns to Lender as security, the following property and
interests in property, whether now owned or hereafter acquired or
existing, and wherever located (collectively, the "Collateral"):
5.1 Accounts, Credit Card Receivables and other
indebtedness owed to the Borrower;
5.2 general intangibles (including, but not limited to,
registered and unregistered patents, trademarks, service marks,
copyrights, trade names, applications for the foregoing, trade
secrets, goodwill, processes, drawings, blueprints, customer
lists, licenses, whether as licensor or licensee, choses in
action and other claims and existing and future leasehold
interests in equipment, real estate and fixtures), insofar as any
such general intangibles are necessary or useful in connection
with the sale or other disposition of the Collateral by Lender,
but which in no case shall include the trademarks, "Wherehouse",
"The Wherehouse", "Wherehouse Entertainment" and other
derivations thereof;
5.3 all present and future monies, securities, investment
property, credit balances, deposits, deposit accounts and other
property of Borrower now or hereafter held or received by or in
transit to Lender or its affiliates or at any other depository or
other institution from or for the account of Borrower, whether
for safekeeping, pledge, custody, transmission, collection or
otherwise, and all present and future liens, security interests,
rights, remedies, title and interest in, to and in respect of
Accounts, Credit Card Receivables, and other Collateral,
including, without limitation, (a) rights and remedies under or
relating to guaranties, contracts of suretyship, letters of
credit and credit and other insurance related to the Collateral,
(b) rights of stoppage in transit, replevin, repossession,
reclamation and other rights and remedies of an unpaid vendor,
lienor or secured party, (c) goods described in invoices,
documents, contracts or instruments with respect to, or otherwise
representing or evidencing, Accounts, Credit Card Receivables, or
other Collateral, including, without limitation, returned,
repossessed and reclaimed goods, and (d) deposits by and property
of account debtors or other persons securing the obligations of
account debtors;
5.4 Inventory;
5.5 Records; and
5.6 All products and proceeds of the foregoing, in any
form, including, without limitation, insurance proceeds and all
claims against third parties for loss or damage to or destruction
of any or all of the foregoing.
SECTION 6. COLLECTION AND ADMINISTRATION
6.1 Borrower's Loan Account. Lender shall maintain one or
more loan account(s) on its books in which shall be recorded (a)
all Loans, all Letter of Credit Accommodations and all other
Obligations and the Collateral, (b) all payments made by or on
behalf of Borrower and (c) all other appropriate debits and
credits as provided in this Agreement, including, without
limitation, fees, charges, costs, expenses and interest. All
entries in the loan account(s) shall be made in accordance with
Lender's customary practices as in effect from time to time.
6.2 Statements. Lender shall render to Borrower each month
a statement setting forth the balance in the Borrower's loan
account(s) maintained by Lender for Borrower pursuant to the
provisions of this Agreement, including principal, interest,
fees, costs and expenses. Each such statement shall be subject
to subsequent adjustment by Lender but shall, absent manifest
errors or omissions, be considered correct and deemed accepted by
Borrower and conclusively binding upon Borrower as an account
stated except to the extent that Lender receives a written notice
from Borrower of any specific exceptions of Borrower thereto
within thirty (30) days after the date such statement has been
mailed by Lender. Until such time as Lender shall have rendered
to Borrower a written statement as provided above, the balance in
Borrower's loan account(s) shall be presumptive evidence of the
amounts due and owing to Lender by Borrower.
6.3 Collection of Accounts.
(a) Borrower shall establish and maintain, at its
expense, deposit account arrangements and merchant payment
arrangements with the banks set forth on Schedule 6.3 and after
prior written notice to Lender, such other banks as Borrower may
hereafter select as are acceptable to Lender. The banks set
forth on Schedule 6.3 constitute all of the banks with whom
Borrower has deposit account arrangements and merchant payment
arrangements as of the date hereof and identifies each of the
deposit accounts at such banks to a retail store location of
Borrower or otherwise describes the nature of the use of such
deposit account by Borrower.
(i) Borrower shall deposit all proceeds from
sales of Inventory and rentals of Rental Inventory in every form
(including, without limitation, cash, checks, credit card sales
drafts, credit card sales or charge slip or receipts and other
forms of daily store receipts, from each retail store location of
Borrower, and all other proceeds of Collateral, on each business
day into the deposit accounts of Borrower used solely for such
purpose and identified to each retail store location as set forth
on Schedule 6.3. Borrower shall irrevocably authorize and direct
in writing, in form and substance satisfactory to Lender, each of
the banks into which proceeds from sales of Inventory and rentals
of Rental Inventory from each retail store location of Borrower
and any and all other proceeds of Collateral are at any time
deposited as provided above to send by wire transfer on a daily
basis all funds deposited in such account, and shall irrevocably
authorize and direct in writing its account debtors, Credit Card
Issuers and Credit Card Processors to directly remit payments on
its Accounts, Credit Card Receivables and all other payments
constituting proceeds of Inventory and rentals of Rental
Inventory to the Blocked Accounts described in Section 6.3(a)(ii)
below. Such authorizations and directions shall not be
rescinded, revoked or modified without the prior written consent
of Lender.
(ii) Borrower shall establish and maintain, at its
expense, pursuant to an agreement described in the following
sentence, one or more blocked accounts with such bank or banks as
are acceptable to Lender (each a "Blocked Account" and
collectively the "Blocked Accounts"). Each bank at which a
Blocked Account is established shall enter into an agreement, in
form and substance satisfactory to Lender, providing (unless
otherwise agreed to by Lender) that all items received or
deposited in such Blocked Account are the Collateral of Lender,
that the depository bank has no lien upon, or right to setoff
against, the Blocked Accounts, the items received for deposit
therein, or the funds from time to time on deposit therein, and
that the depository bank will wire, or otherwise transfer, in
immediately available funds, on a daily basis, all funds received
or deposited into such Blocked Account to such bank account of
Lender as Lender may from time to time designate for such purpose
(the "Payment Account"); provided, however, if there has occurred
no Event of Default and, at such time, Borrower has Excess
Availability of at least Fifteen Million Dollars ($15,000,000),
Borrower may receive such funds directly from the Blocked
Accounts (rather than remittance to the Payment Account) so long
as Borrower is in compliance with the conditions of this
sentence. If at any time Borrower fails to meet the requirements
of this paragraph, Lender may withdraw its consent and take all
steps in order that all funds are immediately remitted to the
Payment Account. Borrower agrees that all amounts deposited in
the Blocked Account(s) or other funds received and collected by
Lender, whether as proceeds of Inventory, the collection of
Accounts or other Collateral or otherwise shall be the Collateral
of Lender.
(b) For purposes of calculating interest on the
Obligations, such payments or other funds received will be
applied (conditional upon final collection) to the Obligations
one (1) Business Day following the date of receipt of immediately
available funds by Lender in the Payment Account if such funds
are received by Lender by 10:00 a.m. California time. In
addition, with respect to all proceeds of Accounts, Credit Card
Receivables and Inventory deposited in the Blocked Accounts or
otherwise received by Borrower, which are not remitted to the
Payment Account (which shall only be in accordance with Section
6.3 hereof or as hereafter specifically permitted in writing by
Lender), Borrowers shall pay to Lender a collection fee on the
first day of each month, for the preceding month, in arrears,
equal to the amount of the Interest Rate on Prime Rate Loans with
respect to such proceeds (a) from the earlier of the date of
receipt of such proceeds by Borrowers or the date of deposit of
such proceeds in the Blocked Accounts and (b) until the next
Business Day. For purposes of calculating the amount of the
Revolving Loans available to Borrower such payments will be
applied (conditional upon final collection) to the Obligations on
the Business Day of receipt by Lender in the Payment Account, if
such payments are received within sufficient time (in accordance
with Lender's usual and customary practices as in effect from
time to time) to credit Borrower's loan account on such day, and
if not, then on the next Business Day.
(c) Borrower and all of its affiliates, subsidiaries,
shareholders, directors, employees or agents shall, acting as
trustee for Lender, receive, as the property of Lender, any
monies, cash, checks, credit card sales drafts, credit card sales
or charge slips or receipts, notes, drafts and all forms of daily
store receipts or any other payment relating to and/or proceeds
from sales of Inventory or other Collateral which come into their
possession or under their control and immediately upon receipt
thereof, shall deposit or cause the same to be deposited in the
Blocked Accounts. Except as otherwise permitted hereunder, in no
event shall any such monies, checks, credit card sales drafts,
credit card sales or charge slips or receipts, notes, drafts or
other payments be commingled with Borrower's own funds. Borrower
agrees to reimburse Lender on demand for any amounts owed or paid
to any bank at which a Blocked Account is established or any
other bank or person involved in the transfer of funds to or from
the Blocked Accounts arising out of Lender's payments to or
indemnification of such bank or person, unless such payment or
indemnification obligation of Lender was a result of Lender's
gross negligence or wilful misconduct. The obligation of
Borrower to reimburse Lender for such amounts pursuant to this
Section 6.3 shall survive the termination or non-renewal of this
Agreement.
6.4 Payments. All Obligations shall be payable to the
Payment Account as provided in Section 6.3 or such other place as
Lender may designate from time to time. Lender may apply
payments received or collected from Borrower or for the account
of Borrower (including, without limitation, the monetary proceeds
of collections or of realization upon any Collateral) to such of
the Obligations, whether or not then due, in such order and
manner as Lender determines. At Lender's option, all principal,
interest, fees, costs, expenses and other charges provided for in
this Agreement or the other Financing Agreements may be charged
directly to the loan account(s) of Borrower. Borrower shall make
all payments to Lender on the Obligations free and clear of, and
without deduction or withholding for or on account of, any
setoff, counterclaim, defense, duties, taxes, levies, imposts,
fees, deductions, withholding, restrictions or conditions of any
kind. If after receipt of any payment of, or proceeds of
Collateral applied to the payment of, any of the Obligations,
Lender is required to surrender or return such payment or
proceeds to any Person for any reason, then the Obligations
intended to be satisfied by such payment or proceeds shall be
reinstated and continue and this Agreement shall continue in full
force and effect as if such payment or proceeds had not been
received by Lender. Borrower shall be liable to pay to Lender,
and does hereby indemnify and hold Lender harmless for the amount
of any payments or proceeds surrendered or returned. This
Section 6.4 shall remain effective notwithstanding any contrary
action which may be taken by Lender in reliance upon such payment
or proceeds. This Section 6.4 shall survive the payment of the
Obligations and the termination or non-renewal of this Agreement.
6.5 Authorization to Make Loans. Lender is authorized to
make the Loans and provide Letter of Credit Accommodations based
upon telephonic or other instructions received from anyone
purporting to be an officer of Borrower or other authorized
person or, at the discretion of Lender, if such Loans are
necessary to satisfy any Obligations. All requests for Loans or
Letter of Credit Accommodations hereunder shall specify the date
on which the requested advance is to be made or Letter of Credit
Accommodations established (which day shall be a Business Day)
and the amount of the requested Loan. Requests received after
10:30 a.m. California time on any day shall be deemed to have
been made as of the opening of business on the immediately
following Business Day. All Loans and Letter of Credit
Accommodations under this Agreement shall be conclusively
presumed to have been made to, and at the request of and for the
benefit of, Borrower when deposited to the credit of Borrower or
otherwise disbursed or established in accordance with the
instructions of Borrower or in accordance with the terms and
conditions of this Agreement.
6.6 Use of Proceeds. Borrower shall use the initial
proceeds of the Loans provided by Lender to Borrower hereunder
only for: (a) payments to each of the persons listed in the
disbursement direction letter furnished by Borrower to Lender on
or about the date hereof and (b) costs, expenses and fees in
connection with the preparation, negotiation, execution and
delivery of this Agreement and the other Financing Agreements.
All other Loans made or Letter of Credit Accommodations provided
by Lender to Borrower pursuant to the provisions hereof shall be
used by Borrower only for general operating, working capital and
other proper corporate purposes of Borrower not otherwise
prohibited by the terms hereof. None of the proceeds will be
used, directly or indirectly, for the purpose of purchasing or
carrying any margin security or for the purposes of reducing or
retiring any indebtedness which was originally incurred to
purchase or carry any margin security or for any other purpose
which might cause any of the Loans to be considered a "purpose
credit" within the meaning of Regulation G of the Board of
Governors of the Federal Reserve System, as amended.
SECTION 7. COLLATERAL REPORTING AND COVENANTS
7.1 Collateral Reporting. Borrower shall provide Lender
with the following documents in a form satisfactory to Lender:
(a) on Tuesday of each week, as of the close of business of the
immediately preceding Saturday, a schedule of Eligible Inventory
of Borrower, setting forth the location thereof, aggregate cost
of such Eligible Inventory (currently reported on the "STAR"
system) (including vendor discounts): (b) on Wednesday of each
week for the immediately preceding week ending on the close of
business on Saturday of that week or more frequently as Lender
may request, (i) reports of deposits in each of Borrower's
depository accounts and in the Blocked Account and amounts
retained by Borrower, together with the separate amounts thereof
arising from cash sales, Credit Card Receivables, (ii) except as
otherwise agreed in writing by Lender, reports of the cost and
other information as required by Lender of Inventory and other
goods which are either acquired by Borrower with Letter of Credit
Accommodations which are the subject of bills of lading and which
have not been delivered to Borrower at the permitted locations of
Eligible Inventory in the United States and (iii) an aging of
merchandise accounts payable and other payables (other than lease
payables); (c) once each month, on or before the fifteenth (15th)
Business Day of such month for the immediately preceding month or
more frequently as Lender may request, (i) agings of lease
payables, (ii) a schedule of Accounts, Credit Card Receivables,
and other indebtedness owed to Borrower, (iii) the aggregate
amount of all sales of Inventory for all Borrower's retail
stores, and (iv) a certificate from an authorized officer of
Borrower representing that Borrower has made payment of sales and
use taxes during such month or, at Lender's request, other
evidence of such payment, (d) upon Lender's reasonable request,
(i) perpetual inventory reports, (ii) copies of deposit slips and
bank statements, (iii) copies of shipping and delivery documents,
and (iv) copies of purchase orders and invoices for Inventory
acquired by Borrower; (e) semi-annual reports of Inventory
shrinkage; and (f) such other reports as to the Collateral and
other property which is security for the Obligations as Lender
shall reasonably request from time to time. If any of Borrower's
records or reports of the Collateral or other property which is
security for the Obligations are prepared or maintained by an
accounting service, contractor, shipper or other agent, Borrower
hereby irrevocably authorizes such service, contractor, shipper
or agent to deliver such records, reports, and related documents
to Lender and to follow Lender's instructions with respect to
further services at any time that an Event of Default exists or
has occurred and is continuing.
7.2 Accounts Covenants.
(a) So long as no Event of Default exists or has
occurred and is continuing, Borrower shall settle, adjust or
compromise any claim, offset, counterclaim or dispute with any
account debtor. At any time that an Event of Default exists or
has occurred and is continuing, Lender shall, at its option, have
the exclusive right to settle, adjust or compromise any claim,
offset, counterclaim or dispute with account debtors or grant any
credits, discounts or allowances.
(b) In the event any customer returns Inventory when
an Event of Default exists or has occurred and is continuing,
Borrower shall, upon Lender's request, (i) dispose of the
returned Inventory in accordance with Borrower's historical
practices, and (ii) not issue any credits, discounts or
allowances not in accordance with Borrower's historical practices
with respect thereto without Lender's prior written consent.
(c) With respect to each Account and Credit Card
Receivable: (i) the amounts shown on any invoice delivered to
Lender or schedule thereof delivered to Lender shall be true and
complete, (ii) no payments shall be made thereon except payments
made pursuant to the terms of this Agreement, (iii) none of the
transactions giving rise thereto will violate any applicable
State or Federal laws or regulations and all documentation will
be legally enforceable in accordance with its terms, and (iv)
there shall be compliance with the provisions of Section 4.1(f)
hereof as to each Credit Card Issuer obligated on any Credit Card
Receivables.
(d) Lender shall have the right at any time or times,
in Lender's name or in the name of a nominee of Lender, to verify
the validity, amount or any other matter relating to any Account,
Credit Card Receivable, or other Collateral or property which is
security for the Obligations, by mail, telephone, facsimile
transmission or otherwise.
(e) Borrower shall deliver or cause to be delivered to
Lender, with appropriate endorsement and assignment, with full
recourse to Borrower, all chattel paper and instruments which
Borrower now owns or may at any time acquire immediately upon
Borrower's receipt thereof in respect of any proceeds of
Collateral except as Lender may otherwise agree.
(f) Lender may, at any time or times that an Event of
Default exists or has occurred and is continuing, (i) notify any
or all account debtors that the Accounts, Credit Card Receivables
and other obligations included in the Collateral have been
assigned to Lender and that Lender has a security interest
therein and Lender may direct any or all accounts debtors to make
payment of Accounts directly to Lender, (ii) extend the time of
payment of, compromise, settle or adjust for cash, credit, return
of merchandise or otherwise, and upon any terms or conditions,
any and all Accounts, Credit Card Receivables or other
obligations included in the Collateral and thereby discharge or
release the account debtor or any other party or parties in any
way liable for payment thereof without affecting any of the
Obligations, (iii) demand, collect or enforce payment of any
Accounts, Credit Card Receivables or such other obligations, but
without any duty to do so, and Lender shall not be liable for its
failure to collect or enforce the payment thereof and (iv) take
whatever other action Lender may deem necessary or desirable for
the protection of its interests. At any time that an Event of
Default exists or has occurred and is continuing, at Lender's
request, all invoices and statements sent to any account debtor
shall state that the Accounts, Credit Card Receivables and such
other obligations have been assigned to Lender and are payable
directly and only to Lender and Borrower shall deliver to Lender
such originals of documents evidencing the sale and delivery of
goods or the performance of services giving rise to any Accounts
as Lender may require.
7.3 Inventory Covenants. With respect to the Inventory:
(a) Borrower shall at all times maintain inventory records
reasonably satisfactory to Lender, keeping correct and accurate
records itemizing and describing the kind, type, quality and
quantity of Inventory, Borrower's cost therefor, and daily
withdrawals therefrom and additions thereto; (b) Borrower shall
cause, at Borrower's expense, RGIS or such other third party firm
acceptable to Lender to conduct a complete physical count of the
Inventory at a minimum of once every twelve (12) months but at
any time as Lender may request upon the occurrence of an Event of
Default, and promptly following such physical count such firm
shall supply Lender with a report in the form and with such
specificity as may be reasonably satisfactory to Lender
concerning such physical count; (c) Borrower shall not remove any
Inventory from the locations set forth or permitted herein,
without the prior written consent of Lender, except for sales of
Inventory in the ordinary course of Borrower's business and
except to move Inventory directly from one location set forth or
permitted herein to another such location; (d) upon Lender's
request, Borrower shall, at its expense, no more than twice in
any twelve (12) month period, but at any time or times as Lender
may request upon the occurrence of an Event of Default, deliver
or cause to be delivered to Lender written reports or appraisals
as to the Inventory in form, scope and methodology acceptable to
Lender by an appraiser acceptable to Lender, addressed to Lender
or upon which Lender is expressly permitted to rely; (e) Borrower
shall produce, use, store and maintain the Inventory, with all
reasonable care and caution and in accordance with applicable
standards of any insurance and in conformity with applicable laws
(including, but not limited to, the requirements of the Federal
Fair Labor Standards Act of 1938, as amended and all rules,
regulations and orders related thereto); (f) Borrower assumes all
responsibility and liability arising from or relating to the
production, use, sale or other disposition of the Inventory; (g)
Borrower shall not sell Inventory to any customer on approval, or
any other basis which entitles the customer to return or may
obligate Borrower to repurchase such Inventory with the exception
of Inventory sold in the ordinary course of Borrower's business
subject to Borrower's normal and customary return policy; (h)
Borrower shall keep the Inventory in good and marketable
condition; (i) Borrower shall not, without prior written notice
to Lender, acquire or accept any Inventory on consignment or
approval except as set forth on Schedule 7.3(i) hereto; (j)
Borrower shall not convert any Inventory to Rental Inventory
without five (5) Business Days' prior written notice to Congress
in order that Congress may exclude such Inventory from Eligible
Inventory in calculating the amount of Revolving Loans available
to Borrower hereunder; and (k) Borrower may return Inventory to
vendors of such Inventory pursuant to normal returns policies
free and clear of Lender's lien; provided, however that upon an
Event of Default, Borrower shall not return any Inventory to
vendors of such Inventory without Lender's prior written consent.
7.4 Equipment Covenants. With respect to the Equipment:
(a) Borrower shall keep the Equipment in good order, repair,
running and marketable condition (ordinary wear and tear
excepted), in conformance with Borrower's historical practices;
(b) Borrower shall continue to maintain Equipment which is
adequate to sell the Inventory to customers in the ordinary
course of Borrower's business; and (c) after the occurrence of an
Event of Default, Borrower shall not take any action with respect
to the Equipment that would impair the saleability of the
Inventory at the highest retail price available in Lender's sole
discretion.
7.5 Power of Attorney. Borrower hereby irrevocably
designates and appoints Lender (and all persons designated by
Lender) as Borrower's true and lawful attorney-in-fact, and
authorizes Lender, in Borrower's or Lender's name, to: (a) at any
time an Event of Default exists (i) demand payment on Accounts or
other proceeds of Inventory or other Collateral, (ii) enforce
payment of Accounts, Credit Card Receivables or other obligations
that in each case are included in the Collateral by legal
proceedings or otherwise, (iii) exercise all of Borrower's rights
and remedies to collect any Account, Credit Card Receivables or
other proceeds of Inventory or other Collateral, (iv) sell or
assign any Account upon such terms, for such amount and at such
time or times as the Lender deems advisable, (v) settle, adjust,
compromise, extend or renew an Account, (vi) discharge and
release any Account, Credit Card Receivables or other obligations
included in the Collateral, (vii) prepare, file and sign
Borrower's name on any proof of claim in bankruptcy or other
similar document against an account debtor, and (viii) do all
acts and things which are necessary, in Lender's determination,
to fulfill Borrower's obligations under this Agreement and the
other Financing Agreements and (b) at any time, subject to the
terms of the agreement(s) relating to the Blocked Account(s), to
(i) take control in any manner of any item of payment or proceeds
thereof, (ii) endorse Borrower's name upon any items of payment
or proceeds thereof and deposit the same in the Lender's account
for application to the Obligations, (iii) endorse Borrower's name
upon any chattel paper, document, instrument, invoice, or similar
document or agreement relating to any Account or Credit Card
Receivables or any goods pertaining thereto or any other
Collateral, (iv) sign Borrower's name on any verification of
Accounts or Credit Card Receivables and notices thereof to
account debtors and (v) execute in Borrower's name and file any
UCC financing statements or amendments thereto. Notwithstanding
anything to the contrary contained in this Section 7.5, the power
granted to Lender in this Section 7.5 shall apply only in respect
of the Collateral. Borrower hereby releases Lender and its
officers, employees and designees from any liabilities arising
from any act or acts under this power of attorney and in
furtherance thereof, whether of omission or commission, except as
a result of Lender's own gross negligence or wilful misconduct.
7.6 Right to Cure. Lender may, at its option, (a) cure any
default by Borrower under any agreement with a third party or pay
or bond on appeal any judgment entered against Borrower, (b)
discharge taxes, liens, security interests or other encumbrances
at any time levied on or existing with respect to the Collateral
and (c) pay any amount, incur any expense or perform any act
which, in Lender's reasonable judgment, is necessary or
appropriate to preserve, protect, insure or maintain the
Collateral and the rights of Lender with respect thereto. Lender
may add any amounts so expended to the Obligations and charge
Borrower's account therefor, such amounts to be repayable by
Borrower on demand. Lender shall be under no obligation to
effect such cure, payment or bonding and shall not, by doing so,
be deemed to have assumed any obligation or liability of
Borrower. Any payment made or other action taken by Lender under
this Section shall be without prejudice to any right to assert an
Event of Default hereunder and to proceed accordingly.
7.7 Access to Premises. From time to time as requested by
Lender, at the cost and expense of Borrower, if an Event of
Default has occurred and otherwise at the expense of Lender, (a)
Lender or its designee shall have complete access to all of
Borrower's premises during normal business hours and after notice
to Borrower, or at any time and without notice to Borrower if an
Event of Default exists or has occurred and is continuing, for
the purposes of inspecting, verifying and auditing the Collateral
and all of Borrower's books and records, including, without
limitation, the Records, and (b) Borrower shall promptly furnish
to Lender such copies of such books and records or extracts ther-
efrom as Lender may request, and (c) use during normal business
hours such of Borrower's personnel, equipment, supplies and
premises as may be reasonably necessary for the foregoing and if
an Event of Default exists or has occurred and is continuing for
the collection of Accounts and realization of other Collateral.
SECTION 8. REPRESENTATIONS AND WARRANTIES
Borrower hereby represents and warrants to Lender the
following (which shall survive the execution and delivery of this
Agreement), the truth and accuracy of which are (except for the
representations and warranties that relate to a particular date)
a continuing condition of the making of Loans and the providing
of Letter of Credit Accommodations by Lender to Borrower:
8.1 Corporate Existence, Power and Authority; Subsidiaries.
Borrower is a corporation duly organized and in good standing
under the laws of its state of incorporation and is duly
qualified as a foreign corporation and in good standing in all
states or other jurisdictions where the nature and extent of the
business transacted by it or the ownership of assets makes such
qualification necessary, except for those jurisdictions in which
the failure to so qualify would not have a material adverse
effect on Borrower's financial condition, results of operation or
business or the rights of Lender in or to any of the Collateral.
The execution, delivery and performance of this Agreement, the
other Financing Agreements and the transactions contemplated
hereunder and thereunder are all within Borrower's corporate
powers, have been duly authorized and are not in contravention of
law or the terms of Borrower's certificate of incorporation, by-
laws, or other organizational documentation, or any indenture,
agreement or undertaking to which Borrower is a party or by which
Borrower or its property are bound. This Agreement and the other
Financing Agreements constitute legal, valid and binding
obligations of Borrower enforceable in accordance with their
respective terms. Borrower does not have any subsidiaries except
as set forth on the Information Certificate.
8.2 Financial Statements; No Material Adverse Change. All
financial statements relating to Borrower which have been or may
hereafter be delivered by Borrower to Lender have been prepared
in accordance with GAAP and fairly present in all material
respects the financial condition and the results of operations of
Borrower as at the dates and for the periods set forth therein.
Except as disclosed in any interim financial statements furnished
by Borrower to Lender prior to the date of this Agreement, there
has been no material adverse change in the assets, liabilities,
properties and condition, financial or otherwise, of Borrower,
since the date of the most recent audited financial statements
furnished by Borrower to Lender prior to the date of this
Agreement.
8.3 Chief Executive Office; Collateral Locations. The
chief executive office of Borrower and Borrower's Records
concerning Accounts are located only at the address set forth
below and its only other places of business and the only other
locations of Collateral, if any, are the addresses set forth in
the Information Certificate, subject to the right of Borrower to
establish new locations in accordance with Section 9.2 below.
The Information Certificate correctly identifies any of such
locations which are not owned by Borrower and sets forth the
owners and/or operators thereof.
8.4 Priority of Liens; Title to Properties. The security
interests and liens granted to Lender under this Agreement and
the other Financing Agreements constitute valid and perfected
first priority liens and security interests in and upon the
Collateral subject only to the liens indicated on Schedule 8.4
hereto and the other liens permitted under Section 9.8 hereof.
Borrower has good and marketable title to all of its properties
and assets subject to no liens, mortgages, pledges, security
interests, encumbrances or charges of any kind, except those
granted to Lender and such others as are specifically listed on
Schedule 8.4 hereto or permitted under Section 9.8 hereof.
8.5 Tax Returns. Borrower has filed, or caused to be
filed, in a timely manner all tax returns, reports and
declarations which are required to be filed by it (without
requests for extension except as previously disclosed in writing
to Lender). All information in such tax returns, reports and
declarations is complete and accurate in all material respects.
Borrower has paid or caused to be paid all taxes due and payable
or claimed due and payable in any assessment received by it,
except taxes of Seller treated in the Confirmation Plan and taxes
the validity of which are being contested in good faith by
appropriate proceedings diligently pursued and available to
Borrower and with respect to which adequate reserves have been
set aside on its books. Adequate provision has been made for the
payment of all accrued and unpaid Federal, State, county, local,
foreign and other taxes whether or not yet due and payable and
whether or not disputed.
8.6 Litigation. Except as set forth on the Information
Certificate, there is no present investigation by any
governmental agency pending, or to the best of Borrower's
knowledge threatened, against or affecting Borrower, its assets
or business and there is no action, suit, proceeding or claim by
any Person pending, or to the best of Borrower's knowledge
threatened, against Borrower or its assets or goodwill, or
against or affecting any transactions contemplated by this
Agreement, which if adversely determined against Borrower would
result in any material adverse change in the assets, business or
prospects of Borrower or would impair the ability of Borrower to
perform its obligations hereunder or under any of the other
Financing Agreements to which it is a party or of Lender to
enforce any Obligations or realize upon any Collateral.
8.7 Compliance with Other Agreements and Applicable Laws.
Borrower is not in default in any material respect under, or in
violation in any material respect of any of the terms of, any
agreement, contract, instrument, lease or other commitment to
which it is a party or by which it or any of its assets are bound
and Borrower is in compliance in all material respects with all
applicable provisions of laws, rules, regulations, licenses,
permits, approvals and orders of any foreign, Federal, State or
local governmental authority.
8.8 Environmental Compliance.
(a) Except as set forth on Schedule 8.8 hereto,
Borrower has not generated, used, stored, treated, transported,
manufactured, handled, produced or disposed of any Hazardous
Materials, on or off its premises (whether or not owned by it) in
any manner which at any time violates any applicable
Environmental Law or any license, permit, certificate, approval
or similar authorization thereunder which would have a material
adverse effect on Borrower or its business, operations or assets
and the operations of Borrower comply in all material respects
with all Environmental Laws applicable thereto and all licenses,
permits, certificates, approvals and similar authorizations
thereunder.
(b) Except as set forth on Schedule 8.8 hereto,
Borrower has received no notice of any past or pending
investigation, proceeding, complaint, order, directive, claim,
citation or notice by any governmental authority or any other
person nor to the best of Borrower's knowledge is any threatened,
with respect to any non-compliance with or violation of the
requirements of any Environmental Law by Borrower or the release,
spill or discharge, threatened or actual, of any Hazardous
Material or the generation, use, storage, treatment,
transportation, manufacture, handling, production or disposal of
any Hazardous Materials or any other environmental matter, which
affects Borrower or its business, operations or assets or any
properties at which Borrower has transported, stored or disposed
of any Hazardous Materials.
(c) To the best of Borrower's knowledge, Borrower has
no material liability (contingent or otherwise) in connection
with a release, spill or discharge, threatened or actual, of any
Hazardous Materials or the generation, use, storage, treatment,
transportation, manufacture, handling, production or disposal of
any Hazardous Materials.
(d) Borrower has all licenses, permits, certificates,
approvals or similar authorizations required to be obtained or
filed in connection with the operations of Borrower under any
Environmental Law and all of such licenses, permits, certif-
icates, approvals or similar authorizations are valid and in full
force and effect.
8.9 Acquisition of Purchased Assets.
(a) Prior to or as of the date hereof, the Purchase
Agreements and the transactions contemplated thereunder have been
duly executed, delivered and performed in accordance with their
terms by the respective parties thereto in all respects,
including the fulfillment (not merely the waiver, except as may
be disclosed to Lender and consented to in writing by Lender) of
all conditions precedent set forth therein and giving effect to
the terms of the Purchase Agreements and the assignments to be
executed and delivered by Seller (or any of its affiliates or
subsidiaries) thereunder, Borrower has acquired and has good and
marketable title to the Purchased Assets and the Purchased Assets
comprising the Collateral are free and clear of all claims,
liens, pledges and encumbrances of any kind, except as provided
in the Confirmation Plan or permitted hereunder.
(b) All actions and proceedings, required by the
Purchase Agreements, applicable law or regulation (including, but
not limited to, compliance with the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Anti-Trust
Improvements Act of 1976, as amended) have been taken and the
transactions required thereunder have been or contemporaneously
herewith will be duly and validly taken and consummated.
(c) No court of competent jurisdiction has issued any
injunction, restraining order or other order which prohibits
consummation of the transactions described in the Purchase
Agreements and no governmental or other action or proceeding has
been threatened or commenced, seeking any injunction, restraining
order or other order which seeks to void or otherwise modify the
transactions described in the Purchase Agreements.
(d) Borrower has delivered, or caused to be delivered,
to Lender, true, correct and complete copies of the Purchase
Agreements.
(e) The Confirmation Plan has been or
contemporaneously herewith will be effectuated and the
Confirmation Order is a final order effectuating the Confirmation
Plan and the Purchase Agreements.
8.10 Capitalization.
(a) As of the date of hereof, at least fifty-one
percent (51%) of the issued and outstanding shares of voting
stock of Borrower (excluding unexercised options and warrants) as
of the date hereof are directly and beneficially owned and held
by Cerberus and/or its affiliates, participants and accounts for
which Cerberus is the investment manager with sole investment
discretion and all of such shares have been duly authorized and
are fully paid and non-assessable, free and clear of all claims,
liens, pledges and encumbrances of any kind, except as disclosed
in writing to Lender.
(b) Borrower is solvent and will continue to be
solvent after the creation of the Obligations, the security
interests of Lender and the other transaction contemplated
hereunder, is able to pay its debts as they mature and has (and
has reason to believe it will continue to have) sufficient
capital (and not unreasonably small capital) to carry on its
business and all businesses in which it is about to engage. The
assets and properties of Borrower at a fair valuation and at
their present fair salable value are, and will be, greater than
the Indebtedness of Borrower, and including subordinated and
contingent liabilities computed at the amount which, to the best
of Borrower's knowledge, represents an amount which can
reasonably be expected to become an actual or matured liability.
8.11 Employee Benefits.
(a) Borrower has not engaged in any transaction in
connection with which Borrower or any of its ERISA Affiliates
could be subject to either a civil penalty assessed pursuant to
Section 502(i) of ERISA or a tax imposed by Section 4975 of the
Code, including any accumulated funding deficiency described in
Section 8.11(c) hereof and any deficiency with respect to vested
accrued benefits described in Section 8.11(d) hereof.
(b) No liability to the Pension Benefit Guaranty
Corporation has been or is expected by Borrower to be incurred
with respect to any employee pension benefit plan of Borrower or
any of its ERISA Affiliates. There has been no reportable event
(within the meaning of Section 4043(b) of ERISA) or any other
event or condition with respect to any employee pension benefit
plan of Borrower or any of its ERISA Affiliates which presents a
risk of termination of any such plan by the Pension Benefit
Guaranty Corporation.
(c) Full payment has been made of all amounts which
Borrower or any of its ERISA Affiliates is required under Section
302 of ERISA and Section 412 of the Code to have paid under the
terms of each employee pension benefit plan as contributions to
such plan as of the last day of the most recent fiscal year of
such plan ended prior to the date hereof, and no accumulated
funding deficiency (as defined in Section 302 of ERISA and
Section 412 of the Code), whether or not waived, exists with
respect to any employee pension benefit plan, including any
penalty or tax described in Section 8.11(a) hereof and any
deficiency with respect to vested accrued benefits described in
Section 8.11(d) hereof.
(d) The current value of all vested accrued benefits
under all employee pension benefit plans maintained by Borrower
that are subject to Title IV of ERISA does not exceed the current
value of the assets of such plans allocable to such vested
accrued benefits, including any penalty or tax described in
Section 8.11(a) hereof and any accumulated funding deficiency
described in Section 8.11(c) hereof. The terms "current value"
and "accrued benefit" have the meanings specified in ERISA.
(e) Neither Borrower nor any of its ERISA Affiliates
is or has ever been obligated to contribute to any "multiemployer
plan" (as such term is defined in Section 4001(a)(3) of ERISA)
that is subject to Title IV of ERISA.
8.12 Accuracy and Completeness of Information. All
information furnished by or on behalf of Borrower in writing to
Lender in connection with this Agreement or any of the other
Financing Agreements or any transaction contemplated hereby or
thereby, including, without limitation, all information on the
Information Certificate is true and correct in all material
respects on the date as of which such information is dated or
certified and does not omit any material fact necessary in order
to make such information not misleading. No event or
circumstance has occurred which has had or could reasonably be
expected to have a material adverse affect on the business,
assets or prospects of Borrower, which has not been fully and
accurately disclosed to Lender in writing.
8.13 Survival of Warranties; Cumulative. All representa-
tions and warranties contained in this Agreement or any of the
other Financing Agreements shall survive the execution and
delivery of this Agreement and shall be deemed to have been made
again to Lender on the date of each additional borrowing or other
credit accommodation hereunder and shall be conclusively presumed
to have been relied on by Lender regardless of any investigation
made or information possessed by Lender. The representations and
warranties set forth herein shall be cumulative and in addition
to any other representations or warranties which Borrower shall
now or hereafter give, or cause to be given, to Lender.
SECTION 9. AFFIRMATIVE AND NEGATIVE COVENANTS
9.1 Maintenance of Existence. Borrower shall at all times
preserve, renew and keep in full force and effect its corporate
existence and rights and franchises with respect thereto and
maintain in full force and effect all permits, licenses,
trademarks, trade names, approvals, authorizations, leases and
contracts necessary to carry on the business as presently or
proposed to be conducted. Borrower shall give Lender thirty (30)
days prior written notice of any proposed change in its corporate
name (other than the change to "Wherehouse Entertainment, Inc.")
which notice shall set forth the new name and Borrower shall
deliver to Lender a copy of the amendment to the Certificate of
Incorporation of Borrower providing for the name change certified
by the Secretary of State of the jurisdiction of incorporation of
Borrower as soon as it is available.
9.2 New Collateral Locations. Borrower may open any new
location within the continental United States provided Borrower
(a) gives Lender thirty (30) days prior written notice of the
intended opening of any such new location, and (b) executes and
delivers, or causes to be executed and delivered, to Lender such
agreements, documents, and instruments as Lender may deem
reasonably necessary or desirable to protect its interests in the
Collateral at such location, including, without limitation, UCC
financing statements and, if Borrower leases such new location,
provides a favorable landlord waiver or subordination, or, in the
alternative, Lender may apply an Availability Reserve in an
amount equal to two (2) months gross rent in a manner consistent
with the Availability Reserve established to cover rent as
defined in Section 1.5 hereof.
9.3 Compliance with Laws, Regulations, Etc.
(a) Borrower shall, at all times, comply in all
material respects with all laws, rules, regulations, licenses,
permits, approvals and orders applicable to it and duly observe
all requirements of any Federal, State or local governmental
authority, including, without limitation, the Employee Retirement
Income Security Act of 1974, as amended, the Occupational Safety
and Hazard Act of 1970, as amended, the Fair Labor Standards Act
of 1938, as amended, and all statutes, rules, regulations,
orders, permits and stipulations relating to environmental
pollution and employee health and safety, including, without
limitation, all of the Environmental Laws.
(b) Borrower shall take prompt and appropriate action
to respond to any non-compliance with any of the Environmental
Laws and shall report to Lender on such response.
(c) Borrower shall give both oral and written notice
to Lender immediately upon Borrower's receipt of any notice of,
or Borrower's otherwise obtaining knowledge of, (i) the
occurrence of any event involving the release, spill or
discharge, threatened or actual, of any Hazardous Material or
(ii) any investigation, proceeding, complaint, order, directive,
claim, citation or notice with respect to: (A) any non-compliance
with or violation of any Environmental Law by Borrower or (B) the
release, spill or discharge, threatened or actual, of any
Hazardous Material or (C) the generation, use, storage,
treatment, transportation, manufacture, handling, production or
disposal of any Hazardous Materials or (D) any other
environmental matter, which affects Borrower or its business,
operations or assets or any properties at which Borrower
transported, stored or disposed of any Hazardous Materials.
(d) Borrower shall indemnify and hold harmless Lender,
its directors, officers, employees, agents, invitees, representa-
tives, successors and assigns, from and against any and all
losses, claims, damages, liabilities, costs, and expenses
(including reasonable attorneys' fees and legal expenses)
directly or indirectly arising out of or attributable to the use,
generation, manufacture, reproduction, storage, release,
threatened release, spill, discharge, disposal or presence of a
Hazardous Material (including, without limitation, the costs of
any required or necessary repair, cleanup or other remedial
work), with respect to any property of Borrower and the
preparation and implementation of any closure, remedial or other
required plans in connection with such property. All
representations, warranties, covenants and indemnifications in
this Section 9.3 shall survive the payment of the Obligations and
the termination or non-renewal of this Agreement.
9.4 Payment of Taxes and Claims. Borrower shall duly pay
and discharge all taxes, assessments, contributions and
governmental charges upon or against it or its properties or
assets, except for taxes of Seller treated in the Confirmation
Plan and taxes the validity of which are being contested in good
faith by appropriate proceedings diligently pursued and available
to Borrower and with respect to which adequate reserves have been
set aside on its books. Borrower shall be liable for any tax or
penalties imposed on Lender as a result of the financing
arrangements provided for herein and Borrower agrees to indemnify
and hold Lender harmless with respect to the foregoing, and to
repay to Lender on demand the amount thereof, and until paid by
Borrower such amount shall be added and deemed part of the Loans,
provided, that, nothing contained herein shall be construed to
require Borrower to pay any income or franchise taxes
attributable to the income of Lender from any amounts charged or
paid hereunder to Lender. The foregoing indemnity shall survive
the payment of the Obligations and the termination or non-renewal
of this Agreement.
9.5 Insurance. Borrower shall, at all times, maintain with
financially sound and reputable insurers insurance with respect
to the Collateral against loss or damage and all other insurance
of the kinds and in the amounts customarily insured against or
carried by corporations of established reputation engaged in the
same or similar businesses and similarly situated. Said policies
of insurance shall be satisfactory to Lender as to form, amount
and insurer. Borrower shall furnish certificates, policies or
endorsements to Lender as Lender shall require as proof of such
insurance, and, if Borrower fails to do so, Lender is authorized,
but not required, to obtain such insurance at the expense of
Borrower. All policies shall provide for at least thirty (30)
days prior written notice to Lender of any cancellation or
reduction of coverage and that Lender may act as attorney for
Borrower in obtaining, and at any time an Event of Default exists
or has occurred and is continuing, adjusting, settling, amending
and canceling such insurance. Borrower shall cause Lender to be
named as a loss payee and an additional insured (but without any
liability for any premiums) under such insurance policies and
Borrower shall obtain non-contributory lender's loss payable
endorsements to all insurance policies in form and substance
satisfactory to Lender. Such lender's loss payable endorsements
shall specify that the proceeds of such insurance shall be
payable to Lender as its interests may appear and further specify
that Lender shall be paid regardless of any act or omission by
Borrower or any of its affiliates. At its option, Lender may
apply any insurance proceeds received by Lender at any time to
the cost of repairs or replacement of Collateral and/or to
payment of the Obligations, whether or not then due, in any order
and in such manner as Lender may determine or hold such proceeds
as cash collateral for the Obligations.
9.6 Financial Statements and Other Information.
(a) Borrower shall keep proper books and records in
which true and complete entries shall be made of all dealings or
transactions of or in relation to the Collateral and the business
of Borrower and its subsidiaries (if any) in accordance with GAAP
and Borrower shall furnish or cause to be furnished to Lender:
(i) within thirty (30) days after the end of each fiscal month,
monthly unaudited consolidated financial statements, and, if
Borrower has any subsidiaries, unaudited consolidating financial
statements (including in each case balance sheets, statements of
income and loss and statements of shareholders' equity), all in
reasonable detail, fairly presenting the financial position and
the results of the operations of Borrower and its subsidiaries as
of the end of and through such fiscal month, (ii) within thirty
(30) days after the end of each fiscal quarter, a store-by-store
profitability report for each of Borrower's retail locations, and
(iii) within one hundred twenty (120) days after the end of each
fiscal year, audited consolidated financial statements and, if
Borrower has any subsidiaries, audited consolidating financial
statements of Borrower and its subsidiaries (including in each
case balance sheets, statements of income and loss, statements of
cash flow and statements of shareholders' equity), and the
accompanying notes thereto, all in reasonable detail, fairly
presenting the financial position and the results of the
operations of Borrower and its subsidiaries as of the end of and
for such fiscal year, together with the opinion of independent
certified public accountants, which accountants shall be an
independent accounting firm selected by Borrower and reasonably
acceptable to Lender, that such financial statements have been
prepared in accordance with GAAP, and present fairly the results
of operations and financial condition of Borrower and its
subsidiaries as of the end of and for the fiscal year then ended.
(b) Borrower shall promptly notify Lender in writing
of the details of (i) any loss not reserved for by Borrower or
claim relating to the Collateral having a Value of $50,000 or
more or any other property which is security for the Obligations
or which would result in any material adverse change in
Borrower's business, properties, assets, goodwill or condition,
financial or otherwise and (ii) the occurrence of any Event of
Default or event which, with the passage of time or giving of
notice or both, would constitute an Event of Default.
(c) Borrower shall promptly after the sending or
filing thereof furnish or cause to be furnished to Lender copies
of all financial reports which Borrower sends to its stockholders
generally and copies of all reports and registration statements
which Borrower files with the Securities and Exchange Commission,
any national securities exchange or the National Association of
Securities Dealers, Inc.
(d) Borrower shall furnish or cause to be furnished to
Lender such budgets, forecasts, projections and other information
in respect of the Collateral and the business of Borrower, as
Lender may, from time to time, reasonably request. Lender is
hereby authorized to deliver a copy of any financial statement or
any other information relating to the business of Borrower to any
court or other government agency or to any participant or
assignee or prospective participant or assignee. Borrower hereby
irrevocably authorizes and directs all accountants or auditors to
deliver to Lender, at Borrower's expense, copies of the financial
statements of Borrower and any reports or management letters
prepared by such accountants or auditors on behalf of Borrower
and to disclose to Lender such information as they may have
regarding the business of Borrower. Any documents, schedules,
invoices or other papers delivered to Lender may be destroyed or
otherwise disposed of by Lender one (1) year after the same are
delivered to Lender, except as otherwise designated by Borrower
to Lender in writing.
(e) Borrower shall deliver, or cause to be delivered,
to Lender, within one hundred twenty (120) days from the date
hereof, opening balance sheets prepared by independent certified
public accountants, which accountants shall be a nationally
recognized independent accounting firm selected by Borrower and
reasonably acceptable to Lender, and certified by such
accountants to the effect that such opening balance sheets have
been prepared in accordance with GAAP and present fairly the
financial condition of Borrower as of such date.
9.7 Sale of Assets, Consolidation, Merger, Dissolution,
Etc. Borrower shall not, directly or indirectly (other than as
permitted by Section 9.10), (a) merge into or with or consolidate
with any other Person or permit any other Person to merge into or
with or consolidate with it, or (b) sell, assign, lease,
transfer, abandon or otherwise dispose of any stock or
indebtedness to any other Person or any of its assets to any
other Person (except for (i) sales of Inventory in the ordinary
course of business, (ii) the sale or other disposition of
Equipment in the event of a store closure, and (iii) the
disposition of worn-out or obsolete Equipment or Equipment no
longer used in the business of Borrower, or (c) form or acquire
any subsidiaries, provided, however, that Borrower may form
subsidiaries so long as (i) any such subsidiary provides to
Lender an unlimited continuing guaranty in form and substance
satisfactory to Lender, (ii) Lender obtains a first-priority
perfected security interest in all assets of any such subsidiary
which are of the type included within the definition of
"Collateral" hereunder in order to secure subsidiary's
obligations under such guaranty and (iii) the creation of any
such subsidiary and the transfer by Borrower of any assets of
Borrower to such subsidiary would not cause a material adverse
change in the business, assets or prospects of Borrower; or (d)
wind up, liquidate or dissolve or (e) agree to do any of the
foregoing or (f) following an Event of Default, return any
Inventory to vendors.
9.8 Encumbrances. Borrower shall not create, incur, assume
or suffer to exist any security interest, mortgage, pledge, lien,
charge or other encumbrance of any nature whatsoever on any of
the Collateral, except: (1) the liens and security interests of
Lender; (2) liens junior in priority to the liens of Lender
hereunder securing the payment of taxes, either not yet overdue
or the validity of which are being contested in good faith by
appropriate proceedings diligently pursued and available to
Borrower and with respect to which adequate reserves have been
set aside on its books; (3) security and other deposits
(including customs and revenue deposits) in the ordinary course
of business; (4) non-consensual statutory liens (other than liens
securing the payment of taxes) arising in the ordinary course of
Borrower's business; (5) liens in favor of credit card processors
with respect to Credit Card Receivables processed by them; (6)
the liens and security interests of the trade creditors (the
"Trade Creditors"), which liens and security interests are, in
all respects, subject and subordinate in priority to the liens
and security interests of Lender who are signatories to that
certain Intercreditor Agreement and Subordination Agreement among
Lender, said Trade Creditors and United States Trust Company of
New York, as Collateral Agent for said Trade Creditors; and (7)
the security interests and liens set forth on Schedule 8.4
hereto.
9.9 Indebtedness. Borrower shall not incur, create,
assume, become or be liable in any manner with respect to, or
permit to exist, any Indebtedness, except:
(a) the Obligations;
(b) trade obligations and normal accruals in the
ordinary course of business not yet due and payable (including,
without limitation, Indebtedness in respect of liens permitted
under Section 9.8), or with respect to which Borrower is
contesting in good faith the amount or validity thereof by
appropriate proceedings diligently pursued and available to
Borrower and with respect to which adequate reserves have been
set aside on its books;
(c) purchase money indebtedness (including capital
leases) to the extent not incurred or secured by liens (including
capital leases) in violation of any other provision of this
Agreement;
(d) obligations or indebtedness set forth on the
Information Certificate; provided, that, except with respect to
capital leases (which Borrower may modify provided no Event of
Default has occurred), Borrower shall not, directly or
indirectly, (i) amend, modify, alter or change the terms of such
indebtedness or any agreement, document or instrument related
thereto as in effect on the date hereof, or (ii) except as
otherwise permitted under this Agreement, redeem, retire,
defease, purchase or otherwise acquire such indebtedness, or set
aside or otherwise deposit or invest any sums for such purposes,
and (iii) Borrower shall furnish to Lender all notices or demands
in connection with such indebtedness either received by Borrower
or on its behalf, promptly after the receipt thereof, or sent by
Borrower or on its behalf, concurrently with the sending thereof,
as the case may be; and
(e) obligations or indebtedness incurred pursuant to
the Confirmation Plan, Confirmation Order or other bankruptcy
court order or the Purchase Agreements.
9.10 Loans, Investments, Guarantees; Dividends and
Redemptions. Borrower shall not (i) directly or indirectly, make
any loans or advance money or property to any person, or invest
in (by capital contribution, dividend or otherwise) or purchase
or repurchase the stock or indebtedness or all or a substantial
part of the assets or property of any person, or guarantee,
assume, endorse, or otherwise become responsible for (directly or
indirectly) the indebtedness, performance, obligations or
dividends of any Person or agree to do any of the foregoing
(collectively, "Investments"); or (ii) directly or indirectly,
declare or pay any dividends on account of any shares of any
class of capital stock of Borrower now or hereafter outstanding,
or set aside or otherwise deposit or invest any sums for such
purpose, or redeem, retire, defease, purchase or otherwise
acquire any shares of any class of capital stock (or set aside or
otherwise deposit or invest any sums for such purpose) for any
consideration other than common stock or apply or set apart any
sum, or make any other distribution (by reduction of capital or
otherwise) in respect of any such shares or agree to do any of
the foregoing (collectively, "Distributions"), except: (a) the
endorsement of instruments for collection or deposit in the
ordinary course of business; (b) Investments in: (i) short-term
direct obligations of the United States Government, (ii)
negotiable certificates of deposit issued by any bank
satisfactory to Lender, payable to the order of the Borrower or
to bearer and delivered to Lender, and (iii) commercial paper
rated A1 or P1; (c) the guarantees set forth in the Information
Certificate; (d) Loan to ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ ▇▇ and A&M Investment
Associates #3, LLC provided for in that certain Management
Services Agreement dated as of January 31, 1997 by and among
Borrower, ▇▇▇▇▇▇▇ & Marsal, Inc., A&M Investment Associates #3,
LLC, ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ ▇▇ and Cerberus in the aggregate amount
of approximately $5,340,000 to be made substantially
contemporaneously with the date of this Agreement; and (e)
Investments or Distributions outstanding in the aggregate at any
one time an amount not exceeding the sum of Six Million Dollars
($6,000,000) plus Excess Cash Flow Available for Investments and
Distributions on a cumulative basis commencing on the date of
this Agreement, rolled forward and tested every three (3) months,
commencing three (3) months after the closing date hereunder,
provided that: (i) immediately prior to any such Investments or
Distributions and immediately after giving effect thereto,
Borrower has Excess Availability of Twelve Million Five Hundred
Thousand Dollars ($12,500,000), and (ii) prior to and after
giving effect to any such Investments or Distributions, no Event
of Default has or shall have occurred.
9.11 Transactions with Affiliates. Borrower shall not enter
into any transaction for the purchase, sale or exchange of
property or the rendering of any service to or by any affiliate,
except in the ordinary course of and pursuant to the reasonable
requirements of Borrower's business and upon fair and reasonable
terms no less favorable to the Borrower than Borrower would
obtain in a comparable arm's length transaction with an
unaffiliated person; provided, however, that Borrower shall be
permitted to reimburse Cerberus for amounts paid by Cerberus to
▇▇▇▇▇▇▇ & Marsal, Inc. ("A & M") pursuant to that certain letter
agreement dated as of October 14, 1996 between the Borrower,
Cerberus, A & M, CS First Boston and Bank of America, Illinois,
so long as prior to and after giving effect to any such payment,
no Event of Default has or shall have occurred.
9.12 Compliance with ERISA. Borrower shall not with
respect to any "employee pension benefit plans" maintained by
Borrower or any of its ERISA Affiliates:
(a) (i) terminate any of such employee pension benefit
plans so as to incur any liability to the Pension Benefit
Guaranty Corporation established pursuant to ERISA, (ii) allow or
suffer to exist any prohibited transaction involving any of such
employee pension benefit plans or any trust created thereunder
which would subject Borrower or such ERISA Affiliate to a tax or
penalty or other liability on prohibited transactions imposed
under Section 4975 of the Code or ERISA, (iii) fail to pay to any
such employee pension benefit plan any contribution which it is
obligated to pay under Section 302 of ERISA, Section 412 of the
Code or the terms of such plan, (iv) allow or suffer to exist any
accumulated funding deficiency, whether or not waived, with
respect to any such employee pension benefit plan, (v) allow or
suffer to exist any occurrence of a reportable event or any other
event or condition which presents a material risk of termination
by the Pension Benefit Guaranty Corporation of any such employee
pension benefit plan that is a single employer plan, which
termination could result in any liability to the Pension Benefit
Guaranty Corporation or (vi) incur any withdrawal liability with
respect to any multiemployer pension plan.
(b) As used in this Section 9.12, the term "employee
pension benefit plans," "employee benefit plans", "accumulated
funding deficiency" and "reportable event" shall have the
respective meanings assigned to them in ERISA, and the term
"prohibited transaction" shall have the meaning assigned to it in
Section 4975 of the Code and Section 406 of ERISA.
9.13 Adjusted Net Worth. Borrower shall, at all times,
maintain Adjusted Net Worth of not less than the greater of Sixty
Million Dollars ($60,000,000) or eighty percent (80%) of its
Adjusted Net Worth reflected in its audited opening balance sheet
as of January 31, 1997; provided, this covenant shall not apply
if no Event of Default has occurred and during the period when
Excess Availability equals or exceeds Ten Million Dollars
($10,000,000).
9.14 Costs and Expenses. Borrower shall pay to Lender on
demand all costs, expenses, filing fees and taxes paid or payable
in connection with the preparation, negotiation, execution,
delivery, recording, administration, collection, liquidation,
enforcement and defense of the Obligations, Lender's rights in
the Collateral, this Agreement, the other Financing Agreements
and all other documents related hereto or thereto, including any
amendments, supplements or consents which may hereafter be
contemplated (whether or not executed) or entered into in respect
hereof and thereof, including, but not limited to: (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) costs and expenses and fees for title
insurance and other insurance premiums, environmental audits,
surveys, assessments, engineering reports and inspections,
appraisal fees and search fees; (c) costs and expenses of
remitting loan proceeds, collecting checks and other items of
payment, and establishing and maintaining the Blocked Accounts,
together with Lender's customary charges and fees with respect
thereto; (d) charges, fees or expenses charged by any bank or
issuer in connection with the Letter of Credit Accommodations;
(e) costs and expenses of preserving and protecting the
Collateral; (f) costs and expenses paid or incurred in connection
with obtaining payment of the Obligations, enforcing the security
interests and liens of Lender, selling or otherwise realizing
upon the Collateral, and otherwise enforcing the provisions of
this Agreement and the other Financing Agreements or defending
any claims made or threatened against Lender arising out of the
transactions contemplated hereby and thereby (including, without
limitation, preparations for and consultations concerning any
such matters); (g) all out-of-pocket expenses and costs incurred
by Lender's examiners in the conduct of their periodic field
examinations of the Collateral and Borrower's operations, plus a
per diem charge at the rate of $600 per person per day for
Lender's examiners in the field and office following an Event of
Default; and (h) the fees and disbursements of counsel (including
legal assistants) to Lender in connection with any of the
foregoing.
9.15 Further Assurances. At the request of Lender at any
time and from time to time, Borrower shall, at its expense, duly
execute and deliver, or cause to be duly executed and delivered,
such further agreements, documents and instruments, and do or
cause to be done such further acts as may be necessary or proper
to evidence, perfect, maintain and enforce the security interests
and the priority thereof in the Collateral and to otherwise
effectuate the provisions or purposes of this Agreement or any of
the other Financing Agreements. Lender may at any time and from
time to time reasonably request a certificate from an officer of
Borrower representing on behalf of the Borrower that all
conditions precedent to the making of Loans and providing Letter
of Credit Accommodations contained herein are satisfied. In the
event of such request by Lender, Lender may, at its option, cease
to make any further Loans or provide any further Letter of Credit
Accommodations until Lender has received such certificate and, in
addition, Lender has determined that such conditions are
satisfied. Where permitted by law, Borrower hereby authorizes
Lender to execute and file one or more UCC financing statements
signed only by Lender.
SECTION 10. EVENTS OF DEFAULT AND REMEDIES
10.1 Events of Default. The occurrence or existence of any
one or more of the following events are referred to herein
individually as an "Event of Default", and collectively as
"Events of Default":
(a) Borrower fails to pay within three (3) Business
Days after falling due any of the Obligations or fails to perform
any of the other terms, covenants, conditions or provisions
contained in this Agreement within three (3) Business Days after
the date such performance is required pursuant to the terms of
this Agreement, unless such non-performance relates to a non-
monetary covenant which has not been breached during the
immediately preceding six (6) months, which covenant is still
capable of being performed by Borrower, in which case Borrower
shall have ten (10) Business Days in which to cure;
(b) any representation, warranty or statement of fact
made by Borrower to Lender in this Agreement, the other Financing
Agreements or any other agreement, schedule, confirmatory
assignment or otherwise shall when made or deemed made be false
or misleading in any material respect;
(c) any judgment for the payment of money is rendered
against Borrower in excess of Five Hundred Thousand Dollars
($500,000) in any one case or in excess of One Million Dollars
($1,000,000) in the aggregate and shall remain undischarged,
unpaid or unvacated for a period in excess of sixty (60) days or
execution shall at any time not be effectively stayed, or any
material judgment other than for the payment of money, or
injunction, attachment, garnishment or execution is rendered
against Borrower or any of its assets;
(d) Borrower becomes insolvent (however defined or
evidenced), makes an assignment for the benefit of creditors or
makes or sends notice of a bulk transfer;
(e) a case or proceeding under the bankruptcy laws of
the United States of America 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 against Borrower or all or any part of its
properties and such petition or application is not dismissed
within thirty (30) days after the date of its filing or Borrower
shall file any answer admitting or not contesting such petition
or application or indicates its consent to, acquiescence in or
approval of, any such action or proceeding or the relief
requested is granted sooner;
(f) a case or proceeding under the bankruptcy laws of
the United States of America 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 a law or
equity) is filed by Borrower or for all or any part of its
property; or
(g) any default by Borrower under any agreement,
document or instrument relating to any indebtedness for borrowed
money owing to any person other than Lender, or any capitalized
lease obligations, contingent indebtedness in connection with any
guarantee, letter of credit, indemnity or similar type of
instrument in favor of any person other than Lender, in any case
in an amount in excess of Two Hundred Fifty Thousand Dollars
($250,000), which default continues for more than the applicable
cure period, if any, with respect thereto, or any default by
Borrower under any material contract, lease, license or other
obligation to any person other than Lender, which default
continues for more than the applicable cure period, if any, with
respect thereto, except, in either case, excluding defaults as to
which Borrower has contested in good faith and as to which
Lender, in its sole discretion, has established adequate
Availability Reserves;
(h) a change in the control of Borrower as follows:
(i) Cerberus, its partners, affiliates and accounts for which it
is the investment manager with sole investment discretion shall
cease to hold at least 35% of the voting stock of the Borrower;
or (ii) Cerberus, its partners, affiliates and accounts for which
it is the investment manager with sole investment discretion
shall hold less than 45% of the voting stock of the Borrower and
another Person shall acquire ownership of at least 30% or more of
the voting stock of the Borrower, in each case excluding
unexercised options and warrants;
(i) the indictment or threatened indictment of
Borrower under any criminal statute, or the commencement or
threatened commencement of criminal or civil proceedings against
Borrower, pursuant to which statute or proceedings the penalties
or remedies sought or available include forfeiture of any of the
property of Borrower;
(j) there shall be a material adverse change in the
business, assets or prospects of Borrower after the date hereof;
(k) there shall be an event of default under any of
the other Financing Agreements.
An Event of Default shall exist or continue or be
continuing until such Event of Default is waived in accordance
with Section 11.3.
10.2 Remedies.
(a) At any time an Event of Default exists or has
occurred and is continuing, Lender shall have all rights and
remedies provided in this Agreement, the other Financing
Agreements, the Uniform Commercial Code and other applicable law,
all of which rights and remedies may be exercised without notice
to or consent by Borrower, except as such notice or consent is
expressly provided for hereunder or required by applicable law.
All rights, remedies and powers granted to Lender hereunder,
under any of the other Financing Agreements, the Uniform
Commercial Code or other applicable law, are cumulative, not
exclusive and enforceable, in Lender's discretion, alternatively,
successively, or concurrently on any one or more occasions, and
shall include, without limitation, the right to apply to a court
of equity for an injunction to restrain a breach or threatened
breach by Borrower of this Agreement or any of the other
Financing Agreements. Lender may, at any time or times, proceed
directly against Borrower to collect the Obligations without
prior recourse to the Collateral.
(b) Without limiting the foregoing, at any time an
Event of Default exists or has occurred and is continuing, Lender
may, in its discretion and without limitation, (i) accelerate the
payment of all Obligations and demand immediate payment thereof
to Lender (provided, that, upon the occurrence of any Event of
Default described in Sections 10.1(g) and 10.1(h), all
Obligations shall automatically become immediately due and
payable), (ii) 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, (iii) 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, (iv) collect, foreclose, receive, appropriate, setoff and
realize upon any and all Collateral, (v) remove any or all of the
Collateral from any premises on or in which the same may be
located for the purpose of effecting the sale, foreclosure or
other disposition thereof or for any other purpose, (vi) sell,
lease, transfer, assign, deliver or otherwise dispose of any and
all Collateral (including, without limitation, entering into
contracts with respect thereto, public or private sales at any
exchange, broker's board, at 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
and/or (vii) terminate this Agreement. 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, ten
(10) 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.
(c) 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 the
Obligations, in whole or in part 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 with interest at the
highest rate provided for herein and all costs and expenses of
collection or enforcement, including attorneys' fees and legal
expenses.
(d) Without limiting the foregoing, upon the
occurrence of an Event of Default or an event which with notice
or passage of time or both would constitute an Event of Default,
Lender may, at its option, without notice, (i) cease making Loans
or arranging Letter of Credit Accommodations or reduce the
lending formulas or amounts of Loans and Letter of Credit
Accommodations available to Borrower and/or (ii) terminate any
provision of this Agreement providing for any future Loans or
Letter of Credit Accommodations to be made by Lender to Borrower.
(e) Borrower hereby grants Congress a license to
utilize any and all of Borrower's trademarks, service marks,
trade names, packaging, labeling, logos and trade dress to the
extent they are not Collateral (collectively, the "Trademarks")
following the occurrence and during the continuance of an Event
of Default for the limited purposes of completing production of,
selling, disposing or otherwise realizing upon the Collateral;
provided, that such license shall terminate upon such sale or
disposition.
SECTION 11. JURY TRIAL WAIVER; OTHER WAIVERS
AND CONSENTS; GOVERNING LAW
11.1 Governing Law; Choice of Forum; Service of Process;
Jury Trial Waiver.
(a) The validity, interpretation and enforcement of
this Agreement and the other Financing Agreements and any dispute
arising out of the relationship between the parties hereto,
whether in contract, tort, equity or otherwise, shall be governed
by the internal laws of the State of California (without giving
effect to principles of conflicts of law).
(b) Borrower and Lender irrevocably consent and submit
to the non-exclusive jurisdiction of the state courts of the
County of Los Angeles, State of California and of the United
States District Court for the Central District of California and
waive any objection based on venue or forum non conveniens with
respect to any action instituted therein arising under this
Agreement or any of the other Financing Agreements or in any way
connected with or related or incidental to the dealings of the
parties hereto in respect of this Agreement or any of the other
Financing Agreements or the transactions related hereto or
thereto, in each case whether now existing or hereafter arising,
and whether in contract, tort, equity or otherwise, and agree
that any dispute with respect to any such matters shall be heard
only in the courts described above (except that Lender shall have
the right to bring any action or proceeding against Borrower or
its property in the courts of any other jurisdiction which Lender
deems necessary or appropriate in order to realize on the
Collateral or to otherwise enforce its rights against Borrower or
its property).
(c) Borrower hereby waives personal service of any and
all process upon it and consents that all such service of process
may be made by certified mail (return receipt requested) directed
to its address set forth on the signature pages hereof and
service so made shall be deemed to be completed five (5) days
after the same shall have been so deposited in the U.S. mails,
or, at Lender's option, by service upon Borrower in any other
manner provided under the rules of any such courts.
(d) BORROWER AND LENDER EACH HEREBY WAIVES ANY RIGHT
TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION
(i) ARISING UNDER THIS AGREEMENT OR ANY OF THE OTHER FINANCING
AGREEMENTS OR (ii) IN ANY WAY CONNECTED WITH OR RELATED OR
INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO IN RESPECT OF
THIS AGREEMENT OR ANY OF THE OTHER FINANCING AGREEMENTS OR THE
TRANSACTIONS RELATED HERETO OR THERETO IN EACH CASE WHETHER NOW
EXISTING OR HEREAFTER ARISING, AND WHETHER IN CONTRACT, TORT,
EQUITY OR OTHERWISE. BORROWER AND LENDER EACH HEREBY AGREES AND
CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION
SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY AND THAT BORROWER
OR LENDER MAY FILE AN ORIGINAL COUNTERPART OF A COPY OF THIS
AGREEMENT WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF
THE PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY.
(e) Lender shall not have any liability to Borrower
(whether in tort, contract, equity or otherwise) for losses
suffered by Borrower in connection with, arising out of, or in
any way related to the transactions or relationships contemplated
by this Agreement, or any act, omission or event occurring in
connection herewith, unless it is determined by a final and non-
appealable judgment or court order binding on Lender, that the
losses were the result of acts or omissions constituting gross
negligence or willful misconduct.
11.2 Waiver of Notices. Borrower hereby expressly waives
demand, presentment, protest and notice of protest and notice of
dishonor with respect to any and all instruments and commercial
paper, included in or evidencing any of the Obligations or the
Collateral, and any and all other demands and notices of any kind
or nature whatsoever with respect to the Obligations, the
Collateral and this Agreement, except such as are expressly
provided for herein. No notice to or demand on Borrower which
Lender may elect to give shall entitle Borrower to any other or
further notice or demand in the same, similar or other
circumstances.
11.3 Amendments and Waivers. Neither this Agreement nor any
provision hereof shall be amended, modified, waived or discharged
orally or by course of conduct, but only by a written agreement
signed by an authorized officer of Lender. Lender shall not, by
any act, delay, omission or otherwise be deemed to have expressly
or impliedly waived any of its rights, powers and/or remedies
unless such waiver shall be in writing and signed by an
authorized officer of Lender. Any such waiver shall be
enforceable only to the extent specifically set forth therein. A
waiver by Lender of any right, power and/or remedy on any one
occasion shall not be construed as a bar to or waiver of any such
right, power and/or remedy which Lender would otherwise have on
any future occasion, whether similar in kind or otherwise.
11.4 Indemnification. Borrower shall indemnify and hold
Lender, and its directors, agents, employees and counsel,
harmless from and against any and all losses, claims, damages,
liabilities, costs or expenses imposed on, incurred by or
asserted against any of them in connection with any litigation,
investigation, claim or proceeding commenced or threatened
related to the negotiation, preparation, execution, delivery,
enforcement, performance or administration of this Agreement, any
other Financing Agreements, or any undertaking or proceeding
related to any of the transactions contemplated hereby or any
act, omission, event or transaction related or attendant thereto,
including, without limitation, amounts paid in settlement, court
costs, and the fees and expenses of counsel. To the extent that
the undertaking to indemnify, pay and hold harmless set forth in
this Section may be unenforceable because it violates any law or
public policy, Borrower shall pay the maximum portion which it is
permitted to pay under applicable law to Lender in satisfaction
of indemnified matters under this Section. The foregoing
indemnity shall survive the payment of the Obligations and the
termination or non-renewal of this Agreement.
SECTION 12. TERM OF AGREEMENT; MISCELLANEOUS
12.1 Term.
(a) This Agreement and the other Financing Agreements
shall become effective as of the date set forth on the first page
hereof and shall continue in full force and effect for a term
ending on the date three (3) years from the date hereof (the
"Renewal Date"), and from year to year thereafter, unless sooner
terminated pursuant to the terms hereof. Lender or Borrower
(subject to Lender's right to extend the Renewal Date as provided
above) may terminate this Agreement and the other Financing
Agreements effective on the Renewal Date or on the anniversary of
the Renewal Date in any year by giving to the other party at
least sixty (60) days prior written notice; provided, that, this
Agreement and all other Financing Agreements must be terminated
simultaneously. Upon the effective date of termination or non-
renewal of the Financing Agreements, Borrower shall pay to
Lender, in full, all outstanding and unpaid Obligations and shall
furnish cash collateral to Lender in such amounts as Lender
determines are reasonably necessary to secure Lender from loss
(including attorneys' fees and legal expenses) arising out of any
claims then asserted by third parties in connection with any
contingent Obligations, including issued and outstanding Letter
of Credit Accommodations and checks or other payments
provisionally credited to the Obligations and/or as to which
Lender has not yet received final and indefeasible payment. Such
cash collateral shall be remitted by wire transfer in Federal
funds to such bank account of Lender, as Lender may, in its
discretion, designate in writing to Borrower for such purpose.
Interest shall be due until and including the next business day,
if the amounts so paid by Borrower to the bank account designated
by Lender are received in such bank account later than 10:30
a.m., California time.
(b) No termination of this Agreement or the other
Financing Agreements shall relieve or discharge Borrower of its
respective duties, obligations and covenants under this Agreement
or the other Financing Agreements until all Obligations have been
fully and finally discharged and paid, and Lender's continuing
security interest in the Collateral and the rights and remedies
of Lender hereunder, under the other Financing Agreements and
applicable law, shall continue to secure Lender against all loss
arising out of any claims then asserted by Lender in connection
with the Obligations until all such claims have been fully and
finally discharged and paid.
(c) If for any reason this Agreement is terminated
prior to the end of the then current term or a renewal term of
this Agreement, 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 as a result thereof, Borrower agrees to pay to Lender,
upon the effective date of such termination, an early termination
fee in the amount set forth below if such termination is
effective in the period indicated:
Amount Period
------------------------------- ----------------------------------
(i) 2% of the Maximum Credit from the date of this Agreement to
and including the day preceding the
first anniversary of this
Agreement
(ii) 0.5% of the Maximum Credit from the first anniversary of
this Agreement to and including the
day preceding the second
anniversary of this Agreement
(iii) 0.25% of the Maximum Credit from the second anniversary of this
Agreement to and including the Renewal
Date, and if the Renewal Date is
extended as provided in Section
12.1(a), at any time during a renewal
term, if any.
Notwithstanding the above, provided there has occurred no Event
of Default, Borrower shall not be obligated to pay the early
termination fee if:
(i) Borrower merges with or acquires substantially all of
the capital stock or the assets of an entity, pursuant
to an arms-length, bona fide transaction, and Borrower
prepays all Obligations simultaneously with such merger
or acquisition and obtains financing for such merger or
acquisition on terms no more advantageous to the new
financer than those offered to Lender, which financing
Lender refuses to provide after being provided with
reasonable time and information to consider; provided,
however, and notwithstanding the above, that if the
Borrower sells substantially all of its assets or
capital stock or is not the surviving entity in any
such merger, Lender shall be entitled to receive one-
quarter percent (1/4%) of the Maximum Credit; or
(ii) Lender (A) acting pursuant to Section 2.1(b) reduces
the lending percentage formulas (i.e., the actual
percentages, not the arithmetic reduction in borrowing
availability due to a reduction in Value or Adjusted
Appraised Value) under Section 2.1(a)(i), and/or (B)
establishes discretionary Availability Reserves (other
than the reserves established as of closing of this
Agreement), and/or (C) revises the criteria for
Eligible Inventory from the criteria established as of
the closing of this Agreement, the aggregate effect of
(A), (B) and/or (C) is to reduce Borrower's borrowing
availability under Section 2.1(a)(i) by more than 5%,
and Borrower, at any time during a period ninety (90)
days following the date of such action taken by Lender,
fully refinances the Obligations hereunder with another
lender willing to provide Borrower with Inventory
financing at lending formulas better than those in
effect hereunder immediately after the reduction and on
other terms, conditions and funding levels
substantially similar to or better than those provided
by Lender, and Borrower fully repays the Obligations by
the end of such ninety (90) day period and terminates
this Agreement as provided in Section 12.1(a) hereof.
Such early termination fee shall be presumed to be the amount of
damages sustained by Lender as a result of such early termination
and Borrower agrees that it is reasonable under the circumstances
currently existing. The early termination fee provided for in
this Section 12.1 shall be deemed included in the Obligations.
12.2 Notices. All notices, requests and demands hereunder
shall be in writing and (a) made to Lender at its address set
forth below and to Borrower at its chief executive office set
forth below, 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
delivered in person, immediately upon delivery; if by telex,
telegram or facsimile transmission, immediately upon sending and
upon confirmation of receipt; if by nationally recognized
overnight courier service with instructions to deliver the next
business day, one (1) business day after sending; and if by
certified mail, return receipt requested, five (5) days after
mailing.
12.3 Partial Invalidity. If any provision of this Agreement
is held to be invalid or unenforceable, such invalidity or
unenforceability shall not invalidate 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 and the rights and obligations of the parties shall
be construed and enforced only to such extent as shall be
permitted by applicable law.
12.4 Successors. This Agreement, the other Financing
Agreements and any other document referred to herein or therein
shall be binding upon and inure to the benefit of and be
enforceable by Lender, Borrower and their respective successors
and assigns, except that Borrower may not assign its rights under
this Agreement, the other Financing Agreements and any other
document referred to herein or therein without the prior written
consent of Lender. Lender may, after notice to Borrower, assign
its rights and delegate its obligations under this Agreement and
the other Financing Agreements and further may assign, or sell
participations in, all or any part of the Loans, the Letter of
Credit Accommodations or any other interest herein, up to an
aggregate maximum of Ten Million Dollars ($10,000,000), to
another financial institution or other person, in which event,
the assignee or participant shall have, to the extent of such
assignment or participation, the same rights and benefits as it
would have if it were the Lender hereunder, except as otherwise
provided by the terms of such assignment or participation. No
holder of any participation or any assignee shall be entitled to
require Lender to take or omit to take any action hereunder
except an action to (i) extend the scheduled final maturity date
of any Loan allocated to such participation or assigned to such
assignee, (ii) reduce or forgive the principal amount of or the
rate of interest or other amounts payable on any Loan allocated
to such participation or assigned to such assignee, (iii) release
any Collateral from the lien or the security interest created
hereby or (iv) waive an Event of Default under this Agreement.
12.5 Entire Agreement. This Agreement, the other Financing
Agreements, any supplements hereto or thereto, and any instru-
ments or documents delivered or to be delivered in connection
herewith or therewith represents the entire agreement and
understanding concerning the subject matter hereof and thereof
between the parties hereto, and supersede all other prior
agreements, understandings, negotiations and discussions,
representations, warranties, commitments, proposals, offers and
contracts concerning the subject matter hereof, whether oral or
written.
12.6 Publicity. Borrower consents to Lender publishing a
tombstone or similar advertising material relating to the
financing transaction contemplated by this Agreement.
12.7 Confidentiality. Lender hereby agrees that all written
or oral information disseminated by Borrower to Lender concerning
Borrower, now or hereafter, is confidential (the "Information").
Such Information: (i) shall be kept confidential by Lender and
will not be disclosed, divulged or provided to any Person without
Borrower's prior written consent; provided, however, that such
Information may be disclosed: (A) to the smallest practicable
number of Lender's officers and employees or any of Lender's
affiliated companies' officers and employees, independent
attorneys, accountants, loan participants and appraisers who need
to know such Information for the sole purpose of evaluating the
financing of Borrower hereunder, and who have been advised by
Lender that such Information shall be treated as confidential; or
(B) if such disclosure is required by operation of law; (ii)
shall not knowingly be used by Lender in a manner or for a
purpose detrimental to Borrower; and (iii) shall not be deemed to
include information which: (A) is public knowledge or becomes
generally available to the public; (B) becomes available to
Lender, on a non-confidential basis, from a source (other than
Borrower or its agents) who is not bound by a confidentiality
agreement with Borrower; or (c) is in Lender's possession prior
to disclosure by Borrower. Lender agrees that, unless required
by law, Lender will not disclose any of the Information for a
period of two (2) years after the date of the completion of a
financing hereunder.
IN WITNESS WHEREOF, Lender and Borrower have caused these
presents to be duly executed as of the day and year first above
written.
LENDER BORROWER
CONGRESS FINANCIAL WEI Acquisition Co.
CORPORATION (WESTERN)
/s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ /s/ ▇▇▇▇▇ Del ▇▇▇▇▇▇▇▇
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By: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ By: ▇▇▇▇▇ Del ▇▇▇▇▇▇▇▇
Title: Senior Vice President Title: Chief Financial Oficer
Address: Chief Executive Office:
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