1
Exhibit 10.1
CREDIT AND SECURITY AGREEMENT
(U.S. $20,000,000)
Dated as of October 27, 1998
among
D.I.Y. HOME WAREHOUSE, INC.
as Borrower
and
THE LENDERS WHICH ARE SIGNATORIES HERETO
and
NATIONAL CITY COMMERCIAL FINANCE, INC.
as Agent
and
NATIONAL CITY BANK
as Letter of Credit Bank
2
TABLE OF CONTENTS
Section Page
------- ----
Section 1 DEFINITIONS AND ACCOUNTING TERMS
1.1 Certain Defined Terms...........................................................................2
1.2 Computation of Time Periods.....................................................................2
1.3 Accounting Terms................................................................................2
Section 2 STATEMENT OF TERMS
2.1 Revolving Credit Facility.......................................................................3
(a) Revolving Credit Loans.................................................................3
(b) Revolving Credit Borrowings............................................................3
(c) Revolving Credit Notes; Loan Account...................................................3
(d) Control Account Maintained by Agent....................................................4
2.2 Permitted Discretion............................................................................4
2.3 Requests for Revolving Credit Loans.............................................................5
(a) Credit Requests Executed by the Borrower......................................5
(b) Requests for Borrowing Deemed Given...........................................5
2.4 Funding of Revolving Credit Loans...............................................................6
(a) Agent Election as to Funding...........................................................6
(b) Same Day Funding by Lenders............................................................7
(c) Periodic Funding by Lenders; NCCF Settlement Loans.....................................7
(d) Periodic Funding by Lenders; Agent Special Loans.......................................8
(e) Settlement of Settlement Loans and Agent Special Loans.................................9
2.5 Failure of Lender to Fund......................................................................11
(a) Recovery of Amounts...................................................................11
(b) Payment Constituting Ratable Portion..................................................12
(c) Treatment of Defaulting Lender........................................................12
(d) Continuing Obligation of Lenders to Fund..............................................12
2.6 Repayments and Prepayments; Reduction of Revolving Credit Loan Commitments.....................13
(a) Repayment.............................................................................13
(b) Mandatory Prepayment of Revolving Credit Loans and Agent Special Loans................14
(c) Reduction of Revolving Credit Commitment..............................................14
(d) Permitted Prepayments.................................................................14
2.7 Rate Conversion and Rate Continuation..........................................................14
2.8 Letters of Credit..............................................................................16
(a) Term and Form of Letters of Credit....................................................16
(b) Requests for Letters of Credit........................................................17
(c) Lenders to Participate................................................................17
(d) Drawings to Constitute Loans..........................................................17
(e) Obligations Absolute..................................................................18
3
(f) Rights of Letter of Credit Bank.......................................................18
(g) Letter of Credit Bank Indemnity.......................................................19
(h) Effect of Applicable Law or Custom....................................................19
(i) Termination of Letter of Credit Facility..............................................19
2.9 Fees...........................................................................................20
(a) Closing Fee...........................................................................20
(b) Unused Commitment Fee.................................................................20
(c) Collateral Administration Fee.........................................................20
(d) Per Diem Audit Fees...................................................................20
(e) Refinance Fee.........................................................................21
(f) Late Charges..........................................................................21
(g) Inventory Appraisal...................................................................21
(h) Letter of Credit Fees.................................................................21
(i) Payment of Fees; NonRefundable........................................................21
2.10 Interest on Revolving Credit Loans.............................................................22
(a) Interest Rate.........................................................................22
(b) Applicable Margins; Terms of Adjustment...............................................22
2.11 Default Interest...............................................................................23
2.12 Additional Interest on LIBOR Rate Loans........................................................24
2.13 Interest Rate Determination....................................................................24
(a) Agent Determination Notice............................................................24
(b) Failure of the Borrower to Elect......................................................24
2.14 Payments and Computations......................................................................24
(a) Payments..............................................................................24
(b) Payment Procedures....................................................................25
(c) Application of Payments...............................................................25
(d) Authorization to Charge Account.......................................................26
(e) Computation of Interest and Fees......................................................26
(f) Payment not on Business Day...........................................................26
(g) Presumption of Payment in Full by the Borrower........................................27
2.15 Change in Law Rendering LIBOR Rate Loans Unlawful..............................................27
2.16 Unavailability.................................................................................27
(a) Unavailable Quotations................................................................27
(b) Unavailable Deposits..................................................................28
2.17 Pro Rata Treatment.............................................................................28
Section 3 CONDITIONS OF LENDING
3.1 Conditions Precedent to Initial Loans..........................................................28
3.2 Conditions Precedent to all Loans..............................................................28
(a) Representation Bringdown..............................................................28
(b) No Default; Compliance with Terms.....................................................28
(c) No Material Adverse Change............................................................29
(d) Confirmation of Borrowing Base........................................................29
(e) Other Deliveries......................................................................29
4
Section 4 SECURITY INTEREST IN COLLATERAL; COLLATERAL REQUIREMENTS
4.1 Grant of Security Interest.....................................................................29
4.2 Grant of License...............................................................................30
4.3 Perfection.....................................................................................30
4.4 General Representations as to Collateral.......................................................30
4.5 Title to Collateral; Liens; Transfers..........................................................30
4.6 Changes Affecting Perfection...................................................................31
4.7 Power of Attorney for Insurance................................................................31
4.8 Protection of Collateral; Reimbursement........................................................31
4.9 Inspection; Verification.......................................................................32
4.10 Assignments, Records and Schedules of Accounts.................................................33
4.11 Reporting Regarding Inventory..................................................................33
4.12 Other Collateral Reports.......................................................................33
4.13 Status of Collateral...........................................................................34
4.14 Reinstatement..................................................................................34
4.15 Termination of Security Interest; Release of Collateral........................................34
Section 5 PROCEEDS OF ACCOUNTS AND INVENTORY
5.1 Cash Concentration Account.....................................................................34
5.2 Application of Deposits to Loan Account........................................................35
5.3 Crediting of Collections and Remittances.......................................................35
5.4 Cost of Collection.............................................................................36
5.5 Return of Funds................................................................................36
5.6 Notice to Account Debtors......................................................................36
5.7 Appointment of Attorney-in-Fact................................................................37
Section 6 SPECIFIC REPRESENTATIONS, WARRANTIES AND COVENANTS
6.1 Representations and Warranties Regarding Accounts..............................................37
6.2 Disputes and Claims Regarding Accounts.........................................................38
6.3 Compliance with Terms of Accounts; General Intangibles.........................................38
6.4 No Waivers, Extensions, Amendments.............................................................38
6.5 Lien Priority..................................................................................38
6.6 Location of Collateral.........................................................................38
6.7 Lien Waivers, Landlord Waivers, Warehouse Receipts.............................................39
6.8 Maintenance of Insurance.......................................................................39
6.9 Maintenance of Equipment.......................................................................39
6.10 Limitations on Dispositions of Inventory and Equipment.........................................40
Section 7 GENERAL REPRESENTATIONS AND WARRANTIES
7.1 Existence......................................................................................40
7.2 Authorization..................................................................................40
7.3 Enforceability.................................................................................40
5
7.4 Litigation; Proceedings........................................................................40
7.5 Taxes..........................................................................................41
7.6 Title..........................................................................................41
7.7 Consents; Approvals............................................................................41
7.8 Lawful Operations..............................................................................41
7.9 Environmental Compliance.......................................................................41
7.10 Environmental Laws and Permits.................................................................42
7.11 ERISA..........................................................................................42
7.12 Agreements; Adverse Obligations; Labor Disputes................................................43
7.13 Financial Statements...........................................................................43
7.14 Intellectual Property..........................................................................44
7.15 Insurance......................................................................................44
7.16 Value; Solvency................................................................................44
7.17 Investment Company Act Status..................................................................44
7.18 Regulation T, U, X Compliance..................................................................44
7.19 Full Disclosure................................................................................44
7.20 Addressing the Year 2000 Problem...............................................................44
7.21 Aggregated Liabilities. .......................................................................45
Section 8 COVENANTS OF THE BORROWER
8.1 Reporting and Notice Covenants.................................................................45
(a) Monthly Financial Statements..........................................................45
(b) Annual Financial Statements...........................................................45
(c) Officer's Certificate.................................................................46
(d) Monthly Reports as to Accounts and Accounts Payable...................................46
(e) Notice of Default.....................................................................46
(f) Annual Business Plan..................................................................47
(g) Other Information.....................................................................47
(h) Notices...............................................................................47
(i) Notice of Default under ERISA.........................................................48
(j) Environmental Reporting...............................................................48
(k) Multiemployer Plan Withdrawal Liability...............................................48
(l) SEC Reports; Press Releases...........................................................48
8.2 Affirmative Covenants..........................................................................48
(a) Corporate Existence...................................................................49
(b) Financial Records.....................................................................49
(c) Visitation............................................................................49
(d) Compliance with Law...................................................................49
(e) Compliance with Environmental Laws....................................................50
(f) Properties............................................................................50
(g) Use of Proceeds.......................................................................51
(h) Compliance with Terms of All Material Agreements......................................51
(i) Taxes.................................................................................51
(j) Insurance.............................................................................51
6
(k) Year 2000 Compliant Systems...........................................................51
8.3 Negative Covenants.............................................................................52
(a) Equity Transactions...................................................................52
(b) Credit Extensions.....................................................................52
(c) Indebtedness..........................................................................52
(d) Liens; Leases.........................................................................53
(e) Investments...........................................................................54
(f) Dividends; Management Fees............................................................54
(g) Change in Nature of Business..........................................................54
(h) Charter Amendments....................................................................54
(i) Compliance with ERISA.................................................................55
(j) Regulation U Compliance...............................................................56
(k) Accounting Changes....................................................................56
(l) Arm's-Length Transactions.............................................................56
(m) Aggregate Liabilities.................................................................56
(n) Deposit Accounts......................................................................56
8.4 Financial Covenants............................................................................57
(a) Fiscal Year Net Losses................................................................57
(b) Trade Payables........................................................................57
Section 9 EVENTS OF DEFAULT
9.1 Payment........................................................................................57
9.2 Representations and Warranties.................................................................57
9.3 Reporting and Notice Provisions; Violation of Certain Affirmative Covenants....................57
9.4 Violation of Negative Covenants and Financial Covenants........................................58
9.5 Other Loan Documents...........................................................................58
9.6 Cross-Default..................................................................................58
9.7 Destruction of Collateral......................................................................58
9.8 Material Adverse Effect........................................................................58
9.9 Termination of Existence.......................................................................58
9.10 Control........................................................................................58
9.11 Failure of Enforceability of this Agreement, Credit Document; Security.........................58
9.12 ERISA..........................................................................................58
9.13 Judgments......................................................................................58
9.14 Forfeiture Proceedings.........................................................................58
9.15 Financial Impairment...........................................................................58
Section 10 REMEDIES
10.1 Optional Defaults..............................................................................58
10.2 Automatic Defaults.............................................................................60
10.3 General Rights and Remedies of Agent and the Lenders...........................................60
10.4 Additional Remedies............................................................................60
(a) Possession of Collateral..............................................................60
7
(b) Foreclosure of Liens..................................................................61
(c) Disposition of Collateral.............................................................61
(d) Application of Collateral.............................................................61
10.5 Set-off........................................................................................61
10.6 Termination; Effect on Borrower Obligations....................................................61
10.7 Authority to Execute Transfers.................................................................62
10.8 Limited License to Liquidate...................................................................62
10.9 Equalization...................................................................................62
10.10 Remedies Cumulative............................................................................62
Section 11 THE AGENT
11.1 The Agent......................................................................................62
11.2 Nature of Appointment..........................................................................63
11.3 Agent as a Lender; Other Transactions..........................................................63
11.4 Instructions from Lenders......................................................................63
11.5 Lender's Diligence.............................................................................63
11.6 No Implied Representations.....................................................................64
11.7 Sub-Agents.....................................................................................64
11.8 Agent's Diligence..............................................................................64
11.9 Notice of Default..............................................................................64
11.10 Agent's Liability..............................................................................64
11.11 Agent's Indemnity..............................................................................65
11.12 Resignation or Removal of Agent................................................................65
Section 12 TRANSFERS AND ASSIGNMENTS
12.1 Transfer of Commitments........................................................................66
(a) Amount of Assignment..................................................................66
(b) Prior Consent.........................................................................66
(c) Agreement; Transfer Fee...............................................................67
(d) Revolving Credit Notes................................................................67
(e) Parties...............................................................................67
(f) Permitted Prepayment..................................................................68
12.2 Sale of Participations.........................................................................68
(a) Benefits of Participant...............................................................68
(b) Rights Reserved.......................................................................68
(c) No Delegation.........................................................................68
12.3 Borrower's Right to Demand Transfer............................................................68
12.4 Confidentiality................................................................................69
Section 13 INDEMNITIES
13.1 Increased Costs................................................................................69
13.2 Risk-Based Capital.............................................................................70
13.3 Taxes..........................................................................................70
(a) Taxes; Withholding....................................................................71
8
(b) Stamp Taxes...........................................................................71
(c) Other Taxes...........................................................................71
(d) Request for Refund....................................................................71
(e) Exemption Certificate.................................................................71
(f) Furnishing of Certificate.............................................................72
(g) Survival of Provision.................................................................72
13.4 Losses.........................................................................................72
13.5 Indemnification for Requests...................................................................73
13.6 General Indemnity..............................................................................73
13.7 Certificate for Indemnification................................................................73
13.8 Duty To Mitigate; Standard Treatment...........................................................73
Section 14 GENERAL
14.1 Amendments and Waivers.........................................................................74
14.2 General Appointment as Attorney-in-Fact........................................................74
(a) Agent Not Liable......................................................................75
(b) Performance by Agent of the Borrower's Obligations....................................75
(c) Authority to Execute Transfers........................................................76
14.3 Cumulative Provisions..........................................................................76
14.4 Binding Effect.................................................................................76
14.5 Costs and Expenses.............................................................................76
14.6 Survival of Provisions.........................................................................76
14.7 Immediate U.S. Funds...........................................................................76
14.8 Captions.......................................................................................77
14.9 Sharing of Information.........................................................................77
14.10 Interest Rate Limitation.......................................................................77
14.11 Limitation of Liability........................................................................77
14.12 Illegality.....................................................................................78
14.13 Notices........................................................................................78
14.14 Governing Law..................................................................................78
14.15 Entire Agreement...............................................................................78
14.16 JURY TRIAL WAIVER..............................................................................78
14.17 Jurisdiction; Venue; Inconvenient Forum; Service of Process....................................79
(a) Jurisdiction..........................................................................79
(b) Venue; Inconvenient Forum.............................................................79
(c) Service of Process....................................................................80
14.18 Execution in Counterparts......................................................................80
9
EXHIBITS AND ANNEXES
Exhibit A (Form of Revolving Credit Note)
Exhibit B (Form of Credit Request)
Exhibit C (Form of Rate Conversion/Continuation Request)
Exhibit D-1 (Form of Borrowing Base Certificate)
Exhibit D-2 (Form of Compliance Certificate)
Exhibit E (Form of Advertising Permission Letter)
Exhibit F-1 (Form of Landlord Waiver)
Exhibit F-2 (Form of Mortgagee Waiver - Landlord Fee)
Exhibit F-3 (Form of Warehouseman\Bailee Agreement)
Exhibit G (Form of Bank Assignment)
Exhibit H (Form of Signature Authorization Letter)
Exhibit I (Form of Restricted Account Agreement)
Annex I Commitments
Annex II Definitions
Annex III Conditions Precedent to Initial Loans
Annex IV Supplemental Schedule
Annex V Interim Waiver of Certain Closing Conditions
10
CREDIT AND SECURITY AGREEMENT
U.S. $20,000,000
Dated as of October 27, 1998
D.I.Y. HOME WAREHOUSE, INC., an Ohio corporation, the LENDERS listed on
the signature pages of this Agreement, NATIONAL CITY COMMERCIAL FINANCE, INC.,
an Ohio corporation, as Agent for the Lenders under this Agreement and NATIONAL
CITY BANK, a national banking association, as Letter of Credit Bank, hereby
agree as follows:
SECTION 1 DEFINITIONS AND ACCOUNTING TERMS.
1.1 CERTAIN DEFINED TERMS. Certain capitalized terms used in this
Agreement are defined in Annex II attached hereto and incorporated herein by
reference.
1.2 COMPUTATION OF TIME PERIODS. In this Agreement, for the
purpose of computing periods of time from a specified date to a later specified
date, the word "from" means "from and including" and the words "to" and "until"
each mean "to but excluding".
1.3 ACCOUNTING TERMS. All accounting and financial terms not
specifically defined herein shall be construed in accordance with GAAP as in
effect from time to time. In all cases, such accounting and financial terms
shall be applied on a basis consistent with those applied in the preparation of
the Borrower's audited financial statements for the Fiscal Year ending January
3, 1998; provided, that (a) all financial statements shall reflect the
Borrower's adoption of FAS 106 and (b) if any change in GAAP in itself affects
the calculation of any financial covenant in Section 8.4 of this Agreement, the
Borrower may by written notice to the Agent, or the Agent (upon request by the
Required Lenders) may by written notice to the Borrower, require that such
covenant thereafter be calculated in accordance with GAAP as in effect, and as
applied by the Borrower, immediately before such change in GAAP occurs. If any
such notice is given, the compliance certificates delivered pursuant to Section
8.1(c) of this Agreement after such change occurs shall be accompanied by
reconciliations of the difference between the calculation set forth therein and
a calculation made in accordance with GAAP as in effect from time to time after
such change occurs.
11
SECTION 2 STATEMENT OF TERMS.
2.1 REVOLVING CREDIT FACILITY.
(a) REVOLVING CREDIT LOANS. Subject to the terms and
conditions set forth in this Agreement, each Lender severally agrees to
make, from time to time from and after the Closing Date until the
Business Day immediately preceding the Revolving Credit Termination
Date, advances to or for the account of the Borrower on a revolving
credit basis (each, a "Revolving Credit Loan"); provided, that the
outstanding principal amount of Revolving Credit Loans made by or on
behalf of such Lender shall not at any time exceed the lesser of: (x)
an amount equal to such Lender's Ratable Portion of the Borrowing Base
of the Borrower at such time and (y) the amount of such Lender's
Revolving Credit Commitment in effect at such time. The aggregate
amount of the Revolving Credit Loans to be made hereunder shall not
exceed the lesser of (i) the Total Revolving Credit Commitment and (ii)
the Availability. Within the limits set forth in this Agreement, the
Borrower may borrow, repay and reborrow Revolving Credit Loans.
(b) REVOLVING CREDIT BORROWINGS. Subject to Section 2.1(a)
above, each Revolving Credit Borrowing shall be (i) with respect to
Prime Rate Loans, in an aggregate amount of not less than One Hundred
Thousand Dollars ($100,000) or, if greater, in an integral multiple of
One Thousand Dollars ($1,000) in excess thereof and (ii) with respect
to LIBOR Rate Loans, in an aggregate amount of not less than One
Million Dollars ($1,000,000) or, if greater, in an integral multiple of
One Hundred Thousand Dollars ($100,000) in excess thereof. The Borrower
shall be entitled to have more than one Revolving Credit Borrowing
outstanding at one time; provided, that the Borrower shall not be
entitled to request any Revolving Credit Borrowings that would result
in any Lender's having an aggregate of more than six (6) LIBOR Rate
Loans outstanding at any one time; and provided further, that, without
limiting the generality or effect of Section 3.2(b) hereof, the
Borrower shall not be entitled to request any Revolving Credit
Borrowing comprised of LIBOR Rate Loans if there shall then exist an
Event of Default or Potential Default.
(c) REVOLVING CREDIT NOTES; LOAN ACCOUNT. Each Lender's
Revolving Credit Loans shall be evidenced at all times by a Revolving
Credit Note executed and delivered by the Borrower, payable to the
order of such Lender and in a principal amount equal to such Lender's
Revolving Credit Commitment in effect at the execution and delivery of
the Revolving Credit Note. Whenever the Borrower obtains a Revolving
Credit Borrowing, each Lender shall endorse an appropriate entry in
respect of the Revolving Credit Loan of such Lender comprising such
Revolving Credit Borrowing on such Lender's Revolving Credit Note or
make an appropriate entry in a loan account (the "Loan Account")
maintained in such Lender's books and records, or both, to evidence
such Lender's Revolving Credit Loans. The Loan Account shall also
evidence: (i) accrued interest on the Revolving Credit Loans of such
Lender, (ii) all other amounts
12
due to the Lender in respect of such Revolving Credit Loans and (iii)
all payments by the Borrower in respect of such Revolving Credit Loans
and the Ratable Portion of Collections and Remittances received by such
Lender from the Agent for application to such Revolving Credit Loans.
Each entry on a Lender's Revolving Credit Note, books and records or
Loan Account shall be prima facie evidence of the data entered. The
failure of any Lender to record, or any error in recording any such
information shall not relieve, nor shall such entries by a Lender be a
condition to, the Borrower's obligation to pay the outstanding
principal amount of the Revolving Credit Loans, all accrued interest
thereon and other amounts payable with respect thereto in accordance
with the terms of the Revolving Credit Notes and this Agreement.
(d) CONTROL ACCOUNT MAINTAINED BY AGENT. The Agent shall
maintain on its books and records a control account (the "Control
Account") in respect of the Borrower and the Revolving Credit
Borrowings hereunder. The Agent shall record in the Control Account:
(i) all advances of Revolving Credit Borrowings to the Borrower, (ii)
the Ratable Portion of each Lender in the outstanding Revolving Credit
Borrowings, (iii) the amounts of any payments by the Borrower and
Collections and Remittances received and credited to reduce the
Revolving Credit Loans and (iv) the Ratable Portion of each Lender in
such payments and credited Collections and Remittances. Each entry by
the Agent in the Control Account shall be prima facie evidence of the
data entered. The failure of the Agent to record, or any error in
recording, any such information shall not relieve, nor shall such
entries by the Agent be a condition to, the Borrower's obligation to
pay the outstanding principal amount of the Revolving Credit Loans, all
accrued interest thereon and other amounts payable with respect thereto
in accordance with the terms of the Revolving Credit Notes and the
Agreement. In the event of any discrepancy or inconsistency between the
Control Account and any Lender's Loan Account, the Control Account
shall govern.
2.2 PERMITTED DISCRETION. The Agent may, but shall not be
obligated to, rely on each Borrowing Base Certificate and any other schedules or
reports in determining the eligibility of Inventory. The Borrower and the
Lenders agree that the Agent, in the good faith exercise of its Permitted
Discretion, may from time to time: (a) establish reserves against, and increase
or decrease the amount of reserves against Eligible Inventory, (b) reduce the
advance rates provided for in the definition of Borrowing Base or restore such
reduced advance rates to any level up to the advance rates stated in the
definition of Borrowing Base, provided, that the Agent shall notify the Borrower
of any such changes in the advance rates and such changes will be phased in
weekly and ratably over a period of six (6) weeks from the date of such notice
on a schedule to be determined by the Agent (c) impose additional restrictions
to the standards of eligibility set forth in the definition of Eligible
Inventory, (d) establish a Reserve Amount against the Borrowing Base (including
a Reserve Amount in connection with anticipated Environmental Remediation) and
to increase or decrease, from time to time, the amount of any such Reserve
Amount and (e) determine whether Inventory constitutes Eligible Inventory. The
Agent shall use reasonable efforts to notify the Borrower prior to any actions
taken under clauses (a)-(e) of this
13
Section 2.2, but shall not be liable for any damages arising out of any failure
to so notify the Borrower.
2.3 REQUESTS FOR REVOLVING CREDIT LOANS. Revolving Credit Loans
comprising a Revolving Credit Borrowing shall be made upon request of the
Borrower in accordance with clause (a) below or upon a request deemed to be made
by the Borrower pursuant to clause (b) below.
(a) CREDIT REQUESTS EXECUTED BY THE BORROWER. Requests from
the Borrower for Revolving Credit Loans comprising a Revolving Credit
Borrowing shall be given by the Borrower to the Agent not later than
12:00 noon (Cleveland, Ohio time) (i) on the Business Day which is the
requested date of a proposed Revolving Credit Borrowing comprised of
Prime Rate Loans and (ii) on the Business Day which is three (3)
Business Days before the requested date of a proposed Revolving Credit
Borrowing comprised of LIBOR Rate Loans. Except as otherwise provided
herein with respect to telephonic requests, each request (a "Credit
Request") for a Revolving Credit Borrowing shall be signed by the
Borrower and transmitted by the Borrower to the Agent by telecopier,
telex or cable (in the case of telex or cable, confirmed in writing
prior to the date of the requested Revolving Credit Borrowing), in
substantially the form of Exhibit B attached hereto. Each Credit
Request shall specify: (A) the requested date of the Revolving Credit
Loans comprising such Revolving Credit Borrowing, (B) the aggregate
amount of such Revolving Credit Loans, (C) whether the Revolving Credit
Borrowing is to be comprised of Prime Rate Loans or LIBOR Rate Loans,
and (D) in the case of a proposed Revolving Credit Borrowing comprised
of LIBOR Rate Loans, the initial Interest Period for such LIBOR Rate
Loans. Each Credit Request shall be irrevocable and binding on the
Borrower and be subject to the indemnification provisions of Section 3
of this Agreement. The Borrower may give a Credit Request
telephonically so long as: (I) upon request by the Agent, a written
Credit Request for such Revolving Credit Borrowing is received by the
Agent by 2:00 p.m. (Cleveland, Ohio time) on the same day such
telephonic Credit Request was given and (II) the other requirements of
this Section 2.3 are complied with by the Borrower. The Agent may rely
on such telephonic Credit Request to the same extent that the Agent may
rely on a written Credit Request. The Borrower shall bear all risks
related to the giving of a Credit Request by the Borrower whether given
telephonically or by such other method of transmission as the Borrower
shall elect.
(b) REQUESTS FOR BORROWING DEEMED GIVEN. The Borrower shall be
deemed to have made a request for a Prime Rate Borrowing (a "Deemed
Credit Request"), which Deemed Credit Request shall be deemed to be
irrevocable (unless payment is otherwise made by the Borrower), upon
the occurrence of any of the following:
(i) LETTER OF CREDIT DRAWING. As specified in Section
2.8(d) of this Agreement, upon a drawing under the Letters of
Credit, the Borrower shall be
14
deemed to have made a request for a Prime Rate Borrowing in an
amount equal to the amount necessary to reimburse the Letter
of Credit Bank for such drawing upon the Letter of Credit.
(ii) PAYMENT OF INTEREST AND OBLIGATIONS. Unless
payment is otherwise made by the Borrower, upon any interest,
fee or other payment obligation hereunder becoming due without
payment by the Borrower, the Borrower shall be deemed to have
made a request for a Prime Rate Borrowing in an amount equal
to the amount necessary to pay such unpaid interest, fee or
other payment obligation.
(iii) PAYMENT OF REAL ESTATE RESERVE. Upon the
delivery to the Agent of written notification from National
City Bank (to include appropriate wire transfer instructions
and an acknowledgment that National City Bank is entitled to
deliver such notification under the terms of its documents
with the Borrower), the Borrower shall be deemed to have made
a request for a Prime Rate Borrowing in an amount equal to the
amount set forth in each such notification, to a maximum
aggregate amount for all such notifications of Two Million
Dollars ($2,000,000) and each such Prime Rate Borrowing shall
be made available to National City Bank in accordance with the
instructions set forth in the related notification. The Real
Estate Reserve shall decrease on a dollar for dollar basis
upon the receipt by National City Bank of the amounts set
forth in each of the notifications delivered to the Agent
under this Section 2.3(b)(iii). The Real Estate Reserve shall
be reduced to zero upon the earlier of (A) the date when the
aggregate amount of all Prime Rate Borrowings made pursuant to
this Section 2.3(b)(iii) equals Two Million Dollars
($2,000,000) or (B) the date of the receipt by the Agent of a
notification from National City Bank advising the Agent that
the Real Estate Reserve should be reduced to zero.
Each Lender acknowledges and agrees that its obligation to participate
in and make Loans comprising a Borrowing pursuant to a Deemed Credit
Request is absolute and unconditional and shall not be affected by any
event or circumstance whatsoever, including the occurrence of any
Potential Default or Event of Default hereunder or the failure of any
condition precedent set forth in Section 3 of this Agreement to be
satisfied at the time of the making of such Deemed Credit Request and
each Loan made by a Lender in satisfaction of its obligation shall be
made without any offset, abatement, withholding or reduction
whatsoever.
2.4 FUNDING OF REVOLVING CREDIT LOANS.
(a) AGENT ELECTION AS TO FUNDING. Promptly after receipt of a
Credit Request or Deemed Credit Request, the Agent shall elect, in its
sole discretion, either: (i) to require same day funding pursuant to
Section 2.4(b) for Revolving Credit Loans in
15
connection with such requested Borrowing or (ii) to request NCCF to make
a Settlement Loan pursuant to Section 2.4(c) in the amount of the
requested Revolving Credit Borrowing; provided, that if NCCF declines,
in its sole discretion, to make such a Settlement Loan, the Agent shall
elect to have the terms of Section 2.4(b) apply to such requested
Borrowing.
(b) SAME DAY FUNDING BY LENDERS. In the event the Agent has
elected to have same day funding of Loans pursuant to this Section
2.4(b), the Agent shall notify each Lender, by telecopy, telephone or
similar form of transmission, of each Credit Request or Deemed Credit
Request no later than 12:30 p.m. (Cleveland, Ohio time) on the date
received. Unless the Agent elects to have periodic funding of Loans by
the Lenders in accordance with Section 2.4(c) below, each Lender shall,
before 3:00 p.m. (Cleveland, Ohio time) on the date of each Revolving
Credit Borrowing requested, make available to the Agent, in immediately
available funds at the account of the Agent maintained at the Payment
Office, such Lender's Ratable Portion of such Revolving Credit
Borrowing.
(i) DISBURSEMENT OF FUNDS RECEIVED. On the date
requested by the Borrower for a Revolving Credit Borrowing,
after the Agent's receipt of the funds representing a Lender's
Ratable Portion of such Revolving Credit Borrowing and subject
to the terms and conditions set forth in this Agreement, the
Agent shall make such Revolving Credit Loan of such Lender
available to the Borrower, in immediately available funds, by
wire transfer or intrabank transfer to the Operating Account.
(ii) AVAILABILITY OF FUNDS. Unless the Agent shall
have received notice from a Lender prior to the time of any
Revolving Credit Borrowing that such Lender will not make
available to the Agent such Lender's Ratable Portion of the
Revolving Credit Borrowing, the Agent may assume that such
Lender has made its Ratable Portion of the Revolving Credit
Borrowing available to the Agent on the date of the Revolving
Credit Borrowing in accordance with Section 2.4(b) of this
Agreement. In reliance upon such assumption, the Agent may,
but shall not be obligated to, make available to the Borrower
on such date, a corresponding portion of the Revolving Credit
Borrowing. Any disbursement by the Agent in reliance on such
assumption shall be deemed to be a Revolving Credit Loan by
such Lender.
(c) PERIODIC FUNDING BY LENDERS; NCCF SETTLEMENT LOANS. In the
event the Agent elects, in its sole discretion, with the consent of
NCCF, to have periodic funding of Revolving Credit Borrowings pursuant
to Section 2.4(e) below, NCCF shall, upon the request of the Agent, on
the date requested by the Borrower for a Revolving Credit Borrowing,
make a Revolving Credit Loan to the Borrower from its own funds and on a
nonratable basis pending settlement pursuant to Section 2.4(e) below in
the amount of such requested Revolving Credit Borrowing (any such
Revolving Credit Loan made
16
solely by NCCF pursuant to this Section 2.4(c) being hereinafter
referred to as a "Settlement Loan" and, collectively with all such
Loans, as "Settlement Loans"); provided, that the outstanding principal
amount of Settlement Loans advanced by NCCF shall not at any time exceed
the lesser of: (x) an amount equal to the Borrowing Base of the Borrower
at such time minus the aggregate outstanding principal of Revolving
Credit Loans (excluding Settlement Loans but including Agent Special
Loans) at such time and (y) an amount equal to the aggregate Revolving
Credit Commitments of the Lenders in effect at such time minus the
aggregate outstanding Revolving Credit Loans (excluding Settlement Loans
but including Agent Special Loans) at such time.
(i) DISBURSEMENT OF NCCF FUNDS. If NCCF has agreed to
make a requested Settlement Loan, NCCF shall, before 2:00 p.m.
(Cleveland, Ohio time) on the date requested by the Borrower
for such Revolving Credit Borrowing, make such Settlement Loan
available to the Borrower, in immediately available funds, by
wire transfer or intrabank transfer to the Operating Account.
(ii) SETTLEMENT LOANS AS REVOLVING CREDIT LOANS. Each
Settlement Loan shall be deemed for all purposes hereof to be
a Revolving Credit Loan hereunder and shall be subject to all
the terms and conditions applicable to other Revolving Credit
Loans except that all payments thereon shall be payable to
NCCF solely for its own account (and for the account of the
holder of any participation interest with respect to such
Revolving Credit Loan purchased pursuant to Section 12.2 of
this Agreement).
(iii) DISBURSEMENT OF NCCF FUNDS. The Agent shall not
request NCCF to make any Settlement Loan if the Agent has
received written notice from any Lender that one or more of
the conditions set forth in Section 3 will not be satisfied on
the date requested by the Borrower for such Borrowing. Prior
to making any Settlement Loan, NCCF shall not otherwise be
required to determine whether the conditions precedent set
forth in Section 3 of this Agreement have been satisfied.
(d) PERIODIC FUNDING BY LENDERS; AGENT SPECIAL LOANS. The
Agent is hereby authorized by the Borrower and the Lenders, to make from
time to time, in the Agent's discretion, (i) after the occurrence of an
Event of Default which has not been waived by the Lenders or (ii) at any
time that any of the other applicable conditions precedent set forth in
Section 3 of this Agreement have not been satisfied, to make Revolving
Credit Loans to the Borrower from its own funds and on a nonratable
basis pending settlement pursuant to Section 2.4(e) below in the amount
of any requested Revolving Credit Borrowing (any such Loan being
hereinafter referred to individually as an "Agent Special Loan" and
collectively as "Agent Special Loans") on behalf of the Lenders which
the Agent, in its sole discretion, deems necessary or desirable;
provided, that the aggregate amount of such Agent Special Loans shall
not at any time exceed an
17
amount equal to (x) Five Hundred Thousand Dollars ($500,000) minus (y)
the amount by which Revolving Credit Loans (including Settlement Loans
but excluding Agent Special Loans) outstanding at such time exceeds the
Borrowing Base at such time. The Agent Special Loans shall be subject to
the periodic settlement with the Lenders pursuant to Section 2.4(e) of
this Agreement.
(i) REVOCATION OF AUTHORITY. The Required Lenders may
at any time revoke or limit the amount of the Agent's
authorization contained in this Section 2.4(d) to make Agent
Special Loans, any such revocation to be in writing and to
become effective prospectively upon the Agent's receipt
thereof.
(ii) TREATMENT OF AGENT SPECIAL LOANS. The Agent
Special Loans shall be repayable on demand, be secured by the
Collateral, constitute in all respects Revolving Credit Loans
and Obligations hereunder, and bear interest at the rate
applicable from time to time to the Revolving Credit Loans.
(e) SETTLEMENT OF SETTLEMENT LOANS AND AGENT SPECIAL LOANS.
The Agent and the Lenders hereby agree that, except in the case of
Revolving Credit Loans consisting of Settlement Loans or Agent Special
Loans pending settlement as provided in this Section, each Lender's
funded portion of such Revolving Credit Loans is intended to be equal at
all times to such Lender's Ratable Portion of the outstanding Revolving
Credit Loans. The Agent and the Lenders agree (which agreement shall not
be for the benefit of or enforceable by the Borrower) that, in order to
facilitate the administration of this Agreement and the other Loan
Documents, the Agent may elect, with the consent of NCCF, to settle
accounts (each such settlement of accounts hereunder, a "Settlement") as
to the Settlement Loans and Agent Special Loans among the Lenders on a
periodic basis in accordance with the following provisions:
(i) SETTLEMENT DATE. The Agent shall request such
Settlement of accounts of the Lenders as to Settlement Loans
and Agent Special Loans on a basis not less frequently than
once during each five (5) Business Day period, or on a more
frequent basis if so determined by the Agent: (A) on behalf of
NCCF, with respect to each outstanding Settlement Loan, and
(B) for itself, with respect to each Agent Special Loan, by
notifying the other Lenders by telecopy, telephone or other
similar form of transmission, of such requested Settlement, no
later than 12:30 p.m. (Cleveland, Ohio time) on the date of
such requested Settlement (the "Settlement Date"). Unless
otherwise so notified, the Settlement Date for outstanding
Settlement Loans and Agent Special Loans shall be Thursday of
each calendar week.
(ii) SETTLEMENT. Each Lender (other than NCCF, in the
case of Settlement Loans) shall make the amount of such
Lender's Ratable Portion of the outstanding principal amount
of the Settlement Loans and Agent Special Loans
18
with respect to which Settlement is requested available to the
Agent, for itself or for the account of NCCF, in immediately
available funds at the account of the Agent maintained at the
Payment Office not later than 2:00 p.m. (Cleveland, Ohio
time), on the Settlement Date applicable thereto. Such
Settlement shall occur regardless of whether the applicable
conditions precedent set forth in Section 3 have then been
satisfied. Such amounts made available to the Agent shall be
applied against the amounts of the applicable Settlement Loan
or Agent Special Loan and, together with the portion of such
Settlement Loan or Agent Special Loan representing NCCF's
Ratable Portion thereof, shall constitute Revolving Credit
Loans of such Lenders.
(iii) PARTICIPATION IN SETTLEMENT LOANS AND AGENT
SPECIAL LOANS. Notwithstanding the occurrence of a Potential
Default or an Event of Default (and regardless of whether the
Agent has requested a Settlement with respect to a Settlement
Loan or Agent Special Loan), in the event that any Revolving
Credit Loan pursuant to Section 2.4(e)(ii) cannot be made by a
Lender because such Lender is legally prohibited from making
such a Revolving Credit Loan, such Lender shall irrevocably
and unconditionally purchase and receive from NCCF or the
Agent, as applicable, without recourse or warranty, an
undivided interest and participation in such Settlement Loan
or Agent Special Loan to the extent of such Lender's Ratable
Portion thereof by paying to the Agent, in immediately
available funds, an amount equal to such Lender's Ratable
Portion of such Settlement Loan or Agent Special Loan on the
date the Revolving Credit Loan would have been made pursuant
to Section 2.4(e)(ii). If such amount is not in fact made
available to the Agent by any Lender, the Agent shall be
entitled to recover such amount on demand from such Lender
together with interest thereon at the Federal Funds Rate for
the first three (3) days from and after such demand and
thereafter at the interest rate then applicable to the
Revolving Credit Loans. From and after the date, if any, on
which a Lender purchases an undivided interest and
participation in any Settlement Loan or Agent Special Loan
pursuant to this Section 2.4(e)(iii), and subject to Section
2.14(c) and Sections 5.2 and 5.3 of this Agreement, such
Lender shall be entitled to its Ratable Portion of all
payments of principal and interest on the Loans made by or on
behalf of the Borrower and all Collections and Remittances
received by the Agent and credited to such Settlement Loan or
Agent Special Loan.
(iv) DISTRIBUTIONS OF PAYMENTS IN RESPECT OF
REVOLVING CREDIT LOANS PENDING SETTLEMENT. To the extent that
any payments made by or on behalf of the Borrower or any
Collections and Remittances received by the Agent are to be,
in accordance with the terms of this Agreement, applied to the
reduction of the Revolving Credit Loans, and to the extent no
Settlement Loans or Agent Special Loans are then outstanding,
the Agent may pay over such amounts to NCCF for application to
NCCF's Ratable Portion of such Revolving Credit
19
Loans. As of any Settlement Date, if payments, Collections or
Remittances received since the immediately preceding
Settlement Date have been applied to NCCF's Ratable Portion of
the Revolving Credit Loans other than Settlement Loans and
Agent Special Loans, as provided for in the immediately
preceding sentence, then NCCF shall pay to the Agent, for the
accounts of the Lenders, to be applied to the outstanding
Revolving Credit Loans of such Lenders, an amount such that
each Lender shall have outstanding, after giving effect to
such payments by NCCF, its Ratable Portion of such Revolving
Credit Loans; provided, that the Agent may net payments due
from NCCF pursuant to this sentence against payments due to
NCCF pursuant to Section 2.4(e)(i) on the applicable
Settlement Date, and require either NCCF or the other Lenders,
as applicable, to make only the amount of the payment due
after such netting.
(v) ALLOCATION AND ACCRUAL OF INTEREST. Pursuant to
the Agent's election for periodic funding, the Agent or NCCF
may be advancing, and be receiving repayments in respect of,
Revolving Credit Loans prior to the time the Lenders actually
advance or actually are repaid in respect of, Revolving Credit
Loans. As of each Settlement Date, each of: (A) NCCF with
respect to Settlement Loans, (B) the Agent with respect to
Agent Special Loans, and (C) each Lender with respect to the
Revolving Credit Loans (other than Settlement Loans and Agent
Special Loans), shall be entitled to interest accrued at the
applicable rate or rates payable under this Agreement on the
amount of funds employed by NCCF, the Agent or such Lender.
Funds shall be deemed employed by the Agent, NCCF or the
Lenders until such time as: (I) in the case of the Agent or
NCCF, payments are credited to the Borrower pursuant to
Section 2.14 or Collections or Remittances are received by the
Agent by reason of deposit to the Cash Concentration Account
and credited to the Borrower pursuant to Sections 5.2 and 5.3
or (II) in the case of the Lender, funds representing such
Lender's Ratable Portion of such payment or Collections and
Remittances are received by such Lender from the Agent
pursuant to Section 2.14(a) of this Agreement.
2.5 FAILURE OF LENDER TO FUND. (a) RECOVERY OF AMOUNTS. If and to
the extent that any Lender shall not have made available to the Agent such
Lender's Ratable Portion of any Revolving Credit Borrowing (whether advanced by
the Agent on behalf of the Lenders pursuant to Section 2.4(b), by NCCF on behalf
of the Lenders pursuant to Section 2.4(d), or the Agent on behalf of the Lenders
pursuant to Section 2.4(c))(such Lender being hereafter referred to as a
"Defaulting Lender"), and the Agent has made such amount available to the
Borrower, the Agent shall be entitled to recover such corresponding amount on
demand from such Defaulting Lender. If such Defaulting Lender does not pay such
corresponding amount forthwith upon the Agent's demand therefor, the Agent shall
promptly notify the Borrower and the Borrower shall immediately (but in no event
later than five (5) Business Days after such demand) pay such corresponding
amount to the Agent. The Agent shall also be entitled to recover from such
20
Defaulting Lender and the Borrower, (A) interest on such corresponding amount in
respect of each day from the date such corresponding amount was made available
by the Agent to the Borrower to the date such corresponding amount is recovered
by the Agent, at a rate per annum equal to either (1) if paid by such Defaulting
Lender, the overnight Federal Funds Rate or (2) if paid by the Borrower, the
then applicable rate of interest for Prime Rate Loans pursuant to Section 2.10
hereof, plus (B) in each case, an amount equal to any costs (including legal
expenses) and losses incurred as a result of the failure of such Defaulting
Lender to provide such amount as provided in this Agreement. Nothing herein
shall be deemed to relieve any Lender from its obligation to fulfil its
commitments hereunder or to prejudice any rights which the Borrower may have
against any Lender as a result of any default by such Lender hereunder,
including, without limitation, the right of the Borrower to seek reimbursement
from any Defaulting Lender for any amounts paid by the Borrower under clause (B)
above on account of such Defaulting Lender's default.
(b) PAYMENT CONSTITUTING RATABLE PORTION. If such Lender pays
to the Agent the Lender's Ratable Portion of such Revolving Credit
Borrowing prior to repayment of such amount by the Borrower, the amount
so repaid shall constitute such Lender's Ratable Portion of such
Revolving Credit Borrowing, and the Borrower shall have no further
obligation to make the payment required by Section 2.5(a).
(c) TREATMENT OF DEFAULTING LENDER. The Agent shall not be
obligated to transfer to a Defaulting Lender any payments made by the
Borrower to the Agent for the benefit of such Defaulting Lender if such
Lender has not made available to the Agent such Bank's Ratable Portion
of any Borrowing advanced pursuant to this Agreement. Until the earlier
of such Defaulting Lender's cure of such failure or the termination of
the Revolving Credit Commitments, all amounts repaid to the Agent by
the Borrower which would otherwise be required to be applied to such
Lender's Ratable Portion of the Obligations shall be advanced to the
Borrower by the Agent on behalf such Defaulting Lender to cure, in full
or in part, the failure by such Lender, but shall nevertheless be
deemed to have been paid to such Defaulting Lender in satisfaction of
the Obligations to which such payment would otherwise have been
applied. For purposes of voting or consenting to matters with respect
to the Loan Documents requiring the consent of all or any portion of
the Lenders, and determining Ratable Portions, any such Defaulting
Lender shall be deemed not to be a "Lender" and such Defaulting
Lender's Revolving Credit Commitment shall be deemed to be zero. The
terms of this Section 2.5(c) shall: (i) remain effective with respect
to such defaulting Lender until such time as the defaulting Lender
shall no longer be in default of any of its obligations under this
Agreement and (ii) not relieve or excuse the performance by the
Borrower of any of its duties or obligations hereunder.
(d) CONTINUING OBLIGATION OF LENDERS TO FUND. All Loans shall
be made by the Lenders simultaneously and in accordance with their
respective Ratable Portion. It is understood that: (i) a Lender shall
not be responsible for any failure by any other Lender
21
to perform its obligation to make any Loans hereunder, (ii) the
Revolving Credit Commitment of a Lender shall not be increased or
decreased as a result of any failure by any other Lender to perform its
obligation to make any Loans hereunder, (iii) failure by any Lender to
perform its obligation to make any Loans hereunder shall not excuse any
other Lender from its obligation to make any Loans hereunder, and (iv)
the obligations of each Lender hereunder shall be several, not joint
and several.
2.6 REPAYMENTS AND PREPAYMENTS; REDUCTION OF REVOLVING CREDIT LOAN
COMMITMENTS.
(a) REPAYMENT. The Borrower shall repay to the Agent for the
account of the Lenders: (i) the outstanding principal amount of the
Revolving Credit Loans on the Revolving Credit Termination Date and
(ii) the outstanding principal amount of the Revolving Credit Loans to
the extent otherwise provided in Section 5.3.
(b) MANDATORY PREPAYMENT OF REVOLVING CREDIT LOANS AND AGENT
SPECIAL LOANS.
(i) EXCESS REVOLVING CREDIT LOANS. If, on any
Business Day, the aggregate Revolving Credit Loans (including
Settlement Loans but excluding Agent Special Loans)
outstanding at such time exceeds an amount equal to the lesser
of: (x) the Borrowing Base of the Borrower at such time or (y)
the aggregate Revolving Credit Commitments of the Lenders in
effect at such time, then the Borrower shall on such day
prepay to the Agent for the account of the Lenders the
principal amount of such Revolving Credit Loans in an amount
at least equal to such excess.
(ii) EXCESS AGENT SPECIAL LOANS. If, on any Business
Day, the aggregate Agent Special Loans outstanding at such
time exceeds an amount equal to (A) Five Hundred Thousand
Dollars ($500,000) minus (B) the amount by which Revolving
Credit Loans (including Settlement Loans but excluding Agent
Special Loans) outstanding at such time exceeds the Borrowing
Base at such time, then the Borrower shall, on demand by the
Agent or, if no demand is made, on or before the third (3rd)
Business Day after the occurrence of such excess, prepay to
the Agent for the account of the Lenders an aggregate
principal amount of such Agent Special Loans in an amount at
least equal to such excess.
(iii) DEMAND FOR PREPAYMENT OF AGENT SPECIAL LOANS.
The aggregate outstanding amount of each Agent Special Loan
shall be prepaid by the Borrower to the Agent for itself and
for the benefit of the Lenders on or before the thirtieth
(30th) Business Day after the Agent shall have made such Agent
Special Loan.
22
(c) REDUCTION OF REVOLVING CREDIT COMMITMENT. Upon at least
five (5) Business Days' prior written notice to the Agent, the Borrower
may, without premium or penalty, in accordance with the terms of this
Agreement, request that the Lenders permanently reduce, in whole or in
part, the aggregate Revolving Credit Commitments; provided, that any
such reduction shall be subject to the following conditions: (i) each
such reduction shall be in an aggregate principal amount of not less
than One Million Dollars ($1,000,000) or, if greater, a multiple of
Five Hundred Thousand Dollars ($500,000) in excess thereof and (ii)
concurrently with such reduction, the Borrower shall make a principal
payment to the Agent for the account of each Lender in an amount equal
to the excess, if any, of such Lender's Revolving Credit Loans over the
Revolving Credit Commitment of such Lender as reduced to reflect the
reduction in the aggregate Revolving Credit Commitments. Each reduction
in the Revolving Credit Commitments hereunder shall be made among the
Lenders ratably in accordance with their Ratable Portion of the
aggregate Revolving Credit Commitments. On the date of each reduction,
the Borrower shall also pay to the Agent for the account of the Lenders
the commitment fees and interest accrued through the date of such
reduction in respect of the Revolving Credit Commitments of the
Lenders. Each reduction in the Revolving Credit Commitments shall be a
permanent reduction and no amount in excess of such reduced Revolving
Credit Commitment may be borrowed or reborrowed.
(d) PERMITTED PREPAYMENTS. In addition to amounts applied to
the Revolving Credit Loans under other provisions of this Agreement,
the Borrower may prepay all or, as to Prime Rate Loans only, any part
of the outstanding Revolving Credit Loans by giving notice to the Agent
for the account of the Lenders stating the proposed date of prepayment,
the Type of Borrowing being prepaid and the aggregate principal amount
of the prepayment: (i) not later than 11:00 a.m. (Cleveland, Ohio time)
on any Business Day, with respect to Prime Rate Loans and (ii) not
later than 11:00 a.m. (Cleveland, Ohio time) on the second (2nd)
Business Day prior to such prepayment, with respect to LIBOR Rate
Loans. Upon such notice, which shall be irrevocable, the Borrower
shall: (A) prepay the outstanding aggregate principal amount of the
Prime Rate Loans comprising part of the same Revolving Credit
Borrowing, in whole or ratably in part and (B) in respect of LIBOR Rate
Loans comprising part of the same Revolving Credit Borrowing, pay the
accrued interest to the date of such prepayment on the principal amount
of such Borrowing so prepaid; provided, that any prepayment of any
LIBOR Rate Loans made on any day other than the last day of an Interest
Period shall obligate the Borrower to reimburse the Lenders in respect
thereof pursuant to Section 13.4 of this Agreement.
2.7 RATE CONVERSION AND RATE CONTINUATION. The Borrower shall have
the right to convert or continue Revolving Credit Borrowings as LIBOR Rate Loans
or Prime Rate Loans, as the case may be, upon request delivered by the Borrower
to the Agent not later than 11:00 a.m. (Cleveland, Ohio time): (a) on the
Business Day that the Borrower desires to convert any LIBOR Rate Loans
comprising a Revolving Credit Borrowing into Prime Rate Loans so as to
23
comprise a Revolving Credit Borrowing, (b) three (3) Business Days prior to the
Business Day on which the Borrower desires to convert any Prime Rate Loans
comprising a Revolving Credit Borrowing into LIBOR Rate Loans for a given
Interest Period so as to comprise a Revolving Credit Borrowing, (c) three (3)
Business Days prior to the Business Day on which the Borrower desires to
continue any LIBOR Rate Loans comprising a Revolving Credit Borrowing as LIBOR
Rate Loans for an additional Interest Period of the same duration so as to
comprise a Revolving Credit Borrowing, and (d) three (3) Business Days prior to
the Business Day on which the Borrower desires to convert any LIBOR Rate Loans
having a particular Interest Period comprising a Revolving Credit Borrowing into
LIBOR Rate Loans having a different permissible Interest Period so as to
comprise a Revolving Credit Borrowing; provided, that each such Rate Conversion
or Rate Continuation shall be subject to the following:
(i) each Rate Conversion or Rate Continuation shall
be made among the Lenders based upon such Lender's Ratable
Portion of such converted or continued Loan comprising a
Revolving Credit Borrowing;
(ii) if less than all the outstanding principal
amount of a Loan comprising a Revolving Credit Borrowing is
converted or continued, the aggregate principal amount of such
Loans converted or continued shall be: (A) in the case of
LIBOR Rate Loans, not less than One Million Dollars
($1,000,000), or, if greater, an integral multiple of One
Hundred Thousand Dollars ($100,000) in excess thereof and (B)
in the case of Prime Rate Loans, not less than One Hundred
Thousand Dollars ($100,000), or if greater, an integral
multiple of One Thousand Dollars ($1,000);
(iii) each Rate Conversion or Rate Continuation shall
be effected as if each Lender were applying the proceeds of
the Loans resulting from such Rate Conversion or Rate
Continuation to the Loans being converted or continued, as the
case may be, and the accrued interest on any such Loans (or
portion thereof) being converted or continued shall be paid to
the Agent on behalf of each Lender by the Borrower at the time
of such Rate Conversion or Rate Continuation;
(iv) LIBOR Rate Loans shall not be converted or
continued at a time other than the end of an Interest Period
applicable thereto unless the Borrower shall pay, upon demand,
any amounts due to the Agent pursuant to Section 13 of this
Agreement;
(v) Loans may not be converted into or continued as
LIBOR Rate Loans so as to comprise a Revolving Credit
Borrowing if (A) without limiting the generality or effect of
Section 3.2(b) below, there then exists an Event of Default or
Potential Default or (B) the Interest Period applicable
thereto will expire less than one (1) month prior to the
Revolving Credit Termination Date; and
(vi) Loans that cannot be converted into or continued
as LIBOR Rate
24
Loans by reason of clause (iv) or (v) of this Section 2.7
shall be automatically converted at the end of the Interest
Period in effect for such LIBOR Rate Loans into Prime Rate
Loans.
Each such request for a conversion or continuation (a "Rate
Conversion/Continuation Request") in respect of Loans comprising a Revolving
Credit Borrowing shall be transmitted by the Borrower to the Agent by
telecopier, telex or cable (in the case of telex or cable, confirmed in writing
prior to the effective date of the Rate Conversion or Rate Continuation
requested), in substantially the form of Exhibit C attached hereto. The Rate
Conversion/Continuation Request shall specify: (A) the identity and amount of
the Loans comprising a Revolving Credit Borrowing that the Borrower requests be
converted or continued, (B) the Type of Loans into which such Loans are to be
converted or continued, (C) if such notice requests a Rate Conversion, the date
of the Rate Conversion (which shall be a Business Day) and (D) in the case of
Loans comprising a Revolving Credit Borrowing being converted into or continued
as LIBOR Rate Loans, the Interest Period for such LIBOR Rate Loans. The Borrower
may make Rate Conversion/Continuation Requests telephonically, provided, that in
the case of Loans comprising a Revolving Credit Borrowing being converted into
or continued as LIBOR Rate Loans, written confirmation of such Revolving Credit
Borrowing is received by the Agent by 2:00 p.m. (Cleveland, Ohio time) on the
same day of such telephonic Rate Conversion/Continuation Request. The Agent may
rely on such telephonic Rate Conversion/Continuation Request to the same extent
that the Agent may rely on a written Rate Conversion/Continuation Request. Each
Rate Conversion/Continuation Request, whether telephonic or written, shall be
irrevocable and binding on the Borrower and subject the Borrower to the
indemnification provisions of Section 13 of this Agreement. The Borrower shall
bear all risks related to giving any Rate Conversion/Continuation Request
telephonically or by such other method of transmission as the Borrower shall
elect.
2.8 LETTERS OF CREDIT. Subject to the terms and conditions set
forth in this Agreement, the Letter of Credit Bank agrees, at any time and from
time to time, from and including the Closing Date but in no event beyond the
thirtieth (30th) calendar day immediately preceding the Revolving Credit
Termination Date then in effect, to issue and deliver, or to extend the
expiration of, Letters of Credit for the account of the Borrower; provided, that
the aggregate undrawn face amount of Letters of Credit shall not exceed at any
time the lesser of: (i) Three Million Dollars ($3,000,000), or (ii) the
Availability at such time.
(a) TERM AND FORM OF LETTERS OF CREDIT. Each Letter of Credit
shall be issued in such form as the Letter of Credit Bank may
reasonably require and may be either: (i) a Standby Letter of Credit
issued for general corporate purposes in the ordinary course of
business of the Borrower or (ii) a Trade Letter of Credit issued for
the purposes of acquiring Inventory. Each Letter of Credit shall: (A)
permit drawings upon presentation of one or more sight drafts and such
other documents as specified by the Borrower in the Credit Request
delivered pursuant to Section 2.8(b) of this Agreement, which drawings
shall occur on or prior to the applicable expiration date; (B) by its
terms
25
expire not later than the earlier of one (1) year after the date of the
Letter of Credit or the fifteenth (15th) Business Day immediately prior
to the Revolving Credit Termination Date and (C) by its terms provide
for payment or drawings in Dollars.
(b) REQUESTS FOR LETTERS OF CREDIT. Letters of Credit shall be
issued upon request given by the Borrower to the Letter of Credit Bank
and the Agent not later than 10:00 a.m. (Cleveland, Ohio time), three
(3) Business Days prior to the requested date of the proposed issuance
of the Letter of Credit. Each such request for a Letter of Credit shall
be made in the form of a Credit Request transmitted by the Borrower to
the Letter of Credit Bank and the Agent by telecopier, telex or cable
(in the case of telex or cable, confirmed in writing prior to the date
of the requested issuance of the Letter or Credit), specifying with
respect to each Letter of Credit requested: (i) the face amount
thereof, (ii) the beneficiary, (iii) the intended date of issuance and
(iv) the terms of the Letter of Credit. Concurrently with each Credit
Request requesting a Letter of Credit, the Borrower shall execute and
deliver to the Letter of Credit Bank (with a copy to the Agent) an
appropriate request and Reimbursement Agreement in the Letter of Credit
Bank's then standard form (each a "Reimbursement Agreement"); provided,
that in the event of any conflict between the provisions of any such
Reimbursement Agreement and this Agreement, the provisions of this
Agreement shall govern. The Agent shall give each Lender reasonably
prompt notice of each such Letter of Credit Request by telex,
telecopier or cable.
(c) LENDERS TO PARTICIPATE. By the issuance of a Letter of
Credit (and without any further action on the part of the Letter of
Credit Bank, the Agent or the Lenders in respect thereof), the Letter
of Credit Bank hereby grants to each Lender, and each Lender hereby
acquires from the Letter of Credit Bank, a participation in such Letter
of Credit equal to such Lender's Ratable Portion of the face amount of
such Letter of Credit, effective upon the issuance of such Letter of
Credit. Each Lender acknowledges and agrees that its acquisition of
participations in respect of Letters of Credit and its obligation to
make payments in accordance with Section 2.4 of this Agreement are
absolute and unconditional and shall not be affected by any
circumstance whatsoever, including the occurrence and continuance of
any Potential Default or Event of Default hereunder, and that each such
payment shall be made without any offset, abatement, withholding or
reduction whatsoever.
(d) DRAWINGS TO CONSTITUTE LOANS. Promptly after it shall have
ascertained that any draft and any accompanying documents presented
under a Letter of Credit appear to be in conformity with the terms and
conditions of such Letter of Credit, the Letter of Credit Bank shall
give written or telecopy notice to the Borrower, the Agent and the
Lenders of the receipt and amount of such draft and the date on which
payment thereon will be made. The Borrower shall reimburse the Letter
of Credit Bank no later than the close of Business on the day on which
each such drawing is honored, in an amount, in same-day funds, equal to
the amount of such drawing. Any amount paid by the Letter of
26
Credit Bank in respect of a drawing on any Letter of Credit shall
automatically be deemed to be a Revolving Credit Borrowing comprised of
Prime Rate Loans as of the date of such payment. Each Lender shall be
deemed to have made a Loan in the amount of its Ratable Portion of any
such Borrowing (it being understood that each Lender's obligation to
make such payment is absolute and unconditional and shall not be
affected by any event or circumstance whatsoever, including the
occurrence of any Potential Default or Event of Default hereunder or
the failure of any condition precedent set forth in Section 3 of this
Agreement to be satisfied and each such payment shall be made without
any offset, abatement, withholding or reduction whatsoever). Each
Lender shall fund its Ratable Portion of such deemed Loan in accordance
with the Settlement procedures set forth herein. The proceeds of such
deemed Loans shall be applied directly by the Agent to reimburse the
Letter of Credit Bank for the amount of such drawing.
(e) OBLIGATIONS ABSOLUTE. The obligation of the Lenders to
make, and the Borrower to pay, any Revolving Credit Borrowing made
pursuant to Section 2.8(d) of this Agreement shall be absolute and
unconditional and shall be performed under all circumstances including,
without limitation: (i) any lack of validity or enforceability of any
Letter of Credit, (ii) the existence of any claim, offset, defense or
other right that the Borrower may have against the beneficiary of any
Letter of Credit or any successor in interest thereto, (iii) the
existence of any claim, offset, defense or other right that any Lender
may have against the Borrower or against the beneficiary of any Letter
of Credit or against any successor in interest thereto, (iv) the
existence of any fraud or misrepresentation in the presentment of any
draft or other item drawn and paid under any Letter of Credit or (v)
any payment of any draft or other item by the Letter of Credit Bank
which does not strictly comply with the terms of any Letter of Credit,
provided, that the payment shall not have constituted gross negligence
or willful misconduct on the part of the Letter of Credit Bank;
provided, further, that the Lenders shall not be obligated to make any
such payment provided by Section 2.8(d) of this Agreement with respect
to any wrongful payment or disbursement made under any Letter of Credit
as a result of the gross negligence or willful misconduct of the Letter
of Credit Bank to the extent that such negligence or willful misconduct
releases the Borrower of its obligations to reimburse the Letter of
Credit Bank and the Lenders under such Letter of Credit.
(f) RIGHTS OF LETTER OF CREDIT BANK. Neither the Letter of
Credit Bank, nor any of its correspondents, shall be responsible,
absent gross negligence or willful misconduct, as to any document
presented under a Letter of Credit, or any renewal or extension
thereof, which appears to be regular on its face and appears on its
face to conform to the terms of the Letter of Credit and to make
reasonable reference thereto, for the validity or sufficiency of any
signature or endorsement, for delay in giving any notice or failure of
any instrument to bear adequate reference to the Letter of Credit, or
to any renewal or extension
27
thereof, or failure of documents not clearly specified in the Letter of
Credit to accompany any instrument at negotiation, or for failure of
any person to note the amount of any draft on the reverse of the Letter
of Credit or on any renewal or extension thereof. Any action, inaction
or omission on the part of the Letter of Credit Bank or any of its
correspondents, under or in connection with any Letter of Credit or any
renewal or extension thereof or the related instruments or documents,
if in good faith and in conformity with such Laws, regulations or
customs as are applicable and the terms of this Section 2.8(f), shall
be binding upon the Borrower and shall not place the Letter of Credit
Bank or any of its correspondents under any liability to the Borrower,
in the absence of gross negligence or wilful misconduct by the Letter
of Credit Bank or its correspondents. The Letter of Credit Bank's
rights, powers, privileges and immunities specified in or arising under
this Agreement are in addition to any heretofore or at any time
hereafter otherwise created or arising, whether by statute or rule of
Law or contract.
(g) LETTER OF CREDIT BANK INDEMNITY. The Lenders shall
indemnify the Letter of Credit Bank (to the extent the Letter of Credit
Bank is not reimbursed by the Borrower, to the extent the Borrower is
obligated and fails to indemnify) from and against; (i) any loss or
liability (other than any caused by the Letter of Credit Bank's gross
negligence or willful misconduct) incurred by the Letter of Credit Bank
in respect of this Agreement and the Letters of Credit and (ii) any
out-of-pocket expenses incurred in defending itself or otherwise
related to this Agreement or any Letter of Credit (other than any
caused by the Letter of Credit Bank's gross negligence or willful
misconduct) including, without limitation, reasonable fees and
disbursements of legal counsel of its own selection (including, without
limitation, the reasonable interdepartmental charges of its salaried
attorneys) in the defense of any claim against it or in the prosecution
of its rights and remedies; provided, that each Lender shall be liable
for only its Ratable Portion of the whole loss or liability.
(h) EFFECT OF APPLICABLE LAW OR CUSTOM. All Letters of Credit
issued hereunder will, except to the extent otherwise expressly
provided in this Agreement, the Reimbursement Agreements or the Letters
of Credit, be governed by the Uniform Customs and Practice for
Documentary Credits (1993 Revision), International Chamber of Commerce
Publication No. 500, and any subsequent revisions thereof.
(i) TERMINATION OF LETTER OF CREDIT FACILITY. In the event
that: (i) any restriction is imposed on the Letter of Credit Bank
(including, without limitation, any legal lending or acceptance limits
imposed by the United States of America or any political subdivision
thereof) which in the judgment of the Letter of Credit Bank would
prevent the Letter of Credit Bank from issuing Letters of Credit or
maintaining its commitment to issue Letters of Credit or (ii) there
shall have occurred, at any time during the term of this Agreement: (A)
any outbreak of hostilities or other national or international crisis
or change in economic conditions if the effect of such outbreak, crisis
or change would make the creation of Letters of Credit impracticable,
(B) the enactment, publication, decree or other promulgation of any
statute, regulation, rule or order of any court or other governmental
authority which would materially and adversely affect the ability of
the Borrower to perform its obligations under this Agreement, or (C)
the taking
28
of any action by any government or agency in respect of its monetary or
fiscal affairs which would have a material adverse effect on the
issuance of Letters of Credit, then the Letter of Credit Bank, through
the Agent, in the case of the occurrence of any event described above,
shall give written notice of the occurrence of such event to the
Borrower and the Lenders, whereupon the commitment of the Letter of
Credit Bank to issue Letters of Credit shall terminate on the effective
date of such notice. The Borrower shall forthwith pay to the Letter of
Credit Bank all obligations in respect of Letters of Credit on the
maturity date of drawing of such Letter of Credit or such amounts shall
be deemed to be advanced as a Revolving Credit Borrowing consisting of
Prime Rate Loans in accordance with the terms of this Agreement.
2.9 FEES.
(a) CLOSING FEE. The Borrower agrees to pay to the Agent for
the sole account of the Agent a closing fee in the amount of
Seventy-Five Thousand Dollars ($75,000), due and payable on the Closing
Date.
(b) UNUSED COMMITMENT FEE. The Borrower agrees to pay to the
Agent for the ratable benefit of the Lenders (in accordance with each
Lender's Ratable Portion) a commitment fee on the average daily unused
portion of the total of the Revolving Credit Commitments from the
Closing Date until the Revolving Credit Termination Date, at the rate
of 3/8 of 1% per annum, payable monthly in arrears on the first day of
each calendar month commencing on the first day of the first calendar
month following the Closing Date, and on the Revolving Credit
Termination Date.
(c) COLLATERAL ADMINISTRATION FEE. The Borrower agrees to pay
to the Agent, for its sole account, a collateral administration fee, in
the amount of Two Thousand Dollars ($2,000) per calendar month, payable
on the Closing Date (prorated for the actual number of days remaining
in the calendar month) and on the first day of each calendar month
thereafter.
(d) PER DIEM AUDIT FEES. The Borrower agrees to pay for the
services associated with any inspection, audit or verification of the
Borrower's financial or other records, the Collateral or the premises
upon which the Collateral is located or any other security for the
Obligations; provided, that, so long as no Potential Default or Event
of Default has occurred and is continuing and which has not been waived
in writing by the Required Lenders, (i) the Borrower does not have to
pay for more than three (3) such audits per year and (ii) the fees for
such inspection, audit and verification will not exceed the lesser of
(A) $650 per day (plus out-of-pocket expenses) per auditor or field
examiner or (B) $6500 per audit.
(e) REFINANCE FEE. If the Borrower refinances its Obligations
under this Agreement in respect of Revolving Credit Loans, whether in
whole or in part, effective
29
any time, or terminates the Revolving Credit Commitments in whole, then
the Borrower shall pay to the Agent for the ratable benefit of the
Lenders (in accordance with each Lender's Ratable Portion), on the date
of such refinancing or termination, as the case may be, as compensation
to the Lenders for loss of bargain with respect to the credit advanced
hereunder, and not as a penalty, a termination fee in the amount of
Seventy-Five Thousand Dollars ($75,000) if such refinancing or
termination occurs on or prior to March 27, 2000; provided, that on and
after September 27, 1999, no such termination fee shall be payable if
the refinancing is made solely as a result of a replacement credit
extended by National City Bank and/or its Affiliates to the Borrower
which is in fact used to repay all of the Obligations in full.
(f) LATE CHARGES. If the Borrower fails to pay any amount due
under this Agreement, or any fee in connection herewith, in full within
ten (10) days after its due date, the Agent shall be entitled to, in
addition to its remedies under Section 10 hereof, and the Borrower will
incur and shall pay to the Agent for the ratable benefit of the Lenders
(in accordance with each Lender's Ratable Portion), in each such case,
a late charge equal to twenty dollars ($20.00); provided, that, in the
event that the Borrower does not pay such overdue amount within ten
(10) Business Days after such amount is overdue, the Borrower shall pay
such overdue amount plus an amount equal to five percent (5%) of such
unpaid amount. The payment of a late charge will not cure or constitute
a waiver of any Potential Default or Event of Default under this
Agreement.
(g) INVENTORY APPRAISAL. The Borrower agrees to pay for the
services and out-of-pocket expenses associated with any Inventory
appraisal, provided, that, so long as no Potential Default or Event of
Default has occurred and is continuing and which has not been waived in
writing by the Required Lenders, the Borrower does not have to pay for
more than one (1) Inventory appraisal per year. Each such Inventory
appraisal shall be performed by Hilco Great American, Schottenstein
▇▇▇▇▇▇▇▇▇ Capital Group or any other appraiser reasonably acceptable to
the Agent.
(h) LETTER OF CREDIT FEES. The Borrower shall pay the
following fees with respect to each Letter of Credit:
(i) LETTERS OF CREDIT. The Borrower agrees to pay to
the Agent for the ratable benefit of the Lenders (according to
each Lender's Ratable Portion) a per annum fee equal to one
and one-half percent (1.5%) of the aggregate LC Exposure of
the Lenders, payable monthly in arrears, on the first day of
each calendar month and upon the earlier maturity of the
Obligations, for each Letter of Credit, for so long as such
Letter of Credit is outstanding.
(ii) OTHER FEES RELATING TO LETTERS OF CREDIT. The
Borrower agrees to pay to the Letter of Credit Bank, for its
sole account, upon the issuance of any Letter of Credit, any
standard issuance fees and upon demand therefor by the
30
Letter of Credit Bank, any other standard amendment and
modification fees, draw fees and any other standard fees and
charges charged by the Letter of Credit Bank in connection
with Standby Letters of Credit and Trade Letters of Credit.
(i) PAYMENT OF FEES; NONREFUNDABLE. All fees set forth in this
Section 2.9 shall be paid on the date due, in immediately available
funds, to the Agent for distribution, if and as appropriate, to the
Lenders. Once paid, to the extent permitted by applicable Law, none of
such fees shall be refundable under any circumstances.
2.10 INTEREST ON REVOLVING CREDIT LOANS.
(a) INTEREST RATE. The Borrower shall pay interest on the
unpaid principal amount of each Revolving Credit Loan made by or on
behalf of each Lender from the date of such Revolving Credit Loan until
such principal amount shall be paid in full as follows:
(i) PRIME RATE LOANS. During such periods as any
Prime Rate Loan comprising a Revolving Credit Borrowing is
outstanding, at a rate per annum equal at all times to the sum
of the Prime Rate plus the Applicable Margin in effect from
time to time, payable monthly, in arrears, on the first day of
each calendar month commencing on the first day of the first
calendar month following the Closing Date, on the date such
Prime Rate Loan comprising a Revolving Credit Borrowing is
converted pursuant to Section 2.7 and on the Revolving Credit
Termination Date (whether occurring at maturity, by reason of
acceleration or otherwise).
(ii) LIBOR RATE LOANS. During such periods as any
LIBOR Rate Loan comprising a Revolving Credit Borrowing is
outstanding, at a rate per annum equal at all times to the sum
of the LIBOR Rate plus the Applicable Margin in effect from
time to time, payable on the last day of the Interest Period
related to such LIBOR Rate Loan and on the date such LIBOR
Rate Loan is converted or continued pursuant to Section 2.7
and on the Revolving Credit Termination Date (whether
occurring at maturity, by reason of acceleration or
otherwise).
(b) APPLICABLE MARGINS; TERMS OF ADJUSTMENT.
(i) COMMENCEMENT; CONDITIONS. So long as no Event of
Default shall have occurred which has not been waived in
writing by all of the Lenders, the Applicable Margin shall be
calculated as of the first day of each May and November of
each Fiscal Year (each such date being herein referred to as a
"Margin Adjustment Date"), commencing on May 1, 1999 (or as
soon as practicable thereafter but not later than thirty (30)
days after receipt of the
31
financial statements herein required), for the rolling twelve
(12) month period ending as of the last day of each March and
September immediately preceding each such Margin Adjustment
Date (each, a "Margin Determination Date"), so long as prior
to each such Margin Adjustment Date the Agent shall have
received the financial statements required by Sections 8.1(a)
and 8.1(b) for the period ending as of the Margin
Determination Date immediately preceding such Margin
Adjustment Date.
(ii) CALCULATION AND DURATION OF ADJUSTMENT. On each
Margin Adjustment Date, the Applicable Margin for each Type of
Loan and Letters of Credit shall be the Applicable Margin, in
each case, as set forth in the definition of such term set
forth in this Agreement, which corresponds to the ratio of
EBIT to Interest Expense of the Borrower as of the Margin
Determination Date applicable to such Margin Adjustment Date.
The Applicable Margin effective as of a particular Margin
Adjustment Date shall remain effective only until the next
succeeding Margin Adjustment Date at which time the Applicable
Margin shall be recalculated pursuant to this Section 2.10(b);
provided, that:
(A) if the Borrower shall not have delivered as of
any Margin Adjustment Date the financial statements
required to have been delivered under Sections 8.1(a)
and 8.1(b) of this Agreement and the Lenders have not
waived in writing the resulting Event of Default,
then, at the election of the Required Lenders, the
Applicable Margin shall immediately adjust to be the
Applicable Margin set forth in Level V of the
definition of Applicable Margin; provided, further,
that, in the event the resulting Event of Default has
been waived in writing by the Required Lenders, the
Applicable Margin shall be re-adjusted as soon as
practicable after receipt of such required financial
statements and remain effective as adjusted only
until the next succeeding Margin Adjustment Date, and
(B) if an Event of Default shall have occurred which
has not been waived in writing by the Required
Lenders, the interest rate shall, upon the election
of the Required Lenders, be the interest rate
applicable pursuant to Section 2.11 of this
Agreement.
2.11 DEFAULT INTEREST. If any principal, interest or fees due under
this Agreement shall not be paid when due or if any Revolving Credit Note or any
amounts due under any Revolving Credit Note shall not be paid at maturity,
whether such maturity occurs by reason of lapse of time or by operation of any
provision for acceleration of maturity therein contained, or if there shall
otherwise occur an Event of Default which has not been waived in writing by the
Required Lenders, the principal thereof and the unpaid interest and fees thereon
shall, at the election of the Required Lenders, bear interest, payable on demand
for Prime Rate Loans and LIBOR Rate Loans, at a rate per annum which shall be
equal at all times to two percent (2%) in excess of the
32
interest rate otherwise then payable pursuant to the terms of this Agreement.
2.12 ADDITIONAL INTEREST ON LIBOR RATE LOANS. To the extent that
any Lender shall be required under regulations of the Board of Governors of the
Federal Reserve System to maintain reserves with respect to liabilities or
assets consisting of or including Eurocurrency Liabilities, the Borrower shall
pay to such Lender additional interest on the unpaid principal amount of each
Loan during such periods as such Loan is a LIBOR Rate Loan, from the date such
Loan is made as a LIBOR Rate Loan until such principal amount is paid in full,
at an interest rate per annum equal at all times to the remainder obtained by
subtracting: (a) the LIBOR Rate for such Interest Period for such LIBOR Rate
Loan from (b) the rate obtained by dividing such LIBOR Rate by a percentage
equal to one hundred percent (100%) minus the Eurocurrency Reserve Percentage of
such Lender for such Interest Period, payable on each date on which interest is
payable on such LIBOR Rate Loan. A certificate as to the amount of such
additional interest shall be submitted to the Borrower by the Agent and shall be
conclusive and binding for all purposes, absent manifest error.
2.13 INTEREST RATE DETERMINATION.
(a) AGENT DETERMINATION NOTICE. The Agent shall determine the
LIBOR Rate in accordance with the definition of LIBOR Rate set forth in
Annex II of this Agreement. The Agent shall give prompt notice to each
of the Lenders and the Borrower of the applicable interest rate
determined by the Agent for purposes of Sections 2.7 and 2.10 of this
Agreement.
(b) FAILURE OF THE BORROWER TO ELECT. If no Interest Period is
specified in any Credit Request or any Rate Conversion/Continuation
Request for any LIBOR Rate Loans, the Borrower shall be deemed to have
selected an Interest Period with a duration of one (1) month. If the
Borrower shall not have given notice in accordance with Section 2.7 of
this Agreement to continue any LIBOR Rate Loans into a subsequent
Interest Period (and shall not have otherwise delivered a Rate
Conversion/Continuation Request in accordance with Section 2.7 of this
Agreement to convert such Loans), such LIBOR Rate Loans shall, at the
end of the Interest Period applicable thereto (unless repaid pursuant
to the terms hereof), automatically convert into Prime Rate Loans.
2.14 PAYMENTS AND COMPUTATIONS.
(a) PAYMENTS. In addition to payments otherwise made by the
Borrower by reason of Collections and Remittances deposited to the Cash
Concentration Account as specified in Section 5.2, the Borrower shall
make any payment to be directly made by the Borrower under this
Agreement and under the Notes with respect to principal of, interest
on, and other amounts relating to Loans, not later than 12:00 noon
(Cleveland, Ohio time) on the day when due by deposit of Dollars, in
immediately available funds, to the Agent's account maintained at the
Payment Office of the Agent as specified in this Agreement for
33
distribution by the Agent to the Lenders and application thereof by the
Lenders to the Borrower's Loan Account. Payments received by such
deposit of Dollars, in immediately available funds, after 12:00 noon
(Cleveland, Ohio time) shall be deemed to have been received on the
next succeeding Business Day. Except to the extent otherwise provided
in Section 2.4(c) in respect of the settlement of accounts among the
Agent and the Lenders on any Settlement Date, after receipt of any such
payment, the Agent will promptly distribute like funds relating to such
payment (other than amounts payable pursuant to Sections 2.9(a) and
2.9(c) of this Agreement solely to the Agent) ratably to each of the
Lenders for the account of its respective Lending Office.
(b) PAYMENT PROCEDURES. The Control Account of the Borrower
will be charged with all Loans made by the Lenders to the Borrower and
all other Obligations of the Borrower under this Agreement or any other
Loan Document. The Borrower hereby authorizes each Lender to charge the
Control Account of the Borrower with such Obligations. The Control
Account of the Borrower will be credited in accordance with this
Section 2.14(b) with all payments received by the Agent directly from
such Borrower or for the account of the Borrower. The Control Account
of the Borrower will also be credited in accordance with Section 5.2
with all Collections and Remittances received by the Agent in the Cash
Concentration Account of the Borrower. The Agent shall send the
Borrower a monthly statement reflecting the activity in the Control
Account. Any and all such periodic or other statements or
reconciliations of the Control Account shall be final, binding and
conclusive upon the Borrower in all respects, absent manifest error,
unless the Agent receives specific written objection thereto from the
Borrower within thirty (30) Business Days after such statements or
reconciliation shall have been sent to the Borrower by the Agent. The
Loan Accounts of each Lender shall reflect the activity in the Control
Account applicable to such Lender's Loan Account. In the event of any
discrepancies or inconsistencies between the Control Account and any
Lender's Loan account, the Control Account shall govern.
(c) APPLICATION OF PAYMENTS. Payments distributed to each
Lender pursuant to Section 2.14(a) above shall in each case be applied
by such Lender in accordance with the terms of this Agreement. Prior to
the occurrence of an Event of Default, all funds received under this
Section 2.14 shall be applied to the Loans and/or other Obligations of
the Borrower to the Agent and the Lenders under this Agreement all in
such order and method of application as may be elected by the Agent, in
its sole discretion; provided, that the Agent will use its reasonable
best efforts to avoid applications that would cause early prepayment of
a LIBOR Rate Loan prior to the expiration of the applicable Interest
Period, provided, further, that if, as of the date of application of
any such payments and after giving effect to such payments, there is a
positive Availability with respect to the revolving Credit Loans and
there are excess funds in the Cash Concentration Account, then the
Agent will notify the Borrower of such excess funds and the Borrower
will have one (1) Business Day to instruct the Agent, in writing, to
apply such excess funds to (i) subject to Section 13.4, the repayment
of LIBOR Loans, (ii) maintain such excess funds
34
in the Cash Concentration Account or (iii) transfer such excess funds
to the Operating Account. Any notification by the Borrower under this
Section 2.14(c) shall be irrevocable.
Upon the occurrence and continuation of an Event of Default,
all funds received by the Agent hereunder shall, except as otherwise
provided in Section 5.2, be applied in the following order: first, to
the payment of any Fees, Related Expenses or other Obligations due and
payable by the Borrower to the Agent hereunder or under any of the
other Loan Documents, including advances of Revolving Credit Loans by
the Agent pursuant to Section 2.4 and any other amounts advanced by the
Agent on behalf of the Lenders; second, to the payment of any Fees,
Related Expenses or other Obligations due and payable by the Borrower
to the Letter of Credit Bank hereunder or under any of the other Loan
Documents; third, to the ratable payment of any Fees, Related Expenses
or other Obligations due and payable by the Borrower to the Lenders
hereunder or under any of the Loan Documents other than those
Obligations specifically referred to in this Section 2.14; fourth, to
the ratable payment of interest due on the Revolving Credit Loans made
to the Borrower; and fifth, to the ratable payment of principal due on
the Revolving Credit Loans made to the Borrower.
(d) AUTHORIZATION TO CHARGE ACCOUNT. The Borrower hereby
authorizes the Agent and each Lender (and, with respect to amounts
payable under any Reimbursement Agreement, each Lender and the Letter
of Credit Bank), to charge from time to time against any or all of the
Borrower's accounts with the Agent or such Lender (or the Letter of
Credit Bank, as applicable) any amount owing to the Agent or such
Lender (or the Letter of Credit Bank, as applicable). Notice of any
such charge shall be given promptly to the Borrower by the Agent, the
Letter of Credit Bank or the appropriate Lender, as the case may be.
(e) COMPUTATION OF INTEREST AND FEES. All computations of
interest, fees and other compensation shall be made by the Agent on the
basis of a year of 360 days in each case for the actual number of days
(including the first day but excluding the last day) occurring in the
period for which such interest or fees are payable. Each determination
by the Agent of interest, fees or other amounts of compensation due
hereunder shall be rebuttably presumed to be correct.
(f) PAYMENT NOT ON BUSINESS DAY. Whenever any payment
hereunder or under the Revolving Credit Notes shall be stated to be due
on a day other than a Business Day, such payment shall be made on the
next succeeding Business Day. Any such extension or reduction of time
shall in such case be included in the computation of payment of
interest, fees or other compensation, as the case may be.
(g) PRESUMPTION OF PAYMENT IN FULL BY THE BORROWER. Unless the
Agent shall have received notice from the Borrower prior to the date on
which any payment is
35
due to the Lenders hereunder that the Borrower will not make such
payment in full, the Agent may assume that the Borrower has made such
payment in full to the Agent on such date. In reliance upon such
assumption, the Agent may, but shall not be obligated to, distribute to
each Lender on such due date the amount then due such Lender. If and to
the extent the Borrower shall not have made such payment in full to the
Agent, each Lender shall repay to the Agent promptly upon demand the
amount distributed to such Lender together with interest thereon, for
each day from the date such amount is distributed to such Lender until
the date such Lender repays such amount to the Agent, at the rate
applicable to the Borrower plus the amount of any costs, expenses,
liabilities or losses incurred by the Agent in connection with its
distribution of such funds.
2.15 CHANGE IN LAW RENDERING LIBOR RATE LOANS UNLAWFUL.
Notwithstanding any other provision of this Agreement, if any Lender determines
that any applicable Law, or any change therein, or any change in the
interpretation or administration of any Law by any governmental authority,
central bank or comparable agency charged with the interpretation or
administration thereof, or compliance by such Lender (or its Lending Office)
with any request or directive (whether or not having the force of law) of any
such authority, central bank or comparable agency, shall make it unlawful or
impossible, or any such governmental authority, central bank or agency asserts
that it is unlawful, for any Lender or its Lending Office to perform its
obligations hereunder to make LIBOR Rate Loans or to fund or maintain LIBOR Rate
Loans hereunder, then, upon notice to the Agent and the Borrower by such Lender:
(a) the obligation of the Lenders to make, or to convert Loans into, LIBOR Rate
Loans shall be suspended until the Agent shall notify the Borrower and the
Lenders that the circumstances causing such suspension no longer exist and (b)
the Borrower shall immediately, or at such later date, if any, as may thereafter
be permitted by relevant Law, prepay in full the then outstanding principal
amount of all LIBOR Rate Loans of all Lenders, together with interest accrued
thereon and any other amounts payable to the Lenders hereunder unless the
Borrower, within five (5) Business Days of notice from the Agent, converts all
LIBOR Rate Loans of all Lenders then outstanding into Loans of another Type in
accordance with Section 2.7 of this Agreement as to which such circumstances do
not exist. Any such payment or Rate Conversion shall be subject to the
provisions of Section 13.4 of this Agreement.
2.16 UNAVAILABILITY. Notwithstanding any other provision in this
Agreement, if at any time with respect to any LIBOR Rate Loans:
(a) UNAVAILABLE QUOTATIONS. The Agent determines (which
determination shall be conclusive) that quotations of interest rates
for Dollar deposits are not being provided in the relevant amounts or
for the relevant maturities to, or the circumstances affecting the
London interbank market of deposits in Dollars make it impracticable
to, determine the LIBOR Rate, or
(b) UNAVAILABLE DEPOSITS. Any Lender determines that Dollar
deposits of the relevant amount for the relevant Interest Period are
not available in the London interbank
36
market of deposits of Dollars for the purpose of funding the LIBOR Rate
Loans,
then: (i) each LIBOR Rate Loan will automatically, on the last day of the then
existing Interest Period therefor, convert into a Prime Rate Loan and (ii) the
obligation of the Lenders to make or to convert Loans into LIBOR Rate Loans
shall be suspended until the Agent shall notify the Borrower and the Lenders
that the circumstances causing such suspension no longer exist.
2.17 PRO RATA TREATMENT. Except as set forth in Sections 2.4(c),
2.9(c) and 10.5 of this Agreement, each Borrowing, each payment or prepayment of
principal of any Borrowing, each payment of interest on the Loans, each payment
of the fees provided for hereunder and each Rate Conversion or Rate Continuation
of Loans comprising a Borrowing shall be allocated among the Lenders in
accordance with each Lender's Ratable Portion (or, if the Revolving Credit
Commitments shall have expired or been terminated, in accordance with the
respective principal amounts of each Lender's Loans).
SECTION 3 CONDITIONS OF LENDING.
3.1 CONDITIONS PRECEDENT TO INITIAL LOANS. The effectiveness of this
Agreement, and the obligation of each Lender to make a Revolving Credit Loan on
the occasion of each Borrowing and each Rate Conversion or Rate Continuation,
and the obligation of the Letter of Credit Bank to issue any Letters of Credit,
are subject to the condition precedent that: (i) the conditions set forth in
Annex III attached hereto and incorporated herein by reference, shall have been
satisfied on or before the Closing Date of this Agreement, as determined by the
Agent in its sole discretion, and (ii) the Agent shall have received on or
before the Closing Date of this Agreement the documents and deliveries set forth
on said Annex III (which, in the case of exhibits to this Agreement, shall be in
the forms attached hereto, with blanks completed).
3.2 CONDITIONS PRECEDENT TO ALL LOANS. On the date of each Credit
Event, each of the following shall have been satisfied as a condition precedent
to such Credit Event:
(a) REPRESENTATION BRINGDOWN. As of the date of any Credit
Event, and before and after giving effect thereto, the representations
and warranties contained in Sections 4, 5, 6 and 7 of this Agreement
are true and correct in all respects on and as of the date of such
Credit Event with the same effect as though made on and as of such
date, except to the extent such representations and warranties
expressly relate to an earlier date; and
(b) NO DEFAULT; COMPLIANCE WITH TERMS. As of the date of any
Credit Event, and before and after giving effect thereto, the Borrower
shall be in compliance with all other terms and provisions set forth
herein and in each other Loan Document on its part to be observed or
performed, and at the time of and immediately after such Credit Event
(after giving effect to such Credit Event), no Potential Default or
Event of Default shall have occurred and be continuing; and
37
(c) NO MATERIAL ADVERSE CHANGE. As of the date of any Credit
Event, and before and after giving effect thereto, there shall have
been no event which has or could reasonably be expected to have a
Material Adverse Effect; and
(d) CONFIRMATION OF BORROWING BASE. The Borrower shall have
delivered to the Agent a Borrowing Base Certificate for the period in
which such Credit Event occurs; and
(e) OTHER DELIVERIES. The Agent and the Lenders shall have
received such other approvals, opinions or documents as the Agent and
the Lenders may reasonably request consistent with the terms of this
Agreement.
Each Credit Event and each receipt by the Borrower of the proceeds of any Loan
shall constitute a representation and warranty by the Borrower that on the date
of such Credit Event, the statements in clauses (a) through (c) above are true
and correct as of such date and that the actions required under clauses (d) and
(e) above have in fact been taken as of such date.
SECTION 4 SECURITY INTEREST IN COLLATERAL; COLLATERAL REQUIREMENTS.
4.1 GRANT OF SECURITY INTEREST. To secure the prompt payment and
performance of the Obligations, and in addition to any other collateral or Lien
securing the Obligations, the Borrower hereby grants to the Agent for itself and
for the benefit of the Lenders, a continuing security interest in and to and a
pledge of all of the tangible and intangible personal property and assets of the
Borrower (the "Collateral"), whether now owned or existing or hereafter acquired
or arising and wheresoever located including, without limitation: (a) all
Accounts, (b) all Inventory, (c) all Equipment, (d) all General Intangibles, (e)
any and all deposits or other sums at any time credited by or due from the
Lenders to the Borrower, whether in the Cash Concentration Account, another
depository account, or other account, (f) all Instruments, documents, documents
of title, policies and certificates of insurance, investment property, goods,
choses in action, Chattel Paper, cash or other property, to the extent owned by
the Borrower or in which the Borrower has an interest, (g) all Collateral which
now or hereafter is at any time in the possession or control of any of the
Lenders or in transit by mail or carrier to or from any of the Lenders or in the
possession of any Person acting in a Lender's behalf, without regard to whether
such Lender received the same in pledge, for safekeeping, as agent for
collection or transmission or otherwise or whether such Lender had conditionally
released the same, and any and all balances, sums, proceeds and credits of the
Borrower with such Lender, (h) all accessions to, substitutions for, and all
replacements, Products and Proceeds of the herein above-referenced property of
the Borrower described in this Section 4.1 including, but not limited to,
proceeds of insurance policies insuring such property and (i) all books,
records, and other property (including, but not limited to, credit files,
programs, printouts, computer software, programs, and disks, magnetic tape and
other magnetic media, and other materials and records) of the Borrower
38
pertaining to any such above-referenced property of the Borrower.
4.2 GRANT OF LICENSE. The Borrower hereby grants to the Agent (and
its agents, representatives and assigns), for itself and for the benefit of the
Lenders, a fully-paid, royalty-free, worldwide right and license to, upon the
occurrence and continuation of an Event of Default (unless appropriately waived
in writing in accordance with this Agreement), (a) use or sell or otherwise
transfer, any and all of the Borrower's Inventory which may bear or utilize any
of the Borrower's Intellectual Property; (b) use or sell any such
work-in-process, raw materials or completed or finished products and (c) accept
any and all orders or shipments of products ordered by the Borrower from
Manufacturers and use or sell any such products bearing or utilizing any of the
Borrower's Intellectual Property.
4.3 PERFECTION. The Borrower shall execute such financing statements
provided for by applicable Law, and otherwise take such other action and execute
such assignments or other instruments, control agreements or documents, in each
case as the Agent may request, to evidence, perfect, or record the Agent's
security interest in the Collateral or to enable the Agent to exercise and
enforce its rights and remedies under this Agreement with respect to any
Collateral. The Borrower hereby authorizes the Agent on behalf of the Lenders to
execute and file any such financing statement or continuation statement on the
Borrower's behalf. The parties acknowledge that a carbon, photographic, or other
reproduction of this Agreement shall be sufficient as a financing statement to
the extent permitted by Law.
4.4 GENERAL REPRESENTATIONS AS TO COLLATERAL. The Borrower represents
that the Supplemental Schedule sets forth: (a) the principal place of business
of the Borrower and the office where its chief executive offices and accounting
officers are located, (b) the office where Borrower keeps its records concerning
the Accounts and General Intangibles, (c) the location of the Borrower's
registered office, (d) each location at which any Inventory, Equipment or other
tangible Collateral of the Borrower is located, including, without limitation,
the location of any warehouse, bailee or consignee at which Collateral is
located (with respect to Collateral located with such warehouse, bailee or
cosignee, the Supplemental Schedule shall expressly indicate to the reasonable
satisfaction of the Agent, (1) the type of location of the Collateral (e.g.,
warehouse, bailee, consignee or otherwise); (2) the type of Collateral located
at each such location; (3) whether the Collateral is segregated or otherwise
identifiable at each such location; and (4) the approximate dollar value of the
Collateral located at each such location), (e) the locations and addresses of
all of the Borrower's owned or leased real property, (f) the locations of
Borrower's registered offices, agents, other offices and places of business
during the five (5) years prior to the Closing Date, and (g) all trade names,
assumed names, fictitious names and other names used by Borrower during the five
(5) years prior to the Closing Date.
4.5 TITLE TO COLLATERAL; LIENS; TRANSFERS. The Borrower has good,
indefeasible and merchantable title to and ownership of the Collateral, free and
clear of all Liens, except for Liens permitted under Section 8.3(d). Except as
permitted by Sections 8.3(a) or 8.3(d) hereof or as otherwise provided herein or
in any other Loan Document, the Borrower shall not encumber,
39
pledge, mortgage, grant a security interest in, assign, sell, lease or otherwise
dispose of or transfer, whether by sale, merger, consolidation, liquidation,
dissolution or otherwise, any of the Collateral.
4.6 CHANGES AFFECTING PERFECTION. The Borrower shall not, without
giving the Agent thirty (30) days' prior notice thereof: (a) make any change in
any location where Borrower's Inventory or Equipment is maintained, or locate
any of Borrower's Inventory or Equipment at any new locations (other than in
connection with sales of Inventory in the ordinary course of business and the
closing of the Bedford and Canton locations), (b) make any change in the
location of its chief executive office, principal place of business or the
office where Borrower's records pertaining to its Accounts and General
Intangibles are kept, (c) add any new places of business or close any of its
existing places of business (other than the stores located in Bedford and
Canton), (d) make any change in Borrower's name or corporate structure, adopt
new trade names, assumed names or fictitious names or otherwise add any name
under which the Borrower does business, (e) make any other change (other than
sales of Inventory in the ordinary course of business and other dispositions of
Collateral permitted by this Agreement and the other Loan Documents and other
than the creation or suffering to exist of Liens permitted by Section 8.3(d))
which might affect the perfection or priority of the Agent's Lien in the
Collateral.
4.7 POWER OF ATTORNEY FOR INSURANCE. The Borrower shall promptly
deliver to the Agent true copies of all reports made to insurance companies for
claims with respect to a single occurrence in excess of Fifty Thousand Dollars
($50,000). The Borrower hereby irrevocably makes, constitutes, and appoints the
Agent (and all officers, employees, or agents designated by the Agent) as its
true and lawful attorney-in-fact and agent, with full power of substitution,
such that the Agent shall have the right and authority to make and adjust claims
under such policies of insurance, receive and endorse the name of the Borrower
on, any check, draft, instrument or other item of payment for the proceeds of
such policies of insurance and make all determinations and decisions with
respect to such policies of insurance; provided, however, that the Agent may not
exercise the power of attorney granted by this Section 4.7 except after (a) the
occurrence of an Event of Default that has not been waived by the Required
Banks, or (b) the occurrence of an event of loss in excess of Fifty Thousand
Dollars ($50,000), with respect to which the Agent in good faith determines that
the Borrower is not diligently pursuing its claims. The Borrower hereby ratifies
all that said attorneys shall lawfully do or cause to be done by virtue hereof.
This power of attorney is a power coupled with an interest and shall be
irrevocable.
4.8 PROTECTION OF COLLATERAL; REIMBURSEMENT. All reasonable insurance
expenses and all reasonable expenses of protecting, storing, warehousing,
insuring, handling, maintaining, and shipping any Collateral, any and all
excise, property, sales, use, or other taxes imposed by any state, Federal, or
local authority on any of the Collateral, or in respect of the sale thereof, or
otherwise in respect of the Borrower's business operations which, if unpaid,
could result in the imposition of any Lien upon the Collateral, shall be borne
and paid by the Borrower, subject to the provisions of Section 8.2(i). If the
Borrower fails to promptly pay any portion thereof when due, except as may
otherwise be permitted under this Agreement or under any of the other Loan
40
Documents, the Agent, at its option, may, but shall not be required to, pay the
same. All sums so paid or incurred by the Agent for any of the foregoing and any
and all other reasonable sums for which the Borrower may become liable under
this Agreement and all reasonable costs and expenses (including reasonable
attorneys' fees and paralegals' fees, legal expenses, and court costs, expenses
and other charges related thereto) which the Agent may incur in enforcing or
protecting its Liens on or rights and interests in the Collateral or any of its
rights or remedies under this Agreement or any other agreement between the
parties to this Agreement or in respect of any of the transactions to be had
under this Agreement shall be repayable on demand and upon the expiration of
five (5) calendar days after such demand, the Borrower shall be deemed to have
delivered a Deemed Credit Request in the relevant amount whereupon such amount
shall become a Revolving Credit Borrowing. Unless otherwise provided by law, the
Lender shall not be liable or responsible in any way for the safekeeping of any
of the Collateral or for any loss or damage thereto or for any diminution in the
value thereof, or for any act or default of any warehouseman, carrier,
forwarding agency, or other Person whomsoever.
4.9 INSPECTION; VERIFICATION. During regular business hours and after
reasonable notice to the Borrower, and subject to the limitations set forth in
Sections 2.9(d) and (g), the Agent and each of the Lenders (by any of its
officers, employees, agents, representatives, or designees, including another
Lender) shall have the right to inspect the Borrower's Collateral and to inspect
and audit, all books, records, journals, orders, receipts, or other
correspondence related thereto (and to make extracts or copies thereof as the
Agent may request) and to inspect the premises upon which any of the Collateral
is located for the purpose of verifying the amount, quality, quantity, value,
and condition of, or any other matter relating to, the Collateral; provided,
that, upon the occurrence of an Event of Default (unless waived in writing by
the Required Lenders), the Agent and the Lenders may exercise such access and
other rights at any time the Agent or any Lender deems such action necessary or
desirable. In addition to inspections as outlined above, the Agent or its
designee shall have the right, upon reasonable notice to and consultation with
the Borrower and subject to Section 5.6, to make test verifications of the
Accounts and other Collateral and physical verifications of the Inventory and
other tangible items of the Collateral at the expense of the Borrower and in any
manner and through any commercially reasonable medium that the Agent considers
advisable, and the Borrower agrees to furnish all such assistance and
information as the Agent may require in connection therewith. The Borrower at
its expense will prepare and deliver to the Agent at any time and from time to
time promptly upon the Agent's request, the following reports: (a) a
reconciliation of all its Accounts, (b) trial balances, and (c) a test
verification of such Accounts as the Agent may request, provided, that the Agent
may make such request only at such time as (i) the aggregate amount of all
Accounts exceeds One Million Dollars ($1,000,000) or (ii) an Event of Default
has occurred and is continuing. The Agent shall deliver to each of the Lenders
copies of each audit report prepared pursuant to this Section 4.9 and all other
reports prepared and delivered to the Agent pursuant to this Section 4.9.
4.10 ASSIGNMENTS, RECORDS AND SCHEDULES OF ACCOUNTS. Upon the Agent's
request and to the extent the aggregate amount of all Accounts exceeds One
Million Dollars
41
($1,000,000), the Borrower shall furnish the Agent with copies of proof of
delivery and the original copy, if available, of all documents relating to
Accounts including, but not limited to, repayment histories and present status
reports, and such other matters and information relating to the status of then
existing Accounts as the Agent shall reasonably request. If, upon the occurrence
of an Event of Default, the Agent so requests, the Borrower shall execute and
deliver to the Agent, on forms supplied by the Agent and at such intervals as
the Agent may from time to time require, written assignments of all of its
Accounts after shipment of the subject goods, together with copies of invoices
and/or invoice registers related thereto. Upon request of a Lender, the Agent
shall deliver to such Lender copies of each report and all other items delivered
pursuant to this Section 4.10.
4.11 REPORTING REGARDING INVENTORY. The Borrower shall report
inventory figures no later than fifteen (15) calendar days after the end of each
month based upon month-end balances reconciled to the period end balance sheet.
The Borrower's Inventory shall be reported based upon reconciliation of the
financial statements to the perpetual inventory system or, at the Borrower's
option, a weekly physical count, as the case may be, and: (a) the Borrower shall
deliver to the Agent and the Lenders, weekly in the case of inventory records
and monthly in the case of the general ledger, set forth in such detail and with
such categories as the Agent shall require (including, but not limited to, a
report indicating Inventory that has been designated as "inactive" or that will
be removed from the Borrower's current merchandise assortment by the Borrower on
a basis consistent with the current and historical accounting practice of the
Borrower and all other information deemed reasonably necessary by the Agent to
determine the level of Eligible Inventory and ineligible Inventory), (b) the
values shown on reports of Inventory shall be at the lower of cost or market
value determined in accordance with the Borrower's first-in first-out
accounting, consistently applied and (c) no later than fifteen (15) calendar
days after the end of each month, or more frequently as may be customary in
asset based financing transactions, if the Agent shall so request, the Borrower
shall submit to the Agent an inventory report reconciled to the Borrowing Base
Certificate for the end of such month, the Borrower's perpetual inventory
records and its general ledger, broken down into such detail and with such
categories as the Agent shall reasonably require (including, but not limited to,
a report indicating the Inventory that has been designated as "inactive" or that
will be removed from the Borrower's current merchandise assortment by the
Borrower on a basis consistent with the current and historical accounting
practice of the Borrower, and all other information deemed necessary by the
Agent to determine the level of Eligible Inventory and ineligible Inventory).
Upon request of a Lender, the Agent shall deliver to such Lender copies of each
report and all other items delivered pursuant to this Section 4.11.
4.12 OTHER COLLATERAL REPORTS. The Borrower shall deliver to the
Agent, Borrowing Base Certificates at the times and in the manner prescribed in
Section 8.1(c)(ii) hereof. The Borrowing Base Certificate and such other reports
shall be on forms requested or provided by the Agent and shall contain such
detailed information as is reasonably satisfactory to the Agent. Upon request of
a Lender, the Agent shall deliver to such Lender copies of each report and all
other items delivered pursuant to this Section 4.12.
42
4.13 STATUS OF COLLATERAL. The Borrower agrees to advise the Agent
promptly, in reasonable detail, of any substantial change relating to the type,
quantity or quality of the Collateral, which could have a Material Adverse
Effect.
4.14 REINSTATEMENT. The provisions of Sections 4, 5 and 6 of this
Agreement shall remain in full force and effect and continue to be effective
should any petition be filed by or against the Borrower for liquidation or
reorganization, should the Borrower become insolvent or make an assignment for
the benefit of creditors or should a receiver or trustee be appointed for all or
any significant part of the Borrower's assets or should any other Financial
Impairment relating to the Borrower occur, and shall continue to be effective or
be reinstated, as the case may be, if at any time payment and performance of the
Obligations, or any part thereof, is, pursuant to applicable Law, rescinded or
reduced in amount, or must otherwise be restored or returned by any obligee of
the Obligations, whether as a "voidable preference", "fraudulent conveyance", or
otherwise, all as though such payment or performance had not been made. In the
event that any payment, or any part thereof, is rescinded, reduced, restored or
returned, the Obligations shall be reinstated and deemed reduced only by such
amount paid and not so rescinded, reduced, restored or returned.
4.15 TERMINATION OF SECURITY INTEREST; RELEASE OF COLLATERAL. Upon the
payment in full of all Obligations and the termination of the Revolving Credit
Commitments and all LC Exposure of the Lenders: (a) the security interests and
licenses granted to the Agent under this Agreement and under any other Loan
Documents shall terminate, (b) all rights to the Collateral shall revert to the
Borrower, (c) the Agent will, at the Borrower's expense, execute and deliver to
the Borrower such documents as the Borrower may reasonably request to evidence
the termination of such security interests and the release of such Collateral,
(d) all powers of attorney granted in favor of the Agent and\or the Lenders
under this Agreement shall terminate and (e) this Agreement and all of the Loan
Documents with the Borrower will be terminated, and Borrower will have no
further liabilities or obligations thereunder (except any liabilities and/or
obligations which under the terms of this Agreement or any Loan Document survive
termination of such agreements).
SECTION 5 PROCEEDS OF ACCOUNTS AND INVENTORY.
5.1 CASH CONCENTRATION ACCOUNT. All funds in the Cash Concentration
Account shall be deemed to be the property of the Agent for the benefit of the
Lenders and shall be subject only to the signing authority designated from time
to time by the Agent. Other than as set forth in Section 2.14(c) of this
Agreement, the Borrower shall have no interest therein or control over such
funds. The Agent shall have sole access to the Cash Concentration Account and
the Borrower shall have no access thereto. The Borrower hereby grants to the
Agent a security interest in all funds held in the Cash Concentration Account as
security for the Obligations. The Cash Concentration Account shall not be
subject to any deduction, set-off, banker's lien or any other right in favor of
any person or entity other than the Agent.
43
5.2 APPLICATION OF DEPOSITS TO LOAN ACCOUNT. Prior to the occurrence
of an Event of Default, and after the occurrence of any Event of Default which
has been waived by the Required Lenders, deposits to the Cash Concentration
Account in respect of the Borrower shall be credited (in accordance with Section
5.3) to the Borrower as follows: (i) first, to the outstanding principal amount
of any Revolving Credit Loans as follows: (A) first, to Revolving Credit Loans
comprised of Agent Special Loans, (B) second, to Revolving Credit Loans
comprised of Settlement Loans, and (C) third, to other Revolving Credit Loans in
such order as the Agent may choose in its sole discretion; (ii) then, to any
other outstanding Obligation hereunder as the Agent may determine and (iii)
last, to the extent of any excess not so credited, such deposits shall remain in
the Cash Concentration Account of the Borrower for application against
subsequent Loans to the Borrower and as collateral security for the Obligations
(whether then or thereafter outstanding) of the Borrower. Upon the occurrence of
an Event of Default which has not been waived in writing by the Required
Lenders, such deposits to the Cash Concentration Account in respect of the
Borrower shall be credited to the Borrower as follows: (i) first, to the payment
of any fees, Related Expenses or other Obligations due and payable by the
Borrower to the Agent hereunder or under any of the other Loan Documents; (ii)
second, to the payment of any fees, Related Expenses or other Obligations due
and payable by the Borrower to the Letter of Credit Bank hereunder or under any
of the other Loan Documents; (iii) third to the ratable payment of any fees,
Related Expenses or other Obligations due and payable by the Borrower to the
Lenders hereunder or under any of the other Loan Documents other than those
Obligations specifically referred to in this sentence; (iv) fourth, to the
ratable payment of interest due on the Loans made to the Borrower, and (v)
fifth, to the outstanding principal amount of any other outstanding Obligations
of the Borrower as follows: (A) first, to Revolving Credit Loans comprised of
Agent Special Loans, (B) second, to Revolving Credit Loans comprised of
Settlement Loans, and (C) third, to other Obligations in such order as the Agent
may choose in its sole discretion; in such order as the Agent may choose in its
sole discretion.
5.3 CREDITING OF COLLECTIONS AND REMITTANCES. For the purpose of
calculating interest and determining the aggregate Loans outstanding and
resulting Availability hereunder, all Collections and Remittances shall be
credited to the Borrower: (i) in the case of Collections and Remittances
received by wire transfer on the next succeeding Business Day after such receipt
and (ii) in the case of all other Collections and Remittances received, on the
Business Day on or after which the Agent receives notice of the deposit of the
proceeds of such Collections and Remittances into the Cash Concentration
Account, in good funds with respect thereto prior to 12:00 noon (Cleveland, Ohio
time). From time to time, upon advance written notice to the Borrower, the Agent
may adopt such additional or modified regulations and procedures as it may deem
reasonable and appropriate with respect to the operation of the Cash
Concentration Account and the services to be provided by the Agent under this
Agreement not inconsistent with the terms of this Agreement.
5.4 COSTS OF COLLECTION. All reasonable costs of collection of the
Borrower's Accounts, including out-of-pocket expenses, administrative and
record-keeping costs, reasonable attorney's fees, and all service charges and
costs related to the establishment and maintenance of
44
the Cash Concentration Account, shall be the sole responsibility of the
Borrower, whether the same are incurred by the Agent or the Borrower, and the
Agent, in its sole discretion, may charge the same against the Borrower and/or
any account maintained by the Borrower with the Agent and the same shall be
deemed part of the Obligations hereunder. The Borrower hereby indemnifies and
holds the Agent harmless from and against any loss or damage with respect to any
Collection or Remittance deposited in the Cash Concentration Account which is
dishonored or returned for any reason. If any Collection or Remittance deposited
in the Cash Concentration Account is dishonored or returned unpaid for any
reason, the Agent, in its sole discretion, may charge the amount of such
dishonored or returned Collection or Remittance directly against the Borrower
and/or any account maintained by the Borrower with the Agent and such amount
shall be deemed part of the Obligations hereunder. The Agent shall not be liable
for any loss or damage resulting from any error, omission, failure or negligence
on the part of the Agent under this Agreement, except losses or damages
resulting from the Agent's gross negligence or willful misconduct as determined
by a final judgment of a court of competent jurisdiction.
5.5 RETURN OF FUNDS. Upon the payment in full of all Obligations and
the termination of the Revolving Credit Commitments hereunder: (a) the Agent's
security interests and other rights in funds in the Cash Concentration Account
under Section 5.1 of this Agreement shall terminate, (b) all rights to such
funds shall revert to the Borrower, and (c) the Agent will, at the Borrower's
expense, take such steps as the Borrower may reasonably request to evidence the
termination of such security interests and to effect the return to the Borrower
of such funds.
5.6 NOTICE TO ACCOUNT DEBTORS. The Borrower hereby authorizes the
Agent, now and at any time or times thereafter, in accordance with the powers
conferred upon the Agent pursuant to Section 5 or any other applicable provision
of this Agreement, to: (a) notify any or all Account Debtors that the Accounts
have been assigned to the Agent, for the ratable benefit of the Agent, the
Lenders and the other holders of the Obligations, and that the Agent has a
security interest therein, and (b) upon the occurrence of an Event of Default
(unless waived in writing in accordance with Section 14.1), direct such Account
Debtors to make all payments due from them to the Borrower upon the Accounts
directly to the Agent or to a lockbox designated by the Agent; provided, that
the Agent shall not exercise any of its rights under this sentence unless: (i)
(A) the Borrower has failed to so notify or direct any such Account Debtor
following a request from the Agent to the Borrower for such notification or
direction, or (B) the Agent reasonably believes that the Borrower has failed to
so notify or direct any such Account Debtor, (ii) such Account Debtor owes the
Borrower in excess of Fifty Thousand Dollars ($50,000) and (iii) an Event of
Default has occurred and is continuing. The Agent shall promptly furnish the
Borrower with a copy of any such notice sent. Any such notice, in the Agent's
sole discretion, may be sent on the Borrower's stationery, in which event the
Borrower shall co-sign such notice with the Agent.
5.7 APPOINTMENT OF ATTORNEY-IN-FACT. The Borrower hereby irrevocably
appoints the Agent (and all persons designated by the Agent) as the Borrower's
true and lawful attorney (and agent-in-fact) to: (a) effectuate, in the
Borrower's name, the Borrower's obligations under
45
this Agreement and (b) upon the occurrence of an Event of Default (unless
appropriately waived in writing by the Required Lenders), in the Borrower's or
Agent's name: (i) demand payment of the Accounts, (ii) enforce payment of the
Accounts, by legal proceedings or otherwise, (iii) exercise all of the
Borrower's rights and remedies with respect to the collection of the Accounts
and any other Collateral, (iv) settle, adjust, compromise, extend, or renew the
Accounts, (v) settle, adjust, or compromise any legal proceedings brought to
collect the Accounts, (vi) if permitted by applicable law, sell or assign the
Accounts and other Collateral upon such terms, for such amounts, and at such
time or times as the Agent deems advisable, (vii) discharge and release the
Accounts and any other Collateral, (viii) take control, in any manner, of any
item of payment or Proceeds relating to any Collateral, (ix) prepare, file, and
sign the Borrower's name on a proof of claim in bankruptcy or similar document
against any Account Debtor, (x) prepare, file, and sign the Borrower's name on
any notice of Lien, assignment, or satisfaction of Lien or similar document in
connection with the Accounts, (xi) do all acts and things reasonably necessary,
in the Agent's good faith discretion, to fulfill the Borrower's obligations
under this Agreement, (xii) endorse the name of the Borrower upon any of the
items of payment or Proceeds relating to any Collateral and deposit the same to
the account of the Agent on account of the Obligations, (xiii) endorse the name
of the Borrower upon any Chattel Paper, document, Instrument, invoice, freight
▇▇▇▇, ▇▇▇▇ of lading, or similar document or agreement relating to the Accounts,
Inventory and any other Collateral, (xiv) use the Borrower's stationery and sign
the name of the Borrower to verifications of the Accounts and notices thereof to
Account Debtors, (xv) use the information recorded on or contained in any data
processing equipment and computer hardware and software relating to the
Accounts, Inventory, and any other Collateral to which the Borrower has access,
and (xvi) notify post office authorities to change the address for delivery of
the Borrower's mail to an address designated by the Agent, receive and open all
mail addressed to the Borrower, and, after removing all Collections and
Remittances and other Proceeds of Collateral, forward the mail to the Borrower.
The Borrower hereby ratifies all that said attorneys shall lawfully do or cause
to be done by virtue hereof. This power of attorney is a power coupled with an
interest and shall be irrevocable.
SECTION 6 SPECIFIC REPRESENTATIONS, WARRANTIES AND COVENANTS RELATING TO
COLLATERAL.
6.1 REPRESENTATIONS AND WARRANTIES REGARDING ACCOUNTS. The Borrower
agrees and represents that each Account and each invoice representing any
Account (other than proceeds of letters of credit, insurance proceeds, contract
rights, Chattel Paper, Instruments and documents not arising directly out of a
sale or lease of goods or services) will (a) cover a bona fide sale or lease and
delivery of merchandise usually dealt in by the Borrower, or the rendition by
the Borrower of services to customers in the ordinary course of business, (b) be
for a liquidated amount maturing as stated in the schedule thereof and in the
duplicate invoice covering said sale, and (c) other than the Agent's security
interest therein, not be subject to any Lien, or, except for those asserted by
the Account Debtor in the ordinary course of business, any offset, deduction or
counterclaim. None of the Borrower's invoices shall be backdated, postdated or
redated and the Borrower shall make no sales on extended dating or credit terms
other than in
46
accordance with Borrower's past practices as disclosed to the Agent in writing.
6.2 DISPUTES AND CLAIMS REGARDING ACCOUNTS. The Borrower shall use
all commercially reasonable efforts to settle or adjust promptly all disputes
and claims in excess of Fifty Thousand Dollars ($50,000) per such dispute or
claim, at no expense to the Agent, but no discount, credit or allowance outside
the ordinary course of business or material adverse extension, compromise or
settlement shall be granted to any customer or Account Debtor and no returns of
merchandise outside the ordinary course of business shall be accepted by the
Borrower without the Agent's consent which consent shall not be unreasonably
withheld or delayed.
6.3 COMPLIANCE WITH TERMS OF ACCOUNTS; GENERAL INTANGIBLES. The
Borrower will perform and comply in all material respects with all obligations
in respect of Accounts, Chattel Paper, General Intangibles and under all other
contracts and agreements to which it is a party or by which it is bound relating
to the Collateral where failure to so comply would result in a Material Adverse
Effect, unless the validity thereof is being contested in good faith by
appropriate proceedings and such proceedings do not involve the material danger
of the sale, forfeiture or loss of the Collateral which is the subject of such
proceedings or the priority of the lien in favor of the Agent thereon.
6.4 NO WAIVERS, EXTENSIONS, AMENDMENTS. Other than in the ordinary
course of business and in accordance with its business practices prior to the
execution and delivery of this Agreement, the Borrower will not, without the
Agent's prior written consent, which consent shall not be unreasonably withheld
or delayed, grant any extension of the time of payment of any of the Accounts,
Chattel Paper or Instruments, compromise, compound or settle the same for less
than the full amount thereof, release, wholly or partly, any person liable for
the payment thereof, or allow any credit or discount whatsoever thereon.
6.5 LIEN PRIORITY. From and after the Closing Date, by reason of the
filing of financing statements, assignments of financing statements and
termination statements in all requisite governmental offices, this Agreement and
the other Loan Documents will create and constitute a valid and perfected first
priority security interest (except as permitted by this Agreement or the other
Loan Documents) in and Lien on that portion of the Collateral which can be
perfected by such filing, which security interest will be enforceable against
the Borrower and all third parties as security for payment of all Obligations.
6.6 LOCATION OF COLLATERAL. All of the locations of the Borrower, its
Subsidiaries and of the Collateral are set forth in the Supplemental Schedule
attached hereto. Other than as set forth in the Supplemental Schedule attached
hereto neither the Borrower nor any of its Subsidiaries keeps any Collateral
owned by it or them on any property not owned in fee simple by the Borrower or
such Subsidiary, as the case may be.
6.7 LIEN WAIVERS, LANDLORD WAIVERS, WAREHOUSE RECEIPTS. The Borrower
will not create, permit or suffer to exist, and will defend the Collateral
against and take such other
47
action as is necessary to remove, any Lien, claim or right, in or to the
Collateral, other than the Liens permitted by Section 8.3(d) of this Agreement,
and will defend the right, title and interest of the Agent in and to any of the
Borrower's rights to the Collateral and in and to the Proceeds and Products
thereof against the claims and demands of all persons whomsoever. In the event
any Inventory or Equipment of the Borrower is at any time located on any real
property not owned by the Borrower and subject to the liens of this Agreement
and the other Loan Documents in favor of the Agent, the Borrower will obtain and
maintain in effect at all times while any such Inventory or Equipment is so
located valid and effective lien waivers in form and substance satisfactory to
the Agent, whereby each owner, landlord and mortgagee having an interest in such
real property shall disclaim any interest in such Inventory or Equipment, as the
case may be, and shall agree to allow the Agent reasonable access to such real
property in connection with any enforcement of the security interest granted
hereunder, provided, that the Borrower shall not be required to obtain such a
lien waiver with respect to any location to the extent the Borrower has
established a reserve against Eligible Inventory in an amount equal to two (2)
months' gross rent charged to the Borrower pursuant to a valid and binding lease
related to such location. Upon delivery to the Agent of a valid and effective
lien waiver for any location for which a reserve has been established in
accordance with the preceding sentence, such reserve shall be released from the
definition of Eligible Inventory. The Borrower shall not store any Inventory
with a bailee, warehouseman or similar party without the Agent's prior written
consent (other than Dedicated Transport, Inc. and Reserve Lumber) and, if the
Agent gives such consent and reasonably requires such action, the Borrower will
concurrently therewith cause any such bailee, warehouseman or similar party to
issue and deliver to the Agent, in form and substance acceptable to the Agent,
warehouse receipts therefor in the Agent's name.
6.8 MAINTENANCE OF INSURANCE. The Borrower will maintain with
financially sound and reputable companies, insurance policies (a) insuring the
Equipment, the Inventory, and all equipment subject to any lease, against loss
by fire, explosion, theft and such other casualties as are usually insured
against by companies engaged in the same or similar businesses, (b) insuring the
Borrower and the Agent against liability for personal injury and property damage
relating to such Equipment, Inventory and equipment covered by any equipment
lease, such policies to be in such form and in such amounts and coverage as may
be reasonably satisfactory to the Agent, with losses payable to the Borrower and
the Agent as their respective interests may appear, and (c) in amounts and
coverages not less than the current amounts and coverages held by the Borrower.
All insurance with respect to the Equipment and Inventory shall (i) contain a
breach of warranty clause in favor of the Agent, (ii) provide that no
cancellation, reduction in amount, change in coverage or expiration thereof
shall be effective until at least thirty (30) days after written notice to the
Agent thereof, and (iii) be reasonably satisfactory in all respects to the
Agent.
6.9 MAINTENANCE OF EQUIPMENT. The Borrower will keep and maintain
each item of Equipment in good operating condition, ordinary wear and tear
excepted, and the Borrower will provide all maintenance and service and all
repairs, necessary for such purpose unless disposed of in accordance with the
provisions of Section 6.10.
48
6.10 LIMITATIONS ON DISPOSITIONS OF INVENTORY AND EQUIPMENT. The
Borrower will not sell, transfer, lease or otherwise dispose of any of the
Inventory or Equipment, or attempt, offer or contract to do so, except for (a)
dispositions of Inventory in the ordinary course of business or in connection
with the closing of the Bedford and Canton locations, and (b) so long as no
Event of Default has occurred which has not been waived in writing by the
Required Lenders, the disposition in the ordinary course of business of
Equipment that is obsolete, worn out or no longer useful and other dispositions
of Equipment permitted by Section 8.3(a) of this Agreement.
SECTION 7 GENERAL REPRESENTATIONS AND WARRANTIES.
In order to induce the Lenders to enter into this Agreement and to make
the Revolving Credit Loans and to issue and/or participate in Letters of Credit
provided for herein, the Borrower represents and warrants to the Agent and the
Lenders as follows, all of which shall survive the execution and delivery of
this Agreement and the making of each Credit Event:
7.1 EXISTENCE. The Borrower and each of its Subsidiaries is duly
organized, validly existing and in good standing under the laws of the state of
its incorporation. The Borrower has no Subsidiaries other than as listed in the
Supplemental Schedule. The Borrower and each of its Subsidiaries is duly
qualified or licensed to transact business in each jurisdiction where such
qualification or licensure is necessary, except where failure to do so will not
have a Material Adverse Effect. As of the Closing Date, the Borrower does not
have any Subsidiaries.
7.2 AUTHORIZATION. The execution, delivery, and performance of this
Agreement and the Loan Documents to which it is a party: (a) are within the
corporate powers of the Borrower, (b) have been duly authorized, and are not in
contravention of Law or the terms of the Articles of Incorporation, Code of
Regulations or other applicable organizational documents of the Borrower or
except as set forth on the Supplemental Schedule, of any indenture or other
document or instrument evidencing borrowed money or any other agreement or
undertaking to which the Borrower is a party or by which it or its property is
bound.
7.3 ENFORCEABILITY. This Agreement and the Loan Documents constitute
the legal, valid and binding obligations of the Borrower, enforceable against
the Borrower in accordance with the terms thereof, subject to any applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the
enforcement of creditors' rights generally and by general equitable principles
(whether enforcement is sought by proceedings in equity or at law).
7.4 LITIGATION; PROCEEDINGS. Except as set forth in the Supplemental
Schedule, as of the Closing Date there are no actions, suits, investigations or
proceedings, and no orders, writs, injunctions, judgments or decrees, now
pending, existing or, to the knowledge of the Borrower, threatened against the
Borrower or any of its Subsidiaries affecting any property of the Borrower or
any of its Subsidiaries or with respect to this Agreement and any Loan Document,
whether at
49
law, in equity or otherwise, before any court, board, commission, agency or
instrumentality of any federal, state, local or foreign government or of any
agency or subdivision thereof, or before any arbitrator or panel of arbitrators.
Except as set forth in the Supplemental Schedule, there is no action, suit,
investigation, proceeding, order, writ, injunction, or decree against or
applicable to the Borrower or any of its Subsidiaries existing at any time on or
before the Closing Date that, if adversely determined, when taken singly or with
all other actions, suits, investigations, proceedings, orders, writs,
injunctions or decrees, could (i) reasonably be expected to result in a Material
Adverse Effect or (ii) reasonably be expected to result in liabilities against
the Borrower in an amount that exceeds Two Hundred Fifty Thousand Dollars
($250,000).
7.5 TAXES. The Borrower and its Subsidiaries have filed all federal,
state and local tax returns which are required to be filed thereby and, except
to the extent permitted by Section 8.2(i) of this Agreement, have paid all taxes
and assessments due as shown on such returns, including interest, penalties and
fees.
7.6 TITLE. The Borrower and its Subsidiaries have good title to all
personal property assets reflected in, and good and marketable title to all real
property assets reflected in, the financial statements referred to in Section
7.13 of this Agreement and in the consolidated financial statements delivered
from time to time pursuant to Section 8.1 of this Agreement. All such assets are
free of all Liens other than those in favor of the Agent and those otherwise
disclosed in the Supplemental Schedule or permitted by Section 8.3(d) of this
Agreement.
7.7 CONSENTS; APPROVALS. Except as set forth in the Supplemental
Schedule, no action, consent or approval of, registration or filing with or any
other action by any governmental authority or other Person is or will be
required in connection with the transactions contemplated by this Agreement and
the other Loan Documents, except such as have been made or obtained and are in
full force and effect. Except as set forth in the Supplemental Schedule (and
expressly consented to by the Agent and the Lenders), to the extent the terms of
any General Intangible (including any Material License Agreement) contain a
legally effective prohibition against assignment, a consent permitting
assignment has been obtained by the Borrower to overcome such prohibition.
7.8 LAWFUL OPERATIONS. The operations of the Borrower and its
Subsidiaries are in full compliance with all requirements imposed by Law,
including without limitation, occupational safety and health laws and zoning
ordinances the noncompliance with which could reasonably be expected to result
in a Material Adverse Effect.
7.9 ENVIRONMENTAL COMPLIANCE. All of the Borrower's operations and
activities on its real and personal property are in compliance with all
Environmental Laws. To the best of the Borrower's knowledge, none of the
Borrower's real or personal property is currently contaminated with Hazardous
Materials or the site of the disposal or release of any Hazardous Materials in
such amounts or in such manner as would necessitate Environmental Remediation
under applicable Environmental Laws, the source of any disposal or release of
Hazardous
50
Materials on any adjacent property or on any groundwater or surface water, or
the source of any air emissions in excess of any legal limit now or later in
effect; and, if any of the Borrower's real or personal property hereafter
becomes contaminated with Hazardous Materials or the site of the disposal or
release of any Hazardous Materials in such amounts or in such manner as would
necessitate Environmental Remediation under applicable Environmental Laws, the
source of any disposal or release of Hazardous materials on any adjacent
property or on any groundwater or surface water, or the source of any air
emissions in excess of any legal limit now or later in effect, the Borrower,
upon its discovering the same or otherwise obtaining knowledge thereof, shall
promptly notify in writing the Agent and also, if required by law, the
governmental agencies and authorities having jurisdiction concerning such
matters, and, at the Borrower's expense, shall promptly take all such action as
may be necessary to remediate the problems presented. Notwithstanding the
foregoing provisions of this Section 7.9, the Borrower shall be permitted to
handle, store and sell, in the ordinary course of the Borrower's business,
household and lawn and garden products which may contain Hazardous Materials in
amounts or levels permitted by applicable Environmental Laws.
7.10 ENVIRONMENTAL LAWS AND PERMITS. Without limiting the
representations made in Section 7.9 above, to the best knowledge of the
Borrower, except as disclosed in the Supplemental Schedule, there are no
circumstances with respect to any Property or the operations of the Borrower or
any of its Subsidiaries that could reasonably be anticipated: (i) to form the
basis of a Environmental Claim against the Borrower or any of its Subsidiaries
or (ii) to cause any Property owned, leased or funded by the Borrower or any of
its Subsidiaries to be subject to any restrictions on ownership, occupancy, use
or transferability under any applicable Environmental Law, and in each case,
that could not reasonably be expected to result in a Material Adverse Effect.
7.11 ERISA. The Supplemental Schedule sets forth a list of all of the
Employee Benefit Plans of the Borrower, its Subsidiaries and each ERISA
Affiliate thereof as of the Closing Date. No accumulated funding deficiency
exists in respect of any Employee Benefit Plan that is subject to Code Section
412 and no Reportable Event has occurred in respect of any Employee Benefit Plan
of the Borrower, its Subsidiaries or any ERISA Affiliate thereof that is subject
to Title IV of ERISA which is continuing and which, in the case of such
accumulated funding deficiency or Reportable Event, when taken singly or with
all other such Reportable Events or accumulated funding deficiencies, has
resulted, or could reasonably be expected to result, in a Material Adverse
Effect, or has otherwise resulted, or could reasonably be expected to result, in
liabilities or claims against the Borrower in an amount exceeding Two Hundred
Fifty Thousand Dollars ($250,000). No "prohibited transactions" (as defined in
Section 406 of ERISA or Section 4975 of the Code), have occurred which, when
taken singly or with all other such "prohibited transactions," has resulted, or
could reasonably be expected to result, in a Material Adverse Effect, or has
otherwise resulted, or could reasonably be expected to result, in liabilities or
claims against the Borrower in an amount exceeding Two Hundred Fifty Thousand
Dollars ($250,000). Neither the Borrower, any of the Borrower's Subsidiaries nor
any ERISA Affiliate thereof, has: (i) had an obligation to contribute to any
Multiemployer Plan except as
51
disclosed in the Supplemental Schedule or (ii) incurred or reasonably expects to
incur any liability for the withdrawal from such a Multiemployer Plan which
withdrawal liability, when taken singly or with all other such withdrawal
liabilities, has resulted, or could reasonably be expected to result, in a
Material Adverse Effect, or has otherwise resulted, or could reasonably be
expected to result, in liabilities or claims against the Borrower in an amount
exceeding Two Hundred Fifty Thousand Dollars ($250,000).
7.12 AGREEMENTS; ADVERSE OBLIGATIONS; LABOR DISPUTES. The
Supplemental Schedule sets forth a list of all Material Business Agreements of
the Borrower as of the Closing Date. The Material Business Agreements of the
Borrower are in full force and effect as of the Closing Date and have not been
revoked or otherwise modified since the execution thereof. The Borrower is in
full compliance with the material terms of the Material Business Agreements.
Neither the Borrower nor any of its Subsidiaries, is subject to any other
contract, agreement, corporate restriction which could reasonably be expected to
have a Material Adverse Effect. Neither the Borrower nor any of its
Subsidiaries, is a party to any labor dispute (other than grievance disputes)
which could not, individually or in the aggregate, be reasonably expected to
result in a Material Adverse Effect or which could not reasonably be expected to
result in liabilities to the Borrower or any of its Subsidiaries in excess of
Two Hundred Fifty Thousand Dollars ($250,000). There are no material strikes,
slow downs, walkouts or other concerted interruptions of operations by employees
of the Borrower whether or not relating to any labor contracts.
7.13 FINANCIAL STATEMENTS. As of the Closing Date, the Borrower has
furnished the Agent and the Lenders with complete and correct copies of (a) the
audited balance sheet for the Borrower for the Fiscal Year ending January 3,
1998 and the related statement of operations for such Fiscal Year, and the notes
to such financial statements, reported upon by Coopers & ▇▇▇▇▇▇▇, L.L.P.,
certified public accountants and certified in each case by the President or the
Chief Financial Officer of the Borrower and (b) internal financial statements
consisting of a balance sheet and statements of operations as of the Fiscal
Month ending August 29, 1998, certified by an executive officer of the Borrower.
Subject to any exceptions described in Annex IV, each of such financial
statements: (i) has been prepared in accordance with GAAP, and (ii) fairly
presents in all material respects the financial condition of the Borrower as of
the respective dates thereof (including a full disclosure of liabilities,
contingent or otherwise, if any) and the results of its operations for the
respective fiscal periods then ending. As of the Closing Date, the Borrower has
not experienced a Material Adverse Effect since January 3, 1998, nor except as
disclosed in such financial statements, any change in the accounting procedures
used therein. The Borrower did not as of January 3, 1998, and will not as of the
Closing Date, have any material contingent liabilities, material liabilities for
taxes, unusual and material forward or long-term commitments or material
unrealized or anticipated losses from any unfavorable commitments, except as
referred to or reflected in said audited financial statements or the notes
thereto.
7.14 INTELLECTUAL PROPERTY. The Borrower and each of its Subsidiaries
owns or has
52
the legal and valid right to use all Intellectual Property necessary
for the operation of its respective business as presently conducted, free from
any Lien not permitted under Section 8.3(d) and free of any restrictions
material to the operation of its business as presently conducted except as set
forth in the Supplemental Schedule. Except as set forth in the Supplemental
Schedule, as of the Closing Date, neither the Borrower nor any of its
Subsidiaries: (a) has any Intellectual Property, (b) licenses any Intellectual
Property (whether as licensor or licensee), or (c) is a party to any Material
License Agreement with respect to Intellectual Property.
7.15 INSURANCE. The insurance policies maintained by Borrower and its
Subsidiaries comply with the requirements of Section 6.8 of this Agreement. As
of the Closing Date, the Borrower has delivered to the Agent certificates
reflecting the Borrower's insurance coverage required under this Agreement.
7.16 VALUE; SOLVENCY. The Borrower has received fair consideration and
reasonably equivalent value for the obligations and liabilities incurred to the
Lenders hereunder. The Borrower and each of its Subsidiaries is Solvent.
7.17 INVESTMENT COMPANY ACT STATUS. Neither the Borrower nor any of
its Subsidiaries, is an "investment company", or an "affiliated person" of, or a
"promoter" or "principal underwriter" for an "investment company" (as such terms
are defined in the Investment Company Act of 1940, as amended (15 U.S.C. Section
80(a)(1), et seq.)).
7.18 REGULATION T, U, X COMPLIANCE. Neither the making of any
Revolving Credit Loan hereunder, nor the use of the proceeds thereof, will
violate or be inconsistent with the provisions of Regulations T, U or X, as from
time to time in effect, and any successor to all or a portion thereof
establishing margin requirements, of the Board of Governors of the Federal
Reserve System and no part of the proceeds of any Revolving Credit Loan will be
used to purchase or carry "margin stock" as defined by Regulation U or to extend
credit for the purpose of purchasing or carrying any "margin stock".
7.19 FULL DISCLOSURE. None of the written information, exhibits or
reports furnished by the Borrower to the Agent or the Lenders omit to state any
fact necessary to make the statements contained therein not materially
misleading in light of the circumstances and purposes for which such information
was provided. The Borrower has provided all information requested by the Agent
and the Lenders, and all such information is complete and accurate in all
material respects.
7.20 ADDRESSING THE YEAR 2000 PROBLEM. To the Borrower's knowledge,
all computer-based systems operated by the Borrower that are critical to the
Borrower's ongoing business, are able to operate and process data (including,
but not limited to dates on and after January 1, 2000) or any reprogramming,
remediation or any other corrective action, including the internal testing of
all such computer-based systems, will be completed by July 1, 1999. Further,
53
to the extent such reprogramming/remediation and testing action is required, the
currently estimated costs thereof to the Borrower and its Subsidiaries
(including, without limitation, reprogramming errors and the failure of other
systems or equipment of the Borrower and its Subsidiaries), will not result in
an Event of Default or Material Adverse Effect.
7.21 AGGREGATED LIABILITIES. The liabilities described in Sections
7.4, 7.9, 7.11 and 7.12 incurred or to be incurred by the Borrower, will not
result, or could not reasonably be expected to result in liabilities in a total
aggregate amount in excess of One Million Dollars ($1,000,000).
SECTION 8 COVENANTS OF THE BORROWER.
So long as any of the Obligations shall remain outstanding or the
Lenders shall have any Revolving Credit Commitment or LC Exposure hereunder the
Borrower shall comply, and will cause each of its Subsidiaries to comply with
the following provisions, unless the Lenders shall otherwise consent in writing:
8.1 REPORTING AND NOTICE COVENANTS.
(a) MONTHLY FINANCIAL STATEMENTS. The Borrower shall furnish to
the Agent and each Lender, as soon as practicable and in any event
within thirty (30) days after the end of each Fiscal Month of the
Borrower, unaudited balance sheets of the Borrower as at the end of
that Fiscal Month and the related statements of operations for the
Fiscal Year to date and for such Fiscal Month, prepared on an unaudited
comparative basis with the comparable period during the prior year and
in accordance with GAAP, all in reasonable detail and certified,
subject to normal year-end audit adjustments, purchase accounting
adjustments and the absence of footnotes, by a responsible officer of
the Borrower;
(b) ANNUAL FINANCIAL STATEMENTS. The Borrower shall furnish to
the Agent and each Lender, (i) as soon as practicable and in any event
within thirty (30) days prior to the annual meeting of the Borrower's
shareholders, but no later than one hundred twenty (120) days after the
end of each Fiscal Year of the Borrower, a complete copy of the annual
audit report of the Borrower (including, without limitation, all
financial statements of the Borrower and notes thereto) for that Fiscal
Year all of which shall be (A) prepared on a comparative basis with the
prior year and in accordance with GAAP, in the form included in the
Borrower's Form 10-K as filed with the SEC, and (B) audited and
certified (without a "going concern" or like qualification or exception
and without any qualification as to GAAP and without any qualification
or exception as to the scope of such audit), by PricewaterhouseCoopers
LLP or other independent public accountants of recognized national
standing selected by the Borrower and acceptable to the Agent and the
Lenders, to the effect that such financial statements present fairly in
all material respects the financial condition and results of operations
of the Borrower in accordance with GAAP consistently applied, and (ii)
as soon as practicable and in any event within
54
one hundred twenty (120) days after the end of the Fiscal Year of the
Borrower, the accountants' management report and any management letters
relating to the items described in clause (i) above.
(c) OFFICER'S CERTIFICATE. The Borrower shall furnish to the
Agent and each Lender:
(i) concurrently with the financial statements
delivered in connection with Sections 8.1(a) and 8.1(b) above,
a certificate, substantially in the form of Exhibit D-2
hereto, of a responsible officer of the Borrower, in his or
her capacity as a responsible officer, setting forth the
computations necessary to determine whether the Borrower is in
compliance with Section 8.4 of this Agreement and satisfaction
of the financial standards required in connection with the
determination of the Applicable Margin and certifying that:
(A) those financial statements fairly present in all material
respects the financial condition and results of operations of
the Borrower subject (in the case of interim financial
statements) to routine year-end audit adjustments and (B) no
Potential Default or Event of Default then exists or, if any
Potential Default or Event of Default does exist, a brief
description of the Potential Default or Event of Default and
the Borrower's intentions in respect thereof, and
(ii) upon Agent's request, and in any event, at least
once per week, (i) a certificate reflecting the calculation of
the Borrower's Borrowing Base, satisfactory to the Agent and
substantially in the form attached hereto as Exhibit D-1 (each
a "Borrowing Base Certificate") and satisfactory in form and
substance to the Agent, and (ii) a written report, in form and
substance satisfactory to the Agent, as to the Inventory of
the Borrower, setting forth the type, amount, value, location
and aging of the Borrower's Inventory as at the end of the
last calendar week.
(d) MONTHLY REPORTS AS TO ACCOUNTS PAYABLE AND REPORTS AS TO
ACCOUNTS. The Borrower shall furnish to the Agent and each Lender, as
soon as practicable and in any event on or before the fifteenth (15th)
calendar day of each month from and after (i) the date of this
Agreement a summary aged trial balance of the Borrower's accounts
payable, including Trade Payables, and (ii) the occurrence and
continuation of an Event of Default, a summary aged trial balance of
the Borrower's Accounts, in each case, in form and substance reasonably
satisfactory to the Agent and dated as of the last day of the preceding
calendar month.
(e) NOTICE OF DEFAULT. Within five (5) Business Days after the
Borrower knows of the occurrence of any Potential Default or Event of
Default, the Borrower shall deliver to the Agent and to each Lender a
statement of a responsible officer of the Borrower setting forth
details of such Potential Default or Event of Default and the action
which the Borrower has taken and proposes to take with respect thereto.
55
(f) ANNUAL BUSINESS PLAN. The Borrower shall furnish to the
Agent and each Lender: (i) on or before thirty (30) days prior to the
beginning of each Fiscal Year of the Borrower, a summary of the
proposed annual business plan, in form and substance reasonably
satisfactory to the Agent and the Lenders and containing, at a minimum,
the Borrower's proposed annual budget for such Fiscal Year, including a
projected balance sheet, income statement, and cash flow projections
for such Fiscal Year as well as projected borrowing, borrowing base
availability and covenant compliance (each projected on a monthly
basis), (ii) promptly during the first Fiscal Quarter of each Fiscal
Year, any material changes made to the items set forth in clause (i)
above prior to their presentation to the Board of Directors, (iii) by
the last day of the first Fiscal Quarter of each Fiscal Year, the final
business plan presented to the Board of Directors, and (iv) promptly
during each Fiscal Year, all revisions to such final business plan
approved by the Board of Directors.
(g) OTHER INFORMATION. The Borrower shall furnish to the Agent
and each Lender, promptly upon the Agent's written request, such other
information about the financial condition, properties and operations of
the Borrower, its Subsidiaries and its Employee Benefit Plans as the
Agent or any Lender may from time to time reasonably request.
(h) NOTICES. The Borrower will cause its chief financial
officer, or in his or her absence another officer designated by the
chief financial officer, to give the Agent and each Lender prompt
written notice whenever (and in any event within ten (10) Business Days
after): (i) the Borrower or any of its Subsidiaries receives notice
from any court, agency or other governmental authority of any alleged
non-compliance with any Law or order which could reasonably be expected
to have or result in, if such noncompliance is found to exist, a
Material Adverse Effect, or could reasonably be expected to result in
liabilities to the Borrower in an amount exceeding Two Hundred Fifty
Thousand Dollars ($250,000), (ii) the Internal Revenue Service or any
other federal, state or local taxing authority shall allege any default
by the Borrower or any of its Subsidiaries in the payment of any tax
material in amount or shall threaten or make any assessment in respect
thereof which, if resulting in a determination adverse to the Borrower
or any of its Subsidiaries, could reasonably be expected to have or
result in a Material Adverse Effect, or could reasonably be expected to
result in liabilities to the Borrower in an amount exceeding Two
Hundred Fifty Thousand Dollars ($250,000), (iii) any litigation or
proceeding shall be brought against the Borrower or any of its
Subsidiaries before any court or administrative agency which could, if
successfully brought, reasonably be expected to have or result in a
Material Adverse Effect or could reasonably be expected to result in
liabilities or claims against the Borrower in an amount exceeding Two
Hundred Fifty Thousand Dollars ($250,000), (iv) any material adverse
change or development in connection with any such litigation
proceeding, or (v) such officer reasonably believes that any Potential
Default or Event of Default has occurred or
56
that any other representation or warranty made herein shall for any
reason have ceased to be true and complete in any material respect.
(i) NOTICE OF DEFAULT UNDER ERISA. If the Borrower or any of
its Subsidiaries shall receive notice from any ERISA Regulator or
otherwise have actual knowledge that a default under ERISA exists with
respect to any Employee Benefit Plan, the Borrower shall notify the
Agent and each Lender of the occurrence of such default under ERISA,
within ten (10) Business Days after receiving such notice or obtaining
such knowledge (the disclosures contained in the Supplemental Schedule
being such notice of each default under ERISA disclosed therein to the
extent of the disclosure therein) and shall: (i) so long as the default
under ERISA has not been corrected to the satisfaction of, or waived in
writing by the party giving notice, the Borrower shall thereafter treat
as a current liability (if required by GAAP to be so treated) all
liability of Borrower or its Subsidiaries that would arise by reason of
the termination of or withdrawal from such Employee Benefit Plan if
such plan was then terminated, and (ii) within forty-five (45) days of
the receipt of such notice or obtaining such knowledge, furnish to the
Agent and each Lender a current consolidated balance sheet of Borrower
with the amount of the current liability referred to above.
(j) ENVIRONMENTAL REPORTING. The Borrower shall promptly
deliver to the Agent and each Lender, and in any event within ten (10)
Business Days after receipt or transmittal by the Borrower or any of
its Subsidiaries, as the case may be, copies of all material
communications with any government or governmental agency relating to
Environmental Laws and all material communications with any other
Person relating to Environmental Claims brought against the Borrower or
its Subsidiaries which could, in either case, if successfully brought
against the Borrower or such Subsidiaries, reasonably be expected to
result in a Material Adverse Effect.
(k) MULTIEMPLOYER PLAN WITHDRAWAL LIABILITY. The Borrower
shall (i) once in each calendar year beginning in 1998, request a
current statement of withdrawal liability from each Multiemployer Plan
to which the Borrower or any ERISA Affiliate is or has been obligated
to contribute during such year and (ii) within fifteen (15) days after
the Borrower receives the such current statement, transmit a copy of
such statement to the Agent and each Lender.
(l) SEC REPORTS; PRESS RELEASES. The Borrower shall provide to
the Agent and each Lender, promptly after the sending or filing
thereof, copies of all periodic and other reports that the Borrower
sends to holders of beneficial interests in the Borrower and copies of
all periodic and other reports, registration statements, proxy
statements and other filings that the Borrower files with the SEC or
with any national securities exchange, as the case may be. In addition,
the Borrower shall provide to the Agent and each Lender, concurrent
with or prior to
57
issuance of any material press release concerning the Borrower, copies
of such press release.
8.2 AFFIRMATIVE COVENANTS.
(a) CORPORATE EXISTENCE. The Borrower shall maintain, and
shall cause each of its Subsidiaries to maintain, at all times its
corporate existence, rights and franchises except as permitted under
Section 8.3(a)(i), maintain its good standing in the jurisdiction of
its incorporation, and qualify as a foreign corporation in each
jurisdiction where failure to qualify could reasonably be expected to
result in a Material Adverse Effect.
(b) FINANCIAL RECORDS. The Borrower shall, and shall cause
each of its Subsidiaries, to maintain at all times, true and complete
financial records in accordance with GAAP, consistently applied, and,
without limiting the generality of the foregoing, make appropriate
accruals to reserves for estimated and contingent losses and
liabilities as required under GAAP.
(c) VISITATION. The Borrower shall upon reasonable prior
written or oral notice from the Agent or any Lender permit, and shall
cause each of its Subsidiaries to permit, the Agent or such Lender, as
the case may be, during normal business hours in the presence of an
officer of the Borrower and in accordance with asset based financing
transaction standards: (i) to examine, with the guidance and
supervision of the Borrower, the financial records of the Borrower, its
Subsidiaries and to make copies of and extracts from such records and
(ii) to consult with the Borrower's and each of its Subsidiaries'
officers, directors, accountants, actuaries, trustees and plan
administrators, as the case may be, in respect of the Borrower's and
each of its Subsidiaries' financial condition, each of which parties is
hereby authorized by the Borrower to make such information available to
the Agent or such Lender, as the case may be, to the same extent that
it would to the Borrower.
(d) COMPLIANCE WITH LAWS. The Borrower will comply, and will
cause each of its Subsidiaries to comply, in all respects with all
applicable provisions of all Laws (whether statutory, administrative,
judicial or other and whether federal, state or local and excluding
Environmental Laws to the extent addressed in Section 8.2(e) of this
Agreement) and every lawful governmental order; provided, that any
alleged noncompliance shall not be deemed to be a violation of this
Section 8.2(d) so long as: (i) such noncompliance by the Borrower or
such Subsidiaries has not resulted or could not reasonably be expected
to result in a Material Adverse Effect, and (ii) either (A) appropriate
corrective measures are commenced within thirty (30) days after the
non-compliance becomes apparent or is alleged, and thereafter are being
diligently pursued to the satisfaction of the court, agency or other
governmental authority in question, or (B) the alleged non-compliance
is contested in good faith by timely and appropriate proceedings
effective to stay, during the pendency of such proceedings, the
enforcement
58
thereof, and the Borrower or such Subsidiary has established
appropriate reserves and taken such other appropriate measures as may
be required under GAAP.
(e) COMPLIANCE WITH ENVIRONMENTAL LAWS. The Borrower will use
and operate its facilities and properties, and cause each of its
Subsidiaries to use and operate its respective facilities and
properties, in such a manner that no obligation shall arise under any
Environmental Law, including a clean-up obligation, which when taken
singly or with all other such obligations, has resulted or could
reasonably be expected to result in a Material Adverse Effect or has
otherwise resulted or could reasonably be expected to result in
liabilities or claims against the Borrower in an amount exceeding Two
Hundred Fifty Thousand Dollars ($250,000); provided, that if any
Environmental Claim (even if such claim will not have a Material
Adverse Effect or exceed the liability limitations set forth above) is
made or any such obligation (even if such obligation would not have a
Material Adverse Effect or exceed the liability limitations set forth
above) arises, each of the Borrower and its Subsidiaries shall, at its
own cost and expense, timely satisfy such claim or obligation, provided
that no such claim or obligation need be satisfied if it is being
contested in good faith by appropriate proceedings promptly instituted
and diligently conducted and if appropriate reserves or other
appropriate provision, if any, as shall be required by GAAP have been
made on the books of the Borrower or the Subsidiaries of the Borrower,
as the case may be. The Borrower will keep, and will cause each of its
Subsidiaries to keep, all necessary Environmental Permits in effect and
remain in compliance therewith, and handle all Hazardous Materials in
compliance with all applicable Environmental Laws, except to the extent
that any such lack of effectiveness or non-compliance, when taken
singly or with all other instances of lack of effectiveness or
non-compliance, has not resulted and could not reasonably be expected
to result in a Material Adverse Effect or has not otherwise resulted or
liabilities or claims against the Borrower in an amount exceeding Two
Hundred Fifty Thousand Dollars ($250,000). The Borrower shall not
suffer to exist, and shall not permit any of its Subsidiaries to suffer
to exist, an environmental condition which, when taken singly or with
all other such conditions, has resulted or could reasonably be expected
to result in a Material Adverse Effect or has otherwise resulted or
could reasonably be expected to result in liabilities or claims against
the Borrower in an amount exceeding Two Hundred Fifty Thousand Dollars
($250,000).
(f) PROPERTIES. Subject to Sections 6.9 and 8.3(a) of this
Agreement, the Borrower shall maintain, in all material respects, and
shall cause each of its Subsidiaries to maintain, in all material
respects, all assets necessary to its continuing operations in good
working order and condition, ordinary wear and tear excepted, and shall
refrain, and shall cause each of its Subsidiaries to refrain, from
wasting or destroying any such assets or any part thereof.
(g) USE OF PROCEEDS. The Borrower shall use the proceeds of
Loans (i) to repay and terminate certain obligations owed by the
Borrower to National City Bank,
59
(ii) to pay in full all obligations and liabilities owed by the
Borrower to Old Kent Bank (iii) to fund the Borrower's working capital
requirements, and (iv) for other general corporate purposes.
(h) COMPLIANCE WITH TERMS OF ALL MATERIAL AGREEMENTS. The
Borrower shall perform and observe, and shall cause each of its
Subsidiaries to perform and observe, all the material terms and
provisions of each Material License Agreements and Material Business
Agreements to which it is a party. The Borrower shall, and shall cause
its Subsidiaries to, maintain each such material agreement in full
force and effect, and enforce, and shall cause its Subsidiaries to
enforce, to the extent that the Borrower or such Subsidiary, in its
reasonable judgment, determines to be appropriate, each such material
agreement in accordance with its terms.
(i) TAXES. The Borrower shall pay in full, and shall cause
each of its Subsidiaries to pay in full, prior in each case to the date
when penalties for the nonpayment thereof would attach, all taxes,
assessments and governmental charges and levies for which it may be or
become subject and all lawful claims which, if unpaid, could reasonably
be expected to become a Lien upon its respective property; provided,
that no such tax, assessment, charge or levy need be paid so long as
and to the extent that (i) it is contested in good faith and by timely
and appropriate proceedings effective, during the pendency of such
proceedings, to stay the enforcement of such taxes, assessments and
governmental charges and levies, and (x) such stay prevents the
creation of any Lien (other than inchoate Liens for property taxes) or
(y) a bond has been provided which prevents the creation of any Lien
(other than inchoate Liens for property taxes), and (ii) appropriate
reserves, as required by GAAP, are made on the books of the Borrower
and its Subsidiaries, as applicable.
(j) INSURANCE. The Borrower shall, on the Closing Date and
within five (5) Business Days of the request by the Agent thereafter,
provide evidence satisfactory to the Agent that the Borrower has
adequate personal and real property, casualty, liability, business
interruption and product liability insurance, with the Agent listed as
loss payee and additional insured (as applicable).
(k) YEAR 2000 COMPLIANT SYSTEMS. The Borrower shall take all
reasonable actions necessary to ensure that those portions of its
computer-based systems that are critical to the Borrower's ongoing
business are able to operate and process data (including, but not
limited to, dates on and after January 1, 2000) effectively at all
times during this Agreement, including, without limitation, on and
after January 1, 2000, and at the request of Agent, the Borrower shall
provide the Agent with such evidence of compliance therewith as may be
reasonably available and as Agent may reasonably request. The Borrower
will promptly notify the Agent of any material risk of the Borrower's
inability to so process data, and avoid serious disruption to the
Borrower's business or operations, that could have a Material Adverse
Effect.
60
8.3 NEGATIVE COVENANTS.
(a) EQUITY TRANSACTIONS. The Borrower shall not, and shall not
permit any of its Subsidiaries to, (i) merge or consolidate with or
into, or enter into any agreement to merge or consolidate with or into,
any other Person or otherwise be a party to any merger or
consolidation; (ii) purchase all or substantially all of the assets and
business of another Person; or (iii) except as set forth in the
Supplemental Schedule, lease as lessor, sell, sell-leaseback, license
or otherwise transfer (whether in one transaction or a series of
transactions) any of its assets (whether now owned or hereafter
acquired), except, that the Borrower and its Subsidiaries may sell, or
otherwise dispose of Inventory in the ordinary course of business and
in connection with the closing of the Bedford and Canton locations and
Equipment that is no longer used or useful in the Borrower's or its
Subsidiaries' business or that is obsolete, provided, that the Proceeds
of any such sales of Inventory or Equipment shall be applied first to
the Obligations in accordance with Section 2.11(c).
(b) CREDIT EXTENSIONS. The Borrower shall not, except as
disclosed in the Supplemental Schedule, and shall not permit any of its
Subsidiaries to: (i) make prepayments or advance payments to others in
respect of Indebtedness (except that the Borrower may make prepayments
(X) to the Agent for the benefit of the Lenders to the extent permitted
by this Agreement (Y) to National City Bank to the extent permitted
under the documents between National City Bank and the Borrower and (Z)
to take advantage of discounts offered in connection with accounts
payable) and the Borrower may endorse checks, drafts, and similar
instruments for deposit or collection in the ordinary course of
business, (ii) make any loans to Affiliates other than as permitted
hereby, or (iii) loan any money to or Guaranty or assume any obligation
of any other Person and other than (A) loans to non-shareholder
employees in the ordinary course of business, and (B) indebtedness
arising in connection with Accounts, in each case, the aggregate
outstanding amount of which shall not at any time exceed Fifty Thousand
Dollars ($50,000) at any one time outstanding.
(c) INDEBTEDNESS. The Borrower shall not, and shall not permit
any Subsidiary to, create, assume, incur, suffer to exist or have
outstanding at any time any Indebtedness or other debt of any kind;
except, that this Section 8.3(c) shall not prohibit: (i) the
Obligations, (ii) ordinary course Trade Payables subject to the
limitation set forth in Section 8.4(b), (iii) the Indebtedness on the
Supplemental Schedule (which Indebtedness shall not be refinanced,
renewed or increased), (iv) Indebtedness secured by a Lien permitted by
clauses (H), (I) or (K) of Section 8.3(d) of this Agreement or (v)
Indebtedness permitted by Section 8.3(e), or (vi) any Indebtedness
extending the maturity of, refunding or refinancing (but not
increasing), in whole or in part, any of the Indebtedness permitted
under clause (iv) and (v) of this Section 8.3(c).
61
(d) LIENS; LEASES. The Borrower shall not, and shall not
permit any of its Subsidiaries to, (i) acquire or hold any property
subject to any Lien, (ii) sell or otherwise transfer any Accounts,
whether with or without recourse, (iii) provide any other Person with a
commitment not to place a Lien on any real property of the Borrower, or
its Subsidiaries, or (iv) suffer or permit any property now owned or
hereafter acquired by it to be or become encumbered by a Lien;
provided, that this Section 8.3(d) shall not prohibit: (A) any lien for
a tax, assessment or government charge or levy for taxes, assessments
or charges not yet due and payable or not yet required to be paid
pursuant to Section 8.2(i), (B) any deposit or pledges securing only
workers' compensation, unemployment insurance or similar obligations
(other than Liens arising under ERISA) in the ordinary course of
business, (C) any mechanic's, carrier's, landlord's or similar common
law or statutory lien incurred in the ordinary course of business for
amounts that are not yet due and payable or which are being diligently
contested in good faith, so long as the Agent has been notified thereof
and adequate reserves are maintained for their payment, (D) zoning or
deed restrictions, public utility easements, rights of way, minor title
irregularities and similar matters relating to real property of the
Borrower, or its Subsidiaries, in all such cases having no material
adverse effect as a practical matter on the ownership or use of any of
the real property in question, as such property is used in the ordinary
course of business of the Borrower or the Borrower's Subsidiaries, (E)
any Lien which (1) arises in connection with judgments or attachments
the occurrence of which does not constitute an Event of Default under
Section 9.13, (2) the execution or other enforcement of which is
effectively stayed and the claims secured thereby are being actively
contested in good faith and by appropriate proceedings and (3) is
junior in priority to the Liens of the Agent, (F) deposits or cash
pledges securing performance of contracts, bids, tenders, leases (other
than Capitalized Leases), statutory obligations, surety and appeal
bonds (other than contracts for the payment of Indebtedness for
borrowed money) arising in the ordinary course of business, (G) any
Lien in favor of the Agent created under the Loan Documents or any
existing Lien fully disclosed in the Supplemental Schedule, (H) any
Lien created or assumed in purchasing, constructing or improving any
real property or to which any real property is subject when purchased;
provided, that: (x) the mortgage, security interest or other lien is
confined to the property in question and (y) the Indebtedness secured
thereby does not exceed the total cost of the purchase, construction or
improvement and (z) the aggregate outstanding Indebtedness of the
Borrower secured by such Liens (when taken together with any secured
Indebtedness permitted to be secured pursuant to clause (M) of this
subsection and when taken together with the aggregate Indebtedness of
the Subsidiaries of the Borrower secured by Liens permitted by this
clause (H) of this subsection) shall not at any time exceed Two Hundred
Fifty Thousand Dollars ($250,000) in the aggregate, (I) any operating
lease entered into by the Borrower or a Subsidiary of the Borrower as
lessee; provided, that the scheduled rental payments in respect to all
such leases of the Borrower (when taken together with all such leases
of the Borrower and the Borrower's Subsidiaries) shall not at any time
exceed Five Million Dollars ($5,000,000) in the aggregate during any
Fiscal Year of Borrower, (J) any transfer of a check or other medium of
payment for deposit or
62
collection, or any similar transaction in the ordinary course of
business, (K) any Lien (including any Lien in respect of a Capitalized
Lease of personal property) which is created in connection with the
purchase of personal property; provided, that: (x) the Lien is confined
to the property in question, (y) the Indebtedness secured thereby does
not exceed the total cost of the purchase, and (z) the aggregate
outstanding Indebtedness secured by such Liens (when taken together
with any secured Indebtedness permitted to be secured pursuant to
clause (H) of this subsection and when taken together with the
aggregate Indebtedness of the Borrower and the Borrower's Subsidiaries
secured by Liens permitted by this clause (K) of this subsection) does
not at any time exceed Two Hundred Fifty Thousand Dollars ($250,000) in
the aggregate, (L) security deposits to secure the performance of
operating leases and deposits received from customers, in each case in
the ordinary course of business, or (M) Liens securing the replacement,
extension or renewal of any Indebtedness permitted to be refinanced by
Section 8.3(c) so long as such Lien is upon the same property
previously subject thereto.
(e) INVESTMENTS. Other than as disclosed in the Supplemental
Schedule, the Borrower shall not, and shall not permit any of its
Subsidiaries to, (i) create any Subsidiary after the Closing Date, (ii)
make or hold any investment in any common stocks, bonds or securities
of any kind or any further capital contribution to any Person other
than (x) the common stock of its Subsidiaries existing on the Closing
Date and the capital contributions therein outstanding as of the
Closing Date and (y) notes or securities issued by a customer of the
Borrower or its Subsidiaries in connection with a proceeding in respect
of the Financial Impairment of such customer, (iii) be or become a
party to any joint venture or other partnership, (iv) make or keep
outstanding any advance or loan, or (v) be or become a Guarantor of any
kind, except that the Subsidiaries may Guaranty the Indebtedness of the
Borrower to the Lenders.
(f) DIVIDENDS; MANAGEMENT FEES. The Borrower shall not make
or, other than in a writing made expressly subject to the Agent's
written consent under this Agreement, commit itself to make any
Distribution (other than stock dividends) to its shareholders at any
time or commit to pay or pay any management fee to any Affiliate of the
Borrower, except as set forth in the Supplemental Schedule.
(g) CHANGE IN NATURE OF BUSINESS. The Borrower shall not, and
shall not permit any of its Subsidiaries to, make any material change
in the nature of its business as carried on at the date hereof.
(h) CHARTER AMENDMENTS. The Borrower shall not amend its
Articles of Incorporation or Code of Regulations, nor permit its
Subsidiaries or the Holding Company to amend its applicable
organizational documents, if such amendment would conflict with, or
cause an Event of Default under, this Agreement.
(i) COMPLIANCE WITH ERISA. The Borrower shall not, and shall
not permit any ERISA Affiliate to: (i) engage in any transaction in
connection with which the
63
Borrower or any ERISA Affiliate could reasonably be expected to 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, terminate or
withdraw from any Employee Benefit Plan (other than a Multiemployer
Plan) in a manner, or take any other action with respect to any such
Employee Benefit Plan (including, without limitation, a substantial
cessation of business operations or an amendment of an Employee Benefit
Plan within the meaning of section 4041(e) of ERISA), which could
reasonably be expected to result in any liability of the Borrower or
any ERISA Affiliate to the PBGC, to the Department of Labor or to a
trustee appointed under section 4042(b) or (c) of ERISA, incur any
liability to the PBGC on account of a withdrawal from or a termination
of an Employee Benefit Plan under section 4063 or 4064 of ERISA, incur
any liability for post-retirement benefits under any and all welfare
benefit plans (as defined in section 3(1) of ERISA) other than as
required by applicable statute, fail to make full payment when due of
all amounts which, under the provisions of any Employee Benefit Plan or
applicable Law, the Borrower or any ERISA Affiliate is required to pay
as contributions thereto, or permit to exist any accumulated funding
deficiency, whether or not waived, with respect to any Employee Benefit
Plan (other than a Multiemployer Plan); provided, that such engagement,
termination, withdrawal, action, incurrence, failure or permitting
shall not be deemed to have violated this clause(i) unless any such
engagement, termination, withdrawal, action, incurrence, failure or
permitting (A) has resulted or could reasonably be expected to result
in a Material Adverse Effect or (B) has otherwise resulted or could
reasonably be expected to result in liabilities or claims against the
Borrower in an amount exceeding Two Hundred Fifty Thousand Dollars
($250,000); (ii) at any time permit the termination of any defined
benefit pension plan intended to be qualified under section 401(a) and
501(a) of the Code; provided, that such termination shall not be deemed
to have violated this clause (ii) unless (A) the value of any benefit
liability (as defined in section 4001(a)(16) of ERISA) upon the
termination date of any such terminated defined benefit pension plans
of the Borrower, its Subsidiaries and their ERISA Affiliates exceeds
the then current value (as defined in section 3 of ERISA) of all assets
in such terminated defined benefit pension plans by an amount in excess
of Two Hundred Fifty Thousand Dollars ($250,000), or (B) the payment of
such amount has resulted or could reasonably be expected to result in a
Material Adverse Effect or has resulted or could reasonably be expected
to result in liabilities or claims against the Borrower in an amount
exceeding Two Hundred Fifty Thousand Dollars ($250,000); or (iii) if
the Borrower, its Subsidiaries or any ERISA Affiliate becomes obligated
under a Multiemployer Plan (except with respect to the potential
liabilities now existing as disclosed in the Supplemental Schedule),
effect a complete or partial withdrawal such that the Borrower, its
Subsidiaries or their ERISA Affiliates incur Withdrawal Liability under
Title IV of ERISA with respect to Multiemployer Plans or otherwise have
liability under Title IV of ERISA; provided, that the incurrence of
such Withdrawal Liability or other liability under Title IV of ERISA
shall not be deemed to be a violation of this clause (iii) unless (A)
the amount the payment by the Borrower of such Withdrawal Liability or
other liability has resulted or could reasonably be expected to result
in a Material Adverse Effect or (B) has otherwise
64
resulted or could reasonably be expected to result in liabilities or
claims against the Borrower in an amount exceeding Two Hundred Fifty
Thousand Dollars ($250,000).
(j) REGULATION U COMPLIANCE. The Borrower shall not use any
portion of the proceeds of any Loan for the purpose of purchasing or
carrying any "margin stock" or for any other purpose in violation of
any requirement of Law or of the terms and conditions of this
Agreement.
(k) ACCOUNTING CHANGES. The Borrower will not, and will not
permit any of its Subsidiaries to, make or permit any change in its
accounting policies or financial reporting practices and procedures,
except changes in accounting policies which are required or permitted
by GAAP and changes in financial reporting practices and procedures
which are required or permitted by GAAP, in each case as to which the
Borrower shall have delivered to the Agent prior to the effectiveness
of any such change a report prepared by a responsible officer of the
Borrower describing such change and explaining in reasonable detail the
basis therefor and effect thereof.
(l) ARM'S-LENGTH TRANSACTIONS. Except as set forth on the
Supplemental Schedule, the Borrower will not, and will not permit any
of its Subsidiaries to, enter into or permit to exist any transaction
(including, without limitation, any transaction involving the
investment, purchase, sale, lease, transfer or exchange of any property
or the rendering of any service) with any Affiliate of the Borrower
except in the ordinary course of the business of the Borrower or its
Subsidiaries and upon fair and reasonable terms not less favorable to
the Borrower or any of its Subsidiaries than would be usual and
customary in transactions with persons who are not such Affiliates;
provided, that notwithstanding the foregoing, neither the Borrower nor
any of its Subsidiaries may pay any management or consulting fees or
make any severance payments to such Affiliates, other than as set forth
in the Supplemental Schedule, without the prior written consent of the
Agent.
(m) AGGREGATE LIABILITIES. Notwithstanding any of the
foregoing, the Borrower shall not permit, at any time, the liabilities
described under Section 8.3(b), (d) and (i) to exceed the total
aggregate amount of Six Million Dollars ($6,000,000).
(n) DEPOSIT ACCOUNTS. The Supplemental Schedule sets forth a
list of all deposit accounts of the Borrower as of the Closing Date,
the financial institutions where such accounts are located and the
current balances in such accounts. On and after the Closing Date, the
Borrower will not establish any additional deposit accounts without the
prior written consent of the Required Lenders and the execution and
delivery of such documents as may be reasonably requested by the Agent
to establish such accounts as blocked accounts in favor of the Agent
for the benefit of the Lenders.
65
8.4 FINANCIAL COVENANTS.
(a) FISCAL YEAR NET LOSSES. The Borrower shall not permit its
Net Losses: (i) as at the end of Fiscal Year 1998 to exceed $2,000,000
and (ii) as at the end of Fiscal Years 1999 and 2000 to exceed
$2,5000,000.
(b) TRADE PAYABLES. The Borrower shall not permit its Trade
Payables for any two (2) consecutive Fiscal Months, as measured at the
end of each Fiscal Month, to be less than or equal to fifteen percent
(15%) of the cost or market value (whichever is lower) of Borrower's
Inventory.
SECTION 9 EVENTS OF DEFAULT.
The occurrence of any one or more of the following events shall
constitute an "Event of Default":
9.1 PAYMENT. (a) Failure by the Borrower to make payment of principal
or interest on the Revolving Credit Notes when due, or (b) failure by the
Borrower or any Guarantor to pay any other Obligation when required to be paid
under this Agreement, any other Loan Document or under the Guaranty Agreement to
the extent such failure is not remedied within three (3) Business Days after
such required date of payment hereunder or thereunder; or
9.2 REPRESENTATIONS AND WARRANTIES. Any warranty or representation
made or deemed made by the Borrower in respect of the Borrower or any Subsidiary
of the Borrower, in this Agreement or in any other Loan Document or any
certificate, document or financial or other written statement furnished or
required to be furnished pursuant hereto or thereto, at any time in compliance
with or in reference to this Agreement, shall prove to have been false or
inaccurate in any material respect when made or deemed made; or
9.3 REPORTING AND NOTICE PROVISIONS; VIOLATION OF CERTAIN AFFIRMATIVE
COVENANTS. Failure by the Borrower (in respect of the Borrower or any Subsidiary
of the Borrower: (a) to perform, keep, or observe any other term, provision,
condition or covenant contained in Sections 4.11, 8.1, 8.2(b), 8.2(c) or 8.2(e)
through 8.2(l) of this Agreement which is required to be performed, kept, or
observed by the Borrower (in respect of the Borrower or any Subsidiary of the
Borrower) and such failure shall continue without remedy for a period of ten
(10) Business Days, or (b) to perform, keep or observe any other term,
provision, condition or covenant contained in this Agreement (other than those
provisions, terms or conditions referenced in Sections 9.1, 9.2, 9.4 and of this
Agreement) that is required to be kept or observed by the Borrower (in respect
of the Borrower or any Subsidiary of the Borrower) and such failure shall
continue without remedy for a period of fifteen (15) Business Days; or
9.4 VIOLATION OF NEGATIVE COVENANTS AND FINANCIAL COVENANTS. Failure
by the Borrower (in respect of the Borrower or any Subsidiary of the Borrower)
to perform, keep, or observe any other term, provision, condition or covenant
contained in Section 4.6, Section 5.1, Section 8.2(a), 8.2(d) 8.3 or 8.4 of this
Agreement which is required to be performed, kept, or
66
observed by the Borrower (in respect of the Borrower or any Subsidiary of the
Borrower); or
9.5 OTHER LOAN DOCUMENTS. Failure by the Borrower or any Subsidiary of
the Borrower to perform, keep, or observe any other term, provision, condition
or covenant contained in this Agreement, any of the other Loan Documents which
is required to be performed, kept, or observed by the Borrower or any Subsidiary
of the Borrower (other than those provisions, terms or conditions referenced in
Sections 9.1 through 9.4 of this Agreement) and such failure shall continue
without remedy for a period of twenty (20) Business Days; or
9.6 CROSS-DEFAULT. Default by the Borrower in respect of: (i) any
Indebtedness of the Borrower in excess of Five Hundred Thousand Dollars
($500,000) in the aggregate where such default could permit the holder of such
other Indebtedness to accelerate such Indebtedness or any portion thereof to the
extent such default has not been waived and (ii) any Material Business Agreement
or Material License Agreement, after the expiration of any applicable grace
period; or
9.7 DESTRUCTION OF COLLATERAL. Each of: (a) the loss, theft, damage or
destruction of any portion of the Collateral having an aggregate value in excess
of Five Hundred Thousand Dollars ($500,000), to the extent not adequately
covered by insurance in an amount equal to at least its replacement value (as
required by this Agreement); or
9.8 MATERIAL ADVERSE EFFECT. The occurrence of any Material Adverse
Effect; or
9.9 TERMINATION OF EXISTENCE. The dissolution or termination of
existence of the Borrower or and of its Subsidiaries; or
9.10 CONTROL. The occurrence of any Change in Control;
9.11 FAILURE OF ENFORCEABILITY OF THIS AGREEMENT, CREDIT DOCUMENT;
SECURITY. If: (a) any covenant, material agreement or any Obligation of the
Borrower, any Subsidiary of the Borrower or any Guarantor contained in or
evidenced by this Agreement or any of the Loan Documents shall cease to be
enforceable, or shall be determined to be unenforceable, in accordance with its
terms, or (b) the Borrower, any Subsidiary of the Borrower or any Guarantor
shall deny or disaffirm its obligations under this Agreement or any of the Loan
Documents or any of the Liens granted in connection therewith, or (c) any Liens
in favor of the Agent or the Lenders granted in this Agreement or any of the
Loan Documents shall be determined to be void, voidable or invalid, or are
subordinated or not otherwise given the priority contemplated by this Agreement,
or (d) any perfected Liens granted in favor of the Agent or the Lenders shall be
determined to be unperfected except in the normal course of the business of the
Borrower as expressly contemplated and permitted by this Agreement and the Loan
Documents, or (e) any Guarantor of the Obligations of the Borrower shall revoke
or permit a payment default under any Guaranty; or
67
9.12 ERISA. If: (a) the Borrower, its Subsidiaries or any of their
ERISA Affiliates or any other Person institutes any steps to terminate an
Employee Benefit Plan of the Borrower, such Subsidiaries or such ERISA
Affiliates and, as a result of such termination, the Borrower, such Subsidiary
or ERISA Affiliate is or could reasonably be expected to be required to make a
contribution to such Employee Benefit Plan the payment of which (i) when taken
together with all like terminations suffered by the Borrower, either has
resulted or could reasonably be expected to result in a Material Adverse Effect
or (ii) has resulted or could reasonably be expected to result in liabilities or
claims against the Borrower in an amount exceeding Two Hundred Fifty Thousand
Dollars ($250,000), or (b) the Borrower, such Subsidiary or ERISA Affiliate
fails to make a contribution to any Employee Benefit Plan which failure would be
sufficient to give rise to a Lien under Section 302(f) of ERISA; or
9.13 JUDGMENTS. Any money judgment, writ or warrant of attachment or
similar process involving: (a) an amount in any individual case in excess of Two
Hundred Fifty Thousand Dollars ($250,000) or (b) an amount in the aggregate at
any time in excess of Five Hundred Thousand Dollars ($500,000) (to the extent
not insured by an insurance carrier which has acknowledged coverage in the
amount of the claim without any reservation of rights or which has been ordered
by a court of competent jurisdiction to pay such claim) is entered or filed
against the Borrower or any of the Borrower's Subsidiaries or against any of
their respective assets and is not released, discharged, vacated, fully bonded
or stayed within thirty (30) days after such judgment, writ or warrant of
attachment or similar proceeding is entered; or
9.14 FORFEITURE PROCEEDINGS. An adjudication against the Borrower or
its Subsidiaries in any criminal proceedings requiring the Borrower's forfeiture
of any asset or assets having, either individually or in the aggregate, a value
in excess of Two Hundred Fifty Thousand Dollars ($250,000); or
9.15 FINANCIAL IMPAIRMENT. The Financial Impairment of the Borrower.
SECTION 10 REMEDIES.
10.1 OPTIONAL DEFAULTS. Upon the occurrence of an Event of Default
described above in Sections 9.1 through 9.14 above, inclusive, the Agent shall
at the request of, or may with the consent of, the Required Lenders, have the
right to: (a) declare all of the Obligations due or to become due from the
Borrower to the Agent and the Lenders, whether under this Agreement, the Notes
or otherwise, at the option of the Lenders, immediately due and payable,
anything in the Notes or other evidence of the Obligations or in any of the
other Loan Documents to the contrary notwithstanding and (b) terminate each
Lender's Revolving Credit Commitment whereupon no Lender shall have any further
obligation to make any Revolving Credit Loan hereunder.
10.2 AUTOMATIC DEFAULTS. If any Event of Default referred to in
Section 9.15 above shall occur, (a) each Lender's Revolving Credit Commitment
shall automatically and immediately terminate (if not already expired or
terminated by the Borrower or terminated
68
pursuant to this Section 10) whereupon no Lender shall have any obligation
thereafter to make any Revolving Credit Loan hereunder, (b) all of the
Obligations and all other Indebtedness, if any, then owing to the Lenders (other
than Indebtedness, if any, already due and payable) shall thereupon become and
thereafter be immediately due and payable in full, all without any presentment,
demand or notice of any kind, which are hereby waived by the Borrower.
10.3 GENERAL RIGHTS AND REMEDIES OF AGENT AND THE LENDERS. With
respect to the Collateral, the Agent shall have all of the rights and remedies
of a secured party under the UCC or under other applicable Law. The Agent and
the Lenders shall have all other legal and equitable rights to which the Agent
and the Lenders may be entitled, all of which rights and remedies shall be
cumulative, and none of which shall be exclusive, to the extent permitted by
law, in addition to any other rights or remedies contained in this Agreement or
in any of the other Loan Documents. Each Lender hereby expressly agrees that,
unless requested by the Agent, upon the concurrence of the Required Lenders,
such Lender will not take or cause to be taken, in respect of the Loans or the
other Obligations or the Collateral, any action or remedy that is independent
from the actions or remedies taken or to be taken by the Agent, except for any
actions taken by any Lender in connection with any Event of Default described in
Section 9.15 of this Agreement necessary to preserve the claims of such Lender.
10.4 ADDITIONAL REMEDIES. Upon the occurrence of an Event of Default
which has not been waived in writing by the Required Lenders, to the extent
permitted by applicable law and in addition to any other right or remedy
provided for in this Agreement, the Agent may, after declaring the Obligations
to be immediately due and payable upon direction of the Required Lenders
pursuant to Section 10.1, and shall, upon the direction of the Required Lenders,
exercise the following rights and remedies:
(a) POSSESSION OF COLLATERAL. The Agent shall have the right
to take immediate possession of the Collateral and all Proceeds
relating to such Collateral and: (i) require the Borrower, at the
Borrower's expense, to assemble the Collateral and make it available to
the Agent such facilities of the Borrower as the Agent shall designate
or (ii) enter any of the premises of the Borrower or wherever any
Collateral shall be located and to keep and store the same on such
premises until sold. If the premises on which the Collateral is located
is owned or leased by the Borrower, then the Borrower shall not charge
the Agent for storage of such Collateral on such premises.
(b) FORECLOSURE OF LIENS. The Agent shall have the right to
foreclose the Liens created under this Agreement and each of the other
Loan Documents or under any other agreement relating to the Collateral.
(c) DISPOSITION OF COLLATERAL. The Agent shall have the right
to sell or to otherwise dispose of all or any Collateral in its then
condition, or after any further manufacturing or processing thereof, at
public or private sale or sales, wholesale dispositions, or sales
pursuant to one or more contracts, with such notice as may be
69
required by law, in lots or in bulk, for cash or on credit, all as the
Lender, in its discretion, may deem advisable. The Borrower
acknowledges and covenants that ten (10) days written notice to the
Borrower of any public or private sale or other disposition of
Collateral shall be reasonable notice thereof, and such sale shall be
at the Borrower's premises or at such other locations where the
Collateral then is located, or as otherwise determined by the Lender.
The Agent shall have the right to conduct such sales on the Borrower's
premises, without charge therefor, and such sales may be adjourned from
time to time in accordance with applicable law without further
requirement of notice to the Borrower. Each Lender shall have the right
to bid or credit bid at any such sale on its own behalf.
(d) APPLICATION OF COLLATERAL. The Agent, with or without
proceeding with sale or foreclosure or demanding payment of the
Obligations, shall have the right, without notice, at any time, to
appropriate and apply to any Obligations any and all Collateral in the
possession of the Agent or the Lenders.
10.5 SET-OFF. If any Event of Default referred to in Section 9 of this
Agreement shall occur which has not been waived in writing by the Required
Lenders, each Lender shall have the right (in addition to such other rights as
it may have by operation of Law or otherwise but subject to Section 10.9 of this
Agreement) at any time to set off against and to appropriate and apply toward
the payment of the Obligations and all other Indebtedness then owing to it (and
any participation purchased or to be purchased pursuant to Section 10.9 below)
whether or not the same shall then have matured, any and all deposit balances
then owing by that Lender to or for the credit or account of the Borrower, all
without notice to or demand upon the Borrower or any other Person, all such
notices and demands being hereby expressly waived.
10.6 TERMINATION; EFFECT ON BORROWER OBLIGATIONS. Any termination by
the Agent and/or any Lender pursuant to this Section 10 of its performance shall
not absolve, release, or otherwise affect the liability of the Borrower in
respect of transactions prior to such termination or affect any of the Liens,
rights, powers, and remedies of the Agent or such Lender, which such Liens,
rights, powers and remedies shall, in all events, continue until all Obligations
of the Borrower to the Agent and the Lenders are satisfied.
10.7 AUTHORITY TO EXECUTE TRANSFERS. Without limitation of any
authorization granted to the Agent hereunder, the Borrower also hereby
authorizes the Agent, upon the occurrence of an Event of Default that has not
been waived by the Required Lenders, to execute, in connection with the exercise
by the Agent of its remedies hereunder, any endorsements, assignments or other
instruments of conveyance or transfer with respect to the Collateral.
10.8 LIMITED LICENSE TO LIQUIDATE. The Borrower hereby grants to the
Agent for the benefit of the Lenders: (a) a non-exclusive, royalty-free license
or other right to use, without charge, all of the Borrower's Intellectual
Property (including all rights of use of any name or trade secret) as it
pertains to the Collateral, in manufacturing, advertising for sale and selling
any
70
Collateral; provided, that such license and right to use shall be exercisable by
the Agent for the benefit of the Lenders only upon request by the Agent after
the occurrence of an Event of Default which has not been waived in writing by
the Required Lenders, and (b) to the extent permitted thereunder, all of the
Borrower's rights under all licenses and all franchise agreements which shall
inure to the Agent for the benefit of the Lenders without charge but only upon
request by the Agent after the occurrence of an Event of Default which has not
been waived in writing by the Required Lenders.
10.9 EQUALIZATION. Each Lender agrees with the other Lenders that if
at any time it shall obtain any Advantage over the other Lenders or any thereof
in respect of the Loans it will purchase from such other Lender or Lenders, for
cash and at par, such additional participation in the Loans owing to the other
or others as shall be necessary to nullify the Advantage. If any such Advantage
resulting in the purchase of an additional participation as aforesaid shall be
recovered in whole or in part from the Lender receiving the Advantage, each such
purchase shall be rescinded, and the purchase price restored (with interest and
other charges if and to the extent actually incurred by the Lender receiving the
Advantage) ratably to the extent of the recovery. During the existence of any
Potential Default or Event of Default, any payment (whether made voluntarily or
involuntarily, by offset of any deposit or other indebtedness or otherwise) of
any Indebtedness owing by the Borrower to any Lender shall be applied to the
Obligations owing to that Lender until the same shall have been paid in full
before any thereof shall be applied to other Indebtedness owing to that Lender.
10.10 REMEDIES CUMULATIVE. The above-stated remedies are not intended
to be exhaustive and the full or partial exercise of any of such remedies shall
not preclude the full or partial exercise of any other remedy by the Agent under
this Agreement, under any Loan Document, or at equity or under law.
SECTION 11 THE AGENT.
11.1 THE AGENT. Each Lender irrevocably appoints the Agent to act as
agent under this Agreement and the other Loan Documents for the benefit of such
Lender, with full authority to take such actions, and to exercise such powers,
on behalf of the Lenders in respect of this Agreement and the other Loan
Documents as are herein and therein respectively delegated to the Agent or as
are reasonably incidental to those delegated powers. The Agent in such capacity
shall be deemed to be an independent contractor of the Lenders. Each Lender and
the Letter of Credit Bank hereby expressly agrees that, unless requested by the
Agent upon the concurrence of the Required Lenders, none of the Lenders or the
Letter of Credit Bank will take or cause to be taken, in respect of the Loans or
the other Obligations or the Collateral, any action or remedy that is
independent from the actions or remedies taken or to be taken by the Agent,
except for any actions taken by any Lender or the Letter of Credit Bank in
connection with any Event of Default described in Section 9.15.
11.2 NATURE OF APPOINTMENT. The Agent shall have no fiduciary
relationship with any Lender or the Letter of Credit Bank by reason of this
Agreement and the other Loan
71
Documents. The Agent shall not have any duty or responsibility whatsoever to any
Lender or the Letter of Credit Bank except those expressly set forth in this
Agreement and the other Loan Documents. Without limiting the generality of the
foregoing, each Lender acknowledges that the Agent is acting as such solely as a
convenience to the Lenders and not as a manager of the Revolving Credit
Commitments or the Obligations evidenced by the Revolving Credit Notes. This
Section 11 does not confer any rights upon the Borrower or anyone else (except
the Lenders), whether as a third party beneficiary or otherwise.
11.3 AGENT AS A LENDER; OTHER TRANSACTIONS. The Agent's rights as a
Lender under this Agreement and the other Loan Documents shall not be affected
by its serving as the Agent. The Agent and its Affiliates may generally transact
any banking, financial, trust, advisory or other business with the Borrower
(including, without limitation, the acceptance of deposits, the extension of
credit and the acceptance of fiduciary appointments) without notice to the
Lenders, without accounting to the Lenders, and without prejudice to the Agent's
rights as a Lender under this Agreement and the other Loan Documents except as
may be expressly required under this Agreement.
11.4 INSTRUCTIONS FROM LENDERS. The Agent shall not be required to
exercise any discretion or take any action as to matters not expressly provided
for by this Agreement and the other Loan Documents (including, without
limitation, collection and enforcement actions in respect of any Obligations
under the Revolving Credit Notes or this Agreement and any collateral therefor),
except that the Agent shall take such action (or omit to take such action) other
than actions referred to in Section 12.1 of this Agreement, as may be reasonably
requested of it in writing by the Required Lenders with instructions and which
actions and omissions shall be binding upon all of the Lenders; provided, that
the Agent shall not be required to act (or omit any act) if, in its judgment,
any such action or omission might expose the Agent to personal liability or
might be contrary to this Agreement, any Loan Document or any applicable Law.
11.5 LENDER'S DILIGENCE. Each Lender: (a) represents and warrants that
it has made its own decision to enter into this Agreement and the other Loan
Documents and (b) agrees that it will make its own decision as to taking or not
taking future actions in respect of this Agreement and the other Loan Documents;
in each case without reliance on the Agent or any other Lender and on the basis
of its own independent credit analysis and its own independent examination of
and inquiry into such documents and other matters as it deems relevant and
material.
11.6 NO IMPLIED REPRESENTATIONS. The Agent shall not be liable for any
representation, warranty, agreement or obligation of any kind of any other party
to this Agreement or anyone else, whether made or implied by the Borrower in
this Agreement or any Loan Document or by a Lender in any notice or other
communication or by anyone else or otherwise.
11.7 SUB-AGENTS. The Agent may employ agents and shall not be liable
(except as to money or property received by it or its agents) for any gross
negligence or wilful misconduct of
72
any such agent selected by it with reasonable care.
11.8 AGENT'S DILIGENCE. The Agent shall not be required: (a) to keep
itself informed as to anyone's compliance with any provision of this Agreement
or any Loan Document, (b) to make any inquiry into the properties, financial
condition or operation of the Borrower or any other matter relating to this
Agreement or any Loan Document, (c) to report to any Lender any information
(other than such information that this Agreement or any other Loan Document
expressly requires to be so reported) that the Agent or any of its Affiliates
may have or acquire in respect of the properties, business or financial
condition of the Borrower or its Subsidiaries or any other matter relating to
this Agreement or any other Loan Document or (d) to inquire into the validity,
effectiveness or genuineness of this Agreement or any other Loan Document.
11.9 NOTICE OF DEFAULT. The Agent shall not be deemed to have
knowledge of any Potential Default or Event of Default unless and until it shall
have received a written notice describing it and citing the relevant provision
of this Agreement or any other Loan Document. The Agent shall give each Lender
reasonably prompt notice of any such written notice except to such Lender that
shall have given the written notice.
11.10 AGENT'S LIABILITY. Neither the Agent nor any of its directors,
officers, employees, attorneys and other agents shall be liable for any action
or omission on their respective parts except for gross negligence or willful
misconduct. Without limitation of the generality of the foregoing, the Agent:
(a) may treat the payee of any Revolving Credit Note as the holder thereof until
the Agent receives a fully executed copy of any assignment with respect thereto,
signed by such payee and in form satisfactory to the Agent; (b) may consult with
legal counsel, independent public accountants and other experts selected by it
and shall not be liable for any action taken or omitted to be taken in good
faith by it in accordance with the advice or such counsel, accountants or
experts that have been selected by the Agent with reasonable care; (c) makes no
warranty or representation to any Lender and shall not be responsible to any
Lender for any statements, warranties or representations made in or in
connection with this Agreement or any other Loan Document, including, without
limitation, the truth of the statements made in any certificate delivered by the
Borrower under Sections 2 or 3 of this Agreement or in any Credit Request, Rate
Continuation/Conversion Request, Reimbursement Agreement or any other similar
notice or delivery, the Agent being entitled for the purposes of determining
fulfillment of the conditions set forth therein to rely conclusively upon such
certificates; (d) shall not have any duty to ascertain or to inquire as to the
performance or observance of any of the terms, covenants or conditions of this
Agreement, the Revolving Credit Notes or any other Loan Document or to inspect
the property (including the books and records) of the Borrower; (e) shall not be
responsible to any Lender for the due execution, legality, validity,
enforceability, genuineness, sufficiency or value of this Agreement, any other
Loan Document, or collateral covered by any agreement or any other Loan Document
and (f) shall incur no liability under or in respect of this Agreement, the
Revolving Credit Notes or any other Loan Document by acting upon any notice,
consent, certificate or other instrument or writing (which may be by telegram,
telecopy, cable or telex) believed by it in good faith to be genuine and correct
and signed or sent by the proper
73
party or parties.
Neither the Agent nor any of its directors, officers, employees
or agents shall have any responsibility to the Borrower on account of the
failure of or delay in performance or breach by any Lender of any of its
obligations hereunder or to any Lender on account of the failure of or delay in
performance or breach by any other Lender or the Borrower of any of their
respective obligations hereunder or under any other Loan Document or in
connection herewith or therewith. The Lenders each hereby acknowledge that the
Agent shall be under no duty to take any discretionary action permitted to be
taken by it pursuant to the provisions of this Agreement, the Revolving Credit
Notes or any other Loan Document unless it shall be requested in writing to do
so by the Required Lenders.
11.11 AGENT'S INDEMNITY. The Lenders shall indemnify the Agent, in its
capacity as Agent, (to the extent the Agent is not reimbursed by the Borrower)
from and against: (a) any loss or liability (other than any caused by the
Agent's gross negligence or willful misconduct) incurred by the Agent as such in
respect of this Agreement, the Revolving Credit Notes or any other Loan Document
(as the Agent) and (b) any out-of-pocket expenses incurred in defending itself
or otherwise related to this Agreement, the Revolving Credit Notes or any other
Loan Document (other than any caused by the Agent's gross negligence or willful
misconduct) including, without limitation, reasonable fees and disbursements of
legal counsel of its own selection (including, without limitation, the
reasonable interdepartmental charges of its salaried attorneys) in the defense
of any claim against it or in the prosecution of its rights and remedies as the
Agent (other than the loss, liability or costs incurred by the Agent in the
defense of any claim against it by the Lenders arising in connection with its
actions in its capacity as Agent); provided, that each Lender shall be liable
for only its Ratable Portion of the whole loss or liability.
11.12 RESIGNATION OR REMOVAL OF AGENT. The Agent may resign as Agent
effective ten (10) Business Days after giving notice thereof to the Lenders for
any reason and the Agent may be removed at the unanimous election of all the
Lenders (other than the Lender that is also the Agent) for any reason. If the
Agent shall resign or be removed as Agent under this Agreement, the Required
Lenders shall appoint from among the Lenders (other than the Lender that has
resigned or was removed) a successor agent for the Lenders, which successor
agent shall be reasonably acceptable to the Borrower. If, however, in the case
of resignation by the Agent, no successor agent shall have been appointed by the
time such resignation becomes effective, then the retiring Agent may, on behalf
of the Lenders, appoint a successor agent from among the remaining Lenders. Upon
appointment (whether effected by the Required Lenders or the retiring Agent on
behalf of the Lenders), the successor agent shall succeed to the rights, powers
and duties of the Agent, and the term "Agent" shall mean such successor agent,
effective upon its appointment, and the former Agent's rights, powers and duties
as Agent shall be terminated, without any other or further act or deed on the
part of such former Agent or any of the parties to this Agreement or any holder
of the Notes. After any retiring Agent's resignation or removal hereunder as
Agent, the provisions of Section 11.11 shall inure to its benefit as to any
actions taken or omitted to be taken by it while it was Agent under this
Agreement.
74
SECTION 12 TRANSFERS AND ASSIGNMENTS.
12.1 TRANSFER OF COMMITMENTS. Each Lender shall have the right at any
time or times to transfer to another financial institution that is an Eligible
Assignee, without recourse, all or part (and, in the case of transfers completed
on or before the Syndication Date, a uniform and not varying percentage) of such
Lender's rights and obligations under this Agreement and the other Loan
Documents including, without limitation, such Lender's Revolving Credit
Commitment or LC Exposure; any Loan made by such Lender; any Revolving Credit
Note executed in favor of such Lender, and any participations, if any, purchased
by the Lender pursuant to Section 10.9 of this Agreement; provided, that NCCF
may only transfer its Commitments at such time as the sum of (i) NCCF's
Commitments and (ii) the obligations owing by the Borrower to National City Bank
equals or exceeds Twenty-two Million Dollars ($22,000,000) and provided,
further, in each such case, that the transferor and the transferee shall have
complied with the following requirements:
(a) AMOUNT OF ASSIGNMENT. The aggregate amount of the Revolving
Loan Commitment of the assigning Lender being assigned pursuant to such
assignment (determined as of the date of such assignment) shall in no
event be less than Five Million Dollars ($5,000,000) and if greater,
shall be an integral multiple of One Million Dollars ($1,000,000) in
excess thereof and after giving effect to such assignment, the
aggregate amount of the Revolving Credit Commitment retained by the
assigning Lender shall in no event be less than Five Million Dollars
($5,000,000).
(b) PRIOR CONSENT. Transfers (including transfers by any Lender
to any Affiliate of such Lender) to any Eligible Assignee may be
consummated pursuant to this Section 12 without the prior written
consent of the Borrower but only upon consent of the Agent, which shall
not be unreasonably withheld. Notwithstanding anything to the contrary,
any Lender may at any time: (i) assign all or any portion of its rights
under this Agreement and its Revolving Credit Notes to a Federal
Reserve Bank or (ii) create a security interest in all or any portion
of such rights in favor of any Federal Reserve Bank, in each case in
accordance with Regulation A or the Board of Governors of the Federal
Reserve System. No such assignment shall release such assigning Lender
from its obligations hereunder.
(c) AGREEMENT; TRANSFER FEE. The transferor: (i) shall remit to
the Agent an administrative fee of Three Thousand Five Hundred Dollars
($3,500) (which amount shall be in full satisfaction of any and all
costs and expenses by the Agent and or the transferor or transferee
relating directly to documenting the assignment of the Revolving Credit
Commitment by the transferor) and (ii) shall cause the transferee to
execute and deliver to the Borrower, the Agent and each Lender (A) an
Assignment Agreement, substantially in the form of Exhibit G attached
hereto, and otherwise in form and substance satisfactory to the Agent
and its counsel (a "Bank Assignment Agreement"),
75
together with the consents and releases referenced therein and (B) such
additional amendments, assurances and other writings as the Agent may
reasonably require to effect such transfer.
(d) REVOLVING CREDIT NOTES. The Borrower shall execute and
deliver: (i) to the Agent, the transferor and the transferee, any
consent or release (of all or a portion of the obligations of the
transferor) to be delivered in connection with the Assignment
Agreement, (ii) if a Lender's entire interest in its Revolving Credit
Commitment, LC Exposure and in all of its Loans have been transferred,
to the transferee appropriate Revolving Credit Notes against return of
the Revolving Credit Notes (each marked "replaced") held by the
transferor and (iii) if only a portion of a Lender's interest in its
Revolving Credit Commitment, LC Exposure and Loans has been
transferred, a new Revolving Credit Note to each of the transferor and
the transferee against return of the original such Revolving Credit
Notes of the transferor (each marked "replaced") held by the
transferor; provided, that, simultaneously with the Borrower's delivery
of new Revolving Credit Notes pursuant to this Section 12.1(d), the
transferor Lender will deliver to the Borrower any note being replaced
in whole or in part, and each such note delivered by the transferor
Lender shall be conspicuously marked "replaced" when so delivered.
(e) PARTIES. Upon satisfaction of the requirements of this
Section 12.1, including the payment of the fee and the delivery of the
documents set forth in Section 12.1(c) above, (i) the transferee shall
become and thereafter be deemed to be a "Lender" for the purposes of
this Agreement and (ii) the transferor (A) shall continue to be a
"Lender" for the purposes of this Agreement only if and to the extent
that the transfer shall not have been a transfer of its entire interest
in its Revolving Credit Commitment, LC Exposure and Loans, (B) shall
cease to be and thereafter shall no longer be deemed to be a "Lender"
in the case of any transfer of its entire interest in its Revolving
Credit Commitment, LC Exposure and Loans and (C) the signature pages
hereto and Annex I hereto shall be automatically amended, without
further action, to reflect the result of any such transfer.
(f) PERMITTED PREPAYMENT. The Borrower shall have the right to
prepay all, but not less than all of the outstanding Loans, within
ninety (90) days of any such assignment or transfer, provided, that
there is then existing no Event of Default.
12.2 SALE OF PARTICIPATIONS. Each Lender shall have the right at any
time or times to sell one or more participations or subparticipations to a
financial institution which is an Eligible Assignee in all or any part of such
Lender's Revolving Credit Commitment, LC Exposure, any Loan made by such Lender,
any Revolving Credit Note executed in favor of such Lender, and any
participations, if any, purchased by such Lender pursuant to Section 10.9 of
this Agreement or this Section 12.2; provided, in each such case, that the
transferor and the transferee shall have complied with the following
requirements:
76
(a) BENEFITS OF PARTICIPANT. The provisions of Section 13 of
this Agreement shall inure to the benefit of each purchaser of a
participation or subparticipation (provided that each such participant
shall look solely to the seller of its participation for those benefits
and the Borrower's liabilities, if any, under any of those sections
shall not be increased as a result of the sale of any such
participation) and Agent shall continue to distribute payments pursuant
to this Agreement as if no participation has been sold.
(b) RIGHTS RESERVED. In the event any Lender shall sell any
participation or subparticipation, that Lender shall, as between itself
and the purchaser, retain all of its rights (including, without
limitation, rights to enforce against the Borrower this Agreement and
the other Loan Documents) and duties pursuant to this Agreement and the
Loan Documents, including, without limitation, that Lender's right to
approve any waiver, consent or amendment pursuant to Section 14.1 of
this Agreement, except if and to the extent that any such waiver,
consent or amendment would (A) reduce any fee or commission allocated
to the participation or subparticipation, as the case may be, (B)
reduce the amount of any principal payment on any Loan allocated to the
participation or subparticipation, as the case may be, or reduce the
principal amount of any Loan so allocated or the rate of interest
payable thereon, or (C) extend the time for payment of any amount
allocated to the participation or subparticipation, as the case may be.
(c) NO DELEGATION; COSTS. No participation or subparticipation
shall operate as a delegation of any duty of the seller thereof. Under
no circumstance shall any participation or subparticipation be deemed a
novation in respect of all or any part of the seller's obligations
pursuant to this Agreement. The Borrower shall not be responsible for
any costs and expenses by the Agent and or the transferor or transferee
relating directly to documenting the participation in such Revolving
Credit Commitment.
12.3 BORROWER'S RIGHT TO DEMAND TRANSFER. Unless an Event of Default
has occurred that has not been waived in writing by the Required Lenders, the
Borrower may, after the demand by any Lender organized under the laws of a
jurisdiction outside the United States for payment pursuant to Section 3.2 or
3.3 of this Agreement, demand that upon five (5) Business Days notice to such
Lender, such Lender shall transfer in full (in one or more transfers) all of its
Revolving Credit Commitment, LC Exposure and all of its interest in any Loans to
one or more Eligible Assignees in accordance with Section 12.1.
12.4 CONFIDENTIALITY. The Agent and each Lender hereby acknowledge
that the Borrower has financial, environmental and other data and information
the confidentiality of which is important to its business. The Agent and each
Lender agree to use all reasonable efforts to keep confidential any such
confidential information conveyed to them and appropriately designated in
writing by the Borrower as being confidential information, except that this
Section 12.4 shall not be binding on the Agent and Lenders after the expiration
of two years after the termination of this Agreement and shall not preclude the
Agent or the Lenders from furnishing any such confidential information: (a)
subject to the Borrower's receipt of prior notice
77
from the Agent or such Lender, as the case may be, if permitted under applicable
law and such legal proceedings, to the extent which may be required by subpoena
or similar order of any court of competent jurisdiction, (b) to the extent such
information is required to be disclosed to any regulatory or administrative
governmental agency or commission having any regulatory authority over that
Lender or its securities, (c) to any other party to this Agreement, (d) to any
Affiliate of any Lender (other than an Affiliate engaged in non-banking
activities or activities competitive with the Borrower) so long as such
Affiliate agrees to be bound by the provisions of this Section 12.4, (e) to any
actual or prospective transferee, participant or subparticipant of all or part
of that Lender's rights arising out of or in connection with the Loan Documents
and this Agreement or any thereof so long as such prospective transferee,
participant or subparticipant to whom disclosure is made agrees to be bound by
the provisions of this Section 12.4 and as to which the Borrower has consented
pursuant to Section 12.1 above, as the case may be, (f) to anyone if it shall
have been already publicly disclosed (other than by that Lender in contravention
of this Section 12.4), (g) to the extent reasonably required in connection with
the exercise of any right or remedy under this Agreement or any other Loan
Document, (h) to that Lender's legal counsel, auditors, professional advisors
and consultants, and accountants and (i) in connection with any legal
proceedings instituted by or against the Agent, the Letter of Credit Bank or any
Lender in its respective capacities as the Agent, the Letter of Credit Bank and
a Lender under this Agreement.
SECTION 13 INDEMNITIES.
13.1 INCREASED COSTS. If after the date of this Agreement (a) the
introduction of or any change in or in the interpretation of any Law or
regulation or (b) the compliance with any guideline or request from any central
bank or other governmental authority (whether or not having the force of Law)
shall increase the cost to any Lender or the Letter of Credit Bank, as the case
may be, (other than any increase in the cost of such Lender's or Letter Of
Credit Bank's overhead) of agreeing to make or making, funding or maintaining
Revolving Credit Loans or Letters of Credit, then the Borrower shall from time
to time, upon demand by such Lender or the Letter of Credit Bank, as the case
may be (with a copy of such demand to the Agent), pay to the Agent for the
account of such Lender or the Letter of Credit Bank, as the case may be,
additional amounts sufficient to indemnify such Lender or the Letter of Credit
Bank, as applicable, for such increased cost.
13.2 RISK-BASED CAPITAL. If any Lender or the Letter of Credit Bank
determines that: (a) compliance with any Law or regulation or any interpretation
thereof or (b) compliance with any guideline or request from any central bank or
other governmental authority (whether or not having the force of Law) affects or
would affect the amount of capital required or expected to be maintained by such
Lender or the Letter of Credit Bank or any corporation controlling such Lender
or the Letter of Credit Bank and that the amount of such capital required to be
so maintained is increased by or based upon the existence of such Lender's
Revolving Credit Commitment to lend hereunder, or the Letter of Credit Bank's
commitment to issue Letters of Credit hereunder and other commitments of this
type, then, upon demand by such Lender or the Letter of Credit Bank, as the case
may be (with a copy of such demand to the Agent), the Borrower shall immediately
pay to the Agent for the account of such Lender or the
78
Letter of Credit Bank, as the case may be, from time to time as specified by
such Lender or the Letter of Credit Bank, as the case may be, additional amounts
sufficient to indemnify such Lender, the Letter of Credit Bank or such
corporation, to the extent that such Lender or the Letter of Credit Bank, as the
case may be reasonably determines such increase in capital to be allocable to
the existence of such Lender's Revolving Credit Commitment to lend hereunder or
the Letter of Credit Bank's commitment to issue Letters of Credit hereunder.
13.3 TAXES.
(a) TAXES; WITHHOLDING. Any and all payments by the Borrower
hereunder, under the Revolving Credit Notes or the other Loan Documents
shall be made, in accordance with the provisions of Section 2, free and
clear of and without deduction for any and all present or future taxes,
levies, imposts, deductions, charges or withholdings, and all
liabilities with respect thereto, excluding, in the case of each
Lender, taxes imposed on its income, and franchise taxes imposed on it,
by the jurisdiction under the Laws of which such Lender is organized or
is doing business, or any political subdivision thereof (all such
non-excluded taxes, levies, imposts, deductions, charges, withholdings
and liabilities being hereinafter referred to as "Taxes"). If the
Borrower shall be required by Law to deduct any Taxes from or in
respect of any sum payable hereunder or under any Revolving Credit Note
to any Lender or the Agent: (i) the sum payable shall be increased as
may be necessary so that after making all required deductions
(including deductions applicable to additional sums payable under this
Section 13.3) such Lender receives an amount equal to the sum it would
have received had no such deductions been made, (ii) the Borrower shall
make such deductions and (iii) the Borrower shall pay the full amount
deducted to the relevant taxation authority or other authority in
accordance with applicable Law. All such Taxes shall be paid by the
Borrower prior to the date on which penalties attach thereto or
interest accrues thereon; provided, that, if any such penalties or
interest become due, the Borrower shall make prompt payment thereof to
the appropriate governmental authority. The Borrower shall indemnify
each Lender for the full amount of such Taxes (including any Taxes on
amounts payable under this Section 13.3(a) paid by the Lender and any
liability (including penalties, interest and expenses) arising
therefrom or with respect thereto, whether or not such Taxes were
correctly or legally asserted. Any indemnification payment shall be
made within thirty (30) days from the date the Lender makes written
demand therefor.
(b) STAMP TAXES. The Borrower agrees to pay, and will
indemnify each Lender and the Agent for, any present or future stamp or
documentary taxes or any other excise or property taxes, charges or
similar levies which arise from any payment made hereunder or under the
Revolving Credit Notes or from the execution, delivery or registration
of, or otherwise with respect to, this Agreement or the Revolving
Credit Notes (hereinafter referred to as "Other Taxes").
79
(c) OTHER TAXES. Except as specifically limited by Section
13.3(a), the Borrower will indemnify each Lender and the Agent for the
full amount of Taxes or Other Taxes (including, without limitation, any
Taxes or Other Taxes imposed by any jurisdiction on amounts payable
under this Section 13.3) paid by such Lender or the Agent (as the case
may be) and any liability (including penalties, interest and expenses)
arising therefrom or with respect thereto, whether or not such Taxes or
Other Taxes were correctly or legally asserted. Any indemnification
payment shall be made within 30 days from the date such Lender or the
Agent (as the case may be) makes written demand therefor.
(d) REQUEST FOR REFUND. At the reasonable request of the
Borrower, a Lender or the Agent shall apply at the Borrower's expense
for a refund in respect of Taxes or Other Taxes previously paid by the
Borrower pursuant to this Section 13.3 if in the opinion of such Lender
or the Agent there is a reasonable basis for such refund.
Notwithstanding the foregoing, none of the Lenders or the Agent shall
be obligated to pursue such refund if, in its sole good faith judgment,
such action would be disadvantageous to it. If any Lender subsequently
receives from a taxing authority a refund of any Tax previously paid by
the Borrower and for which the Borrower has indemnified the Lender
pursuant to this Section 13.3, such Lender shall within thirty (30)
days after receipt of such refund, and to the extent permitted by
applicable law, pay to the Borrower the net amount of any such recovery
after deducting taxes and expenses attributable thereto.
(e) EXEMPTION CERTIFICATE. Not later than: (a) the Closing
Date, (b) in the case of any bank or financial institution that becomes
a Lender after the Closing Date, the date of the instrument of
assignment pursuant to which such bank or financial institution became
a Lender, (c) annually on each anniversary date of the Closing Date
thereafter or (d) such other times as the Agent or the Borrower may
reasonably request: (i) each Lender organized under the laws of a
jurisdiction outside the United States shall provide the Agent and the
Borrower with duly completed copies of Form 1001 or Form 4224 or any
successor form prescribed by the Internal Revenue Service of the United
States certifying that such Lender is exempt from United States
withholding taxes with respect to all payments to be made to such
Lender hereunder or other document satisfactory to the Borrower and the
Agent indicating that all payments to be made to such Lender hereunder
are not subject to such taxes and (ii) each other Lender shall provide
the Agent and the Borrower with a written statement which certifies
that such Lender is not a non-resident alien or foreign corporation and
which otherwise satisfies Treasury Regulation Section 1.1441-5(b) or
any successor regulation under the Internal Revenue Code (each such
certificate or statement, an "Exemption Certificate"). Unless the Agent
and the Borrower have received an Exemption Certificate from such
Lender, the Borrower, or the Agent if the Borrower has not withheld,
may withhold taxes from such payments at the applicable statutory rate
(subject, in the case of the Borrower to the requirements of Section
13.3(a)
80
above); provided, that if the Borrower has withheld the Borrower shall
so notify the Agent. If the Borrower is required to pay additional
amounts to any Lender pursuant to this Section 13.3, such Lender shall
use reasonable efforts to designate a different Lending Office if such
designation will thereafter avoid the need for any additional payments
under this Section 13.3 and will not, in the sole judgment of such
Lender, be otherwise disadvantageous to such Lender. A Lender which
ceases to be exempt from United States withholding taxes shall notify
the Agent and the Borrower promptly thereof.
(f) FURNISHING OF CERTIFICATE. At the Agent's request, the
Borrower will furnish to the Agent, at its address referred to in
Section 14.13 of this Agreement, the original or a certified copy of a
receipt evidencing payment of any Taxes. If Taxes ever become payable
in respect of any payment hereunder or under the Revolving Credit Notes
made during a Fiscal Quarter, thereafter the Borrower will furnish to
the Agent, within thirty (30) days after the end of such Fiscal
Quarter, at such address, a certificate from the Borrower stating that
any payments made during such Fiscal Quarter are exempt from or not
subject to Taxes.
(g) SURVIVAL OF PROVISION. Without prejudice to the survival
of any other agreement of the Borrower hereunder, the agreements and
liabilities of the Borrower contained in this Section 13.3 shall
survive the payment in full of the Obligations.
13.4 LOSSES. If any payment of principal of or Rate Conversion or Rate
Continuation of, any LIBOR Rate Loan is not paid when due or is made on a day
other than on the last day of an Interest Period relating to such Loan, as a
result of a payment or Rate Conversion or Rate Continuation pursuant to the
provisions of Section 2 of this Agreement or acceleration of the maturity of the
Revolving Credit Notes pursuant to Section 10 of this Agreement or for any other
reason, the Borrower shall, upon demand by any Lender (with a copy of such
demand to the Agent), pay to the agent for the account of such lender any
amounts (discounted to the present value in accordance with standard financial
practice at a rate equal to the annual yield on direct obligations of the United
States having a principal amount and maturity similar to that of the principal
being paid) required to compensate such Lender for any additional losses, costs
or expenses which it may reasonably incur as a result of such payment or Rate
Conversion or Rate Continuation, including, without limitation, any loss
(including loss of anticipated profits), costs or expense (other than any
expenses directly attributable to loan origination efforts) incurred by reason
of the liquidation or re-employment of deposits or other funds acquired by such
Lender to fund or maintain such Loan.
13.5 INDEMNIFICATION FOR REQUESTS. Whenever the Borrower: (a) shall
revoke any Credit Request or any Rate Conversion/Continuation Request involving
any LIBOR Rate Loan, (b) shall for any other reason fail to borrow pursuant to
any such Request or otherwise comply therewith, (c) shall fail to fulfill, on or
before the date specified in any such request, the applicable conditions set
forth in Section 3 of this Agreement or (d) shall fail to honor any
81
prepayment notice, then, in each case on any Lender's demand, the Borrower shall
indemnify each Lender and the Agent against any loss, cost or expense incurred
by such Lender or the Agent as a result of any such failure by the Borrower,
including, without limitation, any loss (including loss of anticipated profits),
cost or expense incurred by reason of the liquidation or re-employment of
deposits or other funds acquired by such Lender or the Agent to fund the LIBOR
Rate Loan to be made by such Lender or the Agent in connection with such request
when such LIBOR Rate Loan, as a result of such failure by the Borrower, is not
made on such date.
13.6 GENERAL INDEMNITY. The Borrower shall indemnify and hold harmless
the Agent and each Lender, and the respective directors, officers, employees and
Affiliates thereof, from and against any and all liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses and
disbursements of any kind or nature whatsoever including, without limitation,
reasonable fees and disbursements of counsel and settlements costs, which may be
imposed on, incurred by, or asserted against the Agent, any Lender or the
respective directors, officers, employees and Affiliates thereof in any in
connection with any investigative, administrative or judicial proceeding
(whether the Agent or such Lender is or is not designated as a party thereto)
relating to or arising out of this Agreement or any other Loan Document, the
transactions contemplated thereby, or any actual or proposed use of proceeds
hereunder or thereunder, except that neither the Agent nor any Lender nor any
such directors, officers, employees and Affiliates thereof shall have the right
to be indemnified hereunder for its own gross negligence or willful misconduct
as determined by a court of competent jurisdiction.
13.7 CERTIFICATE FOR INDEMNIFICATION. Each demand by Agent or a Lender
for payment pursuant to this Section 13 shall be accompanied by a written
certificate given to the Borrower setting forth the reason for the payment, the
amount to be paid, and the computations and assumptions in determining the
amount, which certificate shall be presumed to be correct, in the absence of
manifest error. In determining the amount of any such payment thereunder, each
Lender may use reasonable averaging and attribution methods.
13.8 DUTY TO MITIGATE; STANDARD TREATMENT. Each Lender seeking payment
pursuant to this Section 13 shall use reasonable efforts and take all reasonable
actions to avoid the cause of the payment and to minimize the amount thereof.
Each Lender agrees that it will not seek compensation or reimbursement provided
for in this Section 13 unless such Lender as a matter of policy intends
generally to seek comparable compensation or reimbursement from other borrowers
similarly situated and similarly documented financial accommodations.
SECTION 14 GENERAL.
This Agreement and the Loan Documents shall be governed by the
following provisions:
14.1 AMENDMENTS AND WAIVERS. No amendment or waiver of any provision
of this Agreement or the Revolving Credit Notes or any other Loan Document, nor
consent to any
82
departure by the Borrower therefrom, shall in any event be effective unless the
same shall be in writing and signed by the Required Lenders (or, if unanimous
consent of all Lenders is required as hereinafter provided, all of the Lenders),
the Agent, and, only with respect to such amendments, waivers or consents
directly affecting the rights of the Borrower, the Borrower, and, only with
respect to such amendments, waivers or consents directly affecting the rights of
the Letter of Credit Bank, the Letter of Credit Bank, and then such waiver or
consent shall be effective only in the specific instance and for the specific
purpose for which given. Unanimous consent of all Lenders shall be required with
respect to (a) the extension of maturity of any Revolving Credit Note or the
extension of the payment date of interest, principal and/or fees thereunder, or
(b) any reduction in the rate of interest on the Revolving Credit Notes, or in
any amount of principal or interest due on any Revolving Credit Note, or in the
manner of pro rata application of any payments made by the Borrower to the
Lenders hereunder, or (c) any change in any percentage voting requirement in
this Agreement, or (d) any change in the dollar amount or percentage of the
Lenders' Revolving Credit Commitments or any Lender's Revolving Credit
Commitment, or (e) any change in the amount of or any extension of the payment
date of any fees payable under this Agreement, or (f) any change in the
definitions of "Collateral," or "Required Lenders" under this Agreement, or (g)
subject to the Agent's exercise of Permitted Discretion, any change in the
definition of "Eligible Inventory" under this Agreement, or (h) any release of
any material portion of the Collateral, or (i) any change in any provision of
this Agreement which requires all of the Lenders to take any action under such
provision, or (j) any increase in the advance rate percentages in the definition
of "Borrowing Base", or (j) any change in Sections 11, 12.1, 12.2 or this
Section 14.1 itself. Notice of amendments or consents ratified by the Lenders
hereunder shall immediately be forwarded by the Borrower to all Lenders and the
Letter of Credit Bank. Each Lender or other holder of a Revolving Credit Note
shall be bound by any amendment, waiver or consent obtained as authorized by
this Section 14.1, regardless of its failure to agree thereto.
14.2 GENERAL APPOINTMENT AS ATTORNEY-IN-FACT. In addition to the
provisions of Sections 4.7 and 5.7 of this Agreement, the Borrower hereby
irrevocably constitutes and appoints the Agent and any officer or agent thereof,
with full power of substitution, as its true and lawful attorney-in-fact with
full irrevocable power and authority in the place and stead of the Borrower and
in the name of the Borrower or in its own name, from time to time following the
occurrence of an Event of Default (unless waived in writing by the Lenders
pursuant to this Agreement), in the Agent's reasonable discretion, for the
purpose of carrying out the terms of this Agreement, without notice (except as
specifically provided herein) to or assent by the Borrower, to take any and all
appropriate action and to execute any and all documents and instruments which
may be necessary or desirable to accomplish the purposes of this Agreement,
including, without limiting the generality of the foregoing, the power and
right, on behalf of the Borrower, to do the following, upon notice to the
Borrower: (a) to pay or discharge taxes, liens, security interests or other
encumbrances levied or placed on or threatened against the Collateral, to effect
any repairs or any insurance, called for by the terms of this Agreement and to
pay all or any part of the premiums therefor and the costs thereof, and
otherwise to itself perform or comply with, or otherwise cause performance or
compliance with, any of the covenants or other agreements of
83
the Borrower contained in this Agreement which the Borrower has failed to
perform or with which the Borrower has not complied; (b) to commence and
prosecute any suits, actions or proceedings at law or in equity in any court of
competent jurisdiction to collect the Collateral or any part thereof and to
enforce any other right in respect of any Collateral; (c) to defend any suit,
action or proceeding brought against the Borrower with respect to any
Collateral; (d) to settle, compromise or adjust any suit, action or proceeding
described above and, in connection therewith, to give such discharges or
releases as the Agent may deem appropriate; and (e) to generally sell, transfer,
pledge, make any agreement with respect to or otherwise deal with any of the
Collateral as fully and completely as though the Agent were the absolute owner
thereof for all purposes; and to do, at the Agent's option and the Borrower's
expense, at any time, or from time to time, all acts and things which the Agent
deems necessary to protect, preserve or realize upon the Collateral and the
Agent's security interest therein, in order to effect the intent of this
Agreement, all as fully and effectively as the Borrower might do. The Borrower
hereby ratifies all that said attorneys shall lawfully do or cause to be done by
virtue hereof. This power of attorney is a power coupled with an interest and
shall be irrevocable.
(a) AGENT NOT LIABLE. The powers conferred on the Agent
hereunder are solely to protect its interests in the Collateral and
shall not impose any duty upon it to exercise any such powers. The
Agent shall be accountable only for amounts that it actually receives
as a result of the exercise of such powers and neither it nor any of
its officers, directors, employees or agents shall be responsible to
the Borrower for any act or failure to act, except for its own gross
negligence or willful misconduct.
(b) PERFORMANCE BY AGENT OF THE BORROWER'S OBLIGATIONS. If the
Borrower fails to perform or comply with any of its agreements
contained herein and the Agent shall itself perform or comply, or
otherwise cause performance or compliance, with such agreement, the
expenses of the Agent incurred in connection with such performance or
compliance, together with interest thereon at the Default Rate in
effect from time to time, shall be payable by the Borrower to the Agent
on demand and upon the expiration of five (5) calendar days after such
demand the Borrower shall be deemed to have delivered a Deemed Credit
Request in the relevant amounts. The Agent will notify the Borrower as
soon as it is practicable of any action taken by it of the nature
referred to herein.
(c) AUTHORITY TO EXECUTE TRANSFERS. Without limitation of any
authorization granted to the Agent hereunder, the Borrower also hereby
authorizes the Agent, upon the occurrence and during the continuance of
an Event of Default, to execute, in connection with the exercise by the
Agent of its remedies hereunder, any endorsements, assignments or other
instruments of conveyance or transfer with respect to the Collateral.
14.3 CUMULATIVE PROVISIONS. Each right, power or privilege specified or
referred to in this Agreement is in addition to and not in limitation of any
other rights, powers and privileges that the Agent and the Lenders may otherwise
have or acquire by operation of Law, by other contract or otherwise.
84
14.4 BINDING EFFECT. This Agreement shall become effective when it
shall have been executed by the Borrower and shall be binding upon and inure to
the benefit of the Borrower, the Agent, the Lenders, the Letter of Credit Bank
and their respective successors and assigns, except that the Borrower shall not
have the right to assign its rights hereunder or any interest herein without the
prior written consent of the Agent and the Lenders.
14.5 COSTS AND EXPENSES. The Borrower agrees to pay on demand all
reasonable costs and expenses of: (a) the Agent (including, without limitation,
the reasonable fees and out-of-pocket expenses of counsel for the Agent) in
connection with (i) the preparation, execution, delivery, administration,
modification, amendment and waiver of this Agreement, the Revolving Credit Notes
and the other Loan Documents, and (ii) the arrangement on or after the Closing
Date of a syndicate of lenders to purchase a portion of the Revolving Credit
Commitments (excluding travel and administration expenses of the Agent and
excluding any expenses of the Lenders) in an amount not to exceed $2500 in the
aggregate, and (b) the Agent, the Lenders (including, without limitation, the
reasonable fees and out-of-pocket expenses of counsel for the Agent and the
Lenders) in connection with the enforcement of, the exercise of remedies under,
or the preservation of rights and remedies under this Agreement or any of the
other Loan Documents (including any collection, bankruptcy or other enforcement
proceedings arising with respect to the Borrower, this Agreement, the Revolving
Credit Notes or any Event of Default under this Agreement). The Borrower further
agrees to pay on demand all Related Expenses of the Agent and the Lenders.
14.6 SURVIVAL OF PROVISIONS. All representations and warranties made
in or pursuant to this Agreement shall survive the execution and delivery of
this Agreement and of the Revolving Credit Notes. The provisions of Sections
12.4 and 13 of this Agreement shall survive the payment of the Obligations and
any other Indebtedness owed by the Borrower hereunder and the termination of
this Agreement (whether by acceleration or otherwise).
14.7 IMMEDIATE U.S. FUNDS. Unless specifically designated otherwise,
any reference to money is a reference to lawful money of the United States
which, if in the form of credits, shall be in immediately available funds.
14.8 CAPTIONS. The several captions to different Sections and the
respective Subsections thereof are inserted for convenience only and shall be
ignored in interpreting the provisions of this Agreement.
14.9 SHARING OF INFORMATION. Subject to the provisions of Section
12.4, each Lender shall have the right to furnish to its Affiliates, its
accountants,its employees, its officers, its directors, its legal counsel,
potential participants, and to any governmental agency having jurisdiction
over such Lender, information concerning the business, financial condition,
and property of the Borrower, the amount of the Loans of the Borrower
hereunder, and the terms, conditions and other provisions applicable to the
respective parts thereof.
85
14.10 INTEREST RATE LIMITATION. Notwithstanding anything herein to the
contrary, if at any time the applicable interest rate, together with all fees
and charges that are treated as interest under applicable law as provided for
herein or in any other document executed in connection herewith, or otherwise
contracted for, charged, taken, received or reserved by the Lenders, shall
exceed the maximum lawful rate that may be contracted for, charged, taken,
received or reserved by the Lenders in accordance with applicable law (the
"Maximum Lawful Rate"), then so long as the Maximum Lawful Rate would be so
exceeded, the rate of the rate of interest and all such charges payable,
contracted for, charged, taken, received or reserved in respect of the Advances
of the Lenders to the Borrower shall be equal to the Maximum Lawful Rate;
provided, that, if any time thereafter the applicable interest rate, together
with all fees and charges that are treated as interest under applicable law as
provided for herein or in any other document executed in connection herewith, or
otherwise contracted for, charged, taken, received or reserved by the Lenders
shall be less than the Maximum Lawful Rate, the Borrower shall continue to pay
such interest and fees hereunder at the Maximum Lawful Rate until such time as
the total interest received by the Agent for the benefit of the Lenders, is
equal to the total interest and fees that would have been received had the
interest rate payable hereunder been (but for the operation of this Section
14.10) the interest rate payable since the Closing Date as otherwise provided in
this Agreement. Thereafter, interest payable hereunder shall be paid at the
rate(s) of interest and the charges provided in Sections 2.10(a) and 2.11 of
this Agreement, unless and until the rate of interest again exceeds the Maximum
Lawful Rate, and at that time this Section 14.10 shall again apply. In no event
shall the total interest, together with all fees and charges that are treated
like interest, received by any Bank pursuant to the terms hereof exceed the
amount which such Bank could lawfully have received had the interest and such
fees and charges due hereunder been calculated for the full term hereof at the
Maximum Lawful Rate. If, notwithstanding the provisions of this Section 14.10, a
court of competent jurisdiction shall finally determine that a Lender has
received interest, or fees and charges that are treated like interest, hereunder
in excess of the Maximum Lawful Rate, the Agent shall, to the extent permitted
by applicable Law, promptly apply such excess to the principal amounts owing to
such Lender and thereafter shall refund any excess to the Borrower or as a court
of competent jurisdiction may otherwise order.
14.11 LIMITATION OF LIABILITY. To the extent permitted by applicable
law, no claim may be made by the Borrower, the Agent, any Lender or any other
Person against the Agent or any Lender or the Affiliates, directors, officers,
employees, agents, attorneys and consultants of any of them for any special,
indirect, consequential or punitive damages in respect of any claim for breach
of contract or any other theory of liability arising out of or related to the
transactions contemplated by this Agreement, or any act, omission or event
occurring in connection therewith; and the Agent, the Borrower and the Lenders
hereby waive, release and agree not to ▇▇▇ upon any claim for any such damages,
whether or not accrued and whether or not known or suspected to exist in its
favor.
14.12 ILLEGALITY. If any provision in this Agreement or any other Loan
Document shall for any reason be or become illegal, void or unenforceable, that
illegality, voidness or unenforceability shall not affect any other provision.
86
14.13 NOTICES. All notices, requests, demands and other communications
provided for hereunder shall be in writing and shall be given solely: (a) by
hand delivery or by overnight courier delivery service, with all charges paid,
(b) by facsimile transmission, if confirmed same day in writing by first class
mail mailed, or (c) by registered or certified mail, postage prepaid and
addressed to the parties. For the purposes of this Agreement, such notices shall
be deemed to be given and received: (i) if by hand or by overnight courier
service, upon actual receipt, (ii) if by facsimile transmission, upon receipt of
machine-generated confirmation of such transmission (and provided the
above-stated written confirmation is sent) or (iii) if by registered or
certified mail, upon the first to occur of actual receipt or the expiration of
48 hours after deposit with the U.S. Postal Service; provided that notices from
the Borrower to the Agent or the Lenders pursuant to any of the provisions
hereof, including without limitation Sections 2 and 8.1 of this Agreement, shall
not be effective until actually received by the Agent or the Lenders, as the
case may be. Notices or other communications hereunder shall be addressed, if to
the Borrower, at the address specified on the signature pages of this Agreement;
if to the Agent, at the address of the Agent specified on the signature pages of
this Agreement; if to a Lender, at the address of such Lender specified on the
signature pages of this Agreement; if to the Letter of Credit Bank, at the
address of the Letter of Credit Bank specified on the signature pages of this
Agreement.
14.14 GOVERNING LAW. This Agreement and the other Loan Documents and
the respective rights and obligations of the parties hereto shall be governed by
and construed in accordance with the internal laws of the State of Ohio (without
giving effect to the conflict of laws rules thereof).
14.15 ENTIRE AGREEMENT. This Agreement and the other Loan Documents
referred to in or otherwise contemplated by this Agreement set forth the entire
agreement of the parties as to the transactions contemplated by this Agreement.
14.16 JURY TRIAL WAIVER. EACH OF THE BORROWER, THE AGENT, THE LETTER
OF CREDIT BANK AND EACH OF THE LENDERS WAIVE ANY RIGHT TO HAVE A JURY
PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT OR
OTHERWISE, AMONG THE BORROWER, THE AGENT, THE LETTER OF CREDIT BANK AND THE
LENDERS, OR ANY THEREOF, ARISING OUT OF, IN CONNECTION WITH, RELATED TO, OR
INCIDENTAL TO THE RELATIONSHIP ESTABLISHED AMONG THEM IN CONNECTION WITH THIS
AGREEMENT OR ANY REVOLVING CREDIT NOTE OR OTHER INSTRUMENT, DOCUMENT OR
AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH OR THE TRANSACTIONS
RELATED THERETO.
14.17 JURISDICTION; VENUE; INCONVENIENT FORUM; SERVICE OF PROCESS.
(a) JURISDICTION. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY
AND UNCONDITIONALLY SUBMITS, FOR ITSELF AND ITS
87
PROPERTY, TO THE NONEXCLUSIVE JURISDICTION OF ANY OHIO STATE COURT OR
FEDERAL COURT OF THE UNITED STATED OF AMERICA SITTING IN CUYAHOGA
COUNTY, OHIO, AND ANY APPELLATE COURT FROM ANY THEREOF, IN ANY ACTION
OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT, THE
REVOLVING CREDIT NOTES OR ANY LOAN DOCUMENT, OR FOR RECOGNITION OR
ENFORCEMENT OF ANY JUDGMENT, AND EACH OF THE PARTIES HERETO HEREBY
IRREVOCABLY AND UNCONDITIONALLY AGREES THAT ALL CLAIMS IN RESPECT OF
ANY SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN ANY SUCH
OHIO STATE COURT OR, TO THE EXTENT PERMITTED BY LAW, IN SUCH FEDERAL
COURT. EACH OF THE PARTIES HERETO AGREES THAT A FINAL JUDGMENT IN ANY
SUCH ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN
OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER
PROVIDED BY LAW. NOTHING IN THIS AGREEMENT SHALL AFFECT ANY RIGHT THAT
ANY PARTY MAY OTHERWISE HAVE TO BRING ANY ACTION OR PROCEEDING RELATING
TO THIS AGREEMENT, THE NOTES OR ANY LOAN DOCUMENT IN THE COURTS OF ANY
JURISDICTION.
(b) VENUE; INCONVENIENT FORUM. EACH OF THE PARTIES HERETO
HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES, TO THE FULLEST EXTENT IT
MAY LEGALLY AND EFFECTIVELY DO SO, ANY OBJECTION THAT IT MAY NOW OR
HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUIT, ACTION OR PROCEEDING
ARISING OUT OF OR RELATING TO THIS AGREEMENT, THE REVOLVING CREDIT
NOTES OR ANY OTHER LOAN DOCUMENT IN ANY OHIO STATE OR FEDERAL COURT
SITTING IN CUYAHOGA COUNTY, OHIO. EACH OF THE PARTIES HERETO HEREBY
WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, THE DEFENSE OF AN
INCONVENIENT FORUM TO THE MAINTENANCE OF SUCH ACTION OR PROCEEDING IN
ANY SUCH COURT. THE BORROWER CONFIRMS THAT THE FOREGOING WAIVERS ARE
INFORMED AND FREELY MADE.
(c) SERVICE OF PROCESS. Each party to this Agreement
irrevocably consents to service of process in the manner provided for
notices in Section 14.13. Nothing in this Agreement or any other Loan
Document will affect the right of any party to this Agreement to serve
process in any other manner permitted by applicable Law.
14.18 EXECUTION IN COUNTERPARTS. This Agreement may be executed in any
number of counterparts and by different parties hereto in separate counterparts,
each of which when so Executed shall be deemed to be an original and all of
which taken together shall constitute but one and the same agreement. Delivery
of an executed counterpart hereof by facsimile shall be effective as manual
delivery of such counterpart; provided, that, each party hereto will promptly
88
thereafter deliver counterpart originals of such counterpart facsimiles
delivered by or on behalf of such party.
89
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers or agents thereunto duly authorized, as of
the date first above written.
D.I.Y. HOME WAREHOUSE, INC.
By: /s/ ▇▇▇▇ ▇▇▇▇▇▇▇▇
---------------------------------
Name: ▇▇▇▇ ▇▇▇▇▇▇▇▇
Its: Vice President & CFO
Address for notices:
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: ▇▇▇▇ ▇▇▇▇▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
With a copy to:
Jaffe, Raitt, Heuer & ▇▇▇▇▇ P.C.
▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Telecopy: (▇▇▇)▇▇▇-▇▇▇▇
90
AGENT
NATIONAL CITY COMMERCIAL FINANCE, INC.,
as Agent
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
--------------------------
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Its: Vice President
Address for notice:
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
Payment Office:
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
91
LENDERS
NATIONAL CITY COMMERCIAL FINANCE, INC.,
as a Lender
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
------------------------------
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Its: Vice President
Address for Notices:
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
Lending Office:
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
with a copy to:
▇▇▇▇▇▇▇▇ ▇▇▇▇ & ▇▇▇▇▇ LLP
▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
92
LETTER OF CREDIT BANK
NATIONAL CITY BANK,
as Letter of Credit Bank
By: /s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇
------------------------
Name: ▇▇▇▇▇▇ ▇▇▇▇▇▇
Its: Vice President
Address for Notices:
▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: Capital Banking Division
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
93
ANNEX I
CREDIT AND SECURITY AGREEMENT, DATED AS OF OCTOBER 27, 1998,
AMONG D.I.Y. HOME WAREHOUSE, INC., THE AGENT,
THE LETTER OF CREDIT BANK AND THE LENDERS
COMMITMENTS AND PERCENTAGES OF THE LENDERS
======================================================================
Ratable
Revolving Credit Portion
Name of Lender Commitment (percentage)
======================================================================
National City Commercial $20,000,000 100%
Finance, Inc.
----------------------------------------------------------------------
======================================================================
Total Revolving Credit $20,000,000 100%
Commitment
======================================================================
94
ANNEX II
CREDIT AND SECURITY AGREEMENT, DATED AS OF OCTOBER 27, 1998,
AMONG D.I.Y. HOME WAREHOUSE, INC., THE AGENT,
THE LETTER OF CREDIT BANK AND THE LENDERS
DEFINITIONS
As used in this Agreement, the following terms shall have the following
meanings (such meanings to be equally applicable to both the singular and plural
forms of the terms defined):
"ACCOUNTS" means "accounts" (as defined in the UCC) including,
without limitation, all present and future rights to payment for goods
sold or leased or for services rendered, which are not evidenced by
Instruments or Chattel Paper, and whether or not they have been earned
by performance.
"ACCOUNT DEBTOR" means any Person who is or becomes obligated
to the Borrower under, with respect to, or on account of an Account.
"ADVANTAGE" means any payment (whether made voluntarily or
involuntarily, by offset of any deposit or other Indebtedness or
otherwise) received by a Lender in respect of the Obligations if the
payment results in any other Lender's having more than its Ratable
Portion of the Obligations in question.
"ADVERTISING PERMISSION LETTER" means a letter in the form of
Exhibit E attached hereto, pursuant to which the Borrower authorizes
the Agent to publicize the transaction and specifically to use the
Borrower's name in connection with "tombstone" advertisements in one or
more publications selected by the Agent.
"AFFILIATE" means, with respect to a specified Person, any
other Person: (a) that directly or indirectly through one or more
intermediaries controls, or is controlled by, or is under common
control with such Person, (b) that beneficially owns or holds with
power to vote five percent (5%) or more of any class of the voting
securities (or other ownership interest of any kind) of such controlled
Person, (c) five percent (5%) or more of the voting securities (or
other ownership interest of any kind) of which other Person is
beneficially owned or held by such Person, or (d) who is an executive
officer or director of such Person or of such other Person. The term
"control" means the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of a
Person, whether through the ownership of voting securities, by contract
or otherwise.
"AGENT" means National City Commercial Finance, Inc., in its
capacity as agent for the Lenders.
"AGENT SPECIAL LOANS" has the meaning set forth in Section
2.4(d) of this Agreement.
95
"AGGREGATE WAIVER RESERVE AMOUNT" means the sum of all Waiver
Reserve Amounts.
"AGREEMENT" means this Credit and Security Agreement and each
amendment, supplement or modification, if any, to this Credit and
Security Agreement.
"APPLICABLE MARGIN" means, with respect to any LIBOR Rate Loan
or Prime Rate Loans under Section 2.3 of this Agreement, the applicable
Basis Points set forth in the table below based upon the ratio of EBIT
to Interest Expense, as adjusted on each Margin Adjustment Date and
shall remain in effect until the next Margin Adjustment Date, based
upon the ratio of EBIT to Interest Expense as of the last day of the
most recently ended Fiscal Quarter, provided, that (a) any change in
the Applicable Margin with respect to any LIBOR Loan during an Interest
Period with respect to such LIBOR Loan shall not be effective until
after the end of such Interest Period, (b) if any Event of Default has
occurred and is continuing, the ratio of EBIT to Interest Expense as of
the end of the most recently ended Fiscal Quarter shall, for the
purposes of this definition, be deemed to be less than 1.0 to 1.0 and
(c) until the receipt of Borrower's audited financial statements for
the Fiscal Year ended January 2, 1999, the Applicable Margin shall be
as set forth on Level III.
------------------------------ --------------------------------------------------------
Applicable Margin
------------------------------ --------------------------------------------------------
Ratio of EBIT to Prime Rate LIBOR Rate
Interest Expense Loan Loan
------------------------------ ---------------------------- ---------------------------
I. > 3.0 to 1.0 0 bps 125 bps
------------------------------ ---------------------------- ---------------------------
II. > 2.0 to 1.0 and
< 3.0 to 1.0 0 bps 150 bps
------------------------------ ---------------------------- ---------------------------
III. > 1.5 to 1.0 and
< 2.0 to 1.0 25 bps 200 bps
------------------------------ ---------------------------- ---------------------------
IV. > 1.0 to 1.0 and
< 1.5 to 1.0 50 bps 225 bps
------------------------------ ---------------------------- ---------------------------
V. < 1.0 to 1.0 50 bps 250 bps
------------------------------ ---------------------------- ---------------------------
"AVAILABILITY" means, as at any time, an amount equal to the
difference of: (a) the lesser of (i) the Total Revolving Credit
Commitment or (ii) the then Borrowing Base and (b) the then aggregate
amount of Outstandings.
"BASIS POINTS" means one one-hundredth of one percent (0.01%)
per annum.
"BORROWER" means D.I.Y. Home Warehouse, Inc., an Ohio
corporation.
"BORROWING" means the incurrence of one Type of Revolving
Credit Loan by the Borrower from all of the Lenders on a pro rata basis
on a given date (or resulting from conversions on a given date), having
96
in the case of LIBOR Rate Loans the same Interest Period; provided,
that Prime Rate Loans incurred pursuant to Section 2.14 shall be
considered part of any related Borrowing of LIBOR Rate Loans.
"BORROWING BASE" means, at any date of determination, an
amount not in excess of the difference of the following:
(a) Sixty percent (60%) of the cost or market
value (whichever is lower) of the Borrower's Eligible
Inventory, minus
(b) the Reserve Amount, minus
(c) the Aggregate Waiver Reserve Amount, minus
(d) the Real Estate Reserve, plus
(e) fifty percent (50%) of the cost or market
value (whichever is lower) of the Inventory designated
"inactive" by the Borrower in the ordinary course of the
Borrower's business.
"BORROWING BASE CERTIFICATE" has the meaning specified in
Section 8.1(c)(ii) of this Agreement.
"BUSINESS DAY" means a day of the year on which banks are not
required or authorized to close in Cleveland, Ohio, and, if the
applicable Business Day relates to LIBOR Rate Loans, a day of the year
on which Dollar deposits are carried on in the London interbank Market
and banks are open for business in London.
"CAPITALIZED LEASES" means, in respect of any Person, any
lease of property imposing obligations on such Person, as lessee of
such property, which are required in accordance with GAAP to be
capitalized on a balance sheet of such Person.
"CASH CONCENTRATION ACCOUNT" means that certain commercial
deposit account, Account No. 394033971 at National City Bank, in the
name of the Agent for the benefit of the Lenders, designated as the
"D.I.Y. Home Warehouse Cash Concentration Account for the benefit of
National City Commercial Finance, Inc., as Agent for the benefit of the
Lenders" which shall be: (a) maintained by the Borrower with National
City Bank pursuant to the Restricted Account Agreement, without
liability by the Agent or National City Bank to pay interest thereon,
and (b) from which account the Agent shall have the irrevocable and
exclusive right to withdraw funds until all of the Obligations are
paid, performed, satisfied and enforced in full.
"CERCLA" means the Comprehensive Environmental Response,
Compensation and Liability Act, as amended, 42 U.S.C. Sections 9601 et
seq.
"CHANGE IN CONTROL" means (a) the acquisition, directly or
indirectly, by any "person" or group
97
of "persons" (as such term is used in Sections 13(d) and 14(d) of the
Exchange Act), other than ▇▇▇▇ ▇. ▇▇▇ (and members of his immediate family
and trusts for the benefit of any of the foregoing and The ▇▇▇
Foundation), of beneficial ownership (as defined in Rules 13d-3 and 13d-5
under the Exchange Act) or control of fifty-one percent (51.0%) or more of
the total voting power of the voting stock (on a fully diluted basis) of
the Borrower, whether as a result of the issuance of securities of the
Borrower, any merger, consolidation, liquidation or dissolution of the
Borrower, any direct or indirect transfer of securities or otherwise or
(b) during any period of twelve (12) consecutive calendar months,
individuals who at the beginning of such period constituted the board of
directors of the Borrower cease for any reason to constitute a majority of
the board of directors of the Borrower then in office.
"CHATTEL PAPER" means "chattel paper" as defined in the UCC.
"CLOSING DATE" means the date and the time as of which the
initial Revolving Credit Borrowing is advanced under this Agreement.
"CODE" means the Internal Revenue Code of 1986, as amended
from time to time, and the regulations promulgated and rulings issued
thereunder. Section references to the Code are to the Code, as in effect
on the date of this Agreement and any subsequent provisions of the Code,
amendatory thereof, supplemental thereto or substituted therefor.
"COLLATERAL" means all assets of the Borrower in which a
security interest or Lien is granted to the Agent for the benefit of the
Lenders pursuant to Section 4.1 hereof and all other property of the
Borrower that is subject to any Lien in favor of the Agent for the benefit
of the Lenders from time to time which secures the repayment of the
Obligations.
"COLLECTIONS" means all payments to the Borrower from Account
Debtors in respect of Accounts.
"CONTROL ACCOUNT" has the meaning set forth in Section 2.1(d)
of this Agreement.
"CREDIT EVENT" means: (a) the incurrence of the obligation of
(i) each Lender to make a Revolving Credit Loan on the occasion of each
Revolving Credit Borrowing (ii) the Letter of Credit Bank to issue any
Letter of Credit, or (iii) any Lender to participate in the risk of any
Letter of Credit, (b) the making of a Revolving Credit Loan by any Lender,
(c) the issuance of any Letter of Credit by the Letter of Credit Bank and
the participation by the Lenders in the risk thereof, (d) the delivery by
the Borrower of (i) a Credit Request requesting a Revolving Credit
Borrowing or a Letter of Credit or (ii) a Rate Conversion/Continuation
Request requesting the conversion or continuation of Revolving Credit
Borrowings, (e) a Rate Conversion or Rate Continuation or (f) the
acceptance by the Borrower of proceeds of any Revolving Credit Borrowing.
"CREDIT REQUEST" has the meaning specified in Section 2.3(a)
of this Agreement.
"DEEMED CREDIT REQUEST" has the meaning specified in Section
2.3(b) of this Agreement.
98
"DEPOSIT ACCOUNT" means (a) any deposit account and (b) any
demand, time, savings, passbook, or similar account maintained by the
Borrower with a Lender, other than an account evidenced by a certificate
of deposit.
"DISTRIBUTION" means, in respect of a Person, a payment made,
liability incurred or other consideration (other than any stock dividend
or stock split payable solely in capital stock of such Person) given by
such Person for the purchase, acquisition, redemption or retirement of any
capital stock (whether added to treasury or otherwise) of such Person or
as a dividend, return of capital or other distribution in respect of the
capital stock of such Person (other than any stock dividend or stock split
payable solely in capital stock of such Person), including, without
limitation, Distributions for Tax Liability.
"DOLLARS" and the sign "$" each means lawful money of the
United States.
"EBIT" means, for any twelve consecutive month period, (A) the
sum of the amounts for such period of (i) Net Income of the Borrower, (ii)
Interest Expense of the Borrower (iii) federal, state and local taxes on
or measured by the income of the Borrower, (iv) extraordinary non-cash
charges to the extent deducted in determining Net Income, (v) losses on
sales of assets (excluding sales in the ordinary course of business) and
other extraordinary or non-recurring losses and (vi) losses incurred in
connection with discontinued business operations minus (B) the amount for
such period of extraordinary gains from the sale or other disposition of
assets (excluding sales in the ordinary course of business) and other
extraordinary or non-recurring gains, all as determined in accordance with
GAAP.
"ELIGIBLE ASSIGNEE" means (i) a Lender or any Affiliate
thereof; (ii) a commercial bank having total assets in excess of
$5,000,000,000; (iii) a savings and loan association or savings bank
organized under the laws of the United States or any state thereof having
total assets in excess of $5,000,000,000; or (iv) a finance company,
insurance company, other financial institution or fund acceptable to the
Agent; provided that each Person described in each of the foregoing
clauses (i) through (iv) shall have provided to the Borrower and the Agent
(A) if such Person is organized under the laws of a jurisdiction outside
the United States, duly completed copies of Form 1001 or Form 4224 or any
successor form prescribed by the Internal Revenue Service of the United
States certifying that such Person is exempt from United States
withholding taxes with respect to all payments to be made to such Person
if such Person were to become a Lender hereunder or other documents
satisfactory to the Borrower and the Agent indicating that all payments to
be made to such Person if such Person were to become a Lender hereunder
are not subject to such taxes and, if any such forms or other documents
are so provided, such Person was eligible under applicable law at the time
such information was so provided to make such provision and (B) for any
other Person, an Exemption Certificate (as defined in Section 3.3(e)) of
this Agreement.
"ELIGIBLE INVENTORY" means only such Inventory of the
Borrower, valued at the lower of cost (on a first in, first out basis) or
market, as the Agent, in its reasonable discretion, shall from time to
time consider to be Eligible Inventory and, by way of example and not
limitation, excluding Inventory which:
(a) consists of obsolete, damaged, defective,
unmerchantable, spoiled, outdated or unsalable items or goods
that were returned or rejected by the Borrower's customers,
goods to be
99
returned to the vendor or goods that do not conform in all
material respects to the representations and warranties
contained in this Agreement;
(b) consists of goods not held for sale, such as any
labels, any maintenance items and any supplies and packaging;
(c) is not owned solely by the Borrower, or is
leased or on consignment or the Borrower does not have good
and valid title thereto or is subject to a Lien other than in
favor of the Agent;
(d) is not subject to a first priority, perfected
security interest in favor of the Agent for the benefit of
the Lenders;
(e) is in transit from vendors or is located at a
location not owned by the Borrower and for which the Borrower
has not delivered to the Agent an appropriate landlord or
warehouseman's waiver, in form and substance satisfactory to
the Agent and for which a Waiver Reserve Amount has not been
established with respect to the Borrowing Base;
(f) is in the possession of a bailee or other third
Person including Inventory purchased by but not yet delivered
to the Borrower and for which the Borrower has not delivered
to the Agent an appropriate bailee's waiver, in form and
substance satisfactory to the Agent and for which a Waiver
Reserve Amount has not been established with respect to the
Borrowing Base;
(g) is held by the Borrower on consignment or
Inventory held by or placed into the possession of a third
Person for sale or display by that Person;
(h) is located outside of the United States; except,
that Inventory located in Canada shall not be excluded from
Eligible Inventory under this clause (h) unless the Agent's
security interest therein for the benefit of the Lenders is
not able to be perfected by filing;
(i) is in transit from property that is owned or
leased by the Borrower (or a flow-through center, a return
center or a distribution center) to another property that is
owned or leased by the Borrower (or a flow-through center,
return center or distribution center) and is in amount in
excess of Two Hundred Fifty Thousand Dollars ($250,000) in
the aggregate;
(j) is located at any return center used by the
Borrower;
(k) consists of perishable items, including live
plants but excluding bulbs, seeds and artificial plants;
(l) is subject to a layaway purchase by any
customer; or
100
(m) is, in the Agent's reasonable credit judgment
exercised in accordance with asset based financing
transaction standards, Inventory which is otherwise deemed
ineligible.
"EMPLOYEE BENEFIT PLAN" means any "employee benefit plan" as
defined in Section 3(3) of ERISA, any "multiemployer plan" as defined in
Section 4001(a)(3) of ERISA, any "pension plan" as defined in Section 3(2)
of ERISA and any "welfare plan" as defined in Section 3(1) of ERISA, in
each case that is maintained or contributed to by (or to which there is an
obligation to contribute of) the Borrower, a Subsidiary of the Borrower or
an ERISA Affiliate and each such plan for the five-year period immediately
following the latest date on which the Borrower, a Subsidiary of the
Borrower or an ERISA Affiliate maintained, contributed to or had an
obligation to contribute to such plan.
"ENVIRONMENTAL CLAIMS" means any and all administrative,
regulatory or judicial actions, suits, demands, demand letters, claims,
complaints, liens, notices of non-compliance or violation, requests for
information, investigations, proceedings, consent orders or consent
agreements relating in any way to any violation of or any liability under
any Environmental Law or any Environmental Permit, instituted by any
Person, including, without limitation, (a) by governmental or regulatory
authorities for enforcement, cleanup, removal, response, remedial or other
actions or damages pursuant to any applicable Environmental Law or (b) by
any third party seeking damages, contribution, indemnification, cost
recovery, compensation or injunctive relief resulting from Hazardous
Materials or arising from alleged injury or threat of injury to health,
safety or the environment.
"ENVIRONMENTAL LAWS" means any applicable federal, state,
foreign or local law, regulation, ordinance, statute, code, rule of common
law, written and binding policy or guide or order pertaining to the
protection of the environment and the health and safety of the public,
including (but not limited to) CERCLA, RCRA, the Hazardous Materials
Transportation Act, 49 USC Sections 1801 et seq., the Federal Water
Pollution Control Act (33 USC Sections 1251 et seq.), the Toxic Substances
Control Act (15 USC Sections 2601 et seq.) and the Occupational Safety and
Health Act (29 USC Sections 651 et seq.), and all similar state, regional
or local laws, treaties, regulations, statutes or ordinances, common law,
civil laws, or any case precedents, rulings, requirements, directives or
requests having the force of law of any foreign or domestic governmental
authority, agency or tribunal, and all foreign equivalents thereof, as the
same have been or hereafter may be amended, and any and all analogous
future laws, treaties, regulations, statutes or ordinances, common law,
civil laws, or any case precedents, rulings, requirements, directives or
requests having the force of law of any foreign or domestic governmental
authority, agency or tribunal and the regulations promulgated pursuant
thereto, which governs: (a) the existence, cleanup and/or remedy of
contamination on property; (b) the emission or discharge of Hazardous
Materials into the environment; (c) the control of hazardous wastes; (d)
the use, generation, transport, treatment, storage, disposal, removal or
recovery of Hazardous Materials; or (e) the maintenance and development of
wetlands.
"ENVIRONMENTAL PERMITS" means all permits, approvals,
certificates, notifications, identification numbers, licenses and other
authorizations required under any applicable Environmental Laws or
necessary for the conduct of business.
"ENVIRONMENTAL REMEDIATION" means any curative measure taken
in respect of any non-
101
compliance with, violation of or otherwise related to, any Environmental
Law.
"EQUIPMENT" means "equipment" (as defined in the UCC) and
fixtures (as defined in the UCC) including, without limitation, all
machinery, equipment, furniture, furnishings, fixtures, and packaging
production equipment, parts, material handling equipment, supplies and
motor vehicles (titled and untitled) of every kind and description, now or
hereafter owned by the Borrower, or in which the Borrower may have or may
hereafter acquire any interest, wheresoever located.
"ERISA" means the Employee Retirement Income Security Act of
1974 (Public Law 93-406), as amended, and the regulations promulgated and
rulings issued thereunder, and in the event of any amendment affecting any
section thereof referred to in this Agreement, that reference shall be a
reference to that section as amended, supplemented, replaced or otherwise
modified.
"ERISA AFFILIATE" means each "person" (as defined in Section
3.9 of ERISA) which together with the Borrower or a Subsidiary of the
Borrower would be deemed to be a "single employer" (a) within the meaning
of Section 414(b), (c), (m) or (o) of the Code or (b) as a result of the
Borrower or a Subsidiary of the Borrower being or having been a general
partner of such person.
"EUROCURRENCY LIABILITIES" has the meaning assigned to that
term in Regulation D of the Board of Governors of the Federal Reserve
System as in effect from time to time.
"EUROCURRENCY RESERVE PERCENTAGE" as to any Lender for the
Interest Period of any LIBOR Rate Loan means the reserve percentage
applicable during such Interest Period (or if more than one (1) such
percentage for those days in such Interest Period during which any such
percentage shall be so applicable) under regulations issued from time to
time by the Board of Governors of the Federal Reserve System (or any
successor thereto) for determining the maximum reserve requirement
(including, without limitation, any emergency, supplemental, special or
other marginal reserve requirement) for such Lender with respect to
liabilities or assets consisting of or including Eurocurrency Liabilities
having a term equal to such Interest Period.
"EVENT OF DEFAULT" has the meaning specified in Section 9 of
this Agreement.
"FAIR MARKET VALUE" means, in respect to the real property
owned by a Person, the amount that would be obtained in an arm's-length
transaction between an informed and willing buyer and such Person, as an
informed and willing seller, neither under compulsion to buy or sell.
"FEDERAL FUNDS RATE" means, for any day, the rate per annum
(rounded upwards, if necessary, to the nearest one hundredth of one
percent (1/100th of 1%) equal to the weighted average of the rates on
overnight federal funds transactions with members of the Federal Reserve
System arranged by federal funds brokers on such day, as published by the
Federal Reserve Bank of Cleveland on the Business Day next succeeding such
day, provided that: (a) if the day for which such rate is to be determined
is not a Business Day, the Federal Funds Rate for such day shall be such a
rate on such transactions on the immediately preceding Business Day as so
published on the next succeeding Business Day and (b) if such rate is not
so
102
published for any Business Day, the Federal Funds Rate for such Business
Day shall be the average of quotations for such day on such transactions
received by the Agent from three federal funds brokers of recognized
standing selected by the Agent.
"FINANCIAL IMPAIRMENT" means, in respect of a Person, the
distressed economic condition of such Person manifested by any one or more
of the following events:
(a) the discontinuation of the business of the
Person;
(b) the adjudication of the Person as a debtor or
having an order for relief under Title 11 of the United States
Code entered against the Person and not dismissed within sixty
(60 ) days;
(c) the Person ceases or is generally unable or
admits in writing its inability, generally, to make timely
payment upon the Person's debts, obligations, or liabilities
as they mature or come due;
(d) assignment by the Person for the benefit of
creditors;
(e) voluntary institution by the Person or consent
granted by the Person to the involuntary institution (whether
by petition, complaint, application, default, answer
(including, without limitation, an answer or any other
permissible or required responsive pleading admitting: (i) the
jurisdiction of the forum or (ii) any material allegations of
the petition, complaint, application, or other writing to
which such answer serves as a responsive pleading thereto), or
otherwise) of any bankruptcy, insolvency, reorganization,
arrangement, readjustment of debt, dissolution, liquidation,
receivership, trusteeship, or similar proceeding pursuant to
or purporting to be pursuant to any bankruptcy, insolvency,
reorganization, arrangement, readjustment of debt,
dissolution, liquidation, receivership, trusteeship, or
similar law of any jurisdiction;
(f) voluntary application by the Person for or
consent granted by the Person to the involuntary appointment
of any receiver, trustee, or similar officer (i) for the
Person or (ii) of or for all or any substantial part of the
Person's property;
(g) the commencement or filing against a Person,
without such Person's application, approval or consent, of an
involuntary proceeding or an involuntary petition seeking: (a)
liquidation, reorganization or other relief in respect of such
Person, its debts or all or a substantial part of its assets
under any federal, state or foreign bankruptcy, insolvency,
receivership, or similar law now or hereafter in effect or (b)
the appointment of a receiver, trustee, custodian,
sequestrator, conservator or similar official for such Person
or for a substantial part of its assets, and, in any such
case, either (i) such proceeding or petition shall not be
dismissed, stayed or discharged within sixty (60) days from
its entry or (ii) an order or decree approving or ordering any
of the foregoing shall be entered; or
103
(h) any unsatisfied judgment, writ, warrant of
attachment, execution, or similar process is issued or levied
against all or any substantial part of the Person's property
and such judgment, writ, warrant of attachment, execution, or
similar process is not released, vacated, or fully bonded
within thirty (30) days after it is issued, levied or
rendered, or
(i) in the case of a Person that is an obligor on
Accounts in excess of Fifty Thousand Dollars ($50,000), either
singly or in the aggregate, the commencement or filing against
such Person, without such Person's application, approval or
consent, of an involuntary proceeding or an involuntary
petition seeking: (a) liquidation, reorganization or other
relief in respect of such Person, its debts or all or a
substantial part of its assets under any federal, state or
foreign bankruptcy, insolvency, receivership, or similar law
now or hereafter in effect or (b) the appointment of a
receiver, trustee, custodian, sequestrator, conservator or
similar official for such Person or for a substantial part of
its assets, and, in any such case, either (i) such proceeding
or petition shall continue undismissed for sixty (60) days or
(ii) an order or decree approving or ordering any of the
foregoing shall be entered.
"FISCAL MONTH" means any of the twelve consecutive monthly
fiscal accounting periods collectively forming a Fiscal Year of the
Borrower.
"FISCAL QUARTER" means any of the four consecutive three-month
fiscal accounting periods collectively forming a Fiscal Year of the
Borrower.
"FISCAL YEAR" means the Borrower's regular annual accounting
period for federal income tax purposes ending on the Saturday closest to
December 31.
"GAAP" means generally accepted accounting principles set
forth in the opinions and pronouncements of the Accounting Principles
Board, the American Institute of Certified Public Accountants and the
Financial Accounting Standards Board or in such other statements by such
other entity as may be in general use by significant segments of the
accounting profession applied in the preparation of the financial
statements referred to in Section 1.3 of this Agreement and otherwise
consistently applied.
"GENERAL INTANGIBLES" means all "general intangibles" (as
defined in the UCC) of the Borrower including, without limitation, all
present and future choses in action, causes of action and all other
intangible personal property of the Borrower of every kind and nature
(other than Accounts), now or hereafter arising, all corporate or other
business records; inventions, designs, blueprints, patents and patent
applications, trademarks and trademark applications, trade names, trade
secrets, good will, registrations, copyrights, licenses, franchises,
customer lists, tax refunds, tax refund claims, rights and claims against
carriers and shippers, and rights to indemnification.
"GUARANTOR" means a Person who pledges his credit or property
in any manner for the payment or other performance of Indebtedness,
agreements or other obligation of another Person including, without
limitation, any guarantor (whether of collection or payment), any obligor
in respect of a standby letter of credit or surety bond issued for the
account of another Person, any surety, any co-maker, any endorser, and any
Person who agrees conditionally or otherwise to make any loan, purchase or
investment in order
104
thereby to enable another Person to prevent or correct a default of any
kind.
"GUARANTY" means the obligation of a Guarantor.
"HAZARDOUS MATERIAL" means and includes: (a) any asbestos or
other material composed of or containing asbestos which is, or may become,
even if properly managed, friable, (b) petroleum and any petroleum
product, including crude oil or any fraction thereof, and natural gas or
synthetic natural gas liquids or mixtures thereof, (c) any hazardous,
toxic or dangerous waste, substance or material defined as such in (or for
purposes of) CERCLA or RCRA, any so-called "Superfund" or "Superlien" law,
or any other applicable Environmental Laws, and (d) any other substance
whose generation, handling, transportation, treatment or disposal is
regulated pursuant to any Environmental Laws.
"INDEBTEDNESS" means, with respect to any Person, without
duplication, (a) Indebtedness for Borrowed Money, (b) obligations to pay
the deferred purchase price of property or services, (c) obligations as
lessee under leases which shall have been or should be, in accordance with
GAAP, recorded as capital leases, (d) all obligations of such Person as an
account party in respect of letters of credit or banker's acceptances, (e)
liabilities in respect of unfunded vested benefits under plans covered by
Title IV of ERISA, (f) obligations secured by any Lien on the properties
or assets of the Person, (g) obligations of such Person in respect of
currency or interest rate swap or comparable transactions and (h)
obligations under direct or indirect Guaranties in respect of, and
obligations (contingent or otherwise) to purchase or otherwise acquire, or
otherwise to assure a creditor against loss in respect of, indebtedness or
obligations of others of the kinds referred to in clauses (a) through (g)
above.
"INDEBTEDNESS FOR BORROWED MONEY" means, with respect to any
Person, without duplication, all obligations of such Person for money
borrowed including, without limitation, all Capitalized Leases, notes
payable, drafts accepted representing extensions of credit, obligations
evidenced by bonds, debentures, notes or other similar instruments and
obligations upon which interest charges are customarily paid or
discounted, all Guaranties of such obligations but excluding ordinary
course trade payables.
"INSTRUMENTS" means "instruments" as defined by the UCC.
"INTELLECTUAL PROPERTY" means all inventions, designs,
patents, and applications therefor, trademarks, service marks, trade names
and registrations and applications therefor, copyrights, any registrations
therefor and any licenses thereof, whether now owned or existing or
hereafter arising or acquired.
"INTEREST EXPENSE" means, for any period, the net amount of
interest expense of the Borrower for such period on the aggregate
principal amount of the Indebtedness of the Borrower plus any capitalized
interest of the Borrower which accrued during such period, each as
determined in accordance with GAAP.
"INTEREST PERIOD" means, for each LIBOR Rate Loan comprising a
Borrowing, the period commencing on the date of such LIBOR Rate Loan or
the date of the Rate Conversion or Rate Continuation of any Loans into
such LIBOR Rate Loan and ending on the numerically corresponding day of
the period
105
selected by the Borrower pursuant to the provisions hereof and each
subsequent period commencing on the last day of the immediately preceding
Interest Period in respect of such LIBOR Rate Loan and ending on the last
day of the period selected by the Borrower pursuant to the provisions
hereof; provided, that the duration of each such Interest Period shall be
one (1), two (2), three (3), four (4) or five (5) months, as the Borrower
may select by delivery to the Agent of a Credit Request therefor in
accordance with Section 2.3 of this Agreement or a Rate
Conversion/Continuation Request in accordance with Section 2.7 of this
Agreement; and provided, further, that:
(i) Interest Period for each LIBOR Rate Loan
comprising part of the same Borrowing shall be of the same
duration;
(ii) whenever the last day of any Interest Period
would otherwise occur on a day other than a Business Day, the
last day of such Interest Period shall be extended to occur on
the next succeeding Business Day, unless such extension would
cause the last day of such Interest Period to occur in the
next following calendar month, in which case the last day of
such Interest Period shall occur on the immediately preceding
Business Day;
(iii) if the Interest Period commences on the
Business Day for which there is no numerical equivalent in the
calendar month in which the Interest Period is to end, such
Interest Period shall end on the last Business Day of that
calendar month; and
(iv) no Interest Period may end on a date later than
the Revolving Credit Termination Date.
"INVENTORY" means all "inventory" (as defined in the UCC) now
owned or hereafter acquired by the Borrower including, without limitation,
all goods, merchandise, work-in-process, raw materials, finished goods,
and inventory held for lease to other Persons, all other materials,
supplies, and tangible personal property of any kind, nature, or
description held for sale or lease or for display or demonstration, or
furnished or to be furnished under contracts of service, or which are or
which might be used or consumed in connection with the manufacturing,
packing, shipping, advertising, selling, leasing, or furnishing of such
goods, merchandise, or other personal property, all documents of title or
other documents pertaining thereto, and all proceeds of the foregoing.
"LAW" means any law, treaty, regulation, statute or ordinance,
common law, civil law, or any case precedent, ruling, requirement,
directive or request having the force of law of any foreign or domestic
governmental authority, agency or tribunal.
"LC EXPOSURE" means, with respect to any Lender, at any time
of determination, such Lender's Ratable Portion of the sum of: (a) the
aggregate undrawn amount of Letters of Credit outstanding at such time,
plus (b) the aggregate amount that has been drawn under such Letters of
Credit for which the Letter of Credit Bank or the Lenders, as the case may
be, have not at such time been reimbursed by the Borrower.
"LENDERS" means the financial institutions listed on the
signature pages hereof as "Lenders" and the successors thereto and
assignees thereof.
106
"LENDING OFFICE" means, with respect to any Lender, the office
of such Lender specified as its "Lending Office" under its name on the
signature pages hereto, or such other office of such Lender as such Lender
may from time to time specify in writing to the Borrower and the Agent as
the office at which Loans are to be made and maintained.
"LETTER OF CREDIT" means any Trade Letter of Credit or Standby
Letter of Credit.
"LETTER OF CREDIT BANK" means National City Bank, a national
banking association, and its successors and assigns.
"LIBOR RATE" means, with respect to any LIBOR Rate Loan and
any Interest Period applicable thereto, the interest rate per annum
(rounded upward to the nearest 1/16th of 1%) determined by the Agent to be
the average of the per annum rates at which deposits in immediately
available funds in the United States dollars approximately equal in
principal amount to the Agent's portion of such Borrowing and for a
maturity comparable to the Interest Period are offered to the Agent by
prime banks in any Eurodollar market reasonably selected by the Agent
determined as of 4:00 p.m. London time (or as soon as thereafter as
practicable), three (3) Business Days prior to the beginning of such
Interest Period pertaining to such LIBOR Rate Loan hereunder.
"LIBOR RATE BORROWING" means a Borrowing consisting of LIBOR
Rate Loans.
"LIBOR RATE LOAN" means a Loan which bears interest as
provided in Section 2.9(b) of this Agreement.
"LIEN" means any lien, security interest or other charge or
encumbrance of any kind, or any other type of preferential arrangement,
including, without limitation, the lien or retained security title of a
conditional vendor and any easement, right of way or other encumbrance on
title to real property.
"LOAN" means a Revolving Credit Loan.
"LOAN ACCOUNT" has the meaning specified in Section 2.1(c).
"LOAN DOCUMENTS" means any note, mortgage, security agreement,
or other lien instrument, reimbursement agreement, financial statement,
audit report, environmental audit, notice, request of advance, interest
rate swap or hedge agreement, officer's certificate or other writing of
any kind which is now or hereafter required to be delivered by or on
behalf of the Borrower to the Agent or the Lenders and which is relevant
in any manner to this Agreement and including, without limitation, the
Revolving Credit Note, and the other writings referred to in Sections 2
and 3 of this Agreement.
"MARGIN ADJUSTMENT DATE" has the meaning specified in Section
2.10(b)(i) of this Agreement.
"MATERIAL ADVERSE EFFECT" means, as to any event, occurrence
or condition, a result thereof
107
which would, either singly or in the aggregate, have a material adverse
effect on: (a) the business, properties, operations or condition
(financial or otherwise) of the Borrower, (b) a material portion of the
Collateral, (c) the Borrower's ability to repay the Obligations, (d) the
Agent's security interest and lien on the Collateral or the priority
thereof or (e) the legality, validity or enforceability of this Agreement,
the other Loans Documents or any Liens created hereby or thereby.
"MATERIAL BUSINESS AGREEMENT" means each agreement of the
Borrower (not including Material License Agreements) set forth on the
Supplemental Schedule as being an agreement the termination of which could
reasonably be expected to result in liabilities or losses in excess of Two
Hundred Fifty Thousand Dollars ($250,000).
"MATERIAL LICENSE AGREEMENT" means each license agreement of
the Borrower in respect of Third Party Intellectual Property set forth on
the Supplemental Schedule as being a license agreement the termination of
which could reasonably be expected to result in liabilities or losses in
excess of Two Hundred Fifty Thousand Dollars ($250,000).
"MAXIMUM LAWFUL RATE" has the meaning specified in Section
14.10 of this Agreement.
MULTIEMPLOYER PLAN" means any Employee Benefit Plan which is a
"multiemployer plan" as such term is defined in section 4001(a)(3) of
ERISA.
"NCCF" means National City Commercial Finance, Inc., an Ohio
corporation.
"NET CASH PROCEEDS" means, with respect to any sale, lease,
transfer, issuance or other disposition of any personal or real property
by any Person, the aggregate amount of cash received or, upon actual
receipt in realization thereof, receivable, by such Person in connection
with such transaction (a) after deducting therefrom only brokerage or
underwriting commissions, legal fees, finder's fees and other similar fees
and commissions and the amount of taxes payable in connection with or as a
result of such transaction to the extent, but only to the extent, that the
commissions, fees, and amounts so deducted are, at the time of receipt of
such cash, paid to a Person that is not an Affiliate and are properly
attributable to such transaction or to the asset that is the subject
thereof, and (b) net of any Lien on such property permitted under this
Agreement that is prior to the security interest or Lien of the Agent for
the benefit of itself and the Lenders.
"NET INCOME" means, for any period, net income (or loss) of
the Borrower for such period (after taxes and extraordinary items but
without giving effect to any gain from re-appraisal or write-up of assets
after January 3, 1998), as determined in accordance with GAAP.
"NET LOSSES" means, for any period, net losses of the Borrower
for such period (before taxes and before giving effect to losses incurred
in connection with discontinued business operations and extraordinary
items and without giving effect to any gain from re-appraisal or write-up
of assets after January 3, 1998), as determined in accordance with GAAP.
"OBLIGATIONS" means the obligations of the Borrower and/or its
Subsidiaries to the Lenders under
108
this Agreement or any other Loan Document including, without limitation,
the outstanding principal and accrued interest in respect of any Revolving
Credit Loans (including interest accruing after a petition for relief
under the federal bankruptcy laws has been filed), the reimbursement
obligation in respect of the LC Exposure, all fees owing to the Letter of
Credit Bank, the Lenders or the Agent under this Agreement and the other
Loan Documents, any amounts owing under any Reimbursement Agreement, the
amounts owing by the Borrower and\or its Subsidiaries under any interest
rate cap or hedge agreement, the reimbursement obligations of the Borrower
under the Letters of Credit, the Related Expenses and any expenses, taxes,
Other Taxes, compensation, indemnification obligations or other amounts
owing by the Borrower to the Agent, the Letter of Credit Bank or any
Lender under this Agreement, the Notes or any other Loan Document.
"OPERATING ACCOUNT" means account #▇▇▇▇▇▇▇, maintained by and
in the name of the Borrower with National City Bank for the purposes of
disbursing the proceeds of Revolving Credit Loans, which account shall in
no case be a payroll account.
"OTHER TAXES" has the meaning specified in Section 13.3(b) of
this Agreement.
"OUTSTANDINGS" means, on any date, the aggregate amount of (a)
all Revolving Credit Loans outstanding on such date (including all
Revolving Credit Loans for which the Borrower has given a Credit Request
but which have not been advanced on such date) and (b) the undrawn amount
of all Letters of Credit outstanding on such date (including all Letters
of Credit for which the Borrower has given a Credit Request but which have
not been issued on such date).
"PAYMENT OFFICE" means such office of the Agent specified as
its "payment office" under its name on the signature pages hereto, or such
other office as the Agent may from time to time specify in writing to the
Borrower and the Lenders as the office to which payments are to be made by
the Borrower or the Lenders, as the case may be.
"PERMITTED DISCRETION" means the good faith judgment or good
faith exercise of discretion by the Agent in accordance with standards
customary to asset based financing transactions, to the extent based upon
any factor or circumstance which the Agent believes in good faith (the
burden of establishing lack of good faith being on the Borrower): (a) will
or could reasonably be expected to adversely affect the value of any
Collateral (ordinary wear and tear excepted), the enforceability or
priority of the Agent's Liens thereon in favor of the Lenders or the
amount which the Agent and the Lenders would be likely to receive (after
giving consideration to delays in payment and costs of enforcement) in the
liquidation of such Collateral; (b) suggests that any collateral report or
financial information delivered to the Agent by the Borrower or by any
Person on behalf of the Borrower is incomplete, inaccurate or misleading
in any material respect; (c) could reasonably be expected to increase
materially the likelihood of a bankruptcy, reorganization or other
insolvency proceeding involving the Borrower or to which any of the
Collateral is subject; or (d) creates or could reasonably be expected to
create an Event of Default. In exercising such judgment, the Agent may
consider in good faith such factors or circumstances already included in
or tested by the definition of Eligible Inventory, as well as any of the
following: (i) the financial and business condition of the Borrower, (ii)
material changes in demand for, and changes in pricing of, Inventory,
(iii) changes in any
109
concentration of risk with respect to Inventory, (iv) any other factors or
circumstances that will or could reasonably be expected to have a Material
Adverse Effect, (v) history of charge-backs or other credit adjustments,
and (vi) any other factors that change or could reasonably be expected to
materially change the credit risk of lending to the Borrower on the
security of the Inventory.
"PERSON" means an individual, partnership, corporation
(including a business trust), joint stock company, trust, limited
liability company, unincorporated association, joint venture or other
entity, or a government or any political subdivision or agency thereof.
"POTENTIAL DEFAULT" means an event, condition or thing which
with the lapse of any applicable grace period or with the giving of notice
or both would constitute, an Event of Default referred to in Section 9 of
this Agreement and which has not been appropriately waived in writing in
accordance with this Agreement or fully corrected, prior to becoming an
actual Event of Default.
"PRIME RATE" means the fluctuating rate of interest which is
publicly announced from time to time by National City Bank (or any
successor) at its principal place of business as being its "prime rate" or
"base rate" thereafter in effect, with each change in the Prime Rate
automatically, immediately and without notice changing the fluctuating
interest rate thereafter applicable hereunder, it being agreed that the
Prime Rate is not necessarily the lowest rate of interest then available
from the Lenders on fluctuating rate loans.
"PRIME RATE BORROWING" means a Borrowing consisting of Prime
Rate Loans.
"PRIME RATE LOAN" means a Loan that bears interest as provided
in Section 2.10(a)(i) of this Agreement.
"PROCEEDS" means all "proceeds" (as defined in the UCC) of any
and all of the Collateral made or due and payable to the Borrower from
time to time including, without limitation, all proceeds in connection
with any requisition, confiscation, condemnation, seizure or forfeiture of
all or any part of the Collateral by any governmental body, authority,
bureau or agency (or any Person acting under color of governmental
authority) and, to the extent not otherwise included, all payments under
insurance (whether or not the Agent is the loss payee thereof), or any
indemnity, warranty or guaranty, payable by reason of loss or damage to or
otherwise with respect to any of the Collateral.
"PRODUCTS" means property directly or indirectly resulting
from any manufacturing, processing, assembling or commingling of any
Inventory.
"RATABLE PORTION" means, in respect of any Lender, the
quotient (expressed as a percentage) obtained at any time by dividing: (x)
the sum of such Lender's Revolving Credit Commitment at such time (y) the
sum of the aggregate amount of the Revolving Credit Commitments of all the
Lenders at such time; provided, that if all of the Revolving Credit
Commitments are terminated pursuant to the terms hereof, then, Ratable
Portion means the quotient (expressed as a percentage) obtained by
dividing (x) the aggregate amount of such Lender's Loans by (y) the
aggregate amount of Loans of all of the Lenders outstanding at such time.
110
"RATE CONTINUATION" means a continuation to Section 2.7 of
this Agreement of LIBOR Rate Loans having a particular Interest Period as
LIBOR Rate Loans having an Interest Period of the same duration.
"RATE CONVERSION" means a conversion pursuant to Section 2.7
of this Agreement, of Loans of one Type into Loans of another Type and,
with respect to LIBOR Rate Loans, from one permissible Interest Period to
another permissible Interest Period.
"RATE CONVERSION/CONTINUATION REQUEST" has the meaning
specified in Section 2.7 of this Agreement.
"RCRA" means the Resource Conservation and Recovery Act, 42
U.S.C. Sections 6901 et seq.
"REAL ESTATE RESERVE" means (a) on the date of receipt by the
Borrower of the proceeds from the sale of its Canton property, the amount
of Two Million Dollars ($2,000,000) and (b) thereafter, the amount of Two
Million Dollars ($2,000,000) as it may be reduced from time to time
pursuant to Section 2.3(b)(iii) of this Agreement.
"REIMBURSEMENT AGREEMENT" has the meaning set forth in Section
2.8(b) of this Agreement.
"RELATED EXPENSES" means any and all reasonable costs,
liabilities, and expenses (including without limitation, losses, damages,
penalties, claims, actions, reasonable attorney's fees and legal expenses,
judgments, suits, and disbursements) incurred by, imposed upon, or
asserted against, the Agent or any Lender in connection with any attempt
by the Agent or any Lender:
(a) to preserve, perfect, or enforce any security
interest evidenced by: (i) the Agreement or (ii) any other
pledge agreement, mortgage deed, hypothecation agreement,
guaranty, security agreement, assignment, or security
instrument executed or given by the Borrower to or in favor of
the Agent for the benefit of the Lenders,
(b) to obtain payment, performance, and observance of
any and all of the Obligations,
(c) to maintain, insure, preserve, repossess, and
dispose of any of the Collateral, or
(d) incidental or related to (a) through (c) above
including, without limitation, interest thereupon form the
date incurred, imposed, or asserted until paid at the
Increased Rate
other than such of the foregoing costs, liabilities and expenses which
arise solely by reason of the gross negligence or intentional wrongdoing
of the Agent or such Lender.
"REMITTANCES" means all payments of every kind (other than
Collections in respect of Accounts) to the Borrower or its Subsidiaries
including, without limitation, cash payments in respect of Inventory
111
sales, payments in respect to other dispositions of Collateral (other than
Inventory in the ordinary course of business) and real property of the
Borrower or its Subsidiaries, insurance proceeds, condemnation awards and
tax refunds.
"REPORTABLE EVENT" means an event described in Section 4043(c)
of ERISA with respect to an Employee Benefit Plan that is subject to Title
IV of ERISA other than those events as to which the 30-day notice period
has been waived under subsections .22, .23, .25, .27 or .28 of PBGC
Regulation Section 4043.
"REQUIRED LENDERS" means, at any time, Lenders having at least
sixty-six percent (66.67%) of the aggregate amount of the Revolving Credit
Commitments of all of the Lenders.
"RESERVE AMOUNT" means an amount determined by the Agent, in
its Permitted Discretion, as a reserve against Collateral values and
potential or anticipated obligations of the Borrower but without
duplication of amounts already reserved against the value of Collateral
under the definition of "Eligible Inventory." Without limiting the
generality of the foregoing, the Reserve Amount shall include: (a) amounts
for Inventory identified by the Borrower as lost, misplaced, out of
season, stolen or shrink Inventory, on a basis consistent with the current
and historical accounting practice of the Borrower, (b) amounts for
Inventory that has been designated by the Borrower as inactive or that
will be removed from the Borrower's current merchandise assortment by the
Borrower on a basis consistent with the current and historical accounting
practice of the Borrower, (c) any additional reserves deemed necessary by
the Agent based upon the results of periodic audits, test counts or
appraisals of the Inventory, provided, that such reserves are consistent
with the customary practices of lenders in similar transactions, (d) tax
liabilities and other obligations owing to governmental entities to the
extent not reserved for on the books of the Borrower, (e) litigation
liabilities in excess of $250,000 in the aggregate (other than such
liabilities that are covered by insurance and as to which the insurer has
admitted liability), (f) amounts that are required to be expended in order
for Borrower and each of Borrower's operations and properties to comply
with Environmental Laws or in order to correct any violation by Borrower
or any of Borrower's operations or properties of any Environmental Laws,
(g) the anticipated costs and expenses relating to the liquidation of
Collateral (other than the costs and expenses anticipated or incurred with
respect to the liquidation of Collateral in connection with the closing of
the Bedford and Canton operations), (h) past due sales taxes and, if an
Event of Default has occurred and is continuing, unpaid sales taxes, (i)
liabilities and other obligations owing by Borrower to any lessor of real
property leased by Borrower or to any warehouseman, and (j) reserves for
any claims asserted or likely to be asserted (in Agent's sole
determination) that have resulted or would result in Liens on the
Collateral.
"RESTRICTED ACCOUNT AGREEMENT" means that certain Restricted
Account Agreement, dated as of October 27, 1998, between the Borrower, the
Agent and National City Bank, in the form of Exhibit I attached hereto,
and relating to the establishment of the Cash Concentration Account.
"REVOLVING CREDIT BORROWING" means a Borrowing consisting of
Revolving Credit Loans.
"REVOLVING CREDIT COMMITMENT" means the commitment of each
Lender to advance Revolving Credit Loans up to the amount as set forth in
Annex I.
112
"REVOLVING CREDIT LOAN" means a Loan made by a Lender to the
Borrower pursuant to Section 2.1(a) of this Agreement, and shall include
any Loans deemed to have been made pursuant to Section 2.3(b) of this
Agreement.
"REVOLVING CREDIT NOTE" means a promissory note of the
Borrower payable to the order of a Lender, in substantially the form of
Exhibit A attached hereto, and in the original principal amount of such
Lender's Revolving Credit Commitment, evidencing the aggregate
indebtedness of the Borrower to such Lender resulting from the Revolving
Credit Loans made by such Lender.
"REVOLVING CREDIT NOTES" means, collectively, each of the
Revolving Credit Notes executed and delivered by the Borrower in favor of
the Lenders under this Agreement.
"REVOLVING CREDIT TERMINATION DATE" means October 27, 2001 or
earlier if terminated pursuant to the terms of this Agreement.
"SEC" means the United States Securities and Exchange
Commission and any successor agency thereto.
"SETTLEMENT" has the meaning set forth in Section 2.4(e) of
this Agreement.
"SETTLEMENT DATE" has the meaning set forth in Section
2.4(e)(i) of this Agreement.
"SETTLEMENT LOAN" has the meaning set forth in Section 2.4(c)
of this Agreement.
"SOLVENT" means, with respect to any Person, as of any date of
determination, that: (a) the fair value of the property of the Person as
of such date is greater than the total amount of the liabilities
(including contingent liabilities computed at the amount that, in light of
all the facts and circumstances existing as of such date, represents the
amount that can reasonably be expected to become an actual or matured
liability) of the Person, (b) the present fair saleable value of the
assets of the Person as of such date is not less than the amount that will
be required to pay the probable liabilities of the Person on its debts as
they become absolute and matured, (c) the Person is able to pay all
liabilities of the Person as those liabilities mature, and (d) the Person
does not have unreasonably small capital for the business in which it is
engaged or for any business or transaction in which it is about to engage.
The determination of whether a Person is Solvent shall take into account
all such Person's properties and liabilities regardless of whether, or the
amount at which, any such property or liability is included on a balance
sheet of such Person prepared in accordance with GAAP, including
properties such as contingent, contribution or subrogation rights,
business prospects, distribution channels and goodwill. The determination
of the sum of a Person's properties at a fair valuation or the present
fair saleable value of a Person's properties shall be made on a going
concern basis unless, at the time of such determination, the liquidation
of the business in which such properties are used or useful is in process
or is demonstrably imminent. In computing the amount of contingent or
unrealized properties or contingent or unliquidated liabilities at any
time, such properties and liabilities will be computed at the amounts
which, in light of all the facts and circumstances existing at such
113
time, represent the amount that reasonably can be expected to become
realized properties or matured liabilities, as the case may be. In
computing the amount that would be required to pay a Person's probable
liability on its existing debts as they become absolute and matured,
reasonable valuation techniques, including a present value analysis, shall
be applied using such rates over such periods as are appropriate under the
circumstances, and it is understood that, in appropriate circumstances,
the present value of contingent liabilities may be zero.
"STANDBY LETTER OF CREDIT" means any letter of credit issued
by the Letter of Credit Bank from time to time at the request of the
Borrower pursuant to the terms of this Agreement that is not a Trade
Letter of Credit.
"SUBSIDIARY" means, in respect of a corporate Person, a
corporation or other business entity the shares constituting a majority of
the outstanding capital stock (or other form of ownership) or constituting
a majority of the voting power in any election of directors (or shares
constituting both majorities) of which are (or upon the exercise of any
outstanding warrants, options or other rights would be) owned directly or
indirectly at the time in question by such Person or another subsidiary of
such Person or any combination of the foregoing.
"SUPPLEMENTAL SCHEDULE" means the schedule which is attached
hereto as Annex IV and is incorporated into this Agreement.
"SYNDICATION DATE" means the date upon which the Agent in its
sole discretion determines (and notifies the Borrower) that the primary
syndication (and the resultant addition of Lenders pursuant to Section
12.1 in addition to those set forth on the signature pages of this
Agreement) has been completed.
"TAX LIABILITY" means the aggregate federal, state and local
liability (exclusive of penalties and interest) of a holder of Stock of
the Borrower to the extent that such liability arises from the net income
and gain of the Borrower computed using the marginal tax rates of the
holder(s) who pay(s) federal, state and local tax based at the highest
such rates of all such holders, after giving effect to other income and
losses of such holder(s) of stock.
"THIRD PARTY INTELLECTUAL PROPERTY" means any Intellectual
Property not owned by the Borrower or a Subsidiary.
"TOTAL REVOLVING CREDIT COMMITMENT" means, at any time, the
then aggregate Revolving Credit Commitments of all of the Lenders.
"TRADE LETTER OF CREDIT" means any Letter of Credit used for
the purchase of goods in the ordinary course of the account party's
business, issued by the Letter of Credit Bank from time to time at the
request of the Borrower pursuant to the terms of this Agreement.
"TRADE PAYABLE" means any account payable owed by the
Borrower to vendors for the purchase
114
of Inventory, including checks held and Inventory received but not yet
invoiced.
"TYPE" shall mean any type of Revolving Credit Loan determined
with respect to the interest option applicable thereto, i.e., a Prime Rate
Loan or LIBOR Rate Loan.
"UCC" means the Uniform Commercial Code in effect in the State
of Ohio from time to time.
"UNFUNDED CAPITAL EXPENDITURES" means, for any period, all
Capital Expenditures of the Borrower during such period (other than those
funded by purchase money Indebtedness or Indebtedness for Borrowed Money
other than under the Revolving Credit Commitment), as determined in
accordance with GAAP.
"UNITED STATES" and "U.S." each means United States of
America.
"WAIVER RESERVE AMOUNT" means, for each location of Inventory
not owned by the Borrower and for which the Borrower has not obtained an
appropriate bailee, landlord or warehouseman's waiver, an amount equal to
the sum of two (2) months of rental obligations owed by the Borrower to
the owner of such location.