1
================================================================================
LOAN AND SECURITY AGREEMENT
BY AND BETWEEN
▇▇▇▇▇▇▇▇▇ INDUSTRIES, INC., ▇▇▇▇▇▇▇▇▇ INDUSTRIES, L.P.
AND NBF, INC.
AND
FOOTHILL CAPITAL CORPORATION
DATED AS OF AUGUST 16, 1996
================================================================================
2
TABLE OF CONTENTS
PAGE
----
1. DEFINITIONS AND CONSTRUCTION. . . . . . . . . . . . . . . . . . 1
1.1 Definitions . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Accounting Terms . . . . . . . . . . . . . . . . . . . . 13
1.3 Code . . . . . . . . . . . . . . . . . . . . . . . . . . 13
1.4 Construction . . . . . . . . . . . . . . . . . . . . . . 13
1.5 Schedules and Exhibits . . . . . . . . . . . . . . . . . 13
2. LOAN AND TERMS OF PAYMENT . . . . . . . . . . . . . . . . . . . 14
2.1 Revolving Advances . . . . . . . . . . . . . . . . . . . 14
2.2 Letters of Credit and Letter of Credit Guarantees . . . 15
2.3 Overadvances . . . . . . . . . . . . . . . . . . . . . . 16
2.4 Interest: Rates, Payments, and Calculations . . . . . . 16
2.5 Crediting Payments; Application of Collections . . . . . 18
2.6 Statements of Obligations . . . . . . . . . . . . . . . 19
2.7 Fees . . . . . . . . . . . . . . . . . . . . . . . . . . 19
3. CONDITIONS; TERM OF AGREEMENT . . . . . . . . . . . . . . . . . 20
3.1 Conditions Precedent to Initial Advance, L/C, or L/C
Guarantee . . . . . . . . . . . . . . . . . . . . . . . 20
3.2 Conditions Precedent to All Advances, L/Cs, or L/C
Guarantees . . . . . . . . . . . . . . . . . . . . . . . 21
3.3 Term; Automatic Renewal . . . . . . . . . . . . . . . . 22
3.4 Effect of Termination . . . . . . . . . . . . . . . . . 22
3.5 Early Termination by Borrower . . . . . . . . . . . . . 22
3.6 Termination Upon Event of Default . . . . . . . . . . . 22
4. CREATION OF SECURITY INTEREST . . . . . . . . . . . . . . . . . 23
4.1 Grant of Security Interest . . . . . . . . . . . . . . . 23
4.2 Negotiable Collateral . . . . . . . . . . . . . . . . . 23
4.3 Collection of Accounts, General Intangibles,
Negotiable Collateral . . . . . . . . . . . . . . . . . 23
4.4 Delivery of Additional Documentation Required . . . . . 23
4.5 Power of Attorney . . . . . . . . . . . . . . . . . . . 24
4.6 Right to Inspect . . . . . . . . . . . . . . . . . . . . 24
5. REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . 24
5.1 No Prior Encumbrances . . . . . . . . . . . . . . . . . 24
5.2 Eligible Accounts . . . . . . . . . . . . . . . . . . . 24
5.3 Eligible Inventory . . . . . . . . . . . . . . . . . . . 25
5.4 Location of Inventory and Equipment . . . . . . . . . . 25
5.5 Inventory Records . . . . . . . . . . . . . . . . . . . 25
5.6 Location of Chief Executive Office; FEIN . . . . . . . . 25
5.7 Due Organization and Qualification; No Subsidiaries . . 25
5.8 Due Authorization; No Conflict . . . . . . . . . . . . . 25
i
3
5.9 Litigation . . . . . . . . . . . . . . . . . . . . . . . 25
5.10 No Material Adverse Change in Financial Condition . . . 26
5.11 Solvency . . . . . . . . . . . . . . . . . . . . . . . . 26
5.12 Employee Benefits . . . . . . . . . . . . . . . . . . . 26
5.13 Environmental Condition . . . . . . . . . . . . . . . . 27
5.14 Patents, Copyrights and Trademarks . . . . . . . . . . . 27
5.15 Material Agreements . . . . . . . . . . . . . . . . . . 27
5.16 Reliance by Foothill; Cumulative . . . . . . . . . . . . 27
6. AFFIRMATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . 27
6.1 Accounting System . . . . . . . . . . . . . . . . . . . 27
6.2 Collateral Reports . . . . . . . . . . . . . . . . . . . 28
6.3 Schedules of Accounts . . . . . . . . . . . . . . . . . 28
6.4 Financial Statements, Reports, Certificates . . . . . . 28
6.5 Tax Returns . . . . . . . . . . . . . . . . . . . . . . 29
6.6 Guarantor Reports . . . . . . . . . . . . . . . . . . . 29
6.7 Designation of Inventory . . . . . . . . . . . . . . . . 29
6.8 Returns . . . . . . . . . . . . . . . . . . . . . . . . 29
6.9 Title to Equipment . . . . . . . . . . . . . . . . . . . 30
6.10 Maintenance of Equipment . . . . . . . . . . . . . . . . 30
6.11 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . 30
6.12 Insurance . . . . . . . . . . . . . . . . . . . . . . . 30
6.13 Financial Covenants . . . . . . . . . . . . . . . . . . 31
6.14 No Setoffs or Counterclaims . . . . . . . . . . . . . . 31
6.15 Location of Inventory and Equipment . . . . . . . . . . 31
6.16 Compliance with Laws . . . . . . . . . . . . . . . . . . 32
6.17 Employee Benefits . . . . . . . . . . . . . . . . . . . 32
6.18 Leases . . . . . . . . . . . . . . . . . . . . . . . . . 32
6.19 Material Agreements . . . . . . . . . . . . . . . . . . 33
7. NEGATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . 33
7.1 Indebtedness . . . . . . . . . . . . . . . . . . . . . . 33
7.2 Liens . . . . . . . . . . . . . . . . . . . . . . . . . 33
7.3 Restrictions on Fundamental Changes . . . . . . . . . . 34
7.4 Extraordinary Transactions and Disposal of Assets . . . 34
7.5 Change Name . . . . . . . . . . . . . . . . . . . . . . 34
7.6 Guarantee . . . . . . . . . . . . . . . . . . . . . . . 34
7.7 Restructure . . . . . . . . . . . . . . . . . . . . . . 34
7.8 Prepayments . . . . . . . . . . . . . . . . . . . . . . 34
7.9 Change of Control . . . . . . . . . . . . . . . . . . . 34
7.10 Capital Expenditures . . . . . . . . . . . . . . . . . . 34
7.11 Consignments . . . . . . . . . . . . . . . . . . . . . . 34
7.12 Distributions . . . . . . . . . . . . . . . . . . . . . 34
7.13 Accounting Methods . . . . . . . . . . . . . . . . . . . 35
7.14 Investments . . . . . . . . . . . . . . . . . . . . . . 35
7.15 Transactions with Affiliates . . . . . . . . . . . . . . 35
7.16 Suspension . . . . . . . . . . . . . . . . . . . . . . . 35
ii
4
7.17 Compensation . . . . . . . . . . . . . . . . . . . . . . 35
7.18 Use of Proceeds . . . . . . . . . . . . . . . . . . . . 35
7.19 Change in Location of Chief Executive Office;
Inventory and Equipment with Bailees . . . . . . . . . . 35
8. EVENTS OF DEFAULT . . . . . . . . . . . . . . . . . . . . . . . 36
9. FOOTHILL'S RIGHTS AND REMEDIES . . . . . . . . . . . . . . . . . 38
9.1 Rights and Remedies . . . . . . . . . . . . . . . . . . 38
9.2 Remedies Cumulative . . . . . . . . . . . . . . . . . . 39
10. TAX AND EXPENSES . . . . . . . . . . . . . . . . . . . . . . . . 40
11. WAIVERS; INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . 40
11.1 Demand; Protest; etc. . . . . . . . . . . . . . . . . . 40
11.2 Foothill's Liability for Collateral . . . . . . . . . . 40
11.3 Indemnification . . . . . . . . . . . . . . . . . . . . 40
11.4 Suretyship Waivers and Consents . . . . . . . . . . . . 41
12. NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
13. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER . . . . . . . . . . . 46
14. DESTRUCTION OF BORROWER'S DOCUMENTS . . . . . . . . . . . . . . 46
15. GENERAL PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . 46
15.1 Effectiveness . . . . . . . . . . . . . . . . . . . . . 46
15.2 Successors and Assigns . . . . . . . . . . . . . . . . . 46
15.3 Section Headings . . . . . . . . . . . . . . . . . . . . 47
15.4 Interpretation . . . . . . . . . . . . . . . . . . . . . 47
15.5 Severability of Provisions . . . . . . . . . . . . . . . 47
15.6 Amendments in Writing . . . . . . . . . . . . . . . . . 47
15.7 Counterparts; Telefacsimile Execution . . . . . . . . . 47
15.8 Revival and Reinstatement of Obligations . . . . . . . . 47
15.9 Integration . . . . . . . . . . . . . . . . . . . . . . 48
iii
5
INDEX OF SCHEDULES AND EXHIBITS
SCHEDULES
Schedule E-1 Locations of Eligible Inventory
Schedule P-1 Permitted Liens
Schedule R-1 Real Property
Schedule 5.7 Affiliates
Schedule 5.9 Litigation
Schedule 6.15 Locations of Inventory and Equipment
EXHIBITS
Exhibit 5.14 Patents, Copyrights and Trademarks
iv
6
LOAN AND SECURITY AGREEMENT
This LOAN AND SECURITY AGREEMENT, is entered into as of August 16,
1996, between FOOTHILL CAPITAL CORPORATION, a California corporation
("Foothill"), with a place of business located at ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇,
▇▇▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇, and ▇▇▇▇▇▇▇▇▇ INDUSTRIES, INC.,
a Delaware corporation ("Inc."), ▇▇▇▇▇▇▇▇▇ INDUSTRIES, L.P., a Texas limited
partnership ("L.P.") and NBF, INC., a Georgia corporation ("ANBF"), jointly and
severally, (collectively "Borrower"), with their chief executive office located
at ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇.
W I T N E S S E T H:
WHEREAS, Inc., L.P. and NBF are interrelated entities which,
collectively, constitute an integrated entity;
WHEREAS, the shareholders and directors of Inc. and NBF and the
partners of L.P. view the three entities as sufficiently dependent upon each
other and so interrelated, that any advances made by Foothill hereunder to one
of the constituent entities would benefit the other of the constituent entities
as a result of their consolidated operations and identity of interests, and
WHEREAS, Inc., L.P. and NBF have each requested that Foothill treat
them as co-borrowers hereunder, as a single, consolidated business enterprise,
jointly and severally responsible for the Obligations hereunder, so as to
permit advances to be allocated among the constituent entities as may be, from
time to time, in the best interest of the combined group; and
WHEREAS, Foothill is willing to proceed on the basis of treating all of
the borrowing entities as a single, consolidated business enterprise, and view
their operations on a consolidated basis as requested by Inc., L.P. and NBF;
and
WHEREAS, Foothill is willing to make such loans and provide such
financial accommodations on the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the mutual conditions and
agreements set forth herein, and for other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties hereto
agree as follows:
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:
1
7
"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.
"Affiliate" means, as applied to any Person, any other Person
directly or indirectly controlling, controlled by, or under common control
with, that Person. For purposes of this definition, "control" as applied to any
Person means the possession, directly or indirectly, of the power to direct or
cause the direction of the management and policies of that Person, whether
through the ownership of voting securities, by contract, or otherwise.
"Agreement" means this Loan and Security Agreement and any
extensions, riders, supplements, notes, amendments, or modifications to or in
connection with this Loan and Security Agreement.
"Authorized Officer" means any officer, partner or officer of
any partner of Borrower.
"Average Unused Portion of Maximum Amount" means (a) the
Maximum Amount; less (b) the sum of: (i) the average Daily Balance of advances
made by Foothill under Section 2.1 that were outstanding during the immediately
preceding month, plus (ii) the average Daily Balance of the undrawn L/Cs and
L/C Guarantees issued by Foothill under Section 2.2 that were outstanding
during the immediately preceding month.
"Bankruptcy Code" means the United States Bankruptcy Code (11
U.S.C. Section 101 et seq.), as amended, and any successor statute.
"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 Borrowers
properties or assets (including the Collateral or the Real Property) or
liabilities; all information relating to Borrower's business operations or
financial condition; and all computer programs, disc or tape files, printouts,
runs, or other computer prepared information.
"Borrowing Base" has the meaning set forth in Section 2.1.
"Business Day" means any day which is not a Saturday, Sunday,
or other day on which national banks are authorized or required to close.
"Change of Control" shall be deemed to have occurred at such
time as a "person" or "group" (within the meaning of Sections 13(d) and
14(d)(2) of the Securities Exchange Act of 1934) becomes the "beneficial owner"
(as defined in Rule 13d-3 under the Securities Exchange Act of 1934), directly
or indirectly, of more than twenty-five percent
2
8
(25%) of the total voting power of all classes of stock then outstanding or of
partnership interests of Borrower normally entitled to vote in the election of
directors or a vote of partners.
"Closing Date" means the date of the initial advance hereunder
or the date of the initial issuance of an L/C or an L/C Guaranty hereunder,
whichever occurs first.
"Code" means the California Uniform Commercial Code.
"Collateral" means each of the following: the Accounts;
Borrower's Books; the Equipment; the General Intangibles; the Inventory; the
Negotiable Collateral; the Real Property; any money, or other assets of
Borrower which now or hereafter come into the possession, custody, or control
of Foothill; and 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, 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.
"Consolidated Current Assets" means, as of any date of
determination, the aggregate amount of all current assets of Borrower and its
subsidiaries calculated on a consolidated basis that would, in accordance with
GAAP, be classified on a balance sheet as current assets.
"Consolidated Current Liabilities" means, as of any date of
determination, the aggregate amount of all current liabilities of Borrower and
its subsidiaries, calculated on a consolidated basis that would, in accordance
with GAAP, be classified on a balance sheet as current liabilities. For
purposes of this definition, all advances outstanding under this Agreement
shall be deemed to be current liabilities without regard to whether they would
be deemed to be so under GAAP.
"Corporate Guarantors" means ▇▇▇▇▇▇▇▇▇ Operating Corp.,
▇▇▇▇▇▇▇▇▇ Holding Corp., ▇▇▇▇▇▇▇▇▇ Sports, Inc., C.G. Products, Inc. and
▇▇▇▇▇▇, Inc.
"Daily Balance" means the amount of an Obligation owed at the
end of a given day.
"Debtor" has the meaning set forth in Section 11.4.
"Dilution" means, as of the date of determination, the total
of all chargebacks, returns, advertising claims, discounts, contra accounts,
write-offs in favor of or held by Account Debtors and any other item that could
reduce or otherwise impair the full and timely collection of Accounts,
expressed as a percentage of cash collections plus dilutive items, determined
on a three (3) month rolling basis.
"Early Termination Premium" has the meaning set forth in
Section 3.5.
3
9
"Eligible Accounts" means those Accounts created by Borrower
in the ordinary course of business that arise out of Borrower's sale of goods
or rendition of services, that strictly comply with all of Borrower's
representations and warranties to Foothill, and that are and at all times shall
continue to be acceptable to Foothill in all respects; provided, however, that
standards of eligibility may be fixed and revised from time to time by Foothill
in Foothill's reasonable credit judgment. Eligible Accounts shall not include
the following:
(a) Accounts with respect to which the Account Debtor has
failed to pay within one hundred twenty (120) days of invoice date or sixty
(60) days past due, Accounts with selling terms of more than seventy- five (75)
days (or, in the case of Sportsmart, Inc., and Service Merchandise, ninety (90)
days), and all Accounts owed by an Account Debtor that has failed to pay fifty
percent (50%) or more of its Accounts owed to Borrower within one hundred
twenty (120) days of invoice date;
(b) Accounts with respect to which the Account Debtor is
an officer, employee, Affiliate, or agent of Borrower;
(c) Accounts with respect to which goods are placed on
consignment, guaranteed sale, sale or return, sale on approval, ▇▇▇▇ and hold,
or other terms by reason of which the payment by the Account Debtor may be
conditional, except as otherwise approved by Foothill;
(d) Accounts with respect to which the Account Debtor is
not a resident of the United States or Canada, and which are not either (i)
covered by credit insurance in form and amount, and by an insurer, satisfactory
to Foothill, or (ii) supported by one or more letters of credit that are
assignable by their terms and have been delivered to Foothill in an amount, of
a tenor, and issued by a financial institution, acceptable to Foothill;
(e) Accounts with respect to which the Account Debtor is
the United States or any department, agency, or instrumentality of the United
States;
(f) Accounts with respect to which Borrower is or may
become liable to the Account Debtor for goods sold or services rendered by the
Account Debtor to Borrower;
(g) Accounts with respect to an Account Debtor whose
total obligations owing to Borrower exceed ten percent (10%) of all Eligible
Accounts (or, in the case of Service Merchandise and ▇▇▇▇▇▇-▇▇▇▇▇▇, fifteen
percent (15%)), to the extent of the obligations owing by such Account Debtor
in excess of such percentage; provided, however, in the case of Wal-Mart or K-
Mart, such percentage shall be:
(i) From March 1 - September 30 (i) thirty percent (30%) of
each year as to each
(ii) From October 1 - February 28 (ii) seventy percent of each
year (70%) as to both combined
4
10
(h) Accounts with respect to which the Account Debtor
disputes liability or makes any claim with respect thereto, or is subject to
any Insolvency Proceeding, or becomes insolvent, or goes out of business;
(i) Accounts the collection of which Foothill, in its
reasonable credit judgment, believes to be doubtful by reason of the Account
Debtor's financial condition;
(j) Accounts that are payable in other than United States
Dollars; and
(k) Accounts that represent progress payments or other
advance ▇▇▇▇▇▇▇▇ that are due prior to the completion of performance by
Borrower of the subject contract for goods or services.
"Eligible Inventory" means Inventory (net of reserves for
obsolescence and reserves for restructuring charges as determined in Foothill's
reasonable discretion) consisting of first quality finished goods held for sale
in the ordinary course of Borrower's business and raw materials for such
finished goods, that are located at Borrower's premises identified on Schedule
E-1, are acceptable to Foothill in all respects, and strictly comply with all
of Borrower's representations and warranties to Foothill. Eligible Inventory
shall not include slow moving or obsolete items, restrictive or custom items,
work-in-process, Pacer and Pro-tec Inventory, components that are not part of
finished goods, spare parts, packaging and shipping materials, supplies used or
consumed in Borrower's business, Inventory at any location other than those set
forth on Schedule E-1, Inventory subject to a security interest or lien in
favor of any third Person, ▇▇▇▇ and hold goods, Inventory that is not subject
to Foothill's perfected security interests, Inventory the sale of which by or
on behalf of Foothill may be restricted by any Person claiming a right or
interest in such Inventory (or any trademark, license, copyright, patent or
other right or interest relating to such Inventory), defective goods,
"seconds," and Inventory acquired on consignment. Eligible Inventory shall be
valued at the lower of Borrower's cost or market value; provided, however, that
standards of eligibility may be fixed and revised from time to time by Foothill
in Foothill's reasonable credit determination. All references to Eligible
Inventory, other than such references in Section 2.1(a), shall be deemed to
include Inventory In-Transit.
"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, dies,
jigs, goods (other than consumer goods, farm products, or Inventory), wherever
located, and any interest of Borrower in any of the foregoing, and all
attachments, accessories, accessions, replacements, substitutions, additions,
and improvements to any of the foregoing, wherever located.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended from time to time, or any predecessor, successor, or
superseding laws of the United States of America, together with all regulations
promulgated thereunder.
"ERISA Affiliate" means any trade or business (whether or not
incorporated) which, within the meaning of Section 414 of the IRC, is: (i)
under common control with Borrower; (ii) treated, together with Borrower, as a
single employer; (iii) treated as a
5
11
member of an affiliated service group of which Borrower is also treated as a
member; or (iv) is otherwise aggregated with the Borrower for purposes of the
employee benefits requirements listed in IRC Section 414(m)(4).
"ERISA Event" means any one or more of the following: (i) a
Reportable Event with respect to a Qualified Plan or a Multiemployer Plan; (ii)
a Prohibited Transaction with respect to any Plan; (iii) a complete or partial
withdrawal by Borrower or any ERISA Affiliate from a Multiemployer Plan; (iv)
the complete or partial withdrawal of Borrower or an ERISA Affiliate from a
Qualified Plan during a plan year in which it was, or was treated as, a
"substantial employer" as defined in Section 4001(a)(2) of ERISA; (v) a failure
to make full payment when due of all amounts which, under the provisions of any
Plan or applicable law, Borrower or any ERISA Affiliate is required to make;
(vi) the filing of a notice of intent to terminate, or the treatment of a plan
amendment as a termination, under Sections 4041 or 4041A of ERISA; (vii) an
event or condition which might reasonably be expected to constitute grounds
under Section 4042 of ERISA for the termination of, or the appointment of a
trustee to administer, any Qualified Plan or Multiemployer Plan; (viii) the
imposition of any liability under Title IV of ERISA, other than PBGC premiums
due but not delinquent under Section 4007 of ERISA, upon Borrower or any ERISA
Affiliate; and (ix) a violation of the applicable requirements of Sections 404
or 405 of ERISA, or the exclusive benefit rule under Section 403(c) of ERISA,
by any fiduciary or disqualified person with respect to any Plan for which
Borrower or any ERISA Affiliate may be directly or indirectly liable.
"Event of Default" has the meaning set forth in Section 8.
"Excess Availability" means the amount, as of the date any
determination thereof is to be made, equal to:
(a) the lesser of (i) the Borrowing Base (based on the
applicable advance rates set forth in Section 2.1(a) hereof), subject to the
sublimits and availability reserves from time to time established by Foothill
hereunder, minus the sum of the aggregate amount of all undrawn or unreimbursed
L/Cs and L/C Guarantys (exclusive of Inventory L/Cs) together with the
Inventory L/C Reserve Amount and (ii) the Maximum Amount minus the aggregate
amount of all undrawn or unreimbursed L/C and L/C Guarantys (including
Inventory L/Cs); plus
(b) unrestricted cash of Borrower; minus
(c) the amount of all then outstanding and unpaid
Obligations.
"FEIN" means Federal Employer Identification Number.
"Foothill" has the meaning set forth in the preamble to this
Agreement.
"Foothill Expenses" means all: costs or expenses (including
taxes, photocopying, notarization, telecommunication and insurance premiums)
required to be paid by Borrower under any of the Loan Documents that are paid
or advanced by Foothill; documentation, filing, recording, publication,
appraisal (including periodic Collateral or Real
6
12
Property appraisals), real estate survey, environmental audit, and search fees
assessed, paid, or incurred by Foothill in connection with Foothill's
transactions with Borrower; costs and expenses incurred by Foothill in the
disbursement of funds to Borrower (by wire transfer or otherwise); 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 Collateral or the Real Property, 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; 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.
"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, infringements, claims,
computer programs, computer discs, computer tapes, literature, reports,
catalogs, deposit accounts, insurance premium rebates, tax refunds, and tax
refund claims), other than goods, Accounts, and Negotiable Collateral.
"Hazardous Materials" means all or any of the following: (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 AEP 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 which contains any oil or
dielectric fluid containing levels of polychlorinated biphenyls in excess of
fifty (50) parts per million.
"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, letter of credit guaranties,
bankers acceptances, interest rate swaps, controlled disbursement accounts, or
other financial products; (c) all obligations under capital leases; (d)
7
13
all obligations or liabilities of others secured by a lien or security interest
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.
"Individual Guarantors" means ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ and ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇.
"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, including assignments for the benefit of
creditors, formal or informal moratoria, compositions, extensions generally
with its creditors, or proceedings seeking reorganization, arrangement, or
other similar relief.
"In-Transit Inventory Reserve" means a reserve in an amount
acceptable to Foothill to cover the costs of freight, duty, customs and other
costs relating to the importation of inventory.
"Intercreditor Agreement" means the Intercreditor Agreement
among Borrower, Old Lender and Foothill, of even date.
"Inventory" means all present and future inventory in which
Borrower has any interest, including goods held for sale or lease or to be
furnished under a contract of service and all of Borrower's present and future
raw materials, work in process, finished goods, and packing and shipping
materials, wherever located, and any documents of title representing any of the
above.
"Inventory In-Transit" means all Inventory which is Eligible
Inventory however is in-transit for direct delivery to Borrower, Borrower holds
good legal title to Inventory, the Inventory is adequately insured for full
replacement value, and such Inventory are not located at a port of shipping for
more than thirty (30) days prior to shipment.
"Inventory L/C Reserve Amount" means the sum of (i) forty-
eight percent (48%) of the aggregate Inventory Letters of Credit plus (ii) an
amount sufficient to reserve for associated freight, duty, customs and other
related costs. The reserve amount of forty-eight percent (48%) would increase
by one percent (1.0%) per month, for seven months, effective on the first day
of each month commencing September 1, 1996.
"Inventory Letter of Credit" means a documentary L/C issued to
support the purchase by Borrower of Inventory prior to transit to a location
set forth on Schedule E-1, that satisfy the following conditions: (a) all draws
thereunder must require presentation of customary documentation (including, if
applicable, commercial invoices, packing list, certificate of origin, ▇▇▇▇ of
lading or airway ▇▇▇▇, 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 reasonably satisfactory to Foothill and reflecting the
passage to Borrower of title to
8
14
Inventory conforming to Borrower's contract with the seller thereof, (b) the
Inventory covered by such L/C would, but for its not being located at a
location set forth on Schedule E-1, be Eligible Inventory, (c) the Inventory
shall be fully insured and (d) such L/C shall cease to be an "Inventory Letter
of Credit" at such time, if any, as the goods purchased thereunder become
Eligible Inventory.
"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).
"Loan Documents means this Agreement, the Lockbox Agreements,
the Mortgages, any other note or notes executed by Borrower and payable to
Foothill, and any other agreement entered into in connection with this
Agreement.
"Lockbox Account" shall mean the depositary account
established pursuant to the respective Lockbox Agreement.
"Lockbox Agreements" means those certain Lockbox Operating
Procedural Agreements and those certain Depository Account Agreements, in form
and substance satisfactory to Foothill, each of which is among Borrower,
Foothill, and one of the Lockbox Banks.
"Lockbox Banks" means Bank One Texas, N.A.
"Maximum Amount" means Twenty Five Million Dollars
($25,000,000); provided, upon Borrower's request and upon Foothill's receipt of
a participation commitment (in addition to the Ten Million Dollars
($10,000,000) commitment of Coast Business Credit) in form acceptable to
Foothill, the Maximum Amount shall be increased by the amount of such
additional participation commitment but, in no event, greater than Thirty
Million Dollars ($30,000,000).
"Maximum Foothill Amount" means that portion of the Maximum
Amount for which Foothill shall be responsible, exclusive of any
participations, with Participants, which amount is Fifteen Million Dollars
($15,000,000).
"Maximum Rate" means the maximum rate of interest permitted by
applicable law as the same exists from day to any during the term of this
Agreement, including, to the extent that Texas law as the same exists from day
to day during the term of this Agreement, including, to the extent that Texas
law may apply to the rights of the parties hereunder notwithstanding the choice
of California law contained in Section 13 hereof (and without any intent of the
parties to diminish or negate the intent or effect of the provisions of Section
13 hereof), the greatest of either (i) the "indicated rate ceiling" as defined
in Article 1.04, Title 79, Revised Civil Statutes of Texas (the "Act") with
said indicated rate ceiling being adjusted weekly as when permitted under the
Act, (ii) the "annual ceiling" or the "quarterly ceiling"
9
15
from time to time in effect as referred to and defined in the Act, upon the
giving of notice by Foothill of its election to utilize the "annual ceiling" or
the "quarterly ceiling" to the extent permitted by the Act and with the effect
provided in Section (h)(1) of the Act, (iii) the rate permitted by any federal
law if such federal law applies or may be applied to this transaction and when
and for so long as the rate permitted thereunder is greater than that permitted
under clause (i) or clause (ii) hereof, or (iv) the maximum rate permitted by
law when and as the law changes to permit a greater maximum rate that stated in
clauses (i), (ii) or (iii) above.
"Mortgages" means one or more mortgages, deeds of trust, or
deeds to secure debt, executed by Borrower in favor of Foothill, the form and
substance of which shall be satisfactory to Foothill, that encumber the Real
Property and the related improvements thereto.
"Multiemployer Plan" means a multiemployer plan as defined in
Sections 3(37) or 4001(a)(3) of ERISA or Section 414 of the IRC in which
employees of Borrower or an ERISA Affiliate participate or to which Borrower or
any ERISA Affiliate contribute or are required to contribute.
"Negotiable Collateral" means all of Borrower's present and
future letters of credit, notes, drafts, instruments, certificated and
uncertificated 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.
"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 owing to
Foothill under any outstanding L/Cs or L/C Guarantees, premiums (including
Early Termination Premiums), the unpaid portion of the commitment fee,
liabilities (including all amounts charged to Borrower's loan account pursuant
to any agreement authorizing Foothill to charge Borrower's loan account),
obligations, fees, 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, by any note or other instrument 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.
"Old Lender" means NationsBank Texas N.A.
"Overadvance" has the meaning set forth in Section 2.3.
"Participant" means any Person, other than Foothill, that has
committed to provide a portion of the financing contemplated herein.
10
16
"Pay-Off Letter" means a letter, in form and substance
reasonably satisfactory to Foothill, from Old Lender respecting the amount
necessary to repay all but Two Million Dollars ($2,000,000) of the obligations
of Borrower owing to Old Lender and obtain a termination or release of all of
the security interests or liens existing in favor of Old 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 and security interests
held by Foothill; (b) liens for unpaid taxes that are not yet due and payable;
(c) liens and security interests set forth on Schedule P- 1 attached hereto;
(d) purchase money security interests and liens of lessors under capital leases
to the extent that the acquisition or lease of the underlying asset was
permitted under Section 7.10, and so long as the security interest or lien only
secures the purchase price of the asset; (e) easements, rights of way,
reservations, covenants, conditions, restrictions, zoning variances, and other
similar encumbrances that do not materially interfere with the use or value of
the property subject thereto; (f) obligations and duties as lessee under any
lease existing on the date of this Agreement; (g) mechanics', materialmen's,
warehousemen's, or similar liens that arise by operation of law; and (h)
exceptions listed in the title insurance or commitment therefor to be delivered
by Borrower hereunder in respect of the Real Property; and (i) pledges or
deposits made in the ordinary course of business to secure non- delinquent
obligations (not in excess of $25,000) existing under statutory requirements
consisting of worker's compensation, unemployment insurance, and similar
legislation.
"Permitted Protest" means the right of Borrower to protest any
lien, tax, rental payment, or other charge, other than any such lien or charge
that secures the Obligations, provided (i) a reserve with respect to such
obligation is established on the books of Borrower in an amount that is
reasonably satisfactory to Foothill, (ii) any such protest is instituted and
diligently prosecuted by Borrower in good faith, and (iii) 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 or security
interests of Foothill in and to the property or assets of Borrower.
"Person" means and includes natural persons, corporations,
limited partnerships, limited liability companies, general 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.
"Plan" means an employee benefit plan (as defined in Section
3(3) of ERISA) which Borrower or any ERISA Affiliate sponsors or maintains or
to which Borrower or any ERISA Affiliate makes, is making, or is obligated to
make contributions, including any Multiemployer Plan or Qualified Plan.
"Prohibited Transaction" means any transaction described in
Section 406 of ERISA which is not exempt by reason of Section 408 of ERISA, and
any transaction
11
17
described in Section 4975(c) of the IRC which is not exempt by reason of
Section 4975(c) of the IRC.
"Qualified Plan" means a pension plan (as defined in Section
3(2) of ERISA) intended to be tax-qualified under Section 401(a) of the IRC
which Borrower or any ERISA Affiliate sponsors, maintains, or to which any such
person makes, is making, or is obligated to make, contributions, or, in the
case of a multiple-employer plan (as described in Section 4064(a) of ERISA),
has made contributions at any time during the immediately preceding period
covering at least five (5) plan years, but excluding any Multiemployer Plan.
"Real Property" means the parcel or parcels of real property
and the related improvements thereto identified on Schedule R- 1, and any
parcels of real property hereafter acquired by Borrower.
"Reference Rate" means the highest of the variable rates of
interest, per annum, most recently announced by Norwest Bank Minnesota, N.A.,
or any successor to any of the foregoing institutions, as its "prime rate" or
"reference rate," as the case may be, irrespective of whether such announced
rate is the best rate available from such financial institution.
"Renewal Date" has the meaning set forth in Section 3.3.
"Reportable Event" means any event described in Section 4043
(other than Subsections (b)(7) and (b)(9)) of ERISA.
"Revolving Advances" has the meaning set forth in Section
2.1(a).
"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.
"Subordinated Debt" means the Indebtedness of the Borrower
owed to each of ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ and Dell ▇▇▇▇▇▇▇▇▇
subordinated to the Obligations hereunder in accordance with the terms,
respectively, of the Subordination Agreement.
12
18
"Subordination Agreement" means the Subordination Agreement of
even date among ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ and Dell ▇▇▇▇▇▇▇▇▇ and
Foothill.
"Syndicated Amount" means that portion of the Maximum Amount
equal to the aggregate financing commitments (to the extent not breached or
terminated) of all Participants, which amount is presently Ten Million Dollars
($10,000,000).
"Tangible Net Worth" means, as of the date any determination
thereof is to be made, the difference of: (a) the sum of (i) Borrower's total
stockholder's or partner's equity (deficit); (ii) the Subordinated Debt
(exclusive of debt owed to Old Lender); and (iii) the minority interest in any
subsidiary shareholder's or partner's equity; minus (b) the sum of (i) all
intangible assets of Borrower; (ii) all of Borrower's prepaid expenses; and
(iii) all amounts due to Borrower from Affiliates; in each case, calculated on
a consolidated basis.
"Unfunded Benefit Liability" means the excess of a Plan's
benefit liabilities (as defined in Section 4001(a)(16) of ERISA) over the
current value of such Plan's assets, determined in accordance with the
assumptions used by the Plan's actuaries for funding the Plan pursuant to
Section 412 of the IRC for the applicable plan year.
"Voidable Transfer" has the meaning set forth in Section 15.8.
"Working Capital" means the result of subtracting Consolidated
Current Liabilities from Consolidated Current Assets.
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. 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.
13
19
2. LOAN AND TERMS OF PAYMENT.
2.1 REVOLVING ADVANCES.
(a) Subject to the terms and conditions of this
Agreement, Foothill agrees to make revolving advances to Borrower in an amount
at any one time outstanding not to exceed the Borrowing Base less: (i) the
undrawn or unreimbursed amount of L/Cs and L/C Guarantees outstanding hereunder
for all L/Cs and L/C Guarantees which are not Inventory Letters of Credit and
(ii) the Inventory L/C Reserve Amount regarding Inventory Letters of Credit.
For purposes of this Agreement, "Borrowing Base", as of any date of
determination, shall mean the sum of: (i) an amount equal to the lesser of: (y)
seventy-five percent (75%) of the amount of Eligible Accounts, and (z) an
amount equal to Borrower's collections with respect to Accounts for the
immediately preceding sixty (60) day period; provided, however, that the
foregoing initial advance rate of seventy-five percent (75%) shall be
subsequently reduced by one percentage point for each percentage point of
Dilution in excess of twelve percent (12%); and (ii) an amount equal to the
lowest of: (x) the sum of (a) fifty-two percent (52%) of the amount of Eligible
Inventory exclusive of Inventory In- Transit and (b) fifty-two percent (52%) of
Inventory In-Transit (provided, advances on Inventory In-Transit shall not
exceed Three Million Dollars ($3,000,000), valued at the lower of cost or
market value as determined by Foothill minus (c) the In-Transit Inventory
Reserve, (y) the amount of credit availability created by Section 2.1(a)(i)
above multiplied by one hundred thirty three percent (133%), and (z) Fifteen
Million Dollars ($15,000,000). The advance rate of fifty-two percent (52%)
against Eligible Inventory and Inventory In-Transit shall be reduced by one
percent (1%) per month for the seven months, effective on the first day of each
month commencing on September 1, 1996.
(b) Anything to the contrary in Section 2.1(a) above
notwithstanding, Foothill may reduce its advance rates based upon Eligible
Accounts or Eligible Inventory or establish availability reserves without
declaring an Event of Default if it determines, in its reasonable discretion,
that there is a material impairment of the prospect of repayment of all or any
portion of the Obligations or a material impairment of the value or priority of
Foothill's security interests in the Collateral.
(c) Foothill shall have no obligation to make Revolving
Advances hereunder to the extent they would cause the outstanding Obligations
to exceed the lesser of: (i) the Maximum Amount or (ii) the Maximum Foothill
Amount plus the Syndicated Amount.
(d) Foothill is authorized to make Revolving Advances
under this Agreement based upon telephonic or other instructions received from
anyone purporting to be an Authorized Officer of Borrower, or without
instructions if pursuant to Section 2.4(d). Borrower agrees to establish and
maintain a single designated deposit account for the purpose of receiving the
proceeds of the Revolving Advances requested by Borrower and made by Foothill
hereunder. Unless otherwise agreed by Foothill and Borrower, any Revolving
Advance requested by Borrower and made by Foothill hereunder shall be made to
such designated deposit account. Amounts borrowed pursuant to this Section 2.1
may be repaid
14
20
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 AND LETTER OF CREDIT GUARANTEES.
(a) Subject to the terms and conditions of this
Agreement, Foothill agrees to issue commercial or standby letters of credit for
the account of Borrower (each, an "L/C") or to issue standby letters of credit
or guarantees of payment (each such letter of credit or guaranty, an "L/C
Guaranty") with respect to commercial or standby letters of credit issued by
another Person for the account of Borrower in an aggregate face amount not to
exceed the lesser of: (i) the Borrowing Base less the sum of (A) the amount of
advances outstanding pursuant to Section 2.1, and (B) the undrawn and
unreimbursed amount of L/C's and L/C Guarantees for L/Cs and L/C Guarantees
which are not Inventory Letters of Credit and (C) the Inventory L/C Reserve
Amount regarding Inventory Letters of Credit and (ii) Four Million Dollars
($4,000,000). Borrower expressly understands and agrees that Foothill shall
have no obligation to arrange for the issuance by other financial institutions
of 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 L/C and each letter of credit that is the subject of an L/C Guaranty shall
have an expiry date no later than sixty (60) days prior to the date on which
this Agreement is scheduled to terminate under Section 3.3 (without regard to
any potential renewal term) and all such L/Cs and letters of credit (and the
applicable L/C Guarantees) shall be in form and substance acceptable to
Foothill in its sole discretion. Foothill shall not have any obligation to
issue L/Cs or L/C Guarantees and Inventory Letters of Credit to the extent that
the face amount of all outstanding L/Cs and L/C Guarantees, plus the amount of
advances outstanding pursuant to Section 2.1, would exceed the lesser of: (y)
the Maximum Amount, or (z) the Maximum Foothill Amount plus the Syndicated
Amount. The L/Cs and the L/C Guarantees issued under this Section 2.2 shall be
used by Borrower, consistent with this Agreement, for its general working
capital purposes or to support its obligations with respect to workers'
compensation premiums or other similar obligations. If Foothill is obligated
to advance funds under an L/C or L/C Guaranty, the amount so advanced
immediately shall be deemed to be a Revolving Advance made by Foothill to
Borrower pursuant to Section 2.1 and, thereafter, shall bear interest at the
rates then applicable under Section 2.4.
(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 L/Cs or L/C
Guarantees. 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 mistakes, whether of
omission or commission, in following Borrower's instructions or those contained
in the L/Cs 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
15
21
against such issuing bank. Borrower hereby agrees to indemnify, save, defend,
and hold Foothill harmless with respect to any loss, cost, expense (including
attorneys fees), or liability incurred by Foothill under any L/C Guaranty as a
result of Foothill's indemnification of any such issuing bank.
(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. Borrower may or may
not be the "applicant" or "account party" with respect to such letter of
credit.
(d) Any and all service charges, commissions, fees, and
costs as established from time to time 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. On the first day of each month, Borrower will pay Foothill a fee
equal to two percent (2%) per annum times the average Daily Balance of the L/Cs
and L/C Guarantees that were outstanding during the immediately preceding
month. Service charges, commissions, fees, and costs may be charged to
Borrower's loan account at the time the service is rendered or the cost is
incurred.
(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 the maximum amount of Foothill's obligations under L/Cs
plus the maximum amount of Foothill's obligations to any Person under
outstanding L/C Guarantees, or (ii) cause to be delivered to Foothill releases
of all of Foothill's obligations under its outstanding L/Cs and L/C Guarantees.
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).
2.3 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 or 2.2 (an "Overadvance"), Borrower immediately shall pay to Foothill, in
cash, the amount of such excess to be used by Foothill first, to repay
non-contingent Obligations and, thereafter, to be held by Foothill as cash
collateral to secure Borrower's obligation to repay Foothill for all amounts
paid pursuant to L/Cs or L/C Guarantees.
2.4 INTEREST: RATES, PAYMENTS, AND CALCULATIONS.
(a) Interest Rate. (i) All Obligations, except for
undrawn L/Cs and L/C Guarantees shall bear interest, on the average Daily
Balance, at a per annum rate equal to the lesser of one and three-quarters
(1.75) percentage points above the Reference Rate or the Maximum Rate.
(b) Default Rate. (i) All Obligations, except for
undrawn L/Cs and L/C Guarantees shall bear interest, from and after the
occurrence and during the continuance of
16
22
an Event of Default, at a per annum rate equal to the lesser of four and
three-quarters (4.75%) percentage points above the Reference Rate or the
Maximum Rate. (ii) From and after the occurrence and during the continuance of
an Event of Default, the fee provided in Section 2.2(d) shall be increased to a
fee equal to five percent (5%) per annum times the average Daily Balance of the
undrawn L/Cs and L/C Guarantees that were outstanding during the immediately
preceding month.
(c) Minimum Interest. In no event shall the rate of
interest chargeable hereunder be less than eight percent (8%) per annum.
(d) Payments. Interest 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, all Foothill Expenses (as and when
incurred), and all installments or any other note or other Loan Document to
Borrower's loan account, which amounts thereafter shall accrue interest at the
rate then applicable hereunder. Any interest not paid when due shall be
compounded by becoming a part of the Obligations, and such interest shall
thereafter accrue interest at the rate then applicable hereunder.
(e) Computation. The Reference Rate as of the date of
this Agreement is eight and one-quarter percent (8.25%) 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 three hundred sixty (360) day year for the actual number of days elapsed.
(f) However, if at any time the applicable interest rate
shall exceed the Maximum Rate and thereafter the applicable interest rate shall
become less than the Maximum Rate, the rate of interest payable hereunder
shall, at the option of Foothill, be the Maximum Rate until the total interest
paid by Borrower equals the amount which would have been paid but for the
applicable interest rate having been in excess of the Maximum Rate. If at
maturity of final payment of the Obligations the total amount of interest paid
or accrued on the Obligations under the provisions of Sections 2.4(a) and (b)
is less than the total amount of interest which would have accrued if the
applicable interest rate had at all times been in effect, then Borrower to the
fullest extent permitted by law, shall pay to Lender an amount equal to the
difference between (a) the amount of interest which would have accrued on the
Obligations if the applicable interest rate had at all times been in effect,
and (b) the amount of interest accrued in accordance with the provisions of
Sections 2.4 (a) and (b).
(g) Interest Savings. It is the intention of the parties
hereto to conform strictly to all usury laws applicable to this transactions
contemplated hereby would be usurious under applicable law (including the laws
of the United States of America or any jurisdiction whose laws may be
mandatorily applicable notwithstanding the other provisions of the Agreement),
then, notwithstanding anything to the contrary in the Agreement or in any other
instrument or agreement entered into in connection herewith, it is agreed as
follows" (i) the aggregate of all consideration which constitutes interest
under applicable law that is
17
23
contracted for, taken, reserved, charged, or received under this Agreement or
under any other instruments or agreements or otherwise in connection herewith
shall under no circumstances exceed the maximum amount allowed by such
applicable law, and any excess shall be credited on the principal amount of the
Obligations (or, if the principal amount of the Obligations shall have been
paid in full, refunded to Borrower); and (ii) in the event that the maturity of
the Obligations is accelerated for any reason under this Agreement or
otherwise, or in the event of any required or permitted prepayment, then such
consideration that constitutes interest under applicable law may never include
more than the maximum amount allowed by such applicable law, and excess
interest, if any, provided for in this Agreement or otherwise shall be
cancelled automatically as of the date of such acceleration or prepayment and,
if theretofore paid, shall be credited on the principal amount of the
Obligations (or, if the principal amount of the Obligations shall have been
repaid in full, refunded to Borrower). In determining whether or not the
interest paid or payable with respect to any indebtedness of Borrower to
Foothill, under any specific contingency, exceeds the Maximum Rate, Borrower
and Foothill shall, to the maximum extent permitted by applicable law, (i)
characterize any non-principal payment as an expense, fee, or premium rather
than as interest, (ii) exclude voluntary prepayments and the effects thereof,
(iii) amortize the applicable interest on the Obligations so that the actual
rate of interest on account of such indebtedness does not exceed the maximum
amount permitted by applicable law and/or (iv) allocate interest between
portions of such indebtedness, so that no such portion shall bear interest at a
rate greater than that permitted by applicable law.
2.5 CREDITING PAYMENTS; APPLICATION OF COLLECTIONS. The receipt
of any wire transfer of funds, check, or other item of payment by Foothill
(whether from transfers to Foothill by the Lockbox Banks pursuant to the
Lockbox Agreements or otherwise) immediately shall be applied to provisionally
reduce the Obligations, but shall not be considered a payment on account unless
such wire transfer is of immediately available federal funds and is made to the
appropriate deposit account of Foothill or unless and until such check or other
item of payment is honored when presented for payment. From and after the
Closing Date, Foothill shall be entitled to charge Borrower for two (2)
Business Days of 'clearance' at the rate set forth in Section 2.4(a)(i) or
Section 2.4(b)(i), as applicable, on all collections, checks, wire transfers,
or other items of payment that are received by Foothill (regardless of whether
forwarded by the Lockbox Banks to Foothill, whether provisionally applied to
reduce the Obligations, or otherwise). This across-the-board two (2) Business
Day clearance charge on all receipts is acknowledged by the parties to
constitute an integral aspect of the pricing of Foothill's facility to
Borrower, and shall apply irrespective of the characterization of whether
receipts are owned by Borrower or Foothill, and irrespective of the level of
Borrowers Obligations to Foothill. Should any check or item of payment 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 wire transfer, check, or
other item of payment shall be deemed received by Foothill only if it is
received into Foothill's Operating Account (as such account is identified in
the Lockbox Agreements) on or before 11:00 a.m. Los Angeles time. If any wire
transfer, check, or other item of payment is received into Foothills Operating
Account (as such account is identified in the Lockbox Agreements) after 11:00
a.m. Los Angeles time it shall be deemed to have been received by Foothill as
of the opening of business on the immediately following Business Day.
18
24
2.6 STATEMENTS OF OBLIGATIONS. Foothill shall render monthly
statements to Borrower of the Obligations, 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 sixty (60) days after receipt thereof by Borrower,
Borrower shall deliver to Foothill by registered or certified mail at its
address specified in Section 12, written objection thereto describing the error
or errors contained in any such statements.
2.7 FEES. Borrower shall pay to Foothill the following fees:
(a) Commitment Fee. A one time fee of Two Hundred Fifty
Thousand Dollars ($250,000) which has been earned in full and is due and
payable in twelve equal monthly installments commencing on the Closing Date and
continuing on the first day of each month thereafter until paid in full;
(b) Unused Line Fee. On the first day of each month
during the term of this Agreement, a fee in an amount equal to one-half of one
percent (2%) per annum times the Average Unused Portion of the Maximum Amount
(including on any increases in the Maximum Amount);
(c) Annual Facility Fee. On the Closing Date, a fee in
an amount equal to one percent (1%) of the Maximum Amount and on the first
anniversary of the Closing Date, a fee equal to one-half percent (2%) of the
Maximum Amount, such fee to be fully earned and payable on each such date;
(d) Financial Examination, Documentation, and Appraisal
Fees. Foothill's customary fee of Six Hundred Fifty Dollars ($650) per day per
examiner, plus out-of-pocket expenses for each financial analysis and
examination of Borrower performed by Foothill or its agents; Foothill's
customary appraisal fee of One Thousand Dollars ($1,500) per day per appraiser,
plus out-of-pocket expenses for each appraisal of the Collateral performed by
Foothill plus the cost of third party Inventory appraisals which will be
conducted no less frequently than annually; and, on each anniversary of the
Closing Date, Foothill's customary fee of One Thousand Hundred Dollars ($1,000)
per year for its loan documentation review; 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 Five Hundred
Dollars ($3,500) per month.
(f) Other. Borrower has paid to Foothill a cost deposit
of Seventy-Five Thousand Dollars ($75,000), any unexpended excess of which (if
any) shall be applied to Borrower's Obligations.
(g) Line Increase Fee. If the Maximum Amount is
increased above Twenty-Five Million Dollars ($25,000,000), upon the date of
such increase Borrower shall pay a fee in an amount equal to one percent (1%)
of such increase.
19
25
3. CONDITIONS; TERM OF AGREEMENT.
3.1 CONDITIONS PRECEDENT TO INITIAL ADVANCE, L/C, OR L/C
GUARANTEE. The obligation of Foothill to make the initial advance or to
provide the initial L/C or L/C Guarantee 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 August 16,
1996;
(b) Old Lender shall have executed and delivered the
Pay-Off Letter and the Intercreditor Agreement, together with UCC termination
statements and other documentation evidencing the termination or a
subordination of its liens and security interests in and to the properties and
assets of Borrower in form and substance satisfactory to Foothill in its sole
discretion;
(c) Foothill shall have received searches reflecting the
filing of its financing statements and fixture filings;
(d) Foothill shall have received each of the following
documents, duly executed, and each such document shall be in full force and
effect:
i) the Lockbox Agreements;
ii) continuing guaranties from Individual
Guarantors;
iii) the Mortgages and title policies;
iv) continuing guaranties and security agreements
from Corporate Guarantors together with UCC filings and searches in form and
substance satisfactory to Lender;
(e) Foothill shall have received a certificate from the
Secretary of Borrower attesting to the resolutions of Borrower's Board of
Directors authorizing its execution and delivery of this Agreement and the
other Loan Documents to which Borrower is a party and authorizing specific
officers of Borrower to execute same;
(f) Foothill shall have received copies of Borrower's
Bylaws and Articles or Certificate of Incorporation, as amended, modified, or
supplemented to the Closing Date, certified by the Secretary of Borrower;
(g) Foothill shall have received a certificate of
corporate status with respect to Borrower, dated within ten (10) days of the
Closing Date, by the Secretary of State of the state of incorporation of
Borrower, which certificate shall indicate that Borrower is in good standing in
such state;
(h) Foothill shall have received certificates of
corporate status with respect to Borrower, each dated within fifteen (15) days
of the Closing Date, such certificates to be
20
26
issued by the Secretary of State of the states in which its failure to be duly
qualified or licensed would have a material adverse effect on the financial
condition or properties and assets of Borrower, which certificates shall
indicate that Borrower is in good standing;
(i) Foothill shall have received the certified copies of
the policies of insurance, together with the endorsements thereto, as are
required by Section 6.12 hereof, the form and substance of which shall be
satisfactory to Foothill and its counsel;
(j) Foothill shall have received and recorded a deed of
trust on the Real Property together with a policy of title insurance insuring
the lien of such deed of trust;
(k) Foothill shall have received landlord waivers from
the lessors of the locations where the Inventory or Equipment is located;
(l) Foothill shall have received an opinion of Borrower's
counsel in form and substance satisfactory to Foothill in its sole discretion;
(m) Foothill shall have received satisfactory evidence
that all 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;
(n) the Excess Availability as determined by Foothill on
the Closing Date after giving effect to the payoff to Old Lender shall not be
less than One Million Dollars ($1,000,000) after giving effect to the initial
advances under Sections 2.1 and 2.2 hereof and the payments of all fees and
expenses payable upon the consummation of the initial transactions contemplated
by this Agreement;
(o) all other documents and legal matters in connection
with the transactions contemplated by this Agreement shall have been delivered
or executed or recorded and shall be in form and substance satisfactory to
Foothill and its counsel; and
(p) Foothill shall have received satisfactory evidence
that Borrower's accounts payable have not materially increased in their average
days past due nor have materially deteriorated in any way since the date of
Foothill's last audit of such information.
3.2 CONDITIONS PRECEDENT TO ALL ADVANCES, L/CS, OR L/C GUARANTEES.
The following shall be conditions precedent to all advances, L/Cs, or L/C
Guarantees 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 advance, L/C, or L/C Guaranty, 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 Event of Default or event which with the giving of
notice or passage of time would constitute an Event of Default shall have
occurred and be continuing on the
21
27
date of such advance, L/C, or L/C Guaranty, 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 making of such
advance or the issuance of such L/C or L/C Guaranty shall have been issued and
remain in force by any governmental authority against Borrower, Foothill, or
any of their Affiliates.
3.3 TERM; AUTOMATIC RENEWAL. 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
"Renewal Date") that is three (3) years from the Closing Date, unless sooner
terminated pursuant to the terms hereof. 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.
3.4 EFFECT OF TERMINATION. On the date of termination, all
Obligations (including contingent reimbursement obligations under any
outstanding L/Cs or L/C Guarantees) 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 and
the Real Property shall remain in effect until all Obligations have been fully
and finally discharged and Foothill's obligation to provide advances hereunder
is terminated.
3.5 EARLY TERMINATION BY BORROWER. The provisions of Section 3.3
that allow termination of this Agreement by Borrower only on the Renewal Date
notwithstanding, Borrower has the option, at any time upon ninety (90) days
prior written notice to Foothill, to terminate this Agreement by paying to
Foothill, in cash, the Obligations (including an amount equal to the full
amount of the L/Cs or L/C Guarantees), together with a premium (the "Early
Termination Premium") equal to:
Year of this Agreement
During Which
Termination Occurred Percent of Maximum Amount
-------------------- -------------------------
1st year 4.0%
2nd year 1.5%
3rd year 1.0%
3.6 TERMINATION UPON EVENT OF DEFAULT. If Foothill terminates
this Agreement upon the occurrence of an Event of Default, 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
22
28
agrees that it is reasonable under the circumstances currently existing. The
Early Termination Premium provided for in this Section 3.6 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 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 Collateral shall attach to all 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
Collateral or the Real Property.
4.2 NEGOTIABLE COLLATERAL. In the event that any Collateral,
including proceeds, is evidenced by or consists of Negotiable Collateral,
Borrower shall, immediately upon the request of Foothill, endorse and assign
such Negotiable Collateral to Foothill and deliver physical possession of such
Negotiable Collateral to Foothill.
4.3 COLLECTION OF ACCOUNTS, GENERAL INTANGIBLES, NEGOTIABLE
COLLATERAL. On or before the Closing Date, Foothill, Borrower, and the Lockbox
Banks shall enter into the Lockbox Agreements, in form and substance
satisfactory to Foothill in its sole discretion, pursuant to which all of
Borrower's cash receipts, checks, and other items of payment (including,
insurance proceeds, proceeds of cash sales, rental proceeds, and tax refunds)
will be forwarded to Foothill on a daily basis. At any time, Foothill or
Foothills 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 Borrower's loan account.
Borrower agrees that it will hold in trust for Foothill, as Foothills trustee,
any cash receipts, checks, and other items of payment (including, insurance
proceeds, proceeds of cash sales, rental proceeds, and tax refunds) that it
receives and immediately will deliver said cash receipts, checks, and other
items of payment 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, chattel mortgages, 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 may reasonably request, in form satisfactory to Foothill, to perfect
and continue perfected Foothill's security interests in the Collateral and the
Real Property, and in order to fully consummate all of the transactions
contemplated hereby and under the other the Loan Documents.
23
29
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 or Foothill deems itself insecure (in
accordance with Section 1208 of the Code), 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 checks, notices, acceptances, money orders, drafts, or
other item of payment or security that may come into Foothill's possession; (e)
at any time that an Event of Default has occurred and is continuing or Foothill
deems itself insecure (in accordance with Section 1208 of the Code), 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 as soon as reasonably practicable; (f) at any time that
an Event of Default has occurred and is continuing or Foothill deems itself
insecure (in accordance with Section 1208 of the Code), 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 or
Foothill deems itself insecure (in accordance with Section 1208 of the Code),
settle and adjust disputes and claims respecting the Accounts directly with
Account Debtors, for amounts and upon terms which Foothill determines to be
reasonable, and Foothill may cause to be executed and delivered any documents
and releases which 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 or the
Real Property in order to verify Borrower's financial condition or the amount,
quality, value, condition of, or any other matter relating to, the Collateral
or the Real Property.
5. REPRESENTATIONS AND WARRANTIES.
Borrower represents and warrants to Foothill as follows:
5.1 NO PRIOR ENCUMBRANCES. Borrower has good and indefeasible
title to the Collateral and the Real Property, free and clear of liens, claims,
security interests, or encumbrances, except for Permitted Liens and those liens
fully satisfied and terminated upon the Closing Date.
5.2 ELIGIBLE ACCOUNTS. The Eligible Accounts are, at the time of
the creation thereof and as of each date on which Borrower includes them in a
Borrowing Base calculation or certification, bona fide existing obligations
created by the sale and delivery of
24
30
Inventory or the rendition of services to Account Debtors in the ordinary
course of Borrower's business, unconditionally owed to Borrower without
defenses, disputes, offsets, counterclaims, or rights of return or
cancellation. The property giving rise to such Eligible Accounts has been
delivered to the Account Debtor, or to the Account Debtor's agent for immediate
shipment to and unconditional acceptance by the Account Debtor. At the time of
the creation of an Eligible Account and as of each date on which Borrower
includes an Eligible Account in a Borrowing Base calculation or certification,
Borrower has not received notice of actual or imminent bankruptcy, insolvency,
or material impairment of the financial condition of any applicable Account
Debtor regarding such Eligible Account.
5.3 ELIGIBLE INVENTORY. All Eligible Inventory is now and at all
times hereafter shall be of good and merchantable quality, free from defects.
5.4 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 6.15 or otherwise permitted by Section 6.15.
5.5 INVENTORY RECORDS. Borrower now keeps, and hereafter at all
times shall keep, correct and accurate records itemizing and describing the
kind, type, quality, and quantity of the Inventory, and Borrower's cost
therefor.
5.6 LOCATION OF CHIEF EXECUTIVE OFFICE; FEIN. The chief executive
office of Borrower is located at the address indicated in the preamble to this
Agreement. Inc.'s FEIN is ▇▇-▇▇▇▇▇▇▇, L.P.'s FEIN is 75- 2502573 and NBF's
FEIN is ▇▇-▇▇▇▇▇▇▇.
5.7 DUE ORGANIZATION AND QUALIFICATION; NO SUBSIDIARIES. Borrower
is duly organized and existing and in good standing under the laws of the state
of its incorporation or certification, respectively, and is qualified and
licensed to do business in, and in good standing in, any state where the
failure to be so licensed or qualified could reasonably be expected to have a
material adverse effect on the business, operations, condition (financial or
otherwise), finances, or prospects of Borrower or on the value of the
Collateral or the Real Property to Foothill. Borrower has no subsidiaries
other than as described in Schedule 5.7.
5.8 DUE AUTHORIZATION; NO CONFLICT. The execution, delivery, and
performance of the Loan Documents are within Borrower's corporate powers, have
been duly authorized, and are not in conflict with nor constitute a breach of
any provision contained in Borrower's articles, certificate of incorporation,
by-laws, organizational documents, partnership agreements or certificate of
limited partnership, nor will they constitute an event of default under any
material agreement to which Borrower is a party or by which its properties or
assets may be bound.
5.9 LITIGATION. There are no actions or proceedings pending by or
against Borrower before any court or administrative agency and Borrower does
not have knowledge or belief of any pending, threatened, or imminent
litigation, governmental investigations, or claims, complaints, actions, or
prosecutions involving Borrower or any guarantor of the Obligations, except
for: (a) ongoing collection matters in which Borrower is the plaintiff;
25
31
(b) matters disclosed on Schedule 5.9; and (c) and matters arising after the
date hereof that, if decided adversely to Borrower, would not materially impair
the prospect of repayment of the Obligations or materially impair the value or
priority of Foothill's security interests in the Collateral or the Real
Property.
5.10 NO MATERIAL ADVERSE CHANGE IN FINANCIAL CONDITION. All
financial statements relating to Borrower or any Corporate Guarantor or
Individual Guarantor of the Obligations that have been delivered by Borrower to
Foothill have been prepared in accordance with GAAP, (except as to the
Individual Guarantors) and fairly present Borrower's (or such Corporate
Guarantor or Individual Guarantor) 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 in the financial condition of
Borrower (or such Corporate Guarantor or Individual Guarantor, as applicable)
since the date of the latest financial statements submitted to Foothill on or
before the Closing Date.
5.11 SOLVENCY. Borrower and each Corporate Guarantor is Solvent.
No transfer of property is being made by Borrower or any Corporate Guarantor
and no obligation is being incurred by Borrower or any Corporate Guarantor 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.
5.12 EMPLOYEE BENEFITS. Each Plan is in compliance in all material
respects with the applicable provisions of ERISA and the IRC. Each Qualified
Plan and Multiemployer Plan has been determined by the Internal Revenue Service
to qualify under Section 401 of the IRC, and the trusts created thereunder have
been determined to be exempt from tax under Section 501 of the IRC, and, to the
best knowledge of Borrower, nothing has occurred that would cause the loss of
such qualification or tax-exempt status. There are no outstanding liabilities
under Title IV of ERISA with respect to any Plan maintained or sponsored by
Borrower or any ERISA Affiliate, nor with respect to any Plan to which Borrower
or any ERISA Affiliate contributes or is obligated to contribute which could
reasonably be expected to have a material adverse effect on the financial
condition of Borrower. No Plan subject to Title IV of ERISA has any Unfunded
Benefit Liability which could reasonably be expected to have a material adverse
effect on the financial condition of Borrower. Neither Borrower nor any ERISA
Affiliate has transferred any Unfunded Benefit Liability to a person other than
Borrower or an ERISA Affiliate or has otherwise engaged in a transaction that
could be subject to Sections 4069 or 4212(c) of ERISA which could reasonably be
expected to have a material adverse effect on the financial condition of
Borrower. Neither Borrower nor any ERISA Affiliate has incurred nor reasonably
expects to incur (x) any liability (and no event has occurred which, with the
giving of notice under Section 4219 of ERISA, would result in such liability)
under Sections 4201 or 4243 of ERISA with respect to a Multiemployer Plan, or
(y) any liability under Title IV of ERISA (other than premiums due but not
delinquent under Section 4007 of ERISA) with respect to a Plan, which could, in
either event, reasonably be expected to have a material adverse effect on the
financial condition of Borrower. No application for a funding waiver or an
extension of any amortization period pursuant to Section 412 of the IRC has
been made with respect to any Plan. No ERISA Event has occurred or is
reasonably expected to occur with respect to any Plan which could reasonably be
expected to have a material adverse effect on the financial condition of
26
32
Borrower. Borrower and each ERISA Affiliate have complied in all material
respects with the notice and continuation coverage requirements of Section
4980B of the IRC.
5.13 ENVIRONMENTAL CONDITION. Except as disclosed in writing to
Foothill, none of Borrower's properties or assets has ever been used by
Borrower 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. None of Borrower's 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.
Borrower has not 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 Borrower resulting in the releasing
or disposing of Hazardous Materials into the environment.
5.14 PATENTS, COPYRIGHTS AND TRADEMARKS. Borrower has no
registered trademarks or copyrights and has not applied for or been issued any
patents by any governmental authority or instrumentality thereof other than
those listed on Exhibit 5.14.
5.15 MATERIAL AGREEMENTS. Each agreement that is material to the
Borrower, taken as a whole, is in full force and effect and no default or event
that, with the giving of notice, or the passage of time, would constitute a
default, has occurred and is continuing under any such agreement.
5.16 RELIANCE BY FOOTHILL; CUMULATIVE. Each warranty and
representation contained in this Agreement automatically shall be deemed
repeated (except to the extent such warranty or representation relates solely
to an earlier date) with each advance or issuance of an L/C or L/C Guaranty and
shall be conclusively presumed to have been relied on by Foothill regardless of
any investigation made or information possessed by Foothill. The warranties
and representations set forth herein shall be cumulative and in addition to any
and all other warranties and representations that Borrower now or hereafter
shall give, or cause to be given, to Foothill.
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 all of
the following:
6.1 ACCOUNTING SYSTEM. Borrower shall maintain a standard and
modern system of accounting in accordance with GAAP with ledger and account
cards or computer tapes, discs, printouts, and records pertaining to the
Collateral which contain information as from time to time may be requested by
Foothill. Borrower also shall keep proper books of account showing all sales,
claims, and allowances on its Inventory.
27
33
6.2 COLLATERAL REPORTS. Borrower shall deliver to Foothill, no
later than the tenth (10th) day of each month during the term of this
Agreement, a detailed aging, by total, of the Accounts, a reconciliation
statement, and a summary aging, by vendor, of all accounts payable and any book
overdraft. Original sales invoices evidencing daily sales shall be mailed by
Borrower to each Account Debtor with, at Foothill's request, a copy to
Foothill, and, at Foothill's direction, the invoices shall indicate on their
face that the Account has been assigned to Foothill and that all payments are
to be made directly to Foothill. Borrower shall deliver to Foothill, as
Foothill may from time to time require, collection reports, sales journals,
invoices, original delivery receipts, customer's purchase orders, shipping
instructions, bills of lading, and other documentation respecting shipment
arrangements. Absent such a request by Foothill, copies of all such
documentation shall be held by Borrower as custodian for Foothill. In
addition, from time to time, Borrower shall deliver to Foothill such other and
additional information or documentation as Foothill may request.
6.3 SCHEDULES OF ACCOUNTS. With such regularity as Foothill shall
require, Borrower shall provide Foothill with schedules describing all
Accounts. Foothill's failure to request such schedules or Borrower's failure
to execute and deliver such schedules shall not affect or limit Foothill's
security interests or other rights in and to the Accounts.
6.4 FINANCIAL STATEMENTS, REPORTS, CERTIFICATES. Borrower agrees
to deliver to Foothill: (a) as soon as available, but in any event within
thirty (30) days after the end of each month during each of Borrower's fiscal
years, a company prepared balance sheet, income statement, and cash flow
statement covering Borrower's operations during such period; and (b) as soon as
available, but in any event within ninety (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 event or condition constituting an Event of
Default, or that would, with the passage of time or the giving of notice,
constitute an Event of Default. Such audited financial statements shall
include a balance sheet, profit and loss statement, and cash flow statement,
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 and each Corporate Guarantor
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 or partners, and any other report reasonably requested by Foothill
relating to the Collateral, the Real Property, or the financial condition of
Borrower.
28
34
Each month, together with the financial statements provided
pursuant to Section 6.4(a), Borrower shall deliver to Foothill a certificate
signed by its chief financial officer or individual responsible for the
financial affairs of Borrower to the effect that: (i) all reports, statements,
or computer prepared information of any kind or nature delivered or caused to
be delivered to Foothill hereunder have been prepared in accordance with GAAP
and fairly present the financial condition of Borrower; (ii) Borrower is in
timely compliance with all of its covenants and agreements hereunder; (iii) 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); and (iv) on the date of delivery of such certificate to Foothill there
does not exist any condition or event that constitutes an Event of Default (or,
in each case, 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).
Borrower shall have issued written instructions to its
independent certified public accountants authorizing them to communicate with
Foothill and to release to Foothill whatever financial information concerning
Borrower that Foothill may request. Borrower hereby irrevocably authorizes and
directs all auditors, accountants, or other third parties to deliver to
Foothill, at Borrower's expense, copies of Borrower's financial statements,
papers related thereto, and other accounting records of any nature in their
possession, and to disclose to Foothill any information they may have regarding
Borrower's business affairs and financial conditions.
6.5 TAX RETURNS. Borrower agrees to deliver to Foothill copies of
each of Borrower's future federal income tax returns, and any amendments
thereto, within thirty (30) days of the filing thereof with the Internal
Revenue Service.
6.6 GUARANTOR REPORTS. Borrower agrees to cause each Individual
Guarantor and Corporate Guarantor 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 thirty (30) days after the same are required to
be filed by law.
6.7 DESIGNATION OF INVENTORY. Borrower shall now and from time to
time hereafter, but not less frequently than monthly, execute and deliver to
Foothill a designation of Inventory specifying Borrower's cost and the
wholesale market value of Borrower's raw materials, work in process, and
finished goods, and further specifying such other information as Foothill may
reasonably request.
6.8 RETURNS. Returns and allowances, if any, as between Borrower
and its Account Debtors shall be on the same basis and in accordance with the
usual customary practices of Borrower, as they exist at the time of the
execution and delivery of this Agreement. If, at a time when no Event of
Default has occurred and is continuing, any Account Debtor returns any
Inventory to Borrower, Borrower promptly shall determine the reason for such
return and, if Borrower accepts such return, issue a credit memorandum
29
35
(with a copy to be sent to Foothill) in the appropriate amount to such Account
Debtor. If, at a time when an Event of Default has occurred and is continuing,
any Account Debtor returns any Inventory to Borrower, Borrower promptly shall
determine the reason for such return and, if Foothill consents (which consent
shall not be unreasonably withheld), issue a credit memorandum (with a copy to
be sent to Foothill) in the appropriate amount to such Account Debtor. On a
daily basis, Borrower shall notify Foothill of all returns and recoveries and
of all disputes and claims.
6.9 TITLE TO EQUIPMENT. Upon Foothill's request, Borrower
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.
6.10 MAINTENANCE OF EQUIPMENT. Borrower shall keep and 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.
Borrower shall not permit any item of Equipment to become a fixture to real
estate or an accession to other property, and the Equipment is now and shall at
all times remain personal property.
6.11 TAXES. 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 have been paid, and shall hereafter be paid in full,
before delinquency or before the expiration of any extension period. Borrower
shall make due and timely payment or deposit of all 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 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
has made such payments or deposits.
6.12 INSURANCE.
(a) Borrower, at its expense, shall keep the Collateral
and the Real Property 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
Collateral and the Real Property, as well as insurance against larceny,
embezzlement, and criminal misappropriation.
(b) 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 such policies of insurance (except those of public liability and
property damage) shall contain a 438BFU lender's loss payable endorsement, or
an equivalent endorsement in a form satisfactory to Foothill, showing Foothill
as sole loss payee thereof, and shall contain a waiver of warranties, and shall
specify that the insurer must give at least ten (10) days prior
30
36
written notice to Foothill before canceling its policy for any reason.
Borrower shall deliver to Foothill certified copies of such policies of
insurance and evidence of the payment of all premiums therefor. All proceeds
payable under any such policy shall be payable to Foothill to be applied on
account of the Obligations.
6.13 FINANCIAL COVENANTS. Borrower shall maintain:
(a) Current Ratio. A ratio of Consolidated Current Assets
divided by Consolidated Current Liabilities of at least 1.05 to one (1.05:1.0),
measured on a fiscal quarter-end basis;
(b) Total Liabilities to Tangible Net Worth Ratio. A
ratio of Borrower's total liabilities divided by Tangible Net Worth measured on
a fiscal quarter-end basis of not more than:
Date of Fiscal Quarter-End Ratio
-------------------------- -----
9/30/96 4.75:1.0
12/31/96 4.50:1.0
3/31/97 4.0:1.0
6/30/97 4.0:1.0
9/30/97 4.0:1.0
12/31/97 (and thereafter) 3.75:1.0
(c) Tangible Net Worth. Tangible Net Worth measured on a
fiscal quarter-end basis of at least:
Date of Fiscal Quarter-End Tangible Net Worth
-------------------------- ------------------
9/30/96 $ 9,300,000
12/31/96 $10,250,000
3/31/97 $10,250,000
6/30/97 $ 9,500,000
9/30/97 $ 9,500,000
12/31/97 $11,000,000
3/31/98 $11,000,000
6/30/98 $10,250,000
9/30/98 $10,250,000
12/31/98 (and thereafter) $11,000,000
6.14 NO SETOFFS OR COUNTERCLAIMS. All payments hereunder and under
the other Loan Documents made by or on behalf of Borrower shall be made 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.
6.15 LOCATION OF INVENTORY AND EQUIPMENT. Borrower shall keep the
Inventory and Equipment only at the locations identified on Schedule 6.15;
provided, however, that Borrower may amend Schedule 6.15 so long as such
amendment occurs by written notice to Foothill not less than thirty (30) days
prior to the date on which the Inventory or Equipment
31
37
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 landlord's waiver in form and
substance satisfactory to Foothill.
6.16 COMPLIANCE WITH LAWS. Borrower shall comply 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 have a material adverse effect
on the business, operations, condition (financial or otherwise), finances, or
prospects of Borrower or on the value of the Collateral and the Real Property
to Foothill.
6.17 EMPLOYEE BENEFITS.
(a) Borrower shall deliver to Foothill a written
statement by the chief financial officer of Borrower specifying the nature of
any of the following events and the actions which Borrower proposes to take
with respect thereto promptly, and in any event within ten (10) days of
becoming aware of any of them, and when known, any action taken or threatened
by the Internal Revenue Service, PBGC, Department of Labor, or other party with
respect thereto: (i) an ERISA Event with respect to any Plan; (ii) the
incurrence of an obligation to pay additional premium to the PBGC under Section
4006(a)(3)(E) of ERISA with respect to any Plan; and (iii) any lien on the
assets of Borrower arising in connection with any Plan.
(b) Borrower shall also promptly furnish to Foothill
copies prepared or received by Borrower or an ERISA Affiliate of: (i) at the
request of Foothill, each annual report (Internal Revenue Service Form 5500
series) and all accompanying schedules, actuarial reports, financial
information concerning the financial status of each Plan, and schedules showing
the amounts contributed to each Plan by or on behalf of Borrower or its ERISA
Affiliates for the most recent three (3) plan years; (ii) all notices of intent
to terminate or to have a trustee appointed to administer any Plan; (iii) all
written demands by the PBGC under Subtitle D of Title IV of ERISA; (iv) all
notices required to be sent to employees or to the PBGC under Section 302 of
ERISA or Section 412 of the IRC; (v) all written notices received with respect
to a Multiemployer Plan concerning (x) the imposition or amount of withdrawal
liability pursuant to Section 4202 of ERISA, (y) a termination described in
Section 4041A of ERISA, or (z) a reorganization or insolvency described in
Subtitle E of Title IV of ERISA; (vi) the adoption of any new Plan that is
subject to Title IV of ERISA or Section 412 of the IRC by Borrower or any ERISA
Affiliate; (vii) the adoption of any amendment to any Plan that is subject to
Title IV of ERISA or Section 412 of the IRC, if such amendment results in a
material increase in benefits or Unfunded Benefit Liability; or (viii) the
commencement of contributions by Borrower or any ERISA Affiliate to any Plan
that is subject to Title IV of ERISA or Section 412 of the IRC.
6.18 LEASES. Borrower shall pay when due all rents and other
amounts payable under any leases to which Borrower is a party or by which
Borrower's properties and assets
32
38
are bound, unless such payments are the subject of a Permitted Protest. To the
extent that Borrower fails timely to make payment of such rents and other
amounts payable when due under its leases, Foothill shall be entitled, in its
discretion, and without the necessity of declaring an Event of Default, to
reserve an amount equal to such unpaid amounts from the loan availability
created under Section 2.1 hereof.
6.19 MATERIAL AGREEMENTS. Borrower shall duly observe and perform
all material terms and conditions of each agreement to which it is party and
that is material to Borrower, taken as a whole. Borrower shall promptly notify
Foothill of all material notices or communications in respect of any such
material agreement and provide Foothill with copies of the same.
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 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;
(b) Indebtedness set forth in the latest financial
statements of Borrower submitted to Foothill on or prior to the Closing Date;
(c) the Subordinated Debt;
(d) Indebtedness secured by Permitted Liens; and
(e) 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
33
39
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 secure only those assets or property that secured the original
Indebtedness).
7.3 RESTRICTIONS ON FUNDAMENTAL CHANGES. Enter into any
acquisition, 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 business, property, or assets,
whether now owned or hereafter acquired, or acquire by purchase or otherwise
all or substantially all of the properties, assets, stock, partnership
interests, or other evidence of beneficial ownership of any Person.
7.4 EXTRAORDINARY TRANSACTIONS AND DISPOSAL OF ASSETS. Enter into
any transaction not in the ordinary and usual course of Borrower's business,
including the sale, lease, or other disposition of, moving, relocation, or
transfer, whether by sale or otherwise, 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).
7.5 CHANGE NAME. Change Borrower's name, FEIN, business
structure, 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 RESTRUCTURE. Make any change in Borrower's financial
structure, the principal nature of Borrower's business operations, or the date
of its fiscal year.
7.8 PREPAYMENTS. Except in connection with a refinancing
permitted by Section 7.1(d), prepay any Indebtedness owing to any third Person.
7.9 CHANGE OF CONTROL. Cause, permit, or suffer, directly or
indirectly, any Change of Control.
7.10 CAPITAL EXPENDITURES. Make any capital expenditure, or any
commitment therefor where the aggregate amount of such capital expenditures,
made or committed for in any fiscal year is in excess of Seven Hundred Fifty
Thousand Dollars ($750,000).
7.11 CONSIGNMENTS. Consign any Inventory or sell any Inventory on
▇▇▇▇ and hold, sale or return, sale on approval, or other conditional terms of
sale, except as provided in Schedule 6.15.
7.12 DISTRIBUTIONS. Make any distribution or declare or pay any
dividends or partnership distributions (in cash or otherwise) on, or purchase,
acquire, redeem, or retire any of Borrower's capital stock, of any class, or
any partnership interest, whether now or hereafter outstanding.
34
40
7.13 ACCOUNTING METHODS. Modify or change its method of accounting
or enter into, modify, or terminate any agreement currently existing, or at any
time hereafter entered into with any third party accounting firm or service
bureau for the preparation or storage of Borrower's accounting records without
said accounting firm or service bureau agreeing to provide Foothill information
regarding the Collateral and the Real Property or Borrower's financial
condition. Borrower waives the right to assert a confidential relationship, if
any, it may have with any accounting firm or service bureau in connection with
any information requested by Foothill pursuant to or in accordance with this
Agreement, and agrees that Foothill may contact directly any such accounting
firm or service bureau in order to obtain such information.
7.14 INVESTMENTS. Directly or indirectly make or acquire any
beneficial interest in (including stock, partnership interest, or other
securities of), or make any loan, advance, or capital contribution to, any
Person.
7.15 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 arm's length
transaction with a non-Affiliate.
7.16 SUSPENSION. Suspend or go out of a substantial portion of its
business.
7.17 COMPENSATION. Increase the annual fee or per-meeting fees
paid to directors during any year by more than fifteen percent (15%) over the
prior year; pay or accrue total cash compensation, during any year, to
executive officers (as defined in Borrower's Form 10-K) and senior management
employees in an aggregate amount in excess of one hundred fifteen percent
(115%) of that paid or accrued in the prior year.
7.18 USE OF PROCEEDS. Use the proceeds of the advances made
hereunder for any purpose other than: (a) on the Closing Date, to repay in
full the outstanding principal, accrued interest, and accrued fees and expenses
owing to Old Lender; (b) to pay transactional costs and expenses incurred in
connection with this Agreement; and (c) thereafter, consistent with the terms
and conditions hereof, for its lawful and permitted corporate purposes.
7.19 CHANGE IN LOCATION OF CHIEF EXECUTIVE OFFICE; INVENTORY AND
EQUIPMENT WITH BAILEES. Borrower covenants and agrees that it will not,
without thirty (30) days prior written notification to Foothill, relocate its
chief executive office to a new location 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 landlord's waiver in form and
substance satisfactory to Foothill. 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.
7.20 SUBORDINATED DEBT. Borrower shall not repay any Subordinated
Debt except to Dell ▇▇▇▇▇▇▇▇▇ as provided in the Subordination Agreement with
respect to payments of principal to Dell ▇▇▇▇▇▇▇▇▇ only and payments of
interest on Subordinated Debt.
35
41
7.21 TAX LIEN. Borrower shall have sixty (60) days from the
Closing Date to satisfy and have released a Federal tax lien of Fifteen
Thousand Dollars ($15,000) and Foothill may reserve such amount from its
Revolving Advances.
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 If Borrower fails or neglects to perform, keep, or observe any
term, provision, condition, covenant, or agreement contained in this Agreement,
in any of the Loan Documents, or in any other present or future agreement
between Borrower and Foothill;
8.3 If there is a material impairment of the prospect of repayment
of any portion of the Obligations owing to Foothill or a material impairment of
the value or priority of Foothill's security interests in the Collateral or the
Real Property;
8.4 If any material portion of Borrower's 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 Borrower;
8.6 If an Insolvency Proceeding is commenced against Borrower and
any of the following events occur: (a) Borrower 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 forty-five (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 make additional
advances or issue additional L/Cs or L/C Guarantees 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 (e) an order for relief shall have been issued or
entered therein;
8.7 If Borrower is enjoined, restrained, or in any way prevented
by court order from continuing to conduct all or any material part of its
business affairs;
8.8 If a notice of lien, levy, or assessment is filed of record
with respect to any of Borrower's properties or assets by the United States
Government, or any department, agency, or instrumentality thereof, or by any
state, county, municipal, or governmental
36
42
agency, or if any taxes or debts owing at any time hereafter to any one or more
of such entities becomes a lien, whether ▇▇▇▇▇▇ or otherwise, upon any of
Borrower's 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 properties or assets;
8.10 If there is a default in any material agreement to which
Borrower is a party with one or more third Persons resulting in a right by such
third Persons, irrespective of whether exercised, to accelerate the maturity of
Borrower's obligations thereunder;
8.11 If Borrower 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 misstatement or misrepresentation exists now or
hereafter in any warranty, representation, statement, or report made to
Foothill by Borrower or any officer, employee, agent, or director of Borrower,
or if any such warranty or representation is withdrawn;
8.13 If the obligation of any Individual Guarantor or Corporate
Guarantor or other third Person under any Loan Document is limited or
terminated by operation of law or by the guarantor or other third Person
thereunder, or any such guarantor or other third Person becomes the subject of
an Insolvency Proceeding;
8.14 If (a) with respect to any Plan, there shall occur any of the
following which could reasonably be expected to have a material adverse effect
on the financial condition of Borrower: (i) the violation of any of the
provisions of ERISA; (ii) the loss by a Plan intended to be a Qualified Plan of
its qualification under Section 401(a) of the IRC; (iii) the incurrence of
liability under Title IV of ERISA; (iv) a failure to make full payment when due
of all amounts which, under the provisions of any Plan or applicable law,
Borrower or any ERISA Affiliate is required to make; (v) the filing of a notice
of intent to terminate a Plan under Sections 4041 or 4041A of ERISA; (vi) a
complete or partial withdrawal of Borrower or an ERISA Affiliate from any Plan;
(vii) the receipt of a notice by the plan administrator of a Plan that the PBGC
has instituted proceedings to terminate such Plan or appoint a trustee to
administer such Plan; (viii) a commencement or increase of contributions to, or
the adoption of or the amendment of, a Plan; and (ix) the assessment against
Borrower or any ERISA Affiliate of a tax under Section 4980B of the IRC; or (b)
the Unfunded Benefit Liability of all of the Plans of Borrower and its ERISA
Affiliates shall, in the aggregate, exceed Twenty Five Thousand Dollars
($25,000);
8.15 If any writing, document, aging, certificate or other evidence
of the Accounts or Inventory shall be materially incomplete, incorrect, or
misleading at the time the same is furnished to Foothill; or
37
43
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 Collateral or the
Real Property 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 Collateral if Foothill so requires, and to make the
Collateral available to Foothill as Foothill may designate. Borrower
authorizes Foothill to enter the premises where the Collateral is located, to
take and maintain possession of the 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 premises, Borrower hereby grants Foothill a license to enter
into possession of such premises and to occupy the same, without charge, for up
to one hundred twenty (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 Lockbox
Accounts), or (ii) indebtedness at any time owing to or for the credit or the
account of Borrower held by Foothill;
38
44
(h) Hold, as cash collateral, any and all balances and
deposits of Borrower held by Foothill, and any amounts received in the Lockbox
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 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
Collateral, in completing production of, advertising for sale, and selling any
Collateral and Borrower's rights under all licenses and all franchise
agreements shall inure to Foothill's benefit;
(j) Sell the 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
Collateral be present at any such sale;
(k) Foothill shall give notice of the disposition of the
Collateral as follows:
(1) Foothill shall give Borrower and each holder
of a security interest in the 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 Collateral, then the time on or after which the
private sale or other disposition is to be made;
(2) The notice shall be personally delivered or
mailed, postage prepaid, to Borrower as provided in Section 12, at least five
(5) days before the date fixed for the sale, or at least five (5) 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
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 Collateral shall be sent to such
addresses as they have furnished to Foothill;
(3) 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 five (5) 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; and
(m) Any deficiency that exists after disposition of the
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.
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
39
45
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.
10. TAX AND EXPENSES.
If Borrower fails to pay any monies (whether taxes, rents, assessments,
insurance premiums, or otherwise) 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 have a material adverse effect on
Foothill's interests in the Collateral or the Real Property, 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 6.12, 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, security interest, encumbrance, 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. Except as otherwise provided in this
Agreement, Borrower waives demand, protest, notice of protest, notice of
default or dishonor, notice of payment and nonpayment, notice of any default,
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 Section 9207 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. Except with respect to matters arising
solely from the gross negligence or wilfull misconduct of Foothill, Borrower
agrees to defend, indemnify, save, and hold Foothill and its officers,
employees, and agents harmless against: (a) all obligations, demands, claims,
and liabilities claimed or asserted by any other Person arising out of or
relating to the transactions contemplated by this Agreement or any other Loan
Document, and (b) all losses (including attorneys fees and disbursements) in
any way suffered, incurred,
40
46
or paid by Foothill as a result of or in any way arising out of, following, or
consequential to the transactions contemplated by this Agreement or any other
Loan Document. This provision shall survive the termination of this Agreement.
11.4 SURETYSHIP WAIVERS AND CONSENTS. Inc., L.P. and NBF (for the
purposes of this Section 11.4, each a "Debtor") each acknowledge that the
obligations of such Debtor undertaken herein might be construed to consist, at
least in part, of the guaranty of obligations of Persons other than such Debtor
(including the other Debtor party hereto) and, in full recognition of that
fact, each Debtor consents and agrees that Lender may, at any time and from
time to time, without notice or demand, whether before or after any actual or
purported termination, repudiation or revocation of this Agreement by any one
or more Debtors, and without affecting the enforceability or continuing
effectiveness hereof as to each Debtor: (a) supplement, extend, renew,
accelerate or otherwise change the time for payment or the terms of the
Obligations or any part thereof, including any increase or decrease of the
rate(s) of interest thereon; (b) supplement, restate, modify, amend, increase,
decrease or waiver, or enter into or give any agreement, approval or consent
with respect to, the Obligations or any part thereof, or any of the Loan
Documents or any additional security or guaranties, or any condition, covenant,
default, remedy, right, representation or term thereof or thereunder; (c)
accept new or additional instruments, documents or agreements in exchange for
or relative to any of the Loan Documents or the Obligations or any part
thereof; (d) accept partial payments on the Obligations; (e) receive and hold
additional security or guaranties for the Obligations or any part thereof; (f)
release, reconvey, terminate, waive, abandon, fail to perfect, subordinate,
exchange, substitute, transfer or enforce any security or guaranties, and apply
any security and direct the order or manner of sale thereof as Lender in its
sole and absolute discretion may determine; (g) release any Person from any
personal liability with respect to the Obligations or any part thereof; (h)
settle, release on terms satisfactory to Lender or by operation of applicable
laws or otherwise liquidate or enforce any Obligations and any security
therefor or guaranty thereof in any manner, consent to the transfer of any
security and bid and purchase at any sale; or (i) consent to the merger, change
or any other restructuring or termination of the corporate, partnership or
other form of existence of any Debtor or any other Person, and correspondingly
restructure the Obligations, and any such merger, change, restructuring or
termination shall not affect the liability of any Debtor or the continuing
effectiveness hereof, or the enforceability hereof with respect to all or any
part of the Obligations.
Upon the occurrence and during the continuance of any Event of
Default, Lender may enforce this Agreement independently as to each Debtor and
independently of any other remedy or security Lender at any time may have or
hold in connection with the Obligations, and it shall not be necessary for
Lender to marshal assets in favor of any Debtor or any other Person or to
proceed upon or against or exhaust any security or remedy before proceeding to
enforce this Agreement. Each Debtor expressly waives any right to require
Lender to marshal assets in favor of any Debtor or any other Person or to
proceed against any other Debtor or any collateral provided by any Person, and
agrees that Lender may proceed against Debtors or any collateral in such order
as it shall determine in its sole and absolute discretion.
41
47
Lender may file a separate action or actions against any
Debtor, whether action is brought or prosecuted with respect to any security or
against any other Person, or whether any other Person is joined in any such
action or actions. Each Debtor agrees that Lender and any Debtor and any
Affiliate of any Debtor may deal with each other in connection with the
Obligations or otherwise, or alter any contracts or agreements now or hereafter
existing between any of them, in any manner whatsoever, all without in any way
altering or affecting the continuing efficacy of this Agreement.
Lender's rights hereunder shall be reinstated and revived, and
the enforceability of this Agreement shall continue, with respect to any amount
at any time paid on account of the Obligations which thereafter shall be
requested to be restored or returned by Lender, all as though such amount had
not been paid. The rights of Lender created or granted herein and the
enforceability of this Agreement at all times shall remain effective to cover
the full amount of all the Obligations even though the Obligations, including
any part thereof or any other security or guaranty therefor, may be or
hereafter may become invalid or otherwise unenforceable as against any Debtor
and whether or not any other Debtor shall have any personal liability with
respect thereto.
To the maximum extent permitted by applicable law, each Debtor
expressly waives any and all defenses now or hereafter arising or asserted by
reason of (a) any disability or other defense of any other Debtor with respect
to the Obligations, (b) the unenforceability or invalidity of any security or
guaranty for the Obligations or the lack of perfection or continuing perfection
or failure of priority of any security for the Obligations, (c) the cessation
for any cause whatsoever of the liability of any other Debtor (other than by
reason of the full payment and performance of all Obligations), (d) any failure
of Lender to marshal assets in favor of any Debtor or any other Person, (e) any
failure of Lender to give notice of sale or other disposition of Collateral to
any Debtor or any other Person or any defect in any notice that may be given in
connection with any sale or disposition of Collateral, (f) any failure of
Lender to comply with applicable law in connection with the sale or other
disposition of any Collateral or other security for any Obligation, including
any failure of Lender to conduct a commercially reasonable sale or other
disposition of any Collateral or other security for any Obligation, (g) any act
or omission of Lender or others that directly or indirectly results in or aids
the discharge or release of any Debtor or the Obligations or any security or
guaranty therefor by operation of law or otherwise, (h) any law which provides
that the obligation of a surety or guarantor must neither be larger in amount
nor in other respects more burdensome than that of the principal or which
reduces a surety's or guarantor's obligation in proportion to the principal
obligation, (i) any failure of Lender to file or enforce a claim in any
bankruptcy or other proceeding with respect to any Person, (j) the election by
Lender of the application or non-application of Section 1111(b)(2) of the
United States Bankruptcy Code, (k) any extension of credit or the grant of any
lien under ▇▇▇▇▇▇▇ ▇▇▇ ▇▇ ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇ Bankruptcy Code, (l) any use of
cash collateral under Section 363 of the United States Bankruptcy Code, (m) any
agreement or stipulation with respect to the provision of adequate protection
in any bankruptcy proceeding of any Person, (n) the avoidance of any lien in
favor of Lender for any reason, or (o) any action taken by Lender that is
authorized by this Section or any other provision of any Loan Document. Until
such time as all of the Obligations have been fully, finally, and indefeasibly
paid in full in cash: (i) each Debtor hereby waives and postpones any right of
subrogation it has or may
42
48
have as against any other Debtor with respect to the Obligations; and (ii) in
addition, each Debtor also hereby waives and postpones any right to proceed or
to seek recourse against or with respect to any property or asset of any other
Debtor. Each Debtor expressly waives all setoffs and counterclaims and all
presentments, demands for payment or performance, notices of nonpayment or
nonperformance, protests, notices of protest, notices of dishonor and all other
notices or demands of any kind or nature whatsoever with respect to the
Obligations, and all notices of acceptance of this Agreement or of the
existence, creation or incurring of new additional Obligations.
In the event that all or any part of the Obligations at any
time are secured by any one or more deeds of trust or mortgages or other
instruments creating or granting liens on any interests in real property, each
Debtor authorizes Lender on Lender's behalf, upon the occurrence of and during
the continuance of any Event of Default, at its sole option, without notice or
demand and without affecting the obligations of any Debtor, the enforceability
of this Agreement, or the validity or enforceability of any liens of, or for
the benefit of, Lender on any Collateral, to foreclose any or all of such deeds
of trust or mortgages or other instruments by judicial or nonjudicial sale.
Without limiting the foregoing and without waiving the benefits of California
Commercial Code Section 9501, Borrower specifically agrees that action
maintained by Lender for the appointment of any receiver, trustee or custodian
to collect rents, issues or profits or to obtain possession of any property
shall not constitute an "action" within the meaning of Section 726 of the
California Code of Civil Procedure.
To the fullest extent permitted by applicable law, each Debtor
expressly waives any defenses to the enforcement of this Agreement or any
rights of Lender created or granted hereby or to the recovery by Lender against
any Debtor or any other Person liable therefor of any deficiency after a
judicial or nonjudicial foreclosure or sale, even though such a foreclosure or
sale may impair the subrogation rights of Debtors and may preclude Debtors from
obtaining reimbursement or contribution from other Debtors. Each Debtor
expressly waives (i) any suretyship defenses or benefits that it otherwise
might or would have under applicable law, and (ii) the right, if any, to
require Lender to disclose to such Debtor any information it may now have or
hereafter acquire concerning the other Debtor's character, credit, Collateral,
financial condition or other matters. Each Debtor has established adequate
means to obtain from the other Debtor on a continuing basis financial and other
information pertaining to such Debtor's business and affairs, and assumes the
responsibility for being and keeping itself informed of the financial and other
conditions of the other Debtor and of all circumstances bearing upon the risk
of nonpayment of the Obligations which diligent inquiry would reveal. Each
Debtor expressly waives any right to receive notice of any judicial or
nonjudicial foreclosure or sale of any real property or interest therein of
another Debtor that is subject to any such deeds of trust or mortgages or other
instruments and any Debtor's failure to receive any such notice shall not
impair or affect such Debtor's obligations or the enforceability of this
Agreement or any rights of Lender created or granted hereby. WITHOUT LIMITING
THE GENERALITY OF ANY OTHER WAIVER OR OTHER PROVISION SET FORTH IN THIS
SECTION, EACH DEBTOR WAIVES ALL RIGHTS AND DEFENSES ARISING OUT OF AN ELECTION
OF REMEDIES BY LENDER, EVEN THOUGH THAT ELECTION OF REMEDIES, SUCH AS A
NONJUDICIAL FORECLOSURE WITH RESPECT TO SECURITY FOR THE
43
49
OBLIGATIONS, HAS DESTROYED SUCH DEBTOR'S RIGHTS OF SUBROGATION AND
REIMBURSEMENT AGAINST THE PRINCIPAL DEBTOR BY THE OPERATION OF LAW, INCLUDING,
BUT NOT LIMITED TO, SECTION 580D OF THE CALIFORNIA CODE OF CIVIL PROCEDURE, OR
OTHERWISE. FURTHER, BORROWER EXPRESSLY WAIVES ANY RIGHT, DEFENSE OR BENEFIT
UNDER CALIFORNIA CIVIL CODE SECTIONS 2809, 2810, 2819, 2845, 2849, 2850 AND
2855, AND CALIFORNIA CODE OF CIVIL PROCEDURE SECTIONS 337, 580A AND 580B, AND
MY AMENDMENTS THERETO.
Lender need not inquire into the powers of any of the Debtors
or the authority of any of their respective officers, directors, partners or
agents acting or purporting to act in their behalf, and any obligations created
in reliance upon the purported exercise of such power or authority is hereby
guaranteed. All obligations of Debtors to Lender heretofore, now or hereafter
created shall be deemed to have been granted at Debtors' special insistence and
request and in consideration of and in reliance upon this Agreement.
Debtors and each of them warrant and agree that each of the
waivers and consents set forth herein are made after consultation with legal
counsel and with full knowledge of their significance and consequences, with
the understanding that events giving rise to any defense or right waived may
diminish, destroy or otherwise adversely affect rights which Debtors otherwise
may have against other Debtors, Lender or others, or against Collateral. If
any of the waivers or consents herein are determined to be contrary to any
applicable law or public policy, such waivers and consents shall be effective
to the maximum extent permitted by law.
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, or by prepaid telex, XX, telefacsimile, or telegram (with
messenger delivery specified) to Borrower or to Foothill, as the case may be,
at its address set forth below:
If to Borrower: ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attn.: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
Telefacsimile No. (▇▇▇) ▇▇▇-▇▇▇▇
If to Foothill: FOOTHILL CAPITAL CORPORATION
▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attn.: Business Finance Division Manager
Telefacsimile No. (▇▇▇)▇▇▇-▇▇▇▇
44
50
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 three
(3) 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 transmitted by
telefacsimile or other similar method set forth above.
45
51
13. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER.
THE VALIDITY OF THIS AGREEMENT, ITS CONSTRUCTION, INTERPRETATION, AND
ENFORCEMENT, AND THE RIGHTS OF THE PARTIES HERETO WITH RESPECT TO ALL MATTERS
ARISING HEREUNDER OR RELATED HERETO SHALL BE DETERMINED UNDER, GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA, WITHOUT
GIVING EFFECT TO ITS CONFLICT OF LAWS PRINCIPLES. THE PARTIES AGREE THAT ALL
ACTIONS OR PROCEEDINGS ARISING IN CONNECTION WITH THIS AGREEMENT SHALL BE TRIED
AND LITIGATED ONLY IN THE STATE AND FEDERAL COURTS LOCATED IN THE COUNTY OF LOS
ANGELES, STATE OF CALIFORNIA 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. BORROWER AND FOOTHILL REPRESENT THAT EACH HAS REVIEWED
THIS WAIVER AND EACH KNOWINGLY AND VOLUNTARILY W 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 four (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
46
52
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 and no consent or approval by Borrower is required in connection with
any such assignment. Foothill reserves the right to sell, assign, transfer,
negotiate, or 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 a manually
executed counterpart of this Agreement. Any party delivering an executed
counterpart of this Agreement by telefacsimile also shall deliver a manually
executed counterpart of this Agreement but the failure to deliver a manually
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 AVoidable 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
47
53
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.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in Los Angeles, California.
FOOTHILL CAPITAL CORPORATION,
a California corporation
By: /s/ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇
---------------------------------
Title: SVP
------------------------------
▇▇▇▇▇▇▇▇▇ INDUSTRIES, L.P.,
a Texas limited partnership
By: ▇▇▇▇▇▇▇▇▇ Operating Corp., its
General Partner
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
---------------------------------
Title: Vice Chairman
------------------------------
▇▇▇▇▇▇▇▇▇ INDUSTRIES, INC.,
a Delaware corporation
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
---------------------------------
Title: President
------------------------------
NBF, INC.,
a Georgia corporation
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
---------------------------------
Title: Chairman
------------------------------
48
54
SCHEDULE E-1
TO
LOAN AND SECURITY AGREEMENT
BETWEEN
▇▇▇▇▇▇▇▇▇ INDUSTRIES INC., ▇▇▇▇▇▇▇▇▇ INDUSTRIES, L.P.
AND NBF INC. AS BORROWERS
AND
FOOTHILL CAPITAL CORPORATION AS LENDER
Locations of Eligible Inventory
▇▇▇▇▇▇▇▇▇ Industries L.P.
▇▇▇ ▇. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
NBF Inc.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇ Industries L.P.
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇ Industries L.P.
▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇ Industries L.P.
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Kings Warehouse & Distribution
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇ ON LAZ 2B9
Mega Freight Lines (Finished Goods)
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Meiko Freight Service (Finished Goods)
▇▇▇▇-▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇
55
SCHEDULE P-1
PERMITTED LIENS
The collateral referred to in each of the following shall constitute Permitted
Liens under this Agreement:
NAME COLLATERAL DESCRIPTION
Pitney ▇▇▇▇▇ Credit Specific equipment
Associates Commercial Corporation Specific equipment
Aloha Processing Center Specific equipment
Toyota Motor Credit Corp. Specific equipment
Gestetner Services, Inc. Specific equipment
NationsBanc Leasing Corporation Specific equipment
Weyerhaeuser Company Specific equipment
Advanta Business Services Corp. Specific equipment
S & S Machinery Corp. Specific equipment
Associates Leasing, Inc. Specific equipment
Walnut Equipment Leasing Co., Inc. Specific equipment
World Omni Leasing, Inc. Specific equipment
Fountain Parkway, Ltd. Specific equipment
NationsBank Texas, N.A. Real Property and a
junior lien on personal
property (debt limited
to $2,000,000)
▇▇▇▇▇▇▇▇▇ Industries, L.P.
56
SCHEDULE R-1
TO
LOAN AND SECURITY AGREEMENT
BETWEEN
▇▇▇▇▇▇▇▇▇ INDUSTRIES INC., ▇▇▇▇▇▇▇▇▇ INDUSTRIES, L.P.
AND NBF INC. AS BORROWERS
AND
FOOTHILL CAPITAL CORPORATION AS LENDER
Real Property
1. Subject property on Southwest corner of Airport Freeway and ▇▇▇▇▇
Drive and is known as ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇.
Subject property is legally described as:
BEING a tract of land out of the ▇.▇. Read Survey, Abstract No. 1182,
City of Irving, Dallas County, Texas, described by metes and bounds as
follows:
BEGINNING at point of intersection at South line of State Highway 183
with West line of ▇▇▇▇▇ Drive;
THENCE South 0.0 degrees, 34 minutes 47 seconds West along said West
line of ▇▇▇▇▇ Drive for a distance of 413.48 feet to a point for
corner;
THENCE North 89 degrees, 38 minutes, 02 seconds West for a distance of
174.83 feet to a point for corner;
THENCE North 0.0 degrees, 28 minutes, 38 seconds East for 413.48 feet
to a point on South line of State Highway 183 for corner;
THENCE South 89 degrees, 38 minutes, 0.0 seconds East along South line
of State Highway 183 for a distance of 175.56 feet to place of
beginning.
-2-
57
SCHEDULE 5.7
TO
LOAN AND SECURITY AGREEMENT
BETWEEN
▇▇▇▇▇▇▇▇▇ INDUSTRIES INC., ▇▇▇▇▇▇▇▇▇ INDUSTRIES, L.P.
AND NBF INC. AS BORROWERS
AND
FOOTHILL CAPITAL CORPORATION AS LENDER
Borrower's Business Organization Structure and Subsidiaries
▇▇▇▇▇▇▇▇▇ Industries Inc. (Delaware corporation FIN ▇▇-▇▇▇▇▇▇▇)
100% Subsidiaries
▇▇▇▇▇▇▇▇▇ Operating Corp. - A Nevada corporation (FIN ▇▇-▇▇▇▇▇▇▇) and
1% general partner in ▇▇▇▇▇▇▇▇▇ Industries, L.P., a Texas limited
partnership (FIN ▇▇-▇▇▇▇▇▇▇).
▇▇▇▇▇▇▇▇▇ Holding Corp. - A Delaware corporation (FIN ▇▇-▇▇▇▇▇▇▇) and
the 99% limited partner in ▇▇▇▇▇▇▇▇▇ Industries, L.P., a Texas limited
partnership (FIN ▇▇-▇▇▇▇▇▇▇).
NBF, Inc. - A Georgia corporation (FIN ▇▇-▇▇▇▇▇▇▇).
▇▇▇▇▇▇▇▇▇ Sports, Inc. - A Texas corporation (FIN ▇▇-▇▇▇▇▇▇▇)
currently in liquidation and the 100% parent of:
C.G. Products, Inc., a California corporation (FIN
▇▇-▇▇▇▇▇▇▇)currently in liquidation; and
▇▇▇▇▇▇, Inc., a Texas corporation (FIN ▇▇-▇▇▇▇▇▇▇) currently
in liquidation.
-8-
58
SCHEDULE 5.9
TO
LOAN AND SECURITY AGREEMENT
BETWEEN
▇▇▇▇▇▇▇▇▇ INDUSTRIES INC., ▇▇▇▇▇▇▇▇▇ INDUSTRIES, L.P.
AND NBF INC. AS BORROWERS
AND
FOOTHILL CAPITAL CORPORATION AS LENDER
Litigation
1. ▇▇▇▇▇▇▇▇▇ Industries, Inc. (the "Company"), ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
(Chairman & CEO), ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇ (President), ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
(former CFO), ▇▇▇▇▇▇▇ ▇. ▇▇▇▇ (former CAO), ▇▇▇▇ ▇. ▇▇▇▇▇▇▇
(Director), ▇▇▇▇▇▇▇ ▇▇▇▇▇ & Company, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ Refsnes, Inc.
(former underwriters of initial public offering), and ▇▇▇▇▇ ▇▇▇▇▇▇▇▇,
L.L.P. (former independent accountants) are defendants (the "Suntrust
Defendants") in a lawsuit brought in the District Courts, Dallas
County, Texas, by shareholder Suntrust Bank Atlanta, as trustee for
Suntrust Retirement Sunbelt Equity Fund, on behalf of themselves and
all persons similarly situated. In addition, the Company, ▇▇▇▇▇ ▇.
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇. ▇▇▇▇▇, and ▇▇▇▇▇▇▇ ▇.
▇▇▇▇, are defendants (the "STI Defendants") in a lawsuit brought in
the United States District Court for the Northern District of Texas,
Dallas Division, by shareholders STI Classic Fund and STI Classic
Sunbelt, on behalf of themselves and all persons similarly situated.
The lawsuits purport to be class actions and allege certain
misrepresentations and fraudulent actions by the Suntrust and STI
Defendants. Both lawsuits seek damages, exemplary damages, interest,
costs, and expenses. Management of the Company does not believe
either lawsuit has merit. However, if the plaintiffs should prevail
in either lawsuit, it could have a material adverse effect on the
Company.
2. The Company has been contacted by the Department of Labor (DOL) in
regard to certain questions about its former Employee Stock Ownership
Plan (the "ESOP"). Assets of the ESOP are held in the Company's
401(K) plan which is the successor to the ESOP. The Company is
responding to and cooperating with the DOL. The DOL has not initiated
any proceeding with respect to the ESOP or any other of the Company's
employee benefit plans.
3. The staff of the Securities and Exchange Commission has indicated to
the Company it is their preliminary determination to recommend a civil
injunctive action be brought against the Company, ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ and
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, based upon what the staff believes to be violations
of various securities laws, including Sections 10(b), 13(a), and 13(b)
of the Securities Exchange Act of 1934 and various rules promulgated
thereunder. The purported violations are alleged to arise out of
certain transactions which occurred during the fiscal years
59
1994 and 1995. The staff has stated it will not recommend seeking
monetary penalties against the Company.
4. A letter dated August 11, 1996 from ▇▇▇▇▇▇ ▇. ▇▇▇▇▇ of ▇▇▇▇▇ & ▇▇▇▇▇▇▇
L.L.P. (Counsel for Borrower) to ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, ▇▇. of ▇▇▇▇▇▇
▇▇▇▇ & ▇▇▇▇▇▇ L.L.P. (Counsel to Lender) provides additional
disclosure with regard to a claim made by Sovereign General Insurance
against NBF Inc. This relates to a policy claim occurring prior to
the acquisition of assets in Georgia by NBF Inc. and under a policy
that was issued to the prior owner of the acquired assets. Borrower
has provided information to counsel for Sovereign General Insurance
that Borrower believes resolves the issue, and no further inquiry has
been received with regard to the issue. The referenced letter should
be referred to for additional information.
-2-
60
EXHIBIT 5.14
TO
LOAN AND SECURITY AGREEMENT
BETWEEN
▇▇▇▇▇▇▇▇▇ INDUSTRIES INC., ▇▇▇▇▇▇▇▇▇ INDUSTRIES, L.P.,
AND NBF INC. AS BORROWERS
AND
FOOTHILL CAPITAL CORPORATION AS LENDER
Patents, Copyrights, and Trademarks
▇▇▇▇▇▇▇▇▇ Fitness (TM)
StarLock (C), SlipLock (TM) and CamLock (C) weightlifting systems
Zoom Off (C) quick release weightlifting
BrightBells (C) dumbbells
Step by Step (TM), FlexStep and SoftStep (TM) low impact aerobics
items
UltraArm (TM) underarm firmer
ToneUp 1-2-3 exercise kit,
RibMat (TM) exercise mats
TrimRider (TM) aerobic riders
Nautilus (TM) Ab-Rock'it abdominal exerciser
NBF (TM) and UltraBounce (TM) trampolines
Solar (TM) trimming products
PowerShorts (TM) compression shorts
Softone (C) wrist weights
Exergrip (TM) strengthening putty
AirFlo (TM) nasal strips
-9-
61
EXHIBIT 5.14 (CONTINUED)
▇▇▇▇▇▇▇▇▇ INDUSTRIES, INC. -FITNESS
INTELLECTUAL PROPERTY STATUS REPORT
PATENTS LICENSED BY ▇▇▇▇▇▇▇▇▇ INDUSTRIES
------------------------------------------------------------------------------------------------------------------------------------
SERIAL NO. ISSUE NO. INVENTORS TYPE OF LICENSE
PATENT TITLE FILING DATE ISSUE DATE AND LICENSOR
------------------------------------------------------------------------------------------------------------------------------------
Exercise Apparatus 389,360 5,004,227 ▇▇▇ ▇▇▇▇▇▇▇ Limited Exclusive License from Sports-Mitt
(Zoom Off Gloves) 8/25/89 04/02/91 International (assignee of record) for weight
lifting gloves, cross training gloves and all
purpose fitness gloves
Exercise Cuffs 627,275 4,602,784 ▇▇▇▇▇ ▇. ▇▇▇▇▇▇ Non-Exclusive License from by ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
(Softone Weights) 7/2/84 7/29/86 Jo ▇▇▇▇ ▇▇▇▇▇▇
Power Forearm 7,710,535 Exclusive License
Developer Taiwan Patent Manufacturing Purchase Agreement
Ziplock Collars 163,131 Non-Exclusive License
wrong no. Distribution Agreement
Universal Ankle 7,477,058 5,090,404 ▇▇▇▇▇▇▇ Kellassy Exclusive License from Kellassy. For sale in
Support 02/07/90 02/25/92 U.S. only.
Softone Weights 610,777 D287,525 ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ Non-Exclusive License from by ▇▇▇▇▇▇▇
05/16/84 12/30/87
Pushovers 8/236/484 ▇▇▇▇ ▇▇▇▇▇▇▇▇
-10-
62
EXHIBIT 5.14 (CONTINUED)
INTELLECTUAL PROPERTY STATUS REPORT
PATENTS OWNED BY ▇▇▇▇▇▇▇▇▇ INDUSTRIES, LP
------------------------------------------------------------------------
Serial No. Issue No.
Patent Title Filing Date Issue Date
------------------------------------------------------------------------
Spring Type Exercising Device 631,860 4,022,463
11/14/75
Hand Exercise Weights 579,062 4,556,215
2/10/84 12/3/85
Hand Exercise Weights 579,062 4,575,075
2/10/84 3/11/86
Cross Country Ski Exercise Device 7/122,459 4,804,178
(Easy Glider Exercise Device) 11/19/87 2/14/89
Cross Country Ski Exerciser 7/183,179 D315,764
Easy Glider Exercise Device 04/19/88 03/26/91
-11-
63
EXHIBIT 5.14 (CONTINUED)
INTELLECTUAL PROPERTY STATUS REPORT
PATENTS OWNED BY ▇▇▇▇▇▇▇▇▇ INDUSTRIES, INC.
------------------------------------------------------------------------
SERIAL NO. ISSUE NO.
PATENT TITLE FILING DATE ISSUE DATE
------------------------------------------------------------------------
Adjustable seat assembly for 6-915,987 4,746,114
Exercise Apparatus 10/6/86 5/24/88
Starlock Nut Design 6/510,064 D278,029
07/01/83 03/19/85
Curling Bar 6/700,520 D290,485
02/11/85 06/23/87
Adjustable Exercise Bench 6/916,060 D300,045
10/06/86 02/28/89
Physical Exerciser 6/916,060 D300,048
10/06/86 02/28/89
Adjustable Exercise Bench 7/169,336 D300,485
03/17/88 04/04/89
INTELLECTUAL PROPERTY STATUS REPORT
PATENTS OWNED BY NBF, INC.
------------------------------------------------------------------------
SERIAL NO. ISSUE NO.
PATENT TITLE FILING DATE ISSUE DATE
------------------------------------------------------------------------
Trampoline having safety features 3/6/92 10/25/95
-12-
64
SCHEDULE 6.15
TO
LOAN AND SECURITY AGREEMENT
BETWEEN
▇▇▇▇▇▇▇▇▇ INDUSTRIES INC., ▇▇▇▇▇▇▇▇▇ INDUSTRIES, L.P.
AND NBF INC. AS BORROWERS
AND
FOOTHILL CAPITAL CORPORATION AS LENDER
Inventory and Equipment Locations
▇▇▇▇▇▇▇▇▇ INDUSTRIES INC.
Locations for Doing Business:
1. (a) Americus (NBF) (Trampolines)
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
(b) Manufacturing trampolines and warehouse
2. (a) Grand Prairie (Fitness)
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
(b) Manufacturing and warehouse
3. (a) ▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
(b) Retail Outlet Store
4. (a) ▇▇▇ ▇. ▇▇▇▇ ▇▇.
▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
(b) Manufacturing and warehouse
▇▇▇▇▇▇▇▇▇ Industries, Inc.
Offsite Warehouse Locations
ABG Packaging & Assembly Groupo ABC De Mexico
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇ ▇▇▇▇▇ ▇ ▇▇. ▇
▇▇▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇ ▇▇▇ ▇▇▇▇ ▇▇▇ ▇▇▇
▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇
Insul-Fab of Texas
9101 Chancellor Row Sew Whatever
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇-▇▇▇▇▇ #▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
65
Fiber Co. ▇▇▇▇▇▇▇ Textile
▇▇▇▇ ▇▇▇▇ ▇▇. ▇▇▇ ▇▇▇▇▇▇ ▇▇.
▇▇▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Meiko Freight Service Pro-Tec (▇▇▇▇▇▇▇▇▇)
▇▇▇▇-▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇. ▇▇▇ ▇. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Komplete Packaging AirDock Systems
▇▇▇▇ ▇▇▇▇▇ ▇▇. ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇.
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Dunhams Athleisure Cargo Logistics
▇▇▇▇ ▇▇▇▇▇ ▇▇▇. ▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇.
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇ Healthcare
▇▇▇▇ ▇▇▇▇ ▇▇.
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
QVC Network
▇▇▇▇ ▇▇▇▇▇▇ ▇▇.
▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇
Kings Warehouse & Distribution
▇▇▇▇ ▇▇▇▇▇ ▇▇.
▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇ Textile
▇▇▇ ▇▇▇▇▇ ▇▇.
▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Pacer Fitness (▇▇▇▇▇▇▇▇▇)
▇▇▇ ▇. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇.
▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇ ▇▇▇ ▇▇▇
NBF, Inc.
▇▇▇ ▇▇▇▇▇ ▇▇▇.
▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Mega Freight Lines
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
YKK
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
-2-
66
▇▇▇▇▇▇▇▇▇ INDUSTRIES L.P.
Locations for Doing Business:
1. (a) Americus (NBF) (Trampolines)
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
(b) Manufacturing trampolines and warehouse
2. (a) Grand Prairie (Fitness)
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
(b) Manufacturing and warehouse
3. (a) ▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
(b) Retail Outlet Store
4. (a) ▇▇▇ ▇. ▇▇▇▇ ▇▇.
▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
(b) Manufacturing and warehouse
▇▇▇▇▇▇▇▇▇ Industries, LP
Offsite Warehouse Locations
ABG Packaging & Assembly Fiber Co.
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇.
▇▇▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Insul-Fab of Texas Meiko Freight Service
▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇ ▇▇▇▇-▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇.
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Groupo ABC De Mexico Komplete Packaging
▇▇ ▇▇▇▇▇ ▇ ▇▇. ▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇.
▇▇▇ ▇▇▇▇ ▇▇▇ ▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇
Dunhams Athleisure
Sew Whatever ▇▇▇▇ ▇▇▇▇▇ ▇▇▇.
▇▇▇▇ ▇▇▇▇▇▇-▇▇▇▇▇ #▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇ Healthcare
▇▇▇▇ ▇▇▇▇ ▇▇.
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
-3-
67
QVC Network
▇▇▇▇ ▇▇▇▇▇▇ ▇▇.
▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇
Kings Warehouse & Distribution
▇▇▇▇ ▇▇▇▇▇ ▇▇.
▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇.
▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇ ▇▇▇ ▇▇▇
NBF, Inc.
▇▇▇ ▇▇▇▇▇ ▇▇▇.
▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Mega Freight Lines
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
AirDock Systems
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇.
▇▇▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Cargo Logistics
▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇.
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
-4-
68
NBF, INC.
Locations for Doing Business:
1. (a) Americus (NBF) (Trampolines)
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
(b) Manufacturing trampolines and warehouse
2. (a) Grand Prairie (Fitness)
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
(b) Manufacturing and warehouse
3. (a) ▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
(b) Retail Outlet Store
NBF, Inc.
Offsite Warehouse Locations
▇▇▇▇▇▇▇ Textile
▇▇▇ ▇▇▇▇▇ ▇▇.
▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
YKK
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇ Textile
▇▇▇ ▇▇▇▇▇▇ ▇▇.
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
-5-