Exhibit 10.3
LOAN AND SECURITY AGREEMENT 12/15/97
BETWEEN
PARAGON CAPITAL LLC
AND
NURSERYLAND GARDEN CENTERS, INC.
TABLE OF CONTENTS
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ARTICLE l - THE REVOLVING CREDIT
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1-1. Establishment of Revolving Credit
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1-2. Advances in Excess of Maximum Loan Exposure
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1-3. Risks of Value of Inventory
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1-4. Procedures Under Revolving Credit
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1-5 The Loan Account
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1-6. The Master Note
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1-7. Payment of Loan Account
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1-8. Interest
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1-9. Fees
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1-10. Lender's Discretion
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1-11. Fees For L/C's
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1-12. Concerning L/C's
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ARTICLE 2 - GRANT OF SECURITY INTEREST
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2-1. Grant of Security Interest
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2-2. Extent and Duration of Security Interest
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ARTICLE 3 - DEFINITIONS
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ARTICLE 4 - CONDITIONS PRECEDENT
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4-1. Corporate Due Diligence
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4-2. Opinion
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4-3. Additional Documents
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4-4. Key Life Policies
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4-5. Officers' Certificates
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4-6. Representations and Warranties
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4-7. Minimum Excess Availability
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4-8. No Event of Default
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4-9. No Adverse Change
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ARTICLE 5 - GENERAL REPRESENTATIONS, WARRANTIES AND COVENANTS
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5-1. Payment and Performance of Liabilities
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5-2. Due Organization - Corporate Authorization - No Conflicts
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5-3. Trade Names
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5-4. Locations, Landlord's Waivers
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5-5. Title to Assets
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5-6. Indebtedness
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5-7. Insurance Policies
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5-8. Licenses
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5-9. Leases
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5-10 Requirements of Law
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5-11. Maintain Properties
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5-12. Pay Taxes
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5-13. No Margin Stock
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5-14. ERISA
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5-15. Hazardous Materials
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5-16. Litigation
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5-17. Dividends or Investments
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5-18. Loans
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5-19. Protection of Assets
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5-20. Line of Business
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5-21. Affiliate Transactions
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5-22. Executive Pay
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5-23. Additional Assurances
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5-24. Adequacy of Disclosure
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5-25. Other Covenants
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ARTICLE 6 - USE AND COLLECTION OF COLLATERAL.
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6-1 Use of Inventory Collateral
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6-2. Inventory Quality
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6-3. Adjustments and Allowances
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6-4. Validity of Accounts
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6-5. Notification to Account Debtors
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ARTICLE 7 - CASH MANAGEMENT
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7-1. Depository Accounts
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7-2. Credit Card Receipts
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7-3. The Concentration and the Funding Accounts
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7-4. Proceeds and Collection of Accounts
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7-5. Payment of Liabilities
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7-6. The Funding Account
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ARTICLE 8 - LENDER AS BORROWER'S ATTORNEY-IN-FACT
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8-1. Appointment as Attorney-In-Fact
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8-2. No Obligation to Act
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ARTICLE 9 - FINANCIAL AND OTHER REPORTING REQUIREMENTS/FINANCIAL COVENANTS
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9-1. Maintain Records
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9-2. Access to Records
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9-3. Immediate Notice to Lender
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9-4. Borrowing Base Certificate
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9-5. Weekly Reports
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9-6. Monthly Reports
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9-7. Quarterly Reports
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9-8. Annual Reports
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9-9. Officers' Certificates
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9-10. Inventories, Appraisals, and Audits
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9-11. Additional Financial Information
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9-12. Financial Performance Covenants
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9-13. Electronic Reporting
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ARTICLE 10 - EVENTS OF DEFAULT
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10-1. Failure to Pay Revolving Credit
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10-2. Failure To Make Other Payments
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10-3. Failure to Perform Covenant or Liability (No Grace Period)
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10-4. Failure to Perform Covenant or Liability (Grace Period)
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10-5. Misrepresentation
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10-6. Acceleration of Other Debt, Breach of Lease
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10-7. Default Under Other Agreements
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10-8. Casualty Loss, Non-Ordinary Course Sales
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10-9. Judgment, Restraint of Business
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10-10. Business Failure
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10-11. Bankruptcy
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10-12. Insecurity
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10-13. Prepayment or Default by Guarantor or Related Entity
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10-14. Indictment - Forfeiture
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10-15. Termination of Guaranty
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10-16. Challenge to Loan Documents
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10-17. Executive Management
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10-18. Change in Control
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ARTICLE 11 - RIGHTS AND REMEDIES UPON DEFAULT
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11-1 Rights of Enforcement
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11-2. Sale of Collateral
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11-3. Occupation of Business Location
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11-4. Grant of Nonexclusive License
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11-5. Assembly of Collateral
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11-6. Rights and Remedies
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ARTICLE 12 - NOTICES.
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12-1. Notice Addresses
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12-2. Notice Given
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ARTICLE 13 - TERM
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13-1. Termination of Revolving Credit
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13-2. Effect of Termination
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13-3. Prepayment Premium
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ARTICLE 14 - GENERAL
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14-1. Protection of Collateral
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14-2. Successors and Assigns
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14-3. Severability
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14-4. Amendments, Course of Dealing
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14-5. Power of Attorney
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14-6. Application of Proceeds
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14-7. Lender's Costs and Expenses
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14-8. Copies and Facsimiles
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14-9. Massachusetts Law
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14-10. Consent to Jurisdiction
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14-11. Indemnification
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14-12. Right of Set-Off
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14-13. Maximum Interest Rate
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14-14. Usury Savings Clause
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14-15. Waivers
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14-16. Confidentiality
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14-17. Right to Publish Notice
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14-18. Entities Related to Lender
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EXHIBITS
1-6 Master Note
3 Definitions
5-2 Related Entities
5-3 Trade Names.
5-4 Locations.
5-5 Encumbrances.
5-6 Indebtedness.
5-7 Insurance Policies.
5-12 Taxes
5-16 Litigation
7-1 DDA's.
7-2 Credit Card Arrangements
9-4 Borrowing Base Certificate
9-12(a) Financial Performance Covenants
9-12(b) Business Plan.
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THIS AGREEMENT is made between Paragon Capital LLC (hereinafter, "Paragon"
or "Lender"), a Delaware limited liability company with its principal executive
offices at Hillsite Office Building, ▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇▇,
▇▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ and Nurseryland Garden Centers, Inc. hereinafter, the
"Borrower"), a California corporation with its principal executive offices at
▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇ in consideration of
the mutual covenants contained herein and benefits to be derived herefrom.
WITNESSETH:
ARTICLE 1 - THE REVOLVING CREDIT
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1 - 1. Establishment of Revolving Credit.
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(a) The Lender hereby establishes a revolving line of credit (the
""Revolving Credit"") in the Borrower's favor pursuant to which the Lender,
subject to. and in accordance with, the within Agreement, shall make loans and
advances and otherwise provide financial accommodations to and for the account
of the Borrower as provided herein. The amount of the Revolving Credit shall be
determined by the Lender by reference to Availability, as determined by the
Lender from time to time hereafter. All loans made by the Lender under this
Agreement, and all of the Borrower's other Liabilities to the Lender under or
pursuant to this Agreement, are payable as provided herein.
(b) The Lender hereby agrees, subject to the terms and conditions
of this Agreement, to make loans to the Borrower in an amount outstanding not to
exceed at any one time the lesser of (i) the Credit Limit, or (ii) the Borrowing
Base.
(c) Availability shall be based upon Borrowing Certificates
furnished as provided in Section 9-4, below.
(d) The proceeds of borrowings under the Revolving Credit shall be
used solely in accordance with the Business Plan for working capital purposes of
the Borrower and for its Capital Expenditures, all solely to the extent
permitted by the within Agreement.
1-2. Advances in Excess of Maximum Loan Exposure. The Lender does not
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have any obligation to make any loan or advance, or otherwise to provide any
credit for the benefit of the Borrower such that the outstanding principal
balance of the Loan Account exceeds Maximum Loan Exposure. The making of loans,
advances, and credits and the providing of financial accommodations in excess of
Maximum Loan Exposure is for the benefit of the Borrower and does not affect the
obligations of the Borrower hereunder; such loans, advances, credits, and
financial accommodations constitute Liabilities. The making of any such loans,
advances, and credits and the providing of financial accommodations, on any one
occasion such that Maximum Loan Exposure is exceeded shall not obligate the
Lender to make any such loans, credits, or advances or to provide any financial
accommodation on any other occasion nor to permit such loans, credits, or
advances to remain outstanding.
1-3. Risks of Value of Inventory. The Lender's reference to a given asset
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in connection with the making of loans, credits, and advances and the providing
of financial accommodations under the Revolving Credit and/or the monitoring of
compliance with the provisions hereof shall not be deemed a determination by the
Lender relative to the actual value of the asset in question. All risks
concerning the saleability of the Borrower's Inventory are and remain upon the
Borrower. All Collateral secures the prompt, punctual, and faithful performance
of the Liabilities whether or not relied upon by the Lender in connection with
the making of loans, credits, and advances and the providing of financial
accommodations under the Revolving Credit.
1-4. Procedures Under Revolving Credit.
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(a) The Borrower may request loans and advances under the Revolving
Credit, each in an amount of not less than Ten Thousand ($10,000.00) Dollars.
Each such request shall be in such manner as may from time to time be acceptable
to the Lender.
(b) (i) The Lender, subject to the terms and conditions of the
within Agreement, will provide the Borrower with the loan so requested, if such
request is received by 12:00 Noon on a Banking Day, by the end of business on
that Banking Day; otherwise, by the end of the then next Banking Day.
(ii) The Lender may revise the above schedule, by which loans
shall be made, from time to time.
(c) Provided that Maximum Loan Exposure will not be exceeded (but
subject, however, to Subsection 1-4(i), below (which deals with the effect of a
Suspension Event)), a loan or advance under the Revolving Credit so requested by
the Borrower shall be made by the transfer of the proceeds of such loan or
advance to the Funding Account or as otherwise instructed by the Borrower.
(d) A loan or advance shall be deemed to have been made under the
Revolving Credit upon:
(i) The Lender's initiation of the transfer of the proceeds of
such loan or advance in accordance with the Borrower's instructions (if such
loan or advance is of funds requested by the Borrower).
(ii) The charging of the amount of such loan to the Loan Account
(in all other circumstances).
(e) There shall not be any recourse to, nor liability of the Lender
on account of:
(i) Any delay in the making of any loan or advance requested
under the Revolving Credit.
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(ii) Any delay in the proceeds of any such loan or advance
constituting collected funds
(iii) Any delay in the receipt, and/or any loss, of funds which
constitute a loan or advance under the Revolving Credit, the wire transfer of
which was properly initiated by the Lender in accordance with wire instructions
provided to the Lender by the Borrower.
(f) The Lender may rely on any request for a loan or advance or
financial accommodation which the Lender, in good faith, believes to have been
made by a person duly authorized to act on behalf of the Borrower and may
decline to make any such requested loan or advance or to provide any such
financial accommodation pending the Lender's being furnished with such
documentation concerning that person's authority to act as may be satisfactory
to the Lender.
(g) A request by the Borrower for any financial accommodation under
the Revolving Credit or of the issuance of an L/C shall be irrevocable and shall
constitute certification by the Borrower that as of the date of such request,
each of the following is true and correct:
(i) There has been no material adverse change in the Borrower's
financial condition from the most recent financial information furnished Lender
pursuant to this Agreement.
(ii) The Borrower is in compliance with, and has not breached
any of its covenants contained in this Agreement.
(iii) Bach representation which is made herein or in any of the
Loan Documents is then true and complete as of and as if made on the date of
such request.
(iv) No Suspension Event is then extant.
(h) The Borrower shall immediately become indebted to the Lender for
the amount of each loan under or pursuant to this Agreement when such loan is
deemed to have been made.
(i) Upon the occurrence from time to time of any Suspension Event,
the Lender may suspend the Revolving Credit immediately and shall not be
obligated, during such suspension, to make any loans or to provide any financial
accommodation hereunder.
(j) The Borrower may request that the Lender cause the issuance of
L/C's for the account of the Borrower.
(i) Each such request shall be in such manner as may from time
to time be acceptable to the Lender.
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(ii) The Lender will endeavor to cause the issuance of any L/C
so requested by the Borrower, provided that the requested L/C is in form
satisfactory to the Lender and if so issued:
(A) The aggregate Stated Amount of all L/C's then
outstanding, does not exceed Five Hundred Thousand ($500,000.00)
Dollars.
(B) The expiry of the L/C is not later than the earlier of
thirty (30) days prior to the Maturity Date or the following:
(I) Standby's: One (1) year from initial issuance.
(II) Documentary's: sixty (60) days from issuance.
(C) Maximum Loan Exposure would not be exceeded.
(iii) The Borrower shall execute such documentation to apply for
and support the issuance of an L/C as may be required by the Issuer.
(iv) There shall not be any recourse to, nor liability of, the
Lender on account of:
(A) any delay or refusal by an Issuer to issue an L/C;
(B) any action or inaction of an Issuer on account of or
in respect to, any
(v) The Borrower shall reimburse the Issuer, immediately upon
the drawing under any L/C, for the amount of such drawing. In the event that the
Borrower fails to so reimburse the Issuer, the Borrower immediately shall
reimburse the Lender for the amount of such drawing. To the extent which the
Borrower fails to so reimburse the Issuer or the Lender, the Lender, without the
request of the Borrower, may advance under the Revolving Credit any amount which
the Borrower is so obligated to pay to the Lender or the Issuer, or for which
the Borrower, the Issuer, or the Lender becomes obligated on account of or in
respect to, any L/C. Such advance shall be made whether or not a Suspension
Event is then in existence or such advance would result in Maximum Loan
Exposure's being exceeded. Such action shall not constitute a waiver of the
Lender's rights under Section 1-7(b), below.
1-5. The Loan Account.
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(a) An account (""Loan Account"") shall be opened on the books of the
Lender in which Loan Account a record may be kept of all loans made under or
pursuant to this Agreement and of all payments thereon.
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(b) The Lender may also keep a record (either in the Loan Account or
elsewhere, as the Lender may from time to time elect) of all interest, fees,
service charges, costs, expenses, and other debits owed the Lender on account of
the Liabilities and of all credits against such amounts so owed.
(c) All credits against the Liabilities shall be conditional upon
final payment to the Lender of the items giving rise to such credits. The amount
of any item credited against the Liabilities which is charged back against the
Lender for any reason or is not so paid shall be a Liability and shall be added
to the Loan Account, whether or not the item so charged back or not so paid is
returned.
(d) Except as otherwise provided herein, all fees, service charges,
costs, and expenses for which the Borrower is obligated hereunder are payable on
demand. In the determination of Availability, the Lender may deem fees, service
charges, accrued interest, and other payments as having been advanced under the
Revolving Credit if such amounts are then due and payable.
(e) The Lender, without the request of the Borrower, may advance
under the Revolving Credit any interest, fee, service charge, or other payment
to which the Lender is entitled from the Borrower pursuant hereto and may charge
the same to the Loan Account notwithstanding that such amount so advanced may
result in Availability's being exceeded. Such action on the part of the Lender
shall not constitute a waiver of the Lender's rights under Section 1-7(b),
below. Any amount which is added to the principal balance of the Loan Account as
provided in this Section shall bear interest at the interest rate applicable
from time to time to the unpaid principal balance of the Loan Account.
(f) Any statement rendered by the Lender to the Borrower concerning
the Liabilities shall be considered correct and accepted by the Borrower and
shall be conclusively binding upon the Borrower unless the Borrower provides the
Lender with written objection thereto within twenty (20) days from the mailing
of such statement, which written objection shall indicate, with particularity,
the reason for such objection. The Loan Account and the Lender's books and
records concerning the loan arrangement contemplated herein and the Liabilities
shall be prima facie evidence and proof of the items described therein.
1-6. The Master Note. The obligation to repay loans and advances under the
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Revolving Credit, with interest as provided herein, shall be evidenced by a note
(the "Master Note"") in the form of EXHIBIT 1-6, annexed hereto, executed by
the Borrower. Neither the original nor a copy of the Master Note shall be
required, however, to establish or prove any Liability. In the event that the
Master Note is ever lost, mutilated, or destroyed, the Borrower shall execute a
replacement thereof and deliver such replacement to the Lender.
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1-7. Payment of Loan Account.
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(a) The Borrower may repay all or any portion of the principal
balance of the Loan time to time until the Termination Date.
(b) The Borrower, without notice or demand from the Lender, shall pay
the Lender that amount, from time to time, which is necessary so that the
principal balance of the Loan Account does not exceed Maximum Loan Exposure.
(c) The Borrower shall repay the then entire unpaid balance of the
Loan Account and all other Liabilities on the Termination Date.
1-8. Interest
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(a) The unpaid principal balance of the Loan Account shall bear
interest, until repaid (calculated based upon a 360-day year and actual days
elapsed), at the aggregate of Base plus one (1%) percent per annum but in no
event less than eight (8%) percent per annum or in excess of the maximum rate
permitted by applicable law.
(b) Following the occurrence of any Event of Default (and whether or
not the Lender exercises any of the Lender's rights on account of such Event of
Default), all loans and advances made under the Revolving Credit shall bear
interest, through the End Date, at a rate which is the aggregate of that
provided for in Section 1-8(a), above, plus four (4%) percent per annum.
(c) Accrued interest shall be payable:
(i) Monthly in arrears on the first day of the month next
following that during which such interest accrued.
(ii) On the Termination Date.
(iii) On the End Date.
1-9. Fees. Borrower shall pay to the Lender the following fees:
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(a) Commitment Fee. On the date of execution hereof, a one time fully
earned commitment fee shall be due and payable in an amount equal to $21,875.00.
(b) Annual Facility Fee. On the first anniversary of the date of
execution hereof, a facility fee in an amount equal to one-quarter of one (.25%)
percent of the Credit Limit which shall have been fully earned at the date of
execution hereof, shall be due and payable, and on each anniversary of the date
of execution hereof, a facility fee in an amount equal to one-quarter of one
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(.25%) percent of the Credit Limit, which shall have been fully earned as of the
date hereof, shall be due and payable.
(c) Loan Maintenance Fee. On the date of execution hereof and on each
anniversary of the date of execution hereof, a loan maintenance fee equal to
$14,000.00 shall be payable. Such fee shall have been fully earned as of the
date hereof and as of each anniversary of the date of execution hereof and shall
be payable in twelve (12) monthly installments as follows: 1/12th of such fee
shall be payable as of the date hereof and on each anniversary of the date of
execution hereof and 1/12th of such fee shall be payable on the same day of each
month hereafter until paid in full.
(d) Financial Examination, Documentation, and Appraisal Fees. Subject
to the provisions of Article 9-10 Lender's actual charges paid or incurred for
each financial analysis and examination (i.e., audits) of Borrower performed by
personnel employed by Lender; Lender's actual charges paid or incurred for each
appraisal of the Collateral performed by personnel employed by Lender; and, the
actual charges paid or incurred by Lender if it elects to employ the services of
one or more third Persons to perform such financial analysis and examinations
(i.e., audits) of Borrower or to appraise the Collateral.
(e) In addition to any other right to which the Lender is then
entitled on account thereof, the Lender may assess additional fees and charges
payable by the Borrower on account of the accommodation, from time to time, of
Lender to the Borrower's request that the Lender depart or dispense with one or
more of the administrative provisions of the within Agreement and/or the
Borrower's failure to comply with any of such provisions.
(i) By way of non-exclusive example, the Lender may assess a
fee on account of any of the following:
(A) The Borrower's failure to pay that amount which is
necessary so that the principal balance of the Loan Account does
not exceed Maximum Permitted Exposure (as required under Section
1-7(b), above).
(B) The providing of a loan or advance under the
Revolving Credit such that Maximum Loan Exposure would be
exceeded.
(C) The providing of a same Banking Day loan requested
after the time set forth in Section 1-4(b)(i), above.
(D) The Borrower's failure to provide a financial
statement or report within the applicable time-frame provided for
such report under Article 9, below.
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(ii) The inclusion of the foregoing right on the part of the
Lender to assess a fee does not constitute an obligation, on the part of the
Lender, to waive any provision of the within Agreement under any circumstances.
The assessment of any such fee in any particular circumstance shall not
constitute the Lender's waiver of any breach of the within Agreement on account
of which such fee was assessed nor a course of action on which the Borrower may
rely.
(f) The Borrower shall not be entitled to any credit, rebate or
repayment of any Commitment Fee, Facility Fee, Loan Maintenance Fee, or other
fee previously earned by the Lender pursuant to this Section notwithstanding any
termination of the within Agreement or suspension or termination of the Lender's
obligation to make loans and advances hereunder.
1-10. Lender's Discretion.
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(a) Each reference in the Loan Documents to the exercise of
discretion or the like by the Lender shall be to that Person's exercise of its
judgement, in good faith (which shall be presumed), based upon that Person's
consideration of any such factor as the Lender, taking into account information
of which that Person then has actual knowledge, believes:
(i) Will or reasonably could be expected to affect the value
of the Collateral, the enforceability of the Lender's security and collateral
interests therein, or the amount which the Lender would likely realize therefrom
(taking into account delays which may possibly be encountered in the Lender's
realizing upon the Collateral and likely Costs of Collection).
(ii) Indicates that any report or financial information
delivered to the Lender by or on behalf of the Borrower is incomplete,
inaccurate, or misleading in any material manner or was not prepared in
accordance with the requirements of the within Agreement.
(iii) Suggests an increase in the likelihood that the Borrower
will become the subject of a bankruptcy or insolvency proceeding.
(iv) Constitutes a Suspension Event.
(b) In the exercise of such judgement, the Lender also may take into
account any of the following factors:
(i) Those included in, or tested by, the definitions of
"Acceptable Inventory", "Retail", and "Cost".
(ii) The current financial and business climate of the industry
in which the Borrower competes (having regard for the Borrower's position in
that industry).
(iii) General economic conditions which have a material effect
on cost structure.
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(iv) Material changes in or to the mix of the Borrower's
Inventory.
(v) Seasonality with respect to the Borrower's Inventory and
patterns of the Borrower's retail sales.
(vi) Such other factors as the Lender determines as having a
material bearing on credit risks associated with the providing of loans and
financial accommodations to the Borrower.
(c) The burden of establishing the failure of the Lender to have
acted in a reasonable manner in such Person's exercise of discretion shall be
the Borrower's.
1-11. Fees for L/C's.
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(a) Prior to the issuance of any L/C, the Borrower shall pay to the
Lender a fee for each L/C equal to the greater of (i) Two Hundred Fifty
($250.00) Dollars or (ii) twenty-five (25) Basis Points per month times the
Stated Amount of that L/C.
(b) In addition to the fee to be paid as provided in Subsection
1-11(a), above, the Borrower shall pay to the Lender (or to the Issuer, if so
requested by the Lender), on demand, all issuance, processing, negotiation,
amendment, and administrative fees and other amounts charged by the Issuer on
account of, or in respect to, any L/C.
1-12. Concerning L/C's.
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(a) None of the Issuer, the Issuers correspondents, or any advising,
negotiating, or paying bank with respect to any L/C shall be responsible in any
way for:
(i) The performance by any beneficiary under any L/C of that
beneficiary's obligations to the Borrower.
(ii) The form, sufficiency, correctness, genuineness, authority
of any person signing; falsification; or the legal effect of; any documents
called for under any L/C if (with respect to the foregoing) such documents on
their face appear to be in order.
(b) The Issuer may honor, as complying with the terms of any L/C and
of any drawing thereunder, any drafts or other documents otherwise in order, but
signed or issued by an administrator, executor, conservator, trustee in
bankruptcy, debtor in possession, assignee for the benefit of creditors,
liquidator, receiver, or other legal representative of the party authorized
under such L/C to draw or issue such drafts or other documents.
(c) Unless otherwise agreed to, in the particular instance, the
Borrower hereby authorizes any Issuer to:
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(i) Select an advising bank, if any.
(ii) Select a paying bank, if any.
(iii) Select a negotiating bank.
(d) All directions, correspondence, and funds transfers relating to
any L/C are at the risk of the Borrower. The Issuer shall have discharged the
Issuer's obligations under any L/C which, or the drawing under which, includes
payment instructions, by the initiation of the method of payment called for in,
and in accordance with, such instructions (or by any other commercially
reasonable and comparable method). Neither the Lender nor the Issuer shall have
any responsibility for any inaccuracy, interruption, error, or delay in
transmission or delivery by post, telegraph or cable, or for any inaccuracy of
translation.
(e) The Lender's and the Issuer's rights, powers, privileges and
immunities specified in or arising under this Agreement are in addition to any
heretofore or at any time hereafter otherwise created or arising, whether by
statute or rule of law or contract.
(f) Except to the extent otherwise expressly provided hereunder or
agreed to in writing by the Issuer and the Borrower, the L/C will be governed by
the Uniform Customs and Practice for Documentary Credits (1993 Revision),
International Chamber of Commerce, Publication No.500, and any subsequent
revisions thereof.
(g) If any change in any law, executive order or regulation, or any
directive of any administrative or governmental authority (whether or not having
the force of law), or in the interpretation thereof by any court or
administrative or governmental authority charged with the administration
thereof, shall either:
(i) Impose, modify or deem applicable any reserve, special
deposit or similar requirements against letters of credit heretofore or
hereafter issued by any Issuer or with respect to which the Lender or any Issuer
has an obligation to lend to fund drawings under any L/C.
(ii) Impose on any Issuer any other condition or requirements
relating to any such letters of credit; and the result of any event referred to
in Section 1-12(g)(i) or 1-12(g)(ii), above, shall be to increase the cost to
any Issuer of issuing or maintaining any L/C (which increase in cost shall be
the result of such Issuer's reasonable allocation among that Issuer's letter of
credit customers of the aggregate of such cost increases resulting from such
events), then, upon demand by the Lender and delivery by the Lender to the
Borrower of a certificate of an officer of the subject Issuer describing such
change in law, executive order, regulation, directive, or interpretation
thereof, its effect on such Issuer, and the basis for determining such increased
costs and their allocation, the Borrower shall immediately pay to the Lender,
from time to time as specified by the Lender, such amounts as shall be
sufficient to compensate such Issuer for such increased cost. Any Issuer's
determination of costs incurred under Section 1-12(g)(i) or 1-12(g)(ii),
above, and the allocation, if
-10-
any, of such costs among the Borrower and other letter of credit customers of
such Issuer, if done in good faith and made on an equitable basis and in
accordance with the officer's certificate, shall be conclusive and binding on
the Borrower.
(h) The obligations of the Borrower under the within Agreement with
respect to L/C's are absolute, unconditional, and irrevocable and shall be
performed strictly in accordance with the terms hereof under all circumstances,
whatsoever including, without limitation, the following:
(i) Any lack of validity or enforceability or restriction,
restraint, or stay in the enforcement of the within Agreement, any L/C, or any
other agreement or instrument relating thereto.
(ii) Any amendment or waiver of, or consent to the departure
from, any L/C.
(iii) The existence of any claim, set-off, defense, or other
right which the Borrower may have at any time against the beneficiary of any
L/C.
(iv) Any honoring of a drawing under any L/C, which drawing
possibly could have been dishonored based upon a strict construction of the
terms of the L/C.
ARTICLE 2 - GRANT OF SECURITY INTEREST
--------------------------------------
2-1. Grant of Security Interest. To secure the Borrower's prompt, punctual,
--------------------------
and faithful performance of all and each of the Borrower's Liabilities, the
Borrower hereby grants to the Lender a continuing security interest in and to,
and assigns to the Lender, the following, and each item thereof, whether now
owned or now due, or in which the Borrower has an interest, or hereafter
acquired, arising, or to become due, or in which the Borrower obtains an
interest, and all products. Proceeds, substitutions, and accessions of or to any
of the following (all of which, together with any other property in which the
Lender may in the future be granted a security interest, is referred to herein
as the "Collateral"):
(a) All of Borrower's inventory, including all goods, merchandise,
raw materials, goods and work in process, finished goods, and other tangible
personal property now owned or hereafter acquired and held for sale or lease or
furnished or to be furnished under contracts of service or used or consumed in
Borrower's business, including, without limitation, all crops, plants, shrubs,
trees, live Christmas trees and flowers, whether potted or affixed to the land
including, without limitation, all crops growing or to be grown on the land
identified on Exhibit 5-4 hereto.
(b) All farm products, including, without limitation, all crops,
plants, shrubs, trees, live Christmas trees and flowers, whether potted or
affixed to the land, and all equipment and supplies used or produced in
connection with debtor's farming operations, now owned or hereafter
-11-
acquired, including, without limitation, all crops growing or to be grown on the
land identified on Exhibit 5-4 hereto.
(c) All of Borrower's accounts, contracts, contract rights, notes,
bills, drafts, acceptances, general intangibles (including without limitation
trade names, customer lists, goodwill, computer programs, computer records
computer software, computer data, trade secrets, trademarks, patents, ledger
sheets, files, records, data processing records relating to any accounts and all
tax refunds of every kind and nature to which Borrower is now or hereafter may
become entitled to, no matter how arising), instruments, documents, chattel
paper, securities, security entitlements, security accounts, investment
property, choses in action, and all other debts, obligations and liabilities in
whatever form, owing to Borrower from any person, firm or corporation or any
other legal entity, whether now existing or hereafter arising, now or hereafter
received by or belonging or owing to Borrower, for goods sold by it or for
services rendered by it, or however otherwise same may have been established or
created, all guarantees and securities therefor, all right, title and interest
of Borrower in the merchandise or services which gave rise thereto, including
the rights of reclamation and stoppage in transit, all rights to replevy goods,
all rights of an unpaid seller of merchandise or services, and in the products
and proceeds thereof, including, without limitation, all proceeds of credit,
fire or other insurance.
(d) All of Borrower's machinery, equipment and other goods (as
defined in Article 9 of the Uniform Commercial Code) whether now owned or
hereafter acquired by Borrower and wherever located, all replacements and
substitutions therefor or accessions thereto and all proceeds thereof.
(e) All proceeds and products of all of the foregoing in any form,
including, without limitation, all proceeds, refunds and premium rebates of
credit, fire or other insurance, and also including, without limitation, rents
and profits resulting from the temporary use of any of the foregoing.
2-2. Extent and Duration of Security Interest. The within grant of a
----------------------------------------
security interest is in addition to, and supplemental of, any security interest
previously granted by the Borrower to the Lender and shall continue in full
force and effect applicable to all Liabilities until all Liabilities have been
paid and/or satisfied in full and the security interest granted herein is
specifically terminated in writing by a duly authorized officer of the Lender.
ARTICLE 3 - DEFINITIONS
----------------------
All capitalized terms used in this agreement which are not otherwise
defined herein or in the UCC shall have the meanings assigned to them in EXHIBIT
3, annexed hereto.
-12-
ARTICLE 4- CONDITIONS PRECEDENT
-------------------------------
Precedent to the effectiveness of this Agreement, the establishment of the
Revolving Credit, and the making of the first loan under the Revolving Credit,
the documents respectively described in Sections 4-1 through and including 4-5,
each in form and substance satisfactory to the Lender shall have been delivered
to the Lender, and the conditions respectively described in Sections 4-6 through
and including 4-9, shall have been satisfied:
4-1. Corporate Due Diligence.
-----------------------
(a) A Certificate of corporate good standing issued by the Secretary
of State of Incorporation of the Borrower.
(b) Certificates of due qualification, in good standing, issued by
the Secretary(ies) of State of each State in which the nature of the Borrower's
business conducted or assets owned could require such qualification.
(c) A Certificate of the Borrower's secretary or clerk attesting to
the due adoption, continued effectiveness, and setting forth the texts of each
corporate resolution adopted in connection with the establishment of the loan
arrangement contemplated by the Loan Documents and attesting to the true
signatures of each Person authorized as a signatory to any of the Loan
Documents.
4-2. Opinion. An opinion of counsel to the Borrower in form and substance
-------
satisfactory to the Lender.
4-3. Additional Documents. Such additional instruments and documents as the
--------------------
Lender or its counsel reasonably may require or request.
4-4. Key Life Policies. The Collateral Assignment to the Lender of policies
-----------------
on the lives of the following persons for the amounts stated:
▇▇▇▇▇▇▇ ▇▇▇▇▇: $1,000,000.00
4-5. Officers' Certificates. Certificates executed by the President and the
----------------------
Chief Financial Officer of the Borrower and stating that the representations and
warranties made by the Borrower to the Lender in the Loan Documents are true and
complete as of the date of such Certificate, and that no event has occurred
which is or which, solely with the giving of notice or passage of time (or both)
would be an Event of Default.
-13-
4-6. Representations and Warranties. Each of the representations made by
------------------------------
or on behalf of the Borrower in this Agreement or in any of the other Loan
Documents or in any other report, statement, document, or paper provided by and
or on behalf of the Borrower shall be true and complete as of the date as of
which such representation or warranty was made.
4-7. Minimum Excess Availability. Availability, after giving effect to the
---------------------------
first loans and advances to be made under the Revolving Credit; any charges to
the Loan Account made in connection with the establishment of the credit
facility contemplated hereby; and L/C's to be issued at, or immediately
subsequent to, the establishment of such establishment, is not less than Five
Hundred Fifty Thousand and 00/100 ($550,000.00) Dollars.
4-8. No Event of Default. No event shall have occurred, or failed to occur,
-------------------
which occurrence or which failure constitutes, or which, solely with the passage
of time or the giving of notice (or both) would constitute, an Event of Default.
4-9. No Adverse Change. No event shall have occurred or failed to occur,
-----------------
which occurrence or failure is or could have a materially adverse effect upon
the Borrower's financial condition, operating results, or cash flows from the
Borrower's financial condition at September 30, 1997.
No document shall be deemed delivered to the Lender until received and accepted
by the Lender at its head offices in Newton, Massachusetts. Under no
circumstances will the within Agreement take effect until executed and accepted
by the Lender at said head office.
ARTICLE 5 - GENERAL REPRESENTATIONS, WARRANTIES AND COVENANTS
-------------------------------------------------------------
To induce the Lender to establish the loan arrangement contemplated herein
and to make loans and advances and to provide financial accommodations under the
Revolving Credit (each of which loans shall be deemed to have been made in
reliance thereupon) the Borrower, in addition to all other representations,
warranties, and covenants made by the Borrower in any other Loan Document, makes
those representations, warranties, and covenants included in the within
Agreement.
5-1. Payment and Performance of Liabilities. The Borrower shall pay each
--------------------------------------
Liability due Lender when due (or when demanded if payable on demand) and shall
promptly, punctually, and faithfully perform each other Liability due Lender and
pay each Liability due others in accordance with its current custom and
practice. If Borrower has any dispute with any Person with respect to any
Liability, Borrower shall give Paragon notice of said dispute.
5-2. Due Organization - Corporate Authorization - No Conflicts.
---------------------------------------------------------
(a) The Borrower presently is and shall hereafter remain in good
standing as a corporation and is and shall hereafter remain duly qualified and
in good standing in every other State
-14-
in which, by reason of the nature or location of the Borrower's assets or
operation of the Borrower's business, such qualification may be necessary.
(b) Each Related Entity is listed on EXHIBIT 5-2, annexed hereto.
Each Related Entity is and shall hereafter remain in good standing in the State
in which incorporated and is and shall hereafter remain duly qualified in which
other State in which, by reason of that entity's assets or the operation of such
entity's business, such qualification may be necessary. The Borrower shall
provide the Lender with prior written notice of any entity's becoming or ceasing
to be a Related Entity.
(c) The Borrower has all requisite corporate power and authority to
execute and deliver all and singular the Loan Documents to which the Borrower is
a party and has and will hereafter retain all requisite corporate power to
perform all and singular the Liabilities.
(d) The execution and delivery by the Borrower of each Loan Document
to which it is a party; the Borrower's consummation of the transactions
contemplated by such Loan Documents (including, without limitation, the creation
of security interests by the Borrower as contemplated hereby); the Borrower's
performance under those of the Loan Documents to which it is a party; the
borrowings hereunder; and the use of the proceeds thereof:
(i) Have been duly authorized by all necessary corporate
action.
(ii) Do not, and will not, contravene in any material respect
any provision of any Requirement of Law or obligation of the Borrower.
(iii) Will not result in the creation or imposition of or the
obligation to create or impose, any Encumbrance upon any assets of the Borrower
pursuant to any Requirement of Law or obligation, except pursuant to the Loan
Documents.
(e) The Loan Documents have been duly executed and delivered by
Borrower and are the legal, valid and binding obligations of the Borrower,
enforceable against the Borrower in accordance with their respective terms.
5-3. Trade Names.
-----------
(a) EXHIBIT 5-3, annexed hereto, is a listing of:
(i) All names under which the Borrower ever conducted its
business.
(ii) All entities and/or persons with whom the Borrower ever
consolidated or merged, or from whom the Borrower ever acquired in a single
transaction or in a series of related transactions substantially all of such
entity's or person's assets.
-15-
(b) Except (i) upon not less than twenty-one (21) days prior written
notice given the Lender, and (ii) in compliance with all other provisions of the
within Agreement, the Borrower will not undertake or commit to undertake any
action such that the results of that action, if undertaken prior to the date of
this Agreement, would have been reflected on EXHIBIT 5-3.
(c) The Borrower owns and possesses, or has the right to use all
patents, industrial designs, trademarks, trade names, trade styles, brand names,
service marks, logos, copyrights, trade secrets, know-how, confidential
information, and other intellectual or proprietary property of any third Person
necessary for the Borrower's conduct of the Borrower's business.
(d) The conduct by the Borrower of the Borrower's business does not
infringe on the patents, industrial designs, trademarks, trade names, trade
styles, brand names, service marks, logos, copyrights, trade secrets, know-how,
confidential information, or other intellectual or proprietary property of any
third Person.
5-4. Locations, Landlord's Waivers.
-----------------------------
(a) The Collateral, and the books, records, and papers of Borrower
pertaining thereto, are kept and maintained solely at the Borrower's chief
executive offices as set forth in the beginning of this Agreement and at those
locations which are listed on EXHIBIT 5-4, annexed hereto, which EXHIBIT
includes all service bureaus with which any such records are maintained and the
names and addresses of each of the Borrower's landlords. Except (i) to
accomplish sales of Inventory in the ordinary course of business or (ii) to
utilize such of the Collateral as is removed from such locations in the ordinary
course of business (such as motor vehicles), the Borrower shall not remove any
Collateral from said chief executive offices or those locations listed on
EXHIBIT 5-4.
(b) The Borrower shall use its best efforts to obtain and deliver to
the Lender a waiver or subordination (reasonably satisfactory to the Lender) by
the landlord for each store location within sixty (60) days of the date of
execution hereof.
(c) If the Borrower fails to obtain a waiver or subordination for
each store location within said sixty (60) day period, the Lender may establish
an Availability Reserve for up to ninety (90) days rent for each of the
Borrower's locations in a Landlord Lien State or in a One Turn State.
Such Availability Reserve shall be reduced or eliminated as
follows (but only if no Suspension Event is then in existence or has theretofore
occurred):
(i) With respect to locations in One Turn States: one hundred
twenty (120) days after the execution of the within Agreement.
-16-
(ii) With respect to locations in Landlord Lien States:
Upon the furnishing to the Lender of a waiver or subordination reasonably
satisfactory to the Lender by the landlord for the subject location. Without
duplication of any Availability Reserve described above, the Lender may
establish an Availability Reserve for unpaid rent.
(c) The Borrower will not:
(i) Execute, alter, modify, or amend any Lease.
(ii) Commit to, or open or close any location at which the
Borrower maintains, offers for sales, or stores any of the Collateral.
(d) Except as otherwise disclosed pursuant to, or permitted by, this
Section 5-4, no tangible personal property of the Borrower is in the care or
custody of any third party or stored or entrusted with a bailee or other third
party and none shall hereafter be placed under such care, custody, storage, or
entrustment.
5-5. Title to Assets.
---------------
(a) The Borrower is, and shall hereafter remain, the owner of the
Collateral free and clear of all Encumbrances with the exceptions of the
following:
(i) The security interest created herein.
(ii) Those Encumbrances (if any) listed on EXHIBIT 5-5,
annexed hereto.
(b) The Borrower does not and shall not have possession of any
property on consignment to the Borrower.
5-6. Indebtedness. The Borrower does not and shall not hereafter have any
------------
Indebtedness with the exceptions of:
(a) Any Indebtedness to the Lender.
(b) The Indebtedness (if any) listed on EXHIBIT 5-6, annexed hereto.
5-7. Insurance Policies.
------------------
(a) EXHIBIT 5-7 annexed hereto, is a schedule of all insurance
policies owned by the Borrower or under which the Borrower is the named insured.
Each of such policies is in full force and effect. Neither the issuer of any
such policy nor the Borrower is in default or violation of any such policy.
-17-
(b) The Borrower shall have and maintain at all times insurance
covering such risks, in such amounts, containing such terms, in such form, for
such periods, and written by such companies as may be satisfactory to the
Lender. The coverage reflected on EXHIBIT 5-7 presently satisfies the foregoing
requirements, it being recognized by the Borrower, however, that such
requirements may change hereafter to reflect changing circumstances. All
insurance carried by the Borrower shall provide for a minimum of twenty (20)
days' written notice of cancellation to the Lender and all such insurance which
covers the Collateral shall include an endorsement in favor of the Lender, which
endorsement shall provide that the insurance, to the extent of the Lender's
interest therein, shall not be impaired or invalidated, in whole or in part by
reason of any act or neglect of the Borrower or by the failure of the Borrower
to comply with any warranty or condition of the policy. In the event of the
failure by the Borrower to maintain insurance as required herein, the Lender, at
its option, may obtain such insurance. provided, however, the Lender's obtaining
of such insurance shall not constitute a cure or waiver of any Event of Default
occasioned by the Borrower's failure to have maintained such insurance. The
Borrower shall furnish to the Lender certificates or other evidence satisfactory
to the Lender regarding compliance by the Borrower with the foregoing insurance
provisions.
(c) The Borrower shall advise the Lender of each claim in excess of
One Hundred Thousand ($100,000.00) Dollars made by the Borrower under any
policy of insurance which covers the Collateral and will permit the Lender, at
the Lender's option in each instance, to the exclusion of the Borrower, to
conduct the adjustment of each such claim (and of all claims following the
occurrence of any Suspension Event). The Borrower hereby appoints the Lender as
the Borrower's attorney in fact to obtain, adjust, settle, and cancel any
insurance described in this section and to endorse in favor of the Lender any
and all drafts and other instruments with respect to such insurance. The within
appointment, being coupled with an interest, is irrevocable until this Agreement
is terminated by a written instrument executed by a duly authorized officer of
the Lender. The Lender shall not be liable on account of any exercise pursuant
to said power except for any exercise in actual willful misconduct and bad
faith. The Lender may apply any proceeds of such insurance against the
Liabilities, whether or not such have matured, in such order of application as
the Lender may determine.
(d) The Borrower shall maintain at all times those policies of
insurance obtained by the Borrower and assigned to the Lender as required by
Section 4-4, above.
5-8. Licenses. Each license, distributorship, franchise, and similar
--------
agreement issued to, or to which the Borrower is a party is in full force and
effect. No party to any such license or agreement is in default or violation
thereof. The Borrower has not received any notice or threat of cancellation of
any such license or agreement.
5-9. Leases. EXHIBIT 5-9, annexed hereto, is a schedule of all presently
------
effective Leases and Capital Leases. Each of such Leases and Capital Leases is
in full force and effect. No party to any such Lease or Capital Lease is in
default or violation of any such Lease (except as disclosed on Exhibit 5-9) or
Capital Lease and the Borrower has not received any notice or threat of
cancellation
-18-
of any such Lease or Capital Lease. The Borrower hereby authorizes the Lender at
any time and from time to time to contact any of the Borrower's landlords in
order to confirm the Borrower's continued compliance with the terms and
conditions of the Lease(s) between the Borrower and that landlord and to
discuss such issues, concerning the Borrower's occupancy under such Lease(s), as
the Lender may determine.
5-10. Requirements of Law. The Borrower is in compliance with, and shall
-------------------
hereafter comply with and use its assets in compliance with, all Requirements of
Law. The Borrower has not received any notice of any violation of any
Requirement of Law (whether or not such violation is material), which violation
has not been cured or otherwise remedied.
5-11. Maintain Properties. The Borrower shall:
-------------------
(a) Keep the Collateral in good order and repair (ordinary
reasonable wear and tear and insured casualty excepted).
(b) Not suffer or cause the waste or destruction of any material
part of the Collateral.
(c) Not use any of the Collateral in violation of any policy of
insurance thereon.
(d) Not sell, lease, or otherwise dispose of any of the
Collateral, other than the following:
(i) The sale of Inventory in compliance with the within
Agreement.
(ii) The disposal of Equipment which is obsolete, worn out,
or damaged beyond repair, which Equipment is replaced to the extent necessary to
preserve or improve the operating efficiency of the Borrower.
(iii) The turning over to the Lender of all Receipts as
provided herein.
5-12. Pay Taxes.
---------
(a) The federal income tax returns of the Borrower have been
audited by the Internal Revenue Service (or closed by applicable statutes) for
all fiscal years through and including the Borrower's taxable year referenced on
EXHIBIT 5-12, annexed hereto, and all deficiencies, assessments, and other
amounts asserted as a result of such examinations have been fully paid or
settled. No agreement is extant which waives or extends any statute of
limitations applicable to the right of the Internal Revenue Service to assert a
deficiency or make any other claim for or in respect to federal income taxes. No
issue has been raised in any such examination which, by application of similar
principles, reasonably could be expected to result in the assertion of a
deficiency for any fiscal year open for examination, assessment, or claim by the
Internal Revenue Service.
-19-
(b) All returns of the Borrower for state and local income,
excise. sales, and other taxes have been audited (or closed by applicable
statutes) for all fiscal years through and including the Borrower's taxable year
referenced on EXHIBIT 5-12, annexed hereto, and all deficiencies, assessments,
and other amounts asserted as a result of such examinations have been fully paid
or settled. No agreement is in existence which waives or extends any statute of
limitations applicable to the right of any state taxing authority to assert a
deficiency or make any other claim for or in respect to any such state taxes. No
issue has been raised in any such examination which, by application of similar
principles. reasonably could be expected to result in the assertion of a
deficiency for any fiscal year open for examination, assessment, or claim by any
state or local taxing authority.
(c) Except as disclosed on said EXHIBIT 5-12, there are no
examinations of or with respect to the Borrower presently being conducted by the
Internal Revenue Service or any state taxing authority.
(d) The Borrower has. and hereafter shall: pay, as they become
due and payable, all taxes and unemployment contributions and other charges of
any kind or nature levied, assessed or claimed against the Borrower or the
Collateral by any person or entity whose claim could result in an Encumbrance
upon any asset of the Borrower or by any governmental authority; properly
exercise any trust responsibilities imposed upon the Borrower by reason of
withholding from employees' pay; timely make all contributions and other
payments as may be required pursuant to any Employee Benefit Plan now or
hereafter established by the Borrower; and timely file all tax and other returns
and other reports with each governmental authority to whom the Borrower is
obligated to so file.
(e) At its option, the Lender may, but shall not be obligated to,
pay any taxes, unemployment contributions, and any and all other charges levied
or assessed upon the Borrower or the Collateral by any person or entity or
governmental authority, and make any contributions or other payments on account
of the Borrowers Employee Benefit Plan as the Lender, in the Lender's
discretion, may deem necessary or desirable, to protect, maintain, preserve,
collect, or realize upon any or all of the Collateral or the value thereof or
any right or remedy pertaining thereto, provided, however, the Lender's making
of any such payment shall not constitute a cure or waiver of any Event of
Default occasioned by the Borrower's failure to have made such payment.
5-13. No Margin Stock. The Borrower is not engaged in the business of
---------------
extending credit for the purpose of purchasing or carrying any margin stock
(within the meaning of Regulations G.U.T. and X. of the Board of Governors of
the Federal Reserve System of the United States). No part of the proceeds of any
borrowing hereunder will be used at any time to purchase or carry any such
margin stock or to extend credit to others for the purpose of purchasing or
carrying any such margin stock.
-20-
5-14. ERISA. Neither the Borrower nor any ERISA Affiliate ever has or
-----
hereafter shall:
(a) Violate or fail to be in full compliance with the Borrowers
Employee Benefit Plan.
(b) Fail timely to file all reports and filings required by ERISA
to be filed by the Borrower.
(c) Engage in any "prohibited transactions" or "reportable
events" as (respectively described in ERISA).
(d) Engage in, or commit, any act such that a tax or penalty
could be imposed on account thereof pursuant to ERISA.
(e) Accumulate any material funding deficiency within the meaning
of ERISA.
(f) Terminate any Employee Benefit Plan such that a lien could be
asserted of the Borrower on account thereof pursuant to ERISA.
(g) Be a member of, contribute to, or have any obligation under
any Employee is a multiemployer plan within the meaning of Section 4001(a) of
ERISA.
5-15. Hazardous Materials.
-------------------
(a) The Borrower has never:
(i) Been legally responsible for any release or threat of
release of any Hazardous Material.
(ii) Received notification of any release or threat of
release of any Hazardous Material from any site or vessel occupied or operated
by the Borrower and/or of the incurrence of any expense or loss in connection
with the assessment, containment, or removal of any release or threat of release
of any Hazardous Material from any such site or vessel.
(b) The Borrower shall:
(i) Dispose of any Hazardous Material only in compliance
with all Environmental Laws.
(ii) Not store on any site or vessel occupied or operated by
the Borrower and not transport or arrange for the transport of any Hazardous
Material, except if such storage or transport is in the ordinary course of the
Borrower's business and is in compliance with all Environmental Laws.
-21-
(c) The Borrower shall provide the Lender with written notice
upon the Borrower's obtaining knowledge of any incurrence of any expense or loss
by any governmental authority or other Person in connection with the assessment,
containment or removal of any Hazardous Material, for which expense or loss the
Borrower may be liable.
5-16. Litigation. Except as disclosed on Exhibit 5-16, there is not
----------
presently pending or threatened by or against the Borrower any suit, action,
proceeding, or investigation which, if determined adversely to the Borrower,
would have a material adverse effect upon the Borrower's financial condition or
ability to conduct its business as such business is presently conducted or is
contemplated to be conducted in the foreseeable future.
5-17. Dividends or Investments. The Borrower shall not:
------------------------
(a) Pay any cash dividend or make any other distribution in
respect of any class of the Borrower's capital stock.
(b) Own, redeem, retire, purchase, or acquire any of the
Borrower's capital stock.
(c) Invest in or purchase any stock or securities or rights to
purchase any such stock or securities, of any corporation or other entity.
(d) Merge or consolidate or be merged or consolidated with or
into any other corporation or other entity.
(e) Consolidate any of the Borrower's operations with those of
any other corporation or other entity.
(f) Organize or create any Related Entity.
(g) Subordinate any debts or obligations owed to the Borrower by
any third party to any other debts owed by such third party to any other Person.
5-18. Loans. The Borrower shall not make any loans or advances to, nor
-----
acquire the Indebtedness of, any Person, provided, however, the foregoing does
not prohibit any of the following:
(a) Advance payments made to the Borrower's suppliers in the
ordinary course.
(b) Advances to the Borrower's officers, employees. and
salespersons with respect to reasonable expenses to be incurred by such
officers, employees, and salespersons for the benefit of the Borrower, which
expenses are properly substantiated by the person seeking such advance and
properly reimbursable by the Borrower.
-22-
5-19. Protection of Assets. The Lender, in the Lender's discretion, and
--------------------
from time to time, may discharge any tax or Encumbrance on any of the
Collateral, or take any other action that the Lender may deem necessary or
desirable to repair, insure, maintain, preserve, collect, or realize upon any of
the Collateral. The Lender shall not have any obligation to undertake any of the
foregoing and shall have no liability on account of any action so undertaken
except where there is a specific finding in a judicial proceeding (in which the
Lender has had an opportunity to be heard), from which finding no further appeal
is available, that the Lender had acted in actual bad faith or in a grossly
negligent manner. The Borrower shall pay to the Lender, on demand, or the
Lender, in its discretion, may add to the Loan Account, all amounts paid or
incurred by the Lender pursuant to this section. The obligation of the Borrower
to pay such amounts is a Liability.
5-20. Line of Business. The Borrower shall not engage in any business
----------------
other than the business in which it is currently engaged or a business
reasonably related thereto.
5-21. Affiliate Transactions. The Borrower shall not make any payment, nor
----------------------
give any value to any Related Entity except for goods and services actually
purchased by the Borrower from, or sold by the Borrower to, such Related Entity
for a price which shall:
(a) Be competitive and fully deductible as an "ordinary and
necessary business expense" and/or fully depreciable under the Internal Revenue
Code of 1986 and the Treasury Regulations, each as amended.
(b) Not differ from that which would have been charged in an arms
length transaction.
5-22. Executive Pay.
-------------
(a) The only Executive Officers of the Borrower. at the execution
of the within Agreement, are those individuals referenced in the definition of
"Executive Officers".
(b) Prior to the execution of the within Agreement, the Borrower
furnished the Lender with copies of all written Executive Agreements and
outlines of the salient features of all unwritten Executive Agreements (as
amended to date) then extant. There are no unwritten agreements or
understandings between the Borrower and any Executive Officer which relate to
Executive Pay, written disclosure of which has not been made to the Lender.
(c) The Borrower will not:
(i) Enter into any Executive Agreement not existing at the
execution of the within Agreement.
(ii) Alter, amend, supplement, or otherwise change any
Executive Agreement.
-23-
(iii) Pay, provide, or facilitate any Executive Pay other
than as provided in an Executive Agreement or, if not covered by an Executive
Agreement, as permitted pursuant to Section 5-21, above.
5-23. Additional Assurances.
---------------------
(a) The Borrower is not the owner of, nor has it any interest in,
any property or asset which, immediately upon the satisfaction of the conditions
precedent to the effectiveness of the credit facility contemplated hereby
(Article 4) will be not be subject to a perfected security interest in favor of
the Lender (subject only to those Encumbrances (if any) described on EXHIBIT
5-5, annexed hereto) to secure the Liabilities.
(b) The Borrower will not hereafter acquire any asset or any
interest in property which is not, immediately upon such acquisition, subject to
such a perfected security interest in favor of the Lender to secure the
Liabilities (subject only to Encumbrances (if any) permitted pursuant to Section
5-5. above).
(c) The Borrower shall execute and deliver to the Lender such
instruments, documents, and papers, and shall do all such things from time to
time hereafter as the Lender may request to carry into effect the provisions and
intent of this Agreement; to protect and perfect the Lender's security interests
in the Collateral; and to comply with all applicable statutes and laws, and
facilitate the collection of the Receivables Collateral. The Borrower shall
execute all such instruments as may be required by the Lender with respect to
the recordation and/or perfection of the security interests created herein.
(d) A carbon, photographic, or other reproduction of this
Agreement or of any financing statement or other instrument executed pursuant to
this Section 5-23 shall be sufficient for filing to perfect the security
interests granted herein.
5-24. Adequacy of Disclosure.
----------------------
(a) All financial statements furnished to the Lender by the
Borrower have been prepared in accordance with GAAP consistently applied and
present fairly the condition of the Borrower at the date(s) thereof and the
results of operations and cash flows for the period(s) covered. There has been
no change in the financial condition, results of operations, or cash flows of
the Borrower since the date(s) of such financial statements, other than changes
in the ordinary course of business, which changes have not been materially
adverse, either singularly or in the aggregate.
(b) The Borrower does not have any contingent obligations or
obligation under any Lease or capital lease which is not noted in the Borrower's
financial statements furnished to the Lender prior to the execution of the
within Agreement.
-24-
(c) No document, instrument, agreement, or paper now or
hereafter given the Lender by or on behalf of the Borrower or any guarantor of
the Liabilities in connection with the execution of the within Agreement by the
Lender contains or will contain any untrue statement of a material fact or omits
or will omit to state a material fact necessary in order to make the statements
therein not misleading. There is no fact known to the Borrower which has, or
which, in the foreseeable future could have, a material adverse effect on the
financial condition of the Borrower or any such guarantor which has not been
disclosed in writing to the Lender.
5-25. Other Covenants. The Borrower shall not indirectly do or cause to be
---------------
done any act which, if done directly by the Borrower, would breach any covenant
contained in this Agreement.
ARTICLE 6-USE AND COLLECTION OF COLLATERAL.
------------------------------------------
6-1. Use of Inventory Collateral.
---------------------------
(a) The Borrower shall not engage in any sale of the Inventory
other than for fair consideration in the conduct of the Borrower's business in
the ordinary course and shall not engage in sales or other dispositions to
creditors; sales or other dispositions in bulk; and any use of any of the
Inventory in breach of any provision of this Agreement.
(b) No sale of Inventory shall be on consignment. approval, or
under any other circumstances such that, with the exception of the Borrower's
customary return policy applicable to the return of inventory purchased by the
Borrower's retail customers in the ordinary course, such Inventory may be
returned to the Borrower without the consent of the Lender.
6-2. Inventory Quality. All Inventory now owned or hereafter acquired by
-----------------
the Borrower is and will be of good and merchantable quality and free from
defects (other than defects within customary trade tolerances).
6-3. Adjustments and Allowances. The Borrower may grant such allowances
--------------------------
or other adjustments to the Borrower's Account Debtors (exclusive of extending
the time for payment of any Account or Account Receivable, which shall not be
done without first obtaining the Lender's prior written consent in each
instance) as the Borrower may reasonably deem to accord with sound business
practice, provided, however, the authority granted the Borrower pursuant to this
Section 6-3 may be limited or terminated by the Lender at any time in the
Lender's discretion.
6-4. Validity of Accounts.
--------------------
(a) The amount of each Account shown on the books, records, and
invoices of the Borrower represented as owing by each Account Debtor is and will
be the correct amount actually owing by such Account Debtor and shall have been
fully earned by performance by the Borrower.
-25-
(b) The Borrower has no knowledge of any impairment of the
validity or collectibility of any of the Accounts and shall notify the Lender of
any such fact immediately after Borrower becomes aware of any such impairment.
(c) The Borrower shall not post any bond to secure the Borrower's
performance under any agreement to which the Borrower is a party nor cause any
surety, guarantor, or other third party obligee to become liable to perform any
obligation of the Borrower (other than to the Lender) in the event of the
Borrower's failure so to perform.
6-5. Notification to Account Debtors. The Lender shall have the right at
-------------------------------
any time (whether or not an Event of Default has occurred) to notify any of the
Borrower's Account Debtors to make payment directly to the Lender and to collect
all amounts due on account of the Collateral.
ARTICLE 7 - CASH MANAGEMENT
---------------------------
7-1. Depository Accounts.
-------------------
(a) Annexed hereto as EXHIBIT 7-1 is a Schedule of all present
DDA's, which Schedule includes, with respect to each depository (i) the name and
address of that depository; (ii) the account number(s) of the account(s)
maintained with such depository; (iii) a contact person at such depository; and
(iv) the telephone number of the contact person.
(b) The Borrower shall deliver to the Lender, as a condition to
the effectiveness of the within Agreement:
(i) Proof of the mailing, to each depository institution
with which any DDA is maintained (other than the Funding Account or any Local
DDA) of notification (in form satisfactory to the Lender) of the Lender's
interest in such DDA.
(ii) An agreement (in form satisfactory to the Lender) with
any depository institution at which a Central Account is maintained.
(c) The Borrower will not establish any DDA hereafter (other than
a Local DDA) unless the Borrower, contemporaneous with such establishment, the
Borrower delivers to the Lender an agreement (in form satisfactory to the
Lender) executed on behalf of the depository with which such DDA is being
established.
7-2. Credit Card Receipts.
--------------------
(a) Annexed hereto as EXHIBIT 7-2, is a Schedule which describes
all arrangements to which the Borrower is a party with respect to the payment to
the Borrower of the proceeds of all credit card charges for sales by the
Borrower.
-26-
(b) The Borrower shall deliver to the Lender, as a condition to the
effectiveness of the within Agreement, proof of the mailing to each of the
Borrower's credit card clearinghouses and processors of notice (in form
satisfactory to the Lender), which notice provides that payment of all credit
card charges submitted by the Borrower to that clearinghouse or other processor
and any other amount payable to the Borrower by such clearinghouse or other
processor shall be directed to the Central Account. The Borrower shall not
change such direction or designation except upon and with the prior written
consent of the Lender.
7-3. The Concentration and the Funding Accounts.
------------------------------------------
(a) The following checking accounts have been or will be established
(and are so referred to herein):
(i) The Concentration Account: Established by the Lender with
The Chase Manhattan Bank, N.A.
(ii) The Funding Account: Established by the Borrower with
American National Bank and Trust Company of Chicago.
(iii) The Central Account: Established by the Borrower with
American National Bank and Trust Company of Chicago.
(b) The contents of the Central Account constitutes Collateral and
Proceeds of Collateral.
(c) The Borrower:
(i) Contemporaneous with the execution of the within
Agreement, shall provide the Lender with such agreement of the depository with
which the Central Account is maintained as may be satisfactory to the Lender.
(ii) Shall not establish any Central Account hereafter except
upon not less than thirty (30) days prior written notice to the Lender and the
delivery to the Lender of a similar such agreement.
(d) The Borrower shall pay all fees and charges of, and maintain
such impressed balances as may be required by the Lender or by any bank in which
any account is opened as required hereby (even if such account is opened by the
Lender).
-27-
7-4. Proceeds and Collection of Accounts.
-----------------------------------
(a) All Receipts constitute Collateral and proceeds of Collateral and
shall be held in trust by the Borrower for the Lender; shall not be commingled
with any of the Borrower's other funds; and shall be deposited and/or
transferred only to the Central Account.
(b) The Borrower shall cause the ACH or wire transfer to the Central
Account, no less frequently than daily (and whether or not there is then an
outstanding balance in the Loan Account) of:
(i) The then contents of each DDA (other than (A) any Local
DDA and (B) the Funding Account), each such transfer to be net of any minimum
balance, not to exceed Seven Hundred Fifty ($750.00) Dollars, as may be required
to be maintained in the subject DDA by the bank at which such DDA is
maintained).
(ii) The proceeds of all credit card charges not otherwise
provided for pursuant hereto.
Telephone advice (confirmed by written notice) shall be provided to the Lender
on each Banking Day on which any such transfer is made.
(c) Whether or not any Liabilities are then outstanding, the Borrower
shall cause the ACH or wire transfer to the Concentration Account, no less
frequently that daily, of then entire collected balance of the Central Account.
(d) In the event that, notwithstanding the provisions of this Section
7-4, the Borrower receives or otherwise has dominion and control of any
Receipts, or any proceeds or collections of any Collateral, such Receipts,
proceeds, and collections shall be held in trust by the Borrower for the Lender
and shall not be commingled with any of the Borrower's other funds or deposited
in any account of the Borrower other than as instructed by the Lender.
7-5. Payment of Liabilities.
----------------------
(a) On each Banking Day, the Lender shall apply, towards the
Liabilities, the then collected balance of the Concentration Account (net of
fees charged, and of such impressed balances as may be required by the bank at
which the Concentration Account is maintained), provided, however, for purposes
of the calculation of interest on the unpaid principal balance of the Loan
Account, such payment shall be deemed to have been made one (1) Banking Day
after such transfer.
(b) The Lender shall transfer to the Funding Account any surplus in
the Concentration Account remaining after the application towards the
Liabilities referred to in Section 7-5(a), above (less those amount which are to
be netted out, as provided therein) provided, however, in the event that both
(i) a Suspension Event has occurred and (ii) one or more L/C's are then
-28-
outstanding, the Lender may establish a funded reserve of up to one hundred ten
(110%) percent of the aggregate Stated Amounts of such L/C's.
7-6. The Funding Account. Except as otherwise specifically provided in, or
-------------------
permitted by, the within Agreement, all checks shall be drawn by the Borrower
upon, and other disbursements made by the Borrower solely from, the Funding
Account.
ARTICLE 8 - LENDER AS BORROWER'S ATTORNEY-IN-FACT
-------------------------------------------------
8-1. Appointment as Attorney-In-Fact. Upon the occurrence of a Suspension
-------------------------------
Event or an Event of Default, the Borrower hereby irrevocably constitutes and
appoints the Lender as the Borrower's true and lawful attorney, with full power
of substitution, to convert the Collateral into cash at the sole risk, cost, and
expense of the Borrower, but for the sole benefit of the Lender. The rights and
powers granted the Lender by the within appointment include but are not limited
to the right and power to:
(a) Prosecute, defend, compromise, or release any action relating to
the Collateral.
(b) Sign change of address forms to change the address to which the
Borrower's mail is to be sent to such address as the Lender shall designate;
receive and open the Borrower's mail; remove any Receivables Collateral and
Proceeds of Collateral therefrom and turn over the balance of such mail either
to the Borrower or to any trustee in bankruptcy, receiver, assignee for the
benefit of creditors of the Borrower, or other legal representative of the
Borrower whom the Lender determines to be the appropriate person to whom to so
turn over such mail.
(c) Endorse the name of the Borrower in favor of the Lender upon any
and all checks, drafts, notes, acceptances, or other items or instruments; sign
and endorse the name of the Borrower on, and receive as secured party, any of
the Collateral, any invoices, schedules of Collateral, freight or express
receipts, or bills of lading, storage receipts, warehouse receipts, or other
documents of title respectively relating to the Collateral.
(d) Sign the name of the Borrower on any notice to the Borrower's
Account Debtors or verification of the Receivables Collateral; sign the
Borrower's name on any Proof of Claim in Bankruptcy against Account Debtors, and
on notices of lien, claims of mechanic's liens, or assignments or releases of
mechanic's liens securing the Accounts.
(e) Take all such action as may be necessary to obtain the payment of
any letter of credit and/or banker's acceptance of which the Borrower is a
beneficiary.
(f) Repair, manufacture, assemble, complete, package, deliver, alter
or supply goods, if any, necessary to fulfill in whole or in part the purchase
order of any customer of the Borrower.
-29-
(g) Use, license or transfer any or all General Intangibles o{the
Borrower.
(h) Sign and file or record any financing or other statements in
order to perfect or protect the Lender's security interest in the Collateral.
8-2. No Obligation to Act. The Lender shall not be obligated to do any of
--------------------
the acts or to exercise any of the powers authorized by Section S-1 herein, but
if the Lender elects to do any such act or to exercise any of such powers, it
shall not be accountable for more than it actually receives as a result of such
exercise of power, and shall not be responsible to the Borrower for any act or
omission to not except for any act or omission to act as to which there is a
final determination made in a judicial proceeding (in which proceeding the
Lender has had an opportunity to be heard) which determination includes a
specific finding that the subject act or omission to act had been grossly
negligent or in actual bad faith.
ARTICLE 9 - FINANCIAL AND OTHER REPORTING REQUIREMENTS/FINANCIAL COVENANTS
--------------------------------------------------------------------------
9-1. Maintain Records. The Borrower shall:
----------------
(a) At all times, keep proper books of account, in which full, true,
and accurate entries shall be made of all of the Borrower's transactions, all in
accordance with GAAP applied consistently with prior periods to fairly reflect
the financial condition of the Borrower at the close of, and its results of
operations for, the periods in question.
(b) Timely provide the Lender with those financial reports,
statements, and schedules required by this Article 9 or otherwise, each of which
reports, statements and schedules shall be prepared, to the extent applicable,
in accordance with GAAP applied consistently with prior periods to fairly
reflect the financial condition of the Borrower at the close of, and its results
of operations for, the period(s) covered therein.
(c) At all times, keep accurate current records of the Collateral
including, without limitation, accurate current stock, cost, and sales records
of its Inventory, accurately and sufficiently itemizing and describing the
kinds, types, and quantities of Inventory and the cost and selling prices
thereof.
(d) At all times, retain independent certified public accountants who
are reasonably satisfactory to the Lender and instruct such accountants to fully
cooperate with, and be available to, the Lender to discuss the Borrower's
financial performance, financial condition, operating results, controls, and
such other matters, within the scope of the retention of such accountants, as
may be raised by the Lender.
(e) Not change the Borrower's fiscal year.
-30-
(f) Not change the Borrower's taxpayer identification number.
9-2. Access to Records.
-----------------
(a) The Borrower shall accord the Lender and the Lender's
representatives with access from time to time as the Lender and such
representatives may require to all properties owned by or over which the
Borrower has control. The Lender and the Lender's representatives shall have the
right, and the Borrower will permit the Lender and such representatives from
time to time as the Lender and such representatives may request, to examine,
inspect, copy, and make extracts from any and all of the Borrower's books,
records, electronically stored data, papers, and files. The Borrower shall make
all of the Borrower's copying facilities available to the Lender.
(b) The Borrower hereby authorizes the Lender and the Lender's
representatives to:
(i) Inspect, copy, duplicate, review, cause to be reduced to
hard copy, run off, draw off, and otherwise use any and all computer or
electronically stored information or data which relates to the Borrower, or any
service bureau, contractor, accountant, or other person, and directs any such
service bureau, contractor, accountant, or other person fully to cooperate with
the Lender and the Lender's representatives with respect thereto.
(ii) Verify at any time the Collateral or any portion thereof,
including verification with Account Debtors, and/or with the Borrower's computer
billing companies, collection agencies, and accountants and to sign the name of
the Borrower on any notice to the Borrower's Account Debtors or verification of
the Collateral.
9-3. Immediate Notice to Lender.
--------------------------
(a) The Borrower shall provide the Lender with written notice
immediately upon the occurrence of any of the following events, which written
notice shall be with reasonable particularity as to the facts and circumstances
in respect of which such notice is being given:
(i) Any change in the Borrower's Executive Officers, officers,
directors, controllers or key employees.
(ii) The completion of any physical count of the Borrower's
Inventory (together with a copy of the certified results thereof).
(iii) Any ceasing of the Borrower's making of payment, in the
ordinary course, to any of its creditors including the ceasing of the making of
such payments on account of a dispute with the subject creditor).
-31-
(iv) Any failure by the Borrower to pay rent at any of the
Borrower's locations, which failure continues for more than three (3) days
following the day on which such rent first came due. If Borrower has any dispute
with any Landlord with respect to rent payable or other matters, Borrower shall
give Paragon written notice of said dispute.
(v) Any material change in the business, operations, or
financial affairs of the Borrower.
(vi) The occurrence of any Suspension Event.
(vii) Any intention on the part of the Borrower to discharge the
Borrower's present independent accountants or any withdrawal or resignation by
such independent accountants from their acting in such capacity (as to which,
see Subsection 9-1(d)).
(viii) Any litigation which, if determined adversely to the
Borrower, might have a material adverse effect on the financial condition of the
Borrower.
(b) The Borrower shall:
(i) Provide the Lender, when so distributed, with copies of
any materials distributed to the shareholders of the Borrower (qua such
shareholders).
(ii) Add the Lender as an addressee on all mailing lists
maintained by or for the Borrower.
(iii) At the request of the Lender, from time to time, provide
the Lender with copies of all advertising (including copies of all print
advertising and duplicate tapes of all video and radio such advertising).
(iv) Provide the Lender, when received by the Borrower, with a
copy of any management letter or similar communications from any accountant of
the Borrower.
9-4. Borrowing Base Certificate. The Borrower shall provide the Lender,
--------------------------
daily, with a Borrowing Base Certificate (in the form of EXHIBIT 9.4 annexed
hereto, as such form may be revised from time to time by the Lender). Such
Certificate may be sent to the Lender by facsimile transmission, provided that
the original thereof is forwarded to the Lender on the date of such
transmission. Such Certificate must include back up support of inventory.
9-5. Weekly Reports. Weekly, on Friday of each week (as of the then
--------------
immediately preceding fiscal week) the Borrower shall provide the Lender with a
Sales Audit Report and Cash Reconciliation (Borrower format acceptable), a Flash
Sales Report by Department (Borrower format acceptable), and a Collateral
Activity Summary (including a roll forward" of Inventory). Such
-32-
report may be sent to the Lender by facsimile transmission, provided that the
original thereof is forwarded to the Lender on the date of such transmission.
9-6. Monthly Reports.
---------------
(a) Monthly, the Borrower shall provide the Lender with original
counterparts of (each in such form as the Lender from time to time may specify):
(i) Within Fifteen (15) days of the end of the previous month:
(A) Consigned Inventory Report by Vendor.
(B) Retail Inventory Report by entity, by department
(Green, Seasonal and Dry)
(C) Rent, Tax and Insurance Compliance Form
(D) Inventory Certificate (Paragon Format)
(ii) Within Thirty (30) days of the end of the previous month:
(A) A Statement of Gross Margin (Paragon Format).
(B) Reconciliation of Inventory to the general ledger as of
the end of the subject month (Paragon Format).
(C) An aging of the Borrower's accounts payable.
(D) An internally prepared financial statement of the
Borrower's financial condition at, and the results of its
operations for the period ending with the end of the subject
month, which financial statement shall include, at a minimum, a
balance sheet, income statement (on a store specific and on a
"consolidated" basis), cash flow and comparison of same store
sales for the corresponding month of the then immediately
previous year, as well as to the Business Plan.
(E) A statement of Store Activity (Paragon format).
(b) For purposes of Section 9-6(a)(i), above, the first "previous month" in
respect of which the items required by that Section shall be provided shall be
November, 1997 and for purposes of Section 9-6(a)(ii), above, the first
"previous month" in respect of which the items required by that Section shall be
provided shall be November, l997.
-33-
9-7. Quarterly Reports. Quarterly, within Forty Five (45) days following
-----------------
the end of each of the Borrower's fiscal quarters, the Borrower shall provide
the Lender with an original counterpart of a management prepared financial
statement of the Borrower for the period from the beginning of the Borrower's
then current fiscal year through the end of the subject quarter, with
comparative information for the same period of the previous fiscal year, which
statement shall include, at a minimum, a balance sheet, income statement (on a
store specific and on a "consolidated" basis), statement of changes in
shareholders' equity, and cash flows and comparisons for the corresponding
quarter of the then immediately previous year, as well as to the Business Plan.
Borrower shall also provide to Lender a copy of Borrower's 10Q Report within
forty five (45) days of the end of each quarter.
9-8. Annual Reports.
--------------
(a) Annually, within ninety (90) days following the end of the
Borrower's fiscal year, the Borrower shall furnish the Lender with an original
signed counterpart of the Borrower's annual financial statement which statement
shall have been prepared by, and bearing the unqualified opinion of the
Borrower's independent certified public accountants (i.e. said statement shall
be "certified" by such accountants). Such annual statement shall include, at a
minimum (with comparative information for the then prior fiscal year) a balance
sheet, income statement, statement of changes in shareholders' equity, and cash
flows. Borrower shall also provide to Lender a copy of Borrower's 10K report
within ninety (90) days of the end of Borrower's fiscal year. Borrower's audited
financial statements for its fiscal year ending June l997 shall be delivered to
Lender within forty five days (45) of the execution of this Agreement.
(b) Each annual statement shall be accompanied by such accountant's
Certificate indicating that to the best knowledge of such accountant, no event
has occurred which is or which, solely with the passage of time or the giving of
notice (or both) would be, an Event of Default.
9-9. Officers' Certificates. The Borrower shall cause the Borrower's
----------------------
President and Chief Financial Officer respectively to provide such Person's
Certificate with those monthly, quarterly, and annual statements to be furnished
pursuant to this Agreement, which Certificate shall:
(a) Indicate that the subject statement was prepared in accordance
with GAAP consistently applied, and presents fairly the financial condition of
the Borrower at the close of and the results of the Borrower's operations and
cash flows for, the period(s) covered, subject, however (with the exception of
the Certificate which accompanies such annual statement) to usual year end
adjustments.
(b) Indicate either that (i) no Suspension Event has occurred or (ii)
if such an event has occurred, its nature (in reasonable detail) and the steps
(if any) being taken or contemplated by the Borrower to be taken on account
thereof.
-34-
(c) Include calculations concerning the Borrower's compliance (or
failure to comply) at the date of the subject statement with each of the
financial performance covenants included in Section 9-12, below.
(d) Indicate that all taxes (broken down by type and taxing
authority) have or have not been paid.
(e) Indicate that all rent and additional rent broken down by store
location) due pursuant to any store lease have or have not been paid.
9-10. Inventories, Appraisals, and Audits.
-----------------------------------
(a) The Lender, at the expense of the Borrower, may participate in
and/or observe each physical count and/or inventory of so much of the Collateral
as consists of Inventory which is undertaken on behalf of the Borrower.
(b) Upon the Lender's request from time to time, the Borrower shall
obtain, or shall permit the Lender to obtain (in all events, at the Borrower's
expense) physical counts and/or inventories of the Collateral, conducted by such
inventory takers as are satisfactory to the Lender and following such
methodology as may be required by the Lender, each of which physical counts
and/or inventories shall be observed by the Borrower's accountants. The Lender
will require the Borrower to conduct two (2) such counts and/or inventories
during each twelve (12) month period during which the within Agreement is in
effect, but in its discretion, may undertake additional such counts or
inventories during such period.
(c) Upon the Lender's request from time to time, the Borrower shall
permit the Lender to obtain appraisals (in all events, at the Borrower's
expense) conducted by such appraisers as are satisfactory to the Lender.
(d) The Lender contemplates conducting three (3) commercial finance
audits (in each event, at the Borrower's expense) of the Borrower's books and
records during any Twelve (12) month period during which the within Agreement is
in effect, but in its discretion, may undertake additional such audits during
such period. Absent a Suspension Event or Default, Lender agrees that audit
charges payable by the Borrower will not exceed $13,750.00 per year plus
expenses.
(e) The Lender from time to time (in all events, at the Borrower's
expense) may undertake "mystery shopping" (so-called) visits to all or any of
the Borrower's business premises. The Lender shall provide the Borrower with a
copy of any non-company confidential results of such mystery shopping.
9-l1. Additional Financial Information.
--------------------------------
(a) In addition to all other information required to be provided
pursuant to this Article 9, the Borrower promptly shall provide the Lender with
such other and additional
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information concerning the Borrower and any guarantor of the Liabilities, the
Collateral, the operation of the Borrower's business, and the Borrower's
financial condition, including original counterparts of financial reports and
statements, as the Lender may from time to time request from the Borrower.
(b) The Borrower may provide the Lender, from time to time
hereafter, with updated Business Plans. In all events, the Borrower, no sooner
than ninety (90) nor later than sixty (60) days prior to the end of each of the
Borrower's fiscal years, shall furnish the Lender with an updated and extended
Business Plan which shall go out at least through the end of the then next
fiscal year. In each event, such updated and extended Business Plans shall be
prepared pursuant to a methodology and shall include such assumptions as are
satisfactory to the Lender. The Lender, following the receipt of any of such
Business Plans, may, but shall not be under any obligation to, revise the
financial performance covenants included on EXHIBIT 9-12, annexed hereto.
9-12. Financial Performance Covenants. The Borrower shall observe and
-------------------------------
comply with those financial performance covenants set forth on EXHIBIT 9-12(a),
annexed hereto, certain of which covenants are based on the Business Plan set
forth on EXHIBIT 9-12(b), annexed hereto.
9-13. Electronic Reporting. At Lender's option all information and reports
--------------------
required to be substituted to Lender by Borrower shall be transmitted
electronically pursuant to an electronic transmitting reporting system and shall
be in a record layout format designated by Lender from time to time.
ARTICLE 10 - EVENTS OF DEFAULT
------------------------------
The occurrence of any event described in this Article 10 respectively shall
constitute an "Event of Default" herein. Upon the occurrence of any Event of
Default described in Section 10-11, any and all Liabilities shall become due and
payable without any further act on the part of the Lender. Upon the occurrence
of any other Event of Default, any and all Liabilities shall become immediately
due and payable, at the option of the Lender and without notice or demand. The
occurrence of any Event of Default shall also constitute, without notice or
demand, a default under all other agreements between the Lender and the Borrower
and instruments and papers given the Lender by the Borrower, whether such
agreements, instruments, or papers now exist or hereafter arise
10-1. Failure to Pay Revolving Credit. The failure by the Borrower to pay
-------------------------------
any amount when due under the Revolving Credit.
10-2. Failure To Make Other Payments. The failure by the Borrower to pay
------------------------------
when due (or upon demand, if payable on demand) any payment Liability other than
under the Revolving Credit.
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10-3. Failure to Perform Covenant or Liability (No Grace Period). The
----------------------------------------------------------
failure by the Borrower to promptly, punctually, faithfully and timely perform,
discharge, or comply with any covenant or Liability not otherwise described in
section 10-1 or section 10-2, above, and included in any of the following
provisions hereof:
Section Relates to:
------- ----------
5-4(a) and (b) Location of Collateral
5-5 Title to Assets
5-6 Indebtedness
5-7(b) Insurance Policies
5-12(d) Pay Taxes
5-21 Affiliate Transactions
5-23 Additional Assurances
Article 7 Cash Management
Article 9 Financial Reporting Requirements and Financial Covenants
10-4. Failure to Perform Covenant or Liability (Grace Period). The failure
-------------------------------------------------------
by the Borrower to promptly, punctually and faithfully perform, or observe any
term, covenant or agreement on its part to be performed or observed pursuant to
any of the provisions of this Agreement, other than those described in Sections
10-1, 10-2 or 10-3, or in any other agreement with Lender which is not remedied
within the earlier of fifteen (15) days after (i) notice thereof by Lender to
Borrower, or (ii) the date Borrower was required to give notice to Lender
pursuant to Section 9-3(a)(vi) hereof.
10-5. Misrepresentation. The determination by the Lender that any
-----------------
representation or warranty at any time made by the Borrower to the Lender, was
not true or complete in all material respects when given.
10-6. Acceleration of Other Debt, Breach of Lease. Other than as disclosed
-------------------------------------------
on Exhibits 5-4 and 5-16 the occurrence of any event such that any Indebtedness
in excess of the aggregate of $100,000 of the Borrower to any creditors other
than the Lender could be accelerated or, without the consent of the Borrower,
any Lease could be terminated (whether or not the subject creditor or lessor
takes any action on account of such occurrence).
10-7. Default Under Other Agreements. The occurrence of any breach or
------------------------------
default under any agreement between the Lender and the Borrower or instrument or
paper given the Lender by the Borrower, whether such agreement, instrument, or
paper now exists or hereafter arises (notwithstanding that the Lender may not
have exercised its rights upon default under any such other agreement,
instrument or paper).
10-8. Casualty Loss, Non-Ordinary Course Sales. The occurrence of any (a)
----------------------------------------
uninsured loss, theft, damage, or destruction of or to any material portion of
the Collateral in excess of $l00,000.00, or (b) sale (other than sales in the
ordinary course of business) of any material portion of the
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Collateral in excess of the aggregate of $100,000.00 in any year without
Lender's prior written consent.
10-9. Judgment, Restraint of Business.
-------------------------------
(a) The service of process upon the Lender or any Participant
seeking to attach, by trustee, mesne, or other process, any of the Borrower's
funds on deposit with, or assets of the Borrower in the possession of; the
Lender or such Participant.
(b) The entry of any judgment against the Borrower, which
judgment is not satisfied (if a money judgment) or appealed from (with execution
or similar process stayed) within thirty (30) days of its entry.
(c) The entry of any order or the imposition of any other process
having the force of law, the effect of which is to restrain in any material way
the conduct by the Borrower of its business in the ordinary course.
10-10. Business Failure. Any act by, against, or relating to the
----------------
Borrower, or its property, or assets, which act constitutes the application for,
consent to, or sufferance of the appointment of a receiver, trustee, or other
person, pursuant to court action or otherwise, over all, or any part of the
Borrower's property; the granting of any trust mortgage or execution of an
assignment for the benefit of the creditors of the Borrower, or the occurrence
of any other voluntary or involuntary liquidation or extension of debt agreement
for the Borrower; or the offering by or entering into by the Borrower of any
composition, extension, or any other arrangement seeking relief from or
extension of the debts of the Borrower, or the initiation of any other judicial
or non-judicial proceeding or agreement by, against, or including the Borrower
which seeks or intends to accomplish a reorganization or arrangement with
creditors.
10-11. Bankruptcy. The failure by the Borrower to generally pay the debts
----------
of the Borrower as they mature; the filing of any complaint, application, or
petition by or against the Borrower initiating any matter in which the Borrower
is or may be granted any relief from the debts of the Borrower pursuant to the
Bankruptcy Code or any other insolvency statute or procedure.
10-12. Insecurity. The occurrence of any event or circumstance with
----------
respect to the Borrower such that Lender shall believe in good faith that the
prospect of payment of all or any part of the Liabilities or the performance by
the Borrower under this Agreement or any other agreement between the Lender and
the Borrower is impaired or there shall occur any material adverse change in the
business or financial condition of the Borrower.
10-13. Prepayment or Default by Guarantor or Related Entity. The
----------------------------------------------------
prepayment by a Related Entity or Guarantor of its Liabilities to Lender or the
occurrence of any of the foregoing Events of Default with respect to any
guarantor of the Liabilities, or the occurrence of any of the foregoing
-38-
Events of Default with respect to any parent (if the Borrower is a corporation),
subsidiary, or Related Entity, as if such guarantor, parent, or Related Entity
were the "Borrower" described therein.
10-14. Indictment - Forfeiture. The indictment of, or institution of any
-----------------------
legal process or proceeding against, the Borrower, any Executive Officer or any
guarantor of the Liabilities under any federal, state, municipal, and other
civil or criminal statutem, rule, regulation, order, or other requirement having
the force of law where the relief, penalties, or remedies sought or available
include the forfeiture of any property of the Borrower and/or the imposition of
any stay or other order, the effect of which could be to restrain in any
material way the conduct by the Borrower of its business in the ordinary course.
10-15. Termination of Guaranty. The termination or attempted termination
-----------------------
of any guaranty by any guarantor of the Liabilities.
10-16. Challenge to Loan Documents.
---------------------------
(a) Any challenge by or on behalf of the Borrower or any
guarantor of the Liabilities to the validity of any Loan Document or the
applicability or enforceability of any Loan Document strictly in accordance with
the subject Loan Document's terms or which seeks to void, avoid, limit, or
otherwise adversely affect any security interest created by or in any Loan
Document or any payment made pursuant thereto.
(b) Any determination by any court or any other judicial or
government authority that any Loan Document is not enforceable strictly in
accordance with the subject Loan Document's terms or which voids, avoids,
limits, or otherwise adversely affects any security interest created by any Loan
Document or any payment made pursuant thereto.
10-17. Executive Management. The death, disability, or failure of any
--------------------
Executive Officer at any time to exercise that authority and discharge those
management responsibilities with respect to the Borrower as are exercised and
discharged by such Person at the execution of the within Agreement.
10-18. Change in Control. Any change in the ownership of the capital stock
-----------------
of the Borrower such that ▇▇▇▇▇▇▇ ▇▇▇▇▇ does not Control at least 30% of the
Borrower and maintain any seat on the Board of Directors.
ARTICLE 11 - RIGHTS AND REMEDIES UPON DEFAULT
---------------------------------------------
In addition to all of the rights, remedies, powers, privileges, and
discretions which the Lender is provided prior to the occurrence of an Event of
Default, the Lender shall have the following rights and remedies upon the
occurrence of any Event of Default and at any time thereafter. No stay which
otherwise might be imposed pursuant to the Bankruptcy Code or otherwise shall
stay, limit prevent, hinder, delay, restrict, or otherwise prevent the Lender's
exercise of any of such rights and remedies.
-39-
11-1. Rights of Enforcement. The Lender shall have all of the rights and
---------------------
remedies of a secured party upon default under the UCC, in addition to which the
Lender shall have all and each of the following rights and remedies:
(a) To collect the Receivables Collateral, with or without the
taking of possession of any of the Collateral.
(b) To take possession of all or any portion of the Collateral.
(c) To sell, lease, or otherwise dispose of any or all of the
Collateral, in its then condition or following such preparation or processing as
the Lender deems advisable and with or without the taking of possession of any
of the Collateral.
(d) To conduct one or more going out of business sales which
include the sale or other disposition of the Collateral.
(e) To apply the Receivables Collateral or the proceeds of the
Collateral towards (but not necessarily in complete satisfaction of) the
Liabilities.
(f) To exercise all or any of the rights, remedies, powers,
privileges, and discretions under all or any of the Loan Documents.
11-2. Sale of Collateral.
------------------
(a) Any sale or other disposition of the Collateral may be at
public or private sale upon such terms and in such manner as the Lender deems
advisable, having due regard to compliance with any statute or regulation which
might affect, limit, or apply to the Lender's disposition of the Collateral.
(b) The Lender, in the exercise of the Lender's rights and
remedies upon default, may conduct one or more going out of business sales, in
the Lender's own right or by one or more agents and contractors. Such sale(s)
may be conducted upon any premises owned, leased, or occupied by the Borrower.
The Lender and any such agent or contractor, in conjunction with any such sale,
may augment the Inventory with other goods (all of which other goods shall
remain the sole property of the Lender or such agent or contractor). Any amounts
realized from the sale of such goods which constitute augmentations to the
Inventory (net of an allocable share of the costs and expenses incurred in their
disposition) shall be the sole property of the Lender or such agent or
contractor and neither the Borrower nor any Person claiming under or in right of
the Borrower shall have any interest therein.
(c) Unless the Collateral is perishable or threatens to decline
speedily in value, or is of a type customarily sold on a recognized market (in
which event the Lender shall provide the Borrower with such notice as may be
practicable under the circumstances), the Lender shall give the
-40-
Borrower at least five (5) days prior written notice of the date, time, and
place of any proposed public sale, and of the date after which any private sale
or other disposition of the Collateral may be made. The Borrower agrees that
such written notice shall satisfy all requirements for notice to the Borrower
which are imposed under the UCC or other applicable law with respect to the
exercise of the Lender's rights and remedies upon default.
(d) The Lender may purchase the Collateral, or any portion of it
at any sale held under this Article.
(e) The Lender shall apply the proceeds of any exercise of the
Lender's Rights and Remedies under this Article 11 towards the Liabilities in
such manner, and with such frequency, as the Lender determines.
11-3. Occupation of Business Location. In connection with the Lender's
------------------------------
exercise of the Lender's rights under this Article 11, the Lender may enter
upon, occupy, and use any premises owned or occupied by the Borrower, and may
exclude the Borrower from such premises or portion thereof as may have been so
entered upon, occupied, or used by the Lender. The Lender shall not be required
to remove any of the Collateral from any such premises upon the Lender's taking
possession thereof, and may render any Collateral unusable to the Borrower. In
no event shall the Lender be liable to the Borrower for use or occupancy by the
Lender of any premises pursuant to this Article 11, nor for any charge (such as
wages for the Borrower's employees and utilities) incurred in connection with
the Lender's exercise of the Lender's Rights and Remedies.
11-4. Grant of Nonexclusive License. The Borrower hereby grants to the
-----------------------------
Lender a royalty free nonexclusive irrevocable license to use, apply, and affix
any trademark, tradename, logo, or the like in which the Borrower now or
hereafter has rights, such license being with respect to the Lender's exercise
of the rights hereunder including, without limitation, in connection with any
completion of the manufacture of Inventory or sale or other disposition of
Inventory.
11-5. Assembly of Collateral. The Lender may require the Borrower to
----------------------
assemble the Collateral and make it available to the Lender at the Borrower's
sole risk and expense at a place or places which are reasonably convenient to
both the Lender and Borrower.
11-6. Rights and Remedies. The rights, remedies, powers, privileges, and
-------------------
discretions of the Lender hereunder (herein, the "Lender's Rights and Remedies")
shall be cumulative and not exclusive of any rights or remedies which it would
otherwise have. No delay or omission by the Lender in exercising or enforcing
any of the Lender's Rights and Remedies shall operate as, or constitute, a
waiver thereof. No waiver by the Lender of any Event of Default or of any
default under any other agreement shall operate as a waiver of any other default
hereunder or under any other agreement. No single or partial exercise of any of
the Lender's Rights or Remedies, and no express or implied agreement or
transaction of whatever nature entered into between the Lender and any person,
at any time, shall preclude the other or further exercise of the Lender's Rights
and Remedies. No waiver by the Lender of any of the Lender's Rights and Remedies
on any one occasion shall be
-41-
deemed a waiver on any subsequent occasion, nor shall it be deemed a continuing
waiver. All of the Lender's Rights and Remedies and all of the Lender's rights,
remedies, powers, privileges, and discretions under any other agreement or
transaction are cumulative, and not alternative or exclusive, and may be
exercised by the Lender at such time or times and in such order of preference as
the Lender in its sole discretion may determine. The Lender's Rights and
Remedies may be exercised without resort or regard to any other source of
satisfaction of the Liabilities.
ARTICLE 12-NOTICES
------------------
12-1. Notice Addresses. All notices, demands, and other communications
----------------
made in respect of this Agreement (other than a request for a loan or advance or
other financial accommodation under the Revolving Credit) shall be made to the
following addresses, each of which may be changed upon seven (7) days written
notice to all others given by certified mail, return receipt requested:
If to the Lender: Paragon Capital LLC
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇▇▇▇▇, President
Phone: (▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
With a copy to: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, Esq.
▇▇▇▇▇▇▇ ▇▇▇▇▇▇ & ▇▇▇▇▇▇, P.C.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Phone: (▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
If to the Borrower: Nurseryland Garden Centers, Inc.
▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: ▇▇. ▇▇▇▇▇▇▇ ▇▇▇▇▇, President
Phone: (▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
With a copy to: Ravich, Meyer, Kirkman,
▇▇▇▇▇▇▇ & ▇▇▇▇▇▇
4545 IDS Center
▇▇ ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esq.
-42-
Phone: (▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
12-2. Notice Given.
------------
(a) Except as otherwise specifically provided herein, notices
shall be deemed made and correspondence received, as follows (all times being
local to the place of delivery or receipt):
(i) By mail: the sooner of when actually received or three
(3) days following deposit in the United States mail, postage prepaid.
(ii) By recognized overnight express delivery: the Banking
Day following the day when sent.
(iii) By hand: If delivered on a Banking Day after 9:00 A.M.
and no later than three (3) hours prior to the close of customary business hours
of the recipient, when delivered. Otherwise, at the opening of the then next
Banking Day.
(iv) By facsimile transmission (which must include a header
indicated the party sending such transmission): If sent on a Banking Day after
9:00 A.M. and no later than Three (3) hours prior to the close of customary
business hours of the recipient, one (1) hour after being sent. Otherwise, at
the opening of the then next Banking Day.
(b) Rejection or refusal to accept delivery and inability to
deliver because of a changed address or facsimile number for which no due notice
was given shall each be deemed receipt of the notice sent.
ARTICLE 13 - TERM.
-----------------
13-1. Termination of Revolving Credit. This Agreement is, and is intended
-------------------------------
to be, a continuing agreement and shall remain in full force and effect for an
initial term ending on the Maturity Date, and thereafter for successive twelve-
month periods, each beginning on the 1st day of December (commencing December 1,
2002) of each year and ending on November 30th of the following year (each such
twelve-month period is hereinafter referred to as a "renewal term"); provided,
however, that either party may terminate this Agreement as of the end of the
initial term or any subsequent renewal term by giving the other party notice to
terminate in writing at least sixty (60) days prior to the end of any such
period whereupon at the end of such period all Liabilities shall be due and
payable in full without presentation, demand, or further notice of any kind,
whether or not all or any part of the Liabilities is otherwise due and payable
pursuant to the agreement or instrument evidencing same. Lender may terminate
this Agreement immediately and without notice upon the occurrence of an Event of
Default. Notwithstanding the foregoing or anything in this Agreement or
elsewhere to the contrary, the security interest, Lender's rights and remedies
hereunder
-43-
and Borrower's obligations and liabilities hereunder shall survive any
termination of this Agreement and shall remain in full force and effect until
all of the Liabilities outstanding, or contracted or committed for (whether or
not outstanding), before the receipt of such notice by Lender, and any
extensions or renewals thereof (whether made before or after receipt of such
notice), together with interest accruing thereon after such notice, shall be
finally and irrevocably paid in full. No Collateral shall be released or
financing statement terminated until such final and irrevocable payment in full
of the Liabilities, as described in the preceding sentence.
13-2. Effect of Termination. Upon the termination of Revolving Credit, the
---------------------
Borrower shall pay the Lender (whether or not then due), in immediately
available funds, all then Liabilities including, without limitation: the entire
balance of the Loan Account; any then remaining balance of the Facility Fee; any
accrued and unpaid Line Fee; any Prepayment Premium and all unreimbursed costs
and expenses of the Lender for which the Borrower is responsible, and shall make
such arrangements concerning any L/C's then outstanding are reasonably
satisfactory to the Lender. Until such payment, all provisions of this
Agreement, other than those contained in Article l which place an obligation on
the Lender to make any loans or advances or to provide financial accommodations
under the Revolving Credit or otherwise, shall remain in full force and effect
until all Liabilities shall have been paid in full. The release by the Lender of
the security interests granted the Lender by the Borrower hereunder may be upon
such conditions and indemnifications as the Lender may require.
13-3. Prepayment Premium. If Borrower pays in full all or substantially
------------------
all of the Liabilities prior to the end of the initial term of this Agreement
(or any renewal term), other than temporarily from funds internally generated in
the ordinary course of business, at the time of such payment Borrower shall also
pay to Lender a prepayment premium in an amount equal to: $82,500.00, if paid
during the first year after the date of this Agreement, and reducing by
$13,750.00 per year on each anniversary of this Agreement . Any tender of
payment in full of the Liabilities following an acceleration by Lender of the
Liabilities pursuant to Article 10, shall be for purposes of this section deemed
to be a prepayment requiring Borrower to pay the aforementioned prepayment
premium.
Such prepayment premium shall be paid to Lender as liquidated
damages for the loss of the bargain by Lender and not as a penalty.
ARTICLE 14 - GENERAL
--------------------
14-1. Protection of Collateral. The Lender has no duty as to the
------------------------
collection or protection of the Collateral beyond the safe custody of such of
the Collateral as may come into the possession of the Lender and shall have no
duty as to the preservation of rights against prior parties or any other rights
pertaining thereto. The Lender may include reference to the Borrower (and may
utilize any logo or other distinctive symbol associated with the Borrower) in
connection with any advertising, promotion, or marketing undertaken by the
Lender.
-44-
14-2. Successors and Assigns. This Agreement shall be binding upon the
----------------------
Borrower and the Borrower's representatives, successors, and assigns and shall
enure to the benefit of the Lender and the Lender's successors and assigns
provided, however, no trustee or other fiduciary appointed with respect to the
Borrower shall have any rights hereunder. In the event that the Lender assigns
or transfers its rights under this Agreement, the assignee shall thereupon
succeed to and become vested with all rights, powers, privileges, and duties of
the Lender hereunder and the Lender shall thereupon be discharged and relieved
from its duties and obligations hereunder.
14-3. Severability. Any determination that any provision of this Agreement
------------
or any application thereof is invalid, illegal, or unenforceable in any respect
in any instance shall not affect the validity, legality, or enforceability of
such provision in any other instance, or the validity, legality, or
enforceability of any other provision of this Agreement.
14-4. Amendments, Course of Dealing.
-----------------------------
(a) This Agreement and the other Loan Documents incorporate all
discussions and negotiations between the Borrower and the Lender, either express
or implied, concerning the matters included herein and in such other
instruments, any custom, usage, or course of dealings to the contrary
notwithstanding. No such discussions, negotiations, custom, usage, or course of
dealings shall limit, modify, or otherwise affect the provisions thereof. No
failure by the Lender to give notice to the Borrower of the Borrower's having
failed to observe and comply with any warranty or covenant included in any Loan
Document shall constitute a waiver of such warranty or covenant or the amendment
of the subject Loan Document. No change made by the Lender in the manner by
which Availability is determined shall obligate the Lender to continue to
determine Availability in that manner.
(b) The Borrower may undertake any action otherwise prohibited
hereby, and may omit to take any action otherwise required hereby, upon and with
the express prior written consent of the Lender. No consent, modification,
amendment, or waiver of any provision of any Loan Document shall be effective
unless executed in writing by or on behalf of the party to be charged with such
modification, amendment, or waiver (and if such party is the Lender, then by a
duly authorized officer thereof). Any modification, amendment, or waiver
provided by the Lender shall be in reliance upon all representations and
warranties theretofore made to the Lender by or on behalf of the Borrower (and
any guarantor, endorser, or surety of the Liabilities) and consequently may be
rescinded in the event that any of such representations or warranties was not
true and complete in all material respects when given.
14-5. Power of Attorney. In connection with all powers of attorney
-----------------
included in this Agreement, the Borrower hereby grants unto the Lender full
power to do any and all things necessary or appropriate in connection with the
exercise of such powers as fully and effectually as the Borrower might or could
do, hereby ratifying all that said attorney shall do or cause to be done by
virtue of this Agreement. No power of attorney set forth in this Agreement shall
be affected by any disability or incapacity suffered by the Borrower and each
shall survive the same. All powers
-45-
conferred upon the Lender by this Agreement, being coupled with an interest,
shall be irrevocable until this Agreement is terminated by a written instrument
executed by a duly authorized officer of the Lender.
14-6. Application of Proceeds. The proceeds of any collection, sale, or
-----------------------
disposition of the Collateral, or of any other payments received hereunder,
shall be applied towards the Liabilities in such order and manner as the Lender
determines in its sole discretion. The Borrower shall remain liable for any
deficiency remaining following such application.
14-7. Lender's Costs and Expenses. The Borrower shall pay on demand all
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Costs of Collection and all reasonable fees, charges and expenses of the Lender
in connection with the preparation, execution, and delivery of this Agreement
and of any other Loan Documents, whether now existing or hereafter arising, and
all other reasonable fees, charges and expenses which may be incurred by the
Lender in preparing or amending this Agreement and all other agreements,
instruments, and documents related thereto, or otherwise incurred with respect
to the Liabilities, including, without limiting the generality of the foregoing,
any counsel fees or expenses incurred in any bankruptcy or insolvency
proceedings. The Borrower specifically authorizes the Lender to pay all such
fees and expenses and in the Lender's discretion, to add such fees and expenses
to the Loan Account.
14-8. Copies and Facsimiles. This Agreement and all documents which relate
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thereto, which have been or may be hereinafter furnished the Lender may be
reproduced by the Lender by any photographic, microfilm, xerographic, digital
imaging, or other process, and the Lender may destroy any document so
reproduced. Any such reproduction shall be admissible in evidence as the
original itself in any judicial or administrative proceeding (whether or not the
original is in existence and whether or not such reproduction was made in the
regular course of business). Any facsimile which bears proof of transmission
shall be binding on the party which or on whose behalf such transmission was
initiated and likewise shall be so admissible in evidence as if the original of
such facsimile had been delivered to the party which or on whose behalf such
transmission was received.
14-9. Massachusetts Law. This Agreement and all rights and obligations
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hereunder, including matters of construction, validity, and performance, shall
be governed by the laws of The Commonwealth of Massachusetts.
14-10. Consent to Jurisdiction.
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(a) The Borrower agrees that any legal action, proceeding, case,
or controversy against the Borrower with respect to any Loan Document may be
brought in the Superior Court of Middlesex County, Massachusetts or in the
United States District Court, District of Massachusetts, sitting in Boston,
Massachusetts, as the Lender may elect in the Lender's sole discretion. By
execution and delivery of this Agreement, the Borrower, for itself and in
respect of its property,
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accepts, submits, and consents generally and unconditionally, to the
jurisdiction of the aforesaid courts.
(b) Nothing herein shall affect the right of the Lender to bring
legal actions or proceedings in any other competent jurisdiction.
(c) The Borrower agrees that any action commenced by the Borrower
asserting any claim or counterclaim arising under or in connection with this
Agreement or any other Loan Document shall be brought solely in the Superior
Court of Middlesex County, Massachusetts or in the United States District Court,
District of Massachusetts, sitting in Boston, Massachusetts, and that such
Courts shall have exclusive jurisdiction with respect to any such action.
14-11. Indemnification. The Borrower shall indemnify, defend, and hold
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the Lender and any employee, officer, or agent of the Lender (each, an
"Indemnified Person") harmless of and from any claim brought or threatened
against any Indemnified Person by the Borrower, any guarantor or endorser of the
Liabilities, or any other Person (as well as from attorneys' reasonable fees and
expenses in connection therewith) on account of the relationship of the Borrower
or of any other guarantor or endorser of the Liabilities Lender (each of claims
which may be defended, compromised, settled, or pursued by the Indemnified
Person with counsel of the Lender's selection, but at the expense of the
Borrower) other than any claim as to which a final determination is made in a
judicial proceeding (in which the Lender and any other Indemnified Person has
had an opportunity to be heard), which determination includes a specific finding
that the Indemnified Person seeking indemnification had acted in a grossly
negligent manner or in actual bad faith. The within indemnification shall
survive payment of the Liabilities and/or any termination, release, or discharge
executed by the Lender in favor of the Borrower.
14-12. Right of Set-Off. Any and all deposits or other sums at any time
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credited by or due to the undersigned from the Lender or from any participant (a
"Participant") with the Lender in the credit facility contemplated hereby and
any cash, securities, instruments or other property of the undersigned in the
possession of the Lender or any Participant, whether for safekeeping or
otherwise (regardless of the reason such Person had received the same) shall at
all times constitute security for all Liabilities and for any and all
obligations of the undersigned to the and any Participant, and may be applied or
set off against the Liabilities and against such obligations at any time,
whether or not such are then due and whether or not other collateral is then
available to the Lender or any Participant.
14-13. Maximum Interest Rate. Regardless of any provision of any Loan
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Document, the Lender shall never be entitled to contract for, charge, receive,
collect, or apply as interest on any Liability, any amount in excess of the
maximum rate imposed by applicable law. Any payment which is made which, if
treated as interest on a Liability would result in such interest's exceeding
such maximum rate shall be held, to the extent of such excess, as additional
collateral for the Liabilities as if such excess were "Collateral."
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14-14. Usury Savings Clause. It is the intention of the parties hereto to
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comply strictly with applicable usury laws, if any; accordingly, notwithstanding
any provisions to the contrary in this Agreement or any other Loan Documents, in
no event shall this Agreement or such Loan Document require or permit the
payment, taking, reserving, receiving, collecting or charging of any sums
constituting interest under applicable laws which exceed the maximum amount
permitted by such laws. If any such excess interest is called for, contracted
for, charged, paid, taken, reserved, collected or received in connection with
the Liabilities or in any communication by Lender or any other person to the
Borrower or any other person, or in the event all or part of the principal of
the Liabilities or interest thereon shall be prepaid or accelerated, so that
under any of such circumstances or under any other circumstance whatsoever the
amount of interest contracted for, charged, taken, collected, reserved, or
received on the amount of principal actually outstanding from time to time under
this Agreement shall exceed the maximum amount of interest permitted by
applicable usury laws, if any, then in any such event it is agreed as follows:
(i) the provisions of this paragraph shall govern and control, (ii) neither the
Borrower nor any other person or entity now or hereafter liable for the payment
of the Liabilities shall be obligated to pay the amount of such interest to the
extent such interest is in excess of the maximum amount of interest permitted by
applicable usury laws, if any, (iii) any such excess which is or has been
received notwithstanding this paragraph shall be credited against the then
unpaid principal balance hereof or, if the Liabilities have been or would be
paid in full by such credit, refunded to the Borrower, and (iv) the provisions
of this Agreement and the other Loan Documents, and any communication to the
Borrower, shall immediately be deemed reformed and such excess interest reduced,
without the necessity of executing any other document, to the maximum lawful
rate allowed under applicable laws as now or hereafter construed by courts
having jurisdiction hereof or thereof. Without limiting the foregoing, all
calculations of the rate of interest contracted for, charged, taken, collected,
reserved, or received in connection herewith which are made for the purpose of
determining whether such rate exceeds the maximum lawful rate shall be made to
the extent permitted by applicable laws by amortizing, prorating, allocating and
spreading during the period of the full term of the Liabilities, including all
prior and subsequent renewals and extensions, all interest at any time
contracted for, charged, taken, collected, reserved or received. The terms of
this paragraph shall be deemed to be incorporated in every Loan Document and
communication relating to the Liabilities.
14-15. Waivers.
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(a) The Borrower (and all guarantors, endorsers, and sureties of
the Liabilities) make each of the waivers included in Section 14-14(b), below,
knowingly, voluntarily, and intentionally, and understands that the Lender, in
entering into the financial arrangements contemplated hereby and in providing
loans and other financial accommodations to or for the account of the Borrower
as provided herein, whether not or in the future, is relying on such waivers.
(b) THE BORROWER, AND EACH SUCH GUARANTOR, ENDORSER, AND SURETY
RESPECTIVELY WAIVES THE FOLLOWING.
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(i) Except as otherwise specifically required hereby,
notice of nonpayment, demand, presentment, protest and all forms of demand and
notice, both with respect to the Liabilities and the Collateral.
(ii) Except as otherwise specifically required hereby, the
right to notice and/or hearing prior to the Lender's exercising of the Lender's
rights upon default.
(iii) THE RIGHT TO A JURY IN ANY TRIAL OF ANY CASE OR
CONTROVERSY IN WHICH THE LENDER IS OR BECOMES A PARTY (WHETHER SUCH CASE OR
CONTROVERSY IS INITIATED BY OR AGAINST THE LENDER OR IN WHICH THE LENDER IS
JOINED AS A PARTY LITIGANT), WHICH CASE OR CONTROVERSY ARISES OUT OF OR IS IN
RESPECT OF, ANY RELATIONSHIP AMONGST OR BETWEEN THE BORROWER OR ANY OTHER PERSON
AND THE LENDER (AND THE LENDER LIKEWISE WAIVES THE RIGHT TO A JURY IN ANY TRIAL
OF ANY SUCH CASE OR CONTROVERSY).
(iv) Any defense, counterclaim, set-off, recoupment, or
other basis on which the amount of any Liability, as stated on the books and
records of the Lender, could be reduced or claimed to be paid otherwise than in
accordance with the tenor of and written terms of such Liability.
(v) Any claim to consequential, special, or punitive
damages.
14-16. Confidentiality. This Agreement and the terms hereof are
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confidential, and neither the contents of this Agreement or the details of this
Agreement may be shown or disclosed by the Borrower to any bank, finance company
or other lender without the prior written consent of the Lender or except as
required by applicable law or regulation.
14-17. Right to Publish Notice. Lender may, at Lender's discretion and
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expense, publicize or otherwise advertise by so-called "tombstone" advertising
or otherwise Lender's financing transaction with the Borrower.
14-18. Entities Related to Lender. Borrower acknowledges notice that
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Lender is affiliated with The Ozer Group, LLC ("Ozer"). Ozer and other entities
related to Lender may, from time to time act as a merchant consultant or provide
other services to Lender with respect to Borrower.
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