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EXHIBIT 4.53
LOAN AND SECURITY AGREEMENT
BY AND BETWEEN
CONGRESS FINANCIAL CORPORATION (CENTRAL)
AS LENDER
AND
FUTORIAN FURNISHINGS, INC.
AS BORROWER
DATED: AS OF FEBRUARY 11, 1998
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TABLE OF CONTENTS
SECTION 1. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 2. CREDIT FACILITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
2.1 Revolving Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
2.2 Letter of Credit Accommodations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
2.3 Term Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
2.4 Availability Reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
SECTION 3. INTEREST AND FEES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
3.1 Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
3.2 Closing Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
3.3 Servicing Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
3.4 Unused Line Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
3.5 Changes in Laws and Increased Costs of Loans . . . . . . . . . . . . . . . . . . . . . . . . 24
SECTION 4. CONDITIONS PRECEDENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
4.1 Conditions Precedent to Initial Loans and Letter of Credit Accommodations . . . . . . . . . 25
4.2 Conditions Precedent to All Loans and Letter of Credit Accommodations . . . . . . . . . . . 27
SECTION 5. GRANT OF SECURITY INTEREST . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
SECTION 6. COLLECTION AND ADMINISTRATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
6.1 Borrower's Loan Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
6.2 Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
6.3 Collection of Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
6.4 Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
6.5 Authorization to Make Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
6.6 Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
SECTION 7. COLLATERAL REPORTING AND COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
7.1 Collateral Reporting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
7.2 Accounts Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
7.3 Inventory Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
7.4 Equipment Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
7.5 Power of Attorney . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
7.6 Right to Cure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
7.7 Access to Premises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
(i)
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SECTION 8. REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
8.1 Corporate Existence, Power and Authority; Subsidiaries . . . . . . . . . . . . . . . . . . . 36
8.2 Financial Statements; No Material Adverse Change. . . . . . . . . . . . . . . . . . . . . . 36
8.3 Chief Executive Office; Collateral Locations. . . . . . . . . . . . . . . . . . . . . . . . 36
8.4 Priority of Liens; Title to Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
8.5 Tax Returns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
8.6 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
8.7 Intellectual Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
8.8 Compliance with Other Agreements and Applicable Laws . . . . . . . . . . . . . . . . . . . . 37
8.9 Employee Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
8.10 Environmental Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
8.11 Governmental Authority. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
8.12 Bank Accounts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
8.13 Capitalization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
8.14 Accuracy and Completeness of Information. . . . . . . . . . . . . . . . . . . . . . . . . . 40
8.15 Survival of Warranties; Cumulative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
SECTION 9. AFFIRMATIVE AND NEGATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
9.1 Maintenance of Existence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
9.2 New Collateral Locations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
9.3 Compliance with Laws, Regulations, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . 41
9.4 Payment of Taxes and Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
9.5 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
9.6 Financial Statements and Other Information . . . . . . . . . . . . . . . . . . . . . . . . . 44
9.7 Sale of Assets, Consolidation, Merger, Dissolution, Etc. . . . . . . . . . . . . . . . . . . 46
9.8 Encumbrances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
9.9 Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
9.10 Loans, Investments, Guarantees, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
9.11 Dividends and Redemptions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
9.12 Transactions with Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
9.13 Additional Bank Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
9.14 Compliance with ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
9.15 Adjusted Net Worth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
9.16 Minimum EBITDA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
9.17 After Acquired Real Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
9.18 Costs and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
9.19 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
SECTION 10. EVENTS OF DEFAULT AND REMEDIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
10.1 Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
10.2 Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
SECTION 11. JURY TRIAL WAIVER; OTHER WAIVERS AND CONSENTS; GOVERNING LAW . . . . . . . . . . . . . . . . 62
(ii)
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11.1 Governing Law; Choice of Forum; Service of Process; Jury Trial Waiver . . . . . . . . . . . 62
11.2 Waiver of Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
11.3 Amendments and Waivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
11.4 Waiver of Counterclaims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
11.5 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
SECTION 12. TERM OF AGREEMENT; MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
12.1 Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
12.2 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
12.3 Partial Invalidity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
12.4 Successors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
12.5 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
12.6 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
(iii)
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INDEX TO
EXHIBITS AND SCHEDULES
Exhibit A Information Certificate
Schedule 1.32 List of Factoring Agreements with Capital Factors
Schedule 8.4 Existing Liens
Schedule 8.9 ERISA Matters
Schedule 8.10 Environmental Matters
Schedule 8.12 Bank Accounts
Schedule 9.8 List of Insurance Policies Subject to Premium Financing
Schedule 9.9 Existing Indebtedness
Schedule 9.10 Existing Loans, Advances and Guarantees
(iv)
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LOAN AND SECURITY AGREEMENT
This Loan and Security Agreement dated February 11, 1998 is entered
into by and between Congress Financial Corporation (Central), an Illinois
corporation ("Lender") and Futorian Furnishings, Inc., a Delaware corporation
("Borrower").
W I T N E S S E T H:
WHEREAS, Borrower has requested that Lender enter into certain
financing arrangements with Borrower pursuant to which Lender may make loans
and provide other financial accommodations to Borrower; and
WHEREAS, Lender is willing to make such loans and provide such
financial accommodations on the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the mutual conditions and
agreements set forth herein, and for other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties hereto
agree as follows:
SECTION 1. DEFINITIONS
All terms used herein which are defined in Article 1 or Article 9 of
the Uniform Commercial Code shall have the meanings given therein unless
otherwise defined in this Agreement. All references to the plural herein shall
also mean the singular and to the singular shall also mean the plural unless
the context otherwise requires. All references to Borrower and Lender pursuant
to the definitions set forth in the recitals hereto, or to any other person
herein, shall include their respective successors and assigns. The words
"hereof", "herein", "hereunder", "this Agreement" and words of similar import
when used in this Agreement shall refer to this Agreement as a whole and not
any particular provision of this Agreement and as this Agreement now exists or
may hereafter be amended, modified, supplemented, extended, renewed, restated
or replaced. The word "including" when used in this Agreement shall mean
"including, without limitation". An Event of Default shall exist or continue
or be continuing until such Event of Default is waived in accordance with
Section 11.3 or is cured in a manner satisfactory to Lender, if such Event of
Default is capable of being cured as determined by Lender. Any accounting term
used herein unless otherwise defined in this Agreement shall have the meanings
customarily given to such term in accordance with GAAP. For purposes of this
Agreement, the following terms shall have the respective meanings given to them
below:
1.1 "Accounts" shall mean all present and future rights of Borrower
to payment for goods sold or leased or for services rendered, which are not
evidenced by instruments or chattel paper, and whether or not earned by
performance (but shall not include Receivables Sales Proceeds).
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1.2 "Adjusted Eurodollar Rate" shall mean, with respect to each
Interest Period for any Eurodollar Rate Loan, the rate per annum (rounded
upwards, if necessary, to the next one-sixteenth (1/16) of one (1%) percent)
determined by dividing (a) the Eurodollar Rate for such Interest Period by (b)
a percentage equal to: (i) one (1) minus (ii) the Reserve Percentage. For
purposes hereof, "Reserve Percentage" shall mean the reserve percentage,
expressed as a decimal, prescribed by any United States or foreign banking
authority for determining the reserve requirement which is or would be
applicable to deposits of United States dollars in a non-United States or an
international banking office of Reference Bank used to fund a Eurodollar Rate
Loan or any Eurodollar Rate Loan made with the proceeds of such deposit,
whether or not the Reference Bank actually holds or has made any such deposits
or loans. The Adjusted Eurodollar Rate shall be adjusted on and as of the
effective day of any change in the Reserve Percentage.
1.3 "Adjusted Net Worth" shall mean as to any Person, at any time, in
accordance with GAAP (except as otherwise specifically set forth below), on a
consolidated basis for such Person and its subsidiaries (if any), the amount
equal to: (a) the difference between (i) the aggregate net book value of all
assets of such Person and its Subsidiaries, calculating the book value of
inventory for this purpose on a first-in-first-out basis, after deducting from
such book values all appropriate reserves in accordance with GAAP (including
all reserves for doubtful receivables, obsolescence, depreciation and
amortization) and (ii) the aggregate amount of the Indebtedness and other
liabilities of such Person and its Subsidiaries (including tax and other proper
accruals), plus (b) in the case of Borrower, the principal amount of the
Indebtedness of Borrower owing to Court Square and to Guarantor permitted under
Section 9.9 hereof, and accrued interest in respect thereof, to the extent such
Indebtedness is subordinated in right of payment to the full and final payment
of all Obligations on terms and conditions acceptable to Lender.
1.4 "Affiliate" shall mean, as to any specified Person, any other
Person which directly or indirectly through one or more intermediaries
controls, or is controlled by or is under common control, with such specified
Person. For purposes of this definition, "control" (including with correlative
meanings, the terms "controlling", "controlled by" and "under common control
with"), as used with respect to any Person, shall mean the possession, directly
or indirectly, of the power to effectively direct or cause the direction of the
management or policies of such Person, whether through the ownership of voting
securities, by agreement or otherwise.
1.5 "Availability Reserves" shall mean, as of any date of
determination, such amounts as Lender may from time to time establish and
revise in good faith reducing the amount of Revolving Loans and Letter of
Credit Accommodations which would otherwise be available to Borrower under the
lending formula(s) provided for herein: (a) to reflect events, conditions,
contingencies or risks which, as determined by Lender in good faith, do or may
(i) adversely affect either (A) any Collateral or any other property which is
security for the Obligations or the rights of Lender in any Collateral or other
property which is security for the Obligations or the rights of Lender in any
Collateral or other property or (B) the security interests and other rights of
Lender in the Collateral or other property which is security for
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the Obligations (including the enforceability, perfection and priority thereof)
or (ii) adversely affect any assets (other than any Collateral) or business of
any Borrower or Obligor; (b) to reflect Dilution with respect to the Accounts
as calculated by Lender for any period to the extent such Dilution is greater
than seven (7%) percent; (c) to reflect the good faith belief of Lender that
any collateral report or financial information furnished by or on behalf of
Borrowers to Lender is or may have been incomplete, inaccurate or misleading in
any material respect; (d) to reflect outstanding Letter of Credit
Accommodations as provided in Section 2.2 hereof; or (e) in respect of any
state of facts which Lender determines in good faith constitutes an Event of
Default or may, with notice or passage of time or both, constitute an Event of
Default.
1.6 "Blocked Accounts" shall have the meaning set forth in Section
6.3 hereof.
1.7 "Board of Directors" shall mean the board of directors or any
duly constituted committee of any corporation or of a corporate general partner
of a partnership and any similar body empowered to direct the affairs of any
other entity.
1.8 "Business Day" shall mean any day other than a Saturday, Sunday,
or other day on which commercial banks are authorized or required to close
under the laws of the State of Illinois or the Commonwealth of Pennsylvania,
and a day on which the Reference Bank and Lender are open for the transaction
of business, except that, if a determination of a Business Day shall relate to
any Eurodollar Rate Loans, the term Business Day shall also exclude any day on
which banks are closed for dealings in dollar deposits in the London interbank
market or other applicable Eurodollar Rate market.
1.9 "Capital Leases" shall mean, as applied to any Person, any lease
of (or any agreement conveying the right to use) any property (whether real,
personal or mixed) by such Person as lessee which in accordance with GAAP, is
required to be reflected as a liability on the balance sheet of such Person.
1.10 "Capital Stock" shall mean, with respect to any Person, any and
all shares, interests, participations or other equivalents (however designated)
of such Person's capital stock, partnership interests or limited liability
company interests at any time outstanding, and any and all rights, warrants or
options exchangeable for or convertible into such capital stock or other
interests (but excluding any debt security that is exchangeable for or
convertible into such capital stock).
1.11 "Cash Equivalents" shall mean, at any time, (a) any evidence of
indebtedness with a maturity of one (1) year or less issued or directly and
fully guaranteed or insured by the United States of America or any agency or
instrumentality thereof; provided, that, the full faith and credit of the
United States of America is pledged in support thereof; (b) certificates of
deposit or bankers' acceptances with a maturity of one (1) year or less of any
financial institution that is a member of the Federal Reserve System having
combined capital and surplus and undivided profits of not less than
$250,000,000; (c) commercial paper (including variable rate demand notes) with
a maturity of one (1) year or less issued by a corporation
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(except an Affiliate of Borrower or Guarantor) organized under the laws of any
State of the United States of America or the District of Columbia and rated at
least A-1 by Standard & Poor's Ratings Services, a division of The ▇▇▇▇▇▇-▇▇▇▇
Companies, Inc. or at least P-1 by ▇▇▇▇▇'▇ Investors Service, Inc.; (d)
repurchase obligations with a term of not more than thirty (30) days for
underlying securities of the types described in clause (a) above entered into
with any bank meeting the qualifications specified in clause (b) above; (e)
repurchase agreements and reverse repurchase agreements relating to marketable
direct obligations issued or unconditionally guaranteed by the United States of
America or issued by any governmental agency thereof and backed by the full
faith and credit of the United States of America, in each case maturing within
one (1) year or less from the date of acquisition; provided, that, the terms of
such agreements comply with the guidelines set forth in the Federal Financial
Agreements of Depository Institutions with Securities Dealers and Others, as
adopted by the Comptroller of the Currency on October 31, 1985; and (f)
investments in money market funds and mutual funds which invest substantially
all of their assets in securities of the types described in clauses (a) through
(e) above.
1.12 "Change of Control" shall mean (a) the transfer (in one
transaction or a series of transactions) of all or substantially all of the
assets of Borrower or Guarantor to any Person or group (as such term is used in
Section 13(d)(3) of the Exchange Act) other than pursuant to a merger or
disposition permitted hereunder; (b) the liquidation or dissolution of Borrower
or Guarantor or the adoption of a plan by the stockholders of Borrower or
Guarantor relating to the dissolution or liquidation of Borrower or Guarantor;
(c) the acquisition by any Person or group (as such term is used in Section
13(d)(3) of the Exchange Act), except for one or more Permitted Holders, of
beneficial ownership, directly or indirectly, of fifty (50%) percent or more of
the voting power of the total outstanding Voting Stock of Borrower or the Board
of Directors of Guarantor; (d) during any period of two (2) consecutive years,
individuals who at the beginning of such period constituted the Board of
Directors of Borrower or the Board of Directors of Guarantor (together with any
new directors who have been appointed by CVC, Citicorp N.A., or any Affiliate
of CVC or whose nomination for election by the stockholders of Borrower or
Guarantor, as the case may be, was approved by a vote of at least sixty-six and
two-thirds (66 2/3%) percent of the directors then still in office who were
either directors at the beginning of such period or whose election or
nomination for election was previously so approved) cease for any reason to
constitute a majority of the Board of Directors of Borrower or Guarantor, as
the case may be, then still in office; (e) the failure of Guarantor to own more
than fifty (50%) percent of the voting power of the total outstanding Voting
Stock of Borrower; or (f) the failure of 399 Venture Partners, Inc. to own more
than fifty (50%) percent of the voting power of the total outstanding Voting
Stock of Guarantor.
1.13 "Code" shall mean the Internal Revenue Code of 1986, as the same
now exists or may from time to time hereafter be amended, modified, recodified
or supplemented, together with all rules, regulations and interpretations
thereunder or related thereto.
1.14 "Collateral" shall have the meaning set forth in Section 5
hereof.
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1.15 "Court Square" shall mean Court Square Capital Limited, a
Delaware corporation, formerly known as Citicorp Capital Investors, Ltd., and
its successors and assigns.
1.16 "CVC" shall mean Citicorp Venture Capital Ltd., a New York
corporation, and its successors and assigns.
1.17 "Dilution" shall mean, as to any Person for any period, the
fraction, expressed as a percentage, the numerator of which is the aggregate
amount of non-cash reductions in the Accounts of such Person for such period
and the denominator of which is the aggregate dollar amount of the sales of
such Person for such period.
1.18 "EBITDA" shall mean, as to any Person, with respect to any
period, an amount equal to: (a) the Net Income of such Person and its
Subsidiaries for such period on a consolidated basis determined in accordance
with GAAP, plus (b) depreciation, amortization and other non-cash charges
(including, but not limited to, imputed interest and deferred compensation) for
such period (to the extent deducted in the computation of Net Income), all in
accordance with GAAP, plus (c) Interest Expense for such period (to the extent
deducted in the computation of Net Income), plus (d) charges for Federal,
State, local and foreign income taxes for such period (to the extent deducted
in the computation of Net Income), plus (e) all extraordinary losses and
unusual losses related to costs associated with the refinancing transaction
contemplated by this Agreement, minus (f) all income (and plus all charges, up
to the amount of such income) attributable to any Subsidiary of Borrower, if
and to the extent such income was not distributed to Borrower in cash, plus (g)
charges in the fiscal year of Borrower ending December 26, 1998 for expenses
related to the reconfiguration of manufacturing facilities and consolidation of
corporate overhead, calculated in accordance with GAAP.
1.19 "Eligible Accounts" shall mean Accounts created by Borrower which
are and continue to be acceptable to Lender based on the criteria set forth
below. In general, Accounts shall be Eligible Accounts if:
(a) such Accounts arise from the actual and bona fide sale and
delivery of goods by Borrower or rendition of services by Borrower in the
ordinary course of its business which transactions are completed in accordance
with the terms and provisions contained in any documents related thereto;
(b) such Accounts are not unpaid more than the earlier of: (i)
sixty (60) days after the original due date for them or (ii) ninety (90) days
after the date of the original invoice for them; provided, that, for those
Accounts with original payment terms of more than thirty (30) days, Lender may
(but shall not be required to) consider Accounts which are unpaid one hundred
twenty (120) days after the date of the original invoice for them to be
Eligible Accounts;
(c) such Accounts comply with the terms and conditions
contained in Section 7.2(c) of this Agreement;
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(d) such Accounts do not arise from sales on consignment,
guaranteed sale, sale and return, sale on approval, or other terms under which
payment by the account debtor may be conditional or contingent;
(e) the chief executive office of the account debtor with
respect to such Accounts is located in the United States of America or Canada
(provided, that, at any time promptly upon Lender's request, Borrower shall
execute and deliver, or cause to be executed and delivered, such other
agreements, documents and instruments as may be required by Lender to perfect
the security interests of Lender in those Accounts of an account debtor with
its chief executive office or principal place of business in Canada in
accordance with the applicable laws of the Province of Canada in which such
chief executive office or principal place of business is located and take or
cause to be taken such other and further actions as Lender may request to
enable Lender as secured party with respect thereto to collect such Accounts
under the applicable Federal or Provincial laws of Canada) or, at Lender's
option, if the chief executive office and principal place of business of the
account debtor with respect to such Accounts is located other than in the
United States of America or Canada, then if either: (i) the account debtor has
delivered to Borrower an irrevocable letter of credit issued or confirmed by a
bank satisfactory to Lender and payable only in the United States of America
and in U.S. dollars, sufficient to cover such Account, in form and substance
satisfactory to Lender and, if required by Lender, the original of such letter
of credit has been delivered to Lender or Lender's agent and the issuer thereof
notified of the assignment of the proceeds of such letter of credit to Lender,
or (ii) such Account is subject to credit insurance payable to Lender issued by
an insurer and on terms and in an amount acceptable to Lender, or (iii) such
Account is otherwise acceptable in all respects to Lender (subject to such
lending formula with respect thereto as Lender may determine);
(f) such Accounts do not consist of progress ▇▇▇▇▇▇▇▇, ▇▇▇▇ and
hold invoices or retainage invoices, except as to ▇▇▇▇ and hold invoices, if
Lender shall have received an agreement in writing from the account debtor, in
form and substance satisfactory to Lender, confirming the unconditional
obligation of the account debtor to take the goods related thereto and pay such
invoice;
(g) the account debtor with respect to such Accounts has not
asserted a counterclaim, defense or dispute and does not have, and does not
engage in transactions which may give rise to, any right of setoff against such
Accounts (but the portion of the Accounts of such account debtor in excess of
the amount at any time and from time to time owed by Borrower to such account
debtor or claimed owed by such account debtor may be deemed Eligible Accounts);
(h) there are no facts, events or occurrences which would
impair the validity, enforceability or collectability of such Accounts or
reduce the amount payable or delay payment thereunder (and without limiting the
generality of the foregoing, Accounts due to Borrower from ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇ and
▇▇▇▇▇▇ Furniture Co. arising prior to the commencement of the pending
proceedings of ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇ and ▇▇▇▇▇▇ Furniture Co. under the U.S.
Bankruptcy Code, respectively, shall not be deemed Eligible Accounts);
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(i) such Accounts are subject to the first priority, valid and
perfected security interest of Lender and any goods giving rise thereto are
not, and were not at the time of the sale thereof, subject to any liens except
those permitted in this Agreement;
(j) neither the account debtor nor any officer or employee of
the account debtor with respect to such Accounts is an officer, employee, agent
or otherwise an Affiliate of Borrower (and without limiting the generality of
the foregoing, Accounts due to Borrower from ▇▇▇▇▇▇▇ shall not be Eligible
Accounts) directly or indirectly by virtue of family membership, ownership,
control, management or otherwise;
(k) the account debtors with respect to such Accounts are not
any foreign government, the United States of America, any State, political
subdivision, department, agency or instrumentality thereof, unless, if the
account debtor is the United States of America, any State, political
subdivision, department, agency or instrumentality thereof, upon Lender's
request, the Federal Assignment of Claims Act of 1940, as amended or any
similar State or local law, if applicable, has been complied with in a manner
satisfactory to Lender;
(l) there are no proceedings or actions which are threatened or
pending against the account debtors with respect to such Accounts which might
result in any material adverse change in any such account debtor's financial
condition;
(m) such Accounts of a single account debtor or its affiliates
(other than Accounts due to Borrower from Sears ▇▇▇▇▇▇▇ & Co., Accounts due to
Borrower from ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇ arising after the commencement of the pending
proceedings of ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇ under the U.S. Bankruptcy Code and Accounts due
to Borrower from ▇▇▇▇▇▇ ▇▇▇▇▇▇) do not constitute more than fifteen (15%)
percent of all otherwise Eligible Accounts (but the portion of the Accounts not
in excess of such percentages may be deemed Eligible Accounts) and (i) as to
Accounts due to Borrower from Sears ▇▇▇▇▇▇▇ & Co., do not constitute more than
twenty (20%) percent of all otherwise Eligible Accounts, (ii) as to Accounts
due to Borrower from ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇ arising after the commencement of the
pending proceedings of ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇ under the U.S. Bankruptcy Code, do not
constitute more than twenty (20%) percent of all otherwise Eligible Accounts
and (iii) as to Accounts due to Borrower from ▇▇▇▇▇▇ ▇▇▇▇▇▇, do not constitute
more than twenty (20%) percent of all otherwise Eligible Accounts;
(n) such Accounts are not owed by an account debtor who has
Accounts unpaid more than the earlier of (i) sixty (60) days after the original
due date for them or (ii) ninety (90) days after the date of the original
invoice for them, which constitute more than fifty (50%) percent of the total
Accounts of such account debtor;
(o) such Accounts are owed by account debtors whose total
indebtedness to Borrower does not exceed the credit limit with respect to such
account debtors as determined by Lender from time to time (but the portion of
the Accounts not in excess of such credit limit may be deemed Eligible
Accounts); and
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(p) such Accounts are owed by account debtors deemed
creditworthy at all times by Lender, as determined by Lender.
General criteria for Eligible Accounts may be established and revised from time
to time by Lender in good faith. Any Accounts which are not Eligible Accounts
shall nevertheless be part of the Collateral.
1.20 "Eligible Inventory" shall mean Inventory consisting of finished
goods held for resale in the ordinary course of the business of Borrower and
raw materials for such finished goods which are acceptable to Lender based on
the criteria set forth below. In general, Eligible Inventory shall not include
(a) work-in-process or semi-in-process; (b) spare parts for equipment; (c)
packaging and shipping materials; (d) supplies used or consumed in Borrower's
business; (e) Inventory at premises other than those owned and controlled by
Borrower, except if Lender shall have received an agreement in writing from the
person in possession of such Inventory and/or the owner or operator of such
premises in form and substance satisfactory to Lender acknowledging Lender's
first priority security interest in the Inventory, waiving security interests
and claims by such person against the Inventory and permitting Lender access
to, and the right to remain on, the premises so as to exercise Lender's rights
and remedies and otherwise deal with the Collateral; (f) Inventory subject to a
security interest or lien in favor of any person other than Lender except those
permitted in this Agreement; (g) ▇▇▇▇ and hold goods; (h) unserviceable,
obsolete or slow moving Inventory; (i) Inventory which is not subject to the
first priority, valid and perfected security interest of Lender; (j) returned,
damaged and/or defective Inventory; (k) "seconds"; (l) trim; (m) frames; (n)
cut leather; (o) logos and (p) Inventory purchased or sold on consignment
(including without limitation, all "locker stock" inventory). General criteria
for Eligible Inventory may be established and revised from time to time by
Lender in good faith. Any Inventory which is not Eligible Inventory shall
nevertheless be part of the Collateral.
1.21 "Eligible Receivables Sales Proceeds" shall mean Receivables
Sales Proceeds payable by Factor to Borrower under the Factoring Agreement, as
in effect on the date hereof, until July 31, 1998, arising from the sale of
Accounts by Borrower to Factor in the ordinary course of the business of
Borrower, which are and continue to be acceptable to Lender based on the
criteria set forth below. In general, Receivables Sales Proceeds shall be
Eligible Receivables Sales Proceeds if:
(a) the Accounts sold by Borrower to Factor giving rise to such
Receivables Sales Proceeds arise from the actual bona fide sale and delivery of
goods or rendition of services by Borrower in the ordinary course of the
business of Borrower which transactions are completed in accordance with the
terms and provisions contained in any documents related thereto;
(b) Lender shall have received, in form and substance
satisfactory to Lender, an agreement from Factor acknowledging Lender's first
priority security interest in the Receivables Sales Proceeds and any other
monies due and to become due to Borrower
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(including, without limitation, credits and reserves), agreeing to transfer all
such amounts to the Blocked Accounts and such other matters as Lender may
require;
(c) such Receivables Sales Proceeds are not past due pursuant
to the terms set forth in the Factoring Agreement (as in effect on the date
hereof);
(d) there are no facts, events or occurrences which would
impair the validity, enforceability or collectability of such Receivables Sales
Proceeds or reduce the amount payable or delay payment thereunder;
(e) such Receivables Sales Proceeds are subject to the first
priority, valid and perfected security interest of Lender and any goods giving
rise thereto are not, and were not at the time of the sale thereof, subject to
any liens except those permitted in this Agreement;
(f) no default or event of default has occurred under the
Factoring Agreement and the Factoring Agreement is otherwise in full force and
effect;
(g) Factor has not sent any notice of default or of its
intention to cease or suspend payments to Borrower in respect of such
Receivables Sales Proceeds.
General criteria for Eligible Receivables Sales Proceeds may be established and
revised from time to time by Lender in good faith. Any Receivables Sales
Proceeds which are not Eligible Receivables Sales Proceeds shall nevertheless
be part of the Collateral.
1.22 "Environmental Laws" shall mean all foreign, Federal, State and
local laws (including common law), legislation, rules, codes, licenses, permits
(including any conditions imposed therein), authorizations, judicial or
administrative decisions, injunctions or agreements between Borrower and any
governmental authority, (a) relating to pollution and the protection,
preservation or restoration of the environment (including air, water vapor,
surface water, ground water, drinking water, drinking water supply, surface
land, subsurface land, plant and animal life or any other natural resource), or
to human health or safety; (b) relating to the exposure to, or the use,
storage, recycling, treatment, generation, manufacture, processing,
distribution, transportation, handling, labeling, production, release or
disposal, or threatened release, of Hazardous Materials; or (c) relating to all
laws with regard to recordkeeping, notification, disclosure and reporting
requirements respecting Hazardous Materials. The term "Environmental Laws"
includes (i) the Federal Comprehensive Environmental Response, Compensation and
Liability Act of 1980, the Federal Superfund Amendments and Reauthorization
Act, the Federal Water Pollution Control Act of 1972, the Federal Clean Water
Act, the Federal Clean Air Act, the Federal Resource Conservation and Recovery
Act of 1976 (including the Hazardous and Solid Waste Amendments thereto), the
Federal Solid Waste Disposal and the Federal Toxic Substances Control Act, the
Federal Insecticide, Fungicide and Rodenticide Act, and the Federal Safe
Drinking Water Act of 1974, (ii) applicable state counterparts to such laws,
and (iii) any common law or equitable doctrine that may impose liability or
obligations for injuries or damages due to, or threatened as a result of, the
presence of or exposure to any Hazardous Materials.
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1.23 "Equipment" shall mean all of Borrower's now owned and hereafter
acquired equipment, machinery, computers and computer hardware and software
(whether owned or licensed), vehicles, tools, furniture, fixtures, all
attachments, accessions and property now or hereafter affixed thereto or used
in connection therewith, and substitutions and replacements thereof, wherever
located.
1.24 "ERISA" shall mean the United States Employee Retirement Income
Security Act of 1974, as the same now exists or may hereafter from time to time
be amended, modified, recodified or supplemented, together with all rules,
regulations and interpretations thereunder or related thereto.
1.25 "ERISA Affiliate" shall mean any person required to be aggregated
with Borrower or any of its Subsidiaries under Sections 414(b), 414(c), 414(m)
or 414(o) of the Code.
1.26 "Eurodollar Rate" shall mean with respect to the Interest Period
for a Eurodollar Rate Loan, the interest rate per annum equal to the arithmetic
average of the rates of interest per annum (rounded upwards, if necessary, to
the next one-sixteenth (1/16) of one (1%) percent) at which Reference Bank is
offered deposits of United States dollars in the London interbank market (or
other Eurodollar Rate market selected by Borrower and approved by Lender) on or
about 9:00 a.m. (Chicago time) two (2) Business Days prior to the commencement
of such Interest Period in amounts substantially equal to the principal amount
of the Eurodollar Rate Loans requested by and available to Borrower in
accordance with this Agreement, with a maturity of comparable duration to the
Interest Period selected by Borrower.
1.27 "Eurodollar Rate Loans" shall mean any Loans or portion thereof
on which interest is payable based on the Adjusted Eurodollar Rate in
accordance with the terms hereof.
1.28 "Event of Default" shall mean the occurrence or existence of any
event or condition described in Section 10.1 hereof.
1.29 "Excess Availability" shall mean the amount, as determined by
Lender, calculated at any time, equal to: (a) the lesser of: (i) the amount of
the Revolving Loans available to Borrower as of such time based on the
applicable lending formulas multiplied by the Net Amount of Eligible Accounts,
the Net Amount of Eligible Receivables Sales Proceeds and the Value of Eligible
Inventory, as determined in good faith by Lender, and subject to the Revolving
Loan Limit, sublimits and Availability Reserves from time to time established
by Lender hereunder, and (ii) the Maximum Credit (less the then outstanding
principal amount of the Term Loan), minus (1) the sum of: (i) the amount of all
then outstanding and unpaid Obligations (but not including for this purpose the
then outstanding principal amount of the Term Loan), plus (ii) the aggregate
amount of all then outstanding and unpaid trade payables of Borrower which are
more than forty-five (45) days past due as of such time.
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1.30 "Exchange Act" shall mean the Securities and Exchange Act of
1934, as the same now exists or may hereafter from time to time be amended,
modified, recodified or supplemented, together with all rules, regulations and
interpretations thereunder or related thereto.
1.31 "Factor" shall mean Capital Factors, Inc., a Florida corporation,
and its successors and assigns.
1.32 "Factoring Agreement" shall mean, collectively, the agreements
listed on Schedule 1.32 hereto, as the same now exist or may hereafter be
amended, modified, supplemented, extended, renewed, restated or replaced.
1.33 "Fairwood" shall mean Fairwood Corporation, a Delaware
corporation, and its successors and assigns.
1.34 "Financing Agreements" shall mean, collectively, this Agreement
and all notes, guarantees, security agreements and other agreements, documents
and instruments now or at any time hereafter executed and/or delivered by
Borrower or any Obligor in connection with this Agreement, as the same now
exist or may hereafter be amended, modified, supplemented, extended, renewed,
restated or replaced.
1.35 "GAAP" shall mean generally accepted accounting principles in the
United States of America as in effect from time to time as set forth in the
opinions and pronouncements of the Accounting Principles Board and the American
Institute of Certified Public Accountants and the statements and pronouncements
of the Financial Accounting Standards Board which are applicable to the
circumstances as of the date of determination consistently applied, except
that, for purposes of Sections 9.15 and 9.16 hereof, GAAP shall be determined
on the basis of such principles in effect on the date hereof and consistent
with those used in the preparation of the audited financial statements
delivered to Lender prior to the date hereof.
1.36 "Governmental Authority" shall mean any nation or government, any
state, province or other political subdivisions thereof, any central bank (or
similar monetary or regulatory authority) thereof, any entity exercising
executive, legislative, judicial, regulatory or administrative functions of or
pertaining to government, and any corporation or other entity owned or
controlled, through stock or capital ownership or otherwise, by any of the
foregoing.
1.37 "Guarantor" shall mean Consolidated Furniture Corporation, a New
York corporation, and its successors and assigns.
1.38 "Hazardous Materials" shall mean any hazardous, toxic or
dangerous substances, materials and wastes, including hydrocarbons (including
naturally occurring or man-made petroleum and hydrocarbons), flammable
explosives, asbestos, urea formaldehyde insulation, radioactive materials,
biological substances, polychlorinated biphenyls, pesticides, herbicides and
any other kind and/or type of pollutants or contaminants (including materials
which
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include hazardous constituents), sewage, sludge, industrial slag, solvents
and/or any other similar substances, materials, or wastes and including any
other substances, materials or wastes that are or become regulated under any
Environmental Law (including any that are or become classified as hazardous or
toxic under any Environmental Law).
1.39 "Indebtedness" shall mean, with respect to any Person, any
liability, whether or not contingent, (a) in respect of borrowed money (whether
or not the recourse of the lender is to the whole of the assets of such Person
or only to a portion thereof) or evidenced by bonds, notes, debentures or
similar instruments; (b) representing the balance deferred and unpaid of the
purchase price of any property or services (except any such balance that
constitutes an account payable to a trade creditor (whether or not an
Affiliate) created, incurred, assumed or guaranteed by such Person in the
ordinary course of business of such Person in connection with obtaining goods,
materials or services that is not overdue by more than ninety (90) days, unless
the trade payable is being contested in good faith); (c) all obligations as
lessee under leases which have been, or should be, in accordance with GAAP
recorded as Capital Leases; (d) any contractual obligation, contingent or
otherwise, of such Person to pay or be liable for the payment of any
indebtedness described in this definition of another Person, including, without
limitation, any such indebtedness, directly or indirectly guaranteed, or any
agreement to purchase, repurchase, or otherwise acquire such indebtedness,
obligation or liability or any security therefor, or to provide funds for the
payment or discharge thereof; or to maintain solvency, assets, level of income,
or other financial condition; (e) all obligations with respect to redeemable
stock and redemption or repurchase obligations under any Capital Stock or other
equity securities issued by such Person; (f) all reimbursement obligations and
other liabilities of such Person with respect to surety bonds (whether bid,
performance or otherwise), letters of credit, banker's acceptances or similar
documents or instruments issued for such Person's account; and (g) all
indebtedness of such Person in respect of indebtedness of another Person for
borrowed money or indebtedness of another Person otherwise described in this
definition which is secured by any consensual lien, security interest,
collateral assignment, conditional sale, mortgage, deed of trust, or other
encumbrance on any asset of such Person, whether or not such obligations,
liabilities or indebtedness are assumed by or are a personal liability of such
Person, all as of such time.
1.40 "Information Certificate" shall mean the Information Certificate
of Borrower constituting Exhibit A hereto containing material information with
respect to Borrower, its business and assets provided by or on behalf of
Borrower to Lender in connection with the preparation of this Agreement and the
other Financing Agreements and the financing arrangements provided for herein.
1.41 "Interest Expense" shall mean, for any period, as to any Person
and its Subsidiaries, total interest expense, whether paid or accrued
(including the interest component of Capital Leases for such period), as
determined in accordance with GAAP, including, without limitation, all bank
fees, commissions, discounts and other fees and charges owed with respect to
letters of credit, but excluding (a) amortization of discount and amortization
of deferred financing fees and closing costs paid in cash in connection with
the transactions contemplated hereby, (b) interest paid in property other than
cash and (c) any other interest
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expense not payable in cash, provided, that, for purposes of Section 1.18, as
to Borrower, Interest Expense shall not include interest paid by Borrower to
Court Square or Guarantor in respect of the Indebtedness of Borrower to Court
Square permitted under Section 9.9 hereof.
1.42 "Interest Period" shall mean for any Eurodollar Rate Loan, a
period of approximately one (1), two (2), or three (3) months duration as
Borrower may elect, the exact duration to be determined in accordance with the
customary practice in the applicable Eurodollar Rate market; provided, that,
Borrower may not elect an Interest Period which will end after the last day of
the then-current term of this Agreement.
1.43 "Interest Rate" shall mean, as to Prime Rate Loans, a rate of one
(1%) percent per annum in excess of the Prime Rate and, as to Eurodollar Rate
Loans, a rate of three and one-quarter (3 1/4%) percent per annum in excess of
the Adjusted Eurodollar Rate (based on the Eurodollar Rate applicable for the
Interest Period selected by Borrower as in effect three (3) Business Days after
the date of receipt by Lender of the request of Borrower for such Eurodollar
Rate Loans in accordance with the terms hereof, whether such rate is higher or
lower than any rate previously quoted to Borrower); provided, that:
(a) the Interest Rate shall mean, as to Prime Rate Loans, the
rate of one-half (1/2%) percent per annum in excess of the Prime Rate and, as
to Eurodollar Rate Loans, the rate of two and three-quarters (2 3/4%) percent
per annum in excess of the Adjusted Eurodollar Rate, effective on the first day
of the month after each of the following conditions is satisfied as determined
by Lender: (i) the Pre-Tax Net Income of Borrower for the immediately
preceding fiscal year (commencing with the fiscal year ending on December 31,
1998) as set forth in the audited financial statements of Borrower for such
fiscal year delivered to Lender, together with the unqualified opinion of the
independent certified accountants, in accordance with Section 9.6 hereof shall
equal or exceed $1,000,000 and (ii) no Event of Default or act, condition or
event which with notice or passage of time would constitute an Event of Default
shall exist or have occurred and be continuing; and
(b) notwithstanding anything to the contrary contained herein,
the Interest Rate shall mean the rate of three (3%) percent per annum in excess
of the Prime Rate as to Prime Rate Loans and the rate of five and one-quarter
(5 1/4%) percent per annum in excess of the Adjusted Eurodollar Rate as to
Eurodollar Rate Loans, at Lender's option, without notice, (i) either (A) for
the period on and after the date of termination or non-renewal hereof until
such time as all Obligations are indefeasibly paid in full, or (B) for the
period from and after the date of the occurrence of any Event of Default, and
for so long as such Event of Default is continuing as determined by Lender and
(ii) on the Loans at any time outstanding in excess of the amounts available to
Borrower under Section 2 (whether or not such excess(es) arise or are made with
or without Lender's knowledge or consent and whether made before or after an
Event of Default).
1.44 "Inventory" shall mean all of Borrower's now owned and hereafter
existing or acquired raw materials, work in process, finished goods and all
other inventory of whatsoever kind or nature, wherever located.
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1.45 "Letter of Credit Accommodations" shall mean the letters of
credit, merchandise purchase or other guaranties which are from time to time
either (a) issued or opened by Lender for the account of Borrower or any
Obligor or (b) with respect to which Lender has agreed to indemnify the issuer
or guaranteed to the issuer the performance by Borrower of its obligations to
such issuer.
1.46 "Loans" shall mean the Revolving Loans and the Term Loan.
1.47 "Material Adverse Effect" shall mean an effect that results in or
causes, or has a reasonable likelihood of resulting in or causing, a material
adverse change in any of (a) the condition (financial or otherwise), business,
performance, operations or properties of Borrower; (b) the legality, validity
or enforceability of this Agreement or any of the other Financing Agreements;
(c) the legality, validity, enforceability, perfection or priority of the
security interests and liens of Lender upon the Collateral or any other
property which is security for the Obligations; (d) the Collateral or any other
property which is security for the Obligations, or the value of the Collateral
or such other property; (e) the ability of Borrower to repay the Obligations or
of Borrower or any Obligor to perform its obligations under this Agreement or
any of the other Financing Agreements; or (f) the ability of Lender to enforce
the Obligations or realize upon the Collateral or otherwise with respect to the
rights and remedies of Lender under this Agreement or any of the other
Financing Agreements.
1.48 "Maximum Credit" shall mean the amount of $30,750,000.
1.49 "Net Amount of Eligible Accounts" shall mean the gross amount of
Eligible Accounts less (a) sales, excise or similar taxes included in the
amount thereof and (b) returns, discounts, claims, credits and allowances of
any nature at any time issued, owing, granted, outstanding, available or
claimed with respect thereto.
1.50 "Net Amount of Eligible Receivables Sales Proceeds" shall mean
the Eligible Receivables Sales Proceeds less all commissions, charges, fees,
expenses and other amounts payable by Borrower under the Factoring Agreement.
1.51 "Net Income" shall mean, as to any Person, for and through the
end of any applicable period, the net income (loss) of such Person for such
period (excluding to the extent included therein any extraordinary gains) after
deducting all charges which should be deducted before arriving at the net
income (loss) for such period, all in accordance with GAAP, and after deducting
the Provision for Taxes for such period. For the purposes of this definition,
(a) net income excludes any gain (but not loss) together with any related
Provision for Taxes for such gain (but not loss) realized upon the sale or
other disposition of (i) any assets that are not sold in the ordinary course of
business or (ii) any Capital Stock of such Person; and (b) net income excludes
any gain of income realized as a result of changes in accounting principles or
the application thereof to such Person. For purposes of this definition, the
term "Provision for Taxes" shall mean an amount equal to all taxes imposed on
or measured by net income, whether federal, state or local, and whether foreign
or domestic, that are paid or payable by any Person in respect of any period in
accordance with GAAP.
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1.52 "Obligations" shall mean any and all Revolving Loans, the Term
Loan, Letter of Credit Accommodations and all other obligations, liabilities
and indebtedness of every kind, nature and description owing by Borrower to
Lender, including principal, interest, charges, fees, costs and expenses,
however evidenced, whether as principal, surety, endorser, guarantor or
otherwise, arising under or in connection with this Agreement or any of the
other Financing Agreements, whether now existing or hereafter arising, whether
arising before, during or after the initial or any renewal term of this
Agreement or after the commencement of any case with respect to Borrower under
the United States Bankruptcy Code or any similar statute (including the payment
of interest and other amounts which would accrue and become due but for the
commencement of such case, whether or not such amounts are allowed or allowable
in whole or in part in such case), whether direct or indirect, absolute or
contingent, joint or several, due or not due, primary or secondary, liquidated
or unliquidated, secured or unsecured, and however acquired by Lender.
1.53 "Obligor" shall mean any guarantor, endorser, acceptor, surety or
other person liable on or with respect to the Obligations (including, without
limitation, Guarantor), or who is the owner of any property which is security
for the Obligations, other than Borrower.
1.54 "Payment Account" shall have the meaning set forth in Section 6.3
hereof.
1.55 "Permitted Holders" shall mean (a) CVC, (b) Citicorp N.A. or any
other Affiliate of CVC, (c) any officer, employee or director of CVC, or (d) in
the case of any natural Person specified in the foregoing clause, any spouse or
lineal descendant (including by adoption) of such Person.
1.56 "Person" or "person" shall mean any individual, sole
proprietorship, partnership, corporation (including any corporation which
elects subchapter S status under the Internal Revenue Code of 1986, as
amended), limited liability company, limited liability partnership, business
trust, unincorporated association, joint stock corporation, trust, joint
venture or other entity or any government or any agency or instrumentality or
political subdivision thereof.
1.57 "Pre-Tax Net Income" shall mean, as to any Person, for and
through the end of any applicable period, the net income (loss) of such Person
for such period (excluding to the extent included therein any extraordinary
gains) after deducting all charges which should be deducted before arriving at
the net income (loss) for such period, all in accordance with GAAP, and without
deduction for the Provision for Taxes for such period and, as to Borrower,
without deduction for the interest paid by Borrower to Court Square on the
Indebtedness of Borrower to Court Square permitted under Section 9.9 hereof for
such period. For the purposes of this definition, (a) net income excludes any
gain (but not loss) together with any related Provision for Taxes for such gain
(but not loss) realized upon the sale or other disposition of (i) any assets
that are not sold in the ordinary course of business or (ii) any Capital Stock
of such Person; and (b) net income excludes any gain of income realized as a
result of changes in accounting principles or the application thereof to such
Person. For purposes of this definition, the term "Provision for Taxes" shall
mean an amount equal to all taxes imposed on or measured by net income, whether
federal, state or local, and
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whether foreign or domestic, that are paid or payable by any Person in respect
of any period in accordance with GAAP.
1.58 "Prime Rate" shall mean the rate from time to time publicly
announced by CoreStates Bank, N.A., or its successors, at its office in
Philadelphia, Pennsylvania, as its prime rate, whether or not such announced
rate is the best rate available at such bank.
1.59 "Prime Rate Loans" shall mean any Loans or portion thereof on
which interest is payable based on the Prime Rate in accordance with the terms
thereof.
1.60 "Real Property" shall mean all now owned and hereafter acquired
real property of Borrower, including leasehold interests, together with all
buildings, structures, and other improvements located thereon and all licenses,
easements and appurtenances relating thereto, wherever located.
1.61 "Receivables Sales Proceeds" shall mean the right of Borrower to
payment from Factor under the Factoring Agreement in consideration of the sale
or transfer by Borrower to Factor of Accounts pursuant thereto.
1.62 "Records" shall mean all of Borrower's present and future books
of account of every kind or nature, purchase and sale agreements, invoices,
ledger cards, bills of lading and other shipping evidence, statements,
correspondence, memoranda, credit files and other data relating to the
Collateral or any account debtor, together with the tapes, disks, diskettes and
other data and software storage media and devices, file cabinets or containers
in or on which the foregoing are stored (including any rights of Borrower with
respect to the foregoing maintained with or by any other person).
1.63 "Reference Bank" shall mean CoreStates Bank, N.A., or such other
bank as Lender may from time to time designate.
1.64 "Revolving Loan Limit" shall mean $29,730,000.
1.65 "Revolving Loans" shall mean the loans now or hereafter made by
Lender to or for the benefit of Borrower on a revolving basis (involving
advances, repayments and readvances) as set forth in Section 2.1 hereof.
1.66 "▇▇▇▇▇▇▇" shall mean ▇▇▇▇▇▇▇ Upholstered Furniture Corporation, a
Delaware corporation, and its successors and assigns.
1.67 "Subsidiary" or "subsidiary" shall mean, with respect to any
Person, (a) any corporation, association or other business entity of which more
than fifty (50%) percent of the total voting power of shares of Voting Stock
thereof is at the time owned or controlled, directly or indirectly, by such
Person or one or more of the other Subsidiaries of that Person or a combination
thereof and (b) any partnership in which such Person or any of its Subsidiaries
is a general partner.
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1.68 "Term Loan" shall mean shall mean the term loan made by Lender to
Borrower as provided for in Section 2.3 hereof.
1.69 "Term Promissory Note" shall mean the Term Promissory Note, dated
of even date herewith, issued by Borrower payable to the order of Lender in the
original principal amount of $1,020,000, as the same now exists or may
hereafter be amended, modified, supplemented, extended, renewed, restated or
replaced.
1.70 "Value" shall mean, as determined by Lender in good faith, with
respect to Inventory, the lower of (a) cost computed on a first-in-first-out
basis in accordance with GAAP or (b) market value.
1.71 "Voting Stock" shall mean with respect to any Person, (a) one (1)
or more classes of Capital Stock of such Person having general voting powers to
elect at least a majority of the board of directors, managers or trustees of
such Person, irrespective of whether at the time Capital Stock of any other
class or classes have or might have voting power by reason of the happening of
any contingency, and (b) any Capital Stock of such Person convertible or
exchangeable without restriction at the option of the holder thereof into
Capital Stock of such Person described in clause (a) of this definition.
SECTION 2. CREDIT FACILITIES
2.1 Revolving Loans.
(a) Subject to and upon the terms and conditions contained
herein, Lender agrees to make Revolving Loans to Borrower from time to time in
amounts requested by Borrower up to the amount equal to the sum of:
(i) eighty-five (85%) percent of the Net Amount of
Eligible Accounts, provided, that, such percentage shall be increased
to ninety (90%) percent in the event Dilution with respect to the
Accounts as calculated by Lender for any twelve (12) consecutive month
period commencing on the first day of any month shall be less than two
(2%) percent, effective as of the last day of the month after the end
of such twelve (12) month period, plus
(ii) eighty-five (85%) percent of the Net Amount of
Eligible Receivables Sales Proceeds until July 31, 1998, provided,
that, at all times on and after July 31, 1998 such amount shall not be
included in the calculation of the Revolving Loans available to
Borrower hereunder, plus
(iii) the lesser of: (A) the sum of sixty (60%) percent of
the Value of Eligible Inventory consisting of finished goods and raw
materials for such finished goods or (B) $15,000,000, less
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(iv) any Availability Reserves.
(b) Lender may, in its discretion, from time to time, upon not
less than ten (10) days prior notice to Borrower, (i) reduce the lending
formula with respect to Eligible Accounts to the extent that Lender determines
in good faith that the general creditworthiness of account debtors has declined
or (ii) reduce the lending formula(s) with respect to Eligible Inventory to the
extent that Lender determines that: (A) the number of days of the turnover of
the Inventory for any period has changed in any material respect or (B) the
liquidation value of the Eligible Inventory, or any category thereof, has
decreased, or (C) the nature, quality or mix of the Inventory has deteriorated.
In determining whether to reduce the lending formula(s), Lender may consider
events, conditions, contingencies or risks which are also considered in
determining Eligible Accounts, Eligible Inventory or in establishing
Availability Reserves.
(c) Except in Lender's discretion, (i) the aggregate amount of
the Revolving Loans outstanding at any time shall not exceed the Revolving Loan
Limit and (ii) the aggregate amount of the Loans and the Letter of Credit
Accommodations outstanding at any time shall not exceed the Maximum Credit.
Subject to the terms and conditions of this Agreement, Borrower may borrow,
shall repay, and may reborrow such amounts (if any) as are determined in good
faith by Lender to be available to Borrower as Revolving Loans and Letter of
Credit Accommodations. In the event that the outstanding amount of any
component of the Revolving Loans, or the aggregate amount of the outstanding
Revolving Loans and Letter of Credit Accommodations, exceed the amounts
available under the lending formulas or the Revolving Loan Limit, or the
outstanding amount of the Letter of Credit Accommodations exceed the sublimit
for Letter of Credit Accommodations set forth in Section 2.2(d), or the
aggregate amount of the outstanding Loans and Letter of Credit Accommodations
exceed the Maximum Credit, as applicable, such event shall not limit, waive or
otherwise affect any rights of Lender in that circumstance or on any future
occasions and Borrower shall, upon demand by Lender, which may be made at any
time or from time to time, immediately repay to Lender the entire amount of any
such excess(es) for which payment is demanded, or in the case in which the
outstanding Letter of Credit Accommodations exceed the sublimit for Letter of
Credit Accommodations set forth in Section 2.2(d), immediately pay to Lender
the entire amount of any such excess, which amount shall be held by Lender as
cash collateral for the Obligations on terms and conditions acceptable to
Lender.
(d) For purposes only of applying the sublimit on Revolving
Loans based on Eligible Inventory pursuant to Section 2.1(a)(ii)(B), Lender may
treat the then undrawn amounts of outstanding Letter of Credit Accommodations
for the purpose of purchasing Eligible Inventory as Revolving Loans to the
extent Lender is in effect basing the issuance of the Letter of Credit
Accommodations on the Value of the Eligible Inventory being purchased with such
Letter of Credit Accommodations. In determining the actual amounts of such
Letter of Credit Accommodations to be so treated for purposes of the sublimit,
the outstanding Revolving Loans and Availability Reserves shall be attributed
first to any
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components of the lending formulas in Section 2.1(a) that are not subject to
such sublimit, before being attributed to the components of the lending
formulas subject to such sublimit.
2.2 Letter of Credit Accommodations.
(a) Subject to and upon the terms and conditions contained
herein, at the request of Borrower, Lender agrees to provide or arrange for
Letter of Credit Accommodations for the account of Borrower containing terms
and conditions acceptable to Lender and the issuer thereof. Any payments made
by Lender to any issuer thereof and/or related parties in connection with the
Letter of Credit Accommodations shall constitute additional Revolving Loans to
Borrower pursuant to this Section 2.
(b) In addition to any charges, fees or expenses charged by any
bank or issuer in connection with the Letter of Credit Accommodations, Borrower
shall pay to Lender a letter of credit fee at a rate equal to one (1%) percent
per annum on the daily outstanding balance of the Letter of Credit
Accommodations for the immediately preceding month (or part thereof), payable
in arrears as of the first day of each succeeding month, except that Borrower
shall pay to Lender such letter of credit fee, at Lender's option, without
notice, at a rate equal to three (3%) percent per annum on such daily
outstanding balance for: (i) the period from and after the date of termination
or non-renewal hereof until Lender has received full and final payment of all
Obligations (notwithstanding entry of a judgment against Borrower) and (ii) the
period from and after the date of the occurrence of an Event of Default for so
long as such Event of Default is continuing as determined in good faith by
Lender. Such letter of credit fee shall be calculated on the basis of a three
hundred sixty (360) day year and actual days elapsed and the obligation of
Borrower to pay such fee shall survive the termination or non-renewal of this
Agreement.
(c) No Letter of Credit Accommodations shall be available
unless on the date of the proposed issuance of any Letter of Credit
Accommodations, the Revolving Loans available to Borrower (subject to the
Revolving Loan Limit, the Maximum Credit and any Availability Reserves) are
equal to or greater than: (i) if the proposed Letter of Credit Accommodation
is for the purpose of purchasing Eligible Inventory, the sum of (A) the
percentage equal to one hundred (100%) percent minus the then applicable
percentage set forth in Section 2.1(a)(ii)(A) above of the Value of such
Eligible Inventory, plus (B) freight, taxes, duty and other amounts which
Lender estimates must be paid in connection with such Inventory upon arrival
and for delivery to one of Borrower's locations for Eligible Inventory within
the United States of America and (ii) if the proposed Letter of Credit
Accommodation is for any other purpose, an amount equal to one hundred (100%)
percent of the face amount thereof and all other commitments and obligations
made or incurred by Lender with respect thereto. Effective on the issuance of
each Letter of Credit Accommodation, an Availability Reserve shall be
established in the applicable amount set forth in Section 2.2(c)(i) or Section
2.2(c)(ii) hereof.
(d) Except in Lender's discretion, the amount of all
outstanding Letter of Credit Accommodations and all other commitments and
obligations made or incurred by Lender in
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connection therewith shall not at any time exceed $2,000,000. At any time an
Event of Default exists or has occurred and is continuing, upon Lender's
request, Borrower will either furnish cash collateral to secure the
reimbursement obligations to the issuer in connection with any Letter of Credit
Accommodations or furnish cash collateral to Lender for the Letter of Credit
Accommodations, and in either case, the Revolving Loans otherwise available to
Borrower shall not be reduced as provided in Section 2.2(c) hereof to the
extent of such cash collateral.
(e) Borrower shall indemnify and hold Lender harmless from and
against any and all losses, claims, damages, liabilities, costs and expenses
which Lender may suffer or incur in connection with any Letter of Credit
Accommodations and any documents, drafts or acceptances relating thereto,
including any losses, claims, damages, liabilities, costs and expenses due to
any action taken by any issuer or correspondent with respect to any Letter of
Credit Accommodation; provided, that, Borrower shall have no obligation to
indemnify Lender for any such losses, claims, damages, liabilities, costs and
expenses to the extent directly caused by the willful misconduct or gross
negligence of Lender as determined pursuant to a final, non-appealable order of
a court of competent jurisdiction. Borrower assumes all risks with respect to
the acts or omissions of the drawer under or beneficiary of any Letter of
Credit Accommodation and for such purposes the drawer or beneficiary shall be
deemed Borrower's agent. Borrower assumes all risks for, and agrees to pay,
all foreign, Federal, State and local taxes, duties and levies relating to any
goods subject to any Letter of Credit Accommodations or any documents, drafts
or acceptances thereunder. Borrower hereby releases and holds Lender harmless
from and against any acts, waivers, errors, delays or omissions, whether caused
by Borrower, by any issuer or correspondent or otherwise with respect to or
relating to any Letter of Credit Accommodation, except any of the foregoing
that is directly caused by the willful misconduct or gross negligence of Lender
as determined pursuant to a final, non-appealable order of a court of competent
jurisdiction. The provisions of this Section 2.2(e) shall survive the payment
of Obligations and the termination or non-renewal of this Agreement.
(f) Nothing contained herein shall be deemed or construed to
grant Borrower any right or authority to pledge the credit of Lender in any
manner. Lender shall have no liability of any kind with respect to any Letter
of Credit Accommodation provided by an issuer other than Lender unless Lender
has duly executed and delivered to such issuer the application or a guarantee
or indemnification in writing with respect to such Letter of Credit
Accommodation. Borrower shall be bound by any interpretation made in good
faith by Lender, or any other issuer or correspondent under or in connection
with any Letter of Credit Accommodation or any documents, drafts or acceptances
thereunder, notwithstanding that such interpretation may be inconsistent with
any instructions of Borrower. Lender shall have the sole and exclusive right
and authority to, and Borrower shall not: (i) at any time an Event of Default
exists or has occurred and is continuing, (A) approve or resolve any questions
of non-compliance of documents, (B) give any instructions as to acceptance or
rejection of any documents or goods or (C) execute any and all applications for
steamship or airway guaranties, indemnities or delivery orders, and (ii) at all
times, (A) grant any extensions of the maturity of, time of payment for, or
time of presentation of, any drafts, acceptances, or
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documents, and (B) agree to any amendments, renewals, extensions,
modifications, changes or cancellations of any of the terms or conditions of
any of the applications, Letter of Credit Accommodations, or documents, drafts
or acceptances thereunder or any letters of credit included in the Collateral.
Lender may take such actions either in its own name or in Borrower's name.
(g) Any rights, remedies, duties or obligations granted or
undertaken by Borrower to any issuer or correspondent in any application for
any Letter of Credit Accommodation, or any other agreement in favor of any
issuer or correspondent relating to any Letter of Credit Accommodation, shall
be deemed to have been granted or undertaken by Borrower to Lender. Any duties
or obligations undertaken by Lender to any issuer or correspondent in any
application for any Letter of Credit Accommodation, or any other agreement by
Lender in favor of any issuer or correspondent relating to any Letter of Credit
Accommodation, shall be deemed to have been undertaken by Borrower to Lender
and to apply in all respects to Borrower.
2.3 Term Loan. Lender is making the Term Loan to Borrower in the
original principal amount of $1,020,000. The Term Loan is (a) evidenced by the
Term Note in the original principal amount thereof, duly executed and delivered
by Borrower to Lender concurrently herewith, (b) to be repaid, together with
interest and other amounts, in accordance with this Agreement, the Term Note,
and the other Financing Agreements and (c) secured by all of the Collateral.
The Term Loan may be prepaid in full by Borrower at any time without premium or
penalty, subject only to the early termination fee provided for in Section 12.1
hereof if it is prepaid together with all other non-contingent Obligations as
provided therein.
2.4 Availability Reserves. All Revolving Loans otherwise available
to Borrower pursuant to the lending formulas and subject to the Revolving Loan
Limit, the Maximum Credit and other applicable limits hereunder shall be
subject to Lender's continuing right to establish and revise in good faith
Availability Reserves.
SECTION 3. INTEREST AND FEES
3.1 Interest.
(a) Borrower shall pay to Lender interest on the outstanding
principal amount of the non-contingent Obligations at the Interest Rate. All
interest accruing hereunder on and after the date of any Event of Default or
termination or non-renewal hereof shall be payable on demand.
(b) Borrower may from time to time request that Prime Rate
Loans be converted to Eurodollar Rate Loans or that any existing Eurodollar
Rate Loans continue for an additional Interest Period. Such request from
Borrower shall specify the amount of the Prime Rate Loans which will constitute
Eurodollar Rate Loans (subject to the limits set forth below)
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and the Interest Period to be applicable to such Eurodollar Rate Loans.
Subject to the terms and conditions contained herein, three (3) Business Days
after receipt by Lender of such a request from Borrower, such Prime Rate Loans
shall be converted to Eurodollar Rate Loans or such Eurodollar Rate Loans shall
continue, as the case may be, provided, that, (i) no Event of Default, or event
which with notice or passage of time or both would constitute an Event of
Default exists or has occurred and is continuing, (ii) no party hereto shall
have sent any notice of termination or non-renewal of this Agreement, (iii)
Borrower shall have complied with such customary procedures as are established
by Lender and specified by Lender to Borrower from time to time for requests by
Borrower for Eurodollar Rate Loans, (iv) no more than four (4) Interest Periods
may be in effect at any one time, (v) the aggregate amount of the Eurodollar
Rate Loans must be in an amount not less than $5,000,000 or an integral
multiple of $1,000,000 in excess thereof, (vi) the maximum amount of the
Eurodollar Rate Loans at any time requested by Borrower shall not exceed the
amount equal to (A) the principal amount of the Term Loan which it is
anticipated will be outstanding as of the last day of the applicable Interest
Period plus (B) eighty-five (85%) percent of the lowest principal amount of the
Revolving Loans which it is anticipated will be outstanding during the
applicable Interest Period, in each case as determined by Lender (but with no
obligation of Lender to make such Revolving Loans) and (vii) Lender shall have
determined that the Interest Period or Adjusted Eurodollar Rate is available to
Lender through the Reference Bank and can be readily determined as of the date
of the request for such Eurodollar Rate Loan by Borrower. Any request by
Borrower to convert Prime Rate Loans to Eurodollar Rate Loans or to continue
any existing Eurodollar Rate Loans shall be irrevocable. Notwithstanding
anything to the contrary contained herein, Lender and Reference Bank shall not
be required to purchase United States Dollar deposits in the London interbank
market or other applicable Eurodollar Rate market to fund any Eurodollar Rate
Loans, but the provisions hereof shall be deemed to apply as if Lender and
Reference Bank had purchased such deposits to fund the Eurodollar Rate Loans.
(c) Any Eurodollar Rate Loans shall automatically convert to
Prime Rate Loans upon the last day of the applicable Interest Period, unless
Lender has received and approved a request to continue such Eurodollar Rate
Loan at least three (3) Business Days prior to such last day in accordance with
the terms hereof. Any Eurodollar Rate Loans shall, at Lender's option, upon
notice by Lender to Borrower, convert to Prime Rate Loans in the event that (i)
an Event of Default or event which with the notice or passage of time, or both,
would constitute an Event of Default, shall exist or (ii) this Agreement shall
terminate or not be renewed.
(d) If the sum of the initial principal amount of the Loans
initially made as Eurodollar Rate Loans or of the Prime Rate Loans which have
previously been converted to Eurodollar Rate Loans or existing Eurodollar Rate
Loans continued, as the case may be, to a Borrower shall at any time exceed the
aggregate principal amount of the Loans to Borrower then outstanding, then, at
Lender's option, there shall be converted to Prime Rate Loans such amount of
Eurodollar Rate Loans outstanding under the then-effective Interest Periods, as
shall be sufficient to reduce the principal balance of the remaining Eurodollar
Rate Loans to not more than eighty-five (85%) percent of the amount of Loans
which it is anticipated (i)
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will be outstanding at all times during the remaining Interest Periods and (ii)
will be outstanding at all times during such remaining Interest Periods within
the amounts available to Borrower under Section 2 hereof, in each case as
determined by Lender in good faith. The actual amount of Eurodollar Rate Loans
converted to Prime Rate Loans under this Section 3.1(d) shall be the smallest
amount equal to or exceeding the required reduction resulting from the
conversion of the full initial amounts of Eurodollar Rate Loans for one or more
Interest Periods in effect at the time of conversion.
(e) Borrower shall pay to Lender, upon demand by Lender (or
Lender may, at its option, charge any loan account of Borrower) any amounts
required to compensate Lender, the Reference Bank or any participant with
Lender for any loss (including loss of anticipated profits), cost or expense
incurred by such person, as a result of the conversion of Eurodollar Rate Loans
to Prime Rate Loans pursuant to any of the foregoing.
(f) Interest shall be payable by Borrower to Lender monthly in
arrears not later than the first day of each calendar month and shall be
calculated on the basis of a three hundred sixty (360) day year and actual days
elapsed. The interest rate on non-contingent Obligations (other than
Eurodollar Rate Loans) shall increase or decrease by an amount equal to each
increase or decrease in the Prime Rate effective on the first day of the month
after any change in such Prime Rate is announced based on the Prime Rate in
effect on the last day of the month in which any such change occurs. In no
event shall charges constituting interest payable by Borrower to Lender exceed
the maximum amount or the rate permitted under any applicable law or
regulation, and if any such part or provision of this Agreement is in
contravention of any such law or regulation, such part or provision shall be
deemed amended to conform thereto.
3.2 Closing Fee. Borrower shall pay to Lender as a closing fee the
amount of $153,750, which shall be fully earned as of and payable on the date
hereof.
3.3 Servicing Fee. Borrower shall pay to Lender monthly a servicing
fee in an amount equal to $5,000 in respect of Lender's services for each month
(or part thereof) while this Agreement remains in effect and for so long
thereafter as any of the Obligations are outstanding, which fee shall be fully
earned as of and payable in advance on the date hereof and on the first day of
each month hereafter.
3.4 Unused Line Fee. Borrower shall pay to Lender monthly an unused
line fee at a rate equal to three-eighths (3/8%) percent per annum calculated
upon the amount by which $21,500,000 exceeds the average daily principal
balance of the outstanding Revolving Loans and Letter of Credit Accommodations
during the immediately preceding month (or part thereof) while this Agreement
is in effect and for so long thereafter as any of the Obligations are
outstanding, which fee shall be payable on the first day of each month in
arrears.
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3.5 Changes in Laws and Increased Costs of Loans.
(a) Notwithstanding anything to the contrary contained herein,
all Eurodollar Rate Loans shall, upon notice by Lender to Borrower, convert to
Prime Rate Loans in the event that (i) any change in applicable law or
regulation (or the interpretation or administration thereof) shall either (A)
make it unlawful for Lender, Reference Bank or any participant to make or
maintain Eurodollar Rate Loans or to comply with the terms hereof in connection
with the Eurodollar Rate Loans, or (B) shall result in the increase in the
costs to Lender, Reference Bank or any participant of making or maintaining any
Eurodollar Rate Loans by an amount deemed in good faith by Lender to be
material, or (C) reduce the amounts received or receivable by Lender in respect
thereof, by an amount deemed by Lender to be material or (ii) the cost to
Lender, Reference Bank or any participant of making or maintaining any
Eurodollar Rate Loans shall otherwise increase by an amount deemed by Lender to
be material. In the circumstances described in clauses (i)(B), (i)(C) or (ii)
above, instead of conversion to Prime Rate Loans, Borrower shall have the
option, for the balance of the Interest Period(s) for then outstanding
Eurodollar Rate Loans, of paying any and all increased costs and expenses
incurred in good faith by Lender, the Reference Bank or any participant,
together with the aggregate amount received or receivable by Lender and which
has been reduced in respect of such Eurodollar Rate Loans. Borrower shall pay
to Lender, upon demand by Lender (or Lender may, at its option, charge any loan
account of Borrower) any amounts required to compensate Lender, the Reference
Bank or any participant with Lender for any loss (including loss of anticipated
profits), cost or expense incurred by such person as a result of the foregoing,
including, without limitation, any such loss, cost or expense incurred by
reason of the liquidation or reemployment of deposits or other funds acquired
by such person to make or maintain the Eurodollar Rate Loans or any portion
thereof. A certificate of Lender setting forth the basis for the determination
of such amount necessary to compensate Lender as aforesaid shall be delivered
to Borrower and shall be conclusive, absent manifest error.
(b) If any payments or prepayments in respect of the Eurodollar
Rate Loans are received by Lender other than on the last day of the applicable
Interest Period (whether pursuant to acceleration, upon maturity or otherwise),
including any payments pursuant to the application of collections under Section
6.3 or any other payments made with the proceeds of Collateral, Borrower shall
pay to Lender upon demand by Lender (or Lender may, at its option, charge any
loan account of Borrower) any amounts required to compensate Lender, the
Reference Bank or any participant with Lender for any additional loss
(including loss of anticipated profits), cost or expense incurred by such
person as a result of such prepayment or payment, including, without
limitation, any loss, cost or expense incurred by reason of the liquidation or
reemployment of deposits or other funds acquired by such person to make or
maintain such Eurodollar Rate Loans or any portion thereof.
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SECTION 4. CONDITIONS PRECEDENT
4.1 Conditions Precedent to Initial Loans and Letter of Credit
Accommodations. Each of the following is a condition precedent to Lender making
the initial Loans and providing the initial Letter of Credit Accommodations
hereunder:
(a) Lender shall have received evidence, in form and substance
satisfactory to Lender, that Lender has valid perfected and first priority
security interests in and liens upon the Collateral and any other property
which is intended to be security for the Obligations or the liability of any
Obligor in respect thereof, subject only to the security interests and liens
permitted herein or in the other Financing Agreements;
(b) all requisite corporate action and proceedings in
connection with this Agreement and the other Financing Agreements shall be
satisfactory in form and substance to Lender, and Lender shall have received
all information and copies of all documents, including records of requisite
corporate action and proceedings which Lender may have requested in connection
therewith, such documents where requested by Lender or its counsel to be
certified by appropriate corporate officers or governmental authorities;
(c) no material adverse change shall have occurred in the
assets, business or prospects of Borrower since the date of Lender's latest
field examination and no change or event shall have occurred which would impair
the ability of Borrower or any Obligor to perform its obligations hereunder or
under any of the other Financing Agreements to which it is a party or of Lender
to enforce the Obligations or realize upon the Collateral;
(d) Lender shall have completed a field review of the Records
and such other information with respect to the Collateral as Lender may require
to determine the amount of Revolving Loans available to Borrower, the results
of which shall be satisfactory to Lender, not more than three (3) Business Days
prior to the date hereof;
(e) Lender shall have received, in form and substance
satisfactory to Lender, all consents, waivers, acknowledgments and other
agreements from third persons which Lender may deem necessary or desirable in
order to permit, protect and perfect its security interests in and liens upon
the Collateral or to effectuate the provisions or purposes of this Agreement
and the other Financing Agreements, including acknowledgements by lessors,
mortgagees and warehousemen of Lender's security interests in the Collateral,
waivers by such persons of any security interests, liens or other claims by
such persons to the Collateral and agreements permitting Lender access to, and
the right to remain on, the premises to exercise its rights and remedies and
otherwise deal with the Collateral;
(f) Lender shall have received evidence of insurance and loss
payee endorsements required hereunder and under the other Financing Agreements,
in form and substance satisfactory to Lender, and certificates of insurance
policies and/or endorsements naming Lender as loss payee;
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(g) the Excess Availability as determined by Lender, as of the
date hereof, shall be not less than $10,600,000 after giving effect to the
initial Loans made or to be made and Letter of Credit Accommodations issued or
to be issued in connection with the initial transactions hereunder;
(h) Lender shall have received evidence, in form and substance
satisfactory to Lender, that Borrower has received on the date hereof net cash
proceeds from amounts advanced to it on terms and in a manner acceptable to
Lender of not less than $1,800,000 (which Indebtedness arising from such
advances is and shall be subordinated in right of payment to the Obligations on
terms and conditions acceptable to Lender) and such proceeds are available to
be used by Borrower for working capital;
(i) Lender shall have received, in form and substance
satisfactory to Lender, an intercreditor agreement by and between Court Square
and Lender, as acknowledged and agreed to by Borrower and Guarantor, duly
authorized, executed and delivered by Court Square, Borrower and Guarantor,
providing for, inter alia, the subordination in right of payment of
Indebtedness of Borrower to Court Square to the prior indefeasible payment and
satisfaction in full of the Obligations and such parties' relative rights and
priorities with respect to the assets and properties of Borrower and its
Subsidiaries;
(j) Lender shall have received, in form and substance
satisfactory to Lender, an intercreditor agreement by and between Factor and
Lender, as acknowledged and agreed to by Borrower, duly authorized, executed
and delivered by Factor and Borrower, providing for, inter alia, the remittance
by Factor of Receivables Sales Proceeds to Lender;
(k) Lender shall have received, in form and substance
satisfactory to Lender, the amendments to the Factoring Agreement, duly
authorized, executed and delivered by Factor and Borrower, which amendments
shall provide, inter alia, that Factor shall not make any loans to Borrower or
any advance or anticipated payments against monies, credit balances or other
amounts due to Borrower under the Factoring Agreement;
(l) Lender shall have received environmental audits of
Borrower's plants and the Real Property conducted by an independent
environmental engineering firm acceptable to Lender, and in form, scope and
methodology satisfactory to Lender, confirming (i) Borrower is in compliance
with all material applicable Environmental Laws and (ii) the absence of any
material environmental problems;
(m) Lender shall have received, in form and substance
satisfactory to Lender, such opinion letters of counsel to Borrower with
respect to the Financing Agreements and such other matters as Lender may
request; and
(n) the other Financing Agreements and all instruments and
documents hereunder and thereunder shall have been duly executed and delivered
to Lender, in form and substance satisfactory to Lender.
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4.2 Conditions Precedent to All Loans and Letter of Credit
Accommodations. Each of the following is an additional condition precedent to
Lender making Loans and/or providing Letter of Credit Accommodations to
Borrower, including the initial Loans and Letter of Credit Accommodations and
any future Loans and Letter of Credit Accommodations:
(a) all representations and warranties contained herein and in
the other Financing Agreements shall be true and correct in all material
respects with the same effect as though such representations and warranties had
been made on and as of the date of the making of each such Loan or providing
each such Letter of Credit Accommodation and after giving effect thereto; and
(b) no Event of Default and no act, condition or event which,
with notice or passage of time or both, would constitute an Event of Default,
shall exist or have occurred and be continuing on and as of the date of the
making of such Loan or providing each such Letter of Credit Accommodation and
after giving effect thereto.
SECTION 5. GRANT OF SECURITY INTEREST
5.1 To secure payment and performance of all Obligations, Borrower
hereby grants to Lender a continuing security interest in, a lien upon, and a
right of set off against, and hereby assigns to Lender as security, the
following property and interests in property of Borrower, whether now owned or
hereafter acquired or existing, and wherever located (collectively, the
"Collateral"):
(a) Accounts;
(b) all present and future contract rights, general intangibles
(including Receivables Sales Proceeds), tax and duty refunds, registered and
unregistered patents, trademarks, service marks, copyrights, trade names,
applications for the foregoing, trade secrets, good will, processes, drawings,
blueprints, customer lists, licenses, whether as licensor or licensee, choses
in action and other claims and existing and future leasehold interests in
equipment, real estate and fixtures), chattel paper, documents, instruments,
letters of credit, bankers' acceptances and guaranties;
(c) all present and future monies, securities and other
investment property, credit balances, deposits, deposit accounts and other
property of Borrower now or hereafter held or received by or in transit to
Lender or its Affiliates or at any other depository or other institution from
or for the account of Borrower, whether for safekeeping, pledge, custody,
transmission, collection or otherwise, and all present and future liens,
security interests, rights, remedies, title and interest in, to and in respect
of Accounts and other Collateral, including (i) rights and remedies under or
relating to guaranties, contracts of suretyship, letters of credit and credit
and other insurance related to the Collateral, (ii) rights of stoppage in
transit, replevin, repossession, reclamation and other rights and remedies of
an unpaid vendor, lienor
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or secured party, (iii) goods described in invoices, documents, contracts or
instruments with respect to, or otherwise representing or evidencing, Accounts
or other Collateral, including returned, repossessed and reclaimed goods, and
(iv) deposits by and property of account debtors or other persons securing the
obligations of account debtors;
(d) Inventory;
(e) Equipment;
(f) Real Property;
(g) Records; and
(h) all products and proceeds of the foregoing, in any form,
including insurance proceeds and any claims against third parties for loss or
damage to or destruction of any or all of the foregoing.
5.2 Notwithstanding anything to the contrary set forth in Section 5.1
above, the types or items of Collateral described in such Section shall not
include any rights or interests in any lease covering Real Property, as such,
if under the terms of such lease, the valid grant of a security interest or
lien therein to Lender is prohibited and such prohibition has not been or is
not waived or the consent of the other party to such lease has not been or is
not otherwise obtained or under applicable law such prohibition cannot be
waived.
SECTION 6. COLLECTION AND ADMINISTRATION
6.1 Borrower's Loan Account. Lender shall maintain one or more loan
account(s) on its books in which shall be recorded (a) all Loans, Letter of
Credit Accommodations and other Obligations and the Collateral, (b) all
payments made by or on behalf of Borrower and (c) all other appropriate debits
and credits as provided in this Agreement, including fees, charges, costs,
expenses and interest. All entries in the loan account(s) shall be made in
accordance with Lender's customary practices as in effect from time to time.
6.2 Statements. Lender shall render to Borrower each month a
statement setting forth the balance in the Borrower's loan account(s)
maintained by Lender for Borrower pursuant to the provisions of this Agreement,
including principal, interest, fees, costs and expenses. Each such statement
shall be subject to subsequent adjustment by Lender but shall, absent manifest
errors or omissions, be considered correct and deemed accepted by Borrower and
conclusively binding upon Borrower as an account stated except to the extent
that Lender receives a written notice from Borrower of any specific exceptions
of Borrower thereto within thirty (30) days after the date such statement has
been mailed by Lender. Until such time as Lender shall have rendered to
Borrower a written statement as provided above, the balance in Borrower's loan
account(s) shall be presumptive evidence of the amounts due and owing to Lender
by Borrower.
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6.3 Collection of Accounts.
(a) Borrower shall establish and maintain, at its expense,
blocked accounts or lockboxes and related blocked accounts (in either case,
"Blocked Accounts"), as Lender may specify, with such banks as are acceptable
to Lender into which Borrower shall promptly deposit and direct its account
debtors to directly remit all payments on Accounts and all payments
constituting proceeds of Inventory or other Collateral in the identical form in
which such payments are made, whether by cash, check or other manner. The
banks at which the Blocked Accounts are established shall enter into an
agreement, in form and substance satisfactory to Lender, providing that all
items received or deposited in the Blocked Accounts are the property of Lender,
that the depository bank has no lien upon, or right to setoff against, the
Blocked Accounts, the items received for deposit therein, or the funds from
time to time on deposit therein and that the depository bank will wire, or
otherwise transfer, in immediately available funds, on a daily basis, all funds
received or deposited into the Blocked Accounts to such bank account of Lender
as Lender may from time to time designate for such purpose ("Payment Account").
Borrower agrees that all payments made to such Blocked Accounts or other funds
received and collected by Lender, whether on the Accounts or as proceeds of
Inventory or other Collateral or otherwise shall be the property of Lender to
the extent of the Obligations.
(b) For purposes of calculating the amount of the Loans
available to Borrower, such payments will be applied (conditional upon final
collection) to the Obligations on the Business Day of receipt by Lender of
immediately available funds in the Payment Account provided such payments and
notice thereof are received in accordance with Lender's usual and customary
practices as in effect from time to time and within sufficient time to credit
Borrower's loan account on such day, and if not, then on the next Business Day.
For the purposes of calculating interest on the Obligations, such payments or
other funds received will be applied (conditional upon final collection) to the
Obligations one (1) Business Day following the date of receipt of immediately
available funds by Lender in the Payment Account provided such payments or
other funds and notice thereof are received in accordance with Lender's usual
and customary practices as in effect from time to time and within sufficient
time to credit Borrower's loan account on such day, and if not, then on the
next Business Day.
(c) Borrower and all of its shareholders, directors, employees,
agents or other Affiliates shall, acting as trustee for Lender, receive, as the
property of Lender, any monies, checks, notes, drafts or any other payment
relating to and/or proceeds of Accounts or other Collateral which come into
their possession or under their control and immediately upon receipt thereof,
shall deposit or cause the same to be deposited in the Blocked Accounts, or
remit the same or cause the same to be remitted, in kind, to Lender. In no
event shall the same be commingled with Borrower's own funds. Borrower agrees
to reimburse Lender on demand for any amounts owed or paid to any bank at which
a Blocked Account is established or any other bank or person involved in the
transfer of funds to or from the Blocked Accounts arising out of Lender's
payments to or indemnification of such bank or person. The
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obligation of Borrower to reimburse Lender for such amounts pursuant to this
Section 6.3 shall survive the termination or non-renewal of this Agreement.
6.4 Payments. All Obligations shall be payable to the Payment
Account as provided in Section 6.3 or such other place as Lender may designate
from time to time. Lender may apply payments received or collected from
Borrower or for the account of Borrower (including the monetary proceeds of
collections or of realization upon any Collateral) to such of the Obligations,
whether or not then due, in such order and manner as Lender determines;
provided, that, so long as no Event of Default, or act, condition or event
which with notice or passage of time or both, exists or has occurred and is
continuing, Lender shall not apply any such payments or collections to the
Obligations in respect of the Term Loan not then due. At Lender's option, all
principal, interest, fees, costs, expenses and other charges provided for in
this Agreement or the other Financing Agreements may be charged directly to the
loan account(s) of Borrower. Borrower shall make all payments to Lender on the
Obligations free and clear of, and without deduction or withholding for or on
account of, any setoff, counterclaim, defense, duties, taxes, levies, imposts,
fees, deductions, withholding, restrictions or conditions of any kind. If
after receipt of any payment of, or proceeds of Collateral applied to the
payment of, any of the Obligations, Lender is required to surrender or return
such payment or proceeds to any Person for any reason, then the Obligations
intended to be satisfied by such payment or proceeds shall be reinstated and
continue and this Agreement shall continue in full force and effect as if such
payment or proceeds had not been received by Lender. Borrower shall be liable
to pay to Lender, and does hereby indemnify and hold Lender harmless for the
amount of any payments or proceeds surrendered or returned. This Section 6.4
shall remain effective notwithstanding any contrary action which may be taken
by Lender in reliance upon such payment or proceeds. This Section 6.4 shall
survive the payment of the Obligations and the termination or non-renewal of
this Agreement.
6.5 Authorization to Make Loans. Lender is authorized to make the
Loans and provide the Letter of Credit Accommodations based upon telephonic or
other instructions received from anyone purporting to be an officer of Borrower
or other authorized person or, at the discretion of Lender, if such Loans are
necessary to satisfy any Obligations. All requests for Loans or Letter of
Credit Accommodations hereunder shall specify the date on which the requested
advance is to be made or Letter of Credit Accommodations established (which day
shall be a Business Day) and the amount of the requested Loan. Requests
received after 11:00 a.m. Chicago time on any day shall be deemed to have been
made as of the opening of business on the immediately following Business Day.
All Loans and Letter of Credit Accommodations under this Agreement shall be
conclusively presumed to have been made to, and at the request of and for the
benefit of, Borrower when deposited to the credit of Borrower or otherwise
disbursed or established in accordance with the instructions of Borrower or in
accordance with the terms and conditions of this Agreement.
6.6 Use of Proceeds. Borrower shall use the initial proceeds of the
Loans provided by Lender to Borrower hereunder only for: (a) payments to each
of the persons listed in the disbursement direction letter furnished by
Borrower to Lender on or about the date hereof and (b) costs, expenses and fees
in connection with the preparation, negotiation, execution and
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delivery of this Agreement and the other Financing Agreements. All other Loans
made or Letter of Credit Accommodations provided by Lender to Borrower pursuant
to the provisions hereof shall be used by Borrower only for general operating,
working capital and other proper corporate purposes of Borrower not otherwise
prohibited by the terms hereof. None of the proceeds will be used, directly or
indirectly, for the purpose of purchasing or carrying any margin security or
for the purposes of reducing or retiring any indebtedness which was originally
incurred to purchase or carry any margin security or for any other purpose
which might cause any of the Loans to be considered a "purpose credit" within
the meaning of Regulation G of the Board of Governors of the Federal Reserve
System, as amended.
SECTION 7. COLLATERAL REPORTING AND COVENANTS
7.1 Collateral Reporting. Borrower shall provide Lender with the
following documents in a form satisfactory to Lender: (a) on a daily basis, a
schedule of sales made, credits issued and cash received; (b) on a monthly
basis or more frequently as Lender may request, (i) perpetual inventory reports
by category and by location, (and including, without limitation, identifying
any goods held by Borrower under consignment or similar arrangements in such
detail as Lender may request and Inventory of Borrower held by third parties
pursuant to consignment or similar arrangements in such detail as Lender may
request), (ii) agings of accounts receivable by Account, and (iii) agings of
accounts payable by Account, (c) upon Lender's request, (i) copies of customer
statements and credit memos, remittance advices and reports, and copies of
deposit slips and bank statements, (ii) copies of shipping and delivery
documents, and (iii) copies of purchase orders, invoices and delivery documents
for Inventory and Equipment acquired by Borrower and (d) such other reports as
to the Collateral as Lender shall request from time to time. If any of
Borrower's records or reports of the Collateral are prepared or maintained by
an accounting service, contractor, shipper or other agent, Borrower hereby
irrevocably authorizes such service, contractor, shipper or agent to deliver
such records, reports, and related documents to Lender and to follow Lender's
instructions with respect to further services at any time that an Event of
Default exists or has occurred and is continuing.
7.2 Accounts Covenants.
(a) Borrower shall notify Lender promptly of: (i) any material
delay in Borrower's performance of any of its material obligations to any
account debtor, (ii) the assertion of any claims, offsets, defenses or
counterclaims by any account debtor, or any disputes with account debtors, or
any settlement, adjustment or compromise thereof, not yet reported to Lender
and involving an amount in excess of $50,000 for all such matters with any one
account debtor or $200,000 in the aggregate for all such matters with all
account debtors, (iii) all material adverse information known to Borrower
relating to the financial condition of any account debtor of Borrower and (iv)
any event or circumstance which, to Borrower's knowledge would cause Lender to
consider any then existing Accounts as no longer constituting Eligible
Accounts. No credit, discount, allowance or extension or agreement for any of
the foregoing shall be granted to any account debtor without Lender's
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consent, except in the ordinary course of Borrower's business in accordance
with practices and policies previously disclosed in writing to Lender. So long
as no Event of Default exists or has occurred and is continuing, Borrower shall
settle, adjust or compromise any claim, offset, counterclaim or dispute with
any account debtor. At any time that an Event of Default exists or has
occurred and is continuing, Lender shall, at its option, have the exclusive
right to settle, adjust or compromise any claim, offset, counterclaim or
dispute with account debtors or grant any credits, discounts or allowances.
(b) Borrower shall promptly report to Lender any return of
Inventory by any one account debtor if the inventory so returned in such case
has a value in excess of $25,000. At any time that Inventory is returned,
reclaimed or repossessed, the Account (or portion thereof) which arose from the
sale of such returned, reclaimed or repossessed Inventory shall not be deemed
an Eligible Account. In the event any account debtor returns Inventory when an
Event of Default exists or has occurred and is continuing, Borrower shall, upon
Lender's request, (i) hold the returned Inventory in trust for Lender, (ii)
segregate all returned Inventory from all of its other property, (iii) dispose
of the returned Inventory solely according to Lender's instructions, and (iv)
not issue any credits, discounts or allowances with respect thereto without
Lender's prior written consent.
(c) With respect to each Account: (i) the amounts shown on any
invoice delivered to Lender or schedule thereof delivered to Lender shall be
true and complete, (ii) no payments shall be made thereon except payments
immediately delivered to Lender pursuant to the terms of this Agreement, (iii)
no credit, discount, allowance or extension or agreement for any of the
foregoing shall be granted to any account debtor except as reported to Lender
in accordance with this Agreement and except for credits, discounts, allowances
or extensions made or given in the ordinary course of Borrower's business in
accordance with practices and policies previously disclosed to Lender, (iv)
there shall be no setoffs, deductions, contras, defenses, counterclaims or
disputes existing or asserted with respect thereto except as reported to Lender
in accordance with the terms of this Agreement, (v) none of the transactions
giving rise thereto will violate any applicable State or Federal laws or
regulations, all documentation relating thereto will be legally sufficient
under such laws and regulations and all such documentation will be legally
enforceable in accordance with its terms, subject to the effect on
enforceability of (A) any bankruptcy, reorganization, moratorium or similar
laws affecting enforcement of creditors' rights generally and (B) the
application of general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at law).
(d) Lender shall have the right at any time or times, in
Lender's name or in the name of a nominee of Lender, to verify the validity,
amount or any other matter relating to any Account or other Collateral, by
mail, telephone, facsimile transmission or otherwise.
(e) Borrower shall deliver or cause to be delivered to Lender,
with appropriate endorsement and assignment, with full recourse to Borrower,
all chattel paper and instruments which Borrower now owns or may at any time
acquire immediately upon Borrower's receipt thereof, except as Lender may
otherwise agree.
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(f) Lender may, at any time or times that an Event of Default
exists or has occurred and is continuing, (i) notify any or all account debtors
that the Accounts have been assigned to Lender and that Lender has a security
interest therein and Lender may direct any or all accounts debtors to make
payment of Accounts directly to Lender, (ii) extend the time of payment of,
compromise, settle or adjust for cash, credit, return of merchandise or
otherwise, and upon any terms or conditions, any and all Accounts or other
obligations included in the Collateral and thereby discharge or release the
account debtor or any other party or parties in any way liable for payment
thereof without affecting any of the Obligations, (iii) demand, collect or
enforce payment of any Accounts or such other obligations, but without any duty
to do so, and Lender shall not be liable for its failure to collect or enforce
the payment thereof nor for the negligence of its agents or attorneys with
respect thereto; provided, that, such agents or attorneys are selected with due
care and (iv) take whatever other action Lender may deem necessary or desirable
for the protection of its interests. At any time that an Event of Default
exists or has occurred and is continuing, at Lender's request, all invoices and
statements sent to any account debtor shall state that the Accounts and such
other obligations have been assigned to Lender and are payable directly and
only to Lender and Borrower shall deliver to Lender such originals of documents
evidencing the sale and delivery of goods or the performance of services giving
rise to any Accounts as Lender may require.
7.3 Inventory Covenants. With respect to the Inventory: (a) Borrower
shall at all times maintain inventory records reasonably satisfactory to
Lender, keeping correct and accurate records itemizing and describing the kind,
type, quality and quantity of Inventory, Borrower's cost therefor and daily
withdrawals therefrom and additions thereto; (b) Borrower shall conduct a
physical count of the Inventory at least once each year, but at any time or
times as Lender may request on or after an Event of Default, and promptly
following such physical inventory shall supply Lender with a report in the form
and with such specificity as may be reasonably satisfactory to Lender
concerning such physical count; (c) Borrower shall not remove any Inventory
from the locations set forth or permitted herein, without the prior written
consent of Lender, except for sales of Inventory in the ordinary course of
Borrower's business and except to move Inventory directly from one location set
forth or permitted herein to another such location; (d) upon Lender's request,
Borrower shall, at its expense, no more than twice in any twelve (12) month
period, but at any time or times as Lender may request on or after an Event of
Default and for so long as the same is continuing, deliver or cause to be
delivered to Lender written reports or appraisals as to the Inventory in form,
scope and methodology acceptable to Lender and by an appraiser acceptable to
Lender, addressed to Lender or upon which Lender is expressly permitted to
rely; (e) Borrower shall produce, use, store and maintain the Inventory with
all reasonable care and caution and in accordance with applicable standards of
any insurance and in conformity with applicable laws (including the
requirements of the Federal Fair Labor Standards Act of 1938, as amended and
all rules, regulations and orders related thereto); (f) Borrower assumes all
responsibility and liability arising from or relating to the production, use,
sale or other disposition of the Inventory; (g) Borrower shall not sell
Inventory to any customer on approval, or any other basis which entitles the
customer to return or may obligate Borrower to repurchase such Inventory; (h)
Borrower shall keep the Inventory in good and marketable condition; and (i)
Borrower
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shall not, without prior written notice to Lender, acquire or accept Inventory
having a value in any one case or in the aggregate in excess of $1,000,000 on
consignment or approval.
7.4 Equipment Covenants. With respect to the Equipment: (a) upon
Lender's request, Borrower shall, at its expense, at any time or times as
Lender may request on or after an Event of Default, deliver or cause to be
delivered to Lender written reports or appraisals as to the Equipment in form,
scope and methodology acceptable to Lender and by an appraiser acceptable to
Lender, addressed to Lender or upon which Lender is expressly permitted to
rely; (b) Borrower shall keep the Equipment in good order, repair, running and
marketable condition (ordinary wear and tear excepted); (c) Borrower shall use
the Equipment with all reasonable care and caution and in accordance with
applicable standards of any insurance and in conformity with all applicable
laws; (d) the Equipment is and shall be used in Borrower's business and not for
personal, family, household or farming use; (e) Borrower shall not remove any
Equipment from the locations set forth or permitted herein, except to the
extent necessary to have any Equipment repaired or maintained in the ordinary
course of the business of Borrower or to move Equipment directly from one
location set forth or permitted herein to another such location and except for
the movement of motor vehicles used by or for the benefit of Borrower in the
ordinary course of business; (f) the Equipment is now and shall remain personal
property and Borrower shall not permit any of the Equipment to be or become a
part of or affixed to real property; and (g) Borrower assumes all
responsibility and liability arising from the use of the Equipment.
7.5 Power of Attorney. Borrower hereby irrevocably designates and
appoints Lender (and all persons designated by Lender) as Borrower's true and
lawful attorney-in-fact, and authorizes Lender, in Borrower's or Lender's name,
to: (a) at any time an Event of Default or event which with notice or passage
of time or both would constitute an Event of Default exists or has occurred and
is continuing (i) demand payment on Accounts or other proceeds of Inventory or
other Collateral, (ii) enforce payment of Accounts by legal proceedings or
otherwise, (iii) exercise all of Borrower's rights and remedies to collect any
Account or other Collateral, (iv) sell or assign any Account upon such terms,
for such amount and at such time or times as the Lender deems advisable, (v)
settle, adjust, compromise, extend or renew an Account, (vi) discharge and
release any Account, (vii) prepare, file and sign Borrower's name on any proof
of claim in bankruptcy or other similar document against an account debtor,
(viii) notify the post office authorities to change the address for delivery of
Borrower's mail to an address designated by Lender, and open and dispose of all
mail addressed to Borrower, and (ix) do all acts and things which are
necessary, in Lender's determination, to fulfill Borrower's obligations under
this Agreement and the other Financing Agreements and (b) at any time to (i)
take control in any manner of any item of payment or proceeds thereof deposited
or received for credit to the Blocked Accounts or constituting part of the
Collateral or otherwise received by Lender, (ii) have access to any lockbox or
postal box into which Borrower's customer remittances are sent and the contents
thereof, (iii) endorse Borrower's name upon any items of payment or proceeds
thereof deposited or received for credit to the Blocked Accounts or
constituting part of the Collateral or otherwise received by Lender and
transfer the same to, or deposit the same in the account of Lender for
application to the Obligations, (iv) endorse Borrower's name upon any chattel
paper, document, instrument,
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invoice, or similar document or agreement relating to any Account or any goods
pertaining thereto or any other Collateral, (v) sign Borrower's name on any
verification of Accounts and notices thereof to account debtors and (vi)
execute in Borrower's name and file any UCC financing statements or amendments
thereto. Borrower hereby releases Lender and its officers, employees and to
the extent selected with due care, their agents from any liabilities arising
from any act or acts under this power of attorney and in furtherance thereof,
whether of omission or commission, except as a result of their own gross
negligence or willful misconduct as determined pursuant to a final
non-appealable order of a court of competent jurisdiction.
7.6 Right to Cure. Lender may, at its option, (a) cure any default
by Borrower under any agreement with a third party or pay or bond on appeal any
judgment entered against Borrower, (b) discharge taxes, liens, security
interests or other encumbrances at any time levied on or existing with respect
to the Collateral and (c) pay any amount, incur any expense or perform any act
which, in Lender's good faith judgment, is necessary or appropriate to
preserve, protect, insure or maintain the Collateral and the rights of Lender
with respect thereto. Lender may add any amounts so expended to the
Obligations and charge Borrower's account therefor, such amounts to be
repayable by Borrower on demand. Lender shall be under no obligation to effect
such cure, payment or bonding and shall not, by doing so, be deemed to have
assumed any obligation or liability of Borrower. Any payment made or other
action taken by Lender under this Section shall be without prejudice to any
right to assert an Event of Default hereunder and to proceed accordingly.
7.7 Access to Premises. From time to time as requested by Lender, at
the reasonable cost and expense of Borrower, (a) Lender or its designee shall
have complete access to all of Borrower's premises during normal business hours
and after notice to Borrower, or at any time and without notice to Borrower if
an Event of Default exists or has occurred and is continuing, for the purposes
of inspecting, verifying and auditing the Collateral and all of Borrower's
books and records, including the Records, and (b) Borrower shall promptly
furnish to Lender such copies of such books and records or extracts therefrom
as Lender may request, and (c) use during normal business hours such of
Borrower's personnel, equipment, supplies and premises as may be reasonably
necessary for the foregoing and if an Event of Default exists or has occurred
and is continuing for the collection of Accounts and realization of other
Collateral; provided, that, in exercising the rights under clauses (b) and (c)
of this Section 7.7, Lender and its designees will, so long as no Event of
Default exists or has occurred and is continuing, use reasonable efforts not to
unnecessarily interfere with the conduct of Borrower's business.
SECTION 8. REPRESENTATIONS AND WARRANTIES
Borrower hereby represents and warrants to Lender the following (which
shall survive the execution and delivery of this Agreement), the truth and
accuracy of which are a continuing condition of the making of Loans and
providing Letter of Credit Accommodations by Lender to Borrower:
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8.1 Corporate Existence, Power and Authority; Subsidiaries. Borrower
is a corporation duly organized and in good standing under the laws of its
state of incorporation and is duly qualified as a foreign corporation and in
good standing in all states or other jurisdictions where the nature and extent
of the business transacted by it or the ownership of assets makes such
qualification necessary where the failure to so qualify would have a Material
Adverse Effect. The execution, delivery and performance of this Agreement, the
other Financing Agreements and the transactions contemplated hereunder and
thereunder are all within Borrower's corporate powers, have been duly
authorized and are not in contravention of law or the terms of Borrower's
certificate of incorporation, by-laws, or other organizational documentation,
or any indenture, material agreement or undertaking to which Borrower is a
party or by which Borrower or its property are bound. This Agreement and the
other Financing Agreements constitute legal, valid and binding obligations of
Borrower enforceable in accordance with their respective terms. Borrower does
not have any Subsidiaries except as set forth on the Information Certificate.
8.2 Financial Statements; No Material Adverse Change. All financial
statements relating to Borrower which have been or may hereafter be delivered
by or on behalf of Borrower to Lender have been prepared consistent with GAAP
and fairly present the financial condition and the results of operation of
Borrower as at the dates and for the periods set forth therein, subject to the
footnotes and departures from GAAP set forth therein. Except as disclosed in
any interim financial statements furnished by or on behalf of Borrower to
Lender prior to the date of this Agreement, there has been no material adverse
change in the assets, liabilities, properties and condition, financial or
otherwise, of Borrower, since the date of the most recent audited financial
statements furnished by or on behalf of Borrower to Lender prior to the date of
this Agreement.
8.3 Chief Executive Office; Collateral Locations. The chief
executive office of Borrower and Borrower's Records concerning Accounts are
located only at the address set forth below and its only other places of
business and the only other locations of Collateral, if any, are the addresses
set forth in the Information Certificate, subject to the right of Borrower to
establish new locations in accordance with Section 9.2 below. The Information
Certificate correctly identifies any of such locations which are not owned by
Borrower and sets forth the owners and/or operators thereof.
8.4 Priority of Liens; Title to Properties. The security interests
and liens granted to Lender under this Agreement and the other Financing
Agreements constitute valid and perfected first priority liens and security
interests in and upon the Collateral subject only to the liens indicated on
Schedule 8.4 hereto and the other liens permitted under Section 9.8 hereof
other than Collateral consisting of motor vehicles owned by Borrower; provided,
that, at the request of Lender, Borrower shall, in form and substance
satisfactory to Lender, note on the certificates of title of any of Borrower's
motor vehicles the security interest of Lender or otherwise comply with
applicable certificate of title statutes so as to perfect the security interest
of Lender therein. Borrower has good and marketable title to all of its
properties and assets subject to no liens, mortgages, pledges, security
interests, encumbrances or charges of
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any kind, except those granted to Lender and such others as are specifically
listed on Schedule 8.4 hereto or permitted under Section 9.8 hereof.
8.5 Tax Returns. Borrower has filed, or caused to be filed, in a
timely manner all tax returns, reports and declarations which are required to
be filed by it (without requests for extension except as previously disclosed
in writing to Lender). All information in such tax returns, reports and
declarations is complete and accurate in all material respects. Borrower has
paid or caused to be paid all taxes due and payable or claimed due and payable
in any assessment received by it and has withheld, collected and remitted all
employee liabilities and contributions for income tax, pension plan,
unemployment insurance and other similar liabilities arising under Federal,
State, Provincial or other local law, except, in each case, taxes the validity
of which are being contested in good faith by appropriate proceedings
diligently pursued and available to Borrower and with respect to which adequate
reserves have been set aside on its books. Adequate provision has been made
for the payment of all accrued and unpaid Federal, State, county, local,
foreign and other taxes whether or not yet due and payable and whether or not
disputed.
8.6 Litigation. Except as set forth on the Information Certificate,
there is no present investigation by any Governmental Authority pending, or to
the best of Borrower's knowledge threatened, against or affecting Borrower, its
assets or business and there is no action, suit, proceeding or claim by any
Person pending, or to the best of Borrower's knowledge threatened, against
Borrower or its assets or goodwill, or against or affecting any transactions
contemplated by this Agreement, which if adversely determined against Borrower
has or has a reasonable likelihood of having a Material Adverse Effect.
8.7 Intellectual Property. Borrower owns or licenses all material
patents, trademarks, service-marks, logos, trade names, trade secrets,
know-how, copyrights, or licenses and other rights with respect to any of the
foregoing, which are necessary for the operation of its business as presently
conducted or proposed to be conducted. To the best of the knowledge of
Borrower, no product, process, method, substance, part or other material
presently contemplated to be sold by or employed by Borrower infringes any
patent, trademark, service-▇▇▇▇, trade name, copyright, license or other right
owned by any other Person and no claim or litigation is pending or to the best
of the knowledge of Borrower, threatened against or affecting Borrower
contesting its right to sell or use any such product, process, method,
substance, part or other material which has or has a reasonable likelihood of
having a Material Adverse Effect.
8.8 Compliance with Other Agreements and Applicable Laws. Borrower
is not in default under, or in violation of any of the terms of, any agreement,
contract, instrument, lease or other commitment to which it is a party or by
which it or any of its assets are bound where such default or violation has or
has a reasonable likelihood of having a Material Adverse Effect and Borrower is
in compliance in all respects with all applicable provisions of laws, rules,
regulations, licenses, permits, approvals and orders of any foreign, Federal,
State or local Governmental Authority where such failure to comply would have a
Material Adverse Effect.
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8.9 Employee Benefits.
(a) Borrower has not engaged in any transaction in connection
with which Borrower or any of its ERISA Affiliates could be subject to either a
civil penalty assessed pursuant to Section 502(i) of ERISA or a tax imposed by
Section 4975 of the Code where such penalty or tax could be more than $100,000
in any one case or $250,000 in the aggregate.
(b) No liability to the Pension Benefit Guaranty Corporation
has been or is expected by Borrower to be incurred with respect to any employee
benefit plan of Borrower or any of its ERISA Affiliates where such liability
has or has a reasonable likelihood of having a Material Adverse Effect. There
has been no reportable event (within the meaning of Section 4043(b) of ERISA)
or any other event or condition with respect to any employee pension benefit
plan of Borrower or any of its ERISA Affiliates which presents a risk of
termination of any such plan by the Pension Benefit Guaranty Corporation.
(c) Except as set forth on Schedule 8.9 hereto, full payment
has been made of all amounts which Borrower or any of its ERISA Affiliates is
required under Section 302 of ERISA and Section 412 of the Code to have paid
under the terms of each employee benefit plan as contributions to such plan as
of the last day of the most recent fiscal year of such plan ended prior to the
date hereof, and no accumulated funding deficiency (as defined in Section 302
of ERISA and Section 412 of the Code), whether or not waived, exists with
respect to any employee benefit plan.
(d) Except as set forth on Schedule 8.9 hereto, the current
value of all vested accrued benefits under all employee benefit plans
maintained by Borrower that are subject to Title IV of ERISA does not exceed
the current value of the assets of such plans allocable to such vested accrued
benefits. The terms "current value" and "accrued benefit" have the meanings
specified in ERISA.
(e) Neither Borrower nor any of its ERISA Affiliates is or has
ever been obligated to contribute to any "multiemployer plan" (as such term is
defined in Section 4001(a)(3) of ERISA) that is subject to Title IV of ERISA.
8.10 Environmental Compliance.
(a) Except as set forth on Schedule 8.10 hereto, (i) Borrower
has not generated, used, stored, treated, transported, manufactured, handled,
produced or disposed of any Hazardous Materials, on or off its premises
(whether or not owned by it) in any manner which at any time violates any
applicable Environmental Law or any license, permit, certificate, approval or
similar authorization thereunder in any manner which has or has a reasonable
likelihood of having a Material Adverse Effect and (ii) the operations of
Borrower comply in all respects with all Environmental Laws and all licenses,
permits, certificates, approvals and similar authorizations thereunder where
the failure to so comply has or has a reasonable likelihood of having a
Material Adverse Effect.
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(b) Except as set forth on Schedule 8.10 hereto, there has been
no investigation, proceeding, complaint, order, directive, claim, citation or
notice of violation by any Governmental Authority or any other person nor is
any pending or to the best knowledge of Borrower threatened, with respect to
any non-compliance with or violation of the requirements of any Environmental
Law by Borrower or the release, spill or discharge, threatened or actual, of
any Hazardous Material or the generation, use, storage, treatment,
transportation, manufacture, handling, production or disposal of any Hazardous
Materials or any other environmental, health or safety matter, which affects
Borrower or its business, operations or assets or any properties at which
Borrower has transported, stored or disposed of any Hazardous Materials, which
has or has a reasonable likelihood of having a Material Adverse Effect.
(c) Except as set forth on Schedule 8.10 hereto, Borrower has
no liability (contingent or otherwise) in connection with a release, spill or
discharge, threatened or actual, of any Hazardous Materials or the generation,
use, storage, treatment, transportation, manufacture, handling, production or
disposal of any Hazardous Materials, which has or has a reasonable likelihood
of having a Material Adverse Effect.
(d) Except as set forth on Schedule 8.10 hereto, Borrower has
all licenses, permits, certificates, approvals or similar authorizations
required to be obtained or filed in connection with the operations of Borrower,
under any Environmental Law, where the failure to obtain, file or maintain as
valid and effective any such licenses, permits, certificates, approvals or
similar authorizations has or has a reasonable likelihood of having a Material
Adverse Effect. All of such licenses, permits, certificates, approvals or
similar authorizations are valid and in full force and effect.
8.11 Governmental Authority. No consent, approval or other action of,
or filing with, or notice to any Governmental Authority is required in
connection with the execution, delivery and performance of this Agreement, the
other Financing Agreements or any of the instruments or documents to be
delivered pursuant hereto or thereto, except for those consents or approvals
already obtained by Borrower and the filing of UCC financing statements.
8.12 Bank Accounts. All of the deposit accounts, investment accounts
or other accounts in the name of or used by Borrower maintained at any bank or
other financial institution are set forth on Schedule 8.12 hereto, subject to
the right of Borrower to establish new accounts in accordance with Section 9.13
below.
8.13 Capitalization. All of the issued and outstanding shares of
Capital Stock of Guarantor are directly and beneficially owned and held as of
the date hereof by Fairwood. A majority of the issued and outstanding shares
of Capital Stock of Fairwood are owned and held by 399 Venture Partners, Inc.,
an Affiliate of CVC. All of the issued and outstanding shares of Capital Stock
of Guarantor have been duly authorized and are fully paid and non-assessable,
free and clear or all claims, liens, pledges and encumbrances of any kind,
except in favor of Lender and as permitted hereunder. All of issued and
outstanding shares of Capital Stock of Borrower are directly and beneficially
owned and held by Guarantor and all
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of such shares have been duly authorized and are fully paid and non-assessable,
free and clear of all claims, liens, pledges and encumbrances of any kind,
except in favor of Lender and as permitted hereunder.
8.14 Accuracy and Completeness of Information. All information
furnished by or on behalf of Borrower in writing to Lender in connection with
this Agreement or any of the other Financing Agreements or any transaction
contemplated hereby or thereby, including all information on the Information
Certificate is true and correct in all material respects on the date as of
which such information is dated or certified and does not omit any material
fact necessary in order to make such information not misleading. No event or
circumstance has occurred which has had or could reasonably be expected to have
a material adverse affect on the business, assets or prospects of Borrower,
which has not been fully and accurately disclosed to Lender in writing.
8.15 Survival of Warranties; Cumulative. All representations and
warranties contained in this Agreement or any of the other Financing Agreements
shall survive the execution and delivery of this Agreement and shall be deemed
to have been made again to Lender on the date of each additional borrowing or
other credit accommodation hereunder (except with respect to any representation
or warranty expressly stated to have been made as of a specified date, which
shall only be made as of such specified date) and shall be conclusively
presumed to have been relied on by Lender regardless of any investigation made
or information possessed by Lender. The representations and warranties set
forth herein shall be cumulative and in addition to any other representations
or warranties which Borrower shall now or hereafter give, or cause to be given,
to Lender.
SECTION 9. AFFIRMATIVE AND NEGATIVE COVENANTS
9.1 Maintenance of Existence. Borrower shall at all times preserve,
renew and keep in full, force and effect its corporate existence and rights and
franchises with respect thereto and maintain in full force and effect all
permits, licenses, trademarks, tradenames, approvals, authorizations, leases
and contracts necessary to carry on the business as presently or proposed to be
conducted. Borrower shall give Lender thirty (30) days prior written notice of
any proposed change in its corporate name, which notice shall set forth the new
name and Borrower shall deliver to Lender a copy of the amendment to the
Certificate of Incorporation of Borrower providing for the name change
certified by the Secretary of State of the jurisdiction of incorporation of
Borrower as soon as it is available.
9.2 New Collateral Locations. Borrower may open, maintain or move
Inventory to any new location within the continental United States provided
Borrower (a) gives Lender thirty (30) days prior written notice of the intended
opening of any such new location and (b) executes and delivers, or causes to be
executed and delivered, to Lender such agreements, documents, and instruments
as Lender may deem reasonably necessary or desirable to protect its interests
in the Collateral or any other property which is security for the Obligations
at such location, including UCC financing statements.
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9.3 Compliance with Laws, Regulations, Etc.
(a) Borrower shall, at all times, comply in all material
respects with all laws, rules, regulations, licenses, permits, approvals and
orders applicable to it and duly observe all requirements of any Federal, State
or local Governmental Authority, including ERISA, the Occupational Safety and
Health Act of 1970, as amended, the Fair Labor Standards Act of 1938, as
amended, the code and all statutes, rules, regulations, orders, permits and
stipulations relating to environmental pollution and employee health and
safety, including all of the Environmental Laws, where the failure to so comply
with or observe such requirements has or has a reasonable likelihood of having
a Material Adverse Effect.
(b) Borrower shall establish and maintain, at its expense, a
system to assure and monitor its continued compliance with all Environmental
Laws in all of its operations, which system shall include annual reviews of
such compliance by employees or agents of Borrower who are familiar with the
requirements of the Environmental Laws. Copies of all environmental surveys,
audits, assessments, feasibility studies and results of remedial investigations
conducted or prepared by environmental consultants or professionals that may
have a material effect on the assets and properties or operations of Borrower
shall be promptly furnished, or caused to be furnished, by Borrower to Lender.
Borrower shall take prompt and appropriate action to respond to any
non-compliance with any of the Environmental Laws and shall regularly report to
Lender on such response.
(c) Borrower shall give both oral and written notice to Lender
immediately upon Borrower's receipt of any notice of, or Borrower's otherwise
obtaining knowledge of, (i) the occurrence of any event involving the release,
spill or discharge, threatened or actual, of any Hazardous Material or (ii) any
investigation, proceeding, complaint, order, directive, claims, citation or
notice with respect to: (A) any material non-compliance with or material
violation of any Environmental Law by Borrower or (B) the release, spill or
discharge, threatened or actual, of a reportable quantity of any Hazardous
Material or (C) the generation, use, storage, treatment, transportation,
manufacture, handling, production or disposal of any Hazardous Materials not in
material compliance with all Environmental Laws or (D) any other environmental,
health or safety matter, which affects Borrower or its business, operations or
assets or any properties at which Borrower transported, stored or disposed of
any Hazardous Materials in any way which has or has a reasonable likelihood of
having a Material Adverse Effect.
(d) Without limiting the generality of the foregoing, whenever
Lender reasonably determines that there is non-compliance, or any condition
which requires any action by or on behalf of Borrower in order to avoid any
material non-compliance, with any Environmental Law, Borrower shall, at
Lender's request and Borrower's expense: (i) cause an independent environmental
engineer acceptable to Lender to conduct such tests of the site where
Borrower's non-compliance or alleged non-compliance with such Environmental
Laws has occurred as to such non-compliance and prepare and deliver to Lender a
report as to such non-compliance setting forth the results of such tests, a
proposed plan for responding to any environmental problems described therein,
and an estimate of the costs thereof and (ii)
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provide to Lender a supplemental report of such engineer whenever the scope of
such non-compliance, or Borrower's response thereto or the estimated costs
thereof, shall change in any material respect.
(e) Borrower shall indemnify and hold harmless Lender, its
directors, officers, employees, agents, invitees, representatives, successors
and assigns, from and against any and all losses, claims, damages, liabilities,
costs, and expenses (including reasonable attorneys' fees and legal expenses)
directly or indirectly arising out of or attributable to the use, generation,
manufacture, reproduction, storage, release, threatened release, spill,
discharge, disposal or presence of a Hazardous Material, including the costs of
any required or necessary repair, cleanup or other remedial work with respect
to any property of Borrower and the preparation and implementation of any
closure, remedial or other required plans, except that Borrower shall not be
required to indemnify any such person for any such losses, claims, damages,
liabilities, costs and expenses directly caused by such person's own gross
negligence or willful misconduct as determined by a final, non-appealable
judgment of a court of competent jurisdiction. All representations,
warranties, covenants and indemnifications in this Section 9.3 shall survive
the payment of the Obligations and the termination or non-renewal of this
Agreement.
9.4 Payment of Taxes and Claims. Borrower shall duly pay and
discharge all taxes, assessments, contributions and governmental charges upon
or against it or its properties or assets, except for taxes the validity of
which are being contested in good faith by appropriate proceedings diligently
pursued and available to Borrower and with respect to which adequate reserves
have been set aside on its books in accordance with GAAP. Borrower shall be
liable for any tax or penalties imposed on Lender as a result of the financing
arrangements provided for herein and Borrower agrees to indemnify and hold
Lender harmless with respect to the foregoing, and to repay to Lender on demand
the amount thereof, and until paid by Borrower such amount shall be added and
deemed part of the Loans, provided, that, nothing contained herein shall be
construed to require Borrower to pay any income or franchise taxes attributable
to the income of Lender from any amounts charged or paid hereunder to Lender.
The foregoing indemnity shall survive the payment of the Obligations and the
termination or non-renewal of this Agreement.
9.5 Insurance.
(a) Borrower shall at all times, maintain with financially
sound and reputable insurers insurance with respect to the Collateral or any
other property which is security for the Obligations against loss or damage and
all other insurance of the kinds and in the amounts customarily insured against
or carried by corporations of established reputation engaged in the same or
similar businesses and similarly situated. Said policies of insurance shall be
satisfactory to Lender as to form, amount and insurer. Borrower shall furnish
certificates, policies or endorsements to Lender as Lender shall require as
proof of such insurance, and, if Borrower fails to do so, Lender is authorized,
but not required, to obtain such insurance at the expense of Borrower. All
policies shall provide for at least thirty (30) days prior written notice to
Lender of any cancellation or reduction of coverage and that
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Lender may act as attorney for Borrower in obtaining, and at any time an Event
of Default exists or has occurred and is continuing, adjusting, settling,
amending and canceling such insurance. Borrower shall cause Lender to be named
as a loss payee and an additional insured (but without any liability for any
premiums) under such insurance policies and Borrower shall obtain
non-contributory lender's loss payable endorsements to all insurance policies
in form and substance satisfactory to Lender. Such lender's loss payable
endorsements shall specify that the proceeds of such insurance shall be payable
to Lender as its interests may appear and further specify that Lender shall be
paid regardless of any act or omission by Borrower.
(b) At any time before an Event of Default or an act, condition
or event which with notice or passage of time or both, would constitute an
Event of Default exists or occurs and is continuing, Lender, at its option, may
apply the proceeds of any insurance received by Lender under Section 9.5(a)
hereof, at any time to the cost of repairs or replacement of Collateral and/or
to payment of the Obligations, whether or not then due, in any order and in
such manner as Lender may determine or hold such proceeds as cash collateral
for the Obligations; provided, that,
(i) if Borrower sustains damage, destruction or loss of
its Inventory, Lender, at its option, may apply the net amount of any such
insurance proceeds received by Lender under Section 9.5(a) hereof at any time
to the cost of repairs or replacement of such Inventory or to payment of the
outstanding amount of the Obligations, other than to the then outstanding
principal amount of the Term Loan;
(ii) if Borrower sustains damage, destruction or loss of
Equipment or any portion of the improvements on its Real Property which results
in the payment of insurance proceeds of less than the aggregate amount of
$100,000 during the term of this Agreement, Borrower shall notify Lender, and at
Borrower's option, Borrower may direct Lender (A) to release to Borrower the net
amount of such insurance proceeds received by Lender with respect thereto to be
used by Borrower for working capital or other proper corporate purposes not
otherwise prohibited by this Agreement or (B) to apply the net amount of such
insurance proceeds to repay the then-outstanding amount of the Obligations of
Borrower so long as the insurance carrier shall have waived any right of
subrogation against Borrower under its policy; and
(iii) if Borrower sustains damage, destruction or loss of
Equipment or any portion of the improvements on its Real Property which results
in the payment of insurance proceeds of more than $100,000 but less than
$500,000 during the term of this Agreement, Borrower shall notify Lender, and at
Borrower's option, Borrower shall direct Lender to apply the net amount of such
insurance proceeds received by Lender to the then-outstanding amount of the
Obligations of Borrower or to hold such insurance proceeds as cash collateral
for the Obligations, which shall be released by Lender to Borrower to pay the
cost to repair, refurbish or replace such Equipment or improvements on its Real
Property so long as, in any of the foregoing options identified in this Section
9.5(b)(iii) selected by Borrower, the insurance carrier shall have waived any
right of subrogation against Borrower under its
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policy, and in the case where Borrower elects to repair, refurbish or replace
such Equipment or improvements, then each of the following additional
conditions shall be satisfied: (A) no Event of Default or act, condition or
event which with notice or passage of time or both would constitute an Event of
Default shall exist or have occurred and be continuing during the course of
such repair, refurbishing or replacement, (B) the amount of the insurance
proceeds are sufficient, in Lender's reasonable determination, to effect such
repair, refurbishing or replacement in a satisfactory manner, (C) such proceeds
shall be used solely to repair, refurbish or replace the property so lost,
damaged or destroyed (free and clear of any security interests, liens, claims
or other encumbrances other than those permitted under Sections 9.8(b), (c),
(d) and (e) hereof), (D) the repair, refurbishing or replacement of the
property so lost, damaged or destroyed shall be commenced as soon as reasonably
practicable and shall be diligently pursued to satisfactory completion, (E) the
proceeds shall be disbursed from such cash collateral, from time to time as
needed and/or, at Lender's option, released by Lender directly to the
contractor, subcontractor, materialmen, laborers, engineers, architects and
other persons rendering services or materials to repair, refurbish or replace
the property so lost, damaged or destroyed, (F) the property so lost, damaged
or destroyed shall be repaired, refurbished or replaced so as to be of at least
equal value and substantially the same character as prior to such casualty
event, and (G) such repair, refurbishing or replacement can, in the good faith
estimate of Lender, be completed prior to the end of the then current term of
this Agreement. Upon completion of the work and payment in full therefor, or
upon the failure to commence, or diligently to continue the work, Lender may,
at Lender's option, either apply the amount of any such proceeds then or
thereafter in the possession of Lender to the payment of the Obligations or
hold such proceeds as cash collateral for the Obligations on terms and
conditions acceptable to Lender and not release such funds to Borrower.
(c) At any time after an Event of Default or an act, condition
or event which with notice or passage of time or both would constitute an Event
of Default exists or occurs and is continuing or if Borrower sustains damage,
destruction or loss of Equipment or any portion of the improvements on its Real
Property in any one case or in the aggregate amount during the term of this
Agreement in excess of $500,000, Lender, at its option, may apply the net
amount of any such insurance proceeds received by Lender under Section 9.5(a)
hereof at any time to the cost of repairs or replacement of Collateral or to
payment of the Obligations, whether or not then due, in any order and in such
manner as Lender may determine or hold such proceeds as cash collateral for the
Obligations on terms and conditions acceptable to Lender.
9.6 Financial Statements and Other Information.
(a) Borrower shall keep proper books and records in which true
and complete entries shall be made of all dealings or transactions of or in
relation to the Collateral and the business of Borrower in accordance with GAAP
and Borrower shall furnish or cause to be furnished to Lender: (i) within
thirty (30) days after the end of each fiscal month, monthly unaudited
consolidated financial statements of Borrower, and if Borrower at any time
after the date hereof has any Subsidiaries, unaudited consolidating financial
statements of Borrower and such Subsidiaries (including in each case balance
sheets, statements of income and loss,
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statements of cash flow, and statements of shareholders' equity), all in
reasonable detail, fairly presenting the financial position and the results of
the operations of Borrower as of the end of and through such fiscal month and
(ii) within ninety (90) days after the end of each fiscal year, audited
consolidated financial statements of Borrower, and if Borrower at any time
after the date hereof has any Subsidiaries, unaudited consolidating financial
statements of Borrower and such Subsidiaries (including in each case balance
sheets, statements of income and loss, statements of cash flow and statements
of shareholders' equity), and the accompanying notes thereto, all in reasonable
detail, fairly presenting the financial position and the results of the
operations of Borrower and its Subsidiaries as of the end of and for such
fiscal year, together with the unqualified opinion of independent certified
public accountants, which accountants shall be an independent accounting firm
selected by Borrower and reasonably acceptable to Lender, that such financial
statements have been prepared in accordance with GAAP, and present fairly the
results of operations and financial condition of Guarantor and its Subsidiaries
as of the end of and for the fiscal year then ended.
(b) Borrower shall promptly notify Lender in writing of the
details of (i) any loss, damage, investigation, action, suit, proceeding or
claim relating to the Collateral or any other property which is security for
the Obligations or which has a reasonable likelihood of having a Material
Adverse Effect and (ii) the occurrence of any Event of Default or act,
condition or event which, with the passage of time or giving of notice or both,
would constitute an Event of Default.
(c) Borrower shall promptly after the sending or filing thereof
furnish or cause to be furnished to Lender copies of all reports which
Borrower, Guarantor or Fairwood sends to its stockholders generally and copies
of all reports and registration statements which Borrower, Guarantor or
Fairwood files with the Securities and Exchange Commission, any national
securities exchange or the National Association of Securities Dealers, Inc.
(d) Borrower shall furnish or cause to be furnished to Lender
such budgets, forecasts, projections and other information respecting the
Collateral and the business of Borrower, as Lender may, from time to time,
reasonably request, subject to the provisions of Section 12.5 hereof to the
extent applicable. Upon Lender's request, Borrower shall, at its expense, no
more than once in any twelve (12) month period, but at any time or times as
Lender may request on or after an Event of Default, deliver or cause to be
delivered to Lender written reports or appraisals as to the Real Property in
form, scope and methodology acceptable to Lender and by an appraiser acceptable
to Lender, addressed to Lender or upon which Lender is expressly permitted to
rely. Lender is hereby authorized to deliver a copy of any financial statement
or any other information relating to the business of Borrower to any court or
other Governmental Authority or to any participant or assignee or prospective
participant or assignee. Borrower hereby irrevocably authorizes and directs
all accountants or auditors to deliver to Lender, at Borrower's expense, copies
of the financial statements of Guarantor and Borrower and any reports or
management letters prepared by such accountants or auditors on behalf of
Borrower or Guarantor and to disclose to Lender such information as they may
have regarding the business of Borrower or Guarantor. Any documents,
schedules, invoices or other papers delivered to Lender may be destroyed or
otherwise disposed of by
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Lender one (1) year after the same are delivered to Lender, except as otherwise
designated by Borrower to Lender in writing.
9.7 Sale of Assets, Consolidation, Merger, Dissolution, Etc.
Borrower shall not, directly or indirectly,
(a) merge into or with or consolidate with any other Person or
permit any other Person to merge into or with or consolidate with it;
(b) sell, assign, lease, transfer, abandon or otherwise dispose
of any Capital Stock or Indebtedness to any other Person or any of its assets
to any other Person, except for
(i) sales of Inventory in the ordinary course of
business; and
(ii) the disposition of worn-out or obsolete Equipment
or Equipment no longer used in the business of Borrower so long as (A) any
proceeds are paid to Lender and (B) such sales do not involve Equipment having
an aggregate fair market value in excess of $50,000 for all such Equipment
disposed of in any fiscal year of Borrower,
(iii) the sale by Borrower of the Accounts due to Borrower
from ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇ arising prior to the commencement of the pending
proceedings of ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇ under the U.S. Bankruptcy Code, provided, that,
each of the following conditions is satisfied: (A) such sale shall be in a bona
fide arm's length transaction on commercially reasonable prices and terms (and
in no event at a price less than the amount paid for similar claims on or about
such time in other similar transactions), (B) Lender shall have received not
less than three (3) Business Days prior written notice of such sale, which
notice shall set forth in reasonable detail satisfactory to Lender, the parties
thereto, the purchase price and the manner of payment thereof, the other
material terms of such sale and such other information with respect thereto as
Lender may reasonably request, (C) promptly upon Lender's request, Lender shall
have received true, correct and complete copies of all agreements, documents and
instruments executed and/or delivered in connection with such sale therewith, as
duly authorized, executed and delivered by the parties thereto, (D) immediately
upon the consummation of the sale, any and all proceeds payable or delivered to
Borrower in respect of such sale shall be paid or delivered, or caused to be
paid or delivered, directly to Lender for application to the installments of
principal in respect of such of the Term Loan as Lender determines, in the
inverse order of maturity, and (E) as of the date of such sale and after giving
effect thereto, no Event of Default, or act, condition or event which with
notice or passage of time or both would constitute an Event of Default shall
exist or have occurred; or
(iv) prior to July 31, 1998, sales by the Stratford
Division of Borrower of certain of its Accounts to Factor pursuant to and in
accordance with the terms of the Factoring Agreement (as in effect on the date
hereof after giving effect to the amendment referred to in Section 4.1 hereof);
provided, that, (A) all amounts payable to Borrower from Factor or otherwise in
connection therewith shall be sent by wire transfer to a Blocked
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Account as provided in Section 6.3 hereof, (B) Borrower shall not, directly or
indirectly, amend, modify, alter or change any of the terms of the Factoring
Agreement, (C) Lender shall have received a true, correct and complete copy of
the Factoring Agreement and all amendments thereto (including, but not limited
to, the amendments referred to in Section 4.1 hereof), (D) Borrower shall not
(1) borrow from, or obtain any loan from, Factor nor take any advance or
anticipated payment against any monies, credit balances or other amounts due to
Borrower under the Factoring Agreement, (2) have Factor guarantee any amount
due or to become due from Borrower to any other person or (3) have the Factor
issue or guarantee payment of any letters of credit or banker's acceptances on
behalf of Borrower, and (E) as soon as practicable, but in no event by no later
than July 31, 1998, Borrower shall terminate the Factoring Agreement and
deliver to Lender, or cause to be delivered to Lender, all releases,
terminations and such other documents as Lender may request, in form and
substance satisfactory to Lender, to evidence and effectuate the termination by
Factor of its factoring arrangements with Borrower and the termination and
release by Factor of any interest in and to any assets and properties of
Borrower and any Obligor, duly authorized, executed and delivered by Factor; or
(c) form or acquire any Subsidiaries; or
(d) wind up, liquidate or dissolve; or
(e) agree to do any of the foregoing.
9.8 Encumbrances. Borrower shall not create, incur, assume or suffer
to exist any security interest, mortgage, pledge, lien, charge or other
encumbrance of any nature whatsoever on any of its assets or properties,
including the Collateral, except:
(a) liens and security interests of Lender;
(b) liens securing the payment of taxes, either not yet overdue
or the validity of which are being contested in good faith by appropriate
proceedings diligently pursued and available to Borrower and with respect to
which adequate reserves have been set aside on its books in accordance with
GAAP;
(c) non-consensual statutory liens (other than liens pursuant
to ERISA or any Environmental Laws or securing the payment of taxes) arising in
the ordinary course of Borrower's business to the extent: (i) such liens
secure Indebtedness which is not overdue for a period of more than forty-five
(45) days or (ii) such liens secure Indebtedness relating to claims or
liabilities which are fully insured and being defended at the sole cost and
expense and at the sole risk of the insurer or being contested in good faith by
appropriate proceedings diligently pursued and available to Borrower; in each
case under clauses (i) and (ii), prior to the commencement of foreclosure or
other similar proceedings and with respect to which adequate reserves have been
set aside on its books in accordance with GAAP;
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(d) liens and security interests of ▇▇▇▇▇▇▇ on assets of
Borrower to secure Indebtedness of Borrower to ▇▇▇▇▇▇▇ permitted under Section
9.9 hereof, which liens and security interests of ▇▇▇▇▇▇▇ are subordinated to
the liens and security interests of Lender;
(e) liens and security interests of Court Square to secure
Indebtedness of Borrower to Court Square permitted under Section 9.9 hereof,
which liens and security interests are subordinated to the liens and security
interests of Lender;
(f) deposits of cash or liens on assets of Borrower (other
than Collateral) in the ordinary course of the business of Borrower in
connection with worker's compensation, unemployment insurance or other types of
social security benefits in each case consistent with the current practices of
Borrower as of the date hereof; provided, that, such liens shall not interfere
in any material respect with the use of any property or the ordinary conduct of
the business of Borrower or impair the value of the assets and properties of
Borrower in any material respect;
(g) liens arising in connection with judgments for the payment
of money in an amount not to exceed $100,000 in any one case or $250,000 in the
aggregate; provided, that, (i) the judgment or other court order giving rise to
such lien is being contested in good faith by appropriate proceedings
diligently pursued and available to Borrower prior to the commencement of
foreclosure or other similar proceedings, (ii) execution thereon is at all time
effectively stayed, and (iii) an adequate reserve for such Indebtedness has
been established on the books of Borrower in accordance with GAAP;
(h) minor encumbrances on or with respect to the Real Property
consisting of zoning restrictions, minor survey exceptions, utility easements,
access licenses, rights of way, easements of ingress or egress over the Real
Property or restrictions of record on the use of the Real Property, mechanics'
liens and vendors' liens on the Real Property, in each case to the extent the
same do not interfere in any material respect with the ordinary conduct of the
business of Borrower and do not impair the value of any Collateral or the
rights of Lender therein or thereto;
(i) liens and security interests arising after the date hereof
on the Real Property leased by Borrower as of the date hereof located in Rocky
Mount, North Carolina to secure Indebtedness permitted under Section 9.9(f)
below;
(j) liens and security interests of Factor on the Accounts of
the Stratford Division of Borrower under the Factoring Agreement (as in effect
on the date hereof after giving effect to the amendment referred to in Section
4.1 hereof) and the merchandise represented thereby, which liens and security
interests shall be released and terminated by no later than July 31, 1998 and
which liens and security interests secure only Indebtedness of Borrower to
Factor permitted under Section 9.9(g) hereof;
(k) purchase money security interests (including Capital
Leases) on Equipment and purchase money mortgages on real estate (except for
the Real Property), so long as such
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security interests and mortgages do not apply to any property of Borrower,
other than the Equipment or real estate so acquired, as the case may be, and
the Indebtedness secured thereby does not exceed the cost of the Equipment or
real estate so acquired, as the case may be; and
(l) the liens and security interests set forth on Schedule 8.4.
9.9 Indebtedness. Borrower shall not incur, create, assume, become
or be liable in any manner with respect to, or permit to exist, any
Indebtedness, except
(a) the Obligations;
(b) Indebtedness arising in the ordinary course of the business
of Borrower in connection with worker's compensation, unemployment insurance or
other types of social security benefits in each case consistent with the
current practices of Borrower as of the date hereof; provided, that, such
Indebtedness is secured only by liens on assets and property of Borrower
permitted by Section 9.8(f) hereof;
(c) Indebtedness of Borrower to ▇▇▇▇▇▇▇ arising after the date
hereof pursuant to intercompany loans by ▇▇▇▇▇▇▇ to Borrower, provided, that,
(i) the aggregate amount of such Indebtedness shall not exceed $5,000,000, (ii)
Borrower shall provide Lender within thirty (30) days after the end of each
month, a report as to the outstanding amount of such Indebtedness as of the
last day of the immediately preceding month, (iii) such Indebtedness is subject
to, and subordinate in right of payment to, the right of Lender to receive the
prior indefeasible payment and satisfaction in full of all of the Obligations
on terms and conditions acceptable to Lender, and all liens and security
interests to secure such Indebtedness shall be subject and subordinate to the
liens and security interests of Lender on terms and conditions acceptable to
Lender, (iv) Lender shall have received, in form and substance satisfactory to
Lender, a subordination agreement providing for the terms of the subordination
in right of payment of such Indebtedness to Borrower to the prior indefeasible
payment and satisfaction in full of all of the Obligations, and the
subordination by ▇▇▇▇▇▇▇ of any liens and security interests to secure such
Indebtedness to the liens and security interests of Lender, duly authorized,
executed and delivered by ▇▇▇▇▇▇▇ and Borrower, (v) Borrower shall not,
directly or indirectly make, or be required to make, and payments in respect of
such Indebtedness so long as any of the Obligations are outstanding and unpaid,
except that Borrower may make payments in respect of such Indebtedness so long
as each of the following conditions is satisfied as determined by Lender: (A)
Lender shall have received not less than three (3) Business Days prior written
notice of the intention of Borrower to make such prepayment, (B) as of the date
of any such payment, the daily average of the Excess Availability of Borrower
for the immediately preceding thirty (30) consecutive days shall be not less
than $2,000,000 and as of the date of any such payment and after giving effect
thereto, the Excess Availability of Borrower shall be not less than $2,000,000,
and (C) as of the date of any such payment, and after giving effect thereto, no
Event of Default, or act, conditions or event which with notice or passage of
time or both would constitute an Event of Default, shall exist or have
occurred, (vi) Borrower shall not directly or indirectly, (A) amend,
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modify, alter or change any terms of such Indebtedness or any agreement,
document or instrument related thereto, or (B) redeem, retire, defease,
purchase or otherwise acquire such Indebtedness, or set aside or otherwise
deposit or invest any sums for such purpose, and (vii) Borrower shall furnish
to Lender all notices, demands or other materials in connection with such
Indebtedness either received by Borrower or on its behalf, promptly after
receipt thereof, or sent by Borrower or on its behalf, concurrently with the
sending thereof, as the case may be;
(d) Indebtedness of Borrower to Court Square, which
Indebtedness is subject and subordinate in right of payment to the right of
Lender to receive the prior final payment and satisfaction in full of all of
the Obligations; provided, that: (i) the principal amount of such Indebtedness
as of December 31, 1997 was estimated to be $409,000,000, and the principal
amount of such Indebtedness arising after the date hereof shall not exceed
$25,000,000, in each case, less the aggregate amount of all repayments,
repurchases or redemptions, whether optional or mandatory in respect thereof,
plus interest thereon at the rate provided for in such agreement or instrument
as in effect on the date hereof, (ii) Borrower shall not, directly or
indirectly, make, or be required to make, any payments in respect of such
Indebtedness, including, but not limited to, any prepayments or other
non-mandatory payments, (iii) Borrower shall not, directly or indirectly, (A)
amend, modify, alter or change any terms of such Indebtedness or any agreement,
document or instrument related thereto as in effect on the date hereof, or (B)
redeem, retire, defease, purchase or otherwise acquire such Indebtedness, or
set aside or otherwise deposit or invest any sums for such purpose and (iv)
Borrower shall furnish to Lender all notices or demands concerning such
Indebtedness either received by Borrower or on its behalf, promptly after
receipt thereof, or sent by Borrower or on its behalf, concurrently with the
sending thereof, as the case may be;
(e) purchase money Indebtedness (including Capital Leases) to
the extent not incurred or secured by liens (including Capital Leases) in
violation of any other provision of this Agreement;
(f) Indebtedness of Borrower arising after the date hereof
pursuant to loans by a financial institution to Borrower based on the value of,
and secured only by, the Real Property currently leased by Borrower from the
Rocky Mount Business Development Authority in Rocky Mount, North Carolina,
provided, that, as to any such Indebtedness, (i) Lender shall have received not
less than ten (10) Business Days prior written notice of the intention to incur
such Indebtedness, which notice shall set forth in reasonable detail
satisfactory to Lender, the amount of such Indebtedness, the person to whom
such Indebtedness will be owed, the interest rate, the schedule of repayments
and maturity date with respect thereto and such other information with respect
thereto as Lender may request, (ii) Lender shall have received true, correct
and complete copies of all agreements, documents and instruments evidencing or
otherwise related to such Indebtedness, as duly authorized, executed and
delivered by the parties thereto, (iii) Lender shall have received an agreement
from the person to whom such Indebtedness is owed, in form and substance
satisfactory to Lender, which shall include, inter alia, the waiver by such
person of any security interest, lien or other claims by such person to the
Collateral and the agreement of such person to permit
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Lender access to, and the right to remain on, the Real Property which is
collateral for such Indebtedness to exercise the rights and remedies of Lender
and otherwise deal with the Collateral, (iv) such Indebtedness shall be
incurred by Borrower at commercially reasonable rates and terms in a bona fide
arm's length transaction, (v) such Indebtedness shall not at any time include
terms and conditions which in any manner adversely affect Lender or any rights
of Lender as determined in good faith by Lender and confirmed by Lender to
Borrower in writing or which are more restrictive or burdensome than the terms
or conditions of any other Indebtedness of Borrower as in effect on the date
hereof, (vi) such Indebtedness shall not be owed to any shareholder, officer,
director, agent, employee or other Affiliate of Borrower, (vii) to the extent
there are any monies in excess of the purchase price for such Real Property,
Borrower shall cause the person to whom such Indebtedness is owed to remit such
excess proceeds from the loans giving rise to such Indebtedness directly to
Lender for application to the Revolving Loans, (viii) such Real Property shall
be the only collateral for such Indebtedness, (x) as of the date of incurring
such Indebtedness and after giving effect thereto, no Event of Default or act,
condition or event which with notice or passage of time or both would
constitute an Event of Default shall exist or have occurred and be continuing,
(xi) Borrower may only make regularly scheduled payments of principal and
interest in respect of such Indebtedness, (xii) Borrower shall not, directly or
indirectly, (A) amend, modify, alter or change the terms of the agreements with
respect to such Indebtedness or (B) redeem, retire, defease, purchase or
otherwise acquire such Indebtedness, or set aside or otherwise deposit or
invest any sums for such purpose, and (xiii) Borrower shall furnish to Lender
all notices or demands in connection with such Indebtedness either received by
Borrower or on its behalf promptly after the receipt thereof, or sent by
Borrower or on its behalf, concurrently with the sending thereof, as the case
may be;
(g) Indebtedness of Borrower to Factor arising under the
Factoring Agreement (as in effect on the date hereof after giving effect to the
amendment referred to in Section 4.1 hereof) for the chargeback to Borrower of
disputed invoices and for commissions, fees, costs and expenses (but not for
any loans or advances or anticipated payments against monies, credit balances
or other amounts due to Borrower under the Factoring Agreement), provided,
that, (i) Borrower shall not, directly or indirectly, amend, modify alter or
change any terms of such Indebtedness or any agreement, document or instrument
related thereto as in effect on the date hereof, and (ii) Borrower shall
furnish to Lender all notices or demands concerning such Indebtedness either
received by Borrower or on its behalf, promptly after receipt thereof, or sent
by Borrower or on its behalf, concurrently with the sending thereof, as the
case may be;
(h) Indebtedness of Borrower to Guarantor, which Indebtedness
is subject and subordinate in right of payment to the right of Lender to
receive the prior final payment and satisfaction in full of all of the
Obligations; provided, that, (i) such Indebtedness is and shall at all times be
unsecured, (ii) Borrower shall not make, or be required to make, any payments
in respect of such Indebtedness, but not limited to any prepayments or other
non-mandatory payments, (iii) Borrower shall not directly or indirectly, (A)
amend, modify, alter or change any terms of such Indebtedness or any agreement,
document or instrument related thereto as in effect on the date hereof, or (B)
redeem, retire, defease, purchase or otherwise acquire such
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Indebtedness, or set aside or otherwise deposit or invest any sums for such
purpose and (iv) Borrower shall furnish to Lender all notices or demands
concerning such Indebtedness either received by Borrower or on its behalf,
promptly after receipt thereof, or sent by Borrower or on its behalf,
concurrently with the sending thereof, as the case may be;
(i) Indebtedness of Borrower set forth on Schedule 9.9 hereto;
provided, that, (i) Borrower may only make regularly scheduled payments of
principal and interest in respect of such Indebtedness in accordance with the
terms of the agreement or instrument evidencing or giving rise to such
Indebtedness as in effect on the date hereof (or as amended to the extent
permitted herein), (ii) Borrower shall not, directly or indirectly, (A) amend,
modify, alter or change the terms of such Indebtedness or any agreement,
document or instrument related thereto as in effect on the date hereof, except,
that, Borrower may, after prior written notice to Lender, amend, modify, alter
or change the terms thereof so as to extend the maturity thereof or defer the
timing of any payments in respect thereof, or to forgive or cancel an portion
of such Indebtedness (other than pursuant to payments thereof), or to reduce
the interest rate or any fees in connection therewith, or to release any of the
liens or security interests in any assets and properties of Borrower, or to
make any covenants contained therein less restrictive or burdensome as to
Borrower or otherwise more favorable to Borrower, or (B) redeem, retire,
defease, purchase or otherwise acquire such Indebtedness, or set aside or
otherwise deposit or invest any sums for such purpose, and (iii) Borrower shall
furnish to Lender all notices or demands in connection with such Indebtedness
either received by Borrower or on its behalf, promptly after the receipt
thereof, or sent by Borrower or on its behalf, concurrently with the sending
thereof, as the case may be.
9.10 Loans, Investments, Guarantees, Etc. Borrower shall not,
directly or indirectly, make any loans or advance money or property to any
person, or invest in (by capital contribution, dividend or otherwise) or
purchase or repurchase the Capital Stock or Indebtedness or all or a
substantial part of the assets or property of any Person, or guarantee, assume,
endorse, or otherwise become responsible for (directly or indirectly) the
Indebtedness, performance, obligations or dividends of any Person or hold any
cash or Cash Equivalents or agree to do any of the foregoing, except:
(a) the endorsement of instruments for collection or deposit in
the ordinary course of business;
(b) investments in cash or Cash Equivalents so long as no Loans
are outstanding; provided, that, as to any of the foregoing, unless waived in
writing by Lender, Borrower shall take such actions as are deemed necessary by
Lender to perfect the security interest of Lender in such investments;
(c) loans by Borrower to Guarantor, after the date hereof not
to exceed the aggregate principal amount of $400,000 in any fiscal quarter of
Borrower or $1,500,000 in any fiscal year of Borrower, the proceeds of which
are used for actual and necessary reasonable out-of-pocket administrative and
operating expenses of Guarantor for the business of Guarantor as presently
conducted in the ordinary course of business, and for actual and
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necessary reasonable out-of-pocket legal and accounting, insurance, marketing,
payroll and similar types of services paid for by Guarantor on behalf of
Borrower, in the ordinary course of its business or as the same may be directly
attributable to Borrower, provided, that, (i) as of the date of any such loan
the daily average of the Excess Availability of Borrower for the immediately
preceding thirty (30) consecutive days shall be not less than $2,000,000, and
as of the date of any such loan and after giving effect thereto, the Excess
Availability shall be not less than $2,000,000, (ii) Guarantor shall not
conduct any business except to hold the Capital Stock of Guarantor and any
activities incidental thereto, (iii) Guarantor shall not own or hold any assets
or properties, except for (A) the Capital Stock of Guarantor which it owns and
holds as of the date hereof, and (B) nominal amounts of cash and deferred tax
assets and (iv) as of the date of any such loan and after giving effect
thereto, no Event of Default, or act, condition or event which with notice or
passage of time or both would constitute an Event of Default, shall exist or
have occurred and be continuing;
(d) loans by Borrower to ▇▇▇▇▇▇▇ from time to time after the
date hereof; provided, that, as to any such loan, each of the following
conditions shall be satisfied: (i) the aggregate amount of such loans by
Borrower to ▇▇▇▇▇▇▇ shall not exceed $5,000,000, (ii) as of the date of any
such loan, the daily average of the Excess Availability of Borrower for the
immediately preceding thirty (30) consecutive days shall be not less than
$2,000,000 and as of the date of any such loan and after giving effect thereto,
the Excess Availability of Borrower shall be not less than $2,000,000, (iii)
the Indebtedness of ▇▇▇▇▇▇▇ to Borrower arising pursuant to such loans by
Borrower to ▇▇▇▇▇▇▇ shall be secured by a valid, enforceable and perfected
security interest in, and lien upon, all of the assets and properties of
▇▇▇▇▇▇▇, (iv) the Indebtedness of ▇▇▇▇▇▇▇ to Borrower arising pursuant to each
such loan shall be evidenced by a single, original promissory note issued by
▇▇▇▇▇▇▇ payable to the order of Borrower, duly authorized, executed and
delivered by ▇▇▇▇▇▇▇, which original note shall be duly and validly assigned
and endorsed by Borrower payable to the order of Lender in a manner and on
terms acceptable to Lender and as so endorsed shall be delivered to, and held
by Lender as part of the Collateral, (v) all right, title and interest of
Borrower in and to the Indebtedness of ▇▇▇▇▇▇▇ to Borrower arising pursuant to
such loans and all right, title and interest of Borrower in, to and under such
note and all related security agreements and other documents shall be duly and
validly assigned to Lender on terms and conditions acceptable to Lender, (vi)
Lender shall have received, in form and substance satisfactory to Lender, the
acknowledgement of the assignment by Borrower to Lender of such Indebtedness
and related rights, duly authorized, executed and delivered by ▇▇▇▇▇▇▇, and
(vii) as of the date of any such loan, and after giving effect thereto, no
Event of Default, or act, condition or event which with notice or passage of
time or both would constitute an Event of Default, shall exist or have
occurred;
(e) stock or obligations issued to Borrower by any Person (or
the representative of such Person) in respect of Indebtedness of such Person
owing to Borrower in connection with the insolvency, bankruptcy, receivership
or reorganization of such Person or a composition or readjustment of the debts
of such Person; provided, that, the original of any such stock or instrument
evidencing such obligations shall be promptly delivered to Lender,
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upon Lender's request, together with such stock power, assignment or
endorsement by Borrower as Lender may request;
(f) obligations of account debtors to Borrower arising from
Accounts which are past due evidenced by a promissory note made by such account
debtor payable to Borrower; provided, that, promptly upon the receipt of the
original of any such promissory note by Borrower, such promissory note shall be
endorsed by Borrower to the order of Lender in a manner and on terms acceptable
to Lender and promptly delivered to Lender as so endorsed;
(g) loans and advances by Borrower, to employees of Borrower,
not to exceed the principal amount of $50,000 in the aggregate at any time
outstanding for: (i) reasonably and necessary work-related travel or other
ordinary business expenses to be incurred by such employee in connection with
their work for Borrower, and (ii) reasonable and necessary relocation expenses
of such employees (including home mortgage financing for relocated employees);
and
(h) the loans, advances and guarantees set forth on Schedule
9.10 hereto; provided, that, as to such loans, advances and guarantees, (i)
Borrower shall not, directly or indirectly, (A) amend, modify, alter or change
the terms of such loans, advances or guarantees or any agreement, document or
instrument related thereto, or (B) as to such guarantees, redeem, retire,
defease, purchase or otherwise acquire the obligations arising pursuant to such
guarantees, or set aside or otherwise deposit or invest any sums for such
purpose, and (ii) Borrower shall furnish to Lender all notices or demands in
connection with such loans, advances or guarantees or other indebtedness
subject to such guarantees either received by Borrower or on its behalf,
promptly after the receipt thereof, or sent by Borrower or on its behalf,
concurrently with the sending thereof, as the case may be.
9.11 Dividends and Redemptions. Borrower shall not, directly or
indirectly, declare or pay any dividends on account of any shares of class of
its Capital Stock now or hereafter outstanding, or set aside or otherwise
deposit or invest any sums for such purpose, or redeem, retire, defease,
purchase or otherwise acquire any shares of any class of capital stock (or set
aside or otherwise deposit or invest any sums for such purpose) for any
consideration other than common stock or apply or set apart any sum, or make
any other distribution (by reduction of capital or otherwise) in respect of any
such shares or agree to do any of the foregoing.
9.12 Transactions with Affiliates. Borrower shall not, directly or
indirectly, (a) purchase, acquire or lease any property from, or sell, transfer
or lease any property to, any officer, director, agent or other Affiliate of
Borrower, except in the ordinary course of and pursuant to the reasonable
requirements of Borrower's business and upon fair and reasonable terms no less
favorable to the Borrower than Borrower would obtain in a comparable arm's
length transaction with a Person other than an Affiliate or (b) make any
payments of management, consulting or other fees for management or similar
services, or of any indebtedness owing to any officer, employee, shareholder,
director or other Affiliate of Borrower, except (i) reasonable compensation to
officers, employees and directors for services
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rendered to Borrower in the ordinary course of business, (ii) to the extent
permitted by Section 9.7 and 9.10 hereof and (iii) payments by Borrower to
Guarantor pursuant to the tax sharing arrangements between Guarantor and
Borrower (as in effect on the date hereof); provided, that, (A) Borrower is
included in the consolidated federal income tax return filed by Guarantor as to
which Borrower is making such payments, (B) the payments in any year shall not
exceed the federal income tax liability that Borrower would have been liable
for if Borrower were not part of such consolidated federal income tax return
filed by Guarantor, (C) such payments shall be made by Borrower no earlier than
ten (10) days prior to the date on which Guarantor is required to make its
payments to the Internal Revenue Service, (D) in the event that Borrower also
joins with Guarantor in filing any combined or consolidated (or similar) state
or local income tax returns, then the making of payments to Guarantor shall be
allowed in a manner as similar as possible to that provided herein with respect
to federal income taxes, and (E) as of the date of such payment and after
giving effect thereto, no Event of Default, or act, condition or event which
with notice or passage of time or both would constitute an Event of Default,
shall exist or have occurred and be continuing.
9.13 Additional Bank Accounts. Borrower shall not, directly or
indirectly, open, establish or maintain any deposit account, investment account
or any other account with any bank or other financial institution, other than
the Blocked Accounts and the accounts set forth in Schedule 8.12 hereto,
except: (a) as to any new or additional Blocked Accounts and other such new or
additional accounts which contain any Collateral or proceeds thereof, with the
prior written consent of Lender and subject to such conditions thereto as
Lender may establish and (b) as to any accounts used by Borrower to make
payments of payroll, taxes or other obligations to third parties, after prior
written notice to Lender.
9.14 Compliance with ERISA.
(a) Borrower shall not with respect to any "employee benefit
plans" maintained by Borrower or any of its ERISA Affiliates: (i) terminate
any of such employee benefit plans so as to incur any material liability to the
Pension Benefit Guaranty Corporation established pursuant to ERISA, (ii) allow
or suffer to exist any prohibited transaction involving any of such employee
benefit plans or any trust created thereunder which would subject Borrower or
such ERISA Affiliate to a tax or penalty or other liability on prohibited
transactions imposed under Section 4975 of the Code or ERISA, (iii) fail to pay
to any such employee benefit plan any contribution which it is obligated to pay
under Section 302 of ERISA, Section 412 of the Code or the terms of such plan,
(iv) allow or suffer to exist any accumulated funding deficiency, whether or
not waived, with respect to any such employee benefit plan, (v) allow or suffer
to exist any occurrence of a reportable event or any other event or condition
which presents a material risk of termination by the Pension Benefit Guaranty
Corporation of any such employee benefit plan that is a single employer plan,
which termination could result in any liability to the Pension Benefit Guaranty
Corporation or (vi) incur any withdrawal liability with respect to any
multiemployer pension plan.
(b) As used in this Section 9.14, the terms "employee benefit
plans", "accumulated funding deficiency" and "reportable event" shall have the
respective meanings
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assigned to them in ERISA, and the term "prohibited transaction" shall have the
meaning assigned to it in Section 4975 of the Code and ERISA.
9.15 Adjusted Net Worth. Borrower shall have Adjusted Net Worth of
not less than the respective amount set forth below as of the last day of the
fiscal quarter ending on the date indicated:
Period Amount
------ ------
March 28, 1998 $16,000,000
June 27, 1998 $14,000,000
September 26, 1998 $12,000,000
December 26, 1998 and
at all times thereafter $11,000,000
9.16 Minimum EBITDA. Borrower shall not permit the EBITDA of Borrower
to be less than the respective amounts set forth below for the period
indicated:
Period Amount
------ ------
From January 1, 1998
through and including
March 28, 1998 ($1,500,000)
From March 29, 1998 through
and including June 27, 1998 ($1,950,000)
From June 28, 1998 through
and including September 26,
1998 ($1,050,000)
From September 27, 1998 and for
each fiscal quarter thereafter $3,000
The parentheses used with the amounts set forth above indicate that
such amounts are negative numbers.
9.17 After Acquired Real Property. If Borrower hereafter acquires any
Real Property or fixtures (other than the Real Property leased by Borrower as
of the date hereof located in Rocky Mount, North Carolina, to the extent such
Real Property is subject to liens and security interest permitted under Section
9.8(i) hereof) and such Real Property or fixtures at any one
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location has a fair market value in an amount equal to or greater than $100,000
(or if an Event of Default, or act, condition or event which with notice or
passage of time or both would constitute an Event of Default exists, then
regardless of the fair market value of such assets), without limiting any other
rights of Lender, or duties or obligations of Borrower, upon Lender's request,
Borrower shall execute and deliver to Lender a mortgage, deed of trust or deed
to secure debt, as Lender may determine, in form and substance satisfactory to
Lender, and in form appropriate for recording in the real estate records of the
jurisdiction in which such Real Property or other property is located granting
to Lender, a first and only lien and mortgage on and security interest in such
Real Property, fixtures or other property (except as Borrower would otherwise
be permitted to incur hereunder or as otherwise consented to in writing by
Lender) and such other agreements, documents and instruments as Lender may
require in connection therewith.
9.18 Costs and Expenses. Borrower shall pay to Lender on demand, all
costs, expenses, filing fees and taxes paid or payable in connection with the
preparation, negotiation, execution, delivery, recording, administration,
collection, liquidation, enforcement and defense of the Obligations, Lender's
rights in the Collateral, this Agreement, the other Financing Agreements and
all other documents related hereto or thereto, including any amendments,
supplements or consents which may hereafter be contemplated (whether or not
executed) or entered into in respect hereof and thereof, including: (a) all
costs and expenses of filing or recording (including Uniform Commercial Code
financing statement filing taxes and fees, documentary taxes, intangibles taxes
and mortgage recording taxes and fees, if applicable); (b) costs and expenses
and fees for insurance premiums, environmental audits, surveys, assessments,
engineering reports and inspections, appraisal fees and search fees; (c) costs
and expenses of remitting loan proceeds, collecting checks and other items of
payment, and establishing and maintaining the Blocked Accounts, together with
Lender's customary charges and fees with respect thereto; (d) charges, fees or
expenses charged by any bank or issuer in connection with the Letter of Credit
Accommodations; (e) costs and expenses of preserving and protecting the
Collateral; (f) costs and expenses paid or incurred in connection with
obtaining payment of the Obligations, enforcing the security interests and
liens of Lender, selling or otherwise realizing upon the Collateral, and
otherwise enforcing the provisions of this Agreement and the other Financing
Agreements or defending any claims made or threatened against Lender arising
out of the transactions contemplated hereby and thereby (including preparations
for and consultations concerning any such matters); provided, that, Borrower
shall not be liable for the costs of defending claims asserted by (i) Borrower
against Lender, which claims are successfully established pursuant to a final,
non-appealable judgment of a court or competent jurisdiction rendered in favor
of Borrower against Lender, or (ii) a Person, other than Borrower, against
Lender, which claims result in a final, nonappealable judgment rendered in
favor of such Person against Lender, and which judgment clearly sets forth the
basis for liability as the willful misconduct, bad faith or gross negligence of
Lender; (g) all out-of-pocket expenses and costs heretofore and from time to
time hereafter incurred by Lender during the course of periodic field
examinations of the Collateral and Borrower's operations, plus a per diem
charge at the rate of $600 per person per day for Lender's examiners in the
field and office; and (h) the fees and disbursements of counsel (including
legal assistants) to Lender in connection with any of the foregoing.
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9.19 Further Assurances. At the request of Lender at any time and
from time to time, Borrower shall, at its expense, duly execute and deliver, or
cause to be duly executed and delivered, such further agreements, documents and
instruments, and do or cause to be done such further acts as may be necessary
or proper to evidence, perfect, maintain and enforce the security interests and
the priority thereof in the Collateral and to otherwise effectuate the
provisions or purposes of this Agreement or any of the other Financing
Agreements. Lender may at any time and from time to time request a certificate
from an officer of Borrower representing that all conditions precedent to the
making of Loans and providing Letter of Credit Accommodations contained herein
are satisfied. In the event of such request by Lender, Lender may, at its
option, cease to make any further Loans or provide any further Letter of Credit
Accommodations until Lender has received such certificate and, in addition,
Lender has determined that such conditions are satisfied. Where permitted by
law, Borrower hereby authorizes Lender to execute and file one or more UCC
financing statements signed only by Lender.
SECTION 10. EVENTS OF DEFAULT AND REMEDIES
10.1 Events of Default. The occurrence or existence of any one or
more of the following events are referred to herein individually as an "Event
of Default", and collectively as "Events of Default":
(a) (i) Borrower fails to pay any of the Obligations within
two (2) Business Days after the due date thereof, or (ii) Borrower fails to
perform any of the terms, covenants, conditions or provisions contained in this
Agreement or any of the other Financing Agreements other than as described in
Section 10.1(a)(i), and, in the case of a failure to comply with the terms,
covenants, conditions or provisions contained in:
(1) Section 9.1, to the extent such failure consists
solely of a failure to be qualified as a foreign corporation to do
business in a jurisdiction, such failure shall continue for a period of
sixty (60) days, or
(2) Section 9.2(a), Lender shall fail to receive notice of
such new location within twenty (20) days after the opening or
establishment thereof (but such twenty (20) day period shall not apply
if any of the Inventory at such new location is included in any
Collateral report delivered to Lender), or
(3) the first sentence of Section 9.4, such failure shall
continue for a period of thirty (30) days, or
(4) Section 9.6(a)(i), to the extent such failure consists
solely of a failure to deliver timely financial statements for the
third, sixth, ninth or twelfth calendar months, such failure shall
continue for a period of five (5) days, or
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(5) Section 9.14, to the extent such failure shall
continue for a period of thirty (30) days, or
(6) Section 9.3(a), to the extent such failure shall
continue for a period of fifteen (15) days;
provided, that, such specified periods in clauses (1) through (5) above shall
not apply in the case of: (A) any failure to observe any such term, covenant,
condition or provision which is not capable of being cured at all or within
such specified periods or which has been the subject of a prior failure within
a six (6) month period or (B) an intentional breach by Borrower or any Obligor
of any such term, covenant, condition or provision or (C) any failure which has
or has a reasonable likelihood of having a Material Adverse Effect;
(b) any representation, warranty or statement of fact made by
Borrower to Lender in this Agreement, the other Financing Agreements or any
other agreement, schedule, confirmatory assignment or otherwise shall when made
or deemed made be false or misleading in any material respect;
(c) any Obligor revokes, terminates or fails to perform any of
the terms, covenants, conditions or provisions of any guarantee, endorsement or
other agreement of such party in favor of Lender;
(d) any judgment for the payment of money is rendered against
Borrower or any Obligor in excess of $100,000 in any one case or in excess of
$250,000 in the aggregate and shall remain undischarged or unvacated for a
period in excess of forty-five (45) days or execution shall at any time not be
effectively stayed, or any judgment other than for the payment of money, or
injunction, attachment, garnishment or execution is rendered against Borrower
or any Obligor or any of their assets which would have a Material Adverse
Effect;
(e) dissolves or suspends or discontinues doing business;
(f) Borrower or any Obligor becomes insolvent (however defined
or evidenced), makes an assignment for the benefit of creditors, makes or sends
notice of a bulk transfer or calls a meeting of its creditors or principal
creditors;
(g) a case or proceeding under the bankruptcy laws of the
United States of America now or hereafter in effect or under any insolvency,
reorganization, receivership, readjustment of debt, dissolution or liquidation
law or statute of any jurisdiction now or hereafter in effect (whether at law
or in equity) is filed against Borrower or any Obligor or all or any part of
its properties and such petition or application is not dismissed within
forty-five (45) days after the date of its filing or Borrower or any Obligor
shall file any answer admitting or not contesting such petition or application
or indicates its consent to, acquiescence in or approval of, any such action or
proceeding or the relief requested is granted sooner;
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(h) a case or proceeding under the bankruptcy laws of the
United States of America now or hereafter in effect or under any insolvency,
reorganization, receivership, readjustment of debt, dissolution or liquidation
law or statute of any jurisdiction now or hereafter in effect (whether at a law
or equity) is filed by Borrower or any Obligor or for all or any part of its
property;
(i) any default by Borrower or any Obligor under any agreement,
document or instrument relating to any Indebtedness owing to any person other
than Lender, in any case in an amount in excess of $50,000 or any default by
Borrower under the Factoring Agreement, in any case, which default continues
for more than the applicable cure period, if any, with respect thereto, or any
default by Borrower or any Obligor under any material contract, lease, license
or other obligation to any person other than Lender, which default continues
for more than the applicable cure period, if any, with respect thereto;
(j) any Change of Control shall occur;
(k) the indictment or threatened indictment of Borrower or any
Obligor under any criminal statute, or commencement or threatened commencement
of criminal or civil proceedings against Borrower or any Obligor, pursuant to
which statute or proceedings the penalties or remedies sought or available
include forfeiture of any of the property of Borrower or any Obligor;
(l) there shall be an event or change of circumstances that
results in a Material Adverse Effect;
(m) there shall be an event of default under any of the other
Financing Agreements; or
(n) there shall be an event of default in any agreement,
document or instrument by and between ▇▇▇▇▇▇▇ and Lender, or executed by or on
behalf or for the benefit of ▇▇▇▇▇▇▇ and delivered to or for the benefit of
Lender.
10.2 Remedies.
(a) At any time an Event of Default exists or has occurred and
is continuing, Lender shall have all rights and remedies provided in this
Agreement, the other Financing Agreements, the Uniform Commercial Code and
other applicable law, all of which rights and remedies may be exercised without
notice to or consent by Borrower or any Obligor, except as such notice or
consent is expressly provided for hereunder or required by applicable law. All
rights, remedies and powers granted to Lender hereunder, under any of the other
Financing Agreements, the Uniform Commercial Code or other applicable law, are
cumulative, not exclusive and enforceable, in Lender's discretion,
alternatively, successively, or concurrently on any one or more occasions, and
shall include, without limitation, the right to apply to a court of equity for
an injunction to restrain a breach or threatened breach by Borrower of this
Agreement or any of the other Financing Agreements. Lender may, at any
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time or times, proceed directly against Borrower or any Obligor to collect the
Obligations without prior recourse to the Collateral.
(b) Without limiting the foregoing, at any time an Event of
Default exists or has occurred and is continuing, Lender may, in its discretion
and without limitation, (i) accelerate the payment of all Obligations and
demand immediate payment thereof to Lender (provided, that, upon the occurrence
of any Event of Default described in Sections 10.1(g) and 10.1(h), all
Obligations shall automatically become immediately due and payable), (ii) with
or without judicial process or the aid or assistance of others, enter upon any
premises on or in which any of the Collateral may be located and take
possession of the Collateral or complete processing, manufacturing and repair
of all or any portion of the Collateral, (iii) require Borrower, at Borrower's
expense, to assemble and make available to Lender any part or all of the
Collateral at any place and time designated by Lender, (iv) collect, foreclose,
receive, appropriate, setoff and realize upon any and all Collateral, (v)
remove any or all of the Collateral from any premises on or in which the same
may be located for the purpose of effecting the sale, foreclosure or other
disposition thereof or for any other purpose, (vi) sell, lease, transfer,
assign, deliver or otherwise dispose of any and all Collateral (including
entering into contracts with respect thereto, public or private sales at any
exchange, broker's board, at any office of Lender or elsewhere) at such prices
or terms as Lender may deem reasonable, for cash, upon credit or for future
delivery, with the Lender having the right to purchase the whole or any part of
the Collateral at any such public sale, all of the foregoing being free from
any right or equity of redemption of Borrower, which right or equity of
redemption is hereby expressly waived and released by Borrower and/or (vii)
terminate this Agreement. If any of the Collateral is sold or leased by Lender
upon credit terms or for future delivery, the Obligations shall not be reduced
as a result thereof until payment therefor is finally collected by Lender. If
notice of disposition of Collateral is required by law, ten (10) days prior
notice by Lender to Borrower designating the time and place of any public sale
or the time after which any private sale or other intended disposition of
Collateral is to be made, shall be deemed to be reasonable notice thereof and
Borrower waives any other notice. In the event Lender institutes an action to
recover any Collateral or seeks recovery of any Collateral by way of
prejudgment remedy, Borrower waives the posting of any bond which might
otherwise be required.
(c) Lender may apply the cash proceeds of Collateral actually
received by Lender from any sale, lease, foreclosure or other disposition of
the Collateral to payment of the Obligations, in whole or in part and in such
order as Lender may elect, whether or not then due. Borrower shall remain
liable to Lender for the payment of any deficiency with interest at the highest
rate provided for herein and all costs and expenses of collection or
enforcement, including attorneys' fees and legal expenses.
(d) Without limiting the foregoing, upon the occurrence of an
Event of Default or an event which with notice or passage of time or both would
constitute an Event of Default, Lender may, at its option, without notice, (i)
cease making Loans or arranging for Letter of Credit Accommodations or reduce
the lending formulas or amounts of Revolving Loans and Letter of Credit
Accommodations available to Borrower and/or (ii) terminate any
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provision of this Agreement providing for any future Loans or Letter of Credit
Accommodations to be made by Lender to Borrower.
SECTION 11. JURY TRIAL WAIVER; OTHER WAIVERS
AND CONSENTS; GOVERNING LAW
11.1 Governing Law; Choice of Forum; Service of Process; Jury Trial
Waiver.
(a) The validity, interpretation and enforcement of this
Agreement and the other Financing Agreements and any dispute arising out of the
relationship between the parties hereto, whether in contract, tort, equity or
otherwise, shall be governed by the internal laws of the State of Illinois
(without giving effect to principles of conflicts of law).
(b) Borrower and Lender irrevocably consent and submit to the
non-exclusive jurisdiction of the Circuit Court of ▇▇▇▇ County, Illinois and
the United States District Court for the Northern District of Illinois and
waive any objection based on venue or forum non conveniens with respect to any
action instituted therein arising under this Agreement or any of the other
Financing Agreements or in any way connected with or related or incidental to
the dealings of the parties hereto in respect of this Agreement or any of the
other Financing Agreements or the transactions related hereto or thereto, in
each case whether now existing or hereafter arising, and whether in contract,
tort, equity or otherwise, and agree that any dispute with respect to any such
matters shall be heard only in the courts described above (except that Lender
shall have the right to bring any action or proceeding against Borrower or its
property in the courts of any other jurisdiction which Lender deems necessary
or appropriate in order to realize on the Collateral or to otherwise enforce
its rights against Borrower or its property).
(c) Borrower hereby waives personal service of any and all
process upon it and consents that all such service of process may be made by
certified mail (return receipt requested) directed to its address set forth on
the signature pages hereof and service so made shall be deemed to be completed
ten (10) days after the same shall have been so deposited in the U.S. mails,
or, at Lender's option, by service upon Borrower in any other manner provided
under the rules of any such courts. Within thirty (30) days after such
service, Borrower shall appear in answer to such process, failing which
Borrower shall be deemed in default and judgment may be entered by Lender
against Borrower for the amount of the claim and other relief requested.
(d) BORROWER AND LENDER EACH HEREBY WAIVES ANY RIGHT TO TRIAL
BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (i) ARISING UNDER THIS
AGREEMENT OR ANY OF THE OTHER FINANCING AGREEMENTS OR (ii) IN ANY WAY CONNECTED
WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO IN RESPECT
OF THIS AGREEMENT OR ANY OF THE OTHER FINANCING AGREEMENTS OR THE TRANSACTIONS
RELATED HERETO OR THERETO IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER
ARISING, AND WHETHER IN CONTRACT, TORT,
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EQUITY OR OTHERWISE. BORROWER AND LENDER EACH HEREBY AGREES AND CONSENTS THAT
ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT
TRIAL WITHOUT A JURY AND THAT BORROWER OR LENDER MAY FILE AN ORIGINAL
COUNTERPART OF A COPY OF THIS AGREEMENT WITH ANY COURT AS WRITTEN EVIDENCE OF
THE CONSENT OF THE PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY
JURY.
(e) Lender shall not have any liability to Borrower (whether in
tort, contract, equity or otherwise) for losses suffered by Borrower in
connection with, arising out of, or in any way related to the transactions or
relationships contemplated by this Agreement, or any act, omission or event
occurring in connection herewith, unless it is determined by a final and
non-appealable judgment or court order binding on Lender, that the losses were
the result of acts or omissions constituting gross negligence or willful
misconduct. In any such litigation, Lender shall be entitled to the benefit of
the rebuttable presumption that it acted in good faith and with the exercise of
ordinary care in the performance by it of the terms of this Agreement.
11.2 Waiver of Notices. Borrower hereby expressly waives demand,
presentment, protest and notice of protest and notice of dishonor with respect
to any and all instruments and commercial paper, included in or evidencing any
of the Obligations or the Collateral, and any and all other demands and notices
of any kind or nature whatsoever with respect to the Obligations, the
Collateral and this Agreement, except such as are expressly provided for
herein. No notice to or demand on Borrower which Lender may elect to give
shall entitle Borrower to any other or further notice or demand in the same,
similar or other circumstances.
11.3 Amendments and Waivers. Neither this Agreement nor any provision
hereof shall be amended, modified, waived or discharged orally or by course of
conduct, but only by a written agreement, signed in the case of amendments or
modifications, by authorized officers of Borrower and Lender, and signed, in
the case of waivers or discharges in favor of Borrower, by authorized officers
of Lender. Lender shall not, by any act, delay, omission or otherwise be
deemed to have expressly or impliedly waived any of its rights, powers and/or
remedies unless such waiver shall be in writing and signed by an authorized
officer of Lender. Any such waiver shall be enforceable only to the extent
specifically set forth therein. A waiver by Lender of any right, power and/or
remedy on any one occasion shall not be construed as a bar to or waiver of any
such right, power and/or remedy which Lender would otherwise have on any future
occasion, whether similar in kind or otherwise.
11.4 Waiver of Counterclaims. Borrower waives all rights to interpose
any claims, deductions, setoffs or counterclaims of any nature (other then
compulsory counterclaims) in any action or proceeding with respect to this
Agreement, the Obligations, the Collateral or any matter arising therefrom or
relating hereto or thereto.
11.5 Indemnification. Borrower shall indemnify and hold Lender, and
its directors, agents, employees and counsel, harmless from and against any and
all losses, claims,
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damages, liabilities, costs or expenses imposed on, incurred by or asserted
against any of them in connection with any litigation, investigation, claim or
proceeding commenced or threatened related to the negotiation, preparation,
execution, delivery, enforcement, performance or administration of this
Agreement, any other Financing Agreements, or any undertaking or proceeding
related to any of the transactions contemplated hereby or any act, omission,
event or transaction related or attendant thereto, including amounts paid in
settlement, court costs, and the reasonable fees and expenses of counsel, but
excluding any such losses, claims, damages, liabilities, costs and expenses
directly caused to be incurred by reason of the gross negligence, willful
misconduct or bad faith of the Person otherwise to be indemnified and held
harmless under this Section, as determined by a final, non-appealable judgment
of a court of competent jurisdiction. To the extent that the undertaking to
indemnify, pay and hold harmless set forth in this Section may be unenforceable
because it violates any law or public policy, Borrower shall pay the maximum
portion which it is permitted to pay under applicable law to Lender in
satisfaction of indemnified matters under this Section. The foregoing
indemnity shall survive the payment of the Obligations and the termination or
non-renewal of this Agreement.
SECTION 12. TERM OF AGREEMENT; MISCELLANEOUS
12.1 Term.
(a) This Agreement and the other Financing Agreements shall
become effective as of the date set forth on the first page hereof and shall
continue in full force and effect for a term ending on the date three (3) years
from the date hereof (the "Renewal Date"), and from year to year thereafter,
unless sooner terminated pursuant to the terms hereof. Lender or Borrower may
terminate this Agreement and the other Financing Agreements effective on the
Renewal Date or on the anniversary of the Renewal Date in any year by giving to
the other party at least sixty (60) days prior written notice; provided, that,
this Agreement and all other Financing Agreements must be terminated
simultaneously. Upon the effective date of termination or non-renewal of the
Financing Agreements, Borrower shall pay to Lender, in full, all outstanding
and unpaid Obligations and shall furnish cash collateral to Lender in such
amounts as Lender determines are reasonably necessary to secure Lender from
loss, cost, damage or expense, including attorneys' fees and legal expenses, in
connection with any contingent Obligations, including issued and outstanding
Letter of Credit Accommodations and checks or other payments provisionally
credited to the Obligations and/or as to which Lender has not yet received
final and indefeasible payment. Such payments in respect of the Obligations
and cash collateral shall be remitted by wire transfer in Federal funds to such
bank account of Lender, as Lender may, in its discretion, designate in writing
to Borrower for such purpose. Interest shall be due until and including the
next Business Day, if the amounts so paid by Borrower to the bank account
designated by Lender are received in such bank account later than 12:00 noon,
Chicago time.
(b) No termination of this Agreement or the other Financing
Agreements shall relieve or discharge Borrower of its respective duties,
obligations and covenants under this
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Agreement or the other Financing Agreements until all Obligations have been
fully and finally discharged and paid, and Lender's continuing security
interest in the Collateral and the rights and remedies of Lender hereunder,
under the other Financing Agreements and applicable law, shall remain in effect
until all such Obligations have been fully and finally discharged and paid. At
any time thereafter Lender shall, at the request of Borrower, execute and
deliver to Borrower, at Borrower's cost and expense, such UCC termination
statements as are necessary to evidence the discharge and release of any then
remaining Collateral.
(c) If for any reason this Agreement is terminated prior to the
end of the then current term or renewal term of this Agreement, in view of the
impracticality and extreme difficulty of ascertaining actual damages and by
mutual agreement of the parties as to a reasonable calculation of Lender's lost
profits as a result thereof, Borrower agrees to pay to Lender, upon the
effective date of such termination, an early termination fee in the amount set
forth below if such termination is effective in the period indicated:
Amount Period
------ ------
(i) 3% of Maximum Credit From the date hereof to and including
February 11, 1998;
(ii) 2% of Maximum Credit From February 12, 1998 to and including
February 11, 1999; and
(iii) 1% of Maximum Credit From February 12, 1999 to and including
February 10, 2000.
Such early termination fee shall be presumed to be the amount of damages
sustained by Lender as a result of such early termination and Borrower agrees
that it is reasonable under the circumstances currently existing. In addition,
Lender shall be entitled to such early termination fee upon the occurrence of
any Event of Default described in Sections 10.1(g) and 10.1(h) hereof, even if
Lender does not exercise its right to terminate this Agreement, but elects, at
its option, to provide financing to Borrower or permit the use of cash
collateral under the United States Bankruptcy Code. The early termination fee
provided for in this Section 12.1 shall be deemed included in the Obligations.
12.2 Notices. All notices, requests and demands hereunder shall be in
writing and (a) made to Lender at its address set forth below and to Borrower
at its chief executive office set forth below, or to such other address as
either party may designate by written notice to the other in accordance with
this provision, and (b) deemed to have been given or made: if delivered in
person, immediately upon delivery; if by telex, telegram or facsimile
transmission, immediately upon sending and upon confirmation of receipt; if by
nationally recognized overnight courier service with instructions to deliver
the next Business Day, one (1) Business Day after sending; and if by certified
mail, return receipt requested, ten (10) days after mailing.
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12.3 Partial Invalidity. If any provision of this Agreement is held
to be invalid or unenforceable, such invalidity or unenforceability shall not
invalidate this Agreement as a whole, but this Agreement shall be construed as
though it did not contain the particular provision held to be invalid or
unenforceable and the rights and obligations of the parties shall be construed
and enforced only to such extent as shall be permitted by applicable law.
12.4 Successors.
(a) This Agreement, the other Financing Agreements and any
other document referred to herein or therein shall be binding upon and inure to
the benefit of and be enforceable by Lender, Borrower and their respective
successors and assigns, except that Borrower may not assign its rights under
this Agreement, the other Financing Agreements and any other document referred
to herein or therein without the prior written consent of Lender. Lender may,
after notice to any Borrower, assign its rights and delegate its obligations
under this Agreement and the other Financing Agreements and further may assign,
or sell participations in, all or any part of the Loans, the Letter of Credit
Accommodations or any other interest herein to another financial institution or
other person, in which event, the assignee or participant shall have, to the
extent of such assignment or participation, the same rights and benefits as it
would have if it were the Lender hereunder, except as otherwise provided by the
terms of such assignment or participation.
(b) If Lender shall assign its entire rights and delegate its
obligations under this Agreement and the other Financing Agreements, such that
Lender is no longer the person administering the financing arrangements
hereunder, including making the determinations of the amount of Revolving Loans
and Letter of Credit Accommodations available to Borrower pursuant to the
lending formulas hereunder (such an assignment and delegation, a "Full
Assignment"), unless (i) Lender shall have obtained Borrower's prior written
consent to such Full Assignment (which consent, if requested, shall not be
unreasonably withheld, delayed or conditioned) or (ii) such Full Assignment is
in connection with a sale of the business of Lender, or a sale of all or a
substantial portion of the loan portfolio of Lender, or (iii) such Full
Assignment is to an Affiliate of Lender, or (iv) such Full Assignment is made
after and during the continuance of an Event of Default, then, following a Full
Assignment not described in any of clauses (i), (ii), (iii) or (iv) of this
Section 12.4(b), Borrower shall have the option to terminate this Agreement
(the "Special Termination Option") in accordance with Section 12.1 hereof,
except without payment of any early termination fee otherwise payable pursuant
to Section 12.1(c) hereof; provided, however, such termination by Borrower
pursuant to the Special Termination Option must be completed in accordance with
Section 12.1 hereof, within one hundred eighty (180) days following Borrower's
receipt of notice of such Full Assignment.
12.5 Confidentiality.
(a) Lender shall use all reasonable efforts to keep
confidential, in accordance with its customary procedures for handling
confidential information and safe and sound lending practices, any non-public
information supplied to it by Borrower pursuant to this
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Agreement which is clearly and conspicuously marked as confidential at the time
such information is furnished by Borrower to Lender, provided, that, nothing
contained herein shall limit the disclosure of any such information: (i) to
the extent required by statute, rule, regulation, subpoena or court order, (ii)
to bank examiners and other regulators, auditors and/or accountants, (iii) in
connection with any litigation to which Lender is a party, (iv) to any assignee
or participant (or prospective assignee or participant) so long as such
assignee or participant (or prospective assignee or participant) shall have
first agreed in writing to treat such information as confidential in accordance
with this Section 12.5, or (v) to counsel for Lender or any participant or
assignee (or prospective participant or assignee).
(b) In no event shall this Section 12.5 or any other provision
of this Agreement or applicable law be deemed: (i) to apply to or restrict
disclosure of information that has been or is made public by Borrower or any
third party without breach of this Section 12.5 or otherwise become generally
available to the public other than as a result of a disclosure in violation
hereof, (ii) to apply to or restrict disclosure of information that was or
becomes available to Lender on a non-confidential basis from a person other
than Borrower, (iii) require Lender to return any materials furnished by
Borrower to Lender or (iv) prevent Lender from responding to routine
informational requests in accordance with the Code of Ethics for the Exchange
of Credit Information promulgated by The ▇▇▇▇▇▇ ▇▇▇▇▇▇ Associates or other
applicable industry standards relating to the exchange of credit information.
The obligations of Lender under this Section 12.5 shall supersede and replace
the obligations of Lender under any confidentiality letter signed prior to the
date hereof.
12.6 Entire Agreement. This Agreement, the other Financing
Agreements, any supplements hereto or thereto, and any instruments or documents
delivered or to be delivered in connection herewith or therewith represents the
entire agreement and understanding concerning the subject matter hereof and
thereof between the parties hereto, and supersede all other prior agreements,
understandings, negotiations and discussions, representations, warranties,
commitments, proposals, offers and contracts concerning the subject matter
hereof, whether oral or written. In the event of any inconsistency between the
terms of this Agreement and any schedule or exhibit hereto, the terms of this
Agreement shall govern.
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IN WITNESS WHEREOF, Lender and Borrower have caused these presents to
be duly executed as of the day and year first above written.
LENDER BORROWER
------ --------
CONGRESS FINANCIAL CORPORATION (CENTRAL) FUTORIAN FURNISHINGS, INC.
By: [SIG]
------------------------------ By: [SIG]
-----------------------------------------
Title: Vice President
----------------------------- Title: Vice President
--------------------------------------
Address: Chief Executive Office:
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