EXHIBIT 10.17
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TEXT MARKED BY [* * *] HAS BEEN OMITTED PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT AND WAS FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
LOAN AND SECURITY AGREEMENT
(ACCOUNTS AND INVENTORY)
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OBLIGOR # NOTE # AGREEMENT DATE
September 14, 2007
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CREDIT LIMIT INTEREST RATE OFFICER NO./INITIALS
$4,800,000
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THIS AGREEMENT is entered into on September 14, 2007, between
Comerica Bank ("Bank") as secured party, whose Western Division headquarters
office is ▇▇ ▇. ▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, Mail Code 4770 and the
undersigned ("Borrower"), whose chief executive office is located at the address
set forth below its name on the signature page to this Agreement. The parties
agree as follows:
1. DEFINITIONS.
1.1 "Account Advance Rate" shall mean, as of any applicable date of
determination thereof, (1) seventy percent (70%) less (2) the number of
percentage points by which the dilution of Borrowers' Accounts exceeds fifteen
percent (15%). For the purposes of calculating the Account Advance Rate, the
percentage dilution of Borrower's Accounts will be measured for the twelve (12)
month period ended as of the determination date.
1.2 "Accounts" shall mean and includes all presently existing and
hereafter arising accounts, including without limitation all accounts
receivable, contract rights and other forms of right to payment for monetary
obligations or receivables for property sold or to be sold, leased, licensed,
assigned or otherwise disposed of, or for services rendered or to be rendered
(including without limitation all health-care-insurance receivables) owing to
Borrower, and any supporting obligations, credit insurance, guaranties or
security therefor, irrespective of whether earned by performance.
1.3 "Advance" shall mean a borrowing requested by Borrower and made
by Bank under this Agreement, including a LIBOR Option Advance and/or a Base
Rate Option Advance.
1.4 "Agreement" shall mean and includes this Loan and Security
Agreement (Accounts and Inventory), any concurrent or subsequent rider to this
Loan and Security Agreement (Accounts and Inventory) and any extensions,
supplements, amendments or modifications to this Loan and Security Agreement
(Accounts and Inventory) and/or to any such rider.
1.5 "Bank Expenses" shall mean and includes: all costs or expenses
required to be paid by Borrower under this Agreement which are paid or advanced
by Bank; taxes and insurance premiums of every nature and kind of Borrower paid
by Bank; filing, recording, publication and search fees, appraiser fees, auditor
fees and costs, and title insurance premiums paid or incurred by Bank in
connection with Bank's transactions with Borrower; costs and expenses incurred
by Bank in collecting the Accounts (with or without suit) to correct any default
or enforce any provision of this Agreement, or in gaining possession of,
maintaining, handling, preserving, storing, shipping, selling, disposing of,
preparing for sale and/or advertising to sell the Collateral, whether or not a
sale is consummated; costs and expenses of suit incurred by Bank in enforcing or
defending this Agreement or any portion hereof, including, but not limited to,
expenses incurred by Bank in attempting to obtain relief from any stay,
restraining order, injunction or similar process which prohibits Bank from
exercising any of its rights or remedies; and reasonable attorneys' fees and
expenses incurred by Bank in advising, structuring, drafting, reviewing,
amending, terminating, enforcing, defending or concerning this Agreement, or any
portion hereof or any agreement related hereto, whether or not suit is brought.
Bank Expenses shall include Bank's in-house legal charges at reasonable rates.
1.6 "Base Rate" shall mean that variable rate of interest so
announced by Bank at its headquarters office in San Jose, California as its
"Base Rate" from time to time and which serves as the basis upon which effective
rates of interest are calculated for those loans making reference thereto.
1.7 "Base Rate Option" shall mean a rate equal to one half percent
(0.50%) above the Base Rate.
1.8 "Base Rate Option Advance" shall mean an Advance bearing
interest at the Base Rate Option.
1.9 "Borrower's Books" shall mean and includes all of Borrower's
books and records including but not limited to minute books; ledgers; records
indicating, summarizing or evidencing Borrower's assets, (including, without
limitation, the Accounts) liabilities, business operations or financial
condition, and all information relating thereto, computer programs; computer
disk or tape files; computer printouts; computer runs; and other computer
prepared information and equipment of any kind.
1.10 "Borrowing Base" shall mean the sum of: (1) the Account Advance
Rate of the net amount of Eligible Accounts after deducting therefrom the
reserve for authorized returns not yet credited and all payments, adjustments
and credits applicable thereto; and (2) the amount of the Inventory Advances;
and (3) one hundred percent (100%) of the stated amount of the Support Letter of
LOAN AND SECURITY AGREEMENT
(ACCOUNTS AND INVENTORY)
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Credit. Anything contained in the foregoing to the contrary notwithstanding,
Bank may adjust the Borrowing Base percentages and the definition of Eligible
Accounts and Eligible Inventory, in each case as provided for under subsection
6.7 hereof.
1.11 "Capital Expenditure" shall mean any expenditure by a Person
for (a) an asset which will be used in a year or years subsequent to the year in
which the expenditure is made and which asset is properly classified in relevant
financial statements of such Person as equipment, real property, a fixed asset
or a similar type of capitalized asset in accordance with GAAP or (b) an asset
relating to or acquired in connection with an acquired business, and any and all
acquisition costs related to (a) or (b) above.
1.12 "Collateral" shall mean and includes all personal property of
Borrower, including without limitation each and all of the following: the
Accounts; the Inventory; the General Intangibles; the Negotiable Collateral;
Borrower's Books; all Borrower's deposit accounts; all Borrower's investment
property (including without limitation securities and securities entitlements);
all goods, instruments, documents, policies and certificates of insurance,
deposits, money or other personal property of Borrower in which Bank receives a
security interest and which now or later come into the possession, custody or
control of Bank; all Borrower's equipment and fixtures; all additions,
accessions, attachments, parts, replacements, substitutions, renewals, interest,
dividends, distributions or rights of any kind for or with respect to any of the
foregoing (including without limitation any stock splits, stock rights, voting
rights and preferential rights); any supporting obligations for any of the
foregoing; and the products and proceeds of any of the foregoing, including, but
not limited to, proceeds of insurance covering the Collateral, and any and all
Accounts, General Intangibles, Negotiable Collateral, Inventory, equipment,
money, deposit accounts, investment property, equipment, fixtures or other
tangible and intangible property of Borrower resulting from the sale or other
disposition of the Collateral and the proceeds thereof and any supporting
obligations or security therefor and any right to payment thereunder, and
including, without limitation, cash or other property which were proceeds and
are recovered by a bankruptcy trustee or otherwise as a preferential transfer by
Borrower. Notwithstanding anything to the contrary contained herein, Collateral
shall not include any waste or other materials which have been or may be
designated as toxic or hazardous by Bank.
1.13 "Credit" shall mean all Indebtedness, except that Indebtedness
arising pursuant to any other separate contract, instrument, note or other
separate agreement which, by its terms, provides for a specified interest rate
and term.
1.14 "Credit Limit" shall mean Four Million Eight Hundred Thousand
Dollars ($4,800,000).
1.15 "Current Assets" shall mean, in respect of a Person and as of
any applicable date of determination, all current assets of such Person
determined in accordance with GAAP.
1.16 "Current Liabilities" shall mean, in respect of a Person and as
of any applicable date of determination, all liabilities of such Person that
should be classified as current in accordance with GAAP. Current Liabilities
shall include all amounts owing under the Credit.
1.17 "Daily Balance" shall mean the amount determined by taking the
amount of the Credit owed at the beginning of a given day, adding any new Credit
advanced or incurred on such date, and subtracting any payments or collections
which are deemed to be paid and are applied by Bank in reduction of the Credit
on that date under the provisions of this Agreement.
1.18 "Debt" shall mean, as of any applicable date of determination,
all items of indebtedness, obligation or liability of a Person, whether matured
or unmatured, liquidated or unliquidated, direct or indirect, absolute or
contingent, joint or several, that should be classified as liabilities in
accordance with GAAP. In the case of Borrower, the term "Debt" shall include,
without limitation, the Indebtedness.
1.19 "Eligible Accounts" shall mean and includes those Accounts of
Borrower which are due and payable within ninety (90) days, or less, from the
date of invoice, have been validly assigned to Bank and strictly comply with all
of Borrower's warranties and representations to Bank; but Eligible Accounts
shall not include the following: (a) Accounts with respect to which the account
debtor is an officer, employee, partner, joint venturer or agent of Borrower;
(b) Accounts with respect to which goods are placed on consignment, guaranteed
sale or other terms by reason of which the payment by the account debtor may be
conditional; (c) Accounts with respect to which the account debtor is not a
resident of the United States, Canada or Puerto Rico; (d) Accounts with respect
to which the account debtor is the United States or any department, agency or
instrumentality of the United States; (e) Accounts with respect to which the
account debtor is any State of the United States or any city, county, town,
municipality or division thereof; (f) Accounts with respect to which the account
debtor is a subsidiary of, related to, affiliated or has common shareholders,
officers or directors with Borrower; (g) Accounts with respect to which Borrower
is or may become liable to the account debtor for goods sold or services
rendered by the account debtor to Borrower; (h) Accounts, other than accounts
where the account debtor is Eye Care Centers of America, not paid by an account
debtor within ninety (90) days from the date of the invoice; (i) Accounts where
the account debtor is Eye Care Centers of America not paid by the account debtor
within one hundred twenty (120) days from the date of the invoice; (j) Accounts
with respect to which account debtors dispute liability or make any claim, or
have any defense, crossclaim, counterclaim, or offset; (k) Accounts with respect
to which any Insolvency Proceeding is filed by or against the account debtor, or
if an account debtor becomes insolvent, fails or goes out of business; (l)
Accounts owed by any single account debtor which exceed twenty percent (20%) of
all of the Eligible Accounts; and (m) Accounts with a particular account debtor
on which over twenty-five percent (25%) of the aggregate amount owing is greater
than ninety (90) days from the date of the invoice.
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LOAN AND SECURITY AGREEMENT
(ACCOUNTS AND INVENTORY)
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1.20 "Event of Default" shall mean one or more of those events
described in Section 7 contained herein below.
1.21 "GAAP" shall mean, as of any applicable period, generally
accepted accounting principles in effect during such period.
1.22 "General Intangibles" shall mean and includes all of Borrower's
present and future general intangibles and other personal property (including
without limitation all payment intangibles, electronic chattel paper, contract
rights, rights arising under common law, statutes, or regulations, choses or
things in action, goodwill, patents, trade names, trademarks, servicemarks,
copyrights, blueprints, drawings, plans, diagrams, schematics, purchase orders,
customer lists, monies due or recoverable from pension funds, route lists,
rights to payment (including without limitation, rights to payment evidenced by
chattel paper, documents or instruments) and other rights under any royalty or
licensing agreements, infringement claims, software (including without
limitation any computer program that is embedded in goods that consist solely of
the medium in which the program is embedded), information contained on computer
disks or tapes, literature, reports, catalogs, insurance premium rebates, tax
refunds, and tax refund claims), other than goods, Accounts, Inventory,
Negotiable Collateral, and Borrowers Books.
1.23 "Indebtedness" shall mean and includes any and all loans,
advances, Letter of Credit Obligations, overdrafts, debts, liabilities
(including, without limitation, any and all amounts charged to Borrower's loan
account pursuant to any agreement authorizing Bank to charge Borrower's loan
account), obligations, lease payments, guaranties, covenants and duties owing by
Borrower to Bank of any kind and description whether advanced pursuant to or
evidenced by this Agreement; by any note or other Instrument; or by any other
agreement between Bank and Borrower and whether or not for the payment of money,
whether direct or indirect, absolute or contingent, due or to become due now
existing or hereafter arising, including, without limitation, any interest,
fees, expenses, costs and other amounts owed to Bank that but for the provisions
of the United States Bankruptcy Code would have accrued after the commencement
of any Insolvency Proceeding, and including, without limitation, any debt,
liability, or obligations owing from Borrower to others which Bank may have
obtained by assignment, participation, purchase or otherwise, and further
including, without limitation, all interest not paid when due and all Bank
Expenses which Borrower is required to pay or reimburse by this Agreement, by
law, or otherwise.
1.24 "Insolvency Proceeding" shall mean and includes any proceeding
or case commenced by or against Borrower, or any guarantor of Borrower's
Indebtedness, or any of Borrower's account debtors, under any provisions of the
United States Bankruptcy Code, as amended, or any other bankruptcy or insolvency
law, including, but not limited to assignments for the benefit of creditors,
formal or informal moratoriums, composition or extensions with some or all
creditors, any proceeding seeking a reorganization, arrangement or any other
relief under the United States Bankruptcy Code, as amended, or any other
bankruptcy or insolvency law.
1.25 "Inventory" shall mean and includes all present and future
inventory in which Borrower has any interest, including, but not limited to,
goods held by Borrower for sale or lease or to be furnished under a contract of
service and all of Borrower's present and future raw materials, work in process,
finished goods (including without limitation any computer program embedded in
any of the foregoing goods and any supporting information provided in connection
therewith that (i) is associated with the goods in such a manner that the
program customarily is considered part of the goods or that (ii) by becoming the
owner of the goods, a person acquires a right to use the program in connection
with the goods), together with any advertising materials and packing and
shipping materials, wherever located and any documents of title representing any
of the above, and any equipment, fixtures or other property used in the storing,
moving, preserving, identifying, accounting for and shipping or preparing for
the shipping of inventory, and any and all other items hereafter acquired by
Borrower by way of substitution, replacement, return, repossession or otherwise,
and all additions and accessions thereto, and the resulting product or mass, and
any documents of title respecting any of the above.
1.26 "Inventory Advances" shall mean any Advances made by Bank which
are thirty five percent (35%) of the lower of cost or market value of Borrower's
Eligible Inventory, and as may be adjusted by Bank, in Bank's discretion, for
age and seasonality or other factors affecting the value of the Inventory, up to
a maximum advance outstanding at any one time of Two Million Dollars
($2,000,000) upon Borrower's concurrent execution and delivery to Bank of a
Designation of Inventory, or Certification of Borrowing Base, in form
customarily used by Bank. "Eligible Inventory" shall mean Borrower's Inventory
that (a) consists of finished goods (i.e., frames) or eyeglass cases, (b) is
less than 730 days old and (c) is located in the United States of America.
1.27 "Letter of Credit Obligations" shall mean, as of any applicable
date of determination, the sum of the undrawn amount of any letter(s) of credit
issued by Bank upon the application of and/or for the account of Borrower, plus
any unpaid reimbursement obligations owing by Borrower to Bank in respect of any
such letter(s) of credit.
1.28 "Leverage Ratio" shall mean, as of any date of determination,
the ratio of (1) total liabilities minus Subordinated Debt to (2) Tangible
Effective Net Worth.
1.29 "LIBOR" shall mean the rate per annum (rounded upward if
necessary, to the nearest whole 1/8 of 1%) and determined pursuant to the
following formula:
LIBOR = LIBOR Base
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100% - LIBOR Reserve Percentage
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LOAN AND SECURITY AGREEMENT
(ACCOUNTS AND INVENTORY)
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1.30 "LIBOR Base" shall mean the rate per annum determined by Bank
at which deposits for the relevant LIBOR Period would be offered to Bank in the
approximate amount of the relevant LIBOR Option Advance in the inter-bank LIBOR
market selected by Bank, upon request of Bank at 10:00 a.m. California time, on
the day that is the first day of such LIBOR Period.
1.31 "LIBOR Business Day" shall mean means any day except a
Saturday, Sunday or any other day designated as a holiday under Federal or
California statute or regulation on which dealings in Dollar deposits may be
carried out in the interbank LIBOR market.
1.32 "LIBOR Option" shall mean a rate equal to three and one quarter
percent (3.25%) above Bank's LIBOR.
1.33 "Libor Option Advance" shall mean an Advance bearing interest
at the LIBOR Option.
1.34 "LIBOR Period" shall mean, with respect to a LIBOR Option
Advance:
a. initially, the period commencing on, as
the case may be, the date the Advance is made or the
date on which the Advance is converted to a LIBOR Option
Advance, and continuing for, in every case, a 30, 60, 90
day period thereafter so long as the LIBOR Option is
quoted for such period in the applicable interbank LIBOR
market, as such period is selected by Borrower in the
notice of Advance as provided in the Note or in the
notice of conversion as provided in this Addendum; and
b. thereafter, each period commencing on the
last day of the next preceding LIBOR Period applicable
to such LIBOR Option Advance and continuing for, in
every case, a 30, 60, 90 day period thereafter so long
as the LIBOR Option is quoted for such period in the
applicable interbank LIBOR market, as such period is
selected by Borrower in the notice of continuation as
provided in this Addendum;
c. provided, however, that at no time shall
there be more than two (2) LIBOR Periods in existence.
1.35 "LIBOR Reserve Percentage" shall mean the reserve percentage
prescribed by the Board of Governors of the Federal Reserve System (or any
successor) for "Eurocurrency Liabilities" (as defined in Regulation D of the
Federal Reserve Board, as amended), adjusted by Bank for expected changes in
such reserve percentage during the applicable LIBOR Period.
1.36 "Long Term Indebtedness" shall mean, in respect of a Person and
as of any applicable date of determination thereof, all Debt which should be
classified as "funded indebtedness" or "long term indebtedness" on a balance
sheet of such Person as of such date in accordance with GAAP.
1.37 "Net Income" shall mean the net income (or loss) of a person
for any period of determination, determined in accordance with GAAP but
excluding in any event:
a. any gains or losses on the sale or other disposition,
not in the ordinary course of business, of investments or fixed
or capital assets, and any taxes on the excluded gains and any
tax deductions or credits on account on any excluded losses; and
b. in the case of Borrower, net earnings of any Person in
which Borrower has an ownership interest, unless such net
earnings shall have actually been received by Borrower in the
form of cash distributions.
1.38 "Negotiable Collateral" shall mean and include all of
Borrower's present and future letters of credit, advises of credit,
letter-of-credit rights, certificates of deposit, notes, drafts, money,
documents (including without limitation all negotiable documents), instruments
(including without limitation all promissory notes), tangible chattel paper or
any other similar property.
1.39 "Judicial Officer or Assignee" shall mean and includes any
trustee, receiver, controller, custodian, assignee for the benefit of creditors
or any other person or entity having powers or duties like or similar to the
powers and duties of trustee, receiver, controller, custodian or assignee for
the benefit of creditors.
1.40 "Person" or "person" shall mean and includes any individual,
corporation, partnership, joint venture, firm, association, trust,
unincorporated association, joint stock company, government, municipality,
political subdivision or agency or other entity.
1.41 "Pre-Tax Income" shall mean, for any applicable period of
determination, Net Income plus, to the extent deducted in computation of Net
Income, income tax expense.
1.42 "Quick Assets" shall mean, as of any applicable date of
determination, unrestricted cash, certificates of deposit or marketable
securities and net accounts receivable arising from the sale of goods and
services, and United States government securities and/or claims against the
United States government of Borrower and its subsidiaries.
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(ACCOUNTS AND INVENTORY)
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1.43 "Quick Ratio" shall mean, as of an applicable date of
determination, a ratio, the numerator of which is Quick Assets and the
denominator of which is the sum of Current Liabilities, excluding Subordinated
Debt, and any borrowing under the Credit categorized as non Current Liabilities.
1.44 "Regulation D" shall mean Regulation D of the Board of
Governors of the Federal Reserve System as amended or supplemented from time to
time.
1.45 "Regulatory Development" shall mean any or all of the
following: (i) any change in any law, regulation or interpretation thereof by
any public authority (whether or not having the force of law); (ii) the
application of any existing law, regulation or the interpretation thereof by any
public authority (whether or not having the force of law); and (iii) compliance
by Bank with any request or directive (whether or not having the force of law)
of any public authority.
1.46 "Subordinated Debt" shall mean (a) indebtedness of the Borrower
to any Person which has been subordinated to the Indebtedness pursuant to a
Subordination Agreement in form and content satisfactory to Bank and (b)
indebtedness of the Borrower to Ashford Capital LLC evidenced by the $125,000
Promissory Note dated April 23, 2007.
1.47 "Subordination Agreement" shall mean any subordination
agreement, which is in form and substance satisfactory to Bank, and which makes
any or all present and future indebtedness of Borrower to any Person subordinate
to the Indebtedness.
1.48 "Support Letter of Credit" shall mean Letter of Credit Number
_____________ issued by a bank acceptable to Bank naming Bank as beneficiary in
the original stated amount of $1,250,000.
1.49 "Tangible Effective Net Worth" shall mean, with respect to any
Person and as of any applicable date of determination, Tangible Net Worth plus
Subordinated Debt.
1.50 "Tangible Net Worth" shall mean, with respect to any Person and
as of any applicable date of determination, the excess of:
a. the net book value of all assets of such Person
(excluding affiliate receivables, patents, patent rights,
trademarks, trade names, franchises, copyrights, licenses, goodwill,
and all other intangible assets of such Person) after all
appropriate deductions in accordance with GAAP (including, without
limitation, reserves for doubtful receivables, obsolescence,
depreciation and amortization), less
b. all Debt of such Person at such time.
2. LOAN AND TERMS OF PAYMENT; FACILITY FEE.
For value received, Borrower promises to pay to the order of Bank such amount,
as provided for below, together with interest, as provided for below.
2.1 Upon the request of Borrower, made at any time and from time to
time during the term hereof, and so long as no Event of Default has occurred,
Bank shall lend to Borrower an amount equal to the Borrowing Base; provided,
however, that the Daily Balance shall not exceed the lesser of either the Credit
Limit or the Borrowing Base, minus all Letter of Credit Obligations. If at any
time for any reason, the amount of Indebtedness owed by Borrower to Bank
pursuant to this Section 2.1 and Section 2.3 of this Agreement is greater than
the aggregate amount available to be drawn under this Section 2.1, Borrower
shall immediately pay to Bank, in cash, the amount of such excess.
2.2 Except as hereinbelow provided, the Credit shall bear interest,
on the Daily Balance owing, at a fluctuating rate of interest equal to either
(i) the Base Rate Option or (ii) provided that no Default or Event of Default
has occurred or is continuing, the LIBOR Option, as elected by Borrower from
time to time as set forth in this Section, or as otherwise determined under the
terms and conditions of this Agreement.
a. The minimum LIBOR Option Advance will not be less
than the lesser of (a) Five Hundred Thousand and 00/100 Dollars
($500,000.00) and (b) the entire outstanding balance of the Credit.
b. The minimum Base Rate Option Advance will not be less
than the lesser of (a) Ten Thousand Dollars ($10,000) and (b) the
entire outstanding balance of the Credit.
c. With respect to each LIBOR Option Advance, Bank is
hereby authorized to note the date, principal amount, interest rate
and LIBOR Period applicable thereto and any payments made thereon on
Bank's books and records (either manually or by electronic entry)
and/or on any schedule attached to this Agreement, which notations
shall be prima facie evidence of the accuracy of the information
noted.
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d. At the time any Advance is requested under this
Agreement and/or Borrower wishes to select the LIBOR Option for all
or a portion of the outstanding principal balance of the Credit, and
at the end of each LIBOR Period, Borrower shall give Bank notice
specifying (a) the interest rate option selected by Borrower; (b)
the principal amount subject thereto; and (c) if the LIBOR Option is
selected, the length of the applicable LIBOR Period. Any such notice
may be given by telephone so long as, with respect to each LIBOR
Option selected by Borrower, (i) Bank receives written confirmation
from Borrower not later than three (3) LIBOR Business Days after
such telephone notice is given; and (ii) such notice is given to
Bank prior to 10:00 a.m., California time, on the first day of the
LIBOR Period. For each LIBOR Option requested hereunder, Bank will
quote the applicable fixed LIBOR Rate to Borrower at approximately
10:00 a.m., California time, on the first day of the LIBOR Period.
If Borrower does not immediately accept the rate quoted by Bank, any
subsequent acceptance by Borrower shall be subject to a
redetermination of the rate by Bank; provided, however, that if
Borrower fails to accept any such quotation given, then the quoted
rate shall expire and Bank shall have no obligation to permit a
LIBOR Option to be selected on such day. If no specific designation
of interest is made at the time any Advance is requested under this
Agreement or at the end of any LIBOR Period, Borrower shall be
deemed to have selected the Base Rate Option for such Advance or the
principal amount to which such LIBOR Period applied. At any time the
LIBOR Option is in effect, Borrower may, at the end of the
applicable LIBOR Period, convert to the Base Rate Option. At any
time the Base Rate Option is in effect, Borrower may convert to the
LIBOR OPTION, and shall designate a LIBOR Period.
e. In the event that the LIBOR Option is the applicable
interest rate for all or any part of the outstanding principal
balance of the Credit, and any payment or prepayment of any such
outstanding principal balance of the Credit shall occur on any day
other than the last day of the applicable LIBOR Period (whether
voluntarily, by acceleration, required payment, or otherwise), or if
Borrower elects the LIBOR Option as the applicable interest rate for
all or any part of the outstanding principal balance of the Credit
in accordance with the terms and conditions hereof, and, subsequent
to such election, but prior to the commencement of the applicable
LIBOR Period, Borrower revokes such election for any reason
whatsoever, or if the applicable interest rate in respect of any
outstanding principal balance of the Credit hereunder shall be
changed, for any reason whatsoever, from the LIBOR Option to the
Base Rate Option prior to the last day of the applicable LIBOR
Period, or if Borrower shall fail to make any payment of principal
or interest hereunder at any time that the LIBOR Option is the
applicable interest rate hereunder in respect of such outstanding
principal balance of the Credit, Borrower shall reimburse Bank, on
demand, for any resulting loss, cost or expense incurred by Bank as
a result thereof, including, without limitation, any such loss, cost
or expense incurred in obtaining, liquidating, employing or
redeploying deposits from third parties. Such amount payable by
Borrower to Bank may include, without limitation, an amount equal to
the excess, if any, of (a) the amount of interest which would have
accrued on the amount so prepaid, or not so borrowed, refunded or
converted, for the period from the date of such prepayment or of
such failure to borrow, refund or convert, through the last day of
the relevant LIBOR Period, at the applicable rate of interest for
such outstanding principal balance of the Credit as provided under
this Agreement, over (b) the amount of interest (as reasonably
determined by Bank) which would have accrued to Bank on such amount
by placing such amount on deposit for a comparable period with
leading banks in the interbank LIBOR market. Calculation of any
amounts payable to Bank under this paragraph shall be made as though
Bank shall have actually funded or committed to fund the relevant
outstanding principal balance of the Credit hereunder through the
purchase of an underlying deposit in an amount equal to the amount
of such outstanding principal balance of the Credit and having a
maturity comparable to the relevant LIBOR Period; provided, however,
that Bank may fund the outstanding principal balance of the Credit
hereunder in any manner it deems fit and the foregoing assumptions
shall be utilized only for the purpose of the calculation of amounts
payable under this paragraph. Upon the written request of Borrower,
Bank shall deliver to Borrower a certificate setting forth the basis
for determining such losses, costs and expenses, which certificate
shall be conclusively presumed correct, absent manifest error.
Any prepayment hereunder shall also be accompanied by the payment of
all accrued and unpaid interest on the amount so prepaid. Any
outstanding principal balance of the Credit which is bearing
interest at such time at the Base Rate Option may be prepaid without
penalty or premium. Partial prepayments hereunder shall be applied
to the installments hereunder in the inverse order of their
maturities.
BY INITIALING BELOW, BORROWER ACKNOWLEDGES AND AGREES
THAT: (A) THERE IS NO RIGHT TO PREPAY ANY LIBOR OPTION
ADVANCE, IN WHOLE OR IN PART, WITHOUT PAYING THE
PREPAYMENT AMOUNT SET FORTH HEREIN ("PREPAYMENT
AMOUNT"), EXCEPT AS OTHERWISE REQUIRED UNDER APPLICABLE
LAW; (B) BORROWER SHALL BE LIABLE FOR PAYMENT OF THE
PREPAYMENT AMOUNT IF BANK EXERCISES ITS RIGHT TO
ACCELERATE PAYMENT OF ANY LIBOR OPTION ADVANCE AS PART
OR ALL OF THE OBLIGATIONS OWING UNDER THIS AGREEMENT,
INCLUDING WITHOUT LIMITATION, ACCELERATION UNDER A
DUE-ON-SALE PROVISION; (C) BORROWER WAIVES ANY RIGHTS
UNDER SECTION 2954.10 OF THE CALIFORNIA CIVIL CODE OR
ANY SUCCESSOR STATUTE; AND (D) BANK HAS MADE EACH LIBOR
OPTION ADVANCE PURSUANT TO THE CREDIT IN RELIANCE ON
THESE AGREEMENTS.
--------------------
BORROWER'S INITIALS
f. Borrower agrees to indemnify Bank and to hold Bank
harmless from, and to reimburse Bank on demand for, all losses and
expenses which Bank sustains or incurs as a result of (i) any
payment of a LIBOR Option Advance prior to the
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last day of the applicable LIBOR Period for any reason, including,
without limitation, termination of the Credit, whether pursuant to
this Section 2.2 or the occurrence of an Event of Default; (ii) any
termination of a LIBOR Period prior to the date it would otherwise
end in accordance with this Section 2.2; or (iii) any failure by
Borrower, for any reason, to borrow any portion of a LIBOR Option
Advance.
g. The indemnification and hold harmless provisions set
forth in this Agreement shall include, without limitation, all
losses and expenses arising from interest and fees that Bank pays to
lenders of funds it obtains in order to fund the loans to Borrower
on the basis of the LIBOR Option(s) and all losses incurred in
liquidating or re-deploying deposits from which such funds were
obtained and loss of profit for the period after termination. A
written statement by Bank to Borrower of such losses and expenses
shall be conclusive and binding, absent manifest error, for all
purposes. This obligation shall survive the termination of this
Section 2.2 and the payment of the Credit.
h. If any Regulatory Development or other circumstances
relating to the interbank Euro-dollar markets shall, at any time, in
Bank's reasonable determination , make it unlawful or impractical
for Bank to fund or maintain, during any LIBOR Period, to determine
or charge interest rates based upon LIBOR, Bank shall give notice of
such circumstances to Borrower and:
(1) In the case of a LIBOR Period in
progress, Borrower shall, if
requested by Bank, promptly pay
any interest which had accrued
prior to such request and the
date of such request shall be
deemed to be the last day of the
term of the LIBOR Period; and
(2) No LIBOR Period may be designated
thereafter until Bank determines
that such would be practical.
i. Borrower shall pay to Bank from time to time, upon
Bank's request, such amounts as Bank determines are needed to
compensate Bank for any costs it incurred which are attributable to
Bank having made or maintained a LIBOR Option Advance or to Bank's
obligation to make a LIBOR Option Advance, or any reduction in any
amount receivable by Bank hereunder with respect to any LIBOR Option
or such obligation, resulting from any Regulatory Developments,
which (i) change the basis of taxation of any amounts payable to
Bank hereunder with respect to taxation of any amounts payable to
Bank hereunder with respect to any LIBOR Option Advance (other than
taxes imposed on the overall net income of Bank for any LIBOR Option
Advance by the jurisdiction where Bank is headquartered or the
jurisdiction where Bank extends the LIBOR Option Advance; (ii)
impose or modify any reserve, special deposit, or similar
requirements relating to any extensions of credit or other assets
of, or any deposits with or other liabilities of, Bank (including
any LIBOR Option Advance or any deposits referred to in the
definition of LIBOR); or (iii) impose any other condition affecting
this Agreement (or any of such extension of credit or liabilities).
Bank shall notify Borrower of any event occurring after the date
hereof which entitles Bank to compensation pursuant to this
paragraph as promptly as practicable after it obtains knowledge
thereof and determines to request such compensation. Determinations
by Bank for purposes of this paragraph, shall be conclusive,
provided that such determinations are made on a reasonable basis.
All interest chargeable under this Agreement that is based upon a per annum
calculation shall be computed on the basis of a three hundred sixty (360) day
year for actual days elapsed. The Base Rate as of the date of this Agreement is
eight and one quarter percent (8.25%) per annum. In the event that the Base Rate
announced is, from time to time hereafter, changed, adjustment in the Base Rate
shall be made and based on the Base Rate in effect on the date of such change.
The Base Rate, as adjusted, shall apply to the Credit until the Base Rate is
adjusted again.
All interest payable by Borrower under the Credit shall be due and payable on
the first day of each calendar month during the term of this Agreement. A late
payment charge equal to five percent (5%) of each late payment may be charged on
any payment not received by Bank within ten (10) calendar days after the payment
due date, but acceptance of payment of this charge shall not waive any Event of
Default under this Agreement. Upon the occurrence of an Event of Default
hereunder, and without constituting a waiver of any such Event of Default, then
during the continuation thereof, at Bank's option, the Credit shall bear
interest, on the Daily Balance owing, at a rate equal to three percent (3%) per
year in excess of the rate applicable immediately prior to the occurrence of the
Event of Default, and such rate of interest shall fluctuate thereafter from time
to time at the same time and in the same amount as any fluctuation in the date
of interest applicable immediately prior to any such occurrence.
2.3 Subject to the terms and conditions of this Agreement, Bank
agrees to issue or cause to be issued letters of credit for the account of
Borrower during the term of this Agreement in the aggregate outstanding face
amount not to exceed (i) the lesser of the Credit Limit or the Borrowing Base,
minus (ii) the then outstanding Daily Balance, provided that the Letter of
Credit Obligations shall not in any case exceed Five Hundred Thousand Dollars
($500,000). All letters of credit shall be, in form and substance, acceptable to
Bank in its sole discretion and shall be subject to the terms and conditions of
Bank's form of standard Letter of Credit Application and Agreement. No letter of
credit shall have an expiration date later than the earlier of (a) one year from
the date of its issuance or (b) the scheduled termination date of this
Agreement. Borrower shall pay to Bank (a) a letter of credit fee of 2.50% per
annum on the stated amount of any standby letter of credit (payable in advance
and computed on a basis of actual days to expiry over a year of 360 days) and
(b) any standard issuance and other fees that Bank notifies Borrower it will
charge for issuing and processing letters of credit.
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The obligation of Borrower to immediately reimburse Bank for drawings made under
letters of credit shall be absolute, unconditional and irrevocable in accordance
with the terms of this Agreement and the Letter of Credit Application and
Agreement with respect to each such letter of credit. Borrower shall indemnify,
defend, protect and hold Bank harmless from any loss, cost, expense, or
liability, including, without limitation, reasonable attorney's fees incurred by
Bank, whether in-house or outside counsel is used, arising out of or in
connection with any letters of credit.
2.4 Borrower shall pay to Bank a non-refundable facility fee equal
to 0.25% per annum of the Credit Limit, payable in arrears on the last day of
each of its fiscal quarters and at maturity for any amounts accrued but unpaid.
3. TERM.
3.1 This Agreement shall remain in full force and effect until
February 28, 2010 unless earlier terminated by notice by Borrower or by Bank
pursuant to Section 8.1. Notice of such termination by Borrower shall be
effectuated by mailing of a registered or certified letter not less than thirty
(30) days prior to the effective date of such termination, addressed to Bank at
the address set forth herein and the termination shall be effective as of the
date so fixed in such notice. Notwithstanding termination, until all
Indebtedness has been fully satisfied, Bank shall retain its security interest
in all existing Collateral and Collateral arising thereafter, and Borrower shall
continue to perform all of its obligations.
3.2 After termination and when Bank has received payment in full of
Borrower's Indebtedness to Bank, Bank shall reassign to Borrower all Collateral
held by Bank, and shall execute a termination of all security agreements and
security interests given by Borrower to Bank.
4. CREATION OF SECURITY INTEREST.
4.1 Borrower hereby grants to Bank a continuing security interest in
all presently existing and hereafter arising Collateral in order to secure
prompt repayment of any and all Indebtedness owed by Borrower to Bank and in
order to secure prompt performance by Borrower of each and all of its covenants
and obligations under this Agreement and otherwise created. Bank's security
interest in the Collateral shall attach to all Collateral without further act on
the part of Bank or Borrower. In the event that any Collateral, including
proceeds, is evidenced by or consists of Negotiable Collateral, Borrower,
immediately upon the request of Bank, shall (a) endorse or assign such
Negotiable Collateral to Bank, (b) deliver actual physical possession of such
Negotiable Collateral to Bank, and (c) ▇▇▇▇ conspicuously all of its records
pertaining to such Negotiable Collateral with a legend, in form and substance
satisfactory to Bank (and in the case of Negotiable Collateral consisting of
tangible chattel paper, immediately ▇▇▇▇ all such tangible chattel paper with a
conspicuous legend in form and substance satisfactory to Bank), indicating that
the Negotiable Collateral is subject to the security interest granted to Bank
hereunder.
4.2 Bank's security interest in the Accounts shall attach to all
Accounts without further act on the part of Bank or Borrower. Upon request from
Bank, Borrower shall provide Bank with schedules describing all Accounts created
or acquired by Borrower (including without limitation agings listing the names
and addresses of, and amounts owing by date by account debtors), and shall
execute and deliver written assignments of all Accounts to Bank all in a form
acceptable to Bank; provided, however, Borrower's failure to execute and deliver
such schedules and/or assignments shall not affect or limit Bank's security
interest and other rights in and to the Accounts. Together with each schedule,
Borrower shall furnish Bank with copies of Borrower's customers' invoices or the
equivalent, and original shipping or delivery receipts for all merchandise sold,
and Borrower warrants the genuineness thereof. Upon the occurrence of an Event
of Default, Bank or Bank's designee may notify customers or account debtors of
Bank's security interest in the Collateral and direct such customers or account
debtors to make payments directly to Bank, but unless and until Bank does so or
gives Borrower other written instructions, Borrower shall collect all Accounts
for Bank, receive in trust all payments thereon as Bank's trustee, and, if so
requested to do so from Bank, Borrower shall immediately deliver said payments
to Bank in their original form as received from the account debtor and all
letters of credit, advices of credit, instruments, documents, chattel paper or
any similar property evidencing or constituting Collateral. Notwithstanding
anything to the contrary contained herein, if sales of Inventory are made for
cash, Borrower shall immediately deliver to Bank, in identical form, all such
cash, checks, or other forms of payment which Borrower receives. The receipt of
any check or other item of payment by Bank shall not be considered a payment on
account until such check or other item of payment is honored when presented for
payment, in which event, said check or other item of payment shall be deemed to
have been paid to Bank two (2) calendar days after the date Bank actually
receives such check or other item of payment.
4.3 Bank's security interest in Inventory shall attach to all
Inventory without further act on the part of Bank or Borrower. Borrower will at
Borrower's expense pledge, assemble and deliver such Inventory to Bank or to a
third party as Bank's bailee; or hold the same in trust for Bank's account or
store the same in a warehouse in Bank's name; or deliver to Bank documents of
title representing said Inventory; or evidence of Bank's security interest in
some other manner acceptable to Bank. Until a default by Borrower under this
Agreement or any other Agreement between Borrower and Bank, Borrower may,
subject to the provisions hereof and consistent herewith, sell the Inventory,
but only in the ordinary course of Borrower's business. A sale of Inventory in
Borrower's ordinary course of business does not include an exchange or a
transfer in partial or total satisfaction of a debt owing by Borrower.
4.4 Concurrently with Borrower's execution of this Agreement, and at
any time or times hereafter at the request of Bank, Borrower shall (a) execute
and deliver to Bank security agreements, mortgages, assignments, certificates of
title, affidavits, reports,
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notices, schedules of accounts, letters of authority and all other documents
that Bank may reasonably request, in form satisfactory to Bank, to perfect and
maintain perfected Bank's security interest in the Collateral and in order to
fully consummate all of the transactions contemplated under this Agreement, (b)
cooperate with Bank in obtaining a control agreement in form and substance
satisfactory to Bank with respect to all deposit accounts, electronic chattel
paper, investment property, and letter-of-credit rights, and (c) in the event
that any Collateral is in the possession of a third party, Borrower shall join
with Bank in notifying such third party of Bank's security interest and
obtaining an acknowledgment from such third party that it is holding such
Collateral for the benefit of Bank. By authenticating or becoming bound by this
Agreement, Borrower authorizes the filing of initial financing statement(s), and
any amendment(s) covering the Collateral to perfect and maintain perfected
Bank's security interest in the Collateral. Upon the occurrence of an Event of
Default, Borrower hereby irrevocably makes, constitutes and appoints Bank (and
any of Bank's officers, employees or agents designated by Bank) as Borrower's
true and lawful attorney-in-fact with power to sign the name of Borrower on any
security agreement, mortgage, assignment, certificate of title, affidavit,
letter of authority, notice of other similar documents which must be executed
and/or filed in order to perfect or continue perfected Bank's security interest
in the Collateral, and to take such actions in its own name or in Borrower's
name as Bank, in its sole discretion, deems necessary or appropriate to
establish exclusive possession or control (as defined in the Uniform Commercial
Code) over any Collateral of such nature that perfection of Bank's security
interest may be accomplished by possession or control.
4.5 Borrower shall make appropriate entries in Borrower's Books
disclosing Bank's security interest in the Accounts. Bank (through any of its
officers, employees or agents) shall have the right at any time or times
hereafter, provided that reasonable notice is provided, during Borrower's usual
business hours, or during the usual business hours of any third party having
control over the records of Borrower, to inspect and verify Borrower's Books in
order to verify the amount or condition of, or any other matter, relating to,
said Collateral and Borrower's financial condition.
4.6 Effective only upon the occurrence of an Event of Default,
Borrower appoints Bank or any other person whom Bank may designate as Borrower's
attorney-in-fact, with power: to endorse Borrower's name on any checks, notes,
acceptances, money order, drafts or other forms of payment or security that may
come into Bank's possession; to sign Borrower's name on any invoice or ▇▇▇▇ of
lading relating to any Accounts, on drafts against account debtors, on schedules
and assignments of Accounts, on verifications of Accounts and on notices to
account debtors; to establish a lock box arrangement and/or to notify the post
office authorities to change the address for delivery of Borrower's mail
addressed to Borrower to an address designated by Bank, to receive and open all
mail addressed to Borrower, and to retain all mail relating to the Collateral
and forward all other mail to Borrower; to send, whether in writing or by
telephone, requests for verification of Accounts; and to do all things necessary
to carry out this Agreement. Borrower ratifies and approves all acts of the
attorney-in-fact. Neither Bank nor its attorney-in-fact will be liable for any
acts or omissions or for any error of judgement or mistake of fact or law. This
power being coupled with an interest, is irrevocable so long as any Accounts in
which Bank has a security interest remain unpaid and until the Indebtedness has
been fully satisfied.
4.7 In order to protect or perfect any security interest which Bank
is granted hereunder, Bank may, in its sole discretion, discharge any lien or
encumbrance or bond the same, pay any insurance, maintain guards, warehousemen,
or any personnel to protect the Collateral, pay any service bureau, or, obtain
any records, and all costs for the same shall be added to the Indebtedness and
shall be payable on demand.
4.8 Borrower agrees that Bank may provide information relating to
this Agreement or relating to Borrower to Bank's parent, affiliates,
subsidiaries and service providers.
5. CONDITIONS PRECEDENT.
5.1 As conditions precedent to the making of the loans and the
extension of the financial accommodations hereunder, Borrower shall execute, or
cause to be executed, and deliver to Bank, in form and substance satisfactory to
Bank and its counsel, the following:
a. This Agreement and other documents, instruments and
agreements required by Bank;
b. If Borrower is a corporation, limited liability
company, limited partnership or other such entity, certified copies
of all actions taken by Borrower, any grantor of a security interest
to Bank to secure the Indebtedness, and any guarantor of the
Indebtedness, authorizing the execution, delivery and performance of
this Agreement and any other documents, instruments or agreements
entered into in connection herewith, and authorizing specific
officers to execute and deliver any such documents, instruments and
agreements;
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c. If Borrower is a corporation, limited liability
company, limited partnership or other such entity, then a
certificate of good standing showing that Borrower is in good
standing under the laws of the state of its incorporation or
formation and certificates indicating that Borrower is qualified to
transact business and is in good standing in any other state in
which it conducts business;
d. UCC searches and financing statements, tax lien and
litigation searches, fictitious business statement filings,
insurance certificates, notices or other similar documents which
Bank may require and in such form as Bank may require, in order to
reflect, perfect or protect Bank's first priority security interest
in the Collateral and in order to fully consummate all of the
transactions contemplated under this Agreement;
e. Evidence that Borrower has obtained insurance and
acceptable endorsements;
f. Such control agreements from each Person as Bank may
require;
g. Duly executed certificates of title with respect to
that portion of the Collateral that is subject to certificates of
title;
h. Such collateral access agreements from each lessor,
warehouseman, bailee, and other Person as Bank may require, duly
executed by each such Person;
i. Warranties and representations of officers;
j. A non-refundable closing fee in the amount of
$14,778.08;
k. Guaranty agreements and security agreements in form
satisfactory to Bank from all domestic subsidiaries of Borrower; and
l. A subordination agreement between Bank and Bluebird
Finance Limited.
5.2 Further conditions precedent to the making of the loans and the
extension of the financial accommodations hereunder are:
a. Satisfactory review by Bank and its legal counsel of
all material license agreements of Borrower;
b. Delivery of Compliance Certificate and Borrowing Base
Certificate with minimum opening availability under the Credit plus
cash on hand totaling not less than Eight Hundred Fifty Thousand
Dollars ($850,000); and
c. Satisfactory vendor credit check with [***].
6. WARRANTIES, REPRESENTATIONS AND COVENANTS.
6.1 If so requested by Bank, Borrower shall, at such intervals
designated by Bank, during the term hereof execute and deliver a Report of
Accounts Receivable or similar report, in form customarily used by Bank. The
aggregate amount of the Borrowing Base at all times during the effectiveness of
this Agreement shall not be less than the advances made hereunder. Bank shall
have the right to recompute the Borrowing Base in conformity with this
Agreement.
6.2 If any warranty is breached as to any Account, or any Account is
not paid in full by an account debtor within ninety (90) days from the date of
invoice, or an account debtor disputes liability or makes any claim with respect
thereto, or a petition in bankruptcy or other application for relief under the
Bankruptcy Code or any other insolvency law is filed by or against an account
debtor, or an account debtor makes an assignment for the benefit of creditors,
becomes insolvent, fails or goes out of business, then Bank may deem ineligible
any and all Accounts owing by that account debtor, and reduce the Borrowing Base
by the amount thereof. Bank shall retain its security interest in all Accounts,
whether eligible or ineligible, until all Indebtedness has been fully paid and
satisfied. Returns and allowances, if any, as between Borrower and its
customers, will be on the same basis and in accordance with the usual customary
practices of Borrower, as they exist at this time. Any merchandise which is
returned by an account debtor or otherwise recovered shall be set aside, marked
with Bank's name, and Bank shall retain a security interest therein. Borrower
shall promptly notify Bank of all disputes and claims and settle or adjust them
on terms approved by Bank. After default by Borrower hereunder, no discount,
credit or allowance shall be granted to any account debtor by Borrower and no
return of merchandise shall be accepted by Borrower without Bank's consent. Bank
may, after default by Borrower, settle or adjust disputes and claims directly
with account debtors for amounts and upon terms which Bank considers advisable,
and in such cases Bank will credit Borrower's loan account with only the net
amounts received by Bank in payment of the Accounts, after deducting all Bank
Expenses in connection therewith.
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6.3 Borrower warrants, represents, covenants and agrees that:
a. Borrower has good and marketable title to the
Collateral. Bank has and shall continue to have a first priority
perfected security interest in and to the Collateral. The Collateral
shall at all times remain free and clear of all liens, encumbrances
and security interests (except those in favor of Bank);
b. All Accounts are and will, at all times pertinent
hereto, be bona fide existing obligations created by the sale and
delivery of merchandise or the rendition of services to account
debtors in the ordinary course of business, free of liens, claims,
encumbrances and security interests (except as held by Bank and
except as may be consented to, in writing, by Bank) and are
unconditionally owed to Borrower without defenses, disputes, offsets
counterclaims, rights of return or cancellation, and Borrower shall
have received no notice of actual or imminent bankruptcy or
insolvency of any account debtor at the time an Account due from
such account debtor is assigned to Bank; and
c. At the time each Account is assigned to Bank, all
property giving rise to such Account shall have been delivered to
the account debtor or to the agent for the account debtor for
immediate shipment to, and unconditional acceptance by, the account
debtor. Borrower shall deliver to Bank, as Bank may from time to
time require, delivery receipts, customer's purchase orders,
shipping instructions, bills of lading and any other evidence of
shipping arrangements. Absent such a request by Bank, copies of all
such documentation shall be held by Borrower as custodian for Bank.
6.4 At the time each eligible Account is assigned to Bank, all such
Eligible Accounts will be due and payable on terms set forth in Section 1.19, or
on such other terms approved in writing by Bank in advance of the creation of
such Accounts and which are expressly set forth on the face of all invoices,
copies of which shall be held by Borrower as custodian for Bank, and no such
Eligible Account will then be past due.
6.5 Borrower shall keep its domestic Inventory only at ▇▇▇ ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ and the owner of this location is Roxbury
Property Management.
a. Borrower, immediately upon demand by Bank therefor,
shall now and from time to time hereafter, at such intervals as are
reasonably requested by Bank, deliver to Bank, designations of
Inventory specifying Borrower's cost of Inventory, the wholesale
market value thereof and such other matters and information relating
to the Inventory as Bank may request;
b. All of the Inventory is and shall remain free from
all purchase money or other security interests, liens or
encumbrances, except as held by Bank and as held by Bluebird Finance
Limited which must be subordinate to Bank's security interest in all
respects;
c. Borrower does now keep and hereafter at all times
shall keep correct and accurate records itemizing and describing the
kind, type, quality and quantity of the Inventory, its cost therefor
and selling price thereof, and the daily withdrawals therefrom and
additions thereto, all of which records shall be available upon
demand to any of Bank's officers, agents and employees for
inspection and copying;
d. All Inventory, now and hereafter at all times, shall
be new Inventory of good and merchantable quality free from material
defects;
e. Inventory is not now and shall not at any time or
times hereafter be located or stored with a bailee, warehouseman or
other third party without Bank's prior written consent, and, in such
event, Borrower will concurrently therewith cause any such bailee,
warehouseman or other third party to issue and deliver to Bank,
warehouse receipts in Bank's name evidencing the storage of
Inventory and/or an acknowledgment by such bailee of Bank's prior
rights in the Inventory, in each case in form and substance
acceptable to Bank. In any event, Borrower shall instruct any third
party to hold all such Inventory for Bank's account subject to
Bank's security interests and its instructions; and
f. Bank shall have the right upon demand now and/or at
all times hereafter, during Borrower's usual business hours, after
reasonable notice, to inspect and examine the Inventory and to check
and test the same as to quality, quantity, value and condition and
Borrower agrees to reimburse Bank for Bank's reasonable costs and
expenses in so doing.
6.6 Borrower represents, warrants and covenants with Bank that
Borrower will not, without Bank's prior written consent:
▇. ▇▇▇▇▇ a security interest in or permit a lien, claim
or encumbrance upon any of the Collateral to any person,
association, firm, corporation, entity or governmental agency or
instrumentality except for:
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(1) Liens for taxes, assessments or other
governmental charges incurred in the ordinary course of
business and for which no interest, late charge or
penalty is attaching or which is being contested in good
faith by appropriate proceedings and, if requested by
Bank, bonded in an amount and manner satisfactory to
Bank;
(2) Liens, not delinquent, created by
statute in connection with worker's compensation,
unemployment insurance, social security and similar
statutory obligations;
(3) Liens of mechanics, materialmen,
carriers, warehousemen or other like statutory or common
law liens securing obligations incurred in good faith in
the ordinary course of business that are not yet due and
payable; and
(4) Purchase money security interests for
property, equipment and supplies purchased in the
ordinary course of business.
b. Permit any levy, attachment or restraint to be made
affecting any of Borrower's assets;
c. Permit any Judicial Officer or Assignee to be
appointed or to take possession of any or all of Borrower's assets;
d. Sell, lease, or otherwise dispose of, move, or
transfer, whether by sale or otherwise, any of Borrower's properties
or assets in an amount exceeding $15,000 during any fiscal year,
other than sales of Inventory in the ordinary course of Borrower's
business;
e. Change its name, the location of its sole place of
business, chief executive office or residence, business structure,
corporate identity or structure, form of organization or the state
in which it has been formed or organized; add any new fictitious
names, dissolve, liquidate, merge or consolidate with or into any
other corporation, entity, or other business organization, or permit
another corporation, entity or other business organization to merge
into it;
f. Move or relocate any Collateral except in the
ordinary course of business;
g. Acquire any other business organization;
h. Enter into any transaction not in the usual course of
Borrower's business;
i. Make any change in Borrower's financial structure or
in any of its business objectives, purposes or operations which
would materially adversely affect the ability of Borrower to repay
Borrower's Indebtedness;
j. Incur any debts outside the ordinary course of
Borrower's business except renewals or extensions of existing debts
and interest thereon;
k. Make loans, advances or extensions of credit to any
Person, except in the ordinary course of business;
l. Guarantee or otherwise, directly or indirectly, in
any way be or become responsible for obligations of any other
Person, whether by agreement to purchase the indebtedness of any
other Person, agreement for the furnishing of funds to any other
Person through the furnishing of goods, supplies or services, by way
of stock purchase, capital contribution, advance or loan, for the
purpose of paying or discharging (or causing the payment or
discharge of) the indebtedness of any other Person, or otherwise,
except for the endorsement of negotiable instruments by Borrower in
the ordinary course of business for deposit or collection;
m. Make any payment on account of any Subordinated Debt
except for regularly scheduled payments of interest and principal in
accordance with the provisions of any Subordination Agreement
executed by Bank and the subordinated debt holder, or amend any
provision contained in any documentation relating to any such
Subordinated Debt without Bank's prior written consent;
n. (i) Acquire all or substantially all the properties
or assets of any other Person, enter into any reorganization or
recapitalization or reclassify its capital stock, or (ii) enter into
any sale-leaseback transaction;
o. Purchase or hold beneficially any stock or other
securities of, or make any investment or acquire any securities or
other interest whatsoever in, any other Person, except for the
common stock of the Subsidiaries owned by Borrower on the date of
this Agreement and except for certificates of deposit with
maturities of one year or less of United States commercial banks
with capital, surplus and undivided profits in excess of Five
Hundred Million Dollars
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($500,000,000.00) and the securities or other direct obligations of
the United States Government maturing within one year from the date
of acquisition thereof;
p. Allow any fact, condition or event to occur or exist
with respect to any employee pension or profit sharing plans
established or maintained by it which might constitute grounds for
termination of any such plan or for the court appointment of a
trustee to administer any such plan;
q. Acquire or expend for, or commit itself to acquire or
expend for, fixed or capital assets by lease, purchase or otherwise;
r. Enter into any new operating lease or allow the
payments due under any existing operating lease to be increased, in
either case such that the total lease payments under all leases
would exceed $900,000 per year;
s. Use the proceeds of the Credit for any purpose except
to refinance existing debt of Borrower to Home Loan Investment
Corporation and to support Borrower's working capital needs, subject
to the following:
(1) All Inventory Advances are
solely and exclusively to enable
Borrower to acquire rights in
and purchase new Inventory, and
Borrower represents and warrants
that all Inventory Advances by
Bank will be used solely and
exclusively for such purpose;
and since such Inventory
Advances will be used for the
foregoing purposes, Bank's
security interest in Borrower's
Inventory is and shall be at all
times a purchase money security
interest as that term is
described in Section 9107 of the
California Uniform Commercial
Code; or
t. Make any payment of principal on account of any debt
owed to Ashford Capital LLC ("Ashford"), except that Ashford may
reduce the principal amount of any debt owing to it by Borrower as
payment for Ashford's purchase of stock in Borrower in connection
with the conversion of any warrants by Ashford.
Notwithstanding anything to the contrary in this Section 6.6,
Borrower may make Capital Expenditures in an aggregate amount that is not
greater than One Hundred Thousand Dollars ($100,000) in any fiscal year.
6.7 Borrower shall permit representatives of Bank to conduct audits
of Borrower's Books relating to the Accounts and other Collateral and make
extracts therefrom, with results satisfactory to Bank, provided that Bank shall
use its best efforts to not interfere with the conduct of Borrower's business,
and to the extent possible to arrange for verification of the Accounts directly
with the account debtors obligated thereon or otherwise, all under reasonable
procedures acceptable to Bank and at Borrower's sole expense; provided, however,
that, prior to an Event of Default, Borrower shall not be responsible for more
than two (2) such audits in each calendar year. Notwithstanding any of the
provisions contained in Section 2.1 of this Agreement or otherwise, Borrower
hereby acknowledges and agrees that upon completion of any such audit Bank shall
have the right to adjust the Borrowing Base percentage or the definition of
Eligible Accounts and Eligible Inventory, in its sole and reasonable discretion,
based on its review of the results of such audit.
6.8 Borrower represents, warrants, covenants and agrees that:
a. Borrower's true and correct legal name is that set
forth on the signature page to this Agreement. Except as disclosed
in writing to Bank on or before the date of this Agreement, Borrower
has not done business under any name other than that set forth on
the signature page to this Agreement;
b. If Borrower is an individual, the location (as
determined pursuant to the Uniform Commercial Code) of Borrower's
principal residence is that set forth following Borrower's name on
the signature page to this Agreement;
c. If Borrower is a registered organization that is
organized under the laws of any one of the states comprising the
United States (e.g. corporation, limited partnership, registered
limited liability partnership or limited liability company), and is
located (as determined pursuant to the Uniform Commercial Code) in
the state under the laws of which it was organized, Borrower's form
of organization and the state in which it has been organized are
those set forth immediately following Borrower's name on the
signature page to this Agreement;
d. If Borrower is a registered organization organized
under the laws of the United States, and Borrower is located in the
state that United States law designates as its location or, if
United States law authorizes Borrower to designate the state for its
location, the state designated by Borrower, or if neither of the
foregoing are applicable, at the District of Columbia (in each case
as determined in accordance with the Uniform Commercial Code),
Borrower's form of organization and the state or district in which
it is located are those set forth immediately following Borrower's
name on the signature page to this Agreement;
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e. If Borrower is a domestic organization that is not a
registered organization under the laws of the United States or any
state thereof (e.g. general partnership, joint venture, trust,
estate or association), and Borrower is located (as determined
pursuant to the Uniform Commercial Code) at its sole place of
business or, if it has more than one place of business, at its chief
executive office, Borrower's form of organization and the address of
that location are those set forth on the signature page to this
Agreement; and
f. If Borrower is a foreign individual or foreign
organization or a branch or agency of a bank that is not organized
under the laws of the United States or a state thereof, Borrower is
located (as determined pursuant to the Uniform Commercial Code) at
the address set forth following Borrower's name on the signature
page to this Agreement.
6.9 Borrower represents, warrants and covenants as follows:
a. Without the prior written approval of Bank, Borrower
will not make any distribution or declare or pay any cash dividend
to any shareholder or on any of its capital stock, of any class,
whether now or hereafter outstanding, or purchase, acquire,
repurchase, or redeem or retire any such capital stock; provided,
however, so long as no Event of Default has or is continuing
hereunder, to the extent that and so long as Borrower is an entity
that is not directly subject to Federal income taxation and with
respect to which any earnings are attributable ratably to each
Person with an ownership interest in Borrower, Borrower may make
distributions to each such Person in an amount necessary to pay each
such Person's income tax resulting from such ownership interest in
Borrower, provided, further, that, promptly upon request of Bank,
Borrower shall cause each such Person to provide Bank with copies of
its tax return to substantiate any such distribution;
b. Borrower is and shall at all times hereafter be a
corporation duly organized and existing in good standing under the
laws of the state of its incorporation and qualified and licensed to
do business in California or any other state in which it conducts
its business;
c. Borrower has the right and power and is duly
authorized to enter into this Agreement;
d. The execution by Borrower of this Agreement shall not
constitute a breach of any provision contained in Borrower's
articles of incorporation or by-laws; and
e. Borrower will not directly or indirectly enter into
or permit to exist any material transaction with any affiliate of
Borrower except for transactions that are in the ordinary course of
Borrower's business, upon fair and reasonable terms that are no less
favorable to Borrower than would be obtained in an arm's length
transaction with a non-affiliated Person.
6.10 The execution of and performance by Borrower of all of the
terms and provisions contained in this Agreement shall not result in a breach of
or constitute an event of default under any agreement to which Borrower is now
or hereafter becomes a party.
6.11 Borrower shall promptly notify Bank in writing of its
acquisition by purchase, lease or otherwise of any after acquired property of
the type included in the Collateral in excess of $75,000 in a single
transaction, with the exception of purchases of Inventory in the ordinary course
of business.
6.12 All assessments and taxes, whether real, personal or otherwise,
due or payable by, or imposed, levied or assessed against, Borrower or any of
its property have been paid, and shall hereafter be paid in full, before
delinquency. Borrower shall make due and timely payment or deposit of all
federal, state and local taxes, assessments or contributions required of it by
law, and will execute and deliver to Bank, on demand, appropriate certificates
attesting to the payment or deposit thereof. Borrower will make timely payment
or deposit of all F.I.C.A. payments and withholding taxes required of it by
applicable laws, and will upon request furnish Bank with proof satisfactory to
it that Borrower has made such payments or deposit. If Borrower fails to pay any
such assessment, tax, contribution, or make such deposit, or furnish the
required proof, Bank may, in its sole and absolute discretion and without notice
to Borrower, (i) make payment of the same or any part thereof, or (ii) set up
such reserves in Borrower's loan account as Bank deems necessary to satisfy the
liability therefor, or both. Bank may conclusively rely on the usual statements
of the amount owing or other official statements issued by the appropriate
governmental agency. Each amount so paid or deposited by Bank shall constitute a
Bank Expense and an additional advance to Borrower.
6.13 There are no actions or proceedings pending by or against
Borrower or any guarantor of Borrower before any court or administrative agency
and Borrower has no knowledge of any pending, threatened or imminent litigation,
governmental investigations or claims, complaints, actions or prosecutions
involving Borrower or any guarantor of Borrower, except as heretofore
specifically disclosed in writing to Bank. If any of the foregoing arise during
the term of the Agreement, Borrower shall immediately notify Bank in writing.
6.14 Insurance.
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a. Borrower, at its expense, shall keep and maintain its
assets insured against loss or damage by fire, theft, explosion,
sprinklers and all other hazards and risks ordinarily insured
against by other owners who use such properties in similar
businesses for the full insurable value thereof. Borrower shall also
keep and maintain business interruption insurance and public
liability and property damage insurance relating to Borrower's
ownership and use of the Collateral and its other assets. All such
policies of insurance shall be in such form, with such companies,
and in such amounts as may be satisfactory to Bank. Borrower shall
deliver to Bank certified copies of such policies of insurance and
evidence of the payments of all premiums therefor. All such policies
of insurance (except those of public liability and property damage)
shall contain an endorsement in a form satisfactory to Bank showing
Bank as a loss payee thereof, with a waiver of warranties
satisfactory to Bank, and all proceeds payable thereunder shall be
payable to Bank and, upon receipt by Bank, shall be applied on
account of the Indebtedness owing to Bank. To secure the payment of
the Indebtedness, Borrower grants Bank a security interest in and to
all such policies of insurance (except those of public liability and
property damage) and the proceeds thereof, and Borrower shall direct
all insurers under such policies of insurance to pay all proceeds
thereof directly to Bank.
b. Borrower hereby irrevocably appoints Bank (and any of
Bank's officers, employees or agents designated by Bank) as
Borrower's attorney for the purpose of making, selling and adjusting
claims exceeding $3,500 (and excluding freight and automobile
claims) under such policies of insurance, endorsing the name of
Borrower on any check, draft, instrument or other item of payment
for the proceeds of such policies of insurance and for making all
determinations and decisions with respect to such policies of
insurance. Borrower will not cancel any of such policies without
Bank's prior written consent. Each such insurer shall agree by
endorsement upon the policy or policies of insurance issued by it to
Borrower as required above, or by independent instruments furnished
to Bank, that it will give Bank at least ten (10) days written
notice before any such policy or policies of insurance shall be
altered or canceled, and that no act or default of Borrower, or any
other person, shall affect the right of Bank to recover under such
policy or policies of insurance required above or to pay any premium
in whole or in part relating thereto. Bank, without waiving or
releasing any Indebtedness or any Event of Default, may, but shall
have no obligation to do so, obtain and maintain such policies of
insurance and pay such premiums and take any other action with
respect to such policies which Bank deems advisable. All sums so
disbursed by Bank, as well as reasonable attorneys' fees incurred by
Bank, whether in-house or outside counsel is used, court costs,
expenses and other charges relating thereto, shall constitute Bank
Expenses and are payable on demand.
6.15 All financial statements and information relating to Borrower
which have been or may hereafter be delivered by Borrower to Bank are true and
correct and have been prepared in accordance with GAAP consistently applied and
there has been no material adverse change in the financial condition of Borrower
since the submission of such financial information to Bank.
6.16 Financial Reporting.
a. Borrower at all times hereafter shall maintain a
standard and modern system of accounting in accordance with GAAP
consistently applied with ledger and account cards and/or computer
tapes and computer disks, computer printouts and computer records
pertaining to the Collateral which contain information as may from
time to time be requested by Bank, not modify or change its method
of accounting or enter into, modify or terminate any agreement
presently existing, or at any time hereafter entered into with any
third party accounting firm and/or service bureau for the
preparation and/or storage of Borrower's accounting records without
the written consent of Bank first obtained and without said
accounting firm and/or service bureau agreeing to provide
information regarding the Accounts and Inventory and Borrower's
financial condition to Bank; permit Bank and any of its employees,
officers or agents, upon demand, during Borrower's usual business
hours, or the usual business hours of third persons having control
thereof, to have access to and examine all of Borrower's Books
relating to the Collateral, Borrower's Indebtedness to Bank,
Borrower's financial condition and the results of Borrower's
operations and in connection therewith, permit Bank or any of its
agents, employees or officers to copy and make extracts therefrom.
b. Borrower shall deliver to Bank within thirty five
(35) days after the end of each month, monthly consolidated and
consolidating financial statements of Borrower and its subsidiaries,
deliver to Bank forty five (45) days after the end of each quarter,
quarterly consolidated and consolidating financial statements of
Borrower and its subsidiaries and deliver to Bank within one hundred
twenty (120) days after the end of each of Borrower's fiscal years
audited annual consolidated financial statements of Borrower and
subsidiaries, including but not limited to, a balance sheet, a
statement of cash flows and profit and loss statement and any other
report requested by Bank relating to the Collateral and the
financial condition of Borrower, and a certificate signed by an
authorized employee of Borrower to the effect that all reports,
statements, computer disk or tape files, computer printouts,
computer runs, or other computer prepared information of any kind or
nature relating to the foregoing or documents delivered or caused to
be delivered to Bank under this subparagraph are complete, correct
and thoroughly present the financial condition of Borrower and that
there exists on the date of delivery to Bank no condition or event
which constitutes a breach or Event of Default under this Agreement.
c. In addition to the financial statements requested
above, Borrower agrees to provide Bank with the following schedules
and reports, each in form satisfactory to Bank:
(1) Accounts Receivable Agings on a monthly
basis within twenty (20) days after the
end of each month;
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(2) Accounts Payable Agings on a monthly
basis within twenty (20) days after the
end of each month;
(3) Borrowing Base Certificate on a monthly
basis within twenty (20) days after the
end of each month;
(4) Inventory report listing the age of
Inventory on hand from the date of
purchase on a monthly basis within
twenty (20) days after the end of each
month;
(5) Compliance Certificate, in the form of
Exhibit A, and a certificate of an
authorized officer of Borrower that no
Event of Default has occurred within
forty five (45) days after the end of
each fiscal quarter; and
(6) Financial projections for each fiscal
year within forty five (45) days after
the last day of the prior fiscal year.
6.17 Borrower shall maintain the following financial ratios and
covenants on a consolidated and non-consolidated basis:
a. Pre-Tax Income, measured for the two fiscal
quarters then ended, of not less than:
(A) $100,000 as of October 31, 2007 and
January 31, 2008; and
(B) $200,000 as of April 30, 2008 and the
last day of each fiscal quarter
thereafter;
b. a Quick Ratio of not less than:
(A) 0.30:1.00 as of July 31, 2007, October
31, 2007, January 31, 2008, April 30,
2008, July 31, 2008 and October 31,
2008; and
(B) 0.35:1.00 as of January 31, 2009 and the
last day of each fiscal quarter
thereafter; and
c. a Leverage Ratio of not more than:
(A) 17.50:1.00 as of July 31, 2007 and
October 31, 2007;
(B) 17.00:1.00 as of January 31, 2008;
(C) 16.50:1.00 as of April 30, 2008;
(D) 15.00:1.00 as of July 31, 2008;
(E) 14.50:1.00 as of October 31, 2008; and
(F) 14.00:1.00 as of January 31, 2009 and
the last day of each fiscal quarter
thereafter.
All financial covenants shall be computed in accordance with GAAP consistently
applied except as otherwise specifically set forth in this Agreement. All monies
due from affiliates (including officers, directors and shareholders) shall be
excluded from Borrower's assets for all purposes hereunder.
6.18 Borrower shall promptly supply Bank (and cause any guarantor to
supply Bank) with such other information (including tax returns) concerning its
financial affairs (or that of any guarantor) as Bank may request from time to
time hereafter, and shall promptly notify Bank of any material adverse change in
Borrower's financial condition and of any material condition or material event
which constitutes a breach of, or any event which constitutes an Event of
Default under, this Agreement.
6.19 Borrower is now and shall be at all times hereafter solvent and
able to pay its debts (including trade debts) as they mature.
6.20 Borrower shall immediately and without demand reimburse Bank
for all sums expended by Bank in connection with any action brought by Bank to
correct any default or enforce any provision of this Agreement, including all
Bank Expenses; Borrower authorizes and approves all advances and payments by
Bank for items described in this Agreement as Bank Expenses.
6.21 Each warranty, representation and agreement contained in this
Agreement shall automatically be deemed repeated with each advance and shall
conclusively be presumed to have been relied on by Bank regardless of any
investigation made or information possessed by Bank. The warranties,
representations and agreements set forth herein shall be cumulative and in
addition to
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any and all other warranties, representations and agreements which Borrower
shall give, or cause to be given, to Bank, either now or hereafter.
6.22 Borrower shall keep all of its principal bank accounts with
Bank and shall notify Bank immediately in writing of the existence of any other
bank account, deposit account, or any other account into which money can be
deposited.
6.23 Borrower shall furnish to Bank: (a) as soon as possible, but in
no event later than thirty (30) days after Borrower knows or has reason to know
that any reportable event with respect to any deferred compensation plan has
occurred, a statement of the chief financial officer of Borrower setting forth
the details concerning such reportable event and the action which Borrower
proposes to take with respect thereto, together with a copy of the notice of
such reportable event given to the Pension Benefit Guaranty Corporation, if a
copy of such notice is available to Borrower; (b) promptly after the filing
thereof with the United States Secretary of Labor or the Pension Benefit
Guaranty Corporation, copies of each annual report with respect to each deferred
compensation plan; (c) promptly after receipt thereof, a copy of any notice
Borrower may receive from the Pension Benefit Guaranty Corporation or the
Internal Revenue Service with respect to any deferred compensation plan;
provided, however, this subparagraph shall not apply to notice of general
application issued by the Pension Benefit Guaranty Corporation or the Internal
Revenue Service; and (d) when the same is made available to participants in the
deferred compensation plan, all notices and other forms of information from time
to time disseminated to the participants by the administrator of the deferred
compensation plan.
6.24 Borrower is now and shall at all times hereafter remain in
compliance with all federal, state and municipal laws, regulations and
ordinances relating to the handling, treatment and disposal of toxic substances,
wastes and hazardous material and shall maintain all necessary authorizations
and permits.
6.25 Borrower shall cause each of its domestic subsidiaries, whether
existing now or in the future, to execute a guaranty agreement in form
satisfactory to Bank and a security agreement in form satisfactory to Bank
granting to Bank a first priority lien on all of such subsidiary's personal
property assets. If any holding company is created to hold stock in Borrower,
Borrower shall cause such holding company to pledge all of its stock in Borrower
to Bank.
7. EVENTS OF DEFAULT.
Any one or more of the following events shall constitute an Event of
Default by Borrower under this Agreement:
a. Upon Borrower's receipt of written notice from Bank,
if Borrower fails or neglects to perform, keep or observe the
provisions of Sections 6.6, 6.9a, 6.9e, 6.16, 6.17, or the
corresponding provision of any other present or future document,
instrument or agreement between Borrower and Bank;
b. If Borrower fails or neglects to perform, keep or
observe any other term, provision, condition, covenant, agreement,
warranty or representation contained in this Agreement, or in any
other present or future document, instrument or agreement between
Borrower and Bank and such failure shall continue for a period of
thirty (30) days following Borrower's receipt of written notice from
Bank;
c. Upon Borrower's receipt of written notice from Bank,
if any representation, statement, report or certificate made or
delivered by Borrower, or any of its officers, employees or agents
to Bank is not true and correct in all material respects;
d. Upon Borrower's receipt of written notice from Bank,
if Borrower fails to pay when due and payable or declared due and
payable, all or any portion of Borrower's Indebtedness (whether of
principal, interest, taxes, reimbursement of Bank Expenses, or
otherwise);
e. Upon Borrower's receipt of written notice from Bank,
if there is a material impairment of the prospect of repayment of
all or any portion of Borrower's Indebtedness or a material
impairment of the value or priority of Bank's security interest in
the Collateral;
f. Upon Borrower's receipt of written notice from Bank,
if all or any material portion of Borrower's assets are attached,
seized, subject to a writ or distress warrant, or are levied upon,
or come into the possession of any Judicial Officer or Assignee and
the same are not released, discharged or bonded against within
thirty (30) days thereafter;
g. If any Insolvency Proceeding is filed or commenced by
or against Borrower without being dismissed within thirty (30) days
thereafter;
h. If any proceeding is filed or commenced by or against
Borrower for its dissolution or liquidation;
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i. Upon Borrower's receipt of written notice from Bank,
if Borrower is enjoined, restrained or in any way prevented by court
order from continuing to conduct all or any material part of its
business affairs;
j. Upon Borrower's receipt of written notice from Bank,
if a notice of lien, levy or assessment is filed of record with
respect to any or all of Borrower's assets by the United States
Government, or any department, agency or instrumentality thereof, or
by any state, county, municipal or other government agency, or if
any taxes or debts owing at any time hereafter to any one or more of
such entities becomes a lien, whether inchoate or otherwise, upon
any or all of Borrower's assets and the same is not paid on the
payment date thereof or contested in good faith by Borrower by
diligent prosecution of appropriate proceedings;
k. Upon Borrower's receipt of written notice from Bank,
if a judgment or other claim becomes a lien or encumbrance upon any
or all of Borrower's assets and the same is not satisfied, dismissed
or bonded against within thirty (30) days thereafter;
l. Upon Borrower's receipt of written notice from Bank,
if Borrower's records are prepared and kept by an outside computer
service bureau at the time this Agreement is entered into or during
the term of this Agreement such an agreement with an outside service
bureau is entered into, and at any time thereafter, without first
obtaining the written consent of Bank, Borrower terminates,
modifies, amends or changes its contractual relationship with said
computer service bureau or said computer service bureau fails to
provide Bank with any requested information or financial data
pertaining to Bank's Collateral, Borrower's financial condition or
the results of Borrower's operations;
m. Upon Borrower's receipt of written notice from Bank,
if Borrower permits a default in any material agreement to which
Borrower is a party with third parties so as to result in an
acceleration of the maturity of Borrower's indebtedness to others in
any amount in excess of $150,000, whether under any indenture,
agreement or otherwise;
n. Upon Borrower's receipt of written notice from Bank,
if Borrower makes any payment on account of indebtedness which has
been subordinated to Borrower's Indebtedness to Bank except as
otherwise permitted under the terms of this Agreement;
o. Upon Borrower's receipt of written notice from Bank,
if any misrepresentation exists now or thereafter in any warranty or
representation made to Bank by any officer or director of Borrower,
or if any such warranty or representation is withdrawn by any
officer or director;
p. Upon Borrower's receipt of written notice from Bank,
if any guarantor of Borrower's Indebtedness terminates its guaranty,
violates the terms of its guaranty, becomes insolvent, or an
Insolvency Proceeding is commenced by or against any such guarantor;
q. Upon Borrower's receipt of written notice from Bank,
if the validity, binding effect or enforceability of any
subordination provisions relating to any Subordinated Debt shall be
contested by Borrower, or shall be contested by any other Person
party thereto and such contest shall be supported by Borrower, or
such subordination provisions shall fail to be enforceable by Bank
in accordance with the terms thereof, or the Indebtedness shall for
any reason not have the priority contemplated by this Agreement or
such subordination provisions;
r. If any reportable event, which Bank determines
constitutes grounds for the termination of any deferred compensation
plan by the Pension Benefit Guaranty Corporation or for the
appointment by the appropriate United States District Court of a
trustee to administer any such plan, shall have occurred and be
continuing thirty (30) days after written notice of such
determination shall have been given to Borrower by Bank, or any such
Plan shall be terminated within the meaning of Title IV of the
Employment Retirement Income Security Act ("ERISA"), or a trustee
shall be appointed by the appropriate United States District Court
to administer any such plan, or the Pension Benefit Guaranty
Corporation shall institute proceedings to terminate any plan and in
case of any event described in this Section 7, the aggregate amount
of Borrower's liability to the Pension Benefit Guaranty Corporation
under Sections 4062, 4063 or 4064 of ERISA shall exceed five percent
(5%) of Borrower's Tangible Effective Net Worth; or
s. (i) If the Support Letter of Credit is cancelled,
(ii) if the Bank or Borrower receive notice from the issuer of the
Support Letter of Credit that its expiration date will not be
extended, (iii) if, on or before the tenth (10th) day prior to the
then-current expiration date of the Support Letter of Credit, Bank
has not received evidence satisfactory to Bank that the Support
Letter of Credit has been extended for an additional term of at
least one (1) year or (iv) if there is a material impairment of the
prospect of payment under the Support Letter of Credit.
Notwithstanding anything contained in Section 7 to the contrary,
Bank shall refrain from exercising its rights and remedies and Event
of Default shall thereafter not be deemed to have occurred by reason
of the occurrence of any of the events set forth in Sections 7.f,
7.g or 7.k of this Agreement if, within thirty (30) days from the
date thereof, the same is released, discharged,
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dismissed, bonded against or satisfied; provided, however, if the
event is the institution of Insolvency Proceedings against Borrower,
Bank shall not be obligated to make advances to Borrower during such
cure period.
8. BANK'S RIGHTS AND REMEDIES.
8.1 Upon the occurrence of an Event of Default by Borrower under
this Agreement, 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 Borrower:
a. Declare Borrower's Indebtedness, whether evidenced by
this Agreement, installment notes, demand notes or otherwise,
immediately due and payable to Bank;
b. Cease advancing money or extending credit to or for
the benefit of Borrower under this Agreement, or any other agreement
between Borrower and Bank;
c. Terminate this Agreement as to any future liability
or obligation of Bank, but without affecting Bank's rights and
security interests in the Collateral, and the Indebtedness of
Borrower to Bank;
d. Without notice to or demand upon Borrower or any
guarantor, make such payments and do such acts as Bank considers
necessary or reasonable to protect its security interest in the
Collateral. Borrower agrees to assemble the Collateral if Bank so
requires and to make the Collateral available to Bank as Bank may
designate. Borrower authorizes Bank to enter the premises where the
Collateral is located, take and maintain possession of the
Collateral and the premises (at no charge to Bank), or any part
thereof, and to pay, purchase, contest or compromise any
encumbrance, charge or lien which in the opinion of Bank appears to
be prior or superior to its security interest and to pay all
expenses incurred in connection therewith;
e. Without limiting Bank's rights under any security
interest, Bank is hereby granted a license or other right to use,
without charge, Borrower's labels, patents, copyrights, rights of
use of any name, trade secrets, trade names, trademarks and
advertising matter, or any property or a similar nature as it
pertains to the Collateral, in completing production of, advertising
for sale and selling any Collateral and Borrower's rights under all
licenses and all franchise agreements shall inure to Bank's benefit,
and Bank shall have the right and power to enter into sublicense
agreements with respect to all such rights with third parties on
terms acceptable to Bank;
f. Ship, reclaim, recover, store, finish, maintain,
repair, prepare for sale, advertise for sales and sell (in the
manner provided for herein) the Inventory;
g. Sell or dispose the Collateral at either a public or
private sale, or both, by way of one or more contracts or
transactions, for cash or on terms, in such manner and at such
places (including Borrower's premises) as is commercially reasonable
in the opinion of Bank. It is not necessary that the Collateral be
present at any such sale. At any sale or other disposition of the
Collateral pursuant to this Section, Bank disclaims all warranties
which would otherwise be given under the Uniform Commercial Code,
including without limitation a disclaimer of any warranty relating
to title, possession, quiet enjoyment or the like, and Bank may
communicate these disclaimers to a purchaser at such disposition.
This disclaimer of warranties will not render the sale commercially
unreasonable;
h. Bank shall give notice of the disposition of the
Collateral as follows:
(1) Bank shall give Borrower and each holder
of a security interest in the Collateral who has filed
with Bank a written request for notice, a notice in
writing of the time and place of public sale, or, if the
sale is a private sale or some disposition other than a
public sale is to be made of the Collateral, the time on
or after which the private sale or other disposition is
to be made;
(2) The notice shall be personally delivered
or mailed, postage prepaid, to Borrower's address
appearing in this Agreement, at least ten (10) calendar
days before the date fixed for the sale, or at least ten
(10) calendar days before the date on or after which the
private sale or other disposition is to be made, unless
the Collateral is perishable or threatens to decline
speedily in value. Notice to persons other than Borrower
claiming an interest in the Collateral shall be sent to
such addresses as have been furnished to Bank or as
otherwise determined in accordance with Section 9611 of
the Uniform Commercial Code; and
(3) If the sale is to be a public sale, Bank
shall also give notice of the time and place by
publishing a notice one time at least ten (10) calendar
days before the date of the sale in a newspaper of
general circulation in the county in which the sale is
to be held; and
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(4) Bank may credit bid and purchase at any
public sale.
i. Borrower shall pay all Bank Expenses incurred in
connection with Bank's enforcement and exercise of any of its rights
and remedies as herein provided, whether or not suit is commenced by
Bank;
j. Any deficiency which exists after disposition of the
Collateral as provided above will be paid immediately by Borrower.
Any excess will be returned, without interest and subject to the
rights of third parties, to Borrower by Bank, or, in Bank's
discretion, to any party who Bank believes, in good faith, is
entitled to the excess;
k. Without constituting a retention of Collateral in
satisfaction of an obligation within the meaning of 9620 of the
Uniform Commercial Code or an action under California Code of Civil
Procedure 726, apply any and all amounts maintained by Borrower as
deposit accounts (as that term is defined under 9102 of the Uniform
Commercial Code) or other accounts that Borrower maintains with Bank
against the Indebtedness;
l. The proceeds of any sale or other disposition of
Collateral authorized by this Agreement shall be applied by Bank
first upon all expenses authorized by the Uniform Commercial Code
and all reasonable attorney fees and legal expenses incurred by
Bank, whether in-house or outside counsel is used, the balance of
the proceeds of the sale or other disposition shall be applied in
the payment of the Indebtedness, first to interest, then to
principal, then to remaining Indebtedness and the surplus, if any,
shall be paid over to Borrower or to such other person(s) as may be
entitled to it under applicable law. Borrower shall remain liable
for any deficiency, which it shall pay to Bank immediately upon
demand. Borrower agrees that Bank shall be under no obligation to
accept any noncash proceeds in connection with any sale or
disposition of Collateral unless failure to do so would be
commercially unreasonable. If Bank agrees in its sole discretion to
accept noncash proceeds (unless the failure to do so would be
commercially unreasonable), Bank may ascribe any commercially
reasonable value to such proceeds. Without limiting the foregoing,
Bank may apply any discount factor in determining the present value
of proceeds to be received in the future or may elect to apply
proceeds to be received in the future only as and when such proceeds
are actually received in cash by Bank; and
m. The following shall be the basis for any finder of
fact's determination of the value of any Collateral which is the
subject matter of a disposition giving rise to a calculation of any
surplus or deficiency under Section 9615(f) of the Uniform
Commercial Code: (i) The Collateral which is the subject matter of
the disposition shall be valued in an "as is" condition as of the
date of the disposition, without any assumption or expectation that
such Collateral will be repaired or improved in any manner; (ii) the
valuation shall be based upon an assumption that the transferee of
such Collateral desires a resale of the Collateral for cash promptly
(but no later than 30 days) following the disposition; (iii) all
reasonable closing costs customarily borne by the seller in
commercial sales transactions relating to property similar to such
Collateral shall be deducted including, without limitation,
brokerage commissions, tax prorations, attorney's fees, whether
in-house or outside counsel is used, and marketing costs; (iv) the
value of the Collateral which is the subject matter of the
disposition shall be further discounted to account for any estimated
holding costs associated with maintaining such Collateral pending
sale (to the extent not accounted for in (iii) above), and other
maintenance, operational and ownership expenses; and (v) any expert
opinion testimony given or considered in connection with a
determination of the value of such Collateral must be given by
persons having at least 5 years experience in appraising property
similar to the Collateral and who have conducted and prepared a
complete written appraisal of such Collateral taking into
consideration the factors set forth above. The "value" of any such
Collateral shall be a factor in determining the amount of proceeds
which would have been realized in a disposition to a transferee
other than a secured party, a person related to a secured party or a
secondary obligor under Section 9615(f) of the Uniform Commercial
Code.
8.2 In addition to any and all other rights and remedies available
to Bank under or pursuant to this Agreement or any other documents, instrument
or agreement contemplated hereby, Borrower acknowledges and agrees that (i) at
any time following the occurrence and during the continuance of any Event of
Default, and/or (ii) termination of Bank's commitment or obligation to make
loans or advances or otherwise extent credit to or in favor of Borrower
hereunder, in the event that and to the extent that there are any Letter of
Credit Obligations outstanding at such time, upon demand of Bank, Borrower shall
deliver to Bank, or cause to be delivered to Bank, cash collateral in an amount
not less than such Letter of Credit Obligations, which cash collateral shall be
held and retained by Bank as cash collateral for the repayment of such Letter of
Credit Obligations, together with any and all other Indebtedness of Borrower to
Bank remaining unpaid, and Borrower pledges to Bank and grants to Bank a
continuing first priority security interest in such cash collateral so delivered
to Bank. Alternatively, Borrower shall cause to be delivered to Bank an
irrevocable standby letter of credit issued in favor of Bank by a bank
acceptable to Bank, in its sole discretion, in an amount not less than such
Letter of Credit Obligations, and upon terms acceptable to Bank, in its sole
discretion.
8.3 Bank's rights and remedies under this Agreement and all other
agreements shall be cumulative. Bank shall have all other rights and remedies
not inconsistent herewith as provided by law or in equity. No exercise by Bank
of one right or remedy shall be deemed an election, and no waiver by Bank of any
default on Borrower's part shall be deemed a continuing waiver. No delay by Bank
shall constitute a waiver, election or acquiescence by Bank.
9. TAXES AND EXPENSES REGARDING BORROWER'S PROPERTY. If Borrower fails to pay
promptly when due to another person or entity, monies which Borrower is required
to pay by reason of any provision in this Agreement, Bank may, but need not, pay
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the same and charge Borrower's loan account therefor, and Borrower shall
promptly reimburse Bank. All such sums shall become additional Indebtedness
owing to Bank, shall bear interest at the rate hereinabove provided, and shall
be secured by all Collateral. Any payments made by Bank shall not constitute (i)
an agreement by it to make similar payments in the future, or (ii) a waiver by
Bank of any default under this Agreement. Bank need not inquire as to, or
contest the validity of, any such expense, tax, security interest, encumbrance
or lien and the receipt of the usual official notice of the payment thereof
shall be conclusive evidence that the same was validly due and owing. Such
payments shall constitute Bank Expenses and additional advances to Borrower.
10. WAIVERS.
10.1 Borrower agrees that checks and other instruments received by
Bank in payment or on account of Borrower's Indebtedness constitute only
conditional payment until such items are actually paid to Bank and Borrower
waives the right to direct the application of any and all payments at any time
or times hereafter received by Bank on account of Borrower's Indebtedness and
Borrower agrees that Bank shall have the continuing exclusive right to apply and
reapply such payments in any manner as Bank may deem advisable, notwithstanding
any entry by Bank upon its books.
10.2 Borrower waives demand, protest, notice of protest, notice of
default or dishonor, notice of payment and nonpayment, notice of any default,
nonpayment at maturity, release, compromise, settlement, extension or renewal of
any or all commercial paper, accounts, documents, instruments, chattel paper,
and guarantees at any time held by Bank on which Borrower may in any way be
liable.
10.3 Bank shall not in any way or manner be liable or responsible
for (a) the safekeeping of the Inventory; (b) any loss or damage thereto
occurring or arising in any manner or fashion from any cause; (c) any diminution
in the value thereof; or (d) any act or default of any carrier, warehouseman,
bailee, forwarding agency or other person whomsoever. All risk of loss, damage
or destruction of Inventory shall be borne by Borrower.
10.4 Borrower waives the right and the right to assert a
confidential relationship, if any, it may have with any accountant, accounting
firm and/or service bureau or consultant in connection with any information
requested by Bank pursuant to or in accordance with this Agreement, and agrees
that a Bank may contact directly any such accountants, accounting firm and/or
service bureau or consultant in order to obtain such information.
10.5 THE UNDERSIGNED ACKNOWLEDGE THAT THE RIGHT TO TRIAL BY JURY IS
A CONSTITUTIONAL ONE, BUT THAT IT MAY BE WAIVED UNDER CERTAIN CIRCUMSTANCES. TO
THE EXTENT PERMITTED BY LAW, EACH PARTY, AFTER CONSULTING (OR HAVING HAD THE
OPPORTUNITY TO CONSULT) WITH COUNSEL OF ITS, HIS OR HER CHOICE, KNOWINGLY AND
VOLUNTARILY, AND FOR THE MUTUAL BENEFIT OF ALL PARTIES, WAIVES ANY RIGHT TO
TRIAL BY JURY IN THE EVENT OF LITIGATION ARISING OUT OF OR RELATED TO THIS
AGREEMENT, THE INDEBTEDNESS OR ANY OTHER DOCUMENT, INSTRUMENT OR AGREEMENT
BETWEEN THE UNDERSIGNED PARTIES.
10.6 Reference Provision.
a. In the event the Jury Trial Waiver set forth above is
not enforceable, the parties elect to proceed under this Judicial
Reference Provision.
b. With the exception of the items specified in clause
(c), below, any controversy, dispute or claim (each, a "Claim")
between the parties arising out of or relating to this Agreement or
any other document, instrument or agreement between the undersigned
parties (collectively in this Section, the "Comerica Documents"),
will be resolved by a reference proceeding in California in
accordance with the provisions of Sections 638 et seq. of the
California Code of Civil Procedure ("CCP"), or their successor
sections, which shall constitute the exclusive remedy for the
resolution of any Claim, including whether the Claim is subject to
the reference proceeding. Except as otherwise provided in the
Comerica Documents, venue for the reference proceeding will be in
the state or federal court in the county or district where the real
property involved in the action, if any, is located or in the state
or federal court in the county or district where venue is otherwise
appropriate under applicable law (the "Court").
c. The matters that shall not be subject to a reference
are the following: (i) nonjudicial foreclosure of any security
interests in real or personal property, (ii) exercise of self-help
remedies (including, without limitation, set-off), (iii) appointment
of a receiver and (iv) temporary, provisional or ancillary remedies
(including, without limitation, writs of attachment, writs of
possession, temporary restraining orders or preliminary
injunctions). This reference provision does not limit the right of
any party to exercise or oppose any of the rights and remedies
described in clauses (i) and (ii) or to seek or oppose from a court
of competent jurisdiction any of the items described in clauses
(iii) and (iv). The exercise of, or opposition to, any of those
items does not waive the right of any party to a reference pursuant
to this reference provision as provided herein.
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d. The referee shall be a retired judge or justice
selected by mutual written agreement of the parties. If the parties
do not agree within ten (10) days of a written request to do so by
any party, then, upon request of any party, the referee shall be
selected by the Presiding Judge of the Court (or his or her
representative). A request for appointment of a referee may be heard
on an ex parte or expedited basis, and the parties agree that
irreparable harm would result if ex parte relief is not granted.
Pursuant to CCP ss. 170.6, each party shall have one peremptory
challenge to the referee selected by the Presiding Judge of the
Court (or his or her representative).
e. The parties agree that time is of the essence in
conducting the reference proceedings. Accordingly, the referee shall
be requested, subject to change in the time periods specified herein
for good cause shown, to (i) set the matter for a status and
trial-setting conference within fifteen (15) days after the date of
selection of the referee, (ii) if practicable, try all issues of law
or fact within one hundred twenty (120) days after the date of the
conference and (iii) report a statement of decision within twenty
(20) days after the matter has been submitted for decision.
f. The referee will have power to expand or limit the
amount and duration of discovery. The referee may set or extend
discovery deadlines or cutoffs for good cause, including a party's
failure to provide requested discovery for any reason whatsoever.
Unless otherwise ordered based upon good cause shown, no party shall
be entitled to "priority" in conducting discovery, depositions may
be taken by either party upon seven (7) days written notice, and all
other discovery shall be responded to within fifteen (15) days after
service. All disputes relating to discovery which cannot be resolved
by the parties shall be submitted to the referee whose decision
shall be final and binding.
g. Except as expressly set forth herein, the referee
shall determine the manner in which the reference proceeding is
conducted including the time and place of hearings, the order of
presentation of evidence, and all other questions that arise with
respect to the course of the reference proceeding. All proceedings
and hearings conducted before the referee, except for trial, shall
be conducted without a court reporter, except that when any party so
requests, a court reporter will be used at any hearing conducted
before the referee, and the referee will be provided a courtesy copy
of the transcript. The party making such a request shall have the
obligation to arrange for and pay the court reporter. Subject to the
referee's power to award costs to the prevailing party, the parties
will equally share the cost of the referee and the court reporter at
trial.
h. The referee shall be required to determine all issues
in accordance with existing case law and the statutory laws of the
State of California. The rules of evidence applicable to proceedings
at law in the State of California will be applicable to the
reference proceeding. The referee shall be empowered to enter
equitable as well as legal relief, enter equitable orders that will
be binding on the parties and rule on any motion which would be
authorized in a court proceeding, including without limitation
motions for summary judgment or summary adjudication. The referee
shall issue a decision at the close of the reference proceeding
which disposes of all claims of the parties that are the subject of
the reference. Pursuant to CCP ss. 644, such decision shall be
entered by the Court as a judgment or an order in the same manner as
if the action had been tried by the Court and any such decision will
be final, binding and conclusive. The parties reserve the right to
appeal from the final judgment or order or from any appealable
decision or order entered by the referee. The parties reserve the
right to findings of fact, conclusions of laws, a written statement
of decision, and the right to move for a new trial or a different
judgment, which new trial, if granted, is also to be a reference
proceeding under this provision.
i. If the enabling legislation which provides for
appointment of a referee is repealed (and no successor statute is
enacted), any dispute between the parties that would otherwise be
determined by reference procedure will be resolved and determined by
arbitration. The arbitration will be conducted by a retired judge or
justice, in accordance with the California Arbitration Act ss.1280
through ss.1294.2 of the CCP as amended from time to time. The
limitations with respect to discovery set forth above shall apply to
any such arbitration proceeding.
j. THE PARTIES RECOGNIZE AND AGREE THAT ALL
CONTROVERSIES, DISPUTES AND CLAIMS RESOLVED UNDER THIS REFERENCE
PROVISION WILL BE DECIDED BY A REFEREE AND NOT BY A JURY. AFTER
CONSULTING (OR HAVING HAD THE OPPORTUNITY TO CONSULT) WITH COUNSEL
OF ITS, HIS OR HER OWN CHOICE, EACH PARTY KNOWINGLY AND VOLUNTARILY,
AND FOR THE MUTUAL BENEFIT OF ALL PARTIES, AGREES THAT THIS
REFERENCE PROVISION WILL APPLY TO ANY CONTROVERSY, DISPUTE OR CLAIM
BETWEEN OR AMONG THEM ARISING OUT OF OR IN ANY WAY RELATED TO, THIS
AGREEMENT, THE INDEBTEDNESS OR THE OTHER COMERICA DOCUMENTS.
10.8 In the event that Bank elects to waive any rights or remedies
hereunder, or compliance with any of the terms hereof, or delays or fails to
pursue or enforce any term, such waiver, delay or failure to pursue or enforce
shall only be effective with respect to that single act and shall not be
construed to affect any subsequent transactions or Bank's right to later pursue
such rights and remedies.
11. ONE CONTINUING LOAN TRANSACTION. All loans and advances heretofore, now or
at any time or times hereafter made by Bank to Borrower under this Agreement or
any other agreement between Bank and Borrower, shall constitute one loan secured
by
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Bank's security interests in the Collateral and by all other security interests,
liens, encumbrances heretofore, now or from time to time hereafter granted by
Borrower to Bank.
Notwithstanding the above, (i) to the extent that any portion of the
Indebtedness is a consumer loan, that portion shall not be secured by any deed
of trust or mortgage on or other security interest in Borrower's principal
dwelling which is not a purchase money security interest as to that portion,
unless expressly provided to the contrary in another place, or (ii) if Borrower
(or any of them) has (have) given or give(s) Bank a deed of trust or mortgage
covering real property, that deed of trust or mortgage shall not secure the loan
and any other Indebtedness of Borrower (or any of them), unless expressly
provided to the contrary in another place.
12. NOTICES. Unless otherwise provided in this Agreement, all notices or demands
by either party on the other relating to this Agreement shall be in writing and
sent by regular United States mail, postage prepaid, properly addressed to
Borrower or to Bank at the addresses stated in this Agreement, or to such other
addresses as Borrower or Bank may from time to time specify to the other in
writing. Requests for information made to Borrower by Bank from time to time
hereunder may be made orally or in writing, at Bank's discretion.
13. AUTHORIZATION TO DISBURSE. Bank is hereby authorized to make loans and
advances hereunder upon telephonic or other instructions received from anyone
purporting to be an officer, employee, or representative of Borrower, or at the
discretion of Bank if said loans and advances are necessary to meet any
Indebtedness of Borrower to Bank. Bank shall have no duty to make inquiry or
verify the authority of any such party, and Borrower shall hold Bank harmless
from any damage, claims or liability by reason of Bank's honor of, or failure to
honor, any such instructions.
14. PAYMENTS. Borrower hereby authorizes Bank to deduct the full amount of any
interest, fees, costs, or Bank Expenses due under this Agreement and not paid or
collected when due in accordance with the terms and conditions hereof from any
account maintained by Borrower with Bank. Should there be insufficient funds in
any such account to pay all such sums when due, the full amount of such
deficiency shall be immediately due and payable by Borrower; provided, however,
that Bank shall not be obligated to advance funds to cover any such payment.
15. DESTRUCTION OF BORROWER'S DOCUMENTS. Any documents, schedules, invoices or
other papers delivered to Bank, may be destroyed or otherwise disposed of by
Bank six (6) months after they are delivered to or received by Bank, unless
Borrower requests, in writing, the return of the said documents, schedules,
invoices or other papers and makes arrangements, at Borrower's expense, for
their return.
16. CHOICE OF LAW. The validity of this Agreement, its construction,
interpretation and enforcement, and the rights of the parties hereunder and
concerning the Collateral, shall be determined according to the laws of the
State of California. The parties agree that all actions or proceedings arising
in connection with this Agreement shall be tried and litigated only in the state
and federal courts in California.
17. GENERAL PROVISIONS.
17.1 This Agreement shall be binding and deemed effective when
executed by Borrower and accepted and executed by Bank at its headquarters
office.
17.2 This Agreement shall bind and inure to the benefit of the
respective successors and assigns of each of the parties; provided, however,
that Borrower may not assign this Agreement or any rights hereunder without
Bank's prior written consent and any prohibited assignment shall be absolutely
void. No consent to an assignment by Bank shall release Borrower or any
guarantor from their obligations to Bank. Bank may assign this Agreement and its
rights and duties hereunder. Bank reserves the right to sell, assign, transfer,
negotiate or grant participations in all or any part of, or any interest in
Bank's rights and benefits hereunder. In connection therewith, Bank may disclose
all documents and information which Bank now or hereafter may have relating to
Borrower or Borrower's business.
17.3 Paragraph headings and paragraph numbers have been set forth
herein for convenience only; unless the contrary is compelled by the context,
everything contained in each paragraph applies equally to this entire Agreement.
Unless the context of this Agreement clearly requires otherwise, references to
the plural include the singular, references to the singular include the plural,
and the term "including" is not limiting. 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.
17.4 Neither this Agreement nor any uncertainty or ambiguity herein
shall be construed or resolved against Bank or Borrower, whether under any rule
of construction or otherwise; on the contrary, this Agreement has been reviewed
by all parties and shall be construed and interpreted according to the ordinary
meaning of the words used so as to fairly accomplish the purposes and intentions
of all parties hereto.
17.5 Each provision of this Agreement shall be severable from every
other provision of this Agreement for the purpose of determining the legal
enforceability of any specific provision.
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17.6 This Agreement cannot be changed or terminated orally. This
Agreement contains the entire agreement of the parties hereto and supersedes all
prior agreements, understandings, representations, warranties and negotiations,
if any, related to the subject matter hereof, and none of the parties shall be
bound by anything not expressed in writing.
17.7 The parties intend and agree that their respective rights,
duties, powers, liabilities, obligations and discretions shall be performed,
carried out, discharged and exercised reasonably and in good faith.
17.8 In addition, if this Agreement is secured by a deed of trust or
mortgage covering real property, then the trustor or mortgagor shall not
mortgage or pledge the mortgaged premises as security for any other indebtedness
or obligations. This Agreement, together with all other indebtedness secured by
said deed of trust or mortgage, shall become due and payable immediately,
without notice, at the option of Bank, (a) if said trustor or mortgagor shall
mortgage or pledge the mortgaged premises for any other indebtedness or
obligations or shall convey, assign or transfer the mortgaged premises by deed,
installment sale contract or other instrument; (b) if the title to the mortgaged
premises shall become vested in any other person or party in any manner
whatsoever, or (c) if there is any disposition (through one or more
transactions) of legal or beneficial title to a controlling interest of said
trustor or mortgagor.
IN WITNESS WHEREOF, the parties hereto have caused this Loan and
Security Agreement (Accounts and Inventory) to be executed as of the date first
hereinabove written.
BORROWER:
SIGNATURE EYEWEAR, INC., a California corporation
Accepted and effective as of September 14, 2007 By: /s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
At Bank's Western Division Headquarters Office ---------------------------------------
Signature of ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
Title: Chief Executive Officer
Comerica Bank
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
---------------------------------------------
Signature of ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Title: Vice President-Western Market
--------------------------------------
Address for Notices
-------------------
Signature Eyewear, Inc.
Attention: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ CEO
▇▇▇ ▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
By fax - ▇▇▇ ▇▇▇ ▇▇▇▇ or ▇▇▇ ▇▇▇ ▇▇▇▇
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EXHIBIT A
COMPLIANCE CERTIFICATE
PLEASE SEND ALL REQUIRED REPORTING TO: Comerica Bank
▇▇▇ ▇. ▇▇▇▇▇ ▇▇▇▇.
Ste. ▇▇▇▇ ▇▇ ▇▇▇▇
▇▇▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn.: ▇▇▇▇▇ ▇▇▇▇▇▇▇
FROM: SIGNATURE EYEWEAR, INC.
The undersigned authorized Officer of SIGNATURE EYEWEAR, INC. ("Borrower"),
hereby certifies that in accordance with the terms and conditions of the Loan
and Security Agreement between Borrower and Bank (the Agreement), (i) Borrower
is in complete compliance for the period ending 7/31/2007 with all required
covenants, except as noted below, and (ii) all representations and warranties of
Borrower stated in the Agreement are true and correct in all material respects
as of the date hereof. Attached herewith are the required documents supporting
the above certification. The Officer further certifies that these are prepared
in accordance with Generally Accepted Accounting Principles (GAAP) and are
consistently applied from one period to the next except as explained in an
accompanying letter or footnotes.
Please indicate compliance status by circling Yes/No under "Complies" column.
REPORTING COVENANTS REQUIRED COMPLIES
------------------- -------- --------
Consolidated Financial Statements Monthly, within 35 days YES NO
Consolidated Financial Statements Quarterly, within 45 days YES NO
Audited Consolidated Financial Statements Annually, within 120 days YES NO
A/R Aging 20th day of each calendar month YES NO
A/P Aging 20th day of each calendar month YES NO
Inventory Report 20th day of each calendar month YES NO
Borrowing Base Certificate 20th day of each calendar month YES NO
Financial Projections Annually, within 45 days after FYE YES NO
FINANCIAL COVENANTS REQUIRED ACTUAL COMPLIES
------------------- -------- ------ --------
TO BE TESTED QUARTERLY
Minimum 2 Qrt. Pre-Tax Income ________ $________ YES NO
Maximum Leverage Ratio _______:1.00 ______:1.00 YES NO
Minimum Quick Ratio _______:1.00 ______:1.00 YES NO
YTD Capital Expenditures $100,000 annually $________ YES NO
Please Enter Below Comments Regarding Covenant Violations:
The Officer further acknowledges that at any time Borrower is not in compliance
with all the terms set forth in the Agreement, including, without limitation,
the financial covenants, no credit extensions will be made.
Very truly yours,
SIGNATURE EYEWEAR, INC. BANK USE ONLY
Rec'd by:
--------------------------- ------------------------------
Authorized Signer Date:
------------------------------
Reviewed By:
------------------------------
Date:
------------------------------
Name: Financial Compliance Status: YES / NO
---------------------------
Title:
---------------------------
25