Exhibit 10.6
LOAN AND SECURITY AGREEMENT
Among
▇▇▇▇▇▇▇.▇▇▇, INC.,
and
VALLEY DRUG COMPANY,
as Borrowers
and
THE GUARANTORS FROM
TIME TO TIME PARTY HERETO
and
MELLON BANK, N.A.,
as Bank
Dated as of: October 24, 2000
TABLE OF CONTENTS
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Page
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1. DEFINITIONS AND CONSTRUCTION........................................... 1
1.1 Definitions....................................................... 1
1.2 Accounting Terms and Determinations............................... 18
1.3 UCC............................................................... 19
1.4 Construction...................................................... 19
1.5 Schedules and Exhibits............................................ 19
1.6 Obligor's Knowledge............................................... 19
2. THE REVOLVING CREDIT FACILITY.......................................... 19
2.1 The Facility...................................................... 19
2.2 Revolver Note..................................................... 20
2.3 Borrowing Base.................................................... 20
2.4 Sublimits......................................................... 21
2.5 Reserves.......................................................... 21
2.6 Reduction in Advance Rates........................................ 21
3. ADVANCES UNDER THE REVOLVING CREDIT FACILITY........................... 22
3.1 General........................................................... 22
3.2 Borrowing Procedures.............................................. 22
3.3 Funding Procedure................................................. 22
4. THE TERM LOAN.......................................................... 23
4.1 Term Loan......................................................... 23
4.2 Term Note......................................................... 23
4.3 Advance of the Term Loan.......................................... 23
5. USE OF LOAN PROCEEDS................................................... 23
6. LETTERS OF CREDIT...................................................... 23
6.1 General........................................................... 23
6.2 Conditions to Issuance............................................ 23
6.3 Tenor............................................................. 24
6.4 Sublimits......................................................... 24
6.5 Procedure and Documentation....................................... 24
6.6 Reduction of Availability......................................... 24
6.7 Draws............................................................. 24
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6.8 Cash Collateral................................................... 24
6.9 Indemnification................................................... 25
6.10 Obligations Irrevocable........................................... 25
6.11 Risk Under Letters of Credit...................................... 26
7. INTEREST RATE.......................................................... 27
7.1 Interest Rate Options for the Revolving Credit Facility........... 27
7.2 Interest Rate Options for the Term Loan........................... 28
7.3 Base Rate Fall Back............................................... 29
7.4 LIBOR Rate Unascertainable or Unavailable......................... 30
7.5 LIBOR Unlawful.................................................... 30
7.6 Indemnification................................................... 30
7.7 Determinations.................................................... 30
7.8 Default Rate...................................................... 31
7.9 Post Judgment Interest............................................ 31
7.10 Calculations...................................................... 31
7.11 Limitation of Interest to Maximum Lawful Rate..................... 31
8. PAYMENTS AND FEES...................................................... 32
8.1 Interest Payments on the Revolving Credit Facility................ 32
8.2 Principal Payments on the Revolving Credit Facility............... 32
8.3 Interest Payments on the Term Loan................................ 32
8.4 Principal Payments on Term Loan................................... 33
8.5 Letter of Credit Fees............................................. 33
8.6 Facility Fee...................................................... 33
8.7 Collateral Management Fee......................................... 33
8.8 Unused Facility Fee............................................... 33
8.9 Late Charge....................................................... 34
8.10 Termination of Revolving Credit Facility and Termination Fee...... 34
8.11 Prepayment of Term Loan........................................... 34
8.12 Interest and Breakage Costs on LIBOR Rate Loans................... 35
8.13 Payment Method and Application.................................... 35
8.14 Reinstatement of Obligations...................................... 36
8.15 Maintenance of Loan Account; Statements of Obligations............ 36
8.16 Indemnity......................................................... 37
8.17 Loss of Margin.................................................... 37
8.18 Savings Clause.................................................... 38
9. TAXES.................................................................. 38
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10. SECURITY; COLLECTION OF RECEIVABLES AND PROCEEDS OF
COLLATERAL............................................................. 39
10.1 Personal Property................................................ 39
10.2 Collateral Assignment of Licenses................................ 41
10.3 Management Support and Validity Agreements....................... 41
10.4 Negotiable Collateral............................................ 41
10.5 Surety........................................................... 41
10.6 Stock Pledges.................................................... 41
10.7 General.......................................................... 42
10.8 Collection of Accounts; Proceeds of Collateral................... 42
11. REPRESENTATIONS AND WARRANTIES......................................... 43
11.1 Valid Organization, Good Standing and Qualification.............. 43
11.2 Licenses......................................................... 44
11.3 Ownership Interests.............................................. 44
11.4 Subsidiaries..................................................... 44
11.5 Financial Statements............................................. 44
11.6 No Material Adverse Change in Financial Condition................ 44
11.7 Pending Litigation or Proceedings................................ 44
11.8 Due Authorization; No Legal Restrictions......................... 45
11.9 Enforceability................................................... 45
11.10 No Default Under Other Obligations, Orders or Governmental
Regulations...................................................... 45
11.11 Governmental Consents............................................ 45
11.12 Taxes............................................................ 45
11.13 Title to Collateral.............................................. 46
11.14 Names; Addresses and State of Formation.......................... 46
11.15 Current Compliance............................................... 46
11.16 United States Pension and Benefit Plans.......................... 46
11.17 Leases and Contracts............................................. 46
11.18 Intellectual Property............................................ 47
11.19 Eligible Accounts................................................ 47
11.20 Eligible Inventory............................................... 47
11.21 Business Interruptions........................................... 48
11.22 Business......................................................... 48
11.23 Affiliate Transactions........................................... 48
11.24 Property of Obligors............................................. 48
11.25 Inventory Records................................................ 49
11.26 FEIN............................................................. 49
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11.27 Solvency......................................................... 49
11.28 Subordinated Indebtedness........................................ 49
11.29 Inventory Locations.............................................. 49
11.30 Investment Company Act; Public Utility Holding Company Act....... 50
11.31 Employee Relations............................................... 50
11.32 Investment Property.............................................. 51
11.33 Common Enterprise................................................ 51
11.34 Insurance........................................................ 51
11.35 Web Sites........................................................ 51
11.36 Accuracy of Representations and Warranties....................... 51
12. AFFIRMATIVE COVENANTS.................................................. 51
12.1 Payment of Principal, Interest and Other Amounts Due............. 52
12.2 Claims for Labor and Materials................................... 52
12.3 Existence; Approvals; Qualification; Compliance with Laws........ 52
12.4 Maintenance of Properties........................................ 52
12.5 Intellectual Property............................................ 52
12.6 Insurance........................................................ 53
12.7 Inspections; Examinations........................................ 54
12.8 Pension Plans.................................................... 54
12.9 Bank Accounts.................................................... 55
12.10 Maintenance of Management........................................ 55
12.11 Transactions with Affiliates..................................... 56
12.12 Additional Documents and Future Actions.......................... 56
12.13 Title to Equipment............................................... 56
12.14 Taxes............................................................ 56
12.15 Leases........................................................... 57
12.16 Notices.......................................................... 57
12.17 Assignment of Claims Act......................................... 57
12.18 Additional Guarantors............................................ 57
12.19 Instruments; Promissory Notes.................................... 58
12.20 Future Leases.................................................... 58
12.21 Web Sites........................................................ 58
13. NEGATIVE COVENANTS..................................................... 59
13.1 Limitation on Sale and Leaseback................................. 59
13.2 Limitation on Indebtedness....................................... 59
13.3 Loans............................................................ 60
13.4 Investments...................................................... 60
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13.5 Guaranties..................................................... 60
13.6 Disposition of Assets.......................................... 60
13.7 Merger; Consolidation; Business Acquisitions; Siubsidiaries.... 60
13.8 Liens.......................................................... 61
13.9 Letters of Credit.............................................. 62
13.10 Insurance...................................................... 62
13.11 Default Under Other Indebtedness............................... 62
13.12 Transactions with Affiliates................................... 62
13.13 Name or Chief Executive Address Change......................... 62
13.14 Change in Location of Collateral............................... 62
13.15 Material Adverse Contracts..................................... 63
13.16 Restrictions on Use of Proceeds................................ 63
13.17 Subordinated Indebtedness...................................... 63
13.18 Prepayments; Amendments and License Agreements................. 64
13.19 Distributions; Stock Redemptions............................... 64
13.20 Issuance of Capital Stock...................................... 64
13.21 Prohibited Transactions Under ERISA............................ 64
13.22 Licenses....................................................... 65
13.23 Consignments................................................... 65
13.24 Trademark and Tradename Licenses............................... 65
13.25 Equipment Becoming Fixture..................................... 65
14. FINANCIAL COVENANTS.................................................... 66
14.1 Net Income...................................................... 66
14.2 Stand-Alone Net Income.......................................... 66
14.3 Net Worth....................................................... 67
14.4 Current Ratio................................................... 68
14.5 Capital Expenditures............................................ 68
14.6 Cash on Deposit................................................. 69
14.7 Changes to Financial Covenants.................................. 70
14.8 Most Favored Lender............................................. 70
15. ACCOUNTING RECORDS, REPORTS AND FINANCIAL STATEMENTS.................. 70
15.1 Annual Statements............................................... 70
15.2 Projections and Cash Flow....................................... 71
15.3 Monthly Statements.............................................. 71
15.4 Collateral Reporting............................................ 72
15.5 Tax Returns..................................................... 73
15.6 SEC Reporting................................................... 73
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15.7 Audit Reports....................................................
15.8 Reports to Governmental Agencies and Other Creditors............. 74
15.9 Requested Information............................................ 74
15.10 Compliance Certificates.......................................... 74
15.11 Accountant's Certificate......................................... 74
74
16. CONDITIONS PRECEDENT TO THE INITIAL ADVANCE OR LETTER OF CREDIT......... 74
16.1 Searches......................................................... 75
16.2 UCC-1 Filings.................................................... 75
16.3 Executed Loan Documents.......................................... 75
16.4 Authorizing Resolutions.......................................... 75
16.5 Governing Documents.............................................. 75
16.6 Material Agreements.............................................. 75
16.7 Good Standing Certificates....................................... 76
16.8 Insurance........................................................ 76
16.9 Collateral Access Agreements..................................... 76
16.10 Opinions of Counsel.............................................. 76
16.11 Tax Returns...................................................... 76
16.12 March 31, 2000 Financial Statements.............................. 76
16.13 July 31, 2000 and August 31, 2000 Financial Statements........... 76
16.14 Licenses, Approvals, Etc......................................... 77
16.15 Excess Availability.............................................. 77
16.16 No Material Adverse Change....................................... 77
16.17 Fees............................................................. 77
16.18 SEC Reporting.................................................... 77
16.19 Reference Checks................................................. 77
16.20 Subordination.................................................... 77
16.21 Equipment Leases................................................. 77
16.22 Releases......................................................... 77
17. CONDITIONS PRECEDENT TO ALL ADVANCES AND LETTERS OF CREDIT.............. 78
17.1 Representations and Warranties................................... 78
17.2 No Default or Event of Default................................... 78
17.3 No Injunction or Order........................................... 78
17.4 No Bankruptcy.................................................... 78
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18. DEFAULT AND REMEDIES................................................... 78
18.1 Events of Default............................................... 78
18.2 Remedies........................................................ 81
18.3 Application of Proceeds......................................... 82
18.4 Sale or Other Disposition of Collateral......................... 82
18.5 Actions With Respect to Accounts................................ 83
18.6 Actions With Respect to Web Sites............................... 85
18.7 Set-Off......................................................... 86
18.8 Turnover of Property Held by Bank............................... 86
18.9 Delay or Omission Not Waiver.................................... 86
18.10 Remedies Cumulative............................................. 87
18.11 Consents, Approvals and Discretion.............................. 87
18.12 Certain Fees, Costs, Expense Expenditures....................... 87
19. INDEMNIFICATION........................................................ 88
20. COMMUNICATIONS AND NOTICES............................................. 89
21. WAIVERS................................................................ 89
21.1 Waivers......................................................... 89
21.2 Forbearance..................................................... 90
21.3 Limitation on Liability......................................... 90
21.4 Waiver of Subrogation........................................... 91
22. SUBMISSION TO JURISDICTION............................................. 91
23. MISCELLANEOUS.......................................................... 91
23.1 Brokers......................................................... 91
23.2 Use of Bank's Name.............................................. 91
23.3 No Joint Venture................................................ 92
23.4 Survival........................................................ 92
23.5 No Assignment................................................... 92
23.6 Assignment or Sale by Bank...................................... 92
23.7 Publicity....................................................... 92
23.8 Injunctive Relief............................................... 92
23.9 Time is of the Essence.......................................... 92
23.10 All Powers Coupled With Interest................................ 93
23.11 Disclosure and Disclaimer Regarding Power of Attorney........... 93
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23.12 Binding Effect....................................................... 93
23.13 Severability......................................................... 93
23.14 No Third Party Beneficiaries......................................... 94
23.15 Modifications........................................................ 94
23.16 Holidays............................................................. 94
23.17 Law Governing........................................................ 94
23.18 Integration.......................................................... 94
23.19 Exhibits and Schedules............................................... 94
23.20 Headings............................................................. 94
23.21 Counterparts; Facsimile Signatures................................... 94
23.22 Joint and Several.................................................... 94
23.23 Limitation on Damages................................................ 95
23.24 Waiver of Right to Trial by Jury..................................... 95
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LOAN AND SECURITY AGREEMENT
---------------------------
THIS LOAN AND SECURITY AGREEMENT is made effective as of October
24, 2000 by and among ▇▇▇▇▇▇▇.▇▇▇, INC., a Nevada corporation ("DrugMax");
VALLEY DRUG COMPANY, an Ohio corporation ("Valley") (DrugMax and Valley being
collectively hereinafter referred to as "Borrowers"); each of the GUARANTORS (as
defined hereinbelow) from time to time party hereto; and MELLON BANK, N.A.
("Bank").
NOW, THEREFORE, in consideration of the terms and conditions
contained herein, and of any extensions of credit now or hereafter made to or
for the benefit of Borrowers under this Agreement, the parties hereto, intending
to be legally bound hereby, agree as follows:
1. DEFINITIONS AND CONSTRUCTION.
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1.1 Definitions. The following words and phrases
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as used in capitalized form in this Agreement, whether in the singular or
plural, shall have the meanings indicated:
Account Debtor means any Person who is or who may become
obligated under, with respect to, or on account of, an Account.
Accounts means, with respect to a Person, all of such Person's
now owned and hereinafter acquired rights to payment for goods sold or leased or
for services rendered which is not evidenced by any instrument or chattel paper,
whether or not it has been earned by performance, and any other property or
interest in property that is classified as an account pursuant to the UCC.
Advances means an advance by Bank under the Revolving Credit
Facility, the Term Loan or this Agreement, including without limitation, Base
Rate Loans, LIBOR Rate Loans, advances under Letters of Credit, or advances to
pay Bank Expenses.
Affiliate means, with respect to any Person, (a) any officer,
director or managing member of such Person, (b) any Subsidiary of such Person,
(c) any other Person (other than a Subsidiary) that, (i) directly or indirectly
through one or more intermediaries, controls or is controlled by, or is under
common control with, such Person, (ii) directly or indirectly beneficially owns
or holds twenty percent (20%) or more of any class of Voting Stock of such
Person or any Subsidiary of such Person, or (iii) twenty percent (20%) or more
of the Voting Stock of which is directly or indirectly beneficially owned or
held by such Person or a Subsidiary of such Person, and (d) without limiting the
foregoing, with respect to any Obligor, each other Obligor. The term "control"
means the possession directly or indirectly, of the power to direct or cause the
direction of the management and policies of a Person, whether through ownership
of the Voting Stock, by contract or otherwise.
Agreement means this Loan and Security Agreement.
Applicable Law means, with respect to any Person, all
provisions of constitutions, statutes, regulations and orders of any
Governmental Authority applicable to such Person or its property, including,
without limitation, all orders and decrees of all courts and arbitrators in
proceedings or actions to which such Person is a party. In respect of contracts
relating to interest or finance charges that are made or performed in the
Commonwealth of Pennsylvania, "Applicable Law" shall mean the laws of the U.S.,
including without limitation 12 U.S.C. (S)(S) 85 and 86(a), as amended from time
to time, and any other statute of the U.S. now or at any time hereinafter
prescribing the maximum rates of interest on loans and extensions of credit, and
the laws of the Commonwealth of Pennsylvania.
Applicable Margin is equal to the percent per annum in excess
of the Base Rate or LIBOR Rate as set forth in the following pricing matrix:
Ratio of Revolving Term
Funded Credit Facility Loan
------------------- ----------------
Debt to Base LIBOR Base LIBOR
Level EBITDA Rate + Rate+ Rate+ Rate+
----- ---------------- ------ ----- ----- -----
Level I **3.50:1 .75% 3.00% 1.25% 3.50%
Level II ** 3.00 * 3.50:1 .50% 2.75% 1.00% 3.25%
Level III ** 2.50:1 * 3.00: 1 .25% 2.50% .75% 3.00%
Level IV * 2.00:1 * 2.50:1 .00% 2.25% .50% 2.75%
Level V * 2.00:1 .00% 2.00% .25% 2.50%
** denotes greater than or equal to
* denotes less than
From the Closing Date through the date of receipt of the fiscal year-end March
31, 2001 audited consolidated financial statements of Borrowers, the Applicable
Margin for Advances under the Revolving Credit Facility and the Term Loan shall
be the Applicable Margin set forth on Level III in the above-described pricing
matrix. Thereafter, the Applicable Margin will be based upon the ratio of Funded
Debt of Borrowers to EBITDA of Borrowers on an annual basis as reflected on the
year-end audited consolidated financial statements of Borrowers delivered to
Bank pursuant to Section 15.1 for each fiscal year ending after March 31, 2001,
------------
provided, however, if the year end financial statements are not delivered at the
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time specified in Section 15.1 below, then the Applicable Margin for any given
------------
kind of Loan shall be the highest Applicable Margin set forth above for such
kind of Loan during any period that the Borrowers are delinquent in the delivery
of such financial statements. The adjustment in the Applicable Margin, if any,
will be effective five (5) Business Days after receipt by Bank of the
consolidated financial statements of Borrowers delivered to Bank pursuant to
Section 15.1 below. There shall be no reduction in the Applicable Margin if (a)
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a Default or an Event of Default has occurred and is continuing uncured; (b)
Borrowers have not averaged at least $1,000,000.00 of Excess Availability under
the Revolving Credit Facility for the 30 days immediately preceding the date of
such reduction; or (c) Borrowers do not have at least $1,000,000.00 of Excess
Availability under the Revolving Credit Facility on the date of such reduction.
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Assignment of Patents, Trademarks, Licenses and Copyrights
means the collateral assignments of patents, trademarks, licenses and copyrights
of even date herewith executed by each Obligor in favor of Bank as security for
the Obligations.
Availability means, as of the date of determination, the result
(so long as such result is a positive number) of (a) the lesser of (i) the
Borrowing Base, or (ii) the Maximum Revolving Credit Facility Amount; less (b)
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the Revolving Credit Facility Usage.
Average Unused Portion of Maximum Revolving Credit Facility
Amount means, as of any date of determination, (a) the Maximum Revolving Credit
Facility Amount, less (b) the sum of (i) the average Daily Balance of Advances
that were outstanding under the Revolving Credit Facility during the immediately
preceding month, plus (ii) the average Daily Balance of the undrawn principal
amount of Letters of Credit that were outstanding during the immediately
preceding month.
Bank means Mellon Bank, N.A., a national banking association,
its successors and assigns.
Bank Expenses has the meaning set forth in Section 18.12.
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Bankruptcy Code means the United States Bankruptcy Code (11
U.S.C.(S)101 et seq.), as amended, and any successor statute.
-- ---
Base Rate means the higher of (a) the Bank's Prime Rate in
effect from time to time, or (b) the effective Federal Funds Rate in effect from
time to time plus .50% per annum, with changes in each case to take effect
immediately upon any change in the Prime Rate or the Federal Funds Rate as
applicable.
Base Rate Loan means Advances made under the Revolving Credit
Facility or the Term Loan bearing interest at the Base Rate plus Applicable
Margin.
Base Rate Loan Request has the meaning set forth in Section
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3.2(a)
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Benefit Plan means a "defined benefit plan" (as defined in
Section 3(35) of ERISA) for which any Obligor, any Subsidiary of any Obligor, or
any ERISA Affiliate has been an "employer" (as defined in Section 3(5) of ERISA)
within the past six years.
Blocked Account Agreement means an agreement between any
Borrower, Bank and a depository institution at which any Borrower maintains a
deposit account into which cash, checks or drafts constituting proceeds of such
Borrower's Accounts or Inventory are to be deposited as provided in this
Agreement, in form and content satisfactory to Bank, limiting the transfer of
funds in such deposit account solely as directed by Bank.
Books means all of a Person's books and records, including
without limitation, ledgers; records indicating, summarizing, or evidencing such
Person's properties or assets (including the
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Collateral) or liabilities; all information relating to such Person's business
operations or financial condition; and all computer programs, disk or tape
files, printouts, runs or other computer prepared information.
Borrowers means DrugMax and Valley, collectively, and their
successors and assigns. Borrower means DrugMax and Valley, individually, and
their individual successors and assigns.
Borrowing Base has the meaning set forth in Section 2.3
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Borrowing Base Certificate means the borrowing base certificate
prepared by the Borrowers and submitted to Bank in the form of Exhibit E
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attached hereto.
Business means the wholesale distribution of pharmaceutical
products, including over-the-counter pharmaceutical products, health and beauty
care products, and nutritional supplements.
Business Day means any day that is not a Saturday, Sunday, or
other day on which commercial banks in Pennsylvania are authorized or required
to close.
Capital Expenditures means any expenditure that would be
classified as a capital expenditure in accordance with GAAP.
Capital Stock means corporate stock and any and all shares,
partnership interests, limited partnership interests, membership interests,
equity interests, rights, securities or other equivalent evidences of ownership
(however designated) issued by any entity (whether a corporation, partnership,
limited liability company, limited partnership, business trust or other type of
entity).
Capitalized Lease means any lease of Property, the obligations
for the rental of which are required to be capitalized in accordance with GAAP.
Capitalized Lease Obligations means all amounts payable with
respect to a Capitalized Lease.
Cash Collateral Account has the meaning set forth in Section in
Section 10.8(c)
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Change of Control shall be deemed to have occurred at such time
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as (a) a "person" or "group" (within the meaning of Sections 13(d) and 14(d)(2)
of the Securities Exchange Act of 1934), other than one or more of the members
of the Management Group, becomes the "beneficial owner" (as defined in Rule 13d-
3 under the Securities Exchange Act of 1934), directly or indirectly, of more
than 51% of the total Voting Stock then outstanding of DrugMax or of more than
51% of the total Capital Stock then outstanding of DrugMax; (b) DrugMax ceases
to own 100% of all Voting Stock and Capital Stock of Valley; (c) DrugMax ceases
to own 100% of all Voting Stock and Capital Stock of Desktop; and (d) DrugMax
ceases to own 70% of all Voting Stock and Capital Stock of VetMall.
Closing Date means the date of this Agreement.
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Collateral has the meaning set forth in Section 10.7
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Collateral Access Agreement means a landlord waiver, mortgagee
waiver, bailee letter, or acknowledgment agreement of any warehouseman,
processor, lessor, consignee, or other Person in possession of, having a Lien
upon, or having rights or interests in any Obligor's Equipment, Inventory or
Books, in each case, in form and substance satisfactory to Bank.
Compliance Certificate means a certificate substantially in the
form of Exhibit A and delivered by the chief executive officer or chief
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financial officer of Borrowers, to Bank, as required under Section 15.10.
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Contract Period means the period of time commencing on the date
of this Agreement and expiring on October 24, 2003.
Controlled Substance has the meaning given in Section 802(6) of
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▇▇▇▇▇ ▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇▇ Code (U.S.C.), as amended.
Current Assets at a particular date means the aggregate amount
of all assets of Borrowers which would be classified as current assets on a
consolidated balance sheet of Borrowers at such date, in accordance with GAAP,
including without limitation all cash, marketable securities, mutual funds,
treasury bills and other investment property.
Current Liabilities at any particular date means the
liabilities (including tax and other proper accruals) of Borrowers which would
be included as current liabilities on a consolidated balance sheet of Borrowers
at such date, in accordance with GAAP, including in all cases the outstanding
principal balance of the Revolving Credit Facility.
Current Ratio means the ratio of Current Assets to Current
Liabilities.
Daily Balance means the amount of an Obligation owed at the end
of a given day.
Default means an event, condition or default that, with the
giving of notice, the passage of time, or both, would be an Event of Default.
Default Rate has the meaning set forth in Section 7.8.
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Desktop means Desktop Media Group, Inc., a Florida corporation.
Disbursement Letter means an instructional letter executed and
delivered by Borrowers to Bank regarding the extensions of credit to be made on
the Closing Date, the form and substance of which shall be satisfactory to Bank.
Dollars or $ means freely transferable U.S. Dollars.
Draw Amount has the meaning set forth in Section 6.7.
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5
EBITDA, shall mean for any period, without duplication, the Net
Income of Borrowers (exclusive of extraordinary gains) for such period, plus the
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aggregate amounts deducted in determining such Net Income in respect of (i)
Interest Expense, (ii) Tax Expense, and (iii) depreciation and amortization
expenses for such period, each determined on a consolidated basis and in
accordance with GAAP.
Eligible Accounts means Accounts owed to a Borrower in which
Bank has a prior, perfected first priority lien, which have been due no more
than ninety (90) days from the original invoice date, are not subject to
offsets, deductions, counterclaim, discount, credit, charge back, freight claim,
allowance or adjustment, and which are and at all times continue to be
acceptable to Bank in all respects; provided, however, that standards of
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eligibility may be fixed and revised from time to time by Bank in its
discretion. Eligible Accounts shall not include:
(a) Accounts with 30-day payment terms which have
been due more than the lesser of (i) 60 days from the due date, or (ii) 90 days
from the original invoice date;
(b) Accounts with 7- or 15-day payment terms which
have been due more than the lesser of (i) 45 days from the due date, or (ii) 60
days from the original invoice date;
(c) Accounts which are evidenced by a note, chattel
paper or instrument, unless Bank has a valid perfected first priority security
interest in such note, chattel paper or instrument;
(d) Accounts which are evidenced by judgments;
(e) Accounts with respect to which the applicable
Borrower does not have absolute title;
(f) any Account which is subject to an unresolved
dispute with the Account Debtor;
(g) Accounts with respect to which the Account
Debtors are not Solvent or are subject to a bankruptcy or similar proceeding;
(h) Accounts with respect to which the Account Debtor
is another Obligor, an Affiliate of any Obligor or an Affiliate of any member,
officer or director of any Obligor;
(i) Accounts arising with respect to goods which have
not been shipped or services not performed, conditional sales, sale on approval,
sales subject to repurchase or return, consignment sales, or similar
transactions in which the sale to or the obligation of the Account Debtor to pay
is contingent;
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(j) non-trade receivables;
(k) contra-accounts;
(l) Accounts subject to the Assignment of Claims
Act of 1940, as amended from time to time, or any Applicable Law now or
hereafter existing similar in effect thereto, or to any other prohibition (under
Applicable Law, by contract or otherwise) against its assignment or requiring
notice of or consent to such assignment, unless all such required notices have
been given, all such required consents have been received and all other
procedures have been complied with that such receivable shall have been duly and
validly assigned to Bank, in form and content satisfactory to Bank;
(m) Accounts which are not subject to a valid and
perfected first priority security interest in favor of Bank;
(n) finance charges;
(o) lease receivables;
(p) Accounts owed by a Person if fifty percent
(50%) or more of such Person's Accounts owed to any Borrower have been due more
than ninety (90) days past the original invoice date or would be deemed
ineligible as a result of subsections (a) or (b) above;
----------------------
(q) Accounts subject to a Lien in favor of any
Person (other than Bank);
(r) Accounts concentrated in individual Account
Debtors which exceed 25% of all then Eligible Accounts;
(s) an Account not evidenced by an invoice;
(t) Accounts with respect to which the applicable
Borrower is in breach of any express or implied representation or warranty with
respect to the goods or services the sale of which gave rise to such Account or
in breach of any representation or warranty, covenant or other agreement
contained in the Loan Documents with respect to such Account;
(u) Accounts arising with respect to ▇▇▇▇-and-hold
sales, unless the applicable Borrower has received and delivered to Bank a ▇▇▇▇-
and-hold agreement in form and content acceptable to Bank;
(v) Accounts with respect to which the Account
Debtor is located outside the United States or which are payable in a currency
other than U.S. Dollars, unless payment of such
7
Accounts is fully secured by a letter of credit in form and content and issued
by a commercial bank reasonably acceptable to Bank;
(w) Accounts arising with respect to sales in any
state or jurisdiction in which the applicable Borrower is not properly licensed
(if required by applicable law) as a wholesale distributor of pharmaceuticals,
dangerous drugs or Controlled Substances; and
(x) Accounts with respect to which the Account
Debtor is determined by Bank in its discretion to be ineligible for any other
reason.
Eligible Inventory means FIFO Inventory of a Borrower
consisting of first quality finished goods held for sale in the ordinary course
of such Borrower's business, which are and at all times continue to be
acceptable to Bank in all respects; provided, however, that standards of
-------- -------
eligibility may be fixed and revised from time to time by Bank in its
discretion. An item of Inventory shall not be included in Eligible Inventory if:
(a) it is or contains a Controlled Substance;
(b) it is not of good and merchantable quality,
free from any material defects or damage;
(b) it is subject to any licensing, patent,
royalty, trademark, tradename, copyright or other agreement with any third
parties which restricts Bank's right as a secured party to sell such Inventory
after an Event of Default;
(c) it consists of goods held on consignment by
any Borrower or delivered by any Borrower to a third Person for sale by such
third Person on consignment for such Borrower;
(d) the applicable Borrower does not have good,
valid and marketable title thereto;
(e) it is not located at an Eligible Inventory
Location;
(f) if the Inventory is not located on premises
owned by the applicable Borrower, it is not segregated or otherwise separately
identifiable from goods of others, if any, stored on such premises;
(g) it is not subject to a valid and perfected
first priority security interest in favor of the Bank;
8
(h) it consists of goods returned or rejected by a
Borrower's customers, or goods classified as "return to vendor", unless such
goods are resaleable in the ordinary course of business;
(i) it is obsolete or custom item which is not
saleable in the ordinary course of business, or constitutes repair or
replacement machine parts, packaging and shipping materials or supplies used or
consumed in a Borrower's business;
(j) it is subject to a Lien in favor of any Person
(other than Bank);
(k) it consists of ▇▇▇▇-and-hold goods;
(m) it is slow-moving, as determined by Bank in
good faith;
(n) it consists of raw materials or work-in-
process;
(o) it consists of finished goods which do not
meet the specifications of the applicable purchase order and cannot be easily
resold in the ordinary course of business;
(p) it consists of goods produced in violation of
the Fair Labor Standards Act and subject to the so-called "hot goods" provision
in Title 29 U.S.C. Section 215(a);
(q) it consists of goods that are expired; or
(r) it consists of goods for which Bank would need
a registration, license, permit or consent of another Person to sell or dispose
of, other than registrations, licenses, permits or consents to be a wholesale
distributor of pharmaceuticals, dangerous drugs, prescription drugs or
Controlled Substances.
Eligible Inventory Buy-Back Agreement means an agreement in
form and content acceptable to Bank pursuant to which a supplier or a publically
owned wholesaler of Inventory, whose creditworthiness is acceptable to Bank,
agrees to unconditionally repurchase from the applicable Borrower and from Bank
as a secured party the Inventory of such Borrower at a price greater than 80% of
the cost of such Inventory including all shipping, restocking and other charges.
Eligible Inventory Locations means each of the locations
described on Schedule 11.29(b), as such Schedule 11.29(b) may be amended from
----------------- -----------------
time to time pursuant to Section 11.29(c).
----------------
Environmental Agreement means that certain Environmental
Agreement executed of even date with this Agreement by the Obligors in favor of
Bank.
9
Equipment means all of a Person's present and hereafter
acquired cars, trucks, vehicles, machinery, machine tools, motors, equipment,
furniture, furnishings, fixtures, trailers, tools, dies, jigs, molds, parts,
goods (other than consumer goods, farm products, or Inventory), wherever
located, including, without limitation (a) any interest of such Person in any of
the foregoing, and (b) all attachments, accessories, accessions, replacements,
substitutions, additions, and improvements to any of the foregoing.
ERISA means the Employee Retirement Income Security Act of
1974, 29 U.S.C.(S)(S)1000 et seq., amendments thereto, successor statutes, and
regulations or guidance promulgated thereunder.
ERISA Affiliate means (a) any Person subject to ERISA whose
employees are treated as employed by the same employer as the employees of any
Obligor under IRC Section 414(b), (b) any trade or business subject to ERISA
whose employees are treated as employed by the same employer as the employees of
any Obligor under IRC Section 414(c), (c) solely for purposes of Section 302 of
ERISA and Section 412 of the IRC, any Person subject to ERISA that is a member
of an affiliated service group of which any Obligor is a member under IRC
Section 414(m), or (d) solely for purposes of Section 302 of ERISA and Section
412 of the IRC, any Person subject to ERISA that is a party to an arrangement
with any Obligor and whose employees are aggregated with the employees of any
Obligor under IRC Section 414(o).
ERISA Event means (a) a Reportable Event with respect to any
Benefit Plan or Multiemployer Plan, (b) the withdrawal of any Obligor, any of
its Subsidiaries or ERISA Affiliates from a Benefit Plan during, a plan year in
which it was a "substantial employer" (as defined in Section 4001(a)(2) of
ERISA), (c) the providing of notice of intent to terminate a Benefit Plan in a
distress termination (as described in Section 4041(c) of ERISA), (d) the
institution by the PBGC of proceedings to terminate a Benefit Plan or
Multiemployer Plan, (e) any event or condition (i) that provides a basis under
Section 4042(a)(1), (2), or (3) of ERISA for the termination of, or the
appointment of a trustee to administer, any Benefit Plan or Multiemployer Plan,
or (ii) that may result in termination of a Multiemployer Plan pursuant to
Section 4041A of ERISA, (or the partial or complete withdrawal within the
meaning of Sections 4203 and 4205 of ERISA, of any Obligor, any of its
Subsidiaries or ERISA Affiliates from a Multiemployer Plan, or (g) providing any
security to any Plan under Section 401(a)(29) of the IRC by any Obligor or any
of its Subsidiaries or any of their ERISA Affiliates.
Event of Default has the meaning set forth in Section 18.1.
------------
Excess Availability means, as of any date of determination, the
excess, if any, of (i) Availability under the Revolving Credit Facility on such
date, minus (ii) the aggregate amount of all accounts payable of Borrowers which
-----
are then more than 30 days past due.
Federal Funds Rate means the daily rate of interest announced
from time to time by the
10
Board of Governors of the Federal Reserve System in publication H.15 as the
"Federal Funds Rate."
FEIN means Federal Employer Identification Number.
Financial Asset means any financial asset, now owned or
hereafter acquired that is classified as a "financial asset" pursuant to Chapter
8 (or Article 8) of the UCC.
Funded Debt shall mean without duplication, all Indebtedness of
Borrowers for borrowed money, and all guaranties of Borrowers of any or all of
the foregoing. Funded Debt shall include, without limitation, all Subordinated
Indebtedness of Borrowers and Capitalized Lease Obligations of Borrowers.
Funding Date means the date, which must be a Business Day, on
which the funding of an Advance occurs.
GAAP means generally accepted accounting principles in the
United States of America, in effect from time to time, consistently applied and
maintained.
General Intangibles means all of a Person's present and future
general intangibles and other personal property (including contract rights,
rights arising under common law, statutes, or regulations, licenses, lease
rights, permits, approvals, choses or things in action, goodwill, trade secrets,
methods, processes, know-how, formulas, label designs, domain names, domain name
registrations, patents, patent rights and applications, trade names, brand
names, logos, inventions, trademarks and registrations or applications therefor,
servicemarks and registrations or applications therefor, copyrights and
registrations or applications therefor, blueprints, plans, patterns, drawings,
specifications, designs, manufacturing or processing rights, purchase orders,
customer lists, monies due or recoverable from pension funds, route lists,
rights to payment and other rights under any royalty or licensing agreements,
infringement claims, software and computer programs, information contained on
computer disks or tapes, literature, reports, catalogs, deposit accounts,
insurance premium rebates, tax refunds, tax refund claims, government subsidy
payments, databases, all notes and records with respect to any research and
development and all physical embodiments of the foregoing), other than
Inventory, Accounts, Equipment and Negotiable Collateral. General Intangibles
shall also include, without limitation, all assets necessary to the operation
and maintenance of all present and future websites, including without
limitation, all equipment, lease agreements, hosting agreements, line leases,
intellectual property, copyrights, patents, trademarks, software licenses and
general intangibles, and all intellectual property assets described on Schedule
--------
11.18.
------
Governing Documents means the certificate or articles of
incorporation, by-laws, partnership agreement, joint venture agreement,
operating agreement or other organizational or governing documents of any
Person.
11
Governmental Authority means any nation or government, any federal,
state, county, municipal, parish, provincial or other political subdivision
thereof and any department, commission, board, court, agency or other
instrumentality or entity exercising executive, legislative, judicial,
regulatory or administrative functions of or pertaining to government.
Guarantor means each of (a) Desktop, (b) VetMall, and (c) each other
Person who shall become a "Guarantor" pursuant to or as required under Section
-------
12.18, and their respective successors and assigns.
-----
Indebtedness, as applied to a Person, means:
(a) all items (except items of capital stock or of surplus)
which in accordance with GAAP would be included in determining total liabilities
as shown on the liability side of a balance sheet of such Person as at the date
as of which Indebtedness is to be determined;
(b) to the extent not included in the foregoing, all
indebtedness, obligations, and liabilities secured by any mortgage, pledge,
lien, conditional sale or other title retention agreement or other security
interest to which any property or asset owned or held by such Person is subject,
whether or not the indebtedness, obligations or liabilities secured thereby
shall have been assumed by such Person; and
(c) to the extent not included in the foregoing, all
indebtedness, obligations and liabilities of others which such Person has
directly or indirectly guaranteed, endorsed (other than for collection or
deposit in the ordinary course of business), sold with recourse, or agreed
(contingently or otherwise) to purchase or repurchase or otherwise acquire or in
respect of which such Person has agreed to supply or advance funds (whether by
way of loan, stock purchase, capital contribution or otherwise) or otherwise to
become directly or indirectly liable.
Indemnified Parties has the meaning set forth in Section 19.
----------
Interest Expense as applied to Borrowers means for any period, the
amount of interest expense on Indebtedness of Borrowers for such period,
determined in accordance with GAAP.
Inventory means all present and future inventory in which a Person has
any interest, including goods held for sale or lease or to be furnished under a
contract of service and all of such Person's present and future raw materials,
work in process, finished goods, packaging, packing and shipping materials,
goods used or consumed in the Person's business, component parts, supplies and
returned, rejected or repossessed goods, wherever located.
12
Inventory Reserves means reserves (determined from time to time by
Bank in its discretion) for the estimated costs relating to unpaid freight
charges, warehousing or storage charges, taxes, duties, processing charges,
handling charges and other similar unpaid costs associated with any Borrower's
Inventory.
Investment Property means any investment property, now owned or
hereafter acquired, that is classified as "investment property" pursuant to the
UCC.
IRC means the Internal Revenue Code of 1986, as amended, and the
regulations thereunder.
Lease means any lease of real estate under which any Obligor is the
lessee.
Leasehold Property means any real estate which is the subject of a
Lease.
Letters of Credit means the Standby Letters of Credit and the
Merchandise Letters of Credit issued by Bank pursuant to this Agreement.
LIBOR Loan Request has the meaning set forth in Section 3.2 (a).
---------------
LIBOR Rate means with respect to any Advance under the Revolving
Credit Facility or the Term Loan accruing interest at a LIBOR Rate plus
Applicable Margin as permitted hereunder, for any day during each Rate Period,
the per annum rate of interest (computed on a basis of a year of 360 days and
actual days elapsed) determined by Bank to be equal to the quotient of (a) the
per annum rate of interest estimated in good faith by Bank in accordance with
its usual procedures (which determination shall be conclusive) to be the average
of the rate per annum for deposits, in an amount denominated in U.S. Dollars
comparable to the amount of principal relating to such Rate Period and having
maturities comparable to such Rate Period, offered to major money center banks
in the London interbank market as referenced by Reuters Screen "LIBOR" at or
about 11:00 a.m., London time, two (2) London business days prior to such Rate
Period, divided by (b) a number equal to 1.00 minus the LIBOR Reserve Percentage
for the relevant Rate Period. In the event that the LIBOR Rate is unavailable or
cannot be ascertained, Bank will have the right to designate the LIBOR Rate on
such basis as it shall reasonably determine.
LIBOR Rate Loan means any Advance under the Revolving Credit Facility
or the Term Loan bearing interest at the LIBOR Rate plus Applicable Margin.
LIBOR Rate Notification means a written notification from Borrower to
be delivered to Bank electing to convert an existing Base Rate Loan to a LIBOR
Rate Loan or to continue an existing LIBOR Rate Loan as a new LIBOR Rate Loan
for an additional Rate Period, in the form of Exhibit B attached hereto.
---------
LIBOR Reserve Percentage means the maximum rate at which reserves
(including any marginal, supplemental or emergency reserves) are required to be
maintained during the relevant Rate
13
Period under Regulation D (and/or other similar regulation) of the Board of
Governors of the Federal Reserve System against "Eurocurrency Liabilities" (as
such term is used in Regulation D). Without limiting the effect of the
foregoing, the LIBOR Reserve Percentage shall reflect any other reserves
required to be maintained by reason of any regulatory change against (a) any
category of liabilities which includes deposits by reference to which the LIBOR
Rate is to be determined as provided in the definition of "LIBOR Rate" or (b)
any category of extensions of credit or other assets which include loans, the
interest rate of which is based on the LIBOR Rate.
Licenses means all licenses, permits, consents, approvals and
authorizations issued by a Governmental Authority with respect to or in
connection with the operation of the Borrowers' Business.
Lien means any interest in property securing an obligation owed to, or
a claim by, any Person other than the owner of the property, whether such
interest shall be based on the common law, statute, or contract, whether such
interest shall be recorded, published, registered or perfected, and whether such
interest shall be contingent upon the occurrence of some future event or events
or the existence of some future circumstance or circumstances, including the
lien or security interest arising, from a mortgage, debenture, charge, deed of
trust, encumbrance, pledge, assignment, deposit arrangement, security agreement,
adverse claim or charge, conditional sale or trust receipt, or from a lease,
consignment, or bailment for security purposes and also including reservations,
exceptions, encroachments, easements, rights-of-way, covenants, conditions,
restrictions, leases, and other title exceptions and encumbrances affecting any
real property.
Loan Account has the meaning set forth in Section 8.15.
------------
Loan Documents means this Agreement, any Notes executed by Borrowers
and payable to Bank, the Pledge Agreements, the Environmental Agreement, the
Disbursement Letter, the Letters of Credit, the Subordination Agreements, each
Surety Agreement, the Assignment of Patents, Trademarks, Licenses and Copyrights
and any other assignment or other agreement entered into, now or in the future,
in connection with this Agreement, the Obligations or any of the transactions
contemplated hereunder.
Loan Request means a Base Rate Loan Request or a LIBOR Rate Loan
Request.
Loans means all Advances outstanding under the Revolving Credit
Facility and the Term Loan, including without limitation Base Rate Loans and
LIBOR Rate Loans.
Management Group means collectively (a) ▇▇▇▇▇ ▇. ▇▇▇▇▇▇, (b) ▇▇▇▇▇▇▇
▇. ▇▇▇▇▇▇▇, (c) ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, and (d) ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇.
14
Material Adverse Change means (a) a material adverse change, as
determined by Bank in good faith, in the business, operations, results of
operations, assets, liabilities or condition (financial or otherwise) of any
Obligor, (b) the material impairment, as determined by Bank in good faith, of
any Obligor's ability to perform its obligations under the Loan Documents to
which it is a party or of the Bank's ability to enforce the Obligations of the
Loan Documents or to realize upon the Collateral, (c) a material adverse effect,
as determined by Bank in good faith, on the value of the Collateral or the
amount that Bank would be likely to receive (after giving consideration to
delays in payment and costs of enforcement) in the liquidation of such
Collateral, or (d) a material impairment, as determined by Bank in good faith,
of the priority of the Liens in favor of Bank with respect to the Collateral.
Maximum Revolving Credit Facility Amount means $15,000,000.00.
Merchandise Letter of Credit means a documentary Letter of Credit
issued by Bank to support the purchase by a Borrower of Inventory prior to
transit to an Eligible Inventory Location, that provides that all draws
thereunder must require presentation of customary documentation (including, if
applicable, commercial invoices, packing list, certificate of origin, ▇▇▇▇ of
lading or airway ▇▇▇▇, customs clearance documents, quota statement, inspection
certificate, beneficiaries statement, and ▇▇▇▇ of exchange, bills of lading,
dock warrants, dock receipts, warehouse receipts, or other documents of title)
in form and substance satisfactory to Bank and reflecting the passage to such
Borrower of title to first quality Inventory conforming to such Borrower's
contract with the seller thereof.
Multiemployer Plan means a "multiemployer plan" (as defined in Section
4001(a)(3) of ERISA) to which any Obligor, any of its Subsidiaries, or any ERISA
Affiliate has contributed, or was obligated to contribute, within the past six
years.
Negotiable Collateral means all of a Person's present and future
letters of credit, notes, drafts, instruments, Investment Property, Financial
Assets, Capital Stock of direct and indirect Subsidiaries of Borrower,
documents, personal property leases (wherein such Person is the lessor), chattel
paper, and such Person's Books relating to any of the foregoing.
Net Income means income (or loss) after Tax Expense and shall have the
meaning given such term by GAAP, provided that, there shall be specifically
-------- ----
excluded therefrom (a) gains from the sale of capital assets, (b) net income of
any other Person in which the Person or Persons whose net income is being
determined has an ownership interest, unless received by the Person or Persons
whose net income is being determined in a cash distribution, and (c) any gains
arising from extraordinary items, as defined by GAAP.
Net Worth shall mean, at any time, net worth as defined by GAAP.
Non-Assignable Contracts has the meaning set forth in Section 10.1(e).
---------------
Notes means collectively the Revolver Note and Term Note executed and
delivered pursuant to Sections 2.2 and 4.2.
--------------------
15
Obligations means all Loans, Advances, debts, principal, interest
(including any interest that, but for the provisions of the Bankruptcy Code,
would have accrued), contingent reimbursement obligations under any outstanding
Letters of Credit, indebtedness arising from any derivative transactions,
liabilities (including all amounts charged to the Loan Account pursuant hereto),
obligations, fees, charges, costs, or Bank Expenses (including any fees or
expenses that, but for the provisions of the Bankruptcy Code, would have
accrued), lease payments, guaranties, covenants, and duties owing by any Obligor
to Bank of any kind and description (whether pursuant to or evidenced by the
Loan Documents or pursuant to any other agreement between Bank and any Obligor,
and irrespective of whether for the payment of money), whether as principal or
surety, direct or indirect, absolute or contingent, due or to become due, now
existing or hereafter arising, and including any debt, liability, or obligation
owing from any Obligor to others that Bank may have obtained by assignment or
otherwise, and further including all interest not paid when due and all Bank
Expenses that any Obligor is required to pay or reimburse by the Loan Documents,
by law, or otherwise.
Obligors means Borrowers and Guarantors, collectively. Obligor means
each Borrower and Guarantor, individually.
Operating Agreement means any material equipment lease, advertising
contract, supply agreement, employment agreement, collective bargaining
agreement or other similar agreement or contract relating to the operation of
the Business.
Out-Of-Formula Advance means the amount by which the then outstanding
Advances and the undrawn amount of Letters of Credit issued under the Revolving
Credit Facility exceed the Borrowing Base.
Pay-Off Letter means a letter addressed to the appropriate Obligor and
to Bank executed by the applicable lender pursuant to which such lender agrees
to accept a fixed amount in full satisfaction of all obligations owed by such
Obligor to such lender, containing such wire instructions, releases and other
provisions as may be required by Bank.
PBGC means the Pension Benefit Guaranty Corporation as defined in
Title IV of ERISA, or any successor thereto.
Person means and includes natural persons, legal persons,
corporations, limited liability companies, limited partnerships, general
partnerships, limited liability partnerships, joint ventures, trusts, land
trusts, business trusts, or other organizations, irrespective of whether they
are legal entities, and any governments and agencies and political subdivisions
thereof.
Plan means any employee benefit plan, program, or arrangement
maintained or contributed to by any Obligor or with respect to which it may
incur liability.
Pledge Agreements means collectively the pledge agreements in form and
substance satisfactory to Bank of even date herewith pursuant to which all
Capital Stock in each Guarantor and
16
any other Subsidiaries of DrugMax are pledged to Bank as security for the
Obligations.
Prime Rate means the annual interest rate established from time to
time by Bank and generally known by Bank as its "prime rate", whether published
by it publicly or only for the internal guidance of its loan officers. The Prime
Rate is used merely as a pricing index and is not and should not be considered
to represent the lowest or best rate available to a borrower.
Property shall mean all types of real, personal or mixed property and
all types of tangible or intangible property.
Rate Period means for any principal portion of the Revolving Credit
Facility or the Term Loan for which Borrowers elect a LIBOR Rate plus Applicable
Margin, the period of time for which such rate shall apply to such principal.
Rate Periods for principal accruing interest at the LIBOR Rate plus Applicable
Margin under the Revolving Credit Facility shall be for periods of one, two,
three, or six months and for no other length of time, provided that, no Rate
-------- ----
Period may extend beyond the expiration of the Contract Period. Rate Periods for
principal accruing interest at the LIBOR Rate plus Applicable Margin under the
Term Loan shall be for periods of one, two, three or six months and for no other
length of time, provided that, no Rate Period may extend beyond the Term Loan
-------- ----
Maturity Date.
Reportable Event means any of the events described in Section 4043(c)
of ERISA or the regulations thereunder.
Reserves means reserves against Availability under the Revolving
Credit Facility, established by Bank at its discretion from time to time,
including without limitation, Inventory Reserves.
Revolver Note has the meaning set forth in Section 2.2.
-----------
Revolving Credit Facility means the revolving credit facility
established for Borrowers under this Agreement.
Revolving Credit Facility Usage means as of the date of determination,
the aggregate amount of (a) all outstanding Advances under the Revolving Credit
Facility, and (b) the outstanding undrawn amount of all outstanding Letters of
Credit.
Solvent means, with respect to any Person on a particular date, that
on such date (a) at fair valuations, all of the properties and assets of such
Person are greater than the sum of the debts, including contingent liabilities,
of such Person, (b) the present fair salable value of the properties and assets
of such Person is not less than the amount that will be required to pay the
probable liability of such Person on its debts as they become absolute and
matured, (c) such Person is able to realize upon its properties and assets and
pay its debts and other liabilities, contingent obligations and other
commitments as they mature in the normal course of business, (d) such Person
does not intend to, and does not believe that it will, incur debts beyond such
Person's ability to pay as such debts mature or fall due, and (e) such Person is
not engaged in business or a transaction, and is not about to engage in business
or a
17
transaction, for which such Person's properties and assets would constitute
unreasonably small capital after giving due consideration to the prevailing
practices in the industry in which such Person is engaged. In computing the
amount of contingent liabilities at any time, it is intended that such
liabilities will be computed at the amount that, in light of all the facts and
circumstances existing at such time, represents the amount that reasonably can
be expected to become an actual or matured liability.
Standby Letters of Credit means the standby letters of credit (not
Merchandise Letters of Credit) issued by Bank pursuant to this Agreement.
Subordinated Indebtedness means Indebtedness of any Obligor which has
maturities and terms, and which is subordinated to payment of the Obligations in
a manner, approved in writing by Bank, and in each such case any renewals,
modifications or amendments thereof which are approved in writing by Bank.
Subordination Agreements shall mean the subordination agreements from
each Obligor in favor of Bank.
Subsidiary of a Person means a corporation, partnership, limited
liability company, or other entity in which that Person directly or indirectly
owns or controls the shares of Capital Stock having ordinary voting power to
elect a majority of the board of directors (or appoint other comparable
managers) of such corporation, partnership, limited liability company, or other
entity.
Surety Agreement has the meaning set forth in Section 10.5
------------
Tax Expense as applied to Borrowers means for any period, the amount
of tax expense of Borrowers for such period, determined in accordance with GAAP.
Term Loan has the meaning set forth in Section 4.1.
-----------
Term Loan Maturity Date means October 24, 2003.
Term Note has the meaning set forth in Section 4.2.
-----------
U.S. means the United States of America.
UCC means (i) the Uniform Commercial Code as adopted in Pennsylvania,
as it may be amended, revised or replaced from time to time, and (ii) the
Uniform Commercial Code as in effect from time to time in such other states as
any Collateral may be located, as and to the extent applicable.
Value means (i) with respect to Eligible Inventory, the lower of cost
(determined on a first-in-first-out basis) or market value, determined in all
cases in accordance with GAAP, and (ii) with respect to Eligible Accounts, the
undisputed unpaid amount of such Eligible Account.
VetMall means VetMall, Inc., a Florida corporation.
18
Voting Stock means Capital Stock of a Person having ordinary voting
power for the election of the members of its board of directors or other
governing body of such Person.
1.2 Accounting Terms and Determinations. Except as otherwise
-----------------------------------
provided in this Agreement, all computations and determinations as to accounting
or financial matters shall be made in accordance with GAAP, and all accounting
or financial terms shall have the meanings ascribed to such terms by GAAP as in
effect on the date of determination. All financial statements to be delivered
pursuant to this Agreement shall be prepared in accordance with GAAP.
1.3 UCC. Any terms used in this Agreement that are defined in
---
the UCC shall be construed and defined as set forth in the UCC unless otherwise
defined herein. To the extent that the definitions of any categories or types of
collateral are expanded in any revision to, amendment of or new version of the
UCC, such changed or expanded definitions will apply to this Agreement as of the
effective date of such revision, amendment or new statute.
1.4 Construction. Unless the context of this Agreement clearly
------------
requires otherwise, references to the plural include the singular, references to
the singular include the plural, the term "including" is not limiting, and the
term "or" has, except where otherwise indicated, the inclusive meaning
represented by the phrase "and/or." The words "hereof," "herein," "hereby,"
"hereunder," and similar terms in this Agreement refer to this Agreement as a
whole and not to any particular provision of this Agreement. An Event of Default
shall "continue" or be "continuing" until such Event of Default has been cured
or waived in writing by Bank. Section, subsection, clause, schedule, and exhibit
references are to sections, subsections, clauses, schedules and exhibits in this
Agreement unless otherwise specified. Any reference in this Agreement or in the
Loan Documents to this Agreement, any of the Loan Documents or any other
document or agreement shall include all alterations, amendments, changes,
extensions, modifications, renewals, replacements, substitutions, supplements,
and restatements thereto and thereof, as applicable.
1.5 Schedules and Exhibits. All of the schedules and exhibits
----------------------
attached to this Agreement, as they may from time to time be amended or
restated, shall be deemed incorporated herein by reference.
1.6 Obligor's Knowledge. Any statements, representations or
-------------------
warranties that are based upon the best knowledge of any Obligor or an officer
thereof shall be deemed to have been made after due inquiry by such Obligor or
such officer, as applicable, with respect to the matter in question.
2. THE REVOLVING CREDIT FACILITY.
-----------------------------
2.1 The Facility. Subject to the terms and conditions of this
------------
Agreement and the Loan Documents, Bank agrees to establish for Borrowers a
revolving credit facility (the "Revolving Credit Facility") pursuant to which
during the Contract Period, Bank agrees to extend to Borrowers
19
Advances under the Revolving Credit Facility and pursuant to which Bank agrees
to issue Letters of Credit for the account of Borrowers, provided that, the
-------- ----
Revolving Credit Facility Usage shall not exceed at any time the lesser of (a)
the Borrowing Base, or (b) the Maximum Revolving Credit Facility Amount.
2.2 Revolver Note. Borrowers' obligation to repay Advances and
-------------
other extensions of credit under the Revolving Credit Facility shall be further
evidenced by a promissory note executed and delivered by Borrowers in the face
amount of the Maximum Revolving Credit Facility Amount payable to the order of
Bank (the "Revolver Note"), which shall be in a form acceptable to Bank.
2.3 Borrowing Base. The "Borrowing Base" as of the applicable
--------------
date of determination shall be determined based upon the following advance rates
and calculations:
(a) An advance rate of up to 85% of the Value of the
Borrowers' Eligible Accounts; plus
----
(b) An advance rate of up to 65% of the Value of the
Borrowers' Eligible Inventory not subject to an Eligible Inventory Buy-Back
Agreement; plus
----
(c) An advance rate of up to 75% of the Value of the
Borrowers' Eligible Inventory subject to an Eligible Inventory Buy-Back
Agreement; minus
-----
(d) The total outstanding undrawn amount of all Letters
of Credit; minus
-----
(e) All Reserves.
Notwithstanding the foregoing, there shall be no increase of the
advance rate for Eligible Inventory subject to an Eligible Inventory Buy-Back
Agreement from 65% to 75% (i) unless and until Bank has received the audited
annual financial statements required under Section 15.1 for the Borrowers and
------------
their Subsidiaries for the fiscal year ending March 31, 2001; or (ii) if a
Default or Event of Default has occurred.
Percentages used from time to time in calculating the Borrowing Base
are for the sole purpose of determining the maximum amount of Advances under
Revolving Credit Facility that may be outstanding from time to time under this
Agreement and shall not be evidentiary of or binding upon the Bank with respect
to the market value or liquidation value of any Collateral. In the event that
Bank has any questions regarding the Borrowers' calculation of the Borrowing
Base, funding of Advances under the Revolving Credit Facility shall be subject
to a resolution of such questions to Bank's satisfaction. Any request for an
Advance under Revolving Credit Facility which, if funded, would result in the
unpaid balance
20
of an Advance under Revolving Credit Facility being in excess of the amount
allowed by this Agreement may be declined by Bank in its sole discretion without
prior notice.
2.4 Sublimits.
---------
(a) Eligible Inventory Sublimit. Notwithstanding anything
---------------------------
herein or elsewhere to the contrary, the maximum amount of Revolving Credit
Facility Usage based upon (i) the Eligible Inventory shall not exceed
$6,000,000.00 at any time, (ii) Eligible inventory subject to an Eligible
Inventory Buy-Back Agreement shall not exceed an amount to be determined by
Bank.
(b) Letter of Credit Sublimit. Notwithstanding anything
-------------------------
herein or elsewhere to the contrary, the issuance of Letters of Credit under the
Revolving Credit Facility by the Bank is subject to the limitations set forth in
Section 6 below.
---------
(c) Borrower Sublimits. Each Borrower will only be entitled
------------------
to receive Advances under the Revolving Credit Facility based upon Availability
determined by such Borrower's Eligible Accounts and Eligible Inventory. Each
Borrower will submit separate Borrowing Base Certificates on a stand-alone
basis.
2.5 Reserves. The amount of the Borrowing Base shall be reduced
--------
by Reserves established by Bank from time to time at Bank's discretion,
including without limitation Inventory Reserves. Such Reserves may be
established by Bank from time to time regardless of whether a Default or Event
of Default has occurred or is continuing.
2.6 Reduction in Advance Rates. Notwithstanding anything herein
--------------------------
or elsewhere to the contrary, Bank may, in its sole discretion, from time to
time, among other permissible discretionary actions that Bank may take with
respect to the Revolving Credit Facility:
(a) reduce the advance rate with respect to Eligible
Accounts, among other permissible reasons, to the extent that Bank determines
that: (i) the dilution with respect to Borrowers' Accounts for any period (based
on the ratio of (A) the aggregate amount of reductions in Accounts other than as
a result of payments in cash, to (B) the aggregate amount of total sales)
exceeds five percent (5%), in which case Bank shall reduce the advance rate
applicable to Eligible Accounts by one percent (1%) for each percent of such
dilution in excess of five percent (5%), or (ii) the general creditworthiness of
Account Debtors has declined; or
(b) reduce the advance rate with respect to Eligible
Inventory, among other permissible reasons, to the extent that Bank determines
that: (i) the number of days of the turnover of the Inventory for any period has
changed in any material respect or (ii) the liquidation value of the Eligible
21
Inventory, or any category thereof, has decreased, or (iii) the nature and
quality of Inventory has deteriorated.
(c) In determining whether to reduce the advance rate(s),
Bank may consider, among other factors, events, conditions, contingencies or
risks which are also considered in determining Eligible Accounts, Eligible
Inventory or in establishing Reserves.
Notwithstanding anything herein or elsewhere to the contrary, Bank
may, after the occurrence of a Default or Event of Default, reduce the advance
rates with respect to Eligible Accounts and Eligible Inventory.
3. ADVANCES UNDER THE REVOLVING CREDIT FACILITY.
--------------------------------------------
3.1 General. Advances under the Revolving Credit Facility shall
-------
be made by Bank to Borrowers in accordance with the procedures set forth below.
Within the limitations set forth in this Agreement, Borrowers may borrow, repay
and reborrow under the Revolving Credit Facility.
3.2 Borrowing Procedures.
--------------------
(a) Form of Request. Borrowers may request an Advance under
---------------
the Revolving Credit Facility by delivering to the officer of Bank designated
from time to time by Bank, a written Loan Request. Such written request for an
Advance shall be in the form of Exhibit C, if the request is for a Base Rate
---------
Loan (a "Base Rate Loan Request"), or in the form of Exhibit D if the request is
---------
for a LIBOR Rate Loan (a "LIBOR Loan Request"). Such Loan Request forms may be
in such other form as Bank may require from time to time upon notice to
Borrowers. Each Loan Request received by Bank shall be conclusively presumed to
be executed and delivered by a duly authorized officer or employee of Borrowers.
Once received by Bank, each Loan Request shall be deemed irrevocable.
Notwithstanding the foregoing, Borrowers may request a Base Rate Loan by a
telephone request to the offices of Bank designated from time to time by Bank.
Each telephone request received by Bank shall be conclusively presumed to be
made by a duly authorized officer or employee of Borrowers. Once received by
Bank, each telephone Loan Request shall be deemed irrevocable. Bank, at its
discretion, may require that each telephone Loan Request be confirmed promptly
by Borrowers in writing.
(b) Availability. Availability under the Revolving Credit
------------
Facility will be determined by Bank based upon information received by Bank and
upon the most recent Borrowing Base Certificate required under Section 15.4,
------------
accompanied by the collateral and back-up information required under such
Section.
(c) Timing of Request. Each Base Rate Loan Request must be
-----------------
received by Bank no later than 12:00 noon Eastern time on the requested Funding
Date. Each LIBOR
22
Rate Loan Request must be received by Bank no later than 12:00 noon Eastern time
three (3) Business Days prior to the requested Funding Date.
3.3 Funding Procedure. Subject to the conditions set forth in
-----------------
this Agreement, Bank shall disburse Advances under the Revolving Credit Facility
to Borrowers by transferring into the applicable Borrower's operating account
maintained with Bank immediately available funds in the amount of such Advances,
or otherwise in accordance with procedures acceptable to Bank.
4. THE TERM LOAN.
-------------
4.1 Term Loan. Subject to the terms and conditions of this
---------
Agreement and the Loan Documents, Bank agrees to extend to Borrowers a term loan
in the original principal amount of Two Million Dollars ($2,000,000.00) (the
"Term Loan").
4.2 Term Note. Borrowers' obligations to repay the Term Loan
---------
shall be further evidenced by a promissory note executed and delivered by
Borrowers to Bank in the face amount of $2,000,000.00 (the "Term Note") which
shall be in a form acceptable to Bank.
4.3 Advance of the Term Loan. The proceeds of the Term Loan
------------------------
shall be advanced at closing hereunder in accordance with such procedures as
Bank may require.
5. USE OF LOAN PROCEEDS. Borrowers agree to use Advances under the
--------------------
Revolving Credit Facility and the proceeds of the Term Loan solely (a) to repay
existing Indebtedness, (b) to pay closing costs and expenses incurred by the
Obligors in connection with the transactions contemplated hereunder, and (c) to
provide for future working capital requirements and for other general corporate
purposes of Borrowers consistent with the terms and conditions of this
Agreement.
6. LETTERS OF CREDIT.
-----------------
6.1 General. Subject to the terms and conditions of this
-------
Agreement, Bank agrees to issue from time to time until the expiration of the
Contract Period, upon the written request of Borrowers, Letters of Credit for
the account of Borrowers. Such Letters of Credit shall be in form and content
acceptable to Bank.
6.2 Conditions to Issuance. Bank shall have no obligation to
----------------------
issue any Letter of Credit if:
(a) the conditions set forth in Sections 16 and 17 have not
------------------
been satisfied;
23
(b) issuance of such Letter of Credit would violate the
terms of any contract, agreement or other document binding upon Bank or any
Borrower;
(c) any order, judgment or decree of any court, arbitrator
or other governmental authority shall purport by its terms to enjoin or restrain
issuance of the Letter of Credit;
(d) any law, rule, regulation or directive shall prohibit
issuance of the Letter of Credit or result in any liability of Bank as a result
of such issuance; or
(e) Bank shall not have received the required issuance fee
set forth in Section 8.5.
-----------
6.3 Tenor. Each Standby Letter of Credit shall have a term not
-----
to exceed the earlier to occur of: (a) twelve (12) months, or (b) the expiration
date of the Contract Period. Each Merchandise Letter of Credit shall have a term
not to exceed the earlier to occur of: (a) ninety (90) days, or (b) the
expiration date of the Contract Period.
6.4 Sublimits. Bank shall have no obligation (a) to issue any
---------
Letters of Credit, if the aggregate outstanding undrawn amount of all Letters of
Credit would exceed $500,000.00; (b) to issue any Letter of Credit, if a Default
or Event of Default has occurred; or (c) to issue any Letter of Credit if the
Revolving Credit Facility Usage plus the amount of such new Letter of Credit to
be issued exceeds (i) the Borrowing Base (as reduced by all Reserves), or (ii)
the Maximum Revolving Credit Facility Amount.
6.5 Procedure and Documentation. Each request for issuance of a
---------------------------
Letter of Credit must be received at least three (3) Business Days prior to the
requested issuance and shall be accompanied by a duly executed letter of credit
application in the form required by Bank. Each application shall have noted
therein that the application is entered into in accordance with the terms of
this Agreement. Borrowers will execute and deliver to Bank such other documents
and agreements as may be reasonably required by Bank in connection with the
issuance of any Letter of Credit.
6.6 Reduction of Availability. Availability under the Revolving
-------------------------
Credit Facility will be reduced by the total outstanding undrawn amount of all
Letters of Credit.
6.7 Draws. If Bank receives a request for a draw under any
-----
Letter of Credit, Borrowers agree to pay to Bank on the day on which Bank shall
honor such draw request, the amount of such draw request (the "Draw Amount") in
immediately available funds. Unless Bank receives the Draw Amount in immediately
available funds on or before the day on which Bank honors such draw request, the
amount advanced by Bank to pay such draw shall be deemed to be a Base Rate Loan
under the Revolving
24
Credit Facility, without any requirement that Borrowers request such Loan or
otherwise comply with the Loan Request provisions set forth in this Agreement.
6.8 Cash Collateral. In the event that the Revolving Credit
---------------
Facility is terminated for any reason, the Contract Period expires or an Event
of Default occurs, Borrower will deposit with Bank immediately available funds
in an amount equal to 105% of the outstanding undrawn amount of all Letters of
Credit. Such funds and any proceeds of Collateral or other payments received by
Bank with respect to the Obligations after any such Event of Default, may be
held by Bank as cash collateral for the Obligations, including without
limitation, the Obligations of Borrowers to Bank related to the Letters of
Credit.
6.9 Indemnification. Obligors hereby agree to indemnify, save,
---------------
defend, and hold Bank harmless from any loss, cost, expense, or liability,
including payments made by Bank, expenses, and attorney's fees incurred by Bank
arising out of or in connection with any Letter of Credit, provided that,
-------------
Obligors shall not be obligated to indemnify Bank for any loss, cost, expense or
liability resulting from Bank's gross negligence or wilful misconduct. Obligors
understand and agree that Bank shall not be liable for any error, negligence, or
mistake, whether of omission or commission, in following any Borrower's
instructions or those contained in the Letter of Credit or any modifications,
amendments, or supplements thereto.
6.10 Obligations Irrevocable. The obligations of Borrowers to
-----------------------
make payments to Bank of each Draw Amount shall be irrevocable and shall not be
subject to any qualification or exception whatsoever, including, without
limitation, any of the following circumstances:
(a) any lack of validity or enforceability of any Letter of
Credit, any documents collateral to any Letter of Credit, this Agreement or any
of the other Loan Documents;
(b) the existence of any claim, set-off, defense, or other
right which any Obligor may have at any time against a beneficiary named in a
Letter of Credit or any transferee of any Letter of Credit (or any Person for
whom any such beneficiary or transferee may be acting), Bank, or any other
Person, whether in connection with this Agreement, any Letter of Credit, the
transactions contemplated herein or any unrelated transactions (including any
underlying transactions between any Obligor or any other Person and the
beneficiary named in any Letter of Credit);
(c) any draft, certificate, or any other document presented
under the Letter of Credit proving to be forged, fraudulent, invalid, or
insufficient in any respect or any statement therein being untrue or inaccurate
in any respect;
(d) the surrender or impairment of any security for the
performance or observance of any of the terms of any of the Loan Documents;
25
(e) the occurrence of any Default or Event of Default;
(f) any amendment, modification, waiver, consent, or any
substitution, exchange or release of or failure to perfect any interest in
collateral or security, with respect to or under any Letter of Credit or any
documents collateral thereto;
(g) payment by Bank to the beneficiary under any Letter of
Credit against presentation of documents which do not comply with the terms of
such Letter of Credit, including failure of any documents to bear any reference
or adequate reference to such Letter of Credit;
(h) any failure, omission, delay or lack on the part of
Bank to enforce, assert or exercise any right, power or remedy conferred upon
Bank under this Agreement, any of the other Loan Documents, any of the Letter of
Credit or any documents collateral thereto or any other acts or omissions on the
part of Bank; or
(i) any other event or circumstance that would, in the
absence of this Section 6.10, result in the release or discharge by operation of
------------
law or otherwise of any Obligor or any Person from the performance or observance
of any obligation, covenant or agreement contained herein.
No setoff, counterclaim, reduction or diminution of any obligation or any
defense of any kind or nature which any Obligor has or may have against the
beneficiary of any Letter of Credit shall be available hereunder to any Obligor
against Bank.
6.11 Risk Under Letters of Credit.
----------------------------
(a) In the administration and handling of Letters of Credit
and any security therefor, or any documents or instruments given in connection
therewith, Bank shall have the sole right, in its discretion, to take or refrain
from taking any and all actions under or upon the Letters of Credit.
(b) Subject to other terms and conditions of this
Agreement, Bank shall issue the Letters of Credit and shall hold the documents
related thereto in its own name and shall make all collections thereunder and
otherwise administer the Letters of Credit in accordance with Bank's regularly
established practices and procedures and Bank will have no further obligation
with respect thereto. In the administration of Letters of Credit, Bank shall not
be liable for any action taken or omitted in good faith reliance on the advice
of counsel, accountants, appraiser or other experts selected by Bank and Bank
may rely upon any notice, communication, certificate or other statement from the
Borrower, beneficiaries of Letters of Credit, or any other Person which Bank
believes to be authentic.
26
(c) In connection with the issuance and administration of
Letters of Credit and the assignments hereunder, Bank makes no representation
and shall have no responsibility with respect to (i) the obligations of any
Obligor or any other Person or the validity, sufficiency or enforceability of
any document or instrument given in connection therewith, or the taking of any
action with respect to same, (ii) the financial condition of, any
representations made by, or any act or omission of, any Obligor, or any other
Person, or (iii) any failure or delay in exercising any rights or powers
possessed by Bank in its capacity as issuer of Letters of Credit in the absence
of its gross negligence or willful misconduct.
7. INTEREST RATE.
-------------
7.1 Interest Rate Options for the Revolving Credit Facility.
-------------------------------------------------------
(a) General. The principal balance of the Revolving Credit
-------
Facility will accrue interest at the Borrowers' option (subject to the
limitations and conditions set forth herein) at (a) the Base Rate plus
Applicable Margin, or (b) the LIBOR Rate plus Applicable Margin. Borrowers may
request to have one or more portions of the outstanding balance of the Revolving
Credit Facility as hereinafter permitted, accrue interest, at a LIBOR Rate plus
Applicable Margin by giving Bank three (3) Business Days prior written notice in
the form of a Request for LIBOR Rate Loan (for new Advances) or a LIBOR Rate
Notification (for existing advances).
(b) Certain Provisions Regarding Interest Rates. Borrowers
-------------------------------------------
understand and agree:
(i) that subject to the provisions of this
Agreement, the Base Rate plus Applicable Margin and the LIBOR Rate plus
Applicable Margin may apply simultaneously to different parts of the outstanding
principal balance of the Revolving Credit Facility;
(ii) that the LIBOR Rate plus Applicable Margin may
apply simultaneously to various portions of the outstanding principal balance of
the Revolving Credit Facility for various Rate Periods;
(iii) that the LIBOR Rate plus Applicable Margin
applicable to one portion of the outstanding principal balance of the Revolving
Credit Facility or the Term Loan may be different from the LIBOR Rate plus
Applicable Margin applicable to a different portion of the outstanding principal
balance of the Revolving Credit Facility or the Term Loan;
(iv) that LIBOR Rate Loans must be in minimum amounts
of $500,000 each and in increments of $100,000 above such minimum; and
27
(v) that no more than an aggregate of four (4)
separate LIBOR Rate Loans under the Revolving Credit Facility and the Term Loan
shall be permitted to be outstanding at any one time.
(c) Certain Limitations. The right of the Borrowers to
-------------------
elect a LIBOR Rate plus Applicable Margin shall be limited as follows:
(i) Borrowers may not elect to borrow at or to
convert to LIBOR Rate plus Applicable Margin if at the time of such conversion
or election there shall exist a Default or an Event of Default.
(ii) if a LIBOR Rate plus Applicable Margin is
elected, such interest rate shall remain in effect for the Rate Period selected
and such interest rate shall not otherwise be converted to another interest rate
prior to the expiration of the Rate Period except as otherwise required by this
Agreement.
(iii) any Loan accruing interest at a LIBOR Rate plus
the Applicable Margin shall, commencing on the last day of the applicable Rate
Period, bear interest at the Base Rate plus Applicable Margin unless prior
thereto Bank shall have received a timely notice pursuant to this Section 7.1
-----------
that an elective rate based on the LIBOR Rate plus Applicable Margin shall be
effective commencing on such date with respect to any or all of such principal.
(iv) Borrowers may not elect a LIBOR Rate plus
Applicable Margin for any Rate Period if the effect of such election, (as could
reasonably be determined by Borrowers at the time of such election) would be to
require Borrowers to make a repayment or prepayment of a LIBOR Rate Loan prior
to the end of the relevant Rate Period. Without limiting the generality of the
foregoing, no Rate Period may be elected that would end later than the
expiration of the Contract Period.
7.2 Interest Rate Options for the Term Loan.
---------------------------------------
(a) General. The entire outstanding principal balance of
-------
the Term Loan will accrue interest at the Borrowers' option (subject to the
limitations and conditions set forth below) at (a) the Base Rate plus Applicable
Margin, or (b) the LIBOR Rate plus Applicable Margin. Borrowers may request to
have one or more portions of the outstanding balance of the Term Loan accrue
interest, at a LIBOR Rate plus Applicable Margin by giving Bank three (3)
Business Days prior written notice in the form of a LIBOR Rate Notification.
(b) Certain Provisions Regarding Interest Rates. Borrowers
-------------------------------------------
understand and agree:
28
(i) that subject to the provisions of this Agreement,
the Base Rate plus Applicable Margin and the LIBOR Rate plus Applicable Margin
may apply simultaneously to different parts of the outstanding principal balance
of the Term Loan;
(ii) that the LIBOR Rate plus Applicable Margin may
apply simultaneously to various portions of the outstanding principal balance of
the Term Loan for various Rate Periods;
(iii) that the LIBOR Rate plus Applicable Margin
applicable to one portion of the outstanding principal balance of the Revolving
Credit Facility or the Term Loan may be different from the LIBOR Rate plus
Applicable Margin applicable to a different portion of the outstanding principal
balance of the Revolving Credit Facility or the Term Loan;
(iv) that LIBOR Rate Loans must be in minimum amounts
of $500,000 each and in increments of $100,000 above such minimum; and
(v) that no more than an aggregate of four (4)
separate LIBOR Rate Loans under the Term Loan and the Revolving Credit Facility
shall be permitted to be outstanding at any one time.
(c) Certain Limitations. The right of the Borrowers to
-------------------
elect a LIBOR Rate plus Applicable Margin shall be limited as follows:
(i) Borrowers may not elect to borrow at or convert
to a LIBOR Rate plus Applicable Margin if at the time of such election there
shall exist a Default or an Event of Default.
(ii) if a LIBOR Rate plus Applicable Margin is
elected, such interest rate shall remain in effect for Rate Period and such
interest rate shall not otherwise be converted to another interest rate prior to
the expiration of such Rate Period except as otherwise required by this
Agreement.
(iii) the portion of the Term Loan accruing interest at
a LIBOR Rate plus the Applicable Margin shall, commencing on the last day of the
applicable Rate Period, bear interest at the Base Rate unless prior thereto the
Bank shall have received a timely notice pursuant to this Section 7.2 that an
-----------
elective rate based on the LIBOR Rate plus Applicable Margin shall be effective
commencing on such date with respect to such portion.
(iv) Borrowers may not elect a LIBOR Rate plus
Applicable Margin for any Rate Period if the effect of such election, (as could
reasonably be determined by Borrowers
29
at the time of such election) would be to require Borrowers to make a repayment
or prepayment of a LIBOR Rate Loan prior to the end of the relevant Rate Period.
Without limiting the generality of the foregoing, no Rate Period may be elected
that would end later than the expiration of the Term Loan Maturity Date.
7.3 Base Rate Fall Back. With respect to any principal amount of the
-------------------
Revolving Credit Facility or the Term Loan (whether an Advance of new funds or
an already outstanding amount), if Borrowers fail to request that the LIBOR Rate
plus Applicable Margin option be applicable by giving Bank a timely LIBOR Rate
Notification or a Request for LIBOR Rate Loan (including a request at the
expiration of any applicable Rate Period), such principal amount shall be deemed
to accrue interest at the Base Rate plus Applicable Margin.
7.4 LIBOR Rate Unascertainable or Unavailable. If, at any time, Bank
-----------------------------------------
shall determine (which determination shall be conclusive) that the LIBOR Rate is
unavailable or adequate means for ascertaining the LIBOR Rate do not exist, Bank
shall promptly notify Borrowers of such determination. Upon such determination,
the right of Borrowers to select and/or maintain Advances based upon the LIBOR
Rate plus Applicable Margin shall be suspended until notice from Bank to
Borrowers that the LIBOR Rate is again available or ascertainable and, until
such time, the outstanding balance of the Revolving Credit Facility and the Term
Loan shall accrue interest at the Base Rate plus Applicable Margin.
7.5 LIBOR Unlawful. In the event that, as a result of any change in
--------------
any applicable law or regulation or the interpretation thereof, it becomes
unlawful for Bank to maintain any advance under the Revolving Credit Facility or
the Term Loan at the LIBOR Rate plus Applicable Margin, then Bank shall notify
Borrowers thereof and Bank's obligation to make or maintain any Advance under
the Revolving Credit Facility or the Term Loan at the LIBOR Rate plus Applicable
Margin shall be suspended until such time as Bank may again cause the LIBOR Rate
plus Applicable Margin to be applicable and, until such time, such Advances
under the Revolving Credit Facility and the Term Loan shall accrue interest at
the Base Rate plus Applicable Margin. Promptly after becoming aware that it is
no longer unlawful for Bank to maintain Advances under the Revolving Credit
Facility and the Term Loan at the LIBOR Rate plus Applicable Margin, Bank shall
notify Borrowers and such suspension shall cease to exist.
7.6 Indemnification. Obligors agree to indemnify Bank against any
---------------
loss, cost or expense (including, without limitation, loss of margin) which Bank
has sustained or incurred as a consequence of: (i) any payment of any LIBOR Rate
Loan on a day other than the last day of the corresponding Rate Period, whether
or not any such payment is made pursuant to acceleration, upon or after an Event
of Default, by reason of an application of proceeds incident to an insured loss
or condemnation of property, or for any other reason, and whether or not any
such payment is consented to by Bank (unless Bank shall have expressly waived
such indemnity in writing); (ii) any attempt by Borrowers to revoke, in whole or
part, any LIBOR Rate Notification or Request for LIBOR Rate Loan given pursuant
to this Agreement; (iii) any attempt by Borrowers to convert or renew any
principal amount accruing
30
interest at the LIBOR Rate plus Applicable Margin on a day other than the last
day of the corresponding Rate Period (whether or not such conversion or renewal
is consented to by Bank, unless Bank shall have expressly waived such indemnity
in writing); (iv) any conversion of any amount earning interest at the LIBOR
Rate plus Applicable Margin on a day other than the last day of the
corresponding Rate Period; or (v) any Event of Default.
7.7 Determinations. In making the determinations contemplated by
--------------
Section 7.6, Bank may make such estimates, assumptions, allocations and the
-----------
like that Bank determines to be appropriate, and Bank's selection thereof in
accordance with Section 7.6 and the determinations made by the Bank on the basis
-----------
thereof, shall be final, binding and conclusive upon Borrowers, absent manifest
error.
7.8 Default Rate. Interest will accrue on the principal balance of
------------
the Revolving Credit Facility and the Term Loan (including any principal balance
previously accruing interest at a LIBOR Rate plus Applicable Margin) after the
occurrence of an Event of Default or expiration of the Contract Period at a rate
of two percent (2%) in excess of the otherwise applicable non-default rate of
interest (the "Default Rate"). Obligors acknowledge and agree that the Default
Rate is reasonable in light of the increased risk of collection of the sums due
under the Revolving Credit Facility and the Term Loan after occurrence of an
Event of Default and the costs and expenses of Bank related thereto.
7.9 Post Judgment Interest. Any judgment obtained for sums due
----------------------
hereunder or under the Loan Documents will accrue interest at the applicable
Default Rate set forth above until paid.
7.10 Calculations.
------------
(a) Interest will be computed on the basis of a year of 360 days
and paid for the actual number of days elapsed.
(b) In the event that the actual average monthly principal
balance outstanding under the Revolving Credit Facility for any month is less
than $5,000,000.00, interest on the Revolving Credit Facility balance shall be
calculated based on an assumed average monthly loan balance of $5,000,000.00,
with the difference between $5,000,000.00 and the actual average monthly loan
balance bearing interest as if it were a Base Rate Loan.
7.11 Limitation of Interest to Maximum Lawful Rate. In no event will
---------------------------------------------
the rate of interest payable hereunder exceed the maximum rate of interest
permitted to be charged by applicable law (including the choice of law rules)
and any interest paid in excess of the permitted rate will be refunded to
Borrowers. Such refund will be made by application of the excessive amount of
interest paid against any sums outstanding hereunder and will be applied in such
order as Bank may determine. If the excessive amount of interest paid exceeds
the sums outstanding, the portion exceeding the sums
31
outstanding will be refunded in cash by Bank. Any such crediting or refunding
will not cure or waive any Event of Default. Borrowers agree that in determining
whether or not any interest payable hereunder exceeds the highest rate permitted
by law, any nonprincipal payment, including without limitation prepayment fees
and late charges, will be deemed to the extent permitted by law to be an
expense, fee, premium or penalty rather than interest.
8. PAYMENTS AND FEES.
-----------------
8.1 Interest Payments on the Revolving Credit Facility.
--------------------------------------------------
Borrowers agree to pay to Bank interest on the principal balance of Base Rate
Loans under the Revolving Credit Facility on the first day of each calendar
month, commencing on the first day of the first calendar month following the
date hereof, and on the expiration of the Contract Period. Borrowers agree to
pay to Bank interest on the principal balance of LIBOR Rate Loans under the
Revolving Credit Facility on the last day of each Rate Period, provided that,
-------- ----
for any Rate Period with a duration of more than three months, interest will
also be payable every ninetieth (90/th/) day after the commencement of such Rate
Period. Bank may, at its option, establish a Reserve for interest accruing on
any LIBOR Rate Loans with a Rate Period in excess of one month.
8.2 Principal Payments on the Revolving Credit Facility. Funds
---------------------------------------------------
received by Bank in the Cash Collateral Account will be applied by Bank toward
repayment of the outstanding principal balance of the Revolving Credit Facility
or may be held as cash collateral by Bank. Provided that no Event of Default has
occurred, such funds will be applied by Bank to repay the outstanding principal
balance of the Revolving Credit Facility, with such payments to be applied first
-----
to repay all Loans which are Base Rate Loans, and second to repay all Loans
------
which are LIBOR Rate Loans. To the extent that any sums are applied to repay
LIBOR Rate Loans, they shall be applied to LIBOR Rate Loans in the chronological
order in which the Rate Periods for such LIBOR Rate Loans expire. Upon the
occurrence of an Event of Default, Bank may discontinue such arrangement and may
apply such funds to costs, indemnities, fees, interest and principal,
constituting Obligations in such order as Bank, in its discretion elects.
Provided that no Event of Default has occurred, if all Advances under
the Revolving Credit Facility and all other Obligations then due and payable
(not including contingent obligations under undrawn Letters of Credit) have been
paid in full, and thereafter funds are received by Bank in the Cash Collateral
Account, Bank will permit the transfer of such funds to Borrowers' operating
account maintained with Bank.
Notwithstanding the foregoing, Borrowers agree to pay the outstanding
principal balance of the Revolving Credit Facility, together with any accrued
and unpaid interest thereon, and any other sums due pursuant to the terms hereof
on the earlier to occur of (a) the expiration of the Contract Period, or (b) ON
DEMAND after the occurrence of an Event of Default. If any Out-Of-Formula
Advance arises or
32
exists under the Revolving Credit Facility for any reason whatsoever, including
without limitation inventory or accounts becoming ineligible or any new or
increased Reserves, Borrowers agree to repay such Out-Of-Formula Advance
immediately upon the earlier to occur of (i) notice or demand by Bank, or (ii)
any Borrower has knowledge of such Out-of-Formula Advance.
8.3 Interest Payments on the Term Loan. Borrowers agree to pay
----------------------------------
to Bank interest on the principal balance of Base Rate Loans under the Term Loan
on the first day of each calendar month, commencing on the first day of the
first calendar month following the date hereof, and on the Term Loan Maturity
Date. Borrowers agree to pay to Bank interest on the principal balance of LIBOR
Rate Loans under the Term Loan on the last day of each Rate Period, provided
--------
that, for any Rate Period with a duration of more than three months, interest
----
will also be payable every ninetieth (90/th/) day after the commencement of such
Rate Period. Bank may, at its option, establish a Reserve for interest accruing
on any LIBOR Rate Loans with a Rate Period in excess of one month.
8.4 Principal Payments on Term Loan. Borrowers agree to pay to
-------------------------------
Bank the principal balance of the Term Loan in equal and consecutive monthly
installments of $55,555.56 each, on the first (1/st/) day of each calendar
month, commencing on December 1, 2000, and in one final payment of the remaining
principal balance plus all accrued and unpaid interest thereon on the Term Loan
Maturity Date.
8.5 Letter of Credit Fees. For each issuance or renewal of a
---------------------
Merchandise Letter of Credit, Borrowers agree to pay to Bank an issuance or
renewal fee in an amount equal to 0.625% of the face amount of such Merchandise
Letter of Credit, payable coincident with and as a condition of the issuance or
renewal of such Merchandise Letter of Credit. For each issuance or renewal of a
Standby Letter of Credit hereunder, Borrowers agree to pay to Bank an issuance
or renewal fee in an amount equal to 2.5% per annum of the face amount of such
Standby Letter of Credit, payable coincident with and as a condition of the
issuance or renewal of such Standby Letter of Credit. In addition, Borrowers
agree to pay to Bank such other fees and charges in connection with the
issuance, amendment, negotiation or cancellation of each Merchandise Letter of
Credit and Standby Letter of Credit as may be customarily charged by Bank. Upon
the occurrence of an Event of Default, at Bank's option, the fees provided for
in this Section shall be increased by two percent (2%) for each Merchandise
Letter of Credit and each Standby Letter of Credit, as applicable. All of such
fees shall be computed on the basis of a year of 360 days.
8.6 Facility Fee. Borrowers agree to pay to Bank a loan facility
------------
fee of $42,500.00 which was fully earned by issuance of the commitment letter to
Borrowers by Bank dated July 11, 2000. The $5,000.00 commitment fee which was
fully earned by issuance of a revised commitment letter to Borrowers by Bank
dated September 19, 2000 will be applied towards costs and expenses of Bank in
connection with this transaction. The entire loan facility fee is non-refundable
in whole or in part.
33
8.7 Collateral Management Fee. So long as the Revolving Credit
-------------------------
Facility has not been terminated pursuant to the terms hereof and the
Obligations have not been satisfied in full, Borrowers agree unconditionally pay
to Bank a non-refundable monthly collateral management fee of Two Thousand
Dollars ($2,000.00) payable monthly in advance.
8.8 Unused Facility Fee. Borrowers agree to pay to Bank an
-------------------
unused facility fee in an amount equal to 0.25% per annum times the Average
Unused Portion of Maximum Revolving Credit Facility Amount. Such fee will be
payable monthly in arrears on the first day of each month, pro-rated for the
actual number of days in any partial month.
8.9 Late Charge. In the event that Borrowers fail to pay any
-----------
principal, interest or other fees or expenses payable hereunder for a period of
at least fifteen (15) days, in addition to paying such sums, Borrowers will pay
to Bank a late charge equal to five percent (5%) of such past due payment as
compensation for the expenses incident to such past due payment.
8.10 Termination of Revolving Credit Facility and Termination
--------------------------------------------------------
Fee. Borrowers may terminate the Revolving Credit Facility upon ninety (90) days
---
written notice to Bank, which notice, once given shall be irrevocable. In the
event that (a) the Revolving Credit Facility is terminated by Borrowers for any
reason, including without limitation prepayment or refinancing of the Revolving
Credit Facility with another lender, or (b) Borrowers default under the
Revolving Credit Facility and the Revolving Credit Facility is terminated,
Borrowers shall pay to Bank a termination fee calculated as follows:
(a) If the termination occurs on or prior to October 24,
2001, the termination fee will be equal to 3% of the Maximum Revolving Credit
Amount;
(b) If the termination occurs after October 24, 2001, but
on or before October 24, 2002, the termination fee will be equal to 2% of the
Maximum Revolving Credit Amount; and
(c) If the termination occurs after October 24, 2002, but
on or before October 23, 2003, the termination fee will be equal to 1% of the
Maximum Revolving Credit Amount.
In the event the Revolving Credit Facility is terminated as a result
of an Event of Default, Bank shall be entitled to receive the termination fee
required to be paid under the prior paragraphs. In the event the Revolving
Credit Facility is terminated as a result of an Event of Default, expiration of
the Contract Period, or otherwise, the outstanding balance of the Revolving
Credit Facility and the Term Loan, together with any accrued and unpaid interest
thereon and any other sums due pursuant to the terms hereof shall be due and
payable immediately.
The termination fee shall be presumed to be the amount of damages
sustained by Bank as a result of such early termination and Borrowers agree that
it is reasonable under the circumstances
34
currently existing. The termination fee provided for in this Section 8.10 shall
------------
be deemed included in the Obligations and shall be secured by the Collateral.
8.11 Prepayment of Term Loan. Borrowers may prepay all or any
-----------------------
part of the principal balance of the Term Loan at any time, following delivery
of not less than ninety (90) days prior written notice to Bank and upon payment
of the applicable fee set forth below. All prepayments will be applied to the
regularly scheduled payments in the inverse order in which they are due. The
following prepayment fee shall be applicable with respect to the Term Loan.
(a) For each prepayment made on or prior to October 24,
2001, the prepayment fee will be equal to three percent (3%) of the principal
amount prepaid;
(b) For each prepayment made after October 24, 2001 but on
or before October 24, 2002, the prepayment fee will be equal to two percent (2%)
of the principal amount prepaid;
(c) For each prepayment made after October 24, 2002 but on
or before October 23, 2003, the prepayment fee will be equal to one percent (1%)
of the principal amount prepaid.
In the event Bank exercises its right to accelerate payments under the
Term Loan following an Event of Default or otherwise, any tender of payment of
the amount necessary to repay all or part of the Term Loan made thereafter at
any time by any Obligor, its successors or assigns or by anyone on behalf of
Borrowers and any receipt by Bank of proceeds of Collateral in payment of the
Term Loan shall be deemed to be a voluntary prepayment and in connection
therewith Bank shall be entitled to receive the fee required to be paid under
the foregoing prepayment restrictions.
The prepayment fee shall be presumed to be the amount of damages
sustained by Bank as a result of such prepayment and Borrowers agree that it is
reasonable under the circumstances currently existing. The prepayment fee
provided for in this Section 8.11 shall be deemed included in the Obligations
------------
and shall be secured by the Collateral.
8.12 Interest and Breakage Costs on LIBOR Rate Loans. Borrowers
-----------------------------------------------
shall, concurrently with any prepayment of any LIBOR Rate Loans, pay the full
amount of all interest accrued on such LIBOR Rate Loans and, if on a day other
than the last day of the applicable Rate Period, pay such amounts as are
required by Section 7.6.
-----------
8.13 Payment Method and Application.
------------------------------
(a) Cash Collateral Account. All funds and items received
-----------------------
or deposited into the Cash Collateral Account will be credited as payments of
the principal balance of the Revolving Credit Facility on the next Business Day
after which such items are deposited into the Cash
35
Collateral Account. Borrowers will reimburse Bank on demand for the amount of
any items credited as provided above and subsequently returned unpaid. Bank may
terminate the foregoing arrangement upon notice to Borrowers, in which event
funds and items received or deposited into the Cash Collateral Account will be
credited as payments of the principal balance for the Revolving Credit Facility
when such funds or items are available to Bank as collected funds.
(b) Operating Account. Borrowers irrevocably authorize Bank
-----------------
to debit from any account maintained by any Borrower with Bank on the applicable
due date, all interest payments on the Revolving Credit Facility and all
principal and interest payments on the Term Loan. Borrowers also irrevocably
authorize Bank to debit from such accounts all Bank Expenses and other
Obligations.
(c) Other. Bank at its option may make the payments
-----
described in subsections (a) and (b) above by advancing such sums to itself as a
-----------------------
Base Rate Loan under the Revolving Credit Facility, without any requirement that
Borrowers request such Advance or otherwise comply with the borrowing procedures
set forth in this Agreement. If (i) there are insufficient funds in such
accounts, (ii) Bank for any reason does not debit such accounts, or (iii) Bank
for any reason does not make an Advance under the Revolving Credit Facility to
make any such payments, then Borrowers will make such payments directly to Bank.
(d) Immediately Available Funds. All payments are to be
---------------------------
made in immediately available funds. If Bank accepts payment in any other form,
such payment shall not be deemed to have been made until the funds comprising
such payment have actually been received by or made available to Bank.
(e) Event of Default. Upon the occurrence of an Event of
----------------
Default, Bank may apply funds in the Cash Collateral Account and may debit any
operating account or other deposit account maintained by any Borrower with Bank
to pay costs, indemnities, fees, interest and principal, constituting
Obligations, in such order as Bank, in its discretion elects.
8.14 Reinstatement of Obligations. If any Obligor makes a payment
----------------------------
or payments and such payment or payments, or any part thereof, are subsequently
invalidated, declared to be fraudulent or preferential, set aside or are
required to be repaid to a trustee, receiver, or any other person under any
bankruptcy act, state or federal law, common law or equitable cause, then to the
extent of such payment or payments, the obligations or part thereof hereunder
intended to be satisfied shall be revived and continued in full force and effect
as if said payment or payments had not been made.
8.15 Maintenance of Loan Account; Statements of Obligations. Bank
------------------------------------------------------
shall maintain an account on its books in the name of Borrowers (the "Loan
Account") on which Borrowers will be charged with all Advances and Loans made by
Bank to Borrowers or for Borrowers' account,
36
including, accrued interest, the Bank Expenses, and any other payment
Obligations of Borrowers. Bank shall render monthly statements regarding the
Loan Account to Borrowers, including principal, interest, fees, and including an
itemization of all charges and expenses constituting the Bank Expenses owing,
and such statements shall be conclusively presumed to be correct and accurate,
and shall constitute an account stated between Borrowers and Bank unless, within
thirty (30) days after receipt thereof by Borrowers, Borrowers shall deliver to
Bank written objection thereto describing the error or errors contained in any
such statements.
8.16 Indemnity. Borrowers agree to indemnify Bank against any
---------
loss or expense which Bank sustains or incurs as a consequence of an Event of
Default, including, without limitation, any failure of Borrowers to pay when due
(at maturity, by acceleration or otherwise) any principal, interest, fee or any
other amount due under this Agreement or the other Loan Documents. If Bank
sustains or incurs any such loss or expense it will notify Borrowers in writing
of the amount determined in good faith by Bank to be necessary to indemnify it
for the loss or expense. Such amount will be due and payable by Borrowers to
Bank within ten (10) days after presentation by Bank of a statement setting
forth a brief explanation of and its calculation of such amount, which statement
shall be conclusively deemed correct absent manifest error. Any amount payable
by Borrowers under this Section will bear interest at the Default Rate from the
due date until paid, both before and after judgment.
8.17 Loss of Margin. In the event that any present or future law,
--------------
rule, regulation, treaty or official directive or the interpretation or
application thereof by any central bank, monetary authority or governmental
authority, or the compliance with any guideline or request of any central bank,
monetary authority or governmental authority (whether or not having the force of
law):
(a) subjects Bank to any tax with respect to any amounts
payable under this Agreement or the other Loan Documents by Borrowers or
otherwise with respect to the transactions contemplated under this Agreement or
the other Loan Documents (except for taxes on the overall net income of Bank
imposed by the U.S. or any political subdivision thereof); or
(b) imposes, modifies or deems applicable any deposit
insurance, reserve, special deposit, capital maintenance, capital adequacy, or
similar requirement against assets held by, or deposits in or for the account
of, or loans or advances or commitment to make loans or advances by, or letters
of credit issued or commitment to issue letters of credit by Bank; or
(c) imposes upon Bank any other condition with respect to
advances or extensions of credit or the commitment to make advances or
extensions of credit under this Agreement,
and the result of any of the foregoing is to increase the costs of Bank, reduce
the income receivable by or return on equity of Bank or impose any expense upon
Bank in each case related to any Advances or extensions of credit made by Bank
or commitments by Bank to make Advances or extensions of credit
37
under this Agreement, Bank shall so notify Borrowers in writing. Borrowers agree
to pay Bank the amount of such increase in cost, reduction in income, reduced
return on equity or capital, or additional expense within ten (10) days after
presentation by Bank of a statement concerning such increase in cost, reduction
in income, reduced return on equity or capital, or additional expense. Such
statement shall set forth a brief explanation of the amount and Bank's
calculation of the amount (in determining such amount Bank may use any
reasonable averaging and attribution methods), which statement shall be
conclusively deemed correct absent manifest error. If the amount set forth in
such statement is not paid within ten (10) days after such presentation of such
statement, interest will be payable on the unpaid amount at the Default Rate
from the due date until paid, both before and after judgment.
8.18 Savings Clause. Anything contained in this Agreement or any
--------------
other Loan Documents to the contrary notwithstanding, the obligations of each
Obligor with respect to the repayment of the outstanding principal balance of
the Loans shall be limited to a maximum aggregate amount equal to the greater of
(a) the loan proceeds and the value of all other consideration and benefits
received by or for the benefit of such Obligor in connection with the financing
transactions contemplated hereunder, or (b) the largest amount that would not
render its obligations with respect thereto subject to avoidance as a fraudulent
transfer or conveyance under Section 548 of Title 11 of the United States Code
or any applicable provisions of comparable state, federal, provincial or other
applicable law of any jurisdiction (collectively, the "Fraudulent Transfer
Laws"), if and to the extent such Obligor (or trustee on its behalf) has
properly invoked the protections of the Fraudulent Transfer Laws. In making such
determination, all rights of subrogation and contribution of any Obligor with
respect to such obligations shall be deemed to be an asset of such Obligor.
9. TAXES.
-----
9.1 Any and all payments by Borrowers to or for the account of
Bank hereunder or under any other Loan Document shall be made free and clear of,
and without deduction for, any and all present or future taxes, duties, levies,
imposts, deductions, charges or withholdings, and all liabilities with respect
thereto, excluding, in the case of Bank, taxes imposed on its income, and
---------
franchise taxes imposed on it, by the jurisdiction under the laws of which Bank
is organized or any political subdivision thereof (all such non-excluded taxes,
duties, levies, imposts, deductions, charges, withholdings and liabilities being
hereinafter referred to as "Taxes"). If Borrowers shall be required by law to
deduct any Taxes from or in respect of any sum payable under this Agreement or
any other Loan Document to Bank, (i) the sum payable shall be increased as
necessary so that after making all required deductions (including deductions
applicable to additional sums payable under this Section 9.1) Bank receives an
-----------
amount equal to the sum it would have received had no such deductions been made,
(ii) Borrowers shall make such deductions, (iii) Borrowers shall pay the full
amount deducted to the relevant taxation authority or other authority in
accordance with Applicable Law, and (iv) Borrowers shall furnish to Bank the
original or a certified copy of the receipt evidencing payment thereof.
38
9.2 In addition, Borrowers agree to pay any and all present or
future stamp or documentary taxes and any other excise or property taxes or
charges or similar levies which arise from any payment made under this Agreement
or any other Loan Document or from the execution or delivery of, or otherwise
with respect to, this Agreement or any other Loan Document (hereinafter referred
to as "Other Taxes").
9.3 BORROWERS AGREE TO INDEMNIFY BANK FOR THE FULL AMOUNT OF
TAXES AND OTHER TAXES (INCLUDING, WITHOUT LIMITATION, ANY TAXES OR OTHER TAXES
IMPOSED OR ASSERTED BY ANY JURISDICTION ON AMOUNTS PAYABLE UNDER THIS SECTION 9
---------
PAID BY BANK AND ANY LIABILITY (INCLUDING PENALTIES, INTEREST AND EXPENSES)
ARISING THEREFROM OR WITH RESPECT THERETO. For purposes of this Section 9.3,
-----------
Taxes and Other Taxes shall not include taxes imposed on the income of Bank
resulting from payments made to Bank under the Loan Documents.
9.4 Within thirty (30) days after the date of any payment of
Taxes or Other Taxes, Borrowers shall furnish to Bank the original or a
certified copy of the receipt evidencing such payment.
9.5 Without prejudice to the survival of any other agreement of
Borrowers hereunder, the agreements and obligations of Borrowers contained in
this Section 9 shall survive the termination of this Agreement and the payment
---------
in full of the Obligations.
10 SECURITY; COLLECTION OF RECEIVABLES AND PROCEEDS OF COLLATERAL.
--------------------------------------------------------------
10.1 Personal Property. As security for the full and timely
-----------------
payment and performance of all Obligations, each Obligor hereby grants to Bank a
first priority perfected security interest in all personal property of such
Obligor, wherever located, now owned or hereafter acquired, including without
limitation the following:
(a) All present and future Accounts, contract rights,
chattel paper, instruments and documents and all other rights to the payment of
money whether or not yet earned, for services rendered or goods sold, consigned,
leased or furnished or otherwise, in all cases together with (i) all goods
(including any returned, rejected, repossessed or consigned goods), the sale,
consignment, lease or other furnishings of which shall give or may give rise to
any of the foregoing, (ii) all rights as a consignor, consignee, unpaid vendor
or other lien or in connection therewith, including stoppage in transit, set-
off, detinue, replevin and reclamation, (iii) all General Intangibles related
thereto, (iv) all credit insurance, guaranties, mortgages, security interests,
assignments, and other encumbrances on real or personal property, leases and
other agreements or property securing or relating to any of the foregoing, (v)
39
choses-in-action, claims and judgments related to or arising out of any of the
foregoing, and (vi) any return or unearned premiums, which may be due upon
cancellation of any insurance policies.
(b) All present and future Inventory (including but not
limited to goods held for sale or lease or furnished or to be furnished under
contracts for service), and all documents of title covering any of such goods or
Inventory.
(c) All present and future General Intangibles.
(d) All present and future Equipment, all documents of
title covering any of such Equipment and all manuals of operation, maintenance
or repair.
(e) All present and future rights in all proceeds of all
licenses, permits, approvals, license rights, agreements and General Intangibles
with respect to which there are valid and enforceable legal or contractual
restrictions prohibiting the collateral assignment or granting of a security
interest (the "Non-Assignable Contracts"), including without limitation all
proceeds from the sale, transfer or liquidation of such Non-Assignable Contracts
and the value allocable to such Non-Assignable Contracts in any sale of business
or assets.
(f) All present and future general ledger sheets, files,
records, customer lists, books of account, invoices, bills, certificates or
documents of ownership, bills of sale, business papers, correspondence, credit
files, tapes, cards, computer runs and all other data and data storage systems
whether in the possession of any party to this Agreement or any service bureau.
(g) All letters of credit and letter of credit rights,
including the right to receive payment thereunder and all documentation related
thereto, and all documents of title, negotiable and non-negotiable bills of
lading, electronic bills of lading, shipper's rights, rights accruing under the
law of agency or estoppel, warranties, claims and insurance proceeds related
thereto or associated therewith.
(h) Those certain securities described on Schedule
--------
10.1(h) hereto, all additional securities pledged to Bank from time to time,
-------
together with all cash, stock or other dividends paid upon such securities; all
securities received in addition to or in exchange for such securities; all
subscription rights incident to such securities; any other distribution in
respect of such securities in any form; and the proceeds thereof. All of such
securities shall be freely assignable and transferable to Bank, and shall be
accompanied by such stock pledge agreements and blank stock powers with
signatures guaranteed as Bank may require.
(i) All documents of title, negotiable and non-negotiable
bills of lading, electronic bills of lading, shipper's rights, rights accruing
under the law of agency or estoppel, documents, agreements, instruments,
warranties and claims now existing or hereafter issued or arising in connection
with
40
any Merchandise Letter of Credit now or hereafter issued under this Agreement,
and all insurance claims or proceeds related thereto.
(j) All deposits, funds, notes, drafts, instruments
(including promissory notes), documents, policies, evidences and certificates of
insurance, securities, personal property leases and chattel paper and other
assets, now or at any time hereafter on deposit with or in the possession or
control of Bank or owing by Bank or in transit by mail or carrier to Bank or in
the possession of any other Person acting on Bank's behalf, without regard to
whether Bank received the same in pledge, for safekeeping, as agent for
collection or otherwise, or whether Bank has conditionally released the same,
and in all assets in which Bank now has or may at any time hereafter obtain a
lien, mortgage, or security interest for any reason.
(k) All deposit accounts maintained by such Obligor with
any depository institution.
(l) All Investment Property.
(m) All Financial Assets.
(n) All domain names and domain name registration rights,
including without limitation, the domain names described on Schedule 11.18.
--------------
(o) All products and proceeds of the foregoing.
10.2 Collateral Assignment of Licenses. As further security for
---------------------------------
the Obligations, Obligors shall cause to be executed and delivered to Bank, a
collateral assignment of all Licenses owned by them which are not subject to
enforceable legal or contractual restrictions prohibiting such collateral
assignment.
10.3 Management Support and Validity Agreements. As further
------------------------------------------
security for the Obligations, Borrowers shall cause to be executed and delivered
to Bank, management support and validity agreements from the following officers
of Borrowers (a) ▇▇▇▇▇ ▇. ▇▇▇▇▇▇, (b) ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, (c) ▇▇▇▇▇▇▇ ▇.
▇▇▇▇▇▇▇, and (d) ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, all in form and content as satisfactory to
the Bank.
10.4 Negotiable Collateral. In the event that any Collateral,
---------------------
including proceeds, is evidenced by or consists of Negotiable Collateral, the
applicable Obligor, shall immediately endorse and deliver physical possession of
such Negotiable Collateral to Bank, together with any stock powers executed in
blank as may be required by Bank.
41
10.5 Surety. As further security for the Obligations, Borrowers
------
shall cause to be executed and delivered to Bank, the absolute, unconditional,
unlimited surety agreement (the "Surety Agreements") of each Guarantor. Such
Surety Agreements will secure all Obligations and shall be in form and content
acceptable to Bank.
10.6 Stock Pledges. As further security for the Obligations,
-------------
DrugMax shall deliver to Bank a Pledge Agreement granting to Bank a first
priority Lien against all Capital Stock now or hereafter owned by DrugMax of
each Guarantor and all other Subsidiaries of DrugMax, together with executed
blank stock powers with signatures guaranteed.
10.7 General. The collateral described above in Sections 10.1,
------- --------------
10.2, 10.3, 10.4, 10.5 and 10.6 is collectively referred to herein as the
-------------------------------
"Collateral". The above-described security interests, assignments, Liens and
guarantees shall not be rendered void by the fact that no Obligations exist as
of any particular date, but shall continue in full force and effect until the
Obligations have been repaid, Bank has no agreement or commitment outstanding
under the Loan Documents pursuant to which Bank may extend credit to or on
behalf of any Obligor and Bank has executed termination statements or releases
with respect thereto. Bank agrees to execute and deliver to Obligors, at
Obligors' expense, termination statements and releases with respect to all Liens
in favor of Bank encumbering the Collateral with reasonable promptness after all
Obligations have been fully and finally paid and Bank has no agreement or
commitment outstanding to extend credit to or on behalf of any Obligor. IT IS
THE EXPRESS INTENT OF THE OBLIGORS THAT ALL OF THE COLLATERAL SHALL SECURE NOT
ONLY THE OBLIGATIONS UNDER THE LOAN DOCUMENTS, BUT ALSO ALL OTHER PRESENT AND
FUTURE OBLIGATIONS OF ANY OBLIGOR TO BANK.
10.8 Collection of Accounts; Proceeds of Collateral.
----------------------------------------------
(a) General. Obligors will collect their Accounts only in
-------
the ordinary course of their business.
(b) Lockbox. Borrowers will notify all of their Account
-------
Debtors to forward all Accounts collections owed to Borrowers to the lockbox
maintained by Bank, and will execute such lockbox agreements as may be required
by Bank and will pay to Bank all customary fees in connection with such lockbox
arrangements. Immediately upon receipt, Borrowers will forward to Bank all other
checks, drafts and other monies received by Borrowers which are proceeds of the
Collateral to the lockbox maintained by Bank. Notwithstanding the foregoing,
certain Accounts collections owed to Borrowers may be deposited in certain
accounts maintained by Borrower with a financial institution acceptable to Bank
(the "Blocked Account"), provided that such Blocked Account is subject to a
blocked account agreement satisfactory to Bank which will restrict disbursements
from such Blocked Account only to Bank.
42
(c) Cash Collateral Account. All Accounts collections of
-----------------------
Borrowers and all checks, drafts and other monies received by Borrowers which
are proceeds of the Collateral will be deposited in a noninterest bearing cash
collateral account maintained at Bank (the "Cash Collateral Account"). Bank will
have sole dominion and control over all items and funds in the Cash Collateral
Account and such items and funds may be withdrawn only by Bank. Bank will have
the right to apply all or any part of such funds towards payment of any of the
Obligations, as set forth in Section 8.2.
-----------
(d) Credit for Collections. Solely for purposes of
----------------------
calculating interest on the balance of the Revolving Credit Facility, and
subject to the provisions of Section 8.13 regarding application of payments, all
------------
items deposited into the Cash Collateral Account will be credited by Bank absent
an Event of Default as payments of the principal balance of the Revolving Credit
Facility. As compensation for the arrangement set forth in this Section 10.8(d),
---------------
Borrowers will pay to Bank a sum equal to one (1) days interest on all such
deposits at the interest rate applicable for Base Rate Loans under the Revolving
Credit Facility. Borrowers agree to reimburse Bank on demand for the amount of
any items credited as provided above and subsequently returned unpaid. Bank may
terminate the foregoing arrangement upon notice to Borrowers.
(e) Items Held In Trust; Endorsements. Borrowers agree that
---------------------------------
all monies, checks, notes, instruments, drafts, chattel paper or other payments
relating to or constituting proceeds of any Accounts or other Collateral owned
by Borrowers which come into the possession or under the control of any Borrower
or any employees, agents or other Persons acting for or in concert with any
Borrower shall be received and held in trust for Bank and such items shall be
the sole and exclusive property of Bank. Immediately upon receipt of any such
notes, instruments or chattel paper, Borrowers and such other Persons shall
remit the same or cause the same to be remitted, in kind, to Bank. Borrowers
shall deliver or cause to be delivered to Bank, with appropriate endorsement and
assignment to Bank with full recourse to Borrowers all instruments, notes and
chattel paper constituting an Account or proceeds thereof or of other
Collateral. Bank is hereby authorized, after the occurrence of an Event of
Default, to open all mail addressed to any Obligor and endorse all checks,
drafts or other items for payment on behalf of any Obligor. Bank (and Bank's
officers, employees and agents) is granted a power of attorney by Obligors with
full power of substitution to execute, after the occurrence of an Event of
Default, on behalf of any Obligor and in their name or to endorse their name on
any check, draft, instrument, note or other item of payment or to take any other
action or sign any document in order to effectuate the foregoing.
11. REPRESENTATIONS AND WARRANTIES. In order to induce Bank to
------------------------------
enter into this Agreement, the Obligors, jointly and severally, make the
following representations and warranties which shall be true, correct, and
complete in all respects as of the date hereof, and shall be true, correct, and
complete in all respects as of the Closing Date, and at and as of the date of
the making or entering into each Advance or Letter of Credit thereafter, as
though made on and as of the date of such Advance or Letter of Credit (except to
the extent that such representations and warranties relate solely to an earlier
date) and such representations and warranties shall survive the execution and
delivery of this Agreement.
43
11.1 Valid Organization, Good Standing and Qualification. Each
---------------------------------------------------
Obligor is a corporation duly incorporated, validly existing and in good
standing under the laws of the applicable state described on Schedule 11.1, has
-------------
full power and authority to execute, deliver and comply with the Loan Documents,
and to carry on its business as it is now being conducted and is duly licensed
or qualified as a foreign corporation in good standing under the laws of each
other jurisdiction described on Schedule 11.1 and in which the character or
-------------
location of the properties owned by it or the business transacted by it requires
such licensing or qualification.
11.2 Licenses. Each Obligor and their employees, servants and
--------
agents have or are in the process of obtaining all licenses, registrations,
approvals and other authority as may be necessary to enable them to own and
operate the Business and to sell their Inventory in all applicable
jurisdictions. DrugMax does not sell or distribute Controlled Substances.
Borrowers are currently selling Inventory only in those jurisdictions in which
they are registered, licensed or hold permits as a wholesale distributor of
pharmaceuticals, prescription drugs or dangerous drugs, or in which such
registration, license or permit is not required by applicable law.
11.3 Ownership Interests. The ownership of all Capital Stock,
-------------------
debentures, options, warrants, bonds and other securities (debt and equity) of
the Obligors and all pledges, proxies, voting trusts, powers of attorney and
other agreements affecting the ownership or voting rights of said interests is
as set forth on Schedule 11.3.
-------------
11.4 Subsidiaries. Except as set forth on Schedule 11.4, the
------------ -------------
Obligors do not own any Capital Stock in any Person, directly or indirectly (by
any Subsidiary or otherwise). All of the outstanding Capital Stock of each
Obligor has been validly issued and is fully paid and non-assessable. No Capital
Stock of any direct or indirect Subsidiary of DrugMax is subject to the issuance
of any security, instrument, warrant, option, purchase right, conversion or
exchange right, call, commitment or claim of any right, title, or interest
therein or thereto. A Florida corporation named "▇▇▇▇▇▇▇.▇▇▇, Inc." was formed
for DrugMax. The name of that Florida corporation has been changed to "DrugMax,
Inc." No stock was ever issued for such corporation. Such Florida corporation
owns no assets and conducts no business and will not own any assets or conduct
any business. Discount Rx, Inc and ▇▇▇▇▇▇▇▇▇▇.▇▇▇, Inc. are wholly owned
subsidiaries of DrugMax. Such corporations own no material assets and conduct no
business operations.
11.5 Financial Statements. Obligors have furnished to Bank
--------------------
the audited financial statements of DrugMax and its Subsidiaries certified
without qualification by independent public accountants as of March 31, 2000 and
all management and comment letters from such accountants in connection
therewith, and the internally prepared interim financial statements of Valley as
of March 31, 2000. Such financial statements of Borrowers (together with the
related notes and comments), are correct and complete, fairly present in all
material respects the financial condition and the assets and liabilities of
44
Borrowers at such dates, and have been prepared in accordance with GAAP. With
respect to the interim statements, such statements are subject to year-end
adjustment and any accompanying footnotes.
11.6 No Material Adverse Change in Financial Condition. There has
-------------------------------------------------
been no Material Adverse Change in the financial condition of any Obligor since
March 31, 2000.
11.7 Pending Litigation or Proceedings. Except as set forth on
---------------------------------
Schedule 11.7, there are no judgments outstanding or actions, suits or
-------------
proceedings pending or, to the best of each Obligor's knowledge, threatened
against or affecting any Obligor, at law or in equity or before or by any
federal, state, municipal or other governmental department, commission, board,
bureau, agency or instrumentality, domestic or foreign.
11.8 Due Authorization; No Legal Restrictions. The execution and
----------------------------------------
delivery by the Obligors of the Loan Documents, the consummation of the
transactions contemplated by the Loan Documents and the fulfillment and
compliance with the respective terms, conditions and provisions of the Loan
Documents: (a) have been duly authorized by all requisite corporate action of
each of the Obligors, (b) will not conflict with or result in a breach of, or
constitute a default (or are not reasonably likely, upon the passage of time or
the giving of notice or both to constitute a default) under, any of the terms,
conditions or provisions of any Applicable Law or any Obligor's Governing
Documents or any lease, indenture, mortgage, loan or credit agreement or
instrument to which any Obligor is a party or by which any of them may be bound
or affected, or any judgment or order of any court or governmental department,
commission, board, bureau, agency or instrumentality, domestic or foreign, (c)
will not result in the creation or imposition of any Lien of any nature
whatsoever upon any of the property or assets of any Obligor under the terms or
provisions of any such agreement or instrument, except Liens in favor of Bank,
and (d) do not require any consent or approval of the stockholders of any
Obligor or any other Person, except such consents and approvals which have been
properly obtained and are in full force and effect.
11.9 Enforceability. The Loan Documents have been duly executed by
--------------
the Obligors and delivered to Bank and constitute legal, valid and binding
obligations of the Obligors, enforceable in accordance with their terms.
11.10 No Default Under Other Obligations, Orders or Governmental
----------------------------------------------------------
Regulations. The Obligors are not in violation of their Governing Documents or
-----------
in default in the performance or observance of any of their obligations,
covenants or conditions contained in any indenture or other agreement creating,
evidencing or securing any Indebtedness or pursuant to which any such
Indebtedness is issued. The Obligors are not in violation of or in default under
any other agreement or instrument or any judgment or Applicable Law.
11.11 Governmental Consents. Other than the filing of appropriate
---------------------
financing statements, no consent, approval or authorization of or designation,
declaration or filing with or notice to
45
any Governmental Authority on the part of any Obligor is required in connection
with the execution, delivery or performance by the Obligors of the Loan
Documents or the consummation of the transactions contemplated thereby.
11.12 Taxes. The Obligors have filed all tax returns which they are
-----
required to file and have paid, or made provision for the payment of, all taxes
which have become due pursuant to such returns or pursuant to any assessment
received by them. Such tax returns are complete and accurate in all material
respects. The Obligors do not know of any proposed additional assessment or
basis for any assessment of additional material taxes.
11.13 Title to Collateral. The Obligors have rights in and the power
-------------------
to transfer the Collateral. The Collateral is and will be owned by the Obligors
free and clear of all Liens of any kind, excepting only Liens in favor of Bank
and those Liens permitted under Section 13.8. The Obligors will defend the
------------
Collateral against any claims of all Persons or entities other than Bank.
11.14 Names; Addresses and State of Formation. During the past five
---------------------------------------
(5) years, the Obligors have not been known by any names (including trade names)
other than those set forth in Schedule 11.14 and have not been located at any
--------------
addresses other than those set forth on Schedule 11.24(d). The portions of the
-----------------
Collateral which are tangible property and the Obligors' Books will at all times
be located at the addresses set forth on Schedule 11.24(d); or such other
-----------------
location determined by the Obligors after prior notice to Bank and delivery to
Bank of any items requested by Bank to maintain perfection and priority of
Bank's Lien against and access to the Obligors' Books and records. Schedule
--------
11.24(d) identifies the chief executive offices of the Obligors. No Obligor
--------
currently has any assets located in Texas. DrugMax currently has a sales office
in Louisiana. No Inventory is stored at such location.
11.15 Current Compliance. The Obligors are currently in compliance
------------------
with all of the terms and conditions of the Loan Documents.
11.16 United States Pension and Benefit Plans. Except as disclosed on
---------------------------------------
Schedule 11.16, (a) the Obligors have no obligations with respect to any Plan,
--------------
(b) no ERISA Events, including, without limitation, any "Reportable Event" or
"Prohibited Transaction" (as those terms are defined under ERISA), have occurred
in connection with any Plan of any Obligor which might constitute grounds for
the termination of any such Plan by the PBGC or for the appointment by any U.S.
District Court of a trustee to administer any such Plan, (c) all of the
Obligors' Plans meet with the minimum funding standards of Section 302 of ERISA,
and (d) the Obligors have no existing liability to the PBGC. The Obligors are
not subject to or bound to make contributions to any Multi-Employer Plan.
The present value of the aggregate benefit liabilities under any of the
Plans, determined as of the end of such Plan's most recently ended plan year on
the basis of the actuarial assumptions specified
46
for funding purposes in such Plan's most recent actuarial valuation report, did
not exceed the aggregate current value of the assets of such Plan allocable to
such benefit liabilities. The term "benefits liabilities" has the meaning
specified in Section 4001 of ERISA and the terms "current value" and "present
value" have the meanings specified in Section 3 of ERISA. Neither any Obligor
nor any ERISA Affiliates have incurred withdrawal liabilities (and are not
subject to contingent withdrawal liabilities) under Section 4201 or 4204 of
ERISA.
11.17 Leases and Contracts. The Obligors have complied in all
--------------------
material respects with the provisions of all material leases, contracts or
commitments of any kind (such as employment agreements, collective bargaining
agreements, powers of attorney, distribution agreements, license agreements,
contracts for future purchase or delivery of goods or rendering of services,
bonus, pension and retirement plans or accrued vacation pay, insurance and
welfare agreements) to which any Obligor is a party and are not in default
thereunder. To the best of each Obligor's knowledge, no other party is in
default under any such leases, contracts, licenses or other commitments and no
event has occurred which, but for the giving of notice or the passage of time or
both, would constitute an event of default thereunder. Schedule 11.17 sets forth
--------------
an accurate list of all material leases, contracts and commitments to which any
Obligor is a party or by which any of them are bound, including, without
limitation, any real or personal property leases to which any Obligor is a
party.
11.18 Intellectual Property. Each Obligor owns or possesses the
---------------------
irrevocable right to use all of the patents, trademarks, service marks, trade
names, copyrights, licenses, franchises and permits and rights with respect to
the foregoing necessary to own and operate such Obligor's business and to carry
on their business as presently conducted and presently planned to be conducted
without conflict with the rights of others. Schedule 11.18 sets forth an
--------------
accurate list and description of each such patent, trademark, service ▇▇▇▇,
trade name, copyright, license, franchise and permit and right with respect to
the foregoing, together with all registration or application numbers or
information with respect thereto.
11.19 Eligible Accounts. With respect to all Accounts from time to
-----------------
time scheduled, listed or referred to as Eligible Accounts in any certificate,
statement or report prepared by or for Borrowers and delivered to Bank upon
which Borrowers are basing Availability under the Revolving Credit Facility,
Borrowers warrant and represent that such Accounts meet the definition of
Eligible Accounts, set forth in this Agreement. If any Accounts previously
scheduled, listed or referred to in any certificate, statement or report
prepared by or for Borrowers and delivered to Bank and upon which Borrowers are
at that time basing Availability under the Revolving Credit Facility are
thereafter discovered not to have complied with such definition on the date such
certificate, statement or report was prepared or certified, the Borrowers will
promptly (a) notify Bank upon obtaining knowledge thereof, (b) amend any
certificate, statement or report previously prepared by or for Borrowers and
delivered to Bank stating that such Account constituted an Eligible Account to
reflect the fact that such Account is not eligible, and (c) pay to Bank any Out-
Of-Formula Advance which may occur as a result of such Account no longer being
eligible.
47
11.20 Eligible Inventory. With respect to any Inventory from time to
------------------
time scheduled, listed or referred to as Eligible Inventory in any certificate,
statement or report prepared by or for Borrowers and delivered to Bank and upon
which Borrowers are basing Availability under the Revolving Credit Facility,
Borrowers warrant and represent that such Inventory meets the definition of
Eligible Inventory set forth in this Agreement. Borrower further warrants and
represents that any Eligible Inventory subject to an Eligible Inventory Buy-Back
Agreement is segregated and is separately identifiable from other Eligible
Inventory. If any Inventory previously scheduled, listed or referred to as
Eligible Inventory in any certificate, statement or report prepared by or for
Borrowers and delivered to Bank and upon which Borrowers are at that time basing
Availability under the Revolving Credit Facility is thereafter discovered not to
have complied with the definition of Eligible Inventory on the date such
certificate, statement or report was prepared or certified, Borrowers will
promptly (a) notify Bank upon obtaining knowledge that such Inventory is not
Eligible Inventory, (b) amend any certificate, statement or report previously
prepared by or for Borrowers and delivered to Bank stating that such Inventory
constituted Eligible Inventory to reflect the fact that such Inventory is not
Eligible Inventory, and (c) pay to Bank any Out-Of-Formula Advance which may
occur as a result of such Inventory no longer being Eligible Inventory.
11.21 Business Interruptions. Within five (5) years prior to the date
----------------------
hereof, neither the Business, Collateral nor operations of any Obligor has been
materially and adversely affected in any way by any casualty, strike, lockout,
combination of workers, order of the United States, or any state or local
government, or any political subdivision or agency thereof, directed against any
Obligor. There are no pending or threatened material labor disputes, strikes,
lockouts or similar occurrences or grievances against the business being
operated by any Obligor.
11.22 Business. The Obligors are engaged solely in the Business.
--------
11.23 Affiliate Transactions. Schedule 11.23 sets forth an accurate
---------------------- --------------
list of all transactions of any Obligor, with any Affiliate of any Obligor.
11.24 Property of Obligors.
--------------------
(a) Property. Each Obligor is the owner or lessee of all
--------
Property and holds or is in the process of acquiring all Licenses necessary to
conduct operations of the business owned or operated by it, in each case in
conformity in all respects with all Applicable Laws.
(b) Licenses. There is set forth in Schedule 11.24(b) a
-------- -----------------
description of all Licenses which have been issued or assigned to any Obligor.
All of such Licenses are in full force and effect and have been duly issued in
the name of, or validly assigned to, the applicable Obligor, no default or
breach exists thereunder.
48
(c) Operating Agreements. There is set forth in Schedule
-------------------- --------
11.24(c) a description of all material Operating Agreements relating to the
--------
operation of the business of each Obligor. Each such Operating Agreement is in
full force and effect and no event has occurred which is reasonably likely to
result in the cancellation or termination of any such Operating Agreement or the
imposition thereunder of any liability upon any Obligor.
(d) Facility Sites. There is set forth in Schedule 11.24(d)
-------------- -----------------
locations of the chief executive office of each Obligor, the locations of all of
each Obligor's Property, the places where each Obligor's Books are kept and the
locations of all Equipment and offices used in the operation of each Obligor's
business.
(e) Leases. There is set forth in Schedule 11.24(e) a list of
------ -----------------
all material Leases, together with a complete and accurate address and legal
description of each parcel of Leasehold Property subject to such Leases and the
name and address of the landlord under each such Lease. Each Lease is in full
force and effect, there has been no default in the performance of any of its
material terms or conditions by any Obligor, to the best of each Obligor's
knowledge, any other party thereto, and no claims of default have been asserted
with respect thereto. The present and contemplated use of the Leasehold Property
is in compliance with all applicable zoning ordinances and regulations and other
Applicable Laws.
(f) Operation and Maintenance of Equipment. All of the
--------------------------------------
Equipment and other tangible personal property owned by each Obligor is in good
operating condition and repair (subject to normal wear and tear) and has been
used, operated and maintained in compliance in all material respects with all
Applicable Laws.
11.25 Inventory Records. The Obligors keep correct and accurate
-----------------
Inventory records itemizing and describing the kind, type, quality, and quantity
of the Inventory, and each Obligor's cost therefor.
11.26 FEIN. The FEIN of each Obligor is:
----
DrugMax - ▇▇-▇▇▇▇▇▇▇
Valley - ▇▇-▇▇▇▇▇▇▇
Desktop - ▇▇-▇▇▇▇▇▇▇
VetMall - ▇▇-▇▇▇▇▇▇▇
11.27 Solvency. Each Obligor is Solvent. No transfer of property is
--------
being made by any Obligor and no obligation is being incurred by any Obligor in
connection with the transactions contemplated by this Agreement or the other
Loan Documents with the intent to hinder, delay, or defraud either present or
future creditors of any Obligor.
49
11.28 Subordinated Indebtedness. Schedule 11.28 sets forth an
------------------------- --------------
accurate list of all Subordinated Indebtedness currently owed by Obligors,
identifying the payor, the payee, the outstanding principal balance, the
applicable interest rate, the payment terms and all collateral or guaranties
securing such Subordinated Indebtedness.
11.29 Inventory Locations.
-------------------
(a) All Inventory. All of each Obligor's Inventory is currently
-------------
located at one of the locations set forth on Schedule 11.29(a). Schedule
----------------- --------
11.29(a) sets forth the street address and the name of the
--------
owner/lessor/warehouseman, as applicable, for such location.
(b) Eligible Inventory Locations. Schedule 11.29(b) sets forth
---------------------------- -----------------
all Eligible Inventory Locations.
(c) Additions to Eligible Inventory Locations. Borrowers and
-----------------------------------------
Bank may modify Schedule 11.29(b) to add new Eligible Inventory Locations by
-----------------
executing a written amendment to this Agreement in form and content acceptable
to Bank, provided that Borrowers comply with all of the following conditions:
-------- ----
(i) Borrowers execute and deliver to Bank such UCC-1
financing statements or other security documents covering all Inventory and
related assets to be located at such new location(s) as may be required by Bank
to perfect Bank's Lien in such Inventory and related assets.
(ii) Bank receives written confirmation that such new UCC-1
financing statements or other security documents have been filed or registered
in the appropriate offices required to perfect or publish Bank's Lien at such
new location(s).
(iii) Bank receives a search report from a reputable search
company confirming that there are no other Liens encumbering any of the assets
at such new location(s), except the Lien in favor of Bank.
(iv) Bank receives a copy of the lease, sub-lease,
warehouse agreement or similar agreement entered into by the applicable Borrower
with the owner, lessor or operator of the new location(s).
(v) Bank receives evidence satisfactory to Bank that all
assets at such new location(s) are covered by the insurance coverage required
under Section 12.6(a).
---------------
50
(vi) If the new location is leased by a Borrower or is a
warehouse location, Bank receives a Collateral Access Agreement from the
owner/lessor or warehouseman of the new location in form and content acceptable
to Bank.
11.30 Investment Company Act; Public Utility Holding Company Act. No
----------------------------------------------------------
Obligor is an "investment company" or a company "controlled" by an "investment
company" (as each of the quoted terms is defined or used in the Investment
Company Act of 1940, as amended). No Obligor is a "holding company" or a
"subsidiary company" of a "holding company" or an "affiliate" of a "holding
company" or a "public utility" within the meaning of the Public Utility Holding
Company Act of 1935, as amended.
11.31 Employee Relations. Each Obligor has an adequate workforce in
------------------
place and is not, except as set forth on Schedule 11.31, party to any collective
--------------
bargaining agreement nor has any labor union been recognized as the
representative of any Obligor's employees.
11.32 Investment Property. Schedule 11.32 sets forth a correct and
------------------- --------------
complete list of all Investment Property, including any Financial Assets, owned
by each Obligor. Each Obligor is the legal and beneficial owner of such
Investment Property, including any Financial Assets, as so reflected, free and
clear of any Lien (except for Liens in favor of Bank), and has not sold, granted
any option with respect to, assigned or transferred or otherwise disposed of any
of its rights or interest therein.
11.33 Common Enterprise. The successful operation and condition of
-----------------
Borrowers is dependent on the continued successful performance of the functions
of the Borrowers as a whole and the successful operation of each Borrower is
dependent on the successful performance and operation of the other Borrower.
Each Borrower expects to derive benefit (and its board of directors has
determined that it may reasonably be expected to derive benefit), directly and
indirectly, from successful operations of its Subsidiaries. Each Obligor (other
than Borrowers) expects to derive benefit (and the boards of directors or other
governing body of each such Obligor has determined that it may reasonably be
expected to derive benefit), directly and indirectly, from the credit extended
by Bank hereunder, both in their separate capacities and as members with the
other Obligors of an interrelated group of companies. Each Obligor has
determined that execution, delivery and performance of this Agreement and any
other Loan Documents to be executed by such Obligor is within its corporate
purpose, will be of direct and indirect benefit to such Obligor and is in its
best interest.
11.34 Insurance. No notice of cancellation has been received with
---------
respect to any insurance policies required pursuant to Section 12.6 and each
------------
Obligor is in compliance with all conditions contained in such policies.
11.35 Web Sites. Schedule 11.35 sets forth a correct and complete
--------- --------------
description of all material information regarding all websites currently
operated or maintained by or for each Obligor.
51
11.36 Accuracy of Representations and Warranties. No representation
------------------------------------------
or warranty by any Obligor contained herein or in any certificate or other
document furnished by any Obligor pursuant hereto or in connection herewith
fails to contain any statement of material fact necessary to make such
representation or warranty not misleading in light of the circumstances under
which it was made. There is no fact which any Obligor knows or should know and
has not disclosed to Bank, which does or may materially and adversely affect any
Obligor or any of their operations.
12. AFFIRMATIVE COVENANTS. The Obligors, jointly and severally, covenant
---------------------
and agree that, so long as this Agreement has not been terminated and until full
and final payment of the Obligations, and unless Bank shall otherwise consent in
writing, each Obligor shall comply with the following:
12.1 Payment of Principal, Interest and Other Amounts Due. The
----------------------------------------------------
Obligors will pay when due all Obligations without setoff, deduction or
counterclaim and without deduction or withholding for or on account of any
federal, state or local taxes.
12.2 Claims for Labor and Materials. The Obligors will pay or cause
------------------------------
to be paid when due all claims for labor, materials and supplies which, if
unpaid, might become a Lien upon any of their properties or assets.
12.3 Existence; Approvals; Qualification; Compliance with Laws. Each
---------------------------------------------------------
of the Obligors (a) will obtain, preserve and keep in full force and effect its
separate corporate existence and all rights, licenses, registrations and
franchises necessary to the proper conduct of its business or affairs; (b) will
qualify and remain qualified as a foreign corporation in each jurisdiction in
which the character or location of the properties owned by it or the business
transacted by it requires such qualification; (c) will comply in all material
respects with the requirements of all Applicable Laws; and (d) diligently pursue
obtaining the licenses described as "pending" on Schedule 11.24(b).
-----------------
12.4 Maintenance of Properties. The Obligors will maintain,
-------------------------
preserve, protect and keep or cause to be maintained, preserved, protected and
kept their Property used or useful in the conduct of their business in good
working order and condition, reasonable wear and tear excepted, and will pay and
discharge when due the cost of repairs to and maintenance of the same.
12.5 Intellectual Property. With respect to any and all tradenames,
---------------------
domain names, trademarks, registrations, copyrights, patents, patent rights and
applications for any of the foregoing, the Obligors shall maintain and protect
the same to the extent reasonably required for the operation of the Obligors'
business and shall take and assert any and all remedies reasonably available to
any Obligor to prevent any other Person from infringing upon or claiming any
interest in any such material trademarks, registrations, copyrights, patents,
patent rights or application for any of the foregoing.
52
The Obligors will notify Bank promptly of (a) the filing of any patent or
trademark application by any Obligor; (b) the grant of any patent or trademark
to any Obligor; or (c) any Obligor's intent to abandon a patent or trademark.
The Obligors will, if requested by Bank, (i) execute and deliver to Bank
assignments, financing statements, patent mortgages or such other documents, in
form and substance reasonably acceptable to Bank, necessary to perfect and
maintain Bank's security interest in all existing and future patents, patent
applications, trademarks, trademark applications, and other General Intangibles
owned by any Obligor; and (ii) furnish Bank with evidence satisfactory to Bank
that all actions necessary to maintain and protect each trademark and patent
owned by any Obligor or its employees have been taken in a timely manner.
12.6 Insurance.
---------
(a) Collateral. The Obligors, at their expense, shall keep the
----------
Collateral insured against loss or damage by fire, theft, explosion, sprinklers,
and all other hazards and risks, as are ordinarily insured against by other
owners in similar businesses, in amounts acceptable to Bank, but in any event in
amounts sufficient to cover the value of all of each Obligor's Equipment and
Inventory and in amounts sufficient to prevent any Obligor from becoming a co-
insurer under such policies. The Obligors also shall maintain business
interruption, public liability, product liability, and property damage insurance
relating to any Obligor's ownership and use of the Collateral, as well as
insurance against larceny, embezzlement, and criminal misappropriation.
(b) Endorsements, Cancellation or Modification. The Obligors
------------------------------------------
shall cause Bank to be named as loss payee (with a lender's loss payable
endorsement) with respect to all Collateral, and additional insured with respect
to all liability insurance, as its interests may appear. Every policy of
insurance referred to in this Section shall contain an agreement by the insurer
that thirty (30) days' written notice will be given Bank by the insurer prior to
cancellation or material modification of such insurance coverage. Any
modification of any insurance policy or coverage involving any decrease in the
amount or scope of coverage, must be approved by Bank in writing prior to the
effective date of such modification.
(c) General. All such policies of insurance shall be in such
-------
form, with such companies, and in such amounts as may be reasonably satisfactory
to Bank. Every policy of insurance referred to in this Section shall contain an
agreement by the insurer that any loss payable thereunder shall be payable
notwithstanding any act or negligence of any Obligor or the Bank which might,
absent such agreement, result in a forfeiture of all or a part of such insurance
payment.
53
(d) Policies and Evidence of Insurance. The Obligors shall
----------------------------------
cause to be delivered to Bank the insurance policies and all endorsements
thereto and evidence of insurance utilizing a current ▇▇▇▇▇ 27 Evidence of
Property Insurance and at least thirty (30) days prior to the expiration of any
such insurance, additional policies or duplicates thereof and evidence of
insurance utilizing a current ▇▇▇▇▇ 27 Evidence of Property Insurance confirming
the renewal of such insurance and payment of the premiums therefor.
(e) Losses; Payments. The Obligors shall direct all insurers
----------------
that in the event of any loss thereunder or the cancellation of any insurance
policy, the insurers shall make payments for such loss and pay all return or
unearned premiums directly to Bank and not to Obligors and Bank jointly. In the
event of any loss, the Obligors will give Bank prompt notice thereof and Bank
may make proof of loss whether the same is done by Obligors. Bank is hereby
granted a power of attorney by the Obligors with full power of substitution to
file any proof of loss in any Obligor's or Bank's name, to endorse any Obligor's
name on any check, draft or other instrument evidencing insurance proceeds, and
to take any action or sign any document to pursue any insurance loss claim.
In the event of any loss, Bank, at its option, may (a) retain and apply all
or any part of the insurance proceeds to repay or secure the Obligations, in
such order and amounts as Bank may elect, or (b) disburse all or any part of
such insurance proceeds to or for the benefit of the applicable Obligor for the
purpose of repairing or replacing Collateral after receiving proof satisfactory
to Bank of such repair or replacement, in either case without waiving or
impairing the Obligations or any provision of this Agreement. Any deficiency
thereon shall be paid by Obligors to Bank upon demand. Obligors shall bear the
full risk of loss from any loss of any nature whatsoever with respect to the
Collateral.
(f) Credit Insurance. In the event any Obligor obtains credit
----------------
insurance, such Obligor shall cause all proceeds payable under such insurance
policies to be paid to Bank to be applied on account of the Obligations.
12.7 Inspections; Examinations. The Obligors hereby irrevocably
-------------------------
authorize all accountants and auditors employed by any Obligor at any time to
exhibit and deliver to Bank copies of any and all of such Obligor's financial
statements, trial balances or other accounting records of any sort in the
accountant's or auditor's possession and copies of all reports submitted to the
Obligors by such accountants or auditors, including management letters,
"comment" letters and audit reports, and to disclose to Bank any information
they may have concerning any Obligor's financial status and business operations.
The Obligors further authorize all federal, state and municipal authorities to
furnish to Bank copies of reports or examinations relating to any Obligor,
whether made by any Obligor or otherwise.
The officers or employees of Bank, or such Persons as Bank may designate,
may visit and inspect any of the properties of any Obligor, examine (either by
Bank's employees or by independent accountants) any of the Collateral or other
assets of the Obligors, including the Books of the Obligors, and
54
discuss the affairs, finances and accounts of the Obligors with their officers
and with their independent accountants, at such times as Bank may desire. Bank
may conduct at any time and from time to time, and the Obligors will fully
cooperate with, field examinations of the Inventory, Accounts and business
affairs of the Obligors.
Obligors agree to pay all costs and expenses of Bank related to such
visits, inspections and field examination at a per man per day rate of $600, but
not to exceed $15,000.00 during any one-year period, plus out-of-pocket
expenses, provided that, after the occurrence of an Event of Default, Obligors
-------- ----
agree to pay any and all costs and expenses of Bank related to such visits,
inspections and field examination, without limitation.
12.8 Pension Plans. The Obligors will (a) keep in full force and
-------------
effect any and all Plans which are presently in existence or may, from time to
time, come into existence under ERISA, unless such Plans can be terminated
without material liability to any Obligor in connection with such termination
(as distinguished from any continuing funding obligation); (b) make
contributions to all of their Plans in a timely manner and in a sufficient
amount to comply with the requirements of ERISA or other applicable pension
laws; (c) comply with all material requirements of ERISA or other applicable
pension laws which relate to such Plans so as to preclude the occurrence of any
Reportable Event, Prohibited Transaction or material "accumulated funding
deficiency" as such term is defined in ERISA; and (d) notify Bank promptly upon
receipt by any Obligor of any notice of the institution of any proceeding or
other action which is likely to result in the termination of any Plan.
12.9 Bank Accounts. Borrowers will maintain a lockbox with Bank and
-------------
their operating accounts, main disbursement accounts, investment accounts and
deposit accounts with Bank, unless otherwise agreed by Bank in writing. The
Obligors will notify Bank in writing and on a continuing basis, of all deposit
accounts, investment accounts and certificates of deposit (including the numbers
thereof) maintained with or purchased from any other depository institutions.
12.10 Maintenance of Management. The Obligors will cause their
-------------------------
business to be continuously managed by the following persons in the positions
described below or such other persons (serving in such positions) as may be
reasonably satisfactory to the Bank:
Person Position
------ --------
▇▇▇▇▇ ▇. ▇▇▇▇▇▇ Consultant to DrugMax
Chairman of the Board of DrugMax
Chairman of the Board of Desktop
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ Chief Executive Officer of DrugMax
55
Chief Executive Officer of Desktop
Chief Executive Officer of Vetmall
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ Consultant to DrugMax
Vice Chairman of the board of Directors
of DrugMax
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ Chief Financial Officer and Vice
President - Finance of DrugMax
Chief Financial Officer and Vice
President - Finance of Valley
Chief Financial Officer and Vice
President - Finance of Desktop
Chief Financial Officer and Vice
President - Finance of VetMall
12.11 Transactions with Affiliates. Borrowers will cause all of their
----------------------------
Indebtedness at any time owed to any Guarantor, Subsidiary, Affiliate,
shareholder, director and officer to be subordinated in all respects to all
Obligations and will not make any payments thereon, except as approved by Bank
in writing.
12.12 Additional Documents and Future Actions. The Obligors will, at
---------------------------------------
their sole cost, take such actions and provide Bank from time to time with such
agreements, financing statements and additional instruments, documents or
information as the Bank may in its reasonable discretion deem necessary or
advisable to perfect, protect, maintain or enforce its Lien in the Collateral,
to permit Bank to protect or enforce its Lien in the Collateral, or to carry out
the terms of the Loan Documents. The Obligors hereby authorize and appoint Bank
as their attorney-in-fact, with full power of substitution, to take such actions
as Bank may deem advisable to protect the Collateral and its interests thereon
and its rights hereunder, to execute on any Obligor's behalf (if necessary) and
to file at the Obligors' expense financing statements or applications for
registration and amendments thereto, in those public offices deemed necessary or
appropriate by Bank to establish, maintain and protect a continuously perfected
or published Lien in the Collateral, and to execute on any Obligor's behalf such
other documents and notices as Bank may deem advisable to protect the Collateral
and its interests therein and its rights hereunder. Such power being coupled
with an interest is irrevocable, the Obligors irrevocably authorize the filing
of financing statements or applications for registration by Bank describing the
Collateral, the filing of initial financing statements in the jurisdiction of
any Obligor's legal formation and existence, the filing of a carbon,
photographic or other copy of this Agreement, or of a financing statement, as a
financing statement and agree that such filing is sufficient as a financing
statement.
56
12.13 Title to Equipment. The Obligors will promptly have Bank's
------------------
Lien noted on any and all evidences of ownership of, certificates of title, or
applications for title to any items of Equipment, and will promptly deliver to
Bank the originals thereof.
12.14 Taxes. The Obligors will cause all assessments and taxes,
-----
whether real, personal, or otherwise, due or payable by, or imposed, levied, or
assessed against any Obligor or any of their property to be paid in full, before
delinquency or before the expiration of any extension period. The Obligors shall
make due and timely payment or deposit of all such federal, state, and local
taxes, assessments, or contributions required of it by law, and will execute and
deliver to Bank, on demand, appropriate certificates attesting to the payment
thereof or deposit with respect thereto. The Obligors will make timely payment
or deposit of all tax payments and withholding taxes required of it by
applicable laws, including those laws concerning F.I.C.A., F.U.T.A., state
disability, and local, state, and federal income taxes, and will, upon request,
furnish Bank with proof satisfactory to Bank indicating that the Obligors have
made such payments or deposits.
12.15 Leases. The Obligors will pay when due all rents and other
------
amounts payable under any leases to which any Obligor is a party or by which any
Obligor's properties and assets are bound. To the extent that any Obligor fails
timely to make payment of such rents and other amounts payable when due under
its leases, Bank shall be entitled, in its discretion, to reserve an amount
equal to such unpaid amounts against the Availability.
12.16 Notices. Obligors will promptly notify Bank of (a) any
--------
action or proceeding brought against any Obligor wherein such action or
proceeding would, if determined adversely to such Obligor result in liability of
the Obligors in excess of $50,000 individually, or $100,000 in the aggregate for
all Obligors, (b) the occurrence of any Event of Default, (c) any fact,
condition or event which, with the giving of notice or the passage of time or
both, could become an Event of Default, (d) the failure of the Obligors to
observe any of their undertakings under the Loan Documents, (e) the occurrence
of any Material Adverse Change, (f) any new locations to be added as an
additional Eligible Inventory Location; (g) the creation of any new inventions
or other events related to the intellectual property of any Obligor; (h) the
occurrence of any casualty loss related to the Collateral: (i) the receipt of
any notice of the institution or proceeding or other action which may result in
the termination of any Plan; (j) any change in the management roles of (k) ▇▇▇▇▇
▇. ▇▇▇▇▇▇, (2) ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, (3) ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, (4) ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
as described in Section 12.10 or any change in any other senior management
-------------
employees of Obligors; and (l) the receipt of any licenses described as
"pending" on Schedule 11.24(b) or the rejection of any license applications
-----------------
described as "pending" on Schedule 11.24(b).
-----------------
12.17 Assignment of Claims Act. Each Obligor shall promptly
------------------------
execute any documents or instruments and shall take such steps or actions
reasonably required by Bank so that all monies due or to become due under any
contract with the U.S., the District of Columbia or any other Governmental
Authority, will be assigned to Bank and notice given thereof in accordance with
the
57
requirements of the Assignment of Claims Act of 1940, as amended, or any other
laws, rules or regulations relating to the assignment of any such contract and
monies due to or to become due.
12.18 Additional Guarantors. In the event that any Obligor shall form
---------------------
or acquire any new Subsidiary after the date hereof or any existing Subsidiary
shall acquire any assets or engage in any business activities, the applicable
Obligors will cause such Subsidiary to become a "Guarantor" hereunder pursuant
to an Assumption Agreement in the form and content as required by Bank (an
"Assumption Agreement") pursuant to which such Subsidiary shall agree to be
bound as a "Guarantor" by all provisions of this Agreement and the other Loan
Documents and the applicable Obligors shall cause such Subsidiary to execute a
Surety Agreement similar in form to the Surety Agreements executed by the other
Guarantors. Together with the Assumption Agreement for each Subsidiary, the
applicable Obligor shall deliver such proof of corporate action, incumbency of
officers, opinions of counsel, UCC-1 financing statements, a Pledge Agreement in
favor of Bank, blank stock powers, original Capital Stock certificates and other
documents as the Bank shall request. The applicable Obligor hereby agrees to
immediately pledge to the Bank under a Pledge Agreement and thereby grant a
security interest to Bank in any and all of its ownership interests of any
Subsidiary which becomes a "Guarantor" hereunder pursuant to this Section.
12.19 Instruments; Promissory Notes. The Obligors will cause any
-----------------------------
instruments or notes received by or payable to such Obligor to be delivered to
Bank appropriately endorsed to the order of Bank.
12.20 Future Leases. The Obligors will deliver to Bank, promptly
--------------
after the execution by an Obligor, as lessee, of any Lease, an executed copy
thereof.
12.21 Web Sites. With respect to each website operated or
----------
maintained by any Obligor, such Obligor agrees as follows:
(a) To maintain and operate each website to meet the security
and performance standards set forth on Schedule 11.35. Obligors warrant and
---------------
covenant that they will maintain their websites in continuous operation
providing at least its current level of functionality with respect to Obligors
business operations. Obligors further warrant and covenant that they shall not
obtain a license for use in connection with the use of their websites of any
software, data, service ▇▇▇▇, trademark or copyright unless (i) such license
allows the use of the right licensed for the use intended by Obligors; or (ii)
either (A) such license is a mass-market license readily obtainable through
retail establishments for a one time payment of less than $500 USD or (B) the
license provides that the Obligors may grant Bank a security interest in and to
the license rights, the Bank may receive an assignment of the license rights,
and the Bank may assign such rights to a third party in connection with a
disposition of the Collateral.
58
(b) Not to move the location of any servers servicing any
website from the locations described on Schedule 11.35 unless Obligors comply
--------------
with the provisions of Section 13.14. Obligors agree to furnish to the Bank, if
--------------
requested, a website hosting service waiver and recognition of rights with
respect to any collateral that is or may be located on equipment in the
possession of a website hosting service, such waiver and recognition of rights
to be in such form and upon such terms as are acceptable to Bank.
(c) Not to change the method used by any Obligor of hosting
any website from the method described on Schedule 11.35, unless such change has
--------------
been approved by Bank in writing.
(d) To permit Bank, its employees and any consultants retained
by Bank to review and inspect all website components, including without
limitations all computer hardware and all intellectual property interests or, at
the request of the Bank, provide Bank with a complete "mirror" image of the
website accessible to Bank at all times.
(e) To maintain in full force and effect, to comply with and
to cause all other parties to comply with all operating agreements, maintenance
agreements, equipment leases, hosting contracts, line connection leases or
agreements, content or software licenses and all other agreements related to the
ownership, operation and maintenance of any website by an Obligor (collectively,
the "Website Agreements").
(f) To deliver to Bank fully executed estoppel, waiver and
consent agreements from all hosting services, equipment lessors and maintenance
providers, in form and content acceptable to Bank.
(g) To notify Bank immediately of any defaults by any party
to any Website Agreement.
(h) Obligors shall maintain for the benefit of Bank, if
requested, a back-up copy of all data comprising their website with a third-
party escrow agent acceptable to Bank and execute and deliver a data escrow
agreement with such third-party escrow agent in such form and upon such terms as
are acceptable to Bank.
13. NEGATIVE COVENANTS. The Obligors, jointly and severally,
------------------
covenant and agree that, so long as this Agreement has not been terminated and
until full and final payment of the Obligations, and unless Bank shall otherwise
consent in writing, each Obligor shall comply with the following:
59
13.1 Limitation on Sale and Leaseback. The Obligors will not enter
---------------------------------
into any arrangement whereby any of them will sell or transfer any real property
or improvements thereon or other fixed assets owned by any of them and then or
thereafter rent or lease as lessee such property, improvements or assets or any
part thereof which any of them shall intend to use for substantially the same
purposes as the property sold or transferred.
13.2 Limitation on Indebtedness. The Obligors will not have at any
--------------------------
time outstanding to any Person other than Bank, any Indebtedness for borrowed
money, Capitalized Lease Obligations, or any outstanding letters of credit,
except:
(a) Existing Indebtedness for borrowed money and Capitalized
Lease Obligations described on Schedule 13.2;
-------------
(b) Future purchase money Indebtedness and Capitalized Lease
Obligations not to exceed $100,000 in the aggregate principal amount during any
fiscal year, incurred to finance Capital Expenditures permitted under Section
-------
14.5, provided that, Bank shall have the right of first refusal to provide such
---- -------- ----
financing on reasonably competitive terms; and
(c) Indebtedness for borrowed money in an amount not to exceed
$100,000 outstanding at any time in the aggregate which is subordinated in right
of payment and in right to exercise all remedies to all Obligations, pursuant to
a Subordination Agreement in form and content acceptable to Bank.
Any of such existing permitted Indebtedness may not be refinanced or
replaced without the consent of the Bank. Notwithstanding anything herein or
elsewhere to the contrary neither Borrower may make any loans to the other
Borrower, to any other Obligor or to any Affiliate of any Obligor.
13.3 Loans. The Obligors will not make or have outstanding any
-----
loans or advances in the nature of loans to any Person including, without
limitation, any officer, shareholder, director, employee or Affiliate of such
Obligor, except (a) advances made to the Obligors' employees in the ordinary
course of any Obligor's business and other loans to the Obligors' employees in
an aggregate outstanding amount not to exceed $50,000 at any time, and (b) loans
described on Schedule 13.3. Notwithstanding anything here or elsewhere to the
-------------
contrary neither Borrower may make any loans to the other Borrower, to any other
Obligor or any Affiliate of any Obligor.
13.4 Investments. Obligors will not have or make any investments
-----------
in all or any portion of the capital stock or securities of any Person, or any
loans, advances or extensions of credit to any Person, except investments listed
on Schedule 13.4 attached hereto.
-------------
60
13.5 Guaranties. The Obligors will not directly or indirectly
-----------
guarantee, endorse (other than for collection or deposit in the ordinary course
of business), discount, sell with recourse or for less than the face value or
agree (contingently or otherwise) to purchase or repurchase or otherwise
acquire, or otherwise become directly or indirectly liable for, or agree
(contingently or otherwise) to supply or advance funds (whether by loan, stock
purchase, capital contribution or otherwise) in respect of, any Indebtedness,
obligations or liabilities of any Person, except in connection with the Surety
Agreements.
13.6 Disposition of Assets. The Obligors will not sell, lease,
----------------------
transfer, or otherwise dispose any of their Property, except for (a) sales of
Inventory to customers in the ordinary course of business, (b) disposition of
assets by any Obligor to another Obligor, or (c) the disposition of obsolete
Equipment with a "book" value of up to $25,000 each and $50,000 in the aggregate
in any one fiscal year.
13.7 Merger; Consolidation; Business Acquisitions; Subsidiaries. The
----------------------------------------------------------
Obligors will not (a) merge into or consolidate with any Person, except for the
merger of one Borrower into another Borrower, (b) acquire any portion of the
Capital Stock of any person or a material portion of assets or business of any
Person, or the operating business or division of any Person, or any Property not
used or useful in the operation of the Business, (c) permit any Person to merge
into any of them, except for the merger of one Borrower into another Borrower,
(d) form any Subsidiaries, without complying with Section 12.18, (e) change any
-------------
of their respective states of formation or incorporation, (f) materially change
the principal nature of their business or engage in any business other than the
Business, (g) permit any Subsidiary to engage in any business activity, acquire
any assets or, acquire any ownership or investment interests in any Person,
without the prior written consent of Bank, or (h) purchase or permit any
Subsidiary to purchase the assets or stock of ▇▇▇▇▇▇ & ▇▇▇▇▇▇, Inc. without the
Bank's prior written consent.
13.8 Liens. The Obligors will not create, incur or permit to exist
------
any Lien of any kind on their property or assets, whether now owned or hereafter
acquired, or upon any income, profits or proceeds therefrom, except:
(a) Liens held by Bank;
(b) Deposits made in the ordinary course of business (i) in
connection with worker's compensation, unemployment insurance, social security
and other like laws or (ii) to secure the performance of statutory obligations,
not incurred in connection with either (A) the borrowing of money or (B) the
deferred purchase price of goods or Inventory;
(c) Encumbrances consisting of zoning restrictions, easements,
reservations, servitudes, restrictions on the use of real property or minor
irregularities of title thereto, none of which impairs the use of such property
by any Obligor in the operation of their business;
61
(d) Liens listed on Schedule 13.8 attached hereto;
-------------
(e) Purchase money Liens or Capitalized Leases, provided that:
-------- ----
(i) the property subject to any of the foregoing is
acquired or leased by such Obligor in the ordinary course of its business and
the Lien on any such property is created contemporaneously with such
acquisition;
(ii) the purchase money Indebtedness or principal portion
of the Capitalized Lease Obligations so created shall not exceed 100% of the
lesser of cost or fair market value as of the time of acquisition or lease of
the property covered thereby;
(iii) the purchase money Indebtedness or Capitalized Lease
Obligations shall only be secured by the property so acquired or leased;
(iv) the purchase money Indebtedness or Capitalized Lease
Obligations are permitted by the provisions of Sections 13.2 and 14.5; and
----------------------
(v) no Default or Event of Default then exist.
The Obligors shall not enter into any agreement with any other Person which
shall prohibit the Obligors from granting, creating or suffering to exist, or
otherwise restrict in any way (whether by covenant, by identifying such event as
a default under such agreement or otherwise) the ability of the Obligors to
grant, create or suffer to exist, any lien, security interest or other charge or
encumbrance upon or with respect to any of their assets in favor of the Bank.
13.9 Letters of Credit. The Obligors will not apply for or obtain
-----------------
any letters of credit, except Merchandise Letters of Credit or standby letters
of credit issued by Bank.
13.10 Insurance. The Obligors shall not take out separate insurance
----------
concurrent in form or contributing in the event of casualty loss with that
required to be maintained under Section 12.6 unless Bank is named as loss payee
------------
(with a lender's loss payable endorsement). The Obligors shall promptly notify
Bank whenever such separate insurance is taken out, specifying the insurer
thereunder and full particulars as to the policies evidencing the same, and
originals of such policies shall be provided promptly to Bank.
13.11 Default Under Other Indebtedness. The Obligors will not permit
---------------------------------
any of their Indebtedness to be in default. If any Indebtedness of the Obligors
is declared or becomes due and payable before its expressed maturity by reason
of default or otherwise or to the knowledge of any Obligor, the holder of any
such Indebtedness shall have the right (or upon the giving of notice or the
passage of time,
62
or both, shall have the right) to declare such Indebtedness to be so due and
payable, the Obligors will promptly give Bank written notice of such
declaration, acceleration or right of declaration.
13.12 Transactions with Affiliates. Except for the transactions
----------------------------
described on Schedule 11.23, the Obligors will not enter into or conduct any
--------------
transaction with any Affiliate without the prior written consent of Bank.
Obligors will only enter into or conduct transactions with Affiliates on terms
which are reasonable and customary for arms-length transactions between parties
who are not affiliated. Borrowers will not sell Inventory to each other for a
purchase price in excess of their cost.
13.13 Name or Chief Executive Address Change. The Obligors will not
--------------------------------------
change their names, FEIN numbers, or chief executive addresses except upon
thirty (30) days prior written notice to Bank and delivery to Bank of any items
requested by Bank to maintain perfection and priority of Bank's first priority
Lien in the Obligors' Accounts, General Intangibles and similar assets and
access to the Obligors' Books, including without limitation, new UCC-1 financing
statements and Collateral Access Agreements.
13.14 Change in Location of Collateral. Obligors will not change
--------------------------------
the location at which any of their inventory, equipment or other personal
property is located except upon thirty (30) days prior written notice to Bank
and, provided that Obligors comply with all of the following conditions:
-------- ----
(a) The applicable Obligor executes and delivers to Bank such
UCC-1 financing statements covering all Inventory and related assets of the
applicable Obligor to be located at such new location(s) as may be required by
Bank to perfect Bank's Lien in such inventory and related assets.
(b) Bank receives written confirmation that such new UCC-1
financing statements have been filed in the appropriate offices required to
perfect Bank's Lien at such new location(s).
(c) Bank receives a search report from a reputable search
company confirming that there are no other Liens encumbering any of such
applicable Obligor's assets at such new location(s), except the Lien in favor of
Bank.
(d) Bank receives a copy of the lease, sub-lease, warehouse
agreement or similar agreement entered into by the applicable Obligor with the
owner, lessor or operator of the new location(s).
(e) Bank receives evidence satisfactory to Bank that all
assets of the applicable Obligor at such new location(s) are covered by the
insurance coverage required under Section 12.6.
------------
63
(f) Bank receives a Collateral Access Agreement from the
owner/lessor of the new location in form and content acceptable to Bank.
13.15 Material Adverse Contracts. The Obligors will not become or
---------------------------
be a party to any contract or agreement which has a materially adverse impact on
any Obligor's ability to perform under this Agreement or any other Loan
Document.
13.16 Restrictions on Use of Proceeds. Borrowers will not carry or
-------------------------------
purchase with the proceeds of the Revolving Credit Facility or the Term Loan any
"margin security" within the meaning of Regulations U, T or X of the Board of
Governors of the Federal Reserve System.
13.17 Subordinated Indebtedness. Borrower (a) will not make any
-------------------------
payments on the Subordinated Indebtedness except as permitted under the
Subordination Agreements, and (b) will not breach any of the terms of any
Subordination Agreements.
13.18 Prepayments; Amendments and License Agreements. The Obligors
-----------------------------------------------
will not:
(a) Prepay, redeem, retire, defease, purchase, or otherwise
acquire any Indebtedness for borrowed money owing to any third Person, other
than the Obligations in accordance with this Agreement;
(b) Directly or indirectly, amend, modify, alter, increase, or
change any of the terms or conditions of any agreement, instrument, document,
indenture, or other writing evidencing or concerning any Indebtedness for
borrowed money to make such terms or conditions more onerous or expensive for
the Obligors;
(c) Amend, modify or waive any material term or provision of
their respective Governing Documents in a manner materially adverse to the
Obligors or Bank; or
(d) Amend, modify or waive any term or provision of any of
Licenses.
13.19 Distributions; Stock Redemptions. The Obligors will not make
--------------------------------
any distribution or declare or pay any dividends (in cash or other property,
other than Capital Stock) on, or purchase, acquire, redeem, or retire any of
such Obligor's Capital Stock, of any class, whether now or hereafter
outstanding.
13.20 Issuance of Capital Stock. No Subsidiary of DrugMax will issue
--------------------------
any Capital Stock unless all of such Capital Stock is pledged to Bank pursuant
to a Pledge Agreement substantially identical to the Pledge Agreements and the
original certificates evidencing such pledged Capital
64
Stock are delivered to Bank together with executed blank stock powers. Obligors
will not issue any Capital Stock which would result in any Change in Control.
13.21 Prohibited Transactions Under ERISA. The Obligors will not
-----------------------------------
directly or indirectly:
(a) engage, or permit any Subsidiary of DrugMax to engage, in
any prohibited transaction which is reasonably likely to result in a civil
penalty or excise tax described in Section 406 of ERISA or 4975 of the IRC for
which a statutory or class exemption is not available or a private exemption has
not been previously obtained from the Department of Labor;
(b) permit to exist with respect to any Benefit Plan any
accumulated funding deficiency (as defined in Sections 302 of ERISA and 412 of
the IRC), whether or not waived;
(c) fail, or permit any Subsidiary of DrugMax to fail, to pay
timely required contributions or annual installments due with respect to any
waived funding deficiency to any Benefit Plan;
(d) terminate, or permit any Subsidiary of DrugMax to
terminate, any Benefit Plan where such event would result in any liability of
any Obligor, any Subsidiary of DrugMax or any ERISA Affiliate under Title IV of
ERISA;
(e) fail, or permit any Subsidiary of DrugMax to fail, to make
any required contribution or payment to any Multiemployer Plan;
(f) fail, or permit any Subsidiary of DrugMax to fail, to pay
any required installment or any other payment required under Section 412 of the
IRC on or before the due date for such installment or other payment;
(g) amend, or permit any Subsidiary of DrugMax to amend, a
Plan resulting in an increase in current liability for the plan year such that
any Obligor, any Subsidiary of DrugMax or any ERISA Affiliate is required to
provide security to such Plan under Section 401(a)(29) of the IRC; or
(h) withdraw, or permit any Subsidiary of DrugMax to withdraw,
from any Multiemployer Plan where such withdrawal is reasonably likely to result
in any liability of any such entity under Title IV of ERISA.
65
13.22 Licenses. No Obligor will enter into any license,
--------
royalty or similar agreements regarding any patents, trademarks, tradenames,
copyrights or other General Intangibles owned by such Obligor, which grants any
exclusive rights to use such General Intangibles to any Person.
13.23 Consignments. Obligors will not (a) consign any Inventory
------------
for sale, (b) sell any Inventory on sale or return, sale on approval, or other
conditional terms of sale or (c) reflect any Inventory held by them on
consignment for another Person as Inventory owned by an Obligor.
13.24 Trademark and Tradename Licenses. No Obligor will enter
--------------------------------
into any license or similar right to use or royalty agreement with respect to
any trademark or tradename owned by such Obligor without the prior written
consent of Bank.
13.25 Equipment Becoming Fixture. Obligors will not permit any
--------------------------
item of equipment owned by such Obligor to become a fixture to real estate or an
accession to other property, except for equipment which may become a trade
fixture to premises leased by such Obligor but with respect to which the
landlord has waived any right of ownership or security interest.
14. FINANCIAL COVENANTS. Except with the prior written consent of
-------------------
Bank, Borrowers will comply with the following:
14.1 Net Income. Borrowers will have Net Income, determined on a
----------
consolidated basis with respect to the two (2) Borrowers only and not including
any Guarantor or other Subsidiary, of not less than the following amounts for
the following periods (if a loss is indicated, the loss will not be greater than
the specified amount):
Amount Period
------ ------
($670,000) Fiscal quarter ending June 30, 2000
($300,000) Fiscal quarter ending September 30, 2000
$25,000 Fiscal quarter ending December 31, 2000
$445,000 Fiscal quarter ending March 31, 2001
($500,000) Fiscal year ending March 31, 2001
$70,000 Fiscal quarter ending June 30, 2001
$90,000 Fiscal quarter ending September 30, 2001
$70,000 Fiscal quarter ending December 31, 2001
$545,000 Fiscal quarter ending March 31, 2002
66
$ 775,000 Fiscal year ending March 31, 2002
$ 75,000 Fiscal quarter ending June 30, 2002
$ 85,000 Fiscal quarter ending September 30, 2002
$ 105,000 Fiscal quarter ending December30, 2002
$ 570,000 Fiscal quarter ending March 31, 2003
$ 835,000 Fiscal year ending March 31, 2003
$ 180,000 Fiscal quarter ending June 30, 2003 and for
each fiscal quarter thereafter
$1,000,000 Fiscal quarter ending March 31, 2004
each fiscal quarter thereafter
14.2 Stand-Alone Net Income. Each Borrower, on a
----------------------
stand-alone basis and not consolidated with any Guarantor or other Subsidiary,
will have Net Income of not less than the following amounts for the following
periods (if a loss is indicated, the loss will not be greater than the specified
amount):
Amount Period
------ ------
DrugMax Valley
------- ------
($850,000) $155,000 Fiscal quarter ending June 30, 2000
($650,000) $150,000 Fiscal quarter ending September 30, 2000
($300,000) $100,000 Fiscal quarter ending December 31, 2000
$ 150,000 $100,000 Fiscal quarter ending March 31, 2000
($200,000) $100,000 Fiscal quarter ending June 30, 2001
($200,000) $100,000 Fiscal quarter ending September 30, 2001
($200,000) $100,000 Fiscal quarter ending December 31, 2001
$300,000 $100,000 Fiscal quarter ending March 31, 2002
($100,000) $ 75,000 Fiscal quarter ending June 30, 2002
($100,000) $ 75,000 Fiscal quarter ending September 30, 2002
($100,000) $ 75,000 Fiscal quarter ending December 31, 2002
67
$350,000 $100,000 Fiscal quarter ending March 31, 2003
$ 0 $ 75,000 Each of the first three (3) fiscal
quarters in each fiscal year thereafter
$400,000 $ 75,000 Each of the fourth fiscal quarters in
each fiscal quarter thereafter
14.3 Net Worth. Borrowers will maintain Net Worth, determined
---------
on a consolidated basis with respect to the two (2) Borrowers only and not
including any Guarantor or other Subsidiary, of not less than the following
amounts for the following periods:
Amount Period
------ ------
$33,554,000 As of June 30, 2000
$33,254,000 As of September 30, 2000 and all times thereafter
through December 30, 2000
$33,279,000 As of December 31, 2000 and all times thereafter
through March 30, 2001
$33,724,000 As of March 31, 2000 and all times thereafter
through June 29, 2001
$33,794,000 As of June 30, 2001 and all times thereafter
through September 29, 2001
$33,884,000 As of September 30, 2001 and all times thereafter
through December 29, 2001
$33,954,000 As of December 30, 2001 and all times thereafter
March 30, 2002
$34,499,000 As of March 31, 2002 and all times thereafter
through March 30, 2002
$34,574,000 As of June 30, 2002 and all times thereafter
through September 29, 2002
$34,659,000 As of September 30, 2002 and all times thereafter
through December 29, 2002
68
Amount Period
------ ------
$34,764,000 As of December 31, 2002 and all times thereafter
through March 30, 2003
$35,334,000 As of March 31, 2003 and all times thereafter
through March 30, 2004
$36,334,000 As of March 31, 2004 and all times thereafter
through March 30, 2004
As of the end of each fiscal year commencing with the fiscal year
ending March 31, 2005 and continuing throughout the next fiscal year until but
not including the next fiscal year end, the minimum Net Worth requirement will
be increased by $1,000,000 per year.
14.4 Current Ratio. Borrowers will maintain a Current Ratio,
-------------
determined on a consolidated basis with respect to the two (2) Borrowers only
and not including any Guarantor or other Subsidiary, of not less than 1.25 to
1.0 as of the Closing Date and at all times thereafter.
14.5 Capital Expenditures. Borrowers will not cause, suffer or
--------------------
permit their aggregate Capital Expenditures, determined on a consolidated basis,
to exceed the following amount for the following periods:
Amount Period
------ ------
$300,000 Fiscal year ending March 31, 2001
$300,000 Fiscal year ending March 31, 2002 and
for each fiscal year end thereafter
Such permitted Capital Expenditures are on a non-cumulative basis as
to any unused portions in any fiscal year.
14.6 Cash on Deposit. As a condition of closing and at all
---------------
times thereafter, Borrowers shall maintain Bank as their sole bank of account
(except for certain payroll accounts as permitted by Bank) and shall deposit
with Bank in separate segregated accounts all cash-on-hand of Borrowers. In
addition, Borrowers will at all times maintain on deposit with Bank in a
separate segregated account a minimum of $2,000,000 in cash. The minimum cash
deposit amount shall be reduced in accordance with the following schedule:
69
Amount Minimum
of Cash
Trigger Event Reduction Deposit
------------- --------- -------
Receipt by Bank of the consolidated $500,000.00 $1,500,000.00
and consolidating annual audited
financial statements of Borrowers and
the compliance certificate for the
fiscal year ended March 31, 2001
Receipt by Bank of the consolidated $500,000.00 $1,000,000.00
and consolidating internally prepared
quarterly financial statements of
Borrowers and the compliance certificate
for the quarter ended September 30, 2001
Receipt by Bank of the consolidated $500,000.00 $ 500,000.00
and consolidating internally
prepared quarterly financial statements
of Borrowers and the compliance
certificate for the quarter ended
December 31, 2001
Receipt by Bank of the consolidated $500,000.00 $ 0
and consolidating annual audited financial
statements of Borrowers and the compliance
certificate for the fiscal year ended
March 31, 2002
Notwithstanding the foregoing, there shall be no reductions in the minimum cash
deposit amount unless (i) no Default or Event of Default has occurred and
Borrowers are then in compliance with all of the terms of the Loan Documents,
and (ii) Borrowers have averaged at least $1,000,000 of Excess Availability
under the Revolving Credit Facility for the thirty (30) days preceding the date
scheduled for any reduction and as of the date of such reduction.
14.7 Changes to Financial Covenants. Bank may condition extension of
------------------------------
the Revolving Credit Facility after the Contract Period upon revision of the
foregoing financial covenants, as Bank in its sole discretion may require.
14.7 Most Favored Lender. Borrowers agree promptly to notify Bank of
-------------------
any agreement for Indebtedness for borrowed money to which any Borrower is a
party or under which it is
70
obligated and to provide Bank with a copy of such agreement. If such agreement
contains or at any time is amended to contain financial covenants more
restrictive than those contained in this Section 14, upon Bank's request,
----------
Borrowers agree to amend this Agreement accordingly so that the covenants
contained herein are substantially the same as those contained in such other
agreements for Indebtedness for borrowed money.
15. ACCOUNTING RECORDS, REPORTS AND FINANCIAL STATEMENTS. The Obligors
----------------------------------------------------
will maintain books of record and account in which full, correct and current
entries in accordance with GAAP will be made of all of their dealings, business
and affairs, and the Obligors will deliver to Bank the following:
15.1 Annual Statements. As soon as available and in any event within
-----------------
one hundred thirty-five (135) days after the end of each fiscal year of
Borrowers:
(a) the audited, consolidated and consolidating income and
retained earnings statements of Borrowers and their Subsidiaries for such fiscal
year,
(b) the audited, consolidated and consolidating balance sheet of
Borrowers and their Subsidiaries as at the end of such fiscal year, and
(c) the audited, consolidated and consolidating statement of
cash flow of Borrowers and their Subsidiaries for such fiscal year,
setting forth in comparative form the corresponding figures as at the end of the
previous fiscal year, all in reasonable detail. The foregoing statements and
balance sheets shall be prepared in accordance with GAAP and the consolidated
statements shall be audited by independent certified public accountants of
recognized standing acceptable to Bank in the reasonable exercise of its
discretion with respect to which such accountants shall deliver their
unqualified opinion which shall not include any "going-concern" opinion.
Borrowers shall deliver to Bank drafts of the above-described annual statement
within ninety (90) days after the end of each fiscal year of Borrowers.
15.2 Projections and Cash Flow. As soon as available and in any event
-------------------------
within sixty (60) days prior to the end of each fiscal year of Borrowers,
projections of profit and loss statements, cash flows and balance sheets and
Availability of Borrowers and their Subsidiaries prepared on a month-by-month
basis for the next succeeding twelve (12) months, prepared by the chief
financial officer of Borrowers. Borrowers have furnished to Bank initial
projections dated as of the date hereof containing the information required by
this Section. Borrowers represent and covenant that (a) the initial projections
required by this Section have been prepared by the chief financial officer of
Borrowers and represent the best available good faith estimate of Borrowers
regarding the course of Borrowers' businesses for the periods covered thereby;
(b) all future projections required by this Section shall be prepared by or
under
71
the direction of the chief financial officer of Borrowers and shall represent
the best available good faith estimate of Borrowers regarding the course of
Borrowers' business for the periods covered thereby; (c) the assumptions set
forth in the initial projections are and the assumptions set forth in the future
projections delivered hereafter shall be reasonable and realistic based on then
current economic conditions; (d) Borrowers know of no reason why Borrowers
should not be able to achieve the performance levels set forth in the initial
projections and Borrowers shall have no knowledge at the time of delivery of
future projections of any reason why Borrowers shall not be able to meet the
performance levels set forth in said projections; and (e) Borrowers have
sufficient capital as may be required for their ongoing business and to pay
their existing and anticipated debts as they mature.
15.3 Monthly Statements. As soon as available and in any event
------------------
within thirty (30) days after the close of each calendar month;
(a) the consolidated and consolidating income and retained
earnings statements of Borrowers and their Subsidiaries for such month,
(b) the consolidated and consolidating balance sheet of
Borrowers and their Subsidiaries as of the end of such month, and
(c) the consolidated and consolidating statement of cash flow of
Borrowers and their Subsidiaries for such month,
setting forth in comparative form the corresponding figures as of the end of the
corresponding month of the previous fiscal year (if applicable) and the
projected figures based upon the projections required under Section 15.2, all in
------------
reasonable detail, subject to year end adjustments and certified by the chief
financial officer of Borrowers to be, to the best of his knowledge, accurate in
all material respects and to have been prepared in accordance with GAAP.
15.4 Collateral Reporting. Each Borrower on a stand-alone basis
--------------------
shall provide the Bank with the following documents at the following times in
form satisfactory to the Bank:
(a) with each request for an Advance under the Revolving Credit
Facility, but no less frequently than on a weekly basis, or more frequently if
requested by the Bank, a report of:
(i) the Borrower's sales, credits and collections since the
last such report, and
(ii) Borrowing Base Certificate.
72
(b) by the 15/th/ day of each month (with respect to the
previous month), or more frequently if requested by Bank:
(i) an aging of the Borrower's accounts;
(ii) an aging of the Borrower's accounts payable.
(iii) a reconciliation to the previous month's aging of the
Borrower's accounts and to the Borrower's general ledger; and
(iv) a calculation of ineligible Accounts with supporting
detail sufficient for Bank to verify all calculations.
(c) with each request for an Advance under the Revolving Credit
Facility, but no less frequently than on a weekly basis, or more frequently if
requested by the Bank, a report of:
(i) Inventory by category and location, with additional
detail showing additions to and deletions from Inventory; and
(ii) Inventory subject to Eligible Inventory Buy-Back
Agreements.
(d) by the 15/th/ day of each month (with respect to the
previous month), or more frequently if requested by Bank:
(i) an Inventory reconciliation to:
(A) the previous month's report of the Borrower's
Inventory;
(B) the Borrower's general ledger;
(C) the perpetual inventory system;
(ii) a calculation of ineligible Inventory; and
(iii) a reconciliation of the perpetual inventory system
values to the general ledger values.
(e) upon request, copies of invoices in connection with the
Borrower's Accounts, customer statements, credit memos, remittance advices and
reports, deposit slips, shipping and
73
delivery documents in connection with the Borrower's Accounts and for inventory
acquired by the Borrowers, purchase orders and invoices.
(f) upon request, a statement of the balance of each of the
intercompany Accounts.
(g) other reports as to the Collateral of the Borrower as
the Bank shall reasonably request from time to time.
(h) with the delivery of each of the foregoing, a
certificate of the Borrower executed by an officer thereof certifying as to the
accuracy and completeness of the foregoing. If any of the Borrower's records or
reports of the Collateral are prepared by an accounting service or other agent,
the Borrower hereby authorizes such service or agent to deliver such records,
reports, and related documents to the Bank.
15.5 Tax Returns. Copies of each Obligor's federal income tax
-----------
returns, and any amendments thereto, within thirty (30) days of the filing
thereof with the Internal Revenue Service.
15.6 SEC Reporting. Borrowers' Form 10-Q Quarterly Reports, Form 10-K
-------------
Annual Reports, and Form 8-K Current Reports, and any other filings made by
Borrowers with the Securities and Exchange Commission, if any, as soon as the
same are filed, or any other information that is provided by Borrowers to their
shareholders.
15.7 Audit Reports. Promptly upon receipt thereof, one copy of each
-------------
other report submitted to any Obligor, by independent accountants, including
management letters, "comment" letters, in connection with any annual, interim or
special audit report made by them of the Books of any Obligor.
15.8 Reports to Governmental Agencies and Other Creditors. With
----------------------------------------------------
reasonable promptness, copies of all such financial reports, statements and
returns which Borrowers or any guarantor shall file with any federal or state
department, commission, board, bureau, agency or instrumentality and any report
or statement delivered by Borrowers or any Guarantor to any supplier or other
creditor in connection with any payment restructuring.
15.9 Requested Information. With reasonable promptness, all such
---------------------
other data and information in respect of the condition, operation and affairs of
any Obligor as Bank may reasonably request from time to time.
15.10 Compliance Certificates. Within the periods provided in
-----------------------
Sections 15.1 and 15.3 above, a certificate of the chief financial officer of
----------------------
Borrowers (a) stating that Borrowers have observed, performed and complied with
each and every undertaking contained herein, (b) setting forth the
74
information and computations (in sufficient detail) required in order to
establish whether Borrowers were operating in compliance with the financial
covenants in Section 14 of this Agreement, (c) certifying that as of the date of
----------
such certification, there does not exist any Default or Event of Default, and
(d) certifying as to the state of incorporation or formation of each Obligor.
Such certificate will be in the form of Exhibit A attached hereto.
---------
15.11 Accountant's Certificate. Simultaneously with the
------------------------
delivery of certified financial statements required by Section 15.1, copies of a
------------
certificate of the accountants who audited such statements stating that (a) they
have checked the computations delivered by the Obligors in compliance with
Section 15.1, and (b) in making the examination necessary for their audit or
------------
review of such financial statements for such year, nothing came to their
attention of a financial or accounting nature that caused them to believe that
(i) any Obligor was not in compliance with the terms, covenants, provisions or
conditions of any of the Loan Documents, or (ii) there shall have occurred any
condition or event which would constitute an Event of Default, or, if so,
specifying in such certificate all such instances of non-compliance and the
nature and status thereof. Such certificate shall be unqualified and shall not
include any "going-concern" opinion of the accountants.
16. CONDITIONS PRECEDENT TO THE INITIAL ADVANCE OR LETTER OF CREDIT.
---------------------------------------------------------------
The obligation of (a) Bank to make the initial Advance or (b) Bank to issue the
initial Letter of Credit is subject to the fulfillment, to the satisfaction of
Bank, of each of the following conditions on or before the Closing Date. All of
such agreements, documents and other items must be in form, content and all
other respects satisfactory to Bank.
16.1 Searches. Bank shall have received copies of record
--------
searches (including UCC searches, patent searches, trademark searches,
copyright searches and judgments, suits, bankruptcy, litigation, tax and other
lien searches) against each Obligor.
16.2 UCC-1 Filings. Bank shall have received confirmation
-------------
from a service organization retained by Bank to file financing statements and
fixture filings that such filings have been made in all relevant jurisdictions.
16.3. Executed Loan Documents. Bank shall have received
-----------------------
each of the following documents, duly executed, and each such document shall be
in full force and effect:
(a) the Notes;
(b) the Disbursement Letter;
75
(c) the Pay-Off Letter, together with UCC termination
statements, canceled notes and other documentation evidencing the termination by
any lenders or other secured parties of Liens in and to the properties and
assets of any Obligor;
(d) each Pledge Agreement accompanied by original stock
certificates and stock powers;
(e) each of the Surety Agreements;
(f) each of the Subordination Agreements;
(g) the Environmental Agreement; and
(h) any and all other Loan Documents.
16.4 Authorizing Resolutions. Bank shall have received a
-----------------------
certificate from the Secretary of each Obligor attesting to the resolutions of
each Obligor's Board of Directors authorizing its execution, delivery, and
performance of this Agreement and the other Loan Documents to which each
Obligor, respectively, is a party and authorizing specific officers of such
Obligor to execute the same.
16.5 Governing Documents. Bank shall have received copies
-------------------
of each Obligor's Governing Documents, as amended, modified, or supplemented to
the Closing Date, certified by the Secretary of such Obligor.
16.6 Material Agreements. Bank shall have received copies
-------------------
of all material agreements, leases and other documents related to the Obligors.
16.7 Good Standing Certificates. Bank shall have received
--------------------------
certificates of status with respect to each Obligor, each dated within 15 days
of the Closing Date, such certificates to be issued by the appropriate officer
of each jurisdiction in which such Obligor is required to be qualified or
licensed which certificates shall indicate that such Obligor is in good standing
in such jurisdictions.
16.8 Insurance. Bank shall have received loss payee
---------
endorsements as well as the relevant policies and evidence of insurance,
together with the endorsements thereto, as are required by Section 12.6.
------------
16.9 Collateral Access Agreements. Bank shall have
----------------------------
received such Collateral Access Agreements from lessors, warehousemen, bailees,
and other third persons as Bank may require with respect to all Eligible
Inventory Locations.
76
16.10 Opinions of Counsel. Bank shall have received
-------------------
opinions of the Obligors' general and local counsels.
16.11 Tax Returns. Bank shall have received satisfactory
-----------
evidence that all tax returns required to be filed by Borrowers have been timely
filed and all taxes upon Borrowers or their properties, assets, income, and
franchises (including real property taxes and payroll taxes) have been paid
prior to delinquency.
16.12 March 31, 2000 Financial Statements. Borrowers shall
-----------------------------------
have delivered to Bank the audited year end financial statements of Borrowers
and their Subsidiaries (including VetMall and Desktop) prepared in accordance
with GAAP and in a form satisfactory to the Bank for the fiscal year ending
March 31, 2000, which financial statements shall be on a consolidated and
consolidating basis and which shall (a) show a consolidated net loss for
Borrowers and their Subsidiaries of not more than $2,000,000, (b) show a
consolidated net loss for the Borrowers only (not including any of the
Subsidiaries) of not more than $2,000,000, (c) show a Net Worth for Borrowers
and their Subsidiaries on a consolidated basis of not less than $31,900,000, and
(d) be substantially in accordance with the unaudited draft statements
previously submitted to Bank by Borrowers.
16.13 July 31, 2000 and August 31, 2000 Financial
-------------------------------------------
Statements. Borrowers shall have delivered to Bank internally prepared financial
----------
statements of Borrowers prepared in accordance with GAAP and in a form
satisfactory to the Bank for the calendar months ended July 31, 2000 and August
31, 2000, which financial statements shall be on a consolidated and
consolidating basis and shall show a consolidated EBITDA for the two (2)
Borrowers only and not including any other Persons, of not less than $220,000 in
the aggregate for both months and that the Borrowers have substantially achieved
the results anticipated by their business plan for such months as previously
furnished to Bank.
16.14 Licenses, Approvals, Etc. Bank shall have received
-------------------------
copies of all licenses, approvals, consents, authorizations and filings of
Obligors required or necessary for the operation of their business.
16.15 Excess Availability. At the time of funding and after
-------------------
considering closing costs and all other then current expenditures (including
after payment of past due trade creditors), Borrowers shall have Excess
Availability under the Revolving Credit Facility, plus available cash on hand on
deposit with Bank (excluding any previously pledged cash) of a minimum aggregate
amount of $5,500,000.
16.16 No Material Adverse Change. Bank shall have received
--------------------------
evidence that no Material Adverse Change nor any material change in the value of
the Collateral shall have occurred from the date of financial information and
projections originally provided to Bank;
77
16.17 Fees. All fees and expenses payable under the Loan
----
Documents on the Closing Date and as of the funding of the Loans or issuing such
Letter of Credit shall have been paid.
16.18 SEC Reporting. Bank shall have received copies of any
-------------
and all 10-K, 10-Q or other reports filed or required to be filed with the
Securities Exchange Commission or other regulatory agency by DrugMax.
16.19 Reference Checks. Bank shall have received satisfactory
----------------
reference checks on management, equity investors, and each of the Obligors.
16.20 Subordination. Bank shall have received evidence that
-------------
all shareholder and Affiliate debt owed by Borrowers is subordinated to all
Obligations on terms and conditions acceptable to the Bank.
16.21 Equipment Leases. Bank shall have received copies of
----------------
all equipment leases of Borrowers.
16.22 Releases. UCC-3 terminations and such other releases
--------
of all prior Liens, as have been requested by Bank, shall be delivered to Bank
on the Closing Date in appropriate form with all signatures and other
information needed for recordation.
16.23 Merger. Bank shall have received satisfactory evidence
------
that (a) Becan Distributors, Inc. has been merged into DrugMax, (b) Desktop
Corporation has been merged into Desktop, and (c) such mergers have not resulted
in any Material Adverse Change to such entities.
16.24 Other Documents. All other documents and legal matters
---------------
in connection with the transactions contemplated by this Agreement shall have
been delivered, executed, or recorded.
By completing the closing hereunder, or by making advances hereunder,
Bank does not thereby waive a breach of any warranty or representation made by
the Obligors hereunder or any agreement, document, or instrument delivered to
Bank or otherwise referred to herein, and any claims and rights of Bank
resulting from any breach or misrepresentation by any Obligor are specifically
reserved by Bank.
17. CONDITIONS PRECEDENT TO ALL ADVANCES AND LETTERS OF CREDIT. In
----------------------------------------------------------
addition to, but not in limitation of, any other conditions set forth in this
Agreement, the obligation of (a) Bank to make any Advance, or (b) Bank to issue
any Letter of Credit is subject to the fulfillment, to the satisfaction of Bank,
of each of the following conditions:
17.1 Representations and Warranties. The representations and
------------------------------
warranties contained in this Agreement and the other Loan Documents shall be
true and correct in all material respects
78
on and as of the date of such extension of credit, as though made on and as of
such date (except to the extent that such representations and warranties relate
solely to an earlier date);
17.2 No Default or Event of Default. No Default or Event of
------------------------------
Default shall have occurred and be continuing on the date of such extension of
credit, nor shall either result from the making thereof;
17.3 No Injunction or Order. No injunction, writ,
----------------------
restraining order, or other order of any nature prohibiting, directly or
indirectly, the extending of such credit shall have been issued and remain in
force by any governmental authority against any Obligor, Bank, or any of their
Affiliates; and
17.4 No Bankruptcy. No proceeding under any bankruptcy,
-------------
reorganization, arrangement of debt, insolvency, readjustment of debt, or
receivership law shall have been filed by or against any Obligor.
18. DEFAULT AND REMEDIES.
--------------------
18.1 Events of Default. The occurrence of any one or more of
-----------------
the following events shall constitute an Event or Events of Default hereunder:
(a) The failure of Borrowers to pay when due and
payable or when declared due and payable, any portion of the Obligations,
whether of principal, interest (including any interest which, but for the
provisions of the Bankruptcy Code, would have accrued on such amounts), fees,
costs, indemnities, or other amounts constituting Obligations;
(b) The failure of any Obligor to perform, keep, or
observe any term, provision, condition, covenant, or agreement contained in this
Agreement, in any of the Loan Documents, or in any other present or future
agreement between any Obligor and Bank;
(c) The failure of any Obligor to pay any
Indebtedness for borrowed money due to any third Person or Capitalized Lease
Obligations or the existence of any other event of default under any loan,
security agreement, mortgage, Capitalized Lease or other agreement pertaining
thereto binding any Obligor, after the expiration of any notice and/or grace
periods permitted in such documents;
(d) The failure of any Obligor to pay or perform any
other obligation to Bank under any other agreement or note or otherwise arising,
whether or not related to this Agreement, after the expiration of any notice
and/or grace periods permitted in such documents;
(e) The adjudication of any Obligor as a bankrupt or
insolvent, or the entry of an Order for Relief against any Obligor or the entry
of an order appointing a receiver or trustee for any
79
Obligor of any of their property or approving a petition seeking reorganization
or other similar relief under the Bankruptcy Code or other similar laws of the
U.S. or any state or any other competent jurisdiction;
(f) A proceeding under any bankruptcy, reorganization,
arrangement of debt, insolvency, readjustment of debt, debt moratorium or
receivership law is filed by or against any Obligor, or any Obligor makes an
assignment for the benefit of creditors, or any Obligor takes any action to
authorize any of the foregoing;
(g) The suspension of the operation of any Obligor's
Business;
(h) Any Obligor becomes unable to meet its debts as
they mature or fall due, or the admission in writing by any Obligor to such
effect, or any Obligor calling any meeting of all or any material portion of
their creditors for the purpose of debt restructure or moratorium;
(i) All, or any part of the Collateral or the assets
of any Obligor are attached, seized, subjected to a writ or distress warrant, or
levied upon, or come within the possession or control of any, receiver, trustee,
custodian or assignee for the benefit of creditors or become subject to any Lien
which is not otherwise permitted under Section 13.8;
------------
(j) The entry of a final judgment for the payment of
money against any Obligor in excess of $50,000 which, within ten (10) days after
such entry, shall not have been discharged or execution thereof stayed pending
appeal or shall not have been discharged within five (5) days after the
expiration of any such stay;
(k) Any representation or warranty of in any of the
Loan Documents is discovered to be untrue in any material respect or any
statement, certificate or data furnished by any Obligor pursuant hereto is
discovered to be untrue in any material respect as of the date as of which the
facts therein set forth are stated or certified;
(l) Any Obligor voluntarily or involuntarily dissolves
or is dissolved, terminates or is terminated;
(m) Any Obligor is enjoined, restrained, or in any way
prevented by the order of any court or any administrative or regulatory agency,
the effect of which order restricts any Obligor from conducting all or any
material part of their business;
(n) A material breach by any Obligor occurs under any
material agreement, document or instrument, whether heretofore, now or hereafter
existing between any Obligor and any other Person;
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(o) A Material Adverse Change occurs;
(p) A Change in Control occurs;
(q) Any material uninsured damage to, or loss, theft,
or destruction of, any of the Collateral occurs;
(r) Any strike, lockout, labor dispute, embargo,
condemnation, act of God or public enemy, or other casualty loss occurs
resulting in the cessation or substantial curtailment of production or other
revenue producing activities at any facility of any Obligor for more than thirty
(30) consecutive days;
(s) The loss, suspension, revocation or failure to
renew any license or permit now held or hereafter acquired by any Obligor, which
loss, suspension, revocation or failure to renew is likely to result in a
Material Adverse Change;
(t) Any projection delivered to Bank pursuant hereto
indicates that Borrower will not be able to comply with the financial covenants
set forth in Section 14;
----------
(u) Any breach by any Obligor under any of the
Subordination Agreements;
(v) The validity or enforceability of this Agreement,
or any of the Loan Documents, is contested by any Obligor, or any Obligor denies
that they have any or any further liability or obligation hereunder or
thereunder;
(w) The indictment or threatened indictment of any
Obligor under any criminal statute, or the commencement or threatened
commencement of criminal or civil proceedings against any Obligor pursuant to
which statute or proceedings the penalties or remedies sought or available
include forfeiture of any property of any Obligor, or any Obligor engages or
participates in any "check kiting" activity regardless of whether a criminal
investigation has been commenced; or
(x) Any breach by any Obligor under any of the Website
Agreements.
18.2 Remedies. Upon the occurrence of an Event of Default, or
--------
at any time thereafter, Bank may, at its election, without notice of its
election and without demand, do any one or more of the following, all of which
are authorized by the Obligors:
(a) Declare the entire unpaid principal of the
Revolving Credit Facility, the Term Loan, all other Obligations (including
without limitations all contingent reimbursement obligations under any Letters
of Credit, or any part thereof), all interest accrued thereon, all fees due
hereunder and all other
81
obligations of Borrowers to Bank hereunder or under any other Loan Document
otherwise arising immediately due and payable;
(b) Cease advancing money or extending credit to or for
the benefit of Borrowers under this Agreement, under any of the Loan Documents,
or under any other agreement between any Obligor and Bank;
(c) Cease issuing Letters of Credit;
(d) Convert any Loans earning interest at LIBOR Rate
plus Applicable Margin to Loans earning interest at the Base Rate plus
Applicable Margin and require Borrower to indemnify Bank against any loss, cost
or expense which Bank has sustained or incurred as a consequence of such
conversion in accordance with Section;
(e) Terminate this Agreement and any of the other Loan
Documents as to any future liability or obligation of the Bank, but without
affecting the Bank's rights and security interests in the Collateral and without
affecting the Obligations;
(f) Reduce the amount of the Revolving Credit Facility
or the advance rates for the calculation of Availability under the formula set
forth in Section 8.12, or require additional Reserves;
------------
(g) Increase the applicable interest rates up to the
Default Rate;
(h) Hold, as cash collateral, any and all balances and
deposits of the Obligors held by Bank, and any amounts received in the Cash
Collateral Account, to secure the full and final repayment of all of the
Obligations;
(i) Enter the premises occupied by the Obligors and take
possession of the Collateral and any records relating thereto; and/or
(j) Exercise each and every right and remedy granted to
it under the Loan Documents, under the Uniform Commercial Code and under any
other applicable law or at equity.
If an Event of Default occurs under Sections 18.1(e) or 18.1(f), all of
---------------------------
the Obligations shall become immediately due and payable.
18.3 Application of Proceeds. All proceeds from each sale of,
-----------------------
or other realization upon, all or any part of the Collateral following an Event
of Default shall be applied or paid over as follows:
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(a) First: to the payment of all costs and expenses
-----
incurred in connection with such sale or other realization, including attorneys'
fees; and
(b) Second: to the payment of the Obligations (with
------
the Obligors remaining liable for any deficiency) as Bank may elect; and
(c) Third: the balance (if any) of such proceeds
-----
shall be paid, subject to any duty imposed by law, or otherwise to whomsoever
shall be entitled thereto.
18.4 Sale or Other Disposition of Collateral. The sale, lease
---------------------------------------
or other disposition of the Collateral, or any part thereof, by Bank after an
Event of Default may be for cash, credit or any combination thereof, and Bank
may purchase all or any part of the Collateral at public or, if permitted by
law, private sale, and in lieu of actual payment of such purchase price, may
set-off the amount of such purchase price against the Obligations then owing.
Any sales of the Collateral may be adjourned from time to time with or without
notice. Bank may cause the Collateral to remain on any Obligor's premises or
otherwise or to be removed and stored at premises owned by other persons, at
Borrowers' expense, pending sale or other disposition of the Collateral. Any
Obligor at Bank's request, shall assemble the Collateral consisting of Inventory
and tangible assets and make such assets available to Bank at a place to be
designated by Bank. Bank shall have the right to conduct such sales on any
Obligor's premises, at the Obligors' expense, or elsewhere, on such occasion or
occasions as Bank may see fit. With respect to any Obligors' owned or leased
premises, the Obligors hereby grant Bank a license, effective upon the
occurrence of an Event of Default, and to the extent not prohibited by the terms
of any applicable lease, to enter into possession of such premises and to occupy
the same, without charge, in order to exercise any of Bank's rights or remedies
provided herein, at law, in equity, or otherwise.
Any notice required to be given by Bank of a sale, lease or other
disposition or other intended action by Bank with respect to any of the
Collateral which is given pursuant to Section 20 below, at least five (5)
----------
Business Days prior to such proposed action, shall constitute fair and
reasonable notice to the Obligors of any such action.
The net proceeds realized by Bank upon any such sale or other
disposition, after deduction for the expenses of retaking, holding, storing,
transporting, preparing for sale, selling or otherwise disposing of the
Collateral incurred by Bank in connection therewith and all other costs and
expenses related thereto including attorney fees, shall be applied in such order
as Bank, in its discretion, elects, toward satisfaction of the Obligations. Bank
shall account to the Obligors for any surplus realized upon such sale or other
disposition, and the Obligors shall remain liable for any deficiency. The
commencement of any action, legal or equitable, or the rendering of any judgment
or decree for any deficiency shall not affect Bank's Lien in the Collateral. The
Obligors agree that Bank has no obligation to preserve rights to the Collateral
against any other parties or to clean-up or otherwise prepare any of the
Collateral for sale.
83
If Bank sells any of the Collateral upon credit, the Obligors will be
credited only with payments actually made by or on behalf of the purchaser,
received by Bask and applied to the indebtedness owed by such purchaser to Bank.
If the purchaser fails to pay for any of the Collateral, Bank may resell the
Collateral.
Bank will not be considered to have offered to retain the Collateral in
satisfaction of the Obligations, unless Bank has entered into a written
agreement with the Obligors to that effect.
Bank is hereby granted a license or other right to use, after an Event of
Default, without charge, any Obligor's labels, General Intangibles, intellectual
property, Equipment, real estate, patents, copyrights, rights of use of any
name, trade secrets, trade names, trademarks, service marks and advertising
matter, or any property of a similar nature, as it pertains to the Collateral,
in completing production of, advertising for sale and selling any Inventory or
other Collateral and any Obligor's rights under all contracts, licenses,
approvals, permits, leases and franchise agreements, to the extent assignable,
shall inure to Bank's benefit.
Bank shall be under no obligation to ▇▇▇▇▇▇▇▇ any assets in favor of any
Obligor or any other party or against or in payment of any or all of the
Obligations.
18.5 Actions With Respect to Accounts. The Obligors hereby
--------------------------------
irrevocably make, constitute, and appoint Bank (and any of Bank's designated
officers, employees or agents) as their true and lawful attorney-in-fact, with
full power of substitution, with power to sign their name and to take any of the
following actions, in their name or the name of Bank, as Bank may determine,
without notice to any Obligor and at the Obligors' expense:
(a) Verify the validity and amount of or any other matter
relating to the Collateral by mail, telephone, telecopy or otherwise;
(b) Notify all Account Debtors that the Obligors' Accounts have
been assigned to Bank (for the pro rata benefit of Bank's) and that Bank has a
Lien therein;
(c) Direct all Account Debtors to make payment of all the
Obligors' Accounts directly to Bank and forward invoices directly to such
Account Debtors;
(d) Take control in any manner of any cash or non-cash items of
payment or proceeds of such Accounts;
(e) After the occurrence of an Event of Default, notify the
U.S. Postal Service to change the address for delivery of mail addressed to any
Obligor to such address as Bank may designate:
84
(f) After the occurrence of an Event of Default, have access
to any lockbox or postal boxes into which any Obligor's mail is deposited and
receive, open and dispose of all mail addressed to any Obligor (any sums
received pursuant to the exercise of the rights provided in the Loan Documents
may, at Bank's option, be deposited in the Cash Collateral Account);
(g) After the occurrence of an Event of Default, take control
in any manner of any rejected, returned, stopped in transit or repossessed goods
relating to any Accounts;
(h) After the occurrence of an Event of Default, enforce
payment of and collect any Accounts, by legal proceedings or otherwise, and for
such purpose Bank may:
(i) Demand payment of any Accounts or direct any
Account Debtors to make payment of Accounts directly to Bank;
(ii) Receive and collect all monies due or to become due
to any Obligor;
(iii) Exercise all of any Obligor's rights and remedies
with respect to the collection of Accounts,
(iv) Settle, adjust, compromise, extend, renew,
discharge or release the Accounts;
(v) Sell or assign the Accounts on such terms, for such
amount and at such times as Bank deems advisable;
(vi) Prepare, file and sign any Obligor's name or names
on any Proof of Claim or similar document in any proceeding filed under federal
or state bankruptcy, insolvency, reorganization or other similar law as to any
Account Debtor;
(vii) Prepare, file and sign any Obligor's name or names
on any Notice of Lien, Claim of Mechanic's Lien, Assignment or Satisfaction of
Lien or Mechanic's Lien or similar document in connection with the Collateral;
(viii) Endorse the name of any Obligor upon any chattel
papers, documents, instruments, invoices, freight bills, bills of lading or
similar documents or agreements relating to the Accounts or goods pertaining
thereto or upon any checks or other media of payment or evidences of a security
interest that may come into Bank's possession;
(ix) Sign the name of any Obligor to verifications of
Accounts and notices thereof sent by Account Debtors to such Obligor; or
85
(x) Take all other actions necessary or desirable to
protect any Obligor's or Bank's interest in the Accounts.
The Obligors ratify and approve all acts of said attorneys and agree that said
attorneys shall not be liable for any acts of commission or omission, nor for
any error of judgment or mistake of fact or law, except such attorneys' gross
negligence or willful misconduct. The Obligors agree to assist Bank in the
collection and enforcement of their Accounts and not to hinder, delay or impede
Bank in its collection or enforcement of said Accounts.
18.6 Actions With Respect to Web Sites. Each Obligor hereby
---------------------------------
irrevocably makes, constitutes and appoints Bank (and any of Bank's designated
officers, employees or agents) as their true and lawful attorney-in-fact, with
full power of substitution, with power to sign its name and to take any of the
following actions, in its name or the name of Bank, as Bank may determine,
without notice to any Obligor and at the Obligors' expense, after the occurrence
of any Event of Default:
(a) Take control of and exercise any rights of any Obligor
under any or all of the Website Agreements;
(b) Take any action to maintain and recover any website
related information and to insure that any website is properly maintained;
(c) Amend, modify, alter, delete or otherwise take any action
with respect to the content contained on any website;
(d) Enter into any agreements which Bank deems advisable to
continue the operation and maintenance of any website, with all of the costs,
expenses and fees related to such new agreements to be paid by the Obligors and
to constitute Obligations under this Agreement; and
(e) Take all other actions necessary or desirable in Bank's
discretion to protect any Obligor's or Bank's interest in any assets comprising
or related to any website.
The Obligors ratify and approve all acts of said attorneys' and agree
that said attorney shall not be liable for any acts of commission or omission,
nor for any error of judgment or mistake of fact or law, except such attorneys'
gross negligence or willful misconduct. This power, being coupled with an
interest, is irrevocable. The Obligors agree to assist Bank in the exercise of
all rights and remedies to enable the Bank to operate and maintain any such
website.
18.7 Set-Off. Without limiting the rights of Bank under Applicable
-------
Law, the Obligors grant to Bank and agree that Bank may, unless prohibited by
applicable law, without notice to any Obligor
86
(such notice being expressly waived), and without constituting a retention of
any Collateral in satisfaction of any Obligations (within the meaning of Section
9-505 of the UCC) exercise a right of set-off, a lien against and a security
interest in all property of the Obligors now or at any time in Bank's possession
in any capacity whatsoever, including but not limited to any balance of any
deposit, trust or agency account, or any other account with Bank as security for
the Obligations. At any time and from time to time following the occurrence of
an Event of Default or Default, Bank may without notice or demand, set off and
apply any and all deposits (general or special, time or demand, provisional or
final) at any time held and other indebtedness at any time owing by Bank to or
for the credit of any Obligor against any or all of the Obligations.
18.8 Turnover of Property Held by Bank. The Obligors irrevocably
---------------------------------
authorize any Affiliate of Bank, unless prohibited by Applicable Law, upon and
following the occurrence of an Event of Default or a Default, at the request of
Bank and without further notice, to turn over to Bank any property of any
Obligor held by such Affiliate, including without limitation, funds and
securities for any Obligor's account and to debit, for the benefit of Bank, any
deposit account maintained by any Obligor with such Affiliate (even if such
deposit account is not then due or there results a loss or reduction of interest
or the imposition of a penalty in accordance with Applicable Law to the early
withdrawal of time deposits), in the amount requested by Bank up to the amount
of the Obligations, and to pay or transfer such amount or property to Bank for
application to the Obligations.
18.9 Delay or Omission Not Waiver. Neither the failure nor any delay
----------------------------
on the part of Bank to exercise any right, remedy, power or privilege under the
Loan Documents upon the occurrence of any Event of Default or otherwise shall
operate as a waiver thereof or impair any such right, remedy, power or
privilege. No waiver of any Event of Default shall affect any later Event of
Default or shall impair any rights of Bank. No single, partial or full exercise
of any rights, remedies, powers and privileges by the Bank shall preclude
further or other exercise thereof. No course of dealing between Bank and any
Obligor shall operate as or be deemed to constitute a waiver of Bank's rights
under the Loan Documents or affect the duties or obligations of the Obligors.
18.10 Remedies Cumulative. The rights, remedies, powers and privileges
-------------------
provided for herein shall not be deemed exclusive, but shall be cumulative and
shall be in addition to all other rights, remedies, powers and privileges in
Bank's favor at law or in equity.
18.11 Consents, Approvals and Discretion. Whenever the Bank's consent
----------------------------------
or approval is required or permitted or any documents are required to be
acceptable to Bank, consent, approval or acceptability shall be at the sole and
absolute discretion of Bank. Except as otherwise specifically provided herein,
whenever any determination or act is at Bank's discretion, such determination or
act shall be at Bank's sole and absolute discretion.
87
18.12 Certain Fees, Costs, Expense Expenditures. The Obligors agree to
-----------------------------------------
pay on demand all cost and expenses of Bank (the "Bank Expenses"), including
without limitation:
(a) all costs, expenses and fees (including attorneys' fees and
other legal costs, expenses and charges) incurred or paid by Bank in connection
with (i) advising, structuring, drafting, preparing, reviewing, negotiating,
administering the Loan Documents or any waivers, consents, amendments,
extensions, modifications or restatements related thereto; (ii) interpreting,
enforcing, protecting, preserving, defending or terminating any of the Loan
Documents or any of Bank's rights and remedies related thereto, irrespective of
whether suit is brought (including without limitation, all costs and expenses
and attorneys' fees related to any "workout," "restructuring," insolvency or
similar proceeding involving any Obligor); (iii) legal advice relating to the
rights and responsibilities of Bank; (iv) the preparation for negotiations
regarding, consultations concerning or the defense or prosecution of any legal
proceedings involving, any claim (including third-party claims) made or
threatened against Bank related to or involving the Loan Documents, the
transactions contemplated under the Loan Documents, Bank's relationship with the
Obligors, or any actions taken pursuant to the Loan Documents by Bank;
(b) all costs, expenses and fees incurred or paid by Bank for
photocopying; notarization; couriers; messengers; telecommunications; public
record searches (including without limitation, real estate, tax lien,
litigation, UCC, bankruptcy, patent, trademark or copyright searches); filing;
recording; publication; appraisals (including without limitation personal
property, real estate, trademark, tradename, and inventory appraisals or
reappraisals); real estate surveys or updates; real estate title insurance
reports or bring-downs, commitments, policies and endorsements; environmental
audits, surveys or updates; and accounting or other professional advisors;
(c) all costs, expenses and fees incurred or paid by Bank in
connection with the disbursement of funds under the Loan Documents (by wire
transfer or otherwise); the dishonoring of checks, drafts or other items of
payment; correction or cure of any Default or Event of Default or enforcement of
the Loan Documents; gaining possession of, maintaining, handling, preserving,
storing, shipping, selling, preparing for sale or advertising to sell any of the
Collateral (regardless of whether the sale is consummated); or exercising any
rights or remedies under the Loan Documents; and
(d) all costs, expenses and other payments incurred or made by
Bank to any warehouseman, landlord, lessor or owner of any property at which any
of the Collateral is located to enable Bank to obtain access, store, warehouse,
ship, sell or otherwise preserve, protect and dispose of such Collateral
(including without limitation all lease payments, access charges, utility
charges and safety and security charges).
In the event any Obligor shall fail to pay taxes, insurance, assessments,
fees, costs or expenses which it is required to pay hereunder, or fails to keep
the Collateral free from Liens (except as expressly permitted herein), or fails
to maintain or repair the Collateral as required hereby, or otherwise breaches
any
88
obligations under the Loan Documents, Bank in its discretion, may make
expenditures for such purposes and the amount so expended (including reasonable
attorney's fees and expenses, filing fees and other charges) shall be payable by
the Obligors on demand and shall constitute part of the Obligations.
With respect to any amount required to be paid by Obligors under this
Section, in the event Obligors fail to pay such amount within five (5) days
after demand, at Bank's option, all of said amounts required to be paid by
Obligors, may be charged by Bank as a Base Rate Loan under the Revolving Credit
Facility and Borrowers shall also pay to Bank interest thereon at the Default
Rate.
19. INDEMNIFICATION. The Obligors agree to indemnify and hold harmless,
---------------
Bank, its parents and Affiliates and their officers, directors, shareholders,
employees and agents (collectively, the "Indemnified Parties"), from and against
any and all claims, liabilities, losses, damages, costs and expenses (whether or
not such Indemnified Party is a party to any litigation), including without
limitation attorney's fees and costs and costs of investigation, document
production, attendance at depositions or other discovery, incurred by any
Indemnified Party with respect to, arising out of or as a consequence of (a)
this Agreement or any of the other Loan Documents, including without limitation,
any failure of any Obligor to pay when due (at maturity, by acceleration or
otherwise) any principal, interest, fee or any other amount due under this
Agreement or the other Loan Documents, or any other Event of Default; (b) the
use by Borrower of any proceeds advanced hereunder; (c) the transactions
contemplated hereunder; or (d) any claim, demand, action or cause of action
being asserted against any Indemnified Party by any other Person in connection
with the transactions contemplated hereunder. Notwithstanding anything herein or
elsewhere to the contrary, the Obligors shall not be obligated to indemnify or
hold harmless any Indemnified Party from any liability, loss or damage resulting
from the gross negligence, wilful misconduct or unlawful actions of such
Indemnified Party or any violations by such Indemnified Party or Bank of any
securities laws or other laws and regulations concerning financial institutions.
Any amount payable to Bank under this Section will bear interest at the Default
Rate from the due date until paid.
The Obligors' obligations under this Section shall survive termination of
this Agreement and repayment of the Obligations.
20. COMMUNICATIONS AND NOTICES. All notices, requests and other
--------------------------
communications made or given in connection with the Loan Documents shall be in
writing and, unless receipt is stated herein to be required, shall be deemed to
have been validly given if delivered personally to the individual or division or
department to whose attention notices to a party are to be addressed, or by
private carrier, or registered or certified mail, return receipt requested, or
by telecopy with the original forwarded by first-class mail, in all cases, with
charges prepaid, addressed as follows, until some other address (or individual
or division or department for attention) shall have been designated by notice
given by one party to the other:
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To Obligors:
▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇
▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
With a copy of any notice of an Event of Default to be given for
information purposes and not for notice purposes to:
▇▇▇▇▇▇▇▇, Loop & ▇▇▇▇▇▇▇▇, LLP
▇▇▇▇ ▇▇▇▇ ▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Esquire
To Bank:
Mellon Bank, N.A.
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Vice President
ALL "PAYMENT IN FULL" CHECKS OR OTHER MEDIA OF PAYMENT MUST BE SENT TO BANK ONLY
TO THE ABOVE ADDRESS.
21. WAIVERS.
21.1 Waivers. In connection with any proceedings under the Loan
-------
Documents, including without limitation any action by Bank in replevin,
foreclosure or other court process or in connection with any other action
related to the Loan Documents or the transactions contemplated hereunder, the
Obligors waive, to the extent permitted by applicable law:
(a) all errors, defects and imperfections of a procedural nature
in such proceedings;
(b) all benefits under any present or future laws exempting any
property, real or personal, or any part of any proceeds thereof from attachment,
levy or sale under execution, or providing for any stay of execution to be
issued on any judgment recovered under
90
any of the Loan Documents or in any replevin or foreclosure proceeding, or
otherwise providing for any valuation, appraisal or exemption;
(c) presentment for payment, demand, notice of demand, notice of
nonpayment, protest and notice of protest of any of the Loan Documents,
including the Notes;
(d) any requirement for bonds, security or sureties required by
statute, court rule or otherwise;
(e) any demand for possession of Collateral prior to
commencement of any suit;
(f) all rights to claim or recover attorney's fees and costs in
the event that any Obligor is successful in any action to remove, suspend or
prevent the enforcement of a judgment entered by confession; and
(g) any right to require Bank to pursue any third Person for
payment of the Obligations or payment with respect to any of the Collateral.
21.2 Forbearance. Bank may release, compromise, forbear with respect
-----------
to, waive, suspend, extend or renew any of the terms of the Loan Documents,
without notice to or consent of any Obligor, other than Borrowers.
21.3 Limitation on Liability. The Obligors shall be responsible for
-----------------------
and Bank is hereby released from any claim or liability in connection with:
(a) Safekeeping any Collateral;
(b) Any loss or damage to any Collateral;
(c) Any diminution in value of the Collateral; or
(d) Any act or default of another Person.
Bank shall only be liable for any act or omission on their part
constituting gross negligence or wilful misconduct. In the event any Obligor
brings suit against Bank in connection with the transactions contemplated
hereunder and Bank is found not to be liable, the Obligors will indemnify and
hold Bank harmless from all costs and expenses, including attorney's fees,
incurred by Bank in connection with such suit. This Agreement is not intended to
obligate Bank to take any action with respect to the Collateral or
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to incur expenses or perform any obligation or duty of any Obligor. Obligors'
obligations under this Section shall survive termination of this Agreement and
repayment of the Obligations.
21.4 Waiver of Subrogation. The Obligors hereby waive any right to
---------------------
subrogation, reimbursement, contribution or indemnity from any Obligor in
connection with any Obligor's obligations under the Loan Documents.
22. SUBMISSION TO JURISDICTION. The Obligors hereby consent to the
--------------------------
jurisdiction of any state or federal court located within the Commonwealth of
Pennsylvania, and irrevocably agree that, subject to the Bank's election, all
actions or proceedings relating to the Loan Documents or the transactions
contemplated hereunder shall be litigated in such courts, and the Obligors waive
any objection which they may have based on lack of personal jurisdiction,
improper venue or forum non conveniens to the conduct of any proceeding in any
--------------------
such court and waive personal service of any and all process upon them and
consent that all such service of process be made by mail or messenger directed
to them at the address set forth in Section 20. Nothing contained in this
----------
Section shall affect the right of Bank to serve legal process in any other
manner permitted by law or affect the right of Bank to bring any action or
proceeding against any Obligor or their property in the courts of any other
jurisdiction.
23. MISCELLANEOUS.
--------------
23.1 Brokers. The transaction contemplated hereunder was brought about
-------
and entered into by Bank and the Obligors acting as principals and without any
brokers, agents or finders being the effective procuring cause hereof. The
Obligors represent to Bank that the Obligors have not committed Bank to the
payment of any brokerage fee or commission in connection with this transaction.
If any such claim is made against Bank by any broker, finder or agent or any
other Person, the Obligors agree to indemnify, defend and hold Bank harmless
against any such claim, at the Obligors' own cost and expense, including Bank's
attorneys' fees. The Obligors further agree that until any such claim or demand
is adjudicated in Bank's favor, the amount claimed and/or demanded shall be
deemed part of the Obligations secured by the Collateral.
23.2 Use of Bank's Name. The Obligors shall not use the name of Bank
------------------
or the name of any Affiliate of Bank in connection with any of their business or
activities except as may otherwise be required by the rules and regulations of
the Securities and Exchange Commission or any like regulatory body and except as
may be required in their dealings with any governmental agency.
23.3 No Joint Venture. Nothing contained herein is intended to permit
----------------
or authorize any Obligor to make any contract on behalf of Bank, nor shall this
Agreement be construed as creating a partnership, joint venture or making Bank
an investor in any Obligor.
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23.4 Survival. All covenants, agreements, representations and
--------
warranties made by the Obligors in the Loan Documents or made by or on their
behalf in connection with the transactions contemplated herein shall be true at
all times this Agreement is in effect and shall survive the execution and
delivery of the Loan Documents, any investigation at any time made by Bank or on
their behalf and the making by Bank of the loans or advances to Borrowers. All
statements contained in any certificate, statement or other document delivered
by or on behalf of the Obligors pursuant hereto or in connection with the
transactions contemplated hereunder shall be deemed representations and
warranties by the Obligors.
23.5 No Assignment. The Obligors may not assign any of their rights
-------------
hereunder without the prior written consent of Bank shall not be required to
lend hereunder except to Borrowers as they presently exist.
23.6 Assignment or Sale by Bank. Bank may sell, assign or
---------------------------
participate all or a portion of its interest in the Loan Documents and in
connection therewith may make available to any prospective purchaser, assignee
or participant any information relative to Obligors in its possession. In the
event that Bank sells or assigns any portion of the Loans, Obligors shall (a)
execute and deliver to Bank and/or to the applicable purchaser or assignee, such
substitute or replacement Notes, Surety Agreements or other Loan Documents, and
(b) execute and deliver to Bank such amendments to the Loan Documents as Bank
may request to reflect such sale or assignment.
23.7 Publicity. Obligors agree that Bank may disclose the fact of the
---------
financing under this Agreement in the form of a "tombstone" announcement in the
print media, whether individually or part of a general advertisement.
23.8 Injunctive Relief. Each of the Obligors expressly acknowledges
-----------------
and agrees that an action for damages for any breach of the requirements of
Section 10.8 shall not be an adequate remedy at law. In the event of any such
------------
breach, each of the Obligors agrees to the fullest extent allowed by law that
Bank shall be entitled to injunctive relief to restrain such breach and require
compliance with such requirements.
23.9 Time is of the Essence. Time is of the essence in the Obligors'
----------------------
performance of their obligations under the Loan Documents.
23.10 All Powers Coupled With Interest. All powers of attorney and
--------------------------------
other authorizations granted to Bank and any Persons designated by Bank pursuant
to any provisions of this Agreement or any of the other Loan Documents shall be
deemed coupled with an interest and shall be irrevocable so long as any of the
Obligations remain unpaid or unsatisfied.
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23.11 Disclosure and Disclaimer Regarding Power of Attorney. Obligors
-----------------------------------------------------
acknowledge and certify as follows:
(a) The Loan Documents contain provisions authorizing Bank to
act as Obligors' attorney-in-fact or agent (collectively such powers are herein
after referred to as the "Power of Attorney").
(b) The purpose of the Power of Attorney is to give Bank broad
powers to execute documents, handle or sell property and otherwise act in the
name of the Obligors.
(c) The Power of Attorney is coupled with an interest and, as
such, Bank, in exercising any of its rights under the Power of Attorney is not a
fiduciary of the Obligors. Bank may exercise any of its rights under the Power
of Attorney for the sole benefit of Bank, without regard to the interests of the
Obligors.
(d) The Loan Agreement and the other Loan Documents are being
executed in connection with a commercial loan or other financial transaction for
business purposes and not primarily for personal, family or household purposes.
(e) Any rights the Obligors may have to the specific provisions
set forth in 20 Pa. C.S. 5601 et seq., as amended (specifically including Act 39
of 1999) are hereby forever waived and relinquished.
(f) The Obligors have read and understand the Power of Attorney
and this subsection regarding disclosure and disclaimer regarding the Power of
Attorney.
(g) The Obligors have consulted with legal counsel regarding
the Power of Attorney and this subsection regarding disclosure and disclaimer
regarding the Power of Attorney.
23.12 Binding Effect. This Agreement and all rights and powers
--------------
granted hereby will bind and inure to the benefit of the parties hereto and
their respective permitted successors and assigns and shall bind all Persons who
become bound as a borrower, guarantor or other obligor under this Agreement.
23.13 Severability. The provisions of this Agreement and all other
------------
Loan Documents are deemed to be severable, and the invalidity or
unenforceability of any provision shall not affect or impair the remaining
provisions which shall continue in full force and effect.
23.14 No Third Party Beneficiaries. The rights and benefits of this
----------------------------
Agreement and the Loan Documents shall not inure to the benefit of any third
party.
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23.15 Modifications. Any modification or amendment of this
-------------
Agreement or any of the Loan Documents shall be in writing signed by the parties
hereto.
23.16 Holidays. If the day provided herein for the payment of any
--------
amount or the taking of any action falls on a Saturday, Sunday or public holiday
at the place for payment or action, then the due date for such payment or action
will be the next succeeding Business Day.
23.17 Law Governing. This Agreement has been made, executed and
-------------
delivered in the Commonwealth of Pennsylvania and will be construed in
accordance with and governed by the laws of such Commonwealth, without regard to
any rules or principles regarding conflicts of law or any rule or canon of
construction which interprets agreements against the draftsman.
23.18 Integration. The Loan Documents shall be construed as integrated
-----------
and complementary of each other, and as augmenting and not restricting Bank's
rights, powers, remedies and security. The Loan Documents contain the entire
understanding of the parties thereto with respect to the matters contained
therein and supersede all prior agreements and understandings between the
parties with respect to the subject matter thereof and do not require parol or
extrinsic evidence in order to reflect the intent of the parties. In the event
of any inconsistency between the terms of this Agreement and the terms of the
other Loan Documents, the terms of this Agreement shall prevail.
23.19 Exhibits and Schedules. All exhibits and schedules attached
----------------------
hereto are hereby made a part of this Agreement.
23.20 Headings. The headings of the Articles, Sections, paragraphs and
--------
clauses of this Agreement are inserted for convenience only and shall not be
deemed to constitute a part of this Agreement.
23.21 Counterparts; Facsimile Signatures. The Loan Documents and any
----------------------------------
notice or communication under the Loan Documents may be executed in one or more
counterparts, each of which shall constitute an original, but all of which
together shall constitute one and the same instrument. Delivery of a photocopy
or telecopy of an executed counterpart of a signature page to any Loan Document
shall be effective as delivery of a manually executed counterpart of such Loan
Document.
23.22 Joint and Several. The obligations of the Obligors under this
-----------------
Agreement shall be joint and several obligations.
23.23 Limitation on Damages. The Obligors and Bank agree that, in any
---------------------
action, suit or proceeding, in respect of or arising out of this Agreement, the
Loan Documents or the transactions contemplated hereunder, each mutually waives
to the fullest extent permitted by law, any claim for consequential, punitive or
special damages.
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23.24 Waiver of Right to Trial by Jury. THE OBLIGORS AND BANK WAIVE
--------------------------------
ANY RIGHT TO TRIAL BY JURY ON ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (a)
ARISING UNDER ANY OF THE LOAN DOCUMENTS OR (b) IN ANY WAY CONNECTED WITH OR
RELATED OR INCIDENTAL TO THE DEALINGS OF THE OBLIGORS OR BANK WITH RESPECT TO
ANY OF THE LOAN DOCUMENTS OR THE TRANSACTIONS RELATED HERETO OR THERETO, IN EACH
CASE WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE. THE OBLIGORS AND BANK
AGREE AND CONSENT THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL
BE DECIDED BY COURT TRIAL WITHOUT A JURY, AND THAT ANY PARTY TO THIS AGREEMENT
MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS SECTION WITH ANY COURT AS
WRITTEN EVIDENCE OF THE CONSENT OF THE OBLIGORS AND BANK TO THE WAIVER OF THEIR
RIGHT TO TRIAL BY JURY. THE OBLIGORS ACKNOWLEDGE THAT THEY HAVE HAD THE
OPPORTUNITY TO CONSULT WITH COUNSEL REGARDING THIS SECTION, THAT THEY FULLY
UNDERSTAND ITS TERMS, CONTENT AND EFFECT, AND THAT THEY VOLUNTARILY AND
KNOWINGLY AGREE TO THE TERMS OF THIS SECTION.
96
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
BORROWERS:
---------
▇▇▇▇▇▇▇.▇▇▇,INC
By:___________________________________________
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Vice President - Finance
VALLEY DRUG COMPANY
By: ___________________________________________
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Vice President - Finance
GUARANTORS
----------
DESKTOP MEDIA GROUP, INC.
By: ___________________________________________
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Vice President - Finance
VETMALL, INC.
By: ___________________________________________
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Vice President - Finance
97
BANK:
----
MELLON BANK, N.A.
By:_______________________________
Name/Title:_______________________
98
EXHIBITS
--------
Exhibit A - Form of Covenant Compliance Certificate
Exhibit B - Form of LIBOR Rate Notification
Exhibit C - Form of Base Rate Loan Request
Exhibit D - Form of LIBOR Rate Loan Request
Exhibit E - Form of Borrowing Base Certificate
SCHEDULES
---------
Schedule 10.1(h) - Pledged Securities
Schedule 11.1 - States of Formation
Schedule 11.3 - Ownership Interests
Schedule 11.4 - Subsidiaries
Schedule 11.7 - Litigation
Schedule 11.14 - Names and States of Formation
Schedule 11.16 - Pension and Benefit Plans
Schedule 11.17 - Leases and Contracts
Schedule 11.18 - Intellectual Property
Schedule 11.23 - Affiliate Transactions
Schedule 11.24(b) - Licenses
Schedule 11.24(c) - Operating Agreements
Schedule 11.24(d) - Facility Sites
Schedule 11.24(e) - Leases
Schedule 11.28 - Subordinated Indebtedness
Schedule 11.29(a) - All Inventory Locations
Schedule 11.29(b) - Eligible Inventory Locations
Schedule 11.31 - Collective Bargaining Agreements
Schedule 11.32 - Investment Property
Schedule 11.35 - Web Sites
Schedule 13.2 - Permitted Indebtedness
Schedule 13.3 - Permitted Loans
Schedule 13.4 - Permitted Investments
Schedule 13.8 - Permitted Liens