Exhibit 10.15
$40,000,000
LOAN AND SECURITY AGREEMENT
by and between
PHARMHOUSE CORP.,
and
FOOTHILL CAPITAL CORPORATION
Dated as of May 15, 1998
TABLE OF CONTENTS
Page(s)
1. DEFINITIONS AND CONSTRUCTION 1
1.1 Definitions 1
1.2 Accounting Terms 14
1.3 Code 14
1.4 Construction 14
1.5 Schedules and Exhibits 14
2. LOAN AND TERMS OF PAYMENT 14
2.1 Revolving Advances 14
2.2 Letters of Credit 15
2.3 Term Loan 17
2.4 Intentionally Omitted 17
2.5 Overadvances 17
2.6 Interest and Letter of Credit Fees: Rates,
Payments, and Calculations. 18
2.7 Collection of Accounts 19
2.8 Crediting Payments; Application of Collections 20
2.9 Designated Account 21
2.10 Maintenance of Loan Account; Statements of
Obligations 21
2.11 Fees 21
2.12 Capital Adequacy 22
2.13 Credit Line Amount 22
3. CONDITIONS; TERM OF AGREEMENT 22
3.1 Conditions Precedent to the Initial Advance,
Letter of Credit and the Term Loan 22
3.2 Conditions Precedent to all Advances,
all Letters of Credit and the Term Loan 25
3.3 Condition Subsequent 25
3.4 Term 25
3.5 Effect of Termination 26
3.6 Early Termination by Borrower 26
3.7 Termination Upon Event of Default 26
4. CREATION OF SECURITY INTEREST 26
4.1 Grant of Security Interest 26
4.2 Negotiable Collateral 27
4.3 Collection of Accounts, General Intangibles,
and Negotiable Collateral. 27
4.4 Delivery of Additional Documentation Required 27
4.5 Power of Attorney 27
4.6 Right to Inspect 28
4.7 Release of Health Care Receivables 28
5. REPRESENTATIONS AND WARRANTIES 28
5.1 No Encumbrances 29
5.2 Intentionally Omitted 29
5.3 Eligible Inventory 29
5.4 Equipment 29
5.5 Location of Inventory and Equipment 29
5.6 Inventory Records 29
5.7 Location of Chief Executive Office; FEIN 29
5.8 Due Organization and Qualification; Subsidiaries 29
5.9 Due Authorization; No Conflict 30
5.10 Litigation 30
5.11 No Material Adverse Change 31
5.12 Solvency 31
5.13 Employee Benefits 31
5.14 Environmental Condition 31
5.15 License Arrangements 32
5.16 Credit Card Agreements 32
6. AFFIRMATIVE COVENANTS 32
6.1 Accounting System 32
6.2 Collateral Reporting 32
6.3 Financial Statements, Reports, Certificates 33
6.4 Tax Returns 34
6.5 Guarantor Reports 34
6.6 Intentionally Omitted 34
6.7 Title to Equipment 34
6.8 Maintenance of Equipment 34
6.9 Taxes 34
6.10 Insurance 35
6.11 No Setoffs or Counterclaims 36
6.12 Location of Inventory and Equipment 36
6.13 Compliance with Laws 36
6.14 Employee Benefits 36
6.15 Leases 37
6.16 Year 2000 Compliance 37
6.17 Credit Card Agreements 37
7. NEGATIVE COVENANTS 38
7.1 Indebtedness 38
7.2 Liens 39
7.3 Restrictions on Fundamental Changes 39
7.4 Disposal of Assets 39
7.5 Change Name 39
7.6 Guarantee 39
7.7 Nature of Business 40
7.8 Prepayments and Amendments 40
7.9 Change of Control 40
7.10 Consignments 40
7.11 Distributions 40
7.12 Accounting Methods; Fiscal Year 40
7.13 Investments 40
7.14 Transactions with Affiliates 40
7.15 Suspension 40
7.16 Intentionally Omitted 40
7.17 Use of Proceeds 41
7.18 Change in Location of Chief Executive Office;
Inventory and Equipment with Bailees 41
7.19 No Prohibited Transactions Under ERISA 41
7.20 Financial Covenants 42
7.21 Capital Expenditures 42
8. EVENTS OF DEFAULT 43
9. FOOTHILL'S RIGHTS AND REMEDIES 44
9.1 Rights and Remedies 44
9.2 Remedies Cumulative 46
9.3 Script Files and Pharmaceuticals 47
10. TAXES AND EXPENSES 47
11. WAIVERS; INDEMNIFICATION 47
11.1 Demand; Protest; etc 47
11.2 Foothill's Liability for Collateral 47
11.3 Indemnification 48
12. NOTICES 48
13. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER 49
14. DESTRUCTION OF BORROWER'S DOCUMENTS 50
15. GENERAL PROVISIONS 50
15.1 Effectiveness 50
15.2 Successors and Assigns 50
15.3 Section Headings 50
15.4 Interpretation 50
15.5 Severability of Provisions 50
15.6 Amendments in Writing 50
15.7 Counterparts; Telefacsimile Execution 51
15.8 Revival and Reinstatement of Obligations 51
15.9 Integration 51
15.10 Time is of the Essence 52
15.11 Confidentiality 52
SCHEDULES AND EXHIBITS
Schedule E-1 Eligible Inventory Locations
Schedule P-1 Permitted Liens
Schedule R-1 Real Property Collateral
Schedule 2.7(b) Armored Car Services
Schedule 5.8 Subsidiaries; Shareholders
Schedule 5.10 Litigation
Schedule 5.13 ERISA Benefit Plans
Schedule 5.16 Credit Card Agreements
Schedule 6.12 Location of Inventory and Equipment
Exhibit C-1 Form of Compliance Certificate
LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY AGREEMENT (this "Agreement"), is
entered into as of May 15, 1998, between FOOTHILL CAPITAL
CORPORATION, a California corporation ("Foothill"), with a
place of business located at ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇,
▇▇▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇ and PHARMHOUSE
CORP., a New York corporation ("Borrower"), with its chief
executive office located at ▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇
▇▇▇▇▇.
The parties agree as follows:
1. DEFINITIONS AND CONSTRUCTION.
1.1 Definitions. As used in this Agreement,
the following terms shall have the following definitions:
"Account Debtor" means any Person who is or who
may become obligated under, with respect to, or on account of,
an Account.
"Accounts" means all currently existing and
hereafter arising accounts, contract rights, and all other
forms of obligations owing to Borrower arising out of the sale
or lease of goods or the rendition of services by Borrower,
irrespective of whether earned by performance, and any and all
credit insurance, guaranties, or security therefor, including,
without limitation, Credit Card Receivables and Health Care
Receivables.
"Advances" has the meaning set forth in Section
2.1(a).
"Affiliate" means, as applied to any Person,
any other Person who directly or indirectly controls, is
controlled by, is under common control with or is a director
or officer of such Person. For purposes of this definition,
"control" means the possession, directly or indirectly, of the
power to vote 20% or more of the securities having ordinary
voting power for the election of directors or the direct or
indirect power to direct the management and policies of a
Person.
"Agreement" has the meaning set forth in the
preamble hereto.
"Armored Car Services" shall mean the armored
car services listed on Schedule 2.7(b) hereto and their
respective successors and assigns or any other armored car
service selected by Borrower after the date hereof and
reasonably acceptable to Borrower.
"Authorized Person" means any officer or other
employee of Borrower.
"Average Unused Portion of Maximum Amount"
means, as of any date of determination, (a) the Credit Line
Amount, minus (b) the sum of (i) the average Daily Balance of
Advances that were outstanding during the immediately
preceding month, plus (ii) the average Daily Balance of the
undrawn Letters of Credit that were outstanding during the
immediately preceding month, plus (iii) the average Daily
Balance of the principal of the Term Loan; provided, however,
that if such difference is a negative number, the Average
Unused Portion of Maximum Amount shall be deemed to be zero.
"Bankruptcy Code" means the United States
Bankruptcy Code (11 U.S.C. 101 et seq.), as amended, and any
successor statute.
"Benefit Plan" means a "defined benefit plan"
(as defined in Section 3(35) of ERISA) for which Borrower, any
Subsidiary of Borrower, or any ERISA Affiliate has been an
"employer" (as defined in Section 3(5) of ERISA) within the
past six years.
"Blocked Account" shall mean the special
deposit account established by Borrower at the Blocked Account
Bank pursuant to the Blocked Account Agreement, into which
Borrower shall cause all proceeds of the Collateral and all
cash received by it to be transferred or deposited in
accordance with Section 2.7(a) hereof.
"Blocked Account Agreement" means that certain
Blocked Account Agreement, in form and substance satisfactory
to Foothill, among Borrower, Foothill and the Blocked Account
Bank.
"Blocked Account Bank" means Sterling National
Bank and Trust Company of New York and/or any other bank
mutually acceptable to Borrower and Foothill.
"Borrower" has the meaning set forth in the
preamble to this Agreement.
"Borrower's Books" means all of Borrower's
books and records including: ledgers; records indicating,
summarizing, or evidencing Borrower's properties or assets
(including the Collateral) or liabilities; all information
relating to Borrower's business operations or financial
condition; and all computer programs, disk or tape files,
printouts, runs, or other computer prepared information.
"Borrowing Base" has the meaning set forth in
Section 2.1(a).
"Business Day" means any day that is not a
Saturday, Sunday, or other day on which national banks are
authorized or required to close.
"Change of Control" shall mean (a) all or
substantially all of the assets of Borrower are sold, in one
or in a series of transactions, to any "Person" or "Group" (as
such terms are used in Sections 14(d)(2) and 13(d)(3),
respectively, of the federal Securities Exchange Act of 1934,
as amended); (b) ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇.
▇▇▇▇▇, or ▇▇▇▇▇▇ ▇. ▇▇▇▇▇ shall at any time own and control
less than twenty percent (20%), on a fully diluted basis, of
the combined voting power of the then outstanding securities
of Borrower ordinarily (and apart from rights accruing to the
holders of one or more classes of preferred securities under
certain circumstances) having the right to vote in the
election of directors; or (c) after the Closing Date, the
replacement of two-thirds (2/3) of the Board of Directors of
Borrower from the directors who constitute the Board of
Directors during any one (1) year period during the term of
this Agreement.
"Closing Date" means the date of the first to
occur of the making of the initial Advance, the issuance of
the initial Letter of Credit or the funding of the Term Loan.
"Code" means the Uniform Commercial Code as in
effect in the State of New York from time to time.
"Collateral" means, all real and personal
property of the Borrower, whether now existing or hereafter
acquired, including without limitation each of the following:
(a) the Accounts,
(b) Borrower's Books,
(c) the Equipment,
(d) the General Intangibles,
(e) the Inventory,
(f) the Negotiable Collateral,
(g) the Real Property Collateral,
(h) any money, or other assets of
Borrower that now or hereafter come into the possession,
custody, or control of Foothill,
(i) the Investment Property;
(j) the Script Files; and
(k) the proceeds and products, whether
tangible or intangible, of any of the foregoing, including
proceeds of insurance covering any or all of the Collateral,
and any and all Accounts, Borrower's Books, Equipment, General
Intangibles, Inventory, Negotiable Collateral, Real Property,
money, deposit accounts, or other tangible or intangible
property resulting from the sale, exchange, collection, or
other disposition of any of the foregoing, or any portion
thereof or interest therein, and the proceeds thereof.
"Collateral Access Agreement" means a landlord
waiver, mortgagee waiver, bailee letter, or acknowledgment
agreement of any warehouseman, processor, lessor, consignee,
or other Person in possession of, having a Lien upon, or
having rights or interests in the Equipment or Inventory, in
each case, in form and substance satisfactory to Foothill.
"Collections" means all cash, checks, notes,
instruments, and other items of payment (including, insurance
proceeds, proceeds of cash sales, rental proceeds, and tax
refunds).
"Compliance Certificate" means a certificate
substantially in the form of Exhibit C-1 and delivered by the
chief accounting officer of Borrower to Foothill.
"Cost" means, with respect to any Eligible
Inventory, the lower of cost or market value of such Eligible
Inventory as determined on a basis consistent with Borrower's
current and historical accounting practices.
"Credit Card Acknowledgments" shall mean,
individually and collectively, the agreements by Credit Card
Issuers or Credit Card Processors who are parties to Credit
Card Agreements in favor of Foothill acknowledging Foothill's
first priority security interest in the monies due and to
become due to Borrower (including, without limitation, credits
and reserves) under the Credit Card Agreements, and agreeing
to transfer all such amounts to the Blocked Account.
"Credit Card Agreements" shall mean all
agreements now or hereafter entered into by Borrower with any
Credit Card Issuer or any Credit Card Processor, as the same
now exist or may hereafter be amended, modified, supplemented,
extended, renewed, restated or replaced.
"Credit Card Issuer" shall mean any Person
(other than Borrower) who issues or whose members issue credit
cards, including, without limitation, MasterCard or VISA bank
credit or debit cards or other bank credit or debit cards, and
American Express, Discover, Diners Club, ▇▇▇▇▇ ▇▇▇▇▇▇▇ and
other non-bank credit or debit cards.
"Credit Card Processor" shall mean any
servicing or processing agent or any factor or financial
intermediary who facilitates, services, processes or manages
the credit authorization, billing transfer and/or payment
procedures with respect to any of Borrower's sales
transactions involving credit card or debit card purchases by
customers using credit cards or debit cards issued by any
Credit Card Issuer.
"Credit Card Receivables" shall mean all
Accounts consisting of the present and future rights of
Borrower to payment for Inventory sold and delivered to
customers who have purchased such goods using a credit card or
a debit card issued by a Credit Card Issuer.
"Credit Line Amount" shall mean Thirty Five
Million Dollars ($35,000,000) or such greater amount (not to
exceed the Maximum Amount) as provided in Section 2.13 of this
Agreement.
"Daily Balance" means the amount of an
Obligation owed at the end of a given day.
"Default" means an event, condition, or default
that, with the giving of notice, the passage of time, or both,
would be an Event of Default.
"Designated Account" means account number
312032301 of Borrower maintained with Borrower's Designated
Account Bank, or such other deposit account of Borrower
(located within the United States) which has been designated,
in writing and from time to time, by Borrower to Foothill
pursuant to Section 2.9 hereof.
"Designated Account Bank" means Sterling
National Bank and Trust Company of New York, whose office is
located at ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, and
whose ABA number is ▇▇▇▇▇▇▇▇▇, or such other bank pursuant to
Section 2.9 hereof.
"Disbursement Letter" means an instructional
letter executed and delivered by Borrower to Foothill
regarding the extensions of credit to be made on the Closing
Date, the form and substance of which shall be satisfactory to
Foothill.
"Dollars or $" means United States dollars.
"Early Termination Premium" has the meaning set
forth in Section 3.6.
"EBITDA" means, with respect to Borrower for
any period, the Net Income for such period, plus, without
duplication and to the extent deducted in determining Net
Income for such period, the sum of (a) income taxes, (b)
interest expense for such period determined in accordance with
GAAP, including, without limitation, financing fees and
investment banking fees and (c) depreciation and amortization
expense.
"Eligible Inventory" means Inventory consisting
of salable finished goods held for sale in the ordinary course
of Borrower's business, that are located at Borrower's
premises identified on Schedule E-1, that strictly comply with
each and all of the representations and warranties respecting
Inventory made by Borrower to Foothill in the Loan Documents,
and that are and at all times continue to be acceptable to
Foothill in all respects; provided, however, upon notice to
and after consultation with the Borrower, the standards of
eligibility may be fixed and revised from time to time by
Foothill in Foothill's reasonable credit judgment. In
determining the amount to be so included, Inventory shall be
valued at the lower of cost or market on a basis consistent
with Borrower's current and historical accounting practices.
An item of Inventory shall not be included in Eligible
Inventory if:
(a) it is not owned solely by Borrower or
Borrower does not have good, valid, and marketable title
thereto;
(b) it is not located at one of the locations set forth
on Schedule E-1;
(c) it is not subject to a valid and perfected first
priority security interest in favor of Foothill;
(d) it consists of damaged goods returned or rejected by
Borrower's customers or goods in transit;
(e) it consists of Video Rental Inventories;
(f) it is obsolete or slow moving, a restrictive or
custom item, a component that is not part of finished goods,
or constitutes spare parts, packaging and shipping materials,
supplies used or consumed in Borrower's business, Inventory
subject to a Lien in favor of any third Person, ▇▇▇▇ and hold
goods, defective goods, "seconds," or Inventory acquired on
consignment;
(g) it consists of milk or bread;
(h) it consists of pharmaceuticals which are out-of-date;
and
(i) it consists of used video tapes intended for resale in
excess of $100,000 in the aggregate.
"Equipment" means all of Borrower's present and
hereafter acquired machinery, machine tools, motors,
equipment, furniture, furnishings, fixtures, vehicles
(including motor vehicles and trailers), tools, parts, goods
(other than consumer goods, farm products, or Inventory),
wherever located, including, (a) any interest of Borrower in
any of the foregoing, and (b) all attachments, accessories,
accessions, replacements, substitutions, additions, and
improvements to any of the foregoing.
"ERISA" means the Employee Retirement Income
Security Act of 1974, 29 U.S.C. 1000 et seq., amendments
thereto, successor statutes, and regulations or guidance
promulgated thereunder.
"ERISA Affiliate" means (a) any corporation
subject to ERISA whose employees are treated as employed by
the same employer as the employees of Borrower under IRC
Section 414(b), (b) any trade or business subject to ERISA
whose employees are treated as employed by the same employer
as the employees of Borrower under IRC Section 414(c),
(c) solely for purposes of Section 302 of ERISA and
Section 412 of the IRC, any organization subject to ERISA that
is a member of an affiliated service group of which Borrower
is a member under IRC Section 414(m), or (d) solely for
purposes of Section 302 of ERISA and Section 412 of the IRC,
any party subject to ERISA that is a party to an arrangement
with Borrower and whose employees are aggregated with the
employees of Borrower under IRC Section 414(o).
"ERISA Event" means (a) a Reportable Event with
respect to any Benefit Plan or Multiemployer Plan, (b) the
withdrawal of Borrower, any of its Subsidiaries or ERISA
Affiliates from a Benefit Plan during a plan year in which it
was a "substantial employer" (as defined in Section 4001(a)(2)
of ERISA), (c) the providing of notice of intent to terminate
a Benefit Plan in a distress termination (as described in
Section 4041(c) of ERISA), (d) the institution by the PBGC of
proceedings to terminate a Benefit Plan or Multiemployer Plan,
(e) any event or condition (i) that provides a basis under
Section 4042(a)(1), (2), or (3) of ERISA for the termination
of, or the appointment of a trustee to administer, any Benefit
Plan or Multiemployer Plan, or (ii) that may result in
termination of a Multiemployer Plan pursuant to Section 4041A
of ERISA, (f) the partial or complete withdrawal within the
meaning of Sections 4203 and 4205 of ERISA, of Borrower, any
of its Subsidiaries or ERISA Affiliates from a Multiemployer
Plan, or (g) providing any security to any Plan under
Section 401(a)(29) of the IRC by Borrower or its Subsidiaries
or any of their ERISA Affiliates.
"Event of Default" has the meaning set forth in
Section 8.
"Existing Lender" means Congress Financial
Corporation, a California corporation.
"FEIN" means Federal Employer Identification
Number.
"Foothill" has the meaning set forth in the
preamble to this Agreement.
"Foothill Account" has the meaning set forth in
Section 2.7.
"Foothill Expenses" means all: costs or
expenses (including taxes, and insurance premiums) required to
be paid by Borrower under any of the Loan Documents that are
paid or incurred by Foothill; reasonable fees or charges paid
or incurred by Foothill in connection with Foothill's
transactions with Borrower, including, fees or charges for
photocopying, notarization, couriers and messengers,
telecommunication, public record searches (including tax lien,
litigation, and UCC searches and including searches with the
patent and trademark office, the copyright office, or the
department of motor vehicles), filing, recording, publication,
appraisal (including periodic Personal Property Collateral or
Real Property Collateral appraisals), real estate surveys,
real estate title policies and endorsements, and environmental
audits; reasonable costs and expenses incurred by Foothill in
the disbursement of funds to Borrower (by wire transfer or
otherwise); reasonable charges paid or incurred by Foothill
resulting from the dishonor of checks; costs and expenses paid
or incurred by Foothill to correct any default or enforce any
provision of the Loan Documents, or in gaining possession of,
maintaining, handling, preserving, storing, shipping, selling,
preparing for sale, or advertising to sell the Personal
Property Collateral or the Real Property Collateral, or any
portion thereof, irrespective of whether a sale is
consummated; costs and expenses paid or incurred by Foothill
in examining Borrower's Books; costs and expenses of third
party claims or any other suit paid or incurred by Foothill in
enforcing or defending the Loan Documents or in connection
with the transactions contemplated by the Loan Documents or
Foothill's relationship with Borrower or any guarantor; and
Foothill's reasonable attorneys fees and expenses incurred in
advising, structuring, drafting, reviewing, administering,
amending, terminating, enforcing (including attorneys fees and
expenses incurred in connection with a "workout," a
"restructuring," or an Insolvency Proceeding concerning
Borrower or any guarantor of the Obligations), defending, or
concerning the Loan Documents, irrespective of whether suit is
brought; provided, however, that Foothill's Expenses incurred
on or prior to the Closing Date in connection with the closing
of the transactions contemplated by this Loan Agreement and
the Loan Documents shall not exceed $75,000.
"GAAP" means generally accepted accounting
principles as in effect from time to time in the United
States, consistently applied.
"General Intangibles" means all of Borrower's
present and future general intangibles and other personal
property (including contract rights, rights arising under
common law, statutes, or regulations, choses or things in
action, goodwill, patents, trade names, trademarks,
servicemarks, copyrights, blueprints, drawings, purchase
orders, customer lists, monies due or recoverable from pension
funds, route lists, rights to payment and other rights under
any royalty or licensing agreements, infringement claims,
computer programs, information contained on computer disks or
tapes, literature, reports, catalogs, deposit accounts,
insurance premium rebates, tax refunds, and tax refund
claims), other than goods, Accounts, and Negotiable
Collateral.
"Governing Documents" means the certificate or
articles of incorporation, by-laws, or other organizational or
governing documents of any Person.
"Hazardous Materials" means (a) substances that
are defined or listed in, or otherwise classified pursuant to,
any applicable laws or regulations as "hazardous substances,"
"hazardous materials," "hazardous wastes," "toxic substances,"
or any other formulation intended to define, list, or classify
substances by reason of deleterious properties such as
ignitability, corrosivity, reactivity, carcinogenicity,
reproductive toxicity, or "EP toxicity", (b) oil, petroleum,
or petroleum derived substances, natural gas, natural gas
liquids, synthetic gas, drilling fluids, produced waters, and
other wastes associated with the exploration, development, or
production of crude oil, natural gas, or geothermal resources,
(c) any flammable substances or explosives or any radioactive
materials, and (d) asbestos in any form or electrical
equipment that contains any oil or dielectric fluid containing
levels of polychlorinated biphenyls in excess of 50 parts per
million.
"Health Care Payor" shall mean any debtor or
obligor in any way obligated on or in connection with any of
the Health Care Receivables, including, without limitation,
any fiscal intermediary or governmental agency or authority
that is responsible for handling payments under Medicare or
Medicaid or any private insurance company.
"Health Care Receivables" shall mean any
Accounts arising from the sale of pharmaceutical products for
which Borrower is to receive payment from a Health Care Payor.
"Indebtedness" means: (a) all obligations of
Borrower for borrowed money, (b) all obligations of Borrower
evidenced by bonds, debentures, notes, or other similar
instruments and all reimbursement or other obligations of
Borrower in respect of letters of credit, bankers acceptances,
interest rate swaps, or other similar financial products,
(c) all obligations of Borrower under leases which have been,
or should be, in accordance with GAAP recorded as capital
leases, (d) all obligations or liabilities of others secured
by a Lien on any property or asset of Borrower, irrespective
of whether such obligation or liability is assumed, and (e)
any obligation of Borrower guaranteeing or intended to
guarantee (whether guaranteed, endorsed, co-made, discounted,
or sold with recourse to Borrower) any indebtedness, lease,
dividend, letter of credit, or other obligation of any other
Person.
"Insolvency Proceeding" means any proceeding
commenced by or against any Person under any provision of the
Bankruptcy Code or under any other bankruptcy or insolvency
law, assignments for the benefit of creditors, formal or
informal moratoria, compositions, extensions generally with
creditors, or proceedings seeking reorganization, arrangement,
or other similar relief.
"Intangible Assets" means, with respect to any
Person, that portion of the book value of all of such Person's
assets that would be treated as intangibles under GAAP.
"Inventory" means all present and future
inventory in which Borrower has any interest, including goods
held for sale or to be furnished under a contract of service
and all of Borrower's present and future goods, and packing
and shipping materials, wherever located.
"Inventory Letter of Credit" means a
documentary Letter of Credit issued to support the purchase by
Borrower of Inventory prior to transit to a location set forth
on Schedule E-1, that provides that all draws thereunder must
require presentation of customary documentation (including, if
applicable, commercial invoices, packing list, certificate of
origin, ▇▇▇▇ of lading or airwaybill, customs clearance
documents, quota statement, inspection certificate,
beneficiaries statement, and ▇▇▇▇ of exchange, bills of
lading, dock warrants, dock receipts, warehouse receipts, or
other documents of title) in form and substance satisfactory
to Foothill and reflecting the passage to Borrower of title to
saleable Inventory conforming to Borrower's contract with the
seller thereof. Any such Letter of Credit shall cease to be
an "Inventory Letter of Credit" at such time, if any, as the
goods purchased thereunder become Eligible Inventory.
"Inventory Reserves" means reserves for (a) the
estimated costs relating to unpaid freight charges,
warehousing or storage charges, taxes, duties, and other
similar unpaid costs associated with the acquisition of
Eligible Inventory by Borrower, plus (b) the reasonable
estimate of reclamation claims, as such term is defined in the
Code, of unpaid sellers of Inventory sold to Borrower.
"Investment Property" means, with respect to
any Person, all "investment property," as such term is defined
in the Code, now owned or hereafter acquired by such Person
and, in any event, including, without limitation, all
securities, whether certificated or uncertificated, security
entitlements, securities accounts, commodity contracts and
commodity accounts.
"IRC" means the Internal Revenue Code of 1986,
as amended, and the regulations thereunder.
"L/C" has the meaning set forth in Section
2.2(a).
"L/C Guaranty" has the meaning set forth in
Section 2.2(a).
"Letter of Credit" means an L/C or an L/C
Guaranty, as the context requires.
"Lien" means any interest in property securing
an obligation owed to, or a claim by, any Person other than
the owner of the property, whether such interest shall be
based on the common law, statute, or contract, whether such
interest shall be recorded or perfected, and whether such
interest shall be contingent upon the occurrence of some
future event or events or the existence of some future
circumstance or circumstances, including the lien or security
interest arising from a mortgage, deed of trust, encumbrance,
pledge, hypothecation, assignment, deposit arrangement,
security agreement, adverse claim or charge, conditional sale
or trust receipt, or from a lease, consignment, or bailment
for security purposes and also including reservations,
exceptions, encroachments, easements, rights-of-way,
covenants, conditions, restrictions, leases, and other title
exceptions and encumbrances affecting Real Property.
"Liquidation Value" means the orderly
liquidation value determined from time to time by an appraiser
satisfactory to Foothill in its sole discretion, provided that
after advance consultation with Borrower, Foothill shall
notify Borrower of its choice of appraiser.
"Loan Account" has the meaning set forth in
Section 2.10.
"Loan Documents" means this Agreement, the
Disbursement Letter, the Letters of Credit, the Blocked
Account Agreements, the Mortgages, the McKesson Intercreditor
Agreement, the Trademark Security Agreement, the Pledge
Agreement, the ▇▇▇▇▇▇▇ Guaranty, the ▇▇▇▇▇▇▇ Security
Agreement, the Rx Guaranty, the Rx Security Agreement, the
Validity Agreement, any note or notes executed by Borrower and
payable to Foothill, and any other agreement entered into, now
or in the future, in connection with this Agreement.
"Margin" has the meaning set forth in Section
2.6(a).
"Material Adverse Change" means (a) a material
adverse change in the business, operations, results of
operations, assets, liabilities or condition (financial or
otherwise) of Borrower, (b) the material impairment of
Borrower's ability to perform its obligations under the Loan
Documents to which it is a party or of Foothill to enforce the
Obligations or realize upon the Collateral, (c) a material
adverse effect on the value of the Collateral or the amount
that Foothill would be likely to receive (after giving
consideration to delays in payment and costs of enforcement)
in the liquidation of such Collateral, or (d) a material
impairment of the priority of Foothill's Liens with respect to
the Collateral.
"Maximum Amount" means, as of any date of
determination, Forty Million Dollars ($40,000,000).
"Maximum Revolving Amount" means the Credit
Line Amount less the outstanding principal balance of the Term
Loan.
"McKesson" shall mean McKesson Corporation, a
Delaware corporation.
"McKesson Intercreditor Agreement" means that
certain Intercreditor and Subordination Agreement between
McKesson and Foothill, in form and substance satisfactory to
Foothill.
"McKesson Receivables Agreement" means that
certain Receivables Purchase and Credit Agreement (Recourse)
dated August 26, 1997 between McKesson and Borrower, as the
same shall be amended, modified or supplemented from time to
time.
"Medicaid" shall mean the health care financial
assistance program jointly financed and administered by the
Federal and State governments under Title IX of the Social
Security Act.
"Medicare" shall mean the health care financial
assistance program under Title XVIII of the Social Security
Act.
"Mortgages" means one or more mortgages, deeds
of trust, or deeds to secure debt, executed by Borrower or its
Subsidiaries in favor of Foothill, the form and substance of
which shall be satisfactory to Foothill, that encumber the
Real Property Collateral and the related improvements thereto.
"Multiemployer Plan" means a "multiemployer
plan" (as defined in Section 4001(a)(3) of ERISA) to which
Borrower, any of its Subsidiaries, or any ERISA Affiliate has
contributed, or was obligated to contribute, within the past
six years.
"Negotiable Collateral" means all of Borrower's
present and future letters of credit, notes, drafts,
instruments, investment property, security entitlements,
securities (including the shares of stock of Subsidiaries of
Borrower), documents, personal property leases (wherein
Borrower is the lessor), chattel paper, and Borrower's Books
relating to any of the foregoing.
"Net Income" means with respect to Borrower for
any period, the net income (or deficit) of Borrower for such
period, determined in accordance with GAAP.
"▇▇▇▇▇▇▇" means ▇▇▇▇▇▇▇ Realty, Inc., a
Pennsylvania corporation.
"▇▇▇▇▇▇▇ Guaranty" means that certain Guaranty
of even date herewith between ▇▇▇▇▇▇▇ and Foothill, in form
and substance satisfactory to Foothill.
"▇▇▇▇▇▇▇ Security Agreement" means that certain
Subsidiary Security Agreement of even date herewith between
▇▇▇▇▇▇▇ and Foothill, in form and substance satisfactory to
Foothill.
"Obligations" means all loans, Advances, debts,
principal, interest (including any interest that, but for the
provisions of the Bankruptcy Code, would have accrued),
contingent reimbursement obligations under any outstanding
Letters of Credit, premiums (including Early Termination
Premiums), liabilities (including all amounts charged to
Borrower's Loan Account pursuant hereto), obligations, fees,
charges, costs, or Foothill Expenses (including any fees or
expenses that, but for the provisions of the Bankruptcy Code,
would have accrued), lease payments, guaranties, covenants,
and duties owing by Borrower to Foothill of any kind and
description (whether pursuant to or evidenced by the Loan
Documents or pursuant to any other agreement between Foothill
and Borrower, and irrespective of whether for the payment of
money), whether direct or indirect, absolute or contingent,
due or to become due, now existing or hereafter arising, and
including any debt, liability, or obligation owing from
Borrower to others that Foothill may have obtained by
assignment or otherwise, and further including all interest
not paid when due and all Foothill Expenses that Borrower is
required to pay or reimburse by the Loan Documents, by law, or
otherwise.
"Overadvance" has the meaning set forth in
Section 2.5.
"Participant" means any Person to which
Foothill has sold a participation interest in its rights under
the Loan Documents.
"Pay-Off Letter" means a letter, in form and
substance reasonably satisfactory to Foothill, from Existing
Lender respecting the amount necessary to repay in full all of
the obligations of Borrower owing to Existing Lender and
obtain a termination or release of all of the Liens existing
in favor of Existing Lender in and to the properties or assets
of Borrower.
"PBGC" means the Pension Benefit Guaranty
Corporation as defined in Title IV of ERISA, or any successor
thereto.
"Permitted Liens" means (a) Liens held by
Foothill, (b) Liens for unpaid taxes that either (i) are not
yet due and payable or (ii) are the subject of Permitted
Protests, (c) Liens set forth on Schedule P-1, (d) the
interests of lessors under operating leases and purchase money
security interests and Liens of lessors under capital leases
to the extent that the acquisition or lease of the underlying
asset is permitted under Section 7.21 and so long as the Lien
only attaches to the asset purchased or acquired and only
secures the purchase price of the asset, (e) Liens arising by
operation of law in favor of warehousemen, landlords,
carriers, mechanics, materialmen, laborers, or suppliers,
incurred in the ordinary course of business of Borrower and
not in connection with the borrowing of money, and which Liens
either (i) are for sums not yet due and payable, or (ii) are
the subject of Permitted Protests, (f) Liens arising from
deposits made in connection with obtaining worker's
compensation or other unemployment insurance, (g) Liens or
deposits to secure performance of bids, tenders, or leases,
incurred in the ordinary course of business of Borrower and
not in connection with the borrowing of money, (h) Liens
arising by reason of security for surety or appeal bonds in
the ordinary course of business of Borrower, (i) Liens of or
resulting from any judgment or award that would not cause a
Material Adverse Change and as to which the time for the
appeal or petition for rehearing of which has not yet expired,
or in respect of which Borrower is in good faith prosecuting
an appeal or proceeding for a review, and in respect of which
a stay of execution pending such appeal or proceeding for
review has been secured, (j) Liens with respect to the Real
Property Collateral that are exceptions to the commitments for
title insurance issued in connection with the Mortgages, as
accepted by Foothill, and (k) with respect to any Real
Property that is not part of the Real Property Collateral,
easements, rights of way, zoning and similar covenants and
restrictions, and similar encumbrances that customarily exist
on properties of Persons engaged in similar activities and
similarly situated and that in any event do not materially
interfere with or impair the use or operation of the
Collateral by Borrower or the value of Foothill's Lien thereon
or therein, or materially interfere with the ordinary conduct
of the business of Borrower.
"Permitted Protest" means the right of Borrower
to protest any Lien (other than any such Lien that secures the
Obligations), tax (other than payroll taxes or taxes that are
the subject of a United States federal tax lien), or rental
payment, provided that (a) a reserve with respect to such
obligation is established on the books of Borrower in an
amount that is reasonably satisfactory to Foothill or in
accordance with GAAP, (b) any such protest is instituted and
diligently prosecuted by Borrower in good faith, and
(c) Foothill is satisfied that, while any such protest is
pending, there will be no impairment of the enforceability,
validity, or priority of any of the Liens of Foothill in and
to the Collateral.
"Person" means and includes natural persons,
corporations, limited liability companies, limited
partnerships, general partnerships, limited liability
partnerships, joint ventures, trusts, land trusts, business
trusts, or other organizations, irrespective of whether they
are legal entities, and governments and agencies and political
subdivisions thereof.
"Personal Property Collateral" means all
Collateral other than the Real Property Collateral.
"Plan" means any employee benefit plan,
program, or arrangement maintained or contributed to by
Borrower or with respect to which it may incur liability.
"Pledge Agreement" means that certain Stock
Pledge Agreement of even date herewith between Borrower and
Foothill, pursuant to which Borrower grants to Foothill a
first priority Lien on and security interest in all capital
stock of Borrower's Subsidiaries, in form and substance
satisfactory to Foothill.
"Real Property" means any estates or interests
in real property now owned or hereafter acquired by Borrower,
including, without limitation, the real property owned by
Borrower or its Subsidiaries located in Winchester, Virginia.
"Real Property Collateral" means the parcel or
parcels of real property and the related improvements thereto
identified on Schedule R-1, and any Real Property hereafter
acquired by Borrower or its Subsidiaries.
"Reference Rate" means the variable rate of
interest, per annum, most recently announced by Norwest Bank
Minnesota, National Association, or any successor thereto, as
its "base rate," irrespective of whether such announced rate
is the best rate available from such financial institution.
"Reportable Event" means any of the events
described in Section 4043(c) of ERISA or the regulations
thereunder other than a Reportable Event as to which the
provision of 30 days notice to the PBGC is waived under
applicable regulations.
"Retiree Health Plan" means an "employee
welfare benefit plan" within the meaning of Section 3(1) of
ERISA that provides benefits to individuals after termination
of their employment, other than as required by Section 601 of
ERISA.
"Rx" means Rx Realty Corp., a Delaware
corporation.
"Rx Guaranty" means that certain Guaranty of
even date herewith between Rx and Foothill, in form and
substance satisfactory to Foothill.
"Rx Security Agreement" means that certain
Subsidiary Security Agreement of even date herewith between Rx
and Foothill, in form and substance satisfactory to Foothill.
"Script File" means the information with
respect to prescriptions sold by the Borrower.
"Solvent" means, with respect to any Person on
a particular date, that on such date (a) at fair valuations,
all of the properties and assets of such Person are greater
than the sum of the debts, including contingent liabilities,
of such Person, (b) the present fair salable value of the
properties and assets of such Person is not less than the
amount that will be required to pay the probable liability of
such Person on its debts as they become absolute and matured,
(c) such Person is able to realize upon its properties and
assets and pay its debts and other liabilities, contingent
obligations and other commitments as they mature in the normal
course of business, (d) such Person does not intend to, and
does not believe that it will, incur debts beyond such
Person's ability to pay as such debts mature, and (e) such
Person is not engaged in business or a transaction, and is not
about to engage in business or a transaction, for which such
Person's properties and assets would constitute unreasonably
small capital after giving due consideration to the prevailing
practices in the industry in which such Person is engaged. In
computing the amount of contingent liabilities at any time, it
is intended that such liabilities will be computed at the
amount that, in light of all the facts and circumstances
existing at such time, represents the amount that reasonably
can be expected to become an actual or matured liability.
"Subsidiary" of a Person means a corporation,
partnership, limited liability company, or other entity in
which that Person directly or indirectly owns or controls the
shares of stock or other ownership interests having ordinary
voting power to elect a majority of the board of directors (or
appoint other comparable managers) of such corporation,
partnership, limited liability company, or other entity.
"Tangible Net Worth" means, as of any date of
determination, the difference of (a) Borrower's total
stockholder's equity, minus (b) the sum of: (i) all
Intangible Assets of Borrower and (ii) all amounts due to
Borrower from Affiliates.
"Termination Date" has the meaning set forth in
Section 3.4.
"Term Loan" has the meaning set forth in
Section 2.3.
"Trademark Security Agreement" means that
certain Trademark Security Agreement of even date herewith
between the Borrower and Foothill, in form and substance
satisfactory to Foothill.
"Video Rental Inventories" means video tapes
held for rental.
"Voidable Transfer" has the meaning set forth
in Section 15.8.
1.2 Accounting Terms. All accounting terms not
specifically defined herein shall be construed in accordance
with GAAP. When used herein, the term "financial statements"
shall include the notes and schedules thereto. Whenever the
term "Borrower" is used in respect of a financial covenant or
a related definition, it shall be understood to mean Borrower
on a consolidated basis unless the context clearly requires
otherwise.
1.3 Code. Any terms used in this Agreement
that are defined in the Code shall be construed and defined as
set forth in the Code unless otherwise defined herein.
1.4 Construction. Unless the context of this
Agreement clearly requires otherwise, references to the plural
include the singular, references to the singular include the
plural, the term "including" is not limiting, and the term
"or" has, except where otherwise indicated, the inclusive
meaning represented by the phrase "and/or." The words
"hereof," "herein," "hereby," "hereunder," and similar terms
in this Agreement refer to this Agreement as a whole and not
to any particular provision of this Agreement. An Event of
Default shall "exist," "continue" or be "continuing" until
such Event of Default has been waived in writing by Foothill.
Section, subsection, clause, schedule, and exhibit references
are to this Agreement unless otherwise specified. Any
reference in this Agreement or in the Loan Documents to this
Agreement or any of the Loan Documents shall include all
alterations, amendments, changes, extensions, modifications,
renewals, replacements, substitutions, and supplements,
thereto and thereof, as applicable.
1.5 Schedules and Exhibits. All of the
schedules and exhibits attached to this Agreement shall be
deemed incorporated herein by reference.
2. LOAN AND TERMS OF PAYMENT.
2.1 Revolving Advances.
(a) Subject to the terms and conditions
of this Agreement, Foothill agrees to make advances
("Advances") to Borrower in an amount outstanding not to
exceed at any one time the lesser of (i) the Maximum Revolving
Amount less the outstanding balance of all undrawn or
unreimbursed Letters of Credit, or (ii) the Borrowing Base
less (A) the aggregate amount of all undrawn or unreimbursed
Letters of Credit (other than Inventory Letters of Credit),
less (B) thirty-five percent (35%) of the aggregate amount of
all undrawn or unreimbursed Inventory Letters of Credit. For
purposes of this Agreement, "Borrowing Base", as of any date
of determination, shall mean the result of:
(x) (i) the Cost of Eligible Inventory
minus the Inventory Reserves, multiplied by (ii)
sixty-five percent (65%); provided that such advance
rate applicable to Eligible Inventory shall at no
time exceed ninety percent (90%) of the Liquidation
Value of Inventory; minus
(y) the aggregate amount of reserves, if
any, established by Foothill under Sections 2.1(b),
6.15 and 10.
(b) Anything to the contrary in Section
2.1(a) above notwithstanding, Foothill may create reserves
against the Borrowing Base or reduce its advance rates based
upon Eligible Inventory without declaring an Event of Default
if it determines that there has occurred a Material Adverse
Change.
(c) Foothill shall have no obligation to
make Advances hereunder to the extent they would cause the
outstanding Obligations (other than under the Term Loan) to
exceed the Maximum Revolving Amount.
(d) Amounts borrowed pursuant to this
Section 2.1 may be repaid and, subject to the terms and
conditions of this Agreement, reborrowed at any time during
the term of this Agreement.
2.2 Letters of Credit.
(a) Subject to the terms and conditions
of this Agreement, Foothill agrees to issue letters of credit
for the account of Borrower (each, an "L/C") or to issue
guarantees of payment (each such guaranty, an "L/C Guaranty")
with respect to letters of credit issued by an issuing bank
for the account of Borrower. Foothill shall have no
obligation to issue a Letter of Credit if any of the following
would result:
(i) the sum of 35% of the aggregate
amount of all undrawn and unreimbursed Inventory Letters of
Credit plus 100% of the aggregate amount of all other types of
undrawn and unreimbursed Letters of Credit, would exceed the
Borrowing Base less the amount of outstanding Advances less
the aggregate amount of Inventory Reserves and reserves
established under Section 2.1(b); or
(ii) the aggregate amount of all
undrawn or unreimbursed Letters of Credit (including Inventory
Letters of Credit) would exceed the lower of: (x) the Maximum
Revolving Amount less the amount of outstanding Advances less
the aggregate amount of Inventory Reserves and reserves
established under Section 2.1(b); or (y) Five Million Dollars
($5,000,000); or
(iii) the outstanding Obligations
would exceed the Maximum Revolving Amount.
Borrower expressly understands and agrees that Foothill shall
have no obligation to arrange for the issuance by issuing
banks of the letters of credit that are to be the subject of
L/C Guarantees. Borrower and Foothill acknowledge and agree
that certain of the letters of credit that are to be the
subject of L/C Guarantees may be outstanding on the Closing
Date. Each Letter of Credit shall have an expiry date no
later than 60 days prior to the date on which this Agreement
is scheduled to terminate under Section 3.4 and all such
Letters of Credit shall be in form and substance acceptable to
Foothill in its sole discretion. If Foothill is obligated to
advance funds under a Letter of Credit, Borrower immediately
shall reimburse such amount to Foothill and, in the absence of
such reimbursement, the amount so advanced immediately and
automatically shall be deemed to be an Advance hereunder and,
thereafter, shall bear interest at the rate then applicable to
Advances under Section 2.6.
(b) Borrower hereby agrees to indemnify,
save, defend, and hold Foothill harmless from any loss, cost,
expense, or liability, including payments made by Foothill,
expenses, and reasonable attorneys fees incurred by Foothill
arising out of or in connection with any Letter of Credit,
except in the event of gross negligence or wilful misconduct
by Foothill. Borrower agrees to be bound by the issuing
bank's regulations and interpretations of any Letters of
Credit guarantied by Foothill and opened to or for Borrower's
account or by Foothill's interpretations of any L/C issued by
Foothill to or for Borrower's account, even though this
interpretation may be different from Borrower's own, and
Borrower understands and agrees that Foothill shall not be
liable for any error, negligence, or mistake, whether of
omission or commission, in following Borrower's instructions
or those contained in the Letter of Credit or any
modifications, amendments, or supplements thereto. Borrower
understands that the L/C Guarantees may require Foothill to
indemnify the issuing bank for certain costs or liabilities
arising out of claims by Borrower against such issuing bank.
Borrower hereby agrees to indemnify, save, defend, and hold
Foothill harmless with respect to any loss, cost, expense
(including reasonable attorneys fees), or liability incurred
by Foothill under any L/C Guaranty as a result of Foothill's
indemnification of any such issuing bank, except for the gross
negligence or wilful misconduct by Foothill.
(c) Borrower hereby authorizes and
directs any bank that issues a letter of credit guaranteed by
Foothill to deliver to Foothill all instruments, documents,
and other writings and property received by the issuing bank
pursuant to such letter of credit, and to accept and rely upon
Foothill's instructions and agreements with respect to all
matters arising in connection with such letter of credit and
the related application.
(d) Any and all charges, commissions,
fees, and costs incurred by Foothill relating to the letters
of credit guaranteed by Foothill shall be considered Foothill
Expenses for purposes of this Agreement and immediately shall
be reimbursable by Borrower to Foothill.
(e) Immediately upon the termination of
this Agreement, Borrower agrees to either (i) provide cash
collateral to be held by Foothill in an amount equal to 102%
of the maximum amount of Foothill's obligations under Letters
of Credit, or (ii) cause to be delivered to Foothill releases
of all of Foothill's obligations under outstanding Letters of
Credit. At Foothill's discretion, any proceeds of Collateral
received by Foothill after the occurrence and during the
continuation of an Event of Default may be held as the cash
collateral required by this Section 2.2(e).
(f) If by reason of (i) any change
in any applicable law, treaty, rule, or regulation or any
change in the interpretation or application by any
governmental authority of any such applicable law, treaty,
rule, or regulation, or (ii) compliance by the issuing bank or
Foothill with any direction, request, or requirement
(irrespective of whether having the force of law) of any
governmental authority or monetary authority including,
without limitation, Regulation D of the Board of Governors of
the Federal Reserve System as from time to time in effect (and
any successor thereto):
(i) any reserve, deposit, or similar
requirement is or shall be imposed or modified in respect of
any Letters of Credit issued hereunder, or
(ii) there shall be imposed on the
issuing bank or Foothill any other condition regarding any
letter of credit, or Letter of Credit, as applicable, issued
pursuant hereto;
and the result of the foregoing is to increase, directly or
indirectly, the cost to the issuing bank or Foothill of
issuing, making, guaranteeing, or maintaining any letter of
credit, or Letter of Credit, as applicable, or to reduce the
amount receivable in respect thereof by such issuing bank or
Foothill, then, and in any such case, Foothill may, at any
time within a reasonable period after the additional cost is
incurred or the amount received is reduced, notify Borrower,
and Borrower shall pay on demand such amounts as the issuing
bank or Foothill may specify to be necessary to compensate the
issuing bank or Foothill for such additional cost or reduced
receipt, together with interest on such amount from the date
of such demand until payment in full thereof at the rate set
forth in Section 2.7(a) or (c)(i), as applicable. The
determination by the issuing bank or Foothill, as the case may
be, of any amount due pursuant to this Section 2.2(f), as set
forth in a certificate setting forth the calculation thereof
in reasonable detail, shall, in the absence of manifest or
demonstrable error, be final and conclusive and binding on all
of the parties hereto.
2.3 Term Loan.
(a) Term Loan. Subject to the terms and
conditions of this Agreement, Foothill agrees to make a term
loan ("Term Loan") to Borrower on the Closing Date, in an
amount equal to the lesser of (i) Three Million Dollars
($3,000,000) and (ii) ninety percent (90%) of the Liquidation
Value of the Borrower's Script Files, as determined per the
Schottenstein ▇▇▇▇▇▇▇▇▇ Capital Group, LLC appraisal dated
April 17, 1998, or as determined from time to time per any
subsequent revaluation pursuant to Section 4.6 of this
Agreement. Upon satisfaction of the applicable conditions
precedent set forth in Sections 3.1 and 3.2, Foothill shall
make the proceeds of such Term Loan available to Borrower on
the Closing Date by transferring same day funds equal to the
proceeds of such Term Loan to the Designated Deposit Account.
All amounts outstanding under the Term Loan shall constitute
Obligations. Upon any revaluation of the Borrower's Script
Files after the Closing Date pursuant to Section 4.6 of this
Agreement which reduces the available Term Loan limit, the
Borrower shall repay immediately to Foothill any amount
necessary to reduce the outstanding Term Loan to its available
limit.
(b) Principal and Interest Payments.
Interest only on the Term Loan shall be due and payable
monthly on the first day of each month in arrears commencing
on the first day of the first month following the Closing Date
and continuing on the first day of each succeeding month. On
the termination of this Agreement, whether by its terms, by
prepayment, by acceleration, or otherwise, the outstanding
principal balance, and all accrued and unpaid interest under
the Term Loan shall be due and payable in full.
(c) Prepayment of Term Loan. The unpaid
principal balance of the Term Loan may be prepaid in whole or
in part without penalty or premium at any time during the term
of this Agreement upon 10 days prior written notice by
Borrower to Foothill.
2.4 Intentionally Omitted.
2.5 Overadvances. If, at any time or for any
reason, the amount of Obligations owed by Borrower to Foothill
pursuant to Sections 2.1 and 2.2 is greater than either the
Dollar or percentage limitations set forth in Sections 2.1 and
2.2 (an "Overadvance"), Borrower immediately shall pay to
Foothill, in cash, the amount of such excess to be used by
Foothill to reduce the Obligations.
2.6 Interest and Letter of Credit Fees:
Rates, Payments, and Calculations.
(a) Interest Rate. Except as provided in
clause (b), below, all Obligations (except for undrawn Letters
of Credit and the Term Loan) shall bear interest at a per
annum rate equal to the Reference Rate plus the Margin. As of
the Closing Date and through and including the date on which
the audited financial statements are delivered to Foothill
pursuant to Section 6.3(b) (the "Audited Financials Delivery
Date") for the fiscal year 1998, the Margin shall be the per
annum rate of one and one-eighth percent (1.125%). On the day
following the Audited Financials Delivery Date for the fiscal
year 1998 and on the day following each Audited Financials
Delivery Date thereafter, the Margin shall be adjusted to the
interest rate margin based upon the EBITDA for the most recent
fiscal year end, as reflected in such audited financial
statements, expressed as a per annum rate of interest as
follows:
EBITDA for the prior year is: Then the Margin shall be:
Less than $5,750,000 one and one-eighth
percentage point (1.125%)
Equal to or greater than one percentage point (1.00%)
$5,750,000 but equal to
but equal to or less than
$6,250,0000
Greater than $6,250,000 but three-quarters of one
equal to or less than $7,000,000 percentage point (0.75%)
Greater than $7,000,000 one-quarter of one
percentage point (0.25%)
In the event that Borrower fails to timely provide the
financial statements referred to above in accordance with the
terms of Section 6.3(b) hereof, and without prejudice to any
additional rights under Section 9.1 hereof, the Margin shall
be one and one-eighth percentage point (1.125%) until two
Business Days after the actual delivery of such statements.
The Term Loan shall bear interest at a per annum rate of
eleven and three-quarters percent (11.75%).
(b) Letter of Credit Fee. Borrower shall
pay Foothill a fee (in addition to the charges, commissions,
fees, and costs set forth in Section 2.2(d)) equal to one and
one-half percent (1.50%) per annum times the aggregate undrawn
amount of all outstanding Letters of Credit.
(c) Default Rate. Upon the occurrence
and during the continuation of an Event of Default, (i) all
Obligations (except for undrawn Letters of Credit and the Term
Loan) shall bear interest at a per annum rate equal to the
Reference Rate plus the Margin then in effect plus three
percentage points (3.0%), (ii) the Term Loan shall bear
interest at a per annum rate equal to fourteen and three-
quarters percent (14.75%), and (iii) the Letter of Credit fee
provided in Section 2.6(b) shall be increased to four and one-
half percentage points (4.50%) per annum times the amount of
the undrawn Letters of Credit that were outstanding during the
immediately preceding month.
(d) Minimum Interest. In no event shall
the rate of interest chargeable hereunder for any day be less
than seven percent (7.0%) per annum. To the extent that
interest accrued hereunder at the rate set forth herein would
be less than the foregoing minimum daily rate, the interest
rate chargeable hereunder for such day automatically shall be
deemed increased to the minimum rate. To the extent that
interest accrued hereunder at the rate set forth herein
(including the minimum interest rate) would yield less than
the foregoing minimum amount, the interest rate chargeable
hereunder for the period in question automatically shall be
deemed increased to that rate that would result in the minimum
amount of interest being accrued and payable hereunder.
(e) Payments. Interest and Letter of
Credit fees payable hereunder shall be due and payable, in
arrears, on the first day of each month during the term
hereof. Borrower hereby authorizes Foothill, at its option,
without prior notice to Borrower, to charge such interest and
Letter of Credit fees, all Foothill Expenses (as and when
incurred), the charges, commissions, fees, and costs provided
for in Section 2.2(d) (as and when accrued or incurred), the
fees and charges provided for in Section 2.11 (as and when
accrued or incurred), and all installments or other payments
due under the Term Loan or any Loan Document to Borrower's
Loan Account, which amounts thereafter shall accrue interest
at the rate then applicable to Advances hereunder. Any
interest not paid when due shall be compounded and shall
thereafter accrue interest at the rate then applicable to
Advances hereunder.
(f) Computation. The Reference Rate as
of the date of this Agreement is eight and one-half percent
(8.50%) per annum. In the event the Reference Rate is changed
from time to time hereafter, the applicable rate of interest
hereunder automatically and immediately shall be increased or
decreased by an amount equal to such change in the Reference
Rate. All interest and fees chargeable under the Loan
Documents shall be computed on the basis of a 360 day year for
the actual number of days elapsed.
(g) Intent to Limit Charges to Maximum
Lawful Rate. In no event shall the interest rate or rates
payable under this Agreement, plus any other amounts paid in
connection herewith, exceed the highest rate permissible under
any law that a court of competent jurisdiction shall, in a
final determination, deem applicable. Borrower and Foothill,
in executing and delivering this Agreement, intend legally to
agree upon the rate or rates of interest and manner of payment
stated within it; provided, however, that, anything contained
herein to the contrary notwithstanding, if said rate or rates
of interest or manner of payment exceeds the maximum allowable
under applicable law, then, ipso facto as of the date of this
Agreement, Borrower is and shall be liable only for the
payment of such maximum as allowed by law, and payment
received from Borrower in excess of such legal maximum,
whenever received, shall be applied to reduce the principal
balance of the Obligations to the extent of such excess.
2.7 Collection of Accounts.
(a) Borrower shall cause all proceeds of the
Collateral and all Collections received by Borrower and
deposited in any bank account to be deposited to or wire
transferred to the Blocked Account daily. Cash received by
Borrower at any retail store location may be deposited by
Borrower into any bank account, provided such cash shall be
sent by electronic funds transfer (including, but not limited
to, ACH transfers) on a daily basis to the Blocked Account.
Borrower shall irrevocably authorize and direct in writing, in
form and substance satisfactory to Foothill, each of the banks
into which proceeds from the sales of Collateral from each
retail store location of Borrower are at any time deposited to
send all funds deposited in such accounts by electronic funds
transfer on a daily basis to the Blocked Account and such
banks shall agree in writing to do so. Such authorization and
direction shall not be rescinded, revoked or modified without
the prior written consent of Foothill. Additionally, no
Blocked Account Agreement or arrangement contemplated thereby
shall be modified by Borrower without the prior written
consent of Foothill. Upon the terms and subject to the
conditions set forth in the Blocked Account Agreement, all
amounts received in the Blocked Account shall be wired each
Business Day into an account (the "Foothill Account")
maintained by Foothill at a depository selected by Foothill.
(b) To the extent Borrower may elect, at Borrower's
option, to use an Armored Car Service to pick up and collect
cash or other proceeds of sales of Inventory from a retail
store location, Borrower shall deliver to the Armored Car
Service all proceeds from sales of Inventory and other
Collateral from such retail store location of Borrower.
Borrower shall irrevocably authorize and direct such Armored
Car Service in writing, in form and substance satisfactory to
Foothill, to deposit all such proceeds at any time received by
the Armored Car Service directly into the Blocked Account, to
any other account of Borrower the contents of which are to be
transferred to the Blocked Account as provided in Section
2.7(a) hereof, or as Foothill may otherwise direct. Such
authorization and direction shall not be rescinded, revoked or
modified without the prior written consent of Foothill. As of
the date hereof, the only Armored Car Services used by
Borrower are set forth on Schedule 2.7(b) hereto. Borrower
shall not use any other Armored Car Service for any purpose,
except if (A) Foothill shall have received not less than
thirty (30) days prior written notice of the intention of
Borrower to use such other Armored Car Service, (B) Foothill
shall have received an agreement in writing from such other
Armored Car Service, in form and substance satisfactory to
Foothill, duly authorized, executed and delivered by such
other Armored Car Service, (C) no Event of Default shall exist
or have occurred and (D) such Armored Car Service is
reasonably acceptable to Foothill.
2.8 Crediting Payments; Application of
Collections. The receipt of any Collections by Foothill
(whether from transfers to Foothill by the Blocked Account
Bank pursuant to the Blocked Account Agreement or otherwise)
immediately shall be applied provisionally to reduce the
Obligations outstanding under Section 2.1, but shall not be
considered a payment on account unless such Collection item is
a wire transfer of immediately available federal funds and is
made to the Foothill Account or unless and until such
Collection item is honored when presented for payment. From
and after the Closing Date, Foothill shall be entitled to
charge Borrower for one (1) Business Day of `clearance' or
`float' at the rate set forth in Section 2.6(a)(i) or
Section 2.6(c)(i), as applicable, on all Collections that are
received by Foothill (regardless of whether forwarded by the
Blocked Account Banks to Foothill, whether provisionally
applied to reduce the Obligations under Section 2.1, or
otherwise). This across-the-board one (1) Business Day
clearance or float charge on all Collections is acknowledged
by the parties to constitute an integral aspect of the pricing
of Foothill's financing of Borrower, and shall apply
irrespective of the characterization of whether receipts are
owned by Borrower or Foothill, and whether or not there are
any outstanding Advances, the effect of such clearance or
float charge being the equivalent of charging one (1) Business
Day of interest on such Collections. Should any Collection
item not be honored when presented for payment, then Borrower
shall be deemed not to have made such payment, and interest
shall be recalculated accordingly. Anything to the contrary
contained herein notwithstanding, any Collection item shall be
deemed received by Foothill only if it is received into the
Foothill Account on a Business Day on or before 11:00 a.m.
California time. If any Collection item is received into the
Foothill Account on a non-Business Day or after 11:00 a.m.
California time on a Business Day, it shall be deemed to have
been received by Foothill as of the opening of business on the
immediately following Business Day.
2.9 Designated Account. Foothill is
authorized to make the Advances, the Letters of Credit and the
Term Loan under this Agreement based upon telephonic or other
instructions received from anyone purporting to be an
Authorized Person, or without instructions if pursuant to
Section 2.6(e). Borrower agrees to establish and maintain the
Designated Account with the Designated Account Bank for the
purpose of receiving the proceeds of the Advances requested by
Borrower and made by Foothill hereunder. Borrower may at any
time change the Designated Account Bank and the Designated
Account upon five (5) days prior written notice to Foothill.
Unless otherwise agreed by Foothill and Borrower, any Advance
requested by Borrower and made by Foothill hereunder shall be
made to the Designated Account.
2.10 Maintenance of Loan Account; Statements of
Obligations. Foothill shall maintain an account on its books
in the name of Borrower (the "Loan Account") on which Borrower
will be charged with all Advances and the Term Loan made by
Foothill to Borrower or for Borrower's account, including,
accrued interest, Foothill Expenses, and any other payment
Obligations of Borrower. In accordance with Section 2.7, the
Loan Account will be credited with all payments received by
Foothill from Borrower or for Borrower's account, including
all amounts received in the Foothill Account from any Blocked
Account Bank. Foothill shall render statements regarding the
Loan Account to Borrower, including principal, interest, fees,
and including an itemization of all charges and expenses
constituting Foothill Expenses owing, and such statements
shall be conclusively presumed to be correct and accurate and
constitute an account stated between Borrower and Foothill
unless, within 30 days after receipt thereof by Borrower,
Borrower shall deliver to Foothill written objection thereto
describing the error or errors contained in any such
statements.
2.11 Fees. Borrower shall pay to Foothill the
following fees:
(a) Closing Fee. On the Closing Date, a
closing fee in an amount equal to three-quarters of one
percent (0.75%) times the Credit Line Amount on the Closing
Date, which fee shall be fully earned when due, payable at
closing, and non-refundable when paid.
(b) Unused Line Fee. On the first day of
each month during the term of this Agreement, an unused line
fee in an amount equal to three-eighths of one percentage
point (0.375%) per annum times the Average Unused Portion of
Maximum Amount, which fee shall be computed on the basis of a
360 day year for actual number of days elapsed, fully earned
when due, and non-refundable when paid.
(c) First Anniversary Facility Fee. On
the first anniversary of the Closing Date, a first anniversary
facility fee in an amount equal to one-quarter of one percent
(0.25%) of the Credit Line Amount, which fee shall be fully
earned upon the Closing Date and shall be payable on the
earlier of (i) the Termination Date or (ii) the first
anniversary of the Closing Date;
(d) Financial Examination, Documentation,
and Appraisal Fees. Foothill's customary fee of $650 per day
per examiner, plus out-of-pocket expenses for each financial
analysis and examination (i.e., audits) of Borrower performed
by personnel employed by Foothill; an appraisal fee of $1,500
per day per appraiser, plus out-of-pocket expenses for each
appraisal of the Collateral performed by personnel employed by
Foothill; and, the actual charges paid or incurred by Foothill
if it elects to employ the services of one or more third
Persons to perform such financial analyses and examinations
(i.e., audits) of Borrower or to appraise the Collateral,
which fees shall be fully earned when due and non-refundable
when paid; and
(e) Servicing Fee. On the first day of
each month during the term of this Agreement, and thereafter
so long as any Obligations are outstanding, a servicing fee in
an amount equal to Three Thousand Dollars ($3,000), which fee
shall be fully earned when due and non-refundable when paid.
2.12 Capital Adequacy. If after the date
hereof, any Lender or any Affiliate of such Lender shall have
reasonably determined that the adoption of any applicable law,
governmental rule, regulation or order regarding the capital
adequacy of banks or bank holding companies, or any change
therein, or any change in the interpretation or administration
thereof by any governmental authority, central bank or
comparable agency charged with the interpretation or
administration thereof, or compliance by any Lender or any
Affiliate of such Lender with any request or directive
regarding capital adequacy (whether or not having the force of
law) of any such governmental authority, central bank or
comparable agency, has or would have the effect of reducing
the rate of return on such Lender's or any Affiliate's of such
Lender capital as a consequence of the Lender's Commitment or
obligations hereunder to a level below that which it could
have achieved but for such adoption, change or compliance
(taking into consideration such Lender's or any Affiliate's of
such Lender policies with respect to capital adequacy
immediately before such adoption, change or compliance and
assuming that such Lender's or any Affiliate's of such Lender,
capital was fully utilized prior to such adoption, change or
compliance), then, upon demand by such Lender, the Borrower
shall immediately pay to the Lender such additional amounts as
shall be sufficient to compensate such Lender for any such
reduction actually suffered. A certificate of such Lender
setting forth the amount to be paid to such Lender by the
Borrower as a result of any event referred to in this
paragraph shall, absent manifest error, be conclusive.
2.13 Credit Line Amount. At any time after the
Closing Date, the Borrower may increase the Credit Line Amount
up to the Maximum Amount, provided that the following
conditions have been satisfied: (i) no Event of Default shall
exist and be continuing under this Agreement or any of the
Loan Documents, (ii) Foothill shall have arranged for the
syndication for such amount to be provided by a third-party
lender and (iii) the Borrower shall pay to Foothill an amount
equal to three-quarters of one percent (0.75%) times the
amount of such increase in the Credit Line Amount.
3. CONDITIONS; TERM OF AGREEMENT.
3.1 Conditions Precedent to the Initial
Advance, Letter of Credit and the Term Loan. The obligation
of Foothill to make the initial Advance, to issue the initial
Letter of Credit and to make the Term Loan is subject to the
fulfillment, to the satisfaction of Foothill and its counsel,
of each of the following conditions on or before the Closing
Date:
(a) the Closing Date shall occur on or
before May 15, 1998;
(b) Foothill shall have received searches
reflecting the filing of its financing statements and fixture
filings;
(c) Foothill shall have received each of
the following documents, duly executed, and each such document
shall be in full force and effect:
a. the Blocked Account Agreements;
b. the Disbursement Letter;
c. the Pay-Off Letter, together with UCC
termination statements and other documentation evidencing the
termination by Existing Lender of its Liens in and to the
properties and assets of Borrower;
d. the Mortgages;
e. the Pledge Agreement;
f. Rx Guaranty;
▇. ▇▇▇▇▇▇▇ Guaranty;
h. Rx Security Agreement;
▇. ▇▇▇▇▇▇▇ Security Agreement;
▇. ▇▇▇▇▇▇▇▇ Intercreditor Agreement; and
k. Trademark Security Agreement;
(d) Foothill shall have received a
certificate from the Secretary of Borrower attesting to the
resolutions of Borrower's Board of Directors authorizing its
execution, delivery, and performance of this Agreement and the
other Loan Documents to which Borrower is a party and
authorizing specific officers of Borrower to execute the same;
(e) Foothill shall have received copies
of each of Borrower's, ▇▇▇▇▇▇'▇ and Rx's Governing Documents,
as amended, modified, or supplemented to the Closing Date,
certified by the Secretary of Borrower;
(f) Foothill shall have received a
certificate of status with respect to Borrower, ▇▇▇▇▇▇▇ and
Rx, dated within 10 days of the Closing Date, such certificate
to be issued by the appropriate officer of the jurisdiction of
organization of Borrower, which certificate shall indicate
that Borrower is in good standing in such jurisdiction;
(g) Foothill shall have received
certificates of status with respect to Borrower, ▇▇▇▇▇▇▇ and
Rx, each dated within 15 days of the Closing Date, such
certificates to be issued by the appropriate officer of the
jurisdictions in which its failure to be duly qualified or
licensed would constitute a Material Adverse Change, which
certificates shall indicate that Borrower is in good standing
in such jurisdictions;
(h) Foothill shall have received a
certificate of insurance, together with the endorsements
thereto, as are required by Section 6.10, the form and
substance of which shall be satisfactory to Foothill and its
counsel;
(i) Foothill shall have received duly
executed certificates of title with respect to that portion of
the Collateral that is subject to certificates of title;
(j) Foothill shall have received such
Collateral Access Agreements from lessors, warehousemen,
bailees, and other third persons as Foothill may require;
(k) Foothill shall have received an
opinion of Borrower's counsel in form and substance
satisfactory to Foothill in its sole discretion;
(l) Foothill shall have received (i)
appraisals of the Real Property Collateral, satisfactory to
Foothill, and (ii) mortgagee title insurance policies (or
marked commitments to issue the same) for the Real Property
Collateral issued by a title insurance company satisfactory to
Foothill (each a "Mortgage Policy" and, collectively, the
"Mortgage Policies") in amounts satisfactory to Foothill
assuring Foothill that the Mortgages on such Real Property
Collateral are valid and enforceable first priority mortgage
Liens on such Real Property Collateral free and clear of all
defects and encumbrances except Permitted Liens, and the
Mortgage Policies shall otherwise be in form and substance
reasonably satisfactory to Foothill;
(m) Foothill shall have received
appraisals of the Inventory, including, without limitation, an
appraisal of the Script Files, in each case satisfactory to
Foothill;
(n) Foothill shall have received both a
phase-I environmental report and a phase-II environmental
report and a real estate survey shall have been completed with
respect to the Real Property Collateral and copies thereof
delivered to Foothill; the environmental consultants and
surveyors retained for such reports or surveys, the scope of
the reports or surveys, and the results thereof shall be
acceptable to Foothill in its sole discretion;
(o) Foothill shall have received
satisfactory evidence that all tax returns required to be
filed by Borrower have been timely filed and all taxes upon
Borrower or its properties, assets, income, and franchises
(including real property taxes and payroll taxes) have been
paid prior to delinquency, except such taxes that are the
subject of a Permitted Protest;
(p) After giving effect to the making of
the Term Loan and the requested initial Advance hereunder,
Borrower shall have demonstrated that it has, on the Closing
Date, (i) funds available to be borrowed hereunder, less (ii)
the aggregate deterioration, if any, in Borrower's accounts
payable since Foothill's prospect audit, in an aggregate
amount equal to or greater than Two Million Seven Hundred
Fifty Thousand Dollars ($2,750,000);
(q) Foothill shall have received a draft
Form 10-K for the fiscal year ended January 31, 1998.
(r) all other documents and legal matters
in connection with the transactions contemplated by this
Agreement shall have been delivered, executed, or recorded and
shall be in form and substance satisfactory to Foothill and
its counsel.
3.2 Conditions Precedent to all Advances, all
Letters of Credit and the Term Loan. The following shall be
conditions precedent to all Advances, all Letters of Credit
and the Term Loan hereunder:
(a) the representations and warranties
contained in this Agreement and the other Loan Documents shall
be true and correct in all respects on and as of the date of
such extension of credit, as though made on and as of such
date (except to the extent that such representations and
warranties relate solely to an earlier date);
(b) no Default or Event of Default shall
have occurred and be continuing on the date of such extension
of credit, nor shall either result from the making thereof;
and
(c) no injunction, writ, restraining
order, or other order of any nature prohibiting, directly or
indirectly, the extending of such credit shall have been
issued and remain in force by any governmental authority
against Borrower, Foothill or any of their Affiliates.
3.3 Condition Subsequent. As a condition
subsequent to initial closing hereunder, Borrower shall
perform or cause to be performed the following (the failure by
Borrower to so perform or cause to be performed constituting
an Event of Default):
(a) within 30 days of the Closing Date,
deliver to Foothill the copies of the policies of insurance,
together with the endorsements thereto, as are required by
Section 6.10, the form and substance of which shall be
satisfactory to Foothill and its counsel.
(b) on or before August 31, 1998,
Borrower shall receive at least One Million Dollars
($1,000,000) in net proceeds from an increase in the loan with
McKesson.
(c) Borrower shall use its best efforts
to obtain within 30 days of the Closing Date a tenant
estoppel, in form and substance reasonably satisfactory to
Foothill, for any lease in connection with the Real Property
Collateral.
(d) Within 30 days of the Closing Date,
Foothill shall have received agreements by the Armored Car
Services in favor of Foothill acknowledging Foothill's first
priority security interest in the monies held by them, and
agreeing to transfer all such amounts to the Blocked Account.
(e) Within 30 days of the Closing Date,
Foothill shall have received Credit Card Acknowledgments, in
each case, duly authorized, executed and delivered by the
Credit Card Issuers and Credit Card Processors.
(f) Within 30 days of the Closing Date,
Borrower shall deliver to Foothill certified copies of the
articles of incorporation of ▇▇▇▇▇▇▇, a certificate of good
standing for Borrower in the State of New Jersey and a
certificate of good standing for Rx in the State of
Massachusetts.
3.4 Term. This Agreement shall become
effective upon the execution and delivery hereof by Borrower
and Foothill and shall continue in full force and effect for a
term ending on the date (the "Termination Date") that is five
(5) years from the Closing Date. The foregoing
notwithstanding, Foothill shall have the right to terminate
its obligations under this Agreement immediately and without
notice upon the occurrence and during the continuation of an
Event of Default.
3.5 Effect of Termination. On the date of
termination of this Agreement, all Obligations (including
contingent reimbursement obligations of Borrower with respect
to any outstanding Letters of Credit) immediately shall become
due and payable without notice or demand. No termination of
this Agreement, however, shall relieve or discharge Borrower
of Borrower's duties, Obligations, or covenants hereunder, and
Foothill's continuing security interests in the Collateral
shall remain in effect until all Obligations have been fully
and finally discharged and Foothill's obligation to provide
additional credit hereunder is terminated.
3.6 Early Termination by Borrower. Borrower
has the option, at any time upon 30 days prior written notice
to Foothill, to terminate this Agreement by paying to
Foothill, in cash, the Obligations (including, either (i) cash
collateral to be held by Foothill in an amount equal to 102%
of the maximum amount of Foothill's obligations under any
outstanding Letters of Credit or (ii) the delivery to Foothill
of releases of all of Foothill's obligations under outstanding
Letters of Credit), in full, together with a premium (the
"Early Termination Premium") equal to Three Hundred Fifty
Thousand Dollars ($350,000) multiplied by the number of full
or partial years remaining until the Termination Date,
provided that, such Early Termination Premium shall not be due
within six (6) months prior the Termination Date. In the
event this Agreement is terminated (i) as a result of a
majority of the assets or the capital stock of the Borrower
being acquired by another Person or (ii) as a result of a
merger, consolidation or other business combination with
another Person having a book value of its assets equal to or
greater than the book value of the assets of Borrower as of
the date of such transaction (whether or not the Borrower is
the surviving entity after giving effect to such transaction),
the Early Termination Premium shall be (x) Two Hundred
Thousand Dollars ($200,000) if such termination occurs on or
prior to the first anniversary of the Closing Date or (y) if
such termination occurs after the first anniversary of the
Closing Date, in an amount equal to One Hundred Seventy Five
Thousand Dollars ($175,000) multiplied by the number of full
or partial years remaining until the Termination Date.
3.7 Termination Upon Event of Default. If
Foothill terminates this Agreement upon the occurrence of an
Event of Default that intentionally is caused by Borrower for
the purpose, in Foothill's reasonable and good faith judgment,
of avoiding payment of the Early Termination Premium provided
in Section 3.6, in view of the impracticability and extreme
difficulty of ascertaining actual damages and by mutual
agreement of the parties as to a reasonable calculation of
Foothill's lost profits as a result thereof, Borrower shall
pay to Foothill upon the effective date of such termination, a
premium in an amount equal to the Early Termination Premium.
The Early Termination Premium shall be presumed to be the
amount of damages sustained by Foothill as the result of the
early termination and Borrower agrees that it is reasonable
under the circumstances currently existing. The Early
Termination Premium provided for in this Section 3.7 shall be
deemed included in the Obligations.
4. CREATION OF SECURITY INTEREST.
4.1 Grant of Security Interest. Borrower
hereby grants to Foothill a continuing security interest in
all currently existing and hereafter acquired or arising
Personal Property Collateral in order to secure prompt
repayment of any and all Obligations and in order to secure
prompt performance by Borrower of each of its covenants and
duties under the Loan Documents. Foothill's security
interests in the Personal Property Collateral shall attach to
all Personal Property Collateral without further act on the
part of Foothill or Borrower. Anything contained in this
Agreement or any other Loan Document to the contrary
notwithstanding, except for the sale of Inventory to buyers in
the ordinary course of business, Borrower has no authority,
express or implied, to dispose of any item or portion of the
Personal Property Collateral or the Real Property Collateral.
4.2 Negotiable Collateral. In the event that
any Collateral, including proceeds, is evidenced by or
consists of Negotiable Collateral, Borrower, immediately upon
the request of Foothill, shall endorse and deliver physical
possession of such Negotiable Collateral to Foothill.
4.3 Collection of Accounts, General
Intangibles, and Negotiable Collateral. At any time after the
occurrence and continuance of an Event of Default, Foothill or
Foothill's designee may (a) notify customers or Account
Debtors of Borrower that the Accounts, General Intangibles, or
Negotiable Collateral have been assigned to Foothill or that
Foothill has a security interest therein, and (b) collect the
Accounts, General Intangibles, and Negotiable Collateral
directly and charge the collection costs and expenses to the
Loan Account. Borrower agrees that it will hold in trust for
Foothill, as Foothill's trustee, any Collections that it
receives and immediately will deliver said Collections to
Foothill in their original form as received by Borrower.
4.4 Delivery of Additional Documentation
Required. At any time upon the request of Foothill, Borrower
shall execute and deliver to Foothill all financing
statements, continuation financing statements, fixture
filings, security agreements, pledges, assignments,
endorsements of certificates of title, applications for title,
affidavits, reports, notices, schedules of accounts, letters
of authority, and all other documents that Foothill reasonably
may request, in form satisfactory to Foothill, to perfect and
continue perfected Foothill's security interests in the
Collateral, and in order to fully consummate all of the
transactions contemplated hereby and under the other the Loan
Documents.
4.5 Power of Attorney. Borrower hereby
irrevocably makes, constitutes, and appoints Foothill (and any
of Foothill's officers, employees, or agents designated by
Foothill) as Borrower's true and lawful attorney, with power
to (a) if Borrower refuses to, or fails timely to execute and
deliver any of the documents described in Section 4.4, sign
the name of Borrower on any of the documents described in
Section 4.4, (b) at any time that an Event of Default has
occurred and is continuing, sign Borrower's name on any
invoice or ▇▇▇▇ of lading relating to any Account, drafts
against Account Debtors, schedules and assignments of
Accounts, verifications of Accounts, and notices to Account
Debtors, (c) send requests for verification of Accounts, (d)
endorse Borrower's name on any Collection item that may come
into Foothill's possession, (e) at any time that an Event of
Default has occurred and is continuing, notify the post office
authorities to change the address for delivery of Borrower's
mail to an address designated by Foothill, to receive and open
all mail addressed to Borrower, and to retain all mail
relating to the Collateral and forward all other mail to
Borrower, (f) at any time that an Event of Default has
occurred and is continuing, make, settle, and adjust all
claims under Borrower's policies of insurance and make all
determinations and decisions with respect to such policies of
insurance, and (g) at any time that an Event of Default has
occurred and is continuing, settle and adjust disputes and
claims respecting the Accounts directly with Account Debtors,
for amounts and upon terms that Foothill determines to be
reasonable, and Foothill may cause to be executed and
delivered any documents and releases that Foothill determines
to be necessary. The appointment of Foothill as Borrower's
attorney, and each and every one of Foothill's rights and
powers, being coupled with an interest, is irrevocable until
all of the Obligations have been fully and finally repaid and
performed and Foothill's obligation to extend credit hereunder
is terminated.
4.6 Right to Inspect. Foothill (through any
of its officers, employees, or agents) shall have the right,
from time to time hereafter to inspect Borrower's Books and to
check, test, and appraise the Collateral in order to verify
Borrower's financial condition or the amount, quality, value,
condition of, or any other matter relating to, the Collateral.
Quarterly "cycle counts" shall be performed by a third party
acceptable to Foothill. Absent an Event of Default under this
Agreement, Foothill shall have the right to conduct semi-
annual appraisals of the Collateral and quarterly appraisals
of the Script Files. At any time that an Event of Default has
occurred and is continuing, Foothill shall have the right to
conduct appraisals of the Collateral, as often as deemed
necessary by Foothill.
4.7 Release of Health Care Receivables. The
Borrower and Foothill acknowledge that the Borrower has sold,
and will in the future sell, to McKesson certain of its Health
Care Receivables subject to the McKesson Receivables Agreement
and the McKesson Intercreditor Agreement. Upon Borrower's
request and at Borrower's expense, Foothill will terminate and
release the security interest of Foothill in other Health Care
Receivables, provided that each of the following conditions is
satisfied as determined in good faith by Foothill: (a)
Foothill shall have received such request from Borrower not
less than thirty (30) days prior to the date of such
termination and release by Foothill; (b) on or before the date
of such release and termination by Foothill, Foothill shall
have received evidence, in form and substance reasonably
satisfactory to Foothill, that Borrower has entered into
financing or factoring arrangements and subordination or
intercreditor agreements with a bank, financial institution or
other Person, in each case with a bank, financial institution
or other Person and on terms and conditions acceptable to
Foothill (it being understood that terms and conditions which
are not more adverse to the Borrower or Foothill than the
terms and conditions of the McKesson Receivables Agreement and
the McKesson Intercreditor Agreement shall be deemed
acceptable to Foothill), in a bona fide arm's length
transaction to the extent permitted under Section 7.4 hereof
as to factoring arrangements or Section 7.1 hereof as to
financing arrangements pursuant to which such bank, other
financial institution or other Person shall make loans based
on the amount of such Health Care Receivables or shall
purchase such Health Care Receivables and shall have a
perfected security interest in such Health Care Receivables;
(c) Borrower shall have received cash or, within two (2)
Business Days, available funds constituting proceeds from the
sale of such Health Care Receivables or proceeds from the
loans based on the amount of such Health Care Receivables; (d)
on the date of such release, and after giving effect thereto,
no Event of Default or act, condition or event which with
notice or passage of time or both would constitute an Event of
Default shall exist or have occurred; and (e) all proceeds
from the sale of such Health Care Receivables or from loans
based on the amount of such Health Care Receivables shall be
received by Foothill for application to the Obligations in
such order and manner and Foothill may determine.
5. REPRESENTATIONS AND WARRANTIES.
In order to induce Foothill to enter into this
Agreement, Borrower makes the following representations and
warranties which shall be true, correct, and complete in all
respects as of the date hereof, and shall be true, correct,
and complete in all respects as of the Closing Date, and at
and as of the date of the making of each Advance, Letter of
Credit or Term Loan made thereafter, as though made on and as
of the date of such Advance, Letter of Credit or Term Loan
(except to the extent that such representations and warranties
relate solely to an earlier date) and such representations and
warranties shall survive the execution and delivery of this
Agreement:
5.1 No Encumbrances. Each of Borrower and its
Subsidiaries has good and indefeasible title to the
Collateral, free and clear of Liens except for Permitted
Liens.
5.2 Intentionally Omitted.
5.3 Eligible Inventory. All Eligible
Inventory is of good and merchantable quality, free from
defects.
5.4 Equipment. All of the Equipment is used
or held for use in Borrower's business and is fit for such
purposes.
5.5 Location of Inventory and Equipment. The
Inventory and Equipment are not stored with a bailee,
warehouseman, or similar party (without Foothill's prior
written consent) and are located only at the locations
identified on Schedule 6.12 or otherwise permitted by Section
6.12.
5.6 Inventory Records. Each of Borrower and
its Subsidiaries keeps correct and accurate records itemizing
and describing the kind, type, quality, and quantity of the
Inventory, and Borrower's or the Subsidiaries cost therefor.
5.7 Location of Chief Executive Office; FEIN.
The chief executive office of Borrower is located at the
address indicated in the preamble to this Agreement and
Borrower's FEIN is ▇▇-▇▇▇▇▇▇▇.
5.8 Due Organization and Qualification;
Subsidiaries.
(a) Each of Borrower and its Subsidiaries
is duly organized and existing and in good standing under the
laws of the jurisdiction of its incorporation and qualified
and licensed to do business in, and in good standing in, any
state where the failure to be so licensed or qualified
reasonably could be expected to have a Material Adverse
Change.
(b) Set forth on Schedule 5.8, is a
complete and accurate list of Borrower's direct and indirect
Subsidiaries, showing: (i) the jurisdiction of their
incorporation; (ii) the number of shares of each class of
common and preferred stock authorized for each of such
Subsidiaries; and (iii) the number and the percentage of the
outstanding shares of each such class owned directly or
indirectly by Borrower. All of the outstanding capital stock
of each such Subsidiary has been validly issued and is fully
paid and non-assessable.
(c) Except as set forth on Schedule 5.8,
no capital stock (or any securities, instruments, warrants,
options, purchase rights, conversion or exchange rights,
calls, commitments or claims of any character convertible into
or exercisable for capital stock) of any direct or indirect
Subsidiary of Borrower is subject to the issuance of any
security, instrument, warrant, option, purchase right,
conversion or exchange right, call, commitment or claim of any
right, title, or interest therein or thereto.
(d) None of Borrower's Subsidiaries has
any material operations or assets, other than any leases owned
by Rx and certain real property owned by ▇▇▇▇▇▇▇. All
Collateral is the property of Borrower and not the property of
any Subsidiary of Borrower, other than any leases owned by Rx
and certain real property owned by ▇▇▇▇▇▇▇.
5.9 Due Authorization; No Conflict.
(a) The execution, delivery, and
performance by Borrower and, as applicable, the Borrower's
Subsidiaries of this Agreement and the Loan Documents to which
any of them is a party have been duly authorized by all
necessary corporate action.
(b) The execution, delivery, and
performance by each of the Borrower and its Subsidiaries of
this Agreement and the Loan Documents to which it is a party
do not and will not (i) violate any provision of federal,
state, or local law or regulation (including Regulations G, T,
U, and X of the Federal Reserve Board) applicable to Borrower
or its Subsidiaries, the Governing Documents of Borrower or
its Subsidiaries, or any order, judgment, or decree of any
court or other Governmental Authority binding on Borrower or
its Subsidiaries, (ii) except for the consent of McKesson,
which consent is evidenced by the McKesson Intercreditor
Agreement, conflict with, result in a breach of, or constitute
(with due notice or lapse of time or both) a default under any
material contractual obligation or material lease of Borrower
or its Subsidiaries, (iii) result in or require the creation
or imposition of any Lien of any nature whatsoever upon any
properties or assets of Borrower or its Subsidiaries, other
than Permitted Liens, or (iv) require any approval of
stockholders or any approval or consent of any Person under
any material contractual obligation of Borrower or its
Subsidiaries.
(c) Other than the filing of appropriate
financing statements, fixture filings, and mortgages, the
execution, delivery, and performance by Borrower or its
Subsidiaries of this Agreement and the Loan Documents to which
Borrower or its Subsidiaries is a party do not and will not
require any registration with, consent, or approval of, or
notice to, or other action with or by, any federal, state,
foreign, or other Governmental Authority or other Person.
(d) This Agreement and the Loan Documents
to which Borrower or its Subsidiaries is a party, and all
other documents contemplated hereby and thereby, when executed
and delivered by Borrower or its Subsidiaries will be the
legally valid and binding obligations of Borrower or its
Subsidiaries, as the case may be, enforceable against Borrower
or its Subsidiaries, as the case may be, in accordance with
their respective terms, except as enforcement may be limited
by equitable principles or by bankruptcy, insolvency,
reorganization, moratorium, or similar laws relating to or
limiting creditors' rights generally.
(e) The Liens granted by Borrower and its
Subsidiaries to Foothill in and to its properties and assets
pursuant to this Agreement and the other Loan Documents are
validly created, perfected, and first priority Liens, subject
only to Permitted Liens.
5.10 Litigation. There are no actions or
proceedings pending by or against either Borrower or its
Subsidiaries before any court or administrative agency and
none of Borrower or its Subsidiaries has knowledge or belief
of any pending, threatened, or imminent litigation,
governmental investigations, or claims, complaints, actions,
or prosecutions involving Borrower, its Subsidiaries or any
guarantor of the Obligations, except for: (a) ongoing
collection matters in which Borrower or its Subsidiaries is
the plaintiff; (b) matters disclosed on Schedule 5.10; and (c)
matters arising after the date hereof that, if decided
adversely to Borrower or its Subsidiaries, would not result in
a Material Adverse Change.
5.11 No Material Adverse Change. All financial
statements relating to Borrower, its Subsidiaries or any
guarantor of the Obligations that have been delivered by
Borrower to Foothill have been prepared in accordance with
GAAP (except, in the case of unaudited financial statements,
for the lack of footnotes and being subject to year-end audit
adjustments) and fairly present Borrower's (or such
Subsidiaries' or guarantor's, as applicable) financial
condition as of the date thereof and Borrower's results of
operations for the period then ended. There has not been a
Material Adverse Change with respect to Borrower, its
Subsidiaries or such guarantor, as applicable, since the date
of the latest financial statements submitted to Foothill on or
before the Closing Date.
5.12 Solvency. The Borrower is solvent. After
giving effect to the ▇▇▇▇▇▇▇ Guaranty or the Rx Guaranty, as
appropriate, and subject to the limitations set forth in
Section 7 thereof, each of the Subsidiaries is Solvent. No
transfer of property is being made by any of Borrower or its
Subsidiaries and no obligation is being incurred by any of
Borrower or its Subsidiaries in connection with the
transactions contemplated by this Agreement or the other Loan
Documents with the intent to hinder, delay, or defraud either
present or future creditors of Borrower or its Subsidiaries.
5.13 Employee Benefits. None of Borrower, any
of its Subsidiaries, or any of their ERISA Affiliates
maintains or contributes to any Benefit Plan, other than those
listed on Schedule 5.13. Borrower, each of its Subsidiaries
and each ERISA Affiliate have satisfied the minimum funding
standards of ERISA and the IRC with respect to each Benefit
Plan to which it is obligated to contribute. No ERISA Event
has occurred nor has any other event occurred that may result
in an ERISA Event that reasonably could be expected to result
in a Material Adverse Change. None of Borrower or its
Subsidiaries, any ERISA Affiliate, or any fiduciary of any
Plan is subject to any direct or indirect liability with
respect to any Plan under any applicable law, treaty, rule,
regulation, or agreement. None of Borrower or its
Subsidiaries or any ERISA Affiliate is required to provide
security to any Plan under Section 401(a)(29) of the IRC.
5.14 Environmental Condition. To its
knowledge, none of Borrower's or its Subsidiaries' properties
or assets has ever been used by Borrower or its Subsidiaries
or, to the best of Borrower's knowledge, by previous owners or
operators in the disposal of, or to produce, store, handle,
treat, release, or transport, any Hazardous Materials. To its
knowledge, none of Borrower's or its Subsidiaries' properties
or assets has ever been designated or identified in any manner
pursuant to any environmental protection statute as a
Hazardous Materials disposal site, or a candidate for closure
pursuant to any environmental protection statute. No Lien
arising under any environmental protection statute has
attached to any revenues or to any real or personal property
owned or operated by Borrower or its Subsidiaries. Neither
Borrower nor any of its Subsidiaries has received a summons,
citation, notice, or directive from the Environmental
Protection Agency or any other federal or state governmental
agency concerning any action or omission by either Borrower or
any of its Subsidiaries resulting in the releasing or
disposing of Hazardous Materials into the environment.
5.15 License Arrangements. Neither Borrower
nor any of its Subsidiaries has a license arrangement with any
drug or pharmaceutical manufacturer.
5.16 Credit Card Agreements. Set forth on
Schedule 5.16 hereto is a correct and complete list of all of
the Credit Card Agreements and all other agreements, documents
and instruments existing as of the date hereof between or
among Borrower, any of its affiliates, the Credit Card
Issuers, the Credit Card Processors and any of their
affiliates, and a true and correct copy of each such agreement
is attached thereto. The Credit Card Agreements constitute
all of such agreements necessary for Borrower to operate its
business as presently conducted with respect to credit cards
and debit cards and no Accounts of Borrower arise from
purchases by customers of Inventory with credit cards or debit
cards, other than those which are issued by Credit Card
Issuers with whom Borrower has entered into one of the Credit
Card Agreements set forth on Schedule 5.16 hereto, as such
schedule may be updated from time to time to reflect any new
Credit Card Issuer with whom Borrower, in its sole discretion,
has entered into a Credit Card Agreement in accordance with
Section 6.17 hereof; except, that, to the extent any of such
agreements have not been executed and delivered by the parties
thereto as of the date hereof, Borrower shall, and shall cause
the other parties thereto, to execute and deliver such
agreements within thirty (30) days after the date hereof.
Each of the Credit Card Agreements constitutes the legal,
valid and binding obligations of Borrower and to the best of
Borrower's knowledge, the other parties thereto, enforceable
in accordance with their respective terms and are in full
force and effect; except, that, to the extent any of such
agreements have not been executed and delivered by the parties
thereto as of the date hereof, Borrower shall, and shall cause
the other parties thereto, to execute and deliver such
agreements within thirty (30) days after the date hereof. No
default of event of default, or act, condition or event which
after notice or passage of time or both, would constitute a
default or event of default under any of the Credit Card
Agreements exists or has occurred. Borrower and the other
parties thereto have complied with all of the terms and
conditions of the Credit Card Agreements to the extent
necessary for Borrower to be entitled to receive all payments
to which Borrower is entitled thereunder. Borrower has
delivered, or caused to be delivered to Foothill, true,
correct and complete copies of all of the Credit Card
Agreements.
6. AFFIRMATIVE COVENANTS.
Borrower covenants and agrees that, so long as any
credit hereunder shall be available and until full and final
payment of the Obligations, and unless Foothill shall
otherwise consent in writing, Borrower shall do, and shall
cause each of its Subsidiaries to do, all of the following:
6.1 Accounting System. Maintain a standard
and modern system of accounting that enables Borrower and its
Subsidiaries to produce financial statements in accordance
with GAAP, and maintain records pertaining to the Collateral
that contain information as from time to time may be requested
by Foothill. Borrower and each of its Subsidiaries shall keep
a modern inventory reporting system that shows all additions,
sales, claims, returns, and allowances with respect to the
Inventory.
6.2 Collateral Reporting. Provide Foothill
with the following documents at the following times in form
satisfactory to Foothill: (a) on a monthly basis and, in any
event, by no later than the 10th day of each month during the
term of this Agreement, a detailed calculation of the
Borrowing Base, (b) on a monthly basis and, in any event, by
no later than the 10th day of each month during the term of
this Agreement, a summary aging, by vendor, of Borrower's
accounts payable and any book overdraft, (c) on a weekly
basis, Inventory reports specifying Borrower's cost and the
wholesale market value of its Inventory by category, with
additional detail showing additions to and deletions from the
Inventory, (d) on a monthly basis and in any event by no later
than the 10th day of each month during the term of this
Agreement, a status report for all rents owed to each landlord
for each of the leased properties of Borrower or its
Subsidiaries, and (e) such other reports as to the Collateral
or the financial condition of Borrower as Foothill may request
from time to time.
6.3 Financial Statements, Reports,
Certificates. Deliver to Foothill: (a) as soon as
available, but in any event within 45 days after the end of
each month during each of Borrower's fiscal years, a company
prepared balance sheet and income statement, (b) as soon as
available, but in any event within 45 days after the end of
each quarter during each of the Borrower's fiscal years, a
statement of cash flow covering Borrower's operations during
such period; and (c) as soon as available, but in any event
within 90 days after the end of each of Borrower's fiscal
years, financial statements of Borrower for each such fiscal
year, audited by independent certified public accountants
reasonably acceptable to Foothill and certified, without any
qualifications, by such accountants to have been prepared in
accordance with GAAP, together with a certificate of such
accountants addressed to Foothill stating that such
accountants do not have knowledge of the existence of any
Default or Event of Default. Such audited financial
statements shall include a balance sheet, profit and loss
statement, and statement of cash flow and, if prepared, such
accountants' letter to management. If Borrower is a parent
company of one or more Subsidiaries, or Affiliates, or is a
Subsidiary or Affiliate of another company, then, in addition
to the financial statements referred to above, Borrower agrees
to deliver financial statements prepared on a consolidating
basis so as to present Borrower and each such related entity
separately, and on a consolidated basis.
Together with the above, Borrower also shall
deliver to Foothill Borrower's Form 10-Q Quarterly Reports,
Form 10-K Annual Reports, and Form 8-K Current Reports, and
any other filings made by Borrower with the Securities and
Exchange Commission, if any, as soon as the same are filed, or
any other information that is provided by Borrower to its
shareholders.
Each month, together with the financial
statements provided pursuant to Section 6.3(a), Borrower shall
deliver to Foothill a certificate signed by its chief
financial officer to the effect that: (i) all financial
statements delivered or caused to be delivered to Foothill
hereunder have been prepared in accordance with GAAP (except,
in the case of unaudited financial statements, for the lack of
footnotes and being subject to year-end audit adjustments) and
fairly present the financial condition of Borrower, (ii) the
representations and warranties of Borrower contained in this
Agreement and the other Loan Documents are true and correct in
all material respects on and as of the date of such
certificate, as though made on and as of such date (except to
the extent that such representations and warranties relate
solely to an earlier date), (iii) for each month that also is
the date on which a financial covenant in Section 7.20 is to
be tested, a Compliance Certificate demonstrating in
reasonable detail compliance at the end of such period with
the applicable financial covenants contained in Section 7.20,
and (iv) on the date of delivery of such certificate to
Foothill there does not exist any condition or event that
constitutes a Default or Event of Default (or, in the case of
clauses (i), (ii), or (iii), to the extent of any non-
compliance, describing such non-compliance as to which he or
she may have knowledge and what action Borrower has taken, is
taking, or proposes to take with respect thereto).
In addition to the financial statements
required to be delivered as set forth above, not later than 30
days prior to the end of each fiscal year of the Borrower, the
Borrower shall deliver to Foothill financial projections
(including projected income statements, balance sheets and
statements of cash flow, all projected on a monthly basis for
the succeeding fiscal year and on an annual basis for each
fiscal year thereafter until the termination of this Agreement
and in each case prepared on a consolidated and stand alone
basis), in form and substance reasonably satisfactory to
Foothill; all such financial projections shall be reasonable,
shall be prepared on a reasonable basis and in good faith, and
shall be based on assumptions believed by the Borrower to be
reasonable at the time made and from the best information then
available to the Borrower.
6.4 Tax Returns. Deliver to Foothill copies
of each of Borrower's and its Subsidiaries future federal
income tax returns, and any amendments thereto, within 30 days
of the filing thereof with the Internal Revenue Service.
6.5 Guarantor Reports. Cause any guarantor of
any of the Obligations to deliver its annual financial
statements at the time when Borrower provides its audited
financial statements to Foothill and copies of all federal
income tax returns as soon as the same are available and in
any event no later than 30 days after the same are filed with
the Internal Revenue Service.
6.6 Intentionally Omitted.
6.7 Title to Equipment. Upon Foothill's
request, Borrower or its Subsidiaries immediately shall
deliver to Foothill, properly endorsed, any and all evidences
of ownership of, certificates of title, or applications for
title to any items of Equipment.
6.8 Maintenance of Equipment. Maintain the
Equipment in good operating condition and repair (ordinary
wear and tear excepted), and make all necessary replacements
thereto so that the value and operating efficiency thereof
shall at all times be maintained and preserved. Other than
those items of Equipment that constitute fixtures on the
Closing Date, Borrower and its Subsidiaries shall not permit
any item of Equipment to become a fixture to real estate or an
accession to other property, and such Equipment shall at all
times remain personal property, other than leasehold
improvements pursuant to any lease agreement for the subject
premises.
6.9 Taxes. Cause all assessments and taxes,
whether real, personal, or otherwise, due or payable by, or
imposed, levied, or assessed against Borrower or any of its
property to be paid in full, before delinquency or before the
expiration of any extension period, except to the extent that
the validity of such assessment or tax shall be the subject
of a Permitted Protest. Borrower and each of its Subsidiaries
shall make due and timely payment or deposit of all such
federal, state, and local taxes, assessments, or contributions
required of it by law, and will execute and deliver to
Foothill, on demand, appropriate certificates attesting to the
payment thereof or deposit with respect thereto. Borrower and
each of its Subsidiaries will make timely payment or deposit
of all tax payments and withholding taxes required of it by
applicable laws, including those laws concerning F.I.C.A.,
F.U.T.A., state disability, and local, state, and federal
income taxes, and will, upon request, furnish Foothill with
proof satisfactory to Foothill indicating that Borrower and
each of its Subsidiaries has made such payments or deposits.
6.10 Insurance.
(a) At its expense, keep the Personal
Property Collateral insured against loss or damage by fire,
theft, explosion, sprinklers, and all other hazards and risks,
and in such amounts, as are ordinarily insured against by
other owners in similar businesses. Borrower also shall
maintain business interruption, public liability, product
liability, and property damage insurance relating to
Borrower's ownership and use of the Personal Property
Collateral, as well as insurance against larceny,
embezzlement, and criminal misappropriation.
(b) At its expense, obtain and maintain
(i) insurance of the type necessary to insure the Mortgaged
Property (as such terms are defined in the Mortgages), for the
full replacement cost thereof, against any loss by fire,
lightning, windstorm, hail, explosion, aircraft, smoke damage,
vehicle damage, earthquakes, elevator collision, and other
risks from time to time included under "extended coverage"
policies, in such amounts as Foothill may require, but in any
event in amounts sufficient to prevent Borrower from becoming
a co-insurer under such policies, (ii) combined single limit
bodily injury and property damages insurance against any loss,
liability, or damages on, about, or relating to each parcel of
Real Property Collateral, in an amount of not less than
$9,000,000; and (iii) business rental insurance covering
annual receipts for a 12 month period for each parcel of Real
Property Collateral.
(c) Intentionally Omitted.
(d) All such policies of insurance shall
be in such form, with such companies, and in such amounts as
may be reasonably satisfactory to Foothill. All hazard
insurance and such other insurance as Foothill shall specify,
shall contain an equivalent endorsement satisfactory to
Foothill, showing Foothill as sole loss payee thereof, or
Foothill's interest as it may appear, and shall contain a
waiver of subrogation. Every policy of insurance referred to
in this Section 6.10 shall contain an agreement by the insurer
that it will not cancel such policy except after 30 days prior
written notice to Foothill and that any loss payable
thereunder shall be payable notwithstanding any act or
negligence of Borrower or Foothill which might, absent such
agreement, result in a forfeiture of all or a part of such
insurance payment and notwithstanding (i) occupancy or use of
the Real Property Collateral for purposes more hazardous than
permitted by the terms of such policy, (ii) any foreclosure or
other action or proceeding taken by Foothill pursuant to the
Mortgages upon the happening of an Event of Default, or
(iii) any change in title or ownership of the Real Property
Collateral. Borrower shall deliver to Foothill copies of such
policies of insurance and evidence of the payment of all
premiums therefor.
(e) Original policies or certificates
thereof satisfactory to Foothill evidencing such insurance
shall be delivered to Foothill prior to the expiration of the
existing or preceding policies. Borrower shall give Foothill
prompt notice of any loss covered by such insurance, and
Foothill shall have the right to adjust any loss. Foothill
shall have the exclusive right to adjust all losses payable
under any such insurance policies without any liability to
Borrower whatsoever in respect of such adjustments. Any
monies received as payment for any loss under any insurance
policy including the insurance policies mentioned above, shall
be paid over to Foothill to be applied at the option of
Foothill either to the prepayment of the Obligations without
premium, in such order or manner as Foothill may elect, or
shall be disbursed to Borrower under stage payment terms
satisfactory to Foothill for application to the cost of
repairs, replacements, or restorations. All repairs,
replacements, or restorations shall be effected with
reasonable promptness and shall be of a value at least equal
to the value of the items or property destroyed prior to such
damage or destruction. Upon the occurrence of an Event of
Default, Foothill shall have the right to apply all prepaid
premiums to the payment of the Obligations in such order or
form as Foothill shall determine.
(f) Borrower shall not take out separate
insurance concurrent in form or contributing in the event of
loss with that required to be maintained under this Section
6.10, unless Foothill is included thereon as named insured
with the loss payable to Foothill under a standard mortgagee
endorsement. Borrower immediately shall notify Foothill
whenever such separate insurance is taken out, specifying the
insurer thereunder and full particulars as to the policies
evidencing the same, and originals of such policies
immediately shall be provided to Foothill.
6.11 No Setoffs or Counterclaims. Make
payments hereunder and under the other Loan Documents by or on
behalf of Borrower without setoff or counterclaim and free and
clear of, and without deduction or withholding for or on
account of, any federal, state, or local taxes.
6.12 Location of Inventory and Equipment. Keep
the Inventory and Equipment only at the locations identified
on Schedule 6.12; provided, however, that Borrower may amend
Schedule 6.12 so long as such amendment occurs by written
notice to Foothill not less than 30 days prior to the date on
which the Inventory or Equipment is moved to such new
location, so long as such new location is within the
continental United States, and so long as, at the time of such
written notification, Borrower provides any financing
statements or fixture filings necessary to perfect and
continue perfected Foothill's security interests in such
assets and also provides to Foothill a Collateral Access
Agreement.
6.13 Compliance with Laws. Comply in all
material respects with the requirements of all applicable
laws, rules, regulations, and orders of any governmental
authority, including the Fair Labor Standards Act and the
Americans With Disabilities Act, other than laws, rules,
regulations, and orders the non-compliance with which,
individually or in the aggregate, would not have and could not
reasonably be expected to cause a Material Adverse Change.
6.14 Employee Benefits.
(a) Promptly, and in any event within 10
Business Days after Borrower or any of its Subsidiaries knows
or has reason to know that an ERISA Event has occurred that
reasonably could be expected to result in a Material Adverse
Change, a written statement of the chief financial officer of
Borrower describing such ERISA Event and any action that is
being taking with respect thereto by Borrower, any such
Subsidiary or ERISA Affiliate, and any action taken or
threatened by the IRS, Department of Labor, or PBGC. Borrower
or such Subsidiary, as applicable, shall be deemed to know all
facts known by the administrator of any Benefit Plan of which
it is the plan sponsor, (ii) promptly, and in any event within
3 Business Days after the filing thereof with the IRS, a copy
of each funding waiver request filed with respect to any
Benefit Plan and all communications received by Borrower, any
of its Subsidiaries or, to the knowledge of Borrower, any
ERISA Affiliate with respect to such request, and
(iii) promptly, and in any event within 3 Business Days after
receipt by Borrower, any of its Subsidiaries or, to the
knowledge of Borrower, any ERISA Affiliate, of the PBGC's
intention to terminate a Benefit Plan or to have a trustee
appointed to administer a Benefit Plan, copies of each such
notice.
(b) Cause to be delivered to Foothill,
upon Foothill's request, each of the following: (i) a copy of
each Plan (or, where any such plan is not in writing, complete
description thereof) (and if applicable, related trust
agreements or other funding instruments) and all amendments
thereto, all written interpretations thereof and written
descriptions thereof that have been distributed to employees
or former employees of Borrower or its Subsidiaries; (ii) the
most recent determination letter issued by the IRS with
respect to each Benefit Plan; (iii) for the three most recent
plan years, annual reports on Form 5500 Series required to be
filed with any governmental agency for each Benefit Plan;
(iv) all actuarial reports prepared for the last three plan
years for each Benefit Plan; (v) a listing of all
Multiemployer Plans, with the aggregate amount of the most
recent annual contributions required to be made by Borrower or
any ERISA Affiliate to each such plan and copies of the
collective bargaining agreements requiring such contributions;
(vi) any information that has been provided to Borrower or any
ERISA Affiliate regarding withdrawal liability under any
Multiemployer Plan; and (vii) the aggregate amount of the most
recent annual payments made to former employees of Borrower or
its Subsidiaries under any Retiree Health Plan.
6.15 Leases. Pay when due all rents and other
amounts payable under any leases to which Borrower and each of
its Subsidiaries is a party or by which Borrower's or its
Subsidiaries' properties and assets are bound, unless such
payments are the subject of a Permitted Protest. To the
extent that Borrower or any of its Subsidiaries fails timely
to make payment of such rents and other amounts payable when
due under its leases, Foothill shall be entitled, in its
discretion, to reserve an amount equal to such unpaid amounts
against the Borrowing Base. In connection with Foothill's
agreement not to require a Collateral Access Agreement from
each lessor of Borrower's stores located in Pennsylvania,
Virginia, and any other state in which Borrower locates any
Collateral where a lessor has a security interest in the
Collateral at such location, Borrower acknowledges that
Foothill has established a reserve against the Borrowing Base
in the aggregate amount equal to the sum of two (2) month's
rent for each store located in the aforementioned states;
provided, however, that in no event shall such reserve exceed
Six Hundred Thousand Dollars ($600,000); further, provided
that, if at any time after the Closing Date (a) Foothill
receives a satisfactory Collateral Access Agreement from the
lessor of any location in the aforementioned states, such
reserve will be decreased by the amount of two (2) month's
rent for such location, and (b) in the event Borrower opens an
additional location in the aforementioned states, such reserve
will be increased by the amount of two (2) month's rent for
such location unless Foothill receives a satisfactory
Collateral Access Agreement from the lessor for such location.
6.16 Year 2000 Compliance. The Borrower has
implemented a comprehensive program to address the "year 200
problem" (that is, the risk that computer applications may not
be able to properly perform date-sensitive functions after
December 31, 1999) and expects to resolve on a timely basis
any material year 2000 problem. The Borrower has also made
inquiry of each supplier, vendor and customer of the Borrower
that is of material importance to the financial well-being of
the Borrower with respect to the "year 2000 problem." On the
basis of the inquiry, the Borrower believes that each such
supplier, vendor and customer of the Borrower will resolve any
material year 2000 problem on a timely basis.
6.17 Credit Card Agreements. Borrower shall
(a) observe and perform all material terms, covenants,
conditions and provisions of the Credit Card Agreements to be
observed and performed by it at the times set forth therein;
(b) not do, permit, suffer or refrain from doing anything as a
result of which there could be a material default under or
breach of any of the terms of any of the Credit Card
Agreements; (c) at all times maintain in full force and effect
the Credit Card Agreements and not terminate, cancel,
surrender, modify, amend, waive or release in any material
respect any of the Credit Card Agreements, or consent to or
permit to occur any of the foregoing; except, that, Borrower
may terminate or cancel any of the Credit Card Agreements in
the ordinary course of business of Borrower, provided, that,
Borrower shall give Foothill not less fifteen (15) days prior
written notice of its intention to so terminate or cancel any
of the Credit Card Agreements; (d) not enter into any new
Credit Card Agreements with any new Credit Card Issuer unless
(i) Foothill shall have received not less than fifteen (15)
days prior written notice of the intention of Borrower to
enter into such agreement (together with such other
information with respect thereto as Foothill may reasonably
request) and (ii) Borrower delivers, or causes to be delivered
to Foothill, a Credit Card Acknowledgment in favor of
Foothill; (e) give Foothill prompt written notice of any
Credit Card Agreement entered into by Borrower after the date
hereof, together with a true, correct and complete copy
thereof and such other information with respect thereto as
Foothill may request; and (f) furnish to Foothill, promptly
upon the request of Foothill, such information and evidence as
Foothill may reasonably require from time to time concerning
the observance, performance and compliance by Borrower or the
other party or parties thereto with the terms, covenants or
provisions of the Credit Card Agreements.
7. NEGATIVE COVENANTS.
Borrower covenants and agrees that, so long as any
credit hereunder shall be available and until full and final
payment of the Obligations, Borrower will not and will not
permit any of its Subsidiaries to do any of the following
without Foothill's prior written consent:
7.1 Indebtedness. Create, incur, assume,
permit, guarantee, or otherwise become or remain, directly or
indirectly, liable with respect to any Indebtedness, except:
(a) Indebtedness evidenced by this
Agreement, together with Indebtedness to issuers of letters of
credit that are the subject of L/C Guarantees;
(b) Indebtedness set forth in the latest
financial statements of Borrower submitted to Foothill on or
prior to the Closing Date;
(c) Indebtedness secured by Permitted
Liens; and
(d) refinancings, renewals, or extensions
of Indebtedness permitted under clauses (b) and (c) of this
Section 7.1 (and continuance or renewal of any Permitted Liens
associated therewith) so long as: (i) the terms and conditions
of such refinancings, renewals, or extensions do not
materially impair the prospects of repayment of the
Obligations by Borrower, (ii) the net cash proceeds of such
refinancings, renewals, or extensions do not result in an
increase in the aggregate principal amount of the Indebtedness
so refinanced, renewed, or extended, (iii) such refinancings,
renewals, refundings, or extensions do not result in a
shortening of the average weighted maturity of the
Indebtedness so refinanced, renewed, or extended, and (iv) to
the extent that Indebtedness that is refinanced was
subordinated in right of payment to the Obligations, then the
subordination terms and conditions of the refinancing
Indebtedness must be at least as favorable to Foothill as
those applicable to the refinanced Indebtedness.
7.2 Liens. Create, incur, assume, or permit
to exist, directly or indirectly, any Lien on or with respect
to any of its property or assets, of any kind, whether now
owned or hereafter acquired, or any income or profits
therefrom, except for Permitted Liens (including Liens that
are replacements of Permitted Liens to the extent that the
original Indebtedness is refinanced under Section 7.1(d) and
so long as the replacement Liens only encumber those assets or
property that secured the original Indebtedness).
7.3 Restrictions on Fundamental Changes.
Enter into any merger, consolidation, reorganization, or
recapitalization, or reclassify its capital stock, or
liquidate, wind up, or dissolve itself (or suffer any
liquidation or dissolution), or convey, sell, assign, lease,
transfer, or otherwise dispose of, in one transaction or a
series of transactions, all or any substantial part of its
property or assets, except that any subsidiary of Borrower may
merge with or into or consolidate with Borrower or any wholly-
owned subsidiary of Borrower may merge with or into or
consolidate with such wholly-owned subsidiary, provided that
each of the following conditions is satisfied as determined by
Foothill: (i) Foothill shall have received not less than ten
(10) days prior written notice of the intention of Borrower to
so merge and such other information with respect thereto as
Foothill may reasonably request; (ii) as of the effective date
of the merger or consolidation and after giving effect
thereto, no Event of Default shall exist or have occurred;
(iii) Foothill shall have received true, correct and complete
copies of all agreements, documents and instruments relating
to such merger, including, but not limited to, the certificate
or certificates of merger as filed with each appropriate
Secretary of State; (iv) Borrower, or such wholly-owned
subsidiary, as the case may be, shall be the surviving entity
and shall immediately upon the effectiveness of the merger
expressly confirm in writing pursuant to an agreement, in form
and substance satisfactory to Foothill, its continuing
liability in respect of the Obligations and the Loan Documents
and execute and deliver such other agreements, documents and
instruments as Foothill may reasonably request in connection
therewith; (v) the surviving entity shall, immediately after
giving effect to such transaction or series of transactions,
have a consolidated net worth as determined in accordance with
GAAP (including, without limitation, any indebtedness incurred
or anticipated to be incurred in connection with or in respect
of such transactions or series of transactions) equal to or
greater than the consolidated net worth of Borrower or such
wholly-owned subsidiary, as the case may be as determined in
accordance with GAAP immediately prior to such transaction or
series of transactions; and (vi) Borrower, or such wholly-
owned subsidiary, as the case may be, shall not become
obligated with respect to any Indebtedness, nor any of its
property become subject to any lien, unless Borrower could
incur such Indebtedness or create such lien hereunder.
7.4 Disposal of Assets. Sell, lease, assign,
transfer, or otherwise dispose of any of Borrower's properties
or assets other than sales of Inventory to buyers in the
ordinary course of Borrower's business as currently conducted,
provided, however, that Borrower may dispose of worn-out or
obsolete Equipment so long as (a) any proceeds from such
disposal shall be paid directly to Foothill and (b) such sales
do not involve Equipment having a fair market value in excess
of $200,000 in the aggregate for all such Equipment disposed
of in any fiscal year of Borrower.
7.5 Change Name. Change Borrower's or any of
its Subsidiaries' name, FEIN, corporate structure (within the
meaning of Section 9402(7) of the Code), or identity, or add
any new fictitious name.
7.6 Guarantee. Guarantee or otherwise become
in any way liable with respect to the obligations of any third
Person except by endorsement of instruments or items of
payment for deposit to the account of Borrower or which are
transmitted or turned over to Foothill.
7.7 Nature of Business. Make any change in
the principal nature of Borrower's business.
7.8 Prepayments and Amendments.
(a) Except in connection with a
refinancing permitted by Section 7.1(d), prepay, redeem,
retire, defease, purchase, or otherwise acquire any
Indebtedness owing to any third Person, other than the
Obligations in accordance with this Agreement, and
(b) Other than an amendment to the loan
with McKesson to increase the debt by no more than $1,000,000,
(provided that such increase shall remain subject to the
McKesson Intercreditor Agreement) directly or indirectly,
amend, modify, alter, increase, or change any of the terms or
conditions of any agreement, instrument, document, indenture,
or other writing evidencing or concerning Indebtedness
permitted under Sections 7.1(b), (c), or (d).
7.9 Change of Control. Cause, permit, or
suffer, directly or indirectly, any Change of Control.
7.10 Consignments. Consign any Inventory or
sell any Inventory on ▇▇▇▇ and hold, sale or return, sale on
approval, or other conditional terms of sale.
7.11 Distributions. Make any distribution or
declare or pay any dividends (in cash or other property, other
than capital stock) on, or purchase, acquire, redeem, or
retire any of Borrower's capital stock, of any class, whether
now or hereafter outstanding.
7.12 Accounting Methods; Fiscal Year. Modify
or change its method of accounting, except in accordance with
GAAP. Neither Borrower nor any of its Subsidiaries shall
change its fiscal year from a year ending on the Saturday
closest to January 31.
7.13 Investments. Directly or indirectly make,
acquire, or incur any liabilities (including contingent
obligations) for or in connection with (a) the acquisition of
the securities (whether debt or equity) of, or other interests
in, a Person, (b) loans, advances, capital contributions, or
transfers of property to a Person, or (c) the acquisition of
all or substantially all of the properties or assets of a
Person.
7.14 Transactions with Affiliates. Directly or
indirectly enter into or permit to exist any material
transaction with any Affiliate of Borrower except for
transactions that are in the ordinary course of Borrower's
business, upon fair and reasonable terms, that are fully
disclosed to Foothill, and that are no less favorable to
Borrower than would be obtained in an arm's length transaction
with a non-Affiliate. Foothill acknowledges and agrees any
compensation arrangements approved by the compensation
committee of the Borrower's board of directors shall be deemed
in compliance with this Section 7.14.
7.15 Suspension. Suspend or go out of a
substantial portion of its business.
7.16 Intentionally Omitted.
7.17 Use of Proceeds. Use the proceeds of the
Advances and the Term Loan made hereunder for any purpose
other than (i) on the Closing Date, (y) to repay in full the
outstanding principal, accrued interest, and accrued fees and
expenses owing to Existing Lender, and (z) to pay
transactional costs and expenses incurred in connection with
this Agreement, and (ii) thereafter, consistent with the terms
and conditions hereof, for its lawful and permitted corporate
purposes.
7.18 Change in Location of Chief Executive
Office; Inventory and Equipment with Bailees. Relocate its
chief executive office to a new location without providing 30
days prior written notification thereof to Foothill and so
long as, at the time of such written notification, Borrower
provides any financing statements or fixture filings necessary
to perfect and continue perfected Foothill's security
interests and also provides to Foothill a Collateral Access
Agreement with respect to such new location. The Inventory
and Equipment shall not at any time now or hereafter be stored
with a bailee, warehouseman, or similar party without
Foothill's prior written consent.
7.19 No Prohibited Transactions Under ERISA.
Directly or indirectly:
(a) engage, or permit any Subsidiary of
Borrower to engage, in any prohibited transaction which is
reasonably likely to result in a civil penalty or excise tax
described in Sections 406 of ERISA or 4975 of the IRC for
which a statutory or class exemption is not available or a
private exemption has not been previously obtained from the
Department of Labor;
(b) permit to exist with respect to any
Benefit Plan any accumulated funding deficiency (as defined in
Sections 302 of ERISA and 412 of the IRC), whether or not
waived;
(c) fail, or permit any Subsidiary of
Borrower to fail, to pay timely required contributions or
annual installments due with respect to any waived funding
deficiency to any Benefit Plan;
(d) terminate, or permit any Subsidiary
of Borrower to terminate, any Benefit Plan where such event
would result in any liability of Borrower, any of its
Subsidiaries or any ERISA Affiliate under Title IV of ERISA;
(e) fail, or permit any Subsidiary of
Borrower to fail, to make any required contribution or payment
to any Multiemployer Plan;
(f) fail, or permit any Subsidiary of
Borrower to fail, to pay any required installment or any other
payment required under Section 412 of the IRC on or before the
due date for such installment or other payment;
(g) amend, or permit any Subsidiary of
Borrower to amend, a Plan resulting in an increase in current
liability for the plan year such that either of Borrower, any
Subsidiary of Borrower or any ERISA Affiliate is required to
provide security to such Plan under Section 401(a)(29) of the
IRC; or
(h) withdraw, or permit any Subsidiary of
Borrower to withdraw, from any Multiemployer Plan where such
withdrawal is reasonably likely to result in any liability of
any such entity under Title IV of ERISA;
which, individually or in the aggregate, results in or
reasonably would be expected to result in a claim against or
liability of Borrower, any of its Subsidiaries or any ERISA
Affiliate in excess of Ten Thousand Dollars ($10,000).
7.20 Financial Covenants. Fail to maintain:
(a) Tangible Net Worth. Tangible Net
Worth of at least the following amounts, measured on a fiscal
quarter-end basis, as of the following dates:
First Fiscal Quarter, 1999 $3,698,000
Second Fiscal Quarter, 1999 $4,175,000
Third Fiscal Quarter, 1999 $3,758,000
Fourth Fiscal Quarter, 1999 $5,142,000
provided that, thereafter, upon receipt of the financial
projections required to be delivered to Foothill pursuant to
Section 6.3 hereof for each fiscal year, the Borrower and
Foothill shall negotiate in good faith to determine the
minimum Tangible Net Worth as of the end of each fiscal
quarter covered by such financial projections and, in the
event that the Borrower and Foothill are unable to agree upon
the amounts of such Tangible Net Worth on or before the date
that is 30 days after the date that Foothill has received such
projections, the Tangible Net Worth at the end of the each
fiscal quarter of the fiscal year covered by such financial
projections shall not be less than the amount set forth for
the corresponding fiscal quarter end set forth above plus 10%
of such amount.
(b) Minimum EBITDA. EBITDA of at least the
following amounts, measured on a fiscal quarter-end basis, as
of the following dates:
First Fiscal Quarter, 1999 $106,000
Second Fiscal Quarter, 1999 $1,346,000
Third Fiscal Quarter, 1999 $1,737,000
Fourth Fiscal Quarter, 1999 $3,905,000
provided that, thereafter, upon receipt of the financial
projections required to be delivered to Foothill pursuant to
Section 6.3 hereof for each fiscal year, the Borrower and
Foothill shall negotiate in good faith to determine the
minimum EBITDA as of the end of each fiscal quarter covered by
such financial projections and, in the event that the Borrower
and Foothill are unable to agree upon the amounts of such
EBITDA on or before the date that is 30 days after the date
that Foothill has received such projections, the EBITDA at the
end of the each fiscal quarter of the fiscal year covered by
such financial projections shall not be less than the amount
set forth for the corresponding fiscal quarter end set forth
above plus 10% of such amount.
7.21 Capital Expenditures. Make capital
expenditures in any fiscal year in excess of $500,000,
provided that, thereafter, upon receipt of the financial
projections required to be delivered to Foothill pursuant to
Section 6.3 hereof for each fiscal year, the Borrower and
Foothill shall negotiate in good faith to determine the
maximum capital expenditures as of the end of the fiscal year
covered by such financial projections and, in the event that
the Borrower and Foothill are unable to agree upon the amounts
of such capital expenditures on or before the date that is 30
days after the date that Foothill has received such
projections, the capital expenditures at the end of the fiscal
year covered by such financial projection shall remain the
same as above.
8. EVENTS OF DEFAULT.
Any one or more of the following events shall
constitute an event of default (each, an "Event of Default")
under this Agreement:
8.1 If Borrower fails to pay when due and
payable or when declared due and payable, any portion of the
Obligations (whether of principal, interest (including any
interest which, but for the provisions of the Bankruptcy Code,
would have accrued on such amounts), fees and charges due
Foothill, reimbursement of Foothill Expenses, or other amounts
constituting Obligations);
8.2 (a) If Borrower fails to perform, keep, or
observe any term, provision, condition, covenant, or agreement
contained in Sections 6.2 (Collateral Reporting), 6.4 (Tax
Returns), 6.7 (Title to Equipment), 6.12 (Location of
Inventory and Equipment), 6.13 (Compliance with Laws), 6.14
(Employee Benefits) or 6.15 (Leases) of this Agreement and
such failure continues for a period of 5 Business Days; (b) if
Borrower fails to perform, keep or observe any term,
provision, condition, covenant or agreement contained in
Sections 6.1 (Accounting System), 6.3 (Financial Statements,
Reports, Certificates), or 6.8 (Maintenance of Equipment) of
this Agreement and such failure continues for a period of 15
Business Days; or (c) if Borrower fails to perform, keep, or
observe any other term, provision, condition, covenant or
agreement contained in this Agreement, or in any of the other
Loan Documents, other than any such term, provision,
condition, covenant, or agreement that is the subject of
another provision of this Section 8, in which event such other
provision of this Section 8 shall govern; provided, that
during any period of time that any such failure or neglect of
Borrower referred to in this paragraph exists, even if such
failure is not yet an Event of Default by virtue of the
existence of a grace or cure period, Foothill shall not be
required during such period to make Advances to Borrower;
8.3 If there is a Material Adverse Change;
8.4 If any material portion of any of the
Borrower's or its Subsidiaries' properties or assets is
attached, seized, subjected to a writ or distress warrant, or
is levied upon, or comes into the possession of any third
Person;
8.5 If an Insolvency Proceeding is commenced
by the Borrower or any of its Subsidiaries;
8.6 If an Insolvency Proceeding is commenced
against Borrower or any of its Subsidiaries and any of the
following events occur: (a) The Borrower or any of its
Subsidiaries, as applicable, consents to the institution of
the Insolvency Proceeding against it; (b) the petition
commencing the Insolvency Proceeding is not timely
controverted; (c) the petition commencing the Insolvency
Proceeding is not dismissed within 45 calendar days of the
date of the filing thereof; provided, however, that, during
the pendency of such period, Foothill shall be relieved of its
obligation to extend credit hereunder; (d) an interim trustee
is appointed to take possession of all or a substantial
portion of the properties or assets of, or to operate all or
any substantial portion of the business of, Borrower or its
Subsidiaries, as applicable; or (e) an order for relief shall
have been issued or entered therein;
8.7 If the Borrower or any of its Subsidiaries
is enjoined, restrained, or in any way prevented by court
order from continuing to conduct all or any material part of
its business affairs unless such injunction, restraint, or
court order is lifted or overturned within three (3) Business
Days of the issuance thereof;
8.8 If a notice of Lien, levy, or assessment
is filed of record with respect to any of Borrower's or its
Subsidiaries' properties or assets by the United States
Government, or any department, agency, or instrumentality
thereof, or by any state, county, municipal, or governmental
agency, or if any taxes or debts owing at any time hereafter
to any one or more of such entities becomes a Lien, upon any
of Borrower's or its Subsidiaries' properties or assets and
the same is not paid on the payment date thereof;
8.9 If a judgment or other claim becomes a
Lien or encumbrance upon any material portion of Borrower's or
its Subsidiaries' properties or assets, provided, however,
that Borrower, or its Subsidiary, as applicable, has the right
to release or bond such action within fifteen (15) days;
8.10 If there is a default by the Borrower or
its Subsidiaries in any material agreement to which Borrower
or its Subsidiaries is a party with one or more third Persons
and such default (a) occurs at the final maturity of the
obligations thereunder, or (b) results in a right by such
third Person(s), irrespective of whether exercised, to
accelerate the maturity of Borrower's or its Subsidiaries, as
applicable, obligations thereunder;
8.11 If Borrower or any of its Subsidiaries
makes any payment on account of Indebtedness that has been
contractually subordinated in right of payment to the payment
of the Obligations, except to the extent such payment is
permitted by the terms of the subordination provisions
applicable to such Indebtedness;
8.12 If any material misstatement or
misrepresentation exists now or hereafter in any warranty,
representation, statement, or report made to Foothill by
Borrower, its Subsidiaries, or any officer, employee, agent,
or director of Borrower or its Subsidiaries, or if any such
warranty or representation is withdrawn; or
8.13 If the obligation of any guarantor under
its guaranty is limited or terminated by operation of law or
by the guarantor thereunder, or any such guarantor becomes the
subject of an Insolvency Proceeding and any of the following
events occur: (a) such guarantor consents to the institution
of the Insolvency Proceeding against it; (b) the petition
commencing the Insolvency Proceeding is not timely
controverted; (c) the petition commencing the Insolvency
Proceeding is not dismissed within 45 calendar days of the
date of the filing thereof, provided, that, during the
pendency of such period, Foothill shall be relieved of its
obligation to extend credit hereunder; (d) an interim trustee
is appointed to take possession of all or a substantial
portion of the properties or assets of, or to operate all or
any substantial portion of the business of, such guarantor; or
(e) an order for relief shall have been issued or entered
therein.
9. FOOTHILL'S RIGHTS AND REMEDIES.
9.1 Rights and Remedies. Upon the occurrence,
and during the continuation, of an Event of Default Foothill
may, at its election, without notice of its election and
without demand, do any one or more of the following, all of
which are authorized by Borrower:
(a) Declare all Obligations, whether
evidenced by this Agreement, by any of the other Loan
Documents, or otherwise, immediately due and payable;
(b) Cease advancing money or extending
credit to or for the benefit of Borrower under this Agreement,
under any of the Loan Documents, or under any other agreement
between Borrower and Foothill;
(c) Terminate this Agreement and any of
the other Loan Documents as to any future liability or
obligation of Foothill, but without affecting Foothill's
rights and security interests in the Personal Property
Collateral or the Real Property Collateral and without
affecting the Obligations;
(d) Settle or adjust disputes and claims
directly with Account Debtors for amounts and upon terms which
Foothill considers advisable, and in such cases, Foothill will
credit Borrower's Loan Account with only the net amounts
received by Foothill in payment of such disputed Accounts
after deducting all Foothill Expenses incurred or expended in
connection therewith;
(e) Cause Borrower to hold all returned
Inventory in trust for Foothill, segregate all returned
Inventory from all other property of Borrower or in Borrower's
possession and conspicuously label said returned Inventory as
the property of Foothill;
(f) Without notice to or demand upon
Borrower or any guarantor, make such payments and do such acts
as Foothill considers necessary or reasonable to protect its
security interests in the Collateral. Borrower agrees to
assemble the Personal Property Collateral if Foothill so
requires, and to make the Personal Property Collateral
available to Foothill as Foothill may designate. Borrower
authorizes Foothill to enter the premises where the Personal
Property Collateral is located, to take and maintain
possession of the Personal Property Collateral, or any part of
it, and to pay, purchase, contest, or compromise any
encumbrance, charge, or Lien that in Foothill's determination
appears to conflict with its security interests and to pay all
expenses incurred in connection therewith. With respect to
any of Borrower's owned or leased premises, Borrower hereby
grants Foothill a license to enter into possession of such
premises and to occupy the same, without charge, for up to 120
days in order to exercise any of Foothill's rights or remedies
provided herein, at law, in equity, or otherwise;
(g) Without notice to Borrower (such
notice being expressly waived), and without constituting a
retention of any collateral in satisfaction of an obligation
(within the meaning of Section 9505 of the Code), set off and
apply to the Obligations any and all (i) balances and deposits
of Borrower held by Foothill (including any amounts received
in the Blocked Accounts), or (ii) indebtedness at any time
owing to or for the credit or the account of Borrower held by
Foothill;
(h) Hold, as cash collateral, any and all
balances and deposits of Borrower held by Foothill, and any
amounts received in the Blocked Accounts, to secure the full
and final repayment of all of the Obligations;
(i) Ship, reclaim, recover, store,
finish, maintain, repair, prepare for sale, advertise for
sale, and sell (in the manner provided for herein) the
Personal Property Collateral. Foothill is hereby granted a
license or other right to use, without charge, Borrower's
labels, patents, copyrights, rights of use of any name, trade
secrets, trade names, trademarks, service marks, and
advertising matter, or any property of a similar nature, as it
pertains to the Personal Property Collateral, in completing
production of, advertising for sale, and selling any Personal
Property Collateral and Borrower's rights under all licenses
and all franchise agreements shall inure to Foothill's
benefit;
(j) Sell the Personal Property Collateral
at either a public or private sale, or both, by way of one or
more contracts or transactions, for cash or on terms, in such
manner and at such places (including Borrower's premises) as
Foothill determines is commercially reasonable. It is not
necessary that the Personal Property Collateral be present at
any such sale;
(k) Foothill shall give notice of the
disposition of the Personal Property Collateral as follows:
(A) Foothill shall give Borrower,
any guarantor and each holder of a security interest in the
Personal Property Collateral who has filed with Foothill a
written request for notice, a notice in writing of the time
and place of public sale, or, if the sale is a private sale or
some other disposition other than a public sale is to be made
of the Personal Property Collateral, then the time on or after
which the private sale or other disposition is to be made;
(B) The notice shall be personally
delivered or mailed, postage prepaid, to Borrower as provided
in Section 12, at least 10 days before the date fixed for the
sale, or at least 10 days before the date on or after which
the private sale or other disposition is to be made; no notice
needs to be given prior to the disposition of any portion of
the Personal Property Collateral that is perishable or
threatens to decline speedily in value or that is of a type
customarily sold on a recognized market. Notice to Persons
other than Borrower claiming an interest in the Personal
Property Collateral shall be sent to such addresses as they
have furnished to Foothill;
(C) If the sale is to be a public
sale, Foothill also shall give notice of the time and place by
publishing a notice one time at least 10 days before the date
of the sale in a newspaper of general circulation in the
county in which the sale is to be held;
(l) Foothill may credit bid and purchase
at any public sale;
(m) Any deficiency that exists after
disposition of the Personal Property Collateral as provided
above will be paid immediately by Borrower. Any excess will
be returned, without interest and subject to the rights of
third Persons, by Foothill to Borrower; and
(n) Seek the appointment of a receiver or
keeper to take possession of the Collateral and to enforce any
of the Foothill's remedies with respect to such appointment
without prior notice or hearing.
9.2 Remedies Cumulative. Foothill's rights
and remedies under this Agreement, the Loan Documents, and all
other agreements shall be cumulative. Foothill shall have all
other rights and remedies not inconsistent herewith as
provided under the Code, by law, or in equity. No exercise by
Foothill of one right or remedy shall be deemed an election,
and no waiver by Foothill of any Event of Default shall be
deemed a continuing waiver. No delay by Foothill shall
constitute a waiver, election, or acquiescence by it.
9.3 Script Files and Pharmaceuticals.
Notwithstanding the foregoing, Foothill hereby agrees to: (i)
in connection with the sale of the Script Files, comply with
all applicable laws, rules and regulations governing the
confidentiality of any information contained in such Script
Files, except, in the instance where a court order, law, rule
or regulation requires the disclosure of such information;
(ii) in connection with the sale of any Personal Property
Collateral consisting of pharmaceuticals, sell such property
only through a licensed pharmacist or in accordance with any
applicable law, rule or regulation. In reference to the
above, Borrower hereby agrees to use its best efforts to
assist Foothill in the sale of any such Collateral, and
Borrower further agrees to use its best efforts to cause such
employees or agents of Borrower, which persons shall be
licensed to dispose of such Collateral, as are reasonably
necessary to accomplish the disposition of such Collateral to
Foothill's satisfaction. In connection with the sale of such
Collateral, Borrower agrees to use its best efforts to obtain
sales of such Collateral at commercially reasonable prices and
terms.
10. TAXES AND EXPENSES.
If Borrower fails to pay any monies (whether taxes,
assessments, insurance premiums, or, in the case of leased
properties or assets, rents or other amounts payable under
such leases) due to third Persons, or fails to make any
deposits or furnish any required proof of payment or deposit,
all as required under the terms of this Agreement, then, to
the extent that Foothill determines that such failure by
Borrower could result in a Material Adverse Change, in its
discretion and without prior notice to Borrower, Foothill may
do any or all of the following: (a) make payment of the same
or any part thereof; (b) set up such reserves in Borrower's
Loan Account as Foothill deems necessary to protect Foothill
from the exposure created by such failure; or (c) obtain and
maintain insurance policies of the type described in Section
6.10, and take any action with respect to such policies as
Foothill deems prudent. Any such amounts paid by Foothill
shall constitute Foothill Expenses. Any such payments made by
Foothill shall not constitute an agreement by Foothill to make
similar payments in the future or a waiver by Foothill of any
Event of Default under this Agreement. Foothill need not
inquire as to, or contest the validity of, any such expense,
tax, or Lien and the receipt of the usual official notice for
the payment thereof shall be conclusive evidence that the same
was validly due and owing.
11. WAIVERS; INDEMNIFICATION.
11.1 Demand; Protest; etc. Borrower waives
demand, protest, notice of protest, notice of default or
dishonor, notice of payment and nonpayment, nonpayment at
maturity, release, compromise, settlement, extension, or
renewal of accounts, documents, instruments, chattel paper,
and guarantees at any time held by Foothill on which Borrower
may in any way be liable.
11.2 Foothill's Liability for Collateral. So
long as Foothill complies with its obligations, if any, under
article 9 of the Code, Foothill shall not in any way or manner
be liable or responsible for: (a) the safekeeping of the
Collateral; (b) any loss or damage thereto occurring or
arising in any manner or fashion from any cause; (c) any
diminution in the value thereof; or (d) any act or default of
any carrier, warehouseman, bailee, forwarding agency, or other
Person. All risk of loss, damage, or destruction of the
Collateral shall be borne by Borrower.
11.3 Indemnification. Borrower shall pay,
indemnify, defend, and hold Foothill, each Participant, and
each of their respective officers, directors, employees,
counsel, agents, and attorneys-in-fact (each, an "Indemnified
Person") harmless (to the fullest extent permitted by law)
from and against any and all claims, demands, suits, actions,
investigations, proceedings, and damages, and all reasonable
attorneys fees and disbursements and other costs and expenses
actually incurred in connection therewith (as and when they
are incurred and irrespective of whether suit is brought), at
any time asserted against, imposed upon, or incurred by any of
them in connection with or as a result of or related to the
execution, delivery, enforcement, performance, and
administration of this Agreement and any other Loan Documents
or the transactions contemplated herein, and with respect to
any investigation, litigation, or proceeding related to this
Agreement, any other Loan Document, or the use of the proceeds
of the credit provided hereunder (irrespective of whether any
Indemnified Person is a party thereto), or any act, omission,
event or circumstance in any manner related thereto (all the
foregoing, collectively, the "Indemnified Liabilities").
Borrower shall have no obligation to any Indemnified Person
under this Section 11.3 with respect to any Indemnified
Liability that a court of competent jurisdiction finally
determines to have resulted from the gross negligence or
willful misconduct of such Indemnified Person. This provision
shall survive the termination of this Agreement and the
repayment of the Obligations.
12. NOTICES.
Unless otherwise provided in this Agreement, all
notices or demands by any party relating to this Agreement or
any other Loan Document shall be in writing and (except for
financial statements and other informational documents which
may be sent by first-class mail, postage prepaid) shall be
personally delivered or sent by registered or certified mail
(postage prepaid, return receipt requested), overnight
courier, or telefacsimile to Borrower or to Foothill, as the
case may be, at its address set forth below:
If to Borrower:PHARMHOUSE CORP.
▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇. ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Fax No.: (▇▇▇) ▇▇▇-▇▇▇▇
with copies to:HERRICK, FEINSTEIN, LLP
▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, Esq.
Fax No.: (▇▇▇) ▇▇▇-▇▇▇▇
and
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ & ▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇ ▇▇▇▇, Esq.
Fax No.: (▇▇▇) ▇▇▇-▇▇▇▇
If to Foothill:FOOTHILL CAPITAL CORPORATION
▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attn: Business Finance Division
Manager
Fax No. ▇▇▇.▇▇▇.▇▇▇▇
with copies to:PAUL, HASTINGS, ▇▇▇▇▇▇▇▇ &
▇▇▇▇▇▇, LLP
▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇.▇.
▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇ ▇. ▇▇▇▇▇, Esq.
Fax No.: (▇▇▇) ▇▇▇-▇▇▇▇
The parties hereto may change the address at which
they are to receive notices hereunder, by notice in writing in
the foregoing manner given to the other. All notices or
demands sent in accordance with this Section 12, other than
notices by Foothill in connection with Sections 9504 or 9505
of the Code, shall be deemed received on the earlier of the
date of actual receipt or 5 days after the deposit thereof in
the mail. Borrower acknowledges and agrees that notices sent
by Foothill in connection with Sections 9504 or 9505 of the
Code shall be deemed sent when deposited in the mail or
personally delivered, or, where permitted by law, transmitted
telefacsimile or other similar method set forth above.
13. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER.
THE VALIDITY OF THIS AGREEMENT AND THE OTHER LOAN
DOCUMENTS (UNLESS EXPRESSLY PROVIDED TO THE CONTRARY IN
ANOTHER LOAN DOCUMENT), THE CONSTRUCTION, INTERPRETATION, AND
ENFORCEMENT HEREOF AND THEREOF, AND THE RIGHTS OF THE PARTIES
HERETO AND THERETO WITH RESPECT TO ALL MATTERS ARISING
HEREUNDER OR THEREUNDER OR RELATED HERETO OR THERETO SHALL BE
DETERMINED UNDER, GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF NEW YORK. THE PARTIES AGREE
THAT ALL ACTIONS OR PROCEEDINGS ARISING IN CONNECTION WITH
THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS SHALL BE TRIED AND
LITIGATED ONLY IN THE STATE AND FEDERAL COURTS LOCATED IN THE
COUNTY OF NEW YORK, STATE OF NEW YORK OR, AT THE SOLE OPTION
OF FOOTHILL, IN ANY OTHER COURT IN WHICH FOOTHILL SHALL
INITIATE LEGAL OR EQUITABLE PROCEEDINGS AND WHICH HAS SUBJECT
MATTER JURISDICTION OVER THE MATTER IN CONTROVERSY. EACH OF
BORROWER AND FOOTHILL WAIVES, TO THE EXTENT PERMITTED UNDER
APPLICABLE LAW, ANY RIGHT EACH MAY HAVE TO ASSERT THE DOCTRINE
OF FORUM NON CONVENIENS OR TO OBJECT TO VENUE TO THE EXTENT
ANY PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS SECTION 13.
BORROWER AND FOOTHILL HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO
A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR
ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY OF THE
TRANSACTIONS CONTEMPLATED THEREIN, INCLUDING CONTRACT CLAIMS,
TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW
OR STATUTORY CLAIMS. EACH OF BORROWER AND FOOTHILL REPRESENTS
THAT IT HAS REVIEWED THIS WAIVER AND EACH KNOWINGLY AND
VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING
CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF LITIGATION,
A COPY OF THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO
A TRIAL BY THE COURT.
14. DESTRUCTION OF BORROWER'S DOCUMENTS.
All documents, schedules, invoices, agings, or other
papers delivered to Foothill may be destroyed or otherwise
disposed of by Foothill 4 months after they are delivered to
or received by Foothill, unless Borrower requests, in writing,
the return of said documents, schedules, or other papers and
makes arrangements, at Borrower's expense, for their return.
15. GENERAL PROVISIONS.
15.1 Effectiveness. This Agreement shall be
binding and deemed effective when executed by Borrower and
Foothill.
15.2 Successors and Assigns. This Agreement
shall bind and inure to the benefit of the respective
successors and assigns of each of the parties; provided,
however, that Borrower may not assign this Agreement or any
rights or duties hereunder without Foothill's prior written
consent and any prohibited assignment shall be absolutely
void. No consent to an assignment by Foothill shall release
Borrower from its Obligations. Foothill may assign this
Agreement and its rights and duties hereunder with the consent
of Borrower unless an Event of Default then exists, in which
case no consent of the Borrower is required in connection with
any such assignment. Foothill reserves the right to grant
participations in all or any part of, or any interest in
Foothill's rights and benefits hereunder. In connection with
any such assignment or participation, Foothill may disclose
all documents and information which Foothill now or hereafter
may have relating to Borrower or Borrower's business. To the
extent that Foothill assigns its rights and obligations
hereunder to a third Person, Foothill thereafter shall be
released from such assigned obligations to Borrower and such
assignment shall effect a novation between Borrower and such
third Person.
15.3 Section Headings. Headings and numbers
have been set forth herein for convenience only. Unless the
contrary is compelled by the context, everything contained in
each section applies equally to this entire Agreement.
15.4 Interpretation. Neither this Agreement
nor any uncertainty or ambiguity herein shall be construed or
resolved against Foothill or Borrower, whether under any rule
of construction or otherwise. On the contrary, this Agreement
has been reviewed by all parties and shall be construed and
interpreted according to the ordinary meaning of the words
used so as to fairly accomplish the purposes and intentions of
all parties hereto.
15.5 Severability of Provisions. Each
provision of this Agreement shall be severable from every
other provision of this Agreement for the purpose of
determining the legal enforceability of any specific
provision.
15.6 Amendments in Writing. This Agreement can
only be amended by a writing signed by both Foothill and
Borrower.
15.7 Counterparts; Telefacsimile Execution.
This Agreement may be executed in any number of counterparts
and by different parties on separate counterparts, each of
which, when executed and delivered, shall be deemed to be an
original, and all of which, when taken together, shall
constitute but one and the same Agreement. Delivery of an
executed counterpart of this Agreement by telefacsimile shall
be equally as effective as delivery of an original executed
counterpart of this Agreement. Any party delivering an
executed counterpart of this Agreement by telefacsimile also
shall deliver an original executed counterpart of this
Agreement but the failure to deliver an original executed
counterpart shall not affect the validity, enforceability, and
binding effect of this Agreement.
15.8 Revival and Reinstatement of Obligations.
If the incurrence or payment of the Obligations by Borrower or
any guarantor of the Obligations or the transfer by either or
both of such parties to Foothill of any property of either or
both of such parties should for any reason subsequently be
declared to be void or voidable under any state or federal law
relating to creditors' rights, including provisions of the
Bankruptcy Code relating to fraudulent conveyances,
preferences, and other voidable or recoverable payments of
money or transfers of property (collectively, a "Voidable
Transfer"), and if Foothill is required to repay or restore,
in whole or in part, any such Voidable Transfer, or elects to
do so upon the reasonable advice of its counsel, then, as to
any such Voidable Transfer, or the amount thereof that
Foothill is required or elects to repay or restore, and as to
all reasonable costs, expenses, and attorneys fees of Foothill
related thereto, the liability of Borrower or such guarantor
automatically shall be revived, reinstated, and restored and
shall exist as though such Voidable Transfer had never been
made.
15.9 Integration. This Agreement, together
with the other Loan Documents, reflects the entire
understanding of the parties with respect to the transactions
contemplated hereby and shall not be contradicted or qualified
by any other agreement, oral or written, before the date
hereof.
1.1 Time is of the Essence. Time is of the
essence of this Agreement.
1.1 Confidentiality. Each of Borrower and
Foothill agree to treat as confidential information and not to
disclose to any other Person the terms of this Agreement and
the other Loan Documents together with any information which
Foothill obtains or receives relative to the Borrower and
which the Borrower obtains or receives relative to Foothill,
in the course of the negotiation, execution and administration
of this Agreement which reasonably could be considered
proprietary to the other, and which is not itself part of the
public domain, except that each of Foothill and the Borrower
may disclose such terms and information: (i) to its
shareholders, suppliers, employees, agents, affiliates,
attorneys, accountants, auditors, distributors, dealers, and
other representatives who have need for such terms and
information, (ii) to any potential or actual participant or
assignee so long as such participant or assignee agrees to
keep the information disclosed on the same basis of
confidentiality as set forth hereinabove, (iii) to such other
Persons as to which the other party has given its prior
written consent to disclosure, (iv) as required under
applicable federal or state securities laws, and (v) to any
Person acting under color of law or pursuant to any judicial,
administrative, regulatory or other legal proceeding. For
purposes hereof, each party hereto shall be deemed to have
treated the aforesaid terms and information "as confidential"
if, to the extent and for so long as it has maintained such
terms and information with the same degree of confidentiality
as it employs relative to its own confidential information of
the same or similar materiality.
IN WITNESS WHEREOF, the parties hereto have caused
this Agreement to be executed as of the day and year first
above written.
Sworn and subscribed PHARMHOUSE CORP.,
before me this 15th day a New York corporation
of May, 1998
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
NOTARY PUBLIC
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
My Commission Expires
Title: Executive Vice president
Sworn and subscribed FOOTHILL CAPITAL CORPORATION,
before me this 15th day a California corporation
of May, 1998
By: /s/ ▇▇▇▇▇▇▇▇▇▇▇ ▇'▇▇▇▇▇▇
NOTARY PUBLIC
Name: ▇▇▇▇▇▇▇▇▇▇▇ ▇'▇▇▇▇▇▇
My Commission Expires
Title: Vice President