FINANCING AGREEMENT
THE CIT GROUP/COMMERCIAL SERVICES, INC.
(AS AGENT AND LENDER)
AND
▇▇▇▇▇▇▇ CHAUS, INC.
(AS BORROWER)
DATED: SEPTEMBER 27, 2002
TABLE OF CONTENTS
SECTION 1. DEFINITIONS 1
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SECTION 2. CONDITIONS PRECEDENT. 15
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SECTION 3. REVOLVING LOANS 19
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SECTION 4. TERM LOAN 23
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SECTION 5. LETTERS OF CREDIT 24
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SECTION 6. COLLATERAL 26
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SECTION 7. REPRESENTATIONS, WARRANTIES AND COVENANTS 29
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SECTION 8. INTEREST, FEES AND EXPENSES 39
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SECTION 9. POWERS 45
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SECTION 10. EVENTS OF DEFAULT AND REMEDIES 46
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SECTION 11. TERMINATION 50
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SECTION 12. MISCELLANEOUS 51
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SECTION 13. AGREEMENT BETWEEN THE LENDERS 53
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SECTION 14. AGENCY 56
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EXHIBIT
Exhibit A Form of Term Loan Promissory Note
Exhibit B Form of Revolving Loan Promissory Note
Exhibit C Form of Assignment and Transfer Agreement
Exhibit D Form of Borrowing Base Certificate
Exhibit E Form of Opinion
SCHEDULES
Schedule 1 - Collateral Information
i
THE CIT GROUP/COMMERCIAL SERVICES, INC., a New York corporation, with
offices located at ▇▇▇▇ ▇▇▇▇▇▇ ▇▇ ▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
(hereinafter "CIT"), and CIT as agent for the lenders (the "Agent"), and any
other party which now or hereafter becomes a lender hereunder pursuant to
Section 13 hereof (individually a "Lender" and collectively the "Lenders") are
pleased to confirm the terms and conditions under which the Agent shall make
revolving loans, term loans and other financial accommodations to ▇▇▇▇▇▇▇ CHAUS,
INC., a Delaware corporation with a principal place of business at ▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇ (herein the "Company").
SECTION 1. DEFINITIONS
ACCOUNTS shall mean all of the Company's now existing and future: (a) accounts
(as defined in the UCC), and any and all other receivables (whether or not
specifically listed on schedules furnished to the Agent), including, without
limitation, all accounts created by, or arising from, all of the Company's
sales, leases, rentals of goods or renditions of services to its customers,
including but not limited to, those accounts arising under any of the Company's
trade names or styles, or through any of the Company's divisions; (b) any and
all instruments, documents, chattel paper (including electronic chattel paper)
(all as defined in the UCC); (c) unpaid seller's or lessor's rights (including
rescission, replevin, reclamation, repossession and stoppage in transit)
relating to the foregoing or arising therefrom; (d) rights to any goods
represented by any of the foregoing, including rights to returned, reclaimed or
repossessed goods; (e) reserves and credit balances arising in connection with
or pursuant hereto; (f) guarantees, supporting obligations, payment intangibles
and letter of credit rights (all as defined in the UCC); (g) insurance policies
or rights relating to any of the foregoing; (h) general intangibles pertaining
to any and all of the foregoing (including all rights to payment, including
those arising in connection with bank and non-bank credit cards), and including
books and records and any electronic media and software thereto; (i) notes,
deposits or property of account debtors securing the obligations of any such
account debtors to the Company; and (j) cash and non-cash proceeds (as defined
in the UCC) of any and all of the foregoing.
ANNIVERSARY DATE shall mean the date occurring three (3) years from the Closing
Date and the same date in every year thereafter.
APPLICABLE MARGIN for each type of loan shall mean as of the date of this
Financing Agreement, the applicable percentage specified below:
---------------------------------------- -------------------------------------- --------------------------------------
TYPE OF LOAN APPLICABLE MARGIN APPLICABLE MARGIN FOR LIBOR LOANS
FOR JPMORGAN CHASE
BANK RATE LOANS
---------------------------------------- -------------------------------------- --------------------------------------
Revolving Loans 0.50% 3.25%
---------------------------------------- -------------------------------------- --------------------------------------
Term Loan 1.00% 3.75%
---------------------------------------- -------------------------------------- --------------------------------------
Thereafter effective as of the first day of the month following delivery to
Agent of the consolidated financial statements of the Company and its
Subsidiaries for the Fiscal Year ended June 30, 2003 (the "2003 Financials"),
the Applicable Margin for each type of loan shall be adjusted (up or down), if
necessary, to the applicable percent per annum set forth in the pricing table
set forth below corresponding to the pricing level set forth below which level
shall correspond to the least favorable performance for any of the following
financial tests; provided, however, with respect to a downward adjustment to
Level IV no such adjustment shall occur unless the Company's performance for
each of the three financial tests is within the levels specified below for Level
IV:
---------------------------------- ---------------------------- -------------------------------- --------------------------
If Availability as of 6/30/03 is: And if Fixed Charge And if Leverage Ratio as of Then, Level of
-------------------------------- -------------------- ----------------------------
Coverage Ratio for the 6/30/03 is: Applicable Margins:
----------------------- ---------- ------------------
rolling four quarters
---------------------
ending 6/30/03 is:
-----------------
---------------------------------- ---------------------------- -------------------------------- --------------------------
(greater than or equal to) (greater than or equal to)
$11,000,000 2.75 to 1 (less than or equal to) 1.5 to 1 Level I
---------------------------------- ---------------------------- -------------------------------- --------------------------
(greater than) $9,476,000 (greater than or equal to)
2.25 to 1, but (less than) (less than or equal to) 2.00 to 1,
2.75 to 1 but (greater than) 1.5 to 1 Level II
---------------------------------- ---------------------------- -------------------------------- --------------------------
(equal to) $9,476,000 (greater than or equal to) (less than or equal to)
1.75 to 1, but (less than) 2.43 to 1, but (greater than) Level III
2.25 to 1 2.00 to 1
---------------------------------- ---------------------------- -------------------------------- --------------------------
(less than) $9,476,000 (greater than or equal to) (less than or equal to)
1.5 to 1, but (less than) 2.75 to 1, but (greater than) Level IV
1.75 to 1 2.43 to 1
---------------------------------- ---------------------------- -------------------------------- --------------------------
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Applicable Margins
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▇▇▇▇▇ ▇ ▇▇▇▇▇ ▇▇ ▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇ ▇▇
------- -------- --------- --------
--------------------------------------- ----------------- ---------------- ---------------- -------------------------
Revolving Loan - ▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇ Bank 0% 0.25% 0.50% 0.75%
Rate
--------------------------------------- ----------------- ---------------- ---------------- -------------------------
Revolving Loan - LIBOR 2.75% 3.00% 3.25% 3.50%
--------------------------------------- ----------------- ---------------- ---------------- -------------------------
Term Loan - ▇▇ ▇▇▇▇▇▇ Chase Bank Rate 0.50% 0.75% 1.00% 1.25%
--------------------------------------- ----------------- ---------------- ---------------- -------------------------
Term Loan - LIBOR 3.25% 3.50% 3.75% 4.00%
--------------------------------------- ----------------- ---------------- ---------------- -------------------------
If the Company shall fail to deliver the 2003 Financials by the date required,
each Applicable Margin shall be conclusively presumed to equal the highest
Applicable Margin specified in the pricing table set forth above until the date
of delivery of such 2003 Financials.
2
ARM SERVICES AGREEMENT - shall mean CIT's standard form Receivable Management
Services Agreement pursuant to which CIT provides bookkeeping and collection
services with respect to Accounts.
ASSIGNMENT AND TRANSFER AGREEMENT - shall mean the Assignment and Transfer
Agreement in the form of Exhibit C hereto.
AVAILABILITY shall mean at any time the amount by which: (a) the Borrowing Base
exceeds (b) the outstanding aggregate amount of all Obligations, including
without limitation, all Obligations with respect to Revolving Loans, an amount
equal to 120% of outstanding the Letters of Credit but excluding the Term Loan.
AVAILABILITY RESERVE shall mean the sum of: (a) (i) three (3) months rental
payments or similar charges for any of the Company's leased premises which
contain material amounts of Collateral for which the Company has not delivered
to the Agent a landlord's waiver in form and substance reasonably satisfactory
to the Agent, plus (ii) three (3) months estimated payments plus any other fees
or charges owing by the Company to any applicable warehousemen or third party
processor (as determined by the Agent in its reasonable business judgment),
provided that any of the foregoing amounts shall be adjusted from time to time
hereafter upon (x) the opening or closing of a Collateral location and/or (y)
any change in the amount of rental, storage or processor payments or similar
charges; provided, however, that the foregoing amount, as it relates to any
Collateral location, shall be reduced to zero upon delivery to the Agent of
acceptable landlord waivers for such Collateral location; (b) any reserve which
the Agent may reasonably require from time to time pursuant to this Financing
Agreement, (c) any reserve established by CIT under the Factoring Agreement and
(d) Ledger Debt.
BORROWING BASE shall mean the sum of (a) seventy-five percent (75%) of the
Company's aggregate outstanding Eligible Accounts Receivable, plus (b) the
lesser of (i) fifty percent (50%) of the aggregate value of the Company's
Eligible Inventory, valued at the lower of cost or market, on a first in, first
out basis, or (ii) the Inventory Loan Cap, plus (c) the Seasonal Overadvance
Amount, plus (d) fifty percent (50%) of the aggregate amount of outstanding
Eligible Documentary Letters of Credit, less (e) any applicable Availability
Reserves.
BORROWING BASE CERTIFICATE shall mean a certificate to be executed and delivered
from time to time by the Company in the form attached to this Financing
Agreement as Exhibit D.
BUSINESS DAY shall mean any day on which the Agent and JPMorgan Chase Bank are
open for business.
CAPITAL EXPENDITURES shall mean, for any period, the aggregate expenditures of
the Company during such period on account of, property, plant, equipment or
similar fixed assets that, in conformity with GAAP, are required to be reflected
in the balance sheet of the Company.
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CAPITAL LEASE shall mean any lease of property (whether real, personal or mixed)
which, in conformity with GAAP, is accounted for as a capital lease or a Capital
Expenditure in the balance sheet of the Company.
CLOSING DATE shall mean the date that this Financing Agreement has been duly
executed by the parties hereto and delivered to the Agent.
COLLATERAL shall mean all present and future Accounts, Equipment, Inventory,
Documents of Title, General Intangibles, pledged stock of the Company's
Subsidiaries and Other Collateral.
COMMITMENT shall mean each Lender's commitment in accordance with this Financing
Agreement to make Revolving Loans (the "Revolving Credit Commitment") and the
Term Loan funding (the "Term Loan Commitment"), in the amount of their
respective pro rata share set forth in schedules prepared by the Agent or the
Assignment and Transfer Agreement executed by each such Lender.
CONSOLIDATED BALANCE SHEET shall mean a consolidated balance sheet for the
Company and its Subsidiaries, eliminating all intercompany transactions and
prepared in accordance with GAAP.
COPYRIGHTS shall mean all present and hereafter acquired copyrights, copyright
registrations, recordings, applications, designs, styles, licenses, marks,
prints and labels bearing any of the foregoing, goodwill, any and all general
intangibles, intellectual property and rights pertaining thereto, and all cash
and non-cash proceeds thereof.
DEFAULT shall mean any event specified in Section 10 hereof, which with the
passage of time or giving of notice or both would constitute an Event of
Default.
DEFAULT RATE OF INTEREST shall mean a rate of interest per annum on any
Obligations hereunder, equal to the sum of: (a) two percent (2%) and (b) the
applicable increment over the JPMorgan Chase Bank Rate (as set forth in
paragraph 8.1 hereof) plus the JPMorgan Chase Bank Rate, or the applicable
increment over the LIBOR Rate (as set forth in paragraph 8.13 hereof) plus the
LIBOR Rate, which the Agent shall be entitled to charge the Company on all
Obligations due the Agent on behalf of the Lenders by the Company, as further
set forth in Paragraph 10.2 of Section 10 of this Financing Agreement.
DEPOSITORY ACCOUNTS shall mean the collection accounts, which are subject to the
Agent's instructions, as specified in Paragraph 3.4 of Section 3 of this
Financing Agreement.
DOCUMENTS OF TITLE shall mean all present and future documents (as defined in
the UCC), and any and all warehouse receipts, bills of lading, shipping
documents, chattel paper, instruments and similar documents, all whether
negotiable or not and all goods and Inventory relating thereto and all cash and
non-cash proceeds of the foregoing.
EARLY TERMINATION DATE shall mean the date on which the Company terminates this
Financing Agreement or the Revolving Line of Credit which date is prior to an
Anniversary Date.
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EARLY TERMINATION FEE shall: (a) mean the fee the Agent on behalf of the Lenders
is entitled to charge the Company in the event the Company voluntarily
terminates the Revolving Line of Credit or this Financing Agreement on a date
prior to an Anniversary Date; and (b) equal (x) $500,000 if the Early
Termination Date occurs on or before one (1) year from the Closing Date, (y)
$350,000 if the Early Termination Date occurs after one (1) year from the
Closing Date but on or before two (2) years from the Closing Date; and (z)
$150,000 if the Early Termination Date occurs after two (2) years from the
Closing Date but on or before three (3) years from the Closing Date.
EBITDA shall mean, in any period, the consolidated earnings of the Company and
its Subsidiaries before all (i) interest and tax obligations, (ii) depreciation
and (iii) amortization for said period, all determined in accordance with GAAP
on a consistent basis with the latest audited consolidated financial statements
of the Company and its Subsidiaries, but excluding the effect of extraordinary
and/or non-reoccurring gains or losses for such period.
ELIGIBLE ACCOUNTS RECEIVABLE shall mean the gross amount of the Company's Trade
Accounts Receivable (without giving effect to the sale of any Accounts
Receivable pursuant to the Factoring Agreement) that are subject to a valid,
exclusive, first priority and fully perfected security interest in favor of the
Agent, on behalf of the Lenders, which is (I) at any time that the Factoring
Agreement is in effect, an Account Receivable credit approved by CIT under the
Factoring Agreement, not charged back to the Company thereunder nor subject to
any reserves thereunder and (II) at any time that the Factoring Agreement is not
in effect, any other Accounts Receivable which conform to the warranties
contained herein and which, at all times, continue to be acceptable to the Agent
in the exercise of its reasonable business judgment, less, without duplication,
the sum of: any returns, disputes, discounts, claims, and credits (in each case
exclusive of allowances) of any nature (whether issued, owing, granted, claimed
or outstanding), and (b) reserves for any such Trade Accounts Receivable that
arise from or are subject to or include: (i) sales to the United States of
America, any state or other governmental entity or to any agency, department or
division thereof, except for any such sales as to which the Company has complied
with the Assignment of Claims Act of 1940 or any other applicable statute, rules
or regulation, to the Agent's satisfaction in the exercise of its reasonable
business judgment; (ii) foreign sales, other than sales which otherwise comply
with all of the other criteria for eligibility hereunder and are (x) secured by
letters of credit (in form and substance satisfactory to the Agent) issued or
confirmed by, and payable at, banks having a place of business in the United
States of America, or (y) to customers residing in Canada provided such Accounts
do not exceed $100,000 in the aggregate at any one time; (iii) Accounts that
remain unpaid more than ninety (90) days from invoice date; (iv) contra
accounts; (v) sales to any subsidiary, or to any company affiliated with the
Company in any way; (vi) ▇▇▇▇ and hold (deferred shipment) or consignment sales;
(vii) sales to any customer which is: (A) insolvent, (B) the debtor in any
bankruptcy, insolvency, arrangement, reorganization, receivership or similar
proceedings under any federal or state law, (C) negotiating, or has called a
meeting of its creditors for purposes of negotiating, a compromise of its debts,
or (D) financially unacceptable to the Agent or has a credit rating unacceptable
to the Agent; (viii) all sales to any customer if fifty percent (50%) or more of
the aggregate dollar amount of all outstanding invoices to such customer are
unpaid more than ninety (90) days from invoice date; (ix) pre-billed receivables
and receivables arising from progress billing; (x) an amount representing,
historically, returns, discounts, claims, credits, allowances and applicable
terms; (xi) sales not payable in United States currency; and (xii) any other
reasons deemed
5
necessary by the Agent in its reasonable judgment, and which are customary
either in the commercial finance industry or in the lending practices of the
Agent and/or the Lenders.
ELIGIBLE ASSIGNEE shall mean (i) a commercial bank or other financial
institution organized under the laws of the United States, or any State thereof,
having total assets in excess of $500,000,000; (ii) a savings and loan
association or savings bank organized under the laws of the United States, or
any State thereof, having a net worth of at least $250,000,000 calculated in
accordance with GAAP; (iii) any Lender listed on the signature page of this
Agreement; and (iv) any financial institution consented to by the Company, such
consent not to be unreasonably withheld.
ELIGIBLE DOCUMENTARY LETTERS OF CREDIT shall mean documentary Letters of Credit
covering the Company's Eligible Inventory consisting of finished goods Inventory
being imported by the Company to the United States.
ELIGIBLE INVENTORY shall mean the gross amount of the Company's Inventory that
is subject to a valid, exclusive, first priority and fully perfected security
interest in favor of the Agent, on behalf of the Lenders, and which conforms to
the warranties contained herein and which, at all times, continues to be
acceptable to the Agent in the exercise of its reasonable business judgment,
less, without duplication, any (a) work-in-process, (b) supplies, (c) Inventory
not present in the United States of America (except as set forth in paragraph
(e) below), (d) Inventory returned or rejected by the Company's customers (other
than goods that are undamaged and resalable in the normal course of business)
and goods to be returned to the Company's suppliers, (e) Inventory in transit to
third parties (other than finished goods Inventory in transit to Company's
agents or warehouses and with respect to which the following criteria have been
satisfied in the sole judgment of Agent: (i) title with respect to such
Inventory has passed to Company, (ii) such Inventory is insured against types of
loss, damage, hazards and risks, and in amounts, satisfactory to Agent in its
discretion, (iii) such Inventory has been paid for or purchased under a
documentary Letter of Credit which has been consigned to Agent in a manner
satisfactory to Agent and (iv) Agent shall have in its possession (1) all
negotiable bills of lading and other documents of title with respect to such
Inventory properly endorsed and (2) all non-negotiable bills of lading and other
documents of title with respect to such Inventory issued in Agent's name), or in
the possession of a warehouseman, bailee, third party processor, or other third
party, unless such warehouseman, bailee or third party has executed a notice of
security interest agreement (in form and substance satisfactory to the Agent)
and the Agent shall have a first priority perfected security interest in such
Inventory, and (f) less any reserves required by the Agent in its reasonable
discretion, including without limitation for special order goods, discontinued,
slow-moving and obsolete Inventory, market value declines, ▇▇▇▇ and hold
(deferred shipment), consignment sales, shrinkage and any applicable customs,
freight, duties and Taxes.
EQUIPMENT shall mean all present and hereafter acquired equipment (as defined in
the UCC) which is owned by the Company, including, without limitation, all
machinery, equipment, furnishings and fixtures, and all additions, substitutions
and replacements thereof, wherever located, together with all attachments,
components, parts, equipment and accessories installed thereon or affixed
thereto and all proceeds thereof of whatever sort.
6
ERISA shall mean the Employee Retirement Income Security Act or 1974, as amended
from time to time and the rules and regulations promulgated thereunder from time
to time.
EUROCURRENCY RESERVE REQUIREMENTS for any day, as applied to a LIBOR Loan, shall
mean the aggregate (without duplication) of the maximum rates of reserve
requirements (expressed as a decimal fraction) in effect with respect to the
Agent and/or any present or future Lender or participant on such day (including,
without limitation, basic, supplemental, marginal and emergency reserves under
Regulation D or any other applicable regulations of the Board of Governors of
the Federal Reserve System or other governmental authority having jurisdiction
with respect thereto, as now and from time to time in effect, dealing with
reserve requirements prescribed for Eurocurrency funding (currently referred to
as "Eurocurrency Liabilities" in Regulation D of such Board) maintained by the
Agent and/or any such Lenders or participants (such rate to be adjusted to the
nearest one sixteenth of one percent (1/16 of 1%) or, if there is not a nearest
one sixteenth of one percent (1/16 of 1%), to the next higher one sixteenth of
one percent (1/16 of 1%)).
EVENT(S) OF DEFAULT shall have the meaning provided for in Section 10 of this
Financing Agreement.
FACTORING AGREEMENT shall mean that certain Factoring Agreement dated as of
September 27, 2002 by and between the Company and CIT, as amended, modified and
supplemented from time to time.
FACTORING TERMINATION AGREEMENT shall mean that certain Factoring Termination
Agreement dated the date of this Financing Agreement among the Company, Agent
and CIT, as amended, modified or supplemented from time to time.
FISCAL QUARTER shall mean, with respect to the Company, each three (3) month
period ending December 31, March 31, June 30 and September 30 of each Fiscal
Year.
FISCAL YEAR shall mean each twelve (12) month period commencing on July 1 of
each year and ending on the following June 30.
FIXED CHARGE COVERAGE RATIO shall mean, for the relevant period, the ratio
determined by dividing EBITDA by the sum of (a) all interest obligations paid or
due, (b) the amount of principal repaid or scheduled to be repaid on the Term
Loan, (c) Capital Expenditures actually incurred, and (d) all federal, state and
local income tax expenses due and payable.
GAAP shall mean generally accepted accounting principles in the United States of
America as in effect from time to time and for the period as to which such
accounting principles are to apply, provided that in the event the Company
modifies its accounting principles and procedures as applied as of the Closing
Date, the Company shall provide to the Agent and the Lenders such statements of
reconciliation as shall be in form and substance reasonably acceptable to the
Agent.
GENERAL INTANGIBLES shall mean all of the Company's present and hereafter
acquired general intangibles (as defined in the UCC), and shall include, without
limitation, all present and future right, title and interest in and to: (a) all
Trademarks, tradenames, corporate names, business names, logos and any other
designs or sources of business identities, (b) Patents, together with any
improvements
7
on said Patents, utility models, industrial models, and designs, (c) Copyrights,
(d) trade secrets, (e) licenses, permits and franchises, (f) all applications
with respect to the foregoing, (g) all right, title and interest in and to any
and all extensions and renewals, (h) goodwill with respect to any of the
foregoing, (i) any other forms of similar intellectual property, (j) all
customer lists, distribution agreements, supply agreements, blueprints,
indemnification rights and tax refunds, together with all monies and claims for
monies now or hereafter due and payable in connection with any of the foregoing
or otherwise, and all cash and non-cash proceeds thereof, including, without
limitation, the proceeds or royalties of any licensing agreements between the
Company and any licensee of any of the Company's General Intangibles.
GOOD FAITH DEPOSIT shall mean the $50,000 deposit paid to Agent upon execution
of that certain letter agreement between the Borrower and the Agent, dated June
20, 2002.
GUARANTIES shall mean the guaranty documents executed and delivered by the
Guarantors guaranteeing the Obligations.
GUARANTORS shall mean (i) ▇▇▇▇▇▇▇ Chaus International (Hong Kong), Inc., a
Delaware corporation, (ii) ▇▇▇▇▇▇▇ Chaus International (Korea), Inc., a Delaware
corporation, and (iii) Chaus Retail, Inc., a New Jersey corporation.
INDEBTEDNESS shall mean, without duplication, all liabilities, contingent or
otherwise, which are any of the following: (a) obligations in respect of
borrowed money or for the deferred purchase price of property, services or
assets, other than Inventory, or (b) lease obligations which, in accordance with
GAAP, have been, or which should be capitalized.
INSURANCE PROCEEDS shall mean proceeds or payments from an insurance carrier
with respect to any loss, casualty or damage to Collateral.
INTEREST EXPENSE shall mean the total interest obligations (paid or accrued) of
the Company determined in accordance with GAAP, on a consistent basis with the
latest audited statements of the Company.
INTEREST PERIOD shall mean:
(a) with respect to any initial request by the Company for a LIBOR Loan, a
one month, two month or three month period commencing on the borrowing or
conversion date with respect to a LIBOR Loan and ending one, two or three months
thereafter, as applicable; and
(b) thereafter with respect to any continuation of, or conversion to, a
LIBOR Loan, at the option of the Company, any one month, two month or three
month period commencing on the last day of the immediately preceding Interest
Period applicable to such LIBOR Loan and ending one, two or three months
thereafter, as applicable;
provided that, the foregoing provisions relating to Interest Periods are subject
to the following:
8
(i) if any Interest Period would otherwise end on a day which is not a
Working Day, that Interest Period shall be extended to the next
succeeding Working Day, unless the result of such extension would
extend such payment into another calendar month in which event such
Interest Period shall end on the immediately preceding Working Day;
(ii) any Interest Period that begins on the last Working Day of a
calendar month (or on a day for which there is no numerically
corresponding day in the calendar month, at the end of such Interest
Period) shall end on the last Working Day of a calendar month; and
(iii) for purposes of determining the availability of Interest Periods,
such Interest Periods shall be deemed available if (x) JPMorgan Chase
Bank quotes an applicable rate or the Agent determines LIBOR, as
provided in the definition of LIBOR, (y) the LIBOR determined by
JPMorgan Chase Bank or the Agent will adequately and fairly reflect the
cost of maintaining or funding its loans bearing interest at LIBOR, for
such Interest Period, and (z) such Interest Period will end on or
before the earlier of Anniversary Date or the last day of the then
current term of this Financing Agreement. If a requested Interest
Period shall be unavailable in accordance with the foregoing sentence,
the Company shall continue to pay interest on the Obligations at the
applicable per annum rate based upon the JPMorgan Chase Bank Rate.
INVENTORY shall mean all of the Company's present and hereafter acquired
inventory (as defined in the UCC) and including, without limitation, all
merchandise, inventory and goods, and all additions, substitutions and
replacements thereof, wherever located, together with all goods and materials
used or usable in manufacturing, processing, packaging or shipping same in all
stages of production from raw materials through work-in-process to finished
goods - and all proceeds thereof of whatever sort.
INVENTORY LOAN CAP shall mean the amount of $25,000,000.
INVESTMENT PROPERTY shall mean all now owned and hereafter acquired investment
property (as defined in the UCC) and all proceeds thereof.
ISSUER shall mean the financial institution issuing Letters of Credit for the
Company.
JPMORGAN CHASE BANK RATE shall mean the rate of interest per annum announced by
JPMorgan Chase Bank from time to time as its prime rate in effect at its
principal office in New York City. (The prime rate is not intended to be the
lowest rate of interest charged by JPMorgan Chase Bank to its borrowers).
JPMORGAN CHASE BANK RATE LOANS shall mean any loans or advances pursuant to this
Financing Agreement made or maintained at a rate of interest based upon the
JPMorgan Chase Bank Rate.
LEDGER DEBT shall mean any Indebtedness for goods or services purchased or
obtained by the Company from any party whose Accounts are factored or financed
by CIT.
LETTERS OF CREDIT shall mean all letters of credit issued with the assistance of
the Agent, on behalf of the Lenders, in accordance with Section 5 hereof by the
Issuer for or on behalf of the Company.
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LETTER OF CREDIT GUARANTY shall mean the guaranty delivered by the Agent, on
behalf of the Lenders, to the Issuer of the Company's reimbursement obligations
under the Issuer's reimbursement agreement, application for Letter of Credit or
other like document.
LETTER OF CREDIT GUARANTY FEE shall mean the fee the Agent, on behalf of the
Lenders, may charge the Company under Paragraph 8.3 of Section 8 of this
Financing Agreement for: (a) issuing a Letter of Credit Guaranty, and/or (b)
otherwise aiding the Company in obtaining Letters of Credit, all pursuant to
Section 5 hereof.
LETTER OF CREDIT SUB-LINE shall mean the commitment of the Lenders to assist the
Company in obtaining Letters of Credit, pursuant to Section 5 hereof, in an
aggregate amount of $25,000,000.
LEVERAGE RATIO shall mean the ratio determined by dividing Total Liabilities by
Tangible Net Worth.
LIBOR shall mean, at any time of determination, and subject to availability, for
each applicable Interest Period, a variable rate of interest equal to: (a) at
the Agent's election (i) the applicable LIBOR quoted to the Agent by JPMorgan
Chase Bank (or any successor thereof), or (ii) the rate of interest determined
by the Agent at which deposits in U.S. dollars are offered for the relevant
Interest Period based on information presented on Telerate Systems at Page 3750
as of 11:00 A.M. (London time) on the day which is two (2) Business Days prior
to the first day of such Interest Period, provided that, if at least two such
offered rates appear on the Telerate System at Page 3750 in respect of such
Interest Period, the arithmetic mean of all such rates (as determined by the
Agent) will be the rate used; divided by (b) a number equal to 1.0 minus the
aggregate (but without duplication) of the rates (expressed as a decimal
fraction) of Eurocurrency Reserve Requirements in effect on the day which is two
(2) Business Days prior to the beginning of such Interest Period.
LIBOR LENDING OFFICE with respect to the Agent, shall mean the office of
JPMorgan Chase Bank, or any successor thereof, maintained at ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇,
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇.
LIBOR LOAN shall mean any loans made pursuant to this Financing Agreement which
are made or maintained at a rate of interest based upon LIBOR, provided that (i)
no Default or Event of Default has occurred hereunder, which has not been waived
in writing by the Required Lenders, and (ii) no LIBOR Loan shall be made with an
Interest Period that ends subsequent to an Anniversary Date or any applicable
Early Termination Date.
LINE OF CREDIT shall mean the aggregate commitment of the Lenders to (a) make
Revolving Loans pursuant to Section 3 of this Financing Agreement (b) assist the
Company in opening Letters of Credit pursuant to Section 5 of this Financing
Agreement and (c) make the Term Loan pursuant to Section 4 of this Financing
Agreement, in the aggregate amount equal to $50,500,000; provided that nothing
herein shall be deemed to increase any Lenders commitment hereunder, and which
commitment shall be set forth in the applicable schedules maintained by the
Agent or the Assignment and Transfer Agreements executed by such Lender.
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LINE OF CREDIT FEE shall: (a) mean the fee due the Agent at the end of each
month for the Line of Credit, and (b) be determined by multiplying the
difference between (i) the Revolving Line of Credit, and (ii) the sum, for said
month, of (x) the average daily balance of Revolving Loans plus (y) the average
daily balance of Letters of Credit outstanding for said month, by three-eighths
of one percent (3/8%) per annum for the number of days in said month.
LOAN DOCUMENTS shall mean this Financing Agreement, the Promissory Notes, the
other closing documents and any other ancillary loan and security agreements
executed from time to time in connection with this Financing Agreement, all as
may be renewed, amended, extended, increased or supplemented from time to time.
LOAN FACILITY FEE shall mean the fee payable to the Agent and the Lenders (as
applicable) in accordance with, and pursuant to, the provisions of Paragraph 8.7
of Section 8 of this Financing Agreement.
OBLIGATIONS shall mean all loans, advances and extensions of credit made or to
be made by the Agent and/or the Lenders to the Company, or to others for the
Company's account (including, without limitation, all Revolving Loans, Letter of
Credit Guaranties and the Term Loan); any and all indebtedness and obligations
which may at any time be owing by the Company to the Agent and/or the Lenders
howsoever arising, whether now in existence or incurred by the Company from time
to time hereafter; whether principal, interest, fees, costs, expenses or
otherwise; whether secured by pledge, lien upon or security interest in any of
the Company's Collateral, assets or property or the assets or property of any
other person, firm, entity or corporation; whether such indebtedness is absolute
or contingent, joint or several, matured or unmatured, direct or indirect and
whether the Company is liable to the Agent and/or the Lenders for such
indebtedness as principal, surety, endorser, guarantor or otherwise. Obligations
shall also include indebtedness owing to the Agent and/or the Lenders by the
Company under any Loan Document, the Factoring Agreement or under any other
agreement or arrangement now or hereafter entered into between the Company and
the Agent and/or the Lenders; indebtedness or obligations incurred by, or
imposed on, the Agent and/or the Lenders as a result of environmental claims
arising out of the Company's operations, premises or waste disposal practices or
sites in accordance with paragraph 7.7 hereof; the Company's liability to the
Agent and/or the Lenders as maker or endorser of any promissory note or other
instrument for the payment of money; the Company's liability to the Agent and/or
the Lenders under any instrument of guaranty or indemnity, or arising under any
guaranty, endorsement or undertaking which the Agent and/or the Lenders may make
or issue to others for the Company's account, including any Letter of Credit
Guaranty or other accommodation extended by CIT with respect to applications for
Letters of Credit, the Agent's and/or the Lenders' acceptance of drafts or the
Agent's and/or the Lenders' endorsement of notes or other instruments for the
Company's account and benefit and Ledger Debt.
OPERATING LEASES shall mean all leases of property (whether real, personal or
mixed) other than Capital Leases.
OTHER COLLATERAL shall mean all now owned and hereafter acquired lockbox,
blocked account and any other deposit accounts maintained with any bank or
financial institutions into which the proceeds of Collateral are or may be
deposited; all other deposit accounts and all Investment Property; all cash
11
and other monies and property in the possession or control of the Agent and/or
any of the Lenders; all books, records, ledger cards, disks and related data
processing software at any time evidencing or containing information relating to
any of the Collateral described herein or otherwise necessary or helpful in the
collection thereof or realization thereon; and all cash and non-cash proceeds of
the foregoing.
OUT-OF-POCKET EXPENSES shall mean all of the Agent's (and the Lenders upon the
occurrence of an Event of Default which is not waived by the Required Lenders)
present and future out-of-pocket expenses incurred relative to this Financing
Agreement or any other Loan Documents, whether incurred heretofore or hereafter,
which expenses shall include, but shall not be duplicative of any other fees or
expenses set forth in this Agreement, without being limited to: the cost of
record searches, all out-of-pocket costs and expenses incurred by the Agent in
opening bank accounts, depositing checks, receiving and transferring funds, and
wire transfer charges, any charges imposed on the Agent due to returned items
and "insufficient funds" of deposited checks and the Agent's standard fees
relating thereto, any amounts paid by, incurred by or charged to, the Agent
and/or the Lenders by the Issuer under a Letter of Credit Guaranty or the
Company's reimbursement agreement, application for Letters of Credit or other
like document which pertain either directly or indirectly to such Letters of
Credit, and the Agent's standard fees relating to the Letters of Credit and any
drafts thereunder, travel, lodging and similar expenses of the Agent's personnel
in connection with inspecting and monitoring the Collateral from time to time
hereunder, any applicable reasonable counsel fees and disbursements, fees and
taxes relative to the filing of financing statements, all expenses, costs and
fees set forth in Paragraph 10.3 of Section 10 of this Financing Agreement.
OVERADVANCE RATE shall mean a rate equal to one-half of one percent (1/2%) per
annum in excess of the applicable contract rate of interest determined in
accordance with Section 8, Paragraph 8.1(a) of this Financing Agreement.
OVERADVANCES shall mean the amount by which (a) the sum of all outstanding
Revolving Loans, Letters of Credit and advances made hereunder exceed (b) the
Borrowing Base.
PATENTS shall mean all of the Company's present and hereafter acquired patents,
patent applications, registrations, any reissues or renewals thereof, licenses,
any inventions and improvements claimed thereunder, and all general intangible,
intellectual property and patent rights with respect thereto of the Company, and
all income, royalties, cash and non-cash proceeds thereof.
PERMITTED ENCUMBRANCES shall mean: (a) liens existing on the date hereof on
specific items of Equipment and other liens expressly permitted, or consented to
in writing by the Agent and/or the Required Lenders; (b) Purchase Money Liens;
(c) liens of local or state authorities for franchise or other like Taxes,
provided that the aggregate amounts of such liens shall not exceed $100,000.00
in the aggregate at any one time; (d) statutory liens of landlords and liens of
carriers, warehousemen, bailees, mechanics, materialmen and other like liens
imposed by law, created in the ordinary course of business and for amounts not
yet due (or which are being contested in good faith, by appropriate proceedings
or other appropriate actions which are sufficient to prevent imminent
foreclosure of such liens) and with respect to which adequate reserves or other
appropriate provisions are being maintained by the Company in accordance with
GAAP; (e) deposits made (and the liens thereon) in
12
the ordinary course of business of the Company (including, without limitation,
security deposits for leases, indemnity bonds, surety bonds and appeal bonds) in
connection with workers' compensation, unemployment insurance and other types of
social security benefits or to secure the performance of tenders, bids,
contracts (other than for the repayment or guarantee of borrowed money or
purchase money obligations), statutory obligations and other similar obligations
arising as a result of progress payments under government contracts; (f)
easements (including, without limitation, reciprocal easement agreements and
utility agreements), encroachments, minor defects or irregularities in title,
variation and other restrictions, charges or encumbrances (whether or not
recorded) affecting the Real Estate, if applicable, and which in the aggregate
(A) do not materially interfere with the occupation, use or enjoyment by the
Company of its business or property so encumbered and (B) in the reasonable
business judgment of the Agent do not materially and adversely affect the value
of such Real Estate; and (g) liens granted the Agent by the Company; (h) liens
of judgment creditors provided such liens do not exceed, in the aggregate, at
any time, $100,000.00 (other than liens bonded or insured to the reasonable
satisfaction of the Agent); (i) tax liens which are not yet due and payable or
which are being diligently contested in good faith by the Company by appropriate
proceedings, and which liens are not (x) filed on any public records, (y) other
than with respect to Real Estate, senior to the liens of the Agent or (z) for
Taxes due the United States of America or any state thereof having similar
priority statutes, as further set forth in paragraph 7.6 hereof and (j) Liens
arising under the Factoring Agreement.
PERMITTED INDEBTEDNESS shall mean: (a) current Indebtedness maturing in less
than one year and incurred in the ordinary course of business for raw materials,
supplies, equipment, services, Taxes or labor; (b) the Indebtedness secured by
Purchase Money Liens; (c) Indebtedness arising under the Letters of Credit and
this Financing Agreement; (d) deferred Taxes and other expenses incurred in the
ordinary course of business; (e) the Indebtedness arising by and between the
Company and the Guarantors so long as the aggregate amount of such Indebtedness
does not exceed $5,000,000 per annum and such Indebtedness is used solely to
cover operating expenses and /or expenses incurred in the ordinary course of
business, and (f) other Indebtedness existing on the date of execution of this
Financing Agreement and listed in the most recent financial statement delivered
to the Agent and the Lenders or otherwise disclosed to the Agent and the Lenders
in writing prior to the Closing Date.
PROMISSORY NOTES shall mean the notes, in the form of Exhibits A and B attached
hereto, delivered by the Company to the Agent to evidence the Term Loan and the
Revolving Loans, respectively, pursuant to, and repayable in accordance with,
the provisions of Section 4 of this Financing Agreement.
PURCHASE MONEY LIENS shall mean liens on any item of Equipment acquired after
the date of this Financing Agreement provided that (a) each such lien shall
attach only to the property to be acquired, (b) a description of the Equipment
so acquired is furnished to the Agent and (c) the debt incurred in connection
with such acquisitions shall not exceed, in the aggregate, $250,000 in any
Fiscal Year.
REAL ESTATE shall mean the Company's fee and/or leasehold interests in its real
property.
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REQUIRED LENDERS shall mean the Lenders holding aggregate commitments under this
Financing Agreement in an amount of 51% or more.
REVOLVING LINE OF CREDIT shall mean the aggregate commitment of the Lenders to
make loans and advances pursuant to Section 3 of this Financing Agreement and
issue Letters of Credit Guaranties pursuant to Section 5 hereof to the Company,
in the aggregate amount of $40,000,000.
REVOLVING LOAN ACCOUNT shall mean the account on the Agent's books, in the
Company's name, in which the Company will be charged with all Obligations under
this Financing Agreement.
REVOLVING LOANS shall mean the loans and advances made, from time to time, to or
for the account of the Company by the Agent, on behalf of the Lenders, pursuant
to Section 3 of this Financing Agreement.
SEASONAL OVERADVANCE AMOUNT shall mean an aggregate amount not to exceed (i)
$3,000,000 as of the end of the month of January through the fifth (5th )
Business Day in February of each year and (ii) $0 at all other times.
SEASONAL OVERADVANCES shall mean Revolving Loans made pursuant to Paragraph (c)
of the definition of Borrowing Base.
SETTLEMENT DATE shall mean the date, weekly, and more frequently, at the
discretion of the Agent, upon the occurrence of an Event of Default or a
continuing decline or increase of the Revolving Loans that the Agent and the
Lenders shall settle amongst themselves so that (a) the Agent shall not have, as
the Agent, any money at risk and (b) on such Settlement Date the Lenders shall
have a pro rata amount of all outstanding Revolving Loans and Letters of Credit,
provided that each Settlement Date for a Lender shall be a Business Day on which
such Lender and its bank are open for business.
SUBSIDIARIES shall mean the wholly-owned subsidiaries of the Company.
TANGIBLE NET WORTH shall mean at any date of determination, an amount equal to
(a) Total Assets excluding such other assets as are properly classified as
intangible assets under GAAP, minus (b) Total Liabilities, and shall be
determined in accordance with GAAP, on a consistent basis with the latest
audited consolidated financial statements of the Company and its Subsidiaries.
TAXES shall mean all federal, state, municipal and other governmental taxes,
levies, charges, claims and assessments which are or may be due by the Company
with respect to its business, operations, Collateral or otherwise.
TERM LOAN shall mean the Term Loan in the principal amount of $10,500,000.00
(herein the "Term Loan") made by the Agent on behalf of the Lenders pursuant to,
and repayable in accordance with, the provisions of Section 4 of this Financing
Agreement.
TERM LOAN PROMISSORY NOTE shall mean the promissory note in the form of Exhibit
A hereto executed by the Company to evidence the Term Loan made by the Agent
under Section 4 hereof.
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TOTAL ASSETS shall mean total assets determined in accordance with GAAP, on a
basis consistent with the latest audited consolidated financial statements of
the Company and its Subsidiaries.
TOTAL LIABILITIES shall mean total liabilities determined in accordance with
GAAP, on a basis consistent with the latest audited consolidated financial
statements of the Company and its Subsidiaries.
TRADE ACCOUNTS RECEIVABLE shall mean that portion of the Company's Accounts
which arises from the sale of Inventory or the rendition of services in the
ordinary course of the Company's business.
TRADEMARKS shall mean all present and hereafter acquired trademarks, trademark
registrations, recordings, applications, tradenames, trade styles, service
marks, prints and labels (on which any of the foregoing may appear), licenses,
reissues, renewals, and any other intellectual property and trademark rights
pertaining to any of the foregoing, together with the goodwill associated
therewith, and all cash and non-cash proceeds thereof.
UCC shall mean the Uniform Commercial Code as the same may be amended and in
effect from time to time in the state of New York.
WORKING DAY shall mean any Business Day on which dealings in foreign currencies
and exchanges between banks may be transacted.
SECTION 2. CONDITIONS PRECEDENT.
The obligation of the Agent and the Lenders to make the initial loans
hereunder is subject to the satisfaction of, extension of or waiver of (in
writing), on or prior to, the Closing Date, the following conditions precedent:
(a) LIEN SEARCHES - The Agent shall have received tax, judgment and Uniform
Commercial Code searches satisfactory to the Agent for all locations presently
occupied or used by the Company.
(b) CASUALTY INSURANCE - The Company shall have delivered to the Agent
evidence satisfactory to the Agent that casualty insurance policies listing the
Agent as additional insured, loss payee or mortgagee, as the case may be, are in
full force and effect, all as set forth in Paragraph 7.5 of Section 7 of this
Financing Agreement.
(c) UCC FILINGS - Any financing statements required to be filed in order to
create, in favor of the Agent, on behalf of the Lenders, a first perfected
security interest in the Collateral, subject only to the Permitted Encumbrances,
shall have been properly filed in each office in each jurisdiction required in
order to create in favor of the Agent for the benefit of the Lenders a perfected
lien on the Collateral. The Agent shall have received acknowledgment copies of
all such filings (or, in lieu thereof, the Agent shall have received other
evidence satisfactory to the Agent that all such
15
filings have been made) and the Agent shall have received evidence that all
necessary filing fees and all taxes or other expenses related to such filings
have been paid in full.
(d) BOARD RESOLUTION - The Agent shall have received a copy of the
resolutions of the Board of Directors of each of the Company and the Guarantors
(as the case may be) authorizing the execution, delivery and performance of (i)
this Financing Agreement, (ii) the Guaranties, and (iii) any related agreements,
in each case certified by the Secretary or Assistant Secretary of the Company
and the Guarantors (as the case may be) as of the date hereof, together with a
certificate of the Secretary or Assistant Secretary of the Company and the
Guarantors (as the case may be) as to the incumbency and signature of the
officers of the Company and/or the Guarantors executing such Loan Documents and
any certificate or other documents to be delivered by them pursuant hereto,
together with evidence of the incumbency of such Secretary or Assistant
Secretary.
(e) CORPORATE ORGANIZATION - The Agent shall have received (i) a copy of
the Certificate of Incorporation of the Company and the Guarantors certified by
the Secretary of State of the state of its incorporation, and (ii) a copy of the
By-Laws of the Company certified by the Secretary or Assistant Secretary
thereof, all as amended through the date hereof.
(f) OFFICER'S CERTIFICATE - The Agent shall have received an executed
Officer's Certificate of the Company, satisfactory in form and substance to the
Agent, certifying that to the best of his or her knowledge (i) the
representations and warranties contained herein are true and correct in all
material respects on and as of the Closing Date; (ii) the Company is in
compliance with all of the terms and provisions set forth herein; and (iii) no
Default or Event of Default has occurred.
(g) OPINIONS - Counsel for the Company and the Guarantors shall have
delivered to the Agent on behalf of the Lenders opinions substantially in the
form of Exhibit E hereto and otherwise satisfactory to the Agent.
(h) ABSENCE OF DEFAULT - No Default or Event of Default shall have occurred
and no material adverse change shall have occurred in the financial condition,
business, prospects, profits, operations or assets of the Company or the
Company's Subsidiaries.
(i) LEGAL RESTRAINTS/LITIGATION - As of the Closing Date, there shall be
no: (x) litigation, investigation or proceeding (judicial or administrative)
pending or threatened against the Company or the Guarantors or their assets, by
any agency, division or department of any county, city, state or federal
government arising out of this Financing Agreement; (y) injunction, writ or
restraining order restraining or prohibiting the financing arrangements
contemplated under this Financing Agreement; or (z) suit, action, investigation
or proceeding (judicial or administrative) pending against the Company or the
Guarantors or their assets, which, in the opinion of the Agent, if adversely
determined, could reasonably be expected to have a material adverse effect on
the business, operation, assets, financial condition or Collateral of the
Company and/or the Guarantors.
(j) FINANCIAL CONDITION - Agent shall have received and be satisfied with
the financial condition of the Company, including, without limitation, the
preliminary results of its June 30, 2002 consolidated audited financial
statements.
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(k) COMPLIANCE WITH LAWS - Neither this Financing Agreement nor any of the
transactions contemplated in connection herewith: (i) present any material
exposure under any laws relating to bulk sales, fraudulent conveyances or
similar matters, or (ii) could reasonably be expected to have a material adverse
effect on any license agreement of the Company or any of its affiliates.
(l) GUARANTIES - The Guarantors shall have executed and delivered to the
Agent guaranties, in form acceptable to the Agent, guaranteeing all present and
future Obligations of the Company.
(m) CASH BUDGET PROJECTIONS - The Agent shall have received, reviewed and
been satisfied with a twelve (12) month cash budget projection prepared by the
Company on the form provided by the Agent.
(n) PLEDGE AGREEMENT - The Company, as the case may be, shall (i) execute
and deliver to the Agent, on behalf of the Lenders, a pledge and security
agreement pledging to the Agent, on behalf of the Lenders, as additional
collateral for the Obligations of the Company not less than 100% of the issued
and outstanding stock of all Subsidiaries of the Company and, (ii) deliver to
the Agent, on behalf of the Lenders, the stock certificates evidencing such
stock together with duly executed stock powers (undated and in-blank) with
respect thereto, all in form and substance satisfactory to CIT.
(o) ADDITIONAL DOCUMENTS - The Company shall have executed and delivered to
the Agent all Loan Documents necessary to consummate the lending arrangement
contemplated between the Company, the Agent and the Lenders.
(p) DISBURSEMENT AUTHORIZATION - The Company shall have delivered to the
Agent all information necessary for the Agent and the Lenders to issue wire
transfer instructions on behalf of the Company for the initial and subsequent
loans and/or advances to be made under this Financing Agreement including, but
not limited to, disbursement authorizations in form acceptable to the Agent.
(q) EXAMINATION & VERIFICATION - The Agent and each of the Lenders shall
have completed, to their respective satisfaction, an examination and
verification of the Accounts, and Inventory of the Company which examination
shall indicate that, after giving effect to all Revolving Loans, advances and
extensions of credit to be made at closing, the Company shall have an opening
additional Availability of at least $3,000,000.00, as evidenced by a Borrowing
Base Certificate delivered by the Company to the Agent as of the Closing Date.
It is understood that such requirement contemplates that all debts and
obligations are current, and that all payables are being handled in the normal
course of the Company's business and consistent with its past practice.
(r) EXISTING REVOLVING CREDIT AGREEMENT - The Company's existing credit
agreement with GMAC Commercial Credit, LLC (the "Existing Lender") shall be: (i)
terminated; (ii) all loans and obligations of the Company and/or the Guarantors
thereunder shall be paid or satisfied in full, including through utilization of
the proceeds of the initial Revolving Loans and the Term Loan to be
17
made under this Financing Agreement; and (iii) all liens or security interests
in favor of the Existing Lender on the Collateral and otherwise in connection
therewith shall be terminated and/or released upon such payment. Agent shall
also have completed an exit interview with the Existing Lender, which shall be
satisfactory to Agent in its sole discretion.
(s) SCHEDULES The Company or its counsel shall provide the Agent with
schedules of: (a) any of the Company's and its Subsidiaries (i) Trademarks, (ii)
Patents, and (iii) Copyrights, as applicable and all in such detail as to
provide appropriate recording information with respect thereto, (b) any
tradenames, (c) monthly rental payments for any leased premises or any other
premises where any Collateral may be stored or processed, and (d) Permitted
Liens, all of the foregoing in form and substance satisfactory to the Agent.
(t) FACTORING DOCUMENTATION - Agent shall have received (i) a copy of the
Factoring Agreement executed and delivered by the Company, (ii) Certified
Resolutions and (iii) all other agreements, documents and instruments executed
in connection therewith each in form and substance satisfactory to Agent.
Upon the execution of this Financing Agreement and the initial disbursement of
loans hereunder, all of the above Conditions Precedent shall have been deemed
satisfied except as otherwise set forth hereinabove or as the Company and the
Agent shall otherwise agree in writing.
2.1. CONDITIONS TO EACH EXTENSION OF CREDIT.
Subject to the terms of this Financing Agreement, including without
limitation the Agent's rights pursuant to paragraph 10.2 of Section 10 hereof,
the agreement of the Agent on behalf of the Lenders to make any extension of
credit requested to be made by it to the Company on any date (including without
limitation, the initial extension of credit) is subject to the satisfaction of
the following conditions precedent:
(a) REPRESENTATIONS AND WARRANTIES - Each of the representations and
warranties made by the Company in or pursuant to this Financing Agreement shall
be true and correct in all material respects on and as of such date as if made
on and as of such date, except to the extent such representation expressly
relates to an earlier date.
(b) NO DEFAULT - No Default or Event of Default shall have occurred and be
continuing on such date or after giving effect to the extension of credit
requested to be made on such date.
(c) BORROWING BASE - Except as may be otherwise agreed to from time to time
by the Agent and the Company in writing, after giving effect to the extension of
credit requested to be made by the Company on such date, the aggregate
outstanding balance of the Revolving Loans and outstanding Letters of Credit
owing by the Company will not exceed the lesser of (i) the Revolving Line of
Credit or (ii) the Borrowing Base.
Each borrowing by the Company hereunder shall constitute a representation and
warranty by the Company as of the date of such loan or advance that each of the
representations, warranties are true
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and correct and that the Company is not then in default under any of the
covenants contained in the Financing Agreement, except as the Company and the
Agent and/or the Required Lenders shall otherwise agree herein or in a separate
writing.
SECTION 3. REVOLVING LOANS
3.1. (a) The Agent and the Lenders agree, subject to the terms and
conditions of this Financing Agreement, from time to time (but subject to the
Agent's and the Lenders' right to make "Overadvances"), to make loans and
advances to the Company on a revolving basis (i.e. subject to the limitations
set forth herein, the Company may borrow, repay and re-borrow Revolving Loans).
Such requests for loans and advances shall be in amounts not to exceed the
lesser of (a) the Availability or (b) the Revolving Line of Credit. All requests
for loans and advances must be received by an officer of the Agent no later than
(i) 11:00 a.m., New York time, of the Business Day on which any such JPMorgan
Chase Bank Rate Loans and advances are required or (ii) three (3) Business Days
prior to any requested LIBOR Loan. Should the Agent for any reason honor
requests for Overadvances, any such Overadvances shall be made in the Agent's
sole discretion and subject to any additional terms the Agent and/or the
Required Lenders deem necessary.
(b) (i) Whenever the Company requests the Agent, on behalf of the Lenders,
to make a Revolving Loan pursuant to this Section 3, it shall give the Agent
notice in writing or irrevocable telephonic notice confirmed promptly in
writing, specifying (A) the amount to be borrowed, and (B) the requested
borrowing date (which shall be a business day and shall be prior to: the
Anniversary Date, and if applicable, any Early Termination Date, or prior to any
effective termination date of this Financing Agreement, all as further set forth
herein), and (C) specify whether the requested Revolving Loan shall bear
interest at the JPMorgan Chase Bank Rate or at the LIBOR Rate, as further set
forth herein. All requests for loans and advances must be received by an officer
of the Agent no later than 11:00 a.m. New York time on any borrowing date. The
procedure for Revolving Loans to be made on a requested borrowing date may be
such other procedure as is mutually satisfactory to the Company, the Agent
and/or the Lenders. The Agent shall make loans and advances to the Depository
Account of the Company.
(ii) Subject to paragraph 14.10 hereof, should the Agent, on behalf of
the Lenders, for any reason honor requests for Overadvances, such Overadvance
shall be made in the Agent's sole discretion, subject to any additional terms
the Agent and/or the Required Lenders deem necessary. Requests for loans and
advances shall be made solely by the Company and shall be directed solely to the
Agent.
(c) The Agent shall on any Settlement Date, and upon notice given by the
Agent no later than 2:00 P.M. New York time, request each Lender to make, and
each Lender hereby agrees to make, a Revolving Loan in an amount equal to such
Lender's Revolving Credit Commitment percentage (calculated with respect to the
aggregate Revolving Credit Commitments then outstanding) of the aggregate amount
of the Revolving Loans made by the Agent from the preceding Settlement Date to
the date of such notice. Each Lender's obligation to make the Revolving Loans
referred to in subsection (a) and to make the settlements pursuant to this
subsection (c) shall be absolute and unconditional and shall not be affected by
any circumstance, including without
19
limitation (i) any set-off, counterclaim, recoupment, defense or other right
which any such Lender or the Company may have against the Agent, the Company,
any other Lender or any other person for any reason whatsoever; (ii) the
occurrence or continuance of a Default or an Event of Default; (iii) any adverse
change in the condition (financial or otherwise) of the Company; (iv) any breach
of this Financing Agreement or any other loan document by the Company or any
other Lender; or (v) any other circumstance, happening or event whatsoever,
whether or not similar to any of the foregoing. Without limiting the liability
and obligation of each Lender to make such advances, the Company authorizes the
Agent to charge the Company's Revolving Loan Account with the Agent to the
extent amounts received from the Lenders are not sufficient to repay in full the
amount of any such deficiency.
(d) The Company's Revolving Loan Obligations hereunder shall be evidenced
by the Promissory Note in the form of Exhibit B attached hereto.
(e) The Company shall apply the proceeds of (i) the Term Loan and the
Revolving Loans made on the Closing Date to repay existing indebtedness owed to
GMAC Commercial Credit, LLC and to pay fees and expenses relating to this
transaction, and (ii) Revolving Loans made on and after the Closing Date to
provide for the Company's working capital needs.
3.2. In furtherance of the continuing assignment and security interest in
the Company's Accounts and Inventory, the Company will, upon the creation of
Accounts and purchase or acquisition of Inventory, execute and deliver to the
Agent in such form and manner as the Agent may reasonably require, solely for
the Agent's convenience in maintaining records of Collateral, such confirmatory
schedules of Accounts and Inventory as the Agent may reasonably request,
including, without limitation, weekly schedules of Accounts and Inventory, all
in form and substance satisfactory to the Agent, and such other appropriate
reports designating, identifying and describing the Accounts and Inventory as
the Agent may reasonably request, and provided further that the Agent may
request any such information more frequently, from time to time, upon its
reasonable prior request. In addition, upon the Agent's reasonable request, the
Company shall provide the Agent with copies of agreements with, or purchase
orders from, the Company's customers, and copies of invoices to customers, proof
of shipment or delivery, access to its computers, electronic media and software
programs associated therewith (including any electronic records, contracts and
signatures) and such other documentation and information relating to said
Accounts and other Collateral as the Agent may reasonably require; provided;
however, at any time that the Factoring Agreement is in effect, the provisions
of this paragraph 3.2 relating to Accounts shall be governed by the Factoring
Agreement. Failure to provide the Agent with any of the foregoing shall in no
way affect, diminish, modify or otherwise limit the security interests granted
herein. The Company hereby authorizes the Agent to regard the Company's printed
name or rubber stamp signature on assignment schedules or invoices as the
equivalent of a manual signature by one of the Company's authorized officers or
agents.
3.3. The Company hereby represents and warrants that: each Trade Account
Receivable is based on an actual and bona fide sale and delivery of Inventory or
rendition of services to its customers, made by the Company in the ordinary
course of its business; the Inventory being sold, and the Trade Accounts
Receivable created, are the exclusive property of the Company and are not
20
and shall not be subject to any lien, consignment arrangement, encumbrance,
security interest or financing statement whatsoever, other than the Permitted
Encumbrances; the invoices evidencing such Trade Accounts Receivable are in the
name of the Company; and the customers of the Company have accepted the
Inventory or services, owe and are obligated to pay the full amounts stated in
the invoices according to their terms, without dispute, offset, defense,
counterclaim or contra, except for disputes, allowances and other matters
arising in the ordinary course of business with respect to which the Company has
complied with the notification requirements of Paragraph 3.5 of this Section 3
(if applicable). The Company confirms to the Agent that any and all Taxes or
fees relating to its business, its sales, the Accounts or Inventory relating
thereto, are its sole responsibility and that same will be paid by the Company
when due, subject to Paragraph 7.6 of Section 7 of this Financing Agreement, and
that none of said Taxes or fees represent a lien on or claim against the
Accounts. The Company hereby further represents and warrants that it shall not
acquire any Inventory on a consignment basis, nor co-mingle its Inventory with
any of its customers or any other person (excluding Guarantors), including
pursuant to any ▇▇▇▇ and hold sale or otherwise, and that its Inventory is
marketable to its customers in the ordinary course of business of the Company,
except as it may otherwise report in writing to the Agent pursuant to Paragraph
3.5 hereof from time to time. The Company also warrants and represents that it
is a duly and validly existing corporation and is qualified in all states where
the failure to so qualify would have an adverse effect on the business of the
Company or the ability of the Company to enforce collection of Accounts due from
customers residing in that state. The Company agrees to maintain such books and
records regarding Accounts and Inventory as the Agent may reasonably require and
agrees that the books and records of the Company will reflect the Agent's
interest in the Accounts and Inventory. All of the books and records of the
Company will be available to the Agent during normal business hours, including
any records handled or maintained for the Company by any other company or
entity.
3.4. (a) At such time as the Factoring Agreement has been terminated or the
Company is not subject to an ARM Services Agreement as provided in the Factoring
Termination Agreement and is of no further force and effect, until the Agent has
advised the Company to the contrary after the occurrence of an Event of Default,
the Company, at its own expense, will enforce, collect and receive all amounts
owing on the Accounts in the ordinary course of its business and any proceeds it
so receives shall be subject to the terms hereof, and held on behalf of and in
trust for the Agent on behalf of the Lenders. Such privilege shall terminate at
the election of the Agent, upon the occurrence of an Event of Default, until
such Event of Default is waived in writing by the Required Lenders or cured to
the Agents and/or the Required Lenders satisfaction. Any checks, cash, credit
card sales and receipts, notes or other instruments or property received by the
Company with respect to any Collateral, including Accounts, shall be held by the
Company in trust for the Agent, on behalf of the Lenders, separate from the
Company's own property and funds, and promptly turned over to the Agent with
proper assignments or endorsements by deposit to the Depository Accounts. At
such time as the Factoring Agreement has been terminated and is of no further
force and effect or the Company is not subject to an ARM Services Agreement as
provided in the Factoring Termination Agreement, the Company shall: (i) indicate
on all of its invoices that funds should be delivered to and deposited in a
Depository Account; (ii) direct all of its account debtors to deposit any and
all proceeds of Collateral into the Depository Accounts; (iii) irrevocably
authorize and direct any banks which maintain the initial receipt of cash,
checks and other items to promptly wire transfer all available funds to a
Depository Account; and (iv) advise all such banks of the Agent's security
21
interest in such funds. The Company shall provide the Agent with prior written
notice of any and all deposit accounts opened or to be opened subsequent to the
Closing Date. All amounts received by the Agent in payment of Accounts will be
credited to the Revolving Loan Account when the Agent is advised by its bank of
its receipt of such payment at the Agent's bank account in New York, New York on
the Business Day of such advise if advised no later than 1:00 p.m. EST or on the
next succeeding Business Day if so advised after 1:00 p.m. EST. However, the
Company's Revolving Loan Account will be charged monthly with the cost of two
(2) additional Business Days on all such Collections at the interest rate (based
upon the JPMorgan Chase Bank Rate) applicable to Revolving Loans; provided,
however, while the Factoring Agreement is in effect, all items of payment shall
be deemed applied as provided in the Factoring Agreement. No checks, drafts or
other instrument received by the Agent shall constitute final payment to the
Agent and/or the Lenders unless and until such instruments have actually been
collected; provided, that upon receipt of any such check, draft or other
instrument, Agent and/or Lenders shall promptly negotiate such instrument.
(b) At such time as the Factoring Agreement has been terminated and is of
no further force and effect or the Company is not subject to an ARM Services
Agreement as provided in the Factoring Termination Agreement, the Company shall
at the direction of Agent establish and maintain, in its name and at its
expense, lockbox accounts, dominion accounts or deposit accounts with such banks
as are acceptable to the Agent (collectively the "Blocked Accounts") into which
the Company shall promptly cause to be deposited: (i) all proceeds of Collateral
received by the Company, including all amounts payable to the Company from
credit card issuers and credit card processors, and (ii) all amounts on deposit
in deposit accounts used by the Company at each of its locations, all as further
provided in Paragraph 3.4(a) above. The banks at which the Blocked Accounts are
established shall enter into an agreement, in form and substance satisfactory to
the Agent (the "Blocked Account Agreements"), providing that all cash, checks
and items received or deposited in the Blocked Accounts are the property of the
Agent, that the depository bank has no lien upon, or right of set off against,
the Blocked Accounts and any cash, checks, items, wires or other funds from time
to time on deposit therein, except as otherwise provided in the Blocked Account
Agreements, and that automatically, on a daily basis the depository bank will
wire, or otherwise transfer, in immediately available funds, all funds received
or deposited into the Blocked Accounts to such bank account as the Agent may
from time to time designate for such purpose. The Company hereby confirms and
agrees that all amounts deposited in such Blocked Accounts and any other funds
received and collected by the Agent, whether as proceeds of Inventory or other
Collateral or otherwise, shall be the property of the Agent.
3.5. The Company agrees to notify the Agent: (a) of any matters (except for
allowances) affecting the value, enforceability or collectibility of any Account
and of all customer disputes, offsets, defenses, counterclaims, returns (with a
value in excess of $25,000 in the aggregate), rejections and all reclaimed or
repossessed merchandise or goods, and of any adverse effect in the value of its
Inventory, in its weekly and monthly collateral reports (as applicable) provided
to the Agent hereunder, in such detail and format as the Agent may reasonably
require from time to time and (b) promptly of any such matters which are
material, as a whole, to the Accounts and/or the Inventory. The Company agrees
to issue credit memoranda promptly (with duplicates to the Agent upon request
after the occurrence of an Event of Default) upon accepting returns (with a
value in excess of $25,000). Upon the occurrence of an Event of Default (which
is not waived in writing by
22
the Required Lenders) and on notice from the Agent, the Company agrees that all
returned, reclaimed or repossessed merchandise or goods shall be set aside by
the Company, marked with the Agent's name (as secured party) and held by the
Company for the Agent's account.
3.6. The Agent shall maintain a Revolving Loan Account on its books in
which the Company will be charged with all loans and advances made by the Agent
to it or for its account, and with any other Obligations, including any and all
costs, expenses and reasonable attorney's fees which the Agent may incur in
connection with the exercise by or for the Agent of any of the rights or powers
herein conferred upon the Agent, or in the prosecution or defense of any action
or proceeding to enforce or protect any rights of the Agent in connection with
this Financing Agreement, the other Loan Documents or the Collateral assigned
hereunder, or any Obligations owing by the Company. The Company will be credited
with all amounts received by the Agent and/or the Lenders from the Company or
from others for the Company's account, including, as above set forth, all
amounts received by the Agent in payment of Accounts, and such amounts will be
applied to payment of the Obligations as set forth herein. In no event shall
prior recourse to any Accounts or other security granted to or by the Company be
a prerequisite to the Agent's right to demand payment of any Obligation.
Further, it is understood that the Agent and/or the Lenders shall have no
obligation whatsoever to perform in any respect any of the Company's contracts
or obligations relating to the Accounts.
3.7. After the end of each month, the Agent shall promptly send the Company
a statement showing the accounting for the charges, loans, advances and other
transactions occurring between the Agent and the Company during that month.
Absent manifest error, the monthly statements shall be deemed correct and
binding upon the Company and shall constitute an account stated between the
Company and the Agent unless the Agent receives a written statement of the
exceptions within thirty (30) days of the date of the monthly statement.
3.8. In the event that any requested advance exceeds Availability or that
(a) the sum of (i) the outstanding balance of Revolving Loans and (ii)
outstanding balance of Letters of Credit exceeds (b)(x) the Borrowing Base or
(y) the Revolving Line of Credit, any such nonconsensual Overadvance shall be
due and payable to the Agent on behalf of the Lenders immediately upon the
Agent's demand therefor.
SECTION 4. TERM LOAN
4.1. The Company hereby agrees to execute and deliver to the Agent, on
behalf of the Lenders, the Term Loan Promissory Note, to evidence the Term Loan
to be extended by the Agent.
4.2. Upon receipt of such Term Loan Promissory Note, the Lenders hereby
agrees to extend to the Company the Term Loan.
4.3. The principal amount of the Term Loan shall be repaid to the Agent, on
behalf of the Lenders, by the Company by: (i) eleven (11) equal quarterly
principal installments of $375,000.00 each, commencing October 1, 2002, and the
subsequent installments shall be due and payable on the
23
first day of each Fiscal Quarter thereafter followed by (ii) one (1) installment
of the outstanding balance thereof on the Anniversary Date.
4.4. In the event this Financing Agreement or the Line of Credit is
terminated by either the Agent or the Company for any reason whatsoever, the
Term Loan shall become due and payable on the effective date of such termination
notwithstanding any provision to the contrary in the Promissory Notes or this
Financing Agreement.
4.5. The Company may prepay at any time, at its option, in whole or in
part, the Term Loan without prepayment premium or penalty, provided that on each
such prepayment, the Company shall pay accrued interest on the principal so
prepaid to the date of such prepayment.
4.6. Each prepayment shall be applied to the then last maturing
installments of principal of the Term Loan.
4.7. The Company hereby authorizes the Agent to charge its Revolving Loan
Account with the amount of all obligations owing under this Section 4 as such
amounts become due. The Company confirms that any charges which the Agent may so
make to its Revolving Loan Account as herein provided will be made as an
accommodation to the Company and solely at the Agent's discretion.
SECTION 5. LETTERS OF CREDIT
In order to assist the Company in establishing or opening Letters of Credit
with an Issuer, the Company has requested the Agent, on behalf of the Lenders,
to join in the applications for such Letters of Credit, and/or guarantee payment
or performance of such Letters of Credit and any drafts or acceptances
thereunder through the issuance of the Letters of Credit Guaranty, thereby
lending the Agent's credit to the Company and the Agent has agreed to do so.
These arrangements shall be handled by the Agent subject to the terms and
conditions set forth below.
5.1. Within the Revolving Line of Credit and Availability, the Agent on
behalf of the Lenders shall assist the Company in obtaining Letter(s) of Credit
in an amount not to exceed the outstanding amount of the Letter of Credit
Sub-Line, provided, however, the aggregate face amount of outstanding standby
Letters of Credit shall not exceed $350,000. The Agent's assistance for amounts
in excess of the limitation set forth herein shall at all times and in all
respects be in the Agent's sole discretion. It is understood that the term, form
and purpose of each Letter of Credit and all documentation in connection
therewith, and any amendments, modifications or extensions thereof, must be
mutually acceptable to the Agent, the Issuer and the Company, provided that
Letters of Credit shall not be used for the purchase of domestic Inventory or to
secure present or future debt of domestic Inventory suppliers.
5.2. The Agent shall have the right, without notice to the Company, to
charge the Company's Revolving Loan Account with the amount of any and all
indebtedness, liability or obligation of any kind incurred by the Agent and/or
the Lenders under the Letters of Credit Guaranty at the earlier of (a) payment
by the Agent under the Letters of Credit Guaranty; or (b) the occurrence
24
of an Event of Default which has not been waived in writing by the Required
Lenders. Any amount charged to Company's Revolving Loan Account shall be deemed
a Revolving Loan hereunder and shall incur interest at the rate provided in
Paragraph 8.1 of Section 8 of this Financing Agreement.
5.3. The Company unconditionally indemnifies the Agent and the Lenders and
holds the Agent and the Lenders harmless from any and all loss, claim or
liability incurred by the Agent arising from any transactions or occurrences
relating to Letters of Credit established or opened for the Company's account,
the collateral relating thereto and any drafts or acceptances thereunder, and
all Obligations thereunder, including any such loss or claim due to any errors,
omissions, negligence, misconduct or action taken by any Issuer, other than for
any such loss, claim or liability arising out of the gross negligence or willful
misconduct by the Agent and/or the Lenders under the Letters of Credit Guaranty.
This indemnity shall survive termination of this Financing Agreement. The
Company agrees that any charges incurred by the Agent and/or the Lenders for the
Company account by the Issuer shall be conclusive on the Agent and may be
charged to the Company's Revolving Loan Account.
5.4. The Agent shall not be responsible for: (a) the existence, character,
quality, quantity, condition, packing, value or delivery of the goods purporting
to be represented by any documents; (b) any difference or variation in the
character, quality, quantity, condition, packing, value or delivery of the goods
from that expressed in the documents; (c) the validity, sufficiency or
genuineness of any documents or of any endorsements thereon, even if such
documents should in fact prove to be in any or all respects invalid,
insufficient, fraudulent or forged; (d) the time, place, manner or order in
which shipment is made; (e) partial or incomplete shipment, or failure or
omission to ship any or all of the goods referred to in the Letters of Credit or
documents; (f) any deviation from instructions; (g) delay, default, or fraud by
the shipper and/or anyone else in connection with the goods or the shipping
thereof; or (h) any breach of contract between the shipper or vendors and the
Company.
5.5. The Company agrees that any action taken by the Agent and/or the
Lenders, if taken in good faith, or any action taken by any Issuer, under or in
connection with the Letters of Credit, the Letter of Credit Guarantees, the
drafts or acceptances, or the Collateral, shall be binding on the Company and
shall not result in any liability whatsoever of CIT to the Company. In
furtherance thereof, the Agent shall have the full right and authority to: (a)
clear and resolve any questions of non-compliance of documents; (b) give any
instructions as to acceptance or rejection of any documents or goods; (c)
execute any and all steamship or airways guaranties (and applications
therefore), indemnities or delivery orders; (d) grant any extensions of the
maturity of, time of payment for, or time of presentation of, any drafts,
acceptances, or documents; and (e) agree to any amendments, renewals,
extensions, modifications, changes or cancellations of any of the terms or
conditions of any of the applications, Letters of Credit, drafts or acceptances;
all in the Agent's sole name. The Issuer shall be entitled to comply with and
honor any and all such documents or instruments executed by or received solely
from the Agent, all without any notice to or any consent from the Company.
Notwithstanding any prior course of conduct or dealing with respect to the
foregoing including amendments and non-compliance with documents and/or the
Company's instructions with respect thereto, the Agent may exercise its rights
hereunder in its sole and reasonable judgment. In addition, without the Agent's
express consent and endorsement in writing, the Company agrees: (a) not to
execute any and all applications for steamship or airway guaranties,
25
indemnities or delivery orders; to grant any extensions of the maturity of, time
of payment for, or time of presentation of, any drafts, acceptances or
documents; or to agree to any amendments, renewals, extensions, modifications,
changes or cancellations of any of the terms or conditions of any of the
applications, Letters of Credit, drafts or acceptances; and (b) after the
occurrence of an Event of Default which is not cured within any applicable grace
period, if any, or waived by the Agent, not to (i) clear and resolve any
questions of non-compliance of documents, or (ii) give any instructions as to
acceptances or rejection of any documents or goods.
5.6. The Company agrees that: (a) any necessary import, export or other
licenses or certificates for the import or handling of the Collateral will have
been promptly procured; (b) all foreign and domestic governmental laws and
regulations in regard to the shipment and importation of the Collateral, or the
financing thereof will have been promptly and fully complied with; and (c) any
certificates in that regard that the Agent may at any time request will be
promptly furnished. In connection herewith, the Company warrants and represents
that all shipments made under any such Letters of Credit are in accordance with
the laws and regulations of the countries in which the shipments originate and
terminate, and are not prohibited by any such laws and regulations. The Company
assumes all risk, liability and responsibility for, and agrees to pay and
discharge, all present and future local, state, federal or foreign Taxes,
duties, or levies. Any embargo, restriction, laws, customs or regulations of any
country, state, city, or other political subdivision, where the Collateral is or
may be located, or wherein payments are to be made, or wherein drafts may be
drawn, negotiated, accepted, or paid, shall be solely the Company's risk,
liability and responsibility.
5.7. Upon any payments made to the Issuer under the Letter of Credit
Guaranty, the Agent on behalf of the Lenders shall acquire by subrogation, any
rights, remedies, duties or obligations granted or undertaken by the Company to
the Issuer in any application for Letters of Credit, any standing agreement
relating to Letters of Credit or otherwise, all of which shall be deemed to have
been granted to the Agent on behalf of the Lenders and apply in all respects to
the Agent and shall be in addition to any rights, remedies, duties or
obligations contained herein.
SECTION 6. COLLATERAL
6.1. As security for the prompt payment in full of all Obligations, the
Company hereby pledges and grants to the Agent, on behalf of the Lenders, a
continuing general lien upon, and security interest in, all of its:
(a) Accounts;
(b) Inventory;
(c) General Intangibles;
(d) Documents of Title;
(e) Other Collateral; and
26
(f) Equipment.
6.2. The security interests granted hereunder shall extend and attach to:
(a) All Collateral which is owned by the Company or in which the
Company has any ownership interest, whether held by the Company or others for
its account;
(b) All Equipment, whether the same constitutes personal property or
fixtures, including, but without limiting the generality of the foregoing, all
dies, jigs, tools, benches, molds, tables, accretions, component parts thereof
and additions thereto, as well as all accessories, motors, engines and auxiliary
parts used in connection with, or attached to, the Equipment; and
(c) All Inventory and any portion thereof which may be returned,
rejected, reclaimed or repossessed by either the Agent or the Company from the
Company's customers, as well as to all supplies, goods, incidentals, packaging
materials, labels and any other items which contribute to the finished goods or
products manufactured or processed by the Company, or to the sale, promotion or
shipment thereof.
6.3. The Company agrees to safeguard, protect and hold all Inventory for
the Agent's account and make no disposition thereof except in the ordinary
course of its business of the Company, as herein provided. The Company
represents and warrants that Inventory will be sold and shipped by the Company
to its customers only in the ordinary course of the Company's business, and then
only on open account and on terms currently being extended by the Company to its
customers, provided that, absent the prior written consent of the Agent, the
Company shall not sell Inventory on a consignment basis nor retain any lien or
security interest in any sold Inventory. Upon the sale, exchange, or other
disposition of Inventory, as herein provided, the security interest in the
Inventory provided for herein shall, without break in continuity and without
further formality or act, continue in, and attach to, all proceeds, including
any instruments for the payment of money, Trade Accounts Receivable, documents
of title, shipping documents, chattel paper and all other cash and non-cash
proceeds of such sale, exchange or disposition. As to any such sale, exchange or
other disposition, the Agent shall have all of the rights of an unpaid seller,
including stoppage in transit, replevin, rescission and reclamation. The Company
hereby agrees to immediately forward any and all proceeds of Collateral to the
Depository Account, and to hold any such proceeds (including any notes and
instruments), in trust for the Agent, on behalf of the Lenders, pending delivery
to the Agent. Irrespective of the Agent's perfection status in any and all of
the General Intangibles, including, without limitations, any Patents,
Trademarks, Copyrights or licenses with respect thereto, the Company hereby
irrevocably grants the Agent a royalty free license to sell or otherwise dispose
or transfer, in accordance with Paragraph 10.3 of Section 10 of this Financing
Agreement, and the applicable terms hereof, of any of the Inventory upon the
occurrence of an Event of Default which has not been waived in writing by the
Agent; provided, that, notwithstanding the foregoing the Agent shall not assert
any license as provided above with respect to any Inventory covered by the
"▇▇▇▇▇▇▇▇▇" Trademark while such Trademark is subject to that certain License
Agreement dated July 17, 2002 by and between the Company and QVC, Inc..
27
6.4. The Company agrees at its own cost and expense to keep the Equipment
in as good and substantial repair and condition as the same is now or at the
time the lien and security interest granted herein shall attach thereto,
reasonable wear and tear excepted, making any and all repairs and replacements
when and where necessary. The Company also agrees to safeguard, protect and hold
all Equipment in accordance with the terms hereof and subject to the Agent's
security interest. Absent the Agent's prior written consent, any sale, exchange
or other disposition of any Equipment shall be made by the Company in the
ordinary course of business and as set forth herein. The Company may, in the
ordinary course of its business, sell, exchange or otherwise dispose of obsolete
or surplus Equipment provided, however, that: (a) the then value of the
Equipment so disposed of in any Fiscal Year does not exceed $100,000 in the
aggregate; and (b) the proceeds of any such sales or dispositions shall be held
in trust by the Company for the Agent and shall be immediately delivered to the
Agent by deposit to the Depository Account, except that the Company may retain
and use such proceeds to purchase forthwith replacement Equipment which the
Company determines in its reasonable business judgment to have a collateral
value at least equal to the Equipment so disposed of or sold; provided, however,
that the aforesaid right shall automatically cease upon the occurrence of a
Default or an Event of Default which is not waived in writing by the Agent. Upon
the sale, exchange, or other disposition of the Equipment, as herein provided,
the security interest provided for herein shall, without break in continuity and
without further formality or act, continue in, and attach to, all proceeds,
including any instruments for the payment of money, Accounts, documents of
title, shipping documents, chattel paper and all other cash and non-cash
proceeds of such sales, exchange or disposition. As to any such sale, exchange
or other disposition, the Agent and the Lenders shall have all of the rights of
an unpaid seller, including stoppage in transit, replevin, rescission and
reclamation.
6.5. The rights and security interests granted to the Agent and the Lenders
hereunder are to continue in full force and effect, notwithstanding the
termination of this Financing Agreement or the fact that the Revolving Loan
Account may from time to time be temporarily in a credit position, until the
final payment in full to the Agent of all Obligations and the termination of
this Financing Agreement. Any delay, or omission by the Agent to exercise any
right hereunder shall not be deemed a waiver thereof, or be deemed a waiver of
any other right, unless such waiver shall be in writing and signed by the Agent.
A waiver on any one occasion shall not be construed as a bar to, or waiver of,
any right or remedy on any future occasion.
6.6. Notwithstanding the Agent's security interest in the Collateral and to
the extent that the Obligations are now or hereafter secured by any assets or
property other than the Collateral or by the guarantee, endorsement, assets or
property of any other person, the Agent shall have the right in its sole
discretion to determine which rights, liens, security interests or remedies the
Agent shall at any time pursue, foreclose upon, relinquish, subordinate, modify
or take any other action with respect to, without in any way modifying or
affecting any of them, or any of the Agent's and/or the Lenders' rights
hereunder.
6.7. Any balances to the credit of the Company and any other property or
assets of the Company in the possession or control of the Agent and/or the
Lenders may be held by the Agent as security for any Obligations and applied in
whole or partial satisfaction of such Obligations when due. The liens and
security interests granted herein, and any other lien or security interest the
Agent
28
and/or the Lenders may have in any other assets of the Company, shall secure
payment and performance of all now existing and future Obligations. The Agent
may, in its discretion, charge any or all of the Obligations to the Revolving
Loan Account when due.
6.8. The Company possesses all General Intangibles and rights thereto
necessary to conduct its business as conducted as of the Closing Date and the
Company shall maintain its rights in, and the value of, the foregoing in the
ordinary course of its business, including, without limitation, by making timely
payment with respect to any applicable licensed rights. The Company shall
deliver to the Agent, and/or shall cause the appropriate party to deliver to the
Agent, from time to time such pledge or security agreements with respect to
General Intangibles (now or hereafter acquired) of the Company and its
Subsidiaries as the Agent shall require to obtain valid first liens thereon. In
furtherance of the foregoing, the Company shall provide timely notice to the
Agent of any additional Patents, Trademarks, tradenames, service marks,
Copyrights, brand names, trade names, logos and other trade designations
acquired or applied for subsequent to the Closing Date and the Company shall
execute such documentation as the Agent may reasonably require to obtain and
perfect its lien thereon. The Company hereby confirms that it shall deliver, or
cause to be delivered, any pledged stock issued subsequent to the Closing Date
to the Agent in accordance with the applicable terms of the Pledge Agreement and
prior to such delivery, shall hold any such stock in trust for the Agent. Except
as set forth on Schedule 6.8 hereof, the Company hereby irrevocably grants to
the Agent a royalty-free, non-exclusive license in the General Intangibles,
including tradenames, Trademarks, Copyrights, Patents, licenses, and any other
proprietary and intellectual property rights and any and all right, title and
interest in any of the foregoing, for the sole purpose, upon the occurrence of
an Event of Default, of the right to: (i) advertise for sale and sell or
transfer any Inventory bearing any of the General Intangibles, and (ii) make,
assemble, prepare for sale or complete, or cause others to do so, any applicable
raw materials or Inventory bearing any of the General Intangibles, including use
of the Equipment and Real Estate for the purpose of completing the manufacture
of unfinished goods, raw materials or work-in-process comprising Inventory, and
apply the proceeds thereof to the Obligations hereunder, all as further set
forth in this Financing Agreement and irrespective of the Agent's lien and
perfection in any General Intangibles.
SECTION 7. REPRESENTATIONS, WARRANTIES AND COVENANTS
7.1. The Company hereby warrants, represents and covenants that: (a) the
fair value of the Total Assets exceeds the book value of the Total Liabilities;
(b) the Company is generally able to pay its debts as they become due and
payable; and (c) the Company does not have unreasonably small capital to carry
on its business as it is currently conducted absent extraordinary and unforeseen
circumstances. The Company further warrants and represents that: (i) Schedule 1
hereto correctly and completely sets forth the Company's (A) chief executive
office, (B) Collateral locations, (C) tradenames, and (D) all the other
information listed on said Schedule; (ii) except for the Permitted Encumbrances,
after filing of financing statements in the applicable filing clerks office at
the locations set forth in Schedule 1, this Financing Agreement creates a valid,
perfected and first priority security interest in the Collateral and the
security interests granted herein constitute and shall at all times constitute
the first and only liens on the Collateral; (iii) except for the Permitted
Encumbrances, the Company is, or will be, at the time additional Collateral is
acquired by it, the absolute owner of the Collateral with full right to pledge,
sell, consign, transfer and create a security
29
interest therein, free and clear of any and all claims or liens in favor of
others; (iv) the Company will, at its expense, forever warrant and, at the
Agent's request, defend the same from any and all claims and demands of any
other person other than a holder of a Permitted Encumbrance; (v) the Company
will not grant, create or permit to exist, any lien upon, or security interest
in, the Collateral, or any proceeds thereof, in favor of any other person other
than the holders of the Permitted Encumbrances; and that the Equipment does not
comprise a part of the Inventory of the Company; and (vi) the Equipment is and
will only be used by the Company in its business and will not be held for sale
or lease, or removed from its premises, or otherwise disposed of by the Company
except as otherwise permitted in this Financing Agreement.
7.2. The Company agrees to maintain books and records pertaining to the
Collateral in accordance with GAAP and in such additional detail, form and scope
as the Agent shall reasonably require. The Company agrees that the Agent or its
agents, and any of the Lenders who may wish to accompany the Agent at their own
cost and expense may enter upon the Company's premises at any time during normal
business hours, and from time to time in its reasonable business judgment, for
the purpose of inspecting the Collateral and any and all records pertaining
thereto. The Company agrees to afford the Agent thirty (30) days prior written
notice of any change in the location of any Collateral, other than to locations,
that as of the Closing Date, are known to the Agent and at which the Agent has
filed financing statements and otherwise fully perfected its liens thereon. The
Company is also to advise the Agent promptly, in sufficient detail, of any
material adverse change relating to the type, quantity or quality of the
Collateral or on the security interests granted to the Agent therein.
7.3. The Company agrees to: execute and deliver to the Agent, from time to
time, solely for the Agent's convenience in maintaining a record of the
Collateral, such written statements, and schedules as the Agent may reasonably
require, designating, identifying or describing the Collateral. The Company's
failure, however, to promptly give the Agent such statements, or schedules shall
not affect, diminish, modify or otherwise limit the Agent's and/or the Lenders'
security interests in the Collateral.
7.4. The Company agrees to comply in all material respects with the
requirements of all state and federal laws in order to grant to the Agent valid
and perfected first security interests in the Collateral, subject only to the
Permitted Encumbrances. The Agent is hereby authorized by the Company to file
(including pursuant to the applicable terms of the UCC) from time to time any
financing statements, continuations or amendments covering the Collateral. The
Company hereby consents to and ratifies any and all execution and/or filing of
financing statements on or prior to the Closing Date by the Agent. The Company
agrees to do whatever the Agent may reasonably request, from time to time, by
way of: (a) filing notices of liens, financing statements, amendments, renewals
and continuations thereof; (b) cooperating with the Agent's agents and
employees; (c) keeping Collateral records; (d) transferring proceeds of
Collateral to the Agent's possession; and (e) performing such further acts as
the Agent and/or the Lenders may reasonably require in order to effect the
purposes of this Financing Agreement, including but not limited to obtaining
control agreements with respect to deposit accounts and/or Investment Property.
30
7.5. (a) The Company agrees to maintain insurance on its Equipment and
Inventory under such policies of insurance, with such insurance companies, in
such reasonable amounts and covering such insurable risks as are at all times
reasonably satisfactory to the Agent. All policies covering the Equipment and
Inventory are, subject to the rights of any holders of Permitted Encumbrances
holding claims senior to the Agent, to be made payable to the Agent, on behalf
of the Lenders, in case of loss, under a standard non-contributory "mortgagee",
"lender" or "secured party" clause and are to contain such other provisions as
the Agent may require to fully protect the Agent's interest in the Inventory and
Equipment and to any payments to be made under such policies. All original
policies or true copies thereof are to be delivered to the Agent, premium
prepaid, with the loss payable endorsement in the Agent's favor, and shall
provide for not less than thirty (30) days prior written notice to the Agent of
the exercise of any right of cancellation. At the Company's request, or if the
Company fails to maintain such insurance, the Agent may arrange for such
insurance, but at the Company's expense and without any responsibility on the
Agent's part for: (i) obtaining the insurance; (ii) the solvency of the
insurance companies; (iii) the adequacy of the coverage; or (iv) the collection
of claims. Upon the occurrence of an Event of Default which is not waived in
writing by the Required Lenders , the Agent shall, subject to the rights of any
holders of Permitted Encumbrances holding claims senior to the Agent, have the
sole right, and at its option, in the name of the Agent or the Company, to file
claims under any insurance policies, to receive, receipt and give acquittance
for any payments that may be payable thereunder, and to execute any and all
endorsements, receipts, releases, assignments, reassignments or other documents
that may be necessary to effect the collection, compromise or settlement of any
claims under any such insurance policies.
(b) (i) In the event of any loss or damage by fire or other casualty,
insurance proceeds relating to Inventory shall first reduce the Company's
Revolving Loan and then the Term Loan. Upon the occurrence of a Default or Event
of Default, such Insurance Proceeds may be applied to the Obligations in such
order as the Agent may elect;
(ii) In the event any part of the Company's Equipment is damaged
by fire or other casualty and the Insurance Proceeds for such damage or other
casualty is less than or equal to $100,000.00, the Agent shall promptly apply
such Proceeds to reduce the Company's outstanding balance in the Revolving Loan
Account. Upon the occurrence of a Default or Event of Default, such Insurance
Proceeds may be applied to the Obligations in such order as the Agent may elect;
(iii) Absent the occurrence of an Event of Default (which has not
been waived in writing by the Required Lenders), and provided that (x) the
Company has sufficient business interruption insurance to replace the lost
profits of any of the Company's facilities, and (y) the Insurance Proceeds are
in excess of $100,000.00, the Company may elect (by delivering written notice to
the Agent) to replace, repair or restore such Equipment to substantially the
equivalent condition prior to such fire or other casualty as set forth herein.
If the Company does not, or cannot, elect to use the Insurance Proceeds as set
forth above, the Agent may, subject to the rights of any holders of Permitted
Encumbrances holding claims senior to the Agent, apply the Insurance Proceeds to
the payment of the Obligations in such manner and in such order as the Agent may
reasonably elect; and
31
(iv) If the Company elects to use the Insurance Proceeds for the
repair, replacement or restoration of any Equipment, and there is then no Event
of Default, (x) Insurance Proceeds for any loss in excess of $100,000.00 on
Equipment and/or Real Estate will be applied to the reduction of the Revolving
Loans and (y) the Agent may set up an Availability Reserve for an amount equal
to said Insurance Proceeds. The Availability Reserve will be reduced
dollar-for-dollar upon receipt of non-cancelable executed purchase orders,
delivery receipts or contracts for the replacement, repair or restoration of
Equipment and disbursements in connection therewith.
(c) In the event the Company fails to provide the Agent with timely
evidence, acceptable to the Agent, of its maintenance of insurance coverage
required pursuant to paragraph 7.5(a) above, the Agent may purchase, at the
Company's expense, insurance to protect the Agent's interests in the Collateral.
The insurance acquired by the Agent may, but need not, protect the Company's
interest in the Collateral, and therefore such insurance may not pay claims
which the Company may have with respect to the Collateral or pay any claim which
may be made against the Company in connection with the Collateral. In the event
the Agent purchases, obtains or acquires insurance covering all or any portion
of the Collateral, the Company shall be responsible for all of the applicable
costs of such insurance, including premiums, interest (at the applicable
JPMorgan Chase Bank Rate for Revolving Loans set forth in paragraph 8.1 of
Section 8 hereof), fees and any other charges with respect thereto, until the
effective date of the cancellation or the expiration of such insurance. The
Agent may charge all of such premiums, fees, costs, interest and other charges
to the Company's Revolving Loan Account. The Company hereby acknowledges that
the costs of the premiums of any insurance acquired by the Agent may exceed the
costs of insurance which the Company may be able to purchase on its own. In the
event that the Agent purchases such insurance, the Agent will notify the Company
of said purchase within thirty (30) days of the date of such purchase. If,
within thirty (30) days after the date of such notice, the Company provides the
Agent with proof that the Company had the insurance coverage required pursuant
to 7.5(a) above (in form and substance satisfactory to the Agent) as of the date
on which the Agent purchased insurance and the Company continued at all times to
have such insurance, then the Agent agrees to cancel the insurance purchased by
the Agent and credit the Company's Revolving Loan Account with the amount of all
costs, interest and other charges associated with any insurance purchased by the
Agent, including with any amounts previously charged to the Revolving Loan
Account.
7.6. The Company agrees to pay, when due, all Taxes, including sales taxes,
assessments, claims and other charges lawfully levied or assessed upon the
Company or the Collateral unless such Taxes are being diligently contested in
good faith by the Company by appropriate proceedings and adequate reserves are
established in accordance with GAAP. Notwithstanding the foregoing, if any lien
shall be filed or claimed thereunder (a) for Taxes due the United States of
America, or (b) which in the Agent's reasonable opinion might create a valid
obligation having priority over the rights granted to the Agent herein
(exclusive of Real Estate), such lien shall not be deemed to be a Permitted
Encumbrance hereunder and the Company shall immediately pay such tax and remove
the lien of record. If the Company fails to do so promptly, then at the Agent's
election, the Agent may (i) create an Availability Reserve in such amount as it
may deem appropriate in its business judgment, or (ii) upon the occurrence of a
Default or Event of Default, imminent risk of seizure, filing of any priority
lien, forfeiture, or sale of the Collateral, pay Taxes on the Company's behalf,
and the amount thereof shall be an Obligation secured hereby and due on demand.
32
7.7. The Company: (a) agrees to comply with all acts, rules,
regulations and orders of any legislative, administrative or judicial body or
official, which the failure to comply with would have a material and adverse
impact on the Collateral, or any material part thereof, or on the business or
operations of the Company, provided that the Company may contest any acts,
rules, regulations, orders and directions of such bodies or officials in any
reasonable manner which will not, in the Agent's reasonable opinion, materially
and adversely effect the Agent's and/or the Lender's rights or priority in the
Collateral; (b) agrees to comply with all environmental statutes, acts, rules,
regulations or orders as presently existing or as adopted or amended in the
future, applicable to the Collateral, the ownership and/or use of its real
property and operation of its business, which the failure to comply with would
have a material and adverse impact on the Collateral, or any material part
thereof, or on the operation of the business of the Company; and (c) shall not
be deemed to have breached any provision of this Paragraph 7.7 if (i) the
failure to comply with the requirements of this Paragraph 7.7 resulted from good
faith error or innocent omission, (ii) the Company promptly commences and
diligently pursues a cure of such breach, and (iii) such failure is cured within
(30) days following the Company's receipt of notice of such failure, or if such
cannot in good faith be cured within thirty (30) days, then such breach is cured
within a reasonable time frame based upon the extent and nature of the breach
and the necessary remediation, and in conformity with any applicable consent
order, consensual agreement and applicable law.
7.8. Until termination of this Financing Agreement and payment and
satisfaction of all Obligations due hereunder, the Company agrees that, unless
the Agent shall have otherwise consented in writing, the Company will furnish to
the Agent and each Lender: (a) within ninety (90) days after the end of each
Fiscal Year of the Company or within one hundred and five (105) days after the
end of a Fiscal Year if the Company shall have filed for an extension with the
Securities Exchange Commission under Rule 12(b)(25) (or comparable rule) of the
rules and regulations adopted under the Securities Act of 1934, as amended (an
"Extension")), an audited Consolidated Balance Sheet, as at the close of such
year, and statements of profit and loss, cash flow and reconciliation of surplus
of the Company and its Subsidiaries for such year, audited by independent public
accountants selected by the Company and satisfactory to the Agent; (b) within
forty-five (45) days after the end of each Fiscal Quarter if no Extension has
been filed, or within fifty (50) days after the end of each Fiscal Quarter if an
Extension has been filed, a Consolidated Balance Sheet as at the end of such
period and statements of profit and loss, cash flow and surplus of the Company
and its Subsidiaries, certified by an authorized financial or accounting officer
of the Company; (c) within thirty (30) days after the end of each month of such
month is not also a month at the end of a Fiscal Quarter and within forty-five
(45) days after the end of each month if such month is also a month at the end
of a Fiscal Quarter, a Consolidated Balance Sheet as at the end of such period
and statements of profit and loss, cash flow and surplus of the Company and all
Subsidiaries for such period, certified by an authorized financial or accounting
officer of the Company; (d) within thirty (30) days prior to the beginning of
the Company's fiscal year, a month by month projected operating budget and
annual cash flow projections for such fiscal year in form reasonably
satisfactory to Agent, (e) from time to time, such further information regarding
the business affairs and financial condition of the Company and its Subsidiaries
as the Agent may reasonably request, including, without limitation the
accountant's management practice letter and (ii) annual cash flow projections in
form satisfactory to the Agent, and (f) within five (5) days after the end of
each month, a Borrowing Base
33
Certificate as and for the prior month. Each financial statement which the
Company is required to submit hereunder must be accompanied by an officer's
certificate, signed by the President, Vice President, Controller, Chief
Financial Officer or Treasurer, pursuant to which any one such officer must
certify that: (x) the financial statement(s) fairly and accurately represent(s)
the Company's financial condition at the end of the particular accounting
period, as well as the Company's operating results during such accounting
period, subject to year-end audit adjustments; and (y) during the particular
accounting period: (A) there has been no Default or Event of Default under this
Financing Agreement, provided, however, that if any such officer has knowledge
that any such Default or Event of Default, has occurred during such period, the
existence of and a detailed description of same shall be set forth in such
officer's certificate; (B) the Company has not received any notice of
cancellation with respect to its property insurance policies; (C) the Company
has not received any notice that could result in a material adverse effect on
the value of the Collateral taken as a whole; and (D) the exhibits attached to
such financial statement(s) constitute detailed calculations showing compliance
with all financial covenants contained in this Financing Agreement.
7.9. Until termination of the Financing Agreement and payment and
satisfaction of all Obligations hereunder, the Company agrees that, without the
prior written consent of the Agent, except as otherwise herein provided, the
Company will not:
(a) Mortgage, assign, pledge, transfer or otherwise permit any lien,
charge, security interest, encumbrance or judgment, (whether as a
result of a purchase money or title retention transaction, or
other security interest, or otherwise) to exist on any of the
Company's Collateral or any other assets, whether now owned or
hereafter acquired, except for the Permitted Encumbrances;
(b) Incur or create any Indebtedness other than the Permitted
Indebtedness;
(c) Sell, lease, assign, transfer or otherwise dispose of (i)
Collateral, except as otherwise specifically permitted by this
Financing Agreement, or (ii) either all or substantially all of
the Company's assets, which do not constitute Collateral;
(d) Merge, consolidate or otherwise alter or modify its corporate
name, principal place of business, structure, or existence,
re-incorporate or re-organize, or enter into or engage in any
operation or activity materially different from that presently
being conducted by the Company, except that the Company may
change its corporate name or address; provided that: (i) the
Company shall give the Agent thirty (30) days prior written
notice thereof and (ii) the Company shall execute and deliver,
prior to or simultaneously with any such action, any and all
documents and agreements requested by the Agent to confirm the
continuation and preservation of all security interests and liens
granted to the Agent hereunder;
(e) Assume, guarantee, endorse, or otherwise become liable upon the
obligations of any person, firm, entity or corporation, except by
the endorsement of
34
negotiable instruments for deposit or collection or similar
transactions in the ordinary course of business;
(f) Declare or pay any dividend or distributions of any kind on, or
purchase, acquire, redeem or retire, any of the capital stock or
equity interest, of any class whatsoever, whether now or
hereafter outstanding;
(g) Make any advance (other than advances for expenses in the
ordinary course of business) or loan to, or any investment in,
any firm, entity, person or corporation or purchase or acquire
all or substantially all of the stock or assets of any entity,
person or corporation; provided, however, if there is not then
existing an Event of Default or would exist after giving effect
thereto, the Company may acquire all or substantially all of the
assets of S.L. ▇▇▇▇▇▇▇▇, Inc., (the "SL ▇▇▇▇▇▇▇▇ Acquisition") so
long as (i) the SL ▇▇▇▇▇▇▇▇ Acquisition is made pursuant to terms
and documentation in form and substance reasonably satisfactory
to Agent, (ii) Agent is satisfied with the financial condition of
the Company after giving effect to the SL ▇▇▇▇▇▇▇▇ Acquisition,
(iii) the assets of SL ▇▇▇▇▇▇▇▇, Inc. shall be clear of all other
liens except Permitted Encumbrances and Agent shall obtain a
perfected first priority security interest therein and (iv) if
the assets are to be held by a Subsidiary of the Company, such
Subsidiary shall execute a joinder to this Financing Agreement in
form and substance satisfactory to Agent and shall execute and
deliver such other documents, certificates, agreements and
opinions as may be requested by Agent in its reasonable
discretion; or
(h) Pay any management, consulting or other similar fees to any
person, corporation or other entity affiliated with the Company
other than compensation arrangements made on an arm's-length
basis and approved by the Compensation Committee of the Company
and not exceeding a per annum compensation amount of $525,000 in
the aggregate for any person or entity.
7.10. Until termination of the Financing Agreement and payment and
satisfaction in full of all Obligations hereunder, the Company shall:
(a) maintain at the end of each Fiscal Quarter ending below a
Tangible Net Worth of not less than the amount set forth below
for the applicable period:
FISCAL QUARTER TANGIBLE NET WORTH
-------------- ------------------
(i) June 30, 2002 $7,000,000
(ii) September 30, 2002 $7,700,000
(iii) December 31, 2002 $5,500,000
(iv) March 31, 2003 $8,000,000
35
(v) June 30, 2003 $9,000,000
(vi) September 30, 2003 $9,750,000
(vii) December 31, 2003 $8,000,000
(viii) March 31, 2004 $11,000,000
(ix) June 30, 2004 $14,000,000
(x) September 30, 2004 $15,000,000
(xi) December 31, 2004 $13,000,000
(xii) March 31, 2005 $16,000,000
(xiii) June 30, 2005 $19,000,000
(b) maintain at the end of each Fiscal Quarter set forth
below a Fixed Charge Coverage Ratio of not less than
the ratio set forth below for the applicable period:
PERIOD RATIO
------ -----
(i) September 30, 2002 2.00 to 1.0
(ii) December 31, 2002 0.35 to 1.0
(iii) March 31, 2003 1.35 to 1.0
(iv) June 30, 2003 1.50 to 1.0
(v) September 30, 2003 1.50 to 1.0
(vi) December 31, 2003 1.50 to 1.0
(vii) March 31, 2004 1.50 to 1.0
(viii) June 30, 2004 1.50 to 1.0
(ix)September 30, 2004 1.50 to 1.0
(x) December 31, 2004 1.50 to 1.0
(xi) March 31, 2005 1.75 to 1.0
(xii) June 30, 2005 2.00 to 1.0
The foregoing ratio shall be calculated on a
cumulative quarterly basis during the first year from
the Closing Date and on a rolling four quarter
average thereafter.
(c) maintain at the end of each Fiscal Quarter set forth
below a Leverage Ratio of not more than the ratio set
forth below for the applicable period:
PERIOD RATIO
------ -----
(i) June 30, 2002 3.75 to 1.0
(ii) September 30, 2002 5.50 to 1.0
(iii) December 31, 2002 5.50 to 1.0
(iv) March 31, 2003 5.50 to 1.0
(v) June 30, 2003 3.00 to 1.0
(vi) September 30, 2003 4.00 to 1.0
36
(vii) December 31, 2003 4.00 to 1.0
(viii) March 31, 2004 4.00 to 1.0
(ix) June 30, 2004 2.00 to 1.0
(x) September 30, 2004 4.00 to 1.0
(xi) December 31, 2004 4.00 to 1.0
(xii) March 31, 2005 4.00 to 1.0
(xiii) June 30, 2005 2.00 to 1.0
(d) without the prior written consent of the Agent, the
Company will not:
(i) enter into any Operating Lease if after giving
effect thereto the aggregate obligations with respect
to Operating Leases of the Company during any Fiscal
Year would exceed $3,250,000.
(ii) contract for, purchase, make expenditures for,
lease pursuant to a Capital Lease or otherwise incur
obligations with respect to Capital Expenditures
(whether subject to a security interest or otherwise)
during any Fiscal Year in the aggregate amount in
excess of $1,000,000 for any Fiscal Year.
(e) maintain Availability as at the end of each month
(which for purposes of this calculation, month end
shall mean any day from the last day of any month
through and including the 5th Business Day of the
ensuing month) of not less than the amounts set forth
below as at the end of each month below:
MONTH END AVAILABILITY
--------- ------------
September 30, 2002 $3,000,000
October 31, 2002 $4,500,000
November 30, 2002 $4,500,000
December 31, 2002 $3,250,000
January 31, 2003 ($3,500,000)
February 28, 2003 $250,000
March 31, 2003 $3,500,000
April 30, 2003 $4,500,000
May 31, 2003 $7,500,000
June 30, 2003 $6,500,000
July 31, 2003 $3,500,000
August 31, 2003 $6,500,000
September 30, 2003 $6,000,000
October 31, 2003 $7,000,000
November 30, 2003 $7,500,000
December 31, 2003 $6,000,000
January 31, 2004 ($500,000)
February 29, 2004 $3,500,000
37
March 31, 2004 $7,500,000
April 30, 2004 $8,000,000
May 31, 2004 $8,000,000
June 30, 2004 $8,000,000
July 31, 2004 $3,500,000
August 31, 2004 $6,500,000
September 30, 2004 $6,000,000
October 31, 2004 $7,000,000
November 30, 2004 $8,000,000
December 31, 2004 $6,000,000
January 31, 2005 ($500,000)
February 28, 2005 $3,500,000
March 31, 2005 $7,500,000
April 30, 2005 $8,000,000
May 31, 2005 $8,000,000
June 30, 2005 $8,000,000
7.11. The Company agrees to advise the Agent in writing of: (a) all
expenditures (actual or anticipated) in excess of $150,000.00 from the budgeted
amount therefor in any Fiscal Year for (i) environmental clean-up, (ii)
environmental compliance or (iii) environmental testing and the impact of said
expenses on the Company's Working Capital; and (b) any notices the Company
receives from any local, state or federal authority advising the Company of any
environmental liability (real or potential) stemming from the Company's
operations, its premises, its waste disposal practices, or waste disposal sites
used by the Company and to provide the Agent with copies of all such notices if
so required.
7.12. The Company hereby agrees to indemnify and hold harmless the
Agent and its officers, directors, employees, attorneys and agents (each an
"Indemnified Party") from, and holds each of them harmless against, any and all
losses, liabilities, obligations, claims, actions, damages, costs and expenses
(including reasonable attorney's fees) and any payments made by the Agent
pursuant to any indemnity provided by the Agent with respect to or to which any
Indemnified Party is subject insofar as such losses, liabilities, obligations,
claims, actions, damages, costs, fees or expenses with respect to the Loan
Documents, including without limitation those which may arise from or relate to:
(a) the Depository Account, the Blocked Accounts, the lockbox and/or any other
depository account and/or the agreements executed in connection therewith, and
(b) any and all claims or expenses asserted against the Agent as a result of any
environmental pollution, hazardous material or environmental clean-up relating
to the Real Estate; or any claim or expense which results from the Company's
operations (including, but not limited to, the Company's off-site disposal
practices) and use of the Real Estate, which the Agent may sustain or incur
(other than solely as a result of the physical actions of the Agent on the
Company's premises which are determined to constitute gross negligence or
willful misconduct by a court of competent jurisdiction), all whether through
the alleged or actual negligence of such person or otherwise, except and to the
extent that the same results solely from the gross negligence or willful
misconduct of such Indemnified Party as finally determined by a court of
competent jurisdiction. The Company hereby agrees that this indemnity shall
survive termination of this Financing Agreement, as well as payments of
Obligations
38
which may be due hereunder. The Agent may, in its sole business judgment,
establish such Availability Reserves with respect thereto as it may deem
advisable under the circumstances and, upon any termination hereof, hold such
reserves as cash reserves for any such contingent liabilities.
7.13. Without the prior written consent of the Agent, the Company agrees
that it will not enter into any transaction, including, without limitation, any
purchase, sale, lease, loan or exchange of property with any affiliate of the
Company (other than a wholly-owned Subsidiary of the Company), provided that,
except as otherwise set forth in this Financing Agreement, the Company may enter
into sale and service transactions in the ordinary course of its business and
pursuant to the reasonable requirements of the Company, and upon standard terms
and conditions and fair and reasonable terms, no less favorable to the Company
than the Company could obtain in a comparable arms length transaction with an
unrelated third party, provided further that no Default or Event of Default
exists or will occur hereunder prior to and after giving effect to any such
transaction.
7.14. The Company hereby (a) represents that each of ▇▇▇▇▇▇▇ Chaus
International (Philippines), Inc., ▇▇▇▇▇▇▇ Chaus International (Taiwan), Inc.
and Chaus Specialists, Inc. are inactive corporations and have no material
assets (the "Inactive Subsidiaries"), and (b) agrees to dissolve the corporate
existence of each of the Inactive Subsidiaries by not later than December 24,
2002.
7.15. The Company shall maintain life insurance on ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ (the "JC
Life Insurance Policy") in the amount of not less than $18,000,000 and assign
the JC Life Insurance Policy to the Agent (in form and substance satisfactory to
the Agent) all rights under the Life Insurance Policy as additional collateral
for the Obligations (the "JC Life Insurance Assignments"), provided that the JC
Life Insurance Assignment shall be delivered to Agent not later than 30 days
after the Closing Date. In the event of a collection upon the life insurance
policy, the proceeds thereof up to $18,000,000 shall be applied to the
Obligations in such order as Agent shall determine in its reasonable discretion.
Should the Agent collect more than $18,000,000 with respect to the JC Insurance
Policy, the Agent and Lenders shall return to the Company that portion of the
proceeds which exceeds $18,000,000.
SECTION 8. INTEREST, FEES AND EXPENSES
8.1. (a) Interest on the Revolving Loans shall be payable monthly as of the
end of each month. JPMorgan Chase Bank Rate Loans shall be at a rate equal to
the sum of the JPMorgan Chase Bank Rate plus the Applicable Margin with respect
to Revolving Loans which are JPMorgan Chase Bank Rate Loans per annum on the
average of the net balances owing by the Company to the Agent in the Revolving
Loan Account at the close of each day during such month. Any change in the rate
of interest hereunder due to a change in the JPMorgan Chase Bank Rate will take
effect as of the first of the month following such change in the JPMorgan Chase
Prime Rate. The rate hereunder for JPMorgan Chase Bank Rate Loans shall be
calculated based on a 360-day year. The Agent shall be entitled to charge the
Company's Revolving Loan Account at the rate provided for herein when due until
all Obligations have been paid in full.
39
(b) Notwithstanding any provision to the contrary contained in this
section 8, in the event any Overadvance continues for twenty (20) or more days
in any month, the average net balance of all Overadvances for such month shall
bear interest at the Overadvance Rate.
(c) Upon and after the occurrence of an Event of Default and the giving of
any required notice by the Agent in accordance with the provisions of Section
10, Paragraph 10.2 hereof, all Obligations shall bear interest at the Default
Rate of Interest.
8.2. Interest on the Term Loan shall be payable monthly as of the end of
each month on the unpaid balance or on payment in full prior to maturity.
JPMorgan Chase Bank Rate Loans shall be in an amount equal to the sum of the
JPMorgan Chase Bank Rate plus the Applicable Margin with respect to such portion
of the Term Loan which is a JPMorgan Chase Bank Rate Loan. In the event of any
change in the rate of interest hereunder due to a change in the JPMorgan Chase
Bank Rate will take effect as of the first of the month following such change in
the JPMorgan Chase Prime Rate. The rate hereunder shall be calculated based on a
360 day year. The Agent shall be entitled to charge the Revolving Loan Account
at the rate provided for herein when due until all Obligations have been paid in
full.
8.3. In consideration of the Letter of Credit Guaranty of the Agent, the
Company shall pay the Agent the Letter of Credit Guaranty Fee which shall be an
amount equal to (a) one-eighth of one percent (1/8%) on the face amount of each
documentary Letter of Credit payable upon issuance thereof, (b) one-eighth of
one percent (1/8%) on the average daily face amount of each documentary Letter
of Credit, payable monthly in arrears on the first day of each month and
calculated on the basis of a 360 day year for the actual number of days elapsed
and (c) one-eighth of one percent (1/8%) per month, on the face amount of each
standby Letter of Credit less the amount of any and all amounts previously drawn
under such standby Letter of Credit.
8.4. Any and all charges, fees, commissions, costs and expenses charged to
the Agent for the Company's account by any Issuer in connection with, or arising
out of, Letters of Credit or out of transactions relating thereto will be
charged to the Revolving Loan Account in full when charged to, or paid by the
Agent, or as may be due upon any termination of this Financing Agreement hereof,
and when made by any such Issuer shall be conclusive on the Agent.
8.5. The Company shall reimburse or pay the Agent, as the case may be, for
all Out-of-Pocket Expenses.
8.6. (i) Upon the last Business Day of each month, commencing September 30,
2002, the Company shall pay to the Agent interest on the collection days.
Interest will be computed at the rate, and in the manner, set forth in Paragraph
8.1 of this Financing Agreement and (ii) upon the first day of each month,
commencing November 1, 2002, the Company shall pay to the Agent the Line of
Credit Fee in arrears.
8.7. To induce the Agent to enter into this Financing Agreement and to
extend to the Company the Revolving Loan, Letters of Credit Guaranties and the
Term Loan, the Company shall
40
pay to the Agent a Loan Facility Fee in the amount of $75,000.00 payable upon
execution of this Financing Agreement.
8.8. The Company shall pay the Agent's standard charges and fees for the
Agent's personnel used by the Agent for reviewing the books and records of the
Company and for verifying, testing, protecting, safeguarding, preserving or
disposing of all or any part of the Collateral (which fees shall be in addition
to any Out-of-Pocket Expenses, but in no event shall be duplicative of any other
fees or expenses set forth in this Agreement or the Loan Documents).
8.9. The Company hereby authorizes the Agent to charge the Revolving Loan
Account with the amount of all payments due hereunder as such payments become
due. The Company confirms that any charges which the Agent may so make to the
Revolving Loan Account as herein provided will be made as an accommodation to
the Company and solely at the Agent's discretion.
8.10. In the event that the Agent or any participant hereunder (or any
financial institution which may from time to time become a participant or lender
hereunder) shall have determined in the exercise of its reasonable business
judgment that, subsequent to the Closing Date, any change in applicable law,
rule, regulation or guideline regarding capital adequacy, or any change in the
interpretation or administration thereof, or compliance by the Agent or such
participant with any new request or directive regarding capital adequacy
(whether or not having the force of law) of any such authority, central bank or
comparable agency, has or would have the effect of reducing the rate of return
on the Agent's or such participant's capital as a consequence of its obligations
hereunder to a level below that which the Agent or such participant could have
achieved but for such adoption, change or compliance (taking into consideration
the Agent or such participant's policies with respect to capital adequacy) by an
amount reasonably deemed by the Agent or such participant to be material, then,
from time to time, the Company shall pay no later than five (5) days following
written notice to the Company, to the Agent or such participant such additional
amount or amounts as will compensate the Agent's or such participant's for such
reduction. In determining such amount or amounts, the Agent or such participant
may use any reasonable averaging or attribution methods. The protection of this
Paragraph 8.10 shall be available to the Agent or such participant regardless of
any possible contention of invalidity or inapplicability with respect to the
applicable law, regulation or condition. A certificate of the Agent or such
participant setting forth such amount or amounts as shall be necessary to
compensate the Agent or such participant with respect to this Section 8 and the
calculation thereof when delivered to the Company shall be conclusive on the
Company absent manifest error. Notwithstanding anything in this paragraph to the
contrary, in the event the Agent or such participant has exercised its rights
pursuant to this paragraph, and subsequent thereto determines that the
additional amounts paid by the Company in whole or in part exceed the amount
which the Agent or such participant actually required to be made whole, the
excess, if any, shall be returned to the Company by the Agent or such
participant.
8.11. In the event that any applicable law, treaty or governmental
regulation, or any change therein or in the interpretation or application
thereof, or compliance by the Agent or such participant with any request or
directive (whether or not having the force of law) from any central bank or
other financial, monetary or other authority, shall:
41
(a) subject the Agent or such participant to any tax of any kind
whatsoever with respect to this Financing Agreement or change the basis of
taxation of payments to the Agent or such participant of principal, fees,
interest or any other amount payable hereunder or under any other documents
(except for changes in the rate of tax on the overall net income of the Agent or
such participant by the federal government or the jurisdiction in which it
maintains its principal office);
(b) impose, modify or hold applicable any reserve, special deposit,
assessment or similar requirement against assets held by, or deposits in or for
the account of, advances or loans by, or other credit extended by the Agent or
such participant by reason of or in respect to this Financing Agreement and the
Loan Documents, including (without limitation) pursuant to Regulation D of the
Board of Governors of the Federal Reserve System; or
(c) impose on the Agent or such participant any other condition with
respect to this Financing Agreement or any other document, and the result of any
of the foregoing is to increase the cost to the Agent or such participant of
making, renewing or maintaining its loans hereunder by an amount that the Agent
or such participant deems to be material in the exercise of its reasonable
business judgment or to reduce the amount of any payment (whether of principal,
interest or otherwise) in respect of any of the loans by an amount that the
Agent or such participant deems to be material in the exercise of its reasonable
business judgment, then, in any case the Company shall pay the Agent or such
participant, within five (5) days following its written notice, such additional
cost or such reduction, as the case may be. The Agent or such participant shall
certify the amount of such additional cost or reduced amount to the Company and
the calculation thereof and such certification shall be conclusive upon the
Company absent manifest error. Notwithstanding anything in this paragraph to the
contrary, in the event the Agent or such participant has exercised its rights
pursuant to this paragraph, and subsequent thereto determine that the additional
amounts paid by the Company in whole or in part exceed the amount which the
Agent or such participant actually required pursuant hereto, the excess, if any,
shall be returned to the Company by the Agent or such participant.
8.12. The Company may request LIBOR Loans on the following terms and
conditions:
(a) The Company may elect, subsequent to the Closing Date and from time to
time thereafter (i) to request any loan made hereunder to be a LIBOR Loan as of
the date of such loan or (ii) to convert JPMorgan Chase Bank Rate Loans to LIBOR
Loans, and may elect from time to time to convert LIBOR Loans to JPMorgan Chase
Bank Rate Loans by giving the Agent at least three (3) Business Days' prior
irrevocable notice of such election, provided that any such conversion of LIBOR
Loans to JPMorgan Chase Bank Rate Loans shall only be made, subject to the
second following sentence, on the last day of an Interest Period with respect
thereto. Should the Company elect to convert JPMorgan Chase Bank Rate Loans to
LIBOR Loans, it shall give the Agent at least four Business Days' prior
irrevocable notice of such election. If the last day of an Interest Period with
respect to a loan that is to be converted is not a Business Day or Working Day,
then such conversion shall be made on the next succeeding Business Day or
Working Day, as the case may be, and during the period from such last day of an
Interest Period to such succeeding Business Day, as the case may be, such loan
shall bear interest as if it were an JPMorgan Chase Bank Rate Loan. All or any
part of outstanding JPMorgan Chase Bank Rate Loans then outstanding with respect
to Revolving Loans. The Term Loan may be converted to LIBOR Loans as provided
herein, provided
42
that partial conversions shall be in an aggregate principal amount of $500,000
or more and in multiples of $250,000. The aggregate amount of all LIBOR Loans
shall not exceed $20,000,000 at any time outstanding. The Agent shall be
entitled to charge the Company a $500 fee upon the first effective day of any
such election for a LIBOR Loan.
(b) Any LIBOR Loans may be continued as such upon the expiration of an
Interest Period, provided the Company so notifies the Agent, at least three (3)
Business Days' prior to the expiration of said Interest Period, and provided
further that no LIBOR Loan may be continued as such upon the occurrence of any
Default or Event of Default under this Financing Agreement, but shall be
automatically converted to a JPMorgan Chase Bank Rate Loan on the last day of
the Interest Period during which occurred such Default or Event of Default.
Absent such notification, LIBOR Rate Loans shall convert to JPMorgan Chase Bank
Rate Loans on the last day of the applicable Interest Period. Each notice of
election, conversion or continuation furnished by the Company pursuant hereto
shall specify whether such election, conversion or continuation is for a one,
two, three or six month period. Notwithstanding anything to the contrary
contained herein, the Agent (or any participant, if applicable) shall not be
required to purchase United States Dollar deposits in the London interbank
market or from any other applicable LIBOR Rate market or source or otherwise
"match fund" to fund LIBOR Rate Loans, but any and all provisions hereof
relating to LIBOR Rate Loans shall be deemed to apply as if the Agent (and any
participant, if applicable) had purchased such deposits to fund any LIBOR Rate
Loans.
(c) The Company may request a LIBOR Loan, convert any JPMorgan Chase Bank
Rate Loan or continue any LIBOR Loan provided there is then no Default or Event
of Default in effect.
8.13. (a) The LIBOR Loans shall bear interest for each Interest Period with
respect thereto on the unpaid principal amount thereof at a rate per annum equal
to the sum of LIBOR determined for each Interest Period in accordance with the
terms hereof plus the Applicable Margin with respect to Revolving Loans and the
Term Loan, respectively which are LIBOR Rate Loans.
(b) If all or a portion of the outstanding principal amount of the
Obligations shall not be paid when due (whether at the stated maturity, by
acceleration or otherwise), such outstanding amount, to the extent it is a LIBOR
Loan, shall be converted to a JPMorgan Chase Bank Rate Loan at the end of the
last Interest Period therefor.
(c) The Company may not have more than four (4) LIBOR Loans outstanding at
any given time.
8.14. (a) Interest in respect of the LIBOR Loans shall be calculated on the
basis of a 360 day year and shall be payable as of the end of each month.
(b) The Agent shall, at the request of the Company, deliver to the Company
a statement showing the quotations given by The JPMorgan Chase Manhattan Bank
and the computations used in determining any interest rate pursuant to Paragraph
8.13 of Section 8 hereof.
43
8.15. As further set forth in paragraph 8.11 above, in the event that the
Agent (or any financial institution which may become a participant hereunder)
shall have determined in the exercise of its reasonable business judgment (which
determination shall be conclusive and binding upon the Company) that by reason
of circumstances affecting the interbank LIBOR market, adequate and reasonable
means do not exist for ascertaining LIBOR applicable for any Interest Period
with respect to: (a) a proposed loan that the Company has requested be made as a
LIBOR Loan; (b) a LIBOR Loan that will result from the requested conversion of a
JPMorgan Chase Bank Rate Loan into a LIBOR Loan; or (c) the continuation of
LIBOR Loans beyond the expiration of the then current Interest Period with
respect thereto, the Agent shall forthwith give written notice of such
determination to the Company at least one day prior to, as the case may be, the
requested borrowing date for such LIBOR Loan, the conversion date of such
JPMorgan Chase Bank Rate Loan or the last day of such Interest Period. If such
notice is given (i) any requested LIBOR Loan shall be made as a JPMorgan Chase
Bank Rate Loan, (ii) any JPMorgan Chase Bank Rate Loan that was to have been
converted to a LIBOR Loan shall be continued as a JPMorgan Chase Bank Rate Loan,
and (iii) any outstanding LIBOR Loan shall be converted, on the last day of then
current Interest Period with respect thereto, to a JPMorgan Chase Bank Rate
Loan. Until such notice has been withdrawn by the Agent, no further LIBOR Loan
shall be made nor shall the Company have the right to convert a JPMorgan Chase
Bank Rate Loan to a LIBOR Loan.
8.16. If any payment on a LIBOR Loan becomes due and payable on a day other
than a Business Day or Working Day, the maturity thereof shall be extended to
the next succeeding Business Day or Working Day unless the result of such
extension would be to extend such payment into another calendar month in which
event such payment shall be made on the immediately preceding Business Day or
Working Day.
8.17. Notwithstanding any other provisions herein, if any law, regulation,
treaty or directive or any change therein or in the interpretation or
application thereof, shall make it unlawful for the Agent to make or maintain
LIBOR Loans as contemplated herein, the then outstanding LIBOR Loans, if any,
shall be converted automatically to JPMorgan Chase Bank Rate Loans as of the end
of such month, or within such earlier period as required by law. The Company
hereby agrees promptly to pay the Agent, upon demand, any additional amounts
necessary to compensate the Agent for any costs incurred by the Agent in making
any conversion in accordance with this Section 8 including, but not limited to,
any interest or fees payable by the Agent to lenders of funds obtained by the
Agent in order to make or maintain LIBOR Loans hereunder.
8.18. The Company agrees to indemnify and to hold the Agent (including any
participant) harmless from any loss or expense which the Agent or such
participant may sustain or incur as a consequence of: (a) Default by the Company
in payment of the principal amount of or interest on any LIBOR Loans, as and
when the same shall be due and payable in accordance with the terms of this
Financing Agreement, including, but not limited to, any such loss or expense
arising from interest or fees payable by the Agent or such participant to
lenders of funds obtained by either of them in order to maintain the LIBOR Loans
hereunder; (b) default by the Company in making a borrowing or conversion after
the Company has given a notice in accordance with Paragraph 8.12 of Section 8
hereof; (c) any prepayment of LIBOR Loans on a day which is not the last day of
the Interest Period applicable thereto, including, without limitation,
prepayments arising as a result of the application of
44
the proceeds of Collateral to the Revolving Loans; and (d) default by the
Company in making any prepayment after the Company had given notice to the Agent
thereof. The determination by the Agent of the amount of any such loss or
expense, when set forth in a written notice to the Company, containing the
Agent's calculations thereof in reasonable detail, shall be conclusive on the
Company in the absence of manifest error. Calculation of all amounts payable
under this paragraph with regard to LIBOR Loans shall be made as though the
Agent had actually funded the LIBOR Loans through the purchase of deposits in
the relevant market and currency, as the case may be, bearing interest at the
rate applicable to such LIBOR Loans in an amount equal to the amount of the
LIBOR Loans and having a maturity comparable to the relevant interest period;
provided, however, that the Agent may fund each of the LIBOR Loans in any manner
the Agent sees fit and the foregoing assumption shall be used only for
calculation of amounts payable under this paragraph. In addition,
notwithstanding anything to the contrary contained herein, the Agent shall apply
all proceeds of Collateral and all other amounts received by it from or on
behalf of the Company (i) initially to the JPMorgan Chase Bank Rate Loans and
(ii) subsequently to LIBOR Loans; provided, however, (x) upon the occurrence of
an Event of Default or (y) in the event the aggregate amount of outstanding
LIBOR Rate Loans exceeds Availability or the applicable maximum levels set forth
therefor, the Agent may apply all such amounts received by it to the payment of
Obligations in such manner and in such order as the Agent may elect in its
reasonable business judgment. In the event that any such amounts are applied to
Revolving Loans which are LIBOR Loans, such application shall be treated as a
prepayment of such loans and the Agent shall be entitled to indemnification
hereunder. This covenant shall survive termination of this Financing Agreement
and payment of the outstanding Obligations.
8.19. Notwithstanding anything to the contrary in this Agreement, in the
event that, by reason of any Regulatory Change (for purposes hereof "Regulatory
Change" shall mean, with respect to the Agent, any change after the date of this
Financing Agreement in United States federal, state or foreign law or
regulations (including, without limitation, Regulation D) or the adoption or
making after such date of any interpretation, directive or request applying to a
class of banks including the Agent of or under any United States federal, state
or foreign law or regulations (whether or not having the force of law and
whether or not failure to comply therewith would be unlawful), the Agent either
(a) incurs any material additional costs based on or measured by the excess
above a specified level of the amount of a category of deposits or other
liabilities of such bank which includes deposits by reference to which the
interest rate on LIBOR Loans is determined as provided in this Financing
Agreement or a category of extensions of credit or other assets of the Agent
which includes LIBOR Loans, or (b) becomes subject to any material restrictions
on the amount of such a category of liabilities or assets which it may hold,
then, if the Agent so elects by notice to the Company, the obligation of the
Agent to make or continue, or to convert JPMorgan Chase Bank Rate Loans into
LIBOR Loans hereunder shall be suspended until such Regulatory Change ceases to
be in effect.
8.20. For purposes of this Financing Agreement and Section 8 thereof, any
reference to the Agent shall include any financial institution which may become
a participant or co-lender subsequent to the Closing Date.
SECTION 9. POWERS
45
The Company hereby constitutes the Agent, or any person or agent the Agent
may designate, as its attorney-in-fact, at the Company's cost and expense, to
exercise all of the following powers, which being coupled with an interest,
shall be irrevocable until all Obligations to the Agent have been paid in full:
(a) To receive, take, endorse, sign, assign and deliver, all in the name
of the Agent or the Company, any and all checks, notes, drafts, and other
documents or instruments relating to the Collateral;
(b) To receive, open and dispose of all mail addressed to the Company and
to notify postal authorities to change the address for delivery thereof to such
address as the Agent may designate;
(c) To request from customers indebted on Accounts at any time, in the
name of the Agent information concerning the amounts owing on the Accounts;
(d) To request from customers indebted on Accounts at any time, in the
name of the Company, in the name of certified public accountant designated by
the Agent or in the name of the Agent's designee, information concerning the
amounts owing on the Accounts;
(e) To transmit to customers indebted on Accounts notice of the Agent's
interest therein and to notify customers indebted on Accounts to make payment
directly to the Agent for the Company's account; and
(f) To take or bring, in the name of the Agent or the Company, all steps,
actions, suits or proceedings deemed by the Agent necessary or desirable to
enforce or effect collection of the Accounts.
Notwithstanding anything hereinabove contained to the contrary, the powers
set forth in (b), (c), (e) and (f) above may only be exercised after the
occurrence of an Event of Default and until such time as such Event of Default
is waived in writing by the Agent.
SECTION 10. EVENTS OF DEFAULT AND REMEDIES
10.1. Notwithstanding anything hereinabove to the contrary, the Agent may
terminate this Financing Agreement immediately upon the occurrence of any of the
following Events of Default:
(a) cessation of the business of the Company or the calling of a
meeting of the creditors of the Company for purposes of
compromising the debts and obligations of the Company;
(b) the failure of the Company to generally meet its debts as they
mature;
(c) (i) the commencement by the Company of any bankruptcy,
insolvency, arrangement, reorganization, receivership or similar
proceedings under any federal or state law; (ii) the commencement
against the Company, of any bankruptcy, insolvency, arrangement,
reorganization, receivership or similar proceeding under any
46
federal or state law by creditors of the Company, provided that
such Default shall not be deemed an Event of Default if such
proceeding is controverted within ten (10) days and dismissed and
vacated within thirty (30) days of commencement, except in the
event that any of the actions sought in any such proceeding shall
occur or the Company shall take action to authorize or effect any
of the actions in any such proceeding; or (iii) the commencement
(x) by the Company's Subsidiaries, or any one of them, of any
bankruptcy, insolvency, arrangement, reorganization, receivership
or similar proceeding under any applicable state law, or (y)
against the Company's Subsidiaries, or any one of them, of any
involuntary bankruptcy, insolvency, arrangement, reorganization,
receivership or similar proceeding under applicable law, provided
that such Default shall not be deemed an Event of Default if such
proceeding is controverted within ten (10) days and dismissed or
vacated within thirty (30) days of commencement, except in the
event that any of the actions sought in any such proceeding shall
occur or the Company's Subsidiaries, or any one of them, shall
take action to authorize or effect any of the actions in any such
proceeding;
(d) breach by the Company in any material respect of any warranty,
representation or covenant contained herein (other than those
referred to in sub-paragraph (e) below) or in any other Loan
Documents or the Factoring Agreement, provided that such Default
by the Company of any of the warranties, representations or
covenants referred in this clause (d) shall not be deemed to be
an Event of Default unless and until such Default shall remain
unremedied to the Agent's satisfaction for a period of ten (10)
days from the date of such breach;
(e) breach by the Company in any material respect of any warranty,
representation or covenant of Paragraphs 3.3 (other than the
fourth sentence of Paragraph 3.3) and 3.4 of Section 3 hereof;
Paragraphs 6.3 and 6.4 (other than the first sentence of
Paragraph 6.4) of Section 6 hereof; Paragraphs 7.1, 7.5, 7.6, and
7.8 through 7.14 hereof and Paragraphs 4, 5, 6, 7, and 10 of the
Security Agreement-Accounts, Inventory, General Intangibles,
Equipment and Other Collateral;
(f) failure of the Company to pay any of the Obligations within five
(5) Business Days of the due date thereof, provided that nothing
contained herein shall prohibit the Agent from charging such
amounts to the Revolving Loan Account on the due date thereof;
(g) the Company shall (i) engage in any "prohibited transaction" as
defined in ERISA, (ii) have any "accumulated funding deficiency"
as defined in ERISA, (iii) have any "reportable event" as defined
in ERISA, (iv) terminate any
47
"plan", as defined in ERISA or (v) be engaged in any proceeding
in which the Pension Benefit Guaranty Corporation shall seek
appointment, or is appointed, as trustee or administrator of any
"plan", as defined in ERISA, and with respect to this
sub-paragraph (h) such event or condition (x) remains uncured for
a period of thirty (30) days from date of occurrence and (y)
could, in the reasonable opinion of the Agent, subject the
Company to any tax, penalty or other liability material to the
business, operations or financial condition of the Company;
(h) the occurrence of any default or event of default (after giving
effect to any applicable grace or cure periods) under any
instrument or agreement evidencing any Indebtedness of the
Company having a principal amount in excess of $250,000;
(i) (i) ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ ceases for any reason whatsoever (other than
as described in clause (iii)) to be actively engaged in the
management of the Company or (ii) either ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ for any
reason whatsoever or ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ due to her permanent
disability, ceases to be actively engaged in the management of
the Company unless provided no other Event of Default is
existing, a suitable replacement acceptable to Agent is in place
not later than 120 days after such disability or departure
(provided, however, in the event there is an existing Event of
Default at the time of such disability or departure, a suitable
replacement satisfactory to Agent shall be in place not later
than 60 days after such disability or departure) or (iii) in the
case of the death of ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, the Agent has obtained the
JC Life Insurance Assignment.
(ii) the stock of the Company presently held (directly or
indirectly) by ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ is transferred, provided that so
long as an Event of Default has not occurred and is continuing,
▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ may transfer stock (a) to any trust for the
benefit of her children and/grandchildren for estate planning
purposes, (b) so long as after giving effect to any such
transfer, (i) ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ and any trust for the benefit of
her children and/or grandchildren collectively hold more than 40%
of the issued and outstanding shares of the Company, (ii)
▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ and any trust for the benefit of her children
and/or grandchildren collectively are the largest shareholder of
the Company and (iii) ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ remains a director of the
Company or (c) to her estate upon her death so long as the Agent
has obtained the JC Life Insurance Assignment.
(j) the occurrence of any default or event of default (after giving
effect to any grace periods) under the Factoring Agreement or the
Factoring Agreement shall be terminated or the parties shall fail
to operate thereunder, other than the termination of the
Factoring Agreement by the Company in accordance with the
Factoring Termination Agreement.
48
10.2. Upon the occurrence of an Event of Default, the Agent in its sole
discretion may, or upon the written direction of the Required Lenders the Agent
shall, declare that, the making of all future loans, advances and extensions of
credit provided for in Sections 3, 4 and 5 of this Financing Agreement shall be
thereafter in the Agent's or the Required Lenders' sole discretion, and the
obligation of the Agent and/or the Lenders to make Revolving Loans, open Letters
of Credit and provide Letters of Credit Guaranties, shall cease unless such
Default or Event of Default is waived in writing by the Required Lenders or
cured to the Agent's or the Required Lenders' satisfaction in the exercise of
the Agent's and the Lenders' reasonable judgment. Upon the occurrence of an
Event of Default, the Agent in its sole discretion may, or upon the written
direction of the Required Lenders the Agent shall, declare that: (a) all
Obligations shall become immediately due and payable; (b) the Agent may charge
the Company the Default Rate of Interest on all then outstanding or thereafter
incurred Obligations in lieu of the interest provided for in Section 8 of this
Financing Agreement, provided that, with respect to this clause "(b)" the Agent
has given the Company written notice of the Event of Default, provided further
however, that no notice is required if the Event of Default is the Event listed
in Paragraph 10.1(c) of this Section 10; and (c) the Agent may immediately
terminate this Financing Agreement upon notice to the Company; provided,
however, that upon the occurrence of an Event of Default listed in Paragraph
10.1(c) of this Section 10, this Financing Agreement shall automatically
terminate and all Obligations shall become due and payable, without any action,
declaration, notice or demand by the Agent. The exercise of any option is not
exclusive of any other option, which may be exercised at any time by the Agent.
10.3. Immediately upon the occurrence of any Event of Default, the Agent
may, to the extent permitted by law: (a) remove from any premises where same may
be located any and all books and records, computers, electronic media and
software programs associated with any Collateral (including any electronic
records, contracts and signatures pertaining thereto), documents, instruments,
files and records, and any receptacles or cabinets containing same, relating to
the Accounts, or the Agent may use, at the Company's expense, such of the
Company's personnel, supplies or space at the Company's places of business or
otherwise, as may be necessary to properly administer and control the Accounts
or the handling of collections and realizations thereon; (b) bring suit, in the
name of the Company or the Agent, and generally shall have all other rights
respecting said Accounts, including without limitation the right to: accelerate
or extend the time of payment, settle, compromise, release in whole or in part
any amounts owing on any Accounts and issue credits in the name of the Company
or the Agent; (c) sell, assign and deliver the Collateral and any returned,
reclaimed or repossessed Inventory, at public or private sale, for cash, on
credit or otherwise, at the Agent's sole option and discretion, and the Agent
may bid or become a purchaser at any such sale, free from any right of
redemption, which right is hereby expressly waived by the Company; (d) foreclose
the security interests in the Collateral created herein or by the Loan Documents
by any available judicial procedure, or to take possession of any or all of the
Collateral, including any Inventory, Equipment and/or Other Collateral without
judicial process, and to enter any premises where any Inventory and Equipment
and/or Other Collateral may be located for the purpose of taking possession of
or removing the same; and (e) exercise any other rights and remedies provided in
law, in equity, by contract or otherwise. The Agent shall have the right,
without notice or advertisement, to sell, lease, or otherwise dispose of all or
any part of the Collateral, whether in its then condition or after further
preparation or processing, in the name of the Company or the Agent, or in the
name of
49
such other party as the Agent may designate, either at public or private sale or
at any broker's board, in lots or in bulk, for cash or for credit, with or
without warranties or representations (including but not limited to warranties
of title, possession, quiet enjoyment and the like), and upon such other terms
and conditions as the Agent in its sole discretion may deem advisable, and the
Agent shall have the right to purchase at any such sale. If any Inventory and
Equipment shall require rebuilding, repairing, maintenance or preparation, the
Agent shall have the right, at its option, to do such of the aforesaid as is
necessary, for the purpose of putting the Inventory and Equipment in such
saleable form as the Agent shall deem appropriate and any such costs shall be
deemed an Obligation hereunder. Any action taken by CIT pursuant to this
paragraph shall not effect commercial reasonableness of the sale. The Company
agrees, at the request of the Agent, to assemble the Inventory and Equipment and
to make it available to the Agent at premises of the Company or elsewhere and to
make available to the Agent the premises and facilities of the Company for the
purpose of the Agent's taking possession of, removing or putting the Inventory
and Equipment in saleable form. If notice of intended disposition of any
Collateral is required by law, it is agreed that ten (10) days notice shall
constitute reasonable notification and full compliance with the law. The net
cash proceeds resulting from the Agent's exercise of any of the foregoing
rights, (after deducting all charges, costs and expenses, including reasonable
attorneys' fees) shall be applied by the Agent to the payment of the
Obligations, whether due or to become due, in such order as the Agent may elect,
and the Company shall remain liable to the Agent for any deficiencies, and the
Agent in turn agrees to remit to the Company or its successors or assigns, any
surplus resulting therefrom. The enumeration of the foregoing rights is not
intended to be exhaustive and the exercise of any right shall not preclude the
exercise of any other rights, all of which shall be cumulative. The Company
hereby indemnifies the Agent and holds the Agent harmless from any and all
out-of-pocket costs, expenses, claims, liabilities, Out-of-Pocket Expenses or
otherwise, incurred or imposed on the Agent by reason of the exercise of any of
its rights, remedies and interests hereunder, including, without limitation,
from any sale or transfer of Collateral, preserving, maintaining or securing the
Collateral, defending its interests in Collateral (including pursuant to any
claims brought by the Company, the Company as debtor-in-possession, any secured
or unsecured creditors of the Company, any trustee or receiver in bankruptcy, or
otherwise), and the Company hereby agrees to so indemnify and hold the Agent
harmless, absent the Agent's gross negligence or willful misconduct as finally
determined by a court of competent jurisdiction. The foregoing indemnification
shall survive termination of this Financing Agreement until such time as all
Obligations (including the foregoing) have been finally and indefeasibly paid in
full. In furtherance thereof the Agent, may establish such reserves for
Obligations hereunder (including any contingent Obligations) as it may deem
advisable in its reasonable business judgment. Any applicable mortgage(s),
deed(s) of trust or assignment(s) issued to the Agent on the Real Estate shall
govern the rights and remedies of the Agent thereto.
SECTION 11. TERMINATION
11.1. Except as otherwise permitted herein, the Agent may terminate this
Financing Agreement only as of the initial or any subsequent Anniversary Date
and then only by giving the Company at least sixty (60) days prior written
notice of termination. Notwithstanding the foregoing the Agent may terminate the
Financing Agreement immediately upon the occurrence of an Event of Default,
provided, however, that if the Event of Default is an event listed in Paragraph
10.1(c) of Section 10 of this Financing Agreement, this Financing Agreement
shall terminate in accordance
50
with paragraph 10.2 of Section 10. This Financing Agreement, unless terminated
as herein provided, shall automatically continue from Anniversary Date to
Anniversary Date. Subject to the Factoring Termination Agreement, the Company
may terminate this Financing Agreement at any time upon sixty (60) days' prior
written notice to the Agent, provided that the Company pays to the Agent
immediately on demand an Early Termination Fee, if applicable. All Obligations
shall become due and payable as of any termination hereunder or under Section 10
hereof and, pending a final accounting, the Agent may withhold any balances in
the Company's account (unless supplied with an indemnity or letter of credit
satisfactory to the Agent) to cover all of the Obligations, whether absolute or
contingent, including, but not limited to, cash reserves for any contingent
Obligations, including an amount of 110% of the face amount of any outstanding
Letters of Credit with an expiry date on, or within thirty (30) days of the
effective date of termination of this Financing Agreement. All of the Agent's
rights, liens and security interests shall continue after any termination until
all Obligations have been paid and satisfied in full.
11.2. This Agreement shall automatically terminate simultaneously with the
termination of the Factoring Agreement unless the termination of the Factoring
Agreement is made in connection with a termination described in the Factoring
Termination Agreement.
SECTION 12. MISCELLANEOUS
12.1. The Company hereby waives diligence, notice of intent to accelerate,
notice of acceleration, demand, presentment and protest and any notices thereof
as well as notice of nonpayment. No delay or omission of the Agent or the
Company to exercise any right or remedy hereunder, whether before or after the
happening of any Event of Default, shall impair any such right or shall operate
as a waiver thereof or as a waiver of any such Event of Default. No single or
partial exercise by the Agent of any right or remedy precludes any other or
further exercise thereof, or precludes any other right or remedy.
12.2. This Financing Agreement and the Loan Documents executed and
delivered in connection therewith constitute the entire agreement between the
Company and the Agent; supersede any prior agreements; can be changed only by a
writing signed by both the Company and the Agent; and shall bind and benefit the
Company and the Agent and their respective successors and assigns.
12.3. In no event shall the Company, upon demand by the Agent for payment
of any Indebtedness relating hereto, by acceleration of the maturity thereof, or
otherwise, be obligated to pay interest and fees in excess of the amount
permitted by law. Regardless of any provision herein or in any agreement made in
connection herewith, the Agent shall never be entitled to receive, charge or
apply, as interest on any indebtedness relating hereto, any amount in excess of
the maximum amount of interest permissible under applicable law. If the Agent
ever receives, collects or applies any such excess, it shall be deemed a partial
repayment of principal and treated as such; and if principal is paid in full,
any remaining excess shall be refunded to the Company. This paragraph shall
control every other provision hereof, the Loan Documents and of any other
agreement made in connection herewith.
51
12.4. If any provision hereof or of any other agreement made in connection
herewith is held to be illegal or unenforceable, such provision shall be fully
severable, and the remaining provisions of the applicable agreement shall remain
in full force and effect and shall not be affected by such provision's
severance. Furthermore, in lieu of any such provision, there shall be added
automatically as a part of the applicable agreement a legal and enforceable
provision as similar in terms to the severed provision as may be possible.
12.5. THE COMPANY, THE LENDERS AND THE AGENT EACH HEREBY WAIVE ANY RIGHT TO
A TRIAL BY JURY IN ANY ACTION OR PROCEEDING ARISING OUT OF THE LOAN DOCUMENTS OR
THE TRANSACTIONS CONTEMPLATED THEREUNDER. THE COMPANY HEREBY IRREVOCABLY WAIVES
PERSONAL SERVICE OF PROCESS AND CONSENTS TO SERVICE OF PROCESS BY CERTIFIED OR
REGISTERED MAIL, RETURN RECEIPT REQUESTED. IN NO EVENT WILL THE AGENT BE LIABLE
FOR LOST PROFITS OR OTHER SPECIAL OR CONSEQUENTIAL DAMAGES.
12.6. Except as otherwise herein provided, any notice or other
communication required hereunder shall be in writing (provided that, any
electronic communications from the Company with respect to any request,
transmission, document, electronic signature, electronic mail or facsimile
transmission shall be deemed binding on the Company for purposes of this
Financing Agreement, provided further that any such transmission shall not
relieve the Company from any other obligation hereunder to communicate further
in writing), and shall be deemed to have been validly served, given or delivered
when hand delivered or sent by facsimile (with confirmation of receipt), or
three days after deposit in the United State mails, with proper first class
postage prepaid and addressed to the party to be notified or to such other
address as any party hereto may designate for itself by like notice, as follows:
(A) if to CIT, at:
The CIT Group/Commercial Services, Inc.
▇▇▇▇ ▇▇▇▇▇▇ ▇▇ ▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attn: Regional Credit Manager
Fax No.: ▇▇▇-▇▇▇-▇▇▇▇
(B) if to the Company at:
▇▇▇▇▇▇▇ Chaus, Inc.
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
Fax No.: ▇▇▇-▇▇▇-▇▇▇▇
With a courtesy copy of any material notice to the Company's
counsel at:
▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇▇ Shereff ▇▇▇▇▇▇▇▇ LLP
▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Esq.
Fax No.: ▇▇▇-▇▇▇-▇▇▇▇
provided, however, that the failure of the Agent to provide the Company's
counsel with a copy of such notice shall not invalidate any notice given to the
Company and shall not give the Company any rights, claims or defenses due to the
failure of the Agent to provide such additional notice.
12.7. THE VALIDITY, INTERPRETATION AND ENFORCEMENT OF THIS FINANCING
AGREEMENT AND THE OTHER LOAN DOCUMENTS SHALL BE GOVERNED BY THE LAWS OF THE
STATE OF NEW YORK, EXCEPT TO THE EXTENT THAT ANY OTHER LOAN DOCUMENT INCLUDES AN
EXPRESS ELECTION TO BE GOVERNED BY THE LAWS OF ANOTHER JURISDICTION.
SECTION 13. AGREEMENT BETWEEN THE LENDERS
13.1. (a) The Agent, for the account of the Lenders, shall disburse all
loans and advances to the Company and shall handle all collections of Collateral
and repayment of Obligations. It is understood that for purposes of advances to
the Company and for purposes of this Section 13 the Agent is using the funds of
the Agent.
(b) Unless the Agent shall have been notified in writing by any Lender
prior to any advance to the Company that such Lender will not make the amount
which would constitute its share of the borrowing on such date available to the
Agent, the Agent may assume that such Lender shall make such amount available to
the Agent on a Settlement Date, and the Agent may, in reliance upon such
assumption, make available to the Company a corresponding amount. A certificate
of the Agent submitted to any Lender with respect to any amount owing under this
subsection shall be conclusive, absent manifest error. If such Lender's share of
such borrowing is not in fact made available to the Agent by such Lender on the
Settlement Date, the Agent shall be entitled to recover such amount with
interest thereon at the rate per annum applicable to Revolving Loans hereunder,
on demand, from the Company without prejudice to any rights which the Agent may
have against such Lender hereunder. Nothing contained in this subsection shall
relieve any Lender which has failed to make available its ratable portion of any
borrowing hereunder from its obligation to do so in accordance with the terms
hereof. Nothing contained herein shall be deemed to obligate the Agent to make
available to the Company the full amount of a requested advance when the Agent
has any notice (written or otherwise) that any of the Lenders will not advance
its ratable portion thereof.
13.2. On the Settlement Date, the Agent and the Lenders shall each remit to
the other, in immediately available funds, all amounts necessary so as to ensure
that, as of the Settlement Date, the Lenders shall have their proportionate
share of all outstanding Obligations.
13.3. The Agent shall forward to each Lender, at the end of each month, a
copy of the account statement rendered by the Agent to the Company.
53
13.4. The Agent shall, after receipt of any interest and fees earned under
this Financing Agreement, promptly remit to the Lenders: (a) their pro rata
portion of all fees, provided, however, that the Lenders (other than CIT in its
role as the Agent) shall (i) not share in the Collateral Management Fee or the
fees provided for in Section 8, Paragraph 8.11; and (ii) receive their share of
the Loan Facility Fee in accordance with their respective agreements with the
Agent; (b) interest computed at the rate and as provided for in Section 8 of
this Financing Agreement on all outstanding amounts advanced by the Lenders on
each Settlement Date, prior to adjustment, that are subsequent to the last
remittance by the Agent to the Lenders of the Company's interest; (c) its pro
rata portion of all principal repaid on the Term Loan; and (d) interest on the
Term Loan computed at the rate and as provided for in Section 8 of this
Financing Agreement.
13.5. (a) The Company acknowledges that each Lender, with the prior written
consent of the Agent, may sell participation in the loans and extensions of
credit made and to be made to the Company hereunder to one or more Eligible
Assignees; provided, however, that (i) each such sale shall be of a constant,
and not a varying, percentage of all of the selling Lender's rights and
obligations under this Agreement, (ii) the amount of the Commitment of the
selling Lender that is subject to such sale shall in no event be less than
$5,000,000 (the "Minimum Commitment"), (iii) in the case of a partial sale, the
amount of the Commitment that is retained by the selling Lender shall in no
event be less than the Minimum Commitment, (iv) such sale shall not, without the
express consent of the Company, require the Company to file a registration
statement with the Securities and Exchange Commission or apply to or qualify any
of the loans or extensions of credit under the blue sky laws of any state, and
(v) the Lender provides notice to the Company of the identity of the Eligible
Assignee. The Company acknowledges that the Lenders may grant to such Eligible
Assignees certain rights which would require the Eligible Assignee's consent to
certain waivers, amendments and other actions with respect to the provisions of
this Financing Agreement, provided that the consent of any such Eligible
Assignee shall not be required except for matters requiring the consent of all
Lenders hereunder as set forth in Section 13, Paragraph 13.10 hereof.
(b) The Company authorize each Lender to disclose to any Eligible Assignee
(each, a "Transferee") and any prospective Transferee any and all financial
information in such Lender's possession concerning the Company and their
affiliates which has been delivered to such Lender by or on behalf of the
Company pursuant to this Agreement or which has been delivered to such Lender by
or on behalf of the Company in connection with such Lender's credit evaluation
of the Company and their affiliates prior to entering into this Agreement,
provided that such Transferee agrees to hold such information in confidence in
the ordinary course of its business.
(c) At the request of Agent from time to time both before and after the
Closing Date, the Company will assist Agent in the syndication of the credit
facility provided pursuant to this Financing Agreement and the other Loan
Documents. Such assistance shall include, but not be limited to (i) prompt
assistance in the preparation of an information memorandum and the verification
of the completeness and accuracy of the information and the reasonableness of
the projections contained therein, (ii) preparation of offering materials and
financial projections by the Company and its advisors, (iii) providing Agent
with all information reasonably deemed necessary by Agent to successfully
complete the syndication, (iv) confirmation as to the accuracy and
54
completeness of such offering materials and information and confirmation that
management's projections are based on assumptions believed by the Loan Parties
to be reasonable at the time made, and (v) participation of the Company's senior
management in meetings and conference calls with potential lenders at such times
and places as Agent may reasonably request.
13.6. The Company hereby agree that each Lender is solely responsible for
its portion of the Line of Credit and that neither the Agent nor any Lender
shall be responsible for, nor assume any obligations for the failure of any
Lender to make available its portion of the Line of Credit. Further, should any
Lender refuse to make available its portion of the Line of Credit, then the
other Lender may, but without obligation to do so, increase, unilaterally, its
portion of the Line of Credit in which event the Company are so obligated to
that other Lender.
13.7. In the event that the Agent, the Lenders or any one of them is sued
or threatened with suit by the Company or any one of them, or by any receiver,
trustee, creditor or any committee of creditors on account of any preference,
voidable transfer or lender liability issue, alleged to have occurred or been
received as a result of, or during the transactions contemplated under this
Financing Agreement, then in such event any money paid in satisfaction or
compromise of such suit, action, claim or demand and any expenses, costs and
attorneys' fees paid or incurred in connection therewith, whether by the Agent,
the Lenders or any one of them, shall be shared proportionately by the Lenders.
In addition, any costs, expenses, fees or disbursements incurred by outside
agencies or attorneys retained by the Agent to effect collection or enforcement
of any rights in the Collateral, including enforcing, preserving or maintaining
rights under this Financing Agreement shall be shared proportionately between
and among the Lenders to the extent not reimbursed by the Company or from the
proceeds of Collateral. The provisions of this paragraph shall not apply to any
suits, actions, proceedings or claims that (x) predate the date of this
Financing Agreement or (y) are based on transactions, actions or omissions that
predate the date of this Financing Agreement.
13.8. Each of the Lenders agrees with each other Lender that any money or
assets of the Company held or received by such Lender, no matter how or when
received, shall be applied to the reduction of the Obligations (to the extent
permitted hereunder) after (x) the occurrence of an Event of Default and (y) the
election by the Required Lenders to accelerate the Obligations. In addition, the
Company authorize, and the Lenders shall have the right, without notice, upon
any amount becoming due and payable hereunder, to set-off and apply against any
and all property held by, or in the possession of such Lender the Obligations
due such Lenders.
13.9. The Agent shall have the right at any time to assign to one or more
Eligible Assignees all or a portion of its rights and obligations under this
Financing Agreement (including, without limitation, its obligations under the
Line of Credit, the Term Loan, the Revolving Loans and its rights and
obligations with respect to Letters of Credit). Subject to the provisions set
forth below, upon execution of an Assignment and Transfer Agreement, (a) the
Eligible Assignee thereunder shall be a party hereto and, to the extent that
rights and obligations hereunder have been assigned to it pursuant to such
assignment, have the rights and obligations of the Agent as the case may be
hereunder and (b) the Agent shall, to the extent that rights and obligations
hereunder have been assigned by it pursuant to such assignment, relinquish its
rights and be released from its obligations under this Financing Agreement. The
Agent may not assign any of its rights or obligations as an
55
Agent hereunder and may only resign as Agent in accordance with Section 14.9 of
this Agreement. The Company shall, if necessary, execute any documents
reasonably required to effectuate the assignments. No other Lender may assign
its interest in the loans and advances and extensions of credit hereunder
without the prior written consent of the Agent. In the event that the Agent
consents to any such assignment by any other Lenders (i) the assignee must be an
Eligible Assignee, (ii) the amount being assigned shall in no event be less than
the lesser of (x) $5,000,000 or (y) the entire interest of such Lender
hereunder, (iii) such assignment shall be of a pro-rata portion of all of such
assigning Lender's loans and commitments hereunder, (iv) the parties to such
assignment shall execute and deliver to the Agent an Assignment and Transfer
Agreement, (v) such assignment shall not, without the express consent of the
Company, require the Company to file a registration statement with the
Securities and Exchange Commission or apply to or qualify any of the loans or
extensions of credit under the blue sky laws of any state, (vi) the Lender
provides notice to the Company of the identity of the Eligible Assignee and
(vii) after giving effect to such transfer, unless an Event of Default is then
existing, CIT's Commitment shall exceed the Commitments of any other Lenders.
SECTION 14. AGENCY
14.1. Each Lender hereby irrevocably designates and appoints CIT as the
Agent for the Lenders under this Financing Agreement and any ancillary loan
documents and irrevocably authorizes CIT as the Agent for such Lender, to take
such action on its behalf under the provisions of this Financing Agreement and
all ancillary documents and to exercise such powers and perform such duties as
are expressly delegated to the Agent by the terms of this Financing Agreement
and all ancillary documents together with such other powers as are reasonably
incidental thereto. Notwithstanding any provision to the contrary elsewhere in
this Financing Agreement, the Agent shall not have any duties or
responsibilities, except those expressly set forth herein, or any fiduciary
relationship with any Lender and no implied covenants, functions,
responsibilities, duties, obligations or liabilities shall be read into this
Financing Agreement and the ancillary documents or otherwise exist against the
Agent.
14.2. The Agent may execute any of its duties under this Financing
Agreement and all ancillary documents by or through agents or attorneys-in-fact
and shall be entitled to the advice of counsel concerning all matters pertaining
to such duties.
14.3. Neither the Agent nor any of its officers, directors, employees,
agents, or attorneys-in-fact shall be (i) liable to any Lender for any action
lawfully taken or omitted to be taken by it or such person under or in
connection with this Financing Agreement and all ancillary documents (except for
its or such person's own gross negligence or willful misconduct), or (ii)
responsible in any manner to any of the Lenders for any recitals, statements,
representations or warranties made by the Company or any officer thereof
contained in this Financing Agreement and all ancillary documents or in any
certificate, report, statement or other document referred to or provided for in,
or received by the Agent under or in connection with, this Financing Agreement
and all ancillary documents or for the value, validity, effectiveness,
genuineness, enforceability or sufficiency of this Financing Agreement and all
ancillary documents or for any failure of the Company to perform their
obligations thereunder. The Agent shall not be under any obligation to any
Lender to ascertain or to inquire as to
56
the observance or performance of any of the agreements contained in, or
conditions of, this Financing Agreement and all ancillary documents or to
inspect the properties, books or records of the Company.
14.4. The Agent shall be entitled to rely, and shall be fully protected in
relying, upon any note, writing, resolution, notice, consent, certificate,
affidavit, letter, cablegram, telegram, telecopy, telex or teletype message,
statement, order or other document or conversation believed by it to be genuine
and correct and to have been signed, sent or made by the proper person or
persons and upon advice and statements of legal counsel (including, without
limitation, counsel to the Company), independent accountants and other experts
selected by the Agent. The Agent shall be fully justified in failing or refusing
to take any action under this Financing Agreement and all ancillary documents
unless it shall first receive such advice or concurrence of the Lenders, or the
Required Lenders, as the case may be, as it deems appropriate or it shall first
be indemnified to its satisfaction by the Lenders against any and all liability
and expense which may be incurred by it by reason of taking or continuing to
take any such action. The Agent shall in all cases be fully protected in acting,
or in refraining from acting, under this Financing Agreement and all ancillary
documents in accordance with a request of the Lenders, or the Required Lenders,
as the case may be, and such request and any action taken or failure to act
pursuant thereto shall be binding upon all the Lenders.
14.5. The Agent shall not be deemed to have knowledge or notice of the
occurrence of any Default or Event of Default hereunder unless the Agent has
received written notice from a Lender or the Company describing such Default or
Event of Default. In the event that the Agent receives such a notice, the Agent
shall promptly give notice thereof to the Lenders. The Agent shall take such
action with respect to such Default or Event of Default as shall be reasonably
directed by the Lenders, or Required Lenders, as the case may be; provided that
unless and until the Agent shall have received such direction, the Agent may in
the interim (but shall not be obligated to) take such action, or refrain from
taking such action, with respect to such Default or Event of Default as it shall
deem advisable and in the best interests of the Lenders. In the event the Agent
in its sole discretion, or at the request of the Required Lenders, continues to
make Revolving Loans and advances under this Financing Agreement upon the
occurrence of a Default or Event of Default, any such Revolving Loans and
advances may be in such amounts (subject to Paragraph 14.10 hereof) and on such
additional terms and conditions as the Agent or the Required Lenders may deem
appropriate.
14.6. Each Lender expressly acknowledges that neither the Agent nor any of
its officers, directors, employees, agents or attorneys-in-fact has made any
representations or warranties to it and that no act by the Agent hereinafter
taken, including any review of the affairs of the Company shall be deemed to
constitute any representation or warranty by the Agent to any Lender. Each
Lender represents to the Agent that it has, independently and without reliance
upon the Agent or any other Lender and based on such documents and information
as it has deemed appropriate, made its own appraisal of and investigation into
the business, operations, property, financial and other condition and
creditworthiness of the Company and made its own decision to enter into this
Financing Agreement. Each Lender also represents that it will, independently and
without reliance upon the Agent or any other Lender and based on such documents
and information as it shall deem appropriate at the time, continue to make its
own credit analysis, appraisals and decisions in taking or not taking action
under the Financing Agreement and to make such investigation as it deems
57
necessary to inform itself as to the business, operations, property, financial
and other condition or creditworthiness of the Company. The Agent, however,
shall provide the Lenders with copies of all financial statements, projections
and business plans which come into the possession of the Agent or any of its
officers, employees, agents or attorneys-in-fact.
14.7. (a) The Lenders agree to indemnify the Agent in its capacity as such
(to the extent not reimbursed by the Company and without limiting the obligation
of the Company to do so), from and against any and all liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses or
disbursements (including, without limitation, all Out-of-Pocket Expenses) of any
kind whatsoever (including negligence on the part of the Agent) which may at any
time be imposed on, incurred by or asserted against the Agent in any way
relating to or arising out of this Financing Agreement or any ancillary
documents or any documents contemplated by or referred to herein or the
transactions contemplated hereby or any action taken or omitted by the Agent
under or in connection with any of the foregoing; provided that no Lender shall
be liable for the payment of any portion of such liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses or
disbursements resulting solely from the Agent's gross negligence or willful
misconduct. The agreements in this paragraph shall survive the payment of the
Obligations.
(b) The Agent will use its reasonable business judgment in handling the
collection of the Accounts, enforcement of its rights hereunder and realization
upon the Collateral but shall not be liable to the Lenders for any action taken
or omitted to be taken in good faith or on the written advice of counsel. The
Lenders expressly release the Agent from any and all liability and
responsibility (express or implied), for any loss, depreciation of or delay in
collecting or failing to realize on any Collateral, the Obligations or any
guaranties therefor and for any mistake, omission or error in judgment in
passing upon or accepting any Collateral or in making (or in failing to make)
examinations or audits or for granting indulgences or extensions to the Company,
any account debtor or any guarantor, other than resulting from the Agent's gross
negligence or willful misconduct.
14.8. The Agent may make loans to, and generally engage in any kind of
business with the Company as though the Agent were not the Agent hereunder. With
respect to its loans made or renewed by it or loan obligations hereunder as
Lender, the Agent shall have the same rights and powers, duties and liabilities
under this Financing Agreement as any Lender and may exercise the same as though
it was not the Agent and the terms "Lender" and "Lenders" shall include the
Agent in its individual capacity.
14.9. The Agent may resign as the Agent upon 30 days' written notice to the
Lenders and such resignation shall be effective upon the appointment of a
successor Agent. If the Agent shall resign or be removed as Agent, then the
Lenders shall appoint a successor Agent for the Lenders whereupon such successor
Agent, so long as no Event of Default shall have occurred, be subject to the
approval of the Company (which approval shall not be unreasonably withheld)
whereupon such successor agent shall succeed to the rights, powers and duties of
the Agent and the term "Agent" shall mean such successor agent effective upon
its appointment, and the former Agent's rights, powers and duties as Agent shall
be terminated, without any other or further act or deed on the part of such
former Agent or any of the parties to this Financing Agreement. After any
retiring Agent's resignation hereunder as the Agent the provisions of this
Section 14 shall inure to its benefit as to any
58
actions taken or omitted to be taken by it while it was the Agent.
14.10. Notwithstanding anything contained in this Financing Agreement to
the contrary, the Agent will not, without the prior written consent of all
Lenders: (a) amend the Financing Agreement to (i) increase the Line of Credit;
(ii) reduce the interest rates; (iii) reduce or waive (x) any fees in which the
Lenders share hereunder, or (y) the repayment of any Obligations due the
Lenders; (iv) extend the maturity of the Obligations; or (v) alter or amend (x)
this Paragraph 14.10 or (y) the definitions of Eligible Accounts Receivable,
Eligible Inventory, Inventory Loan Cap, Collateral or Required Lenders, or (vi)
increase the advance percentages against Eligible Accounts Receivable or
Eligible Inventory or alter or amend the Agent's criteria for determining
compliance with such definitions of Eligible Accounts Receivable and/or Eligible
Inventory if the effect thereof is to increase Availability; (b) except as
otherwise required in this Financing Agreement, release any guaranty or
Collateral in excess of $500,000 during any year, or (c) knowingly make any
Revolving Loan or assist in opening any Letter of Credit hereunder if after
giving effect thereto the total of Revolving Loans and Letters of Credit
hereunder for the Company would exceed one hundred and ten percent (110%) of the
maximum amount available under this Financing Agreement (the portion in excess
of 100% of such maximum available amount shall be referred to herein as the
"Agent Permitted Overadvances"), provided that the Agent shall not be entitled
to continue to knowingly make such Agent Permitted Overadvances for a period in
excess of ninety (90) days without the Lenders' consent, and provided further
that the foregoing limitations shall not prohibit or restrict advances by the
Agent to preserve and protect Collateral. Subject to the provisions of Section
12, Paragraph 12.2 and the provisions of this Paragraph 14.10 of Section 14 of
this Financing Agreement, in all other respects the Agent is authorized by each
of the Lenders to take such actions or fail to take such actions under this
Financing Agreement if the Agent, in its reasonable discretion, deems such to be
advisable and in the best interest of the Lenders. Notwithstanding any provision
to the contrary contained in this Financing Agreement (including the provisions
of Section 12, Paragraph 12.2 and Section 14, Paragraph 14.10 hereof) the Agent
is authorized to take such actions or fail to take such actions in connection
with (a) the exercise of (i) any and all rights and remedies under this
Financing Agreement (including but not limited to the exercise of rights and
remedies under Section 10, Paragraph 10.2 of this Financing Agreement) and (ii)
its discretion in (x) determining compliance with the eligibility requirements
of Eligible Accounts Receivable and/or Eligible Inventory and establishing
reserves against Availability in connection therewith and/or (y) the making of
Agent Permitted Overadvances, and/or (b) the release of Collateral not to exceed
$250,000 in the aggregate during any Fiscal Year, and/or (c) curing any
ambiguity, defect or inconsistency in the terms of this Financing Agreement;
provided that the Agent, in its reasonable discretion, deems such to be
advisable and in the best interests of the Lenders. In the event the Agent
terminates this Financing Agreement pursuant to the terms hereof, the Agent will
cease making any loans or advances upon the effective date of termination except
for any loans or advances which the Agent deems, in its sole discretion, are
reasonably required to maintain, protect or realize upon the Collateral.
14.11. In the event any Lender's consent is required pursuant to the
provisions of this Financing Agreement and such Lender does not respond to any
request by the Agent for such consent within 10 days after such request is made
to such Lender, such failure to respond shall be deemed a consent. In addition,
in the event that any Lender declines to give its consent to any such request,
it
59
is hereby mutually agreed that the Agent and/or any other Lender shall have the
right (but not the obligation) to purchase such Lender's share of the Loans for
the full amount thereof together with accrued interest thereon to the date of
such purchase.
14.12. Each Lender agrees that notwithstanding the provisions of Section 11
of this Financing Agreement any Lender may terminate this Financing Agreement
and the Line of Credit only as of the initial or any subsequent Anniversary Date
and then only by giving the Agent 90 days prior written notice thereof. Within
30 days after receipt of any such termination notice, the Agent shall, at its
option, either (i) give notice of termination to the Company hereunder or (ii)
purchase, or arrange for the purchase of, the Lender's share of the Obligations
hereunder for the full amount thereof plus accrued interest thereon. Unless so
terminated this Financing Agreement and the Line of Credit shall be
automatically extended from Anniversary Date to Anniversary Date. Termination of
this Financing Agreement by any of the Lenders as herein provided shall not
affect the Lenders' respective rights and obligations under this Financing
Agreement incurred prior to the effective date of termination as set forth in
the preceding sentence.
14.13. If the Agent is required at any time to return to the Company or to
a trustee, receiver, liquidator, custodian or other similar official any portion
of the payments made by the Company to the Agent as result of a bankruptcy or
similar proceeding with respect to the Company, any guarantor or any other
person or entity or otherwise, then each Lender shall, on demand of the Agent,
forthwith return to the Agent its ratable share of any such payments made to
such Lender by the Agent, together with its ratable share of interest and/or
penalties, if any, payable by the Lenders; this provision shall survive the
termination of this Financing Agreement.
14.14. The Lenders agree to maintain the confidentiality of any non-public
information provided by the Company to them, in the ordinary course of their
business, provided that the foregoing confidentiality provision shall terminate
one (1) year after the termination date of this Financing Agreement, and
provided further that any such Lenders may disclose such information (i) to any
applicable bank regulatory and auditor personnel and (ii) upon the advise of
their counsel that such disclosure is required by applicable law or court.
14.15. Nothing contained in this Agreement shall be deemed to amend, modify
or otherwise affect in any manner whatsoever the terms and provisions of and the
rights and remedies available to CIT in its capacity as factor under the
Factoring Agreement.
60
IN WITNESS WHEREOF, the parties hereto have caused this Financing Agreement
to be effective, executed, accepted and delivered by their proper and duly
authorized officers as of the date set forth above.
THE CIT GROUP/COMMERCIAL SERVICES, INC., AS
AGENT AND LENDER
BY: /s/ ▇▇▇▇ ▇▇▇▇▇▇▇
-----------------------------------
NAME: ▇▇▇▇ ▇▇▇▇▇▇▇
TITLE: Vice President
▇▇▇▇▇▇▇ CHAUS, INC.
BY: /s/ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
-----------------------------------
NAME: ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
TITLE: Vice Chairman of the Board and
Chief Operating Officer
61
EXHIBIT A
TERM LOAN PROMISSORY NOTE
Dated as of September 27, 2002
$10,500,000.00
FOR VALUE RECEIVED, the undersigned, ▇▇▇▇▇▇▇ Chaus, Inc., a New York corporation
(the "Company"), promises to pay to the order of THE CIT GROUP/COMMERCIAL
SERVICES, INC. as agent for the Lenders (the "Agent") at its office located at
▇▇▇▇ ▇▇▇▇▇▇ ▇▇ ▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, in lawful money of the
United States of America and in immediately available funds, the principal
amount of TEN MILLION FIVE HUNDRED THOUSAND DOLLARS ($10,500,000.00) as follows:
eleven (11) equal quarterly principal installments of $375,000.00 each,
commencing October 1, 2002, and the subsequent installments shall be due and
payable on the first day of each Fiscal Quarter thereafter until this Note is
paid in full followed by (ii) one (1) installment of the outstanding balance
whereof on the Anniversary Date.
The Company further agrees to pay interest at said office, in like money, on the
unpaid principal amount owing hereunder from time to time from the date hereof
on the date and at the rate specified in Section 8 of the Financing Agreement,
of even date herewith between the Company, the Lenders and the Agent (the
"Financing Agreement"). Capitalized terms used herein and defined in the
Financing Agreement shall have the same meanings as set forth therein unless
otherwise specifically defined herein.
If any payment on this Note becomes due and payable on a day other than a
Business Day, the maturity thereof shall be extended to the next succeeding
Business Day, and with respect to payments of principal, interest thereon shall
be payable at the then applicable rate during such extension.
This Note is the Term Loan Promissory Note referred to in the Financing
Agreement, evidences Term Loan A thereunder, and is subject to, and entitled to,
all provisions and benefits thereof and is subject to optional and mandatory
prepayment, in whole or in part, as provided therein.
62
Upon the occurrence of any Event of Default specified in the Financing Agreement
or upon termination of the Financing Agreement, all amounts then remaining
unpaid on this Note may become, or be declared to be, at the sole election of
the Agent, immediately due and payable as provided in the Financing Agreement.
▇▇▇▇▇▇▇ CHAUS, INC.
By: ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
Title: Chief Operating Officer
63
EXHIBIT B
REVOLVING CREDIT NOTE
Dated as of September 27, 2002
$40,000,000
FOR VALUE RECEIVED, the undersigned, ▇▇▇▇▇▇▇ CHAUS, INC. (herein the "Company"),
a New York corporation, hereby, absolutely and unconditionally promises to pay
to the order of THE CIT GROUP/COMMERCIAL SERVICES, INC., a New York corporation,
(hereinafter "CIT") with offices located at ▇▇▇▇ ▇▇▇▇▇▇ ▇▇ ▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇
▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, and CIT as agent for the Lenders (the "Agent"), and any
other party which now or hereafter becomes a lender hereunder pursuant to
Section 13 hereof (individually a "Lender" and collectively the "Lenders"), in
lawful money of the United States of America and in immediately available funds,
the principal amount of FORTY MILLION DOLLARS ($40,000,000), or such other
principal amount advanced pursuant to Section 3 and Section 5 of the Financing
Agreement (as herein defined), such Revolving Loan advances shall be repaid on a
daily basis as a result of the application of the proceeds of collections of the
Accounts and the making of additional Revolving Loans as described in Section 3.
Subject to the terms of the Financing Agreement, the Revolving Loans may be
borrowed, repaid and reborrowed by the Company. A final balloon payment in an
amount equal to the outstanding aggregate balance of principal and interest
remaining unpaid, if any, under this Note as shown on the books and records of
the Agent shall be due and payable on the termination of the Financing
Agreement, as set forth in Section 11 thereof.
The Company further absolutely and unconditionally promises to pay to the order
of the Agent at said office, interest, in like money, on the unpaid principal
amount owing hereunder from time to time from the date hereof on the dates and
at the rates specified in Section 8, of the Financing Agreement.
If any payment on this Note becomes due and payable on a day other than a
business day, the maturity thereof shall be extended to the next succeeding
business day, and with respect to payments of principal, interest thereon shall
be payable at the then applicable rate during such extension.
This Note is one of the Promissory Notes referred to in the Financing Agreement,
dated as of the date hereof, as the same may be amended and restated and in
effect from time to time, among the Company, the Agent, and the Lenders thereto
from time to time (the "Financing Agreement"), and is subject to, and entitled
to, all of the terms, provisions and benefits thereof and is subject to optional
and mandatory prepayment, in whole or in part, as provided therein. All
capitalized terms used herein shall have the meaning provided therefor in the
Financing Agreement, unless otherwise defined herein.
The date and amount of the advance(s) made hereunder may be recorded on the grid
page or pages which are attached hereto and hereby made part of this Note or the
separate ledgers maintained by the Agent. The aggregate unpaid principal amount
of all advances made pursuant hereto may be set
64
forth in the balance column on said grid page or such ledgers maintained by the
Agent. All such advances, whether or not so recorded, shall be due as part of
this Note.
The Company confirms that any amount received by or paid to the Agent in
connection with the Financing Agreement and/or any balances standing to its
credit on any of its or their accounts on the Agent's books under the Financing
Agreement may in accordance with the terms of the Financing Agreement be applied
in reduction of this Note, but no balance or amounts shall be deemed to effect
payment in whole or in part of this Note unless the Agent shall have actually
charged such account or accounts for the purposes of such reduction or payment
of this Note.
Upon the occurrence of any one or more of the Events of Default specified in the
Financing Agreement or upon termination of the Financing Agreement, all amounts
then remaining unpaid on this Note may become, or be declared to be, immediately
due and payable as provided in the Financing Agreement.
▇▇▇▇▇▇▇ CHAUS, INC.
By: ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
Title: Chief Operating Officer
65