EXHIBIT 10.15
LOAN AND SECURITY AGREEMENT
by and between
CONGRESS FINANCIAL CORPORATION
as Lender
and
G+G RETAIL, INC.
and
THE ADDITIONAL PARTIES SET FORTH ON SCHEDULE 1 HERETO
as Borrowers
Dated: October 30, 1998
TABLE OF CONTENTS
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Page
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SECTION 1. DEFINITIONS........................................................... 1
SECTION 2. CREDIT FACILITIES..................................................... 10
2.1 Loans............................................................ 10
2.2 Letter of Credit Accommodations.................................. 11
2.3 Availability Reserves............................................ 13
SECTION 3. INTEREST AND FEES..................................................... 14
3.1 Interest......................................................... 14
3.2 Closing Fee...................................................... 15
3.3 [Intentionally Omitted].......................................... 15
3.4 Unused Line Fee.................................................. 15
3.5 Changes in Laws and Increased Costs of Loans..................... 15
SECTION 4. CONDITIONS PRECEDENT.................................................. 16
4.1 Conditions Precedent to Initial Loans and
Letter of Credit Accommodations.................................. 16
4.2 Conditions Precedent to All Loans and
Letter of Credit Accommodations.................................. 18
SECTION 5. SECURITY INTEREST..................................................... 18
SECTION 6. COLLECTION AND ADMINISTRATION......................................... 20
6.1 Borrowers' Loan Account(s)....................................... 20
6.2 Statements....................................................... 20
6.3 Collection of Accounts........................................... 20
6.4 Payments......................................................... 22
6.5 Authorization to Make Loans...................................... 22
6.6 Use of Proceeds.................................................. 23
6.7 Appointment of G+G as Agent for Borrowers........................ 23
SECTION 7. COLLATERAL REPORTING AND COVENANTS.................................... 23
7.1 Collateral Reporting............................................. 23
7.2 Accounts Covenants............................................... 24
7.3 Inventory Covenants.............................................. 25
7.4 Power of Attorney................................................ 26
7.5 Right to Cure.................................................... 27
7.6 Access to Premises............................................... 27
SECTION 8. REPRESENTATIONS AND WARRANTIES........................................ 28
8.1 Corporate Existence, Power and Authority; Subsidiaries........... 28
8.2 Financial Statements; No Material Adverse Change................. 28
8.3 Chief Executive Office; Collateral Locations..................... 28
8.4 Priority of Liens; Title to Properties........................... 28
8.5 Tax Returns...................................................... 29
8.6 Litigation....................................................... 29
8.7 Compliance with Other Agreements and Applicable Laws............. 29
8.8 Environmental Compliance......................................... 30
8.9 Credit Card Agreements........................................... 31
(i)
8.10 Employee Benefits.................................................. 31
8.11 Bank Accounts...................................................... 32
8.12 Accuracy and Completeness of Information........................... 32
8.13 Survival of Warranties; Cumulative................................. 32
SECTION 9. AFFIRMATIVE AND NEGATIVE COVENANTS........................................ 33
9.1 Maintenance of Existence........................................... 33
9.2 New Collateral Locations........................................... 33
9.3 Compliance with Laws, Regulations, Etc............................. 33
9.4 Payment of Taxes and Claims........................................ 34
9.5 Insurance.......................................................... 34
9.6 Financial Statements and Other Information......................... 34
9.7 Sale of Assets, Consolidation, Merger, Dissolution, Etc............ 36
9.8 Encumbrances....................................................... 37
9.9 Indebtedness....................................................... 38
9.10 Loans, Investments, Guarantees, Etc................................ 40
9.11 Dividends and Redemptions.......................................... 41
9.12 Transactions with Affiliates....................................... 42
9.13 Credit Card Agreements............................................. 42
9.14 Adjusted Tangible Net Worth........................................ 42
9.15 Compliance with ERISA.............................................. 43
9.16 Additional Bank Accounts........................................... 43
9.17 Costs and Expenses................................................. 43
9.18 Further Assurances................................................. 44
SECTION 10. EVENTS OF DEFAULT AND REMEDIES............................................ 44
10.1 Events of Default.................................................. 44
10.2 Remedies........................................................... 46
SECTION 11. JURY TRIAL WAIVER; OTHER WAIVERS
AND CONSENTS; GOVERNING LAW............................................... 48
11.1 Governing Law; Choice of Forum; Service of Process;
Jury Trial Waiver.................................................. 48
11.2 Waiver of Notices.................................................. 49
11.3 Amendments and Waivers............................................. 49
11.4 Waiver of Counterclaims............................................ 49
11.5 Indemnification.................................................... 49
SECTION 12. TERM OF AGREEMENT; MISCELLANEOUS.......................................... 50
12.1 Term................................................................ 50
12.2 Notices............................................................. 51
12.3 Partial Invalidity.................................................. 52
12.4 Successors.......................................................... 52
12.5 Confidentiality..................................................... 52
12.6 Entire Agreement.................................................... 53
(ii)
INDEX TO
EXHIBIT AND SCHEDULES
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Exhibit A Information Certificate of G+G Retail, Inc.
Schedule 1 Additional Borrowers
Schedule 6.3 Bank Accounts
Schedule 8.4 Existing Liens
Schedule 8.8 Environmental Compliance
Schedule 8.9 Credit Card Agreements
Schedule 9.9 Existing Indebtedness
Schedule 9.10 Loans, Investments, Guarantees
Schedule 9.12 Transactions With Affiliates
(iii)
LOAN AND SECURITY AGREEMENT
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This Loan and Security Agreement dated October 30, 1998 is entered into by
and between CONGRESS FINANCIAL CORPORATION, a Delaware corporation ("Lender")
and G+G RETAIL, INC., a Delaware corporation ("G+G") and each of the
corporations listed on Schedule 1 hereto (each of the foregoing, individually a
"Borrower" and collectively, "Borrowers").
W I T N E S S E T H:
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WHEREAS, Borrowers have requested that Lender enter into certain financing
arrangements with Borrowers pursuant to which Lender may make loans and provide
other financial accommodations to Borrowers; and
WHEREAS, Lender is willing to make such loans and provide such financial
accommodations on the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the mutual conditions and agreements
set forth herein, and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
SECTION 1. DEFINITIONS
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All terms used herein which are defined in Article 1 or Article 9 of the
Uniform Commercial Code shall have the meanings given therein unless otherwise
defined in this Agreement. All references to the plural herein shall also mean
the singular and to the singular shall also mean the plural unless the context
otherwise requires. All references to Borrowers pursuant to the definitions set
forth in the recitals hereto, unless the context otherwise requires, shall mean
each and all of them and their respective successors and assigns, individually
and collectively, jointly and severally. All references to Lender pursuant to
the definitions set forth in the recitals hereto, or to any other person herein,
shall include their respective successors and assigns. The words "hereof",
"herein", "hereunder", "this Agreement" and words of similar import when used in
this Agreement shall refer to this Agreement as a whole and not any particular
provision of this Agreement and as this Agreement now exists or may hereafter be
amended, modified, supplemented, extended, renewed, restated or replaced. The
word "including" when used in this Agreement shall mean "including, without
limitation". An Event of Default shall exist or continue or be continuing until
such Event of Default is waived in accordance with Section 11.3 or cured, if
such Event of Default is capable of being cured as determined by Lender. Any
accounting term used herein unless otherwise defined in this Agreement shall
have the meanings customarily given to such term in accordance with GAAP. For
purposes of this Agreement, the following terms shall have the respective
meanings given to them below:
1.1 "Accounts" shall mean all present and future rights of each Borrower
to payment for goods sold or leased or for services rendered, which are not
evidenced by instruments or chattel paper, and whether or not earned by
performance, and including, without limitation, credit card Receivables.
1.2 "Adjusted Eurodollar Rate" shall mean, with respect to each Interest
Period for any Eurodollar Rate Loan, the rate per annum (rounded upwards, if
necessary, to the next one-sixteenth (1/16) of one (1%) percent) determined by
dividing (a) the Eurodollar Rate for such Interest Period by (b) a percentage
equal to: (i) one (1) minus (ii the Reserve Percentage. For purposes hereof,
"Reserve Percentage" shall mean the reserve percentage, expressed as a decimal,
prescribed by any United States or foreign banking authority for determining the
reserve requirement which is or would be applicable to deposits of United States
dollars in a non-United States or an international banking office of Reference
Bank used to fund a Eurodollar Rate Loan or any Eurodollar Rate Loan made with
the proceeds of such deposit, whether or not the Reference Bank actually holds
or has made any such deposits or loans. The Adjusted Eurodollar Rate shall be
adjusted on and as of the effective day of any change in the Reserve Percentage.
1.3 "Adjusted Tangible Net Worth" shall mean as to any Person, at any
time, in accordance with GAAP (except as otherwise specifically set forth
below), on a consolidated basis for such Person and its subsidiaries (if any),
the amount equal to the difference between: (a) the aggregate net book value of
all assets of such Person and its subsidiaries, calculating the book value of
inventory for this purpose principally on a first-in-first-out basis, at the
lower of cost or market using the retail method of accounting after deducting
from such book values all appropriate reserves in accordance with GAAP
(including all reserves for doubtful receivables, obsolescence, depreciation and
amortization), provided, however, that for G+G such aggregate net book value of
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all assets shall not be reduced by the amount of any intangible assets written
off in whole or in part, and (b) the aggregate amount of the indebtedness and
other liabilities of such Person and its subsidiaries (including tax and other
proper accruals, but excluding any indebtedness which is subordinated to the
Obligations of Lender hereunder and excluding any indebtedness permitted
pursuant to Section 9.9(e)(iii) to the extent the proceeds of such indebtedness
are used as dividend payments as permitted under Section 9.11(b)), provided
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further, however, for G+G that the aggregate net book value of assets shall not
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reflect any non-cash gains or non-cash losses from unusual, infrequent or
extraordinary items or from changes in accounting principles recognized after
the date hereof.
1.4 "Availability Reserves" shall mean, as of any date of determination,
such amounts as Lender may from time to time establish and revise in good faith
reducing the amount of Loans and Letter of Credit Accommodations that would
otherwise be available to Borrowers under the lending formula(s) provided for
herein: (a) to reflect events, conditions, contingencies or risks that, as
determined by Lender in good faith, do or may affect either (i) the Collateral
or any other property which is security for the Obligations or its value, (ii
the assets, business or prospects of any Borrower or any Obligor or (ii the
security interests and other rights of Lender in the Collateral (including the
enforceability, perfection and priority thereof) or (b) to reflect Lender's good
faith belief that any collateral report or financial information furnished by or
on behalf of any Borrower or any Obligor to Lender is or may have been
incomplete, inaccurate or misleading in any material respect or (c) in respect
of any state of facts which Lender determines in good faith constitutes an Event
of Default or may, with notice or passage of time or both, constitute an Event
of Default, or (d) to reflect outstanding Letter of Credit Accommodations as
provided in Section 2.2 hereof or (e) as otherwise provided in Section 2.3
hereof. In addition to, and not in limitation of the foregoing, if at any time,
the Borrowers have Excess Availability of less than
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$3,000,000 or an Event of Default exists and is continuing, then, with respect
to any leased locations where Lender determines the landlord has any rights in
and to the Collateral pursuant to applicable law, Lender shall have the right to
establish an Availability Reserve in respect of amounts due for unpaid rent to
the owner and lessor of such leased location.
1.5 "Blocked Accounts" shall have the meaning set forth in Section 6.3
hereof.
1.6 "Bridge Loan Agreement" shall mean that certain $90,000,000 Loan
Agreement dated as of August 28, 1998 among G+G, Parent, the initial lenders
named therein and First Union National Bank, as administrative agent.
1.7 "Bridge Notes" shall mean, individually and collectively, all
promissory notes executed and delivered by G+G pursuant to the terms of the
Bridge Loan Agreement.
1.8 "Business Day" shall mean any day other than a Saturday, Sunday, or
other day on which commercial banks are authorized or required to close under
the laws of the State of New York or the State of North Carolina and a day on
which the Reference Bank and Lender are open for the transaction of business,
except that if a determination of a Business Day shall relate to any Eurodollar
Rate Loans, the term Business Day shall also exclude any day on which banks are
closed for dealings in dollar deposits in the London interbank market or other
applicable Eurodollar Rate market.
1.9 "Capital Stock" shall mean any and all shares, interests,
participations, or other equivalents (however designated) of corporate stock or
partnership interests and any options or warrants with respect to any of the
foregoing.
1.10 "Cash Equivalents" means (a) United States dollars (including, without
limitation, such dollars as are held as overnight bank deposits and demand
deposits with banks, which deposits are insured by the Federal Deposit Insurance
Corporation), (b) securities issued or directly and fully guaranteed or insured
by the United States government or any agency or instrumentality thereof having
maturities of not more than one year from the date of acquisition, (c)
certificates of deposit and Eurodollar time deposits with maturities of one year
or less from the date of acquisition and bankers' acceptances with maturities
not exceeding one year, in each case with any domestic commercial bank having
capital and surplus in excess of $500,000,000 and rated "A3" or better by
▇▇▇▇▇'▇ Investors Service, Inc. and "A-" or better by Standard & Poor's Rating
Group, (d) repurchase obligations with a term of not more than seven days for
underlying securities of the types described in clauses (b) and (c) above, (e)
commercial paper having one of the two highest ratings obtainable from ▇▇▇▇▇'▇
Investors Service, Inc or Standard & Poor's Ratings Group and in each case
maturing within nine months after the date of acquisition, and (f) money market
funds, the portfolios of which are limited to investments described in clauses
(a) through (e) above.
1.11 "Change Of Control" shall mean the earlier of (a) the first date that
the Initial Holders, on a collective basis, cease to be the "beneficial owners"
(as such term is defined in Rule 13d-3 under the Securities Exchange Act of
1934, as amended) of securities representing
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at least a majority of the total voting power of the outstanding capital stock
of Parent that is entitled to vote in the election of the Board of Directors of
Parent, or (b) the first date on which Parent (or its wholly-owned subsidiaries)
cease to wholly-own G+G.
1.12 "Code" shall mean the Internal Revenue Code of 1986, as the same now
exists or may from time to time hereafter be amended, modified, recodified or
supplemented, together with all rules, regulations and interpretations
thereunder or related thereto.
1.13 "Collateral" shall have the meaning set forth in Section 5 hereof.
1.14 "Cost" shall mean, as to the Inventory as of any date, the cost of
such Inventory as of such date, determined on a first-in-first-out basis under
the retail method of accounting in accordance with GAAP.
1.15 "Credit Card Acknowledgments" shall mean, individually and
collectively, the agreements by Credit Card Issuers or Credit Card Processors
who are parties to Credit Card Agreements in favor of Lender acknowledging
Lender's first priority security interest in the monies due and to become due to
any Borrower or Obligor (including, without limitation, credits and reserves)
under the Credit Card Agreements, and agreeing to transfer all such amounts to
the Blocked Accounts, as the same now exist or may hereafter be amended,
modified, supplemented, extended, renewed, restated or replaced.
1.16 "Credit Card Agreements" shall mean all agreements now or hereafter
entered into by any Borrower or Obligor with any Credit Card Issuer or any
Credit Card Processor, as the same now exist or may hereafter be amended,
modified, supplemented, extended, renewed, restated or replaced, including, but
not limited to, the agreements set forth on Schedule 8.9 hereto.
1.17 "Credit Card Issuer" shall mean any person (other than Borrowers) who
issues or whose members issue credit cards, including, without limitation,
MasterCard or VISA bank credit or debit cards or other bank credit or debit
cards issued through MasterCard International, Inc., Visa, U.S.A., Inc. or Visa
International and American Express, Discover, Diners Club, ▇▇▇▇▇ ▇▇▇▇▇▇▇ and
other non-bank credit or debit cards, including, without limitation, credit or
debit cards issued by or through American Express Travel Related Services
Company, Inc. and Novus Services, Inc.
1.18 "Credit Card Processor" shall mean any servicing or processing agent
or any factor or financial intermediary who facilitates, services, processes or
manages the credit authorization, billing transfer and/or payment procedures
with respect to any of Borrowers' or Obligors' sales transactions involving
credit card or debit card purchases by customers using credit cards or debit
cards issued by any Credit Card Issuer.
1.19 "Credit Card Receivables" shall mean collectively, (a) all present
and future rights of Borrowers to payment from any Credit Card Issuer, Credit
Card Processor or other third party arising from sales of goods or rendition of
services to customers who have purchased such
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goods or services using a credit or debit card and (b) all present and future
rights of Borrowers to payment from any Credit Card Issuer, Credit Card
Processor or other third party in connection with the sale or transfer of
Accounts arising pursuant to the sale of goods or rendition of services to
customers who have purchased such goods or services using a credit card or a
debit card, including, but not limited to, all amounts at any time due or to
become due from any Credit Card Issuer or Credit Card Processor under the Credit
Card Agreements or otherwise.
1.20 "Eligible Inventory" shall mean Inventory consisting of finished
goods held for resale in the ordinary course of the business of Borrowers that
are acceptable to Lender based on the criteria set forth below. In general,
Eligible Inventory shall not include (a) packaging and shipping materials; (b)
supplies used or consumed in Borrowers' business; (c) Inventory at premises
other than those owned or leased and controlled by Borrowers; (d) Inventory
subject to a security interest or lien in favor of any person other than Lender
except those permitted in this Agreement; (e) ▇▇▇▇ and hold goods; (f)
unserviceable, obsolete or slow moving Inventory; (g) Inventory which is not
subject to the first priority, valid and perfected security interest of Lender;
(h) damaged and/or defective Inventory (i) returned Inventory that is not held
for resale; (j) Inventory to be returned to vendors; (k) Inventory subject to
deposits made by customers for sales of Inventory that has not been delivered;
(l) samples; (m) Inventory purchased or sold on consignment; (n) Inventory
received by Borrowers earlier then the date six (6) months prior to the date
hereof; and (o) Inventory purchased from an affiliate of Borrowers at a purchase
price exceeding the fair market value of such Inventory, to the extent of such
excess purchase price.
General criteria for Eligible Inventory may be established and revised from time
to time by Lender in good faith based on an event, condition or other
circumstance arising after the date hereof, or existing on the date hereof to
the extent Lender has no notice thereof, which adversely affected or could
reasonably be expected to adversely affect the Inventory in the good faith
determination of Lender. Lender will not establish new criteria for Eligible
Inventory if Lender has established an Availability Reserve for the same purpose
and Lender will use its best efforts to promptly notify Borrowers of any new
criteria established by Lender. Any Inventory which is not Eligible Inventory
shall nevertheless be part of the Collateral.
1.21 "Environmental Laws" shall mean all foreign, Federal, State and local
laws (including common law), legislation, rules, codes, licenses, permits
(including any conditions imposed therein), authorizations, judicial or
administrative decisions, injunctions or agreements between Borrowers and any
governmental authority, (a) relating to pollution and the protection,
preservation or restoration of the environment (including air, water vapor,
surface water, ground water, drinking water, drinking water supply, surface
land, subsurface land, plant and animal life or any other natural resource), or
to human health or safety, (b) relating to the exposure to, or the use, storage,
recycling, treatment, generation, manufacture, processing, distribution,
transportation, handling, labeling, production, release or disposal, or
threatened release, of Hazardous Materials, or (c) relating to all laws with
regard to recordkeeping, notification, disclosure and reporting requirements
respecting Hazardous Materials. The term "Environmental Laws" includes (i) the
Federal Comprehensive Environmental Response, Compensation and Liability Act of
1980, the Federal Superfund Amendments and Reauthorization Act, the Federal
Water Pollution Control Act of 1972, the Federal Clean Water Act, the Federal
Clean Air Act,
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the Federal Resource Conservation and Recovery Act of 1976 (including the
Hazardous and Solid Waste Amendments thereto), the Federal Solid Waste Disposal
and the Federal Toxic Substances Control Act, the Federal Insecticide, Fungicide
and Rodenticide Act, and the Federal Safe Drinking Water Act of 1974, (ii
applicable state counterparts to such laws, and (ii any common law or equitable
doctrine that may impose liability or obligations for injuries or damages due
to, or threatened as a result of, the presence of or exposure to any Hazardous
Materials.
1.22 "Equipment" shall mean all of Borrowers' now owned and hereafter
acquired equipment, machinery, computers and computer hardware and software
(whether owned or licensed), vehicles, tools, furniture, fixtures, all
attachments, accessions and property now or hereafter affixed thereto or used in
connection therewith, and substitutions and replacements thereof, wherever
located.
1.23 "ERISA" shall mean the United States Employee Retirement Income
Security Act of 1974, as the same now exists or may hereafter from time to time
be amended, modified, recodified or supplemented, together with all rules,
regulations and interpretations thereunder or related thereto.
1.24 "ERISA Affiliate" shall mean any person required to be aggregated
with Borrowers or any of their subsidiaries under Sections 414(b), 414(c),
414(m) or 414(o) of the Code.
1.25 "Eurodollar Rate" shall mean with respect to the Interest Period for
a Eurodollar Rate Loan, the interest rate per annum equal to the arithmetic
average of the rates of interest per annum (rounded upwards, if necessary, to
the next one-sixteenth (1/16) of one (1%) percent) at which Reference Bank is
offered deposits of United States dollars in the London interbank market (or
other Eurodollar Rate market selected by Borrowers and approved by Lender) on or
about 9:00 a.m. (New York time) two (2) Business Days prior to the commencement
of such Interest Period in amounts substantially equal to the principal amount
of the Eurodollar Rate Loans requested by and available to Borrowers in
accordance with this Agreement, with a maturity of comparable duration to the
Interest Period selected by Borrowers.
1.26 "Eurodollar Rate Loans" shall mean any Loans or portion thereof on
which interest is payable based on the Adjusted Eurodollar Rate in accordance
with the terms hereof.
1.27 "Excess Availability" shall mean the amount, as determined by Lender,
calculated at any time, equal to: (a) the lesser of (i) the amount of the Loans
available to Borrowers as of such time based on the applicable lending formula
multiplied by the Value of Eligible Inventory, as determined by Lender, and
subject to the sublimits and Availability Reserves from time to time established
by Lender hereunder and (ii the Maximum Credit, minus (b) the sum of: (i) the
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amount of all then outstanding and unpaid Obligations, plus (ii (A) the
aggregate amount of all trade payables of Borrowers which are more than forty-
five (45) days past due as of such time less (B) the lesser of (x) the amount of
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all trade payables which are more than forty-five (45) days past due which the
Borrowers are in good faith contesting, to the extent each such payable is so
contested and (y) $500,000.
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1.28 "Event Of Default" shall mean the occurrence or existence of any
event or condition described in Section 10.1 hereof.
1.29 "Financing Agreements" shall mean, collectively, this Agreement and
all notes, guarantees, security agreements and other agreements, documents and
instruments now or at any time hereafter executed and/or delivered by any
Borrower or any Obligor in connection with this Agreement, as the same now exist
or may hereafter be amended, modified, supplemented, extended, renewed, restated
or replaced.
1.30 "GAAP" shall mean generally accepted accounting principles in the
United States of America as in effect from time to time as set forth in the
opinions and pronouncements of the Accounting Principles Board and the American
Institute of Certified Public Accountants and the statements and pronouncements
of the Financial Accounting Standards Boards which are applicable to the
circumstances as of the date of determination consistently applied, except that,
for purposes of Sections 9.14 hereof, GAAP shall be determined on the basis of
such principles in effect on the date hereof and consistent with those used in
the preparation of the audited financial statements delivered to Lender prior to
the date hereof.
1.31 "Guarantor" shall mean any person other than Borrowers which executes
a guarantee in favor of Lender unconditionally guaranteeing Borrowers'
Obligations to Lender and has executed in favor of Lender a security agreement
and related documents including UCC-1 Financing Statements, and all of which
documents then continue in effect.
1.32 "Information Certificate" shall mean the Information Certificate of
Borrowers constituting Exhibit A hereto containing material information with
respect to Borrowers, their business and assets provided by or on behalf of
Borrowers to Lender in connection with the preparation of this Agreement and the
other Financing Agreements and the financing arrangements provided for herein.
1.33 Initial Holders" means Pegasus Partners, L.P., Pegasus Related
Partners, L.P., ▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇ and their respective
affiliates.
1.34 "Interest Period" shall mean for any Eurodollar Rate Loan, a period
of approximately one (1), two (2), or three (3) months duration as Borrowers may
elect, the exact duration to be determined in accordance with the customary
practice in the applicable Eurodollar Rate market; provided, that, Borrowers may
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not elect an Interest Period which will end after the last day of the then-
current term of this Agreement.
1.35 "Interest Rate" shall mean (a) as to Prime Rate Loans, a rate equal
to the Prime Rate and (b) as to Eurodollar Rate Loans, a rate of one and three-
quarters (1 3/4%) percent per annum in excess of the Adjusted Eurodollar Rate
(based on the Eurodollar Rate applicable for the Interest Period selected by
Borrowers as in effect three (3) Business Days after the date of receipt by
Lender of the request of Borrowers for such Eurodollar Rate Loans in accordance
with the terms hereof ("Eurodollar Request Notice"), whether such rate is higher
or lower than any rate previously quoted to Borrowers); provided, that: the
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Interest Rate specified in clause (a) with
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respect to Prime Rate Loans and in clause (b) with respect to Eurodollar Rate
Loans shall be increased, in each case, by two (2%) percent per annum, at
Lender's option, without notice, (i) for the period on and after (A) the date of
termination or non-renewal hereof and until such time as all Obligations are
indefeasibly paid in full (notwithstanding entry of any judgment against
Borrowers), or (B) the date of the occurrence of any Event of Default, and for
so long as such Event of Default or other event is continuing as determined by
Lender, and (ii on the Loans at any time outstanding in excess of the amounts
available to Borrowers under Section 2 (whether or not such excess(es), arise or
are made with or without Lender's knowledge or consent and whether made before
or after an Event of Default).
1.36 "Inventory" shall mean all of Borrowers' now owned and hereafter
existing or acquired raw materials, work in process, finished goods and all
other inventory of whatsoever kind or nature, wherever located.
1.37 "Landlord Agreement" shall mean an agreement in writing from the
owner and lessor of any leased premises in form and substance reasonably
satisfactory to Lender acknowledging Lender's first priority security interest
in the Collateral, waiving or subordinating in favor of Lender security
interests and claims by such person against the Collateral and permitting Lender
access to, and the right to remain on, the premises so as to exercise Lender's
rights and remedies and otherwise deal with the Collateral.
1.38 "Letter Of Credit Accommodations" shall mean the letters of credit,
merchandise purchase or other guaranties which are from time to time either (a)
issued or opened by Lender for the account of any Borrower or any Obligor or (b)
with respect to which Lender has agreed to indemnify the issuer or guaranteed to
the issuer the performance by Borrowers of their obligations to such issuer.
1.39 "Loans" shall mean the loans now or hereafter made by Lender to or
for the benefit of Borrowers on a revolving basis (involving advances,
repayments and readvances) as set forth in Section 2.1 hereof.
1.40 "Material Adverse Change" shall mean a material adverse change in the
condition (financial or otherwise), operations, performance, properties,
business or affairs of the Borrowers or any Obligor.
1.41 "Material Adverse Effect" shall mean a material adverse change in, or
a material adverse effect upon (a) the condition (financial or otherwise),
operations, business or affairs of Borrowers or any Obligor, (b) the ability of
Borrowers or any Obligor to repay any Obligations under any of the Financing
Agreements, or (c) Lender's rights or interests in its Collateral or of Lender's
ability to enforce the Obligations or realize upon its Collateral.
1.42 "Maximum Credit" shall mean $20,000,000.
1.43 "Net Recovery Amount" shall mean at any given time the Value of
Eligible Inventory multiplied by the Net Recovery Cost Percentage.
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1.44 "Net Recovery Cost Percentage" shall mean the fraction, expressed as
a percentage, (a) the numerator of which is the amount equal to the recovery on
the aggregate amount of the Inventory at such time on a "going out of business
sale" basis as set forth in the most recent acceptable appraisal of Inventory
received by Lender in accordance with Section 7.3, net of operating expenses,
liquidation expenses and commissions, and (b) the denominator of which is the
original Cost of the aggregate amount of the Inventory subject to appraisal.
1.45 "Obligations" shall mean any and all Loans, Letter of Credit
Accommodations and all other obligations, liabilities and indebtedness of every
kind, nature and description owing by Borrowers to Lender and/or its affiliates,
including principal, interest, charges, fees, costs and expenses, however
evidenced, whether as principal, surety, endorser, guarantor or otherwise,
whether arising under this Agreement or otherwise, whether now existing or
hereafter arising, whether arising before, during or after the initial or any
renewal term of this Agreement or after the commencement of any case with
respect to Borrowers under the United States Bankruptcy Code or any similar
statute (including, without limitation, the payment of interest and other
amounts which would accrue and become due but for the commencement of such case,
whether or not such amounts are allowed or allowable in whole or in part in such
case), whether direct or indirect, absolute or contingent, joint or several, due
or not due, primary or secondary, liquidated or unliquidated, secured or
unsecured, and however acquired by Lender.
1.46 "Obligor" shall mean any guarantor, endorser, acceptor, surety or
other person liable on or with respect to the Obligations or who is the owner of
any property which is security for the Obligations, other than Borrowers.
1.47 "Parent" shall mean G&G Retail Holdings, Inc., together with its
successors and assigns.
1.48 "Payment Account" shall have the meaning set forth in Section 6.3
hereof.
1.49 "Permits" shall have the meaning set forth in Section 8.7 hereof.
1.50 "Person" or "person" shall mean any individual, sole proprietorship,
partnership, corporation (including, without limitation, any corporation which
elects subchapter S status under the Code), limited liability company, limited
liability partnership, business trust, unincorporated association, joint stock
corporation, trust, joint venture or other entity or any government or any
agency or instrumentality or political subdivision thereof.
1.51 "Prime Rate" shall mean the rate from time to time publicly announced
by First Union National Bank, or its successors, as its prime rate, whether or
not such announced rate is the best rate available at such bank.
1.52 "Prime Rate Loans" shall mean any Loans or portion thereof on which
interest is payable based on the Prime Rate in accordance with the terms hereof.
9
1.53 "Real Property" shall mean all now owned and hereafter acquired real
property of Borrowers, including leasehold interests, together with all
buildings, structures, and other improvements located thereon and all licenses,
easements and appurtenances relating thereto, wherever located.
1.54 "Records" shall mean all of Borrowers' present and future books of
account of every kind or nature, purchase and sale agreements, invoices, ledger
cards, bills of lading and other shipping evidence, statements, correspondence,
memoranda, credit files and other data relating to the Collateral or any account
debtor, together with the tapes, disks, diskettes and other data and software
storage media and devices, file cabinets or containers in or on which the
foregoing are stored (including any rights of Borrowers with respect to the
foregoing maintained with or by any other person).
1.55 "Reference Bank" shall mean First Union National Bank or such other
bank as Lender may designate from time to time.
1.56 "Renewal Date" shall have the meaning set forth in Section 12.1
hereof.
1.57 "Retail Value" shall mean, as to the Inventory as of any date, the
then current retail sales price of such Inventory as of such date, net of
markdowns from the original retail sales price or ticketed sales price with
respect thereto.
1.58 "Value" shall mean with respect to Inventory, the lower of (a) Cost
or (b) market value, as determined in good faith by Lender.
SECTION 2. CREDIT FACILITIES
-----------------
2.1 Loans.
(a) Subject to, and upon the terms and conditions contained
herein, Lender agrees to make Loans to Borrowers from time to time in amounts
requested by Borrowers up to the amount equal to: (i) (A) the lesser of (1) the
Maximum Credit and (2) eighty (80%) percent of the Net Recovery Amount of the
Eligible Inventory; minus (ii any Availability Reserves; except that, so long as
----- ------ ----
no Event of Default exists and is continuing, for the calendar months of July,
August, October and November of each year, Lender agrees to make Loans to
Borrowers from time to time in amounts requested by Borrowers up to the amount
equal to: (i) the lesser of (A) the Maximum Credit and (B) eighty-five (85%)
percent of the Net Recovery Amount of the Eligible Inventory; minus (ii) any
-----
Availability Reserves.
(b) Lender may, in its discretion, from time to time, upon not
less than five (5) days prior notice to Borrowers, reduce the lending formula
with respect to Eligible Inventory to the extent that Lender determines that:
(i) the number of days of the turnover of the Inventory for any period has
changed in any respect or (ii the nature, quality or mix of the Inventory has
deteriorated or (ii there is a decrease in the Net Recovery Cost Percentage
after the date hereof. In determining whether to reduce the lending formula(s),
Lender may consider events, conditions,
10
contingencies or risks which are also considered in determining Eligible
Inventory or in establishing Availability Reserves.
To the extent Lender shall have established an Availability
Reserve which is sufficient to address any event, condition or matter in a
manner satisfactory to Lender in good faith, Lender shall not exercise its
rights under this Section 2.1(b) to reduce the lending formulas to address such
event, condition or matter. The amount of any reduction in the lending formula
by Lender pursuant to this Section 2.1(b) shall have a reasonable relationship
to the matter which is the basis for such a reduction.
(c) Except in Lender's discretion, the aggregate amount of the Loans
and the Letter of Credit Accommodations outstanding at any time shall not exceed
the Maximum Credit. In the event that the outstanding amount of the Loans, or
the aggregate amount of the outstanding Loans and Letter of Credit
Accommodations, exceed the amounts available under the lending formulas, the
sublimits for Letter of Credit Accommodations set forth in Section 2.2(d) or the
Maximum Credit, as applicable, such event shall not limit, waive or otherwise
affect any rights of Lender in that circumstance or on any future occasions and
Borrowers shall, upon demand by Lender, which may be made at any time or from
time to time, immediately repay to Lender the entire amount of any such
excess(es) for which payment is demanded.
2.2 Letter of Credit Accommodations.
(a) Subject to, and upon the terms and conditions contained herein,
at the request of Borrowers, Lender agrees to provide or arrange for Letter of
Credit Accommodations for the account of Borrowers containing terms and
conditions acceptable to Lender and the issuer thereof. Any payments made by
Lender to any issuer thereof and/or related parties in connection with the
Letter of Credit Accommodations shall constitute additional Loans to Borrowers
pursuant to this Section 2.
(b) In addition to any charges, fees or expenses charged by any bank
or issuer in connection with the Letter of Credit Accommodations, Borrowers
shall pay to Lender a letter of credit fee at a rate equal to one and three
quarters (1 3/4%) percent per annum on the daily outstanding balance of the
Letter of Credit Accommodations for the immediately preceding month (or part
thereof), payable in arrears as of the first day of each succeeding month,
except that Borrowers shall pay to Lender such letter of credit fee, at Lender's
option, without notice, at a rate equal to three and three quarters (3 3/4%)
percent per annum for (i) the period from and after the date of termination or
non-renewal hereof until Lender has received full and final payment of all
Obligations (notwithstanding entry of a judgment against Borrowers) and (ii the
period from and after the date of the occurrence of an Event of Default and for
so long as such Event of Default is continuing. Such letter of credit fee shall
be calculated on the basis of a three hundred sixty (360) day year and actual
days elapsed and the obligation of Borrowers to pay such fee shall survive the
termination or non-renewal of this Agreement.
(c) No Letter of Credit Accommodations shall be available unless on
the date of the proposed issuance of any Letter of Credit Accommodations, the
Loans available to
11
Borrowers (subject to the Maximum Credit and any Availability Reserves) are
equal to or greater than (i) if the proposed Letter of Credit Accommodation is
for the purpose of purchasing Eligible Inventory, the sum of (A) the percentage
equal to one hundred (100%) percent minus the then applicable percentage set
forth in Section 2.1(a) above multiplied by the Value of such Eligible
Inventory, plus (B) freight, taxes, duty and other amounts that Lender estimates
must be paid in connection with such Inventory upon arrival and for delivery to
one of Borrowers' locations for Eligible Inventory; and (ii if the proposed
Letter of Credit Accommodation is for any other purpose an amount equal to one
hundred (100%) percent of the face amount thereof and all other commitments and
obligations made or incurred by Lender with respect thereto. Effective on the
issuance of each Letter of Credit Accommodations, an Availability Reserve shall
be established in the applicable amount set forth in Section 2.2(c)(i) or
Section 2.2(c)(ii).
(d) Except in Lender's discretion, the amount of all outstanding
Letter of Credit Accommodations and all other commitments and obligations made
or incurred by Lender in connection therewith, shall not at any time exceed
$10,000,000. At any time an Event of Default has occurred and is continuing,
upon Lender's request, Borrowers will either furnish cash collateral to secure
the reimbursement obligations to the issuer in connection with any Letter of
Credit Accommodations or furnish cash collateral to Lender for the Letter of
Credit Accommodations, and in either case, the Loans otherwise available to
Borrowers shall not be reduced as provided in Section to 2.2(c) the extent of
such cash collateral.
(e) Borrowers shall indemnify and hold Lender harmless from and
against any and all losses, claims, damages, liabilities, costs and expenses
which Lender may suffer or incur in connection with any Letter of Credit
Accommodations and any documents, drafts or acceptances relating thereto,
including, but not limited to, any losses, claims, damages, liabilities, costs
and expenses due to any action taken by any issuer or correspondent with respect
to any Letter of Credit Accommodation, except for any losses, claims, damages,
liabilities, costs and expenses as a result of the gross negligence or willful
misconduct of Lender as determined pursuant to a final non-appealable order of a
court of competent jurisdiction. Borrowers assume all risks with respect to the
acts or omissions of the drawer under or beneficiary of any Letter of Credit
Accommodation and for such purposes the drawer or beneficiary shall be deemed
Borrowers' agent. Borrowers assume all risks for, and agrees to pay, all
foreign, Federal, State and local taxes, duties and levies relating to any goods
subject to any Letter of Credit Accommodations or any documents, drafts or
acceptances thereunder. Borrowers hereby release and hold Lender harmless from
and against any acts, waivers, errors, delays or omissions, whether caused by
Borrowers, by any issuer or correspondent or otherwise with respect to or
relating to any Letter of Credit Accommodation, except for any losses, claims,
damages, liabilities, costs and expenses as a result of the gross negligence or
willful misconduct of Lender as determined pursuant to a final non-appealable
order of a court of competent jurisdiction. The provisions of this Section
2.2(e) shall survive the payment of Obligations and the termination or non-
renewal of this Agreement.
(f) Nothing contained herein shall be deemed or construed to grant
Borrowers any right or authority to pledge the credit of Lender in any manner.
Lender shall have no liability of any kind with respect to any Letter of Credit
Accommodation provided by an issuer
12
other than Lender unless Lender has duly executed and delivered to such issuer
the application or a guarantee or indemnification in writing with respect to
such Letter of Credit Accommodation. Borrowers shall be bound by any
interpretation made in good faith by Lender, or any other issuer or
correspondent under or in connection with any Letter of Credit Accommodation or
any documents, drafts or acceptances thereunder, notwithstanding that such
interpretation may be inconsistent with any instructions of Borrowers. Lender
shall have the sole and exclusive right and authority to, and Borrowers shall
not at any time an Event of Default exists or has occurred and is continuing,
unless Lender delivers notice to the Borrowers to the contrary, (i) approve or
resolve any questions of non-compliance of documents, (ii give any instructions
as to acceptance or rejection of any documents or goods, or (ii execute any and
all applications for steamship or airway guaranties, indemnities or delivery
orders, (iv grant any extensions of the maturity of, time of payment for, or
time of presentation of, any drafts, acceptances, or documents, and (v) agree to
any amendments, renewals, extensions, modifications, changes or cancellations of
any of the terms or conditions of any of the applications, Letter of Credit
Accommodations, or documents, drafts or acceptances thereunder or any letters of
credit included in the Collateral. Lender may take such actions either in its
own name or in Borrowers' name.
(g) Any rights, remedies, duties or obligations granted or undertaken
by Borrowers to any issuer or correspondent in any application for any Letter of
Credit Accommodation, or any other agreement in favor of any issuer or
correspondent relating to any Letter of Credit Accommodation, shall be deemed to
have been granted or undertaken by Borrowers to Lender. Any duties or
obligations undertaken by Lender to any issuer or correspondent in any
application for any Letter of Credit Accommodation, or any other agreement by
Lender in favor of any issuer or correspondent relating to any Letter of Credit
Accommodation, shall be deemed to have been undertaken by Borrowers to Lender
and to apply in all respects to Borrowers.
2.3 Availability Reserves. All Loans otherwise available to Borrowers
pursuant to the lending formulas and subject to the Maximum Credit and other
applicable limits hereunder shall be subject to Lender's continuing right to
establish and revise Availability Reserves. Without limiting any other rights
or remedies of Lender under this Agreement or any of the other Financing
Agreements with respect to the establishment of Availability Reserves or
otherwise, Lender may establish and revise Availability Reserves to reflect: (a)
inventory shrinkage; (b) the aggregate amount of deposits, if any, received by
Borrowers from their retail customers in respect of unfilled orders for
merchandise; (c) (i) amounts due or to become due in respect of use and/or
withholding taxes and (ii) at any time when Excess Availability is less than
$3,000,000, amounts due or to become due in respect of sales taxes; or (d)
amounts owing by Borrowers to Credit Card Issuers or Credit Card Processors in
connection with the Credit Card Agreements.
13
SECTION 3. INTEREST AND FEES
-----------------
3.1 Interest.
(a) Borrowers shall pay to Lender interest on the outstanding
principal amount of the Loans at the Interest Rate. All interest accruing
hereunder on and after the date of any Event of Default or termination or non-
renewal hereof shall be payable on demand.
(b) Borrowers may from time to time request that Prime Rate Loans be
converted to Eurodollar Rate Loans or that any existing Eurodollar Rate Loans
continue for an additional Interest Period. Such request from Borrowers shall
specify the amount of the Prime Rate Loans which will constitute Eurodollar Rate
Loans (subject to the limits set forth below) and the Interest Period to be
applicable to such Eurodollar Rate Loans. Subject to the terms and conditions
contained herein, three (3) Business Days after receipt by Lender of such a
request from Borrowers, such Prime Rate Loans shall be converted to Eurodollar
Rate Loans or such Eurodollar Rate Loans shall continue, as the case may be,
provided, that, as of such date each of the following conditions is satisfied as
-------- ----
determined by Lender in good faith: (i) no Event of Default, or event which
with notice or passage of time or both would constitute an Event of Default
exists or has occurred and is continuing, (ii no party hereto shall have sent
any notice of termination or non-renewal of this Agreement, (ii Borrowers shall
have complied with such customary procedures as are established by Lender and
specified by Lender to Borrowers from time to time for requests by Borrowers for
Eurodollar Rate Loans, (iv no more than six (6) Interest Periods may be in
effect at any one time, (v) the aggregate amount of the Eurodollar Rate Loans
must be in an amount not less than $1,000,000 or an integral multiple of
$1,000,000 in excess thereof, (vi the maximum amount of the Eurodollar Rate
Loans at any time requested by Borrowers shall not exceed the amount equal to
ninety (90%) percent of the lowest principal amount of the Loans which it is
anticipated will be outstanding during the applicable Interest Period, in each
case as determined by Lender (but with no obligation of Lender to make such
Loans) and (vi Lender shall have determined that the Interest Period or Adjusted
Eurodollar Rate is available to Lender through the Reference Bank and can be
readily determined as of the date of the request for such Eurodollar Rate Loan
by Borrowers. Any request by Borrowers to convert Prime Rate Loans to
Eurodollar Rate Loans or to continue any existing Eurodollar Rate Loans shall be
irrevocable. Notwithstanding anything to the contrary contained herein, Lender
and Reference Bank shall not be required to purchase United States Dollar
deposits in the London interbank market or other applicable Eurodollar Rate
market to fund any Eurodollar Rate Loans, but the provisions hereof shall be
deemed to apply as if Lender and Reference Bank had purchased such deposits to
fund the Eurodollar Rate Loans.
(c) Any Eurodollar Rate Loans shall automatically convert to Prime
Rate Loans upon the last day of the applicable Interest Period, unless Lender
has received and approved a request to continue such Eurodollar Rate Loan at
least three (3) Business Days prior to such last day in accordance with the
terms hereof. Any Eurodollar Rate Loans shall, at Lender's option, upon notice
by Lender to Borrowers, convert to Prime Rate Loans in the event that (i) an
Event of Default shall exist, (ii this Agreement shall terminate or not be
renewed, or (ii the aggregate principal amount of the Prime Rate Loans which
have previously been converted to Eurodollar
14
Rate Loans or existing Eurodollar Rate Loans continued, as the case may be, at
the beginning of an Interest Period shall at any time during such Interest
Period exceed either (A) the aggregate principal amount of the Loans then
outstanding, or (B) the Loans then available to Borrowers under Section 2
hereof. Borrowers shall pay to Lender, upon demand by Lender (or Lender may, at
its option, charge any loan account of Borrowers) any amounts required to
compensate Lender, the Reference Bank or any participant with Lender for any
loss (including loss of anticipated profits), cost or expense incurred by such
person, as a result of the conversion of Eurodollar Rate Loans to Prime Rate
Loans pursuant to any of the foregoing.
(d) Interest shall be payable by Borrowers to Lender monthly in
arrears not later than the first day of each calendar month and shall be
calculated on the basis of a three hundred sixty (360) day year and actual days
elapsed. The interest rate on Loans (other than Eurodollar Rate Loans) shall
increase or decrease by an amount equal to each increase or decrease in the
Prime Rate effective on the first day of the month after any change in such
Prime Rate is announced based on the Prime Rate in effect on the last day of the
month in which any such change occurs. In no event shall charges constituting
interest payable by Borrowers to Lender exceed the maximum amount or the rate
permitted under any applicable law or regulation, and if any such part or
provision of this Agreement is in contravention of any such law or regulation,
such part or provision shall be deemed amended to conform thereto.
3.2 Closing Fee. Borrowers shall pay to Lender as a closing fee the
amount of $125,000 which shall be fully earned as of and payable on the date
hereof.
3.3 [Intentionally Omitted].
3.4 Unused Line Fee. Borrowers shall pay to Lender monthly an unused line
fee at a rate equal to one-quarter of one (1/4%) percent per annum calculated
upon the amount by which the Maximum Credit exceeds the average daily principal
balance of the outstanding Loans and Letter of Credit Accommodations during the
immediately preceding month (or part thereof) while this Agreement is in effect
and for so long thereafter as any of the Obligations are outstanding, which fee
shall be payable on the first day of each month in arrears.
3.5 Changes in Laws and Increased Costs of Loans.
(a) Notwithstanding anything to the contrary contained herein, all
Eurodollar Rate Loans shall, upon notice by Lender to Borrowers, convert to
Prime Rate Loans in the event that (i) any change in applicable law or
regulation (or the interpretation or administration thereof) shall either (A)
make it unlawful for Lender, Reference Bank or any participant to make or
maintain Eurodollar Rate Loans or to comply with the terms hereof in connection
with the Eurodollar Rate Loans, or (B) shall result in the increase in the costs
to Lender, Reference Bank or any participant of making or maintaining any
Eurodollar Rate Loans or by an amount deemed by Lender to be material, or (C)
reduce the amounts received or receivable by Lender in respect thereof, by an
amount deemed by Lender to be material or (ii the cost to Lender, Reference Bank
or any participant of making or maintaining any Eurodollar Rate Loans shall
otherwise increase by an amount deemed by Lender to be material. Borrowers shall
pay to Lender, upon
15
demand by Lender (or Lender may, at its option, charge any loan account of
Borrowers) any amounts required to compensate Lender, the Reference Bank or any
participant with Lender for any loss (including loss of anticipated profits),
cost or expense incurred by such person as a result of the foregoing, including,
without limitation, any such loss, cost or expense incurred by reason of the
liquidation or reemployment of deposits or other funds acquired by such person
to make or maintain the Eurodollar Rate Loans or any portion thereof. A
certificate of Lender setting forth the basis for the determination of such
amount necessary to compensate Lender as aforesaid shall be delivered to
Borrowers and shall be conclusive, absent manifest error.
(b) If any payments or prepayments in respect of the Eurodollar Rate
Loans are received by Lender other than on the last day of the applicable
Interest Period (whether pursuant to acceleration, upon maturity or otherwise),
including any payments pursuant to the application of collections under Section
6.3 or any other payments made with the proceeds of Collateral, Borrowers shall
pay to Lender upon demand by Lender (or Lender may, at its option, charge any
loan account of Borrowers) any amounts required to compensate Lender, the
Reference Bank or any participant with Lender for any additional loss (including
loss of anticipated profits), cost or expense incurred by such person as a
result of such prepayment or payment, including, without limitation, any loss,
cost or expense incurred by reason of the liquidation or reemployment of
deposits or other funds acquired by such person to make or maintain such
Eurodollar Rate Loans or any portion thereof.
SECTION 4. CONDITIONS PRECEDENT
--------------------
4.1 Conditions Precedent to Initial Loans and Letter of Credit
Accommodations. Each of the following is a condition precedent to Lender making
the initial Loans and providing the initial Letter of Credit Accommodations
hereunder:
(a) Lender shall have received, in form and substance satisfactory
to Lender, all releases, terminations and such other documents as Lender may
request to evidence and effectuate the termination by ▇▇▇▇▇▇▇▇▇, L.L.C. of its
financing arrangements with Borrowers and the termination and release by it of
any interest in and to any assets and properties of Borrowers and each Obligor,
duly authorized, executed and delivered by it, including, but not limited to,
UCC termination statements for all UCC financing statements previously filed by
it or its predecessors, as secured party and Borrowers or any Obligor, as
debtor;
(b) Lender shall have received evidence, in form and substance
satisfactory to Lender, that Lender has valid perfected and first priority
security interests in and liens upon the Collateral and any other property which
is intended to be security for the Obligations or the liability of any Obligor
in respect thereof, subject only to the security interests and liens permitted
herein or in the other Financing Agreements;
(c) all requisite corporate action and proceedings in connection
with this Agreement and the other Financing Agreements shall be satisfactory in
form and substance to Lender, and Lender shall have received all information and
copies of all documents, including, without limitation, records of requisite
corporate action and proceedings which Lender may have
16
requested in connection therewith, such documents where requested by Lender or
its counsel to be certified by appropriate corporate officers or governmental
authorities;
(d) no material adverse change shall have occurred in the assets,
business or prospects of Borrowers since the date of Lender's latest field
examination and no change or event shall have occurred which would impair the
ability of Borrowers or any Obligor to perform its obligations hereunder or
under any of the other Financing Agreements to which it is a party or of Lender
to enforce the Obligations or realize upon the Collateral;
(e) Lender shall have completed a field review of the Records and
such other information with respect to the Collateral as Lender may require to
determine the amount of Loans available to Borrowers including, without
limitation, current perpetual inventory records and/or roll-forwards of
Inventory through the date of closing, together with such supporting
documentation as may be necessary or appropriate, and other documents and
information that will enable Lender to accurately identify and verify the
Collateral, the results of which shall be satisfactory to Lender, not more than
three (3) Business Days prior to the date hereof;
(f) Lender shall have received, in form and substance satisfactory to
Lender, all consents, waivers, acknowledgments and other agreements from third
persons (other than from landlords of the Borrowers' leased locations) which
Lender may deem necessary or desirable in order to permit, protect and perfect
its security interests in and liens upon the Collateral or to effectuate the
provisions or purposes of this Agreement and the other Financing Agreements,
including, without limitation, acknowledgements by lessors, mortgagees and
warehousemen of Lender's security interests in the Collateral, waivers by such
persons of any security interests, liens or other claims by such persons to the
Collateral and agreements permitting Lender access to, and the right to remain
on, the premises to exercise its rights and remedies and otherwise deal with the
Collateral;
(g) Borrowers shall have established the Blocked Accounts and Lender
shall have received, in form and substance satisfactory to Lender, all
agreements with the depository banks and Borrowers with respect to such Blocked
Accounts as Lender may require pursuant to Section 6.3 hereof, duly authorized,
executed and delivered by such depository banks and Borrowers;
(h) Lender shall have received evidence, in form and substance
satisfactory to Lender, that Borrowers have (i) directed the banks at which
Borrowers maintains deposit accounts for the initial receipt of cash, checks and
other items from Borrowers' retail store locations to transfer all immediately
available funds deposited in such bank only to the Blocked Accounts as required
pursuant to Section 6.3 hereof or as otherwise consented to by Lender and (ii
notified such banks of the security interests of Lender in such funds and the
other Collateral;
(i) Lender shall have received Credit Card Acknowledgements in each
case, duly authorized, executed and delivered by the Credit Card Issuers and
Credit Card Processors;
17
(j) the Excess Availability as determined by Lender, as of the date
hereof, shall not be less than $3,000,000 after giving effect to the initial
Loans made or to be made and Letter of Credit Accommodations issued or to be
issued in connection with the initial transactions hereunder;
(k) Lender shall have received evidence of insurance and loss payee
endorsements required hereunder and under the other Financing Agreements, in
form and substance satisfactory to Lender, and certificates of insurance
policies and/or endorsements naming Lender as loss payee;
(l) Lender shall have received, in form and substance satisfactory
to Lender, the opinion letter of counsel to Borrowers with respect to the
Financing Agreements and the security interests and liens of Lender with respect
to the Collateral and such other matters and Lender may request; and
(m) the other Financing Agreements and all instruments and documents
hereunder and thereunder shall have been duly executed and delivered to Lender,
in form and substance satisfactory to Lender.
4.2 Conditions Precedent to All Loans and Letter of Credit
Accommodations. Each of the following is an additional condition precedent to
Lender making Loans and/or providing Letter of Credit Accommodations to
Borrowers, including the initial Loans and Letter of Credit Accommodations and
any future Loans and Letter of Credit Accommodations:
(a) all representations and warranties contained herein and in the
other Financing Agreements shall be true and correct in all material respects
with the same effect as though such representations and warranties had been made
on and as of the date of the making of each such Loan or providing each such
Letter of Credit Accommodation and after giving effect thereto; and
(b) no Event of Default and no event or condition which, with notice
or passage of time or both, would constitute an Event of Default, shall exist or
have occurred and be continuing on and as of the date of the making of such Loan
or providing each such Letter of Credit Accommodation and after giving effect
thereto.
SECTION 5. SECURITY INTEREST
-----------------
To secure payment and performance of all Obligations, each Borrower hereby
grants to Lender a continuing security interest in, a lien upon, and a right of
set off against, and hereby collaterally assigns to Lender the following
property and interests in property, whether now owned or hereafter acquired or
existing, and wherever located (collectively, the "Collateral"):
5.1 Accounts;
18
5.2 all present and future contract rights, general intangibles
(including, but not limited to, tax and duty refunds, registered and
unregistered patents, trademarks, service marks, copyrights, trade names,
applications for the foregoing, trade secrets, goodwill, processes, drawings,
blueprints, customer lists, licenses, whether as licensor or licensee, choses in
action and other claims and existing and future leasehold interests in
equipment, real estate and fixtures), chattel paper, documents, instruments,
securities and other investment property, credit card sales drafts, credit card
sales slips or charge slips or receipts and other forms of store receipts,
letters of credit, bankers' acceptances and guaranties;
5.3 all present and future monies, securities, credit balances, deposits,
deposit accounts and other property of such Borrower now or hereafter held or
received by or in transit to Lender or its affiliates or at any other depository
or other institution from or for the account of such Borrower, whether for
safekeeping, pledge, custody, transmission, collection or otherwise, and all
present and future liens, security interests, rights, remedies, title and
interest in, to and in respect of Accounts and other Collateral, including,
without limitation, (i) rights and remedies under or relating to guaranties,
contracts of suretyship, letters of credit and credit and other insurance
related to the Collateral, (ii rights of stoppage in transit, replevin,
repossession, reclamation and other rights and remedies of an unpaid vendor,
lienor or secured party, (ii goods described in invoices, documents, credit card
sales drafts, credit card sales slips or charge slips or receipts and other
forms of store receipts, contracts or instruments with respect to, or otherwise
representing or evidencing, Accounts or other Collateral, including, without
limitation, returned, repossessed and reclaimed goods, and (iv deposits by and
property of account debtors or other persons securing the obligations of account
debtors;
5.4 Inventory;
5.5 Equipment;
5.6 Real Property;
5.7 Records; and
5.8 all products and proceeds of the foregoing, in any form, including,
without limitation, insurance proceeds and all claims against third parties for
loss or damage to or destruction of any or all of the foregoing.
5.9 Notwithstanding anything to the contrary set forth above, Collateral
shall not include any rights or interests in Real Property or Equipment which
is, and so long as such Real Property or Equipment remains subject to, a
contract or lease which, pursuant to its stated terms, prohibits the granting of
a security interest or lien therein to Lender and such prohibition has not been
or is not waived or the consent of the other party to such contract or lease has
not been or is not otherwise obtained or, under applicable law, such prohibition
cannot be waived; provided that the foregoing exclusion shall in no way be
construed (a) to apply if any such prohibition is unenforceable under Section 9-
318 of the Uniform Commercial Code or other applicable law, or (b) so as to
limit, impair or otherwise affect the Lender's unconditional continuing security
19
interests in and liens upon any rights or interests of Borrowers in or to monies
due or to become due under any such contract or lease (including any Accounts),
or (c) if the lessor or holder of such purchase money mortgage or security
interest in and to such Equipment does not have a valid and perfected security
interest in or lien upon such Equipment.
SECTION 6. COLLECTION AND ADMINISTRATION
6.1 Borrowers' Loan Account(s). Lender shall maintain one or more loan
account(s) on its books in which shall be recorded (a) all Loans, Letter of
Credit Accommodations and other Obligations and the Collateral, (b) all payments
made by or on behalf of Borrowers and (c) all other appropriate debits and
credits as provided in this Agreement, including, without limitation, fees,
charges, costs, expenses and interest. All entries in the loan account(s) shall
be made in accordance with Lender's customary practices as in effect from time
to time.
6.2 Statements. Lender shall render to Borrowers each month a statement
setting forth the balance in the Borrowers' loan account(s) maintained by Lender
for Borrowers pursuant to the provisions of this Agreement, including principal,
interest, fees, costs and expenses. Each such statement shall be subject to
subsequent adjustment by Lender but shall, absent manifest errors or omissions,
be considered correct and deemed accepted by Borrowers and conclusively binding
upon Borrowers as an account stated except to the extent that Lender receives a
written notice from Borrowers of any specific exceptions of Borrowers thereto
within thirty (30) days after the date such statement has been mailed by Lender.
Until such time as Lender shall have rendered to Borrowers a written statement
as provided above, the balance in Borrowers' loan account(s) shall be
presumptive evidence of the amounts due and owing to Lender by Borrowers.
6.3 Collection of Accounts.
(a) Borrowers shall establish and maintain, at their expense, blocked
accounts or lockboxes and related blocked accounts (in either case, "Blocked
Accounts"), as Lender may specify, with such banks as are reasonably acceptable
to Lender into which Borrowers shall promptly deposit and direct their account
debtors to directly remit all payments on Accounts and all payments constituting
proceeds of Inventory or other Collateral in the identical form in which such
payments are made, whether by cash, check, credit card sales drafts, credit card
sales or charge slips or other manner. The banks at which the Blocked Accounts
are established shall enter into an agreement, in form and substance
satisfactory to Lender, providing that all items received or deposited in the
Blocked Accounts are the property of Lender, that the depository bank has no
lien upon, or right to setoff against, the Blocked Accounts, the items received
for deposit therein, or the funds from time to time on deposit therein and that
the depository bank will wire, or otherwise transfer, in immediately available
funds, on a daily basis, at such time as Lender shall direct, all funds received
or deposited into the Blocked Accounts to such bank account of Lender as Lender
may from time to time designate for such purpose ("Payment Account"). Lender
shall instruct the depository banks at which the Blocked Accounts are maintained
to transfer the funds on deposit in the Blocked Accounts to such operating bank
account of Borrowers as Borrowers may specify in writing to Lender (the
"Operating Account") until such time as Lender shall notify the depository bank
otherwise. Lender may instruct the
20
depository banks at which the Blocked Accounts are maintained to transfer all
funds received or deposited into the Blocked Accounts to the Payment Account if,
at any time: (i) an Event of Default, or event which with notice or passage of
time or both would constitute an Event of Default, shall exist, or (ii Borrowers
have Excess Availability of less than $5,000,000 for three (3) consecutive days.
Borrowers agree that all payments made to such Blocked Accounts or other funds
received and collected by Lender, whether on the Accounts or as proceeds of
Inventory or other Collateral or otherwise shall be the property of Lender.
(b) For purposes of calculating the amount of the Loans available to
Borrowers, such payments will be applied (conditional upon final collection) to
the Obligations on the Business Day of receipt by Lender of immediately
available funds in the Payment Account provided such payments and notice thereof
are received in accordance with Lender's usual and customary practices as in
effect from time to time and by 12:00 noon New York City time or, at Lender's
discretion, otherwise within sufficient time to credit Borrowers' loan account
on such day, and if not, then on the next Business Day. Until the date Lender
notifies the depository banks at which the Blocked Accounts are maintained to
direct payment to the Payment Account in accordance with Section 6.3(a), Lender
shall be entitled to charge Borrowers an administrative fee equivalent to the
interest Lender would have received for the Collection Period (as defined below)
had the funds deposited in the Blocked Account on such day been transferred from
the Blocked Account to the Payment Account on such day. If Lender notifies the
depository banks at which the Blocked Accounts are maintained to direct payment
to the Payment Account in accordance with the terms of Section 6.3(a), then, for
purposes of calculating interest on the Obligations, such payments or other
funds received in the Payment Account will be applied (conditional upon final
collection) to the Obligations one (1) Business Day following the date of
receipt of immediately available funds by Lender in the Payment Account (the
"Collection Period") provided such payments or other funds and notice thereof
are received in accordance with Lender's usual and customary practices as in
effect from time to time and by 12:00 noon New York City time, or, at Lender's
discretion, otherwise within sufficient time to credit Borrowers' loan account
on such day, and if not, then on the next Business Day. Prior to the Lender
notifying the depository banks at which the Blocked Accounts are maintained to
direct payment to the Payment Account in accordance with Section 6.3(a), for
purposes of calculating interest on the Obligations, payments or other funds
received in the Payment Account will be applied (conditional upon final
collection) to the Obligations on the Business Day of receipt of immediately
available funds by Lender in the Payment Account provided such payments or other
funds and notice thereof are received in accordance with Lender's usual and
customary practices as in effect from time to time and by 12:00 noon New York
City time, or, at Lender's discretion, otherwise within sufficient time to
credit Borrowers' loan account on such day, and if not, then on the next
Business Day.
(c) Borrowers and all of their affiliates, subsidiaries, shareholders,
directors, employees or agents shall, acting as trustee for Lender, receive, as
the property of Lender, any monies, checks, notes, drafts, credit card sales
drafts, credit card sales or charge slips or receipts, or any other payment
relating to and/or proceeds of Accounts or other Collateral which come into
their possession or under their control and immediately upon receipt thereof,
shall deposit or cause the same to be deposited in the Blocked Accounts, or
remit the same or cause the same to
21
be remitted, in kind, to Lender. In no event shall the same be commingled with
Borrowers' own funds. Borrowers agree to reimburse Lender on demand for any
amounts owed or paid to any bank at which a Blocked Account is established or
any other bank or person involved in the transfer of funds to or from the
Blocked Accounts arising out of Lender's payments to or indemnification of such
bank or person. The obligation of Borrowers to reimburse Lender, for such
amounts pursuant to this Section 6.3 shall survive the termination or non-
renewal of this Agreement.
6.4 Payments. All Obligations shall be payable to the Payment Account as
provided in Section 6.3 or such other place as Lender may designate in writing
from time to time. Lender may apply payments received or collected from
Borrowers or for the account of Borrowers (including, without limitation, the
monetary proceeds of collections or of realization upon any Collateral) to such
of the Obligations, whether or not then due, in such order and manner as Lender
determines; except that, so long as no Event of Default exists and is
------ ----
continuing, Lender agrees to apply all payments received or collected from
Borrowers first against all outstanding Obligations, other then Eurodollar Rate
Loans, and second against all outstanding Eurodollar Rate Loans. At Lender's
option, all principal, interest, fees, costs, expenses and other charges
provided for in this Agreement or the other Financing Agreements may be charged
directly to the loan account(s) of Borrowers. Borrowers shall make all payments
to Lender on the Obligations free and clear of, and without deduction or
withholding for or on account of, any setoff, counterclaim, defense, duties,
taxes, levies, imposts, fees, deductions, withholding, restrictions or
conditions of any kind. If after receipt of any payment of, or proceeds of
Collateral applied to the payment of, any of the Obligations, Lender is required
to surrender or return such payment or proceeds to any Person for any reason,
then the Obligations intended to be satisfied by such payment or proceeds shall
be reinstated and continue and this Agreement shall continue in full force and
effect as if such payment or proceeds had not been received by Lender.
Borrowers shall be liable to pay to Lender, and does hereby indemnify and hold
Lender harmless for the amount of any payments or proceeds surrendered or
returned. This Section 6.4 shall remain effective notwithstanding any contrary
action which may be taken by Lender in reliance upon such payment or proceeds.
This Section 6.4 shall survive the payment of the Obligations and the
termination or non-renewal of this Agreement. If, at any time, there are no
Loans outstanding, and Lender holds a credit balance, Lender shall remit such
credit balance to an account of Borrowers as directed in writing by G+G.
6.5 Authorization to Make Loans. Lender is authorized to make the Loans
and provide the Letter of Credit Accommodations based upon telephonic or other
instructions received from anyone purporting to be an officer of Borrowers or
other authorized person or, at the discretion of Lender, if such Loans are
necessary to satisfy any Obligations. All requests for Loans or Letter of
Credit Accommodations hereunder shall specify the date on which the requested
advance is to be made or Letter of Credit Accommodations established (which day
shall be a Business Day) and the amount of the requested Loan. Requests
received after 11:00 a.m. New York City time on any day shall be deemed to have
been made as of the opening of business on the immediately following Business
Day. All Loans and Letter of Credit Accommodations under this Agreement shall
be conclusively presumed to have been made to, and at the request of and for the
benefit of, Borrowers when deposited to the credit of Borrowers
22
or otherwise disbursed or established in accordance with the instructions of
Borrowers or in accordance with the terms and conditions of this Agreement.
6.6 Use of Proceeds. Borrowers shall use the initial proceeds of the
Loans provided by Lender to Borrowers hereunder only for: (a) payments to each
of the persons listed in the disbursement direction letter furnished by
Borrowers to Lender on or about the date hereof and (b) costs, expenses and fees
in connection with the preparation, negotiation, execution and delivery of this
Agreement and the other Financing Agreements. All other Loans made or Letter of
Credit Accommodations provided by Lender to Borrowers pursuant to the provisions
hereof shall be used by Borrowers only for general operating, working capital
and other proper corporate purposes of Borrowers not otherwise prohibited by the
terms hereof. None of the proceeds will be used, directly or indirectly, for
the purpose of purchasing or carrying any margin security or for the purposes of
reducing or retiring any indebtedness which was originally incurred to purchase
or carry any margin security or for any other purpose which might cause any of
the Loans to be considered a "purpose credit" within the meaning of Regulation U
of the Board of Governors of the Federal Reserve System, as amended.
6.7 Appointment of G+G as Agent for Borrowers. The Borrowers, other than
G+G, hereby irrevocably appoint G+G, and each officer thereof, as their agent
and attorney-in-fact to request Loans and Letter of Credit Accommodations on
their behalf, at Lender's option, to receive disbursements of Loans on their
behalf (which may be made to the same account of G+G to which disbursements of
Loans to G+G are made), to receive notices and statements of account from
Lender, to take such other actions on their behalf as is provided hereunder or
under any of the other Financing Agreements and generally to deal with Lender on
their behalf, for all matters pertaining to the financing arrangements under
this Agreement and the other Financing Agreements.
SECTION 7. COLLATERAL REPORTING AND COVENANTS
----------------------------------
7.1 Collateral Reporting. Borrowers shall provide Lender with the
following documents in a form satisfactory to Lender: (a) on a monthly basis or
more frequently as Lender may request, perpetual inventory reports with reports
of sales of Inventory by store, and (b) on a weekly basis or more frequently as
Lender may request, (i) reports of sales of Inventory, indicating net sales, (ii
reports of aggregate Inventory purchases (including all costs related thereto,
such as freight, duty and taxes) and identifying items of Inventory in transit
to Borrowers related to the applicable documentary letter of credit and/or ▇▇▇▇
of lading number, (ii) reports of amounts of consigned Inventory held by
Borrowers by category and consignor, (iv) reports of the Cost and Retail Value
of the Inventory (net of markdowns), (c) upon Lender's request, (i) reports on
Accounts, including aggregate outstanding amounts by category, payments,
accruals and returns and other credits, (ii) copies of customer statements and
credit memos, remittance advices and reports, and copies of deposit slips and
bank statements, (iii) copies of bills of lading, (iv copies of purchase orders,
invoices and delivery documents for Inventory and Equipment acquired by
Borrowers, (v) reports by retail store location of sales and operating profits
for each such retail store location; (vi) accounts payable trial balance and
(vii) reports on sales and use tax collections, deposits and payments, including
monthly sales and use tax accruals; (d) accounts
23
receivable detail as Lender may request; (e) upon Lender's request, the monthly
statements received by Borrowers from any Credit Card Issuers or Credit Card
Processors, together with such additional information with respect thereto as
shall be sufficient to enable Lender to monitor the transactions pursuant to the
Credit Card Agreements; and (f) such other reports as to the Collateral as
Lender shall request from time to time. If any of Borrowers' records or reports
of the Collateral are prepared or maintained by an accounting service,
contractor, shipper or other agent, Borrowers hereby irrevocably authorize such
service, contractor, shipper or agent to deliver such records, reports, and
related documents to Lender.
7.2 Accounts Covenants.
(a) Borrowers shall notify Lender promptly of the assertion of any
claims, offsets, defenses or counterclaims by any account debtor, Credit Card
Issuer or Credit Card Processor or any disputes with any of such persons or any
settlement, adjustment or compromise thereof which could reasonably be expected
to have a Material Adverse Effect. No credit, discount, allowance or extension
or agreement for any of the foregoing shall be granted to any account debtor,
Credit Card Issuer or Credit Card Processor except in the ordinary course of
Borrowers' business in accordance with the then-current practices of Borrowers.
So long as no Event of Default has occurred and is continuing, Borrowers shall
be entitled to settle, adjust or compromise any claim, offset, counterclaim or
dispute with any account debtor, Credit Card Issuer, Credit Card Processor. At
any time that an Event of Default has occurred and is continuing, Lender shall,
unless it delivers notice to the contrary to Borrowers, have the exclusive right
to settle, adjust or compromise any claim, offset, counterclaim or dispute with
account debtors, Credit Card Issuers or Credit Card Processors or grant any
credits, discounts or allowances.
(b) Borrowers shall notify Lender promptly of any of the following
which could reasonably be expected to have a Material Adverse Effect: (i) any
notice of a material default by Borrowers under any of the Credit Card
Agreements or of any default which might result in the Credit Card Issuer or
Credit Card Processor ceasing to make payments or suspending payments to
Borrowers, (ii) any notice from any Credit Card Issuer or Credit Card Processor
that such person is ceasing or suspending, or will cease or suspend, any present
or future payments due or to become due to Borrowers from such person, or that
such person is terminating or will terminate any of the Credit Card Agreements,
and (iii) the failure of Borrowers to comply with any material terms of the
Credit Card Agreements or any terms thereof which might result in the Credit
Card Issuer or Credit Card Processor ceasing or suspending payments to
Borrowers.
(c) With respect to each Account: (i) the amounts shown on any report
delivered to Lender or schedule thereof delivered to Lender shall be true and
complete in all material respects, (ii) except as otherwise provided in Section
6.3 hereof, no payments shall be made thereon except payments delivered to
Lender pursuant to the terms of this Agreement, (iii) no credit, discount,
allowance or extension or agreement for any of the foregoing shall be granted to
any Credit Card Issuer or Credit Card Processor, except as reported to Lender in
accordance with this Agreement and except for credits, discounts, allowances or
extensions made or given in the ordinary course of Borrowers' business in
accordance with practices and policies previously
24
disclosed to Lender, and (iv) none of the transactions giving rise thereto will
violate any applicable State or Federal Laws or regulations, all documentation
relating thereto will be legally sufficient under such laws and regulations and
all such documentation will be legally enforceable in accordance with its terms.
(d) Lender may, at any time or times that an Event of Default exists
and is continuing (i) notify any or all account debtors, Credit Card Issuers and
Credit Card Processors that the Accounts have been collaterally assigned to
Lender and that Lender has a security interest in the Accounts and Lender may
direct any or all account debtors, Credit Card Issuers and Credit Card
Processors to make payments of Accounts directly to Lender, (ii) extend the time
of payment of, compromise, settle or adjust for cash, credit, return of
merchandise or otherwise, and upon any terms or conditions, any and all Accounts
or other obligations included in the Collateral and thereby discharge or release
the account debtor or any other party or parties in any way liable for payment
thereof without affecting any of the Obligations, (iii) demand, collect or
enforce payment of any Accounts or such other obligations, but without any duty
to do so, and Lender shall not be liable for its failure to collect or enforce
the payment thereof not for the negligence of its agents or attorneys with
respect thereto and (iv) take whatever other action Lender may deem necessary or
desirable for the protection of its interests. At any time that an Event of
Default has occurred and is continuing, at Lender's request, all invoices and
statements sent to any account debtor, Credit Card Issuer or Credit Card
Processor shall state that the Accounts due from such account debtor, Credit
Card Issuer or Credit Card Processor and such other obligations have been
assigned to Lender and are payable directly and only to Lender and Borrowers
shall deliver to Lender such originals of documents evidencing the sale and
delivery of goods or the performance of services giving rise to any Accounts as
Lender may require.
(e) Lender shall have the right at any time or times, in Lender's name
or in the name of a nominee of Lender, to verify the validity, amount or any
other matter relating to any Account or other Collateral, by mail, telephone,
facsimile transmission or otherwise.
(f) Upon the request of Lender, Borrowers shall deliver or cause to be
delivered to Lender, with appropriate endorsement and assignment, with full
recourse to Borrowers, all chattel paper and instruments which Borrowers now own
or may at any time acquire. In the event that Borrowers deliver to Lender any
instrument or note executed and delivered by any officer, director, employee or
shareholder of Borrower in connection with the transactions more particularly
described in Section 9.10(e)(iii) below (the "Employee Notes"), Lender agrees,
upon the request of Borrowers, to return any such instrument to Borrowers for
the purpose of permitting Borrowers to consummate their transactions with such
employee, officer, director or shareholder and to provide Borrowers with such
additional documents reasonably necessary to release Lender's lien upon such
instruments.
7.3 Inventory Covenants. With respect to the Inventory: (a) Borrowers
shall at all times maintain inventory records reasonably satisfactory to Lender,
keeping correct and accurate records itemizing and describing the kind, type,
quality and quantity of Inventory, Borrowers' Cost therefor and daily
withdrawals therefrom and additions thereto; (b) Borrowers shall conduct a
physical count of the Inventory at least once each year, but at any time or
times as Lender may
25
request during the continuance of an Event of Default, and promptly following
such physical inventory shall supply Lender with a report in the form and with
such specificity as may be reasonably satisfactory to Lender concerning such
physical count; (c) Borrowers shall not remove any Inventory from the locations
set forth or permitted herein, without the prior written consent of Lender,
except for sales of Inventory in the ordinary course of Borrowers' business and
except to move Inventory directly from one location set forth or permitted
herein to another such location; (d) upon Lender's request, Borrowers shall, at
their expense, no more than twice in any twelve (12) month period, but at any
time or times as Lender may request at Lender's expense, or at any time or times
as Lender may request at Borrowers' expense during the existence and continuance
of Event of Default, or in the event that Excess Availability is less than
$5,000,000, deliver or cause to be delivered to Lender written reports or
appraisals as to the Inventory in form, scope and methodology acceptable to
Lender and by an appraiser reasonably acceptable to Lender, addressed to Lender
or upon which Lender is expressly permitted to rely; (e) upon Lender's request,
Borrowers shall, at their expense, conduct through RGIS Inventory Specialists,
Inc. or another inventory counting service reasonably acceptable to Lender, a
physical count of the Inventory in form, scope and methodology reasonably
acceptable to Lender no more than twice in any twelve (12) month period, but at
any time or times as Lender may request during the continuance of an Event of
Default, the results of which shall be reported directly by such inventory
counting service to Lender and Borrowers shall promptly deliver confirmation in
a form satisfactory to Lender that appropriate adjustments have been made to the
inventory records of Borrowers to reconcile the inventory count to Borrowers'
inventory records; (f) Borrowers shall produce, use, store and maintain the
Inventory, with reasonable care and caution and in accordance with applicable
standards of any insurance and in conformity with applicable laws (including,
but not limited to, the requirements of the Federal Fair Labor Standards Act of
1938, as amended and all rules, regulations and orders related thereto); (g)
Borrowers assume all responsibility and liability arising from or relating to
the production, use, sale or other disposition of the Inventory; (h) Borrowers
shall not sell Inventory to any customer on approval, or any other basis which
entitles the customer to return or may obligate Borrowers to repurchase such
Inventory except for the right of return given to retail customers of Borrowers
in the ordinary course of the business of Borrowers in accordance with the then
current return policy of Borrowers; (i) Borrowers shall use their best efforts
to keep the Inventory in good and marketable condition; and (j) Borrowers shall
not acquire or accept any Inventory on consignment or approval, except to the
extent such Inventory is reported to Lender in accordance with the terms hereof.
7.4 Power of Attorney. Each Borrower hereby irrevocably designates and
appoints Lender (and all of Lender's employees, agents or affiliates designated
by Lender) as such Borrower's true and lawful attorney-in-fact, and authorizes
Lender, in Borrowers' or Lender's name, to: (a) at any time an Event of Default
exists or has occurred and is continuing (i) demand payment on Accounts or other
proceeds of Inventory or other Collateral, (ii) enforce payment of Accounts by
legal proceedings or otherwise, (iii) exercise all of Borrowers' rights and
remedies to collect any Account or other Collateral, (iv) sell or assign any
Account upon such terms, for such amount and at such time or times as the Lender
deems advisable, (v) settle, adjust, compromise, extend or renew an Account,
(vi) discharge and release any Account, (vii) prepare, file and sign such
Borrower's name on any proof of claim in bankruptcy or other similar
26
document against an account debtor, (viii) notify the post office authorities to
change the address for delivery of Borrowers' mail to an address designated by
Lender, and open and dispose of all mail addressed to Borrowers, and (ix) do all
acts and things which are necessary, in Lender's determination, to fulfill
Borrowers' obligations under this Agreement and the other Financing Agreements
and (b) at any time to (i) take control in any manner of any item of payment or
proceeds thereof, (ii) have access to any lockbox or postal box into which
Borrowers' mail is deposited, (iii) endorse such Borrower's name upon any items
of payment or proceeds thereof and deposit the same in the Lender's account for
application to the Obligations, (iv) endorse such Borrower's name upon any
chattel paper, document, instrument, invoice, or similar document or agreement
relating to any Account or any goods pertaining thereto or any other Collateral,
(v) sign such Borrower's name on any verification of Accounts and notices
thereof to account debtors and (vi) execute in such Borrower's name and file any
UCC financing statements or amendments thereto. Borrowers hereby releases Lender
and its officers, employees and designees from any liabilities arising from any
act or acts under this power of attorney and in furtherance thereof, whether of
omission or commission, except as a result of Lender's own gross negligence or
wilful misconduct as determined pursuant to a final non-appealable order of a
court of competent jurisdiction.
7.5 Right to Cure. Lender may, at its option, (a) cure any default by
Borrowers under any agreement with a third party or pay or bond on appeal any
judgment entered against Borrowers, provided that any such default or judgment
-------- ----
would constitute an Event of Default hereunder, (b) discharge taxes, liens,
security interests or other encumbrances at any time levied on or existing with
respect to the Collateral and (c) pay any amount, incur any expense or perform
any act which, in Lender's reasonable judgment, is necessary or appropriate to
preserve, protect, insure or maintain the Collateral and the rights of Lender
with respect thereto. Lender may add any amounts so expended to the Obligations
and charge Borrowers' account therefor, such amounts to be repayable by
Borrowers on demand. Lender shall be under no obligation to effect such cure,
payment or bonding and shall not, by doing so, be deemed to have assumed any
obligation or liability of Borrowers. Any payment made or other action taken by
Lender under this Section shall be without prejudice to any right to assert an
Event of Default hereunder and to proceed accordingly.
7.6 Access to Premises. From time to time as requested by Lender, at the
cost and expense of Borrowers, (a) Lender or its designee shall have complete
access to all of Borrowers' premises during normal business hours and after
reasonable notice to Borrowers, or at any time and without notice to Borrowers
if an Event of Default exists or has occurred and is continuing, for the
purposes of inspecting, verifying and auditing the Collateral and all of
Borrowers' books and records, including, without limitation, the Records, and
(b) Borrowers shall promptly furnish to Lender such copies of such books and
records or extracts therefrom as Lender may request, and (c) use during normal
business hours such of Borrowers' personnel, equipment, supplies and premises as
may be reasonably necessary for the foregoing and if an Event of Default exists
or has occurred and is continuing for the collection of Accounts and realization
of other Collateral.
27
SECTION 8. REPRESENTATIONS AND WARRANTIES
------------------------------
Borrowers hereby, jointly and severally, represent and warrant to Lender
the following (which shall survive the execution and delivery of this
Agreement), the truth and accuracy of which (except to the extent that such
representations and warranties relate solely to an earlier date) are a
continuing condition of the making of Loans and providing Letter of Credit
Accommodations by Lender to Borrowers:
8.1 Corporate Existence, Power and Authority; Subsidiaries. Each Borrower
is a corporation duly organized and in good standing under the laws of its state
of incorporation and is duly qualified as a foreign corporation and in good
standing in all states or other jurisdictions where the nature and extent of the
business transacted by it or the ownership of assets makes such qualification
necessary, except for those jurisdictions in which the failure to so qualify
would not have a material adverse effect on such Borrower's financial condition,
results of operation or business or the rights of Lender in or to any of the
Collateral. The execution, delivery and performance of this Agreement, the
other Financing Agreements and the transactions contemplated hereunder and
thereunder are all within such Borrower's corporate powers, have been duly
authorized and are not in contravention of law or the terms of such Borrower's
certificate of incorporation, by-laws, or other organizational documentation, or
any indenture, agreement or undertaking to which such Borrower is a party or by
which such Borrower or its property are bound. This Agreement and the other
Financing Agreements constitute legal, valid and binding obligations of such
Borrower enforceable in accordance with their respective terms. Borrowers do
not have any subsidiaries except as set forth on the Information Certificate or
otherwise disclosed in writing to Lender.
8.2 Financial Statements; No Material Adverse Change. All financial
statements relating to Borrowers which have been or may hereafter be delivered
by Borrowers to Lender have been prepared in accordance with GAAP and fairly
present the financial condition and the results of operation of Borrowers as at
the dates and for the periods set forth therein except that the pro forma
------ ---- --- -----
financial statements and projections delivered to Lender have been, or will be,
prepared consistent with the principles used in preparing the audited financial
statements required to be delivered under this Agreement. Except as disclosed
in any interim financial statements furnished by Borrowers to Lender prior to
the date of this Agreement, there has been no material adverse change in the
assets, liabilities, properties and condition, financial or otherwise, of
Borrowers taken as a whole, since the date of the most recent audited financial
statements furnished by Borrowers to Lender prior to the date of this Agreement.
8.3 Chief Executive Office; Collateral Locations. The chief executive
office of each Borrower and each Borrower's Records concerning Accounts and
Inventory are located only at the address set forth below and its only other
places of business and the only other locations of Collateral, if any, are the
addresses set forth in the Information Certificate, subject to the right of each
Borrower to establish new locations in accordance with Section 9.2 below.
8.4 Priority of Liens; Title to Properties. The security interests and
liens granted to Lender under this Agreement and the other Financing Agreements
constitute valid and
28
perfected first priority liens and security interests in and upon the Collateral
subject only to the liens indicated on Schedule 8.4 hereto and the other liens
permitted under Section 9.8 hereof. Each Borrower has good and marketable title
to all of its properties and assets subject to no liens, mortgages, pledges,
security interests, encumbrances or charges of any kind, except those granted to
Lender and such others as are specifically listed on Schedule 8.4 hereto or
permitted under Section 9.8 hereof.
8.5 Tax Returns. Each Borrower has filed, or caused to be filed, in a
timely manner all tax returns, reports and declarations which are required to be
filed by it (without requests for extension except as previously disclosed in
writing to Lender). All information in such tax returns, reports and
declarations is complete and accurate in all material respects. Each Borrower
has paid or caused to be paid all taxes due and payable or claimed due and
payable in any assessment received by it, and has collected, deposited and
remitted in accordance with all applicable laws all sales and/or use taxes
applicable to the conduct of its business, except taxes the validity of which
are being contested in good faith by appropriate proceedings diligently pursued
and with respect to which adequate reserves have been set aside on its books.
Adequate provision has been made for the payment of all accrued and unpaid
material Federal, State, county, local, foreign and other taxes whether or not
yet due and payable and whether or not disputed. Each Borrower has collected
and has remitted or will remit timely to the appropriate tax authority all sales
and/or use taxes applicable to its business required to be collected under the
laws of the United States and each possession or territory thereof, and each
State or political subdivision thereof, including any State in which such
Borrower owns any Inventory or owns or leases any other property.
8.6 Litigation. Except as set forth on the Information Certificate or
otherwise disclosed in writing by Borrowers to Lender, there is no present
investigation by any governmental agency pending, or to the best of Borrowers'
knowledge threatened, against or affecting Borrowers, their assets or business
and there is no action, suit, proceeding or claim by any Person pending, or to
the best of Borrowers' knowledge threatened, against Borrowers or their assets
or goodwill, or against or affecting any transactions contemplated by this
Agreement, in each case which if adversely determined against Borrowers would
result in any material adverse change in the assets, business or prospects of
Borrowers taken as a whole or would impair the ability of Borrowers to perform
their obligations hereunder or under any of the other Financing Agreements to
which it is a party or of Lender to enforce any Obligations or realize upon any
Collateral.
8.7 Compliance with Other Agreements and Applicable Laws.
(a) Each Borrower is not in default in any respect under, or in
violation in any respect of any of the terms of, any material agreement,
contract, instrument, lease or other commitment to which it is a party or by
which it or any of its assets are bound where such default or violation would
have a Material Adverse Effect. Each Borrower is in compliance in all material
respects with the requirements of all applicable laws, rules, regulations and
orders of any governmental authority relating to its business, including,
without limitation, those set forth in or promulgated pursuant to the
Occupational Safety and Health Act of 1970, as amended, the
29
Fair Labor Standards Act of 1938, as amended, ERISA, the Code, as amended, and
the rules and regulations thereunder, all federal, state and local statutes,
regulations, rules and orders relating to consumer credit (including, without
limitation, as each has been amended, the Truth-in-Lending Act, the Fair Credit
Billing Act, the Equal Credit Opportunity Act and the Fair Credit Reporting Act,
and regulations, rules and orders promulgated thereunder), all federal, state
and local states, regulations, rules and orders pertaining to sales of consumer
goods (including, without limitation, the Consumer Products Safety Act of 1972,
as amended, and the Federal Trade Commission Act of 1914, as amended, and all
regulations, rules and orders promulgated thereunder), where the failure to
comply would have a Material Adverse Effect.
(b) Each Borrower has obtained all permits, licenses, approvals,
consents, certificates, orders or authorizations (the "Permits") of any
governmental agency required for the lawful conduct of its business, in each
case except to the extent that the failure to do so could not reasonably be
expected to have a Material Adverse Effect. The Permits constitute all permits,
licenses, approvals, consents, certificates, orders or authorizations necessary
for Borrowers to own and operate their business as presently conducted or
proposed to be conducted where the failure to have such Permits would have a
material adverse effect on the business, performance, operations or properties
of Borrowers or the legality, validity or enforceability of this Agreement or
the other Financing Agreements or the ability of Borrowers to perform their
obligations under the Agreement or any of the other Financing Agreements or the
rights and remedies of Lender under this Agreement or any of the other Financing
Agreements. All of the Permits are valid and subsisting and in full force and
effect. There are no actions, claims or proceedings pending or threatened that
seek the revocation, cancellation, suspension or modification of any of the
Permits.
8.8 Environmental Compliance.
(a) Except as set forth on Schedule 8.8 hereto, no Borrower has not
generated, used, stored, treated, transported, manufactured, handled, produced
or disposed of any Hazardous Materials, on or off its premises (whether or not
owned by it) in any manner which at any time violates any applicable
Environmental Law in any material respect or any license, permit, certificate,
approval or similar authorization issued to Borrowers thereunder and the
operations of Borrowers comply in all material respects with all applicable
Environmental Laws and all licenses, permits, certificates, approvals and
similar authorizations thereunder.
(b) Except as set forth on Schedule 8.8 hereto, there is no
investigation, proceeding, complaint, order, directive, claim, citation or
notice by any governmental authority or any other person pending or to the best
of Borrowers' knowledge threatened, with respect to any non-compliance with or
violation of the requirements of any applicable Environmental Law by Borrowers
nor has there been any release, spill or discharge, overtly threatened or
actual, of any Hazardous Material on any properties of Borrowers, or to the best
of Borrowers' knowledge, releases, spills or discharges from any properties at
which any Borrower has transported, stored or disposed of any Hazardous
Materials, or the generation, use, storage, treatment, transportation,
manufacture, handling, production or disposal of any Hazardous Materials or any
other environmental matter which would have a Material Adverse Effect.
30
(c) Except as set forth in Schedule 8.8 hereto, no Borrower has any
material liability (contingent or otherwise) in connection with a release, spill
or discharge, threatened or actual, of any Hazardous Materials or the
generation, use, storage, treatment, transportation, manufacture, handling,
production or disposal of any Hazardous Materials.
(d) Each Borrower has all licenses, permits, certificates, approvals
or similar authorizations required to be obtained or filed in connection with
the operations of such Borrower under any Environmental Law and all of such
licenses, permits, certificates, approvals or similar authorizations are valid
and in full force and effect in each case where the failure to obtain or
maintain such licenses, permits, certificates, approvals or similar
authorizations would have a material adverse effect on the assets or business of
such Borrower or would impair the ability of such Borrower to perform its
obligations hereunder or under any of the other Financing Agreements to which it
is a party or of Agent or any Lender to enforce any Obligations or realize upon
any Collateral.
8.9 Credit Card Agreements. Set forth in Schedule 8.9 hereto is a correct
and complete list of all of the Credit Card Agreements and all other related
agreements, documents and instruments existing as of the date hereof between or
among Borrowers, the Credit Card Issuers, the Credit Card Processors and any of
their affiliates. The Credit Card Agreements constitute all of such agreements
necessary for Borrowers to operate their businesses as presently conducted with
respect to credit cards and debit cards and no Accounts of Borrowers arise from
purchases by customers of Inventory with credit cards or debit cards, other than
those which are issued by Credit Card Issuers with whom Borrowers have entered
into one of the Credit Card Agreements set forth on Schedule 8.9 hereto or with
whom Borrowers have entered into a Credit Card Agreement in accordance with
Section 9.13 hereof. Each of the Credit Card Agreements constitutes the legal,
valid and binding obligations of Borrowers and to the best of Borrowers'
knowledge, the other parties thereto, enforceable in accordance with their
respective terms and are in full force and effect. No default or event of
default, or act, condition or event which after notice or passage of time or
both, would constitute a default or an event of default under any of the Credit
Card Agreements exists or has occurred. Borrowers and the other parties thereto
have complied with all of the terms and conditions of the Credit Card Agreements
to the extent necessary for Borrowers to be entitled to receive all payments
thereunder. Borrowers have delivered, or caused to be delivered to Lender,
true, correct and complete copies of all of the Credit Card Agreements.
8.10 Employee Benefits.
(a) Borrowers have not engaged in any transaction in connection with
which Borrowers or any of their ERISA Affiliates could be subject to either a
civil penalty assessed pursuant to ERISA or a tax imposed the Code, including
any accumulated funding deficiency described in Section 8.10(c) hereof and any
deficiency with respect to vested accrued benefits described in Section 8.10(d)
hereof.
(b) No liability to the Pension Benefit Guaranty Corporation has been
or is expected by Borrowers to be incurred with respect to any employee benefit
plan of Borrowers
31
or any of their ERISA Affiliates. There has been no reportable event (within the
meaning of ERISA) or any other event or condition with respect to any employee
benefit plan of Borrowers or any of their ERISA Affiliates which presents a risk
of termination of any such plan by the Pension Benefit Guaranty Corporation.
(c) Full payment has been made of all amounts which Borrowers or
any of their ERISA Affiliates is required under ERISA and the Code to have paid
under the terms of each employee benefit plan as contributions to such plan as
of the last day of the most recent fiscal year of such plan ended prior to the
date hereof, and no accumulated funding deficiency (as defined in ERISA and the
Code), whether or not waived, exists with respect to any employee pension
benefit plan, including any penalty or tax described in Section 8.10(a) hereof
and any deficiency with respect to vested accrued benefits described in Section
8.10(d) hereof.
(d) The current value of all vested accrued benefits under all
employee pension benefit plans maintained by Borrowers that are subject to Title
IV of ERISA does not exceed the current value of the assets of such plans
allocable to such vested accrued benefits, including any penalty or tax
described in Section 8.10(a) hereof and any accumulated funding deficiency
described in Section 8.10(d) hereof. The terms "current value" and "accrued
benefit" have the meanings specified in ERISA.
(e) Neither Borrowers nor any of their ERISA Affiliates is or
has ever been obligated to contribute to any "multiemployer plan" (as such term
is defined in ERISA) that is subject to Title IV of ERISA.
8.11 Bank Accounts. All of the deposit accounts, investment accounts or
other accounts in the name of or used by Borrowers maintained at any bank or
other financial institution are set forth on Schedule 6.3 hereto, subject to the
right of Borrowers to establish new accounts in accordance with Section 9.13
below.
8.12 Accuracy and Completeness of Information. All information furnished
by or on behalf of Borrowers in writing to Lender in connection with this
Agreement or any of the other Financing Agreements or any transaction
contemplated hereby or thereby, including, without limitation, all information
on the Information Certificate is true and correct in all material respects on
the date as of which such information is dated or certified and does not omit
any material fact necessary in order to make such information not misleading. No
event or circumstance has occurred which has had or could reasonably be expected
to have a material adverse affect on the business, assets or prospects of
Borrowers, which has not been fully and accurately disclosed to Lender in
writing.
8.13 Survival of Warranties; Cumulative. All representations and
warranties contained in this Agreement or any of the other Financing Agreements
shall survive the execution and delivery of this Agreement and shall be deemed
to have been made again to Lender on the date of each additional borrowing or
other credit accommodation hereunder and shall be conclusively presumed to have
been relied on by Lender regardless of any investigation made or information
possessed by Lender. The representations and warranties set forth herein shall
be
32
cumulative and in addition to any other representations or warranties which
Borrowers shall now or hereafter give, or cause to be given, to Lender.
SECTION 9. AFFIRMATIVE AND NEGATIVE COVENANTS
----------------------------------
9.1 Maintenance of Existence. Each Borrower shall at all times preserve,
renew and keep in full, force and effect its corporate existence and rights and
franchises with respect thereto and maintain in full force and effect all
permits, licenses, trademarks, tradenames, approvals, authorizations, leases and
contracts necessary to carry on its business as presently or proposed to be
conducted in each case except to the extent that the failure to do so could not
reasonably be expected to have a Material Adverse Effect. Each Borrower shall
give Lender at least thirty (30) days prior written notice of any proposed
change in its corporate name, which notice shall set forth the new name and such
Borrower shall deliver to Lender a copy of the amendment to the Certificate of
Incorporation of such Borrower providing for the name change certified by the
Secretary of State of the jurisdiction of incorporation of such Borrower as soon
as it is available.
9.2 New Collateral Locations. Each Borrower may open any new location
within (a) the United States, including the Commonwealth of Puerto Rico and the
United States Virgin Islands, (b) Canada, (c) in any other country where Lender
has a first priority security interest in such assets and Lender determines that
it has rights and remedies to enforce its lien and realize upon its Collateral
located in such country, all as determined by Lender in its sole discretion; or
(d) any country where the terms of Section 9.2 (c) are not complied with,
provided that, in such instance, the aggregate amount of all such net
-------- ----
investments in such countries, including all loans, investments, guaranties or
advances made by Borrowers or any Guarantors, shall not exceed, in the
aggregate, $1,000,000, and provided that in all such instances Borrowers (i)
-------- ----
give Lender at least thirty (30) days prior written notice of the intended
opening of any such new location and (ii) execute and deliver, or cause to be
executed and delivered, to Lender such agreements, documents, and instruments as
Lender may deem reasonably necessary or desirable to protect its interests in
the Collateral at such locations, including UCC financing statements.
9.3 Compliance with Laws, Regulations, Etc. Each Borrower shall at all
times comply in all material respects with all applicable provisions of laws,
rules, regulations, licenses, permits, approvals and orders and duly observe all
material requirements, of any foreign, Federal, State or local governmental
authority, including, without limitation, the Occupational Safety and Health Act
of 1970, as amended, the Code, the Fair Labor Standards Act of 1938, as amended,
and the rules and regulations thereunder, all Federal, State and local statutes,
regulations, rules and orders relating to consumer credit (including, without
limitations, as each has been amended, the Truth-in-Lending Act, the Fair Credit
Billing Act, the Equal Credit Opportunity Act and the Fair Credit Reporting Act,
and regulations, rules and orders promulgated thereunder), all Federal, State
and local statutes, regulations, rules and orders pertaining to sales of
consumer goods (including, without limitation, the Consumer Products Safety Act
of 1972, as amended, and the Federal Trade Commission Act of 1914, as amended,
and all regulations, rules and orders promulgated thereunder) and all statutes,
rules, regulations, orders, permits and stipulations relating to environmental
pollution and employee health and safety, including, without limitation,
33
all Environmental Laws except where the failure to do so would not reasonably be
expected to have a Material Adverse Effect.
9.4 Payment of Taxes and Claims. Each Borrower shall duly pay and
discharge all taxes, assessments, contributions and governmental charges upon or
against it or its properties or assets, except for taxes the validity of which
are being contested in good faith by appropriate proceedings diligently pursued
by such Borrower and with respect to which adequate reserves have been set aside
on its books. Borrowers shall be liable for any tax or penalties imposed on
Lender as a result of the financing arrangements provided for herein and each
Borrower agrees to indemnify and hold Lender harmless with respect to the
foregoing, and to repay to Lender on demand the amount thereof, and until paid
by Borrowers such amount shall be added and deemed part of the Loans, provided,
--------
that, nothing contained herein shall be construed to require Borrowers to pay
----
any income or franchise taxes, including those attributable to the income of
Lender from any amounts charged or paid hereunder to Lender. The foregoing
indemnity shall survive the payment of the Obligations and the termination or
non-renewal of this Agreement.
9.5 Insurance. Each Borrower shall, at all times, maintain with
financially sound and reputable insurers insurance with respect to the
Collateral against loss or damage and all other insurance of the kinds and in
the amounts customarily insured against or carried by corporations of
established reputation engaged in the same or similar businesses and similarly
situated. Said policies of insurance shall be reasonably satisfactory to Lender
as to form, amount and insurer. Borrowers shall furnish certificates, policies
or endorsements to Lender as Lender shall require as proof of such insurance,
and, if Borrowers fail to do so, Lender is authorized, but not required, to
obtain such insurance at the expense of Borrowers. All policies shall provide
for at least thirty (30) days prior written notice to Lender of any cancellation
or reduction of coverage and that Lender may act as attorney for Borrowers in
obtaining, and at any time an Event of Default exists or has occurred and is
continuing, adjusting, settling, amending and canceling such insurance.
Borrowers shall cause Lender to be named as a loss payee and an additional
insured (but without any liability for any premiums) under such insurance
policies and Borrowers shall obtain non-contributory lender's loss payable
endorsements to all insurance policies in form and substance reasonably
satisfactory to Lender. Such lender's loss payable endorsements shall specify
that the proceeds of such insurance shall be payable to Lender as its interests
may appear and further specify that Lender shall be paid regardless of any act
or omission by Borrowers or any of their affiliates. At its option, Lender may
apply any insurance proceeds received by Lender at any time to the cost of
repairs or replacement of Collateral and/or to payment of the Obligations,
whether or not then due, in any order and in such manner as Lender may determine
or hold such proceeds as cash collateral for the Obligations; except that, so
------ ----
long as no Event of Default exists and is continuing, to the extent Lender
applies such proceeds in respect of the Obligations, Lender shall apply such
proceeds first, against all outstanding Obligations, other than Eurodollar Rate
Loans, and second, against all outstanding Eurodollar Rate Loans.
9.6 Financial Statements and Other Information.
(a) Each Borrower shall keep proper books and records in which
true and complete entries shall be made of all dealings or transactions of or in
relation to the Collateral
34
and the business of such Borrower and its subsidiaries (if any) in accordance
with GAAP and Borrowers shall furnish or cause to be furnished to Lender: (i)
within thirty (30) days after the end of each fiscal month, monthly unaudited
consolidated financial statements, and, if Borrowers have any subsidiaries, and
have prepared such statements, unaudited consolidating financial statements
(including in each case balance sheets, statements of income and loss,
statements of cash flow and statements of shareholders' equity), all in
reasonable detail, fairly presenting the financial position and the results of
the operations of Borrowers and their subsidiaries as of the end of and through
such fiscal month and (ii) within one hundred five (105) days after the end of
each fiscal year, audited consolidated financial statements and, if Borrowers
have any subsidiaries and have prepared such statements, audited consolidating
financial statements of Borrowers and their subsidiaries (including in each case
balance sheets, statements of income and loss, statements of cash flow and
statements of shareholders' equity), and the accompanying notes thereto, all in
reasonable detail, fairly presenting the financial position and the results of
the operations of Borrowers and their subsidiaries as of the end of and for such
fiscal year, together with the unqualified opinion of independent certified
public accountants, which accountants shall be an independent accounting firm
selected by Borrowers and reasonably acceptable to Lender, that such financial
statements have been prepared in accordance with GAAP, and present fairly the
results of operations and financial condition of Borrowers and their
subsidiaries as of the end of and for the fiscal year then ended.
(b) Borrowers shall promptly notify Lender in writing of the
details of (i) any loss, damage, investigation, action, suit, proceeding or
claim in excess of $500,000 or $1,000,000 in the aggregate relating to the
Collateral or any other property which is security for the Obligations or which
would result in any Material Adverse Change in any Borrower's business,
properties, assets, goodwill or condition, financial or otherwise and (ii) the
occurrence of any Event of Default or act, condition or event which, with the
passage of time or giving of notice or both, would constitute an Event of
Default.
(c) Borrowers shall promptly after the sending or filing thereof
furnish or cause to be furnished to Lender copies of all reports and
registration statements which any Borrower files with the Securities and
Exchange Commission, any national securities exchange or the National
Association of Securities Dealers, Inc.
(d) Borrowers shall furnish or cause to be furnished to Lender
such budgets, forecasts, projections and other information respecting the
Collateral and the business of Borrowers, as Lender may, from time to time,
reasonably request. Each Borrower hereby irrevocably authorizes and directs all
accountants or auditors to deliver to Lender, at Borrowers' expense, copies of
the financial statements of Borrowers and any reports or management letters
prepared by such accountants or auditors on behalf of Borrowers. Any documents,
schedules, invoices or other papers delivered to Lender may be destroyed or
otherwise disposed of by Lender one (1) year after the same are delivered to
Lender, except as otherwise designated by Borrowers to Lender in writing.
(e) Borrowers shall deliver, or cause to be delivered, to Lender,
within five (5) days after receipt by Borrower, a consolidated balance sheet for
Parent and G+G dated as of
35
August 29, 1998 certified by the Chief Financial Officer of G+G, to the effect
that such balance sheet has been prepared consistent with the principles used to
prepare the audited financial statements required to be delivered under this
Agreement and presents fairly the financial condition of Parent and G+G as of
such date.
9.7 Sale of Assets, Consolidation, Merger, Dissolution, Etc. Each
Borrower shall not, directly or indirectly:
(a) merge into or with or consolidate with any other Person or
permit any other Person to merge into or with or consolidate with it, provided,
--------
however, that, so long as no Event of Default exists and is continuing, any
-------
Borrower or Guarantor may merge with or into any other Borrower or Guarantor (i)
upon at least thirty (30) days advance written notice to Lender, (ii) provided
that such Borrowers or Guarantors execute UCC-1 financing statements and any
other agreements, documents, guaranties and instruments reasonably requested by
Lender whether to protect or continue Lender's interests in and upon the
Collateral or otherwise related to the Collateral or the Financing Agreements
and (iii) provided that such Borrowers or Guarantors deliver financial and other
information as Lender may reasonably request, or
(b) sell, assign, lease, transfer, abandon or otherwise dispose
of any stock or indebtedness to any other Person or any of its assets to any
other Person, except for:
------ ---
(i) sales of Inventory in the ordinary course of business,
(ii) the disposition of Collateral so long as (A) if an
Event of Default exists or has occurred and is continuing, any proceeds are paid
to Lender and (B) such dispositions for all Borrowers do not involve Collateral
having an aggregate fair market value in excess of $250,000 for all such
Collateral disposed of in any fiscal year of Borrowers,
(iii) sales or other dispositions by such Borrower of assets
in connection with the closing or sale of a retail store location of such
Borrower in the ordinary course of such Borrower's business which consist of
leasehold interests in the premises of such store, the Equipment and fixtures
located at such premises and the books and records relating exclusively and
directly to the operations of such store; provided, that, as to each and all
-------- ----
such sales, (A) on the date of, and after giving effect to, any such sale, in
any calendar year, such Borrower shall not have closed or sold retail store
locations accounting for more than twenty (20)%) of all sales of such Borrower
in the immediately preceding twelve (12) month period, (B) Lender shall have
received not less than ten (10) Business Days prior written notice of such sale,
which notice shall set forth in reasonable detail satisfactory to Lender, the
parties to such sale or other disposition, the assets to be sold or otherwise
disposed of, the purchase price and the manner of payment thereof and such other
information with respect thereto as Lender may request, (C) as of the date of
such sale or other disposition and after giving effect thereto, no Event of
Default, or act, condition or event which with notice or passage of time would
constitute an Event of Default, shall exist, (D) such sale shall be on
commercially reasonable prices and terms in a bona fide arm's length
---- ----
transaction, and (E) any and all net proceeds payable or delivered to Borrowers
in respect of such sale or other disposition shall be paid or delivered, or
caused to be paid or
36
delivered, to Lender in accordance with the terms of this Agreement either, at
Lender's option, for application to the Obligations in accordance with the terms
hereof (except to the extent such proceeds reflect payment in respect of
indebtedness secured by a valid security interest in the assets sold, in which
case, such proceeds shall be applied to such indebtedness secured thereby).
(iv) the abandonment of any assets no longer deemed
necessary to the conduct of such Borrower's business, as determined by such
Borrower's board of directors in its business judgment,
(v) except as expressly limited in this Agreement, transfer
of assets to any other Borrower or Guarantor, or
(vi) any sale, assignment, lease, transfer, abandonment or
other disposition expressly permitted under Sections 9.9, 9.10, 9.11 or 9.12
hereof, or
(c) form or acquire any subsidiaries except that, so long as no
------ ----
Event of Default then exists and is continuing, Borrowers may form or acquire
subsidiaries (i) upon at least thirty (30) days advance written notice to
Lender, provided, however, that such notice may be contemporaneous with the
-------- -------
execution or acquisition of any such subsidiaries which operate or own assets
located solely in the United States Virgin Islands or Puerto Rico, (ii) provided
that such new subsidiary or subsidiaries and each Borrower in such transaction
execute and deliver to Lender all such UCC-1 financing statements and other
agreements, documents, guarantees and instruments as Lender may request, whether
to protect or continue Lender's interest in the Collateral or otherwise, (iii)
provided that such subsidiaries, at Lender's request, (x) execute this Agreement
as a "Borrower" or (y) execute as a "Guarantor" an unlimited guarantee in favor
of Lender guaranteeing the Obligations and a general security agreement in favor
of Lender granting in favor of Lender a first priority security interest in all
assets of such subsidiary and (iv provided that Borrowers and any such
subsidiaries deliver such financial or other information as Lender may request,
or
(d) wind up, liquidate or dissolve provided, however, that any
-------- -------
Borrower (other than G+G) or any Guarantor may be wound up, liquidated or
dissolved so long as such Borrower or Guarantor (i) is no longer actively
engaged in any business or activities, (ii) does not own assets with an
aggregate fair market or book value in excess of $250,000 and (iii) determines
through its board of directors that such action is in the best interests of
Borrowers and Guarantors, or
(e) in a manner that does not contemplate payment in full of the
Obligations upon consummation thereof, agree to do any of the foregoing.
9.8 Encumbrances. Each Borrower shall not create, incur, assume or
suffer to exist any security interest, mortgage, pledge, lien, charge or other
encumbrance of any nature whatsoever on any of its assets or properties,
including, without limitation, the Collateral, except: (a) liens and security
------
interests of Lender; (b) liens securing the payment of taxes, either not yet
overdue or the validity of which are being contested in good faith by
appropriate proceedings
37
diligently pursued by such Borrower and with respect to which adequate reserves
have been set aside on its books; (c) non-consensual statutory liens (other than
liens securing the payment of taxes) arising in the ordinary course of such
Borrower's business to the extent: (i) such liens secure indebtedness which is
not overdue or (ii) such liens secure indebtedness relating to claims or
liabilities which are fully insured and being defended at the sole cost and
expense and at the sole risk of the insurer or being contested in good faith by
appropriate proceedings diligently pursued by such Borrower, in each case prior
to the commencement of foreclosure or other similar proceedings and with respect
to which adequate reserves have been set aside on its books; (d) liens to secure
the performance of statutory obligations, surety or appeal bonds, performance
bonds or other obligations of a like nature incurred in the ordinary course of
business, (e) liens of or resulting from any judgment or award that would not
have a Material Adverse Effect and as to which the time for the appeal or
petition for rehearing of which has not yet expired, or in respect of which
Borrowers are in good faith prosecuting an appeal or proceeding for a review,
and in respect of which a stay of execution pending such appeal or proceeding
for review has been secured, (f) liens on property of a person existing at the
time such person is acquired, merged into or consolidated with any Borrower, so
long as such liens were in existence prior to the consummation of such
acquisition, merger or consolidation and do not (after consummation thereof)
extend to any assets other than the Equipment or Real Property of the person
merged into or consolidated with such Borrower, (g) zoning restrictions,
easements, licenses, covenants and other restrictions affecting the use of Real
Property which do not interfere in any material respect with the use of such
Real Property or ordinary conduct of the business of such Borrower as presently
conducted thereon or materially impair the value of the Real Property which may
be subject thereto; (h) purchase money security interests in Equipment
(including capital leases) not to exceed $12,000,000 in the aggregate at any
time outstanding so long as such security interests and mortgages do not apply
to any property of Borrowers other than the Equipment or real estate so
acquired, and the indebtedness secured thereby does not exceed the cost of the
Equipment or real estate so acquired, as the case may be; (i) liens or rights of
setoff or credit balances of Borrowers with banks and other financial
institutions at which Borrowers have accounts or other investments permitted
hereunder and Credit Card Issuers, but not liens on or rights of setoff against
any other property or assets of Borrowers pursuant to the Credit Card Agreements
(as in effect on the date hereof) to secure the obligations of Borrowers to the
Credit Card Issuers as a result of fees and chargebacks; (j) deposits of cash
with the owner or lessor of premises leased and operated by Borrowers in the
ordinary course of the business of Borrowers to secure the performance by
Borrowers of their obligations under the terms of the lease for such premises;
and (k) the liens and security interests set forth on Schedule 8.4 hereto.
9.9 Indebtedness. Each Borrower shall not incur, create, assume,
become or be liable in any manner with respect to, or permit to exist, any
indebtedness, except:
(a) the Obligations;
(b) trade obligations and normal accruals in the ordinary course
of business;
38
(c) purchase money indebtedness (including capital leases) to the
extent not incurred or secured by liens (including capital leases) in violation
of any other provision of this Agreement;
(d) obligations or indebtedness existing as of the date hereof
set forth on Schedule 9.9 hereto, provided, that, (i) Borrowers may only make
-------- ----
regularly scheduled payments of principal and interest in respect of such
indebtedness in accordance with the terms of the agreement or instrument
evidencing or giving rise to such indebtedness, (ii) Borrowers shall not,
directly or indirectly amend, modify, alter or change the terms of such
indebtedness or any agreement, document or instrument related thereto as in
effect on the date hereof in any manner which purports to grant any lien,
collateral or other security therefor, provided, however, that nothing in this
-------- -------
Section 9.9(d) shall limit Borrower's ability to refinance the indebtedness
under the Bridge Notes and Bridge Loan Agreement, (iii) Borrowers shall furnish
to Lender all notices or demands in connection with such indebtedness either
received by Borrowers or on their behalf, promptly after the receipt thereof, or
sent by Borrowers or on their behalf, concurrently with the sending thereof, as
the case may be, and (iv notwithstanding anything to the contrary contained in
this Section 9.9(d), so long as no Event of Default exists and is continuing,
Borrowers shall have the right to make prepayments in respect of any such
indebtedness provided that after giving effect thereto, Borrowers have Excess
Availability of not less than $5,000,000 in each instance;
(e) unsecured indebtedness of Borrowers for borrowed money
incurred after the date hereof owing to any person on commercially reasonable
rates and terms pursuant to an arm's length transaction; provided, that, (i)
-------- ----
Lender shall have received not less than five (5) Business Days prior written
notice of the intention to incur such indebtedness, which notice shall set forth
in reasonable detail satisfactory to Lender, the amount of such indebtedness,
the person to whom such indebtedness will be owed, the interest rate, the
schedule of repayments and maturity date with respect thereto, the Borrower or
Borrowers incurring such indebtedness and such other information as Lender may
reasonably request with respect thereto, (ii) Lender shall have received true,
correct and complete copies of all agreements, documents and instruments
evidencing or otherwise related to such indebtedness, (iii) the aggregate amount
of such indebtedness of all Borrowers at any time outstanding shall not exceed
the aggregate amount $140,000,000 less the outstanding obligations due and owing
by Borrowers under the Bridge Notes and Bridge Loan Agreement, (iv) on and
before the date of incurring such indebtedness and after giving effect thereto,
no Event of Default, or event which with the passage of time or both would
constitute an Event of Default, shall exist and be continuing, (v) except for a
refinancing or cancellation of the indebtedness under the Bridge Notes and
Bridge Loan Agreement, Borrowers may only make regularly scheduled payments of
principal and interest in respect of such indebtedness in accordance with the
terms of the agreement or instrument evidencing or giving rise to such
indebtedness as in effect on the date of the execution thereof, (vi) except for
a refinancing or cancellation of the indebtedness under the Bridge Notes and
Bridge Loan Agreement, Borrowers shall not, directly or indirectly, (A) make any
prepayments or other non-mandatory payments in respect of such indebtedness, or
(B) amend, modify, alter or change any material terms of such indebtedness or
any agreement, document or instrument related thereto in any manner which
purports to grant any lien, collateral or other security therefor, or (C)
redeem, retire, defease, purchase or otherwise acquire such indebtedness, or set
39
aside or otherwise deposit or invest any sums for such purpose, (vii) Borrowers
shall furnish to Lender all notices, demands or other materials in connection
with such indebtedness either received by Borrowers or on their behalf, promptly
after the receipt thereof, or sent by Borrowers or on their behalf, concurrently
with the sending thereof, as the case may be, and (viii) notwithstanding
anything to the contrary contained in this Section 9.9(e), so long as no Event
of Default exists and is continuing, Borrowers shall have the right to make
prepayments in respect of any such indebtedness provided that after giving
effect thereto, Borrowers have Excess Availability of not less than $5,000,000
in each instance;
(f) intercompany loans and advances among the Borrowers and
Guarantors, or any guarantees by any Borrower of the obligations of any other
Borrower or Guarantor to any third party;
(g) indebtedness secured by liens permitted under Section 9.8, to
the extent permitted under such Section;
(h) indebtedness of the Borrowers consisting of performance, bid
or advance payment bonds, custom bonds, utility bonds and similar obligations
arising in the ordinary course of business, provided that the aggregate amount
of such bonds shall not exceed $4,000,000, at any time outstanding; and
(i) indebtedness permitted under Section 9.10.
9.10 Loans, Investments, Guarantees, Etc. Each Borrower shall not,
directly or indirectly, make any loans or advance money (other than sales on
credit in the ordinary course of its business) or property to any person, or
invest in (by capital contribution, dividend (except as expressly permitted
under Section 9.11) or otherwise) or purchase or repurchase the stock or
indebtedness or all or a substantial part of the assets or property of any
person, or guarantee, assume, endorse, or otherwise become responsible for
(directly or indirectly) the indebtedness, performance, obligations or dividends
of any Person or agree to do any of the foregoing, except: (a) intercompany
------
loans and advances among the Borrowers and Guarantors or investments by any
Borrower in any other Borrower or Guarantor; (b) the endorsement of instruments
for collection or deposit in the ordinary course of business; (c) investments in
Cash Equivalents; provided, that, unless waived in writing by Lender, so long as
-------- ----
any Obligations are outstanding such Borrower shall take such actions as are
deemed necessary by Lender to perfect the security interest of Lender in such
investments; (d) the existing loans, advances and guarantees by such Borrower
outstanding as of the date hereof as set forth on Schedule 9.10 hereto or as
permitted under Section 9.9; provided, that, as to such loans, advances and
-------- ----
guarantees and except as permitted under Section 9.9, (i) such Borrower shall
not, directly or indirectly, (A) amend, modify, alter or change the terms of
such loans, advances or guarantees or any agreement, document or instrument
related thereto in any manner which purports to grant any lien, collateral or
other security therefor, or (B) as to such guarantees, except as otherwise
permitted herein with respect to the underlying indebtedness, redeem, retire,
defease, purchase or otherwise acquire such guarantee or set aside or otherwise
deposit or invest any sums for such purpose and (ii) such Borrower shall furnish
to Lender all notices, demands or other materials in connection with such
40
loans, advances or guarantees either received by such Borrower or on its behalf,
promptly after the receipt thereof, or sent by such Borrower or on its behalf,
concurrently with the sending thereof, as the case may be; (e) loans or advances
of money (other than salary) to officers, directors, employees, independent
contractors, or stockholders of Borrower consisting of (i) expense advances in
the ordinary course of business consistent with past practices, (ii) loans, not
to exceed $500,000 outstanding in the aggregate at any time and (iii) loans to
Borrowers' employees, officers and directors in connection with the purchase by
such employees, officers and directors of common stock of Parent so long as the
cash proceeds of such purchase received by Parent are contemporaneously remitted
by Parent to G+G as a capital contribution and that such obligations of
employees, officers and/or directors are evidenced by promissory notes; (f)
Borrowers shall be permitted to form or purchase subsidiaries and, except as
expressly limited in Section 9.2, contribute assets or properties to
subsidiaries engaged in a like business as G+G; provided that, in each instance
-------- ----
each such subsidiary executes and delivers an amendment to this Agreement adding
such subsidiary as a "Borrower" hereunder, together with related documents
including UCC-1 financing statements or, alternatively, becomes a "Guarantor"
and executes and delivers a guarantee of the Obligations hereunder and a
security agreement and related documents including UCC-1 financing statements
granting Lender a first priority security interest in and lien upon all assets
of such subsidiary; (g) make investments in account debtors received in
connection with the bankruptcy or reorganization, or in settlement of delinquent
obligations, of customers in the ordinary course of business and in accordance
with applicable collection and credit policies established by such Borrower; (h)
promissory notes and other similar noncash consideration received as proceeds of
asset dispositions permitted by Section 9.7; and (i) the guarantee by any
Borrower of the obligations of any other Borrower or Guarantor.
9.11 Dividends and Redemptions.
(a) G+G shall not, directly or indirectly, declare or pay any
dividends on account of any shares of any class of its Capital Stock now or
hereafter outstanding, or set aside or otherwise deposit or invest any sums for
such purpose, or redeem, retire, defease, purchase or otherwise acquire any
shares of any class of Capital Stock (or set aside or otherwise deposit or
invest any sums for such purpose) for any consideration other than common stock
or apply or set apart any sum, or make any other distribution (by reduction of
capital or otherwise) in respect of any such shares or agree to do any of the
foregoing.
(b) Notwithstanding anything to the contrary contained in Section
9.11(a):
(i) G+G may declare and pay cash dividends upon its Capital
Stock, provided, that (1) no Event of Default has occurred and is continuing on
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the proposed dividend payment date ("Dividend Payment Date") set forth in a
notice of such proposed dividend to be delivered by Borrowers to Lender at least
ten (10) days prior to the Dividend Payment Date, (2) Borrowers' Excess
Availability on the Dividend Payment Date, after giving effect to such dividend,
is at least $5,000,000 and (3) Borrowers' Adjusted Tangible Net Worth on the
Dividend Payment Date, after giving effect to such dividend, is in compliance
with Section 9.14, and
41
(ii) G+G may issue stock dividends upon any shares of any
class of capital stock so long as the same is in accordance with all applicable
laws.
9.12 Transactions with Affiliates. Except for (a) reasonable
compensation paid to officers, employees and directors for services rendered in
the ordinary course of business including, but not limited to the Employment
Agreements set forth as items 1 and 2 on Schedule 9.12, (b) transactions and/or
payments pursuant to the agreements described as item 3 on Schedule 9.12, and
(c) transactions and/or payments otherwise permitted under, but in all cases,
subject to, any other section of this Agreement, at any time that Borrowers have
Excess Availability of less than $5,000,000 or any Event of Default has occurred
and is continuing, no Borrower shall directly or indirectly purchase, acquire or
lease any property from, or sell, transfer or lease any property to, any
officer, employee, shareholder, director, agent or any other person affiliated
with Borrowers or make any payment of management, consulting or other fees for
management or similar services; except that, if Borrowers have Excess
------ ----
Availability of less than $5,000,000 or an Event of Default exists and is
continuing, Borrowers may make payments in respect of items 4 and 5 on Schedule
9.12 in an aggregate amount not to exceed $600,000 and in respect of item 6 on
Schedule 9.12 in an aggregate amount not to exceed $300,000.
9.13 Credit Card Agreements. Borrowers shall (a) observe and perform
all material terms, covenants, conditions and provisions of the Credit Card
Agreements to be observed and performed by them at the times set forth therein;
(b) not do, permit, suffer or refrain from doing anything, as a result of which
there could be a material default under or material breach of any of the terms
of any of the Credit Card Agreements; (c) at all times maintain in full force
and effect the Credit Card Agreements and not terminate, cancel, surrender,
modify, amend (unless such amendment does not adversely affect Lender's rights
under the Financing Agreements), waive or release any of the Credit Card
Agreements, or consent to or permit to occur any of the foregoing; except, that,
Borrowers may terminate or cancel any of the Credit Card Agreements in the
ordinary course of the business of Borrowers; provided, that, Borrowers shall
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give Lender not less than fifteen (15) days prior written notice of their
intention to so terminate or cancel any of the Credit Card Agreements; (d) not
enter into any new Credit Card Agreements with any new Credit Card Issuer unless
(i) Lender shall have received not less than thirty (30) days prior written
notice of the intention of Borrowers to enter into such agreement (together with
such other information with respect thereto as Lender may request) and (ii)
Borrowers deliver, or cause to be delivered to Lender, a Credit Card
Acknowledgment in favor of Lender; (e) give Lender written notice of any Credit
Card Agreement entered into by Borrowers after the date hereof, together with a
true, correct and complete copy thereof and such other information with respect
thereto as Lender may request; and (f) furnish to Lender, promptly upon the
request of Lender, such information and evidence as Lender may reasonably
require from time to time concerning the observance, performance and compliance
by Borrowers or the other party or parties thereto with the terms, covenants or
provisions of the Credit Card Agreements.
9.14 Adjusted Tangible Net Worth. Borrowers shall, at all times,
maintain Adjusted Tangible Net Worth of not less than $39,000,000.
42
9.15 Compliance with ERISA.
(a) Each Borrower shall not with respect to any "employee benefit
plans" maintained by any Borrower or any of its ERISA Affiliates: (i) terminate
any of such employee pension plans so as to incur any liability to the Pension
Benefit Guaranty Corporation established pursuant to ERISA, (ii) allow or suffer
to exist any prohibited transaction involving any of such employee benefit plans
or any trust created thereunder which would subject any Borrower or such ERISA
Affiliate to a material tax or penalty or other liability on prohibited
transactions imposed under the Code or ERISA, (iii) fail to pay to any such
employee benefit plan any contribution which it is obligated to pay under ERISA,
the Code or the terms of such plan, (iv) allow or suffer to exist any material
accumulated funding deficiency, whether or not waived, with respect to any such
employee benefit plan, (v) allow or suffer to exist any occurrence of a
reportable event or any other event or condition which presents a material risk
of termination by the Pension Benefit Guaranty Corporation of any such employee
benefit plan that is a single employer plan, which termination could result in
any material liability to the Pension Benefit Guaranty Corporation or (vi) incur
any material withdrawal liability with respect to any multiemployer pension
plan.
(b) As used in this Section 9.15, the term "employee pension
benefit plans," "employee benefit plans", "accumulated funding deficiency" and
"reportable event" shall have the respective meanings assigned to them in ERISA,
and the term "prohibited transaction" shall have the meaning assigned to it in
the Code and ERISA.
9.16 Additional Bank Accounts. Borrowers shall not, directly or
indirectly, open, establish or maintain any deposit account, investment account
or any other account with any bank or other financial institution, other than
the Blocked Accounts, accounts holding Cash Equivalents and other investments
permitted hereunder, and the accounts set forth in Schedule 6.3 hereto, except:
(a) any new or additional Blocked Accounts and other such new or additional
accounts which contain any Collateral or proceeds thereof, so long as in the
case of any such other accounts the applicable bank or financial institution has
executed an agreement as described in Section 6.3(a) hereof or, in the case of
depository or concentration accounts, so long as Borrowers have given written
notice to such depository or concentration account bank to transfer on a daily
basis to a Blocked Account all funds received in such depository or
concentration account, and (b) as to any depository or concentration accounts
used by Borrowers to make payments of payroll, taxes or other obligations to
third parties, after prior written notice to Lender.
9.17 Costs and Expenses. Borrowers shall pay to Lender on demand all
costs, expenses, filing fees and taxes paid or payable in connection with the
preparation, negotiation, execution, delivery, recording, administration,
collection, liquidation, enforcement and defense of the Obligations, Lender's
rights in the Collateral, this Agreement, the other Financing Agreements and all
other documents related hereto or thereto, including any amendments, supplements
or consents which may hereafter be contemplated (whether or not executed) or
entered into in respect hereof and thereof, including: (a) all costs and
expenses of filing or recording (including Uniform Commercial Code financing
statement filing taxes and fees, documentary taxes, intangibles taxes and
mortgage recording taxes and fees, if applicable); (b)
43
all insurance premiums, appraisal fees and search fees; (c) costs and expenses
of remitting loan proceeds, collecting checks and other items of payment, and
establishing and maintaining the Blocked Accounts, together with Lender's
customary charges and fees with respect thereto; (d) charges, fees or expenses
charged by any bank or issuer in connection with the Letter of Credit
Accommodations; (e) costs and expenses of preserving and protecting the
Collateral; (f) costs and expenses paid or incurred in connection with obtaining
payment of the Obligations, enforcing the security interests and liens of
Lender, selling or otherwise realizing upon the Collateral, and otherwise
enforcing the provisions of this Agreement and the other Financing Agreements or
defending any claims made or threatened against Lender arising out of the
transactions contemplated hereby and thereby (including preparations for and
consultations concerning any such matters); (g) all out-of-pocket expenses and
costs heretofore and from time to time hereafter incurred by Lender during the
course of periodic field examinations of the Collateral and Borrowers'
operations, plus a per diem charge at the rate of $650 per person per day for
Lender's examiners in the field and office; and (h) the fees and disbursements
of counsel (including legal assistants) to Lender in connection with any of the
foregoing.
9.18 Further Assurances. At the request of Lender at any time and from
time to time, Borrowers shall, at their expense, duly execute and deliver, or
cause to be duly executed and delivered, such further agreements, documents and
instruments, and do or cause to be done such further acts as may be necessary or
proper to evidence, perfect, maintain and enforce the security interests and the
priority thereof in the Collateral and to otherwise effectuate the provisions or
purposes of this Agreement or any of the other Financing Agreements. Lender may
at any time and from time to time request a certificate from an officer of
Borrowers representing that all conditions precedent to the making of Loans and
providing Letter of Credit Accommodations contained herein are satisfied. In the
event of such request by Lender, Lender may, at its option, cease to make any
further Loans or provide any further Letter of Credit Accommodations until
Lender has received such certificate and, in addition, Lender has determined
that such conditions are satisfied. Where permitted by law, each Borrower hereby
authorizes Lender to execute and file one or more UCC financing statements
signed only by Lender.
SECTION 10. EVENTS OF DEFAULT AND REMEDIES
------------------------------
10.1 Events of Default. The occurrence or existence of any one or more
of the following events are referred to herein individually as an "Event of
Default", and collectively as "Events of Default":
(a) (i) any Borrower fails to pay any of the Obligations when
due; or (ii) any Borrower or any Obligor fails to perform any of the covenants
contained in this Agreement or any of the other Financing Agreements other than
as described in Section 10.1(a)(i) and such failure shall continue for fifteen
(15) days; provided, that, such fifteen (15) day period shall not apply in the
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case of (A) any failure to observe any such covenant which is not capable of
being cured at all or within such fifteen (15) day period or which has been the
subject of a prior failure within a six (6) month period or (B) a wilful breach
of any Borrower or any Obligor of any such covenant or (C) the failure to
observe or perform any of the covenants or provisions contained in Section 9.2,
9.7, 9.8, 9.9, 9.10, 9.11, 9.12, 9.13, 9.15, 9.16 or 9.18 of this Agreement or
any
44
covenants or agreements covering substantially the same matter as such sections
in any of the other Financing Agreements;
(b) any representation, warranty or statement of fact made by any
Borrower to Lender in this Agreement, the other Financing Agreements or any
other agreement, schedule, confirmatory assignment or otherwise shall when made
or deemed made be false or misleading in any material respect;
(c) any Obligor revokes or terminates any guarantee, endorsement
or other agreement of such party in favor of Lender;
(d) (i) any judgment for the payment of money is rendered against
any Borrower or any Obligor in excess of $2,500,000 in the aggregate (net of
amounts covered by insurance) and either (A) shall remain undischarged or
unvacated or unstayed for a period in excess of thirty (30) consecutive days or
(B) enforcement proceedings shall have been commenced upon such judgment or
execution shall at any time not be effectively stayed, or (ii) any judgment
other than for the payment of money, or injunction, attachment, garnishment or
execution is rendered against any Borrower or any Obligor or any of their
assets, unless the same could not reasonably be expected to have a Material
Adverse Effect;
(e) any Obligor (being a natural person or a general partner of
an Obligor which is a partnership) dies, or except as otherwise permitted
hereunder, any Borrower or any Obligor, which is a partnership, limited
liability company, limited liability partnership or a corporation, dissolves or
suspends or discontinues doing business;
(f) any Borrower or any Obligor becomes insolvent (as defined
under applicable state or federal law), makes an assignment for the benefit of
creditors, makes or sends notice of a bulk transfer or calls a meeting of its
creditors or principal creditors;
(g) a case or proceeding under the bankruptcy laws of the United
States of America now or hereafter in effect or under any insolvency,
reorganization, receivership, readjustment of debt, dissolution or liquidation
law or statute of any jurisdiction now or hereafter in effect (whether at law or
in equity) is filed against any Borrower or any Obligor or all or any part of
its properties and such petition or application is not dismissed within sixty
(60) days after the date of its filing or any Borrower or any Obligor shall file
any answer admitting or not contesting such petition or application or indicates
its consent to, acquiescence in or approval of, any such action or proceeding or
the relief requested is granted sooner;
(h) a case or proceeding under the bankruptcy laws of the United
States of America now or hereafter in effect or under any insolvency,
reorganization, receivership, readjustment of debt, dissolution or liquidation
law or statute of any jurisdiction now or hereafter in effect (whether at a law
or equity) is filed by any Borrower or any Obligor or for all or any part of its
property; or
45
(i) any default by any Borrower or any Obligor under any
agreement, document or instrument relating to any indebtedness for borrowed
money owing to any person other than Lender, or any capitalized lease
obligations, contingent indebtedness in connection with any guarantee, letter of
credit, indemnity or similar type of instrument in favor of any person other
than Lender, in any case in an amount in excess of $2,500,000, which default
continues for more than the applicable cure period, if any, with respect
thereto;
(j) any Change of Control;
(k) the indictment or threatened indictment of any Borrower or
any Obligor under any criminal statute, or commencement or threatened
commencement of criminal or civil proceedings against any Borrower or any
Obligor, pursuant to which statute or proceedings the penalties or remedies
sought or available include forfeiture of any of the property of any Borrower or
such Obligor;
(l) there shall be a Material Adverse Change in the business or
assets of any Borrower or any Obligor after the date hereof; or
(m) there shall be an event of default (after giving effect to
any applicable grace and/or cure period and/or notice period) under any of the
other Financing Agreements.
10.2 Remedies.
(a) At any time an Event of Default exists or has occurred and is
continuing, Lender shall have all rights and remedies provided in this
Agreement, the other Financing Agreements, the Uniform Commercial Code and other
applicable law, all of which rights and remedies may be exercised without notice
to or consent by any Borrower or any Obligor, except as such notice or consent
is expressly provided for hereunder or required by applicable law. All rights,
remedies and powers granted to Lender hereunder, under any of the other
Financing Agreements, the Uniform Commercial Code or other applicable law, are
cumulative, not exclusive and enforceable, in Lender's discretion,
alternatively, successively, or concurrently on any one or more occasions, and
shall include, without limitation, the right to apply to a court of equity for
an injunction to restrain a breach or threatened breach by any Borrower of this
Agreement or any of the other Financing Agreements. Lender may, at any time or
times, proceed directly against any Borrower or any Obligor to collect the
Obligations without prior recourse to the Collateral.
(b) Without limiting the foregoing, at any time an Event of
Default exists or has occurred and is continuing, Lender may, in its discretion
and without limitation, (i) accelerate the payment of all Obligations and demand
immediate payment thereof to Lender (provided, that, upon the occurrence of any
-------- ----
Event of Default described in Sections 10.1(g) and 10.1(h), all Obligations
shall automatically become immediately due and payable), (ii) with or without
judicial process or the aid or assistance of others, enter upon any premises on
or in which any of the Collateral may be located and take possession of the
Collateral or complete processing, manufacturing and repair of all or any
portion of the Collateral, (iii) require Borrowers, at
46
Borrowers' expense, to assemble and make available to Lender any part or all of
the Collateral at any place and time designated by Lender, (iv) collect,
foreclose, receive, appropriate, setoff and realize upon any and all Collateral,
(v) remove any or all of the Collateral from any premises on or in which the
same may be located for the purpose of effecting the sale, foreclosure or other
disposition thereof or for any other purpose, (vi) sell, lease, transfer,
assign, deliver or otherwise dispose of any and all Collateral (including,
without limitation, entering into contracts with respect thereto, public or
private sales at any exchange, broker's board, at any office of Lender or
elsewhere) at such prices or terms as Lender may deem reasonable, for cash, upon
credit or for future delivery, with the Lender having the right to purchase the
whole or any part of the Collateral at any such public sale, all of the
foregoing being free from any right or equity of redemption of Borrowers, which
right or equity of redemption is hereby expressly waived and released by
Borrowers and/or (vii) terminate this Agreement. If any of the Collateral is
sold or leased by Lender upon credit terms or for future delivery, the
Obligations shall not be reduced as a result thereof until payment therefor is
finally collected by Lender. If notice of disposition of Collateral is required
by law, ten (10) days prior notice by Lender to Borrowers designating the time
and place of any public sale or the time after which any private sale or other
intended disposition of Collateral is to be made, shall be deemed to be
reasonable notice thereof and Borrowers waive any other notice. In the event
Lender institutes an action to recover any Collateral or seeks recovery of any
Collateral by way of prejudgment remedy, Borrowers waive the posting of any bond
which might otherwise be required.
(c) Lender may apply the cash proceeds of Collateral actually
received by Lender from any sale, lease, foreclosure or other disposition of the
Collateral to payment of the Obligations, in whole or in part and in such order
as Lender may elect, whether or not then due. Borrowers shall remain liable to
Lender for the payment of any deficiency with interest at the highest rate
provided for herein and all costs and expenses of collection or enforcement,
including attorneys' fees and legal expenses.
(d) Without limiting the foregoing, Lender may, at its option,
without notice (i) upon the occurrence and during the continuance of an Event of
Default or an event which with notice or passage of time or both would
constitute an Event of Default cease making Loans or arranging for Letter of
Credit Accommodations or reduce the lending formulas or amounts of Loans and
Letter of Credit Accommodations available to Borrowers and/or (ii) upon the
occurrence and during the continuance of an Event of Default, or an event which
would with notice or passage of time or both constitute an Event of Default
under Section 10.1(g) or Section 10.1(h), terminate any provision of this
Agreement providing for any future Loans or Letter of Credit Accommodations to
be made by Lender to Borrowers.
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SECTION 11. JURY TRIAL WAIVER; OTHER WAIVERS
AND CONSENTS; GOVERNING LAW
--------------------------------
11.1 Governing Law; Choice of Forum; Service of Process; Jury Trial
Waiver.
(a) The validity, interpretation and enforcement of this
Agreement and the other Financing Agreements and any dispute arising out of the
relationship between the parties hereto, whether in contract, tort, equity or
otherwise, shall be governed by the internal laws of the State of New York
(without giving effect to principles of conflicts of law).
(b) Each Borrower and Lender irrevocably consent and submit to
the non-exclusive jurisdiction of the Supreme Court of the State of New York,
New York County and the United States District Court for the Southern District
of New York and waive any objection based on venue or forum non conveniens with
----- --- ----------
respect to any action instituted therein arising under this Agreement or any of
the other Financing Agreements or in any way connected with or related or
incidental to the dealings of the parties hereto in respect of this Agreement or
any of the other Financing Agreements or the transactions related hereto or
thereto, in each case whether now existing or hereafter arising, and whether in
contract, tort, equity or otherwise, and agree that any dispute with respect to
any such matters shall be heard only in the courts described above (except that
Lender shall have the right to bring any action or proceeding against any
Borrower or its property in the courts of any other jurisdiction which Lender
deems necessary or appropriate in order to realize on the Collateral or to
otherwise enforce its rights against any Borrower or its property).
(c) Each Borrower hereby waives personal service of any and all
process upon it and consents that all such service of process may be made by
certified mail (return receipt requested) directed to its address set forth on
the signature pages hereof and service so made shall be deemed to be completed
five (5) days after the same shall have been so deposited in the U.S. mails, or,
at Lender's option, by service upon such Borrower in any other manner provided
under the rules of any such courts. Within thirty (30) days after such service,
such Borrower shall appear in answer to such process, failing which such
Borrower shall be deemed in default and judgment may be entered by Lender
against such Borrower for the amount of the claim and other relief requested.
(d) EACH BORROWER AND LENDER EACH HEREBY WAIVES ANY RIGHT TO
TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (i) ARISING UNDER
THIS AGREEMENT OR ANY OF THE OTHER FINANCING AGREEMENTS OR (ii) IN ANY WAY
CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO IN
RESPECT OF THIS AGREEMENT OR ANY OF THE OTHER FINANCING AGREEMENTS OR THE
TRANSACTIONS RELATED HERETO OR THERETO IN EACH CASE WHETHER NOW EXISTING OR
HEREAFTER ARISING, AND WHETHER IN CONTRACT, TORT, EQUITY OR OTHERWISE. BORROWERS
AND LENDER EACH HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION
OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY AND THAT
BORROWERS
48
OR LENDER MAY FILE AN ORIGINAL COUNTERPART OF A COPY OF THIS AGREEMENT WITH ANY
COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE PARTIES HERETO TO THE WAIVER OF
THEIR RIGHT TO TRIAL BY JURY.
(e) Lender shall not have any liability to Borrowers (whether in
tort, contract, equity or otherwise) for losses suffered by Borrowers in
connection with, arising out of, or in any way related to the transactions or
relationships contemplated by this Agreement, or any act, omission or event
occurring in connection herewith, unless it is determined by a final and non-
appealable judgment or court order binding on Lender, that the losses were the
result of acts or omissions constituting gross negligence or willful misconduct.
In any such litigation, Lender shall be entitled to the benefit of the
rebuttable presumption that it acted in good faith and with the exercise of
ordinary care in the performance by it of the terms of this Agreement.
11.2 Waiver of Notices. Each Borrower hereby expressly waives demand,
presentment, protest and notice of protest and notice of dishonor with respect
to any and all instruments and commercial paper, included in or evidencing any
of the Obligations or the Collateral, and any and all other demands and notices
of any kind or nature whatsoever with respect to the Obligations, the Collateral
and this Agreement, except such as are expressly provided for herein. No notice
to or demand on Borrowers which Lender may elect to give shall entitle Borrowers
to any other or further notice or demand in the same, similar or other
circumstances.
11.3 Amendments and Waivers. Neither this Agreement nor any provision
hereof shall be amended, modified, waived or discharged orally or by course of
conduct, but only by a written agreement signed by an authorized officer of
Lender, and as to amendments, as also signed by an authorized officer of
Borrowers. Lender shall not, by any act, delay, omission or otherwise be deemed
to have expressly or impliedly waived any of its rights, powers and/or remedies
unless such waiver shall be in writing and signed by an authorized officer of
Lender. Any such waiver shall be enforceable only to the extent specifically set
forth therein. A waiver by Lender of any right, power and/or remedy on any one
occasion shall not be construed as a bar to or waiver of any such right, power
and/or remedy which Lender would otherwise have on any future occasion, whether
similar in kind or otherwise.
11.4 Waiver of Counterclaims. Each Borrower waives all rights to
interpose any claims, deductions, setoffs or counterclaims of any nature (other
then compulsory counterclaims) in any action or proceeding with respect to this
Agreement, the Obligations, the Collateral or any matter arising therefrom or
relating hereto or thereto.
11.5 Indemnification. Each Borrower shall indemnify and hold Lender,
and its directors, agents, employees and counsel, harmless from and against any
and all losses, claims, damages, liabilities, costs or expenses imposed on,
incurred by or asserted against any of them in connection with any litigation,
investigation, claim or proceeding commenced or threatened related to the
negotiation, preparation, execution, delivery, enforcement, performance or
administration of this Agreement, any other Financing Agreements, or any
undertaking or proceeding related to any of the transactions contemplated hereby
or any act, omission, event or transaction related or attendant thereto,
including, without limitation, court costs, and the fees and
49
expenses of counsel, except for any losses, claims, damages, liabilities, costs
or expenses which result from the gross negligence or willful misconduct of
Lender as determined pursuant to a final non-appealable order of a court of
competent jurisdiction. To the extent that the undertaking to indemnify, pay and
hold harmless set forth in this Section may be unenforceable because it violates
any law or public policy, Borrowers shall pay the maximum portion which it is
permitted to pay under applicable law to Lender in satisfaction of indemnified
matters under this Section. The foregoing indemnity shall survive the payment of
the Obligations and the termination or non-renewal of this Agreement.
SECTION 12. TERM OF AGREEMENT; MISCELLANEOUS
--------------------------------
12.1 Term.
(a) This Agreement and the other Financing Agreements shall
become effective as of the date set forth on the first page hereof and shall
continue in full force and effect for a term ending on the date three (3) years
from the date hereof (the "Renewal Date"), and from year to year thereafter,
unless sooner terminated pursuant to the terms hereof, including, without
limitation, pursuant to Section 12.1(c) hereof; provided, that, Lender or
-------- ----
Borrowers may terminate this Agreement and the other Financing Agreements
effective on the Renewal Date or on the anniversary of the Renewal Date in any
year by giving to the other party at least sixty (60) days prior written notice,
or, alternatively, effective upon any other date pursuant to Section 12.1(c);
provided, that, this Agreement and all other Financing Agreements must be
-------- ----
terminated simultaneously. Upon the effective date of termination or non-renewal
of the Financing Agreements, Borrowers shall pay to Lender, in full, all
outstanding and unpaid Obligations and shall furnish cash collateral to Lender
in such amounts as Lender determines are reasonably necessary to secure Lender
from loss, cost, damage or expense, including attorneys' fees and legal
expenses, in connection with any contingent Obligations, including issued and
outstanding Letter of Credit Accommodations and checks or other payments
provisionally credited to the Obligations and/or as to which Lender has not yet
received final and indefeasible payment. Such payments in respect of the
Obligations and cash collateral shall be remitted by wire transfer in Federal
funds to such bank account of Lender, as Lender may, in its discretion,
designate in writing to Borrowers for such purpose. Interest shall be due until
and including the next business day, if the amounts so paid by Borrowers to the
bank account designated by Lender are received in such bank account later than
12:00 noon, New York City time.
(b) No termination of this Agreement or the other Financing
Agreements shall relieve or discharge Borrowers of their respective duties,
obligations and covenants under this Agreement or the other Financing Agreements
until all Obligations have been fully and finally discharged and paid, and
Lender's continuing security interest in the Collateral and the rights and
remedies of Lender hereunder, under the other Financing Agreements and
applicable law, shall remain in effect until all such Obligations have been
fully and finally discharged and paid.
(c) If for any reason this Agreement is terminated prior to the
end of the then current term or renewal term of this Agreement, in view of the
impracticality and extreme difficulty of ascertaining actual damages and by
mutual agreement of the parties as to a
50
reasonable calculation of Lender's lost profits as a result thereof, Borrowers
agree to pay to Lender, upon the effective date of such termination, an early
termination fee in the amount set forth below if such termination is effective
in the period indicated:
Amount Period
------ ------
(i) .75% of Maximum Credit From the date hereof to and
including October 29, 1999
(ii) .5% of Maximum Credit From October 30, 1999 to and
including October 29, 2000
(iii) .333% of Maximum Credit From October 30, 2000 to and
including October 29, 2001
Such early termination fee shall be presumed to be the amount of damages
sustained by Lender as a result of such early termination and Borrowers agree
that it is reasonable under the circumstances currently existing. In addition,
Lender shall be entitled to such early termination fee upon the occurrence of
any Event of Default described in Sections 10.1(g) and 10.1(h) hereof, even if
Lender does not exercise its right to terminate this Agreement, but elects, at
its option, to provide financing to Borrowers or permit the use of cash
collateral under the United States Bankruptcy Code. The early termination fee
provided for in this Section 12.1 shall be deemed included in the Obligations.
(d) Notwithstanding anything to the contrary contained in
Section 13.1(c), in the event of the termination of this Agreement by Borrowers
prior to the end of the then current term and the full and final repayment of
all of the Obligations and the receipt by Lender of cash collateral all as
provided in Section 13.1(a), Borrowers shall not be required to pay the early
termination fee provided for above if each of the following conditions is
satisfied: (i) no Event of Default or act, condition or event which with notice
or passage of time or both would constitute an Event of Default shall exist or
have occurred and be continuing, (ii) Lender shall have received not less than
thirty (30) days prior written notice of the intention of Borrowers to so
terminate this Agreement, and (iii) the final payment in full of all of the
Obligations is received simultaneously with (A) the refinancing of the Credit
Facility with proceeds of Loans made by First Union National Bank to Borrowers;
(B) the consummation of a public equity offering, after the first anniversary of
the date hereof, which equity offering shall be registered under the Securities
Act of 1933, as amended, and the net proceeds received by Borrowers shall not be
less than the Maximum Credit; or (C) the consummation by Borrowers after the
first anniversary of the date hereof of an unsecured bond, debenture or note
offering pursuant to which Borrowers shall receive net proceeds of not less than
the Maximum Credit.
12.2 Notices. All notices, requests and demands hereunder shall be in
writing and (a) made to Lender at its address set forth below and to Borrowers
at their chief executive office set forth below, or to such other address as
either party may designate by written notice to the other in accordance with
this provision, and (b) deemed to have been given or made: if delivered in
51
person, immediately upon delivery; if by facsimile transmission, immediately
upon sending and upon confirmation of receipt; if by nationally recognized
overnight courier service with instructions to deliver the next Business Day,
one (1) Business Day after sending; and if by certified mail, return receipt
requested, seven (7) days after mailing.
12.3 Partial Invalidity. If any provision of this Agreement is held to
be invalid or unenforceable, such invalidity or unenforceability shall not
invalidate this Agreement as a whole, but this Agreement shall be construed as
though it did not contain the particular provision held to be invalid or
unenforceable and the rights and obligations of the parties shall be construed
and enforced only to such extent as shall be permitted by applicable law.
12.4 Successors. This Agreement, the other Financing Agreements and any
other document referred to herein or therein shall be binding upon and inure to
the benefit of and be enforceable by Lender, Borrowers and their respective
successors and assigns, except that Borrowers may not assign their rights under
this Agreement, the other Financing Agreements and any other document referred
to herein or therein without the prior written consent of Lender. Lender may,
after notice to Borrowers, assign their rights and delegate their obligations
under this Agreement and the other Financing Agreements and further may assign,
or sell participations in, all or any part of the Loans, the Letter of Credit
Accommodations or any other interest herein to another financial institution or
other person, in which event, the assignee or participant shall have, to the
extent of such assignment or participation, the same rights and benefits as it
would have if it were the Lender hereunder, except as otherwise provided by the
terms of such assignment or participation, provided, however, that Lender shall
-------- -------
obtain Borrowers' prior written consent, which consent shall not be unreasonably
withheld, with respect to any such proposed assignment or participation by
Lender, and if the proposed assignee or participant is a lending institution
that is not organized and existing under the laws of the United States or a
political subdivision thereof, such lending institution must be capable of
receiving payments of interest hereunder without deduction or withholding of
United States federal income taxes under the provisions of an applicable tax
treaty concluded by the United States.
12.5 Confidentiality.
(a) Lender shall use all reasonable efforts to keep confidential,
in accordance with its customary procedures for handling confidential
information and safe and sound lending practices, any non-public information
supplied to it by Borrowers pursuant to this Agreement which is clearly and
conspicuously marked as confidential at the time such information is furnished
by Borrowers to Lender, provided, that, nothing contained herein shall limit the
-------- ----
disclosure of any such information: (i) to the extent required by statute, rule,
regulation, subpoena or court order, (ii) to bank examiners and other
regulators, auditors and/or accountants, (iii) in connection with any litigation
to which Lender is a party, (iv) to any assignee or participant (or prospective
assignee or participant) so long as such assignee or participant (or prospective
assignee or participant) shall have first agreed in writing to treat such
information as confidential in accordance with this Section 12.5, or (v) to
counsel for Lender or any participant or assignee (or prospective participant or
assignee).
52
(b) In no event shall this Section 12.5 or any other provision of
this Agreement or applicable law be deemed: (i) to apply to or restrict
disclosure of information that has been or is made public by Borrowers or any
third party without breach of this Section 12.5 or otherwise become generally
available to the public other than as a result of a disclosure in violation
hereof, (ii) to apply to or restrict disclosure of information that was or
becomes available to Lender on a non-confidential basis from a person other than
Borrowers, (iii) require Lender to return any materials furnished by Borrowers
to Lender or (iv) prevent Lender from responding to routine informational
requests in accordance with the Code of Ethics for the Exchange of Credit
-----------------------------------------
Information promulgated by The ▇▇▇▇▇▇ ▇▇▇▇▇▇ Associates or other applicable
-----------
industry standards relating to the exchange of credit information. The
obligations of Lender under this Section 12.5 shall supersede and replace the
obligations of Lender under any confidentiality letter signed prior to the date
hereof.
12.6 Entire Agreement. This Agreement, the other Financing Agreements,
any supplements hereto or thereto, and any instruments or documents delivered or
to be delivered in connection herewith or therewith represents the entire
agreement and understanding concerning the subject matter hereof and thereof
between the parties hereto, and supersede all other prior agreements,
understandings, negotiations and discussions, representations, warranties,
commitments, proposals, offers and contracts concerning the subject matter
hereof, whether oral or written.
[Remainder of Page Intentionally Left Blank]
53
IN WITNESS WHEREOF, Lender and Borrowers have caused these presents to be
duly executed as of the day and year first above written.
LENDER
------
CONGRESS FINANCIAL CORPORATION
By: /s/ Philip Emma
------------------------------
Title: Vice President
Address:
▇▇▇▇ ▇▇▇▇▇▇ ▇▇ ▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
BORROWER
--------
G+G RETAIL, INC.
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇
------------------------------
Title: President and
Chief Executive Officer
Address:
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
54
SCHEDULE 1
ADDITIONAL BORROWERS
--------------------
None
55