66
AMENDED AND RESTATED TERM LOAN
AND
SECURITY AGREEMENT
BY AND AMONG
CMT ENTERPRISES INC.
(AS BORROWER)
▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
(AS GUARANTOR)
AND
HAROLD'S STORES, INC.
(AS LENDER)
Dated as of November 6, 1996
AMENDED AND RESTATED TERM LOAN AND
SECURITY AGREEMENT
THIS AMENDED AND RESTATED TERM LOAN AND SECURITY AGREEMENT
(this "Agreement"), dated as of November 6, 1996, is by and among
CMT ENTERPRISES INC., a corporation organized under the laws of
the State of New York ("Borrower"), ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇, an
individual ("▇▇▇▇▇"), and HAROLD'S STORES, INC., an Oklahoma
corporation ("Lender").
Borrower has previously entered into that certain Revolving
Credit, Term Loan and Security Agreement dated as of August 22,
1994, as amended by Amendment No. 1 dated September 14, 1994,
Amendment No. 2 dated April 28, 1995, Amendment No. 3 dated July
18, 1995, Amendment No. 4 dated January 2, 1996, Amendment No. 5
dated March 12, 1996, Amendment No. 6 dated April 11, 1996, and
Amendment No. 7 dated May 18, 1996 (collectively, the "Existing
Loan Agreement"), with Chase Manhattan Bank, a corporation
organized under the laws of the State of New York and successor
by merger to Chemical Bank ("Chase"), pursuant to which Chase has
made advances to Borrower evidenced by a Revolving Note dated
March 12, 1996, in the original principal amount of $2,800,000
(the "Existing Note"). Simultaneously herewith, Chase has
assigned the Existing Note, together with all of its rights and
obligations under the Existing Loan Agreement and all other
collateral documents relating thereto, to Lender. The current
aggregate outstanding principal balance of the Existing Note is
$1,373,317.60 and the unpaid interest accrued thereon as of the
date hereof is $17,895.61. Lender has agreed to restructure the
existing obligations of Borrower under the Existing Note, all as
more fully set forth herein.
IN CONSIDERATION of the foregoing and the mutual covenants
and undertakings herein contained, the parties agree to amend and
restate the Existing Loan Agreement in its entirety to read as
follows:
I. DEFINITIONS.
1.1. Accounting Terms. As used in this Agreement or any
certificate, report or other document made or delivered pursuant
to this Agreement, accounting terms not defined in Section 1.2 or
elsewhere in this Agreement and accounting terms partly defined
in Section 1.2 to the extent not defined, shall have the
respective meanings given to them under GAAP; provided, however,
that each calculation made pursuant to Sections 7.18 and 7.19
shall be made in accordance with GAAP as in effect on the date
hereof.
1.2. General Terms. For purposes of this Agreement, the
following terms shall have the following meanings:
"Accountants" shall mean, as of any date, the
independent certified public accountants then regularly engaged
by Borrower and reasonably acceptable to Lender.
"Adjustment Date" shall mean each January 1 and July 1
during the Term beginning January 1, 1997.
"Affiliate" of any Person shall mean (a) any Person
who, directly or indirectly, is in control of, is controlled by,
or is under common control with such Person, or (b) any Person
who is a director or officer (i) of such Person, (ii) of any
Subsidiary of such Person or (iii) of any Person described in
clause (a) above. For purposes of this definition, control of a
Person shall mean the power, direct or indirect, (x) to vote five
percent (5%) or more of the securities having ordinary voting
power for the election of directors of such Person, or (y) to
direct or cause the direction of the management and policies of
such Person whether by contract or otherwise.
"Assignment of Lease" shall mean that certain Consent
to Default Assignment of Lease dated the Closing Date, in
substantially the form of Exhibit D attached hereto, to be
executed by Borrower in favor of Lender.
"Assignment of Insurance" shall mean, collectively,
those certain Collateral Assignments of Insurance, each dated
the Closing Date and in substantially the form of Exhibit C
attached hereto, to be executed by Borrower in favor of Lender.
"Authority" shall have the meaning set forth in Section
4.18(d).
"▇▇▇▇▇" shall have the meaning ascribed to such term in
the Preamble.
"▇▇▇▇▇ Cash Collateral Account" shall mean a cash
collateral account to be maintained by ▇▇▇▇▇ with Chase (or
another financial institution reasonably acceptable to Lender),
consisting of cash, certificates of deposit and/or money market
funds reasonably acceptable to Lender and having a balance of not
less than $340,000.00.
"▇▇▇▇▇ Employment Agreement" shall have the meaning set
forth in Section 8.13.
"▇▇▇▇▇ Farm" shall mean all of ▇▇▇▇▇'▇ rights, title
and interest in and to the premises located at ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇,
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇ of ▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, and described
on Schedule 1.2(a) attached hereto.
"▇▇▇▇▇ Forbearance Agreement" shall mean the letter
agreement dated this date between ▇▇▇▇▇ and Lender with respect
to Lender's agreement to forbear for a specified period of time
from enforcing its rights and remedies with respect to the ▇▇▇▇▇
Judgment.
"▇▇▇▇▇ Judgment" shall mean the confession of judgment
executed by ▇▇▇▇▇ in favor of Chase and the judgment entered
against ▇▇▇▇▇ in connection therewith.
"▇▇▇▇▇ Loan" shall mean the loan from Borrower to ▇▇▇▇▇
in the principal sum of $700,000.00 outstanding as of the Closing
Date and to be evidenced by the ▇▇▇▇▇ Note.
"▇▇▇▇▇ Note" shall have the meaning set forth in
Section 8.12.
"Borrower" shall have the meaning ascribed to such term
in the Preamble and shall include each Person who is a permitted
successor or assign of Borrower hereunder.
"Business Day" shall mean any day other than a day on
which commercial banks in Oklahoma are authorized or required by
law to close.
"Capital Expenditures" shall mean, for any Person in
any period, the sum of all amounts that would, in accordance with
GAAP consistently applied, be included as capital expenditures on
a statement of changes in financial position for such Person for
such period including, without limitation, any expenses for
leases that are required to be capitalized for financial
reporting purposes in accordance with GAAP.
"CERCLA" shall mean the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended, 42
U.S.C. 9601 et seq.
"Change of Management" shall mean (i) the death of
▇▇▇▇▇, (ii) the removal or resignation of ▇▇▇▇▇ as Chairman and
Chief Executive Officer of Borrower, or (iii) the failure of
▇▇▇▇▇ to be actively involved in the management of the day-to-day
operations of Borrower's business for any period of ninety (90)
consecutive days.
"Change of Ownership" shall mean (a) any transfer,
issuance or other transaction (whether one transaction or a
series of transactions), other than a transfer by ▇▇▇▇▇ to a
member of his immediate family under an arrangement whereby ▇▇▇▇▇
retains sole voting rights and control, which results in ▇▇▇▇▇
owning and controlling less than 66-2/3% of the outstanding
shares of capital stock of Borrower with voting power, or (b) any
merger, consolidation or sale of substantially all of the
property or assets of Borrower. For purposes of this definition,
▇▇▇▇▇'▇ "immediate family" shall mean ▇▇▇▇▇'▇ spouse and his
lineal descendants.
"Charges" shall mean all taxes, charges, fees, imposts,
levies or other assessments, including, without limitation, all
net income, gross income, gross receipts, sales, use, ad valorem,
value added, transfer, franchise, profits, inventory, capital
stock, license, withholding, payroll, employment, social
security, unemployment, excise, severance, stamp, occupation and
property taxes, custom duties, fees, assessments, liens, claims
and charges of any kind whatsoever, together with any interest
and any penalties, additions to tax or additional amounts,
imposed by any taxing or other authority, domestic or foreign
(including, without limitation, the Pension Benefit Guaranty
Corporation or any environmental agency or superfund), upon the
Collateral or Borrower.
"CIT" shall mean The CIT Group/Commercial Services,
Inc.
"CIT Agreement" shall mean that certain Accounts
Receivable Purchase Agreement dated the Closing Date, to be
entered into between Borrower and CIT, as such agreement may be
amended, modified or supplemented from time to time with Lender's
consent in accordance with the terms of this Agreement.
"Claims" shall mean all security interests, liens,
claims or encumbrances held or asserted by any Person against any
or all of the Collateral, other than (A) Charges and (B)
Permitted Encumbrances.
"Closing" shall mean the consummation of the
transactions contemplated by this Agreement.
"Closing Date" shall mean November __, 1996, or such
other date as may be agreed to by the parties hereto.
"Clothing Services Agreement" shall mean that certain
Agreement effective June 1, 1994, between Lender and Borrower,
pursuant to which Borrower provides certain clothing design and
development services to Lender (as more particularly delineated
therein), as such agreement may be amended, modified or
supplemented from time to time.
"Clothing Services Commissions" shall mean commissions
and other compensation payable to Borrower under the Clothing
Services Agreement.
"Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time and the regulations promulgated
thereunder.
"Collateral" shall mean and include:
(a) all Receivables;
(b) all Equipment;
(c) all General Intangibles;
(d) all Design Inventory;
(e) all of Borrower's right, title and interest
in and to (i) all goods and other property including relating to
or securing any of the Receivables, other than Inventory; (ii)
all of Borrower's rights as a consignor, a consignee, an unpaid
vendor, mechanic, artisan, or other lienor, including stoppage in
transit, setoff, detinue, replevin, reclamation and repurchase;
(iii) all additional amounts due to Borrower from any Customer
relating to the Receivables; (iv) other property, exclusive of
Inventory, relating to any goods securing this Agreement; (v) all
of Borrower's contract rights, rights of payment which have been
earned under a contract right, instruments, documents, chattel
paper, warehouse receipts, deposit accounts, money and
securities; (vi) if and when obtained by Borrower, all real and
personal property of third parties in which Borrower has been
granted a lien or security interest as security for the payment
or enforcement of Receivables; and (vii) any other goods,
personal property or real property now owned or hereafter
acquired in which Borrower has expressly granted a security
interest or may in the future grant a security interest to Lender
hereunder, or in any amendment or supplement hereto, or under any
other agreement between Lender and Borrower;
(f) all monies due or to become due under any of
the Insurance Policies and any contracts supplemental or
additional thereto, including, without limitation, death benefit
proceeds, disability proceeds, accrued or future dividends,
refunds for premiums paid in advance, double indemnity,
distributions of shares of surplus or additions to any of the
Policies now or hereafter apportioned thereto, together with any
and all claims, options, privileges, rights, title and interest
of Borrower in and under the Insurance Policies, subject,
however, to the terms and conditions of the Insurance Policies;
(g) the Lease, together with any and all claims,
options, privileges, rights, title and interest of Borrower in
and under the Lease, subject, however, to the terms and
conditions of the Lease; and
(h) all of Borrower's ledger sheets, ledger
cards, files, correspondence, records, books of account, business
papers, computers, computer software (owned by Borrower or in
which it has an interest), computer programs, tapes, disks and
documents relating to the items or types of property described in
(a), (b), (c), (d), (e), (f) or (g) of this Paragraph; and
(i) all proceeds and products of the items or
types of property described in clauses (a), (b), (c), (d), (e),
(f), (g) and (h) of this Paragraph, in whatever form, including,
but not limited to, cash, deposit accounts (whether or not
comprised solely of proceeds), certificates of deposit, insurance
proceeds (including hazard, flood and credit insurance),
negotiable instruments and other instruments for the payment of
money, chattel paper, security agreements, documents, eminent
domain proceeds, condemnation proceeds and tort claim proceeds.
The term "Collateral" does not and will not include any
items included in Borrower's Inventory (unless Borrower should
hereafter grant Lender a security interest in Inventory, whether
pursuant to an amendment or supplement hereto or another written
security agreement between Lender and Borrower).
"Consents" shall mean all filings and all licenses,
permits, consents, approvals, authorizations, qualifications and
orders of Governmental Authorities and other third parties,
domestic or foreign, necessary to carry on Borrower's business,
including, without limitation, any Consents required under all
applicable federal, state or other applicable law.
"Consultant" shall mean ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ & Co., Inc.,
or another consultant selected by Borrower and reasonably
acceptable to Lender.
"Consulting Agreement" shall have the meaning set forth
in Section 8.14.
"Controlled Group" shall mean all members of a
controlled group of corporations and all trades or businesses
(whether or not incorporated) under common control which,
together with Borrower, are treated as a single employer under
Section 414 of the Code.
"Customer" shall mean and include the account debtor
with respect to any Receivable and/or the prospective purchaser
of goods, services or both with respect to any contract or
contract right, and/or any party who enters into or proposes to
enter into any contract or other arrangement with Borrower,
pursuant to which Borrower is to deliver any personal property or
perform any services.
"Default" shall mean an event which, with the giving of
notice or passage of time or both, would constitute an Event of
Default.
"Default Rate" shall have the meaning set forth in
Section 3.1 hereof.
"Design Inventory" shall mean all of Borrower's
patterns, fabric library, archives of textile research, piece
goods, samples and related products, now owned or hereafter
acquired and wherever located.
"Dollar" and the sign "$" shall mean lawful money of
the United States of America.
"Earnings Before Interest and Taxes" for any period
shall mean the sum of (i) Borrower's Net Income, (ii) interest
expense, and (iii) the aggregate amount of all federal, state
and/or local tax obligations of Borrower for such period.
"EBITDA" shall mean for any period the sum of (i)
Earnings Before Interest and Taxes, (ii) depreciation deducted in
determining such Net Income, and (iii) amortization of goodwill
and other intangibles (including deferred financing costs and
debt discounts) deducted in determining such Net Income, in each
case determined in accordance with GAAP consistently applied.
"Eligible Receivable" shall mean each Receivable
arising in the ordinary course of Borrower's business which meets
the criteria set forth in this definition and such other criteria
as Lender shall establish from time to time in its sole credit
judgment and advise to Borrower in writing. A Receivable shall
not be deemed an Eligible Receivable unless such Receivable is
subject to Lender's perfected security interest and no other Lien
(other than Permitted Encumbrances), and is evidenced by an
invoice or other documentary evidence satisfactory to Lender. In
addition, no Receivable shall be an Eligible Receivable if:
(a) it arises out of a sale made by Borrower to an
Affiliate of Borrower or to a Person controlled by an Affiliate
of Borrower;
(b) it is due or unpaid more than ninety (90) days
after the due date or more than one hundred twenty (120) days
after the original invoice date;
(c) as respects a particular Customer, fifty percent
(50%) or more of the Receivables from the applicable Customer are
not deemed Eligible Receivables as a result of the criteria set
forth in clause (b) above;
(d) any material covenant, representation or warranty
contained in this Agreement with respect to such Receivable has
been breached;
(e) the Customer shall (i) apply for, suffer, or
consent to the appointment of, or the taking of possession by, a
receiver, custodian, trustee or liquidator of itself or of all or
a substantial part of its property or call a meeting of its
creditors, (ii) admit in writing its inability, or be generally
unable, to pay its debts as they become due or cease operations
of its present business, (iii) make a general assignment for the
benefit of creditors, (iv) commence a voluntary case under any
state or federal bankruptcy laws (as now or hereafter in effect),
(v) be adjudicated a bankrupt or insolvent, (vi) file a petition
seeking to take advantage of any other law providing for the
relief of debtors, (vii) acquiesce to, or fail to have dismissed,
any petition which is filed against it in any involuntary case
under such bankruptcy laws, or (viii) take any action for the
purpose of effecting any of the foregoing;
(f) the sale is to a Customer outside the continental
United States of America unless the sale is on letter of credit
terms acceptable to Lender in its reasonable discretion;
(g) sale to the Customer is on a ▇▇▇▇-and-hold,
guaranteed sale, sale-and-return, sale on approval, promotional,
consignment, memorandum account or any other repurchase or return
basis or is evidenced by chattel paper, unless, in the case of a
▇▇▇▇-and-hold sale, such sale is supported by a ▇▇▇▇-and-hold
authorization letter acceptable in all respects to Lender in its
reasonable discretion;
(h) Lender believes, in its reasonable judgment, that
collection of such Receivable is insecure or that such Receivable
may not be paid by reason of the Customer's financial inability
to pay;
(i) the Customer is the United States of America or
any state, or any department, agency or instrumentality of the
United States or any state;
(j) the goods giving rise to such Receivable have not
been shipped and delivered to and accepted by the Customer or the
services giving rise to such Receivable have not been performed
by Borrower and accepted by the Customer or the Receivable
otherwise does not represent a final sale, or if the Receivable
is contingent in any respect or for any reason;
(k) the Receivable is subject to any offset,
deduction, defense, dispute, chargeback or counterclaim, or the
Customer has disputed its liability for payment of the
Receivable, or the Customer has made any claim with respect to
any other Receivable due from such Customer to Borrower, or the
Customer is also a creditor or supplier of Borrower, or the
Receivable otherwise is or may become subject to any right of
setoff by the Customer;
(l) Borrower has made any agreement with any Customer
for any deduction therefrom, except for discounts or allowances
made in the ordinary course of business for prompt payment, all
of which discounts or allowances are reflected in the calculation
of the face value of each respective invoice related thereto;
(m) shipment of the merchandise or the rendition of
services has not been completed;
(n) any return, rejection or repossession of the
merchandise has occurred;
(o) such Receivable is not payable to the Borrower;
(p) such Receivable has been "matured" in accordance
with paragraph 9 of the CIT Agreement, thereby requiring CIT to
credit Borrower's account for the net amount of such Receivable;
or
(q) such Receivable is not otherwise satisfactory to
Lender as determined in good faith by Lender in the exercise of
its discretion in a reasonable manner.
"Environmental Complaint" shall have the meaning set
forth in Section 4.18(d) hereof.
"Environmental Laws" shall mean all federal, state and
local environmental, land use, zoning, health, chemical use,
safety and sanitation laws, statutes, ordinances and codes
relating to the protection of the environment and/or governing
the use, storage, treatment, generation, transportation,
processing, handling, production or disposal of Hazardous
Substances and the rules, regulations, policies, guidelines,
interpretations, decisions, orders and directives of federal,
state and local governmental agencies and authorities with
respect thereto.
"Equipment" shall mean and include all of Borrower's
goods (excluding Inventory), whether now owned or hereafter
acquired and wherever located including, without limitation, all
equipment, machinery, apparatus, motor vehicles, fittings,
furniture, furnishings, fixtures, parts, accessories and all
replacements and substitutions therefor or accessions thereto.
"ERISA" shall mean the Employee Retirement Income
Security Act of 1974, as amended from time to time and the rules
and regulations promulgated thereunder.
"Euro-Linea" means Euro-Linea, Inc., a New York
corporation.
"Event of Default" shall mean the occurrence and
continuance of any of the events set forth in Article X hereof.
"Existing Loan Agreement" shall have the meaning
ascribed to such term in the Preamble.
"Existing Note" shall have the meaning ascribed to such
term in the Preamble
"First Amendment to Trademark Security Agreement" shall
mean that certain First Amendment to Trademark Security Agreement
dated the Closing Date, in substantially the form of Exhibit H
attached hereto, to be executed by Borrower in favor of Lender.
"First Mortgage" shall mean that Consolidation,
Extension and Modification Agreement dated June 26, 1989, between
▇▇▇▇▇ and First Mortgage Lender, recorded on June 30, 1989, in
the Office of the Dutchess County Clerk, State of New York, in
Liber 1915, at Page 74, which consolidated into a single joint
lien on the Real Property the following three mortgages: (i) the
mortgage given by ▇▇▇▇▇ and dated June 26, 1989, in favor of
First Mortgage Lender securing the original principal amount of
$550,480.16, which was recorded on June 30, 1989, in the Office
of the Dutchess County Clerk, State of New York, in Liber 1915,
at Page 56, (ii) the mortgage given by ▇▇▇▇▇ and dated July 8,
1988, in favor of First Mortgage Lender securing the original
principal amount of $150,000.00, which was recorded on July 15,
1988, in the Office of the Dutchess County Clerk, State of New
York, in Liber 1822, at Page 357, and (iii) the mortgage given by
▇▇▇▇▇ and dated September 22, 1987, in favor of First Mortgage
Lender securing the original principal amount of $465,000.00,
which was recorded on September 28, 1987, in the Office of the
Dutchess County Clerk, State of New York, in Liber 1735, at Page
265, granting the First Mortgage Lender a first mortgage lien on
the ▇▇▇▇▇ Farm.
"First Mortgage Lender" shall mean Poughkeepsie Savings
Bank F.S.B.
"GAAP" shall mean generally accepted accounting
principles in the United States of America in effect from time to
time.
"General Intangibles" shall mean and include all of
Borrower's general intangibles, whether now owned or hereafter
acquired including, without limitation, all choses in action,
causes of action, corporate or other business records,
inventions, designs, patents, patent applications, equipment
formulations, manufacturing procedures, quality control
procedures, trademarks, logos, trade secrets, goodwill,
copyrights, registrations, licenses, franchises, customer lists,
tax refunds, tax refund claims, computer programs, warranty
claims, claims under guaranties, security interests or other
security held by or granted to Borrower to secure payment of any
of the Receivables by a Customer, rights of indemnification and
all other intangible property of every kind and nature (other
than Receivables).
"Governmental Authority" means any court or any
administrative or governmental department, commission, board,
bureau, authority, agency or body (domestic or foreign).
"Guaranty" shall mean that certain Second Amended and
Restated Guaranty dated the Closing Date, in substantially the
form of Exhibit B attached hereto, to be executed by ▇▇▇▇▇ in
favor of Lender.
"Hazardous Discharge" shall have the meaning set forth
in Section 4.18(d) hereof.
"Hazardous Substances" shall mean, without limitation,
any flammable explosives, radon, radioactive materials, asbestos,
urea formaldehyde foam insulation, polychlorinated byphenyls,
petroleum and petroleum products, methane, hazardous materials,
hazardous wastes, hazardous or toxic substances or related
materials as defined in CERCLA, the Hazardous Materials
Transportation Act, as amended (49 U.S.C. 1801 et seq.), RCRA,
Articles 15 and 27 of the New York State Environmental
Conservation Law or any other applicable Environmental Law and in
the regulations adopted pursuant thereto.
"Hazardous Wastes" includes all waste materials subject
to regulation under CERCLA, RCRA or applicable state law, and any
other applicable Federal and state laws now in force or hereafter
enacted relating to hazardous waste disposal.
"Indebtedness" of a Person at a particular date shall
mean all obligations of such Person which in accordance with GAAP
would be classified upon a balance sheet as liabilities (except
capital stock and surplus, earned or otherwise) and in any event,
without limitation by reason of enumeration, shall include all
indebtedness, debt and other similar monetary obligations of such
Person whether direct or guaranteed, and all premiums, if any,
due at the required prepayment dates of such indebtedness, and
all indebtedness secured by a Lien on assets owned by such
Person, whether or not such indebtedness actually shall have been
created, assumed or incurred by such Person. Any indebtedness of
such Person resulting from the acquisition by such Person of any
assets subject to any Lien shall be deemed, for the purposes
hereof, to be the equivalent of the creation, assumption and
incurring of the indebtedness secured thereby, whether or not
actually so created, assumed or incurred.
"Insurance Policies" shall mean (i) that certain life
insurance policy (Policy No. 75005818) issued to Borrower by
Transamerica Life Insurance Company naming ▇▇▇▇▇ as insured, and
any contracts supplemental or additional thereto, (ii) that
certain life insurance policy (Policy No. 96-021-968) issued to
Borrower by Equitable Life Insurance Company naming ▇▇▇▇▇ as
insured, and any contracts supplemental or additional thereto,
(iii) that certain disability insurance policy (Policy No. RN HLD
0545) issued to Borrower by Reliance Insurance Company naming
▇▇▇▇▇ as insured, and any contracts supplemental or additional
thereto, and (iv) any and all other insurance policies, and any
contracts supplemental or additional thereto, maintained by
Borrower pursuant to Section 4.20 hereof.
"Inventory" shall mean all now owned or hereafter
acquired goods or merchandise to be furnished under any contract
of service or held for sale or lease, raw materials, work in
process, finished goods, materials and supplies of any kind, and
other items of inventory, wherever located, and all documents of
title or other documents representing any of the foregoing. The
term "Inventory" does not include (i) any items included in
Design Inventory or (ii) any goods of Lender which may be in the
possession of Borrower under the Clothing Services Agreement.
"Landlord" shall mean Newmark & Company Real Estate,
Inc., agent for G.L.S. Associates.
"Lease" shall mean that certain Agreement of Lease
dated as of June 27, 1994, between Landlord, as owner, and
Borrower, as tenant, under which Borrower leases certain premises
in the building located at ▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇, as
the same may be amended or modified from time to time.
"Lender" shall have the meaning ascribed to such term
in the Preamble and shall include each Person who is a
transferee, successor or assign of Lender.
"Lien" shall mean any mortgage, deed of trust, pledge,
hypothecation, assignment, security interest, lien (whether a tax
lien, judgment lien, a statutory lien or otherwise), Charge,
Claim or encumbrance, or preference, priority or other security
agreement or preferential arrangement in respect of any asset of
any kind or nature whatsoever including, without limitation, any
conditional sale or other title retention agreement, any lease
having substantially the same economic effect as any of the
foregoing, and the filing of, or agreement to give, any financing
statement under the UCC or comparable law of any jurisdiction.
"Loan Documents" shall mean, collectively, the Term
Note, the Original Agreements, the Assignment of Insurance, the
Assignment of Lease, the Guaranty, the Mortgage, the Stock Pledge
Agreement, and all other agreements, instruments and documents,
including, without limitation, guaranties, pledges, powers of
attorney, consents, and all other writings heretofore, now or
hereafter executed by Borrower or ▇▇▇▇▇ and/or delivered to Chase
or Lender in respect of the transactions contemplated by this
Agreement.
"Loan Year" shall mean each twelve-month period during
the Term ending on a December 31; provided, that the first Loan
Year shall mean the period beginning on the Closing Date and
ending on December 31, 1997.
"Lockbox Agreement" shall have the meaning set forth in
Section 4.14(i) hereof.
"Mortgage" shall mean that certain Real Estate Mortgage
dated the Closing Date, in substantially the form of Exhibit F
attached hereto, to be executed by ▇▇▇▇▇ in favor of Lender with
respect to the ▇▇▇▇▇ Farm.
"Multiemployer Plan" shall mean a "multiemployer plan"
as defined in Sections 3(37) and 4001(a)(3) of ERISA.
"Net Cash Flow" shall mean, for any period, an amount
equal to (A) Net Income plus depreciation and amortization plus
or minus (B) any non-cash items properly added or deducted in
accordance with GAAP in determining Borrower's Net Income for
such period minus (C) Capital Expenditures permitted under
Section 7.6.
"Net Income" with respect to any Person for any period
shall mean the aggregate net income (or net deficit) of such
Person equal to the aggregate gross revenues and other proper
income for such Person during such period less the aggregate for
such Person during such period of (without duplication) (i) cost
of goods sold, (ii) interest expense, (iii) operating expenses,
(iv) selling, general and administrative expenses, (v) taxes,
(vi) depreciation, depletion and amortization of assets and (vii)
any other items that are treated by such Person as expenses
consistent with GAAP.
"Obligations" shall mean and include any and all of
Borrower's liabilities, obligations and Indebtedness to Lender of
every kind, nature and description, direct or indirect, secured
or unsecured, joint, several, joint and several, absolute or
contingent, due or to become due, now existing or hereafter
arising, contractual or tortious, liquidated or unliquidated,
including, without limitation, any and all of Borrower's
liabilities, obligations and Indebtedness to Lender arising under
or in connection with this Agreement, the Term Note or any other
Loan Document or under or in connection with any other agreement
between Lender and Borrower.
"Original Agreements" shall mean, collectively, the
Existing Loan Agreement, the Existing Note, and all other
agreements, documents and instruments executed in connection
therewith and in connection with all other financial
accommodations provided by Chase to Borrower, including, without
limitation, all security agreements and promissory notes.
"Participant" shall mean each Person who shall be
granted the right by Lender to participate in the Term Loan and
who shall have entered into a participation agreement in form and
substance satisfactory to Lender.
"Payment Office" shall mean the corporate offices of
Lender located at ▇▇▇ ▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇, or such other
office of Lender, if any, which it may designate by notice to
Borrower to be the Payment Office.
"PBGC" shall mean the Pension Benefit Guaranty
Corporation.
"Permitted Encumbrances" shall mean (a) Liens in favor
of Lender; (b) Liens for Charges not delinquent, or, being
contested in good faith and by appropriate proceedings and with
respect to which proper reserves have been taken by Borrower;
provided, that, the Lien shall have no effect on the priority of
the Liens in favor of Lender or the value of the assets in which
Lender has such a Lien and a stay of enforcement of any such Lien
shall be in effect; (c) deposits or pledges to secure obligations
under worker's compensation, social security or similar laws, or
under unemployment insurance; (d) deposits or pledges to secure
bids, tenders, contracts (other than contracts for the payment of
money), leases, statutory obligations, surety and appeal bonds
and other obligations of like nature arising in the ordinary
course of Borrower's business; (e) judgment Liens disclosed in
Schedule 5.7(b) attached hereto that have been stayed or bonded
and against which adequate reserves therefor have been taken in
conformity with GAAP; (f) mechanics', worker's, materialmen's or
other like Liens arising in the ordinary course of Borrower's
business with respect to obligations which are not due or which
are being contested in good faith by Borrower; (g) Liens placed
upon fixed assets hereafter acquired to secure a portion of the
purchase price thereof, provided, that (i) any such Lien shall
not encumber any other property of Borrower and (ii) the
aggregate amount of Indebtedness secured by such Liens incurred
as a result of such purchases during any fiscal year shall not
exceed the amounts permitted under Section 7.8 hereof; (h)
security interests in specific items of imported Inventory
granted in favor of banks and other financial institutions
issuing letters of credit in connection with Borrower's purchase
and importation of such imported piece goods Inventory, so long
as the aggregate reimbursement obligations under such letters of
credit do not exceed $250,000; and (i) existing Liens disclosed
on Schedule 1.2(b) attached hereto. On a case-by-case basis,
Borrower may request that Lender permit a temporary increase in
the $250,000 limitation set forth in the foregoing clause (h)
with respect to Borrower's maximum reimbursement obligations
secured by imported Inventory, and Lender agrees not to
unreasonably withhold or delay its consent to any such request.
"Person" shall mean an individual, a partnership, a
corporation, a business trust, a joint stock company, a trust, an
unincorporated association, a joint venture, a Governmental
Authority or any other entity of whatever nature.
"Plan" shall mean any employee benefit plan within the
meaning of Section 3(3) of ERISA, maintained for employees of
Borrower or any member of the Controlled Group or any such Plan
to which Borrower or any member of the Controlled Group is
required to contribute on behalf of any of its employees.
"Prime Rate" shall mean the "Prime Rate" (i.e., the
base rate on corporate loans at large U.S. money center
commercial banks) as published in the "Money Rates" section of
The Wall Street Journal (Southwest Edition). In the event such
rate ceases to be published, "Prime Rate" shall mean another
comparable index rate selected by Lender in good faith.
"Pro Forma Balance Sheet" shall have the meaning set
forth in Section 5.4(b) hereof.
"Projections" shall mean, as applicable, (i) the
projections submitted to Lender at the Closing Date pursuant to
Sections 5.4(c) and 8.18 hereof, and (ii) each annual projected
operating budget submitted to Lender pursuant to Section 9.12
hereof; provided that such projections have been approved by
Lender.
"RCRA" shall mean the Resource Conservation and
Recovery Act, 42 U.S.C. 6901 et seq., as same may be amended
from time to time.
"Real Property" shall mean (i) all of Borrower's right,
title and interest in and to its owned and leased premises,
including, without limitation, the Premises covered by the Lease,
and (ii) all right, title and interest of ▇▇▇▇▇ in and to his
owned and leased premises, including, without limitation, the
▇▇▇▇▇ Farm.
"Receivables" shall mean and include all of Borrower's
accounts, contract rights, instruments (including those
evidencing indebtedness among Borrower and its Affiliates),
documents, chattel paper, general intangibles relating to
accounts, drafts and acceptances, and all other forms of
obligations owing to Borrower arising out of or in connection
with the sale or lease of Inventory or the rendition of services,
all guarantees and other security therefor, whether secured or
unsecured, now existing or hereafter created, and whether or not
specifically sold or assigned to Lender hereunder.
"Related Person" shall mean as to any Person, any other
Person which, together with such Person, is treated as a single
employer under Section 414(c) of the Code.
"Release" shall have the meaning set forth in Section
5.6(c)(i) hereof.
"Shinyei Agreement" shall mean that certain Settlement
Agreement dated March 16, 1995, between Borrower and Shinyei
Corporation of America.
"Stock" shall mean all shares of capital stock of
Borrower now or hereafter owned or controlled, directly or
indirectly, by ▇▇▇▇▇, and all stock certificates evidencing said
shares, including, without limitation, the stock certificates
listed on Schedule 1.2(c) attached hereto, together with (i) any
and all rights associated therewith, (ii) all additional
securities or other property hereafter issued or paid to ▇▇▇▇▇ on
account of the Stock, whether by virtue of a stock split, stock
dividend, reclassification, reorganization, merger, consolidation
or otherwise, (iii) all cash dividends paid or payable to ▇▇▇▇▇
with respect to the Stock, (iv) all other amounts at any time
paid or payable to ▇▇▇▇▇ on account of the Stock, including in-
kind distributions and liquidating distributions, and (v) all
proceeds of the foregoing.
"Stock Pledge Agreement" shall mean that certain Stock
Pledge Agreement, in substantially the form of Exhibit E attached
hereto, to be executed by ▇▇▇▇▇ in favor of Lender and covering
the Stock.
"Subsidiary" of any Person shall mean a corporation or
other entity whose shares of stock or other ownership interests
having ordinary voting power (other than stock or other ownership
interests having such power only by reason of the happening of a
contingency) to elect a majority of the directors of such
corporation, or other Persons performing similar functions for
such entity, are owned, directly or indirectly, by such Person.
"Tangible Net Worth" shall mean, at a particular date,
(a) the aggregate amount of all assets of Borrower as may be
properly classified as such in accordance with GAAP consistently
applied excluding such other assets as are properly classified as
intangible assets under GAAP including, without limitation,
goodwill, leasehold improvements and trade names, less (b) the
aggregate amount of all liabilities of Borrower.
"Term" shall have the meaning set forth in Section 13.1
hereof.
"Term Loan" shall mean the term loan made and
continued pursuant to Section 2.1 hereof.
"Term Loan Rate" shall mean an interest rate per annum
equal to the sum of the Prime Rate (adjusted as of each
Adjustment Date during the Term based upon the Prime Rate as
published on the last Business Day of the calendar month
immediately preceding the applicable Adjustment Date), plus four
and one-quarter percent (4.25%); provided that, in no event shall
the Term Loan Rate be less than twelve and one-half percent
(12.5%).
"Term Note" shall mean the $2,750,000 Secured Term Loan
Note dated the Closing Date, in substantially the form of Exhibit
A attached hereto, to be executed by Borrower in favor of Lender.
"Termination Date" shall have the meaning set forth in
Section 13.1 hereof.
"Termination Event" shall mean (i) a "reportable event"
(as such term is defined in Section 4043 of ERISA) with respect
to any Plan or Multiemployer Plan; (ii) the withdrawal of either
Borrower or any member of the Controlled Group from a Plan or
Multiemployer Plan during a plan year in which such entity was a
"substantial employers" as defined in Section 4001(a)(2) of
ERISA; (iii) the providing of notice of intent to terminate a
Plan in a distress termination described in Section 4041(c) of
ERISA; (iv) the institution by the PBGC of proceedings to
terminate a Plan or Multiemployer Plan; (v) any event or
condition (a) which might constitute grounds under Section 4042
of ERISA for the termination of, or the appointment of a trustee
to administer, any Plan or Multiemployer Plan, or (b) that may
result in termination of a Multiemployer Plan pursuant to Section
4041A of ERISA; or (vi) the partial or complete withdrawal within
the meaning of Sections 4203 and 4205 of ERISA, of either
Borrower or any member of the Controlled Group from a
Multiemployer Plan.
"Toxic Substance" shall mean and include any material
present on the Real Property which has been shown to have
significant adverse effect on human health or which is subject to
regulation under the Toxic Substances Control Act (TSCA), 15
U.S.C. 2601 et seq., applicable state law, or any other
applicable Federal or state laws now in force or hereafter
enacted relating to toxic substances. "Toxic substance" includes,
but is not limited to, asbestos, polychlorinated biphenyls (PCBs)
and lead-based paints.
"Transferee" shall have the meaning set forth in
Section 14.3(b) hereof.
"UCC" shall mean the Uniform Commercial Code as enacted
and in effect in each applicable state or jurisdiction in which
any of the Collateral is located or, as applicable, in which the
chief executive office of Borrower is located.
"Unsatisfied Judgments" shall have the meaning set
forth in Section 5.7(b) hereof.
"Warrant" shall mean the ten (10) year Warrant dated
the Closing Date, in substantially the form attached hereto as
Exhibit G, granting Lender the right to acquire twenty percent
(20%) of the outstanding capital stock in Borrower.
1.3. Uniform Commercial Code Terms. All terms used herein
and defined in the UCC as adopted in the State of Oklahoma shall
have the meaning given therein unless otherwise defined herein.
1.4. Certain Matters of Construction. The terms herein,
hereof and hereunder and other words of similar import refer to
this Agreement as a whole and not to any particular section,
paragraph or subdivision. Any pronoun used shall be deemed to
cover all genders. Wherever appropriate in the context, terms
used herein in the singular also include the plural and vice
versa. All references to statutes and related regulations shall
include any amendments of same and any successor statutes and
regulations. All references to any instruments or agreements,
including, without limitation, references to any of the Loan
Documents, shall include any and all modifications or amendments
thereto and any and all extensions or renewals thereof.
II. LENDING AGREEMENT.
2.1. Term Loan. At and effective as of the Closing Date,
Lender agrees to make an additional advance to Borrower in the
principal amount of $1,076,682.40,and to combine, rearrange and
restructure such additional advance, together with an advance of
$300,000 previously made by Lender and the Obligations
outstanding under the Existing Note, into a single term loan (the
"Term Loan") in the principal amount of $2,750,000.00. Lender
shall not be obligated to make further advances or extensions of
credit to Borrower, under the Term Loan or otherwise, after the
Closing. The Term Loan shall be evidenced by and subject to the
terms and conditions set forth in the Term Note. At the Closing,
Lender shall return the Existing Note to Borrower, marked with an
appropriate notation that the Existing Note has been renewed and
replaced by the Term Note.
2.2. Repayment of Principal and Interest.
(a) The Term Loan shall be due and payable as to
principal and interest in monthly installments (subject to
acceleration upon the occurrence of an Event of Default under
this Agreement or termination of this Agreement) on the last day
of each calendar month beginning November 30, 1996; provided,
that, the entire remaining principal balance of the Term Loan and
all unpaid interest accrued thereon shall be due and payable in
full and finally on December 31, 2002. The amount of the required
installments of principal and interest shall be determined as
follows:
(i) During the first Loan Year, principal and
interest shall be payable in monthly installments of $33,894.36
each (which amount was determined by amortizing the initial
principal balance of the Term Loan at the Term Loan Rate in
effect on the date hereof over an assumed Term of fifteen (15)
years).
(ii) During each Loan Year thereafter, the amounts
of the required monthly principal and interest installments shall
be adjusted as of each Adjustment Date by amortizing the unpaid
principal balance of the Term Note as of the such Adjustment Date
over the remainder of the Term at an interest rate equal to the
Term Loan Rate in effect as of such Adjustment Date.
(b) All monthly installment payments made pursuant to
Paragraph (a) shall be applied first to the unpaid interest
accrued on the Term Note (determined in the manner set forth in
Section 3.1) and then to the principal balance thereof.
(c) Borrower may prepay the entire remaining principal
balance of the Term Note at any time, subject to a prepayment
charge equal to one percent (1%) of the amount prepaid. Partial
prepayments are not permitted.
2.3. Making of Payments.
(a) All payments (including any prepayment) of
principal, interest and other amounts payable hereunder or under
any of the other Loan Documents, shall be made to Lender at the
Payment Office not later than 1:00 p.m. (Oklahoma time) on the
due date therefor in lawful money of the United States of America
in federal funds or other funds immediately available to Lender.
If any payment to be made hereunder becomes due and payable on a
day other than a Business Day, the due date thereof shall be
extended to the next succeeding Business Day and interest thereon
shall be payable at the Term Loan Rate during such extension.
Lender shall have the right to effectuate payment on any and all
Obligations due and owing hereunder by offsetting any amounts due
and owing from Lender to Borrower, including amounts which may be
owing by Lender to Borrower under the Clothing Services
Agreement.
(b) All payments (including any prepayment) to be made
by Borrower on account of principal, interest and fees on the
Term Loan and all other amounts payable hereunder or under any
other Loan Document shall be made without any deduction for any
set-off or counterclaim.
(c) Lender shall record in its books and records the
date and amount of each payment received by Lender in respect of
the Term Loan, and Lender's records shall be prima facie evidence
of the amounts owing in respect of the Term Loan; provided,
however, that Lender's failure to record the date and amount of
any payment shall not adversely affect Lender.
2.4. Additional Payments. Any sums expended by Lender which
are reasonably related to Borrower's failure to perform or comply
with its obligations under this Agreement or any Loan Document
including, without limitation, Borrower's obligations under
Sections 4.2, 4.4, 4.12, 4.13, 4.25 and 6.1 hereof, may be added
to the Obligations and shall be evidenced by the Term Note.
III. INTEREST.
3.1. Interest. Interest shall be computed on the actual
principal balance of the Term Loan outstanding from time to time
at a rate per annum equal to the Term Loan Rate. Upon and after
the occurrence of any Event of Default (other than an Event of
Default under Section 10.1) and during the continuation thereof,
the Obligations shall bear interest at the Term Loan Rate plus
two percent (2%) per annum, and upon and after the occurrence of
an Event of Default under Section 10.1 and during the
continuation thereof, the Obligations shall bear interest at the
Term Loan Rate plus five and three-quarters percent (5-3/4%) per
annum (as applicable, the "Default Rate"). Notwithstanding the
foregoing, the Default Rate will not be applicable to the extent
that any Event of Default (other than an Event of Default under
Section 10.1) occurs as a direct result of the fact that the
Clothing Services Commissions actually earned by Borrower for any
period are less than the Clothing Services Commissions forecasted
to be earned in the Projections for such period, so long as
Lender has approved such forecasts pursuant to Section 8.18 or
9.12 hereof.
3.2. Computation of Interest. Interest hereunder shall be
computed on the basis of a year of 360 days and for the actual
number of days elapsed.
3.3. Maximum Charged. In no event whatsoever shall interest
and other charges charged hereunder exceed the highest rate
permissible under law which a court of competent jurisdiction
shall, in a final determination, deem applicable hereto. In the
event that a court determines that Lender has received interest
and other charges hereunder in excess of the highest rate
applicable hereto, such excess interest shall be first applied to
any unpaid principal balance owed by Borrower, and if the then
remaining excess interest is greater than the previously unpaid
principal balance, Lender shall promptly refund such excess
amount to Borrower and the provisions hereof shall be deemed
amended to provide for such permissible rate.
IV. COLLATERAL AND SECURITY; GENERAL TERMS
4.1. Security Interest in the Collateral. Borrower hereby
acknowledges, confirms and agrees that Lender has and shall
continue to have a Lien upon all Collateral heretofore granted to
Chase pursuant to the Original Agreements to secure the
Obligations. To the extent not otherwise granted thereunder or
under the Original Agreements or otherwise granted to or held by
Lender, Borrower hereby pledges and assigns to Lender, and grants
to Lender a continuing security interest in and to all of the
Collateral, whether now owned or existing or hereafter acquired
or arising and wheresoever located, to secure the Obligations,
and Borrower further agrees, at the Closing, to execute the First
Amendment to Trademark Security Agreement.
4.2. Perfection of Security Interest. Borrower shall take
all action that Lender may reasonably request, so as at all times
to maintain the validity, perfection, enforceability and priority
of Lender's security interests in the Collateral or to enable
Lender to protect, exercise or enforce its rights hereunder and
in the Collateral, including, but not limited to (i) immediately
discharging all Liens other than Permitted Encumbrances (subject,
however, to the provisions of Section 8.4(h) relating to certain
Liens to be discharged within sixty (60) days following the
Closing), (ii) obtaining landlords' or mortgagees' lien waivers,
(iii) delivering to Lender, endorsed or accompanied by such
instruments of assignment as Lender may specify, and stamping or
marking, in such manner as Lender may specify, any and all
chattel paper, instruments, letters of credit and advices thereof
and documents evidencing or forming a part of the Collateral,
(iv) entering into lockbox and other custodial arrangements
reasonably satisfactory to Lender, (v) executing and delivering
financing statements, instruments of pledge, mortgages, notices
and assignments, in each case in form and substance satisfactory
to Lender, relating to the creation, validity, perfection,
maintenance or continuation of Lender's security interests under
the UCC or other applicable law, and (vi) marking its books and
records as may be necessary or appropriate to evidence, protect
and perfect Lender's security interest and causing its financial
statements to reflect such security interest. All charges,
expenses and fees Lender may incur in doing any of the foregoing,
and any local taxes relating thereto, shall be charged to
Borrower and added to the Obligations, or, at Lender's option,
shall be paid to Lender immediately upon demand.
4.3. Disposition of Collateral. Borrower will safeguard and
protect all of the Collateral for Lender's general account and
make no disposition thereof, whether by sale, lease or otherwise,
except for (i) the collection of Receivables in the ordinary
course of Borrower's business, and (ii) the disposition, whether
by sale, lease or otherwise, of any Collateral during any fiscal
year having an aggregate fair market value of not more than
$25,000 ("Permitted Sale") and only to the extent that the
proceeds of any such disposition are remitted to Lender. Lender
will remit the proceeds of a Permitted Sale to Borrower, upon
Borrower's request therefor, in order to enable Borrower to
replace the property or asset sold and for no other purpose,
provided that such purchase occurs within sixty (60) days of
receipt by Lender of such proceeds. If such property or asset is
not purchased by Borrower or, if the proceeds of the Permitted
Sale exceed the purchase price of the replacement property or
asset, the proceeds of the Permitted Sale or the unused portion
of such proceeds, as the case may be, will be applied by Lender
to the Obligations.
4.4. Preservation of Collateral. In addition to the rights
and remedies set forth in Section 11.1 hereof, Lender may at any
time following the occurrence and during the continuation of an
Event of Default: (a) take such steps as Lender deems necessary
to protect Lender's interest in and to preserve the Collateral,
including the hiring of such security guards or the placing of
other security protection measures as Lender may deem reasonably
appropriate; (b) employ and maintain at any of Borrower's
premises a custodian who shall have full authority to do all acts
necessary to protect Lender's interests in the Collateral; (c)
use any of Borrower's owned or leased lifts, hoists, trucks and
other facilities or equipment for handling or removing the
Collateral; (d) have, and is hereby granted, a right of ingress
and egress to the places where the Collateral is located, and may
proceed over and through any of Borrower's owned or leased
property; and (e) lease warehouse facilities to which Lender may
move all or part of the Collateral. Borrower shall cooperate
fully with all of Lender's efforts to preserve the Collateral and
will take such reasonable actions to preserve the Collateral as
Lender may direct. All of Lender's reasonable expenses of
preserving the Collateral, including any expenses relating to the
bonding of a custodian, shall be charged to Borrower and added to
the Obligations.
4.5. Ownership of Collateral. With respect to the
Collateral, at the time the Collateral becomes subject to
Lender's security interest: (a) Borrower shall be the sole owner
of and fully authorized and able to sell, transfer, pledge and/or
grant a first security interest in each and every item of the
Collateral to Lender, and, except for Permitted Encumbrances, the
Collateral shall be free and clear of all Liens, Claims, Charges
and encumbrances whatsoever; (b) each document and agreement
executed by Borrower or delivered to Lender in connection with
this Agreement shall be true and correct in all respects; (c) all
signatures and endorsements of Borrower that appear on such
documents and agreements shall be genuine and Borrower shall have
full capacity to execute same; and (d) Borrower's Equipment shall
be located as set forth on Schedule 4.5 attached hereto and shall
not be removed from such location(s) without the prior written
consent of Lender, except with respect to the disposition of
properties and assets of Borrower to the extent permitted in
Section 4.3 hereof.
4.6. Defense of Lender's Interests. Until (a) payment and
performance in full of all of the Obligations and (b) termination
of this Agreement, Lender's interests in the Collateral shall
continue in full force and effect. During such period Borrower
shall not, without Lender's prior written consent, pledge, sell
(except the disposition of other properties and assets of
Borrower to the extent permitted in Section 4.3 hereof), assign,
transfer, create or suffer to exist a Lien upon or encumber or
allow or suffer to be encumbered in any way except for Permitted
Encumbrances, any part of the Collateral. Borrower shall defend
Lender's interests in the Collateral against any and all persons
whatsoever. At any time following demand by Lender for payment of
all Obligations, Lender shall have the right to take possession
of the indicia of the Collateral and the Collateral in whatever
physical form contained, including, without limitation, labels,
stationery, documents, instruments and advertising materials. If
Lender exercises this right to take possession of the Collateral,
Borrower shall, upon demand, assemble it in the best manner
possible and make it available to Lender at a place reasonably
convenient to Lender. In addition, with respect to all
Collateral, Lender shall be entitled to all of the rights and
remedies set forth herein and further provided by the UCC or
other applicable law. Borrower shall, and Lender may, at its
option, instruct all suppliers, carriers, forwarders, warehouses
or others receiving or holding cash, checks, documents or
instruments in which Lender holds a security interest to deliver
same to Lender and/or subject to Lender's order and if they shall
come into Borrower's possession, they, and each of them, shall be
held by Borrower in trust as Lender's trustee, and Borrower will
immediately deliver them to Lender in their original form
together with any necessary endorsement.
4.7. Books and Records. Borrower (a) shall keep proper
books of record and account in which full, true and correct
entries will be made of all dealings or transactions of or in
relation to its business and affairs; (b) set up on its books
accruals with respect to all taxes, assessments, charges, levies
and claims; and (c) on a reasonably current basis set up on its
books, from its earnings, allowances against doubtful
Receivables, advances and investments and all other proper
accruals (including without limitation by reason of enumeration,
accruals for premiums, if any, due on required payments and
accruals for depreciation, obsolescence, or amortization of
properties), which should be set aside from such earnings in
connection with its business. All determinations pursuant to this
Section 4.7 shall be made in accordance with, or as required by,
GAAP consistently applied in the opinion of the Accountants.
4.8. Financial Disclosure. Borrower hereby irrevocably
authorizes and directs all Accountants employed by Borrower at
any time during the term of this Agreement to exhibit and deliver
to Lender copies of any of Borrower's financial statements, trial
balances or other accounting records of any sort in the
Accountants' possession, accompanied by the Accountants'
management letter, and to disclose to Lender any information such
Accountants may have concerning Borrower's financial status and
business operations. Borrower hereby authorizes all federal,
state and municipal authorities to furnish to Lender copies of
reports or examinations relating to Borrower, whether made by
Borrower or otherwise; however, Lender will attempt to obtain
such information or materials directly from Borrower prior to
seeking such information or materials from the Accountants or
such authorities.
4.9. Compliance with Laws. Borrower shall comply with all
acts, rules, regulations and orders of any legislative,
administrative or judicial body or official applicable to the
Collateral or any part thereof or to the operation of Borrower's
business the non-compliance with which would have a material
adverse effect on the Collateral, or the operations, business or
condition (financial or otherwise) of Borrower. Borrower may,
however, contest or dispute any acts, rules, regulations, orders
and directions of those bodies or officials in any reasonable
manner, provided that any related lien is inchoate or stayed and
sufficient reserves are established to the reasonable
satisfaction of Lenders to protect Lender's Lien on or security
interest in the Collateral. The Collateral at all times shall be
maintained in accordance with the requirements of all insurance
carriers which provide insurance with respect to the Collateral
so that such insurance shall remain in full force and effect.
4.10. Inspection of Premises. At all reasonable times
Lender shall have full access to and the right to audit, check,
inspect and make abstracts and copies from Borrower's books,
records, audits, correspondence and all other papers relating to
the Collateral and the operation of Borrower's business. Lender
and its agents may enter upon any of Borrower's premises at any
time during business hours and at any other reasonable time, and
from time to time, for the purpose of inspecting the Collateral
and any and all records pertaining thereto and the operation of
Borrower's business.
4.11. Insurance. Borrower shall bear the full risk of
any loss of any nature whatsoever with respect to the Collateral.
At Borrower's own cost and expense in amounts and with carriers
reasonably acceptable to Lender, Borrower shall (a) keep all its
insurable properties and properties in which Borrower has an
interest insured against the hazards of fire, flood, sprinkler
leakage, those hazards covered by extended coverage insurance and
such other hazards, and for such amounts, as is customary in the
case of companies engaged in businesses similar to Borrower's
including, without limitation, business interruption insurance;
(b) maintain a bond in such amounts as is customary in the case
of companies engaged in businesses similar to Borrower's insuring
against larceny, embezzlement or other criminal misappropriation
of insured's officers and employees who may either singly or
jointly with others at any time have access to the assets or
funds of Borrower either directly or through authority to draw
upon such funds or to direct generally the disposition of such
assets; (c) maintain public and product liability insurance
against claims for personal injury, death or property damage
suffered by others; (d) maintain all such worker's compensation
or similar insurance as may be required under the laws of any
state or jurisdiction in which Borrower is engaged in business;
and (e) furnish Lender with (i) copies of all policies and
evidence of the maintenance of such policies by the renewal
thereof at least thirty (30) days before any expiration date, and
(ii) appropriate loss payable endorsements in form and substance
reasonably satisfactory to Lender, naming Lender as a co-insured
and loss payee as its interests may appear with respect to all
insurance coverage referred to in clauses (a), (b) and (c) above,
and providing (A) that all proceeds with respect to the
Collateral thereunder shall be payable to Lender as its interests
may appear, (B) no such insurance shall be affected by any act or
neglect of the insured or owner of the property described in such
policy, and (C) that such policy and loss payable clauses may not
be canceled, amended or terminated unless at least (x) thirty
(30) days' prior written notice is given to Lender or (y) such
lesser notice as shall be provided to Borrower under its policy.
In the event of any loss thereunder, the carriers named therein
hereby are directed by Lender and Borrower to make payment for
such loss to Lender and not to Borrower and Lender jointly. If
any insurance losses are paid by check, draft or other instrument
payable to Borrower and Lender jointly, Lender may endorse
Borrower's name thereon and do such other things as Lender may
deem advisable to reduce the same to cash. Lender is hereby
authorized to adjust and compromise claims under insurance
coverage referred to in clauses (a), (b) and (c) above. All loss
recoveries received by Lender upon any such insurance may be
applied to the Obligations, in such order as Lender in its sole
discretion shall determine. Any surplus shall be paid by Lender
to Borrower or applied as may be otherwise required by law. Any
deficiency thereon shall be paid by Borrower to Lender, on
demand. Anything hereinabove to the contrary notwithstanding, and
subject to the fulfillment of the conditions set forth below,
Lender shall remit to Borrower insurance proceeds received by
Lender during any calendar year under insurance policies procured
and maintained by Borrower which insure Borrower's insurable
properties to the extent such insurance proceeds do not exceed
$25,000 in the aggregate during such calendar year or $25,000 per
occurrence subject in each instance to satisfaction of each of
the following conditions: (x) no Event of Default or Default
shall then have occurred, and (y) Borrower shall use such
insurance proceeds to repair, replace or restore the insurable
property which was the subject of the insurable loss and for no
other purpose within sixty (60) days of receipt of such proceeds.
In the event the amount of insurance proceeds received by Lender
for any occurrence exceeds $25,000, then Lender shall not be
obligated to remit the insurance proceeds to Borrower, however,
in the event the insurance proceeds received exceed $25,000 but
are less than $75,000, Lender will consider, in the good faith
exercise of its reasonable discretion, a request by Borrower to
receive such proceeds to repair, replace or restore the insurable
property that was the subject of the insurable loss, subject to
the conditions set forth in the preceding sentence.
4.12. Payment of Taxes. Borrower will pay, when due, all
taxes, assessments and other Charges or Claims lawfully levied or
assessed upon Borrower or any of the Collateral including,
without limitation, real and personal property taxes, assessments
and charges and all franchise, income, employment, social
security benefits, withholding, and sales taxes. If any tax by
any Governmental Authority is or may be imposed on or as a result
of any transaction between Borrower and Lender which Lender may
be required to withhold or pay or if any taxes, assessments, or
other Charges remain unpaid after the date fixed for their
payment, or if any Claim shall be made which, in Lender's or
Lender's opinion, may possibly create a valid Lien, Charge or
Claim on the Collateral, Lender may without notice to Borrower
pay the taxes, assessments, Liens, Charges or Claims and Borrower
hereby indemnifies and holds Lender harmless in respect thereof.
Lender will not pay any taxes, assessments, Liens, Charges or
Claims to the extent that Borrower has contested or disputed
those Liens, Charges and Claims in good faith, by timely protest,
administrative or judicial appeal or similar proceeding provided
that any related tax lien is stayed and sufficient reserves are
established to the reasonable satisfaction of Lender to protect
Lender's security interest in or Lien on the Collateral. The
amount of any payment by Lender under this Section 4.12 shall be
added to the Obligations and, until Borrower shall furnish Lender
with an indemnity therefor (or supply Lender with evidence
reasonably satisfactory to Lender that due provision for the
payment thereof has been made), Lender may hold any balance
standing to Borrower's credit in an interest-bearing account and
Lender shall retain its security interest in any and all
Collateral held by Lender.
4.13. Payment of Leasehold Obligations. Borrower shall
at all times pay, when and as due, its rental obligations under
all leases under which it is a tenant, including, without
limitation, the Lease, and shall otherwise comply, in all
material respects, with all other terms of such leases and keep
them in full force and effect and, at Lender's request will
provide evidence of having done so.
4.14. Receivables.
(a) Nature of Receivables. Each of the Receivables
shall be a bona fide and valid account representing a bona fide
indebtedness incurred by the Customer therein named, for a fixed
sum as set forth in the invoice relating thereto (provided
immaterial or unintentional invoice errors shall not be deemed to
be a breach hereof) with respect to an absolute sale or lease and
delivery of goods upon stated terms of Borrower, or work, labor
or services theretofore rendered by Borrower as of the date each
Receivable is created. Same shall be due and owing in accordance
with Borrower's standard terms of sale without dispute, setoff or
counterclaim except as may be stated on the accounts receivable
schedules delivered by Borrower to Lender.
(b) Solvency of Customers. Each Customer, to the best
of Borrower's knowledge, as of the date each Receivable is
created, is and will be solvent and able to pay all Receivables
on which the Customer is obligated in full when due or with
respect to such Customers of Borrower who are not solvent
Borrower has set up on its books and in its financial records bad
debt reserves adequate to cover such Receivables.
(c) Locations of Borrower. Borrower's chief executive
office is located at ▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇. Until
written notice is given to Lender by Borrower of any other office
at which it keeps its records pertaining to Receivables, all such
records shall be kept at such executive office.
(d) Collection of Receivables. Until Borrower's
authority to do so is terminated by Lender (which notice Lender
may give at any time following the occurrence of an Event of
Default or a Default or when Lender in its sole discretion deems
it to be in its best interest to do so), Borrower will, at
Borrower's sole cost and expense, but on Lender's behalf and for
Lender's account, collect as Lender's property and in trust for
Lender all amounts received on Receivables, and shall not
commingle such collections with Borrower's funds or use the same
except to pay Obligations. Borrower shall, upon request, deliver
or cause to be delivered to Lender in original form and on the
date of receipt thereof, all checks, drafts, notes, money orders,
acceptances, cash and other evidences of Indebtedness.
(e) Notification of Assignment of Receivables. At any
time, Lender shall have the right to send notice of the
assignment of, and Lender's security interest in, the Receivables
to any and all Customers or any third party holding or otherwise
concerned with any of the Collateral. At any time after the
occurrence of any Event of Default, Lender shall have the sole
right to collect the Receivables, take possession of the
Collateral, or both. Lender's actual collection expenses,
including, but not limited to, stationery and postage, telephone
and telegraph, applicable secretarial and clerical expenses and
the salaries of any collection personnel used for collection, may
be charged to Borrower and added to the Obligations.
(f) Power of Lender to Act on Borrower's Behalf.
Lender shall have the right to receive, endorse, assign and/or
deliver in the name of Lender or Borrower any and all checks,
drafts and other instruments for the payment of money relating to
the Receivables, and Borrower hereby waives notice of
presentment, protest and non-payment of any instrument so
endorsed. Borrower hereby constitutes Lender or Lender's
designee as Borrower's attorney with power (i) to endorse
Borrower's name upon any notes, acceptances, checks, drafts,
money orders or other evidences of payment or Collateral; (ii) to
sign Borrower's name on any invoice or ▇▇▇▇ of lading relating to
any of the Receivables, drafts against Customers, assignments and
verifications of Receivables; (iii) to send verifications of
Receivables to any Customer; (iv) to sign Borrower's name on all
financing statements or any other documents or instruments deemed
necessary or appropriate by Lender to preserve, protect, or
perfect Lender's interest in the Collateral and to file same; (v)
to demand payment of the Receivables; (vi) to enforce payment of
the Receivables by legal proceedings or otherwise; (vii) to
exercise all of Borrower's rights and remedies with respect to
the collection of the Receivables and any other Collateral;
(viii) to settle, adjust, compromise, extend or renew the
Receivables; (ix) to settle, adjust or compromise any legal
proceedings brought to collect Receivables; (x) to prepare, file
and sign Borrower's name on a proof of claim in bankruptcy or
similar document against any Customer; (xi) to prepare, file and
sign Borrower's name on any notice of Lien, assignment or
satisfaction of Lien or similar document in connection with the
Receivables; and (xii) to do all other acts and things necessary
to carry out this Agreement. All acts of said attorney or
designee are hereby ratified and approved, and said attorney or
designee shall not be liable for any acts of omission or
commission nor for any error of judgment or mistake of fact or of
law, unless done maliciously or with gross (not mere) negligence;
this power being coupled with an interest is irrevocable while
any of the Obligations remain unpaid. Lender shall have the right
at any time following the occurrence of an Event of Default or
Default, to change the address for delivery of mail addressed to
Borrower to such address as Lender may designate.
(g) No Liability. Lender shall not, under any
circumstances or in any event whatsoever, have any liability for
any error or omission or reasonable delay of any kind occurring
in the settlement, collection or payment of any of the
Receivables or any instrument received in payment thereof, or for
any damage resulting therefrom. At any time after the occurrence
of any Event of Default, Lender may, without notice or consent
from Borrower, ▇▇▇ upon or otherwise collect, extend the time of
payment of, compromise or settle for cash, credit or upon any
terms any of the Receivables or any other securities, instruments
or insurance applicable thereto and/or release any obligor
thereof, and Lender is authorized and empowered to accept the
return of the goods represented by any of the Receivables,
without notice to or consent by Borrower, all without discharging
or in any way affecting Borrower's liability hereunder.
(h) Adjustments. Borrower will not, without Lender's
consent, compromise or adjust any Receivables (or extend the time
for payment thereof) or accept any returns of merchandise or
grant any additional discounts, allowances or credits thereon
except for those compromises, adjustments, returns, discounts,
credits and allowances as have been heretofore customary in the
business of Borrower.
(i) Lockbox Agreement. Borrower shall enter into a
lockbox agreement (the "Lockbox Agreement") for the collection of
Borrower's Receivables. The Lockbox Agreement shall be in form
and content satisfactory to Lender and shall include provisions
whereby the lockbox bank (i) recognizes Lender's security
interest in all Receivables and all amounts collected thereon,
(ii) agrees to provide Borrower and Lender with a monthly report
of Receivables collections and balances, and (iii) agrees upon
notice from Lender (such notice to contain a certification by
Lender that an Event of Default has occurred) to remit all
amounts collected in respect of the Receivables directly to
Lender.
(j) Factoring Arrangements. During the Term, Borrower
shall not factor any of its Receivables, and as of the Closing
Date, any existing factoring arrangements shall have been
terminated. Notwithstanding the foregoing, Borrower shall be
permitted to enter into the CIT Agreement provided that all of
the following conditions are satisfied: (i) all Receivables
purchased or to be purchased by CIT thereunder are purchased
subject to the prior security interest of Lender; (ii) the
relative rights and priorities of Lender and CIT in the
Receivables of Borrower are set forth in an intercreditor
agreement containing terms and conditions satisfactory to Lender;
(iii) at no time will CIT have any rights in any Receivables
which are superior to Lender's rights, except with respect to
past-due accounts which have been "matured" in accordance with
paragraph 9 of the CIT Agreement; and (iv) the only "Obligations"
of Borrower to CIT under the CIT Agreement shall be the fees,
charges and commissions set forth in paragraph 11 of the CIT
Agreement.
4.15. Inventory. All Inventory has been, and will be,
produced by Borrower in accordance with the Federal Fair Labor
Standards Act of 1938, as amended, and all rules, regulations and
orders thereunder.
4.16. Maintenance of Equipment. The Equipment shall be
maintained in good operating condition and repair (reasonable
wear and tear excepted) and all necessary replacements of and
repairs thereto shall be made so that the value and operating
efficiency of the Equipment shall be maintained and preserved.
Borrower shall not use or operate the Equipment in violation of
any law, statute, ordinance, code, rule or regulation.
4.17. Exculpation of Liability. Nothing herein
contained shall be construed to constitute Lender as Borrower's
agent for any purpose whatsoever, nor shall Lender be responsible
or liable for any shortage, discrepancy, damage, loss or
destruction of any part of the Collateral wherever the same may
be located and regardless of the cause thereof. Lender shall not,
whether by anything herein or in any assignment or otherwise,
assume any of Borrower's obligations under any contract or
agreement assigned to Lender, and Lender shall not be responsible
in any way for the performance by Borrower of any of the terms
and conditions thereof.
4.18. Environmental Matters.
(a) Each of Borrower and ▇▇▇▇▇ will ensure that all
Real Property owned, operated or used by it remains in compliance
with all applicable Environmental Laws and will not place or
permit to be placed any Hazardous Substances on any Real Property
owned, operated or used by it, except as permitted by applicable
law or appropriate Governmental Authorities.
(b) Borrower will establish and maintain a system to
assure and monitor continued compliance with all applicable
Environmental Laws, which system shall include periodic review of
such compliance.
(c) Each of Borrower and ▇▇▇▇▇ will (i) employ in
connection with its use of any Real Property owned, operated or
used by it appropriate technology necessary to maintain
compliance with any applicable Environmental Laws and (ii)
dispose of any and all Hazardous Waste generated at such Real
Property only at facilities and with carriers that maintain valid
permits under RCRA and any other applicable Environmental Laws.
Each of Borrower and ▇▇▇▇▇ shall use its best efforts to obtain
certificates of disposal, such as hazardous waste manifest
receipts, from all treatment, transport, storage or disposal
facilities or operators employed by Borrower or ▇▇▇▇▇, as the
case may be, in connection with the transport or disposal of any
Hazardous Waste generated at any Real Property.
(d) In the event Borrower or ▇▇▇▇▇ obtains, gives or
receives notice of any Release or threat of Release of a
reportable quantity of any Hazardous Substances at any Real
Property owned, operated or used by it (any such event being
hereinafter referred to as a "Hazardous Discharge") or receives
any notice of violation, request for information or notification
that it is potentially responsible for investigation or cleanup
of environmental conditions at such Real Property, demand letter
or complaint, order, citation, or other written notice with
regard to any Hazardous Discharge or violation of Environmental
Laws affecting such Real Property or its interest therein (any of
the foregoing is referred to herein as an "Environmental
Complaint") from any Person, including any state agency
responsible in whole or in part for environmental matters in the
state in which such Real Property is located or the United States
Environmental Protection Agency (any such person or entity
hereinafter the "Authority"), then Borrower or ▇▇▇▇▇, as the case
may be, shall, within five (5) Business Days, give written notice
of same to Lender detailing facts and circumstances of which it
is aware giving rise to the Hazardous Discharge or Environmental
Complaint. Such information is to be provided to allow Lender to
protect its security interest in the Real Property and is not
intended to create nor shall it create any obligation upon Lender
with respect thereto.
(e) Each of Borrower and ▇▇▇▇▇ shall promptly forward
to Lender copies of any request for information, notification of
potential liability, demand letter relating to potential
responsibility with respect to the investigation or cleanup of
Hazardous Substances at any other site owned, operated or used by
it to dispose of Hazardous Substances and shall continue to
forward copies of correspondence between it and the Authority
regarding such claims to Lender until the claim is settled. Each
of Borrower and ▇▇▇▇▇ shall promptly forward to Lender copies of
all documents and reports concerning a Hazardous Discharge at any
Real Property owned, operated or used by it that it is required
to file under any Environmental Laws. Such information is to be
provided solely to allow Lender to protect Lender's security
interest in the Real Property and the Collateral.
(f) Each of Borrower and ▇▇▇▇▇ shall respond promptly
to any Hazardous Discharge or Environmental Complaint and take
all necessary action in order to safeguard the health of any
Person and to avoid subjecting the Collateral or Real Property to
any Lien. If Borrower or ▇▇▇▇▇ shall fail to respond promptly to
any Hazardous Discharge or Environmental Complaint or if Borrower
or ▇▇▇▇▇ shall fail to comply with any of the requirements of any
Environmental Laws, Lender may, but without the obligation to do
so, for the sole purpose of protecting its interest in
Collateral: (A) give such notices or (B) enter onto the Real
Property (or authorize third parties to enter onto the Real
Property) and take such actions as Lender (or such third parties
as directed by Lender) deem reasonably necessary or advisable, to
clean up, remove, mitigate or otherwise deal with any such
Hazardous Discharge or Environmental Complaint. All reasonable
costs and expenses incurred by Lender (or such third parties) in
the exercise of any such rights, including any sums paid in
connection with any judicial or administrative investigation or
proceedings, fines and penalties, together with interest thereon
from the date expended at the Default Rate shall be paid upon
demand by Borrower, and until paid shall be added to and become a
part of the Obligations secured by the Liens created by the terms
of this Agreement or any other agreement between Lender and
Borrower.
(g) Promptly upon the written request of Lender from
time to time, each of Borrower and ▇▇▇▇▇ shall provide Lender, at
its expense, with an environmental site assessment or
environmental audit report prepared by an environmental
engineering firm acceptable in the reasonable opinion of Lender,
to assess with a reasonable degree of certainty the existence of
a Hazardous Discharge and the potential costs in connection with
abatement, cleanup and removal of any Hazardous Substances found
on, under, at or within any Real Property owned, operated or used
by it. Any report or investigation of such Hazardous Discharge
proposed and acceptable to an appropriate Authority that is
charged to oversee the clean-up of such Hazardous Discharge shall
be acceptable to Lender. If such estimates, individually or in
the aggregate, exceed $100,000, Lender shall have the right to
require Borrower or ▇▇▇▇▇ to post a bond, letter of credit or
other security reasonably satisfactory to Lender to secure
payment of these costs and expenses.
(h) Each of Borrower and ▇▇▇▇▇ shall defend and
indemnify Lender and hold it and its employees, agents, directors
and officers harmless from and against all loss, liability,
damage and expense, claims, costs, fines and penalties, including
attorney's fees, suffered or incurred by Lender under or on
account of any Environmental Laws, including, without limitation,
the assertion of any lien thereunder, with respect to any
Hazardous Discharge, the presence of any Hazardous Substances
affecting any Real Property, whether or not the same originates
or emerges from such Real Property or any contiguous real estate,
including any loss of value of the Real Property as a result of
the foregoing except to the extent such loss, liability, damage
and expenses is attributable to any Hazardous Discharge resulting
from actions on the part of Lender. The obligations of Borrower
and ▇▇▇▇▇ under this Section 4.18 shall arise upon the discovery
of the presence of any Hazardous Substances at any Real Property
owned, operated or used by it, whether or not any federal, state,
or local environmental agency has taken or threatened any action
in connection with the presence of any Hazardous Substances. The
obligations and the indemnifications of Borrower and ▇▇▇▇▇ under
this Section 4.18 shall survive the termination of this
Agreement.
(i) It is expressly understood and agreed that, with
respect to any Real Property which is leased by Borrower,
Borrower shall only be responsible for compliance with those
Environmental Laws which are applicable to Borrower as tenant or
lessee of such Real Property, and nothing in this Section 4.18
shall be construed as requiring Borrower to perform or observe
any obligations or duties which, under applicable Environmental
Laws, are imposed solely on the owner of such Real Property.
4.19. No Filings. Except for (i) financing statements
filed by Lender, (ii) the financing statements described on
Schedule 1.2(b) attached hereto (Permitted Encumbrances) and
(iii) the financing statements described on Schedule 4.19
attached hereto (all of which are to be terminated as of the
Closing or within sixty (60) days thereafter, as provided in
Section 8.4(h)), no financing statement covering any of the
Collateral or any proceeds thereof is on file in any public
office.
4.20. Insurance Policies; Assignment of Insurance.
Borrower will at all times during the Term maintain one or more
"key man" life insurance policies, in the aggregate face amount
of at least $2,000,000, insuring the life of ▇▇▇▇▇, and one of
more disability insurance policies providing for payment of a
single benefit in the aggregate face amount of at least
$1,000,000 in the event ▇▇▇▇▇ is disabled for a period of twelve
(12) consecutive months (collectively, the "Insurance Policies").
Each of the Insurance Policies shall name Lender as the sole
beneficiary thereof and shall be assigned to Lender pursuant to
the Assignment of Insurance as additional collateral security for
the Obligations. In the event ▇▇▇▇▇ should die or become disabled
for a period of twelve (12) consecutive months before all
Obligations have paid to Lender, Borrower may place the proceeds
of any applicable Insurance Policies in a cash collateral account
to secure the Obligations or, at the option of Lender, may apply
such proceeds as a payment on the Term Note. In order to provide
Lender with valid assignments of the Insurance Policies, Borrower
shall: (i) at the Closing or within sixty (60) days thereafter,
deliver the originals of each of the Insurance Policies to
Lender, (ii) execute and deliver to Lender the Assignment of
Insurance, together with such life insurance questionnaires and
other related documents as Lender may reasonably request, and
(iii) at its sole expense, upon the request of Lender, promptly
execute and deliver, or cause to be executed and delivered, to
Lender, such additional assignments and other documents, and do
such other acts and things with respect to the Insurance
Policies, as Lender may reasonably deem necessary or advisable to
protect or perfect its interest in the Insurance Policies.
4.21. Assignment of Lease. Borrower shall assign to
Lender as additional collateral security all of Borrower's
leasehold interests and rights under the Lease, such assignment
to be effective at the option of Lender upon the occurrence of
any Event of Default and notification by Lender to Landlord. In
order to provide Lender with a valid default assignment of the
Lease, Borrower shall: (i) at the Closing, deliver the Assignment
of Lease to Lender, duly executed by Borrower and Landlord; and
(ii) from time to time after the Closing, at its sole expense,
promptly execute and deliver, or cause to be executed and
delivered, to Lender such additional instruments, assignments and
other documents, and do such other acts and things with respect
to the Lease, as Lender may reasonably deem necessary or
advisable to protect or perfect its interest in the Lease.
4.22. Pledge of Stock. ▇▇▇▇▇ shall ▇▇▇▇▇ and maintain in
favor of Lender a valid and perfected first priority security
interest in and to all shares of Stock. In order to provide
Lender with a valid and perfected, first priority security
interest in and to the Stock, ▇▇▇▇▇ shall: (i) at the Closing,
execute and deliver the Stock Pledge Agreement, together with
such stock powers or stock assignments as Lender may deem
necessary or advisable; (ii) at ▇▇▇▇▇'▇ sole expense, without any
request from Lender, immediately deliver or cause to be delivered
to Lender, in due form for transfer, all proceeds of the Stock
consisting of promissory notes, instruments, securities or the
like; and (iii) from time to time after the Closing, at ▇▇▇▇▇'▇
sole expense, promptly execute and deliver, or cause to be
executed and delivered, to Lender such additional security
agreements, instruments, assignments, financing statements and
other documents, and do such other acts and things with respect
to the Stock, as Lender may reasonably deem necessary or
advisable to protect or perfect its security interest in the
Stock.
4.23. Mortgage on ▇▇▇▇▇ Farm. ▇▇▇▇▇ shall ▇▇▇▇▇ Lender a
valid mortgage lien on the ▇▇▇▇▇ Farm, which mortgage shall be
subject only to the First Mortgage in favor of the First Mortgage
Lender. In order to provide Lender with a valid and perfected
first mortgage lien on the ▇▇▇▇▇ Farm, ▇▇▇▇▇ shall: (i) at the
Closing, execute and deliver the Mortgage and take or cause to be
taken the actions specified in Section 8.11 hereof; and (ii) from
time to time after the Closing, at ▇▇▇▇▇'▇ sole expense, upon the
request of Lender, promptly execute and deliver, or cause to be
executed and delivered, to Lender such additional instruments,
assignments, financing statements and other documents, and do
such other acts and things with respect to the ▇▇▇▇▇ Farm, as
Lender may reasonably deem necessary or advisable to protect or
perfect its mortgage on the ▇▇▇▇▇ Farm.
4.24. Guaranty. ▇▇▇▇▇ will execute and deliver the
Guaranty to Lender at the Closing and will at all times
absolutely and unconditionally guarantee the prompt payment and
performance of the Obligations. To secure his obligations under
the Guaranty, ▇▇▇▇▇ will assign and pledge to Lender, and grant
Lender a perfected security interest in, the ▇▇▇▇▇ Cash
Collateral Account. Such pledge and security interest shall be
first and prior to all other pledges, security interests and
encumbrances, other than the prior pledge in favor of Chase to
secure Borrower's reimbursement obligations under the letter of
credit issued by Chase pursuant to the Shinyei Agreement.
4.25. Failure to Obtain or Pay Insurance. If Borrower
shall fail to obtain insurance as required by any provision of
this Agreement, including, without limitation, Sections 4.11 and
4.20 hereof, or to keep the same in force, Lender, if Lender so
elects, may obtain such insurance and pay the premium therefor on
Borrower's behalf, and any expenses so paid shall be part of the
Obligations.
4.26. Release of Collateral and Guaranty. At such time
that all liabilities and indebtedness of Borrower to Lender
arising under or evidenced by this Agreement, the Term Note or
any other Loan Documents has been irrevocably paid and discharged
in full, Lender agrees that it will, at Borrower's sole expense,
and notwithstanding that there may then be outstanding other
liabilities, obligations or indebtedness owing by Borrower to
Lender (including obligations under or with respect to the
Warrant or the Clothing Services Agreement), execute such
documents and instruments and do such other acts and things as
may be reasonably necessary in order to: (i) release its security
interest in the Collateral; (ii) terminate all financing
statements signed by Borrower covering the Collateral; (iii)
terminate or release all other official filings relating to the
Collateral; (iv) terminate the Assignment of Insurance; (v)
terminate the Assignment of Lease; (vi) terminate the Guaranty;
(vii) release the ▇▇▇▇▇ Mortgage; and (viii) release its security
interest in the Stock and terminate the Stock Pledge Agreement.
V. REPRESENTATIONS AND WARRANTIES.
Borrower and ▇▇▇▇▇ jointly and severally represent and
warrant to Lender that, at the Closing Date:
5.1. Authority; Enforceability. Borrower has full power,
authority and legal right to enter into this Agreement and each
of the Loan Documents to which it is a party and to perform all
Obligations hereunder and thereunder. The execution, delivery and
performance of this Agreement and each of the Loan Documents to
which Borrower is a party (a) are within Borrower's corporate
powers, have been duly authorized, are not in contravention of
law or the terms of Borrower's by-laws, certificate of
incorporation or other applicable documents relating to
Borrower's formation or to the conduct of Borrower's business or
of any material agreement or undertaking to which Borrower is a
party or by which Borrower is bound, and (b) will not conflict
with nor result in any breach in any of the provisions of or
constitute a default under or result in the creation of any Lien
(except in favor of Lender) upon any asset of Borrower under the
provisions of any agreement, charter document, instrument, by-
law, of other instrument to which Borrower or its property is a
party or by which it may be bound. This Agreement and each of the
Loan Documents to which Borrower is a party have been duly
executed on behalf of Borrower and delivered to Lender and
constitute valid and legally binding obligations of Borrower,
enforceable in accordance with their respective terms, except as
enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium and similar laws of general
application relating to or affecting the rights and remedies of
creditors, or by general principles of equity (regardless of
whether such enforceability is considered in a proceeding in
equity or at law).
5.2. Formation and Qualification.
(a) Borrower is duly incorporated and in good standing
under the laws of the State of New York and is qualified to do
business and is in good standing in the states listed on Schedule
5.2(a) attached hereto, which constitute all states in which
qualification and good standing are necessary for Borrower to
conduct its business and own its property and where the failure
to so qualify would have a material adverse effect on Borrower or
its business. Borrower has delivered to Lender true and complete
copies of its certificate of incorporation and by-laws and will
promptly notify Lender of any amendment or changes thereto.
(b) The only Subsidiary of Borrower is Euro-Linea.
Euro-Linea is defunct, does not engage in any business activities
or operations, and has no assets.
5.3. Tax Returns. Borrower's federal tax identification
number is ▇▇-▇▇▇▇▇▇▇. Borrower has filed all federal, state and
local tax returns and other reports it is required by law to file
and has paid all taxes, assessments, fees and other governmental
Charges that are due and payable. Federal, state and local income
tax returns of Borrower have been examined and reported upon by
the appropriate taxing authority or closed by applicable statute
and satisfied for all fiscal years prior to and including the
fiscal year ending December 31, 1995. The provision for taxes on
the books of Borrower, as reflected in the financial statements
referred to in Section 5.4(a) hereof, is adequate for all years
not closed by applicable statutes and for its current fiscal
year, and Borrower has no knowledge of any deficiency or
additional assessment in connection therewith not provided for on
its books.
5.4. Financial Statements.
(a) The audited financial statements of Borrower for
the fiscal year ended December 31, 1995, and the interim
unaudited financial statements of Borrower for the nine (9)
months ended September 30, 1996, copies of which have been
furnished to Lender, were prepared in conformity with GAAP, are
correct and complete in all material respects, and fairly present
the financial position of Borrower as of the respective dates
thereof. There has occurred no material adverse change in the
financial position of Borrower from the last effective dates of
such financial statements to the date of this Agreement. Borrower
does not have (i) any Indebtedness which is not reflected in such
financial statements, but which, under GAAP, was required to be
so reflected, or (ii) any unusual or long-term commitments or any
unrealized or anticipated losses from any commitments which are
not reflected in such financial statements.
(b) The pro forma balance sheet of Borrower (the "Pro
Forma Balance Sheet") furnished to Lender on the Closing Date
reflects the balance sheet of Borrower as at September 30, 1996,
as adjusted to give effect to the consummation of the
transactions contemplated under this Agreement and fairly
reflects the financial position of Borrower as of the Closing
Date after giving effect to such transactions.
(c) The Projections (i.e., cash flow projections of
Borrower and its projected balance sheets and profit and loss
statements) for the fiscal years ending December 31, 1996 and
1997, respectively, copies of which are attached hereto as
Schedule 5.4(c), were prepared by Borrower, were reviewed by
▇▇▇▇▇ and by Consultant, and are based on underlying assumptions
which provide a reasonable basis for the projections contained
therein and reflect Borrower's judgment based on present
circumstances of the most likely set of conditions and course of
action for the projected period. As at the Closing Date, Borrower
is in compliance with the Projections for the fiscal year ending
December 31, 1996, in all material respects. Borrower understands
that (i) the provisions of Section 8.18 and 9.12 hereof
(providing that the Projections must be satisfactory to Lender)
are solely for the benefit of Lender, (ii) by accepting or
approving any Projections, Lender is not assuming any
responsibility to Borrower for the accuracy or validity of the
Projections (or the correctness of the assumptions or methodology
underlying the Projections), and (iii) Lender is not in any
manner assuring or guaranteeing Borrower that any Projections
will actually be achieved or that the Clothing Services
Commissions actually earned by Borrower will be equal to those
set forth in any Projections.
5.5. Corporate Name. Borrower has not been known by any
other corporate name in the past five years and does not conduct
business under any trade name or other name. Borrower has not
during the preceding five (5) years been a party to any merger or
consolidation or acquired all or substantially all of the assets
of any Person.
5.6. O.S.H.A. and Environmental Compliance.
(a) Borrower has duly complied with, and its
facilities, business, assets, property, leaseholds and Equipment
are in compliance in all material respects with, the provisions
of the Federal Occupational Safety and Health Act, the
Environmental Protection Act, RCRA and all other Environmental
Laws; there have been no outstanding citations, notices or orders
of non-compliance issued to Borrower or relating to its business,
assets, property, leaseholds or equipment under any such laws,
rules or regulations.
(b) Borrower has been issued all required federal,
state and local licenses, certificates or permits relating to all
applicable Environmental Laws.
(c) With respect to Hazardous Substances: (i) there
are no visible signs of releases, spills, discharges, leaks or
disposal (collectively referred to as "Releases") of Hazardous
Substances at, upon, under or within any Real Property; (ii)
there are no underground storage tanks or polychlorinated
biphenyls on any Real Property; (iii) none of the Real Property
has ever been used as a treatment, storage or disposal facility
of Hazardous Waste; and (iv) no Hazardous Substances are present
on any Real Property, excepting such quantities as are handled in
accordance with all applicable manufacturer's instructions and
governmental regulations and in proper storage containers and as
are necessary for the operation of the commercial business of
Borrower.
5.7. No Litigation or Default.
(a) Except as disclosed in Schedule 5.7 attached
hereto, there is no pending or threatened lawsuit, action or
proceeding (including any arbitration proceeding) against
Borrower or involving any of its assets or properties which, if
adversely decided, would in any manner materially and adversely
affect its business, assets, operations, condition or prospects,
financial or otherwise, or the Collateral, or the ability of
Borrower to perform this Agreement.
(b) Schedule 5.7(b) attached hereto sets forth a
complete and accurate list of all outstanding or unsatisfied
judgments, writs, orders, decrees and injunctions against
Borrower or affecting any portion of the Collateral or any other
of Borrower=s assets and properties (collectively, the
AUnsatisfied Judgments@). Each Unsatisfied Judgment (and any
judgment Lien resulting therefrom) either (i) will be satisfied
and released as of the Closing or within sixty (60) days
thereafter, as provided in Section 8.4(h), or (ii) has been
stayed or bonded on appeal and adequate reserves therefor have
been taken in conformity with GAAP and are reflected in the
financial statements referred to in Section 5.4(a) hereof.
(c) Borrower is not in violation of any applicable
statute, regulation or ordinance in any respect materially and
adversely affecting the Collateral or its business, assets,
operations or condition (financial or otherwise), or prospects,
nor is Borrower in violation of any order of any court,
Governmental Authority or arbitration board or tribunal.
5.8. ERISA Plans. Neither Borrower nor any member of the
Controlled Group maintains or contributes to any Plan other than
those listed on Schedule 5.8 attached hereto. Except as set
forth in Schedule 5.8 attached hereto, (i) no Plan has incurred
any "accumulated funding deficiency," as defined in Section
302(a)(2) of ERISA and Section 412(a) of the Code, whether or not
waived, and Borrower and each member of the Controlled Group has
met all applicable minimum funding requirements under Section 302
of ERISA in respect of each Plan, (ii) each Plan which is
intended to be a qualified plan under Section 401(a) of the Code
as currently in effect has been determined by the Internal
Revenue Service to be qualified under Section 401(a) of the Code
and the trust related thereto is exempt from federal income tax
under Section 501(a) of the Code, (iii) neither Borrower nor any
member of the Controlled Group has incurred any liability to the
PBGC other than for the payment of premiums, and there are no
premium payments which have become due which are unpaid, (iv) no
Plan has been terminated by the plan administrator thereof or by
the PBGC, and there is no occurrence which would cause the PBGC
to institute proceedings under Title IV of ERISA to terminate any
Plan, (v) as of the date of this Agreement, the current value of
the assets of each Plan exceeds the present value of the accrued
benefits and other liabilities of such Plan and neither Borrower
nor any member of the Controlled Group knows of any facts or
circumstances which would materially change the value of such
assets and accrued benefits and other liabilities, (vi) neither
Borrower nor any member of the Controlled Group has breached any
of the responsibilities, obligations or duties imposed on it by
ERISA with respect to any Plan, (vii) neither Borrower nor any
member of a Controlled Group has incurred any liability for any
excise tax arising under Section 4972 or 4980B of the Code, and
no fact exists which could give rise to any such liability,
(viii) neither Borrower nor any member of the Controlled Group
nor any fiduciary of, nor any trustee to, any Plan, has engaged
in a "prohibited transaction" described in Section 406 of the
ERISA or Section 4975 of the Code nor taken any action which
would constitute or result in a Termination Event with respect to
any such Plan which is Subject to ERISA, (ix) Borrower and each
member of the Controlled Group has made all contributions due and
payable with respect to each Plan, (x) there exists no event
described in Section 4043(b) of ERISA, for which the thirty (30)
day notice period contained in 29 C.F.R. 2615.3 has not been
waived, (xi) neither Borrower nor any member of the Controlled
Group has any fiduciary responsibility for investments with
respect to any plan existing for the benefit of persons other
than employees or former employees of Borrower and any member of
the Controlled Group, and (xii) neither Borrower nor any member
of the Controlled Group has withdrawn, completely or partially,
from any Multiemployer Plan so as to incur liability under the
Multiemployer Pension Plan Amendments Act of 1980.
5.9. Patents, Trademarks, Copyrights and Licenses. All
patents, patent applications, service marks, service ▇▇▇▇
applications, copyrights, copyright applications, design rights,
tradenames, assumed names, trade secrets and licenses owned or
utilized by Borrower are set forth on Schedule 5.9 attached
hereto, are valid and have been duly registered or filed with all
appropriate governmental authorities and constitute all of the
intellectual property rights which are necessary for the
operation of its business; there is no objection to or pending
challenge to the validity of any such material patent, trademark,
copyright, design rights tradename, trade secret or license and
Borrower is not aware of any grounds for any challenge, except as
set forth in Schedule 5.9 attached hereto. Each patent, patent
application, patent license, trademark, trademark application,
trademark license, service ▇▇▇▇, service ▇▇▇▇ application,
service ▇▇▇▇ license, copyright, copyright application and
copyright license owned or held by Borrower, and each trade
secret used by Borrower, consists of original material or
property developed by Borrower or was lawfully acquired by
Borrower from the proper and lawful owner thereof. Each of such
items has been maintained so as to preserve the value thereof
from the date of creation or acquisition thereof. With respect to
all software used by Borrower, Borrower is in possession of all
source and object codes related to each piece of software or is
the beneficiary of a source code escrow agreement, each such
source code escrow agreement being listed on Schedule 5.9
attached hereto.
5.10. Licenses and Permits. Except as set forth in
Schedule 5.10 attached hereto, Borrower (a) is in compliance with
and (b) has procured and is now in possession of, all material
licenses and permits required by any applicable federal, state or
local law or regulation for the operation of its business in each
jurisdiction wherein it is now conducting or proposes to conduct
business and where the failure to procure such licenses or
permits would have a material adverse effect on the business,
properties, condition (financial or otherwise) or operations,
present or prospective, of Borrower.
5.11. Default of Indebtedness. Borrower is not in
default in the payment of the principal of or interest on any
Indebtedness or under any instrument or agreement under or
subject to which any Indebtedness has been issued and no event
has occurred under the provisions of any such instrument or
agreement which with or without the lapse of time or the giving
of notice, or both, constitutes or would constitute an event of
default thereunder.
5.12. No Default. Borrower is not in default in the
payment or performance of any of its contractual obligations.
5.13. No Burdensome Restrictions. Except as set forth in
Schedule 5.13 attached hereto, Borrower is not party to any
contract or agreement the performance of which would materially
adversely affect the business, assets, operations, condition
(financial or otherwise) or prospects of Borrower. Borrower has
not agreed or consented to cause or permit in the future (upon
the happening of a contingency or otherwise) any of its property,
whether now owned or hereafter acquired, to be subject to a Lien
which is not a Permitted Encumbrance.
5.14. No Labor Disputes. Borrower is not involved in
any labor dispute, and there are no strikes or walkouts or union
organization of any of Borrower's employees threatened or in
existence. Borrower is not party to any labor contract or
collective bargaining agreement with any of its employees or any
union representing any of its employees.
5.15. Margin Regulations. Borrower is not engaged, nor
will it engage, principally or as one of its important
activities, in the business of extending credit for the purpose
of "purchasing" or "carrying" any "margin stock" within the
respective meanings of each of the quoted terms under Regulation
U or Regulation G of the Board of Governors of the Federal
Reserve System as now and from time to time hereafter in effect.
No part of the proceeds of any advance under the Existing Note
was or will be used for "purchasing" or "carrying" "margin stock"
as defined in Regulation U of such Board of Governors or for any
other purpose which might cause the Term Loan to be considered a
"purpose credit" within the meaning of Regulation G, T, U or X of
such Board of Governors.
5.16. Investment Company Act. Borrower is not an
"investment company" registered or required to be registered
under the Investment Company Act of 1940, as amended, nor is it
controlled by such a company.
5.17. Disclosure. No representation or warranty made by
Borrower in this Agreement or in any financial statement, report,
certificate or any other document furnished in connection
herewith contains any untrue statement of a material fact or
omits to state any material fact necessary to make the statements
herein or therein not misleading. There is no fact known to
Borrower or which reasonably should be known to Borrower which
Borrower has not disclosed to Lender in writing with respect to
the transactions contemplated by this Agreement which materially
and adversely affects the condition (financial or otherwise),
results of operations, business, or assets of Borrower.
5.18. Swaps. Borrower is not a party to, nor will it be
a party to, any swap agreement whereby Borrower has agreed or
will agree to swap interest rates or currencies.
5.19. Conflicting Agreements. No provision of any
mortgage, indenture, contract, agreement, judgment, decree or
order binding on Borrower or affecting the Collateral conflicts
with, or requires any Consent which has not already been obtained
or which, if not obtained, would in any way prevent the
execution, delivery or performance of, the terms of this
Agreement or any of the Loan Documents.
5.20. Application of Certain Laws and Regulations.
Neither Borrower nor any Affiliate of Borrower is subject to any
statute, rule or regulation which regulates the incurrence of any
Indebtedness, including without limitation, statutes or
regulations relative to common or interstate carriers or to the
sale of electricity, gas, steam, water, telephone, telegraph or
other public utility services.
5.21. Business and Property of Borrower. During the
Term, Borrower does not propose to engage in any business other
than that engaged in by Borrower on the Closing Date and
activities necessary to conduct such business. On the Closing
Date, Borrower will own all the property and possess all of the
rights and Consents necessary for the conduct of the business of
Borrower.
5.22. Liens. Except for (i) Permitted Encumbrances,
(ii) financing statements disclosed on Schedule 4.19 attached
hereto, and (iii) Unsatisfied Judgments (and judgment Liens
arising therefrom) disclosed on Schedule 5.7(b) attached hereto,
there are no Liens, Claims or Charges in existence with respect
to the Collateral or any other assets or property of Borrower.
Borrower does not have any other loans, extensions of credit,
reimbursement obligations or other indebtedness or obligations,
whether absolute or contingent, due and owing (or to become due
and owing) to Chase which are secured in whole or in part by the
Collateral, nor has Borrower entered into any commitments with
Chase for any of the foregoing.
5.23. No Defenses. Borrower has no defense, counterclaim
or offset with respect to the Existing Loan Agreement or the
Existing Note or any of the Obligations thereby evidenced. There
are no commitments or obligations of Chase to Borrower which are
outstanding or unsatisfied under the Existing Loan Agreement and
for which Lender will have or will assume responsibility or
liability, and Borrower hereby expressly releases Lender from any
responsibility or liability for any outstanding commitments or
obligations of Chase to Borrower existing as of the Closing Date.
5.24. Concerning the First Mortgage. The indebtedness
secured by the First Mortgage is current and has a balance of
$1,072,526.72, bearing interest at 9.875% per annum, is due on
July 1, 2019, and requires monthly payments of principal and
interest in the amount of $10,055.35.
5.25. Survival of Representations and Warranties. All
representations and warranties of Borrower contained in this
Agreement and the Loan Documents shall survive the execution,
delivery and acceptance thereof by the parties hereto and thereto
and the closing of the transactions described herein or related
thereto.
VI. AFFIRMATIVE COVENANTS.
Borrower shall, until payment in full of the Obligations and
termination of this Agreement (unless Lender shall otherwise
consent in writing):
6.1. Conduct of Business and Maintenance of Existence and
Assets.
(a) Conduct continuously and operate actively its
business according to good business practices and maintain all of
its properties useful or necessary in its business in good
working order and condition (reasonable wear and tear excepted
and except as may be disposed of in accordance with the terms of
this Agreement), including, without limitation, all licenses,
patents, copyrights, design rights, tradenames, trade secrets and
trademarks and take all actions necessary to enforce and protect
the validity of any intellectual property right or other right
included in the Collateral.
(b) Keep in full force and effect its existence and
comply in all material respects with the laws and regulations
governing the conduct of its business.
(c) Make all such reports and pay all such franchise
and other taxes and license fees and do all such other acts and
things as may be lawfully required to maintain its rights,
licenses, leases, powers and franchises under the laws of the
United States of America or any political subdivision thereof.
6.2. Payment of Indebtedness. Pay, discharge or otherwise
satisfy at or before maturity (subject, where applicable, to
specified grace periods, and in the case of the trade payables,
to normal payment practices) all its obligations and liabilities
of whatever nature, except when the amount or validity thereof is
currently being contested in good faith by appropriate
proceedings and Borrower shall have provided for such reserves as
Lender may reasonably deem proper and necessary, subject at all
times to any applicable subordination arrangement in favor of
Lender.
6.3. Violations. Promptly notify Lender in writing of any
violation of any law, statute, regulation or ordinance of any
governmental entity, or of any agency thereof, applicable to
Borrower which may materially and adversely affect the Collateral
or Borrower's business, assets, operations, condition (financial
or otherwise) or prospects.
6.4. Books and Records. Maintain books and records and
administer a system of accounting in accordance with sound
business practices sufficient to permit the preparation of
financial statements in conformity with GAAP. Lender shall have
the right to examine and copy such books and records at
Borrower's expense, and to discuss the affairs, operations,
finances and accounts of Borrower with Borrower's officer and
directors, during business hours and upon reasonable notice.
6.5 Field Audits; Inspection. Permit Lender, through its
authorized representatives, to conduct periodic field audits of
Borrower and to review Borrower=s operations, books and records,
accounts receivable methods and controls, credit policies,
chargeoff policies, collection procedures, compliance with
applicable laws, and other matters relating to the value and
maintenance of the Receivables and other Collateral and
Borrower's financial reporting. Borrower shall pay to Lender (i)
all reasonable out-of-pocket expenses, costs and disbursements,
not to exceed $5,000, for each field audit conducted by Lender,
and (ii) all reasonable out-of-pocket expenses, costs and
disbursements incurred by Lender in connection with any other
monitoring of the Collateral determined by Lender in its
reasonable discretion to be necessary.
6.6. Execution of Supplemental Instruments. Execute and
deliver to Lender from time to time, upon demand, such
supplemental agreements, instruments, documents, statements,
assignments, transfers and instructions as Lender may from time
to time reasonably request to carry out the purposes, terms and
conditions of this Agreement.
6.7 Payment of Term Loan. Pay all principal and interest on
the Term Loan according to the reading, tenor and effect of this
Agreement and the Term Note and do and perform every act and
discharge every obligation provided to be performed or discharged
by Borrower under this Agreement or the Loan Documents at the
time or times and in the manner therein specified.
6.8. Reimbursement of Expenses. Pay to Lender on demand all
costs and expenses, including, without limitation, reasonable
attorneys' fees and disbursements, survey costs, appraisal fees
and filing fees, incurred by Lender (a) in connection with the
negotiation, preparation and Closing of this Agreement and the
consummation of the transactions contemplated hereby, or (b) in
connection with the purchase of the Existing Note from Chase, or
(c) in connection with all efforts made to enforce payment of any
Obligation or effect collection of any Collateral, or (d) in
connection with the entering into, modification, amendment,
administration and enforcement of this Agreement or any consents
or waivers hereunder and all related agreements, documents and
instruments, or (e) in instituting, maintaining, preserving,
enforcing and foreclosing on Lender's security interest in or
Lien on any of the Collateral, whether through judicial
proceedings or otherwise, or (f) in defending or prosecuting any
actions or proceedings arising out of or relating to Lender's
transactions with Borrower, or (g) in connection with any advice
given to Lender with respect to its rights and obligations under
this Agreement and all related agreements; provided, however,
that the total attorneys' fees to be reimbursed by Borrower
pursuant to the foregoing clauses (a) and (b) shall not in any
event exceed $45,000. In addition, Borrower agrees to pay to
Lender on demand the fees and expenses of Lender=s auditing firm,
if such auditors require any examination or audit of Borrower in
order to assess the value and collectibility of the Term Loan.
All costs and expenses to be paid by Borrower pursuant to this
Section 6.8 shall be payable upon demand and, until paid to
Lender, shall be part of the Obligations. Lender shall have the
right to effectuate payment of any amounts due and owing
hereunder by offsetting amounts due from Lender to Borrower,
including amounts which may be owing by Lender to Borrower under
the Clothing Services Agreement.
6.9. Standards of Financial Statements. Cause all financial
statements referred to in Sections 9.1, 9.2, 9.3, 9.4 and 9.5 as
to which GAAP is applicable to be complete and correct in all
material respects (subject, in the case of interim financial
statements, to normal year-end audit adjustments) and to be
prepared in reasonable detail and in accordance with GAAP applied
consistently throughout the periods reflected therein (except as
concurred in by the Accountants or Borrower's Chief Financial
Officer, as the case may be, and disclosed therein).
VII. NEGATIVE COVENANTS.
Borrower shall not, until satisfaction in full of the
Obligations and termination of this Agreement (unless Lender
shall otherwise consent in writing):
7.1. Merger, Consolidation, Acquisition and Sale of Assets.
(a) Enter into any merger, consolidation or other
reorganization with or into any other Person or acquire all or a
substantial portion of the assets or stock of any Person or
permit any other Person to consolidate with or merge with it.
(b) Sell, lease, transfer or otherwise dispose of any
of its properties or assets, except in the ordinary course of its
business and in accordance with the provisions of Section 4.3.
7.2. Creation of Liens. Create or suffer to exist any Lien,
Charge, Claim or transfer upon or against any of its property or
assets now owned or hereafter acquired, including, without
limitation, the Collateral and all Inventory, except Permitted
Encumbrances.
7.3. Guarantees. Become liable for the Indebtedness of any
Person by assumption, endorsement or guaranty thereof or
otherwise (other than to Lender in connection with the
transactions contemplated by this Agreement), except the
endorsement of checks in the ordinary course of business.
7.4. Investments. Purchase or acquire obligations or
stock of, or any other interest in, any Person, except (a)
obligations issued or guaranteed by the United States of America
or any agency thereof, provided that such obligations mature no
later than one year from the date of the acquisition thereof, (b)
commercial paper with maturities of not more than 180 days and a
published rating of not less than A-1 or P-1 (or the equivalent
rating), (c) certificates of time deposit and bankers'
acceptances and other short-term direct obligations having
maturities of not more than 180 days of any commercial bank if
such bank has a combined capital and surplus of at least
$500,000,000 and (d) U.S. money market mutual funds having assets
in excess of $2.0 billion.
7.5. Loans.
(a) Make or permit to be outstanding any advances,
loans or extensions of credit to any Person, including, without
limitation, ▇▇▇▇▇ or any Subsidiary or Affiliate, other than (i)
Receivables arising from sales of Inventory in the ordinary
course of business, (ii) loans to employees of Borrower (other
than ▇▇▇▇▇) which do not exceed $10,000 per employee or $30,000
in the aggregate, and (iii) the ▇▇▇▇▇ Loan.
(b) Waive or forgive any payment due from ▇▇▇▇▇ under
the ▇▇▇▇▇ Note, ▇▇▇▇▇ ▇▇▇▇▇ any extension of time for payment, or
otherwise failure to collect the ▇▇▇▇▇ Note in accordance with
the repayment schedule set forth in the Employment Agreement.
7.6. Capital Expenditures. Contract for, purchase or make
any Capital Expenditures in excess of (i) the aggregate amount of
$150,000 in any fiscal year, and (ii) the Capital Expenditures
set forth in the applicable Projections for such fiscal year and
approved by Lender.
7.7. Dividends. Declare, pay or make any dividend or
distribution on any shares of the common stock or preferred stock
of Borrower (other than dividends or distributions payable in its
stock, or split-ups or reclassifications of its stock) or apply
any of its funds, property or assets to the purchase, redemption
or other retirement of any common or preferred stock, or of any
options to purchase or acquire any such shares of common or
preferred stock of Borrower.
7.8. Indebtedness. Create, incur, assume or suffer to exist
any Indebtedness (exclusive of trade debt which is not in default
or past due) of Borrower except in respect of (i) Obligations
owing to Lender; and (ii) Indebtedness incurred for Capital
Expenditures permitted under Section 7.6 hereof, provided that
the aggregate Indebtedness outstanding at any time with respect
to capitalized leases shall not exceed $200,000.
7.9. Nature of Business. Substantially change the nature of
the business in which it is presently engaged or, except as
specifically permitted hereby, purchase or invest, directly or
indirectly, in any assets or property other than in the ordinary
course of business for assets or property which are useful in,
necessary for and are to be used in its business as presently
conducted.
7.10. Transactions with Affiliates. Directly or
indirectly, purchase, acquire or lease any property from, or
sell, transfer or lease any property to, or otherwise deal with,
any Affiliate, except transactions disclosed in the ordinary
course of business, on an arm's-length basis on terms no less
favorable than terms which would have been obtainable from a
Person other than an Affiliate.
7.11. Leases. Enter as lessee into any lease
arrangement for real or personal property (unless capitalized and
permitted under Section 7.6 hereof), except for existing leases
as set forth on Schedule 7.11 attached hereto.
7.12. Subsidiaries and Affiliates.
(a) Form or acquire any Subsidiary or Affiliate.
(b) Transfer any assets or properties to Euro-Linea or
permit Euro-Linea to engage in any business activity.
(c) Enter into any partnership, joint venture or
similar arrangement.
7.13. Fiscal Year and Accounting Chances. Change its
fiscal year from December 31 or make any change (i) in accounting
treatment and reporting practices except as required by GAAP or
(ii) in tax reporting treatment except as required by law.
7.14. Pledge of Credit. Now or hereafter pledge
Lender's credit on any purchases or for any purpose whatsoever.
7.15. Amendment of Articles of Incorporation, By-Laws.
Amend, modify or waive any term or material provision of its
Articles of Incorporation or By-Laws unless required by law.
7.16. Compliance with ERISA.
(a) Maintain, or permit any member of the Controlled
Group to maintain, or become obligated to contribute, or permit
any member of the Controlled Group to become obligated to
contribute, to any Plan, other than those Plans disclosed on
Schedule 5.8 attached hereto.
(b) Engage, or permit any member of the Controlled
Group to engage, in any non-exempt "prohibited transaction," as
that term is defined in section 406 of ERISA and Section 4975 of
the Code.
(c) Incur, or permit any member of the Controlled
Group to incur, any "accumulated funding deficiency," as that
term is defined in Section 302 of ERISA or Section 412 of the
Code.
(d) Terminate, or permit any member of the Controlled
Group to terminate, any Plan where such event could result in any
liability of Borrower or any member of the Controlled Group or
the imposition of a lien on the property of Borrower or any
member of the Controlled Group pursuant to Section 4068 of ERISA.
(e) Assume, or permit any member of the Controlled
Group to assume, any obligation to contribute to any
Multiemployer Plan not disclosed on Schedule 5.8 attached hereto.
(f) Incur, or permit any member of the Controlled
Group to incur, any withdrawal liability to any Multiemployer
Plan.
(g) Fail promptly to notify Lender of the occurrence
of any Termination Event.
(h) Fail to comply, or permit a member of the
Controlled Group to fail to comply, with the requirements of
ERISA or the Code or other applicable laws in respect of any
Plan.
(i) Fail to meet, or permit any member of the
Controlled Group to fail to meet, all minimum funding
requirements under ERISA or the Code or postpone or delay or
allow any member of the Controlled Group to postpone or delay any
funding requirement with respect of any Plan.
7.17. Prepayment of Indebtedness. At any time, directly
or indirectly, prepay any Indebtedness (other than to Lender), or
repurchase, redeem, retire or otherwise acquire any Indebtedness
of Borrower other than with the prior written consent of Lender.
7.18. Net Income. Permit its Net Income to be less than
zero ($0) in any fiscal year.
7.19 Current Assets. Permit the sum of cash on hand plus
Eligible Receivables at any time to be less than the amount set
forth below for the applicable period:
Period Amount
Closing Date through
$1,000,000.00
May 31, 1997
June 1, 1997, through $
750,000.00
July 30, 1997
At July 31, 1997
$1,200,000.00
August 1, 1997, and thereafter
$1,500,000.00
Borrower may include in the calculation of cash for purposes of
this Section 7.19 the balance of the ▇▇▇▇▇ Cash Collateral
Account, less any portion as to which Chase has priority.
7.20. Amendment of Certain Agreements. Enter into any
amendment, modification, waiver or termination of the Consulting
Agreement, the ▇▇▇▇▇ Employment Agreement or the ▇▇▇▇▇ Note, or
enter into any amendment, modification or waiver of the CIT
Agreement.
7.21. Executive Compensation. Pay total compensation
(including salaries, fees and bonuses), directly or indirectly,
in money or otherwise, contrary to the provisions of the ▇▇▇▇▇
Employment Agreement.
7.22. Compliance With Projections. Fail to comply with
any Projections submitted hereunder during the relevant time
period covered by such Projections.
VIII. CONDITIONS PRECEDENT.
The agreement of Lender to restructure the Obligations under
the Existing Note is subject to the satisfaction, or waiver by
Lender, immediately prior to or concurrently with the Closing
(except as provided in Section 8.4(g) and (h) hereof), of all of
the following conditions precedent:
8.1. Execution and Delivery of Loan Documents. Lender shall
have received originals of each of the following, each dated as
of the Closing Date and duly executed and acknowledged (where
necessary) by each of the appropriate parties thereto:
(a) this Agreement;
(b) the Term Note;
(c) the Assignment of Lease;
(d) the Assignment of Insurance;
(e) the Guaranty, together with a pledge agreement (or
other comparable instrument) covering the ▇▇▇▇▇ Cash Collateral
Account;
(f) the ▇▇▇▇▇ Forbearance Agreement, in form and
substance satisfactory to Lender in its sole discretion;
(g) the Mortgage;
(h) the Stock Pledge Agreement;
(i) the First Amendment to Trademark Security
Agreement; and
(j) all other Loan Documents contemplated by this
Agreement.
8.2. Assignments from Chase. Chase shall have (i) assigned
to Lender all of its rights under the Existing Loan Agreement,
the Existing Note and other Original Agreements pursuant to an
instrument of assignment in form and content reasonably
satisfactory to Lender, (ii) delivered to Lender the original of
the Existing Note, endorsed without recourse to Lender, (iii)
delivered to Lender originals or copies certified to be true and
correct of the Existing Loan Agreement and all other Original
Agreements, (iv) executed and delivered to Lender appropriate
assignments on Form UCC-3 of all UCC financing statements on file
in any filing office naming Borrower as debtor and Chase (or any
of its predecessors) as secured party, (v) executed and delivered
to Assignment of Security for filing in the U.S. Patent and
Trademark Office, (vi) executed and delivered to Lender an
Assignment of Collateral Assignment of Life Insurance Policy with
respect to the Insurance Policy previously assigned to Chase, and
(vii) executed and delivered to Lender an Assignment of Judgment
with respect to the ▇▇▇▇▇ Judgment, and (viii) executed and
delivered to Lender such other assignments and instruments, in
form and content reasonably satisfactory to Lender, of any other
Original Agreements as Lender may reasonably request.
8.3. Issuance of Warrant. Borrower shall have duly issued
and delivered the Warrant to Lender.
8.4. Perfection, Filings, Registrations and Recordings.
(a) Each document (including, without limitation, any
UCC financing statement) required by this Agreement, any related
agreement or under law or reasonably requested by Lender to be
filed, registered or recorded in order to create, in favor of
Lender, a perfected security interest in or lien upon the
Collateral shall have been properly filed, registered or recorded
in each jurisdiction in which the filing, registration or
recordation thereof is so required or requested, and Lender shall
have received an acknowledgment copy, or other evidence
satisfactory to it, of each such filing, registration or
recordation and satisfactory evidence of the payment of any
necessary fee, tax or expense relating thereto.
(b) Lender shall have received certified responses to
search requests reflecting that there are no currently effective
UCC financing statements or tax Liens on file in any applicable
filing office covering any of the Collateral, other than (i) UCC
financing statements in favor of Lender, (ii) UCC financing
statements in favor of Chase which are to be assigned to Lender
at the Closing, and (iii) UCC financing statements disclosed on
Schedule 4.19 attached hereto (all of which shall be terminated
as of the Closing or within sixty (60) days following the Closing
pursuant to Section 8.4(h) hereof).
(c) Lender shall have received satisfactory evidence
that all Unsatisfied Judgments and all judgment Liens arising
therefrom, except for those Unsatisfied Judgments and judgment
Liens to be released within sixty (60) days following the Closing
pursuant to Section 8.4(h) hereof, have either (i) been paid and
satisfied in full and will be released or terminated of record,
or (ii) been stayed or bonded on appeal and adequate reserves
therefor have been taken in conformity with GAAP and are
reflected in the financial statements referred to in Section
5.4(a) hereof.
(d) Lender shall have been provided a true and correct
copy of the Lockbox Agreement.
(e) Lender shall have been provided with satisfactory
evidence that all factoring agreements between Borrower and CIT,
including, without limitation, the Factoring Agreement dated
August 22, 1994, and all related factoring arrangements
contemplated thereby, have been terminated and canceled;
provided, however, that Borrower may enter into the CIT Agreement
as long as the conditions set forth in Section 4.14(j) are
satisfied throughout the Term.
(f) All stock certificates evidencing the Stock,
together with appropriate stock powers or stock assignments
executed in blank by ▇▇▇▇▇, shall have been delivered to Lender.
(g) Each of the Insurance Policies shall have been
issued to Borrower, and the originals of each shall have been
delivered to Lender (or, in the case of the disability Insurance
Policy, the originals shall be delivered to Lender within sixty
(60) days following the Closing).
(h) Within sixty (60) days following the Closing,
Lender shall have been provided with satisfactory evidence that
each of the UCC financing statements disclosed on Schedule 4.19
attached hereto and each of the Unsatisfied Judgments (and any
judgment Liens arising therefrom) disclosed on Schedule 5.7(b)
attached hereto have been terminated, released or otherwise
satisfied.
8.5. Corporate Proceedings of Borrower. Lender shall have
received a copy of the resolutions in form and substance
reasonably satisfactory to Lender, of the Board of Directors of
Borrower authorizing (i) the execution, delivery and performance
of this Agreement, the Term Notes and all other Loan Documents to
which Borrower is a party and (ii) the granting by Borrower of
the security interests in and liens upon the Collateral, in each
case certified by the Secretary or an Assistant Secretary of
Borrower as of the Closing Date; and, such certificate shall
state that the resolutions thereby certified have not been
amended, modified, revoked or rescinded as of the date of such
certificate.
8.6. Incumbency Certificates of Borrower. Lender shall have
received a certificate of the Secretary or an Assistant Secretary
of Borrower, dated the Closing Date, as to the incumbency and
signature of the officers of Borrower executing this Agreement,
any other Loan Documents to which Borrower is a party, and any
certificate or other documents to be delivered by it pursuant
hereto, together with evidence of the incumbency of such
Secretary or Assistant Secretary.
8.7. Certificates. Lender shall have received a copy of the
Articles or Certificate of Incorporation of Borrower, and all
amendments thereto, certified by the Secretary of State or other
appropriate official of its jurisdiction of incorporation,
together with copies of the By-Laws of Borrower and all
agreements of Borrower's shareholders certified as accurate and
complete by the Secretary of Borrower.
8.8. Good Standing Certificates. Lender shall have received
good standing certificates for Borrower dated a recent date
issued by the Secretary of State or other appropriate official of
Borrower's jurisdiction of incorporation and each jurisdiction
where the conduct of Borrower's business activities or the
ownership of its properties necessitates qualification.
8.9. Legal Opinion. Lender shall have received the executed
legal opinion of ▇▇▇▇▇ & Tisman, in form and substance
satisfactory to Lender, which shall cover such matters incident
to the transactions contemplated by this Agreement as Lender may
reasonably require, and Borrower hereby authorizes and directs
such counsel to deliver such opinions to Lender.
8.10. Landlord Consent. Borrower shall have obtained a
Consent from Landlord (which Consent may be included in the
Assignment of Lease) whereby Landlord (i) consents to the terms
and conditions of the Assignment of Lease and (ii) agrees to
permit Lender to assume the Lease, if Lender elects to effectuate
an assignment of the Lease after the occurrence of an Event of
Default.
8.11. Concerning the Mortgage.
(a) ▇▇▇▇▇ shall have furnished Lender with a title
insurance policy from a company acceptable to Lender, insuring
that ▇▇▇▇▇ holds title to the ▇▇▇▇▇ Farm in fee simple, and that
the Mortgage constitutes a valid mortgage lien on the ▇▇▇▇▇ Farm,
subject only to the interests of the First Mortgage Lender, with
such endorsements as Lender may require.
(b) ▇▇▇▇▇ shall have provided Lender with an appraisal
of the ▇▇▇▇▇ Farm, prepared by an MAI appraiser and in form
satisfactory to Lender, showing the ▇▇▇▇▇ Farm to have a fair
market value at least $500,000.00 in excess of the amount owing
to the First Mortgage Lender. If Lender requires an updated
appraisal during the Term, ▇▇▇▇▇ shall obtain the same at his
sole expense.
(c) ▇▇▇▇▇ shall have provided Lender with an ALTA
survey of the ▇▇▇▇▇ Farm, in form satisfactory to Lender,
prepared by a registered land surveyor and in form sufficient to
permit the removal from the mortgage title policy of such title
exceptions as shall be required by Lender. If Lender requires an
updated survey during the Term, ▇▇▇▇▇ shall obtain the same at
his sole expense.
(d) ▇▇▇▇▇ shall have obtained each of the following
from the First Mortgage Lender and delivered the same to Lender:
(i) First Mortgage Lender's consent to the Mortgage and an
agreement to notify Lender in the event of any default by ▇▇▇▇▇
under the First Mortgage and to provide Lender an opportunity to
cure such default; (ii) First Mortgage Lender's modification of
its loan documents to eliminate any clause that provides that the
First Mortgage will secure future advances to ▇▇▇▇▇ or other
obligations of ▇▇▇▇▇ to First Mortgage Lender incurred after the
Closing Date, with the exception of advances to First Mortgage
Lender's counsel in the event of a default by ▇▇▇▇▇ under the
First Mortgage; and (iii) an estoppel letter assuring Lender that
the current loan balance secured by the First Mortgage is as
represented in Section 5.24 hereof, and that there are no
defaults under the terms and provisions of the First Mortgage or
First Mortgage Lender's loan documents.
8.12. Repayment Schedule for ▇▇▇▇▇ Loan. ▇▇▇▇▇ shall
have executed and delivered to Borrower a promissory note in the
principal amount equal to the outstanding balance of the ▇▇▇▇▇
Loan (the "▇▇▇▇▇ Note"), in form and substance reasonably
satisfactory to Lender and containing a repayment schedule
acceptable to Lender. Such repayment schedule shall provide for a
reasonable rate of interest and a repayment at a rate of at least
$5,000.00 per month.
8.13. ▇▇▇▇▇ Employment Agreement. Borrower and ▇▇▇▇▇
shall have entered into a five (5) year written employment
agreement (the "▇▇▇▇▇ Employment Agreement"), in form and
substance reasonably satisfactory to Lender and providing for
▇▇▇▇▇'▇ full-time service as Chairman and Chief Executive Officer
of Borrower and providing for a salary of not to exceed
$360,000.00 per year, and, if Borrower's annual after tax profits
exceed $1,000,000.00 in any fiscal year, a bonus of forty percent
(40%) of the amount of such excess, subject to the requirement
that fifty percent (50%) of such bonus be applied to the ▇▇▇▇▇
Loan until paid.
8.14. Consulting Agreement. Borrower and Consultant
shall have entered into a consulting agreement (the "Consulting
Agreement"), in form and substance reasonably satisfactory to
Lender, having a term of at least three (3) years, and providing,
among other things, for Consultant to receive compensation of not
more than $50,000.00 per year and for Consultant to provide
regular reports to Borrower and Lender.
8.15. No Litigation. No litigation, investigation or
proceeding before or by any arbitrator or Governmental Authority
shall be continuing or threatened against Borrower or against the
officers or directors of Borrower (i) in connection with this
Agreement or other Loan Documents or any of the transactions
contemplated thereby and which, in the reasonable opinion of
Lender, is deemed material or (ii) which if adversely determined,
would, in the reasonable opinion of Lender, have a material
adverse effect on the business, assets, operations or condition
(financial or otherwise) of Borrower, and no injunction, writ,
restraining order or other order of any nature materially adverse
to Borrower or the conduct of its business or inconsistent with
the due consummation of the transactions contemplated by this
Agreement shall have been issued by any Governmental Authority.
8.16. Financial Condition Opinions. Lender shall have
received executed Officers' Certificates satisfactory in form and
substance to it to the effect that, as of the Closing Date and
after giving effect to the transactions contemplated by this
Agreement, current projections which are based on underlying
assumptions which provide a reasonable basis for the projections
and which reflect Borrower's judgment based on present
circumstances of the most likely set of conditions and Borrower's
most likely course of action for the period projected,
demonstrate that Borrower will have sufficient cash flow to
enable it to pay its debts as they mature.
8.17. Expenses. Lender shall have received
reimbursement of all costs and expenses incurred by Lender as of
the Closing Date, including legal fees, costs and disbursements
set forth in Section 6.8 hereof.
8.18. Pro Forma Financial Statements. Lender shall have
received copies of the Pro Forma Balance Sheet and the
Projections described in Section 5.4(c) hereof, and each shall be
satisfactory in all respects to Lender.
8.19. Insurance. Lender shall have received certified
copies, in form and substance satisfactory to Lender, of
Borrower's casualty insurance policies, together with loss
payable endorsements on Lender's standard form of loss payee
endorsement naming Lender as loss payee, and certified copies of
Borrower's liability insurance policies, together with
endorsements naming Lender as a co-insured.
8.20. Consents. Lender shall have received any and all
Consents necessary to permit the effectuation of the transactions
contemplated by this Agreement and the Loan Documents, and Lender
shall have received such Consents and waivers of such third
parties as might assert claims with respect to the Collateral, as
Lender and its counsel shall deem necessary.
8.21. No Adverse Material Change. Since June 30, 1996
(the date of the latest financial statements provided to Lender),
there shall have occurred (i) no material adverse change in the
condition, financial or otherwise, operations, properties or
prospects of Borrower, (ii) no material damage or destruction to
any of the Collateral nor any material depreciation in the value
thereof and (iii) no event, condition or state of facts which
would reasonably be expected materially and adversely to affect
the business, financial condition or results of operations of
Borrower.
8.22. Representations True and Correct. No
representations made or information supplied to Lender shall have
been proven to be inaccurate or misleading in any material
respect.
8.23. ▇▇▇▇▇ Financial Statements. Lender shall have
received a recent financial statement of ▇▇▇▇▇, which shall be
satisfactory in all respects to Lender.
8.24. Contract Review. Lender shall have reviewed all
material contracts of Borrower, including, without limitation,
leases, union contracts, labor contracts, Customer contracts,
vendor supply contracts, license agreements and distributorship
agreements, and all such contracts and agreements shall be
reasonably satisfactory in all respects to Lender.
8.25. Representations and Warranties. Each of the
representations and warranties made by Borrower in or pursuant to
this Agreement and any related agreements to which it is a party,
and each of the representations and warranties contained in any
certificate, document or financial or other statement furnished
at any time under or in connection with this Agreement or any
related agreement shall be true and correct in all material
respects on and as of the Closing Date as if made on and as of
such date.
8.26. No Default. No Event of Default or Default shall
have occurred and be continuing on the Closing Date or would
exist after giving effect to the consummation of the transactions
contemplated by this Agreement.
8.27. Other. All corporate and other proceedings, and
all documents, instruments and other legal matters in connection
with the transactions contemplated by this Agreement shall be
satisfactory in form and substance to Lender and its counsel.
IX. INFORMATION AS TO BORROWER.
Borrower shall, until satisfaction in full of the
Obligations and the termination of this Agreement (unless lender
shall otherwise consent in writing):
9.1. Annual Financial Statements. Furnish Lender within
ninety (90) days after the end of each fiscal year of Borrower,
financial statements of Borrower including, but not limited to,
statements of income and stockholders' equity and cash flow
from the beginning of the current fiscal year to the end of
such fiscal year and the balance sheet as at the end of such
fiscal year, all prepared in accordance with GAAP applied on a
basis consistent with prior practices, and in reasonable detail
and reported upon without qualification by the Accountants. In
addition, the reports shall be accompanied by a certificate of
the Accountants which shall state that, based on an examination
sufficient to permit them to make an informed statement, no
Default or Event of Default exists, or, if such is not the
case, specifying such Default or Event of Default, its nature,
when it occurred, whether it is continuing and the steps being
taken by Borrower with respect to such event and, such
certificate shall have appended thereto calculations which set
forth Borrower's compliance with the requirements or
restrictions imposed by Sections 7.4, 7.5, 7.6, 7.7, 7.8, 7.11,
7.18, 7.19, 7.21 and 7.22 hereof.
9.2. Six Month Financial Statements. Furnish Lender
within sixty (60) days of the end of second fiscal quarter of
each fiscal year of Borrower, including, but not limited to,
statements of income and stockholders' equity and cash flow
from the beginning of the current fiscal year to the end of the
second fiscal quarter and a balance sheet as at the end of the
second fiscal quarter, prepared on a basis consistent with
prior practices and complete and correct in all material
respects, subject to normal year end adjustments, all of which
shall have been reviewed by the Accountants. In addition, the
reports shall be accompanied by a certificate of Borrower's
Chief Financial Officer which shall state that, based on an
examination sufficient to permit him to make an informed
statement, no Default or Event of Default exists, or, if such
is not the case, specifying such Default or Event of Default,
its nature, when it occurred, whether it is continuing and the
steps being taken by Borrower with respect to such event and,
such certificate shall have appended thereto calculations which
set forth Borrower's compliance with the requirements or
restrictions imposed by Sections 7.4, 7.5, 7.6, 7.7, 7.8, 7.11,
7.18, 7.19, 7.21 and 7.22 hereof.
9.3. Monthly Financial Statements. Furnish Lender within
thirty (30) days after the end of each month, an unaudited
balance sheet of Borrower and unaudited statements of income
and stockholders, equity and cash flow of Borrower reflecting
results of operations from the beginning of the fiscal year to
the end of such month and for such month, prepared on a basis
consistent with prior practices and complete and correct in all
material respects, subject to normal year end adjustments, and
setting forth, in comparative detail, the corresponding figures
from the Projections for such period. The reports shall be
accompanied by a certificate of Borrower's Chief Financial
Officer which shall state that, based on an examination
sufficient to permit him to make an informed statement, no
Default or Event of Default exists, or, if such is not the
case, specifying such Default or Event of Default, its nature,
when it occurred, whether it is continuing and the steps being
taken by Borrower with respect to such event and, such
certificate shall have appended thereto calculations which set
forth Borrower's compliance with the requirements or
restrictions imposed by Sections 7.4, 7.5, 7.6, 7.7, 7.8, 7.11,
7.18, 7.19, 7.21 and 7.22 hereof.
9.4 Schedules. Furnish Lender within five (5) days after
the end of each month a report or reports, in form reasonably
acceptable to Lender, setting forth (i) outstanding
Receivables, Eligible Receivables and Receivables aging as of
the last day of the month, (ii) outstanding letters of credit
as of the last day of the month, (iv) accounts payable as of
the last day of the month, (v) cash on hand as of the last day
of the month, (vi) collections on Receivables for the month,
(vii) total sales for such month and year-to-date, (viii)
order backlog reports as of the last day of the month, and (ix)
fee income for the month. In addition, Borrower shall furnish
Lender with such other schedules, documents and/or information
regarding the Collateral as Lender may reasonably require
including, without limitation, trial balances and test
verifications. Lender shall have the right to confirm and
verify all Receivables by any manner and through any medium it
considers advisable and do whatever it may deem reasonably
necessary to protect its interests hereunder. The items to be
provided under this Section 9.4 are to be in form satisfactory
to Lender and are solely for Lender's convenience in
maintaining records of the Collateral, and Borrower's failure
to deliver any of such items to Lender shall not affect,
terminate, modify or otherwise limit Lender's Lien with respect
to the Collateral.
9.5 ▇▇▇▇▇ Financial Statements. Furnish or cause to be
furnished to Lender, within sixty (60) days after the end of
each calendar year, a personal financial statement of ▇▇▇▇▇, in
form satisfactory to Lender.
9.6. Disclosure of Material Matters. Immediately upon
learning thereof, report to Lender all matters materially
affecting the value, enforceability or collectibility of any
portion of the Collateral including, without limitation,
Borrower's reclamation or repossession of, or the return to
Borrower of, a material amount of goods or claims or disputes
asserted by any Customer or other obligor. Borrower will not,
without Lender's consent, compromise or adjust any material
amount of the Receivables (or extend the time for payment
thereof) or accept any material returns of merchandise or grant
any additional discounts, allowances or credits thereon except
for those compromises, adjustments, returns, discounts, credits
and allowances as have been heretofore customary in the
business of Borrower.
9.7. Environmental Reports. Furnish Lender, concurrently
with the delivery of the financial statements referred to in
Section 9.1 hereof, with a certificate of Borrower signed by
the Chief Financial Officer of Borrower stating that, to the
best of his knowledge, Borrower is in compliance in all
material respects with all federal, state and local laws
relating to environmental protection and control and
occupational safety and health. To the extent Borrower is not
in compliance with the foregoing laws, the certificate shall
set forth with specificity all areas of noncompliance and the
proposed action Borrower will implement in order to achieve
full compliance.
9.8. Litigation. Except for matters disclosed in Schedule
5.7(a) attached hereto, promptly notify Lender in writing of
any litigation, suit or administrative proceeding affecting
Borrower, whether or not the claim is covered by insurance, and
of any suit or administrative proceeding, which may materially
and adversely affect the Collateral or Borrower's business,
assets, operations, condition or prospects (financial or
otherwise).
9.9. Material Occurrences. Promptly notify Lender in
writing upon the occurrence of (a) any Event of Default or
Default; (b) any event, development or circumstance whereby any
financial statements or other reports furnished to Lender fail
in any material respect to present fairly, in accordance with
GAAP consistently applied, the financial condition or operating
results of Borrower as of the date of such statements; (c) each
and every default by Borrower which might result in the
acceleration of the maturity of any Indebtedness, including the
names and addresses of the holders of such Indebtedness with
respect to which there is a default existing or with respect to
which the maturity has been or could be accelerated, and the
amount of such Indebtedness; and (d) any other development in
the business or affairs of Borrower which might reasonably be
expected to be materially adverse; in each case describing the
nature thereof and the action Borrower proposes to take with
respect thereto.
9.10 ▇▇▇▇▇ Environmental Report. Furnish Lender,
concurrently with the delivery of the financial statements
referred to in Section 9.5 hereof, with a certificate of ▇▇▇▇▇
stating, to the best of his knowledge, that he is in compliance
in all material respects with all federal, state and local laws
relating to environmental protection with respect to the ▇▇▇▇▇
Farm. To the extent ▇▇▇▇▇ is not in compliance with the
foregoing laws, the certificate shall set forth with
specificity all areas of noncompliance and the proposed action
▇▇▇▇▇ will implement in order to achieve full compliance.
9.11. Additional Information. Furnish Lender with
additional information as it shall reasonably request in order
to enable Lender to determine whether the terms, covenants,
provisions and conditions of this Agreement have been complied
with by Borrower including, without limitation and without the
necessity of any request by Lender, (a) copies of all
environmental audits and reviews, (b) at least thirty (30) days
prior thereto, notice of Borrower's opening of any new office
or place of business or Borrower's closing of any existing
office or place of business, and (c) promptly upon Borrower's
learning thereof, of any labor dispute to which Borrower may
become a party, any strikes or walkouts relating to any of its
plants or other facilities, and the expiration of any labor
contract to which Borrower is a party or by which Borrower is
bound.
9.12. Projected Operating Budget. Furnish Lender, no
less than one hundred twenty (120) days prior to the end of
each of Borrower's fiscal years commencing with fiscal year
ending December 31, 1997, a month-by-month projected operating
budget and cash flow of Borrower on a consolidated basis for
the immediately succeeding fiscal year (including an income
statement, cash flow statement and balance sheet for each
month), such Projections to be accompanied by a certificate
signed by Borrower's Chairman or Chief Financial Officer to the
effect that such Projections have been prepared on the basis of
sound financial planning practice consistent with past budgets
and financial statements and that such officer has no reason to
question the reasonableness of any material assumptions on
which such Projections were prepared. All Projections furnished
to Lender pursuant to this Section 9.12 must be satisfactory to
Lender. In no event shall the Projections submitted for any
fiscal year project net income for such year which is less than
the net income projected for the preceding fiscal year.
9.13. Variances From Operating Budget. Furnish
Lender, concurrently with the delivery of the financial
statements referred to in Sections 9.1 and 9.3 hereof, a
written report summarizing all material variances from the
Projections submitted by Borrower for the applicable period and
a discussion and analysis by management with respect to such
variances.
9.14. Notice of Suits, Adverse Events. Furnish Lender
with prompt notice of (i) any lapse or other termination of any
Consent issued to Borrower by any Governmental Authority or any
other Person that is material to the operation of Borrower's
business, (ii) any refusal by any Governmental Authority or
any other Person to renew or extend any such Consent; and (iii)
copies of any periodic or special reports filed by Borrower
with any Governmental Authority or Person, if such reports
indicate any material change in the business, operations,
affairs or condition of Borrower, or if copies thereof are
requested by Lender and (iv) copies of any material notices and
other communications from any Governmental Authority or Person
which specifically relate to Borrower.
9.15. ERISA Notices and Requests. Furnish Lender with
immediate written notice in the event that (i) Borrower or any
member of the Controlled Group knows or has reason to know that
a Termination Event has occurred, together with a written
statement describing such Termination Event and the action, if
any, which Borrower or member of the Controlled Group has
taken, is taking, or proposes to take with respect thereto and,
when known, any action taken or threatened by the Internal
Revenue Service, Department of Labor or PBGC with respect
thereto, (ii) Borrower or any member of the Controlled Group
knows or has reason to know that a prohibited transaction (as
defined in Sections 406 of ERISA and 4975 of the Code) has
occurred together with a written statement describing such
transaction and the action which Borrower or any member of the
Controlled Group has taken, is taking or proposes to take with
respect thereto, (iii) a funding waiver request has been filed
with respect to any Plan together with all communications
received by either Borrower or any member of the Controlled
Group with respect to such request, (iv) any increase in the
benefits of any existing Plan or the establishment of any new
Plan or the commencement of contributions to any Plan to which
either Borrower or any member of the Controlled Group was not
previously contributing shall occur, (v) Borrower or any member
of the Controlled Group shall receive from the PBGC a notice of
intention to terminate a Plan or to have a trustee appointed to
administer a Plan, together with copies of each such notice,
(vi) Borrower or any member of the Controlled Group shall
receive any favorable or unfavorable determination letter from
the Internal Revenue Service regarding the qualification of a
Plan under Section 401(a) of the Code, together with copies of
each such letter; (vii) Borrower or any member of the
Controlled Group shall receive a notice regarding the
imposition of withdrawal liability, together with copies of
each such notice; (viii) Borrower or any member of the
Controlled Group shall fail to make a required installment or
any other required payment under Section 412 of the Code on or
before the due date for such installment or payment; (ix)
Borrower or any member of the Controlled Group knows that (a) a
Multiemployer Plan has been terminated, (b) the administrator
or plan sponsor of a Multiemployer Plan intends to terminate a
Multiemployer Plan, or (c) the PBGC has instituted or will
institute proceedings under Section 4042 of ERISA to terminate
a Multiemployer Plan.
X. EVENTS OF DEFAULT.
The occurrence of any one or more of the following events
shall constitute an "Event of Default":
10.1. Nonpayment.
(i) Failure by Borrower to pay any principal or
interest on the Term Note or other Obligations when due,
whether at maturity or by reason of acceleration pursuant to
the terms of this Agreement, and continuation thereof for a
period of fifteen (15) consecutive days.
(ii) Failure by Borrower to make any other payment or
to pay any fee or charge provided for herein when due and
continuation thereof for a period of fifteen (15) consecutive
days after notice is given by Lender that such amount is due
and owing.
10.2. Breach of Representations and Warranties. Any
representation or warranty made or deemed made by Borrower or
▇▇▇▇▇ in this Agreement or any related agreement or in any
certificate, document or financial or other statement furnished
at any time in connection herewith or therewith shall prove to
have been misleading in any material respect on the date when
made or deemed to have been made.
10.3. Failure to Provide Information. Failure by
Borrower or ▇▇▇▇▇ to (i) furnish financial information when
requested or (ii) permit the inspection of its books and
records.
10.4. Attachments and Liens. Except for Permitted
Encumbrances, issuance of a notice of Lien, Charge, Claim,
levy, assessment, injunction or attachment against a material
portion of Borrower's or ▇▇▇▇▇'▇ property which is not stayed
or lifted within thirty (30) days.
10.5. Breach of Covenants.
(i) Failure or neglect by Borrower or ▇▇▇▇▇, as the
case may be, to perform, keep or observe the terms, provisions,
conditions and covenants contained in (a) Section 9.1, 9.2,
9.3, 9.4 or 9.5 hereof which shall remain uncured for ten (10)
days following such failure or neglect, (b) Sections 6.2, 6.4,
6.7, 9.7, 9.8, 9.10 or 9.13 which shall remain uncured for
thirty (30) days following such failure or neglect.
(ii) Failure or neglect by Borrower or ▇▇▇▇▇ to
perform, keep or observe any term, provision, condition or
covenant contained in this Agreement other than those set forth
in Section 10.5(i) hereof or contained in any other Loan
Documents, agreement or arrangement, now or hereafter entered
into between Borrower and/or ▇▇▇▇▇ (as the case may be) and
Lender.
10.6. Judgments. Except for judgments disclosed in
Schedule 5.7(b) attached hereto, any judgment is rendered or
judgment liens filed against Borrower or ▇▇▇▇▇ for an amount in
excess of $50,000 which within thirty (30) days of such
rendering or filing is not either satisfied, stayed or
discharged of record.
10.7. Insolvency. Borrower shall (i) apply for or
consent to the appointment of, or the taking of possession by,
a receiver, custodian, trustee or liquidator of itself or of
all or a substantial part of its property, (ii) make a general
assignment for the benefit of creditors, (iii) commence a
voluntary case under any state or federal bankruptcy laws (as
now or hereafter in effect), (iv) be adjudicated a bankrupt or
insolvent, (v) file a petition seeking to take advantage of any
other law providing for the relief of debtors, (vi) acquiesce
to, or fail to have dismissed, within thirty (30) days, any
petition filed against it in any involuntary case under such
bankruptcy laws, or (vii) take any action for the purpose of
effecting any of the foregoing.
10.8. Failure to Pay Debts. Borrower shall admit in
writing its inability, or be generally unable, to pay its debts
as they become due or cease operations of its present business.
10.9. Insolvency of Affiliates. ▇▇▇▇▇ or any other
Affiliate of Borrower shall (i) apply for or consent to the
appointment of, or the taking of possession by, a receiver,
custodian, trustee or liquidator of itself or of all or a
substantial part of its property, (ii) admit in writing its
inability, or be generally unable, to pay its debts as they
become due or cease operations of its present business, (iii)
make a general assignment for the benefit of creditors, (iv)
commence a voluntary case under any state or federal bankruptcy
laws (as now or hereafter in effect), (v) be adjudicated a
bankrupt or insolvent, (vi) file a petition seeking to take
advantage of any other law providing for the relief of debtors,
(vii) acquiesce to, or fail to have dismissed, within thirty
(30) days, any petition filed against it in any involuntary
case under such bankruptcy laws, or (viii) take any action for
the purpose of effecting any of the foregoing.
10.10. Material Adverse Changes. Any change in
Borrower's condition or affairs (financial or otherwise) which
in Lender's reasonable opinion impairs the Collateral or the
ability of Borrower to perform its Obligations under this
Agreement.
10.11. Liens. Any Lien created hereunder or provided
for hereby or under any related agreement for any reason ceases
to be or is not a valid and perfected Lien having a first
priority interest other than Permitted Encumbrances, or CIT for
any reason revokes, terminates or challenges the validity of
any intercreditor agreement entered into between CIT and Lender
with respect to Borrower's Receivables or asserts that Lender's
rights and security interests in Borrower's Receivables are
invalid or subordinate to CIT's rights therein (except as to
Receivables which have been "matured" in accordance with
paragraph 9 of the CIT Agreement).
10.12. Cross-Default. A default of the obligations of
Borrower or ▇▇▇▇▇ under any other agreement to which either of
them is a party shall occur (including, without limitation, a
default under the Lease, the Shinyei Agreement or the First
Mortgage), which default is not cured within any applicable
grace period.
10.13. Termination of Guaranty. Termination or breach
by ▇▇▇▇▇ of the Guaranty or any similar agreement executed and
delivered by ▇▇▇▇▇ in connection with the Obligations, or if
▇▇▇▇▇ attempts to terminate or challenges the validity of, or
his liability under, the Guaranty or any similar agreement.
10.14. Change of Ownership. Any Change of Ownership.
10.15. Change of Management. Any Change of Management.
10.16. Invalidity. Any material provision of this
Agreement shall, for any reason, cease to be valid and binding
on Borrower, or Borrower shall so claim in writing to Lender.
10.17. Permits. Any Governmental Authority shall (i)
revoke, terminate, suspend or adversely modify any license,
permit, patent trademark or tradename of Borrower, or (ii)
commence proceedings to suspend, revoke, terminate or adversely
modify any such license, permit, trademark, tradename or patent
and such proceedings shall not be dismissed or discharged
within sixty (60) days, or (iii) schedule or conduct a hearing
on the renewal of any license, permit, trademark, tradename or
patent necessary for the continuation of Borrower's business
and the staff of such Governmental Authority issues a report
recommending the termination, revocation, suspension or
material, adverse modification of such license, permit,
trademark, tradename or patent; or any agreement which is
necessary or material to the operation of Borrower's business
shall be revoked or terminated and not replaced by a substitute
acceptable to Lender within thirty (30) days after the date of
such revocation or termination, and such revocation or
termination and non-replacement would have a material adverse
effect on Borrower's business or financial condition.
10.18. Forfeiture or Seizure of Collateral. Any
portion of the Collateral shall be seized or taken by a
Governmental Authority, or Borrower or the title and rights of
Borrower which is the owner of any material portion of the
Collateral shall have become the subject matter of litigation
which might, in the reasonable opinion of Lender, upon final
determination, result in impairment or loss of the security
provided by this Agreement or the Loan Documents.
10.19. ERISA. An event or condition specified in
Sections 7.16 or 9.15 hereof shall occur or exist with respect
to any Plan and, as a result of such event or condition,
together with all other such events or conditions, Borrower or
any member of the Controlled Group shall incur, or in the
opinion of Lender be reasonably likely to incur, a liability to
a Plan or the PBGC (or both) which, in the reasonable judgment
of Lender, would have a material adverse effect upon the
Collateral or the ability of Borrower to perform its
Obligations under this Agreement.
10.20. Forbearance Agreement. The occurrence of an
event which would permit Lender, in accordance with the
provisions of the ▇▇▇▇▇ Forbearance Agreement, to enforce its
rights and remedies with respect to the ▇▇▇▇▇ Judgment.
Notwithstanding the foregoing, no Event of Default (other than
an Event of Default under Section 10.1 hereof) shall be deemed
to exist hereunder if such Event of Default occurs as a direct
result of the fact that the Clothing Services Commissions
actually earned by Borrower in any period are less than the
Clothing Services Commissions forecasted in the Projections for
the same period, so long as Lender has approved such forecasts.
XI. LENDERS' RIGHTS AND REMEDIES AFTER DEFAULT.
11.1. Rights and Remedies. Upon the occurrence of an
Event of Default pursuant to Section 10.7, all Obligations
shall be immediately due and payable and this Agreement and all
obligations of Lender hereunder shall be deemed terminated;
and, upon the occurrence of any of the other Events of Default
and at any time thereafter (such default not having previously
been cured), at the option of Lender all Obligations shall be
immediately due and payable and Lender shall have the right to
terminate this Agreement and all obligations of Lender
hereunder. Upon the occurrence of any Event of Default, Lender
shall have the right to exercise any and all other rights and
remedies provided for herein, under the UCC and at law or
equity generally, including, without limitation, the right to
foreclose the security interests granted herein and to realize
upon any Collateral by any available judicial procedure and/or
to take possession of and sell any or all of the Collateral
with or without judicial process. Lender may enter any of
Borrower's premises or other premises without legal process and
without incurring liability to Borrower therefor, and Lender
may thereupon, or at any time thereafter, in its discretion
without notice or demand, take the Collateral and remove the
same to such place as Lender may deem advisable and Lender may
require Borrower to make the Collateral available to Lender at
a convenient place. With or without having the Collateral at
the time or place of sale, Lender may sell the Collateral, or
any part thereof, at public or private sale, at any time or
place, in one or more sales, at such price or prices, and upon
such terms, either for cash, credit or future delivery, as
Lender may elect. Except as to that part of the Collateral
which is perishable or threatens to decline speedily in value
or is of a type customarily sold on a recognized market, Lender
shall give Borrower reasonable notification of such sale or
sales, it being agreed that in all events written notice mailed
to Borrower at least ten (10) days prior to such sale or sales
is reasonable notification. At any public sale Lender may bid
for and become the purchaser, and Lender or any other purchaser
at any such sale thereafter shall hold the Collateral sold
absolutely free from any claim or right of whatsoever kind,
including any equity of redemption and such right and equity
are hereby expressly waived and released by Borrower. In
connection with the exercise of the foregoing remedies, Lender
is granted permission to use all of Borrower's trademarks,
trade styles, trade names, patents, patent applications,
licenses, franchises and other proprietary rights which are
used in connection with (a) Inventory for the purpose of
disposing of such Inventory and (b) Equipment for the purpose
of completing the manufacture of unfinished goods. The
proceeds realized from the sale of any Collateral shall be
applied as follows: first, to the reasonable costs, expenses
and attorneys' fees and expenses incurred by Lender for
collection and for acquisition, completion, protection,
removal, storage, sale and delivery of the Collateral; second,
to interest due upon any of the Obligations; and, third, to the
principal of the Obligations. If any deficiency shall arise,
Borrower shall remain liable to Lender therefor.
11.2. Setoff. In addition to any other rights which
Lender may have under applicable law, upon the occurrence of an
Event of Default hereunder, Lender shall have a right to apply
any of Borrower's property held by Lender and any amounts due
from Lender to Borrower under the Clothing Services Agreement
(whether matured or unmatured) to reduce the Obligations.
11.3. Rights and Remedies Not Exclusive. The
enumeration of the foregoing rights and remedies is not
intended to be exhaustive and the exercise of any right or
remedy shall not preclude the exercise of any other right or
remedies, all of which shall be cumulative and not alternative.
XII. WAIVERS AND JUDICIAL PROCEEDINGS.
12.1. Waiver of Notice. Borrower hereby waives notice
of non-payment of the Term Note or other Obligations
outstanding hereunder, demand, presentment, protest, notice of
protest, notice of acceptance hereof, and all other demands and
notices of any description, except such as are expressly
provided for herein.
12.2. Delay. No delay or omission on Lender's part in
exercising any right, remedy or option shall operate as a
waiver of such or any other right, remedy or option or of any
default.
12.3. Jury Waiver. EACH PARTY TO THIS AGREEMENT
HEREBY EXPRESSLY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY
CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (A) ARISING UNDER THIS
AGREEMENT OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT
EXECUTED OR DELIVERED IN CONNECTION HEREWITH, OR (B) IN ANY WAY
CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE
PARTIES HERETO OR ANY OF THEM WITH RESPECT TO THIS AGREEMENT OR
ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR
DELIVERED IN CONNECTION HEREWITH, OR THE TRANSACTIONS RELATED
HERETO OR THERETO IN EACH CASE WHETHER NOW EXISTING OR
HEREAFTER ARISING, AND WHETHER SOUNDING IN CONTRACT OR TORT OR
OTHERWISE AND EACH PARTY HEREBY CONSENTS THAT ANY SUCH CLAIM,
DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT
TRIAL WITHOUT A JURY, AND THAT ANY PARTY TO THIS AGREEMENT MAY
FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS SECTION WITH ANY
COURT AS WRITTEN EVIDENCE OF THE CONSENTS OF THE PARTIES HERETO
TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY.
XIII. EFFECTIVE DATE AND TERMINATION.
13.1. Term. This Agreement, which shall inure to the
benefit of and shall be binding upon the respective successors
and permitted assigns of each of Borrower and Lender shall
become effective on the date hereof and shall continue in full
force and effect until December 31, 2002 (the "Term") unless
sooner terminated as herein provided. Borrower may terminate
this Agreement at any time upon sixty (60) days' prior written
notice ("Termination Date") upon payment in full of the
Obligations.
13.2. Termination. The termination of the Agreement
shall not affect any of Borrower's or Lender's rights, or any
of the Obligations having their inception prior to the
effective date of such termination, and the provisions hereof
shall continue to be fully operative until all transactions
entered into, rights or interests created or Obligations have
been fully disposed of, concluded or liquidated. The security
interests, Liens and rights granted to Lender hereunder and the
financing statements filed hereunder shall continue in full
force and effect, notwithstanding the termination of this
Agreement, until all of the Obligations of Borrower have been
paid or performed in full after the termination of this
Agreement or Borrower has furnished Lender with an
indemnification satisfactory to Lender with respect thereto.
Accordingly, Borrower waives any rights which it may have under
Section 9-404(1) of the UCC to demand the filing of termination
statements with respect to the Collateral, and Lender shall not
be required to send such termination statements to Borrower, or
to file them with any filing office, unless and until this
Agreement shall have been terminated in accordance with its
terms and all Obligations paid in full in immediately available
funds. All representations, warranties, covenants, waivers and
agreements contained herein shall survive termination hereof
until all Obligations are repaid or performed in full.
XIV. MISCELLANEOUS.
14.1. Governing Law. This Agreement is delivered and
is to be performed in the State of Oklahoma and shall be
construed and enforced in accordance with, and the rights of
the parties shall be governed by, the laws of the State of
Oklahoma applicable to contracts to be performed wholly within
the State of Oklahoma. Any judicial proceeding brought by or
against Borrower with respect to any of the Obligations, this
Agreement or any related agreement may be brought in any court
of competent jurisdiction in the State of Oklahoma, United
States of America, and, by execution and delivery of this
Agreement, Borrower accepts for itself and in connection with
its properties, generally and unconditionally, the non-
exclusive jurisdiction of the aforesaid courts, and irrevocably
agrees to be bound by any judgment rendered thereby in
connection with this Agreement. Nothing herein shall affect
the right to serve process in any manner permitted by law or
shall limit the right of Lender to bring proceedings against
Borrower in the courts of any other jurisdiction. Borrower
waives any objection to jurisdiction and venue of any action
instituted hereunder and shall not assert any defense based on
lack of jurisdiction or venue or based upon forum non
conveniens. Any judicial proceeding by Borrower against Lender
involving, directly or indirectly, any matter or claim in any
way arising out of, related to or connected with this Agreement
or any Loan Documents shall be brought only in the United
States District Court for the Western District of Oklahoma or
in any state court located in Cleveland County, State of
Oklahoma.
14.2. Entire Understanding.
(a) This Agreement continues, amends and restates in
its entirety the Existing Loan Agreement. Except as
specifically amended herein or in any Loan Document executed
simultaneously herewith, all Original Agreements shall continue
in full and effect in accordance with their original stated
terms for the benefit of Lender and are hereby ratified and
confirmed.
(b) This Agreement and the Loan Documents contain
the entire understanding between Borrower and Lender and
supersede that certain letter of agreement between Borrower and
Lender dated September 24, 1996, and all other prior
negotiations and understandings, if any, relating to the
subject matter hereof. Any promises, representations,
warranties or guarantees not herein contained and hereinafter
made shall have no force and effect unless in writing, signed
by Borrower's and Lender's respective officers. Neither this
Agreement nor any portion or provisions hereof may be changed,
modified, amended, waived, supplemented, discharged, canceled
or terminated orally or by any course of dealing, or in any
manner other than by an agreement in writing, signed by the
party to be charged. Borrower acknowledges that it has been
advised by counsel in connection with the execution of this
Agreement and Loan Documents and is not relying upon oral
representations or statements inconsistent with the terms and
provisions of this Agreement.
(c) Lender and Borrower may, subject to the
provisions of this Section 14.2 (b), from time to time enter
into written supplemental agreements to this Agreement or any
of the Loan Documents to which Borrower is a party, for the
purpose of adding or deleting any provisions or otherwise
changing, varying or waiving in any manner the rights of Lender
or Borrower thereunder or the conditions, provisions or terms
thereof, or waiving any Event of Default thereunder, but only
to the extent specified in such written agreements. Any such
supplemental agreement shall be binding upon Borrower and
Lender and all future holders of the Obligations. In the case
of any waiver, Borrower and Lender shall be restored to their
former positions and rights, and any Event of Default waived
shall be deemed to be cured and not continuing, but no waiver
of a specific Event of Default shall extend to any subsequent
Event of Default (whether or not the subsequent Event of
Default is the same as the Event of Default which was waived),
or impair any right consequent thereon.
14.3. Successors and Assigns.
(a) This Agreement shall be binding upon and inure
to the benefit of Borrower, Lender, and their respective
successors and assigns, except that Borrower may not assign or
transfer any of its rights or obligations under this Agreement
without the prior written consent of Lender.
(b) Lender may at any time and from time to time
sell participating interests in the Term Loan or sell the Term
Note (each such transferee or purchaser of a participating
interest, a "Transferee"). Lender shall notify Borrower of the
existence of a Transferee upon the making of any such transfer.
(c) Borrower authorizes Lender to disclose to any
Transferee and any prospective Transferee any and all financial
information in Lender's possession concerning Borrower which
has been delivered to Lender by or on behalf of Borrower
pursuant to this Agreement or in connection with Lender's
credit evaluation of Borrower. Lender shall provide Borrower
with notice of its disclosure of any such information to a
Transferee or prospective Transferee upon release of such
information by Lender.
14.4. Application of Payments. Lender shall have the
continuing and exclusive right to apply or reverse and re-apply
any payment and any and all proceeds of Collateral to any
portion of the Obligations. To the extent that Borrower makes
a payment or Lender receives any payment or proceeds of the
Collateral for Borrower's benefit, which are subsequently
invalidated, declared to be fraudulent or preferential, set
aside or required to be repaid to a trustee, debtor in
possession, receiver, custodian or any other party under any
bankruptcy law, common law or equitable cause, then, to such
extent, the Obligations or part thereof intended to be
satisfied shall be revived and continue as if such payment or
proceeds had not been received by Lender.
14.5. Indemnity. Borrower shall indemnify Lender from
and against any and all liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses
and disbursements of any kind or nature whatsoever (including,
without limitation, reasonable fees and disbursements of
counsel) which may be imposed on, incurred by, or asserted
against Lender in any litigation, proceeding or investigation
instituted or conducted by any governmental agency or
instrumentality or any other Person with respect to any aspect
of, or any transaction contemplated by, or referred to in, or
any matter related to, this Agreement, whether or not Lender is
a party thereto, except to the extent that any of the foregoing
arises out of the willful misconduct of the party being
indemnified.
14.6. Notice. Any notice or request hereunder may be
given to Borrower or to Lender at its respective addresses set
forth below or at such other address as may hereafter be
specified in a notice designated as a notice of change of
address under this Section. Any notice or request hereunder
shall be given by (a) hand delivery, (b) overnight courier, (c)
certified mail, return receipt requested, or (d) telecopy to
the number set out below (or such other number as may hereafter
be specified in a notice designated as a notice of change of
address) with telephone communication to a duly authorized
officer of the recipient confirming its receipt as subsequently
confirmed by certified mail. Any notice or other communication
required or permitted pursuant to this Agreement shall be
deemed given (a) when personally delivered to any officer of
the party to whom it is addressed, (b) on the earlier of actual
receipt thereof or three (3) days following posting thereof by
certified mail, postage prepaid, or (c) upon actual receipt
thereof when sent by a recognized overnight delivery service or
(d) upon actual receipt thereof when sent by telecopier to the
number set forth below with telephone communication confirming
receipt and subsequently confirmed by certified or overnight
mail to the address set forth below, in each case addressed to
each party at its address set forth below or at such other
address as has been furnished in writing by a party to the
other by like notice:
(A) If to Lender, at: Harold's Stores, Inc.
765 Asp
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Attention: H. ▇▇▇▇▇▇ ▇▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopier: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to: ▇▇▇▇▇ & Dunlevy, Luttrell,
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& ▇▇▇▇▇▇▇▇▇
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▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: ▇▇▇▇ ▇▇▇▇▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopier: (▇▇▇) ▇▇▇-▇▇▇▇
(B) If to Borrower, at: CMT Enterprises Inc.
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▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇
Attention: ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopier: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to: ▇▇▇▇▇▇▇ ▇▇▇▇▇ & Associates
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▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇▇▇▇▇, Esq.
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopier: (▇▇▇) ▇▇▇-▇▇▇▇
14.7. Severability. If any part of this Agreement is
contrary to, prohibited by, or deemed invalid under applicable
laws or regulations, such provision shall be inapplicable and
deemed omitted to the extent so contrary, prohibited or
invalid, but the remainder hereof shall not be invalidated
thereby and shall be given effect so far as possible.
14.8. Injunctive Relief. Borrower recognizes that, in
the event Borrower fails to perform, observe or discharge any
of its obligations or liabilities under this Agreement, any
remedy at law may prove to be inadequate relief to Lender;
therefore, Lender, if Lender so requests, shall be entitled to
temporary and permanent injunctive relief in any such case
without the necessity of proving actual damages.
14.9. Consequential Damages. Lender shall not be
liable under any circumstance to Borrower for consequential
damages arising from any breach of contract, tort or other
wrong relating to the establishment, administration or
collection of the Obligations.
14.10. Captions. The captions at various places in
this Agreement are intended for convenience only and do not
constitute and shall not be interpreted as part of this
Agreement.
14.11. Counterparts. This Agreement may be executed in
one or more counterparts, each of which taken together shall
constitute one and the same instrument.
14.12. Construction. The parties acknowledge that each
party and its counsel have reviewed this Agreement and that the
normal rule of construction to the effect that any ambiguities
are to be resolved against the drafting party shall not be
employed in the interpretation of this Agreement or any
amendments, schedules or exhibits thereto.
XV. WARRANT EXERCISE PRICE.
15.1. Warrant Exercise Price. The parties agree that
the aggregate purchase price to be paid by Lender upon exercise
of the Warrant shall be determined subsequent to Closing and
shall be an amount equal to twenty percent (20%) of the fair
market value of Borrower as of the day immediately preceding
the Closing Date.
15.2. Valuation Procedure. Immediately following the
Closing, the parties shall endeavor in good faith to determine
a mutually acceptable valuation of the fair market value of
Borrower. The valuation of Borrower shall not take into
consideration any increase in the value of Borrower resulting
from the extension of the Term Loan or the consummation of the
transactions contemplated hereby. If the parties are unable to
agree on the value of Borrower within ninety (90) days
following the Closing, each party shall appoint an appraiser,
and the two appraisers so appointed shall jointly determine the
fair market value of Borrower within thirty (30) days following
their appointment. The determination of the two appraisers so
appointed shall be conclusive and binding upon the parties.
15.3 Power of Attorney. Upon determination of the
aggregate purchase price to be paid upon exercise of the
Warrant in accordance with the procedures set forth in Section
15.2, Lender shall be authorized to complete, and Borrower
hereby irrevocably constitutes Lender or Lender's designee as
Borrower's attorney with power to complete, the "Purchase
Price" per share stated in the Warrant (such amount to be
determined by dividing the number of shares issuable upon
exercise of the Warrant in full into the aggregate purchase
price payable by Lender).
IN WITNESS WHEREOF, this Agreement has been executed
by the parties and delivered to Lender at Norman, Oklahoma,
effective as of the date and year first above written.
CMT ENTERPRISES INC.
By:/s/▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Name:/s/▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Title:/s/Guarantor
/s/▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
HAROLD'S STORES, INC.
By:/s/H. ▇▇▇▇▇▇ ▇▇▇▇▇▇
Name:/s/H. ▇▇▇▇▇▇ ▇▇▇▇▇▇
Title:President
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
CLOSING CERTIFICATE
The undersigned, being the duly authorized and appointed
Chairman and Chief Financial Officer of Borrower, hereby
certifies that, to the best knowledge of the undersigned, after
diligent inquiry: (i) all representations and warranties set
forth in this Agreement and the other Loan Documents to which
Borrower is a party are true and correct on and as of the date
hereof, (ii) on the date hereof, Borrower is in compliance with
all the terms and provisions set forth in this Agreement and
all Loan Documents to which it is a party, and (iii) on the
date hereof, no Default or Event of Default has occurred or is
continuing under the Loan Agreement.
DATE:_____________
/s/▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
EXHIBITS AND SCHEDULES
Schedule 1.2(a) - Description of ▇▇▇▇▇ Farm
Schedule 1.2(b) - Permitted Encumbrances
Schedule 1.2(c) - Outstanding Stock of CMT
Enterprises Inc.
Schedule 4.5 - Locations of Equipment
Schedule 4.19 - Financing Statements to be Terminated
Schedule 5.2(a) - States in Which Borrower Does
Business
Schedule 5.4(c) - Projections Delivered at Closing
Schedule 5.7(a) - Pending Litigation
Schedule 5.7(b) - Unsatisfied Judgments
Schedule 5.8 - ERISA Plans
Schedule 5.9 - Copyrights, Trademarks and other
Intellectual Property
Schedule 5.10 - Licenses and Permits
Schedule 5.13 - Burdensome Contracts
Schedule 7.11 - Existing Leases
Exhibit A - Form of Term Note
Exhibit B - Form of Guaranty
Exhibit C - Form of Assignment of Insurance
Exhibit D - Form of Assignment of Lease
Exhibit E - Form of Stock Pledge Agreement
Exhibit F - Form of Mortgage
Exhibit G - Form of Warrant
Exhibit H - Form of First Amendment
to Trademark Security Agreement